Write-off of uncollectible account receivable
On January 10, Winston, Inc.’s trial balance included the following accounts:
On January 11, Len Palmer, a major customer, declares bankruptcy and thus, Winston
determines that a receivable from Palmer in the amount of $3,400 is worthless.
(a) In the space provided, prepare the journal entry that Winston should record to
write-off the account receivable from Len Palmer on January 11.
(b) Compute the net realizable value of Winston’s accounts receivable at each of the
following dates:
January 10 (before write-off of Palmer’s account) $________________
January 11 (immediately after write-off of Palmers’ account) $________________
Beech Soda, Inc. uses a perpetual inventory system. The company’s beginning
inventory of a particular product and its purchases during the month of January were as
follows:
On January 14, Beech Soda, Inc. sold 25 units of this product. The other 28 units
remained in inventory at January 31.
Refer to the information above. Assuming that Beech Soda uses the LIFO cost flow
assumption, the cost of goods sold to be recorded at January 14 is:
A. $393.
B. $268.
C. $278.
D. $673.
In a multiple-step income statement, income taxes are not classified as operating
expenses because:
A. Income taxes do not contribute to the production of revenue.
B. Income taxes stem from the manner in which assets are financed, not the manner in
which they are used in business operations.
C. Not all forms of business organization are subject to income taxes.
D. The statement is incorrect; income taxes are classified as operating expenses.
The matching principle:
A. Applies only to situations in which a cash payment occurs before an expense is
recognized.
B. Applies only to situations in which a cash receipt occurs before revenue is
recognized.
C. Is used in accrual accounting to determine the proper period in which to recognize
revenue.
D. Is used in accrual accounting to determine the proper period for recognition of
expenses.
Sloan Sporting Goods has stores in four geographic regions. Each region has at least 20
stores. In the company’s responsibility accounting system, sales are recorded separately
for each sales department within each store. The total sales for a particular region are
determined by:
A. Combining the total sales of all stores in that region.
B. Using a separate revenue account to record the sales transaction for each region.
C. Taking a percentage of the company’s total sales that is equal to the percentage of the
company’s stores located in that region.
D. Adding together the sales tickets for all sales transactions in the region.
If Income Summary has a net credit balance, it signifies:
A. A net loss.
B. Net income.
C. A reduction of net worth.
D. Dividends have been declared.
Percentage changes; p/e ratios and investors’ expectations
Shown below are Gamma, Inc.’s earnings per share for a four-year period, along with
the per-share market price of the company’s stock at each year-end. The earnings in
2015 were the highest in the company’s history.
(a) Compute the percentage change in earnings per share in 2013, 2014, and 2015.
(Place your answers in the spaces provided above.)
(b) Compute the p/e ratio of stock at the end of each of the four years. (Place your
answers in the spaces provided above.)
(c) What does the p/e ratio at the end of 2015 indicate about investors’ expectations of
earnings per share for the coming year? Explain your reasoning.
Extraordinary items are found on the income statement:
A. Before discontinued operations.
B. After discontinued operations.
C. Before income from continuing operations.
D. After prior period adjustments.
The current ratio will be _______________ the quick ratio.
A. Less than
B. Greater than or equal to
C. The same as
D. Always different than
Since manufacturing costs (direct materials, direct labor, and overhead) are incurred in
the process of manufacturing units of product, these costs are credited to:
A. The Direct Materials Inventory, Direct Labor, and Manufacturing Overhead accounts
respectively.
B. Liability accounts.
C. The Work in Process Inventory account.
D. The Cost of Goods Sold account.
All of the following are characteristics of management accounting, except:
A. Reports are used primarily by insiders rather than by persons outside of the business
entity.
B. Its purpose is to assist managers in planning and controlling business operations.
C. Information must be developed in conformity with generally accepted accounting
principles or with income tax regulations.
D. Information may be tailored to assist in specific managerial decisions.
An unfavorable labor rate variance could most likely result from all of the following
except:
A. Producing at levels of output which exceed normal output levels.
B. Using highly skilled laborers to perform tasks normally performed by unskilled
laborers.
