The current assets of Rock Garden Gifts were considered very liquid at December 31,
2015. This means that the company
a. has a larger quick ratio than current ratio.
b. must decrease its liquidity in order to appear more favorable to potential investors.
c. should attempt to borrow money in order to remain in business.
d. is able to pay its current obligations using its current assets.
In evaluating a company’s financial statements, the leastuseful information would be
derived from a comparison of the current period data with
a. economic and industry data.
b. another company in the same industry for the same period.
c. the same company’s data from five years ago.
d. the same company’s data from the prior year.
All American Storage Corporation sold merchandise with credit terms of 2/10, n/30, for
$100,000 to a customer on January 01, 2013. Nine months later, on October 1, 2013 the
company accepted a 12%, 6-month note receivable in settlement of the account. The
customer paid the maturity value of the note on the due date.
Prepare the following journal entries:
A) Record the sale of merchandise January 1, 2013.
B) Record the receipt of the note receivable on October 1, 2013.
C) Record the adjusting entry to accrue interest on December 31, 2013.
D) What is the due date of the note?
E) Record the collection of the note on the due date.
Fantasy Cruise Lines
On January 1, 2013, the company purchased a ship for $1,000,000. It has a 10-year
useful life and a residual value of $100,000. The company uses the
double-declining-balance method.
Refer to Fantasy Cruise Lines. Compute the amount of depreciation expense for the
year ended December 31, 2013.
a. $ 90,000
b. $100,000
c. $180,000
d. $200,000
Good Time Carts offers a one-year warranty on all its golf carts. Estimates suggest that
two percent of carts sold will require warranty service and that the average warranty
claim will cost $215. During 2013, the company sold 450 golf carts.
A) Record the entry at the end of 2013 to record the warranty expenses.
B) Assume the company incurred costs of $280 in inventory and $680 in cash paid for
wages in connection with warranty work performed during the first quarter of 2014.
Record the proper entry to recognize these costs.
Alco Roofing Company’s beginning accounts receivable were $200,000 and ending
accounts receivable were $270,000. During the period, credit sales totaled $570,000,
How much cash was collected from customers?
a. $470,000
b. $500,000
c. $570,000
d. $640,000
Cash collected and recorded by a company but notyet reflected in a bank statement are
known as
a. debit memos.
b. credit memos.
c. outstanding checks.
d. deposits in transit.
Refer to Labor Finders, Inc. The company’s 2015 return on common equity is reported
as
a. 7.58%.
b. 7.90%.
c. 8.43%.
d. 8.78%.
On April 1, 2013, a company established a petty cash fund for $300. By the end of the
month, the petty cash custodian requested reimbursement of $225 for the following
expenditures from the fund:
Office supplies $58
Overtime meals 61
Postage 75
Miscellaneous 31
Record the entries to a) establish the petty cash fund; and b) replenish the fund and
recognize expenses at the end of April.
Which of the following statements is true pertaining to participating preferred stock?
a. Its issuance provides no flexibility to the issuing company because its terms always
mandate a regular, annual dividend.
b. There is a legal requirement for a corporation to declare a regular, annual dividend.
c. It includes the right to share in dividends in excess of the regular, annual dividend.
d. It includes the right to participate in management decisions through voting privileges.
Presented below are selected data from the balance sheet:
Each of the following represents an effective cash management practice except
a. short-term investments should be purchased with excess cash in order to maximize
the interest-earning potential.
b. payments should be delayed as long as possible (without compromising the
relationship with the payee) in order to maximize the interest-earning potential.
c. payments should be expedited in order to simplify record keeping.
d. receivable collections should be expedited or receivables should be sold in order to
minimize the costs associated with accounting for customer accounts and servicing
delinquent accounts.
The following information was presented in the balance sheet of Acworth Pools as of
December 31, 2013:
Trade accounts receivable, net of allowance for doubtful
accounts of $200,000 $1,700,000
Select the incorrect statement from the following.
a. The company expects to actually collect $1,700,000 of its receivables.
b. The balance in the Accounts Receivable account in the company’s general ledger is
$1,700,000.
c. The net realizable value of the company’s receivables is $1,700,000.
d. The company expects uncollectibles to total $200,000.
When using the indirect method to determine operating cash flows, how is depreciation
expense recorded on the Statement of Cash Flows?
a. operating activity
b. investing activity
c. financing activity
d. noncash investing and financing activity
e. not reported on the statement of cash flows
The university satellite office operates five days per week with a daily payroll of
$5,000. Employees are paid every Saturday for the workweek just completed (Monday
through Friday). The last day of the month is Wednesday, October 31. What is the effect
of the correct adjustment at October 31?
a. Increases Stockholders’ equity and Wages Payable by $15,000.
b. Increases Wages Payable and decreases Cash by $10,000.
c. Decreases Stockholders’ equity and increases Wages Payable by 15,000.
d. Increases Wages Payable and increases Wages Expense by $25,000.
