ch 4 acct

Which of the following definitions is incorrect? a. Treasury stock is the amount paid to the corporation by shareholders in excess of the par value of the stock issued. b. Retained earnings is the total amount of corporate net income that has not been distributed to shareholders as dividends. c. Accumulated other comprehensive income is the cumulative amount of other comprehensive income (or loss) items. d. Common stock is the shares of stock that a corporation is authorized to issue as evidence of ownership in that corporation.

a

The return on common equity: a. Is computed as net income divided by average total shareholders' equity. b. Can show that the company is effectively using financial leverage to generate higher returns for shareholders when this return is higher than the return on total assets. c. Is computed as net income earned from utilizing assets (adjust total net income by adding back interest expense, after the income tax savings associated with interest expense) divided by the average total assets over the period. d. Measures how profitably a company uses its economic resources.

b

GAAP related to the disclosure of accounting policies: a. provides a specific listing of all types of accounting policies that must be disclosed b. requires disclosure of the format for the statement of cash flows c. requires a description of all significant accounting policies to be included as an integral part of the financial statements d. requires a description of every accounting policy followed by a reporting entity

c

How does the balance sheet at the end of an accounting period relate to the other four financial statements? a. The statement of shareholders' equity reports owners' claims on the company and how those claims changed during the period. b. The statement of cash flows explains changes in financial position in terms of cash inflows and outflows during the period. c. The elements of the income statement-revenues, expenses, gains and losses, and net income-are measured in terms of changes in assets and liabilities. d. All of the choices are correct.

d

In order to be considered a liability, a. The transaction, event, or arrangement obligating the company must have occurred. b. It must involve a responsibility that will be settled by a sacrifice (such as involving the transfer of assets). c. The company must be bound by a legal, equitable, or constructive responsibility to transfer assets or provide services. d. All of the choices are correct.

d

What kinds of subsequent events are disclosed by an adjustment to the company's financial statements? a. Those significant business events and transactions which occur between the end of a company's accounting period and the date when it issues its annual report. b. Those significant business events and transactions which provide evidence concerning conditions that did not exist on the balance sheet date but occurred after that date. c. Those significant business events and transactions which the company anticipates will occur during the coming year. d. Those significant business events and transactions which provide additional evidence about conditions that existed on the balance sheet date and significantly affect the estimates the company used in its financial statements.

d

Which of the following statements is correct regarding the inventory turnover ratio? a. Indicates the average number of times the inventory was sold during that period. b. Is determined by dividing a company's cost of goods sold for the accounting period by its average inventory. c. The higher the inventory turnover ratio, the more effectively the company is at managing its production and supply chains. d. All of the choices are correct.

d