Exam Chapters 1-5
COMPREHENSIVE EXAMINATION A
PART 1
(Chapters 1-6)
Problem A-I — Multiple Choice.
Choose the best answer for each of the following questions and enter the identifying letter in the space provided.
1. How does failure to record accrued revenue distort the financial reports? a. It understates revenue, net income, and current assets. b. It understates net income, stockholders’ equity, and current liabilities. c. It overstates revenue, stockholders’ equity, and current liabilities. d. It understates current assets and overstates stockholders’ equity.
2. A contingent liability which is normally accrued is a. notes receivable discounted. b. accommodation endorsements on customer notes. c. additional compensation that may be payable on a dispute now being arbitrated. d. estimated claims under a service warranty on new products sold.
3. Which of the following items is a current liability?
a. Bonds due in three months (for which there is an adequate sinking fund classified as a long-term investment).
b. Bonds due in three years.
c. Bonds (for which there is an adequate appropriation of retained earnings) due in eleven months.
d. Bonds to be refunded when due in eight months, there being no doubt about the marketability of the refunding issue.
4. On June 15, 2012 Stine Corporation accepted delivery of merchandise which it purchased on account. As of June 30 Stine had not recorded the transaction or included the merchandise in its inventory. The effect of this error on its balance sheet for June 30, 2012 would be a. assets and stockholders’ equity were overstated but liabilities were not affected. b. stockholders’ equity was the only item affected by the omission. c. assets and liabilities were understated but stockholders’ equity was not affected. d. assets and stockholders’ equity were understated but liabilities were not affected.
5. Reversing entries are most commonly used in relation to year-end adjusting
PART 1
(Chapters 1-6)
Problem A-I — Multiple Choice.
Choose the best answer for each of the following questions and enter the identifying letter in the space provided.
1. How does failure to record accrued revenue distort the financial reports? a. It understates revenue, net income, and current assets. b. It understates net income, stockholders’ equity, and current liabilities. c. It overstates revenue, stockholders’ equity, and current liabilities. d. It understates current assets and overstates stockholders’ equity.
2. A contingent liability which is normally accrued is a. notes receivable discounted. b. accommodation endorsements on customer notes. c. additional compensation that may be payable on a dispute now being arbitrated. d. estimated claims under a service warranty on new products sold.
3. Which of the following items is a current liability?
a. Bonds due in three months (for which there is an adequate sinking fund classified as a long-term investment).
b. Bonds due in three years.
c. Bonds (for which there is an adequate appropriation of retained earnings) due in eleven months.
d. Bonds to be refunded when due in eight months, there being no doubt about the marketability of the refunding issue.
4. On June 15, 2012 Stine Corporation accepted delivery of merchandise which it purchased on account. As of June 30 Stine had not recorded the transaction or included the merchandise in its inventory. The effect of this error on its balance sheet for June 30, 2012 would be a. assets and stockholders’ equity were overstated but liabilities were not affected. b. stockholders’ equity was the only item affected by the omission. c. assets and liabilities were understated but stockholders’ equity was not affected. d. assets and stockholders’ equity were understated but liabilities were not affected.
5. Reversing entries are most commonly used in relation to year-end adjusting