Which one of the following items is a classification on the Classified Balance Sheet?
a. operating accounts
b. stockholders’ equity
c. revenues and expenses
d. net income and dividends
Using the straight-line depreciation method will cause a company to incur ____ tax
expense in the early years of an asset’s life than they would experience using an
accelerated method of depreciation.
a. more
b. less
c. equal
d. This cannot be determined from the information given.
Which of the following statements is true regarding a corporation’s purchase of treasury
stock?
a. The cost of treasury stock is a reduction in stockholders’ equity.
b. Dividends must still be paid on treasury stock because it is still issued.
c. Treasury stock is reported as an asset because it is considered an investment in the
corporation’s own stock.
d. Treasury stock is no longer considered issued once it is back in the hands of the
issuer.
Which of the following items would notbe a reconciling item on a bank reconciliation?
a. canceled checks
b. NSF checks
c. outstanding checks
d. bounced checks
Dollar Town
Dollar Town is a merchandising company that uses the periodic inventory system.
Selected account balances are listed below:
Sales $105,000
Purchases 54,000
Beginning Inventory 13,800
Ending Inventory 10,200
Purchase Returns and Allowances 1,800
Purchase Discounts 4,200
Transportation-in 2,400
Sales Discounts 4,800
Sales Returns and Allowances 3,000
Refer to the information provided for Dollar Town. Calculate net sales.
a. $97,200
b. $100,200
c. $102,000
d. $105,000
The effect of recording depreciation for the year is a(n)
a. decrease in assets and a decrease in net income.
b. decrease in assets but no change in owners’ equity.
c. increase in assets and an increase in net income.
d. decrease in net income and no change in assets.
Which of the following best describes the term “expenses”?
a. The cost of assets used in the investing activities of a business.
b. The amount of interest or claim that the owners have in the business.
c. The future economic resources of a business entity.
d. The cost of assets used in the operations of a business.
Which of the following is true for a corporation that issues 1,000 shares of $2 par
common stock at $5 per share?
a. The common stock account will increase by $5,000.
b. $2 per share is the maximum selling price for these shares of stock.
c. Total stockholders’ equity will increase by $5,000.
d. The per share dividend amount on these shares is $2.
Refer to Hesson Properties. What journal entry is required to record the collections on
account from customers?
a. Cash 500
Accounts Receivable 500
b. Accounts Receivable 500
Service Revenue 500
c. Accounts Payable 500
Cash 500
d. Service Revenue 500
Cash 500
Coffski, Inc. sold merchandise to a customer on credit. The invoice amount was $1,000;
the invoice date was June 10th; credit terms were 1/10, n/30. Which of the following
statements is true?
a. The customer can take a 10% discount if the invoice is paid by June 30th.
b. The customer should pay $1,000 if the invoice is paid on July 9th.
c. The customer must pay a $10 penalty if payment is made after July 9th.
d. The customer must pay $1,010 if payment is made after June 20th.
At the end of 2013, the unadjustedaccounting records contain the following selected
accounts and balances:
Refer to Falling Leaves Lawn Care. By what amount would double-declining-balance
depreciation exceed straight-line depreciation over the 5-year life of the equipment?
a. the salvage value of $7,000
b. cost less total depreciation.
c. cost plus total depreciation
d. total depreciation expenses under double-declining-balance and straight-line
depreciation are equal
Fleet Rentals purchased equipment with a cost of $200,000 at the beginning of 2013.
The equipment has an estimated life of 10 years or 100,000 units of product. The
estimated residual value is $20,000. During 2013, 11,000 units of product were
produced with this machinery. Determine the following:
A) Amount of total accumulated depreciation at December 31, 2013, using
units-of-production depreciation
B) Book value at the end of 2013 using straight-line depreciation
C) Why would the company choose units-of-production depreciation instead of
straight-line?
Refer to Dreammaker Kitchens. What was the company’s unadjusted cash balance on
November 30th before the bank reconciliation process was undertaken?
a. $10,700
b. $11,300
c. $12,200
d. $11,600
Match these terms to their correct definition.
a. Accounts receivable turnover ratio e. Net profit margin
percentage
b. Cash ratio f. Operating margin
percentage
c. Gross profit percentage g. Quick ratio
d. Inventory turnover ratio h. Total payout ratio
50/ Sum of the dividend payout and stock repurchase payout ratios.
51/ Length of time required to collect the receivable from a credit sale.
52/ Measures the profitability of a company’s operations in relation to its sales.
53/ An even more conservative short-term liquidity ratio than the quick ratio.
54/ Length of time required to sell inventory to customers.
55/ Measure of liquidity that excludes assets that are difficult to convert to cash.
56/ Measures the proportion of each sales dollar that is profit.
57/ Measurement of the proportion of each sales dollar that is available to pay other
expenses and provide profit for owners.
Refer to Benchmark Surveyors. Calculate Current Liabilities.
a. $ 97,000
b. $211,000
c. $354,000
d. $143,000
On January 1, 2013, Kroger Corporation issued $10,000,000 of 8% bonds, due in five
years with interest payable annually on December 31. The market yield rate is 9
percent. Calculate the present value (market value) of the bonds.
The _______________ dividend preference is a preferred stock feature that provides for
the current stated dividends plus a share of dividends available for distribution to other
classes of stockholders.
Refer to Fabulous Creations. In the notes to the financial statements, the company
indicates that it uses different depreciation methods for different types of plant and
equipment assets. Explain why the company might follow this policy.
The stockholders’ equity section of the balance sheet shows all changes in stockholders’
equity for the period.
What is meant by the concept of efficiency as it relates to turnover ratios? Explain.
Kids R Kids Company
Selected data from the comparative financial statements are provided below:
Kids R Kids Company
Balance Sheet Accounts
(all accounts have normal balances)
(in thousands)
December 31,
2013 2012
Accounts payable and Accrued expenses $ 3,141 $ 3,249
Accrued income taxes 1,037 1,056
Accumulated depreciation 2,016 2,028
Buildings 1,507 1,535
Cash and cash equivalents 1,648 1,737
Common stock 865 861
Containers 124 157
Current maturities of long-term debt 3 397
Deferred income taxes (long-term liability) 424 426
Goodwill and other intangible assets 547 668
Inventories 890 959
Land 19 183
Loans payable (short-term) 4,459 2,677
Long-term investments 8,549 6,501
Machinery & equipment 3,855 3,896
Marketable securities 159 106
Other long-term liabilities 991 1,001
Other fixed assets 21,952 20,919
Retained earnings 7,608 6,773
Trade accounts receivable 1,666 1,639
Kids R Kids Company
Income Statement
Selected amounts
(in thousands)
Year ended December 31,
2013 2012
Net sales $18,813 $18,868
Interest expense (all paid with cash) 277 258
Income before income taxes 5,198 6,055
Income taxes 1,665 1,926
Net income 3,533 4,129
Kids R Kids Company
Statement of Cash Flows
Selected amounts
(in thousands)
Year ended December 31,
2013 2012
Net cash provided by operating activities $ 3,433 $ 4,033
Financing activities:
Cash dividends paid (1,480) (1,387)
Purchase of treasury stock (1,563) (1,262)
Issuance of debt 1,818 155
Repayment of long-term debt (410) (751)
Issuances of stock 302 150
1. Refer to Kids R Kids Company. The total long-term liabilities at December 31,
2013, are (in thousands):
Refer to Kids R Kids Company. The total long-term liabilities at December 31, 2013,
are (in thousands):
The use of the allowance method is an attempt by accountants to match bad debts as an
expense with the revenue of the period in which a sale on credit takes place.
What information is provided in an annual report in addition to the financial
statements?
____________________ are journal entries made at the end of the accounting period to
return the balance in all temporary accounts to zero.
If cost of goods sold does not equal the cost of merchandise purchased during the
period, an adjustment must be made to correct the error.
Patent Amortization Expense for 2013
B) Prepare the intangible assets section of the balance sheet at December 31, 2013.
Many companies use software such as Microsoft PowerPoint to construct their cash
flow statements.
A balance sheet approach to estimating bad debt expense is not permitted under GAAP
(Generally Accepted Accounting Principles).
Refer to Rhodes Bakery. Calculate the following asset efficiency ratios for 2015 and
2014: Accounts Receivable Turnover Ratio, Inventory Turnover Ratio, and Asset
Turnover Ratio. Also determine the Operating Cycle. Round your answers to two
decimal places. Comment on the company’s asset efficiency ratios.
A portion of the company’s income statements are shown below. At December 31, 2013,
Accounts Receivable, Inventories, and Total Assets were $18,500, $6,500, and
$325,000, respectively.
For the Years Ended
2015 2014
Net Sales $475,000 $387,500
Cost of Goods Sold 240,000 200,000
Gross Profit $235,000 $187,500