Final exam review

Chapter 3 If a company records wages when it pays them, then recording the payment of wages a) decreases assets and decreases stockholders' equity. b) increases assets and decreases assets. c) increases stockholders' equity and decreases stockholders' equity. d) increases assets and increases stockholders' equity. e) decreases assets and decreases liabilities.

A

Chapter 5 Which of the following is closest to this company's profit margin? a) 6.67% b) 31.25% c) 13.33% d) 20% e) 33.33%

A Net sales = Sales revenue minus sales returns and allowances minus sales discountsNet sales = 160,000 - 7,000 - 3,000 = 150,000 Profit margin = Net income divided by net sales Profit margin = 10,000/150,000 = 0.0666 (or 6.67%).

Chapter 1 Buying property, plant, and equipment (such as delivery trucks) needed to operate a business is an example of a(n) a) investing activity. b) capital activity. c) delivering activity. d) operating activity. e) financing activity.

a

Chapter 11 Andrews Company declared a cash dividend of $1.00 per share on 20,000 shares of common stock on January 15. The dividend is to be paid one month later on February 15 to stockholders of record on January 31. Which of the following summarizes the effects of the journal entry recorded on the date of payment on February 15? a) It decreases liabilities and decreases assets. b) It increases stockholders' equity and increases liabilities. c) It decreases stockholders' equity and decreases assets. d) It decreases stockholders' equity and decreases liabilities. e) No journal entry is recorded on the date of payment.

a

Chapter 11 Dividends in arrears on cumulative preferred stock a) should be disclosed in the notes to the financial statements. b) are considered to be a non-current liability. c) only occur when preferred dividends have been declared. d) are considered to be a current liability. e) will be paid only after common dividends have been paid.

a

Chapter 11 The following data is available for Red Carpet Corporation at December 31:Common stock, par $3 (authorized 250,000 shares) $300,000Treasury stock (at cost $12 per share) $1,200Based on the data, how many shares of common stock are outstanding? a) 99,900 b) 249,900 c) 250,000 d) 100,000 e) 99,990

a

Chapter 3 Carpenter Company pays the coming year's one-year insurance policy. This transaction will immediately affect the a) balance sheet and cash flows statement only. B) income statement only. c) income statement, balance sheet, and retained earnings statement only. d) income statement, retained earnings statement, cash flows statement, and balance sheet. e) income statement and cash flows statement only.

a

Chapter 3 If a company issues common stock for $40,000 and pays $30,000 of cash to purchase equipment, the company's a) total assets will increase by $40,000. B) total assets will increase by $10,000. c) total equity will decrease by $40,000. d) total equity will increase by $10,000. e) total liabilities will decrease by $10,000.

a

Chapter 8 Which one of the following accounts is a temporary account? a) Bad Debts Expense b) Retained earnings c) Allowance for Doubtful Accounts d) Accounts Receivable e) Cash

a

chapter 8 Which of the following is false with regards to notes receivable? a) When a note is dishonored, the lender no longer has a claim against the maker of the note. b) If the lender has no hope of collecting a note receivable, it should write-off the note. c) A note is defaulted or dishonored when it is not paid in full at maturity. d) A note is honored when its maker pays in full at its maturity date. e) An interest-bearing note's amount due at maturity is its face value plus interest for the length of time specified on the note.

a

chapter 10 On January 1, Wilson Production Corporation issued $3,750,000, 5%, 4-year bonds for $4,028,783. Interest is payable annually on January 1. The effective interest rate on the bonds is 3%. Use the effective-interest method to determine the amount of interest expense for the first year. a) $120,863 b) $112,500 c) $167,580 d) $187,500 e) $201,439

a 3.00% x $4,028,783 = $120,863

Chapter 9 On May 1 of the current year, Moreno Company purchased a patent from another company for $96,000. The estimated useful life of the patent is 8 years, and its remaining legal life is 12 years. How much is Moreno's amortization expense for the current year? a) $8,000 b) $6,000 c) $7,500 d) $10,000 e) $12,000

a Amortization expense for the current year = $96,000/8 years x 8/12 = $8,000.

Chapter 1 Marvin Services Corporation had the following accounts and balances: Accounts payable$10,000 Accounts receivable 15,000 Buildings 40,000 Cash 5,000 Common stock 25,000 Equipment 30,000 Retained earnings Not given Unearned service revenue 4,000 What is the balance of the company's retained earnings account? a) $51,000 b) $71,000 c) $41,000 d) $101,000 e) $59,000

a Assets = Accounts receivable + buildings + cash + equipment + supplies = 15,000 + 40,000 + 5,000 + 26,000 + 4,000 = 90,000Liabilities = accounts payable + unearned revenue = 10,000 + 4,000 = 14,000Assets = liabilities + stockholders' equityStockholders' equity = assets - liabilities = 90,000 - 14,000 = 76,000Stockholder's equity = common stock + retained earningsRetained earnings = stockholders' equity - common stock = 76,000 - 25,000 = 51,000

Chapter 3 Wilson Company has the following accounts and account balances at the end of its first year:Accounts payable, $4,000Cash, $20,000Common stock, ?Dividends, $1,000Expenses, $17,000Notes payable, $6,000Prepaid insurance, $2,000Revenues, $22,000What is the balance of its common stock account at the end of the first year? a) $8,000 b) $7,000 c) $13,000 d) $3,000 e) $9,000

a Assets = Liabilities + Common stock + Retained earnings

Chapter 6 The lower of cost or market basis of valuing inventories is an example of a) consistency. b) materiality. c) comparability. d) conservatism. e) the historical cost principle.

d

Chapter 9 On February 1 of the current year, Fritz Company purchases and places into service new equipment. The cost of the equipment is $135,000. The equipment has an estimated 5-year life and $20,000 salvage value at the end of its useful life. What is the depreciation expense for the current year ending December 31 if the company uses the straight-line method of depreciation? a) $21,083 b) $19,167 c) $23,000 d) $24,750 e) $27,000

a Depreciation expense per year = ($135,000 - 20,000)/5 years = $23,000 per yearDepreciation expense for February 1 through December 31 = $23,000 x 11/12 = $21,083

Chapter 3 Jakes Company began the year with $84,000 in its Common Stock account and a credit balance in Retained Earnings of $36,000. During the year, the company earned net income of $24,000 and declared and paid $6,000 of dividends. In addition, the company sold additional common stock amounting to $22,000. What is the ending total stockholders' equity? a) $160,000 b) $106,000 c) $166,000 d) $54,000 e) $138,000

a Ending contributed capital = 84,000 + 22,000 = 106,000 Ending retained earnings = 36,000 + 24,000 - 6,000 = 54,000Total equity = contributed capital + retained earningsTotal equity = 106,000 + 54,000 = 160,000

Chapter 5 Heflin Corporation has the following:Sales revenue, $430,000Sales discounts, $10,000Gross profit, $150,000Operating expenses, $80,000Other expenses, $30,000How much is its cost of goods sold? a) $270,000 b) $190,000 c) $280,000 d) $160,000 e) $340,000

a Net sales = Sales - Sales returns and allowances - Sales discountsNet sales = $430,000 - 0 - 10,000 = $420,000Cost of goods sold = Net sales- gross profitCost of goods sold = $420,000 - 150,000 = $270,000

Chapter 6 Irwin Industries had the following inventory transactions occur during the current year: Feb. 1 Purchase 40 $42 Mar. 14 Purchase 60 $43 May 1 Purchase 55 $44 The company sold 100 units at $75 each and has a tax rate of 20%. Assuming that a periodic inventory system is used and operating expenses are $1,000, what is the company's gross profit using LIFO? (rounded to whole dollars) a) $3,145 b) $3,235 c) $4,355 d) $3,885 e) $3,655

a Sales revenue = 100 x $75 = $7,500Cost of goods sold = (55 x $44) + [(100 - 55) x $43] = $2,420 + 1,935 = $4,355Gross profit = Sales revenue - cost of goods sold = $7,500 - 4,355 = $3,145

Chapter 1 Which financial statement should be prepared first and why? a) The income statement does not have to be prepared first. The financial statements can be prepared in any order. b) Net income from the income statement must be reported on the retained earnings statement and the ending retained earnings balance must be reported on the balance sheet. c) The balance sheet should be prepared first because it determines the retained earnings and that information must be reported on other financial statements. d) Users of financial statements need it sooner than the other financial statements. e) The retained earnings statement should be prepared first because it provides data to compute net income.

b

Chapter 1 Which of the following did not result from the Sarbanes-Oxley Act (SOX)? a) Top management must now certify the accuracy of financial information. b) Tax rates on corporations increased. c)Penalties for fraudulent activity increased. d) The Sarbanes-Oxley Act caused all of these to occur. e) The independence of outside auditors increased.

b

Chapter 1 Which of the following would not appear on a retained earnings statement? a) Net income b) Service revenue c) Dividends d) The ending retained earnings balance e) The beginning retained earnings balance

b

Chapter 10 Handel Enterprises issued 1,500 bonds with a face value of $1,000 each at 99. The journal entry to record the issuance includes a) a credit to Premiums on Bonds Payable for $15,000. b) a credit to Bonds Payable for $1,500,000. c) a debit to Premiums on Bonds Payable for $15,000. d) a credit to Discount on Bonds Payable for $15,000. e) a debit to Interest Expense for $15,000.

b

Chapter 11 In the stockholders' equity section of the balance sheet, where and how is treasury stock reported? a) It is reported as an addition to the Common Stock account. b) It is reported as a deduction appearing after both total paid-in capital and retained earnings. c) It is reported as an asset. d) It is reported as a deduction from the Common Stock account. e) It is reported as a contra Retained Earnings account.

b

Chapter 2 The following ratios are available for Leer Inc. and Stable Inc. Leer Inc. 2.0 Stable Inc. 1.5 Compared to Stable Inc., Leer Inc. has a) lower profitability. b) higher liquidity. c) higher solvency. d) lower solvency. e) lower liquidity.

b

Chapter 4 A company accepts a customer's order on December 10 and immediately delivers the goods to the customer. On December 11, the company sends the customer an invoice stating payment is due no later than January 11. The company receives a check from the customer for the full amount due on December 30. The company follows the revenue recognition principle and accrual-basis accounting. On what day should the company recognize revenue for this order? a) December 11 b) December 10 c) December 30 d) January 11 e) December 31

b

Chapter 4 An adjusting entry a) usually affects two balance sheet accounts and no income statement accounts. b) always affects at least one balance sheet account and one income statement account. c) usually affects two income statement accounts and no balance sheet accounts. d) is always a compound entry affecting three or more accounts. e) must be noted in the books of a company but is never journalized or posted.

b

Chapter 5 If a company is using aggressive accounting techniques in order to accelerate income recognition then its quality of earnings ratio is a) significantly more than 1. b) significantly less than 1. c) significantly more than 100. d) equal to zero. e) below zero.

b

Chapter 6 Two companies report the same cost of goods available for sale but each employs a different inventory costing method. If the price of goods purchased as inventory has increased during the period, then the company using a) LIFO will have the lowest cost of goods sold. b) FIFO will have the highest retained earnings. c) LIFO will have the highest net income. d) None of these e) FIFO will have the lowest ending inventory.

b

Chapter 7 A check correctly written by Speedy Delivery Company for $1,430 was incorrectly recorded on its books as $1,340. As a result, the company's next monthly bank reconciliation should include a) None of these b) $90 deducted from the cash balance per books. c) $90 added to the cash balance per bank statement. d) $90 deducted from the cash balance per bank statement. e) $90 added to the cash balance per books.

b

Chapter 7 For which of the following might a bank issue a debit memorandum to a depositor's account? a) Collection of a note receivable b) NSF check c) Deposits in transit d) Outstanding checks e) Interest earned

b

Chapter 7 Internal auditors a) are hired by CPA firms to audit publicly-traded companies. b) are company employees who evaluate the internal controls of the companies that employ them. c) are independent auditors. d) are employees of the IRS who evaluate the internal controls of companies filing tax returns. e) cannot evaluate the system of internal controls of the company that employs them because they are not independent.

b

Chapter 8 Laurel Company factors $500,000 of receivables to Hardy Factors. Hardy Factors assesses a 4% fee on the amount of receivables sold. Laurel Co. factors its receivables to Hardy Factors regularly. What journal entry does Laurel Co. make when the factoring occurs? a) Debit Cash for $480,000, debit Loss on Sale of Receivables for $20,000, and credit Accounts Receivable for $500,000 b) Debit Cash for $480,000, debit Service Charge Expense for $20,000, and credit Accounts Receivable for $500,000 C) Debit Cash for $500,000 and credit Accounts Receivable for $500,000 d) Debit Cash for $500,000, credit Accounts Receivable for $480,000, and credit Gain on Sale of Receivables for $20,000 e) Debit Cash for $480,000 and credit Accounts Receivable for $480,000

b

Chapter 8 When the allowance method for uncollectible accounts is used, a company records Bad Debt Expense when a) a previously written-off account receivable is recorded. b) adjusting entries are recorded. c) a customer's account receivable becomes past due. d) a sale on account is recorded. e) an account becomes uncollectible and it is written off.

b

Chapter 9 The calculation of depreciation using the declining-balance method a) multiplies a declining percentage times a constant book value. b) ignores salvage value in determining the amount to which a constant rate is applied. c) all of these. d) results in an increasing depreciation expense each period. e) multiplies a constant percentage times the previous year's depreciation expense.

b

Chapter 9 When equipment is sold for cash in an amount that is greater than its book value, the company debits the following a) (i) Accumulated Depreciation, (ii) Cash, and (iii) Loss on Disposal of Plant Assets b) (i) Accumulated Depreciation and (ii) Cash c) (i) Cash and (ii) Gain on Disposal of Plant Assets d) (i) Accumulated Depreciation, (ii) Cash, and (iii) Gain on Disposal of Plant Assets e) (i) Cash

b

Chapter 5 Indicate which one of the following would likely appear on both a multi-step income statement and a single-step income statement. a) None of these would appear on both types of income statement b) All of these would appear on both types of income statement c) Income from operations d) Gross profit e) Cost of goods sold

d

Chapter 6 Freehan Company's accounting records has the following information about its inventory: Inventory, Jan. 1: 5,000 $8 Purchase, April 2 15,000 $10 Purchase, Aug. 28 20,000 $12 If the company has 7,000 units on hand at December 31, how much is the cost of ending inventory under the average-cost method in a periodic inventory system? a) $56,000 b) $75,250 c) $84,000 d) $93,150 e) $70,000

b Average cost per unit = [(5,000 x $8) + (15,000 x $10) + (20,000 x $12)] ÷ (5,000 + 15,000 + 20,000) = $430,000 ÷ 40,000 units = $10.75 per unit. Ending inventory = $10.75 x 7,000 units = $75,250.

Chapter 7 Chester Company collected the following information to prepare its November bank reconciliation: Cash balance per bank, November 30, $66,200. Note receivable of $2,500 plus $250 of interest collected, $2,750. Outstanding checks, $14,700. Deposits in transit, $12,900. Bank service charges, $50. NSF check, $1,500. The company erroneously recorded a $560 cash payment on its books as a $650 cash payment. Also, the bank erroneously deducted $200 from the company's checking account. The bank should have deducted the money from a different customer's account. How much is the adjusted cash balance per bank on November 30? a) $64,200 b) $64,600 c) $62,750 d) $62,600 e) $63,100

b Balance per bank on Nov. 30, $66,200Add: Deposits in transit, $12,900Less: Outstanding checks, ($14,700)Add: Bank error (see note below), $200Adjusted cash balance per banks, $64,600

Chapter 7 Chester Company collected the following information to prepare its September bank reconciliation: Cash balance per books, September 30, $89,300. Note receivable of $1,900 plus $200 of interest collected, $2,100. Outstanding checks, $5,100. Deposits in transit, $3,800. Bank service charges, $50. NSF check, $600. The company erroneously recorded a $200 cash payment on its books as a $2,000 cash payment. Also, the bank erroneously added $1,000 to the company's checking account. The bank should have added the money to a different customer's account. How much is the adjusted cash balance per books on September 30? a) $89,950 b) $92,550 c) $83,000 d) $89,800 e) $90,150

b Balance per books on Sep. 30, $89,300Add: Note collected by the bank including interest, $2,100Less: Bank service charge, ($50)Less: NSF check, ($600)Add: Book error (see note below), $1,800Adjusted cash balance per books, $92,550

Chapter 2 Rose Corporation has accounts and balances: Accounts payable............................. $ 40,000 Accounts receivable............................. 50,000 Accumulated depreciation.................. 50,000 Buildings................................................. 500,000 Cash........................................................ 100,000 Common stock..................................... 690,000 Equipment......................................... 160,000 Inventory................................................ 200,000 Investments in securities (long-term). 20,000 Land......................................................... 130,000 Notes payable..................................... 300,000 Patents................................................ 20,000 Prepaid insurance................................. 30,000 Retained earnings................................. 150,000 Trademarks........................................... 40,000 What are its (i) current assets and (ii) property, plant & equipment? a) (i) $400,000 and (ii) $760,000 b) (i) $380,000 and (ii) $740,000 c) (i) $440,000 and (ii) $840,000 d) None of these e) (i) $420,000 and (ii) $790,000

b Current assets = 50,000 + 100,000 + 200,000 + 30,000 = 380,000 Property, plant and equipment = 500,000 + 160,000 + 130,000 - 50,000 = 740,000

Chapter 9 Bazydlo Corporation bought equipment for $350,000 and it had an expected salvage value of $50,000. The life of the equipment was estimated to be 5 years. The depreciable cost of the equipment is a) $200,000 b) $300,000 c) $350,000 d) $60,000 e) $50,000

b Depreciable cost = $350,000 - 50,000 = $300,000.

Chapter 9 Fryman Company purchased a new van for floral deliveries on January 1 of the current year. The van cost $48,000 with an estimated life of 5 years and $12,000 salvage value at the end of its useful life. The double-declining-balance method of depreciation will be used. What is the depreciation expense for the current year? a) $14,400. b) $19,200. c) $9,600. d) $7,200. e) $16,500.

b Double-declining-balance depreciation expense = [(Cost - accumulated depreciation) x 2/LifeDouble-declining-balance depreciation expense = [(48,000 - 0) x 2/5] = 19,200

Chapter 6 A company uses LIFO. At the beginning of the current year its inventory was $200,000, and at the end of the current year its inventory is $250,000. At the start of the year its LIFO reserve was $30,000 and at the end of the year its LIFO reserve is $40,000. The company operates in an inflationary environment. If the company used FIFO instead of LIFO, its ending inventory would be a) $250,000. b) $290,000. c) $210,000. d) $240,000. e) $160,000.

b FIFO ending inventory = LIFO ending inventory + LIFO reserve = $250,000 + 40,000 = $290,000

chapter 9 Welch Company's average total assets is $240,000, average total equity is $150,000, and net sales is $60,000. Its return on assets is 12%. What was the company's net income? a) $90,000 b) $28,800 c) $7,200 d) $30,000 e) $15,000

b Net income = $240,000 x 12% = $28,800.

