Accounting A100 Final

Inventory Turnover Ratio Calculation

Cost of Goods Sold /Average Inventory (beginning inventory + ending inventory/2)

Breakeven Point

the point at which the level of sales equals the total variable costs plus total fixed costs

Debt to Equity Ratio Calculation

Average total liabilities/ Average stockholders' equity

Current Ratio Calculation

Current Assets / Current Liabilities

Return on Equity (ROE) calculation

Net income/ Average stockholders' equity

Earnings Per Share (EPS) Calculation

Net income/ Number of shares outstanding

Contribution Margin Income Statement Format

Sales - Variable Costs = Contribution Margin - Fixed Costs = Net Income

*Beagle, Inc. had total sales of $67,000 during the year. In one sale, Beagle sold inventory on account for $8,000, and Beagle had originally paid $3,800 for this inventory. How much did total assets change as a result of this one sale?* a) $4,200 b) $8,000 c) ($3,800) d) $11,800

a) $4,200 *$8,000 - $3,800

*Pearl Co. had the following transactions in its land account:* *In 2013 - Bought Land A for $4,000* *In 2014 - Bought Land B for $6,000* *In 2020 - Sold half of Land B for $4,000* *Pearl has made no other transactions in land. What is the balance in its land account?* a) $7,000 b) $6,000 c) $8,000 d) $4,000

a) $7,000

*At January 1, 2026, Bergdorf, inc. had $14,000 in current assets and $12,000 in current liabilities. At December 31, 2026, the company had $18,000 in current assets and $12,500 in current liabilities. Bergdorf earned $120,000 in net income during the year. What is Bergdorf's current ratio at December 31, 2026?* a) 1.44 b) 1.17 c) 1.31 d) 6.67

a) 1.44 *$18,000/ $12,500 = 1.44*

*Mistook, Inc. began 2025 with inventory of $6,400 and by the end of the year, its inventory account had dropped to $5,800. During the year, Mistook purchased $40,000 of inventory. All of the inventory was purchased on account, and at the end of 2025, Mistook still owed its suppliers $4,500. What was Mistook's inventory turnover ratio for 2025?* a) 6.66 b) 7.00 c) 6.90 d) 6.56

a) 6.66

*Which of the following statements is true?* a) As production increases, variable cost per unit stays the same. b) The contribution margin per unit increases as total production increases. c) Total fixed costs decreases as total production decreases. d) Fixed costs per unit decreases as total production decreases.

a) As production increases, variable cost per unit stays the same.

*At the end of this year, Bartlett Inc. owes its employees $2,200. Bartlett will pay them on Jan. 2nd of the next year. Which of the following is true?* a) Bartlett will show the $2,200 as an expense of this year, even though the payment has not yet been made. b) Bartlett will show the $2,200 as a liability at the end of this year, but not an expense for this year. The $2,200 will be an expense when the payment is made next year. c) Bartlett will make no entry for the $2,200 this year. d) Bartlett must pay the $2,200 before the end of this year.

a) Bartlett will show the $2,200 as an expense of this year, even though the payment has not yet been made.

*Which of the following is NOT one of the Big Four accounting firms?* a) Carlton & Co. b) KPMG c) PwC d) Deloitte e) EY

a) Carlton & Co.

*Which of the following ratios is required by the SEC to be shown on the face of the income statement?* a) Earnings per share b) Return on equity c) Debt to equity d) Current ratio

a) Earnings per share

*Madison, Inc. borrowed $90,000 on October 1, 2025. Madison will make no payments until October 1, 2029, and at that time, it will pay $102,000. Which of the following would correctly state Madison's annual financial statements at December 31, 2027?* a) Interest expense $3,000; interest payable $6,750 b) Interest expense $3,750; interest payable $3,750 c) Interest expense $6,750; interest payable $9,000 d) Interest expense $5,250; interest payable $3,000

a) Interest expense $3,000; interest payable $6,750

*Which of the following is true of the income statement?* a) It covers a period of time. b) The ending balances always roll over to become the beginning balances of the next period. c) It is broken down into three categories: assets, liabilities, and stockholders equity d) None of the above are true.

a) It covers a period of time.

*Which of the following is true of the Statement of Cash Flows?* a) It is only analyzing the cash account. b) It must be prepared using accrual accounting. c) The entries on this statement are always the same as the entries on the Income Statement. d) The ending balance on this statement must equal total assets for the statement to be in balance.

a) It is only analyzing the cash account.

