The following questions are used in the Kaplan CPA Review Course to study balance sheet presentation, financial disclosures, and liquidity ratios while preparing for the CPA examination. Determine the response that best completes the statements or questions.
1. In Merf's April 30, 2011, balance sheet, a note receivable was reported as a noncurrent asset and the related accrued interest for eight months was reported as a current asset. Which of the following descriptions would fit Merf's receivable classification?
a. Both principal and interest amounts are due on August 31, 2011, and August 31, 2012.
b. Principal is due August 31, 2012, and interest is due August 31, 2011, and August 31, 2012.
c. Principal and interest are due December 31, 2011.
d. Both principal and interest amounts are due on December 31, 2011, and December 31, 2012.
2. Mill Co.'s trial balance included the following account balances at December 31, 2011:
What amount should be included in the current liability section of Mill's December 31, 2011, balance sheet?
3. Which of the following would be disclosed in the summary of significant accounting policies disclosure note?
4. How are management's responsibility and the auditor's report represented in the standard auditor's report?
5. At December 30, Vida Co. had cash of $200,000, a current ratio of 1.5:1, and a quick ratio of .5:1. On December 31, all the cash was used to reduce accounts payable. How did this cash payment affect the ratios?
6. Zenk Co. wrote off obsolete inventory of $100,000 during 2011. What was the effect of this write-off on Zenk's ratio analysis?
a. Decrease in the current ratio but not the quick ratio.
b. Decrease in the quick ratio but not in the current ratio.
c. Increase in the current ratio but not in the quick ratio.
d. Increase in the quick ratio but not in the current ratio.