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Multiple choice questions in Accounts

1) Allowance for Doubtful Accounts is reported in the
a. balance sheet as a contra asset.
b. balance sheet as a contra liability account.
c. income statement under other expenses and losses.
d. income statement under other revenues and gains.

2) Current liabilities are obligations that are reasonably expected to be paid from
Existing Creation of Other
Current Assets Current Liabilities
a. No No
b. Yes Yes
c. Yes No
d. No Yes

3) ____ Carey Company's equipment account increased $800,000 during the period; the related accumulated depreciation increased $60,000. New equipment was purchased at a cost of $1,400,000 and used equipment was sold at a loss of $40,000. Depreciation expense was $200,000. Proceeds from the sale of the used equipment were
a. $420,000.
b. $500,000.
c. $560,000.
d. $640,000.

4) ____ Which of the following would not be included in the operating activities section of a statement of cash flows?
a. Cash inflows from returns on loans (i.e., interest)
b. Cash inflows from returns on equity securities (i.e., dividends)
c. Cash outflows to governments for taxes
d. Cash outflows to reacquire treasury stock

5) ____ Which of the following combinations presents correct examples of liquidity, profitability, and solvency ratios, respectively?
Liquidity Profitability Solvency
a. Inventory turnover Inventory turnover Times interest earned
b. Current ratio Inventory turnover Debt to total assets
c. Receivable turnover Return on assets Times interest earned
d. Quick ratio Payout ratio Return on assets

6) ____ The concept of "significant influence" must be satisfied before which accounting method can be used by an investor?
a. Cost
b. Equity
c. Consolidated financial statements
d. All of the above

Solution Preview

I ) Allowance for Doubtful Accounts is reported in the
a. balance sheet as a contra asset.
b. balance sheet as a contra liability account.
c. income statement under other expenses and losses.
d. income statement under other revenues and gains.

Answer: a. balance sheet as a contra asset.
The Contra-Asset accounts accumulate amounts that are reductions of Assets.

An estimate is made at the end of each accounting period to account for expected losses related to uncollectible accounts. This account- Allowance for Doubtful Accounts- is shown as a reduction of the Accounts Receivable balance on the balance sheet.

II) Current liabilities are obligations that are reasonably expected to be paid from
Existing Creation of Other
Current Assets Current Liabilities ...

Solution Summary

Answers to 6 Multiple choice questions in Accounts dealing with Allowance for Doubtful Accounts, Current liabilities, Proceeds from the sale of the used equipment, operating activities section of a statement of cash flows, liquidity, profitability, and solvency ratios, significant influence

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