QUESTION: 1725

The Income Summary account

is used to facilitate the closing process
all of these answers are correct
is a temporary account
should have a zero balance at period-end

Answer(s): B

Explanation:

The Income Summary account is a temporary account created especially for the closing process and is used only for flowing adjustments and closing entries through.

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QUESTION: 1726

Depreciation expense for fixed assets is recorded

for each period the asset is in use
as a liability until the asset is sold
at the end of each fiscal period during the asset's useful life
when the asset is sold

Answer(s): C

Explanation:

Depreciation is the periodic allocation of the cost of a tangible, long-term asset over its estimated useful life, and therefore a period expense. This expense is recorded at the end of each fiscal period until the asset is fully depreciated or disposed of.

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QUESTION: 1727

A firm has long-term assets worth 3,812 and total assets worth 5,937. It has a total equity of 3,934 and long term debt of 879. The firm's current ratio equals ________.

1.32
0.92
1.03
1.89

Answer(s): D

Explanation:

The firm's current assets equal 5,937 - 3,812 = 2,125. The total liabilities equal total assets - total equity = 5,937
- 3,934 = 2,003. Thus, the current liabilities equal 2,003 - 879 = 1,124. The current ratio is then equal to current assets/current liabilities = 2125/1124 = 1.89

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QUESTION: 1728

Marine Corp. uses the direct method to prepare its statement of cash flows. Marine's trial balance at December 31, 1996 and 1995 are as follows:

Dec. 31, 1996 Dec. 31, 1995

Debits:

Cash $35,000 $32,000
Accounts receivable 33,000 30,000
Inventory 31,000 47,000
Property, plant & equipment1 00,000 95,000
Unamortized bond discount 4,500 5,000
Cost of goods sold250,000 380,000
Selling expenses 141,500172,000
General and administrative expenses 137,000 151,300
Interest expense 4,300 2,600
Income tax expense 20,400 61,200

Total debits $756,700 $976,100

Allowance for doubtful accounts $1,300 $1,100
Accumulated depreciation 16,500 15,000
Trade accounts payable 25,000 17,500
Income taxes payable 21,000 27,100
Deferred income taxes 5,300 4,600
8% callable bonds payable 45,000 20,000
Common stock 50,000 40,000
Additional paid-in capital 9,100 7,500
Retained earnings 44,700 64,600
Sales 538,800 778,700

Total credits $756,700 $976,100

Marine purchased $5,000 in equipment during 1996. Marine allocated one-third of its depreciation expense to selling expenses and the remainder to general and administrative expenses.

What amount should Marine report in its statement of cash flows for the year ended December 31, 1996 for cash paid for interest?

$1,700
$3,800
$3,600
$4,300
$4,800

Answer(s): B

Explanation:

Interest expense is $4,300 and was all paid since there is no interest payable account. However, since there is an account for unamortized bond discount, the reduction of $500 between the two years represents discount amortization, a noncash item. Therefore $4,300 less $500 (or $3,800) was paid in cash for interest.

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QUESTION: 1725

Explanation:

QUESTION: 1726

Explanation:

QUESTION: 1727

Explanation:

QUESTION: 1728

Explanation: