ACCT 3001 Adaptive Practice CH 1 - 13

6. Trinitron Inc. has cash in bank of $108,000, cash set aside for retirement on long-term debt in a separate account of $200,000, short-term paper that matures in nine months for $50,000, and a compensating balance at another bank for a long-term loan of $75,000. How much should be reported under the heading Cash? $108,000 $358,000 $308,000 $433,000

$108,000 Restricted cash and compensating balance are separately reported as assets. The short-term paper is not a cash equivalent due to the nine-month maturity date, and the heading only includes cash, not cash equivalents. The cash, in this case, is limited to the cash in the bank.

12. Wells Enterprises introduced a new machine in January 2020. The machine carries a two-year warranty, and estimated warranty costs are 2% of sales within the first 12 months and 3% of sales within the second 12 months. 2020 sales were $700,000 and its 2021 sales were $900,000. Warranty expenditures in these two years were $10,500 and $31,500, respectively. Assuming Wells uses the assurance warranty method, what should it report as estimated warranty expense for 2021? $48,000. $45,000. $0. $27,000.

$45,000. During 2021, Wells would estimate $45,000 in warranty costs for sales made in 2021 (2% + 3%) x $900,000 = $45,000.

5. If Rose wants to have $570,000 from a $226,000 investment after 12 years, the interest rate (to the nearest percent) she needs is 6%. 9%. 8%. 7%.

8%. $570,000 / $226,000 = 2.52 = Future value of 1 for 12 years at 8%

2. Which of the following best describes an accrued revenue? An amount not collected for services not yet performed An amount collected for services performed An amount collected prior to services being performed An amount not yet collected for services performed

An amount not yet collected for services performed Revenues for services performed but not yet recorded at the statement date are accrued revenues.The other choices do not apply since services do not meet the definition of an accrued expense.

12. Which example inaccurately describes a gain contingency? The possible receipt of money from a litigation settlement A pending court case with a probable favorable outcome An obligation related to a product warranty A tax loss carryforward

An obligation related to a product warranty An obligation is not a gain contingency. Gain contingencies are claims or rights to receive assets (or have a liability reduced) whose existence is uncertain, but which may become valid eventually. All other responses are examples of gain contingencies.

7. What is the result of failing to record a purchase of merchandise on account even though the goods are properly included in the physical inventory? An overstatement of assets and net income. An understatement of liabilities and an overstatement of owners' equity. An understatement of assets and net income. An understatement of cost of goods sold and liabilities and an overstatement of assets.

An understatement of liabilities and an overstatement of owners' equity. Failing to record a purchase on account and accounting for the product in physical inventory leads to an understatement of liabilities and an overstatement of owners' equity.

3. Which of the following indicates a company has satisfied its performance obligation? Company has received payment for goods or services. Company has legal title to the asset. Company has transferred physical possession of the asset. Company has significant risks and rewards of ownership.

Company has transferred physical possession of the asset. Under GAAP, the selling firm satisfies its performance obligation when they have transferred physical possession of the asset to the buying firm. None of the other answer choices describe instances where the selling firm has satisfied its performance obligation to a buyer.

9. On April 1, 2020, BioGen Technology purchased a new machine on a deferred payment basis. A $2,000 down payment was made and 4 annual installments of $12,000 each are to be made beginning May 1, 2020. The cash equivalent price of the machine was $46,000. Due to an employee strike, BioGen could not install the machine immediately, and thus incurred $600 in storage costs. Installation costs (excluding storage costs) were $1,600. What amount should be capitalized as the cost of the machine? $46,000. $52,000. $48,200. $47,600.

$47,600. Amount to be capitalized is equal to the cash purchase amount, which was the price + the installation charge ($46,000 + $1,600 = $47,600).

9. Brown Company traded machinery with a book value of $720,000 and a fair value of $1,200,000. It received in exchange from Allen Company a machine with a fair value of $1,080,000 and cash of $120,000. Allen's machine has a book value of $1,140,000. Assuming a lack of commercial substance, how much gain should Brown recognize on the exchange? $480,000 $0 $120,000 $48,000

$48,000 Gain is found using the formula for gain recognition when some cash is received: cash value is divided by the sum of cash and assets received multiplied by the total gain, or ($120,000 /[$120,000 + $1,080,000]) * $480,000 = $48,000.

7. When the Rotund Company decided to adopt the dollar-value LIFO method it had a January 1 inventory of $180,000. The purchases for that year amounted to $1,080,000 with sales totaling $1,800,000. The price index was 110 and the December 31 inventory at year end prices was $227,700. What would the gross profit for this company be? $747,000. $749,700. $1,590,300. $767,700.

$749,700. $227,700 ÷ 1.10 = $207,000 - $180,000 = $27,000 $180,000 + ($27,000 × 1.10) = $209,700 $180,000 + $1,080,000 - $209,700 = $1,050,300 COGS $1,800,000 - $1,050,300 = $749,700

8. At Hawkeye Security the basic professional grade security system has a cost of $812, a replacement cost of $775, a net realizable value of $800, and a normal profit margin of $50. Hawkeye Security would record ________ as the inventory value for this product using the lower-of-cost-or-market rule. $800 $812 $762 $775

$775 The ceiling is the NRV which is $800. Calculate floor by subtracting the profit margin in dollars from the NRV. $800 - $50 = $750. Find the market value by taking the middle value of the replacement cost ($775), floor ($800) and ceiling ($750). Choose the lower of the market value ($775) or the historical cost ($812).

8. Wigging Corp. has unfinished inventory with a cost of $1050, a sales value of $1,200, estimated cost of completion of $150, and estimated selling costs of $250. What is Wigging Corp.'s net realizable value? $1050 $250 $1200 $800

$800 Wigging Corp. reports inventory on its balance sheet at $800.Inventory Value- unfinished $1200Less: Estimated cost of completion $150Less: Estimated selling cost $250NRV $800In its income statement, Wigging Corp. reports a Loss Due to Decline of Inventory to NRV of $250 ($1,050 − $800).A departure from cost is justified because inventories should not be reported at amounts higher than their expected realization from sale or use. In addition, a company like Wigging Corp. should charge the loss of utility against revenues in the period in which the loss occurs, not in the period of sale.

7. The Corton Company uses a periodic inventory system. For the month of October, the beginning inventory consisted of 4,800 units that cost $12 each. Two purchases were made in October, one for 2,000 units at $13 each, and one for 8,000 units at $13.50 each. Additionally, Corton sold 8,600 units during the month. If the FIFO method is used, the ending inventory is $80,292. $83,700. $75,800. $74,400.

$83,700. (4,800 + 2,000 + 8,000) - 8,600 = 6,200 units in ending inventory x $13.50 = $83,700

3. Parker Pharmaceuticals recently entered into a licensing agreement with PharmaResearch Inc. Under this agreement, PharmaResearch will pay Parker $10,500,000 if one of its new drugs receives FDA approval. Based on its prior experiences with the FDA, Parker determines it is 90% likely that this particular drug will be approved. What should be the transaction price for this arrangement? $9,450,000 $10,500,000 $0 until the drug is approved $8,500,000

$9,450,000 Parker is 90% certain that the $10,500,000 deal will occur. Thus, the appropriate transaction price is 90% x $10,500,000 = $9,450,000.

4. Delgado Corp. purchased some common stock of Keller Enterprises. Delgado plans to hold this stock for a minimum of five years, although they could sell it sooner if they need to. How do you expect Delgado to classify the stock on their balance sheet? as a short-term investment as a long-term investment as owners' equity as a long-term liability

as a long-term investment Since Delgado is not planning to sell the stock in the next year, it would be classified as an available-for-sale investment. Available-for-sale investments that are not going to be sold in the next year are subsequently classified as long-term investments on the balance sheet.

6. How are travel advances that are deducted from the employee's salary reported? as receivables as cash as investments as supplies

as receivables Companies treat travel advances as receivables, if collected from employees or deducted from their salaries. This would not be considered as an investment or cash.

3. Andress Properties rents a warehouse facility to Wells Enterprises. Andress and Wells enter into a three-year rental contract that will represent $1.2 million in total revenue for Andress. When should Andress recognize this revenue? on the date in which it enters into the contract with Wells as time passes when Wells takes possession of and moves into the facility on the date in which Wells makes the final rent payment

as time passes Under the revenue recognition principle, revenues in this situation are recognized pro-rata over the three-year rental contract, as Wells rents and utilizes the warehouse facility provided by Andress.

6. How should long-term notes receivable be reported? at the present value of the cash expected to be collected at the face value of the note at the present value of the cash paid for the note at the fair value of the note

at the present value of the cash expected to be collected Companies record and report long-term notes receivable at the present value of the cash they expect to collect. When the interest stated on an interest-bearing note equals the effective (market) rate of interest, the note sells at face value. When the stated rate differs from the market rate, the cash exchanged (present value) differs from the face value of the note. Companies then record this difference, either as a discount or a premium, and amortize it over the life of the note to approximate the effective (market) interest rate.

4. Jake Stratta is an investor who is interested in purchasing a large block of shares of Hamilton Industries. If Jake wants to predict Hamilton's future cash flows before he makes his investment, which financial statement should he look at? statement of owner's equity balance sheet statement of financial flexibility income statement

balance sheet Because it is used to measure a company's liquidity and solvency, the balance sheet can also be used to predict future cash flows. Therefore, Jake should look at the balance sheet to determine if Hamilton Industries is a good investment.

7. Goods in transit being shipped to Company X under terms f.o.b destination should be excluded from the Company X balance sheet. be included in Inventory on the Company X balance sheet. be included in Equipment on the Company X balance sheet. be included in Accounts payable on the Company X balance sheet.

be excluded from the Company X balance sheet. Goods shipped via terms f.o.b destination remain the inventory of the seller, and should be excluded from the inventory of the buyer until received, company X in this example.Goods shipped under terms of f.o.b shipment become the inventory of the buyer upon shipment.

2. As the cash amount listed on a firm's adjusted trial balance increases, the net income amount listed on the firm's income statement will stay the same. behave in no predictable manner. decrease. increase.

behave in no predictable manner. The firm's income statement behaves in no predictable manner since the income statement occurs before the firm's adjust balance post. Cash would not affect net income since an adjusted trial balance is a listing of the ending balances in all accounts after adjusting entries have been prepared.

8. In an industry where one raw material makes many different products, use of the relative sales value method would be obsolete. inaccurate. beneficial. redundant.

beneficial. Relative sales value method is used to value (at cost) the many products and by-products obtained from the raw material. It is only beneficial for the company to maximize it as long as the parts are accurate and compatible with the next inventory.

7. The Roan Company's inventory on its balance sheet was lower using first-in, first-out, than it would have been using last-in, first-out. Assuming no beginning inventory, the direction the cost of purchases moved during the period would be impossible to determine. down. steady. up.

down. First-in, first-out would have latest purchased units in ending inventory whereas last-in, first-out would have oldest purchased units in ending inventory. When the cost of purchases are moving down, first-in, first-out would have lower inventory as the cost of latest purchased units is lesser.

4. Presenting information about a company's resources on the balance sheet helps companies meet the objective of financial reporting. financial accounting. working capital. gaining investors.

financial reporting. By presenting information about the company's resources, the financial reporting objective is met. Working capital can be attained from the balance sheet however it is not the balance sheet's objective. Financial accounting refers to the accounting needed to present the financial statements. The balance sheet's purpose is not to gain investors however it may if the company appears to be a good investment.

2. When preparing closing journal entries, there are typically ___________ entries. three five two four

four There are four typical closing journal entries, revenue is closed to income summary, expenses are closed to income summary as well and to the retained earnings, and dividends to retained earnings. The other choices do not describe closing journal entries.

13. Hinds Enterprises issued bonds at a premium. They traditionally use the effective interest method of amortization. Therefore, you would expect the earlier years of the bonds to have an interest expense that is the same as if the straight-line method were used. less than if the straight-line method were used. greater than the amount of the interest payments. greater than if the straight-line method were used.

greater than if the straight-line method were used. Amortization of a premium decreases interest expense. Companies compute bond interest expense first by multiplying the carrying value of the bonds at the beginning of the period by the effective interest rate. Therefore interest expense would be greater than if the straight-line method has previously been used in the earlier years.

1 It is true that GAAP is the collection of authorized GAAP Updates issued by different organizations. usage is not required by the AICPA. does not include pronouncements of the FASB's predecessor organizations. has substantial authoritative support.

has substantial authoritative support.

5. Kelly is trying to save $5,000. She currently has $3,960. Kelly wants to put the money in a CD at a bank that offers 3% interest on long-term CDs. What else does Kelly need to know to determine which CD she should choose? the effective rate in terms of the discounted sum the future discounted sum of the money she wants to put in the CD the rate of interest for the future value and the present value how many time periods are needed to grow her money from $3,960 to $5,000

how many time periods are needed to grow her money from $3,960 to $5,000 There are four fundamental variables to all compound interest problems: rate of interest, number of time periods, present value, and future value. All of these variables were known in this problem, except for the number of time periods.

2. If Jackson Enterprises recorded journal entries for the issuance of common stock for $160,000, a payment of $52,000 on accounts payable, and a payment of salaries and wages expense of $84,000, the net effect of these entries on stockholder's equity would be an increase of $24,000. increase of $160,000. increase of $108,000. increase of $76,000.

increase of $76,000. Issuing common stock would increase equity by $160,000 and paying salary expenses would decrease equity by $84,000. Payment of accounts payable would have no effect on equity. Therefore, owners' equity would increase by $76,000 ($160,000 -$84,000).

10. Flanagan Concrete owns equipment with a book value of $3,500,000. The equipment is estimated to generate future cash flows of $2,975,000. The equipment has a fair value of $2,890,000. The journal entry to record the impairment loss will include a $610,000 credit to the Equipment account. record a loss of $85,000. increase the asset's Accumulated Depreciation account by $610,000. reduce income from continuing operations by $525,000.

increase the asset's Accumulated Depreciation account by $610,000. If an asset is impaired, the amount of the impairment loss is the book value minus the fair value. Therefore, the impairment loss is $3,500,000 - $2,890,000 = $610,000. This will be recorded as a debit (increase) to the Loss on Impairment account and a credit (increase) to the Accumulated Depreciation—Equipment account.

3. Your team member argues that the following items should be included in a multiple-step income statement that you are preparing for a financial statement analysis. Which of the following do you disagree with? income tax income from operations irregular items discontinued operations

irregular items The multiple step income statement has 6 sections, none being irregular items. The six sections include: operating sections, nonoperating section, income tax, discontinued operations, noncontrolling interest and earnings per share.

2. Assuming all other entries on its adjusted trial balance and income statement remain constant, as a firm's cost of goods sold decreases, its net income and retained earnings will both decrease. net income will increase and its retained earnings will decrease. net income and retained earnings will both increase. net income will decrease and its retained earnings will increase.

net income and retained earnings will both increase. This occurs because COGS is listed as a debit account. This affects the assets, liabilities, and owner's equity accounts. Net income would be increased, and this will increase the retained earnings. The other choices would cause a misstatement.

10. Shawn knows his company's profit margin on sales and its net sales amount. Given these values, Shawn can determine the company's _________ its net sales by its profit margin on sales. return on assets by multiplying net income by multiplying net income by dividing return on assets by dividing

net income by multiplying Profit Margin on Sales=Net Income / Net Sales therefore if the company multiplies its net sales by its profit margin on sales, Shawn can determine the company's net income.

1 Before the development and implementation of IFRS, when different countries had different accounting standards, international companies often list their stocks in only one market. prepared financial reports in different ways. prepare financial reports in different languages. prepare more complete financial statements than non-international companies.

prepared financial reports in different ways.

9. A nonmonetary exchange of assets has commercial substance when there is a difference in future cash flows. equivalent interest in similar productive assets has caused the companies involved to remain in essentially the same economic position. there is no difference in future cash flows. the same products will be manufactured by the companies involved in the exchange.

there is a difference in future cash flows. If the future cash flows change as a result of the transaction as well as if the two parties' economic positions change, the nonmonetary exchange of assets transaction has commercial substance.

