ACC 556 MIDTERM PART 1 & 2 (PERFECT ANSWER)

PART 1Question 1 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 Question 2 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 Question 3 To obtain maximum benefit from a bank reconciliation, the reconciliation should be prepared by the employee authorized to sign checks.True False Question 4 The economic resources that are owned by a business are called stockholders’ equity.True False Question 5 Solvency ratios measure the short-term ability of the company to pay its maturing obligations.True False Question 6 An advantage of using the periodic inventory system is that it requires less record keeping than the perpetual inventory system.True False Question 7 Use the following data to calculate the current ratio.Carne Auto SuppliesBalance SheetDecember 31, 2014Cash $ 35,000 Accounts payable $ 65,000Accounts receivable 50,000 Salaries and wages payable 10,000Inventory 70,000 Mortgage payable 90,000Prepaid insurance 40,000 Total liabilities $165,000Long Term Stock investments 80,000 Land 95,000 Buildings $100,000 Common stock $120,000Less: Accumulated Retained earnings 250,000depreciation (30,000) 85,000 Total stockholders’ equity $370,000Trademarks 70,000 Total liabilities and Total assets $535,000 stockholders’ equity $5352.07 : 11.67 : 13.00 : 12.60 : 1Question 8 Bathlinks Corporation has a debt to assets ratio of 73%. This tells the user of Bathlinks’s financial statements thatBathlinks 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.Question 9 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 Question 10 Which of the following would not be classified as a long-term liability?Current maturities of long-term debtBonds payableMortgage payableLease liabilitiesQuestion 11 Requiring employees to take vacations is a weakness in the system of internal controls because it does not promote operational efficiency.True False Question 12 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$75,000Question 13 The revenue recognition principle dictates that revenue be recognized in the accounting period in which the performance obligation is satisfied.True False Question 14 Financing activities include the purchase or sale of long-lived assets or the purchase or sale of investment securities.True False Question 15 Consistent use of the same accounting principles and methods is necessary for meaningful analysis of trends within a company.True False Question 16 Expense recognition is tied to revenue recognition.True False Question 17 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 Question 18 The best definition of assets is thecash owned by the company.collections of resources belonging to the company and the claims on these resources.owners’ investment in the business.resources belonging to a company that have future benefit to the company.Question 19 Owners of business firms are the only people who need accounting information.True False Question 20 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?$60,000$150,000$105,000$195,000Question 21 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 the accounting periodTo determine if the cash balance is sufficient for future needsTo analyze the balance between debt and common stock financingTo analyze the balance of accounts receivable on the last day of the accounting periodQuestion 22 Source documents can provide evidence that a transaction has occurred.True False Question 23 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 Question 24 Which of the following is the least likely consideration that management uses when deciding whether to pay a dividend?Does the company have more cash than it has opportunities?Is the company's average number of common shares outstanding decreasing?Does the company have uses for cash that will increase its value?What are the company's cash needs?Question 25 The partnership form of business organizationis a separate legal entity.is a common form of organization for service-type businesses.enjoys an unlimited life.has limited liability.

PART 2Question 1 A trial balance provesthe mathematical equality of debits and credits after the posting process.the ledger is posted correctly.that all transactions have been recorded correctly.that all transactions have been posted.Question 2 Which of these would cause the inventory turnover ratio to increase the most?Increasing the amount of inventory on hand.Keeping the amount of inventory on hand constant but increasing sales.Keeping the amount of inventory on hand constant but decreasing sales.Decreasing the amount of inventory on hand and increasing sales.Question 3 Which of the following is least likely to help a company minimize losses as credit standards are relaxed?Require potential customers to provide bank guarantees.Ask a potential customer for references regarding payment history.Increase the estimate of uncollectible accounts at the end of each period.Check a potential customer's credit rating.Question 4 Regions Inc. pays its rent of $48,000 annually on January 1 and makes monthly adjusting entries. If the February 28 monthly adjusting entry for prepaid rent is omitted, which of the following are true?Failure to make the adjustment does not affect the February financial statements.Expenses will be overstated by $4,000 and net income and stockholders' equity will be understated by $4,000.Assets will be overstated by $8,000 and net income and stockholders' equity will be understated by $8,000.Assets will be overstated by $4,000 and net income and stockholders' equity will be overstated by $4,000.Question 5 Smithson Corporation’s unadjusted trial balance includes the following balances (assume normal balances):• Accounts Receivable $3,357,000• Allowances for Doubtful Accounts $ 63,900Bad debts are estimated to be 6% of outstanding receivables. What amount of bad debt expense will the company record?$201,420$137,520$133,686$205,254Question 6 Olympus Climbers Company has the following inventory data:July 1 Beginning inventory 20 units at $19 $ 3807 Purchases 70 units at $20 1,40022 Purchases 10 units at $22 220$2,000A physical count of merchandise inventory on July 30 reveals that there are 32 units on hand. sing the FIFO inventory method, the amount allocated to cost of goods sold for July is$620.