On January 1, 2013, Alliance Company had the following balances for accounts
receivable and allowance for doubtful accounts:
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.
The quick ratio
a. is generally larger than the current ratio.
b. decreases when a company’s assets becomes more liquid.
c. increases when a company has more cash sales than credit sales.
d. is larger when a company’s assets are more liquid.
When a company purchases less than 50% of the equity securities of another company,
which of the following statements is true?
a. Both companies’ financial statements must be combined in consolidation.
b. The equity method of accounting will be required if the company’s investment is at
least 20%.
c. The fair value method of accounting will be used only if the securities are classified
as available-for-sale.
d. The fair value method of accounting will be used only if they are trading securities.
Refer to AT&U Company. If the company estimates its bad debts at 1% of net credit
sales, what amount will be reported as bad debt expense for 2013?
AT&U Company
Data for the year ended December 31, 2013, are presented below:
a. $44,500
b. $25,000
c. $24,500
d. $4,500
If a company uses the direct write-off method of accounting for bad debts,
a. It establishes an estimate for the allowance for doubtful accounts.
b. It will record bad debt expense only when an account is determined to be
uncollected.
c. It will reduce the accounts receivable account at the end of the accounting period for
estimated uncollected accounts.
d. When an account is written off, total assets will stay the same.
Refer to Rio Imports. The dividend payout ratio for 2015 is
Rio Imports
Information from the financial statements are provided below:
a. 16.7%.
b. 18.5%.
c. 25.0%.
d. 27.8%.
“You Decide” Essay You are the CFO for Cabbage Patch Toys. The Board of Directors
is meeting this afternoon. While reviewing your company’s financial statements just
minutes before the meeting you notice that no depreciation expense has been reported.
A) Describe to the board the impact that omitting this adjustment has had on your
financial statements. B) The Board has asked you whether this mistake would impact
their plan to declare a cash dividend during the meeting. Respond.
The amount that the inventory would increase or decrease if the company had used
FIFO instead of LIFO.
Match the terms with the descriptions provided.
a. Consignment f. Purchase allowance
b. Discount period g. Purchase discounts
c. Inventory h. Purchase returns
d. LIFO Reserve i. Purchases
e. Lower of cost or market rule
Allowing only certain employees to order goods and services on behalf of the company
is an example of what internal control activity?
a. segregation of duties
b. safeguarding of assets and records
c. checks on recorded amounts
d. clearly defined authority and responsibility
Receivables that the company is not able to collect.
Match each statement to the item listed below
a. Bad debt expense d. Percentage of credit sales
b. Net sales revenue e. Profitability ratios
c. Nontrade receivables f. Trade receivables
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.
A company issued $500,000 of bonds for $498,351. Interest is paid semiannually. The
bond markets and the financial press are likely to report the bond issue price as
a. 498.35.
b. 100.00.
c. 99.67.
d. 49.84.
Which of the following procedures is incorrect for establishing and maintaining a petty
cash fund?
a. A check is prepared for a small, fixed amount; when the check is cashed, the money
is entrusted to a petty cash custodian.
b. The company must obtain the cash needed for the fund and record an entry for the
establishment of the fund.
c. When appropriate documentation is presented, cash payments are made from the
fund; the petty cash custodian retains the documentation.
d. When the petty cash fund needs to be replenished, an entry is recorded to recognize
an increase in the petty cash account.
The amount of cash in the cash register from sales totals $534. The amount for sales
recorded on the cash register tape was $530. Which journal entry is required?
a. Cash in Bank 530 Sales 530
b. Cash in Bank 534 Sales 534
c. Cash in Bank 534 Sales 530 Cash Over and Short 4
d. Cash in Bank 530 Cash Over and Short 4 Sales 534
Obligations that will require payment beyond one year
Match each statement to the item listed below.
a. Current assets e. Intangible assets
b. Current liabilities f. Long-term investments
c. Gross margin g. Long-term liabilities
d. Income from operations h. Net profit margin
Three common categories of long-term assets are: 1) property, plant, and equipment, 2)
long-term investments, and 3) intangibles.
What is treasury stock and how is it reported in the financial statements?
Determining the cash flows from operating activities generally requires analyzing each
item on the income statement as well as the current asset (except cash) and current
liability accounts.
If the bank debits its customer’s checking account, then the customer’s cash balance
increases.
The classifications in the balance sheet are to help users determine how a company
obtained its resources.
The issuance of common stock increases a company’s assets and stockholders’ equity.
Cumulative and participating dividend features are typically associated with preferred
stock.
The financial statement that summarizes the operating, investing, and financing
activities of a business over a period of time is the ____________________.
Two reasons why a company might choose an accelerated depreciation method are
_______________, and ______________.
Explain how checking accounts, bank statements, and a bank reconciliation are used to
help a company control its cash.