Mastering Accounting Modules: A Path to Academic Success
1. 181.Which one of the following events would not require a formal journal entry on a corporation’s...
181.Which one of the following events would not require a formal journal entry on a corporation’s books?
a.2 for 1 stock split
b.100% stock dividend
c.2% stock dividend
d.$1 per share cash dividend
182.Stock dividends and stock splits have the following effects on retained earnings:
Stock SplitsStock Dividends
a.IncreaseNo change
b.No changeDecrease
c.DecreaseDecrease
d.No changeNo change
183.If a stockholder receives a dividend that reduces retained earnings by the fair value of the stock, the stockholder has received a
a.large stock dividend.
b.cash dividend.
c.contingent dividend.
d.small stock dividend.
184.Regular dividends are declared out of
a.Paid-in Capital in Excess of Par.
b.Treasury Stock.
c.Common Stock.
d.Retained Earnings.
185.The declaration and distribution of a stock dividend will
a.increase total stockholders’ equity.
b.increase total assets.
c.decrease total assets.
d.have no effect on total assets.
186.The board of directors must assign a per share value to a stock dividend declared that is
a.greater than the par or stated value.
b.less than the par or stated value.
c.equal to the par or stated value.
d.at least equal to the par or stated value.
187.Corporations generally issue stock dividends in order to
a.increase the market price per share.
b.exceed stockholders’ dividend expectations.
c.increase the marketability of the stock.
d.decrease the amount of capital in the corporation.
188.On January 1, Soft Corporation had 80,000 shares of $10 par value common stock outstanding. On June 17, the company declared a 10% stock dividend to stockholders of record on June 20. Market value of the stock was $15 on June 17. The stock was distributed on June 30. The entry to record the transaction of June 30 would include a
a.credit to Common Stock for $80,000.
b.debit to Common Stock Dividends Distributable for $120,000.
c.credit to Paid-in Capital in Excess of Par for $40,000.
d.debit to Stock Dividends for $40,000.
189.On January 1, Soft Corporation had 80,000 shares of $10 par value common stock outstanding. On June 17, the company declared a 10% stock dividend to stockholders of record on June 20. Market value of the stock was $15 on June 17. The entry to record the transaction of June 17 would include a
a.debit to Stock Dividends for $120,000.
b.credit to Cash for $120,000.
c.credit to Common Stock Dividends Distributable for $120,000.
d.credit to Common Stock Dividends Distributable for $40,000.
190.On January 1, Sway Corporation had 60,000 shares of $10 par value common stock outstanding. On March 17, the company declared a 10% stock dividend to stockholders of record on March 20. Market value of the stock was $13 on March 17. The entry to record the transaction of March 17 would include a
a.credit to Stock Dividends for $18,000.
b.credit to Cash for $78,000.
c.credit to Common Stock Dividends Distributable for $60,000.
d.debit to Common Stock Dividends Distributable for $60,000.
The Award Plus Company manufactures medals for winners of athletic events and other contests. Its manufacturing plant has the capacity to produce 10,000 medals each month. Current production and sales are 7,500 medals per month. The company normally charges
$165 per medal. Cost information for the current activity level is as follows:
Variable costs that vary with number of units produced | |
Direct materials | $ 262,500 |
Direct manufacturing labor | 300,000 |
Variable costs ( for setups, materials handling, quality control, and so on) that vary with number of batches, 150 batches * $ 500 per batch | 75,000 |
Fixed manufacturing costs | 275,000 |
Fixed marketing costs | 175,000 |
Total costs | $ 1,087,500 |
Award Plus has just received a special one-time-only order for 2,000 medals at $98 per medal. Accepting the special order would not affect the company’s regular business. Award Plus makes medals for its existing customers in batch sizes of 50 medals (150 batches 50 medals per batch = 7,500 medals). The special order requires Award Plus to make the medals in 25 batches of 100 each.
1. Should Award Plus accept this special order? Show your calculations.
2. Suppose plant capacity were only 9,000 medals instead of 10,000 medals each month. The special order must either be taken in full or be rejected completely. Should Award Plus accept the special order? Show your calculations.
