Grading Summary Essay

Question 1. Question : (TCO A) The Financial Accounting Standards Board employs a â€Å"due process† system, which: has all CPAs in the United States vote on a new statement. enables interested parties to express their views on issues under consideration. identifies the accounting issues that are the most important. requires that all accountants receive a copy of financial standards. Points Received: 5 of 5 Question 2. Question : (TCO A) The cash method of accounting  is used by most publicly traded corporations for financial statement purposes. is not in accordance with the matching principle for most publicly traded corporations. often is used on the income statement by large, publicly held companies. All of the above Question 3. Question : (TCO A) Which of the following is an ingredient of relevance? Verifiability Completeness Neutrality Predictive value Question 4. Question : (TCO A) The characteristic that is demonstrated when a high degree of consensus can be secured among independent measurers using the same measurement methods is relevance. reliability. verifiability. neutrality. Question 5. Question : (TCO A) Which of the following is not a basic element of financial statements? Assets Balance sheet Losses Revenues Question 6. Question : (TCO A) Which basic element of financial statements arises from peripheral or incidental transactions? Assets Liabilities Gains Expenses Question 7. Question : (TCO A) Which basic assumption may not be followed when a firm in bankruptcy reports financial results? Economic entity assumption Going concern assumption Periodicity assumption Monetary unit assumption Question 8. Question : (TCO D) Balance sheet information is useful for all of the following except to compute rates of return. analyze cash inflows and outflows for the period. evaluate capital structure. assess future cash flows. Question 9. Question : (TCO D) The amount of time that is expected to elapse until an asset is realized or otherwise converted into cash is referred to as solvency. financial flexibility. liquidity. exchangeability. Question 10. Question : (TCO A) The quality of information that gives assurance that is reasonably free of error and bias and is complete is relevance. faithful representation. verifiability. neutrality. Question 1. Question : (TCO D) The basis for classifying assets as current or noncurrent is conversion to cash within the accounting cycle or one year, whichever is shorter. the operating cycle or one year, whichever is longer. the accounting cycle or one year, whichever is longer. the operating cycle or one year, whichever is shorter. Question 2. Question : (TCO A) What is FASB Codification? Explain in detail. Instructor Explanation: The codification takes the statements and other pronouncements and arranges the information by topic. Per the FASB, the new system will 1. reduce the amount of time and effort required to solve an accounting research issue; 2. mitigate the risk of noncompliance with standards through improved usability of the literature; 3. provide accurate information with real-time updates as new standards are released; and 4. assist the FASB with the research and convergence efforts required during the standard-setting process. Question 3. Question : (TCO C) At Ruth Company, events and transactions during 2010 included the following. The tax rate for all items is 30%. (1) Depreciation for 2008 was found to be understated by $30,000. (2) A strike by the employees of a supplier resulted in a loss of $25,000. (3) The inventory at December 31, 2008 was overstated by $40,000. (4) A flood destroyed a building that had a book value of $500,000. Floods are very uncommon in that area. What would the effect of these events and transactions on 2010 income from continuing operations net of tax be? Instructor Explanation: $25,000 – $7,500 = $17,500 Question 4. Question : (TCO C) For the year ended December 31, 2010, Transformers Inc. reported the following. Net income $60,000 Preferred dividends declared $10,000 Common dividend declared $2,000 Unrealized holding loss, net of tax $1,000 Retained earnings, beginning balance $80,000 Common stock sold during the year Retained earnings, beginning balance $80,000 Common stock $40,000 Accumulated Other Comprehensive Income, Beginning Balance $5,000 What would Transformers report as the ending balance of retained earnings? Instructor Explanation: $80,000 + $60,000 – $10,000 – $2,000 = $128,000 Question 5. Question : (TCO C) Madsen Company reported the following information for 2010. Sales revenue $510,000 Cost of goods sold $350,000 Operating expenses $55,000 Unrealized holding gain on available-for-sale securities $40,000 Cash dividends received on the securities $2,000 For 2010, what would Madsen report as other comprehensive income? Instructor Explanation: Other comprehensive income = $40,000 Question 6. Question : (TCO B) Allowance for doubtful accounts on 1/1/10 was $50,000. The balance in the allowance account on 12/31/10 after making the annual adjusting entry was $65,000, and during 2010, bad debts written off amounted to $40,000. You are to provide the missing adjusting entry. Please indicate DR (debit) or CR (credit) to the left of the account title, and place a comma between the account title and the amount of the adjustment. Instructor Explanation: DR Bad Debt Expense 55,000 CR Allowance for Doubtful Accounts 55,000 Ending balance $65,000 Beginning balance 50,000 Difference 15,000 Written off 40,000 Adjustment $55,000 Question 7. Question : (TCO B) Allowance for doubtful accounts on 1/1/10 was $75,000. The balance in the allowance account on 12/31/10 after making the annual adjusting entry was $60,000, and during 2010, bad debts written off amounted to $30,000. You are to provide the missing adjusting entry. Please indicate DR (debit) or CR (credit) to the left of the account title, and place a comma between the account title and the amount of the adjustment. Instructor Explanation: DR Bad Debt Expense 15,000 CR Allowance for Doubtful Accounts 15,000 Ending balance $60,000 Beginning balance 75,000 Difference -15000 Written off 30000 Adjustment $15,000 Question 8. Question : (TCO B) Allowance for doubtful accounts on 1/1/10 was $60,000. The balance in the allowance account on 12/31/10 after making the annual adjusting entry was $55,000, and during 2010, bad debts written off amounted to $40,000. You are to provide the missing adjusting entry. Please indicate DR (debit) or CR (credit) to the left of the account title, and place a comma between the account title and the amount of the adjustment. Instructor Explanation: 12/31/10 Ending Balance 55,000 1/1/10 Beginning Balance 60,000 Adjustment -5,000 Written off 40,000 Adjusting entry 35,000 DR Bad Debts Expense, 35,000 CR Allowance for Doubtful Accounts, 35,000 Question 9. Question : (TCO B) Prepaid rent at 1/1/10 was $30,000. During 2010, rent payments of $120,000 were made and charged to â€Å"rent expense.† The 2010 income statement shows as a general expense the item â€Å"rent expense† in the amount of $125,000. You are to prepare the missing adjusting entry that must have been made, assuming reversing entries are not made. Please indicate DR (debit) or CR (credit) to the left of the account title, and place a comma between the account title and the amount of the adjustment Instructor Explanation: DR Rent Expense 5,000 CR Prepaid Rent 5,000 Rent expense $125,000 Less cash paid 120,000 Reduction in prepaid rent $5,000 Question 10. Question : (TCO D) Which of the following should be reported for capital stock? The shares authorized The shares issued The shares outstanding All of the above Question 11. Question : (TCO D) An example of an item that is not an element of working capital is accrued interest on notes receivable. goodwill. goods in process. temporary investments. Question 12. Question : (TCO A) Financial information exhibits the characteristic of consistency when expenses are reported as charges against revenue in the period in which they are paid. accounting entities give accountable events the same accounting  treatment from period to period. extraordinary gains and losses are not included on the income statement. accounting procedures are adopted which give a consistent rate of net income Question 13. Question : (TCO D) The current assets section of the balance sheet should include machinery. patents. goodwill. inventory. Question 14. Question : (TCO D) Houghton Company has the following items: common stock, $720,000; treasury stock, $85,000; deferred taxes, $100,000, and retained earnings, $313,000. What total amount should Houghton Company report as stockholders’ equity? $848,000 $948,000 $1,048,000 $1,118,000 Instructor Explanation: General Feedback: b. $720,000 – $85,000 + $313,000 = $948,000.