1) all of the following are true regarding financial statement analysis ratios associated
with liabilities except
a.a high times interest earned ratio indicates that a company is more likely to meet
interest payments as scheduled
b.high liquidity ratios mean that lines of credit should be high to compensate
c.if a company’s current ratio is lower than the industry average, then it may lack
liquidity
d.unrecorded obligations causing sizeable differences between liquidity and solvency
ratios can be ignored
2) the adjusted trial balance of masters company includes the following balance sheet
accounts that frequently require adjustment. for each account, indicate (a) the type of
adjusting entry (prepaid expenses, unearned revenues, accrued revenues, or accrued
expenses) and (b) the related account in the adjusting entry.
3) an account will have a credit balance if the
a.credits exceed the debits.
b.first transaction entered was a credit.
c.debits exceed the credits.
d.last transaction entered was a credit.
4) when a seller records a return of goods, the account that is credited is
a.sales revenue
b.sales returns and allowances
c.merchandise inventory
d.accounts receivable
5) what is the total stockholders equity based on the following account balances?
a.$650,000
b.$625,000
c.$600,000
d.$450,000
6) the following data are taken from the financial statements of rosen, inc. as of the
end of the year 2012. the data are in alphabetical order.
accounts payable$ 28,000net income$ 48,000
accounts receivable66,000other current liabilities17,000
cash44,000total assets250,000
gross profit160,000total liabilities150,000
income before income taxes54,000wages payable5,000
additional information: the average common shares outstanding during the year was
40,000.
instructions
compute the following:
(a)current ratio.(c)earnings per share.
(b)working capital.(d)debts to total assets ratio.
7) the hartman boat company’s bank statement for the month of november showed a
balance per bank of $7,000. the company’s cash account in the general ledger had a
balance of $5,659 at november 30. other information is as follows:
(1)cash receipts for november 30 recorded on the company’s books were $5,200 but this
amount does not appear on the bank statement.
(2)the bank statement shows a debit memorandum for $40 for check printing charges.
(3)check no. 119 payable to maris company was recorded in the cash payments journal
and cleared the bank for $248. a review of the accounts payable subsidiary ledger
shows a $36 credit balance in the account of maris company and that the payment to
them should have been for $284.
(4)the total amount of checks still outstanding at november 30 amounted to $5,800.
(5)check no. 138 was correctly written and paid by the bank for $409. the cash payment
journal reflects an entry for check no. 138 as a debit to accounts payable and a credit to
cash in bank for $490.
(6)the bank returned an nsf check from a customer for $560.
(7)the bank included a credit memorandum for $1,260 which represents collection of a
customer’s note by the bank for the company; principal amount of the note was $1,200
and interest was $60. interest has not been accrued.
instructions
(a)prepare a bank reconciliation for the hartman boat company at november 30.
(b)prepare any adjusting entries necessary as a result of the bank reconciliation.
8) dobson inc. earns $900,000 and pays cash dividends for $300,000 during 2012.
cornwell corporation owns 70,000 of the 210,000 outstanding shares of dobson. how
much revenue from investment should cornwell report in 2012?
a.$100,000
b.$200,000
c.$300,000
d.$400,000
9) if common stock is issued for an amount greater than par value, the excess should be
credited to
a.cash
b.retained earnings
c.paid-in capital in excess of par value
d.legal capital
10) many companies use just-in-time inventory methods. which of the following is not
an advantage of this method?
a.it limits the risk of having obsolete items in inventory
b.companies may not have quantities to meet customer demand
c.it lowers inventory levels and costs
d.companies can respond to individual customer requests
11) in performing a vertical analysis, the base for sales returns and allowances is
a.sales
b.sales discounts
c.net sales
d.total revenues
12) on january 1, 2012, cummings industries had cash and common stock of $180,000.
at that date the company had no other asset, liability or equity balances. on january 2,
2012, it purchased $60,000 of equity securities for cash that it classified as
available-for-sale. it received cash dividends of $9,000 during the year on these
securities. in addition, it had an unrealized holding gain on these securities of $15,000
net of tax. based on this information, what is the amount of comprehensive income in
2012?
a.$24,000
b.$264,000
c.$9,000
d.$96,000
13) a corporation purchases 30,000 shares of its own $20 par common stock for $35 per
share, recording it at cost. what will be the effect on total stockholders equity?
a.increase by $1,050,000
b.decrease by $600,000
c.decrease by $1,050,000
d.decrease by $600,000
14) if a purchaser using a perpetual inventory system pays the transportation costs, then
the
a.inventory account is increased
b.inventory account is not affected
c.freight-out account is increased
d.delivery expense account is increased
15) pine hardware store had net credit sales of $4,225,000 and cost of goods sold of
$3,000,000 for the year. the accounts receivable balances at the beginning and end of
the year were $600,000 and $700,000, respectively. the receivables turnover ratio was
a.5.6 times
b.6.5 times
c.4.6 times
d.6 times
16) short-term investments should be valued on the balance sheet at
a.the lower of cost or fair value
b.the higher of cost or fair value
c.cost
d.fair value
17) ashleys accessory shop started the year with total assets of $70,000 and total
liabilities of $40,000. during the year the business recorded $110,000 in revenues,
$55,000 in expenses, and dividends of $20,000. the net income reported by ashleys
accessory shop for the year was
a.$40,000
b.$50,000
c.$65,000
d.$55,000