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Exam: 061696RR – Corporations
1. Rick Company has declared a $40,000 cash dividend to shareholders. The company has 5,000 shares of $20 par, 6% preferred stock, and 10,000 shares of $15 par common stock. The preferred stock is noncumulative. How much will be distributed to the preferred and common stockholders on the date of payment?
A. $34,000 preferred; $6,000 common
B. $0 preferred; $40,000 common
C. $6,000 preferred; $34,000 common
D. $40,000 preferred; $0 common
2. Casey Company has 5,000 shares of treasury cost that it purchased for $13 per share. It later resold 2,000 of those shares for $17 per share. The amount to be credited to Paid-in Capital—Treasury Stock is
A. $8,000.
B. $30,000.
C. $26,000.
D. $34,000.
3. A company has $56,000 in cash; $12,000 in accounts receivable; $25,000 in short-term investments; and $100,000 in merchandise inventory. The company also has $60,000 in current liabilities. The company’s quick ratio is
A. 3.217.
B. 0.933.
C. 1.133.
D. 1.550.
4. What is the rate of return on common stockholders’ equity if sales are $100,000, net income is $22,700, and average common stockholders’ equity is $86,000?
A. 22.7%
B. 26.4%
C. 86.0%
D. The rate of return can’t be determined from the information given.
5. Tammy Corporation has 350,000 shares of $3 par common stock outstanding. It has declared a 5% stock dividend. The current market price of the common stock is $7.50/share. The amount that will be credited to common stock on the date of declaration is
A. $78,750.
B. $131,250.
C. $52,500.
D. $183,750.
6. Operating cash flows affect
A. current assets and current liabilities.
B. equity accounts.
C. long-term liability accounts.
D. long-term asset accounts.
7. Casey Company has a $2,400 credit balance in Paid-In Capital—Treasury Stock. It sells 500 shares of treasury stock that the company reacquired at $21/share, for $18/share. After the transaction, what will the balance be in the Paid-In Capital in Excess of Par—Treasury account?
A. $900 debit
B. $3,900 credit
C. $1,500 debit
D. $900 credit
8. To determine why net income and cash on the balance sheet don’t equal, an accountant can prepare a/an
A. balance sheet.
B. statement of retained earnings.
C. statement of cash flows.
D. income statement.
9. Casey Company has an accounts receivable turnover of 36 days, an inventory turnover of 77 days, and an accounts payable turnover of 40 days. Casey’s cash conversion cycle is _______ day(s).
A. 73
B. 81
C. 1
D. 153
10. What is Jane’s rate of return on total assets if average total assets are $100,000; net income is $2,000; interest expense if $1,600; and income tax is $2,000?
A. 5.2%
B. 3.6%
C. 5.6%
D. 4.6%
11. Isaiah Corporation’s Accounts Receivable increased by $35,000, and its Accounts Payable decreased by $18,000. What is the net effect on cash from operations under the indirect method?
A. +$35,000
B. -$53,000
C. +$17,000
D. -$18,000
12. Rick Company’s net sales decreased from $90,000 in year 1 to $45,000 in year 2, and its cost of goods sold decreased from $30,000 in year 1 to $20,000 in year 2. Vertical analysis based on sales would show which decreases in cost of goods sold for the two periods (rounded to the nearest tenth of a percent)?
A. 33.3% and 44.4%
B. 44.4% and 33.3%
C. 225% and 300%
D. 300% and 225%
13. Tammy Corporation has 350,000 shares of $3 par common stock outstanding. It has declared a 5% stock dividend. The current market price of the common stock is $7.50/share. The amount that will be debited to retained earnings on the date of declaration is
A. $183,750.
B. $52,500.
C. $78,750.
D. $131,250.
14. Ryan Industries has an inventory turnover of 112 days, an accounts payable turnover of 73 days, and an accounts receivable turnover of 82 days. Ryan’s cash conversion cycle is _______ days.
A. 121
B. 9
C. 43
D. 103
15. Brandon Company had extraordinary losses of $150,000. If its corporate tax rate is 30%, at which amount will the losses be shown on the income statement?
