7080 - Exam 2

A company purchases similar specialized inventory items in 3 different transactions at unit prices of $750, $800 and $820 (in that order), it then sells a single unit for $1,500 and has the remaining 2 units in inventory at the end of the year. The company uses the FIFO method. How much is ending inventory?

$1,620 ($750 + $800 + $820 - $750) = $1,620

A company purchased identical inventory items in 3 batches in the following order: 100 units for $1.00, 200 unites for $1.25 and 300 units for $1.30. It then sold 200 units. What is the cost of the ending inventory using the average-cost method?

$492

A company had sales of $400,000; gross profit of $250,000; operating income of 150,000; and net income of $75,000. Dividends on preferred stock were $10,000. Throughout the year, 10,000 shares of common stock were outstanding and 1,000 shares of preferred stock were outstanding. What was the earnings per share for the year?

$7.50

A company has cash of $20,000; accounts receivable of $45,000; inventory of $60,000; plant assets (net of depreciation) of $100,000; and accounts payable of $55,000. The amount of the company's working capital is

$70,000

During the year, a company received $10,000 from short-term borrowing, received $35,000 from long-term borrowing, paid $15,000 to stockholders as dividends, and had a net operating loss of $40,000. What is the net amount of financing cash flows in the company's statement of cash flows for the year? Multiple choice question.

+$30,000

A company had sales of $800,000 during a year in which the cost of goods sold was $500,000; beginning receivables were $40,000; and ending receivables were $50,000. Net income for the year was $130,000. What was the company's accounts receivables turnover rate, rounded to the nearest tenth?

17.8 times

A company has cash of $4,000; accounts receivable of $8,000; inventories of $12,000; and accounts payable of $6,000. What is the amount of the company's quick ratio?

2

If a company had sales of $500,000; gross profit of $360,000; interest expense of $10,000; and net income of $125,000, the component percentage for interest expense, is .

2%

A company's assets include cash of $6,000; accounts receivable of $10,000; inventories of $56,000; and plant assets of $28,000, totaling $100,000. Its liabilities include accounts payable of $25,000 and bonds payable of $45,000, totaling $70,000. Its stockholders' equity includes $10,000 of capital stock and $20,000 of retained earnings, totaling $30,000. What is the company's current ratio?

2,88

A company has net income of $500,000 after excluding interest expense of $35,000 and income taxes of $150,000. What is the interest coverage ratio, rounded to the nearest whole number?

20 times

A company had operating income (income before income taxes and interest) of $200,000 and net income of $185,000. Annual interest expense was $50,000. The interest coverage ratio was _____________ times

4

A company had sales of $900,000 and a cost of goods sold of $700,000 for the year. Its beginning inventory was $150,000, and its ending inventory was $130,000. What was the company's inventory turnover rate?

5 times

A company has total assets of $100,000; total liabilities of $65,000; and total stockholders' equity of $35,000. What is the amount of the company's debt ratio?

65%

A company's current market price is $12 per share. Other items of key information from its financial statements include gross profit of $100,000; net income of $40,000; and earnings per share of $1.50. What is the company's price-earning ratio?

8

A company had net income of $350,000 for the year, earnings per share for that year of $2.35, and paid dividends of $1 per share on its 10,000 outstanding shares of common stock. What was the dividend yield, assuming a market price of $12 per share?

8.3%

A company had operating income of $450,000 and net income of $230,000 for the year. Its beginning total asset balance was $500,000, and its ending total asset balance was $600,000. What was the return on assets for the year, rounded to the nearest whole percentage?

82%

Depreciation is best described by which of the following statements?

A process of cost allocation

Refers to planning, controlling and accounting for cash transactions and cash balances

Cash management

Net income differs from net cash flows from operations because of all the following except:

Cash received in exchange for goods sold in the normal course of operations.

Checks issues and recorded by the company but not yet presented to the bank for payment

Checks outstanding

The valuation principle of "fair value accounting" applied to investments classified as marketable equity securities:

Enhances usefulness of the balance sheet in evaluating the financial position of a business.

Usually causes a business to report higher profits than would be reported under the other inventory valuation methods

FIFO

Which cost flow assumption is most consistent with the physical flow of inventory assuming the earliest purchases are sold first?

FIFO

_____________________ moves the oldest costs to the income statement when inventory is sold

FIFO

True or False: All 3 methods- LIFO, FIFO and average cost- are acceptable for use in a company's financial statement, but only if LIFO is acceptable in the company's income tax return

False

True or False: In a situation where a company has multiple performance obligations relative to a single sales transaction, all revenue recognized at the same time that the earning process is complete for the largest performance obligation

False

True or false: Annual reports of companies are made available only to that company's creditors and stockholders.

False

Earnings per share figures are shown in the income statement:

For income from continuing operations, discontinued operations, and net income.

If prices to acquire inventory are rising, FIFO will cause

Higher income to be reported

Means of preventing fraud and theft

Internal control

Which classes of stock may not have voting power in the company?

Preferred stock

In a manufacturing company, the "just-in-time" concept of inventory management is best illustrated by:

Receiving deliveries of materials from suppliers just before the materials are used in the production process.

term commonly used to describe losses from write-downs or sales of plant assets, severance pay for terminated workers and expenses related to the relocation of operations and remaining personnel.

Restructuring charges

The retention of profits earned by the corporation is called

Retained earnings

Financial measure of the goods and/or services that a company provided to customers during a financial reporting period

Revenue

The measure of the value of the products and services sold to customers during an accounting period is called

Revenue

Expenditures for repair and maintenance of plant assets are referred to as

Revenue expenditures

Is acceptable when the actual costs of individual units of merchandise can be determined from the accounting records.

Specific identification

In a corporation's organization chart, who has/have the highest position?

Stockholders

The only requirement in selecting a cost flow assumption is that

The items to which the assumption is applied must be homogeneous in nature

A copyright is granted for what period of time?

The life of the creator plus 70 years

A company has outstanding preferred stock with an 8% dividend rate. What impact would you expect on the market value of the preferred stock if interest rates rise to a level above 8%?

The market price of the preferred stock would decrease

The distinguishing characteristic of the FIFO method is that

The most recent purchase costs are transferred to cost of goods sold as items are sold

The net assets of a corporation are equal to:

Total assets − total liabilities.

To qualify as a cash equivalent, an investment must be...

Very safe, stable market value and mature within 90 days.

Banks also accept drafts signed by customers using bank credit cards, such as....________________ and _______________. This means that sales to customers using bank cards are considered cash sales, not credit sales.

Visa and Masercard

Most preferred stocks have one or more of the following characteristics, except:

Voting rights

In which circumstance is using the specific identification method appropriate?

When the individual cost of each specific item can be identified in the accounting records

In a company's statement of financial position (balance sheet), inventory is usually presented.....

as a current asset immediately following account receivables

The base number (denominator) in the calculation of the return on assets is the

average total assets

A schedule explaining any differences between the balance show in the bank statement and the balance shown in the depositor's records.

bank reconciliation

The basis or denominator for calculating a trend percentage is

base-year amount

Investments in marketable securities are originally recorded at cost which includes....

brokerage commissions

The distinction between capital and revenue expenditures is that _____________ expenditures are recorded in asset accounts

capital

When only one class of stock is issued, rather than being called common stock, the title ___________________ stock is commonly sued

capital

money spent by a business or organization on acquiring or maintaining fixed assets, such as land, buildings, and equipment.

capital expenditure

The percentage that inventory represents of the total assets in a statement of financial position (balance sheet) is called the

component percentages

The accounting principle of _____________________ generally requires companies to use the same depreciation method in successive accounting periods

consistency

The cash account in the general ledger is often called the....

control account.

