Question 1: Employees at B Corporation are paid $5,000 cash every Friday for working Monday through Friday. The calendar year accounting period ends on Wednesday, December 31. How much salary expense should be recorded two days later on January 2?
a. $5,000
b. $3,000
c. None, matching requires the weekly salary to be accrued on December 31.
d. $2,000
Question 2: If a company has a current ratio of 1.2:1, what respective effects will the borrowing of cash by short-term debt and collection of accounts receivable have on the ratio?
Short-term Borrowing Collection of Receivable
a. Increase No effect
b. Increase Increase
c. Decrease No effect
d. Decrease Decrease
Fill-in-the-Blank Questions:
Question 3: If the inventory turnover ratio is 5 times, and the average inventory was $600,000, the cost of goods sold during the year was $______________ and the average days to sell the inventory was ______________ days.
Question 4: The claims of owners on the assets of a corporation are known as _____________ _______________.
Short Answer/Essay Questions:
Question 5: The following data are taken from the financial statements of Dellmont Company. The data are in alphabetical order.
Accounts payable $ 28,000 Net sales 500,000
Accounts receivable 65,000 Other current liabilities 20,000
Avg. common shares O/S 20,000 Salaries payable 7,000
Cash 56,000 Stockholders' equity 169,000
Gross profit 190,000 Total assets 325,000
Net income $ 50,000
Instructions
Compute the following:
(a) Current ratio.
(b) Working capital.
(c) Earnings per share.
(d) Debt to total assets ratio.
Question 6: Sam Hill has worked for Dr. Lee Chang for several years. Sam demonstrates a loyalty that is rare among employees. He hasn't taken a vacation in the last three years. One of Sam's primary duties at the medical office is to open the mail and list the checks received. He also takes cash from patients at the cashier window as patients leave. At times it is so hectic that Sam doesn't bother with giving patients a receipt for the cash paid on their accounts. He assures them he will see to it that they receive the proper credit. When the traffic is slow in the office Sam offers to help Mary post the payments to the patients' accounts receivable. She is always happy to receive his help, because he is a very conscientious worker.
Instructions: Identify any principles of internal control that may be violated in this medical office situation.
Question 7: Ramon Diaz was reviewing his business activities at the end of the year (2007) and decided to prepare a Retained Earnings Statement. At the beginning of the year his assets were $550,000, liabilities were $140,000, and common stock was $120,000. The net income for the year was $350,000. Dividends of $220,000 were paid during the year.
Instructions: Prepare a Retained Earnings Statement in good form.
Question 8: The comparative balance sheet of Stuart Company appears below:
STUART COMPANY
Comparative Balance Sheet
December 31,
____________________________________________________________________
Assets 2007 2006
Current assets ......................................................................$ 340 $280
Plant assets ............................................................................675 520
Total assets ......................................................................... $1,015 $800
Liabilities and stockholders' equity
Current liabilities ....................................................................$ 180 $120
Long-term debt .........................................................................250 160
Common stock ..........................................................................325 320
Retained earnings .................................................................. 260 200
Total liabilities and stockholders' equity ................................. $1,015 $800
Instructions
(a) Using horizontal analysis, show the percentage change for each balance sheet item using 2006 as a base year.
(b) Using vertical analysis, prepare a common size comparative balance sheet.
Question 9: Benson and Jencks is a manufacturing company that specializes in writing instruments. The past year was a difficult one for the company, as it sought to retain its share in a market in which the largest competitors were also rapid innovators. Benson and Jencks introduced a new product late in the year, even though testing was not complete. It was a pen designed with two cartridges: one supplying ink and the other correction fluid. A person could then switch easily between writing and correcting errors. It was priced fairly high, and was never heavily advertised. Even so, the Correct-O-Pen, as the product was named, was an overwhelming success.
The success of the product has Fern Donald, the manager of the New Products division, worried, however. She was concerned that quality problems would begin occurring, since the longevity of the pen and stability of the correction fluid formulation had not been tested. She did not want sales personnel to get the bonuses that appeared to be indicated, since they might aggressively promote a product that would fail in use. She preferred to complete testing of the pen first, so that more confidence could be placed in the results.
Top management, however, declined the tests. Ms. Donald then instructed you, the accountant, not to prorate payroll taxes or rent expense for the rest of the year, but to show them as current expenses in total. In this way, the new product would appear to be only slightly profitable.
Instructions:
1. Describe the alternatives that you as an accountant would have in this situation.
2. Indicate which alternative is best.