FINAL MGMT 212 - PURDUE

When a company borrows cash from a bank promising to repay the amount borrowed plus interest, the borrower reports its liability as notes payable.

TRUE

Companies are required by law to withhold federal and state income taxes from employees' paychecks and remit these taxes to the government.

TRUE

The employer records amounts deducted from employee payroll as liabilities until it pays them to the appropriate organizations.

TRUE

Sales taxes collected from customers by the seller are not an expense. Instead, they represent current liabilities payable to the government.

TRUE

The current ratio is calculated by dividing current liabilities by current assets.

FALSE - CURRENT ASSETS/ CURRENT LIABILITIES

The acid-test ratio, or quick ratio, is similar to the current ratio but is based on a more conservative measure of current assets available to pay current liabilities.

TRUE

Quick assets include only cash, short-term investments, and accounts receivable.

TRUE

Brian Incorporated borrowed $800,000 from First Bank and signed a promissory note. What journal entry should Brian Incorporated record?

A) Debit Cash, $800,000; Credit Notes Receivable, $800,000

B) Debit Notes Receivable, $800,000; Credit Cash, $800,000

C) Debit Cash, $800,000; Credit Notes Payable, $800,000

D) Debit Notes Payable, $800,000; Credit Cash, $800,000

C

Large, highly-rated companies sometimes sell commercial paper:

A) To borrow funds at a lower rate than through a bank.

B) To borrow funds when they cannot obtain a loan from a bank.

C) Because they can't borrow anywhere else.

D) To improve their credit rating.

A

Which of the following is not an employer payroll cost?

A) FICA taxes

B) Federal and state unemployment taxes

C) Federal and state income taxes

D) Employer contributions to a retirement plan

C) Federal and state income taxes

1) Which of the following are employer payroll costs?

1. FICA taxes

2. Federal and state unemployment taxes

3. Federal and state income taxes

4. Employer contributions to a retirement plan

A) I and IV

B) I, III, and IV

C) I, II, and IV

D) II and III

C) I, II, and IV

Which of the following is not withheld from an employee's salary?

A) FICA taxes

B) Federal and state unemployment taxes

C) Federal and state income taxes

D) Employee portion of health insurance

B) Federal and state unemployment taxes

Deferred Revenues is a(n):

A) Liability account.

B) Asset account.

C) Stockholders' equity account.

D) Revenue account.

A) Liability account.

The sale of gift cards by a company is a direct example of:

A) Deferred revenues.

B) Sales tax payable.

C) Current portion of long-term debt.

D) Contingencies.

A) Deferred revenues.

Which of the following is not a primary source of corporate debt financing?

A) Bonds

B) Stockholders

C) Leases

D) Notes

B) Stockholders

Which of the following is the primary source of corporate equity financing?

A) Bonds

B) Stockholders

C) Leases

D) Notes

B) Stockholders

Profits generated by the company are a(n):

A) Source of external financing.

B) Source of internal financing.

C) Liability.

D) Asset.

B) Source of internal financing.

The mixture of liabilities and stockholders' equity a business uses is called its:

A) Bond contract.

B) Carrying value.

C) Capital structure.

D) Accounting equation.

C) Capital structure.

In each succeeding payment on an installment note, the amount:

A) That goes to decreasing the carrying value of the note increases.

B) That goes to decreasing the carrying value of the note decreases.

C) That goes to decreasing the carrying value of the note is unchanged.

D) Paid for both interest and principal increase proportionately.

A) That goes to decreasing the carrying value of the note increases.

In each succeeding payment on an installment note, the amount:

A) Of interest expense increases.

B) Of interest expense decreases.

C) Of interest expense is unchanged.

D) Paid for both interest and principal increase proportionately.

B) Of interest expense decreases.

The issuance of an installment note payable for the purchase of equipment will have what effect on the financial statements?

A) Increase assets and increase liabilities.

B) Increase assets and increase stockholders' equity.

C) Increase liabilities and decrease stockholders' equity.

D) The issuance will have no effect on the financial statements.

A) Increase assets and increase liabilities.

At the beginning of the lease period, a lease is reported in the lessee's (user's) balance sheet as a(n):

A) Decrease in assets and decrease in stockholders' equity.

B) Increase in liabilities and decrease in stockholders' equity.

C) Increase in assets and increase in stockholders' equity.

D) Increase in assets and increase in liabilities.

D) Increase in assets and increase in liabilities.

A bond is a formal debt instrument that obligates the borrower to repay a stated amount at the maturity date. This stated amount is referred to as the:

A) Note.

B) Interest.

C) Lease.

D) Principal or face amount.

D) Principal or face amount.

Term bonds are bonds:

A) issued below the face amount.

B) that mature in installments.

C) that mature all at once.

D) issued above the face amount.

C) that mature all at once.

Serial bonds are bonds:

A) backed by collateral.

B) that mature in installments.

C) with greater risk.

D) issued below the face amount.

B) that mature in installments.

The rate quoted in the bond contract used to calculate the cash payments for interest is called the:

A) Face rate.

B) Yield rate.

C) Market rate.

D) Stated rate.

D) Stated rate.

The times interest earned ratio is calculated as

A) Interest expense ÷ Net income.

B) Net income ÷ Interest expense.

C) (Net income + Interest expense + Income tax expense) ÷ Interest expense.

D) Interest expense ÷ (Net income + Interest expense + Income tax expense).

C) (Net income + Interest expense + Income tax expense) ÷ Interest expense.

Dividend yield is calculated as:

A) Dividends per share divided by the stock price.

B) Net income divided by average stockholders' equity.

C) The stock price divided by dividends per share.

D) Dividends divided by stockholders' equity.

A) Dividends per share divided by the stock price.

The stockholders' equity section in the balance sheet shows:

A) The ending balance in each stockholders' equity account.

B) How each equity account changed over time.

C) The average balance in each stockholders' equity account.

D) More information than the statement of stockholders' equity

A) The ending balance in each stockholders' equity account.

On June 1, the board of directors declares a cash dividend to be paid on June 30 to stockholders of record on June 15. On which date would the company record the Dividends Payable account?

A) June 30

B) June 15

C) June 1

D) The Dividends Payable account is never recorded.

C) June 1

The corporation's own stock that has been issued and then bought back by the company is referred to as:

A) Preferred Stock.

B) Authorized Stock.

C) Treasury Stock.

D) Common Stock.

C) Treasury Stock.

Treasury Stock is normally reported as a(n):

A) Reduction of total stockholders' equity.

B) Asset account.

C) Liability account.

D) Expense account.

A) Reduction of total stockholders' equity.

Preferred stock:

A) Is always recorded as a liability.

B) Is always recorded as part of stockholders' equity.

C) Can have features of both liabilities and stockholders' equity.

D) Is not included in either liabilities or stockholders' equity.

C) Can have features of both liabilities and stockholders' equity.

The par value of common stock represents the:

A) Amount received when the stock was issued.

B) Liquidation value of a share.

C) Market value of a share of stock.

D) Legal capital per share of stock assigned when the corporation was first established.

D) Legal capital per share of stock assigned when the corporation was first established.

Outstanding common stock refers to the total number of shares:

A) Issued.

B) Issued plus treasury stock.

C) Issued less treasury stock.

D) Authorized.

C) Issued less treasury stock.

Return on equity is calculated as net income divided by:

A) Average stockholders' equity.

B) Ending stockholders' equity.

C) Average market value of equity.

D) Ending market value of equity.

A) Average stockholders' equity.

Which financial statement separates business activities into operating, investing, and financing activities?

A) Statement of stockholders' equity

B) Income statement

C) Statement of cash flows

D) Balance sheet

C) Statement of cash flows

The statement of cash flows reports cash flows from the activities of:

A) Operating, purchasing, and investing.

B) Borrowing, paying, and investing.

C) Operating, investing, and financing.

D) Lending, investing, and financing.

C) Operating, investing, and financing.

The statement of cash flows:

A) Lists all cash flows over the life of a company.

B) Breaks down all cash transactions into investing and financing cash flows.

C) Shows that the change in total cash from one year to the next is equal to the netoperating, investing, and financing cash flows.

D) Has two methods for investing cash flows—direct and indirect.

C) Shows that the change in total cash from one year to the next is equal to the netoperating, investing, and financing cash flows.

The balance of cash reported in the balance sheet this year minus the balance of cash reported in the balance sheet last year equals:

A) Net cash flows from operating activities only.

B) Net income.

C) Net cash flows from operating, investing, and financing activities.

D) Net cash flows from financing activities only.

C) Net cash flows from operating, investing, and financing activities.

In the operating activities section of the statement of cash flows, we start with net income when using:

A) The direct method.

B) The indirect method.

C) Both the direct and the indirect method.

D) Neither the direct nor the indirect method.

B) The indirect method.

We can separate cash return on assets into:

A) Cash flow to sales and return on assets.

B) Cash flow to sales and asset turnover.

C) Cash flow to sales and profit margin.

D) Profit margin and asset turnover.

B) Cash flow to sales and asset turnover.

We calculate cash return on assets as

A) The change in cash divided by average total assets.

B) Net cash flows from operating activities divided by average total assets.

C) The change in cash divided by ending total assets.

D) Net cash flows from operating activities divided by ending total assets.Version 1 2

B) Net cash flows from operating activities divided by average total assets.

When using vertical analysis, we express income statement accounts as a percentage of:

A) Net income.

B) Gross profit.

C) Sales.

D) Total assets.

C) Sales.

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

A) Sales.

B) Total assets.

C) Total liabilities.

D) Total stockholders' equity

B) Total assets.

Which type of analysis expresses each item in a financial statement as a percentage of the same base amount measured in the same period?

A) Ratio analysis

B) Vertical analysis

C) Horizontal analysis

D) Diagonal analysis

B) Vertical analysis

Common-size analysis is another term used for:

A) Ratio analysis.

B) Vertical analysis.

C) Horizontal analysis.

D) Diagonal analysis.

B) Vertical analysis.

Which of the following include trend analysis and time-series analysis?

A) Horizontal analysis

B) Vertical analysis

C) Ratio analysis

D) Diagonal analysis

A) Horizontal analysis

The type of analysis used to analyze trends in financial statement data over time is:

A) Horizontal analysis.

B) Vertical analysis.

C) Diagonal analysis.

D) Both horizontal and vertical analysis.

A) Horizontal analysis.

Horizontal analysis is used to analyze trends in financial statement data over time:

A) for a single company.

B) between two companies.

C) for a single industry.

D) None of the other answer choices are correct.

A) for a single company.

Horizontal analysis examines trends in a company:

A) over time.

B) between income statement accounts in the same year.

C) between balance sheet accounts in the same year.

D) between income statement and balance sheet accounts in the same year.

A) over time.

The current ratio is calculated as:

A) Current assets divided by noncurrent assets.

B) Current assets divided by current liabilities.

C) Current liabilities divided by noncurrent liabilities.

D) Current liabilities divided by current assets.

B) Current assets divided by current liabilities.

The acid-test ratio equals:

A) the liquidity ratio divided by the equity ratio.

B) current assets minus inventory divided by current liabilities minus accounts payable.

C) the sum of cash, net receivables, and current investments divided by current liabilities.

D) cash divided by accounts payable.

C) the sum of cash, net receivables, and current investments divided by current liabilities.

Return on assets equals:

A) Gross profit ratio × Inventory turnover.

B) Profit margin × Inventory turnover.

C) Gross profit ratio × Asset turnover.

D) Profit margin × Asset turnover.

D) Profit margin × Asset turnover.

The profit margin ratio indicates the amount of net income achieved for each:

A) collection on a receivable.

B) dollar of inventory.

C) dollar of total assets.

D) dollar of sales.

D) dollar of sales.

The price-earnings (PE) ratio is calculated as:

A) earnings per share divided by the stock price.

B) retained earnings times the stock price.

C) stock price divided by net income.

D) stock price divided by earnings per share.

D) stock price divided by earnings per share.

All of the following are profitability ratios except:

A) Profit margin.

B) Return on equity.

C) Asset turnover.

D) Current ratio.

D) Current ratio.

Investors generally view which of the following as the measure most indicative of company success?

A) Liquidity

B) Solvency

C) Employee satisfaction

D) Profitability

D) Profitability