Financial Accounting Tools for Business Decision Making 6th Edition Solutions Manual and Test Bank

Solutions Manual and Test Bank Financial Accounting Tools for Business Decision Making 6th Edition   -- $35

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CHAPTER 2 A FURTHER LOOK AT FINANCIAL STATEMENTS

MULTIPLE CHOICE QUESTIONS

56. In a classified balance sheet, assets are usually classified as:
a. current assets; long-term assets; property, plant, and equipment; and intangible assets.
b. current assets; long-term investments; property, plant, and equipment; and common stocks.
c. current assets; long-term investments; tangible assets; and intangible assets.
d. current assets; long-term investments; property, plant, and equipment; and intangible assets.

  SO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

57. On a classified balance sheet, marketable securities are classified as
a. an intangible asset.
b. property, plant, and equipment.
c. a current asset.
d. a long-term investment.

  SO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

58. A current asset is
a. the last asset purchased by a business.
b. an asset which is currently being used to produce a product or service.
c. usually found as a separate classification in the income statement.
d. expected to be converted to cash or used in the business within a relatively short period of time.

  SO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

59. Which of the following is not classified properly as a current asset?
a. Supplies
b. Marketable securities
c. A fund to be used to purchase a building within the next year
d. A receivable from the sale of an asset to be collected in two years

  SO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

60. An intangible asset
a. derives its value from the rights and privileges it provides the owner.
b. is worthless because it has no physical substance.
c. is converted into a tangible asset during the operating cycle.
d. cannot be classified on the balance sheet because it lacks physical substance.

  SO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting


61. Which of the following is not considered an asset?
a. Equipment
b. Dividends
c. Accounts receivable
d. Inventory

  SO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

62. Trademarks would appear in which balance sheet section?
a. Intangible assets
b. Investments
c. Property, plant, and equipment
d. Current assets

  SO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

63. Liabilities are generally classified on a balance sheet as
a. small liabilities and large liabilities.
b. present liabilities and future liabilities.
c. tangible liabilities and intangible liabilities.
d. current liabilities and long-term liabilities.

  SO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

64. Which of the following would not be classified as a long-term liability?
a. Current maturities of long-term debt
b. Bonds payable
c. Mortgage payable
d. Lease liabilities

  SO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

65. Which of the following is not a current liability?
a. Wages payable
b. Accounts payable
c. Taxes payable
d. Bonds payable

  SO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

66. Equipment is classified on the balance sheet as
a. a current asset.
b. property, plant, and equipment.
c. an intangible asset.
d. a long-term investment.

  SO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

67. It is not true that current assets are resources that are expected to be
a. realized in cash within one year.
b. sold within one year.
c. consumed within one year.
d. acquired within one year.

  SO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

68. The operating cycle of a company is the average time that is required to go from cash to
a. sales in producing revenues.
b. cash in producing revenues.
c. inventory in producing revenues.
d. accounts receivable in producing revenues.

  SO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

69. On a classified balance sheet, companies usually list current assets
a. in alphabetical order.
b. with the largest dollar amounts first.
c. in the order in which they are expected to be converted into cash.
d. in the order of acquisition.

  SO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

70. Intangible assets are
a. listed directly under current assets on the balance sheet.
b. not listed on the balance sheet because they do not have physical substance.
c. listed after property, plant, and equipment.
d. listed as a long-term investment on the balance sheet.

  SO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

71. Which statement about long-term investments is not true?
a. They will be held for more than one year.
b. They are not currently used in the operation of the business.
c. They include investments in stock of other companies and land held for future use.
d. They can never include cash accounts.

  SO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

72. These are selected account balances on December 31, 2012.
Land $100,000
Land (held for future use)   150,000
Buildings   600,000
Inventory   200,000
Equipment   450,000
Furniture   100,000
Accumulated Depreciation   300,000

What is the total amount of property, plant, and equipment that will appear on the balance sheet?
a. $1,300,000
b. $1,100,000
c. $1,600,000
d. $950,000

  SO: 1, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting


73. What is the order in which assets are generally listed on a classified balance sheet?
a. current and long-term
b. current; property, plant and equipment; long-term investments; intangibles
c. current; property, plant and equipment; intangibles; long-term investments
d. current; long-term investments; property, plant and equipment, intangibles

  SO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

74. Ratios that measure the income or operating success of a company for a given period of time are
a. liquidity ratios.
b. profitability ratios.
c. solvency ratios.
d. trending ratios.

  SO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

75. Use the following data to determine the total dollar amount of assets to be classified as current assets.
Koonce Office Supplies
Balance Sheet
December 31, 2012

Cash $    130,000 Accounts Payable $  140,000
Prepaid Insurance 60,000 Salaries Payable 20,000
Accounts Receivable 100,000 Mortgage Payable    160,000
Inventory   140,000     Total Liabilities $320,000
Land held for Investment 150,000
Land 180,000
Buildings $200,000 Common Stock $240,000
   Less Accumulated Retained Earnings  500,000
        Depreciation (40,000) 160,000   Total Stockholders’ Equity $740,000
Trademarks    140,000      Total Liabilities and
Total Assets $1,060,000        Stockholders’ Equity $1,060,000

a. $580,000.
b. $430,000.
c. $360,000.
d. $290,000.

  SO: 1, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting


76. Use the following data to determine the total dollar amount of assets to be classified as property, plant, and equipment.
Koonce Office Supplies
Balance Sheet
December 31, 2012

Cash $    130,000 Accounts Payable $  140,000
Prepaid Insurance 60,000 Salaries Payable 20,000
Accounts Receivable 100,000 Mortgage Payable    160,000
Inventory   140,000     Total Liabilities $320,000
Land held for Investment 150,000
Land 180,000
Buildings $200,000 Common Stock $240,000
   Less Accumulated Retained Earnings  500,000
        Depreciation (40,000) 160,000   Total Stockholders’ Equity $740,000
Trademarks    140,000      Total Liabilities and
Total Assets $1,060,000        Stockholders’ Equity $1,060,000

a. $640,000.
b. $340,000.
c. $490,000.
d. $380,000.

  SO: 1, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

77. Use the following data to determine the total dollar amount of assets to be classified as investments.
Koonce Office Supplies
Balance Sheet
December 31, 2012

Cash $    130,000 Accounts Payable $  140,000
Prepaid Insurance 60,000 Salaries Payable 20,000
Accounts Receivable 100,000 Mortgage Payable    160,000
Inventory   140,000     Total Liabilities $320,000
Land held for Investment 150,000
Land 180,000
Buildings $200,000 Common Stock $240,000
   Less Accumulated Retained Earnings  500,000
        Depreciation (40,000) 160,000   Total Stockholders’ Equity $740,000
Trademarks    140,000      Total Liabilities and
Total Assets $1,060,000        Stockholders’ Equity $1,060,000

a. $0.
b. $300,000.
c. $150,000.
d. $360,000.

  SO: 1, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting


78. Use the following data to determine the total amount of working capital.
Koonce Office Supplies
Balance Sheet
December 31, 2012

Cash $    130,000 Accounts Payable $  140,000
Prepaid Insurance 60,000 Salaries Payable 20,000
Accounts Receivable 100,000 Mortgage Payable    160,000
Inventory   140,000     Total Liabilities $320,000
Land held for Investment 150,000
Land 180,000
Buildings $200,000 Common Stock $240,000
   Less Accumulated Retained Earnings  500,000
        Depreciation (40,000) 160,000   Total Stockholders’ Equity $740,000
Trademarks    140,000      Total Liabilities and
Total Assets $1,060,000        Stockholders’ Equity $1,060,000

a. $270,000.
b. $590,000.
c. $150,000.
d. $120,000.

  SO: 4, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

79. Use the following data to calculate the current ratio.
Koonce Office Supplies
Balance Sheet
December 31, 2012

Cash $    130,000 Accounts Payable $  140,000
Prepaid Insurance 60,000 Salaries Payable 20,000
Accounts Receivable 100,000 Mortgage Payable    160,000
Inventory   140,000     Total Liabilities $320,000
Land held for Investment 150,000
Land 180,000
Buildings $200,000 Common Stock $240,000
   Less Accumulated Retained Earnings  500,000
        Depreciation (40,000) 160,000   Total Stockholders’ Equity $740,000
Trademarks    140,000      Total Liabilities and
Total Assets $1,060,000        Stockholders’ Equity $1,060,000

a. 1.81 : 1.
b. 1.44 : 1.
c. 3.07 : 1.
d. 2.69 : 1.

  SO: 4, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics


80. Use the following data to determine the total dollar amount of assets to be classified as current assets.
Carne Auto Supplies
Balance Sheet
December 31, 2012

Cash          $    60,000 Accounts Payable $  65,000
Prepaid Insurance      40,000 Salaries Payable    10,000
Accounts Receivable 50,000 Mortgage Payable    90,000
Inventory   70,000 Total Liabilities $165,000
Land held for investment 80,000
Land 95,000
Buildings $100,000 Common Stock $120,000
   Less Accumulated Retained Earnings  250,000
      Depreciation (30,000) 70,000   Total stockholders’ equity $370,000
Trademarks    70,000      Total Liabilities and
Total Assets $535,000           Stockholders’ Equity $535,000

a. $220,000.
b. $150,000.
c. $300,000.
d. $180,000.

