ACC 556 Midterm Exam Part 1 (Perfect Answer))

Question 1 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 collected.True False Question 2 Goods that have been purchased FOB destination but are in transit, should be excluded from a physical count of goods by the buyer.True False Question 3 To obtain maximum benefit from a bank reconciliation, the reconciliation should be prepared by the employee authorized to sign checks.True False Question 4 The economic resources that are owned by a business are called stockholders’ equity.True False Question 5 Solvency ratios measure the short-term ability of the company to pay its maturing obligations.True False Question 6 An advantage of using the periodic inventory system is that it requires less record keeping than the perpetual inventory system.True False Question 7 Use the following data to calculate the current ratio.Carne Auto SuppliesBalance SheetDecember 31, 2014Cash $ 35,000 Accounts payable $ 65,000Accounts receivable 50,000 Salaries and wages payable 10,000Inventory 70,000 Mortgage payable 90,000Prepaid insurance 40,000 Total liabilities $165,000Long Term Stock investments 80,000 Land 95,000 Buildings $100,000 Common stock $120,000Less: Accumulated Retained earnings 250,000depreciation (30,000) 85,000 Total stockholders’ equity $370,000Trademarks 70,000 Total liabilities and Total assets $535,000 stockholders’ equity $5352.07 : 11.67 : 13.00 : 12.60 : 1Question 8 Bathlinks Corporation has a debt to assets ratio of 73%. This tells the user of Bathlinks’s financial statements thatBathlinks is getting a 27% return on its assets.there is a risk that Bathlinks cannot pay its debts as they come due.73% of the assets are financed by the stockholders.based on this measure, the user should not invest in Bathlinks.Question 9 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.True False Question 10 Which of the following would not be classified as a long-term liability?Current maturities of long-term debtBonds payableMortgage payableLease liabilitiesQuestion 11 Requiring employees to take vacations is a weakness in the system of internal controls because it does not promote operational efficiency.True False Question 12 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?$39,000$54,000$69,000$75,000Question 13 The revenue recognition principle dictates that revenue be recognized in the accounting period in which the performance obligation is satisfied.True False Question 14 Financing activities include the purchase or sale of long-lived assets or the purchase or sale of investment securities.True False Question 15 Consistent use of the same accounting principles and methods is necessary for meaningful analysis of trends within a company.True False Question 16 Expense recognition is tied to revenue recognition.True False Question 17 The multiple-step income statement is considered more useful than the single-step income statement because it highlights the components of net income.True False Question 18 The best definition of assets is thecash owned by the company.collections of resources belonging to the company and the claims on these resources.owners’ investment in the business.resources belonging to a company that have future benefit to the company.Question 19 Owners of business firms are the only people who need accounting information.True False Question 20 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?$60,000$150,000$105,000$195,000Question 21 Which of the following is not a common way that managers use the balance sheet?To analyze the balances of assets, liabilities, and stockholders’ equity throughout the accounting periodTo determine if the cash balance is sufficient for future needsTo analyze the balance between debt and common stock financingTo analyze the balance of accounts receivable on the last day of the accounting periodQuestion 22 Source documents can provide evidence that a transaction has occurred.True False Question 23 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.True False Question 24 Which of the following is the least likely consideration that management uses when deciding whether to pay a dividend?Does the company have more cash than it has opportunities?Is the company’s average number of common shares outstanding decreasing?Does the company have uses for cash that will increase its value?What are the company’s cash needs?Question 25 The partnership form of business organizationis a separate legal a common form of organization for service-type businesses.enjoys an unlimited life.has limited liability. 

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