3. As in requirement 1, assume that monthly capacity is 10,000 medals. Award Plus is concerned that if it accepts the special order, its existing customers will immediately demand a price discount of $ 10 in the month in which the special order is being filled. They would argue that Award Plus’s capacity costs are now being spread over more units and that existing customers should get the benefit of these lower costs. Should Award Plus accept the special order under these conditions? Show your calculations
3. The following accounts were taken from the Adjusted Trial Balance columns of the work sheet: Accu...
The following accounts were taken from the Adjusted Trial Balance columns of the work sheet: Accumulated Depreciation $3,200 Fees Earned 17,400 Depreciation Expense 1,300 Insurance Expense 200 Prepaid Insurance 4,800 Supplies 900 Supplies Expense 3,800 Net income for the period is: A $3,200 B$12,100 C$17,400 D$8,900
4. On January 6, Jacob Co. sells merchandise on account to Harley Inc. for $9,200, terms 1/10, n/30....
On January 6, Jacob Co. sells merchandise on account to Harley Inc. for $9,200, terms 1/10, n/30. On January 16, Harley pays the amount due.
Instructions
Prepare the entries on Jacob Co.’s books to record the sale and related collection. (Omit cost of goods sold entries.)
5. Multiple Choice Questions 39. If current assets are $90,000 and total assets are $270,000,...
Multiple Choice Questions
39. If current assets are $90,000 and total assets are $270,000, what percentage of total assets are current assets?
A. 3.5 percent
B. 30 percent
C. 25 percent
D. 33 percent
40. If current liabilities are $90,000, long-term liabilities are $270,000, and total assets are $600,000, what is the percentage of total liabilities to total assets?
A. 15 percent
B. 45 percent
C. 60 percent
D. 100 percent
41. A firm has liabilities of $60,000 and stockholders' equity of $180,000. The percentage of total liabilities to total assets is
A. 25 percent.
B. 20 percent.
C. 50 percent.
D. 75 percent.
42. A firm has current liabilities of $60,000, stockholders' equity of $180,000 and total assets of $300,000. The percentage of total liabilities to total assets is
A. 20 percent.
B. 40 percent.
C. 60 percent.
D. 80 percent.
43. In a vertical analysis of data, the cost of goods sold most likely would be expressed as a percentage of
A. net sales.
B. net income.
C. gross profit on sales.
D. total expenses.
44. Vertical analysis of income statement data most often involves a comparison of each income statement item with
A. net sales.
B. gross profit on sales.
C. net income before taxes.
D. net income after taxes.
45. If long-term liabilities are $75,000 and total assets are $525,000, what percentage of total assets are long-term liabilities?
A. 7 percent
B. 16.7 percent
C. 12.5 percent
D. 14.3 percent
46. In vertical analysis of the balance sheet, each item is expressed as a percentage of
A. current liabilities.
B. current assets.
C. long-term liabilities.
D. total assets or of total liabilities and stockholders' equity.
47. Which of the following is not true of vertical analysis?
A. Each item on the balance sheet is expressed as a percentage of total liabilities.
B. The percentages can be added and subtracted from top to bottom.
C. Each item in the income statement is expressed as a percentage of net sales.
D. Each item on the balance sheet is expressed as a percentage of total assets.
48. If total merchandise available for sale is 72 percent of net sales and cost of goods sold is 64 percent of net sales, gross profit on sales is
A. 8 percent of net sales.
B. 36 percent of net sales.
C. 28 percent of net sales.
D. 20 percent of net sales.
6. CC1 Natalie Koebel spent much of her childhood learning the art of cookie-making from her...
CC1 Natalie Koebel spent much of her childhood learning the art of cookie-making from her grandmother. They spent many happy hours mastering every type of cookie imaginable and later devised new recipes that were both healthy and delicious. Now at the start of her second year in college, Natalie is investigating possibilities for starting her own business as part of the entrepreneurship program in which she is enrolled. A long-time friend insists that Natalie has to include cookies in her business plan. After a series of brainstorming sessions, Natalie settles on the idea of operating a cookie-making school. She will start on a part-time basis and offer her services in people’s homes. Now that she has started thinking about it, the possibilities seem endless. During the fall, she will concentrate on holiday cookies. She will offer group sessions (which will probably be more entertainment than education) and individual lessons. Natalie also decides to include children in her target market. The first difficult decision is coming up with the perfect name for her business. She settles on “Cookie Creations,” and then moves on to more important issues. Instructions
(a) What form of business organization—proprietorship, partnership, or corporation—do you recommend that Natalie use for her business? Discuss the benefits and weaknesses of each form that Natalie might consider.