A. $45,000
B. $150,000
C. Not enough information is given to answer the question.
D. $105,000
16. For vertical analysis purposes, the base item on the income statement is
A. total expenses.
B. net income.
C. gross profit.
D. net sales.
17. If current assets were $100,000 in 2009 and $88,000 in 2010, what was the amount of increase or decrease in percentage terms from 2009 to 2010? (Round to the nearest percent.)
A. Increase of 12%
B. Decrease of 14%
C. Decrease of 12%
D. Increase of 14%
18. Which activities are computed differently using the two methods of formatting a statement of cash flows?
A. Financing activities
B. Investing activities
C. Both operating activities and investing activities
D. Operating activities
19. If Rick’s net sales increased from $40,000 to $80,000 and its operating expenses increased from $30,000 to $50,000, then vertical analysis based on net sales would show which of the following for operating expenses for the two periods (to the nearest tenth of a percent)?
A. 160.0% and 133.3%
B. 133.3% and 160.0%
C. 62.5% and 75.0%
D. 75.0% and 62.5%
20. The accuracy of the statement of cash flows can be verified by computing the change in the balance of the
A. revenue accounts.
B. asset and liability accounts.
C. equity account.
D. cash and cash equivalent accounts.
Exam: 061694RR – Accounting for Merchandising
1. In a balance sheet prepared in report form, liabilities must be listed after
A. stockholders’ equity.
B. assets with current liabilities listed first.
C. assets with long-term liabilities listed first.
D. assets in alphabetical order.
2. Isaiah Sporting Goods uses the perpetual average cost method of determining inventory costs. Below is the inventory record for Product C124:
Date Received Sold Cost/Unit Balance
April 22 534   $6.58 $3,513.72
May 17 433   $6.70 $2,901.10
June 21 389   $6.76 $2,629.64
August 2 436   $6.44 $2,807.84
What is the average cost per unit after the receipt of the May 17 inventory (rounded to the nearest cent)?
A. $7.40
B. $6.00
C. $6.63
D. $6.55
3. When a merchandiser sells on account, which of the following is not needed to record the transaction?
A. Inventory
B. Accounts receivable
C. Cash
D. Cost of goods sold
4. Under Sarbanes-Oxley, those officers signing off on the reports must have evaluated the company’s internal control within the previous
A. six months.
B. 90 days.
C. nine months.
D. year.
5. A company’s gross profit percentage decreases from 58% to 51%. What does this mean?
A. We can’t determine anything definite from the information given.
B. This means that net income will be higher.
C. This means that net income will be lower.
D. This means that there will be a net loss.
6. If current assets decrease and current liabilities increase, the current ratio
A. remains the same.
B. decreases.
C. will change based on the change in total assets.
D. increases.
7. Which of the following is an incorrect statement if ending inventory is understated?
A. Net income is understated.
B. Cost of goods sold is overstated.
C. Income tax is understated.
D. Gross profit is overstated.
8. A company has $8,200 in net sales, $1,100 in gross profit, $2,500 in ending inventory, and $2,000 in beginning inventory. The company’s cost of goods sold is
A. $5,700.
B. $5,600.
C. $6,200.
D. $7,100.
9. Besides using an overstatement of earnings to inflate a company’s stock price, overstating earnings may also be used to
A. avoid paying raises to employees.
B. ensure larger bonuses to upper management at year-end.
C. deflate the amount of taxes the corporation pays.
D. avoid paying dividends to stockholders.
10. Which of the following would probably not cause inventory shrinkage?
A. Spoilage of items
B. Employee theft
C. Correct counting of all inventory
D. Spills of items
11. Meranda Company reports the following inventory information:
Inventory
Number
Inventory
Quantity
Unit Cost
Unit Market
Value
APD 3838 325 $56.78 $55.32
CPZ 1212 506 $92.31 $92.78
IXL 4039 817 $77.89 $79.31
EOD 3902 382 $19.38 $19.02
DKS 4823 626 $33.46 $30.74
What is the total value of the merchandise under LCM (lower-of-cost or market)?
