ACG 2021 CH 2

Bombay Corporation had $24,000 of cash at the beginning of the year and it had cash receipts of $21,000 during the year. At the end of the year, Bombay Company had $33,000 of cash. What was Bombay Corporation's cash disbusements for the year? A) $12,000 B) $22,000 C) $24,000 D) $30,000 E) $45,000

A) $12,000 The ending balance equals beginning cash minus cash disbursements plus cash receipts $33,000 = $24,000 + $21,000 - X Solve for X: Cash disbursements = $12,000.

Riverview Inc. reports the following balances and amounts. The following information is presented in random order. Accounts payable, $60,000 Cash provided by operations, 150,000 Accounts receivable, 25,000 Net income, 50,000 Average common shares, 12,000 Salaries and wages payable, 45,000 Average current liabilities, 220,000 Stockholders' equity, 200,000 Average total assets, 500,000 Current assets, 200,000 Average total liabilities, 320,000 Current liabilities, 150,000 Dividends paid to preferred shareholders, 2,000 How much is earnings per share? A) $4.00 B) $1.20 C) $1.80 D) $2.33 E) $1.50

A) $4.00 Earnings per share = ($50,000 - 2,000)/12,000 shares = $4.00/share

Clawson Corporation has current assets of $3,750,000 and current liabilities of $2,050,000. If Clawson Corporation pays $500,000 of its accounts payable what will the new current ratio be? A) 2.10 B) 1.80 C) 1.51 D) 2.42 E) 2.51

A) 2.10 Current ratio equals current assets divided by current liabilities. Accounts payable is a current liability. Paying accounts payable reduces cash and reduces accounts payable. Current ratio = ($3,750,000 − $500,000) ÷ ($2,050,000 − $500,000) Current ratio = 2.0967

Which of the following is a measure of the profitability of a company? A) Earnings Per Share B) Free Cash Flow C) Working Capital D) All Of The Above

A) Earnings Per Share

What are the accounting rules that have substantial authoritative support and are recognized as a general guide for financial reporting purposes in the U. S.? A) Generally accepted accounting principles B) General accounting principles C) Generally accepted accounting standards D) Generally accepted auditing principles

A) Generally accepted accounting principles

Which of the following is NOT a current asset? A) Goodwill B) Inventory C) Supplies D) Accounts Receivable

A) Goodwill

Which of the following would not be reported among property, plant, and equipment on a classified balance sheet? A) Inventory B) Accumulated depreciation C) Buildings D) Land E) Delivery vehicles

A) Inventory

How does a company compute its free cash flow? A) Net cash provided by its operating activities minus (i) expenditures on property, plant, and equipment and (ii) its dividends paid. B)None of these C) Net cash flow from all activities plus (i) its expenditures on property, plant, and equipment and (ii) its dividends paid. D) Net cash flow from all activities minus (i) its expenditures on property, plant, and equipment and (ii) its dividends paid. E) Net cash provided by its operating activities plus (i) its expenditures on property, plant, and equipment and (ii) its dividends paid.

A) Net cash provided by its operating activities minus (i) expenditures on property, plant, and equipment and (ii) its dividends paid.

Which of the following is NOT an intangible asset? A) Research & Development B) Copyrights C) Trademark D) Patents

A) Research & Development

If total assets are $200,000, current liabilities are $25,000, long-term liabilities are $40,000, and retained earnings are $35,000, then what is the total balance of stockholders' equity? A) $175,000 B) $135,000 C) $65,000 D) Cannot be determined

B) $135,000 A=L+SE 200k=(25k+40k)+X 200k=65k+x X= $135,000

Stonebrook Corporation reported net income of $32,000, net sales of $500,000, and average common shares outstanding of 12,000. There were $2,000 of preferred stock dividends. How much was its earnings per share? A) $1.60 B) $2.50 C) $4.00 D) $16.67 E) $2.67

B) $2.50 Earnings per share = ($32,000 - $2,000)/12,000 shares = $2.50/share.

Given the following accounting information for Townshp INC: Acct. Receivable $9,000 Cash $18,000 Notes Payable $3,000 Patents $16,000 PPE $6,000 Prepaid Insurance $1,000 Dividends $1,000 What is the total amount of current asstes? A) $50,000 B) $28,000 C) $31,000 D) $30,000 E) None of the above

B) $28,000 Assets inclue: Cash $18,000 Acct. Receivable $9,000 Prepaid Insurance $1,000

Suppose the current assets are $6,000 and current liabilities are $3,000. If payment of $2,000 is made on the accounts payable account what is the new current ratio? A) 0.5 B) 4.0 C) 2.0 D) 0.25 E) None of these

B) 4.0 A=L+SE, the payment of $2,000 on accounts payable account decreases $2,000 from accounts payable as well as decreasing $2,000 from cash. Use the equation $4,000/$1000 = 4.0

Suppose current assets are $4,000 and current liabilites are $1,000. If a payment of $500 is made for supples, what is the new current ratio? A) 0.33 B) 4.0 C) 2.33 D) 0.25

B) 4.0 The payment of $500 made cash go down but made supplies go up, balancing out. Making the equation $4,000/$1,000 = 4.0

Which of the following is not classified as a current asset? A) Cash B) Patents C) Inventory D) Accounts receivable E) Prepaid expenses

B) Patents

The primary objective of financial reporting is to provide financial information that is useful. According to the FASB, useful information should possess certain fundamental qualities. One such quality is relevance. Which of the following is a characteristic of relevance? A) Verifiability B) Predictive value C) Faithful representation D) Periodicity E) Consistency

B) Predictive value

Which of the following requires that only those things that can be expressed in money are included in the accounting records? A) The historical cost principle B) The monetary unit assumption C) The cost-benefit principle D) The periodicity assumption E) The full disclosure principle

B) The monetary unit assumption

Jose Inc. reports the following balances and amounts. The following information is presented in random order (amounts are in dollars). Accounts payable, 35,000 Cash provided by operations, 90,000 Accounts receivable, 37,500 Net income, 36,000 Average common shares, 20,000 Salaries and wages payable, 8,000 Average current liabilities, 110,000 Stockholders' equity, 240,000 Average and total assets, 600,000 Total current assets, 300,000 Average total liabilities, 320,000 Total current liabilities, 120,000 Cash, 100,000 How much is its working capital? A) $250,000 B) $280,000 C) $180,000 D) $200,000 E) $300,000

C) $180,000 Working capital is current assets minus current liabilities. Working capital = $300,000 - $120,000 = $180,000

Pilgrim Corporation reports the following on its financial statements. Cash paid for new equipment, $35,000 Cash collected from customers, $120,000 Paid a note payable, $10,000 Cash collected in exchange for issuing additional shares of Pilgrim stock to stockholders, $15,000 Cash dividends paid, $5,000 The company reports $75,000 of net income for the year and it has $80,000 of cash at year-end. What is the company's free cash flow? A) $45,000 B) $5,000 C) $80,000 D) $15,000 E) $35,000

C) $80,000 Free cash flow is computed by subtracting capital expenditures and cash dividends from cash provided by operations. Free cash flow = $120,000 - $35,000 - $5,000 = $80,000.

Rose Corporation has accounts and balances: Accounts payable............................. $ 40,000 Accounts receivable............................. 30,000 Accumulated depreciation.................. 50,000 Buildings................................................. 500,000 Cash........................................................ 100,000 Common stock..................................... 710,000 Equipment......................................... 150,000 Inventory................................................ 200,000 Investments in securities (long-term). 20,000 Land......................................................... 130,000 Notes payable..................................... 250,000 Patents................................................ 20,000 Prepaid insurance................................. 10,000 Retained earnings................................. 150,000 Trademarks........................................... 40,000 What is Rose Corporation's (i) current assets and (ii) property, plant & equipment? A) (i) $390,000 and (ii) $790,000 B) (i) $400,000 and (ii) $760,000 C) (i) $340,000 and (ii) $730,000 D) None of these E) (i) $380,000 and (ii) $740,000

C) (i) $340,000 and (ii) $730,000 Rose's current assets include accounts receivable, cash, inventory, and prepaid insurance. Current assets = 30,000 + 100,000 + 200,000 + 10,000 = 340,000 Rose's property, plant, and equipment includes buildings, equipment and land minus accumulated depreciation. Property, plant and equipment = 500,000 + 150,000 + 130,000 - 50,000 = 730,000

In a classified balance sheet, how and in what order are assets usually classified? A) Current assets; intangible assets, long-term investments; property, plant, and equipment B) Current assets; long-term investments; tangible assets; and intangible assets C) Current assets; long-term investments; property, plant, and equipment; and intangible assets D) Current assets; long-term assets; property, plant, and equipment; and intangible assets E) Current assets; long-term investments; property, plant, and equipment; and common stock

C) Current assets; long-term investments; property, plant, and equipment; and intangible assets

Netflix receives $2,000,000 at the beggining of February to provide content to its subscribers over the month of Feburary. When will Netflix recognize the revenues from the $2,000,000 in sales? A) Jan. 1st B) Feb. 1st C) Feb. 28th D) Dec. 31st E) None of the above

C) Feb. 28th This is the end of the month when Netflix is finised providing the service.

Current assets must be listed in order of ..... A) Solvency B) Profitability C) Liquidity D) Depreciation

C) Liquidity

The data below represents the debt to asset ratio for the respective corporations: Fleer Inc - 128% Bowman Inc - 232% Topps Inc - 84% Which corporation has the best ability to meet debt obligations? A) Fleer B) Bowman C) Topps D) Cannot be determined, we need more than 1 ratio to determine.

C) Topps This percentage is the result of a ratio stating that for every dollar it was financed by the corresponding percent of another dollar, the lower the average the less debt.

