Tom Nelson invested $9,000 into an account yielding 6%. How long must he leave the
money in the account to obtain $12,060.90?
a. 2 years
b. 3 years
c. 4 years
d. 5 years
A company paid off a $100,000 2-year note payable. The effect of this transaction is
that the
a. current ratio decreased.
b. earnings per share increased.
c. working capital increased.
d. debt-to-equity ratio increased.
What effects on a retail store’s accounting equation occur when it records merchandise
purchased for cash, assuming the use of a perpetual inventory system?
a. Assets and stockholders’ equity increase.
b. Assets and stockholders’ equity decrease.
c. Assets and liabilities increase.
d. No net effect.
A list of all asset, liability, stockholders’ equity, revenue, expense, and dividend
accounts which are used by the company is called a(n)
a. General Ledger.
b. General Journal.
c. Chart of Accounts.
d. Trial Balance.
Which of the following items would not be reported on a multiple-step income
statement after income from operations?
a. income taxes
b. interest income
c. selling expenses
d. interest expense
In a common size income statement to be used in vertical analysis, the 100% amount is
a. net income.
b. operating income.
c. gross profit.
d. net sales.
Form 10-K for a public company is required to include the following financial
statements for the most recent period of time including:
Income Statements and
Statement of Cash Flows Balance Sheets
a. 2 years 3 years
b. 2 years 2 years
c. 3 years 3 years
d. 3 years 2 years
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 following information is available for All Care Nursing Supply for fiscal year
ending December 31, 2013. Calculate the Accounts Receivable Turnover Ratio:
Net Sales $450,000 Accounts Receivable, December 31, 2012 $175,000
Operating Income $120,000 Accounts Receivable, December 31, 2013 $125,000
Net Income $100,000
a. 3
b. 0.8
c. 3.6
d. 2.57
When a corporation issues a stock dividend, which of the following is true?
a. Cash decreases.
b. Total stockholders’ equity remains the same.
c. Total stockholders’ equity decreases.
d. Retained earnings is increased.
A company needs to record 6 months of accrued interest on a 4-year, 12%, $12,000
promissory note payable. How much interest expense should be accrued?
a. $2,160
b. $1,440
c. $1,080
d. $720
Finnegan’s Fixtures purchased molding machines at the beginning of 2012 for $10,000.
The machines have an estimated residual value of $2,000 and an estimated life of 5
years or 50,000 hours of operation. The company is considering alternative depreciation
methods. Calculate the following:
A) Accumulated depreciation at December 31, 2013, using the straight-line depreciation
method.
B) Depreciation expense for 2012 using the units-of-production depreciation method.
Assume that the machines are operated for 5,000 hours in 2012 and 8,000 hours in
2013.
C) Book value of the equipment at December 31, 2013, using the
double-declining-balance depreciation method.
D) What are the advantages of using straight-line depreciation for financial reporting
purposes?
If an investor can use accounting information for two different companies to evaluate
the types and amounts of expenses, the information is said to have the quality of
a. comparability.
b. consistency.
c. neutrality.
d. materiality.
Pham Enterprises
The following selected financial information is available for Pham Enterprises for the
year ended December 31, 2013:
Net sales $450,000 Inventory, 1/1/10 $48,400
Cost of goods sold $299,500 Inventory, 12/31/10 $49,670
Refer to the information provided for Pham Enterprises. What is the company’s gross
profit ratio for 2013?
a. 33.44%
b. 50.25%
c. 66.55%
d. 299.00%
A company sold inventory on credit. Its gross profit percentage is 23%. The effect of
this transaction is that the
a. current ratio was unchanged.
b. earnings per share increased.
c. working capital decreased.
d. debt-to-equity ratio increased.
After a corporation declares a cash dividend, what takes place on the date of record?
a. cash decreases
b. liabilities decrease
c. stockholders’ equity decreases
d. no entry is necessary
The beginning balance of retained earnings was $800,000, and the ending balance was
$500,000. The company paid dividends of $50,000.
Refer to Rapid Sign Corporation. What is the stock repurchase payout ratio for 2015?
a. 63.8%
b. 51.7%
c. 35.1%
d. 0
When is revenue from the sale of merchandise normally recognized?
a. On the date the sale is made.
b. On the date the customer pays for the merchandise.
c. Either on the date on which the sale occurs, or the date on which the customer pays.
d. When the merchandise is sold, if sold for cash, or when payment is received, if sold
on credit.
Turnover ratios differ from the current and quick ratios in that they
a. are based on net sales instead of cash.
b. are based on a point in time rather than a period of time.
c. measure the efficiency with which a company uses its assets.
d. measure the profitability of a company instead of its liquidity.
The correct term for the entry made on the left side of a T-account is
a. debit.
b. credit.
c. posting.
d. journalizing.
A company has cash of $800, current liabilities of $500, and long-term liabilities of
$600. If the cash ratio is 2.5, then marketable securities must be
a. $ 700.
b. $ 800.
c. $ 450.
d. $2,000.
How is the Balance Sheet linked to the other financial statements?
a. The amount of retained earnings is reported on the Balance Sheet as a liability.
b. Retained earnings is added to total assets and reported on the Balance Sheet.
c. Retained earnings is reported on the Balance Sheet.
d. There is no link between the Balance Sheet and other statements, as each contains
different accounts and provides different information.
A company reported net income of $150,000 for 2014, but its cash balance decreased
by $40,000. Which financial statement should management refer to for an explanation
of this situation?
a. Balance Sheet
b. Income Statement
c. Statement of retained Earnings
d. Statement of Cash Flows
On January 2, 2013, Kampai Sushi Bar sold $800,000 of bonds for $785,000. The
bonds will mature in 10 years and pay interest annually on December 31. The company
properly recorded the payment of interest and amortization of the discount using the
effective interest method. Which of the following statements is true about the carrying
value of the bonds and/or the unamortized discount at the end of 2013?
a. The carrying value will be less than $785,000.
b. The carrying value will be $785,000.
c. The carrying value will be greater than $785,000.
d. The unamortized premium will be more than $15,000.
Liquidity analysis is required to
a. evaluate a company’s profitability.
b. assess a company’s ability to pay its current liabilities.
c. be reported in the financial statements for all publicly-traded companies.
d. provide information about a company’s capital structure.
Company A has equipment that cost $5,250,000 which has accumulated depreciation of
$500,000 while Company B has equipment that costs $4,600,000 and has accumulated
depreciation of $4,400,000. Assuming both companies use straight line depreciation and
estimated useful lives of 40 years with $100,000 residual values, which of the following
statements is true?
a. Both companies have relative old equipment.
b. Company A’s equipment is older than Company B.
c. Company A’s equipment is newer than Company B.
d. Company B’s equipment has a higher book value than Company A.
Refer to Bellweather Times. By what amount will net income on a single-step income
statement differ from net income on a multiple-step income statement if the company
prepares both formats?
a. $0
b. $2,000
c. $6,000
d. $8,000
Refer to Dance Town Academy. How will the interest earned on the checking account
be handled on a bank reconciliation?
a. add to the balance from the company records
b. subtract from the balance from the company records
c. add to the bank statement balance
d. subtract from the bank statement balance
Regan Company
Regan Company reported net income of $95,000 for 2013. Early in 2014, the company
discovered that its 2013 ending inventory was overstated by $5,000.
Refer to the information provided for Regan Company. Determine the effects of the
inventory errors for 2013.
a. Assets and stockholders’ equity would have been overstated by $5,000 on the balance
sheet; expenses and net income would have been understated by $5,000 on the income
statement.
b. Assets and stockholders’ equity would have been overstated by $5,000 on the balance
sheet; expenses would have been overstated by $5,000 on the income statement, thus
net income would have been understated by $5,000.
c. Assets and stockholders’ equity would have been understated by $5,000 on the
balance sheet; expenses would have been overstated by $5,000 on the income
statement, thus net income would have been understated by $5,000.
d. Assets and stockholders’ equity would have been overstated by $5,000 on the balance
sheet; expenses would have been understated by $5,000 on the income statement, thus
net income would have been overstated by $5,000.
Presented below are accounts from the general ledger:
Account
•Cash
•Accounts Receivable
•Prepaid Insurance
•Accounts Payable
•Common Stock
•Service Revenues
•Advertising Expense
•Salary Expense
•Interest Expense
•Income Tax Expense
Each of the accounts has been assigned an identification number which you will use as
answers for the transactions described below. Enter the account numbers in the blank
spaces under the headings Debit and Credit to indicate the accounts debited and credited
when each transaction is recorded in a general journal.