The LCM rule can be used in conjunction with any.....

cost flow assumption

If units of inventory have been purchased at several different costs, the inventory will include several different......

cost layers

Assets that are relatively liquid and are expected to become cash in the relatively near future are called

current assets

In the balance sheet, financial assets are shown at their _________________ ____________ meaning the amounts of cash that these assets represent

current values

The dividend becomes a liability for the company as of the date of

declaration

The book value of the fixed assets depreciated by the fixed percentage of declining balance depreciation method decreases every year and represents the

declining balance

A company had operating expenses of $400,000 in Year 1 and $450,000 in Year 2. Its net sales in these years were $900,000 in Year 1 and $1.1 million in Year 2. Which of the following best describes the trend in operating expense compared to sales?

decreased from 44.4% to 40.9%

A physical inventory is usually taken at or near the ________________________ of the company's fiscal year

end

Inventory is initially an asset, then becomes a ____________________ as those items are sold

expense

Building maintenance costs are treated as ________________________ of the current period

expenses

The current value of cash is simply its ______________ __________________

face amount

Includes, but also includes those assets easily and directly convertible into known amounts of cash

financial assets

These assets include cash, short-term investments (marketable securities), and receivables

financial assets

All three cost flow assumptions (Avg cost, FIFO and LIFO) are acceptable in

financial statements and income tax returns

Transactions between a corporation and its stockholders are classified in the statement of cash flows as

financing activities

The intangible asset that often results from superior management, a positive reputation and high market share is called

goodwill

In periods of rising prices, using an inventory method other than LIFO will result in

higher income taxes

Cash that will not be needed in the immediate future often is invested in...

highly liquid short-term securities

The ratio that indicates the length of time required to sell inventory is called the

inventory turnover rate

Earning more on debt than the cost of debt, enhancing the investment of common stockholders is

leverage

The efficient use of debt to earn a return for common stockholders' equity is called

leverage

If prices to acquire inventory are rising, FIFO will cause

lower income to be reported than under LIFO

Inventory is valued at the lower of its historical cost or its current replacement cost

lower-of-cost-or-market (LCM)

The best number to use for the numerator in the calculation of return on equity is

net income.

Receivables appear in the balance sheet at the estimated collectible amount called....

net realizable value

If the company intends to hold a marketable security for more than one year, then the security would be classified as a....

noncurrent asset

Unusual and/or infrequent gains and losses are sometimes referred to as

nonrecurring items

The LCM process is important in order to.....

not overstate the amount of inventory in the statement of financial position (balance sheet)

Gross profit minus operating expenses is called

operating profit

A promise a company makes to transfer goods and/or services to a customer

performance obligation

The timing of revenue recognition is directly tied to the completion of....

performance obligation

A perpetual inventory system is one in which

purchases are added to inventory and subtracted from inventory as these transactions occur

Judging the impact on earnings of the specific accounting methods a company chooses is sometimes referred to as the

quality of earnings

the impact on earnings and assets of the accounting methods selected by a company.

quality of earnings

The relationship of one number to another related number is called a

ratio

The timing of when revenue is included in a company's income statement is referred to as revenue....

recognition

To be eligible to receive a cash dividend, a stockholder must be listed in the company's stockholder record as of the date of

record

Inventory shrinkage is usually determined by

taking a physical inventory

The basis or denominator for computing a percentage change from Year 1 to Year 2 is

the Year 1 amount.

Consistency as applied to inventory accounting means that...

the company is expected to apply that method from year to year

The reason discontinued operations are presented separately in the income statement is...

to assist users in predicting future profitability

A calendar-year company had net income of $250,000 during the year. It had 75,000 outstanding shares of stock at the beginning of the year and sold an additional 15,000 shares on May 1. What is earnings per share (EPS) for the year?

$2.94

A company purchases identical inventory items for $100, $90, $115 and $120 in that order. It then sells 2 items. The company uses the LIFO inventory method. How much is the cost of goods sold for the 2 units that were sold?

$235

How many votes per share of stock does a stockholder ordinarily have?

1

A company has total assets of $1.5 million; sales of $4 million; and plant and equipment, net of depreciation, of $300,000. What is the component percentage for plant and equipment?

20%

Fill in the blanks to complete the sentence. Smith Company has total liabilities of $150,000, total assets of $500,000 and total equity of $350,000. The debt ratio is

30%

The officer whose daily responsibilities relate most directly to the accounting function of business operations is the....

CFO

Responsibility for selection of the depreciation methods used in financial reporting rests with

Company management

The number of shares a corporation is authorized to sell is legally established in the...

Company's articles of incorporation

Checking accounts may earn interest. At month-end, this interest is added to the depositor's account and reported in the bank statement

Credits for interest earned

A company's most liquid resource. (the ability of a company to service its debt, purchase inventory, pay taxes, and cover payroll).

