2. The cost of a long-term asset is expensed
a. when it is paid for. b. as the asset benefits the company. c. in the period in which it is acquired. d. in the period in which it is sold.
3. In general, a cost incurred in conjunction with a long-term asset
is included in the long-term asset account when the cost
a. is incurred prior to asset use. b. exceeds a certain dollar amount. c. is incurred subsequent to asset use. d. will expire in less than one year.
4. It is necessary to distinguish between capital and revenue expenditures
because of which of the following accounting rules or principles?
a. Consistency b. Matching c. Materiality d. Full disclosure
5. All of the following are possible reasons for using accelerated depreciation
a. rapid changes in technology. b. increasing repair costs in later years. c. greater efficiency of assets when new. d. increasing use of an asset over the years.
6. A bond indenture is
a. a bond that is unsecured. b. the agreement between the issuing corporation and the bondholders. c. a bond that is secured by specific assets of the issuing corporation. d. a bond that has past due interest payments.
7. Debenture bonds are
a. bonds secured by specific assets of the issuing corporation. b. bonds that have a single maturity date. c. issued only by the federal government. d. issued on the general credit of the corporation and do not pledge certain assets as collateral.
8. Ten $1,000 bonds issued at 98 3/4 on the interest date result in
a debit to the Cash account for
a. $987.50. b. $980.75. c. $9,807.50. d. $9,875.00.
9. When bonds have been issued at a premium, the periodic amortization
of the premium will
a. have no effect on the carrying value of the bonds. b. increase the carrying value of the bonds. c. decrease the carrying value of the bonds. d. cause the carrying value always to equal the face value of the bonds.
10. A corporation issues bonds that pay interest each February 1 and
August 1. The corporation's December 31 adjusting entry might include a
a. debit to Cash. b. debit to Unamortized Bond Premium. c. credit to Bond Interest Income. d. debit to Accrued Interest Payable.
11. A disadvantage of the corporate form of business is
a. professional management. b. tax treatment. c. ease of transfer of ownership. d. lack of mutual agency.
12. Treasury shares plus outstanding shares equal
a. authorized shares. b. issued shares. c. unissued shares. d. subscribed shares.
13. Residual equity is a descriptive phrase for
a. treasury stock. b. preferred stock. c. long-term liabilities. d. common stock.
14. The journal entry to record the declaration of a cash dividend will
a. reduce working capital. b. not affect working capital. c. increase total stockholders' equity. d. not affect total stockholders' equity.
15. Dividends in arrears cannot exist in conjunction with
a. callable preferred stock. b. cumulative preferred stock. c. convertible preferred stock. d. noncumulative preferred stock.
16. In a period of inflation, which of the following combinations of
accounting methods will yield the lowest amount of current earnings?
a. FIFO and double-declining-balance method b. FIFO and straight-line method c. LIFO and straight-line method d. LIFO and double-declining-balance method
17. Which of the following is analyzed when a financial statement reader
is looking at the nature of nonoperating earnings?
a. Effects of accounting changes b. Interest revenue c. Interest expense d. Cost of goods sold
18. A corporate income statement does not include
a. extraordinary gains and losses. b. discontinued operations. c. prior period adjustments. d. earnings per share data.
19. When there is a difference in the timing of revenues and expenses
for accounting versus income tax purposes, it usually is necessary to
a. adjust accounting income. b. perform income tax allocation procedures. c. adjust taxable income. d. do nothing because such differences are a result of two different sets of rules.
20. What effect will the purchase of treasury stock have on total stockholders'
equity and earnings per share, respectively?
a. Decrease and increase b. Increase and decrease c. Decrease and no effect d. Decrease and decrease
21. The most future-directed of the basic financial statements is the
a. income statement. b. statement of cash flows c. statement of stockholder's equity d. balance sheet
The primary purpose of the statement of cash flows is to provide information
a. regarding a company's financial position at the end of an accounting period. b. about a company's investing and financing activities during an accounting period. c. about a company's cash receipts and cash payments during an accounting period. d. regarding the results of operations for a period of time.