Business Administration & Financial Accounting – BADM Exam 4
This is Financial Accounting & Business Administration Exam 4
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
Days’ sales uncollected
Corona Company’s balance sheet accounts follow:
|At Dec 31||2019||2018||2017|
|Net Plant Assets||241,854||218,932||199,542|
|Common Stock $10 par||162,500||162,500||162,500|
|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?
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:
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
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:
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
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
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:
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
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?
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
Trend analysis is also called:
Index number trend analysis- Correct
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?
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?
Dividing ending inventory by cost of goods sold and multiplying the result by 365 is equal to the:
Total asset turnover
Days’ sales in inventory- Correct
Inventory turnover ratio
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?
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
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
$2,590 credit balance
$1,090 debit balance
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
Operating activities- Correct
Non cash activities
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
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?
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
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
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
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
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
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?
$0, no gain or loss
$25,000 Gain- Correct
A seller of goods or services, which is usually a manufacturer or wholesales is know as a:
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?
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
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
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:
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:
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?
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:
Financing activities – correct
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
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
What is the total for the debits on the Trial Balance for Shiver Ice House?
|Common stock||$120,000||Accounts payable||$25,000|
|Prepaid rent||3,200||Unearned revenue||4,152|
|Retained earnings||30,000||Shaving equipment||31,640|
$199,152 – correct
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
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
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
Financing activities – correct
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 – correct
Merchandise turnover ratio
Accounts receivable turnover ratio
Acid test ratio
The Wage and Tax Statement is:
Form W-2 – correct
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:
$40,500 increase – correct
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.
$49.85 – correct
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/R||Age of A/R||Expected percent uncollectible|
|$1,095,000||Not yet due||.085%|
|322,550||1 – 30 days past due||1.42|
|84,700||31-60 days past due||7.60|
|50,420||61-90 days past due||42.50|
|12,500||Over 90 days past due||81.00|
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?
$55,439.41 – correct
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?
FIFO – correct
Retail inventory method
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 – correct
Debit notes receivable 4,800, debit interest receivable 120; Credit sales 4,920
Increases in retained earnings from a company’s earnings activities are:
Revenue – correct
Are not reported on a corporate income statement
Are unusual and infrequent – correct
Are disclosed before discontinued operations on the income statement
Include changes in accounting principle
Are included in income from operations
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 – correct
Determined by law
Never related to its physical life
Its productive life, but not to exceed one year
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?
$304 – correct
A company has the following accounts:
|Accounts Receivable||13,733||Consulting fees earned||13,718|
|Office Supplies||2,625||Rent expense||3,673|
|Office Equipment||14.535||Telephone expense||560|
|Accounts Payable||6,463||Misc Expense||280|
|Common Stock||54,490||Retained Earnings||13,847|
What is the acid test ratio?
3.16% – correct
The statement of cash flows reports:
Revenues, gains, expenses and losses
Cash inflows and out flows for an accounting period – correct
Equity, net income and dividends
Assets, liabilities, and equity
Changes in equity
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 – correct
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?
20.88 – correct
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 – correct
A reduction in current liabilities
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 – correct
Cannot be determined from the information given
Sales tax payable
Is a long term liability
Is an estimated liability
Is a current liability for retailers – correct
Is a contingent liability
Is a business expense
The inventory valuation method that results in the lowest taxable income in a period of inflation is:
LIFO method – correct
Gross profit method
Specific identification method
Weighted average cost method
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 – correct
Stride Rite has total assets of $425 million. Its total liabilities are $110 million. Its equity is $315 million. Calculate the debt ratio.
25.9% – correct
Days’ sales in inventory:
Is also called days’ stock on hand – correct
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
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 – correct
Cash, not including cash equivalents, include:
Coins, currency , and checking accounts – correct
Stock market funds
Two year certificates of deposit
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 – correct
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
A company purchased property for a building site. The costs associated with the property were:
|Real estate commissions||15,000|
|Expenses of clearing the land||2,000|
|Expenses to remove old building||1,000|
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 – correct
$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
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 – correct
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
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?
$1,275 – correct
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 accounts||300 credit|
|Net sales||900,000 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?
$4,500 – correct
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?
$4,949 – correct
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 expenses
To reflect the risk associated with a company’s debts – correct
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:
14.63% – correct
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 – correct
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?
17.95 – correct
The following information is from the annual financial statements of Nancy Company.
|A/R, net (year end)||47,900||45,700||42,400|
What is the accounts receivable turnover ratio for 2020?
6.56 – correct
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