1) The anticipated purchase of a fixed asset for $400,000, with a useful life of 5 years
and no residual value, is expected to yield total net income of $200,000 for the 5 years.
The expected average rate of return on investment is 50%.
2) Receiving payment prior to delivering goods or services causes a current liability to
be incurred.
3) When a company issues new shares of stock, the capital stock account increases due
to revenue being earned.
4) A subsidiary inventory ledger can be an aid in maintaining inventory levels at their
proper levels.
5) If the amount of a bond premium on an issued 11%, 4-year, $100,000 bond is
$12,928, the annual interest expense is $5,500.
6) The rate of return on investment may be computed by multiplying investment
turnover by the profit margin.
7) Vertical analysis is useful for analyzing financial statement changes over time.
8) Expenses use up assets or consume services in the process of generating revenues.
9) If the adjustment to recognize expired insurance at the end of the period is
inadvertently omitted, the assets at the end of the period will be understated.
10) A petty cash fund is used to pay relatively large amounts.
11) Cash dividends paid to stockholders decrease assets and increase equity.
12) The major shortcoming of income from operations as an investment center
performance measure is that it ignores the amount of revenues earned by the center.
13) Both the initial cost of the asset and the accumulated depreciation will be taken off
the books with the disposal of the asset.
14) Journalize the following transactions assuming a perpetual inventory system.:
Journal
15) Conquest Company uses a perpetual inventory system. Conquest purchased $1,500
of merchandise on account and payment was made within the discount period. The
credit terms were 2/10,n/30. Journalize Conquests purchase and payment.
16) Cuisine Inc. manufactures flatware sets. The budgeted production is for 80,000 sets
in 2012. Each set requires 2.5 hours to polish the material. If polishing labor costs
$15.00 per hour, determine the direct labor budget for 2012.
17) Give the major disadvantage of disregarding the cost concept and constantly
revaluing assets based on appraisals and opinions.
18) Salaries of $6,400 are paid for a five-day week on Friday. Prepare the adjusting
journal entry that is required if the month ends on Thursday.
19) A company had the following stockholders equity information available at year end.
– issued 11,000 shares of $2.00 par value common stock for $12.00 per share
– issued 5,000 shares of $50 par value 6% preferred stock for $70 per share
– purchased 1,000 shares of previously issued common stock for $15.00 per share
-reported net income of $200,000
– declared and paid the preferred stock dividend
Calculate the earnings per share for the current year.
20) Given the following account balances for Garrys Tree Service, prepare a trial
balance.