Financial assets

Presents the profitability of the company's ongoing operations

Income from continuing operations

In a period of rising prices, the ______________________ inventory method comes the closest to matching income statement revenues and current costs

LIFO

Shares that have been sold and are in the hands of stockholders are called:

Outstanding

The promise a company makes to transfer goods or services to a customer is referred to as

Performance obligation

To calculate basic EPS on common stock, the dividend on _______________________ stock must first be subtracted from net income

Preferred

The method of amortization typically used for intangible assets is

Straight line amortization

The FIFO method is based on the assumption that.....

The most recent purchases should be in the statement of financial position (balance sheet) as an asset

T or F: After a corporation sells its stock to stockholders, changes in the market price of those shares directly affect the financial position of the stockholder but not the financial position of the corporation

True

True or false" As a general rule, all research and development costs are expensed as incurred

True

A dividend that pays cash to stockholders is referred to as a

cash dividend

A cost flow assumption is most appropriate when a large number of _____________________________ items where purchased at different prices

homogeneous

In calculating the interest coverage ratio, the numerator should be

income before income taxes and interest expense.

When a large amount of stock is to be issued, most corporations use the services of an investment banking firm that is frequently referred to as the.....

underwriter

Taking steps to artificially or temporarily improve the appearance of a company's financial statements is referred to as

window dressing

A company acquires land for $150,000 and immediately incurs costs for a driveway ($10,000) and fencing ($12,000.) What is the cost basis of the land in the accounting records?

$150,000. Driveway and fencing are in separate accounts that are depreciated

Land is purchased for $256,000. Additional costs include a $15,300 fee to a broker, a survey fee of $2,400, $1,750 to construct a fence, and a legal fee of $8,500. What is the cost of the land?

$282,200

If a company had assets of $500,000 at the beginning of the year and $600,000 at the end of the year and a return on assets of 10%, what was its net income for the year?

$55,000

A company had net income of $700,000 for the year. It had 100,000 shares of outstanding common stock and 12,000 shares of $10 par-value, 8%, cumulative preferred stock outstanding. What is basic EPS for the year? Multiple choice question.

$6.90

A company has sales revenue of $100,000; cost of goods sold of $40,000; operating expenses of $30,000; and nonoperating expenses of $5,000. What is the amount of gross profit?

$60,000

A company had beginning inventory and purchased inventory items during the year as follows. Beginning inventory: 100 units for $30: 1. 200 units for $32 2. 150 units for $35. No items were sold. A physical inventory at year end shows only 425 units on hand. The replacement cost at year end is $40 per unit. Assuming the company uses the FIFO method, how much is the inventory shrinkage loss that should be recognized?

$750. 25 units lost x $30 FIFO cost - $750

Plant assets represent

1. A bundle of future services 2. Advance purchases of services 3. Long-term prepaid expenses

Basic objectives of cash management

1. Prove accurate accounting 2. Minimize losses 3. Anticipate need for borrowing 4. Prevent cash sitting idle

LIFO is based on the assumptions that

1. The most recently purchased inventory is assumed to be sold first. 2. The oldest costs are retained in the balance sheet as an asset when items are sold

4 basic events are important in accounting for investments in marketable securities

1. The purchase of investments 2. The receipt of dividends 3. The sale of investments 4. End-of-period adjustments

A company has cash of $5,000; accounts receivable of $25,000; inventories of $35,000; accounts payable of $35,000; and retained earnings of $30,000. What is the company's current ratio, rounded to the nearest hundredth?

1.86

A company had gross profit of $500,000; operating income of $200,000; and net income of $100,000 during the year. Its statement of financial position (balance sheet) shows that its stockholders' equity began the year at $1 million and during the year was reduced to $950,000 by the purchase of treasury stock. What was the return on equity for the year, rounded to the nearest whole percentage?

10%

A company has stockholders' equity of $400,000 and $450,000 at the beginning and end of the current year, respectively. The company's net income for the year was $51,000. What was the return on equity for the year?

