Accounting Exam 1

Generally Accepted Accounting Principles (GAAP) are created by: (select all that apply) A) The Securities and Exchange Commission B) The Generally Accepted Accounting Principles Task Force C) The Sarbanes Oxley Act D) The Financial Accounting Standards Board E) The Public Company Accounting Oversight Board

A and D

At the end of the current fiscal year, Nick's Greenhouse counted inventory and determined that inventories of $69,728 were on hand. The end of fiscal year the unadjusted inventory account balance is $76,000. Inventory at the start of the year was $79,904. Which of the following accounting adjustments should Nick's Greenhouse record? (refer to pic)

A) Balance Sheet Income Statement Cash Asset + Noncash Assets = Liabilities + Contrib. Capital + Earned Capital Revenues - Expenses = Net Income -6,272 (Inventory) = -6,272 (Retained earnings) - +6,272 (COGS) = -6,272

During the year, Macur Inc. had sales of $10,913,300, total expenses of $10,277,256 and gross profit of $5,108,782. What was the company's cost of sales for the year? ($ in thousands) A) $ 5,804,518 thousand B) $ 5,744,826 thousand C) $10,277,256 thousand D) $ 1,807,888 thousand E) There is not enough information to calculate the cost of sales.

A) $ 5,804,518 thousand

On December 31 Starstruck Corporation reported, on its Form 10-K, the following (in millions): Total assets $21,494.3 Total stockholders' equity 8,836.1 Total current liabilities 6,820.4 What did Starstruck report as total liabilities on December 31? A) $12,658.2 million B) $ 5,837.8 million C) $14,673.9 million D) $23,510.0 million E) None of these are correct.

A) $12,658.2 million

Kelty Company's year-end financial statements reported the following (in millions): Total assets $41,278 Total liabilities 29,465 Total shareholders' equity 11,813 Dividends 205 Net income (loss) 3,160 Retained earnings, Jan. 1 11,425 What did Kelty Company report for retained earnings at December 31? A) $14,380 million B) $14,768 million C) $14,790million D) $14,585 million E) There is not enough information to determine the answer.

A) $14,380 million

Trio Company's December 31, Year 2, financial statements reported the following (in millions). Cash December 31 $1,698 Cash from operating activities $2,256 Cash from investing activities $(1,460) Cash from financing activities $(1,313) What did Trio Company report for cash on its December 31, Year 1 balance sheet? A) $2,215 million B) $3,422 million C) $ 517 million D) $1,181 million E) None of these are correct

A) $2,215 million

At year-end, ABC Auto had current assets of $10,838 million and current liabilities of $8,296 million. The firm's net working capital is: A) $2,542 million B) $10,838 million C) $(2,542) million D) 19,134 million E) None of these are correct.

A) $2,542 million

On its annual statement of cash flows, Bell Inc. reports the following (in millions): Net cash from operating activities $1,778 Net cash from investing activities (25,005) Cash at the beginning of the year 5,261 Change in cash during the year 2,318 What did Bell report for "Net cash from financing activities" during the year? A) $25,545 million cash inflow B) $25,545 million cash outflow C) $28,488 million cash inflow D) $28,488 million cash outflow E) None of these are correct.

A) $25,545 million cash inflow

ABC Corporation reports the following (in $ millions): net income of $445, retained earnings at the end of the year of $10,018, and retained earnings at the beginning of the year of $9,863. Assume that there were no other retained earnings transactions during the year. What dividends did the firm pay during the year? A) $290 million B) $600 million C) $155 million D) $-0- E) There is not enough information to calculate the amount.

A) $290 million

In its December 31, year-end financial statements, Davidson reported the following (in millions): Long-term Assets: $4,829 Current Liabilities: $ 2,290 Long-term Liabilities: $4,086 Total Liabilities: $6,376 Equity: $1,536 At December 31, current assets amount to: A) $3,083 million B) $1,547 million C) $2,290 million D) $5,622 million E) None of these are correct.

A) $3,083 million

On September 30, Star Corporation reported, in its annual report, the following (in millions): Year 1: Total expenses : $24,605.1 Operating income: $5,401.5 Net Earnings: $4,139.0 Year 2: Total expenses : $27,745.5 Operating income: $6,257.9 Net Earnings: $4,228.4 What amount of revenues did Star Corporation report for the year ended September 30, Year 2 (in millions)? A) $31.973.9 B) $34,003.4 C) $29,775.0 D) $27,834.9 E) None of these are correct.

A) $31.973.9

Prestige Company has determined the following information for its recent fiscal year. Days inventory outstanding 85.4 days Days payable outstanding 113.6 days Days sales outstanding 182.6 days Compute Prestige Company's cash conversion cycle. A) 154.4 days B) 16.4 days C) 210.8 days D) 199.0 days E) None of these are correct.

A) 154.4 days

Sales for the year = $341,126, Net Income for the year = $38,441, Income from equity investments = $9,033, and average Equity during the year = $123,650. Return on equity (ROE) for the year is: A) 31.1% B) 11.3% C) 7.3% D) 2.6% E) There is not enough information to answer the question.

A) 31.1%

On December 31, Sleek Corporation reported, on its annual report, the following (in millions): Year 1: Operating income: $3,673.0 Net Earnings: $2,759.3 Year 2: Operating income: $4,255.3 Net Earnings: $2,875.3 Calculate year-over-year increase or (decrease) in net earnings, in percentage terms. A) 4.2% B) 15.9% C) 16.8% D) 4.0% E) None of these are correct.

A) 4.2%

On December 31, Harper, Inc., reported, on its year-end financial statements, the following (in millions): Year 1: Total assets : $11,968 Total Sales: $7,194 Net Income: $902 Year 2: Total assets : $11,868 Total Sales: $7,195 Net Income: $692 Calculate return on assets (ROA) for Year 2. A) 5.8% B) 60.6% C) 60.4% D) 6.8% E) None of these are correct.

A) 5.8%

In its 2016 annual report, Malibu Inc. reported the following (in millions) on its year-end balance sheet: Total liabilities $4,086.0 Total shareholders' equity $2,648.6 What proportion of Malibu Inc. is financed by nonowners? A) 60.7% B) 39.3% C) 64.8% D) 78.6% E) None of these are correct.

A) 60.7%

Which of the following statements are correct (select all that apply)? A) A balance sheet reports on investing and financing activities. B) An income statement reports on financing activities. C) The statement of equity reports on changes in the accounts that make up equity. D) The statement of cash flows reports on cash flows from operating, investing, and financing activities over a period of time. E) A balance sheet reports on a company's assets and liabilities over a period of time.

A) A balance sheet reports on investing and financing activities. C) The statement of equity reports on changes in the accounts that make up equity. D) The statement of cash flows reports on cash flows from operating, investing, and financing activities over a period of time.

The cash conversion cycle is computed as A) Days sales outstanding + Days inventory outstanding - Days payable outstanding B) Days sales outstanding - Days payable outstanding C) Days sales outstanding - Days inventory outstanding D) Days sales outstanding - Days inventory outstanding + Days payable outstanding E) None of these are correct.

A) Days sales outstanding + Days inventory outstanding - Days payable outstanding

Which of the following are included in current assets? A) Prepaid rent B) Taxes payable C) Automobiles D) Common stock E) None of these are correct.

A) Prepaid rent

During its first three months of operations, Cari's Bakery, Inc. purchased supplies such as plates, napkins, bags, and cutlery for $7,200 and recorded this as supplies inventory. Supplies on hand at the end of the first quarter, amount to $4,480. To prepare a financial statement for the first quarter, the company must record which of the following accounting adjustments? A. Increase Supplies expense by $2,720 and decrease Supplies inventory by $2,720 B. Increase Supplies expense by $4,480 and decrease Supplies inventory by $4,480 C. Increase Supplies inventory by $4,480 and decrease Supplies expense by $4,480 D. Increase Supplies inventory by $2,720 and decrease Supplies expense by $2,720 E. None of these are correct.

A. Increase Supplies expense by $2,720 and decrease Supplies inventory by $2,720

During the year, Plastics Company recorded cash of $70,240 from customers for accounts receivable collections. Which of the following financial statement effects template entries captures this transaction? (refer to picture)

B) Balance Sheet Income Statement Cash Asset + Noncash Assets = Liabilities + Contrib. Capital + Earned Capital Revenues - Expenses = Net Income +70,240 -70,240 (AR) = - =

In its year-end financial statements, Naperville, Inc. reported cash of $6,276 million. The statement of cash flows reports the following (in millions): Net cash from operating activities $6,192 Net cash from investing activities (2,068) Net cash from financing activities (5,552) What was the balance in Naperville's cash account at the start of the current year? A) $ 4,848 million B) $ 7,704 million C) $ 1,428 million D) $12,468 million E) None of these are correct.

B) $ 7,704 million

During the year, Sparkle Inc. had Sales of $2,850.6 million, Gross profit of $1,307.7 million and Selling, general, and administrative expenses of $1,022.4 million. What was Sparkle's Cost of sales for the year? A) $1,828.2 million B) $1,542.9 million C) $2,330.1 million D) $ 285.3 million E) There is not enough information to calculate the amount.

B) $1,542.9 million

As inventory and property plant and equipment on the balance sheet are consumed, they are reflected: A) As a revenue on the income statement B) As an expense on the income statement C) As a use of cash on the statement of cash flows D) On the balance sheet because assets are never consumed E) Both B and C because the financial statements articulate

B) As an expense on the income statement

In its year-end financial statements, Pillar Inc. reported the following (in millions): Year 1: Sales: $47,011 Costs of goods sold: $33,546 Year 2: Sales: $38,537 Costs of goods sold: 28,309 As a percentage of sales, did Pillar's gross profit increase or decrease during the year? A) Gross profit increased from 25.0% to 28.6% B) Gross profit decreased from 28.6% to 25.0% C) Gross profit increased from 71.4% to 75.0% D) Gross profit decreased from 75.0% to 71.4% E) There is not enough information to answer the question.

B) Gross profit decreased from 28.6% to 25.0%

A company's net cash flow will equal its net income ... A) Almost always B) Rarely C) Occasionally D) Only when the company has no investing cash flow for the period E) Only when the company has no investing or financing cash flow for the period

B) Rarely

Which of the following accounts would not appear in a closing entry? A. Interest expense B. Accumulated depreciation C. Cost of goods sold D. Dividends E. Both B and D

B. Accumulated depreciation

As inventory and PPE assets on the balance sheet are consumed, they are reflected: A. As a revenue on the income statement B. As an expense on the income statement C. As a cash flow outflow on the Statement of Cash flows D. Both B and C E. Assets are never consumed.

B. As an expense on the income statement

During the year, Dixon Inc., reported net income of $3,008 million. The company declared dividends of $818 million. The closing entry for dividends would include which of the following? A. Credit Cash for $818 million b. Credit Dividends for $818 million C. Debit Net income for $818 million D. Credit Retained earnings for $1818 million E. Debit Dividends for $818 million

B. Credit Dividends for $818 million

A company records an adjusting journal entry to record $10,000 depreciation expense. Which of the following describes the entry? A. Debit Property Plant and Equipment and Credit Depreciation expense B. Debit Depreciation expense and Credit Property Plant and Equipment C. Debit Property Plant and Equipment and Credit Cash D. Debit Depreciation expense and Credit Cash E. Debit Net Income and Credit Property Plant and Equipment

B. Debit Depreciation expense and Credit Property Plant and Equipment

Cari's Bakery, Inc., began operations in October. The owner contributed cash of $14,400 and a delivery truck with fair value of $19,200 to the company. Which of the following describes how these transactions would affect the company's equity accounts? A. Increase contributed capital by $33,600 B. Increase earned capital by $33,600 C. Increase contributed capital by $14,400 and earned capital by $19,200 D. Increase earned capital by $14,400 and contributed capital by $19,200 E. None of these are correct.

B. Increase contributed capital by $33,600

Sales on account would produce what effect on the balance sheet? A. Increase the Revenue account B. Increase noncash assets (Accounts receivable) C. Increase cash assets D. A and B E. A, B and C

B. Increase noncash assets (Accounts receivable)

The SEC adopted Regulation FD, to curb public companies' practice of: A. Routinely filing extensions for annual reports (Form 10-K) B. Selectively disclosing information C. Reporting pro forma (non-GAAP) numbers D. Hiring auditors for non-audit services such as consulting engagements E. None of these are correct

B. Selectively disclosing information

Which of the following are not one of the five forces that determine a company's competitive intensity? (Select as many as apply) A) Bargaining power of suppliers B) Threat of substitution C) Ability to obtain financing D) Threat of entry E) Threat of regulatory intervention

C and E

United Company's year-end balance sheet reported the following (in millions) Total Assets $100,228 Total Liabilities 78,713 Contributed Capital 8,933 What was United Company's total liabilities and stockholders' equity at December 31? A) $ 87,646 million B) $ 91,295 million C) $ 100,228 million D) $21,515 million

