C3

A company's total assets minus its total liabilities as shown on the balance sheet is known as the ( ? ) value.

book

Money on hand and in banks that is available for use in the operations of the business is shown in the ( ? ) account on the balance sheet.

cash

Comparative financial statements refer to financial statements that are accompanied by the

corresponding financial statement of the preceding year.

Any receivable not expected to be collected within one year or the operating cycle, whichever is longer, is classified as a

noncurrent asset

Which of the following are considered illegal acts? (Select all that apply.) Multiple select question. bribes unintentional distortion of financial statements illegal contributions kickbacks

bribes illegal contributions kickbacks

Which of the following is included with the annual report to help evaluate a firm's financial performance and financial health? note disclosures proxy statements press releases marketing data

note disclosures

Which of the following items should be classified as investments on the balance sheet? (Select all that apply.) Multiple select question. accounts receivable from customers note receivable due in 3 years cash restricted to purchase building investments in stock of another company

note receivable due in 3 years cash restricted to purchase building investments in stock of another company

Crazen Company has the following information in its financial statements: Cash 3,000 Accounts receivable 4,000 Inventory 5,000 Prepaid Rent 2,000 Accounts payable 10,000 What is Crazen's quick or acid-test ratio?

0.70

Miles Company has the following financial statement information: Earnings before interest and taxes $50,000 Net income 30,000 Common stock 100,000 Additional paid-in capital 160,000 Retained earnings 40,000 What is return on stockholders' equity?

10% Reason: $30,000/($100,000 + $160,000 + $40,000)

Skylark has the following information in its financial statements: Cash 1,000 Accounts receivable 4,000 Short-term investments in trading securities 3,000 Inventory 2,000 Accounts payable 5,000 What is Skylark's current ratio?

2.0

Which of the following would be the best current ratio, assuming the company had excellent liquidity and an ability to generate positive income? Multiple choice question. 1.5 0.90 2.4 1.0

2.4

Answer Mode Multiple Choice QuestionYour Answer correct Welston Corp. has the following information in its financial statements: Income before interest and taxes $10,000 Additional paid-in capital 30,000 Tax expense 2,000 Common stock 10,000 Interest expense 3,000 Retained earnings 60,000 Net income 5,000 What is the times interest earned ratio?

3.33 ($10,000/$3000)

Linton Company has the following financial statement information: Current assets 20,000 Noncurrent assets 80,000 Current liabilities 20,000 Noncurrent liabilities 60,000 Stockholders' equity 20,000 What is the debt to equity ratio?

4.0 ($20,000+$60,000)/$20000

( ? / ? ) result from the sale of goods or services on credit

Accounts recievable

Which of the following statements is true regarding errors, fraud, and illegal acts? Multiple choice question.

An illegal act is a violation of the law.

Which of the following items is classified as cash? Multiple choice question. Bank drafts Accounts receivable Investment in stock of another company Treasury bills

Bank drafts

Which of the following items are considered cash equivalents? (Select all that apply.) Multiple select question. Cashier's checks and money orders. Commercial paper due in 1 month. U.S. Treasury bills due in 2 months. Money market funds that are quickly converted to cash.

Commercial paper due in 1 month. U.S. Treasury bills due in 2 months. (Cash equivalents = short-term investments that have a maturity date no longer than 3 months from the date of purchase.) (Cashier's checks and money orders are considered as CASH not cash equivalents)

You are analyzing the following four companies based on their debt to equity ratio. Which company has the highest risk of insolvency? Company A 2.5 Company B 1.0 Company C 0.9 Company D 3.0

D

Which of the following is a ratio used to evaluate a company's solvency? Multiple choice question. Dividends per share Earnings per share Quick ratio Debt to equity

Debit to equity

Which of the following are required disclosures for related-party transactions? (Select all that apply.) Multiple select question. Dollar amount of transaction. Description of transaction. Name of the related party. Nature of the relationship.

Dollar amount of transaction. Description of transaction. Nature of the relationship.

True or false: Current ratio gives a complete and accurate picture of a company's liquidity.

False Reason: Liabilities are typically paid with cash and not other components that make up working capital.

True or false: Working capital is a popular measure of a company's ability to satisfy its long-term obligations

False: Reason: Working capital relates to short-term obligations.

True or false: The balance sheet will directly measure the company's market value.

False; The balance sheet measures the company's book value because many assets are not recorded at fair value.