Chapter 9 In the current year, Pierce Company incurred $160,000 of research and development costs in its laboratory to develop a new product. It also spent $25,000 in legal fees for a patent on that new product. Later in the current year, Pierce paid $15,000 for legal fees in a successful defense of that patent. What is the total amount that should be debited to the company's Patents account in the current year? a) $200,000 b) $40,000 c) $120,000 d) $48,000 e) $160,000

b Only the $25,000 in legal fees and the $15,000 of successful defense costs should be debited to the Patents account. The research and development costs spent to develop the new product must be expensed in the year they were incurred because there is no certainty of future benefits.

Chapter 11 Danielle Inc. has 8,000 shares of 5%, $50 par, non-cumulative preferred stock and 50,000 shares of $3 par common stock outstanding. Both the common stock and the preferred stock have been outstanding since the company began last year. No dividends were paid last year. The board of directors declared a $50,000 dividend this year. What amount of the total dividend will be paid to common stockholders? a) $50,000 b) $30,000 c) $45,000 d) $10,000 e) $15,000

b Preferred stockholder dividend = 8,000 x 5% x $50 = $20,000Total dividends available = $50,000Dividends available to common stockholders = $30,000

Chapter 9 A company's average total assets are $275,000, depreciation expense is $20,000, and accumulated depreciation is $80,000. Net income is $1,500,000. Net sales total $325,000. What is the asset turnover? a) 0.8 b) 1.18 c) 1.05 d) 3.33 e) 1.25

b The asset turnover is net sales divided by the average total assets: $325,000/$275,000 = 1.18 times.

Chapter 9 Given the following account balances at year end, how much is amortization expense on Analog Enterprises' income statement for the current year if the company amortizes intangibles over ten years? Sales revenue, $45,000,000; Patents, $2,500,000; Accounts receivable, $4,000,000; Land, $15,000,000; Equipment, $25,000,000; Trademarks, $1,000,000; and Goodwill, $4,500,000. The company also paid $2,000,000 for research & development at the start of the current year. Assume that all of the company's intangible assets were acquired at the start of the current year. a) $400,000 b) $250,000 c) $700,000 d) $800,000 e) $150,000

b The intangibles are trademarks patents and goodwill. Only patents are amortized. Amortization expense for the year equals $2,500,000/10 = $250,000.

Chapter 1 The financial records for Harold Corporation included the following information:Accounts receivable, $60,000Accounts payable, $25,000Cash, $15,000Common stock, $5,000Dividends, $10,000Insurance expense, $10,000Sales revenue, $90,000Salaries and wages expense, $25,000Based on this information, how much was its net income? a) $80,000 b) $65,000 c) $55,000 d) $70,000 e) $45,000

c

Chapter 11 Which of the following is true with regard to corporate formations and corporate ownership? a) A corporation can issue common stock with a par value that determines the stock's legal capital. b) A corporation can issue common stock directly to investors, and this tends to occur among closely held corporations. c) All of these d) A corporation can issue common stock indirectly to investors, and this tends to occur with the help of an investment banker. e) The New York Stock Exchange is one of the world's most well-known exchanges where corporate stock is bought and sold.

c

Chapter 2 What is the primary accounting standard-setting body in the United States? a) Public Company Accounting Oversight Board (PCAOB) B) International Accounting Standards Board c) Financial Accounting Standards Board d) Securities and Exchange Commission

c

Chapter 3 Customarily, a trial balance is prepared a) at the end of each day. b) after each journal entry is posted. c) at the end of an accounting period. d) only at the inception of the business. e) after journalizing the adjusting entries but before posting the adjusting entries to the ledger.

c

Chapter 4 Which of the following is not based on accrual accounting? a) Total assets b) Net income c) Net cash provided by operating activities d) Retained earnings

c

Chapter 5 Gross profit does not appear on a company's income statement if the company a) uses accrual accounting. b) is a merchandising company. c) is a service company. d )uses the perpetual inventory system. e) uses the periodic inventory system.

c

Chapter 5 Marsh Company uses the perpetual inventory system. Which of the following transactions neither increases nor decreases its inventory account? a) Marsh returned inventory to the supplier that Marsh has purchased for cash. b) Marsh paid freight costs to ship goods from its supplier to Marsh. c) Marsh paid freight costs to ship goods from Marsh to a customer. d) Marsh purchased of merchandise on account e) All of these transactions either increase or decrease Marsh's inventory account.

c

Chapter 7 At June 30, Kingman Company has the following information: Cash balance per bank, $11,500 Deposits in transit, $600 Notes receivable and interest collected by bank, $250 Bank charge for check printing, $50 Outstanding checks, $1,375 NSF check, $125What is the company's adjusted cash balance at the end of June? a) $9,525. b) $10,975. c) $10,725. d) $12,275. e) $10,600.

c

chapter 7 Which of the following was not a result of the Sarbanes-Oxley Act? a) All publicly traded companies must maintain adequate internal controls. b) The Public Company Accounting Oversight Board was created to establish auditing standards and regulate auditor activity. c) Companies must file financial statements with the Internal Revenue Service. d) All of these are results of the Sarbanes-Oxley Act. e) Corporate executives and board of directors must ensure that controls are reliable and effective, and they can be fined or imprisoned for failure to do so.

c

Chapter 1 Jackson Company recorded the following cash transactions for the year:Paid $140,000 for salaries.Paid $45,000 to purchase office equipment.Borrowed $25,000 from a bank.Collected $320,000 from customers.What is the company's net cash from operating activities for the year? a) $125,000 b) $320,000 c) $180,000 d) $135,000 e) $155,000

c 320,000 - 140,000

Chapter 8 Net credit sales for the month are $6,000,000 for Stacy Clothiers. Its accounts receivable balance is $300,000. The allowance is calculated as 7% of the receivables balance using the percentage of receivables basis. The Allowance for Doubtful Accounts has a credit balance of $10,000 before adjustment. How much is the balance of the allowance account after adjustment? a) Debit balance of $11,000 b) Debit balance of $21,000 c) Credit balance of $21,000 d) Credit balance of $10,000 e) Credit balance of $11,000

c 7% times by 300,000

Chapter 6 Inventory costing methods place primary reliance on assumptions about the flow of a) values. b) goods. c) margins. d) costs. e) resale prices.

d

Chapter 8 Edward Corporation had net credit sales during the year of $800,000 and cost of goods sold of $500,000. The net accounts receivable at the beginning of the year was $100,000 and at the end of the year was $150,000. The balance of total assets at the beginning of the year was $1,000,000 and at the end of the year was $1,500,000. How much is the accounts receivables turnover? a) 6.0 b) 8.0 c) 6.4 d) 4.0 e) 5.3

c Accounts receivable turnover = $800,000/[($100,000 + $150,000)/2] = 6.4

Chapter 1 Valley Corporation began the year with retained earnings of $590,000. During the year, the company issued $840,000 of common stock, recorded expenses of $2,100,000, and paid dividends of $50,000. If Valley's ending retained earnings was $760,000, what was the company's revenue for the year? a) $2,600,000 b) $800,000 c) $2,320,000 d) $3,160,000 e) $1,290,000

c Beginning retained earnings + Net income - Dividends = Ending retained earnings Replace net income with revenue - expensesBeginning retained earnings + Revenue - Expenses - Dividends = Ending retained earningsRe-arranging this equation to solve for revenues:Revenue = Ending retained earnings - Beginning retained earnings + Expenses + DividendsRevenue = 760,000 - 590,000 + 2,100,000 + 50,000Revenue = 2,320,000

Chapter 5 Sampson Company's accounting records show the following account balances: Purchase Discounts $ 3,000 Purchases 350,000 Beginning Inventory 32,000 Ending Inventory 39,000 Sales 690,000 Using the periodic system, the cost of goods sold is a) $347,000. b) $379,000. c) $340,000. d) $350,000. e) $354,000.

c Cost of goods sold = Beginning inventory + purchases - purchase returns & allowances - purchase discounts - ending inventory Cost of goods sold = 32,000 + 350,000 − 0 - 3,000 - 39,000 = 340,000

Chapter 5 Arbor Corporation reports the following: Sales revenue $182,000; ending inventory $11,600; beginning inventory $21,700; purchases $64,000; purchases discounts $2,000; purchase returns and allowances $2,100; freight-in $900; freight-out $600. Calculate the company's cost of goods sold. a) $70,300 b) $69,400 c) $70,900 d) $82,500 e )$50,700

c Cost of goods sold equals beginning inventory plus purchases minus purchases discounts and purchases returns and allowances plus freight-in minus ending inventory.Cost of goods sold = 21,700 + 64,000 - 2,000 - 2,100 + 900 - 11,600 = 70,900.

Chapter 1 Joe's Repair Shop started the year with total assets of $200,000 and total liabilities of $160,000. During the year the business recorded $400,000 in revenues, $220,000 in expenses, and dividends of $40,000. It also issued $20,000 of additional stock to its shareholders. What is the stockholders' equity at the end of the year? a) $240,000 b) $190,000 c) $200,000 d) $210,000 e) $170,000

c The basic accounting equation is: Assets = Liabilities + Stockholders' equityAt the start of the year, stockholders' equity is $40,000 (i.e., equity = assets - liabilities = 200,000 - 160,000 = 40,000).During the year equity increased by revenues, decreased by expenses, decreased by dividends, and increased by additional stock issued. Equity increased from $40,000 to $210,000 (i.e., $40,000 + 420,000 - 200,000 - 40,000 + 20,000 = 200,000).

Chapter 4 Galileo Company borrowed money from a bank by signing a three-month note payable in the amount of $18,000 on November 1. The note requires Galileo Company to pay interest at an annual rate of 9%. Galileo Company records adjusting entries on December 31. The adjusting entry that Galileo Company should record for accrued interest on December 31 would include a debit to Interest Expense for a) $1,500 b) $135 c )$270 D) $1,620 e) $100

c interest = Principal x Rate x Time = $18,000 x 9% x 2/12 = $270

Chapter 10 Madison Company typically sells subscriptions on an annual basis, and publishes six times a year. The company sells 75,000 subscriptions in January at $10 each. The entry made in January to record the sale of the subscriptions should include a) A debit to the Cash account for $750,000 and credit a revenue account for $750,000. b) A debit to a receivable account for $750,000 and credit a revenue account for $750,000. c) A debit to a receivable account for $125,000 and credit an unearned revenue account for $125,000. d) A debit to the Cash account for $750,000 and credit an unearned revenue account for $750,000. e) A debit to a prepaid asset account for $750,000 and credit the Cash account for $750,000.

d

Chapter 11 What method is normally used to account for treasury stock? a )Stated value method b) Par value method c) Legal value method d) Cost method e) Equity method

d

Chapter 3 Posting is performed by transferring information from the A) ledger to the journal. b) trial balance to the financial statements. c) source documents to the ledger. d) journal to the ledger. e) source documents to the journal.

d

Chapter 3 The usual sequence of steps in the transaction recording process is a) journalize, analyze, and then post to the ledger. b) analyze, post to the ledger, and then journalize. c) post to the ledger, journalize, and then analyze. d) analyze, journalize, and then post to the ledger. e) journalize, post to the ledger, and then analyze.

d

Chapter 4 If the year-end adjusting entry to record salaries owed to employees were omitted then a) expenses would be overstated. b) liabilities would be overstated. c) retained earnings would be understated. d) assets would be correctly stated. e) stockholders' equity would be correctly stated.

d

Chapter 4 On December 31, but before any year-end adjustments, McCarthy Company's Prepaid Insurance account had a balance of $2,700. It was determined that $1,500 of the Prepaid Insurance had expired. The Insurance Expense for the year would be a) $900. b) $2,700. c) $1,900. d) $1,500. e) $1,200.

d

Chapter 4 Which of the following accounts will not appear in the post-closing trial balance because it has been closed? a) Cash b) Common Stock c) Accounts Payable d) Service Revenue e) Unearned Revenue

d

Chapter 7 Which of the following is not a reason why an organization establishes a system for internal control? a) To ensure compliance with laws and regulations B) To increase the efficiency of its operations c) To enhance the reliability of its accounting records d) To prevent a corporate take-over by a competitor E) To safeguard its assets

d

Chapter 7 Which of the following will not require an adjusting entry on the company's books as a result of a bank reconciliation? a) NSF checks b) All of these require an adjusting entry as a result of a bank reconciliation c) Bank service charges d) Deposits in transit e) Book errors

d

Chapter 8 Michael Co. accepts a $4,000, 3-month, 12% promissory note in settlement of an account with Tony Co. Michael Co. records this transaction as a) a debit to Accounts Receivable for $4,000 and a credit Notes Receivable for $4,000. b) a debit to Notes Receivable for $4,120 and a credit to Accounts Receivable for $4,120. c) a debit to Interest Receivable for $120 and a credit Interest Revenue for $120. d) a debit to Notes Receivable for $4,000 and a credit Accounts Receivable for $4,000. e) a debit to Accounts Receivable for $4,120 and a credit Notes Receivable for $4,120.