C) $ 100,228 million

Page's June 30, year-end financial statements reported the following (in millions): Cash, beginning of year $17,090 Cash, end of year $17,755 Cash from operating activities $38,588 Cash from investing activities $(13,938) What did Page report for cash from financing activities for the year ended June 30? A) $ 23,985 million B) $25,315 million C) $(23,985) million D) $25,315 million E) $24,650 million

C) $(23,985) million

TeleLink reports retained earnings at the end of the current year of $32,598 million and retained earnings at the end of the previous year of $30,091 million. The company reported dividends of $3,940 million and other transactions with shareholders that reduced retained earnings during the current year by $1,806 million. How much net income did the firm report in the current year? A) $2,507 million net income B) $8,253 million net loss C) $8,253 million net income D) $2,507 million net loss E) None of these are correct.

C) $8,253 million net income

Sales for the year = $296,024, Net Income for the year = $22,965, and average Assets during the year = $163,628. Return on Assets (ROA) for the year is: A) 55.3% B) 7.8% C) 14.0% D) There is not enough information to calculate ROA. E) None of these are correct.

C) 14.0%

In its 2016 annual report, Kehl's Corporation reported the following (in millions): Total assets $20,361 Total shareholders' equity $ 7,766 Total liabilities $12,596 What proportion of Kehl's Corporation is financed by nonowners? A) 44.8% B) 38.1% C) 61.9% D) 61.7% E) None of these are correct.

C) 61.9%

Interest expense appears in which financial statement? A) Statement of stockholders' equity B) Balance sheet C) Income statement D) Statement of cash flows E) All of the above

C) Income statement

How would cash collected on accounts receivable affect the balance sheet? A) Increase liabilities and decrease equity B) Decrease liabilities and increase equity C) Increase assets and decrease assets D) Increase assets and increase equity

C) Increase assets and decrease assets

Assets are recorded in the balance sheet in order of: A) Market Value B) Historic Value C) Liquidity D) Maturity E) None of these are correct.

C) Liquidity

The ratio of net income to equity is also known as: A) Total net equity ratio B) Profit margin C) Return on equity D) Net income ratio E) None of these are correct.

C) Return on equity

As of December 31, Drake Inc. reported the following (in millions): Current Assets: $25,574 Long-term Assets: $34,190 Current Liabilities: $20,906 Total Liabilities: $49,193 What amount did Drake Inc. report as equity on December 31? A) $38,858 million B) $59,764 million C) $13,966 million D) $10,571 million E) None of these are correct.

D) $10,571 million

At year-end, Rapid Airlines had negative net working capital of $(4,692) million and current assets of $8,996 million. The firm's current liabilities are: A) $4,692 million B) $4,304 million C) $10,472 million D) $13,688 million E) There is not enough information to calculate the amount.

D) $13,688 million

In its 2019 annual report, Snap-Tite Incorporated reported the following (in millions): Current assets $1,884.0 Total shareholders' equity $2,635.2 Total liabilities $2,088.0 What did Snap-Tite report as total assets at year-end? A) $6,607.2 million B) $2,839.2 million C) $3,972.0 million D) $4,723.2 million E) None of these are correct.

D) $4,723.2 million

Tully Corporation reported the following on its annual income statement (in millions) Sales revenue $118,774 Gross profit $72,382 Total expenses $46,634 What did Tully report for cost of goods sold during the year? A) $31.004 million B) $93,026 million C) $25,748 million D) $46,392 million E) None of these are correct.

D) $46,392 million

At year end, Kay Corporation had net working capital of $4,546 million and current liabilities of $5,948 million. The firm's current assets are: A) $1.402 million B) $10,494 million C) $16,442 million D) $5,948 million E) None of these are correct.

D) $5,948 million

On its year-end balance sheet, Hasten Inc., reported cash and cash equivalents at the start of the year of $43,315 thousand. By the end of the year, the cash and cash equivalents had decreased to $40,931 thousand. The company's statement of cash flows reported cash from operating activities of $249,540 thousand, cash from financing activities of $(184,163) thousand. What amount did the company report for cash from investing activities? A) $62,993 thousand cash inflow B) $62,993 thousand cash outflow C) $67,761 thousand cash inflow D) $67,761 thousand cash outflow E) None of these are correct.

