The single-step income statement emphasizes

the gross profit figure.

extraordinary items and accounting changes more than these are emphasized in the multiple-
step income statement.
the various components of income from continuing operations.

total revenues and total expenses.

In order to be classified as an extraordinary item in the income statement, an event or transaction

should be

infrequent and material in amount, but it need not be unusual in

nature.
unusual in nature and material, but it need not be
infrequent.
unusual in nature and infrequent, but it need not be
material.
unusual in nature, infrequent, and material in amount.

Under which of the following conditions would material flood damage be considered an
extraordinary item for financial reporting purposes?

Under any circumstances as an extraordinary

item.
Only if the flood damage is material in amount and could have been reduced by prudent
management.
Flood damage should never be classified as an extraordinary
item.
Only if floods in the geographical area are unusual in nature and occur
infrequently.

Which of the following is a required disclosure in the income statement when reporting the disposal
of a component of the business?

The gain or loss on disposal should be reported as an extraordinary

item.
Results of operations of a discontinued component should be disclosed immediately below
extraordinary items.
Earnings per share from both continuing operations and net income should be disclosed on the
face of the income statement.
The gain or loss on disposal should not be segregated, but should be reported together with
the results of continuing operations.
Which of the following items would be reported net of tax on the face of the income statement?

Discontinued operations

Prior period adjustment

Unusual gain

Cumulative effect of a change in an accounting

principle

Where must earnings per share be disclosed in the financial statements to satisfy generally
accepted accounting principles?

On the face of the statement of retained earnings (or, statement of stockholders'

equity.)
In the footnotes to the financial statements.

On the face of the income

statement.
Either (a) or (c).

A correction of an error in prior periods' income will be reported

In the income statement Net of tax

No Ye
s
No N
o
Yes N
o
Yes Ye
s

Earnings per share data are required on the face of which of the following financial statements?

Statement of retained
earnings
Statement of stockholders' equity

Income statement

Balance sheet

Comprehensive income includes all of the following except

 dividend revenue.

unrealized holding gains.

losses on disposal of assets.

investments by owners.

Which of the following should be reported as a prior period adjustment?

Change in Estimated Lives Change from Unaccepted

of Depreciable Assets Principle to Accepted Principle
Yes Yes

Yes No

No No

No Yes

Chapter 5

Which of the following is a limitation of the balance sheet?

Many items that are of financial value are

omitted.
Judgments and estimates are
used.
Current fair value is not
reported.
All of these.

The amount of time that is expected to elapse until an asset is realized or otherwise converted into
cash is referred to as

liquidity.

exchangeability.

solvency.

financial
flexibility.

The basis for classifying assets as current or noncurrent is the period of time normally required by
the accounting entity to convert cash invested in

receivables back into cash, or 12 months, whichever is

 longer.
tangible fixed assets back into cash, or 12 months, whichever is
longer.
inventory back into cash, or 12 months, whichever is longer.

inventory back into cash, or 12 months, whichever is shorter.

The current assets section of the balance sheet should include

patents.

goodwill.

inventory.

machinery.

When a portion of inventories has been pledged as security on a loan,

the value of the portion pledged should be subtracted from the

debt.
the fact should be disclosed but the amount of current assets should not be
affected.
the cost of the pledged inventories should be transferred from current assets to noncurrent
assets.
an equal amount of retained earnings should be
appropriated.

Which item below is not a current liability?

Trade accounts
payable
Stock dividends
distributable
The currently maturing portion of long-term debt

Unearned revenue

Working capital is

capital which has been reinvested in the business.

unappropriated retained earnings.

cash and receivables less current liabilities.

 None of these.

Long-term liabilities include

obligations not expected to be liquidated within the operating

cycle.
obligations payable at some date beyond the operating
cycle.
deferred income taxes and most lease
obligations.
All of these.

Treasury stock should be reported as a(n)

other asset.

reduction of stockholders' equity.

current asset.

investment.

Which of the following balance sheet classifications would normally require the greatest amount of
supplementary disclosure?

Long-term liabilities

Current assets

Current liabilities

Plant assets

Which of the following is a limitation of the balance sheet?

Many items that are of financial value are

omitted.
Judgments and estimates are
used.
Current fair value is not
reported.
All of these.
The amount of time that is expected to elapse until an asset is realized or otherwise converted into
cash is referred to as

liquidity.

exchangeability.

solvency.

financial
flexibility.

The basis for classifying assets as current or noncurrent is the period of time normally required by
the accounting entity to convert cash invested in

receivables back into cash, or 12 months, whichever is

longer.
tangible fixed assets back into cash, or 12 months, whichever is
longer.
inventory back into cash, or 12 months, whichever is longer.

inventory back into cash, or 12 months, whichever is shorter.

The current assets section of the balance sheet should include

patents.

goodwill.

inventory.

machinery.

