Question

23.    A company’s current ratio is 1.5. Its current liabilities are $150,000. What are its current assets?

	a.	$75,000
	b.	$100,000
	c.	$225,000
	d.	$300,000

24. Falling Leaves Lawn Care purchased new excavating equipment at the beginning of Year 1. The equipment has a cost of $37,000, an estimated life of five years, and an estimated residual value of $7,000. A full year’s depreciation expense is to be recorded in Year 1. The equipment was used 20,000 hours during Year 1 and 24,000 hours during Year 2. The number of expected hours over five years is 100,000.

Refer to Falling Leaves Lawn Care. The company wants to use the depreciation method that will result in the highest depreciation expense for Year 1. Which method should it use?

	a.	straight-line
	b.	units-of-production
	c.	double-declining-balance
	d.	any method

25. Stallworth Corp. has the following information is available for the month of November:

Nov. 1          On hand, 50 units at $15 each $   750.00
         5          Purchased, 115 units at $15.10 each 1,736.50
       16          Purchased, 75 units at $15.20 each 1,140.00
                     Total cost of goods available for sale $3,626.50
       30          On hand, 100 units

The company uses a periodic inventory system.  

Refer to Stallworth Corp. If the company uses the FIFO inventory costing method, what amount will be assigned to the November 30 inventory?

	a.	$1,505.00
	b.	$1,517.50
	c.	$2,109.00
	d.	$2,121,50

26. The university satellite office operates five days per week with a daily payroll of $5,000. Employees are paid every Saturday for the workweek just completed (Monday through Friday). The last day of the month is Wednesday, October 31. Under accrual accounting, what is the effect of the correct adjustment at October 31?

	a.	increases wages payable and decreases cash by $10,000
	b.	increases shareholders’ equity and wages payable by $15,000
	c.	decreases shareholders’ equity and increases wages payable by $15,000
	d.	increases wages payable and increases wages expense by $25,000

27. Georgia’s Salon sells $50,000 of gift cards in May, Year 1. These gift cards must be used before their expiration on May 31, Year 2.  

 Refer to Georgia’s Salon. Which of the following is the correct journal entry to record the sale of the gift cards?

	a.	Cash 50,000      Accounts Payable 50,000
	b.	Cash 50,000      Unearned Sales Revenue 50,000
	c.	Cash 50,000      Sales Revenue 50,000
	d.	Cash 50,000      Prepaid Sales Revenue 50,000

Answer 1

23
Current assets	225000	=150000*1.5
Option C is correct
24
Double-declining-balance results in highest depreciation expense in initial years.
Option C is correct
25
Amount assigned to the November 30 inventory	1517.50	=(75*15.2)+(100-75)*15.1
Option B is correct
26
Wages accrued = 5000*3 = $15000
decreases shareholders’ equity and increases wages payable by $15,000
Option C is correct
27
Cash 50,000
Unearned Sales Revenue 50,000
Option B is correct