2021SP ACCTCY 2010 Runyan Exam 2 Mizzou
Jing Company was started on January 1, Year 1 when it issued common stock for $50,000 cash. Also, on January 1, Year 1 the company purchased office equipment that cost $34,000 cash. The equipment was delivered under terms FOB shipping point, and transportation cost was $2,000. The equipment had a five-year useful life and a $12,000 expected salvage value. At the end of Year 5, assuming the equipment had not been sold, the book value of the office equipment using straight-line depreciation and double-declining-balance depreciation, respectively, would be: $12,000 and $1,680. $12,000 and $12,000. $0 and $0. None of these answer choices are correct.
$12,000 and $12,000
Jing Company was started on January 1, Year 1 when it issued common stock for $50,000 cash. Also, on January 1, Year 1 the company purchased office equipment that cost $34,000 cash. The equipment was delivered under terms FOB shipping point, and transportation cost was $2,000. The equipment had a five-year useful life and a $12,000 expected salvage value. At the end of Year 5, assuming the equipment had not been sold, the book value of the office equipment using straight-line depreciation and double-declining-balance depreciation, respectively, would be: $12,000 and $1,680. $12,000 and $12,000. $0 and $0. None of these answer choices are correct.
$12,000 and $12,000. At the end of Year 5, the end of the office equipment's 5-year useful life, the book value will be equal to the $12,000 salvage value, regardless of which depreciation method is used.
On January 1, Year 1, Phillips Company made a basket purchase including land, a building and equipment for $380,000. The appraised values of the assets are $20,000 for the land, $340,000 for the building and $40,000 for equipment. Phillips uses the double-declining-balance method of depreciation for the equipment which is estimated to have a useful life of four years and a salvage value of $5,000. The depreciation expense for Year 1 for the equipment is: $17,000. $20,000. $9,500. $19,000.
$19,000. $40,000 ÷ ($20,000 + $340,000 + $40,000) = 10% of total appraised value; $380,000 purchase price × 10% = $38,000 cost of equipment; $38,000 × (2 × 25% straight-line rate) = $19,000 depreciation expense in Year 1.
At the end of the accounting period, Houston Company had $7,400 of par value common stock issued, additional paid-in capital in excess of par value − common of $9,400, retained earnings of $8,000, and $5,250 of treasury stock. The total amount of stockholders' equity is: $30,050. $11,550. $22,650. $19,550.
$19,550. $7,400 common stock + $9,400 additional paid-in capital in excess of par value + $8,000 retained earnings − $5,250 treasury stock = $19,550
Allegheny Company ended Year 1 with balances in Accounts Receivable and Allowance for Doubtful Accounts of $23,000 and $900, respectively. During Year 2, Allegheny wrote off $1,500 of Uncollectible Accounts. After aging its receivables, Allegheny estimates that the ending Allowance for Doubtful Accounts balance should be $1,600. What will Allegheny report as Uncollectible Accounts Expense on its Year 2 income statement? $2,200 $1,500 $700 $1,600
$2,200 $900 beginning allowance balance − $1,500 write-offs + uncollectible accounts expense = $1,600 ending allowance balance; uncollectible accounts expense = $1,600 − $900 + $1,500 = $2,200
The inventory records for Radford Company reflected the following Beginning inventory on May 1 100 units @ $4.00 First purchase on May 7 300 units @ $4.40 second purchase on May 17 500 units @ $4.60 Third purchase on May 23 100 units @ $4.80 Sales on May 31 900 units @ $7.80 What is the amount of gross margin assuming the weighted average cost flow method is used? $3,015 $2,412 $1,314 $2,970
$2,970 Under the weighted-average method, the average cost of inventory is reported on both the income statement and the balance sheet. Weighted average cost per unit = [(100 × $4.00) + (300 × $4.40) + (500 × $4.60) + (100 × $4.80)] ÷ 1,000 units = $4.50 per unit; Gross margin = Sales of (900 × $7.80) − Cost of goods sold of (900 × $4.50) = $2,970.
At the end of the accounting period, Houston Company had $8,200 of par value common stock issued, additional paid-in capital in excess of par value − common of $10,600, retained earnings of $8,500, and $6,250 of treasury stock. The total amount of stockholders' equity is: $33,550. $12,550. $25,350. $21,050.
$21,050. $8,200 common stock + $10,600 additional paid-in capital in excess of par value + $8,500 retained earnings − $6,250 treasury stock = $21,050
Madison Company issued an interest-bearing note payable with a face amount of $24,000 and a stated interest rate of 8% to the Metropolitan Bank on August 1, Year 1. The note carried a one-year term. Based on this information alone, the amount of total liabilities appearing on Madison's Year 1 balance sheet would be: $24,720 $24,800 $25,920 $24,000
$24,800 $24,000 × 8% × 5/12 = $800 interest payable; $24,000 notes payable + $800 interest payable = $24,800 total liabilities.
The inventory records for Radford Company reflected the following Beginning inventory on May 1 100 units @ $4.00 First purchase on May 7 300 units @ $4.40 second purchase on May 17 500 units @ $4.60 Third purchase on May 23 100 units @ $4.80 Sales on May 31 900 units @ $7.80 What is the amount of gross margin assuming the FIFO cost flow method is used? $2,920 $3,420 $3,000 $4,020
$3,000 Under FIFO, the cost of the items purchased first is reported on the income statement, and the cost of the items purchased last is reported on the balance sheet. Cost of goods sold = (100 × $4.00) + (300 × $4.40) + (500 × $4.60) = $4,020; Gross margin = $7,020 sales − $4,020 cost of goods sold = $3,000.
On March 1, Bartholomew Company purchased a new stamping machine with a list price of $34,000. The company paid cash for the machine; therefore, it was allowed a 5% discount. Other costs associated with the machine were: transportation costs, $550; sales tax paid, $1,360; installation costs, $450; routine maintenance during the first month of operation, $500. The cost recorded for the machine was: $34,210. $32,300. $35,160. $34,660.
$34,660 The cost includes the purchase price (less discounts) plus any costs necessary to get the asset in the location and condition for its intended use. Maintenance costs are the costs of routine maintenance and minor repairs that are incurred to keep an asset in good working order. These costs are expensed in the period in which they are incurred. Cost of machine = $34,000 − ($34,000 × 5%) + $550 transportation + $1,360 sales tax + $450 installation = $34,660.
The inventory records for Radford Company reflected the following Beginning inventory on May 1100 units @ $4.00 First purchase on May 7300 units @ $4.40 second purchase on May 17500 units @ $4.60 Third purchase on May 23100 units @ $4.80 Sales on May 31900 units @ $7.80 What is the amount of ending inventory assuming the FIFO cost flow method is used? $480 $440 $400 $940
$480 Under FIFO, the cost of the items purchased first is reported on the income statement, and the cost of the items purchased last is reported on the balance sheet. Ending inventory = 1,000 units available for sale − 900 units sold = 100 units in ending inventory; Cost of ending inventory = 100 × $4.80 = $480
The Miller Company recognized $190,000 of service revenue earned on account during Year 2. There was no beginning balance in the accounts receivable and allowance accounts. During Year 2, Miller collected $136,000 of cash from accounts receivable. The company estimates that it will be unable to collect 3% of its sales on account. The amount of uncollectible accounts expense recognized on the Year 2 income statement was: $5,700. $1,320. $4,080. $54,000
$5,700 $190,000 revenue on account × 3% = $5,700
Jing Company was started on January 1, Year 1 when it issued common stock for $50,000 cash. Also, on January 1, Year 1 the company purchased office equipment that cost $34,000 cash. The equipment was delivered under terms FOB shipping point, and transportation cost was $2,000. The equipment had a five-year useful life and a $12,000 expected salvage value. Assume that Jing Company earned $30,000 cash revenue and incurred $19,000 in cash expenses in Year 3. Using straight-line depreciation and assuming that the office equipment was sold on December 31, Year 3 for $16,000, the amount of net income or (loss) appearing on the December 31, Year 3 income statement would be: ($6,600). $6,600. $600. $5,400.
$600. ($36,000 cost − $12,000 salvage value) ÷ 5 years = $4,800 annual depreciation expense; $36,000 cost − (3 years × $4,800) accumulated depreciation = $21,600 book value at the end of Year 3. $16,000 proceeds from sale − $21,600 = ($5,600) loss on sale of equipment; $30,000 revenue − $19,000 cash expenses − $4,800 depreciation expense − $5,600 loss on sale = $600 net income
Rosewood Company made a loan of $16,000 to one of the company's employees on April 1, Year 1. The one-year note carried a 6% rate of interest. The amount of interest revenue that Rosewood would report during the years ending December 31, Year 1 and Year 2, respectively, would be: $960 and $0. $0 and $960. $240 and $720. $720 and $240.
$720 and $240 $16,000 × 6% × 9/12 months = $720 interest revenue in April − December, Year 1; $16,000 × 6% × 3/12 months = $240 interest revenue in January − March, Year 2
On January 1, Year 2, Kincaid Company's Accounts Receivable and the Allowance for Doubtful Accounts carried balances of $31,000 and $500, respectively. During the year Kincaid reported $72,500 of credit sales. Kincaid wrote off $550 of receivables as uncollectible in Year 2. Cash collections of receivables amounted to $74,550. Kincaid estimates that it will be unable to collect one percent (1%) of credit sales. The amount of uncollectible accounts expense recognized in the Year 2 income statement will be: $310. $725. $745. $550.
$725 $72,500 credit sales × 1% = $725 uncollectible accounts expense
Riley Company borrowed $36,000 on April 1, Year 1 from the Titan Bank. The note issued by Riley carried a one year term and a 7% annual interest rate. Riley earned cash revenue of $1,700 in Year 1 and $1,400 in Year 2. Assume no other transactions. The amount of net income on the Year 2 income statement would be: $770 $630 $(190) $1,890.
$770 $36,000 × 7% × 3/12 months = $630 interest expense; $1,400 revenue − $630 interest expense = $770 net income
Riley Company borrowed $36,000 on April 1, Year 1 from the Titan Bank. The note issued by Riley carried a one year term and a 7% annual interest rate. Riley earned cash revenue of $1,700 in Year 1 and $1,400 in Year 2. Assume no other transactions. The amount of net income on the Year 2 income statement would be: $770. $630. $(190). $1,890
$770. $36,000 × 7% × 3/12 months = $630 interest expense; $1,400 revenue − $630 interest expense = $770 net income
Laramie Company paid $800,000 for a purchase that included land, building, and office furniture. An appraiser provided the following estimates of the market values of the assets if they had been purchased separately: Land, $100,000, Building, $740,000, and Office Furniture, $160,000. Based on this information the cost that would be allocated to the land is: $80,000. $70,000. $100,000. $107,000.
$80,000 The total price of a basket purchase must be allocated among the assets acquired. Accountants commonly allocate the purchase price using the relative fair market value method. Percentage allocated to building = Appraised amount for land of $100,000 ÷ Total appraised values of $1,000,000 (or $100,000 + $740,000 + $160,000) = 10%; Allocation of actual purchase price to land = Total purchase price of $800,000 purchase price × 10% = $80,000.
Blair Scott started a sole proprietorship by depositing $75,000 cash in a business checking account. During the accounting period the business borrowed $30,000 from a bank, earned $18,000 of net income, and Scott withdrew $12,000 cash from the business. Based on this information, at the end of the accounting period Scott's capital account contained a balance of: $93,000. $111,000. $72,000. $81,000.
$81,000. $75,000 + $18,000 net income − $12,000 withdrawal = $81,000 ending balance in capital account
On January 1, Year 1, Missouri Company purchased a truck that cost $57,000. The truck had an expected useful life of 10 years and a $6,000 salvage value. The amount of depreciation expense recognized in Year 2 assuming that Missouri uses the double declining-balance method is: $9,120. $11,400. $10,200. $8,160.
$9,120. $57,000 × (2 × 10%) = $11,400 depreciation expense in Year 1. ($57,000 − $11,400) × (2 × 10%) = $9,120 depreciation expense in Year 2.
Anton Company uses the perpetual inventory method. Anton purchased 400 units of inventory that cost $12.00 each. At a later date the company purchased an additional 600 units of inventory that cost $16.00 each. If Anton uses the FIFO cost flow method and sells 700 units of inventory, the amount of cost of goods sold will be: $11,200. $10,400. $8,400. $9,600.
$9,600. Under FIFO, the cost of the items purchased first is reported on the income statement, and the cost of the items purchased last is reported on the balance sheet. Cost of goods sold = (400 × $12.00) + (300 × $16.00) = $9,600
Harding Corporation acquired real estate that contained land, building and equipment. The property cost Harding $1,900,000. Harding paid $350,000 and issued a note payable for the remainder of the cost. An appraisal of the property reported the following values: Land, $374,000; Building, $1,100,000 and Equipment, $726,000. What value will be recorded for the building? $175,000 $950,000 $800,000 $1,100,000
$950,000 The total price of a basket purchase must be allocated among the assets acquired. Accountants commonly allocate the purchase price using the relative fair market value method. Percentage allocated to building = Appraised amount for building of $1,100,000 ÷ Total appraised values of $2,200,000 (or $374,000 + $1,100,000 + $726,000) = 50%; Allocation of actual purchase price to building = Total purchase price of $1,900,000 × 50% = $950,000
Rosewood Company made a loan of $16,000 to one of the company's employees on April 1, Year 1. The one-year note carried a 6% rate of interest. The amount of interest revenue that Rosewood would report during the years ending December 31, Year 1 and Year 2, respectively, would be: $960 and $0. $0 and $960. $240 and $720. $720 and $240.
$960 and $0. $16,000 × 6% × 9/12 months = $720 interest revenue in April − December, Year 1; $16,000 × 6% × 3/12 months = $240 interest revenue in January − March, Year 2
Jing Company was started on January 1, Year 1 when it issued common stock for $50,000 cash. Also, on January 1, Year 1 the company purchased office equipment that cost $34,000 cash. The equipment was delivered under terms FOB shipping point, and transportation cost was $2,000. The equipment had a five-year useful life and a $12,000 expected salvage value. Using double-declining-balance depreciation, what the amount of depreciation expense and the amount of accumulated depreciation, respectively, that would appear on the December 31, Year 3 financial statements? $0 and $24,000 $960 and $24,000 $8,640 and $23,040 $5,184 and $28,224
$960 and $24,000 ($34,000 + $2,000) × (2 × 20%) = $14,400 depreciation in Year 1; Ending book value in Year 1 = $36,000 − $14,400 = $21,600; $21,600 × (2 × 20%) = $8,640 depreciation in Year 2; Ending book value in Year 2 = $21,600 − $8,640 = $12,960; $12,960 − $12,000 salvage value = $960 depreciation expense in Year 3 ($12,960 × 40% would depreciate the office equipment below its $12,000 salvage value); $14,400 + $8,640 + $960 = $24,000 accumulated depreciation at the end of Year 3
On January 1, Year 2, Grande Company had a $16,000 balance in the Accounts Receivable account and a zero balance in the Allowance for Doubtful Accounts account. During Year 2, Grande recognized $104,000 of service revenue earned on account. The company collected $97,000 cash from accounts receivable. Uncollectible accounts are estimated to be 2% of sales on account. Based on this information, the amount of cash flow from operating activities that would appear on the Year 2 statement of cash flows is: $97,000. $104,000. $89,520. $95,060.
$97,000. $97,000 cash collected from accounts receivable is a cash inflow for operating activities.
Allegheny Company ended Year 1 with balances in Accounts Receivable and Allowance for Doubtful Accounts of $23,000 and $900, respectively. During Year 2, Allegheny wrote off $1,500 of Uncollectible Accounts. After aging its receivables, Allegheny estimates that the ending Allowance for Doubtful Accounts balance should be $1,600. What will Allegheny report as Uncollectible Accounts Expense on its Year 2 income statement? $2,200 $1,500 $700 $1,600
2,200 $900 beginning allowance balance − $1,500 write-offs + uncollectible accounts expense = $1,600 ending allowance balance; uncollectible accounts expense = $1,600 − $900 + $1,500 = $2,200
Madison Company owned an asset that had cost $44,000. The company sold the asset on January 1, Year 4, for $16,000. Accumulated depreciation on the day of sale amounted to $32,000. Based on this information, the sale would result in: A $16,000 cash inflow in the investing activities section of the cash flow statement. A $16,000 increase in total assets. A $4,000 gain in the investing activities section of the statement of cash flows. A $4,000 cash inflow in the financing activities section of the cash flow statement.
A $16,000 cash inflow in the investing activities section of the cash flow statement. This transaction increases assets (cash) by $16,000, decreases assets (the book value of asset) by $12,000 (or cost of $44,000 − accumulated depreciation of $32,000), resulting in a net increase in assets of $4,000. Because the cash proceeds of $16,000 exceed the asset's book value of $12,000, Madison also reports a gain on the sale of $4,000, which increases revenue (gain), net income, and stockholders' equity (retained earnings). The gain is not reported in the investing activities section; instead, the $16,000 cash proceeds are reported as a cash inflow for investing activities.
Which of the following entities would report income tax expense on its income statement? A sole proprietorship. A corporation. A partnership. All of these answer choices are correct.
A corporation. Corporations are separate legal entities and pay income taxes on their earnings. Since sole proprietorships and partnerships are not separate legal entities, company earnings are taxable to the owners rather than to the company itself.
Which of the following entities would have a paid-in capital in excess of par (or stated) value account in the equity section of the balance sheet? A corporation. A municipality. A sole proprietorship. A partnership.
A corporation. Only a corporation issues stock; as such, it is the only type of entity that would have a paid-in capital in excess of par (or stated) value account.
Benitez Company had sales of $380,000 in Year 1. The company expects to incur warranty expenses amounting to 3% of sales. There were $5,100 of warranty obligations paid in cash during Year 1. Based on this information: Warranty expenses would decrease net earnings by $11,400 in Year 1. Cash would decrease by $5,100 as a result of the accounting events associated with warranties in Year 1. The warranties payable account would increase by $6,300 in Year 1. All of these answer choices are correct.
All of these answer choices are correct. $380,000 × 3% = $11,400 warranty expense is recognized in Year 1. Cash decrease by $5,100 when the warranty obligations are paid. Warranties payable increases by $11,400 when warranty expense is recognized and decreases by $5,100 when warranty obligations are paid, for a net increase of $6,300.
Benitez Company had sales of $600,000 in Year 1. The company expects to incur warranty expenses amounting to 3% of sales. There were $15,700 of warranty obligations paid in cash during Year 1. Based on this information: Warranty expenses would decrease net earnings by $18,000 in Year 1. Cash would decrease by $15,700 as a result of the accounting events associated with warranties in Year 1. The warranties payable account would increase by $2,300 in Year 1. All of these answer choices are correct.
All of these answer choices are correct. $600,000 × 3% = $18,000 warranty expense is recognized in Year 1. Cash decrease by $15,700 when the warranty obligations are paid. Warranties payable increases by $18,000 when warranty expense is recognized and decreases by $15,700 when warranty obligations are paid, for a net increase of $2,300.
Which of the following statements is a reason why a company would buy treasury stock? Because management believes the market price of stock is undervalued. To have stock available to issue to employees in stock option plans. To avoid a hostile takeover. All of these are reasons a company would buy treasury stock.
All of these are reasons a company would buy treasury stock. The purchase of treasury stock reduces the number of shares outstanding, which can boost market price and guard against hostile takeover. It also makes shares available for employee stock benefits.
Which of the following is a reason why a corporation may choose not to pay dividends? The board and management prefer to reinvest all net income for future growth. The corporation does not have adequate cash. The corporation does not have adequate retained earnings. All of these are valid reasons to not pay dividends.
All of these are valid reasons to not pay dividends. Nonpayment of dividends is not necessarily a negative indication of a company's financial health.
Which of the following represents the impact of a taxable cash sale of $1,080 on the accounting equation if the sales tax rate is 5%? An increase to cash for $1,134, an increase to sales tax expense for $54, and an increase to sales revenue for $1,080. An increase to cash for $1,080, an increase to sales tax payable for $54, and an increase to sales revenue for $1,026. An increase to cash for $1,134, an increase to sales tax payable for $54, and an increase to sales revenue for $1,080. None of these answer choices is correct.
An increase to cash for $1,134, an increase to sales tax payable for $54, and an increase to sales revenue for $1,080. The transaction is recorded as an increase to cash of $1,134, the amount of the sale, plus the 5% sales tax collected, an increase to sales tax payable of $54, the amount owed to the state, and an increase to sales revenue of $1,080, the amount of the sale.
Which of the following represents the impact of a taxable cash sale of $1,250 on the accounting equation if the sales tax rate is 4%? An increase to cash for $1,300, an increase to sales tax expense for $50, and an increase to sales revenue for $1,250. An increase to cash for $1,250, an increase to sales tax payable for $50, and an increase to sales revenue for $1,200. An increase to cash for $1,300, an increase to sales tax payable for $50, and an increase to sales revenue for $1,250. None of these answer choices is correct.
An increase to cash for $1,300, an increase to sales tax payable for $50, and an increase to sales revenue for $1,250. The transaction is recorded as an increase to cash of $1,300, the amount of the sale, plus the 4% sales tax collected, an increase to sales tax payable of $50, the amount owed to the state, and an increase to sales revenue of $1,250, the amount of the sale.
Which of the following represents the impact of a taxable cash sale of $400 on the accounting equation if the sales tax rate is 5%? An increase to cash for $420, an increase to sales tax expense for $20, and an increase to sales revenue for $400. An increase to cash for $400, an increase to sales tax payable for $20, and an increase to sales revenue for $380. An increase to cash for $420, an increase to sales tax payable for $20, and an increase to sales revenue for $400. None of these answer choices is correct.
An increase to cash for $420, an increase to sales tax payable for $20, and an increase to sales revenue for $400. The transaction is recorded as an increase to cash of $420, the amount of the sale, plus the 5% sales tax collected, an increase to sales tax payable of $20, the amount owed to the state, and an increase to sales revenue of $400, the amount of the sale.
Where is treasury stock reported on a corporation's balance sheet? As an addition to total paid-in capital As a deduction from total stockholders' equity, following retained earnings As a deduction from total paid-in capital As a deduction from retained earnings
As a deduction from total stockholders' equity, following retained earnings Treasury stock is a contra equity account that reduces total stockholders' equity. It is listed after the retained earnings section. It does not affect paid-in capital or retained earnings.
Fred and Barney started a partnership. Fred invested $20,000 in the business and Barney invested $32,000. The partnership agreement stipulated that profits would be divided as follows: Each partner would receive a 15% return on invested capital with the remaining income being distributed equally between the two partners. Assuming that the partnership earned $38,000 during an accounting period, the amount of income assigned to the two partners would be: Fred Barney A.$ 20,500 $ 17,500 B.$ 20,000 $ 18,000 C.$ 19,000 $ 19,000 D.$ 18,100 $ 19,900 Choice A Choice B Choice C Choice D
Choice D $20,000 investment of Fred × 15% = $3,000; $32,000 investment of Barney × 15% = $4,800; $38,000 − ($3,000 + $4,800) = $30,200 remainder; $30,200 ÷ 2 = $15,100; $15,100 + $3,000 = $18,100 distribution to Fred; $15,100 + $4,800 = $19,900 distribution to Barney
Which form of business organization is established as a legal entity separate from its owners? Sole proprietorship Partnership Corporation None of these
Corporation Corporations are owned by shareholders. Corporations file and pay income taxes on their own.
Which of the following terms is used to identify the process of expense recognition for property, plant and equipment? Amortization Depreciation Depletion Revision
Depreciation Depreciation is the process of expense recognition for property, plant and equipment. Amortization is used for intangible assets and depletion is used for natural resources. The term, revision, is not used to describe a process of expense recognition.
Blake Company purchased two identical inventory items. The item purchased first cost $16.00, and the item purchased second cost $18.00. Blake sold one of the items for $24.00. Which of the following statements is true? A. Ending inventory will be lower if Blake uses the weighted average cost flow method than if the FIFO cost flow method was used. B. Cost of goods sold will be higher if Blake uses the FIFO cost flow method than if weighted average cost flow method was used. C. The dollar amount assigned to ending inventory will be the same no matter which cost flow method is used. D. Gross margin will be higher if Blake uses LIFO than it would be if FIFO were used.
Ending inventory will be lower if Blake uses the weighted average cost flow method than if the FIFO cost flow method was used. If Blake uses weighted average, ending inventory will be $17.00. The weighted average method calculates an average cost of inventory ($16 + $18 = $34; $34/2 units = $17 average cost per unit). If the company uses FIFO, ending inventory will be $18.00. The FIFO method assumes that inventory purchased first is sold first. Therefore, the item purchased first costing $16 will be sold first and the item costing $18 will remain in ending inventory.
Blake Company purchased two identical inventory items. The item purchased first cost $16.00, and the item purchased second cost $18.00. Blake sold one of the items for $24.00. Which of the following statements is true? Ending inventory will be lower if Blake uses the weighted average cost flow method than if the FIFO cost flow method was used. Cost of goods sold will be higher if Blake uses the FIFO cost flow method than if weighted average cost flow method was used. The dollar amount assigned to ending inventory will be the same no matter which cost flow method is used. Gross margin will be higher if Blake uses LIFO than it would be if FIFO were used.
Ending inventory will be lower if Blake uses the weighted average cost flow method than if the FIFO cost flow method was used. If Blake uses weighted average, ending inventory will be $17.00. The weighted average method calculates an average cost of inventory ($16 + $18 = $34; $34/2 units = $17 average cost per unit). If the company uses FIFO, ending inventory will be $18.00. The FIFO method assumes that inventory purchased first is sold first. Therefore, the item purchased first costing $16 will be sold first and the item costing $18 will remain in ending inventory.
If prices are rising, which inventory cost flow method will produce the lowest amount of cost of goods sold? LIFO FIFO Weighted average LIFO, FIFO, and weighted average will all produce equal amounts.
FIFO When prices are rising, FIFO will produce the lowest cost of goods sold compared with other methods because it is based on the earliest, lowest priced, purchases.
Which financial statement(s) is (are) affected when depreciation expense is recognized? A. Income statement B. Balance sheet C. Statement of cash flows D. Income statement and balance sheet E. Income statement, balance sheet, and statement of cash flows
Income statement and balance sheet On the income statement, recognizing depreciation increases expenses which decreases net income. On the balance sheet, recognizing depreciation decreases assets (book value of the asset) and stockholders' equity (retained earnings). The statement of cash flows is not affected at the time depreciation expense is recognized.
Which financial statement(s) is (are) affected when depreciation expense is recognized? Income statement Balance sheet Statement of cash flows Income statement and balance sheet Income statement, balance sheet, and statement of cash flows
Income statement and balance sheet On the income statement, recognizing depreciation increases expenses which decreases net income. On the balance sheet, recognizing depreciation decreases assets (book value of the asset) and stockholders' equity (retained earnings). The statement of cash flows is not affected at the time depreciation expense is recognized.
Ogilvie Corporation issued 12,000 shares of no-par stock for $40 per share. Ogilvie was authorized to issue 35,000 shares. What effect will this event have on the company's financial statements? Increase assets by $1,400,000, increase stockholders' equity by $1,400,000. Increase assets by $480,000, increase stockholders' equity by $480,000. Increase cash flow from investing activities by $480,000. None of these answer choices are correct.
Increase assets by $480,000, increase stockholders' equity by $480,000. Assets (cash) and stockholders' equity (common stock) both increase by $480,000 (12,000 shares × $40). The cash inflow is a financing activity, not an investing activity.
Ogilvie Corporation issued 12,000 shares of no-par stock for $40 per share. Ogilvie was authorized to issue 35,000 shares. What effect will this event have on the company's financial statements? Increase assets by $1,400,000, increase stockholders' equity by $1,400,000. Increase assets by $480,000, increase stockholders' equity by $480,000. Increase cash flow from investing activities by $480,000. None of these answer choices are correct. Assets (cash) and stockholders' equity (common stock) both increase by $480,000 (12,000 shares × $40). The cash inflow is a financing activity, not an investing activity.
