DeVry Cincinnati ACCT 212 Exam Guide
KnowledgeCats1. Which of the following persons or groups have the ultimate control of a corporation?
the chief executive officer
the chief operating officer
the audit committee
the stockholders
2. Financial statements are
reports issued by outside consultants who are hired to analyze key operations of the business.
reports created by management that states it is responsible for the acts of the corporation.
standard documents that tell us how well a business is performing and where it stands in financial terms.
standard documents issued by outside consultants who are hired to analyze key operations of the business in financial terms.
3. All of the following are forms of business organizations except:
proprietorship.
partnership.
restaurant.
corporation.
4.The largest organization of professional accountants in the United States is the:
American Institute of Certified Public Accountants.
Securities and Exchange Commission.
Financial Accounting Standards Board.
Auditing Standards Board.
5. The Financial Accounting Standards Board is responsible for establishing:
the American Institute of Certified Public Accountants.
the Securities and Exchange Commission.
generally accepted accounting principles.
the code of professional conduct for accountants.
6. The principle which states that assets acquired by the business should be recorded at their actual price is the:
objectivity principle.
stable dollar principle.
cost principle.
reliability principle.
7. The accounting equation can be stated as:
Assets + Liabilities = Stockholders' equity.
Assets = Liabilities + Stockholders' equity.
Assets = Liabilities - Stockholders' equity.
Assets + Stockholders' equity = Liabilities.
8. The owners' interest in the assets of a corporation is known as:
assets.
stockholders' equity.
expenses.
revenues.
9. Which of the following financial statements would a potential investor most likely use to evaluate a company's financial performance for the current period?
balance sheet
income statement
statement of cash flows
retained earnings statement
10. Assets appear on the:
balance sheet.
income statement.
retained earnings statement.
statement of cash flows.
11. Dividends appear on the:
retained earnings statement.
income statement.
balance sheet
both the retained earnings statement and the income statement.
12. The statement of cash flows is divided into three categories relating to cash flows from operating, investing, and:
management planning activities.
financing activities.
strategic positioning activities.
marketing activities.
13. Gains and losses appear on which of the financial statements listed below?
the balance sheet
the income statement
the retained earnings statement
the statement of cash flows
14. Cash spent to purchase new equipment would appear on the statement of cash flows as:
a financing activity.
an operating activity.
an investing activity.
purchases of new equipment do not appear on a statement of cash flows.
15. Which financial statement is based on the accounting equation?
statement of retained earnings
income statement
statement of cash flows
balance sheet
1. Accounts are grouped together in a book called the:
ledger.
trial balance
journal.
accounting equation.
2. The normal balance of an expense account is a __________ while the normal balance of a revenue account is a __________.
debit, debit
credit, credit
credit, debit
debit, credit
3. Accounting transactions are first recorded in a book or record called a:
file.
ledger.
journal.
source document
4. What is the first step in the journalizing process?
Enter the transaction in the journal.
Arrange data in chronological order.
Determine what accounts will be affected and whether to debit or credit them.
Post the transaction to the ledger.
5. The normal balance of Accounts Receivable is a __________ because it is a(n) __________ account.
credit, liability
debit, expense
credit, stockholders' equity
debit, asset
6. Posting, a part of the accounting process, refers to:
copying amounts from the accounts in the general ledger to the journal.
copying amounts from the financial statements to the general ledger.
copying amounts from the journal to the appropriate accounts in the general ledger.
copying amounts from the general ledger to the financial statements.
7. A chart of accounts is:
a list of all accounts.
a list of all balance sheet accounts.
a list of all income statement accounts.
a list of all accounts with their ending balances.
8. On December 1, 2003, Blue Mountain Snow Removal Service receives $1,800 in advance for an agreement to remove snow from a client's parking lot during the months of December, January, and February. As of December 31, 2003, Blue Mountain Snow Removal Service:
would have a $1,200 liability to its client under accrual accounting, and would have a $1,800 liability to its client under cash-basis accounting.
would have recognized $600 revenue under accrual accounting, and would have recognized $1,800 revenue under cash-basis accounting.
would have a $0 liability to its client under accrual accounting, and would have a $1,200 liability to its client under cash-basis accounting.
would have recognized $600 cash under accrual accounting, and would have recognized 1,800 cash under cash-basis accounting.
9. An accrual refers to an event:
where the cash has not been exchanged between the two parties.
that will never involve an income statement account.
that will never involve cash.
where the cash has already exchanged hands between the two parties.
10. A deferral refers to an event:
where the recognition of an expense or revenue is recorded before the cash is paid or received.
where the liability for an expense is recorded after the expense is actually incurred.
where the liability for an expense is recorded before the expense is actually incurred.
where the recognition of an expense or revenue is recorded after the cash is paid or received.
11. The accounting principle which tells accountants when to record revenue and in what amount is called the:
matching principle
revenue principle.
full disclosure principle.
going concern principle.
12. The accounting principle which serves as the basis for determining when to record expenses is the:
going concern principle.
revenue principle.
full disclosure principle.
matching principle.
13. Adjusting entries:
are prepared at the option of the accountant.
are not needed under the accrual basis of accounting.
are prepared at the beginning of the accounting period to update all accounts.
are prepared at the end of the accounting period to update certain accounts.
14. Book value is defined as:
Your :
depreciation expense plus accumulated depreciation.
the cost of a plant asset less depreciation expense.
the cost of a plant asset less accumulated depreciation.
the cost of a plant asset plus accumulated depreciation.
15. In what order are financial statements generally prepared?
balance sheet, statement of retained earnings, and income statement
income statement, statement of retained earnings, and balance sheet
income statement, balance sheet, and statement of retained earnings
statement of retained earnings, income statement, and balance sheet
1. All of the following are purposes of internal control except:
to safeguard assets.
to ensure accurate and reliable accounts records.
to encourage adherence to company policies.
to ensure the company makes a profit.
2. Who has the primary responsibility for establishing and maintaining a company's system of internal control?
the company's top management
the company's internal auditors
the company's external auditors
the company's stockholders
3. For effective internal control in an organization, who should keep the inventory records?
accountant
treasurer
sales persons
inventory warehouse supervisor
4. Which of the following is a limitation of internal control?
safeguarding company assets
accurate and reliable accounting records
operational efficiency
employee collusion
5. An Internet hacker may sometimes succeed in defeating a company's firewall system and burrow into the company's Web site. Which layer of the onion model of e-commerce system security would the hacker be likely to encounter next?
an encryption device
an incident response procedure
an intrusion detection device
another firewall
6. When preparing a bank reconciliation, which of the following items would be subtracted from the bank balance?
deposits in transit
bank service charges
EFT cash payments
outstanding checks
7. Securities include:
only debt instruments.
only equity instruments.
may be debt or equity instruments.
represent Accounts Receivable and Notes Receivable on the balance sheet.
8. A ledger that contains a separate account for each customer is called an accounts receivable:
control ledger
current ledger
trade ledger
subsidiary ledger
9. A critical element of internal control over collections of accounts receivables is:
depositing the cash from the cash register on a daily basis
setting up a petty cash account
using a check writing machine
the separation of cash-handling and cash-accounting duties
10. The two accepted methods of recording bad debts are the
allowance method and the aging method
receivables method and the aging method
allowance method and the direct write-off method
direct write-off method and the percentage-of-sales method
11. Net accounts receivable is calculated as:
sales less sales returns and allowances
accounts receivable less uncollectible-account expense
accounts receivable less allowance for uncollectible accounts
accounts receivable plus allowance for uncollectible accounts
12. Which principle of accounting prescribes the use of the allowance method of accounting for bad debts?
full disclosure principle
historical cost principle
revenue recognition principle
matching principle
13. The formula for computing interest expense is equal to:
principal x interest rate x time.
(interest rate x principal) / time
(principal x time) / interest rate
principal / (interest rate + time).
