ACC 533 Final Practice

CVN sold a forklift that was purchased for $40,000 and had accumulated depreciation of $26,000. They sold it for $16,000 in cash. How much gain or loss should they recognize?

2,000 gain. 40K - 26K = 14K Sale Price - Depreciated Price = Profit 16K - 14K = 2K

CVN corp had also acquired SC corp. They recognized $18,000 of goodwill on the CVN books. They had given the SC corp owners $50,000 of cash and assumed debt with a bookvalue of $20,000 (which was also its fair value). How much identifiable asset did CVN receive in the transaction?

?????? 52K

Your company ships $50,000 worth of inventory to a customer. The customer promises to pay in 30 days. You have determined it meets all criteria for revenue recognition. What journal entry would best describe the situation?

Accounts Receivable -- $50K Revenue -- $50K

From an overall principle standpoint, for a firm to recognize revenue it must...

Be earned, realized, and realizable

Return on Equity (ROE) is always the first ratio you should calculate. True or False.

False

SP says you must have a contract before you can recognize revenue. So if you sell an item without a contract, you can never call it revenue. Rodrigo says it does not have to be an official contract, you just need to know that there is an agreement so that you can understand each parties obligations. Who is correct?

Rodrigo

During the current year, Warren's company sold 10,000 shares of no par value common stock for $20,000. They also had a net income of $400,00 and paid dividends of $8,000. By how much, if any, did their shareholder's contributed capital change?

$20K Net income and dividends would not change shareholder contributed capital

CVN sold an industrial oven. They had paid $60,000 for the oven and depreciated it in total by $32,000. When they sold it they recorded a loss of $5,000. For how much did they sell the oven?

$23K

Angela was given a direct cash flow statement prepared by a small company that her boss was considering acquiring. The cash from operations was $470,000, cash used in investing was $330,000 and cash from financing showed a use of $100,000. In addition, the balance sheet showed the accounts receivable had increased by $70,000, the accounts payable had decreased by $10,000 and inventory had increased by $15,000. Net income was $510,000. Her company uses the indirect method of cash flow statements, so her boss wanted to know how much cash from operations would be using that format.

$470K

JL Virtual Reality Company has just published their financial statements for the current year. JL's trial balance shows they are owed accounts receivable of $8,100,000 by customers. You have been told the company has an allowance for doubtful accounts of $100,000. How much should JL show on the face of their balance sheet?

8,100,000 What this means is that the total accounts receivable is AR + Allowance for doubtful accounts

Spencer also noticed an increase in accounts payable. That account also only had transactions that involved working capital items. It would be listed as,

A positive reconciling item

If you paid a vendor $1,000 you owed them for having purchased a chair in the past, how would you record that transaction?

Accounts Payable -- $1K Cash -- $1K

Your friends Zach and Adam are arguing. They own a company together, which Zach manages. Zach has pointed out that every piece of equipment he has sold in the last three years has resulted in a gain for the firm. He says this shows he is a great bargainer. Adam argues Zach is just a bad accountant. Who is correct?

Adam

At the end of Yong's first year of business, he had been owed $70,000 and believed he would collect all but $3,000 of it. It is now the end of his second year of business. He is owed $90,000. Of that amount, $2,000 is from a customer who has told Yong the watches were stolen and they are not sure if they can pay. They are waiting to find out if their insurance will cover it. Yong does not know of any other specific amounts, but said that he expanded into a bunch of new markets, so he is worried that about $5,000 more may not pay. What amounts should he show on his balance sheet for receivables and on his income statement as an expense for his second year financial statements?

Balance Sheet: $83K Income Statement: $4K

You run a restaurant in a nice part of town. At the end of the period you realize that your wait staff are owed $15,000 for the hours they worked this period. You intend to pay them next week. What should occur in your accounting system?

Debit Wage Expense for $15K Credit Wages for $15K

When using T accounts, what is the layout?

Debits go on the left, credits on the right

Your company ships $10,000 worth of imported lace tablecloths to a customer who had paid cash in advance for the items. You had the tablecloths at the time of their order, but waited a week to send them out so you could complete an inspection (everything was perfect). You have no further work to do and the tablecloths can only be returned if they are found to be faulty. Which of the following is the proper adjustment to make on your books related to the revenue portion of the transaction?

Deferred Revenue -- $10K Revenue --$10K

Goodwill is the accounting term for "synergy"

False

The cost of the sales people who convince customers to buy the shirts (after they have been made in the factory using the machines and labor of the people and the electricity required by the factory) should be included in inventory.

