To evaluate a company’s net profit margin, it is best to compare it to another company
in the same industry.
A good voucher system includes procedures and approvals designed to control cash
payments.
Maya Company’s purchase of 100 shares of Labrador Inc. common stock would be
reported as a financing activity on its statement of cash flows.
When a company routinely sells on credit, it is inevitable that some of its customers
will not pay the amount owed.
A stock dividend decreases the market price of the company’s stock.
When assets are purchased as a group, the total cost must be divided up and allocated to
each asset in proportion to the market value of the assets as a whole.
When preparing the operating activities section of the statement of cash flows using the
indirect method, an increase in Income Taxes Payable is added to net income.
It is possible for a company to be profitable, yet not have enough cash to pay its bills.
During its first year of operations, a company entered into the following transactions:
Borrowed $5,000 from the bank by signing a promissory note.
Issued stock to owners for $10,000.
Purchased $1,000 of supplies on account.
Paid $400 to suppliers as payment on account for the supplies purchased.
Use the information above to answer the following question. What is the amount of
total liabilities at the end of the year?
A) $6,000.
B) $15,600.
C) $16,000.
D) $5,600.
Phelps, Inc. had assets of $67,646, liabilities of $15,466, and 10,718 shares of
outstanding common stock at December 31, 2014. Net income for 2015 was $7,829.
The company had assets of $79,571, liabilities of $18,551, 10,771 shares of
outstanding, and its stock was trading at a price of $10 per share at December 31, 2016.
Net income for 2016 was $9,993.
Required:
Part a. Calculate EPS for 2016.
Part b. Calculate ROE for 2016.
Part c. Calculate the Price/Earnings ratio for 2016
An outdoor water park that has a calendar year-end and is located in an area of the
country that has warmer weather during April through September and colder weather
during the rest of the year is likely to have:
A) unpredictable fluctuations in cash flow from quarter to quarter.
B) the largest cash inflow from operating activities in the second and third quarters
(April through September).
C) a fairly stable cash flow across all four quarters.
D) the largest cash inflow from operating activities in the fourth and first quarters
(October through March).
A company’s number of days to collect is higher than the length of credit period.
Analysts might conclude:
A) customers are dissatisfied with the product or service they bought.
B) the company is effectively managing its receivables.
C) the company’s payment terms have been relaxed and customers are taking advantage
of those new terms.
D) the company’s payment terms have been tightened and customers are paying within
the payment period granted.
The stockholders’ equity section of the balance sheet includes all of the following
except:
A) Retained Earnings.
B) Contributed Capital.
C) Treasury Stock.
D) Dividends.
Sales revenue equals $367,810, sales returns & allowances are $10,000, and sales
discounts total $14,180. The cost of goods sold is $216,490, operating expenses are
$28,500, and the company incurs $31,640 of income tax expense. Which of the
following statements is correct?
A) Net sales equal $343,630 and gross profit is $98,640.
B) Net sales equal $67,000 and gross profit is $98,640.
C) Net sales equal $343,630 and gross profit is $127,140.
D) Net sales equal $367,810 and gross profit is $67,000.
Accounting systems:
A) are summarized in publicly published reports.
B) analyze, record, summarize, and the activities affecting its financial condition and
performance.
C) monitor business activities only in financial terms.
D) capture only the information that is needed by the owners of the company.
Which of the following statements regarding shrinkage is not correct?
A) Perpetual inventory systems can help managers detect shrinkage.
B) Shrinkage is another term for inventory loss due to theft, error, or fraud.
C) Shrinkage is detected by comparing the balance in the inventory ledger account and
the results of the physical inventory count.
D) It is easier to detect shrinkage in a periodic inventory system than in a perpetual
inventory system.
The Rainbow House Painting Company has been contracted to paint a house for $3,600.
One-half of that amount will be paid up front; the rest will be paid upon satisfactory
completion. Rainbow should recognize the revenue when:
A) the work begins.
B) the first payment is received.
C) half of the work is complete and half of the payments have been received.
D) the work is complete.
At the beginning of the year, your company borrows $20,000 by signing a four-year
promissory note that states an annual interest rate of 8% plus principal repayments of
$5,000 each year. Interest is paid at the end of the second and fourth quarters, whereas
principal payments are due at the end of each year. How does this new promissory note
affect the current and non-current liability amounts reported on the classified balance
sheet prepared at the end of the first quarter?
A) Increase current liabilities by $400; increase non-current liabilities by $20,000
B) Increase current liabilities by $1,600; increase non-current liabilities by $20,000
C) Increase current liabilities by $5,400; increase non-current liabilities by $20,000
D) Increase current liabilities by $5,400; increase non-current liabilities by $15,000
When evaluating its net profit margin for the current year, Coca Cola would most likely
use all of the following benchmarks except:
A) Anheuser Busch’s net profit margin.
B) the Fortune 500’s net profit margin.
C) Pepsico’s net profit margin.
D) the average net profit margin for the soft drink manufacturing industry.
Trudy’s Cafe paid employees $1,700 in September for work performed that month.
What journal entry will Trudy’s prepare to record that transaction?
A) Debit Cash and credit Wages Revenue for $1,700.
B) Debit Cash and credit Salaries and Wages Payable for $1,700.
C) Debit Salaries and Wages Revenue and credit Cash for $1,700.
D) Debit Salaries and Wages Expense and credit Cash for $1,700.
Which of the following statements about revenues and expenses is correct?
A) If revenues are less than expenses, the company has a net loss and Retained
Earnings decreases.
B) If revenues are greater than expenses, the company has net income and Common
Stock increases.
