A company increased its dollar amount of working capital over the past several years.
Which one of the following measures should be used to further evaluate the company’s
short-run liquidity?
a. The Asset Ratio
b. An analysis of the company’s long-term debt
c. An analysis of the return on stockholders’ equity
d. The Current Ratio
A2Z Events
The following data are from the company’s records for 2013:
Credit sales during the year $2,400,000
Accounts Receivable–December 31, 2013 410,000
Allowance for Doubtful Accounts–December 31, 2013 55,000
Bad debt expense for the year 70,000
Refer to A2Z Events. What amount will the company show on its year-end balance
sheet for the net realizable value of its accounts receivable?
a. $410,000
b. $285,000
c. $340,000
d. $355,000
Lowery Company
Lowery Company uses a perpetual inventory system. The following information is
available for the month of March:
Mar. 1 On hand, 10 units at $2 each $ 20
4 Sold 8 units for $10 each 80
22 Purchased 50 units at $4 each 200
26 Sold 48 units for $10 each 480
Refer to the information provided for Lowery Company. If the company uses the FIFO
inventory costing method, how much is cost of goods sold for March?
a. $560
b. $212
c. $208
d. $204
Dovetail Company is preparing its bank reconciliation for July 31, 2013. Its bank
statement and general ledger T-account for its checking account are presented below:
First Yard Bank
41 N. First Street Account Statement
Headon, MA 72594 July 31, 2013
Member FDIC
Dovetail Company Acct. 004-706037
168 N. Oak Street
Headon, MA 72594
Previous Checks Deposits Current
Balance and Debits and Credits Balance
$10,753.40 $18,831.26 $29,526.75
$21,448.89
Checks and Debits Deposits and Credits Daily Balance
Date No. Amount Date Amount Date Amount
7/03/13 744 162.00 7/03/13 10591.40
7/04/13 745 227.26 7/04/13 12674.10 7/04/13
23038.24
7/06/13 746 1175.00 7/06/13 21863.24
7/07/13 747 637.50 7/07/13 5500.00 7/07/13
26725.74
7/10/13 748 5526.00 7/10/13 21199.74
7/11/13 749 510.00 7/11/13 20689.74
7/12/13 750 69.90 7/12/13 20619.84
7/13/13 751 3710.00 7/13/13 435.00 7/13/13
17344.84
7/14/13 752 287.50 7/14/13 17057.34
7/17/13 753 11.00 7/17/13 17046.34
7/18/13 DM 284.00 7/18/13 870.00 7/18/13
17632.34
7/19/13 754 500.00 7/19/13 17132.34
7/20/13 755 2060.00 7/20/13 15072.34
7/21/13 756 1680.00 7/21/13 975.00 7/21/13
14367.34
7/24/13 757 78.00 7/24/13 14289.34
7/25/13 NSF 200.00 7/25/13 98.00 7/25/13
14187.34
7/26/13 759 208.80 7/26/13 8961.50 7/26/13
22940.04
7/27/13 760 1290.00 7/27/13 21650.04
7/28/13 762 75.00 7/28/13 21575.04
7/31/13 764 45.30 7/31/13 INT 13.15
7/31/13 SC 94.00 7/31/13 21448.89
Symbols: DM CM INT NSF SC
Debit Credit Interest Non- Service
Memo- Memo Earned sufficient Charge
utility bill funds
Dovetail Company
Cash
Amount Amount
Date Deposited Check # Disbursed
Beg. Bal. 9189.14
7/01/13 747 637.50
7/01/13 12674.10 748 5526.00
749 510.00
750 69.90
7/06/13 5500.00 751 3710.00
752 287.50
753 11.00
754 500.00
7/12/13 435.00 755 206.00
756 1680.00
757 78.00
7/17/13 870.00 758 1600.00
7/20/13 975.00 759 208.80
760 1290.00
7/24/13 98.00 761 1250.00
7/25/13 8961.50 762 75.00
763 135.00
764 45.30
7/31/13 300.00 765 72.50
766 891.00
7/31/13 20219.24
A) Prepare a bank reconciliation in proper form for July. Note that the beginning
balance was correctly reconciled at the end of the previous month, and that all
outstanding checks (numbered 744, 745, and 746) and deposits in transit from last
month cleared the bank this month.
