Refer to Rio Imports. The operating margin percentage for 2015 is an indicator that the
company has
a. experienced setbacks concerning the effectiveness of its purchasing, production,
pricing, and marketing activities.
b. increased profits by $33,000.
c. improved profitability in relation to sales.
d. net income that is more than it would have been if dividends of $30,000 had been
paid.
All of the following are external events except
a. a grocery store recognizes losses from spoilage.
b. a grocery store runs ads in a local newspaper.
c. a grocery store purchases produce from a local farmer.
d. a grocery store sells groceries to customers on credit.
The cost of goods sold is equal to
a. purchases less beginning inventory plus ending inventory.
b. the inventory account as reported on the balance sheet.
c. the cost of goods available for sale less ending inventory.
d. the amount of inventory on hand at the end of the accounting period.
Canterbury Cycles sells Harleys and pays each salesperson a commission of $800 for
each cycle sold. During the month of December, a salesperson sold 3 cycles. The
company pays commissions on the 5th day of the month following the sale. Which of
the following statements is true?
a. The salesperson will recognize commission revenue earned in the amount of $2,400
in December.
b. The company will recognize commission expense in the amount of $2,400 in
December.
c. The salesperson will recognize commission expense in the amount of $2,400 in
January.
d. The salesperson will recognize revenue in the same month that the cycle dealer
recognizes expense.
Accelerated Solutions
The following data are from the company’s records for 2013:
Accounts receivable–January 1, 2013 $ 350,000
Credit sales during 2013 1,200,000
Collections from credit customers during 2013 850,000
Customer accounts written off as uncollected during 2013 10,000
Allowance for doubtful accounts–January 1, 2013 35,000
Estimated uncollected accounts based on an aging analysis 50,000
Refer to Accelerated Solutions. What is the balance of Accounts Receivable at
December 31, 2013?
a. $700,000
b. $340,000
c. $690,000
d. $710,000
Refer to Dance Town Academy. How will the customer’s bounced checks 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
A company reported the following information:
Interest payable, December 31, 2014 $ 3,200
Interest payable, December 31, 2013 10,200
Interest expense for 2014 22,000
How much cash was paid for interest during 2014?
a. $15,000
b. $29,000
c. $30,200
d. $25,200
In a common size balance sheet to be used in vertical analysis, the 100% amount is
a. current assets.
b. working capital.
c. total assets.
d. total stockholders’ equity.
Geiss Motorsports sold 50 motorbikes for $1,000 each. The bikes carry a 2-year
warranty for repairs. Estimates indicate that repair costs will average 2% of the total
selling price. What is the amount that would be recorded in the estimated warranty
liability account as a result of selling the bikes?
a. $1,000
b. $ 500
c. $ 20
d. No liability should be recorded until the bikes are returned for repairs.
Having one employee prepare company checks and sign those checks relates to which
internal control activity?
a. a violation of proper segregation of duties
b. a violation of adequate documents and records
c. a good example of checks on recorded amounts
d. a good example of clearly defined authority and responsibility
A company wishes to issue $600,000 of 10-year, 6.8% bonds, with interest paid
annually at the end of the year. The market rate of interest is currently 5%. What
information is needed in order to determine the selling price?
a. The market rate of interest, the stated rate of interest, the bond rating, and the bond
life.
b. The face value of the bonds, the stated rate of interest, the market rate of interest, and
the bond life.
c. The life of the bonds, the market rate of interest, the bond rating, and the face value
of the bonds.
d. The face value of the bonds, the market rate of interest, the purpose of the issue, and
the bond life.
Refer to Kalahari Limited. What is the carrying value of the bonds after the first interest
payment is made on June 30, 2013?
a. $1,154,000
b. $1,146,000
c. $1,142,400
d. $1,000,000
The return on assets ratio
a. considers the investments made by all creditors and stockholders of the company.
b. reflects investments made only by creditors of the company.
c. is based on average stockholders’ equity as compared to net income for the period.
d. is a measure of the company’s liquidity.
