Assignment
1. Which of the following statements concerning users of accounting information is incorrect?
Management is considered an internal user.
Present and prospective creditors are considered external users.
Regulatory authorities such as the SEC are considered internal users.
Taxing authorities are considered external users.
2. Issuing shares of stock in exchange for cash is an example of a(n):
delivering activity.
investing activity.
financing activity.
operating activity.
3. Which activities involve putting the resources of the business into action to generate a profit?
Delivering
Financing
Investing
Operating
4. The cost of assets consumed or services used is also known as:
a revenue.
an expense.
a liability.
an asset.
5. Edwards Company recorded the following cash transactions for the year:
Paid $45,000 for salaries.
Paid $20,000 to purchase office equipment.
Paid $5,000 for utilities.
Paid $2,000 in dividends.
Collected $75,000 from customers.
What was Edwards' net cash provided by operating activities?
$25,000
$5,000
$30,000
$23,000
6. On a classified balance sheet, prepaid insurance is classified as:
an intangible asset.
property, plant, and equipment.
a current asset.
a long-term investment.
7. An intangible asset:
may have the capacity to earn revenue for its owner.
is worthless because it has no physical substance.
is converted into a tangible asset during the operating cycle.
cannot be reported on the balance sheet because it lacks physical substance.
8. These are selected account balances on December 31, 2007.
-Land (location of the corporation's office building) $200,000
-Land (held for future use) 300,000
-Corporate Office Building 1,200,000
-Inventory 400,000
-Equipment 900,000
-Office Furniture 200,000
-Accumulated Depreciation 600,000
What is the total NET amount of property, plant, and equipment that will appear on the balance sheet?
$1,900,000
$2,600,000
$2,200,000
$3,200,000
9. For 2010, 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 2010 earnings per share?
$4.66
$0.20
$66.67
$5.00
10. Liondale Corporation had beginning retained earnings of $2,292,000 and ending retained earnings of $2,499,000. During the year, they issued common stock totaling $141,000. There were no dividends issued. What was their net income for the year?
$207,000
$ 66,000
$348,000
$273,000
11. On March 1, 2010, Dillon Company hires a new employee who will start the work on March 6. The employee will be paid on the last day of each month. Should a journal entry be made on March 6? Why or why not?
Yes, the company is now obligated to pay the employee, thus that event must be recorded on March 6.
No, hiring an employee is an important event; however, it is not an economic event that should be recorded on March 6.
Yes, failure to record the event on March 6 would cause the financial statements to be misleading.
No, the journal entry should be made on March 1 which is the date of hiring.
Instructor Explanation: Chapter 3 page 108
12. Which one of the following is not a part of an account?
Credit side
Trial balance
Debit side
Title
13. Which of the following describes the classification and normal balance of the retained earnings account?
Asset, debit
Stockholders' equity, credit
Revenues, credit
Expense, debit
14. A debit is the normal balance for which account listed below?
Furniture
Accounts payable
Rent revenue
Capital stock issued
15. Which of the following accounts follows the rules of debit and credit in relation to increases and decreases in the opposite manner?
Prepaid insurance and dividends
Dividends and medical fees earned
Interest payable and common stock
Advertising expense and land
Part 2
1. An accounting time period that is one year in length is called:
a fiscal year.
an interim period.
the time period assumption.
a reporting period.
2. In a merchandising business, revenue may be considered earned when:
cash is received from the customers
a product is delivered to a customer.
an order is received from a customer
a customer shows interest in a product
3. On April 1, 2010, M Corporation paid $48,000 cash for equipment that will be used in business operations. The equipment will be used for four years and will have no residual value. M records depreciation expense of $9,000 for the calendar year ending December 31, 2010. Which accounting principle has been violated?
Revenue recognition principle
No principle has been violated because M has correctly matched the expense for using the equipment to the period during which it generated revenue.
Matching principle because the cash was paid in 2007 and should be expensed in 2007.
Cost principle
4. The following is selected information from M Corporation for the fiscal year ending October 31, 2010:
Cash received from customers $300,000
Revenue earned 350,000
Cash paid for expenses 170,000
Expenses incurred 200,000
Based on the accrual basis of accounting, what is M Corporation's net income for the year ending October 31, 2010?
