Acc 421 Final Exam Answers 1) When an item of expense is paid and recorded in advance, it is normally called a(n) 2) If, during an accounting period, an expense item has been incurred and consumed but not yet paid for or recorded, then the end-of-period adjusting entry would involve 3) An accrued expense can best be described as an amount 4) Which of the following statements is not an objective of financial reporting? A.           Provide information that is useful in investment and credit decisions. B.           Provide information on the liquidation value of an enterprise. C.           Provide information about enterprise resources, claims to those resources, and changes to them. D.           Provide information that is useful in assessing cash flow prospects. 5) The two primary qualities that make accounting information useful for decision making are A.           comparability and consistency. A.           a liability account and an asset account. B.    

1. Acc 421 Final Exam
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Acc 421 Final Exam Answers
1) When an item of expense is paid and recorded in advance, it is normally called a
(n)
2) If, during an accounting period, an expense item has been incurred and consum
ed but not yet
paid for or recorded, then the end-of-period adjusting entry would involve

2. 3) An accrued expense can best be described as an amount
4) Which of the following statements is not an objective of financial reporting?
A. Provide information that is useful in investment and credit decisions.
B. Provide information on the liquidation value of an enterprise.
C. Provide information about enterprise resources, claims to those resources
, and changes to
them.
D. Provide information that is useful in assessing cash flow prospects.
5) The two primary qualities that make accounting information useful for decision m
aking are
A. comparability and consistency.
A. a liability account and an asset account.
B. a liability account and an expense account.
C. a receivable account and a revenue account.
D. an asset or contra asset account and an expense account.
A. paid and currently matched with earnings.
B. not paid and not currently matched with earnings.
C. not paid and currently matched with earnings.
D. paid and not currently matched with earnings.
A. prepaid expense.

3. B. estimated expense.
C. cash expense.
D. accrued expense.
B. relevance and reliability.
C. materiality and timeliness.
D. reliability and comparability.
6) One objective of financial reporting is to provide
7) Companies that are listed on a stock exchange are required to submit their finan
cial statements
to the
8) The body that has the power to prescribe the accounting practices and standard
s to be
employed by companies that fall under its jurisdiction is the
9) The Financial Accounting Foundation
A. oversees the operations of the FASB.
B. provides information to interested parties on financial reporting issues.
C. oversees the operations of the AICPA.
A. information about the investors in the business entity.
B. information that is useful in assessing cash flow prospects.

4. C. information about the liquidation values of the resources held by the enter
prise.
D. information that will attract new investors.
A. FASB.
B. SEC.
C. AICPA.
D. APB.
A. AICPA.
B. FASB.
C. APB.
D. SEC.
10) Limitations of the income statement include all of the following except
11) Which of the following is not a generally practiced method of presenting the inc
ome
statement?
A. Including prior period adjustments in determining net income
B. Including gains and losses from discontinued operations of a component o
f a business in
determining net income
C. The consolidated statement of income

5. D. The single-step income statement
12) The income statement reveals
13) In selecting an accounting method for a newly contracted long-
term construction project, the
principal factor to be considered should be
A. the terms of payment in the contract.
B. the inherent nature of the contractor’s technical facilities used in c
onstruction.
C. the method commonly used by the contractor to account for other long-
term construc-tion
contracts.
A. items that cannot be measured reliably are not reported.
B. income measurement involves judgment.
C. only actual amounts are reported in determining net income.
D. income numbers are affected by the accounting methods employed.
A. resources and equities of a firm at a point in time.
B. net earnings (net income) of a firm for a period of time.
C. net earnings (net income) of a firm at a point in time.
D. resources and equities of a firm for a period of time.
D.
works with the Financial Accounting Standards Advisory Council to provide i
nforma-tion to

6. interested parties on financial reporting issues.
D. the degree to which a reliable estimate of the costs to complete and exten
t of progress
toward completion is practicable.
14) Which of the following is not an accurate representation concerning revenue re
cognition?
A. Revenue from selling products is recognized at the date of sale, usually in
terpreted to mean the
date of delivery to customers.
B. Revenue from disposing of assets other than products is recognized at th
e date of sale.
C. Revenue from permitting others to use enterprise assets is recognized as
time passes or as the
assets are used.
D. Revenue from services rendered is recognized when cash is received or
when services
have been performed.
15) Dot Point, Inc. is a retailer of washers and dryers and offers a three-
year service contract on
each appliance sold. Although Dot Point sells the appliances on an installment basi
s, all service

7. contracts are cash sales at the time of purchase by the buyer. Collections received
for service
contracts should be recorded as
A. service revenue.
B. a direct addition to retained earnings.
C. a reduction in installment accounts receivable.
D. deferred service revenue.
16) One criticism not normally aimed at a balance sheet prepared using current acc
ounting and
reporting standards is
17) The balance sheet contributes to financial reporting by providing a basis for all
of the
following except
A. computing rates of return.
B. assessing the liquidity and financial flexibility of the enterprise.
A. failure to reflect current value information.
B. failure to include items of financial value that cannot be recorded objective
ly.
C. an extensive use of estimates.
D. the extensive use of separate classifications.

8. C. determining the increase in cash due to operations.
D. evaluating the capital structure of the enterprise.
18) The basis for classifying assets as current or noncurrent is conversion to cash
within
19) The focus of APB Opinion No. 22 is on the disclosure of accounting policies. Th
is information
is important to financial statement readers in determining
20) If a business entity entered into certain related party transactions, it would be re
quired to
disclose all of the following information except the
A. nature of the relationship between the parties to the transactions.
B. nature of any future transactions planned between the parties and the ter
ms involved.
C. amounts due from or to related parties as of the date of each balance she
et presented.
D. dollar amount of the transactions for each of the periods for which an inco
me state-ment is
presented.
21) Events that occur after the December 31, 2008 balance sheet date (but before t
he balance

9. sheet is issued) and provide additional evidence about conditions that existed at th
e balance
sheet date and affect the realizability of accounts receivable should be
A. discussed only in the MD&A (Management’s Discussion and
Analysis) section of the annual
report.
B. disclosed only in the Notes to the Financial Statements.
A. net income for the year.
B. whether accounting policies are consistently applied from year to year.
C. whether the working capital position is adequate for future operations.
D. the value of obsolete items included in ending inventory.
A. the accounting cycle or one year, whichever is shorter.
B. the operating cycle or one year, whichever is shorter.
C. the accounting cycle or one year, whichever is longer.
D. the operating cycle or one year, whichever is longer.
C. used to record an adjustment directly to the Retained Earnings account
D. used to record an adjustment to Bad Debt Expense for the year ending D
ecember 31,
2008.
22) Companies should disclose all of the following in interim reports except

10. 23) If the financial statements examined by an auditor lead the auditor to issue an o
pinion that
contains an exception that is not of sufficient magnitude to invalidate the statement
as a whole,
the opinion is said to be
24) The MD&A section of an enterprise’s annual report is to cover the
following three items:
25) The payout ratio is calculated by dividing
A. dividends per share by earnings per share.
B. cash dividends by net income plus preferred dividends.
C. cash dividends by net income less preferred dividends.
D. cash dividends by market price per share.
A. income statement, balance sheet, and statement of owners’ equity
.
B. income statement, balance sheet, and statement of cash flows.
C. changes in the stock price, mergers, and acquisitions.
D. liquidity, capital resources, and results of operations.
A. basic and diluted earnings per share.
B. changes in accounting principles.
C. seasonal revenue, cost, or expenses.

11. D. post-balance-sheet events.
A. unqualified.
B. qualified.
C. exceptional.
D. adverse.
26) Which of the following ratios measures long-term solvency?
27) Theoretically, in computing the receivables turnover, the numerator should incl
ude
A. net sales.
B. sales.
C. net credit sales.
D. credit sales.
28) To arrive at net cash provided by operating activities, it is necessary to report r
evenues and
expenses on a cash basis. This is done by
A. re-
recording all income statement transactions that directly affect cash in a separate c
ash flow
journal.
B. eliminating the effects of income statement transactions that did not result
in a

12. corresponding increase or decrease in cash.
C. estimating the percentage of income statement transactions that were orig
inally reported on a
cash basis and projecting this amount to the entire array of income statement trans
actions.
D. eliminating all transactions that have no current or future effect on cash, s
uch as depreciation,
from the net income computation.
29) The first step in the preparation of the statement of cash flows requires the use
of information
included in which comparative financial statements?
A. Statements of cash flows
B. Income statements
C. Balance sheets
D. Statements of retained earnings
A. Acid-test ratio
B. Debt to total assets
C. Receivables turnover
D. Current ratio
30) The primary purpose of the statement of cash flows is to provide information

13. A. about the operating, investing, and financing activities of an entity during a
period.
B. about the cash receipts and cash payments of an entity during a period.
C. that is useful in assessing cash flow prospects.
D. about the entity’s ability to meet its obligations, its ability to pay div
idends, and its needs for
external financing.
31) Riley Company reports its income from investments under the equity method a
nd recognized
income of $25,000 from its investment in Wood Co. during the current year, even th
ough no
dividends were declared or paid by Wood during the year. On Riley’s state
ment of cash flows
(indirect method), the $25,000 should
A. not be shown.
B. be shown as cash outflow from financing activities.
C. be shown as cash inflow from investing activities.
D. be shown as a deduction from net income in the cash flows from operatin
g activities
section.

14. 32) Which of the following would be classified as a financing activity on a statement
of cash
flows?
33) In a statement of cash flows, the cash flows from investing activities section sh
ould report
A. the issuance of common stock in exchange for a factory building.
B. a major repair to machinery charged to accumulated depreciation.
C. stock dividends received.
D. the assignment of accounts receivable.
34) Which table would show the largest factor for an interest rate of 8% for five peri
ods?
A. Declaration and distribution of a stock dividend
B. Sale of a loan receivable
C. Deposit to a bond sinking fund
D. Payment of interest to a creditor
A. Future value of an ordinary annuity of 1
B. Future value of an annuity due of 1
C. Present value of an ordinary annuity of 1
D. Present value of an annuity due of 1

15. 35) Which table would you use to determine how much you would need to have de
posited three
years ago at 10% compounded annually in order to have $1,000 today?
36) Which of the following transactions would require the use of the present value o
f an annuity
due concept in order to calculate the present value of the asset obtained or liability
owed at the
date of incurrence?
A. A capital lease is entered into with the initial lease payment due upon the
signing of the
lease agreement.
B. A ten-
year 8% bond is issued on January 2 with interest payable semiannually on July 1
and
January 1 yielding 7%.
C. A capital lease is entered into with the initial lease payment due one mont
h subse-quent to the
signing of the lease agreement.
D. A ten-
year 8% bond is issued on January 2 with interest payable semiannually on July 1
and
January 1 yielding 9%.
A. Future value of 1 or present value of 1

16. B. Future value of an ordinary annuity of 1
C. Future value of an annuity due of 1
D. Present value of an ordinary annuity of 1
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