  SO: 1, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

81. Use the following data to determine the total dollar amount of assets to be classified as property, plant, and equipment.
Carne Auto Supplies
Balance Sheet
December 31, 2012

Cash          $    60,000 Accounts Payable $  65,000
Prepaid Insurance      40,000 Salaries Payable    10,000
Accounts Receivable 50,000 Mortgage Payable    90,000
Inventory   70,000 Total Liabilities $165,000
Land held for investment 80,000
Land 95,000
Buildings $100,000 Common Stock $120,000
   Less Accumulated Retained Earnings  250,000
      Depreciation (30,000) 70,000   Total stockholders’ equity $370,000
Trademarks    70,000      Total Liabilities and
Total Assets $535,000           Stockholders’ Equity $535,000

a. $315,000.
b. $245,000.
c. $165,000.
d. $195,000.

  SO: 1, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting


82. Use the following data to determine the total dollar amount of assets to be classified as investments.
Carne Auto Supplies
Balance Sheet
December 31, 2012

Cash          $    60,000 Accounts Payable $  65,000
Prepaid Insurance      40,000 Salaries Payable    10,000
Accounts Receivable 50,000 Mortgage Payable    90,000
Inventory   70,000 Total Liabilities $165,000
Land held for investment 80,000
Land 95,000
Buildings $100,000 Common Stock $120,000
   Less Accumulated Retained Earnings  250,000
      Depreciation (30,000) 70,000   Total stockholders’ equity $370,000
Trademarks    70,000      Total Liabilities and
Total Assets $535,000           Stockholders’ Equity $535,000

a. $0.
b. $150,000.
c. $80,000.
d. $180,000.

  SO: 1, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

83. Use the following data to determine the total amount of working capital.
Carne Auto Supplies
Balance Sheet
December 31, 2012

Cash          $    60,000 Accounts Payable $  65,000
Prepaid Insurance      40,000 Salaries Payable    10,000
Accounts Receivable 50,000 Mortgage Payable    90,000
Inventory   70,000 Total Liabilities $165,000
Land held for investment 80,000
Land 95,000
Buildings $100,000 Common Stock $120,000
   Less Accumulated Retained Earnings  250,000
      Depreciation (30,000) 70,000   Total stockholders’ equity $370,000
Trademarks    70,000      Total Liabilities and
Total Assets $535,000           Stockholders’ Equity $535,000

a. $155,000.
b. $145,000.
c. $60,000.
d. $150,000.

  SO: 4, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics


84. Use the following data to calculate the current ratio.
Carne Auto Supplies
Balance Sheet
December 31, 2012

Cash          $    60,000 Accounts Payable $  65,000
Prepaid Insurance      40,000 Salaries Payable    10,000
Accounts Receivable 50,000 Mortgage Payable    90,000
Inventory   70,000 Total Liabilities $165,000
Land held for investment 80,000
Land 95,000
Buildings $100,000 Common Stock $120,000
   Less Accumulated Retained Earnings  250,000
      Depreciation (30,000) 70,000   Total stockholders’ equity $370,000
Trademarks    70,000      Total Liabilities and
Total Assets $535,000           Stockholders’ Equity $535,000

a. 1.86 : 1.
b. 2.00 : 1.
c. 3.38 : 1.
d. 2.93 : 1.

  SO: 4, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

85. N3 Corporation has assets of $3.6 million, common stock of $936,000, and retained earnings of $571,000. What are the creditors’ claims on their assets?
a. $3,235,000
b. $1,507,000
c. $2,093,000
d. $3,965,000

  SO: 1, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

86. K2 Corporation has assets of $1.80 million, common stock of $468,000, and retained earnings of $285,000. What are the creditors’ claims on their assets?
a. $1,617,000
b. $   753,000
c. $1,047,000
d. $1,983,000

  SO: 1, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting


87. Use the following data to determine the total dollar amount of assets to be classified as current assets.
Eddy Auto Supplies
Balance Sheet
December 31, 2012

Cash $    100,000 Accounts Payable $  110,000
Prepaid Insurance 60,000 Salaries Payable 20,000
Accounts Receivable 80,000 Mortgage Payable    180,000
Inventory 140,000 Total Liabilities $310,000
Land held for investment 160,000
Land 150,000
Buildings $220,000 Common Stock $240,000
   Less Accumulated Retained Earnings  500,000
      Depreciation (40,000) 180,000   Total stockholders’ equity $740,000
Trademarks    140,000       Total Liabilities and
Total Assets $1,050,000           Stockholders’ Equity $1,050,000

a. $540,000.
b. $240,000.
c. $380,000.
d. $260,000.

  SO: 1, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

88. Use the following data to determine the total dollar amount of assets to be classified as property, plant, and equipment.
Eddy Auto Supplies
Balance Sheet
December 31, 2012

Cash $    100,000 Accounts Payable $  110,000
Prepaid Insurance 60,000 Salaries Payable 20,000
Accounts Receivable 80,000 Mortgage Payable    180,000
Inventory 140,000 Total Liabilities $310,000
Land held for investment 160,000
Land 150,000
Buildings $220,000 Common Stock $240,000
   Less Accumulated Retained Earnings  500,000
      Depreciation (40,000) 180,000   Total stockholders’ equity $740,000
Trademarks    140,000       Total Liabilities and
Total Assets $1,050,000           Stockholders’ Equity $1,050,000

a. $670,000.
b. $510,000.
c. $410,000.
d. $330,000.

  SO: 1, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting


89. Use the following data to determine the total dollar amount of assets to be classified as investments.
Eddy Auto Supplies
Balance Sheet
December 31, 2012

Cash $    100,000 Accounts Payable $  110,000
Prepaid Insurance 60,000 Salaries Payable 20,000
Accounts Receivable 80,000 Mortgage Payable    180,000
Inventory 140,000 Total Liabilities $310,000
Land held for investment 160,000
Land 150,000
Buildings $220,000 Common Stock $240,000
   Less Accumulated Retained Earnings  500,000
      Depreciation (40,000) 180,000   Total stockholders’ equity $740,000
Trademarks    140,000       Total Liabilities and
Total Assets $1,050,000           Stockholders’ Equity $1,050,000

a. $0.
b. $310,000.
c. $160,000.
d. $370,000.

  SO: 1, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

90. Use the following data to determine the total amount of working capital.
Eddy Auto Supplies
Balance Sheet
December 31, 2012

Cash $    100,000 Accounts Payable $  110,000
Prepaid Insurance 60,000 Salaries Payable 20,000
Accounts Receivable 80,000 Mortgage Payable    180,000
Inventory 140,000 Total Liabilities $310,000
Land held for investment 160,000
Land 150,000
Buildings $220,000 Common Stock $240,000
   Less Accumulated Retained Earnings  500,000
      Depreciation (40,000) 180,000   Total stockholders’ equity $740,000
Trademarks    140,000       Total Liabilities and
Total Assets $1,050,000           Stockholders’ Equity $1,050,000

a. $410,000.
b. $250,000.
c. $100,000.
d. $160,000.

  SO: 4, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics


91. Use the following data to calculate the current ratio.
Eddy Auto Supplies
Balance Sheet
December 31, 2012

Cash $    50,000 Accounts Payable $  55,000
Prepaid Insurance 30,000 Salaries Payable 10,000
Accounts Receivable 40,000 Mortgage Payable    90,000
Inventory 70,000 Total Liabilities $155,000
Land held for investment 80,000
Land 75,000
Buildings $110,000 Common Stock $120,000
   Less Accumulated Retained Earnings  250,000
      Depreciation (20,000) 90,000   Total stockholders’ equity $370,000
Trademarks    70,000       Total Liabilities and
Total Assets $525,000           Stockholders’ Equity $525,000

a. 1.85 : 1.
b. 2.92 : 1.
c. 3.45 : 1.
d. 1.38 : 1.

  SO: 4, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

92. A measure of profitability is the
a. current ratio.
b. debt to total assets ratio.
c. earnings per share.
d. working capital.

  SO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

93. For 2012 Kuhlman Corporation reported net income of $28,000; net sales $400,000; and average share outstanding 12,000. There were no preferred stock dividends. What was the 2012 earnings per share?
a. $2.33
b. $0.43
c. $33.33
d. $7.43

  SO: 2, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

94. For 2012 Fielder Corporation reported net income of $30,000; net sales $400,000; and average share outstanding 12,000. There were no preferred stock dividends. What was the 2012 earnings per share?
a. $2.33
b. $0.40
c. $33.33
d. $2.50

  SO: 2, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting


95. Earnings per share are calculated by dividing
a. gross profit by average common shares outstanding.
b. (net income less preferred stock dividends) by average common shares outstanding.
c. net income by average common shares outstanding.
d. net sales by average common shares outstanding.

  SO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

96. Earnings per share is a
a. profitability ratio.
b. liquidity ratio.
c. solvency ratio.
d. trending ratio.

  SO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

97. Which of the following statements is true?
a. Earnings per share is an internal measure and is not used by shareholders.
b. The denominator used in computing earnings per share represents the shares of common stock outstanding on the last day of the accounting period.
c. Net income is not adjusted when computing earnings per share.
d. By comparing earnings per share of a single corporation over time, a shareholder can evaluate the corporation’s relative earnings performance.