6. Why do companies offer cash discounts? to alter prices for different quantities purchased to induce prompt payment to avoid frequent changes in catalogs to hide the true invoice price from competitors

to induce prompt payment Companies offer cash discounts (sales discounts) to induce prompt payment. Customers usually take sales discounts unless their cash is severely limited because a customer that receives a 1 percent reduction in the sales price for payment within 10 days, total payment due within 30 days, effectively earns 18.25 percent.

5. By definition, compound interest is the return on, or growth of, the principal for _____ or more time periods. one three two four

two

12. What is a typical benefit afforded to a company from analysts and investors when its management engages with prudent management decisions? Higher stock price Higher debt service costs Lower stock price Lower number of vendors that will offer loans to the company

Higher stock price The evaluation of credit quality involves more than simply assessing a company's ability to repay loans. Credit analysts also evaluate debt management strategies. Analysts and investors will reward what they view as prudent management decisions with lower debt service costs and a higher stock price.

6. What would be a cause of a receivable being classified as noncurrent? It will be collected after one year or operating cycle, whichever is longer. It will be collected within 30 to 60 days. It is doubtful that it will be collected. It results from a transaction other than an exchange for goods or services.

It will be collected after one year or operating cycle, whichever is longer. For financial statement purposes, companies classify receivables as either current (short-term) or noncurrent (long-term).Companies expect to collect current receivables within a year or during the current operating cycle, whichever is longer.

6. What is the expected result of receiving a cashier's check? an increase in temporary investments an increase in prepaid expense an increase in receivables an increase in cash

an increase in cash Negotiable instruments such as money orders and cashier's checks are viewed as cash. They are not considered temporary investments or receivables because they are readily available to be cashed without penalties.

2. On September 1, 2018, the Milo Corporation received $24,000 for one year's rent in advance and recorded the transaction with a credit to Unearned Rent Revenue. What adjusting entry should the Milo make on December 31, 2018? debit Cash and credit Unearned Rent Revenue, $16,000 debit Rent Revenue and credit Unearned Rent Revenue, $16,000 debit Unearned Rent Revenue and credit Rent Revenue, $8,000 debit Rent Revenue and credit Unearned Rent Revenue, $8,000

debit Unearned Rent Revenue and credit Rent Revenue, $8,000. $24,000 x 4/12 = $8,000. The other choices do not accurately record in the double-entry account and would cause errors on the financial statements.

1. Which of the following works to provide online access to the Codification in the form of a database? the APB the FASB the CRS the AICPA

the CRS

1 Jonas is the CFO for his company. For more than 10 years he has been personally reviewing the company's financial statements to ensure they are correct. This was not an expectation of his position 25 years ago. What is responsible for this change? the Sarbanes-Oxley Act the expectations gap the formation of the PCAOB the ethical guidelines

the Sarbanes-Oxley Act The Sarbanes-Oxley Act requires that CEOs and CFOs personally certify that financial statements and disclosures are both accurate and complete. Ethical guidelines and the expectations gap would not require them to do so.

8. When the replacement cost of an item exceeds its net realizable value ______. the company uses the historical cost of the item as the designated market value. the company uses net realizable value less a normal profit margin as the designated market value. the company uses net realizable value as the designated market value. the company uses replacement cost as the designated market value.

the company uses net realizable value as the designated market value. If the replacement cost of an item exceeds its net realizable value, a company should not report inventory at the replacement cost. The company can receive only the selling price less the cost of disposal. The designated market value can also be the amount that a company compares to cost. It is always the middle value of three amounts: replacement cost, net realizable value, and net realizable value less a normal profit margin.

8. A pair of jeans purchased this period for $15.00 has been incorrectly written down to its current replacement cost of $10.00. It sells during the following year for the normal selling price of $30.00, with disposal costs of $3.00 and normal profit of $12.00. Which of the following will be overstated? the cost of sales of the following year the closing inventory of the current year the following year's income the current year's income

the following year's income The sale of the pair of jeans took place the following year, so no earnings were made during the current year. Hence, the company will have overstated income by $5 the following year. Since the jeans were erroneously recorded at the current replacement cost of $10, the overstatement will come from the $5 difference that should have been recorded as the purchase price of $15.

2. Which of the following is not shown in a completed journal entry? the date of the transaction the new balance in the accounts affected by the transaction the accounts and amounts to be debited and credited a brief explanation of the transaction

the new balance in the accounts affected by the transaction A general journal makes three significant contributions to the recording process:1. It discloses in one place the complete effect of a transaction.2. It provides a chronological record of transactions.3. It helps to prevent or locate errors because the debit and credit amounts for each entry can be readily compared.

3. For revenue arrangements with multiple performance obligations, if an allocation is needed, the transaction price is allocated to the various performance obligations based on the relative standalone selling prices. the relative cost. the quantity in units. the number of obligations.

the relative standalone selling prices. A company allocates the transaction price for separate performance obligations in proportion to the standalone selling prices for each performance obligation. The standalone selling price is the price the company would sell a product or a service, separately, to a customer.

13. Penny is interested in investing in corporate bonds, but she is not sure what type would be the best choice for her. She tells you that she is especially interested in buying a relatively low level of risk bond and offers a steady income stream. Which of the following pieces of advice would be most appropriate for you to provide? "Given your desire for a low level of risk and a steady income stream, you will want to avoid debenture bonds that are not secured by collateral. Also avoice deep-discount bonds that do not provide a steady income stream, even if their price makes them seem like an appealing option." "I think an income bond is the best choice for you because, with this type of bond, the issuing corporation must pay you a set amount of money every year until the bond reaches maturity." "I would recommend avoiding term bonds. Because these bonds all mature on a single date, you will not receive any interest payments until that maturity date is reached." "Any type of debenture bond should be a solid choice. These bonds are backed by collateral, which means your risk of loss is low or even nonexistent."

"Given your desire for a low level of risk and a steady income stream, you will want to avoid debenture bonds that are not secured by collateral. Also avoice deep-discount bonds that do not provide a steady income stream, even if their price makes them seem like an appealing option." Since Penny wants to limit her risk, she should avoid debenture bonds because they are not secured by collateral and deep discount bonds. This type of bond does not provide any interest payment until its maturity. Income bonds are also a poor choice because she will not receive interest payments unless the issuing corporation is profitable.

2. In November and December 2018, Smith Co., a new journal publisher, received $60,000 for 1,000 three-year subscriptions at $20 per year, starting with the January 2019 issue. The subscriptions revenue Smith will report in its 2018 income statement is $20,000. $0. $60,000. $3,333.

$0. None of the $60,000 is recognized in 2018. The transaction activity does not occur until 2019; therefore, the other choices are improperly recording the transaction.

10. Ceres Corporation acquired a mineral mine for $6,000,000 of which $600,000 was ascribed to land value after the mineral has been removed. Geological surveys have indicated that 9 million units of the mineral could be extracted. During 2020, 1.8 million units were extracted and 1.2 million units were sold. What is the total amount of depletion recorded in Inventory during 2020? $6,000,000 $4,000,000 $72,000 $1,080,000

$1,080,000 Depletion cost per unit = (total cost - salvage value)/ total estimated units. Total cost is the cost of the mine ($6,000,000 -$600,000)/9,000,000 = $0.60. The depletion cost per unit times the units extracted is the amount of depletion for the year. $0.60 x 1,800,000 = $1,080,000

5. Kara won $3,000,000, which will be paid after twenty years. If the interest rate is 5% compounded annually, the present value of the amount is $7,959,900. $3,000,000. $1,130,667. $37,386,630.

$1,130,667. $3,000,000 ÷ (FV of 1 for 20 periods at 5%) = $3,000,000 ÷ 2.6533 = $1,130,667.

