Accounting
Which of the following is true regarding a company assuming more debt?
Assuming more debt can be good for the company as long as they earn a return in excess of the rate charged on the borrowed funds.
Serial bonds are:
Bonds that mature in installments.
When treasury stock is acquired, what is the effect on total stockholders' equity?
Decrease
The declaration and issuance of a stock dividend:
Does not change total assets, liabilities, or total stockholders' equity.
A bond issue with a face amount of $500,000 bears interest at the rate of 10%. The current market rate of interest is also 10%. These bonds will sell at a price that is:
Equal to $500,000.
Inventory does not include:
Equipment used in the manufacturing of assets for sale.
In a period of rising costs, which inventory valuation method would a company likely choose if they want to have the highest possible balance of inventory on the balance sheet?
FIFO
Which inventory method is better described as having a balance sheet focus and why is it considered as such?
FIFO; better approximates the value of ending inventory.
The amount of impairment loss is the excess of book value over:
Fair value.
A company that has average inventory of $500 and cost of goods sold of $2,000 would have an inventory turnover ratio of 0.25.
False
A corporation has lower taxes and less paperwork relative to sole-proprietorships and partnerships.
False
All states impose a state income tax.
False
Earnings per share is useful in comparing earnings performance across companies.
False
If a company has ending inventory of $25,000, purchases during the year of $95,000, and beginning inventory of $30,000, cost of goods sold equals $90,000.
False
Operating leases occur when the lessee essentially buys an asset and borrows the money through a lease to pay for the asset.
False
Regarding a contingent liability, when no amount within a range of potential losses appears more likely than others, we record the maximum amount in the range.
False
Straight-line, declining-balance, and activity-based depreciation all are acceptable depreciation methods for both financial reporting and tax reporting.
False
We record a long-term asset at its cost less all expenditures necessary to get the asset ready for use.
False
During periods when inventory costs are rising, ending inventory will most likely be:
Greater under FIFO than LIFO.
The carrying value, using the effective interest method, would decrease each year:
If the bonds were sold at a premium.
Which of the following is incorrect regarding LIFO and FIFO?
In a period of increasing costs, assets will be greater under LIFO than FIFO.
In accounting, goodwill
May be recorded when a company purchases another business.
The Accumulated Depreciation account allows us to reduce the carrying value of assets through depreciation, while maintaining the original cost of each asset in the accounting records.
True
Profits generated by the company are a(n):
source of internal financing.
Which of the following leases is just like a rental?
An operating lease
Retained Earnings:
Increases stockholders' equity.
A company's liquidity refers to its:
Ability to pay currently maturing debts.
A company is most likely to utilize the specific identification method if its inventory consists of:
All of the other answers are reasons to utilize the specific identification method. Unique products Very expensive products. A relatively small number of products.
Goodwill is amortized over its estimated useful life.
False
Lebaron Co.'s beginning inventory is $2,000 and its ending inventory is $1,000. The inventory turnover is 6 times. Cost of goods sold for the year must equal:
$9,000.
Which of the following would be recorded as land improvements?
Adding a parking lot.
The purchase of a new cooling system for $150,000 to upgrade an office building owned by the company would be accounted for as:
An addition in the Buildings account.
Journal entries to record cash dividends are made on the:
Declaration date and payment date.
The sale of gift cards by a company is a direct example of:
Deferred revenues.
In accounting for inventory, net realizable value equals:
Estimated selling price less any costs of completion, disposal, and transportation.
In a period when inventory costs are rising, the inventory method that most likely results in the highest ending inventory is:
FIFO
If a firm successfully defends an intangible right, it should expense the litigation costs as incurred.
False
Impairment occurs when the future cash flows generated for a long-term asset fall below its fair value.
False
In the event a corporation is dissolved, common stockholders receive preference over preferred stockholders in the distribution of assets.
False
Long-term obligations such as notes, mortgages, and bonds are reported as long-term liabilities when they become payable within the upcoming year.
False
Retained Earnings is the amount stockholders have invested in the company.
False
Return on assets is calculated as net income divided by the ending balance for total assets.
False
Secured bonds are backed by the federal government.
False
The acquiring company records goodwill equal to the purchase price less the book value of the net assets acquired.
False
The amount of retained earnings equals net income minus dividends for the current year.
False
Which of the following is not a characteristic of a liability?
It must be payable in cash.
Deferred Revenues is a(n):
Liability account
What type of company purchases raw materials and makes goods to sell?
Manufacturer
Assuming a current ratio of 1.2 and an acid-test ratio of 0.80, how will the purchase of inventory with cash affect each ratio?
No change to the current ratio and decrease the acid-test ratio.
When shares of another corporation are purchased, what is the effect on total stockholders' equity?
No effect.
Issued stock refers to the number of shares:
Outstanding plus treasury shares.
In a periodic inventory system, the purchase of inventory is debited to:
Purchases.
After evaluating the lower of cost and net realizable value of inventory, the accountant prepares a year-end adjustment. That adjustment would:
Reduce the company's stockholders' equity.
Liabilities are defined as:
Resources owed by an entity as a result of past transactions.
If a company overstates its ending balance of inventory in year 1 and it records inventory correctly in year 2, which one of the following is true?
Retained earnings is overstated in year 1.
Which of the following accounts is not reported in the stockholders' equity section of the balance sheet?
Sales Revenue.
The inventory costing method that matches each unit of inventory with its actual cost is referred to as the _____ method.
Specific identification
The rate quoted in the bond contract used to calculate the cash payments for interest is called the:
Stated rate.
Which of the following statements about treasury stock transactions is true?
Stockholders' equity is reduced when treasury stock is acquired.
How does the amortization schedule for an installment note such as a car loan differ from an amortization schedule for bonds?
The final carrying value is zero in an amortization schedule for an installment note.
The par value of common stock represents:
The legal capital per share of stock assigned when the corporation was first established.
Outstanding stock is the number of shares held by investors.
True
Which of the following statements is true regarding the amortization of intangible assets?
the expected residual value of most intangible assets is zero.
Accumulated Depreciation is a liability account that is increased by credits.
False
Angel investors are investors that focus on companies at or near bankruptcy.
False
Cash received from the sale of salvaged materials increases the total cost of land.
False
Common stock is listed before preferred stock in the balance sheet.
False
Companies are not allowed to report inventory costs by assuming which units of inventory are sold and which units still remain on hand.
False
Companies that are believed to have high bankruptcy risk generally receive higher credit ratings and pay a lower interest rate for borrowing.
False
FICA taxes are paid only by the employee.
False
For bonds issued at a premium, the difference between interest expense and the cash paid increases the carrying value of the bonds.
False
For inventory that is shipped FOB destination, title transfers from the seller to the buyer once the seller ships the inventory.
False
Generally, a lower gross profit ratio reflects positively on a company's ability to manage its inventory.
False
Given a choice, most companies would prefer to report a liability as current rather than long-term, because doing so may cause the firm to appear less risky.
False
Small stock dividends are recorded by debiting Retained Earnings for the par value per share.
False
Straight-line produces a lower net income than accelerated methods in the earlier years of an asset's life.
False
We can calculate the issue price of a bond as the face amount plus the total periodic interest payments.
False
We record a contingent liability when the likelihood of the loss occurring is reasonably possible and the amount is reasonably estimable.
False
We record gain contingencies when the gain is probable and the amount is reasonably estimable.
False
When a change in estimate is required, the company changes depreciation in prior, current and future years.
False
When bonds are issued at a premium (above face amount), the carrying value and the corresponding interest expense increase over time.
False
When the net realizable value of inventory falls below its cost, no adjustment to the accounting records is needed.
False
LIFO is considered an income statement approach for reporting inventory because it:
LIFO is considered an income statement approach for reporting inventory because it:
The disclosure that shows the difference in the cost of inventory between LIFO and FIFO is referred to as the:
LIFO reserve.
The PE ratio:
Tends to be higher for growth stocks.
A periodic inventory system does not continually modify inventory amounts, but instead adjusts for purchases and sales of inventory at the end of the reporting period based on a physical count of inventory on hand.
True
A stock split has no effect on the total of any account in stockholders' equity.
True
A trademark is a word, slogan, or symbol that distinctively identifies a company, product, or service.
True
Airlines do not record revenue when a ticket is sold, but wait to record revenue until the actual flight occurs.
True
American, Delta, and United Airlines have all, at one time, filed for bankruptcy.
True
As a company's default risk increases, investors demand a higher market interest rate on their bond investments.
True
As a company's level of debt increases, bankruptcy risk increases.
True
At the maturity date, the carrying value will equal the face amount of the bond.
True
Bonds are the most common form of corporate debt.
True
Book value is equal to the original cost of the asset minus the current balance in Accumulated Depreciation.
True
Commonly, current liabilities are payable within one year, and long-term liabilities are payable more than one year from now.
True
Companies are free to choose FIFO, LIFO, or weighted-average cost to report inventory and cost of goods sold.
True
Deductions from employee salaries in determining the amount of payroll checks include withholdings for federal and state income taxes, FICA taxes, and the employee portion of insurance and retirement contributions.
True
Depreciation in accounting is the process of allocating to expense the cost of an asset over its service life.
True
If a company has beginning inventory of $15,000, purchases during the year of $75,000, and ending inventory of $20,000, cost of goods sold equals $70,000.
True
If a company has expenses that are more than revenues, the net loss decreases retained earnings.
True
If the defense of an intangible right is unsuccessful, then the firm should expense the litigation costs as incurred because they provide no future benefit.
True
If the likelihood of a loss is reasonably possible rather than probable, we record no entry, but make full disclosure in a footnote to the financial statements to describe the contingency.
True
If the likelihood of loss is remote, disclosure usually is not required.
True
Income before income taxes equals operating income plus nonoperating revenues less nonoperating expenses.
True
Intangible assets with an indefinite useful life (goodwill and most trademarks) are not amortized.
True
Interest expense is calculated as the carrying value times the market rate.
True
Land improvements are recorded separately from the land itself because, unlike land, these assets are subject to depreciation.
True
Leverage enables a company to earn a higher return using debt than without debt.
True
Limited liability means that even in the event of bankruptcy, stockholders in a corporation can lose no more than the amount they invested in the company.
True
Losses have the effect of reducing net income, while gains increase net income.
True
Many intangible assets are not recorded on the balance sheet at their estimated market values.
True
Monthly installment payments on a note payable include both an amount that represents interest and an amount that represents a reduction of the outstanding loan balance.
True
Most companies use straight-line amortization for intangibles and credit the amount of amortization to the intangible asset account itself rather than to Accumulated Amortization.
True
No journal entry is made to record a stock split.
True
Profit margin is net income divided by net sales.
True
Quick assets include only cash, short-term investments, and accounts receivable.
True
Residual value, also referred to as salvage value, is the amount the company expects to receive from selling the asset at the end of its service life.
True
The CEO, as head of the company, is ultimately responsible for the firm's accounting.
True
The LIFO difference (reserve) is the additional amount of inventory a company would report if it used FIFO instead of LIFO.
True
The market value of bonds moves in the opposite direction of interest rates.
True
The mixture of liabilities and stockholders' equity a business uses is called its capital structure.
True
The number of shares outstanding is equal to the number of shares issued minus the number of shares repurchased.
True
The return on equity measures the ability of company management to generate earnings from the resources that owners provide.
True
The use of the lower of cost and net realizable value to report inventory is an example of conservatism in financial reporting.
True
Treasury stock is the repurchase of a company's own issued stock.
True
Unsecured bonds are not backed by a specific asset.
True
Using the first-in, first-out method (FIFO), the first units purchased are assumed to be the first ones sold.
True
We allocate natural resources to expense through a process known as "depletion."
True
We record a loss if we sell an asset for less than book value.
True
Beginning inventory is $40,000. Purchases of inventory during the year are $200,000. Ending inventory is $100,000. What is cost of goods sold?
$140,000.
Bad Brads BBQ purchased a piece of equipment by paying $5,000 cash. They also incurred a shipping cost of $400 to get the equipment to its factory. The fair value of this equipment is $7,000. For what amount should Bad Brads BBQ record the equipment?
$5,400.
Fruitasia purchased land, a building, and equipment for $800,000. The estimated fair values of the land, building, and equipment are $100,000, $700,000, and $200,000, respectively. At what amount would the company record the land?
$80,000.
Real Angus Steakhouse purchased land for $75,000 cash. They also incurred commissions of $4,500, property taxes of $5,000, and title insurance of $800. The $5,000 in property taxes includes $4,000 in back taxes paid by Real Angus on behalf of the seller and $1,000 due for the current year after the purchase date. For what amount should Real Angus Steakhouse record the land?
$84,300.
Bahama Catering purchased a commercial dishwasher by paying cash of $8,000. The dishwasher's fair value on the date of the purchase was $10,000. The company incurred $600 in transportation costs, $500 installation fees, and paid $300 annual insurance of the equipment. For what amount will Bahama record the dishwasher?
$9,100.
Martha Inc.'s sales equal $60,000 and cost of goods sold equals $20,000. Its beginning inventory was $1,600 and its ending inventory is $2,400. Martha's inventory turnover ratio equals:
10 times.
Which of the following leases is essentially the purchase of an asset with debt financing?
A capital lease.
Sales taxes collected by a company on behalf of the state and local government are recorded by:
A credit to a liability account.
Which of the following statements regarding liquidity ratios is true?
A high working capital generally indicates the ability to pay current liabilities on a timely basis.
The primary reason for the popularity of LIFO is that it gives:
A lower income tax obligation when inventory costs are rising.
Which of the following is not a current liability?
A note payable due in 2 years.
Which of the following is considered a "contra" account?
Accumulated Depreciation.
Losses on the sale of long-term assets for cash:
Are the excess of the book value over the cash received.
In testing for impairment of an operational asset, an impairment loss is required if the:
Asset's book value exceeds the expected future cash flows.
FIFO is considered a balance sheet approach for reporting inventory because it:
Better approximates the value of ending inventory.
Which of the following has the lowest expected return to the investor?
Bonds
Term bonds are:
Bonds that mature all at once.
Which of the following financing alternatives has the highest preference of payment in a case where the company liquidates its assets?
Bonds.
Which of the following is not true regarding callable bonds?
Callable bonds benefit the bond investor.
Preferred stock:
Can have features of both liabilities and stockholders' equity.
The mixture of liabilities and stockholders' equity a business uses is called its:
Capital structure.
When bonds are issued at a premium, what happens to the carrying value and interest expense over the life of the bonds?
Carrying value and interest expense decrease.
When bonds are issued at a discount, what happens to the carrying value and interest expense over the life of the bonds?
Carrying value and interest expense increase.
Interest expense on bonds payable is calculated as the:
Carrying value times the market interest rate.
Bonds payable should be reported as a long-term liability in the balance sheet at:
Carrying value.
Which of the following is not a primary source of corporate debt financing?
Common stock
The practice of using the lower of cost and net realizable value to evaluate inventory reflects which of the following accounting principles?
Conservatism.
The exclusive right to benefit from a creative work, such as a film, is a:
Copyright
In terms of total sales, assets, and earnings, the dominant form of business organization is a:
Corporation.
The type of income statement that reports a series of subtotals such as gross profit, operating income, and income before taxes is a ______ income statement.
Cost of goods sold
Which of the following subsequent expenditures would be capitalized?
Costs that increase the service life of an asset.
The current ratio is
Current assets divided by current liabilities.
Brian Inc. borrowed $8,000 from First Bank and signed a promissory note. What entry should Brian Inc. record?
Debit Cash, $8,000; Credit Notes Payable, $8,000.
Good Inc., sold inventory for $1,200 that was purchased for $700. Good records which of the following when it sells inventory using a perpetual inventory system?
Debit Cost of Goods Sold $700; credit Inventory $700.
Which of the following statements regarding the corporate form of business is correct?
Disadvantages are that the business is subject to government regulations and double taxation on its income.
Preferred stock is called preferred because it usually has two preferences over common stock. These preferences relate to:
Dividends and distribution of assets if the corporation is dissolved.
The inventory cost flow assumption that generally best matches the physical flow of inventory is:
FIFO
The inventory method that will always produce the same amount for cost of goods sold in a periodic inventory system as in a perpetual inventory system would be:
FIFO
Which inventory cost flow assumption generally results in the highest reported amount for cost of goods sold when inventory costs are falling?
FIFO.
If A sells to B, and B obtains title while goods are in transit, the goods were shipped _______. If C sells to D, and C maintains title until the goods arrive at D's door then the goods were shipped _______.
FOB shipping point; FOB destination
The cash interest payment each period is calculated as the:
Face amount times the stated interest rate.
A lower current ratio or acid-test ratio generally indicates a greater ability to pay current liabilities on a timely basis.
False
Assets plus liabilities equal stockholders' equity.
False
Cost of goods sold is an asset reported in the balance sheet and inventory is an expense reported in the income statement.
False
Cumulative preferred stock means that dividends accumulate interest during the year.
