Q1. Two accountants for the firm of Elwes and Wright are arguing about the merits of presenting an income statement in a multiple-step versus a single-step format. The discussion involves the following 2014 information related to P. Bride Company ($000 omitted).
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Administrative expenses
|
|
|
Officers' salaries
|
$4,900
|
|
Depreciation of office furniture and equipment
|
3,960
|
|
Cost of goods sold
|
60,570
|
|
Rent revenue
|
17,230
|
|
Selling expenses
|
|
|
Transportation-out
|
2,690
|
|
Sales commissions
|
7,980
|
|
Depreciation of sales equipment
|
6,480
|
|
Sales
|
96,500
|
|
Income tax
|
9,070
|
|
Interest expense
|
1,860
|
Instructions:
(a) Prepare an income statement for the year 2014 using the multiple-step form. Common shares outstanding for 2014 total 40,550 (000 omitted).
(b) Prepare an income statement for the year 2014 using the single-step form. Common shares outstanding for 2014 total 40,550 (000 omitted).
Q2. Eddie Zambrano Corporation began operations on January 1, 2011. During its first 3 years of operations, Zambrano reported net income and declared dividends as follows.
|
Year
|
Net income
|
Dividends declared
|
|
2011
|
$40,000
|
$0
|
|
2012
|
125,000
|
50,000
|
|
2013
|
160,000
|
50,000
|
The following information relates to 2014:
Income before income taxes - $240,000
Prior period adjustment: Understatement of 2012 depreciation expense. (Before taxes) - $25,000
Cumulative decrease in income from change in inventory methods (before taxes) - $35,000
Dividends declared - $100,000
Of the dividends declared to date, the amount that will be paid on Jan 15, 2015 is: $25,000
Effective tax rate - 40%
Instructions:
(a) Prepare a 2014 retained earnings statement for Eddie Zambrano Corporation.
(b) Assume Eddie Zambrano Corp. restricted retained earnings in the amount of $70,000 on December 31, 2014. After this action, what would Zambrano report as total retained earnings in its December 31, 2014, balance sheet?
Q3. On June 3, Hunt Company sold to Ann Mount merchandise having a sales price of $8,000 with terms of 2/10, n/60, f.o.b. shipping point. An invoice totaling $120, terms n/30, was received by Mount on June 8 from the Olympic Transport Service for the freight cost. Upon receipt of the goods, June 5, Mount notified Hunt Company that merchandise costing $600 contained flaws that rendered it worthless. The same day, Hunt Company issued a credit memo covering the worthless merchandise and asked that it be returned at company expense. The freight on the returned merchandise was $24 paid by Hunt Company on June 7. On June 12, the company received a check for the balance due from Mount.
Instructions:
(a)(1) Prepare journal entries on Hunt Company books to record all the events noted above under the sales and receivables are entered at gross selling price concept.
(a)(2) Prepare journal entries on Hunt Company books to record all the events noted above under the sales and receivables are entered net of cash discounts concept.
(b) Prepare the journal entry under basis 2, assuming that Ann Mount did not remit payment until August 5.
Q4. Presented below are selected accounts of Yasunari Kawabata Company at December 31, 2014.
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Finished Goods
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$52,000
|
Cost of Goods Sold
|
$2,100,000
|
|
Unearned Revenue
|
90,000
|
Notes Receivable
|
40,000
|
|
Equipment
|
253,000
|
Accounts Receivable
|
161,000
|
|
Work in Process
|
34,000
|
Raw Materials
|
207,000
|
|
Cash
|
37,000
|
Supplies Expense
|
60,000
|
|
Equity Investments (Short-term)
|
31,000
|
Allowance for Doubtful Accounts
|
12,000
|
|
Customer Advances
|
36,000
|
Licenses
|
18,000
|
|
Cash Restricted for Plant Expansion
|
50,000
|
Additional Paid-in Capital
|
88,000
|
|
|
|
Treasury Stock
|
22,000
|
The following additional information is available:
1. Inventories are valued at lower-of-cost-or-market using LIFO.
2. Equipment is recorded at cost. Accumulated depreciation, computed on a straight-line basis, is $50,600
3. The short-term investments have a fair value of $29,000 (Assume they are trading securities.)
4. The notes receivables are due April 30, 2016, with interest receivable every April 30. The notes bear interest at 6% (Hint: Accrue interest due on December 31, 2014.)
5. The allowance for doubtful accounts applies to the accounts receivable. Accounts receivable o $50,000 are pledged as collateral on a bank loan.
6. Licenses are recorded net of accumulated amortization of $14,000
7. Treasury stock is recorded at cost.
Instructions: Prepare the current assets section of Yasunari Kawabata Company's December 31, 2014, balance sheet, with appropriate disclosures.
Q5. Presented below is the adjusted trial balance of Kelly Corporation at December 31, 2014.
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Debits
|
Credits
|
|
Cash
|
??
|
|
|
Supplies
|
$1,200
|
|
|
Prepaid Insurance
|
1,000
|
|
|
Equipment
|
48,000
|
|
|
Accumulated Depreciation - Equipment
|
|
$4,000
|
|
Trademarks
|
950
|
|
|
Accounts Payable
|
|
10,000
|
|
Salaries and Wages Payable
|
|
500
|
|
Unearned Service Revenue
|
|
2,000
|
|
Bonds Payable, due 2021
|
|
9,000
|
|
Common Stock
|
|
10,000
|
|
Retained Earnings
|
|
25,000
|
|
Service Revenue
|
|
10,000
|
|
Salaries and Wages Expense
|
9,000
|
|
|
Insurance Expense
|
1,400
|
|
|
Rent Expense
|
1,200
|
|
|
Interest Expense
|
900
|
|
|
Total
|
??
|
??
|
Additional information:
1. Net loss for the year was $2,500
2. No dividends were declared during 2014.
Instructions: Prepare a classified balance sheet as of December 31, 2014.