Season tickets for the upcoming sports season are being sold in droves even though the season hasn't started yet. When will the team be able to recognize the revenue from these CASH sales? A) As soon as the ticket is sold since we are using cash basis accounting for this class. B) When the cash is deposited in the correct bank account since that is when the accountant sees the transaction C) When the service is provided (game is played) since we are using accural accounting for this class. D) GAAP allows us to choose the method we would like to use. Thus, we can recognize at the time of the sale or when the game is played. We just have to make sure we disclose our choice in the footnotes to the financial statements.

C) When the service is provided (game is played) since we are using accural accounting for this class.

The following ratios are available for Leer Inc. and Stable Inc. Leer Inc. Stable Inc. Current Ratio 1.2 1.5 Compared to Stable Inc., Leer Inc. has A) lower profitability. B) lower solvency. C) lower liquidity. D) higher solvency. E) higher liquidity.

C) lower liquidity. The current ratio measures liquidity. Higher current ratios mean the company is more liquid and lower current ratios mean the company is less liquid.

An item is ________ if it is likely to influence the decision of an investor or creditor. A) comparable B) consistent C) material D) measurable E) faithful representation

C) material

For a given company, total assets are $150,000, current liabilities are $10,000, long-term liabilities are $20,000, common stock is $50,000, and retained earnings is $70,000. How much is total stockholders' equity? A) $70,000 B) $140,000 C) $110,000 D) $120,000 E) $150,000

D) $120,000 Stockholders' equity equals common stock plus retained earnings. Common stock of $50,000 plus retained earnings of $70,000 equals $120,000 in stockholders' equity. Assets equals liabilities plus stockholders' equity. $150,000 = $10,000 + $20,000 + X Solving for X: Stockholders' equity = $120,000

Given the following N/P (6 month maturity) $12,000 Cash $40,000 Wages Payable $18,000 Prepaid Insurance $15,000 Equiptment $30,000 Accumulated Depreciation $14,000 Prepaid Rent $6,000 A/P $7,000 Interest Expense $5,000 Sales Revenue, Net $50,000 Salaries Payable $14,000 N/P (4 year Maturity) $20,000 Insurance Expense $18,000 A/R $13,000 Interest Payable $17,000 What is the working capital? A) -$14,000 B) $36,000 C) $50,000 D) $6,000

D) $6,000 Working Capital=Current Assets - Current Liabilities 74k-68k=6k ASSETS = 74k -Cash 40k -Prepaid Ins. 15k -Prepaid Rent 6k -Acct Receievable 13k LIABILITIES = 68k -Notes Payable 12k -Wages Payable 18k -Acct. Payable 7k -Salary Payable 14k -Interest Payable 17k

Dividing net income minus preferred stock dividends by the average of common shares outstanding produces the following: A) The net income return ratio B) The gross margin ratio C) Current ratio D) Earnings per share E) The leverage ratio

D) Earnings per share

What is the primary criterion by which accounting information can be judged? A) Predictive value B) Comparability C) Consistency D) Usefulness for decision making

D) Usefulness for decision making

Which of the following would decrease the company's current ratio? A) Selling machinery previously used in operating the business in exchange for cash. B) Selling services to customers on account. C) Buying supplies, such as office supplies, in exchange for cash. D) Using excess cash to buy long-term investments. E) Issue common stock in exchange for cash.

D) Using excess cash to buy long-term investments.

Hans Company purchased bonds of Zimmer Corporation. Hans Company expects to hold the Zimmer Corporation bonds for more than one year. On its classified balance sheet, Hans Company should report the Zimmer Corporation bonds as A) a current asset. B) property, plant, and equipment. C) an intangible asset. D) a long-term investment. E) stockholders' equity.

D) a long-term investment.

Issuing new shares of common stock will A) decrease common stock. B) increase retained earnings. C) decrease retained earnings. D) increase common stock. E) increase liabilities.

D) increase common stock.

At the end of the year, Green Company had retained earnings of $2,640,000. During the year, the company issued stock for $120,000 and paid dividends of $25,000. Net income for the year was $412,000. How much was the retained earnings balance at the beginning of the same year? A) $1,943,000 B) $1,816,000 C) $2,376,000 D) $2,481,000 E) $2,253,000

E) $2,253,000 Ending retained earnings equals beginning retained earnings plus net income minus dividends. $2,640,000 = X + $412,000 - $25,000 Solve for X: Beginning retained earnings = $2,253,000.

Which of the following ratios measures the ability of the company to survive over a long period of time? A) Working capital B) Current ratios C) Liquidity ratios D) Profitability ratios E) Solvency ratios

E) Solvency ratios

The three most common financial ratio classifications used by businesses include A) profitability ratios, index ratios, and solvency ratios. B) profitability ratios, index ratios, and solvency ratios. C) earnings ratios, liquidity ratios, and issue ratios. D) profitability ratios, index ratios, and solvency ratios. E) profitability ratios, liquidity ratios, and solvency ratios.

E) profitability ratios, liquidity ratios, and solvency ratios.