accounting test 4
a company issued 8% preferred stock with a $100 par value. this means:
$100 par value x 8% preferred stock dividend= $8 dividend per share per year. so- the potential dividend to preferred stockholders is $8 per share per year.
cash flows from investing activities include:
a purchase of an automobile a sale of a trademark a purchase of stock of another company
what is true about the relative advantages of equity and debt financing
an advantage of equity financing is that it does not have to be repaid. an advantage of equity financing is that dividends are optional. an advantage of debt financing is that interest is tax deductible.
when is purchased with cash and held in treasury, what is the impact on the balance sheet equation?
assets decrease and stock holders equity decreases.
when a company uses the direct method to determine the cash flows from operating activities, cash flows from operating activities will:
be identical to the amount reported using the indirect method
which statements regarding liquidity and solvency ratios is true?
both liquidity and solvency ratios measure a company ability to meet its financial obligations
which of the following would be reported as a cash outflow from investing activities
buying another company's bonds with cash
if a company current assets are allowed to grow out of control, what would occur?
cash flows from operating activities would be reduced.
which of the following would be included in cash flows from operating activities
cash proceeds from sales
cash flows from operating activities include:
collections from customers on account payments to employees for hours worked receipt of dividends
which of the following is generally the most useful in analyzing companies of different size?
common size financial statements
a company that has a current ratio less than one cannot cover:
current liabilities with its current assets
what is a ratio that is used to analyze liquidity?
current ratio
what ratio is calculated by dividing current assets by current liabilities:
current ratio
what ratio is not used to analyze profitability?
current ratio
a journal entry is not recorded on what date?
date of record
a company declared a $0.80 per share cash dividend. the company has 100,000 shares authorized, 45,000 shares issued, and 42,000 outstanding. what is the journal entry to record the dividend declaration?
dividends are paid only on outstanding shares so- 42,000 x $0.80= 33,600 journal entry: debit dividends declared and credit dividends payable.
what statements about dividends are true
dividends represent a sharing of corporate profits with owners. both stock and cash dividends reduce retained earnings.
what is true about the statement of cash flows:
does not replace the income statement provides details as to how cash changed during a period provides info about cash receipts and cash payments over a period of time
what is the first step in calculating cash flows from operations when the indirect method is used?
find net income on the income statement.
what accounting concepts od accountants and auditors assess by using financial analysis?
going concern ratio
what is true about common stock?
if a corporation has only one class of stock, it is common stock.
almost all US companies have used the indirect method of preparing the statement of cash flows:
in spite of the financial accounting standard boards stated preference for the direct method.
what directly changes the receivables turnover ratio for a company?
increases in the selling prices of your inventory. a change in your credit policy.
statements regarding treasury stock:
it is considered to be issued but not outstanding. it has no voting, dividend, or liquidation rights. it reduces total stock holders equity on the balance sheet.
if an analyst wanted to examine a company short run ability to survive, which would be best considered?
liquidity
what ratio is calculated by dividing net income by net sales?
net profit margin
a company had 300,000 shares of $10 par value common stock outstanding. the amount of additional paid-in capital is $1,500,000 and retained earnings is $450,000. the company issues a 2-for-1 stock split. the market price of the stock is $13. what is the balance in the common stock account after this issuance?
only the number of shares and par value change. before split: 300,000 shares x $10 par value= 3,000,000 after split: 600,000 shares x $5 par value= 3,000,000
in what order do the three sections of the statement of cash flows appear when reading from top to bottom?
operating, investing, financing
cash flows from financing activities include:
payment of long-term debt proceeds from stock issuance dividends paid to stockholders NOT interest expense
a bank is lease likely to use which ratio when analyzing the likelihood that a borrower will pau interest and principal on its loans?
price/earnings ratio
what ratio incorporates stock market data?
price/earnings ratio
if an analyst wanted to examine a companies current ability to generate income, which of the following would be best considered?
profitability
what would not appear in the investing section of cash flows?
purchase of inventory
what ratio is calculated by dividing liquid assets by current liabilities:
quick ratio
depreciation is added back to net income in a statement of cash flows prepared using the indirect method because it:
reduces net income but not cash
what transaction will increase the return on equity
repurchase the company stock
the stockholders equity section of the balance sheet includes:
retained earnings contributed capital treasury stock NOT dividends, they're already subtracted from retained earnings.
a stock dividend transfers:
retained earnings to contributed capital
what feature is not applicable to common stock ownership
right to receive dividends before preferred stock shareholders
in a common size income statement, each item on the income statement is expressed as a percentage of:
sales revenue
what is the order from largest to smallest number of shares?
shares authorized, shares issued, shares outstanding
contributed capital is 30,000, retained earnings is 65,000, treasury stock 18,000, and common stock is 10,000. what is the total stockholders equity?
since common stock is included in contributed capital: 30,000 + 65,000 - 18,000= 77,000 treasury stock is already a reduction to stockholders equity.
if an analyst wanted to examine a company long run ability to survive, which of the following would best be considered?
solvency
stock splits and stock dividends have the following effects on retained earnings:
stock splits: no change stock dividends: decrease
if the balance in prepaid expenses increased during the year, what action should be taken on the statement of cash flows when following the indirect method and why?
the change in the account balance should be subtracted from net income because the net increase in prepaid expenses did not impact net income but did reduce the cash balance.
if a company engages in a material non cash transaction, what is required?
the company must include an explanatory narrative or schedule accompanying the statement of cash flows
the total change in cash as shown near the bottom of the staten of cash flows for the year should agree with what?
the difference in cash when reviewing the comparative balance sheet
a decrease in selling administrative expenses would directly impact what ratio?
times interest earned
the primary objective of external financial reporting is:
to provide useful info to decision makers, especially investors and creditors.
in a common size balance sheet, each its on the balance sheet is expressed by a percentage of:
total assets
a company has 110,000 shares authorized, 50,000 shares issued, and 5,000 shares of treasury stock. how many shares are outstanding?
treasury stock is issued but NOT outstanding. 50,000-5,000=45,000 outstanding.
par value of a stock refers to:
value assigned to a share of stock in the corporate charter.
in what situation does total stock holders equity decrease?
when a cash dividend is declared.
