EXAM II MC

Pilsner Company will invest $800,000 today. The investment will earn 6% for 5 years, with no funds withdrawn. In five years, the amount in the investment fund is $800,000 $1,040,000 $1,070,584 $1,072,232

$1,070,584

New Air Auto Repair needed to take out a line of credit for 3 months. They borrowed $50,000 at a simple interest rate of 12%. What amount of interest did the company pay on the line? $2,000 $6,000 $1,500 $1,666

$1,500

Poppy Corp purchased equipment with a cash cost of $500,000. The seller offered to accept $95,500 payments at the end of each of the next seven years. What is the total amount of interest that Poppy will pay over the term of the loan? $169,900 $300,000 $269,900 $950,500

$169,900

Steinert Company has the following items at year-end: Cash in bank $45,000 Petty cash 500 Short-term paper with maturity of 2 months 8,200 Postdated checks 2,100 Steinert should report cash and cash equivalents of $45,000 $45,500 $53,700 $55,800

$53,700

Use these future value factors to answer the following question: Periods Future Value of 1 at 8% 1 1.080 2 1.166 3 1.260 4 1.360 5 1.469 If $9,000 is deposited in a savings account today, what amount will be available six years from now? $9,000 × 1.080 × 6 $9,000 × 1.080 × 1.469 $9,000 × 1.166 × 3 $9,000 × 1.260 × 2

$9,000 X 1.080 X 6

If the number of periods is known, the interest rate is determined by A) dividing the future value by the present value and looking for the quotient in the future value of 1 table B) dividing the future value by the present value and looking for the quotient in the present value of 1 table C) dividing the present value by the future value and looking for the quotient in the future value of 1 table D) multiplying the present value by the future value and looking for the product in the present value of 1 table

A

In 2025, the Yellow Company had a net income of $85,000. In addition, selected accounts showed the following changes: Accounts Receivable $3,000 increase Accounts Payable $1,000 increase Buildings $4,000 decrease Depreciation Expense $1,500 increase Bonds Payable $8,000 increase What was the amount of cash provided by operating activities? A) $84,500 B) $85,000 C) $86,500 D) $94,500

A

All of the following may be included under the heading of "cash" except A) currency B) money market funds C) checking account balance D) savings account balance

B

Net cash provided by operating activities divided by average total liabilities equals the A) current cash debt coverage B) cash debt coverage C) free cash flow D) current ratio

B

Consider the following: cash in bank - checking account of $18,500, cash on hand of $500, post-dated checks received totaling $3,500, and certificates of deposit totaling $124,000. What amount should be reported as cash in the balance sheet? a. $ 18,500 b. $ 19,000 c. $ 22,500 d. $136,500

b (18,500 + 500 = 19,000)

(380,000 + 70,000 - 30,000 = 420,000)

d

What is interest? A) payment for the use of money B) an equity investment C) return on capital D) loan

A

What is the primary difference between an ordinary annuity and an annuity due? A) the timing of the periodic payment B) the interest rate C) annuity due only relates to present values D) ordinary annuity only relates to present values

A

Which table would you use to determine what amount was deposited three years ago to provide $1,000 today? A) Future value of 1 or present value of 1 B) Future value of an annuity due of 1 C) Future value of an ordinary annuity of 1 D) Present value of an ordinary annuity of 1

A

On January 15, 2025, Dolan Corp. adopted a plan to accumulate funds for environmental improvements beginning July 1, 2029, at an estimated cost of $8,000,000. Dolan plans to make four equal annual deposits in a fund that will earn interest at 10% compounded annually. The first deposit was made on July 1, 2025. Future value factors are as follows: Future value of 1 at 10% for 5 periods 1.61 Future value of ordinary annuity of 1 at 10% for 4 periods 4.64 Future value of annuity due of 1 at 10% for 4 periods 5.11 Dolan should make four annual deposits of a. $1,423,234. b. $1,565,558. c. $1,724,137. d. $2,000,000.

B

Postage stamps are classified as A) cash B) office supplies C) receivables D) inventory

B

Receivable are reported on the balance sheet at A) fair value B) estimated amount collectible C) lower-of-cost-or-market value D) historical cost

B

The basis for classifying assets as current or noncurrent is conversion to cash within a. the accounting cycle or one year, whichever is shorter. b. the operating cycle or one year, whichever is longer. c. the accounting cycle or one year, whichever is longer. d. the operating cycle or one year, whichever is shorter.

B

The correct order to present current assets is A) cash, accounts receivable, prepaid items, inventories B) cash, accounts receivable, inventories, prepaid items C) cash, inventories, accounts receivable, prepaid items D) cash, inventories, prepaid items, accounts receivable

B

Which factor would be greater - the present value of $1 for 10 periods at 8% interest per period or the future value of $1 for 10 periods at 8% per period? A) Present value of $1 for 10 periods at 8% period B) Future value of $1 for 10 periods at 8% per period C) The factors are the same D) Need more information

B

Which of the following statements is correct regarding receivables? A) Receivables are written promises of the purchaser to pay for the goods or services B) Receivables are claims held against customers and others for money, goods, or services C) Receivables are non-financial assets D) Receivables that are expected to be collected within a year are classified as noncurrent

B

Which of the following statements is true regarding GAAP for receivables? A) Companies can choose between the direct write-off and the allowance methods to account for bad debts B) Companies are required to use the current expected credit loss (CECL) model that measures expected uncollectible accounts and record bad debt expense on all receivables. C) Companies use the allowance method to estimated credit losses on accounts receivable while notes receivable are reported at gross amounts without consideration of credit losses D) Companies generally use one composite rate to estimate uncollectible accounts and notes receivable

B

A series of equal receipts at equal intervals of time when each receipt is received at the beginning of each time period is called an A) ordinary annuity B) annuity in arrears C) annuity due D) unearned receipt

C

Suzanne has $1,000 to invest today. Which of the following will provide the highest future value? A) five years with a simple interest rate of 10% B) ten years with a simple interest rate of 5% C) eight years with a compound interest rate of 8% D) five years with a compound interest rate of 9%

C

The accounting for cash discounts and trade discounts are A) the same B) always recorded net C) not the same D) tied to the timing of cash collections on the account

C

The amount of time that is expected to elapse until an asset is realized or otherwise converted into cash is referred to as A) solvency B) financial flexibility C) liquidity D) exchangeability

C

The balance sheet is useful for analyzing all of the following except A) liquidity B) solvency C) profitability D) financial flexibility

C

What best describes the time value of money? A) accounts receivable that are determined uncollectible B) An investment in a checking account C) The relationship between time and money

C

What is not a variable that is considered in interest computation? A) principal B) interest rate C) assets D) time

C

What is the normal journal entry for recording bad debt expense under the allowance method? A) Debit Allowance for Doubtful Accounts, Credit Accounts Receivable B) Debit Allowance for Doubtful Accounts, Credit Bad Debt Expense C) Debit Bad Debt Expense, Credit Allowance for Doubtful Accounts D) Debit Accounts Receivable, Credit Allowance for Doubtful Accounts

C

Which of the following statements about a petty cash system is true? A) An imprest petty cash system is more impractical than disbursement by check B) If cash proves out short the company credits the shortage to Cash Over and Short C) The company closes Cash Over and Short only at the end of the year D) The Petty Cash account is debited when the fund is replenished

C

Which table would show the largest factor for an interest rate of 8% for five periods? A) Future value of an ordinary annuity of 1 B) Present value of an ordinary annuity of 1 C) Future value of an annuity due of 1 D) Present value of an annuity due of 1

C

Why would a company sell receivables to another company? A) to improve the quality of its credit-granting process B) to limit its legal liability C) to accelerate access to amounts collected D) to comply with customer agreements

C

Balance sheet information is useful for all of the following except a. assessing a company's risk b. evaluating a company's liquidity c. evaluating a company's financial flexibility d. determining free cash flows.

D

Bank overdrafts, if material, should be A) reported as a deduction from the current asset section B) reported as a deduction from cash C) netted against cash and a net cash amount reported D) reported as a current liability

D

If Jethro wanted to save a set amount each month to buy a new pick-up truck when the new models are next available, which time value concept would be used to determine the monthly payment? A) Present value of one B) Future value of one C) Present value of an annuity due D) Future value of an ordinary annuity

D

If common stock was issued to acquire an $5,500 machine; how would the transaction appear on the statement of cash flows? A) it would depend on whether you are using the direct or the indirect method B) it would be a positive $5,500 in the financing section and a negative $5,500 in the investing section C) it would be a negative $5,500 in the financing section and a positive $5,500 in the investing section D) it would not appear on the statement of cash flows but rather on a schedule of noncash investing and financing activities

D

The accounts receivable turnover is computed by dividing A) gross sales by ending net receivables B) gross sales by average net receivables C) net sales by ending net receivables D) net sales by average net receivables

D

The interest rate included in the promissory note contract is A) the market rate B) the effective-interest rate C) the interest rate used to discount the cash flows D) the nominal rate

D

Treasury stock should be reported as a(n) A) current asset B) investment C) contra asset D) reduction of stockholders' equity

D

When a customer purchases inventory from a business organization, they may be given a discount which is designed to induce prompt payment. Such a discount is called a(n) A) trade discount B) nominal discount C) enhancement discount D) cash discount

D

Which of the following in not considered cash for financial reporting purposes? A) Petty cash funds and change funds B) Money orders, certified checks, and personal checks C) Coin, currency, and available funds on deposit D) Postdated checks and IOU's

D

Which of the following is a current asset? A) Cash surrender value of a life insurance policy of which the company is the beneficiary B) Investment in equity securities for the purpose of controlling the issuing company C) Cash designated for the purchase of tangible fixed assets D) Trade installment receivables that are normally collected in 13 months when the operating cycle is 18 months

D

Why do companies provide trade discounts? A) To avoid frequent changes in catalogs only B) To induce prompt payment only C) To easily alter prices for different customers only D) To avoid frequent changes in catalogs and to easily alter prices for different customers

D

Working capital is A) capital that has been reinvested in the business B) unappropriated retained earnings C) cash and receivables less current liabilities D) current assets less current liabilities

D

Companies use data analytics to look at both historical write-offs and forward-looking data to estimate the total allowance for existing receivables. True False

T

Compound interest uses the accumulated balance at each year-end to compute interest in the succeeding year. True False

T

For receivables sold with recourse, the seller guarantees payment to the purchaser if the debtor fails to pay. True False

T

In the gross method, sales discounts are reported as a deduction from sales. True False

T

Interest is the excess cash received or repaid over and above the amount lent or borrowed. True False

T

Savings accounts are usually classified as cash on the balance sheet. True False

T

The future value of a single sum is determined by multiplying the future value factor by its present value. True False

T

If a company uses the gross method of recording accounts receivable from customers, then sales discounts taken should be reported as a. a deduction from sales in the income statement. b. an item of "other expense" in the income statement. c. a deduction from accounts receivable in determining the accounts receivable amount expected to be collected. d. sales discounts forfeited in the cost of goods sold section of the income statement.

a

What is "recourse" as it relates to selling receivables? a. The obligation of the seller of the receivables to pay the purchaser in case the debtor fails to pay. b. The obligation of the purchaser of the receivables to pay the seller in case the debtor fails to pay. c. The obligation of the seller of the receivables to pay the purchaser in case the debtor returns the product related to the sale. d. The obligation of the purchaser of the receivables to pay the seller if all of the receivables are collected.

a

What is the normal journal entry when writing off an account as uncollectible under the allowance method? a. Debit Allowance for Doubtful Accounts, credit Accounts Receivable b. Debit Allowance for Doubtful Accounts, credit Bad Debt Expense c. Debit Bad Debt Expense, credit Allowance for Doubtful Accounts d. Debit Accounts Receivable, credit Allowance for Doubtful Accounts

a

When a company has cash available in another account in the same bank at which an overdraft has occurred, the company will a. offset the overdraft against the cash account balance. b. report it in the notes to the financial statements. c. report the bank overdraft amount as an account payable. d. classify the bank overdraft as a compensating balance

a

Which of the following methods of determining annual bad debt expense does not satisfy the matching concept? a. Direct write-off b. Percentage of ending accounts receivable c. Aging of accounts receivable d. All of these methods satisfy the matching concept

a

An example of an item that is not an element of working capital is a. interest receivable. b. goodwill. c. goods in process. d. temporary investments.