9. JT Engineering paid $520,000 for land. It paid $65,000 to tear down a building on the site and made $15,400 in salvage. Titles fees and insurance cost JT $4,320. The architect's fees were $28,200. Construction liability insurance cost $1,600 and the contractor was paid $1,520,000. A $4,620 assessment was made by the city for pavement. What is JT's cost of the building? $1,548,200 $1,521,600 $1,549,800 $1,528,200

$1,549,800 Cost of building includes materials, labor, and overhead costs incurred during construction and professional fees and building permits. So, JT's cost of building is $28,200 + $1,600 + $1,520,000 = $1,549,800.

3. In 2020, Austin Enterprises reported net income of $674,000. It declared and paid preferred stock dividends of $200,000 and common stock dividends of $75,000. During 2020, Austin Enterprises had a weighted average of 300,000 common shares outstanding. Compute Austin Enterprises' 2020 earnings per share. $2.25. $2.00. $1.58. $1.33.

$1.58. Earnings per share is calculated by [Net Income ($674,000) - Preferred Dividends ($200,000)] ÷ Weighted average of common shares outstanding (300,000) = $1.58

5. Sam is trying to determine the yearly rent for a piece of equipment. The present value of the ordinary annuity is $36,768.76, and the present value of the ordinary annuity factor is 3.60478. What is the periodic rent? $145,678 $132,543 $26,509 $10,200

$10,200 In order to determine the periodic rent, you must divide the present value of the ordinary annuity by the present value of the ordinary annuity factor. In this case, that would be: $36,768.76 / 3.60478 = $10,200.

7. The Brighton Corporation included the following information in their inventory account at December 31, 2020: Goods held on consignment by Brighton $7,000 Merchandise out on consignment, at sales price, including 30% mark-up on selling price 12,000 Goods purchased, in transit, shipped f.o.b. shipping point 9,000 How much should Brighton's inventory be reduced at December 31, 2020? $10,600 $12,600 $28,000 $16,000

$10,600 Brighton's inventory should be reduced by $10,600 because you need to remove the goods held on consignment by Brighton ($7,000) and the 30% markup on merchandise out on consignment ($12,000 x 30% = $3,600).$7,000 + $3,600 = $10,600 reduction needed

6. The following accounts were abstracted from Emmeline Co.'s unadjusted trial balance at December 31, 2020: Debit $850,000 12,000 Accounts receivable Allowance for uncollectible accounts Credit $3,200,000 Net credit sales The company estimates that 5% of the gross accounts receivable will become uncollectible. What will be the allowance for uncollectible accounts' credit balance after the 12/31/2020 adjustment? $30,500 $42,500 $54,500 $41,900

$42,500 Find 5% of the gross accounts receivable.$850,000 x 0.05 = $42,500

6. Granny's Quilt Shoppe has $2,550 in currency and coins in the cash register along with $1,200 of personal checks. Two of those personal checks, each for $100, are postdated. They also have $300 worth of postage stamps and $250 in the petty cash fund. Additionally, the shop has a balance of $3,000 in their checking account, $4,500 in their savings account, and $2,500 in a certificate of deposit. How much should be reported as cash in the balance sheet? $14,200 $11,500 $11,300 $8,800

$11,300 Add the items considered cash together. The postdated checks need to be subtracted from the total amount of checks since they are not considered cash. Postage stamps would not be considered cash as they cannot not be used as currency or returned for cash.$2,550 + ($1,200 - $200) + $250 + $3,000 + $4,500 = $11,300

8. At Hawkeye Security the basic security system for home use has a cost of $160, a replacement cost of $150, a net realizable value of $145, and a normal profit margin of $20. Hawkeye Security would record _________ as the inventory value for this product using the lower-of-cost-or-market rule. $160 $145 $150 $125

$145 The ceiling is the NRV which is $145. Calculate floor by subtracting the profit margin in dollars from the NRV. $145 - $20 = $125. Find the market value by taking the middle value of the replacement cost ($150), floor ($125) and ceiling ($145). Choose the lower of the market value ($145) or the historical cost ($160).

6. Sweet Treats Bakery has $4,000 in currency and coins in the cash register along with $3,200 of personal checks. Two of those personal checks, each for $150, are postdated. They also have $500 worth of postage stamps and $350 in the petty cash fund. Additionally, the bakery has a balance of $2,750 in their checking account, $5,000 in their savings account, and $6,000 in a certificate of deposit. How much should be reported as cash in the balance sheet? $16,100 $15,300 $15,000 $22,100

$15,000 Add the items considered cash. The postdated checks need to be subtracted from the total amount of checks since they are not considered cash.$4,000 + ($3,200 - $300) + $350 + $2,750 + $5,000 = $15,000

5. If you want money deposited in a bank account earning 8% compound interest to grow to $15,000 in three years, then you need to deposit $15,000 × 1.260 × 3. $15,000 ÷ 1.260. $15,000 ÷ 1.080 × 3. $15,000 × 1.260.

$15,000 ÷ 1.260. Future value of 1 at 8% for 3 periods = 1.260

2. On June 30, 2019, Martin Corp.'s balance sheet included a 10%, $3,000,000 note payable. The note is dated October 1, 2017, and is payable in three equal annual payments of $1,000,000 plus interest. The first interest and principal payment was made on October 1, 2018. In Martin's June 30, 2019 balance sheet, the accrued interest payable for this note will be $112,500. $75,000. $150,000. $225,000.

$150,000. $2,000,000 × 9/12 × 10% = $150,000The other choices are incorrect for recording will cause a misstatement.

3. Marco Industries has an income tax rate of 30%. Their reported income from operations is $350,000; The company also had a loss from flood damage of $120,000. Which of the following is the correct amount of the company's net income from continuing operations? $301,000. $161,000. $230,000. $430,000.

$161,000. $350,000 - $120,000 = $230,000 income before income taxes; $230,000 x .70 = $161,000 income from continuing operations.

10. On January 1, 2010, Menzel Industries purchased a machine for $120,000. At that time, Menzel estimated that the machine had a 20-year useful life and a $12,000 salvage value. On July 1, 2020, Menzel reviewed the machine's potential, determining that its undiscounted future net cash flows totaled $60,000 and its discounted future net cash flows totaled $45,000. Menzel has no plans to dispose of the machine, in part because no active market exists for it. Assuming that Menzel uses straight-line depreciation, Menzel should record an impairment loss of $_______ related to the machine on July 1, 2020. $3,300 $18,300 $6,700 $8,300

$18,300 Menzel paid $120,000 for the machine and estimated a useful life of 20 x 12 = 240 months and a salvage value of $12,000. Thus, each month, the firm recorded ($120,000 - $12,000)/240 = $450 in depreciation. Menzel bought the machine on January 1, 2010, and reviewed its potential on July 1, 2020, which means it owned the machine for all of 2010-2019 and 6 months in 2020, or a total of (10 x 12) + 6 = 126 months. Over this span, it recorded 126 x $450 = $56,700 in depreciation expense, which means the machine had a carrying amount of $120,000 - $56,700 = $63,300. Because this amount is greater than the estimated undiscounted future net cash flows of $60,000, an impairment has occurred. The amount of the impairment is equal to the difference between the machine's carrying amount and the present value of its expected future net cash flows, or $63,300 - $45,000 = $18,300.

2. Henry Hardware had the same net sales amount in both September and October. However, the company's cost of goods sold was $5,000 higher in September than in October, and its total administrative expenses were $7,250 higher in October than in September. Assuming all other aspects of the firm's income statement are the same for both months, we can conclude that Henry's net income in September was $12,250 lower than its net income in October. $2,250 higher than its net income in October. $2,250 lower than its net income in October. $12,250 higher than its net income in October.

$2,250 higher than its net income in October. Because Henry's cost of goods sold was $5,000 higher in September, the firm's net income was $5,000 lower in September than in October. However, September's administrative costs were also $7,250 lower, which means that the month's net income was actually -$5,000 + $7,250 = $2,250 higher than October's net income. The other choices would result in the transaction being recorded incorrectly.

5. The interest rate on an investment is 10%. The investment itself pays $30,000 at the beginning of each year for the next 10 years. The amount paid for this investment would be $184,335. $202,771. $214,338. $214,330.