D) $67,761 thousand cash outflow

Following is Stanley's income statement for the year (in millions): STANLEY INC. Income Statement For the year ended December 31 ($ millions) Sales $11,406.9 Cost of goods sold 7,068.3 Gross profit $4,338.6 Selling, general and administrative expenses 2,576.0 Other operating expenses 265.5 Operating income 1,497.1 Interest and other non-operating expenses 169.6 Income before income tax 1,327.5 Income tax expense 258.6 Net income $1,068.9 Compute Stanley's gross profit margin. A) 62.0% B) 13.1% C) 9.4% D) 38.0% E) None of these are correct.

D) 38.0%

How would a sale of $320 of inventory on credit affect the balance sheet if the cost of the inventory sold was $128? A) It would increase noncash assets by $320 and increase equity by $320 B) It would decrease noncash assets by $128 and decrease equity by $128 C) It would increase cash by $320 and increase equity by $320 D) Both A and B, above happen simultaneously E) None of these are correct.

D) Both A and B, above happen simultaneously

On December 31, Nate Inc. reported the following (in millions): Current Assets $ 2,594 Current Liabilities: $2,423 Long-term Liabilities: $3,167 Equity: $696 What amount did the company report as total assets? A) $5,590 million B) $7,488 million C) $3,692 million D) $8,880 million E) None of these are correct.

E) None of these are correct.

During the year, Kale Inc. had Sales of $28,029 million, Cost of merchandise sold of $17,916 million, and Gross profit of $10,112 million. What was net income for the year? A) $ 7,949 million B) $10,112 million C) $17,916 million D) $28,029 million E) There is not enough information to calculate the amount.

E) There is not enough information to calculate the amount.

On its year-end balance sheet, Blue Corporation, reported cash of $354 million at year-end. The statement of cash flows reports that cash increased by $92 million during the year and that net cash flow from operating activities was $1,306 million. What was the cash flow from investing activities during the year? A) $ 446 million cash outflow B) $1,044 million cash inflow C) $ 446 million cash inflow D) $1,044 million cash outflow E) There is not enough information to determine the amount.

E) There is not enough information to determine the amount.

Identify which of the following items would be reported in the income statement. a. Cash d. Wage expense g. Net income b. Sales e. Wages payable h. Inventory c. Long-term debt f. Retained earnings i. Cost of goods sold Items reported in the income statement would include: A) b, e, g, and h B) a, b, d, and i C) b, e, f, and g D) d, f, g, and h E) b, d, g, and i

E) b, d, g, and i

Which of the following accounts would not be involved in preparing the income statement? A. Depreciation expense B. Accumulated depreciation C. Taxes payable D. Interest income E. B and C

E. B and C

Which of the following accounts would not appear in a closing entry? A. Net income B. Depreciation expense C. Cost of goods sold D. Inventory E. Both A and D

E. Both A and D

How would a purchase of $320 of inventory on credit affect the income statement? A. It would increase cost of goods sold by $320. B. It would decrease liabilities by $320. C. It would decrease noncash assets by $320. D. It would decrease net income by $320. E. None of these are correct.

E. None of these are correct.

A company closes all of its accounts in order to zero out the balances so that next period starts with a fresh slate.

F

A customer's prepayment for services not yet rendered is initially recorded as unearned revenue (a liability). Then, at the end of the accounting period, the unearned revenue is moved from the balance sheet to the income statement. This is an example of the revenue recognition principle.

F

According to the revenue recognition principle, companies are required to record revenue when cash is received as this provides the most objective evidence for the auditors.

F

Accrual accounting recognizes revenues only when cash is received and expenses only when cash is paid.

F

All companies must file with the SEC a detailed annual report and discussion of their business activities in their Form 10-K.

F

Assets are reported on the balance sheet at their current market value.

F

Expenses that are paid in advance are held on the balance sheet until the end of the accounting period when they are transferred to the income statement with accounting adjustments.

F

Net working capital = Current assets + Current liabilities

F

Retained earnings articulate across time which means that last period's retained earnings plus current period net income (or loss) is equal to the current period's retained earnings.

F

Revenue is typically recorded as earned when cash is received because that is when the company can measure the revenue objectively.

F

Revenues and expenses affect the income statement but not the balance sheet.

F

The book value of stockholders' equity (the amount reported on the balance sheet) is most typically equal to the market value of the equity of a company.

F

The income statements of the prior and current year are linked via the balance sheet.

F

The statement of cash flows has three main sections: cash flows from operating activities, cash flows from investing activities, and cash flows from capital activities.

