ACC 212 Final Exam Study Guide - VIDEO EQUATIONS ( chapter 9-12 )

How is the times interest earned ratio computed? Interest expense ÷ Net income (Net income + Interest expense - Income tax expense) ÷ Interest expense (Net income - Interest expense + Income tax expense) ÷ Interest expense (Net income + Interest expense + Income tax expense) ÷ Interest expense

(Net income + Interest expense + Income tax expense) ÷ Interest expense

Which of the following costs are included in the capitalized cost of a tangible asset? All reasonable and necessary costs to acquire the asset for use All reasonable and necessary costs to maintain the asset All reasonable and necessary costs to operate the asset All reasonable and necessary costs to prepare the asset for use

All reasonable and necessary coast to acquire the asset for use All reasonable and necessary costs to prepare the asset for use

Which of the following describes the reporting of a contingent liability that is probable but cannot be reasonably estimated? An expense and liability are accrued Any potential liability and related loss are described in a note to the financial statements It should not be mentioned in the financial statements.

Any potential liability and related loss are described in a note to the financial statements

Which of the following are examples of cash flows relating to investing activities? Disposal of equipment Issuing stock Maturity of investments in securities Purchase of investments in securities

Disposal of equipment Maturity of investments in securities Purchase of investments in securities

Which of the following characteristics describe intangible assets? Cannot be reported on the balance sheet Lack physical substance Long-lived Ownership is represented by legal document Related costs are expensed as incurred

Lack physical substance Long-lived Ownership is represented by legal document

Which of the following statements about liabilities are true? Liabilities rarely play a significant role in financing business activities Liabilities are created when a company buys goods and services on credit Liabilities are created when a company obtains short-term loans to cover gaps in cash flows Liabilities are created when a company issues long-term debt to obtain money for expanding into new regions and markets

Liabilities are created when a company buys goods and services on credit Liabilities are created when a company obtains short-term loans to cover gaps in cash flows Liabilities are created when a company issues long-term debt to obtain money for expanding into new regions and markets

Which of the following will often be reported by healthy companies? No cash flows from investing activities Negative cash flows from investing activities Positive cash flows from investing activities

Negative cash flows from investing activities

Which of the following is the starting point when the indirect method is used to compute cash flows from operating activities? Income before Income taxes Income from operations Net income Other comprehensive income

Net Income

How is the fixed asset turnover ratio computed? Average net fixed assets ÷ Net revenues Net revenues ÷ Average fixed assets Net revenues ÷ Average net fixed assets Net revenues ÷ Ending net fixed assets

Net revenues / Average net fixed assets

Knowledge Check 01Which of the following are reasons that corporations can raise large amounts of money? Shares of stock can be purchased in small amounts Ownership interests are nontransferable Stockholders are not liable for the corporation's debts Stockholders have unlimited liability

Shares of stock can be purchased in small amounts Stockholders are not liable for the corporation's debts

Which of the following financial statements shows the major types of business activities that caused a company's cash to increase or decrease during the accounting period? Balance sheet Income statement Balance sheet and income statement Statement of cash flows

Statement of cash flows

Which of the following statements about preferred dividends is true? A cumulative dividend preference guarantees dividends owed from prior years will be paid to preferred stockholders before dividends are paid to common stockholders A noncumulative dividend preference guarantees dividends owed from prior years will be paid to preferred stockholders before dividends are paid to common stockholders From the standpoint of preferred stockholders, noncumulative stock would be preferred over cumulative stock Preferred stockholders would have no preference for cumulative stock over noncumulative stock

A cumulative dividend preference guarantees dividends owed from prior years will be paid to preferred stockholders before dividends are paid to common stockholders

Which of the following statements about financing cash flows are true? A healthy company that is growing rapidly would be expected to report financing cash inflows to fund its expansion A healthy company would only report positive net cash flows from financing activities New loans would result in positive net cash flows from financing activities The issuance of new shares would result in negative net cash flows from financing activities

A healthy company that is growing rapidly would be expected to report financing cash inflows to fund its expansion New loans would result in positive net cash flows from financing activities

