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5. On March 31, 2015, Cars, Inc. owes Preston Devices, one of its suppliers, $25,000 for previous purchases. During April 2015, Preston sells Cars devices with a sales price of $10,000 and a cost to Preston of $8,000. During April, Cars pays Preston $12,000 against the amount owed to Preston. What is the effect of these April transactions on Preston's balance sheet? * Cash increased by $12,000; accounts receivable decreased by $2,000; inventory decreased by $8,000; retained earnings increased by $2,000 * Accounts receivable increased by $2,000; inventory decreased by $8,000; cash increased by $12,000; retained earnings increased by $12,000 * Cash increased by $12,000; retained earnings decreased by $2,000; inventory decreased by $10,000; accounts receivable decreased by $12,000 * Cash increased by $2,000; accounts receivable decreased by $2,000; inventory decreased by $8,000; retained earnings decreased by $12,000 6. On January 1, 2015, Mansfield Company has a retained earnings balance of $256,000. During 2015, its net income is $44,000 and it announces and pays $12,000 in dividends. There is no other dividendrelated activity during the year. Its December 31, 2015, retained earnings balance is _______. * $212,000 * $288,000 * $300,000 * $224,000 7. During June 2015, Bextra Inc. recorded sales of $55,000 but only $20,000 was collected in cash from customers. Cost of goods sold was $38,000. What was the effect of these sales on Bextra's current ratio? * Current ratio increases * Current ratio decreases * Current ratio remains unchanged * Insufficient information provided to judge effect on current ratio 8. When an entity recognizes revenue before it has received cash for the sale, it records an increase in a(n) _______. * liability such as 'Advances from customers' * accounts payable * accounts receivable * prepaid expense 9. Patnode recorded a 2015 tax expense of $3,000. What amount did it pay to the tax authorities during 2015? * $2,400 * $7,000 * $600 * $5,400 * 10. On April 30, 2015, Zono Electronics, Inc. made a payment of $3,500 to Imperial Distributors, a supplier. Choose the statement that best describes the recording of this financial transaction by Imperial Distributors. * Debit cash $3,500; credit accounts payable $3,500 * Debit accounts receivable $3,500; credit cash $3,500 * Debit accounts payable $3,500; credit cash $3,500 * Debit cash $3,500; credit accounts receivable $3,500 11. The historical cost concept reflects the fact that financial accounting practice favors * reliability over relevance. * management's best guess over historical financial information. * relevance over reliability. * consensus market values over historical financial information. 12. Annie's Fitness sells a set of free weights to a customer for which Annie's had paid $750. Which one of the following statements describes the most appropriate accounting for the transaction? * Debit cost of goods sold expense $750; credit cash $750 * Debit inventory $750; credit cost of goods sold expense $750 * Debit cost of goods sold expense $750; credit inventory $750 * Debit inventory $750; credit accounts payable $750 13. Juan Foods makes a cash sale with a positive gross margin. Which one of the following statements describes the effect of the sale on Juan Foods? * Current ratio increases * Current ratio decreases * No change to Juan Foods' current ratio * Insufficient information to judge effect on current ratio 14. Juan Foods pays off a long-term debt in full. Which one of the following statements describes the effect of the transaction on Juan Foods? * Current ratio increases; total debt to equity ratio decreases * Current ratio decreases; total debt to equity ratio decreases * Current ratio decreases; total debt to equity ratio increases * Current ratio increases; total debt to equity ratio increases * 15. To be recorded as a liability, an item must meet three specific conditions. Two of them are: it must involve probable future sacrifice of economic resources by the entity, and it must be a present obligation that arose as a result of a past transaction. Which one of the following is the third condition? * The item must reduce the market value of the recording entity. * It must involve a transfer of resources to another entity. * It must involve the expenditure of cash now or in the future. * It must not cause total liabilities to exceed total assets. * 16. What is Patnode's current ratio at the end of 2014?

* 2.46 * 0.41 * 1.12 * 0.89 17. Kirby, Inc. records a sale with a gross margin of $1,400. Which one of the following statements correctly describes the effect of such a sale on its balance sheet? * Common stock increases by $1,400 * The sales revenue account increases by $1,400 * The gross margin account increases by $1,400 * The retained earnings account increases by $1,400 * 18. This question is based on Patnode Inc.'s balance sheets at year end 2014 and 2015. During 2015, Patnode announced and paid dividends of $1,000, the only dividend-related activity during the year. What was its 2015 net income? * $5,600 * $3,600 * $4,600 * Cannot be estimated 19. On December 31, 2015, Juan Foods purchases a van for $12,000. How does the purchase of the van affect Juan Foods' 2015 income statement? * Decreases sales by $12,000 * Increases operating expenses by $12,000 * No material effect * Increases cost of goods sold by $12,000