Relevance and cost are two constraints in accounting.
A material item is one that is likely to influence an investor’s decision.
The purchase of inventory and its eventual sale lengthen the operating cycle of a
merchandising company.
Free cash flow is Net cash provided by operating activities less dividends.
The accounts receivable turnover ratio is computed by dividing total sales by the
average net receivables during the year.
During the year, Income Tax Expense amounted to $12,500 and Income Taxes Payable
increased by $1,500; therefore, the cash paid for income taxes was $11,000.
Interest on a 6-month, 10 percent, $10,000 note is calculated by multiplying $10,000 x
0.10 x 6/12.
Operating expenses include interest expense and income tax expense.
Materiality relates to whether an item is large enough to likely influence the decision of
an investor or creditor.
Accounts receivable turnover is useful in assessing the profitability of receivables.
If a company has sales of $130 in 2014 and $182 in 2013, the percentage decrease in
sales from 2013 to 2014 is 40%.
When purchasing delivery equipment, sales taxes and motor vehicle licenses should be
charged to Equipment.
The return on assets will be greater than the rate of return on common stockholders’
equity if the company has been successful in trading on the equity at a gain.
Boone Trading Company reported net sales of $400,000, $440,000, and $520,000 in the
years 2013, 2014, and 2015, respectively. If 2013 is the base year, what is the trend
percentage for 2015?
a.77%
b.118%
c.130%
d.77%
Tidwell Company’s goods in transit at December 31 include sales made
(1)FOB destination
(2)FOB shipping point
and purchases made
(3)FOB destination
(4)FOB shipping point.
Which items should be included in Tidwell’s inventory at December 31?
a.Sales made FOB shipping point and purchase made FOB destination
b.(1) and (4)
c.(1) and (3)
d.(2) and (4)
Joe Laramie owns and operates Joe’s Burgers, a small fast food store, located at the
edge of City College campus in Newton, Ohio. After several very profitable years, Joe’s
Burgers began to have problems. Most of the problems were related to Joe’s expansion
of the eating area in the restaurant without corresponding increases in the food
preparation area. Joe does not have the cash or financial backing to expand further. He
has therefore decided to sell his business.
William Sheets is interested in purchasing the business. However, he is located in
another city and is unfamiliar with Newton. He has asked Joe why he is selling Joe’s
Burgers. Joe replies that his elderly mother requires extra care, and that his brother
needs help in his manufacturing business. Both are true, but neither is his primary
reason for selling. Joe reasons that William should not have asked him anyway, since
profitable businesses don’t come up for sale.
1>Identify the stakeholders in this situation.
2>Did Joe act ethically in not revealing fully his reasons for selling the business? Why
or why not?
What is the term applied to the excess of net sales over the cost of goods sold?
a.Income before income taxes
b.Income from operations
c.Net income
d.Gross profit
Racer Corporation’s December 31, 2014 balance sheet showed the following:
Racer’s total paid-in capital was
a.$62,480,000.
b.$63,320,000.
c.$61,640,000.
d.$36,080,000.
Salamagundi, Inc. has the following Income Statement (in millions):
SALAMAGUNDI, INC.
Income Statement
For the Year Ended December 31, 2014
Using vertical analysis, what percentage is assigned to net sales?
a.150%
b.Can’t be computed.
c.60%
d.100%
The comparative balance sheets for Russell Company appear below:
Additional information:
1)Net income for the year ending December 31, 2014, was $30,000.
2)Cash dividends of $12,000 were declared and paid during the year.
3)Stock investments that had a book value of $18,000 were sold for $13,000.
4)Sales for 2014 are $130,000.
Instructions
1)Prepare a statement of cash flows for the year ended December 31, 2014, using the
indirect method.
2)Compute the following cash based ratios:
a.Current cash debt coverage
b.Cash debt coverage
The following information was available for Camara Company at December 31, 2014:
beginning inventory $80,000; ending inventory $120,000; cost of goods sold $560,000;
and sales $800,000. Camara’s inventory turnover in 2014 was
a.8.0 times.
b.6.7 times.
c.5.6 times.
d.4.7 times.
The net income reported on the income statement for the current year was $210,000.
Depreciation was $52,000. Accounts receivable and inventories decreased by $5,000
and $15,000, respectively. Prepaid expenses and accounts payable increased,
respectively, by $500 and $14,000. How much cash was provided by operating
activities?
a.$277,500.
b.$287,500.
c.$295,500.
d.$228,500.
Given the data below for a firm in its first year of operation, determine net income
under the cash basis of accounting.
a.$6,500
b.$11,000
c.$4,700
d.$6,950
Dos Amugus Company has income from continuing operations of $621,000(after tax)
for the year ended December 31, 2014. It also has the following items (before
considering income taxes):
(1)An extraordinary fire loss of $120,000.
(2)A gain of $60,000 on the discontinuance of a major component.
(3)A cumulative effect of a change in accounting principle that resulted in an increase in
prior years’ depreciation of $50,000.
Assume all items are subject to income taxes at a 30% tax rate.
Instructions
Prepare an income statement, beginning with income from continuing operations.
Analyze the following transactions in terms of their effect on the basic accounting
equation. Record each transaction by increasing (+) or decreasing (-) the dollar amount
of each item affected. Indicate the new balance of each item after a transaction is
recorded.
Issued stock to investors for $20,000 in cash.
Purchased supplies on credit for $700.
Billed customers $1,000 for services provided.
Paid for supplies purchased in transaction 2.
Paid dividends of $300 cash to stockholders.
Received half from customers billed in transaction 3.
Received and paid utility bill for $100.
Here are selected 2014 transactions of Howe Corporation.
Instructions
Journalize all entries required on the above dates, including entries to update
depreciation on assets disposed of, where applicable. Howe Corporation uses
straight-line depreciation.
Zip Delivery specializes in the overnight transportation of medical equipment and
laboratory specimens. The company has selected the following information from
its most recent annual report to be the subject of an immediate press release.
The financial statements are being released.
Net income this year was $3.1 million. Last year€s net income had been $2.8 million.
The current ratio has changed to 2:1 from last year€s 1.6:1.
The debt to assets ratio has changed to 4:6 from last year€s 3:6.
The company expanded its truck fleet substantially by purchasing ten new delivery
vans.
The company already had twelve delivery vans. The company is now the largest
medical courier in the mid-Atlantic region.
Prepare a brief press release incorporating the above information. Include all
information. Think carefully which information (if any) is good news for the company,
and which (if any) is bad news.
Prepare adjusting entries for the following transactions. Omit explanations.
1>Depreciation on equipment is $1,340 for the accounting period.
2>Interest owed on a loan but not paid or recorded is $275
3>There was no beginning balance of supplies and $550 of office supplies were
purchased during the period. At the end of the period $100 of supplies were on hand.
4>Prepaid rent had a $1,000 normal balance prior to adjustment. By year end $700 had
expired.
5>Accrued salaries at the end of the period amounted to $900.
