ACCT 2113 Final
Gains and losses on the sale of long-term assets represent common ________________ items needing adjustment under the indirect method.
non-operating
When adjusting the bank balance in a bank reconciliation, which item must be subtracted from the bank balance?
outstanding checks
Changes to current assets and current liabilities require adjustment of net income under the indirect method because
Related cash may be higher or lower than the accrued amount included in net income
The asset turnover ratio provides an indication of how efficiently a company uses all of its assets to generate ___________.
revenue
A company's ability to pay its long-term debt is referred to as:
Solvency
The average collection period is an estimate of
The number of days the average account receivable balance is outstanding
What does the inventory turnover ratio measure?
the average number of times inventory is sold during a period
Amortization of intangible assets is treated the same way as the depreciation of tangible assets on the statement of cash flows using the indirect method.
True
Which of the following scenarios is consistent with a high current ratio?
a high level of inventory
Return on assets is calculated as net income divided by
average total assets
Employee purchases should be included in the accounting records
by the end of the accounting period
The receivables turnover ratio offers an indication of how quickly a company is able to
collect its accounts receivables
When adjusting the company's cash account balance in a bank reconciliation, which item must be added to the cash account balance?
collection of funds by the banks
Accounting practices that result in lower-income, lower assets, and increased liabilities are referred to as ________________ accounting.
conservative
Cash receipts that have been recorded in the company's accounting records but are not yet recorded by the bank are
deposits outstanding
The profit margin ratio indicates the amount of net income achieved for
each dollar of sales
if a company records a transaction before the bank records the same transaction, this is called a __________ difference.
timing
A non-sufficient funds check to require an adjustment to the cash balance was written:
to the company preparing the bank reconciliation
The profit margin ratio indicates
what amount of sales goes toward net income
Average days in inventory is calculated as 365 days divided by the
inventory turnover ratio
A high inventory turnover ratio indicates that
inventory was sold frequently during the year
This month's bank statement shows interest earned of $45. How would this item be treated on the bank reconciliation?
it would be added to the company balance
An increase in accounts receivable indicates that the company collected _______ cash than the amount of sales revenue.
less
In order to determine cash flows from financing activities, we need to examine changes to
long-term liability and stockholders' equity accounts
Non-cash items, non-operating items, and changes in current assets and liabilities are necessary adjustments to _________ to prepare the operating section for the indirect format of the statement of cash flows.
net income
The starting point for preparing the operating activities section using the indirect method is
net income
Which term best describes a company having a suitable amount of cash or easily-convertible assets to pay incurred current liabilities?
Liquidity
Depreciation expense and amortization expense represent ________ items requiring adjustments to net income under the indirect method.
Non-cash
The two types of adjustments to net income for the indirect method are adjustments for
- Changes in operating assets and liabilities during the period that affected cash and were not in net income - Components of net income that do not affect cash
Which of the following practices are conservative?
- Estimating a larger allowance for uncollectible accounts - Depreciating an asset over a shorter estimated service life
Which statements about the inventory turnover ratio are correct?
- It indicates how quickly inventory is sold - It shows the number of times the average inventory balance is sold during a reporting period.
Which information regarding the receivables turnover ratio is true?
- It shows the number of times during a period that the average accounts receivable balance is collected. - It provides an indication of a company's efficiency in collecting receivables
Which of the following items will require a journal entry following a bank reconciliation?
- NSF checks - notes collected by the bank
Adjustments to the net income in calculating operating cash flows include:
- Non-operating items - Non-cash items - Changes in current assets and current liabilities
The following steps are necessary to reconcile the bank balance and cash account balance:
- adjust the bank's cash balance - adjust the company's cash balance - record items that reconcile the company's cash balance
The following would be added to the net income in order to prepare the operating activities section of a statement of cash flows
- loss on sale of land - depreciation expense - a decrease in current asset
A high inventory turnover ratio could be caused by
- low ending inventory levels - high cost of goods sold
Which of the following are profitability ratios?
- profit margin - return on equity - price-earnings ratio - gross profit ratio - return on assets
What is the formula to compute the average days in inventory?
365/inventory turnover ratio
Which is typically preferable for a company?
A short average collection period
In a bank reconciliation, the electronic funds transfer (EFT) received by the bank from a customer's note receivable owed to the company is
Added to the company's cash balance
A check that is NSF (non-sufficient funds) is a check that
Cannot be paid because the account does not contain enough funds
Cash disbursements that have been recorded in the company's accounting records but are not yet recorded by the bank are called
Checks outstanding
Clancy Corp. establishes a petty cash fund for $200. The entry required is to
Debit Petty Cash $200 Credit Cash $200
In a bank reconciliation, the bank's charge of $10 for checking account fees is
Deducted from the company's cash balance
When adjusting the bank balance in bank reconciliation, which item must be added to the bank balance?
Deposits outstanding