1) The following information is available for Lewis Corporation’s available-for-sale
securities at December 31, 2014 .
Security Cost Fair Value
X$34,000$30,000
Y 24,000 32,000
$58,000$62,000
Instructions
Prepare the adjusting entry to record the securities at fair value at December 31, 2014 .
2) An analysis of the transactions made by Cookie Mountain Legal, a law firm, for the
month of July is shown below. Each increase and decrease in owners equity is
explained.
Accounts AccountsOwners
Cash +Receivable + Supplies + Equipment = Payable +Capital
1> +$15,000 +$15,000 Investment
2> – 2,000 +$5,000 +$3,000
3> – 750 +$750
4> + 2,500 +$6,600 + 9,100 Service Revenue
5>- 1,500 – 1,500
6> – 2,500 – 2,500 Drawings
7> – 750 – 750 Rent Expense
8> + 550 – 550
9> – 4,500
10> – 4,500 Salaries Expense
+ 500 – 500 Utilities Expense
Instructions
Prepare a balance sheet at July 31, 2014 .
3) The income statement of Frank Company is shown below:
FRANK COMPANY
Income Statement
For the Year Ended December 31, 2014
Sales$8,400,000
Cost of goods sold 5,400,000
Gross profit3,000,000
Operating expenses
Selling expenses$500,000
Administrative expense700,000
Depreciation expense90,000
Amortization expense 30,000 1,320,000
Net income$1,680,000
Additional information:
1>Accounts receivable increased $400,000 during the year.
2>Inventory increased $250,000 during the year.
3>Prepaid expenses increased $200,000 during the year.
4>Accounts payable to merchandise suppliers increased $100,000 during the year.
5>Accrued expenses payable increased $160,000 during the year.
Instructions
Prepare the operating activities section of the statement of cash flows for the year ended
December 31, 2014, for Frank Company, using the direct method.
4) Distinguish between the cost and equity methods of accounting for investments in
stocks.
5) The Assembly Department of Mane Company has the following production and cost
data at the end of May, 2014 .
Production:25,000 units started into production; 20,000 units transferred out and 5,000
units 100% completed as to materials and 40% completed as to conversion costs.
Manufacturing Costs:Materials added at beginning of process, $100,000; labor,
$72,000; overhead $60,000.
Instructions
Prepare a production cost report for the month of May.
6) When three or more accounts are required in one journal entry, the entry is referred
to as a ________________ entry.
7) Penzel Company reported actual sales of $1,950,000, and fixed costs of $510,000.
The contribution margin ratio is 30%.
Instructions
Compute the margin of safety in dollars and the margin of safety ratio.
8) Mountain Lumber Corporation uses a machine that removes the bark from cut
timber. The machine is unreliable, resulting in significant downtime and wasted labor
costs. Management is considering replacing the machine with a more efficient one
which will minimize downtime and excessive labor costs. Data are presented below for
the two machines:
Old MachineNew Machine
Original purchase cost$325,000$405,000
Accumulated depreciation230,000
Estimated life4 years4 years
It is estimated that the new machine will produce annual cost savings of $107,000. The
old machine can be sold to a scrap dealer for $12,000. Both machines will have a
salvage value of zero if operated for the remainder of their useful lives.
Instructions
Determine whether the company should purchase the new machine.