1. HCI, Inc. understated its ending inventory by $6,000 in 2006. Assume HCI, Inc. has a 25 percent income tax rate. Which of the following statements about the financial reports of HCI, Inc. for 2007

1. HCI, Inc. understated its ending inventory by $6,000 in 2006. Assume HCI, Inc. has a 25 percent income tax rate. Which of the following statements about the financial reports of HCI, Inc. for 2007 is correct?

Answer

A. Beginning inventory will be overstated by $4,500.

B. Cost of sales will be understated by $4,500.

C. Net income will be overstated by $4,500.

D. Net income will be correct.

2. Which bank reconciliation items could require an adjustment to the bank balance and cash balance in the ledger? (This is the only item that can affect either balance. All others affect one or the other only).

Answer

A. Errors

B. Deposits in transit

C. Outstanding checks

D. Insufficient funds checks

3. Why would a company select the completed-contract method for recognizing revenue on long-term construction projects?

Answer

A. It allows the deferral of income tax payments.

B. It results in more uniform recognition of earnings.

C. It provides the best matching of revenues and expenses.

D. It provides the best matching of results and efforts.

4. Which type of revenue activity is correctly matched with the revenue recognition method?

A. Activity: Long-term construction, Recognition Method: Percentage-of-Completion

B. Activity: Mining Production, Recognition Method: Cost Recovery

C. Activity: Agriculture production, Recognition Method: Cost recovery

D. Activity: Sales on installment, Recognition Method: Percentage-of-Completion

5. When applying the lower-of-cost-or-market rules, the term market can best be described as

Answer

A. the original cost.

B. the unadjusted replacement cost.

C. current cost.

D. designated market

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