False

The salary and benefits of the CEO of the company (who has an office in another state, but sometimes visits the plant) should be included in inventory.

False

The accountants who track all the costs and make sure the workers get paid should be included in inventory. True or False?

False.

Treasury stock is the term used to describe investments in other firm's stock. It is called that because it is one of the investments that firms use to manage their wealth. True or False?

False. Treasury Stock refers to outstanding stock that is bought back from the stockholders by hte issuing company.

DB 2 Corp, issued debt of $500,000 during the current year. Which section of the cash flow statement would this impact?

Financing

When compared to long-lived tangible assets, long-lived intangible assets generally are:

More difficult for accountants who want to capture the economics in any given period

Shailly is reviewing a cash flow statement to determine whether a company appears to be able to fund itself in the long run. Which category is more important to her?

Operations

If you purchased a new chair for the office and promised to pay $1,000 for it within 60 days, how would your record the initial transaction in a journal entry?

PP&E -- $1K Accounts Payable -- $1K

During the period your total revenue was $70,000 and your total expenses were $50,000. What is the clearest impact this has on your balance sheet?

Retained Earnings Increased by $20K

What is the most important factor when considering ratios?

Thinking

The cost of electricity used to run the plant where the machines are used by the workers to make the shirts.

True

The machines used to create the shirts (which are operated by the workers and tracked by the accountants) should be included in inventory. True or False?

True

Ignacio has been reviewing his company's financial situation. He has been monitoring a chemical spill that happened two years ago. The long-term impact is still not clear. While he does not think it is probable that they will have to do more clean up, it is possible. He is trying to decide if he should include this in his report to his shareholders in some way.

Yes, he should include an explanation in the footnotes to his financial statements.

The shirts require cotton cloth and stitching those should be included as part of inventory. (True or False)

True

The workers who directly operate the machines which make the shirts and who perform the handstiching (these are high end shirts) should be included in inventory. True or False?

True

Caitlin owns a pet store, Caitlin's Critters (CC). Recently an employee failed to properly secure the cages for their rats, gerbils and hamsters properly. When Caitlin came in the next morning, there were animals all over her store. They had also spread into other stores in the mall. She and her employees spent the day capturing animals. They know they did not catch some of them. The mall had an exterminator come in and set traps. The exterminator said they would have to monitor for 30 days to determine if the animals had begun to breed, which would require a more extensive program. The exterminator believes it is likely they will have to go to midlevel program, which would cost $15,000. However, it is possible that the animals are so spread out that they will not need further treatment. In that case, Caitlin will just be billed $2,000 for the first treatment and monitoring. There is also a small possibility that the rats will mix with local wild rats and create a large infestation problem. In that case, Caitlin would have to pay $50,000 or more. The escape occurred in the last three days of the fiscal year. What would describe her financial situation?

$15K Liability & Expense

The business started locally, but now has expanded around the world. His strategy is to sell in bulk to small retailers or to alumni clubs in various cities. His banker has just told him he needs to create a revenue recognition policy and suggested he begin by considering a few transactions from today. Yong tells you that today he delivered $1,000 worth of watches to a University bookstore that has been a long time client. They will send him a check in a week. He also received two big orders, one for $700 worth of watches to an established customer and another for $4,000 to a brand new customer in another country where he has never done business. The new customer sent payment in advance. Yong will be able to ship both orders out in the next week. He just needs to finish making a couple of watches for the established customers. He already has all the watches made for the new customer, but wants to inspect them one more time and has to figure out how to ship to that country. How much revenue should Yong recognize at the end of the day?

$1K

CVN purchased a truck three years ago. They paid $20,000 and expected to use the truck for five years, then sell it for $5,000. At the beginning of year three, they decide the truck is still running well, so they will use it for 8 years and sell it for $2,000. How much will the truck depreciate in year three?

$2,000

Amanda had an allowance for doubtful accounts of $7,000 and was owed $90,000 in total. She has just learned that one of her customers, Luc Inc, has gone bankrupt and does not have any assets to pay trade creditors. Luc Inc. owes Amanda $1,000. Amanda has determined she needs to write this amount off her books. She is asking you how much will it reduce her current year net income.

0

DB 2 corp had $40,000 in credit sales during the year that were not paid by the end of the period. How would this impact cash from operations?

0

CVN corp purchases a new machine. The machine costs $10,000. They incur another $1,000 to bolt the machine into the floor and connect it to their electrical system. The machine will last for 8 years, but CVN plans to use it for 4 years and then upgrade to a more efficient item (energy standards continue to get better for these machines). At the end of the 4 years, CVN believes they will be able to sell the item for $3,000. CNN uses straight-line deprecation for all items. How much depreciation should they recognize in the first year?