C. Having laborers work excessive overtime hours.
D. Using outdated standard cost figures.
The price-earnings ratio is the:
A. Book value of a share of common stock divided by EPS.
B. Market price of a share of common stock divided by EPS.
C. Par value of a share of common stock divided by EPS.
D. Market price divided by book value of a share of stock.
Washington Warehouse is a small retail business that specializes in the sale of
top-of-the-line televisions. This year, the store has begun to carry the Flat TV
manufactured by Bass Co. Thus far, Washington has recorded the following transactions
involving the Flat TV:
Jan. 5 Purchased 8 Flat TVs at a unit cost of $1,400
Jan. 18 Purchased 5 additional Flat TVs at $1,400 each
Feb. 12 Sold 9 Flat TVs to the Duke Hotel for $15,300
Refer to the information above. If Washington uses a perpetual inventory system, the
journal entry to record the sale on February 12th would include all of the following
except:
A. A debit to the Cost of Goods Sold for $12,600.
B. A credit to Sales Revenue for $15,300.
C. A credit to Purchases for $15,300.
D. A credit to Inventory for $15,300.
In which of these inventory approaches is it important to determine the actual cost of a
particular inventory item being sold in order to determine cost of goods sold?
A. LIFO.
B. FIFO.
C. Specific identification.
D. Weighted average cost.
Which of the following statements regarding depreciation is correct?
A. Depreciation is an exact calculation of the decline in value of an asset.
B. Depreciation is only an estimate of the decline in value of an asset.
C. Depreciation is only recorded at the end of a year and never over a shorter time
period.
D. Management must know the exact life of an asset in order to calculate an acceptable
depreciation expense.
Accounting terminology
Listed below are eight technical accounting terms introduced or emphasized in this
chapter.
Each of the following statements may (or may not) describe one of these technical
terms. In the space provided beside each statement, indicate the accounting term
described, or answer “None” if the statement does not correctly describe any of the
terms.
____ (a) The process of analyzing investments in plant assets.
____ (b) The number of years required to recover the entire cost of an investment from
its net cash flows.
____ (c) A stream of equal cash flows to be received or paid.
____ (d) The estimated average annual income of an investment expressed as a
percentage of its average initial cost.
____ (e) The numerator in the return on average investment computation.
____ (f) The amount an investor should be willing to pay today for the right to receive a
specified amount of cash at a specified future date.
____ (g) The process of computing the present value of future cash flows.
If monthly fixed costs are $21,000 and the contribution margin ratio is 42%, the
monthly sales volume required to break even is:
A. $8,820.
B. $50,000.
C. $78,000.
D. $39,207.
A high quality of earnings is indicated by:
A. Earnings derived largely from newly introduced products.
B. Declaration of both cash and stock dividends.
C. Use of the FIFO method of inventory during sustained inflation.
D. A history of increasing earnings and conservative accounting methods.
Job order cost system
Continental Company uses a job order cost accounting system. During March, three
jobs were completed and the costs were computed as follows: job no. 1, $89,000; job
no. 2, $58,800; job no. 3, $54,000. As of March 31, the following amounts had been
charged to the Work in Process Inventory controlling account in the general ledger:
(a) Prepare the general journal entry to reflect the jobs completed during March:
(b) Compute the cost of the unfinished jobs at March 31. $__________
Financial statements are designed primarily to:
A. Provide managers with detailed information tailored to the managers’ specific
information needs.
B. Provide people outside the business organization with information about the
company’s financial position and operating results.
C. Report to the Internal Revenue Service the company’s taxable income.
D. Indicate to investors in a particular company the current market values of their
investments.
Which of the following would be presented in the cash from operating activities section
of the statement of cash flows when the indirect method is used?
