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Glaus
Corp. signed a three-month, zero-interest-bearing note on November 1, 2010 for
the purchase of $150,000 of inventory. The face value of the note was $152,205.
Assuming Glaus used a “Discount on Note Payable” account to initially record
the note and that the discount will be amortized equally over the 3-month
period, the adjusting entry made at December 31, 2010 will include a
a. debit to Discount on
Note Payable for $735.
b. debit to Interest
Expense for $1,470.
c. credit to Discount on
Note Payable for $735.
d. credit to Interest
Expense for $1,470.
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The
effective interest on a 12-month, zero-interest-bearing note payable of
$300,000, discounted at the bank at 10% is
a. 10.87%.
b. 10%.
c. 9.09%.
d. 11.11%.
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On
September 1, Hydra purchased $9,500 of inventory items on credit with the terms
1/15, net 30, FOB destination. Freight charges were $200. Payment for the
purchase was made on September 18. Assuming Hydra uses the perpetual inventory
system and the net method of accounting for purchase discounts, what amount is
recorded as inventory from this purchase?
a. $9,405.
b. $9,605.
c. $9,700.
d. $9,500.
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Sodium Inc. borrowed $175,000 on April 1. The
note requires interest at 12% and principal to be paid in one year. How much
interest is recognized for the period from April 1 to December 31?
a. $0.
b. $21,000.
c. $5,250.
d. $15,750.
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Collier borrowed $175,000 on October 1 and is
required to pay $180,000 on March 1. What amount is the note payable recorded
at on October 1 and how much interest is recognized from October 1 to December
31?
a. $175,000 and $0.
b. $175,000 and $3,000.
c. $180,000 and $0.
d. $175,000 and $5,000.
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Purest owes $1 million that is due on February
28. The company borrows $800,000 on February 25 (5-year note) and uses the
proceeds to pay down the $1 million note and uses other cash to pay the
balance. How much of the $1 million note is classified as long-term in the
December 31 financial statements.
a. $1,000,000.
b. $0.
c. $800,000.
d. $200,000.
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Vista newspapers sold 4,000 of annual
subscriptions at $125 each on September 1. How much unearned revenue will exist
as of December 31?
a. $0.
b. $333,333.
c. $166,667.
d. $500,000.
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Purchase Retailer made cash sales during the
month of October of $132,600. The sales are subject to a 6% sales tax that was
also collected. Which of the following would be included in the summary journal
entry to reflect the sale transactions?
a. Debit Cash for
$132,600.
b. Credit Sales Tax
Payable for $7,506.
c. Credit Sales for
$125,094.
d. Credit Sales Tax
Payable for $7,956.
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On
February 10, 2010, after issuance of its financial statements for 2009, House
Company entered into a financing agreement with Lebo Bank, allowing House
Company to borrow up to $4,000,000 at any time through 2012. Amounts borrowed
under the agreement bear interest at 2% above the bank's prime interest rate
and mature two years from the date of loan. House Company presently has
$1,500,000 of notes payable with First National Bank maturing March 15, 2010.
The company intends to borrow $2,500,000 under the agreement with Lebo and
liquidate the notes payable to First National. The agreement with Lebo also
requires House to maintain a working capital level of $6,000,000 and prohibits
the payment of dividends on common stock without prior approval by Lebo
Bank. From the above information
only, the total short-term debt of House Company as of the December 31, 2010
balance sheet date is
a. $0.
b. $1,500,000.
c. $2,000,000.
d. $4,000,000.
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On December 31, 2010, Irey Co. has $2,000,000
of short-term notes payable due on February 14, 2011. On January 10, 2011, Irey
arranged a line of credit with County Bank which allows Irey to borrow up to
$1,500,000 at one percent above the prime rate for three years. On February 2,
2011, Irey borrowed $1,200,000 from County Bank and used $500,000 additional
cash to liquidate $1,700,000 of the short-term notes payable. The amount of the
short-term notes payable that should be reported as current liabilities on the
December 31, 2010 balance sheet which is issued on March 5, 2011 is
a. $0.
b. $300,000.
c. $500,000.
d. $800,000.
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Stine Co. is a retail store operating in a state
with a 6% retail sales tax. The retailer may keep 2% of the sales tax
collected. Stine Co. records the sales tax in the Sales account. The amount
recorded in the Sales account during May was $148,400.
