multiple-choice-exam---fall-2011---Exam-1

1 Instructions Read each question carefully before you answer Please circle the correct letter for each question 1 The purpose of closing entries is to transfer A Accounts receivable to retained earnings when an account is fully paid B Balances in temporary accounts to a permanent account C Inventory to cost of goods sold when merchandise is sold D Assets and liabilities when operations are discontinued 2 Which of the following accounts are closed at the end of the accounting period A Allowance for uncollectibles B Unearned revenue C Retained earnings D Income tax expense 3 The quick ratio is A The liquidity ratio divided by the equity ratio B Current assets minus inventory divided by current liabilities minus accounts payable C Current assets minus inventory and prepaid items divided by current liabilities D Cash divided by accounts payable 4 Cash flows from financing activities include A Interest received B Interest paid C Dividends received D Dividends paid 5 The principal benefit of separately reporting discontinued operations and extraordinary items is to enhance A Predictive ability B Consistency in reporting C Intraperiod continuity D Comprehensive reporting 6 An extraordinary event for financial reporting purposes is both A Unusual and material B Infrequent and significant C Material and infrequent D Unusual and infrequent 2 7 The financial statement presentation of a change in depreciation method is most similar to that of reporting A Changes in accounting estimates B Prior period adjustments C Correction of errors D Extraordinary items 8 In its December 31 2009 financial statements E Z Prices estimated that losses on its current receivables would be 10 2 million During 2010 E Z Prices determined that the losses on the Dec 31 2009 receivables were actually 12 4 million Ignoring taxes E Z Prices would report in its 2010 financial statements the additional 2 2 million loss on receivables as A An extraordinary item B A prior period adjustment C A retroactive adjustment D A current year s expense 9 The balance in retained earnings at the end of the year is determined by retained earnings at the beginning of the year A Plus revenues minus liabilities B Plus accruals minus deferrals C Plus net income minus dividends D Plus assets minus liabilities Recent financial statement data for Harmony Health Foods HHF Inc is shown below 10 HHF s debt to equity ratio is A 0 75 B 1 13 C 0 53 D 1 80 3 11 HHF s times interest earned ratio is A 3 47 B 1 73 C 2 47 D 10 0 12 A trial balance may prove that debits and credits are equal but a an amount could be entered in the wrong account b a transaction could have been entered twice c a transaction could have been omitted d all of these 13 The most significant current source of generally accepted accounting principles in the United States is the a AICPA b SEC c APB d FASB 14 Year end net assets would be overstated and current expenses would be understated as a result of failure to record which of the following adjusting entries a Expiration of prepaid insurance b Depreciation of fixed assets c Accrued wages payable d All of these 15 Pappy Corporation received cash of 13 500 on September 1 2007 for one year s rent in advance and recorded the transaction with a credit to Unearned Rent The December 31 2007 adjusting entry is a debit Rent Revenue and credit Unearned Rent 4 500 b debit Rent Revenue and credit Unearned Rent 9 000 c debit Unearned Rent and credit Rent Revenue 4 500 d debit Cash and credit Unearned Rent 9 000 16 When a company discontinues an operation and disposes of the discontinued operation component the transaction should be included in the income statement as a gain or loss on disposal reported as a a prior period adjustment b an extraordinary item c an amount after continuing operations and before extraordinary items d a bulk sale of plant assets included in income from continuing operations 4 17 Under which of the following conditions would material flood damage be considered an extraordinary item for financial reporting purposes a Only if floods in the geographical area are unusual in nature and occur infrequently b Only if the flood damage is material in amount and could have been reduced by prudent management c Under any circumstances as an extraordinary item d Flood damage should never be classified as an extraordinary item 18 Sam Hurd Company has the following items common stock 720 000 treasury stock 85 000 deferred taxes 100 000 and retained earnings 313 000 What total amount should Sam Hurd Company report as stockholders equity a 848 000 b 948 000 c 1 048 000 d 1 118 000 19 Which of the following is a contra account a Premium on bonds payable b Unearned revenue c Patents d Accumulated depreciation 20 Treasury stock should be reported as a n a current asset b investment c other asset d reduction of stockholders equity 21 Cash flows from investing do not include cash flows from A Lending money to another corporation B The sale of equipment C Borrowing D The purchase of other corporation s securities 22 Shively Mfg Co sold for 18 000 equipment that cost 40 000 and had a book value of 30 000 Shively would report A Operating cash inflows of