B) How much cash would the company report on its July 31 balance sheet?
C) What adjusting entries will the company record as a result of this bank
reconciliation process? Assume that the bank correctly reported all transactions, and
that any errors noted in the reconciliation process involve transactions on credit.
During 2013, Great Adventures sold 150 dune buggies for $4,000 each. The dune
buggies carry a 5-year warranty for defects. Estimates suggest that repair costs will
average 4% of the total selling price. The estimated warranty liability at the beginning
of the year was $14,000, and $20,000 in claims was actually incurred during 2013 to
honor the warranty. What was the warranty expense for 2013?
a. $10,000
b. $18,000
c. $20,000
d. $24,000
Refer to Metalcrafts, Inc. Assume that all purchases of equipment were paid with cash.
How much cash was paid to purchase equipment during 2014?
a. $50,000
b. $200,000
c. $150,000
d. $250,000
When a financial analyst determines the percentage change in operating income for the
five-year period from 2011 to 2015, she is performing a
a. time series analysis.
b. vertical analysis.
c. profitability analysis.
d. cross-sectional analysis.
Each of the following items is considered a cash equivalent except
a. a 30-day certificate of deposit.
b. 60-day corporate commercial paper.
c. a 75-day U.S. Treasury bill.
d. a 180-day note issued by a local government.
Which of the following would notappear on a bank statement for a checking account?
a. service charges
b. outstanding checks
c. credit memos
d. interest earned
Debit entries are used to
a. increase asset accounts.
b. increase revenue accounts.
c. increase liability accounts.
d. increase stockholders’ equity.
Assets classified as property, plant, and equipment are reported at
a. each asset’s estimated market value at the balance sheet date less depreciation.
b. each asset’s estimated market value at the balance sheet date.
c. the estimated salvage value at the balance sheet date.
d. each asset’s original cost less depreciation since acquisition.
Julie expects to receive payments of $1,200 at the end of the year for the next 3 years.
Assuming Julie invests the payments into an account earning 8%, how much will she
have at the end of the 3 years?
a. $3,985.68
b. $3,600.00
c. $10,670.81
d. $3,092.52
Metalcrafts Inc.
Selected information from the company’s financial records is presented below:
Equipment, December 31, 2013 $300,000
Equipment, December 31, 2014 400,000
Accumulated depreciation, December 31, 2013 80,000
Accumulated depreciation, December 31, 2014 60,000
During 2014, the company sold equipment with a cost of $50,000 and accumulated
depreciation of $30,000. A gain of $10,000 was recognized on the sale of the
equipment. This was the only equipment sale during the year.
Refer to Metalcrafts, Inc. What amount would be reported as the cash proceeds from the
sale of equipment?
a. $50,000
b. $20,000
c. $10,000
d. $30,000
The following unadjusted amounts were taken from a company’s accounting records at
December 31, 2013:
Note Payable, 6%, 4-month, dated December 1, 2013, for $500,000
Note Receivable, 12%, 6-month, dated October 1, 2013, for $400,000
Checks presented for payment and paid by the bank are known as
a. certified checks.
b. NSF checks.
c. outstanding checks.
d. canceled checks.
When using the direct method to determine operating cash flows, how is the purchase
of equipment for cash shown on the Statement of Cash Flows?
a. operating activity
b. investing activity
c. financing activity
d. noncash investing and financing activity
e. not reported on the statement of cash flows
Which of the following statements regarding the application of the lower of cost or
market method is true?
a. Generally, historical cost is greater than replacement cost.
b. When the lower of cost or market method is used, inventories are valued at their
selling price.
c. The lower of cost or market method is most commonly applied on a total inventory
basis because it is a more conservative approach.
d. The lower of cost or market method is an exception to the historical cost principle.
