Question

1. The debt-to-total assets ratio is primarily a measure of:

		profitability
		solvency
		earnings per share
		liquidity

2. Entity X uses the allowance method for estimating bad debt expense and has a normal balance in the Allowance for Doubtful Accounts. When Entity X writes off an account receivable:

		the customer's account must be restored and then cash collected.
		the cash (net) realizable value of the accounts receivable account is unchanged.
		bad debt expense increases.
		none of the above.

3.Depreciation and amortization are:

		required even if the market value of the asset may be increasing.
		implement the expense recognition principle.
		non-cash expenses.
		all the choices are correc

4. Entity A reported the following items on its balance sheet at the end of the current year. All accounts are listed. What is Entity A’s Retained Earnings balance at the end of the current year?
Cash $ 45,000
Property, plant & equipment 200,000
Retained earnings ?
Inventory 75,000
Accounts receivable 90,000
Long-term debt 60,000
Accounts payable 80,000
Common stock 150,000

		$410,000
		$120,000
		$140,000
		$270,0

5. When a business makes payment for equipment that it purchased earlier on credit (hint: think of the journal entry),

		assets increase and liabilities increase.
		assets increase and owners' equity increases.
		liabilities increase and owners' equity decreases.
		assets decrease and liabilities decrease.

Answer 1

solution 1:

The debt-to-total assets ratio is primarily a measure of "Solvency"

Hence 2nd option is correct.

Solution 2:

When Entity X writes off an account receivable "the cash (net) realizable value of the accounts receivable account is unchanged"

Hence 2nd option is correct.

Solution 3:

Depreciation and amortization are:

1. Required even if the market value of the asset may be increasing

2. Implement the expense recognition principle

3. Non-cash expenses

Hence last option "All the choices are correct" is correct.

Solution 4:

Retained earning balance = Total assets - Liabilities - Common stock

= ($45,000 + $200,000 + $75,000 + $90,000) - ($60,000 + $80,000) - $150,000

= $120,000

Hence 2nd option is correct.

Solution 5:

When a business makes payment for equipment that it purchased earlier on credit "assets decrease and liabilities decrease."

Hence last option is correct