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Company A uses an accelerated depreciation method while Company B uses the
straight-line method for an asset of the same cost and useful life. Which of the
following statements is correct?
A) Company A will have higher depreciation expense in the early years, but Company
B will have the higher expense towards the end of the asset's useful life.
B) Company A will consistently have higher depreciation expense until residual value is
reached.
C) Company B will have higher depreciation expense in the early years, but Company
A will have the higher expense towards the end of the asset's useful life.
D) Company B will consistently have higher depreciation expense until residual value
is reached.
Use the information above to answer the following question. If the units-of-production
method is used, the depreciation expense for this period is:
A) $80,000.
B) $400,000.
C) $76,000.
D) $380,000.
A company receives $95 for merchandise sold to a consumer of which $5 is for sales
tax. The $5 of sales tax:
A) increases sales revenue.
B) increases current liabilities.
C) increases selling expenses.
D) is not recorded until it is forwarded to the state government.
A company plans to decrease a $200 petty cash fund to $75. The current balance in the
account includes $35 in receipts and $165 in currency. The entry to reduce the size of
the petty cash fund will include a:
A) credit to Cash for $90.
B) debit to Cash for $90.
C) debit to Petty Cash for $35.
D) debit to Petty Cash for $75.
Use the information above to answer the following question. Which of the following
statements about the recording of these transactions is correct?
The following transactions occurred during July:
1) Received $800 cash for services performed during July.
2) Received $5,000 cash from the issuance of common stock to owners.
3) Received $400 from a customer as payment for services performed during June.
4) Billed $3,500 to customers for services performed on account in July.
5) Borrowed $2,500 from the bank and signed a promissory note.
6) Received $1,000 from a customer for services to be performed during August.
A) Transaction #1 would include a debit to Service Revenue.
B) Transaction #3 would include a debit to Accounts Receivable.
C) Transaction #4 would include a debit to Accounts Receivable.
D) Transaction #6 would include a debit to Unearned Revenue.
Which of the following statements is correct?
A) The Accumulated Depreciation account includes cash flows that may be categorized
as both operating and investing.
B) Inventory includes cash flows that may be categorized as both operating and
investing.
C) Retained Earnings includes cash flows that may be categorized as both operating and
investing.
D) Bonds Payable includes cash flows that may be categorized as both operating and
financing.
Your company's president donates a large amount of her own money to charity and
receives significant publicity that includes the company's name. How would the
benefits of this publicity appear on the balance sheet?
A) It would appear as a current asset.
B) It would appear as Common Stock.
C) It would appear as a noncurrent asset.
D) It would not appear on the balance sheet.
A company has outstanding 10 million shares of $2 par common stock and 1 million
shares of $4 par preferred stock. The preferred stock has an 8% dividend rate. The
board of directors declares $300,000 in total dividends for the year. Which of the
following is correct if the preferred stockholders have a cumulative dividend
preference?
A) Preferred stockholders will receive the entire $300,000 and they must also be paid
$20,000 before the end of the current accounting period; common stockholders will
receive nothing.
B) Preferred stockholders will receive $24,000 (or 8% of the total dividends); common
stockholders will receive the remaining $276,000 (or $300,000 - $24,000).
C) Preferred stockholders will receive the entire $300,000 and they must also be paid
the remaining $20,000 sometime in the future before common stockholders will receive
any dividends.
D) Preferred stockholders will receive the entire $300,000, but will receive nothing
more in the future relating to this dividend declaration; common stockholders will
receive nothing.
The Whackem-Smackem Software Company sold $11 million of computer games in its
first year of operations. The company received payments of $7.5 million for these
computer games. The company's income statement would report:
A) Accounts Receivable of $3.5 million.
B) expenses of $3.5 million.
C) Sales Revenue of $7.5 million.
D) Sales Revenue of $11 million.