F

There is a certain order in which a company prepares its financial statements. First, a company prepares its balance sheet.

F

To close revenue accounts, a company must debit Retained Earnings because Revenue has a credit balance and debits must equal credits.

F

When shareholders contribute capital to a company, earned capital increases because the company has earned the shareholders' investments.

F

A "clean" audit report asserts—among other things—that (a) the auditor has prepared all necessary financial statements and (b) management has expressed its opinion that they are prepared in conformity with GAAP.

False

A balance sheet shows a company's position over a period of time, whereas an income statement, statement of stockholders' equity, and statement of cash flows show its position at a point in time.

False

Consider two companies (A and B) with equal profit margins of 18%. Company A has an asset turnover of 1.2 and Company B has an asset turnover of 1.5. If all else is equal, Company B with its' higher asset turnover, is less profitable because it requires more revenue to turn its assets over.

False

If a company reports retained earnings of $175.3 million on its balance sheet, it must also report $175.3 million in cash.

False

Publicly traded companies are required to provide quarterly financial reports directly to the public.

False

Publicly traded companies must provide to the Securities Exchange Commission annual audited financial statements (10-K reports) and quarterly audited financial statements (10-Q reports).

False

Publicly traded companies provide financial information primarily to satisfy the SEC and the tax authorities (that is, the Internal Revenue Service).

False

The income statement reports net income which is defined as the company's profit after all expenses and dividends have been paid.

False

Which of the following groups would likely not be interested in the financial statements of a large public company such as Procter & Gamble? A. Shareholders B. Employees C. Competitors D. Taxing agencies E. None of these are correct

None of these are correct

Examine the financial statements effects template below. Then select the answer that best describes the transaction. Balance Sheet Income Statement Transaction Cash Asset + Noncash Assets = Liabil- ities + Contrib. Capital + Earned Capital Rev-enues - Expen-ses = Net Income ?? -240 +240 = - = (Look at picture) A) Repay accounts payable of $240 with cash B) Collect cash for accounts receivable of $240 C) Purchase inventory of $240 on account D) Purchase inventory of $240 for cash E) None of these are correct.

Purchase inventory of $240 for cash

Examine the financial statements effects template below. Then select the answer that best describes the transaction. Balance Sheet Income Statement Transaction Cash Asset + Noncash Assets = Liabil- ities + Contrib. Capital + Earned Capital Rev-enues - Expen-ses = Net Income ?? -96 +480 = +384 - = (look at picture) A) Repay accounts payable of $96, net B) Purchase inventory of $480 partially on account C) Record accounts receivable of $480 and cash collected of $96 D) Purchase $480 of equipment on account E) None of these are correct.

Purchase inventory of $480 partially on account

A publicly traded company must file a Form 8-K with the SEC within four business days following a change in its certified public accounting firm.

T

Articulation refers to the concept that financial statements are linked to each other and linked across time.

T

Assets are listed on the balance sheet in order of liquidity and liabilities are listed in order of maturity.

T

Assets, expenses and dividends increase with debits.

T

Companies make adjustments to more accurately reflect items on the income statement and the balance sheet.

T

In addition to purchased assets like inventories and equipment, companies also may report on their balance sheets intangible assets such as the value of a brand name.

T

Increases are recorded on the left side of asset T-accounts and on the right side of liability T-accounts.

T

Liabilities and equities are both claims against the assets of a company.

T

The financial statement effects template captures the effects of transactions on all four financial statements.

T

The journal entry for recording cost of sales is to debit cost of sales expense and credit the inventory account.

T

The journal entry for recording sales revenue that has been earned is to debit accounts receivable if cash will be received later, or credit unearned revenue if cash was received in advance.

T

Two steps must be completed in order to prepare financial statements: recording transactions during the period and adjusting records to ensure all events are properly recorded.

T

Under accrual accounting principles, the cost of inventory should be reported as an expense in the income statement when it is sold, regardless of when it was purchased.

T

. Return on Assets (ROA) measures the profit the company makes on each dollar of total assets it uses.

True

An increase in common stock would be reflected in the statement of stockholders' equity.

True

Assets must always equal liabilities plus equity.

True

Financial statements are influenced by five important forces that determine a company's competitive intensity: (A) industry competition, (B) buyer power, (C) supplier power, (D) product substitutes, and (E) threat of entry.

