questions ln financial accounting

1. Claussen Construct ion has decided to use an operating lease arrangement to finance a new bulldozer. Which of the following financial statement accounts will be affected? a. Depreciation expense b. Interest expense c. Capital expenditures d. SGBA expenses 2. Paper and Pulp, Inc., a manufacturer and distributor of cardboard products, purchases pulp from one of its subsidiaries. For which of the following accounts is the company least likely to make an adjusting entry when constructing a consolidated statement? a. Sales b. Accounts receivable c. Fixed assets d. Accounts payable 3. You are analyzing the financial statements of Fairview Fumiture, Inc. The company was recently sold. The former owner of Fairview has taken back a fully subordinated note as part of the sale. Based on the chart provided, what is the Debt to Effective Tangible Net Worth? a. 1:2 b. 2:1 c. 8:1 d. 11:1 4. The purchase price of a machine is $50,000. A company paid $10,000 in cash and financed the balance with the seller. Which of the following is the correct journal entry to record the transact ion? a. Debit Cash $50,000; Credit Equipment $50,000 b. Debir Cash $10,000, Loan Payable $40,000; Credit Equipment $50,000 c. Debit Equipment $50,000; Credit Cash $50,000 d. Debit Equipment $50,000; Credit Cash $10,000, Loan Payable $40,000 6. You are reviewing the financial statements for letMore, an aerospace contractor. The company's financial statements are prepared according to GAAP. Which of the following accounting practices are you least likely to see in JetMore's financials? a. Expensing research and development as incurred b. Capitalizing interest paid during the construction period c. Recognizing revenue on a percentage of completion basis d. Increasine value of land and buildine based on a new appraisal 7. Graham Corporation is a borrowing client at your bank. The company has informed you that they will be paying a dividend next quarter. Which account will the dividend impact? a. Common stock b. Preferred stock c. Retained earnings d. Treasury stock 8. Sweet Beginnings, a bakery in your area, is purchasing its competitor, Delicious Endings. Your bank is considering the debt financing of the purchase. Sweet Beginnings' accountant has provided you with a forecast of the combined entities. The balance sheet shows 'goodwill being created as a result of the transaction. Which of the following methods will be used to account for "goodwill? a. Impairment analysis method b. Straight line method over the estimated useful life c. Modified accelerated cost recovery system d. Double declining balance method 9. Jones Grocers is applying for a Joan with your bank. Your credit policy requires Jones to submit compiled financial statements. Which of the following best describes the requirements of a compilation? a. Full use of professional public accountant audit procedures b. Extensive use of protessional public accountant tests of accounts c. Limited use of professional public accountant test of accounts d. No use of professional public accountant test of accounts 10. On January 1, Year 1, a donor made a $200,000 contribution to Reading Recovery, a not-for-profit corporation. The contribution is to be used to provide reading programs over the next two years, At December 31 , Year 1 , $100,000 had been spent to provide the service. Which of the fo llowing will be reflected in the equity section of Reading Recovery's Statement of Financial Position at the end of Year 1 ? a. Retained earning increase by $100,000. b. Unrestricted net assets increase by $100,000. c. Endowment increases by $100,000. d. Temporarily restricted net assets increase by $100,000. 11. Jamberry, Inc. purchases fruit from local farmers and produces jams and jellies for grocery stores. The company purchases fruit from local farmers. If the company uses the accrual accounting method, which of the following best describes when the purchase of fruit will be recoenized as an expense by Jamberry? a. When the fruits are received by Jamberry b. When the jams and jellies are sold c. When the check is written by Jamberry for the goods d. When the payment check is posted to the purchaser's account 12. Based on the information provided, which of the following is the balance of net fixed assets at the end of Year 2 ? a. $1,200,000 b. $1,275,000 c. $1,425,000 d. $1,475,000 13. Graham Corporation is a wholly-owned subsidiary of Graham Enterprises, Inc. In which of the following statements can the annual sales figures for Graham Corporation be found? a. Indirect cash flow statement for Graham Corporation b. Reconciliation of net worth for Graham Enterprises c. Consolidatine income statement for Graham Enterprises d. Consolidated balance sheet for Graham Corporation 14. A company sells its product to a customer on 90 -day trade terms. Which of the following accounting entries reflects this transaction? a. Debir sales; credir accounts receivable b. Debit cash; credit accounts receivable c. Debit accounts receivable; credit sales d. Debit notes receivable; credit sales 15. Regal Meeting is a company that rents out meetine and office space on a short-term basis. In reviewing the company's financial statements, you note 'deferred revenue' as a current liability. Which of the following best describes this account? a. Payment has been received for services rendered. b. Payment has been received but will not be recognized as earned revenue until the service is delivered. c. Payment has not been received and will not be recognized as earned revenue untill later in the year. d. Payment has not been received or recognized as earned revenue. 16. You are reviewing the financial statements for one of your bank's borrowing customers. Included is a management letter prepared by the company's auditors. Which of the following best describes the purpose of the management letter? a. A detalled evaluation of the involvement of each member of senior management in the internal control structure b. Identification of internal control deficiencies noted during the audit with recommendations for improvement c. A listing of the financial effect of audit differences noted in the course of the audit d. Details of audit procedures performed on the audited financial statements 17. Burgess Building Supplies is a distributor of construction products to home builders. The company would like to ensure that their method for valuating accounts receivable reflects the accounting principle of conservatism. Which of the following is the company most likely to employ? a. Direct write-off method b. Allowance for doubtful accounts c. Sales returns and allowances d. Write-off accounts over 120 days past-due 18. In reviewing the financial statements for one of your bank's clients, you discover the following paragraph: "In our opinion, except for the effects of ary adjustments on the Year 2 fincocial stotements thut might hove been necessary had we been able to directly confirm with the company's legol counsel the status of lawsuits pending against the compony, the financial statements referred to above present foirly, in all material respects, the finoncial condition of the componyes of luly 31 , Year 2 , and the results of its operotipos and its cash flows for the yeor then ended in conformity with generally accepted occounting principlas " In which of the following statements would the above paragraph appear? a. Audit-qualified b. Audit - unqualified c. Compilation d. Review 19. You have received the accountant prepared financial statements of Datatron, a privately held company specializing in data storage. You are concerned about the valid of the statements. Which of the following events have most likely led you to this conclusion? a. The professional public accountant has in-depth knowledge of the data storage industry. b. The protessional public accountant has a minority interest in the company. c. The accounting firm performed an audit rather than a review. d. The accounting firm tested financial controls in the company. 20. A company recently borrowed $2 milion from your bank to purchase equipment and imventory. Which of the following accounting entries describes this transaction a. Debit debt; credit inventory and equipment b. Debit inventory and equipment, credit debt c. Debit equipment and debt; credit inventory d. Debit inventory; credit debt and equipment 21. You are reviewing the statements of Copy Pro, a servicing company, In order to analyze the balance sheet liquidity of the company, which of the following notes to the financial statements are you most likely to review? a. Bank debt b. Inventory methods. c. Depreciation methods d. Revenue recognition 22. At FYE Year 1, Fields Contracting is 20% complete on the building of a 51,000,000 strip plaza for Acme, Inc. The company expects a gross profit margin of 15%. Fields sent a bill for $190,000 to Acme at FYE Year1. If Fields uses percentage of completion accounting, which of the following are the correct accounting entries for the job? a. Debit Accounts receivable $190,000; Credit Billings in excess of cost $10,000; Credit $ ales $180,000 b. Debit Accounts receivable $190,000; Debit Costs in excess of billings $10,000; Credit $ales$200,000 c. Debit Sales $200,000; Credit Accounts receivable $190,000; Credit Billines in excess of cost $10,000 d. Debit Contract in progress $10,000; Debit Accounts Receivable $190,000; Credit Sales $200,000 23. Blacktop, Inc, is a processor of asphalt used in road and highway construct ion. The company uses the LIFO cost allocation method. During a period of rising inventory prices (assuming all else is constant), which of the following will occur? a. Sales will be higher. b. Operating expenses will be higher. c. Cost of goods sold will be lower. d. Net income will be lower. 24. Two years ago, Overland Cement Corporation purchased new equipment for its factory. Using accounting principles, which of the following valuation method best describes the amount of the equipment on Overland's current balance sheer? a. Market value b. Lower of cost or market c. Historical value d. Depreciated Cost 25. You are reviewing the financial statements for Grove Pharmaceuticals. Due to the nature of the industry, there appear to be a number of non-cash items on the company's statements. Which of the following are you least likely to include as a non-cash item in your analysis? a. Depreciation b. Research and development c. Write down of inventory d. Provision for bad debt