All of the following statements are true regarding the average collection period except:
a.it is a popular variant of the accounts receivable turnover .
b.it is used to assess the effectiveness of a company’s credit and collection policies.
c.it should generally exceed the credit term period.
d.its increase may suggest a decline in the financial health of customers.
Alt Corp. issues 3,000 shares of $10 par value common stock at $14 per share. When
the transaction is recorded, credits are made to:
a.Common Stock $30,000 and Paid-in Capital in Excess of Stated Value $12,000.
b.Common Stock $28,000.
c.Common Stock $30,000 and Paid-in Capital in Excess of Par Value $12,000.
d.Common Stock $30,000 and Retained Earnings $12,000.
A machine was purchased for $180,000 and it was estimated to have an $12,000
salvage value at the end of its useful life. Monthly depreciation expense of $1,400 was
recorded using the straight-line method. The annual depreciation rate is
a.12%.
b.2%.
c.8%.
d.10%.
In the table below the information for four companies is provided.
Assuming all four companies are in the same industry, which company appears to have
the greatest likelihood of paying its current obligations?
a.Martin
b.Lewis
c.Danforth
d.Garner
Identify the following expenditures as capital expenditures or revenue expenditures.
(a)Replacement of worn out gears on factory machinery.
(b)Construction of a new wing on an office building.
(c)Painting the exterior of a building.
(d)Oil change on a company truck.
(e)Replacing an old computer chip with a faster chip, which increases productive
capacity. No extension of useful life expected.
(f)Overhaul of a truck motor. One year extension in useful life is expected.
(g)Purchased a wastebasket at a cost of $10.
(h)Painting and lettering of a used truck upon acquisition of the truck.
The sales section of an income statement for a retailer would not include
a.Sales discounts.
b.Sales revenue.
c.Net sales.
d.Cost of goods sold.
Rains Company is a furniture retailer. On January 14, 2014, Rains purchased
merchandise inventory at a cost of $48,000. Credit terms were 2/10, n/30. The
inventory was sold on account for $80,000 on January 21, 2014. Credit terms were
1/10, n/30. The accounts payable was settled on January 23, 2014 and the accounts
receivables were settled on January 30, 2014. Which statement is correct?
a.Cash flows were affected on January 14 and January 21
b.Gross profit percentage is 60%.
c.On January 30, 2014, customers should remit cash in the amount of $79,200.
d.There is not enough information available to answer this question.
Chodron Corporation had net credit sales of $13,000,000 and cost of goods sold of
$9,250,000 for the year. The average inventory for the year amounted to $2,500,000.
The inventory turnover for the year is
a.3.7 times.
b.5.3 times.
c.3.1 times.
d.1.4 times.
Cochran Corporation, Inc. has the following income statement (in millions):
COCHRAN CORPORATION, INC.
Income Statement
For the Year Ended December 31, 2014
Using vertical analysis, what percentage is assigned to cost of goods sold?
a.67%
b.33%
c.100%
d.30%
A factory machine was purchased for $70,000 on January 1, 2014. It was estimated that
it would have a $14,000 salvage value at the end of its 5-year useful life. It was also
estimated that the machine would be run 40,000 hours in the 5 years. If the actual
number of machine hours ran in 2014 was 4,000 hours and the company uses the
units-of-activity method of depreciation, the amount of depreciation expense for 2014
would be
a.$7,000.
b.$11,200.
c.$14,000.
d.$5,600.
Which of the following pairs of terms in the area of financial statement analysis both
express each item in a financial statement as a percent of a base amount?
a.Vertical – Trend
b.Horizontal – Trend
c.Vertical – Common Size
d.Horizontal – Common Size
Otto’s Tune-Up Shop follows the revenue recognition principle. Otto services a car on
August 31. The customer picks up the vehicle on September 1 and mails the payment to
Otto on September 5. Otto receives the check in the mail on September 6. When should
Otto show that the revenue was recognized?
a.August 31
b.August 1
c.September 5
d.September 6
Tito Corporation had net income of $2,000,000 and paid dividends to common
stockholders of $500,000 in 2014. The weighted average number of shares outstanding
in 2014 was 500,000 shares. Tito Corporation’s common stock is selling for $50 per
share on the NASDAQ. Tito Corporation’s price-earnings ratio is
a.3 times.
b.10 times.
c.12.5 times.
d.4 times.
Pearson Company bought a machine on January 1, 2014. The machine cost $144,000
and had an expected salvage value of $24,000. The life of the machine was estimated to
be 5 years. The book value of the machine at the beginning of the third year would be
a.$144,000.
b.$120,000.
c.$96,000.
d.$48,000.
An aging of a company’s accounts receivable indicates that $4,500 are estimated to be
uncollectible. If Allowance for Doubtful Accounts has a $1,200 credit balance, the
adjustment to record bad debts for the period will require a
a.debit to Bad Debt Expense for $4,500.
b.debit to Allowance for Doubtful Accounts for $3,300.
c.debit to Bad Debt Expense for $3,300.
d.credit to Allowance for Doubtful Accounts for $4,500.
A computer company has $2,500,000 in research and development costs. Before
accounting for these costs, the net income of the company is $2,000,000. What is the
amount of net income or loss before taxes after these research and development costs
are accounted for?
a.$500,000 loss.
b.$2,000,000 net income.
c.$0.
d.Cannot be determined from the information provided.