1. Retained earnings generally consist of a company's cumulative net income less any net losses and dividends declared since its inception.

   True

   False

2.8 points

Question 2

1. Mutual agency means

   		Creditors can apply their claims to partners' personal assets.
   		Partners are taxed on partnership withdrawals.
   		All partners must agree before the partnership can act.
   		The partnership has a limited life.
   		A partner can commit or bind the partnership in any contract within the scope of the partnership business.

2.8 points

Question 3

1. Partners in a partnership are taxed on the amounts they withdraw from the partnership, not the partnership income.

   True

   False

2.8 points

Question 4

1. The contract between the bond issuer and the bondholders, which identifies the rights and obligations of the parties, is called a(n):

   		Debenture.
   		Bond indenture.
   		Mortgage.
   		Installment note.
   		Mortgage contract.

2.8 points

Question 5

1. A company issued 60 shares of $100 par value common stock for $7,000 cash. The journal entry to record the issuance is:

   		Debit to Cash $7,000 and credit to Common Stock $7,000
   		Debit to Investment in Common Stock $7,000 and credit to Cash $7,000
   		Debit to Cash $7,000, credit to Common Stock $6,000, and credit to Paid in Capital in excess of par value, common stock $1,000
   		Debit to Cash $7,000, credit to Paid in Capital in excess of par value $6,000, and credit to Common Stock $1,000

2.8 points

Question 6

1. The price-earnings ratio is calculated by dividing:

   		Market value per share by earnings per share.
   		Earnings per share by market value per share.
   		Dividends per share by earnings per share.
   		Dividends per share by market value per share.
   		Market value per share by dividends per share.

2.8 points

Question 7

1. The Statement of Cash Flows reports:

   		Assets, liabilities, and equity
   		Revenues, gains, expenses and losses
   		Cash inflows and cash outflows for an accounting period
   		Equity, net income and dividends

2.8 points

Question 8

1. A company's sales in Year 1 were $250,000 and in Year 2 were $287,500. Using Year 1 as the base year, the sales trend percent for Year 2 is:

   		87%.
   		100%.
   		115%.
   		15%.
   		13%.

2.8 points

Question 9

1. A disadvantage of bonds is:

   		Bonds require payment of periodic interest.
   		Bonds require payment of par value at maturity.
   		Bonds can decrease return on equity.
   		Bond payments can be burdensome when income and cash flow are low.
   		All of these.

2.8 points

Question 10

1. The going concern assumption supports the reporting of plant assets at book value rather than market value.

   True

   False

2.8 points

Question 11

1. When a bond sells at a premium:

   		The contract rate is above the market rate.
   		The contract rate is equal to the market rate.
   		The contract rate is below the market rate.
   		It means that the bond is a zero coupon bond.
   		The bond pays no interest.

2.8 points

Question 12

1. Comprehensive income includes

   		Revenues and expenses reported in the income statement.
   		Gains and losses reported in the income statement.
   		Unrealized gains and losses on long-term available-for-sale securities.
   		All changes in equity for a period except those due to investments and distributions to owners.
   		All of these.

2.8 points

Question 13

1. A company purchased $60,000 of 5% bonds on May 1 at par value. The bonds pay interest on February 1 and August 1. The amount of interest accrued on December 31 (the company's year-end) would be:

   		$250.
   		$500.
   		$1,250.
   		$2,500.
   		$3,000.

2.8 points

Question 14

1. A partnership is an unincorporated association of two or more people to pursue a business for profit as co-owners.

   True

   False

2.8 points

Question 15

1. Financing activities include receiving cash dividends from investments in other companies' stocks.

   True

   False

2.8 points

Question 16

1. Employer payroll taxes:

   		Are an added expense beyond the wages and salaries earned by employees.
   		Represent the federal taxes withheld from employees.
   		Represent the social security taxes withheld from employees.
   		Are paid by the employee.
   		All of these.

2.8 points

Question 17

1. The Discount on Bonds Payable account is:

   		A liability.
   		A contra liability.
   		An expense.
   		A contra expense.
   		A contra equity.

2.8 points

Question 18

1. The board of directors of a corporation:

   		Are elected by the corporate registrar.
   		Are responsible for day-to-day operations of the business.
   		Do not have the power to bind the corporation to contracts, due to lack of mutual agency.
   		May not also be executive officers of the corporation, due to the separate entity principle.
   		Are responsible for and have final authority for managing corporate activities.

2.8 points

Question 19

1. The measurement of key relations among financial statement items is known as:

   		Financial reporting.
   		Horizontal analysis.
   		Investment analysis.
   		Ratio analysis.
   		Risk analysis.

2.8 points

Question 20

1. The Modified Accelerated Cost Recovery System (MACRS) is part of the U.S. federal income tax laws and is used for tax reporting.

   True

   False

2.8 points

Question 21

1. Total asset turnover is calculated by dividing:

   		Gross profit by average total assets.
   		Average total assets by gross profit.
   		Net sales by average total assets.
   		Average total assets by net sales.
   		Net assets by total assets.

2.8 points

Question 22

1. When using the indirect method to calculate and report the net cash provided or used by operating activities, net income is adjusted for:

   		Gains and losses from nonoperating items.
   		Revenues and expenses that did not provide or use cash.
   		Changes in noncash current assets and current liabilities related to operating activities.
   		Changes in current liabilities related to operating activities.
   		All of these.

2.8 points

Question 23

1. The direct method of reporting operating cash flows:

   		Is recommended but not required by the FASB.
   		Must be used by all companies.
   		Is used by most companies.
   		Is considered supplementary disclosure.
   		Is not recommended by the FASB, but is commonly used.

2.8 points

Question 24

1. The full disclosure principle requires the reporting of contingent liabilities that are reasonably possible.

   True

   False

2.8 points

Question 25

1. Quick assets divided by current liabilities is the:

   		Acid-test ratio.
   		Current ratio.
   		Working capital ratio.
   		Current liability turnover ratio.
   		Quick asset turnover ratio.

1. 26.Explainhowtocalculatetotalassetturnover.Describewhatitrevealsaboutacompany'sfinancialcondition,whetherahigherorlowerratioisdesirable,andhowitisbestappliedforcomparativepurposes.

27.Explain the impact, if any, on depreciation when estimates that determine depreciation change.

28.A company had a market price of $46.99 per share, earnings per share of $1.27, and dividends per share of $0.40. What is the company's price-earnings ratio?

2