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Accounting
Q:
Growth firms generally pay regular dividends to stockholders. a. True b. False
Q:
If a firm decreases its operating costs, all else constant, then the:A. profit margin will decrease.B. return on assets will decrease.C. total asset turnover rate will increase.D. cash coverage ratio will decrease.E. price-earnings ratio will decrease.
Q:
Accounting for the sale of stock is the same for both the fair value and equity methods of accounting for investments. a. True b. False
Q:
The DuPont identity can be computed as:A. Net income Profit margin (1 + Debt-equity ratio).B. Profit margin (1 / Capital intensity) (1 + Debt-equity ratio).C. Net income Total asset turnover Equity multiplier.D. Profit margin Total asset turnover Debt-equity ratio.E. Return on equity Profit margin Total asset turnover.
Q:
Investments―Bonds is reported on the balance sheet at lower of cost or market. a. True b. False
Q:
Which one of the following sets of ratios would generally be of the most interest to stockholders?A. return on assets and profit marginB. quick ratio and times interest earnedC. price-earnings ratio and debt-equity ratioD. return on equity and price-earnings ratioE. cash coverage ratio and equity multiplier
Q:
Unrealized gains and losses on trading securities are not included in the computation of income from operations. a. True b. False
Q:
Vinnie's Motors has a market-to-book ratio of 3.4. The book value per share is $34 and earnings per share are $1.36. Holding the market-to-book ratio and earnings per share constant, a $1 increase in the book value per share will:A. decrease the price-earnings ratio.B. decrease the EV multiple.C. decrease the market price per share.D. increase the price-earnings ratio.E. increase the return on equity.
Q:
Comprehensive income must be reported on the income statement. a. True b. False
Q:
Which one of the following is most apt to cause a firm to have a higher price-earnings ratio?A. slow industry outlookB. very low current earningsC. low market shareD. low prospect of firm growthE. low investor opinion of firm
Q:
An equity investment in less than 20% of another company’s outstanding stock is accounted for using the fair value method. a. True b. False
Q:
Turner's Inc. has a price-earnings ratio of 16. Alfred's Co. has a price-earnings ratio of 19. Thus, you can state with certainty that one share of stock in Alfred's:A. has a higher market price than one share of stock in Turner's.B. has a higher market price per dollar of earnings than does one share of Turner's.C. sells at a lower price per share than one share of Turner's.D. represents a larger percentage of firm ownership than does one share of Turner's stock.E. earns a greater profit per share than does one share of Turner's stock.
Q:
If the proceeds from the sale of bond investments exceed the carrying amount of the bonds, a gain is realized. a. True b. False
Q:
Last year, Alfred's Automotive had a price-earnings ratio of 15 and earnings per share of $1.20. This year, the price earnings ratio is 18 and the earnings per share is $1.20. Based on this information, it can be stated with certainty that:
A. the price per share decreased.
B. the earnings per share decreased.
C. investors are paying a lower price per share this year as compared to last year.
D. investors are receiving a higher rate of return this year.
E. the investors' outlook for the firm has improved.
Q:
To record a bond investment made between interest payment dates, Investment in Bonds would be debited and Cash and Interest Revenue would be credited. a. True b. False
Q:
Joe's has old, fully depreciated equipment. Moe's just purchased all new equipment which will be depreciated over eight years. If Joe's and Moe's have the same sales, costs, tax rate, and enterprise value, then:
A. Joe's will have a lower profit margin.
B. Joe's will have a lower return on equity.
C. Moe's will have a higher net income.
D. Moe's and Joe's will have the same EV multiple.
E. Moe's will have a lower EV multiple.
Q:
The financial statements resulting from combining parent and subsidiary statements are called consolidated statements. a. True b. False
Q:
Assume BGL Enterprises increases its operating efficiency by lowering its costs while holding its sales constant. As a result, given all else constant, the:
A. return on equity will increase.
B. return on assets will decrease.
C. profit margin will decline.
D. equity multiplier will decrease.
E. price-earnings ratio will increase.
Q:
In order to maintain a record of the original cost of a trading security, the fair value adjustments are debited or credited to the account Valuation Allowance for Trading Investments. a. True b. False
Q:
If stockholders want to know how much profit the firm is making on their entire investment in that firm, the stockholders should refer to the:
A. profit margin.
B. return on assets.
C. return on equity.
D. equity multiplier.
E. earnings per share.
Q:
When bonds held as long-term investments are purchased at a price other than the face value, the premium or discount should be amortized over the remaining life of the bonds. a. True b. False
Q:
If a firm produces a return on assets of 15 percent and also a return on equity of 15 percent, then the firm:
A. has no debt of any kind.
B. is using its assets as efficiently as possible.
C. has no net working capital.
D. also has a current ratio of 15.
E. has an equity multiplier of 2.
Q:
The amount of interest paid when buying a bond as an investment should be credited to Interest Revenue. a. True b. False
Q:
Puffy's Pastries generates five cents of net income for every $1 in equity. Thus, Puffy's has _______ of 5 percent.
A. a return on assets
B. a profit margin
C. a return on equity
D. an EV multiple
E. a price-earnings ratio
Q:
Any gains or losses on the sale of bonds normally would be reported in the Other Revenue (Loss) section of the income statement. a. True b. False
Q:
A capital intensity ratio of 1.03 means a firm has $1.03 in:
A. total debt for every $1 in equity.
B. equity for every $1 in total debt.
C. sales for every $1 in total assets.
D. total assets for every $1 in sales.
E. long-term assets for every $1 in short-term assets.
Q:
Comprehensive income is all changes in stockholders' equity during the period except those resulting from dividends and stockholders' investments. a. True b. False
Q:
Which one of the following statements is correct if a firm has a receivables turnover of 10?
A. It takes the firm 10 days to collect payment from its customers.
B. It takes the firm 36.5 days to sell its inventory and collect the payment from the sale.
C. It takes the firm an average of 36.5 days to sell its items.
D. The firm collects on its sales in an average of 36.5 days.
E. The firm has ten times more in accounts receivable than it does in cash.
Q:
The investor carrying an investment by the equity method records cash dividends received as an increase in the amount of the investment. a. True b. False
Q:
The higher the inventory turnover, the:
A. less time inventory items remain on the shelf.
B. higher the inventory as a percentage of total assets.
C. longer it takes a firm to sell its inventory.
D. greater the amount of inventory held by a firm.
E. lesser the amount of inventory held by a firm.
Q:
Any difference between the fair market values of trading securities and their cost is a realized gain or loss. a. True b. False
Q:
From a cash flow position, which one of the following ratios best measures a firm's ability to pay the interest on its debts?
A. times interest earned ratio
B. cash coverage ratio
C. cash ratio
D. quick ratio
E. interval measure
Q:
Under the equity method, a stock purchase is recorded at its original cost and is not adjusted to fair market value each accounting period. a. True b. False
Q:
A banker considering loaning money to a firm for ten years would most likely prefer the firm have a debt ratio of _______ and a times interest earned ratio of _______.
A. .50; .75
B. .50; 1.00
C. .45; 1.75
D. .40; .75
E. .40; 1.75
Q:
Investments―Bonds is listed on the balance sheet after Bonds Payable. a. True b. False
Q:
The long-term debt ratio is probably of most interest to a firm's:
A. credit customers.
B. employees.
C. suppliers.
D. mortgage holder.
E. stockholders.
Q:
As with other assets, the cost of a bond investment includes all costs related to the purchase. a. True b. False
Q:
A firm has a total debt ratio of .47. This means the firm has 47 cents in debt for every:
A. $1 in total equity.
B. $.53 in total assets.
C. $1 in current assets.
D. $.53 in total equity.
E. $1 in fixed assets.
Q:
When a bond is purchased as an investment, the purchase price, minus the brokerage commission, plus any accrued interest is recorded. a. True b. False
Q:
A supplier, who requires payment within ten days, should be most concerned with which one of the following ratios when granting credit?
A. current
B. cash
C. debt-equity
D. quick
E. total debt
Q:
Comprehensive income does not affect net income or retained earnings. a. True b. False
Q:
An increase in which one of the following accounts increases a firm's current ratio without affecting its quick ratio?
A. accounts payable
B. cash
C. inventory
D. accounts receivable
E. fixed assets
Q:
When a corporation owns less than 20% of the stock of another company, dividends received are not treated as revenue. a. True b. False
Q:
Which one of the following is a liquidity ratio?
A. quick ratio
B. cash coverage ratio
C. total debt ratio
D. EV multiple
E. times interest earned ratio
Q:
Investments in stocks that are expected to be held for the long term are listed in the Stockholders' Equity section of the balance sheet. a. True b. False
Q:
Which one of the following statements is correct concerning ratio analysis?
A. A single ratio is often computed differently by different individuals.
B. Ratios do not address the problem of size differences among firms.
C. Only a very limited number of ratios can be used for analytical purposes.
D. Each ratio has a specific formula that is used consistently by all analysts.
E. Ratios cannot be used for comparison purposes over periods of time.
Q:
Sutton Company purchased 10% of the outstanding stock of Roberts Company on January 1. Roberts reported net income of $155,000 and declared dividends of $40,000 during the year. How would these events be reported by Sutton using the fair value method?
Q:
The external funds needed (EFN) equation projects the addition to retained earnings as:
A. PM Δ Sales.
B. PM Δ Sales (1 - d).
C. PM Projected sales (1 - d).
D. Projected sales (1 - d).
E. PM Projected sales.
Q:
Define debt securities and equity securities. Include their similarities and differences in your discussion.
Q:
The market-to-book ratio is measured as the:
A. market price per share divided by the par value per share.
B. net income per share divided by the market price per share.
C. market price per share divided by the net income per share.
D. market price per share divided by the dividends per share.
E. market value per share divided by the book value per share.
Q:
On January 1, the valuation allowance for available-for-sale investments account had a zero balance. On December 31, the cost of the available-for-sale securities was $48,700, and the fair value was $39,200. Journalize the adjusting entry for the unrealized gain or loss for available-for-sale investments on December 31.
Q:
The amount that investors are willing to pay for each dollar of annual earnings is reflected in the:
A. return on assets.
B. return on equity.
C. debt-equity ratio.
D. price-earnings ratio.
E. DuPont identity.
Q:
Albright Company purchased as a long-term investment $500,000 of Benton Corporation 10-year, 9% bonds. Journalize the following selected transactions:Mar. 1Purchased bonds at their face amount for $500,000.May 1Sold half the bonds at 98 plus accrued interest of $3,750. The broker deducted $200 for brokerage feesand taxes, remitting the balance.
Q:
The financial ratio that measures the accounting profit per dollar of book equity is referred to as the:
A. profit margin.
B. price-earnings ratio.
C. return on equity.
D. equity turnover.
E. market profit-to-book ratio.
Q:
Journalize the entries for the following selected equity investment transactions completed by Perry Company during the current year. Perry accounts for the Dexter Co. investment using the fair value method.Feb. 2Purchased for cash 900 shares of Dexter Co. stock for $54 per share plus a $450 brokerage commission. This represents a less than 10% ownership interest in the company.Apr. 16Received dividends of $0.25 per share on Dexter Co. stock.June 17Sold 200 shares of Dexter Co. stock for $70 per share less a $500 brokerage commission. Aug. 19Purchased 600 shares of Dexter Co. stock for $65 per share plus a $300 brokerage commission.Nov. 14Received dividends of $0.30 per share on Dexter Co. stock.
Q:
The measure of net income returned from every dollar invested in total assets is the:
A. profit margin.
B. return on assets.
C. return on equity.
D. asset turnover.
E. earnings before interest and taxes.
Q:
Discuss the similarities and differences in reporting trading securities, available-for-sale securities, and held-to-maturity securities.
Q:
The financial ratio measured as net income divided by sales is known as the firm's:
A. profit margin.
B. return on assets.
C. return on equity.
D. asset turnover.
E. earnings before interest and taxes.
Q:
Journalize the following transactions for Batson Co.:Sept. 1Batson Co. purchased 1,200 of the 100,000 outstanding shares of Michael Corp. stock for $20.75 pershare plus a $70 commission.Dec. 31Michael Corp.’s total earnings for the period are $84,000. 31Michael Corp. paid a total of $40,000 in cash dividends to shareholders of record.
Q:
Ratios that measure how efficiently a firm's management uses its assets and equity to generate bottom line net income are known as _______ ratios.
A. asset management
B. long-term solvency
C. short-term solvency
D. profitability
E. market value
Q:
Journalize the following transactions for Morgan Co.:July 1Morgan Co. purchased 32,000 of 100,000 outstanding shares of Gordon Corp. stock for $10 per shareplus a $400 commission.Dec. 31Gordon Corp.'s total earnings for the period are $80,000. 31Gordon Corp. paid a total of $45,000 in cash dividends.
Q:
The total asset turnover ratio measures the amount of:
A. total assets needed for every $1 of sales.
B. sales generated by every $1 in total assets.
C. fixed assets required for every $1 of sales.
D. net income generated by every $1 in total assets.
E. net income than can be generated by every $1 of fixed assets.
Q:
On May 1, Knox Inc. purchases $100,000 of 10-year, 6% Madison Corporation bonds dated March 1 at 100 plus accrued interest. Journalize the entry for the bond purchase.
Q:
The receivables turnover ratio is measured as:
A. sales plus accounts receivable.
B. sales divided by accounts receivable.
C. sales minus accounts receivable, divided by sales.
D. accounts receivable times sales.
E. accounts receivable divided by sales.
Q:
On April 1, ValueTime, Inc., had a market price per common share of $24.00. For the previous year, ValueTime paid a dividend of $1.50 per share. Compute the dividend yield for ValueTime, Inc.
Q:
The financial ratio days' sales in inventory is measured as:
A. inventory turnover plus 365 days.
B. inventory times 365 days.
C. inventory plus cost of goods sold, divided by 365 days.
D. 365 days divided by the inventory.
E. 365 days divided by the inventory turnover.
Q:
Pepito Company purchased 40% of the outstanding stock of Reyes Company on January 1. Reyes reported net income of $75,000 and declared dividends of $15,000 during the year. How much would Pepito adjust its investment in Reyes Company under the equity method?
Q:
The inventory turnover ratio is measured as:
A. total sales minus inventory.
B. inventory times total sales.
C. cost of goods sold divided by inventory.
D. inventory divided by cost of goods sold.
E. inventory divided by sales.
Q:
On January 1, the valuation allowance for trading investments account has a zero balance. On December 31, the cost of trading securities portfolio was $64,200, and the fair value was $67,000. Prepare the December 31 adjusting journal entry for the unrealized gain or loss on trading investments.
Q:
Ratios that measure how efficiently a firm uses its assets to generate sales are known as _______ ratios.
A. asset management
B. long-term solvency
C. short-term solvency
D. profitability
E. market value
Q:
Gerardo Company had a net income of $75,000 and other comprehensive income of $12,500 for the year. On January 1, the retained earnings balance was $525,000 and the accumulated other comprehensive income balance was $55,000. Determine the (a) comprehensive income for the year, (b) the retained earnings balance on December 31, and (c) the accumulated other comprehensive income on December 31.
Q:
The equity multiplier is measured as total:
A. equity divided by total assets.
B. equity plus total debt.
C. assets minus total equity, divided by total assets.
D. assets plus total equity, divided by total debt.
E. assets divided by total equity.
Q:
Discuss why companies invest cash in short-term temporary investments versus long-term investments.
Q:
The debt-equity ratio is measured as:
A. total equity divided by long-term debt.
B. total equity divided by total debt.
C. total debt divided by total equity.
D. long-term debt divided by total equity.
E. total assets minus total debt, divided by total equity.
Q:
Nicer Corporation reported net income of $50,000 in the current year. There are 10,000 shares of $100 par, 6% preferred stock and 50,000 shares of $2 par common stock outstanding. During the year, Nicer paid the preferred stockholders a $6-per-share dividend and also paid $30,000 to common shareholders. The market value of Nicer’s preferred stock is $95, and of Nicer’s common stock, $5.a. Compute the dividend yield for Nicer Corporation.b. Why does the dividend yield vary widely across firms?
Q:
Ratios that measure a firm's financial leverage are known as ________ ratios.
A. asset management
B. long-term solvency
C. short-term solvency
D. profitability
E. market value
Q:
On January 2, Todd Company acquired 40% of the outstanding stock of McGuire Company for $205,000. For the year ending December 31, McGuire earned income of $48,000 and paid dividends of $14,000. Journalize the entries for Todd Company for the purchase of the stock, share of McGuire Company income, and dividends received from McGuire Company.
Q:
On October 1, Marcus Corporation purchased $20,000 of 6% bonds of Roberts Corporation due in 8½ years. The bonds were purchased at their face amount plus interest of $400 accrued from July 1, the date of the last semiannual interest payment. Journalize the purchase.
Q:
The quick ratio is measured as:
A. current assets divided by current liabilities.
B. cash on hand plus current liabilities, divided by current assets.
C. current liabilities divided by current assets, plus inventory.
D. current assets minus inventory, divided by current liabilities.
E. current assets minus inventory minus current liabilities.
Q:
Journalize the following selected transactions of Masterson Co.:Aug. 1 Purchased 600 shares of the 100,000 shares outstanding of $10 par common shares of Dankin Corporationfor $5,100. 1 Purchased 3,500 of the 10,000 outstanding common shares of Ramon Co. for $45,700. The investmentwas accounted for by the equity method.Sept. 1 Received a cash dividend of $1 per share on the Dankin Corporation stock acquired on August 1. 1 Received a cash dividend of $2 per share on the Ramon Co. stock acquired on August 1.Dec. 31 Sold 100 shares of the Dankin Corporation shares acquired on August 1 for $2,100. 31 Dankin Corporation reported net income of $30,000 and Ramon Company’s reported net income was $50,000.