  SO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

98. Earnings available to common stockholders is equal to:
a. Total revenues
b. Net income + Preferred stock dividends
c. Preferred stock dividends – Net income
d. Net income – Preferred stock dividends

  SO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

99. The following information is available for Bradshaw Corporation and Newell Corporation:
(in millions) Bradshaw Corporation Newell Corporation
2012 2011 2012 2011
Preferred stock dividends  25  10    0  30
Net income 500 480 490 520
Shares outstanding at the end of the year 200 180 150 200
Shares outstanding at the beginning of the year 180 150 200 220

Based on this information, the earnings per share calculations (rounded to two decimals) suggest:
a. Lower performance in 2011 than in 2012 for Bradshaw Corporation.
b. Higher performance in 2012 than in 2011 for Bradshaw Corporation.
c. Fewer earnings available to Bradshaw's common stockholders in 2012 than in 2011.
d. An increase in the average number of common shares outstanding between 2011 and 2012 for Bradshaw Corporation.

  SO: 2, Bloom: AN, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

100. The following information is available for Bradshaw Corporation and Newell Corporation:

(in millions) Bradshaw Corporation Newell Corporation
2012 2011 2012 2011
Preferred stock dividends  25  10    0  30
Net income 500 480 490 520
Shares outstanding at the end of the year 200 180 150 200
Shares outstanding at the beginning of the year 180 150 200 220

Based on this information, which of the following is suggested by the earnings per share calculations (rounded to two decimals) and the information given?
a. There is lower performance in 2011 than in 2012 for Newell Corporation.
b. There is higher performance in 2011 than in 2012 for Newell Corporation.
c. There are fewer earnings available to Newell's common stockholders in 2012 than in 2011.
d. There is a decrease in preferred shares of stock in 2012 as compared with 2011.

  SO: 2, Bloom: AN, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Business Economics

101. The following information is available for Bradshaw Corporation and Newell Corporation:
(in millions) Bradshaw Corporation Newell Corporation
2012 2011 2012 2011
Preferred stock dividends  25  10    0  30
Net income 500 480 490 520
Shares outstanding at the end of the year 200 180 150 200
Shares outstanding at the beginning of the year 180 150 200 220

Based on this information, what is the amount of Bradshaw's earnings per share (rounded to two decimals) for 2012?
a. $2.76
b. $2.50
c. $1.25
d. $1.32

  SO: 2, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting


102. The following information is available for Bradshaw Corporation and Newell Corporation:
(in millions) Bradshaw Corporation Newell Corporation
2012 2011 2012 2011
Preferred stock dividends  25  10    0  30
Net income 500 480 490 520
Shares outstanding at the end of the year 200 180 150 200
Shares outstanding at the beginning of the year 180 150 200 220

Based on the information for both Bradshaw and Newell over the two-year period, the earnings per share calculations (rounded to two decimals) indicate that:
a. Bradshaw is seeing a greater performance improvement than Newell.
b. The earnings available to common stockholders is decreasing for Newell and
increasing for Bradshaw.
c. The earnings per share calculations for both companies assume that changes in shares between 2011 and 2012 occur in the middle of the year.
d. Newell is more financially stable than Bradshaw.

  SO: 2, Bloom: AN, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

103 Dawson Corporation has the following information available for 2011:
(in millions)
Issued common stock  $45
Retired common stock  $65
Paid dividends  $75
Net income $130
Beginning Common Stock balance $575
Beginning Retained Earnings balance $425

Based in this information, what is Dawson's Common Stock balance at the end of the year?
a. $555
b. $685
c. $195
d. $630

  SO: 3, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting


104. Dawson Corporation has the following information available for 2011:
(in millions)
Issued common stock  $45
Retired common stock  $65
Paid dividends  $75
Net income $130
Beginning Common Stock balance $575
Beginning Retained Earnings balance $425

Based on this information, what is Dawson's Retained Earnings balance at the end of the year?
a. $630
b. $480
c. $370
d. $555

  SO: 3, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

105. Which of the following is the least likely consideration that management uses when deciding whether to pay a dividend?
a. Does the company have more cash than it has opportunities?
b. Is the company's average number of common shares outstanding decreasing?
c. Does the company have uses for cash that will increase its value?
d. What are the company's cash needs?

  SO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Decision Modeling, AICPA PC: Project Management, IMA: Business Economics

106. Most companies use a(n)  _________ rather than a retained earnings statement.
a. balance sheet
b. income statement
c. statement of cash flows
d. statement of stockholders’ equity

  SO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

107. Dividends appear on
a. the retained earnings statement only.
b. the income statement only.
c. both the retained earnings statement and the balance sheet.
d. the balance sheet only.

  SO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

108. Issuing new shares of common stock will
a. increase retained earnings.
b. decrease retained earnings.
c. increase common stock.
d. decrease common stock.

  SO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics


109. Declaring a cash dividend will
a. increase retained earnings.
b. decrease retained earnings.
c. increase common stock.
d. decrease common stock.

  SO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

110. Reporting a net income of $95,000 will
a. increase retained earnings.
b. decrease retained earnings.
c. increase common stock.
d. decrease common stock.

  SO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

111. McKinney Corporation had beginning retained earnings of $2,292,000 and ending retained earnings of $2,499,000. During the year they issued common stock totaling $141,000. What was their net income for the year?
a. $207,000
b. $  66,000
c. $348,000
d. $273,000

  SO: 3, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

112. Wilton Corporation had beginning retained earnings of $764,000 and ending retained earnings of $833,000. During the year they issued common stock totaling $47,000. What was their net income for the year?
a. $69,000
b. $22,000
c. $116,000
d. $91,000

  SO: 3, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

113. At December 31, 2012 Lowery Company had retained earnings of $2,184,000. During 2012 they issued stock for $98,000, and paid dividends of $34,000. Net income for 2012 was $402,000. The retained earnings balance at the beginning of 2012 was:
a. $2,552,000
b. $1,816,000
c. $1,914,000
d. $2,454,000

  SO: 3, Bloom: AN, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting


114. At December 31, 2012 Keen Company had retained earnings of $1,092,000. During 2012 they issued stock for $49,000, and paid dividends of $17,000. Net income for 2012 was $201,000. The retained earnings balance at the beginning of 2012 was:
a. $1,276,000
b. $908,000
c. $957,000
d. $1,227,000

  SO: 3, Bloom: AN, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

115. The relationship between current assets and current liabilities is important in evaluating a company's
a. profitability.
b. liquidity.
c. market value.
d. solvency.

  SO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

116. Which of the following is a measure of liquidity?
a. Working capital
b. Profit margin
c. Earnings per share
d. Debt to equity ratio

  SO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

117. Current assets divided by current liabilities is known as the
a. working capital.
b. current ratio.
c. profit margin.
d. capital structure.

  SO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

118. The most important information needed to determine if companies can pay their current obligations is the
a. net income for this year.
b. projected net income for next year.
c. relationship between current assets and current liabilities.
d. relationship between short-term and long-term liabilities.

  SO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

119. A short-term creditor is primarily interested in the __________ of the borrower.
a. liquidity
b. profitability
c. consistency
d. solvency

  SO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics


120. The current ratio is
a. current assets plus current liabilities.
b. current assets minus current liabilities.
c. current assets divided by current liabilities.
d. current assets times current liabilities.

  SO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

121. Working capital is calculated by taking
a. current assets plus current liabilities.
b. current assets minus current liabilities.
c. current assets divided by current liabilities.
d. current assets times current liabilities.

  SO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

122. Working capital is a measure of
a. consistency.
b. liquidity.
c. profitability.
d. solvency.

  SO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

123. Long-term creditors are usually most interested in evaluating
a. liquidity and profitability.
b. consistency and profitability.
c. liquidity and solvency.
d. consistency and solvency.

  SO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

124. A liquidity ratio measures the
a. income or operating success of a company over a period of time.
b. ability of a company to survive over a long period of time.
c. short-term ability of a company to pay its maturing obligations and to meet unexpected needs for cash.
d. percentage of total financing provided by creditors.

  SO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

125. Working capital is
a. calculated by dividing current assets by current liabilities.
b. used to evaluate a company’s liquidity and short-term debt paying ability.
c. used to evaluate a company’s solvency and long-term debt paying ability.
d. calculated by subtracting current assets from current liabilities.

  SO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics


126. The ability of a business to pay obligations that are expected to become due within the next year or operating cycle is
a. leverage.
b. liquidity.
c. profitability.
d. wealth.