The amount of sales taxes (to the nearest
dollar) for May is
a. $8,726.
b. $8,400.
c. $8,904.
d. $9,438.
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Stine Co. is a retail store operating in a state
with a 6% retail sales tax. The retailer may keep 2% of the sales tax
collected. Stine Co. records the sales tax in the Sales account. The amount
recorded in the Sales account during May was $148,400.
The amount of sales taxes payable (to the
nearest dollar) to the state for the month of May is
a. $8,551.
b. $8,232.
c. $8,726.
d. $9,249.
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Vopat, Inc., is a retail store operating in a
state with a 5% retail sales tax.
The state law provides that the retail sales tax collected during the
month must be remitted to the state during the following month. If the amount collected is remitted to
the state on or before the twentieth of the following month, the retailer may
keep 3% of the sales tax collected.
On April 10, 2010, Vopat remitted $81,480 tax to the state tax division
for March 2010 retail sales. What was Vopat 's March 2010 retail sales subject
to sales tax?
a. $1,629,600.
b. $1,596,000.
c. $1,680,000.
d. $1,645,000.
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Jenkins
Corporation has $2,500,000 of short-term debt it expects to retire with
proceeds from the sale of 75,000 shares of common stock. If the stock is sold for $20 per share
subsequent to the balance sheet date, but before the balance sheet is issued,
what amount of short-term debt could be excluded from current liabilities?
a. $1,500,000
b. $2,500,000
c. $1,000,000
d. $0
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Ermler
Corporation has $1,800,000 of short-term debt it expects to retire with
proceeds from the sale of 60,000 shares of common stock. If the stock is sold for $20 per share
subsequent to the balance sheet date, but before the balance sheet is issued,
what amount of short-term debt could be excluded from current liabilities?
a. $1,200,000
b. $1,800,000
c. $600,000
d. $0
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Ermler
Corporation has $1,800,000 of short-term debt it expects to retire with
proceeds from the sale of 60,000 shares of common stock. If the stock is sold for $20 per share
subsequent to the balance sheet date, but before the balance sheet is issued,
what amount of short-term debt could be excluded from current liabilities?
a. $1,200,000
b. $1,800,000
c. $600,000
d. $0
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Preston
Co., which has a taxable payroll of $500,000, is subject to FUTA tax of 6.2%
and a state contribution rate of 5.4%. However, because of stable employment
experience, the company’s state rate has been reduced to 2%. What is the total amount of federal and
state unemployment tax for Preston Co.?
a. $58,500
b. $41,000
c. $20,000
d. $14,000
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Roark
Co., which has a taxable payroll of $400,000, is subject to FUTA tax of 6.2%
and a state contribution rate of 5.4%. However, because of stable employment
experience, the company’s state rate has been reduced to 2%. What is the total
amount of federal and state unemployment tax for Roark Co.?
a. $46,800
b. $32,800
c. $16,000
d. $11,200
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A
company gives each of its 50 employees (assume they were all employed
continuously through 2010 and 2011) 12 days of vacation a year if they are
employed at the end of the year.
The vacation accumulates and may be taken starting January 1 of the next
year. The employees work 8 hours
per day. In 2010, they made $14
per hour and in 2011 they made $16 per hour. During 2011, they took an average of 9 days of vacation
each. The company’s policy is to
record the liability existing at the end of each year at the wage rate for that
year. What amount of
vacation liability would be reflected on the 2010 and 2011 balance sheets,
respectively?
a. $67,200; $93,600
b. $76,800; $96,000
c. $67,200; $96,000
d. $76,800; $93,600
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A company gives each of its
50 employees (assume they were all employed continuously through 2010 and 2011)
12 days of vacation a year if they are employed at the end of the year. The vacation accumulates and may be taken
starting January 1 of the next year.
The employees work 8 hours per day. In 2010, they made $17.50 per hour and in 2011 they made $20
per hour. During 2011, they took
an average of 9 days of vacation each.
The company’s policy is to record the liability existing at the end of
each year at the wage rate for that year.
What amount of vacation liability would be reflected on the 2010 and
2011 balance sheets, respectively?
a. $84,000; $117,000
b. $96,000; $120,000
c. $84,000; $120,000
d. $96,000; $117,000
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The total payroll of Teeter Company for the
month of October, 2010 was $360,000, of which $90,000 represented amounts paid
in excess of $100,000 to certain employees. $300,000 represented amounts paid to employees in excess of
the $7,000 maximum subject to unemployment taxes. $90,000 of federal income
taxes and $9,000 of union dues were withheld. The state unemployment tax is 1%,
the federal unemployment tax is .8%, and the current F.I.C.A. tax is 7.65% on
an employee’s wages to $100,000 and 1.45% in excess of $90,000. What amount should Teeter record as
payroll tax expense?
a. $118,620.
b. $113,040.
c. $23,040.
d. $28,440.
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What is the amount of expense relative to
compensated absences that should be reported on Vargas’s income statement for
2009?
a. $0.
b. $68,880.
c. $75,600.
d. $72,240.
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What is the amount of the accrued liability for
compensated absences that should be reported at December 31, 2011?
a. $94,920.
b. $90,720.
c. $79,800.
d. $95,760.
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CalCount pays a weekly payroll of $85,000 that
includes federal taxes withheld of $12,700, FICA taxes withheld of $7,890, and
401(k) withholdings of $9,000. What is the effect of assets and liabilities
from this transaction?
a. Assets decrease
$85,000 and liabilities do not change.
b. Assets decrease
$64,410 and liabilities increase $20,590.
c. Assets decrease
$64,410 and liabilities decrease $20,590.
d. Assets decrease
$55,410 and liabilities increase $29,590.
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CalCount provides its employees two weeks of
paid vacation per year. As of December 31, 65 employees have earned two weeks
of vacation time to be taken the following year. If the average weekly salary
for these employees is $950, what is the required journal entry?
a. Debit Wages Expense
for $123,500 and credit Vacation Wages Payable for $123,500.
b. No journal entry
required.
c. Debit Vacation Wages
Payable for $123,000 and credit Wages Expense for $123,000.
d. Debit Wages Expense
for $61,750 and credit Vacation Wages Payable for $61,750.
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Tender Foot Inc. is involved in litigation
regarding a faulty product sold in a prior year. The company has consulted with its attorney and determined
that it is possible that they may lose the case. The attorneys estimated that
there is a 40% chance of losing. If this is the case, their attorney estimated
that the amount of any payment would be $500,000. What is the required journal
entry as a result of this litigation?
a. Debit Litigation
Expense for $500,000 and credit Litigation liability for $500,000.
b. No journal entry is
required.
c. Debit Litigation
Expense for $200,000 and credit Litigation Liability for $200,000.
d. Debit Litigation
Expense for $300,000 and credit Litigation Liability for $300,000.
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Recycle Exploration is involved with innovative
approaches to finding energy reserves. Recycle recently built a facility to
extract natural gas at a cost of $15 million. However, Recycle is also legally
responsible to remove the facility at the end of its useful life of twenty
years. This cost is estimated to be $21 million (the present value of which is
$8 million). What is the journal entry required to record the asset retirement
obligation?
a. No journal entry
required.
b. Debit Natural Gas
Facility for $21,000,000 and credit Asset Retirement Obligation for $21,000,000
c. Debit Natural Gas
Facility for $6,000,000 and credit Asset Retirement Obligation for $6,000,000.
d. Debit Natural Gas
Facility for $8,000,000 and credit Asset Retirement Obligation for $8,000,000.
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Warranty4U provides extended service contracts
on electronic equipment sold through major retailers. The standard contract is
for three years. During the current year, Warranty4U provided 21,000 such
warranty contracts at an average price of $81 each. Related to these contracts,
the company spent $200,000 servicing the contracts during the current year and
expects to spend $1,050,000 more in the future. What is the net profit that the
company will recognize in the current year related to these contracts?
a. $451,000.
b. $1,501,000.
c. $150,333.
d. $367,000.
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Electronics4U manufactures high-end whole home
electronic systems. The company provides a one-year warranty for all products
sold. The company estimates that the warranty cost is $200 per unit sold and
reported a liability for estimated warranty costs $6.5 million at the beginning
of this year. If during the current year, the company sold 50,000 units for a
total of $243 million and paid warranty claims of $7,500,000 on current and
prior year sales, what amount of liability would the company report on its
balance sheet at the end of the current year?
a. $2,500,000.
b. $3,500,000.
c. $9,000,000.
d. $10,000,000.
