Q: Which formula correctly calculates Basic Earnings Per Share (EPS)?

$$ \frac{\text{Net Income} - \text{Preferred Dividends}}{\text{Weighted Avg. \# of Common Shares}} $$

Q: Which of the following is the correct formula for the Debt to Equity ratio?

$$ \frac{\text{Total Debt}}{\text{Total Equity}} $$

Question 1

Which of the following best describes the 'carrying amount' of Property, Plant, and Equipment (PPE)?

Accepted Answer

The original cost of PPE minus accumulated depreciation.

Question 2

A company has Current Assets of $$120,000 and Current Liabilities of 80$$,000. What is its Current Ratio?

Accepted Answer

$$ \frac{120,000}{80,000} = 1.5 $$

Question 3

Which of the following is NOT considered a qualitative characteristic of financial information?

Accepted Answer

Profitability

Question 4

If a company’s Debt to Total Assets ratio increases, what does this most likely indicate?

Accepted Answer

The company is financing more of its assets with debt, increasing financial risk.

Question 5

Which formula correctly calculates Basic Earnings Per Share (EPS)?

Accepted Answer

$$ \frac{	ext{Net Income} - 	ext{Preferred Dividends}}{	ext{Weighted Avg. \# of Common Shares}} $$

Question 6

Which of the following accounts is classified as a non-current liability?

Accepted Answer

Long-term debt

Question 7

A company’s working capital is negative. What does this imply?

Accepted Answer

The company may struggle to meet its short-term obligations.

Question 8

Which of the following is the correct formula for the Debt to Equity ratio?

Accepted Answer

$$ \frac{	ext{Total Debt}}{	ext{Total Equity}} $$

Question 9

Which of the following is an example of a qualitative characteristic that enhances the usefulness of financial information?

Accepted Answer

Comparability

Question 10

A company purchases equipment for $$50,000. After 3 years, accumulated depreciation is 15$$,000. What is the carrying amount?

Accepted Answer

$$ 50,000 - 15,000 = 35,000 $$

Question 11

Which of the following best describes the objective of financial accounting?

Accepted Answer

To provide useful financial information to existing and potential investors, creditors, and other users for decision making.

Question 12

Which of the following is NOT a component of the operating cycle?

Accepted Answer

Issuing shares to investors

Question 13

If a company’s Price Earnings (PE) Ratio is significantly higher than the industry average, what might this indicate?

Accepted Answer

The market expects higher future growth from the company.

Question 14

Which of the following is a limitation of the current ratio as a measure of liquidity?

Accepted Answer

It does not consider the timing of cash flows or the quality of current assets.

Question 15

Which measurement basis is defined as the amount for which an asset could be exchanged between knowledgeable, willing parties in an arm’s length transaction?

Accepted Answer

Fair value

Question 16

Which of the following is NOT a fundamental qualitative characteristic of financial information?

Accepted Answer

Profitability

Question 17

A company has total liabilities of $$200,000 and total assets of 500$$,000. What is its Debt to Total Assets ratio?

Accepted Answer

$$ \frac{200,000}{500,000} = 0.4 $$

Question 18

Which of the following is an example of a cost constraint in financial reporting?

Accepted Answer

The cost of providing information should not exceed the benefits derived from its use.

Question 19

Which of the following is a purpose of the conceptual framework in accounting?

Accepted Answer

To provide consistent principles for preparing and presenting financial statements.

Question 20

Which of the following is a limitation of using historical cost as a measurement basis?

Accepted Answer

It may not reflect the current market value of assets.

Financial Accounting: Chapter 3 – Financial Statement Elements, Ratio Analysis, and Conceptual Framework

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