A. $154,832.90
B. $157,147.60
C. $158,545.60
D. $156,230.80
12. Goods such as milk, bread, and cheese would probably be costed using the _______ method of inventory costing.
A. LIFO
B. specific-identification
C. average
D. FIFO
13. One of the biggest factors in implementing SOX was
A. establishing internal control procedures.
B. the cost of implementing the system.
C. reviewing the financial reports.
D. disclosing deficiencies in internal controls.
14. To overstate earnings, a company can
A. overstate receivables and understate payables.
B. understate unearned revenue and understate property, plant, and equipment.
C. overstate expenses and overstate revenue.
D. understate expenses and understate revenue.
15. Which of the following would probably not need to be disclosed in a footnote?
A. Change of inventory methods
B. A 10% increase in sales
C. A change in depreciation method
D. A material change in estimated shrinkage
16. New technology, like the latest cell phones and HDTV, would probably be costed using the
A. specific-identification method of inventory costing.
B. moving-average method of inventory costing.
C. FIFO method of inventory costing.
D. LIFO method of inventory costing.
17. Committing a fraud because the employee feels that it will be easy to do is indicative of which part of the fraud triangle?
A. Rationalization
B. Perceived pressure
C. Realization
D. Perceived opportunity
18. A low gross profit percentage means that
A. the cost of goods sold was relatively high.
B. general and administrative expenses are very high.
C. the cost of goods sold was relatively low.
D. selling expenses are very low.
19. A company’s current ratio increased from 1.23 to 1.45. What does this mean?
A. There isn’t enough information to explain the increase.
B. This means that current assets increased and current liabilities decreased.
C. This means that current assets increased and current liabilities increased.
D. This means that current assets decreased and current liabilities decreased.
20. Which of the following may not limit the effectiveness of internal control systems in an organization?
A. Duties not segregated
B. Understanding of policies and procedures
C. Poorly designed controls
D. Costs not worth benefits
Exam: 061695RR – The Value of Money
1. Nick Company has cash of $33,000; net accounts receivable of $41,000; short-term investments of $15,000; and inventory of $25,000. It also has $30,000 in current liabilities and $50,000 in long-term liabilities. The quick ratio for Nick Company is
A. 1.78.
B. 3.80.
C. 3.30.
D. 2.97.
2. Which marketable securities are reported at cost on the balance sheet date?
A. Trading and held-to-maturity securities
B. Held-to-maturity securities
C. Trading securities
D. Available-for-sale securities
3. A company receives a note payable for $3,500 at 9% for 45 days. How much interest (to the nearest cent) will the customer owe using a 360-day year?
A. $38.84
B. $315.00
C. $354.38
D. $39.38
4. Cash equivalents are
A. not liquid and carry high risk.
B. very liquid and carry high risk.
C. very liquid and carry little risk.
D. not liquid and carry little risk.
5. Margaret is a customer of Tammy Company. The company wrote off her account of $1,200 on August 15. On October 12, she sent in a payment of $560. What will Tammy Company record first to reinstate her account?
A. Debit Allowance for Doubtful Accounts; credit Accounts Receivable/Margaret.
B. Debit Accounts Receivable/Margaret; credit Allowance for Doubtful Accounts.
C. Debit Cash; credit Accounts Receivable/Margaret.
D. Debit Uncollectible Accounts Expense; credit Accounts Receivable/Margaret.
6. Using a 365-day year, the maturity value of a 180-day note for $2,700 at 9% annual interest is (rounded to the nearest cent)
