ACC 563 Week 11 Final Exam – Strayer NEW
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Week 11 Final Exam: Chapters 8
Through 17
Chapter 8
Multiple Choice
1. Of
the following items, the one that should be classified as a current asset is
a. Trade
installment receivables normally collectible in 18 months
b. Cash
designated for the redemption of callable preferred stock
c. Cash
surrender value of a life insurance policy of which the company is beneficiary
d. A
deposit on machinery ordered, delivery of which will be made within six months
Answer
2. The
advantage of relating a company’s bad debt experience to its accounts
receivable is that this approach
a.
Gives a reasonable correct statement of
receivables in the balance sheet
b.
Relates bad debts expense to the period
of sale
c.
Is the only generally accepted method
for valuing accounts receivable
d.
Makes estimates of uncollectible
accounts unnecessary
Answer
3. Assuming
that the ideal measure of short-term receivables in the balance sheet is the
discounted value of the cash to be received in the future, failure to follow
this practice usually does not make the balance sheet misleading because
a. Most
short-term receivables are not interest bearing
b. The
allowance for uncollectible accounts includes a discount element
c. The
amount of the discount is not material
d. Most
receivables can be sold to a bank or factor
Answer
4. An
account that would be classified as a current liability is
a. Dividends
payable in stock
b. Accounts
payable - debit balance
c. Reserve
for possible losses on purchase commitments
d. Excess
of replacement cost over LIFO cost of basic inventory temporarily liquidated
Answer
5. Which
of the following statements is not valid as it applies to inventory costing
methods?
a. If
inventory quantities are to be maintained, part of the earnings must be
invested (plowed back) in inventories when FIFO is used during a period of
rising prices.
b. LIFO
tends to smooth out the net income pattern, since it matches current cost of
goods sold with current revenue, when inventories remain at constant
quantities.
c. When
a firm using the LIFO method fails to maintain its usual inventory position
(reduces stock on hand below customary levels), there may be a matching of old
costs with current revenue.
d. The
use of FIFO permits some control by management over the amount of net income
for a period through controlled purchases, which is not true with LIFO.
Answer
6. Jamison
Corporation’s inventory cost on its statement of financial position was lower
using first-in, first-out than last-in, first-out. Assuming no beginning inventory,
what direction did the cost of purchases move during the period?
a. Up
b. Down
c. Steady
d. Cannot
be determined
Answer
7. If
inventory levels are stable or increasing
an argument that favors the FIFO method as compared to LIFO is
a. Income
taxes tend to be reduced in periods of rising prices
b. Cost
of goods sold tends to be stated at approximately current cost in the income
statement
c. Cost
assignments typically parallel the physical flow of the goods
d. Income tends to be smoothed as prices change
over time
Answer
8. An
inventory pricing procedure in which the oldest costs incurred rarely have an
effect on the ending inventory valuation is
a. FIFO
b. LIFO
c. Conventional
retail
d. Weighted
average
Answer
9. When
inventory declines in value below original (historical) cost, and this decline
is considered other than temporary, what is the maximum amount that the
inventory can be valued at?
a. Sales
price net of conversion costs
b. Net
realizable value
c. Historical
cost
d. Net
realizable value reduced by a normal profit margin
Answer
10. Which
of the following inventory cost flow methods involves computations based on
broad inventory pools of similar items?
a. Regular
quantity of goods LIFO
b. Dollar-value
LIFO
c. Weighted
average
d. Moving
average
Answer
11. When
the allowance method of recognizing bad debt expense is used, the entries at
the time of collection of an account previously written off would
a. Increase
net income
b. Have
no effect on total current assets
c. Increase
working capital
d. Decrease
total current liabilities
Answer
12. The
original cost of an inventory item is above the replacement cost. The
replacement cost is below the net realizable value less the normal profit
margin. Under the lower of cost or market method the inventory item should be
priced at its
a. Original
cost
b. Replacement
cost
c. Net
realizable value
d. Net
realizable value less the normal profit margin
Answer
13. Liquidity is the ability
a. To increase
net assets through regular operations
b. To generate cash from sources other than regular operations
c. To convert
existing assets into cash
d. Of financial
statement users to predict a company’s cash flows
Answer
14. Liquidity ratios measures the
a. Operating
success of a company over a period of time
b. The
ability of a company to survive over a long period of time
c. The
short-term ability of a company to pay its maturing obligations and to meet
unexpected needs for cash
d. The
number of times interest is earned
Answer
15. Working capital is a measure of
a. Financial
flexibility
b. Liquidity.
c. Profitability.
d. Solvency.
Answer
16. A common measure of liquidity is
a. Return
on assets.
b. Accounts
receivable turnover.
c. Profit
margin.
d. Debt to
equity.
Answer
1. The net realizable value of receivables is calculated
as the face value of the receivables less adjustments for
a. Credit sales
b. Actual uncollected amounts adjusted for purchase
discounts.
c. Bad debts already written off.
d. Estimated uncollectible accounts
18. A successful discount retail
store such as Wal-Mart would probably have
a. A low inventory turnover
b. A high inventory turnover
c. Zero profit margin
d. Low volume
Answer
Use the
following information to answer questions
Acme Auto Supplies
Balance Sheet
December 31, 2007
Cash $
60,000 Accounts Payable $ 65,000
Prepaid
Insurance 40,000 Salaries Payable 10,000
Accounts
Receivable 50,000 Mortgage Payable 90,000
Inventory 70,000 Total Liabilities $165,000
Land held
for investment 80,000
Land 95,000
Building $100,000 Common Stock $120,000
Less Accumulated Retained Earnings 250,000
Depreciation (30,000) 70,000 Total
stockholders’ equity $370,000
Trademark 70,000 Total Liabilities and
Total
Assets $535,000 Stockholders’ Equity $535,000
19. The
total amount of working capital is
a. $155,000.
b. $145,000.
c. $60,000.
d. $150,000.
Answer
20. The
current ratio is
a. 1.86
: 1.
b. 2.00
: 1.
c. 3.38
: 1.
d. 2.93
: 1.
Answer
Essay
1. Define
working capital.
2. Define
the following terms:
a. Cash
equivalents
b. Temporary
investments
c. Receivables
d. Inventories
e. Payables
f. Deferrals
g. Current
maturities
3. Define
the following terms:
a. LIFO
liquidation
b. LIFO
conformity
c. Lower
of cost or market inventory valuation
.
4. List
and briefly define the methods of accounting for investments under SFAS No.
115“Accounting for Certain Investments in Debt and Equity Securities” (FASB ASC
320).
5. Define
and discuss the two methods of estimating bad debts on receivables.
6. Why
are cost flow assumptions used to determine inventory valuations? Define and
explain the rationale for using each of the cost flow assumptions.
.
7. Obtain
a company’s financial statements and ask
the students to compute the following:
a. Working
capital
b. Current
ratio
c. Acid
test ratio
d. Cash
flow from operations to current liabilities ratio
e. Accounts
receivable turnover
f. Inventory
turnover
Chapter 9
Multiple Choice
1. When
a closely held corporation issues preferred stock for land, the land should be
recorded at the
a. Total par value of the stock issued
b. Total book value of the stock issued
c. Appraised
value of the land
d. Total
liquidating value of the stock issued
Answer
2.
A principal objection to the
straight-line method of depreciation is that it
a. Provides
for the declining productivity of an aging asset
b. Ignores
variations in the rate of asset use
c. Tends
to result in a constant rate of return on a diminishing investment base
d. Gives
smaller periodic write-offs than decreasing charge methods
Answer
3.
Property, plant, and equipment are
conventionally presented n the balance sheet at
a. Replacement
cost less accumulated depreciation
b. Historical
cost less salvage value
c. Original
cost adjusted for general price level changes
Acquisition cost less
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