1) If a new partner is given a 20% interest in the firm then the new partner will receive
a 20% interest in earnings.
2) The amount journalized showing the cost added to finished goods is taken from the
cost of production report.
3) Bank customers are considered creditors of the bank so the bank shows their
accounts with credit balances on the bank’s records.
4) A company can use comparisons of its financial data to the data of other companies
and industry values to evaluate its position.
5) The purchase of supplies for cash would be recorded in the purchases journal.
6) When accounts do not appear on the unadjusted trial balance but are needed to post
adjustments, they are simply added to the account title column.
7) Repayments of bonds would be shown as a cash outflow in the investing section of
the statement of cash flows.
8) A corporation is a separate entity for accounting purposes but not for legal purposes.
9) Garmo Co. has an operating leverage of 5. Next year’s sales are expected to increase
by 10%. The company’s operating income will increase by 50%.
10) The financial budgets of a business include the cash budget, the budgeted income
statement, and the budgeted balance sheet.
11) The manager of a profit center does not make decisions concerning the fixed assets
invested in the center.
12) The bank reconciles its statement to the company’s records.
13) An installment note is a debt that requires the borrower to make equal periodic
payments to the lender for the term of the note.
14) Ordinary gains from the sale of fixed assets should be reported in the other income
section of the income statement.
15) The discount on a note payable is charged to an account that has a normal credit
balance.
16) Watson Company has the following data:
17) Aqua Construction installs swimming pools. They calculate that warranty
obligations are 5% of gross sales. For the year just ending Aquas gross sales were
$1,500,000. Due to previous quarter recognitions, the Warranty Liability account has a
credit balance of $48,700. Determine the years total warranty liability and journalize
any necessary value to establish the years liability at December 31st.
Due to sales, $1,500,000, warranty liability is $75,000 ($1,500,000 5%) . Since $48,700
has already been recognized, $26,300 ($75,000 – $48,700) must still be recognized.
18) The following data regarding purchases and sales of a commodity were taken from
the related perpetual inventory account:
19) A $500,000 bond issue on which there is an unamortized discount of $35,000 is
redeemed for $475,000. Journalize the redemption of the bonds.
20)
Fill in the blanks related to the characteristics of a promissory note:
21) Based on the following, what is free cash flow?
Operations includes $2,000 for depreciation. Investing includes the purchase of a
replacement asset for $100,000 and the sale of the one used in production, which is now
obsolete, for $70,000. Financing is made up of $70,000 of borrowing and $25,000 of
dividends paid.
22) Given the following: Beginning capital $ 58,000
Ending capital $ 30,000
Owner’s withdrawals $ 25,000
Calculate net income or net loss.
