mbustest2
How is the average number of days to collect accounts receivable computed? Accounts Receivable ÷ 365 365 ÷ Accounts receivable turnover ratio Accounts Receivable ÷ Net income Sales ÷ Net accounts receivable
365 ÷ Accounts receivable turnover ratio
Which of the following describes an activity that reduces a company's bank account balance? A reconciling entry A credit memo A debit entry A debit memo
A debit memo
Which of the following statements regarding horizontal analysis is not true? A horizontal analysis of cost of goods sold on the income statement includes dividing net income by total revenue. In horizontal percentage analysis, a financial statement line item is expressed as a percentage of the previous balance of the same item. Percentage analysis involves computing the percentage relationship between two amounts. Horizontal analysis attempts to eliminate the materiality problem of comparing firms of different sizes.
A horizontal analysis of cost of goods sold on the income statement includes dividing net income by total revenue.
Which ratio would you use to examine a company's ability to pay its debts in the short-term? Return on equity Debt to assets ratio Earnings per share Acid-test ratio
Acid-test ratio
Which of the following is an internal control procedure used to safeguard a company's assets? All of these answer choices are correct Preparing a bank reconciliation Segregation of duties Depositing cash receipts in a bank on a timely basis
All of these answer choices are correct
How would accountants estimate the amount of a company's uncollectible accounts expense? All of these answer choices are correct. Consult with trade association and business associates. Consider new circumstances that are anticipated to be experienced in the future. Compute as a percentage of credit sales.
All of these answer choices are correct.
Assume that you are considering purchasing some of a company's long-term bonds as an investment. Which of the company's financial statement ratios would you probably be most interested in? Plant assets to long-term liabilities Debt to equity Debt to assets ratio All of these answers are correct.
All of these answers are correct.
Which of the following statements about why companies choose not to pay cash dividends is (are) true? The corporation does not have sufficient cash. All of these statements are true. The corporation does not have sufficient retained earnings. The board and management prefer to reinvest all net income for future growth.
All of these statements are true.
The board of directors of Chandler Company declared a cash dividend. Which of the following choices accurately reflects how this event would affect the elements of the company's financial statements?
Assets - Liab + SE - Rev NA Exp Na Net income NA STMT of cash flow = NA
Kellogg, Inc. purchased 200 shares of its own $20 par value stock for $30 cash per share. Which of the following answers reflects how this purchase of treasury stock would affect the elements of Kellogg's financial statements?
Cash -6000 Investment NA LIAB NA Equity -6000 Rev NA Exp NA Net income NA Cash flow -6000
What account is used to record the amount of cash shortages or overages relative to a petty cash system? Gain or Loss on Petty Cash Petty Cash Expense Cash Short and Over Petty Cash Payable
Cash Short and Over
Which of the following is not a motive for the embezzlement of cash by employees? Cash has universal appeal Small quantities of high-denomination currency can represent significant value Cash is the common unit of measurement Ownership of cash is difficult to prove
Cash is the common unit of measurement
If the company purchased a $60,000 piece of equipment by paying $30,000 and having the rest financed with a short-term note from the bank, then immediately after this transaction what is the expected impact on the components of the current ratio? Current assets increase. Current assets decrease and current liabilities increase by the same amount. Current assets and current liabilities decrease by the same amount. Current liabilities decrease.
Current assets decrease and current liabilities increase by the same amount.
Which of the following is not one of the nine features of an internal control system? Having employees covered by a fidelity bond Requiring regular vacations for certain employees Establishment of clear lines of authority Customer service comment cards
Customer service comment cards
Which ratio measures the percentage of a company's assets that are financed by debt? Debt to equity Return on investment Debt to assets ratio Asset turnover
Debt to assets ratio
Franklin Corporation reported net income of $75,000 in Year 1. The company had 100,000 shares of $12 par value common stock outstanding and a market price of $18 per share. What is Franklin's price-earnings ratio? 1.5 24 2.4 16.6
Earnings per share = Net income ÷ Number of shares of common stock outstanding Earnings per share = $75,000 ÷ 100,000 shares = $0.75 Price-Earnings Ratio = Market price per share ÷ Earnings per share Price-Earnings Ratio = $18 ÷ $0.75 = 24 24
Hancock Medical Supply Co., earned $160,000 of revenue on account during Year 1, its first year of operation. During Year 1, Hancock collected $128,000 of cash from its receivables accounts. The company did not write-off any uncollectible accounts. It estimates that it will be unable to collect 1% of revenue on account. What is the net realizable value of receivables that will be reported on the balance sheet at December 31, Year 1? $32,000 $30,400 $30,720 $30,000
Ending accounts receivable = Beginning accounts receivable of $0 + Revenue on account of $160,000 − Collections on account of $128,000 = $32,000 Ending allowance for doubtful accounts = Beginning allowance for doubtful accounts of $0 + Uncollectible accounts expense of ($160,000 × 1%) − Write-offs of $0 = $1,600 Net realizable value = Accounts receivable of $32,000 − Allowance for doubtful accounts of $1,600 = $30,400
Which of the following statements regarding the information disclosed in financial statements is not true? The costs of providing all possible information about a firm would be prohibitively high for the business. Some information disclosed in financial statements may be irrelevant to some users. Financial statements should be detailed enough to answer any financial-related question an investor might have. When too much information is presented users may suffer from information overload.
Financial statements should be detailed enough to answer any financial-related question an investor might have.
What does the accounts receivable turnover ratio measure? How quickly inventory turns into accounts receivable Average balance of accounts receivables How quickly the accounts receivable balance increases How quickly accounts receivable turn into cash
How quickly accounts receivable turn into cash
Which of the following would not be a reason to expect an increase in the market price of the stock of Carlyle Corporation? The market price has been influenced by positive financial information that is not provided in the financial statements. Investors believe Carlyle Corp. has potential for earnings growth. Carlyle Corp. has a history of earnings growth. Investors expect that revenue and earnings growth in the future will not be as great as revenue and earnings growth has been in the past.
Investors expect that revenue and earnings growth in the future will not be as great as revenue and earnings growth has been in the past.
Which of the following statements is the most common explanation as to why a company might have a negative amount of total stockholders' equity on its balance sheet? Its total revenues are less than its total expenses in the current period. Its cash is segregated in a separate bank account designated for emergency uses. It has a negative balance in its Retained Earnings account. Its total assets exceed its total liabilities.
It has a negative balance in its Retained Earnings account.
Short-term creditors are usually most interested in assessing: Solvency. Profitability. Liquidity. Managerial effectiveness.
Liquidity.
The owner of Barnes Company established a petty cash fund amounting to $400. What is the effect on the financial statements of the entry to record this transaction?
N/A to ALL
If the allowance method is used, how do the two entries recorded in connection with the recovery of an uncollectible account affect the elements of the financial statements? (Hint: Consider the effect of both entries taken together.) No effect on total assets or stockholders' equity Decrease total assets Increase total assets and stockholders' equity Increase stockholders' equity
No effect on total assets or stockholders' equity
On April 30, Midwest Company established a petty cash fund of $1,000. On May 1, a disbursement of $355 was made from the fund for payment of delivery expense. What entry should be made on May 1 to record this disbursement? No entry is necessary on May 1. Debit delivery expense and credit petty cash for $355. Debit petty cash and credit cash for $355. Debit delivery expense and credit cash for $355.
No entry is necessary on May 1.
Which of the following terms designates the maximum number of shares of stock that a corporation may issue? Par value Number of shares issued Number of shares outstanding Number of shares authorized
Number of shares authorized
Chester Company has established internal control policies and procedures in order to achieve the following objectives: 1) Effective evaluation of management performance. 2) Assure that the accounting records contain reliable information. 3) Safeguard the company's assets. 4) Assure that employees comply with company policy. Which of these objectives are achieved by accounting controls?