12%

A company's sales for the year were $650,000. Its accounts receivable was $50,000 at the beginning of the year and $60,000 at the end of the year. What were the average number of days to collect accounts receivable, rounded to the nearest whole day?

31 days

A company had operating income of $250,000 and net income of $300,000 for a year in which its total stockholders' equity was $800,000 at the beginning of the year and increased to $950,000 from the sale of additional capital stock during the year. What was the amount of the company's return on equity for the year, rounded to the nearest whole?

34%

In periods of rising prices, which of the following best describes the rationale for a company to use an inventory method other than LIFO?

A company using a method other than LIFO will report a higher net income

A company has outstanding preferred stock with a 5% dividend rate. The interest rate on debt when the preferred stock was issued is 3%. Today, the interest rate is 7%. what impact would you expect this to have on the market value of the preferred stock?

A decrease in the market value of the preferred stock.

The cost of a new windshield wiper on a delivery vehicle would be classified as:

A revenue expenditure

Recognizes more depreciation expense in the early years of an asset's useful life and less in the later years.

Accelerated Depreciation Method

Usually appear in the balance sheet immediately after cash and short-term investments

Accounts Receivable

In the balance sheet, inventory is listed immediately after....

Accounts receivable

While preparing the bank reconciliation, an accountant discovered that a $426 check returned with the bank statement had been recorded erroneously in the depositor's accounting records as $462. In preparing the bank reconciliation the appropriate action to correct this error would be to:

Add $36 to the balance per the depositor's records.

Computed by dividing the total cost of goods available for sale by the number of units in inventory

Average-cost of units

In a statement of cash flows, the term "cash" includes:

Bank accounts, cash on hand, and cash equivalents.

All things being equal, if investors expect earnings to increase substantially from current levels, the price to earnings ratio will:

Be quite high

Unusual and infrequent non-recurring items are found on the income statement:

Before discontinued operations.

A public company reported income from continuing operations (ICO) of $120,000 and net income (NI) of $100,000. It had 50,000 shares of common stock outstanding. What earnings per share (EPS) numbers should be included in the income statement?

Both $2 EPS on NI and $2.40 EPS on ICO.

If a public company's income statement includes both income from continuing operations and net income, which of the following indicate(s) the amounts for which EPS figures should be presented? Multiple choice question.

Both net income and income from continuing operations

How would an investor learn what inventory method was used in preparing a company's financial statements?

By studying notes in the financial statement

Money on deposit in banks and any items that banks will accept for deposit

Cash (coins, paper money, checks, money orders and traveler's checks)

Included in the amount of cash listed in the balance sheet, but these balances should be disclosed in the notes accompanying the financial statements.

Compensating balances

The total of net income, plus or minus the elements of other comprehensive income, is called

Comprehensive income

An agreement between two or more parties that creates enforceable rights and obligation for both parties

Contract

The form of business organization that is recognized under the law as a separate legal entity, with rights and responsibilities apart from those of its owners.

Corporation

Inventory in the statement of financial position (balance sheet) is directly linked to .......................... in the income statement

Cost of goods sold

Refers to recognizing revenue in the correct accounting period.

Cutoff

Cash receipts recorded by the depositor that reached the bank too late to be included in the bank statement for the current month

Deposits in transit

When a company disposes of a defined part of its business, the results are presented in a special section of the income statement called

Discontinued operations

Entries to recognize dividend revenue involves recording the increase in Cash and the recognition of........

Dividend Revenue

Reported in the income statement as a component of a company's net income. It most often appears near the bottom of the income statement in the computation of income before taxes

Dividend Revenue

If the preferred stock of a corporation is cumulative:

Dividends in arrears must be paid on preferred stock before any dividend can be paid on common stock.

Calculated by dividing the company's net income by the number of common shares outstanding

Earnings Per Share

The figure resulting from the division of net income by the number of shares of common stock outstanding is called

Earnings per share

The final section or item you would expect to find in a classified income statement is

Earnings per share

The price-earnings ratio is calculated by dividing the current market price by

Earnings per share

True or false: Calculating a percentage change starts with the second year and works backward to the first year.

False

True or false: The cost of inventory generally does not include any cash discounts taken

False

True or false: The only kind of potentially dilutive security that must be included in calculating diluted EPS is convertible preferred stock.

