ACC 123 Homework

1) Young Corporation’s capital stock at December 31 consisted of the
following:

Youngs common stock, which is listed on a major stock
exchange, was quoted at $4 per share on December 31. Youngs net
income for the year ended December 31 was $50,000. The yearly
preferred dividend was declared. No capital stock transactions
occurred. What was the price earnings ratio on Youngs common stock
at December 31?
A.6 to 1
B.8 to 1
C.10 to 1
D.16 to 1

Answer:

2) The allowance method does not involve
A.estimating the amount of uncollectible accounts that will occur
over time in connection with the sales of each period
B.recognizing the amount of uncollectible accounts that will occur
over time in connection with the sales of each period in the period
of the sale
C.matching expenses with associated revenues
D.the valuation method required for income tax reporting in the
United States
E.none of the above

Answer:

3) Which of the following is/are true?
A.U.S. GAAP and IFRS do not permit the employer to prepare
consolidated financial statements with the retirement trust
B.The employer must report the net funded status of each defined
benefit retirement plan (that is, the fair value of retirement
trust assets minus the retirement trust obligation) as either an
asset or a liability on its balance sheet
C.The employer must report the net funded status of each defined
benefit retirement plan and credit (for an overfunded plan) or
debit (for an underfunded plan) is to Other Comprehensive
Income
D.Notes to the financial statements provide information about
investments made by the retirement trust and how trust assets and
liabilities changed during a period
E.all of the above

Answer:

4) During Year 7, Seven Corporation wrote down marketable equity
securities to their market value. The journal entry made for this
write-down is as follows:

Unrealized Holding Loss on Marketable Equity Securities
Available for Sale . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . 7.000
Marketable Equity Securities Available for Sale . . . . . . . . . .
. . . . . . . 7,000

This entry
A.does affect cash but does not appear in the statement of cash
flows
B.does not affect cash but does appear in the statement of cash
flows
C.does affect cash and does appear in the statement of cash
flows
D.does not affect cash and does not appear in the statement of cash
flows
E.none of the above

Answer:

5) The _____ matches revenues with the costs associated with earning
those revenues and is not sensitive to the timing of
expenditures.
A.tax basis of accounting
B.modified accrual basis of accounting
C.cash basis of accounting
D.accrual basis of accounting
E.present value basis of accounting

Answer:

6) The matching convention assigns _____ to the related _____.
A.expenses; revenues
B.revenues; revenues
C.assets; liabilities
D.liabilities; assets
E.assets; shareholders equity

Answer:

7) A firm acquires a car for company business. The car costs $12,000,
has a useful life of 5 years, and a salvage value of $2,000. The
straight-line method of depreciation is used. What is the gain or
loss on retirement if the car is sold for $5,000 after three years
of use?
A.a gain of $200
B.a loss of $1,000
C.a gain of $1,000
D.a loss of $200
E.a loss of $800

Answer:

8) Below is an Income Statement and a Statement of Cash Flows for
Morgan Corporation for Year 8 .

Required:

Respond to each of the following questions.


a. Compute the amount of cash collected from customers during Year
8 .
b. Compute the amount of cash paid to suppliers for merchandise
during Year 8 .
c. Compute the amount of income taxes paid to governmental agencies
during Year 8 .
d. Property, plant and equipment (at cost) had a balance of $3,700
on January 1, Year 8 and $3,940 on December 31, Year 8 .
Accumulated depreciation had a balance of $1,290 on January 1, Year
8 and $1,540 on December 31, Year 8 . Give the journal entry that
Morrissey Corporation made in its accounting records during Year 8
to record the sale of the equipment.
e. The balance in the retained earnings account on December 31,
Year 8 after closing entries was $1,154. Compute the balance in the
retained earnings account on January 1, Year 8 .

Answer:

9) Which of the following methods, allowed by U.S. GAAP, report(s) the
net income for a period adjusted by revenues converted to cash
received from customers and expenses converted to cash disbursed to
various suppliers of goods and services?
A.the direct method
B.the indirect method
C.both the direct method and the indirect method
D.the schedule of cash receipts and cash disbursements
E.the funds flow statement

Answer:

10) Firms do not use LIFO because it
A.produces a cost of goods sold figure based on more recent
purchase prices
B.results in lower net income
C.results in reduced tax payments
D.matches the actual flow of goods
E.all of the above

Answer:

11) Expenses are:
A.inflows of assets from customers
B.cash receipts from customers
C.outflows of assets from generating revenues
D.cash payments
E.sensitive to the timing of expenditures

Answer:

12) Which of the following is/are true?
A.Cost is the economic sacrifice made to acquire goods or
services
B.When the good or service acquired has reliably measurable future
benefits to a firm, the cost is an asset
C.When the firm consumes the good or service, the cost is an
expense
D.All of the above are true
E.None of the above are true

