Deck 2: Financial Statements and the Annual Report

Question 1

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

Answer 1

D

Question 2

Information that is material means that an error or alternative method of handling a transaction

A)Would possibly affect the judgment of someone relying on the financial statements
B)Would not affect the decisions of users
C)Might cause a company to understate its earnings for the accounting period
D)Could increase the profitability of a company

Answer 2

A

Question 3

The preparation of financial statements requires that the information be understandable

A)Only to CPAs.
B)To those willing to spend the time to understand it.
C)Only to those who take an accounting course.
D)Only to financial analysts and brokers.

Answer 3

B

Question 4

Button Transportation purchases many pieces of office furniture with an individual cost below $200 each.Button chooses to account for these expenditures as expenses when acquired rather than reporting them as property, plant, and equipment on its balance sheet.The company's accountant and independent CPA agree that no accounting principle has been violated.What accounting justification allows Button to expense the furniture?

A)Conservatism
B)Matching
C)Materiality
D)Verifiability

Question 5

To determine the source of a company's assets, on which financial statement will you look?

A)Balance sheet only
B)Income statement only
C)Both the balance sheet and the income statement
D)Both the income statement and the statement of retained earnings

Question 6

Which of the following is not an objective of financial reporting?

A)To reflect prospective cash receipts to investors and creditors.
B)To reflect prospective cash flows to an enterprise.
C)To reflect resources and claim to resources.
D)To reflect current stock prices and information concerning stock markets.

Question 7

Cook, Inc., a manufacturer of tires, has given you its most recent annual report in an effort to obtain a sizable loan.The company is very profitable and appears to have a sound financial position.Based on a report presented on prime-time television last night, you are aware that Cook is a defendant in several lawsuits related to its defective tires that cause vehicles to overturn.The information presented on television is an example of financial information that is

A)Relevant
B)Consistent
C)Predictable
D)Comparable

Question 8

Which of the following is a current asset?

A)Land
B)Buildings
C)Store fixtures
D)Prepaid insurance

Question 9

The qualitative characteristics of accounting data include

A)Assets reported on the balance sheet
B)All accounting information
C)Cash flows
D)Reliability

Question 10

Which one of the following items is reported as a current asset on a classified balance sheet?

A)Inventory
B)Accounts payable
C)Land
D)Common stock

Question 11

Moss Company
Moss Company has provided the following information from its accounting records for the current year:
Read the information for Moss Company.What are Moss' current liabilities?

A)$ 50,000
B)$ 125,000
C)$ 200,000
D)$ 230,000

Question 12

An accountant is uncertain about the best estimate of an amount for a business transaction.If two amounts are about equally likely, the amount least likely to overstate assets and income is selected.Which of the following qualities is characterized by this action?

A)Comparability
B)Conservatism
C)Materiality
D)Neutrality

Question 13

Moss Company
Moss Company has provided the following information from its accounting records for the current year:
Read the information for Moss Corporation.What are Moss' current assets?

A)$ 100,000
B)$ 165,000
C)$ 210,000
D)$ 240,000

Question 14

Which of the following is a noncurrent asset?

A)Inventories
B)Office supplies
C)Land
D)Accounts receivable

Question 15

Relevant information can be quantitative or qualitative.In deciding whether to go to college part-time or full-time, which of the following is a qualitative factor for a student?

A)The cost of tuition
B)The opportunity to make friends
C)The price of football tickets
D)"Good Student" discounts on auto insurance rates.

Question 16

"Claims to economic resources" are known as

A)Assets and liabilities
B)Liabilities and stockholders' equity
C)Owners' equity and stockholders' equity
D)Retained earnings and revenues

Question 17

Madden Company applies the consistency convention.What does this mean?

A)Madden Co.uses the same names for all its expenses as its competitors.
B)Madden Co.has selected certain accounting principles that can never be changed.
C)Madden Co.applies the same accounting principles each accounting period.
D)Madden Co.applies the same accounting principles as it competitors.

Question 18

If an investor can use accounting information for two different companies to evaluate the types and amounts of expenses, the information is said to have the quality of

A)Comparability
B)Consistency
C)Neutrality
D)Understandability

Question 19

Which of the following include only current assets?

A)Accounts receivable, cash, inventory, office supplies
B)Cash, accounts payable, inventory, office supplies
C)Cash, land, accounts receivable, inventory
D)Accounts receivable, cash, furniture, office supplies

Question 20

Which of the following statements is true concerning external users of financial information?

A)External users need detailed records of the business to make informed decisions.
B)External users are primarily responsible for the preparation of financial statements.
C)External users rely on the financial statements to help make informed decisions.
D)External users rely on management to tell them whether the company is a good investment

Question 21

How are assets which 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) reported on a classified balance sheet?

A)Property, plant, and equipment
B)Current assets
C)Intangible assets
D)Current liabilities

Question 22

Use Rizwi Corporation's list of accounts at December 31, 2015 to answer the following question. What is Rizwi Corp.'s current ratio?

A)0.48 to 1
B)2.00 to 1
C)2.55 to 1
D)2.86 to 1

Question 23

The following information is given for Sego Company: What are the company's current assets?

A)$220,000
B)$155,000
C)$130,000
D)$95,000

Question 24

One significant difference between a classified and a non-classified balance sheet is the distinction between which of the following items?

A)Assets and liabilities
B)Current and noncurrent items
C)Liabilities and owners' equity
D)Resources invested by the owners and amounts borrowed from creditors

Question 25

Which of the following would not be considered to be an intangible asset?

A)Franchises
B)Copyrights
C)Investments
D)Goodwill

Question 26

Guinther & Sons, Inc.
Guinther & Sons, Inc.a retailer of men's clothing, earned a net profit of $77,000 for 2014.The balance sheet for Guinther & Sons includes the following items:
Read the information for Guinther & Sons, Inc.The average current ratio for stores such as Guinther & Sons is 2.4 to 1.What does this comparison tell you about its liquidity?

A)It is more liquid than its competitors.
B)It has more long-term assets than its competitors.
C)Since a rule of thumb for current ratios is 2 to 1, neither Guinther & Sons, Inc.nor its competitors is liquid.
D)Guinther & Sons, Inc.is more profitable than its competitors.

Question 27

Which one of the following is not a major category for long-term assets?

A)Intangibles
B)Property, plant, and equipment
C)Receivables
D)Goodwill

Question 28

If the current ratio is 2.5 to 1, net income is $6,000, and current liabilities are $18,000, how much is working capital?

A)$ 6,000
B)$ 24,000
C)$ 27,000
D)$ 45,000

Question 29

Which of the following statements is true concerning intangible assets?

A)Intangible assets have no economic substance.
B)Intangible assets lack physical existence.
C)Intangible assets are listed in the stockholders' equity section of the balance sheet.
D)Intangible assets appear in the current assets section of the balance sheet.

Question 30

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

Question 31

Lamar Company has total current assets of $122,000 and total current liabilities of $57,000.What is the amount of working capital for Lamar Company?

A)$ 57,000
B)$ 65,000
C)$ 122,000
D)$ 179,000

Question 32

Which financial statement reports information helpful in assessing working capital?

A)Income statement
B)Balance sheet
C)Statement of retained earnings
D)Statement of cash flows

Question 33

For several years, Flame Corporation has had a current ratio that was consistent with other companies in its industry.For the most recent year, Flame's current ratio was significantly higher than that for the industry.What is the best possible explanation for this situation?

A)The other companies in the industry were not as profitable.
B)Flame's liquidity has improved or is not leveraging financial resources effectively.
C)Flame has less property, plant and equipment than other companies.
D)Flame has too much debt.

Question 34

Guinther & Sons, Inc.
Guinther & Sons, Inc.a retailer of men's clothing, earned a net profit of $77,000 for 2014.The balance sheet for Guinther & Sons includes the following items:
Read the information for Guinther & Sons.Calculate the total amount of current assets for Guinther & Sons.

A)$ 100,000
B)$ 147,000
C)$ 150,000
D)$ 249,000

Question 35

Which of the following terms characterizes the time period between the investment of cash in merchandise and the collection of cash from the sale of that merchandise?

A)Operating cycle
B)Natural business year
C)Accounting period
D)Fiscal period

Question 36

Which of the following accounts are normally reported as current liabilities on a classified balance sheet?

A)Accounts payable and bonds payable
B)Interest payable and mortgage payable
C)Income taxes payable and salaries payable
D)Capital stock and accounts payable

Question 37

Oreo Company has current assets of $20,000, current liabilities of $8,000, and long-term liabilities of $3,000.Oreo wants to buy new equipment.How much of its existing cash can Oreo use to acquire equipment without allowing its current ratio to decline below 2.0 to 1?

A)$ 4,000
B)$ 8,000
C)$ 10,000
D)$ 12,000

Question 38

Excursion Corp.increased its dollar amount of working capital over the past several years.To further evaluate the company's short-run liquidity, which one of the following measures should be used?

A)The current ratio
B)An analysis of the company's long­term debt
C)An analysis of the return on stockholders' equity
D)An analysis of retained earnings

Question 39

What is the correct method for calculating working capital?

A)Total Assets minus Total Liabilities
B)Current Assets minus Total Liabilities
C)Current Assets minus Current Liabilities
D)Current Assets plus Current Liabilities

Question 40

Guinther & Sons, Inc.
Guinther & Sons, Inc.a retailer of men's clothing, earned a net profit of $77,000 for 2014.The balance sheet for Guinther & Sons includes the following items:
Read the information for Guinther & Sons, Inc.Calculate the current ratio for Guinther & Sons.

A)2.58 to 1
B)2.75 to 1
C)3.00 to 1
D)2.00 to 1

Question 41

Which of the following events will cause a company's current ratio to decrease?

A)The sale of inventory for cash
B)The sale of inventory for credit accounts receivable)
C)Issuing stock for cash
D)Paying off long-term debt with cash

Question 42

Which one of the following subtotals or totals would appear in a multiple-step, but not a single-step income statement?

A)Income tax expense
B)Income from operations
C)Cost of goods sold
D)Net income

Question 43

Skyline, Inc.
The balance sheet of Skyline Inc.includes the following items:
Read the information about Skyline, Inc.What is Skyline's current ratio?

A)0.8 to 1
B)1.6 to 1
C)1.2 to 1
D)2.5 to 1

Question 44

Webb Company
Selected data from the accounting records of Webb Company are listed below:
Read the information about Webb Company.What is Webb's net income?

A)$ 1,600
B)$ 2,000
C)$ 2,200
D)$ 2,800

Question 45

A question asked by stockholders is, "How much profit did the company make?" What should the stockholder examine to get the most information that will help evaluate the answer to this question?

A)The balance sheet, because retained earnings represents current profits
B)The statement of cash flows, as cash inflows and outflows represents current profits
C)The income statement, since it shows the revenues and expenses for the period
D)The economic resources of the company

Question 46

Which of the following events will cause a company's current ratio to increase?

A)The collection of an account receivable
B)Selling land for cash at a loss
C)The discharge of an account payable by signing a short-term note payable
D)Paying off a long-term loan

Question 47

Skyline, Inc.
The balance sheet of Skyline Inc.includes the following items:
Read the information about Skyline, Inc.What is Skyline's working capital?

A)$58,440
B)$89,740
C)$84,040
D)$9,740

Question 48

How is income from operations determined?

A)By subtracting the cost of goods sold from sales
B)By subtracting the total operating expenses from sales
C)By subtracting the total operating expenses from gross profit
D)By subtracting selling expenses from operating revenues

Question 49

Which of the following statements is true regarding the multiple-step income statement?

A)The multiple-step income statement is used only by companies that sell products, not those that provide services.
B)The multiple-step income statement is helpful in determining a company's working capital.
C)The multiple-step income statement reports the same net income as the single-step income statement.
D)The multiple-step income statement is required under generally accepted accounting principles.

Question 50

The following list contains several items that appear on an income statement. Select the choice that lists the items in the order they would appear on a multi-step income statement.

A)6, 1, 7, 4, 2, 3, 5
B)7, 6, 1, 4, 2, 3, 5
C)6, 4, 7, 1, 2, 3, 5
D)6, 7, 4, 1, 2, 3, 5

Question 51

Liquidity relates to a company's ability to do which of the following?

A)The ability to pay its financial obligations as they become due
B)The ability to stay in business over the long run
C)The ability to pay dividends to its stockholders
D)The ability to collect the amount their customers owe the company

Question 52

Under current accounting principles, how is net income on the income statement measured?

A)Net change in owners' equity during the period
B)Excess of revenues over expenses during the period
C)Net change in the cash balance during the period
D)Excess of revenues over expenses less any dividends paid during the period

Question 53

Webb Company
Selected data from the accounting records of Webb Company are listed below:
Read the information about Webb Company.By what amount will net income on a single-step income statement differ from net income on a multi-step income statement if Webb Company prepares both formats?

A)$ 800
B)$ 600
C)$ 200
D)$ -0-

Question 54

Which of the following would appear on a multiple-step income statement but not on a single-step income statement?

A)Net income
B)Total expenses
C)Total revenues
D)Income before income taxes

Question 55

Which of the following would not appear on an income statement?

A)Sales revenue
B)Cost of goods sold
C)Accounts receivable
D)Insurance expense

Question 56

Which statement is true concerning gains and losses?

A)Gains and losses are reported on the balance sheet in the Assets and Liabilities sections, respectively.
B)Gains and losses are special types of revenues and expenses that are reported on the income statement.
C)The amounts of gains and losses are included in the calculation of the current ratio, in the numerator and denominator, respectively.
D)Gains and losses are reported only on a multi-step income statement.

Question 57

For which of the following is the current ratio 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 probability

Question 58

Which statement is true concerning an income statement?

A)The income statement shows how much profit the company has earned since it began operations.
B)Net income on the income statement should be equal to the amount of cash on the balance sheet.
C)The income statement summarizes the results of operations for a period of time.
D)The income statement indicates the liquidity of the company on an annual basis.

Question 59

What are the two subtotals that distinguish the multi-step income statement from the single-step income statement?

A)Income before taxes and income taxes
B)Total operating revenues and total operating expenses
C)Income from operations and income before taxes
D)Total revenues and total expenses

Question 60

Webb Company
Selected data from the accounting records of Webb Company are listed below:
Read the information about Webb Company.What is Webb's income from operations?

A)$ 1,600
B)$ 2,000
C)$ 2,200
D)$ 2,800

Question 61

Carnival Bakery borrowed $500,000 from Front Street Bank.Carnival then hired a contractor to build a new cookie distribution outlet.In which section of Carnival's statement of cash flows would you find information that indicated that Carnival acquired the new cookie distribution outlet?

A)Operating Activities
B)Investing Activities
C)Financing Activities
D)Profit Activities

Question 62

Bartlett Industries
Bartlett Industries began operations on January 2, 2015, with an investment of $50,000 by each of its two stockholders.Net income for its first year of business was $240,000.Bartlett Industries paid a total of $100,000 in dividends to its stockholders during the year.
Read the information about Bartlett Industries.If the company's revenues were $500,000 for the year ended December 31, 2015, how much were total expenses?

A)$160,000
B)$260,000
C)$640,000
D)$740,000

Question 63

In preparing the financial statements for December 31, 2015, an accountant improperly classified the payment of prepaid rent as rent expense.Which of the following amounts would not be affected by this improper classification?

A)Retained earnings, January 1, 2015
B)Retained earnings, December 31, 2015
C)Net income
D)Total assets

Question 64

Bartlett Industries
Bartlett Industries began operations on January 2, 2015, with an investment of $50,000 by each of its two stockholders.Net income for its first year of business was $240,000.Bartlett Industries paid a total of $100,000 in dividends to its stockholders during the year.
Read the information about Bartlett Industries.The company's dividends for the year

A)Reduce the amount of capital stock reported by the company.
B)Are part of Bartlett Industries' operating costs.
C)Are reported on the statement of retained earnings.
D)Are an expense of Bartlett Industries.

Question 65

Which one of the following equations represents retained earnings activity?

A)Beginning balance + net income + dividends = profits for the year
B)Beginning balance + cash inflows - cash outflows = ending balance
C)Beginning balance + dividends - net income = ending balance
D)Beginning balance + net income - dividends = ending balance

Question 66

Deal Mart
The 2014 income statement of Deal Mart shows operating revenues of $130,800, selling expenses of $37,100, general and administrative expenses of $34,900, interest expense of $900, and income tax expense of $11,430.Deal Mart's stockholders' equity was $280,000 at the beginning of the year and $320,000 at the end of the year.The company has 20,000 shares of stock outstanding at December 31, 2014.
Read the information about Deal Mart.What is Deal Mart's net income?

A)$80,000
B)$92,190
C)$130,800
D)$46,470

Question 67

Which one of the following statements is true?

A)The two primary sources of financing available to corporations are borrowed funds and funds invested by owners.
B)Financing activities involve the acquisition of property, plant and equipment.
C)Borrowed funds are a more permanent source of financing than funds invested by owners.
D)Investing activities involve the selling of products or services and the incurring of expenses related to selling these products and services.

Question 68

Hopper, Inc.
Use the information from Hopper Inc.to answer the following questions).
Read the information about Hopper, Inc.Which ratio are you able to calculate given only the information provided by Hopper?

A)Profit margin
B)Current ratio
C)Working capital
D)Gross profit percentage

Question 69

Hopper, Inc.
Use the information from Hopper Inc.to answer the following questions).
Read the information about Hopper.Inc.Which statement best represents Hopper's performance?

A)Hopper's profit margin ratio decreased.
B)Hopper has become more profitable.
C)Hopper's increase in operating revenues increased the company's net income.
D)Hopper's operating expenses as a percentage of operating revenues remained the same.

Question 70

Hopper, Inc.
Use the information from Hopper Inc.to answer the following questions).
Read the information about Hopper, Inc.Which of the following statements is the best answer regarding the company's profit margin?

A)The profit margin was 15.8% in 2014.
B)The profit margin was 15.8% in 2013.
C)The profit margin was 31.5% in 2014.
D)The profit margin was 31.5% in 2013.

Question 71

Which of the following categories on a statement of cash flows is used to report the cash flow effects of transactions involving a company's stock?

A)Operating Activities
B)Investing Activities
C)Financing Activities
D)Profit Activities

Question 72

Which one of the following is considered a financing activity?

A)The payment of interest on a note payable to the bank
B)Selling products to customers
C)Paying wages to employees
D)The payment of a cash dividend

Question 73

Deal Mart
The 2014 income statement of Deal Mart shows operating revenues of $130,800, selling expenses of $37,100, general and administrative expenses of $34,900, interest expense of $900, and income tax expense of $11,430.Deal Mart's stockholders' equity was $280,000 at the beginning of the year and $320,000 at the end of the year.The company has 20,000 shares of stock outstanding at December 31, 2014.
Read the information about Deal Mart.What is Deal Mart's profit margin to the closest tenth of a percent)?

A)2.8
B)35.5
C)61.2
D)14.5

Question 74

Forman, Inc.earned $600,000 profit during 2015.On which financial statements) will you find the dollar amount of the profit earned by the company?

A)Balance sheet and income statement
B)Income statement only
C)Statement of retained earnings only
D)Income statement and statement of retained earnings

Question 75

Bartlett Industries
Bartlett Industries began operations on January 2, 2015, with an investment of $50,000 by each of its two stockholders.Net income for its first year of business was $240,000.Bartlett Industries paid a total of $100,000 in dividends to its stockholders during the year.
Read the information about Bartlett Industries.What is the company's retained earnings balance at December 31, 2015?

A)$140,000
B)$190,000
C)$240,000
D)$340,000

Question 76

Grand Stores, Inc.is concerned about its profitability for the current year, since its profit margin has dropped 10% since last year.Which of the following is the least useful comparison in evaluating the drop in Grand Stores' profit margin?

A)Comparison with the industry average for the current year
B)Comparison with its current ratio for the current year
C)Comparison with the profit margins for its major competitors for the current year
D)Comparison with its profit margins for the past five years

Question 77

A bank loaned $62 million to Apex Corporation to finance the construction of a new distribution warehouse.In which section of Apex's statement of cash flows would you be able to determine whether the company repaid any portion of the debt during the year?

A)Operating Activities
B)Investing Activities
C)Financing Activities
D)Profit Activities

Question 78

A company is not required to prepare both an)

A)Income statement and statement of stockholders' equity.
B)Income statement and statement of retained earnings.
C)Statement of stockholders' equity and statement of retained earnings.
D)Statement of cash flows and statement of retained earnings.

Question 79

Which one of the following categories on a statement of cash flows is used to report the cash flow effects of buying and selling property, plant, and equipment?

A)Operating Activities
B)Investing Activities
C)Financing Activities
D)Profit Activities

Question 80

Assume that you want to determine the profit margin for a company.Which one of the following financial statements is the best source of this information?

A)Statement of retained earnings
B)Statement of cash flows
C)Statement of stockholders' equity
D)Income statement