FC 707 Quiz 1 The quick ratio

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The quick ratio differs from the current ratio in that it

a. represents the amount of cash on hand instead of the total current assets.

b. excludes inventories and accounts receivable from the numerator of the fraction

because of obsolescence and possible collection problems.

c. is a stricter measure of a company’s ability to pay its current obligations.

d. signals the need to liquidate short-term investments when it drops below 2.0.

Which of the following would appear on the balance sheet as a current liability?

a. A probable loss in the amount of $4 million from a pending lawsuit.

b. A possible loss in the amount of $4 million from a pending lawsuit.

c. A probable loss from a pending lawsuit, the amount of which is not yet determinable.

d. A lawsuit for $4 million for which the likelihood of loss is remote.

Accumulated Depreciation

a. increases with a debit.

b. decreases with a credit.

c. increases with a credit.

d. is a adjunct account.

Which internal control activity is followed when inventory storage areas are secured

with limited access?

a. segregation of duties

b. safeguarding of assets and records

c. checks on recorded amounts

d. clearly defined authority and responsibility

Leather Creations has been in business for two years. On December 31, 2015 (the end

of the second year), the company had the following capital stock account balances

immediately prior to a meeting of its board of directors.:

No dividends were paid during 2014. Net income for 2015 is $110,000. At its December

31, 2015 meeting the board declares a cash dividend. Complete the table below to

indicate the amount of dividends that would be distributed to each class of stockholder

if the following amounts of dividends are available:

Issued long-term bonds.

Use the following codes to indicate how the cash flow effect, if any, of each transaction

or event would be reported on a statement of cash flows if the operating activities

section is prepared using the indirect method. (Choices may be used more than once.)

a. Operating activity-add to net income

b. Operating activity-deduct from net income

c. Inflow from investing activity

d. Outflow from investing activity

e. Inflow from financing activity

f. Outflow from financing activity

g. Noncash investing and financing activity

h. Not reported on statement of cash flows

The amount of cash the maker is to pay the payee on the maturity date of the note

Select the term that matches each of the following descriptions.

a. Interest

b. Maturity Value

c. Principal

d. Lender

e. Factoring

f. Fraction of year

g. Maturity date

h. Implicit

i. Maker

Patents Identify where each of the following accounts would be reported on the

financial statements. (Choices may be used more than once.)

a. Balance Sheet-Property, Plant, and Equipment

b. Balance Sheet-Intangible Assets

c. Balance Sheet-Current Assets

d. Balance Sheet-Other Assets

e. Income Statement-Operating Section

f. Income Statement-Other Revenue and Expense Section

Paying salaries to employees

Several transactions are listed. Use the choices to identify the effect on the accounting

equation for each transaction listed. (Choices may be used more than once.)

a. Assets and liabilities increase

b. Assets and contributed capital increase

c. Assets and retained earnings increase

d. Two asset accounts are impacted, but there is no net effect on total assets

e. Assets and liabilities decrease

f. Assets and retained earnings decrease

g. Liabilities increase and retained earnings decrease

h. Liabilities decrease and retained earnings increase

Customer’s check was deposited on May 31 but is not included on the bank statement

The accountant for a local manufacturing company is reconciling the company’s bank

account for May. For each item listed, state how it would be handled on a bank

reconciliation. (Choices may be used more than once.)

a. Addition to bank balance

b. Subtraction from bank balance

c. Addition to company balance

d. Subtraction from company balance

e. Not included on the reconciliation

The accounting records for Dusek Dentistry, Inc. show the following information for

February 28, 2013:

Additional information pertaining to this checking account was obtained by comparing

the monthly bank statement with the company’s records. The following was revealed:

A) Prepare a bank reconciliation to calculate the company’s adjusted cash balance at

February 28, 2013.

B) Prepare the journal entries that must be recorded to adjust the cash records as a result

of these bank reconciliation procedures.

Materials are entered onto the assembly line.

Select the choice that describes the type of transaction and whether it should be

recorded in the accounting system. (Choices may be used more than once.)

a. External event to be recorded as a transaction

b. Internal event to be recorded as a transaction

c. Event which should not be recognized in the accounting system

On January 1, 2013, a company sold a machine for $5,000 that it had used for several

years. The machine cost $11,000, and had accumulated depreciation of $4,500 at the

time of sale. What gain or loss will be reported on the income statement for the sale of

the machine?

a. gain of $5,000

b. loss of $6,500

c. loss of $1,500

d. gain of $1,500

Given below are several accounts and balances:

A) Prepare the property plant and equipment section of the balance sheet at December

31,

2013 in the space provided below.

B) By how much will net income increase or decrease during 2013 as a result of the

above

information?

Which of the following lease conditions would result in a capital lease to the lessee?

a. The lessee will return the property to the lessor at the end of the lease term.

b. The lessee can purchase the property for $1 at the end of the lease term.

c. The fair market value of the property at the inception of the lease is $20,000; the

present value of the lease payments is $17,600.

d. The lease term is 70% of the property’s economic life.

When a corporation makes a cash distribution despite having no retained earnings, this

is called a

a. dividend in arrears.

b. call provision.

c. conversion privilege.

d. liquidating dividend.

The length of the operating cycle is always considered to be a one year period, although

that one year doesn’t have to begin on January 1.

Why is cash management necessary?

What is meant by the concept of efficiency as it relates to turnover ratios? Explain.

The ____________________ ratio is computed by dividing common stock dividends

by net income.

The basis of accounting that recognizes revenue when it is realizable and earned is

called the ____________________.

The operating cash flow ratio is computed by dividing cash flows from operating

activities by ____________.

The account used to record the discrepancies that will occasionally occur between the

amounts deposited and amounts shown on cash register tapes is called

____________________.

During the closing process, revenues, expenses, and dividends must be closed to the

Income Summary account.

The higher the accounts receivable turnover the better because it indicates that the

company is more quickly collecting cash (through sales).

Every month, Glacier Distributors orders shipping supplies from a particular vendor. On

February 13, 2013, the company orders supplies amounting to $21,000 on account,

payable on March 15, 2013. Due to an unexpected decline in business, the company is

unable to pay its vendor on March 15th, and so asked for a payment extension. The

vendor granted the extension but requires the company to sign a note that specifies

7.5% interest beginning March 15, 2013, with a due date of July 15, 2013. The

company pays the amount in full on July 15, 2013. Prepare the necessary journal entries

for Glacier Distributors on February 13th, March 15th, and July 15th.