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ACCOUNTING ANSWERS ALL COMPLETED A++

1. (TCO A) An advantage of the corporate form of business is that
it has limited life.
its owner’s personal resources are at stake.
its ownership is easily transferable via the sale of shares of stock.
it is simple to establish.

2. (TCO A) Which activities involve acquiring the resources to run the business?
Delivering
Financing
Investing
Operating

3. (TCO A) For 2007 Landford Corporation reported net income of $30,000; net sales $400,000; and average share outstanding 6,000. There were no preferred stock dividends. What was the 2007 earnings per share?
$4.66
$0.20
$66.67
$5.00

4. (TCO C) Free cash flow provides an indication of a company’s ability to
generate cash to invest in new capital expenditures.
generate net income.
generate cash to pay dividends.
both a and c.

5. (TCO C) When a corporation distributes a dividend the
most common form of distribution is a cash dividend.
Dividends account will be increased with a credit.
Retained Earnings account will be directly increased with a debit.
Dividends account will be decreased with a debit.

6. (TCO A, B) Cerner Company showed the following balances at the end of its first year:
Cash $5,000
Prepaid insurance 500
Accounts receivable 2,500
Accounts payable 2,000
Notes payable 3,000
Common stock 1,000
Dividends 500
Revenues 15,000
Expenses 12,500
What did Cerner Company show as total credits on its trial balance?

$21,500
$21,000
$20,500
$22,000

7. (TCO B, E) Under the accrual basis of accounting
cash must be received before revenue is recognized.
net income is calculated by matching cash outflows against cash inflows.
events that change a company’s financial statements are recognized in the period they occur rather than in the period in which cash is paid or received.-
the ledger accounts must be adjusted to reflect a cash basis of accounting before financial statements are prepared under generally accepted accounting principles.

8. (TCO A, B) The Village Laundry Company purchased $6,500 worth of laundry supplies on June 2 and recorded the purchase as an asset. On June 30, an inventory of the laundry supplies indicated only $3,000 on hand. The adjusting entry that should be made by the company on June 30 is
Debit Laundry Supplies Expense, $3,000; Credit Laundry Supplies, $3,000.
Debit Laundry Supplies Expense, $3,500; Credit Laundry Supplies, $3,000.
Debit Laundry Supplies, $3,500; Credit Laundry Supplies Expense, $3,500.
Debit Laundry Supplies Expense, $3,500; Credit Laundry Supplies, $3,500.

9. (TCO E) A credit sale of $800 is made on April 25, terms 2/10, net/30, on which a return of $50 is granted on April 28. What amount is received as payment in full on May 4?

$735
$784
$800
$750

10. (TCO B) During the year, Darla’s Pet Shop’s merchandise inventory decreased by $20,000. If the company’s cost of goods sold for the year was $300,000, purchases must have been

$320,000.
$280,000.
$260,000.
Unable to determine.

11. (TCO D) Two companies report the same cost of goods available for sale but each employs a different inventory costing method. If the price of goods has increased during the period, then the company using
LIFO will have the highest ending inventory.
FIFO will have the highest cost of goods sold.
FIFO will have the highest ending inventory.-
LIFO will have the lowest cost of goods sold.

12. (TCO D) The inventory turnover ratio is calculated by dividing cost of goods sold by
beginning inventory.
ending inventory.
average inventory.
365 days.

13. (TCO D) A consequence of separation of duties is that
theft by employees becomes impossible.
operations become extremely inefficient because of constant training of employees.
more employees will need to be bonded.
theft is still possible when several employees are involved.

14. (TCO D) Which of the following is not a suggested procedure to establish internal control over cash disbursements?
Anyone can sign the checks.
Different individuals approve and make the payments.
Blank checks are stored with limited access.
The bank statement is reconciled monthly.

15. (TCO A, B, D) An aging of a company’s accounts receivable indicates that $3,000 is estimated to be uncollectible. If Allowance for Doubtful Accounts has a $1,200 credit balance, the adjustment to record bad debts for the period will require a
debit to Bad Debts Expense for $3,000.
debit to Allowance for Doubtful Accounts for $1,800.
debit to Bad Debts Expense for $1,800.
credit to Allowance for Doubtful Accounts for $3,000.