Increase assets by $480,000, increase stockholders' equity by $480,000. Assets (cash) and stockholders' equity (common stock) both increase by $480,000 (12,000 shares × $40). The cash inflow is a financing activity, not an investing activity.
Franklin Company issued a $40,000 note to the Mercantile Bank on August 1, Year 1. The note carried a one-year term and a 12% rate of interest. The accrual of interest on December 31, Year 1 will: Decrease assets and decrease retained earnings by $2,000. Increase liabilities and decrease stockholders' equity by $2,000. Increase liabilities and decrease stockholders' equity by $1,600. Decrease stockholders' equity and increase liabilities by $4,800
Increase liabilities and decrease stockholders' equity by $2,000. $40,000 principal × 12% × 5 months ÷ 12 months = $2,000 interest expense. The accrual will increase liabilities (interest payable) and increase expenses, which will decrease net income and stockholders' equity (retained earnings).
At a time of declining prices, which cost flow method will result in the highest ending inventory? Weighted average FIFO LIFO Either weighted average or FIFO
LIFO In a period of declining prices, LIFO will result in the lowest cost of goods sold (most recent purchases) and the highest ending inventory (earliest purchases).
Which of the following is not considered an advantage of the corporate form of business organization? Ability to raise capital. Continuity of existence. Ease of transferability of ownership. Lack of government regulation.
Lack of government regulation. The large amount of government regulation is a disadvantage of the corporate form of business.
Which of the following would be classified as a tangible asset? Land Goodwill Copyright Trademark
Land Copyright, goodwill, and trademark are all examples of intangible assets, as they do not have physical existence. Land is an example of property, plant, and equipment, and is a tangible asset.
Which of the following is not subject to depreciation? Computers Buildings Land Office furniture
Land Land is not subject to depreciation. Land has an infinite life. It is not worn out or consumed as it is used.
The balance in Accounts Receivable at the beginning of the period amounted to $16,000. During the period $64,000 of credit sales were made to customers. If the ending balance in Accounts Receivable amounted to $10,000, and uncollectible accounts expense amounted to $4,000, then the amount of cash inflow from customers that would appear in the operating activities section of the cash flow statement would be: $66,000. $64,000. $80,000. None of these answers are correct.
None of these answers are correct. $16,000 beginning accounts receivable balance + $64,000 credit sales − $10,000 ending accounts receivable balance = $70,000 cash collected from customers; The $4,000 in uncollectible accounts expense does not affect accounts receivable, and does not affect cash flows.
Which of the following terms designates the maximum number of shares of stock that a corporation may issue? Number of shares issued Number of shares authorized Par value Number of shares outstanding
Number of shares authorized When a corporation is formed, it is authorized by the state to issue a maximum number of shares. The number of shares it initially issues is much lower.
Which of the following statements about types of business entities is true? For accounting purposes a sole proprietorship is not a separate entity from its owner. Ownership in a partnership is represented by having shares of capital stock. One advantage of a corporation is ability to raise capital. Sole proprietorships are subject to double taxation.
One advantage of a corporation is ability to raise capital. Corporations are more able to raise capital because they can issue common stock to a large number of potential investors.
How does the amortization of the principal balance on an installment note payable affect the amount of interest expense recorded each succeeding year? Reduces the amount of interest expense each year Increase the amount of interest expense each year Has no effect on interest expense each year Cannot be determined from the information provided
Reduces the amount of interest expense each year As the principal balance declines each year, the interest expense becomes smaller, and the amount of principal reduction becomes larger with each subsequent payment.
Which one of the following is not an accurate description of the Allowance for Doubtful Accounts? The account is a contra asset account. The account is a liability. The amount of the Allowance for Doubtful Accounts decreases the net realizable value of a company's receivables. The account is increased when the company's' estimate of uncollectible accounts expense is recorded.
The account is a liability. Allowance for doubtful accounts is a contra asset account that decreases the net realizable value of receivables that is shown on the balance sheet. The Allowance for doubtful accounts is increased when a company estimates uncollectible accounts expense.
Which of the following statements about the impact of treasury stock on the amounts reported on the balance sheet is correct? The balance in the treasury stock account increases paid-in capital. The balance in the treasury stock account reduces paid-in capital. The balance in the treasury stock account reduces total stockholders' equity. The balance in the treasury stock reduces retained earnings.
The balance in the treasury stock account reduces total stockholders' equity. Treasury stock is a contra equity account that neither affects paid-in capital nor retained earnings.
Under what condition is a pending lawsuit recognized as a liability on a company's balance sheet? The amount can be reasonably estimated. The outcome is probable. The outcome is reasonably possible. The outcome is probable and can be reasonably estimated
The outcome is probable and can be reasonably estimated A contingent liability should be recorded in the financial statements as a liability if the outcome is considered probable and the amount owed can be reasonably estimated. If the outcome is considered only reasonably possible, it is only disclosed in the notes to the financial statements.
Under what condition is a pending lawsuit recognized as a liability on a company's balance sheet? The amount can be reasonably estimated. The outcome is probable. The outcome is reasonably possible. The outcome is probable and can be reasonably estimated.
The outcome is probable and can be reasonably estimated. A contingent liability should be recorded in the financial statements as a liability if the outcome is considered probable and the amount owed can be reasonably estimated. If the outcome is considered only reasonably possible, it is only disclosed in the notes to the financial statements.
On January 2, Year 1, Torres Corporation issued 20,000 shares of $10 par-value common stock for $11 per share. Which of the following statements is true? The common stock account will increase by $220,000. The cash account will increase by $200,000. Total stockholders' equity will increase by $200,000. The paid-in capital in excess of par value account will increase by $20,000.
The paid-in capital in excess of par value account will increase by $20,000. The cash account will increase by $220,000 (20,000 × $11), the common stock account will increase by $200,000 (20,000 × $10 par value), and the paid-in capital in excess of par value account will increase by $20,000 (20,000 × $1).
Which of the following is not normally a preference given to the holders of preferred stock? The right to receive a specified amount of dividends prior any being paid to common stockholders. The right to vote before the common stockholders at the corporation's annual meeting. The right to receive preference over common stockholders as to the distribution of assets during a liquidation process. All of these are preferences given to preferred stock.
The right to vote before the common stockholders at the corporation's annual meeting. Preferred stockholders do not have voting rights
When do the effects of product warranties appear on the statement of cash flows? When the sale of merchandise is made. When the warranty obligation is recognized. When there is a settlement of a warranty claim made by a customer. None of these answer choices are correct.
When there is a settlement of a warranty claim made by a customer. Cash is usually used to settle a warranty claim made by a customer, but is never used at the time the obligation is recognized as an expense. Although cash may be collected when the sale is made, that cash is not related to the warranty.
In an inflationary environment: A. a company's net income will be higher if it uses LIFO than if it uses FIFO. B. a company's cost of goods sold will be lower if it uses LIFO as opposed to FIFO. C. a company's net income will be the same regardless of whether LIFO or FIFO is used. D. a company's assets will be lower if it uses LIFO as opposed to FIFO cost flow.
a company's assets will be lower if it uses LIFO as opposed to FIFO cost flow. In an inflationary environment, prices are rising. LIFO will produce the lowest ending inventory (earliest purchases) compared with FIFO.
Interest charges on notes payable may be based on a(n): fixed or variable interest rate. fixed interest rate. variable interest rate. installment interest rate.
fixed or variable interest rate. Interest charges may be based on a fixed interest rate that remains constant during the term of the loan or may be based on a variable interest rate that fluctuates up or down during the loan period.
The par value of a company's stock: dictates the initial price of the stock. may be revised each time a company issues more shares of stock. is generally greater than market value. has little connection to the market value of the stock.
has little connection to the market value of the stock. Par value is an arbitrary number, but is typically lower than market value.
The net effect of the entries to recognize the write-off under the allowance method is to: increase total stockholders' equity only. have no effect on total assets or stockholders' equity. decrease total assets. increase total assets and stockholders' equity.
have no effect on total assets or stockholders' equity This is an asset exchange transaction. The amount of the uncollectible accounts is removed from the asset accounts receivable and from the contra asset allowance for doubtful accounts. The net realizable value of receivables remains unchanged. There is no effect on total assets or stockholders' equity.
Ix Company issued 20,000 shares of $20 par value common stock at a market price of $32. As a result of this accounting event, the amount of stockholders' equity would: increase by $640,000. be unaffected. increase by $240,000. increase by $400,000.
increase by $640,000. Common stock will increase by $400,000, the par value, and paid-in capital in excess of par value will increase by $240,000, for a total increase in stockholders' equity of $640,000.
The primary reason for a business to allow customers to purchase goods or services on account is to: increase sales. increase cash flow from financing. decrease cost of goods sold. decrease the marketability of the company's inventory.
increase sales The primary benefit of offering credit to customers is to encourage sales that may not be made if customers are required to pay cash.
Bonds payable are usually classified on the balance sheet as: current liabilities. long-term liabilities. investments and funds. other assets.
long-term liabilities. Bonds will not be repaid until many accounting periods from the issue date. Therefore, they are classified as long-term liabilities.
The amount of accounts receivable that is actually expected to be collected is known as the: allowance for doubtful accounts. uncollectible accounts expense. present value of accounts receivable. net realizable value.
net realizable value Net realizable value is calculated as the accounts receivable balance (what has been billed to customers, but not yet collected) minus allowance for doubtful accounts (the estimate of what a company believes is uncollectible).
When the common stock account is disclosed on the balance sheet, it is reported at: current market value. average issue price. par or stated value. lower of cost or market.
par or stated value. The par value of the stock is recorded in the common stock account and any additional amount received is recorded in the paid-in capital in excess of par value account.
On January 1, Year 1, Eller Company purchased an asset that had cost $24,000. The asset had an 8-year useful life and an estimated salvage value of $1,000. Eller depreciates its assets on the straight-line basis. On January 1, Year 5, the company spent $6,000 to improve the quality of the asset. Based on this information, the recognition of depreciation expense in Year 5 would: increase total assets by $4,375. reduce total stockholders' equity by $4,375. reduce total assets by $4,625. increase total stockholders' equity by $4,625.
reduce total stockholders' equity by $4,375. ($24,000 cost − $1,000 salvage) ÷ 8 years = $2,875 original annual depreciation; $2,875 × 4 years = $11,500 accumulated depreciation at time of improvement; ($24,000 original cost − $11,500 accumulated depreciation + $6,000 improvement − $1,000 salvage) ÷ 4 remaining years = $4,375 new annual depreciation; Recognizing the Year 5 depreciation expense decreases assets (book value of the asset) and increases expenses (depreciation expense) by $4,375. Net income and stockholders' equity (retained earnings) also decrease by $4,375.
On January 1, Year 1, Eller Company purchased an asset that had cost $24,000. The asset had an 8-year useful life and an estimated salvage value of $1,000. Eller depreciates its assets on the straight-line basis. On January 1, Year 5, the company spent $6,000 to improve the quality of the asset. Based on this information, the recognition of depreciation expense in Year 5 would: increase total assets by $4,375. reduce total stockholders' equity by $4,375. reduce total assets by $4,625. increase total stockholders' equity by $4,625. Explanation
reduce total stockholders' equity by $4,375. ($24,000 cost − $1,000 salvage) ÷ 8 years = $2,875 original annual depreciation; $2,875 × 4 years = $11,500 accumulated depreciation at time of improvement; ($24,000 original cost − $11,500 accumulated depreciation + $6,000 improvement − $1,000 salvage) ÷ 4 remaining years = $4,375 new annual depreciation; Recognizing the Year 5 depreciation expense decreases assets (book value of the asset) and increases expenses (depreciation expense) by $4,375. Net income and stockholders' equity (retained earnings) also decrease by $4,375.
