Final Exam Practice
The Abel Company provided the following information from its financial records: Net income $ 265,000 Common stock dividends $ 23,000 Preferred stock dividends $ 26,500 Sales $ 930,000 Common shares outstanding 1/1 380,000 Common shares outstanding 12/31 440,000 Preferred shares outstanding 1/1 23,000 Preferred shares outstanding 12/31 19,000 What is the amount of the company's earnings per share?
$0.58 per share. Earnings per share = (Net income − Preferred stock dividends) ÷ [(Beginning shares outstanding + ending shares outstanding) ÷ 2]. Earnings per share = ($265,000 − $26,500) ÷ [(380,000 shares outstanding + 440,000 shares outstanding) ÷ 2] = $238,500 ÷ 410,000 shares = $0.58 per share
Revenue on account amounted to $4,800. Cash collections of accounts receivable amounted to $4,500. Cash paid for expenses was $3,400. The amount of employee salaries accrued at the end of the year was $1,200. Cash flow from operating activities was
$1,100. Explanation: $4,500 collected from customers − $3,400 paid for expenses = $1,100. Revenue earned on account and accrued salaries are not cash flow activities.
Jason Company paid $4,800 for one year's rent in advance beginning on October 1, Year 1. Jason's Year 1 income statement would report rent expense, and its statement of cash flows would report cash outflow for rent, respectively, of
$1,200; $4,800 Explanation: $4,800 × 3/12 = $1,200 rent expense; $4,800 payment on 10/1/15 is a cash outflow for rent
Harding Corporation acquired real estate that contained land, building and equipment. The property cost Harding $2,755,000. Harding paid $840,000 and issued a note payable for the remainder of the cost. An appraisal of the property reported the following values: Land, $888,000; Building, $2,640,000 and Equipment, $1,752,000. What value will be recorded for the building?
$1,377,500 In a basket purchase, the cost of each asset in the "basket" is determined as a percentage of the basket's total appraised value. $2,640,000 ÷ ($888,000 + $2,640,000 + $1,752,000) = 50%; $2,755,000 × 50% = $1,377,500
Retained Earnings at the beginning and ending of the accounting period was $950 and $2,000, respectively. If revenues were $3,700 and dividends paid to stockholders were $850, expenses for the period must have been:
$1,800. Explanation: Beginning retained earnings + Revenues - Expenses - Dividends = Ending retained earnings $950 + $3,700 - Expenses - $850 = $2,000 Expenses = $1,800
On January 1, 2011 Grace Company had an $16,500 balance in the Accounts Receivable account and a zero balance in the Allowance for Doubtful Accounts account. During 2011, Grace provided $58,500 of service on account. The company collected $48,170 cash from account receivable. Uncollectible accounts are estimated to be 19% of sales on account. The amount of uncollectible accounts expense recognized on the 2011 income statement is:
$11,115
Anchor Company purchased a manufacturing machine with a list price of $100,000 and received a 2% cash discount on the purchase. The machine was delivered under terms FOB shipping point, and freight costs amounted to $5,200. Anchor paid $7,500 to have the machine installed and tested. Insurance costs to protect the asset from fire and theft amounted to $9,800 for the first year of operations. Based on this information, the amount of cost recorded in the asset account would be:
$110,700 $100,000 list price - ($100,000 × 2% discount) + $5,200 freight + $7,500 installation and testing = $110,700. The insurance cost is not included in the cost of the machine, but is instead expensed during the first year.
Laramie Co. paid $900,000 for a purchase that included land, building, and office furniture. An appraiser provided the following estimates of the market values of the assets if they had been purchased separately: Land, $150,000, Building, $640,000, and Office Furniture, $210,000. Based on this information the cost that would be allocated to the land is: (Do not round intermediate calculations.)
$135,000. $150,000 ÷ ($150,000 + $640,000 + $210,000) = 15% of market value; $900,000 purchase price × 15% = $135,000.
Hailey Medical Supply Co., which had no beginning balance in its Accounts Receivable and Allowance for Doubtful Accounts, earned $81,000 of revenue on account during 2011. During 2011, Hailey collected $64,200 of cash from its receivables accounts. The company estimates that it will be unable to collect 3% of revenue on account. The amount of net realizable value of receivables on the December 31, 2011 balance sheet would be:
$14,370
Dinkins Company purchased a truck that cost $66,000. The company expected to drive the truck 100,000 miles over its 5-year useful life, and the truck had an estimated salvage value of $10,000. If the truck is driven 31,000 miles in the current accounting period, what would be the amount of depreciation expense for the year?
$17,360. ($66,000 cost - $10,000 salvage value) ÷ 100,000 miles = $0.56 per mile depreciation; $0.56 per mile × 31,000 miles = $17,360 depreciation expense.