1. (TCO A, B, D) Using the percentage of receivables method for recording bad debts expense, estimated uncollectible accounts are $25,000 at the end of the year. If the balance of the Allowance for Doubtful Accounts is $8,000 debit before adjustment; what is the amount of bad debt expense for that period?
$25,000
$8,000
$33,000
$17,000

2. (TCO A, E) Bale Company buys land for $100,000 on 12/31/06. As of 3/31/07, the land has appreciated in value to $101,000. On 12/31/07, the land has an appraised value of $103,600. By what amount should the Land account be increased in 2007?
$0
$1,000
$2,600
$3,600

3. (TCO A, E) Equipment with a cost of $192,000 has an estimated salvage value of $18,000 and an estimated life of 4 years or 12,000 hours. It is to be depreciated by the straight-line method. What is the amount of depreciation for the first full year, during which the equipment was used 3,300 hours?
$48,000
$52,500
$49,500
$43,500

4. (TCO D) A cash register tape shows cash sales of $3,000 and sales taxes of $150. The journal entry to record this information is
Debit Cash 3,000
Credit Sales 3,000
Debit Cash 3,150
Credit Sales Tax Revenue 150
Credit Sales 3,000
Debit Cash 3,000
Debit Sales Tax Expense 150
Credit Sales 3,150
Debit Cash 3,150
Credit Sales 3,000
Credit Sales Taxes Payable 150

5. (TCO D) Joyce Corporation issues 1,000, 10-year, 8%, $1,000 bonds dated January 1, 2007, at 102. The journal entry to record the issuance will show a
debit to Cash of $1,020,000.
debit to Discount on Bonds Payable for $20,000.
credit to Bonds Payable for $1,020,000.
credit to Cash for $1,000,000.

6. (TCO A) New Corp. issues 1,000 shares of $10 par value common stock at $14 per share. When the transaction is recorded, credits are made to:
Common Stock $10,000 and Paid-in Capital in Excess of Stated Value $4,000.
Common Stock $14,000.
Common Stock $10,000 and Paid-in Capital in Excess of Par Value $4,000.
Common Stock $10,000 and Retained Earnings $4,000.

7. (TCO A, C) Outstanding stock of the Bell Corporation included 20,000 shares of $5 par common stock and 10,000 shares of 6%, $10 par non-cumulative preferred stock. In 2006, Bell declared and paid dividends of $4,000. In 2007, Bell declared and paid dividends of $12,000. How much of the 2007 dividend was distributed to preferred shareholders?
$8,000
$14,000
$6,000
None of the above

8. (TCO C) Accounts receivable arising from sales to customers amounted to $80,000 and $70,000 at the beginning and end of the year, respectively. Income reported on the income statement for the year was $240,000. Exclusive of the effect of other adjustments, the cash flows from operating activities to be reported on the statement of cash flows is
$240,000.
$250,000.
$310,000.
$230,000.

9. (TCO C) Loster Company reported a net loss of $10,000 for the year ended December 31, 2007. During the year, accounts receivable decreased $5,000, merchandise inventory increased $8,000, accounts payable increased by $10,000, and depreciation expense of $5,000 was recorded. During 2007, operating activities
used net cash of $2,000.
used net cash of $8,000.
provided net cash of $2,000.
provided net cash of $8,000

10. (TCO F) One variation of the horizontal analysis is known as
nonlinear analysis.
vertical analysis.
trend analysis.
common size analysis.

11. (TCO F) Comparisons of data within a company are an example of the following comparative basis:
Industry averages
Inter-company
Intra-company
Inter-regional

12. (TCO F) The best way to study the relationships among the components within a financial statement is to prepare
a vertical analysis.
a trend analysis.
profitability analysis.
comparative analysis.

13. (TCO F) Ratios are most useful in identifying
trends.
differences.
causes.
relationships among different numbers.-

14. (TCO F) Short-term creditors are usually most interested in assessing
solvency.
liquidity.
marketability.
profitability.

15. (TCO F) Return on assets ratio is most closely related to
profit margin and debt to total assets ratio.
profit margin and asset turnover ratio.
times interest earned and debt to stockholders’ equity ratio.
profit margin and free cash flow.

16. (TCO A) The partial financial statement items below were taken from the financial statements of Prone, Inc. This information can be used to correctly solve each of the ratios below. The information is in alphabetical order.
Accounts payable $ 28,000 Net income $ 48,000
Accounts receivable 66,000 Other current liabilities 17,000
Cash 54,000 Total assets 250,000
Gross profit 160,000 Total liabilities 200,000
Income before income taxes 54,000 Wages payable 5,000
Additional information: The number of average common shares outstanding during the year was 40,000.
Instructions: Compute the following:
(a) Current ratio.
(b) Working capital.
(c) Earnings per share.
(d) Debts to total assets ratio.
To earn full credit, you must show the formula you are using, show your computations and explain the meaning of each of your ratio results.

17. (TCO B & E) The following items are taken from the financial statements of Grove Company for 2010:

Accounts Payable $ 18,500
Accounts Receivable 4,000
Accumulated Depreciation 4,800
Bonds Payable 18,000
Cash 24,000
Common Stock 25,000
Cost of Goods Sold 13,000
Depreciation Expense 4,800
Dividends 5,300
Equipment 48,000
Interest Expense 2,500
Patents 7,500
Retained Earnings, January 1 16,000
Salaries Expense 5,200
Sales Revenue 36,500
Supplies 4,500

Instructions

Prepare an income statement and a retained earnings statement for Grove Company.

18. (TCO C) Menschken Company reported net income of $150,000 for the current year. Depreciation recorded on buildings and equipment amounted to $65,000 for the year. Balances of the current asset and current liability accounts at the beginning and end of the year are as follows:
End of Year Beginning of Year
Cash $20,000 $15,000
Accounts receivable 19,000 32,000
Inventories 50,000 65,000
Accounts payable 12,000 18,000
Instructions
Prepare the cash flows from the operating activities section of the statement of cash flows using the indirect method.
Solution
cash flow operating activity
Net income 150000
add;- depreciation 65000
Decrease A/R 13000
Decrease inventory 15000
Decrease A/P -6000
cash flow operating activity 237000

19. (TCO D) As part of a Careers in Accounting program sponsored by accounting organizations and supported by your company, you will be taking a group of high-school students through the accounting department in your company. You will also provide them with various materials to explain the work of an accountant. One of the materials you will provide is the Stockholders’ Equity section of a recent balance sheet.
Required: Prepare a short response explaining each major section: Common Stock, Additional Paid-in Capital, and Retained Earnings. You should try to be brief but clear. Remember to include a description of treasury stock as well.

20. (TCO A) Which of the following is an advantage of corporations relative to partnerships and sole proprietorships?

21. (TCO A) Buying assets needed to operate a business is an example of a(n)

22. (TCO A) For 2007 Landford Corporation reported net income of $30,000; net sales $400,000; and average share outstanding 6,000. There were no preferred stock dividends. What was the 2007 earnings per share?

23. (TCO C) Free cash flow provides an indication of a company’s ability to

24. (TCO C) The dividend account

25. (TCO A, B) Kerner Company showed the following balances at the end of its first year:
Accounts payable 4,000
Notes payable 6,000
Common stock 2,000
Revenues 30,000
What did Kerner Company show as total credits on its trial balance?

26. (TCO B, E) Under the accrual basis of accounting

27. (TCO A, B) Reese Company purchased office supplies costing $4,000 and debited Office Supplies for the full amount. At the end of the accounting period, a physical count of office supplies revealed $1,600 still on hand. The appropriate adjusting journal entry to be made at the end of the period would be

28. (TCO E) Baxtor Company purchased merchandise inventory with an invoice price of $5,000 and credit terms of 2/10, n/30. What is the net cost of the goods if Baxtor Company pays within the discount period?

29. (TCO B) At the beginning of the year, Midtown Athletic had an inventory of $400,000. During the year, the company purchased goods costing $1,600,000. If Midtown Athletic reported ending inventory of $600,000 and sales of $2,000,000, their cost of goods sold and gross profit rate must be

30. (TCO D) In a period of increasing prices, which inventory flow assumption will result in the lowest amount of income tax expense?

31. (TCO D) An aircraft company would most likely have a

32. (TCO D) A very small company would have the most difficulty in implementing which of the following internal control activities?

33. (TCO D) Which of the following is not a suggested procedure to establish internal control over cash disbursements?

34. (TCO A, B, D) An aging of a company’s accounts receivable indicates that $4,000 is estimated to be uncollectible. If Allowance for Doubtful Accounts has a $1,200 debit balance, the adjustment to record bad debts for the period will require a

35. (TCO A, B, D) Using the percentage of receivables method for recording bad debts expense, estimated uncollectible accounts are $10,000 at the end of the year. If the balance of the Allowance for Doubtful Accounts is $2,000 credit before adjustment; what is the amount of bad debt expense for that period?

