11. ABC company uses the estimate of sales method of accounting for uncollectible accounts. ABC estimates that 3% of all credit sales will be uncollectible. On January 1, 2005, the Allowance for Doubtful Accounts had a credit balance of $2,400. During 2005, ABC wrote-off accounts receivable totaling $1,800 and made credit sales of $100,000. After the adjusting entry, the December 31, 2005, balance in the Uncollectible Accounts Expense would be?
$1,200
$3,000
$3,600
$7,200
Computation/Explanation:
Additional Allowance from Credit Sales = $100,000 x 3% = 3,000
This will provide an uncollectible accounts expense of $3,000. The writing off of accounts will not produce any expense.
26. Prior to the last weekly payroll period of the calendar year, the cumulative earnings of employees A and B are $99,350 and $91,000 respectively. Their earnings for the last completed payroll period of the year are $850 each. The amount of earnings subject to social security tax at 6% is $100,000. All earnings are subject to Medicare tax of 1.5%. Assuming that the payroll will be paid on December 29, what will be the employer's total FICA tax for this payroll period on the two salary amounts of $850 each?
$127.50
$115.50
$112.50
$0
Computation/Explanation:
Employee A:
SS Tax = $650 x 6% = $39
Medicare Tax = $850 x 1.5% = $12.75
Employee B:
SS Tax = $850 x 6% = $51
Medicare Tax = $850 x 1.5% = $12.75
Total FICA tax: $39 + $12.75 + $51 + $12.75 = $115.50
Please note that we used $650 for SS Tax for Employee A’s earning because only $650 is left until we reach the limit of $100,000.
27. During its first year of operations, a company granted employees vacation privileges and pension rights estimated at a cost of $20,500 and $15,000. The vacations are expected to be taken in the next year and the pension rights are expected to be paid in the future 5-30 years. What is the total cost of vacation pay and pension rights to be recognized in the first year? (Points: 4)
$29,500
$35,500
$23,500
$20,500
Computation/Explanation:
Total Cost = $20,500 + $15,000 = $35,500
Everything should be accrued.
30. The Snow Corporation issues 10,000 shares of $50 par value preferred stock for cash at $60 per share. The entry to record the transaction will consist of a debit to Cash for $600,000 and a credit or credits to ______. (Points: 4)
Preferred Stock for $600,000
Preferred stock for $500,000 and Paid-in Capital in Excess of Par Value?Preferred Stock for $100,000
Preferred Stock for $500,000 and Retained Earnings for $100,000
Paid-in Capital from Preferred Stock for $600,000
32. When Bunyan Corporation was formed on January 1, 20xx, the corporate charter provided for 100,000 share of $10 par value common stock. The following transaction was among those engaged in by the corporation during its first month of operation: The corporation issued 8,000 shares of stock at a price of $22.00 per share.
The entry to record the above transaction would include a ______.
(Points: 4)
debit to Cash for $80,000
credit to Common Stock for $176,000
credit to Paid in Capital in Excess of Par- for $96,000
debit to Common Stock for $80,000
Computation/Explanation:
The Entry for this is:
Debit. Cash $176,000*
Credit. Common Stock 80,000**
Credit. Paid in Capital in Excess of Par 96,000***
*8,000 shares x $22.00**8,000 shares x $10 par value
*** ($22 - $10) x 8,000 shares
35. Treasury stock which was purchased for $2,000 is sold for $2,500. As a result of these two transactions combined ______. (Points: 4)
income will be increased by $500
stockholders' equity will be increased by $2,500
stockholders' equity will be increased by $500
stockholders' equity will not change
Computation/Explanation:
The purchase of treasury stock will decrease the SHE by $2,000 and the reselling will increase the SHE by $2,500. Thus, there will be a $500 net increase.
36. A corporation purchases 10,000 shares of its own $10 par common stock for $25 per share, recording it at cost. What will be the effect on total stockholders' equity? (Points: 4)
increase, $100,000
increase, $250,000
decrease, $100,000
decrease, $250,000
Computation/Explanation:
Treasury Stock = 10,000 shares x $25 selling price = $250,000
Treasury stock reduces the total stockholders’ equity.
39. If the board of directors authorizes a $100,000 restriction of retained earnings for a future plant expansion, the effect of this action is to ______. (Points: 4)
decrease total assets and total stockholders? equity
reduce the amount of retained earnings available for dividend declarations
increase stockholders? equity and to decrease total liabilities
decrease total retained earnings and increase total liabilities
46. Bonds Payable has a balance of $900,000 and Premium on Bonds Payable has a balance of $10,000. If the issuing corporation redeems the bonds at 102, what is the amount of gain or loss on redemption? (Points: 4)
$1,100 loss
$1,100 gain
$8,000 loss
$8,000 gain
Computation/Explanation:
Carrying Value = $900,000 + $10,000 = $910,000
Redemption Price = $900,000 x 102% = $918,000
Because the redemption price is higher, there is a loss of $8,000
49. Cash receipts from interest and dividends are classified as ______. (Points: 4)
financing activities
operating activities
investing activities
either financing or investing activities
50. Accounts receivable arising from trade transactions amounted to $45,000 and $52,000 at the beginning and end of the year, respectively. Net income reported on the income statement for the year was $105,000. Exclusive of the effect of other adjustments, the cash flows from operating activities to be reported on the statement of cash flows prepared by the indirect method is ______. (Points: 4)
$105,000
$112,000
$98,000
$140,000
Computation/Explanation:
Increase in A/R = $52,000 - $45,000 = $7,000
This should be deducted from Net Income. $105,000 - $7,000 = $98,000
51. A building with a book value of $ 45,000 is sold for $50,000 cash Using the indirect method, this transaction should be shown on the statement of cash flows as follows: ______. (Points: 4)
an increase of $45,000 from investing activities
an increase of $50,000 from investing activities and a deduction from net income of $5,000
an increase of $50,000 from investing activities
an increase of $45,000 from investing activities and an addition to net income of $5,000