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Accounting: What the Numbers Mean, 5/e

David H. Marshall, Millikin University
Wayne W. McManus, International College of the Cayman Islands
Daniel F. Viele, Webster University

Accounting for and Presentation of Current Assets

Multiple Choice Quiz

Please answer all questions


1	The current assets of most companies are usually made up of:
		A)	assets that are currently used in the operations of the company.
		B)	cash and assets expected to be converted to cash within a year.
		C)	a very small proportion (less than 10%) of the total assets of the entity.
		D)	cash, marketable securities, and accounts and notes receivable.
		E)	all assets that can be converted into cash.


2	A cash equivalent is a current asset that:
		A)	will be converted to cash within one year.
		B)	will be converted to cash within one month.
		C)	is readily convertible into cash with a minimal risk.
		D)	is readily convertible into cash with a substantial risk.
		E)	none of the above.


3	The principal reason for reconciling the cash balance per books with the balance shown on the bank statement is to:
		A)	determine the amount of cash in the account actually available to the entity.
		B)	satisfy generally accepted accounting principles.
		C)	verify the amount of petty cash on hand.
		D)	determine whether or not the entity has issued an NSF check.
		E)	make sure that the bank is not charging too much in fees.


4	Internal control systems involve a series of checks and balances that separate each of the functional duties involved in processing a transaction, and are normally designed to do all of the following except:
		A)	Promote accuracy and reliability of the company's records and financial statements.
		B)	Safeguard and protect a company's assets against improper or unauthorized use.
		C)	Prevent groups of employees from committing collusive acts of fraud.
		D)	Encourage employees to adhere to the company's prescribed policies and procedures.
		E)	Provide an environment that is conducive to efficient operation of the organization.


5	Bad debt expense is recognized in the same accounting period as the revenue that is related to the receivable because:
		A)	the accounts receivable asset should be stated at original cost.
		B)	the exact amount of the losses from bad debts is known.
		C)	revenues should be stated at realizable value.
		D)	all costs incurred in the current period should be subtracted from current period revenues.
		E)	write-offs are always recorded in the period during which the sale takes place.


6	Which of the following is true regarding a note receivable?
		A)	A note receivable is always a long-term asset.
		B)	A note receivable is always a current asset.
		C)	A note receivable usually non-interest bearing.
		D)	A note receivable is normally issued by a bank.
		E)	A note receivable is a more formal document than an account receivable


7	Inventories:
		A)	represent a major portion of the property, plant, and equipment assets for many firms.
		B)	are recorded as debits to assets when purchased and as debits to expenses when used.
		C)	must be accounted for using either the LIFO or FIFO method.
		D)	are not an important component of working capital for most firms.
		E)	decrease ROI because they use cash.


8	When comparing its effects to LIFO during an inflationary time, the effects of FIFO are to:
		A)	decrease net income and decrease total assets.
		B)	decrease net income and increase total assets.
		C)	increase net income and decrease total assets.
		D)	increase net income and increase total assets.
		E)	none of the above.


9	The effect of an error resulting in an understatement of ending inventory is to:
		A)	overstate the next period's beginning inventory.
		B)	understate cost of goods sold of the current period.
		C)	overstate cost of goods sold of the current period.
		D)	overstate operating expenses of the current period.
		E)	understate cost of goods sold for the next period.


10	Prepaid expenses classified as current assets represent:
		A)	current year expenses that have been accrued.
		B)	current year cash payments that will not be matched against revenues until the next year.
		C)	cash that has been segregated to pay for future expenses.
		D)	expenses of the current year that have been paid in advance.
		E)	cash collected in advance for revenues that will be earned in the next year.

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