A. $2,819.84.
B. $2,943.00.
C. $2,821.50.
D. $119.84.
7. Which of the following would indicate poor internal control over accounts receivable?
A. The person who handles accounts receivable wouldn’t write off accounts as uncollectable.
B. The person handling cash receipts passes the receipts to someone who enters them into accounts receivable.
C. The same person handling cash receipts also records the accounts receivable transactions.
D. The mailroom employees open the mail and give the cash receipts to another employee.
8. Amanda Industries had total assets of $600,000; total liabilities of $175,000; and total stockholders’ equity of $425,000. Amanda Industries’ debt ratio is
A. 29.2%.
B. 41.2%.
C. 70.8%.
D. 17.1%.
9. Ryan Corporation made a basket purchase of three items. Item A was appraised at $35,000; item B was appraised at $55,000; and item C was appraised at $60,000. The purchase price was $125,000. The amount at which item B should be recorded is
A. ($55,000/$150,000) × $125,000.
B. ($55,000/$125,000) × $150,000.
C. ($55,000/$95,000) × $125,000.
D. ($55,000/$95,000) × $150,000.
10. A warranty is an example of a/an _______ liability.
A. contingent
B. settled
C. known
D. estimated
11. Meranda Corporation purchases a machine for $125,000. It has an estimated salvage value of $10,000 and is expected to produce 50,000 units in its lifetime. During the first year of operation, it produced 14,500 units. To the nearest dollar, the depreciation for the first year under the units of production method will be
A. $35,500.
B. $36,250.
C. $33,350.
D. $31,250.
12. Casey Company’s bank statement shows a bank balance of $43,267. The statement shows a bank service charge of $50 and a bank collection of $760 in Casey Company’s behalf. Casey’s book balance should be adjusted by a total of
A. +$810.
B. -$710.
C. +$710.
D. +$760.
13. If the amount extracted from a coal mine was different every year for four years, you would
A. debit depletion expense for the same amount each year.
B. credit accumulated depletion—coal mine for the same amount each year.
C. use the same depletion expense rate per unit each year.
D. recompute the depletion expense rate per unit each year.
14. A truck costing $56,000 has accumulated depreciation of $50,000. The truck is scrapped for $0. The journal entry to record this transaction is
A. debit Loss on Disposal $6,000, debit Accumulated Depreciation—Truck for $50,000, and credit Truck for $56,000.
B. debit Truck for $56,000, credit Accumulated Depreciation—Truck for $50,000, and credit Gain on Disposal for $6,000.
C. debit Truck for $50,000, debit Loss on Disposal for $6,000 and credit Accumulated Depreciation—Truck for $56,000.
D. debit Accumulated Depreciation—Truck for $50,000 and credit Truck for $50,000.
15. Brandon Corporation purchased a vein of mineral ore for $3,250,000. It is estimated that 15,000,000 tons of ore are available to be extracted. The salvage value is determined to be $400,000. The estimation depletion expense for this year’s extraction of 1,760,000 tons of ore (rounded to the nearest dollar) is
A. $428,267.
B. $400,000.
C. $381,333.
D. $334,400.
16. A truck costing $56,000 has accumulated depreciation of $50,000. The truck is scrapped for $500. The journal entry to record this transaction is
A. debit Cash for $500, debit Accumulated Depreciation—Truck for $50,000, debit Loss on Disposal for $5,500, and credit
Truck for $56,000.
B. debit Cash for $500, debit Truck for $50,000, debit Loss on Disposal for $5,500, and credit Accumulated Depreciation—
Truck for $56,000.
C. debit Loss on Disposal $6,000, debit Accumulated Depreciation—Truck for $50,000, and credit Truck for $56,000.
D. debit Cash for $500, debit Loss on Disposal for $55,500, and credit Truck for $56,000.
17. Tammy Industries inadvertently debited a $5,000 betterment as an ordinary expense. Which of the following will occur as a result of this mistake?