True

In order for an asset to be reported on the balance sheet, it must be owned or controlled by the company and be expected to provide future benefits.

True

Return on Assets (ROA) = (Net Income / Sales) × Asset Turnover

True

Shareholders demand financial information primarily to assess profitability and risk whereas bankers demand information primarily to assess cash flows to repay loan interest and principal.

True

A statement of cash flows reports on cash flows for operating, investing and financing activities at a point in time.

False

A clean audit opinion includes which of the following assertions: (Select as many as apply) A) Financial statements present fairly the company's financial condition B) The auditor certifies the financials to be error free C) The financial statements are management's responsibility D) Management has handled transactions efficiently in all material respects E) All of the above

A and C

Fitz Inc., a pharmaceutical company, reported net income for fiscal 2016 of $5,772 million, retained earnings at the start of the year of $57,594 million and dividends of $5,958 million, and other transactions with shareholders that increased retained earnings during the year by $11 million. If there were no additional transactions during the year that affected retained earnings, what was the balance of retained earnings at the end of the year? A) $57,419 million B) $57,769 million C) $45,875 million D) $57,397 million E) There is not enough information to calculate the amount.

A) $57,419 million

Balance Inc. reports a net loss for the year of $(134) million, retained earnings at the end of the year of $54,754 million, and dividends during the year of $3,604 million. What was the company's retained earnings balance at the start of the year? A) $58,492 million B) $51,284 million C) $51,016 million D) $54,888 million E) There is not enough information to calculate the amount.

A) $58,492 million

During the month of Marc, Weimar World, a tax-preparation service, had the following transactions. Billed $396,800 in revenues on credit Received $131,200 from customers' accounts receivable Incurred expenses of $155,200 but only paid $70,160 cash for these expenses Prepaid $25,776 for computer services to be used next month What was the company's accrual basis net income for the month? A. $ 241,600 B. $ 215,824 C. $ 44,384 D. $326,640 E. None of these are correct.

A. $ 241,600

A list of assets, liabilities and equity can be found on which of the following? A. Balance Sheet B. Income Statement C. Statement of Assets and Liabilities D. Statement of Cash Flows E. Statement of Stockholders' Equity

A. Balance Sheet

During the year, Brown Company reported cost of goods sold of $1,213.9 million. Inventory at the start of the year was $437.4 million and at the end of the year was $468.6 million. Which of the following describes the closing entry that the company will make for these accounts? A. Credit Cost of goods sold $1,213.9 million B. Debit Inventory $31.2 million C. Credit Inventory $468.6 million D. Debit Cost of goods sold $745.3 million E. None of these are correct.

A. Credit Cost of goods sold $1,213.9 million

During the year, Shoe Productions recorded inventory purchases on credit of $270.2 million. The financial statement effect of these purchase transactions would be to: A. Increase liabilities (Accounts payable) by $270.2 million B. Decrease cash by $270.2 million C Increase expenses (Cost of goods sold) by $270.2 million D Decrease noncash assets (Inventory) by $270.2 million E None of these are correct.

A. Increase liabilities (Accounts payable) by $270.2 million

A company's return on assets (ROA) can be disaggregated to reveal which of the following (select all that apply): A) Financial leverage B) Profit margin C) Sales growth D) Asset growth E) Asset turnover

B and E

Sales for the year = $997,279, Profit margin =18%, and average Assets during the year = $647,770. Return on Assets (ROA) for the year is: A) 65.0% B) 27.7% C) 11.7% D) There is not enough information to calculate ROA. E) None of these are correct

B) 27.7%

. On January 1, Fey Properties paid $10,080 for a three-year insurance premium, with coverage beginning immediately. Fey Company prepares monthly financial statements. Which of the following describes the required adjusting entry on January 31? A) Debit Cash for $3,360 and Credit Prepaid insurance for $3,360 B) Debit Insurance expense for $280 and Credit Prepaid insurance for $280 C) Debit Prepaid insurance for $280 and Credit Insurance expense for $280 D) Debit Cash for $6,720 and Credit Prepaid insurance for $6,720 E)Debit Insurance expense for $3,360 and Credit Prepaid insurance for $3,360

B) Debit Insurance expense for $280 and Credit Prepaid insurance for $280

Which of the following is included as a component of stockholders' equity? A) Buildings B) Retained earnings C) Prepaid property taxes D) Accounts payable E) Dividends

B) Retained earnings

Weimar World, a tax-preparation service, had a cash balance of $245,000 as of March 1. During the month of March, Weimar World had the following transactions. Billed $992,000 in revenues on credit Received $328,000 from customers' accounts receivable Incurred expenses of $388,000 but only paid $175,400 cash for these expenses Prepaid $64,400 for computer services to be used next month What was the company's cash balance on March 31? A. $604,000 B. $849,000 C. $ 333,200 D. $397,600 E. None of these are correct.