$202,771. In order to determine this answer, you must multiply the present value of the annuity due. In this case, that is: 6.759027 X $30,000 = $202,770.81, which rounds up to $202,771.

2. Astra Autos had the same net sales amount in both March and April. However, Astra's cost of goods sold was $25,000 lower in March than in April, and its total selling expenses were $48,000 lower in April than in March. Assuming all other aspects of the firm's income statement are the same for both months, we can conclude that Astra's net income in April was $73,000 lower than its net income in March. $23,000 lower than its net income in March. $73,000 higher than its net income in March. $23,000 higher than its net income in March.

$23,000 higher than its net income in March. Because Astra's cost of goods sold was $25,000 lower in March, the firm's net income was $25,000 higher in March than in April. However, March's selling expenses were also $48,000 higher, which means that the month's net income was actually $23,000 lower in March than in April ($25,000 - $48,000 = -$23,000). The other choices would result in a misstatement.

9. Ahrens Industries purchased a new machine on October 31, 2020. A $2,400 down payment was made and three monthly installments of $7,200 each are to be made beginning on November 30, 2020. The cash price would have been $23,200. Ahrens paid no installation charges under the monthly payment plan but a $400 installation charge would have been incurred with a cash purchase. What is the amount to be capitalized as the cost of the machine on October 31, 2020? $23,600. $24,000. $23,200. $24,400.

$23,600. Amount to be capitalized is equal to the cash purchase amount, which was the price + the installation charge ($23,200 + $400 = $23,600).

6. Ceres Company has cash in bank of $25,000, restricted cash in a separate account of $5,000, and a bank overdraft in an account at another bank of $2,000. How much cash should be reported? $30,000. $23,000. $25,000. $27,000.

$25,000. The cash in this case is limited to the cash in the bank, the overdraft amount is not offset with cash in bank because it is at a separate bank and restricted cash is reported separately as an asset.

12. On March 1, 2020, First National Bank agrees to lend $25,000 to JT Engineering if JT signs a $25,000, 6%, four-month note. At maturity on July 1, 2020, how much must JT pay First National? $26,500 $25,500 $26,000 $25,600

$25,500 At maturity, JT must pay the face value of the note ($25,000) plus $500 interest ($25,000 * 6% * 4/12), for a total of $25,500.

9. On January 1, 2020, Wells Tech signed a $950,000 two-year construction contract. Wells secured $950,000 financing at 7%. In 2020, Wells paid out $650,000; average accumulated expenditures were $375,000. Excess borrowed funds were invested, yielding $120,000 income. What should Wells report as capitalized interest at December 31, 2020? $120,000 $66,500 $26,250 $75,000

$26,250 Capitalized interest is the lesser of avoidable or actual interest. To determine avoidable interest, accumulated expenditures are multiplied by the interest rate, or $375,000 * .07 = $26,250. To determine actual interest, amount borrowed is multiplied by the interest rate, or $950,000 * .07 = $66,500. Avoidable interest is the lower of the two amounts, so capitalized interest is $26,250.

7. On January 1, 2019, the Ulton Company had an inventory of $200,000 when it adopted dollar-value LIFO. The purchases for the year were $1,200,000, with sales of $2,000,000. The year-end inventory on December 31 was $286,720, with a price index of 112. The Ulton Company's ending inventory was $200,000. $262,720. $256,000. $286,720.

$262,720. ending inventory = As on LIFO basis, so it includes opening balance of inventory and remaining unsold inventory of the purchases made. So, Book value of Closing balance = $286,720 Unsold inventory of the purchases made during the month = $286,720 - $200000 O. balance * 1.12 price index = $62720 Ulton Company's ending inventory = $200000 + $62720 = $262720

12. During 2020, Dentifrice Toothpaste offers a cash rebate of $1 on each $4 tube of toothpaste sold. Dentifrice anticipates 10% of the rebates will be redeemed. During 2020, 3,000,000 tubes are sold and $160,000 rebate forms are redeemed. How should Dentifrice record the rebate expense and liability on its December 31, 2020, financial statements? $300,000 expense; $140,000 liability $300,000 expense; $300,000 liability $140,000 expense; $140,000 liability $160,000 expense; $140,000 liability

$300,000 expense; $140,000 liability The rebate expense is the cost of the anticipated redemptions. In this case, the cost is $300,000 (3,000,000 coupons distributed *0.10 anticipated redemptions *$1 per redemption). The liability is the difference between the anticipated amount and the actual amount, which is $140,000 in this case ($300,000 - $160,000).

12. Jamestown Industries sells $48,000 in gift cards and expects 20% breakage. Cost of goods sold is 25% of each gift card. When the expected gift cards are redeemed, how much regular sales revenue will Jamestown record? $9,600 $38,400 $0 $48,000

$38,400 When the expected gift cards are redeemed, Jamestown will record $48,000 x 80% = $38,400 as regular sales revenue and $48,000 x 20% = $9,600 as sales revenue from breakage.

12. As of December 31, 2020, RL Enterprises has $4,000,000 in short-term notes payable due on February 14, 2021. RL arranged a line of credit with Elwood bank on January 10, 2021 that would enable it to borrow up to $3,000,000 at prime + 1 for three years. On February 2, 2021, RL borrowed $2,400,000 from Elwood and used $1,000,000 in additional cash to liquidate $3,400,000 of its short-term notes payable. How much of RL's short-term notes payable should be reported as current liabilities on its December 31, 2020 balance sheet if that balance sheet is issued on March 5, 2021? $1,600,000. $4,000,000. $0. $1,000,000.

$4,000,000. As of December 31, 2020, the balance sheet date, RL had not yet arranged the line of credit. Thus, the March 5, 2021 statement must reflect the entire $4,000,000 obligation as a current liability.

12. On September 1, 2020, Foxtrot Tech issued a $1,800,000, 10% note payable to Elwood Bank, with three equal annual principal payments of $600,000. At the date of issue, Elwood's prime rate was 11%. Foxtrot Tech made its first interest and principal payment on September 1, 2021. How much accrued interest payable should Foxtrot Tech record on December 31, 2021? $60,000. $132,000. $66,000. $40,000.

$40,000. On September 1, 2021, Foxtrot would have paid the first year in principle ($600,000) plus interest. The remaining balance of the note would be $1,200,000 ($1,800,000 - $600,000). By December 31, 2021, they would have accrued another 4 months of interest ($1,200,000 * 10% * 4/12) for an accrued interest payable of $40,000.

13. On June 30, 2020, Canton Industries had an outstanding 8%, $6,000,000 face amount, 15-year bonds maturing on June 30, 2035. Interest is payable on June 30 and December 31. The unamortized balances in the bond discount and deferred bond issue costs accounts on June 30, 2020, were $210,000 and $60,000, respectively. On June 30, 2020, Canton acquired all of these bonds at 94 and retired them. The net carrying amount that should be used in computing gain or loss on this early extinguishment of debt is $5,730,000. $5,640,000. $5,940,000. $5,790,000.

$5,730,000. The net carrying amount that can be used to compute gain or loss can be found by first adding together the bond issue costs: $210,000 + $60,000 = $270,000. Then subtract this amount from the face amount: $6,000,000 - $270,000 = $5,730,000 net carrying amount.

10. An asset was originally purchased by the Sampson Corp. for $260,000. The depreciable base was determined to be $209,000, with an eight-year useful life. Given this information, the salvage value of this asset is $35,000. $26,125. $51,000. $58,625.

$51,000. To determine the salvage value with this information, subtract the depreciable base from the original cost. In this case: $260,000 - $209,000 = $51,000.

13. ** The Rose Company issued $20,000,000 face value of bonds at 96 on January 1, 2020. The bonds are dated January 1, 2020, pay interest semiannually at 8% on June 30 and December 31, and mature in 10 years. Straight-line amortization is used for discounts and premiums. On September 1, 2023, $12,000,000 of the bonds are called at 102, plus accrued interest. The gain or loss that will be recognized on the called bonds on September 1, 2023, is $1,200,000 loss. $544,000 loss. $720,000 loss. $907,000 loss.