14. The number of days it takes to collect the average amount of receivables is called:
the quick ratio
the acid-test ratio
the current ratio
days' sales in receivables
15. Which of the following ratios is considered to be a more stringent measure of a company's ability to pay its current liabilities than the current ratio?
acid-test ratio
equity ratio
debt ratio
days' sales in receivables
1. The largest expense category on the income statement of most merchandising companies is:
cost of goods sold
other expenses
selling expenses
administrative expenses
2. In a merchandising business, gross profit is equal to sales revenue minus:
the sum of cost of goods sold, operating expenses, and prepaid expenses
the sum of cost of goods sold and operating expenses
cost of goods sold
the sum of cost of goods sold and sales commissions
3. Technological advances in computers and inventory tracking have:
made perpetual inventory records less expensive to maintain
completely eliminated the need to physically count inventory
made journal entries unnecessary for inventory purchases
made perpetual inventory records more expensive to maintain
4. Given the following data, what is the cost of goods sold?
Sales revenue $1,980,000
Beginning inventory 380,000
Ending inventory 340,000
Purchases 1,250,000
$690,000
$770,000
$1,290,000
$1,210,000
5. Given the following data, what is the cost of ending inventory?
Sales revenue $1,450,000
Cost of goods sold 845,000
Beginning inventory 310,000
Purchases 950,000
$1,485,000
$415,000
$1,035,000
$205,000
6. When the LIFO method is used, ending inventory is assumed to consist of:
the oldest units
the most recently purchased units
the units with the highest per unit cost
the units with the lowest per unit cost
7. When the FIFO method is used, cost of goods sold is assumed to consist of:
the most recently purchased units
the units with the lowest per unit cost
the units with the highest per unit cost
the oldest units
8. The lower-of-cost-or-market rule is an application of:
accounting conservatism
the disclosure principle
the consistency principle
the materiality concept
9. Treating a capital expenditure as a immediate expense:
understates expenses and overstates owners' equity
understates expenses and understates assets
overstates assets and overstates owner's equity
overstates expenses and understates net income
10. Which of the following depreciation methods best fits those assets that tend to wear out before they become obsolete?
depletion method
straight-line method
double-declining-balance method
units-of-production method
11. Depreciable cost is defined as:
book value
estimated residual value
cost minus accumulated depreciation
cost minus estimated residual value
12. In which of the following depreciation methods is annual depreciation calculated as the difference between the asset's historical cost and its residual value, divided by the asset's useful life in years?
double-declining-balance
straight-line
units-of-production
MACRS
13. Book value is defined as:
cost less salvage value
cost less accumulated depreciation
current market value less salvage value
current market value less accumulated depreciation
14. All of the following are intangible assets except:
trademarks
natural gas
goodwill
copyrights
15. Most intangible assets are:
amortized over a period of 40 years or less
amortized over a period of 20 years or less
amortized over a period greater than 40 years
expensed immediately on the income statement
1. Current liabilities are obligations due within:
one year or within the company's normal operating cycle if it is longer than one year.
one year or within the company's normal operating cycle if it is shorter than one year.
one month or within the company's normal operating cycle if it is longer than one month
one month or within the company's normal operating cycle if it is shorter than one month
2. Warranty expense should be recorded in the period:
that the product sold is repaired or replaced
the product is sold
immediately following the period in which the product is sold
that the product is paid for by the customer
3. Short-term notes payable:
are generally due within three months, with a maximum time period of six months.
are shown as a reduction to notes receivable on the balance sheet, with an appropriate footnote disclosure
are shown on the balance sheet with current liabilities
are shown on the balance sheet after bonds payable
4. Which is the preferred method to use when amortizing a bond discount or premium?
straight-line method of amortization
market-interest rate method of amortization
effective-interest method of amortization
both s A and B
5. All of the following are advantages of issuing stock except:
less risky to the issuing corporation
creates no liabilities for the corporation
creates no interest expense which must be paid
generally results in a higher earnings per share
6. All of the following are advantages of issuing bonds except:
interest expense is tax deductible
does not dilute control of the corporation
less risky to the issuing corporation
generally results in higher earnings per share
7. Corporations are separate taxable entities. The earnings of a corporation are subject to:
federal unemployment taxes
taxation by the SEC
double taxation
the same method of taxation as partnership earnings
8. The number of stocks currently in the hands of stockholders is the same as the number of stocks:
issued.
