1) Muggs Co. includes one coupon in each bag of dog food it sells. In return for eight
coupons, customers receive a leash. The leashes cost Muggs $3 each. Muggs estimates
that 45 percent of the coupons will be redeemed. Data for 2014 and 2015 are as follows:
2014 2015
Bags of dog food sold500,000600,000
Leashes purchased18,00022,000
Coupons redeemed120,000150,000
The premium liability at December 31, 2014 is
a.$37,500
b.$54,000
c.$45,000
d.$39,375
2) Porter Corporation’s capital structure consists of 50,000 shares of common stock. At
December 31, 2014 an analysis of the accounts and discussions with company officials
revealed the following information:
Sales revenue$1,200,000
Earthquake loss (net of tax) (extraordinary item)56,000
Selling expenses128,000
Cash60,000
Accounts receivable90,000
Common stock200,000
Cost of goods sold701,000
Accumulated depreciation-machinery180,000
Dividend revenue8,000
Unearned service revenue4,400
Interest payable1,000
Land370,000
Patents100,000
Retained earnings, January 1, 2014290,000
Interest expense17,000
Administrative expenses170,000
Dividends declared24,000
Allowance for doubtful accounts5,000
Notes payable (maturity 7/1/17)200,000
Machinery450,000
Materials40,000
Accounts payable60,000
The amount of income taxes applicable to ordinary income was $57,600, excluding the
tax effect of the earthquake loss which amounted to $24,000.
Instructions
(a)Prepare a multiple-step income statement.
(b)Prepare a retained earnings statement.
3) Of the following conditions, which is the only one that is not required if the transfer
of receivables with recourse is to be accounted for as a sale?
a.The transferor is obligated to make a genuine effort to identify those receivables that
are uncollectible
b.The transferor surrenders control of the future economic benefits of the receivables
c.The transferee cannot require the transferor to repurchase the receivables
d.The transferor’s obligation under the recourse provisions can be reasonably estimated
4) Florence Inc. issued 8,000, 5-year convertible bonds of $2,000 each for $4,000,000
at the beginning of 2012 . The bonds have a stated rate of interest of 9% and interest is
payable annually. Each bond can be convertible into 100 shares with a par value of $10.
The market rate of similar nonconvertible debt is 10%.
Determine the fair value of equity component using the with-and-without method.
a.$3,848,288
b.$2,483,600
c.$1,365,688
d.$ 151,712
5) Lopez Company received $14,400 on April 1, 2014 for one year’s rent in advance
and recorded the transaction with a credit to a nominal account. The December 31, 2014
adjusting entry is
a.debit Rent Revenue and credit Unearned Rent Revenue, $3,600
b.debit Rent Revenue and credit Unearned Rent Revenue, $10,800
c.debit Unearned Rent Revenue and credit Rent Revenue, $3,600
d.debit Unearned Rent Revenue and credit Rent Revenue, $10,800
6) Checkers uses the periodic inventory system. For the current month, the beginning
inventory consisted of 4,800 units that cost $12 each. During the month, the company
made two purchases: 2,000 units at $13 each and 8,000 units at $13.50 each. Checkers
also sold 8,600 units during the month. Using the average cost method, what is the
amount of cost of goods sold for the month?
a.$111,370
b.$115,800
c.$107,900
d.$111,800
7) Under the equity method of accounting for investments, an investor recognizes its
share of the earnings in the period in which the
a.investor sells the investment
b.investee declares a dividend
c.investee pays a dividend
d.earnings are reported by the investee in its financial statements
8) Each of the statements appearing below is descriptive of one or more of the
following depreciation methods. In the spaces below, place the letter(s) belonging to the
method(s) to which the statement best applies.
a.Declining-balancee.Sum-of-the-years’-digits
b.Groupf.Units of output
c.Compositeg.Working hours
d.Straight-line
1> The depreciation charged by this method decreases by the same amount each year.
2> These methods are used for depreciating multiple-asset accounts.
3> These methods allocate larger shares of the cost of a plant asset to expense during
the years in which the greatest use is made of the asset.
4> These methods always allocate larger shares of the cost of a plant asset to expense
during the earlier years of its life.
5> Once the depreciable base, scrap value, and life of a plant asset are determined, the
annual charges to operations under this method will be the same.
9) On January 1, 2012, Hess Co. purchased a patent for $952,000. The patent is being
amortized over its remaining legal life of 15 years expiring on January 1, 2027 . During
2015, Hess determined that the economic benefits of the patent would not last longer
than ten years from the date of acquisition. What amount should be reported in the
balance sheet for the patent, net of accumulated amortization, at December 31, 2015?
a.$571,200
b.$652,800
c.$672,000
d.$698,200
10) How should earned but unbilled revenues at the balance sheet date on a long-term
construction contract be disclosed if the percentage-of-completion method of revenue
recognition is used?
a.As construction in process in the current asset section of the balance sheet
b.As construction in process in the noncurrent asset section of the balance sheet
c.As a receivable in the noncurrent asset section of the balance sheet
d.In a note to the financial statements until the customer is formally billed for the
portion of work completed
11) Anders, Inc., has 15,000 shares of 5%, $100 par value, cumulative preferred stock
and 60,000 shares of $1 par value common stock outstanding at December 31, 2015 .
There were no dividends declared in 2013 . The board of directors declares and pays a
$135,000 dividend in 2014 and in 2015 . What is the amount of dividends received by
the common stockholders in 2015?
a.$45,000
b.$75,000
c.$135,000
d.$0
12) Which of the following is not a reason the retail inventory method is used widely?
a.As a control measure in determining inventory shortages
b.For insurance information
c.To permit the computation of net income without a physical count of inventory
d.To defer income tax liability
13) Pension liabilities will be impacted in countries where population aging is an issue.
Which of the following countries/areas is the most rapidly aging in the developed
world?
a.Japan
b.Europe
c.United States
d.All three areas are aging at the same approximate rate
14) Turner Corporation had the following information in its financial statements for the
year ended 2014 and 2015:
Cash dividends for the year 2015$ 15,000
Net income for the year ended 2015130,000
Market price of stock, 12/31/1524
Common stockholders equity, 12/31/142,200,000
Common stockholders equity, 12/31/152,400,000
Outstanding shares, 12/31/15150,000
Preferred dividends for the year ended 201530,000
What is the payout ratio for Turner Corporation for the year ended 2015?
a.11.5%
b.15.0%
c.23.1%
d.34.6%