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1、七 Investment Tools: Financial Statement Analysis: Basic Concepts1.A: Preliminary Reading Measuring Business IncomeQuestion ID: 16608Net income is defined as the difference between:A.liabilities and assets.B.owners equity and expenses.C.profit and expenses.D.revenues and expenses.DNet income is the d
2、ifference between revenues and expenses. The difference between assets and liabilities is net assets and the difference between profit and expenses and owners equity and expenses is not defined in accounting terms.Question ID: 16611The initial recording of unearned revenue would generate a:A.credit
3、to cash.B.debit to revenue.C.debit to cash.D.debit to prepaid expense.CTo record unearned revenue you would debit cash and credit unearned revenue. This is due to the revenue not being earned when the cash is received. When the revenue is earned then another entry would be made to debit unearned rev
4、enue and credit revenue.Question ID: 16610Accumulated depreciation is the result of:A.writing off an asset.B.purchasing land.C.an expense being prepaid.D.capitalizing an asset.DCapitalizing an asset means writing off the benefit of the asset over its useful life, this in turn creates depreciation ex
5、pense and accumulated depreciation.Question ID: 16612Accrual basis of accounting is considered better than the cash basis because:A.it produces more useful financial statements.B.it matches liabilities with expenses.C.revenue is recognized when cash is received.D.adjusting entries are NOT required.A
6、Accrual basis accounting follows the matching principle expenses are recognized in the same period in which the associated revenues are generated, thus making for more useful financial statements.Question ID: 16609Which of the following principles does NOT result in adjusting entries being made?A.Re
7、venue recognition.B.Accrual basis of accounting.C.Cash basis of accounting.D.The matching principle.CThe cash basis of accounting does not result in adjusting entries. The accrual basis, the matching principle, and revenue recognition all require adjusting entries be made at some point.1.B: Prelimin
8、ary Reading Financial Reporting and AnalysisQuestion ID: 14544Which of the following is the CORRECT format for the balance sheet in order of occurrence:A.liabilities, assets, stockholders equity.B.assets, stockholders equity, liabilities.C.assets, liabilities, stockholders equity. D.stockholders equ
9、ity, liabilities, assets.CQuestion ID: 14543For accounting purposes, which of the following is NOT an essential characteristic of an asset?A.The enterprise can obtain the benefit and can limit others access to it.B.It embodies a probable future economic benefit.C.Its value is known with certainty.D.
10、The event giving the enterprise the claim to the benefit has already occured. CBy definition for accounting purposes, assets are probable future economic benefits obtained or controlled by a particular entity as a result of past transactions or events.Question ID: 16614An example of an other expense
11、 in a multistep income statement would be:A.selling expense.B.prepaid expense.C.interest expense.D.income taxes.CAn expense classified as “other” in a multistep income statement is a non-operating cost. Interest expense is an other expense, prepaid expense is a liability, income taxes are a provisio
12、n for reporting purposes and a selling expense is an operating expense.Question ID: 16613A multistep income statement includes:A.details of all line items.B.total sales and total expenses only.C.operating revenue and expenses only.D.subtotals.DA multistep income statement includes subtotals as you p
13、rogress to net income.Question ID: 16615Which of the following would NOT be included on a balance sheet?A.Retained earnings.B.Prepaid Rent.C.Accumulated depreciation.D.Cost of goods sold.DCost of goods sold are expenses incurred to manufacture a product, therefore; it is an income statement account.
14、 Retained earnings, Prepaid rent and accumulated depreciation are all balance sheet accounts.Question ID: 16616Common stock is recorded where on the financial statements?A.In stockholders equity.B.In accounts payable.C.In accounts receivable.D.In other expense.ACommon stock is a component of stockho
15、lders equity; it is the investment in shares made by stockholders.1.C: Preliminary Reading Short-Term Liquid AssetsQuestion ID: 20066Which of the following is the CORRECT way to record an unrealized holding gain on a trading investment? An unrealized holding gain is recorded as:A.a receivable on the
16、 balance sheet.B.an increase to current liabilities.C.a gain on the income statement.D.an adjustment to stockholders equity.CAn unrealized holding gain on a trading investment is recorded as a gain on the income statement. On the balance sheet, the investment is written up to its fair market value.Q
17、uestion ID: 20067To record a loss on an available-for-sale investment a company would need to:A.credit stockholders equity.B.debit a fair value adjustment account.C.debit stockholders equity.D.font face=Arial size=2credit current assets.CIf management classifies a short-term investment as an availab
18、le-for-sale (AFS) investment, then the investment is reported on the balance sheet at its fair market value. Any unrealized holding gains or losses due to the appreciation or depreciation of the investment must be listed as an adjustment to stockholders equity. A debit to stockholders equity is requ
19、ired when recording a loss on an available-for-sale investment; the offsetting credit would be to a fair value adjustment account.Question ID: 20065How is an available-for-sale investment recorded on the financial statements?A.As accounts payable on the balance sheet.B.At cost plus any acquisition c
20、osts on the balance sheet.C.As an expense on the income statement.D.At fair market value on the balance sheet.DAn available-for-sale investment is recorded at fair market value as a current asset on the balance sheet.Question ID: 20068Allowance for doubtful accounts decreases the balance in what acc
21、ount to obtain the net realized value?A.Cash.B.Accounts payable.C.Bad debt expense.D.Accounts receivable.DAccounts receivable is decreased by the allowance for doubtful accounts to obtain the net realized value of accounts receivable.Question ID: 20069The following is the sequence of events that per
22、tains to the Riley Corporation: Balance of $300 in allowance for doubtful accounts Balance of $900 in accounts receivable Write off of $100 of a receivable that is already included in the allowance for doubtful accounts How will the financial statements be affected by the write off?A.The net realiza
23、ble value will decrease to $500.B.Allowance for doubtful accounts will increase to $400.C.Allowance for doubtful accounts will decrease to $200.D.The net realizable value will increase to $700.CRiley Corporation would decrease their allowance for doubtful accounts to $200. Writing off a bad debt tha
24、t is already included in the allowance for bad debts will decrease the value in both accounts receivable and allowance for bad debts. The net realizable value will remain the same.Question ID: 20070A promissory note has all of the following features EXCEPT:A.a duration.B.dividends.C.a maturity value
25、.D.a maturity date.BA promissory note does not pay dividends. It does, however; earn interest as a cost of borrowing money. Like all fixed income securities, a promissory note has a maturity date, a maturity value, and a duration.Question ID: 20171In relation to current assets, net realizable value
26、is defined as the:A.value of a trading investment written-up to fair market value.B.cash value of a securitized receivable.C.value of a note payable after interest has been earned.D.difference between accounts receivable and allowance for doubtful accounts.DAccounts receivable less allowance for dou
27、btful accounts is the net realizable value of accounts receivable.Question ID: 20172The following information pertains to Zima Corporation, which uses the accrual basis of accounting: Trading investments = $500 Accounts receivable = $800 Allowance for doubtful accounts = $100 Unrealized holding loss
28、 = $50 The result of this loss to Zima Corporation would be:A.a decrease in accounts receivable to $750.B.an increase in allowance for doubtful accounts to $150.C.a decrease in trading investments to $450.D.a debit of $50 to unrealized holding loss on the income statement.DAn unrealized holding loss
29、 on a trading investment is recorded to a loss account on the income statement. This activity has no affect on accounts receivable, allowance for doubtful accounts or the trading investment.1.D: Preliminary Reading InventoriesQuestion ID: 20173During a time of increasing inventory and rising prices,
30、 which of the following inventory methods will result in the highest cost of goods sold and lowest income?A.Last in first out (LIFO).B.Specific identification.C.First in first out (FIFO).D.Weighted average.ADue to rising prices, the last item produced will be more expensive than the first item produ
31、ced. LIFO will thus result in a higher cost of goods sold and lower net income.Question ID: 20174Hunter Company uses the first in, first out (FIFO) inventory method. During a time of rising costs and increasing inventory, Hunter Company could expect:A.lower net income.B.higher cost of goods sold (CO
32、GS).C.lower inventory balances.D.higher taxes.DHunter Company could expect higher taxes, as the net income would be higher using the FIFO method of inventory. This is due to the fact that COGS would be lower as the first purchased inventory would be valued at a lower price driving expenses down and,
33、 therefore, increasing net income.Question ID: 20175Zippy Company is trying to determine which inventory method to use when prices are rising and inventories are increasing. They would like to have their cash flows as high as possible. Which of the following methods would help Zippy Company obtain t
34、he highest amount of cash flow?A.Specific identification.B.Last in First Out (LIFO).C.Weighted average cost.D.First in First Out (FIFO).BDuring periods of rising prices the LIFO inventory method generates higher cash flows because less taxes are paid out. As the inventory being sold is valued at a h
35、igher price (the last purchased) the result is higher COGS, lower net income, and lower taxes.Question ID: 20176Which item is NOT included in the cost of inventory?A.Selling, general, and administrative costs.B.Taxes.C.Invoice price less discounts.D.Transportation costs.AThe cost of inventory includ
36、es invoice price (less discounts), transportation costs, and taxes. Inventory includes not only the inventory on hand, but may include inventory items in transit.Question ID: 20177The objective of inventory accounting is to:A.increase cash flows by valuing inventory at the lower of cost or market.B.
37、expense cost of goods sold in a manner that will increase net income.C.value inventory in a way that best matches costs with revenues in a specific period.D.value inventory at the lowest possible price on the balance sheet.CThe objective of inventory accounting is to value inventory in a way that be
38、st matches costs with revenues in a specific period. The value of inventory determines the amount to be expensed on the income statement and the value of inventory to be carried on the balance sheet.Question ID: 20179The following information pertains to a firm that sells picture frames: The firm us
39、es last in first out (LIFO) as their inventory method. 11/1/01 Beginning inventory two units, at $10 $20 11/9/01 three frames purchased at $12 $36 11/18/01 two frames purchased at $14 $28 Ending inventory: three frames Four units were sold, leaving three frames in inventory. What is the value of the
40、 inventory at the end of November?A.$32.B.$40.C.$36.D.$30.AUsing the LIFO method of inventory the balance of the ending inventory is lower as the firm uses the first purchase amounts. In this case the ending inventory would be $32, two frames at $10 and one frame at $12.Question ID: 20182When calcul
41、ating ending inventory using the average cost method, which of the following is CORRECT?A.The average is calculated using the beginning inventory balance plus purchases.B.Number of units purchased is the denominator in calculating the average.C.Number of units remaining is the denominator in calcula
42、ting the average.D.The average is calculated using only purchases in the accounting period.AThe average cost is calculated by taking the beginning inventory balance plus purchases divided by the total number of units in inventory, which is the number in the beginning balance plus the number purchase
43、d.Question ID: 20180The following information pertains to Micro Corporation, which sells microwave ovens: Beginning inventory is three microwaves at $50 each. $150 3/16/00 three microwaves purchased for $52 each. $156 3/25/00 four microwaves purchased at $55 each. $220 Ending inventory is four units
44、 for a total of $209. $209 Which inventory method is Micro Corporation using?A.Specific identification.B.Last in first out (LIFO).C.First in first out (FIFO).D.Weighted average.AFIFO EI would equal $220LIFO EI would equal (50 x 3) + 52 = $202Average cost = (150 + 156 + 220)/10 = $52.60. $52.60 x 4 =
45、 $210.40.Micro Corporation must be using the specific identification method.Total inventory cost = $50 + (2)($52) + $55 = $209Question ID: 20178The following information pertains to a firm that sells speakers: The firm uses first in first out (FIFO) as their inventory method 6/1/01 Beginning inventory two speakers - $25ea. 6/12/01 three speakers pur
