1) Depletion expense
a.is usually part of cost of goods sold
b.includes tangible equipment costs in the depletion base
c.excludes intangible development costs from the depletion base
d.excludes restoration costs from the depletion base
2) The sales price for a product provides a gross profit of 25% of sales price. What is
the gross profit as a percentage of cost?
a.25%
b.20%
c.33%
d.Not enough information is provided to determine
3) Stock dividends and stock splits are common forms of corporate stock distribution to
stockholders.
Consider each of the numbered statements. You are to decide whether it:
A.Applies to both stock dividends and stock splits.
B.Applies to neither.
C.Applies to stock splits only.
D.Applies to stock dividends only.
E.Applies to stock splits effected in the form of a dividend only.
F.Applies to both stock splits effected in the form of a dividend and a stock dividend.
(In each instance, the issuing company has only one class of stock.)
Instructions
Print next to the number of each statement below, the single capital letter of the
description which applies to the statement.
Statements
1> The distribution is a multiple as contrasted to a fraction of the number of shares
previously outstanding.
2> The total number of shares outstanding is increased.
3> The individual stockholder’s share of net assets is increased.
4> There is no transfer between retained earnings and capital stock accounts, other than
to the extent occasioned by legal requirements.
5> There is no change in the total stockholders’ equity of the issuing corporation.
6> The retained earnings available for dividends are increased.
7> Retained earnings in the amount of the distribution are transferred to capital stock, in
some instances in an amount in excess of that required by the laws of the state of
incorporation.
8> Subsequent per-share earnings, if any, are decreased.
9> The par (or stated value) of the stock is unchanged.
4) Kohler Company owns the following investments:
Trading securities (fair value)$120,000
Available-for-sale securities (fair value)80,000
Held-to-maturity securities (amortized cost)94,000
Kohler will report securities in its long-term investments section of
a.exactly $200,000
b.exactly $214,000
c.exactly $294,000
d.$174,000 or an amount less than $174,000, depending on the circumstances.
5) What is the effect of a $50,000 overstatement of last year’s inventory on current years
ending retained earning balance?
a.Understated by $50,000
b.No effect
c.Overstated by $50,000
d.Need more information to determine
6) The following data are provided:
December 31
2015 2014
Cash$ 750,000$ 500,000
Accounts receivable (net)800,000600,000
Inventories1,300,0001,100,000
Plant assets (net)3,500,0003,250,000
Accounts payable550,000400,000
Income taxes payable100,00050,000
Bonds payable700,000700,000
10% Preferred stock, $50 par1,000,0001,000,000
Common stock, $10 par1,200,000900,000
Paid-in capital in excess of par800,000650,000
Retained earnings2,000,0001,750,000
Net credit sales6,400,000
Cost of goods sold4,200,000
Operating expenses1,450,000
Net income750,000
Additional information:
Depreciation included in cost of goods sold and operating expenses is $610,000. On
May 1, 2015, 30,000 shares of common stock were issued. The preferred stock is
cumulative. The preferred dividends were not declared during 2015 .
The book value per share of common stock at 12/31/15 is
a.3,900 / 120
b.3,880 / 120
c.3,900 / 110
d.4,000 / 110
7) A lessee had a ten-year capital lease requiring equal annual payments. The reduction
of the lease liability in year 2 should equal
a.the current liability shown for the lease at the end of year 1
b.the current liability shown for the lease at the end of year 2
c.the reduction of the lease liability in year 1
d.one-tenth of the original lease liability
8) 164. Prepare journal entries for Mars Co. for:
(a)Accounts receivable in the amount of $1,000,000 were assigned to Utley Finance Co.
by Mars as security for a loan of $850,000. Utley charged a 3% commission on the
accounts; the interest rate on the note is 12%.
(b)During the first month, Mars collected $400,000 on assigned accounts after
deducting $900 of discounts. Mars wrote off a $1,060 assigned account.
(c)Mars paid to Utley the amount collected plus one month’s interest on the note.
(d)Explain the differences in accounting for a secured borrowing and a sale of
receivables.
9) A trial balance before adjustments included the following:
Debit Credit
Sales$850,000
Sales returns and allowance$28,000
Accounts receivable86,000
Allowance for doubtful accounts1,520
If the estimate of uncollectibles is made by taking 10% of gross account receivables, the
amount of the adjustment is
a.$7,080
b.$8,600
c.$8,448
d.$10,120
10) Long Co. issued 100,000 shares of $10 par common stock for $1,200,000. A year
later Long acquired 12,000 shares of its own common stock at $15 per share. Three
months later Long sold 6,000 of these shares at $19 per share. If the cost method is used
to record treasury stock transactions, to record the sale of the 6,000 treasury shares,
Long should credit
a.Treasury Stock for $114,000
b.Treasury Stock for $60,000 and Paid-in Capital from Treasury Stock for $54,000
c.Treasury Stock for $90,000 and Paid-in Capital from Treasury Stock for $24,000
d.Treasury Stock for $90,000 and Paid-in Capital in Excess of Par for $24,000
11) Presented below are data for Bandkok Corp.
20142015
Assets, January 1$5,900$6,480
Liabilities, January 13,240?
Stockholders’ Equity, Jan. 1??
Dividends1,080810
Common Stock972864
Stockholders’ Equity, Dec. 31??
Net Income1,280864
Stockholders’ Equity at January 1, 2015 is
a.$3,832
b.$2,660
c.$2,860
d.$3,940