When a portion of inventories has been pledged as security on a loan,

the value of the portion pledged should be subtracted from the

debt.
the fact should be disclosed but the amount of current assets should not be
affected.
the cost of the pledged inventories should be transferred from current assets to noncurrent
assets.
an equal amount of retained earnings should be
appropriated.

Which item below is not a current liability?

 Trade accounts
payable
Stock dividends
distributable
The currently maturing portion of long-term debt

Unearned revenue

Working capital is

capital which has been reinvested in the business.

unappropriated retained earnings.

cash and receivables less current liabilities.

None of these.

Long-term liabilities include

obligations not expected to be liquidated within the operating

cycle.
obligations payable at some date beyond the operating
cycle.
deferred income taxes and most lease
obligations.
All of these.

Treasury stock should be reported as a(n)

other asset.

reduction of stockholders' equity.

current asset.

investment.

Which of the following balance sheet classifications would normally require the greatest amount of
supplementary disclosure?

Long-term liabilities

Current assets

Current liabilities
 Plant assets

Chapter 6

What best describes the time value of money?

The interest rate charged on a loan.

Accounts receivable that are determined

uncollectible.
The relationship between time and
money.
An investment in a checking account.

Which of the following situations does NOT base an accounting measure on present values?

Sinking funds.

Leases.

Pensions.

Prepaid
insurance.

If you invest $50,000 to earn 8% interest, which of the following compounding approaches would
return the lowest amount after one year?

Annually.

Monthly.

Daily
.
Quarterly
.

Which factor would be greater - the present value of $1 for 10 periods at 8% per period or the
future value of $1 for 10 periods at 8% per period?

The factors are the same.

Need more
information.
Present value of $1 for 10 periods at 8% per
period.
Future value of $1 for 10 periods at 8% per
 period.

Which of the following tables would show the smallest value for an interest rate of 5% for six
periods?

Future value of an ordinary annuity of

1.
Present value of an ordinary annuity of
1.
Future value of 1.

Present value of 1.

Which table would you use to determine how much you would need to have deposited three years
ago at 10% compounded annually in order to have $1,000 today?

Future value of an annuity due of

1.
Present value of an ordinary annuity of
1.
Future value of 1 or present value of
1.
Future value of an ordinary annuity of
1.

The figure .94232 is taken from the column marked 2% and the row marked three periods in a
certain interest table. From what interest table is this figure taken?

Present value of 1.

Future value of 1.

Present value of annuity of

1.
Future value of annuity of 1.

Which of the following transactions would best use the present value of an annuity due of 1 table?

Durant, Inc. borrows $20,000 and has agreed to pay back the principal plus interest in three
years.
Fernetti, Inc. rents a truck for 5 years with annual rental payments of $20,000 to be made at
the beginning of each year.
Babbitt, Inc. wants to deposit a lump sum to accumulate $50,000 for the construction of a new
parking lot in 4 years.
 Edmiston Co. rents a warehouse for 7 years with annual rental payments of $120,000 to be
made at the end of each year.

What is the relationship between the future value of one and the present value of one?

The present value of one equals one plus future value factor for n-1
periods.
The present value of one equals one divided by the future value of
one.
The present value of one equals one plus the future value factor for n+1
value.
The present value of one equals the future value of one plus
one.

Which of the following is true?

Rents occur at the beginning of each period of an ordinary annuity.

Rents occur at the end of each period of an annuity

due.
Rents occur at the beginning of each period of an annuity
due.
None of these.

Which of the following tables would show the largest value for an interest rate of 10% for 8 periods?

Future amount of 1 table.

Present value of 1
table.
Future amount of an ordinary annuity of 1 table.

Present value of an ordinary annuity of 1

table.

On December 1, 2010, Richards Company sold some machinery to Fleming Company. The two
companies entered into an installment sales contract at a predetermined interest rate. The contract
required four equal annual payments with the first payment due on December 1, 2010, the date of
the sale. What present value concept is appropriate for this situation?

Future amount of an annuity of 1 for four periods.

Present value of an ordinary annuity of 1 for four

periods.
Present value of an annuity due of 1 for four
periods.
 Future amount of 1 for four periods.

If Jethro wanted to save a set amount each month in order to buy a new pick-up truck when the
new models are next available, which time value concept would be used to determine the monthly
payment?

Future value of
one.
Present value of one.

Present value of an annuity due.

Future value of an ordinary annuity.

Which statement is false?

The factor for the present value of an annuity due is found by adding 1.00000 to the ordinary
annuity table value for one less period.
The factor for the present value of an annuity due is found by multiplying the ordinary annuity
table value by one minus the interest rate.
The factor for the future value of an annuity due is found by subtracting 1.00000 from the
ordinary annuity table value for one more period.
The factor for the future value of an annuity due is found by multiplying the ordinary annuity
table value by one plus the interest rate.

Al Darby wants to withdraw $20,000 (including principal) from an investment fund at the end of
each year for five years. How should he compute his required initial investment at the beginning of
the first year if the fund earns 10% compounded annually?

