Accounting 117
What is the total stockholders' equity based on the following account balances? Common Stock $1,800,000 Paid-In Capital in Excess of Par 100,000 Retained Earnings 360,000 Treasury Stock 60,000
$2,200,000. $1,800,000 + $100,000 + $360,000 − $60,000 = $2,200,000 (Com. st. + PIC + R/E − Treas. st.)
A plant asset cost $192,000 and is estimated to have a $24,000 salvage value at the end of its 8-year useful life. The annual depreciation expense recorded for the third year using the double-declining-balance method would be
$27,000. ($192,000 − $0) × .25 = $48,000; ($192,000 − $48,000) × .25 = $36,000; ($192,000 − $84,000) × .25 = $27,000 (Cost — AD) × (1/8 × 2) = end. AD; (Cost — end. A/D) × (1/8 × 2); (Cost — end. A/D) × (1/8 × 2)
Dole Industries had the following inventory transactions occur during 2022: Units Cost/unit Feb. 1, 2022 Purchase 90 $90 Mar. 14, 2022 Purchase 155 $94 May 1, 2022 Purchase 110 $98 The company sold 255 units at $126 each and has a tax rate of 30%. Assuming that a periodic inventory system is used, and operating expenses of $2,500, what is the company's after-tax income using LIFO? (rounded to whole dollars)
$3,654 (110 × $98) + [(255 − 110) × $94] = $24,410; [(255 × $126) − $24,410] = $7,720; ($7,720 − $2,500) × .70 = $3,654
Jenks Company developed the following information about its inventories in applying the lower-of-cost-or-net-realizable-value(LCNRV) basis in valuing inventories: Product Cost NRV A $114,000 $120,000 B 80,000 76,000 C 160,000 162,000 After Jenks applies the LCNRV rule, the value of the inventory reported on the balance sheet would be
$350,000. $114,000 + $76,000 + $160,000 = $350,000
Dole Industries had the following inventory transactions occur during 2022: The company sold 255 units at $126 each and has a tax rate of 30%. Assuming that a periodic inventory system is used and operating expenses of $2,500, what is the company's after-tax income using FIFO? (rounded to whole dollars)
$4,186 (90 × $90) + (155 × $94) + [(255 − 245) × $98] = $23,650; [(255 × $126) − $23,650] = $8,480; ($8,480 − $2,500) × .70 = $4,186
Hogan Industries had the following inventory transactions occur during 2022: The company sold 306 units at $63 each and has a tax rate of 30%. Assuming that a periodic inventory system is used, what is the company's gross profit using LIFO? (rounded to whole dollars)
$4,632 (132 × $49) + [(306 − 132) × $47] = $14,646; [(306 × $63) − $14,646] = $4,632
Ace Inc. has 10,000 shares of 4%, $100 par value, cumulative preferred stock and 50,000 shares of $1 par value common stock outstanding at December 31, 2020. What is the annual dividend on the preferred stock?
$40,000 in total 10,000 × $100 × .04 = $40,000 (Pref. sh. × PV/sh. × div. %)
Nelson Corporation sells three different products. The following information is available on December 31: Inventory Item Units Cost per unit Net realiz. val per unit X 300 $4.00 $3.50 Y 600 $2.00 $1.50 Z 1,500 $3.00 $4.00 After applying the lower-of-cost-or-net-realizable-value rule to each item, what will Nelson's total ending inventory balance be?
$6,450 (300 × $3.50) + (600 × $1.50) + (1,500 × $3.00) = $6,450
A company purchased inventory as follows: 200 units at $6.00 300 units at $6.60 The average unit cost for inventory is
$6.36. [($200 × $6.00) + (300 × $6.60)] ÷ (200 + 300) = $6.36
A company sells a plant asset that originally cost $360,000 for $120,000 on December 31, 2022. The accumulated depreciation account had a balance of $180,000 after the current year's depreciation of $30,000 had been recorded. The company should recognize a
$60,000 loss on disposal. $120,000 − ($360,000 − $180,000) = ($60,000) (Sell. price — (cost — A/D))
Delightful Discs has the following inventory data: Nov. 1 Inventory 30 units @ $6.00 each 8 Purchase 120 units @ $6.45 each 17 Purchase 60 units @ $6.30 each 25 Purchase 90 units @ $6.60 each A physical count of merchandise inventory on November 30 reveals that there are 100 units on hand. Ending inventory under LIFO is
$632 (30 × $6.00) + [(100 − 30) × $6.45] = $632
Equipment with a cost of $300,000 has an estimated salvage value of $20,000 and an estimated life of 4 years or 10,000 hours. It is to be depreciated by the straight-line method. What is the amount of depreciation for the first full year, during which the equipment was used for 2,700 hours?
