Exam 5: Foundations of Financial Reporting and the Classified Balance Sheet

The convention of consistency pertains to the use of the same accounting principles by firms in the same industry.

Use this information to answer the following question. The total amount of working capital is

Return on assets is a better measure of profitability than profit margin because it takes into account the assets invested in the business.

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. _____ 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 20x5,a company uses straight-line depreciation and in 20x6 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.

A material item is one that is likely to affect a user's decision.

Use this balance sheet and income statement for the first year of operations for Cane Construction to answer the following question.Use ending balances whenever average balances are required for computing ratios. The debt to equity ratio for Cane Construction is

Return on assets is a combination of the profit margin and the asset turnover.

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

The normal operating cycle helps define which of the following balance sheet sections?

The profit margin equals

Even when no errors have been made,accounting is never 100 percent accurate because of the extensive use of estimates.

On a corporate balance sheet,earned capital is also known as

A different set of financial statements usually is prepared for each user.