E. Choudhury Company’s price/earnings ratio is 15.3. Its closest competitor, Bhatt, Inc.
has a Price/Earnings ratio of 9.4. Which of the following would not be a valid
conclusion to draw from a comparison of the two companies’ Price/Earnings ratios?
A) E. Choudhury Company’s stock is overpriced.
B) Investors believe E. Choudhury Co. has a brighter future than Bhatt, Inc.
C) E. Choudhury Company has been more profitable than Bhatt, Inc.
D) The stock price of E. Choudhury Company has been bid up due to rumors of a
merger.
Which of the following statements about adjustments is not correct?
A) When making an adjustment to recognize supplies used in a period, total assets will
not change.
B) Accrued wages are wages owed, but not yet paid, to employees; the accrued wages
will need to be recorded with an adjusting entry that increases expenses.
C) Deferral adjustments are used to update amounts that have been previously deferred
on the balance sheet.
D) Depreciation is an example of a deferral adjustment.
Your company sells $469,300 of goods during the year that have a cost of $398,600.
Inventory was $29,783 at the beginning of the year and $34,038 at the end of the year.
Use the information above to answer the following question. How long on average does
it take to sell something from inventory after it is purchased?
A) 12.5 days
B) 24.8 days
C) 29.2 days
D) 165.9 days
Which of the following statements about business forms is correct?
A) A sole proprietorship is an unincorporated business owned by one person.
B) All partnerships are owned by two people.
C) A corporation is not a legal entity.
D) An LLC (or limited liability company) has the same tax treatment as a corporation.
Which of the following is calculated by dividing net sales revenue by average net
receivables?
A) Days to sell ratio
B) Current ratio
C) Profit margin
D) Receivables turnover ratio
Over a two-year period, Beneful Product’s gross profit percentage went from 70.4% to
69.7%. Which of the following could not have been the cause of this change?
A) Reduced selling prices
B) Rising product cost as a percentage of sales
C) Increased competition from a competitor
D) An increase in selling price
Which of the following statements about dividends is not correct?
A) Dividends represent a sharing of corporate profits with owners.
B) Both stock dividends and cash dividends reduce Retained Earnings.
C) Cash dividends paid to stockholders reduce net income.
D) Dividends are declared at the discretion of the board of directors.
Generous Inc. lends Blue Inc. $40,000 on April 1 and receives a four-month, 4.5%
interest-bearing note. Generous Inc. prepares financial statements on April 30. What
adjusting entry should be made by Generous Inc. before its financial statements are
prepared?
A) Debit Note Receivable and credit Cash for $40,000
B) Debit Interest Receivable and credit Interest Revenue for $150
C) Debit Cash and credit Interest Revenue for $150
D) Debit Interest Receivable and credit Interest Revenue for $600
A company has $26,000 in its Land account, $10,000 in its Inventory account, and
$6,000 in its Notes Payable (short-term) account. If its only other account is Common
Stock, what is the balance of that account?
A) $10,000.
B) $42,000.
C) $30,000.
D) $22,000.
Delta Inc. had 1,000,000 shares of $4 par value common stock authorized. On
December 31, 2015, there were 400,000 shares issued and outstanding. The market
value of its common stock on that date was $100 per share. On January 5, 2016, the
board of directors declared a stock dividend.
Required:
Part a. Assume that you have 100 shares of Delta Inc. common stock. Determine how
many shares will you have after a 100% stock dividend.
Part b. Briefly explain the how a 100% stock dividend affects the stockholders’ equity
accounts and the total resources of the company. (Do not quantify the impacts or
prepare a journal entry.)
Part c. Assume instead that the board declared a 10% stock dividend. Briefly explain
how that 10% stock dividend affects the stockholders’ equity accounts and the total
resources of the company. (Do not quantify the impacts or prepare a journal entry.)
Part d. Identify three possible explanations for the declaration of a stock dividend.
Company A has liabilities of $6,773,000 and stockholders’ equity of $3,647,000 at the
end of the current year, and sales revenue of $9,800,000 and net income of $899,080 for
the year. Company B has assets of $1,680,000 and stockholders’ equity of $978,750 at
the end of the current year, and sales revenue of $1,950,000 and net income of $351,000
for the year.
Required:
Part a. Calculate the debt-to-assets ratio for each company.
Part b. Identify the company that has greater financing risk and explain why.
Which of the following statements about the accounting cycle is correct?
A) A trial balance is included in the full set of external financial statements.
B) If debits equal credits in the unadjusted trial balance, you have made no errors in
preparing and posting journal entries.
C) The balances for each account reported on an unadjusted trial balance are
determined by adding the amounts on the “+” side and subtracting the amounts on the
“-” side of each ledger or T-account.
D) GAAP allows companies to choose between cash basis and accrual basis of
accounting.
Which of the following would be classified as a financing activity on the statement of
cash flows?
A) Cash receipts from accounts receivable collections
B) Cash receipts from sale of equipment
C) Cash paid to purchase treasury stock
D) Cash paid for interest on notes payable
On July 1, Darin Company sold inventory costing $4,500 to Dee Company for $6,000,
terms 2/10, n/30. Both companies use a perpetual inventory system. What journal entry
will be recorded by Dee Company on July 1?
A) Debit Purchases and credit Accounts Payable for $6,000
B) Debit Inventory and credit Accounts Receivable for $6,000
C) Debit Inventory and credit Accounts Payable for $6,000
D) Debit Cost of Goods Sold and credit Inventory for $4,500
The number of days to sell is calculated as:
A) 365 divided by ending inventory.
B) Cost of goods sold divided by ending inventory.
C) 365 divided by Inventory turnover ratio.
D) Cost of goods sold divided by Average inventory.
A company was formed with $60,000 cash contributed by its owners in exchange for
common stock. The company borrowed $30,000 from a bank. The company purchased
$10,000 of inventory and paid cash for it. The company also purchased $70,000 of
equipment by paying $10,000 in cash and issuing a note for the remainder.
Use the information above to answer the following question. What is the amount of the
total liabilities to be reported on the balance sheet?
A) $60,000.
B) $0
C) $90,000.
D) $80,000.
Which of the following is not the same as book value?
A) Carrying value
B) Cost less accumulated depreciation
C) Unused cost
D) Market value
Dividends:
A) are an expense of doing business.
B) are not a legal obligation that a company must pay.
C) are reported only on the statement of retained earnings.
D) are reported on the balance sheet.
The separate entity assumption requires that:
A) financial information depicts the economic substance of the business activities.
B) financial reports of a business are assumed to include the results of only that
business’s activities.
C) the results of business activities are reported in an appropriate monetary unit.
D) financial information can be compared across businesses because similar accounting
methods have been applied.
Adjusting entries are typically prepared:
A) at the beginning of the accounting period.
B) at the end of the accounting period.
C) on a daily basis.
D) on a weekly basis.