The financial statement that summarizes revenues and expenses for a period of time is the

Income Statement

Which of the following transactions would be recorded as a prepaid expense? (Select all that apply.) Insurance paid for 6 months. January's utility bill paid in February. Inventory purchased and held for sale. Salaries paid for the previous 2 months. Rent for an office building paid for 12 months. Insurance paid for 6 months. Rent for an office building paid for 12 months.

Insurance paid for 6 months. Rent for an office building paid for 12 months.

( ? ) consist of assets that a retail or wholesale company acquires for resale or goods that manufacturers produce for sale. (Enter only one word.)

Inventory

Assets not used directly in the operations of the business are called what? Multiple choice question.

Investments

Cash set aside for future plant expansion and a 3 year note receivable are both examples of what on a company's balance sheet?

Investments

What information does the times interest earned ratio provide to investors or creditors?

It provides the creditor with an indication of the ability of the debtor to pay the interest on its debts.

Which of the following are included in the summary of significant accounting policies included in the notes to the financial statements? (Select all that apply.) Multiple select question. Items included in cash and cash equivalents. Method of depreciation. Choice between LIFO and FIFO. Supporting calculations for income taxes.

Items included in cash and cash equivalents. Method of depreciation. Choice between LIFO and FIFO.

Which type of analysis is used to determine if the company can pay its short-term debts as they come due?

Liquidity analysis

What refers to the riskiness of a company with regard to the amount of liabilities in its capital structure?

Long-term solvency

What additional factors should be considered when assessing current ratio and liquidity? (Select all that apply.) Multiple select question. Portion of current assets made up of cash. Portion of current assets made up of non-cash assets. Line of credit or borrowing ability. Portion of assets made up of long-term assets.

Portion of current assets made up of cash. Portion of current assets made up of non-cash assets. Line of credit or borrowing ability.

Which of the following are examples of prepaid expenses? (Select all that apply.) Multiple select question. Prepaid insurance. Customer payment in advance. Rent paid in advance. Unearned revenue.

Prepaid insurance. Rent paid in advance.

An expense that has been incurred but not yet paid results is a(n) Multiple choice question.

accrued liability.

Which of the following are likely examples of a related-party transaction? (Select all that apply.) Multiple select question. Selling goods to affiliated companies. Borrowing or lending money at an unusually low interest rate to an affiliated company. Purchasing goods from independent suppliers. Loaning money to officers and directors.

Selling goods to affiliated companies. Borrowing or lending money at an unusually low interest rate to an affiliated company. Loaning money to officers and directors.

Classifying items on the balance sheet as current and noncurrent assists financial statement users in assessing what aspects about a company?

Solvency and liquidity.

Accounts receivable represents which of the following?

The amount owed by customers.

If a company has a current ratio of 1.2, which of the following is true?

The company has $1.20 in current assets for each dollar of current liabilities.

Which of the following items are included in the professional opinions given in the auditor's report? (Select all that apply.) Multiple select question. The accuracy of the financial statements. The effectiveness of internal control. The effectiveness of management strategy. The fairness of the financial statements.

The effectiveness of internal control. The fairness of the financial statements.

An "unqualified" audit opinion represents which of the following?

The financial statements are fairly presented in conformity with generally accepted accounting principles.

Why are inventories reported as current assets?

They are normally sold within the operating cycle.

True or false: The operating cycle for most firms is 1 year or less.

True; Most firms have an operating cycle of less than 1 year because they can make and sell the goods within a short period of time.

Which of the following items are considered cash equivalents? (Select all that apply.) Multiple select question. U.S. Treasury bills due in 2 months. Commercial paper due in 1 month. Cashier's checks and money orders. Money market funds that are quickly converted to cash.

U.S. Treasury bills due in 2 months. Commercial paper due in 1 month. Money market funds that are quickly converted to cash.

Which of the following are liquidity ratios? (Select all that apply.) Multiple select question. acid-test or quick ratio debt to asset ratio current ratio return on equity ratio

acid-test or quick ratio (quick acid = unrestricted cash, short-term investments, and accounts receivable) current ratio

If an accounts receivable is due within 60 days, it is classified on the balance sheet as a(n) ( ? ) asset

current

Rice Company purchases a building for $500,000, which will be used as a production facility. How should the building be classified on the balance sheet?

current asset

The formula for the acid-test or quick ratio is quick assets divided by

current liabilities

A ______ is satisfied within 1 year or the current operating cycle, whichever is longer.

current liability

The two classifications used for assets and liabilities on the balance sheet are ______ and ______.

current; noncurrent

What account is affected when a customer pays in advance for services to be performed in the future? Multiple choice question. accounts payable deferred revenues notes payable accounts receivable

deferred revenues

The purpose of comparative financial statements is to allow users to (Select all that apply.) analyze current year data. detect and predict trends. compare year-to-year data

detect and predict trends. compare year-to-year data

Shareholders' equity arises primarily from amounts invested by shareholders and amounts

earned by the corporation

Favorable financial leverage occurs when a company

earns a return on borrowed funds that exceeds the cost of borrowing.

The higher the debt to equity ratio is for a company, then the ______ the risk of insolvency is for that company.

higher

Which type of analysis uses ratios to analyze the financial statements of 2 or more years?

horizontal

The type of analysis that uses ratio analysis or trend analysis of financial statements across multiple years is called

horizontal analysis

Which of the following items are included in the numerator for the current ratio but are excluded from the numerator of the quick or acid-test ratio? (Select all that apply.) Multiple select question. accounts receivable short-term investments inventory prepaid assets

inventory prepaid assets

A company borrows funds for a project. If the interest rate charged for the borrowed funds is less than the rate of return on the project, this is referred to as favorable financial

leverage

Obligations to other entities are known as what?

liabilities

The readiness of a company to pay its short-term debts as they come due is referred to as ______.

liquidity

Times interest earned ratio measures a company's ability to ( ? ) its interest charges

meet/ cover/ pay

The mathematical formula for working capital is current assets ______ current liabilities.

minus

The cycle refers to the period of time necessary to convert cash to raw materials, raw materials to a finished product, the finished product to receivables, and then receivables back to cash.

operating

Which of the following is in the numerator of the quick ratio?

quick assets

A ratio used to measure liquidity is the

quick ratio

The _____ ratio provides a more rigorous indication of liquidity than does the _____ ratio.

quick; current

Analysts evaluate the performance and risk of the firm using relationships between two financial statement numbers, such as earnings per share of stock, or debt to assets. What type of analysis uses these relationships?

ratio analysis

salaries stock options bonuses proxy payments

salaries stock options bonuses

Investments in stock and debt securities of other corporations are included as _____ if the company has the ability and intent to sell them within the next 12 months.

short-term investments

The _____ ratio is calculated as (net income + interest expense + income taxes) divided by interest expense

times interest earned

The _____ ratio is calculated as (net income + interest expense + income taxes) divided by interest expense.

times interest earned (average is 36.4)

The type of analysis that examines the relationships of items as a percent of total sales or as a percent of total assets is considered what type of analysis?

vertical

A manufacturing firm will use which of the following accounts to record inventory? (Select all that apply.) Multiple select question. work in process sales returns and allowances raw material short-term investments finished goods

work in process raw material finished goods

The full-disclosure principle requires that financial statements report which of the following? Multiple choice question. All financial strategy and policies of the entity. All calculations regardless of materiality. All material relevant information. All calculations of each item on the balance sheet.

All material relevant information.

What is the difference between an account payable and a note payable? Multiple choice question. A note payable is always long-term. An account payable is usually due in 30-60 days. An account payable is a signed promissory note. A note payable is owed to a bank.

An account payable is usually due in 30-60 days.

How should liquid investments expected to be converted to cash within the current operating cycle be reported in the balance sheet?

As a short-term investment in the current asset section.

Bear Corp. has $100,000 cash in the bank restricted to repay a note payable that matures in 2 years. How should this $100,000 be reported?

As restricted cash in the long-term section of the balance sheet.

The current versus noncurrent classification applies to what in the financial statements?

Assets and Liabilities

Current assets include which of the following? (Select all that apply.) Multiple select question. Cash Short term investments Property and equipment Intangible assets

Cash Short term investments

Which of the following items are considered cash equivalents? (Select all that apply.) Multiple select question. Money market funds quickly converted into cash. Cashier's checks payable on demand. Reason: These are considered cash, not cash equivalents Notes receivable. Commercial paper due in less than 3 months.

Money market funds quickly converted into cash. Commercial paper due in less than 3 months.

Which of the following is a subsequent event that must be disclosed in the notes to the financial statements? Inventory purchased after the balance sheet date. The issuance of debt or equity securities. Investments sold after the balance sheet date. Accounts receivable collected after the balance sheet date but before the issuance of financial statements.

