ACCT 5307

The acquisition of equity and debt financing is considered:

• a financing activity

• net income

• an investing activity

• an operating activitgy

Which of the following is considered an operating activity?

• payment to a vendor for supplies

• purchase of company trucks for cash.

• payment of dividends to shareholders

• issuing stock to invest in.

A statement that “the financial statements were prepared in accordance with generally accepted accounting principles” is found in the 

• collateral

• stock market

• footnotes to the balance sheet

• auditor's report

A statement that financial statement information “is the responsibility of company” issuing the statements is found in the

• The footnotes of the financial statements

• loan contract

• management letter

• The board of directors’ report

Which one of the following statements best describes objectivity?

• When uncertainty exists, understating assets, overstating liabilities, accelerating recognition of losses, and delaying recognition of gains are preferred.

• The measurement of an event is verifiable and reliable.

• Different firms use identical accounting measurement methods for similar events.

• Objectives are laid out that are conservative or too aggressive by management.

Which one of the following is violated when a company recognizes revenue upon the receipt of cash from a customer who has paid in advance for services?

• Expense Policy

• Objectivity

• Matching

• Revenue recognition Criteria

Expensing the cost of a pencil holder that cost $1.25 instead of capitalizing it as a plant asset and depreciating it over its estimated useful life of 10 years:

• violates the economic entity assumption.

• violates GAAP since pencil holders are important assets.  

• is justified because of materiality. 

• This is appropriate because of the stable dollar assumption. 

The purpose of recording depreciation expense is to:

• provide cash necessary to replace plant assets when they are used up.

• record the balance sheet amount of plant assets at replacement value.

• match expenses with revenues using a reasonable systematic method.

• gain a better understanding of estimating the extraction of natural resources.

If the current ratio is currently greater than 1.0, which one of the following events would increase the current ratio?

• Purchase of inventory on account

• Receipt of money from a customer prior to the performance of service

• Warranty expense is accrued.

• Sale of plant asset at a gain

Current assets are assets which

• . can be used immediately to retire liabilities.

• are newly acquired.

• have been converted into cash in the previous year.

• are intended to be converted into cash within one year.