(b) Will Natalie need accounting information? If yes, what information will she need and why? How often will she need this information?
(c) Identify specific asset, liability, revenue, and expense accounts that Cookie Creations will likely use to record its business transactions.
(d) Should Natalie open a separate bank account for the business? Why or why not?
(e) Natalie expects she will have to use her car to drive to people’s homes and to pick up supplies, but she also needs to use her car for personal reasons. She recalls from her first-year accounting course something about keeping business and personal assets separate. She wonders what she should do for accounting purposes. What do you recommend?
Problem 9-7
On April 15, 2018, fire damaged the office and warehouse of Sarasota Corporation. The only accounting record saved was the general ledger, from which the balance sheet data below was prepared.
SARASOTA CORPORATION | ||
Cash | $19,110 | |
Accounts receivable | 36,050 | |
Inventory, December 31, 2017 | 72,770 | |
Land | 35,590 | |
Buildings | 106,820 | |
Accumulated depreciation | $37,831 | |
Equipment | 3,460 | |
Accounts payable | 24,749 | |
Other accrued expenses | 6,429 | |
Common stock | 98,100 | |
Retained earnings | 52,200 | |
Sales revenue | 135,270 | |
Purchases | 52,200 | |
Miscellaneous expense | 28,579 | |
$354,579 | $354,579 | |
The following data and information have been gathered.
1. | The fiscal year of the corporation ends on December 31. | |||||||||||||||||||||||||||||||
2. | An examination of the April bank statement and canceled checks revealed that checks written during the period April 1–15 totaled $13,230: $5,714 paid to accounts payable as of March 31, $3,561 for April merchandise shipments, and $3,559 paid for other expenses. Deposits during the same period amounted to $11,868, which consisted of receipts on account from customers with the exception of a $949 refund from a vendor for merchandise returned in April. | |||||||||||||||||||||||||||||||
3. | Correspondence with suppliers revealed unrecorded obligations at April 15 of $16,306 for April merchandise shipments, including $2,488 for shipments in transit (f.o.b. shipping point) on that date. | |||||||||||||||||||||||||||||||
4. | Customers acknowledged indebtedness of $44,740 at April 15, 2018. It was also estimated that customers owed another $8,800 that will never be acknowledged or recovered. Of the acknowledged indebtedness, $608 will probably be uncollectible. | |||||||||||||||||||||||||||||||
5. | The companies insuring the inventory agreed that the corporation’s fire-loss claim should be based on the assumption that the overall gross profit rate for the past 2 years was in effect during the current year. The corporation’s audited financial statements disclosed this information: | |||||||||||||||||||||||||||||||
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6. | Inventory with a cost of $7,150 was salvaged and sold for $3,510. The balance of the inventory was a total loss. | |||||||||||||||||||||||||||||||
Compute the amount of inventory fire loss. (Round ratios for computational purposes to 2 decimal places, e.g 78.52% and final answer to 0 decimal places, e.g. 28,987.)
Inventory fire loss | $
|
8. An umbrella manufacturer makes an average profit of Rs. 2.50 per unit on a selling price of Rs....
An umbrella manufacturer makes an average profit of Rs. 2.50 per unit on a selling price of Rs. 14.30 by producing and selling 60,000 units at 60% of the potential capacity.
His cost of sales per unit is as follows:
Direct Material | 3.50 |
Direct Wages | 1.25 |
Factory Overheads | 6.25 (50% fixed) |
Sales Overheads | 0.80 (25% variable) |
During the current year, he intends to produce the same number but estimates that his Fixed Cost would go up by 10% while the rates of direct wages and direct materials will increase by 8% and 6%, respectively. However, the selling price cannot be changed. Under this situation, he obtains an offer for a further 20% of his potential capacity.
What minimum price would you recommend for acceptance of the offer to ensure the manufacturer with an overall profit of Rs. 1,67,300?
Emco Company uses direct labor cost as a basis for computing its predetermined overhead rate. In computing the predetermined overhead rate for last year, the company misclassified a portion of direct labor cost as indirect labor. The effect of this misclassification will be to:
A) understate the predetermined overhead rate.
B) overstate the predetermined overhead rate.
C) have no effect on the predetermined overhead rate.
D) cannot be determined from the information given.
