On a firm's income statement, sales minus cost of goods sold, minus selling, general, and administrative expenses, is most appropriately referred to as:

Which of the following transactions increases contributed capital on the balance sheet but does not increase shareholders’ equity?

Declaring a stock dividend.

Declaring a stock dividend decreases retained earnings and increases contributed capital by the same amount, leaving total shareholders' equity unchanged. Issuing preferred stock increases both contributed capital and shareholders’ equity. Increasing authorized shares does not increase contributed capital and shareholders’ equity until the additional shares are issued.

Mullins Company's financial statements include an auditor's report with a qualified opinion. This most likely implies that the:

financial statements include exceptions to the applicable accounting standards but are presented fairly.

An auditor will issue a qualified opinion if the financial statements include exceptions to applicable accounting standards and will explain the nature and effect of these exceptions. An auditor will issue an adverse opinion if the financial statements are not presented fairly

Core Corp. has an inventory with a carrying value of $12,000. Using the data given below, calculate the current value of inventory after adjustments if Core reports under GAAP.
Selling price: $8,000
Selling cost: $1,500
Normal profit: $2,000
Replacement cost: $6,500

$6,500

Under US GAAP, the inventory is written down if the carrying value of inventory is above the replacement cost, but the replacement cost cannot be greater than the Net Realizable Value (Selling price – Selling cost) or lower than NRV minus Normal profit.
The replacement cost is $6,500 which is also equal to NRV (8,000 – 1,500).
Since the carrying value of inventory is $12,000, the inventory will be written down to the replacement cost of $6,500.

Other things equal, which of the following conditions would place a company highest on a spectrum of financial reporting quality?

Reported earnings that are not sustainable.

Earnings quality may be low in a period because of one-time gains that do not otherwise call a company's financial reporting quality into question. Earnings smoothing or reporting that does not comply with generally accepted accounting principles represents a lower quality of financial reporting.

Forman Inc. and Swoft Inc. both operate within the same industry. Forman's stated strategy is to differentiate its premium products relative to its competitors, while Swoft is a low-cost producer. Given the companies' stated strategies, Forman most likely has:

higher gross margins relative to Swoft.

An analyst can use the historical trend in a firm's financial ratios as well as an industry relative comparison to assess the firm's business strategy. A firm producing premium products with a strategy of differentiation should have higher gross margins, higher advertising expenses, and higher research and development expenses relative to firms in its industry that pursue a low-cost-of-production strategy.

Which of the following statements is most accurate under IFRS?

Any changes in accounting estimates are applied prospectively.

Changes in accounting estimates are applied prospectively, while changes in accounting principles are applied retrospectively.

Books Forever, Inc., uses short-term bank debt to buy inventory. Assuming an initial current ratio that is greater than 1, and an initial quick (or acid test) ratio that is less than 1, what is the effect of these transactions on the current ratio and the quick ratio?

Both ratios will decrease.

1212As an example, start with CA = 2, CL = 1, and Inv = 1.2. We begin with a current ratio of 2 and a quick ratio of 0.8. If the firm increases short-term bank debt (a current liability) by 1 to buy inventory (a current asset) of 1, both the numerator and denominator increase by 1, resulting in 3/2 =1.5 (new current ratio) and

Which of the following statements about revenue recognition methods is most accurate?

The percentage of completion method recognizes profit corresponding to the costs incurred as a proportion of estimated total costs.

The description of the percentage-of-completion method is accurate. The completed contract method under U.S. GAAP recognizes revenue only when the entire project is complete. The installment method recognizes profit in proportion to cash collected.

A classified balance sheet categorizes assets and liabilities based on whether they are:

current or non-current items.

Classified balance sheets have categories for current assets, non-current assets, current liabilities, and non-current liabilities

Which of the following is least likely regarding the perpetual and periodic inventory accounting systems:

If a company uses the weighted-average cost method, COGS and EI are the same as under FIFO if the periodic inventory system.

• If a company uses FIFO, COGS and EI are the same under the periodic and perpetual inventory systems.
• If a company uses separate identification, COGS and EI are the same under the periodic and perpetual inventory systems.
• If a company uses AVCO:
COGS and EI have similar values as their values under FIFO if the perpetual inventory system.
COGS and EI are different from their value under FIFO if the periodic inventory system.

From the point of view of a financial analyst, when evaluating companies that use different inventory cost assumptions, in a period of:

decreasing prices, FIFO inventory is preferred to LIFO inventory.

The most useful estimates of inventory and cost of sales are those that best approximate current cost. Whether prices are increasing or decreasing, FIFO provides a better estimate of inventory values, and LIFO provides a better estimate of cost of sales. If prices are stable, there is no difference between LIFO and FIFO estimates of inventory or cost of sales.

Which of the following statements about cash flow is least accurate? Under U.S. GAAP, cash flow from:

investing includes interest income from investment in debt securities.

Interest income is considered an operating cash flow under U.S. GAAP.

In accrual accounting, the matching principle states that:

expenses incurred to generate revenue are recognized in the same time period as the revenue.

The matching principle holds that expenses should be accounted for in the same performance measurement period as the revenue they generate.

A company purchases an asset in the first quarter and decides to capitalize the asset. Compared to expensing the asset cost, capitalizing the asset cost will result in higher cash flows in the first quarter from:

operations.

Capitalizing the cost of the asset results in higher CFO and lower CFI in the period of the purchase, compared to expensing the entire cost. If the cost is expensed, the cash outflow is classified as CFO, but if the asset is capitalized, the cash outflow is classified as CFI. Cash flow from financing is not affected by the decision to capitalize.

On a firm's income statement, sales minus cost of goods sold, minus selling, general, and administrative expenses, is most appropriately referred to as:

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