FINANCE

9)
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
10)
Juan Foods pays off a long-term debt in full. Which one of the following statements best describes the appropriate book-keeping for this transaction?

Debit cash; credit long-term debt

Debit long-term debt; credit owners’ equity

Debit owners’ equity; credit long-term debt

Debit long-term debt; credit cash
11)
On March 31, 2005, Cars, Inc. owes Preston Devices, one of its suppliers, $25,000 for previous purchases. During April 2005, 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.
12)
Consider the same scenario as in the previous question: On March 31, 2005, Cars, Inc. owes Preston Devices, one of its suppliers, $25,000 for previous purchases. During April 2005, 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. If Preston had no other sales and records no other collections from customers during the month of April, the operating section of Preston’s indirect method statement of cash flows for April will show the following de-accrual adjustments to net income:

Subtract change in accounts receivable; add change in inventory.

Add change in accounts receivable; subtract change in inventory

Add change in accounts receivable; add change in inventory.

Subtract change in accounts receivable; subtract change in inventory.
13)
Planet Music buys all of its inventory on credit. During 2005, Planet Music’s inventory account increased by $10,000. Which of the following statements must be true for Planet Music during 2005?

It made payments of less than $10,000 to suppliers.

It made cash payments of $10,000 to suppliers.

It made more cash payments to its suppliers than it recorded as cost of goods sold.

It paid less cash to suppliers than it recorded as cost of goods sold.
14) On December 31, 2005, Juan Foods purchases a van for $12,000. How does the purchase of the van affect Juan Foods’ 2005 income statement?

Decreases sales by $12,000

Increases operating expenses by $12,000

No material effect

Increases cost of goods sold by $12,000

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