Accounting for Assets
Use the following information to answer Questions 1 through 4
On May 1, EZ plumbing buys materials with a list price of $550. 1 At the time of the purchase, EZ gives Halpin a check for $225 and asks Halpin to put the remainder of the purchase on its account, which already has a balance of $475. On July 1, EZ goes out of business without making any additional purchases or payments. Halpin learns it will be unable to collect the outstanding receivable balance. Halpin uses the direct write-off method to account for bad debts.
1From Halpin Plumbing Supplies
1. The amount Halpin Plumbing Supplies should record as sales revenue for the May 1 transaction is
A. $55 B. $495 C. $540 D. $550
2. What journal entry will Halpin make to record the May 1 Sale?
A Debit Sales Revenue, credit Accounts Receivable
B. Credit Sales Revenue, debit Accounts Receivable
C. Debit Sales Revenue, debit Cash, credit Accounts Receivable
None of the above, the entry should be:
Date / Account & Explanation / Debit / Credit05/01 / Cash / $225
Accounts Receivable - Ez Plumbing / $325
Sales Revenue / $550
3. What balance will Halpin's accounts receivable subsidiary ledger show for EZ Plumbing immediately after the May 1 sale?
A.$475 B. $550 C. $745 D. $800
4. What entry will Halpin make on July 1 to record the bad debt?
A. Credit Bad Debt Expense, debit Sales Revenue
B. Debit Bad Debt Expense, credit Sales Revenue
C. Debit Bad Debt Expense, credit allowance for Doubtful Accounts
D. Debit Bad Debt Expense, credit Accounts Receivable-EZ Plumbing
Use the following data to answer Questions 5 through 8. Assume that the company uses the periodic inventory system.
September 1 On Hand, 300 units @$1.50 each $450.00
September 6 Purchased 1,000 units @$1.65 each $1,650.00
September 18 Purchased 800 units @$1.75 each $1,400.00
Total cost of goods available for sale $3,500.00
September 30 On Hand 425 Units
5. If the September 30 inventory included 250 units from the September 6 purchase and 175 units from the September 18 purchase, the ending inventory for September 30 under the specific identification method would be
A. $701.25. B. $718.75. C. $722.50. D. $743.75.
6. If the company uses the FIFO inventory method, the amount assigned to the September 30 inventory would be
A. $637.50 B. $656.25. C. $722.50. D. $743.75
7. If the company uses the weighted average cost inventory method, the amount assigned to the September 30 inventory would be
A. $656.25. B. $694.17. C.$708.33. D. $718.75.
8. If the company uses the LIPO inventory method, the ending inventory at September 30 would be
A. $637.50. B. $656.25. C. $722.50 D. $743.75.
Use the data presented below to prepare a bank reconciliation, and then answer Questions 9 through 11
Bank Statement Balance August 31 $24,500
Book Balance (before adjustments) ?
Outstanding Checks $2,700
NSF Checks $400
Service Charges $200
Deposits in Transit $800
Interest Earned on Checking Account $100
9. What is the adjusted cash balance on August 31?
A. $22,600 B. $23,100 C. $24,000 D. $26,400
10. What is the book balance before adjustments?
A. $22,600 B. $23,100 C. $24,000 D. $26,400
11. What is the net amount of the increase or decrease in the cash balance that must be recorded as a result of the adjustments identified by the bank reconciliation?
A. $500 increase B. $500 decrease C. $1,900 increase D. $2,400 decrease
Use the following information to answer Questions 12 through 16.
A company bought equipment at a cost of $68,000. The equipment has an estimated residual value of $4,000 and an estimated life of eight years, or !2,500 hours of operation. The equipment was purchased on January 1, 2008. During the first year of operation, it was used for 1,800 hours. At the end of seven years, the company expects to replace this old equipment with a newer model at an estimated cost of $85,000.
12. What amount will the company report as depreciation expense over the eight-year life of the equipment?
A. $68,000 B. $64,000 C. $60,000 D. $8,000
13. If the company uses the straight-line method, what is the book value of the equipment at December 31, 2008?
A. $8,000 B. $60,000 C. $64,000 D. $68,000
14. If the company uses the units-of production method, what is the depreciation rate per hour for the equipment?
A $5.12 B. $5.44 C. $35..55 D. $37.88
15. If the company uses the double-declining-balance depreciation method, what amount is the depreciation expense for 2008?
A. $18,000 B. $17,000 C. $16,000 D. $15,000
16. If the company uses the straight-line depreciation method and sells the equipment for $18,000 cash at the end of Year 7, what is the gain or loss on the sale?
A. $6,000 B. $18,000 C. $56,000 D. $68,000
Use the following information to complete Question 17. You'll need to calculate the gross profit ratio, the net income, and the inventory turnover ratio.
Two companies in the same line of business have the following items on their financial statements:
Company 1 Company 2
Sales $500,000 $800,000
Cost of Goods Sold $350,000 $500,000
Inventory, Beginning of Year $75,000 $60,000
Inventory, End of Year $25,000 $40,000
Office Rent Expense $25,000 $10,000
17. Which of the following statements is correct?
A. Company 1 has a higher gross profit ration than Company 2.
B. Company 2 has a lower net income than Company 1.
C. Company 2 sells its inventory faster than Company 1.
D. Company 1 has lower costs of storage and lower investment in inventory than Company 2.
Rain Shield offers credit terms of 2/10, n/30 to credit customers. Putter Pro Shops bought 200 golf umbrellas with a list price of $35 each on March 5, on account. The shipping terms were FOB shipping point. Putter received the merchandise on March 7. On March 14, Putter writes a check to Rain Shield to pay for the umbrellas.
18. What is the amount of the check that Putter will write on March 14?
A. $7,000 B. $ 6,860 C. $6,650 D. $6,517
19. If Putter uses a periodic inventory system, what effect does recording the purchase of the golf umbrellas on March 5 have on Putter's accounting equation?
A. Assets and liabilities increase.
B. Liabilities increase, and owners' equity decreases.
C. Assets and owners' equity increase.
D. Liabilities and owners' equity decrease.
20. What Journal entry will Rain Shield make when the March 14 check from Putter is received?
A. Debit Cash, debit Sales Discount, credit Accounts Receivable
B. Debit Cash, credit Accounts Receivable
C. Debit Cash, credit Sales Discount, credit Accounts Receivable
D. Debit Cash, credit Sales Revenue
Use the following information to answer Questions 21 and 22.
Sales (100% on credit) $950,000
Sales Returns and Allowances $21,000
Accounts Receivable (December 31) $114,000
Allowance for Doubtful Accounts
(before adjustment at
December 31: credit balance) $1,000
21. If bad debts are estimated at 2% of net credit sales, what amount will be reported as bad debt expense?
A. $18,580 B. $18,820 C. $19,000 D. $19,420
22. If the percentage of net credit sales method is used to estimate bad debts, what will be the balance in the Allowance for Doubtful Accounts account after the adjustment for bad debts?
A $18,580 B. $19,000 C. $19,580 D. $20,000
23. Divine Design Company sold merchandise to Cheyenne Corp. on December 1 for $9.000. Divine Design accepted a promissory note from Cheyenne Corp. for $9,000. The note has a term of 120 days and a stated interest rate of 6%. Divine Design's accounting period ends on December 31. What amount should Divine Design recognize as interest revenue on December 31?
A. $0 B. $45 C. $135 D. $180
Use the following information to answer Question 24:
Purchases $182,000
Transportation-in $11,000
Inventory, January 1 $26,500
Inventory, December 31 $28,800
Purchase Returns and Allowances $8,400
24. The amount reported as cost of goods sold on the income statement is
A. $190,700 B. $186,900 C. $182,300 D. $179,900
25. In 2008, Metro Corp. bought stock and classified it as available-for sale securities. The original cost was $16,000, the fair value at the end of 208 was $16,500, and the fair value at the end of 2009 was $17,000. What statement describes the results of the change in fair value as of December 31, 2009?
A. There will be an unrealized gain on the income statement of $500.
B There will be an unrealized loss on the income statement of $1,000.
