Accounting Chapters 8, 9, 10

Which of the following is not a principal category of "Other operating expenses" frequently reported on the income statement?

Cost of goods sold

Which of the following accounts/captions are not ever included in the calculation for Gross Profit?

General and Selling Expenses.

If a firm sells treasury stock for more than its cost:

additional paid-in capital is increased.

The concept of matching revenue and expense refers to the fact that:

all costs incurred in the process of earning revenues during a period are recorded as expenses in that period.

Corporate governance includes concerns about:

all of the above.

In comparison to the stockholders' equity section of a corporation's balance sheet, owners' equity of a proprietorship or partnership:

all of the above.

In the statement of cash flows, an increase in the accounts receivable balance from the beginning of the period to the end of the period would:

be subtracted from net income because this means that revenues were more than cash collected.

Retained earnings represents:

cumulative net income of the firm since its beginning that has not been distributed to its stockholders in the form of dividends.

The impact of changing price levels on amounts reported in financial statements is:

encouraged, but not required to be described in the notes to the financial statements.

An audit conducted in accordance with generally accepted auditing standards includes each of the following except:

evaluation of the efficiency and effectiveness of management.

The notes to the financial statements:

explain the significant accounting policies of the company.

Preferred stock is used much less than long-term debt in the capital structure of most industrial and merchandising companies principally because:

for income tax purposes, dividends paid on preferred stock are not deductible, but interest on long-term debt is deductible.

Revenue may be recognized:

if a company trades inventory at its usual selling price for newspaper advertising.

The dollar amount of the common stock on the balance sheet of a corporation that has common stock with a par value is the number of shares:

issued, multiplied by the par value per share.

In most states, par value of issued shares represents:

legal capital.

The first caption in most income statements in annual reports is:

net sales

The notes to the financial statements:

should be referred to if more than a cursory, and perhaps misleading impression of a firm's financial position and its results of operations is to be achieved.

Recognition of revenue in accrual accounting requires:

that the revenue be realized or realizable, and earned.

When an entity changes its accounting from one generally accepted method to another generally accepted method:

the dollar effect of the change on both the balance sheet and income statement must be disclosed.

When a company splits its common stock 3 for 1:

the market value of the company's stock normally falls by two-thirds.

Significant accounting policies are described in the notes to the financial statements because:

the reader must be aware of which of the alternative generally accepted accounting practices have been used.

The statement of changes in retained earnings for the year shows:

the retained earnings balance at the beginning of the year.

When a stock dividend is declared and issued:

total stockholders' equity does not change.

A firm's cash dividends were $1.98 per share of common stock for calendar 2016. In 2017, the stock was split 3-for-1, and in 2018 a 10% stock dividend was issued. Dividends per share for 2016, to be reported in the firm's annual report for 2018, are:

$0.60 Stock split occurred in 2017 so $1.98 / 3 = $0.66. Then in 2018 there was a stock dividend of 10% so $0.66 / 1.1 = $060 per share, as reported in 2018.

For 2016, Skresso Co. reported $1.82 of earnings per share of common stock. During 2017, the firm had a 4% common stock dividend. The 2016 earnings per share to be reported in the annual report for 2017 are:

$1.75 $1.82 / 1.04 = $1.75 per share

An item that cost $120 is to be sold for a price that will yield a gross profit ratio of 20%. The selling price should be:

$150 Selling Price = Cost of product/(1 − Desired gross profit ratio) = $120/80% = $150

Braco has 80,000 shares of $100 par value common stock outstanding, and 20,000 shares in the treasury. The number of additional shares that would be issued in a 5% stock dividend is:

5,000 (80,000 + 20,000) × 5% = 5,000 shares