Question 1

The accounting term for an uncertain circumstance involving a potential gain or loss that will NOT be resolved until the future is a(n)

Accepted Answer

A)  Extraordinary item 
B)  Contingency 
C)  Pension 
D)  Deferred liability 
A)  Extraordinary item 
B)  Contingency 
C)  Pension 
D)  Deferred liability

Question 2

A footnote disclosure only is required if the likelihood of a loss due to a contingency is

Accepted Answer

A)  Remote 
B)  Reasonably possible 
C)  Probable 
D)  Negligible 
A)  Remote 
B)  Reasonably possible 
C)  Probable 
D)  Negligible

Question 3

Which of the following is NOT a legal liability?

Accepted Answer

A)  Accounts Payable 
B)  Pension Benefit Obligation 
C)  Sales Tax Payable 
D)  Deferred Tax Liability 
A)  Accounts Payable 
B)  Pension Benefit Obligation 
C)  Sales Tax Payable 
D)  Deferred Tax Liability

Question 4

When the right to purchase stock in the future is used as a substitute for a cash bonus, the company is granting

Accepted Answer

A)  Post-retirement benefits 
B)  Compensated absences 
C)  Stock options 
D)  Post-employment benefits 
A)  Post-retirement benefits 
B)  Compensated absences 
C)  Stock options 
D)  Post-employment benefits

Question 5

On June 1, Jenni invested $4,000 into a mutual fund. By December 31, the value of the mutual fund had increased to $5,200. Jenni did not sell any portion of the mutual fund during the year. Assuming Jenni's income tax rate on this investment will be 25%, the journal entry to record the income tax expense is

Accepted Answer

A)  
  
B)  
  
C)  
  
D)  
  
A)  
  
B)  
  
C)  
  
D)

Question 6

Which of the following events would be considered an extraordinary item?

Accepted Answer

A)  An airline experienced a significant loss due to a strike by employees of the company who provide its aircraft maintenance. 
B)  A food cannery was faced with a large loss of inventory of canned soups due to government condemnation because of possible botulism contamination; the company had never experienced a similar situation in its history. 
C)  A company, located on an island which has experienced severe flooding three times in the past 25 years, was subjected to a heavy loss of physical plant due to flooding. 
D)  A medical corporation was required to pay a patient damages equal to three times its average net income. The corporation had experienced suits of this nature in the past, but the amount of the losses had never exceeded 5 percent of the corporation's average net income. 
A)  An airline experienced a significant loss due to a strike by employees of the company who provide its aircraft maintenance. 
B)  A food cannery was faced with a large loss of inventory of canned soups due to government condemnation because of possible botulism contamination; the company had never experienced a similar situation in its history. 
C)  A company, located on an island which has experienced severe flooding three times in the past 25 years, was subjected to a heavy loss of physical plant due to flooding. 
D)  A medical corporation was required to pay a patient damages equal to three times its average net income. The corporation had experienced suits of this nature in the past, but the amount of the losses had never exceeded 5 percent of the corporation's average net income.

Question 7

On December 31, the trial balance of Cubico Company included the following accounts with debit balances:   If it is determined that the cost of advertising applicable to future periods is $3,300, the correct adjusting entry would

Accepted Answer

A)  Debit Advertising Expense $3,300; credit Prepaid Advertising $3,300 
B)  Debit Prepaid Advertising $1,800; credit Advertising Expense $1,800 
C)  Debit Advertising Expense $1,800; credit Prepaid Advertising $1,800 
D)  Debit Prepaid Advertising $3,300; credit Advertising Expense $3,300 
A)  Debit Advertising Expense $3,300; credit Prepaid Advertising $3,300 
B)  Debit Prepaid Advertising $1,800; credit Advertising Expense $1,800 
C)  Debit Advertising Expense $1,800; credit Prepaid Advertising $1,800 
D)  Debit Prepaid Advertising $3,300; credit Advertising Expense $3,300

Question 8

Deferred income taxes arise from

Accepted Answer

A)  Differences between accounting standards and IRS rules 
B)  The postponement of tax payments due to cash shortage 
C)  A special tax created by the IRS 
D)  A net loss 
A)  Differences between accounting standards and IRS rules 
B)  The postponement of tax payments due to cash shortage 
C)  A special tax created by the IRS 
D)  A net loss

Question 9

Which of the following is NOT true about a defined contribution plan?

