Each account has a normal balance. For the following list of accounts, indicate whether
the normal balance of each is a debit or a credit.
a.Debit
b.Credit
Bonds Payable
The data presented below is for Mellon Corporation for the year ended December 31,
2015:
Allowance for Doubtful Accounts [Credit Balance]
(Before adjustment at December 31, 2015) 3,000
Estimated amount of uncollectible accounts based on an aging analysis 31,000
Refer to the data for Mellon Corporation.
If Mellon uses the aging of accounts receivable approach to estimate its bad debts, what
amount will be reported as bad debt expense for 2015?
a. $28,000
b. $31,000
c. $34,000
d. $50,000
Match the following bond and long-term liability related terms to the appropriate
definition.
a.Long-term liability
b.Face value
c.Debenture bonds
d.Serial bonds
e.Callable bonds
f.Face rate of interest
g.Market rate of interest
h.Bond issue price
i.Premium
j.Discount
k.Effective interest method of amortization
l.Carrying value
m.Gain or loss on redemption
Bonds that may be redeemed or retired before their specified due date.
Choose from the following list of account titles the one that most accurately fits the
description of that account or is an example of that account. An account title may be
used more than once or not at all.
a.Cash
b.Prepaid Asset
c.Investments
d.Taxes Payable
e.Preferred Stock
f.Accounts Receivable
g.Land
h.Accounts Payable
i.Retained Earnings
j.Notes Receivable
k.Buildings
l.Notes Payable
m.Common Stock
A warehouse used to store equipment
Answer each of the following questions (a-c) with a separate short paragraph per
question.
(a)What is the difference between a real account and a nominal account? Give an
example of each type of account. Why is this distinction important for the closing
process?
(b)What two purposes are served in making closing entries?
(c)Why is the Dividends account closed directly to Retained Earnings rather than to the
Income Summary account?
The solution to this problem requires time value of money calculations. Reference to
Tables 9-1 through 9-4 in the text is necessary to complete the calculations.
A company will have to pay a $50,000 liability in 4 years. How much must be
deposited now into a bank account earning 8% compounded semiannually to fully fund
the future payment?
a. $35,500
b. $36,550
c. $36,523
d. $34,000
Refer to the trial balance for Tracy, Inc.
On July 31, the amount of supplies on hand is $520. What amount is reported in the
July income statement for supplies expense?
a.$520
b.$1,400
c.$1,920
d. $880
Select the term below most properly satisfies each statement.
a.Total assets
b.Horizontal analysis
c.Vertical analysis
d.Net sales
When using vertical analysis, accounts on the balance sheet should be stated as a
percentage of this amount
Assuming the indirect method for preparing the statement of cash flows is used,
indicate whether these items should be added to net income (A), deducted from net
income (D), or not be reported in the operating section of the statement under the
indirect method (NR).
a.Added (A)
b.Deducted (D)
c.Not reported (NR)
Purchase of new factory equipment
Super Clean operates an automatic car wash business, The Ultimate Shine. The
following amounts were taken from the company’s unadjusted trial balance at
December 31, 2014:
Determine the effect on the accounting equation of any adjusting entries necessary at
December 31, 2014, for each of the transactions that follow.
A)The rent collected in advance represents rent for the period December 1, 2014
through January 31, 2015.
B)In addition to the wages paid during the year, employees have not been paid for the
last week of December which amounts to $900.
Match each of the following terms pertaining to liabilities to their definitions.
a.Current liability
b.Accounts payable
c.Notes payable
d.Discount on notes payable
e.Current maturities of long-term liabilities
f.Accrued liabilities
g.Contingent liability
h.Estimated liability
Accounts that will be satisfied within one year or the next operating cycle.
Match the action with the category of internal control procedures
a.One department should check on another
b.Internal audit staff ensure all is working as intended
c.Accounting and cash collection is properly separated
d.Blank checks are locked at all times when not in use
e.Origination of initial entry into accounting system
f.Specific authority is given by management for the performance of activities.
Segregation of duties
Select the term from the list below that matches each of the following six descriptions.
a.Interest
b.Maturity value
c.Principal
d.Payee
e.Discounting
f.Term
g.Recourse
h.Implicit
i.Maker
The length of time a note is outstanding — the period of time between the date it is
issued and the date it matures
For each of the following items, indicate whether each would be treated as a
a.capital expenditure
b.revenue expenditure
Costs incurred after putting the asset into service which would extend the asset’s useful
life
Each account has a normal balance. For the following list of accounts, indicate whether
the normal balance of each is a debit or a credit.
a.Debit
b.Credit
Investments
Match the inventory-related accounts to costs that may be included in inventories for
retailers and manufacturers.
a.Merchandise Inventory
b.Raw Materials
c.Work in Process
d.Finished Goods
e.Cost of Goods Sold
Cost of completed, but unsold items.