$140,000
$114,000
$82,000
$150,000
5. Adjusting entries are made to ensure that:
expense are recognized in the period in which they are incurred.
revenues are recorded in the period in which they are earned.
balance sheet and income statement accounts have correct balances at the end of an accounting period.
All of the above
6. Which of the following expressions is incorrect?
Gross profit - operating expenses = net income
Sales - cost of goods sold - operating expenses = net income
Net income + operating expenses = gross profit
Operating expenses - cost of goods sold = gross profit
7. Hunter Company purchased merchandise inventory with an invoice price of $3,000 and credit terms of 2/10, n/30. What is the net cost of the goods if Hunter Company pays within the discount period?
$2,940
$2,760
$2,700
$3,000
8. Jake's Market recorded the following events involving a recent purchase of merchandise:
Received goods for $20,000, terms 2/10, n/30.
Returned $400 of the shipment for credit.
Paid $100 freight on the shipment.
Paid the invoice within the discount period.
As a result of these events, the company's merchandise inventory:
increased by $19,208.
increased by $19,700.
increased by $19,306.
increased by $19,308.
9. The factor which determines whether or not goods should be included in a physical count of inventory is:
physical possession.
legal title.
management's judgment.
whether or not the purchase price has been paid.
10. Barnes Company is taking a physical inventory on March 31, the last day of its fiscal year. Which of the following must be included in this inventory count?
Goods in transit to Barnes, FOB destination
Goods that Barnes is holding on consignment for Parker Company
Goods in transit that Barnes has sold to Smith Company, FOB shipping point
Goods that Barnes is holding in inventory on March 31 for which the related Accounts Payable is 15 days past due
11. A problem with the specific identification method is that:
inventories can be reported at actual costs.
management can manipulate income.
matching is not achieved.
the lower of cost or market basis cannot be applied
12. Which of the following statements is true regarding inventory cost flow assumptions?
A company may use more than one cost-flow assumption concurrently for different product lines.
A company must comply with the method specified by industry standards.
A company must use the same method for domestic and foreign operations.
A company may never change its inventory costing method once it has chosen a method.
13. In periods of rising prices, the inventory method which results in the inventory value on the balance sheet that is closest to current cost is the:
FIFO method.
LIFO method.
average cost method.
tax method.
14. Which of the following is a true statement about inventory systems?
Periodic inventory systems require more detailed inventory records.
Perpetual inventory systems require more detailed inventory records.
A periodic system requires cost of goods sold be determined after each sale.
A perpetual system determines cost of goods sold only at the end of the accounting period.
15. A merchandiser that sells directly to consumers is:
a retailer.
a wholesaler.
a broker.
a service enterprise.
Part 3
1. A classmate is considering dropping his accounting class because he cannot understand the rules of debits and credits.
Explain the rules of debits and credits in a way that will help him understand them. Cite examples for each of the major sections of the balance sheet (assets, liabilities and stockholders' equity) and the income statement (revenues and expenses).
2. The Caltor Company gathered the following condensed data for the year ended December 31, 2010:
Cost of goods sold $ 710,000
Net sales 1,279,000
Administrative expenses 239,000
Interest expense 68,000
Dividends paid 38,000
Selling expenses 45,000
Instructions:
1. Prepare an income statement for the year ended December 31, 2010.
2. Compute the profit margin ratio and gross profit rate. Caltor Company s assets at the beginning of the year were $770,000 and were $830,000 at the end of the year. To qualify for full credit, you must state the formula you are using, show your computations and explain your findings.
Caltor Company Income Statement For the month Ended December 31, 2010 Revenues Sales 1279000 Cost of Goods Sold 710000 Gross Profit 1989000 Operating Expenses Administrative expense 239000 Selling expense 45000 Interest expense 5000
Income Statement
For the Year Ended December 31, 2010
Revenues
Net sales $1,279,000
Cost of Goods Sold 710,000
Gross Profit $569,000
Expenses:
Selling expenses 45,000
Administrative expenses 239,000
Interest expense 68,000
Total expenses $352,000
Net income $217,000
2. Profit margin ratio: $217,000 ÷ $1,279,000 = 16.9%
Gross profit rate: $569,000 / $1,279,000 = 44.49%