ACC 556 Week 5 Midterm part 1

1. Management may choose any inventory costing method it desires as long as the cost flow assumption chosen is consistent with the physical movement of goods in the company.

True

False

2. An aging of accounts receivable schedule is based on the premise that the longer the period an account remains unpaid, the greater the probability that it will eventually be collected.

True

False

3. To obtain maximum benefit from a bank reconciliation, the reconciliation should be prepared by the employee authorized to sign checks.

True

False

4.  Expense recognition is tied to revenue recognition.

True

 False

5. Which of the following is not a common way that managers use the balance sheet?

To analyze the balances of assets, liabilities, and stockholders’ equity throughout theaccounting period

To analyze the balance between debt and common stock financing

To analyze the balance of accounts receivable on the last day of the accountingperiod

To determine if the cash balance is sufficient for future needs

6. Which of the following would not be classified as a long-term liability?

Current maturities of long-term debt

Bonds payable

Mortgage payable

Lease liabilities

7. Solvency ratios measure the short-term ability of the company to pay its maturing obligations.

True

False

8. Requiring employees to take vacations is a weakness in the system of internal controls because it does not promote operational efficiency.

True

False

9. The revenue recognition principle dictates that revenue be recognized in the accounting period in which the performance obligation is satisfied.

True

False

10. Use the following data to calculate the current ratio.

Carne Auto Supplies

Balance Sheet

December 31, 2014

Cash                                         $    35,000          Accounts payable                          $   65,000

Accounts receivable                      50,000          Salaries and wages payable                10,000

Inventory                                       70,000          Mortgage payable                              90,000

Prepaid insurance                          40,000          Total liabilities                                   $165,000

Stock investments                          80,000           

Land                                               95,000                                                                                

Buildings                 $100,000                               Common stock                              $120,000

Less: Accumulated                                                Retained earnings                           250,000

      depreciation         (30,000)       85,000               Total stockholders’ equity          $370,000

Trademarks                                    70,000                  Total liabilities and

Total assets                                 $535,000                    stockholders’ equity                   $535

2.07:1

1.67:1

3.00:1

2.06:1

11. Lankston Company began the year by issuing $90,000 of common stock for cash. The company recorded revenues of $825,000, expenses of $720,000, and paid dividends of $45,000. What was Lankston’s net income for the year?

$60,000b

$150,000

$105,000

$195,000

12. The partnership form of business organization

is a separate legal entity.

is a common form of organization for service-type businesses.

enjoys an unlimited life.

has limited liability.

13.  A concentration of credit risk is a threat of nonpayment from a single customer or class of customers that could adversely affect the financial health of the company.

True

 False

14. Bathlinks Corporation has a debt to assets ratio of 73%. This tells the user of Bathlinks’s financial statements that

Bathlinks is getting a 27% return on its assets.

There is a risk that Bathlinks cannot pay its debts as they come due.

73% of the assets are financed by the stockholders.

Based on this measure, the user should not invest in Bathlinks

15. Owners of business firms are the only people who need accounting information.

True

False

16. Financing activities include the purchase or sale of long-lived assets or the purchase or sale of investment securities.

True

False

17. Which of the following is the least likely consideration that management uses when deciding whether to pay a dividend?

Is the company's average number of common shares outstanding decreasing?

Does the company have more cash than it has opportunities?

Does the company have uses for cash that will increase its value?

What are the company's cash needs?

18. The best definition of assets is the

cash owned by the company
resources belonging to a company that have future benefit for the company
collection of resources belonging to the company and the claims on these resources
owner's investment in the business19. 

19. Marvin Services Corporation had the following accounts and balances:

Accounts payable        $18,000           Equipment       $21,000

Accounts receivable    3,000   Land    21,000

Buildings         ?          Unearned service revenue       6,000

Cash    9,000   Total stockholders' equity       ?

 If the balance of the Buildings account was $45,000 and the equipment was sold for $21,000, what would be the total of stockholders' equity?

$39,000

$54,000

$69,000

$75,000

20. An advantage of using the periodic inventory system is that it requires less record keeping than the perpetual inventory system.

True

False

21. Consistent use of the same accounting principles and methods is necessary for meaningful analysis of trends within a company.

True

False

22. The economic resources that are owned by a business are called stockholders’ equity.

True

False

23. The multiple-step income statement is considered more useful than the single-step income statement because it highlights the components of net income.

True

False

24. Source documents can provide evidence that a transaction has occurred.

True

False

25. Goods that have been purchased FOB destination but are in transit, should be excluded from a physical count of goods by the buyer.

True

False