A stockholder is interested in the ability of a firm to

1. A stockholder is interested in the ability of a firm to (Points: 2)

2. Horizontal analysis is also called (Points: 2)

3. Vertical analysis is also known as (Points: 2)

4. Assume the following cost of goods sold data for a company:
2009 $1,500,000
2008 1,200,000
2007 900,000
If 2007 is the base year, what is the percentage increase in cost of goods sold from 2007 to 2009? (Points: 2)

5. Walker Clothing Store had a balance in the Accounts Receivable account of $780,000 at the beginning of the year and a balance of $820,000 at the end of the year. Net credit sales during the year amounted to $8,000,000. The average collection period of the receivables in terms of days was (Points: 2)

6. Waters Department Store had net credit sales of $12,000,000 and cost of goods sold of $9,000,000 for the year. The average inventory for the year amounted to $2,000,000.
The average number of days in inventory during the year was (Points: 2)

7. Which of the following is not a profitability ratio? (Points: 2)

8. Times interest earned is also called the (Points: 2)

9. The ratio that uses weighted average common shares outstanding in the denominator is the (Points: 2)

10. Each of the following is an extraordinary item except the (Points: 2)

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Mini Case 1: Jefferson Jerome is interested in purchasing “Art Specialists Inc.”, an auction house

Mini Case 1: Art Specialist Inc.

Jefferson Jerome is interested in purchasing “Art Specialists Inc.”, an auction house. The company receives the right to sell art but not to purchase the art themselves for a 5% commission. Art Specialists rents office space and Chelsea and holds its auctions at local hotels.

Art Specialist Inc.
Unadjusted Trial Balance
December 31, 2009

Cash $ 65,000.00
Accounts receivable $ 36,000.00
Supplies $ 8,000.00
Equipment $ 53,000.00
Accumulated Depreciation $ 14,500.00
Accounts payable $ 5,600.00
Dividends $ 50,000.00
Capital stock $ 25,000.00
Retained earnings $ 84,900.00
Commission income $ 250,000.00
Rent Expense $ 20,000.00
Wages Expense $ 70,000.00
Auction Expenses $ 56,000.00
Depreciation Expenses $ 7,000.00
Membership Expenses $ 6,000.00
Supplies Expense $ 9,000.00
TOTAL $ 380,000.00 $ 380,000.00

As Jefferson’s accountant, you have received the trial balance above as well as the general ledger. The review has found the following errors:

• Year end bank reconciliation showed that the balance should be $40,000. An customer should have been billed for $25,000 but it was recorded as a cash payment of the commission income.
• Membership expenses are not related to the business and should be shown as a dividend to shareholder.
• Depreciation expense should be $3,500 for the year.
• Supplies expenses failed to record $2,000 in packing supplies used during the year.
• Accounts receivables that have not been billed $10,000.

Required:
1. Record the correcting entry.
2. Prepare financial statements
3. Current owners want $200,000 for the business. Jefferson does not want to pay more than Net Worth x 1.5. Should he buy?

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