Sandra Sikes sells exercise machines for home use. The machines carry a 2-year
warranty. Past experience indicates that 5% of the units sold will be returned during the
warranty period for repairs. The average cost of repairs under warranty is $40 for labor
and $50 for parts per unit. During 2015, 3,000 exercise machines were sold at an
average price of $800. During the year, 95 of the machines that were sold were repaired
at the average price per unit.
Instructions
(a) Prepare the journal entry to record the repairs made under warranty.
(b) Prepare the journal entry to record the estimated warranty expense for the year.
Answer:
Which of the following is a constraint in accounting?
a. Comparability.
b. Cost.
c. Consistency.
d. Relevance.
Answer:
The preparation of consolidated financial statements is useful to
a. only the subsidiary company.
b. creditors of the subsidiary company.
c. only the parent company.
d. both the parent and the subsidiary company.
Answer:
If an adjusting entry is not made for an accrued revenue,
a. assets will be overstated.
b. expenses will be understated.
c. stockholders’ equity will be understated.
d. revenues will be overstated.
Answer:
A change in the estimated useful life of equipment requires
a. a retroactive change in the amount of periodic depreciation recognized in previous
years.
b. that no change be made in the periodic depreciation so that depreciation amounts are
comparable over the life of the asset.
c. that the amount of periodic depreciation be changed in the current year and in future
years.
d. that income for the current year be increased.
Answer:
A corporation recognizes a gain or loss
a. only when bonds are converted into common stock.
b. only when bonds are redeemed before maturity.
c. when bonds are redeemed at or before maturity.
d. when bonds are converted into common stock and when they are redeemed before
maturity.
Answer:
The following information is available for Oakland Company:
The accounts receivable turnover ratio for 2015 is
a. 1.4 times.
b. 6.2 times.
c. 6.0 times.
d. 5.8 times.
Answer:
Days in inventory is calculated by dividing
a. the inventory turnover by 365 days.
b. average inventory by 365 days.
c. 365 days by the inventory turnover.
d. 365 days by average inventory.
Answer:
Identify which of the following items would be reported as additions (A) or deductions
(D) in a Retained Earnings Statement.
1> Net Income
2> Net Loss
3> Cash Dividends
4> Stock Dividends
5> Prior period adjustments to correct for overstatement of prior years’ net income
6> Prior period adjustments to correct for understatement of prior years’ net income
Answer:
The following data is available for Blaine Corporation at December 31, 2015:
Common stock, par $10 (authorized 30,000 shares) $250,000
Treasury Stock (at cost $15 per share) $ 900
Based on the data, how many shares of common stock have been issued?
a. 30,000
b. 25,000
c. 29,940
d. 24,940
Answer:
Larson Supply bought equipment at a cost of $72,000 on January 2, 2012. It originally
had an estimated life of ten years and a salvage value of $12,000. Larson uses the
straight-line depreciation method. On December 31, 2015, Larson decided the useful
life likely would end on December 31, 2019, with a salvage value of $6,000. The
depreciation expense recorded on December 31, 2015, should be
a. $6,000.
b. $6,600.
c. $9,600.
d. $13,200.
Answer:
Proper control for over-the-counter cash receipts includes
a. a cash register with totals visible to the customer.
b. using electronic cash registers with no tapes.
c. cash count sheets requiring only the supervisor’s signature.
d. cash count sheets requiring only the cashier’s signature.
Answer:
Financial information that is capable of making a difference in a decision is
a. faithfully representative.
b. relevant.
c. convergent.
d. generally accepted.
Answer:
If common stock is issued for an amount greater than par value, the excess should be
credited to
a. Cash.
b. Retained Earnings.
c. Paid-in Capital in Excess of Par.
d. Legal Capital.
Answer:
In a recent year Joey Corporation had net income of $150,000, interest expense of
$40,000, and tax expense of $20,000. What was Joey Corporation’s times interest
earned for the year?
a. 5.25
b. 4.75
c. 3.75
d. 4.25
Answer:
One major purpose of the statement of cash flows is to provide information about
a. the firm’s profitability.
b. the firm’s cash receipts and payments during a period.
c. the firm’s resources and claims against those resources.
d. changes in retained earnings.
Answer:
Eneri Company’s inventory records show the following data:
A physical inventory on December 31 shows 4,000 units on hand. Eneri sells the units
for $13 each. The company has an effective tax rate of 20%. Eneri uses the periodic
inventory method. The weighted-average cost per unit is
a. $8.00.
b. $8.01.
c. $8.24.
d. $9.30.
Answer:
Turnbull Department Store had net credit sales of $18,000,000 and cost of goods sold of
$15,000,000 for the year. The average inventory for the year amounted to $2,500,000.
Inventory turnover for the year is
a. 7.2 times.
b. 15 times.
c. 6 times.
d. 1.5 times.
Answer:
On October 4, 2015, JT Corporation had credit sales transactions of $4,000 from
merchandise having cost $2,400. The entries to record the day’s credit transactions
include a
a. debit of $4,000 to Inventory.
b. credit of $4,000 to Sales Revenue.
c. debit of $2,400 to Inventory.
d. credit of $2,400 to Cost of Goods Sold.
Answer:
Pension funds and mutual funds regularly invest in debt and stock securities to
a. generate earnings.
b. house excess cash until needed.
c. meet strategic goals.
d. control the company in which they invest.
Answer:
On January 1, 2015, Petersen Enterprises purchased natural resources for $1,800,000.
The company expects the resources to produce 12,000,000 units of product. (1) What is
the depletion cost per unit? (2) If the company mined and sold 20,000 units in January,
what is depletion expense for the month?
Answer:
The three accounts shown below appear in the general ledger of Lawson Corp. during
2014.
Instructions
From the postings in the accounts, indicate how the information is reported on a
statement of cash flows using the indirect method. The loss on sale of equipment was
$7,000. (Hint: Cost of equipment constructed is reported in the investing activities
section as a decrease in cash of $56,000.)
Answer:
Current liabilities are obligations that are reasonably expected to be paid from
Answer:
______________ is the process of allocating the cost of a plant asset to expense over its
service life in a rational and systematic manner.
Answer:
Collection of a note receivable will result in a credit to ______________ for the face
value of the note and a credit to ______________.
Answer:
Rae Company uses a perpetual inventory system and made a purchase of merchandise
on credit from Tyree Corporation on August 3, for $9,000, terms 2/10, n/45. On August
10, Rae makes the appropriate payment to Tyree. The entry on August 10 for Rae
Company is
Answer:
How is it possible for a company to suffer a net loss for a given year, yet produce a
positive net cash flow from operating activities?
Answer:
A comparative balance sheet for Halpern Corporation is presented below:
Additional information:
1> Net loss for 2015 is $20,000.
2> Cash dividends of $14,000 were declared and paid in 2015.
3> Land was sold for cash at a loss of $4,000. This was the only land transaction during
the year.
4> Equipment with a cost of $15,000 and accumulated depreciation of $10,000 was
sold for $5,000 cash.
5> $22,000 of bonds were retired during the year at carrying (book) value.
6> Equipment was acquired for common stock. The fair value of the stock at the time of
the exchange was $25,000.
Instructions
Prepare a statement of cash flows for the year ended 2015, using the indirect method.
Answer:
Journalize the following business transactions in general journal form. Identify each
transaction by number. You may omit explanations of the transactions.
1> The company issues stock in exchange for $40,000 cash
2> Purchased $400 of supplies on credit.
3> Purchased equipment for $8,000, paying $2,000 in cash and signed a 30-day, $6,000,
note payable.
4> Real estate commissions billed to clients amount to $4,000.
5> Paid $700 in cash for the current month’s rent.
6> Paid $200 cash on account for supplies purchased in transaction 2.
7> Received a bill for $600 for advertising for the current month.
8> Paid $2,200 cash for office salaries and wages.
9> The company paid dividends of $1,500.
10> Received a check for $3,000 from a client in payment on account for commissions
billed in transaction 4.
Answer:
