5) The following is the balance sheet for Green Landscaping.
Which of the following is the debt ratio? (Round to two decimal places.)
A) .39
B) .45
C) 1.04
D) .79
6) Please refer to the following balance sheet:
How much is the current ratio? (Round to two decimal places.)
A) 0.35
B) 2.89
C) 0.23
D) 4.40
7) Which of the following would be considered the POOREST current ratio?
A) 0.5
B) 1.1
C) 1.3
D) 1.8
8) Which debt ratio would indicate the BEST overall ability of an organization to pay its debts?
A) 25%
B) 40%
C) 60%
D) 130%
9) The formula for computing a current ratio is:
A) Current assets/Total assets.
B) Current assets/Total liabilities.
C) Current assets/Total equity.
D) Current assets/Current liabilities.
10) A current ratio above 2.00 would indicate that a:
A) company has $2 of current liabilities for every $1 of current assets.
B) company has $2 of total assets for every $1 of current liabilities.
C) company has $2 of current assets for every $1 of current liabilities.
D) company has $2 of total assets for every dollar of current assets.
11) A company has $45,600 in Current assets; $111,320 in Total assets; $67,500 in Current liabilities and $188,400
in Total liabilities. The company has a current ratio of:
A) 0.68.
B) 1.48.
C) 0.24.
D) 0.59.
12) The current ratio is a measure of a company’s:
A) leverage.
B) profitability.
C) liquidity.
D) solvency.
13) Which of the following is considered a good/safe rule–of-thumb debt ratio for businesses?
A) 1.5 or above
B) .6 or below
C) 1.0 or above
D) .8 or below
14) Adkins Company has a current ratio of 1.0 and a debt ratio of 0.7. Wilson Company has a current ratio of 1.4
and a debt ratio of 0.5. Both companies are in the same industry. Which of the following statements is TRUE?
A) The two companies’ debt ratios and current ratios vary in different directions, and the companies appear to be in
similar financial shape.
B) Adkins Company appears to be in better financial shape than Wilson Company.
C) The two companies’ debt ratios and current ratios vary in different directions, and these results do not make
sense.
D) Wilson Company appears to be in better financial shape than Adkins Company.
15) Which of the following does the current ratio measure?
A) The company’s overall ability to pay liabilities
B) The company’s ability to pay current liabilities with current assets
C) The proportion of the company’s assets that are financed with debt
D) The company’s rate of cash flow
16) Which of the following does the debt ratio measure?
A) The company’s overall ability to pay its liabilities
B) The company’s ability to pay current liabilities with current assets
C) The proportion of the company’s assets that are financed with equity
D) The company’s ability to invest in growth
17) Please refer to the following balance sheet:
How much is the debt ratio? (Round to two decimal places.)
A) 0.35
B) 2.89
C) 0.23
D) 4.40
18) Which of the following statements is an accurate interpretation of a debt ratio of .60?
A) The company has $.60 of current liabilities for every $1.00 of current assets.
B) The company has $.60 of assets for every $1.00 of liabilities.
C) The company has $.60 of current assets for every $1.00 of current liabilities.
D) The company has $.60 of liabilities for every $1.00 of assets.
19) The following contains information from the records of the Wellborn Engineers and Architects.
Wellborn Engineers and Architects
Selected Financial Information
December 31, 2013
Current assets $74,000
Current liabilities 44,000
Long-term assets 95,000
Long-term liabilities 60,000
Total revenues 50,000
Total expenses 30,000
What is the current ratio?
A) 1.58
B) 2.32
C) 0.59
D) 1.68
20) The following contains information from the records of the Wellborn Engineers and Architects.
Wellborn Engineers and Architects
Selected Financial Information
December 31, 2013
Current assets $74,000
Current liabilities 44,000
Long-term assets 95,000
Long-term liabilities 60,000
Total revenues 50,000
Total expenses 30,000
What is the debt ratio?
A) 1.62
B) 0.62
C) 1.67
D) 3.84
21) The following contains information from the records of the Wellborn Engineers and Architects.
Wellborn Engineers and Architects
Selected Financial Information
December 31, 2013
Current assets $74,000
Current liabilities 44,000
Long-term assets 95,000
Long-term liabilities 60,000
Total revenues 50,000
Total expenses 30,000
Which of the following statements is an accurate interpretation of Wellborn Engineers and Architects’, PC current
ratio?
A) The company has $2.32 of current assets for every $1.00 of liabilities.
B) The company has $1.68 of current assets for every $1.00 of current liabilities.
C) The company has $1.58 of current assets for every $1.00 of liabilities.
D) The company has $0.59 of current assets for every $1.00 of current liabilities.
22) Which of the following statements is an accurate interpretation of the debt ratio?
A) A debt ratio of 0.60 or lower is considered a high-risk ratio.
B) A debt ratio above 1.00 is considered a good, safe ratio.
C) A debt ratio of 2.0 indicates very strong ability to pay liabilities.
D) A debt ratio of 0.60 or lower is a good, safe ratio.
23) Which of the following statements is an accurate interpretation of the current ratio?
A) A current ratio of 1.5 or higher is considered a high-risk ratio.
B) A current ratio below 1.00 is considered a good, safe ratio.
C) A current ratio of 2.0 indicates very strong ability to pay current liabilities.
D) A current ratio of 0.60 or lower is a good, safe ratio.
24) An adjusted trial balance for Southside Video Productions is presented below.
