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3111 words - 13 pages

Financial Accounting and Information Systems
Exam 2
Fall 2010

True/False (1 point)

1) According to GAAP revenue recognition criteria, in order for revenue to be recognized on the income statement, it must be earned and realized (realizable).T

2) Realized gains and losses on investments classified as trading securities are reported in a company's net income in the period that they are realized.

3) Accounts receivable (net) reported in the current asset section of a company's balance sheet represents the total amount owed by customers within the next year. F

4) In 2009, Dow Chemical Corporation plans to build a laboratory dedicated to a special project. The company will not ...view middle of the document...


11) The principle and interest that will be paid on long-term debt within the next operating cycle are reported on the balance sheet as "current portion of long-term debt". T

12) For self-constructed assets, a firm may capitalize any expenses required to place the assets in service. This includes any interest expense on loans during the construction period.

13) Market prices of bonds fluctuate because the company's obligation (in the form of principal and interest payments) remain fixed.

14) If company A accounts for its investment in company B using the equity method, then a portion of company B's earnings are reported on company's A's income statement .

15) Secured debt holders have a preferred position over other creditors but not over preferred stock holders.

16) Goodwill is recorded when the fair value of the assets acquired in a merger exceeds the net book value of those same assets.

Multiple Choice (2 points)

17) The 2008 financial statements of Leggett & Platt, Inc. include the following information in a footnote. What are the company's gross accounts receivable at the end of 2008? (in millions)
2008 2007
Allowance for doubtful accounts $27.5 $18.2
Total Accounts Receivable, net $550.5 $640.2
a. $523 million
b. $550.5 million
c. $578 million
d. $658.4 million
e. none of the above

18) When the fair value of a company's portfolio of available-for-sale equity securities exceeds its book value, the difference should be:
a. Written off as an impairment loss
b. Added to stockholder's equity of the investee
c. Recorded on the company's income statement
d. Added to the investment account
e. None of the above

19) Boston Consulting Group(BCG) is a management consulting, technology services and outsourcing organization. Which of the following actions should managers take when there is evidence that a fixed-rate contract is over budget and will generate a loss for the firm?
a. Use the percentage-of-completion method to recognize the loss over the remaining term of the engagement.
b. Recognize the loss in the current period rather than over the remaining term of the engagement.
c. Restate the financial statements and recognize the loss in the earliest period of the engagement.
d. Use the percentage-of-completion method and pro rate the loss over the entire term of the engagement.
e. None of the above is an appropriate action.

20) Which of the following does not affect the current liabilities section of the balance sheet?
a. Purchase of inventory on credit
b. Wages owing to employees but not yet paid
c. Insurance bill to be paid next month
d. Sale of goods on credit
e. A probable legal obligation, due within 12 months

21) Sam's Club (part of Wal-Mart consolidated operations) collects annual non-refundable membership fees from customers. When should Sam's Club recognize revenue for these membership fees?
a. Immediately when cash is received because the fees are nonrefundable
b. Evenly...

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