FINAL EXAM

1. Shareholders of a corporation directly elect:

a. The president of the corporation

b. The board of directors

c. The treasurer of the corporation

d. All the employees of the corporation

2. A corporate charter specifies that the company may sell up to 20 million shares of stock. The company sells

12 million shares to investors and later buys back 3 million shares. The number of issued shares after these

transactions have been accounted for is:

a. 12 million shares

b. 9 million shares

c. 10 million shares

d. 17 million shares

3. A corporate charter specifies that the company may sell up to 20 million shares of stock. The company sells

12 million shares to investors and later buys back 3 million shares. The current number of shares of treasury

stock after these transactions have been accounted for is:

a. 3 million shares

b. 8 million shares

c. 9 million shares

d. 17 million shares

4. A company sells 1 million shares of stock with no par value for $15 a share. In recording the transaction, it

would:

a. debit Cash for $20,000 and credit Common Stock for $20,000.

b. debit Cash for $15 million and credit Common Stock for $15 million

c. debit Cash for $15 million, credit Common Stock for $20,000 and credit Additional Paidin

Capital

for $14,980,000.

d. debit Cash for $20,000, debit Capital Receivable for $14,980,000, credit Common Stock for

$20,000 and credit Additional Paidin

Capital for $14,980,000.

5. Stockholders' equity is

a. the amount the company received for all stock when issued plus the amount of retained earnings

minus treasury stock.

b. the amount the company received for all stock authorized plus the amount of retained earnings

and treasury stock.

c. the par value the company received for all stock issued plus the amount of retained earnings

minus treasury stock.

d. the amount the company received for all stock when issued minus the amount of retained

earnings and treasury stock.

6. GE buys back 300,000 shares of its stock from investors at $45 a share. Two years later it reissues this stock

for $65 a share. The stock reissue would be recorded as:

a. a debit to Cash of $19.5 million and a credit to Treasury Stock of $19.5 million

b. a debit to Cash of $13.5 million, a debit to Additional Paidin

Capital of $6 million, a credit to

Treasury Stock of $13.5 million, and a credit to Stockholders' Equity of $6 million.

c. a debit to Cash of $19.5 million, a credit to Treasury Stock of $13.5 million, and a credit to

Additional Paidin

Capital of $6 million

d. a debit to Cash of $13.5 million, and a debit to Stockholders' Equity of $6 million, a credit to

Treasury Stock of $13.5 million, and a credit to Gain on Sale of $6 million

7. Which of the following statements about dividends is not true?

a. Dividends represent a sharing of corporate profits with owners.

b. Both stock dividends and cash dividends reduce retained earnings

c. Cash dividends paid to stockholders reduce net income

d. Dividends are declared at the discretion of the board of directors.

8. Typically, all other things equal, a profitable company that pays relatively high dividends:

a. is an attractive investment for those seeking income, like retired people

b. will reinvest less profit which can lead to smaller growth potential

c. will experience less growth in stock price over time

d. all of the above

9. The payment date for a dividend is the date on which the company:

a. The payment date for a dividend is the date on which the company:

b. debits Dividend Expense and credits Cash for the dividend amount

c. debits Dividends Payable and credits Cash for the dividend amount

d. establishes who will receive the dividend payment

10. On February 16, a company declares a 34¢ dividend to be paid on April 5. There are 2 million shares of

common stock outstanding and 100,000 shares of treasury stock. What does the company record in

February?

a. A debit to Dividends Payable and a credit to Cash, each for $680,000.

b. A debit to Dividends Declared and a credit to Dividends Payable, each for $646,000

c. A debit to Dividends Payable and a credit to Cash, each for $646,000.

d. A debit to Dividends Declared and a credit to Dividends Payable, each for $680,000.

11. Which of the following statements is true?

a. Stock splits and stock dividends both reduce the market value of a share but only stock splits

reduce the par value of a share.

b. Stock splits and stock dividends both reduce the market value of a share and the par value of a

c. Stock splits and stock dividends both reduce the market value of a share but only stock dividends

reduce the par value of a share.

d. Stock splits and stock dividends both reduce the market value of a share and reduce retained

earnings.

12. Which one of the following events would not require a journal entry on a corporation's

a. 2 for 1 stock split

b. 100% stock dividend

c. 2% stock dividend

d. $1 per share cash dividend

13.

Stock splits and stock dividends have the following effects on retained earnings:

Stock Splits Stock Dividends

A) Increase No change

B) No change Decrease

C) Decrease Decrease

D) No change No change

14. A current dividend preference means that:

a. preferred stockholders are paid dividends before common stockholders are paid dividends.

b. unpaid dividends to preferred stockholders accumulate and must be paid before common

stockholders receive dividends.

c. preferred stockholders are paid their full fixed dividend rate each period as long as the company is

in operation.

d. unpaid cash dividends to preferred stockholders must be replaced with stock dividends during the

current period.

15. A company issues 100,000 shares of preferred stock for $40 a share. The stock has a fixed dividend rate of

5% and a par value of $3 per share. The company records the issuance with a

a. debit of $4 million to Cash and a credit of $4 million to Preferred Stock

b. debit of $300,000 to Cash and a credit of $300,000 to Preferred Stock.

c. debit of $4 million to Cash, a credit of $300,000 to Preferred Stock, and a credit of $3.7 million to

Additional Paidin

Capital.

d. debit of $300,000 to Cash, a debit of $3.7 million to Longterm

Investments, a credit of $300,000

to Preferred Stock, and a credit of $3.7 million to Contributed Capital

16. A company issues 500,000 shares of preferred stock for $30 a share. The stock has a fixed annual dividend

rate of 5% and a par value of $9 per share. The current price of the preferred stock is $32 a share. Preferred

stockholders can anticipate receiving an annual dividend of:

a. 5% of $9 for each share they own.

b. 5% of $30 for each share they own.

c. 5% of $32 for each share they own.

d. 5% of the market value of the stock at the time they purchased it for each share they own.

17. A company has outstanding 9 million shares of $2 par value common stock and 1 million shares of $4 par

value preferred stock. The preferred stock has an 8% dividend rate. The company declares $600,000 in total

dividends for the year. Which of the following is true if dividends in arrears are $30,000?

a. Preferred stockholders will receive $350,000. Common stockholders will receive $250,000

b. Preferred stockholders will receive $60,000. Common stockholders will receive $540,000

c. Preferred stockholders will receive $320,000. Common stockholders will receive $280,000

d. Preferred stockholders will receive $90,000. Common stockholders will receive $510,000

18. In its most basic form, the earnings per share ratio is calculated as

a. dividends paid on common stock divided by the average number of outstanding common shares.

b. net income divided by the average number of outstanding common shares

c. total dividends paid divided by the average number of total stock shares

d. net income divided by average stockholders' equity.

Use the following information to answer the next two questions.

19. A company reported net income of $6 million. During the year the average number of common shares

outstanding was 3 million. The price of a share of common stock at the end of the year was $5. There were

400,000 shares of preferred stock outstanding on average and no dividends were declared.

The EPS is approximately:

a. $.40 b. $1.76 c. $1.86 d. $2.00

20. The Price/Earnings Ratio is approximately:

a. 2 b. 2.5 c. 2.84 d. 12.50

21. The return on equity ratio is calculated as:

a. dividends paid divided by the average book value of stockholders' equity.

b. net income divided by the average number of outstanding common shares

c. dividends divided by the average number of total shares.

d. net income divided by the average stockholders' equity

22. All else equal, when companies make stock repurchases

a. EPS falls, ROE rises

b. EPS rises and ROE stays the same

c. EPS rises and ROE falls

d. EPS and ROE both rise

23. Which of the following statements regarding the capital acquisitions ratio is (are) true?

a. The capital acquisitions ratio is often calculated as an average over a number of years for better

comparison between companies.

b. The calculation of the capital acquisitions ratio uses the cash expenditures for property, plant and

equipment that are reported in the financing activities section of the Statement of Cash Flows.

c. Both A) and B) above are true.

d. Neither A) nor B) above is true

24. Which of the following would be included in the calculation of net cash flows from operating activities?

a. Cash proceeds from sales

b. Cash received from an issuance of bonds

c. Dividends paid to stockholders

d. Cash used to purchases of equipment

25. Which of the following would be included in the calculation of net cash flows from investing activities?

a. Cash proceeds from sales

b. Cash received from an issuance of bonds

c. Dividends paid to stockholders

d. Cash used to purchases of equipment

26. Which of the following would be included in the calculation of net cash flows from financing activities

a. Cash proceeds from sales

b. Cash received from an issuance of bonds

c. Dividends paid to stockholders

d. Cash used to purchases of equipment

27. A change in a company's cash account is equal to the:

a. changes in liabilities and stockholders' equity plus or minus the change in noncash assets.

b. changes in liabilities minus the changes in stockholders' equity and noncash assets.

c. sum of the changes in liabilities, stockholders' equity and noncash assets

d. change in noncash assets minus the changes in liabilities and stockholders' equity.

28. When the indirect method is used, if prepaid expenses fall during the accounting period, the change in

prepaid expenses is:

a. Added to the change in the cash

account

b. Subtracted from net income

c. Added to net income

d. Subtracted from the change in the

cash account

29. The supplies account falls and accounts payable rises during an accounting period. When the indirect

method is used, what does the company do with the changes in these accounts to calculate net cash flows

from operating activities?

a. Both are added to net income

b. The change in accounts payable is added to net income; the change in supplies is subtracted.

c. Both are subtracted from net income.

d. The change in supplies is added to net income; the change in accounts payable is subtracted.

Consider the following information:

Net income $20,000

Depreciation 3,000

Increase (decrease) in accounts

receivable 1,000

Increase (decrease) in prepaid rent (400)

Increase (decrease) in accrued liabilities 900

Cash paid to purchase office equipment 4,000

30. The company would report a net cash inflow from operating activities of:

a. $17,500

b. $18,500

c. $21,500

d. $23,300

31. Almost all U.S. companies use the indirect method of preparing the statement of cash flows:

a. because most users of the financial statements do not understand the direct method.

b. in spite of the Financial Accounting Standard Board's stated preference for the direct method.

c. because it usually requires less space in the annual report.

d. so that stockholders cannot determine how much cash was spent on executives' salaries.

32. Inventory rises and accounts payable rises during the accounting period. When the direct method is used to

determine the net cash flow from operating activities, how would these changes affect cash flow calculations?

a. The changes in each account are both added to net income

b. The change in inventory is subtracted from cost of goods sold and the change in accounts

payable is added to cost of goods sold to find the cash paid to suppliers.

c. The changes in each account are both subtracted from net income.

d. The change in inventory is added to cost of goods sold and the change in accounts payable is

subtracted from cost of goods sold to find the cash paid to suppliers.

33. When a company uses the direct method to determine the net cash flow from operating activities, cash flows

from operating activities will:

a. be identical to the amount reported using the indirect method.

b. be larger if there is a net cash inflow and smaller if there is a net cash outflow compared to the

amount reported using the indirect method.

c. always be larger than the amount reported using the indirect method.

d. be larger if there is a net cash outflow and smaller if there is a net cash inflow compared to the

amount reported using the indirect method.

34. When the direct method is used to determine the net cash flow from operating activities, the following

adjustments must be made to income tax expense to determine total income tax payments:

a. add all changes in income taxes and income taxes payable.

b. add decreases in income taxes payable and subtract increases in income taxes payable.

c. add increases in income taxes payable and subtract decreases in income taxes payable.

d. subtract all changes in income taxes payable

35. Your company owned equipment with a book value of $120,000 that was sold during this accounting period

for $30,500 in cash, and purchased new equipment for $148,000. Your company would record:

a. a credit of $30,500 and a debit of $148,000 to the cash account for a net cash outflow of

$117,500.

b. a debit of $148,000 and a credit of $89,500 to the cash account for a net cash outflow of $58,500.

c. a debit of $30,500 and a credit of $148,000 to the cash account for a net cash outflow of

$117,500.

d. a debit of $89,500 and a credit of $148,000 to the cash account for a net cash outflow of $58,500

36. Cash transactions relating to the purchase and sale of which types of assets affect a company's cash flows

from investing activities?

a. All of a company's assets.

b. All of a company's assets except

inventory.

c. All of a company's noncurrent

assets.

d. Only property, plant and equipment.

37. Which of the following represent cash inflows from financing activities?

a. Issuing stock in exchange for another company's shares

b. Paying a bond's face value at maturity

c. Issuing longterm

bonds at a discount.

d. Receiving interest on promissory notes

38. A company issues $1 million of new stock and pays $200,000 in cash dividends during the year. In addition,

the company took advantage of falling interest rates to borrow $1.5 million in a new bond issue and paid off

existing bonds with a face value of $2 million. The company bought 500 of another company's $1,000 bonds

at a $100,000 premium. The net cash flow from financing activities is:

a. Inflow of $500,000

b. Outflow of $200,000

c. Outflow of $100,000

d. Inflow of $300,000

39. Company X paid Company Y $1.35 million for a new plant. During the same accounting period, Company X

experienced the following changes in its balance sheet: cash fell $350,000, accounts receivable rose

$321,300, inventory rose $275,800, property, plant, and equipment rose $752,900, and bonds payable rose

$1 million. The net cash flow from financing activities is:

a. Inflow of $1.35 million

b. Outflow of $350,000

c. Inflow of $1 million

d. Inflow of $752,900

40. The net cash flow from operating activities is an inflow of $37,042, the net cash flow from investing activities

is an outflow of $16,831, and the net cash flow from financing activities is an outflow of $26,397. If the

beginning cash account balance is $11,283, what is the ending cash account balance?

a. $5,097

b. $

6,186

c. $38,759

d. $27,476

41.

Company X has a capital acquisitions ratio of 1.42 while Company Y has a capital acquisitions ratio of 7.28.

Which of the following could be true?

a. If Company X and Y are in different industries, these ratios may reflect the different production

needs of the industry. The ratio cannot really be compared across industries.

b. Company Y may be more efficient at managing cash flows.

c. Company Y may be lagging in adopting new technology which could hurt future sales.

d. All of the above

42. If a company has a cash coverage ratio of 0.6.

a. the company's cash position must have decreased during the period

b. the company is not able to make interest payments with net cash from operating activities.

c. the company must have a net cash outflow from operating activities

d. 60% of income is generated in cash.

43. In order to calculate the cash coverage ratio, you will need

a. interest expense and income tax expense from the income statement.

b. total net cash flow from the statement of cash flows.

c. interest paid and the income tax paid from the supplementary cash flow information reported on

the statement of cash flows or in the notes to the financial statements.

d. net cash flow from financing activities from the statement of cash flows

44. Which of the following ratios should you use if you want to assess whether a company is generating enough

cash to pay its financing costs?

a. Capital acquisitions ratio

b. Debt to asset ratio

c. Quality of income ratio

d. Cash coverage ratio

45.

If net cash flow from operating activities is unchanged, but net income is rising, the quality of income ratio is:

a. rising, which may signal that revenue is being recorded later and/or expenses earlier than in the

past.

b. falling, which may signal that revenue is being recorded later and/or expenses earlier than in the

past.

c. falling, which may signal that revenue is being recorded earlier and/or expenses later than in the

past.

d. rising, which may signal that revenue is being recorded earlier and/or expenses later than in the

past.

46. Oberlin Co. had sales revenue of $500,000 this year and $400,000 last year. As a consequence, its year over

year percentage change in sales is:

a. 20% b. 25% c. 50% d. 100%

47. The following information comes from the balance sheet and income statement of the Rocket Co. for the

years 2xx9 and 2xx8:

What is the current ratio as of December 31, 2xx9?(remember that property and equipment is not a current

asset)

a. .70 b. 1.43 c. 1.80 d. 3.98

48. What is the net profit margin for the year ended December 31, 2xx9? (this questions is null you cannot find

net income from table)

a. 7.6% b. 11.8% c. 19.4% d. 21.7%

49. What is the times interest earned ratio for the year ended December 31, 2xx9?(also null)

a. 2.2 b. 5.2 c. 6.2 d. 8.0

50. What is the debttoassets

ratio as of December 31, 2xx9?(remember this is TOTAL liabilities over TOTAL

assets)

a. .55 b. .65 c. 1.54 d. 1.80

51. Which ratio is a test of liquidity?

a. Net profit margin

b. Inventory turnover

c. Times interest earned

d. Debt to assets

52. Which ratio is not a test of profitability

a. Gross profit margin

b. Fixed asset turnover

c. Earnings per share

d. Current ratio

53. If a company increases the selling price of the product it sells and all other data on the financial statements

remains the same, which of the following ratios will be unaffected?

a. Fixed asset turnover

b. Net profit margin

c. Inventory turnover

d. Earnings per share