Accounting Exam 2

Given the information in the table below, what is the company's gross profit? Sales revenue $350,000 Accounts receivable $280,000 Ending inventory $230,000 Cost of goods sold $180,000 Sales returns $50,000 Sales discount $20,000

$100,000 Sales revenue 350 - sales return 50 - sales discount 20 = net sales 280,000 - cost of goods sold 180 = gross profit 100,000

Garber Plumbers offers a 20% trade discount when providing $2,000 or more of plumbing services to its customers. In March 2018, Garber provided $4,000 of plumbing services to Red Oak Inc., and $1,500 of services to Cyril Inc., Each of these customers was granted credit terms of 2/10, net 30. If both customers paid for the plumbing services within the discount period, what was the net revenues amount for these two transactions?

$4,606 4000 x 80% = 3200 (sale with trade discount) 3200 + 1500 = 4700 4700 x .98 - 4606

Action Travel has 10 employees each working 40 hours per week and earning $20 an hour. Federal income taxes are withheld at 15% and state income taxes at 6%. FICA taxes are 7.65% and unemployment taxes are 3.8%. How much cash would the employees receive?

$5708 10 x 40 x 20 = 8000 8000- (fed + state tax) - FICA 8000-1680-612 = 5708

Strikers, Inc. sells soccer goals to customers over the Internet. History has shown that 2% of Strikers' goals will need repair under the warranty program. For the year, Strikers has sold 4,000 goals and 45 have been repaired. If the estimated cost to repair a goal is $200, what would be the warranty liability at the end of the year?

$7000 4000 x 2% = 80 goals to be reported @ 200 = 16,000 35 left to repair @ 200 = 7000

Eric Company has the following information: Total Revenues $860,000 Sales Returns and Allowances $50,000 Sales Discounts $30,000 Ending Inventory $100,000 What is the amount of net revenues for Eric Company?

$780,000 860 - (50+30) = 780

Bahama Catering purchased a commercial dishwasher by paying cash of $8,000. The dishwasher's fair value on the date of the purchase was $10,000. The company incurred $600 in transportation costs, $500 installation fees, and paid $300 annual insurance of the equipment. For what amount will Bahama record the dishwasher?

$9,100 8000 + 600 + 500 = 9100 ****Do not include annual insurance.

Action Travel has 10 employees each working 40 hours per week and earning $20 an hour. Federal income taxes are withheld at 15% and state income taxes at 6%. FICA taxes are 7.65% and unemployment taxes are 3.8%. What is the employer's total payroll tax expense for the first week of January?

$916 10 x 40 x 20 = 8000 for the salaries Fica --> 8000x 7.65% = 612 Unemployment --> 8000 x 3.8% = 304 612 + 304 = 916

A company collects a customer's account within the discount period. Indicate how this transaction would affect (1) assets, (2) stockholders' equity, and (3) revenues.

(1) decrease, (2) decrease, (3) decrease Debit cash [7], sales discount [3] Credit accounts receivable [10]

On December 31, 2012, Larry's Used Cars had balances in Accounts Receivable and Allowance for Uncollectible Accounts of $53,600 and $1,325, respectively. During 2013, Larry's wrote off $1,465 in accounts receivable and determined that there should be an allowance for uncollectible accounts of $1,280 at December 31, 2013. Bad debt expense for 2013 would be:

1,420 Bad debt expense = $1,280 - ($1,325 - $1,465) = $1,420.

Tyler Toys has beginning inventory for the year of $18,000. During the year, Tyler purchases inventory for $230,000 and has cost of goods sold equal to $233,000. Tyler's ending inventory equals:

15000 Beginning inventory + purchases - cost of goods sold = ending inventory 18000 + 230,000 - 233,000 = 15,000

Kansas Enterprises purchased equipment for $60,000 on January 1, 2012. The equipment is expected to have a five-year life, with a residual value of $5,000 at the end of five years. Using the double-declining balance method, the book value at December 31, 2013 would be:

21,600 Book value = $60,000 - $24,000 - $14,400 = $21,600. ***use the chart in notes

Garber Plumbers offers a 20% trade discount when providing $2,000 or more of plumbing services to its customers. In March 2012, Garber provided $4,000 of plumbing services to Red Oak, Inc. and $1,500 of services to Cyril, Inc. Each of these customers was granted credit terms of 2/10, net 30. If both customers paid for the plumbing services within the discount period, what was the net sales figure for these two transactions?