False

True or false: The quick ratio and the current ratio are two names for the same financial statement ratio.

False

True or false: The single-step income statement and the multiple-step income statement for the same company for the same year will result in different net income figures.

False

True or false: Treasury stock transactions may give rise to gains and losses that are included in the company's income statement.

False

In a statement of cash flows, a corporation's transactions with its owners in which it purchases and sells its own stock are classified as

Financing activities

Execucomp Corporation's financial statements in the current year show a loss from discontinued operations, a prior period adjustment, and an unusual and infrequent gain. If Execucomp's income statement is prepared according to generally accepted accounting principles (as illustrated in your text), which of the following four items would appear second in sequence in the income statement?

Income from continuing operations

All 3 cost flow assumptions are acceptable in financial statements and in __________________ _______________________ ________________________

Income tax returns

Comparing amounts for a company with other companies that have similar characteristics is called

Industry analysis

Aids in achieving the other objectives of efficient cash management including accurate accounting for cash transactions, anticipating the need for borrowing, and maintaining adequate but not excessive cash balances

Internal control

In a perpetual inventory system, as inventory is purchased, the cost of the purchase is added to what account?

Inventory?

Cash flows from investing activities relate to the acquisition and disposal of

Investments in other companies, plant assets and purchase of a patent from a competitor

In periods of rising prices, the inventory method that has the greatest income tax benefit to companies is the ________________ method

LIFO

In the period of rising prices, which inventory method is considered the most conservative?

LIFO

Results in a lower taxable income.

LIFO

Results n the lowest valuation of inventory and measurement of net income. Regarded as the most conservative of the inventory pricing methods.

LIFO

The cost flow assumption that assumes that the most recent purchases are sold before the less recent purchases is

LIFO

The cost flow assumption that assumes that the most recent purchases are sold before the less recent purchases is....

LIFO

The costs assigned to the cost of goods sold are relatively current because they reflect the most recent purchases

LIFO

The most widely used inventory method is

LIFO

In periods of rising prices, why might companies prefer LIFO over FIFO?

LIFO will result in lower income taxes

Land and a building may be purchased with the intent to immediately replace the building. The entire purchase price should be recorded in the _____________ account

Land

Land improvements are recorded in separate accounts and depreciated over their useful lives. These include all of the following except....

Legal fees to transfer the title

Shareholders are not personally responsible for the debts of the corporation

Limited personal liability

Reasons for a business to incorporate...

Limited shareholder liability and transferability of ownership

Bank has agreed in advance to lend the company any amount of money up to a specified limit. The company can borrow this at any time by drawing checks on a special account. Liability rises as it is used.

Line of credit

An advocate of the just-in-time inventory system would advocate:

Maintaining a small inventory supply.

The price-earnings ratio is the:

Market price of a share of common stock divided by EPS.

Most short-term investments appear in the balance sheet at their current _____________ _____________. Exception to the cost principle.

Market values

A control account used to report all of the company's short-term investments

Marketable securities

The deposit should treat an _______________________ as an account receivable from the customer, not as cash

NSF check

Which of the following best describes the book value of a share of stock?

Net assets divided by the number of shares outstanding.

When a stock dividend is declared, total stockholders' equity will:

Not change

Loss in inventory value due to a decline in market value

Obsolescence

Dividends become a liability of a corporation:

On the date the board of directors declares the dividend.

Inventory is expected to be converted into cash within the company's....

Operating cycle

Contributions by investors in exchange for capital stock is also called...

Paid-in-capital and contributed capital

Which of the following inventory method eliminates the need to apply a cost flow assumption in accounting for inventory and cost of goods sold

Specific identification

Which depreciation method is most commonly used among publicly owned corporations?

Straight line

If a corporation has only common stock outstanding, which of the following constitutes legal capital at a particular date?

The amount in the Common Stock account.

When a corporation issues capital stock at a price higher than the par value:

The amount received in excess of par value becomes part of paid-in capital.

How would you describe accounting for the impairment of a plant asset?

The asset is written down to its fair value and an impairment loss is recognized in income

Which of the following is preferred for the assets and stockholders' equity numbers in calculating the return on assets and the return on stockholders' equity?

