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    Terry Corporation and Walker Clothing Store

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    Terry Corporation had net income of $200,000 and paid dividends
    to common stockholders of $40,000 in 2003. The weighted average
    number of shares outstanding in 2003 was 50,000 shares. Terry
    Corporation's common stock is selling for $60 per share on the
    New York Stock Exchange.

    17. Terry Corporation's price-earnings ratio is
    a. 3.8 times.
    b. 15 times.
    c. 18.8 times.
    d. 6 times.

    18. Walker Clothing Store had a balance in the Accounts Receivable
    account of $390,000 at the beginning of the year and a balance of
    $410,000 at the end of the year. Net credit sales during the year
    amounted to $4,000,000. The average collection period of the
    receivables in terms of days was
    a. 30 days.
    b. 365 days.
    c. 73 days.
    d. 37 days.

    19. A liquidity ratio measures the
    a. income or operating success of an enterprise over a period of
    b. ability of the enterprise to survive over a long period of time.
    c. short-term ability of the enterprise to pay its maturing
    obligations and to meet unexpected needs for cash.
    d. number of times interest is earned.

    --Page 5

    Waters Department Store had net credit sales of $16,000,000 and cost
    of goods sold of $12,000,000 for the year. The average inventory
    for the year amounted to $2,000,000.

    20. Inventory turnover for the year is
    a. 8 times.
    b. 14 times.
    c. 6 times.
    d. 4 times.

    21. Dent Sign Company uses the allowance method in accounting for
    uncollectible accounts. Past experience indicates that 2% of net
    credit sales will eventually be uncollectible. Selected account
    balances at December 31, 2003, and December 31, 2004, appear below:

    12/31/03 12/31/04
    Net Credit Sales $400,000 $550,000
    Accounts Receivable 75,000 100,000
    Allowance for Doubtful Accounts 6,000 ?

    (a) Record the following events in 2004.
    Aug. 10 Determined that the account of Kim Joyce for $1,200
    is uncollectible.

    Sept. 12 Determined that the account of Jim Mann for $4,000
    is uncollectible.

    Oct. 10 Received a check for $550 as payment on account from
    Kim Joyce, whose account had previously been written
    off as uncollectible. She indicated the remainder of
    her account would be paid in November.

    Nov. 15 Received a check for $650 from Kim Joyce as payment
    on her account.

    (b) Prepare the adjusting journal entry to record the bad debt
    provision for the year ended December 31, 2004.

    (c) What is the balance of Allowance for Doubtful Accounts at
    December 31, 2004?

    --Page 6

    22. Roark Company purchased equipment on January 1, 2002 for $90,000.
    It is estimated that the equipment will have a $5,000 salvage value
    at the end of its 5-year useful life. It is also estimated that the
    equipment will produce 100,000 units over its 5-year life.

    Answer the following independent questions.
    1. Compute the amount of depreciation expense for the year ended
    December 31, 2002, using the straight-line method of
    2. If 16,000 units of product are produced in 2002 and 24,000 units
    are produced in 2003, what is the book value of the equipment
    at December 31, 2003? The company uses the units-of-activity
    depreciation method.
    3. If the company uses the double-declining-balance method of
    depreciation, what is the balance of the Accumulated
    Depreciation--Equipment account at December 31, 2004?

    23. On May 31, Colaw Company borrows $30,000 from the bank by signing
    a 60-day, 12%, interest-bearing note.

    Prepare the necessary entries below associated with the note payable
    on the books of Colaw Company.
    (a) Prepare the entry on May 31 when the note was issued.
    (b) Prepare any adjusting entries necessary on June 30 in order
    to prepare the monthly financial statements. Assume no other
    interest accrual entries have been made.
    (c) Prepare the entry to record payment of the note at maturity.

    24. Epson Company had the following transactions:

    1. Issued 4,000 shares of $100 par preferred stock at $110 for cash.
    2. Issued 5,000 shares of common stock with a par value of $10 for
    3. Purchased 500 shares of common treasury stock for $10,000.

    Prepare the appropriate journal entries.

    --Page 7

    25. The following information is available for Barkley Company:

    Net income $325,000 Beg. accounts payable $109,000
    Depreciation expense 107,000 End. accounts payable 146,000
    Beg. accounts rec. 420,000 Purchase of long-term assets 516,000
    End. accounts rec. 439,000 Issuance of long-term debt 250,000
    Beginning inventory 516,000 Issuance of stock for cash 160,000
    Ending inventory 560,000 Issuance of stock for plant
    Beg. prepaid expenses 48,000 assets 110,000
    End. prepaid expenses 42,000 Purchase of treasury stock 64,000
    Sale of long-term investment
    at cost 39,000

    Calculate the following amounts using the indirect method. Clearly
    label the amount of each answer as positive or negative and show all

    a. Cash flows from operating activities. __________

    b. Cash flows from investing activities. __________

    c. Cash flows from financing activities. __________

    d. Net change in cash. __________

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    Solution Summary

    The solution includes an excel sheet which shows detailed calculations necessary to answer the multiple choice questions.