4,606 Trade discount = $4,000 × 20% = $800. Sales revenue = ($4,000 - $800) + $1,500 = $4,700. Sales discount $4,700 × 2% = $94. Net sales = $4,700 - $94 = $4,606.

At December 31, Gill Co. reported accounts receivable of $238,000 and an allowance for uncollectible accounts of $600 (debit). An analysis of accounts receivable suggests that the allowance for uncollectible accounts should be 3% of accounts receivable. The amount of the adjustment for uncollectible accounts would be:

7,740 ($238,000 x 3%) + $600 = $7,740.

United Supply has a $5 million liability at December 31, 2015, of which $1 million is payable in each of the next five years. United Supply reports the liability on the balance sheet as:

A $1 million current liability and a $4 million long-term liability.

Sales taxes collected by a company on behalf of the state and local government are recorded by:

A credit to a liability account. Debit Cash Credit Sales tax Payable

The Titan retires a $20 million bond issue when the carrying value of the bonds is $18 million, but the market value of the bonds is $23 million. The entry to record the retirement will include:

A debit of $5 million to a loss account. Debit Loss 5 mil & Bonds Payable 18 mil Credit 23 mil

how to find total payroll tax expense?

ADD the percentage of FICA and unemployment taxes

What is salaries payable?

Actual direct deposit!

Reeves Co. filed suit against Higgins, Inc., seeking damages for copyright violations. Higgins' legal counsel believes it is probable that Higgins will settle the lawsuit for an estimated amount in the range of $100,000 to $200,000, with all amounts in the range considered equally likely. How should Higgins report this litigation?

As a liability for $100,000 with disclosure of the range.

Aspen, Inc. developed a new horse transport device and incurred research and development costs of $250,000. Rather than continue with their own research, Aspen decided to purchase a patent for a similar design from Vail, Inc. for $350,000. What are the total assets and expenses for these developments?

Assets $350,000; Expenses $250,000 ***research and development costs is an expense!!!

A company records a sales return from a credit customer. Indicate how this transaction would affect the following five financial statement items.

Assets decrease Liabilities no effect Equity decrease Revenues decrease Expense no effect

A company provides services on account. Indicate how this transaction would affect the following five financial statement items: Stockholders'

Assets increase Liabilities no effect Equity Increase Revenues increase Expenses no effect

If a company understates its ending balance of inventory in year 1 and it records inventory correctly in year 2, what is true?

Cost of goods sold is understated in year 2.

Fleming Corp. provided services on account. The transaction would be recorded with a debit and credit to:

Debit Accounts Receivable Credit Service Revenue

On November 10 of the current year, Flores Mills provides services to a customer for $8,000 with credit terms 2/10, n/30. The customer made the correct payment on December 5. How would Flores record the collection of cash on December 5?

Debit Cash 8000 Credit Accounts Receivable 8000 No sales discount is awarded because payment is not received within 10 days.

Oswego Clay Pipe Company provides services of $46,000 to Southeast Water District #45 on April 12 of the current year with terms 1/15, n/60. What would Oswego record on April 23, assuming the customer made the correct payment on that date?

Debit Cash [45,540], Sales Discounts [460] Credit Accounts receivable [46,000] 46000 x 1% = 460 46000 - 460 = 45,540

On November 10 of the current year, Flores Mills provides services to a customer for $8,000 with credit terms 2/10, n/30. The customer made the correct payment on November 17. How would Flores record the collection of cash on November 17?

Debit Cash [7,840], sales discounts [160] Credit Accounts Receivable [8000] Sales discount = 8000 x 2% = 160

In December 2017, Quebecor Printing received magazine subscriptions for 2018 from a customer, who paid $500 in cash. What would be the appropriate journal entry for this event?

Debit cash $500 Credit deferred revenue $500 *deferred revenue is a liability and they haven't earned this money yet

On December 1, 2018, Old World Deli signed a $300,000, 5%, six-month note payable with the amount borrowed plus accrued interest due six months later on June 1, 2019. Old World Deli should record which of the following adjusting entries at December 31, 2018?

Debit interest expense 1250 Credit interest payable 1250 300,000 x 5% x (1/12) = 1250 *Borrower records payable + interest expense, Lender records receivable + interest new

Brian Inc. borrowed $8,000 from First Bank and signed a promissory note. What entry should Brian Inc. record?

Debit notes receivable 8000 Credit cash 8000 *lender has the receivable on his books, borrower has the payable on his books

The Route 66 Gift Shop, which records sales and sales tax separately, had sales on account of $1,500 and cash sales of $1,000. The state sales tax is 8%. The journal entry to record the sales would include a:

Debit to Accounts Receivable of $1,620 and a debit to Cash of $1,080 accounts receivable --> 1500 x 1.08 = 1620 cash --> 1000 x 1.08 = 1080 Debit sales 2500 Credit sales tax Payable 200

At the end of 2018, Murray State Lenders had a balance in its Allowance for Uncollectible Accounts of $4,500 (credit) before any adjustment. The company estimated its future uncollectible accounts to be $12,000 using the percentage‐of‐receivables method. Murray State's adjustment on December 31, 2018, to record its estimated uncollectible accounts included a:

Debit to Bad Debt Expense of $7,500 Credit to allowance for uncollectible accounts of $7,500 12,000 - 4,500 = 7,500

Shupe Inc. estimates uncollectible accounts based on the percentage of accounts receivable. What effect will recording the estimate of uncollectible accounts have on the accounting equation? A. Increase liabilities and decrease stockholders' equity B. Decrease assets and decrease liabilities C. Decrease assets and decrease stockholders' equity D. Increase assets and decrease stockholders' equity

Decrease assets and decrease stockholders' equity

What do you record for a remote possibility contingent liability?

Do nothing

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

Equipment

Payroll tax expense equation

FICA + unemployment

If A sells to B, and B obtains title while goods are in transit, the goods were shipped _______. If C sells to D, and C maintains title until the goods arrive at D's door then the goods were shipped _______.

FOB shipping point; FOB destination FOB shipping pt - buyer takes ownership at sellers dock FOB destination - seller owns all the way to the buyer

fair value of net assets

FV of net assets = FV of assets - FV of liabilities

What is an example of fringe benefits?

Health care taxes

Which of the following is true regarding LIFO and FIFO?

In a period of rising costs, LIFO results in lower net income than FIFO.

Samson Enterprises issued a ten‐year, $20 million bond with a 10% interest rate for $19,500,000. The entry to record the bond issuance would have what effect on the financial statements?

Increase Assets and liabilities Debit Discounted BP 500,000 & Cash 19,500,000 Credit Bonds Payable 20,000,000

What is a primary reason why financial statement users assess a company's liquidity.

Lack of liquidity can lead to the bankruptcy of a company that otherwise may have been successful

A company collects an account receivable previously written off. Indicate how this transaction would affect (1) assets, (2) stockholders' equity, and (3) revenues.

No effect, (2) No effect, (3) No effect

If a company overstates its ending balance of inventory in year 1 and it records inventory correctly in year 2, what is true?

Retained earnings is overstated in year 1.

When customers purchase products on account, Splitz Manufacturing offers them a 2% reduction in the amount owed if they pay within 10 days. This is an example of a:

Sales discount

A $500,000 bond issue sold for $490,000. Therefore, the bonds:

Sold at a discount because the market interest rate was higher than the stated rate.

What describes a secured bond?

Supported by specific assets pledged as collateral by the issuer.

In each succeeding payment on an installment note:

The amount of interest expense decreases.

Which of the following statements is true regarding the amortization of intangible assets?

The expected residual value of most intangible assets is zero.

Example of contingent liability

Warranties!

Weighted average equation

Weighted Average= Cost of Goods Available for Sale / Total Units Available for Sale

At December 31, Gill Co, reported accounts receivable of $238,000 and an allowance for uncollectible accounts of $600 (credit) before any adjustments. An analysis of accounts receivable suggests that the allowance for uncollectible accounts should be 3% of accounts receivable. The amount of the adjustment for uncollectible accounts would be:

^6,540 238,000 x 3% = 7140 7140 - 600 = 6540 Debit Bad debt expense 6540 Credit adjustment for uncollectible accounts 6540

what is accumulated depreciation?

a contra-assest

What is a sales return?

a customer returns a product

what is a notes payable account?

