A company that incurred $1,000 in production costs reported cost of goods sold of $800
and selling costs of $100. Its ending finished goods inventory was $300.
The assumption regarding ordinary annuities is that cash flows occur at the end of each
period.
Unlike direct material and direct labor costs, overhead costs must be allocated to
products.
Generally, a company should use the MACRS method to calculate depreciation on its
income tax return, due to the effects of the time value of money.
When debt is used to finance the purchase of assets, the term or time span of the debt
should always be shorter than the lifespan of the assets.
If product costs are misclassified as selling costs, the cost per unit will be understated.
Because management accountants prepare and analyze financial information used by
company decision-makers, they are considered to be at the forefront of corporate
governance.
The accounts receivable turnover ratio can be used to asses a firm’s solvency.
Misclassifying a product cost as a period cost will usually cause the income statement
to be incorrect, but the balance sheet will not be affected.
A potential negative effect of using a just in time inventory system is the immediate
impact of labor strikes on the transportation system such as railroad.
The types of resources needed by a business are financial, physical, and capital
resources.
With respect to income taxes, managers would prefer to classify costs as assets rather
than expenses.
When a capital investment is expected to provide unequal annual cash inflows, the
payback period can be calculated by accumulating the incremental cash inflows until
the sum equals the amount of the original investment.
The philosophy of encouraging workers to achieve zero defects and high customer
satisfaction is known as total quality management.
Peter, Roberts, and Dana have the following capital balances; $80,000, $100,000 and
$60,000, respectively. The partners share profits and losses 20%, 40%, and 40%
respectively.
What is the total partnership capital after Roberts retires receiving $160,000 and using
the goodwill method?
A.$290,000.
B.$176,000.
C.$80,000.
D.$120,000.
E.$230,000.
A company that was to be liquidated had the following liabilities:
Total assets, available to pay liabilities with priority and unsecured creditors, are
calculated to be what amount?
A.$75,000.
B.$270,000.
C.$275,000.
D.$295,000.
E.$370,000.
During 2013, Bledsoe Company earned $6,700 of cash revenue, paid cash dividends of
$950 to owners and paid $5,000 for cash expenses. Liabilities were unchanged. Which
of the following accurately describes the effect of these events on the elements of the
company’s financial statements?
A.Assets increased by $7,700.
B.Assets increased by $750.
C.Equity increased by $2,700.
D.Assets increased by $750 and Equity increased by $2,700.
George Company was started on January 1, 2013, when it acquired $8,000 cash by
issuing common stock. During 2013, the company earned cash revenues of $3,500, paid
cash expenses of $2,750, and paid a cash dividend of $300. Based on this information,
A.The December 31, 2013 balance sheet would show total equity of $11,500.
B.The 2013 income statement would show net income of $450.
C.The 2013 statement of cash flows would show net cash inflow from operating
activities of $750.
D.The 2013 statement of cash flows would show a net cash flow from financing
activities of $8,000.
What information is conveyed by the Statement of Realization and Liquidation?
A.Account balances reported by the company at the date of the filing of the bankruptcy
petition.
B.Cash receipts generated by the sale of the debtor’s property.
C.Write up of assets.
D.Recognition of recorded liabilities.
E.Assets and liabilities but not stockholders’ equity.
Which one of the following is a requirement that must be met before an involuntary
bankruptcy petition can be filed when there are at least 12 unsecured creditors?
A.The petition must be filed by all creditor(s) to whom the debtor owes at least
$15,325.
B.The petition must be signed by creditor(s) with unsecured debts of at least $5,000.
C.The petition must be signed by a majority of the creditor(s).
D.The petition must be signed by creditor(s) to whom the debtor owes more than half of
its debts.
E.The petition must be signed by at least three creditors with unsecured debts of at least
$15,325.
You are considering an investment in IBM stock and wish to assess the firm’s long-term
debt-paying ability and its use of debt financing. All of the following ratios can be used
to assess solvency except:
A.Number of times interest is earned.
B.Debt to assets ratio.
C.Debt to equity ratio.
D.Net margin.
Jiminez Company has two investment opportunities. Both investments cost $5,000 and
will provide the following net cash flows:
The total present value of Investment A’s cash flows assuming an 8% minimum rate of
return is (Do not round your PV factors and intermediate calculations. Round your
answer to the nearest whole dollar):
A.$14,936.
B.$4,936.
C.$7,000.
D.$12,000.
Assume that you are considering purchasing some of a company’s long-term bonds as
an investment. Which of the company’s financial statement ratios would you probably
be most interested in?
A.Debt to assets ratio
B.Debt to equity
C.Plant assets to long-term liabilities
D.All of these answers are correct.
