1) The current and quick ratios have two limitations. These ratios
A.emphasize the ineffectiveness of analysts’ calculations, and focus on liquid assets at a
point in time instead of a period of time.
B.focus on cash instead of working capital, and they represent a point in time instead of
covering a period of time
C.focus on working capital instead of cash, and they represent a point in time instead of
covering a period of time
D.are ignored by most creditors, and focus on working capital instead of cash.
2) Deacon Company purchased equipment last year for $30,000. The equipment has an
estimated useful life of five years. What amount will appear on the income statement
for depreciation expense for the month of March, 2014?
A.$0
B.$500
C.$6,000
D.$30,000
3) Pub Company’s plant operates five days per week with a daily payroll of $50,000.
Employees are paid every Tuesday for the prior week’s work (Monday through Friday).
The last day of the month is Tuesday, April 30. What effect does the accrual at April 30
have on Pubs net income?
A.Increase by $250,000
B.Decrease by $150,000
C.Decrease by $100,000
D.Increase by $150,000
4) Fall Corp. 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 the company’s assets?
A.Double-declining-balance
B.Revenue expenditure method
C.Straight-line
D.Units-of-production
5) Paint Company
Following are selected data from Paint Companys financial statements.
Refer to the Paint Company data.
The companys debt service coverage ratio for 2012 indicates that the
A.companys ability to pay principal and interest to creditors has declined.
B.company has more net income available to allocate to stockholders after the payment
of debt.
C.company had significantly changes in current assets and current liabilities during the
period.
D.company generates about $2 of cash from operations to cover every $1 of debt.
6) Creighton, Inc. determined that it had incorrectly estimated both the useful life and
the estimated residual value of equipment which it purchased 2 years ago. When
accounting for the change in its accounting estimates, Creighton must
A.correct the financial statements of prior years affected by the errors in the estimates
B.determine the book value at the point of change and depreciate that amount over the
remaining useful life
C.add the amount of the error to the amount of the current years depreciation expense
D.determine the effect of the error and report it as a loss on the income statement in
Other Revenues and Expenses
7) Fellsmere Corporation
Presented below are the condensed balance sheets of Fellsmere Corporation at
December 31, 2014 and 2013. Net income for the years ending December 31, 2014 and
2013 is $346,000 and $109,000, respectively.
Read the information about Fellsmere Corporation.
Required:
(A) Did Fellsmeres current ratio increase or decrease from 2013 to 2014? Make any
necessary calculations and explain your answer. Which financial statement users are
most concerned with this ratio?
(B) The balance sheets show a large increase in retained earnings during 2014. Identify
the possible reason(s) for this increase.
8) Eaton Corporation purchased supplies at a cost of $15,000 during 2014. At January
1, 2014, supplies on hand were $2,000. At December 31, 2014, supplies on hand are
$2,500. Calculate supplies expense for 2014.
A.$ 15,500
B.$ 14,500
C.$ 15,000
D.$ 17,000
9) Pustay Parts Shop began business on January 1, 2012. The corporate charter
authorized issuance of 10,000 shares of $2 par value common stock and 4,000 shares of
$8 par value, 6% cumulative preferred stock. Pustay issued 2,400 shares of common
stock for cash at $20 per share on January 2, 2012. What effect does the entry to record
the issuance of stock have on total stockholders’ equity?
A.Increase of $4,800
B.Decrease of $4,800
C.Increase of $48,000
D.Decrease of $48,000
10) Doras Flower Shop began business as a corporation in 2013. Several transactions
which occurred early in 2013 are described below. Record each transaction in proper
form, excluding written explanations, in the general journal provided.
A) January 23, 2013: Stockholders invested cash of $70,000 in the business and
received 7,000 shares common stock as evidence of their ownership interest.
B) February 1, 2013: Rent of $1,600 was paid for the month of February.
C) February 7, 2013: Equipment with a cost of $3,000 was purchased on credit;
payment is due within 30 days.
D) February 14, 2013: Bills totaling $5,400 were presented to customers for flower
arrangements created and delivered; $2,900 was received in cash immediately; the
balance of $2,500 is due within 10 days.
E) February 18, 2013: Full payment was made for the equipment purchased on
February 7.
F) February 22, 2013: Payment of $1,900 was received from customers with balances
due from February 14.
G) February 28, 2013: Employee salaries of $3,300 were paid.
11) Each of the following situations involves the use of discounts:
1> How much discount may Mallory Inc. take in each of the following transactions?
What was the annualized interest rate?
a. Mallory purchases inventory costing $970, terms 3/10, n/40.
b. Mallory purchases new office furniture costing $2,100, terms 2/10, n/30.
2> Calculate the discount rate that Mallory received in each of these transactions.
a. Mallory purchased office supplies costing $450 and paid within the discount period
with a check for $425.
b. Mallory purchased merchandise for $1,900. It paid within the discount period with a
check for $1,870.
12) When bonds are issued by a company, the effect of the transaction on the
accounting equation is to:
A.increase liabilities and decrease stockholders equity
B.increase liabilities and increase stockholders equity
C.increase assets and increase liabilities
D.increase assets and increase stockholders equity
13) Several terms which represent components of a bookkeeping system are listed
below. For each term, write a brief explanation of how that component is used in a
bookkeeping system. Space is provided for your answer immediately below each term.
A) Accounts
B) Chart of Accounts
C) Double-entry system with debits and credits
D) General Journal
E) General Ledger
F) Trial Balance
Brief explanations of components of a bookkeeping system.
14) When using the indirect method, 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
15) When using the indirect method, how is the issuing of stock for cash shown on the
statement of cash flows?
A.Operating activity
B.Investing activity
C.Financing activity
D.Non cash investing and financing activity
16) When is revenue from the sale of merchandise normally recognized?
A.On the date the sale is made
B.When 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