a liability

define contingent liabilities

a potential liability that may occur in the future, such as pending lawsuits or honoring product warranties

The purchase of a new cooling system for $150,000 to upgrade an office building owned by the company would be accounted for as:

an addition in the buildings account

define depreciation

an allocation of an asset's cost to expense over time

book value equation

book value = historical cost - accumulated depreciation

Which of the following is NOT an employer payroll cost? a. FICA taxes b. federal and state unemployment taxes c. federal and state income taxes d. employer contributions to a retirement plan

c. federal and state income taxes

When some doubt exists about whether or not a loss will occur in the future we refer to it as a _______________ liability.

contingent

The exclusive right to benefit from a creative work, such as a film, is a...

copyright

What is a sales discounts?

customers get a small discount for paying within a specified time period

Which of the following is NOT a reason why some companies lease rather than buy? a. Leasing may allow you to borrow with little or no down payment. b. Leasing can improve the balance sheet by reducing long-term debt. c. Leasing can lower income taxes. d. Leasing transfers the title to the lease at the beginning of the lease.

d. Leasing transfers the title to the lease at the beginning of the lease DOES NOT.

Notes payable journal entry

debit cash credit notes payable

Journal entry for depreciation expense

debit depreciation expense, credit accumulated depreciation

interest expense incurred on notes payable (adjusting entry)

debit interest expense, credit interest payable

Loss journal entry

debit loss credit contingent liability

payment of note + interest journal entry

debit notes payable, interest payable, interest expense credit cash

Journal entry for employer side of salaries (payroll taxes)

debit payroll tax expense credit FICA taxes, unemployment taxes

Journal entry for employee side of salaries

debit salaries expense credit income tax payable, FICA tax payable, accounts payable, and salaries payable

the journal entry to retire old equipment that is not fully depreciated includes a:

debit to accumulated depreciation credit to equipment debit to loss

journal entry for estimated warranties

debit warranty expense credit warranty liability

journal entry for actual warranties

debit warranty liability credit cash

Payroll withholdings _____:

decrease the amount of cash an employee recieves are amounts subtracted form employees' gross earnings to determine their net pay

Common current liabilities include:

deferred revenues sales tax payable the current portion of long-term debt

how to find depreciation expense

depreciation expense = depreciation rate x actual # of units

double declining balance method equation

depreciation rate = 2/useful life depreciation expense = depreciation rate x book value

What are examples of withholdings?

federal income, state income, FICA, employee part of health insurance ***NO unemployment taxes!

What might be classified as contingent liabilities?

future litigation losses product warranties frequent flyer program awards

Which of the following intangible assets is not amortized? a. patents b. copyrights c. francises d. goodwill

goodwill

activity based method equation

historical cost - residual value / total expected # of units (units are machine hours or miles)

straight line method equation

historical cost - residual value / useful life

Normal debit balance

increase with debit decrease with credits

What is the difference in interest payable and interest expense?

interest payable is an old interest interest expense is the new interest

The distinction between operating and non operating income relates to:

principal activites of the reporting entity

historical cost equation

purchase price + capitalized cost (capitalized cost is shipping, labor, testing, sales tax)

goodwill equation

purchase price - FAIR value of net assets

What do you record for reasonably possible AND estimable contingent liabilities?

record a disclose

What do you record for probable AND reasonably estimable contingent liabilities?

record a loss **if given a range, use lower #

The chance that the confirming event will occur is slight

remote possibility

Tom's Textiles shipped the wrong material to a customer, who refused to accept the order. Upon receipt of the material, Tom's would credit accounts receivable and debit:

sales returns

equation for gain/loss

selling price - book value

Which of the following amortization methods is most commonly used? a. straight line b. double declining balance c. activity based d. a combination of methods

straight line

how do you find interest expense?

take HALF of the interest payable

The percentage-of-recievables method for estimating uncollectible accounts is sometimes describes as:

the balance sheet method

The percentage-of-credit-sales method for estimating uncollectible accounts is sometimes described as

the income statement method

How to find salaries payable (aka actual direct deposit)?

total salaries expense - withholdings

how do you find total salaries expense?

total salaries expense = # of employees x # of hours for each employee x hourly wage

How to find liability that will be reported at the end of the year in account...

warranty liability [30 mil x 2%] - actual expenses