21 Jan Average common shares

ACC556 Financial Accounting for Managers

CHAPTER 2 EXERCISE

Question 1 Equipment is classified on the balance sheet as

Answers:

a current asset.

property, plant, and equipment.

an intangible asset.

a long-term investment.

Question 2 Each of the following statements is justified by a fundamental quality or an enhancing of quality accounting. Write the letter in the blank next to each statement corresponding to the quality involved.

Question

Consistency

A company uses the same accounting principles from year to year.

Verifiable

Information that may be duplicated using the same methods.

Understandability

Information presented in a clear and concise fashion.

Relevance

Information that makes a difference in a decision.

Faithful representation

Information accurately depicts what really happened.

Question 3 For accounting purposes, business transactions should be kept separate from the personal transactions of the stockholders of the business.

Answers:

True

False

Question 4 Based on the following data, what is the amount of current assets?

Accounts payable……………………………………………………….. $62,000

Accounts receivable…………………………………………………….. 100,000

Cash………………………………………………………………………. 50,000

Intangible assets………………………………………………………… 100,000

Inventory…………………………………………………………………. 138,000

Long-term investments…………………………………………………. 160,000

Long-term liabilities……………………………………………………… 200,000

Short-term investments…………………………………………………. 80,000

Notes payable……………………………………………………………. 56,000

Property, plant, and equipment…………………………………………… 1,340,000

Prepaid insurance……………………………………………………….. 2,000

Answers:

$212,000

$370,000

$232,000

$230,000

Question 5 Garrison Company prepares quarterly reports, which it distributes to all stockholders and other entities that rely on its accounting information. Which of the following is the best term for the key assumption in financial reporting that Garrison is following?

Answers:

Monetary unit assumption

Going concern assumption

Economic entity assumption

Periodicity assumption.

Question 6 Equipment is classified on the balance sheet as

Answers:

a current asset.

property, plant, and equipment.

an intangible asset.

a long-term investment.

Question 7 Net cash provided by operating activities takes into account that a company must invest in capital expenditures just to maintain its current level of operations.

Answers:

True

False

Question 8 Reporting a net income of $95,000 will

Answers:

increase retained earnings.

decrease retained earnings.

increase common stock.

decrease common stock.

Question 9 Earnings per share measures the net income earned on each share of common stock.

Answers:

True

False

Question 10 In order for information to be relevant, it must be reported on a monthly basis.

Answers:

True

False

Question 11 The following information is available for Bradshaw Corporation:

in millions)

Bradshaw Corporation

4

2013

Preferred dividends

25

10

Net income

500

480

Shares outstanding at the end of the year

200

180

Shares outstanding at the beginning of the year

180

150

Based on this information, the earnings per share calculations (rounded to two decimals) suggest

Answers:

lower performance in 2013 than in 2014 for Bradshaw Corporation.

higher performance in 2014 than in 2013 for Bradshaw Corporation.

fewer earnings available to Bradshaw’s common stockholders in 2014 than in 2013.

an increase in the average number of common shares outstanding between 2013 and 2014 for Bradshaw Corporation.

Question 12 Cash and supplies are both classified as current assets.

Answers:

True

False

Question 13 Cash and supplies are both classified as current assets.

Answers:

True

False

Question 14 Which of the following is not considered a measure of liquidity?

Answers:

Current ratio

Working capital

Debt to assets ratio

Each of these answer choices are liquidity measures

Question 15 N3 Corporation has assets of $3,000,000, common stock of $780,000, and retained earnings of $475,000. What are the creditors’ claims on their assets?

Answers:

$2,695,000

$1,255,000

$1,745,000

$3,305,000

Question 16 The principle that indicates that assets should be reported at the price received to sell an asset is the

Answers:

historical cost principle.

fair value principle.

full disclosure principle.

consistency principle.

Question 17 Use the following data to determine the total dollar amount of assets to be classified as current assets.

Koonce Office Supplies
Balance Sheet
December 31, 2014

Cash $ 130,000 Accounts payable $ 140,000
Accounts receivable 100,000 Salaries and wages payable 20,000
Inventory 110,000 Mortgage payable 160,000
Prepaid insurance 60,000 Total liabilities $320,000
Stock investments 170,000
Land 180,000
Buildings $210,000 Common stock $240,000
Less: Accumulated Retained earnings 500,000
depreciation (40,000) 170,000 Total stockholders’ equity $740,000
Trademarks 140,000 Total liabilities and
Total assets $1,060,000 stockholders’ equity $1,060,000 Answers:

$570,000

$400,000

$340,000

$290,000

Question 18 If Morris Corporation has a negative $131 million free cash flow, which of the following statements is most likely true?

Answers:

Morris’ capital expenditures plus its cash dividends are less than its cash provided by operations.

This free cash flow indicates that Morris is in good shape to repay its long-term obligations when they come due.

This free cash flow indicates that Morris presents good cash generating ability to retire stock.

Morris’ cash provided by operations is less than its cash dividends plus capital expenditures.

Question 19 Earnings per share measures the net income earned on each share of common stock.

Answers:

True

False

Question 20 In a classified balance sheet, assets are usually classified as

Answers:

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

current assets; long-term investments; property, plant, and equipment; and common stocks.

current assets; long-term investments; tangible assets; and intangible assets.

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

Question 21 Free cash flow provides an indication of a company’s ability to

Answers:

generate cash to invest in new capital expenditures.

generate net income.

generate cash to pay dividends.

generate cash to invest in new capital expenditures and to pay dividends.

Question 22 Accounting information should be neutral in order to enhance

Answers:

faithful representation.

consistency.

comparability.

relevance.

Question 23 Using the following balance sheet and income statement data, what is the debt to assets ratio?

Current assets $ 14,000 Net income $ 21,000

Current liabilities 8,000 Stockholders’ equity 39,000

Average assets 80,000 Total liabilities 21,000

Total assets 60,000

Average common shares outstanding was 10,000.

Answers:

26 percent

13 percent

65 percent

35 percent