Stockholders’ equity is composed of three parts: contributed capital, earnings retained in
the business, and dividends paid.
a. True
b. False
The correct term for an entry made to the left side of an account is
a. Double-entry system
b. Debit
c. Credit
d. Journalizing
The issue price of a bond is always present valued using the market rate of interest.
a. True
b. False
Redfearn Company has current assets of $150,000 and current liabilities of $60,000.
How much inventory could it purchase on account and achieve its minimum desired
current ratio of 2 to 1?
a. $10,000
b. $20,000
c. $30,000
d. $40,000
Scrubber, Inc. presented the following information in a note to its financial statements
for the year ending December 31, 2016: The company has a loan agreement with
Mountain State Bank that states: 1> The current ratio should remain at least 2.0 to 1 at
all times.
2> The debt-to-equity ratio should not exceed .7 to 1 at any time.
3> The company must maintain $75,000 cash at all times. The ratios at year-end are:
current ratio, 2.3 to 1 and debt-to-equity ratio, .2 to 1. The amount of cash on the bank
statement is $75,400, but the cash account after the adjustments from the bank
reconciliation has a balance of $74,900. Has Scrubber violated its loan agreement?
a. No
b. Yes, the cash balance is less than $75,000.
c. Yes, the current ratio is .3 or 30% larger than the agreement indicates.
d. Yes, the cash balance is less than $75,000, and the debt-to-equity ratio is overstated.
Kingston Company’s accounts receivable turned over nine times during the year. This
translates into strict adherence of the company’s net/30 credit terms by Kingston’s
customers.
a. True
b. False
IFRS is now mandatory in all member states of the economic and political organization
known as the European Union.
a. True
b. False
In 2015, Morton Co. sold 100 hot air balloons at $4,000 each. The balloons carry a
5-year warranty for defects. Morton estimates that repair costs will average 4% of the
total selling price. The estimated warranty liability at the beginning of the year was
$42,000. $11,000 in claims was actually incurred during the year to honor their
warranty. What was the balance in the ending estimated warranty liability at the end of
the year?
a. $47,000
b. $42,000
c. $37,000
d. $ 5,000
Mellon Corporation The data presented below is for Mellon Corporation for the year
ended December 31, 2015:
Refer to the information for Mellon Corporation. If Mellon uses the aging of accounts
receivable approach to estimate its bad debts, what will be the net realizable value of its
accounts receivable after the adjustment for bad debt expense?
a. $216,000
b. $219,000
c. $222,000
d. $250,000
What is the correct classification of the account: Discount on Notes Payable?
a. an asset
b. an expense
c. a revenue
d. a contra liability
Culinary Delights CompanyUse the financial statements for Culinary Delights
Company to answer the questions that follow.
Consolidated Statement of Earnings and Retained Earning
Refer to the financial statements of Culinary Delights Company. REQUIRED:
(A) Calculate Culinary Delights’ return on sales ratio for 2016 and 2015. Assume that
the income tax rate is 30%.
What information is provided with this ratio? (B) Calculate the return on common
stockholders’ equity ratio for 2016 and 2015. Stockholders’ equity at December 31,
2014, was $897,431 (in thousands). Why is the denominator an average instead of a
single amount?
Which inventory costing method results in the highest inventory balance during a
period of rising prices?
a. Weighted average cost
b. FIFO
c. LIFO
d. Both FIFO and LIFO result in the same inventory balance