$2,000 Total Investment: $10K + $1K Lifespan: 8 Years Used: 4 Years Sale Price: $3000 Depreciation Type: Straight Line $11K - $3K = $8K/ 4 Years = $2K per year.

CVN corp had recently learned that two of their most popular products were no longer demanded in the market place. They have decided to stop making the products and repurpose all of the raw materials into more demanded products. Unfortunately, they have a reasonable amount of finished product. For Product A, the market price has dropped from $50 per unit to $20 per unit. They have 100 units with a bookvalue of $25 per unit. For Product B, the market price has also dropped from $50 per unit to $20 per unit. They have 50 of these items with a bookvalue of $18 per unit. How much (if any) of an impairment should they recognize in this periods financial statement?

$500 Product A: Cost purchased at was $5 higher than cost good is currently worth. Product B: Cost purchased at is $2 lower than cost good is currently worth.

Francesco was given a cash flow statement to analyze, but some of the accounts were smudged and could not be read. He could see that total change in cash was $12,000, cash from operations was positive $450,000 and cash from investing was negative $490,000. How much was cash from financing?

$52K

During the year, Jessica's firm had net income of $700,000. It was a record year, but most of the sales were on credit and have not yet been paid. In fact, there are still $400,000 waiting for collection. Management believes they will be paid, but some of the terms allow almost a year before that occurs. The firms also paid a dividend of $4,000. How much, if at all, did retained earnings change this year?

$696,000

CVN corp also has an automated shelf storage system. They paid $100,000 for the system completely installed. It will be used for 20 years and then scrapped. CVN does not anticipate receiving payment for it at the time of scrapping, but the raw materials are worth enough that the installer will remove it for free. What amount would show up on the face of CVN's balance sheet at the end of the 4th year of use?

$80K

During the year, Fabian's company sold some treasury stock it had. They had paid $240,000 for the stock two years ago. They resold it for $290,000. What, if any, would the impact be on the current year net income?

0

In 2018 our company had the following numbers on the financial statements: sales of $14,000,000; cost of sales of $12,000,000; cash of $80,000; advertising expense of $130,000; prepaid advertising of $10,000; selling general and administrative expense of $700,000 ($120,000 of this was for salaries for our advertising vice president); Accounts payable of $45,000 ($20,000 of this is for amounts owed on advertising). What should the balance be in the advertising expense account at the beginning of 2019?

0

Olga's boss is really excited. His company is doing an acquisition and the new company will add $2,000,000 in depreciation. He is looking at this year's cash flow statement and trying to figure out how much more cash they would have had if they already had the $2,000,000 in depreciation. He has asked Olga to calculate how much cash from operations would have increased.

0

On a recent trip to Paris, Yong met a street vendor who wanted to sell watches with the colors of various French futball teams. She paid Yong $3,000 in advance for the watches and promised him another $1,000 after she sells them. He did agree to take them back within two months if she found she could not sell them. This is a brand new market for him, so he is willing to take the risk in the hopes it will pay off. Yong shipped her all the watches three days ago. How much revenue should he record?

0

Tobi runs a film and design company. They are planning for a big project in Vancouver. The project will not occur until next fiscal year. They have contacted several hotels and made reservations for rooms as well as set up dining reservations. They are not sure exactly when they will be there, but all reservations can be canceled and this way they have the option to stay if needed. Tobi just summed all the reservations and realized it will cost her $12,500. How much, if any, liability should Tobi's company show on the financial statements at year end?

0

Your company receives $30,000 from a customer as a deposit on motors to be manufactured and shipped to the customer in 45 days. You have all the raw materials and know how to make the motors. In fact, you have enough in inventory now that you could ship immediately if you really needed to, but you prefer to be able to build directly for this order. How much revenue should be recognized at the end of the day?

0

CVN corp purchased CK corp for $200,000 cash. As part of the deal, CVN corp agreed to assume CK's debt, which CK had recorded with a bookvalue of $30,000. CVN received all of CK's assets, which CV had recorded with a total bookvalue $165,000. CVN had hired valuation experts who said the fairvalue of the debt was $32,000 and the fairvalue of the assets was $180,000. How much (if any) goodwill would CVN place on their books for this transaction?

