mgmt chapters 5-12 lecture and hw notes

Refurbish, Inc. bought 1,000 shares of its own stock for $8,000. Later, it resold the shares for $10,000. The journal entry to record the sale of treasury stock includes a(n) ______. (Check all that apply.)

$2,000 credit to Additional paid-in capital $8,000 credit to Treasury stock Reason: The entry to record the sale includes a $10,000 debit to Cash, an $8,000 credit to Treasury stock (the original cost), and a $2,000 credit, not debit, to Additional paid-in capital (the difference between the sale price and the cost).

An analyst sees the line item Trade accounts receivable, net of allowances of $2,040,000, with a balance of $19,500,000. Which of the following statements is correct. (Select all that apply.)

$2,040,000 is the amount estimated to be uncollectible $21,540,000 is the gross receivables $19,500,000 is the expected amount to be collected from customers

Accounts receivable has a $2,300 balance, and the Allowance for doubtful accounts has a $200 credit balance. An $80 account receivable is written off. The net book value of receivables on the balance sheet after the write-off equals ______

$2,100 Reason: Net receivables = ($2,300 - 80) - (200 - 80) = $2,100

In its first year of business, ABC, Inc. had Accounts Receivable of $8,000 and Credit sales of $38,000. Management estimates 2% of the total credit sales will be uncollectible. Bad Debt Expense equals _____

$760 Reason: Bad Debt Expense = $38,000 x 0.02=$760.

NCFO - net cash flow operating NCFI net cash flow investing activity or NCFF net cash flow from financing activities (+) for inflow (-) for outflow, NE = no effect Declared and paid cash dividends to shareholders

(NCFF -)

NCFO - net cash flow operating NCFI net cash flow investing activity or NCFF net cash flow from financing activities (+) for inflow (-) for outflow, NE = no effect Repaid principal on revolving credit loan from bank

(NCFF -)

NCFO - net cash flow operating NCFI net cash flow investing activity or NCFF net cash flow from financing activities (+) for inflow (-) for outflow, NE = no effect Sold used equipment for cash at book value

(NCFI +)

NCFO - net cash flow operating NCFI net cash flow investing activity or NCFF net cash flow from financing activities (+) for inflow (-) for outflow, NE = no effect Paid cash to purchase new equipment

(NCFI -) dr PPE and cr cash

NCFO - net cash flow operating NCFI net cash flow investing activity or NCFF net cash flow from financing activities (+) for inflow (-) for outflow, NE = no effect Collected payments on account from customers

(NCFO +) dr cash and cr a/r

NCFO - net cash flow operating NCFI net cash flow investing activity or NCFF net cash flow from financing activities (+) for inflow (-) for outflow, NE = no effect Recorded and paid interest on debt to creditors

(NCFO -)

NCFO - net cash flow operating NCFI net cash flow investing activity or NCFF net cash flow from financing activities (+) for inflow (-) for outflow, NE = no effect Made payment to suppliers on account

(NCFO -) dr a/p cr cash

NCFO - net cash flow operating NCFI net cash flow investing activity or NCFF net cash flow from financing activities (+) for inflow (-) for outflow, NE = no effect Prepaid rent for the following period

(NCFO -) dr prepaid rent cr cash

NCFO - net cash flow operating NCFI net cash flow investing activity or NCFF net cash flow from financing activities (+) for inflow (-) for outflow, NE = no effect Record an adjusting entry to record accrued salaries expense

(NE on cash flow statement) dr wages expense cr wages payable

NCFO - net cash flow operating NCFI net cash flow investing activity or NCFF net cash flow from financing activities (+) for inflow (-) for outflow, NE = no effect Purchased raw materials inventory on account

(NE) dr inventory cr account payable

Wok N Roll, Inc. began on January 1, 2017 by issuing 100,000 shares of $1 par value common stock and 1,000 shares of $100 par value, 5%, cumulative preferred stock. No dividends were declared in 2017 or 2018. In 2019, Wok N Roll declared and paid a $0.50 dividend to its common stockholders. Assuming all shares originally issued are outstanding, the total dividend declared and paid in 2019 equals ______.

65,000 Reason: Cumulative preferred stock receives 1,000 shares x $100 par x 5% x 3 years and common stock receives 100,000 shares x $0.50.

Management estimates that 1% of the $100,000 of credit sales will be uncollectible. The Allowance for Doubtful Accounts has a $100 unadjusted debit balance. The Allowance for Doubtful Accounts balance on the balance sheet will equal ___

900

During the month, Cellum, Inc. sold 100 cells at a price of $100 each. Each cell was sold at a 1% sales discount. Cellum had returns of $198 (net of discounts) and incurred bank service charges of $20. Net sales for the month ended equals

9702

The entry to record the collection of $9,600 from a customer whose account had previously been written off includes a ______.

credit to Allowance for doubtful accounts of $9,600 Reason: When the customer was written off, the company debited Allowance for doubtful accounts and credited Accounts receivable. Since the receivable ended up being collected, the company must reverse the entry it made when it wrote off the customer's receivable.

A customer that was written off now pays. The journal entry recorded to reverse this previously written-off amount is recorded as a ___

debit Accounts receivable and credit Allowance for doubtful accounts'

Shall we expense or capitalize following expenditures Paid 10k for monthly salaries

expense

Shall we expense or capitalize following expenditures Paid 400 for ordinary repairs

expense

Shall we expense or capitalize following expenditures Paid for routine maintenance 200 on credit

expense

A corporation may repurchase its stock in order to _____

have shares of stock to issue when stock options are exercised

Shall we expense or capitalize following expenditures Paid cash dividend 20k

neither

Management estimates that 1% of the $100,000 of credit sales will be uncollectible. The Allowance for Doubtful Accounts has a $100 unadjusted credit balance. The adjusting entry to record estimated bad debts includes a ______. (Check all that apply.)

credit to Allowance for Doubtful Accounts of $1,000 debit to Bad Debt Expense of $1,000

Berkley Company had Beginning inventory of $4,000 and Purchases of $20,000. If half of its inventory was sold, Berkley's goods available for sale for the period will _

be split between cost of goods sold and ending inventory

Shall we expense or capitalize following expenditures Paid 20k cash for addition to old building

capitalize

Delta Diamonds had 5 diamonds available for sale this year: 1 purchased June 1 for $500, 2 purchased July 9 for $550 each, and 2 purchased September 23 for $600 each. On December 24, it sold 1 of the diamonds. Using periodic weighted average cost, its inventory after the December 24 sale is ______.

2240 Reason: The average cost per unit is $560 (=($500 + (2 x $550) + (2 x $600))/(1 + 2 + 2)). Inventory (using weighted average) is $2,240 ($560 per unit x 4 units).

Bijoux Company has sales of $40,000, beginning inventory of $5,000, purchases of $25,000, and ending inventory of $7,000. The goods available for sale for the period equals ______.

30,000 Goods available for sale equals $30,000 (= beginning inventory of $5,000 plus purchases of $25,000)

Beginning inventory is $15,000, and ending inventory is $20,000. As a result, purchases are ______ than cost of goods sold.

5000 greater Reason: Purchases (debits to inventory) were $5,000 greater than cost of goods sold (credits to inventory) causing the balance to increase.

Beginning inventory is $20,000, and ending inventory is $15,000. As a result, purchases are ______ than cost of goods sold.

5000 less

On January 1, 2017, Bank & Rupp, Inc. issued 100,000 shares of $1 par value common stock and 1,000 shares of $50 par value, 6%, cumulative preferred stock. No dividends were declared in 2017. In 2018, Bank & Rupp declared and paid a $1 dividend to its common stockholders. Assuming all shares originally issued are outstanding, the total dividend paid to the preferred stockholders equals ______.

6000 Reason: Since the preferred stock is cumulative, $6,000 (=1,000 shares x $50 par x 6% x 2 years) must be paid to preferred stockholders before the common stockholders may receive a $1 dividend.

When preparing the statement of cash flows, changes in current assets and current liabilities are added to or subtracted from net income. Match the adjustment to net income on the left with the reason for the adjustment listed on the right.

Adding increases in current liabilities such as Income Tax Payable matches Choice, Allows the inclusion of transactions that decreased net income but not cash Allows the inclusion of transactions that decreased net income but not cash

Refurbish, Inc. reissued 1,000 shares of its treasury stock for $10,000. Prior to the reissuance, the Treasury stock balance was $(12,000), which included the $8,000 cost of the 1,000 shares reissued. After recording this transaction, ______. (Check all that apply.)

Additional paid-in capital will be increased by $2,000 Treasury stock will equal $(4,000). Reason: A company may not report a gain from reissuing its own stock. The entry includes a debit to Cash of $10,000 and a credit to Treasury stock for $8,000 (the original cost of the 1,000 shares) and a credit to Capital in excess of par for $2,000. The effect is to increase Additional paid-in capital by $2,000 and to result in a $4,000 debit balance in Treasury stock (=$12,000 - 8,000).

Shall we expense or capitalize following expenditures Paid 3 year insurance 900

capitalize

Shall we expense or capitalize following expenditures Paid 6k for improvements that lengthened the assets productive life

capitalize

Shall we expense or capitalize following expenditures Purchased machine, 7000, long term note

capitalize

Shall we expense or capitalize following expenditures Purchased patent for 4300 cash

capitalize

The amount recorded for the purchase of long-lived tangible assets is the ______. (Check all that apply.)

cash equivalent price acquisition cost net cash equivalent amount paid or to be paid

ABC Company issued 30,000 shares of common stock in January. In August, the company repurchased 5,000 shares for the treasury. When reporting these transactions in the statement of cash flows, ABC Company ______ combine them into one transaction in the ______ activities section.

Cannot, financing Reason: Increases and decreases in stockholders' equity accounts should be reported separately, rather than netted in the statement of cash flows.

Which of the following cash flows are classified as operating activities? (Check all that apply.)

Cash flow causing decrease in current liabilities Cash from revenue earned in daily transactions

Which of the following cause working capital to increase? (Check all that apply.)

Cash sales of long-term assets Sales on account

New companies often experience rapid sales growth and increases in working capital. Working capital increases are caused by increases in sales-related asset accounts, such as

Cash, receivable

Which of the following statements best describes the reason depreciation expense is added to net income when preparing the statement of cash flows?

Depreciation Expense originally reduced net income, but the expense does not involve paying cash. Reason: Depreciation is a noncash expense that reduced net income. It should be added back to bring net income closer to a cash-based amount.

True or false: GAAP requires that a business must use an inventory accounting method that is the same as the physical flow of goods in and out of the business.

False Reason: A business may use specific identification, or it may use a cost flow assumption (LIFO, FIFO, or weighted average) that does not mimic the physical flow of goods.

True or false: Changes in cash are classified as either operating activities, direct activities or indirect activities.

False Reason: The change in cash is the sum of the operating, investing, and financing activities sections and is found at the bottom of the statement.

Assuming rising inventory prices, rank which inventory method results in the higher ending inventory value. List from top to bottom, in order of highest ending inventory to lowest ending inventory value.

Fifo Weighted average Lifo

A $5,000 increase in accounts payable means that cash payments were ______ (greater/less) than purchases on account and thus the increase is ______ (added to/subtracted from) net income in the operating activities section of the statement of cash flows.

Less, added to

Depreciation Expense is added back to net income when preparing the cash flow from operating activities section because depreciation represents a(n) ______ reduction to net income.

Noncash

Braden and Sons, Inc., paid cash to purchase equipment costing $342,000 this year. Also this year, the company sold for $70,000 cash equipment that originally cost $230,000 5 years ago. How should these transactions be listed in the statement of cash flows?

The purchases and the sales of equipment must be shown separately as a decrease to cash for $342,000 (purchase) and an increase of $70,000 (sale). Reason: Account changes in the investing activities sections are required to show causes of both the increases of $70,000 and decreases of $342,000 to cash.

When using the indirect method, subtracting an increase in Accounts Receivable from net income eliminates the effect of recording credit sales ______.

that increased net income, but did not impact cash Reason: When assets such as Accounts Receivable are increased, a corresponding revenue account is increased. In this case, the revenue increases net income, but does not represent a cash inflow this period.