‘© 10. "1. 12. 13. 14. 15. 16. 7. 18. 19. 20, at. 22. 23, 24, 25, Test Bank or Financal Accounting: Tools for Business Decision Making, Fourth Edition TRUE-FALSE STATEMENTS Cash and supplies are both classified as current assets. in the property, plant, and equipment section of the bal: Long-term investments appear ance sheet. Allal is classified as a current liability if it is to be paid within the coming yeer. ‘Stockholders’ equity is divided into two parts: common stock and retained earnings. It is possible for an asset to be a current asset even though the expected conversion of that asset into cash is to be longer than one year or the normal operating cycle. ‘The investment category on the balance sheet normally includes investments that are in- tended to be held for a short period of time (less than one year). The main difference between intangible assets and property,’plant and equipment is the length of the asset's life, Profitability means having enough funds on hand to pay debts when they fall due. Earnings per share is calculated by dividing net income minus preferred stock dividends for the period by the average number of common shares outstanding during the period. Earnings per share measures the net income eared on each share of common stock. The retained eamings statement describes the changes in retained earings during the period. The retained earnings statement is more comprehensive than the statement of sharehold- ers equity. Revenues have the effect of increasing retained earnings. Most companies use a retained earnings statement rather than a statement of stock- holders’ equity. z Meciosure The excess. ‘of Gi Sets over current liabilities is called working capital. tio takes into Beqount the. compo: ition, of current assets. ‘term ability of the company to pay its maturing obliga- The current ra -Solvency ratios ‘easute te sha tions. ao The debt to total assets ratio measures the percentage of assets financed by creditors. Two primary objectives of management are to achieve profitabilly and liquidity. oth just fo Gburdes: operating activities and financing activities. ‘Compatiies get cash! Both investars and creditors have an interest in a company's ability to generate favorable cash flows. The statement of cash flows is divided into two sections corresponding to investing activi- ties and financing activities. The statement of cash flows discloses sigifcant events related to the operating, invest- ing, and financing activities of a business. Free cash flow is cash from operations less dividends. Long term creditors consider a high free cash flow amount an indication of solvency._Afurther Look at Finns 225 : : to the nearest ‘The practice of large corporations reporting al financial statement amounts Peareet “3. thousand dollars is an example of the applicali '@. ‘consistency. b.- conservatism, . “full disclosure, “a. materiality, jon of i , is ication of lecting the method or procedure that yields less net income is an applic 8. consistency. b. conservatism. °C. full disclosure. fe... materiality. “ ir 10 years 169. Expensing the purchase of a waste paper basket with an estimated useful life of 10 y« is an application of a. materiality. b. consistency. LAF c. going concem. é d. economic entity. 470. _ The writing down of inventory to market follows the constraint of : a. consistency. a b. materiality. c. full disclosure. d. conservatism. <°"s!, 471. A practical decision to expense small capital expenditures rather than record them as property, plant, and equipment and depreciate them probably is made on the basis of the ia characteristic of a a. consistency. ; b. materiality. a . $.e. fulldisclosure. : i 1 6. conservatism. 172. Which of the following is a constraint in accounting? a. Comparability b. Conservatism . Consistency d. Relevance 173. To determine the materiality of an account, an accountant would compare it with any o the following except a. total assets. i b. total liabilities. c. total employees. d. net income.177. 178. 179. 180. AFurther Look at Financial Statements 4-29 Ames Real Estate signed a four-month note payable in the amount of $12,000 on September 1, The note requires interest at an annual rate of 12%. The amount of interest to be accrued at the end of September is a. $480. b. $120. c. $1,440. d. $160, Nova Real Estate signed a four-month note payable in the amount of $6,000 on September 4. The note requires interest at an annual rate of 12%. The amount of interest to be accrued at the end of September is a. $720. b. $180. c. $60, H d. $120. A gift shop signs a three-month note payable to help finance increases in inventory for the Christmas shopping season. The note is ed on November 1 in the amount of $30,000 with annual interest of 6%. What is the adjusting entry to be made on December 31 for the interest expense accrued to that date, if no entries have been made previously for the inter- est? a. Interest Expense 300 Interest Payable 300 b. Interest Expense... 450 Interest Payable 450 c. Interest Expense . 300 Cash ..... 300 d. Interest Expense . 450 Note Payable 450 ‘AChristmas shop signs a three-month note payable to help finance increases in inventory for the Christmas shopping season. The note is signed on October 1 in the amount of $10,000 with annual interest of 9%. What is the adjusting entry to be made on December 31 for the interest expense accrued to that date, if no entries have been made previously for the inter- est? a. Interest Expense ....... . 75 Interest Payable . 75 b. Interest Expense . oa 150 Interest Payable . 150 c. Interest Expense 225 Interest Payable.. 225 d. Interest Expense .. 7 900 Note Payable .. 900.“Test Bank for Financial Accounting: Tools for Business Decision Making, Fourth Edition 4:30 day, January 26, and the next payroll 10. et ati i omen wer en re iy Janay sh Eman Work Says @ week and the company pays $900 a day in wages. What will be the adjusting entry to accrue wages expense at the end of January? 600 a, Wages Expense ... 00 Wages Payable ro b. Wages Expense 4,500 Wages Payable oo c. Wages Expense .... 2.700 ‘Wages Payable : 4d, No adjusting entry is requir : 182. Alex Crown eared a salary of $500 for the last week of October. She will be paid on No- vember 1. The adjusting entry for Alex's employer October 31 is: a. No entty is required. b. Salaries Expense 500 0 Salary payable ... a ©. Salaries Expense 500 Cash... 500 d. Salaries Payable Cash 500 183. At the end of the fiscal year, the usual adjusting entry for accrued salaries owed to employ- ees was omitted. Which of the following statements is true? a. Salary Expense for the year is overstated. b. Liabilities at the end of the year are understated. c. Assets at the end of the year are understated. d. Stockholders’ equity at the end of the year is understated. 184. A company shows a balance in Salaries Payable of $40,000 at the end of the month. The next payroll amounting to $60,000 is to be paid in the following month. What will be the jour- nal entry to record the payment of salaries? a. Salaries Expense .. 60,000 Salaries Payable 60,000 b. Salaries Expense 60,000 : Cash 60,000 ©. Salaries Expense 20,000 » Cash ... 20,000 d. Salaries Expense 20,000 : Salaries Payable 40,000 Cash 60,000 185. Manning Corporation issued a one-year 9% $200,000 note on April 30, 2007. Interest ex- pense for the year ended December 31, 2007 was? a. $18,000 b. $13,500 c. $12,000 4. $10,500AFurther Look at Financial Statements 2-43 MATCHING 217. Match the items below by entering the appropriate code letter in the space provided. A. Relevance ‘Working capital B. Liquidity ratios Current ratio C. Comparability D. Consistency E. Intangible assets F. Free cash flow eee ee 10. 1. 12. Earnings pet share Solvency ratios Economic entity assumption Materiality PRETO 4. Measures of the ability of the enterprise to survive over a long period of time. 2. Current assets divided by current liabilities. 3, Information that has a bearing on a decision. 4. Economic events can be identified with a particular unit of accountability. 5. 6. Z 8 9. An item important enough to influence a prudent investor. . Same accounting principles and methods used from year to year within a company. . Cash from operating activities less capital expenditures and cash dividends. . Noncurrent assets that do not have physical substance. . (Net income — preferred stock dividends) divided by average common shares out- standing. Different companies using the same accounting principles. Measures of the short-term ability of the enterprise to pay its maturing obligations. The excess of current assets over current liabilities. _2-42 __Test Bank for Financial Accounting: Tools for Business Decision Making, Fourth Edition COMPLETION STATEMENTS 209. The rules and practices that are recognized as general guides for financial reporting called 210. In accounting, results when different companies use the Same soul principles. & 211. The constraint of refers to items in financial statements that are iene influence the decision of a reasonably prudent investor or créditor. 212. The constraint of ______——___— means that when preparing financial statements; és company should choose the accounting method that will be least likely to overstate a and income. 213. The earnings per share value is calculated by dividing net income — preferred stock di dends by 214. Assets that are expected to be converted to cash or used in the business within a relativelj short period of time are called 216. The is current assets divided by current liabilities. 216. A measurement to provide additional insight regarding a company's cash-generating abili is ‘