A. Gain on the sale of investments.
B. Depreciation expense.
C. Neither a gain on the sale of investments nor depreciation expense would be shown.
D. Both a gain on the sale of investments and depreciation expense would be shown.
Techniques to manage costs in the value chain include all of the following except:
A. Activity based management.
B. Target costing.
C. Process costing.
D. Total quality management.
Only two adjustments appear in the adjustments column of a worksheet for Winona
Mfg: one to record $8,000 depreciation of factory equipment, and the other to record
the use of $1,500 of prepaid insurance. If the Trial Balance column totals are $145,380,
what are the totals of the Adjusted Trial Balance columns?
A. $145,380.
B. $153,380.
C. $152,880.
D. $154,880.
Which of the following does not affect the market price of an outstanding bond issue?
A. Fluctuations in the current market rate of interest.
B. The credit rating of the issuing corporation.
C. The price at which the bonds were originally issued.
D. The length of time remaining until the bonds’ maturity date.
JCN Industries normally produces and sells 5,000 keyboards for personal computers
each month. Variable manufacturing costs amount to $25 per unit, and fixed costs are
$146,000 per month. The regular sales price of the keyboards is $86 per unit. JCN has
been approached by a foreign company that wants to purchase an additional 1,000
keyboards per month at a reduced price. Filling this special order would not affect
JCN’s regular sales volume or fixed manufacturing costs.
Refer to the information above. On the basis of the above information only, which of
the following is not true?
A. At the 5,000-unit level of production, JCN’s average cost per unit is $54.20.
B. At the 6,000-unit level of production, JCN’s average cost per unit is $49.33.
C. It would not be profitable for JCN to consider the special order at a price less than
$49 per unit.
D. The fixed manufacturing costs of $146,000 is not relevant to this decision regarding
the special order.
Recognizing revenue when it is earned and not when cash is received and recognizing
expenses when the related goods or services are used rather than when they are paid for
is called:
A. Revenue recognition.
B. Accrual accounting.
C. Conservatism.
D. Matching.
Shown below is a trial balance for Novelty Toys Inc., on December 31, after adjusting
entries:
Refer to the information above. The entry to close the Fees Earned account will:
A. Produce a zero balance in that account when posted.
B. Include a debit to Income Summary.
C. Include a credit to Fees Earned.
D. Include a debit to Capital Stock.
Accents Associates sells only one product, with a current selling price of $70 per unit.
Variable costs are 40% of this selling price, and fixed costs are $12,000 per month.
Management has decided to reduce the selling price to $65 per unit in an effort to
increase sales. Assume that the cost of the product and fixed operating expenses are not
changed by this reduction in selling price.
Refer to the information above. At the reduced selling price of $65 per unit, what dollar
volume of sales per month is required to break-even? (Round your intermediate
percentage to one decimal place and final answer to nearest whole dollar.)
A. $27,842.
B. $22,727.
C. $21,090.
D. $29,540.
Computation of assets, liabilities, and owners’ equity after a series of transactions
The December 31, 2014 balance sheet of Charles Realty reported total assets of
$900,000, total liabilities of $350,000, and owners’ equity of $550,000. The following
transactions occurred in January of 2014:
(1) The business purchased land for $250,000, paying $100,000 cash and issuing a note
payable for the balance.
(2) The business collected accounts receivable totaling $45,000.
(3) The business sold land costing $50,000 for $60,000 cash.
(4) The business paid $50,000 of the note payable.
Compute the following at January 31, 2014:
(A.) Total assets $___________
(B.) Total liabilities $___________
(C.) Owners’ equity $___________
The future value of an annuity is:
A. Always more than the present value.
B. Always less than the present value.
C. Equal to the present value.
D. Double the present value.
If you receive $20,000 as a gift and invest it at 12% compounded quarterly, how much
will you have at the end of three years?
A. $32,020.60.
B. $28,515.20.
C. $22,497.20.
D. $14,027.60.
For depreciable property other than real estate, MACRS is based upon:
A. The declining-balance method.
B. The straight-line method.
C. A 10-year recovery period.
D. The depreciation method and recovery period used by the company in its financial
statements.