Objectives 2 and 3
Helena Corporation declared a 2-for-1 stock split on 8,000 shares of $6 par value common stock. If the market price of the stock had been $25 a share before the split, the par value, number of shares, and approximate market value after the split would be: Option A Option D Option C Option B
Option C
Which of the following statements regarding ratio analysis is not true? Some ratios involve an account from the balance sheet and one from the income statement. Ratio analysis is a specific form of horizontal analysis. There are many different ratios available for evaluating a firm's performance. Ratio analysis involves making comparisons between different accounts in the same set of financial stateme
Ratio analysis is a specific form of horizontal analysis.
How is the accounts receivable turnover ratio computed? 365 days ÷ Net accounts receivable Sales ÷ Net accounts receivable Net accounts receivable ÷ Sales Cost of goods sold ÷ Inventory
Sales ÷ Net accounts receivable
Lilly's Corporation has working capital of $620,000, and Harmon Corporation has working capital of $840,000. Which of the following statements is not true? Since Harmon's working capital exceeds Lilly's working capital, it is safe to conclude that Harmon is more liquid than Lilly. None of these answers is correct. If Lilly Corporation is smaller than Harmon or has lower current liabilities; Lilly could be more liquid than Harmon. Since working capital is an absolute amount, other factors such as size of the company and materiality will help to determine liquidity of these two companies.
Since Harmon's working capital exceeds Lilly's working capital, it is safe to conclude that Harmon is more liquid than Lilly.
How is a customer's NSF check reflected on a bank reconciliation? -Subtracted from the unadjusted book balance to get the true cash balance -Subtracted from the unadjusted bank balance to get the true cash balance -Added to the unadjusted bank balance to get the true cash balance -Added to the unadjusted book balance to get the true cash balance
Subtracted from the unadjusted book balance to get the true cash balance
Which one of the following is not an accurate description of the Allowance for Doubtful Accounts? The account is a contra account. The account is a temporary account. The account is increased by an estimate of uncollectible accounts expense. The amount of the Allowance for Doubtful Accounts decreases the net realizable value of a company's receivables.
The account is a temporary account.
Which accounting concept can be used by some companies to justify the use of the direct write-off method? The materiality concept The monetary principle The going concern concept The entity concept
The materiality concept
Which of the following is a contra equity account? Appropriated Retained Earnings Retained Earnings Paid-in Capital in Excess of Par Value Treasury Stock
Treasury Stock
At March 31, Cummins Co. had an unadjusted balance in its cash account of $10,400. At the end of March, the company determined that it had outstanding checks of $900, deposits in transit of $600, a bank service charge of $20, and an NSF check from a customer for $200. What is the true cash balance at March 31? $10,100 $10,180 $9,880 $10,380
True cash balance = Unadjusted book balance of $10,400 − Service charge of $20 − NSF check of $200 = $10,180
Which of the following general journal entries would be used to recognize $7,500 of uncollectible accounts expense under the direct write-off method? Allowance for doubtful accounts 7,500 Uncollectible accounts expenses 7,500 Uncollectible accounts expenses 7,500 Accounts receivable 7,500 Accounts receivable 7,500 Uncollectible accounts expenses 7,500 Uncollectible accounts expenses 7,500 Allowance for doubtful accounts 7,500
Uncollectible accounts expenses 7,500 Accounts receivable 7,500
Which of the following statements regarding the analysis of absolute amounts of various accounts reported on the financial statements is not true? To correctly evaluate an absolute amount, the analyst must consider its relative importance. Financial statement users with expertise in particular industries can look at absolute amounts and assess a company's performance in a certain area. Economic statistics such as the gross national product are built upon totals of absolute amounts reported by businesses. Using absolute amounts eliminates the problem of varying materiality levels.
Using absolute amounts eliminates the problem of varying materiality levels.
What effect will the declaration and distribution of a stock dividend have on net income and cash flows? Net Income Cash Flows A. None None B. None Decrease C. Increase None D. Decrease Decrease
option A