Answer:

13) Most firms that sell to other businesses, as opposed to consumers,
sell on account and collect within 30 to 90 days. Interpreting any
particular firms accounts receivable turnover and days receivable
outstanding requires knowing the terms of sale. If a firms terms of
sale are net 30 days and the firm collects its accounts receivable
in 45 days, then the
A.collections are not in accord with the stated terms
B.situation warrants a review of the credit and collection activity
to ascertain the cause
C.situation warrants a review of the credit and collection activity
to guide corrective action
D.situation indicates that the firm handles accounts receivable
well
E.choices a, b and c

Answer:

14) Analysts deciding between investments must consider the comparative
risks. Which of the following is/are not firm-specific factors that
affect the risk of business firms?
A.labor strikes
B.loss of facilities due to fire
C.poor health of key managerial personnel
D.loss of facilities due to earthquake
E.unemployment

Answer:

15) U.S. GAAP and IFRS distinguish between revenues and expenses on the
one hand and gains and losses on the other. Which of the following
is/are not true?
A.Revenues and expenses result from the recurring, primary
operating activities of a business
B.Income items include the ordinary, recurring operating activities
of the firm
C.Gains and losses result from either peripheral activities or
nonrecurring activities
D.The reporting of revenues and expenses are at gross amounts, and
firms report gains and losses at net amounts
E.Gains and losses result from the recurring, primary operating
activities of a business

Answer:

16) Which of the following is/are true concerning accumulated other
comprehensive income?
A.Firms measure marketable equity securities classified as
available for sale at fair value and record the unrealized changes
in fair value as an element of other comprehensive income
B.Firms remeasure derivatives designated as cash flow hedges to
fair value at the end of each period and report the unrealized gain
or loss in other comprehensive income
C.Firms translate the reported results of their foreign operations
from local currencies into U.S. dollars in order to prepare
consolidated financial statements
D.Firms must include gains and losses from changes in actuarial
assumptions, actuarial performance, and prior service cost in other
comprehensive income prior to their amortization as an adjustment
to pension expense
E.all of the above

Answer:

17) Macon Company

Macon Company owns an apartment building that originally cost $40
million and by the end of the current period has accumulated
depreciation of $10 million, with net carrying value of $30
million. Macon Company had originally expected to collect rentals
of $3.34 million each year for 30 years before selling the building
for $16 million. Unanticipated placement of a new shopping center
has caused Macon Company to reassess the future rentals. Macon
Company expects the building to provide rentals for only 15 more
years before Macon will sell it. Macon Company uses a discount rate
of 8% per year in discounting expected rentals from the
building.

Macon now expects to receive annual rentals of $2.7 million per
year for 15 years and to sell the building for $10.0 million after
15 years; these payments, in total, have a present value of $26.2
million when discounted at 8% per year. The buildings fair value is
$25 million today. Costs to sell are estimated at $1,000,000.

Using the Macon Company data, under U.S. GAAP:
A.no impairment loss has occurred
B.an impairment loss has occurred in the amount of $3.8 million
C.an impairment loss has occurred in the amount of $6 million
D.an impairment gain has occurred in the amount of $6 million
E.an impairment gain has occurred in the amount of $3.8 million

Answer:

18) Glass Corporation retired $7,500,000 of long-term debt at maturity.
The income statement shows no gain or loss on retirement of debt.
The statement of cash flows classifies the transaction as a(n)
A.operating activity
B.investing activity
C.financing activity
D.exchange transaction
E.lending activity

Answer:

19) Which of the following independent transactions would cause net
income to be more than cash from operating activities?
A.A decrease in the accounts receivable account
B.An increase in the merchandise inventory account
C.An increase in the accounts payable account
D.An increase in the accrued wages payable account
E.None of these answer choices is correct.

Answer:

20) Indicate the effects of the following transactions on the balance
sheet equation, using the format:

a. Issued 20,000 shares of $0.10 par value common stock for
$100,000.
b. Issued 5,000 shares of $0.10 par value common stock in full
payment for land worth $25,000 to be used as a future building
site.
c. Acquired equipment costing $7,500 for a cash payment of $700
with the balance payable over the next five years.
d. Paid $1,000 for rent for the next two months.
e. Completed a consulting job and invoiced the client for $5,000,
payable in 30 days.
f. Ordered office supplies for the office, totaling $225.
g. Purchased a three-year fire insurance policy and pays in advance
$3,000.
h. Received payment from the client for services rendered in (e)
above.
i. Received the office supplies. The invoice indicates payment is
due within 10 days.
j. Issued a check for the office supplies purchased in (i) above.

