All of the following are true for a company that uses the allowance method of
accounting for bad debts, EXCEPT:
a. It uses a contra-asset account called the allowance for doubtful accounts.
b. It records bad debt expense each time an account is determined to be uncollectible.
c. It reduces its accounts receivable balance when the account is written off.
d. It reports accounts receivable in the balance sheet at their net realizable value.
Refer to Accelerated Solutions. If the aging method is used to estimate bad debts, what
amount should be recorded as bad debt expense for 2013?
Accelerated Solutions
The following data are from the company’s records for 2013:
a. $50,000
b. $ 5,000
c. $15,000
d. $25,000
What are the effects on the accounting equation from the purchase of a short-term
investment?
a. Assets and stockholders’ equity increase.
b. No effects; assets increase and decrease by the same amount.
c. Assets and liabilities decrease.
d. Stockholders’ equity increases and liabilities decrease.
If a corporation declares a 2-for-1 stock split, which of the following is true?
a. The amount of stockholders’ equity is double as a result of the split.
b. The amount of capital stock is doubled as a result of the split.
c. The price of each will be doubled as a result of the split.
d. A stockholder who previously held 100 shares will have 200 shares after the split.
When a firm borrows money, one effect on the accounting equation is a(n)
a. decrease in contributed capital.
b. increase in assets.
c. decrease in liabilities.
d. decrease in assets.
Which one of the following is not a reason why a corporation’s ability to pay dividends
may be restricted?
a. An agreement with bondholders may require that the balance of retained earnings be
maintained at a minimum level.
b. The board of directors may set aside designated amounts for future expansion or
other business purposes.
c. State laws may require that the retained earnings balance cannot fall below the cost
of treasury stock.
d. The corporate charter may require that transactions with nonowners be excluded
from retained earnings.
Dividend yield ratio
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
The following unadjusted account balance was taken from the accounting records at
December 31, 2013:
The amount borrowed
Select the term that matches each of the following descriptions.
a. Interest
b. Maturity Value
c. Principal
d. Lender
e. Factoring
f. Fraction of year
g. Maturity date
h. Implicit
i. Maker
Which of the following is the correct date format for the financial statement heading?
a. Balance Sheet for the Year Ended June 30, 2013
b. Income Statement at December 31, 2013
c. Income Statement for the Year Ended December 31, 2013
d. Statement of Retained Earnings at December 31, 2013
The ____________________ ratio is computed by subtracting the dividend payout ratio
from the total payout ratio.
The amount of interest paid is a function of three variables, the amount borrowed, the
interest rate, and the length of the loan period.
The purchase of office supplies from a supplier is an example of an external event.
If the investor holds enough common stock to control the investee (50% or more
common stock ownership), then the two corporations are no longer separate accounting
entities and therefore they no longer may maintain separate accounting records.
Significant noncash transactions are not reported on the statement of cash flows, but in
a separate schedule shown either at the bottom of the statement of cash flows or in a
note to the financial statements.
The information in a statement of cash flows helps investors, creditors and others judge
a company’s ability to meet its obligations and pay ____________________.
Restricted earnings are usually disclosed in the footnotes to the financial statements, but
may sometimes be disclosed in a reserve account in the equity section of the balance
sheet.
The accountant must make journal entries for all items in the bank section of the bank
reconciliation.
In general, retained earnings represents accumulated earnings of the corporation less
dividends paid.