Question 1

It is possible for an asset to be a current asset even though the expected conversion of that asset into cash is to be longer than one year.

Accepted Answer

A) True 
 B)False

Question 2

To understand accounting information, users must be familiar with the accounting conventions, or rules of thumb, used in preparing financial statements.

Accepted Answer

A) True 
 B)False

Question 3

A company with a current ratio of 1.0 is considered more liquid than a company with a current ratio of 2.0.

Accepted Answer

A) True 
 B)False

Question 4

Use this balance sheet and income statement for the first year of operations for Layton Novelties to answer the following question. Use ending balances whenever average balances are required for computing ratios.   Laytan Navelties
Income St-tement
Far the Year Ended December 31, 2010
$\begin{array}{lr}
\text { Net sales } & \$ 80,000 \
\text { Cost of goods sold } & 32,000 \
\text { Gross margin } & \$ 48,000 \
\text { Operating expenses } & 26,400\\text { Net income }&\$21,600
\end{array}$ The debt to equity ratio for Layton Novelties is

Accepted Answer

A)  16-2/3 percent. 
B)  20 percent. 
C)  80 percent. 
D)  83-1/3 percent. 
A)  16-2/3 percent. 
B)  20 percent. 
C)  80 percent. 
D)  83-1/3 percent.

Question 5

Which of the following should not be classified as a current asset?

Accepted Answer

A)  A one-year installment receivable from the sale of a truck 
B)  An investment expected to be needed for operations in the next year 
C)  A one-year prepaid insurance policy 
D)  A fund to be used to purchase land 
A)  A one-year installment receivable from the sale of a truck 
B)  An investment expected to be needed for operations in the next year 
C)  A one-year prepaid insurance policy 
D)  A fund to be used to purchase land

Question 6

Which of the following accounts is most likely to appear on the balance sheet as a current liability?

Accepted Answer

A)  Accumulated Depreciation 
B)  Bonds Payable 
C)  Mortgage Payable 
D)  Wages Payable 
A)  Accumulated Depreciation 
B)  Bonds Payable 
C)  Mortgage Payable 
D)  Wages Payable

Question 7

Profitability means having enough cash on hand to pay bills when they become due.

Accepted Answer

A) True 
 B)False

Question 8

Use this information to answer the following question.   The total dollar amount of assets to be classified as investments is

Accepted Answer

A)  $100,000. 
B)  $180,000. 
C)  $0. 
D)  $80,000. 
A)  $100,000. 
B)  $180,000. 
C)  $0. 
D)  $80,000.

Question 9

Each of the following statements violates a concept or convention of accounting. Write the letter in the blank next to each statement corresponding to the concept or convention violated.
a. Consistency
b. Materiality
c. Conservatism
_____ 1. A note to the financial statements indicating a change in inventory methods is omitted.
_____ 2. When management is unsure of which estimates to use in a given situation, the estimate resulting in the largest net income is always used.
_____ 3. In 2009, a company uses straight-line depreciation and in 2010 the company uses declining-balance depreciation.
_____ 4. A small company expenses all expenditures under $10,000.
_____ 5. A small company purchases a $50,000 computer to save $3,000 per year in bookkeeping wages.
d. Full disclosure
e. Cost-benefit

Accepted Answer

The answer of Each of the following statements violates a...

Question 10

In which category would office salaries expense be included?

Accepted Answer

A)  Net sales 
B)  Cost of goods sold 
C)  Selling expenses 
D)  General and administrative expenses 
A)  Net sales 
B)  Cost of goods sold 
C)  Selling expenses 
D)  General and administrative expenses

Question 11

Gross margin equals the difference between net sales and

Accepted Answer

A)  net income. 
B)  cost of goods sold plus operating expenses. 
C)  operating expenses. 
D)  cost of goods sold. 
A)  net income. 
B)  cost of goods sold plus operating expenses. 
C)  operating expenses. 
D)  cost of goods sold.

Question 12

The Sarbanes-Oxley Act requires a company to guarantee that its financial statements are 100 percent accurate.

Accepted Answer

A) True 
 B)False

Question 13

Income from operations is arrived after considering all except

Accepted Answer

A)  administrative salaries. 
B)  interest income. 
C)  the cost of sales. 
D)  sales returns and allowances. 
A)  administrative salaries. 
B)  interest income. 
C)  the cost of sales. 
D)  sales returns and allowances.

Question 14

Financial statements are audited by outside accountants

Accepted Answer

A)  because it is a requirement stated in the Internal Revenue Code. 
B)  only when fraudulent financial reporting is suspected. 
C)  who then report on whether or not the company is a good investment. 
D)  to increase the users' confidence in the statements' reliability. 
A)  because it is a requirement stated in the Internal Revenue Code. 
B)  only when fraudulent financial reporting is suspected. 
C)  who then report on whether or not the company is a good investment. 
D)  to increase the users' confidence in the statements' reliability.

Question 15

Match the following financial statement ratios with their definition.
1. Working capital _____
2. Current ratio _______
3. Profit margin ______
4. Return on assets______
5. Debt to equity ratio________
6. Return on equity_______
7. Asset turnover_________
a. A measure of profitability that shows the proportion of a company's assets that is financed by creditors and the proportion financed by owners
b. A measure of liquidity that shows the net current assets on hand to continue business operations
c. A measure of profitability that relates the amount earned by a business to the owner's investment in the business
d. A measure of profitability that shows the percentage of each sales dollar that results in net income
e. A measure of liquidity; current assets divided by current liabilities

Accepted Answer

1. b
2. e

Question 16

The income statement of a company that provides a service only will contain gross margin.

Accepted Answer

A) True 
 B)False

Question 17

Cost of goods sold is a type of expense.

Accepted Answer

A) True 
 B)False

Question 18

Accounting information contains numerous estimates, classifications, summarizations, judgments, and allocations.

Accepted Answer

A) True 
 B)False

Question 19

Use this information to answer the following question.   The total dollar amount of assets to be classified as property, plant, and equipment is

Accepted Answer

A)  $374,000. 
B)  $262,000. 
C)  $354,000. 
D)  $122,000. 
A)  $374,000. 
B)  $262,000. 
C)  $354,000. 
D)  $122,000.

Question 20

The use of the lower-of-cost-or-market method for inventory is an application of the convention of conservatism.

Accepted Answer

A) True 
 B)False

Exam 5: Financial Reporting and Analysis

It is possible for an asset to be a current asset even though the expected conversion of that asset into cash is to be longer than one year.

To understand accounting information, users must be familiar with the accounting conventions, or rules of thumb, used in preparing financial statements.

A company with a current ratio of 1.0 is considered more liquid than a company with a current ratio of 2.0.

Which of the following should not be classified as a current asset?

Which of the following accounts is most likely to appear on the balance sheet as a current liability?

Profitability means having enough cash on hand to pay bills when they become due.

Use this information to answer the following question. The total dollar amount of assets to be classified as investments is

In which category would office salaries expense be included?

Gross margin equals the difference between net sales and

The Sarbanes-Oxley Act requires a company to guarantee that its financial statements are 100 percent accurate.

Income from operations is arrived after considering all except

Financial statements are audited by outside accountants

The income statement of a company that provides a service only will contain gross margin.

Cost of goods sold is a type of expense.

Accounting information contains numerous estimates, classifications, summarizations, judgments, and allocations.

Use this information to answer the following question. The total dollar amount of assets to be classified as property, plant, and equipment is

The use of the lower-of-cost-or-market method for inventory is an application of the convention of conservatism.

Uses of Accounting Information and the Financial Statements

Analyzing Business Transactions

Measuring Business Income

Completing the Accounting Cycle

The Operating Cycle and Merchandising Operations

Internal Control

Inventories

Cash and Receivables

Current Liabilities and Fair Value Accounting

Long Term Assets

Contributed Capital

Long Term Liabilities

The Corporate Income Statement and the Statement of Stockholders Equity

The Statement of Cash Flows

Financial Performance Measurement

Partnerships

The Changing Business Environment-A Managers Pers

Cost Concepts and Cost Allocation

Costing Systems: Job Order Costing

Costing Systems Process Costing

Activity-Based Systems-Abm and Lean

Cost Behavior Analysis

The Budgeting Process

Performance Management and Evaluation

Standard Costing and Variance Analysis

Short Run Decision Analysis

Capital Investment Analysis

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