*Which of the following is true of unearned revenue?* a) It is shown on the statement of cash flows when it is received. b) It increased assets and revenue when received. c) It increases liabilities and revenue when received. d) It increases assets and revenue when earned. e) It increases assets and decreases liabilities when earned.

a) It is shown on the statement of cash flows when it is received.

*On July 5th, Macro Corporation bought inventory on account from Micro Company. On July 19th, Macro Corporation sold the inventory on account to Customer. On July 25th, Macro paid Micro for the inventory. On July 30th, Customer paid Macro for the sale. On what date does the inventory become an expense for Macro?* a) July 19 b) July 5 c) July 30 d) July 25

a) July 19

*Which of the following is true?* a) Making a sale on account increases assets. b) Collecting an accounts receivable increases total assets. c) Revenue is not recorded until the cash is received. d) Accounts receivable is the amount of revenue that the cash has already been received.

a) Making a sale on account increases assets.

*Which of the following is true regarding accounts receivable?* a) Total assets are not changed when cash is collected. b) Accounts receivable is increased when cash is collected. c) Accounts receivable is decreased and revenue is increased when a sale is made. d) Both assets and liabilities are increased when a sale is made on account.

a) Total assets are not changed when cash is collected.

*Arbitrary Company purchased $86,000 of inventory during 2025. At the start of the year, Arbitrary had $12,000 in inventory, and at the end of the year, it had $16,000 in inventory. What was Arbitrary's inventory turnover ratio if its total sales was $192,000 during the year?* a) 6.14 b) 5.86 c) 5.38 d) 5.13

b) 5.86

*Which of the following is true of stockholders equity?* a) This is a category on the Income Statement. b) All corporations must have both the common stock account and the retained earnings account. c) The only way it can be increased is by the company issuing more common stock. d) Assets plus liabilities will always equal stockholders equity.

b) All corporations must have both the common stock account and the retained earnings account.

*The bookkeeper at your company mistakenly recorded six months of prepaid insurance as an expense in the first month. What impact does that have on the first month's financial statements?* a) Assets are overstated, and expenses are understated. b) Both assets and net income are understated. c) Liabilities are understated, and expenses are overstated. d) Both assets and expenses are understated.

b) Both assets and net income are understated.

*Which of the following is true?* a) Revenue becomes revenue when the cash is received. b) Expenses become an expense when they are incurred, whether or not they have been paid. c) Ending retained earnings always equals ending net income. d) Retained earnings is an account on the Income Statement.

b) Expenses become an expense when they are incurred, whether or not they have been paid.

*Which of the following is true of fixed and variable costs?* a) Variable costs per unit increase as you produce and sell more units. b) Fixed costs per unit decrease as you produce and sell more units. c) The contribution margin per unit increases as you produce and sell more units. d) Total fixed costs increase as you produce and sell more units.

b) Fixed costs per unit decrease as you produce and sell more units.

*Which of the following is true?* a) Inventory is recorded as an expense when it is purchased. b) Inventory is recorded as an expense when the product it is on is sold c) Inventory is recorded as an expense when the suppliers are paid. d) Inventory is recorded as an expense when it is put into production e) Inventory is recorded as an expense when it goes from work-in-process inventory to finished goods.

b) Inventory is recorded as an expense when the product it is on is sold

*Which of the following is true of retained earnings?* a) It is a summary of all the cash the company has received for all the years it has been in business minus any dividends paid. b) It is a Balance Sheet account. c) The ending balance in retained earnings should always agree with the ending balance in cash. d) When the Balance Sheet is in balance, assets will equal liabilities plus retained earnings.

b) It is a Balance Sheet account.

*Which of the following is true of retained earnings?* a) It is an account on the Income Statement. b) It is an account on the Balance Sheet. c) It is the amount of cash received by the company over all the years it has been in business minus all of the expenses it made. d) The ending balance on the Statement of Retained Earnings will always equal net income at the bottom of the Income Statement.

b) It is an account on the Balance Sheet.

*Chandler's Inc. paid $1,200 for four months insurance on January 1. Which of the following would correctly state Chandler's accounts at January 31?* a) Prepaid insurance is $1,200, and insurance expense is $300. b) Prepaid insurance is $900, and insurance expense is $300. c) Prepaid insurance is $300, and insurance expense is $300. d) Prepaid insurance is $0, and insurance expense is $1,200.

b) Prepaid insurance is $900, and insurance expense is $300.

