ACC 300 Final Exam 2
Section I: True/False
The response to each question or statement is either True or False.
1. A business organized as a separate legal entity owned by stockholders is a partnership.
2. External users of accounting information are managers who plan, organize, and run a business.
3. Two primary external users of accounting information are investors and creditors.
4. Financing activities for corporations include borrowing money and selling shares of their own stock.
5. Income will always be greater under the cash basis of accounting than under the accrual basis of accounting.
6. The difference between unearned revenue and accrued revenue is that accrued revenue has been recorded and needs adjusting and unearned revenue has never been recorded.
7. Cash is a temporary account.
8. Bonding means insuring a company against theft by employees.
9. The treasurer should prepare and sign a check only after authorization to issue a check has been provided.
10. Using borrowed money to increase the rate of return on common stockholders' equity is called "trading on the equity."The extent of internal control features adopted by a company must be evaluated in terms of cost-benefit.
11. A good system of internal control will safeguard its assets and enhance the accuracy and reliability of its accounting records.
12. All reconciling items in determining the adjusted cash balance per books require the depositor to make adjusting journal entries to the Cash account.
13. Cash equivalents include money market accounts, commercial paper, and U.S. treasury bills held for ninety days or less.
14. A basic principle of cash management is to increase the speed of paying liabilities.
15. A cash budget contributes to more effective cash management.
16. A change in accounting principle occurs when the principle used in the current year is different from the one used by competitors in the current year.
17. If a company has sales of $110 in 2007 and $154 in 2006, the percentage decrease in sales from 2006 to 2007 is 140%.
18. In a common size income statement, each item is expressed as a percentage of net income.
19. Profitability ratios are frequently used as a basis for evaluating management's operating effectiveness
20. Inventory turnover is a measure of liquidity that focuses on efficient use of inventory.
21. The current ratio is a measure of all the ratios calculated for the current year.
22. From a creditor's point of view, the higher the total debt to total assets ratio, the lower the risk that the company may be unable to pay its obligations.
23. Alternative accounting methods affect the quality of earnings
24. Because pro forma earnings are based on specific rules, these amounts are highly reliable. Section II: Multiple Choice Choose your response from one of the possible answers provided.
26. A business organized as a corporation
27.Which of the following is not one of the three forms of business organization?
28. An advantage of the corporate form of business is that
29.The group of users of accounting information charged with achieving the goals of the business is its
30.Which of the following is a primary user of accounting information with a direct financial interest in the business?
31. An income statement
32.Which financial statement is prepared first?
33. Which one of the following is not a justification for adjusting entries?
34. If a resource has been consumed but a bill has not been received at the end of the accounting period, then
35.An adjusting entry would not include which of the following accounts?
36.At December 31, 2007, before any year-end adjustments, Bollis Company's Prepaid Insurance account had a balance of $2,700. It was determined that $1,500 of the Prepaid Insurance had expired. The adjusted balance for Insurance Expense for the year would be
37.Which one of the following is not an objective of a system of internal controls?
38.Which one of the following would be considered a long-term solvency ratio?
39.Which of the following is not a limitation of internal control?
40.Companies that fail to maintain an adequate system of internal control
42.From an internal control standpoint, the asset most susceptible to improper diversion and use is
43.Which of the following statements is true?
44.Which of the following is not an internal control procedure for cash?
45.A check for $167 is incorrectly recorded by a company as $176. On the bank recon-ciliation, the $9 error should be
46.Which of the following would not be reported on the balance sheet as a cash equivalent?
47.An income statement would not include
48.Which one of the following would be classified as an extraordinary item?
49.The disposal of a significant segment of a business is called
50.A successful grocery store would probably have