BUS1-121A Intermediate Accounting Chapter 4

Black Company has the following information: Receivable turnover 6 Inventory turnover 5 Asset turnover 3 Net credit sales $500,000 What is the average collection period? -24.3 days -90 days -50 days -60.8 days -30 days

60.8 (365/6)

The financial statement that provides information about cash receipts and cash disbursements for the period is the -balance sheet -statement of cash flows -income statement -statement of retained earnings

-statement of cash flows

What do high turnover ratios suggest? -more assets are required to maintain a given level of activity. -the company is not effectively managing its assets. -the company is more efficient in managing its assets. -fewer assets are required to maintain a given level of activity.

-the company is more efficient in managing its assets. -fewer assets are required to maintain a given level of activity.

Activity ratios measure -the solvency of a company. -the profitability of a company. -a company's efficiency in using its assets. -the liquidity of a company.

a company's efficiency in using its assets.

The statement of cash flows is useful because -accrual-based income is not an indication of cash flows. -it is prepared on an accrual basis. -it provides more accurate information than the balance sheet. -it is more accurate in measuring net income for the period.

accrual-based income is not an indication of cash flows

Asset turnover ratio is net sales divided by ____. -average accounts receivable -average total assets -average noncurrent assets -average current assets

average total assets

Net income is part of -comprehensive income -gross income -cost of goods sold -gross margin

comprehensive income

Cash borrowed or paid to a creditor is an example of a(n) ____ activity. -operating -investing -financing

financing

The type of activities related to the external financing of the company are _____ activities. -operating -investing -financing

financing

A change in accounting principle is a change -in the corporation's reporting structure. -in estimating valuation accounts. -in the composition of companies -in the corporation. from one acceptable accounting method to another.

from one acceptable accounting method to another

Sales of services for cash and collection on account are classified as cash ____, while payment on account and payment of salaries are classified as cash ____ from operating activities on the statement of cash flows.

inflows; outflows

Inflows and outflows of cash related to the acquisition and disposition of long-lived assets used in operations and investment assets are what type of cash flow? -operating -financing -investing

investing

The majority of errors discovered are not ______ and are corrected in the year discovered. (Enter only one word.)

material

What is the formula for the asset turnover ratio? -average assets divided by net sales. -net sales divided by average accounts receivable. -net sales divided by average total assets.

net sales divided by average total assets

The calculation of ____ income omits certain gains and losses that are instead included in the boarder perspective of other ____ income.

net; comprehensive

When a company changes from one acceptable accounting method to another, this is treated as a change in accounting -principle -estimate -entity -objective

principle

Profit margin on sales, return on assets, and return on shareholders' equity are commonly used ____ ratios. (Enter only one word.)

profit

Significant noncash investing and financing activities are disclosed because they -provide more complete information. -are classified as an extraordinary item. -occur in the normal course of business. -are part of operating activities.

provide more complete information

Operating, investing, and financing activities are found on which financial statement? -income statement -statement of cash flows -balance sheet -statement of operations

statement of cash flows

The average collection period is an estimate of -the average length of time to make a sale. -how many times on average a sale is made. -the number of days of inventory that have not yet been paid. -the number of days the average account receivable balance is outstanding.

the number of days the average account receivable balance is outstanding

True or false: Reporting comprehensive income can be done with a single, continuous statement or in two separate, but consecutive statements.

true

Basic earnings per share is calculated as net income available to common shareholders divided by ____ -ending retained earnings -average total assets average stockholders' equity -weighted average common shares outstanding

weighted average common shares outstanding

Which of the following items are classified as cash inflows from operating activities on the statement of cash flows? (Select all that apply.) -collection on account -interest received on notes receivable -borrowing from bank -issuance of common stock sale of building

-collection on account -interest received on notes receivable

Prague Company has sales of $1,000,000 each year, but the average collection period has increased from 45 days to 65 days. What are the most likely reasons for the change in average collection period? (Select all that apply.) -The company has become more lax in its credit policies and is extending credit terms to maintain customers. -The company has incurred additional marketing expenses to attract customers. -The company has tightened its credit policies for its customers. -Customers are not paying in a timely manner

-the company has become more lax in its credit policies and is extending credit terms to maintain customers -customers are not paying in a timely manner

Which of the following ratios are activity ratios? -asset turnover -profit margin -inventory turnover -average collection period -current ratio

-asset turnover -inventory turnover -average collection period

The DuPont framework shows that return on equity can be calculated by multiplying which ratios? -return on equity -gross margin -asset turnover -profit margin -equity multiplier

-asset turnover -profit margin -equity multiplier

Accumulated other comprehensive income (AOCI) is found on what financial statement? -Income statement -Statement of cash flows -Balance sheet

-balance sheet

Calculating and monitoring the average collection period over time can be useful because ____. (Select all that apply) -it highlights changes in how efficiently a company collects cash from customers -it provides a measure of a company's profitability -it can signal a future increase in bad debts -it provides reasons why collection periods are increasing or decreasing

-it highlights changes in how efficiently a company collects cash from customers -it can signal a future increase in bad debts

Linden has the following information: Sales $100,000 Cost of goods sold 60,000 Operating Expenses 10,000 Total assets 700,000 Accounts receivable 30,000 Assuming that the company has no interest or tax expense, what is Linden's profit margin? -40% -30% -70% -14.3%

30%

The ratio that provides an indication of how efficiently a company utilizes all of its assets to generate revenue is referred to as the ____ turnover ratio.

asset

The ratio that provides an indication of how efficiently a company utilizes all of its assets to generate revenue is referred to as the ____ turnover ratio. (Enter only one word.)

asset

Cash flows from investing activities include inflows and outflows of cash related to the acquisition and disposition of long-term ____ used in operations. (Enter only one word.)

assets

The direct method for preparing the statement of cash flows reports -cash received and cash paid from operating activities. -cash equivalents adjusted for -net income effects. -net income with adjustments. changes in retained earnings with adjustments

cash received and cash paid from operating activities

The operating activities section on the statement of cash flows includes the elements of net income on a(n) ___ basis rather than a(n) ___ basis. (Enter one word per blank.)

cash; accrual

The receivables turnover ratio offers an indication of how quickly a company is able to -collect its accounts receivable. -pay for its inventory. -generate cash from financing activities. -generate revenue.

collect its accounts receivable

The direct method for preparing the statement of cash flows ignores transactions that have no cash flow effect, such as ____. -depreciation -issuance of stock -sale of equipment -payments by customers

depreciation

The two acceptable methods under U.S. GAAP for preparing the statement of cash flows are the ____ method and the ____ method. (Enter one word per blank.)

direct; indirect

In preparing the operating section of the statement of cash flows, the ___ method begins with net income and adjusts for items that affect cash but are not included in net income, whereas, the ___ method converts each line item in income from operations to a cash basis. (Enter one word per blank.)

indirect; direct

The asset turnover ratio provides an indication of how efficiently a company uses all of its assets to generate ____. (Enter one word per blank)

revenue

Which of the following situations qualifies for treatment as a change in accounting principle? (Select all that apply.) -Change from direct write-off method to allowance method. -Change from percent-of-completion to completed contract method. -Change from LIFO to FIFO. -Change from aging method to percent-of-credit sales method for bad debts.

-change from LIFO to FIFO -change from percent-of-completion to completed contract method

Compute the receivables turnover ratio using the following information: Net credit sales is $200,000 for year 2. Total assets at the end of years 1 and 2 were $800,000 and $1,200,000, respectively. Accounts receivable at the end of years 1 and 2 were $40,000 and $60,000, respectively. -0.20 -4 -5 -0.25

4; $200,000/((40,000+60,000)/2)

Mint Corp. has net credit sales of $300,000 for year 2. Mint has the following information in its accounting records: End of Year 1 Accounts receivable $ 50,000 Inventory $80,000 Total assets $400,000 End of Year 2 Accounts receivable $70,000 Inventory $120,000 Total assets $500,000 The receivables turnover ratio is Multiple choice question. -0.60 -3 -0.23 -0.67 -5

