Quiz On Simple Arithmetic

The current ratio is calculated by dividing current assets by current liabilities. In this case, the current assets are $150 and the current liabilities are $65. Therefore, the current ratio is 150/65 = 2.31 to 1.

Cash is considered the most liquid asset because it can be easily and quickly converted into other forms of payment or used to make purchases. Unlike other assets, such as plant and equipment, cash does not require any additional steps or time to be utilized. It is readily available and widely accepted as a form of payment, making it highly liquid.

An inventory turnover of 6 means that the company is able to sell its entire inventory six times within a given period, usually a year. To calculate approximately how long it takes to sell inventory, we divide the number of days in a year (365) by the inventory turnover. In this case, 365 divided by 6 equals approximately 60 days. Therefore, it takes approximately 60 days for the company to sell its inventory.

Land is not depreciated because it is considered a non-depreciable asset. Depreciation is the allocation of the cost of an asset over its useful life, but land is not subject to wear and tear or obsolescence, so its value does not decrease over time. On the other hand, the current value of an asset may change due to market conditions or other factors, and therefore it can be subject to depreciation.

The book value of the equipment can be calculated by subtracting the accumulated depreciation from the original cost of the equipment. In this case, the original cost of the equipment is $250,000 and the accumulated depreciation is $150,000. Subtracting $150,000 from $250,000 gives us a book value of $100,000.

In a bank reconciliation process, outstanding checks are deducted from the bank statement balance. This is because outstanding checks represent payments that have been recorded by the company but have not yet cleared the bank. Therefore, these checks should be deducted from the bank statement balance to reconcile it with the company's cash balance. By deducting the outstanding checks, the bank statement balance will reflect the actual amount of funds available in the bank account.

The correct answer is Direct write-off method and the allowance method. These are the two methods of accounting for bad debts. The direct write-off method involves directly removing the uncollectible accounts from the accounts receivable when they are deemed uncollectible. On the other hand, the allowance method involves estimating the amount of bad debts and creating an allowance for doubtful accounts. This allowance is then used to write off the uncollectible accounts. Both methods have their advantages and disadvantages, and the choice of method depends on the company's preferences and financial reporting requirements.

When the market value of inventory items has declined below its cost, companies apply the lower of cost or market method. This method allows companies to value their inventory at the lower of its cost or its current market value. By using this method, companies can accurately reflect the decline in value of their inventory on their financial statements.

The loss of $300 will be reported on the income statement for the sale of the machine. This is because the machine was sold for $3,000, which is less than its cost of $8,500. The accumulated depreciation of $5,200 is subtracted from the cost to determine the book value of the machine at the time of sale, which is $3,300 ($8,500 - $5,200). Since the machine was sold for $3,000, there is a loss of $300 ($3,300 - $3,000) that will be reported on the income statement.

Bank services charges are deducted from the company's cash balance in a bank reconciliation. This is because bank services charges are fees charged by the bank for various services provided to the company, such as account maintenance or transaction fees. These charges are deducted from the company's cash balance to accurately reflect the actual amount of cash available to the company after accounting for these fees.

When the FIFO (First-In, First-Out) method is used, ending inventory is assumed to consist of the most recently purchased units. This means that the cost of the inventory on hand is based on the cost of the most recent purchases. This assumption is made because under the FIFO method, it is assumed that the items that were purchased first are sold first, leaving the most recently purchased items in inventory.

When the LIFO (Last-In, First-Out) method is used, ending inventory is assumed to consist of the oldest units. This means that the items that were purchased or produced first are considered to be sold first, and the remaining inventory consists of the items that were acquired more recently. This assumption is based on the idea that the older units are usually sold or used up before the newer ones. By valuing the ending inventory based on the cost of the oldest units, the LIFO method can result in a higher cost of goods sold and lower net income compared to other inventory valuation methods.

Accounts receivable and notes receivable are both types of assets that represent money owed to a company. However, the distinguishing characteristic between the two is that notes receivable result from a written promise to pay within a specified amount of time. In other words, notes receivable are formal agreements that outline the terms and conditions of the repayment, including the principal amount, interest rate, and maturity date. On the other hand, accounts receivable are typically less formal and do not involve a written agreement. They represent amounts owed to the company for goods or services provided on credit, but the terms of repayment may not be as clearly defined.

