PRE-QUIZ #1 (Chapters 1 and 2)

Name: ______Date: ______

ACCT 201 PROFESSOR FARINA

PRE-QUIZ #1 (Chapters 1 and 2)

Instructions: for the true-false questions, place “T” for true or “F” for false in the space provided. For the multiple-choice questions, place the letter of the best answer in the space provided.

CHAPTER ONE

___ 1. / The primary function of financial accounting is to provide relevant financial information to parties external to business enterprises.
___ 2. / Accrual accounting attempts to measure revenues and expenses that occurred during accounting periods so they equal cash flow.
___ 3. / The FASB is currently the public sector organization responsible for setting accounting standards in the U.S.
___ 4. / The Public Reform and Investor Protection Act of 2002 (Sarbanes-Oxley) changed the entity responsible for setting auditing standards in the United States.
___ 5. / Under federal securities laws, the SEC has the authority to set accounting standards in the U.S.
___ 6. / The primary responsibility for properly applying GAAP when communicating with investors and creditors through financial statements lies with a firm's auditors.
___ 7. / Auditors play an important role in the resource allocation process by adding credibility to financial statements.
___ 8. / Materiality can be affected by the dollar amount of an item, the nature of the item, or both.
___ 9. / Conservatism is a desired qualitative characteristic of accounting information.
___ 10. / Revenues are inflows or other enhancements of assets or settlements of liabilities from activities that constitute the entity's ongoing operations.
___ 11. / Determining fair value by calculating the present value of future cash flows is a level 1 type of input.
___ 12. / The primary focus for financial accounting information is to provide information useful for:

A) /
B) /
C) /
D) /
___ 13. / The full disclosure principle requires a balance between:
A) / Comparability and consistency.
B) / Relevance and cost effectiveness.
C) / Reliability and neutrality.
D) / Timeliness and predictive value.
___ 14. / The SEC issues accounting standards in the form of:
A) / Accounting Research Bulletins.
B) / Financial Reporting Releases.
C) / Financial Accounting Standards.
D) / Financial Technical Bulletins.
___ 15. / The FASB's standard-setting process includes, in the correct order:
A) / Exposure draft, research, discussion memorandum, SFAS.
B) / Research, exposure draft, discussion memorandum, SFAS.
C) / Research, discussion memorandum, exposure draft, SFAS.
D) / Discussion memorandum, research, exposure draft, SFAS.
___ 16. / The conceptual framework's qualitative characteristic of relevance includes:
A) / Timeliness.
B) / Verifiability.
C) / Representational faithfulness.
D) / Neutrality.
___ 17. / The conceptual framework's recognition and measurement concepts recognize which of the following as an assumption, rather than a principle?
A) / Going concern.
B) / Historical cost.
C) / Full disclosure.
D) / Realization.
___ 18. / Land was acquired in 2009 for a future building site at a cost of $40,000. The assessed valuation for tax purposes is $27,000, a qualified appraiser placed its value at $48,000, and a recent firm offer for the land was for a cash payment of $46,000. The land should be reported in the financial statements at:
A) / $40,000.
B) / $27,000.
C) / $46,000.
D) / $48,000.
___ 19. / If a company has gone bankrupt, its financial statements likely violate:
A) / The matching principle.
B) / The realization principle.
C) / The stable monetary unit assumption.
D) / The going concern assumption.

CHAPTER TWO

___ 20. / Debits increase asset accounts and decrease liability accounts.
___ 21. / Balance sheet accounts are referred to as temporary accounts because their balances are always changing.
___ 22. / Adjusting journal entries are required to comply with the realization and matching principles.
___ 23. / Accruals occur when the cash flow precedes either revenue or expense recognition.
___ 24. / Hughes Aircraft sold a four passenger airplane for $380,000, receiving a $50,000 down payment and a 12% note for the balance. The journal entry to record this sale would include a:
A) / Credit to cash.
B) / Debit to cash discount.
C) / Debit to note receivable.
D) / Credit to note receivable.
___ 25. / Which of the following accounts has a debit balance?
A) / Accounts payable.
B) / Accrued taxes.
C) / Accumulated depreciation.
D) / Bad debt expense.
___ 26. / On December 31, 2009, Coolwear, Inc. had balances in its accounts receivable and allowance for uncollectible accounts of $48,400 and $0, respectively. No receivables were written off during the year. At the end of 2009, Coolwear estimated that $2,100 in receivables would not be collected. Bad debt expense for 2009 would be:
A) / $ 0.
B) / $46,300.
C) / $ 1,050.
D) / $ 2,100.
___ 27. / Accruals occur when cash flows:
A) / Occur before expense recognition.
B) / Occur after revenue or expense recognition.
C) / Are uncertain.
D) / May be substituted for goods or services.
___ 28. / Yummy Foods purchased a two-year fire and extended coverage insurance policy on August 1, 2009, and charged the $4,200 premium to Insurance expense. At its December 31, 2009, year-end, Yummy Foods would record which of the following adjusting entries?
A) / Insurance expense / 875
Prepaid insurance / 875
B) / Prepaid insurance / 875
Insurance expense / 875
C) / Insurance expense / 875
Prepaid insurance / 3,325
D) / Prepaid insurance / 3,325
Insurance expense / 3,325
___ 29. / On September 1, 2009, Fortune Magazine sold 600 one-year subscriptions for $81 each. The total amount received was credited to unearned subscriptions revenue. What would be the required adjusting entry at December 31, 2009?
A) / Unearned subscriptions revenue / 48,600
Subscriptions revenue / 16,200
Prepaid subscriptions / 32,400
B) / Unearned subscriptions revenue / 16,200
Subscriptions revenue / 16,200
C) / Unearned subscriptions revenue / 16,200
Subscriptions payable / 16,200
D) / Unearned subscriptions revenue / 32,400
Subscriptions revenue / 32,400
___ 30. / Eve's Apples opened business on January 1, 2009, and paid for two insurance policies effective that date. The liability policy was $36,000 for eighteen-months, and the crop damage policy was $12,000 for a two-year term. What was the balance in Eve's prepaid insurance as of December 31, 2009?
A) / $ 9,000.
B) / $18,000.
C) / $30,000.
D) / $48,000.
___ 31. / Permanent accounts would not include:
A) / Interest expense.
B) / Wages payable.
C) / Prepaid rent.
D) / Unearned revenues.
___ 32. / When converting an income statement from a cash basis to an accrual basis, which of the following is incorrect?
A) / An adjustment for depreciation reduces the net income.
B) / An adjustment for bad debts increases the net income.
C) / A reduction in prepaid expenses decreases net income.
D) / An increase in accrued payables decreases net income.
___ 33. / On June 1, Royal Corp. began operating a service company with an initial cash investment by shareholders of $2,000,000. The company provided $6,400,000 of services in June and received full payment in July. Royal also incurred expenses of $3,000,000 in June that were paid in August. During June, Royal paid its shareholders cash dividends of $1,000,000.What was the company's income before income taxes for the two months ended July 31 under the following methods of accounting?

A) /
B) /
C) /
D) /

Problem #34: On a separate piece of paper, prepare an income statement using the accrual basis of accounting for 2009. Attach your answer to this pre-quiz.

Zambrano Wholesale Corporation maintains its records on a cash basis. At the end of each year the company’s accountant obtains the necessary information to prepare accrual basis financial statements. The following cash flows occurred during the year ended December 31, 2009:
Cash receipts:
From customers / $ / 682,000
Interest on note / 4,140
Loan from a local bank / 102,000
Total cash receipts / $ / 788,140
Cash disbursements:
Purchase of merchandise / $ / 382,000
Annual insurance payment / 5,400
Payment of salaries / 210,000
Dividends paid to shareholders / 9,800
Annual rent payment / 33,000
Total cash disbursements / $ / 640,200
12/31/08 / 12/31/09
Cash / $ / 15,000 / $ / 162,940
Accounts receivable / 57,000 / 98,000
Inventory / 89,000 / 71,500
Prepaid insurance / 3,300 / ?
Prepaid rent / 10,000 / ?
Interest receivable / 3,105 / ?
Note receivable / 46,000 / 46,000
Equipment / 100,000 / 100,000
Accumulated depreciation—equipment / (36,000 / ) / (46,000 / )
Accounts payable (for merchandise) / 115,000 / 126,500
Salaries payable / 19,500 / 24,000
Notes payable / 0 / 102,000
Interest payable / 0 / ?
Additional information:
1. / On March 31, 2008, Zambrano lent a customer $46,000. Interest at 9% is payable annually on each March 31. Principal is due in 2012.
2. / The annual insurance payment is made in advance on April 30.
3. / On October 31, 2009, Zambrano borrowed $102,000 from a local bank. Principal and interest at 6 % are due on October 31, 2010.
4. / Annual rent on the company’s facilities is paid in advance on June 30.

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