The year-end financial statements of Calloway Company contained the following elements and corresponding amounts: Assets = $33,000; Liabilities = ?; Common Stock = $6,300; Revenue = $13,600; Dividends = $1,400; Beginning Retained Earnings = $4,400; Ending Retained Earnings = $8,300. The amount of liabilities reported on the end-of-period balance sheet was:
$18,400. Explanation: Assets = Liabilities + Common Stock + Ending Retained Earnings $33,000 = Liabilities + $6,300 + $8,300 Liabilities = $18,400
Harding Corporation acquired real estate that contained land, building and equipment. The property cost Harding $2,375,000. Harding paid $700,000 and issued a note payable for the remainder of the cost. An appraisal of the property reported the following values: Land, $740,000; Building, $2,200,000 and Equipment, $1,460,000. (Round your intermediate percentages to the nearest whole number: i.e 0.054231 = 5%. Do not round any other intermediate calculations.) Assume that Harding uses the units-of-production method when depreciating its equipment. Harding estimates that the purchased equipment will produce 1,150,000 units over its 5-year useful life and has salvage value of $19,000. Harding produced 280,000 units with the equipment by the end of the first year of purchase. Which amount below is closest to the amount Harding will record for depreciation expense for the equipment in the first year?
$186,200 ($783,750 cost of equipment (33% of $2,375,000 purchase price) minus $19,000 salvage value) ÷ 1,150,000 units = $0.6650 per unit; $0.6650 × 280,000 units = $186,200.
The following balance sheet information is provided for Apex Company for Year 2: Assets Cash $ 4,600 Accounts receivable 10,750 Inventory 14,300 Prepaid expenses 1,100 Plant and equipment, net of depreciation 19,000 Land 12,900 Total assets $ 62,650 Liabilities and stockholders' equity Accounts payable $ 2,490 Salaries payable 8,730 Bonds payable (due in ten years) 9,500 Common stock, no par 19,000 Retained earnings 22,930 Total liabilities and stockholders' equity $ 62,650 What is the company's working capital?
$19,530. Working capital = Current assets − Current liabilitiesWorking capital = ($4,600 + $10,750 + $14,300 + $1,100) − ($2,490 + $8,730) = $30,750 − $11,220 = $19,530
Currie Company borrowed $29,000 from the Sierra Bank by issuing a 11% three-year note. Currie agreed to repay the principal and interest by making annual payments in the amount of $11,867. Based on this information, the amount of the interest expense associated with the second payment would be:
$2,236. Interest expense in year 1: $29,000 × 11% = $3,190; Principal reduction in year 1: $11,867 − $3,190 = $8,677; Principal balance at beginning of year 2: $29,000 − $8,677 = $20,323; Interest expense in year 2: $20,323 × 11% = $2,236.
Revenue on account amounted to $4,800. Cash collections of accounts receivable amounted to $2,900. Expenses for the period were $2,500. The company paid dividends of $650. Net income for the period was
$2,300. Explanation: Revenue $4,800 − Expenses $2,500 = $2,300 Net Income
On January 1, 2011, the Accounts Receivable balance was $24,000 and the credit balance in the Allowance for Doubtful Accounts was $1,520. On January 15, 2011 a $520 uncollectible account was written-off. The net realizable value of accounts receivable immediately after the write-off is:
$22,480
On January 1, Year 1, Friedman Company purchased a truck that cost $36,000. The truck had an expected useful life of 8 years and an $7,000 salvage value. The book value of the truck at the end of Year 1, assuming that Friedman uses the double-declining-balance method, is:
$27,000 $36,000 × (2 × 12.5%) = $9,000 Depreciation expense for Year 1; $36,000 - $9,000 = $27,000 book value at the end of Year 1.
Sheldon Company began Year 1 with $1,900 in its supplies account. During the year, the company purchased $5,600 of supplies on account. The company paid $2,800 on accounts payable by year end. At the end of Year 1, Sheldon counted $3,300 of supplies on hand. Sheldon's financial statements for Year 1 would show:
$3,300 of supplies; $4,200 of supplies expense Explanation: $3,300 of supplies on hand is the supplies asset on the balance sheet; $1,900 beginning balance + $5,600 of supplies purchased − $3,300 ending balance = $4,200 supplies expense
Curtain Co. paid dividends of $8,000; $9,000; and $12,000 during Year 1, Year 2, and Year 3, respectively. The company had 1,900 shares of 4.5%, $100 par value preferred stock outstanding that paid a cumulative dividend. The amount of dividends received by the common shareholders during Year 3 would be:
$3,350. The annual preferred dividends each year = $100 × 1,900 shares × 4.5% = $8,550. In Year 1, there were $550 of dividends in arrears ($8,550 preferred dividends − $8,000 paid). In Year 2, there were $100 in arrears ($550 beginning + $8,550 preferred dividends − $9,000 paid). In Year 3, the preferred dividends was $8,550 + $100 in arrears = $8,650. The remaining $3,350 was paid to common shareholders.
