Acct 2010 Final Exam Review

The primary objective of financial reporting is to provide information

• on the cash flows of the company.

• about the profitability of the enterprise.

• to the federal government.

• useful for making investment and credit decisions.

Frost Enterprises buys a warehouse for $570,000 to use for its East Coast distribution operations. On the date of the purchase, a professional appraisal shows a value of $620,000 for the warehouse. The seller had originally purchased the building for $525,000. Frost has a similar warehouse on the West Coast that has a book value of $586,000. Under the historical cost principle, Frost should record the building for

• $525,000.

• $620,000.

• $570,000.

• $586,000.

To be useful, information must have which of the following fundamental qualitative characteristics?

• Faithful representation and diversity

• Timeliness and affordability

• Relevance and faithful representation

• Expediency and relevance

Assume that a business is headed for certain bankruptcy and it is evident that its liabilities greatly exceed its assets. Which principle would be violated if its financial statements were prepared using standard U.S. GAAP?

• Entity assumption

• Continuity assumption

• Stable-monetary-unit assumption

• Historical cost principle

The accounting equation can be expressed as

• Assets = Liabilities-Equity.

• Assets-Liabilities = Equity.

• Assets + Liabilities = Equity.

• Equity-Assets = Liabilities.

During the year, Greenwash Corporation has $270,000 in revenues, $145,000 in expenses, and $3,000 in dividend declarations and payments. Net income for the year was:

• $270,000

• $148,000

• $128,000

• $125,000

How would the issuance of common stock for cash affect the accounting equation?

• Decrease assets and decrease liabilities

• Increase assets and increase liabilities

• Increase liabilities and decrease stockholders' equity

• Increase assets and increase stockholders' equity

The costs of doing business are classified as:

• revenues.

• assets.

• expenses.

• liabilities.

Revenues are

• decreases in liabilities resulting from paying off loans.

• increases in retained earnings resulting from selling products or performing services.

• increases in paid-in capital resulting from the owners investing in the business.

• all of the above.

Which financial statement would show how well a company performed over the past year?

• Balance sheet

• Income statement

• Statement of Retained Earnings

• Statement of Cash Flows