A company has $200 in cash, $500 in accounts receivable, and $700 in inventory. If
current liabilities are $400, then the current ratio would be
a. 1.75 to 1
b. 2.25 to 1
c. 3.00 to 1
d. 3.50 to 1
A company issued 4,000 shares of $5 par common stock for $30 per share. The
company purchased 1,200 shares as treasury stock at $32 per share. Later, the company
reissued 400 shares of the treasury stock at $34 per share. Which of the following is
true?
a. The Treasury Stock account should have a balance of $24,800.
b. The company has a gain of $800 that should appear on the income statement.
c. The Treasury Stock account should have a balance of $25,600.
d. The company has a gain of $1,600 that should appear on the income statement.
Park, Inc. purchased merchandise from Jay Zee Music Company on June 5, 2015. The
goods were shipped the same day. The merchandise’s selling price was $15,000. The
credit terms were 1/10, n/30. The shipping terms were FOB shipping point. Park
received the merchandise on June 10, 2015. Park paid the amount due on June 13, 2015.
Park uses a perpetual inventory system. When will the cost of merchandise sold be
recorded as an expense?
a. The date the merchandise was purchased
b. The date the merchandise is sold
c. The end of the accounting period
d. Cannot be determined without further information
What type of account is increased with a debit but is a decrease to retained earnings?
a. Liability
b. Asset
c. Revenue
d. Expense
What is the impact on the cash flow statement from a decrease in accounts receivable,
assuming the indirect method is used?
a. A decrease in the cash flow from operating activities
b. An increase in the cash flow from operating activities
c. An increase in the cash flow from financing activities
d. None. A decrease in accounts receivable has an impact only if the direct method is
used
Sarbanes-Oxley requires that the audit committee be composed of
a. At least 50% of key officers who are on the board of directors
b. A majority of all of the members of the board of directors
c. The outside members of the board of directors and the external auditor
d. Entirely outside members of the board of directors
Accounts receivable are shown on the balance sheet at their net realizable amount.
a. True
b. False
From the list of accounts below, determine whether the account would be a nominal
account or a real account.
a. nominal account
b. real account
Sales Revenue
Use the following codes to indicate how the cash flow effect, if any, of each transaction
or event would be reported on a statement of cash flows if the operating activities
section is prepared using the indirect method.
a. Operating activity-add to net income
b. Operating activity-deduct from net income
c. Inflow from investing activity
d. Outflow from investing activity
e. Inflow from financing activity
f. Outflow from financing activity
g. Noncash investing and financing activity
h. Not reported on statement of cash flows
Issued twenty-year bonds.
Ending inventory is equal to the cost of items on hand plus
a. merchandise in transit sold to customers FOB shipping point.
b. merchandise in transit sold to customers FOB destination.
c. the cost of all inventory purchased during the period.
d. merchandise purchased in transit with terms FOB destination.
Choose from the following list of account titles the one that most accurately fits the des
cription of that account or is an example of that account.An account title may be used m
ore than once or not at all.
a. Cash
b. Prepaid Asset
c. Investments
d. Taxes Payable
e. Preferred Stock
f. Accounts Receivable
g. Land
h. Accounts Payable
i. Retained Earnings
j. Notes Receivable
k. Buildings
l. Notes Payable
m. Common Stock
Ownership in a company that allows the owner to receive dividends before common
shareholders receive any distributions
Genuine Parts received a promissory note from a customer on March 1, 2015. The face
amount of the note is $8,000; the terms are 90 days and 9% interest. At the maturity
date, the customer pays the amount due for the note and interest. What entry is required
on the books of Genuine Parts on the maturity date assuming none of the interest had
already been recognized?
a. Increase Cash, $8,000, and decrease Notes Receivable $8,000
b. Increase Cash, $8,180, increase Interest Revenue, $180, and decrease Notes
Receivable, $8,000
c. Increase Cash $8,720, decrease Notes Receivable $8,000, and increase Interest
Revenue, $720
d. No entry is required; the customer pays the amount due to the bank
Which of the following statements is true?
a. The return on assets ratio indicates whether the company can pay its current debt
when it becomes due.
b. The causes for an increase or decrease in the return on assets ratio can be examined
by calculating its two components: return on sales and asset turnover.
c. If a company successfully applies leverage, its return on assets ratio will be greater
than its return on common stockholders’ equity ratio.
d. If a company’s return on assets ratio increases, the increase can be the result of
decreased liquidity.
All of the following are advantages available to companies if a single set of accounting
standards were used except :
a. A single set of worldwide accounting standards would have no effect on accounting
fee costs.
b. A single set of standards would make it much easier to decide whether to acquire a
foreign company.
c. A single set of worldwide accounting standards would facilitate comparisons for
investment purposes.
d. A single set of worldwide accounting standards would make it easier to access
foreign capital markets
Grand Stores, Inc. is concerned about its profitability for the current year, since its
profit margin has dropped 10% since last year. Which of the following is the least
useful comparison in evaluating the drop in Grand Stores’ profit margin?
a. Comparison with the industry average for the current year
b. Comparison with its current ratio for the current year
c. Comparison with the profit margins for its major competitors for the current year
d. Comparison with its profit margins for the past five years
Comfort Shoes received a promissory note from a customer on April 1, 2014. The face
amount of the note is $2,000; the terms are 12 months and 8% annual interest. At the
maturity date, the customer pays for the note and interest. Comfort Shoes made the
proper adjustment at the end of December for interest. The effect of recognizing the
transaction on the maturity date is
a. A decrease to Cash
b. An increase to Notes Receivable
c. An increase to Discount on Notes Receivable
d. A decrease to Notes Receivable
Match each of the following terms pertaining to liabilities to their definitions.
a. Current liability
b. Accounts payable
c. Notes payable
d. Discount on notes payable
e. Current maturities of long-term liabilities
f. Accrued liabilities
g. Contingent liability
h. Estimated liability
A contra-liability account that represents interest deducted from a loan or note in
advance.
Several items from the financial statements of Standard Tires are listed below. Use the f
ollowing answer choices to identify the type of accountf
or each item listed. Place your answers in the space provided.
a. Assets
b. Liabilities
c. Revenues
d. Expenses
e. Owners’ equity Cash
Grain Company sells a product for $760. When the customer buys it, Grain provides a
one-year warranty. Grain sold 1,500 products during 2015. Based on analysis of past
warranty records, Grain estimates that repairs will average 6% of total sales.
REQUIRED: 1> Prepare the journal entry to record the estimated liability.
2> Assume that during 2015, products under warranty must be repaired using repair
parts from inventory costing $49,600. Prepare the journal entry to record the repair of
products.
3> Assume that the balance of the Estimated Liabilities for Warranties account as of the
beginning of 2015 was $1,700. Calculate the balance of the account as of the end of
2015.
Ultra-lite Corp. began operations on January 1, 2015. The statement of cash flows for
the first year reported dividends paid of $180,000. The balance sheet at the end of the
first year reported $60,000 in dividends payable and $600,000 in ending retained
earnings. Determine UltraÂlite’s net income for its first year of operations.
Giant-Mart purchased a big shipment of shoes from Right Balance, Inc. on credit near
the end of its accounting period. Right Balance shipped the shoes in January and
Giant-Mart received the shoes in February. Assume that GiantÂMart’s accounting
period ends on January 31, while Right Balance’s accounting period ends on May 31.
REQUIRED : If the shoes are shipped FOB destination, who will pay the freight costs?
If the shoes are shipped FOB shipping point, who will pay the freight costs?
Body Sports is a surf shop owned by Chris, Nicole, and Dan in partnership. On January
1, 2015, their capital balances were as follows:
During 2015, Chris withdrew $10,000; Nicole, $20,000; and Dan, $15,000. Income for
the partnership for 2015 was $75,000. REQUIRED: If the partners agreed to allocate
income equally, what was the ending balance in each of their capital accounts on
December 31, 2015?
When comparing U.S. GAAP and IFRS, regarding the level of details in the standards
and the level of disclosure required, which of the following is correct?
What situations could cause a decrease in the current ratio, but an increase in the
acid-test ratio? If this happens, is management to be commended or is a problem
evident? Explain
A(n)creates an increase in income for the period.
Under the accrual basis of accounting, at what point in time should a publisher of
magazines record revenue?
______________________________
, or an increase in the level of prices, is another important consideration in analyzing
financial statements.
Grenada Corporation Use the note on Disclosure of Leases for the Grenada Corporation
to answer the questions that follow. The Corporation leases office, warehouse and
showroom space, retail stores and office equipment under operating leases, which
expire no later than 2029. The Corporation normalizes fixed escalations in rental
expense under its operating leases. Minimum annual rentals under non-cancelable
operating leases, excluding operating cost escalations and contingent rental amounts
based upon retail sales, are payable as follows: Fiscal year ending March 31,
Rent expense was $12,551,000; $8,911,000; and $5,768,000 for the years ended March
31, 2014, 2013, and 2012 respectively.
Review the information for Grenada Corporation. REQUIRED:
The note disclosure mentions contingent rent payments. What do you think this means
with regard to Grenada Corporation?