5

The statement of cash flows is useful because... -it is prepared on an accrual basis -it provides more accurate information than the balance sheet -it is more accurate in measuring net income for the period -accrual-based income is not an indication of cash flows

accrual-based income is not an indication of cash flows

Other comprehensive income is reported in the current reporting period on the income statement or as an addition to the income statement, and ____ other comprehensive income is reported on the balance sheet. (Enter only one word.)

accumulated

Which of the following is disclosed on the balance sheet? -accumulated other comprehensive income -earnings per share -net income -other comprehensive income

accumulated other comprehensive income

What type of ratios measure a company's efficiency in managing its assets? -Liquidity -Activity -Solvency -Profitability

activity

When a company discovers an immaterial error in a year subsequent to the year the error is made, what is the proper course of action? -Correct the error in the year discovered. -Correct the error in the year discovered and include a note to the financial statements. -Ignore the error.

correct the error in the year discovered

Where are the elements of net income found on a cash basis rather than an accrual basis? -In the statement of earnings -Investing activities section of the statement of cash flows -Operating activities section of the statement of cash flows -In the statement of operations

operating activities section of the statement of cash flows

A decrease in accounts payable represents a cash ______ from operating activities; a decrease in accounts receivable represents a cash _____ from operating activities. -inflow; outflow -outflow; inflow -outflow; outflow -inflow; inflow

outflow; inflow

The three key components to the DuPont framework include -financial leverage -marketability -liquidity -activity -profitability

-financial leverage -activity -profitability

The classifications on the statement of cash flows are cash flows from (Select all that apply.) -financing activities. -investing activities. -operating activities. -business activities. -discontinued activities

-financing activities -investing activities -operating activities

In order to provide more complete information, U.S. GAAP allows that any significant noncash investing and financing activities may be reported (Select all that apply.) -in the notes to financial statements -in other comprehensive income -in the statement of owners' equity -on the face of the statement of cash flows

-in the notes to financial statements -on the face of the statement of cash flows

Which of the following are acceptable methods for reporting comprehensive income? (Select all that apply.) -in two consecutive statements - income statement and shareholders' equity statement -in two consecutive statements - income statement and comprehensive income statement -in one single statement of shareholders' equity -In one single statement of comprehensive income

-in two consecutive statements - income statement and comprehensive income statement -in one single statement of comprehensive income

Which information regarding the receivable turnover ratio is true? (Select all that apply.) -It provides an indication of a company's efficiency in collecting receivables. -It shows the number of days it takes to collect accounts receivable. -It shows the number of times during a period that the average accounts receivable balance is collected. -The lower the ratio, the better the company is performing.

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

The statement of cash flows is useful because (select all that apply) -it reveals the company's ability to generate positive cash flow from its normal operations -it provides a more accurate prediction of the company's ability to generate future cash flows than income does -it provides information about liquidity

-it reveals the company's ability to generate positive cash flow from its normal operations -it provides information about liquidity

Which of the following are commonly used to assess a company's profitability? -profit margin on sales -return on assets -current ratio -return on equity -quick ratio

-profit margin on sales -return on assets -return on equity

The purpose of the statement of cash flows includes which of the following? (Select all that apply.) -Provide information about cash disbursements during a period. -Provide information about cash receipts on a specific date. -Provide information about cash receipts during a period. -Provide information about cash disbursements on a specific date.

-provide information about cash disbursements during a period -provide information about cash receipts during a period

Which of the following may provide useful information about a company's ability to continue to generate a high level of sales and collect its receivables in a timely manner? (Select all that apply.) -Receivable turnover ratio -Gross profit margin -Asset turnover ratio -Average collection period

-receivable turnover ratio -average collection period

Accumulated other comprehensive income represents -extraordinary items reported in earnings of the period. -gains and losses reported in net income for the period. -the total of other comprehensive income to date. -the change in retained earnings from net income of the period.

-the total of other comprehensive income to date

The formula for average collection period is -365 divided by the receivable turnover ratio. -365 divided by average accounts receivable. -365 divided by net credit sales. -net credit sales divided by average accounts receivable.

365 divided by the receivable turnover ratio