Dividend payout ratio
Indicate the type of each ratio listed. (Choices may be used more than once.)
a. Liquidity ratio
b. Debt management ratio
c. Asset efficiency ratio
d. Profitability ratio
e. Stockholder ratio
Keystone Corporation’s balance sheet showed the following liability and stockholders’
equity amounts: Current Liabilities, $100,000; Bonds Payable, $150,000; Capital Lease
Obligations, $20,000; Deferred Income Tax Liability, $5,000; and total stockholders’
equity, $500,000. The debt-to-equity ratio is
a. 0.20.
b. 0.35.
c. 1.22.
d. 0.55.
Refer to Fabian Woodworks. What amount will be reported as depreciation expense
over the 5-year life of the equipment?
Fabian Woodworks This company purchased a truck at a cost of $12,000. The truck
has an estimated residual value of $2,000 and an estimated life of 5 years, or 100,000
hours of operation. The truck was purchased on January 1, 2012, and was used 27,000
hours in 2012 and 26,000 hours in 2013. a. $12,000
b. $ 8,000
c. $10,000
d. $ 4,000
A company purchased equipment for $150,000 cash. What is the effect on total assets?
a. increase
b. decrease
c. no net effect
d. Cannot be determined from this limited information.
Canterbury Cycles sells Harleys and pays each salesperson a commission of $800 for
each cycle sold. During the month of December, a salesperson sold 3 cycles. The
company pays commissions on the 5th day of the month following the sale. Which of
the following statements is true?
a. The salesperson will recognize commission revenue earned in the amount of $2,400
in December.
b. The company will recognize commission expense in the amount of $2,400 in
December.
c. The salesperson will recognize commission expense in the amount of $2,400 in
January.
d. The salesperson will recognize revenue in the same month that the cycle dealer
recognizes expense.
Possible external threats to the organization’s success in accomplishing its goals
Match the following terms with their correct definitions.
a. Accounting system e. Internal control system
b. Business process risks f. Safeguarding
c. Control activities g. Segregation of duties
d. Control environment h. Strategic risks
The telephone bill for the current period is received and recorded, but payment will be
made later. What effect does this transaction have on the accounting equation?
a. Assets and liabilities increase.
b. Assets and contributed capital increase.
c. Liabilities increase and retained earnings decrease.
d. Assets and liabilities decrease.
Refer to Fireworks City. During the year, the company sold some equipment that had an
original cost of $60,000. Which statement is true concerning transactions that must have
occurred during the period?
Fireworks City Information for 2013 and 2012 is presented below for this company
which uses the straight-line depreciation method.
a. The company purchased additional equipment during the year.
b. The selling price of the equipment sold was reported with net sales.
c. The company did not purchase additional equipment during the year.
d. The equipment sold had not been reported with the company’s property, plant and
equipment.
Insurance is earned in the current period, although collections from customers had been
received in a previous period
For each transaction select the type of adjustment that would be required. (Choices
may be used more than once.)
a. Deferred (prepaid) expense
b. Deferred (unearned) revenue
c. Accrued expense
d. Accrued revenue
During 2014, the accounts payable balance decreased.
a. This decrease indicates that payments on account were less during the period than
credit purchases.
b. This decrease is added to net income in the operating activities section of a statement
of cash flows prepared under the direct method.
c. This decrease is deducted from net income in the operating activities section of a
statement of cash flows prepared under the direct method.
d. This decrease indicates that payments on account exceeded credit purchases during
the period.
Bennett Motors is facing the following business decisions. Which decision will least
likely require financial information?
a. A local bank is reviewing the company’s loan application.
b. The company is attempting to sell its stock to the public.
c. The labor union representing the company’s employees is negotiating a pay raise as
part of a new labor agreement.
d. The company’s management is deciding whether to detail its vehicles today or
tomorrow.
Net sales
Several items from the financial statements of Fireside Tires are listed. Use the
following choices to identify the type of account for each item listed. (Choices may be
used more than once.)
a. Assets
b. Liabilities
c. Revenues
d. Expenses
e. Stockholders’ Equity
Refer to Abbot Safe & Lock. What amount will the company show on its year-end
balance sheet for the net realizable value of its accounts receivable?
Abbot Safe & Lock
The following information was obtained from the company’s records for 2013:
a. $305,000
b. $290,000
c. $270,000
d. $325,000
An addition to employee compensation whereby the corporation provides a right to
purchase stock at a set price is called
a. treasury stock.
b. a stock option.
c. the conversion privilege.
d. a call option.
Internal control systems provide assurance in each of the following areas except
a. effectiveness and efficiency of the company’s operations.
b. compliance with applicable laws and regulations.
c. consolidation of departments within the accounting function.
d. reliability of financial reporting.
A corporation has 5,000 shares of $5 par, 6% cumulative preferred stock outstanding
and 25,000 shares of $2 par common stock outstanding. No dividends have been paid
for the past 2 years. If the company wishes to distribute $2 per share to the common
stockholders this year, what is the total amount of dividends that must be paid?
a. $4,500
b. $50,000
c. $51,500
d. $54,500
A company uses plant assets that are subject to rapid decreases in value due to
obsolescence and physical deterioration. Which of the following depreciation methods
is most appropriate to measure the decline in the usefulness of this company’s assets?
a. double-declining-balance
b. revenue expenditure method
c. straight-line
d. units-of-production
Under the FIFO method of inventory costing, the units in the ending inventory
represent the oldest purchase(s).
Refer to Merry Maids Company. What is the significance of the positive amounts
shown in both years for accounts payable and accrued liabilities?
Merry Maids Company
Merry Maids Company began 2013 with a cash and cash equivalents balance of $7,670.
Consolidated statements of cash flows for the years ended December 31, 2014 and
2013, are presented below:
Interest on a note payable can be calculated by multiplying the amount owed by the
interest rate by the fraction of year that represents the time elapsed since borrowing.
The quick ratio is calculated as follows: (Cash + Marketable Securities + Accounts
Receivable) / Current Liabilities.
Securities issued by a corporation as a form of ownership in the business, such as
common stock and preferred stock, are called equity securities.