Questions 1 and 2 are based on the following informati&
Questions 1 and 2 are...
Questions 1 and 2 are based on the following information:Submitted: 12 years ago.Category: Homework
Poin Company recently incurred the following costs:
(1) Purchase price of land and dilapidated building $280,000
(2) Real estate broker's commission 14,000
(3) Net demolition costs of dilapidated building 42,000
(4) Excavation costs for new building 44,000
(5) Architect's fees and building permits 35,000
(6) Costs associated with new building construction 930,000
(7) Costs associated with new furniture and equipment 250,000
(8) Actual interest costs during building construction 135,000
(9) Actual interest cost after completion of building construction 120,000
(10) Costs of walks, driveways, and parking lot 55,000
____ 1. The building should be recorded on Poin's books at
c. $ 930,000.
____ 2. Land should be recorded on Poin's books at
____ 3. Jenson Supply bought equipment at a cost of $24,000 on January 2, 2003. It originally had an estimated life of ten years and a salvage value of $4,000. Jenson uses the straight-line depreciation method. On December 31, 2007, Jenson decided the useful life likely would end on December 31, 2008, with a salvage value of $2,000. The depreciation expense recorded on December 31, 2007, should be
____ 4. In order to be relevant, accounting information must
a. be neutral.
b. be verifiable.
c. help predict future events.
d. be a faithful representation.
____ 5. Jordan Company sold old equipment for $20,000. The equipment had a cost of $50,000 and accumulated depreciation of $25,000. The entry to record the sale of the equipment would include a
a. loss on disposal of $20,000.
b. gain on disposal of $20,000.
c. loss on disposal of $5,000.
d. gain on disposal of $5,000.
____ 6. The cost of intangible assets should be
a. amortized over the assets' estimated useful life, or its legal life, whichever is shorter.
b. amortized over a period not exceeding 5 years.
c. amortized over the assets' estimated useful life.
d. charged to an expense account at acquisition.
____ 7. In a period of rising prices, the inventory method that results in the lowest income tax payment is
c. average cost.
d. specific identification.
____ 8. On November 30, Catcher Company issued a $8,000, 6%, 6-month note to the National Bank. The entry on Thatcher's books to record the payment of the note at maturity will include a credit to Cash for
____ 9. The inventory methods that result in the most current costs in the income statement and balance sheet are
Income Statement Balance Sheet
a. FIFO FIFO
b. LIFO FIFO
c. LIFO LIFO
d. FIFO LIFO
____ 10. The following information is available for Righten Company:
Sales $130,000 Freight-in $10,000
Ending Merchandise Inventory 15,000 Purchase Returns and Allowances 5,000
Purchases 90,000 Beginning Merchandise Inventory 12,000
Righten’s cost of goods sold is
____ 11. If ending inventory is overstated, net income and assets will be
Net Income Assets
a. Understated Understated
b. Overstated Overstated
c. Understated Overstated
d. Overstated Understated
____ 12. One of the two constraints in accounting is
____ 13. The assumption that assumes a company will continue in operation long enough to carry out its existing objectives is the
a. economic entity assumption.
b. going concern assumption.
c. monetary unit assumption.
d. time period assumption.
____ 14. All of the following are intangible assets except
b. land improvements.
____ 15. A daily cash count of register receipts made by a cashier department supervisor demonstrates an application of which of the following internal control principles?
a. Documentation procedures
b. Segregation of duties
c. Establishment of responsibility
d. Independent internal verification
____ 16. When the allowance method is used for bad debts, the entry to write off an individual account known to be uncollectible involves a
a. debit to an expense account.
b. credit to an expense account.
c. credit to the Allowance account.
d. debit to the Allowance account.
____ 17. Shipping terms of FOB destination mean that the
a. purchaser is responsible for the shipping charges.
b. shipping charges are debited to Freight-Out.
c. items should be in the purchaser's inventory account at year-end if the items are in transit.
d. both (a) and (c) above.
____ 18. Felix Company has a $140,000 balance in Accounts Receivable and a $1,000 debit balance in Allowance for Doubtful Accounts. Credit sales for the period totaled $900,000. What is the amount of the bad debt adjusting entry if Felix uses a percentage of receivables basis (at 10%)?
____ 19. The constraint of conservatism is best expressed as
a. the cost of applying an accounting principle should not exceed its benefit.
b. only material items should be recorded and reported.
c. when in doubt, choose the method that will least likely overstate assets and net income.
d. the lower of cost or market method should be used for inventories.
____ 20. If merchandise is sold for $2,000 subject to credit terms of 2/10, n/30, the entry to record collection in full within the discount period would include a
a. debit to Sales Discounts for $40.
b. credit to Cash for $1,960.
c. credit to Accounts Receivable for $40.
d. none of the above.