The average of the beginning and ending balances.

Avoids the cost of maintaining records of the specific cost of each inventory item

The average-cost method

The gain on the disposal of equipment is recognized when

The book value of the equipment is less than the value received

The assets of a corporation belong to _____________________________

The corporation

If a trademark is purchased from another company and expected to be used to generate revenue for at least 20 years, which of the following describes the appropriate accounting?

The cost is capitalized and amortized over the periods expected to benefit from the trademark's issue

In a perpetual inventory system, as inventory is sold, what occurs within the accounting system?

The cost is removed from Inventory account and transferred to the Cost of Goods Sold account in the income statement at the time of sale

In a perpetual inventory system, as inventory is sold, what occurs within the accounting system

The cost is removed from the inventory account and transferred to the Cost of Goods Sold account in the income statement at the time of sale.

Which of the following is correct about the flow of inventory within the financial statements?

The cost of inventory is offset in the income statement against the amount for which the inventory is sold.

When comparing the units-of-output method of depreciation with straight-line depreciation:

The depreciation expense in the first year may be greater than, equal to, or less under the units-of-output method.

Under the declining-balance method, which of the following is not correct?

The depreciation percentage changes every year?

Revenue is generally included in the income statement when

The earning process is complete

Copyrights are granted by

The federal government

The average cost of inventory is calculated by dividing

The total cost of goods available for sale by the number of units in inventory

On January 1, Year 1, Juniper Corporation issued 60,000 shares of its total 200,000 authorized shares of $4 par value common stock for $8 per share. On December 31, Year 1, Juniper Corporation's common stock is trading at $12 per share. Assuming Juniper Corporation did not issue any more common stock in Year 1, how does the increase in value of its outstanding stock affect Juniper?

This increase in market value of outstanding stock is not recorded in the financial statements of Juniper Corporation.

What is the primary motivation for stockholders to purchase preferred stock?

To have a more secure dividend flow than is expected from common stock

The term paid-in capital means:

Total stockholders' equity minus retained earnings.

Capital stock of a company that has been sold, repurchased, and held for future resale is called

Treasury stock

T or F: The cost of a plant asset includes not only the acquisition price but also all reasonable and necessary expenditures to prepare the asset for use

True

True or false: A prior period adjustment can be either a positive or a negative adjustment to the amount of retained earnings.

True

True or false: Continuing operations refers to the normal, recurring operations of a company and excludes the result of any segment of the business that has been sold or otherwise disposed of

True

True or false: Public opinion polls show that people generally overstate the amount of profit earned by companies.

True

True or false: The average cost method eliminates the need to apply either the LIFO or FIFO inventory method

True

True or false: The statement of cash flows is believed to provide information that is particularly useful to stockholders, creditors, suppliers, and employees.

True

True or false: When a cost flow assumption is used, the seller makes an assumption as to the sequence in which units are withdrawn from inventory as sales are made

True

In which of the of the following circumstances is the specific identification method appropriate?

When the individual cost of each specific item can be identified in the accounting records

Over the useful life of an asset, the depreciation method that results in more depreciation in the early years is referred to as ______________________________ depreciation

accelerated

The depreciation method most widely used for income tax purposes is

accelerated depreciation

The financial statement ratio that measures how rapidly accounts receivable are collected is called the

accounts receivable turnover rate

The cost flow assumption selected need not correspond to the.......

actual physical movement of merchandise

Differences between the purchase price and the subsequent sales price of treasury stock are presented in the financial statements as

adjustments to paid-in capital.