Debit Credit
A) Issues common stock for cash.
B) Receives a bill for advertisements run on a local radio station; payment is due in 30
days
C) Pays interest due on a notes payable.
D) Provides services to a customer and agrees to accept payment in 30
days.
Refer to Rags to Riches. Which of the following would be found through ratio analysis
of the company’s financial statements?
a. The accounts receivable turnover ratio is 7.76 in 2015.
b. Cost of goods sold increased $50,000 or 23.8% in 2015.
c. Accounts receivable increased $22,000 during 2015.
d. Total assets decreased 18.4% during 2015.
On January 1, 2013, Alliance Company had the following balances for accounts
receivable and allowance for doubtful accounts:
Accounts receivable $750,000 (debit)
Allowance for doubtful accounts 50,000 (credit)
During 2013 the company made $3,200,000 in credit sales, collected $3,000,000 of
accounts receivable and wrote off $20,000 of accounts receivable as uncollected.
Required:
A) What is the company’s preadjustment balance in accounts receivable on December
31, 2013?
B) What is the preadjustment balance in allowance for doubtful accounts on December
31, 2013?
C) Assume an analysis of aging of accounts receivable indicates that $45,000 of the
current accounts receivable balance is uncollected. By what amount will the allowance
for doubtful accounts need to be adjusted?
D) Prepare the adjusting entry for 2013 for Allowance for Doubtful Accounts.
Balance sheet accounts are also known as which of the following?
a. nominal accounts
b. permanent accounts
c. temporary accounts
d. closing accounts
A(n) ____________________ usually guarantees the repair or replacement of defective
goods during a period ranging from a few days to several years following the sale.
Under the periodic inventory system, all purchases are assumed to occur before any
______.
Match the terms with the descriptions provided.
a. Manufacturers d. Wholesalers
b. Merchandisers e. Service companies
c. Retailers
46. Companies such as advertising agencies and auto repair shops.
47. Companies that maintain three separate inventory accounts.
48. Companies that sell to other retailers.
49. Companies such as Macy’s and Target.
50. General term for companies who sell goods to other companies as well as to the
final consumer.
An example of vertical analysis is that the cost of goods sold for 2015 is 129% of the
amount from 2014.
H&R Clock Company
The following transactions were incurred during July 2013:
July 1 Raised $30,000 by issuing a note to the bank for $15,000 and issuing
$15,000 of common stock.
July 5 Purchased $5,100 of office supplies on credit; payment is due in 30
days.
July 12 Performed $18,000 of services for customers on credit; collection is due
in 30 days.
July 13 Performed services for customers and collected $8,800.
July 20 Paid for the supplies purchased on July 5.
July 22 Collected $15,000 of the amounts due from customers.
July 30 Received and paid the utility bill for the month of July, $640.
July 31 Paid employee salaries of $3,800.
Refer to H&R Clock Company. Use the following format to indicate the economic
effects of each transaction above on the expanded accounting equation. Show the dollar
amounts in the appropriate columns and use a plus (+) sign to indicate an increase and a
minus (-) sign to indicate a decrease.
Transaction Contributed Retained
Date Assets = Liabilities + Capital + Earnings
____________________ analysis compares one corporation to another corporation and
to industry averages.
The ____________________ date is the date on which a corporation announces that it
will pay a dividend.
Under the FIFO method of inventory costing, the units in the ending inventory
represent the oldest purchase(s).
The effective interest method amortizes premium or discount in a manner that produces
a ____________________ rate of interest from period to period.
A company that forgets to recognize depreciation for the year understates its income
and assets.
Convertible bonds normally allow bondholders to convert the bond into another
security.
If a new business does nothave access to the major capital markets, it may depend upon
venture capital for its initial equity capital.
When preparing the financial statements, the accountant must estimate the balances of
certain accounts. When two possible estimates are available and when these estimates
are about equally likely, the accountant’s prudent reaction is to select the least optimistic
estimate in terms of the recorded amounts of assets or income statement accounts. This
is referred to as the principle of ____________________.
Some companies use a work sheet approach as a tool to aid in preparing the statement
of cash flows.
Identify two methods of accelerating cash from sales.
Refer to Merry Maids Company. Give some examples of circumstances that would
result in net cash used by investing activities as shown above.
Most companies use the accrual basis of accounting because it is required under
generally accepted accounting principles.