The return on equity ratio is calculated as:
A) dividends paid divided by the average book value of stockholders’ equity.
B) net income divided by the average number of outstanding common shares.
C) dividends divided by the average number of total shares.
D) (net income less preferred dividends) divided by average common stockholders’
equity.
Inventory costing $3,000 is sold for $4,000 on terms 2/10, n/30. If the buyer pays
within the discount period, what amount will be reported on the income statement as net
sales?
A) $3,920
B) $4,000
C) $1,000
D) $3,200
The characteristic shared by all liabilities is that they:
A) provide a future economic benefit.
B) result in an inflow of resources to the company.
C) always end in the word €payable.€
D) obligate the company to do something in the future.
A company started the year with the following: Assets $100,000; Liabilities $30,000;
Common Stock $60,000; Retained Earnings $10,000. During the year, the company
earned revenue of $5,000, all of which was received in cash, and incurred expenses of
$3,000, all of which were unpaid as of the end of the year. In addition, the company
paid dividends of $1,000 to owners. Assume no other activities occurred during the
year.
Use the information above to answer the following question. The amount of assets at
the end of the year is
A) $105,000.
B) 108,000.
C) $104,000.
D) $107,000.
The issuance price of a bond does not depend on the:
A) face value of the bond.
B) market rate of interest.
C) perceived risk associated with the bond.
D) method used to amortize the discount or premium.
If the market value of goods in inventory is $26,000 below its cost, the company
should:
A) do nothing, because assets are reported at their original purchase price.
B) credit Inventory for $26,000.
C) debit Inventory for $26,000.
D) use the weighted average cost method since that method provides a more accurate
indicator of current value.
On October 1, Robertson Company sold inventory in the amount of $5,800 to Alberta,
Inc. with credit terms of 2/10, n/30. The cost of the items sold is $4,000. Robertson uses
a periodic inventory system. Alberta pays the invoice on October 8 and takes the
appropriate discount. What journal entry will be recorded by Robertson on October 8?
A) Debit Cash and credit Accounts Receivable for $5,800
B) Debit Cash and credit Accounts Receivable for $4,000
C) Debit Cash for $3,920, debit Sales Discounts for $80, and credit Accounts
Receivable for $4,000
D) Debit Cash for $5,684, debit Sales Discounts for $116, and credit Accounts
Receivable for $5,800
Which of the following statements about the reporting of operating cash flows using the
direct method is correct?
A) Although most U.S. companies use the indirect method, the Financial Accounting
Standards Board (FASB) prefers the direct method of accounting for cash flows from
operating activities.
B) The FASB prefers the indirect method of calculating cash flows from operating
activities because it gives a more accurate calculation of cash provided by operating
activities.
C) The direct method results in a larger amount of cash flow from operating activities
than does the indirect method.
D) The direct and indirect methods use different presentations for cash flows from
investing and financing activities.
Choose the appropriate letter to match the term and the definition. Not all definitions
will be used.
Term:
1> _____ Treasury Stock
2> _____ Cash Dividend
3> _____ IPO
4> _____ Preferred Stock
5> _____ Outstanding Shares
6> _____ EPS
7> _____ Stock Dividend
8> _____ Residual Claim
9> _____ ROE
Definition:
A. When a company first starts selling stock to the public.
B. The additional shares of stock a company can issue beyond what are already issued.
C. Earnings per share that reflects treasury and preferred stock.
D. This payment raises stockholders’ equity.
E. (Net income less preferred dividends) divided by average stockholders’ equity.
F. The shares of stock held by stockholders.
G. Stock shares that pay a fixed dividend rate but have no voting rights.
H. (Net income less preferred dividends) divided by the average number of outstanding
common shares.
I. Stock that allows owners to be listed among creditors.
J. This dividend does not reduce stockholders’ equity.
K. The shares of stock held by the issuing company.
L. Stockholders’ entitlement to remaining assets after creditors are repaid.
M. This payment decreases stockholders’ equity.
A company sells equipment for $450,000 when the book value of the equipment is
$400,000. The company would record the extra $50,000 as:
A) a gain, increasing net income and stockholders’ equity.
B) revenue, increasing net income and stockholders’ equity.
C) expenses, decreasing net income and stockholders’ equity.
D) a loss, decreasing net income and stockholders’ equity.
No mention is required in the financial statements for contingent liabilities that are:
A) probable.
B) remote.
C) possible.
D) likely.
If a company that uses a perpetual inventory system sold inventory which cost $1,000
for a selling price of $3,000, the accounting equation would show a net:
A) increase in assets and net increase in stockholders’ equity.
B) increase in assets and net decrease in liabilities.
C) decrease in assets and net increase in liabilities.
D) decrease in assets and net decrease in stockholders’ equity.
If an expense has been incurred but will be paid later, then:
A) nothing is recorded on the financial statements.
B) a liability account is created or increased and an expense is recorded.
C) an asset account is decreased or eliminated and an expense is recorded.
D) a revenue and an expense are accrued.
Dividends are reported on the:
A) income statement.
B) balance sheet.
C) statement of retained earnings.
D) income statement and balance sheet.
Limited liability companies (LLCs):
A) are like corporations in that the owners have limited liability.
B) are like partnerships in that the owners have unlimited liability.
C) have the tax treatment of corporations.
D) have the tax treatment of sole proprietorships.