$544,000 loss. First, calculate how much money the company received when issuing the bonds, $20,000,000 X 0.96 = $19,200,000.Second, subtract the issue price from the face value: $20,000,000 - $19,200,000 = $800,000, this is the discount.The overall amount amortized is $800,000; to calculate the amount per period, divide the number by the number of periods: $800,000/ 20 =$40,000, amortization per period.This bond has been through 3 years and 8 months, which is 7 2/6 periods, $40,000 X 7 2/6 = $293,333.Then add this number to the amount received at the time of issuance: $19,200,000 + $293,333 = $19,493,333 carrying value.To find the net value for the amount repurchased, multiply this number by 12/20 (the fraction of the bond repurchased): $19,493,333 X 12/20 =$11,696,000.Next find the repurchase price: $12,000,000 X 1.02 = $12,240,000, and subtract this from the net value repurchased: $11,696,000 - $12,240,000 = $544,000 loss on extinguishment.

8. Arizona Mining sells its product, a rare metal, in a controlled market with a quoted price applicable to all quantities. The total cost of 5,000 pounds of the metal now held in inventory is $210,000. The total selling price is $560,000, and estimated costs of disposal are $10,000. At what amount could the inventory of 5,000 pounds be reported on the balance sheet, if not at cost? $350,000 $550,000 $210,000 $560,000

$550,000 Under these circumstances net realizable value which is the selling price less disposal costs could be reported as the inventory value. $560,000 - $10,000 = $550,000

9. JT Engineering paid $520,000 for land. It paid $65,000 to tear down a building on the site and made $15,400 in salvage. Title fees cost JT $4,320. The architect's fees were $28,200. Construction liability insurance cost $1,600 and the contractor was paid $1,520,000. A $4,620 assessment was made by the city for pavement. What is JT's cost of land? $593,940 $595,540 $578,540 $549,800

$578,540 Cost of land includes purchase price, closing costs, costs incurred to prepare the land for its intended use, assumption of encumbrances, and land improvements with additional lives. It also includes special assessments. In addition, any salvage value for material removed from the property is credited to the cost of land. So, JT's cost of land is $520,000 + $65,000 - $15,400 + $4,320 + $4,620 = $578,540.

10. In January 2020, Expo Mining Company paid $4,400,000 to buy a new mine. Expo estimates it will be able to remove 4,000,000 tons of ore from the mine. It also estimates that the property will be worth $300,000 after the ore has been extracted. Expo incurred a total of $900,000 in development costs when preparing the mine for production. In the mine's first year of operation (2020), Expo removed 500,000 tons of ore and was able to sell 475,000 tons. Given this information, Expo should record total 2020 depletion of $625,000. $593,750. $629,375. $662,500.

$625,000. Expo's total cost for opening the mine was $4,400,000 + $900,000 = $5,300,000. Subtracting the $300,000 salvage value and dividing the result by 4,000,000 tons gives a depletion cost of $1.25 per ton. Because Expo removed 500,000 tons of ore, its total depletion cost is $1.25 x 500,000 = $625,000.

9. On January 1, 2016, Lacy Enterprises purchased a grinder for $320,000. The grinder had a 5-year useful life and a $20,000 salvage value, and straight-line depreciation has been recorded. Lacy sold the grinder on May 1, 2020, at a gain of $6,000. How much was Lacy paid for the grinder? $66,000 $46,000 $54,000 $86,000

$66,000 Book value must be determined by finding the annual depreciation on the grinder. Depreciation is ([purchase price - salvage value]/useful life), or ([$320,000 - $20,000] /5) = $60,000. The machine has a 5-year useful life, and Lacy has had the machine for 4 1/3 years. Therefore, the book value is $60,000 [$320,000 - (4 1/3 X $60,000)]. If Lacy had a $6,000 gain from the sale, we should add the gain to the book value to determine that Lacy was paid $66,000 for the grinder ($60,000 + $6,000 = $66,000).

7. At the Preston Company, purchases are recorded at net amounts. On August 5, $40,000 worth of merchandise was purchased on account for terms of 2/10, n/30 and recorded for $40,000. $3,000 of this merchandise was returned, and the account was credited for $3,000. To reflect the net amount, accounts payable should be adjusted by Select answer from the options below$860. $860. $740. $800. $0.

$740. To determine the amount by which account payable should be adjusted, subtract the amount of merchandise returned from the original purchase amount, then multiply the answer by .02. In this case: $40,000 - $3,000 = $37,000. $37,000 X .02 = $740.

5. If Sandy invests $160,000 at an annual interest rate of 4%, it will take ______ years for the investment to grow to $324,000. 18. 20. 16. 11.

18. $324,000 ÷ $160,000 = 2.025 = FV of 1 at 4% for 18 periods

13. On January 1, 2020, Sarg Corporation issued $9,000,000 of 10% ten-year bonds at 103. The bonds are callable at the option of Sarg at 105. Sarg has recorded amortization of the bond premium on the straight-line method (which was not materially different from the effective-interest method).On December 31, 2026, when the fair value of the bonds was 96, Sarg repurchased $2,000,000 of the bonds in the open market at 96. Sarg has recorded interest and amortization for 2026. Ignoring income taxes and assuming that the gain is material, Sarg Corporation should report this reacquisition as which of the following? A loss of $122,000. A gain of $98,000. A loss of $98,000. A gain of $122,000.

A gain of $98,000. First, find how much money the company received when issuing the bonds: multiplying the issue price by 1.03 ($9,000,000 X 1.03 = $9,270,000).Second, subtract the face value from the issue price just calculated: $9,270,000 - $9,000,000 = $270,000, This amount represents the premium on the bonds and is the overall amount amortized,Third, find the amount per year by dividing the number by the life of the bond: $270,000/ 10 =$27,000. This particular bond has accrued over a period of seven years, so $27,000 X 7 = $189,000.Next, subtract this number from the amount received at the time of issuance: $9,270,000 - $189,000 = $9,081,000. To find the net value for the amount repurchased, multiply this number by 2/9 (the fraction of the bond repurchased): $9,081,000 X 2/9 = $2,018,000.Lastly, find the repurchase price: $2,000,000 X 0.96 = $1,920,000, and subtract this from the net value repurchased: $2,018,000 - $1,920,000 = $98,000 gain.

2. In which of the following situations should a special journal be used? A toy store wants a record that only lists sales. An auto parts store wants to list all transactions chronologically. A jeweler wants to note credits, debits, and balances in standard account form. An electronics store wants a journal providing a comprehensive record of every transaction.

A toy store wants a record that only lists sales. A special journal is used to record only specific types of transactions with a common characteristic. The toy store is the only option that would be using the special journal since it is only recording sales. A normal journal would record all transactions.

13. The Marson Company took advantage of market conditions to refund debt. This was the fourth refunding operation carried out by Marson within the last three years. How should the excess of the carrying amount of the old debt over the amount paid to extinguish it be reported? As a gain, net of income taxes As deferred credit to be amortized over the life of the new debt As part of continuing operations As a loss, net of income taxes

As part of continuing operations Whether the early redemption or other extinguishment of outstanding debt is a nonrefunding or a refunding situation, a company should recognize the difference (gain or loss) between the reacquisition price and the net carrying amount of the redeemed debt in income as part of continuing operations for the period of redemption.

4. Holden Company purchased 150 acres of land on the outer edge of a growing city. Holden expects the value of this land to appreciate by 500% over the next three years. How would you expect Holden to report the value of this land on their balance sheet? At a depreciated value. At historical cost. At market value. At the expected future value at the time of sale.

At historical cost. Assets on a balance sheet, such as investments in land, are reported at historical cost even if the asset has appreciated in value or is expected to appreciate in value. This is one limitation of the balance sheet.

8. In 2021, Capricorn Corporation purchased raw materials for $1.5 million when the raw materials were only worth $1.2 million because they had a long term non-cancellable purchase contract that was signed in early 2020. Assuming that Capricorn recorded any necessary adjustments at the end of 2020, when the raw materials had a market price of $1.2 million, what is the journal entry to record the purchase? Debit Inventory for $1,200,000, debit Unrealized Holding Gain or Loss for $300,000, and credit Cash for $1,500,000. Debit Inventory for $1,500,000, and credit Cash for $1,500,000. Debit Inventory for $1,200,000, and credit Cash for $1,200,000. Debit Inventory for $1,200,000, debit Estimated Liability on Purchase Commitments for $300,000 and credit Cash for $1,500,000.

Debit Inventory for $1,200,000, debit Estimated Liability on Purchase Commitments for $300,000 and credit Cash for $1,500,000. The difference between contract price and value is $1.5 million - $1.2 million = $300,000. Cash should be credited for the purchase/contract amount which is $1,500,000. The inventory is only worth $1,200,000 so that is the amount debited to inventory. The remaining $300,000 would be debited to the estimated liability account in order to balance the accounts and to account for the credit that was made at the end of the previous fiscal year.

10. Billings Corporation acquires a coal mine at a cost of $2,000,000. Intangible development costs total $275,000. After extraction has occurred, Billings must restore the property (estimated fair value of the obligation is $305,000), after which it can be sold for $750,000. Billings estimates that 5,000 tons of coal can be extracted. If 900 tons are extracted the first year, which of the following would be included in the journal entry to record depletion? Credit to Accumulated Depletion for $1,500,600 Debit to Inventory for $329,400 Debit to Accumulated Depletion for $329,400 Credit to Inventory for $135,000

Debit to Inventory for $329,400 Inventory should be debited for the entire Depletion expense. Depletion cost per unit = (total cost - salvage value)/ total estimated units. Total cost is the cost of the mine plus development costs plus restoration costs (($2,000,000 + $305,000 + $275,000) -$750,000)/5000 = $366. The total depletion, which is the amount to debit is the unit cost times the number of units $366 x 900 =$329,400.

10. Which of the following is not true of the use of the double-declining method? It results in a decreasing charge to depreciation expense over the asset's life. In the first year, depreciation expense will be lower than what would have been charged if the straight-line had been used. Care must be taken not to reduce the book value of the asset below salvage value. Salvage value is not deducted in computing the depreciation base.

In the first year, depreciation expense will be lower than what would have been charged if the straight-line had been used. In the first year, double-declining balance takes an amount equal to double the depreciation than what would have been charged if straight-line depreciation had been used. The other statements about the double-declining method are all true.

2. Giorgio has run into some financial difficulty in his personal life, so he decides to withdraw $8,000 from the pizza shop he owns. How does this decision affect the Capital account of Giorgio's pizza shop? It decreases (credits) the Capital account by $8,000. It increases (credits) the Capital account by $8,000. It has no effect on the Capital account. It decreases (debits) the Capital account by $8,000.

It decreases (debit) the Capital by $8,000. Cash is credited since Giorgio will receive cash from the Capital account of the pizza shop.

6. Why are some cash assets segregated in the non-current asset section? It is not available for paying current liabilities. It commands a higher interest rate there. It is invested in non-current assets that have maturities of greater than three months. It is required by lenders.

It is not available for paying current liabilities. Companies segregate restricted cash from "regular" cash for reporting purposes. Companies show the restricted cash in the long-term section of the balance sheet because it is not available for paying current liabilities. This is not required by lenders and it would not command a higher interest rate.

2. Which of the following is NOT one of the significant purposes that the journal serves in the recording process? It helps prevent or locate errors because debits and credits can be readily compared. It discloses the complete effect of a transaction in one place. It provides a chronological record of transactions. It keeps complete information about changes in a specific account balance in one place.

It keeps complete information about changes in a specific account balance in one place. Each general journal entry consists of four parts: (1) the accounts and amounts to be debited (Dr.), (2) the accounts and amounts to be credited (Cr.), (3) a date, and (4) an explanation. The other choices are not part of the journal.

10. Larry and Dawn have both found that their company has previously impaired assets that have increased in value compared to the book value. The asset at Larry's company is being held for disposal, and the asset at Dawn's company is currently in use. Compare the accounting process that Larry and Dawn must take to record the increased value. Larry's company will record an increase in value, and Dawn's company will not. Both Larry's company and Dawn's company will record the increase in value. Neither Larry's company nor Dawn's company will record the increase in value. Dawn's company will record the increase in value, and Larry's company will not.

Larry's company will record an increase in value, and Dawn's company will not. When an asset is currently in use, as in Dawn's company, an increase in a previously impaired asset is not recorded however, if the asset is not being used but is held for disposal, as in Larry's company, an increase would be recorded.

12. Which of the following most accurately describes the relationship between a company's current liabilities and its operating cycle? Current liabilities cannot exceed the amount of expenses incurred in one operating cycle. Liquidation of current liabilities is reasonably expected within the company's operating cycle. Current liabilities are the result of operating transactions that have occurred within the current operating cycle. There is no relationship between a company's current liabilities and operating cycle.

Liquidation of current liabilities is reasonably expected within the company's operating cycle. Current liabilities are obligations whose liquidation is reasonably expected to require the use of existing resources properly classified as current assets or the creation of other current liabilities. This definition has gained wide acceptance because it recognizes operating cycles of varying lengths in different industries.

8. When the loss method of valuing inventory is used, the ____ account is generally debited. Loss Due to Decline of Inventory to NRV Allowance to Reduce Inventory to NRV Cost of Goods Sold Inventory

Loss Due to Decline of Inventory to NRV A loss due to price decline in the valuation of inventory may be recorded by either the cost-of-goods-sold method or the loss method. The cost-of-goods-sold method is embedded in the cost, while the loss method shows the loss in the loss account before the write-down of the inventory. Under the loss method, a debit entry to Loss Due to Decline of Inventory is made to reduce inventory from cost to Net Realizable Value.

12. An unacceptable treatment for the presentation of current liabilities is: Offsetting current liabilities against assets that are to be applied to their liquidation. Listing current liabilities according to amount. Showing current liabilities immediately below current assets to obtain a presentation of working capital. Listing current liabilities in order of maturity.

Offsetting current liabilities against assets that are to be applied to their liquidation. Within the current liabilities section of the balance sheet, companies may list the accounts in order of maturity, in descending order of amount, or immediately below current assets. Offsetting current liabilities against assets is improper for presentation on the balance sheet.

1 Which of the following organizations has the power to prescribe the accounting practices and standards to be employed by companies that fall under its jurisdiction? SEC FASB AICPA APB

SEC

4. Marliss is writing a lengthy note to disclose a fairly confusing contractual agreement. In writing the note, what is the most important factor for Marliss to consider in order to prevent damage to the company? She needs to make sure her note does not mislead the user. She needs to make sure her note completely discloses all pertinent information. She needs to make sure her note is understandable. She needs to make sure her note would not be better written as a parenthetical explanation or supporting schedule.

She needs to make sure her note does not mislead the user. All of the options provided are important points to consider when writing a note. However, one factor that could lead to lawsuits or other damaging actions is when information misleads the user. If notes on the financial statements mislead the user, investors, creditors, and/or other users,they will not trust the company and will avoid investing in the company or loaning to the company, which would damage the company's reputation and financial stability.

1 Matthew is an accountant at Larson Enterprises. He frequently feels pressured to make unethical accounting decisions in order to report a higher profit for the company. What situation is most likely to make him feel this way? The CFO was caught skimming money from some of the company accounts. The CEO frequently stresses in employee meetings the importance of taking the company to the next level. The CEO persistently pressures the CFO to record revenues before it is appropriate to do so. The CFO encourages accountants to make financial documents that use both GAAP and IFRS.

The CEO persistently pressures the CFO to record revenues before it is appropriate to do so.

6. Carolina Lab Supply has an open purchase order for the scientists at Argon Labs. Any scientist can order a needed chemical and it will be added to the monthly bill. However, when Argon Labs purchased a new electron microscope, as this was a larger and unusual purchase, they signed a contract with Carolina Lab Supply detailing the exact dates of the payments. How do these two items compare? The chemical sales are trade receivables, while the microscope sale is a nontrade receivable. The chemical sales are noncurrent receivables, while the microscope sale is a current receivable. The chemical sales are notes receivable, while the microscope sale is a nontrade receivable. The chemical sales are accounts receivable, while the microscope sale is a note receivable.

The chemical sales are accounts receivable, while the microscope sale is a note receivable. The chemical sales are an open order with monthly billing, so they represent a short-term extension of credit and are accounts receivable.The lab signing a contract that specifically states the amount to be paid and date of payments is a note receivable.

6. What will happen when a company has cash available in a separate account held at the same bank for which an overdraft has occurred? The company will classify the bank overdraft as compensating balance. The company will report the same in the notes to the financial statement. The company will offset the overdraft against the cash account. The company will report the bank overdraft amount as account payable.

The company will offset the overdraft against the cash account. Bank overdrafts are generally not offset against the cash account. A major exception is when available cash is present in a separate account at the same bank on which the overdraft occurred. Offsetting in this case is required. The other choices are not an option.

3. Which of the following approaches focuses on the income-related activities that have occurred during the period? The earnings approach The transaction approach The classification approach The capital approach

The transaction approach The transaction approach can classify income by customer, product line, or function, or by operating and non-operating, continuing and discontinued, and regular and non-recurring categories.

12. When considering current liabilities, why do accounts payable arise? They arise because the operating cycles of the company selling an asset and the company purchasing an asset are different. They arise because sometimes the title to an asset is received in one period and the physical asset is received in another period. They arise because there is a lag time between receipt of services or title and the payment for them. They arise because large purchases often require some sort of financing or other special terms.

They arise because there is a lag time between receipt of services or title and the payment for them. Accounts payable are balances owed for purchases on an open account. Accounts payable arise because of the time lag between the receipt of services or acquisition of assets and the payment for them. The terms of the sale (e.g., 2/10, n/30, or 1/10) usually state this time lag period of extended credit, commonly 30 to 60 days.

7. Which of the following is true of goods in transit which are shipped f.o.b. shipping point? They should be included in the inventory of the buyer. They should be included in the inventory of the shipping company. They should be recorded as stockouts. They should be included in the inventory of the seller.

They should be included in the inventory of the buyer. Free on board (f.o.b) shipping dictates that items transfer ownership to the buyer upon shipping; therefore, the costs should be included in the inventory of the buyer. Goods on consignment remain in the inventory of the seller.

7. Under the periodic inventory system, which of the following would generally not be separately accounted for in the computation of cost of goods sold? Cash (purchase) discounts taken during the period. Cost of freight-in for merchandise purchased during the period. Trade discounts available to purchasers during the period. Purchase returns and allowances of merchandise during the period.

Trade discounts available to purchasers during the period. Purchase discounts are not separately accounted for in a periodic inventory system because the system relies mainly on physical inventory counts to determine the cost of goods sold.Purchases, purchase returns and freight are all separate line items in the computation of the cost of goods sold under a periodic inventory system.

4. The term "reserve" as it relates to the preparation of financial statements is used correctly in which of the following ways? When "reserve" is used in connection with an estimated liability, such as "estimated reserve for product warranty". When "reserve" is used to describe the setting aside of funds for the subsequent payment of an existing liability, such as "reserve for bonds payable". When "reserve" is used to describe amounts deducted from assets, such as "reserve for depreciation". When "reserve" is used to describe an appropriation of retained earnings, such as "reserve for preferred dividends".

When "reserve" is used to describe an appropriation of retained earnings, such as "reserve for preferred dividends". In the preparation of financial statements, the profession has recommended to companies that the term reserve should only be used for an appropriation of retained earnings. An example of an appropriate use of "reserve" would be "reserve for preferred dividends." Any other use of the term "reserve," i.e., for amounts deducted from assets or to indicate a contingent liability, are incorrect.

10. When using the activity method, depreciation is treated as a function of the passage of time but not productivity. a function of both productivity and the passage of time. a function of neither the passage of time nor productivity. a function of productivity but not the passage of time.

a function of productivity but not the passage of time. The activity method of depreciation uses an activity or a function of use or productivity such as machine hours or miles driven. Other depreciation methods use time, therefore depreciation is allocated as time passes.

5. A company purchased a new piece of equipment on May 1, 2020 that will not need to be paid off for two years. When the total payment is due on May 1, 2022, it will include interest and principal. If the interest rate is set at 10%, then the cost of the machine would be the total payment multiplied by a factor for the future value of 1. present value of 1. future value of annuity of 1. present value of annuity of 1.

present value of 1. The present value of 1 is the present value of a given sum that is due in a specified number of periods and discounted at compounded interest. On the other hand, the future value of 1 is the future value of a given sum at the end of a specified period of time at an accelerated compound interest rate.

5. Panton Corporation sold three pieces of equipment to the Yarol Company on December 1, 2020. Both companies agreed on a predetermined interest rate, and entered into an installment sales contract. The companies agreed that four equal annual payments would be made, the first of which would be due on the date of sale. The most appropriate present value concept for this situation will be present value of an ordinary annuity of 1 for four periods. present value of an annuity due of 1 for four periods. future amount of 1 for four periods. future amount of an annuity due of 1 for four periods.

present value of an annuity due of 1 for four periods. The present value of an annuity due of 1 consists of an amount to be depositied now at a specified rate of interest. Payment or withdrawal is made at the beginning of regular periodic intervals for the specific number of periods. In this scenario, the companies agreed on 4 installments or periods.The same concept applies to the present value of an ordinary annuity of 1, except the payment or withdrawal is made at the end of regulat periodic intervals.

3. For the first quarter of 2021, Kabak Industries paid a dividend of $500,000 to stockholders. The accountants at Kabak should record this distribution on the cash flow statement. income statement. retained earnings statement. comprehensive expense statement.

retained earnings statement. Within the retained earnings statement, both cash dividends and stock dividends decrease retained earnings. Kabak Industries would show the paid dividend on the retained earnings statement.

7. The arrangement that is also referred to as "parking transactions" is called ales on installment. consignment sales. sales with high rates of return. sales with buyback agreement.

sales with buyback agreement. A parking transaction is when inventory from one company is parked on another's balance sheet for a short period of time - generally when a repurchase agreement exists. Consigned goods is when a company agrees to accept the goods without any liability, except to exercise due care and reasonable protection from loss or damage, until it sells the goods to a third party. Sales with high rates of return permits purchasers to return inventory for a full or partial refund.

9. The amount of interest cost capitalized during a period when a building is constructed should be debited to both the land account and the building account. may, in some cases, exceed the actual interest cost incurred. should not exceed the actual interest cost incurred. should be debited to the land account and not to the building account.

should not exceed the actual interest cost incurred. The amount of interest cost capitalized during a period when a building is constructed should not exceed the actual interest cost incurred, since the actual interest cost, which represents the maximum amount of interest that it may capitalize during the period.

8. On March 15, 2020, Hat Trick Manufacturing signed a contract with a supplier to purchase raw materials in 2021 for $700,000. Prior to the December 31, 2020 balance sheet date, the market price for these materials dropped to $510,000. On December 31, 2020 Hat Trick prepares a journal entry to reflect this situation. On the December 31, 2020 balance sheet, where would the credit be reported? as an appropriation of retained earnings in a valuation account to Inventory on the balance sheet under current liabilities on the income statement

under current liabilities Hat Trick Manufacturing would report the Estimated Liability on Purchase Commitments in the current liabilities section on the balance sheet. They would report this unrealized holding loss in the income statement under "Other expenses and losses", also because the contract is to be executed within the next fiscal year.

3. The most likely use of an income statement prepared by a business enterprise is its use by investors interested in the past and future financial performance of the entity. use by government agencies to formulate tax and economic policy. use by customers to determine a company's ability to provide needed goods and services. use by labor unions to examine earnings closely as a basis for salary discussions.

use by investors interested in the past and future financial performance of the entity. Investors often look at a company's financial statements, including the income statement, to determine if the company will be a good investment. The income statement is never used by customers, labor unions or government agencies.