Chapter 5
What is the equation for Net A/R?
(Gross) A/R - Allowance for Doubtful Accounts
Company A has inventory turnover ratio of 5 and Company B has inventory turnover ratio of 10. Which company has better inventory management?
Company B - want higher inventory turnover ratio, so lower average days in inventory.
What are the two components of ROA?
Profit Margin and Asset Turnover
Give an example of a interest bearing liability.
Notes Payable, Bonds Payable, Debt, Loan, Operating Lease Liabilities
How do you calculate outstanding shares?
Issued Shares - Treasury Stock
Helicopters, Inc. uses the aging method. Beginning A/R is $10,000, ending A/R is $40,000. Beginning Allowance for Uncollectible Accounts is $100 and ending Allowance for Uncollectible Accounts is $500. They determine that $50 in accounts receivable needs to be written off. What is the bad debt expense for the year?
$450
Beg Allowance + Bad Debt Expense - Writeoffs = End Allowance
100 + X - 50 = 500
X = 450
Given the following information for a company that uses LIFO cost flow:
Beg Inventory 200 units @ $1.20/unit
1st purchase 400 units @ $1.30/unit
2nd purchase 250 units @ $1.40/unit
Sales 550 units @ $2.00/unit
What is the ending inventory ($)?
$370
200 x $1.20 = $240
100 x $1.30 = $130
$370
Company U bought equipment for $100,000 with a 7 year useful life and $23,000 residual value. They use the straight-line method for depreciation. What is the the depreciation expense for Year 2?
$11,000
(100,000-23,000)/7 = 11,000 per year
On January 1, Yellowjackets Inc. issues 250 bonds for $500 par value per bond. Interest is 5% and due semiannually (June 30 and December 31). The bonds mature in 10 years. What is the amount of the Bonds Payable on December 31, Year 1?
$125,000
250 x $500
A company issues 50,000 shares of $1 par value common stock for $6 per share. What is the balance in APIC?
APIC $250,000
50,000 x (6-1) = 250,000 OR
Cash (50,000 x 6) - C/S (50,000 x 1)
300,000 - 50,000 = 250,000
DAILY DOUBLE - If you get it right, you get 600 points, if you get it wrong, you get -600 points.
Sand, Inc. uses the percentage of A/R method. Beginning A/R is $50,000, ending A/R is $20,000. Beginning Allowance for Uncollectible Accounts is $1,000. Writeoffs for the year were $450. The company estimates 4% of A/R will be uncollectible. What is the net A/R?
$19,200
End A/R x % uncollectible = End Allowance
20,000 x .04 = 800
Net A/R = A/R - Allowance
20,000 - 800 = 19,200
Given the following information for a company that uses LIFO cost flow:
Beg Inventory 200 units @ $2/unit
1st purchase 150 units @ $2.10/unit
2nd purchase 110 units @ $2.15/unit
Sales 220 units @ $3.20/unit
What is the COGS for the year?
$467.50
110 x $2.15 = $236.50
110 x $2.10 = $231.00
$467.50
On July 1, Company W bought equipment for $250,000 with a 6 year useful life and $10,000 residual value. They use the straight-line method for depreciation and have a December 31 year end. What is the the depreciation expense for Year 1?
$20,000
((250,000-10,000)/6) x (6/12) = 20,000
On June 1, Spider Inc. issues $1,000,000 in bonds paying 4.5% interest. The bonds are due in 10 years and interest is paid annually on December 31. Spider, Inc. has a December 31 year end. What is the interest expense for Year 1?
$26,250
1,000,000 x .045 x (7/12)
A company has beginning retained earnings of $40,000. They had revenue of $100,000, COGS of $40,000, and other operating expenses of $10,000. They issued $15,000 of cash dividends during the year. What is ending retained earnings?
$75,000
40,000 + (100,000 - 40,000 - 10,000) - 15,000
Beg R/E + Net Income - Dividends = End R/E
Beg R/E + Revenue - Expenses - Dividends = End R/E
Beaches, Inc. uses the percentage of A/R method. Beginning A/R is $50,000, ending A/R is $20,000. Beginning Allowance for Uncollectible Accounts is $1,000. Credit sales for the year were $450,000. Write-offs were $900. The company estimates 2% of ending A/R will be uncollectible. What is the bad debt expense?
