ACCT 115 Final

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Net income results when

Revenues > Expenses

(T or F) A corporation can be organized for the purpose of making profit or it may be nonprofit

True

(T or F) A liability is classified as a current liability if it is to be paid within the coming year

True

(T or F) A manufacturer's inventory consists of raw materials, work in process, and finished goods

True

(T or F) Accounting communicates financial information about a business to both internal and external users

True

(T or F) All publicly traded U.S. companies must provide their stockholders with an annual report each year

True

(T or F) Assets are resources owned by a business and provide future services or benefits to the business

True

(T or F) Consigned goods are held for sale by one party although ownership of the goods is retained by another party

True

(T or F) Consistent use of the same accounting principles and methods is necessary for meaningful analysis of trends within a company

True

(T or F) Earnings per share measures the net income earned on each share of common stock

True

(T or F) Generally accepted accounting principles are rules and practices that are recognized as a general guide for financial reporting purposes

True

(T or F) Intangible assets are rights, privileges, and competitive advantages that result from ownership of long-lived assets without physical substance

True

(T or F) Inventory methods such as FIFO and LIFO deal more with flow of costs than with flow of goods

True

(T or F) Liquidity ratios measure the short-term ability of a company to pay its maturing obligations and meet unexpected needs for cash

True

(T or F) Net sales minus cost of goods sold is called gross profit

True

(T or F) Paid-in capital is the amount paid in to the corporation by stockholders in exchange for shares in ownership

True

(T or F) Preferred stockholders generally do not have the right to vote for the board of directors

True

(T or F) Profitability ratios measure the operating success of a company for a given period of time

True

(T or F) Stockholders' equity is divided into two parts: common stock and retained earnings

True

(T or F) The debt to assets ratio measures the percentage of assets financed by creditors

True

(T or F) The liability of a stockholder is usually limited to the stockholders' investment in the corporation

True

(T or F) The multiple-step income statement is considered more useful than the single-step income statement because it highlights the components of net income

True

(T or F) The number of common shares outstanding can never be greater than the number of shares issued

True

(T or F) The operating cycle involves the purchase and sale of merchandise inventory as well as the subsequent collection of cash from credit sales

True

(T or F) The primary purpose of the statement of cash flows is to provide information about the cash receipts and cash payments of a company for a specific period of time

True

(T or F) The tax laws can be a significant disadvantage of the corporate form of business

True

(T or F) Under a periodic inventory system, the merchandise on hand at the end of the period is determined by a physical count of the inventory

True

Treasury stock is

a corporation's own stock, which has been reacquired and held for future use

The right to receive money in the future is called a(n)

account receivable

In computing depreciation, salvage value is

an estimate of a plant asset's value at the end of its useful life

Generally accepted accounting principles

are accounting rules that are recognized as a general guide for financial reporting

Liabilities

are debts and obligations

Resources owned by a business are referred to as

assets

A balance sheet shows

assets, liabilities, and stockholders equity

Common stock is reported on the

balance sheet

Which of the following financial statements is concerned with the company at a point in time

balance sheet

Multiple-step income statements show

both income from operations and gross profit

Stockholders' equity is comprised of

common stock and retained earnings

A company using the same accounting principles from year to year is an application of

consistency

A business organized as a separate legal entity is a

corporation

Gross profit for a merchandising company is net sales minus

cost of goods sold

The current ratio is

current assets divided by current liabilities

Working capital is calculated by taking

current assets minus current liabilities

In a classified balance sheet, assets are usually classified as

current assets; long-term investments; property, plant, and equipment; and intangible assets

Liabilities are generally classified on a balance sheet as

current liabilities and long-term liabilities

Which of the following methods will result in the highest depreciation in the first year

declining-balance

The term applied to the periodic expiration of a plant asset's cost is

depreciation

The primary difference between a periodic and perpetual inventory system is that a periodic system

determines the inventory on hand only at the end of the accounting period

Payments to stockholders are called

dividends

All of the following are normally found in a corporation's stockholders' equity section except

dividends in arrears

In a perpetual inventory system, cost of goods sold is recorded

each time a sale occurs

A current asset is

expected to be converted to cash or used in the business within a relatively short period of time

Borrowing money is an example of a(n)

financing activity

Sales revenue less cost of goods sold is called

gross profit

On a classified balance sheet, companies usually list current assets

in the order in which they are expected to be converted into cash

Trademarks would appear in which balance sheet section

intangible assets

Which activities involve acquiring the resources/assets to operate the business

investing

Which of the following is not one of the three forms of business organization

investors

Par value

is the value assigned per share in the corporate character

Working capital is a measure of

liquidity

The group of users of accounting information charged with achieving the goals of the business is its

managers

Dividends in arrears on cumulative preferred stock

must be paid before common stockholders can receive a dividend

After gross profit is calculated, operating expenses are deducted to determine

net income

The gross profit rate is computed by dividing gross profit by

net sales

Which activities involve putting the resources of the business into action to generate a profit

operating

An income statement

presents the revenues and expenses for a specific period of time

Earnings per share is a

profitability ratio

Ratios that measure the income or operating success of a company for a given period of time are

profitability ratios

The two ways that a corporation can be classified by ownership are

publicly held and privately held

Dividends are reported on the

retained earnings statement

An income statement shows

revenues, expenses, and net income

Gross profit equals the difference between

sales revenue and cost of goods sold

The debt to assets ratio is a

solvency ratio

The retained earnings statement

summarizes the changes in retained earnings for a specific period of time

Retained earnings is

the amount of net income kept in the corporation for future use

The historical cost principle requires that when assets are acquired, they be recorded at

the amount paid for them

Stockholders of a corporation directly elect

the board of the directors

Which of the following financial statements is divided into major categories of operating, investing, and financial activities

the statement of cash flows

All of the following are needed for the computation of depreciation except

training costs of manufacturing personnel

Information presented in a clear and concise fashion so that users can comprehend its meaning is an application of

understandability

Which of the following is a measure of liquidity

working capital

(T or F) Owners of business firms are the only people who need accounting information

False

(T or F) Raw materials inventories are the goods that a manufacturing company has completed and are ready to be sold to customers

False

(T or F) Sales revenue minus operating expenses equals gross profit

False

(T or F) The asset turnover is calculated as net sales divided by ending total assets

False

(T or F) The basic accounting equation states that Assets = Liabilities

False

(T or F) The book value of a plant asset is always equal to its fair market value

False

(T or F) The book value of a plant asset is the amount originally paid for the asset less anticipated salvage value

False

(T or F) The declining-balance method of depreciation is called an accelerated depreciation method because it depreciates an asset in a shorter period of time than the asset's life

False

(T or F) The inventory turnover is calculated as cost of goods sold divided by ending inventory

False

(T or F) When the terms of sale are FOB shipping point, legal title to the goods remains with the seller until the goods reach the buyer

False

If total liabilities increased by $79000 and stockholders' equity increased by $35000 during a period of time, then total assets must change by what amount and direction during the same period

$114000 increase

A machine was purchased for $57000 and it was estimated to have a $6000 salvage value at the end of its useful life. Monthly depreciation expense of $829 was recorded using the straight-line method. The annual depreciation rate is

19.5%

If Kingbird, Inc. has net sales of $481000 and cost of goods sold of $348000, Kingbird gross profit rate is

28%

Windsor, Inc. had 160000 shares of common stock outstanding before a stock split occurred and 480000 shares outstanding after the stock split. The stock split was

3-for-1

The accounting equation may be expressed as

Assets = Liabilities + Stockholders' Equity

(T or F) A business organized as a separate legal entity owned by stockholders is a partnership

False

(T or F) External users of accounting information are managers who plan, organize, and run a business

False

(T or F) Franchises are classified as a plant asset

False

(T or F) If the ownership pf merchandise passes to the buyer when the seller ships the merchandise, the terms are stated as FOB destination

False


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