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A
company offers a cash rebate of $1 on each $4 package of light bulbs sold
during 2010. Historically, 10% of
customers mail in the rebate form.
During 2010, 4,000,000 packages of light bulbs are sold, and 140,000 $1
rebates are mailed to customers.
What is the rebate expense and liability, respectively, shown on the
2010 financial statements dated December 31?
a. $400,000; $400,000
b. $400,000; $260,000
c. $260,000; $260,000
d. $140,000; $260,000
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A
company buys an oil rig for $1,000,000 on January 1, 2010. The life of the rig is 10 years and the
expected cost to dismantle the rig at the end of 10 years is $200,000 (present
value at 10% is $77,110). 10% is
an appropriate interest rate for this company. What expense should be recorded
for 2010 as a result of these events?
a. Depreciation expense
of $120,000
b. Depreciation expense
of $100,000 and interest expense of $7,711
c. Depreciation expense
of $100,000 and interest expense of $20,000
d. Depreciation expense
of $107,710 and interest expense of $7,711
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Ziegler
Company self insures its property for fire and storm damage. If the company were to obtain insurance
on the property, it would cost them $1,000,000 per year. The company estimates that on average
it will incur losses of $800,000 per year. During 2010, $350,000 worth of losses were sustained. How
much total expense and/or loss should be recognized by Ziegler Company for
2010?
a. $350,000 in losses
and no insurance expense
b. $350,000 in losses
and $450,000 in insurance expense
c. $0 in losses and
$800,000 in insurance expense
d. $0 in losses and
$1,000,000 in insurance expense
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A
company offers a cash rebate of $1 on each $4 package of batteries sold during
2010. Historically, 10% of
customers mail in the rebate form.
During 2010, 6,000,000 packages of batteries are sold, and 210,000 $1
rebates are mailed to customers.
What is the rebate expense and liability, respectively, shown on the
2010 financial statements dated December 31?
a. $600,000; $600,000
b. $600,000; $390,000
c. $390,000; $390,000
d. $210,000; $390,000
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A
company buys an oil rig for $2,000,000 on January 1, 2010. The life of the rig is 10 years and the
expected cost to dismantle the rig at the end of 10 years is $400,000 (present
value at 10% is $154,220). 10% is
an appropriate interest rate for this company. What expense should be recorded
for 2010 as a result of these events?
a. Depreciation expense
of $240,000
b. Depreciation expense
of $200,000 and interest expense of $15,422
c. Depreciation expense
of $200,000 and interest expense of $40,000
d. Depreciation expense
of $215,422 and interest expense of $15,422
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Palmer
Frosted Flakes Company offers its customers a pottery cereal bowl if they send
in 3 boxtops from Palmer Frosted Flakes boxes and $1.00. The company estimates
that 60% of the boxtops will be redeemed. In 2010, the company sold 675,000
boxes of Frosted Flakes and customers redeemed 330,000 boxtops receiving 110,000
bowls. If the bowls cost Palmer Company $2.50 each, how much liability for
outstanding premiums should be recorded at the end of 2010?
a. $25,000
b. $37,500
c. $62,500
d. $87,500
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LeMay
Frosted Flakes Company offers its customers a pottery cereal bowl if they send
in 4 boxtops from LeMay Frosted Flakes boxes and $1.00. The company estimates
that 60% of the boxtops will be redeemed. In 2010, the company sold 500,000
boxes of Frosted Flakes and customers redeemed 220,000 boxtops receiving 55,000
bowls. If the bowls cost LeMay Company $2.50 each, how much liability for
outstanding premiums should be recorded at the end of 2010?
a. $20,000
b. $30,000
c. $50,000
d. $70,000
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The premium expense for 2010 is
a. $25,000.
b. $30,000.
c. $35,000.
d. $50,000.
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The estimated liability for premiums at
December 31, 2010 is
a. $7,500.
b. $10,000.
c. $17,500.
d. $20,000.
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The estimated liability for premiums at
December 31, 2011 is
a. $11,250.
b. $21,250.
c. $22,500.
d. $42,500.