authorized.
outstanding
proposed by the board of directors
9. Which of the following types of business organizations terminates when its ownership structure changes?
partnerships and proprietorships
partnerships and corporations
proprietorships and corporations
only corporations
10. The ultimate control of the corporation rests with the:
SEC and congress
chief executive officer
stockholders.
employees
11. All of the following are basic rights of a stockholder except:
the right to vote
the right to receive a proportionate share of any assets remaining before the corporation pays its liabilities in the event of liquidation
the right to maintain one's proportionate ownership in the corporation
the right to receive a proportionate part of any dividend
12. In a corporation, the two basic sources of stockholders' equity are:
paid-in capital and operating capital
paid-in capital and retained earnings
donated capital and paid-in capital
donated capital and retained earnings
13. Stock that a corporation has issued and later reacquired is called:
issued stock
outstanding stock
treasury stock
authorized stock
14. A dividend becomes a legal liability of the corporation on the:
date of payment
date of declaration
date of record
date of distribution
15. Which of the following shows the relationship between net income and average common stockholders' equity?
current ratio
acid-test ratio
return on equity
return on assets
1. A statement of cash flows:
is prepared at the option of management
may be combined with the balance sheet
is a basic financial statement required for publicly held companies
may be combined with the statement of retained earnings at the option of management
2. Cash means more than just cash on hand and cash in the bank. Highly liquid, short-term investments that are easily convertible into cash are called:
common stock
cash equivalents
promissory notes
accounts receivable
3. The statement of cash flows is designed to fulfill all of the following purposes except:
to determine the company's ability to pay dividends to stockholders
to assess the collectibility of accounts receivable
to predict future cash flows
to show the relationship of net income to changes in the company's cash
4. The most important section of a statement of cash flows is the:
operating activities
investing activities
financing activities
All of the sections are equally important
5. Investors analyze the statement of cash flows to determine:
the debt-to-equity ratio
which businesses are expanding and which are shrinking
which companies are reporting unearned revenues
total interest earned during the period
6. Cash received from customers would be reported on the statement of cash flows under:
investing activities
operating activities
financing activities
in the schedule of noncash investing and financing activities
7. The issuance of bonds for cash would be reported on a statement of cash flows under the:
operating activities
investing activities
financing activities
no activities because issuing bonds for cash would not be reported on a statement of cash flows
8. The issuance of common stock for cash would be reported on a statement of cash flow under:
the operating activities
the investing activities
the financing activities
either investing activities or operating activities
9. Cash collected from customers can be computed by the following formula:
ending accounts receivable plus beginning accounts receivable minus sales
ending accounts receivable minus beginning accounts receivable plus sales
beginning accounts receivable minus ending accounts receivable plus sales
beginning accounts receivable minus ending accounts receivable minus sales
10. The amount of cash paid for dividends for the current year can be calculated by the following formula:
beginning dividends payable minus ending dividends payable plus dividends declared
beginning dividends payable plus ending dividends payable plus dividends declared
beginning dividends payable minus ending dividends payable minus dividends declared
beginning dividends payable plus ending dividends payable minus dividends declared
11. The sale of treasury stock is a(n) __________ on a statement of cash flows
operating activity
investing activity
financing activity
financing activity or an investing activity
12. On December 31, 2004, the Bison Bit Company's Retained Earnings account had a balance of $420,000. During 2004, the company incurred a net loss of $85,000, declared stock dividends of $15,000, and paid cash dividends of $10,000. If the Dividends Payable account increased $4,000 during 2004, the January 1, 2004, balance in the Retained Earnings account was:
$534,000
$476,000
$526,000
$306,000
13. King Edward Company reported plant assets, net of accumulated depreciation, on January 1, 2004, at $427,500 and $579,300 on December 31, 2004. The income statement showed depreciation of $38,700. King Edward Company acquired $275,000 of plant assets during the year and reported proceeds from the sale of plant assets of $89,200 for the year. The gain or loss resulting from the sale of plant assets was:
$3,400 loss
$2,390 loss
$4,700 gain
$5,050 gain
14. On January 1, 2004, Prepaid Insurance had a balance of $6,700 and on December 31, 2004, a balance of $8,320. The income statement for the year reported Insurance Expense of $49,310. Payments for insurance during the year amounted to:
$49,310
$47,690
$50,930
$57,630
15. The amount founds in the Salaries Payable account for NovaLights Company were $14,500 and $16,000 on December 31, 2003, and December 31, 2004, respectively. Cash paid to employees for the years ended December 31, 2003, and December 31, 2004, were $255,000 and $280,000, respectively. NovaLights Company's Salary Expense for the year ended December 31, 2004, was:
$253,500
$281,500
$278,500
$256,500
1. Horizontal analysis involves the study of:
percentage changes in comparative financial statements
percentage and/or dollar amount changes in various financial statement amounts from year to year
the change in key financial statement ratios over a certain time frame or horizon
the changes in individual financial statement amounts as a percentage of some related total
2. A company reported $75,000 of income for 2003, $80,000 for 2004, and $90,000 for 2005. The percentage change in net income from 2004 to 2005 was:
9.1%.
11.1%.
12.5%.
16.7%.
3. Assuming the Accounts Receivable balance at the end of 2003 is $80,000, and it has decreased by 15% per year since the end of 2001, the balance at the end of 2001 (rounded to the nearest whole dollar) was:
$110,727
$99,188
$94,188
$53,333
4. Which of the following would be most likely to reveal that cost of goods sold is 125% of the amount shown for a base year?
trend analysis
ratio analysis
vertical analysis
horizontal analysis
5. When performing vertical analysis of an income statement, which of the following is usually used as the base?
Operating income
net sales
net income
gross profit
6. Vertical analysis looks at:
percentage changes in the balances shown in comparative financial statements.
the change in key financial statement ratios over a specified period of time
the dollar amount of the change in various financial statement amounts from year to year
individual financial statement items expressed as a percentage of a base (which represents 100%).
7. Common-size financial statements represent a form of:
ratio analysis
vertical analysis
trend analysis
horizontal analysis
8. Of the items listed below, the one most helpful in the comparison of different size companies is:
horizontal analysis
comparison of their net incomes
preparation of common-size financial statements
comparison of their working capital balances
9. Analyzing the statement of cash flows may help analysts determine the financial health of a company. Which of the following signs below is not an indicator of a financially healthy company?
The company's operations are a major source (not a use) of cash.
The company's operations are a major use (not a source) of cash
The company's investing activities include more purchases than sales of long-term assets.
The company's financing activities are not dominated by borrowing
10. The current ratio is calculated as:
total assets / total liabilities
current assets / total liabilities
current assets x current liabilities
current assets / current liabilities
11. Working capital is defined as:
current liabilities - current assets
current assets - current liabilities
total assets - total liabilities
current assets + current liabilities
12. Inventory turnover is calculated as:
average inventory for the period / cost of goods sold
cost of goods sold / average inventory for the period
gross profit for the period / average inventory for the period
average inventory for the period / gross profit for the period
13. Accounts receivable turnover is calculated as:
total cost of goods sold / 365 days
total net credit sales / average net accounts receivable
average net accounts receivable / 365 days
total net credit sales / cost of goods sold
14. The times-interest-earned ratio is calculated as:
income from operations / interest expense
net income / interest expense
net income after taxes + interest expense/interest expense
income from operations \'2D interest expense/interest expense
15. The dividend yield is calculated as:
dividends per share / market price per share of common stock
dividends per share / earnings per share of common stock
dividends per share / book value per share of common stock
dividends per share / number of shares of common stock
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