$70,000. ($300,000 − $20,000) ÷ 4 = $70,000 (Cost — sal. val.) ÷ 4 yrs.
Dole Industries had the following inventory transactions occur during 2022: Units Cost/unit Feb. 1, 2022 Purchase 90 $90 Mar. 14, 2022 Purchase 155 $94 May 1, 2022 Purchase 110 $98 The company sold 255 units at $126 each and has a tax rate of 30%. Assuming that a periodic inventory system is used, what is the company's gross profit using FIFO? (rounded to whole dollars)
$8,480 (90 × $90) + (155 × $94) + [(255 − 245) × $98] = $23,650; [(255 × $126) − $23,650] = $8,480
Tito Corporation had net income of $2,000,000 and paid dividends to common stockholders of $300,000 in 2022. The weighted average number of shares outstanding in 2022 was 400,000 shares. Tito Corporation's common stock is selling for $50 per share on the NASDAQ. Tito Corporation's price-earnings ratio is
10 times. $50 / ($2,000,000 / 400,000) = 10
A machine was purchased for $180,000 and it was estimated to have a $12,000 salvage value at the end of its useful life. Monthly depreciation expense of $1,750 was recorded using the straight-line method. The annual depreciation rate is
12.5%. ($1,750 × 12) ÷ ($180,000 − $12,000) = 12.5% (Mon. dep. × 12) ÷ (Cost — sal. val.)
The following information is provided for Nguyen Company and Northwest Corporation. (in $ millions) Nguyen Company Northwest Corporation Net income 2022 $165 $420 Net sales 2022 1,650 4,900 Total assets 12/31/20 1,000 2,400 Total assets 12/31/21 1,050 3,000 Total assets 12/31/22 1,150 4,000 What is Nguyen's return on assets for 2022?
15.0% $165 ÷ [($1,050 + $1,150) ÷ 2] = 15.0% [Net inc. ÷ [(beg. tot. assets + end. tot. assets) ÷ 2]
BVI Corporation had net income of $1,600,000 and paid dividends to common stockholders of $320,000 in 2022. The weighted average number of shares outstanding in 2022 was 500,000 shares. BVI Corporation's common stock is selling for $50 per share on the NASDAQ. BVI Corporation's payout ratio for 2022 is
20%. $320,000 / $1,600,000 = 20%
Using the following data for Stevenson Industries, compute the return on assets. Net Income $ 180,000 Total Assets 12/31/22 2,410,000 Total Assets 12/31/21 1,980,000 Net Sales 250,000
8.2% $180,000 ÷ [($2,410,000 + $1,980,000)] ÷ 2 = .082 or 8.2% [Net inc. ÷ [(end. tot. assets + beg. tot. assets) ÷ 2]
Barnett Company had the following records: 2022 2021 Ending inventory $32,650 $30,490 Cost of goods sold 306,300 313,600 What is Barnett's inventory turnover for 2022? (rounded)
9.7 times $306,300 ÷ [($32,650 + $30,490) ÷ 2] = 9.7 (2022 COGS ÷ [(2022 E.I. + 2021 E.I.) ÷ 2])
Which of the following companies would most likely have the highest inventory turnover?
A bakery.
If a company has a current ratio of 1.2:1, what respective effects will the borrowing of cash by short-term debt and collection of accounts receivable have on the ratio? Short-term Borrowing Collection of Receivable
Decrease No effect
Which of the following is not classified as an intangible asset on the balance sheet?
