Accounting Final Exam

Dividend yield is the percent of cash dividends paid to common shareholders relative to the:

Common stock's market value

Gaston owns equipment that cost $90,500 with accumulated depreciation of $61,000. Gaston asks $30,000 for the equipment but sells the equipment for $26,000. Which of the following would not be part of the journal entry to record the disposal of the equipment?

Credit Gain on Disposal of Equipment $3,500. Gain/Loss on Sale = Cash Received - Book Value 90,500 - 61,000 = 29,500 29,500 - 26,000 = $3,500

Uniform Supply accepted a $18,000, 90-day, 8% note from Tracy Janitorial on October 17. What entry should Uniform Supply make on January 15 of the next year when the note is paid? (Assume reversing entries are not made.). (Use 360 days a year.)

Debit Accounts Receivable $18,360; credit Interest Revenue $60; credit Interest Receivable $300, credit Notes Receivable $18,000. (18,000x.08x(90/360) + 18,000)= 18,360

The unadjusted trial balance at year-end for a company that uses the percent of receivables method to determine its bad debts expense reports the following selected amounts: Accounts receivable $439,000 Debit Allowance for Doubtful Accounts 1,290 Debit Net Sales 2,140,000 Credit All sales are made on credit. Based on past experience, the company estimates 3.5% of ending account receivable to be uncollectible. What adjusting entry should the company make at the end of the current year to record its estimated bad debts expense?

Debit Bad Debts Expense $16,655; credit Allowance for Doubtful Accounts $16,655. Accounts receivable $439,000 x 3.5% + 1,290 = 16,655

The following selected amounts are reported on the year-end unadjusted trial balance report for a company that uses the percent of sales method to determine its bad debts expense. Accounts receivable $429,000 Debit Allowance for Doubtful Accounts 1,410 Debit Net Sales 2,260,000 Credit All sales are made on credit. Based on past experience, the company estimates 2.0% of credit sales to be uncollectible. What adjusting entry should the company make at the end of the current year to record its estimated bad debts expense?

Debit Bad Debts Expense $45,200; credit Allowance for Doubtful Accounts $45,200. Net sales 2,260,000 x 2% = 45,200

Stacey Corp. uses the direct write-off method to account for bad debts. On May 26 the company determines that a customer account with a balance of $920 is uncollectible. The journal entry to record this loss is:

Debit Bad Debts Expense $920 and credit Accounts Receivable $920.

Cantrell Company is required by law to collect and remit sales taxes to the state. If Cantrell has $12,000 of cash sales that are subject to an 9% sales tax, what is the journal entry to record the cash sales?

Debit Cash $13,080; credit Sales $12,000; credit Sales Taxes Payable $1,080.

On July 9, Mifflin Company receives an $7,500, 120-day, 6% note from customer Payton Summers as payment on account. What entry should be made on the maturity date assuming the maker pays in full, and no adjusting entries have been made related to the note? (Use 360 days a year.)

Debit Cash $7,650; credit Interest Revenue $150; credit Notes Receivable $7,500. To get Interest Revenue = $7500 x 120 x 6% / 360

Wickland Company installs a manufacturing machine in its production facility at the beginning of the year at a cost of $87,000. The machine's useful life is estimated to be 5 years, or 400,000 units of product, with a $7,000 salvage value. During its second year, the machine produces 84,500 units of product. What journal entry would be needed to record the machines' second year depreciation under the units-of-production method?

Debit Depreciation Expense $16,900; credit Accumulated Depreciation $16,900. (87,000-7,000/400,000)x84,500

On July 1, Shady Creek Resort borrowed $350,000 cash by signing a 10-year, 10% installment note requiring equal payments each June 30 of $56,961. What is the journal entry to record the first annual payment?

Debit Interest Expense $35,000; debit Notes Payable $21,961; credit Cash $56,961.

On November 19, Nicholson Company receives a $24,000, 60-day, 6% note from a customer as payment on account. What adjusting entry should be made on the December 31 year-end? (Use 360 days a year.)

Debit Interest Revenue $240, credit interest Receivable 240

On November 1, Alan Company signed a 120-day, 10% note payable, with a face value of $21,000. Alan made the appropriate year-end accrual. What is the journal entry as of March 1 to record the payment of the note assuming no reversing entry was made? (Use 360 days a year.)

Debit Notes Payable $21,000; debit Interest Payable $350; debit Interest Expense $350; credit Cash $21,700

On April 12, Hong Company agrees to accept a 60-day, 6%, $5,100 note from Indigo Company to extend the due date on an overdue account. What is the journal entry that Indigo Company would make, when it records payment of the note on the maturity date? (Use 360 days a year.)

Debit Notes Payable $5,100; debit Interest Expense $51; credit Cash $5,151.

On July 9, Mifflin Company receives a $9,800, 90-day, 10% note from customer Payton Summers as payment on account. What entry should be made on July 9 to record receipt of the note?

Debit Notes Receivable $9,800; credit Accounts Receivable $9,800.

Eastline Corporation had 13,000 shares of $10 par value common stock outstanding when the board of directors declared a stock dividend of 4,680 shares. At the time of the stock dividend, the market value per share was $18. The entry to record this dividend is:

Debit Retained Earnings $46,800; credit Common Stock Dividend Distributable $46,800.

Hutter Corporation declared a $0.50 per share cash dividend on its common shares. The company has 31,000 shares authorized, 15,600 shares issued, and 12,400 shares of common stock outstanding. The journal entry to record the dividend declaration is:

Debit Retained Earnings $6,200; credit Common Dividends Payable $6,200.

Athena Company's salaried employees earn two weeks of vacation per year. It pays $842,400 in total employee salaries for 52 weeks but its employees work only 50. Record Athena Company's weekly journal entry to record the vacation expense:

Debit Vacation Benefits Expense $648; credit Vacation Benefits Payable $648. Correct

During August, Boxer Company sells $366,000 in merchandise that has a one year warranty. Experience shows that warranty expenses average about 4% of the selling price. The warranty liability account has a credit balance of $11,800 before adjustment. Customers returned merchandise for warranty repairs during the month that used $8,400 in parts for repairs. The entry to record the estimated warranty expense for the month is:

Debit Warranty Expense $14,640; credit Estimated Warranty Liability $14,640. $366,000 x 4% = $14,640

A company factored $44,000 of its accounts receivable and was charged a 1% factoring fee. The journal entry to record this transaction would include a:

Debit to Cash of $43,560, a debit to Factoring Fee Expense of $440, and a credit to Accounts Receivable of $44,000.

The reporting of net cash provided or used by operating activities that lists the major items of operating cash receipts, such as receipts from customers, and subtracts the major items of operating cash disbursements, such as cash paid for merchandise, is referred to as the:

Direct method of reporting net cash provided or used by operating activities.

Failure by a promissory notes' maker to pay the amount due at maturity is known as:

Dishonoring a note.

A stock split increases total stockholders' equity.

False

Common stock always carries a preference for receiving dividends over preferred stock.

False

Financing activities include receiving cash from issuing debt and receiving cash dividends from investments in other companies' stocks.

False

Plant assets refer to nonphysical assets that are used in the operations of a business.

False

The statement of cash flows explains how transactions and events impact the end-of-period cash balance to produce the end-of-period net income.

False

A total asset turnover ratio of 2.8 indicates that:

For every $1 in assets, the firm produced $2.8 in net sales during the period.

The account receivable turnover measures:

How often, on average, receivables are received and collected during the period.

A short-term note payable:

Is a written promise to pay a specified amount on a definite future date within one year or the company's operating cycle, whichever is longer.

Employer payroll taxes:

NOT Represent the federal taxes withheld from employees.

The depreciation method in which a plant asset's depreciation expense for a period is determined by applying a constant depreciation rate to the asset's beginning-of-period book value is called:

NOT book value

The date the directors vote to declare and pay a dividend is called the:

NOT date of stockholders' meeting

Cash flows from selling trading securities are usually reported in the statement of cash flows as part of:

Operating activities

The materiality constraint, as applied to bad debts:

Permits the use of the direct write-off method when bad debts expenses are relatively small.

The right of common shareholders to purchase their proportional share of any common stock later issued by the corporation is called a:

Preemtive right

The appropriate section in the statement of cash flows for reporting the purchase of land in exchange for common stock is:

Schedule of noncash investing or financing activity.

Companies report prior period adjustments, net of any income tax effects in the:

Statement of retained earnings

Amortization is:

The systematic allocation of the cost of an intangible asset to expense over its estimated useful life.

A cash equivalent must be readily convertible to a known amount of cash, and must be sufficiently close to its maturity so its market value is unaffected by interest rate changes. Group starts

True

A plant asset's useful life is the length of time it is productively used in a company's operations.

True

A potential lawsuit claim is disclosed when the claim can be reasonably estimated and it is reasonably possible

True

Dividing stockholders' equity applicable to common shares by the number of common shares outstanding yields the book value per common share. Group starts

True

The balance in the Allowance for Doubtful Accounts has the effect of reducing Accounts Receivable to its estimated realizable value.

True

The cost of fees for insuring the title and any accrued property taxes are included in the cost of land.

True

The gain or loss from retirement of debt is reported under cash flows from operating activities on the statement of cash flows using the indirect method.

True

The payment of cash dividends to shareholders is classified as a financing activity.

True

When preparing the operating activities section of the statement of cash flows using the indirect method, an increase in income taxes payable is added to net income.

True

Estimated liabilities commonly arise from all of the following except:

Unearned revenues

Par value of a stock refers to the:

Value assigned per share by the corporate charter.

Investing activities do not include the:

issuance of common stock

Holly Oaks, Inc. is preparing the company's statement of cash flows for the fiscal year just ended. Using the following information, determine the amount of cash flows from investing activities: Net income. $271,000 Depreciation expense-equipment 63,000 Gain on the sale of equipment 7,500 Increase in merchandise inventory 55,100 Decrease in accounts receivable 20,900 Increase in accounts payable 23,700 Purchase of land 380,000 Proceeds from sale of equipment 113,000 Issuance of common stock 190,000 Payment of cash dividends 57,000

$(267,000). 113,000 - 380,000

A company purchased a tract of land for its natural resources at a cost of $1,000,000. It expects to harvest 5,000,000 board feet of timber from this land. The salvage value of the land is expected to be $200,000. The depletion expense per board foot of timber is:

$0.16 Depletion = Cost - Salvage / Total units

Gary Marks is paid on a monthly basis. For the month of January of the current year, he earned a total of $8,988. FICA tax for Social Security is 6.2% on the first $127,200 of earnings each calendar year and the FICA tax for Medicare is 1.45% of all earnings. The FUTA tax rate is 0.6%, and the SUTA tax rate is 5.4%. Both unemployment taxes are applied to the first $7,000 of an employee's pay. The amount of Federal Income Tax withheld from his earnings was $1,491.37. What is the amount of the employer's payroll taxes expenses for this employee? (Round your intermediate calculations to two decimal places.)

$1,107.59. (8988x.062)+(8898x.0145)+(7000x.006)+(7000x.054)

Marlow Company purchased a point of sale system on January 1 for $6,500. This system has a useful life of 5 years and a salvage value of $950. What would be the depreciation expense for the second year of its useful life using the double-declining-balance method?

$1,560

Mohr Company purchases a machine at the beginning of the year at a cost of $28,000. The machine is depreciated using the straight-line method. The machine's useful life is estimated to be 5 years with a $2,000 salvage value. The book value of the machine at the end of year 2 is:

$10,080. 100/5 x2=0.40. 28,000-(28,000x.4)=16,800. 16,800-(16,800x.4)

Prior to May 1, Fortune Company has never had any treasury stock transactions. A company repurchased 220 shares of its common stock on May 1 for $11,000. On July 1, it reissued 110 of these shares at $52 per share. On August 1, it reissued the remaining treasury shares at $49 per share. What is the balance in the Paid-in Capital, Treasury Stock account on August 2?

