Accounting Exam #3 True/False

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A callable bond allows the holder to repay the bonds before their scheduled maturity date at a specified call price

False

A company with a current ratio of 2.0 is considered more liquid than one with a current ratio of 3.0

False

A gain or loss is recorded on bonds retired at maturity

False

An increase in inventory represents an increase in cash

False

An increase in supplies represents an increase in cash

False

An increase in wages payable represents a decrease in cash

False

Common stock is listed before preferred stock in the balance sheet

False

Convertible bonds allow the borrower to convert each bond into a specified number of shares of common stock

False

Cumulative preferred stock means that dividends accumulate interest during the year

False

For accounting purposes, stated value is treated differently than par value

False

Gaines/losses on the early extinguishment of debt are reported as part of operating income in the income statement

False

Investing activities centers on the long-term assets shown on the balance sheet and does not include any short-term investments shown under current assets on the balance sheet

False

Profit margin and gross margin are the same thing

False

Purchases and sales of long-term investments for the period should be netted for disclosure in the investing activities section of the statement of cash flows

False

Stock splits and large stock dividends have the same effect on a company's retained earnings and total stockholder's equity

False

The CEO of a company is elected by a vote of the shareholders

False

The activity on the balance sheet to be presented in the financing activities section of the statement of cash flows is based on an analysis of stockholders' equity only

False

The balance in the warranty liability account is always equal to warranty expense

False

The cash payment each period is calculated as the carrying value times the market rate

False

The income statement indicated a business's success or failure in earning an income from its operating activities, it also reflects the inflow and outflow of cash from operating activities

False

The mixture of debt and equity securities is generally the same for most companies

False

The purchase of long-term assets by issuing debt is recorded as both an investing activity and financing activity

False

The purchase of treasury stock represents an increase in cash

False

The word preferred in the phrase preferred stock means that an owner of preferred stock has some advantages over a bondholder

False

We can calculate the issue price of a bond as the face amount plus the total periodic interest payments

False

We record gain contingencies when the gain is probable and the amount is reasonably estimatable

False

We record interest expense in the period in which we pay it, rather than in the period we incur it

False

When presenting decreases in long-term investments in the investing activities section of the statement of cash flows, the amount reflected equals the amount of the gain or less from the transaction

False

The statement of cash flows explains the difference between net income as shown on the income statement and the net cash flows generated from operations

True

We report interest paid on bonds or notes payable in operating activities rather than financing activities

True

When bonds are called for retirement, any excess of the bonds' call price over the bonds' carrying value is reported as a loss on the income statement

True

Cash flow generally limits the amount of debt a business can finance

True

Contributed capital is the amount stockholders have invested in the company

True

If bonds are retired by an issuer by purchase on the open market at a price below the bonds' carrying value, a gain will result

True

A company credits Additional Paid-in-Capital for the portion of the cash proceeds above par value received for the issuance of stock

True

A debt to equity ratio of 1.0 means that half of the company's assets are financed by creditors

True

A decrease in accounts receivable represents a increase in cash

True


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