| Financial Accounting Exam 2 |
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| 1) |
The fundamental accounting equation is a reflection of the: |
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Money measurement concept |
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Conservatism concept |
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Dual-aspect concept |
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Historical cost concept |
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| 2) |
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The historical cost concept reflects the fact that financial accounting practice favors: |
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Reliability over relevance |
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Management’s best guess over historical financial information |
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Relevance over reliability |
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Consensus market values over historical financial information |
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| 3) |
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Jon Sports’ inventory account increased from $25,000 on December 31, 2003 to $30,000 on December 31, 2004. Which one of the following items would be included in the operating section of its 2004 indirect method statement of cash flows? |
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Add increase in inventory $5,000 |
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Subtract increase in inventory ($5,000) |
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Add inventory balance $20,000 |
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Subtract inventory balance ($20,000) |
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| 4) |
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Turnkey Systems, Inc. began the month of June, 2004 with a prepaid expenses balance of $240,000. During the month, debits totaling $110,000 and credits totaling $80,000 were made to the prepaid expenses account. What was the June, 2004 ending balance of prepaid expenses? |
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A debit balance of $210,000 |
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A credit balance of $210,000 |
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A debit balance of $270,000 |
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A credit balance of $270,000 |
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| 5) |
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Pentex and Marbro, small companies in the stationery business, each had a dollar gross margin of $20,000 during September 2004. Pentex’s September sales were twice that of Marbro’s. If Pentex’s gross margin as a percentage of sales for September was 10%, Marbro’s gross margin as a percentage of sales for the same period was: |
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10% |
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5% |
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20% |
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Cannot be calculated |
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| 6) |
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When an entity recognizes revenue before it has received cash for the sale, it records an increase in a(n): |
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Liability such as ‘Advances from customers’ |
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Accounts payable |
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Accounts receivable |
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Prepaid expense |
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| 7) |
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Juan Foods pays off a long-term debt in full. Which one of the following statements describes the effect of the sale on Juan Foods? |
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Current ratio increases; total debt to equity ratio decreases |
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Current ratio decreases; total debt to equity ratio decreases |
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Current ratio decreases; total debt to equity ratio increases |
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Current ratio increases; total debt to equity ratio increases |
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| 8) |
On January 1, 2005, Mansfield Company has a retained earnings balance of $256,000. During 2005, its net income is $44,000 and it announces and pays $12,000 in dividends. There is no other dividend-related activity during the year. Its December 31, 2005 retained earnings balance is: |
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$212,000 |
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$288,000 |
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$300,000 |
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$224,000 |
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| 9) |
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Juan Foods makes a cash sale with a positive gross margin. Which one of the following statements describes the effect of the sale on Juan Foods? |
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Current ratio increases |
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Current ratio decreases |
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No change to Juan Foods’ current ratio |
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Insufficient information to judge effect on current ratio |
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| 10) |
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Juan Foods pays off a long-term debt in full. Which one of the following statements best describes the appropriate book-keeping for this transaction? |
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