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Exam 2: A Further Look at Financial Statements

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Question 31

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The debt to assets ratio measures the percentage of assets financed by creditors.

A) True
B) False

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Question 32

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Dividends appear on

A) the retained earnings statement only.
B) the income statement only.
C) both the retained earnings statement and the balance sheet.
D) the balance sheet only.

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

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Question 33

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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?

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?

Relevance and faithful representation are the fundamental qualities of useful information. (a) Briefly define each term. (b) Why are these characteristics important to users of financial statements?

For accounting information to have relevance, it must be

The chief financial officer (CFO) of SuperClean Corporation requested that the accounting department prepare a preliminary balance sheet on December 30, 2014, so that the CFO could get an idea of how the company stood. He knows that certain debt agreements with its creditors require the company to maintain a current ration of at least 2:1. The preliminary balance sheet is as follows. Instructions (a) Calculate the current ratio and working capital based on the preliminary balance sheet. (b) Based in the results in (a), the CFO requested that $20,000 of cash be used to pay off the balance of the accounts payable account on December 31, 2014. Calculate the new current ratio and working capital after the company takes these actions.

Relevant accounting information

Mitchell Corporation has current assets of $1,600,000 million and current liabilities of $750,000. If they pay $250,000 of their accounts payable what will their new current ratio be?

The monetary unit assumption states that transactions that can be measured in terms of money should be recorded in the accounting records.

These items are taken from the financial statements of Donovan Company. at December 31, 2014. $\begin{array}{lr}\text { Buildings } & \$ 95,800 \\\text { Accounts receivable } & 15,600 \\\text { Prepaid insurance } & 4,680 \\\text { Cash } & 18,840 \\\text { Equipment } & 79,400 \\\text { Land } & 61,200 \\\text { Insurance expense } & 780 \\\text { Depreciation expense } & 7,300 \\\text { Interest expense } & 2,600 \\\text { Common stock } & 57,000 \\\text { Retained earnings (January 1, 2014) } & 40,000 \\\text { Accumulated depreciation-buildings } & 45,600 \\\text { Accounts payable } & 15,500 \\\text { Mortgage payable } & 88,600 \\\text { Accumulated depreciation-equipment } & 18,720 \\\text { Interest payable } & 3,600 \\\text { Service revenue } & 17,180\end{array}$ Instructions Prepare a classified balance sheet. Assume that $13,600 of the mortgage payable will be paid in 2015.

Free cash flow is Net cash provided by operating activities less dividends.

The following information is available for Bradshaw Corporation and Newell Corporation: $\begin{array} { | l | c | c | c | c | } \hline { \text { (in millions) } } &{ \text { Bradshaw Corporation } } & { \text { Newell Corporation } } \\\hline & 2014 & 2013 & 2014 & 2013 \\\hline \text { Preferred dividends } & 25 & 10 & 0 & 30 \\\hline \text { Net income } & 500 & 480 & 490 & 520 \\\hline \begin{array} { l } \text { Shares outstanding at the } \\\text { end of the year }\end{array} & 200 & 180 & 150 & 200 \\\hline \begin{array} { l } \text { Shares outstanding at the } \\\text { beginning of the year }\end{array} & 180 & 150 & 200 & 220 \\\hline\end{array}$ Based on this information, the earnings per share calculations (rounded to two decimals) suggest

The quality of consistency enhances

A short-term creditor is primarily interested in the __________ of the borrower.

Earnings available to common stockholders is equal to

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 build up. Which of the following statements is true?

Revenues have the effect of increasing retained earnings.

Earnings per share is calculated by dividing net income minus preferred stock dividends for the period by the average number of common shares outstanding during the period.

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