Accepted Answer

A)  No balance sheet liability is reported in connection with the defined contribution plan. 
B)  Upon retirement, the employee will receive all the money contributed to the pension fund along with the earnings of those contributions 
C)  The amount distributed in the defined contribution plan is dependent upon various factors such as salary increases, employee turnover, and employee life span. 
D)  Each year a company reports a pension expense of the amount contributed to the employees' pensions. 
A)  No balance sheet liability is reported in connection with the defined contribution plan. 
B)  Upon retirement, the employee will receive all the money contributed to the pension fund along with the earnings of those contributions 
C)  The amount distributed in the defined contribution plan is dependent upon various factors such as salary increases, employee turnover, and employee life span. 
D)  Each year a company reports a pension expense of the amount contributed to the employees' pensions.

Question 10

Indicate the appropriate accounting treatment for each independent situation shown below.

Accepted Answer

The answer of Indicate the appropriate accounting treatment for each...

Question 11

Which of the following is the proper method used to account for employee stock options?

Accepted Answer

A)  Fair value 
B)  Intrinsic value 
C)  Book value 
D)  Realizable value 
A)  Fair value 
B)  Intrinsic value 
C)  Book value 
D)  Realizable value

Question 12

The earnings from assets in a company's pension fund that are used to offset the cost of the pension plan is the

Accepted Answer

A)  Pension-related interest cost 
B)  Pension payment 
C)  Service cost 
D)  Return on pension fund assets 
A)  Pension-related interest cost 
B)  Pension payment 
C)  Service cost 
D)  Return on pension fund assets

Question 13

Indicate whether the following independent expenditures should be capitalized or expensed. Explain your answers.

Accepted Answer

The answer of Indicate whether the following independent expenditures should...

Question 14

When managers are compensated based on the achievement of certain objectives, the company is said to be paying a(n)

Accepted Answer

A)  Incentive 
B)  Bonus 
C)  Salary 
D)  Post-retirement benefit 
A)  Incentive 
B)  Bonus 
C)  Salary 
D)  Post-retirement benefit

Question 15

On June 1, Jenni invested $4,000 into a mutual fund. By December 31, the value of the mutual fund had decreased to $3,200. Jenni did not sell any portion of the mutual fund during the year. Assuming Jenni's income tax rate on this investment will be 35%, the journal entry to record the income tax expense is

Accepted Answer

A) 
  
B)  
  
C) 
  
D) 
  
A) 
  
B)  
  
C) 
  
D)

Question 16

Which accounting principle requires that the expense associated with compensated absences be accounted for in the period in which it is earned by the employee?

Accepted Answer

A)  Revenue recognition principle 
B)  Expense recognition principle 
C)  Matching principle 
D)  Economic entity principle 
A)  Revenue recognition principle 
B)  Expense recognition principle 
C)  Matching principle 
D)  Economic entity principle

Question 17

During the first week of January, Nathan Mills earned $800. Assume that FICA taxes are 7.65 percent of wages up to $50,000; state unemployment tax is 5.0 percent of wages up to $13,000; and federal unemployment tax is 0.8 percent of wages up to $13,000. Assume that Nathan has voluntary withholdings of $40 (in addition to taxes) and that federal and state income tax withholdings are $72 and $24, respectively. What amount is the check, net of all deductions, that Nathan received for the week's pay?

Accepted Answer

A)  $602.80 
B)  $566.80 
C)  $560.40 
D)  $620.80 
A)  $602.80 
B)  $566.80 
C)  $560.40 
D)  $620.80

Question 18

Assante Corporation reported the following data for the period: earnings per share, $4.80; retained earnings, $54,000; revenues, $150,000; capital stock, $30,000; expenses, $126,000. Given the above information, how many shares of stock are outstanding?

Accepted Answer

A)  9,000 
B)  5,000 
C)  4,000 
D)  3,500 
A)  9,000 
B)  5,000 
C)  4,000 
D)  3,500

Question 19

Which of the following types of contingencies would NOT be disclosed on the financial statements until it has been resolved?

Accepted Answer

A)  A lawsuit against our company and it is probable that we will lose 
B)  A lawsuit against our company and it is reasonably possible we will lose 
C)  A lawsuit we have filed against a competitor and it is probable that we will win 
D)  All of these must be disclosed on the financial statements 
A)  A lawsuit against our company and it is probable that we will lose 
B)  A lawsuit against our company and it is reasonably possible we will lose 
C)  A lawsuit we have filed against a competitor and it is probable that we will win 
D)  All of these must be disclosed on the financial statements

Question 20

What effect does an extraordinary item have on the taxes of a company?

Accepted Answer

A)  Taxes are increased with an extraordinary gain or loss 
B)  Taxes are decreased with an extraordinary gain or loss 
C)  Taxes are increased with an extraordinary loss and decreased with an extraordinary gain 
D)  Taxes are increased with an extraordinary gain and decreased with an extraordinary loss 
A)  Taxes are increased with an extraordinary gain or loss 
B)  Taxes are decreased with an extraordinary gain or loss 
C)  Taxes are increased with an extraordinary loss and decreased with an extraordinary gain 
D)  Taxes are increased with an extraordinary gain and decreased with an extraordinary loss

Exam 8: Completing the Operating Cycle

The accounting term for an uncertain circumstance involving a potential gain or loss that will NOT be resolved until the future is a(n)

A footnote disclosure only is required if the likelihood of a loss due to a contingency is

Which of the following is NOT a legal liability?

When the right to purchase stock in the future is used as a substitute for a cash bonus, the company is granting

Which of the following events would be considered an extraordinary item?

On December 31, the trial balance of Cubico Company included the following accounts with debit balances: If it is determined that the cost of advertising applicable to future periods is $3,300, the correct adjusting entry would

Deferred income taxes arise from

Which of the following is NOT true about a defined contribution plan?

Indicate the appropriate accounting treatment for each independent situation shown below.

Which of the following is the proper method used to account for employee stock options?

The earnings from assets in a company's pension fund that are used to offset the cost of the pension plan is the

Indicate whether the following independent expenditures should be capitalized or expensed. Explain your answers.

When managers are compensated based on the achievement of certain objectives, the company is said to be paying a(n)

Which accounting principle requires that the expense associated with compensated absences be accounted for in the period in which it is earned by the employee?

Assante Corporation reported the following data for the period: earnings per share, $4.80; retained earnings, $54,000; revenues, $150,000; capital stock, $30,000; expenses, $126,000. Given the above information, how many shares of stock are outstanding?

Which of the following types of contingencies would NOT be disclosed on the financial statements until it has been resolved?

What effect does an extraordinary item have on the taxes of a company?

Accounting Information: Users and Uses

Financial Statements: An Overview

The Accounting Cycle: The Mechanics of Accounting

Completing the Accounting Cycle

Internal Controls: Ensuring the Integrity of Financial Information

Receivables: Selling a Product or a Service

Inventory and the Cost of Sales

Investments: Property, Plant, and Equipment and Intangible Assets

Financing: Long-Term Liabilities

Financing: Equity

Investments: Debt and Equity Securities

Statement of Cash Flows

Analyzing Financial Statements

Management Accounting and Cost Concepts

Cost Flows and Business Organizations

Activity-Based Costing

Budgeting and Control

Controlling Cost and Profit

Inventory Management and Variable and Absorption Costing

Cost Behavior and Decisions Using C-V-P Analysis

Relevant Information and Decisions

Capital Investment Decisions

New Measures of Performance

Filters