*Which of the following is a Balance Sheet account?* a) Sales b) Utilities payable c) Interest expense d) Net income

b) Utilities payable

*Accrual accounting:* a) is the same as the cash basis of accounting. b) requires an expense be recorded as an expense when it is incurred, whether or not it has been paid. c) is not allowed under either GAAP nor IFRS. d) requires recording an expense as an expense when it is paid, whether or not is has been incurred.

b) requires an expense be recorded as an expense when it is incurred, whether or not it has been paid.

*Which of the following increases total assets?* a) Selling land for your original purchase price b) Buying equipment for cash c) Buying inventory on account d) Collecting an account receivable

c) Buying inventory on account

*Fairfax Company bought a piece of equipment on December 1, 2025 for $12,000. Fairfax expects the equipment to last four years and then be worthless. What is the depreciation expense and net carrying value Fairfax would show on its annual financial statements at December 31, 2026 for this asset?* a) Depreciation expense $3,250; net carrying value $8,750 b) Depreciation expense $3,250; net carrying value $12,000 c) Depreciation expense $3,000; net carrying value $8,750 d) Depreciation expense $3,000; net carrying value $3,250

c) Depreciation expense $3,000; net carrying value $8,750

*Which of the following would be included as a cost of inventory?* a) Commissions paid to salesmen b) The CEO's salary c) Property taxes on the factory d) Transportation expenses of the finished products

c) Property taxes on the factory

*Which of the following are inventory accounts for a manufacturing firm?* a) Direct materials, direct labor, and manufacturing overhead inventory b) Direct materials, direct labor, and finished goods inventory c) Raw materials, work in process, and finished goods inventory d) Indirect costs, direct costs, and finished goods inventory

c) Raw materials, work in process, and finished goods inventory

*Which of the following is true?* a) Depreciation expense is the cash paid for depreciation during the period. b) The balance in the account "accumulated depreciation" always equals the depreciation expense for the period. c) Subtracting accumulated depreciation from the equipment account gives the net carrying value of equipment at this point in time. d) The balance in accumulated depreciation is the total cash that has been paid for depreciation over all the years the company has owned that asset.

c) Subtracting accumulated depreciation from the equipment account gives the net carrying value of equipment at this point in time.

*Which of the following is true of the Form 10-K?* a) It is required to be filed quarterly by publicly-held corporations. b) All companies, public and private, are required to file this form. c) The annual filing of this form is an SEC requirement for only publicly-held corporations. d) The information on this form remains confidential.

c) The annual filing of this form is an SEC requirement for only publicly-held corporations.

*Which of the following is true of a manufacturing company's inventory accounts?* a) These accounts are classified as cost of goods sold before the time of sale. b) The inventory accounts are direct material, direct labor, and manufacturing overhead. c) The inventory accounts are raw materials, work in process, and finished goods. d) The inventory accounts record the period costs of the company.

c) The inventory accounts are raw materials, work in process, and finished goods.

*Which of the following is true regarding equity and debt holders?* a) Debt holders hope to receive dividends and interest from the company. b) Equity holders receive a stated amount of interest plus a return of their original investment. c) The maximum amount debt holders can receive is the amount originally loaned plus interest. d) Equity holders hope to receive dividends, interest, and an increase in the stock price.

c) The maximum amount debt holders can receive is the amount originally loaned plus interest.

*Which of the following is true regarding equity and debt holders?* a) Equity holders expect to receive both dividends and interest on their investment. b) Equity holders receive their original investment at maturity as well as any interest they are owed. c) The maximum amount debt holders could receive is the amount they loaned plus interest. d) Debt holders stand to benefit if the company does well and the stock price increases.

c) The maximum amount debt holders could receive is the amount they loaned plus interest.

*Which of the following is true regarding depreciation?* a) Depreciation expense will always equal the balance in accumulated depreciation. b) The number directly to the right of the equipment account is the original cost of the equipment minus depreciation. c) When the entry for depreciation expense is recorded, net fixed assets are also reduced. d) The total depreciation expense for any year is an accumulation of all the depreciation that has been recorded on the equipment over all the years it has been held by the company.

c) When the entry for depreciation expense is recorded, net fixed assets are also reduced.

*Retained earnings is:* a) the cash held by the company. b) a liability of the company. c) all the net incomes of the company since it has been in business minus any dividends paid. d) all the cash the company has earned since it has been in business minus any dividends paid.

c) all the net incomes of the company since it has been in business minus any dividends paid.

