Q1. Information related to Bledsoe Corporation’s inventory, as of December 31, 2007, follows:

Estimated selling price                             $3,500,000

Estimated disposal costs                         50,000

Estimated completion costs                    300,000

Original FIFO cost                                      3,200,000

Replacement cost                                      3,300,000

Using the appropriate valuation method, what adjustment is necessary to accurately report Bledsoe’s inventory at the end of 2007, and will this adjustment affect Bledsoe’s quick ratio?

          Adjustment                      Quick ratio

A) $50,000 write-down                Yes

B) $100,000 write-up                  No

C) $50,000 write-down               No

Q2. On January 1, 2008, Tenant Company leased office space from Landlord Inc. for 5 years at $75,000 per month. On that same date, Tenant made the following payments to Landlord:

First month’s rent                                   $75,000

Last month’s rent                                   75,000

Security deposit                                     100,000

Lease improvements                           1,500,000

The leasehold improvements include build-out costs to install office walls, restrooms, and a kitchen. Tenant allocates the cost of the leasehold improvements over the lease term using the straight-line method. What amount of total lease expense should Tenant report for the year ended 2008 and what is the balance of all of the lease related assets on December 31, 2008, assuming the lease payments are made on the first day of each month?

          Lease expense                           Lease related assets

A)                                                      $1,200,000    $1,200,000

B)                                                     $1,200,000    $1,375,000

C)                                                     $375,000       $1,375,000

Q3. Common size balance sheets express all balance sheet items as a percentage of:

A)   sales.

B)   equity.

C)   assets.

Q4. The following data is from Delta's common size financial statement:

Earnings after taxes      18%

Equity                                 40%

Current assets                 60%

Current liabilities             30%

Sales                                  $300

Total assets                     $1,400

What is Delta's total-debt-to-equity ratio?

A)   1.5.

B)   1.0.

C)   2.0.

Q5. Common size balance sheets express all balance sheet accounts as a percentage of:

A)   stockholders equity.

B)   total liabilities.

C)   total assets.

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