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Assets & Liabilities – Statement of Cash Flows – Accounting – BADM Exam # 4

This chapter is about Inventory, notes payable, assets & liabilities, income statement, statement of cash flows and balance sheet.

Question 1

The average number of times a company’s inventory is sold during an accounting period, calculated by dividing cost of goods sold by the average inventory balance is equal to the:

Price earnings ratio

Inventory turnover – correct

Accounts receivable turnover

Current ratio

Days’ sales uncollected

Question 2

Corona Company’s balance sheet accounts follow:

At Dec 31201920182017
Net A/R78,03453,99541,152
Prepaid expenses8,3308,0993,429
Net Plant Assets241,854218,932199,542
Total Assets$449,206$385,680$321,400
Common Stock $10 par162,500162,500162,500
Retained Earnings92,85768,22645,022
Total Liabilities and equity$449,206$385,680$321,400

What is Corona Company’s days’ sales uncollected ratio for 2019 assuming net sales and gross profit for the period were $1,236,783, and $927,587 respectively?





23.03 – correct

Question 3

A company issued 5-year, 7% bonds with a par value of $100,000. The market rate when the bonds were issued was 6.5%. The company received $101,137 cash for the bonds. Using the effective interest method, the amount of recorded interest expense for the first semiannual interest period is:

$3,286.95 – correct





Question 4

On October 1, Robertson Company sold merchandise in the amount of $5,800 to Alberts, with credit terms of 2/10, n/30. The cost of the items sold is $4,000. Robertson uses the perpetual inventory system. The journal entry or entries that Robertson will make on October 1 is:

Debit Sales 5,800, Credit Accounts receivable 5,800; Debit Cost of goods sold 4,000, Credit Merchandise inventory 4,000

Debit Accounts receivable 5,800, Credit sales 5,800; Debit Cost of goods sold 4,000, Credit Merchandise inventory 4,000 – correct

Debit Accounts receivable 5,800, Credit sales 5,800;

Debit Sales 5,800; Credit Accounts receivable 5,800

Debit Accounts receivable 4,000, Credit Sales 4,000

Question 5

A company had average total assets of $897,000. Its gross sales were $1,090,000 and its net sales were $1,000,000. The company’s total asset turnover is equal to:



1.11 – correct



Question 6

A trade discount is:

A reduction in price for prompt payment

Also called a rebate

A term used by a purchases to describe a cash discount given to customers for prompt payment

A term used by a seller to describe a cash discount granted to customers for prompt payment

A reduction in price below the list price – correct

Question 7

Risk is:

The uncertainty about the expected return that will be earned from an investment – correct

Derived from the idea of getting something back from an investment

unrelated to expected return

The reward for investment

Net income divide by average total assets

Question 8

A company used straight-line depreciation for an item of equipment that cost $12,000, had a salvage value of $2,000 and had a five-year useful life. After depreciating the asset for three complete years, the salvage value was reduced to $1,200 and its total useful life was increased from 5 years to 6 years. Determine the amount of depreciation to be charged against the machine during each of the remaining years of its useful life:


$1,600 – correct




Question 9

Assume that the custodian of a $450 petty cash fund has $62.50 in coins and currency plus $382.50  in receipts at the end of the month. The entry to replenish the petty cash fund will include:

A debit to Cash for $377.50

A credit to Cash for $387.50 – correct

A credit to Cash Over and Short for $5.00

A debit to Cash for $387.50

A debit to Petty Cash for $382.50

Question 10

A company had a profit margin of 8%. If net income equaled $40,000 and average total assets equaled $332,500, how much were net sales?





$500,000 – correct

Question 11

At the end of the day, the cash register’s record shows $1,000 but the count of cash in the register is $1,035. The proper entry to record this excess includes a:

Credit to Cash for $35

Debit to Cash for $35

Credit to Cash Over and Short for $35 – correct

Debit to Petty Cash for $35

Debit to Cash Over and Short for $35

Question 12

Trend analysis is also called:

Ratio analysis

Financial analysis

Output analysis

Index number trend analysis – correct

Industry analysis

Question 13

Ending Liabilities are 67,000, Beginning Equity was $87,000, Common Stock sold during year totaled $31,000, Expenses for the year were $22,000, Dividends declared totaled $13,000, Ending Equity for the year is $181,000 and Beginning Assets for the year were $222,000. What was Net Income for the year?

$76,000 – correct





Question 14

A company purchased equipment valued at $200,000 on January 1. The equipment has an estimated useful life of six years or five million units. The equipment is estimated to have a salvage value of $13,400. Assuming the double declining balance method of depreciation, what is the annual depreciation for the second year if 1.5 million units were produced?





$44,422.20 – correct

Question 15

Dividing ending inventory by cost of goods sold and multiplying the result by 365 is equal to the:

Total asset turnover

Profit margin

Current ratio

Days’ sales in inventory – correct

Inventory turnover ratio

Question 16

A company’s annual accounting period ends on September 30. During the current year a depreciable asset which cost $16,000 was purchased on January 1. The asset has a $2,000 estimated salvage value. The company uses straight-line depreciation and expects the asset to have a 4-year life. What is the total depreciation expense for the current year?


$2,625 – correct




Question 17

When analyzing the changes on a spreadsheet used to prepare a statement of cash flows, the cash flows from investing activities generally affect:

Both noncurrent assets and noncurrent liabilities

Noncurrent liabilities and the equity accounts

Equity accounts only

Noncurrent assets – correct

Net income, curent assets and current liablities

Question 18

On October 31, a company’s Cash account had a normal balance of $7,000. During October, the account was debited for a total of $4,250 and credited for a total of $5,340. What was the balance in the Cash account at the beginning of October?

$9,590 credit balance

$8,090 debit balance – correct

$0 balance

$2,590 credit balance

$1,090 debit balance

Question 19

Cash flows from short term interest received are reported in the statement of cash flows as part of:

It is not reported on the statement of cash flows

Investing activities

Operating activities – correct

Non cash activities

Financing activities

Question 20

Advance ticket sales totaling $6,000,000 cash would be recognized as follows

Debit Cash, credit Unearned Revenue – correct

Debit Unearned Revenue, credit Cash

Debit Unearned Revenue, credit Sales

Debit Sales, credit Unearned Revenue

Debit Cash, credit Revenue Payable

Question 21

Net income of Lucky Company was $52,000. The accounting records reveal depreciation expense of$99,000 as well as increases in prepaid rent, salaries payable, and income taxes payable of $74,000, $15,700, and $14,000, respectively. What is the net cash flow provided (used) by operating activities?




$106,700 – correct


Question 22

The three most common tools of financial analysis are:

Vertical analysis, political analysis, horizontal analysis

Horizontal analysis, vertical analysis, ratio analysis – correct

Ratio analysis, horizontal analysis, financial reporting

Financial reporting, ratio analysis, vertical analysis

Trend analysis, financial reporting, ratio analysis

Question 23

Land improvements are:

Expensed in the period incurred

Included in the cost of the land account

Assets that increase the usefulness of land, but that have a limited useful life and are subject to depreciation – correct

Assets the increase the usefulness of land and like land, are not depreciated

Also called basekt purchases

Question 24

The statement of cash flows is:

A financial statement that lists the types and amounts of assets, liabilities and equity of a business on a specific date

A financial statement that presents information about changes in equity during a period

A financial statement that reports the cash inflows and outflows for an accounting period and that classifies those cash flows as operating activities, investing activities or financing activities – correct

A financial statement that lists the types and amounts of the revenues and expenses of a business for an accounting period

Another name for the statement of financial position

Question 25

The Cash Over and Short account:

Is used to record a credit balance in the cash account

Can never have a debit balance

Is an income statement account used for recording the income effects of cash overages and cashshortages from errors in making change and from missing petty cash receipts – correct

Is not necessary in a computerized accounting system

Can never have a credit balance

Question 26

The carrying value of a long term note payable:

Is computed as the future value of all remaining future payments, using the market rate as interest

Is the face value of the long term note less thte total of all future interest payments

Decreases each time priod the discount on the note is amortized

Is computed as the present value of all remaining future payments, discounted using the market rate of interest at the time of issuance – correct

Is computed as the present value of all remaining interest payments, discounted using the note’s rate of interest

Question 27

On December 31, 2020, Stable Company sold a piece of equipment that was purchased on January 1, 2015. The equipment originally cost $820,000 and has an estimated useful life of eight years. Stable uses the straight-line method of depreciation. What is the gain/loss on the sale of equipment that Stable will recognize if the equipment was sold for $230,000?

$25,000 Loss

$0, no gain or loss

$73,750 Gain

$230,000 Gain

$25,000 Gain – correct

Question 28

A seller of goods or services, which is usually a manufacturer or wholesales is know as a:

Vendor – correct





Question 29

Triple Company’s accountant made an entry that included the following items: debit postage expense$12.42; debit office supplies expense $27.33, credit to cash over/short $2.19. If the original amount in petty cash is $320, how much is in petty cash before the reimbursement?





$278.06 – correct

Question 30

In comparing the canceled checks on the bank statement with the entries in the accounting records, it is found that check number 2889 for December’s utilities was correctly written and drawn for $970, but was erroneously entered in the accounting records as $790. The journal entry to adjust the books for the bank reconciliation would include which of the following for this situation?

$970 increase to Cash and a $790 decrease to Utility Expense

$180 increase to Cash and a $180 decrease to Utility Expense

$180 decrease to Cash and a $180 increase to Utility Expense – correct

$180 increase to Cash and a $180 increase to Utility Expense

$180 decrease to Cash and a $180 decrease to Utility Expense

Question 31

The following information is available to reconcile Sleepy Time Bedding’s book balance of cash with its bank statement cash balance as of July 31:
a. On July 31, the company’s Cash account had a $25,862 debit balance, but its July bank statement shows a $28,177 cash balance.

b. Check #1531 for $1,520 and check #1540 for $752 were outstanding on the June 30 bank reconciliation.  Check #1540 is listed with the July canceled checks, but check # 1531 is not.  Also, check # 1565 for $536 and check #1569 for $2,288, both written in July, are not among the canceled checks on the July 31 statement.

c. In comparing the canceled checks on the bank statement with the entries in the accounting records, it is found that check #1556 for July rent was correctly written and drawn for $1,240, but was erroneously entered into the accounting record as $1,230.

d. A credit memorandum enclosed with the July bank statement indicates the bank collected $9,500 cash on a non-interest bearing note for Sleepy Time Bedding, deducted a $48 collection fee, and credited the remainder to its account.  Sleepy Time Bedding had not yet recorded this even before receiving the statement.

e.  A debit memorandum for $805 lists a $795 NSF check plus a $10 NSF charge,  The check had been received from a customer, Even Shaw.  Sleepy Time Bedding has not yet recorded this check as NSF.

f. Enclosed with the July statement is a $14 debit memorandum for bank services.  It has not yet been recorded because no previous notification had been received.

g. Sleepy Time Bedding July 31 daily cash receipts of $10,652 were placed in the bank’s night depository on that date, but do not appear on the July 31 bank statement.

Debit to cash $9,452 debit to collection expense $48 credit notes receivable $9,500 – correct

Credit to accounts receivable $9,500; credit to cash $9,500

No adjusting entry is needed

Debit to cash $9,500; credit to accounts receivable $9,500

Debit to cash $9,452 debit to collection expense $48 credit accounts receivable $9,500

Question 32

A company issued 10-year, 8% bonds with a par value of $200,000. The company received $190,000 for the bonds. Using the straight-line method, the amount of interest expense for the first semiannual interest period is:





$8,500 – correct

Question 33

A company had a market price of $8.22 per share, earnings per share of $1.01 and dividends per share of $0.32. Its price-earnings ratio is equal to:


8.14 – correct




Question 34

A company has long-term notes payable of $175,625, taxes of $9,500, ending merchandise inventory of $450,290, interest expense of $14,050, net sales of $720,000 a gross profit ratio of 35%, a times interest earned ratio of 4.23, and total assets of $1,300,417. What is the company’s earnings before interest and taxes?





$59,432 – correct

Question 35

A company’s transactions with its creditors to borrow money and/or to repay the principal amounts of long term loans are reported as cash flows from:

Direct activities

Financing activities – correct

Indirect activities

Operating activities

Investing activities

Question 36

The consistency principle:

Is also called the matching principle

Required a company to use one method of inventory valuation exclusively

Requires that all companies in the same industry use the same accounting methods of inventory valuation

Is also called the full disclosure principle

Requires a company to consistently use the same accounting method of inventory valuation unless a change will improve financial reporting – correct

Question 37

The inventory valuation method that identifies the invoice cost of each item in ending inventory to determine the cost assigned to that inventory is the:

Specific identification method – correct

Weighted average inventory method

Retail inventory method

First in, first out method

Last in, first out method

Question 38

What is the total for the debits on the Trial Balance for Shiver Ice House?

Common stock$120,000Accounts payable$25,000
Cash116,640Accounts receivable22,450
Supplies1,500Office Equipment23,300
Prepaid rent3,200Unearned revenue4,152
Revenue20,000Utilities expense422
Retained earnings30,000Shaving equipment31,640

$199,152 – correct





Question 39

When analyzing the changes on a spreadsheet used to prepare a statement of cash flows, the cash flows from financing activities generally affect:

Non current assets

Net inocme, currrent assets, and current liabilities

Non current liability and the equity accounts – correct

Equity accounts only

Both non current assets and non current liablilties

Question 40

A corporation purchased a $40,000 delivery truck by paying 4,000 cash and signing a $36,000 note payable. Immediately prior to this transaction the corporation had assets, liabilities and owners’ equity in the amounts of $75,000; $52,000; and $23,000 respectively. What is the total amount of the corporation’s assets after this transaction has been recorded?



$111,000 – correct



Question 41

The appropriate section in the statement of cash flows for reporting the issuance of common stock for cash is:

Schedule of non cash investing or financing activity

It is not reported o the statement of cash flows

Operating activities

Financing activities

Investing activities

Question 42

A component of operating efficiency and profitability, calculated by expressing net income as a percent of net sales is equal to the:

Price earnings ratio

Profit margin ratio

Merchandise turnover ratio

Accounts receivable turnover ratio

Acid test ratio

Question 43

The Wage and Tax Statement is:

Form W4

Form 1040

Form W-2

Form 940

Form 941

Question 44

Fast-Forward had cash inflows from operations of $62,500; cash outflows from investing activities of $47,000; and cash inflows from financing of $25,000. The net change in cash was:

$9,500 increase

$40,500 decrease

$134,500 increase

$40,500 increase

$134,500 decrease

Question 45

Given the following information, determine the cost of ending inventory at December 31 using the Weighted Average perpetual inventory method.

December 2: 5 units were purchased at $7 per unit.

December 9: 10 units were purchased at $9.40 per unit.

December 11: 12 units were sold at $35 per unit.

December 15: 20 units were purchased at $10.15 per unit.

December 22: 18 units were sold at $35 per unit.






Question 46

Chiller Company has credit sales of $5.60 million for year. Chiller estimates that 1.32% of the credit sales will not be collected. Historically, 4% of outstanding accounts receivable is uncollectible. On December 31, the company’s Allowance for Doubtful Accounts has an unadjusted debit balance of $3561. Chiller prepares a schedule of its December 31,  accounts receivable by age. Based on past experience, it estimates the percent of receivables in each age category that will become uncollectible. This information is summarized here:

Dec 31 A/RAge of A/RExpected percent uncollectible
$1,095,000Not yet due.085%
322,5501 – 30 days past due1.42
84,70031-60 days past due7.60
50,42061-90 days past due42.50
12,500Over 90 days past due81.00

Assuming the company uses the aging of accounts receivable method, what is the amount that Chiller will enter as the Bad Debt Expense in the December 31 adjusting journal entry?






Question 47

A company sells a climbing kit and uses the periodic inventory system to account for its merchandise.The beginning balance of the inventory and its transactions during January were as follows:

Jan 01: Beginning balance of 18 units at $13 each

Jan 12: Purchased 30 units at $14 each

Jan 19: Sold 24 units at a selling price of $30 each

Jan 20: Purchased 24 units at $17 each

Jan 27: Sold 27 units at a selling price of $30 each

If the ending inventory is reported at $357, what inventory method was used?

Specific identification


Weighed Average


Retail inventory method

Question 48

Teller purchased merchandise from TechCom on October 17 of the current year. TechCom accepted Teller’s $4,800, 90-day, 10% note as payment. What entry should TechCom make on January 15 of the next year when the note is paid?

Debit Cash 4,920; Credit notes receivable 4,920

Debit cash 4,920; Credit interest revenue 120, credit notes receivable 4,800

Debit Cash 4,920; Credit interst revenue 100, credit interest receivable 20, credit notes receivable 4,800

Debit Cash 4,920; Credit interest revenue 20, creidt interest receivable 100, credit notes receivable 4,800

Debit notes receivable 4,800, debit interest receivable 120; Credit sales 4,920

Question 49

Increases in retained earnings from a company’s earnings activities are:




Stockholders equity


Question 50

Extraordinary items:

Are not reported on a corporate income statement

Are unusual and infrequent

Are disclosed before discontinued operations on the income statement

Include changes in accounting principle

Are included in income from operations

Question 51

The useful life of a  plant asset is:

Determined by the FASB

The length of time it is used productively in a company’s operations

Determined by law

Never related to its physical life

Its productive life, but not to exceed one year

Question 52

A company had inventory on November 1 of 5 units at a cost of $20 each. On November 2, they purchased 10 units at $22 each. On November 6 they purchased 6 units at $25 each. On November 8, 8 units were sold for $55 each. Using the FIFO perpetual inventory method, what was the value of the inventory on November 8 after the sale?






Question 53

A company has the following accounts:

Accounts Receivable13,733Consulting fees earned13,718
Office Supplies2,625Rent expense3,673
Land37,153Salaries expense6,642
Office Equipment14.535Telephone expense560
Accounts Payable6,463Misc Expense280
Common Stock54,490Retained Earnings13,847

What is the acid test ratio?






Question 54

The statement of cash flows reports:

Revenues, gains, expenses and losses

Cash inflows and out flows for an accounting period

Equity, net income and dividends

Assets, liabilities, and equity

Changes in equity

Question 55

Which of the following is the primary purpose of accounting?

To establish a business

To keep from paying taxes

To deceive stockholders

To establish credit for a company

To identify, record and communicate business transactions

Question 56

A company has sales of $5,417,000, a gross profit ratio of 35%, ending merchandise inventory of $201,425, and total current assets of $1,539,600. What is the days sales’ in inventory ratio for the year?






Question 57

If the credit balance of the Allowance for Doubtful Accounts account exceeds the amount of a bad debt being written off, the entry to record the write-off against the allowance account results in:

An increase in the expenses of the current period

A reduction in current assets

A reduction in equity

No effect on the expenses of the current period

A reduction in current liabilities

Question 58

A depreciable asset currently has a $40,100 book value. The company owning the asset uses straight-line depreciation. They paid $70,000 for this asset and consider it to have a $1,000 salvage value with a twelve year useful life. How long has the company owned this asset?

5.2 years

10.2 years

Cannot be determined from the information given

12 years

7 years

Question 59

Sales tax payable

Is a long term liability

Is an estimated liability

Is a current liability for retailers

Is a contingent liability

Is a business expense

Question 60

The inventory valuation method that results in the lowest taxable income in a period of inflation is:

LIFO method

Gross profit method

Specific identification method

FIFO method

Weighted average cost method

Question 61

In reimbursing the petty cash fund:

No expenses are recorded

Petty Cash is debited

Cash is debited

Petty cash is credited

Appropriate expense accounts are debited

Question 62

Stride Rite has total assets of $425 million. Its total liabilities are $110 million. Its equity is $315 million. Calculate the debt ratio.






Question 63

Days’ sales in inventory:

Is also called days’ stock on hand

Is used to measure solvency

Focuses on average inventory rather than ending inventory

Is a substitute for the acid test ratio

Is calculated by dividing cost of goods sold by ending inventory

Question 64

When preparing an unadjusted trial balance using a periodic inventory system, the amount shown for Merchandise Inventory is:

Equal to the cost of goods sold

Equal to the gross profit

Equal to the cost of goods purchased

The ending inventory amount

The beginning inventory amount

Question 65

Cash, not including cash equivalents, include:


Coins, currency , and checking accounts

Stock market funds

Two year certificates of deposit

Postage stamps

Question 66

Ace Credit Card Company agrees to transfer cash to Seller Company immediately upon deposit of that company’s credit card sales receipts. Ace charges a 2% fee for all credit card sales. If Seller Company deposits $57,300 credit card sales receipts, which of the following statements is true?

Ace wil pay Seller Comany a $1,146 credit card fee

Seller Company will receive cash $56,154 from Ace

Ace will receive $56,154 cash from Seller Company

Seller Company will receive cash $57,300 from Ace

Ace will receive $57,300 cash from Seller Company

Question 67

A company purchased property for a building site.  The costs associated with the property were:

Purchase price$175,000
Real estate commissions15,000
Legal fees800
Expenses of clearing the land2,000
Expenses to remove old building1,000

What portion of these costs should be allocated to the cost of the land and what portion to the cost of the new building?

$193,800 to Land; $0 to Building

$192,800 to Land; $0 to Building

$190,000 to Land; $3,800 to Building

$190,800 to Land; $1,000 to Building

$175,800 to Land; $18,800 to Building

Question 68

Goods on consignment:

Are always paid for the consignee when they take posession of the goods

Are goods shipped by the owner to the consignee who sells the goods for the owner

Are not reported o the consignor’s inventorysince they do not have possession of the inventory

Are goods shipped by the consignor who sells the goods for the owner

Are reported on the consignee’s books as inventory

Question 69

A company has sales of $1,500, sales discounts of $102, sales returns and allowances of $123, shipping charges of $15, sales commissions of $34, net income totaled $263.5, and cost of goods sold of $420. What is the net sales amount for the period?






Question 70

A company used the percent of sales method to determine its bad debts expense. At the end of the current year, the company’s unadjusted trial balance reported the following selected amounts

Accounts Receivable$245,000 debit
Allowance for uncollectible accounts300 credit
Net sales900,000 credit

All sales are made on credit. Based on past experience, the company estimates 0.5% of credit sales to be uncollectible. What amount should be debited to Bad Debts Expense when the year-end adjusting entry is prepared?






Question 71

Conner Company borrows $185,600 cash on November 1, 2010, by signing a 120-day, 8% note. What is the total amount of interest expense that Conner will recognize?






Question 72

The debt ratio is used:

To determine who a company owes

To determin how much debt a firm should pay off

Only by banks when a business applies for a loan

To measure the amount of equity relative to the expense

To reflect the risk associated with a company’s debts

Question 73

A company had: net sales of $82,000; cost of goods sold of $70,000; and other expenses of $2,000. Its gross margin ratio equals:






Question 74

A debit memorandum is:

No necessary in a perpetual inventory system

The source document for the purchase of merchandise inventory

Required whenever a journal entry is recorded

Required when a purchase discount is granted

The document a buyer issues to inform the seller of a debit made to the seller’s account in the buyer’s records

Question 75

If a company had net income of $2,379,600, interest expense of 234,000, a tax rate of 40%, and operating income of 4,200,000, what would the times interest earned ratio be for the company?






Question 76

The following information is from the annual financial statements of Nancy Company.

Net Sales$307,000$238,000$285,000
A/R, net (year end)47,90045,70042,400

What is the accounts receivable turnover ratio for 2020?






Question 77

On December 15, 2018, Myers Legal Services signed a $50,000 contract with a client to provide legal services to the client in 2019. Which accounting principle would require Myers Legal Services to record the legal fees revenue in 2019 and not 2018?

Monitary unit principle

Going concern principle

Business entity principle

Revenue recognition principle – correct

Cost principle