Which of the following statements best describes a contingent liability?
A) The amount of a contingent liability is known and will definitely have to be paid in
the future.
B) A contingent liability is a potential liability that has arisen because of a past
transaction or event, but its ultimate outcome will not be known until a future event
occurs or fails to occur.
C) A contingent liability will only be incurred if a particular future event takes place.
D) A contingent liability is a potential liability that will be incurred if a natural disaster
happens.
The right of current stockholders to purchase additional shares of newly issued stock in
order to maintain the same percentage ownership is called:
A) liquidation.
B) preemptive rights.
C) cumulative preference.
D) voting rights.
The ratio that measures the percentage of financing from creditors is the:
A) current ratio.
B) times interest earned ratio.
C) debt-to-assets ratio.
D) Price/Earnings ratio.
Which of the following is a liquidity ratio?
A) Inventory turnover
B) Price/Earnings ratio
C) Net profit margin
D) Times interest earned
Typically, a profitable company that pays little or no dividends:
A) is a bad investment.
B) will reinvest profits which can lead to greater growth potential.
C) will experience relatively stable stock prices over time.
D) will appeal to investors who desire distributions of profit.
During the first year of operations, a company sold $100,000 of goods to customers and
received $90,000 in cash from customers. The remainder is owed to the company at the
end of the year. The company incurred $70,000 in expenses for the year and paid
$65,000 in cash for these expenses. The remainder is owed by the company at the end
of the year. Based on this information, what is the amount of net income for the year?
A) $25,000
B) $35,000
C) $20,000
D) $30,000
The alphabetical listing below includes all of the adjusted account balances of T.O.’s
Dance Studio as of December 31, 2015. All account balances are normal.
Required:
Part a. Prepare the closing entries.
Part b. Prepare the post-closing trial balance as of December 31, 2015.
Part c . Prepare the classified balance sheet at December 31, 2015.
A company issues 500,000 shares of preferred stock for $30 a share. The stock has a
fixed annual dividend rate of 5% and a par value of $9 per share. The current price of
the preferred stock is $32 a share. If sufficient dividends are declared, preferred
stockholders can anticipate receiving annual dividends of:
A) $0.45 per share.
B) $1.50 per share.
C) $1.60 per share.
D) $1.05 per share.
Use the information above to answer the following question. Eaton Electronics reports
$3,000 as the cost of goods sold. Eaton Electronics is using the:
A) specific identification method.
B) LIFO method.
C) FIFO method.
D) weighted average cost method.
The amount of uncollectible accounts at the end of the year is estimated to be $25,000,
using the aging of accounts receivable method. The balance in the Allowance of
Doubtful Accounts account is an $8,000 credit before adjustment. What is the adjusted
balance of the Allowance for Doubtful Accounts at the end of the year?
A) $8,000
B) $17,000
C) $25,000
D) $33,000
The failure to record an accrual adjustment relating to salaries and wages would not
affect the:
A) balance sheet
B) income statement
C) statement of retained earnings
D) statement of cash flows
A noncurrent liability is one that the company:
A) has owed for over one year.
B) has owed for over five years.
C) will not pay within 12 months.
D) will not pay within five years.
Use the information above to answer the following question. What is the number of
days to sell?
A) 91.25 days
B) 94.30 days
C) 88.16 days
D) 182.50 days
Which of the following statements is correct?
A) Stock splits and stock dividends both reduce the market price of a share, but only
stock splits reduce the par value of a share.
B) Stock splits and stock dividends both reduce the market price of a share and the par
value of a share.
C) Stock splits and stock dividends both reduce the market price of a share, but only
stock dividends reduce the par value of a share.
D) Stock splits and stock dividends both reduce the market price of a share and reduce
Retained Earnings.
Creditors look at the balance sheet to see whether the company:
A) is profitable.
B) owns enough assets to pay what it owes to creditors.
C) has had a positive cash flow from operations.
D) is paying sufficient dividends to stockholders.
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.
Bolster Soda had an accounts receivable turnover ratio of 9.9 this year and 11.0 last
year. Castor Soda had a turnover ratio of 9.3 this year and 9.3 last year. This implies:
A) Castor’s receivables turnover ratios were better than Bolster’s for both years.
B) Bolster’s receivables turnover ratios were better than Castor’s for both years.
C) Castor has credit policies that need to be tightened.
D) Castor collected receivables more quickly than Bolster in both years.
Inventory was sold on credit for $3,000, terms 1/10, n/30. How should the seller record
the cash collection?
A) Debit Cash for $3,000 and credit Accounts Receivable for $3,000, if collected within
the discount period.
B) Debit Cash for $3,000, credit Accounts Receivable for $2,970, and credit Sales
Discounts for$30, if collected within the discount period.
C) Debit Cash for $3,000, credit Accounts Receivable for $2,970, and credit Sales
Discounts for$30, if collected after the discount period.
D) Debit Cash for $3,000 and credit Accounts Receivable for $3,000, if collected after
the discount period.
Choose the appropriate letter to match the term and the definition. There are more
definitions than terms.
Term
1)____ Bank Reconciliation
2)____ Cash
3)____ Cash Equivalents
4)____ NSF (Not Sufficient Funds) Check
5)____ Restricted Cash
Definition
A. A process for approving and documenting all purchases and payments on account.
B. A process that controls the amount paid to others by limiting the total amount of
money available for making payments to others.
C. A set of regulations passed by Congress in 2002 in an attempt to improve financial
reporting and restore investor confidence.
D. Actions taken to promote efficient and effective operations, protect assets, enhance
accounting information, and adhere to laws and regulations.
E. An attempt to deceive others for personal gain.
F. An internal control designed into the accounting system to prevent an employee from
making a mistake or committing a dishonest act as part of one assigned duty and then
also covering it up through another assigned duty.
G. An internal report prepared to verify the accuracy of both the bank statement and the
cash accounts of a business or individual.
H. Another name for bounced checks. They arise when the check writer (your
customer) does not have sufficient funds to cover the amount of the check.
I. Money or any instrument that banks will accept for deposit and immediately credit to
a company’s account.
J. Not available for general use but rather restricted for a specific purpose.
K. Short-term, highly liquid investments purchased within three months of maturity.
L. Terms of a loan agreement that if broken, entitle the lender to renegotiate loan terms
or force repayment.