The issuance of debt or equity securities.

A(n) ( ? ) audit opinion occurs when the exceptions to the standard opinion are so great that the financial statements may be misleading. (Enter only one word.)

adverse

Zantron Corp. pays $100,000 for robotic equipment to be used in its production facility. Zantron should include this transaction as

an increase in plant, property, and equipment.

A prepaid expense represents a(n) ( ? ) recorded when an expense is paid in advence.

asset

Current ( ? ) include cash and other items that will be converted to cash or consumed within the coming year. (Enter only one word.)

assets

The financial statement that displays a firm's financial position on a particular date is the ( ? ) ( ? ).

balance sheet

The SEC requires disclosures on compensation for which of the following? (Select all that apply.) Multiple select question. All employees Directors Mid-level management Executives Low-level management

directors and executives

A(n) ( ? ) occurs when the auditor does not have sufficient information to express an opinion. (Enter only one word.)

disclaimer

Additional ( ? ) are critical to understanding financial statements and to evaluating a firm's performance. (Enter only one word.)

disclosures/ notes

The two sources of stockholders' equity are amounts ______. Multiple select question. borrowed from banks borrowed from related companies earned by the corporation paid in from shareholders

earned by the corporation paid in from shareholders

an ( ? ) is an unintentional mistake in the financial statements, whereas ( ? ) is intentional distortion of the financial statements.

error / fraud

The intentional misappropriation of assets or deceitful financial reporting is known as

fraud

Unearned revenue represents cash received from a customer for goods or services to be provided in a(n)

future period

Inventories include which of the following items? (Select all that apply.) Multiple select question. all assets held for sale goods directly consumed in production goods in production finished goods

goods directly consumed in production goods in production finished goods

When an auditor has an exception to the standard opinion but there is not sufficient seriousness to invalidate the financial statements as a whole?

qualified

Which of the following items should not be included in cash and cash equivalents in the balance sheet? Multiple choice question. restricted cash Treasury bills money market funds cashier's checks

restricted cash = long-term asset ( these restrictions could include future plans to repay debt, purchase equipment, or make investments) Restricted cash is classified as a current asset if it is expected to be used within one year from the balance sheet date)

On January 1 of the current year, Lafferty signs a contract to rent a building for $1,000 per month for the next three years. On that date, Lafferty pays $36,000 for rent. On January 1 when payment is made, what is the amount of the prepaid rent that should be classified as a current asset?

$12,000 The portion of rent that will be paid within the next 12 months is classified as current and the remainder is classified as noncurrent.

An accrued liability represents which of the following? Multiple choice question. An expense that has been incurred and was paid in a prior period. An expense that has been incurred but will be paid in a future period. A revenue that was earned but payment will be received in a future period.

An expense that has been incurred but will be paid in a future period.

Which of the following is a likely example of a related-party transaction? Multiple choice question. Borrowing or lending money at unusually low interest rates. Selling goods to customers at retail values. Purchasing goods from suppliers.

Borrowing or lending money at unusually low interest rates.

The Management Discussion and Analysis section of the financial statements includes a perspective on which of the following? (Select all that apply.

Capital resources Operations Liquidity ( biased but informed)

Which of the following are common disclosures on the face of a financial statement? (Select all that apply.)

Common stock information Allowance for uncollectible accounts

Which of the following are subsequent events that must be disclosed in the notes to the financial statements? (Select all that apply.) Multiple select question. Event that affects a loss contingency. Sale of a business. Collections on account. Issuance of debt securities.

Event that affects a loss contingency. Sale of a business. Issuance of debt securities.

True or false: Information about fair value is commonly listed as an additional disclosure on the face of the financial statements.

False: Detailed information about fair value is disclosed using disclosure notes.

What situation would require an auditor to use an explanatory paragraph in the auditor's report, even though the report is unqualified? Multiple choice question. A finding that the financial statements are not fairly presented. A loss that is not material in amount but is remote. Lack of consistency due to a change in accounting principle. Material mistakes in the financial statements.

Lack of consistency due to a change in accounting principle.

What situation would require an auditor to use an explanatory paragraph in the auditor's report, even though the report is unqualified? Multiple choice question. Lack of consistency due to a change in accounting principle. Material mistakes in the financial statements. A finding that the financial statements are not fairly presented. A loss that is not material in amount but is remote.

Lack of consistency due to a change in accounting principle.

