Test
ACC 102 Midterm Review Questions
Preguntas del test (104)
1When compound interest is used, interest accumulates less quickly than when simple interest is used.
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2The annual interest earned on an amount deposited into a bank account will be the same each year when compound interest is used.
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3An ordinary annuity is a series of equal payments made at the end of equal intervals of time.
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4In a deferred payment arrangement, interest is charged only if it is stated.
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5If the net present value of a proposed investment is negative, it means that the investment should not be made.
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6* Assets purchased under a deferred payment plan should be recorded at the future value of the installment payments.
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7Decision makers rely on the future values, rather than on the present values, of future cash flows.
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8Use this information to answer the following question:
Periods Future Value of $1 at 12% Future Value of Ordinary Annuity of $1 at
(1) 1.120 1.000
(2) 1.254 2.120
(3) 1.405 3.374
A deposit of $2,000 made at the beginning of period 1 would grow to how much at the end of three years?- A$2,240.00
- B$2,810.00
- C$2,508.00
- D$6,748.00
9Which of the following phrases is NOT descriptive of an ordinary annuity?
- APayments made at the beginning of equal periods of time
- BBoth present and future value can be calculated
- CCompound interest assumed
- DSeries of equal payments
10The higher the interest rate assumed, the
- Ahigher the present value of an ordinary annuity.
- Bmore one must deposit today to accumulate to a desired sum.
- Clower the future value of a sum invested in the bank today.
- Dlower the present value of a sum due in the future.
11Heidi wishes to deposit an amount into her savings account that will enable her to withdraw $800 per year for the next four years. She should deposit $800, multiplied by the
- Apresent value of a single sum factor.
- Bpresent value of an ordinary annuity factor.
- Cfuture value of a single sum factor.
- Dfuture value of an ordinary annuity factor.
12First City Bank computes interest semiannually. If the interest rate is currently 6% per annum, the amount deposited today should be multiplied by which future value factor to calculate the amount that will accumulate by the end of 10 years?
- A20 periods at 12%
- B20 periods at 3%
- C10 periods at 6%
- D10 periods at 3%
13* A company purchases an asset on a deferred payment plan, ultimately paying $10,000. On the payment date, the company would
- Acredit Cash for less than $10,000.
- Bdebit Interest Expense for the imputed amount.
- Cdebit the asset account for $10,000.
- Ddebit Accounts Payable for $10,000.
14SHORT ANSWER! - (LOOK AT TABLES!)
--What is the present value of receiving $1,000 at the end of each year for 6 years, assuming 7% interest compounded annually?---
--What amount must be deposited at the bank today to grow to $300 in 5 years, assuming 14% interest compounded semiannually?--- A1,000 x 4.67 = $4,767
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300 x .508 = $152.40 - BDo the math!!
- A1,000 x 4.67 = $4,767
15Extraordinary gains/losses are a component of income from operations.
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16A gain on the sale of an asset is a component of income from operations.
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17The quality of a company's earnings is affected by the accounting estimates chosen by the company's management.
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18If the amount of income taxes expense exceeds the amount of actual income taxes payable for a year, the difference is recorded by a debit to a balance sheet account called Deferred Income Taxes.
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19Discontinued operations and extraordinary items should be reported in the financial statements of "net of tax."
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20Gains and losses caused by the passage of a new law should be classified as extraordinary on the income statement.
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21A business with 100,000 shares of stock outstanding for three months would use a weighted-average 25,000 shares in its EPS calculation.
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22A company with convertible bonds is considered to have a complex capital structure.
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23A debit balance in the Retained Earnings account is referred to as a deficit.
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24A synonymous phrase for retained earnings is accumulated earnings.
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25When common stock is originally issued, its market value per share should approximate its par or stated value per share.
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26Par value or stated value is arbitrarily set when stock is authorized.
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27Which of the following is not a component of income from operations?
- Acosts and expenses
- Bwrite-downs of assets
- Cextraordinary losses
- Drestructuring
28When alternative acceptable accounting methods exist, a better quality of earnings generally is produced from selecting an accounting method that has the effect of reporting the
- Alowest amount of future earnings
- Bgreatest amount of retained earnings currently
- Clowest amount of current earnings
- Dgreatest amount of assets currently
29Which of the following is analyzed when a financial statement reader is looking at the nature of nonoperating items?
- Adiscontinued operations
- Binterest expense
- Cinterest revenue
- Dcost of goods sold
30An excess of income taxes expense over income taxes payable will result in recording a
- Adebit to Deferred Income Taxes
- Bdebit to Income Taxes Payable
- Ccredit to Deferred Income Taxes
- Dcredit to Prior Period Adjustment
31Because noncash investing and financing transactions do not affect cash, they should be excluded from the statement of cash flows.
