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Quayle Mining Company purchased land containing an estimated 15 million tons of ore
at a cost of $4,200,000. The land without the ore is estimated to be worth $600,000. The
company expects to operate the mine for 12 years. Buildings costing $600,000 are
erected on the site and are expected to last for 25 years. Equipment costing $300,000
with an estimated life of 15 years is installed. The buildings and the equipment possess
no salvage value after the mine is closed. During the first year of operations, the mining
company mined and sold 2 million tons of ore.
Instructions
(a) Compute the depletion charge per ton.
(b) Compute the depletion expense for the first year.
(c) Compute the appropriate first year's depreciation expense for the buildings.
(d) Compute the appropriate first year's depreciation expense for the equipment.
(e) Prepare journal entries to record depletion and depreciation expenses for the year.
Answer:
The December 31, 2014 balance sheet of Jensen Company showed Equipment of
$76,000 and Accumulated Depreciation of $18,000. On January 1, 2015, the company
decided that the equipment has a remaining useful life of 6 years with a $4,000 salvage
value.
Instructions
Compute the (a) depreciable cost of the equipment and (b) revised annual depreciation.
Answer:
Ultramega Company collected $19,600 in May of 2015 for 4 months of service which
would take place from October of 2015 through January of 2016. The revenue reported
from this transaction during 2015 would be
a. 0.
b. $4,900.
c. $14,700.
d. $19,600.
Answer:
Discount on Bonds Payable
a. is a contra revenue account.
b. is a contra liability account.
c. is added to Bonds Payable to determine the carrying value of the bond.
d. has a credit balance.
Answer:
Hal Corp. prepared the following income statement using the cash basis of accounting:
Additional data:
1> Depreciation on a company automobile for the year amounted to $6,000. This
amount is not included in the expenses above.
2> On January 1, 2015, paid for a two-year insurance policy on the automobile
amounting to $1,800. This amount is included in the expenses above.
Instructions
(a) Recast the above income statement on the accrual basis in conformity with generally
accepted accounting principles. Show computations and explain each change.
(b) Explain which basis (cash or accrual) provides a better measure of income.
Answer:
Plotner Corporation has the following trading portfolio of stock investments as of
December 31, 2014.
On January 22, 2015, Plotner Corporation sold security C for $32,000.
Instructions
(a) Prepare the adjusting entry for Plotner Corporation on December 31, 2014, to report
the portfolio at fair value.
(b) Indicate the balance sheet and income statement presentation of the fair value data
for Plotner Corporation at December 31, 2014.
(c) Prepare the journal entry for the 2015 sale.
Answer:
If a company records merchandise it returns to suppliers in the general journal, then
a. a posting must be made only to the accounts payable control account.
b. a posting must be made only to the accounts payable subsidiary ledger account.
c. a dual posting must be made.
d. there will be a debit to Inventory.
Answer:
Financial information is presented below:
Gross profit would be
a. $104,000.
b. $116,000.
c. $130,000.
d. $142,000.
Answer:
The person responsible for maintaining the company's cash position is the
a. controller.
b. treasurer.
c. vice-president.
d. president.
Answer:
U.S. standards are developed by the
a. IFRS.
b. GAAP.
c. IASB.
d. FASB.
Answer:
Which one of the following is not a justification for adjusting entries?
a. Adjusting entries are necessary to ensure that the revenue recognition principle is
followed.
b. Adjusting entries are necessary to ensure that the expense recognition principle is
followed.
c. Adjusting entries are necessary to enable financial statements to be in conformity
with GAAP.
d. Adjusting entries are necessary to bring the general ledger accounts in line with the
budget.
Answer:
$4 million, 8%, 10-year bonds are issued at face value. Interest will be paid
semi-annually. When calculating the market price of the bond, the present value of
a. $320,000 received for 10 periods must be calculated.
b. $4 million received in 10 periods must be calculated.
c. $4 million received in 20 periods must be calculated.
d. $160,000 received for 10 periods must be calculated.
