Accounting Exam 2 Flashcards
Which of the following is a limitation of the balance sheet?
a. Many items that are of financial value are omitted.
b. Judgments and estimates are used.
c. Current fair value is not reported.
d. All of these
All of these
The balance sheet is useful for analyzing all of the following except
a. liquidity.
b. solvency.
c. profitability.
d. financial flexibility.
Profitability
Balance sheet information is useful for all of the following except to
a. compute rates of return
b. analyze cash inflows and outflows for the period
c. evaluate capital structure
d. assess future cash flows
Analyze cash inflows and outflows for the period
Balance sheet information is useful for all of the following except
a. assessing a company’s risk
b. evaluating a company’s liquidity
c. evaluating a company’s financial flexibility
d. determining free cash flows.
Determining free cash flows
A limitation of the balance sheet that is not also a limitation of the income statement is
Valuation of items at historical cost
The balance sheet contributes to financial reporting by providing a basis for all of the following except
a. computing rates of return.
b. evaluating the capital structure of the enterprise.
c. determining the increase in cash due to operations.
d. assessing the liquidity and financial flexibility of the enterprise.
Determining the increase in cash due to operations
One criticism not normally aimed at a balance sheet prepared using current accounting and reporting standards is
The extensive use of separate classifications
The amount of time that is expected to elapse until an asset is realized or otherwise converted into cash is referred to as
Liquidity
The net assets of a business are equal to
a. current assets minus current liabilities.
b. total assets plus total liabilities.
c. total assets minus total stockholders’ equity.
d. none of these.
None of these
The correct order to present current assets is
cash, accounts receivable, inventories, prepaid items
The basis for classifying assets as current or noncurrent is conversion to cash within
The operating cycle or one year, whichever is longer
The basis for classifying assets as current or noncurrent is the period of time normally required by the accounting entity to convert cash invested in
inventory back into cash, or 12 months, whichever is longer
During 2012 the DLD Company had a net income of $55,000. In addition, selected accounts showed the following changes:
Accounts Receivable $3,000 increase
Accounts Payable 1,000 increase
Building 4,000 decrease
Depreciation Expense 1,500 increase
Bonds Payable 8,000 increase
What was the amount of cash provided by operating activities?
$54,500
Harding Corporation reports the following information:
Net income $450,000
Depreciation expense 140,000
Increase in accounts receivable 60,000
Harding should report cash provided by operating activities of
$530,000
Sauder Corporation reports the following information:
Net income $300,000
Depreciation expense 70,000
Increase in accounts receivable 30,000
Sauder should report cash provided by operating activities of
$340,000
Packard Corporation reports the following information: Net cash provided by operating activities $235,000 Average current liabilities 150,000 Average long-term liabilities 100,000 Dividends declared 60,000 Capital expenditures 110,000 Payments of debt 35,000 Packard’s cash debt coverage ratio is
0.94
Packard Corporation reports the following information: Net cash provided by operating activities $235,000 Average current liabilities 150,000 Average long-term liabilities 100,000 Dividends paid 60,000 Capital expenditures 110,000 Payments of debt 35,000 Packard’s free cash flow is
$65,000
Pedigo Corporation reports the following information: Net cash provided by operating activities $275,000 Average current liabilities 150,000 Average long-term liabilities 100,000 Dividends paid 60,000 Capital expenditures 110,000 Payments of debt 35,000 Pedigo’s cash debt coverage ratio is
1.10
Pedigo Corporation reports the following information: Net cash provided by operating activities $275,000 Average current liabilities 150,000 Average long-term liabilities 100,000 Dividends paid 60,000 Capital expenditures 110,000 Payments of debt 35,000 Pedigo free cash flow is
$105,000
An amount is deposited for eight years at 8%. If compounding occurs quarterly, then the table value is found at
2% for 32 periods
If the number of periods is known, the interest rate is determined by
dividing the future value by the present value and looking for the quotient in the future value of 1 table.
Present value is
a. the value now of a future amount.
b. the amount that must be invested now to produce a known future value.
c. always smaller than the future value.
d. all of these.
All of these
Which of the following statements is true?
a. The higher the discount rate, the higher the present value.
b. The process of accumulating interest on interest is referred to as discounting.
c. If money is worth 10% compounded annually, $1,100 due one year from today is equivalent to $1,000 today.
d. If a single sum is due on December 31, 2012, the present value of that sum decreases as the date draws closer to December 31, 2012.
c. If money is worth 10% compounded annually, $1,100 due one year from today is equivalent to $1,000 today.
What is the primary difference between an ordinary annuity and an annuity due?
The timing of the periodic payment.
What is the relationship between the future value of one and the present value of one?
The present value of one equals one divided by the future value of one.
Peter invests $100,000 in a 3-year certificate of deposit earning 3.5% at his local bank. Which time value concept would be used to determine the maturity value of the certificate?
Future value of one.
Jerry recently was offered a position with a major accounting firm. The firm offered Jerry either a signing bonus of $23,000 payable on the first day of work or a signing bonus of $26,000 payable after one year of employment. Assuming that the relevant interest rate is 10%, which option should Jerry choose?
The signing bonus of $26,000 payable after one year of employment.
If Jethro wanted to save a set amount each month in order to buy a new pick-up truck when the new models are next available, which time value concept would be used to determine the monthly payment?
Future value of an ordinary annuity.
Betty wants to know how much she should begin saving each month to fund her retirement. What kind of problem is this?
Future value of an ordinary annuity.
Charlie Corp. is purchasing new equipment with a cash cost of $150,000 for an assembly line. The manufacturer has offered to accept $34,440 payment at the end of each of the next six years. How much interest will Charlie Corp. pay over the term of the loan?
$56,640
If a savings account pays interest at 4% compounded quarterly, then the amount of $1 left on deposit for 8 years would be found in a table using
32 periods at 1%
Given below are the future value factors for 1 at 8% for one to five periods. Each of the items 65 to 68 is based on 8% interest compounded annually. Periods Future Value of 1 at 8% 1 1.080 2 1.166 3 1.260 4 1.360 5 1.469
What amount should be deposited in a bank account today to grow to $10,000 three years from today?
$10,000 ÷ 1.260
Given below are the future value factors for 1 at 8% for one to five periods. Each of the items 65 to 68 is based on 8% interest compounded annually. Periods Future Value of 1 at 8% 1 1.080 2 1.166 3 1.260 4 1.360 5 1.469
If $3,000 is put in a savings account today, what amount will be available three years from today?
$3,000 × 1.260
Given below are the future value factors for 1 at 8% for one to five periods. Each of the items 65 to 68 is based on 8% interest compounded annually. Periods Future Value of 1 at 8% 1 1.080 2 1.166 3 1.260 4 1.360 5 1.469
What amount will be in a bank account three years from now if $6,000 is invested each year for four years with the first investment to be made today?
($6,000 × 1.260) + ($6,000 × 1.166) + ($6,000 × 1.080) + $6,000
Given below are the future value factors for 1 at 8% for one to five periods. Each of the items 65 to 68 is based on 8% interest compounded annually. Periods Future Value of 1 at 8% 1 1.080 2 1.166 3 1.260 4 1.360 5 1.469
If $4,000 is put in a savings account today, what amount will be available six years from now?
$4,000 × 1.080 × 1.469
Given below are the present value factors for $1.00 discounted at 10% for one to five periods. Each of the items 69 to 72 is based on 10% interest compounded annually. Present Value of $1 Periods Discounted at 10% per Period 1 0.909 2 0.826 3 0.751 4 0.683 5 0.621
If an individual put $4,000 in a savings account today, what amount of cash would be available two years from today?
$4,000 ÷ 0.826
Which of the following is not considered cash for financial reporting purposes?
a. Petty cash funds and change funds
b. Money orders, certified checks, and personal checks
c. Coin, currency, and available funds
d. Postdated checks and I.O.U.’s
Postdated checks and I.O.U.’s
Which of the following is considered cash?
a. Certificates of deposit (CDs)
b. Money market checking accounts
c. Money market savings certificates
d. Postdated checks
Money market checking accounts
Travel advances should be reported as
none of these.
Which of the following items should not be included in the Cash caption on the balance sheet?
a. Coins and currency in the cash register
b. Checks from other parties presently in the cash register
c. Amounts on deposit in checking account at the bank
d. Postage stamps on hand
Postage stamps on hand
All of the following may be included under the heading of “cash” except
a. currency.
b. money market funds.
c. checking account balance.
d. savings account balance.
money market funds.
In which account are post-dated checks received classified?
Receivables.
In which account are postage stamps classified?
Office supplies.
What is a compensating balance?
Minimum deposits required to be maintained in connection with a borrowing arrangement.
Under which section of the balance sheet is “cash restricted for plant expansion” reported?
Non-current assets.
A cash equivalent is a short-term, highly liquid investment that is readily convertible into known amounts of cash and
is so near its maturity that it presents insignificant risk of changes in interest rates.
Kaniper Company has the following items at year-end:
Cash in bank $30,000
Petty cash $300
Short-term paper with maturity of 2 months $5,500
Postdated checks $1,400
Kaniper should report cash and cash equivalents of:
$35,800
Lawrence Company has cash in bank of $22,000, restricted cash in a separate account of $4,000, and a bank overdraft in an account at another bank of $2,000. Lawrence should report cash of:
$22,000
Steinert Company has the following items at year-end:
Cash in bank $35,000
Petty cash $ 500
Short-term paper with maturity of 2 months $8,200
Postdated checks $2,100
Steinert should report cash and cash equivalents of:
$43,700
If a company purchases merchandise on terms of 1/10, n/30, the cash discount available is equivalent to what effective annual rate of interest (assuming a 360-day year)?
18%
AG Inc. made a $15,000 sale on account with the following terms: 1/15, n/30. If the company uses the net method to record sales made on credit, how much should be recorded as revenue?
$14,850
AG Inc. made a $15,000 sale on account with the following terms: 1/15, n/30. If the company uses the gross method to record sales made on credit, what is/are the debit(s) in the journal entry to record the sale?
Debit Accounts Receivable for $15,000
AG Inc. made a $15,000 sale on account with the following terms: 2/10, n/30. If the company uses the net method to record sales made on credit, what is/are the debit(s) in the journal entry to record the sale?
Debit Accounts Receivable for $14,700