d

Chapter 8 Which of these statements about national credit card (e.g., Visa) sales is correct? a) The issuer must assess the customer's credit worthiness when the customer uses a national credit card to make a purchase. b) The retailer considers sales involving the use of a national credit card to be sales on account. c) The retailer waits at least 24 hours to receive payment from the customer who used the credit card at a retailer. d) A retailer's acceptance of a national credit card is a form of factoring the receivable by the retailer.

d

During the adjusting process two transactions were neglected or omitted. The first is for unearned rent revenue of which $540 was earned during the period, the second was for accrued interest payable of which $225 is owed for the period. As a result of these omissions a) revenue is overstated by $225. b) These omissions would not affect the financial statements; the financial statements will be correct. c) liabilities are understated by $225. d) expenses are understated by $225. e) net income is understated by $225.

d

chapter 8 Oak Company uses the percentage-of-receivables method for recording bad debts expense. The accounts receivable balance is $60,000 at year-end. The total credit sales were $2,300,000 for the year. Management estimates that 3% of receivables will be uncollectible. What adjusting entry should be made if the Allowance for Doubtful Accounts has a debit balance of $200 before the year-end adjusting entry for Bad Debt Expense? a) Allowance for Doubtful Accounts 2,000 Bad Debt Expense 2,000 b) Bad Debts Expense 2,000 Allowance for Doubtful Accounts 2,000 c) Allowance for Doubtful Accounts 1,800 Bad Debt Expense 1,800 d) Bad Debts Expense 1,800 Allowance for Doubtful Accounts 1,800 e) Bad Debts Expense 1,600 Allowance for Doubtful Accounts 1,600

d

Chapter 8 On December 14, Walton Company sold $3,000 of merchandise on account to a customer with terms 2/10, n/30. On December 20, the customer returned $300 of merchandise to Walton Company. Walton Company received no payments from that customer in December. On December 21, Walton Company received $1,800 from a different customer for merchandise to be delivered in January. What is Walton Company's accounts receivable on December 31? a) $3,000 b) $4,500 c) $2,646 d) $2,700 e) $4,446

d Accounts receivable = $3,000 - 300 = $2,700

Chapter 5 At the beginning of the year, Western Inc. had an inventory of $400,000. During the year, the company purchased goods costing $1,500,000. Its ending inventory is $500,000 and its sales are $2,000,000. Compute the company's cost of goods sold and gross profit rate. a) $1,000,000 and 30%, respectively. b) $1,400,000 and 70%, respectively. c) $1,000,000 and 35%, respectively. d) $1,400,000 and 30%, respectively. e) $1,000,000 and 70%, respectively

d Beginning inventory, $400,000 Purchases, $1,500,000 Less: Ending inventory, 500,000 Cost of goods sold, $1,400,000 Gross profit = Net sales - Cost of goods sold Gross profit = $2,000,000 - 1,400,000 = $600,000 Gross profit rate = Gross profit/Net sales Gross profit rate = $600,000/$2,000,000 = 0.30 or 30%

Chapter 9 Banana Company paid $200,000 for a machine a few years ago. This year, the machine was completely destroyed in a fire. At the date of the fire, the accumulated depreciation on the machine was $80,000. An insurance check for $100,000 was received as a result of the fire. No journal entry for the casualty was recorded until Banana Company received the check from the insurance company. Banana Company's entry to record the insurance proceeds will include a a) credit to the Accumulated Depreciation account for $80,000. b) credit to the Equipment account for $120,000. c) gain on disposal of plant assets of $20,000. d) loss on disposal of plant assets of $20,000. e) credit to the Cash account for $20,000.

d Debit cash for $100,000 Debit accumulated depreciation for $80,000 Debit loss on the disposal of plant assets for $20,000 Credit the equipment account for $200,000

Chapter 1 Chris's Maid Service began the year with total liabilities of $125,000 and stockholders' equity of $40,000. During the year the company earned $90,000 in net income and paid $20,000 in dividends. Total liabilities at the end of the year were $225,000. How much are total assets at the end of the year? a) $95,000 b) $370,000 c) $385,000 d) $335,000 e) $150,000

d Ending stockholders' equity = beginning stockholders' equity + net income - dividends.Ending stockholders' equity = $40,000 + 90,000 - 20,000 = $110,000.Second, determine total liabilitiesAssets = Liabilities + Stockholders' equityAssets = $225,000 + 110,000 Assets = $335,000

Chapter 9 Able Towing Company purchased a tow truck for $60,000 on January 1 of its first year. The truck was originally depreciated on a straight-line basis over 10 years with an estimated salvage value of $12,000. At the end of the third year, before year-end adjusting entries have been recorded, the company decided to revise the estimated life of the truck to a total of 6 years and to change its estimated salvage value to $2,000. How much depreciation expense should be recorded for the third year? a) $15,000 b) $6,000 c) $4,800 d) $12,100 e) $11,000

d For the first three years, the annual depreciation expense is ($60,000 - $12,000)/10 years = $4,800 per year. ($60,000 - 2 x 4,800 = $50,400) ($50,400 - $2,000)/(6-2) = $12,100

Chapter 2 In the current year, Morrison Company reported a net cash inflow from operating activities of $210,000. It also collected $35,000 from shareholders by issuing additional shares of its stock. It paid a $10,000 note payable, $45,000 for equipment, and $20,000 as dividends. What is the company's free cash flow? a) $200,000 b) $180,000 c) $170,000 d) $145,000 e) $135,000

d Free cash flow = 210,000 - 45,000 - 20,000 = 145,000

Chapter 5 Helix Company purchased merchandise with an invoice price of $3,000 and credit terms of 2/10, n/30. Assuming a 360 day year, what is the implied annual interest rate inherent in the credit terms? a) 4% b) 2% c) 54% d) 36% e) 18%

d Interest = Principal x Interest rate x Time$60 = $3,000 x Interest rate x (30-10)/360

