Test bank for cornerstones of financial accounting 3rd edition

Test Bank for Cornerstones of Financial Accounting 3rd Edition What is the primary objective of financial reporting? a To help investors make credit decisions b To help management assess cash flows c To protect users from fraudulent financial information d To provide useful information for decision making "Economic resources" are known as a assets b liabilities and stockholders' equity c owners' equity and stockholders' equity d retained earnings and revenues External users of financial information a need detailed records of the business to make informed decisions b are primarily responsible for the preparation of financial statements c rely on the financial statements to help make informed decisions d rely on management to tell them whether the company is a good investment Net Income appears on which financial statement(s)? a Balance Sheet only b Income Statement only c Both the Balance Sheet and the Income Statement d The Income Statement, Statement of Cash Flows using the indirect method and the Statement of Retained Earnings Refer to Benchmark Surveyors Calculate Current Assets a $498,000 b $401,000 c $854,000 d $709,000 Refer to Benchmark Surveyors Calculate Current Liabilities a $ 97,000 b $211,000 c $354,000 d $143,000 Which one of the following items is reported as a current stockholders' equity on a classified balance sheet? a Net Income b Accounts Payable c Land d Common Stock Barnes Restaurant reports the following amounts: Cash $125,000 Inventory $215,000 Land 275,000 Unearned Revenue 117,000 Equipment 350,000 Common Stock 300,000 Calculate Current Assets a $457,000 b $615,000 c $125,000 d $340,000 Which of the following accounts are normally reported as current liabilities on a classified balance sheet? a Accounts Payable and Prepaid Insurance b Interest Payable and Interest Receivable c Income Taxes Payable and Salaries Payable d Capital Stock and Accounts Payable Which one of the following is not a major category for long-term assets? a intangibles b property, plant, and equipment c inventory d patents Which of the following would not be considered to be an intangible asset? a franchises b copyrights c investments d trademarks If assets are expected to be realized in cash, sold, or consumed within the normal operating cycle of a business or within one year (if the operating cycle is shorter than one year), how are they reported on a classified balance sheet? a property, plant, and equipment b current assets c intangible assets d current liabilities Which set of items below are current assets? a Accounts Receivable, Net Income, Inventory, and Dividends b Cash, Accounts Receivable, Capital Stock, and Sales c Net Income, Cash, Office Supplies, and Inventory d Cash, Accounts Receivable, Inventory, and Office Supplies A non-classified balance sheet typically does not have a distinction between which of the following items? a assets and liabilities b current and noncurrent items c liabilities and stockholders' equity d Resources invested by the owners and amounts borrowed from creditors For the most recent year, a company's current ratio was significantly lower than its industry average What is the best possible explanation for this situation? a The company’s competitors were profitable b The company’s liquidity has improved c The company has less equity than the rest of the industry d The company’s liquidity is worse than the rest of the industry Refer to Bass Tours Calculate the total current assets a $ 842,000 b $1,022,000 c $ 732,000 d $ 842,000 Refer to Bass Tours Calculate the current ratio a 3.00 to b 2.75 to c 2.52 to d 2.10 to Refer to Bass Tours If the average current ratio for similar companies is 2.0 to 1, what does this tell you about this company’s liquidity? a The company is more liquid than its competitors b The company has more long-term assets than its competitors c The company is bankrupt d The company is more profitable than its competitors If a company has current assets of $2,100,000 and current liabilities of $500,000, calculate its working capital a $2,100,000 b $2,600,000 c $1,600,000 d $ 500,000 Working capital is calculated by which of the following? a Current assets divided by current liabilities b Total assets minus total liabilities c Current assets minus current liabilities d Current assets plus current liabilities A company has current assets of $100,000, total assets of $250,000, current liabilities of $20,000, and long-term liabilities of $50,000 How much of its existing cash can the company use to acquire equipment without allowing its current ratio to decline below 2.0 to 1? a $ 40,000 b $150,000 c $180,000 d $ 60,000 A company increased its dollar amount of working capital over the past several years Which one of the following measures should be used to further evaluate the company’s short-run liquidity? a The Asset Ratio b An analysis of the company's long-term debt c An analysis of the return on stockholders' equity d The Current Ratio Which financial statement reports information helpful in assessing working capital? a Balance Sheet b Capital Statement c Statement of Retained Earnings d Statement of Cash Flows Barrett Oil Company reported the following balances as of December 31, 2013: Accounts Receivable $125,000 Unearned Revenue $ 5,000 Cash 150,000 Notes Payable (due in months) 115,000 Land 200,000 Accounts Payable 70,000 Building 400,000 Equipment 165,000 Inventories 105,000 Notes Payable (due 07/01/2020) 600,000 What is the company’s current ratio? a 0.48 to b 2.00 to c 2.55 to d 2.86 to If the current ratio is to and current assets equal $200,000, how much is working capital? a $0 b $100,000 c $200,000 d $300,000 For which of the following is the working capital and current ratio is most useful? a In evaluating a company's liquidity b In evaluating a company's solvency c In evaluating a company's profitability d In evaluating a company's revenues Liquidity a measures the ability of the firm to pay financial obligations as they become due b can be measured in terms of working capital c can be assessed by the current ratio d All of the above Which of the following would appear on an income statement? a unearned revenue b cost of sales c retained earnings d dividends The Income Statement shows a how much profit the company has earned since it began operations b net Income equal to the amount of cash on the Balance Sheet c a summary of the results of operations for a period of time d the liquidity of the company on an annual basis Which of the following items would not be reported on a multiple-step income statement after income from operations? a income taxes b interest income c selling expenses d interest expense A question frequently asked by investors is, "How much debt does this company have?" Which financial statement answers this question? a single step income statement b cash flow statement c multiple-step income statement d classified balance sheet On a multiple-step income statement, operating income results from subtracting total operating expenses from which of the following amounts? a gross margin b cost of goods sold c income before taxes d net sales c Income Statement d Both the Income Statement and the Balance Sheet Another term for Short Term Investments is a inventories b accounts receivable c contributed capital d marketable securities Which of the following terms best describes a distribution of the net income of a corporation to its owners? a retained earnings b dividends c liquidation of assets d monetary unit Which of the following is the correct date format for the financial statement heading? a Balance Sheet for the Year Ended June 30, 2013 b Income Statement at December 31, 2013 c Income Statement for the Year Ended December 31, 2013 d Statement of Retained Earnings at December 31, 2013 Which statement summarizes the results of the company's operations? a Statement of Cash Flows b Statement of Retained Earnings c Balance Sheet d Income Statement The resources used to earn revenues during a period are called a net income b expenses c revenues d dividends Refer to Bargain Spot Fabrics What amount should the company report on its Balance Sheet for Total Assets? a $550,000 b $775,000 c $850,000 d $950,000 Refer to Bargain Spot Fabrics What is the retained earnings balance at the end of the current year? a $50,000 b $550,000 c $800,000 d $850,000 Refer to Bay Camera What is the company’s Net Income for the current year? a $22,500 b $32,500 c $42,500 d $80,000 Refer to Bay Camera What amount will be reported as Retained Earnings on the Balance Sheet at December 31, 2013, assuming this is the first year of operations? a $22,500 b $27,500 c $42,500 d Not enough information is provided Refer to Beard Marine What was the balance of Retained Earnings at January 1, 2013? a $ 21,000 b $ 26,000 c $106,000 d $214,000 Refer to Beard Marine What was the economic effect of the dividend payment? a The dividend reduced net income for 2013 b The dividend should be added to net income if the company's accounting equation is in balance c The dividend reduced total retained earnings d The dividends must be paid whenever the company reports net income B&B Painting reported the following information for the year ended December 31, 2013 Revenues $2,500,000 Expenses 2,000,000 Retained Earnings at December 31, 2012 100,000 Retained Earnings at December 31, 2013 450,000 How much was paid out in dividends in 2013? a $500,000 b $150,000 c $350,000 d $250,000 Barr Attorneys reported the following information for the year ended December 31, 2013 Revenue $14,000,000 Expenses 11,500,000 Dividends 1,000,000 Retained Earnings at December 31, 2013 1,750,000 What was the retained earnings balance at December 31, 2012? a $ 250,000 b $2,500,000 c $1,500,000 d $ 350,000 A company had the following balance sheet amounts at the beginning of the year: Total assets $650,000 Total stockholder's equity 250,000 During the year, total assets increased by $350,000, total liabilities increased by $100,000, and dividends were paid in the amount of $300,000 No other transactions occurred except revenues and expenses How much is net income for the year? a $750,000 b $650,000 c $500,000 d $550,000 On January 1, 2013, a company's balance in retained earnings was $10,000,000 At December 31, 2013, the balance in retained earnings was $9,400,000 If the company earned net income of $440,000 during the year, how much were dividends? a $1,040,000 b $1,000,000 c $ 600,000 d $ 440,000 On January 1, 2013, a company's balance in retained earnings was $275,000 During 2013, the company earned net income of $23,500 and paid $11,200 in dividends Calculate the retained earnings balance at December 31, 2013 a $263,800 b $298,500 c $262,700 d $287,300 Refer to Beaver Tree Service What is the company’s net income? a $150,000 b $250,000 c $300,000 d $350,000 Refer to Beaver Tree Service The company's expenses are: a $100,000 b $150,000 c $450,000 d $275,000 If a company has $10,500,000 of revenues, declares and pays $550,000 in dividends, and has net income of $1,600,000, how much were expenses for the year? a $9,950,000 b $1,050,000 c $2,150,000 d $8,900,000 Suppose a company reports the following information at December 31, 2013: Sales $15,000,000 Cash $ 3,000,000 Unearned Revenue $ 400,000 Dividends $ 1,000,000 Cost of Sales $ 8,500,000 What is the company's Gross Profit? a $ 6,100,000 b $ 5,500,000 c $ 6,500,000 d $12,000,000 If a company has assets of $5,000,000, liabilities of $3,000,000, and retained earnings of $1,200,000, how much is total stockholders' equity? a $ 800,000 b $2,000,000 c $3,800,000 d $1,800,000 Calculate total sales for a company that reported a net loss of $1,500,000 and total expenses of $2,900,000 a $4,400,000 b $1,400,000 c $2,400,000 d $1,600,000 There are more corporations than sole proprietorships and partnerships in the United States True False The three main business activities are financing, operating, and investing True False Internal users of accounting information include present creditors and management True False The income statement summarizes the assets, liabilities and stockholders’ equity for a period of time True False The four basic financial statements are the Income Statement, Statement of Retained Earnings, Balance Sheet, and Statement of Cash Flows True False The amount of earnings distributed to stockholders can be found in the income statement as an expense True False Stockholders' equity is composed of two main sources: liabilities and contributed capital True False The first step in preparing the classified balance sheet is to list the assets in order of liquidity True False The only financial statement that reports the retained earnings balance at the end of the period is the Statement of Retained Earnings True False An income statement provides information at one specific point in time, while the other basic financial statements provide information on activities that occur over a period of time True False When an entity's stock issuances exceed its expenses for a period of time, the entity will report net income True False Contributed capital is the residual interest that remains after deducting liabilities from stockholders' equity True False The four steps in preparing the Income Statement are: 1) Prepare heading, 2) List the revenues of the company, 3) List the expenses of the company, 4) List the dividends of the company True False Stockholders equity is composed of contributed capital and retained earnings True False The primary objective of internal auditors who are employees of the company is to provide assurance to the company’s stockholders that the financial statements are fairly presented True False The independent auditor's report conveys whether or not the business is a good investment True False The Statement of Cash Flows shows cash inflows and cash outflows for a period of time True False Because the four financial statements are interrelated (i.e., there is a natural progression from one financial statement to another), the balance sheet should be prepared first True False The company's annual report includes an audit report, notes to the financial statements, but not management's discussion and analysis True False Investing is the business activity that measures the company’s ability to generate cash from its revenue and expense activities True False The owners of a sole proprietorship, partnership and corporations have limited liability True False The purpose of financial reporting is to provide economic information to investors, creditors, and other financial statement users True False Creditors use accounting information to evaluate whether to loan money to a company True False Current assets include all of the following: cash, inventory, equipment, supplies, and accounts receivable True False Current liabilities are typically listed in the order in which they will be paid True False Three common categories of long-term assets are: 1) property, plant, and equipment, 2) long-term investments, and 3) intangibles True False In the stockholders' equity section of a classified balance sheet, a distinction is made between amounts invested by owners and amounts financed by creditors True False One primary purpose of a classified balance sheet is to help users evaluate the working capital of a company True False The classifications in the balance sheet are to help users determine how a company obtained its resources True False The current ratio is useful in determining a company's ability to pay obligations when they become due True False Income from operations includes interest revenue and interest expense because these items are considered to be operating in nature True False Net loss reduces a company's retained earnings balance True False Dividend payments appear on the Statement of Retained Earnings True False The Statement of Cash Flows, like the Income Statement, reports only operating activities and other activities of a company True False The ending cash balance is shown on the Balance Sheet and the Statement of Retained Earnings True False The company's annual report is contained within the company's 10-K filing with the Securities Exchange Commission True False Independent auditors (CPAs) render an opinion that the financial statements or not fairly present a company's financial position, operating results, and cash flows True False An independent auditor's (CPA's) report is a guarantee that the financial statements are free from fraud or material error True False In the independent auditors' report included with the annual report, management discusses the financial statements and provides the shareholders with explanations for certain amounts reported in the statements True False A company with healthy cash flows from operating activities is in a good position to repay its debts True False ... users of financial information a need detailed records of the business to make informed decisions b are primarily responsible for the preparation of financial statements c rely on the financial. .. company's financial data c To provide the CPA's opinion of the fairness of the financial statements d To satisfy the need for full disclosure of all the facts relevant to a company's results and financial. .. Which one of the following is an internal user of financial information? a company management b governments c creditors d investors Which one of the following is not an external user of financial