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Part 1 - Multiple Choice

Cash is $30,000, net income is $120,000, prepaid expenses are $10,000, current liabilities are $100,000, accounts receivable are $30,000, and merchandise inventory is $20,000. The quick ratio is:

a. 0.60

b. 0.70

c. 0.80

d. 0.90

For 2015, Moser Inc had beginning and ending accounts receivable balances of 60'000 and 70'000, respectively. The year's sales on account were 240'000. What was the amount of cash received from customers during the year?

a. 130'000

b. 250'000

c. 230'000

d. 240'000

Which of the following assets is provided the longest length of legal protection?

a. copyright

b. patent

c. trademark

d. goodwill

If a company capitalizes cost that it should have expensed in 20X7 (assume no income tax effect)

a. Operating Cash flow will be higher in 20X7

b. Operating Cash flow will be lower in 20X7

c. Net income will be lower in 20X7

d. Net income will be higher in 20X7

Huber Inc completed a consulting project for Yellow Inc. on June 2nd and billed Yellow on July 10^th. For Yellow Inc. this is a

a. Deferred (unearned) revenue

b. A deferred expense

c. An accrued revenue

d. An accrued expense

Hein Corporation had a net loss of $10'000, depreciation expense of $12'000 and a decrease in Accounts Receivable of $9000. The cash provided/used in operating activities, assuming no other charges in accounts is:

a. ($7'000)

b. $1'000

c. $11'000

d. $31'000

Which of the following is the appropriate journal entry for the company to make on the date of record of dividends?

a. Retained Earnings

Cash

b. Paid-In Capital in Excess of Par Value

Dividends Payable

c. Retained Income

Dividends Payable

d. None of the above

A company has a debt-to-total-assets ratio of 20% and its current liabilities are 20% of its total assets. What is the company's long-term-debt-to-total-capital ratio?

a. 16.7%

b. 19%

c. 20%

d. 25%

A debt contract issued generally only by large prominent companies, allowing them to borrow short-term funds directly from investors is:

a. A promissory note

b. Commercial paper

c. Allowance for bad debt

d. Returnable deposit

Which of the following would not be found in a general journal?

a. Separate columns for debits and credits.

b. The date of the transaction.

c. The current balance (amount) in an account.

d. A posting reference (possible comment outlining what transaction is all about.

A lease for office space that should be accounted for by the lessee as ordinary rent expense is:

a. a financing lease

b. a capital lease

c. an operating lease

d. a sale-leaseback

To record the prepaid insurance that has expired during the period, the adjusting entry would include a debit to:

a. Prepaid Insurance

b. Insurance Expense

c. Accrued Insurance

d. Unearned Insurance

The estimation of bad debts expense, using the allowance method, has what affect on the balance sheet?

a. It increases assets and increases stockholders' equity.

b. It decreases assets and decreases stockholders' equity.

c. It has no effect on assets and decreases stockholders' equity.

d. It decreases assets and increases stockholders' equity.

Under a perpetual inventory system, the purchase of goods for resale would result in:

a. a debit to the Accounts Receivable account.

b. a debit to the Inventory account.

c. a debit to the Purchase account.

d. a debit to the Cost of Goods Sold account.

To record the return of goods from a customer the journal entry would include:

a. debit to Sales.

b. credit to Sales.

c. debit to Sales Return and Allowances.

d.credit to Sales Return and Allowances.

The Wages Payable account had a beginning balance of $5,000 and an ending balance of $7,000. Wage expense for the period was $79,000. How much cash was paid for wages during the period?

a. $77,000

b. $79,000

c. $81,000

d. $86,000

The journal entry to record the receipt of rent received in advance requires a:

a. debit to Unearned Rent.

b. credit to Rent Revenue.

c. credit to Cash.

d.debit to Cash.

On September 5, cash was received in advance of rendering a service. If half the service was performed by December 31, the adjusting entry would be:

a. a debit to Unearned Services and a credit to Revenue from Services.

b. a debit to Revenue from Services and a credit to Prepaid Services.

c.a debit to Prepaid Services and a credit to Revenue from Services.

d.none of the above.

An example of an explicit transaction is:

a. expiration of prepaid rent

b. buying equipment on account

c. accrual of wages payable

d. depreciation expense

Sales Allowance is classified as a(n):

a. asset account

b. liability account

c. contra asset account

d. contra sales account

Those shares which have been issued and that are still in the hands of shareholders are known as:

a. authorized shares

b. issued shares

c. treasury shares

d. outstanding shares

All of the following activities would be included in a company's operating activities except:

a. payments to employees

b. payment to suppliers

c. payment to the bank to reduce loan balance

d. payment to landlord for rent

A liability is created ______________.

a. when insurance is paid in advance

b. when owners lend money to their company

c. when merchandise is sold for cash

d. when bad expense is recorded under the allowance method

Assuming prices are gradually falling, which of the following inventory valuation methods would lead to the lowest profits?

a. FIFO

b. LIFO

c. Weighted-average

d. The selection of an inventory valuation method does not affect the net income.

Heinz Inc. uses the allowance method for bad debts. The journal entry to record the write-off of an uncollectible account would:

a. debit Allowance for Uncollectible Accounts

b. debt Bad Debt Expense

c. credit Allowance for Uncollectible Accounts

d. debit Accounts Receivable

The adjusting entry to recognize periodic depreciation has what effect on the basic accounting equation?

a. Decrease in assets, decrease in liabilities

b. Decrease in assets, increase in liabilities

c. Decrease in assets, increase in stockholders' equity

d. Decrease in assets, decrease in stockholders' equity

Which of the following accounts are expected to have a debit balance?

a. Rent Expense, Goodwill, Sales Returns

b. Retained Earnings, Accumulated Depreciation, Sales

c. Rent Expense, Accumulated Depreciation, Accounts Payable

d. Inventory, Paid-in Capital, Prepaid Rent

Which of the following accounts is increased with a debit?

a. Unearned Revenue

b. Sales Revenue

c. Stockholders' Equity

d. Return on Sales

The earning of income previously collected has what effect on the basic accounting equation? (Unearned Revenue had been increased when the cash was collected in advance.)

a. Increase in assets, decrease in liabilities

b. Decrease in assets, decrease in liabilities

c. Decrease in liabilities, increase in stockholder's equity

d. Increase in assets, increase in stockholder's equity

II. Please record the Journal Entries

MS & Co, an office supply co, bought office supplies on August 1 for a total of 280'000, all on credit. The inventory cost of the supplies to the seller was 180'000. Please record the journal entry for MS & Co.

A 5-year loan was taken out on August 1 2016 for 1.2 million. The Interest rate is 4%, payable quarterly in arrears. Please record the adjusting journal entry to be made on December 31, 2016:

Equipment was bought for $280,000 on June 30,2015. For depreciation purposes, the useful life was assumed to be 5 years with a residual value of $30'000. On December 31 2016, the equipment was traded in against other equipment with a price tag of 120'000. Please record the journal entries on December 31, 2016:

Henriks Inc. had gross sales of $400'000 during March. Sales returns and allowances were $20'000. Cash discounts granted were $30'000. Please show the required journal entries.

Please record wage expense of 10'000 for the past month which will be paid next month:

Please record the provision for expected cost of a legal claim of 100'000:

Q&A:

a) Inflation and Interest rates are presently very low in many countries (US, Europe, Japan). How will that affect your analysis of financial statements of companies?What are issues you would focus on, what may be issues that are not so important in this situation?

b) Why might a company decide to buy back its own shares instead of paying additional cash dividends?