Reference no: EM132604789

Problem 1: Trading on the equity (leverage) refers to the

Option 1: amount of working capital.

Option 2: amount of capital provided by owners.

Option 3: use of borrowed money to increase the return to owners.

Option 4: number of times interest is earned.

Problem 2: What is total stockholders' equity given the following information?

Capital stock, $5 par, 20,000 shares authorized,

5,000 shares issued and 4,800 shares outstanding: $25,000

Paid-in-capital-in-excess of par: $12,000

Treasury stock (200 shares): $3,000

Retained earnings: $70,000

Option 1: $80,000.

Option 2: $110,000

Option 3: $104,000.

Option 4: $107,000

Problem 3: The reason(s) why the direct write-off method for uncollectible accounts is not acceptable for financial reporting is that:

I. The bad debt expense is recorded in a different period than when sales revenue was recorded.

II. The accounts receivable balance in the balance sheet does not reflect the amount expected to be received (net realizable (cash) value).

Option 1: I only

Option 2: II only

Option 3: Both I and II

Option 4: Neither I nor II

Problem 4: Which situation below might raise concerns about a company's quality of earnings?

Option 1: The same accounting principles are used from year to year.

Option 2: Repair costs are capitalized and then depreciated over five years

Option 3: Revenue is recognized when performance obligations are satisfied.

Option 4: The financial statements are prepared in accordance with U.S. generally accepted accounting principles.

Problem 5: Entity I incurred various costs regarding its delivery truck which it purchased two years ago. For the cost that follows, indicate the proper treatment of the cost for financial accounting purposes: A lift ($4,500) was added to the rear of the truck so as to make food deliveries faster.

Option 1: Capitalized

Option 2: Expensed

Option 3: Ignored