10. Prepare a bank reconciliation dated May 31, 2012, proceeding to a correct cash balance, and prepare...
(Petty Cash, Bank Reconciliation) Bill Jovi is reviewing the cash accounting for Nottleman, Inc., a local mailing service. Jovi’s review will focus on the petty cash account and the bank reconciliation for the month ended May 31, 2012. He has collected the following information from Nottleman’s bookkeeper for this task.
Petty Cash
1. The petty cash fund was established on May 10, 2012, in the amount of $250.
2. Expenditures from the fund by the custodian as of May 31, 2012, were evidenced by approved receipts for the following.
Postage expense | $33.00 |
Mailing labels and other supplies | 65.00 |
I.O.U. from employees | 30.00 |
Shipping charges | 57.45 |
Newspaper advertising | 22.80 |
Miscellaneous expense | 15.35 |
On May 31, 2012, the petty cash fund was replenished and increased to $300; currency and coin in the fund at that time totaled $26.40.
Bank Reconciliation
THIRD NATIONAL BANK | |||
| Disbursements | Receipts | Balance |
Balance, May 1, 2012 |
|
| $8,769 |
Deposits |
| $28,000 |
|
Note payment direct from customer (interest of $30) |
| 930 |
|
Checks cleared during May | $31,150 |
|
|
Bank service charges | 27 |
|
|
Balance, May 31, 2012 |
|
| 6,522 |
Nottleman’s Cash Account |
|
Balance, May 1, 2012 | $8,850 |
Deposits during May 2012 | 31,000 |
Checks written during May 2012 | -31,835 |
Deposits in transit are determined to be $3,000, and checks outstanding at May 31 total $850. Cash on hand (besides petty cash) at May 31, 2012, is $246.
Instructions
(a) Prepare the journal entries to record the transactions related to the petty cash fund for May.
(b) Prepare a bank reconciliation dated May 31, 2012, proceeding to a correct cash balance, and prepare the journal entries necessary to make the books correct and complete.
(c) What amount of cash should be reported in the May 31, 2012, balance sheet?
11. 22. Calculating a Bid Price Consider a project to supply 100 million postage stamps per year to...
22. Calculating a Bid Price Consider a project to supply 100 million postage stamps per year to the U.S. Postal Service for the next five years. You have an idle parcel of land available that cost $1,900,000 five years ago; if the land were sold today, it would net you $2,100,000 aftertax. The land can be sold for $2,300,000 after taxes in five years. You will need to install $5.4 million in new manufacturing plant and equipment to actually produce the stamps; this plant and equipment will be depreciated straight-line to zero over the project’s five-year life. The equipment can be sold for $500,000 at the end of the project. You will also need $600,000 in initial net working capital for the project, and an additional investment of $50,000 in every year thereafter. Your production costs are .5 cents per stamp, and you have fixed costs of $1,050,000 per year. If your tax rate is 34 percent and your required return on this project is 12 percent, what bid price should you submit on the contract
12. Pat Corporation paid $5,000,000 for Saw Corporation’s voting common stock on January 2, 2011...
Pat Corporation paid $5,000,000 for Saw Corporation’s voting common stock on January 2, 2011, and Saw was dissolved. The purchase price consisted of 100,000 shares of Pat’s common stock with a market value of $4,000,000, plus $1,000,000 cash. In addition, Pat paid $100,000 for registering and issuing the 100,000 shares of common stock and $200,000 for other costs of combination. Balance sheet information for the companies immediately before the acquisition is summarized as follows (in thousands):
REQUIRED
1. Prepare journal entries for Pat Corporation to record its acquisition of Saw Corporation, including all allocations to individual asset and liability accounts.
2. Prepare a balance sheet for Pat Corporation on January 2, 2011, immediately after the acquisition and dissolution ofSaw.
13. Joe's Downtown Restaurant purchases domestic red wine at $9.20 per bottle. Each bot
Joe's Downtown Restaurant purchases domestic red wine at $9.20 per bottle. Each bottle contains 3 liters, the equivalent of 101 ounces. The wine is served in 5-ounce glasses, and management allows for 1 ounce of spillage per 3-liter bottle. a. What is the average unit cost per drink? b. What is the total cost of 60 glasses of wine? c. The banquet manager is planning a function for 120 persons for next Friday evening. Each guest will be given one glass of wine. How many bottles should be ordered for the party? d. What will be the unit cost of the wine? The total cost?