A. Net income will be overstated by $5,000.
B. The asset will be understated by $5,000.
C. The asset will be overstated by $5,000.
D. Retained earnings will be overstated by $5,000.
18. A $400,000 issue of bonds that sold for $363,000 matures on August 1, 2015. The journal entry to record the payment of the bond on the maturity date is
A. debit bonds payable, $363,000; credit cash, $363,000.
B. debit cash, $363,000; credit bonds payable, $363,000.
C. debit bonds payable, $400,000; credit cash, $400,000.
D. debit cash, $400,000; credit bonds payable, $400,000.
19. Using a 360-day year, the maturity value of a 69-day note for $1,500 at 7% annual interest is (rounded to the nearest cent)
A. $1,584,88.
B. $1,520.13.
C. $1,605.00.
D. $20.13.
20. Jewell Company has current assets of $56,000; long-term assets of $135,000; current liabilities of
$44,000; and long-term liabilities of $90,000. Jewell Company’s debt ratio is
A. 239.3%.
B. 78.6%.
C. 70.2%.
D. 127.3%.
Penn Foster 06169300
1. The following information was made available from the income statement and balance sheet of Lauren Company.
Item 12/31/2010
Accounts Receivable $53,400
Accounts Payable $35,600
Merchandise Inventory $85,000
Sales (2010) $243,000
Interest Revenue (2010) $5,600
Dividend Revenue (2010) $1,200
Tax Expense (2010) $12,300
Salaries Expense (2010) $28,000
COGS (2010) $65,000
Interest Expense (2010) $3,600
Operating Expenses $28,500
Complete the cash flow from operating activities section for
Lauren Company using the direct method for the year ended
December 31, 2010.
Part B: Answer each of the following questions. Each answer is
worth 4 points.
1. Record the following transactions using the accounting
equation.
Example:
Assets = Liabilities + Equity
XXXX(cash) XXXX(accounts payable)
A. Amanda invests $17,000 cash into her merchandising
business.
B. She buys $6,500 of office equipment and $3,000 of office
supplies with cash from Office Depot.
C. Additional purchases were supplies for $35,000 on
account from various suppliers
2. Given the following balance sheet, complete a horizontal
analysis. Compute the percentage to the nearest tenth of a
percent.
Jill’s Bikes
Comparative Balance Sheet
For Years Ended December 31, 2011 and 2010
(in thousands) 2011 2010 Difference Percentage
Assets
Current Assets
Cash and Equivalents $72 $94
Accounts Receivable, net 122 104
Inventory 288 232
Total Current Assets 482 430
Property, Plant and Equipment 638 358
Total Assets $1,120 $788
Liabilities
Current Liabilities
Accounts Payable $242 $148
Accrued Liabilities 48 66
Total Current Liabilities 290 214
Long-Term Liabilities 346 208
Total Liabilities 636 422
Stockholders’ Equity
Common Stock 70 60
Retained Earnings 414 306
Total Stockholders’ Equity 484 366
Total Liabilities and
Stockholders’ Equity
$1,120 $788
2. Journalize the following transactions and omit the explanations.
A. ABC Corporation purchased $15,000 of office furniture by putting $7,000 down in cash and the rest on account on April 8.
B. The corporation paid $60,000 for a two-year lease on April 19.
C. The corporation had sales of $45,000, of which $35,000 were on account on April 20.
D. The corporation borrowed $25,000 by signing a note payable on April 22.
E. The corporation paid $1,250 on one of its accounts payable on April 26.
3. Prepare a trial balance from the following information for Learn a New Language, Inc. for December 31, 2012.
Accounts payable
$5,012
Common stock
$9,692
Cash
$3,928
Notes payable
$1,439
Wages expense
$777
Marketing expense
$493
Equipment
$8,345
Accounts receivable
$1,142
Inventory
$8,074
Sales
$6,616
Compute the missing information from this post-closing trial balance.
Cash$34,689
Accounts Receivable$9,467
Prepaid Rent$5,000
Prepaid Insurance     (A)
Supplies944
Accounts Payable$5,389
Wages Payable   (B)
Common Stock37,409
Retained Earnings8,234
______                         ______
Total$52,356 $52,356
5. Journalize the following transactions using the perpetual inventory method.
Aug. 6 Purchased $830 of inventory on account from Johnston with terms of 2/10, n/30.
Aug. 8 Purchased $2,611 of inventory for cash from Pillner Company.
Aug.15 Paid for August 6 purchase from Johnston.
Aug. 17 Purchased $1,743 of merchandise on account from Luis Company with Terms of 3/15, n/45
6. Given the following information, prepare a balance sheet for Isaiah’s Tool Shed for the year ending December 31, 2012.
Cash
$65,750
Retained Earnings
$179,319
Common Stock
$35,000
Equipment
$27,500
Accounts Receivable
$11,478
Accounts Payable
$29,450
Land
$30,000
Inventory
$78,311
Prepaid Supplies
$7,357
Income Taxes Payable
$4,209
Office Computers
$11,345
Other PPE
$31,446
Accum. Depr. (all)
$23,459
7. Rick Company’s beginning inventory and purchases during the fiscal year ended December 31, 2012, were as follows:
(Note: The company uses a perpetual system of inventory.)
Units Unit Price Total Cost
January 1—Beginning inventory 18 $24 $432
March 12—Sold 13
April 11—Purchase 45 $29 $1,305
June 20—Sold 33
Aug 16—Purchase 35 $27 $945
Sept 11—Sold 29
Total Cost of Inventory
Ending inventory is 23 units. $2,682
What is the cost of goods sold for Rick Company for 2012 using LIFO?
8. Assume that in Year 1, the ending merchandise inventory is overstated by $30,000. If this is the only error in Years 1 and 2, fill in the items below, indicating which items will beunderstated, overstated, or correctly stated for Years 1 and 2
Item Year 1
Year 2
Ending inventory ___________ _____________
Beginning inventory ___________ _____________
Cost of goods sold ___________ _____________
9. Below is a list of treatments of accounting topics. Place GAAP on the line if the treatment is GAAP-based and place IFRS on the line if the treatment is IFRS-based.
A. Interest and dividend income are reported in the investing section of the cash flow statement.__________
B. Interest expense is reported in the financing section of the cash flow statement. ___________
C. The use of LIFO is prohibited. ________
10. Record the necessary journal entries from the following bank reconciliation information for July 31, 2011:
Bank Balance, July 31, 2011
$36,739
Checkbook Balance, July 31, 2011
36,444
Bank collection of note receivable
1,200 + 165
interest
Bank service charge
35
Deposits in transit
2,400
Outstanding checks
1,245
NSF check from customer
330
Correction of book error (check #456 written for $160
11. Journalize the following transactions for Tammy Company:
Sept. 1 Sold $3,500 of merchandise to Jim on account
Oct. 1 Exchanged Jim’s account receivable for a four month, 8% note for $3,500
Dec. 31 Recorded accrued interest on Jim’s note Feb. 1 Jim paid off his note with interest (round to nearest dollar)
12. A truck was purchased on January 2 at a cost of $60,000.
It’s expected to be used for five years and to have a residual value of $5,000 after 120,000 miles of service. The truck was driven for 23,000 miles the first year and 25,000 miles the second year. Calculate the depreciation expense to the nearest dollar for the first and second years.
Method Year 1
Year 2
Straight-line ________
Double-declining-balance ________ ________
Units-of-production ____
13. Prepare the general journal entries for the following
transactions:
Jan. 2, 2011 Purchased land with a building on it for $750,000. The land is worth $300,000.
Paid $150,000 cash down and signed a
mortgage payable for the balance.
Dec. 31, 2011 Depreciation is computed using the straight-line method. The estimated salvage value of the building is $75,000 and has an estimated life of 20 years.
July 1, 2012 The building and land are sold for $825,000 cash
14. Journalize the following treasury stock transactions:
June 3 Reacquired 350 shares of $12 par common stock at $10 per share.
June 7 Sold 180 shares of treasury stock for $16 per share.
June 8 Sold 150 shares of treasury stock for $9 per share
15. Lowry Landscapes had net income of $50,000 for 2010.
Land was sold for $40,000, of which $3,000 was a gain. The beginning cash balance was $53,000, and the ending cash balance was $151,000. Depreciation expenses were $11,000. Prepare a statement of cash flows for the year ended December 31, 2010, for Lowry Landscapes using the indirect method.