Accounting for managers: 3 and 4

Acid-test ratio

(Current Assets - Inventory) / Current Liabilities

Which of the following statements are true regrading the relationship between the current ratio and the acid-test ratio?

1. Both the current ratio and the acid-test ratio use current liabilities as the denominator 2. the acid-test ratio is a more conservative measure of the firm's liquidity 3. for any given company, the current ratio will generally be higher than the acid-test ratio 4. the acid-test ratio demonstrates the extent which the firm can meet its current obligations even if none of its own inventory can be sold 5. temporary cash investments are included in the numerator of the acid-test ratio 6. the acid test ratio can be calculated as(current assets minus merchandise inventory) divided by current liabilities

Return on Investment (ROI)

1. Is sometimes referred to as ROA (return on assets) 2. is normally calculated with net income used as the measure of return 3. is normally calculated with average total assets used as the measure of investment

stockholders' equity accounts

1. are decreased with debits 2. are increased with credits 3. normally have a credit balance

To calculate the amount of interest earned on an investment, you would need to know

1. the principal amount invested or borrowed 2. the interest rate per year, expressed as a percentage 3. the length of times the funds are invested or borrowed

under accrual accounting, year-end adjustments are made

1. to ensure that expenses are recognized in the year in which they are incurred 2. because the cash receipt from the revenue may occur before or after the event that causes revenue recognition 3. to ensure that revenues are recognized in the year in which they are earned

If margin is 4% and roi is 12% then turnover is _____ times per year

3=12%/4%

If turnover is 1.5 times per year and ROI is 9% then margin is

6%=9%/1.5

if stockholders equity at the begining of the year=$50,000, stockholders equity at the end of the year=$70,000, and ROE=25%, then:

Average stockholders equity=$60,000 and net income=$15,000

the numerator of the acid-test ratio includes most current assets, but specifically excludes

Merchandise inventory

working capital is calculated as current assets________current liabilities

Minus(-)

Return on investment (ROI) is commonly expressed in each of the following ways, EXCEPT

ROI=net income/average total stockholders' equity

A ____________ of an expense occurs when cash was paid in a prior year for an item that has now been incurred as an expense

Reclassification

Assume that: current assets=$300,000 and current liabilities=$100,000. If an AP of $50,000 were paid off, what would be the impact on the firm's working capital and current ratio?

Working capital would remain $200,000, but the current ratio would increase from 3.0 to 5.0.

the rate of return on an investment was 10%

and $500 was invested for one year, then that return on investment was $50

when a bank ________ your account for interest earned durring the month, what they are really communicating is that they are___________ the ____________ recorded in their accounting records to represent your account from their perspective

credits,increasing,liability

in bookkeeping and accounting, _________ means left, and __________means right, and nothing more

debit, credit

merchants who send you a notice that they have 'charged' your account are really communicating that they have

debited your account to increase your accounts balance, which is shown as an asset (A/R) in their accounting records

credits

decrease assset accounts and increase liability and stockholders' equity accounts

which of the following entries may have been recorded as an adjusting entry?

dr supplies 300 cr supplies expense 300

although revenues and expenses are reported on the income statment, they also

impact stockholders' equity on the balance sheet

Return on Investment (ROI) is calculated by dividing net_____by the average total________ for the year

income, assets

which of the following list of accounts would ALL be closed in the year-end closing process?

interest income, COGS, dividends, and gain on the sale of land

Return on Investment (ROI)

is normally calculated with net income used as the measure of return

normal account balances

on the debit side for expense and loss accounts, and on the credit side for revenue and gain accounts

after transcations have been recorded in a journal, they are ________ to a ___________

posted, ledger

the report format of the balance sheet

presents assets above liabilities and stockholders' equity items

the amount of interest earned on an investment is calculated as

principal ($)x rate (%)x time (in years)

in general, the higher the expected ________on investment, the greater the ______ associated with the investment

return,risk

a chart of accounts

serves as an index to the company's ledger

if debits equal credits

the company's balance sheet equation will be in balance

true or false: the key to using the horizontal model is to keep the balance sheet in balance

true

Which of the following statements are true regarding arithmetic vertical scales?

1. The distance between the values shown on the vertical axis will always be uniform. 2. It may be helpful to truncate the non-relevant portion of the vertical scale to highlight the key data ranges being depicted.

transactions

1. are summarized in accounts, and accounts are further summarized in financial statements 2. can be seen as the bricks that build the financial statements

trend analysis

1. for a company over several years generally leads to a more meaningful analysis than does the observation of a single year's ratio result 2. of a company's results to industry-wide results over several years is enhanced if the same accounting methods are used industry-wide 3. of a company's results over several years can be enhanced by making comparisons to the results of industry-wide trends over several years

Return on Equity (ROE)

1. normally calculated using average stockholders' equity in the denominator 2. expresses profits earned by the firm as a rate of return on equity provided by stockholders 3. net income/average stockholders' equity