Acct 225 Final

Salaries expense for the year equals $240,000. Salaries payable at the beginning of the year were $25,000, and at the end of the year were $15,000. Calculate cash paid for salaries during the year.

$250,000

Sports Unlimited reports net income of $240,000, sales revenue of $24 million, and average total assets of $3 million. The asset turnover is:

8 times

Retained earnings

increases SHE

Current liabilities

may include contingent liabilities

Conservative accounting practices refer to:

practices that result in reporting lower income, lower assets, and higher liabilities

Which of the following is an example of conservative accounting?

recording inventory at lower of cost or net realizable value

Travel Planners, Inc. borrowed $5,000 from First State Bank and signed a promissory note. What entry should First State Bank record?

debit notes receivable $5,000; credit cash $5,000

When using vertical analysis, we express:

income statement accounts as a percentage of sales and balance sheet accounts as a percentage of total assets

Which of the following is an example of aggressive accounting?

recording the lowest possible warranty expense

A company issues 100,000 shares of 5%, $10 par value preferred stock for $17 per share. The entry to record this transaction would include:

a credit to preferred stock for $1,000,000

Treasury stock

decreases SHE

A company issues 100,000 shares of $1 par value common stock for $17 per share. To record this transaction, the company would credit Additional Paid-in Capital for:

$1,600,000

Virtual Gaming's income tax expense is $10,000 and its income tax payable decreased by $1,000 during the year. How much did Virtual Gaming pay for income taxes during the year?

$11,000

Aviation Systems sells its products with a three-year manufacturing warranty. The company's sales revenue is $600,000. Based on prior experience, the company estimates that warranty costs are 5% of sales revenue. Actual warranty costs related to these sales were $5,000 during the year. How much is the estimated warranty liability reported in the balance sheet this year?

$25,000

Pizza Shop sells toaster ovens with a one-year warranty to fix any defects. For the current year, 100 toaster ovens have been sold. By the end of the year 4 ovens have been fixed for an average of $80 each. Management estimates that 5 more of the 100 sold will need to be fixed next year for an estimated $80 each. For how much should Pizza Shop report warranty liability at the end of the current year?

$400

On November 1, 20X1, a company signed a $200,000, 12%, six-month note payable with the amount borrowed plus accrued interest due six months later on May 1, 20X2. What is the amount of interest expense to report in 20X2?

$8,000

Performance, Inc., reports net income of $250,000, average total assets of $800,000, and average total liabilities of $300,000. The return on assets is:

31.25%

Express Jet borrows $100 million on October 1, 2021, for one year at 6% interest. For what amount does Express Jet report interest expense for the year ended December 31, 2022?

4.5 mil

The Sports Addition reports net sales of $2 million, cost of goods sold of $1 million, operating expenses of $500,000, and other expenses of $100,000. The Company's gross profit ratio is:

50%

Petite Fashions issued 500,000 of its 2 million shares of authorized common stock. At the end of the accounting period, 450,000 shares are outstanding. How many shares of treasury stock does Petite Fashions have?

50,000 shares

Performance, Inc., reports net income of $250,000, average total assets of $800,000, and average total liabilities of $300,000. The return on equity is:

50.00%

Allied Partners filed suit against Big Sky, Inc., seeking damages for patent infringement. Big Sky's legal counsel believes it is probable that Big Sky will settle the lawsuit for an estimated amount in the range of $500,000 to $700,000, with all amounts in the range considered equally likely. How should Big Sky report this litigation?

As a liability for $500,000 with disclosure of the range

Management can estimate the amount of loss that will occur due to litigation against the company. If the likelihood of loss is reasonably likely, a contingent liability should be:

Disclosed but not reported as a liability

Treasury stock is recorded as:

a decrease in stockholders' equity

Declaring a cash dividend has what effect on total stockholders' equity?

a decrease in total SHE

In preparing a statement of cash flows under the indirect method, an increase in accounts payable would be reported or included as a(n):

addition to net income in the operating activities section

Retained earnings represents:

all net income, less all dividends, since the company began operations

Which of the following would be an example of conservative accounting?

assessing the probability of a contingent liability as probable instead of reasonably likely

Suppose a company purchases 2,000 shares of its own $1 par value common stock for $16 per share. The company then resells 400 of these shares for $20 per share. Which of the following is recorded at the time of the resale?

credit Add PIC for $1,600

A company issues 10,000 shares of $0.05 par value common stock for $25 per share. Which of the following is recorded at issuance?

credit common stock for $500

On November 1, 20X1, a company signed a $200,000, 12%, six-month note payable with the amount borrowed plus accrued interest due six months later on May 1, 20X2. The company should report the following adjusting entry at December 31, 20X1

debit interest expense and credit interest payable $4,000

Suppose a company purchases 2,000 shares of its own $1 par value common stock for $16 per share. Which of the following is recorded at the time of the purchase?

debit treasury stock for $32,000

In preparing a statement of cash flows under the indirect method, an increase in accounts receivable would be reported or included as a(n):

deduction from net income in operating activities section

Management can estimate the amount of loss that will occur due to litigation against the company. If the likelihood of loss is reasonably possible, a contingent liability should be

disclosed but not reported as a liability

Which of the following items would we report in the income statement just before net income?

discontinued operations

Growth stocks tend to have relatively

high P/E ratios

Trend or time-series analysis is another term used for ____ analysis

horizontal

If a company's sales revenue and cost of goods sold increase by a higher percentage than its inventory balances, inventory turnover will:

increase

The city of Summerton has a sales tax rate of 8%. A local convenience store sells merchandise, and the customer pays a total of $38.34. What effect does this transaction have on total liabilities?

increase of $2.84 (38.34x0.08)/108

Assuming a current ratio of 1.0 and an acid-test ratio of 0.75, how will the borrowing of cash to be paid back in five years affect each ratio?

increase the current ratio and increase the acid-test ratio

Which of the following stages of equity financing would come last for most public companies?

initial public offering

Which of the following is not included in calculating the acid-test ratio?

inventory

The purchase of an intangible asset is classified in the statement of cash flows as a(n):

investing

The advantages of a corporation compared to a sole proprietorship or partnership include:

limited liability

We can identify financing activities from additional information and changes in:

long-term liabilities and SHE

Which of the following is a negative indicator regarding a company's ability to turn its receivables into cash?

low receivables turnover ratio

What is the primary reason for declaring a stock split?

lower the trading price of a stock into a more acceptable trading range

Earnings per share measures:

net income earned per share of common stock

Which of the following best describes the indirect method of preparing the operating activities section of the statement of cash flows?

net income reconciled from accrual basis to cash basis

Smith Co. filed suit against Western, Inc., seeking damages for patent infringement. Smith's legal counsel believes it is probable that Western will have to pay $125,000, although no final settlement has yet been reached. How should Smith report this litigation?

no asset or gain is reported

Assuming a current ratio of 1.0 and an acid-test ratio of 0.75, how will the purchase of office supplies for cash affect each ratio?

no change to the current ratio and decrease the acid-test ratio

The purchase of inventory for cash is classified in the statement of cash flows as a(n):

operating

A loss due to an employee strike should be reported as:

other revenues and expenses

Power Equipment incurred a material loss due to business restructuring. This loss should be reported as:

other revenues and expenses

A company suffers an inventory loss from water damage due to a broken pipe. The company has never incurred a loss of this type and does not expect this type of damage to occur again. The loss would be reported as

part of income from continuing operations

Assume that Airline Accessories' current ratio is greater than 1. Which of the following will decrease its current ratio?

purchasing inventory on account

Which of the following is an example of a cash inflow from a financing activity?

receipt of cash from the issuance of common stock

When using vertical analysis, we express income statement accounts as a percentage of

sales

The seller collects sales taxes from the customer at the time of sale and reports the sales taxes as

sales tax payable

Which of the following typically is true for profitability ratios?

the GP ratio declines as competition increases

The balance of cash at the beginning of the year was $120,000, and at the end of the year was $140,000. Assuming operating cash flows equal $90,000 and investing cash flows equal $(40,000), calculate financing cash flows for the year.

$(30,000)

Suppose that Neuman Exploration Tours has filed a lawsuit against a competitor for an alleged trademark violation. At the end of the year, Neuman's attorney estimates that the company will likely win the lawsuit and be awarded between $1.5 and $2 million, with the most likely amount being $1.8 million. How much should Neuman record as a gain?

$0

A company issues 100,000 shares of $1 par value common stock for $17 per share. To record this transaction, the company would credit Common Stock for:

$100,000

In its first three years of operations, a company has net income of $2,000; $5,000; and $8,000. It also pays dividends of $1,000 in the second year, and $3,000 in the third year. What is the balance of Retained Earnings at the end of the third year?

$11,000

Smith Company's sales revenues for the year are $200,000 and its accounts receivable balance increased by $10,000. How much is "cash collected from customers"?

$190,000

A local Starbucks sells gift cards of $10,000 during the year. By the end of the year, customers have redeemed $8,000 of gift cards. What will be the year-end balance in the Deferred Revenue account?

$2,000

The Sports Addition reports net sales of $2 million, cost of goods sold of $1 million, operating expenses of $500,000, and other expenses of $100,000. If you were to perform a vertical analysis of this income statement, you would divide each of these income statement line items by:

$2,000,000

At the beginning of 20X1, a company issues 100,000 shares of 4%, $10 par value, cumulative preferred stock. All remaining shares outstanding are common stock. The company does not pay any dividends in 20X1, but pays dividends of $100,000 at the end of 20X2. How much of the dividend will be paid to common stockholders in 20X2?

$20,000

Aviation Systems sells its products with a three-year manufacturing warranty. The company's sales revenue is $600,000. Based on prior experience, the company estimates that warranty costs are 5% of sales revenue. Actual warranty costs related to these sales were $5,000 during the year. How much warranty expense should the company record this year?

