COMPREHENSIVE EXAMINATION A
PART 1
(Chapters 1-6)
Problem A-I
鈥?/p>
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鈥?nbsp;equity, and current liabilities.
c.
It overstates revenue, stockholders鈥?nbsp;equity, and current liabilities.
d.
It understates cur
rent assets and overstates stockholders鈥?nbsp;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, 2014 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, 2014 would be
a.
assets and stockholders鈥?nbsp;equity were overstated but liabilities were not
affected.
b.
stockholders鈥?nbsp;equity was the only item affected by the omission.
c.
assets and liabilities were understated but stockholders鈥?nbsp;equity was not
affected.
d.
assets and stockholders鈥?nbsp;equity were understated but liabilities were not
affected.
____
5.
Reversing entries are most commonly used in relation to year-end adjusting
entries that
a.
allocate the expired portion of a depreciable asset to expense.
b.
amortize intangible assets.
c.
provide for bad debt expense.
d.
accrue interest revenue on notes receivable.