Richmond Company made a loan of $6,500 to one of the company's employees on April 1, 2011. The one-year note carried a 7% rate of interest. The amount of interest revenue that Richmond would report in 2011 and 2012, respectively would be:
$341.25, $113.75
On January 1, Year 1, Friedman Company purchased a truck that cost $35,000. The truck had an expected useful life of 200,000 miles over 8 years and an $7,000 salvage value. During Year 2, Friedman drove the truck 33,000 miles. The amount of depreciation expense recognized in Year 2 assuming that Friedman uses the units-of-production method is:
$4,620. ($35,000 - $7,000) ÷ 200,000 miles = $0.140 per mile depreciation expense. 33,000 miles × $0.140 per mile = $4,620 depreciation expense in Year 2.
The inventory records for Radford Co. reflected the following Beginning inventory 2200 units @ 6.00First purchase 2,300 units @ 6.20second purchase 2,500 units @ 6.30Third purchase 2,100 units @ 6.40 Sales 6,900 units @ 7.90 Determine the amount of cost of goods sold assuming the LIFO cost flow method
$43,450 (2,100 × $6.40) + (2,500 × $6.30) + (2,300 × $6.20) = $43,45
Darden Company has cash of $23,000, accounts receivable of $33,000, inventory of $17,500, and equipment of $53,000. Assuming current liabilities of $25,500, this company's working capital is:
$48,000. Working capital = Current assets − Current liabilitiesWorking capital = ($23,000 + $33,000 + $17,500) - $25,500 = $48,000
On January 1, 2011 Grace Company had an $16,500 balance in the Accounts Receivable account and a zero balance in the Allowance for Doubtful Accounts account. During 2011, Grace provided $58,500 of service on account. The company collected $48,170 cash from account receivable. Uncollectible accounts are estimated to be 19% of sales on account. Based on this information, the amount of cash flow from operating activities that would appear on the 2011 statement of cash flows is:
$48,170
On January 1, Year 1, Missouri Co. purchased a truck that cost $35,000. The truck had an expected useful life of 10 years and a $3,000 salvage value. The amount of depreciation expense recognized in Year 2 assuming that Missouri uses the double declining-balance method is:
$5,600 $35,000 × (2 × 10%) = $7,000 depreciation expense in Year 1. ($35,000 - $7,000) × (2 × 10%) = $5,600 depreciation expense in Year 2.
Anton Co. uses the perpetual inventory method. Anton purchased 640 units of inventory that cost $5 each. At a later date the company purchased an additional 780 units of inventory that cost $7 each. If Anton uses the FIFO cost flow method and sells 1,000 units of inventory, the amount of cost of goods sold will be:
$5,720. (640 × $5) + (360 × $7) = $5,720
Stosch Company's balance sheet reported assets of $127,000, liabilities of $32,000 and common stock of $29,000 as of December 31, Year 1. If Retained Earnings on the balance sheet as of December 31, Year 2, amount to $86,000 and Stosch paid a $31,000 dividend during Year 2, then the amount of net income for Year 2 was which of the following?
$51,000 Explanation: If assets on December 31, Year 1 totaled $127,000, total claims (including liabilities, common stock, and retained earnings) on that date must have also been $127,000. If liabilities were $32,000 and common stock was $29,000, retained earnings on December 31, Year 1 must have been $66,000. At the end of Year 2, the company reported $86,000 in retained earnings, a $20,000 increase. During Year 2, Stosch paid a $31,000 cash dividend, which reduced retained earnings. Therefore, Year 2 net income must have been $20,000 greater than the dividend paid. $31,000 + $20,000 = $51,000.
Packard Company engaged in the following transactions during Year 1, its first year of operations. (Assume all transactions are cash transactions.) 1) Acquired $1,550 cash from the issue of common stock. 2) Borrowed $1,020 from a bank. 3) Earned $1,200 of revenues cash. 4) Paid expenses of $370. 5) Paid a $170 dividend. During Year 2, Packard engaged in the following transactions. (Assume all transactions are cash transactions.) 1) Issued an additional $925 of common stock. 2) Repaid $640 of its debt to the bank. 3) Earned revenues of $1,350 cash. 4) Incurred expenses of $600. 5) Paid dividends of $220. Packard Company's net cash flow from financing activities for Year 2 is:
$65 inflow. Explanation: $925 inflow from stock - $640 outflow for loan repayment - $220 outflow for dividends = $65 inflow.