$110

Stormer Company reports the following amounts on its statement of cash flow: Net cash provided by operating activities was $33,500; net cash used in investing activities was $12,200 and net cash used in financing activities was $15,300. If the beginning cash balance is $6,100, what is the ending cash balance?

$12,100

On August 1, a $32,400, 8%, 3-year installment note payable is issued by a company. The note requires equal payments of principal plus accrued interest be paid each year on July 31. The present value of an annuity factor for 3 years at 8% is 2.5771. The present value of a single sum factor for 3 years at 8% is 0.7938. The payment each July 31 will be:

$12,572.27. $32,400 / 2.5771

A company has 37,000 shares of common stock outstanding. The stockholders' equity applicable to common shares is $458,800, and the par value per common share is $10. The book value per share is:

$12.40. $458,800 / 37,000

Riverboat Adventures pays $450,000 plus $5,000 in closing costs to buy out a competitor. The real estate consists of land appraised at $67,200, a building appraised at $158,400, and paddleboats appraised at $254,400. Compute the cost that should be allocated to the building.

$150,150 158,400(67,200+158,400+254,400) = .33 .33 x (450,000 + 5,000) = 150,150

Granite Company purchased a machine costing $140,000, terms 3/10, n/30. The machine was shipped FOB shipping point and freight charges were $4,000. The machine requires special mounting and wiring connections costing $12,000. When installing the machine, $3,500 in damages occurred. Compute the cost recorded for this machine assuming Granite paid within the discount period.

$151,800 Cost of Machine = (140,000 x 0.97) + 4000 + 12000 = $151,800

Martin Company purchases a machine at the beginning of the year at a cost of $71,000. The machine is depreciated using the straight-line method. The machine's useful life is estimated to be 4 years with a $4,000 salvage value. Depreciation expense in year 4 is:

$16,750 $71,000 - $4000 = 67,000 / 4 = $16,750

A company's income statement showed the following: net income, $135,000 and depreciation expense, $33,300. An examination of the company's current assets and current liabilities showed the following changes as a result of operating activities: accounts receivable decreased $10,500; merchandise inventory increased $20,200; and accounts payable increased $4,500. Calculate the net cash provided or used by operating activities.

$163,100. ($135,000 + 33,300 + 10,500 - 20,200 + 4,500)

A company has a selling price of $2,300 each for its printers. Each printer has a 2 year warranty that covers replacement of defective parts. It is estimated that 3% of all printers sold will be returned under the warranty at an average cost of $160 each. During November, the company sold 40,000 printers, and 500 printers were serviced under the warranty at a total cost of $65,000. The balance in the Estimated Warranty Liability account at November 1 was $34,000. What is the company's warranty expense for the month of November?

$192,000 (Sales) x (Percentage of returned) x (average cost of returned) 40,000 printers x 3% x $160 = $192,000

The interest accrued on $6,000 at 5% for 30 days is: (Use 360 days a year.)

$25 $6000 x 5% x 30 ------------------ 360

Franklin Company deposits all cash receipts on the day they are received and makes all cash payments by check. At the close of business on August 31, its Cash account shows a debit balance of $25,662. Franklin's August bank statement shows $24,237 on deposit in the bank. Determine the adjusted cash balance using the following information: Deposit in transit $8,250 Outstanding checks $6,400 Bank service fees, not yet recorded by company $175 The bank collected on a note receivable, not yet recorded by the company $600 The adjusted cash balance should be:

$26,087 Take the deposit, add the deposit in transit, and subtract outstanding checks

An employee earned $44,800 during the year working for an employer when the maximum limit for Social Security was $127,200. The FICA tax rate for Social Security is 6.2% and the FICA tax rate for Medicare is 1.45%. The employee's annual FICA taxes amount is:

$3,427.20.

Mayan Company had net income of $32,370. The weighted-average common shares outstanding were 8,300. The company has no preferred stock. There were no other stock transactions. The company's earnings per share is:

$3.90. $32,370 / 8,300

Lima Enterprises purchased a depreciable asset for $30,000 on April 1, Year 1. The asset will be depreciated using the straight-line method over its four-year useful life. Assuming the asset's salvage value is $3,600, Lima Enterprises should recognize depreciation expense in Year 2 in the amount of:

$30,000 - $3,600 = 26,400 / 4 = $6600

The accountant for Glasgow Company is preparing the company's statement of cash flows for the fiscal year just ended. The following information is available: Retained earnings balance at the beginning of the year $1,725,000 Net income for the year $439,000 Retained earnings balance at the end of the year $1,825,000 What is the amount of cash dividends paid that should be reported in the financing section of the statement of cash flows?

$339,000. $439,000 - ( 1,825,000 - 1,725,000)

Jeffreys Company reports depreciation expense of $58,000 for Year 2. Also, equipment costing $194,000 was sold for a $11,800 loss in Year 2. The following selected information is available for Jeffreys Company from its comparative balance sheet. Compute the cash received from the sale of the equipment. Year 1 Year 2 Equipment $700,000 $894,000 Accumulated Depreciation-Equipment 500,000 590,000

$34,200. 590,000 + 58,000 = 648,000 - 500,000 = 148,000. 194,000 - 148,000 = 36,000 - 11,800 = 34,200

A company purchased a weaving machine for $350,170. The machine has a useful life of 8 years and a residual value of $19,500. It is estimated that the machine could produce 769,000 bolts of woven fabric over its useful life. In the first year, 114,500 bolts were produced. In the second year, production increased to 118,500 units. Using the units-of-production method, what is the amount of depreciation expense that should be recorded for the second year?

$350,170 - 19,500 = $330,670 / 769,000 = .43 x 118,500 = $50,955

An employee earns $6,350 per month working for an employer. The FICA tax rate for Social Security is 6.2% of the first $127,200 of earnings each calendar year and the FICA tax rate for Medicare is 1.45% of all earnings. The current FUTA tax rate is 0.6%, and the SUTA tax rate is 4.4%. Both unemployment taxes are applied to the first $7,000 of an employee's pay. The employee has $216 in federal income taxes withheld. The employee has voluntary deductions for health insurance of $184 and contributes $92 to a retirement plan each month. What is the amount the employer should record as payroll taxes expense for the employee for the month of January? (Round your intermediate calculations to two decimal places.)

$3660.77 (6350x.062)+(6350x.0145)+(6350x.006)+(6350x.044)

A company had a beginning balance in retained earnings of $406,000. It had net income of $53,000 and paid out cash dividends of $58,000 in the current period. The ending balance in retained earnings equals

$401,000. $406,000 + 53,000 - 58,000

The current FUTA tax rate is 0.6%, and the SUTA tax rate is 5.4%. Both taxes are applied to the first $7,000 of an employee's pay. Assume that an employee earned total wages of $12,100. What is the amount of total unemployment taxes the employer must pay on this employee's wages?

$420

A machine with a cost of $138,000 and accumulated depreciation of $93,000 is sold for $54,000 cash. The amount that should be reported as a source of cash under cash flows from investing activities is:

$54,000

A company has $95,000 in outstanding accounts receivable and it uses the allowance method to account for uncollectible accounts. Experience suggests that 5% of outstanding receivables are uncollectible. The current balance (before adjustments) in the allowance for doubtful accounts is a(n) $850 debit. The journal entry to record the adjustment to the allowance account includes a debit to Bad Debts Expense for:

$5600 $95,000 x 5% + $850 = $5600

Portia Grant is an employee who is paid monthly. For the month of January of the current year, she earned a total of 9,238. The FICA tax for social security is 6.2% of the first $127,200 of employee earnings each calendar year and the FICA tax rate for Medicare is 1.45% of all earnings. The FUTA tax rate of 0.6% and the SUTA tax rate of 5.4% are applied to the first $7,000 of an employee's pay. The amount of federal income tax withheld from her earnings was $1,532.87. Her net pay for the month is: (Round your intermediate calculations to two decimal places.)

$6,998.42. 9238-(9238x.062)-(9238x.0145)-1,532.87

Flask Company reports net sales of $1,650 million; cost of goods sold of $1,490 million; net income of $300 million; and average total assets of $1,360 million. Compute its total asset turnover.

1.21 Total Asset Turnover = Net Sales / Average Total Assets

Charger Company's most recent balance sheet reports total assets of $28,652,000, total liabilities of $16,302,000 and total equity of $12,350,000. The debt to equity ratio for the period is (rounded to two decimals):

1.32. Total Liabilities / Total Equity

A company had average total assets of $2,060,000, total cash flows of $1,560,000, cash flows from operations of $265,000, and cash flows from financing of $870,000. The cash flow on total assets ratio equals:

12.86%. Cash Flow on Total Assets Ratio = Operating Cash Flows / Average Total Assets

A company has net income of $885,000; its weighted-average common shares outstanding are 177,000. Its dividend per share is $1.10, its market price per share is $101, and its book value per share is $95.50. Its price-earnings ratio equals:

20.20

A company paid $0.80 in cash dividends per share. Its earnings per share is $4.52 and its market price per share is $26.00. Its dividend yield equals:

3.08%. $0.80 / 26.00

A company's income before interest expense and income taxes is $400,000 and its interest expense is $110,000. Its times interest earned ratio is:

3.63 Times interest earned ratio = Income before interest + taxes / interest expense

A company had net sales of $580,000, total sales of $730,000, and an average accounts receivable of $81,000. Its accounts receivable turnover equals:

7.16 Accounts receivable turnover = Net Sales / Average Acc. Receivables

All of the following statements regarding uncertainty in liabilities are true except:

A company only records liabilities when it knows whom to pay, when to pay, and how much to pay.

A corporation sold 12,000 shares of its $10 par value common stock at a cash price of $11 per share. The entry to record this transaction would include:

A credit to Common Stock for $120,000.

A corporation sold 16,500 shares of its $10 par value common stock at a cash price of $13 per share. The entry to record this transaction would include

A credit to Common Stock for $165,000.

Percy Corporation was formed on January 1. The corporate charter authorized 100,000 shares of $10 par value common stock. During the first month of operation, the corporation issued 220 shares to its attorneys in payment of a $4,200 charge for drawing up the articles of incorporation. The entry to record this transaction would include:

A debit to Organization Expenses for $4,200.

A credit sale of $5,275 to a customer would result in which of the following?

A debit to the Accounts Receivable account in the general ledger and a debit to the customer's account in the accounts receivable subsidiary ledger.

A company had a tractor destroyed by fire. The tractor originally cost $136,000 with accumulated depreciation of $69,900. The proceeds from the insurance company were $31,000. The company should recognize:

A loss of $35,100. $136,000 - $69,00 = $66,100 66,100 - 31,000 = 35,100

A method of estimating bad debts expense that involves a detailed examination of outstanding accounts and the length of time past due is the:

Aging of accounts receivable method.

Gideon Company uses the allowance method of accounting for uncollectible accounts. On May 3, the Gideon Company wrote off the $3,600 uncollectible account of its customer, A. Hopkins. The entry or entries Gideon makes to record the write off of the account on May 3 is:

Allowance for Doubtful Accounts 3,600 Accounts Receivable—A. Hopkins 3,600

A decrease in the inventory account during the year should be reported on the indirect method statement of cash flows as:

An increase in cash flows from operating activities

Revenue expenditures:

Are additional costs of plant assets that do not materially increase the asset's life or its productive capabilities.