NAU WileyPLUS - ACC 255 - CH 2

At December 31, 2017, Shorts Company had retained earnings of $2,184,000. During 2017, the company issued stock for $98,000, and paid dividends of $34,000. Net income for 2017 was $402,000. How much was the retained earnings balance at the beginning of 2017? a)$1,816,000 b)$1,914,000 c)$2,454,000 d)$2,552,000

a)$1,816,000 The beginning balance of retained earnings is the ending balance minus net income plus dividends. Working backwards, $X + $402,000 - $34,000 = $2,184,000. Therefore, beginning retained earnings = $1,816,000.

Current liabilities are $10,000, long-term liabilities are $20,000, common stock is $50,000, and retained earnings totals $70,000. How much is total stockholders' equity? a)$120,000 b)$150,000 c)$140,000 d)$70,000

a)$120,000 Common stock and retained earnings are both elements of stockholders' equity. Common stock of $50,000 plus retained earnings of $70,000 equals $120,000 in stockholders' equity.

For 2017, Stoneland Corporation reported net income, $24,000; net sales, $400,000; and average shares outstanding, 6,000. There were no preferred stock dividends. How much was the 2017 earnings per share? a)$4.00 b)$0.06 c)$16.67 d)$66.67

a)$4.00 Net income ($24,000) divided by average shares outstanding (6,000) = $4.00/share.

What are generally accepted accounting principles? a)A set of accounting rules and practices that have authoritative support. b)Usually established by the Internal Revenue Service. c)The guidelines used to resolve ethical dilemmas. d)Fundamental truths that can be derived from the laws of nature.

a)A set of accounting rules and practices that have authoritative support. All U.S. companies get guidance from a set of rules and practices that have authoritative support, referred to as generally accepted accounting principles (GAAP). Standard-setting bodies, in consultation with the accounting profession and the business community, determine these accounting standards.

Which is an indicator of profitability? a)Earnings per share b)Debt to total assets ratio c)Free cash flow d)Current ratio

a)Earnings per share The earnings per share ratio is a measure of profitability.

Which of the following is considered property, plant, and equipment on a classified balance sheet? a)Land b)Supplies c)Investment in Intel Corporation stock d)Copyright

a)Land Land is classified as property, plant, and equipment on a classified balance sheet.

What is the primary criterion by which accounting information can be judged? a)Usefulness for decision making b)Comparability c)Consistency d)Predictive value

a)Usefulness for decision making Information provided must be useful to enable users to make decisions.

Which of the following is not a characteristic of relevance? a)Verifiability b)Materiality c)Confirmatory value d)Predictive value

a)Verifiability Verifiability refers to the process or capability of being able to prove or verify that the data is free from error. This is one of the enhancing qualities of useful information.

The correct order of presentation in a classified balance sheet for the following current assets is: a)cash, accounts receivable, inventories, prepaid insurance. b)inventories, cash, accounts receivable, prepaid insurance. c)cash, inventories, accounts receivable, prepaid insurance. d)accounts receivable, cash, prepaid insurance, inventories.

a)cash, accounts receivable, inventories, prepaid insurance. Current assets are listed in order of their liquidity: cash, accounts receivable, inventories, and then prepaid insurance. Liquidity is the ability of an amount to be converted into cash.

These are selected account balances on December 31, 2017. Land 150000 Land (held for future use) 225000 Buildings 1200000 Inventory 300000 Equipment 675000 Furniture 150000 Accumulated Depreciation 450000 What is the total amount of property, plant, and equipment that will appear on the balance sheet? a)$2700000 b)$1725000 c)$2250000 d)$1950000

b)$1725000 $150000 + $1200000+ $675000 + $150000 - $450000 = $1725000 (Land + Build. + Equip + Furn -.Acc. Dep.)

Based on the following data, what is the amount of current assets? Accounts payable 62000 Accounts receivable 100000 Cash 70000 Intangible assets 100000 Inventory 138000 Long-term investments 160000 Long-term liabilities 200000 Short-term investments 80000 Notes payable 56000 Property, plant, and equipment 1340000 Prepaid insurance 2000 a)$232000 b)$390000 c)$252000 d)$250000

b)$390000 $100000 + $70000 + $138000 + $80000 + $2000 = $390000 (Acc. rec.+ Cash + Inven. +Sh.-term inv + Prep. ins.)

Using the following balance sheet and income statement data, what is the debt to assets ratio? Current assets 21000 Net income 45000 Current liabilities 12000 Stockholders' equity 63000 Average assets 132000 Total liabilities 27000 Total assets 90000 Average common shares outstanding was 15000. a)20.5 percent b)30 percent c)33.3 percent d)40.9 percent

b)30 percent

In what order are current assets listed? a)Alphabetically b)By liquidity c)By longevity d)By importance

b)By liquidity Current assets should be listed in order of liquidity which is the order of how quickly they are expected to be converted into cash.

In a classified balance sheet, how are assets usually classified? a)Current assets; long-term investments; tangible assets; and intangible assets b)Current assets; long-term investments; property, plant, and equipment; and intangible assets c)Current assets; long-term assets; property, plant, and equipment; and intangible assets d)Current assets; long-term investments; property, plant, and equipment; and common stock

b)Current assets; long-term investments; property, plant, and equipment; and intangible assets Assets are classified as current assets; long-term investments; property,plant and equipment; and intangible assets.

Which of these measures is an evaluation of a company's ability to pay current liabilities? a)Earnings per share b)Current ratio c)Both earnings per share and current ratio d)None of these answer choices are correct

b)Current ratio The current ratio measures liquidity. Higher current ratios indicate higher liquidity.

Which of the following is an example of an intangible asset? a)Prepaid expenses b)Trademarks c)Property, plant, and equipment d)Accounts receivable

b)Trademarks Trademarks like the Nike swoosh package design are intangible assets. The trademark makes it easier for customers to recognize Nike swoosh products.

The following ratios are available for Leer Inc. and Stable Inc. Current Ratio DtoA Ratio EPS Leer Inc. 2:1 75% $3.50 Stable Inc. 1.5:1 40% $2.75 Compared to Stable Inc., Leer Inc. has: a)lower liquidity, higher solvency, and higher profitability. b)higher liquidity and lower solvency, but profitability cannot be compared based on information provided. c)higher liquidity, lower solvency, and higher profitability. d)higher liquidity, higher solvency, but profitability cannot be compared based on information provided.

b)higher liquidity and lower solvency, but profitability cannot be compared based on information provided. The current ratio measures liquidity and higher means the company is more liquid. The debt to assets ratio measures solvency and higher is not always better. We don't know how many outstanding shares each company has so we cannot compare profitability.

Which of the following ratios measures the ability of the company to survive over a long period of time? a)Profitability ratios b)Liquidity ratios c)Solvency ratios d)Current ratios

c)Solvency ratios Solvency ratios are good indicators of a company's ability to survive over an extended period of time.

An item is ________ if it is likely to influence the decision of an investor or creditor. a)faithful representation b)comparable c)material d)consistent

c)material An item is material if its size is likely to influence a decision of an investor or creditor. Materiality is a company-specific component of relevance.

The two fundamental qualities of useful information are: a)understandability and consistency. b)verifiability and timeliness. c)relevance and faithful representation. d)comparability and flexibility.

c)relevance and faithful representation.

The following balances and amounts were taken from the financial statements of Ortiz, Inc. The data are presented in alphabetical order. 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 earnings per share? a)$1.20 b)$0.56 c)$0.15 d)$1.80

d)$1.80 Earnings per share is the result of net income (less preferred dividends) being divided by the average common shares; $36,000 / 20,000 shares = $1.80.

The following balances and amounts were taken from the financial statements of Ortiz, Inc. 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 total assets 2000,000 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 Ortiz's current ratio? a)3.40 b)3.27 c)2.38 d)2.50

d)2.50 The current ratio is total current assets divided by total current liabilities; ($300,000 / $120,000) = 2.5 to 1.

A company purchased a tract of land on which it expects to build a production plant on in approximately five years. During the five years before construction, the land will be idle. In what classification should the land be reported? a)An intangible asset b)Land expense c)Property, plant, and equipment d)A long-term investment

d)A long-term investment Land or a building which is currently not used in operation is considered to be a long-term investment.

What is the primary accounting standard-setting body in the United States? a)Securities and Exchange Commission b)IFRS c)Public Company Accounting Oversight Board (PCAOB) d)Financial Accounting Standards Board

d)Financial Accounting Standards Board

If a company has the ability to pay obligations that are expected to become due within the next year or operating cycle whichever is longer, what is the term that describes this measure? a)Working capital b)Solvency c)Profitability d)Liquidity

d)Liquidity Liquidity is the ability to pay short-term obligations.