Rent-a-Center
Selected data from the financial statements are provided below:
2015 2014
Current Assets $12,000 $6,000
Long-Term Assets 14,000 8,000
Current Liabilities 4,000 6,000
Long-Term Liabilities 14,000 0
Stockholders’ Equity 8,000 8,000
Net Sales 19,000 18,200
Net Income 2,000 1,000
Refer to Rent-a-Center. Which of the following is true regarding the debt management
ratios between 2014 and 2015?
a. The debt-to-equity and debt-to-total assets ratios both increased.
b. The debt-to-equity and total debt-to-total assets ratios both decreased.
c. The debt-to-equity and long-term debt-to-equity ratios both decreased.
d. The debt-to-equity ratio decreased and the debt-to-total assets ratios increased.
Refer to Georgia’s Salon. On May 31, 2013, all but $1,500 of the gift cards had been
redeemed for salon services. Which of the following is the correct journal entry to
record for the expired gift cards?
a. Unearned Sales Revenue 1,500
Accounts Payable 1,500
b. Unearned Sales Revenue 1,500
Sales Revenue 1,500
c. Loss on Gift Cards 1,500
Sales Revenue 1,500
d. No entry is necessary.
Given below are costs incurred during 2012 and 2013 by a company that follows the
policy of decreasing the intangible asset account directly as amortized.
Research was conducted to discover a new product and costs of $400,000 in 2012 and
$800,000 in 2013 were incurred. After several months, a product was created and a
patent secured for a cost of $180,000, effective as of July 1, 2013. The company expects
to have increased revenues of $500,000 over the next several years. The patent is
expected to be useful for the next 10 years.
A) Prepare a partial income statement for the year ended December 31, 2013.
B) How should the $800,000 cost incurred in 2013 be reported on the financial
statements?
Calmar Corporation sold merchandise to a customer for $30,000 on credit on July 15.
The customer paid Calmar Corporation the amount due on July 31. Under the accrual
basis of accounting, how should Calmar Corporation record the transaction?
a. The company will recognize the revenue on July 31.
b. The July 15th transaction increases revenue, but has no effect on assets because cash
has not been received.
c. Revenue is recognized after the cost of the merchandise sold has been paid by
Calmar Corporation
d. The July 31st transaction has no effect on total assets under the accrual basis.
Refer to Hesson Properties. What journal entry is required to record the cash collected
in advance?
a. Cash 500
Service Revenue 500
b. Accounts Receivable 500
Service Revenue 500
c. Cash 500
Unearned Revenue 500
d. Unearned Revenue 500
Accounts Receivable 500
Tom is saving for an engagement ring. If he deposits $500 payments into an account
(one at the end of each year) that earns 6% interest compounded annually, how much
will he have saved by the end of the 10thyear?
a. $895.42
b. $13,435.18
c. $6,590.39
d. $6,554.39
GTX Corp. has $100,000 in cash, $40,000 in inventory, $25,000 in accounts payable
and $15,000 in accrued liabilities (salaries, interest, taxes, etc.). If the company has
$280,000 in cash flows from operating activities, what is its operating cash flow ratio?
a. 0.5
b. 2.0
c. 7.0
d. 3.5
Refer to Hesson Properties. How much is still owed to the company by its customers at
the end of the month?
a. $0
b. $500
c. $1,000
d. $1,500
Refer to Fabian Woodworks. What amount will be reported as depreciation expense
over the 5-year lifeof the equipment?
a. $12,000
b. $ 8,000
c. $10,000
d. $ 4,000
An appropriation of retained earnings is best described as a(n)
a. reserve established for a specific business purpose.
b. allowance for future treasury stock transactions.
c. allowance for future preferred stock redemptions.
d. reserve for possible declines in the market value of the corporation’s capital stock.
Satoor, Inc.
Satoor, Inc., which uses a periodic inventory system, purchased merchandise from Taye
Company on July 7, 2013, for $15,000. The credit terms were 1/10, n/30. The goods
were shipped FOB shipping point on July 7, 2013. Satoor, Inc. received the
merchandise on July 10 and paid the amount due on July 15.
Refer to the information provided for Satoor, Inc. When did title to the merchandise
transfer from the seller to the buyer?
a. July 7
b. July 10
c. July 15
d. Cannot be determined from the information provided.
The time-period assumption is necessary because
a. inflation exists and causes confusing swings in financial statement amounts over
time.
b. external users of financial statements want accurately-reported net income for a
specific period of time.
c. financial statements users expect full disclosure of all economic events throughout
the entire time period.
d. it is required by the federal government.
Refer to LaFarge North America. How many shares of common stock are outstanding?
a. 68,000
b. 78,000
c. 98,000
d. 100,000
A company plans to distribute $134,000 in dividends. It has outstanding 200,000 shares
of 7% $10 par preferred stock (non-cumulative and non-participating) and 60,000
shares of $2 par common stock. How much will be distributed per share on preferred
and common stock?
Preferred stock Common stock
a. $0.52 $0.52
b. $0.67 $0.00
c. $0.00 $2.23
d. $0.60 $2.00
Kiss Greetings planned to raise $500,000 by issuing bonds. The bond certificates were
printed bearing a stated interest rate of 6%, which was equal to the yield rate of interest.
However, before the bonds could be issued, economic conditions forced the yield rate
up to 7%. If the life of the bonds is 10 years and interest is paid annually on December
31, how much will the company receive from the sale of the bonds?
a. Exactly $500,000 because the company would still pay interest at the stated rate.
b. Less than $500,000 because the 7% yield rate of interest was higher than the stated
rate.
c. More than $500,000 because the 6% stated rate of interest was less than the yield
rate.
d. The 6% bonds will not be sold at all. The company will be required to have the
certificates reprinted bearing the new yield rate of 7%.
Several transactions are listed below, with an expanded accounting equation stated to
the right side of each. Use the following identification codes to indicate the effects of
each transaction on the accounting equation: I = Increase; D = Decrease; NE = No
Effect. Write your answers in the space provided under the accounting equation, being
sure to include an identification code for each element of the accounting equation.
Contributed Retained
Assets = Liabilities + Capital + Earnings
A) Issue common stock
B) Borrow money from the bank
C) Purchase land for cash
D) Purchase a 1-year insurance policy
E) Purchase supplies on credit
F) Services are provided for cash.
G) Receive cash in advance for services to be provided next week.
H) Pay utilities for current month
I) Pay employee salaries for current month
Refer to the information provided for Tedder Co. If the company uses FIFO inventory
costing, how much is cost of goods sold for January?
a. $230
b. $232
c. $240
d. $250
The following information is available for All-4-U Company for the year ending
December 31, 2013:
Net Sales $5,000,000 Accounts Receivable December 31, 2012 $1,250,000
Cost of goods sold $3,500,000 Accounts Receivable December 31, 2013 $1,000,000
Operating Income $600,000
Net Income $400,000
A) Compute the gross profit ratio for 2013.
B) Compute the operating margin ratio for 2013.
C) Compute the net profit margin ratio for 2013.
D) Compute the accounts receivable turnover for 2013.
What effect does “recognizing accrued Interest Revenue at the end of the accounting
period” have on the accounting equation?
a. Assets increase and Stockholders’ equity decreases.
b. Assets increase and Stockholders’ equity increases.
c. Assets decrease and liabilities decrease.
d. Liabilities increase and Stockholders’ equity decreases.
During 2013, Gardner Home Center sold 800 power washers for $350 each. The power
washers carry a 2-year warranty for repairs. Estimates indicate that repair costs will
average 2% of sales. How much warranty expense should be accrued as a result of the
2013 sales of this product?
a. $8,400
b. $5,600
c. $2,800
d. No liability should be recorded until units are brought in for repairs.
Refer to Fernbank Farms. What amount should be recorded as depreciation expense
each year starting in 2013?
a. $16,000
b. $18,000
c. $13,600
d. $12,400
Which one of the following adjustments decreases net income for the period?
a. Recognition of depreciation on plant assets
b. Recognition of interest earned on a note receivable
c. Recognition of services that had been provided to customers but the cash has not yet
been received
d. Recognition of rent earned that had been received in advance from customers
Determine the following amounts for Backus Tractor Sales:
A) The balance of Retained Earnings at the end of 2013.
B) The total stockholders’ equity at the end of 2013.
C) Name the two events that might cause stockholders’ equity to increase.
A LIFO inventory liquidation occurs when a company that uses the LIFO inventory
costing method
a. buys more merchandise during the accounting period than it sells.
b. cannot determine the ending inventory because it has been destroyed or stolen.
c. changes its inventory method from FIFO to LIFO.
d. sells more merchandise during the accounting period than it purchased.
All of the following are criteria that the SEC requires to be met before revenue is
considered realized (or realizable) and earned EXCEPT:
a. Delivery has occurred or services have been provided.
b. The seller’s price to the buyer is fixed and determinable.
c. Collection is possible.
d. Persuasive evidence of an arrangement exists.
