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If a plant asset is retired before it is fully depreciated and no salvage value is received,
a. a gain on disposal occurs.
b. a loss on disposal occurs.
c. either a gain or a loss can occur.
d. neither a gain nor a loss occurs.
Answer:
On January 2, 2015, Parr Company purchased 100% of the common stock
of Sneed Company for $420,000. The fair value of Sneed Company's assets
and liabilities are equal to their book values except that land has a fair
value of $120,000 and buildings have a fair value of $260,000.
Instructions
(a) Complete the worksheet below for preparing a consolidated balance
sheet. You may add accounts to the worksheet if necessary.
(b) Prepare a consolidated balance sheet for Parr Company and Subsidiary
on January 2, 2015.
Answer:
Nirvana Corporation issued a one-year, 9%, $400,000 note on April 30, 2015. Interest
expense for the year ended December 31, 2015 was
a. $21,000.
b. $24,000.
c. $27,000.
d. $36,000.
Answer:
If the cost method is used to account for a long-term investment in common stock,
a. it is presumed that the investor has significant influence on the investee.
b. the earning of net income by the investee is considered a proper basis for recognition
of income by the investor.
c. net income of the investee is not considered earned by the investor until dividends are
declared by the investee.
d. the Investment account may be, at times, greater than the acquisition cost.
Answer:
The interest charged on a $70,000, 2-month note payable, at the rate of 6%, would be
a. $4,200.
b. $2,100.
c. $1,050.
d. $700.
Answer:
The return on common stockholders' equity is computed by dividing
a. net income by ending common stockholders' equity.
b. net income by average common stockholders' equity.
c. net income minus preferred dividends by ending common stockholders' equity.
d. net income minus preferred dividends by average common stockholders' equity.
Answer:
The inventory turnover is computed by dividing cost of goods sold by
a. beginning inventory.
b. ending inventory.
c. average inventory.
d. 365 days.
Answer:
The relationship between current assets and current liabilities is important in evaluating
a company's
a. profitability.
b. liquidity.
c. market value.
d. accounting cycle.
Answer:
If a company reports a net loss, it
a. may still have a net increase in cash.
b. will not be able to pay cash dividends.
c. will not be able to get a loan.
d. will not be able to make capital expenditures.
Answer:
Renfro Company had accounts receivable of $100,000 on January 1, 2015. The only
transactions that affected accounts receivable during 2015 were net credit sales of
$1,200,000, cash collections of $1,000,000, and accounts written off of $30,000.
Instructions
(a) Compute the ending balance of accounts receivable.
(b) Compute the accounts receivable turnover for 2015.
(c) Compute the average collection period in days.
Answer:
Bush Company reported net income of $60,000 for the year. During the year, accounts
receivable decreased by $8,000, accounts payable increased by $4,000 and depreciation
expense of $5,000 was recorded. Net cash provided by operating activities for the year
is
a. $48,000.
b. $77,000.
c. $59,000.
d. $55,000.
Answer:
IFRS, compared to GAAP, tends to be more
a. detailed.
b. rules-based.
c. principles-based.
d. full of disclosure requirements.
Answer:
The principle of establishing responsibility does not include
a. one person being responsible for one task.
b. authorization of transactions.
c. independent internal verification.
d. approval of transactions.
Answer:
Equipment is classified in the balance sheet as
a. a current asset.
b. property, plant, and equipment.
c. an intangible asset.
d. a long-term investment.
Answer:
The collection of a $1,000 account after the 2 percent discount period will result in a
a. debit to Cash for $980.
b. credit to Accounts Receivable for $1,000.
c. credit to Cash for $1,000.
d. debit to Sales Discounts for $20.
Answer:
The entry to record the issuance of an interest-bearing note credits Notes Payable for
the note's
a. maturity value.
b. market value.
c. face value.
d. cash realizable value.
Answer:
(a) Identify several alternatives for presenting significant noncash activities in financial
statements.
(b) Give three examples of significant noncash transactions.
Answer:
Under the equity method, the receipt of dividends from the investee company results in
an increase in the Stock Investments account.
Answer:
Jay Farrar Company is a manufacturing company that specializes in writing
instruments. The past year was a difficult one for the company, as it sought to retain its
share in a market in which the largest competitors were also rapid innovators. Jay Farrar
introduced a new product late in the year, even though testing was not complete. It was
a pen designed with two cartridges: one supplying ink and the other correction fluid. A
person could then switch easily between writing and correcting errors. It was priced
fairly high, and was never heavily advertised. Even so, the Correct-O-Pen, as the
product was named, was an overwhelming success.
The success of the product has Josh Ritter, the manager of the New Products division,
worried, however. He was concerned that quality problems would begin occurring,
since the longevity of the pen and stability of the correction fluid formulation had not
been tested. He did not want sales personnel to get the bonuses that appeared to be
indicated, since they might aggressively promote a product that would fail in use. He
preferred to complete testing of the pen first, so that more confidence could be placed in
the results.
Top management, however, declined the tests. Mr. Ritter then instructed you, the
accountant, not to prorate payroll taxes or rent expense for the rest of the year, but to
show them as current expenses in total. In this way, the new product would appear to be
only slightly profitable.
Answer:
With an interest-bearing note, the amount of cash received upon issuance of the note
generally exceeds the note's face value.
Answer:
Owners of business firms are the only people who need accounting information.
Answer:
The balance in retained earnings on January 1, 2015, for Booker Inc., was $575,000.
During the year, the corporation paid cash dividends of $70,000 and distributed a stock
dividend of $25,000. In addition, the company determined that it had overstated its
depreciation expense in prior years by $50,000. Net income for 2015 was $120,000.
Instructions
Prepare the retained earnings statement for 2015.
Answer:
In concept, the estimating of Warranty Expense when products are sold under warranty
is similar to the estimating of Bad Debts Expense based on credit sales.
Answer:
Define par value, and discuss its significance in accounting.
Answer:
Holmes Corporation manufactures electronic components for use in many consumer
products. Their raw materials are purchased literally from all over the world. Depending
on the country involved, purchase terms vary widely. Some suppliers, for example,
require full prepayment, while others are content to receive payment within six months
of receipt of the goods.
Because of this situation, Holmes never closes its books until at least ten days after
month end. In this way, it can sort out ownership of goods in transit, and document
which goods were received by month end, and which were not.
Manya Andre, a new accountant, was asked to record about $70,000 in inventory as
having been received before month end. She argued that the shipping documents clearly
showed that the goods were actually received on the 8th of the current month. Her boss,
busy with month-end reports, curtly tells Ann to check the shipping terms. She did so,
and found the notation "FOB shipper's dock" on the document. She hadn't seen that
particular notation before, but she reasoned that if the selling company considered it
shipped when it reached their dock, Holmes should consider it received when it reached
Holmes's dock. She did not record the purchase until after month end.
Answer:
The carrying value of bonds is calculated by adding the balance of the Discount on
Bonds Payable account to the balance in the Bonds Payable account.
Answer:
A capital lease requires the lessee to record the lease as a purchase of an asset.
Answer:
