CLASS / COURSE: Accounting
1. Uncertainty that the party on the other side of an agreement will abide by the terms of the agreement is referred to as
a. price risk.
b. credit risk.
c. interest rate risk.
d. exchange rate risk.
2. A contract giving the owner the right, but not the obligation, to buy or sell an asset at a specified price any time during a specified period in the future is referred to as a(n)
a. interest rate swap.
b. forward contract.
c. futures contract.
3. Which type of contract is unique in that it protects the owner against unfavorable movements in the prices or rates while allowing the owner to benefit from favorable movements?
a. Interest rate swap
b. Forward contract
c. Futures contract
4. For which type of derivative are changes in the fair value deferred and recognized as an equity adjustment?
a. Fair value hedge
b. Cash flow hedge
c. Operating hedge
d. Notional value hedge
5. An obligation that is contingent on the occurrence of a future event should be reported in the balance sheet as a liability if
a. the future event is likely to occur.
b. the amount of the obligation can be reasonably estimated.
c. the occurrence of the future event is at least reasonably possible and the amount is known.
d. the occurrence of the future event is probable and the amount can be reasonably estimated.
6. According to Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information," how do firms identify reportable segments?
a. By geographic regions
b. By product lines
c. By industry classification
d. By designations used inside the firm
7. An inventory loss from market decline of $900,000 occurred in April 2008. CD Company recorded this loss in April 2008 after its March 31, 2008, quarterly report was issued. None of this loss was recovered by the end of the year. How should this loss be reflected in the quarterly income statements of CD Company?
Three months ended (2008):
March 31 June 30 September 30 December 31
a. 0 0 0 $900,000
b. 0 $300,000 $300,000 $300,000
c. 0 $900,000 0 0
d. $225,000 $225,000 $225,000 $225,000
On July 1, 2008, Cahoon Company sold some limited edition art prints to Sitake Company for ¥47,850,000 to be paid on September 30 of that year. The current exchange rate on July 1, 2008, was ¥110=$1, so the total payment at the current exchange rate would be equal to $435,000. Cahoon entered into a forward contract with a large bank to guarantee the number of dollars to be received. According to the terms of the contract, if ¥47,850,000 is worth less than $435,000, the bank will pay Cahoon the difference in cash. Likewise, if ¥47,850,000 is worth more than $435,000, Cahoon must pay the bank the difference in cash.
8. Assuming the exchange rate on September 30 is ¥115=$1, what amount will Cahoon pay to, or receive from, the bank (rounded to the nearest dollar)?
a. $18,913 payment
b. $18,913 receipt
c. $20,714 payment
d. $20,714 receipt
9. Assuming the exchange rate on September 30 is ¥105=$1, what amount will Cahoon pay to, or receive from, the bank (rounded to the nearest dollar)?
a. $18,913 payment
b. $18,913 receipt
c. $20,714 payment
d. $20,714 receipt
10. On January 17, 2008, an explosion occurred at an Orioles Fireworks plant causing extensive property damage to area buildings. Although no claims had yet been asserted against Orioles by March 10, 2008, Orioles' management and counsel concluded that it is reasonably possible Orioles will be responsible for damages and that $2,500,000 would be a reasonable estimate of its liability. Orioles' $10,000,000 comprehensive public liability policy has a $500,000 deductible clause. In Orioles' December 31, 2008, financial statements, which were issued on March 25, 2009, how should this item be reported?
a. As a footnote disclosure indicating the possible loss of $500,000
b. As an accrued liability of $500,000
c. As a footnote disclosure indicating the possible loss of $2,500,000
d. As an accrued liability of $2,500,000
11. Disclosure usually is not required for
a. contingent gains that are probable and can be reasonably estimated.
b. contingent losses that are reasonable possible and cannot be reasonably estimated.
c. contingent gains that are reasonably possible and cannot be reasonably estimated.
d. contingent losses that are remote and can be reasonably estimated
12. A loss contingency that is remote and cannot be reasonably estimated
a. may be disclosed in a note to the financial statements.
b. must be disclosed in a note to the financial statements.
c. must be reported in the body of the financial statements.
d. is permitted to be reported in the body of the financial statements.
13. Gain contingencies that are remote and can be reasonable estimated
a. must be disclosed in a note to the financial statements.
b. may be disclosed in a note to the financial statements.
c. must be reported in the body of the financial statements.
d. should not be reported or disclosed.
14. A company that receives 10 percent or more of its revenue from sales to a single customer must disclose the
a. identity of the customer.
b. identity of the customer and the amount of revenue from that customer.
c. type of revenues earned from that customer only.
d. amount of revenue from that customer only.
15. The following segments were identified for an enterprise:
#1 $ 100,000
#2 $ (100,000)
#4 $ 125,000
Which of the four segments is a reportable segment?
a. 3 only
b. 3 and 4 only
c. 4 only
d. None are reportable segments
16. An accounting change that requires the retrospective approach is
a. a change in the life of equipment from five to seven years.
b. a change in depreciation method from straight-line to double-declining-balance.
c. a change in the specific subsidiaries included in consolidated financial statements.
d. a change in the percentage used to determine the allowance for bad debts.
17. Which of the following should be reported as a change in accounting estimate?
a. Change in the reported beginning inventory amount due to a discovery of a bookkeeping error
b. Change from the completed-contract method to the percentage-of- completion method for revenue recognition on long-term construction contracts
c. Increase in the rate applied to net credit sales from 1 percent to 1-1/2 percent in determining losses from uncollectible receivables
d. Change made to comply with a new FASB pronouncement
18. Which of the following concepts or principles relates most directly to reporting accounting changes and errors?
19. An example of an item that should be reported as a prior period adjustment is the
a. collection of previously written off accounts receivable.
b. payment of taxes resulting from examination of prior years' income tax returns.
c. correction of an error in financial statements of a prior year.
d. receipt of insurance proceeds for damage to a building sustained in a prior year.
20. At the time Fisher Corporation became a subsidiary of Ashbury Corporation, Fisher switched depreciation of its plant assets from the straight-line method to the sum-of-the-years'-digits method used by Ashbury. With respect to Fisher, this change was a
a. change in an accounting estimate.
b. correction of an error.
c. change in accounting principle.
d. change in the reporting entity.
21. Wolverine Corporation purchased a machine for $132,000 on January 1, 2005, and depreciated it by the straight-line method using an estimated useful life of eight years with no salvage value. On January 1, 2008, Wolverine determined that the machine had a useful life of six years from the date of acquisition and will have a salvage value of $12,000. A change in estimate was made in 2008 to reflect these additional data. What amount should Wolverine record as the balance of the accumulated depreciation account for this machine at December 31, 2008?
22. Which of the following would not be accounted for as a change in accounting principle?
a. Change from the first-in, first-out method to the last-in, first-out method of inventory pricing
b. Change from the last-in, first-out method to the first-in, first-out method of inventory pricing
c. Change from completed-contract accounting to percentage-of-completion
d. Change from straight-line method to accelerated method of depreciation
23. Which of the following is characteristic of a change in accounting estimate?
a. Requires the reporting of pro forma amounts for prior periods
b. Does not affect the financial statements of prior periods
c. Never needs to be disclosed
d. Should be reported by retrospectively adjusting the financial statements for all years reported, and reporting the cumulative effect of the change in income for all preceding years as an adjustment to the beginning balance of retained earnings for the earliest year reported.
24. Which of the following is not an example of an accounting error, as distinguished from a change in accounting principle or change in accounting estimate?
a. Misstatement of assets, liabilities, or owners’ equity
b. Incorrect classification of an expenditure as between expense and an asset
c. Failure to recognize accruals and deferrals
d. Recognition of a gain on disposal of fully depreciated property
25. Choose the combination that best reflects the appropriate classification of cash received from operating, investing and financing activities.
Operating Investing Financing
a. Cash paid by customers Sale of operational assets Issuance of bonds payable
b. Dividends received Cash paid by customers Issuance of bonds payable
c. Sale of operational assets Dividends received Cash paid by customers
d. Issuance of bonds payable Sale of operational assets Dividends received
26. A gain on the sale of plant assets should be included in which of the following sections of a statement of cash flows prepared using the indirect method?
a. Investing activities
b. Operating activities
c. Financing activities
d. Non-cash investing and financing activities
27. Which of the following is a non-cash transaction that should be disclosed in a schedule accompanying the statement of cash flows?
a. Sale of an investment for cash
b. Purchase of a machine for cash
c. Issuance of common stock in exchange for land
d. Declaration and payment of a cash dividend on common stock
28. Which of the following causes a change in the amount cash held by a company?
a. Write-off of a bad debt
b. Declaration of a cash dividend
c. Payment of a cash dividend declared in a previous period
d. Declaration and issuance of a stock dividend
29. Which of the following is not classified as an operating activity?
a. Interest received
b. Interest paid
c. Dividends received
d. Dividends paid
30. Which of the following is not an inflow of cash?
a. Collection of a short-term receivable
b. Sale of an operational asset
c. Cash borrowed on a short-term note
d. Depletion expense
31. Cash outflows from investing activities would include payments for all of the following except
a. operational assets.
b. investments in securities-available-for-sale.
c. purchase of treasury stock.
d. loans to customers.
32. Assume Young Company holds the following assets at year-end and classifies as cash equivalents everything allowed by professional standards.
Treasury bills (Acquired with less than 3 month
maturity dates $ 80,000
Treasury bills (Acquired with greater than 3 month
maturity dates 20,000
Commercial paper 40,000
Investment in marketable equity securities 100,000
What would be the total cash equivalents at year-end for Young Company?
33. Assume cash paid to suppliers for the current year is $350,000, merchandise inventory increased by $5,000 during the year, and accounts payable decreased by $10,000 during the year. What was the cost of goods sold for the current year?