False
Declining-balance depreciation will be lower than straight-line depreciation in earlier years, but higher in later years.
False
Depreciation in accounting records the decrease in value of an asset.
False
During periods of rising costs, LIFO generally results in a higher ending inventory balance.
False
The LIFO conformity rule requires a company that uses LIFO for tax reporting to use FIFO for financial reporting.
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 current ratio is calculated by dividing current liabilities by current assets.
False
The lower the market interest rate, the lower the bond issue price will be.
False
The market interest rate does not change over time.
False
The market interest rate represents the true interest rate used by investors to value a company's bond issue.
False
The stockholders' equity section of the balance sheet shows how each equity account changed during the year.
False
Treasury stock is a contra-equity account because treasury stock increases total stockholders' equity.
False
Understating ending inventory in the current year causes cost of goods sold in the current year to be understated.
False
Using a perpetual inventory system, the purchase of inventory is recorded with a debit to the Purchases account, which is a temporary account closed to cost of goods sold at the end of the period.
False
We record a gain if we sell an asset for less than book value.
False
Which of the following is true regarding LIFO and FIFO?
In a period of rising costs, LIFO results in lower net income than FIFO.
Which of the following is not a reason why a company might prefer to report a liability as long-term rather than current?
It may increase interest rates on borrowing.
Why doesn't stockholders' equity equal the market value of equity?
It's related to the use of historical cost to report many long-term assets and the expensing of value generating costs such as research and development and advertising.
A bond issued at a discount indicates that at the date of issue:
Its stated rate was lower than the prevailing market rate of interest on similar bonds.
The inventory cost flow assumption that is least likely to match the physical flow of inventory for most companies is:
LIFO
Which inventory method is better described as having an income statement focus and why is it considered as such?
LIFO; better approximates inventory cost necessary to generate revenue.
For a bond issue that sells for less than the bond face amount, the stated interest rate is:
Less than the market rate.
A perpetual inventory system measures cost of goods sold by:
Making entries to the inventory account for each purchase and sale.
Which of the following definitions describes a serial bond?
Matures in installments.
Which of the following definitions describes a term bond?
Matures on a single date
Suppose Company A places an order with Company B on May 12. On May 14, Company B ships the ordered goods to Company A with terms FOB destination. The goods arrive at Company A on May 17. Company A begins selling the goods to customers on May 19 and pays Company B on May 20. When would Company B record the sale of goods to Company A?
May 17.
For a bond issue that sells for more than the bond face amount, the stated interest rate is:
More than the market rate.
Which of the following is true concerning inventory cost flow assumptions?
None of the other answers are true.
In a periodic inventory system, the entry at the time of a sale to record the cost of inventory sold includes a:
Not recorded at this time of the sale.
The cost of an engine tune-up is an example of which of the following expenditures after acquisition?
Ordinary repairs and maintenance.
Which of the following subsequent expenditures would not be capitalized?
Ordinary repairs and maintenance.
Both cash dividends and stock dividends:
Reduce retained earnings.
The current portion of long-term debt should be
Reported as a current liability on the balance sheet.
Which of the following definitions describes a secured bond?
Supported by specific assets pledged as collateral by the issuer.
Authorized common stock refers to the total number of shares:
That can be issued.
The depreciable cost used in calculating depreciation expense is:
The asset's cost minus its estimated residual value.
The balance of the Cost of Goods Sold account at the end of the year represents:
The cost of inventory sold in the current year.
Which of the following is true for bonds issued at a discount?
The market interest rate is greater than the stated interest rate.
The primary difference between the periodic and perpetual inventory systems is:
The perpetual system maintains a continual record of inventory transactions, whereas the periodic system records these transactions only at the end of the period.
The price of a bond is equal to:
The present value of the face amount plus the present value of the stated interest payments.
Which of the following is a reason that a corporation would prefer to issue stock instead of bonds?
The risk of going bankrupt is less.
Which of the following would increase the gross profit ratio?
The sales price of a product increases by a higher percentage than does its cost of goods sold.
Merchandise sold FOB destination indicates that:
The seller holds title until the merchandise is received at the buyer's location.
Merchandise sold FOB shipping point indicates that:
The seller transfers title to the buyer once the merchandise is shipped.
The balance of Retained Earning at the end of the year represents:
Total earnings less payments to owners over the life of the company.
Decrease assets and decrease stockholders' equity.
Treasury Stock.