Answer:

21) The Work-in-Process Inventory account is _____. Product costs
accumulate in the Work-in-Process Inventory account until the firm
completes the goods and transfers them to _____.
A.an asset; Finished Goods Inventory
B.a liability; Finished Goods Inventory
C.an asset; Cost of Goods Sold
D.a liability; Cost of Goods Sold
E.produced capital; Cost of Goods Sold

Answer:

22) Compute the missing information in each of the four independent
cases below. The letters in parentheses refer to the following:

a. Accounts Receivable, Jan. 1, Year 2 (BS) $500
Sales on Account for Year 2 (IS) 1900
Collections from Customers on Account during Year 2 (SCF) 1,350
Accounts Receivable, Dec. 31, Year 2 (BS) -?-
b. Salaries Payable, Jan. 1, Year 2 (BS) $175
Salary Expense for Year 2 -?-
Payments to Salaried Employees during Year 2 (SCF) 725
Salaries Payable, Dec. 31, Year 2 (BS) 100
c. Equipment (net of depreciation), Jan. 1, Year 2(BS) $900
Depreciation Expense for Year 2 (IS) -?-
Sales of Equipment during Year 2 (SCF) -0-
Acquisition of Equipment during Year 2 (SCF) 330
Equipment (net of depreciation), Dec. 31, Year 2 (BS) 910
d. Retained Earnings, Jan. 1, Year 2 (BS) $1,550
Net Income for Year 2 (IS) 400
Dividends Declared and Paid during Year 2 (SCF) -?-
Retained Earnings, Dec. 31, Year 2 (BS) 1,350

Answer:

23) Which of the following transactions would not be reported in the
one of the three main activity sections of the statement of cash
flows prepared under the indirect method?
A.A purchase of treasury stock
B.A purchase of an operational asset by issuing common stock
C.A loan made to another company
D.Patent amortization
E.A gain on the sale of a plant asset

Answer:

24) Zanies Corporation reports its income from investments under the
equity method and recognized income of $15,000 from its investment
in Travis Company during the current year. Travis declared no
dividends during the current year. On Daniels statement of cash
flows the $15,000 would
A.be shown as cash from investing activities
B.be shown as an addition to net income in the reconciliation of
net income to cash from operations
C.be shown as a deduction from net income in the reconciliation of
net income to cash from operations
D.not be shown
E.None of these answers is correct

Answer:

25) A stock dividend indicates
A.a permanent commitment of assets generated by reinvested
earnings
B.an increase to total owners’ equity
C.an attempt to shift the control of the company by diluting
ownership
D.a transfer of corporate assets to shareholders without using
cash
E.a temporary commitment of assets generated by reinvested earnings

Answer:

26) On January 1, Year 1, Lamp Company acquires new equipment in
exchange for a note. Lamp must pay a lump sum of $32,000 on
December 31, Year 3. The equipment is being specifically
manufactured for Lamp, so no market price exists for the equipment.
On similar types of equipment purchases, Lamp has paid 15%
interest. The equipment has a five-year life and the company uses
straight-line depreciation with a 10% salvage value.

Required:

Prepare journal entries to record the following:


a. original acquisition of equipment
b. any adjusting journal entry necessary at December 31, Year 1
c. entry to record depreciation at December 31, Year 2
d. entry to record payment on December 31, Year 3

Answer:

27) Forman Corporation extends credit to its customers to purchase
appliances, furniture, and other goods. Forman Corporation could
borrow from a bank using its accounts receivable as collateral,
thereby placing debt on the balance sheet. Forman Corporation would
then use the cash collections from the receivables to repay the
bank loan with interest. Instead, Forman Corporation sells the
accounts receivable to the bank for an amount that is less than the
cash the bank expects to collect from receivables purchased. The
amount takes account of expected defaults, which would reduce the
cash generated by the receivables. This difference between the
amount paid to Forman Corporation by the bank for the receivables
and the amount that the bank expects to collect from the
receivables provides the bank with its expected return. Which of
the following is/are true?
A.Forman Corporation has no further obligation and will treat this
transaction as a sale, with no incremental debt on the balance
sheet and recognizing bad debt expense on the income statement
B.Forman Corporation has further obligations and will treat this
transaction as a financing arrangement, recognizing bad debt
expense on the income statement
C.Forman Corporation has further obligations and will treat this
transaction as a financing arrangement, recognizing incremental
debt on the balance sheet
D.Forman Corporation has no further obligation and will treat this
transaction as a sale, with no incremental debt on the balance
sheet
E.Forman Corporation has further obligations and will treat this
transaction as a financing arrangement, recognizing incremental
debt on the balance sheet and recognizing bad debt expense on the
income statement

Answer: