If a company purchases $3,200 worth of inventory with terms of 2/10, n/30 on March 3
and pays March 12, then the amount paid to the seller would be
a. $3,136
b. $3,150
c. $3,168
d. $3,200
Which one of the following is not a contra account?
a. Purchase Returns and Allowances
b. Accumulated Depreciation
c. Transportation-in
d. Sales Discounts
Solvency and liquidity differ in a company’s ability
a. to show a profit.
b. to remain in business over a long or short period of time.
c. to collect cash from customers during the short- or long-term.
d. to increase gross profit percentages over long or short periods of time.
Which of the following statements is true regarding horizontal analysis?
a. Horizontal analysis can only be used with balance sheet accounts.
b. Horizontal analysis can only be used with income statement accounts.
c. Horizontal analysis can only be used with retained earnings accounts.
d. Time series analysis is an advanced statistical technique for horizontal analysis.
Match each of the following terms related to interest and time value of money
calculations to their appropriate definition.
a. Time value of money
b. Simple interest
c. Compound interest
d. Future value of a single amount
e. Present value of a single amount
f. Annuity
g. Future value of an annuity
h. Present value of an annuity
Interest calculated on the principal plus previous amounts of interest accumulated.
Recently, companies have been ordered by governmental agencies to clean up
environmental damages caused by business operations. How should costs incurred in
these situations be treated?
a. If a legal obligation exists, the cost of restoring the property must be added to the
asset account.
b. As an expense entirely in one accounting period.
c. As an amortized expense in the period the cost is incurred.
d. Added to the asset, and then depreciated over 15 years.
What happens to the accounting equation when the adjustment that recognizes accrued
interest revenue is recorded?
a. Assets increase and liabilities increase.
b. Assets increase and stockholders’ equity increases.
c. Assets decrease and liabilities decrease.
d. Stockholders’ equity increases and decreases by the same amount.
Which of the following is an example of liquidity analysis?
a. Bonds payable are divided by total liabilities and stockholders’ equity.
b. Net income is divided by total assets.
c. Net income is divided by the number of shares of stock outstanding
d. Current assets are divided by current liabilities.
Karen’s Flower Shop began business as a corporation in 2015. Several transactions
which occurred early in 2015 are described below. Record each transaction in proper
form, excluding written explanations, in the general journal provided. A) January 23,
2015: Stockholders invested cash of $70,000 in the business and received 7,000 shares
common stock as evidence of their ownership interest. B) February 1, 2015: Rent of
$1,600 was paid for the month of February. C) February 7, 2015: Equipment with a cost
of $3,000 was purchased on credit; payment is due within 30 days. D) February 14,
2015: Bills totaling $5,400 were presented to customers for flower arrangements
created and delivered; $2,900 was received in cash immediately; the balance of $2,500
is due within 10 days. E) February 18, 2015: Full payment was made for the equipment
purchased on February 7. F) February 22, 2015: Payment of $1,900 was received from
customers with balances due from February 14. G) February 28, 2015: Employee
salaries of $3,300 were paid.
Which of the following statements regarding leases is false?
a. Lease agreements are a popular form of financing the purchase of assets because
leases do not require a large initial outlay of cash.
b. Accounting recognizes two types of leases–operating and capital leases.
c. If a lessor classifies a lease as a capital lease, then the lessee records a lease liability
on its balance sheet.
d. If a lease is classified as an operating lease, the lessee records a lease liability on its
balance sheet.
Presented below are items from Joplin Shoes statement of cash flows for 2014.
A) Determine whether Joplin Shoes’ cash increased or decreased during the year. B)
How much cash does Joplin Shoes have at the end of 2014? C) What is the purpose of
the statement of cash flows?
The acid-test ratio differs from the current ratio in that it
a. represents the amount of cash on hand instead of the amount of working capital.
b. excludes inventories and accounts receivable from the numerator of the fraction
because of obsolescence and possible nonpayment.
c. is a stricter test of a company’s ability to pay its current debts as they are due.
d. signals the need to liquidate marketable securities when it drops below 5 to 1.
When are revenues and expenses recognized in the same accounting period that cash
receipts and payments occur?
a. Under the cash basis of accounting
b. Under the accrual basis of accounting
c. Under the adjusting method of accounting
d. Under both the cash and accrual bases of accounting
Corrigan Corp. purchased 1,000 shares of Microsoft common stock. What will
determine whether the shares are classified as current assets or noncurrent assets?
Assume that on December 13, 2016, Royal Company sells a computer to Savco Corp. at
an invoice price of $25,000. Because Savco is short of cash, it gives Royal a 90-day,
12% promissory note. [Assume a 360 day year for interest calculations.]
If a company overstates its ending inventory balance for 2015 by $10,000, and
understates its ending inventory balance for 2014 by $5,000 what are the effects on its
net income for 2015 and 2014?
There are very important differences between U.S. and international standards
regarding contingencies. Even the terms used to refer to situations with unknown
outcomes differ. Explain these differences.
Briefly explain what accountants mean when they refer to the double-entry system of
accounting.
What is meant by the concept of “activity” as it relates to turnover ratios? Explain.
Relative to plant assets, how can a company report a net loss for a period, and yet still
have positive cash flows from operating activities?
What two choices must be made in the measurement process for a company that
acquires a piece of equipment and needs to record it in the accounting records? Explain.
Costs incurred after putting the asset into service which would extend the asset’s useful
life
Interest included as part of the acquisition cost of the asset is referred to asof interest.