52,000. Purchase Price = Fairvalue Debt + Fairvalue Assets + Goodwill 200K = -32K + 180K + Goodwill 200K = 148K + Goodwill Goodwill = 52K

CVN corp. has a car they have used for two years for their supervisor to drive. They paid $32,000 for the car with the plan of driving it for 8 years and then donating it to charity (that is, scrapping it with no expected salvage value). However, at the beginning of the third year the supervisor has told them she hates the car and it makes her back hurt. They have asked her to drive it for one more year, they they will sell it. They expect to be able to sell it for $15,000. How much depreciation will they recognize for year 3?

9,000

Crows Satellite Company has just published their financial statements for the current year. The face of the balance sheet shows accounts receivable of $9,000,000. There is also a note that says the company has an allowance for doubtful accounts of $50,000. How much do customers actually owe Crows?

9,050,000 What this means is that the total accounts receivable is AR + Allowance for doubtful accounts.

Gwen runs a company that provides corporate health and wellness programs. One of her sales people signed a contract at the beginning of the quarter for a very large client. It was a bundle of services to be provided over the next year. The contract was for $120,000, with equal payments at the beginning of each month ($10,000 per month). The new client is a very high profile and well known company, so Gwen is very excited. This is the first bundled contract that the company has sold and the salesperson felt like it was a great deal. It starts with an intense bootcamp in the first month for all employees. That will require a lot of work and Gwen would normally charge $30,000 for the bootcamp. Each month throughout the contract they will offer an "intensive weekend" of workouts and diet advice. Gwen normally charges $5,000 for each of these. They also will provide access to their online program, which has activity and foodlogs as well as preprogrammed exercise suggestions and a weekly inspirational email. Gwen would normally charge a company of this size $15,000 for one year of access to the website. How much revenue should Gwen recognize at the end of the first quarter (3 months into the deal)?

??? Correct Answer is $58, 500 (Bargain of $2K)

Spencer is reviewing his company's accounts so he can prepare their indirect cash flow statement. They use the changes in working capital approach. He noticed that accounts receivable increased during the period. All transactions involved working capital items. This would be listed as:

A Negative Reconciling Item

When accountants use the term "amortization" it is:

Conceptually similar to the term depreciation

Mary and Brian manage a company together that makes novelty candy. On the last day of the quarter, a new customer contacts them and ask for a large shipment. The customer says they know the policy is no returns unless there is a flaw in the goods, but asks Brian if they can send the items back "just in case" they find they don't like them. Otherwise they would only order a small amount. It is the end of the quarter and the company is close to not making a sales target that would impact Mary and Brian's bonuses. So Brian agrees to the return policy. When they sit down to close out their books, Brian tells Mary they should still book it as a sale. He knows he said they could send it back, but argues that rarely happens. Plus, he says it is just an example of the "measurement error" that they have heard about in accounting class. Thus, it is fine to book the error. Mary is not sure about his reasoning and has asked for your opinion. Below, answer True if you agree with Brian and False if you disagree.

False

Which type of cash flow statement is normally provided by public companies?

Indirect

DB 2 corp. purchased a large machine for $80,000. Which section of the cash flow would this impact?

Investing

If a company chooses to use time as its basis for a depreciation method, an item should be depreciated over:

Its useful life. That is, the time period the company will actually use the item.

DB 2 corp also had depreciation expense of $1,200,000 this period. Which section of the indirect cash flow statement would this impact?

Operating

Spencer has asked his friend Julie to invest in his Raccoon farm. How should Julie think about using ratios in this situation?

Questions To Be Answered: 1) Is this an investment to just support a friend (where return is not as important) 2) Is she ok not having an increase in value, but rather getting all of her money back if she needs it. 3) Is this a regular investment, so he would like to determine what her relative return is likely to be.

Caitlin had a customer come in the last day of the year who purchased a large saltwater tank and fish for $750. They also ordered several exotic snails for their salt water aquarium. Since these snails are not commonly requested, Caitlin required the customer to pay the entire $100 for the snails in advance. They will cost Caitlin $30, so it is a nice profit. She has ordered the snails and they should be delivered within a few days. What is her financial situation?

Revenue: $750 Liability: $100

Your friend Spencer runs the world's first raccoon farm (or would it be a ranch?). Business has not been great and he is trying to figure out if he will be able to pay his debts over the next 30 days. This is predominately a:

Stock Question

During the current year, Warren's company sold 10,000 shares of no par value common stock for $20,000. His friend Milen's company also sold 10,000 shares of common stock for $20,000, but those shares had a $.50 per share par value. The difference between the two is that:

There really is no difference. Milen's company would break out the amounts received on their balance sheet to show par value, but that's really it.