Koontz Company uses the perpetual inventory method. On January 1, Year 1, the company's first day of operations, Koontz purchased 1,050 units of inventory that cost $5.10 each. On January 10, Year 1, the company purchased an additional 1,300 units of inventory that cost $6.90 each. If Koontz uses a weighted average cost flow method and sells 1,200 units of inventory, the amount of inventory appearing on balance sheet following the sale will be approximately:
$7,015 1,050 units + 1,300 units − 1,200 units sold = 1,150 units in ending inventory; [(1,050 × $5.10) + (1,300 × $6.90)] ÷ 2,350 = $6.10 per unit;1,150 units × $6.10 = $7,015
The inventory records for Radford Co. reflected the following Beginning inventory 1500 units @ 4.60First purchase 1600 units @ 4.80second purchase 1800 units @ 4.90Third purchase 1400 units @ 5.00 Sales 4,800 units @ 6.50 Determine the amount of ending inventory assuming the FIFO cost flow method.
$7,490 6,300 units available for sale − 4,800 units sold = 1,500 units in ending inventory; (1,400 × $5.00) + (100 × $4.90) = $7,490
Assume the perpetual inventory method is used. 1) Green Company purchased merchandise inventory that cost $16,600 under terms of 2/10, n/30 and FOB shipping point. 2) The company paid freight cost of $660 to have the merchandise delivered. 3) Payment was made to the supplier within 10 days. 4) All of the merchandise was sold to customers for $24,700 cash and delivered under terms FOB shipping point with freight cost amounting to $460. The gross margin from these transactions of Green Company is
$7,772. $24,700 Sales - [($16,600 × 0.98) + $660] Cost of goods sold = $7,772 Gross margin
On January 1, 2011, Chase Company's Accounts Receivable and the Allowance for Doubtful Accounts carried balances of $62,000 and $1,040 (credit), respectively. During the year Chase reported $140,400 of credit sales. Chase wrote off $1,500 of receivables as uncollectible in 2011. Cash collections of receivables amounted to $149,900. Chase estimates that it will be unable to collect five percent (5%) of credit sales.The amount of uncollectible accounts expense recognized in the 2011 income statement will be:
$7020
The year-end financial statements of Calloway Company contained the following elements and corresponding amounts: Assets = $30,000; Liabilities = ?; Common Stock = $6,000; Revenue = $13,000; Dividends = $1,250; Beginning Retained Earnings = $4,250; Ending Retained Earnings = $8,000. Based on this information, the amount of expenses on Calloway's income statement was
$8,000. Explanation: Beginning retained earnings + Revenue - Expenses - Dividends = Ending retained earnings $4,250 + $13,000 - Expenses - $1,250 = $8,000 Expenses = $8,000
Assume the perpetual inventory method is used. 1) The company purchased $12,200 of merchandise on account under terms 2/10, n/30. 2) The company returned $1,700 of merchandise to the supplier before payment was made. 3) The liability was paid within the discount period. 4) All of the merchandise purchased was sold for $18,400 cash. The amount of gross margin from the four transactions is:
$8,110. Cost of goods sold = ($12,200 - $1,700) × 0.98 = $10,290 Sales revenue $18,400 - Cost of goods sold $10,290 = $8,110
The inventory records for Radford Co. reflected the following Beginning inventory 1600 units @ 4.80First purchase 1700 units @ 5.00second purchase 1900 units @ 5.10Third purchase 1500 units @ 5.20 Sales 4,800 units @ 6.70 Determine the amount of gross margin assuming the weighted average cost flow method.
$8,517 [(1,600 × $4.80) + (1,700 × $5.00) + (1,900 × $5.10) + (1,500 × $5.20)] ÷ 6,700 units = $5.03 per unit.(5,100 × $6.70) − (5,100 × $5.03) = $8,517.
