Mba 503 Study Guide

MBA503

Exam Study Guide*

*Answers are shown as "Correct"

1. The rule-making authority within the U.S. that is responsible for promulgating new financial accounting standards is the

a. Federal Accounting Standards Board.

b. American Institute of Certified Public Accountants.

c. Financial Accounting Standards Board. (Correct)

d. Governmental Accounting Standards Board.

e. Institute of Management Accountants.

2. The financial statement that summarizes the assets, liabilities, and stockholders' equity of an entity at a specific point in time is the

a. Balance Sheet. (Correct)

b. Income Statement.

c. Statement of Stockholders' Equity.

d. Statement of Cash Flows.

e. Statement of Fund Balance.

3. At December 31, 2002, Robinson's Home Improvement has $100,000 of assets, $40,000 of liabilities, and $60,000 of stockholders' equity. On January 15, 2003, Robinson's purchased $30,000 of assets by incurring a liability. Robinson's total assets, liabilities, and stockholders' equity at January 15, 2003 (after the purchase) are, respectively, ___, ___, and ___.

a. $130,000; $70,000; $60,000 (Correct)

b. $130,000; $60,000; $70,000

c. $100,000; $40,000; $60,000

d. $100,000; $60,000; $40,000

e. $100,000; $30,000; $70,000

4. Gadsden Lawn and Mowing Service began operations on January 1, 2002. At the company's inception, Bob Morgan contributed $100,000 of cash and equipment. During the year, Gadsden earned $200,000 of revenue, incurred $100,000 of expenses, and incurred no liabilities. Total owner's equity at December 31, 2002 is

a. $0.

b. $100,000.

c. $200,000. (Correct)

d. $300,000.

e. $400,000.

5. Which of the following statements about the Securities and Exchange Commission (SEC) is false?

a. Congress established the SEC to deter abusive accounting and financial reporting practices that contributed to the 1929 stock market collapse.

b. Entities that sell their securities on an interstate basis are known as "publicly owned entities."

c. The SEC closely monitors the accounting profession's rule-making processes and has the authority to override any new rules issued by the FASB to the extent that those rules apply to publicly owned entities.

d. The SEC ensures that publicly owned companies provide third parties with sufficient information to make informed economic decisions regarding the securities these firms sell.

e. The SEC assesses the investment quality of securities issued by the companies that it regulates and prohibits the sale of highly speculative securities. (Correct)

6. Which of the following statements about property, plant, and equipment and depreciation is true?

a. Plant, property, and equipment assets are sold to customers in the normal course of business.

b. Accounting requires that the cost of a depreciable asset be recorded as an expense over time periods benefited by that asset. (Correct)

c. Accumulated depreciation is the total amount of depreciation that has been recorded on a depreciable asset in the current period.

d. Accounting and general usages of the term depreciation are the same.

e. Land is a depreciable asset.

7. On April 1, 2002, the Pacific Landscaping Company purchased a new lawnmower for $25,000. The lawnmower has an estimated life of four years and a $5,000 salvage value. Pacific Landscaping uses the straight-line method of depreciation. Total depreciation expense for the year ended December 31, 2002, is

a. $3,750. (Correct)

b. $5,000.

c. $6,250.

d. $20,000.

e. $25,000

8. On January 1, 2002, Strauss Department Store purchased five sweaters from Charter Manufacturers for $20 each. On April 1, 2002, Ms. Landers purchased those sweaters from Strauss for $35 each. Strauss should recognize a

a. $75 increase in revenue for the sale of the sweaters to Ms. Landers.

b. $100 increase in revenue for the sale of the sweaters to Ms. Landers.

c. $75 increase in cost of goods sold for the sale of sweaters to Ms. Landers.

d. $100 increase in cost of goods sold for its sale of sweaters to Ms. Landers. (Correct)

e. $175 increase in cost of goods sold for its sale of sweaters to Ms. Landers.

9. The requirement for publicly owned companies to issue quarterly and annual financial statements was mandated by the

a. Securities and Exchange Commission. (Correct)

b. Financial Accounting Standards Board.

c. New York Stock Exchange.

d. Internal Revenue Service.

e. American Institute of CPAs.

10. The belief that an entity will continue to operate, unless there is evidence to the contrary, is the

a. accounting period concept.

b. historical cost principle.

c. unit of measurement concept.

d. going concern assumption. (Correct)

e. revenue recognition rule.

11. Quick Co. showed an