Chapter 2 Quiz Questions

Which of the following would decrease the company's current ratio? -Selling services to customers on account -Buying supplies, such as office supplies, in exchange for cash -Using excess cash to buy long-term investments -Selling machinery previously used in operating the business in exchange for cash -Issue common stock in exchange for cash.

Using excess cash to buy long-term investments

During the current year, a company reported the following: Issued common stock, $49,000 Declared and paid dividends, $17,000 Net income, $201,000 At the end of the current year, the company's retained earnings is $1,292,000. What was its retained earnings balance at the beginning of the current year? -$1,476,000 -$1,427,000 -$1,157,000 -$1,142,000 -$1,108,000.

$1,108,000

A company has assets of $2,750,000, common stock of $435,000, and liabilities of $380,000. What is the company's retained earnings? -$1,935,000 -$1,565,000 -$2,370,000 -$2,644,000 -$815,000

$1,935,000

A company has assets of $2,750,000, common stock of $435,000, and liabilities of $380,000. What is the company's retained earnings? -$815,000 -$2,370,000 -$1,565,000 -$2,644,000 -$1,935,000

$1,935,000

A corporation reports the following balances and amounts Accounts payable, $35,000 Cash provided by operations, $90,000 Accounts receivable, $37,500 Net income, $36,000 Average number of common shares, 20,000 Salaries and wages payable, $8,000 Average current liabilities, $110,000 Stockholders' equity, $240,000 Average total assets, $600,000 Current assets, $300,000 Average total liabilities, $320,000 Current liabilities, $120,000 Dividends paid to preferred shareholders, $10,000 Determine its earnings per share? -$2.33 -$1.80 -$1.30 -$4.00 -$1.50

$1.30

A corporation has current assets of $3,203,000, current liabilities of $2,150,000, total assets of $10,000,000 and total liabilities of $6,000,000. If it pays $200,000 of its accounts payable what will its current ratio be? (rounded) -1.48 -1.40 -1.44 -1.54 -1.51

$1.54 paying accounts reduces accounts payable and cash ($3,203,000- 200,000)/($2,150,000- 200,000)= 1.54

A corporation reported net income of $28,000; net sales $400,000; beginning common shares outstanding of 12,000 and ending common shares outstanding of 20,000. There were no preferred dividends. What is its earnings per share (rounded to two decimal places)? -$0.57 -$1.75 -$1.88 -$1.40 -$0.07

$1.75

For a given company, total assets are $160,000, current liabilities are $10,000, long-term liabilities are $40,000, common stock is $50,000, and retained earnings is $60,000. How much is total stockholders' equity? -$110,000 -$190,000 -$150,000 -$140,000 -$120,000

$110,000

A company reported a $150,000 cash inflow provided by operating activities. Additional data for the current year shows the following: It paid $30,000 for equipment It paid $5,000 in dividends It paid a $20,000 note payable. Shortly before year-end, it received $25,000 by issuing additional shares of its stock. What is its free cash flow? -$145,000 -$95,000 -$140,000 -$120,000 -$115,000

$115,000 150,000- 30,000- 5,000 operations and capital expenditures

For the current year, a company reported a net cash inflow from operating activities of $160,000. It also reported the following: It issued $40,000 of common stock It paid $20,000 for equipment It paid a $5,000 note payable It paid $10,000 as dividends What is the company's free cash flow? -$165,000 -$180,000 -$130,000 -$125,000 -$190,000

$130,000

For the current year, a company reported a net cash inflow from operating activities of $210,000. It also reported the following: It issued $35,000 of common stock It paid a $10,000 note payable It paid $45,000 for equipment It paid $20,000 as dividends What is the company's free cash flow? -$180,000 -$135,000 -$170,000 -$145,000 -$200,000

$145,000

Based on the following accounts and year-end account balances for a certain corporation, determine the amount of current assets to be reported on its classified balance sheet. Accounts payable$ 70,000 Inventory 70,000 Accounts receivable 50,000 Land 100,000 Accumulated depreciation 30,000 Prepaid insurance 40,000 Buildings 115,000 Retained earnings 90,000 Cash 35,000 Trademarks 70,000 Common stock 325,000 The land is used as a parking lot. -$125,000 -$155,000 -$195,000 -$165,000 -$285,000

