Turnover ratios differ from the current and quick ratios in that they
a. are based on working capital instead of cash.
b. are based on a point of time instead of a period of time.
c. are activity ratios.
d. measure the profitability of a company instead of its liquidity.
Match each of the following terms pertaining to liabilities to their definitions.
a. Current liability
b. Accounts payable
c. Notes payable
d. Discount on notes payable
e. Current maturities of long-term liabilities
f. Accrued liabilities
g. Contingent liability
h. Estimated liability
A liability that involves an existing condition for which the outcome is not known with
certainty and depends on some future event.
A possible loss from lawsuit is not reported on the balance sheet as a current liability.
a. True
b. False
There is a standard threshold for materiality set by the Financial Accounting Standards
Board for all companies.
a. True
b. False
With regard to preferred stock,
a. its issuance provides no flexibility to the issuing company because its terms always
require mandatory dividend payments.
b. no dividends are expected by the stockholders.
c. its stockholders may have the right to participate, along with common stockholders,
if an extra dividend is declared.
d. there is a legal requirement for a corporation to declare a dividend on preferred stock.
All liabilities that are not classified as current liabilities are classified as long-term.
a. True
b. False
Anole Company Anole Company was incorporated as a new business on January 1,
2015. The company is authorized to issue 20,000 shares of $5 par value common stock
and 10,000 shares of 6%, $10 par value, cumulative, participating preferred stock. On
January 1, 2015, the company issued 8,000 shares of common stock for $15 per share
and 2,000 shares of preferred stock for $30 per share. Net income for the year ended
December 31, 2015, was $375,000. Refer to the information about Anole Company.
The number of Anole’s unissued shares of common stock at December 31, 2015, is
a. 6,000.
b. 8,000.
c. 10,000.
d. 12,000.
From the following list, identify whether the change in the account balance during the
year would be reported as operating (O) cash flow, investing (I) cash flow, financing (F)
cash flow or not separately (N) reported on the statement of cash flows. Assume that the
indirect method is used to prepare the operating activities section. Use the following
response choices a-d.
a. operating (O) cash flow
b. investing (I) cash flow
c. financing (F) cash flow
d. not separately (N) reported on the statement of cash flows
Other accrued liabilities
From the list of accounts below, determine whether the account would be a nominal
account or a real account.
a. nominal account
b. real account
Interest Payable
The current and quick ratios have two limitations. These ratios
a. emphasize the ineffectiveness of analysts’ calculations, and focus on liquid assets at a
point in time instead of a period of time.
b. focus on cash instead of working capital, and they represent a point in time instead of
covering a period of time.
c. focus on working capital instead of cash, and they represent a point in time instead of
covering a period of time.
d. are ignored by most creditors, and focus on working capital instead of cash.
Mayfair Book Club Company received advance payments from customers during 2015
of $5,000. At December 31, 2015, $1,200 of the advance payments still had not been
earned. After the adjustments are recorded and posted at December 31, 2015, what will
the balances be in the Unearned Book Revenue and Book Revenue accounts?
Business entities and non-business entities are both organized to earn a profit.
a. True
b. False
Carroll Corporation began the year with total assets of $800,000 and total liabilities of
$620,000. Use the accounting equation to answer the following questions. Assume no
additional investment by owners when answering these questions. A) What was the
amount of Carroll’s total assets at the end of the year if liabilities decreased by $60,000
and owners’ equity increased by $90,000? B) Was the company profitable? Explain
your answer.
Ari’s Cafe began operations on March 1, 2015. The corporate charter authorized the
issuance of 3,000 shares of $2 par value common stock and 1,000 shares of $3 par
value, 8% cumulative preferred stock. The company’s fiscal year ends on February 28.
Ari’s sold 500 shares of common stock at $6 per share on April 1. What impact does the
entry to record the April 1 transaction have on total stockholders’ equity?
a. No effect
b. Increase by $1,000
c. Increase by $3,000
d. Increase by $6,000