Employees
A 3-for-1 common stock split will increase total stockholders' equity but reduce the par or stated value per share of common stock.
False
A change in accounting principle occurs when the principle used in the current year is different from the one used by competitors in the current year.
False
A characteristic of capital expenditures is that the expenditures occur frequently during the period of ownership
False
A corporation is not an entity that is separate and distinct from its owners.
False
Additions and improvements to a plant asset that increase the asset's operating efficiency, productive capacity, or expected useful life are generally expensed in the period incurred.
False
Analysts are interested in sustainable income, which is equal to the past year's net income.
False
If the ownership of merchandise passes to the buyer when the seller ships the merchandise for shipment, the terms are stated as FOB destination
False
In accounting for inventory, the assumed flow of costs must match the physical flow of goods.
False
The Accumulated Depreciation account represents a cash fund available to replace plant assets.
False
The LIFO inventory method agrees with the actual physical movement of goods in most businesses.
False
The LIFO method is rarely used because most companies do not sell the last goods they purchase first.
False
The acquisition of treasury stock by a corporation increases total assets and total stockholders' equity.
False
The return on assets will be greater than the rate of return on common stockholders' equity if the company has been successful in trading on the equity at a gain.
False
Treasury stock is reported as an asset on the balance sheet because treasury stock may later be resold.
False
Using the units-of-activity method of depreciating factory equipment will generally result in more depreciation expense being recorded over the life of the asset than if the straight-line method had been used.
False
When purchasing delivery equipment, sales taxes and motor vehicle licenses should be charged to Equipment.
False
Kaplan Manufacturing Corporation purchased 2,500 shares of its own previously issued $10 par common stock for $62,500. As a result of this event,
Kaplan's total stockholders' equity decreased $62,500. $62,500 cost of stock
The following information is provided for Nguyen Company and Northwest Corporation. (in $ millions)Nguyen CompanyNorthwest Corporation Net income 2022$165$420 Net sales 20221,6504,900 Total assets 12/31/201,0002,400 Total assets 12/31/211,0503,000 Total assets 12/31/221,1504,000 If Nguyen and Northwest are in the same industry and the industry average for return on assets is equal to 30%, which of the following statements is true?
Nguyen is more profitable than Northwest.
Identify the effect the declaration of a stock dividend has on the par value per share and book value per share. Par Value per Share Book Value per Share
No effect Decrease
Which of the following statements about treasury stock is true?
Purchasing treasury stock is done to eliminate hostile shareholder buyouts.
A low number of days in inventory may indicate all of the following except
Sales opportunities may be lost because of inventory shortages.
Ed's Drive-In had $175,000 of current assets and $80,000 of current liabilities before borrowing $60,000 from the bank with a 3-month note payable. What effect did the borrowing transaction have on Ed's Drive-In's current ratio?
The ratio decreased.
In a common size financial statement, which of the following is given a percentage of 100 percent?
Total assets
Which one of the following items is not considered a part of the cost of a truck purchased for business use?
Truck license
A corporation can be organized for the purpose of making a profit or it may be nonprofit.
True
Another name for horizontal analysis is trend analysis.
True
Comparisons of company data with industry averages provide information about a company's relative position within the industry.
True
Dividends may be declared and paid in cash or stock.
True
Goods in transit shipped FOB shipping point should be included in the seller's ending inventory.
True
In a common size balance sheet, total assets are represented by 100%.
True
In a common size income statement, net sales are represented by 100%.
True
Intangible assets are rights, privileges, and competitive advantages that result from ownership of long-lived assets without physical substance.
True
Inventory methods such as FIFO and LIFO deal more with the flow of costs than with the flow of goods.
True
Preferred stockholders generally do not have the right to vote for the board of directors.
True
The IRS does not require the taxpayer to use the same depreciation method on the tax return that is used in preparing financial statements.
True
The LIFO reserve is the difference between ending inventory using LIFO and ending inventory if FIFO were used instead.
True
The lower-of-cost-or-net-realizable-value rule implies that it is unacceptable to report inventory at a cost that is in excess of its net realizable value.
