ACC 556 Final Exam Answers


( 1 ) A concentration of credit risk is a threat of nonpayment from a single customer or class of customers that could adversely affect the financial health of the company.


(2) Expense recognition is tied to revenue recognition.


(3) An aging of accounts receivable schedule is based on the premise that the longer the period an account remains unpaid, the greater the probability that it will eventually be


(4) Which of the following would not be classified as a long-term liability?


(5) Requiring employees to take vacations is a weakness in the system of internal controls because it does not promote operational efficiency


(6) Owners of business firms are the only people who need accounting information


(7) An advantage of using the periodic inventory system is that it requires less record keeping than the perpetual inventory system.


(8) The partnership form of business organization


(9) Financing activities include the purchase or sale of long-lived assets or the purchase or sale of investment securities.


(10) Bathlinks Corporation has a debt to assets ratio of 73%. This tells the user of Bathlinks’s financial statements that


(11) Management may choose any inventory costing method it desires as long as the cost flow assumption chosen is consistent with the physical movement of goods in the company.


(12) Use the following data to calculate the current ratio.

Carne Auto Supplies

Balance Sheet

December 31, 2014

Cash                                         $    35,000          Accounts payable                          $   65,000
Accounts receivable                         50,000          Salaries and wages payable                10,000
Inventory                                        70,000          Mortgage payable                              90,000
Prepaid insurance                             40,000          Total liabilities                                   $165,000
Stock investments                          80,000
Land                                               95,000
Buildings                 $100,000                               Common stock                              $120,000
Less: Accumulated                                                Retained earnings                           250,000
depreciation         (30,000)       85,000               Total stockholders’ equity          $370,000
Trademarks                                    70,000                  Total liabilities and
Total assets                                 $535,000                    stockholders’ equity                   $535


(13) The multiple-step income statement is considered more useful than the single-step income statement because it highlights the components of net income


(14) Goods that have been purchased FOB destination but are in transit, should be excluded from a physical count of goods by the buyer


(15) Lankston Company began the year by issuing $90,000 of common stock for cash. The company recorded revenues of $825,000, expenses of $720,000, and paid dividends of $45,000. What was Lankston’s net income for the year?


(16) Which of the following is the least likely consideration that management uses when deciding whether to pay a dividend?


(17) Consistent use of the same accounting principles and methods is necessary for meaningful analysis of trends within a company


(18) The economic resources that are owned by a business are called stockholders’ equity.


(19) To obtain maximum benefit from a bank reconciliation, the reconciliation should be prepared by the employee authorized to sign checks.


(20) Solvency ratios measure the short-term ability of the company to pay its maturing obligations.


(21) The best definition of assets is the


(22) Which of the following is not a common way that managers use the balance sheet?


(23) Source documents can provide evidence that a transaction has occurred


(24) The revenue recognition principle dictates that revenue be recognized in the accounting period in which the performance obligation is satisfied.


(25) Marvin Services Corporation had the following accounts and balances:

Accounts payable $18,000 Equipment $21,000
Accounts receivable 3,000 Land 21,000
Buildings ? Unearned service revenue 6,000
Cash 9,000 Total stockholders’ equity ?

If the balance of the Buildings account was $45,000 and the equipment was sold for $21,000, what would be the total of stockholders’ equity?