A company sold equipment at a loss. What is the impact on the balance sheet of
removing the equipment account and its related accumulated depreciation account?
a. reduces total assets
b. increases total assets
c. has no effect on total assets
d. increase total assets and decrease total equity
Refer to A-One Construction. If the aging approach is used to estimate bad debts, what
should the balance in the Allowance for Doubtful Accounts be after the bad debts
adjustment?
a. $ 2,100
b. $31,100
c. $29,200
d. $27,100
Keller Company issued $1,000,000, 8%, 7 year bonds with interest payable
semiannually when the yield rate was 8%. The bonds issued at
a. $887,037.
b. $1,000,000.
c. $1,112,963.
d. This question cannot be answered without the time value of money tables.
Which one of the following is not one of the three business activities?
a. financing
b. operating
c. investing
d. measuring
The current portion of long-term debt would appear on the balance sheet as
a. current liability.
b. long-term liability.
c. current asset.
d. long-term debt.
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.
Refer to General Lighting. The price of each battery includes a $1.95 federal excise tax.
Any taxes collected must be paid to the appropriate governmental units at the end of the
quarter. Which of the following is the proper journal entry to record for the sale of the
batteries?
a. Accounts Receivable 643,800
Sales Revenue 600,000
Sales Tax Payable 36,000
Federal Excise Tax Payable 7,800
b. Accounts Receivable 636,000
Sales Revenue 592,200
Sales Tax Payable 36,000
Federal Excise Tax Payable 7,800
c. Accounts Receivable 636,000
Excise Tax Expense 7,800
Sales Revenue 607,800
Sales Tax Payable 36,000
d. Accounts Receivable 636,000
Sales Tax Expense 36,000
Excise Tax Expense 7,800
Sales Revenue 643,800
If the amount assigned to ending inventory is incorrect,
a. the balance sheet is affected, but the income statement is not.
b. the income statement is affected, but the balance sheet is not.
c. the balance sheet is affected, but cost of goods sold is not.
d. both the balance sheet and income statement are affected.
Sales taxes collected from customers should be recorded in a liability account until the
cash is passed along to the taxing authority.
Refer to the information provided for Yancey Company. How much is cost of goods
available for sale for 2013 assuming that Yancey Company take advantage of one-half
of the cash discounts?
Under the periodic inventory system, Net purchases = Purchases + ______________ –
Purchase Discounts – Purchase Returns and Allowances.
Refer to Merry Maids Company. Describe the link(s) between a statement of cash
flows, the balance sheet, and the income statement if a company uses the indirect
method to prepare the operating activities section of the statement of cash flows.
Investors who buy stock in a corporation expect to earn returns on their investment
from dividends and an increase in the value of the stock (a capital gain).
When a company sells its own common stock, it is a(n) ____________________
activity on the statement of cash flows.
Refer to H&R Clock Company. Set up T-accounts and post each transaction to the
T-accounts.
The acid test ratio is a stricter measure than the current ratio regarding a company’s
ability to pay its current obligations as they are due.
Acceptable current ratios vary from industry to industry, but a general rule of thumb is
that a current ratio greater than ____________________ is appropriate.
Refer to Korn Business Solutions. Does the note disclosure show evidence of the two
types of leases?
Home Accent Interiors
The company’s bookkeeper prepared the following journal entries and posted them to
the general ledger as indicated in the T-accounts presented. Assume that the dollar
amounts and descriptions of the entries are correct.
Journal (partial):
Date Accounts and Descriptions Debit Credit
May 5 Accounts Receivable 6,400
Service Revenue 6,400
Billed customers for services completed
May 11 Cash 2,000
Service Revenue 2,000
Received payment from a customer for services
rendered in a prior month
May 15 Supplies 2,800
Accounts Payable 2,800
Purchased furniture on account; payment due in 30 days
May 25 Office Furniture 2,800
Cash 2,800
Paid for the office furniture purchased earlier
General Ledger (partial):
Accounts Receivable Service Revenue Office Furniture
5/5 5/5 5/11 5/25
6,400 6,400 2,000 2,800
Cash Accounts Payable Office Supplies
5/11 5/15 5/15
2,000 2,800 2,800
Refer to Home Accent Interiors. Identify the postings to the general ledger that were
made incorrectly. Describe how each incorrect posting should have been made. For this
problem, assume that the journal entries have been correctly recorded.
The effective interest rate method will record amortization of a bond discount or
premium in a manner that produces a constant rate of interest expense from period to
period.
The analysis of common size financial statements may be included in a horizontal or
vertical analysis.
The ____________________ rate of interest is a function of economic factors and the
creditworthiness of the borrower.
Using good form, prepare an income statement for Ben & Terry’s Ice Cream.