____ 21. Larken Company's records show the following for the month of January:
Total Retained Earnings at January 1 $400,000
Total Retained Earnings at January 31 500,000
Total Revenues 670,000
Total Dividends Declared 40,000
Total expenses for January were
22. Petson Company's financial information is presented below.
Sales $ ???? Purchase Returns and Allowances $ 15,000
Sales Returns and Allowances 30,000 Ending Merchandise Inventory 35,000
Net Sales 250,000 Cost of Goods Sold 180,000
Beginning Merchandise Inventory ???? Gross Profit ????
The missing amounts above are:
Sales Beginning Inventory Gross Profit
a. $280,000 $45,000 $70,000
b. $220,000 $45,000 $100,000
c. $280,000 $60,000 $70,000
d. $220,000 $60,000 $100,000
____ 23. The preparation of closing entries
a. is an optional step in the accounting cycle.
b. results in zero balances in all accounts at the end of the period so that they are ready for the following period's transactions.
c. is necessary before financial statements can be prepared.
d. results in transferring the balances in all temporary accounts to Retained Earnings.
____ 24. Allowance for Doubtful Accounts is reported in the
a. balance sheet as a contra asset.
b. balance sheet as a contra liability account.
c. income statement under other expenses and losses.
d. income statement under other revenues and gains.
____ 25. Current liabilities are obligations that are reasonably expected to be paid from
Existing Creation of Other
Current Assets Current Liabilities
a. No No
b. Yes Yes
c. Yes No
d. No Yes
____ 26. Which of the following errors will cause a trial balance to be out of balance? The entry to record a payment on account was
a. not posted at all.
b. posted as a debit to Cash and a credit to Accounts Payable.
c. posted as a debit to Cash and a debit to Accounts Payable.
d. posted as a debit to Accounts Receivable and a credit to Cash.
____ 27. The primary accounting standard-setting body in the United States is the
a. Securities and Exchange Commission.
b. Accounting Principles Board.
c. Financial Accounting Standards Board.
d. Internal Revenue Service.
____ 28. Starting with net income and adjusting it for items that affected reported net income but which did not affect cash is called the
a. direct method.
b. indirect method.
c. working capital method.
d. cost-benefit method.
____ 29. Which of the following would not be included in the operating activities section of a statement of cash flows?
a. Cash inflows from returns on loans (i.e., interest)
b. Cash inflows from returns on equity securities (i.e., dividends)
c. Cash outflows to governments for taxes
d. Cash outflows to reacquire treasury stock
____ 30. Which of the following combinations presents correct examples of liquidity, profitability, and solvency ratios, respectively?
Liquidity Profitability Solvency
a. Inventory turnover Inventory turnover Times interest earned
b. Current ratio Inventory turnover Debt to total assets
c. Receivable turnover Return on assets Times interest earned
d. Average days collection Payout ratio Return on assets
____31. Harne Manufacturing declared an 10% stock dividend when it had 150,000 shares of $5 par value common stock outstanding. The market price per common share was $15 per share when the dividend was declared. The entry to record this dividend declaration includes a credit to
a. Retained Earnings of $225,000.
b. Paid-in Capital in Excess of Par for $150,000.
c. Common Stock for $225,000.
d. Retained Earnings for $75,000.
____ 32. Which of the following pairs of terms in the area of financial statement analysis are synonymous?
a. Ratio — Trend
b. Horizontal — Trend
c. Vertical — Ratio
d. Horizontal — Ratio
____ 33. Which of the following statements is true?
a. Trading securities are debt securities that the investor has the intent to hold to maturity.
b. Trading securities are securities bought and held primarily for sale in the near term.
c. Trading securities are securities that may be sold in the future.
d. Trading securities are reported at cost in the balance sheet.
____ 34. The statement of cash flows is a(n)
a. required supplemental financial statement.
b. required basic financial statement.
c. optional basic financial statement.
d. optional supplementary statement.
____ 35. Koon Corporation has the following stock outstanding:
6% Preferred, $100 Par $1,200,000
Common Stock, $50 Par 2,000,000
No dividends were paid the previous 2 years. If Koon declares $400,000 of dividends in the current year, how much will preferred stockholders receive if the preferred stock is cumulative?
____ 36. Fison Corp. purchased 15,000 shares of its $2 par common stock at a cost of $12 per share on April 30, 2007. The stock was originally issued at $10 per share. The entry to record the purchase of the stock should include a debit to
a. Common Stock for $30,000.
b. Treasury Stock for $30,000.
c. Common Stock for $180,000.
d. Treasury Stock for $180,000.
____ 37. What is the effect on total paid-in capital of a stock dividend and a stock split, respectively?
Stock Dividend Stock Split
a. Increase No effect
b. No effect No effect
c. Decrease No effect
d. Decrease Decrease
____ 38. Which of the following should be classified as an extraordinary item?
a. Effects of major casualties not infrequent in the area
b. Write-off of a significant amount of receivables
c. Loss from the expropriation of facilities by a foreign government
d. Losses due to a bitter, lengthy labor strike
____ 39. A Discount on Bonds Payable account
a. is a contra account to Bonds Payable.
b. will cause interest expense to be less than cash interest payable.
c. is increased over the life of the bond until it equals the bond's face value.
d. is an adjunct account to Bonds Payable.
____ 40. If the market rate of interest is lower than the stated rate, bonds will sell at an amount
a. equal to face value.
b. not determinable from the given information.
c. lower than face value.
d. higher than face value.
PART II — MATCHING (20 points)
Designate the terminology that best represents the definition or statement given below by placing the identifying letter(s) in the space provided. No letter should be used more than once.
A. Additions and improvements X. Full disclosure principle
B. Allowance method Y. Going-concern assumption
C. Amortization Z. Held-to-maturity securities
D. Available-for-sale securities AA. Internal control
E. Average cost method AB. Last-in, first-out method
F. Book value AC. LIFO reserve
G. Capital expenditure AD. Matching principle
H. Cash debt coverage ratio AE. Materiality
I. Consistency AF. Monetary unit assumption
J. Contra asset account AG. Net purchases
K. Cost method AH. Periodic inventory system
L. Credit memorandum AI. Permanent accounts
M. Debit memorandum AJ. Perpetual inventory system
N. Declining-balance method AK. Ratio analysis
O. Depreciable Cost AL. Relevance
P. Depreciation AM. Reliability
Q. Direct write-off method AN. Revenue expenditure
R. Discontinued operations AO. Revenue recognition principle
S. Earnings per share AP. Stock dividend
T. Economic entity assumption AQ. Stock split
U. Equity method AR. Temporary accounts
V. Extraordinary items AS. Time period assumption
W. First-in, first-out method AT. Units-of-activity method
___ 1. The periodic write-off of an intangible asset.
___ 2. The total amount subject to depreciation.
___ 3. The principle that efforts be matched with accomplishments.
___ 4. An expenditure charged against revenues as an expense when incurred.
___ 5. The inventory costing method that assumes that the costs of the earliest goods purchased are the first to be recognized as cost of goods sold.
___ 6. Use of the same accounting principles and methods from period to period by the same business enterprise.
___ 7. A measure of solvency calculated as cash provided by operating activities divided by average total liabilities.
___ 8. An inventory costing method that assumes that the latest units purchased are the first to be allocated to cost of goods sold.
___ 9. An assumption that economic events can be identified with a particular unit of accountability.
PART II — MATCHING (cont.)
___ 10. A characteristic of information that means it is capable of making a difference in a decision.
___ 11. An assumption that the economic life of a business can be divided into artificial time periods.
___ 12. This method of accounting for uncollectible accounts is required when bad debts are significant in size.
___ 13. Used by a bank when a previously deposited customer’s check “bounces” because of insufficient funds.
___ 14. The assumption that the enterprise will continue in operation long enough to carry out its existing objectives and commitments.
___ 15. A system in which detailed records are not maintained and cost of goods sold is determined only at the end of an accounting period.
___ 16. The methods and measures adopted within a business to safeguard its assets and enhance the accuracy and reliability of its accounting records.
___ 17. Revenue, expense, and dividends accounts whose balances are transferred to retained earnings at the end of an accounting period.
___ 18. A technique for evaluating financial statements that expresses the relationship among selected financial statement data.
___ 19. A pro rata distribution of a corporation’s own stock to its stockholders.
___ 20. The net income earned by each share of outstanding common stock.
PART III — ADJUSTING ENTRIES (20 points)
The trial balance of Swift Company shows the following balances for selected accounts on November 30, 2007:
Prepaid Insurance $ 5,000 Unearned Revenue $ 1,800
Equipment 40,000 Notes Payable 24,000
Accumulated Depreciation 8,800 Interest Payable 400
Using the additional information given below, prepare the appropriate monthly adjusting entries at November 30. Show computations.
A. Revenue earned for services rendered to customers, but not yet billed, totaled $4,000 on November 30.
B. The note payable is a 7%, 1-year note issued October 1, 2006.
C. The equipment was purchased on January 2, 2005, for $50,000. It has an estimated life of 4 years and an estimated salvage value of $2,000. Swift uses the straight-line depreciation method.
D. An insurance policy was acquired on June 30, 2007; the premium paid for 2 years was $12,000.
E. Smart received $1,800 of revenue in advance from a customer on November 1, 2007. Two-thirds of this amount was earned by November 30.
