Exam 2: Financial Statements and the Annual Report

For which of the following is the current ratio most useful?

If the current ratio is 2.5 to 1,net income is $6,000,and current liabilities are $18,000,how much is working capital?

There is a standard threshold for materiality set by the Financial Accounting Standards Board for all companies.

Obligations related to operating activities that will be paid within the company's operating cycle must be reported as current liabilities on a classified balance sheet.

Presented below are items from Joplin Shoes' statement of cash flows for 2017. ​ Cash flows provided by operating activities \ 75,000 Cash flows provided by financing activities 115,000 Cash at the beginning of the year 60,000 Cash flows used by investing activities (100,000) A)Determine whether Joplin Shoes' cash increased or decreased during the year. B)How much cash does Joplin Shoes have at the end of 2016? C)What is the purpose of the statement of cash flows?

Which of the following is not an objective of financial reporting?

Oreo Company has current assets of $20,000,current liabilities of $8,000,and long-term liabilities of $3,000.Oreo wants to buy new equipment.How much of its existing cash can Oreo use to acquire equipment without allowing its current ratio to decline below 2.0 to 1?

The preparation of financial statements requires that the information be understandable

Fasoli,Inc. The following balance sheet items from Fasoli,Inc.are listed for December 31,2017: Accounts payable \ 32,650 Interest payable 2,200 Accounts receivable 26,500 Land 250,000 Accumulated depreciation-buildings 40,000 Marketable securities 15,000 Merchandise inventory 112,900 Accumulated depreciation-equipment 12,500 Notes payable, due April 15, 2018 6,500 Office supplies 200 Notes payable, due December 31,2021 251,630 Paid-in capital in excess of par value 75,000 Buil dings 150,000 Patents 45,000 Capital stock, \ 1 par value 200,000 Prepaid rent 3,800 Cash 60,990 Retained earnings 113,510 Equipment 84,500 Salaries payable 7,400 Income taxes payable 7,500 -Read the information about Fasoli,Inc. Required Prepare the Assets section of the classified balance sheet.

Income from operations does not include interest revenue and interest expense because these items are considered to be non-operating in nature.

If an investor can use accounting information for two different companies to evaluate the types and amounts of expenses,the information is said to have the quality of

Burke Company The following income statement items are taken from the records of Burke Company for the year ended December 31,2017: ​ Advertising expense \ 2,600 Commission expense 3,515 Cost of goods sold 29,200 Depreciation expense-o ffice buil ding 4,000 Income tax expense 190 Insurance expense-sales person's auto 3,350 Interest expense 1,400 Interest revenue 2,340 Rent revenue 7,700 Sal aries and wages expense-office 13,660 Sales revenue 50,300 Supplies expense-office 1,990 ​ -Read the information about Burke Company. ​ Required Prepare a multiple-step income statement for the year ended December 31,2017.

An advantage of the current ratio is that it considers the makeup of the current assets.

Independent auditors (CPAs)render an opinion that the financial statements do or do not fairly present a company's financial position,operating results,and cash flows.

Which of the following statements is true concerning external users of financial information?

The quality of accounting information that allows a user to compare two or more accounting periods for a single company is known as consistency.

Potential stockholders and lenders are interested in a company's financial statements.Several financial statement items appear below.Answer the questions that follow. ​ Accounts receivable Accounts payable Advertising expense Cash Depreciation expense Income taxes Common stock Land held for future expansion Dividends Retained earnings Loss on the sale of equipment Service revenue Office supplies Patent amortization expense Sales Unearned revenue Utilities expense A) Which two items would stockholders be most interested in that can either be computed from the above data or are included in the items listed above? Explain why the two you selected are important to stockholders. B) In which one item would lenders be most interested? Expl ain why this item is important.

Marvel Shoes Marvel Shoes reported the following items on its statement of cash flows for the current year: ​ Net cash inflows from operating activities \ 70,000 Net cash out flows from investing activities (20,000) Net cash outflows from financing activities (40,000) Cash balance at the beginning of the year 30,000 ​ -Read the information about Marvel Shoes.What was the cash balance for Marvel Shoes at the end of the current year?

Which one of the following is a financing activity of a business?

Harrison Company calculated the following amounts concerning its financial information for the years ending December 31,2018 and 2017: ​ 2018 2017 Current ratio 3.1 to 1 2.0 to 1 Profit margin 22\% 18\% Required: Examine Harrison's ratios.Is the change in the current ratio favorable or not? Explain.