Chapter 2 Self Test (ACCT220)

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

a. more meaningful financial information

Under IFRS, which of the following current assets section would be presented correctly in accordance with IFRS standards? a. short term notes receivable, accounts receivable, cash b. marketable securities, land, cash c. cash, intangibles, short term notes receivable d. short term investments, cash, land

a. short term notes receivable, accounts receivable, cash

Which of the following is NOT a characteristic of relevance? a. verifiability b. materiality c. confirmatory value d. predictive value

a. verifiability

Which of the following is NOT a fundamental quality of useful accounting information? a. verifiability b. relevance c. neutrality d. faithful representation

a. verifiability

Which of the following are constraints that allows a company to modify generally accepted accounting principles without jeopardizing the usefulness of the financial statements? a. consistency and comparability b. relevance and faithful representation c. timeliness and neutrality d. cost constraint

d. cost constraint

Which of the following is NOT an alternate means of expressing a ratio? a. proportion b. rate c. percentage d. dollar amount

d. dollar amount

If a company has the ability to obligations that are expected to become due within the next year or operating cycle whichever is longer, what is the term that describes this measure? a. working capital b. profitability c. solvency d. liquidity

d. liquidity

An item is _______ if it is likely to influence the decision of an investor or creditor. a. consistent b. faithful representation c. comparable d. material

d. material

Which of the following ratios measures the ability of the company to survive over a long period of time? a. current ratios b. liquidity ratios c. profitability ratios d. solvency ratios

d. solvency ratios

In what order are current assets listed? a. by liquidity b. by importance c. by longevity d. alphabetically

a. by liquidity

Consistency means that a company uses the same accounting principles and methods as the other companies in the same industry. True or false?

False

Current assets are economic resources that are expected to be converted to cash or used up by the business within one year or the normal operating cycle, whichever is shorter. True or false?

False

Going concern is the qualitative characteristic of accounting information that allows a statement reader to compare a company's performance from one year to the next. True or false?

False

The monetary unit assumption assures that all important information needed by investors, creditors, and managers is contained in the financial statements. True or false?

False

The current ratio is a liquidity ratio that is computed as current assets divided by current liabilities. True or false?

True

What is the primary accounting standard-setting body in the U.S.? a. Financial Accounting Standards Board b. IFRS c. Securities and Exchange Commission d. Public Company Accounting Oversight Board

a. Financial Accounting Standards Board

What organization issues International Financial Reporting Standards? a. International Accounting Standards Board b. Financial Accounting Standards Board c. International Auditing Standards Committee d. IFRS

a. International Accounting Standards Board

What are generally accepted accounting principles? a. a set of accounting rules and practices that have authoritative support b. usually established by the Internal Revenue Service c. the guidelines used to resolve ethical dilemmas d. fundamental truths that can be derived from the laws of nature

a. a set of accounting rules and practices that have authoritative support

Which of these measures is an evaluation of a company's ability to pay current liabilities? a. earnings per share b. current ratio c. both earnings per share and current ratio d. none of these answer choices are correct

b. current ratio

Which is an indicator of profitability? a. current ratio b. earnings per share c. debt to total assets ratio d. free cash flow

b. earnings per share

Under IFRS, which of the following selections properly refer to what GAAP signifies as a "balance sheet"? a. statement of balance b. statement of financial position c. statement of financial resources d. statement of financial wherewithal

b. statement of financial position

Which of the following is an example of an intangible asset? a. Accounts receivable b. Trademarks c. Prepaid expenses d. Property, plant, and equipment

b. trademarks

What is measured by current assets minus current liabilities? a. solvency b. working capital c. profitability d. cash flow

b. working capital

A company purchased a tract of land on which it expects to build a production plant on in approximately five years. During the 5 years before construction, the land will be idle. In what classification should the land be reported? a. Property, Plant, and Equipment b. Land expense c. A long-term investment d. An intangible asset

c. A long-term investment

Issuing new shares of common stock will a. increase retained earnings b. decrease retained earnings c. increase common stock d. decrease common stock

c. increase common stock

Which one of the following did NOT affect retained earnings? a. net income b. net loss c. issuance of common stock d. dividends

c. issuance of common stock

Which of the following is considered property, plant, and equipment on a classified balance sheet? a. supplies b. investment in Intel Corporation stock c. land d. copyright

c. land

Earnings per share is computed by dividing net income a. by the average common shares outstanding b. by the ending common shares outstanding c. less preferred stock dividends by the average common shares outstanding d. less preferred stock dividends by the ending common shares outstanding

c. less preferred stock dividends by the average common shares outstanding

What will vary between countries when statements are prepared using IFRS? a. the number of shares outstanding b. accounting time period c. monetary unit d. faithful representation

c. monetary unit

Which of the following is NOT classified as a current asset? a. prepaid expenses b. accounts receivable c. patents d. inventory

c. patents

Under IFRS, what is the label used for common stock? a. share common stock b. common shares c. share capital d. ordinary shares

c. share capital

Which statement is used by most corporations instead of the retained earnings statement? a. statement of owners' equity b. statement of cash flows c. statement of stockholders' equity d. balance sheet

c. statement of stockholders' equity

What is the primary criterion by which accounting information can be judged? a. consistency b. predictive value c. usefulness for decision making d. comparability

c. usefulness for decision making

The correct order of presentation in a classified balance sheet for the following current assets is

cash, accounts receivable, inventories, prepaid insurance

Which of the following is the correct order for listing current assets on the balance sheet?

cash, short-term investments, accounts receivable, inventories, prepaid expenses

In a classified balance sheet, how are assets usually classified?

current assets, long term investments, property, plant & equipment, and intangible assets

Which of the following does NOT properly reflect a financial ratio? a. 18.4% b. 7:1 c. $0.60 per dollar d. $7,200

d. $7,200

What are the accounting rules that have substantial authoritative support and are recognized as a general guide for financial reporting purposes in the U.S.? a. Generally accounting principles b. Generally accepted auditing principles c. Generally accepted accounting standards d. Generally accepted accounting principles

d. Generally accepted accounting principles

For what purpose might a company use free cash flow? a. pay additional dividends b. acquire property, plant, and equipment c. pay off debts d. all of the answer choices are correct

d. all of the asnwer choices are correct