$20,000 divided by the future value of a 5-year, 10% ordinary annuity of

1.
$20,000 times the present value of a 5-year, 10% ordinary annuity of 1.

$20,000 times the future value of a 5-year, 10% ordinary annuity of

1.
$20,000 divided by the present value of a 5-year, 10% ordinary annuity of
1.

If an annuity due and an ordinary annuity have the same number of equal payments and the same
interest rates, then

the future value of the annuity due is equal to the future value of the ordinary
annuity.
the present value of the annuity due is greater than the present value of the ordinary
annuity.
 the future value of the annuity due is less than the future value of the ordinary
annuity.
the present value of the annuity due is less than the present value of the ordinary
annuity.

What is the relationship between the present value factor of an ordinary annuity and the present
value factor of an annuity due for the same interest rate?

The ordinary annuity factor is not related to the annuity due

factor.
The annuity due factor equals the ordinary annuity factor for n+1 periods minus
one.
The annuity due factor equals one plus the ordinary annuity factor for n 1
periods.
The ordinary annuity factor equals one plus the annuity due factor for n+1
periods.

Assume ABC Company deposits $25,000 with First National Bank in an account earning interest at
6% per annum, compounded semi-annually. How much will ABC have in the account after five years
if interest is reinvested?

$33,456.

$25,000.

$33,598.

$32,500.

$25,000 × 1.34392 = $33,598.

What would you pay for an investment that pays you $10,000 at the end of each year for the next
twenty years? Assume that the relevant interest rate for this type of investment is 12%.

$83,658.

$10,367.

$74,694.

$720,524.

$10,000 × 7.46944 = $74,694.

On May 1, 2010, a company purchased a new machine which it does not have to pay for until May
1, 2012. The total payment on May 1, 2012 will include both principal and interest. Assuming
interest at a 10% rate, the cost of the machine would be the total payment multiplied by what time
value of money factor?

Present value of 1

Future value of 1

Present value of annuity of

1
Future value of annuity of
1

Chapter 7

Which of the following is considered cash?

Certificates of deposit (CDs)

Postdated checks

Money market checking

accounts
Money market savings
certificates

A cash equivalent is a short-term, highly liquid investment that is readily convertible into known
amounts of cash and

has a current market value that is greater than its original

cost.
bears an interest rate that is at least equal to the prime rate of interest at the date of
liquidation.
is acceptable as a means to pay current
liabilities.
is so near its maturity that it presents insignificant risk of changes in interest
rates.

What is the preferable presentation of accounts receivable from officers, employees, or affiliated
companies on a balance sheet?

As offsets to capital.

By means of footnotes only.

As assets but separately from other

receivables.
As trade notes and accounts receivable if they otherwise qualify as current
assets.
Which of the following concepts relates to using the allowance method in accounting for accounts
receivable?

Bad debt expense is based on the actual amounts determined to be

uncollectible.
Bad debt expense is an estimate that is based on historical and prospective
information.
Bad debt expense is an estimate that is based only on an analysis of the receivables
aging.
Bad debt expense is management's determination of which accounts will be sent to the
attorney for collection.

What is the normal journal entry when writing-off an account as uncollectible under the allowance
method?

Debit Allowance for Doubtful Accounts, credit Bad Debt

Expense.
Debit Bad Debt Expense, credit Allowance for Doubtful
Accounts.
Debit Accounts Receivable, credit Allowance for Doubtful Accounts.

Debit Allowance for Doubtful Accounts, credit Accounts Receivable.

Which of the following methods of determining bad debt expense does not properly match expense
and revenue?

Charging bad debts with a percentage of sales under the allowance

method.
Charging bad debts with an amount derived from aging accounts receivable under the
allowance method.
Charging bad debts with an amount derived from a percentage of accounts receivable under
the allowance method.
Charging bad debts as accounts are written off as
uncollectible.

What is imputed interest?

Interest based on the average interest

rate.
Interest based on the coupon
rate.
Interest based on the stated interest rate.

Interest based on the implicit interest

 rate.

Which of the following is true when accounts receivable are factored without recourse?

The transaction may be accounted for either as a secured borrowing or as a sale, depending
upon the substance of the transaction.
The receivables are used as collateral for a promissory note issued to the factor by the owner
of the receivables.
The financing cost (interest expense) should be recognized ratably over the collection period of
the receivables.
The factor assumes the risk of collectibility and absorbs any credit losses in collecting the
receivables.

The accounts receivable turnover ratio measures the

percentage of accounts receivable turned over to a collection agency during the

period.
percentage of accounts receivable arising during certain seasons.

number of times the average balance of inventory is sold during the

period.
number of times the average balance of accounts receivable is collected during the
period.

What is a possible reason for accounts receivable turnover to increase from one year to the next
year

write-off uncollectible
receivables.
granting credit to customers with lower credit
quality.
improved collection process.

decreased credit sales during a

recession.