Debit Credit
Cash $ 11,500
Accounts receivable 9,000
Prepaid rent 5,000
Prepaid insurance 1,900
Supplies 3,200
Land 30,000
Building 52,200
Accumulated depreciation—building $ 11,000
Equipment 35,000
Accumulated depreciation—equipment 7,000
Accounts payable 6,150
Salary payable 3,000
Interest payable 2,240
Mortgage payable (long term) 51,200
R. Lee, capital (deficit) 5,590
R. Lee, drawing 20,000
Service revenue 190,000
Salary expense 38,000
Insurance expense 5,000
Rent expense 12,000
Utilities expense 15,000
Advertising expense 9,000
Depreciation expense—building 10,000
Depreciation expense—equipment 7,000
Supplies expense 1,200
Total $270,590 $270,590
Compute the current ratio:
A) 2.24
B) 1.87
C) 0.49
D) 2.69
25) An adjusted trial balance for Southside Video Productions is presented below.
Debit Credit
Cash $ 11,500
Accounts receivable 9,000
Prepaid rent 5,000
Prepaid insurance 1,900
Supplies 3,200
Land 30,000
Building 52,200
Accumulated depreciation—building $ 11,000
Equipment 35,000
Accumulated depreciation—equipment 7,000
Accounts payable 6,150
Salary payable 3,000
Interest payable 2,240
Mortgage payable (long term) 51,200
R. Lee, capital (deficit) 5,590
R. Lee, drawing 20,000
Service revenue 190,000
Salary expense 38,000
Insurance expense 5,000
Rent expense 12,000
Utilities expense 15,000
Advertising expense 9,000
Depreciation expense—building 10,000
Depreciation expense—equipment 7,000
Supplies expense 1,200
Total $270,590 $270,590
Compute the debt ratio:
A) 0.48
B) 0.52
C) 0.37
D) 2.07
26) Please refer to the following information and compute the current ratio:
Debit Credit
Cash $4,500
Accounts receivable 1,200
Prepaid rent 700
Land 20,000
Equipment 4,000
Accumulated depreciation $800
Accounts payable 2,900
Salary payable 600
Notes payable—long term 9,000
A) 1.83
B) 0.55
C) 0.51
D) 0.42
27) Please refer to the following information and compute the debt ratio:
Debit Credit
Cash $4,500
Accounts receivable 1,200
Prepaid rent 700
Land 20,000
Equipment 4,000
Accumulated depreciation $800
Accounts payable 2,900
Salary payable 600
Notes payable—long term 9,000
A) 1.83
B) 2.37
C) 0.40
D) 0.42
28) Please refer to the following information and calculate the current ratio:
Debit Credit
Cash $6,000
Accounts receivable 2,000
Prepaid insurance 800
Land 40,000
Building 50,000
Accumulated depreciation $32,000
Accounts payable 9,400
Wages payable 4,000
Notes payable—short term 3,200
A) 0.25
B) 1.89
C) 0.53
D) 4.02
29) Please refer to the following information and calculate the debt ratio. (Round to two decimals.)
Debit Credit
Cash $6,000
Accounts receivable 2,000
Prepaid insurance 800
Land 40,000
Building 50,000
Accumulated depreciation $32,000
Accounts payable 9,400
Wages payable 4,000
Notes payable—short term 3,200
A) 0.25
B) 1.89
C) 0.53
D) 4.02
30) Please refer to the following data:
Debit Credit
Cash $16,000
Accounts receivable 2,800
Prepaid insurance 800
Land 40,000
Building 50,000
Accumulated depreciation $32,000
Accounts payable 2,200
Wages payable 4,000
Notes payable—short term 2,300
Using the “rule of thumb” guidelines, what conclusion could you draw?
A) This business faces a liquidity problem, and may have trouble paying off its current liabilities with its current
assets.
B) This business has does not have enough total assets to meet its total obligations.
C) This business has a very good current ratio, but the debt ratio indicates long-term liquidity problems.
D) This business should have no difficulties paying off its liabilities.
Learning Objective 4-7
1) Reversing entries are required by GAAP.
2) Reversing entries are used for convenience and to save time.
3) Reversing entries are posted on the first day of the month.
4) Which of the following statements is FALSE about reversing entries?
A) They are not required by GAAP.
B) They are used for convenience and to save time.
C) The reversing entry is exactly the opposite of a prior adjusting entry.
D) The reversing entry is posted on the last day of the month.
5) On December 31, Axle Services posted the following accrual adjustment:
Salary expense 1,000
Salary payable 1,000
Axle uses reversing entries. What reversing entry would be needed on January 1?
6) Better Advice, a service company, uses reversing entries. On March 31, they posted the following adjusting entry
to accrue utility expenses:
Utility expense 650
Accounts payable 650
Which of the following represents the proper reversing entry to be posted on April 1?
A)
Accounts payable 650
Utility expense 650
B)
Utility expense 650
Accounts payable 650
C)
Cash 650
Utility expense 650
D)
Utility expense 650
Accounts receivable 650
7) Charlton Cleaning Services pays out wages every week on Friday afternoon. Payroll expense totals $3,500 per
week, based on a 5-day week. The month of June ended on a Thursday. On Thursday, June 30, Charlton made the
following accrual adjustment:
Wage expense 2,800
Wage payable 2,800
At the same time, they prepared the following reversing entry to be booked on July 1:
Wage payable 2,800
Wage expense 2,800
On Friday afternoon, when wages were paid out, what journal entry was made?