Deck 16: Understanding Corporate Annual Reports: Basic Financial Statements

Question 1

The amortization of intangible assets applies to ________.

A)Research and Development Costs
B)Goodwill
C)intangible assets with definite lives
D)intangible assets with indefinite lives

Answer 1

C

Question 2

Goodwill remains on a company's books until ________.

A)accountants amortize it
B)accountants depreciate it
C)management sells it
D)management determines its value is impaired

Answer 2

D

Question 3

Accounts receivable is a current asset.

Answer 3

True

Question 4

On a classified balance sheet,Accounts Receivable are reduced by ________.

A)Accumulated Depreciation
B)Retained Earnings
C)Allowance for Doubtful Accounts
D)Prepaid Assets

Question 5

The purpose of depreciation is to ________.

A)establish the current replacement cost of a fixed asset
B)accumulate funds to replace a fixed asset
C)set aside cash to replace a fixed asset
D)allocate the original cost of a fixed asset to the periods that benefit from the use of the fixed asset

Question 6

A company's operating cycle can be longer than one year.

Question 7

What is an example of an intangible asset?

A)leasehold improvements
B)installation costs for equipment
C)Construction-in-progressbuilding
D)franchise

Question 8

In accounting terms,what is goodwill?

A)the actions a company takes to foster the development of social responsibility
B)the charitable contributions made by a company
C)the excess of the cost of an acquired company over the sum of the fair market values of its identifiable assets less its liabilities
D)the excess of the cost of an acquired company over the sum of the fair market value of its identifiable assets

Question 9

Which of the following is NOT an intangible asset?

A)trademark
B)copyright
C)goodwill
D)leasehold improvements

Question 10

Which of the following is NOT a current asset?

A)Accounts Receivable
B)Prepaid Rent
C)Short-term Investments
D)Patent

Question 11

Inventory is considered to be a cash equivalent.

Question 12

The balance sheet usually shows cash equivalents at cost or market price,whichever is higher.

Question 13

Current assets are expected to be converted to cash or sold or consumed within ________.

A)one year or operating cycle if longer than one month
B)one year or operating cycle if longer than one year
C)one year or operating cycle if shorter than one year
D)one fiscal year

Question 14

On a classified balance sheet,the Equipment account is reduced by ________.

A)Allowance for Bad Debts
B)Allowance for Doubtful Accounts
C)Accumulated Depreciation
D)Depreciation Expense

Question 15

Cash as listed on the balance sheet includes ________.

A)prepaid insurance
B)long-term investments in corporate bonds
C)temporary investments in marketable securities
D)bank deposits in checking accounts

Question 16

Intangible assets are ________.

A)assets with a physical presence
B)assets that can be seen and touched
C)rights to expected future benefits
D)assets with definite lives only

Question 17

Which of the following is NOT a cash equivalent?

A)money market fund
B)Treasury bill
C)an investment in real estate property
D)an investment that can easily be converted into cash with little delay

Question 18

Which of the following is NOT a tangible asset?

A)leasehold improvements
B)land
C)equipment
D)patent

Question 19

Land is not depreciated.

Question 20

The Allowance for Bad Debts account is added to the Accounts Receivable account on the balance sheet.

Question 21

Accelerated depreciation methods are the most popular depreciation methods for financial statement purposes.

Question 22

Current liabilities are debts due within the ________ year or within the normal operating cycle if ________.

A)past; longer than a year
B)next; longer than a year
C)past; shorter than a year
D)next; shorter than a year

Question 23

The account Unearned Revenue is a revenue account.

Question 24

Goodwill is amortized for financial statement purposes.

Question 25

Unsecured debt consists of ________.

A)debentures
B)mortgage bonds
C)preferred stock
D)common stock

Question 26

Research and development costs are expensed when incurred for financial statement purposes.

Question 27

Which of the following is NOT a current liability?

A)accounts payable
B)income taxes payable
C)accrued wages payable
D)bonds payable due in ten years

Question 28

The liabilities of Becky Company are listed below: Becky Company liquidated its assets,and received $150,000 cash.The unsubordinated debenture holders will receive ________.

A)$10,000
B)$30,000
C)$40,000
D)$50,000

Question 29

Preferred stock has priority over common stock in ________.

A)voting rights
B)electing the board of directors
C)payment of dividends
D)none of the above

Question 30

Some intangible assets are depreciated.

Question 31

Freight and installation costs are added to the cost of equipment.

Question 32

The liabilities of Sam Company are listed below: Sam Company liquidated its assets,and received $140,000 cash.The subordinated debenture holders will receive ________.

A)$10,000
B)$20,000
C)$40,000
D)$60,000

Question 33

Convertible bonds allow a bondholder to exchange ________.

A)unsecured bonds for secured bonds
B)unsubordinated bonds for subordinated bonds
C)bonds for common stock
D)bonds for mortgage bonds

Question 34

Goodwill is a tangible asset.

Question 35

Accrued interest payable is a long-term liability because it relates to a long-term bond payable.

Question 36

Unsecured debt holders are creditors who have ________.

A)a specific claim against particular assets
B)a specific claim against fixed assets only
C)a general claim against fixed assets only
D)a general claim against total assets

Question 37

Working capital is equal to current assets plus current liabilities.

Question 38

Leasehold improvements are amortized annually.

Question 39

Accounts payable,wages payable and income taxes payable are all considered to be current liabilities.

Question 40

Treasury stock is shown on the balance sheets as a deduction from ________.

A)total assets
B)total liabilities
C)total current assets
D)total stockholders' equity

Question 41

A company does not pay cash dividends on treasury stock.

Question 42

Par value is the value that is printed on the face of the stock certificate.

Question 43

Nonoperating items on a multiple-step income statement do NOT include ________.

A)interest income
B)interest expense
C)gain from disposal of a fixed asset
D)administrative expenses

Question 44

Peace Company's capital stock is currently trading for $22 per share.The following accounts appear on the balance sheet: The only transaction affecting the accounts was the issue of the company's common stock.What was the original selling price of the common stock?

A)$6.00 per share
B)$11.00 per share
C)$17.00 per share
D)$22.00 per share

Question 45

A company's treasury stock is outstanding but not issued.

Question 46

The following balances are available for Nancy Company on December 31,2015:
Required:
Prepare a classified balance sheet at December 31,2015.

Question 47

The balances on December 31,2015 are available for Johnny Company:
Required:
Prepare a classified balance sheet at December 31,2015.

Question 48

A nonoperating item on a multiple-step income statement that reflects financial decisions is ________.

A)gain from sale of inventory
B)interest income
C)cost of sales
D)net profit

Question 49

Treasury stock is a deduction from total stockholders' equity.

Question 50

Preferred stock normally confers voting rights to its owners.

Question 51

Salem Company had the following data for the year ending December 31,2010: What is the net income for the year ending December 31,2010?

A)$22,400
B)$23,800
C)$24,400
D)$26,800

Question 52

The limited liability of stockholders in a corporation means that ________.

A)the company's creditors cannot seek payment from the stockholders as individuals if the corporation cannot pay its debt
B)the company's creditors cannot receive more than the face value of their debt
C)the short-term creditors have to be paid before the long-term creditors
D)the long-term creditors have to be paid before the short-term creditors

Question 53

Which of the following statements about multiple-step income statements is FALSE?

A)A multiple-step income statement has a subtotal for gross profit and operating profit.
B)A multiple-step income statement groups all the expenses together.
C)A multiple-step income statement has different measures of profits.
D)A multiple-step income statement has a list of nonoperating revenues and expenses.

Question 54

Preferred stockholders receive cash dividends before common stockholders.

Question 55

Wild Bill Company recently issued 10,000 shares of $1.00 par value common stock for $35,500.This transaction will increase the ________.

A)Common stock account by $10,000
B)Common stock account by $35,500
C)Paid in capital in excess of par account by $35,500
D)Retained earnings account by $35,500

Question 56

Treasury stock is ________.

A)unissued shares of stock
B)shares of stock held by the board of directors
C)shares of stock held in other companies for investment purposes
D)shares of stock already issued that are later repurchased by the corporation that originally issued them

Question 57

________ summarizes the results of the basic operating activities of a company.

A)Gross margin
B)Gross profit
C)Net profit
D)Operating income

Question 58

Which of the following statements about par value is FALSE?

A)The par value per share is used to determine the dividends per share for common stock.
B)The stated value of a stock is conceptually similar to the par value of a stock.
C)It is generally illegal for a corporation to sell an original issue of common stock below the par value.
D)The par value is the maximum legal liability of stockholders if the corporation cannot pay its debts.

Question 59

Nonoperating items on a multiple-step income statement ________.

A)appear on the income statement immediately after gross profit
B)appear only on income statements reporting a net profit
C)reflect the effects of financial management decisions
D)always arise from adjusting entries

Question 60

The following information is available for Teddy Company at December 31,2016:
Required:
Prepare the stockholders' equity section of a classified balance sheet at December 31,2016.Assume 400,000 shares of common stock are authorized to be issued.

Question 61

Cash dividends declared are an addition to Retained Earnings on the Retained Earnings Statement.

Question 62

Sprock Company has the following balances at December 31,2015:
Required:
Prepare a multiple-step income statement for the year ended December 31,2015.

Question 63

Fred Company had the following data available: What is the balance in Retained Earnings on December 31,2015?

A)$23,400
B)$27,000
C)$52,400
D)$66,400

Question 64

Amber Company had the following data: What is the balance in Retained Earnings on December 31,2015?

A)$61,000
B)$63,000
C)$65,000
D)$74,000

Question 65

Dividends paid are reported on the Retained Earnings Statement.

Question 66

The ending retained earnings balance of Baha Company is $800,000.During the current year,net income is $370,000 and dividends declared are $150,000.What is the beginning balance in retained earnings?

A)$520,000
B)$580,000
C)$800,000
D)$1,060,000

Question 67

The cash paid for taxes is included in the ________ section of the statement of cash flows.Assume the direct method is used.

A)operating
B)financing
C)investing
D)noncash

Question 68

The inventory method a company uses does not affect its income statement.

Question 69

Gross profit equals sales minus cost of goods sold.

Question 70

Which of the following statements about the cash flow statement is FALSE?

A)The cash flow statement shows the relationship between net income and changes in the cash balance.
B)The cash flow statement determines a company's ability to pay its debts when they are due.
C)The cash flow statement is an aid to predicting future cash flows.
D)The cash flow statement can be used to evaluate the honesty of management in carrying out daily activities.

Question 71

Cash dividends are reported as an expense on the Income Statement.

Question 72

Which of the following events do NOT affect cash flows from operating activities?

A)cash sale of merchandise inventory
B)cash purchase of equipment
C)cash purchase of inventory
D)cash paid for employees' wages

Question 73

The cash paid for employees' wages is included in the ________ section of the statement of cash flows.Assume the direct method is used.

A)operating
B)financing
C)investing
D)noncash

Question 74

The last line item on an income statement is earnings per share.

Question 75

The statement of changes in stockholders' equity shows the changes in ________.

A)retained earnings only
B)dividends only
C)each of the stockholders' equity accounts
D)fixed assets only

Question 76

The cash paid to settle a long-term note payable is included in the ________ section of the statement of cash flows.

A)operating
B)financing
C)investing
D)noncash

Question 77

Nonoperating items on a multiple-step income statement include interest expense and interest income.

Question 78

The balances on December 31,2015 are available for Jonathon Company:
Required:
Prepare a multiple-step income statement for the year ended December 31,2015.

Question 79

Operating income summarizes the results of basic operating activities of a company.

Question 80

Selected items from the financial statements for Key Company are listed below: Key Company has 5,000 common shares outstanding during the year.What are the earnings per share for the year ended December 31,2010?

A)$12.00
B)$15.00
C)$20.00
D)$25.00