CH 5-12 Final Exam Flashcards
The cash interest payment a corporation makes to its bondholders is based on
The market rate times the principal
Vertical Analysis
A means to express each item in a financial statement as a percentage of a base amount
Horizontal Analysis
A tool to analyze trends in financial statement data for a single company over time
Liquidity
A company’s ability to pay its current liabilities Liquidity
Solvency
A company’s ability to pay its current and long-term liabilities
Regular dividends are declared and paid out of
Retained Earnings
Currency, coins, and checking accounts are considered cash, whereas short-term highly liquid investments of 3 months or less are considered
Cash Equivalents
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
B. Cash acquisition of another company
C. Purchase of long-term investments
D. Purchase of land
When using vertical analysis, we express balance sheet accounts as a percentage of
Total Assets
- The purchase of a long-term asset is classified in the statement of cash flows as a(n)
Investing Activity
- The advantages of owning a corporation include:
Limited liability
The liability related to cash dividends increases on the:
Declaration Date
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
Company B is managing its receivable ore effectively
Regular dividends are declared and paid out of:
Retained earnings
Which of the following is true for bonds issued at a discount?
The market interest rate is greater than the stated interest rate
Currency, coins, and checking accounts are considered cash, whereas short-term highly liquid investments of 3 months or less are considered
Cash equivalents
Time value of money indicates that:
A dollar today is worth more than a dollar in the future
- 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
Cash acquisition of another company
Purchase of long-term investments
Purchase of land
Which of the following is an example of an intangible asset?
Trademarks
If common stock is issued for an amount greater than par value, the excess should be credited to:
Additional Paid-In Capital
In a perpetual inventory system, the sale of inventory on account would:
Increase Cost of Goods Sold; decrease Inventory
Increase Accounts Receivable; increase Sales Revenue
When using vertical analysis, we express balance sheet accounts as a percentage of:
Total assets
The net book value of a long-lived tangible asset is equal to:
Its acquisition cost less the accumulated depreciation from the acquisition date to the balance sheet date
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?
In 2025
The statement of cash flows provides summary information about cash _____ and cash _____ during the year.
Inflows, Outflows
What of the following would be considered an expenditure instead of a cost?
Paying annual property taxes
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?
Increase common stock for $500
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
Goodwill is amortized using the straight-line method
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?
$129
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:
Common Stock $ 50,000 and Additional Paid-In Capital $ 20,000
- Assuming that all else is equal, which of the following companies is most profitable:
A company with high gross profit rate and high profit margin
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?
As the building is constructed
The statement of cash flows classified items as:
Operating, Investing and Financing
In a perpetual inventory system:
Inventory is recorded when items are sold and when items are purchased
Which of the following is an example of horizontal analysis
Comparing gross profit across companies
Which one of the following transactions doers not affect cash
Selling inventory on account
The book value of an asserts is equal to the
Asset’s costs less accumulated depreciation
Common types of analysis that help assess a specific company’s performance include comparisons
Between companies
Over time
To another industry
The issuance of common stock is classified in the statement of cash flows as an
Financing Acitivity
Which of these is not an advantage of a corporation
Income is taxed only once
Payroll costs include which of the following
Social security and medicine taxes
The employers contributions to employee retirement plans
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.
True
Both cash dividends and stock dividends:
Reduce total assets
Reduce total stockholders’ equity
Reduce retained earnings
Which of the following is an example of a noncash activity
Purchase of land by issuing common stock to the seller
If the market rate of interest is lower than the contractual interest rate bonds will sell at
A premium
The current ratio measures
The ability of a company to pay its current obligations
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?
Increase total assets