In which section of the annual report would you find: “The financial statements, in our
opinion, present fairly the financial position, operating results, and cash flows, in
conformity with generally accepted accounting principles”?
a. Management report
b. Notes to the Financial Statements
c. Management’s Discussion and Analysis
d. Report of the Independent Accountants
Which of the following would be generally viewed as a negative change?
a. Earnings per share increases.
b. The debt-to-total assets ratio decreases.
c. The acid test ratio increases.
d. The return on common equity decreases.
Buyer Company purchased a large shipment of luggage from Seller Company on credit
near the end of its accounting period. Seller Company shipped the luggage in January
and Buyer Company received the luggage in February. Assume that Buyer Company’s
accounting period ends on January 31st, while Seller Company’s accounting period
ends on May 31st. Answer each independent question:
A) If the luggage was shipped FOB destination, who will pay the freight costs?
B) If the luggage was shipped FOB destination, when should Buyer Company record
the purchase?
C) If the luggage was shipped FOB shipping point, who will pay the freight costs?
D) If the luggage was shipped FOB shipping point, when should Buyer Company
record the purchase?
E) Under what shipping terms would Buyer Company include the luggage as part of
inventory on its January 31st balance sheet?
When a corporation decides whether to pay a cash dividend, which of the following is
an important consideration?
a. The balances in the corporation’s cash and retained earnings accounts.
b. The number of authorized shares of the corporation’s stock.
c. The book value of the corporation’s stock.
d. The balance of paid-in capital in excess of par on the corporation’s stock accounts.
Advanced Packaging accepted a credit card account receivable in exchange for $25,000
of services provided to a customer. The credit card company charges a 4% service
charge. Recording the transaction in the company’s accounting records will have what
effect on the accounting equation?
a. Increase assets and stockholders’ equity by $24,000
b. Decrease assets and stockholders’ equity by $1,000
c. Increase assets by $25,000
d. Increase stockholders’ equity by $25,000
Indicate the type of each ratio listed.(Choices may be used more than once.)
a. Liquidity ratio
b. Debt management ratio
c. Asset efficiency ratio
d. Profitability ratio
e. Stockholder ratio
17/ Current ratio
18/ Debt-to-equity ratio
19/ Earnings per share
20/ Gross profit percentage
21/ Dividend payout ratio
22/ Inventory turnover ratio
23/ Times interest earned ratio
24/ Return on assets ratio
25/ Net profit margin percentage
26/ Dividend yield ratio
Refer to Abbot Safe & Lock. What is the effect on liquidity when the company records
its estimate for bad debt expense using the allowance method?
a. Liquidity decreases
b. Liquidity increases
c. Liquidity stays the same
d. Liquidity both increases and decreases
Lake Lanier Grill
The stockholders’ equity section of the December 31, 2014, balance sheet is provided
below:
Common Stock, $3 par, 2,000 shares issued and outstanding $6,000
Paid-in Capital in Excess of Par–Common Stock 1,000
Retained Earnings 5,400
Total Stockholders’ Equity $12,400
Assume that all 2,000 shares of stock were issued as of December 31, 2014 for $3.50
per share. On March 1, 2015, the company reacquired 1,000 shares of its common stock
for $4.50 per share.
Refer to Lake Lanier Grill, Inc. The journal entry to record the transaction on March 1
includes a credit to what account and for what amount?
a. $3,000 to paid in capital from treasury stock transactions
b. $4,500 to treasury stock
c. $3,000 to common stock
d. $4,500 to cash
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.
When using the indirect method to determine operating cash flows, how is an increase
in accounts receivable during the year 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 is a measure of liquidity?
a. operating cash flows ratio
b. earnings per share
c. accounts receivable turnover ratio
d. return on common equity
Bonds sell at a premium when the
a. issuing company has a better reputation than other companies in the same business.
b. market rate of interest is less than the stated interest rate at the time of issue.
c. yield rate of interest is more than the stated rate at the time of issue.
d. issuing company agrees to repay the maturity before the due date.
