Accounting Ch. 2

Whispering Winds Corp. has current assets of $1490000 million and current liabilities of $850000. If they pay $363000 of their accounts payable what will their new current ratio be?

($1490000 - $363000) ÷ ($850000 - $363000) = $2.3:1 [(Cur. assets - A/P paid) ÷ (Cur. liab.- A/p paid) Answer: 2.3:1

Liabilities are generally classified on a balance sheet as

*Current liabilities *Long-term liabilities

What are classified as current assets?

- Inventory - Prepaid expenses - Accounts receivable

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

-Current assets -Long-term investments -Property plant and equipment -Intangible assets

In a classified balance sheet, assets are usually classified as:

1. Current assets 2. Long-term investments 3. Property, plant, and equipment 4. Intangible assets

_____________, ______________, and ______________ expresses a ratio.

1. Rate 2. Percentage 3. Proportion

Splish Brothers Inc. Balance Sheet December 31, 2017 Cash $71500 Accounts payable $138000 Accounts receivable 90000 Salaries and wages payable 12000 Inventory 145000 Mortgage payable 160000 Prepaid insurance 82500 Total liabilities $310000 Stock investments (long-term) 199000 Land 195000 Buildings $217000 Common stock $251000 Less: Accumulated depreciation (66000) 151000 Retained earnings 476500 Trademarks 103500 Total stockholders' equity $727500 Total assets $1037500 Total liabilities and stockholders' equity $1037500 A. $389000 B. $244000 C. $588000 D. $310000

A. $389000

What are generally accepted accounting principles? A. A set of accounting rules and practices that have authoritative support. B. Fundamental truths that can be derived from the laws of nature. C. Usually established by the Internal Revenue Service D. The guidelines used to resolve ethical dilemmas.

Answer: A (A set of accounting rules and practices that have authoritative support

Which of the following does not properly reflect a financial ratio? A. 7:1 B. $7,200 C. $0.60 per dollar D. 18.4%

Answer: B ($7,200)

What is the primary accounting standard-setting body in the United States? A. Public Company Accounting Oversight Board (PCAOB) B. IFRS C. Financial Accounting Standards Board D. Securities and Exchange Commission

Answer: C (Financial Accounting Standards Board)

Which one of the following does not affect retained earnings? A. Dividends B. Net income C. Issuance of common stock D. Net loss

Answer: C (Issuance of common stock)

Which statement is used by most corporations instead of the retained earnings statement? A. Balance sheet B. Statement of owners' equity C. Statement of cash flows D. Statement of stockholders' equity

Answer: D (Statement of stockholder's equity)

Current liabilities are $10,000, long-term liabilities are $20,000, common stock is $50,000, and retained earnings totals $70,000. How much is total stockholders' equity? A. $140,000 B. $70,000 C. $150,000 D. $120,000

Common stock of $50,000 plus retained earnings of $70,000 equals $120,000 in stockholders' equity. Answer: D.$120,000

Different companies using the same accounting principles is an application of

Comparability

The following ratios are available for Leer Inc. and Stable Inc. Current Ratio Debt to Assets Ratio Earnings per Share Leer Inc. 2:1 75% $3.50 Stable Inc. 1.5:1 40% $2.75 Compared to Stable Inc., Leer Inc. has A. Higher liquidity, lower solvency, and higher profitability. B. Higher liquidity, higher solvency, but profitability cannot be compared based on the information provided. C. Lower liquidity, higher solvency, and higher profitability. D. Higher liquidity and lower solvency, but profitability cannot be compared based on the information provided

D. Higher liquidity and lower solvency, but profitability cannot be compared based on the information provided

A measure of profitability is the:

Earnings per share

The following balances and amounts were taken from the financial statements of Ortiz, Inc. The data are presented in alphabetical order. Accounts payable $35,000 Cash provided by operations $90,000 Accounts receivable 37,500 Net income 36,000 Average common shares 20,000 Salaries and wages payable 8,000 Average current liabilities 110,000 Stockholders' equity 240,000 Average and total assets 600,000 Total current assets 300,000 Average total liabilities 320,000 Total current liabilities 120,000 Cash 100,000 How much is earnings per share? A. $1.20 B. $0.15 C. $0.56 D. $1.80