  SO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

127. Based on the following data, what is the amount of current assets?
Accounts payable……………………………………………………….. $62,000
Accounts receivable……………………………………………………..  100,000
Cash……………………………………………………………………….  30,000
Intangible assets…………………………………………………………  100,000
Inventory………………………………………………………………….  138,000
Long-term investments………………………………………………….  160,000
Long-term liabilities……………………………………………………… 200,000
Short-term investments………………………………………………….  80,000
Notes payable…………………………………………………………….  56,000
Plant assets……………………………………………………………… 1,340,000
Prepaid expenses………………………………………………………..    2,000

a. $192,000
b. $350,000
c. $212,000
d. $210,000

  SO: 1, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

128. Based on the following data, what is the amount of working capital?

Accounts payable……………………………………………………….. $64,000
Accounts receivable……………………………………………………..  114,000
Cash……………………………………………………………………….  40,000
Intangible assets…………………………………………………………  100,000
Inventory………………………………………………………………….  138,000
Long-term investments………………………………………………….  160,000
Long-term liabilities……………………………… ……………………. 200,000
Short-term investments………………………………………………….  80,000
Notes payable (short-term)………………………………………………  56,000
Plant assets……………………………………………………………… 1,340,000
Prepaid expenses………………………………………………………..    2,000

a. $254,000
b. $302,000
c. $340,000
d. $296,000

  SO: 4, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting


129. Using the following balance sheet and income statement data, what is the total amount of working capital?
Current assets $  14,000 Net income $  24,000
Current liabilities 8,000 Stockholders’ equity 42,000
Average assets 80,000 Total liabilities 18,000
Total assets 60,000
Average common shares outstanding was 10,000

a. $  2,000
b. $14,000
c. $  4,000
d. $  6,000

  SO: 4, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

130. Using the following balance sheet and income statement data, what is the current ratio?
Current assets $  14,000 Net income $  24,000
Current liabilities 8,000 Stockholders’ equity 42,000
Average assets 80,000 Total liabilities 18,000
Total assets 60,000
Average common shares outstanding was 10,000

a. 1.75 : 1
b. 1.6 : 1
c. 0.57 : 1
d. 3.3 : 1

  SO: 4, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

131. Using the following balance sheet and income statement data, what is the earnings per share?
Current assets $  14,000 Net income $  24,000
Current liabilities 8,000 Stockholders’ equity 42,000
Average assets 80,000 Total liabilities 18,000
Total assets 60,000
Average common shares outstanding was 10,000

a. $4.20
b. $6.00
c. $2.40
d. $0.42

  SO: 2, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting


132. Using the following balance sheet and income statement data, what is the debt to total assets?
Current assets $  14,000 Net income $  24,000
Current liabilities 8,000 Stockholders’ equity 42,000
Average assets 80,000 Total liabilities 18,000
Total assets 60,000
Average common shares outstanding was 10,000

a. 23 percent
b. 13 percent
c. 70 percent
d. 30 percent

  SO: 4, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

133. Using the following balance sheet and income statement data, what is the total amount of working capital?
Current assets $  9,000 Net income $  12,000
Current liabilities 4,000 Stockholders’ equity 24,000
Average assets 44,000 Total liabilities 6,000
Total assets 30,000
Average common shares outstanding was 10,000

a. $9,000
b. $7,000
c. $5,000
d. $2,000

  SO: 4, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

134. Using the following balance sheet and income statement data, what is the current ratio?
Current assets $  9,000 Net income $  12,000
Current liabilities 4,000 Stockholders’ equity 24,000
Average assets 44,000 Total liabilities 6,000
Total assets 30,000
Average common shares outstanding was 10,000

a. 1.75 : 1
b. 2.00 : 1
c. 0.44 : 1
d. 2.25: 1

  SO: 4, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics


135. Using the following balance sheet and income statement data, what is the earnings per share?
Current assets $  9,000 Net income $  12,000
Current liabilities 4,000 Stockholders’ equity 24,000
Average assets 44,000 Total liabilities 6,000
Total assets 30,000
Average common shares outstanding was 10,000

a. $1.20
b. $2.00
c. $0.83
d. $0.44

  SO: 2, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

136. Using the following balance sheet and income statement data, what is the debt to total assets?
Current assets $  9,000 Net income $  12,000
Current liabilities 4,000 Stockholders’ equity 24,000
Average assets 44,000 Total liabilities 6,000
Total assets 30,000
Average common shares outstanding was 10,000

a. 13.6 percent
b. 20 percent
c. 75 percent
d. 27.3 percent

  SO: 4, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

137. The debt to total assets ratio is computed by dividing
a. long-term liabilities by total assets.
b. long-term liabilities by average assets.
c. total liabilities by total assets.
d. total liabilities by average assets.

  SO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

138. A useful measure of solvency is the
a. current ratio.
b. earnings per share.
c. return on assets ratio.
d. debt to total assets ratio.

  SO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

139. Which of the following is not considered a measure of liquidity?
a. Current ratio
b. Working capital
c. Debt to total assets ratio
d. Each of the above are liquidity measures

  SO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

140. Which measure would a long-term creditor be least interested in reviewing?
a. free cash flow
b. debt to total assets ratio
c. current ratio
d. solvency measure

  SO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

141. Bathlinks Corporation has a debt to total assets ratio of 73%. This tells the user of Bathlinks’s financial statements
a. Bathlinks is getting a 27% return on its assets.
b. There is a risk that Bathlinks cannot pay its debts as they come due.
c. 73% of the assets are financed by the stockholders.
d. Based on this measure, the user should not invest in Bathlinks.

  SO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

142. Ace Company is a retail store. Due to competition, it is having trouble selling its products. Thus, inventory has been building up. Ace’s current ratio has not changed for the past three years, in spite of the inventory build up. Which of the following statements is true?
a. As long as the current ratio remains constant, there is no need for concern.
b. The composition of current assets and current liabilities does not matter.
c. The management of Ace should consider the affect of slow moving inventory on its liquidity.
d. Since inventory is a current asset, any increases should automatically cause the current ratio to rise.

  SO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Business Economics

143. How can a company improve its current ratio?
a. Work with a creditor to reclassify some current debt into long-term debt
b. Use cash to reduce current liabilities
c. Nothing can ethically be done to improve the current ratio
d. Use excess cash to buy new equipment

  SO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

144. Kingery Corporation has current assets of $1,500,000 and current liabilities of $750,000. If they pay $250,000 of their accounts payable what will their new current ratio be?
a. 2.5:1
b. 2.0:1
c. 3.0:1
d. 1.7:1

  SO: 4, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Business Economics

145. Kingery Corporation has current assets of $1,500,000 and current liabilities of $750,000. If they issue $100,000 of new stock what will their new current ratio be? (rounded)
a. 2.1:1
b. 1.8:1
c. 1.9:1
d. 2.0:1

  SO: 4, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Business Economics

146. Mitchell Corporation has current assets of $1,200,000 million and current liabilities of $750,000. If they pay $250,000 of their accounts payable what will their new current ratio be?
a. 1.9:1
b. 2.4:1
c. 1.27:1
d. 1.33:1

  SO: 4, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Business Economics

147. Mitchell Corporation has current assets of $1,200,000 and current liabilities of $750,000. If they issue $100,000 of new stock what will their new current ratio be? (rounded)
a. 1.73:1
b. 1.53:1
c. 1.41:1
d. 1.60:1

  SO: 4, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Business Economics

148. The statement of cash flows begins with cash flows from
a. financing activities.
b. investing activities.
c. operating activities.
d. solvent activities.

  SO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

149. Free cash flow provides an indication of a company’s ability to
a. generate cash to invest in new capital expenditures.
b. generate net income.
c. generate cash to pay dividends.
d. both a and c.

  SO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

150. Free cash flow represents
a. cash provided by operations less adjustments for capital expenditures and dividends
b. a measurement of a company’s cash generating ability
c. a measure of solvency
d. all of the above

  SO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

151. Which financial statement is used to determine cash generated from operations?
a. income statement
b. statement of operations
c. statement of cash flows
d. retained earnings statement

  SO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting


152. In 2012 Grider Corporation had cash receipts of $42,000 and cash disbursements of $24,000. Grider’s ending cash balance at December 31, 2012 was $66,000. What was Grider’s beginning cash balance?
a. $48,000
b. $60,000
c. $90,000
d. $84,000

  SO: 5, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

153. In 2012 Grider Corporation had cash receipts of $28,000 and cash disbursements of $16,000. Grider’s ending cash balance at December 31, 2012 was $44,000. What was Grider’s beginning cash balance?
a. $32,000
b. $40,000
c. $60,000
d. $56,000

  SO: 5, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

154. Suppose that Morgan Corporation produced and sold 4,800 laptop computers during 2012. It reported $250,000 cash provided by operating activities. In order to maintain production at 4,800 laptops, Morgan invested in $8,600 in equipment. Morgan paid $1,400 in dividends. What is Morgan’s free cash flow?
a. $240,000
b. $260,000
c. $257,000
d. $250,000

  SO: 5, Bloom: AN, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Business Economics

155. The following information is available for Cooke Corporation:

(in million)
Cash receipts from operating activities $920
Cash payments from operating activities $240
Net cash used by investing $210
Net cash provided by financing $750
Net increase in cash and equivalents      ?
Cash and equivalents at start of year $550
Cash and equivalents at year-end      ?

What is the net increase in cash and equivalents?
a. $1,640
b. $1,220
c. $670
d. $2,190

  SO: 5, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting


156. The following information is available for Cooke Corporation:

(in million)
Cash receipts from operating activities $920
Cash payments from operating activities $240
Net cash used by investing $210
Net cash provided by financing $750
Net increase in cash and equivalents      ?
Cash and equivalents at start of year $550
Cash and equivalents at year-end      ?