The systematic write-off of the cost of an intangible asset is referred to as

amortization

Capital expenditures are recorded as

an asset

These three elements make up the primary elements of a company's liquidity strategy

cash, marketable securities and accounts receivable

Corporations whose shares are not traded on any organized stock exhanges

closely held corporations

Shares of stock that have been issued and are in the hands of stockholders are called __________________ share

common

Financial statements that present multiyear information in side-by-side columns are called...

comparative financial statements

Purchases and sales of inventory occurring near year-end are recorded in the correct accounting period

cutoff

In the bank reconciliation, every adjustment to the balance in the depositor's records is a cash receipt or a cash payment that has not been recorded in the.....

depositor's accounts

Allocating the cost of a plant asset to expense over its useful life is referred to as

depreciation

The EPS number that reflects the potential future decline in EPS that could result from conversions of other securities into common stock is referred to as

diluted EPS

The number of days required to collect receivables is determined by.....

dividing 365 days by the turnover rate

The accounts receivable turnover is calculated by

dividing net sales by the average accounts receivable

inventory turnover is calculated by

dividing the cost of goods sold by the average inventory

Comparing amounts for a company over time in successive accounting periods is called Multiple choice question.

horizontal analysis

A negative (credit) balance in the Cash Over and Short account means that cash is....

in excess and shown as a miscellaneous revenue

If a company has discontinued operations during the year, which of the following is the most useful in predicting future profitability?

income from continuing operations

The financial statement that provides the information that is most directly related to a company's financial performance during an accounting period is the

income statement

Unused portion of _______________________________ is neither an asset nor a liability; it simply represents the ability to borrow money quickly and easily

line of credit

A dividend that represents a return to the stockholder of the original investment in the company is referred to as a

liquidating dividend

A dividend that represents a return of a stockholder's original investment rather than a distribution based on the earnings of the company is called a Multiple choice question.

liquidating dividend.

A company's ability to meet its obligations on an ongoing basis is generally referred to as the company's

liquidity

Although an unused line of credit does not appear as an asset or a liability in the balance sheet, it increases the company's.....

liquidity

The ability of a company to meet its continuing obligations is referred to as

liquidity

The cost of equipment does not include what type of costs?

maintenance

The price at which shares of stock are sold from one investor to another represents the ___________________ value of the shares

market

Investments in marketable securities earn a return for the investor in the form of dividends or interest and- if all goes well- an increase in.......

market value

A positive (debit) balance in the Cash Over and Short account means that cash is...

missing and that the amount is an expense

Each ____________, the depositor prepares a bank reconciliation to verify that these independent sets of records are in agreement

month

The average cost method that is most commonly used with a perpetual inventory system is as the _____________________ average method

moving

An income statement that includes subtotals of profitability at intermediate steps is called a(n)

multi-step income statement

If you invest in a ___________________ or have a _________________, you have an indirect financial interest in the stocks of many publicly owned corporations

mutual fund; pension plan

The general formula for calculating earnings per share is

net income divided by the number of shares of common stock outstanding

Determining the cost of goods sold is deferred to the end of the accounting period and is based on the amount of inventory at hand

period inventory system

Long-lived assets that are expected to provide service over several years are referred to as.......

plant assets

The primary purpose of of a stock split is to

reduce the market price of the company's common stock

Converts the retail amount of inventory to cost using a cost ratio

retail inventory method

The return on investment is calculated as follows

return divided by average amount invested during the period

The return on investment is calculated as follows:

return divided by average amount invested during the period

is a broad measure of profitability of a company based on the total investment in the company.

return on assets

An important principle of financial reporting that determines when revenue should be recorded and included in a company's financial statements

revenue recognition

Inventory is an asset that is held for

sale

The income statement format that groups all revenues together, less all expenses grouped together, with no intermediate subtotals in arriving at a net income amount is the

single-step income statement

Inventory costs flow from the balance sheet to the income statement at the point in time that the inventory is

sold

The inventory method that is most appropriate for high dollar items that are unique and whose cost can be individually determined is the __________________ _______________________ method.

specific identification

As evidence of a stockholder's ownership, each stockholder receives from the corporation a ____________________ ______________________ that indicates the number of shares he or she owns.

stock certificate

Which of the following require(s) a transfer of an amount equal to the market value of the shares distributed from retained earnings to paid-in capital?

stock divdend

The distribution of a relatively small percentage of shares to existing stockholders in proportion to their present holdings is called a

stock dividend

The corporate officer identified who has custody of the company's funds and is generally responsible for planning and controlling the company's cash position is the....

treasurer

Changes in a company's revenues, expenses, operating income, and net income are referred to as ______________ in earnings

trends

When land and buildings are purchased together, the purchase price must be allocated among the.....

types of assets acquired