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Winter Co. is being sued for illness caused to
local residents as a result of negligence on the company's part in permitting
the local residents to be exposed to highly toxic chemicals from its plant.
Winter's lawyer states that it is probable that Winter will lose the suit and
be found liable for a judgment costing Winter anywhere from $1,200,000 to
$6,000,000. However, the lawyer states that the most probable cost is
$3,600,000. As a result of the above facts, Winter should accrue
a. a loss contingency of
$1,200,000 and disclose an additional contingency of up to $4,800,000.
b. a loss contingency of
$3,600,000 and disclose an additional contingency of up to $2,400,000.
c. a loss contingency of
$3,600,000 but not disclose any
additional contingency.
d. no loss contingency
but disclose a contingency of $1,200,000 to $6,000,000.
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. On January 3, 2010, Boyer Corp. owned a machine
that had cost $200,000. The accumulated depreciation was $120,000, estimated
salvage value was $12,000, and fair market value was $320,000. On January 4,
2010, this machine was irreparably damaged by Pine Corp. and became worthless.
In October 2010, a court awarded damages of $320,000 against Pine in favor of
Boyer. At December 31, 2010, the final outcome of this case was awaiting appeal
and was, therefore, uncertain. However, in the opinion of Boyer’s attorney,
Pine’s appeal will be denied. At December 31, 2010, what amount should Boyer
accrue for this gain contingency?
a. $320,000.
b. $260,000.
c. $200,000.
d. $0.
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Presented below is information available for
Morton Company.
Current Assets
Cash $ 4,000
Short-term
investments 75,000
Accounts
receivable 61,000
Inventories 110,000
Prepaid
expenses 30,000
Total current assets $280,000
Total current liabilities are
$120,000. The acid-test ratio for Morton is
a. 2.33 to 1.
b. 2.08 to 1.
c. 1.17 to 1.
d. .54 to 1.
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On September 1, 2010, Herman Co. issued a note
payable to National Bank in the amount of $1,200,000, bearing interest at 12%,
and payable in three equal annual principal payments of $400,000. On this date,
the bank's prime rate was 11%. The first payment for interest and principal was
made on September 1, 2011. At December 31, 2011, Herman should record accrued
interest payable of
a. $48,000.
b. $44,000.
c. $32,000.
d. $29,334.
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Included in Vernon Corp.'s liability account
balances at December 31, 2010, were the following:
7% note payable issued October 1, 2010, maturing
September 30, 2011 $250,000
8% note payable issued April 1, 2010, payable in
six equal annual
installments
of $150,000 beginning April 1, 2011 600,000
Vernon's December 31, 2010 financial
statements were issued on March 31, 2011. On January 15, 2011, the entire
$600,000 balance of the 8% note was refinanced by issuance of a long-term
obligation payable in a lump sum. In addition, on March 10, 2011, Vernon consummated a noncancelable
agreement with the lender to refinance the 7%, $250,000 note on a long-term
basis, on readily determinable terms that have not yet been implemented. On the
December 31, 2010 balance sheet, the amount of the notes payable that Vernon should classify as short-term
obligations is
a. $175,000.
b. $125,000.
c. $50,000.
d. $0.
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Neer
Co. has a probable loss that can only be reasonably estimated within a range of
outcomes. No single amount within the range is a better estimate than any other
amount. The loss accrual should be
a. zero.
b. the maximum of the
range.
c. the mean of the
range.
d. the minimum of the
range.
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In March 2011, an explosion occurred at Kirk
Co.'s plant, causing damage to area properties. By May 2011, no claims had yet
been asserted against Kirk. However, Kirk's management and legal counsel
concluded that it was reasonably possible that Kirk would be held responsible
for negligence, and that $4,000,000 would be a reasonable estimate of the
damages. Kirk's $5,000,000 comprehensive public liability policy contains a
$400,000 deductible clause. In Kirk's December 31, 2010 financial statements,
for which the auditor's fieldwork was completed in April 2011, how should this
casualty be reported?
a. As a note disclosing
a possible liability of $4,000,000.
b. As an accrued
liability of $400,000.
c. As a note disclosing
a possible liability of $400,000.
d. No note disclosure of
accrual is required for 2010 because the event occurred in 2011.
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