Question 1

Kayla and Kingston run a shuttle service from Water Tower Place to Chicago O'Hare airport. Last month, they recorded the following:  Kayla and Kingston's gross profit for the past month was

Accepted Answer

The answer of Kayla and Kingston run a shuttle service...

Question 2

The purpose of the current ratio is to evaluate the firm's ability to

Accepted Answer

The current ratio is a measure of a company's ability to pay its bills in the short run, indicating whether a company has enough short-term assets to cover its short-term liabilities. It is calculated by dividing current assets by current liabilities. The higher the current ratio, the better the company's ability to pay off its current liabilities. Therefore, option C is the best choice. Options A, B, and D are not relevant to the current ratio.

Question 3

Bailey is concerned because during the past four months her company has experienced difficulty in paying its bills on time. She knows if this continues, the firm will have difficulties in accomplishing its goals. What is Bailey concerned with?

Accepted Answer

Bailey is concerned with cash flow because the company is having difficulty paying its bills on time, indicating a lack of available cash to meet obligations.

Question 4

Earnings per share, return on sales, and return on equity are examples of

Accepted Answer

Earnings per share, return on sales, and return on equity are all related to the profitability of a company, making them profitability ratios.

Question 5

The ________ ratio helps determine the ability of a firm to repay its short-term debts even if it has difficulty selling its inventory.

Accepted Answer

The acid-test ratio, also known as the quick ratio, takes into account only the most liquid assets (such as cash and receivables) and excludes inventory, which may be difficult to sell in the short-term. This ratio is a measure of a firm's ability to repay its short-term debts and is a more stringent test than the current ratio, which includes inventory in its calculation.

Question 6

Sun Smarts Solar installs solar panels in large newly constructed buildings. The company employs several expert installers who work on a full-time basis. Although the installation team works every day, the company pays them at the end of the month, for the previous month's work. Employee salaries are recorded as ________ on Sun Smarts's balance sheet.

Accepted Answer

Since the employees are being paid for work already completed but have not yet received their pay, this represents a current liability for the company.

Question 7

Financial ratios that reflect the degree to which a firm relies on borrowed funds are called ________ ratios.

Accepted Answer

Leverage ratios show how much a company relies on borrowed funds to finance its operations. Examples of leverage ratios include debt-to-equity ratio, debt-to-assets ratio, and interest coverage ratio. Liquidity ratios reflect a company's ability to meet its short-term obligations while profitability ratios measure the company's ability to generate profits. Activity ratios show how efficiently the company uses its assets to generate income.

Question 8

Fairlawn Partners Consulting is a management-consulting firm that provides its expertise to businesses that employ its services. Since it does not hold an inventory of goods or produce any goods itself

Accepted Answer

Since Fairlawn Partners Consulting is a service-based company, it doesn't have an inventory of goods, meaning that its cost of goods sold is zero. Therefore, its gross profit (revenue minus cost of goods sold) will be equal to its net revenue. However, the company will still have operating expenses such as salaries, rent, and utilities, which will result in a lower net income than gross profit. The balance sheet may record current assets such as cash and accounts receivable, as these are common for service-based businesses.

Question 9

Andrea is preparing her homework for her accounting class. She is uncertain as to the proper handling of patents and copyrights on a firm's financial statements. Which of the following is correct?

Accepted Answer

Patents and copyrights are considered intangible assets and should be reported on the balance sheet as such. They are not long-term liabilities, costs of goods sold, or fixed assets.

Question 10

Paige noted that she disbursed $7,847 in payments for operations in her travel agency and received $7,162 in cash receipts for services rendered. She had no cash receipts or disbursements from investments or financing activities. Thus, Paige had a

Accepted Answer

Based on the information given, Paige had a negative cash flow of $685 ($7,162 cash receipts - $7,847 payments). This means that more money was going out of her business than coming in during this period. The other options, positive disbursement, bad debt allowance, and tax credit payment, are not applicable based on the given information.

Question 11

At the time the Bieg Plumbing Suppliers prepared its financial statements, it had several customers who bought goods over the past three months on its "90 days same as cash" credit plan. These customers had not yet paid their bills, but they have good credit ratings and Bieg is confident that they will make their payments on time. The amount these credit customers owe would show up as part of the

Accepted Answer

The amount owed by the credit customers is considered accounts receivable, which is a current asset, and would show up on Bieg's balance sheet.

Question 12

The financial ratios that measure a firm's ability to pay its short-term debts are called

Accepted Answer

Liquidity ratios measure a firm's ability to pay its short-term debts, such as the current ratio and quick ratio. Leverage ratios assess a firm's use of debt to finance its operations, equity ratios measure a company's use of shareholder equity to finance operations, and profitability ratios measure a company's ability to generate profit.

Question 13

Similar to the example of FIFO and LIFO inventory accounting methods in the text, a college store purchased sweatshirts for the upcoming fall semester. Using the following data, where a total of 100 sweatshirts were purchased by the store and placed in inventory, select the correct statement from the following choices.

Accepted Answer

Under FIFO (First In, First Out) accounting method, the first items purchased are the first items sold. Therefore, in this case, assuming all 100 sweatshirts are sold in the fall semester, the cost of goods sold would be calculated using the cost of the oldest sweatshirts in inventory. Since the store paid $15 for the first 50 sweatshirts, and $20 for the remaining 50 sweatshirts, the cost of goods sold using FIFO would be $1,500 ($15 x 50) + $1,000 ($20 x 50) = $2,500.

Under LIFO (Last In, First Out) accounting method, the newest items purchased are the first items sold. Therefore, assuming all 100 sweatshirts are sold in the fall semester, the cost of goods sold would be calculated using the cost of the most recent sweatshirts in inventory. Since the store paid $20 for the last 50 sweatshirts, and $15 for the first 50 sweatshirts, the cost of goods sold using LIFO would be $1,000 ($20 x 50) + $750 ($15 x 50) = $1,750.

Since the cost of goods sold using FIFO ($2,500) is higher than the cost of goods sold using LIFO ($1,750), the profit using FIFO would be lower. Therefore, the correct statement is that "B) FIFO would provide the most profit."

Question 14

Which of the following ratios is a liquidity ratio?

Accepted Answer

The acid-test ratio is a liquidity ratio that measures a company's ability to pay off its short-term debts using its most liquid assets. The inventory turnover ratio (A) measures the number of times a company sells and replaces its inventory in a given period, which relates to its efficiency in managing inventory. The debt to owners' equity ratio (C) is a leverage ratio that measures how much of a company's funding comes from debt vs. equity, which relates to its financial risk. Basic earnings per share (D) is a profitability ratio that calculates a company's net income divided by the average number of outstanding shares.

Question 15

Dirty Dog's Drilling recently issued a corporate bond on which it expects to pay interest for the next twenty years. Dirty Dog's would record this as a ________ on its balance sheet.

Accepted Answer

The issuance of a corporate bond represents a long-term liability for the company, as it will have to pay back the principal amount, along with the interest, over a period of twenty years. This liability would be recorded on the balance sheet, representing the amount owed by the company in the long-term.

Question 16

Mallory is running an income statement on her QuickBooks computer accounting program. Which of the following accounts will be used to calculate gross profit?

Accepted Answer

Gross profit is calculated by subtracting the cost of goods sold from revenues. Therefore, only revenues and cost of goods sold will be used to calculate gross profit. The other accounts listed are not relevant to calculating gross profit.

Question 17

Talk Time Communications is considering the purchase of a new satellite. The firm believes the satellite will help generate future earnings. In addition, the firm recognizes the tax benefits of a lower net income provided by the annual ________ of the asset.

Accepted Answer

The tax benefits mentioned in the statement refer to depreciation, which is the gradual reduction in the value of an asset over its useful life. Therefore, the best choice is D) depreciation.

Question 18

Day-by-Day Calendar Company's statement of cash flows showed the following activities for the year ended December 31, 2019:  The year-end cash balance for this firm is:

Accepted Answer

The answer of Day-by-Day Calendar Company's statement of cash flows...

Question 19

Kayla and Kingston run a shuttle service from Water Tower Place to Chicago O'Hare airport. Last month, they recorded the following:  If 25% of their net income is paid to the government in taxes, what is their net income after taxes?

Accepted Answer