1) a factor buys receivables from businesses for a fee and collects the payment directly
from customers.
2) the times interest earned ratio is computed by dividing net income by interest
expense.
3) under an operating lease, both the leased asset and the liability are shown on the
balance sheet.
4) when purchasing delivery equipment, sales taxes and motor vehicle licenses should
be charged to delivery equipment.
5) the two accounting problems with accounts receivable are: (1) recognizing and (2)
disposing.
6) the present value is based on two variablesthe dollar amount to be received and the
length of time until the amount is received.
7) when there are material differences between the results of using the straight-line
method and using the effective-interest method of amortization, the effective-interest
method should be used.
8) using vertical analysis of the income statement, a company’s net income as a
percentage of net sales is 15%; therefore, the cost of goods sold as a percentage of sales
must be 85%.
9) under the allowance method, bad debt expense is debited when an account is deemed
uncollectible and must be written off.
10) accounts receivable are one of a companys least liquid assets.
11) if a companys credit risk ratio is increasing over time, it may suggest that the
companys overall credit risk is decreasing.
12) sales revenues are only earned during the period cash is collected from the buyer.
13) if a company fails to record estimated bad debts expense,
a.cash realizable value is understated
b.expenses are understated
c.revenues are understated
d.receivables are understated
14) an adjusting entry can include a:
a.debit to an asset and a credit to a revenue
b.debit to a revenue and a credit to an asset
c.credit to an expense and a debit to a revenue
d.debit to an expense and a credit to a revenue
15) when using a perpetual inventory system, why are discounts credited to inventory?
a.the discounts are debited to discount expense and thus the credit has to be made to
merchandise inventory
b.the discounts reduce the cost of the inventory
c.the discounts are a reduction of business expenses
d.none of the answers is correct
16) nelson corporation sells three different products. the following information is
available on december 31:
when applying the lower of cost or market rule to each item, what will nelson’s total
ending inventory balance be?
a.$4,600
b.$4,300
c.$5,300
d.$4,400
17) on january 1, 2010, leardon inc. purchased equipment for $45,000. the company is
depreciating the equipment at the rate of $600 per month. at january 31, 2011, the
balance in accumulated depreciation is:
a.$600 debit
b.$7,200 credit
c.$7,800 credit
d.$39,900 debit
18) control over cash disbursements is generally more effective when
a.all bills are paid in cash
b.disbursements are made by the accounts payable subsidiary clerk
c.payments are made by check
d.all purchases are made on credit
19) the final step in the accounting cycle is to prepare:
a.closing entries
b.financial statements
c.a post-closing trial balance
d.adjusting entries
20) comparative financial statement data for arthur corporation and lancelot
corporation, two competitors, appear below. all balance sheet data are as of
december 31, 2012.
arthur corporationlancelot corporation
2012 2012
net sales$1,850,000$620,000
cost of goods sold1,175,000365,000
operating expenses303,00098,000
interest expense9,0003,800
income tax expense85,00036,800
current assets427,200130,336
plant assets (net)532,000139,728
current liabilities66,32535,348
long-term liabilities158,50029,620
additional information:
cash from operating activities $153,000$41,000
capital expenditures$90,000$20,000
dividends paid$36,000$15,000
average number of shares outstanding100,00050,000
instructions
(a)comment on the relative profitability of the companies by computing the net income
and earnings per share for each company for 2012.
(b)comment on the relative solvency of the companies by computing the debt to total
assets ratio and the free cash flow for each company for 2012.
21) assume that ogleby corp. acquires 35% of crisp corp. for $300,000 on january 1,
2012. the journal entry on oglebys books assuming crisps net income for 2012 was
$500,000 would include a debit to
a.no entry is necessary
b.cash for $500,000
c.cash for $175,000
d.stock investments for $175,000
22) the following information is related to december 31, 2011 balances.
during 2012 sales on account were $435,000 and collections on account were $258,000.
also during 2012 the company wrote off $24,000 in uncollectible accounts. an analysis
of outstanding receivable accounts at year end indicated that bad debts should be
estimated at $162,000. bad debts expense for 2012 is
a.$ 51,000
b.$ 27,000
c.$162,000
d.$ 3,000
23) the following selected amounts are available for thomas company.
what is its ending retained earnings balance?
a.$1,700
b.$1,800
c.$1,400
d.$1,600
24) your friend mark has opened an office supply store. he will extend open credit to
local businesses and is concerned about potential bad debts. what can mark do to reduce
potential bad debts?
25) adjusting entries are often made because some business events are not recorded as
they occur.
26) mike and linda jeter invested $10,000 in a savings account paying 4% annual
interest when their daughter, andrea was born. they also deposited $3,000 on each of her
birthdays until she was 18 (including her 18th birthday). how much was in the savings
account on her 18th birthday (after the last deposit)?
27) a 10-column work sheet is a permanent accounting record.
28) describe the process of preparing a trial balance. what is the purpose of preparing a
trial balance? if a trial balance does not balance, identify what might be the reasons why
it does not balance. if the trial balance does balance, does that insure that the ledger
accounts are correct? explain.
29)
a company using the cash basis of accounting reports net income for 2011 of $50,460. if
the company had used the accrual basis of accounting it would have reported the
following year-end balances:
instructions:
determine the companys net income under the accrual basis of accounting. show your
calculations. use the column headings shown below.
explanationamount
30) a two column list of all accounts and their balances at a given time is a
______________.
31) under ifrs, companies can choose which inventory system?
32) the entire group of accounts and their balances maintained by a company is called
the ________________.