Question 1

Beck Company owns a 60 percent interest in Subsidiary Company.For the year ended December 31,2016,the net income of Beck Company was $80 and the net income of Subsidiary Company was $10.What is the balance in the Noncontrolling Interests account on the consolidated income statement for the year ending December 31,2016?

Accepted Answer

A)  $0
B)  $4
C)  $6
D)  $48 B

Question 2

All other things equal,a higher current ratio indicates that ________.

Accepted Answer

A)  a company has excess cash to pay liabilities
B)  a short-term creditor is likely to be paid in full and on time
C)  a company's long-term debt is coming due within the next year
D)  a company's short-term debt is coming due within the next year B

Question 3

Comparing a company's debt-to-equity ratio for 2010 to the debt-to-equity ratios for 2010 from other companies in the same industry is called a(n)________.

Accepted Answer

A)  time-series comparison
B)  benchmark comparison
C)  cross-sectional comparison
D)  industry standard comparison C

Question 4

In accordance with Generally Accepted Accounting Principles in the United States,the ________ must be reported on the financial statements.

Accepted Answer

A)  price-earnings ratio
B)  dividend payout ratio
C)  earnings per share
D)  dividend yield ratio

Question 5

The Today Company reports the following information:  What is the dividend payout for the year ended December 31,2012?

Accepted Answer

A)  6.7%
B)  9.7%
C)  65.8%
D)  68.5%

Question 6

Rocky Company acquired 40% of the voting stock of Boulder Company for $40 million.At the end of Year 1,Boulder Company reports net income of $15 million and pays cash dividends of $5 million.At the end of Year 1,the market value of Rocky Company's investment in Boulder Company is $44 million.At the time of the acquisition,what accounts would be affected on the books of Rocky Company?

Accepted Answer

A)  Cash decrease $40 million and Investments increase $40 million
B)  Cash decrease $40 million and Stockholders' Equity increase $40 million
C)  Investments increase $40 million and Accounts Payable increase $40 million
D)  No entry

Question 7

Under the equity method of accounting for investments,the acquisition cost of an investment is adjusted for ________.

Accepted Answer

A)  dividends received only
B)  investor's share of earnings or losses of investee after investment date only
C)  changes in market value of investment
D)  dividends received and investor's share of earnings or losses of investee after investment date

Question 8

In an efficient capital market,the appropriate investment strategy is risk control,________ and ________.

Accepted Answer

A)  low diversification; high turnover of securities
B)  low diversification; low turnover of securities
C)  high diversification; high turnover of securities
D)  high diversification; low turnover of securities

Question 9

Mussa Company has the following income statement for the year ending December 31,2016:  Operating expenses:
 If Mussa Company prepares a common size income statement,what will they report for Wage expense?

Accepted Answer

A)  9.8%
B)  10.2%
C)  34.4%
D)  66.1%

Question 10

Changes in the market value of trading securities are reflected in the ________ account.Changes in the market value of available-for-sale securities are reflected in the ________ account.

Accepted Answer

A)  equity in earnings of investment; retained earnings
B)  retained earnings; equity in earnings of investment
C)  retained earnings; other comprehensive income or loss
D)  other comprehensive income or loss; retained earnings

Question 11

Vince Company purchased common stock in Sanchez Company.During the current year,Sanchez Company earned $4,000,000 and paid dividends of $1,000,000.Assume that Vince Company owns 30% of the outstanding shares of Sanchez Company.Sanchez Company's dividend will affect Vince Company by ________.

Accepted Answer

A)  increasing cash and stockholders' equity by $300,000
B)  increasing investments and stockholders' equity by $300,000
C)  increasing cash and decreasing investments by $300,000
D)  increasing cash and increasing investments by $300,000

Question 12

To prepare common size income statements,percentages for line items are usually based on ________.To prepare common size balance sheets,percentages for line items are usually based on ________.

Accepted Answer

A)  net income; total stockholders' equity
B)  net operating profit; total stockholders' equity
C)  sales; total assets
D)  expenses; total liabilities

Question 13

Herman Company acquired 10 percent of the voting stock of Hudson Company for $10 million.Herman Company plans to keep the investment for several years.At the end of Year 1,Hudson Company reports net income of $15 million and pays cash dividends of $5 million.At the end of Year 1,the market value of Herman Company's investment in Hudson Company is $11 million.What entry is necessary at the end of Year 1 to account for the change in market value of Herman Company's investment in Hudson Company?

Accepted Answer

A)  No entry is needed.
B)  Cash increases $11 million and Stockholders' equity increases $11 million.
C)  Investments increase $11 million and Stockholders' equity increases $11 million.
D)  Investments increase $1 million and Stockholders' equity increases $1 million.

Question 14

Hull Company has the following income statement for the year ending December 31,2016:  Operating expenses:
 If Hull Company prepares a common size income statement,what will they report for Rent expense?

Accepted Answer

A)  2.3%
B)  4.3%
C)  4.4%
D)  6.1%

Question 15

In an efficient capital market,the role of accounting information is to ________.

Accepted Answer

A)  help investors find underpriced securities
B)  help investors find overpriced securities
C)  help investors find low risk securities
D)  help investors identify the different degrees of risk among different securities

Question 16

Comparing a company's current ratio today with the same company's current ratio for the past ten years is called a(n)________.

Accepted Answer

A)  cross-sectional comparison
B)  benchmark comparison
C)  industry comparison
D)  time-series comparison

Question 17

Investments acquired with the intent to resell them in the near future are called trading securities.

Accepted Answer

A) True 
 B)False

Question 18

The following information is available for the Tomorrow Company:  What is the return on stockholders' equity for the year ended December 31,2009?

Accepted Answer

A)  24.1%
B)  27.1%
C)  52.0%
D)  55.4%

Question 19

To compare companies that differ in size,analysts use ________.

Accepted Answer

A)  MD&A
B)  10-K filings with the Securities and Exchange Commission
C)  common size financial statements
D)  the market-value method for investments

Question 20

Elimination entries avoid double-counting assets,liabilities and stockholders' equity on the consolidated financial statements.

Accepted Answer

A) True 
 B)False

Exam 17: Understanding and Analyzing Consolidated Financial Statements

All other things equal,a higher current ratio indicates that ________.

Comparing a company's debt-to-equity ratio for 2010 to the debt-to-equity ratios for 2010 from other companies in the same industry is called a(n) ________.

In accordance with Generally Accepted Accounting Principles in the United States,the ________ must be reported on the financial statements.

The Today Company reports the following information: What is the dividend payout for the year ended December 31,2012?

Under the equity method of accounting for investments,the acquisition cost of an investment is adjusted for ________.

In an efficient capital market,the appropriate investment strategy is risk control, and .

Mussa Company has the following income statement for the year ending December 31,2016: Operating expenses: If Mussa Company prepares a common size income statement,what will they report for Wage expense?

Changes in the market value of trading securities are reflected in the account.Changes in the market value of available-for-sale securities are reflected in the account.

Vince Company purchased common stock in Sanchez Company.During the current year,Sanchez Company earned $4,000,000 and paid dividends of $1,000,000.Assume that Vince Company owns 30% of the outstanding shares of Sanchez Company.Sanchez Company's dividend will affect Vince Company by ________.

To prepare common size income statements,percentages for line items are usually based on .To prepare common size balance sheets,percentages for line items are usually based on .

Hull Company has the following income statement for the year ending December 31,2016: Operating expenses: If Hull Company prepares a common size income statement,what will they report for Rent expense?

In an efficient capital market,the role of accounting information is to ________.

Comparing a company's current ratio today with the same company's current ratio for the past ten years is called a(n) ________.

Investments acquired with the intent to resell them in the near future are called trading securities.

The following information is available for the Tomorrow Company: What is the return on stockholders' equity for the year ended December 31,2009?

To compare companies that differ in size,analysts use ________.

Elimination entries avoid double-counting assets,liabilities and stockholders' equity on the consolidated financial statements.