A basket purchase is the purchase of more than one asset at the same time for one purchase price.
True
A callable bond allows the borrower to repay the bonds before their scheduled maturity date at a specified call price.
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 company is said to be liquid if it has sufficient cash to pay currently maturing debts.
True
A contingent liability is an existing, uncertain situation that might result in a loss.
True
A gain contingency is an existing uncertain situation that might result in a gain, which often is the flip side of loss contingencies.
True
A multiple-step income statement reports multiple levels of profitability, such as gross profit, operating income, income before income taxes, and net income.
True
A private placement is when a company chooses to sell the debt securities directly to a single investor.
True
Additional employee benefits paid for by the employer are often referred to as fringe benefits.
True
Companies are required by law to withhold federal and state income taxes from employees' paychecks and remit these taxes to the government.
True
Convertible preferred stock allows the stockholder to convert shares of preferred stock into common stock at a specified conversion ratio.
True
During periods of rising costs, LIFO generally results in a higher cost of goods sold.
True
Earnings per share (EPS) measures the net income earned per share of common stock outstanding.
True
Freight-in is included in the cost of inventory.
True
Interest is stated in terms of an annual percentage rate to be applied to the face value of the loan.
True
International accounting standards allow firms to record development costs that benefit future periods as an intangible asset.
True
Operating leases are contractual agreements where the lessor owns the asset and the lessee simply uses the asset temporarily.
True
Owners in a sole proprietorship or a partnership can be held personally liable for debts the company has incurred, over and beyond the investment they have made.
True
Paid-in Capital is the amount stockholders have invested in the company.
True
Par value is the legal capital per share of stock that's assigned when the corporation is first established.
True
Retained earnings represent the earnings retained in the corporation - earnings not paid out as dividends to stockholders.
True
Sales taxes collected from customers by the seller are not an expense, instead they represent current liabilities payable to the government.
True
Straight-line depreciation assumes that the benefits we derive from the use of an asset are the same each year.
True
Taking a "big bath" is recording all losses in one year to make a bad year even worse.
True
The acid-test ratio, or quick ratio, is similar to the current ratio but is based on a more conservative measure of current assets available to pay current liabilities.
True
The adjustment to write down inventory from cost to its lower net realizable value includes a debit to Cost of Goods Sold and a credit to Inventory.
True
The debt to equity ratio measures a company's risk and is calculated as total liabilities divided by stockholders' equity.
True
The employer is required to match the amount of FICA taxes withheld for each employee, effectively doubling the amount paid into Social Security.
True
The gross profit ratio measures the amount by which the sale price of inventory exceeds its cost per dollar of sales.
True
The stated interest rate does not change over time.
True
We calculate earnings per share as net income divided by the average shares outstanding during the period.
True
We expense internally generated intangible assets, such as research and development and advertising costs, as we incur them.
True
We record purchased intangible assets at their original cost plus all other costs necessary to get the asset ready for use.
True
We record treasury stock at the cost of the shares acquired.
True
We usually record preferred stock as equity and report it in the stockholders' equity section of the balance sheet just above common stock.
True
When a company collects sales taxes, the debit is to Cash and the credit is to Sales Tax Payable.
True
When a firm develops a trademark internally through advertising, it does not record the advertising costs as an intangible asset, but rather expenses them in the income statement.
True
When bonds are issued at a discount (below face amount), the carrying value and the corresponding interest expense increase over time.
True
When we reissue treasury stock, we report the difference between its cost and the cash received as an increase/decrease in additional paid-in capital.
True
The legal life of a patent is:
Twenty years.
Suppose that Hastings Corporation overstates its ending inventory for 2018. What effect will this have on the reported amount of cost of goods sold for 2018?
Understate cost of goods sold.
Which of the following measures of liquidity does not control for the relative size of the company?
Working capital.
Which of the following is true regarding the relationship between the current ratio and the acid-test ratio?
he current ratio will always be equal to or larger than the acid-test ratio for a specific company.
Operating income is calculated as net sales minus.
ll of the other answers are subtracted from net sales to calculate operating income.
In most cases, current liabilities are payable within ____ year(s), and long-term liabilities are payable more than ____ year(s) from now.
one; one
Financial leverage is best measured by which of the following ratios?
the debt to equity ratio.
An amortization schedule provides a summary of the cash interest payments, interest expense, and changes in carrying value for each period.
true
An impairment loss is equal to the amount by which book value exceeds the fair value of a long-term asset.
true
the acid-test ratio is
Cash, short-term investments, and accounts receivable divided by current liabilities.
When treasury stock is resold at a price above cost:
Additional Paid-in Capital is increased.
The disadvantages of the corporate form of business include:
Additional taxes.
Adding a refrigeration unit to a delivery truck that previously did not have this capability is an example of:
Additions.
Which of the following considerations may influence a manager's choice of the inventory cost flow assumption for a company that experiences rising prices?
All of the other answers are considerations for the choice of inventory cost flow assumptions.
Using a perpetual inventory system, the entry to record the return of inventory previously purchased on account includes a:
Debit to Accounts Payable.
In a perpetual inventory system, the entry at the time of a sale to record the cost of the inventory sold includes a:
Debit to Cost of Goods Sold.
What would be the impact on the accounting equation when a company acquires treasury stock?
Decrease assets and decrease stockholders' equity.
Treasury Stock:
Decreases stockholders' equity.
When bonds are issued at a premium and the effective interest method is used for amortization, at each interest payment date, the interest expense:
Decreases.
Bill Inc.'s correct ending balance for the inventory account at the end of 2018 should be $5,000, but the company incorrectly stated it as $3,000. In 2019, Bill correctly recorded its ending balance of the inventory account. Which one of the following is true?
Gross profit is overstated by $2,000 in 2019.
The statement of stockholders' equity shows:
How each equity account changed over time.
The cost of replacing a major component on a piece of equipment is an example of:
Improvements.
Which of the following would result in an increase in the current ratio, but not necessarily the acid-test ratio?
Increase in current assets
Which of the following would not result in an increase in both the current ratio and the acid-test ratio?
Increase in inventory
The entry to record a monthly payment on an installment note such as a car loan:
Increases expense, decreases liabilities, and decreases assets.
When bonds are issued at a discount and the effective interest method is used for amortization, at each interest payment date, the interest expense:
Increases.
An amortization schedule for a bond issued at a discount:
Is a schedule that reflects the changes in bonds payable over its term to maturity.
Outstanding common stock refers to the total number of shares:
Issued less treasury stock.
Given a choice, most companies would prefer to report a liability as long-term rather than current because:
It may cause the firm to appear less risky to investors and creditors. It may reduce interest rates on borrowing. It may cause the company to appear more stable, commanding a higher stock price for new stock listings.
The type of income statement that classifies items as operating and nonoperating is the ______ income statement.
Multiple-step
Productive assets that are physically used up or depleted are:
Natural resources.
The times interest earned ratio is calculated as
Net income + interest expense + tax expense)/Interest expense.
Return on equity is calculated as:
Net income divided by average stockholders' equity.
Retained Earnings represent a company's:
Net income less dividends since the company first began operations.
An exclusive 20-year right to manufacture a product or to use a process is a:
Patent
Convertible bonds:
Provide potential benefits to both the issuer and the investor.
Which of the following amortization methods is most commonly used?
Straight-line.
All publicly held corporations are regulated by what government organization?
The Securities and Exchange Commission.
The gross profit ratio measures:
The amount by which the sale of inventory exceeds its cost per dollar of sales.
In each succeeding payment on an installment note:
The amount of interest expense decreases.
In each succeeding payment on an installment note
The amount that goes to decreasing the carrying value of the note increases.
The current portion of long-term debt is:
The amount that will be paid within the next year
Goodwill is:
The value of a business as a whole, over and above the value of its net identifiable assets.
The lower of cost and net realizable value rule causes losses in the value of inventory to be recognized in the period when:
The value of inventory declines below cost.
Which of the following is not a potential feature of preferred stock?
They all are potential features of preferred stock.
A lease is a contractual arrangement by which the lessor provides the lessee the right to use an asset for a specified period of time.
True
A line of credit is an informal agreement that permits a company to borrow up to a prearranged limit without having to follow formal loan procedures and paperwork.
True
A more comparable measure of profitability than income is return on assets, which equals net income divided by average total assets.
True
Bonds can be secured or unsecured. Likewise, bonds can be term or serial bonds. Which is more common?
Unsecured and term.
The inventory cost flow assumption that results in a random mixture of goods being included in the balance of inventory and cost of goods sold is:
Weighted average
Cost of Goods Sold is:
an expense account
