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ACC-422-final-exam-set-1.docxACC-422-final-exam-set-1.docx

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1) Which of the following is NOT considered cash for financial reporting purposes?
A. Coin, currency, and available funds
B. Money orders, certified checks, and personal checks
C. Petty cash funds and change funds
D. Postdated checks and I.O.U.'s
2) What is the preferable presentation of accounts receivable from officers, employees, or
affiliated companies on a balance sheet?
A. As assets but separately from other receivables.
B. By means of footnotes only.
C. As offsets to capital.
D. As trade notes and accounts receivable if they otherwise qualify as current assets.
3) Which of the following items should NOT be included in the Cash caption on the balance
sheet?
A. Amounts on deposit in checking account at the bank
B. Checks from other parties presently in the cash register
C. Coins and currency in the cash register
D. Postage stamps on hand
4) Which of the following is a generally accepted method of determining the amount of the
adjustment to bad debt expense?
A. A percentage of accounts receivable NOT adjusted for the balance in the allowance
B. A percentage of sales NOT adjusted for the balance in the allowance
C. A percentage of sales adjusted for the balance in the allowance
D. An amount derived from aging accounts receivable and NOT adjusted for the balance
in the allowance
5) Assuming that the ideal measure of short-term receivables in the balance sheet is the
discounted value of the cash to be received in the future, failure to follow this practice usually
does NOT make the balance sheet misleading because
A. the amount of the discount is NOT material.
B. the allowance for uncollectible accounts includes a discount element.
C. most short-term receivables are NOT interest-bearing.
D. most receivables can be sold to a bank or factor.
6) Which of the following methods of determining bad debt expense does NOT properly match
expense and revenue?
A. Charging bad debts with an amount derived from aging accounts receivable under the
allowance method.
B. Charging bad debts with an amount derived from a percentage of accounts receivable
under the allowance method.
C. Charging bad debts with a percentage of sales under the allowance method.
D. Charging bad debts as accounts are written off as uncollectible.

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7) The accountant for the Orion Sales Company is preparing the income statement for 2007 and
the balance sheet at December 31, 2007. Orion uses the periodic inventory system. The January
1, 2007 merchandise inventory balance will appear
A. as a deduction in the cost of goods sold section of the income statement and as a
current asset on the balance sheet.
B. only as an asset on the balance sheet.
C. only in the cost of goods sold section of the income statement.
D. as an addition in the cost of goods sold section of the income statement and as a
current asset on the balance sheet.
8) Belle Co. received merchandise on consignment. As of March 31, Belle had recorded the
transaction as a purchase and included the goods in inventory. The effect of this on its financial
statements for March 31 would be
A. net income was correct and current assets and current liabilities were overstated.
B. net income and current liabilities were overstated.
C. no effect.
D. net income, current assets, and current liabilities were overstated.
9) The failure to record a purchase of merchandise on account even though the goods are
properly included in the physical inven¬tory results in
A. an understatement of assets and net income.
B. an understatement of liabilities and an overstatement of owners' equity.
C. an overstatement of assets and net income.
D. an understatement of cost of goods sold and liabilities and an overstatement of assets.
10) The use of a Purchase Discounts account implies that the recorded cost of a purchased
inventory item is its
A. invoice price plus any purchase discount lost.
B. invoice price less the purchase discount allowable whether taken or not.
C. invoice price.
D. invoice price less the purchase discount taken.
11) All of the following costs should be charged against revenue in the period in which costs are
incurred EXCEPT for
A. costs which will NOT benefit any future period.
B. costs of normal shrinkage and scrap incurred for the manufacture of a product
in ending inventory.
C. manufacturing overhead costs for a product manufactured and sold in the same
accounting period.
D. costs from idle manufacturing capacity resulting from an unexpected plant shutdown.
12) Which method of inventory pricing best approximates specific identification of the actual
flow of costs and units in most manufacturing situations?
A. First-in, first-out
B. Base stock
C. Average cost

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D. Last-in, first-out
13) In no case can "market" in the lower-of-cost-or-market rule be more than
A. estimated selling price in the ordinary course of business less reasonably
predictable costs of completion and disposal.
B. estimated selling price in the ordinary course of business less reasonably predictable
costs of completion and disposal, an allowance for an approximately normal profit margin, and
an adequate reserve for possible future losses.
C. estimated selling price in the ordinary course of business.
D. estimated selling price in the ordinary course of business less reasonably predictable
costs of completion and disposal and an allowance for an approximately normal profit margin.
14) An item of inventory purchased this period for $15.00 has been incorrectly written down to
its current replacement cost of $10.00. It sells during the following period for $30.00, its normal
selling price, with disposal costs of $3.00 and normal profit of $12.00. Which of the following
statements is NOT true?
A. The current year's income is understated.
B. Income of the following year will be understated .
C. The cost of sales of the following year will be understated.
D. The closing inventory of the current year is understated.
15) When valuing raw materials inventory at lower-of-cost-or-market, what is the meaning of the
term "market"?
A. Net realizable value less a normal profit margin
B. Discounted present value
C. Net realizable value
D. Current replacement cost
16) The retail inventory method is based on the assumption that the
A. ratio of gross margin to sales is approximately the same each period.
B. ratio of cost to retail changes at a constant rate.
C. final inventory and the total of goods available for sale contain the same
proportion of high-cost and low-cost ratio goods.
D. proportions of markups and markdowns to selling price are the same.
17) In 2006, Lucas Manufacturing signed a contract with a supplier to purchase raw materials in
2007 for $700,000. Before the December 31, 2006 balance sheet date, the market price for these
materials dropped to $510,000. The journal entry to record this situation at December 31, 2006
will result in a credit that should be reported
A. as a current liability.
B. as an appropriation of retained earnings.
C. as a valuation account to Inventory on the balance sheet.
D. on the income statement.
18) When the conventional retail inventory method is used, markdowns are commonly ignored in
the computation of the cost to retail ratio because

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1) Which of the following is NOT considered cash for financial reporting purposes? A. Coin, currency, and available funds B. Money orders, certified checks, and personal checks C. Petty cash funds and change funds D. Postdated checks and I.O.U.'s2) What is the preferable presentation of accounts receivable from officers, employees, or affiliated companies on a balance sheet? A. As assets but separately from other receivables. B. By means of footnotes only. C. As offsets to capital. D. As trade notes and accounts receivable if they otherwise qualify as current assets.3) Which of the following items should NOT be included in the Cash caption on the balance sheet? A. Amounts on deposit in checking account at the bank B. Checks from other parties presently in the cash register C. Coins and currency in the cash register D. Postage stamps on hand4) Which of the following is a generally accepted method of determining the amount of the adjustment to bad debt expense? A. A percentage of accounts receivable NOT adjusted for the balance in the allowance B. A percentage of sales NOT adjusted for the balance in the allowance C. A percentage of sales adjusted for the balance in the allowance D. An amount derived from aging accounts receivable and NOT adjusted for the balance ...
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