Accounting Modules 13-16

The difference between revenue and the cost of making a product or providing a service is known as:

gross profit

In order to restate the financials for the period in which there is an error the company must:

make an offsetting adjustment to the retained earnings balance adjust the financial statements for each prior period presented Reflect the cumulative effect of the prior period error to the affected accounts

Which answer best describes the term liquidity?

None of these answers.

The sum of cash revenues and expenditures over a period of time is known in accounting as:

Cash flow

The direct method only subtracts what items from cash sales?

operating expenses that consumed cash

In an operating lease, the lessee records the lease as:

a debit to rent expense and a credit to cash

In accounting, net income is also is also referred to as the:

Bottom line

Which of the following is NOT an example of benchmarking using ratio analysis?

Calculate the company's current ratio by comparing its current assets with its current liabilities.

A value that is not realized until a future date is known in finance as:

Deferred value

The act of revealing something in finance is known as a:

Disclosure

If a company used the indirect method to prepare the statement of cash flows, which of the following is a caption likely to be seen?

None of these answers.

Which of the following statements regarding balance sheets is true?

The balance sheet's sections are assets, liabilities, and ownership equity.

Without positive cash flow a company cannot meet its financial obligations.

True

When a business records economic activity in the period it happens, this can be more readily identified as:

accrual basis accounting

Which industries most commonly use the completion of production method?

agriculture natural minerals natural gas

If a company obtains the equipment with little or no upfront capital that is known as:

an operating lease

By shifting the timing of when expenses are recognized, a company could:

artificially make the business appear more profitable

How is the cash deposit, when it is received, recorded under the deposit method?

as a deferred revenue

According to the accounting equation, net worth must equal ________.

assets minus liabilities

Which of the following is NOT a type of ratio used in financial statement analysis?

business ratio

Knowing a company's cash inflows and outflows helps determine whether they have enough:

cash necessary to pay its financial obligations

Income statement reformulation divides the earnings into what two categories?

core earning and transitory earnings

In a multiple-step income statement what is subtracted to arrive at gross profit?

cost of goods sold

If a company used the indirect method to prepare the statement of cash flows, which of the following is a caption likely to be seen?

depreciation

What is the formula to calculate return on equity?

earnings / average equity

In the matching principle, an expense is only recognized when:

it is both incurred and offset against recognized revenue

An accrued expense is classified as what type of account?

liability

What does the indirect method use as a starting point?

net income

An error that will not be automatically offset in the next accounting period is what type of error?

non-counterbalancing

Under the accrual accounting method, when is revenue recognized?

only when it is realized or realizable

The money a business spends to turn inventory into finished product is known as:

operating expenses

What determines when a company will recognize an expense?

the accounting method the business uses

Which method is the only method accepted by generally accepted accounting principles?

the asset-liability method

What method of revenue recognition would a company use if they highly doubted they would receive payment for the goods?

the cost recovery method

What is the main purpose of revenue recognition and the matching principle?

to prevent the income statement from being distorted

In order to account for a counterbalance error what is the first thing that must be determined?

whether the books for the current year are closed or not

Knowing a company's cash inflows and outflows helps determine whether they have enough:

None of these answers.

Anything that acts as counterbalance or a compensating equivalent is known in finance as:

Offset

A company has $450,000 in cash, $300,000 in marketable securities and $500,000 worth of inventory. Its current assets are worth $1,750,000 and its current liabilities are $1,250,000. What is the company's acid test ratio?

1

A company has $750,000 in cash, $200,000 in marketable securities and $300,000 worth of accounts receivable. Its current assets are worth $1,500,000 and its current liabilities are $1,000,000. What is the company's quick ratio?

1.25

If a business had a beginning supplies balance of $3,100, an ending supplies balance of $4,500, and a supplies expense on the income statement of $2,000, what would be the total for payments of supplies during the year?

3400

Which answer best describes the term capital lease?

A financial arrangement where the borrower uses an asset and pays regular installments plus interest.

A charge incurred in one accounting period that has not been paid by the end of it is known in accounting as an:

Accrual

Which of the following is NOT a correct definition of a basic type of financial ratios?

Activity ratios are concerned with shareholder audiences.

Which of these are types of financial disclosures?

Asset Retirement Insurance contract modifications Accounting changes

If the company uses the indirect method to prepare the statement of cash flows, what are two items that still have to be disclosed?

Cash paid for taxes and cash paid for interest

Which answer best describes an amount of money given toward something?

Contribution

A company has $1,325,000 in revenue, $1,000,000 in operating expenses, $25,000 in non-operating income, and $200,000 in interest charges. What is the company's TIE, and should the company be concerned about its ability to meet its debt obligations?

Its ratio is 1.75 and it should be concerned.

Which of the following is an example of trend analysis?

The company's current gross profit margin is compared with its gross profit margin from past years.

A company has<em> $100,000</em> in cash, $300,000 in accounts receivable, $50,000 in inventory and a $300,000 office building.Its current liabilities are $250,000.What is the company's current ratio, and does that ratio good short-term financial strength?

The current ratio is 1.8, and the ratio indicates good short-term financial strength.

In calculating cash flows what two methods are often used in accounting:

The direct and indirect methods.

Which of the following statements regarding using valuation methodologies to compare companies is NOT true?

The use of valuation multiples reveal patterns in absolute values.

Which answer best describes how management within a company uses that company's cash flow?

To determine the timeliness of cash flows into and out of projects, which are used as inputs in financial models such as internal rate of return and net present value To determine a project's rate of return or value To determine problems with a company's liquidity

What time period do financial ratios compare one value in relation to another value?

a 12 month period

Which one of these is NOT a type of prior period error?

a change in accounting procedure

Discovering an asset was not revalued using fair market value results in:

an accounting error

One way a company might be profitable but generate little operational cash is when it:

barters rather than sells its products

Why does the financial accounting standards board discourage the use of cash-basis accounting?

because revenue and expenses are not properly matched

Calculating current ratio and interest coverage is an example of what type of analysis?

risk analysis

Disclosure items affect:

the reliability and comparability of the financial statements