ACG2021 Unit 2

Soccer Wholesale purchased land and a warehouse for one price of $920,000. In addition to the purchase price, Soccer Wholesale makes the following expenditures related to the acquisition: broker's commission, $45,600; title insurance, $4,800; and miscellaneous closing costs, $6,100. The warehouse is immediately demolished at a cost of $82,800 in anticipation of building a new warehouse. Determine the amount that Soccer Wholesale should record as the cost of the land.

$1,059,300

Northwest Fur Co started the year with $94,000 of merchandise on hand. During the year, $40,000 in merchandise was purchased on account with credit terms 1/15, n/45. All discounts were taken. Northwest paid freight charges of $7,500. Merchandise with an invoice amount of $5,000 was returned for credit. Cost of goods sold for the year was $380,000. What is ending inventory?

$112,500 ($94k + $400k + $7.5k - $5k - $3.95k - $380k) (($400k - $5k)*1%) = $3,950

Maxwell Corporation has the following inventory information at the end of the year: Item A (20): Unit Cost: $20. Unit NRV: $35 Item B (50): Unit Cost: $30. Unit NRV: $25 Item C (40): Unit Cost: $10. Unit NRV: $15 Using the lower of cost and Net Realizable value method, for what amount would Maxwell report ending inventory?

$2,050 (Multiply each item by lower of values)

On January 2, 2021, Howdy Doody Corporation purchased 12% of Ranger Corporation's common stock for $50,000. During 2021, Ranger had net income of $100,000 and declared and paid a dividend of $60,000. On December 31, 2021, the fair value of the Ranger stock owned by Howdy Doody had increased to $70,000. How much should Howdy Doody show in the 2021 income statement as income from this investment?

$27,200 (($60,000*0.12)+($20,000))

A company purchased bonds on July 1, 2021 for $274,885. This price represents a market rate of 6% on bonds that have a face amount of $250,000, have a stated rate of 8%, pay semiannual interest, and mature in 6 years. Calculate the amortized cost of the bonds as of December 31, 2021.

$273,132 Interest Payment: ($250,000*.08*.5) = $10,000 Interest Revenue: ($274,885*.06*.5) = $8,247 Amortization of Premium: ($10,000 - $8,247) = $1,753 Amortized Cost: ($274,885 - $1,753) = $273,132

Pizza Shop sells toaster ovens with a one-year warranty to fix any defects. For the current year, 100 toaster ovens have been sold. By the end of the year, 4 ovens have been fixed for an average cost of $80 each. Management estimates that 5 more of the 100 sold will need to be fixed next year for an estimated $80 each. For how much should pizza shop report warranty liability at the end of the current year.

$400 (Amount of estimated future liabilities)

At the beginning of the year, Goldman Company purchased 10,000 of the 40,000 shares of common stock of Buchanan Corporation at $40 per share as a long term investment. At the end of the year, Buchanan Company has a net income of $500,000, Dividends paid of $200,000, and a share price of $38/share. What amount should Goldman Company report for its year-end balance sheet for its investment in Buchanan.

$475,000 ($400k + ($500k * .25) - ($200k * .25)

On October 1, a franchise was purchased for $2,000,000. The franchise agreement is for 10 years. What is the amount of amortization expense by the end of the first year, December 31 (using partial year straight-line amortization)?

$50,000

At the Beginning of the Year, Gilman Company purchases 10,500 of the 210,000 shares of common stock of Burke Corporation at $50 per share as a long-term investment. At the end of the year, Burke Corporation had a net income of $590,000, dividends paid of $220,000, and a share price of $48/share. What amount should Gilman Company record in its year end balance sheet for its investment in Burke?

$504,000 (10,500 shares * 48/share)

A company purchased equipment at the beginning of 2021 for $500,000. The equipment is depreciated on a straight-line basis with an estimated useful life of 9 years, and a $50,000 residual value. At the beginning of 2024, the company revised the equipment's useful life to a total of 7 years (four more years), because of changing customer demand. The company also revised the expected residual value to $30,000. What depreciation expense would the company record for the year 2024 on the equipment?

$80,000 (($500,000 - $50,000) / 9 years) * 3 = $150,000 ($350,000 - $30,000) / 4 years)

A company purchased land, a building, and equipment for one price of $800,000. The estimated fair values of the land, building, and equipment, are $100,000, $700,000, and $200,000 respectively. At what amount should the company record the land?

$80,000 (($800,000 / $1,000,000) * $100,000)

Warranty Expense

(% of sales)*(sales)

Net Income (ROA)

(Average Beginning and Final Assets)*Return on Assets

How many of the following transactions increase a company's liquidity? - Provide Services on Account - Pay Workers' Salaries in the Current Period - Purchase Office Supplies with Cash - Pay Dividends to Stockholders

1: Provide Services on Account

When a customer pays in advance for a product or service, the advance payment is recorded as a debit and credit to which accounts?

A debit to an asset account and a credit to a liability account (liability accounts have normal credit balance)

One of the primary reasons for investing in equity securities is:

Appreciation in the value of the stock

The cost of unsold inventory at the end of the year is classified as a(n) ______ in the ______

Asset; Balance Sheet

Equity Method - Balance Sheet vs. Income Statement

Balance Sheet: Fair Value of Stock Income Statement: Fair Value of Stock + Dividends

Under a perpetual inventory system

Cost of goods sold is recorded with each sale.

The Copper Grill has the following current assets: cash, $11M; receivables, $43M; inventory, $47M; and other current assets, $3M. The Copper Grill has the following liabilities: accounts payable, $34M; current portion of long-term debt, $5M; and long-term debt, $11M. Calculate the current ratio and the acid-test ratio

Current Ratio: 2.67 Acid Test Ratio: 1.38 (11+43+47+3) / (34+5) (11+43) / (34+5)

Using a perpetual inventory system, how should a company record the sale of inventory costing $510 for $920 on account?

Debit Accounts Receivable: $920 Credit Sales Revenue: $920 Debit Cost of Goods Sold: $510 Credit Inventory: $510

Fan Company sells inventory on account. The entries to record this sale using a perpetual inventory system would include:

Debit to Accounts Receivable, Debit to Cost of Goods Sold, Credit to Sales Revenue

When a company collects sales tax from a customer the event is recorded by a debit and credit to which accounts?

Debit to Cash, credit to Sales Tax Payable

Sports Science purchased 1800 shares (4%) of stock in Silver's Gym for $30 per share. By the end of the year, the stock price has decreased to $28 per share. How would the change in stock price affect Sports Science's net income?

Decrease Net Income by $3600

The sale of gift cards by a company is a direct example of:

Deferred Revenues

One of the primary reasons for investing in debt securities is:

Earning interest revenue

The replacement of a major component increased the productive capacity of equipment from 10 units per hour to 18 units per hour. The expenditure for the replacement of the component should be debited to:

Equipment

Research and Development Costs should be

Expensed

The amount of impairment loss is the excess of book value over:

Fair Value

Morgan Pharmaceutical spends $50,000 this year in research and development costs for a new drug to cure liver damage. By the end of the year, management feels confident that the new drug will gain FDA approval and lead to higher future sales. What impact will the $50,000 spending have on this year's financial statements.

Increase Expenses

The City of Summerton has a sales tax rate of 8%. A local store sells merchandise, and the customer pays a total of of $38.34. What effect does this transaction have on total liabilities?

Increase by $2.84 (38.34-8% = 35.27) (35.27*.08 = 2.84)

Fan Company purchases inventory on account. The entry to record this purchase using a perpetual inventory system would include a debit to?

Inventory

Which cost flow assumption must be used for financial reporting if it is also used for tax reporting?

LIFO

Federal and state income taxes withheld by employers from their employees' payroll are initially recorded with a credit to a(n)

Liability

Gross Profit

Net Sales - Cost of Goods Sold

The seller collects sales tax from a customer at the time of sale and reports the sales tax as?

Sales Tax Payable

Woods Company made an ordinary repair to a delivery truck at a cost of $500. Woods' accountant debited the asset account, Equipment. Was this treatment an error? If so, what will be the effects on net income and assets?

The error overstated net income and assets

A company owns 5% of the equity in another company, valued at $140,000. The fair value of this equity increases to $145,000 by the end of the year. How should the investment be reported in year-end financial statements?

The investment in equity securities would be reported in the balance sheet at its $145,000 fair value; an unrealized holding gain of $5,000 would be reported in net income.

A company's turnover ratio measures?

The number of times a company sells its average inventory balance in a year

Which of the following is false regarding the amortization of intangible assets? - The service life of an intangible asset is always equal to its legal life - Goodwill is the most common intangible asset with an indefinite useful life - Intangible Assets with a limited useful life are amortized - The expected residual value of most intangible assets is zero

The service life of an intangible asset is always equal to its legal life

Goodwill is

The value of a business as a whole, over and above the value of its net identifiable assets

Warranty Liability

Warranty Expense + Beginning Balance - Claims Paid

impairment

When estimated future cashflows are lower than book value. The impairment loss is the difference between the book value and the fair value.

Wilson Inc. owns equipment for which it originally paid $70 million and has recorded accumulated depreciation on the equipment of $12 million. Due to adverse economic conditions, Wilson's management determined that it should assess whether an impairment should be recognized for the equipment. The estimated future cash flows to be provided by the equipment total $60 million, and its fair value at that point totals $50 million. Under these circumstances, Wilson:

Would record no impairment loss on the equipment (The estimated future cash flow exceeds the current book value)

Cost of Goods Sold

beginning inventory + purchases - ending inventory