Checkpoint Exams U9

In order to be in compliance with SEC reporting rules, a company will typically file a Form 10-Q how many times during its fiscal year? A) 1 time B) 4 times C) 2 times D) 3 times

D) 3 times The Form 10-Q is used for quarterly financial reporting. However, even though there are 4 quarters in an accounting year, only 3 forms are filed. This is because the Form 10-K, the annual report, takes the place of the 4th quarterly report. U9LO3

If a publicly traded corporation was going to sell a wholly-owned subsidiary, the information would be made available through the filing of a Form A) 10-Q B) 10-K C) 8-K D) 13-F

C) 8-K The Form 8-K is filed with the SEC within 4 business days of any one of a number of significant actions, including the sale of a significant asset such as a wholly-owned subsidiary. U9LO3

The owners' equity portion of a corporation's balance sheet would contain all of the following EXCEPT A) preferred stock B) treasury stock C) net income D) paid-in capital

C) net income Net income is only found on the income statement. The other 3 are part of stockholders' equity (net worth). Treasury stock is company stock that has been issued to the public and then reacquired by the issuer (the company). It is shown as a negative number, so it reduces the net worth. U9LO1

LMN Manufacturing Company, listed on the NYSE, is an SEC reporting company. Each of the following would require the filing of a Form 8-K EXCEPT A) acquisition of a major asset B) a change in top management C) relocation of wholly owned subsidiary D) a change in external CPA firm engaged to perform the annual audit

C) relocation of wholly owned subsidiary The Form 8-K is used to report significant events that could affect the price of the company's stock. The SEC does not consider a relocation of a subsidiary to be of significant magnitude. U9LO3

When viewing a corporation's balance sheet, you would expect to see all of the following included in owner's equity EXCEPT A) retained earnings B) preferred stock C) cash D) paid-in capital

C) cash Owner's equity, sometimes referred to as stockholders' equity, is simply the net worth of a corporation. Net worth is the total assets minus the total liabilities. The primary components listed on a balance sheet under owner's equity are the (1) par value of the outstanding preferred stock; (2) par value of the outstanding common stock; (3) any excess paid in over the par value of the common stock at issuance, known as paid-in capital or paid-in surplus; (4) retained earnings (years ago referred to as earned surplus); and, (5), if the company has reacquired any of its common stock (treasury stock), the cost of that purchase is subtracted from retained earnings. Note, even though the treasury stock reduces the owner's equity, the question is asking for the items you would see on the balance sheet, and if it exists, it would appear in the owner's equity section as a deduction. U9LO1

Issuance of which of the following would most likely increase the leverage in a company's capital structure? A) Bonds B) Warrants C) Common stock D) Preferred stock

A) Bonds Leverage is the use of borrowed money. This is reflected in a company's debt-to-equity ratio. Of these choices, the only one that is borrowed money is the bonds. U9LO1

Which items change when a company pays a cash dividend? I. Working capital II. Total assets III. Total liabilities IV. Shareholders' equity A) II and III B) II, III, and IV C) I and IV D) I, II, and III

A) II and III When a dividend is paid, total assets are decreased as are total liabilities. The liabilities were increased at declaration time and are now decreased to reflect the payout. The two accounts affected would be decrease cash and decrease dividend payable. U9LO1

An analyst wishing to view a good consolidated indicator of a business's cash inflow and outflow would most likely ask look at A) the current ratio B) the statement of cash flows C) the consolidated income statement D) the working capital

B) the statement of cash flows Cash flow is the money (cash) that flows into and out of a business. It consolidates the flow of money from operating activities, investing activities, and financing activities. Working capital and current ratio are indicators of current liquidity and in the income statement only reflect income and expenses. Items such as the cash received from the issuance of securities (stocks or bonds) or a loan from a bank do not appear. U9LO2

KPT, Inc., is preparing to report its net income for the past year. An increase in which of the following causes a decrease in the reported net income? I. Tax rate II. Cash dividend III. Interest charged on bank loans A) II only B) I only C) I and III D) I and II

C) I and III Higher taxes mean less net income. Interest charged on loans is an expense item; increasing it lowers operating income. Dividends are paid out of retained earnings and have no effect on the net income the company reports. U9LO1

Which of the following equations correctly shows the relationship between the items on a company's balance sheet? A) Assets = liabilities − net worth. B) Assets + liabilities = net worth. C) Assets = stockholders' equity − liabilities. D) Assets = liabilities + stockholders' equity.

D) Assets = liabilities + stockholders' equity. The stockholders' equity, sometimes referred to as net worth, equals the difference between the company's assets and its liabilities (assets − liabilities = stockholders' equity). This formula is often restated as assets = liabilities + stockholders' equity. U9LO1

When an analyst adds back the current year's depreciation to the net income, she is computing the company's A) net value of fixed assets B) earnings per share C) cash flow from investments D) cash flow from operations

D) cash flow from operations Cash flow from operations is computed by adding the year's depreciation deduction to the net income. U9LO2