Which type of approach should be used when evaluating corporate results using
horizontal analysis?
A.Study of absolute amounts.
B.Percentages.
C.Trends.
D.All of these answers are correct.
Paul Company is considering purchasing a capital investment that is expected to
provide annual cash inflows of $12,000 per year for 3 years. Assuming that the required
rate of return is 10%, what is the present value of these cash inflows? (Do not round PV
factors and intermediate calculations. Round your final answer to the nearest dollar.)
A.$9,016
B.$28,822
C.$29,842
D.$27,047
A company sells a building to a bank in 2013 at a gain of $100,000 and immediately
leases the building back for period of five years. The lease is accounted for as an
operating lease. The building was originally purchased for $200,000 and currently had a
book value of $50,000 at the date of the sale.
As a result of the sale and leaseback transaction in 2013, what is the difference between
income using U.S. GAAP and IFRS in 2014?
A.$0.
B.U.S. GAAP income is $20,000 higher.
C.IFRS income is $80,000 lower.
D.IFRS income is $60,000 lower.
E.IFRS income is $80,000 higher.
The time value of money concept recognizes that a dollar today is worth more than a
dollar tomorrow. Which of the following is not a factor in causing the present value of
cash inflows to diminish over time?
A.Current expenses.
B.Earning potential, such as interest.
C.Risk of uncollectability.
D.Inflation reduces future purchasing power.
A statement of financial affairs created for an insolvent corporation that was beginning
the liquidation process disclosed the following data (assets were shown at net realizable
values):
Required:
How much money appears to be available for unsecured creditors after payment of
liabilities with priority?
How does providing services for cash affect the accounting equation? Is it considered
an asset source, asset use, or asset exchange transaction?
Bazley Co. had severe financial difficulties and was considering the possibility of filing
a bankruptcy petition. At that time, the company had the following assets (stated at net
realizable value) and liabilities.
Total payment on partially secured debt is calculated to be what amount?
Define the term “accounting period.” How does this term relate to the “matching
concept” as it pertains to the income statement?
Mount Inc. was a hardware store that operated in Boise, Idaho. Management made
some poor inventory acquisitions that loaded the store with unsalable merchandise. Due
to the decline in revenues, the company became insolvent. Following is a trial balance
as of March 15, 2013, the day the company filed for Chapter 7 liquidation.
Company officials believed that sixty percent of the accounts receivable could be
collected if the company was liquidated. The building and land had a fair value of
$97,500, while the equipment was worth $24,700. The investments represented shares
of a publicly traded company that could be sold at the time for $27,300. The entire
inventory could be sold for only $42,900. Administrative expenses necessary to carry
out a liquidation would have approximated $20,800.
How much cash would have been paid to an unsecured non-priority creditor who was
owed a total of $1,300 by Mount Inc.? (Round the payout percentage to a whole
number.)
Lucky Co. had cash of $65,000, inventory worth $117,000, and a building worth
$169,000. Unfortunately, the company also had accounts payable of $234,000, a note
payable of $104,000 (secured by the inventory), liabilities with priority of $26,000, and
a bond payable of $195,000 (secured by the building).
Total payment on the bond is calculated to be what amount?
Jipsom and Klark were partners with capital account balances of $80,000 and $100,000,
respectively. Looney directly paid $32,000 to Jipsom and $40,000 to Klark for 30% of
their interests in the partnership. Jipsom and Klark shared income in the ratio of 2:3.
They believed that revaluation of the partnership was appropriate when a new partner
was admitted.
Required:
Prepare the journal entries to record the admission of Looney to the partnership.
Seven Day Mini Mart is considering installing video games in its stores. The machines
cost $300,000 and have an estimated six-year useful life. Ignore income taxes. The
following projected income statement is provided:
Required:
1) Seven Day Mini Mart would like to recoup its original investment in less than five
years. Compute the payback period for the video game machine investment. Would you
recommend that the machines be purchased? Why or why not?
2) Seven Day Mini Mart’s target unadjusted rate of return is 12%. Compute the
unadjusted rate of return on the original investment. Would you recommend that the
machines be purchased? Why or why not?
For each of the following transactions, indicate the type by entering AS for asset source
transactions, AU for asset use transactions, AE for asset exchange transactions, and CE
for claims exchange transactions.
1) ___ Purchased supplies on account.
2) ___ Recorded the accrual of $1,000 in salaries to be paid later.
3) ___ Issued common stock for $20,000 in cash.
4) ___ Earned revenue to be collected next year.
5) ___ Paid $2,000 in dividends to its stockholders.
6) ___ Received cash from customers in #4 above.
7) ___ Paid the salaries accrued in #2 above.
8) ___ Received $500 from a customer for services to be provided later.