18. Swift Company was organized on March 1 of the current
Swift Company was organized on March 1 of the current year. After five months of start-up losses, management had expected to earn a profit during August. Management was disappointed, however, when the income statement for August also showed a loss. Augusts income statement follows.:
After seeing the $12,000 loss for August, Swifts president stated, I was sure wed be profitable within six months, but our six months are up and this loss for August is even worse than Julys. I think its time to start looking for someone to but out the companys assets-f we dont within a few moths there wont be any assets to sell. By the way, I dont see any reason to look for a new controller. Well just limp along with Sam for the time being.
The companys controller resigned a month ago. Sam, a new assistant in the controllers office, prepared the income statement above. Sam has had little experience in manufacturing operations. Additional information about the company follows:
a. Some 60% of the utilities cost and 75% of the insurance apply to factory operations. The remaining amounts apply to selling and administrative activities.
b. Inventory balances at the beginning and end of August were:
c. Only 80% of the rent on facilities applies to factory operations the remainder applies to selling and administrative activities. The president has asked you to check over the income statement and make a recommendation as to whether the company should look for a buyer for its assets.
Required:
1. As one step in gathering data for a recommendation to the president, prepare a schedule of cot of goods manufactured for August.
2. As a second step, prepare a new income statement for August.
3. Based on your statements prepared in (1) and (2) above, would you recommend that the company look for a buyer?
19. Tammy Touchtone operates a talent agency called Touchtone Talent Agency. Some clients pay in...
Tammy Touchtone operates a talent agency called Touchtone Talent Agency. Some clients pay in advance for services; others are billed after services have been performed. Advance payments are credited to an account entitled Unearned Agency Fees. Adjusting entries are performed on a monthly basis. Closing entries are performed annually on December 31. An unadjusted trial bal- ance dated December 31, 2011, follows. (Bear in mind that adjusting entries have already been made for the first 11 months of 2011, but not for December.)
TOUCHTONE TALENT AGENCY UNADJUSTED TRIAL BALANCE DECEMBER 31, 2011
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | $ 14,950 |
| |
Fees receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | 35,300 | ||
Prepaid rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | 1,200 | ||
Unexpired insurance policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | 375 | ||
Office supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | 900 | ||
Office equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | 15,000 | ||
Accumulated depreciation: office equipment . . . . . . . . . . . . . . . . . . . . |
|
| $ 12,000 |
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . |
|
| 1,500 |
Note payable (due 3/1/12) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . |
|
| 6,000 |
Income taxes payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . |
|
| 3,200 |
Unearned agency fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . |
|
| 8,000 |
Capital stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . |
|
| 20,000 |
Retained earnings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . |
|
| 10,800 |
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | 800 |
|
|
Agency fees earned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . |
|
| 46,500 |
Telephone expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | 480 |
|
|
Office supply expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | 1,130 |
|
|
Depreciation expense: office equipment . . . . . . . . . . . . . . . . . . . . . . . | 2,750 |
|
|
Rent expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | 6,100 |
|
|
Insurance expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | 1,175 |
|
|
Salaries expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | 24,640 |
|
|
Income taxes expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | 3,200 |
|
|
| $108,000 |
| $108,000 |
Other Data
1. Office equipment is being depreciated over 60 months (5 years).
2. At December 31, 2011, $2,500 of previously unearned agency fees had been earned.
3. Accrued but unrecorded and unpaid salary expense totals $1,360 at December 31, 2011.
4. The agency pays rent quarterly (every three months). The most recent advance payment of $1,800 was made November 1, 2011. The next payment of $1,800 will be made on February 1, 2012.
5. Accrued but unrecorded and uncollected agency fees earned total $3,000 at December 31, 2011.
6. Office supplies on hand at December 31, 2011, total $530.
7. On September 1, 2011, the agency purchased a six-month insurance policy for $750.
8. On December 1, 2011, the agency borrowed $6,000 by signing a three-month, 9 percent note payable. The entire amount borrowed, plus interest, is due March 1, 2012.
9. Accrued income taxes payable for the entire year ending December 31, 2011, total $3,900. The full amount is due early in 2012.
Instructions
a. Prepare the necessary adjusting journal entries on December 31, 2011. Also prepare an
adjusted trial balance dated December 31, 2011.
b. From the adjusted trial balance prepared in part a, prepare an income statement and statement of retained earnings for the year ended December 31, 2011. Also prepare the company’s bal- ance sheet dated December 31, 2011.
c. Prepare the necessary year-end closing entries.
d. Prepare an after-closing trial balance.
e. Assume that the agency purchased all of its office equipment when it first began business activities. For how many months has the agency been in operation?
Has the agency’s monthly office rent remained the same throughout the year? If not, has it gone up or down? Explain.
f. Has the agency’s monthly insurance expense remained the same throughout the year? If not, has it gone up or down? Explain.
20. 1 Which of the following receivables would not be classified as an “other receivable”? a Advance to
1 Which of the following receivables would not be
classified as an
“other receivable”?
a Advance to an employee
b Refundable income tax
c Notes receivable
d Interest receivable
2 An aging of a company’s accounts receivable indicates
that $6,000
are estimated to be uncollectible If Allowance for Doubtful
Accounts has a $1,100 credit balance, the adjustment to
record
bad debts for the period will require a
a debit to Bad Debts Expense for $6,000
b debit to Allowance for Doubtful Accounts for $4,900
c debit to Bad Debts Expense for $4,900
d credit to Allowance for Doubtful Accounts for $6,000
3 Winter Furniture factors $400,000 of receivables to Fair
Factors,
Inc Fair Factors assesses a 2% service charge on the amount
of
receivables sold Winter Furniture factors its receivables
regularly
with Fair Factors What journal entry does Winter make when
factoring these receivables?
a Cash 392,000
Loss on Sale of Receivables 8,000
Accounts Receivable 400,000
b Cash 392,000
Accounts Receivable 392,000
c Cash 400,000
Accounts Receivable 392,000
Gain on Sale of Receivables 8,000
d Cash 392,000
Service Charge Expense 8,000
Accounts Receivable 400,000
4 A company purchased land for $80,000 cash Real estate
brokers’
commission was $5,000 and $7,000 was spent for demolishing
an old
building on the land before construction of a new building
could
start Under the cost principle, the cost of land would be
recorded
at
a $87,000
b $80,000
c $85,000
d $92,000
–Page 2
5 A company purchased factory equipment for $100,000 It is
estimated
that the equipment will have a $10,000 salvage value at the
end
of its estimated 5-year useful life If the company uses the
double-declining-balance method of depreciation, the amount
of
annual depreciation recorded for the second year after
purchase
would be
a $40,000
b $24,000
c $36,000
d $21,600
6 A company sells a plant asset that originally cost
$180,000 for
$60,000 on December 31, 2003 The accumulated depreciation
account
had a balance of $72,000 after the current year’s
depreciation of
$18,000 had been recorded The company should recognize a
a $120,000 loss on disposal
b $48,000 gain on disposal
c $48,000 loss on disposal
d $30,000 loss on disposal
7 A retail store credited the Sales account for the sales
price and
the amount of sales tax on sales If the sales tax rate is
5% and
the balance in the Sales account amounted to $168,000, what
is the
amount of the sales taxes owed to the taxing agency?
a $160,000
b $168,000
c $8,400
d $8,000
21. 1. The study of an individual financial statement item over several accounting periods is called: (P
1.
The study of an individual financial statement item over several accounting periods is called:
(Points : 2)
ratio analysis.
vertical analysis.
liquidity analysis.
horizontal analysis.
Question 2.
2.
Select the incorrectstatement regarding ratio analysis.
(Points : 2)
Ratio analysis is a specific form of horizontal analysis.
Ratio analysis involves making comparisons between different accounts in the same set of financial statements.
There are many different ratios available for evaluating a firm’s performance.
Some ratios involve an account from the balance sheet and one from the income statement.
Question 3.
3.
Otteman Company reported net income of $16,700 on gross sales
of $80,000. The company has average total assets of $115,200, of which
$100,000 is property, plant, and equipment. What is the company’s return
on investment?
(Points : 2)
69.4%
18.0%
14.5%
12.5%
Question 4.
4.
Select the incorrect statement regarding the information disclosed in financial statements.
(Points : 2)
Financial statements should be detailed enough to answer almost any accounting question an investor might have.
Some information disclosed in financial statements may be irrelevant to some users.
