1. ACC 421 Final Exam
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1) Why are certain costs of doing business capitalized when incurred and then
depreciated or amortized over subsequent accounting cycles?
A. To match the costs of production with revenues as earned
B. To adhere to the accounting constraint of conservatism
C. To aid management in cash-flow analysis
D. To reduce the federal income tax liability
2) An accrued expense can best be described as an amount
A. not paid and not currently matched with earnings.
B. not paid and currently matched with earnings.
C. paid and not currently matched with earnings.
D. paid and currently matched with earnings.
3) If, during an accounting period, an expense item has been incurred and
consumed but not yet paid for or recorded, then the end-of-period adjusting entry
would involve
A. a liability account and an expense account.
B. a receivable account and a revenue account.
C. an asset or contra asset account and an expense account.
D. a liability account and an asset account.
4) The information provided by financial reporting pertains to
A. individual business enterprises, industries, and an economy as a whole, rather
than to members of society as consumers.
B. an economy as a whole and to members of society as consumers, rather than
to individual enterprises or industries.
C. business industries, rather than to individual enterprises or an economy as a
whole or to members of society as consumers.

2. D. individual business enterprises, rather than to industries or an economy as a
whole or to members of society as consumers.
5) One objective of financial reporting is to provide
A. information that is useful in assessing cash flow prospects.
B. information that will attract new investors.
C. information about the liquidation values of the resources held by the
enterprise.
D. information about the investors in the business entity.
6) The two primary qualities that make accounting information useful for decision
making are
A. relevance and reliability.
B. reliability and comparability.
C. materiality and timeliness.
D. comparability and consistency.
7) The body that has the power to prescribe the accounting practices and
standards to be employed by companies that fall under its jurisdiction is the
A. SEC.
B. APB.
C. AICPA.
D. FASB.
8) The Financial Accounting Foundation
A. works with the Financial Accounting Standards Advisory Council to provide
informa-tion to interested parties on financial reporting issues.
B. oversees the operations of the FASB.
C. provides information to interested parties on financial reporting issues.
D. oversees the operations of the AICPA.

3. 9) The major distinction between the Financial Accounting Standards Board
(FASB) and its predecessor, the Accounting Principles Board (APB), is
A. a majority of the members of the FASB are CPAs drawn from public practice.
B. the FASB issues exposure drafts of proposed standards.
C. all members of the FASB possess extensive experience in financial reporting.
D. all members of the FASB are fully remunerated, serve full time, and are
independent of any companies or institutions.
10) The occurrence which most likely would have no effect on 2007 net income
(assuming that all amounts involved are material) is the
A. worthlessness determined in 2007 of stock purchased on a speculative basis
in 2003.
B. sale in 2007 of an office building contributed by a stockholder in 1983.
C. settlement based on litigation in 2007 of previously unrecognized damages
from a serious accident which occurred in 2005.
D. collection in 2007 of a receivable from a customer whose account was written
off in 2006 by a charge to the allowance account.
11) Which of the following would represent the least likely use of an income
statement prepared for a business enterprise?
A. Use by investors interested in the financial position of the entity.
B. Use by customers to determine a company's ability to provide needed goods
and services.
C. Use by government agencies to formulate tax and economic policy.
D. Use by labor unions to examine earnings closely as a basis for salary
discussions.
12) The single-step income statement emphasizes
A. the various components of income from continuing operations.
B. the gross profit figure.
C. extraordinary items and accounting changes more than these are emphasized
in the multiple-step income statement.

4. D. total revenues and total expenses.
13) Which of the following is not a reason why revenue is recognized at time of
sale?
A. All of these are reasons to recognize revenue at time of sale.
B. Realization has occurred.
C. Title legally passes from seller to buyer.
D. The sale is the critical event.
14) The process of formally recording or incorporating an item in the financial
statements of an entity is
A. recognition.
B. allocation.
C. realization.
D. articulation.
15) Which of the following is not an accurate representation concerning revenue
recognition?
A. Revenue from disposing of assets other than products is recognized at the
date of sale.
B. Revenue from selling products is recognized at the date of sale, usually
interpreted to mean the date of delivery to customers.
C. Revenue from permitting others to use enterprise assets is recognized as time
passes or as the assets are used.
D. Revenue from services rendered is recognized when cash is received or when
services have been performed.
16) The correct order to present current assets is
A. Cash, inventories, prepaid items, accounts receivable.
B. Cash, accounts receivable, inventories, prepaid items.
C. Cash, accounts receivable, prepaid items, inventories.
D. Cash, inventories, accounts receivable, prepaid items.