C. There will be an unrealized gain shown in stockholders' equity of $1,000.
D. There will be an unrealized loss shown in stockholders' equity of $1,000.
Accounting for Liabilities and Owners' Equity
1 and 2 have a chart to go by. I will try and figure those two out
3. A corporation's balance sheet showed the following amounts: Current Liabilities, $20,000; Bonds Payable, $60,000; Lease Obiligations, $12,000; and Deferred Income Taxes, $2,000. Total stockholders' equity was $42,000. The debt-to-equity ration is
A. 0.45. B. 0.58. C. 1.76. D. 2.24.
4. A Company declares a dividend payable of $68,000. How is this reported in the statement of cash flows?
A. $68,000 outflow, Financing Activities
B. $68,000 outflow, Investing Activities
C. $68,000 inflow, financing Activities
D. Shouldn't be reported on the statement of cash flows
Use the following data to answer Questions 5 through 8:
Gross Payroll for June $400,000
Federal Income Tax Withheld $70,000
State Income Tax Withheld $30,000
FICA Withheld $12,000
Charitable Contributions 1% of gross pay
Union Dues 2% of gross pay
The unemployment tax rate is 3%, and applies to all but $50,000 of the gross payroll.
5. What is the amount of net pay?
A. $265,500 B. $276,000 C. $288,000 D. $400,000
6. What is the amount of Unemployment Tax Payable?
A. $1,500 B. $8,280 C. $10,500 D. $12,000
7. What is the amount of employer's share of the payroll tax expense?
A. $10,500 B. $12,000 C. $22,500 D. $52,500
8. The journal entry to record the payroll would include a
A. debit to Wages Expense. B. debit to Wages Payable C. debit to FICA Payable D. credit to Wages Expense.
9. M and C are partners. At the beginning of the current year, M's capital account is $30,000. and C's is $50,000. M and C decided to allocate income with 10% interest on capital balances at the beginning of the period and divide the balance equally. Net income for the current year is $80,000. Each partner withdrew $15,000 for personal use during the year . Determine the amount of income that will be allocated to each partner.
A. M. $30,000, C. $50,000 C. M. $35,500; C. $37,500.
B. M, $32,500; C. $32,500 D. M. $39,000; C. $41,000.
10. The stockholders' equity section of Joe's Bistro's balance sheet on January 1, appeared as follows:
Common stock, $2 par, 2,000 shares
Issued and outstanding $4,000
Additional Paid-in Capital-Common $1,600
Retained earnings $5,400
On March 1, Joe's Bistro reacquired 600 shares of common stock at $10 per share. Joe's Bistro sold all of the treasury shares on November 15 for $12 per share. The entry to record the sale on November 15 would include a credit to what account and for what amount?
A. Gain on Sale of Treasury Stock, $1,200
B. Common Stock, $7,200
C. Cash, $6,000
D. Treasury Stock, $6,000
11. Jim Ault established Ault's Dry Cleaners, a sole proprietorship, by investing $1,000 on January 1. During the first year of operations, the business generated net income of $42,000. the ending balance of the capital account was $20,000. What was the amount of the cash Jim Ault withdrew for personal use during the year ?
A. $0 B. $1,000 C. $20,000 D. $23,000
Use the following information to answer Question 12 through 17:
On January 2, 2008, a company issued $500,000, 10 year bonds for $574,540. the bonds pay interest on June 30 and December 31. The face rate is 8%, and the market rate is 6%.
12. The interest expense on the bonds at June 30, 2008, is
A. $2,764. B. $17,236. C. $20,000. D. $22,764.
13. The annual cash payment )paid in semiannual payments) on the bonds is
A. $40,000. B. $30,000. C. $20,000. D. $15,000.
14. What is the carrying value of the bonds after the first interest payment is made on June 30, 2008?
A. $574,540 B. $571,776 C. $568,920 D. $500,000
15. What is the carrying value of the bonds at the end of 10 years?
A. $574,540 B. $525,000 C. $500,000 D. $425,460
16. At the maturity date, besides an interest payment, the company would repay the bondholders.
A. $574,540 B. $520,000 C. $500,000 D. only the last interest payment.
17. If the company redeems the bonds at a call price of 102 at December 31, 2008, after using the effective interest method for the ear, what is the amount of the gain or loss?
A. Gain of $58,929 B. Loss of $58,929 C. Gain of $59,012 D. Loss of $59,012
18. On May 1, a company borrowed $33,000 on a one-year, 6% note. If the company's fiscal year ends on June 30, an entry is needed to increase
A. Interest Expense $330 B. Interest Expense $1,980 C. Interest Payable $1,980 D. Notes Payable $33,000