Average stockholders’ equity
Select the ratio that would include each amount or account in its calculation. (Choices
may be used more than once.)
a. Times interest earned ratio
b. Operating cash flow ratio
c. Debt-to-equity ratio
d. Return on equity
Length of time required to collect the receivable from a credit sale.Match these terms to
their correct definition.
Which of the following best describes the term “retained earnings” of a company?
a. The amount of total profits earned by a company since it began operations.
b. The amount of claim that the owners have on the assets of the company.
c. The future economic resources of a company.
d. The accumulated net income of a company that has not been distributed to owners in
the form of dividends.
Use the following selected financial information to compare these three companies and
answer the questions that follow.
A) Which company appears to be in the best position regarding asset efficiency based
solely on the inventory turnover ratio?
B) Which company has the best short-term liquidity?
C) Which company appears to be heading in the wrong direction in terms of its ability
to pay current obligations as they come due?
Presented below is the operating activities section of a statement of cash flows for
2014:
Which method of preparing the operating activities section was used?
a. The direct method.
b. The indirect method.
c. Either method.
d. Cannot be determined without further information.
Paid employee insurance expense.
Use the following codes to indicate how the cash flow effect, if any, of each transaction
would be reported on a statement of cash flows if the operating activities section is
prepared using the direct method. (Choices may be used more than once.)
a. Inflow from operating activity
b. Outflow from operating activity
c. Inflow from investing activity
d. Outflow from investing activity
e. Inflow from financing activity
f. Outflow from financing activity
g. Noncash investing and financing activity
h. Not reported on statement of cash flows
A contract that gives one party the right to use an asset that belongs to another party.
Match these terms with their definitions.
a. Bond i. Lessor
b. Contract, coupon, stated rate j. Leverage
c. Discount k. Long-term debt
d. Effective interest rate method l. Market rate, yield
e. Face value, par value, principal m. Maturity
f. Interest amortization n. Premium
g. Lease o. Straight-line method
h. Lessee
Which of the following debt management ratios is the most inclusive for measuring the
degree to which a company relies on outsiders for financing?
a. debt-to-equity ratio
b. times interest earned ratio
c. long-term debt-to-equity ratio
d. long-term debt-to-total assets ratio
A corporation issued $150,000 of 10-year bonds at the stated rate of 8%, with interest
payable semiannually. How much cash will the bond investors receive at the end of the
first interest period?
a. $3,000
b. $6,000
c. $12,000
d. $24,000
A corporation reported the following information in the stockholders’ equity section of
its balance sheet before its recent stock dividend:
When is revenue from the sale of merchandise normally recognized?
a. On the date the sale is made.
b. On the date the customer pays for the merchandise.
c. Either on the date on which the sale occurs, or the date on which the customer pays.
d. When the merchandise is sold, if sold for cash, or when payment is received, if sold
on credit.
Internal control for sales involve which of the following documentation?
a. A sale and its associated receivable are recorded only when the order, shipping, and
billing documents are all presented.
b. A sale and its associated receivable are recorded only when the billing documents are
prepared.
c. A sale and its associated receivable are recorded only when the goods are ordered.
d. A sale and its associated receivable are recorded only when the good are produced.
The ____________________ right provides that common stockholders may keep the
same percentage of ownership if new stock is issued.
The account, “Allowance for Doubtful Accounts” is an expense account (the cost of
making bad credit sales) that is reported on the income statement.
The ____________________ principle requires that expenses be recorded and reported
in the same period as the revenue that it helped to generate.
Refer to Merry Maids Company. Give some examples of circumstances that would
result in net cash used by investing activities as shown above.
Merry Maids Company
Merry Maids Company began 2013 with a cash and cash equivalents balance of $7,670.
Consolidated statements of cash flows for the years ended December 31, 2014 and
2013, are presented below:
A cost can be an asset or expense depending on whether or not the future economic
benefits have expired.
A potential advantage of debt financing over equity financing is that it fixes the amount
of compensation to the lender.
The designated price for which employees may exercise stock options is called the
____________________ price.
Refer to Fabulous Creations. The company spends significant dollars on research and
development initiatives each year to develop new products that allow it to remain
competitive. Yet, the company’s balance sheet does not reflect these costs. Why?
A ____________________ is a cost that improves an operating asset and is therefore
added to the asset account.