Accounting 210 Exam 2

Green Corp. reported current assets of $193,000 and current liabilities of $137,000 on its most recent balance sheet. The working capital is:

$56,000

A company's sales in Year 1 were $250,000 and in Year 2 were $287,500. Using Year 1 as the base year, the percent change for Year 2 compared to the base year is:

15%

David Company reported net sales of $1,200,000, average Accounts Receivable of $78,500, and net income of $51,025. The accounts receivable turnover ratio is:

15.3 times

External users of financial information:

Are not directly involved in operating the company.

The purposes of financial statement analysis include all of the following except:

Assuring that the company will not be the subject of an IRS audit.

The contract between the bond issuer and the bondholders identifying the rights and obligations of the parties, is called a(n):

Bond indenture

A disadvantage of bond financing is:

Bonds pay periodic interest and the repayment of face value at maturity

Bonds that have an option giving the issuer the right to retire them at a stated dollar amount before maturity are known as:

Callable bonds

On a common sized statement, all items are stated as a percent of total assets or equities at year end? True or False

False. A common sized statement shows each item on the statement as a percent of one key item on the statement

In most business organizations, the chief accountant is called the treasurer. True or False?

False. Chief accountant is the controller

Cost of oil used to lubricate factory machinery and equipment is an example of a direct materials cost. True or False

False. Indirect Materials. Direct Materials are costs that can be directly traced to the cost object.

Comparative financial statements are designed to compare the financial statements of two or more corporations? True or False

False. It's a set of comparative financial statements that presents a company's financial performance for two or more consecutive periods in side-by-side columns. (compares one company to itself, not two companies)

Period costs include direct materials and direct labor. True or False

False. It's any cost that cannot be capitalized into prepaid expenses, inventory, or fixed assets. Examples: Selling expenses Advertising expenses Depreciation expense General and administrative expenses Office rent

Managerial accounting must be prepared according to generally accepted accounting principles. True or False

False. Managerial accounting applies to service, and manufacturing companies

In the vertical analysis of a balance sheet, the base for current liabilities is total liabilities. True or False

False. The base for current liabilities is total liabilities and owner's equity.

Vertical analysis refers to the financial statements of a single company over several years. True or False

False. Vertical Analysis is a financial analysis tool that lists each line item on the financial statements as a percentage of its total category.

Goods that are part way through the manufacturing process, but not yet complete, are referred to as materials inventory? True or False

False. Work in Process Inventory

Secured bonds:

Have specific assets of the issuing company pledged as collateral

The comparison of a company's financial condition and performance across time is known as:

Horizontal analysis

Promissory notes that require the issuer to make a series of payments consisting of both interest and principal are:

Installment notes

Which of the following statements is true?

Interest on bonds is tax deductible

Which of the following is not included in the computation of the quick ratio?

Inventory

Financial reporting refers to:

The communication of financial information useful for decision making.

When a bond sells at a premium:

The contract rate is above the market rate

The analysis of increases and decreases in the amount and percentages of comparative financial statement items is referred to as horizontal analysis. True or False

True

The cost of a manufactured product generally consists of direct materials cost, direct labor cost, and factory overhead cost? True or False?

True

The cost of wages paid to employees directly involved in converting materials to finished product is classified as direct labor cost. True or False

True

The excess of current assets over current liabilities is referred to as working capital. True or False

True

The number of days sales in receivables is one means of expressing the relationship between average daily sales and accounts receivables. True or False

True

Using measures to assess a business's abilities to pay its current liabilities is called current position analysis. True or False

True

Corporate annual reports typically do not contain

an SEC (Securities and Exchange Commission) statement expressing an opinion

Which of the following are reported on the income statement as part of cost of goods sold?

cost of goods manufactured

Which of the following accounts will be found on the income statement?

cost of goods sold

Select the terms below that are product costs

factory utilities, direct materials used, direct labor used, indirect materials used, plant managers salary, indirect labor incurred, depreciation on factory machinery

All of the following are typically included in the management's discussions and analysis in annual reports except?

journal entries

The numerator of the rate earned on total assets ratio is?

net income plus interest expense

The purpose of an audit is to

render an opinion on the fairness of the statements

The current ratio is

used to evaluate a company's liquidity and short term debt paying ability

Tony Company's most recent balance sheet reported total assets of $1.9 million, total liabilities of $0.8 million, and total equity of $1.1 million. Its Debt to Equity ratio is:

0.73

The ability to provide financial rewards sufficient to attract and retain financing is called:

Profitability

Bonds that mature at more than one date with the result that the principal amount is repaid over a number of periods are known as:

Serial bonds

The ability to generate future revenues and meet long-term obligations is referred to as:

Solvency

A bondholder that owns a $1,000, 10%, 10-year bond has:

The right to receive $1,000 at maturity

What is the purpose of the statement of cost of goods manufactured?

To determine the amounts transferred to finished goods.

A cost object indicates how costs are related or identified. True or False

True

Conversion cost is the combination of direct labor and factory overhead costs. True or False

True

Depreciation on factory plant and equipment is an example of factory overhead cost. True or False

True

Factory overhead is an example of a product cost. True or False

True

Goods that are partially completed by a manufacturer are

Work in Process Inventory

Which of the following is required by the Sarbanes Oxley Act?

a report on internal control