30% Content Chapters 1-7 Intermediate final.
The correct amount of prepaid insurance shown on a company's December 31, 2018, balance sheet was $900. On July 1, 2019, the company paid an additional insurance premium of $600. In the December 31, 2019, balance sheet, the amount of prepaid insurance was correctly shown as $500. The amount of insurance expense that should appear in the company's 2019 income statement is:
$1,000
The Strug Company purchased office furniture and equipment for $8,600 and agreed to pay for the purchase by making five annual installment payments beginning immediately. The installment payments include interest at 8%. What is the required annual installment payment? (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)
$1,994
Ch. 5 P. 19 Hollywood Construction Company recognizes revenue over time according to percentage of completion for its long-term construction contracts. During 2018, Hollywood began work on a $3,000,000 fixed-fee construction contract, which was completed in 2021. The accounting records disclosed the following data at year-end: Cumulative contract costs incurred {Estimated costs to complete at end of year} 2018 $ 200,000 $ {1,800,000} 2019 1,100,000 {1,100,000} 2020 2,000,000 {400,000} For the 2020 year, Hollywood should have recognized gross profit on this contract of:
$100,000
Wellman Company is considering investing in a two-year project. Wellman's required rate of return is 10%. The present value of $1 for one period at 10% is 0.909 and for two periods at 10% is 0.826. The project is expected to create cash flows, net of taxes, of $80,000 in the first year, and $100,000 in the second year. Wellman should invest in the project if the project's cost is less than or equal to:
$155,320
Enchill Company accrues bad debt expense during the year at an amount equal to 3% of credit sales. At the end of the year, a journal entry adjusts the allowance for uncollectible accounts to a desired amount based on an aging of accounts receivable. At the beginning of 2018, the allowance account had a credit balance of $18,000. During 2018, credit sales totaled $480,000 and receivables of $14,000 were written off. The year-end aging indicated that a $21,000 allowance for uncollectible accounts was required. Enchill's bad debt expense for 2018 would be:
$17,000
The Compton Press Company reported income before taxes of $250,000. This amount included a $50,000 loss on discontinued operation. The amount reported as income from continuing operations, assuming a tax rate of 40%, is:
$180,00
The Strug Company purchased office furniture and equipment for $8,600 and agreed to pay for the purchase by making five annual installment payments beginning one year from today. The installment payments include interest at 8%. What is the required annual installment payment? (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)
$2,154
Winchell wrote a contract that involves two separate performance obligations. Winchell cannot estimate the stand-alone selling price of product A. Product B has a stand-alone selling price of $100. The price for the combined product is $120. How much of the transaction price would be allocated to the performance obligation for delivering product A?
$20.
Ch.5 P. 26 The Pattison Company began operations on January 2, 2018, and appropriately uses the installment sales method of accounting. The following data are available for 2018 and 2019: 2018 2019 Installment sales $ 600,000 $ 750,000 Cash collections from: 2018 sales 200,000 250,000 2019 sales 300,000 Gross profit on sales 30 % 40 % The deferred gross profit that would appear in the 2019 balance sheet is:
$225,000
Selected information from the 2018 accounting records of Dunn's Auto Dealers is as follows: Cost of furniture purchased for cash $ 8,000 Proceeds from bank loan 100,000 Repayment of bank loan (includes interest of $4,000) 44,000 Proceeds from sale of equipment 5,000 Cash collected from customers 320,000 Purchase of stock of another corporation as an investment 20,000 Common stock issued for cash 200,000 In its 2018 statement of cash flows, Dunn's should report net cash outflows from investing activities of:
$23,000
The Reingold Hat Company uses the allowance method to account for bad debts. During 2018, the company recorded $800,000 in credit sales. At the end of 2018, account balances were: Accounts receivable, $120,000; Allowance for uncollectible accounts, $3,000 (credit). If bad debt expense is estimated to be 3% of credit sales, the appropriate adjusting entry will include a debit to bad debt expense of:
$24,000
Selected information from the 2018 accounting records of Dunn's Auto Dealers is as follows: Cost of furniture purchased for cash $ 8,000 Proceeds from bank loan 100,000 Repayment of bank loan (includes interest of $4,000) 44,000 Proceeds from sale of equipment 5,000 Cash collected from customers 320,000 Purchase of stock of another corporation as an investment 20,000 Common stock issued for cash 200,000 In its 2018 statement of cash flows, Dunn's should report net cash inflows from financing activities of:
$260,000
Ch.6 P. 6 The Bello Corporation wishes to accumulate $2,000,000 for plant expansion. The funds are required on January 1, 2023. Bello intends to make five equal annual deposits in a fund that will earn interest at 7% compounded annually. The first deposit is made on January 1, 2018. Present value and future value facts are as follows: Present value of $1 at 7% for 5 periods .713 Present value of an ordinary annuity of $1 at 7% for 5 periods 4.100 Future value of an ordinary annuity of $1 at 7% for 5 periods 5.750 Future value of an annuity due of $1 at 7% for 5 periods 6.150 What is the amount of the required annual deposit?