What is the cash and equivalents amount at year-end?
a. $1,230
b. $670
c. $1,770
d. $2,670

  SO: 5, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

157. If Morris Corporation has a negative $131 million free cash flow, which of the following statements is most likely true?
a. Morris' capital expenditures plus its cash dividends are less than its cash provided by operations.
b. This free cash flow indicates that Morris is in good shape to repay its long-term obligations when they come due.
c. This free cash flow indicates that Morris presents good cash generating ability to retire stock.
d. Morris' cash provided by operations is less than its cash dividends plus capital expenditures.

  SO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Risk Management, AICPA PC: None, IMA: Business Economics

158. Which of the following organizations issues accounting standards for countries outside the United States?
a. SEC
b. GAAP
c. IASB
d. FASB

  SO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

159. Generally accepted accounting principles
a. are accounting rules formulated by the Internal Revenue Service.
b. are sound in theory but rarely used in real life.
c. are accounting rules that are recognized as a general guide for financial reporting.
d. have eliminated all errors in accounting.

  SO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting


160. The agency of the United States Government that oversees the U.S. financial markets is the
a. Internal Revenue Service
b. Security Exchange Commission
c. Financial Accounting Standards Board.
d. International Auditing Standards Committee.

  SO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

161. What organization issues U.S. accounting standards?
a. Security Exchange Commission.
b. International Accounting Standards Committee.
c. International Auditing Standards Committee.
d. Financial Accounting Standards Board.

  SO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

162. Which one of the following is not a qualitative characteristic of useful accounting information?
a. Relevance
b. Faithful representation
c. Materiality
d. Comparability

  SO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

163. All of the following are characteristics of accounting information except
a. Faithful representation.
b. Comparability.
c. Relevance.
d. Flexibility.

  SO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

164. Two of the major characteristics that make accounting information useful are
a. Relevance and Faithful representation.
b. Verifiability and timeliness.
c. Comparability and flexibility.
d. Understandability and consistency.

  SO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

165. The convention of consistency refers to consistent use of accounting principles
a. among firms.
b. among accounting periods.
c. throughout the accounting periods.
d. within industries.

  SO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting


166. The characteristic of consistency relates most closely to
a. relevance.
b. materiality.
c. comparability.
d. faithful representation.

  SO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

167. Information that is presented in a clear fashion, so that reasonably informed users of that information can interpret it is an example of
a. relevance.
b. faithful representation.
c. understandability.
d. comparability.

  SO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

168. In order for accounting information to be relevant, it must
a. have very little cost.
b. help predict future events or confirm prior expectations.
c. not be reported to the public.
d. be used by a lot of different firms.

  SO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

169. Accounting information should be verifiable in order to enhance
a. comparability.
b. faithful representation.
c. consistency.
d. relevance.

  SO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

170. Accounting information is relevant to business decisions because it
a. has been verified by external audit.
b. is prepared on an annual basis.
c. confirms prior expectations.
d. is neutral in its representations.

  SO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

171. If accounting information has relevance, it is useful in making predictions about
a. future IRS audits.
b. new accounting principles.
c. foreign currency exchange rates.
d. the future events of a company.

  SO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting


172. Relevant accounting information
a. is information that has been audited.
b. must be reported within the operating cycle or one year, whichever is longer.
c. has been objectively determined.
d. is information that is capable of making a difference in a business decision.

  SO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

173. Which of the following is not a qualitative characteristic associated with faithful representation?
a. Verifiable
b. materiality
c. Neutral
d. All of the above are a qualitative characteristic

  SO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

174. Accounting information should be neutral in order to enhance
a. faithful representation.
b. consistency.
c. comparability.
d. relevance.

  SO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

175. Qualitative characteristics associated with relevant accounting information are
a. consistency, faithful representation, and timely.
b. predict future events, confirm prior expectations, and timely.
c. neutral, predict future events, and verifiable.
d. consistency and materiality.

  SO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

176. Qualitative characteristics associated with faithfully representative accounting information are
a. verifiable and timely.
b. materiality and neutral.
c. neutral and verifiable.
d. relevance and verifiable.

  SO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

177. Which of the following statements is not true?
a. Comparability means using the same accounting principles from year to year within a company.
b. Faithful representation is the quality of information that gives assurance that it is free of error or bias.
c. Relevant accounting information must be capable of making a difference in the decision.
d. The FASB’s overriding criterion is that the accounting rule adopted should be the one that generates the most useful financial information for making a decision.

  SO: 7, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting


178. A company can change to a new method of accounting if management can justify that the new method results in
a. more meaningful financial information.
b. a higher net income.
c. a lower net income for tax purposes.
d. less likelihood of clerical errors.

  SO: 7, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

179. An item is considered material if
a. it doesn’t costs a lot of money.
b. it is of a tangible good.
c. it is likely to influence the decision of an investor or creditor.
d. the cost of reporting the item is greater than its benefits.

  SO: 7, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

180. The practice of large corporations reporting all financial statement amounts to the nearest thousand dollars is an example of the application of
a. consistency.
b. periodicity.
c. full disclosure.
d. materiality.

  SO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

181. A company using the same accounting principles from year to year is an application of
a. timeliness.
b. consistency.
c. full disclosure.
d. materiality.

  SO: 7, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

182. Expensing the purchase of a waste paper basket with an estimated useful life of 10 years is an application of
a. materiality.
b. consistency.
c. going concern.
d. economic entity.

  SO: 7, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

183. Different companies using the same accounting principles is an application of
a. consistency.
b. materiality.
c. full disclosure.
d. comparability.

  SO: 7, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics


1 84. A practical decision to expense small capital expenditures rather than record them as property, plant, and equipment and depreciate them probably is made on the basis of the characteristic of
a. consistency.
b. materiality.
c. full disclosure.
d. relevance.

  SO: 7, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

185. Which of the following is a constraint in accounting?
a. Comparability
b. Materiality
c. Consistency
d. Relevance

  SO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

186. To determine the materiality of an account, an accountant would compare it with any of the following except
a. total assets.
b. total liabilities.
c. total employees.
d. net income.

  SO: 7, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

187. A common application of the conservatism constraint is the use of the
1. straight-line depreciation method for plant assets.
2. lower of cost or market method for inventories.
3. FIFO method for inventory valuation.
a. 1
b. 2
c. 3
d. 1 and 2

  SO: 7, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

188. The periodicity assumption states that the economic life of a business can be divided into
a. equal time periods.
b. cyclical time periods.
c. artificial time periods.
d. perpetual time periods.

  SO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

189. The going concern assumption underlies the
a. cost principle.
b. monetary unit assumption.
c. periodicity assumption.
d. full disclosure principle.

  SO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

190. The going concern assumption is inappropriate when
a. the business is just starting up.
b. liquidation appears likely.
c. market values are higher than costs.
d. the business is organized as a proprietorship.

  SO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Risk Management, AICPA PC: None, IMA: Business Economics

191. Which accounting assumption assumes that an enterprise will continue in operation long enough to carry out its existing objectives and commitments?
a. Monetary unit assumption
b. Economic entity assumption
c. Periodicity assumption
d. Going concern assumption

  SO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

192. It is assumed that the activities of Ford Motor Corporation can be distinguished from those of General Motors because of the
a. going concern assumption.
b. economic entity assumption.
c. monetary unit assumption.
d. periodicity assumption.

  SO: 7, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

193. The going concern assumption assumes that the business
a. will be liquidated in the near future.
b. will be purchased by another business.
c. is in a growth industry.
d. will remain in operation for the foreseeable future.

  SO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

194. The economic entity assumption states that economic events
a. of different entities can be combined if all the entities are corporations.
b. must be reported to the Securities and Exchange Commission.
c. of a sole proprietorship cannot be distinguished from the personal economic events of its owners.
d. of every entity can be separately identified and accounted for.

  SO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

195. The concept that a business has a reasonable expectation of remaining in business for the foreseeable future is called the
a. economic entity assumption.
b. monetary unit assumption.
c. periodicity assumption.
d. going concern assumption.

  SO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting


196. Which of the following is not an accounting assumption?
a. Integrity
b. Going concern
c. Periodicity
d. Economic entity

  SO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

197. The periodicity assumption states
a. the business will remain in operation for the foreseeable future.
b. the life of a business can be divided into artificial time periods and that useful reports covering those periods can be prepared.
c. every economic entity can be separately identified and accounted for.
d. only those things that can be expressed in money are included in the accounting records.

  SO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

198. The TNT Company has five plants nationwide that cost $300 million. The current market value of the plants is $500 million. The plants will be reported as assets at
a. $200 million.
b. $800 million.
c. $300 million.
d. $500 million.

  SO: 7, Bloom: C, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

199. The Mac Company has four plants nationwide that cost $400 million. The current market value of the plants is $300 million. The plants will be reported as assets at
a. $400 million.
b. $800 million.
c. $300 million.
d. $500 million.

  SO: 7, Bloom: C, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

200. The cost principle requires that when assets are acquired, they be recorded at
a. market value.
b. the amount paid for them.
c. selling price.
d. list price.

  SO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: FSA

201. Valuing assets at their fair value rather than at their cost is inconsistent with the:
a. economic entity assumption.
b. cost principle.
c. periodicity assumption.
d. full disclosure principle.