True
Which of the following phrases is not descriptive of the corporate form of business?
Unlimited liability.
Which of the following would be considered an "Other Comprehensive Income" item?
Unrealized loss on available-for-sale securities
Jason Hansen has invested $600,000 in a privately held family corporation. The corporation does not do well and must declare bankruptcy. What amount does Hansen stand to lose?
Up to his total investment of $600,000.
The following schedule is a display of what type of analysis? Amount Percent Current assets $100,000 25% Property, plant, and equipment 300,000 75% Total assets $400,000 100%
Vertical analysis
A successful grocery store would probably have
a high inventory turnover.
Vertical analysis is a technique that expresses each item in a financial statement
as a percent of a base amount.
The amount of stock that may be issued according to the corporation's charter is referred to as the
authorized stock.
The cumulative effect of the declaration and payment of a cash dividend on a company's financial statements is to
decrease total assets and stockholders' equity.
Treasury stock should be reported in the financial statements of a corporation as a(n)
deduction from total paid-in capital and retained earnings.
All of the following are normally found in a corporation's stockholders' equity section except
dividends in arrears.
Equipment that cost $90,000 and on which $50,000 of accumulated depreciation has been recorded was disposed of for $45,000 cash. The entry to record this event would include a
gain of $5,000. $45,000 − ($90,000 − $50,000) = $5,000 (Sell. price — (cost — A/D))
A loss on disposal of a plant asset is reported in the financial statements
in the Other Expenses and Losses section of the income statement.
The declaration of a small stock dividend will
increase paid-in capital.
Goodwill
is only recorded when the purchase of an entire business occurs.
A truck costing $75,000 and on which $65,000 of accumulated depreciation has been re-corded was discarded as having no value. The entry to record this event would include a
loss of $10,000. $0 − ($75,000 − $65,000) = ($10,000) (Sell. price — (cost — A/D))
The selection of an appropriate inventory cost flow assumption for an individual company is made by
management
The asset turnover is
net sales divided by average total assets.
A corporation records a dividend-related liability
on the declaration date.
All of the following are ways that a company's current ratio would decrease except
paying off one-third of its accounts payable.
Regular dividends are declared out of
retained earnings.
Return on common stockholders' equity is most closely related to
return on asset and leverage (debt to assets ratio).
The current ratio would be of most interest to
short-term creditors.
A change in the estimated useful life of equipment requires
that the amount of periodic depreciation be changed in the current year and in future years.
Under the corporate form of business organization,
the corporation's life is stipulated in its charter.
The Land account would include all of the following costs except
the cost of building a fence.
The LIFO inventory method assumes that the cost of the latest units purchased is
the first to be allocated to cost of goods sold.
Which one of the following ratios would not likely be used by a short-term creditor in evaluating whether to sell on credit to a company?
Asset turnover
Atom Company just began business and made the following four inventory purchases in June: June 1 150 units $ 990 June 10 200 units 1,344 June 15 200 units 1,368 June 28 150 units 1,062 $ 4,764 A physical count of merchandise inventory on June 30 reveals that there are 200 units on hand. Using the LIFO inventory method, the value of the ending inventory on June 30 is
$1,326. $990 + [($1,344 ÷ 200) × (200 − 150)] = $1,326
Baker Bakery Company just began business and made the following four inventory purchases in June: June 1 150 units $ 1,040 June 10 200 units 1,560 June 15 200 units 1,680 June 28 150 units 1,320 $ 5,600 A physical count of merchandise inventory on June 30 reveals that there are 210 units on hand. Using the FIFO inventory method, the amount allocated to ending inventory for June is
$1,824 $1,320 + [($1,680 ÷ 200) × (210 − 150)] = $1,824
Hogan Industries had the following inventory transactions occur during 2022: Units Cost/unit Feb. 1, 2022 Purchase 108 $45 Mar. 14, 2022 Purchase 186 $47 May 1, 2022 Purchase 132 $49 The company sold 306 units at $63 each and has a tax rate of 30%. Assuming that a periodic inventory system is used, and operating expenses of $1,800, what is the company's after-tax income using LIFO? (rounded to whole dollars)
$1,982 (132 × $49) + [(306 − 132) × $47] = $14,646; [(306 × $63) − $14,646] = $4,632; ($4,632 − $1,800) × .70 = $1,982
A company purchased factory equipment for $450,000. It is estimated that the equipment will have a $45,000 salvage value at the end of its estimated 5-year useful life. If the company uses the double-declining-balance method of depreciation, the amount of annual depreciation recorded for the second year after purchase would be
$108,000. ($450,000 − $0) × .40 = $180,000; ($450,000 − $180,000) × .40 = $108,000 (Cost — AD) × (1/5 × 2) = end. AD; (Cost — end. A/D) × (1/5 × 2)
An asset was purchased for $140,000. It had an estimated salvage value of $35,000 and an estimated useful life of 10 years. After 5 years of use, the estimated salvage value is revised to $28,000 but the estimated useful life is unchanged. Assuming straight-line depreciation, depreciation expense in Year 6 would be
$11,900. [($140,000 − $35,000) × 5/10 = $52.500; [($140,000 − $52,500) − $28,000] ÷ (10 − 5) = $11,900 [(Cost — sal. val.) × 5/10] = A/D; [(Cost — A/D) — sal. val.] ÷ (10 — 5)
Equipment costing $60,000 with a salvage value of $12,000 and an estimated life of 8 years has been depreciated using the straight-line method for 2 years. Assuming a revised estimated total life of 5 years and no change in the salvage value, the depreciation expense for Year 3 would be
$12,000. ($60,000 − $12,000) × 2/8 = $12,000; [($60,000 − $12,000) − $12,000] ÷ (5 − 2) = $12,000 (Cost — sal. val.) × 2/8 = A/D: (Cost — A/D − sal. val.) ÷ (5 − 2)
On May 1, 2022, Irwin Company purchased the copyright to Quick Computer Tutorials for $120,000. It is estimated that the copyright will have a useful life of 5 years. The amount of amortization expense recognized for the year 2022 would be
$16,000. ($120,000 ÷ 5) × 8/12 = $16,000 (Cost ÷ 5 yrs.) × 8/12
Ferman Corporation had net income of $140,000 and paid dividends of $40,000 to common stockholders and $20,000 to preferred stockholders in 2020. Ferman Corporation's common stockholders' equity at the beginning and end of 2020 was $870,000 and $1,130,000, respectively. Ferman Corporation's payout ratio for 2020 was
28.6%. $40,000 ÷ $140,000 = 28.6% (Com. div. ÷ Net inc.)
Assume the following cost of goods sold data for a company: 2023 $1,400,000 2022 1,200,000 2021 1,000,000 If 2021 is the base year, what is the percentage increase in cost of goods sold from 2021 to 2023?
40% ($1,400,000 − $1,000,000) / $1,000,000 = 40%
Use the following information regarding Black Company and Red Company to answer the question "Which amount is equal to Black Company's "days in inventory" for 2022 (to the closest decimal place)?"
43.5 days 365 ÷ 8.4 = 43.5 (365 ÷ 2022 Black inv. turn.)
The following information was available for Camara Company at December 31, 2022: beginning inventory $80,000; ending inventory $120,000; cost of goods sold $630,000; and sales $900,000. Camara's inventory turnover in 2022 was
6.3 times. $630,000 ÷ [($80,000 + $120,000) ÷ 2] = 6.3 (COGS ÷ [(beg. inv. + end. inv.) ÷ 2])
Redeker Company had the following records: 2022 2021 Ending inventory $32,650 $30,490 Cost of goods sold 213,600 209,040 What is Redeker's inventory turnover for 2022? (rounded)
6.8 times $213,600 ÷ [($32,650 + $30,490) ÷ 2] = 6.8 (2022 COGS ÷ [(2022 E.I. + 2021 E.I.) ÷ 2])
Management should select the depreciation that
Best measures the plant asset's contribution to revenue over its useful life.
In periods of rising prices, which is an advantage of using the LIFO inventory costing method?
Cost of goods sold will include the latest (most recent) costs and thus will be more realistic.