$325,203
Winchell wrote a contract that involves two performance obligations. Product A has a stand-alone selling price of $50, and product B has a stand-alone selling price of $100. The price for the combined product is $120. How much of the transaction price would be allocated to the performance obligation for delivering product A?
$40.
The Esquire Clothing Company borrowed a sum of cash on October 1, 2018, and signed a note payable. The annual interest rate was 12% and the company's year 2018 income statement reported interest expense of $1,260 related to this note. What was the amount borrowed?
$42,000
The Richards Company purchased a machine for $5,000 down and $300 a month payable at the end of each of the next 36 months. How would the cash price of the machine be calculated, assuming the annual interest rate is given?
$5,000 plus the present value of an ordinary annuity of $300 for 36 periods.
The following items appeared in the 2018 year-end trial balance for the Brown Coffee Company: Debits Credits Revenues $ CR600,000 Operating expenses $ DB420,000 Income on discontinued operations CR200,000 Restructuring costs DB100,000 Interest expense DB20,000 Gain on sale of investments CR30,000 Income tax expense has not yet been accrued. The company's income tax rate is 40%. What amount should be reported in the company's year 2018 income statement as income from continuing operations?
$54,000
At the end of June, the Marquess Company factored $200,000 in accounts receivable with Homemark Finance. The transfer is made without recourse. Homemark charges a fee of 3% of receivables factored. During July, $150,000 of the factored receivables are collected. What amount of loss on sale of receivables would Marquess record in June?
$6,000
Smith Company earns a 12% return on assets. If net income is $720,000, average total assets must be:
$6,000,000
The Stacey Mack Corporation used the expected cash flow approach to determine the present value of a future obligation to be paid in four years. Estimated future payment possibilities were as follows: Possible payment Probability $ 50 million 20 % 70 million 40 % 90 million 40 % The risk-free interest rate is 5%. What is the estimated present value of the future obligation?
$60.880 million.
Ch. 5 P. 20 Sandlewood Construction Inc. recognizes revenue over time according to percentage of completion for its long-term construction contracts. In 2018, Sandlewood began work on a $10,000,000 construction contract, which was completed in 2019. The accounting records disclosed the following data at the end of 2018: Costs incurred $ 5,400,000 Estimated cost to complete 3,600,000 Progress billings 4,100,000 Cash collections 3,200,000 How much gross profit should Sandlewood have recognized in 2018?
$600,000
Harmon Sporting Goods received a $60,000, 6-month, 10% note from a customer. Four months after receiving the note, it was discounted at a local bank at a 12% discount rate. The cash proceeds received by Harmon were:
$61,740
Ch.7 P.17 Alvin Electronics is in the process of reconciling its bank account for the month of November. The following information is available: Balance per bank statement $ 8,325 Outstanding checks 2,400 Deposits outstanding 1,215 Bank service charges for November 35 Check written by Alvin for $300 but recorded incorrectly by Alvin as a $30 disbursement. What should be the corrected cash balance at the end of November?
$7,140
Lewis is selling a product with some of the transaction price depending on the outcome of a future event. There is a 75% chance that the event will result in $100,000 of consideration to Lewis, and a 25% chance that the event will result in $40,000 of consideration to Lewis. Which of the following is not an appropriate estimate of the amount of uncertain consideration for purposes of Lewis estimating the transaction price? $100,000 $85,000 $70,000
$70,000.
