1. For a business, the advantage of offering credit to customers is that
A. increases the amount of sales.
B. increases cash flow from financing activities.
C. decreases cost of goods sold.
D. decreases the amount of inventory the company needs to carry.
2. The net realizable value of accounts receivable is calculated,
A. Accounts Receivable + Uncollectible Accounts Expense
B. Accounts Receivable + Notes Receivable
C. Accounts Receivable – Allowance for Doubtful Accounts
D. 365/Accounts Receivable
3. To estimate the amount of its uncollectible accounts receivable, a
A. consult industry publications.
B. look at its past history of uncollectible accounts.
C. take into account the current condition of the economy.
D. all of these.
4. Which of the following is not an advantage of accepting credit cards
from retail customers?
A. The acceptance of credit cards tends to increase sales.
B. There are fees charged for the privilege of accepting credit cards.
C. The credit card company performs credit worthiness assessments.
D. The credit card company assumes the cost of slow collections and
5. The accounting records of the Schaller Company and Quimby Company
contained the following account balances:
Select the true statement from the following options:
A. The accounts receivable for Schaller Company turned over 6 times per
B. The company with the higher turnover ratio will also have the longer
average number of days to collect accounts receivable.
C. Quimby Company is likely to incur lower costs from extending credit to
customers than Schaller Company.
D. The average number of days to collect accounts receivable for Schaller
is 73 days.
6. Which of the following businesses would most likely have the longest
A. A chain of pizza restaurants.
B. A national pharmacy chain.
C. A producer of wine.
D. A discount store.
7. The face value of Accounts Receivable less the balance in the Allowance
for Doubtful Accounts is equal to the net realizable value of the
8. A company that uses the allowance write-off method of accounting for
uncollectible accounts does not prepare a year-end adjusting entry to estimate
9. Which of the following would be classified as a long-term operational
A. Accounts Receivable.
B. Prepaid Insurance.
C. Office Equipment.
10. Which of the following terms is used to identify the process of
expense recognition for buildings and equipment?
11. On January 1, 2009, Rowley Company purchased a truck that cost
$22,000. The truck had an expected useful life of 5 years and a $4,000 salvage
value. The amount of depreciation expense recognized in 2010 assuming that
Rowley uses the double declining balance method is:
12. Philips Corporation purchased a truck that cost $26,000. The company
expected to drive the truck 100,000 miles. The truck had an estimated salvage
value of $2,000. If the truck is driven 36,000 miles in the current accounting
period, which of the following amounts should be recognized as depreciation expense?
13. Zabrinski Company purchased oil rights on July 1, 2010 for $3,200,000.
If 200,000 barrels of oil are expected to be extracted over the asset’s life
and 30,000 barrels are extracted and sold in 2010, the amount of depletion
expense recorded on December 31, 2010 would be:
_______ 14. Which of the following terms is used to identify
the expense recognition for intangible assets?
15. The fair value of the assets and liabilities for Zane’s Restaurant
were $450,000 and $160,000, respectively. If Reiner Company pays $325,000 cash
for the restaurant and assumes its existing liabilities, what amount of
goodwill would Reiner record?
16. Intangible assets include patents, copyrights, and natural
17. Land differs from other property because it is not subject to
18. Double-declining-balance depreciation produces more depreciation in
the later years of an asset’s life than does the straight-line method.
January 1, 2010, Fleming Company borrowed $160,000 cash from the First Trust
Bank by issuing a five-year 8 % term note. The principal and interest are
repaid by making annual payments beginning on December 31, 2010. The annual
payment on the loan was $40,074.
19. The amount of principal repayment included in the December 31, 2010
20. How does the amortization of the principal balance affect the amount
of interest expense recorded each succeeding year?
A. Has no effect on interest expense each succeeding year
B. Increases the amount of interest expense each succeeding year
C. Reduces the amount of interest expense each succeeding year
D. The effect depends on the interest rate.
21. A current ratio of 1.73 to 1 indicates that a company’s current
liabilities are greater than its current assets.
22. Which of the following is a disadvantage of a sole
A. Entrenched management.
B. Unlimited liability of the owner.
C. Double taxation.
D. Excessive regulation.
23. The term “double taxation” refers to which of the
A. Sole proprietorships must pay income taxes on their net incomes and the
owners are also required to pay income taxes on their withdrawals.
B. In a partnership, both partners are required to claim their share of
net income on their tax returns.
C. Corporations must pay income taxes on their net income and their
stockholders pay income tax on the dividends they receive.
D. Limited Liability Companies are forced to pay income taxes to both the
state and the federal governments.
24. Which form of business organization is established as a separate legal
entity from its owners?
A. Sole proprietorship
D. None of these
25. Which of the following is not considered an advantage of the corporate
form of business organization?
A. Ability to raise large amounts of capital.
B. Government regulation.
C. Ease of transferability of ownership.
D. Continuity of existence.
26. The par value of common stock
A. changes in proportion to market value.
B. is not directly related to market value.
C. is greater than market value.
D. is less than market value.
27. Establishing a sole proprietorship generally requires the owner to get
a charter from the state government.
28. The Securities and Exchange Commission was established in response to
the accounting scandals that occurred in 2001 and 2002.
29. A small, closely-held corporation can avoid double taxation by
electing S Corporation status.
30. Pakeham Company has cash of $10,000, accounts receivable of $34,000,
inventory of $26,000, and, equipment of $50,000. Assuming current liabilities
of $24,000, this company’s working capital is
A. $ 6,000.
31. Mitchell Company has total current assets of $65,000 including
inventory of $10,000, and current liabilities of $25,000. The company’s current
32. The Decker Company reported the following income for 2010:
What is the company’s number of times interest is earned?
A. 4 times
B. 6 times
C. 7 times
D. 10 times
the end of 2010, Delta Company reported total current assets of $450,000 and
total current liabilities of $320,000. At the same time, Omega Company had
current assets of $319,000 and current liabilities of $180,000.
a) Calculate the current ratio for Delta Company.
b) Calculate the current ratio for Omega Company.
c) Which company would you consider to have higher liquidity at the end of
34. Marchant Company’s balance sheet and income statement are
The company paid cash dividends of $2.00 per share during 2010. On December 31,
2010, the stock was listed on the stock exchange at a price of $75.25 per
Compute the following ratios for 2010:
a) accounts receivable turnover
b) average number of days to collect receivables
c) inventory turnover
d) average number of days to sell inventory
e) debt to assets ratio
f) debt to equity ratio
g) net margin
h) asset turnover
i) return on investment
j) dividend yield