Chapter 10 & 11 Quiz

We credit Dividends Payable on

Declaration Date

Given the items below, which of the following is an addition to net income to arrive at operating cash flows using the indirect method? I. Loss on sale of assets II. Increase in Supplies III. Increase in Accounts Payable IV. Increase in Accounts Receivable

I & III

Given the items below, which of the following is a subtraction from net income to arrive at operating cash flows using the indirect method? I. Loss on sale of assets II. Increase in Supplies III. Increase in Accounts Payable IV. Depreciation expense

II. only.

Retained earnings

Increases stockholders' equity.

When treasury stock is resold, total stockholders' equity:

Increases.

What is the primary reason for declaring a stock split?

Lower the trading price of a stock into a more acceptable trading range.

Some cash flow ratios are derived by substituting net cash flows from operating activities in place of:

Net Income

Return on equity is calculated as:

Net income divided by average stockholders' equity.

Earnings per share measures:

Net income earned per share of common stock.

Under what section of the Statement of Cash Flows would you classify the purchase of equipment by issuing a long-term note payable?

Noncash activity.

The collection of cash from customers would be classified as which type of cash flow on the Statement of Cash Flows?

Operating

Which of the following is not true regarding cash flows?

Operating activities include the payment of dividends.

Cash dividends are based on the number of shares:

Outstanding.

Which of the following is subtracted from net income as an adjustment under the indirect method of preparing the statement of cash flows?

Salaries payable decrease.

Which of the following is added to net income as an adjustment under the indirect method of preparing the statement of cash flows?

Salaries payable increase.

Which of the following would be classified as an investing cash flow?

Sell a piece of equipment below cost.

The Statement of Cash Flows:

Shows that the change in total cash from one year to the next is equal to the net operating, investing, and financing cash flows.

Which financial statement separates business activities into operating, investing, and financing activities?

Statement of Cash Flows

Which of the following shows activity over a period of time?

Statement of stockholders' equity.

What is the effect of a stock dividend on total stockholders' equity?

Stockholders' equity does not change.

Which of the following is NOT a correct practice when adjusting net income to net operating cash flows?

Subtract depreciation expense.

The statement of stockholders' equity:

Summarizes the changes in the balance in each stockholders' equity account over a period of time.

The PE ratio

Tends to be higher for growth stocks.

Common shareholders usually have all of the following rights except:

To participate in the day-to-day operations.

Treasury stock is recorded as:

decrease stockholders' equity

Treasury stock

decreases stockholders' equity

Petite Fashions issued 500,000 of its 2 million shares of authorized common stock. At the end of the accounting period, 450,000 shares are outstanding. How many shares of treasury stock does Petite Fashions have?

50,000 shares.

Which of the following best describes a company with a high price-earnings ratio?

A company whose earnings are expected to grow.

Which of the following is not correct about the statement of cash flows?

A company with a net loss on the income statement will always have a net cash outflow from operating activities.

A company issues 100,000 shares of 5%, $10 par value preferred stock for $17 per share. The entry to record this transaction would include:

A credit to Preferred Stock for $1,000,000.

An accumulated deficit is:

A debit balance in retained earnings.

Declaring a cash dividend has what effect on total stockholders' equity?

A decrease in total stockholders' equity.

In preparing a statement of cash flows under the indirect method, a decrease in accounts receivable would be reported as a(n):

Addition to net income in the operating activities section.

In preparing a statement of cash flows under the indirect method, an increase in accounts payable would be reported as a(n):

Addition to net income in the operating activities section.

Retained earnings represents:

All net income, less all dividends, since the company began operations.

The indirect and direct methods:

Are two allowable methods to present operating activities in the statement of cash flows.

The correct order from the largest number of shares to the smallest number of shares is:

Authorized, issued, and outstanding.

Cash flows from investing activities do not include cash flows from:

Borrowing.

Financing activities would include cash paid for:

Both dividends to stockholders and the purchase of treasury stock.

Preferred stock

Can have features of both liabilities and stockholders' equity.

Which of the following is not correct about the statement of cash flows?

Cash dividends paid are classified as cash flows from operating activities.

We can separate cash return on assets into:

Cash flow to sales and asset turnover.

Cash flows from investing activities include:

Cash outflows from acquiring land.

Which of the following items is reported in the operating section of the statement of cash flows using the direct method?

Cash received from customers

Operating cash flows can be described as:

Cash-basis net income.

A company issues 10,000 shares of $0.05 par value common stock for $25 per share. Which of the following is recorded at issuance?

Credit Common Stock for $500.

We can identify operating activities from income statement information and changes in:

Current asset and current liability accounts.

Cash dividends are initially recorded on which date?

Date of declaration

Suppose a company purchases 2,000 shares of its own $1 par value common stock for $16 per share. Which of the following is recorded at the time of the purchase?

Debit Treasury Stock for $32,000.

When treasury stock is purchased, what is the effect on total shareholders' equity?

Decrease

Which of the following items is not reported in the operating section of the statement of cash flows using the direct method?

Depreciation Expense

Which of the following is not subtracted from net income as an adjustment under the indirect method of preparing the statement of cash flows?

