The ratio that measures the company’s ability to meet required interest payments is the:
A) debt-to-equity ratio.
B) current ratio.
C) Price/Earnings ratio.
D) times interest earned ratio.
Which of the following statements about dividends in arrears is correct?
A) Dividends in arrears do not appear on the balance sheet or require a journal entry.
B) Dividends in arrears are not disclosed to stockholders.
C) Dividends in arrears applies to common stock.
D) Dividends in arrears are legal liabilities.
Consider the scenarios listed in the table below.
Required:
For each scenario below, indicate related impact on revenues, expenses, and net income
in the current period by answering increase, decrease, or no effect.
Scenario Revenue Expenses Net Income
a. A customer makes a payment on account.
b. A company uses the aging of accounts receivable method to estimate Bad Debt
Expense in an adjusting entry.
c. A company that uses the allowance method writes off 10% more in uncollectible
accounts than expected.
d. A company recovers an account previously written off.
e. A company receives a note from a customer to settle an unpaid accounts receivable
owed by that customer.
f. Interest accrues on notes receivable but payment has not yet been made.
g. A company collects the interest due on a note at maturity.
Eaton Electronics uses a periodic inventory system. On March 31, Eaton has two
plasma TVs on hand at a cost of $1,500 each (serial numbers 11534892 and 11534894).
In April, the company purchases four more identical TVs from Toshiba for $1,450 each
(serial numbers 11542631 through 11542634). In May, the company purchases five
more identical TVs for $1,600 each (serial numbers 11550964 through 11550968). In
June, Eaton sells two of these TVs (serial numbers 11534894 and 11542631). There
were no additional purchases or sales during the remainder of the year.
Use the information above to answer the following question. Eaton Electronics uses the
FIFO method. What is the cost of its ending inventory?
A) $13,850
B) $13,800
C) $13,760
D) $13,600
Which of the following statements about cash basis accounting and accrual basis
accounting is correct?
A) If payment is received at the same time a service is provided, it does not matter
whether cash basis accounting or accrual basis accounting is used; both would record
the transaction with the same journal entry.
B) The cash basis of accounting works best when a lengthy delay exists between the
timing of cash flows and the underlying business activities to which they relate.
C) If a company receives a bill for rent for the period and decides to delay payment, the
rent will not be recorded as an expense if accrual basis accounting is used.
D) If the cash basis of accounting is used, the Unearned Revenue account is increased
when a company receives a deposit in advance of services to be performed by the
company.
During January, services totaling $1,500 were performed on account for a customer.
The company collected that $1,500 from the customer in March. The journal entry to
record the receipt of cash from the customer is recorded with a debit to:
A) Cash and a credit to Accounts Receivable.
B) Cash and a credit to Accounts Payable.
C) Cash and a credit to Revenue.
D) Purchases and a credit to Cash.
A company reported net income of $6 million. During the year the average number of
common shares outstanding was 3 million. The price of a share of common stock at the
end of the year was $5. There were 400,000 shares of preferred stock outstanding on
average and no dividends were declared and the preferred stock is noncumulative.
Use the information above to answer the following question. The Price/Earnings ratio is
approximately:
A) 2.00.
B) 2.50.
C) 2.84.
D) 12.50.
A company started the current year with assets of $700,000, liabilities of $350,000 and
common stock of $200,000. During the current year, assets increased by $400,000,
liabilities decreased by $50,000 and common stock increased by $275,000. There was
no payment of dividends to owners during the year.
Use the information above to answer the following question. Based on this information,
what was the amount of retained earnings at the beginning of the year?
A) $150,000.
B) $850,000.
C) $550,000.
D) $350,000.
You form a partnership with your best friend. You have contributed 65% of the capital
and can claim 65% of the net income. At the end of the first year, you discover that your
partner has run up $40,000 in debt using the business’ credit card. The maximum you
could be liable for is:
A) $0.
B) $40,000.
C) $20,000.
D) $26,000.
If certain assets are partially used up during the accounting period, then:
A) nothing is recorded on the financial statements until they are completely used up.
B) a liability account is decreased and an expense is recorded.
C) an asset account is decreased and an expense is recorded.
D) nothing is recorded on the financial statements until they are replaced or
replenished.