A bank loaned York Construction Company $35,000 on a 1-year, 6% note, but deducted
the interest in advance.
The transaction recorded on York’s books for the receipt of the cash would include an
a.decrease in Notes Payable for $32,900.
b.increase in Interest Revenue for $2,100.
c.increase in Discount on Notes Payable for $2,100.
d.increase in Cash for $35,000.
Bartlett Industries began operations on January 2, 2015, with an investment of $50,000
by each of its two stockholders. Net income for its first year of business was $240,000.
Bartlett Industries paid a total of $100,000 in dividends to its stockholders during the
year.
Read the information about Bartlett Industries. The company’s dividends for the year:
a.reduce the amount of capital stock reported by the company.
b.are part of Bartlett Industries’ operating costs.
c.are reported on the statement of retained earnings.
d.are an expense of Bartlett Industries.
Each account has a normal balance. For the following list of accounts, indicate whether
the normal balance of each is a debit or a credit.
a.Debit
b.Credit
Wages and Salaries Expense
Given below are several ratios. Select the accounts or amounts that would be used in
order to calculate the ratio. You will have more than one response to each ratio. Some
accounts or amounts may not be used at all. (Select all that apply.)
Debt-to-equity ratio
a.Total liabilities
b.Total stockholders’ equity
c.Net income
d.Interest expense
e.Cash flow from operations before interest and tax payments
f.Cash paid for acquisitions
g.Cash flow from operations
h.Total dividends paid
How much discount may Mallory Inc. take in each of the following transactions? What
was the annualized interest rate?
Craft Corp. began operations on January 1, 2015. The statement of cash flows for the
first year reported dividends paid of $160,000. The balance sheet at the end of the first
year reported $40,000 in dividends payable and $580,000 in ending retained earnings.
Determine Craft’s net income for its first year of operations.
On its most recent statement of cash flows, a company reported net cash provided by
operating activities of
$29,000,000. Its capital expenditures for the same year were $5,000,000. A note to the
financial statements indicated that the total amount of debt that would mature over the
next eight years was $96,000,000.
REQUIRED:
1) Compute the company’s cash flow adequacy ratio.
2) If you were a banker considering loaning money to this company, why would you be
interested in knowing its cash flow adequacy ratio? Would you feel comfortable making
a loan based on the ratio you computed in part (1)? Explain your answer.
Fairleigh Industries invested its excess cash in the following instruments during
December 2015:
Determine the amount of cash equivalents that should be combined with cash on the
company’s balance sheet at December 31, 2015, and for purposes of preparing a
statement of cash flows for the year ended December 31, 2015.
For each of the following sentences 133-140, select the word or group of words that
best completes the statement.
Theof accounting is a system in which revenues are recognized when payments are
received and expenses are recognized when payments are made.
Bagel Inc. reported net income of $105,000 for the year ended December 31, 2014. The
following items were
included on Bagel’s balance sheets at December 31, 2014 and 2013:
Bagel uses the indirect method to prepare its statement of cash flows. Bagel does not
have any other current assets or current liabilities and did not enter into any investing or
financing activities during 2014.
REQUIRED:
1> Prepare Bagel’s 2014 statement of cash flows.
2> Draft a brief memo to the owner to explain why cash decreased during a profitable
year.
Frannie’s Dance Studio accounting records reflect the following account balances at
January 1, 2015.
During 2015, the following transactions occurred:
1)On February 1, rented a small studio for a one year period of time. Paid $6,000 cash.
2)On November 1, received $1,200 cash for dance lessons to be provided evenly over
November, December, and January.
3)By December 31, used $3,000 of the supplies
4)At December 31, accrued $3,000 in wages and salaries.
5)During the year, paid cash for $20,000 in wages and salaries
6)During the year, earned $40,000 cash in dance lesson revenue.
The following data is available for one of the products sold by Learning Tree, Inc.,
which uses the perpetual
inventory system:
Refer to the data for Learning Tree, Inc.
If the moving average method is used, what is the amount assigned to the ending
inventory on May 30?
If a company overstates its ending inventory balance for 2015 by $10,000, and
understates its ending inventory balance for 2014 by $5,000 what are the effects on its
net income for 2015 and 2014?