Depreciation expense.

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.

Operating cash flows exclude:

Dividends paid.

The disadvantages of a corporation compared to a sole proprietorship or partnership include:

Double Taxation

Which of the following is a publicly traded company?

Facebook.

The issuance of notes payable for borrowing is classified in the statement of cash flows as a(n):

Financing activity.

The purchase of treasury stock is classified in the statement of cash flows as a(n):

Financing activity.

Cash received from issuing common stock would be classified in which section of the Statement of Cash Flows?

Financing.

Under what section of the Statement of Cash Flows would you classify dividends paid on common stock?

Financing.

Which of the following is subtracted from net income as an adjustment under the indirect method of preparing the statement of cash flows?

Gain on the sale of land.

Which of the following stages of equity financing would come last for most public companies?

Initial public offering.

Cash flows from financing activities do not include:

Interest received

The purchase of land is classified in the statement of cash flows as a(n):

Investing activity.

Which of the following is an example of a cash inflow from a financing activity?

Issuance of bonds.

The advantages of a corporation compared to a sole proprietorship or partnership include:

Limited liability.

The advantages of owning a corporation include

Limited liability.

Which of the following statements is true?

Losses on the sale of long-term assets are an adjustment reported in the operating activities section of the statement of cash flows under the indirect method.

We calculate cash return on assets as

Net cash flows from operating activities divided by average total assets

The balance of cash reported in the balance sheet this year minus the balance of cash reported in the balance sheet last year equals:

Net cash flows from operating, investing, and financing activities.

The cash collection from the sale of a good or service is classified in the statement of cash flows as a(n):

Operating activity.

The payment of salaries is classified in the statement of cash flows as a(n):

Operating activity.

The statement of cash flows reports cash flows from the activities of:

Operating, investing, and financing.

Dividends received from an investment is classified as a(an) __________ cash flow, and paying dividends on stock issued is classified as a(an) ____________ cash flow on the Statement of Cash Flows.

Operating; Financing

The correct order from the smallest number of shares to the largest number of shares is

Outstanding, issued, and authorized.

Which of the following is correct about the statement of cash flows?

Paying dividends to investors creates a cash outflow from financing activities.

Which of the following is an example of a cash outflow from an investing activity?

Payment of cash for the purchase of land.

Which of the following statements is not true relating to cash flow analysis?

Positive cash flow from operations is not important to a company's survival in the long run.

Cash flows from investing activities do not include:

Proceeds from the issuance of common stock.

Which of the following is an example of a noncash activity?

Purchase of land by issuing debt.

_________ is an investing cash flow and ________ is a financing cash flow, as reported in the Statement of Cash Flows.

Purchasing land; repaying a bank loan

Which of the following transactions would generally result in an investing cash inflow?

Receive cash from the sale of land.

Both cash dividends and stock dividends

Reduce retained earnings.

Which of the following transactions would not create a cash flow?

The company purchased land by issuing common stock.

In the operating activities section of the statement of cash flows, we start with net income when using:

The indirect method

If a company issues par-value stock, the amount credited to common stock will be:

The par value per share times the number of shares issued.

How does the stockholders' equity section in the balance sheet differ from the statement of stockholders' equity?

The stockholders' equity section shows balances at a point in time, whereas the statement of stockholders' equity shows activity over a period of time.

A company resells 10,000 shares of treasury stock for $22 per share. The stock was purchased in a previous year for $18 per share. By how much would net income be affected by the sale of this treasury stock?

There would be no effect on net income from the sale of treasury stock.

On the date of dividend declaration, which of the following entries is recorded?

Debit Dividends; Credit Dividends Payable.

Cash flows from financing activities include:

Cash dividends paid.

Which of the following is correct about the statement of cash flows?

Cash dividends received on stock investments are classified as cash flows from operating activities.

Suppose a company purchases 2,000 shares of its own $1 par value common stock for $16 per share. The company then resells 400 of these shares for $20 per share. Which of the following is recorded at the time of the resale?

Credit Additional Paid-In Capital for $1,600.

In its first three years of operations, a company has net income of $2,000; $5,000; and $8,000. It also pays dividends of $1,000 in the second year, and $3,000 in the third year. What is the balance of Retained Earnings at the end of the third year?

$11,000.

At the beginning of 20X1, a company issues 100,000 shares of 4%, $10 par value, cumulative preferred stock. All remaining shares outstanding are common stock. The company does not pay any dividends in 20X1, but pays dividends of $100,000 at the end of 20X2. How much of the dividend will be paid to common stockholders in 20X2?

$20,000.

Suppose a company declares a dividend of $0.50 per share. At the time of declaration, the company has 100,000 shares issued and 90,000 shares outstanding. On the declaration date, Dividends would be recorded for

$45,000.

A company issues 100,000 shares of $1 par value common stock for $17 per share. To record this transaction, the company would credit Additional Paid-in Capital for:

1,600,000

A company issues 100,000 shares of $1 par value common stock for $17 per share. To record this transaction, the company would credit Common Stock for:

100,000

A stock dividend occurs when:

A company distributes to shareholders additional shares of its own stock.