34. A useful tool in financial statement analysis is the common-size financial statement. What does this tool enable the financial analyst to do?
a. Evaluate financial statements of companies within a given industry of approximately the same value.
b. Determine which companies in the same industry are at approximately the same stage of development.
c. Ascertain the relative potential of companies of similar size in different industries.
d. Compare the mix of assets, liabilities, capital, revenue, and expenses within a company over time or between companies within a given industry without respect to relative size.
35. Rauh Corporation had a current ratio of 2.0 at the end of 2007. Current assets and current liabilities increased by equal amounts during 2008. The effects on net working capital and on the current ratio, respectively, were
a. no effect; increase.
b. no effect; decrease.
c. increase; increase.
d. decrease; decrease.
36. Which of the following ratios measures short-term solvency?
a. Current ratio
b. Creditors' equity to total assets
c. Return on investment
d. Total asset turnover
37. Information from Blain Company's balance sheet is as follows: Current assets:
Cash $ 1,200,000
Marketable securities ............................. 3,750,000
Accounts receivable ............................... 28,800,000
Inventories ....................................... 33,150,000
Prepaid expenses .................................. 600,000
Total current assets $67,500,000
Current liabilities: ................................
Notes payable ..................................... $ 750,000
Accounts payable .................................. 9,750,000
Accrued expenses .................................. 6,250,000
Income taxes payable .............................. 250,000
Payments due within one year on long-term debt .... 1,750,000
Total current liabilities ......................... $18,750,000
What is Blain's current ratio?
a. 0.26 to 1
b. 0.30 to 1
c. 1.80 to 1
d. 3.60 to 1
38. Millward Corporation's books disclosed the following information for the year ended December 31, 2008:
Net credit sales .................................... $1,500,000
Net cash sales ...................................... 240,000
Accounts receivable at beginning of year ............ 200,000
Accounts receivable at end of year .................. 400,000
Millward's accounts receivable turnover is
a. 3.75 times.
b. 4.35 times.
c. 5.00 times.
d. 5.80 times.
39. Selected information for Henry Company is as follows:
Common stock ................................ $600,000 $600,000
Additional paid-in capital .................. 250,000 250,000
Retained earnings ........................... 170,000 370,000
Net income for year ......................... 120,000 240,000
Henry's return on common stockholder's equity, rounded to the nearest percentage point, for 2008 is
a. 20 percent.
b. 21 percent.
c. 28 percent.
d. 40 percent.
40. During the year, The Grap Company purchased $1,920,000 of inventory. The cost of goods sold for the year was $1,800,000 and the ending inventory at December 31 was $360,000. What was the inventory turnover for the year?
41. Which of the following is included in the calculation of the acid-test (quick) ratio?
Accounts Receivable Inventories
a. No No
b. No Yes
c. Yes No
d. Yes Yes
Selected information from the 2008 and 2008 financial statements of SCL Corporation is presented below:
As of December 31
Cash ................................... $ 21 $ 35
Accounts receivable (net) .... 60 98
Inventory ............................ 105 142
Prepaid expenses ................. 5 3
Land and building (net) ......... 247 315
Accounts payable ................ 57 75
Accrued expenses ............... 10 14
Notes payable (short-term) ... 8 4
Bonds payable ..................... 52 66
As of December 31
Cash sales ........................... $750 $675
Credit sales (percent of cash
Cost of goods sold
(percent of total sales) ......
Net income .......................... $ 30 $ 38
Interest expense .................. 6 9
Income tax expense ............. 6 7
42. Refer to the SCL Corporation information above. SCL's current ratio as of December 31, 2008, is
a. 2.84 to 1.
b. 3.37 to 1.
c. 2.91 to 1.
d. 3.33 to 1.
43. Refer to the SCL Corporation information above. SCL's quick (acid test) ratio as December 31, 2008, is
a. 1.44 to 1.
b. 1.50 to 1.
c. 1.67 to 1.
d. 1.66 to 1.
44. Refer to the SCL Corporation information above. SCL's merchandise inventory turnover for 2008 is
45. Refer to the SCL Corporation information above. SCL's turnover of assets and number of times interest earned for 2008 are respectively
Asset Turnover Times Interest Earned
a. 2.97 5.0
b. 2.94 5.0
c. 2.53 6.0
d. 2.53 7.0
46. Refer to the SCL Corporation information above. SCL's account receivable turnover for 2008 is
47. Which of the following ratios does not measure liquidity?
a. Current ratio
b. Quick ratio
c. Working capital to total assets
d. Debt to equity
48. The inventory turnover ratio
a. measures management’s ability to productively employ all of its resources.
b. measures the efficient use of assets held for resale.
c. is a stringent measure of liquidity.
d. provides a measure of the strength of the sales mix the company currently employs.
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SUBJECTS / CATEGORIES:
2. Financial Management
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