C. $ 333,200

Cash collected on accounts receivable would produce what effect on the balance sheet? A. Increase liabilities and decrease equity B. Decrease liabilities and increase equity C. Increase assets and decrease assets D. Decrease assets and decrease liabilities E. None of these are correct.

C. Increase assets and decrease assets

An accrual of wages expense would have what effect on the balance sheet? A. Decrease liabilities and increase equity B. Increase assets and increase liabilities C. Increase liabilities and decrease equity D. Decrease assets and decrease liabilities E. None of these are correct.

C. Increase liabilities and decrease equity

During the fiscal year, Shoe Productions recorded inventory purchases on credit of $270.2 million. Inventory at the start of the year was $30.6 million and at the end of the year was $42.4 million. Which of the following describes how these transactions would be entered on the financial statement effects template? A. Increase expenses (Cost of goods sold) by $258.4 million B. Increase liabilities (Accounts payable) by $258.4 million C. Increase expenses (Cost of goods sold) by $270.2 million D. Increase noncash assets (Inventory) by $11.8 million E. None of these are correct.

C. increase expenses (Cost of goods sold) by $270.2 million

The Tread Company's December 31 financial statements reported the following (in millions) Sales $22,737 Cost of sales $16,458 Other expenses (excluding cost of sales) $ 4,353 What did Tread Company report for net income for the year ending December 31? A) $ 6,279 million B) $12,105 million C) $10,632 million D) $ 1,926 million E) $43,548 million

D) $ 1,926 million

On January 1, Fey Properties collected $5,760 for six months' rent in advance from a tenant renting an apartment. Fey Company prepares monthly financial statements. Which of the following describes the required adjusting entry on January 31? A) Debit Unearned rent revenue for $4,800 and Credit Cash for $4,800 B) Debit Rent revenue for $960 and Credit Unearned rent revenue for $960 C) Debit Cash for $5,760 and Credit Rent revenue for $5,760 D) Debit Unearned rent revenue for $960 and Credit Rent revenue for $960 E) Debit Cash for $4,800 and Credit Unearned rent revenue for $4,800.

D) Debit Unearned rent revenue for $960 and Credit Rent revenue for $960

The audit report is addressed to: A) The audit committee B) The board of directors C) The shareholders D) The board of directors and the shareholders E) The Securities and Exchange Commission (SEC)

D) The board of directors and the shareholders

Which one of the following is not a current liability? A) Taxes payable B) Accounts payable C) Wages payable D) Wage expense E) None of these are correct.

D) Wage expense

Identify which of the following items would be reported in the balance sheet. a. Cash d. Wage expense g. Net income b. Sales e. Wages payable h. Inventory c. Long-term debt f. Retained earnings i. Cost of goods sold Items reported in the balance sheet would include: A) a, b, c, e, and f B) b, e, f, h, and i C) c, d, e, h, and i D) a, c, e, f, and h E) c, e, f, h, and i

D) a, c, e, f, and h

During the year, Decker Corporation reported Net income of $1,448.0 million and paid dividends of $496.4 million. Which of the following describes how these transactions would affect Decker's equity accounts? (in millions) A. Increase contributed capital by $1,448.0 and decrease earned capital by $496.4 B. Decrease contributed capital by $496.4 and increase earned capital by $1,448.0 C. Increase contributed capital by $951.6 D. Increase earned capital by $951.6 E. None of these are correct.

D. Increase earned capital by $951.6

Which of the following are relevant in an analysis of a company's business environment? (Select as many as apply) A) Financing B) Labor C) Buyers D) Governance E) All of the above

E) All of the above

Which of the following items would not be found on a balance sheet? (Select all that apply) A) Stockholders' Equity B) Property, plant and equipment C) Nonowner financing D) Cash E) Dividends

E) Dividends

How would a purchase of inventory on credit affect the income statement? A) It would increase liabilities B) It would decrease retained earnings C) It would increase assets D) Both A and C, above E) None of these are correct.

E) None of these are correct.