Exam 2 Intermediate Acct
Presented below is information available for Madrid Company for their fiscal year ended 6/31/2026: Current AssetsCash$ 4,000Short-term investments55,000Accounts receivable61,000Inventory110,000Prepaid expenses 30,000Total current assets$260,000Total current liabilities are $100,000. What is Madrid's acid-test ratio?
($4,000 + $55,000 + $61,000)/ $100,000 = 1.2:1
What might a manager do during the last quarter of a fiscal year if they wanted to improve current annual net income?
Relax credit policies for customers.
Norling Corporation reports the following information:Net income$750,000Dividends on common stock$210,000Dividends on preferred stock$ 90,000Weighted average common shares outstanding200,000Norling should report earnings per share of
Response Feedback:($750,000 - $90,000) ÷ 200,000 = $3.30
Benedict Corporation reports the following information:Net income$750,000Dividends on common stock$210,000Dividends on preferred stock$ 90,000Weighted average common shares outstanding250,000Benedict should report earnings per share of
Response Feedback:($750,000 - $90,000) ÷ 250,000 sh. = $2.64
Presented below are data for Bangkok Corp. 20252026Assets, January 1$8,850$9,720Liabilities, January 14,860?Stockholders' Equity, Jan. 1??Dividends1,6201,215Common Stock1,4581,296Stockholders' Equity, Dec. 31??Net Income1,9201,296Stockholders' Equity at January 1, 2026 is
Response Feedback:($8,850 - $4,860) + $1,920 - $1,620 = $4,290
The primary advantage of the multiple-step format lies in the simplicity of presentation and the absence of any implication that one type of revenue or expense item has priority over another.
Selected Answer: False
A company that reports a discontinued operation item must report per share amounts for this item.
Selected Answer: True
Companies report the results of operations of a component of a business that will be disposed of separately from continuing operations.
Selected Answer: True
Revenues and gains increase both net income and stockholders' equity.
Selected Answer: True
The balance sheet omits many items that are of financial value to the business but cannot be recorded objectively.
Selected Answer: True
he transaction approach of measuring income focuses on the income-related activities that have occurred during the period.
Selected Answer: True
Which of the following items would be reported net of tax on the face of the income statement?
Selected Answer:Discontinued operations
Which of the following is an advantage of the single-step income statement over the multiple-step income statement?
Selected Answer:It does not imply that one type of revenue or expense has priority over another.
Which of the following is not true about the information provided in the income statement?
Selected Answer:It helps in evaluating working capital.
Which of the following is not a selling expense?
Selected Answer:Office salaries expense
Revenue from a contract with a customer
Selected Answer:cannot be recognized until a contract exists.
A company has satisfied its performance obligation to provide goods or perform services when the
Selected Answer:company has transferred physical possession of the asset.
Large increases in inventory
Selected Answer:could explain negative cash flow from operations when net income is positive.
The first step in the process for revenue recognition is to
Selected Answer:identify the contract with customers.
A contract
Selected Answer:is an agreement that creates enforceable rights and obligations.
Level 1 of fair value hierarchy measures are based on
Selected Answer:market prices for identical assets.
A statement of stockholders' equity can include a column for each of the following except
Selected Answer:net income.
Current assets are presented in the balance sheet in
Selected Answer:order of their liquidity.
The major elements of the income statement are
Selected Answer:revenues, expenses, gains, and losses.
The statement of cash flows provides answers to all of the following questions except
Selected Answer:what is the impact of inflation on the cash balance at the end of the year?
Which of the following is included in comprehensive income?
Unrealized gains on available-for-sale securities"
Accumulated other comprehensive income decreases total stockholders' equity.
Selected Answer: False
Which of the following is a contra account?
Selected Answer:Accumulated depreciation
A contract between Boeing and Delta in which Boeing supplies planes to Delta
Selected Answer:is an agreement that creates enforceable rights and obligations for both parties.
Which of the following is an example of managing earnings upward? a. Writing off obsolete inventory.b. Decreasing estimated salvage value of equipment.c. Underestimating warranty claims.d. Accruing a contingent liability for an ongoing lawsuit.
Underestimating warranty claims.
A transaction price for multiple performance obligations should be allocated based on A based on selling price from the company's competitors.B based on what the company could sell the goods for on a standalone basis.C based on forecasted cost of satisfying performance obligation.D based on total transaction price less residual value.
based on what the company could sell the goods for on a standalone basis.
A change in accounting principle requires that the cumulative effect of the change for prior periods be shown as an adjustment to
beginning retained earnings of the earliest period presented.
Preparing the statement of cash flows involves all of the following except determining the a. cash provided by operations.b. cash provided by or used in investing and financing activities.c. change in cash during the period.d. cash collections from customers during the period.
cash collections from customers during the period.
The balance sheet contributes to financial reporting by providing a basis for all of the following except
determining the increase in cash due to operations.
When multiple performance obligations exist in a contract, they should be accounted for as a single performance obligation when
each service is interdependent and interrelated.
An example of an item that is not an element of working capital is
goodwill working capital is the difference between current asset and current liabilities. goods in process is a current asset,accrued interest on notes recievable is a current liability and temperory investments are also a current assets. goodwill is neither a current asset nor a current liability instead it is an intangible non current asset.
The current assets section of the balance sheet should include
inventory.
When a customer can benefit from a good or service on its own or together with other readily available resources, the good or service
is distinct
Significant accounting policies may not be
omitted from financial-statement disclosure.
The accountant for the Lintz Sales Company is preparing a multi-step income statement for 2025 and the balance sheet at December 31, 2025. The January 1, 2025 inventory balance will be reported
only in the cost of goods sold section of the income statement
A company is not required to report a per share amount on the face of the income statement for which one of the following items?
prior period adjustment
Watts Corporation made a very large arithmetical error in the preparation of its year-end financial statements by improper placing a decimal point in the calculation of depreciation. The error caused the net income to be reported at almost double the proper amount. When discovered in the next year, correction of the error should be treated as
prior period adjustment
The balance sheet is useful for analyzing all of the following except
profitability.
Treasury stock should be reported as a(n)
reduction of stockholders' equity deduction from total paid-in capital and retained earnings.
Accounting policies disclosed in the notes to the financial statements typically include all of the following except a. the cost flow assumption usedb. the depreciation methods usedc. significant estimates maded. significant inventory purchasing policies
significant inventory purchasing policies
The financial statement which summarizes the operating, investing, and financing activities of an entity for a period of time is the
statement of cash flows
Which of the following would be classified in a different major section of a balance sheet from the others? a. Capital stockb. Common stock subscribedc. Stock dividend distributabled. Stock investment in affiliate
stock investment in affiliate
the single-step income statement emphasizes
total rev and total expenses
Revenue is recognized in the accounting period when the performance obligation is satisfied.
tru
Collection of a loan is reported as an investing activity in the statement of cash flows.
true
Financial statement readers often assess liquidity by using the current cash debt coverage.
true
Prior period adjustments can either be added or subtracted in the Statement of Stockholders' Equity.
true
Income taxes are allocated to each of the following except
unusual or infrequent items.
Long-term liabilities include all of the following except
deferred revenue
Where must earnings per share be disclosed in the financial statements to satisfy generally accepted accounting principles?
face of income statement
Comprehensive income includes all changes in equity during a period except those resulting from distributions to owners.
false
Discontinued operations and unusual gains and losses are both reported net of tax in the income statement.
false
Significant financing and investing activities that do not affect cash are not reported in the statement of cash flows or any other place.
false
The first step in the revenue recognition process is to identify the separate performance obligations in the contract.
false
In preparing a statement of cash flows, the sale of treasury stock at an amount greater than cost would be classified as a(n)
financiang activity
Which of the following would not be classified as a long-term investment on the balance sheet?
franchine
Earnings per share data are required on the face of the
income statement statement of profit and loss
The current cash debt coverage can be used to assess
liquidity
Receivables are reported on the balance sheet at
net realizable value?
The basis for classifying assets as current or noncurrent is conversion to cash within
the operating cycle or one year, whichever is longer.
Inventory is reported on the balance sheet at fair value.
true
Huge Cart Inc. has the following information for 2026:Net sales$ 850,000Cost of goods sold500,000Current assets500,000Current liabilities250,000Total assets1,100,000Average total assets1,000,000Total liabilities550,000Net income150,000The rate of return on assets Huge Cart Inc. is
$150,000 ÷ $1,000,000 = 15.0%
Huge Cart Inc. has the following information for 2026:Net sales$ 850,000Cost of goods sold500,000Current assets500,000Current liabilities250,000Total assets1,100,000Average total assets1,000,000Total liabilities550,000Net income150,000The asset turnover ratio of Huge Cart Inc. is
$850,000 ÷ $1,000,000 = 0.85
In preparing a statement of cash flows, which of the following transactions would be considered an investing activity? a. Sale of equipment at book valueb. Sale of merchandise on creditc. Declaration of a cash dividendd. Issuance of bonds payable at a discount
. Sale of equipment at book value
What might a manager do during the last quarter of a fiscal year if she wanted to decrease current annual net income?
Delay shipments and sales to customers until after the end of the fiscal year.
Which of the following is a required disclosure in the income statement when reporting the disposal of a component of the business?
Earnings per share from both continuing operations and net income should be disclosed on the face of the income statement.
Which of the following best exemplifies a contingency that would be reported in the notes to the financial statements? a. Losses from potential future lawsuitsb. Loss from a lawsuit settled out of court prior to the end of the fiscal yearc. Warranty claims on future salesd. Estimated loss from an ongoing lawsuit
Estimated loss from an ongoing lawsuit
Waterfront, Inc. reports the following information for the current period:Paid annual cash dividend$ 550,000On July 1, borrowed at 8% interest1,700,000Purchase of beachfront land, buildings1,400,000Paid off loan on sold equipment130,000Waterfront should report net cash provided or used by financing activities of
Feedback:$1,700,000 - $1,400,000 - $550,000 - $130,000 = $1,020,000
Blender Co. had the following account balances:Sales revenue$320,000Cost of goods sold160,000Salaries and wages expense25,000Depreciation expense45,000Dividend revenue6,000Utilities expense22,000Rent revenue45,000Interest expense26,000Sales returns and allow.23,000Advertising expense43,000What would Blender report as total expenses in a single-step income statement?
Feedback:$160,000 + $25,000 + $45,000 + $22,000 + $26,000 + $43,000 = $321,000
Microgreens, Inc. reports the following information for the current period:Purchase of land$ 750,000Sale of farm land820,000Sale of farm house, buildings990,000Construction of greenhouse facilities1,925,000Sale of farming equipment288,000Microgreens should report net cash provided or used by investing activities of
Feedback:$820,000 + $990,000 + $288,000 - $750,000 - $1,925,000 = $(577,000)
Lohmeyer Corporation reports:Cash provided by operating activities$320,000Cash used by investing activities110,000Cash provided by financing activities140,000Beginning cash balance90,000What is Lohmeyer's ending cash balance?
Feedback:$90,000 + $320,000 - $110,000 + $140,000 = $440,000
Which of the following events will appear in the cash flows from the financing activities section of the statement of cash flows?
Cash purchase of treasury stock.
The correct order to present current assets is
Cash, Account receivables, inventory, prepaid items. cash, temporary investments, accounts receivable, inventories and prepaid expenses.
Which of the following is true of accounting for changes in estimates?
Changes in estimates are not carried back to adjust prior years.
Working capital is
Current Assets minus Current Liabilities
