A corporation does not have a legal obligation to pay dividends.
A deferral adjustment may involve one asset and one expense account.
To evaluate a company’s net profit margin, it is best to compare it to another company
in the same industry.
The carrying value of an asset is an approximation of the asset’s market value.
When the times interest earned ratio increases, the likelihood of default on liabilities
decreases.
As a company uses supplies, an adjustment should be made to decrease an asset account
and increase an expense account.
The Sarbanes-Oxley Act (SOX) grants legal protection to ‘whistle-blowers.’
The par value of stock indicates what the stock is worth.
Consignment inventory is reported on the balance sheet of the company holding the
inventory.
In a perpetual inventory system, paying transportation charges on goods purchased FOB
shipping point would have which of the following effects?
A) Decrease Operating Expenses
B) Increase Selling, General, and Administrative Expenses
C) Decrease Cost of Goods Sold
D) Increase Inventory
Which of the following accounts would be classified as a current liability on a classified
balance sheet?
A) Dividends
B) Unearned Revenue
C) Wages Expense
D) Accounts Receivable
Limited liability companies (LLCs):
A) are like corporations in that the owners have limited liability.
B) are like partnerships in that the owners have unlimited liability.
C) have the tax treatment of corporations.
D) have the tax treatment of sole proprietorships.
Obligations due to be paid within one year or the company’s operating cycle, whichever
is longer, are classified as:
A) current assets.
B) current liabilities.
C) earned revenues.
D) noncurrent liabilities.
Consider the following journal entry:
Which of the following explanations best describes this journal entry?
A) The company buys $10,000 of equipment, pays cash of $4,000, and signs a note for
$6,000.
B) The company receives $4,000 in cash and $6,000 in notes payable in exchange for
selling $10,000 of equipment.
C) The company buys $10,000 of equipment, pays $4,000 cash, and promises to cancel
a debt owed to the company in the amount of $6,000.
D) The company sells $10,000 of equipment, receives $4,000 in cash, and pays off
$6,000 it owes on the equipment.
BetterBuy purchases computers from companies like Hewlett Packard and IBM and
sells them to consumers. BetterBuy is a:
A) merchandising company at the retail level.
B) service company.
C) merchandising company at the wholesale level.
D) manufacturer.
To ensure that the Allowance for Doubtful Accounts account does not become
materially misstated over time, companies revise overestimates of prior periods by:
A) recording a retroactive correcting entry.
B) lowering estimates in the current period.
C) increasing estimates in the current period.
D) notifying the users of its financial statements of the error.
For a manufacturer, inventory turnover refers to how many times:
A) during the period the company replaces the raw materials inventory.
B) the company purchases and sells its inventory of finished goods.
C) the company produces its goods and delivers the inventory to customers.
D) the company orders raw materials.
In a common size balance sheet, each item on the balance sheet is expressed as a
percentage of:
A) total assets.
B) total liabilities.
C) net income.
D) total stockholders’ equity.
Hubbard Street Dance Company sells subscriptions for its monthly dance performances.
The company received annual subscription payments on November 15, 2015 for
performances that will take place during 2016 in the amount of $120,000. The
subscription payments will be earned equally throughout each month.
Required:
Part a. Describe how the subscription payments should be reported in the balance sheet
and income statement on December 31, 2015
Part b. Describe how the subscription payments should be reported in the balance sheet
and income statement on January 31, 2016.
Part c. Prepare the journal entry for the receipt of annual subscription payments on
November 15, 2015.
Part d. Prepare the required adjusting entry for the subscription payments on January
31, 2016.
Which of the following statements about the statement of cash flows is not correct?
A) The statement of cash flows can be used to assess the likelihood of a company
paying dividends.
B) Net cash flow is the best measure of profitability since it does not rely on estimates.
C) A company can have positive net income but at the same time have negative cash
flow.
D) The statement of cash flows is the only financial statement that reports business
activities.
The Prepaid Insurance account has a normal balance of $3,750 at the beginning of the
month. The company used $980 of insurance coverage during the month. Which of the
following statements is correct?
A) The company should credit Insurance Expense for $980 and debit Prepaid Insurance
for $980.
B) Retained earnings will decrease and stockholders’ equity will increase.
C) The company should debit Insurance Expense for $980 and credit Prepaid Insurance
for $980.
D) Retained earnings and stockholders’ equity will both increase.
Use the information above to answer the following question. The amount of retained
earnings at the end of the year is
A) $15,000.
B) $11,000.
C) $12,000.
D) $1,000.
A company issues $1 million of new stock and pays $200,000 in cash dividends during
the year. In addition, the company took advantage of falling interest rates to borrow
$1.5 million in a new bond issue and paid off existing bonds with a face value of $2
million. The company bought 500 of another company’s $1,000 bonds at a $100,000
premium. The net cash flow provided by financing activities is:
A) An inflow of $500,000.
B) An outflow of $200,000.
C) An outflow of $100,000.
D) An inflow of $300,000.
The straight-line depreciation method and the double-declining-balance depreciation
method:
A) produce the same total depreciation over the asset’s useful life
B) produce the same amount of depreciation expense each year.
C) produce the same book value each year.
D) are the only acceptable methods of depreciation for financial reporting.
Sinton Inc. uses a periodic inventory system. During the current year, its beginning
inventory was $5,200 and net purchases amounted to $24,600. At the end of the year,
after counting its inventory, the company determined that the dollar valuation of its
ending inventory was $4,100.
Required:
Part a. Calculate cost of goods available for sale.
Part a. Calculate cost of goods sold.
A current ratio of less than one is not so much of a concern when the company has a:
A) low fixed asset turnover ratio.
B) high days to collect number.
C) high inventory turnover ratio.
D) high debt-to-equity ratio.
Which of the following statements about dividends in arrears is correct?
A) Dividends in arrears do not appear on the balance sheet or require a journal entry.
B) Dividends in arrears are not disclosed to stockholders.
C) Dividends in arrears applies to common stock.
D) Dividends in arrears are legal liabilities.