A company that uses the allowance method to account for uncollectible accounts: records Uncollectible Accounts Expense when a receivable is written off. does not record uncollectible accounts until the amount becomes significant. reports the net realizable value of its accounts receivable on the balance sheet. None of these answer choices are correct.
reports the net realizable value of its accounts receivable on the balance sheet. A company that uses the allowance method estimates uncollectible accounts expense before they actually become uncollectible, using a contra asset account known as allowance for doubtful accounts, and reports the net realizable value of accounts receivable on the balance sheet.
Riley Company borrowed $36,000 on April 1, Year 1 from the Titan Bank. The note issued by Riley carried a one year term and a 7% annual interest rate. Riley earned cash revenue of $1,700 in Year 1 and $1,400 in Year 2. Assume no other transactions. The amount of cash flow from operating activities that would appear on the Year 2 statement of cash flows would be: $770 inflow $1,400 inflow $38,520 outflow $1,120 outflow
$1,120 outflow $36,000 × 7% = $2,520 cash paid for interest on the note; $1,400 inflow from revenue − $2,520 outflow for interest = $1,120 outflow for operating activities. The repayment of principal is a financing activity.
Currie Company borrowed $20,000 from the Sierra Bank by issuing a 10% three-year note. Currie agreed to repay the principal and interest by making annual payments in the amount of $8,042. Based on this information, the amount of the interest expense associated with the second payment would be: (Round your answer to the nearest dollar.) $730. $1,396. $2,000. $8,042.
$1,396. Interest expense in year 1: $20,000 × 10% = $2,000; Principal reduction in year 1: $8,042 − $2,000 = $6,042; Principal balance at beginning of year 2: $20,000 − $6,042 = $13,958; Interest expense in year 2: $13,958 × 10% = $1,396.
Currie Company borrowed $20,000 from the Sierra Bank by issuing a 10% three-year note. Currie agreed to repay the principal and interest by making annual payments in the amount of $8,042. Based on this information, the amount of the interest expense associated with the second payment would be: (Round your answer to the nearest dollar.) Multiple Choice $730. $1,396. $2,000. $8,042.
$1,396. Interest expense in year 1: $20,000 × 10% = $2,000; Principal reduction in year 1: $8,042 − $2,000 = $6,042; Principal balance at beginning of year 2: $20,000 − $6,042 = $13,958; Interest expense in year 2: $13,958 × 10% = $1,396.
On January 6, Year 1, the Mount Jackson Corporation purchased a tract of land for a factory site for $1,500,000. An existing building on the site was demolished and the construction of the new factory building was completed on October 11, Year 1. Additional cost data are shown below: Construction cost of new building $1,760,000 Realtor's and attorney's fees 15,400 Architect's fees relating to construction of new building 138,000 Cost to demolish old building 133,200 Salvage recovery from old building (11,000) Which of the following correctly states the capitalized cost of the land and the new factory building, respectively? $1,637,600 and $1,898,000 $1,515,400 and $2,020,200 $1,648,600 and $1,887,000 $1,500,000 and $2,035,600
$1,637,600 and $1,898,000 $1,500,000 purchase price + $15,400 realtor's and attorney's fees + $133,200 cost to demolish old building − $11,000 salvage from old building = $1,637,600 cost of land; $1,760,000 construction cost + $138,000 architect's fees = $1,898,000 cost of new factory building
On January 6, Year 1, the Mount Jackson Corporation purchased a tract of land for a factory site for $1,500,000. An existing building on the site was demolished and the construction of the new factory building was completed on October 11, Year 1. Additional cost data are shown below: Construction cost of new building$1,760,000 Realtor's and attorney's fees 15,400 Architect's fees relating to construction of new building 138,000 Cost to demolish old building 133,200 Salvage recovery from old building(11,000) Which of the following correctly states the capitalized cost of the land and the new factory building, respectively? $1,637,600 and $1,898,000 $1,515,400 and $2,020,200 $1,648,600 and $1,887,000 $1,500,000 and $2,035,600
$1,637,600 and $1,898,000 $1,500,000 purchase price + $15,400 realtor's and attorney's fees + $133,200 cost to demolish old building − $11,000 salvage from old building = $1,637,600 cost of land; $1,760,000 construction cost + $138,000 architect's fees = $1,898,000 cost of new factory building
For Year 1, the Sacramento Corporation had beginning and ending Retained Earnings balances of $164,967 and $198,400 respectively. Also during Year 1, the corporation declared and paid cash dividends of $19,200 and issued stock dividends valued at $15,000. Total expenses were $36,416. Based on this information, what was the amount of total revenue for Year 1? $142,784 $89,049 $104,049 $145,767
$104,049 $164,967 beginning retained earnings + X revenues − $36,416 expenses − $19,200 cash dividends − $15,000 stock dividends = $198,400 ending retained earnings; X = $104,049.
For Year 1, the Sacramento Corporation had beginning and ending Retained Earnings balances of $167,967 and $202,900 respectively. Also during Year 1, the corporation declared and paid cash dividends of $21,300 and issued stock dividends valued at $16,500. Total expenses were $37,916. Based on this information, what was the amount of total revenue for Year 1? $143,684 $94,149 $110,649 $146,667
$110,649 $167,967 beginning retained earnings + X revenues − $37,916 expenses − $21,300 cash dividends − $16,500 stock dividends = $202,900 ending retained earnings; X = $110,649.