$195,000

At the end of the year, a company had retained earnings of $2,840,000. During the year, the company reported the following: Issued common stock, $108,000 Declared and paid dividends, $43,000 Net income, $402,000. How much was the retained earnings balance at the beginning of the same year? -$2,438,000 -$2,154,000 -$2,253,000 -$2,373,000 -$2,481,000

$2,481,000

A corporation reports the following balances and amounts: Accounts payable, $50,000 Cash provided by operations, $100,000 Accounts receivable, $35,000 Net income, $40,000 Average number of common shares, 15,000 Salaries and wages payable, $40,000 Average current liabilities, $225,000 Stockholders' equity, $200,000 Average total assets, $600,000 Current assets, $300,000 Average total liabilities, $320,000 Current liabilities, $250,000 Dividends paid to preferred shareholders, $5,000 Determine its earnings per share? -$4.00 -$1.80 -$1.30 -$1.50 -$2.33

$2.33

Based on this information, what is the company's earnings per share (rounded to two decimals) for 2022?

$2.42

Based on this information, what is the company's earnings per share (rounded to two decimals) for 2022? $2.67 $2.40 $2.50 $3.00 $2.78

$2.67

Based on the following data (in dollars), what is the working capital? Accounts payable$ 110,000 Investments in bonds 170,000 Accounts receivable 80,000 Land 190,000 Accumulated depreciation 40,000 Notes payable (due in 18 months) 180,000 Buildings 226,000 Prepaid insurance 60,000 Cash 84,000 Salaries and wages payable 20,000 Common stock 240,000 Trademarks 140,000 Inventory 140,000 -$505,000 -$174,000 -$234,000 -$740,000 -$254,000

$234,000

What is the total dollar amount of current assets reported on the classified balance for the following company? Accounts payable$ 60,000 Inventory 140,000 Accounts receivable 80,000 Land 190,000 Accumulated depreciation 40,000 Prepaid insurance 30,000 Buildings 230,000 Retained earnings 150,000 Cash 90,000 Trademarks 140,000 Common stock 650,000 The land is used as a parking lot. -$490,000 -$480,000 -$260,000 -$380,000 -$340,000

$340,000

Based on the following data for a certain corporation, what is the amount of current assets on the company's classified balance sheet? Accounts payable$ 60,000 Inventory 150,000 Accounts receivable 180,000 Notes payable 80,000 Cash 50,000 Prepaid insurance 10,000 Common stock 530,000 Retained earnings 50,000 Equipment 300,000 Salaries and wages payable 70,000 Goodwill 100,000 -$490,000 -$250,000 -$390,000 -$440,000 -$210,000

$390,000

A corporation reports the following balances and amounts: Accounts payable, $60,000 Cash provided by operations, $150,000 Accounts receivable, $25,000 Net income, $50,000 Average number of common shares, 12,000 Salaries and wages payable, $45,000 Average current liabilities, $220,000 Stockholders' equity, $200,000 Average total assets, $500,000 Current assets, $200,000 Average total liabilities, $320,000 Current liabilities, $150,000 Dividends paid to preferred shareholders, $2,000 Determine its earnings per share? -$1.50 -$1.20 -$4.00 -$2.33 -$1.80

$4.00

A corporation has current assets of $3,150,000, current liabilities of $2,250,000, total assets of $10,000,000 and total liabilities of $6,000,000. If it pays $500,000 of its accounts payable what will its current ratio be? (rounded) -1.51 -2.10 -1.80 -1.40 -1.45

1.51

A company has current assets of $1,600,000 and total assets of $9,000,000. It has current liabilities of $750,000 and total liabilities of $6,000,000. If it issues $100,000 of common stock what will its current ratio be? (rounded) -2.13 -2.04 -2.61 -2.53 -2.27

2.27 Issuing common stock increases the corporations' cash and has no effect on liabilites Current ratio (1,600,000 +100,000)/750,000