When inventories are written down due to the application of the lower of cost or market
(LCM) rule, which of the following is usually increased?
a. cost of goods sold
b. Inventories
c. operating expenses
d. accumulated depreciation–inventory
All of the following would be considered internal control weaknesses except
a. the practice of shipping goods to customers right before year-end even though the
customers had notordered them.
b. the person who opens the mail also makes the journal entry to record any customer
payments received in the mail.
c. it takes two days to get a check written because of the approvals required.
d. no physical inventory is ever taken to confirm the amount of inventory recorded in
the accounting records.
A cookie company includes one premium coupon in every cookie package. Upon
returning 10 such coupons to the company, the customer will be sent a free cookie jar.
In a recent year, the company sold 200,000 packages of cookies for $1 per package. It is
estimated that 20% of the coupons will be redeemed. If the cookie jars cost the
company $3 each, what amount of liability should be recorded?
a. $ 6,000
b. $ 12,000
c. $120,000
d. $200,000
GT Company has $200 in cash, $500 in accounts receivable, and $700 in inventory. The
company also has $200 in accounts payable and $200 in unearned sales revenue. What
is the company’s quick ratio?
a. 1.75
b. 2.25
c. 3.00
d. 3.50
You just won the lottery and have elected to receive 10 annual payments instead of the
lump sum of $74,818.59. Calculate the amount of your annual payment assuming a 6%
interest rate.
a. $17,178.90
b. $10,165.44
c. $18,000.00
d. $10,832.11
While preparing a bank reconciliation, which of the following items would be
subtracted from the balance per the bank statement?
a. outstanding checks
b. deposits in transit
c. bank service charges
d. interest earned on the bank account
The payment of salaries to employees will result in a debit to an expense account and a
credit to the ___________ account.
The various rules and conventions that have evolved over time to guide the preparation
of financial statements in the U.S. are called ____________________.
Natural resources can be replaced or restored only by an act of nature.
A check written by a company but notyet presented to the bank for payment is called a
check in transit.
Dividends, like expenses, are closed to the income summary account during the
end-of-period closing process.
When the shipping terms are FOB destination, the buyer must record transportation
costs as an additional cost of acquiring the inventory under the perpetual inventory
system.
Refer to Fabulous Creations. Which items on the company’s balance sheet could be
considered intangible assets? Explain the nature of each of these.
Golden Sound sells premium car stereo systems and various equipment for home sound
systems as well. Sales and expected warranty claims for 2012 are as follows:
Product Unit Expected Warranty Claims Cost per
Group Sales for Warranty Period Claim
Receivers 14,700 1 claim per 100 sold $150
CD Changers 19,500 3 claims per 100 sold 125
Speakers 7,500 2 claims per 100 sold 100
Prepare the journal entry to record warranty expense for 2012.
The general ledger is often used for the initial recording of repetitive transactions.
The company has a loan agreement with First National Bank that states:
1. The current ratio must be 2.0 or higher at all times.
2. The debt-to-equity ratio must not exceed 0.7 at any time.
3. The times interest earned ratio must be 5.0 or higher.
4. The inventory turnover ratio must be 4.0 or higher.
The company’s ratios are: current ratio, 2.3; debt-to-equity ratio, 0.6; times interest
earned ratio, 7.1; and inventory turnover ratio, 3.7. Based on this information, the
company was in default of its loan agreement because of the
a. current ratio.
b. debt-to-equity ratio.
c. times interest earned ratio.
d. inventory turnover ratio.
The corporate _________________ is the legal document that authorizes the creation of
a corporation.
The ______________ depreciation method is the GAAP depreciation method used most
frequently.
Gospel Ministries purchased on account two pianos on April 3, 2012 for $6,600. The
company agreed to pay an extra $100 to have the seller deliver the pianos.
Unfortunately, one of the pianos was damaged during transit. The seller agreed to
deduct $200 from the amount owed. Gospel Ministries paid for the pianos in full on
May 3, 2012.
Prepare the journal entries that Gospel Ministries should make on April 3 and May 3.
What is meant by “generally accepted accounting principles”?