*When a company pays a dividend, it is classified as:* a) as an investing cash outflow. b) as an operating cash inflow. c) as a financing cash outflow. d) The payment of dividends is not a cash transaction.

c) as a financing cash outflow.

*Accounting books are "in balance" when:* a) net income equals ending retained earnings. b) the cash account equals net income. c) assets minus liabilities equals stockholders equity. d) assets plus liabilities equals stockholders equity.

c) assets minus liabilities equals stockholders equity.

*Marvelous Company had sales of $66,000 during the year. The company's expenses were advertising expense of $8,000, depreciation expense of $5,000, and cost of goods sold of $16,000. In addition, Marvelous sold a plot of land and incurred a $1,000 loss. What was Marvelous' gross profit for the year?* a) $37,000 b) $36,000 c) $38,000 d) $50,000

d) $50,000 *Gross Profit = Revenue - Cost of Goods Sold* $66,000 - $16,000 = $50,000

*Chimi, Inc. went into business this year and, during the year, collected $62,000 in cash from customers. At the end of the year, Chimi had a balance in accounts receivable of $6,000 and a balance in unearned revenue of $2,000. How much were Chimi's total sales during the year?* a) $62,000 b) $58,000 c) $68,000 d) $66,000

d) $66,000

*Griswold Company began the year with assets of $64,000 and stockholders' equity of $26,000, of which $16,000 was retained earnings. At the end of the year, total assets stayed the same, net income was $8,000, and $7,000 was paid out in dividends. What was Griswold's approximate return on equity?* a) 29.6% b) 30.8% c) 26.4% d) 30.2%

d) 30.2%

*Which of the following is true?* a) Supplies is a liability account showing the amount of supplies used during the period. b) When supplies are purchased, net income is reduced. c) Supplies are an asset when purchased and become a liability as they are used. d) As the company uses supplies, it decreases assets and increases expenses.

d) As the company uses supplies, it decreases assets and increases expenses.

*If you were interested in investing in a company but were worried about the company becoming too risky because of its large amount of debt, which ratio would you be more interested in?* a) Current ratio b) Return on equity c) Inventory turnover d) Debt to equity

d) Debt to equity

*Which of the following is the most accurate and complete statement?* a) Dividends are payments made to creditors of the business. b) Dividends are always required by law to be paid by public corporations. c) Dividends are payments made to both the business's creditors and stockholders. d) Dividends are payments made to the company stockholders.

d) Dividends are payments made to the company stockholders.

*McCombs, Inc. produced and sold 6,000 units of a product. During the year McCombs total sales were $30,000. For next year, McCombs has decided to lower its sales price from $5 to $4.50 per unit. McCombs expects that at this lower sales price its sales will increase to 8,000 units. Which of the following would be the impact of this change?* a) Variable cost per unit will increase. b) Total fixed cost will increase. c) The contribution margin income percentage will stay increase. d) Fixed costs per unit will decrease.

d) Fixed costs per unit will decrease.

*Which of the following is an asset account?* a) Accounts payable b) Retained earnings c) Notes payable d) Land

d) Land

*Which of the following is true under accrual accounting?* a) Expenses become an expense when they are paid. b) Revenue always equals the amount of cash received. c) Cash received minus expenses paid is net income. d) Revenue may be recorded on the income statement even before the cash is received.

d) Revenue may be recorded on the income statement even before the cash is received.

*Which of the following is true?* a) The Income Statement and the Balance Sheet are the same financial statement. b) Companies are required to use the cash basis of accounting on the Income Statement. c) Accrual accounting requires that revenue be reported only when the cash is received. d) The Income Statement covers a period of time, while the Balance Sheet is a point in time.

d) The Income Statement covers a period of time, while the Balance Sheet is a point in time.

*When a company borrows money from a bank:* a) stockholders equity is increased by the amount borrowed. b) revenue is increased by the amount borrowed. c) the company's books are out of balance. d) both assets and liabilities are increased.

d) both assets and liabilities are increased.

*Which of the following transactions increases total assets?* a) Collecting an accounts receivable b) Selling land for a loss c) Paying six months rent in advance d) Recording depreciation expense e) Purchasing inventory on account

e) Purchasing inventory on account

*The FASB (Financial Accounting Standards Board)...* a) is responsible for preparing the audits of all United States based publicly-held companies. b) is the group in charge of the international standards, IFRS. c) are the rules companies based in the United States are required to follow when preparing financial statements d) applies only to privately-held companies. e) is the organization in the United States responsible for GAAP.

e) is the organization in the United States responsible for GAAP.