Each of the following decreases retained earnings except a
a. cash dividend.
b. liquidating dividend.
c. stock dividend.
d. All of these decrease retained earnings.
Answer:
When using the direct method to compute cash provided by operations,
a. income taxes paid may be ignored.
b. depreciation expense is added to net income.
c. decreases in inventory are added to total operating expenses to compute cash
payments for operating expenses.
d. increases in accounts receivable are subtracted from total sales to compute cash
receipts from customers.
Answer:
The financial statements of Hainz Company appear below:
Additional information:
a. Cash dividends of $23,000 were declared and paid in 2016.
b. Weighted-average number of shares of common stock outstanding during 2016 was
30,000 shares.
c. Market value of common stock on December 31, 2016, was $21 per share.
Instructions
Using the financial statements and additional information, compute the following ratios
for Hainz Company for 2016. Show all computations.
Computations
1> Current ratio _________.
2> Return on common stockholders’ equity _________.
3> Price-earnings ratio _________.
4> Acid-test ratio _________.
5> Accounts receivable turnover _________.
6> Times interest earned _________.
7> Profit margin _________.
8> Days in inventory _________.
9> Payout ratio _________.
10> Return on assets _________.
Ans: N/A
Answer:
Expenditures that maintain the operating efficiency and expected productive life of a
plant asset are generally
a. expensed when incurred.
b. capitalized as a part of the cost of the asset.
c. debited to the Accumulated Depreciation account.
d. not recorded until they become material in amount.
Answer:
Equipment was purchased for $85,000 on January 1, 2015. Freight charges amounted to
$3,500 and there was a cost of $10,000 for building a foundation and installing the
equipment. It is estimated that the equipment will have a $15,000 salvage value at the
end of its 5-year useful life. What is the amount of accumulated depreciation at
December 31, 2016, if the straight-line method of depreciation is used?
a. $33,400
b. $16,700
c. $14,300
d. $28,600
Answer:
At December 1, 2015, Cursive Company’s accounts receivable balance was $1,800.
During December, Cursive had credit revenues of $7,200 and collected accounts
receivable of $6,000. At December 31, 2015, the accounts receivable balance is
a. $600 debit.
b. $3,000 debit.
c. $600 credit.
d. $3,000 credit.
Answer:
Beta’s Bunny Barn has experienced a $80,000 loss due to tornado damage to its
inventory. Tornados have never before occurred in this area. Assuming that the
company’s tax rate is 30%, what amount will be reported for this loss on the income
statement?
a. $80,000
b. $56,000
c. $24,000
d. $72,000
Answer:
Joanna Newsom owns and operates Joanna’s Burgers, a small fast food store, located at
the edge of City College campus in Newton, Ohio. After several very profitable years,
Joanna’s Burgers began to have problems. Most of the problems were related to
Joanna’s expansion of the eating area in the restaurant without corresponding increases
in the food preparation area. Joanna does not have the cash or financial backing to
expand further. She has therefore decided to sell her business.
Vivian Girls is interested in purchasing the business. However, she is located in another
city and is unfamiliar with Newton. She has asked Joanna why she is selling Joanna’s
Burgers. Joanna replies that her elderly mother requires extra care, and that her brother
needs help in his manufacturing business. Both are true, but neither is her primary
reason for selling. Joanna reasons that Vivian should not have asked her anyway, since
profitable businesses don’t come up for sale.
Required:
1> Identify the stakeholders in this situation.
2> Did Joanna act ethically in not revealing fully her reasons for selling the business?
Why or why not?
Answer:
The cost of a patent should be amortized over
a. 20 years.
b. the shorter of its legal life or its useful life.
c. the longer of its legal life or its useful life.
d. its useful life.
Answer:
On October 1, 2015, Holt Company places a new asset into service. The cost of the
asset is $120,000 with an estimated 5-year life and $30,000 salvage value at the end of
its useful life. What is the book value of the plant asset on the December 31, 2015,
balance sheet assuming that Holt Company uses the double-declining-balance method
of depreciation?
a. $78,000
b. $90,000
c. $108,000
d. $114,000
Answer:
Buena Vista Social Club accumulates the following adjustment data at December 31.
1> Revenue of $1,600 collected in advance has been recognized.
2> Salaries of $600 are unpaid.
3> Prepaid rent totaling $500 has expired.
4> Supplies of $450 have been used.
5> Revenue recognized but unbilled total $750.
6> Utility expenses of $250 are unpaid.
7> Interest of $300 has accrued on a note payable.
Instructions
(a) For each of the above items indicate:
1> The type of adjustment (prepaid expense, unearned revenue, accrued revenue, or
accrued expense).
2> The account relationship (asset/liability, liability/revenue, etc.).
3> The status of account balances before adjustment (understatement or overstatement).
4> The adjusting entry.
(b) Assume net income before the adjustments listed above was $15,500. What is the
adjusted net income?
Prepare your answer in the tabular form presented below.
Account Balances
Before Adjustment
Type of Account (Understatement
Adjustment Relationship or Overstatement) Adjusting Entry
Answer:
A remittance advice attached to a company check provides
a. details about the running cash balance in the checking account.
b. the magnetic bank routing numbers.
c. the explanation of the purpose of the check.
d. the signature space for the maker.
Answer:
In order to compute the present value of an annuity, it is necessary to know the
1> discount rate.
2> number of discount periods and the amount of the periodic payments or receipts.
a. 1
b. 2
c. both 1 and 2
d. something in addition to 1 and 2
Answer:
The following information is for Bright Eyes Auto Supplies:
The total dollar amount of liabilities to be classified as current liabilities is
a. $50,000.
b. $130,000.
c. $180,000.
d. $330,000.
Answer:
Which one of the following payroll taxes is not withheld from the employee’s wages
because it is not levied on the employee?
a. Federal income tax
b. Federal unemployment tax
c. State income tax
d. FICA tax
Answer:
If one company owns more than 50% of the common stock of another company,
a. the cost method should be used to account for the investment.
b. a partnership exists.
c. a parent-subsidiary relationship exists.
d. the company whose stock is owned must be liquidated.
Answer:
Library, Inc. has 2,500 shares of 4%, $50 par value, cumulative preferred stock and
50,000 shares of $1 par value common stock outstanding at December 31, 2014, and
December 31, 2015. The board of directors declared and paid a $3,000 dividend in
2014. In 2015, $18,000 of dividends are declared and paid. What are the dividends
received by the preferred and common shareholders in 2015?
Answer:
A retained earnings statement shows the same information as a corporation income
statement.
Answer:
A journal is also known as a book of original entry.
Answer:
Additions and improvements to a plant asset that increase the asset’s operating
efficiency, productive capacity, or expected useful life are generally expensed in the
period incurred.
Answer:
Under the allowance method, Bad Debts Expense is debited when an account is deemed
uncollectible and must be written off.
Answer:
Profitability ratios measure the ability of the enterprise to survive over a long period of
time.
Answer:
If a company has no beginning inventory and the unit cost of inventory items does not
change during the year, the value assigned to the ending inventory will be the same
under LIFO and average cost flow assumptions.
Answer:
Vertical analysis is a more sophisticated analytical tool than horizontal analysis.
Answer: