Multiple Choice Answers

1. The records of Ashley Boutique showed a net loss of $30,000; depreciation expense of $25,000; and a increase in supplies on hand of $5,000. The amount of net cash flow from operating activities using the indirect method is
A.$15,000.
B$20,000.
C.($10,000).
D.($15,000).

2. Birch issued 200 shares of $12 par common stock in exchange for a piece of equipment with a currentmarket value of $3,000. Which of the following is not part of the journal entry for this transaction?
A.Crediting common stock for $2,400
B.Debiting equipment for $3,000
C.Crediting paid-in capital in excess of par common for $600
D. Crediting common stock for $3,000

3. Rick Company’s net sales decreased from $90,000 in year 1 to $45,000 in year 2, and its cost of goods sold decreased from $30,000 in year 1 to $20,000 in year 2. Vertical analysis based on sales would show which decreases in cost of goods sold for the two periods (rounded to the nearest tenth of a percent)?
A. 33.3% and 44.4%
B.44.4% and 33.3%
C.300% and 225%
D.225% and 300%

4. What are the rate of return on stockholders’ equity and the rate of return on common stockholders’ equity (rounded to the nearest one-tenth of a percent) given the following information:
Net Income $350,000
Preferred Dividends 20,000
Common Stock 48,000
Common Stockholders’ Equity 1/1/2011 4,400,000
Total Stockholders’ Equity 1/1/2011 5,300,000
Total Stockholders’ Equity 12/31/2011 5,500,000
A. Return on Stockholders’ Equity: 5.6 %; Return on Common Stockholders’ Equity: 6.7%
B. Return on Stockholders’ Equity: 6.5 %; Return on Common Stockholders’ Equity: 7.6%
C. Return on Stockholders’ Equity: 7.8 %; Return on Common Stockholders’ Equity: 8.9%
D. Return on Stockholders’ Equity: 8.1 %; Return on Common Stockholders’ Equity: 9.2%

5. Casey Company has an accounts receivable turnover of 36 days, an inventory turnover of 77 days, and an accounts payable turnover of 40 days. Casey’s cash conversion cycle is _______ day(s).
A. 81
B. 73
C.153
D.1

6. Casey Company has 5,000 shares of treasury cost that it purchased for $13 per share. It later resold 2,000 of those shares for $17 per share. The amount to be credited to Paid-in Capital—Treasury Stock is
A.$34,000.
B. $8,000.
C. $30,000.
D. $26,000.

7. Operating expenses—other than depreciation—for the year were $335,000. Prepaid expenses decreased by $7,000. Cash payments for operating expenses to be reported on the cash flow statement using the direct method would be
A. $328,000.
B. $7,000.
C. $335,000.
D. $342,000.

8. Rick Company has declared a $40,000 cash dividend to shareholders. The company has 5,000 shares of $20 par, 6% preferred stock, and 10,000 shares of $15 par common stock. The preferred stock is noncumulative. How much will be distributed to the preferred and common stockholders on the date of payment?
A. $40,000 preferred; $0 common
B.$0 preferred; $40,000 common
C. $6,000 preferred; $34,000 common
D. $34,000 preferred; $6,000 common

9. What is the rate of return on equity if net income is $22,700; preferred dividends are $3,000; sales are $100,000; and average common stockholders’ equity is $86,000?
A. 22.9%
B.  26.4%
C. 22.7%
D. 86.0%

10. Birch issued 200 shares of $12 par common stock in exchange for a piece of equipment with a current market value of $3,000. Which of the following is not part of the journal entry for this transaction?
A. Crediting Common Stock for $3,000
B. Crediting Common Stock for $2,400
C. Debiting Equipment for $3,000
D. Crediting Paid-in Capital in Excess of Par—Common for $600

11. To determine why net income and cash on the balance sheet don’t equal, an accountant can prepare a/an
A. statement of retained earnings.
B. income statement.
C. balance sheet.
D. statement of cash flows.

12. If total assets are $6,000, what is the common-size figure of cash, assuming that cash has a balance of $2,400?
A. 40.0%
B. 60.0%
C. 120.0%
D. 100.0%

13. Net sales at Kelly’s Bakery increased from $40,000 to $60,000, and its cost of goods sold increased from $20,000 to $40,000. Vertical analysis based on net sales would show which percentages for cost of goods sold (rounded to the nearest %)?
A. 67% and 40%
B. 40% and 20%
C. 50% and 67%
D. 10% and 30%

14. Cost of goods sold for the year was $850,000. Inventory was $60,000 at the beginning of the year and $90,000 at the end of the year. There were no changes in the amount in accounts payable for the year.
Cash payment for merchandise to be reported under the direct method is
A. $880,000.
B. $850,000.
C. $910,000.
D. $940,000.
15. If you own 500 shares (2% of a corporation’s stock) and the corporation issues 15,000 new shares, how many of the new shares can you purchase under preemptive right?
A. 0
B. 500
C. 800
D. 300

16. Ryan Industries has an inventory turnover of 112 days, an accounts payable turnover of 73 days, and an accounts receivable turnover of 82 days. Ryan’s cash conversion cycle is _______ days.
A. 9
B.121
C. 103
D. 43

17. Tammy Company has a beginning accounts receivable balance of $65,000 and an ending accounts receivable balance of $60,000. Net credit sales are $250,000. Tammy’s accounts receivable turnover rate is
A. 4.000.
B. 3.846.
C. 4.167.
D. 2.000.

18. Tammy Corporation has 350,000 shares of $3 par common stock outstanding. It has declared a 5% stock dividend. The current market price of the common stock is $7.50/share. The amount that will be debited to retained earnings on the date of declaration is
A. $131,250.
B. $183,750.
C. $52,500.
D. $78,750.

19.Tammy Corporation has 350,000 shares of $3 par common stock outstanding. It has declared a 5% stock dividend. The current market price of the common stock is $7.50/share. The amount that will be credited to common stock on the date of declaration is
A. $131,250.
B. $183,750.
C. $52,500.
D. $78,750.

20. A company has $56,000 in cash; $12,000 in accounts receivable; $25,000 in short-term investments; and $100,000 in merchandise inventory. The company also has $60,000 in current liabilities. The company’s quick ratio is
A. 3.217.
B. 1.550.
C. 0.933.
D. 1.133

21. A repair that extends the useful life of an asset would be considered a/an
A. extraordinary repair.
B. capital expense.
C. betterment.
D. ordinary repair.

22. Casey Company’s bank statement shows a bank balance of $43,267. The statement shows a bank service charge of $50 and a bank collection of $760 in Casey Company’s behalf. Casey’s book balance should be adjusted by a total of
A. –$710.
B. +$760.
C. +$710.
D. +$810.

23. Ryan Corporation made a basket purchase of three items. Item A was appraised at $35,000; item B was appraised at $55,000; and item C was appraised at $60,000. The purchase price was $125,000. The amount at which item C should be recorded (rounded to the nearest dollar) is
A. $83,300.
B. $29,167.
C. $50,000.
D. $72,000.

24. If a $6,000, 10%, 10-year bond was issued at 104 on October 1, 2011, how much interest will accrue on
December 31 if interest payments are made annually?
A. None
B. $104
C. $500
D. $150

25. If the amount extracted from a coal mine was different every year for four years, you would
A. use the same depletion expense rate per unit each year.
B. recompute the depletion expense rate per unit each year.
C. debit depletion expense for the same amount each year.
D. credit accumulated depletion— coal mine for the same amount each year.

26. A company purchased furniture on January 1, 2012. Its cost was $15,600, and it had a residual value of $1,600. Its useful life is determined to be three years. Using double-declining balance depreciation, the depreciation for 2012 to the nearest dollar will be
A. $5,200.
B. $9,333.
C. $4,667.
D. $10,400.

27. Brandon Company completed an aging of its accounts receivable and came up with an estimated amount of $6,342. The credit sales for the period are $85,000. The balance in the allowance for doubtful accounts is a debit of $817. If Brandon uses 5% of credit sales as its estimating uncollectable accounts, how much will the credit be to the allowance for doubtful accounts if Brandon uses the estimate of aging receivables as its method of estimating uncollectable accounts?
A. $4,250
B. $5,067
C. $5,525
D. $7,159

28. Which of the following marketable securities are reported at market value on the balance sheet date?
A. Available-for-sale and trading securities
B. Held-to-maturities securities
C. Trading securities
D. Available-for-sale securities

29. Which of the following would be considered a cash equivalent?
A. Time deposits
B. Currency
C. Money orders
D. Checks

30. Casey Company’s bank statement shows a bank balance of $43,267. The statement shows a bank service charge of $50. Casey’s book balance shows outstanding checks of $5,288 and deposits in transit of $9,325. The bank-side reconciliation would show cash of
A. $47,304.
B. $43,267.
C. $43,217.
D. $39,230.

31. A warranty is an example of a/an _______ liability.
A. estimated
B. known
C. settled
D. contingent

32. Which of the following would not be considered a contingent liability?
A. Mortgage payable
B. Pending legal action
C. Potential fines from the EPA
D. Cosigning a loan

33. Rick Company has cash of $143,000; net accounts receivable of $89,000; short-term investments of $35,000; and prepaid expenses of $40,000. It also has $50,000 in current liabilities and $80,000 in longterm liabilities. The quick ratio for Rick Company is
A. 6.14.
B. 3.34.
C. 5.34.
D. 4.64.

34. Which of the following would indicate poor internal control over accounts receivable?
A. The same person handling cash receipts also records the accounts receivable transactions.
B. The mailroom employees open the mail and give the cash receipts to another employee.
C. The person handling cash receipts passes the receipts to someone who enters them into accounts receivable.
D. The person who handles accounts receivable wouldn’t write off accounts as uncollectable.

35. Use the _______ principle to estimate warranty liabilities.
A. matching
B. objectivity
C. entity
D. conservatism

36. Using a 360-day year, the maturity value of a 69-day note for $1,500 at 7% annual interest is (rounded to the nearest cent)
A. $1,605.00.
B. $1,584,88.
C. $20.13.
D. $1,520.13.

37. Meranda Corporation purchases a machine for $125,000. It has an estimated salvage value of $10,000 and is expected to produce 50,000 units in its lifetime. During the first year of operation, it produced 14,500 units. To the nearest dollar, the depreciation for the first year under the units of production method will be
A. $36,250.
B. $31,250.
C. $35,500.
D. $33,350.

38. Research and development costs (R&D) are generally
A. listed as “current assets” on the balance sheet.
B. expensed and become part of the income statement.
C. listed as “other intangibles” on the balance sheet.
D. listed as “long-term assets” on the balance sheet.

39. Which of the following would not be a liability according to FASB’s definition of a liability?
A. An obligation that’s estimated in amount
B. The signing of a three-year employment contract at a fixed annual salary
C. A note payable with no specified maturity date
D. An obligation to provide goods or services in the future

40. Taylor Company has given you the following information from its aging of accounts receivable. The current amount in the allowance for doubtful accounts is a $958 credit.
Using this information, what is the amount of the journal entry to record the allowance for doubtful accounts?
Current $24,400 2% uncollectible
31–60 days 7,350 8% uncollectible
61–90 days 3,380 15% uncollectible
91 and up 1,220 30% uncollectible
A. $1,949
B. $2,457
C. $541
D. $991