On March 31, 2015, $6,000,000 of 6%, 10-year bonds payable, dated December 31,
2014, are issued. Interest on the bonds is payable semiannually each June 30 and
December 31. The total amount received (including accrued interest) by the issuing
corporation is $6,072,000. Which of the following is correct?
a. The bonds were issued at a premium.
b. The amount of cash paid to bondholders on the next interest date, June 30, 2015, is
$360,000.
c. The amount of cash paid to bondholders on the next interest date, June 30, 2015, is
$60,000.
d. The bonds were issued at a discount.
Answer:
Ron’s Quik Shop bought machinery for $75,000 on January 1, 2014. Ron estimated the
useful life to be 5 years with no salvage value, and the straight-line method of
depreciation will be used. On January 1, 2015, Ron decides that the business will use
the machinery for a total of 6 years. What is the revised depreciation expense for 2015?
a. $12,000
b. $ 6,000
c. $10,000
d $15,000
Answer:
Kahn Mining Company purchased a mine for $60 million which is estimated to have
250,000 tons of ore and a salvage value of $10 million.
(a) In the first year, 50,000 tons of ore are extracted and sold. Prepare the journal entry
to record depletion expense for the first year.
(b) In the second year, 150,000 tons of ore are extracted but only 125,000 tons are sold.
Prepare the journal entry to record depletion expense for the second year.
(c) What amount and in what account are the tons of ore not sold reported?
Answer:
The effective federal unemployment tax rate is usually
a. 6.2%.
b. 0.8%.
c. 5.4%.
d. 8.0%.
Answer:
If bonds are issued at a discount, it means that the
a. financial strength of the issuer is suspect.
b. market interest rate is higher than the contractual interest rate.
c. market interest rate is lower than the contractual interest rate.
d. bondholder will receive effectively less interest than the contractual interest rate.
Answer:
The bookkeeper for Panda Bear Yard Service made a number of errors in journalizing
and posting as described below:
1> A debit posting to accounts receivable for $500 was omitted.
2> A payment of accounts payable for $600 was credited to cash and debited to
accounts receivable.
3> A credit to accounts receivable for $950 was posted as $95.
4> A cash purchase of equipment for $893 was journalized as a debit to equipment and
a credit to notes payable. The credit posting was made for $839 while the debit posting
was made for $893.
5> A debit posting of $400 for purchase of supplies was credited to supplies.
6> A debit to maintenance and repairs expense for $451 was posted as $415.
7> A debit posting for salaries and wages expense for $900 was made twice.
8> A cash purchase of supplies for $700 was journalized and posted as a debit to
supplies for $70 and a credit to cash for $70.
Instructions
For each error, indicate (a) whether the trial balance will balance; if the trial balance
will not balance, indicate (b) the amount of the difference, and (c) the trial balance
column that will have the larger total. Consider each error separately. Use the following
form, in which error (1) is given as an example.
Answer:
The ledger of Maxx Company at the end of the current year shown Accounts
Receivable $170,000, Sales $1,200,000, and Sales Returns and Allowances $50,000.
Instructions
(a) If Maxx uses the direct write-off method to account for uncollectible account,
journalize the adjusting entry at December 31, assuming Maxx determines that Barkley
Company’s $2,400 balance is uncollectible.
(b) If allowance for Doubtful account has a credit balance of 3,500 in the trial balance,
journalize the adjusting entry at December 31, assuming bad debts are expected to be
(1) 1% of net sales, and (2) 10% of account receivable.
(c) If allowance for Doubtful Accounts has a debit balance of $370 in the trial balance,
journalize the adjusting entry at December 31, assuming bad debts are expected to be
(1) 0.75% of net sales and (2) 6% of accounts receivable.
Answer:
Adams Corporation issues a $9,000,000, 5%, 20-year mortgage note payable on
December 31, 2015, to obtain needed financing for the construction of a building
addition. The terms provide for semiannual installment payments of $289,409 on June
30 and December 3
Instructions
(a) Prepare the journal entries to record the mortgage loan on December 31, 2015, and
the first installment payment.
(b) Will the amount of principal reduction in the second installment payment be more or
less than with the first installment payment?
Answer:
Which of the following statements concerning receivables is incorrect?
a. Notes receivable are often listed last under receivables.
b. The contingent liability from selling notes receivable should be disclosed.
c. Both the gross amount of receivables and the allowance for doubtful accounts should
be reported.
d. Interest revenue and gain on sale of notes receivable are shown under other revenues
and gains.
Answer:
If an investor owns less than 20% of the common stock of another corporation as a
long-term investment,
a. the equity method of accounting for the investment should be employed.
b. no dividends can be expected.
c. it is presumed that the investor has relatively little influence on the investee.
d. it is presumed that the investor has significant influence on the investee.
Answer:
Under accrual-basis accounting
a. cash must be received before revenue is recognized.
b. net income is calculated by matching cash outflows against cash inflows.
c. events that change a company’s financial statements are recognized in the period they
occur rather than in the period in which cash is paid or received.
d. the ledger accounts must be adjusted to reflect a cash basis of accounting before
financial statements are prepared under generally accepted accounting principles.
Answer:
A current liability is a debt the company reasonably expects to pay from existing
current assets within
a. one year.
b. the operating cycle.
c. one year or the operating cycle, whichever is longer.
d. one year or the operating cycle, whichever is shorter.
Answer:
Darling Corporation issued 200,000 shares of $20 par value, cumulative, 5% preferred
stock on January 1, 2013, for $4,500,000. In December 2015, Darling declared its first
dividend of $800,000.
Instructions
(a) Prepare Darling’s journal entry to record the issuance of the preferred stock.
(b) If the preferred stock is not cumulative, how much of the $800,000 would be paid to
common stockholders?
(c) If the preferred stock is cumulative, how much of the $800,000 would be paid to
common stockholders?
Answer:
Bacon Corporation began business by issuing 180,000 shares of $5 par value common
stock for $25 per share. During its first year, the corporation sustained a net loss of
$30,000. The year-end balance sheet would show
a. Common stock of $900,000.
b. Common stock of $4,500,000.
c. Total paid-in capital of $4,470,000.
d. Total paid-in capital of $930,000.
Answer:
On January 1, 2015, Hunt Company purchased 30,000 shares of the 100,000 common
shares outstanding of Agler Company for $2,700,000. During 2015, Agler Company
reported net income of $600,000 and paid a cash dividend of $275,000. The balance of
the Stock Investments account on the books of Hunt Company on December 31, 2015,
is
a. $2,797,500.
b. $2,617,500.
c. $2,880,000.
d. $2,700,000.
Answer:
Understating beginning inventory will understate
a. assets.
b. cost of goods sold.
c. net income.
d. stockholder’s equity.
Answer:
Barsuk Company began the year with stockholders’ equity of $108,000. During the
year, Barsuk issued stock for $147,000, recorded expenses of $420,000, and paid
dividends of $28,000. If Barsuk’s ending stockholders’ equity was $290,000, what was
the company’s revenue for the year?
a. $455,000.
b. $483,000.
c. $602,000.
d. $630,000.
Answer:
Which of the following adjustments to convert net income to net cash provided by
operating activities is not added to net income?
a. Gain on Sale of Equipment
b. Depreciation Expense
c. Patent Amortization Expense
d. Depletion Expense
Answer:
A $600,000 bond was retired at 98 when the carrying value of the bond was $590,000.
The entry to record the retirement would include a
a. gain on bond redemption of $10,000.
b. loss on bond redemption of $10,000.
c. loss on bond redemption of $2,000.
d. gain on bond redemption of $2,000.
Answer:
At October 1, Arcade Fire Enterprises reported stockholders’ equity of $70,000. During
October, common stock of $10,000 was issued and the company posted a net loss of
$4,000. If stockholders’ equity at October 31 totals $70,000, what amount of dividends
were paid during the month?
a. $0
b. $4,000
c. $6,000
d. $10,000
Answer:
When authorizing bonds to be issued, the board of directors does not specify the
a. total number of bonds authorized to be sold.
b. contractual interest rate.
c. selling price.
d. total face value of the bonds.
Answer:
Darman Company issued 700 shares of no-par common stock for $7,700. Which of the
following journal entries would be made if the stock has a stated value of $2 per share?
Answer:
The hiring of a new company president is an economic event recorded by the financial
information system.
Answer:
On January 1, 2015, Lost Corporation issued $900,000, 8%, 10-year bonds at face
value. Interest is payable semiannually on July 1 and January Lost Corporation has a
calendar year end.
Instructions
Prepare all entries related to the bond issue for 2015.
Answer:
Merchandisers apply the revenue recognition principle by recognizing sales revenues
when the performance obligation is satisfied.
Answer:
The following cases are independent and relate to short-term notes payable. Principal
and interest are to be paid at maturity in all cases. Fill in the missing items in the table
below. If no number is required, enter zero. Items marked XXXX need not be
computed.
Answer:
Correcting entries are made any time an error is discovered even though it may not be
at the end of an accounting period.
Answer:
The Accumulated Depreciation account represents a cash fund available to replace plant
assets.
Answer:
Use of the LIFO inventory valuation method enables a company to report paper or
phantom profits.
Answer:
A merchandising company using a perpetual inventory system will usually need to
make an adjusting entry to ensure that the recorded inventory agrees with physical
inventory count.
Answer: