ACCT 2001: Chapter 2

Good Buys has current assets of $2,500,000 and current liabilities of $1,000,000. If they issue $50,000 of new stock, what will their new current ratio be? a. 2.55:1 b. 3.2:1 c. 3:1 d. 1.5:1

a. 2.55:1

Grossman Lumber reported $102,000 net cash provided by its operating activities. If the company invests $4,000 in capital expenditures and distributes $8,000 in dividends, its free cash flow will be a. $94,000. b. $90,000. c. $102,000. d. $98,000.

b. $90,000.

Four companies each lost $30,000 in revenue due to the release of a competitor's product. For which of the following companies is this event the MOST material? a. a company that has annual revenue of $100,000 b. a company that has annual revenue of $1,000,000 c. a company that has annual revenue of $1 billion d. a company that has annual revenue of $10,000,000

a. a company that has annual revenue of $100,000

Free cash flow describes the net cash provided by operating activities after adjusting for a. both capital expenditure and dividends paid. b. current liabilities. c. capital expenditures only. d. dividends paid only.

a. both capital expenditure and dividends paid.

In their financial statements, Gordon Electronics groups all their current assets together, all their property, plant, and equipment together, all their current liabilities together, all their long-term liabilities together, and all their stockholders' equity together. This is an example of a... a. classified balance sheet. b. complete balance sheet. c. classified income statement. d. complete income statement.

a. classified balance sheet.

Which enhancing qualities of useful financial information are similar in that they both require the use of the same accounting principles and methods? a. comparability and consistency b. comparability and understandability c. verifiability and timeliness d. timeliness and consistency

a. comparability and consistency

In 2017, Spencer Realty considered conducting a survey of every home to determine which homes may be put on the market within the next year. This information would be included in their financial statements as a predictor of potential future revenue. The cost of the survey would be $2.6 million, and the results would not differentiate potential business for Spencer Realty compared to other realtor companies. In the end, Spencer Realty decided to not conduct the survey based on which principle? a. cost constraint b. historical cost c. full disclosure d. fair value

a. cost constraint

In 2014, Wagner Industries purchased a piece of equipment with an estimated useful life of 10 years. Each year, Wagner expenses 1/10 of the equipment's cost. This is an example of a. depreciation. b. an operating cycle. c. unethical accounting practices. d. goodwill.

a. depreciation.

A company that is concerned with identifying circumstances or events that have materiality and including the relevant information in their financial documents will be successful at complying with which principle in financial reporting? a. full disclosure principle b. fair value principle c. cost constraint principle d. faithful representation principle

a. full disclosure principle

Pembroke Company produced and sold 3,300 copiers during 2017. It reported $200,000 cash provided by operating activities. In order to maintain production at 3,300 recorders, Pembroke invested $10,200 in equipment. Pembroke paid $1,200 in dividends. What is Pembroke's free cash flow? a. $210,200 b. $188,600 c. $213,200 d. $189,800

b. $188,600

In 2017, Moreno Cheeses had a net income of $42,390, paid preferred dividends of $6,000, and had 18,000 shares of common stock outstanding. What was their earnings per share for 2017? a. $1.69 b. $2.02 c. $2.36 d. $2.69

b. $2.02

Julia is preparing the balance sheet for her company. Building and land are the only two assets classified as property, plant, and equipment, and each cost $60,000 dollars at purchase. The building has accumulated depreciation of $12,000. How should Julia list this information on the balance sheet? a. Building and land should be listed with a combined total of $108,000, and accumulated depreciation need not be listed at all. b. Building and land should be listed individually at $60,000 each, and accumulated depreciation should be listed at $12,000. c. Building and land should be listed individually at $48,000 and $60,000, respectively, and accumulated depreciation need not be listed at all. d. Building and land should be listed with a combined total of $120,000, and accumulated depreciation should be listed at $12,000.

b. Building and land should be listed individually at $60,000 each, and accumulated depreciation should be listed at $12,000.

What does a current ratio of 1.20:1 mean? a. For every dollar of current liabilities, a company has $1.00 of current assets. b. For every dollar of current liabilities, a company has $1.20 of current assets. c. For every $1.20 of current liabilities, a company has $1.20 of current assets. d. For every $1.20 of current liabilities, a company has $1.00 of current assets.

b. For every dollar of current liabilities, a company has $1.20 of current assets.

________ ratios measure the ability of a company to survive over a long period of time. a. Liquidity b. Solvency c. Profitability d. Asset turnover

b. Solvency

Based on the key assumptions of financial reporting, which of the following should be excluded from financial reports? a. items that can be expressed in monetary units b. customer satisfaction and complaint reports c. transactions that occurred within the past year d. purchase of a vehicle for a manager's work use

b. customer satisfaction and complaint reports

Which of the following should be excluded from the financial statements because it does not follow the monetary unit assumption? a. goodwill b. customer satisfaction reports c. equipment d. real estate

b. customer satisfaction reports

The important information included in customer satisfaction reports is not included in the financial statements because it fails to support which of the following assumptions? a. periodicity assumption b. monetary unit assumption c. going concern assumption d. economic entity assumption

b. monetary unit assumption

A company reported $50,000 net cash provided by operating activities. It invested $1,000 in equipment and paid $1,000 in dividends. Its free cash flow was a. $44,000. b. $12,000. c. $48,000. d. $52,000.

c. $48,000.

Property, plant, and equipment of Barnes Corp includes computer equipments. The equipment has accumulated $2,000 in depreciation since purchase. How should Barnes reflect this on its classified balance sheet? a. It should list the asset at cost, and then report the $2,000 depreciation in the notes to the financial statements. b. It should list the asset at fair value. c. It should list the asset at cost, and then subtract the total $2,000 in accumulated depreciation on a separate line. d. It should subtract the depreciation from the fair value.

c. It should list the asset at cost, and then subtract the total $2,000 in accumulated depreciation on a separate line.

Griffin Industries holds a debt that is due 16 months from now. Griffin prepares a classified balance sheet using an 18-month operating cycle. How would classification of this debt be different if Griffin used a one-year operating cycle? a. With the 18-month cycle it is classified as a current liability, while with a one-year cycle it is classified as stockholders' equity. b. With the 18-month cycle it is classified as stockholders' equity, while with a one-year cycle it is classified as a current liability. c. With the 18-month cycle it is classified as a current liability, while with a one-year cycle it is classified as a long-term liability. d. With the 18-month cycle it is classified as a long-term liability, while with a one-year cycle it is classified as a current liability.

c. With the 18-month cycle it is classified as a current liability, while with a one-year cycle it is classified as a long-term liability.

If the FASB changes an accounting standard for GAAP, which company will this affect the least? a. a U.S. company that does not want to have their shares traded on U.S. national stock exchanges b. a U.S. company that wants to have their shares traded on U.S. national stock exchanges c. a foreign company that wants to have their shares traded on U.S. stock exchanges who uses accounting practices that comply with IFRS d. a foreign company that wants to have their shares traded on U.S. stock exchanges who uses accounting practices that do not comply with IFRS

c. a foreign company that wants to have their shares traded on U.S. stock exchanges who uses accounting practices that comply with IFRS

Meyer Media produced several screenplays that they turned into movies. Each screenplay they use has a copyright. In which section of the financial statements should they record these copyrights? a. n the property, plant, and equipment section of the balance sheet b. in the expenses section of the income statement c. in the intangible asssets section of the balance sheet d. in the stockholders' equity section of the balance sheet

c. in the intangible asssets section of the balance sheet

A company that has current assets of $4.37 million and current liabilities of $2.86 million has working capital that is a.negative. b. greater than its liabilities. c. positive. d. zero.

c. positive.

Earnings per share is considered a measure of a company's a. long-term solvency. b. liquidity. c. profitability.

c. profitability.

Crawford Fishing had a net income of $35,640 in 2017. They decided to pay $3,000 in dividends and keep the rest to help expand their production line. The profit that they keep to reinvest in the business is recorded as a. a long-term investment. b. property, plant, and equipment. c. retained earnings. d. common stock.

c. retained earnings.

Which of the enhancing qualities of useful financial information is most related to the fundamental quality of faithful representation? a. comparability b. timeliness c. verifiability d. understandability

c. verifiability

Milton Tech holds a number of government securities. $12,000 of these securities have a one-year maturity date, while $7,000 have a 2-year maturity date. Milton prepares a classified balance sheet using an 18-month operating cycle. How should these securities be classified? a. All $19,000 in government securities should be classified as current assets. b. All $19,000 in government securities should be classified as long-term investments. c. $7,000 should be classified as current assets and $12,000 should be classified as long-term investments. d. $12,000 should be classified as current assets and $7,000 should be classified as long-term investments.

d. $12,000 should be classified as current assets and $7,000 should be classified as long-term investments.

Elizabeth Coal Ltd has total assets of $8,000,000, common stock of $4,200,000, and liabilities of $1,200,000. What is the value of the retained earnings? a. $5,400,000 b. $3,800,000 c. $6,800,000 d. $2,600,000

d. $2,600,000

In 2017, Rigby Construction had net income $32,000; net sales $200,000; and average share outstanding 12,000. There were no preferred dividends. What was the company's 2017 earnings per share? a. $0.27 b. $1.75 c. $26.70 d. $2.67

d. $2.67

A frozen yogurt business has current assets of $25,000 and current liabilities of $10,000. Its current ratio is a. 0.3:1. b. 3:1. c. 4:1. d. 2.5:1.

d. 2.5:1.

Goodman's has current assets of $2,500,000 and current liabilities of $1,000,000. If they pay $250,000 of their accounts payable, what will their new current ratio be? a. 4:1 b. 2.0:1 c. 1.2:1 d. 3:1

d. 3:1

Anders Industries currently holds two debts: an $11,000 debt due in 12 months and a $16,000 debt due in 18 months. Anders prepares a classified balance sheet using an 18-month operating cycle. How should these debts be classified? a. $16,000 should be classified as a current liability, and $11,000 should be classified as a long-term debt. b. All $27,000 in debt should be classified as long-term liabilities. c. $11,000 should be classified as a current liability, and $16,000 should be classified as a long-term liability. d. All $27,000 in debt should be classified as current liabilities.

d. All $27,000 in debt should be classified as current liabilities.

Jimenez Transportation purchased five new transportation vehicles in 2016. They plan to pay these vehicles off in even installments over the next 8 years. On the 2017 year-end financial statements, how would the amount Jimenez plans to pay off in 2018 differ from the amount they plan to pay off in 2019? a. The amount they plan to pay off in 2018 would be classified as a current liability, and the amount they plan to pay off in 2019 would be classified as a long-term investment. b. The amount they plan to pay off in 2018 would be classified as depreciation, and the amount they plan to pay off in 2019 would be classified as a long-term liability. c. he amount they plan to pay off in 2018 would be classified as property, plant, and equipment, and the amount they plan to pay off in 2019 would be classified as a long-term investment. d. The amount they plan to pay off in 2018 would be classified as a current liability, and the amount they plan to pay off in 2019 would be classified as a long-term liability.

d. The amount they plan to pay off in 2018 would be classified as a current liability, and the amount they plan to pay off in 2019 would be classified as a long-term liability.

Martin Industries owns a parcel of land adjacent to its factory. In approximately 18 months from now, Martin intends to build a parking lot on this parcel. Martin prepares a classified balance sheet using a one-year operating cycle. How would classification of this parcel be different if Martin used a two-year operating cycle? a. With a one-year cycle it is classified as property, plant, and equipment, while with a two-year cycle it is classified as property, plant, and equipment. b. With a one-year cycle it is classified as a current asset, while with a two-year cycle it is classified as an intangible asset. c. With a one-year cycle it is classified as an intangible asset, while with a two-year cycle it is classified as a current asset. d. With the one-year cycle it is classified as a long-term investment, while with a two-year cycle it is classified as property, plant, and equipment.

d. With the one-year cycle it is classified as a long-term investment, while with a two-year cycle it is classified as property, plant, and equipment.

Mason Corporation purchased a piece of land 5 years ago when the price of land was low. It plans to develop the land into a new facility when their current facility reaches its production limit, which it estimates will be in 4 years. On their classified balance sheet, Mason Corporation would classify this land as a. an intangible asset. b. property, plant, and equipment. c. a current asset. d. a long-term investment.

d. a long-term investment.

According to the historical cost principle, if an asset costs $50,000 when it was purchased, it would be recorded at its ________ over the time the asset is held. a. air value b. appreciated value c. market value d. cost

d. cost

Which principle would a company be violating if it withheld information that would make a difference to users of financial statements? a. fair value principle b. materiality principle c. cost constraint principle d. full disclosure principle

d. full disclosure principle