CH 5-12 Final Exam

Question 1

The cash interest payment a corporation makes to its bondholders is based on

Answer 1

The market rate times the principal

Question 2

Vertical Analysis

Answer 2

A means to express each item in a financial statement as a percentage of a base amount

Question 3

Horizontal Analysis

Answer 3

A tool to analyze trends in financial statement data for a single company over time

Question 4

Liquidity

Answer 4

A company’s ability to pay its current liabilities Liquidity

Question 5

Solvency

Answer 5

A company’s ability to pay its current and long-term liabilities

Question 6

Regular dividends are declared and paid out of

Answer 6

Retained Earnings

Question 7

Currency, coins, and checking accounts are considered cash, whereas short-term highly liquid investments of 3 months or less are considered

Answer 7

Cash Equivalents

Question 8

Which of the following are cash outflows from investing activities? (select all that apply)
A. Repayment of long-term debt
B. Cash acquisition of another company
C. Purchase of long-term investments
D. Purchase of land
E. Payment of income taxes

Answer 8

B. Cash acquisition of another company
C. Purchase of long-term investments
D. Purchase of land

Question 9

When using vertical analysis, we express balance sheet accounts as a percentage of

Answer 9

Total Assets

Question 10

3. The purchase of a long-term asset is classified in the statement of cash flows as a(n)

Answer 10

Investing Activity

Question 11

4. The advantages of owning a corporation include:

Answer 11

Limited liability

Question 12

The liability related to cash dividends increases on the:

Answer 12

Declaration Date

Question 13

Company A has accounts receivables turnover ratio of 5.6, and Company B has accounts receivables turnover ratio of 11.3. All other things being equal

Answer 13

Company B is managing its receivable ore effectively

Question 14

Regular dividends are declared and paid out of:

Answer 14

Retained earnings

Question 15

Which of the following is true for bonds issued at a discount?

Answer 15

The market interest rate is greater than the stated interest rate

Question 16

Currency, coins, and checking accounts are considered cash, whereas short-term highly liquid investments of 3 months or less are considered

Answer 16

Cash equivalents

Question 17

Time value of money indicates that:

Answer 17

A dollar today is worth more than a dollar in the future

Question 18

12. Which of the following are cash outflows from investing activities? (select all that apply)

B. A. Repayment of long-term debt
B. Cash acquisition of another company
C. Purchase of long-term investments
D. Purchase of land
E. Payment of income taxes

A. Repayment of long-term debt

Answer 18

Cash acquisition of another company
Purchase of long-term investments
Purchase of land

Question 19

Which of the following is an example of an intangible asset?

Answer 19

Trademarks

Question 20

If common stock is issued for an amount greater than par value, the excess should be credited to:

Answer 20

Additional Paid-In Capital

Question 21

In a perpetual inventory system, the sale of inventory on account would:

Answer 21

Increase Cost of Goods Sold; decrease Inventory
Increase Accounts Receivable; increase Sales Revenue

Question 22

When using vertical analysis, we express balance sheet accounts as a percentage of:

Answer 22

Total assets

Question 23

The net book value of a long-lived tangible asset is equal to:

Answer 23

Its acquisition cost less the accumulated depreciation from the acquisition date to the balance sheet date

Question 24

Zoomies manufactures furniture for children and receives payment on a large retail order in December 2024. The manufacturing is complete in 2024 and the order ships to the customer in January 2025. When does Zoomies record the revenue on this sale?

Answer 24

In 2025

Question 25

The statement of cash flows provides summary information about cash _____ and cash _____ during the year.

Answer 25

Inflows, Outflows

Question 26

What of the following would be considered an expenditure instead of a cost?

Answer 26

Paying annual property taxes

Question 27

A company issues 10,000 shares of $0.05 par value common stock for $25 per share. What are the financial statement effects of the issuance?

Answer 27

Increase common stock for $500

Question 28

Which of the following statements regarding goodwill is not correct?
A. Goodwill is an intangible asset
B. Goodwill is tested annually for impairment
C. Goodwill is written down if its value is found to be impaired
D. Goodwill is amortized using the straight-line method

Answer 28

Goodwill is amortized using the straight-line method

Question 29

A company purchased new equipment for $31,000 with a two-year installment note requiring 5% interest. The required monthly payment is $1,360. For the first month’s payment, what amount represents interest expense?

Answer 29

$129

Question 30

Alt Corp. issues 5,000 shares of $ 10 par value common stock at $ 14 per share. When the transaction is recorded, credits are made to:

Answer 30

Common Stock $ 50,000 and Additional Paid-In Capital $ 20,000

Question 31

25. Assuming that all else is equal, which of the following companies is most profitable:

Answer 31

A company with high gross profit rate and high profit margin

Question 32

Estate Construction is constructing a large warehouse for CyberB, an online retailing company. Under the construction agreement, Estate will complete construction within 16 months. When should Estate recognize revenue?

Answer 32

As the building is constructed

Question 33

The statement of cash flows classified items as:

Answer 33

Operating, Investing and Financing

Question 34

In a perpetual inventory system:

Answer 34

Inventory is recorded when items are sold and when items are purchased

Question 35

Which of the following is an example of horizontal analysis

Answer 35

Comparing gross profit across companies

Question 35

Which one of the following transactions doers not affect cash

Answer 35

Selling inventory on account

Question 36

The book value of an asserts is equal to the

Answer 36

Asset’s costs less accumulated depreciation

Question 37

Common types of analysis that help assess a specific company’s performance include comparisons

Answer 37

Between companies
Over time
To another industry

Question 38

The issuance of common stock is classified in the statement of cash flows as an

Answer 38

Financing Acitivity

Question 39

Which of these is not an advantage of a corporation

Answer 39

Income is taxed only once

Question 40

Payroll costs include which of the following

Answer 40

Social security and medicine taxes
The employers contributions to employee retirement plans

Question 41

The initial cost of property, plant, and equipment includes the purchase price and all expenditures necessary to bring the asset to its desired condition and location for use.

Answer 41

True

Question 42

Both cash dividends and stock dividends:

Answer 42

Reduce total assets
Reduce total stockholders’ equity
Reduce retained earnings

Question 43

Which of the following is an example of a noncash activity

Answer 43

Purchase of land by issuing common stock to the seller

Question 44

If the market rate of interest is lower than the contractual interest rate bonds will sell at

Answer 44

A premium

Question 45

The current ratio measures

Answer 45

The ability of a company to pay its current obligations

Question 46

Suppose a company repurchases 2,000 shares of its own $1 par value common stock for $16 per share. The company then resells 400 of these shares for $20 per share. How does the resale of treasury stock affect the financial statements?

Answer 46

Increase total assets