Refer to A Better Mousetrap. What amount should the company recognize as interest
revenue on the maturity date of the note?
A Better Mousetrap
The company sold merchandise to a customer on December 1, 2013, for $100,000. The
customer paid with a promissory note that has a term of 6 months and an annual interest
rate of 9%. The company’s accounting period ends on December 31. a. $ -0-
b. $4,500
c. $3,750
d. $9,000
A manufacturing company’s weekly payroll is $80,000 for a 5-day work week
beginning each Monday and ending each Friday. The last time salaries and wages were
recorded was Friday, December 26. What adjustment is needed on December 31, the
last day of the company’s fiscal period?
a. Increase wages expense by $48,000.
b. Decrease wages payable by $48,000.
c. Decrease cash by $48,000.
d. No adjustment is necessary since the next payday will not occur until the following
year.
Use the Statement of Stockholders’ Equity for Lee’s T.V. Company to answer the
questions that follow:
A) What is the primary reason for the increase in total stockholders’ equity during
2014?
B) Did the board of directors declare any dividends during 2014? How can you tell?
C) Did the company repurchase any of its own shares during 2014? How can you tell?
Companies that maintain three separate inventory accounts.
Match the terms with the descriptions provided.
a. Manufacturers d. Wholesalers
b. Merchandisers e. Service companies
c. Retailers
Long-term debt generally includes
a. obligations that will be satisfied within one year.
b. accounts payable, because they are interest-bearing.
c. obligations that extend beyond one year.
d. accrued expenses.
A company receiving payment of a $20,000 accounts receivable within 10 days with
terms of 2/10, n/30, would record a sales discount of:
a. 10% of $20,000
b. 2% of $20,000
c. (100% – 10%) x $20,000
d. (100% – 2%) x $20,000
The current portion of long-term debt would appear on the balance sheet as
a. current liability.
b. long-term liability.
c. current asset.
d. long-term debt.
Refer to Rainsoft Company. Which of the following statements is true regarding the
company’s liquidity?
Rainsoft Company
Selected data from the financial statements are provided below:
a. Based on the current ratio and operating cash flow ratio, the company appears to be
in a worse position to pay its current obligations at the end of 2015 compared to 2014.
b. The quick ratio decreased from 2014 to 2015.
c. The operating cash flow ratio increased from 2014 to 2015.
d. Based on the quick ratio and cash ratio, the company appears to be in a better
position to pay its current obligations at the end of 2015 compared to 2014.
Which of the following statements is true regarding the two allowance procedures used
to estimate bad debts?
a. The percentage of net credit sales method takes into account the existing balance in
the Allowance for Doubtful Accounts account.
b. The direct write-off method takes into account the existing balance in the Allowance
for Doubtful Accounts account.
c. The aging of accounts receivable method takes into account the existing balance in
the Allowance for Doubtful Accounts account.
d. The direct write-off method does a better job of matching revenues and expenses.
Arise from transactions not involving inventory (e.g., interest receivable).
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
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
A company has total assets of $350,000 consisting of current assets of $115,000,
property, plant, and equipment of $200,000, and other assets of $35,000. The company
has total liabilities of $100,000 consisting of current liabilities of $65,000 and other
liabilities of $35,000. What is the current ratio?
a. 3.50
b. 1.15
c. 1.77
d. 5.38
Which of the following best describes the term “current assets”?
a. The amount of total profits earned by a business since it began operations plus all
other resources.
b. The amount of claim that the owners have in the business in the current year.
c. Assets expected to be converted into cash within one year or one operating cycle,
whichever is longer.
d. The cumulative profits earned by a business less any dividends distributed in the
current period.
Tom liquidates an investment, and his proceeds will be received in 8 annual payments
of $10,000 each with interest computed at 7%. What is the Present Value of this
Annuity?
a. $89,228.00
b. $59,713.00
c. $17,181.90
d. $5,820.10
The equity section of a balance sheet at December 31, 2014, is presented below:
On May 15, 2015, the company reacquired 1,000 shares of its common stock at $15 per
share. Then on July 1, 2015, 500 shares of treasury stock were sold for $20 per share.
The future value of a single amount is the original cash flow plus simple interest as of a
specific future date.
In ____________________ analysis, each financial statement line item is expressed as
a percent of the largest amount on the statement, which is net sales for the income
statement and total assets for balance sheet.
When a corporation issued stock to stockholders, explain the use of the account for
paid-in capital in excess of par value.
Tusk Company acquired all of the assets of Tinsel Company for $1,000,000. With the
approval of Tinsel’s stockholders and creditors, Tinsel transferred all of its assets and
liabilities to Tusk Company and distributed the cash to Tinsel’s stockholders. On the
acquisition date, Tinsel’s stockholders’ equity was $500,000. Tusk Company determined
that Tinsel’s liabilities of $500,000 are correctly valued, but its identifiable assets are
worth $300,000 more than their book value of $1,000,000. Determine the amount of
goodwill to be recognized by Tusk Company as a result of its acquisition of Tinsel
Company.
A business combination is recorded at the cost of acquisition, without regard to the
seller’s ____________________ value.
The operating cash flow ratio is calculated by dividing current assets by cash flows
from operating activities.
Why does the accrual basis of accounting require adjustments, while the cash basis does
not?