QUESTION 1 Depreciation: O is an outflow of cash from the use of a plant asset. Is applied only to land transactions. Is the process of allocating the cost of a plant asset to expense over time. Measures the decline in market value of an asset. QUESTION 2 Allowance method of uncollectible accounts is: O A calculation that is used to estimate how much credit is allowed to be obtained by the most risky customers. O An estimate of funds that will not be paid on customers' accounts. O Based in international accounting laws and was adopted by the US in 2001. More accurate than the direct write-off method. QUESTION 3 A company can typically finance through debt or equity. An example of equity financing would be: To acquire more income producing assets O To acquire more long term vs short term loans To sell more shares of stock To take out a line of credit QUESTION 4 Partners' withdrawals of assets are: O Credited to their withdrawals accounts O Debited to their withdrawals accounts Credited to their retained earnings Debited to their retained earnings When payment for cash dividends is made, the transaction would be a: O Credit to Dividend Expense and a credit to Cash O Debit to Dividend Expense and a credit to Cash O Credit to Dividend Payable and a credit to Cash O Debit to Dividend Payable and a credit to Cash QUESTION 6 On January 8, the end of the first weekly pay period of the year, Royal Company's payroll register showed that its employees earned $11,380 of office salaries and $32,920 of sales salaries. What are the debit entries to record gross salaries? Debit to Salary Expense - Office $11,380 Debit to Salary Expense - Sales $32,920 Debit to Cash - Office Salaries $11,380 Debit to Cash - Sales Salaries $32,320 Debit to Salary Expense - Office Salaries $11,380 Debit to Cash - Sales Salaries $32,320 Debit to Cash - Office Salaries $11,380 Debit to Salary Expense - Sales Salaries $32,320 Saturn Co. purchases a used machine for $110,000 cash on January 2. The company predicts the machine will be used for five years and have a $10,000 salvage value. The depreciation method used by Saturn Co. is straight-line. On December 31, at the end of its fourth year in operation the machine was sold for $25,000. What was the effect of this sale? O The $25,000 in cash received on the sales is added to income in the year of the sale There is a loss on the sale There is a gain on the sale There is no effect since the machine was sold prior to the five years the machine was expected to last QUESTION 8 The statement of cash flows reports: Assets, liabilities, and equity Revenues, gains, expenses, and losses O Cash inflows and cash outflows for an accounting period Equity, net income, and dividends The account accumulated depreciation would appear on the: O Balance sheet in the asset section O Balance sheet in the liability section O Income statement in the expense section O Statement of owner's equity in the other equity section QUESTION 10 Lomax Enterprises purchased a depreciable asset for $22,000 on March 1, Year 1. The asset will be depreciated using the straight-line method over its four-year useful life. Assuming the asset's salvage value is $2,000, Lomax Enterprises should recognize depreciation expense in Year 2 in the amount of $5,000. The transaction to record deprecation would affect: Balance sheet only Income statement only Both the balance sheet and income statement O There is no effect on any statement since cash is not part of the transaction MRI Company has one employee that makes $7,200 per month. FICA Social Security taxes are 6.2% and FICA Medicare taxes are 1.45% of gross pay. The employee's federal income taxes withheld are $135 for the pay period. Based on this information, the financial statements affected by this transaction are: O Balance sheet only O Income statement only O Both the balance sheet and income statement There is no effect on any statement since these transactions would affect the tax return not the company's financial statements QUESTION 12 The 3 main sections of the statement of cash flow are: Incoming cash, outgoing cash, and operating cash Investing, financing, and equity o Operating, financing, and equity Operating, investing, and financing QUESTION 13 The following ratios are for Pro Team Sports at December 31st. The current ratios are displayed for years 1 and 2. What conclusion can management draw from this information? 20x1 20x0 0.7 Current Ratio 1.2 The current ratio has gone down and Pro Team Sports is now unable to pay off its current debt The current ratio has gone down and Pro Team Sports is now unable to generate revenue for the company The current ratio has improved and Pro Team Sports is now able generate revenue for the company The current ratio has improved and Pro Team Sports is now able to pay off its current debt QUESTION 14 The formula for return on investment (also known as return on assets) is net income divided by assets. This ratio communicates to management: That the balance sheet is out of balance with the income statement the higher the ratio becomes O That net income is equal to the total of the company's assets The profitability of the company The need for management to increase the company's debt by selling long-term assets QUESTION 15 The ability to generate future revenues and meet long-term obligations is referred to as: O Liquidity and efficiency O Solvency O Profitability O Market prospects QUESTION 16 Ratio analysis is more effective when ratios: O Are compared to each other over time Are tied to investor's market analysis O Are reviewed at the end of each month O Are reviewed at the end of each quarter QUESTION 17 When communicating financial data to management: O Explain each number on the income statement and balance sheet in detail, the statement of cash flow stands on its own Use various websites such as Wikipedia to explain what the financial information means in order to write a 5-10 page report to support the financial statements presented Review your calculations for accuracy before you present the data O Explain the data in detail, using as much detail and supporting documentation to explain your numbers QUESTION 18 According to generally accepted accounting principles, a full set of financial statements include footnotes but only disclosing earnings per share and depreciation methods must include footnote disclosures communicating to the reader how all numbers were computed never includes footnotes; the financial statements stand on their own O include footnote disclosures subject to cost-benefit QUESTION 19 The All Quality Cookie Company has been experiencing a decline in income over the past several years due to the increase in the price of sugar and flour. Top management has decided to adjust the packaging size in an effort to cut costs rather than fire a number of employees. Is this decision legal and ethical? O The decision is both legal and ethical O The decision is legal but not ethical The decision is neither legal nor ethical The decision is not legal but is ethical QUESTION 20 The Led Zep Accounting Firm has two branches - one in NYC and the other in LA. Both service each other's clients and the clients of their clients. A junior partner in the LA office learns in confidence from client ZZ-Todd that a client of the NYC office, Eddie Mercury Inc., is not recording all of the information on their financial statements. Who is responsible for the accuracy of the financial statements? The management of Eddie Mercury, Inc. The partner at Led Zep Accounting Firm-NYC since Eddie Mercury Inc is one of their clients in NYC The partner at Led Zep Accounting Firm-LA since they heard about the issue from one of their clients The client ZZ-Todd since they heard about the issue first