  SO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting


202. Jackson Cement Corporation reported $35 million for sales when it only had $20 million of actual sales. Which of the following characteristics of useful information has Jackson most likely violated?
a. comparability
b. relevance
c. faithful representation
d. consistency

  SO: 7, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

203. Connor Corporation hired a new accountant. Over than next four years, the accountant used four different accounting methods to depreciation for Connor's equipment. Which of the following characteristics of useful information has Connor most likely violated?
a. comparability
b. relevance
c. faithful representation
d. consistency

  SO: 7, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

204. Garrison Company prepares quarterly reports, which it distributes to all stockholders and other entities that rely on its accounting information. Which of the following is the best term for the key assumption in financial reporting that Garrison is following?
a. monetary unit assumption
b. going concern assumption
c. economic entity assumption
d. periodicity assumption.

  SO: 7, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting


BRIEF EXERCISES
BE. 205
A list of financial statement items for Maloney Company includes the following:
Accounts receivable $14,500 Prepaid insurance $5,400
Cash $22,400 Supplies $1,800
Short-term investments $  6,200
Prepare the current assets section of the balance sheet listing the items in the proper sequence.

Ans: N/A, SO: 1, Bloom: AP, Difficulty: Medium, Min: 5, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting


BE. 206
The following information (in millions of dollars) is available for Kline Sportswear for 2012:
Sales revenue $6,300 Net income $504.6
Stock price per share $18.45 Preferred stock dividend $0
Average shares outstanding 336.4 million
Compute the earnings per share for Kline Sportswear.

Ans: N/A, SO: 2, Bloom: AP, Difficulty: Medium, Min: 5, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

BE. 207
For each of the following events affecting the stockholders’ equity of Carney, indicate whether the event would: increase retained earnings (IRE), decrease retained earnings (DRE), increase common stock (ICS), or decrease common stock (DCS).
_____1.  Declared a cash dividend.
_____2.  Issued new shares of common stock.
_____3.  Reported net loss of $40,000
_____4.  Reported net income of $20,000.

Ans: N/A, SO: 3, Bloom: C, Difficulty: Easy, Min: 5, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

BE. 208
These selected condensed data are taken from a recent balance sheet of Sanson Company (in millions of dollars).
Cash $   2.2
Accounts receivable   10.4
Inventories   18.0
Other current assets   11.1
Total current assets $ 45.7
Total current liabilities $ 24.8

Additional information:  Current liabilities at the beginning of the year were $35.6 million.

What are (a) the working capital, and (b) the current ratio?

Ans: N/A, SO: 4, Bloom: AP, Difficulty: Medium, Min: 5, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics


BE. 209
Insert the qualitative characteristics listed below that are associated with relevance and faithful representation.

Confirm Prior Expectations Timely
Verifiable
Neutral Predict Future Events

RELEVANCE FAITHFUL REPRESENTATION
1. 1.
2. 2.
3. 3.

Ans: N/A, SO: 7, Bloom: K, Difficulty: Easy, Min: 5, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

BE. 210
The following terms relate to the characteristics of useful information. Match the key letter of the correct term with the descriptive statement below.


a. Provide feedback
b. Neutral
c. Predict
d. Relevant
e. Faithful representation
f. Timely
g. Verifiability



_____ 1.  Accounting information cannot be selected, prepared, or presented to favor one set of interested users over another.

_____ 2.  Providing information before the decision is made.

_____ 3.  Providing information that can be confirmed or duplicated by independent parties.

_____ 4.  Providing information that would make a difference in a business decision.

_____ 5.  Provide information that is complete and neutral.

_____ 6.  Helping evaluate prior decisions.

Ans: N/A, SO: 7, Bloom: K, Difficulty: Easy, Min: 5, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting




BE. 211
For each of the independent situations described below, list the qualitative characteristic or constraint that has been violated, if any. List only one term for each case.
1. Carrier Company is in its third year of operation and has yet to issue financial statements.
2. Larsen Corporation has selected the FIFO inventory costing method during the current year. Last year it used the LIFO method and next year it plans to change to the average cost method.
3. Reiser Company expenses some office equipment that is inexpensive even though it has a useful life that exceeds 1 year.

Ans: N/A, SO: 7, Bloom: C, Difficulty: Medium, Min: 5, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

BE. 212
Each of the following statements is justified by a concept or convention of accounting. Write the letter in the blank next to each statement corresponding to the concept involved.

a. Consistency
b. Materiality
c. Full disclosure
d. Periodicity

1. The life of a business is divided into artificial time periods.

2. This characteristic best enhances comparability of financial statements between years.

3. A merger agreed on just after the balance sheet date nevertheless is reported in the notes to the financial statement.

4. A large company rounds its financial statement figures to the nearest thousand.

Ans: N/A, SO: 7, Bloom: C, Difficulty: Medium, Min: 5, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting



BE. 213
Each of the following statements is justified by a characteristic or constraint of accounting. Write the letter in the blank next to each statement corresponding to the characteristic or constraint involved.

a. Comparability d. Consistency
b. Materiality e. Relevance
c. Verifiable f. Faithful representation

_____ 1.    A company uses the same accounting principles from year to year.

_____ 2.    Information that is free from error.

_____ 3.    A company decides to expense capital items that cost less than $500 each.

_____ 4.    All factors that could affect a decision will be considered.

_____ 5.    Outside documents will be used to verify transactions whenever possible.

Ans: N/A, SO: 7, Bloom: C, Difficulty: Easy, Min: 5, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

Be. 214
Presented below are the basic assumptions and principles underlying financial statements.

a. Cost principle d. Going concern assumption
b. Economic entity assumption e. Monetary unit assumption
c. Full disclosure principle f. Periodicity assumption

Identify the basic assumption or principle that is described below.

1. The economic life of a business can be divided into artificial time periods.

2. The business will continue in operation long enough to carry out its existing objectives.

3. Assets should be recorded at their cost.

4. Economic events can be identified with a particular unit of accountability.

5. Circumstances and events that make a difference to financial statement users should be disclosed.

6. Only transaction data that can be expressed in terms of money should be included in the accounting records.

Ans: N/A, SO: 7, Bloom: K, Difficulty: Easy, Min: 5, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

EXERCISES
Ex. 215
The following information is available for Mullen Company for the year ended December 31, 2012:

Accounts payable 2,700
Building not currently used 8,000
Accumulated depreciation, equipment 4,000
Retained earnings 16,000
Common stock 4,800
Intangible assets 2,500
Notes payable (due in 5 years) 6,000
Accounts receivable 1,500
Cash                   2,600
Short-term investments 1,000
Land                 10,000
Equipment 7,500
Long-term investments 400

Instructions
Use the above information to prepare a classified balance sheet for the year ended December 31, 2010.

Ans: N/A, SO: 1, Bloom: AP, Difficulty: Medium, Min: 20, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting


Ex. 216
The following lettered items represent a classification scheme for a balance sheet, and the numbered items represent data found on balance sheets.  In the blank next to each account, write the letter indicating to which category it belongs.

A. Current assets
B. Investments
C. Property, plant, and equipment
D. Intangible assets
E. Current liabilities
F. Long-term liabilities
G. Stockholders’ equity
H. Not on the balance sheet

Ans: N/A, SO: 1, Bloom: K, Difficulty: Easy, Min: 5, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

Ex. 217
These items are taken from the financial statements of Donovan Co. at December 31, 2012.

Building $95,800
Accounts receivable 7,600
Prepaid insurance 4,680
Cash 18,840
Equipment 79,400
Land 61,200
Insurance expense 780
Depreciation expense 7,300
Interest expense 2,600
Common stock 57,000
Retained earnings (January 1, 2012) 40,000
Accumulated depreciation—building 45,600
Accounts payable 7,500
Mortgage payable 88,600
Accumulated depreciation—equipment 18,720
Interest payable 3,600
Bowling revenues 17,180

Instructions
Prepare a classified balance sheet. Assume that $13,600 of the mortgage payable will be paid in 2013.

Ans: N/A, SO: 1, Bloom: AP, Difficulty: Medium, Min: 20, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

Solution 217 (20 min.)
DONOVAN COMPANY
Balance Sheet
December 31, 2012


Assets
Current assets
Cash $18,840
Accounts receivable 7,600
Prepaid Insurance  4,680
Total current assets $  31,120
Property, plant, and equipment
Land $61,200
Building            $95,800
Less:  Accumulated depreciation—
building               45,600 50,200
Equipment               79,400
Less:  Accumulated depreciation—
equipment               18,720  60,680  172,080
Total assets $203,200




Ex. 218
The following items are taken from the financial statements of Tracy Company for 2012:

Accounts Payable $  15,000
Accounts Receivable 11,000
Accumulated Depreciation—Equipment 38,000
Advertising Expense 21,000
Cash 24,000
Common Stock 90,000
Depreciation Expense 12,000
Dividends 15,000
Equipment 210,000
Insurance Expense 3,000
Note Payable (due 2015) 70,000
Prepaid Insurance 6,000
Rent Expense 17,000
Retained Earnings (beginning) 12,000
Salaries Expense 34,000
Salaries Payable 3,000
Service Revenue 135,000
Supplies 4,000
Supplies Expense 6,000


Ex. 218 (Cont.)

Instructions
(a) Calculate the net income.
(b) Calculate the balance of Retained Earnings that would appear on a balance sheet at December 31, 2012
(c) Prepare a classified balance sheet for Tracy Company at December 31, 2012 assuming the note payable is a long-term liability.
(d) Compute the current ratio, debt to total assets ratio, and earnings per share value. The average number of shares outstanding for 2012 was 10,000.

Ans: N/A, SO: 1, 2, 3, Bloom: AP, Difficulty: Medium, Min: 20, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

Ex. 219
The following items are taken from the financial statements of Grove Company for 2012:

Accounts Payable $18,500
Accounts Receivable 4,000
Accumulated Depreciation 4,800
Bonds Payable 18,000
Cash 24,000
Common Stock 25,000
Cost of Goods Sold 17,000
Depreciation Expense 4,800
Dividends 5,300
Equipment 44,000
Interest Expense 2,500
Patents 7,500
Retained Earnings, January 1 16,000
Salaries Expense 5,200
Sales Revenue 36,500
Supplies 4,500

Instructions

(a) Prepare an income statement and a classified balance sheet for Grove Company.
(b) Compute the following ratios and values:
1. Current ratio
2. Debt to total assets ratio
3. Working capital  
4. Earnings per share (Grove’s average number of shares outstanding during the year was 5,000.)

Ans: N/A, SO: 1, 2, 4, Bloom: AP, Difficulty: Medium, Min: 25, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting


Ex. 220
These financial statement items are for Snyder Corporation at year-end, July 31, 2012.

Salaries and wages payable $   2,580
Salaries and wages expense 48,700
Utilities expense 22,600
Equipment 21,000
Accounts payable 4,100
Service revenue 64,100
Rent revenue 8,500
Notes payable (due 2014) 1,800
Common stock 16,000
Cash 24,200
Accounts receivable 12,780
Accumulated depreciation 6,000
Dividends 5,000
Depreciation expense 4,000
Retained earnings (beginning of the year) 35,200

Instructions
(a) Prepare an income statement and a retained earnings statement for the year. Snyder corporation did not issue any new stock during the year.
(b) Prepare a classified balance sheet at July 31.

Ans: N/A, SO: 1, 3, Bloom: AP, Difficulty: Medium, Min: 25, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

Ex. 221
These items are taken from the financial statements of Drew Corporation for 2012.

Retained earnings (beginning of year) $33,000
Utilities expense 2,000
Equipment 56,000
Accounts payable 15,300
Cash 11,900
Salaries and wages payable 3,000
Common stock 13,000
Dividends 14,000
Service revenue 74,000
Prepaid insurance 3,500
Repair expense 1,800
Depreciation expense 3,300
Accounts receivable 14,200
Insurance expense 2,200
Salaries and wages expense 47,000
Accumulated depreciation 17,600


Ex. 221 (Cont.)

Instructions
Prepare an income statement, a retained earnings statement, and a classified balance sheet as of December 31, 2012.

Ans: N/A, SO: 1, 3, Bloom: AP, Difficulty: Medium, Min: 25, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

Solution 221 (25 min.)
DREW CORPORATION
Income Statement
For the Year Ended December 31, 2012

Revenues
Service revenue                                                            $74,000
Expense
Salaries and wages expense                     $47,000
Depreciation expense                         3,300
Insurance expense                        2,200
Utilities expense                        2,000
Repairs expense                        1,800
Total expenses                                                            56,300
Net income                                                          $17,700

DREW CORPORATION
Retained Earnings Statement
For the Year Ended December 31, 2012

Retained earnings, January 1, 2011                                                  $33,000
Add:  Net income                     17,700
 50,700
Less:  Dividends                      14,000
Retained earnings, December 31, 2012                                                 $36,700

DREW CORPORATION
Balance Sheet
December 31, 2012

Assets
Current assets
Cash                      $11,900
Accounts receivable                        14,200
Prepaid insurance                          3,500
Total current assets                                                            $29,600
Property, plant, and equipment
Equipment                      56,000
Less:  Accumulated depreciation                       17,600  38,400
Total assets                                                         $68,000


Ex. 222
The Dobson Company gathered the following condensed data for the year ended December 31, 2012:
Cost of goods sold $   720,000
Net sales 1,269,000
Administrative expenses 239,000
Interest expense 68,000
Dividends paid 38,000
Selling expenses 45,000
Instructions
Prepare an income statement for the year ended December 31, 2012.

Ans: N/A, SO: 2, Bloom: AP, Difficulty: Medium, Min: 10, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

Ex. 223
The following data are taken from the financial statements of Rosen, Inc. as of the end of the year 2012.  The data are in alphabetical order.

Accounts payable $  28,000 Net income $  48,000
Accounts receivable 66,000 Other current liabilities 17,000
Cash 44,000 Total assets 250,000
Gross profit 160,000 Total liabilities 150,000
Income before income taxes 54,000 Wages payable 5,000

Additional information: The average common shares outstanding during the year was 40,000.

Instructions
Compute the following:
(a) Current ratio. (c) Earnings per share.
(b) Working capital. (d) Debts to total assets ratio.

Ans: N/A, SO: 2, 4, Bloom: AP, Difficulty: Medium, Min: 5, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

Ex. 224
Use the following data to calculate the liquidity and profitability ratios listed below.

Average common shares outstanding $10,000 Current liabilities $100,000
Capital expenditures 20,000 Net income 21,000
Cash provided by operations 28,000 Net sales 150,000
Dividends paid 5,000 Total liabilities 105,000
Current assets 180,000 Total assets 210,000

Instructions
Compute the following:
(a) Current ratio. (d) Debt to total assets ratio.
(b) Working capital. (e) Free cash flow.
(c) Earnings per share.

Ans: N/A, SO: 2, 4, Bloom: AP, Difficulty: Medium, Min: 15, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics



Ex. 225
The following data are taken from the financial statements of Edington Company. The data are in alphabetical order.
Accounts payable $  28,000 Net sales 500,000
Accounts receivable 76,000 Other current liabilities 20,000
Average common shares O/S 20,000 Salaries payable 7,000
Cash 56,000 Stockholders’ equity 165,000
Gross profit 190,000 Total assets 300,000
Net income $  50,000
Instructions
Compute the following:
(a) Current ratio. (d) Debt to total assets ratio.
(b) Working capital.
(c) Earnings per share.

Ans: N/A, SO: 2, 4, Bloom: AP, Difficulty: Medium, Min: 10, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics


Ex. 226
Comparative financial statement data for Arthur Corporation and Lancelot Corporation, two competitors, appear below. All balance sheet data are as of December 31, 2012.

Arthur Corporation Lancelot Corporation
    2012        2012
Net sales $1,850,000 $620,000
Cost of goods sold 1,175,000 365,000
Operating expenses 303,000 98,000
Interest expense 9,000 3,800
Income tax expense 85,000 36,800
Current assets 427,200 130,336
Plant assets (net) 532,000 139,728
Current liabilities 66,325 35,348
Long-term liabilities 158,500 29,620
Additional Information:
Cash from operating activities $153,000 $41,000
Capital expenditures $90,000 $20,000
Dividends paid $36,000 $15,000
Average number of shares outstanding 100,000 50,000

Instructions
(a) Comment on the relative profitability of the companies by computing the net income and earnings per share for each company for 2012.
(b) Comment on the relative solvency of the companies by computing the debt to total assets ratio and the free cash flow for each company for 2012.

Ans: N/A, SO: 2, 4, 5, Bloom: AN, Difficulty: Medium, Min: 15, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

Ex. 227
For each of the ratios listed below, indicate by the appropriate code letter, whether it is a liquidity ratio, a profitability ratio, or a solvency ratio.

Code:
L = Liquidity ratio
P = Profitability ratio
S = Solvency ratio

1. Price-earnings ratio

2. Free cash flow

3. Debt to total assets ratio

4. Earnings per share

5. Current ratio

Ans: N/A, SO: 2, 4, 5, Bloom: K, Difficulty: Medium, Min: 5, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics


Ex. 228
The following information is available from the annual reports of Marin Company and Nance Company.
(amounts in millions)
     Marin Nance
Sales $26,510 $34,512
Gross profit 6,610 8,887
Net income 565 1,271
Current assets 11,712 28,447
Beginning total assets 17,102 33,130
Ending total assets 22,088 36,167
Current liabilities 7,966 13,950
Total liabilities 16,136 31,222
Average common shares outstanding 250 480
Preferred stock dividends paid -0- -0-

Instructions
(a) For each company, compute the following ratios:
1. Current ratio
2. Debt to total assets ratio
3. Earnings per share

(b) Based on your calculations, discuss the relative liquidity, solvency, and profitability of the two companies.

Ans: N/A, SO: 2, 4, Bloom: AP, Difficulty: Medium, Min: 12, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics


Ex. 229
You are provide with the following information for Trent Company, effective as of its April 30, 2012, year-end.

Accounts payable $    834
Accounts receivable 810
Buildings, net of accumulated depreciation 3,537
Cash 770
Common stock 900
Cost of goods sold 1,500
Current portion of long-term debt 450
Depreciation expense 335
Dividends paid during the year 475
Equipment, net of accumulated depreciation 1,220
Income tax expense 265
Income taxes payable 265
Interest expense 400
Inventory 967
Land 1,600
Long-term debt 3,500
Prepaid expenses 12
Retained earnings, beginning 1,600
Revenues 7,600
Selling expenses 310
Short-term investments 1,200
Salaries and Wages expense 700
Salaries and Wages payable 222

Instructions
Prepare an income statement and a retained earnings statement for Trent Company for the year ended April 30, 2012.