In question 10, if the transfer were made with recourse but is still accounted for as a sale, what amount of loss on sale of receivables would the company record in June assuming the estimated recourse liability is $2,000?
$8,000
Harry Morgan plans to make 30 quarterly deposits of $200 into a savings account at the end of each quarter. The savings account pays interest at an annual rate of 8%, compounded quarterly. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)
$8,114
Harry Morgan plans to make 30 quarterly deposits of $200 into a savings account. The first deposit will be made immediately. The savings account pays interest at an annual rate of 8%, compounded quarterly. How much will Harry have accumulated in the savings account at the end of the seven and a half-year period? (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)
$8,276
Ch.5 P. 22The Simpson Construction Company recognizes revenue over time according to percentage of completion for its long-term construction contracts. In 2018, Simpson began work on a construction contract. Information on this contract at the end of 2018 is as follows: Cost incurred during the year $ 1,500,000 Estimated additional cost to complete 6,000,000 Gross profit recognized in 2018 250,000 What is the contract price (total revenue) on this contract?
$8,750,000
On May 31, 2018, the Arlene Corporation adopted a plan to sell its cosmetics line of business, considered a component of the entity. The assets of the component were sold on October 13, 2018, for $1,120,000. The component generated operating income from January 1, 2018, through disposal of $300,000. In its income statement for the year ended December 31, 2018, the company reported before-tax income from operations of a discontinued component of $620,000. What was the book value of the assets of the cosmetics component?
$800,000
Jasper Company uses the allowance method to account for bad debts. During 2018, the company recorded bad debt expense of $9,000 and wrote off as uncollectible accounts receivable totaling $5,000. These transactions caused a decrease in working capital (current assets minus current liabilities) of:
$9,000
The Wazoo Times Newspaper Company reported an $11,200 liability in its 2018 balance sheet for subscription revenue received in advance. During 2019, $62,000 was received from customers for subscriptions and the 2019 income statement reported subscription revenue of $63,700. What is the liability amount for deferred subscription revenue that will appear in the 2019 balance sheet?
$9,500
GAAP includes which of the following pronouncements:
- Statements of Financial accounting standards -accounting research bulletins - Accounting principles board opinions. All of the above.
Which of the following is consistent with goods and services being distinct for purposes of identifying separate performance obligations?
- The seller regularly sells the good or service separately. - The buyer could use the good or service on its own. - The buyer could use the good or service in combination with goods or services the buyer could obtain elsewhere. All of the above
Ch3. Problem 14: Sanchez Corporation Selected Financial Information 12/31/18 12/31/17 Cash $ 20,000 $ 25,000 Accounts receivable (net) 100,000 110,000 Inventories 190,000 155,000 Total current assets 310,000 290,000 Long-term assets 230,000 210,000 Current liabilities 200,000 190,000 Long-term liabilities 40,000 50,000 Shareholders' equity 300,000 260,000 Net income $ 40,000 Interest expense 10,000 Income tax expense 20,000 The acid-test ratio for 2018 is:
0.60
Ch.3 Problem 16 Sanchez Corporation Selected Financial Information 12/31/18 12/31/17 Cash $ 20,000 $ 25,000 Accounts receivable (net) 100,000 110,000 Inventories 190,000 155,000 Total current assets 310,000 290,000 Long-term assets 230,000 210,000 Current liabilities 200,000 190,000 Long-term liabilities 40,000 50,000 Shareholders' equity 300,000 260,000 Net income $ 40,000 Interest expense 10,000 Income tax expense 20,000 Debt to equity ratio for 2018?:
0.80
Ch.4 Problem 18 Income statement: 2018 Sales $ 2,500,000 Cost of goods sold 1,300,000 Net income 200,000 Balance sheets: 2018 2017 Accounts receivable $ 300,000 $ 200,000 Total assets 2,000,000 1,800,000 Total shareholders' equity 900,000 700,000 The asset turnover for 2018 is:
1.32