b

Lawrence Company has cash in the bank of $25,000, restricted cash in a separate account of $4,000, and a bank overdraft in an account at another bank of $2,000. Lawrence should report cash of a. $23,000. b. $25,000. c. $28,000. d. $29,000.

b

Maddy wants to know how much she should begin saving each month to fund her retirement. What kind of problem is this? a. Present value of one. b. Future value of an ordinary annuity. c. Present value of an ordinary annuity. d. Future value of one.

b

Making and collecting loans and disposing of property, plant, and equipment are a. operating activities. b. investing activities. c. financing activities. d. liquidity activities.

b

One benefit of the statement of cash flows is that it helps users evaluate a company's financial flexibility. Which of the following explanations is a description of financial flexibility? a. When assets are two times or more greater than liabilities b The firm's ability to respond and adapt to financial adversity and unexpected needs and opportunities c. The firm's ability to pay its debts as they mature d. When the company has the ability to fund a number of projects with different objectives and costs

b

Under which section of the balance sheet is "cash restricted for future plant expansion" reported? a. Current assets b. Non-current assets c. Current liabilities d. Stockholders' equity

b

What type of ratios measure how effectively a company uses its assets? a. liquidity b. activity c. profitability d. coverage

b

Which of the following tables would show the smallest factor for an interest rate of 10% for six periods? a. Future value of an ordinary annuity of 1 b. Present value of an ordinary annuity of 1 c. Future value of an annuity due of 1 d. Present value of an annuity due of 1

b

Which of the following tables would show the smallest value for an interest rate of 5% for six periods? a. Future value of 1 b. Present value of 1 c. Future value of an ordinary annuity of 1 d. Present value of an ordinary annuity of 1

b

Sun Inc. factors $6,000,000 of its accounts receivables with recourse for a finance charge of 3%. The finance company retains an amount equal to 10% of the accounts receivable for possible adjustments. Sun estimates the fair value of the recourse liability at $300,000. What would be recorded as a gain (loss) on the transfer of receivables? a. Gain of $180,000 b. Loss of $480,000 c. Gain of $1,080,000 d. Loss of $300,000

b (6,000,000 x .03) + 300,000 = 480,000

Lohmeyer Corporation reports: Cash provided by operating activities $320,000 Cash used by investing activities 110,000 Cash provided by financing activities 140,000 Beginning cash balance 90,000 What is Lohmeyer's ending cash balance? a. $410,000 b. $440,000 c. $570,000 d. $660,000

b (90,000 + 320,000 - 110,000 + 140,000 = 440,000)

Lankton Company has the following account balances at year-end: Accounts receivable $90,000 Allowance for doubtful accounts 4,800 Sales discounts 3,200 Lankton should report accounts receivable at a net amount of a. $82,000. b. $85,200. c. $86,800. d. $90,000.

b (90,000 - 4,800 = 85,200)

A Cash Over and Short account a. is not generally accepted. b. is debited when the petty cash fund proves out over. c. is debited when the petty cash fund proves out short. d. is a contra account to Cash.

c

Current assets are presented in the balance sheet in a. ascending order of their balances. b. descending order of their balances. c. order of their liquidity. d. reverse order of their liquidity.

c

Free cash flow is calculated as net cash provided by operating activities less a. capital expenditures. b. dividends. c. capital expenditures and dividends. d. capital expenditures and depreciation.

c

In preparing a statement of cash flows, cash flows from operating activities a. are always equal to accrual accounting income. b. are calculated as the difference between revenues and expenses. c. can be calculated by adding to or deducting from net income those items in the income statement that do not affect cash. d. can be calculated by adding to or deducting from net income those items in the income statement that affect cash.

c

The financial statement which summarizes the operating, investing, and financing activities of an entity for a period of time is the a. retained earnings statement. b. income statement. c. statement of cash flows. d. statement of financial position.

c

What ratio measures the net income measured by each dollar of sales revenue generated? a. earnings per share b. return on assets c. profit margin d. price-earnings ratio

c

What ratio measures the percentage of total assets provided by creditors? a. return on assets b. asset turnover c debt to assets ratio d. cash debt coverage

c

Which of the following is true when accounts receivable are factored without recourse? a. The transaction may be accounted for either as a secured borrowing or as a sale, depending upon the substance of the transaction. b. The receivables are used as collateral for a promissory note issued to the factor by the owner of the receivables. c. The factor assumes the risk of collectability and absorbs any credit losses in collecting the receivables. d.The financing cost (interest expense) should be recognized ratably over the collection period of the receivables

c

Which of the following is true? a. Rents occur at the beginning of each period of an ordinary annuity. b. Rents occur at the end of each period of an annuity due. c. Rents occur at the beginning of each period of an annuity due. d. Rents occur at either the beginning or the end of an annuity due.

c

Wellington Corp. has outstanding accounts receivable totaling $1.27 million as of December 31 and sales on credit during the year of $6.4 million. There is a debit balance of $6,000 in the allowance for doubtful accounts. If the company estimates that 2% of its accounts receivable will be uncollectible, what will be the balance in allowance for doubtful accounts after the year-end adjustment to record bad debt expense? a. $19,400. b. $31,400. c. $25,400. d. $25,280.

c ($1,270,000 X .02)

Tan Incorporated sold building supplies listed at $67,000 to Miriam Construction, a preferred customer. Tan offers Miriam a 10 percent trade discount on all purchases. Terms of the sale to Miriam are 1/15, n/45. What amount of revenue should Tan record for this sale if the company uses the net method? a. $66,330 b. $67,000 c. $59,697 d. $60,300

c ($67,000 X .9)(.99)

Sauder Corporation reports the following information for the current period: Net income $380,000 Depreciation expense 70,000 Increase in accounts receivable 30,000 Sauder should report cash provided by operating activities of a. $280,000. b. $340,000. c. $420,000. d. $480,000.

c (380,000 + 70,000 - 30,000 = 420,000)

Altman Company invests $900,000 today. The investment will earn 6% for 5 years, with no funds withdrawn. In five years, the amount in the investment fund is a. $900,000. b. $1,170,000. c. $1,204,407. d. $1,206,261.

cc

A limitation of the balance sheet that is not also a limitation of the income statement is a. the use of judgments and estimates b. omitted items c. the numbers are affected by the accounting methods employed d. valuation of items at historical cost

d

Present value is not a. the value now of a future amount. b. the amount that must be invested now to produce a known future value. c. always smaller than the future value. d. the sum of a series of payments.

d

Tanner recently was offered a position with a major accounting firm. The firm offered Tanner either a signing bonus of $23,000 payable on the first day of work or a signing bonus of $26,000 payable after one year of employment. Assuming that the relevant interest rate is 10%, which option should Tanner choose? a. The options are equivalent. b. There is insufficient information to determine which is preferable. c. Tanner should choose the signing bonus of $23,000 payable on the first day of work. d.Tanner should choose the signing bonus of $26,000 payable after one year of employment

d

The category "trade receivables" includes a. advances to officers and employees. b. income tax refunds receivable. c. claims against insurance companies for casualties sustained. d. amounts owed by customers for goods bought or services rendered

d

The current assets section of the balance sheet should include a. machinery. b. patents. c. goodwill. d. inventory.

d

Trade discounts are a. recorded as other revenues and gains. b. used to induce prompt payment. c. presented in terms such as 2/10, n/30. d. used to avoid frequent changes in catalogs.

d

What is a compensating balance? a. Savings account balances b. Margin accounts held with brokers c. Temporary investments serving as collateral for outstanding loans d. Minimum deposits required to be maintained in connection with a borrowing arrangement

d

Which of the following methods of determining bad debt expense does not properly match expense and revenue? a. Charging bad debts with a percentage of sales under the allowance method b. Charging bad debts with an amount derived from a percentage of accounts receivable under the allowance method c. Charging bad debts with an amount derived from aging accounts receivable under the allowance method d. Charging bad debts as accounts are written off as uncollectible

d

Which of the following should be reported for capital stock? a. The shares authorized b. The shares issued c. The shares outstanding d. All of these answer choices are correct

d

Why is the allowance method preferred over the direct write-off method of accounting for bad debts? a. Allowance method is used for tax purposes b. Estimates are used c. Determining worthless accounts under the direct write-off method is difficult to do d. Improved matching of bad debt expense with revenue

d