A creditor might look at a company’s financial statements to determine if the:
A) company is likely to have the resources to repay its debts.
B) company’s stock price is likely to fall, signaling a good time to sell.
C) company’s stock price is likely to rise, signaling a good time to buy.
D) company pays a dividend.
Carson Inc. reported net sales revenue of $850,000 and paid no dividends during the
current year. The following information is also available at the end of the current and
prior years:
There was no preferred stock outstanding during the current year.
Required:
Part a. Calculate the return on equity for the current year.
Part b. Calculate the debt-to-assets ratio for the current year.
Part c. Calculate the fixed asset turnover ratio for the current year.
Part d. Calculate the current ratio for the current year.
Round all ratios to two decimal points.
Extending credit to customers will introduce all of the following additional costs
except:
A) increased wage costs will be incurred to hire people to evaluate whether each
customer is creditworthy, track how much each customer owes, and follow up to collect
the receivable from each customer.
B) bad debt costs will result when amounts cannot be collected from customers.
C) delayed receipt of cash may result in requiring the company to take out short-term
loans and incur interest costs.
D) decreased gross profit from reduced sales.
Accounts Payable had a balance of $18,200 at the beginning of the month. During the
month, three debits in the amounts of $4,700, $11,300, and $14,800 were posted to
Accounts Payable, and three credits in the amounts of $3,600, $9,500, and $12,700
were posted to Accounts Payable. What is the ending balance of the Accounts Payable
account?
A) $13,200.
B) $5,000.
C) $23,200.
D) $49,000.
Use the information above to answer the following question. What is the adjusting
journal entry at December 31 to record the accrued interest on the note payable?
A) Debit Interest Expense and credit Interest Payable for $1,500
B) Debit Interest Expense and credit Interest Payable for $2,000
C) Debit Interest Expense and credit Interest Payable for $4,500
D) Debit Interest Payable and credit Cash for $2,000
Which of the following is the correct sequence of steps in the accounting cycle?
A) Preparation of journal entries, posting to T-accounts, preparation of financial
statements, and preparation of unadjusted trial balance.
B) Posting to T-accounts, preparation of journal entries, preparation of unadjusted trial
balance, and preparation of financial statements.
C) Preparation of journal entries, posting to T-accounts, preparation of unadjusted trial
balance, and preparation of financial statements.
D) Preparation of financial statements, preparation of journal entries, posting to
T-accounts, preparation of unadjusted trial balance.
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.
In a sense, __________ is to accountants and auditors what the criminal code is to
lawyers and the public.
A) the SEC
B) faithful representation
C) U.S. GAAP
D) the basic accounting equation
Use the information above to answer the following question. Net income would be:
A) $8,000.
B) $9,000.
C) $10,000.
D) $14,000.
At the end of the accounting period:
A) all accounts are closed.
B) temporary accounts are closed; permanent accounts are not.
C) permanent accounts are closed; temporary accounts are not.
D) only accounts with a credit balance are closed.
A company bought $250,000 of equipment with an expected life of ten years and no
residual value. After six years the company sold the equipment for $94,000. If the
company uses straight-line depreciation and the indirect method is used to determine
cash flows from operating activities, which of the following reflects how the sale of the
equipment would be reported in the statement of cash flows?
A) $94,000 is recorded as a cash inflow from investing activities and no other sections
of the statement are affected.
B) $94,000 is recorded as a cash inflow from investing activities and $6,000 is added to
convert net income to net cash flow provided by operating activities.
C) $94,000 is recorded as a cash inflow from investing activities and $6,000 is
subtracted to convert net income to net cash flow provided by operating activities.
D) $94,000 is recorded as a cash inflow from operating activities.
A company had the following assets and liabilities at the beginning and end of the
current year:
Common stock in the amount of $15,000 was issued and dividends of $5,000 were paid
during the year. What is the amount of net income for the year?
A) $44,000.
B) $34,000.
C) $24,000.
D) $54,000.
Ending inventory is incorrectly calculated in the current year. It is accurately calculated
at the end of the next year. The error in the ending inventory in the current year:
A) affects only income statement accounts.
B) affects only balance sheet accounts.
C) can be ignored since it will self-correct.
D) is a self-correcting error.
Accounts Receivable, Net (or Net Accounts Receivable) equals Accounts Receivable
(gross) minus:
A) Cost of Goods Sold.
B) Bad Debt Expense.
C) Allowance for Doubtful Accounts.
D) Current Liabilities.
The going-concern assumption states that the:
A) company will always maximize the profit for stockholders.
B) company is not expected to go out of business in the near future.
C) company is a separate concern from the stockholders.
D) company’s results will be reported in a consistent manner from period to period.
Coachlight Inc. has a periodic inventory system. The company purchased 200 units of
inventory at $9 per unit and 300 units at $10 per unit. What is the weighted average unit
cost for these purchases of inventory?
A) $9.00.
B) $9.50.
C) $9.60.
D) $10.00.
Darin Company purchased land at a cost of $15,000 and planned to use it to construct a
new storage facility on the property. A short time later, the company changed its plans
and sold the property to Dee Company for $15,000. Dee Company signed a note for
$15,000 that is due in 60 days. The journal entry prepared by Darin Company to record
the sale of the property would include which of the following?
A) Credit to Note Receivable
B) Debit to Cash
C) Credit to Land
D) Debit to Accounts Payable
Carl’s Catering just completed its first year of operations. During the year, the following
events took place.
Customer payments in the amount of $64,000 were received at the time the catering
services were performed.
Additional catering services totaling $35,000 were performed on account for customers;
payments amounting to $6,000 were received from those customers.
On the last day of the year, a local company paid $3,000 for catering services to be
performed in 30 days.
Employee wages totaled $25,000 and were paid in cash.
The costs of food, beverages, and supplies used when catering services were performed
amounted to $26,000 and were paid for in cash. (Note: Categorize these costs as “cost
of goods sold.”)
Unpaid bills for delivery costs during the year amounted to $1,000 and were on hand at
the end of the year.
On the last day of the year, the company paid $12,000 in advance for rent on office
space.
Required:
Part a. Determine the net income for Carl’s Catering on a cash basis.
Part b. Determine the net income for Carl’s Catering on an accrual basis.
Use the information above to answer the following question. Which of the following is
correct about the depreciation recorded?
A) Accumulated Depreciation will be debited for $266,667.
B) The book value of the computer system at December 31, 2015 will be $1,225,000.
C) Depreciation expense will be debited for $245,000.
D) The depreciable cost of the computer system is $1,600,000.
In comparing the canceled checks on the bank statement with the entries in the
accounting records, it is found that check number 2889 for December’s utilities was
correctly written and drawn for $790 but was erroneously entered into the accounting
records as $970. The journal entry to adjust the books for the bank reconciliation would
include a debit to:
A)Utility Expense and a credit to Cash for $180.
B)Cash and a credit to Utility Expense for $180.
C)Utility Expense and a credit to Cash for $790.
D)Cash and a credit to Utility Expense for $790.