Chapter 4 The following is information from Lewis Corporation's financial records for the current fiscal year.i. Cash received from customers, $375,000ii. Revenue earned, $380,000iii. Cash paid for wages, $180,000iv. Wages incurred, $165,000v. Cash received from shareholders for additional shares of stock, $30,000What is the company's net income for the current year using the cash-basis of accounting? a) $165,000 b) $215,000 c) $185,000 d) $195,000 e) $225,000

d Net income using the cash- basis = $375,000 - 180,000 = $195,000

Chapter 5 Heflin Corporation has the following:Sales revenue, $470,000Sales returns and allowances, $20,000Cost of goods sold, $320,000Operating expenses, $100,000Other expenses, $10,000How much is its gross profit? a) $120,000 b) $110,000 c) $270,000 d) $130,000 e) $150,000

d Net sales = Sales - Sales returns and allowances - Sales discountsNet sales = $470,000 - 20,000 - 0 = $450,000Gross profit = Net sales- Cost of goods soldGross profit = $450,000 - 320,000 = $130,000

Chapter 5 A company has the following accounts balances: Sales revenue $100,000; Sales Returns and Allowances $20,000; Sales Discounts $5,000; Cost of Goods Sold $40,000; and Net Income $7,000. How much is the gross profit rate? a) 20.0% B) 25% c) 26.7% d) 46.7% E) 75.0%

d Net sales = Sales revenue - sales returns and allowances - sales discountsNet sales = 100,000 - 20,000 - 5,000 = 75,000Gross profit = Net sales - cost of goods soldGross profit = 75,000 - 40,000 = 35,000 Gross profit rate = Gross profit divided by net sales.Gross profit rate = 35,000/75,000 = 46.7%

Chapter 4 A company's closing entries can be describes as follows: The first closing entry closes revenues and credits the Income Summary account for $12,125. The second closing entry closes expenses and debits the Income Summary account for $5,775. The third closing entry closes the Income Summary account. Prior to the fourth closing entry, the Dividends account has a $1,325 balance. The fourth closing entry closes the Dividends account. What was the company's net change in Retained Earnings for the current period? What was the company's net change in Retained Earnings for the current period? a) Retained earnings does not change during this period. b) Retained Earnings decreased by $5,025 during this period. c) Retained Earnings decreased by $5,775 during this period. d) Retained Earnings increased by $5,025 during this period. e) Retained Earnings increased by $5,775 during this period.

d Retained Earnings is increased by revenues, $12,125, and decreased by expenses and dividends, $5,775 and $1,325, so the increase in Retained Earnings is $5,025.

Chapter 4 Crowley Company has the following adjusted trial balance: Debit Credit Cash 800 Accounts receivable500 Prepaid rent100 Equipment6,000 Accumulated depreciation-Equipment 2,200 Accounts payable 400 Unearned service revenue 500 Common stock 1,400 Retained earnings 1,600 Service revenue 3,000 Interest revenue 50 Salaries and wages expense950 Depreciation expense500 Rent expense 300 Total9,1509,150 After closing entries have been journalized and posted, the post-closing trial balance total for the credit column will be a) $2,900. b) $9,150. c) $10,450. d) $7,400. e) $10,900.

d Total credits in the post-closing trial balance = 9,150 - 950 - 500 - 300 = 7,400 post closing means subtract dividends and expenses

Chapter 8 An analysis and aging of the accounts receivable of Raja Company at December 31 reveal the following data before year-end adjusting entries: Accounts receivable, $1,200,000; Allowance for doubtful accounts balance before adjustment (credit balance), $24,000; Amounts expected to become uncollectible, $115,000. How much is the cash realizable value (i.e., net realizable value) of the accounts receivable at December 31, after adjusting entries? a) $1,061,000 b) $1,200,000 c) $1,109,000 d) $1,085,000 e) $1,176,000

d accounts receivable - ending balance in the allowance for doubtful accounts $1,200,000 less $115,000, or $1,085,000.

Chapter 11 Black Raptor Inc. has retained earnings of $500,000 and total stockholders' equity of $2,000,000. It has 80,000 shares of $10 par value common stock outstanding, which is currently selling for $25 per share. What will occur if Black Raptor declares a 10% stock dividend on its common stock? a) Retained earnings will decrease by $80,000 and total stockholders' equity will increase by $80,000. b) Retained earnings will decrease by $300,000 and total stockholders' equity will increase by $300,000. c) Retained earnings will decrease by $100,000 and total stockholders' equity will increase by $100,000. d) Retained earnings will decrease by $200,000 and total paid-in capital will increase by $200,000. e) Net income will decrease by $80,000.

d retained earnings decreases by the amount total paid in capital increases

Chapter 11 Spiral Corporation's December 31, balance sheet shows the following: 8% preferred stock, $10 par value, cumulative,40,000 shares authorized; 18,000 shares issued, $180,000 Common stock, $1 par value, 4,000,000 shares authorized; 2,500,000 shares issued, 2,460,000 shares outstanding, $2,500,000Paid-in capital in excess of par value - preferred stock, $180,000Paid-in capital in excess of par value - common stock, $52,000,000Retained earnings, $24,000,000Treasury stock (40,000 shares), $1,250,000 The company's total stockholders' equity is a) $78,480,000. b) $53,960,000. c) $77,490,000. d) $77,610,000. e) $78,860,000.

d subtract treasury stock

Chapter 9 Adams Trucking Inc. purchased a new semi-truck on January 1 of the current year for $250,000. Its useful life is expected to be 5 years and its salvage value is estimated at $20,000. What is the depreciation expense for the second year using the declining-balance method at double the straight-line rate (i.e., the double-declining balance method)? a) $50,000 b) $72,500 c) $48,000 d) $60,000 e) $87,500

d The depreciation expense for the first year would be ($250,000 - 0) x (2 x 1/5) = $100,000. The asset's book value becomes $150,000 (i.e., $250,000 - 100,000). The depreciation expense for the second year would be based on the book value at the start of the second year: $150,000 x (2 x 1/5) = $60,000.

Chapter 1 Jackson Company recorded the following cash transactions for the year:Paid $180,000 for salaries.Paid $80,000 to purchase inventory.Paid $8,000 in dividends.Collected $310,000 from customers.What is the company's net cash from operating activities for the year? a) $310,000 b) $122,000 c) $42,000 d) $130,000 e)$50,000

e

Chapter 11 A corporation has the following equity account balances:Common stock, $2 par value, $80,000Paid-In Capital In Excess of Par Value, $2,700,000Based on this information, the corporation's a) average price per share issued is $27.80. b) earnings per share is $2.78 per share. c) number of shares outstanding is 2,780,000. d) number of shares issued is 270,000. e) legal capital is $80,000.

e

Chapter 2 Which of the following would increase a company's current ratio? a) Use cash to buy new equipment. b) Pay a dividend to shareholders. C) None of these d) Collect outstanding accounts receivable. e) Negotiate with a creditor to reclassify a note payable in 3 months into a note payable due in 2 years.

e

Chapter 3 Barnes Company's financial records report the following accounts and balances at the end of the year:Accounts Payable..................... $ 4,200 Accounts Receivable................. 4,900 Cash............................................. 14,300 Common Stock........................... 5,800 Dividends.................................... 2,400 Interest expense........................ 18,700 Notes Payable............................ 5,400 Prepaid Insurance....................... 2,900 Retained earnings....................... 2,600 Service revenue....................... 25,200 What would the company show as its total credits on its trial balance? a) $43,900 b) $37,600 c) $40,600 d) $43,400 e) $43,200

e

Chapter 4 A company uses accrual-basis accounting. On December 20, the company received $1,000 from a customer for services expected to be completed within 30 days. On December 20, the company recorded $1,000 of cash and unearned service revenue. The company does provide the services before the end of the current year, but it omits the year-end adjusting entry. This omission would cause the company's current year a) expenses to be overstated. b) revenues to be overstated. c) assets to be overstated. d) liabilities to be understated. e) net income to be understated.

e

Chapter 4 Financial statements can be prepared directly from the a ) trial balance. b) All of these are correct. c) post-closing trial balance. d) reversing trial balance. e) adjusted trial balance.

e

Chapter 5 Clark Corporation uses the periodic inventory system. On May 1, Clark Corporation sells merchandise on account for $10,000 with terms 2/10, n/30. Clark Corporation had paid $6,000 to acquire the merchandise. The buyer is not satisfied with some of the merchandise and on May 7 returns merchandise with an invoice price of $1,000 to Clark Corporation. The merchandise returned to Clark Corporation had cost Clark Corporation $600. On May 10, Clark Corporation receives payment for the merchandise retained by the buyer. How would Clark Corporation record the return of merchandise from the buyer on May 7? a) ) It would record two journal entries. Debit sales returns and allowances for $1,000; credit inventory for $1,000. Debit cost of goods sold for $600; credit accounts receivable for $600. b) Debit inventory for $1,000; credit sales returns and allowances for $1,000. c) Debit sales returns and allowances for $980; credit accounts receivable for $980. d) It would record two journal entries. Debit sales returns and allowances for $1,000; credit accounts receivable for $1,000. Debit inventory for $600; credit cost of goods sold for $600. e) Debit sales returns and allowances for $1,000; credit accounts receivable for $1,000.

e

Chapter 5 Starlight Corporation, which uses a perpetual inventory system, purchased $3,000 of merchandise on August 2 on account. Credit terms were 1/10, n/30. It returned $250 of the merchandise on August 4. Which of the following is one effect when Starlight pays its bill on August 12? a) Credit to Cash for $2,750 b) Credit to Accounts Payable for $2,722.50 c) Debit to inventory for $3,000 d) Debit to Accounts Payable for $3,000 e) Credit Inventory for $27.50

e

Chapter 5 Which of the following is a component of the operating cycle of a merchandising company? a) Pay rent on a warehouse where inventory is stored b) All of these are components of the operating cycle of a merchandising company c) Pay interest on a loan d) Pay a dividend e) Pay for inventory

e

Chapter 7 A company's system of internal control a) must provide absolute assurance of the reliability of a company's accounting records. b) cannot be rendered ineffective by employee collusion. c) usually has costs exceeding its benefits. d) cannot involve a segregation of duties. e) is expected to provide reasonable assurance of the reliability of a company's accounting records.

e

Chapter 4 On August 1, Crestview Company purchased equipment for $8,000. The equipment's estimated salvage value is $800. The machine will be depreciated using straight-line depreciation and a four year life. If the company prepares annual financial statements on December 31, the appropriate adjusting journal entry to make on December 31 of the first year would be a a) $750 debit to Depreciation Expense and a $750 credit to Equipment. b) $1,800 debit to Depreciation Expense and a $1,800 credit to Equipment. c) $1,800 debit to Depreciation Expense and a $1,800 credit to Accumulated Depreciation. d) $1,800 debit to Depreciation Expense and a $1,800 credit to Cash. e) $750 debit to Depreciation Expense and a $750 credit to Accumulated Depreciation.

e (8,000 - 800)/4 = $1,800 per yearThe correct adjusting entry to record depreciation for 5 months (i.e., August 1 through December 31) is $1,800 per year x 5/12 = $750.

Chapter 8 At the start of the current year, a company's Allowance for Doubtful Accounts had a credit balance of $15,000. During the current year, it had net credit sales of $600,000 and it wrote-off $24,000 of accounts receivable as uncollectible. The company's accounts receivable at the end of the year is $160,000. What is the required adjustment to the Allowance for Doubtful Accounts at the end of the year if past experience indicates that the allowance should be 10% of the balance in receivables? a) $31,000 b) $40,000 c) $16,000 d) $24,000 e) $25,000

e 10% times 160,000 = 16,000 debit balance of 9,000 so must add 25,000 to get to 16,000 credit balance

Chapter 2 Clawson Corporation has current assets of $3,010,000 and current liabilities of $2,150,000. If Clawson Corporation pays $200,000 of its accounts payable what will its new current ratio be? a) 1.40 b) 1.48 c) 1.54 d) 1.51 e) 1.44

e Current ratio equals current assets divided by current liabilities. Accounts payable is a current liability. Paying accounts payable reduces cash (i.e., current assets) and reduces accounts payable (i.e., current liabilities).Current ratio = ($3,010,000 - $200,000) / ($2,150,000 - $200,000) Current ratio = 1.44 (i.e., 1.44 to 1 or 1.44:1)

Chapter 11 Outstanding stock of the West Corporation included 40,000 shares of $5 par common stock and 10,000 shares of 6%, $10 par cumulative preferred stock. In 2019, West declared and paid dividends of $4,000. In 2020, West declared and paid dividends of $12,000. How much of the 2020 dividend was distributed to preferred shareholders? a) $10,000 b)$2,400 c) $6,000 d) $14,000 e) $8,000

e Dividends to preferred stockholders per year = 10,000 x $10 x 6% = $6,000 Dividends in arrears on preferred stock = $6,000 - $4,000 = $2,000 Dividend payment to preferred stockholders = $6,000 + 2,000 = $8,000

Chapter 8 Under the allowance method, writing off an uncollectible account a) affects no balance sheet accounts or income statement accounts. B) affects two income statement accounts. C) affects one balance sheet account and one income statement account. d) violates Generally Accepted Accounting Principles. e) affects two balance sheet accounts.

e reduces accounts receivable and reduce allowance for doubtful accounts which is both assets