Ballard Company uses the perpetual inventory system. The company purchased $9,800 of merchandise from Andes Company under the terms 2/10, net/30. Ballard paid for the merchandise within 10 days and also paid $430 freight to obtain the goods under terms FOB shipping point. All of the merchandise purchased was sold for $18,600 cash. The amount of gross margin for this merchandise is:
$8,566. Sales $18,600 - Cost of goods sold ($9,800 × 0.98 + $430) = $8,566 Gross margin
Nelson Company experienced the following transactions during Year 1, its first year in operation. Issued $6,200 of common stock to stockholders. Provided $2,500 of services on account. Paid $1,650 cash for operating expenses. Collected $2,000 of cash from accounts receivable. Paid a $110 cash dividend to stockholders. The amount of net income recognized on Nelson Company's Year 1 income statement is:
$850. Explanation: $2,500 revenue − $1,650 expenses = $850 net income
The balance in Accounts Receivable at the beginning of the period amounted to $4,100. During the period $6,900 of credit sales were made to customers, and uncollectible accounts expense amounted to $450. The ending balance in Accounts Receivable is $1,500, and the ending balance in the uncollectible allowance account is $600. The amount of cash inflow from customers that would appear in the operating section of the statement of cash flows is
$9500
Valdez Company uses the percent of receivables method to estimate uncollectible accounts expense. Valdez began 2011 with balances in Accounts Receivable and Allowance for Doubtful Accounts of $42,250 and $2,980 (credit), respectively. During the year, the company wrote off $3,120 in uncollectible accounts. In preparation for the company's 2011 estimate, Valdez prepared the following aging schedule (Do not round your intermediate calculations. Round your final answer to two decimal places): # days past rec amt. % uncollectible Current $26,800 9% 0-30 $12,850 13% 31-60 $2,560 18% 61-90 $1,190 33%Over 90 $1,350 58% Total $44,750 What will Valdez record as Uncollectible Accounts Expense for 2011?
%5,859
Milton Company has total current assets of $60,000, including inventory of $17,500, and current liabilities of $36,000. The company's current ratio is:
1.67. Current ratio = Current assets ÷ Current liabilitiesCurrent ratio = $60,000 ÷ $36,000 = 1.67
The Miller Company reported gross sales of $840,000, sales returns and allowances of $6,100 and sales discounts of $6,100. The company has average total assets of $490,000, of which $245,000 is property, plant, and equipment. What is the company's asset turnover ratio?
1.69 times. Asset turnover = Net sales ÷ Average assetsAsset turnover = ($840,000 − $6,100 − $6,100) ÷ $490,000 = $827,800 ÷ $490,000 = 1.69 times
Flagler Corporation shows a total of $460,000 in its common stock account and $1,060,000 in its paid-in capital in excess of par value - common stock account. The par value of Flagler's common stock is $4. How many shares of Flagler stock have been issued?
115,000. $460,000 total par value ÷ $4 par value per share = 115,000 shares issued
The following balance sheet information is provided for Greene Company for Year 2: Assets Cash $ 8,000 Accounts receivable 14,150 Inventory 16,000 Prepaid expenses 2,800 Plant and equipment, net of depreciation 20,700 Land 14,600 Total assets $ 76,250 Liabilities and Stockholders' EquityAccounts payable $ 3,510 Salaries payable 7,030 Bonds payable (Due in ten years) 18,000 Common stock, no par 10,500 Retained earnings 37,210 Total liabilities and stockholders' equity $ 76,250 What is the company's quick (acid-test) ratio?
2.10. Quick ratio = Quick assets ÷ Current liabilitiesQuick ratio = (Cash + Receivables + Current marketable securities) ÷ Current liabilitiesQuick ratio = ($8,000 + $14,150 + $0) ÷ ($3,510 + $7,030 ) = $22,150 ÷ $10,540 = 2.10
The following balance sheet information was provided by O'Connor Company: Assets Year 2 Year 1Cash $ 2,400 $ 1,400A/R $ 7,400 $ 5,400Inventory $ 24,000 $ 25,000 Assuming that net credit sales for Year 2 totaled $149,000, what is the company's most recent accounts receivable turnover?
23.28 times Accounts receivable turnover = Net credit sales ÷ [(Beginning accounts receivable + ending accounts receivable) ÷ 2]Accounts receivable turnover = $149,000 ÷ [($5,400 + $7,400) ÷ 2] = $149,000 ÷ $6,400 = 23.28 times
The following balance sheet information is provided for Gaynor Company: Assets Year 2 Year 1Cash $ 3,050 $ 2,300A/R $ 15,800 $ 13,800Inventory $ 32,500 $ 40,000 Assuming Year 2 cost of goods sold is $118,000, what is the company's inventory turnover?
3.26 times. Inventory turnover = Cost of goods sold ÷ [(Beginning inventory + ending inventory) ÷ 2Inventory turnover = $118,000 ÷ [($40,000 + $32,500) ÷ 2] = $118,000 ÷ $36,250 = 3.26 times
The following balance sheet information is provided for Patton Company: Assets Year 2 Year 1Cash $ 3,900 $ 3,500A/R $ 13,400 $ 15,400Inventory $ 35,500 $ 42,500 Assuming Year 2 cost of goods sold is $379,000, what are the company's average days to sell inventory?
