In a classified balance sheet, how are assets usually classified?
Current assets; long-term investments; property, plant, and equipment; and intangible assets.
In what order are current assets listed?
By liquidity.
The correct order of presentation in a classified balance sheet for the following current assets is:
Cash, accounts receivable, inventories, prepaid insurance.
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 long-term investment.
Which of the following is not classified as a current asset?
Patents.
Which of the following is the correct order for listing current assets on the balance sheet?
Cash, short-term investments, accounts receivable, inventories, prepaid expenses.
Which of the following is an example of an intangible asset?
Trademarks.
Which is the proper order for assets to appear on the balance sheet?
Current Assets; Long-term Investments; Property, Plant, & Equipment; Intangible Assets.
Which of the following is considered property, plant, and equipment on a classified balance sheet?
Land.
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?
$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.)
Which one of the following is not an alternate means of expressing a ratio?
Dollar amount.
Earnings per share is computed by dividing net income
Less preferred stock dividends by the average common shares outstanding.
Which is an indicator of profitability?
Earnings per share.
For 2012, 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 2012 earnings per share?
4.00
Net income is $200,000, preferred dividends are $20,000, and average common shares outstanding are 50,000. How much is earnings per share?
$3.60
Which of the following does not properly reflect a financial ratio?
$7,200
At December 31, 2012, Shorts Company had retained earnings of $2,184,000. During 2012, the company issued stock for $98,000, and paid dividends of $34,000. Net income for 2010 was $402,000. How much was the retained earnings balance at the beginning of 20
$1,816,000
(The beginning balance of retained earnings is the ending balance minus net income plus dividends.)
Issuing new shares of common stock will
Increase common stock.
Which statement do most corporations use instead of the retained earnings statement?
Statement of stockholders' equity.
(Most companies use a statement of stockholders' equity instead of the retained earnings statement, since the statement of stockholders' equity reports the changes in all of the stockholders' accounts. A statement of ret
Which one of the following does not affect retained earnings?
Issuance of common stock.
The following ratios are available for Leer Inc. and Stable Inc.
Current Ratio
Debt to Assets Ratio to Earnings
per Share
Leer Inc. 2:1 75% $3.50
Stable Inc. 1.5:1 40% $2.75
Compared to Stable Inc., Leer Inc. has:
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
Which of these measures is an evaluation of a company's ability to pay current liabilities?
Current ratio.
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 comm
$1.80
(Earnings per share is the result of net income being divided by the average common shares; $36,000 / 20,000 shares = $1.80.)
What is measured by current assets minus current liabilities?
Working capital.
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 payable 8,000
Averag
2.50
(The current ratio is total current assets divided by total current liabilities; ($300,000 / $120,000) = 2.5 to 1.)
Which of the following ratios measures the ability of the company to survive over a long period of time?
Solvency ratios.
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 payable 8,000
Averag
60%
(The debt to total asset ratio is total liabilities divided by total assets.)
If a company has the ability to pay obligations that are expected to become due within the next year or operating cycle, what is term that this describes?
Liquidity.
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 payable 8,000
Averag
$180,000
(Working capital is current assets minus current liabilities. $300,000 - $120,000 = $180,000)
In 2012, Bombay Corporation had cash receipts of $21,000 and cash disbursements of $12,000. The company's ending cash balance at December 31, 2012 was $33,000. What was the beginning cash balance?
$24,000
(The ending balance plus cash disbursements less cash receipts equals the beginning balance. $33,000 + $12,000 - $21,000 = $24,000)
What are generally accepted accounting principles?
A set of rules and practices that have authoritative support
What organization issues International Financial Reporting Standards?
International Accounting Standards Board.
What is the primary accounting standard-setting body in the United States?
Financial Accounting Standards Board.
What are the accounting rules that have substantial authoritative support and are recognized as a general guide for financial reporting purposes in the U. S.?
Generally accepted accounting principles.
Which of the following is not a characteristic of relevance?
Verifiability.
Which of the following is not a characteristic of reliable accounting information?
Timeliness.
Which of the following are constraints that allow a company to modify generally accepted accounting principles without jeopardizing the usefulness of the financial statements?
Materiality and conservatism.
An item is ________ if it is likely to influence the decision of an investor or creditor.
Material.
A company can change to a new method of accounting if management can justify that the new method results in
More meaningful financial information.
What is the primary criterion by which accounting information can be judged?
Usefulness for decision making.
Verifiability is an ingredient of
Reliability
Yes
Relevance
No
What accounting constraint refers to the tendency of accountants to resolve uncertainty in a way least likely to overstate assets and net income?
Conservatism.