F
Company L started the period with 50 units in beginning inventory that cost $1.00 each. During the period, the company purchased inventory items as follows. 240 units were sold after purchase 3 for $5.40 each.
Purchase No. of Items Cost
1 120 @ $1.60
2 160 @ $1.75
3 60 @ $1.85
If L Company uses the LIFO method of inventory cost flow, what is the ending inventory value?
Ending inventory = $210.00
Using LIFO, all of purchases 2 and 3 would be sold. Ending inventory would consist of 100 units @ 1.60 from purchase 1 + 50 @ $1.00 from beginning inventory (160 + 50 = 210).
Company Q was started on January 1, Year 1 when it issued common stock for $50,000 cash. Also, on January 1, Year 1, the company purchased office equipment that cost $19,000 cash. The equipment was delivered under terms FOB shipping point, and transportation cost was $1,000. The equipment had a five-year useful life and a $6,000 expected salvage value. Using double-declining-balance depreciation, what are the amounts of depreciation expense and accumulated depreciation, respectively, that would appear on the December 31, Year 3 financial statements?
Year 3 depreciation expense and accumulated depreciation = $1,200; $14,000
SL rate for 5 years = 1/5 = .20 DDB rate = .40
20,000 cost * .40 = 8,000 yr 1 depreciation
12,000 nbv * .40 = 4,800 yr 2 depreciation
7,200 nbv * .40 = 2,880 Yr 3 depreciation limited to $1,200
Accum depreciaton = 14,000
Total depreciation expense limited to cost - salvage value (19,000 + 1,000 - 6,000 = 14,000)
How would the year-end estimation of warranties expense be recorded in the horizontal financial statement worksheets?
Assets = Liabilities + Equity Revenue - Expense = Net Income Cash Flow
N/A + - N/A + - N/A
The estimation of warranties expense is added to the liability account, Warranties Payable, and it is recognized as an expense in the income statement. There is no cash flow associated with a year-end adjusting entry.
X Co. paid dividends of $2,000; $2,100; and $10,000 during Year 1, Year 2, and Year 3, respectively. The company had 5,000 shares of 5%, $10 par value preferred stock outstanding that paid a cumulative dividend. What is the amount of dividends received by the common shareholders during Year 3?
Common shareholders' year 3 dividend = $6,600
Preferred dividends each year = $2,500
Arrears: yr 1 $500 ; yr 2 $400 Year 3 $10,000 - 500 - 400 - 2,500 = $6,600
Which of the following may be considered advantages of the corporate form of business organization?
*Easily transferable ownership rights *Continuous life *Double taxation *Ability to raise capital
*Easily transferable ownership rights *Continuous life *Ability to raise capital
Double taxation is NOT an advantage!!
M Company purchased a manufacturing machine with a list price of $100,000 and received a 2% cash discount on the purchase. The machine was delivered under terms FOB shipping point, and freight costs amounted to $2,000. The company paid $5,000 to have the machine installed and tested. Insurance costs to protect the asset from fire and theft amounted to $10,000 for the first year of operations.
Based on this information, what was the amount of cost recorded in the asset account?
Total cost of machine = $105,000
Purchase price - discount + transportation-in + installation & testing = total asset cost
100,000 - 2,000 + 2,000 + 5,000 = 105,000
Insurance coverage for the first year of operations is not recorded as part of the cost of the machine.
On June 1, R Company purchased a new stamping machine with a list price of $100,000. The company paid cash for the machine; therefore, it was allowed a 5% discount. Other costs associated with the machine were: transportation costs, $2,000; sales tax paid, $6,000; installation costs, $1,500; routine maintenance during the first month of operation, $3,000. What is the cost for the machine that was recorded in the asset account of R's balance sheet?
Recorded cost of the stamping machine = $104,500
100,000 - 5,000 + 2,000 + 6,000 + 1,500 = 104,500
Under what condition is a pending lawsuit recognized as a liability on a company's balance sheet?
Only if the outcome is probable and can be reasonably estimated.
A contingent liability should be recorded in the financial statements as a liability if the outcome is considered probable and the amount owed can be reasonably estimated. If it is considered only reasonably possible, it is only disclosed in the notes to the financial statements.
A company provided the following information from its financial records:
Net income $300,000 ; Common shares outstanding 1/1 100,000 ; Common stock dividends $20,000 ; Common shares outstanding 12/31 200,000 ; Preferred stock dividends $50,000 ; Preferred shares outstanding 1/1 10,000 ; Sales $1,000,000 Preferred shares outstanding 12/31 6,000
What is the amount of the company's earnings per share? (round to the nearest penny)
Earnings per share = (Net income − Preferred stock dividends) / Average shares outstanding
EPS = ($300,000 - $50,000) / ((100,000 + 200,000)/2) = $250,000 / 150,000 = $1.67
What are the components of the fraud triangle?
Opportunity
Rationalization Pressure
N Corporation acquired real estate that contained land, building and equipment. The property cost N Corporation $3,000,000. N paid $950,000 and issued a note payable for the remainder of the cost. An appraisal of the property reported the following values: Land, $300,000; Building, $1,800,000; and Equipment, $900,000.
Assume that N Corporation uses the units-of-production method when depreciating its equipment. It is estimated that the purchased equipment will produce 850,000 units over its 5-year useful life and has salvage value of $50,000. N Corporation produced 169,000 units with the equipment by the end of the first year of purchase.
What amount will be recorded for depreciation expense for the equipment in the first year?
1st year depreciation expense = $169,000
(Purchase price - salvage value) / Estimated total units of production = depreciation expense per unit
(900,000 - 50,000) / 850,000 = $1 per unit 169,000 units produced in year 1 = $169,000
S Co. had sales of $100,000 in Year 1. The company expects to incur warranty expenses amounting to 2% of sales. There were $400 of warranty obligations paid in cash during Year 1. Based on this information, what effects of the warranties will be shown in S Co,'s financial statements?
Cash would decrease by $400 as a result of paying warranty claims in Year 1. Cash outflow from OA.
Year 1 warranty expense = $2,000. NI would be decreased; RE would decrease upon closing the books.
The warranties payable account would increase by $1,600 in Year 1. (2,000 - 400)
V Company was authorized to issue 50,000 shares of common stock. The company had issued 40,000 shares of stock when it purchased 10,000 shares of treasury stock. What was the resulting number of common shares outstanding?
Common shares outstanding = 30,000
The following balance sheet information was provided:
Assets Year 2 Year 1
Cash $5,000 $3,000
A/R $10,000 $20,000
Inventory $50,000 $55,000
Net credit sales for Year 2 totaled $60,000. What is the company's year 2 accounts receivable turnover?
A/R turnover = 4 times
A/R turnover = Net credit sales / Average receivables
60,000 / ((10,000 + 20,000)/2) = 60,000 / 15,000 = 4 times
Which of the following is a disadvantage of a sole proprietorship?
*Excessive regulation. *Unlimited liability. *Entrenched management. *Double taxation.
*Unlimited liability.
Sole proprietors are not shielded from liability, as corporate executives are. Also, a sole proprietor's liability is not limited or shared, as it would be in a partnership or LLC.
OO Co was started on January 1, Year 1 when it issued common stock for $100,000 cash. Also, on January 1, Year 1 the company purchased office equipment that cost $20,000 cash. The equipment was delivered under terms FOB shipping point, and transportation cost was $2,000. The equipment had a five-year useful life and a $7,000 expected salvage value. Assume that OO Co earned $30,000 cash revenue and incurred $20,000 in cash expenses in Year 3. Using straight-line depreciation and assuming that the office equipment was sold on December 31, Year 3 for $8,500, what amount of net income or (loss) would be reported on the December 31, Year 3 income statement?
Year 3 NI = $5,500
Income from operations = 30,000 - 20,000 = 10,000
Loss on sale of equipment = Net book value - selling price
Cost of equipment = $20,000 + 2,000 = 22,000
SL depreciation expense each year = (22,000 - 7,000) / 5 = $3,000 expense per year
NBV at end of year 3 = 22,000 - (3,000 * 3) = $13,000 Loss = 13,000 - 8,500 = 4,500
Year 3 NI = 10,000 - 4,500 = $5,500
On January 1, Year 1, the T Company borrowed $100,000 cash from its bank by issuing a five-year 8% term note. The principal and interest are repaid by making annual payments beginning on December 31, Year 1. The annual payment on the loan was set at $25,000.
What is the amount of principal repayment included in the December 31, Year 1 payment?
Year 1 principle payment = $17,000
25,000 total loan payment - 8,000 year 1 interest computation
A corporation shows a total of $50,000 in its common stock account and $10,000 in its paid-in capital in excess of par value – common stock account. The par value of the common stock is $5. How many shares of common stock have been issued?
10,000 shares
$50,000 / $5 = 10,000
Z Company reported gross sales of $600,000, sales returns and allowances of $20,000 and sales discounts of $30,000. The company has average total assets of $500,000, of which $250,000 is property, plant, and equipment. What is the company's asset turnover ratio?
Asset turnover = 1.1 times
Net credit sales ÷ Average assets
(600,000 - 20,000 - 30,000) / 500,000 = 550,000/500,000 = 1.1 times
What are solvency ratios used to analyze about a company's structure and stability?
Long-term debt-paying ability and financing structure
P Corporation acquired real estate that contained land, building and equipment. The property cost P Corporation $3,000,000. P Corporation paid $735,000 cash and issued a note payable for the remainder of the cost. An appraisal of the property reported the following values: Land, $500,000; Building, $2,000,000 and Equipment, $2,500,000.
What value will be recorded for the building?
Building cost = $1,200,000
(Appraised value of building / total appraised value of basket purchase)*$3,000,000
(2,000,000 / 5,000,000) * 3,000,000 = .40 * 3,000,000 = 1,200,000
U Company borrowed $32,000 from its bank by issuing a 10% three-year note. U Company agreed to repay the principal and interest by making annual payments in the amount of $9,200. Based on this information, what amount of interest expense was associated with the second payment?
Interest included in the 2nd payment = $2,600
Payment #1: $9,200 = 3,200 interest + 6,000 principle; new principle = 26,000
26,000 * 10% = 2,600 interest included in 2nd payment
On January 2, Year 1, W Corporation issued 2,000 shares of $5 par-value common stock for $5.50 per share. Which account balances will increase? By what amounts?
Cash $11,000 ; Common Stock $10,000 ; PIC in Excess of Par-CS $1,000
Cash = 2,000 * $5.50 ; CS = 2,000 * $5.00 ; PIC in Excess = 2,000 * $0.50
Using the following balance sheet information, what is the average number of days to sell inventory?
Assets Year 2 Year 1
Cash $ 5,000 $ 8,000
A/R $20,000 $30,000
Inventory $30,000 $40,000
COGS $350,000
(365 days/year)
Average days to sell inventory = 36.5
Avg days to sell inventory = 365 / Inventory turns ; Inventory turns = COGS / Average Ending Inventory
Inv turns = 350,000 / ((30,000 + 40,000)/2) = 350,000/35,000 = 10 ; 365/10 = 36.5 avg days to sell inv.
Which of the financial statements provides information about a company as of a specific date?
The balance sheet shows account balances as of a specific date, usually the end of a fiscal period.
Other financial statements (income statement, statement of cash flows, statement of changes in equity) show net changes over a period of time, usually one year.