Prices are rising; profits are higher under this method.
Identify which inventory costing method achieves the effect listed in the following items.
(Choices may be used more than once.)
a. FIFO method c. Average cost method
b. LIFO method d. Specific identification method
Refer to Lakeshore Industries. What is the effect of a 10% stock dividend if the market
price of the common stock is $30 per share when the stock dividend is declared?
Lakeshore Industries
This company reported the following information on its recent balance sheet:
Common stock, $10 par, 100,000 shares authorized, 75,000 shares issued and
outstanding a. A stock dividend has no impact on any of the stockholders’ equity
accounts.
b. Total stockholders’ equity increases $75,000.
c. Cash increases $300,000.
d. $225,000 of retained earnings is transferred to the capital stock accounts.
Checks presented for payment and paid by the bank are known as
a. certified checks.
b. NSF checks.
c. outstanding checks.
d. canceled checks.
During March, Honeybaked Spam purchased supplies for cash. The supplies will be
used in April. What effect does this transaction have on the accounting equation at the
time the supplies are purchased?
a. Assets increase and stockholders’ equity decreases
b. Assets and liabilities increase
c. There is no effect on the accounting equation, as one asset account increases while
another asset account decreases.
d. There is no effect on the accounting equation, as the transaction should not be
recognized until April.
Depreciation is a process by which
a. replacement funds are accumulated for plant and equipment.
b. the decline in market value of plant and equipment is determined and recorded.
c. the cost of plant and equipment is allocated to expense over the time periods which
benefit from the use of the asset.
d. the difference between current market value and historical cost of plant and
equipment.
Several transactions are listed below, with the accounting equation stated to the right
side of each. Use the following identification codes to indicate the effects of each
transaction on the accounting equation: I = Increase; D = Decrease; NE = No Effect.
Write your answers in the space provided under the accounting equation, being sure to
include an identification code for each element of the accounting equation. An example
is provided before the first transaction.
Cherokee Hills began operations on December 1, 2013, and immediately paid $60,000
for 6 months rent in advance for the period beginning December 1, 2013. The
company’s accounting period ends on December 31, 2013. Indicate how much will be
reported for each of the following accounts on the company’s financial statements for
the period ending December 31, 2013. If the amount reported is zero, indicate so by
writing $0, and explain why zero is the appropriate amount. A) Rent Expense
B) Rent Payable
C) Rent Revenue
D) Prepaid Rent
If the balance on the bank statement does not equal the balance per the company’s
records, then it can be assumed that
a. the company has no errors in its records concerning the cash account.
b. the bank has made errors in preparing the bank statement.
c. the company has made errors in its records concerning the cash account.
d. there will be items reconciling the difference.
It was necessary for an architect to redesign the work space to accommodate the new
equipment. A fee of $6,000 was paid. A construction company purchased a piece of
equipment with a price of $100,000 on March 1, 2013. The amounts are related to the
equipment purchase. Match the items and explain how each item should be accounted
for. (Choices may be used more than once.)
An oil company purchased 10,000 acres of land on January 1, 2011, for $5,000,000, on
which it developed an underground oil site. The company spent $11,000,000 to prepare
the site for operation but believes that 500,000 barrels of oil can be extracted from the
site over 5 years after drilling begins. The land has a residual value of $250,000.
Assuming 50,000 barrels of oil were extracted from the land in 2013, how much
depletion would be recorded?
a. $1,600,000
b. $1,575,000
c. $160,000
d. $157,500
Alco Roofing Company’s beginning accounts receivable were $200,000 and ending
accounts receivable were $270,000. During the period, credit sales totaled $570,000,
How much cash was collected from customers?
a. $470,000
b. $500,000
c. $570,000
d. $640,000
Relationship between dividends and the market price of a company’s stock.
For each of the following sentences, select the phrase or group of words that best
completes the statement.
a. Debt-to-equity ratio
b. Dividend payout ratio
c. Dividend yield ratio
d. Earnings per share
e. Leverage
f. Return on assets ratio
g. Return on common equity ratio
h. Stock repurchase payout
Tail Winds Corporation acquired the following equity securities during 2013:
The company’s investment in these two companies is passive and classified as
available-for-sale. During 2013, TICO paid a dividend of $1.10 per share and Thankful
paid a dividend of $1.75 per share. At December 31, 2013, the market value of these
securities was $79 per share for TICO and $23 per share for Thankful. A) Prepare
journal entries to record the purchase of these two investments and the receipt of
dividends.
B) Calculate the market value of the company’s short-term investment portfolio at
December 31, 2013.
C) Prepare the necessary journal entry at December 31, 2013.
D) How should these investments be disclosed in the company’s December 31, 2013,
financial statements?
In the reconciliation of a bank statement, deposits in transit should be
a. added to the unadjusted balance per the company’s records.
b. subtracted from the unadjusted balance per the company’s records.
c. added to the unadjusted bank statement balance.
d. subtracted from the unadjusted bank statement balance.
A company has current assets of $4,400, current liabilities of $2,750, and long-term
liabilities of $5,500. If the operating cash flow ratio is 1.5, then cash flows from
operating activities must be
a. $4,125.
b. $6,600.
c. $8,250.
d. $12,375.
Refer to Rhodes Bakery. Prepare a common size balance sheet to be used in vertical
analysis.
Rhodes Bakery
The balance sheet taken from the company’s 2015 10-K is provided below:
Agrefeld, Inc. has a return on assets of 12% and a return on common equity of 15%.
What causes the difference in these two returns?
Refer to Goldberg Financials. Should the company record a liability in 2012 for this
litigation? Why or why not?
Goldberg Financials The following footnote accompanied this company’s financial
statements: Note 7 – Litigation On December 2, 2012, the Company was served with a
class action complaint filed in federal court filed in Covington, Kentucky. The
complaint, captioned Bradford Haynes vs. The Company, was filed by a shareholder of
the Company on behalf of himself and other shareholders who purchased the
Company’s common stock during the period of March 31, 2011, through December 31,
2011. The plaintiff alleges that the Company violated federal securities laws by making
untrue statements of material facts and omitting material facts concerning the
Company’s construction and start-up of its new manufacturing facility in Plano, Texas.
Also named as defendants in the complaint are certain officers and directors of the
Company. The Plaintiff is seeking an unspecified amount of monetary damages. While
this action is in its preliminary stages, management believes that the allegations are
without merit and the Company intends to defend the lawsuit vigorously.
The relative cost of issuing debt (interest payments) is often lower than the cost of
issuing equity.
The ____________ basis of accounting recognizes revenue when it is received
regardless of when the revenue is earned.
The more efficiently a company uses its fixed assets the lower will be the fixed asset
turnover ratio.
If a law firm provides services on account for its clients, both ____________________
and retained earnings will increase.
A Purchases account is not needed under a periodic inventory system.