Based on the following data (in dollars), what is the current ratio? Accounts payable$ 140,000 Inventory 110,000 Accounts receivable 100,000 Investments in bonds 310,000 Accumulated depreciation 40,000 Land 180,000 Buildings 210,000 Notes payable (due in 2 years) 160,000 Cash 130,000 Prepaid insurance 60,000 Common stock 240,000 Salaries and wages payable 20,000 -2.50 -3.31 -2.86 -2.13 -1.44

2.50

Based on the following data (in dollars), what is the current ratio? Accounts payable$ 110,000 Investments in bonds 170,000 Accounts receivable 80,000 Land 190,000 Accumulated depreciation 40,000 Notes payable (due in 2 years) 180,000 Buildings 226,000 Patents 140,000 Cash 84,000 Prepaid insurance 60,000 Common stock 240,000 Salaries and wages payable 20,000 Inventory 140,000 -2.34 -3.31 -2.80 -1.26 -3.39

2.80

Which of the following is not an example of an intangible asset? -Copyrights -Accounts receivable -Trademarks -Patents -Goodwill

Accounts receivable

Which of the following would not be classified as a long-term liability? -Bonds payable due in 10 years -Notes payable due in 18 months -Current maturities of long-term debt due in 10 months -Mortgage payable due in 5 years -All of these are always considered to be long-term liabilities

All of these are always considered to be long-term liabilites

In what order are current assets listed on a classified balance sheet? -By importance -Alphabetically -By longevity -By liquidity -By their size measured in dollars

By liquidity

In what order are current assets listed on a classified balance sheet? -By their size measured in dollars -Alphabetically -By longevity -By importance -By liquidity

By liquidity

Which of the following would not be reported among property, plant, and equipment on a classified balance sheet? -Accumulated depreciation -Delivery vehicles -Cash -Equipment -Land

Cash

Which of the following would not be reported among property, plant, and equipment on a classified balance sheet? -Equipment -Land -Delivery vehicles -Accumulated depreciation -Cash

Cash

Which of the following is considered property, plant, and equipment on a classified balance sheet? -Copyrights -Land -Accounts receivable -Investments in another company's stock -Depreciation

Land

Which of the following would increase a company's current ratio? -Use cash to buy new equipment -Pay a dividend to shareholders -Collect outstanding accounts receivable -Negotiate with a creditor to reclassify a note payable in 3 months into a note payable due in 2 years -None of these

Negotitate with a creditor to reclassify a note payable in 3 months into a note payable due in 2 years changing a current liability into a long-term liability lowers total current liability

Which of the following is not classified as a current asset? -Accounts receivable -Cash -Prepaid expenses -Patents -Inventory

Patents

Which of the following does not affect the company's current ratio? -Sell services to customers in exchange for cash -Issue a short-term note in exchange for cash -Pay a dividend to shareholders -Paying the next month's rent one month in advance -Use excess cash to buy long-term investments

Paying the next month's rent one month in advance

Which of the following is a financial ratio classification that measures the income or operating success of a company for a given period of time? -Liquidity ratios -Profitability ratios -Analysis ratios -Financial ratios -Solvency ratios

Profitability ratios

The agency of the United States Government that oversees and regulates the U.S. financial markets is the -Security Exchange Commission' -Internal Revenue Service -Public Company Accounting Oversight Board -International Auditing Standards Committee -Financial Accounting Standards Board.

Security Exchange Commison the agency of the US government that oversees US financial markets and accounting standard-setting bodies

Which financial statement is used by most corporations to compute year-end retained earnings? -Statement of cash flows -Statement of stockholders' equity -None of these -Balance sheet -Statement of sources and uses

Statement of stockholders' equity

A company purchased common stock of another corporation. The company expects to hold the other corporation's stock for more than one year. On its classified balance sheet, the company should report the common stock as -a long-term investment -a current asset -an intangible asset -property, plant, and equipment -stockholders' equity

a long-investment

A company purchased bonds issued by another corporation. The company expects to hold the bonds for more than one year. On its classified balance sheet, the company should report the bonds as -a long-term investment -stockholders' equity -a current asset -property, plant, and equipment -an intangible asset.

a long-term investment

A company purchased common stock of another corporation. The company expects to hold the other corporation's stock for more than one year. On its classified balance sheet, the company should report the common stock as -property, plant, and equipment -a long-term investment -an intangible asset -stockholders' equity -a current asset.

a long-term investment

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

a more meaningful financial information

Generally Accepted Accounting Principles (GAAP) -are accounting rules that are recognized as a general guide for financial reporting -have eliminated all errors in accounting -are the rules used to evaluate the performance of auditing firms -are accounting rules formulated by the Internal Revenue Service -are sound in theory but rarely used in real life

are accounting rules that are recognized as a general guide for financial reporting

Which of the following best identifies a company's ability to pay its obligations that will become due within the next year or operating cycle. -Current assets divided by current liabilities -Short-term liabilities divided long-term liabilities -Net income for this year -Total liabilities divided by total equity -Projected net income for next year

current assets divided by current liabilites

Which account and its balance is not reported on the balance sheet or income statement? -Service Revenue -Cash -Dividends -Accumulated Depreciation -Notes payable

dividends

Which of the following a measure of profitability? -current ratio -working capital -debt to assets ratio -earnings per share -All of these

earnings per share

Which of the following a measure of profitability? -working capital -All of these -current ratio -earnings per share -debt to assets ratio.

earnings per share

It is assumed that the activities of a company can be distinguished from the activities of its owners. This assumption is known as the -monetary unit assumption -economic entity assumption -going concern assumption -hazard assumption -periodicity assumption

economic entitiy assumption

A corporation reported $35 million of sales but it had only $20 million of sales. It intentionally overstated its sales. Which of the following qualities of useful information has this company most likely violated? -Relevance -Faithful representation -Consistency -Comparability -Periodicity

faithful representation

Which of the following is an example of an intangible asset? -Land -Goodwill -Accounts receivable -Prepaid expenses -Cash

goodwill

Issuing new shares of common stock will -increase retained earnings -decrease retained earnings -decrease common stock -increase liabilities -increase common stock.

increase common stock The issuance of common stock increases the common stock account; it does not affect retained earnings

The ability of a business to pay obligations that are expected to become due within the next year or operating cycle is -wealth -capitalization -profitability -liquidity -leverage

liquidity

Which of the following describes a company's ability to pay its obligations that are expected to become due within the next year or operating cycle whichever is longer? -Solvency -Liquidity -Economy -Profitability -Working capital

liquidity

The following ratios are available for Alpha Inc. and Omega Inc. Alpha Inc. Omega Inc. Current ratio 1.2 1.5Earnings per share $1/share $1.5/share Compared to Omega Inc., Alpha Inc. has -lower profitability -lower liquidity -higher solvency -higher liquidity -lower solvency.

lower liquidity Do not compare earnings per share (EPS) of one company to a different company

The economic entity assumption states that economic events -must be reported to the Securities and Exchange Commission -of every entity can be separately identified and accounted for -of different entities can be combined if all the entities are corporations -transactions can be expressed in terms of money -of a sole proprietorship are not to be distinguished from the personal economic events of its owners.

of every entitiy can be separately identified and account for

The primary objective of financial reporting is to provide financial information that is useful. According to the FASB, useful information should possess certain fundamental qualities. One such quality is relevance. Which of the following is a characteristic of relevance? -Consistency -Faithful representation -Predictive value -Periodicity -Verifiability

predictive value

Long-term creditors are usually most interested in evaluating -solvency -consistency -profitability -comparability -liquidity

solvency

Which of the following ratios measures the ability of the company to survive over a long period of time? -Solvency ratios -Current ratios -Liquidity ratios -Working capital -Profitability ratios

solvency ratios

Which financial statement is used by most corporations to compute year-end retained earnings? -Statement of sources and uses -Statement of stockholders' equity -None of these -Statement of cash flows -Balance sheet

statement of stockholders' equity

The notion that the life of a business can be divided into artificial time periods for financial reporting purposes is known as -the monetary unit assumption -the historical cost principle -the periodicity assumption -the economic entity assumption -the going concern assumption.

the periodicity assumption

Information is ____________ if independent observers, using the same methods obtain similar results. -relevant -neutral -faithful representation -verifiable -None of these

verifiable