Earnings per share is the result of net income (less preferred dividends) being divided by the average common shares; $36,000 / 20,000 shares = $1.80. Answer: D. $1.80

Net income is $200,000, preferred dividends are $20,000, and average common shares outstanding are 50,000. How much is earnings per share? A. $3.60 B. $0.28 C. $0.25 D. $4.00

Earnings per share of $3.60 is calculated by dividing earnings available to common stockholders ($200,000 - $20,000) by the average number of common shares outstanding (50,000) = $3.60/share. Answer: A. $3.60

A company can change to a new method of accounting if management can justify that the new method results in terms of:

More meaningful financial information

The agency of the United States Government that oversees the U.S. financial markets is the

Security Exchange Commission

The following balances and amounts were taken from the financial statements of Ortiz, Inc. Capital expenditures $55,000 Cash provided by operations $ 90,000 Cash 100,000 Net Income 80,000 Cash dividends paid 20,000 How much is free cash flow?

Subtract the capital expenditures and cash dividends from cash provided by operations Answer: $90,000 - $55,000 - $20,000 = $15,000

The following balances and amounts were taken from the financial statements of Ortiz, Inc. Accounts payable $35,000 Cash provided by operations $90,000 Accounts receivable 37,500 Net income 36,000 Average common shares 20,000 Salaries and wages payable 8,000 Average total assets 2000,000 Stockholders' equity 240,000 Average and total assets 600,000 Total current assets 300,000 Average total liabilities 320,000 Total current liabilities 120,000 Cash 100,000 How much is Ortiz's current ratio?

The current ratio is total current assets divided by total current liabilities Answer: ($300,000 / $120,000) = 2.5 to 1.

The following balances and amounts were taken from the financial statements of Ortiz, Inc. Accounts payable $35,000 Cash provided by operations $90,000 Accounts receivable 37,500 Net income 36,000 Average common shares 20,000 Salaries and wages payable 8,000 Average current liabilities 110,000 Stockholders' equity 240,000 Total assets 600,000 Total current assets 300,000 Average total assets 320,000 Total current liabilities 120,000 Cash 100,000 How much is the debt to assets ratio? A. 40% B. 60% C. 20% D. 30%

The debt to asset ratio is total liabilities divided by total assets; $360,000 (total assets of $600,000 less stockholders' equity of $240,000) / $600,000 = 60%. Answer B. 60%

In 2017, Bombay Corporation had cash receipts of $21,000 and cash disbursements of $12,000. The company's ending cash balance at December 31, 2017 was $33,000. What was the beginning cash balance?

The ending balance plus cash disbursements less cash receipts equals the beginning balance. $33,000 + $12,000 - $21,000 = $24,000. Answer: $24,000

If accounting information has relevance, it is useful in making predictions about

The future events of a company.

At December 31, 2017, Shorts Company had retained earnings of $2,184,000. During 2017, the company issued stock for $98,000, and paid dividends of $34,000. Net income for 2017 was $402,000. How much was the retained earnings balance at the beginning of 2017? A. $2,552,000 B. $1,816,000 C. $1,914,000 D. $2,454,000

Working backwards, $X + $402,000 - $34,000 = $2,184,000. Therefore, beginning retained earnings = $1,816,000. Answer: B. $1,816,000

What is measured by current assets minus current liabilities?

Working capital

The following balances and amounts were taken from the financial statements of Ortiz, Inc. Accounts payable $35,000 Cash provided by operations $90,000 Accounts receivable 37,500 Net income 36,000 Average common shares 20,000 Salaries and wages payable 8,000 Average current liabilities 110,000 Stockholders' equity 240,000 Average and total assets 600,000 Total current assets 300,000 Average total liabilities 320,000 Total current liabilities 120,000 Cash 100,000 How much is working capital? A. $180,000 B. 2.50 C. $280,000 D. None of the answer choices are correct

Working capital is current assets minus current liabilities. $300,000 - $120,000 = $180,000. Answer: A. $180,000