Business 20 Final

Gear Shop purchased supplies at a cost of $1,000 during the year. At January 1, the beginning balance in the supplies account was $300. At December 31, supplies on hand are $100. Determine supplies expense for the year.

$1,200

Which one of the following is not a cash equivalent?

180-day note issued by a local or state government

Based on its income for the month, Reel Company estimates that federal income taxes for the month of May will be $11,000. What is the effect of the adjustment on the financial statements?

Increase income taxes expense

The primary reason for a stock split is to:

decrease the market value of the stock

As a result of a stock split,

the par value of the stock is changed in the reverse proportion as the stock split.

Dividends to preferred stockholders are deducted from net income when calculating the return on common stockholders' equity ratio because:

the ratio is an indicator of the return on "common" stockholders' equity, not the return on preferred stock.

A gain is recognized on the disposal of plant assets when:

the sales price is greater than the book value and greater than the residual value.

Madden Company applies the consistency convention. What does this mean?

Madden Co. applies the same accounting principles each accounting period.

All of the following are included in the acquisition cost of property, plant, and equipment except:

maintenance costs.

Which of the following would not be considered to be an intangible asset?

Investments

When using the indirect method, how is the issuance of stock to retire a long-term debt shown on a statement of cash flows?

Noncash investing or financing activity

Which one of the following situations reflects a weak internal control system?

A single employee is responsible for collecting and recording of cash

How are assets which are expected to be realized in cash, sold, or consumed within the normal operating cycle of a business or within one year (if the operating cycle is shorter than one year) reported on a classified balance sheet?

Current Assets

Which of the following is an example of liquidity analysis?

Current assets are divided by current liabilities

Effective cash management and control includes all of the following except:

purchase of stocks and bonds.

The Premium on Bonds Payable account is shown on the balance sheet as:

an addition to a long-term liability.

A bank loaned Darden Company $10,000 on a 1-year, 6% note, but deducted the interest in advance. The journal entry made by Darden to record receipt of the cash would include:

an increase in Cash for $9,400.

In a periodic inventory system, the cost of purchases is recognized as:

an integral part of the calculation of cost of goods sold.

Boston Trombley Company is a defendant in a lawsuit alleging damages of $3 billion. It is probable that Boston Trombley will lose the suit. The litigation is anticipated to continue for several years, but no reasonable estimate can be made at this time regarding ultimate financial responsibility. This situation is an example of:

a loss contingency that should be disclosed in the notes to Boston's financial statements.

Walton Corporation shows the following in the stockholders' equity section of its balance sheet: The stated value of its common stock is $0.50 and the total balance in the common stock account is $37,500. Also noted is that 5,000 shares are currently designated as treasury stock. The number of shares outstanding is:

70,000

What effects on a retail store's accounting equation occur when merchandise returned by customers is recorded?

Assets and stockholders' equity decrease.

Which of the following is considered a liquidity analysis tool?

Acid-test ratio

Starship Inc.'s gross profit ratio increased from 36.5% in 2015 to 48.6% in 2016. What is the trend in this change?

An upward trend

Failure to record depreciation expense for the period results in which of the following?

Both "Net income being overstated" and "Stockholders' equity being overstated".

Turtle Island Music Store reported net income of $200,000. Cash from operations:

Cannot be determined without more information

An accountant is uncertain about the best estimate of an amount for a business transaction. If two amounts are about equally likely, the amount least likely to overstate assets and income is selected. Which of the following qualities is characterized by this action?

Conservatism

Which one of the following is an accurate description of Allowance for Doubtful Accounts?

Contra account

The Ramien Store held inventory items at the end of 2014. Which items should Ramien include as part of its total inventory cost?

Cost of storing inventory before it is sold.

Which of the following statements regarding the activities of Forman Corp. is true?

Expenses decrease Forman's stockholders' equity.

Which one of the following adjustments increases net income for the period?

Recognition of interest on a note receivable.

Churchill Company planned to raise $100,000 by issuing bonds. The bond certificates were printed bearing an interest rate of 8%, which was equal to the market rate of interest. However, before the bonds could be issued, economic conditions forced the market rate up to 9%. If the life of the bonds is 6 years and interest is paid annually on December 31, how much will Churchill receive from the sale of the bonds?

Less than $100,000 because the market rate of interest at 9% was more than the face rate.

Moonbeam Gift Shop's inventory turned over six times during the year. Similar gift shops have an inventory turnover equal to twelve times per year. What explains Moonbeam's state of inventory management?

Moonbeam needs to increase sales and decrease the amount of inventory on hand.

Which of the following statements is false?

Most companies use the direct method of preparing the operating activities section of the statement of cash flows.

Failure to record the earned portion of unearned revenue would result in which of the following?

Net income being understated.

Louisiana Enterprises received payment from its customers for previous sales on credit. What was the impact on its working capital?

No effect on working capital.

Which internal control procedure is violated when the cashier at the checkout stand also records the daily receipts in the journal?

Segregation of duties

Failure to record dividends paid would result in which of the following?

Stockholders' equity being overstated.

Which of the following statements best describes one effect of recognizing expenses incurred by a business entity?

Stockholders' equity will decrease.

Shuttle Master Airlines has leased an aircraft from Streamline Aircraft Company. The annual payments are $1,000,000 and the life of the lease is 18 years. It is estimated that the useful life of the aircraft is 20 years. How would Shuttle Master Airlines record the acquisition of the aircraft? The effective rate of interest is 9%.