The costs of providing all possible accounting information about a firm would be too prohibitive to the business.
When too much information is presented users may suffer from information overload.
Question 5.
5.
The accounting concept or principle that is perhaps the
greatest single cause in distorting the results of financial statement
analysis is the:
(Points : 2)
matching principle.
historical cost concept.
conservatism principle.
time value of money concept.
Question 6.
6.
Common methods of financial statement analysis include all of the following except:
(Points : 2)
horizontal analysis.
incremental analysis.
vertical analysis.
ratio analysis.
Question 7.
7.
Select the incorrectstatement regarding the return on equity (ROE) measure.
(Points : 2)
ROE is used to measure the profitability of the firm in relation to the amount invested by stockholders.
A
company’s ROE is lower than its return on investment because ROE does
not consider that part of the business that is financed by debt.
ROE is affected by a company’s use of leverage.
ROE equals net income divided by average total stockholders’ equity.
Question 8.
8.
Sliefert Company provided the following information from its financial records: Net income$200,000Total stockholders’ equity$800,000Preferred dividends$10,000Common shares outstanding, 12/31120,000Preferred rights$150,000 What is the company’s book value per share?
(Points : 2)
$1.67
$6.67
$5.42
$1.58
Question 9.
9.
The Haas Company paid total cash dividends of $44,000 on
25,000 outstanding common shares. On the most recent trading day, the
common shares sold at $80. What is this company’s dividend yield?
(Points : 2)
2.2%
3.2%
5%
14.1%
Question 10.
10.
Financial statement analysis involves forms of comparison including:
(Points : 2)
comparing changes in the same item over a number of periods.
comparing key relationships within the same year.
comparing key items to industry averages.
all of the above.
Question 11.
11.
Which of the following transactions would cause net income for the period to be lower?
(Points : 2)
Paid $1,600 cash for raw material cost
Paid administrative salaries of $2,500
Depreciated production equipment for $3,000
Purchased $5,000 of merchandise inventory
Question 12.
12.
Which of the following activities adds value to a product or service?
(Points : 2)
Inspection time
Move time
Process time
Wait time
Question 13.
13.
Which of the following statements is true with regard to
product costs versus general, selling, and administrative costs?
(Points : 2)
Product costs associated with unsold units appear on the income statement as general expenses.
General, selling, and administrative costs appear on the balance sheet.
Product costs associated with units sold appear on the Income Statement as cost of good sold expense.
All of the above.
Question 14.
14.
Which of the following should not be recorded as an expense?
(Points : 2)
Paid office salaries
Paid factory maintenance costs
Paid product advertising costs
Paid sales commissions
Question 15.
15.
Select the incorrect statement regarding costs and expenses.
(Points : 2)
Some costs are initially recorded as expenses while others are initially recorded as assets.
Expenses are incurred when assets are used to generate revenue.
Manufacturing-related costs are initially recorded as expenses.
Non-manufacturing costs should be expensed in the period in which they are incurred.
Question 16.
16.
During its first year of operations, Martin Company paid
$4,000 for direct materials and $8,500 for production workers’ wages.
Lease payments and utilities on the production facilities amounted to
$7,500 while general, selling, and administrative expenses totaled
$3,000. The company produced 5,000 units and sold 4,000 units at a price
of $7.50 a unit. What is the amount of gross margin for the first year?
(Points : 2)
$20,000
$12,000
$7,500
$14,000
Question 17.
17.
All of the following are upstream costs except:
(Points : 2)
research and development.
selling costs.
design costs.
costs to build a prototype product.
Question 18.
18.
Choose the answer that is not a distinguishing characteristic of financial accounting information.
(Points : 2)
It is global information that reflects the performance of the whole company.
It is time horizon is the present and future.
It is more concerned with financial data than physical or economic data.
It is more highly regulated than managerial accounting information.
Question 19.
19.
Which of the following most exemplifies the value-added principle?
(Points : 2)
An ongoing process where continuous improvement is the goal
A competitive management program that emphasizes quality
Information gathering and reporting activities that are restricted to those activities that add value in excess of their cost
Managerial accounting information is measured in economic, physical, and financial terms
Question 20.
20.
Which of the following is not one of the four Standards of Ethical Conduct for Management Accountants?
(Points : 2)
Competence
Confidentiality
Integrity
Education