Oregon Company provided the following income statement for 2014 and 2015:
Required:
(a) Perform vertical analysis on Oregon’s income statements for 2014 and 2015.
(b) Comment on the results, comparing 2014 to 2015.
Phipps Corporation overstated its ending inventory on December 31, 2015. Which of
the following answers correctly identifies the effect of the error on 2016 financial
statements?
A.Cost of goods sold is overstated.
B.Gross margin overstated.
C.Ending inventory is understated.
D.Net income is overstated.
Which of the following statements about specific ratios is incorrect?
A. The net margin ratio is a profitability ratio.
B. The current ratio is a liquidity ratio.
C. The debt to assets ratio is a liquidity ratio.
D. The dividend yield is a stock market ratio.
On January 1, 2016, Phoenix Corporation purchased a delivery truck for $45,000. The
estimated useful life of the truck is 5 years, with an estimated salvage value of $9,000.
The truck is expected to be driven 200,000 miles during its useful life.
a) If Phoenix uses double-declining balance depreciation, what is the amount of
depreciation for 2017? What is the balance of the accumulated depreciation account at
the end of 2017?
b) Refer to part a. Assume Phoenix used double-declining balance depreciation and sold
the truck at the beginning of 2018 for $18,000. What is the amount of the gain or loss
on the sale of the delivery van?
c) Prepare the journal entry to record the sale in part (b).
d) Assume that Phoenix used units-of-production depreciation instead. The delivery van
was driven 50,000 miles the first year and 40,000 miles the second year. What is the
amount of depreciation expense for 2016 and for 2017? What is the book value of the
van at the end of 2017?
Franklin Corporation reported net income of $75,000 in 2016. The company had
100,000 shares of $12 par value common stock outstanding and a market price of $18
per share. Franklin’s price-earnings ratio was
A.2.4:1
B.24:1
C.16.6:1
D.1.5:1
The transaction, “provided services for cash,” affects which two accounts?
A.Revenue and Expense
B.Cash and Revenue
C.Cash and Expense
D.Cash and Dividends
Beta Company provided the following balance sheet:
What is the company’s plant assets to long-term liabilities ratio?
A.1.8
B.2.2
C.3.4
D.None of these answer choices are correct.
Record each of the following events in the horizontal statements model. After each
event, record the corresponding December 31 end-of-year adjustment that would be
necessary. Precede the amount with a minus sign if the transaction reduces that section
of the equation. Precede a cash outflow amount with a minus sign. Enter 0 for items not
affected.
a) Paid $36,000 for a 1-year lease beginning April 1.
b) Paid $3,000 to purchase supplies. At year end, $1,080 of supplies remained.
c) Received a $48,000 cash advance for a 6-month contract beginning on Sept. 1.
On April 1, 2016, Fossil Energy Company purchased an oil producing well at a cash
cost of $12,000,000. It is estimated that the oil well contains 600,000 barrels of oil, of
which only 500,000 can be profitably extracted. By December 31, 2016, 25,000 barrels
of oil were produced and sold. The amount of depletion expense for 2016 on this well
would be:
A.$800,000.
B.$600,000.
C.$480,000.
D.$500,000.
Fieldstone Company was founded on January 1, 2015. During 2015, the company
experienced the following events:
1) Received cash revenue of $25,500
2) Paid cash expenses of $20,000
3) Issued common stock for $30,000 cash
4) Paid cash dividend of $2,000 to owners.
Required:
a) Write an accounting equation and record effects of each accounting event under
appropriate general ledger account headings, showing dollar amounts of increases and
decreases and totals at the end of the year. Precede the amount with a minus sign if the
transaction reduces that section of the equation. Enter 0 for items not affected.
b) Prepare the 2015 income statement and balance sheet for Fieldstone Company.
Diaz Company’s first year in operation was 2016. For 2016, its cost of goods sold using
FIFO was $240,000, and its ending inventory was $58,400. If Diaz had used the LIFO
cost flow method, its ending inventory would have been $56,000.
Required: a) What would the cost of goods sold have been with LIFO?
b) Based on this information, was 2016 a period of rising prices or falling prices?
Which of the following ratios would be most useful in evaluating a company’s
performance from the owners’ perspective?
A.Return on assets ratio.
B.Debt to assets ratio.
C.Return on equity ratio.
D.Either the debt to assets ratio or the return on equity ratio.
The accounting records of the Harris and Schubert Companies contained the following
account balances:
Select the true statement from the following options:
A.Schubert Company is likely to incur less credit costs than Harris Company.
B.The company with the higher turnover ratio will also have the longer average number
of days to collect accounts receivable.
C.The accounts receivable for Schubert Company turns over 6 times each year.
D.The average number of days to collect accounts receivable for Harris is 73 days.
Maggie Stern started a consulting business, Stern Consulting, on January 1, 2016 by
issuing $9,000 of common stock. In addition, the following events occurred in 2016.
Provided services on account, $27,500.
Paid cash for $13,500 in operating expenses.
Collected $11,000 of the revenue that was previously recorded on account.
Paid a cash dividend of $5,000 to the stockholders.
Required:
a) Show the effects of the above transactions on the accounting equation. Precede the
amount with a minus sign if the transaction reduces that section of the equation. Enter 0
for items not affected.
b) Prepare an income statement and statement of cash flows for 2016.Precede a cash
outflow amount with a minus sign.
Lowenthal Company had a current ratio of 3.2:1 at the end of 2015. The asset section of
the company’s balance sheet is provided below:
Required:
1) Compute Lowenthal Company’s end-of-year working capital.
2) Compute the company’s quick (acid-test) ratio.
3) The company has a debt agreement with its bank that authorizes the bank to call in
its loan to the company if the company’s current ratio falls below 3:1 as of the last day
of any month during the term of the loan. During January 2015, the company engaged
in the three following transactions:
(a) Collected $100,000 on account;
(b) Purchased inventory on account, $50,000
(c) Paid accounts payable, $60,000
Will the company be in default after completing all three of these transactions? Justify
your answer.
On September 30, 2016, the bank statement of Fine Company showed a balance of
$7,800. The following information was revealed by comparing the bank statement to
the cash balance in Fine’s accounting records:
(1) deposits in transit amounted to $3,150
(2) outstanding checks amounted to $6,200
(3) a $550 check was incorrectly drawn on Fine’s account
(4) NSF checks returned by the bank were $750
(5) bank service charge was $29
(6) credit memo for $75 for the collection of one of the company’s account receivable
Based on the above information the true cash balance was:
A.$5,346.
B.$5,300.
C.$4,596.
D.$7,096.
Given that longer inventory holding periods act to increase expenses, which of the three
companies would be expected to have the lowest inventory holding cost?
A.All three companies have equal holding costs
B.Company X
C.Company Y
D.Company Z
Garrett Corporation had sales of $6,000,000, cost of sales of $4,200,000, and average
inventory of $900,000. Garrett’s inventory turnover ratio for the period is closest to:
A. 4.7 times
B. 2.0 times
C. 6.7 times
D. .15 times
When using the gross margin method to estimate inventory, which of the following is a
step in the computation?
A.Add the amount goods available for sale to estimated cost of goods sold.
B.Add estimated gross margin to sales.
C.Subtract estimated goods available for sale from beginning inventory.
D.Subtract estimated cost of goods sold from the amount of goods available for sale.
Which of the following describes the effects of a claims exchange transaction on a
company’s financial statements?
A.
B.
C.
D.
The Pierce Corporation, a U.S. business, is a direct competitor of the Zeiss Company, a
German firm. The two firms not only compete for customers, but also for investment
capital. In 2016, each company spent about $35,000 U.S. dollars or the equivalent on
research and development. U.S. GAAP requires the entire amount to be expensed, while
Germany requires its businesses to record R&D expenditures as an asset and then to
expense it over its useful life. Assuming the treatment of R&D is the only difference
between the two firms, which of the following is correct?
A.Pierce will have higher total assets than Zeiss in 2016.