Q6. The income statement of Vince Gill Company is shown below.
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VINCE GILL COMPANY Income Statement For The Year Ended December 31, 2014
|
|
Sales
|
$6,900,000
|
|
Cost of goods sold
|
|
|
Beginning inventory
|
$1,900,000
|
|
|
Purchases
|
4,400,000
|
|
|
Goods available for sale
|
6,300,000
|
|
|
Ending inventory
|
1,600,000
|
|
|
Cost of goods sold
|
4,700,000
|
|
Gross profit
|
2,200,000
|
|
Operating expenses
|
|
|
Selling expenses
|
450,000
|
|
|
Administrative expenses
|
700,000
|
1,150,000
|
|
Net income
|
$1,050,000
|
Additional information:
1. Accounts receivable decreased $310,000 during the year.
2. Prepaid expenses increased $170,000 during the year.
3. Accounts payable to suppliers of merchandise decreased $275,000 during the year.
4. Accrued expenses payable decreased $120,000 during the year.
5. Administrative expenses include depreciation expense of $60,000.
Instructions: Prepare the operating activities section of the statement of cash flows for the year ended December 31, 2014, for Rodriquez Company, using the indirect method.
Q7. Mortonson Company has not yet prepared a formal statement of cash flows for the 2014 fiscal year. Comparative balance sheets as of December 31, 2013, and 2014, and a statement of income and retained earnings for the year ended December 31, 2014, are presented below.
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MORTONSON COMPANY Statement of Income and Retained Earnings For The Year Ended December 31, 2014 ($000 Omitted)
|
|
Sales
|
$3,800
|
|
Expenses
|
|
|
Cost of goods sold
|
$1,200
|
|
|
Salaries and benefits
|
725
|
|
|
Heat, light, and power
|
75
|
|
|
Depreciation
|
80
|
|
|
Property taxes
|
19
|
|
|
Patent amortization
|
25
|
|
|
Miscellaneous expenses
|
10
|
|
|
Interest
|
30
|
2,164
|
|
Income before income taxes
|
1,636
|
|
Income taxes
|
818
|
|
Net income
|
818
|
|
Retained earnings - January 1, 2014
|
310
|
|
1,128
|
|
Stock dividend declared and issued
|
600
|
|
Retained earnings - December 31, 2014
|
$528
|
|
MORTONSON COMPANY Comparative Balance Sheet December 31 ($000 Omitted)
|
|
Assets
|
2014
|
2013
|
|
Current assets
|
|
|
|
Cash
|
$333
|
$100
|
|
U.S. Treasury notes (Available-for-sale)
|
10
|
50
|
|
Accounts receivable
|
780
|
500
|
|
Inventory
|
720
|
560
|
|
Total current assets
|
1,843
|
1,210
|
|
Long-term assets
|
|
|
|
Land
|
150
|
70
|
|
Buildings and equipment
|
910
|
600
|
|
Accumulated depreciation
|
(200)
|
(120)
|
|
Patents (less amortization)
|
105
|
130
|
|
Total long-term assets
|
965
|
680
|
|
Total assets
|
$2,808
|
$1,890
|
|
|
|
|
|
|
Liabilities and Stockholders' Equity
|
|
|
|
Current liabilities
|
|
|
|
Accounts payable
|
$420
|
$330
|
|
Income taxes payable
|
40
|
30
|
|
Notes payable
|
320
|
320
|
|
Total current liabilities
|
780
|
680
|
|
Long-term notes payable - due 2016
|
200
|
200
|
|
Total liabilities
|
980
|
880
|
|
Stockholders' equity
|
|
|
|
Common stock outstanding
|
1,300
|
700
|
|
Retained earnings
|
528
|
310
|
|
Total stockholders' equity
|
1,828
|
1,010
|
|
Total liabilities and stockholders' equity
|
$2,808
|
$1,890
|
Instructions: Prepare a statement of cash flows using the direct method. Changes in accounts receivable and in accounts payable relate to sales and cost of sales. Do not prepare a reconciliation schedule.
Q8. Alan Jackson invests $20,000 at 8% annual interest, leaving the money 8 years. At the end of the 8 years, Alan withdrew the accumulated amount of money.
Instructions:
(a) Compute the amount Alan would withdraw assuming the investment earns simple interest.
(b) Compute the amount Alan would withdraw assuming the investment earns interest compounded annually.
(c) Compute the amount Alan would withdraw assuming the investment earns interest compounded semi-annually.
Q9. Using the appropriate interest table or Excel formula, answer each of the following questions: (Each case is independent of the others.)
(a) What is the future value of $7,000 at the end of 5 periods at 8% compounded interest?
(b) What is the present value of $7,000 due 8 periods hence, discounted at 11%.
(c) What is the future value of 15 periodic payments of $7,000 each made at the end of each period and compounded at 10%?
(d) What is the present value of $7,000 to be received at the end of each of 20 periods, discounted at 5% compound interest?
Q10. On June 3, Arnold Company sold to Chester Company merchandise having a sale price of $3,000 with terms of 2/10, n/60, f.o.b. shipping point. An invoice totaling $90, terms n/30, was received by Chester on June 8 from John Booth Transport Service for the freight cost. On June 12, the company received a check for the balance due from Chester Company.
Instructions:
(a) Prepare journal entries on the Arnold Company books to record all the events noted above under each of the following bases:
(1) Sales and receivables are entered at gross selling price.
(2) Sales and receivables are entered at net cash discounts.