Fin 461 Exam 2 – Walker QUESTIONS WITH ANSWERS

Fin 461 Exam 2 – Walker QUESTIONS
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WITH ANSWERS |\




What does the balance sheet summarize for a business
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enterprise? - CORRECT ANSWERS ✔✔Financial position at a point |\ |\ |\ |\ |\ |\ |\ |\ |\


in time
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What is the balancing equation for the balancing equation for the
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balance sheet? - CORRECT ANSWERS ✔✔Assets=Liabilities +
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Stockholders' Equity |\




What is a common size balance sheet? - CORRECT ANSWERS
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✔✔A statement that expresses each account on the balance
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sheet as a percentage of total assets.
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Which of the following assets would be classified as current
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assets on the balance sheet? - CORRECT ANSWERS ✔✔Cash
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equivalents, inventory, prepaid expenses. |\ |\ |\




What items should be calculated when analyzing the accounts
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receivable and allowances for doubtful accounts? - CORRECT
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ANSWERS ✔✔The growth rate of sales, accounts receivable and
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the allowance for doubtful accounts, as well as the percentage of
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the allowance relative to the total or gross accounts receivable.
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What type of firm generally has the highest proportion of
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inventory to total assets? - CORRECT ANSWERS ✔✔Retailers
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, What is the method of valuing inventory important? - CORRECT
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ANSWERS ✔✔The inventory valuation method chosen determines
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the value of inventory on the balance sheet and the costs of
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goods sold expense on the income statement, two items having
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considerable impact on the financial position of the company. |\ |\ |\ |\ |\ |\ |\ |\




What are three major cost flow assumptions used by U.S.
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companies in valuing inventory? - CORRECT ANSWERS ✔✔FIFO,
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LIFO, average cost
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Assuming a period of inflation, which statement is true? -
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CORRECT ANSWERS ✔✔The FIFO method understates the cost of
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goods sold on the income statement.
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Why would a company switch to the LIFO method of inventory
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valuation? - CORRECT ANSWERS ✔✔LIFO produces the largest
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cost of goods sold expense in a period of inflation and thereby
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lowers taxable income and taxes.
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Where can one most typically find the cost flow assumptions
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used for inventory valuation for a specific company? - CORRECT
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ANSWERS ✔✔In the notes to the financial statement
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What type of firm generally has the highest proportion of fixed
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assets to total assets? - CORRECT ANSWERS ✔✔Manufacturers.
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