Question 1

The difference between cost of fixed assets and accumulated depreciation is referred to as:

Accepted Answer

The cost of fixed assets represents the initial cost of acquiring the asset, while accumulated depreciation represents the amount of depreciation charged against the asset over its useful life. The difference between the cost and accumulated depreciation is referred to as the carrying amount, which represents the net value of the asset on the company's balance sheet. Therefore, choice B, carrying amount, is the correct answer.

Question 2

Which of the following will cause an increase in net profit margin, asset turnover and financial leverage as long as expenses do not grow faster than revenue?

Accepted Answer

An increase in sales volume will result in higher revenue, which will increase net profit margin (profit/revenue). If expenses remain constant or grow slower than revenue, this will also result in higher net profit. An increase in sales volume will also increase asset turnover (revenue/average total assets) as more assets are being utilized to generate revenue. Finally, financial leverage (assets/equity) will increase with an increase in total assets unless equity also increases proportionally. A and D are not necessarily true as an increase in profit or a decrease in total liabilities may not result in an increase in net profit margin, asset turnover, or financial leverage. B will decrease asset turnover, which is not desirable.

Question 3

Liberward, Inc. sold and issued 1,000 shares for $15 per share. The book value of the shares was $10 per share. The journal entry to record the share issue would include which of the following?

Accepted Answer

When shares are issued, the company receives cash in exchange for the shares. This cash received is recorded as a debit to Cash. The company also records the shares issued as an increase in Contributed capital, which is recorded as a credit to this account. In this case, Liberward, Inc. received $15 per share, which is higher than the book value of $10 per share. Therefore, the credit to Contributed capital should be for the full $15,000 ($15 per share x 1,000 shares issued).

Question 4

Which of the following is not used by financial analysts in forming a recommendation about whether a company's shares should be sold, held or bought?

Accepted Answer

Financial analysts typically rely on objective data and analysis, such as financial statements, market trends, industry performance, and economic indicators. The opinions of "the man on the street" are not considered reliable sources of information for making financial recommendations.

Question 5

What is the primary purpose of hiring a public accounting firm to examine the financial statements of the company?

Accepted Answer

The primary purpose of hiring a public accounting firm to examine the financial statements of the company is to provide credibility that the financial information conforms with international financial reporting standards in all material respects. While detecting accounting errors and fraud are potential benefits of an audit, they are not the primary purpose. Additionally, it's important to note that auditors do not provide assurance that fraud has not occurred, only that the financial statements are fairly presented in accordance with accounting standards.

Question 6

Financing activities involve

Accepted Answer

Financing activities include activities related to raising funds (capital) for the company such as issuing debt securities like bonds or acquiring additional financing through loans from banks. Activities like acquiring investments or long-lived assets are investing activities.

Question 7

Which of the following statements is true?

Accepted Answer

The current ratio is calculated by dividing current assets by current liabilities. Choices A, C, and D are incorrect statements. Accumulated depreciation is a contra account in the balance sheet, not the income statement. The book value of a building is the cost less the accumulated depreciation, not just the current year's depreciation. Retained earnings is the accumulated profit minus the accumulated dividends paid.

Question 8

In what order are current assets usually reported on the statement of financial position?

Accepted Answer

Current assets are usually reported in order of liquidity, meaning those assets that can be quickly and easily converted into cash are listed first. This allows investors and creditors to assess the company's ability to meet its short-term obligations.

Question 9

The dollar amount of current liabilities is:

Accepted Answer

Current liabilities are $40,000 (accounts payable) + $156,000 (short-term notes payable) = $196,000.

Question 10

Which of the following is not classified as a current asset?

Accepted Answer

Equipment with an estimated useful life of five years is classified as a fixed asset, not a current asset. The other choices (B, C, and D) are all classified as current assets.

Question 11

The conceptual framework of accounting helps to ensure that

Accepted Answer

The conceptual framework of accounting provides consistent standards and guidelines for the preparation and presentation of financial statements. It allows for a uniform approach to be taken in accounting, ensuring that financial information is reliable and consistent across different companies, industries, and countries. It also helps to establish the nature, functions, and limits of financial statements, ensuring that users can rely on them to make informed decisions. The framework is not intended to provide a rule for every possible situation, nor is it unique to any one country. It is also not designed to make financial statements understandable to users with no accounting or business knowledge.

Question 12

The dollar amount of current assets is:

Accepted Answer

The question does not provide any context for the current assets of which organization or entity is being referred to. However, out of the options provided, the highest dollar amount is $196,000, so the answer is B.

Question 13

If a company has both an inflow and outflow of cash related to the acquisition of equipment for $15,000 cash and the sale of machinery for $10,000 cash, the

Accepted Answer

The answer of If a company has both an inflow...

Question 14

Which one of the following is not a qualitative characteristic of useful accounting information?

Accepted Answer

Going concern is an assumption in accounting that assumes the business will continue operating for the foreseeable future. It is not a qualitative characteristic of useful accounting information, which are relevance, faithful representation, comparability, and verifiability.

Question 15

What happens when the actual profit reported exceed the expected profit for a company?

Accepted Answer

When the actual profit reported exceed the expected profit for a company, it signals to investors that the company is performing better than anticipated, which can cause an increase in demand for the company's shares and thus an increase in the share price. This is because investors often make investment decisions based on the company's expected profit and if the actual profit exceeds expectations, it indicates that the company is doing well and is expected to continue performing well in the future.

Question 16

Which of the following would appear in the current asset section of a classified statement of financial position?

Accepted Answer

Prepaid expenses would appear in the current asset section of a classified statement of financial position because they represent payments made in advance for goods or services that will be received in the future. Accumulated depreciation, bonds payable, and intangible assets are not current assets.

Question 17

The two qualitative characteristics that are defined in terms of what influences or makes a difference to a decision maker are

Accepted Answer

Materiality and relevance are the two qualitative characteristics that are defined in terms of what influences or makes a difference to a decision maker. Materiality relates to the importance of an item or event while relevance relates to its significance to the decision being made.

Question 18

Liabilities are generally classified on a statement of financial position as

Accepted Answer

Liabilities are commonly divided into two categories: current liabilities and non-current liabilities (formerly known as long-term liabilities). Current liabilities are obligations that are due within one year or the current operating cycle (whichever is longer), while non-current liabilities are obligations that are due after one year or beyond the current operating cycle. This classification is important for financial statement readers to understand the company's short-term and long-term debt obligations. Therefore, D is the best choice.

Question 19

Which of the following is true about gross profit (gross margin)?

Accepted Answer

Gross profit, also known as gross margin, is calculated as net sales minus cost of goods sold. It represents the amount of revenue remaining after deducting the direct costs associated with producing the goods or services being sold.

Question 20

Long-lived assets without physical substance are:

Accepted Answer

Long-lived assets without physical substance are classified as intangible assets, such as patents, copyrights, trademarks, and goodwill.

Quiz 6: Reporting and Interpreting Sales Revenue, Receivables, and Cash