Deck 16: Understanding Corporate Annual Reports: Basic Financial Statements

Question 1

Land is not depreciated.

Answer 1

True

Question 2

Companies do not amortize indefinite-life intangible assets.What do companies do each year for these assets?

A) only report them on the balance sheet
B) only apply an impairment test annually
C) only report them on the statement of stockholders' equity
D) A and B

Answer 2

D

Question 3

Which of the following is NOT a current asset?

A) Inventories
B) Prepaid Insurance
C) Supplies
D) Land

Answer 3

D

Question 4

The net amount a company expects to collects on Accounts Receivable is equal to ________.

A) gross Accounts Receivable
B) Allowance for Doubtful Accounts
C) gross Accounts Receivable minus Allowance for Doubtful Accounts
D) gross Accounts Receivable plus Allowance for Doubtful Accounts

Question 5

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 6

Manufacturers have several inventory accounts that do NOT include ________.

A) Finished Goods Inventory
B) Raw Materials Inventory
C) Work in Process Inventory
D) Construction in Process Inventory

Question 7

A unit of ending inventory has a cost of $100 per unit.The selling price per unit is $200.The replacement cost per unit is $90.What value is reported for this inventory on the balance sheet?

A) $90
B) $100
C) $110
D) $200

Question 8

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

Question 9

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

Question 10

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 11

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 12

Accounts receivable is a current asset.

Question 13

Leasehold Improvements do NOT include ________.

A) painting and decorating of leased property
B) security systems added to leased property
C) bookcases built into walls of leased property
D) furniture used at leased property

Question 14

Which of the following assets is NOT classified as a short-term investment?

A) corporate stocks
B) corporate bonds
C) debt securities issued by governments
D) checking account balance

Question 15

Details about Property,Plant and Equipment,such as the age of plant assets and the types of plant assets,are typically reported ________.

A) on the balance sheet
B) on the income statement
C) on the statement of cash flows
D) in a footnote

Question 16

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

Question 17

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 18

Which of the following is NOT a tangible asset?

A) inventories
B) land
C) equipment
D) goodwill

Question 19

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

Question 20

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

Question 21

The account Unearned Revenue is a revenue account.

Question 22

It is December 31,2014.A Note Payable is due in five annual installments beginning on December 31,2015.On the balance sheet dated December 31,2014,the Note Payable is classified as ________.

A) current liability only
B) long-term liability only
C) current and long-term liability
D) owners' equity

Question 23

Working capital is equal to current assets plus current liabilities.

Question 24

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 25

Assume you are preparing a balance sheet dated December 31,2014.Which of the following is NOT a long-term liability?

A) bonds payable due June 30, 2016
B) bonds payable due June 30, 2015
C) bonds payable due December 31, 2016
D) bonds payable due December 31, 2020

Question 26

Damon Company sold 10,000 shares of $1 par value common stock.The selling price was $9.00 per share.After the sale,what is the capital in excess of par value?

A) $80,000
B) $90,000
C) $100,000
D) $110,000

Question 27

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

Question 28

Convertible bonds allow a bondholder to exchange ________.

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

Question 29

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

Question 30

How should Unearned Rent Revenue be classified on a balance sheet at December 31,2013? The rental contract covers the period,January 1,2013 through December 31,2015.

A) current liability only
B) long-term liability only
C) current and long-term liability
D) current asset only

Question 31

Goodwill is amortized for financial statement purposes.

Question 32

Preferred stock has priority over common stock in ________.

A) voting rights
B) distribution of assets in liquidation
C) payment of dividends
D) B and C

Question 33

Deferred tax liabilities are ________.

A) expected increases in future income taxes due to past transactions
B) expected decreases in future income taxes due to past transactions
C) expected increases in future income taxes due to future transactions
D) expected decreases in future income taxes due to future transactions

Question 34

Some intangible assets are depreciated.

Question 35

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

Question 36

Which of the following items is NOT a component of stockholders' equity?

A) paid-in capital
B) retained earnings
C) accumulated other comprehensive income
D) deferred income tax liabilities

Question 37

Leasehold improvements are amortized annually.

Question 38

An example of secured bonds is ________.

A) debentures
B) zero coupon bonds
C) mortgage bonds
D) serial bonds

Question 39

What is Other Comprehensive Income?

A) unrealized gains and loss that are reported on the Statement of Retained Earnings
B) unrealized gains and losses that are reported on the traditional Income Statement
C) unrealized gains and losses that are reported on the Balance Sheet
D) unrealized gains and losses that are not reported on the financial statements

Question 40

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 41

What is earnings per share?

A) net income divided by weighted average number of preferred shares outstanding
B) net income divided by weighted average number of common shares outstanding
C) net income plus the weighted average number of common and preferred shares outstanding
D) net income plus the weighted average number of bonds outstanding

Question 42

Joe Anthony Company recently issued 20,000 shares of $1.00 par value common stock for $40,000.This transaction will increase the ________.

A) Common stock account by $20,000
B) Common stock account by $40,000
C) Paid in capital in excess of par account by $40,000
D) Retained earnings account by $40,000

Question 43

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

Question 44

Treasury stock is a deduction from total stockholders' equity.

Question 45

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

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

Question 46

When calculating diluted earnings per share,which of the following items is NOT considered?

A) number of common shares outstanding
B) additional common shares from conversion of convertible securities
C) additional common shares from exercise of stock options
D) number of common shares authorized to be issued

Question 47

Preferred stockholders receive cash dividends before common stockholders.

Question 48

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) selling expenses

Question 49

The balances on December 31,2015 are available for Jennifer Company:

Required:
Prepare a classified balance sheet at December 31,2015.

Question 50

The following information is available for Anderson 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 51

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

Question 52

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

A) gain from sale of inventory
B) interest expense
C) income tax expense
D) operating profit

Question 53

Johnson Company's capital stock is currently trading for $22 per share.The following accounts appear on the balance sheet:
$\begin{array} { l }\text { Common stock, } \$ 6.00 \text { par value per share, } 10,000 \text { shares issued }&\$60,000 \\ \text { Paid in capital in excess of par value }&\$200,000 \\\end{array}$

The only transaction affecting the accounts was one issue of the company's common stock.What was the original selling price of the common stock?

A) $6.00 per share
B) $20.00 per share
C) $22.00 per share
D) $26.00 per share

Question 54

Sanders Company had the following data for the year ending December 31,2014:
$$\begin{array} { l l } \text { Cash } & \$ 6,000 \\\text { Depreciation expense } & 40,000 \\\text { Prepaid rent } & 1,400 \\\text { Cost of goods sold } & 69,000 \\\text { Sales } & 200,000 \\\text { Dividends paid } & 3,000 \\\text { Rent expense } & 3,600 \\\text { Wage expense } & 81,000\end{array}$$
What is the net income for the year ending December 31,2014?

A) $400
B) $3,400
C) $6,000
D) $6,400

Question 55

A multiple step income statement has several measures of profit that do NOT include ________.

A) operating income
B) gross margin
C) income before taxes
D) cost of sales

Question 56

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 57

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 58

What is gross margin?

A) sales minus operating expenses
B) sales minus other expenses
C) sales minus cost of goods sold
D) sales plus other income

Question 59

Treasury stock is ________.

A) unissued shares of stock
B) the number of shares of stock that cannot be sold in the future
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 60

The following balances are available for Thompson Company on December 31,2015:

Required:
Prepare a classified balance sheet at December 31,2015.

Question 61

The ending retained earnings balance of Brothers Company is $700,000.During the current year,net income is $370,000 and dividends declared are $150,000.What is the beginning balance in retained earnings?

A) $480,000
B) $580,000
C) $800,000
D) $1,060,000

Question 62

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

Question 63

Cash receipts of interest income are reported in the ________ section of the statement of cash flows.The direct method is used.

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

Question 64

The balances on December 31,2015 are available for Matthew Company:

Required:
Prepare a multiple-step income statement for the year ended December 31,2015.

Question 65

A payment on bonds payable will be reported in the ________ section of the statement of cash flows.

A) operating activities only
B) investing activities
C) financing activities
D) noncash investing and financing activities

Question 66

Wheel Company has the following balances at December 31,2015:

Required:
Prepare a multiple-step income statement for the year ended December 31,2015.

Question 67

Dividends paid are reported on the Retained Earnings Statement.

Question 68

Mary Company had the following data available:
$\begin{array} { l } \text {Paid-in capital, December 31, 2014 }&\$43,000 \\ \text { Retained earnings, December 31,2014}&\$27,000 \\ \text { Net income for the year ended December 31,2015 }&\$ 35,400\\ \text { Dividends declared in 2015}&\$ 20,000\\\end{array}$

What is the balance in Retained Earnings on December 31,2015?

A) $23,400
B) $42,400
C) $52,400
D) $66,400

Question 69

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

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

Question 70

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 71

Which of the following events do NOT affect cash flows from operating activities? Assume the direct method is used.

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

Question 72

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

Question 73

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

Question 74

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

Question 75

Cash payments for interest expense are reported in the ________ section of the statement of cash flows.The direct method is used.

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

Question 76

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

Question 77

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

Question 78

Selected items from the financial statements for Lorna Company are listed below:
$\begin{array} { l } \text { Paid in capital, December 31,2014}&\$100,000\\ \text {Retained earnings, December 31, 2014 }&\$75,000\\ \text {Commonstock dividends declared in 2014 }&\$75,000\\\text { Net income for the year ended December } 31,2014&\$100,000\\\end{array}$

Lorna Company has 5,000 common shares outstanding during the year.What are the earnings per share for the year ended December 31,2014?

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

Question 79

Gross profit equals sales minus cost of goods sold.

Question 80

Michael Company had the following data:
$\begin{array} { l } \text { Retained earnings, January 1, 2015}&\$45,000 \\ \text {Depreciation expense for 2015 }&\$ 7,000\\ \text {Cost of goods sold for 2015 }&\$102,000 \\ \text { Paid-in capital, January 1, 2015}&\$26,000 \\ \text {Rent expense for 2015 }&\$12,000 \\ \text {Sales for 2015 }&\$ 194,000\\ \text {Dividends declared in 2015 }&\$ 15,000\\ \text {Wage expense for 2015 }&\$40,000 \\ \text {Prepaid rent, January 1, 2015 }&\$ 2,000\\\end{array}$

What is the balance in Retained Earnings on December 31,2015?

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