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32The payment of taxes would be included in the operating activities section of the statement of cash flows.
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33The payment of taxes would be included in the operating activities section of the statement of cash flows.
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34A U.S. treasury bill with an original maturity of one year or less is considered cash equivalent.
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35The primary purpose of the statement of cash flows is to provide information about a company's investing and financing activities during an accounting period.
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36A negative free cash flow indicates that the company has met all its planned cash commitments and has cash available to reduce debit or expand.
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37A decrease in the balance of merchandising inventory is added to net income when calculating net cash flows from operating activities using the indirect method.
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38Cash inflows and outflows are not netted in the investing activities section of the statement of cash flows but are separately disclosed to give the reader full information.
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39Dividends paid are reflected in the financing activities section of the statement of cash flows.
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40The net income for the period would appear in the cash flows from financing activities section of a statement of cash flows prepared using the indirect method.
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41A schedule of noncash investing and financing activities is not required when a statement of cash flows is prepared using the indirect method.
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42Cash equivalents do not include
- AU.S. treasury bills
- Bmoney market accounts
- Cmarketable securities
- Dcommercial paper
43Management would not use the statement of cash flows to
- Aaccess the liquidity of the business
- Bdetermine dividend policy
- Cevaluate the effects of major policy decisions involving investments and financing
- Ddetermine the financial position of the company
44A Corporation engaged in the transaction:
Declared and issued a stock dividend. Indicate which section, if any, each transaction would appear in, or relate to, on a statement of cash flows.- Afinancing activities section
- Boperating activities section
- Cdoes not represent a cash flow
- Dinvesting activities section
45The direct method of preparing a statement of cash flows
- Ais the overwhelming choice of most companies
- Bbegins with net income in the operating activities section
- Cis more difficult to understand than the indirect method for the average reader
- Dwill produce more the same net figure as the indirect method
46The calculation of free cash flow could include all of the following except:
- Acash purchase of plant assets
- Bnet cash flows from operating activities
- Cnet income
- Ddividends paid
47Per the Sarbanes-Oxley Act of 2002, public corporations must establish a compensation committee to determine how its top executives will be compensated.
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48Liquidity is the ability to earn a satisfactory net income
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49Investors, creditors and customers are considered external users of financial statements.
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50The analysis of risk and return is important to both investors and creditors.
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51A limitation of using industry norms in financial performance evaluation is that some companies in the same industry may not be comparable.
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52A 20% change in net sales will result in a 20% change in net income.
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53Vertical analysis is the same as common-size analysis
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54It is possible for horizontal analysis to indicate a decrease in revenues from one year to another and an increase in net income.
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55A primary purpose of vertical analysis is to observe trends over a 5 year period.
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56Ration analysis is useful only if the ratio states a meaningful relationship between two numbers.
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57Executive officers' compensation is typically comprised of all of the following except:
- Ainventive bonuses
- Bdeclared dividends
- Cstock option awards
- Dannual base salaries
58Which of the following is the least useful in evaluating a relationship as either favorable or unfavorable?
- Apast and current performances company
- Bindustry averages
- Cpast performance of the company
- Drule-of-thumb measures
59Dun & Bradstreet publishes
- Adata on average ratios and relationships
- Bcredit ratings of companies
- Cdata on industry norms
- Dall of these
60One of the best places to look for early signs of change in a company's profitability is the
- Aannual report sent to the SEC (10K)
- Byear-end financial statement
- Cinterim financial statement
- Dannual report sent to stockholders
61Horizontal analysis of comparative financial statements include the
- Adevelopment of common-size statements
- Bcalculation of dollar amount changes and percentage changes from the previous to the current year
- Ccalculation of the percentage of net sales for each listed
- Dcalculation of liquidity ratios
62A company with $50,000 in current assets, $25,000 in quick assets, and $30,000 in current liabilities makes a payment of a $1,500 current debt. As a result of this transaction, the current ratio and quick ratio will
- Aboth decrease
- Bincrease and decrease, respectively
- Cboth increase
- Dremain the same and decrease, respectively
63A high receivable turnover indicates that
- Amany customers are defaulting on their debts
- Ba large proportion of the company's sales is on credit
- Cthe company's inventory is moving very quickly
- Dcustomers are making payments very quickly
64The higher the debit to equity ratio, the great the financial risk the company is taking
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65* When a monthly mortgage payment is made and recorded, the debit to Mortgage Payable represents the reduction in the principal balance
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66A capital lease is the lease of property, plant or equipment that is in effect an installment purchase
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67Bondholders are creditors of the issuing corporation
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68Secured bonds are also known as debentures
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69An $80,000 bond issue priced at 97-3/4 is sold for $78,200.
