Question 1

Chandler Sporting Goods produces baseball and football equipment and lines of clothing. This year the company had cash and marketable securities worth $335,485, accounts payables worth $1,159,357, inventory of $1,651,599, accounts receivables of $1,488,121, short-term notes payable worth $313,663, and other current assets of $121,427. What is the company's net working capital?
A) $3,596,632
B) $1,801,784
C) $2,123,612
D) $1,673,421

Accepted Answer

The answer of Chandler Sporting Goods produces baseball and football...

Question 2

On June 23, 2008, Mikhal Cosmetics sold $250,000 worth of its products to Rynex Corporation, with the payment to be made in 90 days on September 20. The goods were shipped to Rynex on July 2. The firm's accountants should recognize the sale on:
A) June 23, 2008.
B) July 2, 2008.
C) September 20, 2008.
D) None of the above

Accepted Answer

The sale should be recognized on June 23, 2008, the date the goods were sold.

Question 3

Teakap, Inc., has current assets of $1,456,312 and total assets of $4,812,369 for the year ending September 30, 2006. It also has current liabilities of $1,041,012, common equity of $1,500,000, and retained earnings of $1,468,347. What is the value of long term debt?
A) $1,844,022
B) $2,303,010
C) $2,123,612
D) $803,010

Accepted Answer

The answer of Teakap, Inc., has current assets of $1,456,312...

Question 4

Trekkers Footwear bought a piece of machinery on January 1, 2006 at a cost of $2.3 million, and the machinery is being depreciated annually at an amount of $230,000 for 10 years. Its market value on December 31, 2008 is $1.75 million. The firm's accountant is preparing its financial statement for the fiscal year end on December 31, 2008. The net value of the asset that should be reported on the balance sheet is:
A) $2.3 million.
B) $1.61 million.
C) $230,000.
D) $1.75 million.

Accepted Answer

The net value of the asset that should be reported on the balance sheet is the original cost of the machinery minus accumulated depreciation. The accumulated depreciation after three years would be 3 x $230,000 = $690,000. Therefore, the net value of the machinery on December 31, 2008, would be $2,300,000 - $690,000 = $1,610,000, which is closest to option B ($1.61 million). The market value of the machinery on December 31, 2008, is not relevant for calculating the net value for reporting on the balance sheet.

Question 5

Tumbling Haven, a gymnastic equipment manufacturer, provided the following information to its accountant. The company had net fixed assets of $356,190, and other assets of $4,176. The firm has current liabilities of $94,792, long-term debt of $76,445, common stock of $200,000, and retained earnings of $134,461. What amount of current assets did this firm have?
A) $145,332
B) $505,698
C) $171,217
D) $237,332

Accepted Answer

Current assets = Total assets - Fixed assets - Other assets= ($356,190 + $4,176) - $356,190 - $4,176= $145,332

Question 6

Tyson Corporation bought raw materials on April 23, 2008 and also on July 2, 2008. Products produced during the months of May were sold in July. The firm uses FIFO to value its inventory. According to the matching principle, the firm's accountant should associate:
A) the inventory acquired on July 2 with the products sold.
B) the inventory acquired on April 23 with the products sold.
C) neither of these dates is valid because the products were sold in July.
D) None of the above.

Accepted Answer

The matching principle requires that expenses be matched with the revenues they help generate. Since the products produced in May were sold in July, the cost of the materials used to produce those products should be associated with the July revenue. Using FIFO, the cost of the raw materials acquired on April 23 would be the first to be assigned to the cost of the products sold in July. Therefore, the accountant should associate the inventory acquired on April 23 with the products sold.

Question 7

Which of the following is NOT true about treasury stock?
A) It is a firm's own shares repurchased in the market by the firm.
B) It can be reissued under stock option and other employee benefit plans.
C) It lowers the value of the company.
D) It increases the net worth of the company.

Accepted Answer

Treasury stock does not necessarily lower the value of the company. In fact, it can increase the value of the company by reducing the number of shares outstanding and thus increasing the earnings per share. However, it is possible that repurchasing shares at a high price could result in a lower overall value for the company.

Question 8

Galan Associates prepared its financial statement for 2008 based on the information given here. The company had cash worth $1,234, inventory worth $13,480, and accounts receivables worth $7,789. The company's net fixed assets are $42,331, and other assets are $1,822. It had accounts payables of $9,558, notes payables of $2,756, common stock of $22,000, and retained earnings of $14,008. How much long-term debt does the firm have?
A) $54,342
B) $76,342
C) $12,314
D) $18,334

Accepted Answer

The answer of Galan Associates prepared its financial statement for...

