QUESTION: 1789

The relationship of the total debt to the total equity of a firm is a measure of ________.

liquidity
creditor risk
none of these answers
profitability
solvency

Answer(s): B

Explanation:

The ratio of total debt to total equity is a measure of risk to creditors because it helps in evaluating a company's relative reliance on debt and equity financing.

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QUESTION: 1790

What entity is presently responsible for establishing accounting standards?

The Financial Accounting Standards Board.
The FDA.
The Securities and Exchange Commission.
The Internal Revenue Service.
The Federal Accounting Society Board of Directors

Answer(s): A

Explanation:

The Financial Accounting Standards Board.

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QUESTION: 1791

Materiality is one of the pervasive concepts in financial accounting. Which of the following statements is true with regard to materiality?

Relevant items are very material.
Materiality judgments generally may be made without consideration of the magnitude of the item involved.
None of these answers.
The nature and magnitude of an item as well as the circumstances in which the judgment has to be made are integral aspects of a materiality judgment.
Materiality judgments generally may be based solely on the magnitude of the item.

Answer(s): D

Explanation:

The basis for a materiality judgment is generally not sufficient unless the nature of the item, the circumstances in which the judgment has to be made, and the magnitude of the item are all considered.

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QUESTION: 1792

At December 31, 1995, Del Monte Co. had the following balances in the accounts it maintains at Royal Street Bank:

Checking account #101 $175,000
Checking account #102 $(10,000)
Money market account $25,000
90-day certificate of deposit due 2/28/96 $50,000
180-day certificate of deposit due 3/15/96 $80,000

Del Monte classifies investments with original maturities of 3 months or less as cash equivalents. In its December 31, 1995 balance sheet, what amount should Del Monte report as cash and cash equivalents?

$240,000
$190,000
$320,000
$165,000
$200,000

Answer(s): A

Explanation:

Cash consists of coins, currency on hand, checking accounts (demand deposits), certificates of deposit (time deposits) and near-cash assets (money market accounts). Cash equivalents are limited to investments with original maturities to the holding entity of 3 months or less. As a result, cash and cash equivalents will be $240,000 ($175,000 - 10,000 + 25,000 + 50,000).

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QUESTION: 1789

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QUESTION: 1790

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QUESTION: 1791

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QUESTION: 1792

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