C) If revenues are less than expenses, the company has a net loss and Common Stock
increases to balance off the loss.
D) If revenues are greater than expenses, the company has net income and Retained
Earnings decreases.
Unearned Revenue, which represents the company’s obligation to honor gift cards
previously issued to customers, totaled $5,500 at the beginning of the year and $7,500
at the end of the year. Customers purchased gift cards amounting to $42,000 during the
year. What was the amount of gift cards redeemed by customers during the year?
A) $40,000
B) $44,000
C) $55,000
D) $29,000
When a company records depreciation it debits:
A) a liability account and credits Depreciation Expense.
B) Depreciation Expense and credits Cash.
C) Depreciation Expense and credits a contra-asset account.
D) a long-lived tangible asset account and credits Depreciation Expense.
A legal document called a stock certificate is used to indicate ownership in a:
A) Corporation.
B) Sole proprietorship.
C) Partnership.
D) Both sole proprietorship and partnership.
Which of the following statements is correct?
A) Accrual-based net income can be manipulated because it is based on estimates.
B) Cash flows are easily manipulated because they are based on estimates.
C) Accrual-based net income is not easily manipulated because valuation for such items
as bad debts and inventory are precise and based on objectively verifiable information.
D) Cash flows are not easily manipulated because they are generated by internal
transactions and do not involve external parties.
Liabilities reported on the balance sheet include:
A) Accounts Payable, Notes Payable, and Common Stock.
B) Accounts Receivable, Supplies Expense, and Retained Earnings.
C) Accounts Payable, Notes Payable, and Salaries and Wages Payable.
D) Common Stock, Retained Earnings, and Notes Payable.
When interest expense is calculated using the effective-interest amortization method,
interest expense on a bond that pays interest annually is equal to the:
A) actual amount of interest paid.
B) carrying value of the bonds payable multiplied by the effective interest rate.
C) maturity value of the bonds payable multiplied by the effective interest rate.
D) carrying value of the bonds payable multiplied by the stated interest rate.
Axle Inc. purchases inventory from Nutria Company and then Axle sells it to Chang
Company. Inventory is in transit on the last day of the year. Indicate who owns the
inventory by placing an “X” in the proper column for each item that is described.
A company established a $400 petty cash. On October 15, there was $16 remaining in
the petty cash fund on that date and there were petty cash receipts for travel expense,
$39, delivery expense, $138, and office expenses, $214. The petty cash fund was
replenished and increased to $1,000 in total.
Required:
Prepare the journal entry, if any, required, to record the replenishment of the petty cash
fund and the increase in its amount on October 15.
Match each item with the correct letter below to indicate how each revenue or expense
account on the income statement is adjusted when using the direct method to determine
net cash flow provided by operating activities.
Account Balance Change
1> _____ Increase in Accrued Expenses
2> _____ Decrease in Accounts Receivable
3> _____ Decrease in Unearned Income
4> _____ Increase in Prepaid Expenses
5> _____ Decrease in Accounts Payable
6> _____ Increase in Long-Term Notes Payable
7> _____ Decrease in Prepaid Insurance
8> _____ Increase in Inventory
9> _____ Increase in Interest Payable
10> _____ Increase in Accumulated Depreciation
Type of Adjustment
A – Add item to related revenue or expense account balance
S – Subtract item from related revenue or expense account balance
N – No adjustment necessary
Research has found that three factors exist when fraud occurs. Identify and describe
each of the three factors of the fraud triangle.
Assume that the cost of inventory is decreasing.
Required:
Fill in the blanks below with the words “higher” and “lower” to indicate which
inventory costing method causes the value to be higher and which causes it to be lower.
On January 1, Year 3, New Works, Inc.’s assets were $300,000 and its stockholders’
equity was $140,000. During the year, assets increased $15,000 and liabilities decreased
$10,000.
Required:
Determine the amount of stockholders’ equity at December 31, Year 3
For each of the following, indicate how the event would most likely be categorized.
EVENT
______ (1) A company sells $2 million in goods for immediate payment.
______ (2) The company uses up office supplies.
______ (3) The stock market rises 10% and the value of a company’s stock increases.
______ (4) A company pays cash to an inventor for the legal rights to produce a new
product.
______ (5) Management promises to pay workers an overtime bonus as required by
their union contract.
______ (6) A company uses up supplies to manufacture a product.
______ (7) A company receives $1 million in orders but no down payments.
CATEGORY
EE – External Exchange
IE – Internal Event
NT – No Transaction
The following activities took place during the month of July at a corporation that earns
service revenue as a law firm.
1> The law firm completes legal work relating to a real estate transaction and is paid
$5,500 when the papers are signed.
2> Legal work in the amount of $26,000 is performed on account for customers.
3> A customer makes a payment of $2,500 on account for legal services that were
performed last month.
4> A new client calls to request assistance in filing the documents for a patent; a fee of
$3,000 is paid and the parties agree that the work will commence next month.
5> A client pays a retainer (deposit) of $15,000 for legal work; one-third of the work is
performed in the current month and the remainder will be provided over the next two
months.
6> The law firm borrows $10,000 from a local bank.
Required:
For each activity, indicate the amount of revenue that would be recorded in July.
Morey Company starts the period with 1,000 units in inventory, purchases 13,000
additional units, returns 100 units to suppliers, and has 950 in inventory at the end of
the period.
Required:
If there is no shrinkage, how many units were sold?
Condensed financial data of Monopoly Corporation appear below:
A cash dividend was declared and paid in full to stockholders during the year.
Required:
Solve for the missing numbers and summarize your answers in the table below. Be sure
to indicate in parentheses ( ) if the missing number is negative (that is, a cash outflow).