Accounting 001 - Study questions chapters 11-14
A 15% change in sales will result in a 15% change in the net income
False
A bond is usually divided into a number of individual bonds of $500 each
False
A corporation is a separate entity for accounting purposes but not for legal purposes
False
A major disadvantage of the indirect method of reporting cash flows from operating activities is that the difference between the net amount of cash flows from operating activities and net income is emphasized
False
Cash flows from investing activities, as part of the statement of cash flows, would include any receipts from the issuance of bonds payable
False
Double taxation is a disadvantage of a corporation because the corporation has to pay income taxes at twice the rate applied to partnerships
False
If a corporation is liquidated, preferred stockholders are paid before the creditors and before the common stockholders
False
If the accounts receivable turnover for the current year has decreased when compared with the ratio for the preceding year, there has been an acceleration in the collection of receivables
False
If the market rate of interest is 8% and a corporation's bond bear interest at 7%, the bonds will sell at a premium
False
In a common-sized income statement, each item is expressed as a percentage of net income
False
In horizontal analysis, the current year is the base year
False
Organizational expenses are classified as intangible assets on the balance sheet
False
The issuance of common stock affects both paid-in-capital and retained earnings
False
The number of shares of outstanding stock is equal to the number of shares authorized minus the number of shares issued
False
The par value of common stock must always be equal to its market value on the date the stock is issued.
False
The prices of bonds are quoted as a percentage of the bond's' market value
False
Twenty percent of all businesses in the United States are corporations, and they account for 80% of the total business dollars generated.
False
Using vertical analysis of the income statement, a company's net income as a percentage of sale is 15%; therefore, the cost of goods sold as a percentage of sales must be 85%
False
A bond is simply a form of an interest-bearing note
True
A decrease in the ratio of liabilities to stockholders equity indicates an improvement in the margin of safety for creditors
True
Amortization is the allocation process of writing off bond premiums and discounts to interest expense over the life of the bond issue
True
Bondholders claims on the assets of the corporation rank ahead of stockholders
True
Bonds are sold at face value when the contract rate is equal to the market rate of interest
True
Both callable and noncallable bonds can be purchased by the issuing corporation in the open market
True
Cash flows from investing activities, as part of the statement of cash flows, would include any receipts from the sale of land.
True
Cash outflows from financing activities include the payment of cash dividends, the acquisition of treasury stock, and the repayment of amounts borrowed
True
Cash, as the term is used for the statement of cash flows, could indicate either cash or cash equivalents
True
Current position analysis is used by short-term creditors to assess how quickly they will be repaid
True
If the straight-line method of amortization is used, the amount of unamortized premium on bonds payable will decrease as a\the bonds' approach maturity
True
One of the prerequisites to paying a cash dividend is sufficient retained earnings
True
Rarely will the cash flows from operating activities, as reported on the statement of cash flows, be the same as the net income reported on the income statement.
True
Solvency analysis focuses on the ability of a business to pay its current and non current liabilities
True
The acquisition of land in exchange for common stock is an example of non cash investing and financing activity
True
The analysis of increases and decreases in the amount and percentages of comparative financial statement items is referred to as horizontal analysis
True
The direct method of preparing the operating activities section of the statement of cash flows reports major classes of cash receipts and cash payments related to the day-to-day operations of the business
True
The excess of current assets over current liabilities is referred to a s working capital
True
The market rate of interest is affected by a variety of factors, including investors' assessment of current economic conditions
True
The par value of stock is an assigned per share amount defined in many states as legal capital
True
The statement of cash flows shows the effects on cash of a company's operating, investing and financing activities.
True
To arrive at cash flows from operations, it is necessary to convert the income statement from an accrual basis to the cash basis of accounting
True