5. 17) The amount of time that is expected to elapse until an asset is realized or
otherwise converted into cash is referred to as
A. exchangeability.
B. financial flexibility.
C. solvency.
D. liquidity.
18) One criticism not normally aimed at a balance sheet prepared using current
accounting and reporting standards is
A. failure to include items of financial value that cannot be recorded objectively.
B. the extensive use of separate classifications.
C. failure to reflect current value information.
D. an extensive use of estimates.
19) The focus of APB Opinion No. 22 is on the disclosure of accounting policies.
This information is important to financial statement readers in determining
A. whether the working capital position is adequate for future operations.
B. whether accounting policies are consistently applied from year to year.
C. net income for the year.
D. the value of obsolete items included in ending inventory.
20) Events that occur after the December 31, 2008 balance sheet date (but
before the balance sheet is issued) and provide additional evidence about
conditions that existed at the balance sheet date and affect the realizability of
accounts receivable should be
A. used to record an adjustment directly to the Retained Earnings account
B. disclosed only in the Notes to the Financial Statements.
C. discussed only in the MD&A (Management's Discussion and Analysis) section
of the annual report.
D. used to record an adjustment to Bad Debt Expense for the year ending
December 31, 2008.

6. 21) The full disclosure principle, as adopted by the accounting profession, is best
described by which of the following?
A. Disclosure of any financial facts significant enough to influence the judgment
of an informed reader.
B. Information about each account balance appearing in the financial statements
is to be included in the notes to the financial statements.
C. All information related to an entity's business and operating objectives is
required to be disclosed in the financial statements.
D. Enough information should be disclosed in the financial statements so a
person wishing to invest in the stock of the company can make a profitable
decision.
22) Companies should disclose all of the following in interim reports except
A. seasonal revenue, cost, or expenses.
B. changes in accounting principles.
C. basic and diluted earnings per share.
D. post-balance-sheet events.
23) Which of the following best characterizes the difference between a financial
forecast and a financial projection?
A. A forecast includes data which can be verified about future expectations, while
the data in a projection is not susceptible to verification.
B. A forecast is normally for a full year or more and a projection presents data for
less than a year.
C. Forecasts include a complete set of financial statements, while projections
include only summary financial data.
D. A forecast attempts to provide information on what is expected to happen,
whereas a projection may provide information on what is not necessarily
expected to happen.
24) A financial forecast per professional pronouncements presents to the best of
the responsible party's knowledge and belief,
A. an assessment of the company's ability to be successful in the future under a
number of different assumptions.

7. B. given one or more hypothetical assumptions, an entity's expected financial
position, results of operations, and cash flows.
C. an entity's expected financial position, results of operations, and cash flows.
D. an assessment of the company's ability to be successful in the future.
25) Which of the following ratios measures long-term solvency?
A. Current ratio
B. Debt to total assets
C. Acid-test ratio
D. Receivables turnover
26) The payout ratio is calculated by dividing
A. cash dividends by net income less preferred dividends.
B. cash dividends by market price per share.
C. dividends per share by earnings per share.
D. cash dividends by net income plus preferred dividends.
27) Theoretically, in computing the receivables turnover, the numerator should
include
A. credit sales.
B. sales.
C. net sales.
D. net credit sales.
28) The primary purpose of the statement of cash flows is to provide information
A. about the entity's ability to meet its obligations, its ability to pay dividends, and
its needs for external financing.
B. about the cash receipts and cash payments of an entity during a period.
C. about the operating, investing, and financing activities of an entity during a
period.
D. that is useful in assessing cash flow prospects.

8. 29) The first step in the preparation of the statement of cash flows requires the
use of information included in which comparative financial statements?
A. Statements of retained earnings
B. Income statements
C. Statements of cash flows
D. Balance sheets
30) A company borrows $10,000 and signs a 90-day nontrade note payable. In
preparing a statement of cash flows (indirect method), this event would be
reflected as a(n)
A. cash inflow from financing activities.
B. cash inflow from investing activities.
C. addition adjustment to net income in the cash flows from operating activities
section.
D. cash outflow from investing activities.
31) The amortization of bond premium on long-term debt should be presented in
a statement of cash flows (using the indirect method for operating activities) as
a(n)
A. financing activity.
B. investing activity.
C. addition to net income.
D. deduction from net income.
32) In a statement of cash flows, the cash flows from investing activities section
should report
A. the assignment of accounts receivable.
B. the issuance of common stock in exchange for a factory building.
C. stock dividends received.
D. a major repair to machinery charged to accumulated depreciation.

9. 33) In reporting extraordinary transactions on a statement of cash flows (indirect
method), the
A. gross amount of an extraordinary gain should be added to net income.
B. gross amount of an extraordinary gain should be deducted from net income.
C. net of tax amount of an extraordinary gain should be added to net income.
D. net of tax amount of an extraordinary gain should be deducted from net
income.
34) Which of the following tables would show the smallest factor for an interest
rate of 10% for six periods?
A. Present value of an annuity due of 1
B. Future value of an ordinary annuity of 1
C. Present value of an ordinary annuity of 1
D. Future value of an annuity due of 1
35) Which table would show the largest factor for an interest rate of 8% for five
periods?
A. Present value of an annuity due of 1
B. Future value of an ordinary annuity of 1
C. Present value of an ordinary annuity of 1
D. Future value of an annuity due of 1
36) Which of the following tables would show the smallest value for an interest
rate of 5% for six periods?
A. Present value of an ordinary annuity of 1
B. Future value of 1
C. Present value of 1
D. Future value of an ordinary annuity of 1
ACC 421 Final Exam
PLEASE DOWNLOAD THE ANSWERS HERE