Case scenario: Terry Corporation and Walker Clothing Store
Q1. Terry Corporation had net income of $200,000 and paid dividends to common stockholders of $40,000 in 2003. The weighted average number of shares outstanding in 2003 was 50,000 shares. Terry Corporation's common stock is selling for $60 per share on the New York Stock Exchange.
Terry Corporation's price-earnings ratio is
a. 3.8 times.
b. 15 times.
c. 18.8 times.
d. 6 times.
Q2. Walker Clothing Store had a balance in the Accounts Receivable account of $390,000 at the beginning of the year and a balance of
$410,000 at the end of the year. Net credit sales during the year amounted to $4,000,000. The average collection period of the receivables in terms of days was
a. 30 days.
b. 365 days.
c. 73 days.
d. 37 days.
Q3. A liquidity ratio measures the
a. income or operating success of an enterprise over a period of time.
b. ability of the enterprise to survive over a long period of time.
c. short-term ability of the enterprise to pay its maturing obligations and to meet unexpected needs for cash.
d. number of times interest is earned.
Q4. Waters Department Store had net credit sales of $16,000,000 and cost of goods sold of $12,000,000 for the year. The average inventory for the year amounted to $2,000,000.
Q5. Inventory turnover for the year is
a. 8 times.
b. 14 times.
c. 6 times.
d. 4 times.
Q6. Dent Sign Company uses the allowance method in accounting for uncollectible accounts. Past experience indicates that 2% of net
credit sales will eventually be uncollectible. Selected account balances at December 31, 2003, and December 31, 2004, appear below:
12/31/03 12/31/04
Net Credit Sales $400,000 $550,000
Accounts Receivable 75,000 100,000
Allowance for Doubtful Accounts 6,000 ?
INSTRUCTIONS:
(a) Record the following events in 2004.
Aug. 10 Determined that the account of Kim Joyce for $1,200 is uncollectible.
Sept. 12 Determined that the account of Jim Mann for $4,000 is uncollectible.
Oct. 10 Received a check for $550 as payment on account from Kim Joyce, whose account had previously been written off as uncollectible. She indicated the remainder of her account would be paid in November.
Nov. 15 Received a check for $650 from Kim Joyce as payment on her account.
(b) Prepare the adjusting journal entry to record the bad debt provision for the year ended December 31, 2004.
(c) What is the balance of Allowance for Doubtful Accounts at December 31, 2004?
Q7. Roark Company purchased equipment on January 1, 2002 for $90,000. It is estimated that the equipment will have a $5,000 salvage value at the end of its 5-year useful life. It is also estimated that the equipment will produce 100,000 units over its 5-year life.
INSTRUCTIONS:
Answer the following independent questions.
1. Compute the amount of depreciation expense for the year ended December 31, 2002, using the straight-line method of depreciation.
2. If 16,000 units of product are produced in 2002 and 24,000 units are produced in 2003, what is the book value of the equipment at December 31, 2003? The company uses the units-of-activity depreciation method.
3. If the company uses the double-declining-balance method of depreciation, what is the balance of the Accumulated Depreciation--Equipment account at December 31, 2004?
Q8. On May 31, Colaw Company borrows $30,000 from the bank by signing a 60-day, 12%, interest-bearing note.
INSTRUCTIONS:
Prepare the necessary entries below associated with the note payable on the books of Colaw Company.
(a) Prepare the entry on May 31 when the note was issued.
(b) Prepare any adjusting entries necessary on June 30 in order to prepare the monthly financial statements. Assume no other interest accrual entries have been made.
(c) Prepare the entry to record payment of the note at maturity.
Q9. Epson Company had the following transactions:
1. Issued 4,000 shares of $100 par preferred stock at $110 for cash.
2. Issued 5,000 shares of common stock with a par value of $10 for $85,000.
3. Purchased 500 shares of common treasury stock for $10,000.
INSTRUCTIONS: Prepare the appropriate journal entries.
Q10. The following information is available for Barkley Company:
Net income $325,000 Beg. accounts payable $109,000
Depreciation expense 107,000 End. accounts payable 146,000
Beg. accounts rec. 420,000 Purchase of long-term assets 516,000
End. accounts rec. 439,000 Issuance of long-term debt 250,000
Beginning inventory 516,000 Issuance of stock for cash 160,000
Ending inventory 560,000 Issuance of stock for plant
Beg. prepaid expenses 48,000 assets 110,000
End. prepaid expenses 42,000 Purchase of treasury stock 64,000
Sale of long-term investment
at cost 39,000
INSTRUCTIONS:
Calculate the following amounts using the indirect method. Clearly label the amount of each answer as positive or negative and show all
calculations.
a. Cash flows from operating activities. __________
b. Cash flows from investing activities. __________
c. Cash flows from financing activities. __________
d. Net change in cash. __________