Earnings per share is a ratio that expresses the profits of a company on a per share basis. It is calculated by dividing the company's net income by the number of outstanding shares. This ratio is important for investors as it provides information on how much profit is generated for each share owned. It helps in assessing the profitability and performance of the company and comparing it with other companies in the same industry.

The interest on a $25,000 note at 9% for 4 months would be $750. This can be calculated by multiplying the principal amount ($25,000) by the interest rate (9%) and then dividing the result by 12 (to get the monthly interest rate) and multiplying it by the number of months (4). Therefore, the interest on the note would be $750.

Depreciation is a process by which the cost of plant and equipment is allocated to expense over the time periods which benefit from the use of the asset. This means that instead of recognizing the full cost of the asset in the year it is purchased, the cost is spread out over its useful life. This allows for a more accurate representation of the asset's value and helps to match the expense with the revenue generated from its use. By allocating the cost over time, it also helps to show the wear and tear or obsolescence of the asset as it ages.

The depreciation expense for 2006 using the double-declining-balance method is $17,000. This method calculates depreciation based on a fixed percentage applied to the book value of the asset each year. In this case, the double-declining-balance method uses a depreciation rate of 25% (100% divided by the useful life of 8 years multiplied by 2). The book value at the beginning of 2006 is $68,000 - $4,000 (residual value) = $64,000. Applying the depreciation rate of 25% to the book value gives a depreciation expense of $16,000 for 2006. Since the double-declining-balance method does not take into account the residual value, the depreciation expense is not reduced by the residual value. Therefore, the depreciation expense for 2006 is $16,000.

To measure depreciation for a plant asset, all of the following must be known except the current value. Depreciation is calculated based on the original cost of the asset, its estimated useful life, and its salvage value. The current value of the asset is not necessary for calculating depreciation as it reflects the current market value of the asset, which may fluctuate over time. Therefore, the current value is not a factor in determining the depreciation expense for a plant asset.

Liquidity refers to a company's ability to meet its short-term financial obligations, such as paying off debts, as they become due. It indicates the company's ability to convert its assets into cash quickly without causing significant loss in value. This statement is true because liquidity is a crucial aspect of financial management and is essential for a company's financial stability and solvency.

The Net Realizable Value of accounts receivable is calculated by subtracting the Allowance for Doubtful Accounts from the Accounts Receivable. In this case, the Accounts Receivable is $298,000 and the Allowance for Doubtful Accounts is $27,000. Therefore, the Net Realizable Value is $298,000 - $27,000 = $271,000.

The units-of-production method calculates depreciation based on the actual usage of the asset. In this case, the machine was used for 5,000 hours during the second full year. The total estimated usage for the machine's useful life is 15,000 hours. Therefore, the percentage of the machine's useful life used during the second full year is 5,000/15,000 = 1/3. The total depreciation for the machine is the cost minus the residual value, which is $65,000 - $5,000 = $60,000. Multiplying this by the percentage of the machine's useful life used during the second full year gives us $60,000 * 1/3 = $20,000. Therefore, the amount of depreciation for the second full year is $20,000.

A current liability is a debt or obligation that is expected to be settled within one year or the operating cycle of a business. Note payable, due in 3 years, is not classified as a current liability because it is not expected to be settled within the next year or the operating cycle.

The Specific Identification method of inventory costing/valuation would most likely be used to identify automobiles at the car dealership. This method involves tracking the cost of each individual item in inventory, rather than using an average cost or other estimation method. Since automobiles at a car dealership are typically high-value items with unique characteristics, it would be important to accurately track the cost of each specific vehicle. This method allows for precise valuation and cost allocation for each automobile in inventory.

The amount of depreciation for the first full year can be calculated using the straight-line method. The straight-line method calculates depreciation by subtracting the estimated residual value from the initial cost and then dividing it by the estimated useful life. In this case, the initial cost is $160,000, the estimated residual value is $10,000, and the estimated useful life is 4 years. Therefore, the amount of depreciation for the first full year would be ($160,000 - $10,000) / 4 = $37,500.

A contingent liability refers to a potential obligation that may arise in the future, depending on the outcome of a specific event. It is typically uncertain and cannot be measured with precision. In this context, the cost of a new office copy machine does not fall under the category of a contingent liability. The cost of a new office copy machine is a known and definite liability that can be measured accurately. Therefore, it is not included in the list of items that may be considered as contingent liabilities.