$660.$1,340.$1,380.Question 7 A merchandiser will earn an operating income of exactly $0 whennet sales equals cost of goods sold.cost of goods sold equals gross margin.operating expenses equal net sales.gross profit equals operating expenses.Question 8 A revenue generallyincreases assets and liabilities.increases assets and stockholders’ equity.increases assets and decreases stockholders’ equity.leaves total assets unchanged.Question 9 Management usually wants ________ financial statements and the IRS requires all businesses to file _________ tax returns.annual, annualmonthly, annualquarterly, monthlymonthly, monthlyQuestion 10 The primary difference between accrued revenues and unearned revenues is that accrued revenues have:not been recognized and accrued revenues have been.been paid and unearned revenues have not.been recorded and unearned revenues have not.not been recorded and unearned revenues have.Question 11 Independent internal verification of the physical inventory process occurs whenthe employee is required to count all items twice for sake of verification.the items counted are compared to the inventory account balance.a second employee counts the inventory and compares the result to the count made by the first employee.all prenumbered inventory tags are accounted for.Question 12 Bad Debt Expense is consideredan avoidable cost in doing business on a credit basis.an internal control weakness.a necessary risk of doing business on a credit basis.avoidable unless there is a recession.Question 13 Two companies report the same cost of goods available for sale but each employs a different inventory costing method. If the price of goods has increased during the period, then the company usingLIFO will have the highest ending inventory.FIFO will have the highest cost of goods sold.FIFO will have the highest ending inventory.LIFO will have the lowest cost of goods sold.Question 14 A company usually determines the amount of supplies used during a period by:adding the supplies on hand to the balance of the Supplies account.summing the amount of supplies purchased during the period.taking the difference between the supplies purchased and the supplies paid for during the period.taking the difference between the balance of the Supplies account and the cost of supplies on hand.Question 15 If a company is given credit terms of 2/10, n/30, it shouldhold off paying the bill until the end of the credit period, while investing the money at 10% annual interest during this time.pay within the discount period and recognize a savings.pay within the credit period but don't take the trouble to invest the cash while waiting to pay the ill.recognize that the supplier is desperate for cash and withhold payment until the end of the credit period while negotiating a lower sales price.Question 16 If Morris Corporation has a negative $131 million free cash flow, which of the following statements is most likely true?Morris' capital expenditures plus its cash dividends are less than its cash provided by operations.This free cash flow indicates that Morris is in good shape to repay its long-term obligations when they come due.This free cash flow indicates that Morris presents good cash generating ability to retire stock.Morris' cash provided by operations is less than its cash dividends plus capital expenditures.Question 17 What is an advantage of using the multiple-step income statement?It highlights the components of net income.Gross profit is not a separate item.It is easier to prepare than the single-step income statement.Net income will be higher than net income computed using the single-step income statement.Question 18 All of the following are characteristics of every accounting information system except it is a systemthat collects transaction data.that processes transaction data.that communicates financial information to decision makers.of data storage hardware for the chart of accounts.Question 19 Which statement is incorrect?Dividends represent a distribution by a corporation to its stockholders.Dividends are shown on the income statement.Dividends reduce stockholders’ equity, thus the Dividends account increases on the left side.The Dividends account has a normal debit balance.Question 20 Dobler Company gathered the following reconciling information in preparing its June bank reconciliation:Cash balance per books, 6/30 $8,400Deposits in transit 600Notes receivable and interest collected by bank 1,480Bank charge for check printing 50Outstanding checks 3,000NSF check 280The adjusted cash balance per books on June 30 is$10,150.$9,880.$9,550.$10,110.Question 21 Fehr Company sells merchandise on account for $5,000 to Kelly Company with credit terms of 2/10, n/30. Kelly Company returns $1,000 of merchandise that was damaged, along with a check to settle the account within the discount period. What is the amount of the check?$4,900$4,920$4,000$3,920Question 22 Which one of the following is not an objective of a system of internal controls?Safeguard company assets.Overstate liabilities in order to be conservative.Enhance the accuracy and reliability of accounting records.Reduce the risks of errors.Question 23 Receivables areone of the most liquid assets and thus are always considered current assets.claims that are expected to be collected in cash.shown on the income statement at cash realizable value.always the result of revenue recognition.Question 24 At Emerson Company, one bookkeeper prepares the cash deposits while the other bookkeeper enters the collections in the journal and ledger. Which of the following is the best explanation of this type of internal control principle over cash receipts?Physical controls.Documentation procedures.Segregation of duties.Mechanical controls.Question 25 All of the following are true regarding the management and monitoring of cash exceptcompanies may have plenty of sales, but insufficient cash to support operations.the cash to cash operating cycle for a manufacturer is generally shorter than that of a merchandising company.manufacturers may experience a significant lag between the purchase of raw materials and the receipt of cash from customers.companies should have sufficient cash to meet payments but minimize the amount of non-revenue-generating cash on hand.