Question 9

The cost principle states that an asset should be recognized on the balance sheet:
A) at the market value of the asset.
B) at the market value less the accumulated depreciation on the asset.
C) at its historical cost.
D) at its historical cost plus the accumulated depreciation on the asset.

Accepted Answer

The cost principle states that assets should be recognized on the balance sheet at their historical cost, which is the original cost of acquiring or producing the asset. This is because the historical cost can be objectively determined and provides a reliable basis for measuring the performance and financial position of the business. Market value (A) is not relevant to the cost principle, and accumulated depreciation (B and D) represents the decline in the value of the asset over time due to wear and tear, and is therefore not relevant for recognizing the asset initially on the balance sheet.

Question 10

What is the difference between FIFO (first in, first out) and LIFO (last in, first out) accounting?
A) FIFO refers to the practice of firms, when making sales, assuming that the inventory that came in first (at a higher price) is being sold first.
B) During a period of rising prices, LIFO implies that a firm is selling the higher cost, newer inventory first, leaving the lower cost, older inventory on the balance sheet.
C) During a period of falling prices, LIFO implies that a firm is selling the higher cost, newer inventory first, leaving the lower cost, older inventory on the balance sheet.
D) LIFO refers to the practice of firms, when making sales, assuming that the inventory that came in last is being sold first (at a higher price).

Accepted Answer

FIFO assumes older inventory is sold first, while LIFO assumes newer inventory is sold first. During rising prices, LIFO results in higher cost of goods sold and lower ending inventory value.

Question 11

According to the realization principle, revenue from a sale of a firm's products are recognized:
A) when the products are shipped to the buyer.
B) when the buyer orders the goods.
C) when cash is realized from the sale of the products.
D) at the time of the sale whether or not cash is actually received.

Accepted Answer

The realization principle states that revenue from the sale of a firm's product should be recognized at the time of the sale, regardless of whether or not cash is actually received at that time. This is because the sale is considered complete when the buyer agrees to make the purchase, so the revenue can be recognized even if payment is delayed or not guaranteed. Choices A, B, and C are incorrect because they do not reflect the principles of the realization principle.

Question 12

Petra, Inc., has $400,000 as current assets, $1.225 million as plant and equipment, and $250,000 as goodwill. In preparing the balance sheet, these assets should be listed in which of the following orders?
A) Current assets, goodwill, and plant and equipment.
B) Current assets, plant and equipment, and goodwill.
C) Goodwill is not an asset and is not listed here.
D) None of the above.

Accepted Answer

The assets should be listed in order of liquidity, which means that current assets should be listed first, followed by plant and equipment. Goodwill is listed separately under intangible assets and should be listed after plant and equipment. Therefore, the assets should be listed as current assets, plant and equipment, and then goodwill. Option A lists goodwill before plant and equipment, which is incorrect. Option C is incorrect as goodwill is an asset and should be listed under intangible assets. Option D is incorrect as the correct answer is B.

Question 13

When prices are rising, the value of ending inventory using the FIFO method rather than LIFO gives:
A) inventory a higher value but lowers net income.
B) inventory a lower value and also lowers net income.
C) both inventory and net income a higher value.
D) inventory a lower value and net income a higher value.

Accepted Answer

When prices are rising, the FIFO (First In, First Out) method assigns the cost of the older, cheaper goods to the cost of goods sold, leaving the newer, more expensive goods in inventory. This results in a higher ending inventory value and, because the cost of goods sold is lower, a higher net income compared to the LIFO (Last In, First Out) method.

Question 14

Tre-Bien Bakeries generated net income of $233,412 this year. At year end, the company had accounts receivables of $47,199, inventory of $63,781, and cash of $21,461. It also had accounts payables of $51,369, short-term notes payables of $11,417, and accrued taxes of $6,145. The net working capital of the firm is
A) $68,931.
B) $63,510.
C) $69,655.
D) None of the above

Accepted Answer

The answer of Tre-Bien Bakeries generated net income of $233,412...

Question 15

Tumbling Haven, a gymnastic equipment manufacturer, provided the following information to its accountant. The company had current assets of $145,332, net fixed assets of $356,190, and other assets of $4,176. The firm had long-term debt of $76,445, common stock of $200,000, and retained earnings of $134,461. What amount of current liabilities did this firm have?
A) $94,792
B) $505,678
C) $171,217
D) None of the above.

Accepted Answer

We can use the equation:
Total Assets = Total Liabilities + Equity
to find the amount of current liabilities.
Total Assets = Current assets + Net fixed assets + Other assets = $145,332 + $356,190 + $4,176 = $505,698
Total Liabilities + Equity = Long-term debt + Common stock + Retained earnings = $76,445 + $200,000 + $134,461 = $410,906
Therefore,
Current liabilities = Total liabilities and equity - Total assets
Current liabilities = $410,906 - $505,698 = $94,792. 
So the answer is A.

Question 16

Which of the following is NOT true about goodwill?
A) It is an intangible asset.
B) It represents the value of all unrecorded assets acquired in a merger.
C) It equals the premium paid over the fair market value of the assets acquired in a merger.
D) When goodwill appears on a firm's balance sheet, it reduces the firm's net worth by that amount.

Accepted Answer

This statement is not true. When goodwill appears on a firm's balance sheet, it actually increases the firm's net worth by that amount.

Question 17

The conventional way of preparing a balance sheet is to list all assets in the order of their:
A) market value.
B) risk.
C) liquidity.
D) historical cost.

Accepted Answer

Assets on a balance sheet are typically listed in order of their liquidity, which refers to how quickly and easily an asset can be converted into cash without significantly affecting its value.

Question 18

Maddux, Inc., has completed its fiscal year and reported the following information. The company had current assets of $153,413, net fixed assets of $412,331, and other assets of $7,822. The firm also has current liabilities worth $65,314, long-term debt of $178,334, and common stock of $162,000. What is the amount of retained earnings?
A) $405,648
B) $243,648
C) $167,918
D) $573,566

Accepted Answer

To find the retained earnings, we first calculate the total assets and total liabilities and equity, then use the accounting equation: Assets = Liabilities + Stockholders' Equity. Total assets = Current assets + Net fixed assets + Other assets = $153,413 + $412,331 + $7,822 = $573,566. Total liabilities and equity = Current liabilities + Long-term debt + Common stock + Retained earnings. We rearrange the equation to solve for retained earnings: Retained earnings = Total assets - (Current liabilities + Long-term debt + Common stock) = $573,566 - ($65,314 + $178,334 + $162,000) = $167,918.

Question 19

When prices are falling, the value of inventory using the LIFO method rather than FIFO gives:
A) inventory a higher value but lowers net income.
B) inventory a lower value and also lowers net income.
C) both inventory and net income a higher value.
D) inventory a lower value and net income a higher value.

Accepted Answer

The answer of When prices are falling, the value of...

Question 20

Shane, Inc., has completed its fiscal year and reported Total Assets of $1,000,000 and Total Liabilities of $300,000. Calculate the value of common equity.
A) $1,300,000
B) $700,000
C) $600,000
D) $800,000

Accepted Answer

We can use the accounting equation: Total Assets = Total Liabilities + Common Equity. 
Rearranging the equation, we get: Common Equity = Total Assets - Total Liabilities 
Substituting the given values, we get: Common Equity = $1,000,000 - $300,000 = $700,000. Therefore, the value of common equity is $700,000, which is option B.

Quiz 3: The Financial System and the Level of Interest Rates

On June 23, 2008, Mikhal Cosmetics sold $250,000 worth of its products to Rynex Corporation, with the payment to be made in 90 days on September 20. The goods were shipped to Rynex on July 2. The firm's accountants should recognize the sale on:

Teakap, Inc., has current assets of $1,456,312 and total assets of $4,812,369 for the year ending September 30, 2006. It also has current liabilities of $1,041,012, common equity of $1,500,000, and retained earnings of $1,468,347. What is the value of long term debt?

Tyson Corporation bought raw materials on April 23, 2008 and also on July 2, 2008. Products produced during the months of May were sold in July. The firm uses FIFO to value its inventory. According to the matching principle, the firm's accountant should associate:

Which of the following is NOT true about treasury stock?

The cost principle states that an asset should be recognized on the balance sheet:

What is the difference between FIFO (first in, first out) and LIFO (last in, first out) accounting?

According to the realization principle, revenue from a sale of a firm's products are recognized:

Petra, Inc., has $400,000 as current assets, $1.225 million as plant and equipment, and $250,000 as goodwill. In preparing the balance sheet, these assets should be listed in which of the following orders?

When prices are rising, the value of ending inventory using the FIFO method rather than LIFO gives:

Which of the following is NOT true about goodwill?

The conventional way of preparing a balance sheet is to list all assets in the order of their:

When prices are falling, the value of inventory using the LIFO method rather than FIFO gives:

Shane, Inc., has completed its fiscal year and reported Total Assets of $1,000,000 and Total Liabilities of $300,000. Calculate the value of common equity.