B.Pierce will have a higher debt-to-assets ratio than Zeiss in 2016.
C.Zeiss will have a lower net income for 2016.
D.This difference in accounting principles does not affect the total amount of assets
reported by the two companies.
At the end of 2016 the following information is available for Grumpy, Happy, and Doc
Companies.
Which company has the highest return on assets?
A.Grumpy
B.Happy
C.Doc
D.They all have equal return on assets.
Classify each of the following transactions for the purpose of the statement of cash
flows as operating activities (OA), investing activities (IA), financing activities (FA), or
not reported on the statement of cash flows (NA).
1) _____Collected accounts receivable
2) _____Made adjusting entry to accrue salary expense at the end of the year
3) _____Borrowed funds from the bank
4) _____Paid rent for the month
5) _____Paid cash to settle accounts payable
6) _____Issued common stock for $30,000 cash
7) _____Paid cash to acquire land
Franklin Company obtained an $160,000 line of credit from the State Bank on January
1, 2016. The company agreed to accept a variable interest rate that was set at 2% above
the bank’s prime lending rate. The bank’s prime rate of interest and the amounts
borrowed or repaid during the first three months of 2016 are shown in the following
table. Assume that Franklin borrows or repays on the first day of each month.
Borrowing is shown as a positive amount and repayments are shown as negative
amounts indicated by parentheses.
Based on this information alone, the amount of interest expense recognized in March
would be closest to:
A.$232.
B.$262.
C.$292.
D.$408.
Chow Company earned $1,500 of cash revenue, paid $1,200 for cash expenses, and
paid a $200 cash dividend to its owners. Which of the following statements is true?
A.The net cash inflow from operating activities was $100.
B.The net cash outflow for investing activities was $200.
C.The net cash inflow from operating activities was $300.
D.The net cash outflow for investing activities was $100.
On January 1, 2016 Boothe Company paid $12,000 cash to extend the useful life of a
machine. Which of the following general journal entries would be required to recognize
this expenditure?
A.
B.
C.
D.
Use the following information to prepare an income statement for Penelope Company
for the period ending December 31, 2015. All transactions were for cash. Precede the
amount with a minus sign if the transaction reduces that section of the income
statement.
A) Received revenue from services provided to customers, $30,500.
B) Paid $19,000 cash for land.
C) Issued $16,000 of common stock.
D) Paid dividends to stockholders, $3,000.
E) Paid operating expenses, $25,400.
The following transactions apply to the Garber Corporation for 2015, its first year in
business.
1) Issued stock to investors, $48,000.
2) The company borrowed $42,000 cash from the bank.
3) Services were provided to customers and $50,000 cash was received.
4) The company acquired land for $44,000.
5) The company paid $34,000 rent for the building where it does its business.
6) The company paid $3,200 for supplies that were used during the period.
7) The company sold the land acquired in item 5 for $44,000.
8) A dividend of $1,000 was paid to the owners.
9) Repaid $20,000 of the loan described in item 2.
Required:
a. Prepare an income statement, statement of changes in equity, and balance sheet for
2015. Precede the amount with a minus sign if the transaction reduces that section of
the financial statement.
b. Prepare a statement of cash flows for 2015.
How does the amortization of the principal balance on an installment note payable
affect the amount of interest expense recorded each succeeding year?
A.Reduces the amount of interest expense each year
B.Increase the amount of interest expense each year
C.Has no effect on interest expense each year
D.Cannot be determined from the information provided
Napoli Industries had net income for the year 2016 of $650,000. Napoli had an average
number of shares outstanding at the end of the year of 500,000 shares. The market price
of Napoli’s stock on January 1, 2016 was $20 per share. On December 31, 2016, the
market price was $22 per share. The price-earnings ratio for Napoli at year end is
closest to:
A.16.9
B.16.2
C.15.4
D.None of these answer choices are correct
The following balance sheet information is provided for Amarillo Company:
Assume 2015 cost of goods sold is $665,000. The company’s average days to sell
inventory ?
A.24 days
B.30 days
C.14 days
D.None of these answer choices is correct.