Current financial reporting standards assume that users of accounting information:
A.Have an expert’s understanding of economic and financial events and conditions.
B.Have a reasonably informed knowledge of business.
C.Have widely differing levels of knowledge about business, and that financial
reporting must meet these differing needs.
D.Have only minimal knowledge of business.
The following data were taken from the accounting records of Lorenzo Company.
Except where indicated, the balances are as of December 31, 2013 before closing
entries have been made.
Required:
a) List the accounts that should be closed at the end of 2013.
b) Prepare an income statement for Lorenzo Company for 2013.
c) What is the balance in retained earnings after closing entries have been made?
Which of the following items would appear in the cash flow from the financing
activities section of a statement of cash flows?
A.Paid cash for expenses.
B.loaned cash to another company.
C.Sold land for cash.
D.Paid cash for dividends.
Select the incorrect statement regarding the return on equity (ROE) measure.
A.ROE is used to measure the profitability of the firm in relation to the amount invested
by stockholders.
B.ROE equals net income divided by average total stockholders’ equity.
C.ROE is affected by a company’s use of leverage.
D.A company’s ROE is lower than its return on investment because ROE does not
consider that part of the business that is financed by debt.
Benson Corporation is considering an investment in equipment that would cost $50,000
and provide annual cash inflows of $14,000. The company’s required rate of return is
12%; the internal rate of return for the investment is 10.5%. Should the company make
this investment?
A.No, since the internal rate of return is more than the company’s required rate of
return.
B.Yes, since the internal rate of return is less than the company’s required rate of return.
C.No, since the internal rate of return is less than the company’s required rate of return.
D.The answer cannot be determined.
Select the incorrect statement regarding net margin.
A.Net margin refers to the average amount of each sales dollar remaining after all
expenses are subtracted.
B.Net margin may be calculated in several ways.
C.The amount of net margin is affected by a company’s choices of accounting
principles.
D.The smaller the net margin the better.
The following balance sheet information is provided for Duke Company for 2014:
What is the company’s current ratio?
A.1.16
B.1.31
C.2.53
D.3.79
Expenses are shown on the
A.balance sheet.
B.income statement.
C.statement of changes in stockholders’ equity.
D.income statement and statement of changes in stockholders’ equity.
In uncertain circumstances, the conservatism principle guides accountants to
A.accelerate revenue recognition and delay expense recognition.
B.accelerate expense recognition and delay revenue recognition.
C.recognize expense of prepaid items when payment is made.
D.maximize reported net income.
Which of the following is not true about IFRS?
A.The IASB does not have the ability to enforce proper usage of IFRS.
B.IFRS is available to any organization or nation that wishes to use those standards.
C.IFRS is a comprehensive set of financial reporting standards.
D.IFRS includes only pronouncements issued by the IASB.
E.IFRS are considered as generally accepted accounting principles.
Indicate how each event affects the elements of financial statements. Use the following
letters to record your answer in the box shown below each element. You do not need to
enter amounts.
Walsh Co. paid a $50,000 cash dividend to its owners.
Bazley Co. had severe financial difficulties and was considering the possibility of filing
a bankruptcy petition. At that time, the company had the following assets (stated at net
realizable value) and liabilities.
Total unsecured liabilities are calculated to be what amount?
Indicate how each event affects the elements of financial statements. Use the following
letters to record your answer in the box shown below each element. You do not need to
enter amounts.
Patterson Co. paid $50,000 cash to purchase land.
Who are the three distinct types of participants in a market? Briefly describe the role of
each group of participants.
Indicate how each event affects the elements of financial statements. Use the following
letters to record your answer in the box shown below each element. You do not need to
enter amounts.
Sparta Co. provided $1,600 of services for a customer who paid $1,000 cash
immediately and promised to pay an additional $600 one month later.
Denver Corporation and Cheyenne Company are in different industries. Denver’s
current ratio is 1.89, while Cheyenne’s current ratio is 1.65. Therefore, is it safe to
conclude that Denver’s liquidity position is better than that of Cheyenne?
What are the two major types of legal systems used around the world?