36. (TCO A, E) Brown Clinic purchases land for $120,000 cash. The clinic assumes $1,500 in property taxes due on the land. The title and attorney fees totaled $1,000. The clinic has the land graded for $2,200. What amount does Brown Clinic record as the cost for the land?

37. (TCO A, E) Equipment was purchased for $60,000. Freight charges amounted to $2,800 and there was a cost of $8,000 for building a foundation and installing the equipment. It is estimated that the equipment will have a $12,000 salvage value at the end of its 5-year useful life. Depreciation expense each year using the straight-line method will be

38. (TCO D) Ron’s Pharmacy has collected $600 in sales taxes during March. If sales taxes must be remitted to the state government monthly, what entry will Ron’s Pharmacy make to show the March remittance?

39. (TCO D) Lopez Corporation issues 500, 10-year, 8%, $1,000 bonds dated January 1, 2007, at 96. The journal entry to record the issuance will show a

40. (TCO A) If Kiner Company issues 1,000 shares of $5 par value common stock for $70,000, the account

41. (TCO A, C) Outstanding stock of the Apex Corporation included 20,000 shares of $5 par common stock and 5,000 shares of 6%, $10 par non-cumulative preferred stock. In 2006, Apex declared and paid dividends of $2,000. In 2007, Apex declared and paid dividends of $6,000. How much of the 2007 dividend was distributed to preferred shareholders?

42. (TCO C) Accounts receivable arising from sales to customers amounted to $35,000 and $40,000 at the beginning and end of the year, respectively. Income reported on the income statement for the year was $120,000. Exclusive of the effect of other adjustments, the cash flows from operating activities to be reported on the statement of cash flows is

43. (TCO C) Wilton Company reported net income of $40,000 for the year. During the year, accounts receivable increased by $7,000, accounts payable decreased by $3,000 and depreciation expense of $5,000 was recorded. Net cash provided by operating activities for the year is

44. (TCO F) One variation of the horizontal analysis is known as

45. (TCO F) Vertical analysis is also known as

46. (TCO F) The best way to study the relationships among the components within a financial statement is to prepare

47. (TCO F) In vertical analysis, the base amount for studying salary & wages expense is generally

48. (TCO F) A common measure of profitability is the

49. (TCO F) Long-term creditors are usually most interested in evaluating

50. (TCO A) The partial financial statement items below were taken from the financial statements of Prone, Inc. This information can be used to correctly solve each of the ratios below. The information is in alphabetical order.
Accounts payable $ 28,000 Net income $ 48,000
Accounts receivable 66,000 Other current liabilities 17,000
Cash 54,000 Total assets 250,000
Gross profit 160,000 Total liabilities 200,000
Income before income taxes 54,000 Wages payable 5,000
Additional information: The number of average common shares outstanding during the year was 40,000. Instructions: Compute the following:
(a) Current ratio.
(b) Working capital.
(c) Earnings per share.
(d) Debts to total assets ratio.

51. (TCO B & E) These financial statement items are for Snyder Corporation at year-end, July 31, 2010.
Salaries payable $ 2,580
Salaries expense 48,700
Utilities expense 22,600
Equipment 21,000
Accounts payable 4,100
Commission revenue 61,100
Rent revenue 8,500
Long-term note payable 1,800
Common stock 16,000
Cash 24,200
Accounts receivable 9,780
Accumulated depreciation 6,000
Dividends 5,000
Depreciation expense 4,000
Retained earnings (beginning of the year) 35,200

Instructions:
Prepare an income statement and a retained earnings statement for the year.

52. (TCO C) Using the indirect method, calculate the amount of cash flows from operating activities using the indirect method from the following data:
Net income $230,000
Beginning accounts receivable 22,000
Ending accounts receivable 26,000
Beginning prepaid expenses 5,000
Ending prepaid expenses 2,000
Beginning accounts payable 15,000
Ending accounts payable 14,000
Depreciation expense 55,000
Amortization of intangible asset 3,000
Dividends declared and paid 11,000

53. (TCO D) Your friend, Jeff, has opened a movie theatre. Jeff states that he does not have time to develop and implement a system of internal controls.
a. Provide Jeff with the objectives of a system of internal control.
b. Explain to Jeff why he should develop a system of internal control.

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