FINANCIAL ACCOUNTING EXAM
QUESTIONS AND THEIR CORRECT
COMPLETE SOLUTIONS
Tom's Grocery purchased 5 new cash registers for
their new store and they paid $2,400 each for a total of
$12,000 on August 1, 2013, the day they were
delivered. The cash registers are expected to have
useful lives of 5 years and they are not expected to
have any salvage value. Tom's Grocery uses straight-
line depreciation. The cash registers were recorded as
long-lived assets at the time of the purchase and now
Tom's needs to make an entry showing the expense
related to these cash registers up to December 31,
2013.
The depreciable value of the cash registers is $12,000 and
they have an estimated useful life of 5 years (or 60
months), so the monthly depreciation would be $200 per
month ($12,). To recognize the 5 months' worth of
depreciation ($200 per month * 5 months = $1,000) at
12/31/13, the company would record a debit to
Depreciation (an expense, part of owners' equity) for
$1,000 and a credit to Accumulated Depreciation (a
contra-asset, part of assets) for $1,000.
Which of the following is a common finding in looking
at statement of cash flows of a startup company?
A significant positive cash flow from financing activities
, Company A estimates that it needs 30% of sales in net
working capital. In year 1, sales were $1 million and in
year 2, sales were $2 million. Associated with the
change in net working capital from year 1 to year 2 is
a cash:
outflow of $300,000. The company would need to make a
cash investment (outflow) of $300,000 to increase their net
working capital from the $300,000 needed to support $1
million of sales to the $600,000 needed to support $2
million of sales.
All You Need To Know (AYNTK) magazine received
$60,000 cash in annual subscriptions in December
2013. AYNTK is a monthly publication and all of these
subscriptions commence in January 2014. What entry
should AYNTK make on December 31, 2013 to record
the payments received for these subscriptions?
debit Cash for $60,000 as the company now has the cash,
and credit Deferred Revenue for $60,000 as the company
now has the obligation to provide services in the future.
Initech finances their business using a combination of
equity and liabilities. Which of the following numbers
is most likely Initech's equity multiplier?
-1, 0, 1, 1.5?
A company that finances using only equity will have an
equity multiplier of 1. Any amount over 1 shows the
proportion financed using liabilities. Since Initech uses a
combination of equity and liabilities to finance operations,
the only option that would most likely be their equity
multiplier is option 4, 1.5.
Careful Captains Cruise Lines (CCCL) previously
received $20,000 in advanced payments for a
QUESTIONS AND THEIR CORRECT
COMPLETE SOLUTIONS
Tom's Grocery purchased 5 new cash registers for
their new store and they paid $2,400 each for a total of
$12,000 on August 1, 2013, the day they were
delivered. The cash registers are expected to have
useful lives of 5 years and they are not expected to
have any salvage value. Tom's Grocery uses straight-
line depreciation. The cash registers were recorded as
long-lived assets at the time of the purchase and now
Tom's needs to make an entry showing the expense
related to these cash registers up to December 31,
2013.
The depreciable value of the cash registers is $12,000 and
they have an estimated useful life of 5 years (or 60
months), so the monthly depreciation would be $200 per
month ($12,). To recognize the 5 months' worth of
depreciation ($200 per month * 5 months = $1,000) at
12/31/13, the company would record a debit to
Depreciation (an expense, part of owners' equity) for
$1,000 and a credit to Accumulated Depreciation (a
contra-asset, part of assets) for $1,000.
Which of the following is a common finding in looking
at statement of cash flows of a startup company?
A significant positive cash flow from financing activities
, Company A estimates that it needs 30% of sales in net
working capital. In year 1, sales were $1 million and in
year 2, sales were $2 million. Associated with the
change in net working capital from year 1 to year 2 is
a cash:
outflow of $300,000. The company would need to make a
cash investment (outflow) of $300,000 to increase their net
working capital from the $300,000 needed to support $1
million of sales to the $600,000 needed to support $2
million of sales.
All You Need To Know (AYNTK) magazine received
$60,000 cash in annual subscriptions in December
2013. AYNTK is a monthly publication and all of these
subscriptions commence in January 2014. What entry
should AYNTK make on December 31, 2013 to record
the payments received for these subscriptions?
debit Cash for $60,000 as the company now has the cash,
and credit Deferred Revenue for $60,000 as the company
now has the obligation to provide services in the future.
Initech finances their business using a combination of
equity and liabilities. Which of the following numbers
is most likely Initech's equity multiplier?
-1, 0, 1, 1.5?
A company that finances using only equity will have an
equity multiplier of 1. Any amount over 1 shows the
proportion financed using liabilities. Since Initech uses a
combination of equity and liabilities to finance operations,
the only option that would most likely be their equity
multiplier is option 4, 1.5.
Careful Captains Cruise Lines (CCCL) previously
received $20,000 in advanced payments for a
