Part I: Multiple Choice
2.) Which of the following statements is true regarding accrual accounting? a.) Accrual accounting is not required by generally accepted accounting principles. b.) Revenue is recorded every time cash is received and expenses recorded every time cash is paid. c.) Revenue is recorded only when cash is received and expenses recorded only when cash is paid. d.) Revenues are recorded when earned and expenses when incurred regardless of when cash is received or paid.
4.) Olive Company had revenues of $300,000 during 2020. $100,000 of those revenues were paid with credit card and the remaining $200,000 on credit. The Company pays a 4% fee on credit card sales. The terms on credit sales are 3/10, net 30. Calculate Olive Company's net revenue for 2020 if all credit sales are paid within the discount period. a.) $190,000 b.) $289,000 c.) $290,000 d.) $300,000
6.) Shannon Company uses a perpetual inventory system and had $10,000 of inventory at the beginning of the month. During the month, the company purchased another $24,000 of inventory and then sold $30,000 worth of inventory for a selling price of $40,000. If a physical inventory count shows that there is $2,500 remaining in ending inventory at monthend, what amount of inventory shrinkage occurred during the month? a. 0 b. 1,500 c. 2,500 d. 4,000
7.) On July 1, 2020, a company borrows $100,000 from a bank and signs a 2-year note payable with interest at 4%. What amount should the company record as interest expense for 2020? a.) $2,000 b.) $4,000 c.) $6,000 d.) $8,000
8.) ABC Company's capital structure is 40% debt and 60% equity. Calculate ABC's total assets and total liabilities, if total equity is $120,000. a.) $160,000 assets and $40,000 liabilities b.) $200,000 assets and $80,000 liabilities c.) $240,000 assets and $120,000 liabilities d.) $300,000 assets and $180,000 liabilities
9.) Richland Company is facing a regulatory inspection in the upcoming year. It is probable that the company will have to pay a regulatory penalty of approximately $50,000. How should this fact be reported, if at all, in the financial statements? a.) Record $50,000 as a liability. b.) Disclose the potential liability in the footnotes to the financial statements. c.) Reporting is not required at all. d.) None of the above. 10.) When analyzing financial statements, investors and creditors should consider which of the following? a.) Economy-wide factors b.) Individual company factors c.) Industry factors d.) Ratio analysis e.) All of the above.