1) Paul and Peggy’s company is organized as a partnership. At the prior year-end, Paul’s
equity balance was $352,000 and Peggy’s was $256,000. For the current year,
partnership net income is $137,000 ($77,000 allocated to Paul and $60,000 allocated to
Peggy); withdrawals are $87,000 ($45,000 for Paul and $42,000 for Peggy). Compute
the total partnership return on equity and the individual partner return on equity ratios.
2) Briefly describe the process of activity-based costing.
3) Explain how the cash flows from operating activities section of the statement of cash
flows is prepared using the direct method.
4) A _________________ cost contains a combination of fixed and variable costs.
5) For each of the following (1) identify the type of account as an asset, liability, equity,
revenue, or expense, and (2) identify the normal balance of the account.
6) Prepare general journal entries for the following transactions of this company for the
current year:
7) A company sells its product subject to a warranty that covers the cost of parts for
repairs during the six months after the date of sale. Warranty costs are estimated to be
6% of sales. During the month of June, the company performed warranty work and
used $12,000 of parts to perform the warranty work. Sales for June were $450,000.
1> Record the warranty expense for the month of June.
2> Record the costs of the warranty work completed in June.
3> If the Estimated Warranty Liability account had a credit balance of $10,000 on May
31, what is the account balance at June 30?
8) Inventory shrinkage can be computed by comparing the ___________ of inventory
with recorded quantities and amounts.
9) Explain how accounts are used in recording information about transactions.
10) How are partners’ investments in a partnership recorded?