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Exam 2: A Further Look at Financial Statements

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Question 1

Multiple Choice

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Valuing assets at their fair value rather than at their cost is inconsistent with the

A) economic entity assumption.
B) historical cost principle.
C) periodicity assumption.
D) full disclosure principle.

Correct Answer

verified

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Question 2

Multiple Choice

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Connor Corporation hired a new accountant. Over the next four years, the accountant used four different accounting methods to depreciation for Connor's equipment. Which of the following qualities of useful information has Connor most likely violated?

A) Comparability
B) Relevance
C) Faithful representation
D) Consistency

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D

Question 3

True/False

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Long-term investments appear in the property, plant, and equipment section of the balance sheet.

How can a company improve its current ratio?

Using the following balance sheet and income statement data, what is the debt to assets ratio? $\begin{array} { l r l r } \text { Current assets } & \$ 21,000 & \text { Net income } & \$ 45,000 \\\text { Current liabilities } & 12,000 & \text { Stockholders' equity } & 63,000 \\\text { Average assets } & 132,000 & \text { Total liabilities } & 27,000 \\\text { Total assets } & 90,000 & &\end{array}$ Average common shares outstanding was 15,000.

Use the following data to determine the total amount of working capital. Koonce Office Supplies Balance Sheet December 31, 2017 $\begin{array}{lrlr}\text { Cash } & \$ 195,000 & \text { Accounts payable } & \$ 210,000 \\\text { Accounts receivable } & 150,000 & \text { Salaries and wages payable } & 30,000 \\\text { Inventory } & 165,000 & \text { Mortgage payable } & 240,000 \\\text { Prepaid insurance } & 90,000 & \text { Total liabilities } & \$ 480,000\\\text { Stock investments } & 255,000 \\\text { Land } & 270,000 \\\text { Buildings } \quad \$ 315,000& &\text { Common stock }&\$360,000\\\text { Less: Accumulated }&&\text { Retained earnings }&750,000\\\text { depreciation }\quad(60,000) &255,000&\text { Total stockholders' equity }&\$1,110,000\\\text { Trademarks } & 210,000 &\text { Total liabilities and }\\\text { Total assets } & \$ 1,590,000&\text { stockholders' equity }&\$1,590,000\end{array}$

Accounting information should be verifiable in order to enhance

Long-term creditors are usually most interested in evaluating

The accounting concept that indicates assets should be reported at the price received to sell an asset is the

Relevance and cost are two constraints in accounting.

A major function of management is to provide the accountant with relevant and useful information.

For information to be useful, it must be both relevant and faithfully representative.

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

Different companies using the same accounting principles is an application of

Which statement about long-term investments is not true?

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?

Use the following data to calculate the current ratio. Carne Auto Supplies Balance Sheet December 31, 2017 $\begin{array}{lrlr}\text { Cash } & \$ 70,000 & \text { Accounts payable } & \$ 130,000 \\\text { Accounts receivable } & 100,000 & \text { Salaries and wages payable } & 20,000 \\\text { Inventory } & 140,000 & \text { Mortgage payable } & 180,000 \\\text { Prepaid insurance } & 80,000 & \text { Total liabilities } & \$ 330,000 \\\text { Stock investments } & 180,000 & &\\\text { Land } & 190,000 \\\text { Buildings } \quad \$ 230,000 &&\text { Common stock }&\$240,000\\\text { Less: Accumulated }&&\text { Retained earnings }&500,000\\\text { depreciation }\quad(60,000) &170,000&\text { Total stockholders' equity }&\$740,000\\\text { Trademarks } & 140,000&\text { Total liabilities and }\\\text { Total assets }&\$1,070,000&\text { stockholders' equity }&\$1,070,000\end{array}$

The monetary unit assumption has led to an increase in the notes to financial statements.

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)

Stockholders' equity is divided into two parts: common stock and retained earnings.