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extraordinary items and accounting changes more than these are emphasized in the multiple-
step income statement.
the various components of income from continuing operations.
Under which of the following conditions would material flood damage be considered an
extraordinary item for financial reporting purposes?
Which of the following is a required disclosure in the income statement when reporting the disposal
of a component of the business?
Discontinued operations
Unusual gain
Where must earnings per share be disclosed in the financial statements to satisfy generally
accepted accounting principles?
No Ye
s
No N
o
Yes N
o
Yes Ye
s
Earnings per share data are required on the face of which of the following financial statements?
Statement of retained
earnings
Statement of stockholders' equity
Income statement
Balance sheet
investments by owners.
Yes No
No No
No Yes
Chapter 5
The amount of time that is expected to elapse until an asset is realized or otherwise converted into
cash is referred to as
liquidity.
exchangeability.
solvency.
financial
flexibility.
The basis for classifying assets as current or noncurrent is the period of time normally required by
the accounting entity to convert cash invested in
patents.
goodwill.
inventory.
machinery.
Trade accounts
payable
Stock dividends
distributable
The currently maturing portion of long-term debt
Unearned revenue
Working capital is
other asset.
current asset.
investment.
Which of the following balance sheet classifications would normally require the greatest amount of
supplementary disclosure?
Long-term liabilities
Current assets
Current liabilities
Plant assets
liquidity.
exchangeability.
solvency.
financial
flexibility.
The basis for classifying assets as current or noncurrent is the period of time normally required by
the accounting entity to convert cash invested in
patents.
goodwill.
inventory.
machinery.
Unearned revenue
Working capital is
None of these.
other asset.
current asset.
investment.
Which of the following balance sheet classifications would normally require the greatest amount of
supplementary disclosure?
Long-term liabilities
Current assets
Current liabilities
Plant assets
Chapter 6
Which of the following situations does NOT base an accounting measure on present values?
Sinking funds.
Leases.
Pensions.
Prepaid
insurance.
If you invest $50,000 to earn 8% interest, which of the following compounding approaches would
return the lowest amount after one year?
Annually.
Monthly.
Daily
.
Quarterly
.
Which factor would be greater - the present value of $1 for 10 periods at 8% per period or the
future value of $1 for 10 periods at 8% per period?
Need more
information.
Present value of $1 for 10 periods at 8% per
period.
Future value of $1 for 10 periods at 8% per
period.
Which of the following tables would show the smallest value for an interest rate of 5% for six
periods?
Present value of 1.
Which table would you use to determine how much you would need to have deposited three years
ago at 10% compounded annually in order to have $1,000 today?
The figure .94232 is taken from the column marked 2% and the row marked three periods in a
certain interest table. From what interest table is this figure taken?
Present value of 1.
Future value of 1.
Which of the following transactions would best use the present value of an annuity due of 1 table?
Durant, Inc. borrows $20,000 and has agreed to pay back the principal plus interest in three
years.
Fernetti, Inc. rents a truck for 5 years with annual rental payments of $20,000 to be made at
the beginning of each year.
Babbitt, Inc. wants to deposit a lump sum to accumulate $50,000 for the construction of a new
parking lot in 4 years.
Edmiston Co. rents a warehouse for 7 years with annual rental payments of $120,000 to be
made at the end of each year.
What is the relationship between the future value of one and the present value of one?
The present value of one equals one plus future value factor for n-1
periods.
The present value of one equals one divided by the future value of
one.
The present value of one equals one plus the future value factor for n+1
value.
The present value of one equals the future value of one plus
one.
Which of the following tables would show the largest value for an interest rate of 10% for 8 periods?
Present value of 1
table.
Future amount of an ordinary annuity of 1 table.
On December 1, 2010, Richards Company sold some machinery to Fleming Company. The two
companies entered into an installment sales contract at a predetermined interest rate. The contract
required four equal annual payments with the first payment due on December 1, 2010, the date of
the sale. What present value concept is appropriate for this situation?
If Jethro wanted to save a set amount each month in order to buy a new pick-up truck when the
new models are next available, which time value concept would be used to determine the monthly
payment?
Future value of
one.
Present value of one.
The factor for the present value of an annuity due is found by adding 1.00000 to the ordinary
annuity table value for one less period.
The factor for the present value of an annuity due is found by multiplying the ordinary annuity
table value by one minus the interest rate.
The factor for the future value of an annuity due is found by subtracting 1.00000 from the
ordinary annuity table value for one more period.
The factor for the future value of an annuity due is found by multiplying the ordinary annuity
table value by one plus the interest rate.
Al Darby wants to withdraw $20,000 (including principal) from an investment fund at the end of
each year for five years. How should he compute his required initial investment at the beginning of
the first year if the fund earns 10% compounded annually?
If an annuity due and an ordinary annuity have the same number of equal payments and the same
interest rates, then
the future value of the annuity due is equal to the future value of the ordinary
annuity.
the present value of the annuity due is greater than the present value of the ordinary
annuity.
the future value of the annuity due is less than the future value of the ordinary
annuity.
the present value of the annuity due is less than the present value of the ordinary
annuity.
What is the relationship between the present value factor of an ordinary annuity and the present
value factor of an annuity due for the same interest rate?
Assume ABC Company deposits $25,000 with First National Bank in an account earning interest at
6% per annum, compounded semi-annually. How much will ABC have in the account after five years
if interest is reinvested?
$33,456.
$25,000.
$33,598.
$32,500.
What would you pay for an investment that pays you $10,000 at the end of each year for the next
twenty years? Assume that the relevant interest rate for this type of investment is 12%.
$83,658.
$10,367.
$74,694.
$720,524.
Present value of 1
Future value of 1
Chapter 7
Postdated checks
A cash equivalent is a short-term, highly liquid investment that is readily convertible into known
amounts of cash and
What is the preferable presentation of accounts receivable from officers, employees, or affiliated
companies on a balance sheet?
As offsets to capital.
What is the normal journal entry when writing-off an account as uncollectible under the allowance
method?
Which of the following methods of determining bad debt expense does not properly match expense
and revenue?
Which of the following is true when accounts receivable are factored without recourse?
The transaction may be accounted for either as a secured borrowing or as a sale, depending
upon the substance of the transaction.
The receivables are used as collateral for a promissory note issued to the factor by the owner
of the receivables.
The financing cost (interest expense) should be recognized ratably over the collection period of
the receivables.
The factor assumes the risk of collectibility and absorbs any credit losses in collecting the
receivables.
What is a possible reason for accounts receivable turnover to increase from one year to the next
year
write-off uncollectible
receivables.
granting credit to customers with lower credit
quality.
improved collection process.