Ans: N/A, SO: 3, Bloom: AP, Difficulty: Medium, Min: 15, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

Ex. 230
The chief financial officer (CFO) of SuperClean Corporation requested that the accounting department prepare a preliminary balance sheet on December 30, 2012, so that the CFO could get an idea of how the company stood. He knows that certain debt agreements with its creditors require the company to maintain a current ration of at least 2:1. The preliminary balance sheet is as follows.
SUPERCLEAN CORPORATION
Balance Sheet
December 30, 2012

Current assets Current liabilities
    Cash $30,000    Accounts payable $ 25,000
    Accounts receivable 25,000    Salaries payable   15,000 $  40,000
    Prepaid insurance  15,000 $  70,000 Long-term liabilities
   Notes payable   90,000
      Total liabilities 130,000
Property, plant, and equipment (net)  200,000 Stockholders' equity
    Total assets $270,000    Common stock 100,000
   Retained earnings   40,000  140,000
     Total liabilities and
           stockholders equity $270,000

Instructions
(a) Calculate the current ratio and working capital based on the preliminary balance sheet.
(b) Based in the results in (a), the CFO requested that $20,000 of cash be used to pay off the balance of the accounts payable account on December 31, 2012. Calculate the new current ratio and working capital after the company takes these actions.

Ans: N/A, SO: 4, Bloom: AN, Difficulty: Medium, Min: 10, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics





COMPLETION STATEMENTS
231. The rules and practices that are recognized as general guides for financial reporting are called ______________ _____________ _______________.

Ans: N/A, SO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: FSA

232. In accounting, ____________ results when different companies use the same accounting principles.

Ans: N/A, SO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

233. The constraint of _______________ refers to items in financial statements that are likely to influence the decision of a reasonably prudent investor or creditor.

Ans: N/A, SO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

234. The _______________ constraint relates to the fact that providing information is costly.

Ans: N/A, SO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

235. The earnings per share value is calculated by dividing net income – preferred stock dividends by _______________ ______________ ______________.

Ans: N/A, SO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

236. Assets that are expected to be converted to cash or used in the business within a relatively short period of time are called ______________.

Ans: N/A, SO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

237. The ________________ is current assets divided by current liabilities.

Ans: N/A, SO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

238. A measurement to provide additional insight regarding a company’s cash-generating ability is _____________.

Ans: N/A, SO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics



MATCHING
239. Match the items below by entering the appropriate code letter in the space provided.

A. Relevance G. Working capital
B. Liquidity ratios H. Current ratio
C. Comparability I. Earnings per share
D. Consistency J. Solvency ratios
E. Intangible assets K. Economic entity assumption
F. Free cash flow L. Materiality

1. Measures of the ability of the company to survive over a long period of time.
2. Current assets divided by current liabilities.
3. Information that has a bearing on a decision.
4. Economic events can be identified with a particular unit of accountability.
5. An item important enough to influence a prudent investor.
6. Same accounting principles and methods used from year to year within a company.
7. Cash from operating activities less capital expenditures and cash dividends.
8. Noncurrent assets that do not have physical substance.
9. (Net income – preferred stock dividends) divided by average common shares outstanding.
10. Different companies using the same accounting principles.
11. Measures of the short-term ability of the enterprise to pay its maturing obligations.
12. The excess of current assets over current liabilities.

Ans: N/A, SO: 1-7, Bloom: K, Difficulty: Easy, Min: 6, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

SHORT-ANSWER ESSAY QUESTIONS
S-A E 240
Identify the two parts of stockholders' equity in a corporation and indicate the purpose of each.

Ans: N/A, SO: 1, Bloom: K, Difficulty: Medium, Min: 5, AACSB: Communication, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting

S-A E 241
What do these classes of ratios measure?
(a) Liquidity ratios.
(b) Profitability ratios.
(c) Solvency ratios.

Ans: N/A, SO: 2,4, Bloom: K, Difficulty: Medium, Min: 5, AACSB: Communication, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Communication, IMA: Business Economics

S-A E 242
Give the definition of current assets, current liabilities and the current ratio.

Ans: N/A, SO: 1, 4, Bloom: K, Difficulty: Medium, Min: 5, AACSB: Communication, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Communication, IMA: Business Economics



S-A E 243
Are short-term creditors, long-term creditors, and stockholders primarily interested in the same characteristics of a company? Explain.

Ans: N/A, SO: 2, 4, Bloom: C, Difficulty: Medium, Min: 5, AACSB: Communication, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Communication, IMA: Business Economics

S-A E 244
Relevance and faithful representation are two characteristics of useful accounting information.
(a) Briefly define each term.
(b) Why are these characteristics important to users of financial statements?

Ans: N/A, SO: 7, Bloom: C, Difficulty: Medium, Min: 5, AACSB: Communication, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting


S-A E 245
You and the CEO of your company are waiting on an elevator.  You are going to the 25th floor and the CEO is going to the 35th floor.  The CEO says “What is the difference between consistency and comparability?”  You have two minutes to respond.  What will you say?

Ans: N/A, SO: 7, Bloom: C, Difficulty: Medium, Min: 2, AACSB: Communication, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting

S-A E 246
Comparability and consistency are qualitative characteristics that make accounting information useful for decision-making purposes. Briefly explain the difference between these two characteristics and explain how they are related to each other.

Ans: N/A, SO: 7, Bloom: C, Difficulty: Medium, Min: 5, AACSB: Communication, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting

S-A E 247
List the four characteristics of useful information.

Ans: N/A, SO: 7, Bloom: K, Difficulty: Medium, Min: 5, AACSB: Communication, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting

S-A E 248
What are four of the six characteristics that explain relevance and faithful representation?

Ans: N/A, SO: 7, Bloom: K, Difficulty: Medium, Min: 5, AACSB: Communication, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting

S-A E 249 (Ethics)
Many bonus plans are based upon the attainment of some specified short-term goal. For example, sales personnel at Metal Crafters are given a bonus of 5% of the amount by which their sales exceed $100,000. Sometimes the attainment of these goals is achieved by methods  detrimental to the long-term needs of the company. Sales representative Sara Crown, for example, finds herself tempted to court certain customers that place large orders, even though she knows they may not be able to pay. She complains that the bonus system itself is unethical.

Required:
Is a bonus system like the one at Metal Crafters unethical?  Explain.

Ans: N/A, SO: 4, Bloom: E, Difficulty: Medium, Min: 5, AACSB: Ethics, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Decision Modeling, AICPA PC: Communication, IMA: Performance Measurement


S-A E 250 (Communication)
Sunshine Sugar grows sugar cane in Florida, California, and Hawaii. Its investment in land to grow sugar exceeds $2 million. Currently, land whose original cost was more than $300,000 in Florida is threatened by plans to flood the Everglades to reclaim the wetlands. Sunshine plans to fight vigorously to keep its land in production, particularly because most of the rest of its land is in California, which is threatened by water shortages. The land in Florida is also significantly more productive than that in California, and the wages paid to workers to process the sugar cane are substantially less. Current plans include litigation to prevent government seizure of the land, an extensive public education campaign, and intense lobbying efforts.

Required:
Sunshine has determined that a footnote disclosure should be made in the financial statements to alert the investors of the threat to the land. Carefully consider how much of the above information is appropriate for inclusion in the footnote. Write the footnote.

Ans: N/A, SO: 7, Bloom: E, Difficulty: Medium, Min: 5, AACSB: Communication, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting

IFRS Questions
1. Under International Financial Reporting Standards (IFRS)
a. The cash-basis method of accounting is accepted.
b. Events are recorded in the period in which the event occurs.
c. Interim period financial statements are either a calendar year or a fiscal year.
d. A fiscal year is an accounting time period encompassing less than 12 months.

  SO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

2. Revenue recognition requires
a. That revenue be recognized in the period in which it is earned.
b. That a company report a receivable on its statement of financial position.
c. That revenues follow the expenses.
d. All of the choices are correct regarding revenue recognition.

  SO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

3. Matching refers to
a. Recognizing revenue in the period when it is earned.
b. Matching the revenue reported on the income statement with the receivable reported on the statement of financial position.
c. Letting expenses follow revenues.
d. Dividing the life of the business into artificial time periods.

  SO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

4. When companies record transactions in the period in which the events occur, is being applied
a. Accrual-basis accounting.
b. The periodicity assumption.
c. The matching of the income statement with the statement of financial position.
d. The expense recognition principle.

  SO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

5. Similarities between International Financial Reporting Standards (IFRS) and U.S. GAAP include all of the following except
a. Cash-basis accounting is not in accordance with either IFRS or U.S. GAAP.
b. Both IFRS and U.S. GAAP allow revaluation of items such as land and buildings to fair value.
c. Both IFRS and U.S. GAAP divide the economic life of companies into artificial time periods.
d. The form and content of financial statements are very similar under IFRS and U.S GAAP.

  SO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting