Chapter 2

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

A

In what order are current assets listed? A. By liquidity B. By importance C. By longevity D. Alphabetically

A

The current ratio is a liquidity ratio that is computed as current assets divided by current liabilities. A. True B. False

A

Under IFRS, which of the following current assets section would be presented correctly in accordance with IFRS standards? A. Short term notes receivable, Accounts receivable, Cash B. Marketable securities, Land, Cash C. Cash, Intangibles, Short term notes receivable D. Short term investments, Cash, Land

A

Consistency means that a company uses the same accounting principles and methods as the other companies in the same industry. A. True B. False

B

Current assets are economic resources that are expected to be converted to cash or used up by the business within one year or the normal operating cycle, whichever is shorter. A. True B. False

B

Going concern is the qualitative characteristic of accounting information that allows a statement reader to compare a company's performance from one year to the next. A. True B. False

B

The monetary unit assumption assures that all important information needed by investors, creditors, and managers is contained in the financial statements. A. True B. False

B

Earnings per share is computed by dividing net income A. by the average common shares outstanding. B. by the ending common shares outstanding. C. less preferred stock dividends by the average common shares outstanding. D. less preferred stock dividends by the ending common shares outstanding.

C

Issuing new shares of common stock will A. Increase retained earnings. B. Decrease retained earnings. C. Increase common stock. D. Decrease common stock.

C

Under IFRS, what is the label used for common stock? A. Share common stock B. Common shares C. Share capital D. Ordinary shares

C

Which statement do most corporations use instead of the retained earnings statement? A. Statement of owners' equity B. Statement of cash flows C. Statement of stockholders' equity D. Balance sheet

C

An item is ________ if it is likely to influence the decision of an investor or creditor. A. consistent B. faithful representation C. comparable D. material

D

For what purpose might a company use free cash flow? A. Pay additional dividends B. Acquire property, plant, and equipment C. Pay off debts D. All of the answer choices are correct

D

If a company has the ability to pay obligations that are expected to become due within the next year or operating cycle whichever is longer, what is the term that describes this measure? A. Working capital B. Profitability C. Solvency D. Liquidity

D

In a classified balance sheet, how are assets usually classified? 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 stock C. Current assets; long-term investments; tangible assets; and intangible assets D. Current assets; long-term investments; property, plant, and equipment; and intangible assets

D

Which of the following ratios measures the ability of the company to survive over a long period of time? A. Current ratios B. Liquidity ratios C. Profitability ratios D. Solvency ratios

D

Which one of the following is not an alternate means of expressing a ratio? A. Proportion B. Rate C. Percentage D. Dollar amount

D

Which of the following is considered property, plant, and equipment on a classified balance sheet?

Land

A company purchased a tract of land on which it expects to build a production plant on in approximately five years. During the five years before construction, the land will be idle. In what classification should the land be reported? A. Property, plant, and equipment B. Land expense C. A long-term investment D. An intangible asset

C

The correct order of presentation in a classified balance sheet for the following current assets is: A. accounts receivable, cash, prepaid insurance, inventories. B. cash, inventories, accounts receivable, prepaid insurance. C. cash, accounts receivable, inventories, prepaid insurance. D. inventories, cash, accounts receivable, prepaid insurance.

C

What is the primary criterion by which accounting information can be judged? A. Consistency B. Predictive value C. Usefulness for decision making D. Comparability

C

What will vary between countries when statements are prepared using IFRS? A. The number of shares outstanding B. Accounting time period C. The monetary unit D. Faithful representation

C

Which of the following is not classified as a current asset? A. Prepaid expenses B. Accounts receivable C. Patents D. Inventory

C

Which one of the following does not affect retained earnings? A. Net income B. Net loss C. Issuance of common stock D. Dividends

C

What are the accounting rules that have substantial authoritative support and are recognized as a general guide for financial reporting purposes in the U. S.? A. General accounting principles B. Generally accepted auditing principles C. Generally accepted accounting standards D. Generally accepted accounting principles

D

Which of the following are constraints that allow a company to modify generally accepted accounting principles without jeopardizing the usefulness of the financial statements? A. Consistency and comparability B. Relevance and faithful representation C. Timeliness and neutrality D. Cost constraint

D

What are generally accepted accounting principles? A. A set of accounting rules and practices that have authoritative support B. Usually established by the Internal Revenue Service C. The guidelines used to resolve ethical dilemmas D. Fundamental truths that can be derived from the laws of nature

A

What is the primary accounting standard-setting body in the United States? A. Financial Accounting Standards Board B. IFRS C. Securities and Exchange Commission D. Public Company Accounting Oversight Board (PCAOB)

A

What organization issues International Financial Reporting Standards? A. International Accounting Standards Board B. Financial Accounting Standards Board C. International Auditing Standards Committee D. IFRS

A

Which of the following is not a characteristic of relevance? A. Verifiability B. Materiality C. Confirmatory value D. Predictive value

A

Which of the following is not a fundamental quality of useful accounting information? A. Verifiability B. Relevance C. Neutrality D. Faithful representation

A

Under IFRS, which of the following selections properly refer to what GAAP signifies as a "balance sheet"? A. Statement of balance B. Statement of financial position C. Statement of financial resources D. Statement of financial wherewithal

B

Verifiability is an ingredient of Reliability Relevance Faith. Rep.: No Relevance: No

B

What is measured by current assets minus current liabilities? A. Solvency B. Working capital C. Profitability D. Cash flow

B

Which is an indicator of profitability? A. Current ratio B. Earnings per share C. Debt to total assets ratio D. Free cash flow

B

Which of the following is an example of an intangible asset? A. Accounts receivable B. Trademarks C. Prepaid expenses D. Property, plant, and equipment

B

Which of these measures is an evaluation of a company's ability to pay current liabilities? A. Earnings per share B. Current ratio C. Both earnings per share and current ratio D. None of these answer choices are correct

B

Which of the following is the correct order for listing current assets on the balance sheet? A. Cash, accounts receivable, prepaid expenses, inventories, short-term investments B. Cash, short-term investments, inventories, prepaid expenses, accounts receivable C. Cash, accounts receivable, inventories, short-term investments, prepaid expenses D. Cash, short-term investments, accounts receivable, inventories, prepaid expenses

D