1. (TCO A) Which of the following is an advantage of the sole proprietorship relative to the corporate form of business organization

Limited liability of investor

Transferability of ownership

Simple to establish

Unlimited life

2. (TCO A) The payment of cash dividends is recorded in the _____.

operating section of the statement of cash flows

investing section of the statement of cash flows

financing section of the statement of cash flows

noncash investing and financing section of the statement of cash flows

3. (TCOs A, B) Below is a partial list of account balances for Landon Company::

Cash $10,000

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 Landon Company show as total debits





4. (TCOs B, E) Under the accrual basis of accounting, revenues are recorded and reported _____.

when companies receive payments for jobs performed or products provided

when companies have provided products or performed services

when companies receive payments prior to providing products or performing services

when companies receive payments after providing products or performing services

5. (TCO D) Three companies report the same cost of goods available for sale, but each employs a different inventory costing method. If the price of goods has increased during the period, then the company using _____.

FIFO will have the highest income tax expense

average cost will have the income tax expense

LIFO will have the highest income tax expense

All three methods will result in the same income tax expense.

6. (TCOs A, E) Equipment with a cost of $212,000 has an estimated salvage value of $12,000 and an estimated life of 5 years or 15,000 hours. It is to be depreciated by the straight-line method. What is the amount of depreciation for the first full year, during which the equipment was used 6,000 hours?





7. (TCO D, G) Payne Corporation issues 100 twenty-year, 6%, $1,000 bonds dated July 1, 2010, at 105. The journal entry to record the issuance will show a _____.

debit to Discount on Bonds Payable of $5,000

debit to Premium on Bonds Payable of $5,000

credit to Discount on Bonds Payable of $5,000

credit to Premium on Bonds Payable of $5,000

8. (TCO C) Accounts receivable arising from sales to customers amounted to $80,000 and $120,000 at the beginning and end of the year, respectively. Income reported on the income statement for the year was $2,000,000. Exclusive of the effect of other adjustments, the cash flows from operating activities to be reported on the statement of cash flows is _____.





9. (TCO F) If you are making comparisons with other companies to provide insight into a company’s competitive position, you are performing what type of analysis

Common-size analysis

Intercompany analysis

Intracompany analysis

Industry average analysis

10. (TCO F) In a common size income statement, the 100% figure is _____.

Total Assets

Total Stockholders’ Equity

Net Sales

Net Income

11. (TCO F) Horizontal analysis of comparative financial statements includes the _____.

development of common-size statements

calculation of liquidity ratios

calculation of dollar amount changes and percentage changes from the previous year to the current year

evaluation of financial statement data that expresses each item in a financial statement as a percentage of a base amount

12. (TCO F) A common measure of solvency is the _____.

asset turnover

current cash debt coverage ratio

cash debt coverage ratio

current ratio

13. (TCO F) Short-term creditors would be most interested in which of the following ratios?

Average collection period

Times interest earned

Cash debt coverage

Free cash flow

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

multiply the bond price times the interest rate

calculate the present value of the principal only

calculate the present value of the interest only

calculate the present value of both the principal and interest payments

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

Accounts payable $5,000 Net sales $100,000

Accounts receivable $18,000 Other current liabilities $4,000

Average common shares outstanding 5,000 Salaries payable $4,000

Cash $8,000 Stockholder’s equity $33,000

Gross profit $38,000 Total assets $66,000

Net income $10,000

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.

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

Oct Nov Dec

Credit sales $120,000 $96,000 $72,000

Cash sales 72,000 204,000 156,000

Total sales 192,000 300,000 228,000

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 $260,000 in October, 180,000 in November, and $84,000 in December.

Other budgeted cash receipts include (a) the sale of plant assets for $49,400 in November and (b) the sale of new common stock for $67,400 in December. Other budgeted cash disbursements include (a) operating expenses of $27,000 each month, (b) selling and administrative expenses of $50,000 each month, (c) dividends of $76,000 to be paid in November, and (d) purchase of equipment for $24,000 cash in December.

The company has a cash balance of $40,000 at the beginning of December and wishes to maintain a minimum cash balance of $40,000 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 $14,000 of financing was obtained on November 1.


Use this information to prepare a schedule of expected cash payments for purchases of inventory for the months of November and December only.

3. (TCOs B, E) The following items are taken from the financial statements of LBJ Company for 2010.

Accounts payable $26,500

Accounts receivable 6,000

Accumulated depreciation 9,600

Bonds payable 28,000

Cash 44,000

Common stock 35,000

Cost of goods sold 19,000

Depreciation expense 4,800

Dividends 5,300

Equipment 58,000

Interest expense 3,500

Patents 9,500

Retained earnings, January 1 20,000

Salaries expense 7,200

Sales revenue 38,500

Supplies 5,500

Instructions: Prepare an income statement and a retained earnings statement for LBJ Company.

4. (TCO D) Your friend Cynthia 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.

1. All checks are printed using indelible ink.

2. Cash register tapes are used.

3. The company accountant handles deposits and reconciles the bank account.

4. All over-the-counter receipts are registered by two clerks who share a cash drawer.

5. The office manager is in charge of petty cash.

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

a) Investors invested $150,000 in exchange for 10,000 shares of common stock.

b) Company made payment on account for $10,000

c) Company received $15,000 for services not yet performed

d) Company purchased $7,500 worth of equipment

e) Company billed $5,000 for services performed

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) Received bank loan

b) Sold equipment at book value

c) Increase in accounts receivable

d) Decrease in accounts payable

e) Amortization of a patent