Beaver Tree Service
Refer to Beaver Tree Service. What is the company’s net income?
a. $150,000
b. $250,000
c. $300,000
d. $350,000
Which inventory cost flow method assigns the cost of the most recent items purchased
to cost of goods sold?
a. specific identification
b. weighted average cost
c. FIFO
d. LIFO
Which of the following statements is true concerning assets?
a. Assets are measured using a time-period approach.
b. Assets are initially recorded at market value and then adjusted for inflation.
c. Assets are initially recorded using the historical cost principle.
d. Assets are initially recorded at market value, since historical cost tends to be too
arbitrary.
Select the ratio that would include each amount or account in its calculation. (Choices
may be used more than once.)
a. Times interest earned ratio
b. Operating cash flow ratio
c. Debt-to-equity ratio
d. Return on equity
9/ Current liabilities
10/ Total liabilities
11/ Net income
12/ Interest expense
13/ Total stockholders’ equity
14/ Average stockholders’ equity
15/ Cash flows from operations
16/ Income from operations
Use the following selected financial information to compare these three companies and
answer the questions that follow.
Ratio
Results at
December 31: RBC Co. Rama Co. Rock Co.
Current Ratio 2015 3.3 2.8 1.8
2014 2.5 2.8 3.2
Quick Ratio 2015 2.1 1.5 0.5
2014 2.0 1.3 1.2
Inventory Turnover Ratio 2015 5.4 6.8 6.0
2014 5.5 7.6 12.6
A) Which company appears to be in the best position regarding asset efficiency based
solely on the inventory turnover ratio?
B) Which company has the best short-term liquidity?
C) Which company appears to be heading in the wrong direction in terms of its ability
to pay current obligations as they come due?
Which financial statement reports information helpful in assessing working capital?
a. Balance Sheet
b. Capital Statement
c. Statement of Retained Earnings
d. Statement of Cash Flows
Bellweather Times
The company reports the following balances:
Refer to Bellweather Times. What is the company’s income from operations?
a. $280,000
b. $220,000
c. $100,000
d. $40,000
Which of the following factors is not related to the decline in the usefulness of plant
and equipment assets, and therefore does notneed to be considered in selecting an
appropriate depreciation method?
a. physical deterioration
b. obsolescence
c. repair and maintenance policies
d. current replacement cost
All of the following accounts have normal credit balances except
a. accounts payable.
b. unearned revenue.
c. common stock.
d. inventory.
Refer to the information provided for Klump Co. If the company uses the LIFO
inventory costing method, cost of goods sold for the month of June is:
a. $2,538.00
b. $2,550.00
c. $2,551.25
d. $2,555.00
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.
While preparing the February 28th bank reconciliation, the accountant identified the
following items:
Company’s balance according to the general ledger $23,100
Outstanding checks 550
Interest earned on the checking account 100
A customer’s NSF check returned by the bank 1,000
In the process of preparing the reconciliation, the accountant discovered an error in
recording a customer’s check; the amount was incorrectly recorded on the books as a
cash receipt of $600, while the bank correctly recorded the amount as $650. What is the
company’s adjusted cash balance on February 28th?
a. $22,250
b. $21,700
c. $22,200
d. $22,150
A current liability is defined as a commitment or obligation which requires a company
to transfer assets, create a new current liability, or provide services to another entity at
some point in the future that must occur
a. within one year.
b. within one year or within the operating cycle, whichever is shorter.
c. within one year or within the operating cycle, whichever is longer.
d. by the end of the operating cycle.
Giff Services Company experienced some difficulties with cash flow so it approached
one of its vendors about a payment extension. The vendor agreed to the extension on
the condition that the company sign a note that includes 9% interest. What is the impact
on the accounting equation of recording a note payable in exchange for the account
payable?
a. Both assets and liabilities increase.
b. Both assets and liabilities decrease.
c. Liabilities increase and stockholders’ equity decreases.
d. There is no net impact, as there are corresponding increases and decreases in liability
accounts.