The aircraft would be recorded as an asset with a cost of $8,756,000

Which of the following should be considered when a company decides to declare a cash dividend on common stock?

The cash available and the retained earnings balance

A financial analyst is comparing two companies. Which of the following would cause major problems in the evaluation process?

The companies operate in different industries

The company's debt-to-equity ratio was 0.83 to 1 in 2016 and 0.89 to 1 in 2015. Which of the following statements is true concerning Paint?

The company is improving its debt-to-equity ratio

Which one of the following is not an external user of financial statements?

The company's controller

Which of the following best describes the term "expenses"?

The outflow of assets resulting from the sale of goods and services

All of the following are external events (transactions) except for:

a department store recognizing losses from shoplifting.

All of the following are intangible assets except:

accounts receivable.

Long-term assets are $800, current liabilities are $500, and long-term liabilities are $600. If the current ratio is 2.5 to 1, then current assets are:

$1,250

Parks Company reported an increase of $370,000 in its accounts receivable during the year 2015. The company's statement of cash flows for 2015 reported $1 million of cash received from customers. What amount of net sales must Parks have recorded in 2015?

$1,370,000

Comfort Shoes received a promissory note from a customer on April 1, 2014. The face amount of the note is $2,000; the terms are 12 months and 8% annual interest. How much total interest revenue will Comfort Shoes recognize for the year ended December 31, 2014?

$120

Employees earn $5,000 per day, work five days per week, Monday through Friday, and get paid every Friday. If the previous payday was January 26 and the accounting period ends on January 31, what amount is the ending balance in the wages payable account?

$15,000

Genuine Parts received a promissory note from a customer on March 1, 2015. The face amount of the note is $8,000; the terms are 90 days and 9% interest. What is the total amount of interest that Genuine Parts will receive when the note is paid?

$180

Carson Enterprises' comparative balance sheets included accounts receivable of $220,300 at December 31, 2014, and $200,900 at December 31, 2015. Sales reported on Carson's 2015 income statement amounted to $2,350,000. What is the amount of cash collections that Carson will report in the Operating Activities category of its 2015 statement of cash flows assuming that the direct method is used?

$2,369,400

In 2015, Morton Co.sold 150 hot air balloons at $4,000 each. The balloons carry a 5-year warranty for defects. Morton estimates that repair costs will average 4% of the total selling price. The estimated warranty liability at the beginning of the year was $14,000. $20,000 in claims was actually incurred during the year to honor their warranty. What was the warranty expense for 2015?

$24,000

Sawaddee Enterprises began the year with total assets of $450,000 and total liabilities of $230,000. If Sawaddee's total assets increased by $80,000 and its total liabilities increased by $57,000 during the year, what is the amount of Sawaddee's owners' equity at the end of the year?

$243,000

Oreo Company has current assets of $20,000, current liabilities of $8,000, and long-term liabilities of $3,000. Oreo wants to buy new equipment. How much of its existing cash can Oreo use to acquire equipment without allowing its current ratio to decline below 2.0 to 1?

$4,000

On January 2, 2015, Roof Master Construction, Inc. issued $500,000, 10-year bonds for $574,540. The bonds pay interest on June 30 and December 31. The face rate is 8% and the market rate is 6%. At the maturity date, besides an interest payment, Roof Master would repay the bondholders?

$500,000

Innovate Company borrowed on a one-year, 10%, $150,000 note on May 1, 2014 with interest and principal to be paid at maturity. How much interest should Innovate Company report on its income statement for the year ending December 31, 2015?

$5000

Watson Company has 5,000 shares of $5 par, 3% preferred stock outstanding, and 25,000 shares of $2 par common stock outstanding. The preferred stock is cumulative and no dividends have been paid for the past two years. If the company wishes to distribute $2 per share to the common stockholders, what is the total amount of dividends that must be paid in the current year?

$52,250

Windstar Corp. purchased supplies at a cost of $6,000 during the year. At December 31, supplies on hand are $1,400. Supplies expense for the year was $5,200. How much were supplies on hand at January 1?

$600

Espat Corp. reported net sales (all on credit) of $1,600,000 and cost of goods sold of $1,100,000 for 2015. Its beginning balance of Accounts Receivable was $150,000. The accounts receivable balance decreased by $10,000 during 2015. Rounded to two decimal places, what is Espat's accounts receivable turnover rate for 2015?

11.03

Which one of the following items would be added to the balance per bank statement in a bank reconciliation?

Deposits in transit

Crouch Apartments purchased an apartment building to rent to university students on December 15, 2012. The tenants moved in on January 1, 2013. On Super Bowl Sunday, a student punched a hole in the wall when his favorite team fumbled the ball. It cost the landlord $400 to repair the hole. How should this cost be recorded?

It should be recorded as repair and maintenance expense.

Which of the following best describes a company's operating activities?

Operating activities focus on the sale of products and services.

When using the indirect method, how is depreciation expense recorded on the statement of cash flows?

Operating activity

Which of the following is an internal event (transaction)?

Potato chips are transferred from the production line to the packaging area.

A company forgot to record four adjustments during 2015. Which one of the following omissions of adjustments will overstate assets?

Prepaid insurance is not reduced for the portion of the policy that has expired during the period

Which one of the following is an investing activity of a business?

Purchasing a manufacturing plant for cash

A trial balance is a(an):

device used to prove the equality of debits and credits in the general ledger.