Questions and Answers of Small Business Accounting

(L.O. 2) Which of the following is classified as an intangible asset on a balance sheet?a. Long-term receivable.b. Long-term investment in stock of another enterprise.c. Licenses.d. Accounts
(L.O. 2) Treasury stock is classified as a(n):a. current asset.b. long-term investment.c. other asset.d. contra stockholders’ equity item.Explanation: Treasury stock is a company’s own stock that
(L.O. 2) Working capital is:a. current assets less current liabilities.b. total assets less total liabilities.c. the same as retained earnings.d. capital which has been reinvested in the
(L.O. 2) Land held for a future plant site should be classified in the section for:a. current assets.b. long-term investments.c. property, plant, and equipment.d. intangible assets.Approach and
(L.O. 2) The Heather Miller Company has the following obligations at December 31, 2014:I. Accounts payable $ 72,000 II. Taxes payable 60,000 III. Notes payable issued November 1, 2014, due October
(L.O. 1) The amount of time that is expected to elapse until an asset is realized or otherwise converted into cash is referred to as:a. solvency.b. financial flexibility.c. liquidity.d.
(L.O. 8) Comprehensive income includes all of the following except:a. unrealized holding losses.b. dividends declared and paid.c. interest income.d. gains on disposal of assets.Approach and
(L.O. 7) The OVA Company had the following errors occur in its financial statements:2013 2014 Ending inventory $12,000 Understated $18,000 Overstated Depreciation expense $24,000 Overstated $14,000
(L.O. 7) A correction of an error in prior periods’ income will be reported:Approach and Explanation: Write down what you know about the accounting for a correction of an error in computing income
(L.O. 4) When a piece of equipment is sold at a gain of $700,000 less related taxes of $280,000, and the gain is not considered unusual or infrequent, the income statement for the period would show
(L.O. 4) Which of the following should be classified as an extraordinary item?a. Loss from excess of book value of assets over amount of condemnation award.b. Loss from exchange of foreign
(L.O. 4) During the year ended December 31, 2014, Schmelya Corporation incurred the following infrequent losses:1. A factory was shut down during a major strike by employees; costs were $120,000.2. A
(L.O. 4) A material loss should be presented separately as a component of income from continuing operations when it is:a. unusual in nature and infrequent in occurrence.b. unusual in nature but not
(L.O. 4) A loss from the disposal of component of an entity should be reported in the income statement:a. after extraordinary items and it should be reflected net of the related income tax effect.b.
(L.O. 3) The following amounts relate to the current year for the Ira Company:Beginning inventory $ 20,000 Ending inventory 28,000 Purchases 166,000 Purchase returns 4,800 Transportation-out 6,000
(L.O. 3) Which of the following is not a selling expense?a. Advertising expenseb. Office salaries expensec. Freight-outd. Store supplies consumed Approach and Explanation: Take each account and
(L.O. 3) The following expenses and loss were among those incurred by Mitzer Company during 2014:Rent for office space $ 660,000 Loss on sale of office furniture 55,000 Interest 132,000 Accounting
(L.O. 3) In a multiple-step income statement, the excess of gross profit over operating expenses is called:a. net margin.b. income from operations.c. net profit.d. earnings.Approach and Explanation:
(L.O. 10) The Office Supplies on Hand account had a balance at the beginning of year 3 of$1,600. Payments for acquisitions of office supplies during year 3 amounted to $10,000 and were recorded as
(L.O. 9) Dr. Hellinger keeps his accounting records on the cash basis. During 2014, Dr. Hellinger collected $660,000 in fees from his patients. At December 31, 2013, the good doctor had accounts
(L.O. 9) The Camphor Company made cash sales of services of $5,000 and credit sales of services of $4,200 during the month of July. The company incurred expenses of $6,000 during July of which $2,000
(L.O. 9) If ending accounts receivable exceeds the beginning accounts receivable:a. cash collections during the period exceed the amount of revenue earned.b. net income for the period is less than
(L.O. 7) The purpose of recording closing entries is to:a. reduce the number of nominal accounts.b. enable the accountant to prepare financial statements at the end of an accounting period.c. prepare
(L.O. 5) The book value of a piece of equipment is the:a. original cost of the equipment.b. current replacement cost of the used equipment.c. current market value of the used equipment.d. difference
(L.O. 5) An auditor is examining an adjusting entry that reduces liabilities and increases owners’equity. Which of the following adjusting entries could that be?a. Entry to record an accrued
(L.O. 5) The omission of the adjusting entry to record depreciation expense will result in an:a. overstatement of assets and an overstatement of owners’ equity.b. understatement of assets and an
(L.O. 5) The failure to properly record an adjusting entry for the expiration of insurance coverage will result in an (assume the account Prepaid Insurance was charged when the premiums were paid):a.