37.56 days. Inventory turnover = Cost of goods sold ÷ [(Beginning inventory + ending inventory) ÷ 2]. Inventory turnover = $379,000 ÷ [($42,500 + $35,500) ÷ 2] = 379,000 ÷ $39,000 = 9.72 times. Average days to sell inventory = 365 days ÷ Inventory turnover. Average days to sell inventory = 365 days ÷9.72 times = 37.56 days
Montana Company was authorized to issue 120,000 shares of common stock. The company had issued 51,000 shares of stock when it purchased 8,000 shares of treasury stock. The number of outstanding shares of common stock was:
43,000. 51,000 shares issued − 8,000 shares of treasury stock = 43,000 shares outstanding
The following balance sheet information was provided by Western Company: Assets Year 2 Year 1Cash $ 2,500 $ 2,000A/R $ 17,500 $ 15,500Inventory $ 29,000 $ 35,000 Assuming Year 2 net credit sales totaled $125,000, what was the company's average days to collect receivables?
48.20 days. Accounts receivable turnover = Net credit sales ÷ [(Beginning accounts receivable + ending accounts receivable) ÷ 2]Accounts receivable turnover = $125,000 ÷ [($15,500 + $17,500) ÷ 2] = $125,000 ÷ $16,500 = 7.58 timesAverage days to collect receivables = 365 days ÷ 7.58 = 48.20 days
The following balance sheet information is provided for Santana Company for Year 2: AssetsCash $ 5,800 Accounts receivable 11,950 Inventory 14,900 Prepaid expenses 1,700 Plant and equipment, net of depreciation 19,600 Land 13,500 Total assets $ 67,450 Liabilities and Stockholders' EquityAccounts payable $ 2,850 Salaries payable 8,130 Bonds payable (Due in ten years) 12,500 Common stock, no par 16,000 Retained earnings 27,970 Total liabilities and stockholders' equity $ 67,450 What is the company's debt to equity ratio?
53.40%. Debt to equity = Total liabilities ÷ Total stockholders' equityDebt to equity = ($2,850 + $8,130 + $12,500) ÷ ($16,000 + $27,970) = $23,480 ÷ $43,970 = 53.40%
On December 31, 2011, the Lincoln Corporation estimated that 8% of its credit sales of $240,000 would be uncollectible. Lincoln uses the allowance method of accounting for uncollectible accounts. In February 2012, one of Lincoln's customers failed to pay his $3,000 account and was written off. On April 4, 2012, this customer paid Lincoln the $3,000. Which of the following answers correctly states the effect of recording the reestablishment of the receivable on April 4, 2012? Assets = Liabilities + Equity Revenue − Expenses = Net Inc. Cash Flow
All NA
On December 31, 2011, the Lincoln Corporation estimated that 8% of its credit sales of $240,000 would be uncollectible. Lincoln uses the allowance method of accounting for uncollectible accounts. In February 2012, one of Lincoln's customers failed to pay his $3,000 account and was written off. On April 4, 2012, this customer paid Lincoln the $3,000. Which of the following answers correctly states the effect of the February 2012 entry to write off the customer's account? Assets = Liab. + Equity Revenue − Expenses = Net Inc. Cash Flow
All NA
On December 31, 2011, the Lincoln Corporation estimated that 8% of its credit sales of $240,000 would be uncollectible. Lincoln uses the allowance method of accounting for uncollectible accounts. In February 2012, one of Lincoln's customers failed to pay his $3,000 account and was written off. On April 4, 2012, this customer paid Lincoln the $3,000. Which of the following answers correctly states the effect of recording the collection of the reestablished receivable on April 4, 2012? Assets = Liabilities + Equity Revenue − Expenses = Net Inc. Cash Flow
All NA except cash flow. Cash Flow: 3000 OA
The recognition of an expense may be accompanied by which of the following?
An increase in liabilities. Explanation: Recognizing an expense may be accompanied by an increase in liabilities (i.e. accounts payable, salaries payable) or a decrease in assets (i.e. cash, prepaid rent or insurance).
Which of the following represents the impact of a taxable cash sale of $900 on the accounting equation if the sales tax rate is 4%?
An increase to cash for $936, an increase to sales tax payable for $36, and an increase to sales revenue for $900. The transaction is recorded as an increase to cash of $936, the amount of the sale, plus the 4% sales tax collected, an increase to sales tax payable of $36, the amount owed to the state, and an increase to sales revenue of $900, the amount of the sale.
Which of the following choices accurately reflects how the recording of accrued salary expense affects the financial statements of a business?
Assets (NA) = Liability (+) + Equity (-) Revenue (NA) - Expenses (+) = Net Income (-) Cash Flow (NA) Explanation: Accruing salary expense increases liabilities (salaries payable) and increases expenses, which decreases net income and equity (retained earnings). It does not affect cash flows.
Assume the perpetual inventory method is used. 1) The company purchased $12,300 of merchandise on account under terms 4/10, n/30. 2) The company returned $1,800 of merchandise to the supplier before payment was made. 3) The liability was paid within the discount period. 4) All of the merchandise purchased was sold for $18,600 cash. What effect will the return of merchandise to the supplier have on the accounting equation?
Assets and liabilities are reduced by $1,800. The purchase return will decrease assets (merchandise inventory) and decrease liabilities (accounts payable) by $1,800, the full invoiced amount of the merchandise returned.
Emir Company purchased equipment that cost $110,000 cash on January 1, Year 1. The equipment had an expected useful life of six years and an estimated salvage value of $8,000. Assuming that Emir depreciates its assets under the straight-line method, the amount of depreciation expense appearing on the Year 4 income statement and the amount of accumulated depreciation appearing on the December 31, Year 4, balance sheet would be: Dep. Exp. Accumulated depreciationA. $ 17,000 $ 17,000B. $ 17,000 $ 68,000C. $ 68,000 $ 17,000D. $ 17,000 $ 51,000
B. $ 17,000 $ 68,000 ($110,000 - $8,000) ÷ 6 years = $17,000 depreciation expense each year; $17,000 × 4 years = $68,000 accumulated depreciation expense at the end of Year 4.
Which of the following items is an example of revenue? A) Cash received from a bank loan B) Cash received from investors from the sale of common stock C) Cash received from customers at the time services were provided D) Cash received from the sale of land for its original selling price
C) Cash received from customers at the time services were provided Explanation: Cash received from providing services to customers is an example of revenue, and is an asset source transaction. Cash received from a bank loan results in a liability, notes payable. Cash investments made by owners increase the stockholders' equity account common stock. Cash received from the sale of land for its original selling price is an asset exchange transaction that decreases one asset, land, and increases another asset, cash.
Kier Company issued $780,000 in bonds on January 1, Year 1. The bonds were issued at face value and carried a 5-year term to maturity. They had a 6.00% stated rate of interest that was payable in cash on December 31st. Based on this information alone, the amount of interest expense shown on the December 31, Year 1 income statement and the cash flow from operating activities shown on the December 31, Year 1 statement of cash flows would be: Interest Expense Cash Outflow A. $ 46,800 zero B. zero $ 46,800 C. $ 46,800 $ 46,800 D. zero zero
Choice C $780,000 × 0.060 = $46,800; Payment of interest on December 31, Year 1 increases interest expense by $46,800 and is reported as a cash outflow for operating activities.
On January 12, Year 1, Gilliam Corporation issued 550 shares of $12 par-value common stock for $15 per share. The number of shares authorized is 5,000, and the number of shares outstanding prior to this transaction is 1,200. Which of the following answers describes the effect of the January 12, Year 1 transaction? Assets = Liab. + Com. Stk. + Pd-in Excess Rev. − Exp. = Net Inc. Cash Flow A. 6,600 = NA + 6,600 + NA NA − NA = NA 6,600 FA B. 8,250 = NA + 8,250 + NA NA − NA = NA 8,250 FA C. 8,250 = NA + 6,600 + 1,650 NA − NA = NA 8,250 FA D. 8,250 = NA + 6,600 + 1,650 NA − NA = NA 8,250 IA
Choice C. Assets (cash) increase by $8,250 (550 × $15), common stock increases by $6,600 (= 550 shares × $12 par value), and paid-in excess of par value − common increases by $1,650 (= $8,250 − $6,600). The cash inflow is a financing activity.
Which form of business organization is established as a legal entity separate from its owners?
Corporation Corporations are owned by shareholders. Corporations file and pay income taxes on their own.
Addison Company experienced an accounting event that affected its financial statements as indicated below: Assets (+) = Liability (NA) + Equity (+) Revenue (+) - Expenses (NA) = Net Income (+) Cash Flow (NA) Which of the following accounting events could have caused these effects on Addison's statements?
Earned revenue on account. Explanation: Earning revenue on account increases assets (accounts receivable) and increases revenue, which increases net income and equity (retained earnings). It does not affect cash flows.
Blake Company purchased two identical inventory items. The item purchased first cost $23.00, and the item purchased second cost $24.00. Blake sold one of the items for $42.00. Which of the following statements is true?
Ending inventory will be lower if Blake uses weighted average than if FIFO were used. (If Blake uses weighted average, ending inventory will be $23.50. If the company uses FIFO, ending inventory will be $24.00.)
SX Company sold merchandise on account for $18,500. The merchandise had cost the company $8,200. What is the effect of the sale on the income statement?
Expenses increase by $8,200 Selling merchandise on account will increase revenue by $18,500. It will increase expenses by $8,200 and increase net income by $10,300. Revenue - Expenses = Net income. $18,500 − $8,200 = $10,300.
Abbott Company purchased $7,500 of merchandise inventory on account. Advent uses the perpetual inventory method. How does this transaction affect the financial statements?
Increase inventory and increase accounts payable. When the perpetual system is used, the purchase of inventory on account increases inventory and increases accounts payable.
Which of the following is not considered an advantage of the corporate form of business organization?
Lack of government regulation. The large amount of government regulation is a disadvantage of the corporate form of business.
Monthly remittance of sales tax:
Reduces liabilities. Remittance of sales tax reduces assets (cash) and reduces liabilities (sales tax payable).
Santa Fe Company was started on January 1, Year 1, when it acquired $9,300 cash by issuing common stock. During Year 1, the company earned cash revenues of $5,450, paid cash expenses of $3,400, and paid a cash dividend of $950. Based on this information,
The Year 1 statement of cash flows would show net cash inflow from financing activities of $8,350. Explanation: $9,300 cash inflow from issuing stock - $950 cash outflow for dividends = $8,350 net cash inflow from financing activities
Under what condition is a pending lawsuit recognized as a liability on a company's balance sheet?
The outcome is probable and can be reasonably estimated. A contingent liability should be recorded in the financial statements as a liability if the outcome is considered probable and the amount owed can be reasonably estimated. If it is considered only reasonably possible, it is only disclosed in the notes to the financial statements.
On January 2, Year 1, Torres Corporation issued 14,000 shares of $10 par-value common stock for $14 per share. Which of the following statements is true?
The paid-in capital in excess of par value account will increase by $56,000. The cash account will increase by $196,000 (14,000 × $14), the common stock account will increase by $140,000 (14,000 × $10 par value), and the paid-in capital in excess of par value account will increase by $56,000 (14,000 × $4). Ix Company issued
The Wilson Company purchased $24,000 of merchandise from the Poole Wholesale Company. Wilson also paid $1,700 for freight costs to have the goods shipped to its location. Which of the following statements regarding the necessary entries for the transactions is true? Wilson uses the perpetual inventory system.
Total increases to the inventory account would be $25,700. When the perpetual system is used, the inventory account is increased when inventory is purchased; that account is also increased when the company (as the buyer of the merchandise) pays the transportation costs.
Jackson Company had a net increase in cash from operating activities of $8,900 and a net decrease in cash from financing activities of $2,350. If the beginning and ending cash balances for the company were $3,900 and $12,800, then net cash change from investing activities was:
an inflow or increase of $2,350. Explanation: Beginning cash balance + Increase from operating activities - Decrease from financing activities +/- Increase or decrease from investing activities = Ending cash balance $3,900 + $8,900 - $2,350 +/- Increase or decrease from investing activities = $12,800 $2,350 = Increase in investing activities
Hoover Company purchased two identical inventory items. The item purchased first cost $46.00. The item purchased second cost $51.75. Then Hoover sold one of the inventory items for $75. Based on this information, the amount of:
gross margin is $26.12 if Hoover uses the weighted average cost flow method. (If Hoover uses LIFO, cost of goods sold will be $51.75 (most recent purchase) and ending inventory will be $46.00, not 51.75. If Hoover uses weighted average, the weighted average cost per unit is $48.88. Therefore, gross margin will be $26.12 ($75 Sales − $48.88 Cost of goods sold). If Hoover uses FIFO, cost of goods sold will be $46.00 (earliest purchase), not $51.75.)
Ix Company issued 14,000 shares of $10 par value common stock at a market price of $20. As a result of this accounting event, the amount of stockholders' equity would:
increase by $280,000. Common stock will increase by $140,000, the par value, and paid-in capital in excess of par value will increase by $140,000, for a total increase in stockholders' equity of $280,000.
Jack's Snow Removal Company received a cash advance of $10,200 on December 1, Year 1 to provide services during the months of December, January, and February. The year-end adjustment on December 31, Year 1, to recognize the partial expiration of the contract will
increase equity by $3,400 Explanation: The year-end adjustment to recognize one month's work on the three-month contract results in a $3,400 decrease in liabilities (unearned revenue) and an increase in equity (retained earnings due to recognizing revenue).
Li Company paid cash to purchase land. As a result of this accounting event:
total assets were unaffected. Explanation: Paying cash for land is an asset exchange transaction that increases one asset (land) and decreases another asset (land). The result is no overall change in total assets.
Madison Company issued an interest-bearing note payable with a face amount of $24,600 and a stated interest rate of 8% to the Metropolitan Bank on August 1, Year 1. The note carried a one-year term. The amount of cash flow from operating activities on the Year 1 statement of cash flows would be:
zero. The $24,600 borrowed is classified as a financing activity, not an operating activity. No interest was paid in Year 1, so there is no cash flow related to the interest.
