ACC 400 Final EXAM Correct 100% Grade (A+) Original
1. Zelma Company’s last financial statements provided the followingratios:
Current ratio 3:2
Quick ratio 1:2
Accounts receivable turnover 9.0 times
Inventory turnover 8.0 times
Net income percentage 12.5%
Return on equity 22.6%
Return on assets 9.8%
To the nearest day, what is the operating cycle for Zelma?
a) 80 days
b) 86 days
c) 172 days
d) 129 days
2. The following events have been projected:
A. Cash sales and collections from customers totaling $980,000
B. Cash payments for operating expenses of $560,000
C. Cash payments for income taxes and interest expense of$45,000
D. Cash payments of prior period accruals of $80,000
E. Borrowed $50,000 cash by issuing a note payable
F. Cash dividends of $20,000
The beginning balance of cash is $45,000. What is the budgetedending balance of cash?
a. $325,000
b. $370,000
c. $275,000
d. $245,000
3. On January 1, a business exchanged a plant asset with a cost of$18,000 and accumulated depreciation of $16,500 for a similar assetthat had a list price of $23,000. The business received a trade-inallowance of $2,100 on the old plant asset. What was the result ofthe exchange?
a. A $600 gain on the disposal of a plant asset.
b. A $1,000 unrecognized gain on the exchange of a plant asset.
c. A cost basis of $22,400 for the new plant asset
d. A cost basis of $23,600 for the new plant asset
4. Which one of the following is not an objective of a system ofinternal controls?
a. Safeguard company assets
b. Overstate liabilities in order to be conservative
c. Enhance the accuracy and reliability of accounting records
d. Reduce the risks of errors
5. A companyâs past experience indicates that 60% of its creditsales are collected in the month of sale, 30% in the next month,and 5 % in the second month after the sale; the remainder is nevercollected. Budgeted credit sales were:
July $120,000
August 72,000
September 180,000
The cash inflow in the month of September is expected to be
a. $135,600
b. $102,600
c. $108,000
d. $129,600
6. A check for $275 is incorrectly recorded by a company as $257.On the bank reconciliation, the $18 error should be
a. Added to the balance per books.
b. Deducted from the balance per book.
c. Added to the balance per bank.
d. Deducted from the balance per bank.
7. The Allowance for Doubtful Accounts is necessary because
a. when recording uncollectible accounts expense, it is notpossible to know which specific accounts will not pay.
b. uncollectible accounts that are written off must be accumulatedin a separate account.
c. a liability results when a credit sale is made.
d. management needs to accumulate all the credit losses over theyears.
8. Under the direct write-off method of accounting foruncollectible accounts, Bad Debts Expense is debited
a. when a credit sale is past due.
b. at the end of each accounting period.
c. whenever a pre-determined amount of credit sales have beenmade.
d. when an account is determined to be uncollectible
9. Manning Company uses the percentage of receivables method forrecording bad debts expense. The accounts receivable balance is$200,000 and credit sales are $1,000,000. Management estimates that5% of accounts receivable will be uncollectible. What adjustingentry will Manning Company make if the Allowance for DoubtfulAccounts has a credit balance of $2,000 before adjustment?
a. Bad Debts Expense……………………………………………….. 10,000
Allowance for Doubtful Accounts ……………………..10,000
b. Bad Debts Expense……………………………………………….. 8,000
Allowance for Doubtful Accounts ……………………..8,000
c. Bad Debts Expense……………………………………………….. 8,000
Accounts Receivable ………………………………………8,000
d. Bad Debts Expense……………………………………………….. 10,000
Accounts Receivable ………………………………………10,000
10. The receivables turnover ratio
a. Is computed by dividing net credit sales for the accountingperiod by the cash realizable value of accounts receivable on thelast day of the accounting period.
b. Can be used to compute the average collection period.
c. Is a method of evaluating the solvency of net accountsreceivable.
d. Is only important to internal users of accountinginformation.
11. A measure of a companyâs solvency is the
a. acid-test ratio.
b. current ratio.
c. times interest earned ratio.
d. asset turnover ratio.
12. The times interest earned ratio is computed by dividing
a. net income by interest expense.
b. income before income taxes by interest expense.
c. income before interest expense by interest expense.
d. income before interest expense and income taxes by interestexpense.
13. The 2007 financial statements of Shadow Co. contain thefollowing selected data (in millions).
Current Assets $ 75
Total Assets 120
Current Liabilities 40
Total Liabilities 85
Cash 8
Interest Expense 5
Income Taxes 10
Net Income 16
The debt to total assets ratio is
a. 70.8%
b. 53.3%
c. 1.41%
d. 6.2 times
14. The statement “Bond prices vary inversely with changes in themarket rate of interest” means that if the
a. market rate of interest increases, the contractual interest ratewill decrease.
b. contractual interest rate increases, then bond prices will godown.
c. market rate of interest decreases, then bond prices will goup.
d. contractual interest rate increases, the market rate of interestwill decrease.
15. A company would not acquire treasury stock
a. in order to reissue shares to officers.
b. as an asset investment.
c. in order to increase trading of the companyâs stock.
d. to have additional shares available to use in acquisitions ofother companies.
16. Which of the following is the appropriate general journal entryto record the declaration of cash dividends?
a. Retained Earnings
Cash
b. Dividends Payable
Cash
c. Paid-in Capital
Dividends Payable
d. Retained Earnings
Dividends Payable
17. Allstate, Inc., has 10,000 shares of 6%, $100 par value,cumulative preferred stock and 100,000 shares of $1 par valuecommon stock outstanding at December 31, 2007. If the board ofdirectors declares a $50,000 dividend, the
a. preferred stockholders will receive 1/10th of what the commonstockholders will receive.
b. preferred stockholders will receive the entire $50,000.
c. $50,000 will be held as restricted retained earnings and paidout at some future date.
d. preferred stockholders will receive $25,000 and the commonstockholders will receive $25,000.
18. When a change in accounting principle occurs
a. prior years’ financial statements should not be changed toreflect the newly adopted principle.
b. the new principle should be used in reporting the results ofoperations of the current year.
c. the cumulative effect of the change in principle should bereflected on the income statement as of the beginning of the nextyear.
d. the cumulative effect of the change in accounting principleshould be classified as an extraordinary item on the incomestatement.
19. Which of the following is not an irregular item on the incomestatement?
a. Discontinued operations
b. Extraordinary items
c. Other revenues and expenses
20. Vertical analysis is a technique that expresses each item in afinancial statement
a. in dollars and cents.
b. as a percent of the item in the previous year.
c. as a percent of a base amount.
d. starting with the highest value down to the lowest value.
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