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ACCT556 Midterm Exam Part 1

PART 1 OURSE MENUSKIP TO TOP FRAME TABS


Question 1
2 out of 2 points

Solvency ratios measure the short-term ability of the company to pay its maturing obligations.
Answer
Selected Answer:

False

Correct Answer:

False

Question 2
2 out of 2 points

Source documents can provide evidence that a transaction has occurred.


Answer
Selected Answer:

True

Correct Answer:

True

Question 3
2 out of 2 points

Consistent use of the same accounting principles and methods is necessary for meaningful analysis of trends within a
company.
Answer
Selected Answer:

True

Correct Answer:

True

Question 4
2 out of 2 points

The economic resources that are owned by a business are called stockholders equity.
Answer
Selected Answer:

False

Correct Answer:

False

Question 5
2 out of 2 points

Financing activities include the purchase or sale of long-lived assets or the purchase or sale of investment securities.
Answer
Selected Answer:

False

Correct Answer:

False

Question 6
2 out of 2 points

The multiple-step income statement is considered more useful than the single-step income statement because it
highlights the components of net income.
Answer
Selected Answer:

True

Correct Answer:

True

Question 7
2 out of 2 points

Which of the following is not a common way that managers use the balance sheet?
Answer
Selected
Answer:

To analyze the balances of assets, liabilities, and stockholders equity throughout the accounting
period

Correct Answer:
To analyze the balances of assets, liabilities, and stockholders equity throughout the accounting
period

Question 8
0 out of 2 points

Which of the following is the least likely consideration that management uses when deciding whether to pay a
dividend?
Answer
Selected Answer:
Does the company have more cash than it has opportunities?
Correct Answer:
Is the company's average number of common shares outstanding decreasing?

Question 9
2 out of 2 points

The revenue recognition principle dictates that revenue be recognized in the accounting period in which the
performance obligation is satisfied.
Answer
Selected Answer:

True

Correct Answer:

True

Question 10
2 out of 2 points

The best definition of assets is the


Answer
Selected Answer:
resources belonging to a company that have future benefit to the company.
Correct Answer:
resources belonging to a company that have future benefit to the company.

Question 11
2 out of 2 points

Goods that have been purchased FOB destination but are in transit, should be excluded from a physical count of
goods by the buyer.
Answer
Selected Answer:

True

Correct Answer:

True

Question 12
0 out of 2 points

Management may choose any inventory costing method it desires as long as the cost flow assumption chosen is
consistent with the physical movement of goods in the company.
Answer

Selected Answer:

True

Correct Answer:

False

Question 13
2 out of 2 points

Bathlinks Corporation has a debt to assets ratio of 73%. This tells the user of Bathlinkss financial statements that
Answer
Selected Answer:
there is a risk that Bathlinks cannot pay its debts as they come due.
Correct Answer:
there is a risk that Bathlinks cannot pay its debts as they come due.

Question 14
2 out of 2 points

The partnership form of business organization


Answer
Selected Answer:
is a common form of organization for service-type businesses.
Correct Answer:
is a common form of organization for service-type businesses.

Question 15
2 out of 2 points

Expense recognition is tied to revenue recognition.


Answer
Selected Answer:

True

Correct Answer:

True

Question 16
2 out of 2 points

Which of the following would not be classified as a long-term liability?


Answer
Selected Answer:
Current maturities of long-term debt
Correct Answer:
Current maturities of long-term debt

Question 17
2 out of 2 points

To obtain maximum benefit from a bank reconciliation, the reconciliation should be prepared by the employee
authorized to sign checks.
Answer
Selected Answer:

False

Correct Answer:

False

Question 18
2 out of 2 points

Requiring employees to take vacations is a weakness in the system of internal controls because it does not promote
operational efficiency.
Answer
Selected Answer:

False

Correct Answer:

False

Question 19
2 out of 2 points

An advantage of using the periodic inventory system is that it requires less record keeping than the perpetual
inventory system.
Answer
Selected Answer:

True

Correct Answer:

True

Question 20
2 out of 2 points

A concentration of credit risk is a threat of nonpayment from a single customer or class of customers that could
adversely affect the financial health of the company.
Answer
Selected Answer:

True

Correct Answer:

True

Question 21
2 out of 2 points

Marvin Services Corporation had the following accounts and balances:


Accounts payable
$18,000
Equipment
Accounts receivable
3,000
Land
Buildings
?
Unearned service revenue
Cash
9,000
Total stockholders' equity

$21,000
21,000
6,000
?

If the balance of the Buildings account was $45,000 and the equipment was sold for $21,000, what would be the total
of stockholders' equity?
Answer
Selected Answer:
$75,000
Correct Answer:
$75,000

Question 22
2 out of 2 points

Use the following data to calculate the current ratio.


Carne Auto Supplies
Balance Sheet
December 31, 2014

Cash
Accounts receivable
Inventory
Prepaid insurance

35,000
50,000
70,000
40,000

Accounts payable
Salaries and wages payable
Mortgage payable
Total liabilities

$ 65,000
10,000
90,000
$165,000

Stock investments
80,000
Land
95,000
Buildings
$100,000
Less: Accumulated
depreciation
(30,000)
85,000
Trademarks
70,000
Total assets
$535,000
Answer

Common stock
Retained earnings
Total stockholders equity
Total liabilities and
stockholders equity

$120,000
250,000
$370,000
$535

Selected Answer:
2.60 : 1
Correct Answer:
2.60 : 1

Question 23
2 out of 2 points

An aging of accounts receivable schedule is based on the premise that the longer the period an account remains
unpaid, the greater the probability that it will eventually be collected.
Answer
Selected Answer:

False

Correct Answer:

False

Question 24
2 out of 2 points

Lankston Company began the year by issuing $90,000 of common stock for cash. The company recorded revenues of
$825,000, expenses of $720,000, and paid dividends of $45,000. What was Lankstons net income for the year?
Answer
Selected Answer:
$105,000
Correct Answer:
$105,000

Question 25
2 out of 2 points

Owners of business firms are the only people who need accounting information.
Answer
Selected Answer:

False

Correct Answer:

False