ACCT 2113 Final

Gains and losses on the sale of long-term assets represent common ________________ items needing adjustment under the indirect method.

non-operating

When adjusting the bank balance in a bank reconciliation, which item must be subtracted from the bank balance?

outstanding checks

Changes to current assets and current liabilities require adjustment of net income under the indirect method because

Related cash may be higher or lower than the accrued amount included in net income

The asset turnover ratio provides an indication of how efficiently a company uses all of its assets to generate ___________.

revenue

A company's ability to pay its long-term debt is referred to as:

Solvency

The average collection period is an estimate of

The number of days the average account receivable balance is outstanding

What does the inventory turnover ratio measure?

the average number of times inventory is sold during a period

Amortization of intangible assets is treated the same way as the depreciation of tangible assets on the statement of cash flows using the indirect method.

True

Which of the following scenarios is consistent with a high current ratio?

a high level of inventory

Return on assets is calculated as net income divided by

average total assets

Employee purchases should be included in the accounting records

by the end of the accounting period

The receivables turnover ratio offers an indication of how quickly a company is able to

collect its accounts receivables

When adjusting the company's cash account balance in a bank reconciliation, which item must be added to the cash account balance?

collection of funds by the banks

Accounting practices that result in lower-income, lower assets, and increased liabilities are referred to as ________________ accounting.

conservative

Cash receipts that have been recorded in the company's accounting records but are not yet recorded by the bank are

deposits outstanding

The profit margin ratio indicates the amount of net income achieved for

each dollar of sales

if a company records a transaction before the bank records the same transaction, this is called a __________ difference.

timing

A non-sufficient funds check to require an adjustment to the cash balance was written:

to the company preparing the bank reconciliation

The profit margin ratio indicates

what amount of sales goes toward net income

Average days in inventory is calculated as 365 days divided by the

inventory turnover ratio

A high inventory turnover ratio indicates that

inventory was sold frequently during the year

This month's bank statement shows interest earned of $45. How would this item be treated on the bank reconciliation?

it would be added to the company balance

An increase in accounts receivable indicates that the company collected _______ cash than the amount of sales revenue.

less

In order to determine cash flows from financing activities, we need to examine changes to

long-term liability and stockholders' equity accounts

Non-cash items, non-operating items, and changes in current assets and liabilities are necessary adjustments to _________ to prepare the operating section for the indirect format of the statement of cash flows.

net income

The starting point for preparing the operating activities section using the indirect method is

net income

Which term best describes a company having a suitable amount of cash or easily-convertible assets to pay incurred current liabilities?

Liquidity

Depreciation expense and amortization expense represent ________ items requiring adjustments to net income under the indirect method.

Non-cash

The two types of adjustments to net income for the indirect method are adjustments for

- Changes in operating assets and liabilities during the period that affected cash and were not in net income - Components of net income that do not affect cash

Which of the following practices are conservative?

- Estimating a larger allowance for uncollectible accounts - Depreciating an asset over a shorter estimated service life

Which statements about the inventory turnover ratio are correct?

- It indicates how quickly inventory is sold - It shows the number of times the average inventory balance is sold during a reporting period.

Which information regarding the receivables turnover ratio is true?

- It shows the number of times during a period that the average accounts receivable balance is collected. - It provides an indication of a company's efficiency in collecting receivables

Which of the following items will require a journal entry following a bank reconciliation?

- NSF checks - notes collected by the bank

Adjustments to the net income in calculating operating cash flows include:

- Non-operating items - Non-cash items - Changes in current assets and current liabilities

The following steps are necessary to reconcile the bank balance and cash account balance:

- adjust the bank's cash balance - adjust the company's cash balance - record items that reconcile the company's cash balance

The following would be added to the net income in order to prepare the operating activities section of a statement of cash flows

- loss on sale of land - depreciation expense - a decrease in current asset

A high inventory turnover ratio could be caused by

- low ending inventory levels - high cost of goods sold

Which of the following are profitability ratios?

- profit margin - return on equity - price-earnings ratio - gross profit ratio - return on assets

What is the formula to compute the average days in inventory?

365/inventory turnover ratio

Which is typically preferable for a company?

A short average collection period

In a bank reconciliation, the electronic funds transfer (EFT) received by the bank from a customer's note receivable owed to the company is

Added to the company's cash balance

A check that is NSF (non-sufficient funds) is a check that

Cannot be paid because the account does not contain enough funds

Cash disbursements that have been recorded in the company's accounting records but are not yet recorded by the bank are called

Checks outstanding

Clancy Corp. establishes a petty cash fund for $200. The entry required is to

Debit Petty Cash $200 Credit Cash $200

In a bank reconciliation, the bank's charge of $10 for checking account fees is

Deducted from the company's cash balance

When adjusting the bank balance in bank reconciliation, which item must be added to the bank balance?

Deposits outstanding