The following ledger accounts are used by the Sebastopol Dog Track:
Accounts Receivable
Prepaid Advertising
Prepaid Rent
Unearned Ticket Revenue
Advertising Expense
Rent Expense
Ticket Revenue
Sales Revenue
Instructions
For each of the following transactions below, prepare the journal entry (if one is
required) to record the initial transaction and then prepare the adjusting entry, if any,
required on September 30, the end of the fiscal year.
(a) On September 1, paid rent on the track facility for three months, $210,000.
(b) On September 1, sold season tickets for admission to the racetrack. The racing
season is year-round with 25 racing days each month. Season ticket sales totaled
$900,000.
(c) On September 1, borrowed $350,000 from First National Bank by issuing a 9% note
payable due in three months.
(d) On September 5, programs for 20 racing days in September, 25 racing days in
October, and 15 racing days in November were printed for $3,600.
(e) The accountant for the concessions company reported that gross receipts for
September were $150,000. Ten percent is due to the track and will be remitted by
October 10.
Answer:
Short-term investments are securities that are readily marketable and
intended to be converted into cash within the next
a. year.
b. two years.
c. year or operating cycle, whichever is shorter.
d. year or operating cycle, whichever is longer.
Answer:
On January 2, 2015, Pine Company purchased 100% of the outstanding common shares
of Seely Company for $520,000. Any excess of cost over the book value of the net
assets of Seely Company should first be allocated to Land $55,000, and Buildings
$40,000 and any remainder to goodwill.
Instructions
(a) Complete the following worksheet below for preparing a consolidated balance sheet
on the date of acquisition. You may add accounts to the worksheet that may be
necessary.
(b) Prepare a consolidated balance sheet for Pine Company and Subsidiary on January
2, 2015.
Answer:
A plant asset cost $288,000 and is estimated to have a $36,000 salvage value at the end
of its 8-year useful life. The annual depreciation expense recorded for the third year
using the double-declining-balance method would be
a. $24,120.
b. $40,500.
c. $35,436.
d. $27,570.
Answer:
The cash records of Mercury Company show the following:
1> The June 30 bank reconciliation indicated that deposits in transit totaled $790.
During July the general ledger account Cash shows deposits of $9,800, but the bank
statement indicates that only $8,240 in deposits were received during the month.
2> The June 30 bank reconciliation also reported outstanding checks of $1,200. During
the month of July, Mercury Company books show that $11,570 of checks were issued,
yet the bank statement showed that $11,100 of checks cleared the bank in July.
There were no bank debit or credit memoranda and no errors were made by either the
bank or Mercury Company.
Answer the following questions:
(a) What were the deposits in transit at July 31?
(b) What were the outstanding checks at July 31?
Answer:
The revenue recognition principle dictates that revenue be recognized in the accounting
period
a. before it is earned.
b. after it is earned.
c. in which the performance obligation is satisfied.
d. in which it is collected.
Answer:
Penny Company owns 20% interest in the stock of Lynn Corporation. During the year,
Lynn pays $25,000 in dividends, and reports $200,000 in net income. Penny Company’s
investment in Lynn will increase by
a. $25,000.
b. $40,000.
c. $45,000.
d. $35,000.
Answer:
Cobb Company’s accounting records show the following at the year ending on
December 31, 2015:
Using the periodic system, the cost of goods purchased is
a. $378,000.
b. $383,000.
c. $393,600.
d. $404,200.
Answer:
Under IFRS, the term reserves relates to each of the following except
a. asset revaluations.
b. contributed (paid-in) capital.
c. fair value differences.
d. retained earnings.
Answer:
Lewis Corporation experienced a fire on December 31, 2016, in which its
financial records were partially destroyed. It has been able to salvage some
of the records and has ascertained the following balances.
Additional information:
1> The inventory turnover is 4 times
2> The return on common stockholders’ equity is 20%. The company had
no additional paid-in capital.
3> The accounts receivable turnover is 8.6 times.
4> The return on assets is 16%.
5> Total assets at December 31, 2015, were $685,000.
Instructions
Compute the following for Lewis Corporation.
(a) Cost of goods sold for 2016.
(b) Net sales (credit) for 2016.
(c) Net income for 2016.
(d) Total assets at December 31, 2016.
Answer:
When an account is written off using the allowance method, accounts receivable
a. is unchanged and the allowance account increases.
b. increases and the allowance account increases.
c. decreases and the allowance account decreases.
d. decreases and the allowance account increases.
Answer:
The per share amount normally assigned by the board of directors to a large stock
dividend is
a. the market value of the stock on the date of declaration.
b. the average price paid by stockholders on outstanding shares.
c. the par or stated value of the stock.
d. zero.
Answer:
Depreciation is a process of
a. asset devaluation.
b. cost accumulation.
c. cost allocation.
d. asset valuation.
Answer:
Callis Company reported net income of $140,000 for 2015. The income statement also
indicates that interest expense for 2015 was $50,000. Assuming an income tax rate of
30%, the times interest earned for 2015 was
a. 4 times.
b. 5 times.
c. 3.8 times.
d. 2.8 times.
Answer:
Selected transactions for the Ecker Company are listed below.
1> Collected accounts receivable.
2> Declared and paid dividends on common stock.
3> Sold long-term investments for cash.
4> Issued stock for equipment.
5> Repaid five year note payable.
6> Paid employee wages.
7> Converted bonds payable to common stock.
8> Acquired long-term investment with cash.
9> Sold buildings and equipment for cash.
10> Sold merchandise to customers.
Instructions
Classify each transaction as either (a) an operating activity, (b) an investing activity, (c)
a financing activity, or (d) a noncash investing and financing activity.
Answer:
Tempest Co. purchased 60, 6% Urich Company bonds for $60,000 cash. Interest is
payable semiannually on July 1 and January 1. If 30 of the securities are sold on July 1
for $32,000, the entry would include a credit to Gain on Sale of Debt Investments for
a. $1,600.
b. $1,750.
c. $1,800.
d. $2,000.
Answer:
A 90-day promissory note dated May 21 matures on
a. August 21.
b. August 20.
c. August 19.
d. August 18.
Answer:
Financing activities involve
a. lending money to other entities and collecting on those loans.
b. cash receipts from sales of goods and services.
c. acquiring and disposing of productive long-lived assets.
d. long-term liability and stockholders’ equity items.
Answer:
A 30-day note dated June 18 has a maturity date of
a. July 19.
b. July 18.
c. July 17.
d. July 16.
Answer:
If total liabilities increased by $25,000 during a period of time and stockholders’ equity
decreased by $9,000 during the same period, then the amount and direction (increase or
decrease) of the period’s change in total assets is a(n)
a. $34,000 decrease.
b. $16,000 decrease.
c. $16,000 increase.
d. $34,000 increase.
Answer:
The purchase of office equipment for $15,000 cash
a. is a cash outflow from financing activities.
b. is a cash outflow from operating activities.
c. is a cash outflow from investing activities.
d. does not affect cash flows.
Answer:
The balance sheet presentation of an unrealized loss on an available-for-sale security is
similar to the statement presentation of
a. treasury stock.
b. discount on bonds payable.
c. allowance for doubtful accounts.
d. prepaid expenses.
Answer:
Hillman Company purchased printing equipment at a cost of $24,000. The monthly
depreciation on the equipment is $400. As of December 31, 2015, the balance in
Accumulated Depreciation is $9,600. The book value of the equipment reported on the
December 31, 2015 balance sheet will be
a. $24,000
b. $23,600
c. $14,400
d. $9,600
Answer:
Which of the following is not a profitability ratio?
a. Payout ratio
b. Profit margin
c. Times interest earned
d. Return on common stockholders’ equity
Answer:
The basic accounting equation states that Assets = Liabilities.
Answer:
What is the effect on total paid-in capital of a stock dividend and a stock split,
respectively?
Answer:
Prepare the necessary general journal entries for the month of October for Rolen
Company for each situation given below. Rolen uses a perpetual inventory system.
Answer:
On January 1, 2015, Tape Enterprises issued 9%, 10-year bonds with a face amount of
$700,000 at 96. Interest is payable semiannually on June 30 and December 3 The bonds
were issued for an effective interest rate of 10%.
Instructions
Prepare the entries to record the issuance of the bonds and the first semiannual interest
payment assuming that the company uses effective-interest amortization.
Answer:
Zen Arcade paid the weekly payroll on January 2 by debiting Salaries and Wages
Expense for $47,000. The accountant preparing the payroll entry overlooked the fact
that Salaries and Wages Expense of $27,000 had been accrued at year end on December
31. The correcting entry is
Answer:
Two permanent accounts that are part of the stockholders’ equity in a corporation are
______________ and ______________.
Answer: