What effects on a retail store’s accounting equation occur when merchandise returned
by customers is recorded?
a. Assets and stockholders’ equity decrease.
b. Assets and stockholders’ equity increase.
c. Assets decrease and liabilities increase.
d. Stockholders’ equity decreases and liabilities increase.
Select the statement on which each of the items provided below would be reported.
a. Statement of retained earnings
b. Statement of stockholders’ equity
c. Items that may require reporting on either statement
d. Items not reported on either of the statements
Foreign currency translation adjustments.
Select the financial statement on which the user would most likely find the answer to
the question given.
a. Income statement
b. Balance sheet
c. Statement of cash flows
d. Statement of retained earnings Interest is never a part of the cost of property, plant,
and equipment or intangible assets.
a. True
b. False
Which of the following best describes a company’s financing activities?
a. Financing activities focus on the sale of products and services.
b. Financing activities include selling products.
c. Financing activities enable a company to acquire assets needed to run a business.
d. Financing activities are represented by the revenues and expenses on the income
statement.
Match the most probable matching method to the costs listed below.
a. Directly match a specific revenue.
b. Indirectly match with the period during which it will provide revenue.
c. Immediately recognize because no future benefits are expected.
Cost of two-year insurance policy
Capitalizing interest increases the recorded cost of a plant asset.
a. True
b. False
Based on its income for the month, Reel Company estimates that federal income taxes
for the month of May will be $11,000. What is the effect of the adjustment on the
financial statements?
a. Increase retained earnings
b. Increase income taxes expense
c. Increase net income
d. Decrease income taxes payable
The purchase of inventory for cash will cause the current ratio to decrease.
a. True
b. False
Companies can use two different methods to report the amount of cash flow from their
investing and financing activities.
a. True
b. False
The investment in stock of another company is considered a significant activity and
thus is reported on the statement of cash flows.
a. True
b. False
Presented below are selected data from the balance sheet of Farmer Company for 2014.
The figures are expressed in millions.
A) Determine the amount of “Other assets” for Farmer’s 2014 balance sheet. (HINT:
you must use the accounting equation concept to determine your answer.) B) How
much of Farmer Company is financed by creditors? How much is financed by the
owners?
If the current ratio is 3 to 1 and the working capital is $100,000, then the current assets
are
a. $150,000
b. $200,000
c. $300,000
d. $450,000
Since inflation is an important consideration in analyzing financial statements, the
FASB requires the submission of all financial statements in an inflation-adjusted format
to the SEC.
a. True
b. False
Three measures of liquidity are: working capital, the acid-test ratio, and the
debt-to-equity ratio.
a. True
b. False