An analysis provided by the company's management is included in the

Management Discussion and Analysis

Who is responsible for the information in the annual report?

Management of the company

What is the role of the auditor's attest function?

To provide an opinion on the financial statements.

Select all that apply How are current liabilities satisfied? (Select all that apply.) Multiple select question. The use of current liabilities. The use of current assets. The creation of other current assets. The creation of other current liabilities.

The use of current assets. The creation of other current liabilities.

Which of the following describe long-term liabilities? (Select all that apply.) Multiple select question. They require the use of current assets. They do not require the creation of current liabilities for payment. They do not require the use of current assets. They require the creation of current liabilities for payment.

They do not require the creation of current liabilities for payment. They do not require the use of current assets.

Which of the following situations would require an explanatory paragraph even though the auditors' report is unqualified? (Select all that apply.) Multiple select question. Uncertainty regarding a contingency for which a loss is material in amount. Material misstatements in the financial statements that have been discussed with management. Inadequate disclosures to the financial statements. A significant matter concerning the financial statements and a related-party transaction.

Uncertainty regarding a contingency for which a loss is material in amount. A significant matter concerning the financial statements and a related-party transaction.

Which of the following accounts represent amounts shareholders have invested in the company? (Select all that apply.) Multiple select question. common stock accumulated other comprehensive income retained earnings additional paid-in capital

common stock additional paid-in capital

Which of the following items requires supplemental disclosures in the notes to the financial statements? (Select all that apply.) Multiple select question. leases long-term debt items that are immaterial pension plans

leases long-term debt pension plans

Common practice requires that current assets are presented on the balance sheet in the order of .?

liquidity

The balance sheet provides useful information about a company's ( ? ) and long-term solvency.

liquidity

Responsibility for the financial statements and other information found in the annual report lies with

manager

Assets minus liabilities, measured according to GAAP, is not likely to be representative of the ( ? ) value of the entity. (Enter only one word.)

market

The full-disclosure principle requires financial statements to provide all ( ? ) ( ? ) information regarding the company.

material relevant

Which of the following items are included in investments? (Select all that apply.) Multiple select question. note receivable due in 5 years cash reserved to purchase land accounts receivable due in 60 days inventory on hand

note receivable due in 5 years cash reserved to purchase land

The time period necessary to convert cash to raw materials, convert raw materials into finished products, sell the products, and collect on the account receivable is referred to as the ______ cycle.

operating cycle

The risk that a company may not effectively manage its business and might impair its ability to earn profits is known as

operational risk

Balance sheets often include a catch-all classification of noncurrent assets called ( ? )long-term assets.

other

The accounts common stock and paid-in capital in excess of par are classified as Multiple choice question. paid-in capital. contra equity accounts. other comprehensive income. treasury stock.

paid-in capital

Which of the following may be recorded on the balance sheet as intangible assets? (Select all that apply.) Multiple select question. patents trademarks management team employee loyalty copyrights

patents trademarks copyrights

Default risk refers to the ability of a company to

pay its obligations when they come due.

Which of the following are noncurrent assets? (Select all that apply.) Multiple select question. property investments with maturity of 18 months accounts receivable machines inventory

property investments with maturity of 18 months machines

To help shareholders understand the content of executive pay packages and the commitments of the company with respect to such payments, the SEC requires that company disclose compensation information for directors and top executives in a filing called a ( ? ) ( ? ) , which also serves to invite shareholders to the annual meeting.

proxy statement

Shareholders' equity is composed of which of the following accounts? (Select all that apply.) Multiple select question. retained earnings long-term liabilities deferred revenues paid-in capital

retained earnings paid-in capital

Which of the following items are required disclosures in the notes to financial statements? (Select all that apply.) Multiple select question. significant accounting policies description of subsequent events marketing strategies related third-party transactions

significant accounting policies description of subsequent events related third-party transactions

A（？）event is a significant development that occurs after a company's fiscal year-end but before the financial statements are issued or available to be issued.

subsequent

A significant development that occurs after a company's fiscal year-end but before the financial statements are issued is called a(n)

subsequent event

Which of the following are characteristics of plant, property, and equipment? (Select all that apply.) tangible used or converted to cash within 1 year or the current operating cycle used long-term in production

tangible used long-term in production

A summary of significant accounting policies includes information regarding

the choice of accounting policies.

A customer pays in advance for services to be performed in a future period. In which account should the transaction be recorded?

unearned revenues ( deferred revenue)