PART IV — BANK RECONCILIATION (15 points)
A review of the November 30 bank statement and other data of Duran Company reveals the following:
1. Balance per bank statement on November 30 $17,400
2. Balance per books on November 30 $12,488
3. NSF Check from J. Smith in payment of account $190
4. Collection of $2,500, 4-month, 12% note with a $25 collection fee. No interest
had been accrued 2,575
5. Deposits in transit at November 30 1,700
6. Outstanding checks at November 30 4,300
7. A check written by Conan to Green for equipment on November 10 was
recorded at $463 but correctly cleared the bank at $436.
8. A check drawn on the account of Jarhead Company for $100 was mistakenly
charged against Conan’s account by the bank.
Prepare the November 30 (a) bank reconciliation (omit heading) and (b) related journal entries.
(a) BANK RECONCILIATION:
Balance per bank statement $17,400 Balance per books $12,488
Adjusted balance per bank $ Adjusted balance per books $
Account Titles Debit Credit
PART V — INVENTORY (12 points)
Botter Company had a beginning inventory of 200 units at a cost of $13 per unit on August 1. During the month, the following purchases and sales were made.
August 4 250 units at $14 August 7 150 units
August 15 350 units at $15 August 11 100 units
August 28 200 units at $16 August 17 300 units
August 24 200 units
Botter uses a periodic inventory system.
Determine ending inventory and cost of goods sold under (a) FIFO, and (b) LIFO.
Ending inventory = $_____________; cost of goods sold = $____________.
Ending inventory = $_____________; cost of goods sold = $____________.
PART VI — DEPRECIATION (12 points)
Buff Company purchased equipment for $500,000 cash on July 1, 2006. The estimated life is 5 years or 1,000,000 units; salvage value is estimated at $50,000. Actual activity was 180,000 units in 2004, and 200,000 units in 2006.
Compute the annual depreciation expense for 2006 and 2007, and book value at December 31, 2007, under the straight-line method.
2006 depreciation = $_______________.
2007 depreciation = $_______________.
12/31/07 book value = $_______________.
PART VII — RATIO ANALYSIS (21 points)
The condensed financial statements of Westward Corporation for 2007 are presented below.
Westward Corporation Westward Corporation
Balance Sheet Income Statement
December 31, 2007 For the Year Ended December 31, 2007
Assets Revenues $2,000,000
Current assets Expenses
Cash and temporary Cost of goods sold 1,080,000
investments $ 30,000 Selling and administrative
Accounts receivable 70,000 expenses 495,000
Inventories 120,000 Interest expense 30,000
Total current assets 220,000 Total expenses 1,605,000
Property, plant, and Income before income taxes 395,000
equipment (net) 780,000 Income tax expense 140,000
Total assets $1,000,000 Net income $ 255,000
Liabilities and Stockholders' Equity
Current liabilities $ 80,000
Long-term liabilities 300,000
Common stockholders' equity 620,000
Total liabilities and
stockholders' equity $1,000,000
Additional data as of December 31, 2006: Inventory = $100,000; Total assets = $900,000; Common stockholders' equity = $540,000.
Compute the following listed ratios for 2007 showing supporting calculations.
(a) Current ratio = .
(b) Debt to total assets = .
(c) Times interest earned = .
(d) Inventory turnover = .
(e) Profit margin ratio = .
(f) Return on common stockholders' equity = .
(g) Return on assets = .
PART VIII — STATEMENT OF CASH FLOWS (15 points)
Presented below is information related to the operations of Bryers Corporation.
2007 2006 2007_
Cash $ 63,000 $ 40,000 Sales $420,000
Accounts receivable 58,000 48,000 Cost of goods sold 190,000
Inventory 37,000 22,000 Gross profit 230,000
Prepaid expenses 16,000 20,000 Depreciation expense 14,000
Land 36,000 20,000 Other operating expenses 141,000
Building 100,000 100,000 Income from operations 75,000
Accumulated depreciation— Loss on equipment sale 2,000
building (17,000) (8,000) Income before income taxes 73,000
Equipment 58,000 80,000 Income tax expense 23,000
Accumulated depreciation— Net income $ 50,000
equipment (15,000) (20,000)
Total $336,000 $302,000
Accounts payable $ 35,000 $ 39,000
Bonds payable 0 100,000
Common stock 200,000 100,000
Retained earnings 101,000 63,000
Total $336,000 $302,000
(a) In 2007, Bryers declared and paid a cash dividend of $12,000.
(b) The company converted $100,000 of bonds into common stock.
(c) Equipment with a cost of $22,000 and a book value of $12,000 was sold for $10,000. Land was acquired for cash.
(d) Prepaid expenses pertain to operating expenses; accounts payable pertains to merchan-dise purchases.
(a) Prepare a statement of cash flows in proper form for 2007, using the indirect method.
PART VIII — STATEMENT OF CASH FLOWS (cont.)