$30,000

Barney Company's salaries payable balance increased by $30,000 for the year and cash paid for salaries was $320,000. How much did Barney report for salaries expense?

$350,000

Suppose a company declares a dividend of $0.50 per share. At the time of declaration, the company has 100,000 shares issued and 90,000 shares outstanding. On the declaration date, Dividends would be recorded for

$45,000

Sports Unlimited reports net income of $240,000, sales revenue of $24 million, and average assets of $3 million. The profit margin is:

1%

Jamble Co. reports cash of $40,000, accounts receivable of $60,000, inventory of $150,000, equipment of $350,000, and current liabilities of $100,000. What is Jamble's acid-test ratio?

1.0

The Sports Shack reports net income of $120,000, sales of $1,200,000, and average assets of $960,000. The asset turnover is

1.25 times

Express Jet borrows $100 million on October 1, 2021, for one year at 6% interest. For what amount does Express Jet report interest payable for the year ended December 31, 2021?

1.5 mill

The Sports Shack reports net income of $120,000, sales of $1,200,000, and average assets of $960,000. The profit margin is

10%

Jamble Co. reports cash of $40,000, accounts receivable of $60,000, inventory of $150,000, equipment of $350,000, and current liabilities of $100,000. What is Jamble's current ratio?

2.5

When a product or service is delivered to a customer that previously paid in advance, the delivery is recorded as:

A debit to a liability and a credit to a revenue account

Preferred stock is called preferred because it usually has two preferences over common stock. These preferences relate to:

Dividends and distributions of assets if the corporation is dissolved

Federal and state income taxes withheld by employers from their employees' payroll are initially recorded with a credit to a(n):

Liability

A contingent liability that is probable and can be reasonably estimated must be

Recorded

What is the effect of a stock dividend on total stockholders' equity?

SHE doesn't change

Which of the following shows activity over a period of time?

Stmt of SHE

How does the stockholders' equity section in the balance sheet differ from the statement of stockholders' equity?

The SHE section show balances at a point in time, whereas the stmt of SHE show activity over a period of time

Which of the following is true in comparing the current ratio with the acid-test ratio?

The current ratio will always be at least as large as the acid-test ratio

A company resells 10,000 shares of treasury stock for $22 per share. The stock was purchased in a previous year for $18 per share. By how much would net income be affected by the sale of this treasury stock?

There would be no effect on net income from the sale of treasury stock

A stock dividend occurs when:

a company distributes to shareholders additional shares of its own stock

Which of the following best describes a company with a high price-earnings ratio?

a company whose earnings are expected to grow

An accumulated deficit is:

a debit balance in retained earnings

When a customer pays in advance for a product or service, the advance payment received by the company is recorded as:

a debit to an asset and a credit to a liability account

which of the following is not a current liability?

an unused line of credit

Smith Co. filed suit against Western, Inc., seeking damages for patent infringement. Western's legal counsel believes it is probable that Western will have to pay an estimated amount in the range of $75,000 to $175,000, with all amounts in the range considered equally likely. How should Western report this litigation?

as a liability for $75,000 with disclosure of the range

The correct order from the largest number of shares to the smallest number of shares is:

authorized,issued,and outstanding

A loss from discontinued operations is reported

below income from continuing operations

Preferred stock

can have features of both liabilities and SHE

we can separate cash return on assets into:

cash flow to sales and asset turnover

Company 1 has return on assets of 8.2% and a debt to equity ratio of 67.2%. Company 2 has return on assets of 6.3% and a debt to equity ratio of 53.4%. Based on these ratios, what is generally true about these two companies?

company 1 has higher profitability and higher risk

We can identify operating activities from income statement information and changes in:

current asset and current liability accounts

Travel Planners, Inc. borrowed $5,000 from First State Bank and signed a promissory note. What entry should Travel Planners record?

debit cash $5,000; credit notes payable $5,000

On the date of dividend declaration, which of the following entries is recorded?

debit dividends; credit dividends payable

When treasury stock is purchased, what is the effect on total shareholders' equity?

decrease

The disadvantages of a corporation compared to a sole proprietorship or partnership include:

double taxation

When treasury stock is resold, total stockholders' equity:

increases

The advantages of owning a corporation include

limited liability

We can identify investing activities from additional information and changes in

long-term assets

The payment of semi-annual interest on outstanding bonds payable is classified in the statement of cash flows as a(n):

operating

The times interest earned ratio is classified as an indicator of a company's:

solvency

The statement of stockholders' equity:

summarizes the changes in the balance in each stockholders' equity account over a period of time

The PE ratio

tends to be higher for growth stocks

If a company issues par-value stock, the amount credited to common stock will be:

the par value per share times the number of shares issued

Common shareholders usually have all of the following rights except:

to participate in the day-to-day operations

When using vertical analysis, we express balance sheet accounts as a percentage of

total assets

Common-size analysis is another term used for ____ analysis

vertical