Ch.3 Problem 15 Sanchez Corporation Selected Financial Information 12/31/18 12/31/17 Cash $ 20,000 $ 25,000 Accounts receivable (net) 100,000 110,000 Inventories 190,000 155,000 Total current assets 310,000 290,000 Long-term assets 230,000 210,000 Current liabilities 200,000 190,000 Long-term liabilities 40,000 50,000 Shareholders' equity 300,000 260,000 Net income $ 40,000 Interest expense 10,000 Income tax expense 20,000 The current ratio for 2018 is:
1.55
Ch.4 Problem 16 Income statement: 2018 Sales $ 2,500,000 Cost of goods sold 1,300,000 Net income 200,000 Balance sheets: 2018 2017 Accounts receivable $ 300,000 $ 200,000 Total assets 2,000,000 1,800,000 Total shareholders' equity 900,000 700,000 The accounts receivable turnover for 2018 is:
10
Ch. 7 P.13 The following data are available for the Hunting Balloon Company: Sales for the current year $ 1,500,000 Cost of goods sold for the current year 1,200,000 Accounts receivable, beginning of year 140,000 Accounts receivable, end of year 160,000 The accounts receivable turnover ratio for the current year is:
10.00
The Esquire Company reported sales of $1,600,000 and cost of goods sold of $1,122,000 for the year ended December 31, 2018. Ending inventory for 2017 and 2018 was $420,000 and $460,000, respectively. Esquire's inventory turnover for 2018 is:
2.55
Ch.4 problem 17 Income statement: 2018 Sales $ 2,500,000 Cost of goods sold 1,300,000 Net income 200,000 Balance sheets: 2018 2017 Accounts receivable $ 300,000 $ 200,000 Total assets 2,000,000 1,800,000 Total shareholders' equity 900,000 700,000 The return on shareholders' equity for 2018 is:
25%
Which of the following might be classified as a cash equivalent?
30-day treasury bill.
Ch.3 Problem 17 Sanchez Corporation Selected Financial Information 12/31/18 12/31/17 Cash $ 20,000 $ 25,000 Accounts receivable (net) 100,000 110,000 Inventories 190,000 155,000 Total current assets 310,000 290,000 Long-term assets 230,000 210,000 Current liabilities 200,000 190,000 Long-term liabilities 40,000 50,000 Shareholders' equity 300,000 260,000 Net income $ 40,000 Interest expense 10,000 Income tax expense 20,000 The times interest earned ratio is:
7.0 times
The Stibbe Construction Company switched from the completed contract method to the percentage-of-completion method of accounting for its long-term construction contracts. This is an example of:
A change in accounting principle.
Ch. 5 P. 21 Sandlewood Construction Inc. recognizes revenue over time according to percentage of completion for its long-term construction contracts. In 2018, Sandlewood began work on a $10,000,000 construction contract, which was completed in 2019. The accounting records disclosed the following data at the end of 2018: Costs incurred $ 5,400,000 Estimated cost to complete 3,600,000 Progress billings 4,100,000 Cash collections 3,200,000 In addition to accounts receivable, what would appear in the 2018 balance sheet related to the construction accounts?
A current asset of $1,900,000
The journal entry to record the borrowing of cash and the signing of a note payable involves:
A debit to cash and a credit to note payable.
The replenishment of a petty cash fund might include which of the following?
A debit to office supplies expense.
Information not generally disclosed in the summary of significant accounting policies is:
A related-party transaction.
Which of the following adjusting entries causes an increase in liabilities?
Accruing unrecorded interest expensde
In a bank reconciliation, deposits outstanding are:
Added to the bank balance.
Which of the following is a separate performance obligation?
An extended warranty.
If the required adjusting entry for depreciation expense is omitted:
Assets will be overstated and income overstated.
An internal control system is designed to do all but which of the following?
Assure the promotion of the most qualified employees.
Which of the following is not an indicator that the seller may need to constrain recognition of variable consideration?
Based on much experience with the customer, the seller anticipates a more-than-remote chance that the receivable will prove uncollectible.
An item not generally classified as a current liability is:
Bonds payable
Which of the following is not an indicator that control of a good has passed from the seller to the buyer?
Buyer has scheduled delivery.
Which of the following is true about revenue recognition under ASU 2014-09?
Collectibility of the receivable is considered when determining whether revenue can be recognized.
Relevance requires that information possess predictive and/or:
Confirmatory Value
When accounting for a long-term construction contract for which revenue is recognized over time according to the percentage of completion, gross profit is recognized in any year is debited to:
Construction in progress.
Which of the following is considered a practical constraint on the qualitative characteristics?
Cost Effectiveness
For a manufacturing company, each of the following items would be considered nonoperating income for income statement purposes except:
Cost of goods sold
In a classified balance sheet, supplies would be classified among:
Current assets
Which ratio most directly indicates the extent of the company's reliance on financial leverage?
Debt to equity.
The main objective of the IASB is to:
Develop a single set of global accounting standards.
In a statement of cash flows, International Financial Reporting Standards allow companies to report interest paid as:
Either an operating or a financing cash flow.
Which of the following is not one of the steps for recognizing revenue?
Estimate the total transaction price of the contract based on the sum of the stand-alone selling prices of the goods and services in the contract.
Financial statements generally include all of the following except
Federal income tax return
The type of financial information to external decision makers is referred to as:
Financial Accounting
In a statement of cash flows, cash received from the issuance of common stock would be classified as a:
Financing activitiy
The underlying assumption that presumes a company will continue indefinitely is:
Going concern
In general, revenue is recognized when the earnings process is virtually complete and:
Goods or services are transferred to the customer.
Which of the following is NOT true about accounting for a troubled debt restructuring?
If a receivable is continued, but with modified terms, no loss is typically recorded.
Assume a prepayment is made six months in advance of delivery of a product. The seller is likely to do which of the following with respect to the time value of money over the life of the contract?
Ignore the time value of money.
Long-lived assets used in the operations of the business refer to property, plant, and equipment, and:
Intangible assets.
Which of the following is most likely an accrued liability?
Interest
The acid-test ratio excludes which of the following elements from the numerator?
Inventories.
Allocation of the transaction price to performance obligations:
Is based on relative standalone selling prices.
The SEC exerts a continuing influence on the establishment of accounting standards. It does so primarily by:
Monitoring the development of GAAP within the accounting profession and using its stature to influence that development.
Which of the following is an acceptable way to estimate uncertain consideration?
Most likely amount to be received and expected value of the amount to be received.
Which of the following characteristics does not describe a liability?
Must be legally enforceable
Bad debts:
Must be recognized as an expense.
Included in the category of current liabilities would be
Obligations expected to require the creation of other current liabilities.
Earnings per share should be reported for each of the following income statement captions except:
Operating income
The application of intraperiod income taxes requires that income taxes be apportioned to each of the following items except:
Operating income
Which of the following captions would more likely be found in a multiple-step income statement?
Operating income
ch.5 p. 25 Western Appliance Company, which began business on January 1, 2018, appropriately uses the installment sales method of accounting. The following data are available for 2018: Installment sales $ 350,000 Cash collections on installment sales 150,000 Gross profit on sales 40 % The gross profit on installment sales for 2018 should be: Realized [Deferred] a. $ 60,000 $ [80,000] b. $ 80,000 $ [60,000] c. $ 140,000 $ [80,000] d. $ 140,000 $ [60,000]
Option a
Ch. 5 P.17 For profitable long-term contracts, income is recognized in each year when revenue is recognized: [At a Point in Time Upon {Over Time According to Contract Completion] Percentage of Completion} a. [No] No b. [Yes] No c. [Yes] Yes d. [No] Yes
Option d. Over time according to percentage of completion.
Which of the following is true about cash reporting under IFRS?
Overdrafts in one cash account can typically be offset against positive balance in other cash accounts.
A prepaid expense is an expense:
Paid but not yet incurred
An item not generally classified as a current asset is
Patent
The Sanchez Company purchased a delivery truck on February 1, 2018. The purchase agreement required Sanchez to pay the total amount due of $15,000 on February 1, 2019. Assuming an 8% rate of interest, the calculation of the price of the truck would involve multiplying $15,000 by the:
Present value of $1.
The Jamison Corporation agrees to pay an employee $10,000 a year for five years beginning three years from today and decides to fund the payments by depositing one lump sum in a savings account today. The company should use which present value concept to determine the required deposit?
Present value of a deferred annuity.
On March 31, 2018, the Freeman Company leased a machine. The lease agreement requires Freeman to pay 10 annual payments of $6,000 on each March 31, with the first payment due on March 31, 2018. Assuming an interest rate of 10% and that this lease is treated as an installment sale, Freeman will initially value the machine by multiplying $6,000 by which of the following factors?
Present value of an annuity due of $1 at 10% for 10 periods.
Sandra wants to calculate how much money she needs to deposit today into a savings account which earns 5% in order to be able to withdraw $3,000 at the end of each of the next 6 years. She should use which present value concept?
Present value of an ordinary annuity of $1 for 6 periods.
Which of the following items would not be included as a cash flow from operating activities in a statement of cash flows?
Purchase of Equipment
Which of the following is not one of the characteristics of a contract for purposes of revenue recognition?
Reasonable profit margin.
Allister Company does not use the allowance method to account for bad debts and instead any bad debts that do arise are written off as bad debt expense. What problem might this create if bad debts are material?
Receivables likely will be overstated.
The primary objective of matching is to:
Recognize expenses in the same period as the related revenue.
Which of the following adjusting entries causes a decrease in assets?
Recording depreciation expense.
The two primary decision-specific qualities that make accounting information useful are:
Relevance and faithful representation
Balance sheets prepared using International Financial Reporting Standards often:
Report long-term assets and liabilities before current assets and liabilities.
The qualitative characteristic that means there is agreement between a measure and a real-world phenomenon is:
Representational Faithfulness
Which of the following characteristics does not describe an asset?
Requires the receipt of cash
An item typically included in the income from continuing operations section of the income statement is:
Restructuring Costs
When IFRS uses the cost recovery method to account for a long-term contract,
Revenue equal to costs are typically recognized early in the life of the contract.
A company uses the gross method to account for cash discounts offered to its customers. If payment is made before the discount period expires, which of the following is correct?
Sales discounts is debited for the amount of discounts taken by customers.
The documents that set forth fundamental concepts on which financial accounting and reporting standards will be based are:
Statements of Financial Accounting Concepts
In a bank reconciliation, NSF checks are:
Subtracted from the book balance.
The primary objective of financial reporting is to provide information:
That is useful in decision making.
Which of the following is not a characteristic of the balance sheet?
The balance sheet reports the change in financial position.
When accounting for a long-term construction contract under IFRS, if the percentage-of-completion method is not appropriate, the seller should account for revenue using:
The cost recovery method.
Under the realization principle, revenue is recognized as earned when there is reasonable certainty as to the collectibility of the asset to be received and:
The earnings process is virtually complete.
The compensation of directors and top executives is disclosed in:
The proxy statement.
For a firm with a current ratio of 2.0, which of the following transactions would most likely cause the ratio to decrease?
The purchase of inventory on account.
Under IFRS, revenue for the sale of goods is recognized when the seller has transferred to the buyer:
The risks and rewards of ownership.
Which of the following is not an indicator that revenue for a service can be recognized over time?
The seller has significant experience with the customer and anticipates fulfillment of the contract.
Which of the following is an indicator that revenue for a service can be recognized over time?
The seller is enhancing an asset that the buyer controls as the service is performed.
Given a set of present value tables, an annual interest rate, the dollar amount of equal payments made, and the number of semiannual payments, what other information is necessary to calculate the present value of the series of payments?
The timing of the payments (whether they are at the beginning or end of the period).
The closing process involves:
Transferring revenue and expense balances to retained earnings.
The basis used to classify assets as current or long-term is:
Usually one year, because the operating cycle typically is less than one year.
Which of the following is true regarding accounting for transfers of receivables under IFRS?
Whether the risks and rewards of ownership have been transferred is sometimes the key factor for determining how to account for a transfer of receivables.
If revenues exceed expenses for the accounting period, the income summary account:
Will have a credit balance prior to closing.
Current assets minus current liabilities equals:
Working Capital
The accumulated depreciation account is a contra (valuation) account to:
asset account
The underlying assumption that assumes that the life of a company can be divided into artificial time periods is:
periodicity
