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For each of the accounting treatments below,indicate whether it is followed in GAAP,or IFRS,or both,by placing an "X" in the appropriate column(s).  Accounting Treatment  GAAP  IFRS  1. Record the purchase of assets at cost.  2. Report assets at current value on the balance sheet.  3. May use FIFO for inventory costing.  4. May use LIFO for inventory costing.  5. Contingent liabilities are accrued under specified circumstances.  6. Some preferred stock is classified as a liability.  7. Common stock is classified as stockholders’ equity.  8. Current assets precede noncurrent assets on the balance sheet.  9. Equity precedes liabilities on the balance sheet.  10. Dividends and interest received may be classified as either  operating or investing activities.  11. May use either the direct method or the indirect method to  prepare the statement of cash flows.  12. Different parts of a piece of equipment may be depreciated over  different periods of time (e.g., for a roller coaster, the engine may  be depreciated over 5 years, the seats, over 7 years, and the track  over 10 years). \begin{array} { | l | l | l | } \hline { \text { Accounting Treatment } } & \text { GAAP } & \text { IFRS } \\\hline \text { 1. Record the purchase of assets at cost. } & & \\\hline \text { 2. Report assets at current value on the balance sheet. } & & \\\hline \text { 3. May use FIFO for inventory costing. } & & \\\hline \text { 4. May use LIFO for inventory costing. } & & \\\hline \text { 5. Contingent liabilities are accrued under specified circumstances. } & & \\\hline \text { 6. Some preferred stock is classified as a liability. } & & \\\hline \text { 7. Common stock is classified as stockholders' equity. } & & \\\hline \text { 8. Current assets precede noncurrent assets on the balance sheet. } & & \\\hline \text { 9. Equity precedes liabilities on the balance sheet. } & & \\\hline \text { 10. Dividends and interest received may be classified as either } & & \\\text { operating or investing activities. } & & \\\hline \begin{array} { l } \text { 11. May use either the direct method or the indirect method to } \\\text { prepare the statement of cash flows. }\end{array} & & \\\hline \begin{array} { l } \text { 12. Different parts of a piece of equipment may be depreciated over } \\\text { different periods of time (e.g., for a roller coaster, the engine may } \\\text { be depreciated over } 5 \text { years, the seats, over } 7 \text { years, and the track } \\\text { over } 10 \text { years). }\end{array} & & \\\hline\end{array}

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Which of these are liquidity ratios?


A) Net profit margin
B) Receivables turnover
C) Fixed asset turnover
D) Times interest earned

E) All of the above
F) A) and B)

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The objectives of both IFRS and US GAAP objectives are to provide information that is:


A) historical and conservative.
B) relevant and faithfully represented.
C) consistent and conservative.
D) reliable and historically based.

E) None of the above
F) B) and C)

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The higher the times interest earned ratio,the greater the risk of nonpayment of interest.

A) True
B) False

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Which of the following is calculated by dividing net income by revenues?


A) Gross profit margin
B) Current ratio
C) Net profit margin
D) Asset turnover

E) C) and D)
F) All of the above

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During the current accounting period,revenue from credit sales is $536,800.The Accounts Receivable balance is $41,184 at the beginning of the period and $41,760 at the end of the period.Which of the following statements is correct?


A) The receivables turnover ratio is 12.9.
B) On average,it takes 12.9 days to collect payment from credit customers.
C) The receivables turnover ratio is 28.3.
D) On average,the company sells its inventory every 28.3 days.

E) All of the above
F) A) and B)

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Which of the following is not a similarity of GAAP and IFRS?


A) They both generally require that an exchange take place before a transaction is recorded.
B) They both promote information that is relevant and that faithfully represents the underlying transactions.
C) They both include rules about recognition,classification,and measurement of transactions.
D) They both allow fixed assets to be reported at fair values.

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

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Often loan agreements require the borrower to comply with certain requirements,such as maintaining a particular current ratio or limiting future borrowing.To decide if a company has complied with its loan covenants,a creditor would look at the company's:


A) financial statements.
B) chart of accounts.
C) bank statements.
D) charter.

E) B) and D)
F) A) and B)

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The ratio that measures the company's ability to meet required interest payments is the:


A) Debt-to-equity ratio.
B) Current ratio.
C) Price/Earnings ratio.
D) Times interest earned ratio.

E) C) and D)
F) None of the above

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Which of the following is calculated by dividing net revenue by average net fixed assets?


A) Net profit margin
B) Fixed asset turnover
C) Total asset turnover
D) Current ratio

E) B) and C)
F) None of the above

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Which of the following ratios does not use net income in its calculation?


A) Net profit margin
B) Earnings per share
C) Return on equity
D) Fixed asset turnover

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

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Which of the following ratios is a solvency ratio?


A) Net profit margin ratio
B) Current ratio
C) Fixed asset turnover ratio
D) Debt-to-assets ratio

E) None of the above
F) A) and B)

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The following information is taken from the financial statements of Clybourn Company for the current year:  Current Assets $32,000 Total Assets 1,424,000 Cost of Goods Sold 1,040,000 Gross Profit 320,000 Net Income 192,000\begin{array}{lr}\text { Current Assets } & \$ 32,000 \\\text { Total Assets } & 1,424,000 \\\text { Cost of Goods Sold } & 1,040,000 \\\text { Gross Profit } & 320,000 \\\text { Net Income } & 192,000\end{array} The gross profit percentage for the current year rounded to the nearest whole percent is closest to:


A) 24%.
B) 76%.
C) 60%.
D) 31%.

E) All of the above
F) B) and D)

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Which ratio is a test of liquidity?


A) Net profit margin
B) Inventory turnover
C) Times interest earned
D) Debt-to-assets

E) None of the above
F) B) and D)

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Lyndale,Inc.'s sales are $513,000 and $360,000 during the current and prior years,respectively.The percentage change is:


A) 42.5%.
B) 70%.
C) 29.8%.
D) 130%.

E) All of the above
F) A) and B)

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Match each term with the appropriate definition.Not all definitions will be used. -Ratio Analysis


A) Also known as time-series analysis.
B) The ability of a company to meet its short-run financial obligations.
C) The standard that companies should present all relevant information needed to interpret a company's financial position and performance.
D) A measure of current earnings performance.
E) Measures that relate financial variables reported in one or more of the financial statements from the same year.
F) A type of analysis that focuses on relationships within a single financial statement.
G) A result from comparing a company's results to other companies in the industry.
H) The standard that revenue should be recorded when earned,provided payment is reasonably expected.
I) A measure of long-run survivability.
J) The standard that expenses should be recognized when incurred.
K) The characteristic that financial information needs to be valuable to decision makers.
L) The standard that takes for granted a company's near term financial survival.

M) F) and H)
N) D) and I)

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Match each term with the appropriate definition.Not all definitions will be used. -Price/Earnings Ratio


A) The practice of reporting information in percentages rather than monetary amounts.
B) A nonrecurring item on the income statement that reflects gains and losses associated with extraordinary events.
C) Another name for a trend analysis.
D) An increase in an asset or a decrease in a liability that results from peripheral activities.
E) A section of the annual report that can be used in interpreting the results of financial statement analysis.
F) The ratio calculated by dividing the price of a share of stock by the earnings per share.
G) After-tax earnings adjusted for gains and losses that may disappear before they are realized.
H) A nonrecurring item associated with abandoning or selling an operation.
I) The practice of reporting accounting data in the national monetary unit.
J) Also known as ratio analysis.
K) The ratio calculated by dividing the net income by the number of common shares outstanding.
L) The earnings of a company after taxes.

M) E) and G)
N) A) and B)

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Which of the following is a profitability measure?


A) Net income ÷ Revenues
B) Total assets ÷ Total stockholders' equity
C) Total liabilities ÷ Total stockholders' equity
D) Cost of goods sold ÷ Average inventory

E) All of the above
F) A) and B)

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The following information is taken from the financial statements of B.Darin Company:  Net sales revenue $900,000 Expenses 600,000 Net income 300,000 Net cash from operations 290,000 Assets, end of current year 600,000 Liabilitics, end of current year 100,000 Stockholders’ equity, end of current year 500,000 Assets, end of previous year 590,000 Stockholders’ equity, end of previous year 490,000\begin{array} { l r } \text { Net sales revenue } & \$ 900,000 \\\text { Expenses } & 600,000 \\\text { Net income } & 300,000 \\\text { Net cash from operations } & 290,000 \\\text { Assets, end of current year } & 600,000 \\\text { Liabilitics, end of current year } & 100,000 \\\text { Stockholders' equity, end of current year } & 500,000 \\\text { Assets, end of previous year } & 590,000 \\\text { Stockholders' equity, end of previous year } & 490,000\end{array} Expenses include interest of $10,000 and income tax of $90,000.There was an average of 40,000 shares of common stock outstanding during the year and the market price of the stock is $15 per share at the end of the year.There was no preferred stock outstanding during the year. Required: Calculate the following ratios for the current year: Part a.Fixed asset turnover Part b.Return on equity (ROE) Part c.Earnings per share (EPS) Part d.Times interest earned Part e.Price/Earnings ratio Part f.Debt-to-assets ratio Part g.Net profit margin

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Part a
Average total assets = ($600,000 ...

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Which of the following statements about liquidity and solvency ratios is correct?


A) Unlike solvency ratios,liquidity ratios relate to the company's long-run survival.
B) Both liquidity ratios and solvency ratios measure a company's ability to meet its financial obligations.
C) Liquidity ratios include the return on equity ratio and the times interest earned ratio.
D) Solvency ratios include the current ratio and the net profit margin ratio.

E) A) and D)
F) C) and D)

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