A departure from the cost basis of accounting may be necessary when the
____________________ of the inventory is less than its cost to the company.
Items that are included on a bank statement and increase the bank account balance are
called ____________________.
The accounting records for Durden Rentals shows a cash balance of $13,676 on March
31, 2013. On the evening of March 31, company receipts of $3,250 were placed in the
bank’s night deposit drop box; this deposit was processed by the bank on April 1. The
March 31 bank statement shows balance of $9,866, including a service charge of $45,
an NSF check from a customer for $210, and a $650 debit memo for the payment of the
company’s utility bill. All of the checks that the company had written during March
were listed on the bank statement except for check #2156 in the amount of $345.
Prepare a bank reconciliation to calculate the company’s adjusted cash balance at March
31, 2013.
What is meant by the term “cash equivalents”?
Refer to Mary Kay Cosmetics. Prepare the company’s statement of cash flows for the
year ended December 31, 2014. Use the indirect method of determining net cash flows
from operating activities.
The purchase of office supplies from a supplier is an example of an external event.
Liquidating dividends must be charged against the capital stock accounts because the
corporation’s retained earnings are appropriated for future business expansion.
Explain how a company can control small cash payments that are made in cash rather
than by check.
Groovy Swing is a retail store specializing in golf equipment and apparel. On February
1, 2014, the company borrows $250,000 cash from the bank with a six-month, 6% note
payable. The note is used to finance the acquisition of inventory for the spring selling
season.
Prepare the company’s necessary journal entries on February 1st and the note’s maturity
date.
Refer to the information presented for Serrano Company. On September 12th, Serrano
Company sold 10 units of Product B to customers for $180 each. Serrano Company had
paid $100 for each unit of Product B when it purchased them from the supplier on
September 1st. On September 15th, customers returned 2 units of Product B for a cash
refund.
Record the journal entries for this sale and sales return assuming the company uses a
periodic inventory system.
During May 2013, Grant Park Refinery sold, on credit, 1,200,000 gallons of motor fuel
at $1.89 each plus Georgia sales tax of 6%. Included in the price per gallon was a $0.42
federal excise tax. All taxes collected are paid to the appropriate taxing authority at the
end of the quarter.
Prepare the appropriate journal entries on May 31, 2013, and June 30, 2013.
The list of accounts presented below are from the accounting records of Hoosier
Momma Promotions on September 30, 2013. Assume that each account balance is
normal, and present them in proper trial balance format.
Cash $ 4,200
Short-term Investments 13,000
Accounts Receivable 4,500
Inventory 23,000
Land 90,000
Building 700,000
Furniture 450,000
Equipment 281,700
Accounts Payable 7,200
Salaries Payable 4,100
Unearned Revenue 17,000
Interest Payable 2,000
Notes Payable 70,000
Common Stock 460,000
Retained Earnings 977,000
Sales 158,000
Cost of Goods Sold 78,000
Salaries Expense 24,000
Rent Expense 6,000
Insurance Expense 1,000
Depreciation Expense 11,000
Utility Expense 900
Dividends 8,000
A corporation may extend a tender offer when it desires to acquire treasury stock.
Petty Cash is NOT considered to be a cash equivalent.
Listed below are several amounts from the accounting records of Bike Links for the
year ended December 31, 2013. Prepare a multiple-step income statement in good form.
When plant assets are reported, the current period’s depreciation expense is subtracted
from the original cost on the balance sheet.
Refer to Fabulous Creations. Explain the impact on net income and cash flows of using
straight-line depreciation for financial reporting and accelerated depreciation methods
for income tax purposes.
____________________ is the magnitude of an omission or misstatement in accounting
information that will influence the decision of someone relying on the information.
When computing earnings per share, the numerator includes net income minus any
dividends paid to common stockholders.
A company can calculate its average days to sell inventory by dividing 365 days per
year by its _____.