Question

True or false

1.The required withholding of federal income taxes and FlCA taxes from employees' wages results in a direct reduction of operating expenses for the employer firm.

2.If an investment is made that pays 8% annual interest for a 5-year period with quarterly compounding, the number of periods is 60.

3.The chart of accounts is also known as the book of original entry.

4.R&D expense is treated as an operating expense and is not capitalized.

5.Preferred stockholders compose the basic, residual ownership class in a corporation.

6.Bond ratings specify the amount at which investors can buy bonds from companies.

7.The interest cost incurred to finance the acquisition of a delivery truck is part of the truck's initial cost.

8.Under the double-entry accounting system, no more than two accounts can be affected by each transaction.

9.Outstanding checks are checks a company has written and recorded as cash disbursements that have not yet been presented to the bank for payment.

10.The basic purpose of accounting is to provide useful financial information.

11.Assets are listed on the balance sheet in order of liquidity and liabilities are listed in order of amount.

12.Solvency ratios measure a company's ability to meet its debt obligations.

13.Depreciation requires only two estimates—useful life and salvage value—both of which are specified by GAAP depending on the asset type.

14.Zero-coupon notes do not pay periodic interest payments.

15.All merchandise purchased for resale by a firm is initially recorded in the Purchases account when the firm uses the periodic inventory system.

16.Companies must report 'gains and losses' on transactions relating to purchases and sales of their own stock on the income statement as other income or expense.

17.The three elements that are almost always present when a fraud occurs are pressure, rationalization and concealment.

18.The normal balance in a revenue account is a credit balance.

19.The direct write-off method of accounting for uncollectible accounts follows the accrual concept of accounting more closely than does the allowance method of accounting for uncollectible accounts.

20.A statement of cash flows reports on cash flows for operating, investing and financing activities at a point in time.

21.If accounts payable increase during an accounting period, then the cash paid for merchandise purchased is less than the merchandise purchases for the period.

22.Income statement effects of uncollectible accounts occur at the point of estimation, not when an account is written-off.

23.The principal difference in the financial statements of proprietorships, partnerships, and corporations is in the asset section of the balance sheet.

24.Requiring employees to take vacations is an example of a good internal accounting control feature.

25.Changes in accounting estimates affect only the current and future periods' income statements.

26.The trial balance prepared before the general ledger accounts are adjusted is called an adjusted trial balance.

27.Under the periodic inventory system, an uncorrected error in an ending inventory amount will affect income determination for two accounting periods.

28.An adjusting entry to record depreciation expense is an example of an adjustment that accrues an expense to reflect its incurrence during the accounting period even though it is not yet paid or recorded.

Answer 1

1. False.

The withholding of Federal Income Taxes and FICA taxes is from the employees gross salaries. This reduces the amount payable to the employees but the operating expense is the gross salaries, which is not affeted by the withholdigs.

2.False

Number of quarters in a year = 4

Period of the invetsment = 5

Number of peridos = 5 x 4 = 20.

3.False

  The chart of acounts is the list of accounts which a company maintains and into which the diferent transactions are booked, whereas the books of original entry are the diferent records into which the transactions are entered into. The chart of accounts is sued to make the entries into the books of original entry.

For e.g, Sales journal is a book of original entry. All the sale transactions are entered, where the accounts from the chart of accounts are used.

4. True.

5.

6. False.

Bond ratings are the rating given to a bond , which siginifes the bond issuing company's ability to pay the interest and principal on the bond.

7. True.

8. False.

Double entry system means a system where each transaction is recorded as two parts , debit and credit. this does not mean that each netry will have only two accounts affected. Thenumber of affected accounts may be more than two, but the effect of the transaction is refleceted both as a debit and a credit.(Two effects).

9.True.

10.True.

11.False.

Bothe the assets and liabilities are liseted in order of liquidity. On the assets side current assets are listed first and the non-current (long-term) assets are listed later. Similary on the liabilities current liabilities are listed first and the long-term liabilities are listed later.

12.True.

13.True.

14.True.

15.True.

16.False.

Gain or loss on purchase of company's own stock is not presented in the income statement , but is relfected inthe balance sheet with adjustments made to the share capital accounts.

17.

18. True

19. True

20. False

A statement of cash flows reports on cash flows from operating, investing and financing activities for a period and not at a point of time.

21.True

E.g. Beginning accounts payable = $10,000

Purchases = $100,000

Ending Accounts Payable = $20,000

Cash paid for accounts payable = Beginning accoutns payable+Purchases - Ending accounts payable

= $10,000+$100,000 - $20,000 = $90,000

22.True.

26.False.

The Tral Balance prepared before the general ledger accounts are adjusted is called an unadjusted trial balance.

27.True.