A summary accounts receivable account is called a(n) a. ...

[kfurse]

A summary accounts receivable account is called a(n)
 a. controlling account.
   b. balance account.
   c. master account.
   d. lead account.

Question 2

Ken's Kandy prepared the following preliminary balance sheet a few days before its December 31 yearend:
 
   Ken's Kandy
   Preliminary Balance Sheet
   December 27, 2011
  Cash 1,000 Accounts payable 4,000
  Accounts receivable 2,000
 
  Inventory 500 Common stock 3,000
  Equipment 5,500 Retained earnings 2,000
   Total liabilities &
  Total assets 9,000 shareholders' equity 9,000
 
  Ken is concerned about the size of the accounts payable in relation to the company's cash and other current assets. He asks the accountant to reclassify 3,000 of the accounts payable as long-term notes payable before releasing the annual report on December 31.
  a. What is the company's current ratio now, based on the preliminary balance sheet?
  The formula for calculating the current ratio is current assets / current liabilities.
  b. What will the company's current ratio be if 3,000 of the accounts payable are reclassified as long-term notes payable?
  c. Will reclassifying the accounts payable have any effect on the debt-to-equity ratio? Explain.
  d. Is it ethical to reclassify current liabilities as long-term liabilities, as long as total liabilities are correct?
 
  What will be an ideal response?

[paavo]

Answer to Question 1

a

Answer to Question 2

a. 0.875 to 1 = (1,000 + 2,000 + 500 ) / 4,000
b. 3.5 to 1 = (1,000 + 2,000 + 500 ) / 1,000
c. No. The debt-to-equity ratio is total liabilities (both current and long-term) divided by total shareholders' equity. Reclassifying liabilities does not remove them from the total.
d. No

[kfurse]

Correct answers!

[paavo]

Great! Please up vote