Which of the following statements about the times interest earned ratio are true? A high times interest earned ratio indicates a risky financing strategy A high times interest earned ratio indicates an extra margin of protection should the company's profitability decline in the future. In general, a high times interest earned ratio is viewed more favorably than a low one It measures whether sufficient resources are generated from operations to cover interest costs

A high times interest earned ratio indicates an extra margin of protection should the company's profitability decline in the future. In general, a high times interest earned ratio is viewed more favorably than a low one It measures whether sufficient resources are generated from operations to cover interest costs

Which of the following statements describe a contingent liability? A potential liability that arises as a result of current transactions or events A potential liability that arises as a result of future transactions or events A potential liability that arises as a result of past transactions or events Ultimate resolution depends on a current event Ultimate resolution depends on a future event Ultimate resolution depends on a past event

A potential liability that arises as a result of past transactions or events Ultimate resolution depends on a future event

Which of the following statements about preferred dividends is true? A preferred stock dividend can be expressed in either a percentage of par value or a dollar amount Dividends on preferred stock, if any, may be paid at a fixed rate If a company issues 10% preferred stock with a par value of $10 per share, the annual per-share dividend, if declared will equal $1 The current dividend preference requires that dividends are paid to common stockholders before any dividends are paid to preferred stockholders

A preferred stock dividend can be expressed in either a percentage of par value or a dollar amount Dividends on preferred stock, if any, may be paid at a fixed rate If a company issues 10% preferred stock with a par value of $10 per share, the annual per-share dividend, if declared will equal $1

Which of the following statements about the statement of retained earnings and the statement of stockholders' equity are true? (You may select more than one answer. Single click the box with the question mark to produce a check mark for a correct answer and double click the box with the question mark to empty the box for a wrong answer. Any boxes left with a question mark will be automatically graded as incorrect.) A statement of retained earnings shows how net income increased and dividends decreased the retained earnings balance during the period Both statements show the increase in Retained Earnings that occurs when dividends are declared Public companies report a more comprehensive version of the statement of retained earnings called the statement of stockholders' equity to show the causes of changes in all stockholders' equity accounts The statement of stockholders' equity has a column for each stockholders' equity account and shows the increases and decreases in each account balance during the period

A statement of retained earnings shows how net income increased and dividends decreased the retained earnings balance during the period Public companies report a more comprehensive version of the statement of retained earnings called the statement of stockholders' equity to show the causes of changes in all stockholders' equity accounts The statement of stockholders' equity has a column for each stockholders' equity account and shows the increases and decreases in each account balance during the period

Which of the following statements about accrued liabilities are true? Accrued liabilities include expenses that have been paid but not incurred as of the end of the accounting period Accrued payroll includes payroll deductions and employer payroll taxes Employer payroll taxes include FICA taxes, federal unemployment taxes, and state unemployment taxes Payroll deductions are amounts the employer has withheld from the employee's paycheck on behalf of another entity

Accrued payroll includes payroll deductions and employer payroll taxes Employer payroll taxes include FICA taxes, federal unemployment taxes, and state unemployment taxes Payroll deductions are amounts the employer has withheld from the employee's paycheck on behalf of another entity

Which of the following items are used to compute return on equity (ROE)? Average common stockholders' equity Average number of common shares outstanding Current stock price Net income Preferred dividends

Average common stockholders' equity Net income Preferred dividends

Which of the following items are used to compute earnings per share (EPS)? Average number of common shares outstanding Current stock price Net income Preferred dividends Total stockholders' equity

Average number of common shares outstanding Net income Preferred dividends

Which of the following are examples of cash flows relating to financing activities? Borrowing from lenders through formal debt contracts Purchasing goods on account from creditors Repaying interest to lenders Repaying principal to lenders

Borrowing from lenders through formal debt contracts Repaying principal to lenders

Which of the following describe long-lived assets? Also known as fixed assets Business assets acquired for use over one or more years Held for sale Productive assets

Business assets acquired for use over one or more years Productive assets

Which of the following are causes of deviations in cash flows from operating activities? Changes in working capital management Corporate life cycle Free cash flow Seasonality