Answer:
As a recent graduate of State University you're aware that IFRS requires component
depreciation for plant assets. A friend has asked you to succinctly explain what
component depreciation means. Which of the following correctly describes component
depreciation?
a. The method used to ensure that the depreciation rate remains constant from year to
year.
b. The method that requires that significant parts of a plant asset with different useful
lives be depreciated separately.
c. The method used to prorate annual depreciation on a time basis.
d. The method of depreciation recommended for an asset that is expected to be
significantly more productive in the first half of its useful life.
IFRS:
Answer:
Electric Sunset Company gathered the following reconciling information in preparing
its July bank reconciliation:
The adjusted cash balance per books on July 31 is
a. $17,640.
b. $18,840.
c. $25,640.
d. $26,840.
Answer:
The cost of debt investments includes each of the following except
a. brokerage fees.
b. commissions.
c. accrued interest.
d. the price paid.
Answer:
On January 1, Gage Corporation issues $1,000,000, 5-year, 12% bonds at 95 with
interest payable on July 1 and January 1. The carrying value of the bonds, using
straight-line amortization, at the end of the third interest period is:
a. $965,000.
b. $970,000.
c. $930,000.
d. $938,000.
Answer:
A $100 petty cash fund has cash of $12 and receipts of $85. The journal entry to
replenish the account would include a credit to
a. Cash for $88.
b. Petty Cash for $88.
c. Cash Over and Short for $2.
d. Cash for $85.
Answer:
Andre Dickinson, owner of Andre's Fine Wines, also owns a personal residence that
costs $475,000. The market value of his residence is $625,000. During preparation of
the financial statements for Andre's Fine Wines, the accounting concept most relevant to
the presentation of Andre's home is
a. the economic entity assumption.
b. the fair value principle.
c. the monetary unit assumption.
d. convergence.
Answer:
The following accounts were included on Aeroplane Consultants adjusted trial balance
at December 31, 2015:
(a) What are total current assets?
(b) What are total current liabilities?
Answer:
The following information is for Sunny Day Real Estate:
The total dollar amount of liabilities to be classified as current liabilities is
a. $15,000.
b. $60,000.
c. $75,000.
d. $160,000.
Answer:
In performing a vertical analysis, the base for prepaid expenses is
a. total current assets.
b. total assets.
c. total liabilities and stockholders' equity.
d. prepaid expenses.
Answer:
Debt investments are investments in government and _____________ bonds.
Answer:
A plant asset originally cost $64,000 and was estimated to have a $4,000 salvage value
at the end of its 5-year useful life. If at the end of three years, the asset was sold for
$12,000, and had accumulated depreciation recorded of $36,000, the company should
recognize a ______________ on disposal in the amount of $____________.
Answer:
Carter Company sells merchandise on account for $4,000 to Hannah Company with
credit terms of 2/10, n/30. Hannah Company returns $600 of merchandise that was
damaged, along with a check to settle the account within the discount period. What
entry does Carter Company make upon receipt of the check?
Answer:
On November 1, 2015, Tech Corporation's stockholders' equity section is as follows:
On November 1, Tech declares and distributes a 15% stock dividend when the market
value of the stock is $16 per share.
Instructions
Indicate the balances in the stockholders' equity accounts after the stock dividend has
been distributed.
Answer:
Pavement Company purchased a truck from Bee Thousand Corp. by issuing a 6-month,
8% note payable for $90,000 on November 1. On December 31, the accrued expense
adjusting entry is
Answer:
An adjusting entry requiring a credit to Insurance Expense indicates that the initial
transaction was charged to an asset account.
Answer:
In the vertical analysis of the income statement, each item is generally stated as a
percentage of net income.
Answer:
The valuation of available-for-sale securities is similar to the procedures followed for
trading securities, except that changes in fair value are not recognized in current
income.
Answer:
The amount of a cash dividend liability is recorded on the date of record because it is on
that date that the persons or entities who will receive the dividend are identified.
Answer:
For each of the independent events listed below, analyze the impact on the indicated
items at the end of the current year by placing the appropriate code letter in the box
under each item.
Code: O = item is overstated
U = item is understated
NA = item is not affected
Answer:
