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Strayer ACC 556 Week 5 Midterm part 1


1. 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. 2. 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. 3. To obtain maximum benefit from a bank reconciliation, the reconciliation should be prepared by the employee authorized to sign checks. 4. Expense recognition is tied to revenue recognition. 5. Which of the following is not a common way that managers use the balance sheet? 6. Which of the following would not be classified as a long-term liability? 7. Solvency ratios measure the short-term ability of the company to pay its maturing obligations. 8. Requiring employees to take vacations is a weakness in the system of internal controls because it does not promote operational efficiency. 9. The revenue recognition principle dictates that revenue be recognized in the accounting period in which the performance obligation is satisfied. 10. 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 11. 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? 12. The partnership form of business organization 13. 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. 14. Bathlinks Corporation has a debt to assets ratio of 73%. This tells the user of Bathlinks’s financial statements that 15. Owners of business firms are the only people who need accounting information. 16. Financing activities include the purchase or sale of long-lived assets or the purchase or sale of investment securities. 17. Which of the following is the least likely consideration that management uses when deciding whether to pay a dividend? 18. The best definition of assets is the 19. 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? 20. An advantage of using the periodic inventory system is that it requires less record keeping than the perpetual inventory system. 21. Consistent use of the same accounting principles and methods is necessary for meaningful analysis of trends within a company. 22. The economic resources that are owned by a business are called stockholders’ equity. 23. The multiple-step income statement is considered more useful than the single-step income statement because it highlights the components of net income. 24. Source documents can provide evidence that a transaction has occurred. 25. Goods that have been purchased FOB destination but are in transit, should be excluded from a physical count of goods by the buyer.


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