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ACC 556 ACC556 ACC/556 WEEK 5 MIDTERM 1

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ACC 556 WEEK 5 MIDTERM 1 • Question 1 Bathlinks Corporation has a debt to assets ratio of 73%. This tells the user of Bathlinks’s financial statements that • Question 2 An aging of accounts receivable schedule is based on the premise that the longer the period an account remains unpaid, the greater the probability that it will eventually be collected. • Question 3 Which of the following is not a common way that managers use the balance sheet? • Question 4 Owners of business firms are the only people who need accounting information. • Question 5 Solvency ratios measure the short-term ability of the company to pay its maturing obligations. • Question 6 Expense recognition is tied to revenue recognition. • Question 7 A concentration of credit risk is a threat of nonpayment from a single customer or class of customers that could adversely affect the financial health of the company. Selected Answer: True Correct Answer: True • Question 8 Lankston Company began the year by issuing $90,000 of common stock for cash. The company recorded revenues of $825,000, expenses of $720,000, and paid dividends of $45,000. What was Lankston’s net income for the year? • Question 9 Source documents can provide evidence that a transaction has occurred. • Question 10 The partnership form of business organization • Question 11 The best definition of assets is the resources belonging to a company that have future benefit to the company. Question 12 Financing activities include the purchase or sale of long-lived assets or the purchase or sale of investment securities. • Question 13 Which of the following would not be classified as a long-term liability? • Question 14 Marvin Services Corporation had the following accounts and balances: Accounts payable $18,000 Equipment $21,000 Accounts receivable 3,000 Land 21,000 Buildings ? Unearned service revenue 6,000 Cash 9,000 Total stockholders’ equity ? If the balance of the Buildings account was $45,000 and the equipment was sold for $21,000, what would be the total of stockholders’ equity? • Question 15 Requiring employees to take vacations is a weakness in the system of internal controls because it does not promote operational efficiency. • Question 16 The economic resources that are owned by a business are called stockholders’ equity. • Question 17 To obtain maximum benefit from a bank reconciliation, the reconciliation should be prepared by the employee authorized to sign checks. • Question 18 The revenue recognition principle dictates that revenue be recognized in the accounting period in which the performance obligation is satisfied. • Question 19 Consistent use of the same accounting principles and methods is necessary for meaningful analysis of trends within a company. • Question 20 Which of the following is the least likely consideration that management uses when deciding whether to pay a dividend? • Question 21 Management may choose any inventory costing method it desires as long as the cost flow assumption chosen is consistent with the physical movement of goods in the company. • Question 22 Goods that have been purchased FOB destination but are in transit, should be excluded from a physical count of goods by the buyer. • Question 23 The multiple-step income statement is considered more useful than the single-step income statement because it highlights the components of net income. • Question 24 An advantage of using the periodic inventory system is that it requires less record keeping than the perpetual inventory system. • Question 25 Use the following data to calculate the current ratio. Carne Auto Supplies Balance Sheet December 31, 2014 Cash $ 35,000 Accounts payable $ 65,000 Accoun

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