Question 1. Jones Company has long-term debt of $1,000,000, whereas Smith Company, Jones' competitor, has long-term debt of $200,000. Which of the following statements best represents an analysis of the long-term debt position of these two firms?
- Smith Company's times interest earned should be lower than Jones'.
- Jones obviously has too much debt when compared to its competitor.
- Jones should sell more stock and use less debt.
- There is not enough information to determine if any of the answers is correct.
Question 2. If a parent has some control over a subsidiary but the subsidiary is not consolidated, the subsidiary is accounted for as
- an investment.
- a liability.
- a fixed asset.
- None of the above
Question 3. Which of the following is not true relating to treasury stock?
- Treasury stock may be recorded at par or stated value.
- Treasury stock may be recorded at the cost of the stock.
- Treasury stock is, in essence, an increase in paid-in-capital.
- Treasury stock lowers the stock outstanding.
Question 4. Smith Company had retained earnings of $60,000 at the end of the current year. For the current year, income was $30,000 and dividends were $10,000. What was the balance in retained earnings at the end of the prior year?
- $20,000
- $40,000
- $60,000
- $50,000
Question 5. The most popular depreciation method for financial reporting is
- straight line.
- double declining.
- units of production.
- sum of the years.