Multiple Choice Answers

Suppose that Morgan Corporation produced and sold 4,800 laptop computers during 2010. It reported $250,000 cash provided by operating activities. In order to maintain production at 4,800 laptops, Morgan invested in $8,600 in equipment. Morgan paid $1,400 in dividends. What is Morgan’s free cash flow?
A) $240,000
B) $260,000
C) $257,000
D) $250,000

On a classified balance sheet, marketable securities are classified as
A) an intangible asset.
B) property, plant, and equipment.
C) a current asset.
D) a long-term investment.

What organization issues U.S. accounting standards?
A) Security Exchange Commission.
B) International Accounting Standards Committee.
C) International Auditing Standards Committee.
D) Financial Accounting Standards Board.

A liability is classified as a current liability if it is to be paid within the coming year.
A) True
B) False

Wilton Corporation had beginning retained earnings of $764,000 and ending retained earnings of $833,000. During the year they issued common stock totaling $47,000. What was their net income for the year?
A) $69,000
B) $22,000
C) $116,000
D) $91,000

In order for information to be relevant, it must be reported on a monthly basis.
A) True
B) False

Which of the following statements is not true?
A) Comparability means using the same accounting principles from year to year within a company.
B) Reliability is the quality of information that gives assurance that it is free of error or bias.
C) Relevant accounting information must be capable of making a difference in the decision.
D) The FASB’s overriding criterion is that the accounting rule adopted should be the one that generates the most useful financial information for making a decision.

If accounting information has relevance, it is useful in making predictions about
A) future IRS audits.
B) new accounting principles.
C) foreign currency exchange rates.
D) the future events of a company.

Which of the following is a constraint in accounting?
A) Comparability
B) Conservatism
C) Consistency
D) Relevance

Working capital is
A) calculated by dividing current assets by current liabilities.
B) used to evaluate a company’s liquidity and short-term debt paying ability.
C) used to evaluate a company’s solvency and long-term debt paying ability.
D) calculated by subtracting current assets from current liabilities.
Which of the following is not an alternative means of expressing ratio relationships?
A) proportion
B) qualitative
C) rate
D) percentage

Free cash flow is cash from operations less dividends.
A) True
B) False

The statement of cash flows begins with cash flows from
A) financing activities.
B) investing activities.
C) operating activities.
D) solvent activities.

Dawson Corporation has the following information available for 2009:
Based on this information, what is Dawson’s Retained Earnings balance at the end of the year?
A) $630
B) $480
C) $370
D) $555
In 2010 Grider Corporation had cash receipts of $21,000 and cash disbursements of $12,000. Grider’s ending cash balance at December 31, 2010 was $33,000. What was Grider’s beginning cash balance?
A) $24,000
B) $30,000
C) $45,000
D) $42,000
The following information is available for Bradshaw Corporation and Newell Corporation:
Based on this information, which of the following is suggested by the earnings per share calculations (rounded to two decimals) and the information given?
A) There is lower performance in 2009 than in 2010 for Newell Corporation.
B) There is higher performance in 2009 than in 2010 for Newell Corporation.
C) There are fewer earnings available to Newell’s common stockholders in 2010 than in 2009.
D) There is a decrease in preferred shares of stock in 2010 as compared with 2009.

Accounting information should be verifiable in order to enhance
A) comparability.
B) reliability.
C) consistency.
D) relevance.

Which of the following is not classified properly as a current asset?
A) Supplies
B) Marketable securities
C) A fund to be used to purchase a building within the next year
D) A receivable from the sale of an asset to be collected in two years

Use the following data to determine the total amount of working capital.
A) $155,000.
B) $145,000.
C) $60,000.
D) $150,000

When preparing financial statements, the accountant assumes that the business will stay in business for the foreseeable future.
A) True
B) False