Revenue is generally recognized at the point of sale.
The interest coverage ratio measures the firm’s ability to meet its interest obligation.
According to accounting rules, fiscal years are required to be established over calendar
years.
When a financial analyst evaluates a company’s operating performance, the evaluation
should exclude extraordinary items.
Because net income is the excess of revenues over liabilities, retained earnings
increases by the amount of net income reported during the period less any dividends.
When expense accounts are closed, we credit each expense account.
If the adjusting entry to record the current period’s prepaid rent that is expired is
omitted, current assets will be overstated.
The purchase of another company’s stock is an example of an investing activity.
The account Dividends Payable is
A) debited on the date of declaration.
B) credited on the date of payment.
C) not a legal liability of the company.
D) a liability on a balance sheet prepared between the date of declaration and the date
of payment.
E) a contra account found in the stockholders’ equity section of the balance sheet.
The ________ is calculated by dividing total liabilities by total shareholders’ equity.
A) debt-to-equity ratio
B) long-term-debt-to-total capital ratio
C) debt-to-total-assets ratio
D) interest-coverage ratio
E) current ratio
Which of the following statement(s) describe the principal reason(s) why investors and
creditors use financial statement analysis?
1. To assess the risks associated with expected returns
2. To evaluate top and middle level management
3. To predict the amount of expected returns
4. To establish recommended dividend and interest payments
A) 1 and 2
B) 1, 2, and 3
C) 1 and 3
D) 1 and 4
E) 2, 3, and 4
Which of the following accounts is classified differently from the others in the list?
A) Notes Payable
B) Accounts Receivable
C) Merchandise Inventory
D) Prepaid Rent
E) Cash
For which company would it seem sensible to use a fiscal year ending on June 30?
A) A landscaping company
B) A retail store that sells lawn mowers and lawn equipment
C) A swimming pool retailer
D) A snowboard retailer
E) A hardware store
The recording of expenses in the same time period as the related revenues are
recognized is known as
A) cost recovery.
B) realization.
C) matching.
D) recognition.
E) period costs.
The SEC requires publicly held companies to file 10-K reports within ________ after
the fiscal year ends.
A) 30 days
B) 60 days
C) 90 days
D) 120 days
E) none of the above
The adjusting entry to record accrued interest receivable has what effect on the basic
accounting equation?
A) Increase assets, increase liabilities
B) Decrease assets, decrease liabilities
C) Increase assets, increase stockholders’ equity
D) Increase assets, decrease stockholders’ equity
E) Decrease liabilities, increase stockholders’ equity
Armingham Cable Company sells cable services and related accessories. Which of
these situations demonstrate proper revenue recognition for Armingham Cable
Company?
A) Insurance is paid one month in advance of the due date because the Armingham
Cable Company has extra cash.
B) Cable services are sold to customers, and customers are billed in advance of
receiving services. Revenue is recorded before rendering services.
C) Cable boxes are purchased for sale to customers, but the accountant has not yet paid
the bill.
D) An interest bearing certificate of deposit is purchased. Interest will be received at the
end of 60 days. Interest revenue will be recorded at the end of 60 days.
E) Employees are paid for hours worked last month.
For each of the independent situations below, determine the age of the asset in question.
All assets were acquired at the beginning of the years.
a. The balance in the buildings account is $400,000; while the balance sheet shows the
book value of the buildings at $217,600. The notes to the financial statements indicate
that straight-line depreciation is used for all plant assets and that residual values are
estimated at 5% of cost. The estimated life of the buildings is 25 years.
b. The book value of delivery equipment is $51,520. The cost of the delivery equipment
was $80,500. The company uses the straight-line method of depreciation for delivery
equipment and estimates life at 5 years or 50,000 units. So far, 27,000 units have been
produced. Residual value is 10% of cost.
Resale Sports had inventory of $8,000 on Jan 1, 20X3, and $12,000 on Dec 31, 20X3.
Sales for 20X3 were $250,000 and the company’s gross profit percentage was 35%.
What was the inventory turnover for Resale Sports for 20X3?
A) 7.29 times
B) 8.75 times
C) 13.54 times
D) 16.25 times
E) 25.00 times
The trial balance should be prepared
A) after preparing the financial statements.
B) before posting beginning balances to new accounts.
C) after posting closing entries.
D) before posting journal entries to the ledger.
E) after posting journal entries to the ledger.
Which is a disadvantage of a corporation?
A) Limited liability for owners
B) Easy transfer of ownership
C) Ease in raising ownership capital from potential stockholders
D) Management’s consumption of perquisites
E) Continuity of existence
Companies that offer cash discounts for prompt payment and use the gross method to
account for them journalize the discount by
A) deducting the discount from the gross accounts receivable account.
B) using a separate account called Cash Discounts on Sales.
C) using a separate account called Trade Discounts on Sales.
D) adding the discount to the gross accounts receivable account.
E) deducting the discount from the revenue account.
________ are debt securities that the investor expects to hold until maturity.
A) Short-term equity securities
B) Trading securities
C) Cash equivalents
D) Available-for-sale securities
E) Held-to-maturity securities
A liability that results from a purchase of goods or services on open account is referred
to as a(n)
A) accounts receivable.
B) notes payable.
C) accounts payable.
D) notes receivable.
E) capital stock.
Posting is the process of transferring information from the
A) journal to the ledger.
B) ledger to the journal.
C) journal to the balance sheet.
D) income statement to the balance sheet.
E) ledger to the income statement and balance sheet.
TLJ, Inc., has the following stockholders’ equity accounts and amounts before paying
dividends:
Assuming that TLJ, Inc., is restricted from declaring dividends that would cause
stockholders’ equity to be less than total paid-in capital, what is the maximum amount
of dividends TLJ, Inc.’s board could declare?
A) $70,000
B) $15,000
C) $25,000
D) $65,000
E) $10,000
Cupling Enterprises borrowed $6,000 from Escada Bank on October 1, 2012. At that
time, the company made the appropriate journal entry; however, no other journal entry
pertaining to the note has been made. Given that the bank is charging interest at a rate
of 9%, what adjusting entry is necessary as of Cupling Enterprise’s year-end date of
December 31, 2012?
Prepare the journal entries for each of the six transactions depicted in the following
T-accounts, along with a brief explanation as to the nature of the transaction.
Telder Amusement Park issued common stock for $650,000 on January 1, 2012. The
company bought fixed assets for $435,000 cash and inventory for $50,000 cash. Later
that same year, the company sold fixed assets for $10,000 more than their book value of
$65,000. Half of the inventory was sold for $98,350 during the year. On December 15,
cash was used to purchase $49,000 worth of Allen Food Services common stock, which
Telder regarded as a long-term investment. Prepare the cash flows from investing
activities of the statement of cash flows for Telder Amusement Park.
Oleke Manufacturing borrowed $20,000 from Second National Bank on January 1. The
note is for 9 months with all interest due at the end of the note. The bank is charging the
company 9% interest. What adjusting entry is necessary for Oleke Manufacturing on
January 31?
Given the following account balances for Nelson Communications, prepare a trial
balance for March 31, 2012.