(L.O. 5) The failure to properly record an adjusting entry to accrue a revenue item will result in an:a. understatement of revenues and an understatement of liabilities.b. overstatement of revenues
(L.O. 5) Which of the following adjusting entries will cause an increase in revenues and a decrease in liabilities?a. Entry to record an accrued expense.b. Entry to record an accrued revenue.c. Entry
(L.O. 5) An adjusting entry to allocate a previously recorded asset to expense involves a debit to an:a. asset account and a credit to Cash.b. expense account and a credit to Cash.c. expense account
(L.O. 5) Which of the following properly describes a deferral?a. Cash is received after revenue is earned.b. Cash is received before revenue is earned.c. Cash is paid after expense is incurred.d.
(L.O. 5) The failure to properly record an adjusting entry to accrue an expense will result in an:a. understatement of expenses and an understatement of liabilities.b. understatement of expenses and
(L.O. 5) An adjusting entry to record an accrued expense involves a debit to a(an):a. expense account and a credit to a prepaid account.b. expense account and a credit to Cash.c. expense account and
(L.O. 5) In reviewing some adjusting entries, you observe an entry which contains a debit to Prepaid Insurance and a credit to Insurance Expense. The purpose of this journal entry is to record
(L.O. 5) An accrued expense is an expense that:a. has been incurred but has not been paid.b. has been paid but has not been incurred.c. has been incurred for which payment is to be made in
(L.O. 5) Which of the following statements is associated with the accrual basis of accounting?a. The timing of cash receipts and disbursements is emphasized.b. A minimum amount of record keeping is
(L.O. 4) Which of the following errors will cause an imbalance in the trial balance?a. Omission of a transaction in the journal.b. Posting an entire journal entry twice to the ledger.c. Posting a
(L.O. 1) Which of the following is a nominal account?a. Prepaid Insuranceb. Unearned Revenuec. Insurance Expensed. Interest Receivable Approach and Explanation: Read the question. Before looking at
(L.O. 7) Revenue is to be recognized when the related performance obligation is satisfied. This statement refers to the:a. revenue recognition principle.b. matching principle.c. going concern
(L.O. 7) The process of reporting an item in the financial statements of an enterprise is:a. recognitionb. realization.c. allocation.d. incorporation.Explanation: The term recognition refers to the
(L.O. 7) If cash is received from a customer in the current period, but the related performance obligation is not satisfied until a future period, the related expenses of generating the revenue
(L.O. 7) The historical cost principle provides that:a. items whose costs are insignificant compared to other amounts on the financial statements may be accounted for in the most expedient manner.b.
(L.O. 7) Pluto Magazine Company sells space to advertisers. The company requires an advertiser to pay for services one month before publication. Advertising revenue should be recognized when:a. an
(L.O. 6) The assumption that an enterprise will remain in business indefinitely and will not liquidate in the near future is called the:a. economic entity assumption.b. going concern assumption.c.
(L.O. 5) Which of the following is false with regard to the concept “comprehensive income”?a. It is more inclusive than the traditional notion of net income.b. It includes net income and all
(L.O. 5) The calculation of comprehensive income includes which of the following?Operating Income Distributions to Ownersa. Yes Yesb. Yes Noc. No Yesd. No No Approach and Explanation: Define
(L.O. 5) The term “articulation” refers to the:a. expression of dollar amounts in terms of a foreign currency.b. correction of amounts previously reported on the financial statements.c.
(L.O. 4) Which of the following qualitative characteristics holds that the usefulness of accounting information is magnified when the information is classified, characterized, and presented clearly
(L.O. 4) When an entity charges the entire cost of an electric pencil sharpener to expense in the period when it was purchased even though the appliance has an estimated life of five years, we have
(L.O. 4) If a completed transaction will not affect any business decisions, it need not be separately reported in the financial statements. This guidance comes from the:a. materiality quality.b.
(L.O. 4) If the LIFO inventory method was used last period, it should be used for the current and following periods because of:a. materiality.b. verifiability.c. timeliness.d. comparability.Approach
(L.O. 4) According to Statement of Financial Accounting Concepts No. 8, neutrality is an ingredient of the fundamental quality of:Relevance Faithful Representationa. Yes Yesb. Yes Noc. No Nod. No Yes
(L.O.4) According to Statement of Financial Accounting Concepts No. 8, which of the following is considered a constraint?a. Faithful representationb. Verifiabilityc. Comparabilityd. Costs < Benefits
(L.O. 4) According to Statement of Financial Accounting Concepts No. 8, completeness is an ingredient of:Relevance Faithful Representationa. Yes Yesb. Yes Noc. No Nod. No Yes Approach and
(L.O. 3) The objectives of financial reporting include all of the following except to provide information that:a. is useful to the Internal Revenue Service in allocating the tax burden to the
(L.O. 7) A Brazilian corporation listed on a U.S. exchangea. is permitted to use iGAAP.b. must follow the accounting standards set forth by the government of Brazil.c. must use U.S. GAAP.Explanation:
(L.O. 5) All of the following organizations are directly involved in the development of financial accounting standards (GAAP) in the United States, except the:a. Internal Revenue Service (IRS).b.
(L.O. 5) The following are part of the “due process” system used by the FASB in the evolution of a typical FASB Statement of Financial Accounting Standards:1. Exposure Draft 2. Accounting
(L.O. 5) The American Institute of Certified Public Accountants (AICPA) continues to be the sole entity responsible fora. developing financial accounting standards.b. developing auditing standards.c.
(L.O. 5) The demise of the APB and the creation of the FAF, FASB, and FASAC are largely and most directly attributed to the:a. IRS.b. Great Depression.c. Securities Exchange Act.d. recommendations of
(L.O. 5) The body charged with the mission of establishing and improving standards of financial accounting and reporting for business enterprises is the:a. Financial Accounting Foundation (FAF).b.
(L.O. 5) Which of the following pronouncements were issued by the Accounting Principles Board?a. Accounting Research Bulletinsb. Opinionsc. Statements of Positiond. Statements of Financial Accounting
(L.O. 5) Members of the Financial Accounting Standards Board are:a. employed by the American Institute of Certified Public Accountants (AICPA).b. part-time employees.c. required to hold a CPA
(L.O. 5) The most significant current source of generally accepted accounting principles is the:a. NYSE.b. IRS.c. APB.d. FASB.Explanation: The mission of the Financial Accounting Standards Board
(L.O. 3) In meeting the objective of financial reporting, financial statements should provide:a. information about the investors in the business entity.b. information about the liquidation values of
(L.O. 1) The process of identifying, measuring, analyzing, and communicating financial information needed by management to plan, evaluate, and control an organization’s operations is calleda.
What are the ethical considerations that Sam makes that probably would be called into question in true financial markets?
In what ways is a casino like the Tangiers similar to a securities market?
The casino is faced with both short-term and long-term expenses that it must deal with. Given what you’ve seen in the clip, describe which are short-term and which are long-term expenses and why.
Sam Rothstein, in essence, is acting like the casino’s financial manager. In what ways is he doing so?
What are the key differences between debt and equity, and the major types and features of long-term debt?
How do finance and the financial manager affect the firm's overall strategy?
What are your rights to privacy when dealing with financial institutions? Research the specific privacy provisions related to banking and financial services using the Internet and write a paper on
There is a current move to increase the security of financial transactions with credit cards that generate a onetime passcode for every transaction. Go to http://www.dogpile.com to research articles
Using an Internet search engine such as Google (http://www.google.com) or Yahoo! (http://www.yahoo.com), research information on the bank branch renaissance. Make a presentation describing the merits
Find out everything you want to know about financial institutions and banking from the latest edition of the U.S. Census Bureau Statistical Abstract of the United States. Visit the U.S. Census Bureau
Visit the International Money Laundering Network Services Association (http://www.imolin.org) for the latest information on what organizations are doing to ensure that international monetary
Banking on a great career? Go to http://www.careerbank.com to explore what positions are available. Use the Salary Wizard to estimate what you can earn and make a presentation on the type of job you
Team Activity During its regular meetings, the Federal Open Market Committee, the Federal Reserve’s monetary policy-making body, considers a number of economic indicators and reports before making
Banks use databases to identify profitable and unprofitable customers. Bankers say they lose money on customers who typically keep less than $1,000 in their checking and savings accounts and
Research the banking system of another country and write a report on your findings by answering these questions: Is there a central banking system similar to the U.S. Federal Reserve System in place?
If you watch the news, you’ve undoubtedly heard mention that the Fed is going to raise or lower interest rates. What exactly does this mean? Explain how the Fed’s decision to raise and lower its
You are starting a small business selling collectible books over the Internet and need to establish a business banking account that will provide the following services: business checking, credit card
How much does a checking account cost? Call or visit several local banks and weigh prices and services. Take into consideration how you use your checking account, how many checks a month you write,
What impact has terrorism had on the banking industry?How do banks fi ght money laundering?
What challenges do U.S. banks face in foreign markets?
What is the role of U.S. banks in international banking?
Were Banco Wal-Mart to offer low interest rates on consumer loans (along the lines of American rates), what do you think the impact would be on its stores? On the Mexican banking system?On the
Why do you think U.S. regulators and other stakeholders were so vehemently opposed to Wal-Mart opening a bank?
Diff erentiate between the three types of depository fi nancial institutions and the services they off er.
What is the fi nancial intermediation process?
What are the three main components of the U.S. money supply? How do they relate to M1 and M2?
What are the main functions of money?
What is money, and what are its characteristics?
In the clip, the Mariner mentions “Smokers,” another group of individuals who travel around in packs and, like the prisoners of war during World War II, use cigarettes as a medium of exchange.
In detail, what is “the banker’s” role in the financial transaction that occurs with the Mariner’s dirt?What is the role of the man behind the banker in this financial transaction?
The Mariner takes his dirt to a central “banker” instead of simply bartering with each of the traders at the atoll and dividing the dirt among them. Based on the functions that money serves, why
What role do U.S. banks play in the international marketplace?
Visit the investor relations pages of the corporate Web sites for two of the following companies:ExxonMobil, IBM, Dell, Microsoft, Pfizer, Bank of America, AT&T, Verizon, Gilette, or Procter &Gamble.
Find the Web version of its annual report and compare it to the print version. What differences do you find, if any? Do you think companies should put their financial information online? Why or why

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