Review Chpt 8-12

QUESTION 1

Trading on the equity (leverage) refers to the

1. amount of working capital.
2. amount of capital provided by owners.
3. use of borrowed money to increase the return to owners.
4. number of times interest is earned.

Question 2

What is total stockholders' equity given the following information?

Capital stock, $5 par, 20,000 shares authorized,

5,000 shares issued and 4,800 shares outstanding: $25,000

Paid-in-capital-in-excess of par: $12,000

Treasury stock (200 shares): $3,000

Retained earnings: $70,000

$80,000.

$110,000

$104,000.

$107,000

Question 3

The reason(s) why the direct write-off method for uncollectible accounts is not acceptable for financial reporting is that:

I. The bad debt expense is recorded in a different period than when sales revenue was recorded.

II. The accounts receivable balance in the balance sheet does not reflect the amount expected to be received (net realizable (cash) value).

I only

II only

Both I and II

Neither I nor II

QUESTION 4

Which situation below might raise concerns about a company's quality of earnings?

1. The same accounting principles are used from year to year.
2. Repair costs are capitalized and then depreciated over five years
3. Revenue is recognized when performance obligations are satisfied.
4. The financial statements are prepared in accordance with U.S. generally accepted accounting principles.

QUESTION 5

1. Entity I incurred various costs regarding its delivery truck which it purchased two years ago. For the cost that follows, indicate the proper treatment of the cost for financial accounting purposes:A lift ($4,500) was added to the rear of the truck so as to make food deliveries faster.
2. Capitalized
3. Expensed
4. Ignored

QUESTION 6

When a companydeclaresa cash dividend on its common stock to be paid at a later date, which of the following is correct?

1. no journal entry is required
2. assets do not change, liabilities increase, and stockholders' equity decreases.
3. assets decrease, liabilities decrease, and stockholders' equity does not change.
4. assets, liabilities, and stockholders' equity do not change.

QUESTION 7

Entity L reported net income of $125,000 for the current year and uses the indirect method to report operating activities cash flow.Accounts Payable decreased by $6,000 during the year. Choose the appropriate category on the statement of cash flows to report the decrease in Accounts Payable.

1. Cash Flows From Operating Activities-Add to Net Income
2. Cash Flows From Operating Activities-Deduct from Net Income
3. Cash Flows From Investing Activities
4. Cash Flows From Financing Activities
5. Non-cash

QUESTION 8

All things being equal, a creditor would prefer that the business had:

1. I. a higher current ratio
2. II. a higher debt-to-total assets ratio
3. I only.
4. II only.
5. Both I and II.
6. Neither I nor II

QUESTION 9

Entity D uses the allowance method for uncollectible accounts. Its ledger at the end of the current year shows Accounts Receivable of $300,000. Bad debts are expected to be 5% of Accounts Receivable. Allowance for Doubtful Accounts has adebitbalance of $1,500 in the trial balance. The adjusting entry at the end of the current year to record bad debt expense would include:

1. a credit Accounts Receivable
2. a debit to Bad Debt Expense
3. a credit to Bad Debt Expense
4. a debit to Allowance for Doubtful Accounts

QUESTION 10

Entity K is authorized to issue 1,000,000 shares of$1 parvalue common stock. On January 15, Entity K issued 700,000 shares of stock at $7 per share. The journal entry to record the transaction onJanuary 15includes:

1. a debit to Cash for $700,000
2. a credit to Paid-In Capital In Excess of Par, Common Stock for $700,000
3. a credit to Common Stock for $4,200,000
4. a credit to Common Stock for $700,000