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1. (TCO A) A corporation has which of the following sets of characteristics? (Points : 5) ...

1. (TCO A) A corporation has which of the following sets of characteristics? (Points : 5)

Shared control, tax advantages, increased skills, and resources

Simple to set up and maintains control with the founder

Easier to transfer ownership and raise funds, no personal liability for stockholders

Harder to raise funds and gives owner control

2. (TCO A) The Dividends account _____. (Points : 5)

is increased with a debit

is decreased with a credit

is not an expense account

All of the above

3. (TCOs A, B) Denton Company showed the following balances at the end of its first year:

Cash $7,000

Prepaid insurance 700

Accounts receivable 3,500

Accounts payable 2,800

Notes payable 4,200

Common stock 1,400

Dividends 700

Revenues 21,000

Expenses 17,500

What did Denton Company show as total credits on its trial balance? (Points : 5)





4. (TCOs B, E) Under the accrual basis of accounting, _____. (Points : 5)

cash must be received before revenue is recognized

net income is calculated by matching cash outflows against cash inflows

events that change a company's financial statements are recognized in the period they occur rather than in the period in which cash is paid or received

the ledger accounts must be adjusted to reflect a cash basis of accounting before financial statements are prepared under generally accepted accounting principles

5. (TCO D) In a period of increasing prices, which inventory cost flow assumption will result in the lowest amount of income tax expense? (Points : 5)



The average cost method

Income tax expense for the period will be the same under all assumptions.

6. (TCOs A, E) Equipment was purchased for $60,000. Freight charges amounted to $2,800 and there was a cost of $8,000 for building a foundation and installing the equipment. It is estimated that the equipment will have a $12,000 salvage value at the end of its 5-year useful life. Depreciation expense each year using the straight-line method will be _____. (Points : 5)





7. (TCOs D, G) Mendez Corporation issues 2,000 ten-year, 8%, $1,000 bonds dated January 1, 2007, at 103. The journal entry to record the issuance will show a _____. (Points : 5)

debit to Cash of $2,000,000

debit to Premium on Bonds Payable for $60,000

credit to Bonds Payable for $2,000,000

credit to Cash for $2,060,000

8. (TCO C) Accounts receivable arising from sales to customers amounted to $40,000 and $35,000 at the beginning and end of the year, respectively. Income reported on the income statement for the year was $110,000. Exclusive of the effect of other adjustments, the cash flows from operating activities to be reported on the statement of cash flows is _____. (Points : 5)





9. (TCO F) One variation of the horizontal analysis is known as _____. (Points : 5)

nonlinear analysis

vertical analysis

trend analysis

common-size analysis

10. (TCO F) Comparisons of data within a company are an example of the following comparative basis. (Points : 5)

Industry averages




11. (TCO F) Which one of the following is not a characteristic generally evaluated in ratio analysis? (Points : 5)



Marketability of the product


12. (TCO F) A common measure of liquidity is _____. (Points : 5)

return on assets

current ratio

profit margin

debt to equity

13. (TCO F) Long-term creditors are usually most interested in evaluating _____. (Points : 5)





14. (TCO G) To calculate the market value of a bond, we need to _____. (Points : 5)

find out the present value of all of the future cash payments promised by the bond

calculate the present value of the principal only

calculate the present value of the interest only

multiply the bond price by the interest rate

1. (TCO A) The partial financial statement items below were taken from the financial statements of Prone, Inc. This information can be used to correctly solve each of the ratios below. The information is in alphabetical order.

Accounts payable $ 28,000 Net income $ 48,000

Accounts receivable 66,000 Other current liabilities 17,000

Cash 54,000 Total assets 250,000

Gross profit 160,000 Total liabilities 200,000

Income before income taxes 54,000 Wages payable 5,000

Additional information: The number of average common shares outstanding during the year was 40,000.

Instructions: Compute the following.

a) Current ratio

b) Working capital

c) Earnings per share

d) Debt-to-total-assets ratio

To earn full credit, you must show the formula you are using, show your computations and explain the meaning of each of your ratio results.

(Points : 30)

2. (TCOs B, E) These financial statement items are for Snyder Corporation at year-end, July 31, 2010.

Salaries payable $ 2,580

Salaries expense 48,700

Utilities expense 22,600

Equipment 21,000

Accounts payable 4,100

Commission revenue 61,100

Rent revenue 8,500

Long-term note payable 1,800

Common stock 16,000

Cash 24,200

Accounts receivable 9,780

Accumulated depreciation 6,000

Dividends 5,000

Depreciation expense 4,000

Retained earnings (beginning of the year) 35,200

Instructions: Prepare an income statement and a retained earnings statement for the year. (Points : 30)

3. (TCO D) The Oxford Company has budgeted sales revenues as follows.

Jan Feb Mar

Credit sales $240,000 $192,000 $144,000

Cash sales 144,000 408,000 312,000

Total sales 384,000 600,000 456,000

Past experience indicates that 60% of the credit sales will be collected in the month of sale and the remaining 40% will be collected in the following month.

Purchases of inventory are all on credit, with 60% paid in the month of purchase and 40% in the month following purchase. Budgeted inventory purchases are $520,000 in January, $360,000 in February, and $168,000 in March.

Other budgeted cash receipts include (a) the sale of plant assets for $98,800 in February and (b) the sale of new common stock for $134,800 in March. Other budgeted cash disbursements include (a) operating expenses of $54,000 each month, (b) selling and administrative expenses of $100,000 each month, (c) dividends of $152,000 to be paid in February, and (d) purchase of equipment for $48,000 cash in March.

The company has a cash balance of $80,000 at the beginning of February and wishes to maintain a minimum cash balance of $80,000 at the end of each month. An open line of credit is available at the bank and carries an annual interest rate of 12%. Assume that all borrowing is done on the first day of the month in which financing is needed and that all repayments are made on the last day of the month in which excess cash is available. Also assume that there is no outstanding financing as of February 1.

Requirements: Use this information to prepare a schedule of expected cash collections from customers for the months of February and March only. (Points : 30)

4. (TCO D) Your friend Dean has hired you to evaluate the following internal control procedures.

a) Explain to your friend whether each of the numbered items below is an internal control strength or weakness. You must also state which principle relates to each of the internal controls.

b) For the weaknesses, you also need to state a recommendation for improvement.

Bonding of the cashiers is not required because all of the cashiers have significant experience.

The treasurer is the only one allowed to sign checks.

All employees may operate cash registers.

Blank checks are stored in the safe.

Supervisors count cash receipts daily.

(Points : 30)

5. (TCOs D, E) Please prepare the following journal entries. Indicate which account should be debited and which account should be credited along with the dollar amount of the debit and credit.

a) Investors invested $100,000 in exchange for 10,000 shares of common stock.

b) Company paid a utility bill for $600

c) Company received cash of $15,000 for services performed

d) Company made payment on account for $1,000

e) Company received $12,000 for services not yet performed (Points : 30)

6. (TCO C) Please indicate which section of the statement of cash flows should contain each of the following items and whether each item would result in an inflow or outflow of cash. The sections are Operating, Investing, and Financing.

a) Issuance of capital stock

b) Depreciation of machinery

c) Purchased land to operate the business

d) Decrease in accounts payable

e) Payment of dividends (Points : 30)

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