AC 352 Homework 2 Review

Which of the following items should alert the analyst to the potential for manipulation when analyzing accounts receivable and the allowance for doubtful accounts? A company lowers its credit standards and also increases the balance in the allowance for doubtful accounts. An analysis of the "Valuation and Qualifying Accounts" schedule required in the Form 10-K reveals that the amounts recorded for bad debt expense are close in amount to the actual amounts written off each year. Accounts receivable is growing at a large rate and the allowance for doubtful accounts is decreasing. Sales, accounts receivable and the allowance for doubtful accounts are all growing at approximately the same rate.

Accounts receivable is growing at a large rate and the allowance for doubtful accounts is decreasing

Which of the following accounts would be classified as current assets on the balance sheet? Prepaid expenses, goodwill, long-term investments. Property, plant and equipment, inventory, goodwill. Accounts receivable, inventory, cash equivalents. Marketable securities, accounts payable, property, plant and equipment.

Accounts receivable, inventory, cash equivalents.

How is the balancing equation expressed

Assets= Liabilities + Stockholders' Equity

Which of the following statements is false? The common-size balance sheet reveals the capital and the debt structure of the firm. Common-size balance sheets allow for comparison of firms with different levels of total assets by introducing a common denominator. Each item on a common-size balance sheet is expressed as a percentage of sales. The common-size balance sheet reveals the composition of assets within major categories.

Each item on a common-size balance sheet is expressed as a percentage of sales.

What are three major cost flow assumptions used by U.S. companies in valuing inventory? FIFO, LIFO, double-declining balance. FIFO, LIFO, average market. FIFO, LIFO, average cost. FIFO, LIFO, actual cost.

FIFO, LIFO, Average Cost

Which of the following statements is true? The straight-line method of depreciation allocates a decreasing amount of depreciation expense each year. Fixed assets are reported at historical cost less accumulated depreciation on the balance sheet. Straight-line depreciation is the least used method for financial reporting purposes. The total amount of depreciation over the asset's life is larger when using an accelerated method of depreciation.

Fixed assets are reported at historical costs less accumulated depreciation on the balance sheet.

Which items would be classified as long-term debt? Deferred taxes, accrued expenses, treasury stock. Mortgages, convertible debentures, bonds payable. Accounts payable, unearned revenue, pension liabilities. Common stock, retained earnings, bonds payable.

Mortgages, convertible debentures, bonds payable.

What type of firm generally has the highest proportion of inventory to total assets? Retailers Service-oriented firms Manufacturers Wholesalers

Retailers

Which stockholders' equity account represents the sum of every dollar a company has earned since its inception, less any payments made to shareholders in the form of dividends? Preferred stock. Retained earnings. Accumulated other comprehensive income. Treasury stock.

Retained Earnings

Why is the method of valuing inventory important? Inventory valuation is based on the actual flow of goods. The method chosen determines the value of inventory on the balance sheet and the cost of goods sold expense on the income statement, two items which have a considerable impact on the financial position of the company. Companies desire to use the inventory valuation method that minimizes the cost of goods sold expense Inventories always account for more than 50% of total assets and therefore have a considerable impact on a company's financial position.

The method chosen determines the value of inventory on the balance sheet and the cost of goods sold expense on the income statement, two items which have considerable impact on the financial position of the company

Which of the following items would not be classified as cash equivalents? Trading securities. U.S. Treasury bills. Money market funds. Commercial paper.

Trading Securities

When will a firm create a goodwill account on its books? When one company acquires another company for a price in excess of the fair market value of the net identifiable assets acquired. When the firm donates property to charities. When it is determined that there has been a loss of value of long-term assets. When fixed assets are impaired.

When one company acquires another company for a price in excess of the fair market value of the net identifiable assets acquired.