Question : 61. Davis Construction Inc.Davis Construction began operation January 1, 2012, with : 1224803

 

 

61. Davis Construction Inc.
Davis Construction began operation on January 1, 2012, with an initial investment of $100,000 from each of its three stockholders. During the year ending 2012 Davis Construction had net income of $125,000 and paid dividends of $50,000.

Refer to the information provided for Davis Construction, Inc. The dividends for the year: 
A. increases the amount of capital stock reported by the company.
B. are part of Davis Construction’s operating expense.
C. are reported on the statement of retained earnings.
D. are reported on the income statement.

 

62. Davis Construction Inc.
Davis Construction began operation on January 1, 2012, with an initial investment of $100,000 from each of its three stockholders. During the year ending 2012 Davis Construction had net income of $125,000 and paid dividends of $50,000.

Refer to Davis Construction. If Davis Construction’s revenues were $500,000 for the year ended December 31, 2012, how much were total expenses? 
A. $450,000
B. $375,000
C. $325,000
D. $625,000

 

63. In order for accounting information to be useful in making informed decisions, it must be: 
A. internal.
B. relevant.
C. reliable.
D. both relevant and reliable.

 

64. Which of the following qualitative characteristic of useful accounting information implies that only items that meet or exceed certain thresholds will affect decisions? 
A. Conservatism
B. Materiality
C. Relevance
D. Comparability

 

65. The principle of conservatism is concerned with: 
A. the avoidance of overstating assets or income in the preparation of financial statements.
B. the minimization of costs associated with providing financial information.
C. the company’s ability to carry out its existing commitments.
D. the company’s procedures for recording activities at their initial exchange price.

 

66. Mullins, Inc. manufactures furniture. Mullins has given you its most recent annual report in an effort to obtain a sizeable loan. The company is very profitable and appears to have a strong financial position. However, based on a news report you saw on television last night, you are aware that Mullins is a defendant in a class action lawsuit related to defective products. Serious injuries were allegedly caused by Mullins’ infant high chairs overturning. The television news report is an example of financial information that is: 
A. predictable.
B. conservative.
C. relevant.
D. comparable.

 

67. If an investor can use accounting information for two different companies to evaluate the types and amounts of expenses, the information is said to have the quality of: 
A. comparability.
B. consistency.
C. neutrality.
D. materiality.

 

68. PTG Enterprises purchases many small pieces of office furniture, such as trash cans, that cost less than $100 each. PTG accounts for these items as expenses when acquired rather than reporting them as property, plant, and equipment on its balance sheet. The company’s accountant states that no accounting principle has been violated. Justification for PTG’s policy of expensing these furniture items is based on cost vs. benefit considerations as well as qualitative characteristic of accounting information of: 
A. conservatism.
B. materiality.
C. reliability.
D. verifiability.

 

69. Scott Brothers, Inc. follows the qualitative characteristic of consistency. This means that: 
A. for expenses, Scott uses the same account titles as used by its competitors.
B. Scott has elected certain accounting principles that can never be changed.
C. Scott applies the same accounting methods each period.
D. Scott applies the same accounting principles as its competitors.

 

70. Information that is material means that an error in recording the dollar amount of a transaction would: 
A. likely affect the judgment of someone relying on the financial statements.
B. not affect the decisions of financial statement users.
C. not impact a business decision of a creditor.
D. result in the overstatement of assets or income.

 

71. An accountant is uncertain about the best estimate of an amount for a business transaction. If there are two possible amounts that could be recorded, the amount least likely to overstate assets and earnings is selected. Which of the following qualities is characterized by this action? 
A. Comparability
B. Conservatism
C. Materiality
D. Neutrality

 

72. One of the qualitative characteristics of accounting information include: 
A. reliability.
B. cash flow information.
C. all accounting information.
D. assets reported on the balance sheet.

 

 

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