Changes in working capital management Corporate life cycle Seasonality

Which of the following are withheld from an employee's paycheck? Charitable contributions Federal and state income taxes Federal and state unemployment taxes Medicare tax Social security tax

Charitable contributions Federal and state income taxes Medicare tax Social security tax

Which of the following statements about long-term liabilities are true? A long-term liability will be paid in cash or fulfilled after one year or the current operating cycle, whichever is shorter A long-term liability will be received in cash or fulfilled after one year or the current operating cycle, whichever is longer Common long-term liabilities include long-term notes payable, deferred income taxes, and bonds payable. Noncurrent liabilities include all liabilities other than those classified as current.

Common long-term liabilities include long-term notes payable, deferred income taxes, and bonds payable. Noncurrent liabilities include all liabilities other than those classified as current.

Which of the following statements about the direct method are true? Credits to the company's Cash account would represent cash outflows Debits to the company's Cash account would represent cash inflows The direct method can be used to prepare all three sections of the statement of cash flows The direct method reports the total cash inflow or outflow from each main type of transaction relating to the company's operating activities

Credits to the company's Cash account would represent cash outflows Debits to the company's Cash account would represent cash inflows The direct method reports the total cash inflow or outflow from each main type of transaction relating to the company's operating activities

Which of the following items are used to compute the price/earnings (P/E) ratio? Average common stockholders' equity Average stock price Current stock price Earnings per share Total assets

Current stock price Earnings per share

Which of the following is included in the adjusting entry to accrue interest on a short-term note payable? Debit to Interest Expense and a credit to Cash Debit to Interest Expense and a credit to Interest Payable Debit to Interest Payable and a credit to Cash Debit to Interest Payable and a credit to Interest Expense

Debit to Interest Expense and a credit to Interest Payable

Which of the following statements about the differences between common stock and preferred stock are true? Preferred stock does not have voting rights Dividends on preferred stock, if any, may be paid at a fixed rate. Any dividends the corporation declares must be paid to common stockholders before they can be paid to preferred stockholders If the corporation goes out of business, common stockholders are paid last from whatever assets remain after paying preferred stockholders

Dividends on preferred stock, if any, may be paid at a fixed rate If the corporation goes out of business, common stockholders are paid last from whatever assets remain after paying preferred stockholders

Which of the following statements about dividends are true? Dividends reduce Retained Earnings Stockholders are legally entitled to dividends A corporation's board of directors chooses whether or not to declare dividends A corporation is legally obligated to distribute dividends once they are declared

Dividends reduce Retained Earnings A corporation's board of directors chooses whether or not to declare dividends A corporation is legally obligated to distribute dividends once they are declared

Which of the following describes the effect of a stock dividend? Decreases Cash Increases total stockholders' equity Decreases total stockholders' equity Does not affect total stockholders' equity

Does not affect total stockholders' equity

Which of the following describes the effect of a stock split? Decreases Retained Earnings Increases Retained Earnings Decreases total stockholders' equity Does not affect total stockholders' equity

Does not affect total stockholders' equity

Which of the following are advantages of equity financing? Equity does not have to be repaid Dividends on stock are tax deductible It does not change stockholder control Dividends are optional

Equity does not have to be repaid Dividends are optional

Which of the following terms describe the payment that is made when the bond matures? Call value Face value Par value Stated value

Face Value

Which of the following is the term used to describe the excess of cash flows from operations over the amount of cash outflows used to replace property, plant, and equipment and to fund financing outflows of cash for dividends to stockholders? Cash equivalents Expansion cash flow Free cash flow Working capital

Free Cash Flow

Which term is used to describe what occurs when events or changed circumstances interfere with a company's ability to recover the value of the asset through future operations? Impairment Book value Depreciation Appreciation

Impairment

Which of the following describe the factors that determine the amounts reported for a liability? Initially, the company records each liability at the amount of cash a creditor would accept to settle the liability immediately after a transaction or event creates the liability The company decreases liabilities whenever the company makes a payment or provides services to the creditor The company increases liabilities whenever additional obligations arise The initial amount of the liability includes any interest charges relating to the liability.

Initially, the company records each liability at the amount of cash a creditor would accept to settle the liability immediately after a transaction or event creates the liability The company decreases liabilities whenever the company makes a payment or provides services to the creditor The company increases liabilities whenever additional obligations arise

Which of the following terms describe a bond that is issued for more than its face value? Issued at a discount Issued at a premium Issued at face value Issued at stated value

Issued at premium

Which of the following statements about a current liability is true? It will be received in cash within one year or the current operating cycle It will be paid in cash within one year or the current operating cycle It will be paid in cash or fulfilled within one year or the current operating cycle, whichever is longer It will be paid in cash or fulfilled within one year or the current operating cycle, whichever is shorter

It will be paid in cash or fulfilled within one year or the current operating cycle, whichever is longer

Which of the following describes what is reported first within the statement of cash flows? Beginning cash balance Financing activities section Investing activities section Operating activities section

Operating activities section

Which of the following are examples of cash flows relating to operating activities? Paying rent Purchasing equipment Receiving dividends Receiving interest

Paying rent Receiving dividends Receiving interest

In order to retain their ownership percentages, existing stockholders may be given the first chance to buy newly issued stock before it is offered to others. What term is used to describe this right? Legal liability Preemptive rights Residual claim Transferable

Preemptive rights

Rambling Company's debt-to-assets ratio is 75% and its competitors have debt-to-asset ratios near 60%. Which of the following statements is true? Its competitors have adopted a riskier financing strategy than Rambling Company Rambling Company has adopted a riskier financing strategy than its competitors

Rambling Company has adopted a riskier financing strategy than its competitors

Which of the following statements about the direct method are true? All subtotals and totals (such as net income) on the income statement are converted from an accrual basis to a cash basis The direct method presents a summary of all transactions that result in either a debit or a credit to cash. The direct method is prepared by adjusting each expense on the income statement from the accrual basis to the cash basis The direct method is prepared by adjusting each revenue on the income statement from the accrual basis to the cash basis

The direct method is prepared by adjusting each expense on the income statement from the accrual basis to the cash basis The direct method is prepared by adjusting each revenue on the income statement from the accrual basis to the cash basis

Which of the following statements about the two alternative methods that may be used when preparing the statement of cash flows are true? The indirect method reports the total cash inflow or outflow from each main type of transaction The direct method starts with net income The net change in cash is always the same under both methods The two alternative methods only relate to the operating activities section

The net change in cash is always the same under both methods The two alternative methods only relate to the operating activities section

How is the debt-to-assets ratio computed? Total assets divided by total liabilities Total liabilities divided by total assets Total long-term debt divided by total assets Total short-term debt divided by total assets

Total liabilities divided by total assets

What does a company need to do when it disposes of a depreciable asset by "retiring" the asset to a junkyard? No accounting adjustments are required since the asset was not sold or traded in for a new asset Record the disposal Update the Depreciation Expense and Accumulated Depreciation accounts Update the Depreciation Expense and Accumulated Depreciation accounts and then record the disposal

Update the Depreciation Expense and Accumulated Depreciation accounts and then record the disposal

Which of the following statements about bond amortization are true? When bonds are issued at a discount, bond amortization causes the Interest Expense to be less than the interest payment and, at the same time, causes Discount on Bonds Payable to decrease each period When bonds are issued at a discount, bond amortization causes the Interest Expense to be greater than the interest payment and, at the same time, causes Discount on Bonds Payable to decrease each period When bonds are issued at a premium, bond amortization causes the Interest Expense to be less than the interest payment and, at the same time, causes Premium on Bonds Payable to decrease each period When bonds are issued at a premium, bond amortization causes the Interest Expense to be more than the interest payment and, at the same time, causes Premium on Bonds Payable to decrease each period.

When bonds are issued at a discount, bond amortization causes the Interest Expense to be greater than the interest payment and, at the same time, causes Discount on Bonds Payable to decrease each period When bonds are issued at a premium, bond amortization causes the Interest Expense to be less than the interest payment and, at the same time, causes Premium on Bonds Payable to decrease each period