49) Which of the following is the result of the maker of a promissory note failing to pay the note on the
due date?
A) a discounted note
B) a depreciated note
C) an amortized note
D) a dishonored note
50) On January 1, Southwest Corp. accepted a one-year note for $70,000 at 5% from one of its customers.
When the note matured on December 31, the customer was unable to pay, and the company recorded the
dishonor. The amount of the debit recorded on December 31 is ________.
A) $66,500
B) $3,500
C) $70,000
D) $73,500
51) Which of the following would be included in the entry by the payee to record a dishonored note
receivable?
A) a debit to Accounts Receivable
B) a debit to Interest Revenue
C) a debit to Notes Receivable
D) a credit to Interest Expense
52) If the maker of a note does not pay at maturity, ________.
A) the debtor no longer owes the payee
B) interest revenue cannot be accrued on the note before the maturity date
C) the note is no longer in force because it has expired
D) the Accounts Receivable account increases for the amount of the note’s principal only
53) On January 1, Cooper Corp. accepted a one-year note for $5,000 at 4% from one of its customers.
When the note matured on December 31, the customer was unable to pay, and the company treated it as a
dishonored note. Prepare the journal entry that Cooper will make to record the dishonored note. Omit
explanation.
1) A company’s liquidity can be evaluated by analyzing the company‘s current assets.
2) Some companies promote and issue their own private label credit cards.
3) A company’s liquidity can be evaluated using all of the following ratios except ________.
A) Return on assets ratio
B) Acid-test ratio
C) Accounts receivable turnover
D) Days’ sales in receivables
4) Which of the following accounts would NOT appear on the financial statements of a retailer that does
not issue its own private label credit card?
A) Merchandise Inventory
B) Cash and Cash Equivalents
C) Merchandise Sales
D) Credit Card Receivable
5) The acid-test ratio is also known as the quick ratio.
6) The higher the acid-test ratio, the less able the business is to pay its current liabilities.
7) The acid-test ratio is a more stringent measure of liquidity than the cash ratio.
8) An acid-test ratio of 1.0 is considered safer than a ratio of 0.50.
9) Which of the following is included in the numerator of the acid-test ratio?
A) cash including cash equivalents, inventory, short-term investments, net current receivables
B) accounts receivable and inventory
C) cash including cash equivalents, short-term investments, net current receivables
D) total current assets
10) Which of the following is included in the denominator of the acid-test ratio?
A) total current liabilities less accounts payable
B) total liabilities
C) total current liabilities
D) total current assets
11) Use the following to calculate the acid–test ratio. (Round your answer to two decimal places.)
Cash
$130,000
Short-term investments
15,000
Net current receivables
280,000
Inventory
280,000
Total current liabilities
790,000
A) 0.73
B) 8.67
C) 0.89
D) 0.54
12) What is the acid-test ratio for a merchant with the following account balances? (Round your answer to
two decimal places.)
Cash
$25,000
Short-term investments
43,000
Net current receivables
54,000
Merchandise inventory
92,000
Total current liabilities
279,000
A) 0.77
B) 0.44
C) 0.61
D) 0.84
13) Which of the following is true of the acid-test ratio?
A) It measures a company’s ability to pay its current liabilities.
B) It measures the ability of the company to earn net income.
C) It measures a company‘s ability to meet its short-term obligations with cash and cash equivalents.
D) It indicates how much cash could be realized by selling the inventory.
14) Wentwood Clothing Store reported the following selected items at June 30, 2019 (previous year – 2018
– amounts are also given as needed):
Cash
$ 80,000
Accounts Receivable, net:
June 30, 2019
June 30, 2018
45,000
53,000
Accounts Payable
55,000
Cost of Goods Sold
288,000
Merchandise Inventory
June 30, 2019
June 30, 2018
70,000
90,000
Net Credit Sales Revenue
480,000
Long-Term Assets
220,000
Long-Term Liabilities
140,000
Other Current Assets
150,000
Other Current Liabilities
130,000
Short-term Investments
40,000
Compute Wentwood’s acid-test ratio on June 30, 2019. Show your computations. Round the answer to 2
decimal places.
15) Accounts Receivable are generally reported at the gross amount on the balance sheet.
16) The accounts receivable turnover ratio indicates whether a company could pay all its current
liabilities if they were to become due immediately.
17) The accounts receivable turnover ratio is computed by dividing net credit sales by ending net
accounts receivable.
18) The number of times a company collects the average accounts receivable balance in a year is known as
the accounts receivable turnover ratio.