Chapter 2 2 100 The Following Information Available For Bradshaw

Document Type
Test Prep
Book Title
Financial Accounting-- Binder Ready Version: Tools for Business Decision Making 8th Edition
Authors
Donald E. Kieso, Jerry J. Weygandt, Paul D. Kimmel
A Further Look at Financial Statements
2-21
91. Use the following data to calculate the current ratio.
Eddy Auto Supplies
Balance Sheet
December 31, 2017
Cash $ 126,000 Accounts payable $ 165,000
Accounts receivable 120,000 Salaries and wages payable 30,000
Inventory 210,000 Mortgage payable 270,000
Prepaid insurance 90,000 Total liabilities $465,000
Stock investments 255,000
Land 285,000
Buildings $339,000 Common stock $360,000
Less: Accumulated Retained earnings 750,000
depreciation (60,000) 279,000 Total stockholders’ equity $1,110,000
Trademarks 210,000 Total Liabilities and
Total assets $1,050,000 stockholders’ equity $1,575,000
a. 2.34 : 1
b. 2.80 : 1
c. 3.31 : 1
d. 1.26 : 1
92. A measure of profitability is the
a. current ratio.
b. debt to assets ratio.
c. earnings per share.
d. working capital.
93. For 2017 Kuhlman Corporation reported net income of $36,000; net sales $400,000; and
average share outstanding 16,000. There were no preferred dividends. What was the
2017 earnings per share?
a. $2.25
b. $0.44
c. $25.00
d. $0.09
94. For 2017 Fielder Corporation reported net income of $32,000; net sales $400,000; and
average share outstanding 16,000. There were no preferred dividends. What was the
2017 earnings per share?
a. $0.08
b. $0.50
c. $25.00
d. $2.00
Test Bank for Financial Accounting: Tools for Business Decision Making, Eighth Edition
2-22
[(Net inc. Pref.div) ÷ Ave.sh.out.
95. Earnings per share are calculated by dividing
a. gross profit by average common shares outstanding.
b. (net income less preferred dividends) by average common shares outstanding.
c. net income by average common shares outstanding.
d. net sales by average common shares outstanding.
96. Earnings per share is a
a. profitability ratio.
b. liquidity ratio.
c. solvency ratio.
d. trending ratio.
97. Which of the following statements is true?
a. Earnings per share is an internal measure and is not used by stockholders.
b. The denominator used in computing earnings per share represents the shares of
common stock outstanding on the last day of the accounting period.
c. Net income is not adjusted when computing earnings per share.
d. By comparing earnings per share of a single corporation over time, a stockholder can
evaluate the corporation’s relative earnings performance.
98. Earnings available to common stockholders is equal to
a. total revenues
b. net income + preferred dividends.
c. preferred dividends net income.
d. net income preferred dividends.
99. The following information is available for Bradshaw Corporation and Newell Corporation:
(in millions)
Bradshaw Corporation
Newell Corporation
2017
2016
2017
Preferred dividends
25
10
0
Net income
500
480
490
Shares outstanding at the
end of the year
200
180
150
Shares outstanding at the
beginning of the year
180
150
200
Based on this information, the earnings per share calculations (rounded to two decimals)
suggest
a. lower performance in 2016 than in 2017 for Bradshaw Corporation.
b. higher performance in 2017 than in 2016 for Bradshaw Corporation.
c. fewer earnings available to Bradshaw's common stockholders in 2017 than in 2016.
d. an increase in the average number of common shares outstanding between 2016 and
2017 for Bradshaw Corporation.
Test Bank for Financial Accounting: Tools for Business Decision Making, Eighth Edition
2-24
100. The following information is available for Bradshaw Corporation and Newell Corporation:
(in millions)
Bradshaw Corporation
Newell Corporation
2017
2016
2017
Preferred dividends
25
10
0
Net income
500
480
490
Shares outstanding at the
end of the year
200
180
150
Shares outstanding at the
beginning of the year
180
150
200
Based on this information, which of the following is suggested by the earnings per share
calculations (rounded to two decimals) and the information given?
a. There is lower performance in 2016 than in 2017 for Newell Corporation.
b. There is higher performance in 2016 than in 2017 for Newell Corporation.
c. There are fewer earnings available to Newell's common stockholders in 2017 than in
2016.
d. There is a decrease in preferred shares of stock in 2017 as compared with 2016.
101. The following information is available for Bradshaw Corporation and Newell Corporation:
(in millions)
Bradshaw Corporation
Newell Corporation
2017
2016
2017
Preferred dividends
25
10
0
Net income
500
480
490
Shares outstanding at the
end of the year
200
180
150
Shares outstanding at the
beginning of the year
180
150
200
Based on this information, what is the amount of Bradshaw's earnings per share (rounded
to two decimals) for 2017?
a. $2.76
b. $2.50
c. $1.25
d. $1.32
A Further Look at Financial Statements
2-25
102. The following information is available for Bradshaw Corporation and Newell Corporation:
(in millions)
Bradshaw Corporation
Newell Corporation
2017
2016
2017
Preferred dividends
25
10
0
Net income
500
480
490
Shares outstanding at the
end of the year
200
180
150
Shares outstanding at the
beginning of the year
180
150
200
Based on the information for both Bradshaw and Newell over the two-year period, the
earnings per share calculations (rounded to two decimals) indicate that
a. Bradshaw is seeing a greater performance improvement than Newell.
b. the earnings available to common stockholders is decreasing for Newell and
increasing for Bradshaw.
c. the earnings per share calculations for both companies assume that changes in
shares between 2016 and 2017 occur in the middle of the year.
d. Newell is more financially stable than Bradshaw.
103. The relationship between current assets and current liabilities is important in evaluating a
company's
a. profitability.
b. liquidity.
c. market value.
d. solvency.
104. Which of the following is a measure of liquidity?
a. Working capital
b. Profit margin
c. Earnings per share
d. Debt to assets ratio
105. Current assets divided by current liabilities is known as the
a. working capital.
b. current ratio.
c. profit margin.
d. capital structure.
106. The most important information needed to determine if companies can pay their current
obligations is the
a. net income for this year.
b. projected net income for next year.
c. relationship between current assets and current liabilities.
d. relationship between short-term and long-term liabilities.
Test Bank for Financial Accounting: Tools for Business Decision Making, Eighth Edition
2-26
107. A short-term creditor is primarily interested in the __________ of the borrower.
a. liquidity
b. profitability
c. consistency
d. solvency
108. The current ratio is
a. current assets plus current liabilities.
b. current assets minus current liabilities.
c. current assets divided by current liabilities.
d. current assets times current liabilities.
109. Working capital is calculated by taking
a. current assets plus current liabilities.
b. current assets minus current liabilities.
c. current assets divided by current liabilities.
d. current assets times current liabilities.
110. Working capital is a measure of
a. consistency.
b. liquidity.
c. profitability.
d. solvency.
111. Long-term creditors are usually most interested in evaluating
a. liquidity and profitability.
b. consistency and profitability.
c. liquidity and solvency.
d. consistency and solvency.
112. A liquidity ratio measures the
a. income or operating success of a company over a period of time.
b. ability of a company to survive over a long period of time.
c. short-term ability of a company to pay its maturing obligations and to meet unexpected
needs for cash.
d. percentage of total financing provided by creditors.
113. Working capital is
a. calculated by dividing current assets by current liabilities.
b. used to evaluate a company’s liquidity and short-term debt paying ability.
c. used to evaluate a company’s solvency and long-term debt paying ability.
d. calculated by subtracting current assets from current liabilities.
A Further Look at Financial Statements
2-27
Business Economics
114. The ability of a business to pay obligations that are expected to become due within the
next year or operating cycle is
a. leverage.
b. liquidity.
c. profitability.
d. wealth.
115. Based on the following data, what is the amount of current assets?
Accounts payable……………………………………………………….. $62,000
Accounts receivable…………………………………………………….. 100,000
Cash………………………………………………………………………. 70,000
Intangible assets……………………………………………………… 100,000
Inventory…………………………………………………………………. 138,000
Long-term investments…………………………………………………. 160,000
Long-term liabilities…………………………………………………… 200,000
Short-term investments…………………………………………………. 80,000
Notes payable……………………………………………………………. 56,000
Property, plant, and equipment…………………………………………… 1,340,000
Prepaid insurance……………………………………………………….. 2,000
a. $232,000
b. $390,000
c. $252,000
d. $250,000
116. Based on the following data, what is the amount of working capital?
Accounts payable……………………………………………………….. $64,000
Accounts receivable…………………………………………………….. 114,000
Cash………………………………………………………………………. 70,000
Intangible assets……………………………………………………… 100,000
Inventory…………………………………………………………………. 138,000
Long-term investments…………………………………………………. 160,000
Long-term liabilities……………………………… ……………………. 200,000
Short-term investments…………………………………………………. 80,000
Notes payable (short-term)……………………………………………… 56,000
Property, plant, and equipment…………………………………………… 1,340,000
Prepaid insurance……………………………………………………….. 2,000
a. $284,000
b. $332,000
c. $370,000
d. $326,000
Test Bank for Financial Accounting: Tools for Business Decision Making, Eighth Edition
2-28
117. Using the following balance sheet and income statement data, what is the total amount of
working capital?
Current assets $ 32,000 Net income $ 42,000
Current liabilities 16,000 Stockholders’ equity 78,000
Average assets 160,000 Total liabilities 42,000
Total assets 120,000
Average common shares outstanding was 15,000.
a. $ 8,000
b. $ 32,000
c. $ 10,000
d. $ 16,000
118. Using the following balance sheet and income statement data, what is the current ratio?
Current assets $ 32,000 Net income $ 42,000
Current liabilities 16,000 Stockholders’ equity 78,000
Average assets 160,000 Total liabilities 42,000
Total assets 120,000
Average common shares outstanding was 15,000.
a. 2.0 : 1
b. 2.6 : 1
c. 0.5 : 1
d. 2.9 : 1
119. Using the following balance sheet and income statement data, what is the earnings per
share?
Current assets $ 32,000 Net income $ 42,000
Current liabilities 16,000 Stockholders’ equity 78,000
Average assets 160,000 Total liabilities 42,000
Total assets 120,000
Average common shares outstanding was 15,000.
a. $5.20
b. $8.00
c. $2.80
d. $0.36
A Further Look at Financial Statements
2-29
120. Using the following balance sheet and income statement data, what is the debt to assets
ratio?
Current assets $ 32,000 Net income $ 42,000
Current liabilities 16,000 Stockholders’ equity 78,000
Average assets 160,000 Total liabilities 42,000
Total assets 120,000
Average common shares outstanding was 15,000.
a. 26 percent
b. 13 percent
c. 65 percent
d. 35 percent
121. Using the following balance sheet and income statement data, what is the total amount of
working capital?
Current assets $ 21,000 Net income $ 45,000
Current liabilities 12,000 Stockholders’ equity 63,000
Average assets 132,000 Total liabilities 27,000
Total assets 90,000
Average common shares outstanding was 15,000.
a. $7,000
b. $5,000
c. $9,000
d. $2,000
122. Using the following balance sheet and income statement data, what is the current ratio?
Current assets $ 21,000 Net income $ 45,000
Current liabilities 12,000 Stockholders’ equity 63,000
Average assets 132,000 Total liabilities 27,000
Total assets 90,000
Average common shares outstanding was 15,000.
a. 0.78 : 1
b. 3.33 : 1
c. 0.57 : 1
d. 1.75: 1
Test Bank for Financial Accounting: Tools for Business Decision Making, Eighth Edition
2-30
123. Using the following balance sheet and income statement data, what is the earnings per
share?
Current assets $ 21,000 Net income $ 45,000
Current liabilities 12,000 Stockholders’ equity 63,000
Average assets 132,000 Total liabilities 27,000
Total assets 90,000
Average common shares outstanding was 15,000.
a. $3.00
b. $4.20
c. $0.33
d. $0.50
124. Using the following balance sheet and income statement data, what is the debt to assets
ratio?
Current assets $ 21,000 Net income $ 45,000
Current liabilities 12,000 Stockholders’ equity 63,000
Average assets 132,000 Total liabilities 27,000
Total assets 90,000
Average common shares outstanding was 15,000.
a. 20.5 percent
b. 30 percent
c. 33.3 percent
d. 40.9 percent
125. The debt to assets ratio is computed by dividing
a. long-term liabilities by total assets.
b. long-term liabilities by average assets.
c. total liabilities by total assets.
d. total liabilities by average assets.
126. A useful measure of solvency is the
a. current ratio.
b. earnings per share.
c. return on assets ratio.
d. debt to assets ratio.
127. Which of the following is not considered a measure of liquidity?
a. Current ratio
b. Working capital
c. Debt to assets ratio
d. Each of these answer choices are liquidity measures
A Further Look at Financial Statements
2-31
128. Which measure would a long-term creditor be least interested in reviewing?
a. Free cash flow
b. Debt to assets ratio
c. Current ratio
d. Solvency measure
129. Bathlinks Corporation has a debt to assets ratio of 73%. This tells the user of Bathlinks’s
financial statements that
a. Bathlinks is getting a 27% return on its assets.
b. there is a risk that Bathlinks cannot pay its debts as they come due.
c. 73% of the assets are financed by the stockholders.
d. based on this measure, the user should not invest in Bathlinks.
130. Ace Company is a retail store. Due to competition, it is having trouble selling its products.
Thus, inventory has been building up. Ace’s current ratio has not changed for the past
three years, in spite of the inventory build up. Which of the following statements is true?
a. As long as the current ratio remains constant, there is no need for concern.
b. The composition of current assets and current liabilities does not matter.
c. The management of Ace should consider the effect of slow moving inventory on its
liquidity.
d. Since inventory is a current asset, any increases should automatically cause the
current ratio to rise.
131. How can a company improve its current ratio?
a. Work with a creditor to reclassify some current debt into long-term debt
b. Use cash to reduce current liabilities
c. Nothing can ethically be done to improve the current ratio
d. Use excess cash to buy new equipment
132. Kingery Corporation has current assets of $1,800,000 and current liabilities of $750,000. If
they pay $350,000 of their accounts payable what will their new current ratio be?
a. 3.6:1
b. 2.4:1
c. 4.5:1
d. 2.0:1
Test Bank for Financial Accounting: Tools for Business Decision Making, Eighth Edition
2-32
133. Kingery Corporation has current assets of $1,800,000 and current liabilities of $750,000. If
they issue $150,000 of new stock what will their new current ratio be? (rounded)
a. 2.6:1
b. 2.1:1
c. 2.2:1
d. 2.4:1
134. Mitchell Corporation has current assets of $1,600,000 million and current liabilities of
$750,000. If they pay $350,000 of their accounts payable what will their new current ratio
be?
a. 3.1:1
b. 4.0:1
c. 1.5:1
d. 2.1:1
135. Mitchell Corporation has current assets of $1,600,000 and current liabilities of $750,000. If
they issue $200,000 of new stock what will their new current ratio be? (rounded)
a. 2.4:1
b. 1.9:1
c. 1.7:1
d. 2.13:1
136. The debt to assets ratio is a
a. liquidity ratio.
b. profitability ratio.
c. solvency ratio.
d. None of the answer choices is correct.
137. Free cash flow provides an indication of a company’s ability to
a. generate cash to invest in new capital expenditures.
b. generate net income.
c. generate cash to pay dividends.
d. generate cash to invest in new capital expenditures and to pay dividends.
A Further Look at Financial Statements
2-33
138. Free cash flow represents
a. cash provided by operations less adjustments for capital expenditures and dividends.
b. a measurement of a company’s cash generating ability.
c. a measure of solvency.
d. All of these answer choices are correct.
139. Free cash flow is net cash provided by operating activities
a. less capital expenditures.
b. less cash dividends.
c. less capital expenditures and cash dividends.
d. less capital expenditures and salaries expense.
140. In 2017 Grider Corporation had cash receipts of $56,000 and cash disbursements of
$32,000. Grider’s ending cash balance at December 31, 2017 was $78,000. What was
Grider’s beginning cash balance?
a. $54,000
b. $70,000
c. $110,000
d. $102,000
141. In 2017 Grider Corporation had cash receipts of $35,000 and cash disbursements of
$20,000. Grider’s ending cash balance at December 31, 2017 was $65,000. What was
Grider’s beginning cash balance?
a. $50,000
b. $60,000
c. $85,000
d. $80,000
142. Suppose that Morgan Corporation produced and sold 4,800 laptop computers during
2017. It reported $130,000 cash provided by operating activities. In order to maintain
production at 4,800 laptops, Morgan invested in $8,600 in equipment. Morgan paid $1,400
in dividends. What is Morgan’s free cash flow?
a. $120,000
b. $140,000
c. $137,000
d. $130,000
Test Bank for Financial Accounting: Tools for Business Decision Making, Eighth Edition
2-34
143. The following information is available for Cooke Corporation:
(in million)
Cash receipts from operating activities
$780
Cash payments from operating activities
$240
Net cash used by investing
$210
Net cash provided by financing
$750
Net increase in cash and equivalents
?
Cash and equivalents at start of year
$550
Cash and equivalents at year-end
?
What is the net increase in cash and equivalents?
a. $1,500
b. $1,080
c. $530
d. $2,050
144. The following information is available for Cooke Corporation:
(in million)
Cash receipts from operating activities
$780
Cash payments from operating activities
$240
Net cash used by investing
$210
Net cash provided by financing
$750
Net increase in cash and equivalents
?
Cash and equivalents at start of year
$550
Cash and equivalents at year-end
?
What is the cash and equivalents amount at year-end?
a. $1,090
b. $530
c. $1,630
d. $2,530
145. If Morris Corporation has a negative $131 million free cash flow, which of the following
statements is most likely true?
a. Morris' capital expenditures plus its cash dividends are less than its cash provided by
operations.
b. This free cash flow indicates that Morris is in good shape to repay its long-term
obligations when they come due.
c. This free cash flow indicates that Morris presents good cash generating ability to retire
stock.
d. Morris' cash provided by operations is less than its cash dividends plus capital
expenditures.
Test Bank for Financial Accounting: Tools for Business Decision Making, Eighth Edition
2-36
146. Which of the following organizations issues accounting standards for countries outside the
United States?
a. SEC
b. GAAP
c. IASB
d. FASB
147. Generally accepted accounting principles
a. are accounting rules formulated by the Internal Revenue Service.
b. are sound in theory but rarely used in real life.
c. are accounting rules that are recognized as a general guide for financial reporting.
d. have eliminated all errors in accounting.
148. The agency of the United States Government that oversees the U.S. financial markets is
the
a. Internal Revenue Service.
b. Security Exchange Commission.
c. Financial Accounting Standards Board.
d. International Auditing Standards Committee.
149. What organization issues U.S. accounting standards?
a. Security Exchange Commission
b. International Accounting Standards Committee
c. International Auditing Standards Committee
d. Financial Accounting Standards Board
150. Which one of the following is not an enhancing quality of useful information?
a. Timeliness
b. Understandability
c. Materiality
d. Comparability
151. All of the following are qualities of useful information except
a. faithful representation.
b. materiality.
c. relevance.
d. flexibility.
A Further Look at Financial Statements
2-37
152. The two fundamental qualities of useful information are
a. relevance and faithful representation.
b. verifiability and timeliness.
c. comparability and flexibility.
d. understandability and consistency.
153. The convention of consistency refers to consistent use of accounting principles
a. among firms.
b. among accounting periods.
c. throughout the accounting periods.
d. within industries.
154. The quality of consistency enhances
a. relevance.
b. materiality.
c. comparability.
d. faithful representation.
155. Information that is presented in a clear fashion, so that users of that information can
interpret it is an example of
a. relevance.
b. faithful representation.
c. understandability.
d. comparability.
155. In order for accounting information to be relevant, it must
a. have very little cost.
b. help predict future events or confirm prior expectations.
c. not be reported to the public.
d. be used by a lot of different firms.
156. Accounting information should be verifiable in order to enhance
a. comparability.
b. faithful representation.
c. consistency.
d. relevance.
Test Bank for Financial Accounting: Tools for Business Decision Making, Eighth Edition
2-38
158. Accounting information is relevant to business decisions because it
a. has been verified by external audit.
b. is prepared on an annual basis.
c. confirms prior expectations.
d. is neutral in its representations.
159. If accounting information has relevance, it is useful in making predictions about
a. future IRS audits.
b. new accounting principles.
c. foreign currency exchange rates.
d. the future events of a company.
160. Relevant accounting information
a. is information that has been audited.
b. must be reported within the operating cycle or one year, whichever is longer.
c. has been objectively determined.
d. is information that is capable of making a difference in a business decision.
161. Which of the following is not a quality associated with faithful representation?
a. Complete
b. Materiality
c. Neutral
d. All of these answer choices are correct.
162. Accounting information should be neutral in order to enhance
a. faithful representation.
b. consistency.
c. comparability.
d. relevance.
163. Characteristics associated with relevant accounting information are
a. comparability and timeliness.
b. predictive value and confirmatory value.
c. neutral and verifiable.
d. consistency and understandability.
164. Characteristics associated with faithfully representative accounting information are
a. verifiable and timely.
b. verifiable and neutral.
c. complete and neutral.
d. relevance and verifiable.
A Further Look at Financial Statements
FOR INSTRUCTOR USE ONLY
2-39
Test Bank for Financial Accounting: Tools for Business Decision Making, Eighth Edition
2-40
165. Which of the following statements is not true?
a. Comparability means using the same accounting principles from year to year within a
company.
b. Faithful representation is the quality of information that gives assurance that it is free
of error.
c. Relevant accounting information must be capable of making a difference in the
decision.
d. The primary objective of financial reporting is to provide financial information that is
useful to investors and creditors for making decisions.
166. A company can change to a new method of accounting if management can justify that the
new method results in
a. more meaningful financial information.
b. a higher net income.
c. a lower net income for tax purposes.
d. less likelihood of clerical errors.
167. An item is considered material if
a. it doesn’t costs a lot of money.
b. it is of a tangible good.
c. its size is likely to influence the decision of an investor or creditor.
d. the cost of reporting the item is greater than its benefits.
168. Information presented in a clear and concise fashion so that users can comprehend its
meaning is an application of
a. consistency.
b. timeliness.
c. verifiability.
d. understandability.
169. A company using the same accounting principles from year to year is an application of
a. timeliness.
b. consistency.
c. full disclosure.
d. materiality.
170. Information is _________ if independent measures, using the same methods, obtain
similar results.
a. Verifiable
b. Consistent
c. Understandable
d. Relevant

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