Question 1

Please refer to the following information and calculate the current ratio: $\begin{array}{|l|r|r|} 
\hline&{\text { Debit }} & \text { Credit } \
\hline \text { Cash } & \$ 6,000 \
\hline \text { Accounts receivable } & 2,000 \
\hline \text { Prepaid insurance } & 800 \
\hline \text { Land } & 40,000 \
\hline \text { Building } & 50,000 \\hline \text { Accumulated depreciation } & & \$ 32,000 \
\hline \text { Accounts payable } & & 9,400 \
\hline \text { Wages payable } & & 4,000 \
\hline \text { Notes payable - short term } & & 3,200\
\hline
\end{array}$

Accepted Answer

The current ratio is calculated as current assets divided by current liabilities. Current assets are cash ($6,000), accounts receivable ($2,000), and prepaid insurance ($800), totaling $8,800. Current liabilities are accounts payable ($9,400), wages payable ($4,000), and notes payable - short term ($3,200), totaling $16,600. The current ratio is $8,800 / $16,600 = 0.53.

Question 2

Adkins Company has a current ratio of 1.0 and a debt ratio of 0.7.Wilson Company has a current ratio of 1.4 and a debt ratio of 0.5.Both companies are in the same industry.Which of the following statements is TRUE?

Accepted Answer

A higher current ratio indicates a better ability to meet short-term obligations, which Wilson Company has compared to Adkins Company. A lower debt ratio indicates a lower financial risk, which Wilson Company also has compared to Adkins Company. Therefore, Wilson Company appears to be in better financial shape than Adkins Company.

Question 3

Which of the following statements is an accurate interpretation of the debt ratio?

Accepted Answer

A debt ratio of 0.60 or lower is considered a low risk ratio as it indicates that a company is financing a smaller portion of assets through debt and relies more on equity. A higher debt ratio means a company is more highly leveraged and may have difficulty meeting its debt obligations. Therefore, a debt ratio of 0.60 or lower is a good and safe ratio. Options A, B, and C are not accurate interpretations of the debt ratio.

Question 4

Which of the following does the current ratio measure?

Accepted Answer

The current ratio measures the company's ability to pay current liabilities (those due within one year) with its current assets (those expected to be converted to cash within one year). A higher current ratio indicates a greater ability to meet short-term obligations.

Question 5

Please refer to the following balance sheet:  How much is the debt ratio? (Round to two decimal places.)

Accepted Answer

A) Calculations: $7,780/$22,480 = 0.346

Question 6

Please refer to the following information and compute the debt ratio: $$\begin{array} { | l | r | r | } 
\hline & { \text { Debit } } & { \text { Credit } } \
\hline \text { Cash } & \$ 4,500 & \
\hline \text { Accounts receivable } & 1,200 & \
\hline \text { Prepaid rent } & 700 & \
\hline \text { Land } & 20,000 & \
\hline \text { Equipment } & 4,000 & \
\hline \text { Accumulated depreciation } & & \$ 800 \
\hline \text { Accounts payable } & & 2,900 \
\hline \text { Salary payable } & & 600 \
\hline \text { Notes payable-long term } & & 9,000 \
\hline
\end{array}$$

Accepted Answer

The debt ratio is calculated as Total Liabilities divided by Total Assets. Total Liabilities = $2,900 (Accounts payable) + $600 (Salary payable) + $9,000 (Notes payable) = $12,500. Total Assets = $4,500 (Cash) + $1,200 (Accounts receivable) + $700 (Prepaid rent) + $20,000 (Land) + $4,000 (Equipment) - $800 (Accumulated depreciation) = $29,600. Debt Ratio = $12,500 / $29,600 = 0.42.

Question 7

An adjusted trial balance for Southside Video Productions is presented below.  
- Compute the debt ratio:

Accepted Answer

A) Calculations: $62,590/129,800 = .48

Question 8

The following contains information from the records of the Wellborn Engineers and Architects. Wellborn Engineers and Architects
Selected Financial Information
December 31,2013
$\begin{array}{|l|r|}
\hline\text { Current assets } & \$ 74,000 \
\hline \text { Current liabilities } & 44,000 \
\hline \text { Long-term assets } & 95,000 \
\hline \text { Long-term liabilities } & 60,000 \
\hline \text { Total revenues } & 50,000 \
\hline \text { Total expenses } & 30,000\\hline
\end{array}$ Which of the following statements is an accurate interpretation of Wellborn Engineers and Architects',PC current ratio?

Accepted Answer

The current ratio is calculated by dividing current assets by current liabilities. For Wellborn Engineers and Architects, this is $74,000 / $44,000 = 1.68.

Question 9

An adjusted trial balance for Southside Video Productions is presented below.  
-Compute the current ratio:

Accepted Answer

D) Calculations: $30,600/11,390=2.69

Question 10

Which of the following statements is an accurate interpretation of a debt ratio of .60?

Accepted Answer

A debt ratio of .60 indicates that for every $1.00 of assets, the company has $.60 of liabilities.

Question 11

The following contains information from the records of the Wellborn Engineers and Architects. Wellborn Engineers and Architects
Selected Financial Information
December 31,2013
$\begin{array}{|l|r|}
\hline\text { Current assets } & \$ 74,000 \
\hline \text { Current liabilities } & 44,000 \
\hline \text { Long-term assets } & 95,000 \
\hline \text { Long-term liabilities } & 60,000 \
\hline \text { Total revenues } & 50,000 \
\hline \text { Total expenses } & 30,000\\hline
\end{array}$ What is the debt ratio?

Accepted Answer

The debt ratio is calculated as total liabilities divided by total assets. Total liabilities = Current liabilities + Long-term liabilities = $44,000 + $60,000 = $104,000. Total assets = Current assets + Long-term assets = $74,000 + $95,000 = $169,000. Debt ratio = $104,000 / $169,000 = 0.6154, which rounds to 0.62.

Question 12

Which of the following statements is an accurate interpretation of the current ratio?

Accepted Answer

A current ratio of 2.0 indicates that a company has twice the current assets compared to current liabilities, which is considered a very strong ability to pay current liabilities. Options A, B, and D are inaccurate statements about the current ratio.

Question 13

Which of the following is considered a good/safe rule-of-thumb debt ratio for businesses?

Accepted Answer

A debt ratio of .6 or below is considered a good/safe rule-of-thumb for businesses as it indicates that the company has more assets than liabilities and is less leveraged. A higher debt ratio increases the risk of default and financial distress.

Question 14

Reversing entries are used for convenience and to save time.

Accepted Answer

Reversing entries are used to automatically reverse adjusting entries that were made in the previous accounting period. This saves time and helps to ensure that the correct account balances are recorded at the beginning of the new accounting period.

Question 15

Please refer to the following data: $$\begin{array} { | l | r | r | } 
\hline & { \text { Debit } } &  { \text { Credit } } \
\hline \text { Cash } & \$ 16,000 & \
\hline \text { Accounts receivable } & 2,800 & \
\hline \text { Prepaid insurance } & 800 & \
\hline \text { Land } & 40,000 & \
\hline \text { Building } & 50,000 & \
\hline \text { Accumulated depreciation } & & \$ 32,000 \
\hline \text { Accounts payable } & & 2,200 \
\hline \text { Wages payable } & & 4,000 \
\hline \text { Notes payable-short term } & & 2,300 \
\hline
\end{array}$$ Using the "rule of thumb" guidelines,what conclusion could you draw?

Accepted Answer

The given data does not provide any information related to liquidity or total assets and obligations. Therefore, we cannot conclude A or B. The "rule of thumb" for the current ratio is 2:1, which means that a current ratio of 2 or higher indicates good liquidity. As we do not have the current assets and current liabilities data, we cannot calculate the current ratio. Hence, we cannot conclude C. The only conclusion that can be drawn is that the business should have no difficulties paying off its liabilities as per option D.

Question 16

The following contains information from the records of the Wellborn Engineers and Architects. Wellborn Engineers and Architects
Selected Financial Information
December 31,2013
$\begin{array}{|l|r|}
\hline\text { Current assets } & \$ 74,000 \
\hline \text { Current liabilities } & 44,000 \
\hline \text { Long-term assets } & 95,000 \
\hline \text { Long-term liabilities } & 60,000 \
\hline \text { Total revenues } & 50,000 \
\hline \text { Total expenses } & 30,000\\hline
\end{array}$ What is the current ratio?

Accepted Answer

The answer of The following contains information from the records...

Question 17

Please refer to the following information and calculate the debt ratio.(Round to two decimals.) $\begin{array}{|l|r|r|} 
\hline&{\text { Debit }} & \text { Credit } \
\hline \text { Cash } & \$ 6,000 \
\hline \text { Accounts receivable } & 2,000 \
\hline \text { Prepaid insurance } & 800 \
\hline \text { Land } & 40,000 \
\hline \text { Building } & 50,000 \\hline \text { Accumulated depreciation } & & \$ 32,000 \
\hline \text { Accounts payable } & & 9,400 \
\hline \text { Wages payable } & & 4,000 \
\hline \text { Notes payable - short term } & & 3,200\
\hline
\end{array}$

Accepted Answer

The answer of Please refer to the following information and...

Question 18

Please refer to the following information and compute the current ratio: $$\begin{array} { | l | r | r | } 
\hline &  { \text { Debit } } &{ \text { Credit } } \
\hline \text { Cash } & \$ 4,500 & \
\hline \text { Accounts receivable } & 1,200 & \
\hline \text { Prepaid rent } & 700 & \
\hline \text { Land } & 20,000 & \
\hline \text { Equipment } & 4,000 & \
\hline \text { Accumulated depreciation } & & \$ 800 \
\hline \text { Accounts payable } & & 2,900 \
\hline \text { Salary payable } & & 600 \
\hline \text { Notes payable-long term } & & 9,000 \
\hline
\end{array}$$

Accepted Answer

The current ratio is calculated as current assets divided by current liabilities. Current assets include cash ($4,500), accounts receivable ($1,200), and prepaid rent ($700), totaling $6,400. Current liabilities include accounts payable ($2,900) and salary payable ($600), totaling $3,500. The current ratio is $6,400 / $3,500 = 1.83.

Question 19

Which of the following does the debt ratio measure?

Accepted Answer

The answer of Which of the following does the debt...

Question 20

Reversing entries are required by GAAP.

Accepted Answer

Reversing entries are an optional accounting procedure and not specifically required by Generally Accepted Accounting Principles (GAAP). They are used to simplify the recording of transactions in the new accounting period.

Quiz 4: Completing the Accounting Cycle