Question 1

Jackson Cement Corporation reported $35 million for sales when it only had $20 million of actual sales.Which of the following qualities of useful information has Jackson most likely violated?

Accepted Answer

A)  Comparability
B)  Relevance
C)  Faithful representation
D)  ConsistencyE) A) and B)
F) B) and C)

Question 2

Solvency ratios measure the ability of a company to survive over a short period of time.

Accepted Answer

A) True 
 B)False

Question 3

Working capital is a measure of

Accepted Answer

A)  consistency.
B)  liquidity.
C)  profitability.
D)  solvency.E) B) and D)
F) All of the above

Question 4

On a classified balance sheet, short-term investments are classified as

Accepted Answer

A)  intangible assets.
B)  property, plant, and equipment.
C)  current assets.
D)  long-term investments.E) A) and C)
F) B) and C)

Question 5

Ratios that measure the income or operating success of a company for a given period of time are

Accepted Answer

A)  liquidity ratios.
B)  profitability ratios.
C)  solvency ratios.
D)  trending ratios.E) B) and C)
F) A) and B)

Question 6

It is assumed that the activities of Ford Motor company can be distinguished from those of General Motors because of the

Accepted Answer

A)  going concern assumption.
B)  economic entity assumption.
C)  monetary unit assumption.
D)  periodicity assumption.E) A) and D)
F) C) and D)

Question 7

The relationship between current assets and current liabilities is important in evaluating a company's

Accepted Answer

A)  profitability.
B)  liquidity.
C)  market value.
D)  solvency.E) All of the above
F) A) and B)

Question 8

A useful measure of solvency is the

Accepted Answer

A)  current ratio.
B)  earnings per share.
C)  return on assets ratio.
D)  debt to assets ratio.E) B) and D)
F) C) and D)

Question 9

The most generally accepted value used to report assets in accounting is fair value.

Accepted Answer

A) True 
 B)False

Question 10

Earnings per share is calculated by dividing

Accepted Answer

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.E) A) and B)
F) A) and C)

Question 11

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 buildup.Which of the following statements is true?

Accepted Answer

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.E) None of the above
F) All of the above

Question 12

The periodicity assumption states that every economic entity can be separately identified and accounted for.

Accepted Answer

A) True 
 B)False

Question 13

Based on the following data, what is the amount of working capital?

Accepted Answer

A)  $284,000
B)  $332,000
C)  $370,000
D)  $326,000E) B) and D)
F) A) and B)

Question 14

Which of the following is not considered a measure of liquidity?

Accepted Answer

A)  Current ratio
B)  Working capital
C)  Debt to assets ratio
D)  Each of these answer choices are liquidity measures.E) B) and D)
F) B) and C)

Question 15

How can a company improve its current ratio?

Accepted Answer

A)  Work with a creditor to reclassify some current debt into long-term debt
B)  Collect accounts receivable
C)  Nothing can ethically be done to improve the current ratio
D)  Use excess cash to buy new equipmentE) B) and D)
F) None of the above

Question 16

Profitability means having enough funds on hand to pay debts when they fall due.

Accepted Answer

A) True 
 B)False

Question 17

Current assets divided by current liabilities is known as the

Accepted Answer

A)  working capital.
B)  current ratio.
C)  profit margin.
D)  capital structure.E) All of the above
F) A) and C)

Question 18

Long-term creditors are usually most interested in evaluating

Accepted Answer

A)  liquidity.
B)  profitability.
C)  solvency.
D)  consistency.E) B) and C)
F) A) and D)

Question 19

Accounting information should be verifiable in order to enhance

Accepted Answer

A)  comparability.
B)  faithful representation.
C)  consistency.
D)  relevance.E) B) and C)
F) A) and B)

Question 20

The historical cost principle requires that when assets are acquired, they be recorded at

Accepted Answer

A)  fair market value.
B)  the amount paid for them.
C)  selling price.
D)  list price.E) B) and C)
F) None of the above

Exam 2: A Further Look at Financial Statements

Which of the following is not considered a measure of liquidity?

Correct AnswerverifiedShow Answer

Profitability means having enough funds on hand to pay debts when they fall due.

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Jackson Cement Corporation reported $35 million for sales when it only had $20 million of actual sales.Which of the following qualities of useful information has Jackson most likely violated?

Correct AnswerverifiedShow Answer

The periodicity assumption states that every economic entity can be separately identified and accounted for.

Correct AnswerverifiedShow Answer

The most generally accepted value used to report assets in accounting is fair value.

Correct AnswerverifiedShow Answer

It is assumed that the activities of Ford Motor company can be distinguished from those of General Motors because of the

Correct AnswerverifiedShow Answer

Current assets divided by current liabilities is known as the

Correct AnswerverifiedShow Answer

Long-term creditors are usually most interested in evaluating

Correct AnswerverifiedShow Answer

Based on the following data, what is the amount of working capital?

Correct AnswerverifiedShow Answer

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 buildup.Which of the following statements is true?

Correct AnswerverifiedShow Answer

Earnings per share is calculated by dividing

Correct AnswerverifiedShow Answer

Solvency ratios measure the ability of a company to survive over a short period of time.

Correct AnswerverifiedShow Answer

On a classified balance sheet, short-term investments are classified as

Correct AnswerverifiedShow Answer

A useful measure of solvency is the

Correct AnswerverifiedShow Answer

Ratios that measure the income or operating success of a company for a given period of time are

Correct AnswerverifiedShow Answer

The relationship between current assets and current liabilities is important in evaluating a company's

Correct AnswerverifiedShow Answer

The historical cost principle requires that when assets are acquired, they be recorded at

Correct AnswerverifiedShow Answer

How can a company improve its current ratio?

Correct AnswerverifiedShow Answer

Working capital is a measure of

Correct AnswerverifiedShow Answer

Accounting information should be verifiable in order to enhance

Correct AnswerverifiedShow Answer

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