Beta Electronics reported the following data for the year ended December 31, 2019:

Cash receipt from sale of equipment

$30,000
Depreciation Expense
12,000
Cash payment of Dividends
5,000
Cash receipt from issuance of Common Stock
22,000
Net Income
40,000
Cash purchase of Land
25,000
Increase in Current Liabilities
10,000
Decrease in Current Assets other than Cash
8,000

What is the cash flow from investing activities? Investing activities would include $30,000
increase in cash flow from sale of equipment - $25,000 cash paid for purchase of land = $5,000.
The other items are operating or financing activities.

Beta Electronics issued common stock of $30,000 to pay off long-term notes payable of $30,000.
In which section should this be recorded? Non-cash investing and financing activities

Which of the following is an example of an investing activity on the statement of cash flows?

Sold land for cash

Purchased land with a mortgage payable

Cash revenues received

Revenues earned on account Sold land for cash

Which of the following is an example of a financing activity on the statement of cash flows?

Payment of dividends

Payment of cash for a utility expense

Purchase of land with cash

Receiving cash for service completedPayment of dividends

If merchandise inventory decrease during the year, which of the following is correct when using
a spreadsheet to complete the statement of cash flows by the indirect method? Decrease in a
current asset would be a debit.

Beta Electronics earned net income of $20,000. Included in the net income was $2,000 of
depreciation expense. Current assets increased by $2,000 and current liabilities increased by
1,000.
How much cash is provided by operating activities? To calculate cash flows from operating
activities take the $20,000 in net income, add back the $2,000 in depreciation expense, deduct
the $2,000 increase in current assets, and add the $1,000 increase in current liabilities. So
(20,000 + 2,000 - 2,000 +1,000) = $21,000.

Baker Electronics reported the following data for the year ended December 31, 2019:

Cash receipt from sale of equipment

$40,000
Depreciation Expense
15,000
Cash payment of Dividends
7,000
Cash receipt from issuance of Common Stock
21,000
Net Income
50,000
Cash purchase of Land
20,000
Increase in Current Liabilities
11,000
Decrease in Current Assets other than Cash
10,000

What is the cash flow from investing activities? Investing activities would include $40,000
increase in cash flow from sale of equipment - $20,000 cash paid for purchase of land = $20,000.
The other items are operating or financing activities.

Carson Company has the following data:

Cost of Goods Sold

$116,000
Beginning Merchandise Inventory
55,000
Ending Merchandise Inventory
45,000
Beginning Accounts Payable
51,000
Ending Accounts Payable
31,000

What is cash paid for merchandise? Cash paid for merchandise inventory = Cost of Goods Sold
- Beginning Merchandise Inventory + Ending Merchandise Inventory + Beginning Accounts
Payable - Ending Accounts Payable. In this case, $116,000 - $55,000 + $45,000 + $51,000 -
$31,000 = $126,000

Beta Electronics has a plant asset that cost $45,000 and has accumulated depreciation of
$10,000. The plant asset is sold for cash at a $1,000 gain.
How much increase in cash flow should Beta report for investing activities? The book
value is $35,000 (calculated by $45,000 cost - $10,000 accumulated depreciation). If the plant
asset sold at a $1,000 gain, it sold at $36,000 (calculated by $35,000 book value + $1,000 gain).
Therefore, since it sold for cash, cash flows from investing activities increases by $36,000.

Which of the following does NOT appear on the statement of cash flows when prepared by
indirect method?

Cash collections from customers

Depreciation expense

Net income

Loss on sale of land Cash collections from customers

Boston Corporation received $70,000 cash from issuance of notes payable.

How is this to be reported on the statement of cash flows? Increase in financing activities

Smith Company has the following information on the financial statements:

Accounts Receivable at beginning of the year

$50,000
Accounts Receivable at end of the year
30,000
Revenues for the year
180,000
Salaries Payable
2,000
Bonds Payable
50,000
Sales Tax Payable
2,000

What is the amount of cash collected from customers? Cash receipts from customers =
Sales Revenue + Beginning Accounts Receivable - Ending Accounts Receivable.
Using the data from this problem,
$180,000 + 50,000 - 30,000 = $200,000.

Which is a purpose of the Statement of Cash Flows?

All of the answers are purposes of the statement of cash flows.

To evaluate management decisions

To predict ability to pay debt and dividends

To predict future cash flows All of the answers are purposes of the statement of cash flows.

Beta Electronics expects net cash flow from operating activities to be $100,000, and the
company plans cash purchases of equipment of $55,000 and repurchases of stock of $4,000.
What is Beta's free cash flow? Free cash flow = Net cash provided by operating activities -
Cash payments planned for investments in long term assets - Cash dividends. So, for this
problem it would be $100,000 cash provided by operating activities - $55,000 cash payment for
equipment = $45,000.

Beta Electronics the following data for the year ended December 31, 2019:

Beginning Cash balance

$14,000
Cash flows provided by operating activities
12,000
Cash flows used by investing activities
(8,000)
Cash flows provided by financing activities
9,000

What is the ending cash balance? The statement of cash flows calculates the net increase or
decrease in cash by adding net cash provided from operating, investing, and financing activities
to the beginning cash balance. The net increase in cash is (12,000 - 8,000 + 9,000) = $13,000.
This is added to the beginning cash balance of $14,000 to arrive at ending cash of $27,000.

Cash flows are defined as __________. cash received by the business and the cash
payments made by the business

Beta Electronics reports the following data for the year ended December 31, 2019:

Cash receipt from sale of equipment

$30,000
Depreciation Expense
12,000
Cash payment of Dividends
5,000
Cash receipt from issuance of Common Stock
22,000
Net Income
40,000
Cash purchase of Land
25,000
Increase in Current Liabilities
10,000
Decrease in Current Assets other than Cash
8,000

What is the cash flow from operating activities? Included in the operating activities section
would be net income of $40,000 + depreciation of $12,000 + increase in current liabilities of
$10,000 + decrease in current assets of $8,000 = $70,000. The other items are investing or
financing activities.

Which is NOT one of the three basic types of cash flow activities?

Retained earnings

Operating

Investing

Financing Retained earnings

The two formats of the operating activities cash flow are __________. indirect and direct

Beta Electronics reported the following data for the year ended December 31, 2019:

Cash receipt from sale of equipment

$30,000
Depreciation Expense
12,000
Cash payment of Dividends
5,000
Cash receipt from issuance of Common Stock
22,000
Net Income
40,000
Cash purchase of Land
25,000
Increase in Current Liabilities
10,000
Decrease in Current Assets other than Cash
8,000
What is the cash flow from financing activities? Financing activities include $22,000
increase in cash flow from the sale of common stock - decrease in cash flow of $5,000 from
payment of dividends = $17,000. The other items are operating or investing activities.

Beta Electronics earned net income of $29,000. Included in the net income was $3,000 of
depreciation expense. Current assets decreased by $2,000 and current liabilities increased by
4,000. There was also a loss on the sale of a plant asset of $8,000.
How much cash is provided by operating activities? To calculate cash flows from operating
activities take the $29,000 in net income, add back the $3,000 in depreciation expense, add the
$2,000 decrease in current assets, add the $4,000 increase in current liabilities, and add in the
loss of $8,000 on the sale of the plant asset. So (29,000 + 3,000 + 2,000 +4,000 + 8,000) =
$46,000.

The purposes of the statement of cash flows are to

predict future cash flows.

determine ability to pay debts and dividends.

evaluate management decisions.

All of the above All of the above

The main categories of cash flow activities on the statement of cash flows are operating,
investing, and financing.

Operating activities are most closely related to current assets and current liabilities.

The statement of cash flows helps users ________. evaluate management decisions

One of the purposes of the statement of cash flows is to ________. predict the ability of a
company to pay debts and dividends

Which of the following sections of the statement of cash flows include activities that create
revenue and expenses of the business?

the financing activities section

the investing activities section

the operating activities section

the non-cash investing and financing section the operating activities section
The payment of interest on a loan is considered a ________ on a statement of cash flows
prepared using the direct method. cash outflow for operating activities

Regarding the use of a spreadsheet for the preparation of the statement of cash flows, which of
the following statements is true?

The spreadsheet can only be used if the indirect method for operating activities is also used.

The T - account approach works well for all companies.

The spreadsheet is needed when companies face complex situations.

The statement of cash flows cannot be prepared directly from the spreadsheet because additional
information is needed.The spreadsheet is needed when companies face complex situations.

Regarding the use of a spreadsheet for the preparation of the statement of cash flows, which of
the following statements is incorrect?

The spreadsheet starts with the beginning balance sheet and concludes with the ending balance
sheet.

The spreadsheet cannot be used for the direct method.

When companies face complex situations, a spreadsheet can help in preparing the statement of
cash flows.

Accountants can prepare the statement of cash flows directly from the lower part of the
spreadsheet. The spreadsheet cannot be used for the direct method.

Miller Company reports the following assets from the last two years:

2019
2018
Current Assets:

Cash and Cash Equivalents

$ 2,100
$ 1,900
Accounts Receivable
1,800
1,500
Merchandise Inventory
1,300
1,000
Prepaid Expenses
1,400
2,300
Total Current Assets
6,600
6,700
Other Assets
16,000
14,000
Total Assets
$22,600
$ 20,700

Using horizontal analysis, what is the percentage of increase in Total Assets? Horizontal
analysis %
= (Dollar amount of change / Base period amount) * 100

= ($1,900 / $20,700) * 100

= 9.18%

Lenox Company has the following financial data:

2019
2018
Assets

Current Assets:

Cash and Cash Equivalents

$ 2,000
$ 1,900
Accounts Receivable
1,800
1,600
Merchandise Inventory
1,200
1,000
Prepaid Expenses
1,300
2,100
Total Current Assets
6,300
6,600
Other Assets
13,000
15,000
Total Assets
$24,300
$21,600

Liabilities

Current Liabilities
$ 6,000
$ 8,000
Long-term Liabilities
5,000
3,500
Total Liabilities
10,000
11,500

Stockholders' Equity

Common Stock, no par

$ 6,500
$ 4,300
Retained Earnings
7,800
5,800
Total Stockholders' Equity
14,300
10,100
Total Liabilities and Stockholders' Equity
$24,300
$21,600

2019
Net Sales
$ 30,000
Cost of Goods Sold
9,000
Gross Profit
21,000
Operating Expenses
6,000
Operating Income
15,000
Interest Expense
300
Income Before Income Taxes
14,700
Income Tax Expense
2,400
Net Income
$12,300

What is the debt to equity ratio for 2019? Debt to equity ratio
= Total liabilities / Total equity

= $10,000 / $14,300

= 0.70 or 70%

Jones Company has the following financial data:

2019
2018
Assets

Current Assets:

Cash and Cash Equivalents

$ 2,000
$ 1,900
Accounts Receivable
1,800
1,600
Merchandise Inventory
1,200
1,000
Prepaid Expenses
1,300
2,100
Total Current Assets
6,300
6,600
Other Assets
17,000
15,000
Total Assets
$23,300
$21,600

Liabilities

Current Liabilities
$ 7,000
$ 8,000
Long-term Liabilities
4,000
3,500
Total Liabilities
11,000
11,500

Stockholders' Equity

Common Stock, no par

$ 6,500
$ 4,300
Retained Earnings
5,800
5,800
Total Stockholders' Equity
12,300
10,100
Total Liabilities and Stockholders' Equity
$23,300
$21,600
2019
Net Sales
$ 30,000
Cost of Goods Sold
9,000
Gross Profit
21,000
Operating Expenses
6,000
Operating Income
15,000
Interest Expense
300
Income Before Income Taxes
14,700
Income Tax Expense
2,400
Net Income
$12,300

What is the asset turnover ratio? Asset turnover ratio

= Net sales / Average total assets

= $30,000 / [($23,300 + $21,600) / 2]

= 1.34

Assume the market price of a share of stock is $50 and par value of $40. The earnings per share
is $5 this year. The dividend share this year is $2.
What is the price/earnings ratio? Price/earnings ratio
= Market price per share of common stock / Earning per share

= $50 / $5

= 10

Jones Company has the following financial data:

2019
2018
Assets
Current Assets:

Cash and Cash Equivalents

$ 2,000
$ 1,900
Accounts Receivable
1,800
1,600
Merchandise Inventory
1,200
1,000
Prepaid Expenses
1,300
2,100
Total Current Assets
6,300
6,600
Other Assets
17,000
15,000
Total Assets
$23,300
$21,600

Liabilities

Current Liabilities
$ 7,000
$ 8,000
Long-term Liabilities
4,000
3,500
Total Liabilities
11,000
11,500

Stockholders' Equity
Common Stock, no par
$ 6,500
$ 4,300
Retained Earnings
5,800
5,800
Total Stockholders' Equity
12,300
10,100
Total Liabilities and Stockholders' Equity
$23,300
$21,600

2019
Net Sales
$ 30,000
Cost of Goods Sold
9,000
Gross Profit
21,000
Operating Expenses
6,000
Operating Income
15,000
Interest Expense
300
Income Before Income Taxes
14,700
Income Tax Expense
2,400
Net Income
$12,300

What is the gross profit percentage for 2019? Gross profit percentage
= Gross profit / Net sales revenue

= $21,000 / $30,000

= 0.70 or 70%

Jones Company has the following financial information:

2019
Net Sales
$ 30,000
Cost of Goods Sold
9,000
Gross Profit
21,000
Operating Expenses
6,000
Operating Income
15,000
Interest Expense
300
Income Before Income Taxes
14,700
Income Tax Expense
3,000
Net Income
$11,700

What is the profit margin ratio? Profit margin ratio

= Net income / Net sales

= $11,700 / $30,000

= 0.39 or 39%

Which of the following is considered a tool of analysis?

All are considered tools of analysis.

Horizontal Analysis

Vertical Analysis

Ratio AnalysisAll are considered tools of analysis.

Assume the market price of a share of stock is $50 with a par value of $40. The earnings per
share is $5 this year. The dividend share this year is $2.
What is the dividend payout? Dividend payout
= Annual dividend per share / Earnings per share

= $2 / $5

= 0.40 or 40%
Jones Company has the following financial data:

2019
2018
Assets

Current Assets:

Cash and Cash Equivalents

$ 2,000
$ 1,900
Accounts Receivable
1,800
1,600
Merchandise Inventory
1,200
1,000
Prepaid Expenses
1,300
2,100
Total Current Assets
6,300
6,600
Other Assets
17,000
15,000
Total Assets
$23,300
$21,600

Liabilities

Current Liabilities
$ 7,000
$ 8,000
Long-term Liabilities
4,000
3,500
Total Liabilities
11,000
11,500

Stockholders' Equity

Common Stock, no par

$ 6,500
$ 4,300
Retained Earnings
5,800
5,800
Total Stockholders' Equity
12,300
10,100
Total Liabilities and Stockholders' Equity
$23,300
$ 21,600

2019
Net Sales
$ 30,000
Cost of Goods Sold
9,000
Gross Profit
21,000
Operating Expenses
6,000
Operating Income
15,000
Interest Expense
300
Income Before Income Taxes
14,700
Income Tax Expense
2,400
Net Income
$ 12,300

What is the current ratio for 2019? Current ratio

= Total current assets / Total current liabilities
= ($6,300 / $7,000)

= 0.90

Jones Company has the following financial data:

2019
2018
Assets

Current Assets:

Cash and Cash Equivalents

$ 2,000
$ 1,900
Accounts Receivable
1,800
1,600
Merchandise Inventory
1,200
1,000
Prepaid Expenses
1,300
2,100
Total Current Assets
6,300
6,600
Other Assets
17,000
15,000
Total Assets
$23,300
$21,600

Liabilities

Current Liabilities
$ 7,000
$ 8,000
Long-term Liabilities
4,000
3,500
Total Liabilities
11,000
11,500

Stockholders' Equity

Common Stock, no par

$ 6,500
$ 4,300
Retained Earnings
5,800
5,800
Total Stockholders' Equity
12,300
10,100
Total Liabilities and Stockholders' Equity
$23,300
$21,600

2019
Net Sales
$ 30,000
Cost of Goods Sold
9,000
Gross Profit
21,000
Operating Expenses
6,000
Operating Income
15,000
Interest Expense
300
Income Before Income Taxes
14,700
Income Tax Expense
2,400
Net Income
$12,300
What is the accounts receivable turnover ratio (assuming all sales are on account)?
Accounts receivable turnover ratio
= Net credit sales / Average net accounts receivable

= $30,000 / [($1,800 + $1,600) / 2]

= 17.65

Assume the market price of a share of stock is $50 with a par value of $40. The earnings per
share is $5 this year. The dividend share this year is $2.
What is the dividend yield? Dividend yield
= Annual dividend per share / Market price per share

= $2 / $50

= 0.04 or 4.00%

Miller Company reports the following financial information for the current year:

Net Sales
$ 40,000
Cost of Goods Sold
9,000
Gross Profit
31,000
Operating Expenses
6,000
Operating Income
25,000
Interest Expense
300
Income Before Income Taxes
24,700
Income Tax Expense
2,400
Net Income
$22,300

What is the vertical analysis percentage for Net Income? Vertical analysis %
= (Specific item / Base amount) * 100

= ($22,300 / $40,000) * 100

= 55.75%

Jones Company has the following financial data:

2019
2018
Assets

Current Assets:

Cash and Cash Equivalents

$ 2,000
$ 1,900
Accounts Receivable
1,800
1,600
Merchandise Inventory
1,200
1,000
Prepaid Expenses
1,300
2,100
Total Current Assets
6,300
6,600
Other Assets
17,000
15,000
Total Assets
$23,300
$ 21,600

Liabilities

Current Liabilities
$ 7,000
$ 8,000
Long-term Liabilities
4,000
3,500
Total Liabilities
11,000
11,500

Stockholders' Equity

Common Stock, no par

$ 6,500
$ 4,300
Retained Earnings
5,800
5,800
Total Stockholders' Equity
12,300
10,100
Total Liabilities and Stockholders' Equity
$23,300
$ 21,600

2019
Net Sales
$ 30,000
Cost of Goods Sold
9,000
Gross Profit
21,000
Operating Expenses
6,000
Operating Income
15,000
Interest Expense
300
Income Before Income Taxes
14,700
Income Tax Expense
2,400
Net Income
$12,300

What is working capital for 2019? Working capital

= Current assets / Current liabilities
= $6,300 - $7,000

= ($700)

Ace Industries has Net Income of $30,000. Dividends of $5,000 have been paid to preferred
stockholders. The weighted average shares of common stock outstanding is 10,000 shares.
What is the earnings per share? Earnings per share
= (Net income - Preferred dividends) / Weighted average number of common shares outstanding

= ($30,000 - $5,000) / 10,000 shares

= $2.50 per share

Jones Company has the following financial data:

2019
2018
Assets

Current Assets:

Cash and Cash Equivalents

$ 2,000
$ 1,900
Accounts Receivable
1,800
1,600
Merchandise Inventory
1,200
1,000
Prepaid Expenses
1,300
2,100
Total Current Assets
6,300
6,600
Other Assets
17,000
15,000
Total Assets
$23,300
$21,600

Liabilities

Current Liabilities
$ 7,000
$ 8,000
Long-term Liabilities
4,000
3,500
Total Liabilities
11,000
11,500

Stockholders' Equity

Common Stock, no par

$ 6,500
$ 4,300
Retained Earnings
5,800
5,800
Total Stockholders' Equity
12,300
10,100
Total Liabilities and Stockholders' Equity
$23,300
$21,600

2019
Net Sales
$ 30,000
Cost of Goods Sold
9,000
Gross Profit
21,000
Operating Expenses
6,000
Operating Income
15,000
Interest Expense
300
Income Before Income Taxes
14,700
Income Tax Expense
2,400
Net Income
$12,300

What is rate of return on total assets? Rate of return on total assets

= (Net income + Interest expense) / Average total assets

= ($12,300 + $300) / [($23,300 + $21,600) / 2]

= 0.56 or 56%

Jones Company has the following financial data:

2019
2018
Assets

Current Assets:

Cash and Cash Equivalents

$ 2,000
$ 1,900
Accounts Receivable
1,800
1,600
Merchandise Inventory
1,200
1,000
Prepaid Expenses
1,300
2,100
Total Current Assets
6,300
6,600
Other Assets
17,000
15,000
Total Assets
$23,300
$21,600

Liabilities

Current Liabilities
$ 7,000
$ 8,000
Long-term Liabilities
4,000
3,500
Total Liabilities
11,000
11,500

Stockholders' Equity

Common Stock, no par

$ 6,500
$ 4,300
Retained Earnings
5,800
5,800
Total Stockholders' Equity
12,300
10,100
Total Liabilities and Stockholders' Equity
$23,300
$21,600

2019
Net Sales
$ 30,000
Cost of Goods Sold
9,000
Gross Profit
21,000
Operating Expenses
6,000
Operating Income
15,000
Interest Expense
300
Income Before Income Taxes
14,700
Income Tax Expense
2,400
Net Income
$12,30

What is Jones Company's days sales in receivable? Accounts receivable turnover ratio
= Net credit sales / Average net accounts receivable

= $30,000 / [($1,800 + $1,600) / 2]

= 17.65

Next, calculate the days' sales in receivables.

Days' Sales in Receivables

= 365 days / Accounts receivable turnover ratio

= 365 / 17.65

= 20.7 days

Jones Company has the following financial data:

2019
2018
Assets

Current Assets:
Cash and Cash Equivalents
$ 2,000
$ 1,900
Accounts Receivable
1,800
1,600
Merchandise Inventory
1,200
1,000
Prepaid Expenses
1,300
2,100
Total Current Assets
6,300
6,600
Other Assets
17,000
15,000
Total Assets
$23,300
$21,600

Liabilities

Current Liabilities
$ 7,000
$ 8,000
Long-term Liabilities
4,000
3,500
Total Liabilities
11,000
11,500

Stockholders' Equity

Common Stock, no par

$ 6,500
$ 4,300
Retained Earnings
5,800
5,800
Total Stockholders' Equity
12,300
10,100
Total Liabilities and Stockholders' Equity
$23,300
$21,600

2019
Net Sales
$ 30,000
Cost of Goods Sold
9,000
Gross Profit
21,000
Operating Expenses
6,000
Operating Income
15,000
Interest Expense
300
Income Before Income Taxes
14,700
Income Tax Expense
2,400
Net Income
$12,300

What is debt ratio for 2019? Debt ratio

= Total liabilities / Total assets

= $11,000 / $23,300)

= 0.47 or 47%

Miller Company reports the following assets from the last two years:

2019
2018
Current Assets:
Cash and Cash Equivalents
$2,100
$1,900
Accounts Receivable
1,800
1,500
Merchandise Inventory
1,300
1,000
Prepaid Expenses
1,400
2,300
Total Current Assets
6,600
6,700
Other Assets
16,000
14,000
Total Assets
$22,600
$20,700

Using horizontal analysis, what is the percentage of increase in Cash and Equivalents? First,
calculate the dollar amount of change. Subtract the amounts for Cash and Cash Equivalents.

Dollar amount of change

= Later period amount - Earlier period amount

= ($2,100 - $1,900)

= $200

Next, calculate the horizontal analysis as a percentage. Divide the dollar amount of change by
the base period amount and multiply by 100. The base period is the earlier period, 2018.

Horizontal analysis %
= (Dollar amount of change / Base period amount) * 100

= ($200 / $1,900) * 100

= 10.53%
Which of the following is a red flag in financial statements that may signal financial trouble?

Buildup of merchandise inventory

Not enough merchandise inventory

Increase in cash flows

None of those listed. Buildup of merchandise inventory

Jones Company has the following financial data:

2019
2018
Assets

Current Assets:

Cash and Cash Equivalents

$ 2,000
$ 1,900
Accounts Receivable
1,800
1,600
Merchandise Inventory
1,200
1,000
Prepaid Expenses
1,300
2,100
Total Current Assets
6,300
6,600
Other Assets
17,000
15,000
Total Assets
$23,300
$21,600

Liabilities
Current Liabilities
$ 7,000
$ 8,000
Long-term Liabilities
4,000
3,500
Total Liabilities
11,000
11,500

Stockholders' Equity

Common Stock, no par

$ 6,500
$ 4,300
Retained Earnings
5,800
5,800
Total Stockholders' Equity
12,300
10,100
Total Liabilities and Stockholders' Equity
$23,300
$21,600

2019
Net Sales
$ 30,000
Cost of Goods Sold
9,000
Gross Profit
21,000
Operating Expenses
6,000
Operating Income
15,000
Interest Expense
300
Income Before Income Taxes
14,700
Income Tax Expense
2,400
Net Income
$12,300

What is the acid-test (or quick ratio) for 2019? Acid-test ratio
= (Cash including cash equivalents + Short term investments + Net current receivables) / Total
current liabilities

= ($2,000 + $0 + $1,800) / $7,000

= 0.54

Includes the income statement, balance sheet, statement of stockholders' equity, and statement of
cash flows. Financial statements

Attests to the fairness of the presentation of the financial statements. Report of independent
registered public accounting firm

Includes a summary of significant accounting policies and explanations of specific items on the
financial statements Notes to financial statements

Is written by the company to help investors understand the results of operations and the financial
condition of the company. Management's discussion and analysis of financial condition and
results of operations (MD&A)

To accurately determine the financial performance of a company, it is necessary to compare the

company's performance ________. with a competing company

There are three main ways to analyze financial statements. Which of the following does not
represent one of these ways of analyzing financial statements?

horizontal analysis

vertical analysis

ratio analysis

financial statement analysis financial statement analysis

The accounting principle that ensures all expenses are recorded during the period when they are
incurred and offsets those expenses against the revenues of the period is called the ________
principle. matching
A liability created when a business receives cash from customers in advance of providing
services or delivering goods is called a(n) ________. unearned revenue

Mitchell Company receives a bill from one of its suppliers for advertising services received and
will pay the supplier next month. How does the receipt of the bill from the supplier affect the
accounting equation of Mitchell? liabilities increase and equity decreases

The field of accounting that focuses on providing information for internal decision makers is
________. managerial accounting

Which of the following statements regarding intangible assets is incorrect?

Intangible assets have no physical form.

Intangible assets are valuable because of the special rights they carry.

Intangible assets include the exclusive right to produce or sell an invention.

Intangible assets are not reported on the balance sheet. Intangible assets are not reported on
the balance sheet.

Which of the following statements regarding the accounting equation is incorrect?

The equation can be stated as assets plus liabilities equals equity.

Each category of the accounting equation contains accounts.

The equation consists of three categories: assets, liabilities, and equity.

The equation is the basic tool of accounting. The equation can be stated as assets plus liabilities
equals equity.

Which of the following is the most liquid asset?

Building

Accounts Receivable

Cash

Prepaid Expenses Cash

Prepaid Rent is a(n) ________ account and has a normal ________ balance. asset; debit

The field of accounting that focuses on providing information for external decision makers is
________. financial accounting
Montgomery Equipment Rental Company received $1,000 cash from a customer; the amount
was owed to the business from the previous month. What is the effect of this transaction on the
accounting equation? Cash increases and Accounts Receivable decreases

A reversing entry ________. switches the debit and the credit of a previous entry

Which of the following organizations is responsible for the creation and governance of
accounting standards in the United States?

Institute of Management Accountants

Securities and Exchange Commission

American Institute of Certified Public Accountants

Financial Accounting Standards Board Financial Accounting Standards Board

When does a company account for revenue if it uses cash basis accounting? when cash is
received, either prior to, at the time of, or after the services are performed

Salaries Payable, Accounts Payable, and Unearned Revenue are examples of ________. current
liabilities

Jason Ford has been the sole owner of a bicycle sales and repair shop for several years. Which of
the following business types would limit Jason's personal liability exposure to the entity's debts?
limited-liability company

The financial statement that reports assets, liabilities, and stockholders' equity as of the last day
of the period is called the ________. balance sheet

To match expenses against revenues means to ________. subtract expenses incurred during
one period from revenues earned during that same period

The matching principle _______. ensures that all expenses are recorded when they are
incurred during the period

Which of the following is considered a fiscal year?

six months

twelve months

three months

four months twelve months

Regarding T-accounts, which of the following statements is correct?

A T-account is a summary device with credits posted on the right side of the vertical line.

The right side of a T-account is a debit for asset accounts and a credit for equity accounts.

Debits are posted on the right side of the vertical line.

A T-account is a more detailed form of an account in the journal. A T-account is a summary

device with credits posted on the right side of the vertical line.

Which of the following is an asset account?

Accounts Receivable

Wages Payable

Notes Payable

Unearned Revenue Accounts Receivable

The two methods of accounting for uncollectible accounts receivable are ________. the
allowance method and the direct write - off method

Under the direct write−off method, the entry to write off an uncollectible account will include
________. a debit to Bad Debts Expense account

Which of the following items must be examined by the controller or treasurer before signing a
check?

the journal entry

the purchase order

the ledger

the confirmation report the purchase order

Merchandise inventory accounting systems can be broadly categorized into two types. They are
________. perpetual and periodic

Which of the following is true of internal control?

Internal controls are only necessary for public companies.

One of the major purposes of internal control is to ensure that the assets are safeguarded.

Internal control procedures tend to diminish the importance of operational efficiency.

A company's outside auditor is responsible for the company's internal control system. One of
the major purposes of internal control is to ensure that the assets are safeguarded.

Changing the method of valuing inventory ignores the principle of ________. consistency

Which of the following is an example of exercising internal control over receivables?

separating cash collection and credit approval duties

allowing credit department employees to collect cash from customers

extending credit to all customers who apply for credit

combining the duties of the credit and accounting departments separating cash collection
and credit approval duties

Which of the following statements regarding FIFO is incorrect?

FIFO is a specific identification costing method because companies sell their oldest inventory
first.

The first units to come in are assumed to be the first units sold.

Ending inventory is based on the costs of the most recent purchases.

FIFO is consistent with the physical movement of inventory for most companies. FIFO is a
specific identification costing method because companies sell their oldest inventory first.

Which of the following states that a company must perform strictly proper accounting only for
items that are significant to the business's financial statements?

conservatism

disclosure principle

consistency principle

materiality concept materiality concept

A check payment for $658 was incorrectly entered in the Cash account as $856. Which of the
following adjustments needs to be made?
decrease the book balance

increase the book balance

decrease the bank statement balance

increase the bank statement balance increase the book balance

Value Electronics, Inc. started its operations on January 1, 2019. Value engages in buying and
selling different types of electronic gadgets. The first step in its operating cycle would be to
________. purchase inventory from vendors

Which of the following is a requirement of the Sarbanes - Oxley Act?

An outside auditor must evaluate the client's internal controls and report on the internal controls
as part of the audit report.

The Public Company Accounting Oversight Board must create new accounting standards.

The Public Company Accounting Oversight Board must conduct audits of public companies.

The accounting firm that audits a public client must also provide consulting services for the same
client. An outside auditor must evaluate the client's internal controls and report on the internal
controls as part of the audit report.

Which of the following is not an appropriate internal control for cash receipts over the counter?

At the end of the day, the manager proves the cash by comparing the cash in the drawer against
the machine's record of cash sales.

The cash draw opens after the store clerk enters a transaction.

A receipt is issued for each transaction to ensure that each sale is recorded.

The store clerk deposits the cash in the bank.The store clerk deposits the cash in the bank.

Reducing expenses to increase operating profit is representative of ________. promoting

operational efficiency

A petty cash fund was established with a $360 balance. It currently has cash of $40and petty cash
tickets totaling $320. Which of the following would be included in the entry to replenish the fund

a debit to Petty Cash for $40

a credit to Cash for $40

a credit to Cash for $320

a credit to Petty Cash for $320 a credit to Cash for $320

The allowance method of accounting for uncollectible receivables _________. is used to

measure bad debts

Which of the following line items will appear on the income statement of a merchandiser but not
of a service company?

Salaries Expense

Depreciation Expense

Supplies Inventory

Cost of Goods Sold Cost of Goods Sold

Which of the following states that the business should use the same accounting methods from
period to period?

conservatism

consistency principle

materiality concept

disclosure principle consistency principle

Which of the following is not included as furniture and fixtures?

display racks

computers

shelving

file cabinets computers

________ is a pay amount stated at an hourly rate. Wage

When a stockholder contributes land to a corporation in exchange for stock, ________. assets
and stockholders' equity are increased

The expected value of an asset at the end of its useful life is known as ________. residual value
The interest rate that investors demand to earn for loaning their money is known as the
________. market interest rate

Which of the following is required to be deducted from employees' paychecks?

FUTA

federal income tax

charitable contributions

SUTA federal income tax

Which of the following is an advantage of the corporate form of business?

low start-up costs

less degree of government regulation

separation of ownership and management

limited liability of stockholders limited liability of stockholders

Which of the following statements is true of a corporation?

Shareholders are authorized to sign contracts or make business commitments on behalf of the
corporation.

Corporations pay income tax on corporate earnings, and shareholders pay income tax on the
dividends received.

Shares of stock cannot be readily purchased and sold by investors on an organized stock
exchange.

Shareholders can be required to pay debts of the corporation. Corporations pay income tax
on corporate earnings, and shareholders pay income tax on the dividends received.

The asset turnover ratio measures ________.how efficiently a business uses its average total
assets to generate sales

If a bond's stated interest rate is lower than the market rate, which of the following is true?

The bond will be issued at a premium.

The bond will be issued at a discount.

The bond will be issued at par.

The bond will be issued for an amount higher than the maturity value. The bond will be
issued at a discount.

Which of the following is an intangible asset?

copyright

land

equipment

building copyright

The par value of stock is ________. the amount assigned by a company to a share of its stock

Which of the following should be included in the cost of land?

cost to build sidewalks on the land

cost to clear the land of old buildings

cost of installing fences

cost of installing signage cost to clear the land of old buildings

Which of the following is an asset that represents distinctive identifications of a product or

service?

license

trademark

franchise

copyright trademark

Which of the following is included in the entry to record the issuance of 14,000 shares of $7 par
value common stock at $24 per share for cash?

Common Stock is debited for $98,000

Paid−In Capital in Excess of Par—Common is debited for $238,000

Cash is debited for $336,000

Common Stock is credited for $336,000 Cash is debited for $336,000