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70The par value of a bond is equal to its face value
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71It is the bondholder rather than the issuer who may exercise the call feature of a callable bond.
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72The entry to record the issuance of bonds between interest payment dates will include a debit to Bond Interest Expense.
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73A company with income before income taxes of $94,000 and $20,000 in interest expense, has an interest coverage ratio of
- A5.7 times
- B4.7 times
- C3.7 times
- D6.7 times
74If bonds are issued at a premium the face interest rate is
- Alower than the market rate of interest
- Bhigher than the market rate of interest
- Ctoo low to attract investors
- Dadjusted to higher effective rate of interest
75Ten $1000 bonds issued at 99.75 on the interest date result in a debit to the Cash account for
- A$990.75
- B$9,907.50
- C$997.50
- D$9,975.00
76A Corporation issued $100,000 of 20-year, 6% bonds at 98 on one of its semiannual interest dates. The straight-line method amortization is to be used. What is the total interest cost of the bonds?
- A$120,000
- B$122,000
- C$118,000
- D$117,500
77*Short Answer!*
A corporation has a 7% $600,000 bond issue that originally was issued 5 years ago. There are now ten years remaining on the bond issue, and the market interest rate is 12%. Interest is paid semiannually. Calculate the current market value of the bond issue, using the present value tables.- ASingle Amount Table 3
M arket
F ace
M arket
Annuity/Semi annuity - Series Amount Table 4 - BBe sure to use tables!
- ASingle Amount Table 3
78The P/E (price/earnings) ratio is a measure of investors' confidence in a company's future.
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79Stockholders elect the board of directors which appoints the officers of a corporation.
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80The board of directors carries out the day-to-day operations of a corporation.
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81The board of directors carries out the day-to-day operations of a corporation.
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82The liability of a stockholder is usually limited to the stockholders' investment in the corporation.
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83The declaration of a cash dividend causes an increase in a corporation's liabilities at the date of record.
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84No entry is required on the date of record for a cash dividend.
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85Stock options are often granted by a corporation to management personnel as a means of additional compensation to and motivation of employees.
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86The stockholders' equity in a corporation consists of capital contributed by a stockholders and retained earnings.
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87Retained earnings consist of a pool of funds to be distributed to stockholders.
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88The cost of treasury stock is deducted from total Contributed Capital and Retained Earnings in determining total stockholders' equity.
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89Dividends yield equals
- Amarket price per share divided by dividends per share
- Bnet income divided by dividends per share
- Cdividends per share divided by net income
- Ddividends per share divided by market price per share
90A disadvantage of the corporate form of business is
- Acentralized authority and responsbility
- Bits status as a separate legal entity
- Cgovernment regulation
- Dcontinuous existence
91Par value
- Ais established for a share of stock after it is issued
- Bis the legal capital established for a share of stock
- Crepresents what a share of stock is worth
- Drepresents the original selling price for a share of stock
92The Board of Directors of B Corporation declared a cash dividend on January 18th, 2011, to be paid on February 18th, 2011, to shareholders holding the stock on February 2nd, 2011. Given these facts, the date February 2nd, 2011 is referred to as the
- Adate of declaration
- Bdate of payment
- Cex-dividend date
- Ddate of record
93All of the following are stockholders' equity accounts except
- ATreasury Stock
- BPreferred Stock
- CRetained Earnings
- DDividends Payable
94Any act that lies beyond the authority of a corporation to perform is an ultra vires act.
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95When stock is sold at par you...
- ADebit Cash / Credit Par Value
- BDebit Par Value / Credit Cash
96A corporation set up perfectly is considered....
- ADejeur
- BDefactor
97A corporation set up with mistakes is....
- ADefacto
- BDejeur
98Name the accounts in the Income Statement
- ADo it!
- BXXOXOJOIJOSIJDOISJ
99Contributed Capital includes all of these EXCEPT
- ACommon & Preferred Stock
- BRetained Earnings
- CPaid in Capital in Excess
- DTreasury Stock
100A fraudulent dividend declaration is considered an act of....
- APiercing the Corporate Veil
- BDeferred Income Tax
- CDefacto
- DUltra vire
101No journal entry is required on
- ADate of Declaration
- BDate of Record
- CDate of Payment
- DDate of Issuance
102A Bondholder is a Debter
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103Interest Formula =
- APrincipal x Rate x Time
- BIncome before Taxes + Interest Expense / Interest Expense
- CCurrent Assets / Current Liabilities
- DDividends per share / Market $ per share
104What measures how much a risk a company represents
- AInterest Cover Ratio
- BDebt to Equity Ratio
- CDividends Yield Ratio
- DReturn on Equity Ratio
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- ACC 102 Midterm Review Questions
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