D103 Intermediate Accounting I - Set 2 - Part 2

Correct Answer: Long-term investments

Cash equivalents are investments that can quickly be turned into cash, typically with a maturity of three months or less.

Correct Answer: Debit Cost of Goods Sold; Credit Inventory

This entry reflects the loss of inventory, transferring the value to the cost of goods sold for financial reporting.

Correct Answer: Debt-to-equity ratio

The current ratio measures a companys ability to cover its short-term liabilities with its short-term assets.

Correct Answer: Inefficient collection of receivables

A high turnover ratio means that a company is collecting its receivables quickly and efficiently.

Correct Answer: Economic entity assumption

The consistency principle ensures that the same accounting methods are applied throughout financial reporting periods.

Correct Answer: Ignore them in financial statements

Adjusting the allowance for doubtful accounts reflects the estimated uncollectible amounts on the balance sheet.

Correct Answer: Total revenues minus total liabilities

Net income represents the profit of a company after deducting all expenses from total revenues.

Correct Answer: Debit Prepaid Expense; Credit Cash

This entry recognizes the expense incurred as a result of consuming a prepaid asset during the period.

Correct Answer: The total liabilities of a company

Capital stock reflects the equity ownership in the company, providing shareholders with rights to vote and receive dividends.

Correct Answer: Balance Sheet

The income statement summarizes revenues and expenses, resulting in net income or loss for a specific period.

Correct Answer: The decrease in value of an asset over time

Depreciation allocates the cost of tangible assets over their useful lives, reflecting the asset's loss of value.

Correct Answer: Straight-line method

The straight-line method spreads the cost of an asset evenly over its useful life.

Correct Answer: To prepare financial statements

An auditor reviews financial statements to ensure compliance with accounting principles and the truthfulness of financial reporting.

Correct Answer: The reputation of a company

Goodwill arises when a company acquires another for more than the fair value of its net identifiable assets, reflecting the value of its brand and customer relationships.

Correct Answer: Total liabilities / Total assets

The debt-to-equity ratio measures a company's financial leverage, indicating the proportion of debt to equity financing.

Correct Answer: To report cash flows during a period

The statement of stockholders' equity details changes in equity accounts over a reporting period, including new stock issues and dividend payments.

Correct Answer: Borrowing funds

Paying suppliers represents a cash outflow as it reduces the company's cash balance.

Correct Answer: An obligation that has been settled

A contingent liability is a potential obligation that depends on future events, such as pending litigation outcomes.

Correct Answer: Assets are reported at their market value

The cost principle dictates that assets be recorded at their original purchase price, providing reliability in financial reporting.

Correct Answer: FIFO

Different methods, including FIFO (First-In, First-Out), LIFO (Last-In, First-Out), and weighted average cost, can be used to value inventory.