$300
End A/R x % uncollectible = End Allowance
20,000 x .02 = 400
Beg Allow + BDE - Writeoffs = End Allowance
1000 + X - 900 = 400
X = 300
Given the following information for a company that uses weighted average cost flow:
Beg Inventory 200 units @ $1.20/unit
1st purchase 400 units @ $1.30/unit
2nd purchase 250 units @ $1.40/unit
Sales 550 units @ $2.00/unit
What is the ending inventory ($) on the balance sheet? Round intermediate calculations to 2 decimals. Round your ending answer to nearest whole dollar.
$393
Total cost of goods available for sale = $1,110 [(200 x $1.20) + (400 x $1.30) + (250 x $1.40)]
Total Units = 200 + 400 + 250 = 850
Weighted Average Cost = $1,110 / 850 units = $1.31 weighted-average cost per unit.
E/I = $1.31 x 300 = $393
On August 1, Company Z bought equipment for $10,000 with a 5 year useful life and $1,000 residual value. They use the straight-line depreciation method and have December 31 year end. What is the balance in accumulated depreciation at the end of Year 2?
$2,550
Year 1: ((10,000 - 1,000)/5) x (5/12) = 750
Year 2: ((10,000 - 1,000)/5) x (12/12) = 1,800
750 + 1,800 = 2,550
On March 1, Snakes Inc. issues $500,000 in bonds paying 6.5% interest. The bonds are due in 10 years and interest is paid semiannually on August 31 and February 28. Snakes, Inc. has a December 31 year end. What amount of cash will Snakes, Inc. pay related to interest in Year 1?
$16,250
500,000 x .065 x (6/12)
*Pay for 6 months on August 31, won't pay again until February 28, Year 2. But will recognize interest expense for 10 months in Year 1.
A company issues 100,000 shares of $1 par value common stock for $5 per share. Then they buy back 20,000 shares at $2 per share. Subsequently, they resell 10,000 shares at $1 per share. What is the balance in APIC after these transactions?
$350,000
100,000 x (5-1) = 400,000
10,000 x (1-2) = -10,000
400,000 - 10,000 = 350,000
Videos, Inc. uses the percentage of A/R method. Beginning A/R is $50,000,ending A/R is $20,000. Beginning Allowance for Uncollectible Accounts is $1,000 and ending Allowance for Uncollectible Accounts is $1,500. Credit sales for the year were $450,000. The company wrote-off $4,000 during the year. The company estimates 7.5% of A/R will be uncollectible. What were the cash collections for the year?
$476,000
Beg A/R + Credit Sales - Cash Collected - Writeoffs = End A/R
50,000 + 450,000 - Cash Collected - 4,000 = 20,000
Cash Collected = 476,000
Given the following information for a company that uses FIFO cost flow:
Beg Inventory 200 units @ $1.20/unit
1st purchase 400 units @ $1.30/unit
2nd purchase 250 units @ $1.40/unit
Sales 550 units @ $2.00/unit
What is the gross profit on the income statement?
$405
Revenue = 550 x $2.00 = $1,100
COGS = [(200 x $1.20) + (350 x $1.30)] = $695
1,100 – 695 = 405
DAILY DOUBLE - If you get it right, you get 1,000 points, if you get it wrong, you get -1,000 points.
Red Cardinal Inc. purchased a printer on January 1, Year 1 for $8,000, with estimated useful life of 5 years and residual value of $3,000. On January 1, Year 4, they sold the printer for $6,000. Assuming they use straight-line depreciation, what is the gain or loss on the date of sale?
Gain on sale $1,000
Gain(Loss) = Cash - Book Value
Book Value = Cost - A/D
= 6,000 - (8,000 - 3,000)
= 6,000 - 5,000
= 1,000
Depreciation: (8,000-3,000)/5 = 1,000 per year
A/D = 1,000 x 3 years = 3,000
On May 1, Insects, Inc. issues $10,000,000 in bonds paying 7% interest. The bonds are due in 10 years and interest is paid semiannually on October 31 and April 30. Insects, Inc. has a December 31 year end. What will be the balance in interest payable on December 31, Year 2? Round to 2 decimals.
$116,666.67
10,000,000 x .07 x (2/12)
*Pay for interest through October 31. But then will need to record interest expense for November and December and since don't pay cash until April 30, need to record interest payable.
A company has 300,000 shares of common stock authorized. They issue 100,000 shares of $1 par value common stock for $5 per share. They buy back 30,000 shares at $3 per share. Then they resell 10,000 shares at $3 per share. They declare a $0.50 dividend per share and pay the dividend on the same date. What is the amount of the dividends?
$40,000
Issued Shares = 100,000
Treasury Stock = 30,000 - 10,000 = 20,000
Outstanding Shares = 100,000 - 20,000 = 80,000
80,000 x $0.50 = 40,000