Select the incorrect statement regarding the analysis of absolute amounts of various
accounts reported on the financial statements.
A.Financial statement users with expertise in particular industries can look at absolute
amounts and assess a company’s performance in a certain area.
B.To correctly evaluate an absolute amount, the analyst must consider its relative
importance.
C.Economic statistics such as the gross national product are built upon totals of
absolute amounts reported by businesses.
D.Using absolute amounts eliminates the problem of varying materiality levels.
Refer to the figure above. Based on common size income statements, which of the
companies spent, relative to sales, the most on operating expenses?
A.Company A
B.Company B
C.Company C
D.Company D
Jell and Dell were partners with capital balances of $600 and $800 and an income
sharing ratio of 2:3. They admitted Zell to a 30% interest in the partnership, and the
total amount of goodwill credited to the original partners was $700. What amount did
Zell contribute to the business?
A.$900.
B.$560.
C.$600.
D.$590.
E.$630.
If the company purchased a $60,000 piece of equipment by paying $30,000 and having
the rest financed with a short-term note from the bank, then immediately after this
transaction what is the expected impact on the current ratio?
A.Current assets decrease and current liabilities increase by the same amount therefore,
the current ratio decreases.
B.Current liabilities decrease therefore, the current ratio decreases.
C.Current assets and current liabilities decrease by the same amount therefore, the
current ratio increases.
D.Current assets decrease therefore, the current ratio increases.
Mendez Company is considering a capital project that costs $16,000. The project will
deliver the following cash flows:
Using the incremental approach, the payback period for the investment is:
A.5 years.
B.2 years.
C.2.4 years.
D.1.66 years.
Select the incorrect statement concerning the internal rate of return (IRR) method of
evaluating capital projects.
A.The higher the IRR the better.
B.The internal rate of return is that rate that makes the present value of the initial outlay
equal to zero.
C.If a project has a positive net present value then its IRR will exceed the hurdle rate.
D.A project whose IRR is less than the cost of capital should be rejected.
Yi Company began operations on January 1, 2013. During 2013, the company engaged
in the following cash transactions:
1) issued stock for $40,000
2) borrowed $25,000 from its bank
3) provided consulting services for $38,000
4) paid back $15,000 of the bank loan
5) paid rent expense for $9,000
6) purchased equipment costing $12,000
7) paid $3,000 dividends to stockholders
8) paid employees’ salaries, $21,000
What is Yi’s net cash flow from operating activities?
A.Inflow of $5,000
B.Inflow of $8,000
C.Inflow of $17,000
D.Inflow of $33,000
Prior to closing, XYZ Company’s accounting records showed the following balances:
After closing, XYZ’s retained earnings balance would be
A.$5,600.
B.$7,000.
C.$7,900.
D.None of these.
The appropriate format of the December 31, 2012 closing entry for John & Hope
Limited Liability Partnership, whose two partners had withdrawn their salaries from the
partnership during the year is:
A.Option A
B.Option B
C.Option C
D.Option D
E.Option E
Select the incorrect statement regarding the quick ratio:
A.The quick ratio is also known as the acid-test ratio.
B.The quick ratio ignores some current assets that are less liquid than others.
C.The quick ratio is a conservative variation of the current ratio.
D.The quick ratio equals quick assets divided by total liabilities.
Cleary, Wasser, and Nolan formed a partnership on January 1, 2012, with investments
of $100,000, $150,000, and $200,000, respectively. For division of income, they agreed
to (1) interest of 10% of the beginning capital balance each year, (2) annual
compensation of $10,000 to Wasser, and (3) sharing the remainder of the income or loss
in a ratio of 20% for Cleary, and 40% each for Wasser and Nolan. Net income was
$150,000 in 2012 and $180,000 in 2013. Each partner withdrew $1,000 for personal use
every month during 2012 and 2013.
What was Nolan’s capital balance at the end of 2012?
A.$200,000.
B.$224,000.
C.$238,000.
D.$246,000.
E.$254,000.
The recognition of an expense may be accompanied by which of the following?
A.An increase in assets
B.A decrease in liabilities
C.A decrease in revenue
D.An increase in liabilities
Recognizing an expense may be accompanied by an increase in liabilities (i.e. accounts
payable, salaries payable) or a decrease in assets (i.e. cash, prepaid rent or insurance).
What is shelf registration?
A.a procedure that allows the sale of securities to a small group of knowledgeable
investors without any general solicitation.
B.a procedure that allows a company to register securities and then sell them over a
period of two years without reregistering.
C.a method of filing Form 10-K with the SEC.
D.the registration of mutual funds that engage in investing and trading securities.
E.the registration of securities issued in connection with business combination
transactions.
Mandich Co. had the following amounts for its assets, liabilities, and stockholders’
equity accounts just before filing a bankruptcy petition and requesting liquidation:
Of the salaries payable, $30,000 was owed to an officer of the company. The remaining
amount was owed to salaried employees who had not been paid within the previous 80
days: John Webb was owed $10,600, Samantha Jones was owed $15,000, Sandra
Johnson was owed $11,900, and Dennis Roberts was owed $2,500. The maximum
owed for any one employee’s claims for contributions to benefit plans was $800.
Estimated expense for administering the liquidation amounted to $40,000.
What amount would the company have expected to pay for every dollar of unsecured
liability without priority?
A.$.30.
B.$.40.
C.$.50.
D.$.60.
E.$.75.
What is meant by a “fully secured liability”?
The Jacobson Manufacturing Company was started at the beginning of the current year
when it acquired $200,000 from its owners. During the year, the company incurred the
following costs, all for cash:
The company produced 10,000 units of product and sold 8,000 units. The average
selling price was $34 per unit; all sales were for cash. The accountant who prepared the
firm’s financial statements misclassified the selling and administrative costs as product
costs.
Required:
Demonstrate the impact of the error on the company’s income statement and balance
sheet by completing the following schedule:
Alcorn Company is considering purchasing equipment that costs $400,000. The
equipment has an estimated useful life of 8 years and no salvage value. Alcorn believes
that the annual cash inflows from using the equipment will be $80,000.
Required:
1) Calculate the net present value of the equipment assuming that Alcorn’s cost of
capital is 12%. Is the equipment an acceptable investment?
2) Calculate the net present value of the equipment assuming that Alcorn’s cost of
capital is 10%. Is the equipment an acceptable investment?
3) What general conclusion can you reach from your results to parts 1) and 2)?
Schultz Corporation purchased equipment on January 2, 2014 for $50,000. Schultz used
the straight-line method of depreciation with a $5,000 salvage value and a useful life of
5 years. On January 1, 2016 Schultz sold this equipment for $26,000.
What information needs to be included in Form 10-Q?