The following information is taken from the financial statements of B. Darin Company:
Expenses include interest of $10,000 and income tax of $90,000. There was an average
of 40,000 shares of common stock outstanding during the year and the market price of
the stock is $15 per share at the end of the year. There was no preferred stock
outstanding during the year.
Required:
Calculate the following ratios for the current year:
Part a. Fixed asset turnover
Part b. Return on equity (ROE)
Part c. Earnings per share (EPS)
Part d. Times interest earned
Part e. Price/Earnings ratio
Part f. Debt-to-assets ratio
Part g. Net profit margin
Consider the formula used to calculate each of the following financial performance
ratios. From the list of financial statement items below, match its letter with the ratio it
is used to calculate. Some financial statement items will be used more than once. Some
ratios will use one letter from the list and some ratios will use two letters from the list.
Ratio
1) ___ Net Profit Margin
2) ___ Debt-to-assets ratio
3) ___ EPS
4) ___ ROE
5) ___ Days to collect
6) ___ Days to sell
7) ___ Price earnings ratio
8) ___ Current ratio
9) ___ Fixed asset turnover
10) ___ Gross profit percentage
11) ___ Quick ratio
Financial Statement Item
A) Net income
B) Interest paid
C) Cost of goods sold
D) Net sales revenue
E) Total liabilities
F) Total assets at year end
G) Average stockholders' equity
H) Current liabilities
The purpose of internal controls includes all of the following except:
A) improving efficiency.
B) producing timely accounting information.
C) minimizing errors.
D) completely eliminating fraud.
An adjusted trial balance should be prepared immediately:
A) after the financial statements, but before closing.
B) before posting adjusting entries.
C) after posting adjusting entries.
D) after journalizing adjusting entries.
A company purchased office equipment for $24,500 and paid $1,470 in sales tax, $550
for installation, $3,200 for a needed adjustment to the equipment, and $2,600 for
supplies that will be used for periodic routine maintenance. How should the company
record this transaction?
A) Debit Equipment $24,500, debit Repairs and Maintenance Expense for $5,220, debit
Supplies for $2,600, and credit Cash for $32,320
B) Debit Equipment for $29,720, debit Supplies for $2,600, and credit Cash for $32,320
C) Debit Equipment for $25,970, debit Repairs and Maintenance Expense $3,750, debit
Supplies for $2,600, and credit Cash for $32,320
D) Debit Equipment and credit Cash for $32,320
The requirement that transactions be recorded at their exchange price at the transaction
date is called the:
A) conservatism exception.
B) separate entity assumption.
C) cost principle.
D) monetary unit assumption.
Which of the following statements regarding gross profit percentage is not correct?
A) It is possible for a company to increase both its gross profit percentage and net
income without increasing the dollar amount of sales.
B) A decreasing gross profit percentage means that the company is selling products for
a greater markup over its cost.
C) The gross profit percentage measures the percentage of profit earned on each dollar
of sales.
D) Gross profit percentages vary across industries.
For a business to be considered a corporation:
A) its stock must be sold in very large amounts.
B) it must be organized as a separate legal entity.
C) it must issue both common and preferred stock.
D) it must pay dividends.
Which of the following would be the best investment?
A) A company that pays no dividends, but has substantial net income.
B) A company that pays substantial dividends, but whose earnings per share has been
declining over the past several years.
C) A company whose stock price has increased steadily, but pays no dividends.
D) It depends on one's investment objectives.
Which of the following statements about the balance sheet is correct?
A) A classified balance sheet is one that contains privileged information.
B) Current liabilities are debts and other obligations that will be paid or fulfilled within
12 months of the balance sheet date.
C) All companies use the chart of account names defined by the Financial Accounting
Standards Board (FASB).
D) A balance sheet is prepared for a period of time.
The company has net sales revenue of $3.6 million during 2016. The company's records
also included the following information:
What is the company's fixed asset turnover ratio for 2016?
A) 18.00
B) 1.33
C) 1.00
D) 1.50
