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Questions and Answers of
Financial And Managerial Accounting
Spreadwell Paint Company manufactures two high-quality base paints: an oil-based paint and a latex paint. Both are housepaints and are manufactured in neutral white color only.Spreadwell sells the
Byrnes Company accumulates the following data concerning a mixed cost, using units produced as the activity level.(a) Compute the variable- and fixed-cost elements using the high-low method.(b)
Lombardi Company has a unit selling price of $400, variable costs per unit of $240, and fixed costs of $180,000. Compute the break-even point in units using (a) a mathematical equation and (b)
Mabo Company makes calculators that sell for $20 each. For the coming year, management expects fixed costs to total $220,000 and variable costs to be $9 per unit.Instructions (a) Compute break-even
Variable costs are costs that:(a) vary in total directly and proportionately with changes in the activity level.(b) remain the same per unit at every activity level.(c) Neither of the above.(d) Both
The relevant range is:(a) the range of activity in which variable costs will be curvilinear.(b) the range of activity in which fixed costs will be curvilinear.(c) the range over which the company
Mixed costs consist of a:(a) variable-cost element and a fixed-cost element.(b) fixed-cost element and a controllable-cost element.(c) relevant-cost element and a controllable-cost element.(d)
Your phone service provider offers a plan that is classified as a mixed cost. The cost per month for 1,000 minutes is $50. If you use 2,000 minutes this month, your cost will
Kendra Corporation’s total utility costs during the past year were $1,200 during its highest month and $600 during its lowest month. These costs corresponded with 10,000 units of production during
Which of the following is not involved in CVP analysis?(a) Sales mix.(b) Unit selling prices.(c) Fixed costs per unit.(d) Volume or level of activity.
When comparing a traditional income statement to a CVP income statement:(a) net income will always be greater on the traditional statement.(b) net income will always be less on the traditional
Contribution margin:(a) is revenue remaining after deducting variable costs.(b) may be expressed as contribution margin per unit.(c) is selling price less cost of goods sold.(d) Both (a) and (b)
Cournot Company sells 100,000 wrenches for $12 a unit. Fixed costs are $300,000, and net income is $200,000. What should be reported as variable expenses in the CVP income
Gossen Company is planning to sell 200,000 pliers for $4 per unit. The contribution margin ratio is 25%. If Gossen will break even at this level of sales, what are the fixed
Brownstone Company’s contribution margin ratio is 30%. If Brownstone’s sales revenue is $100 greater than its break-even sales in dollars, its net income:(a) will be $100.(b) will be $70.(c) will
The mathematical equation for computing required sales to obtain target net income is: Required sales =(a) Variable costs + Target net income.(b) Variable costs + Fixed costs + Target net income.(c)
Margin of safety is computed as:(a) Actual sales − Break-even sales.(b) Contribution margin − Fixed costs.(c) Break-even sales − Variable costs.(d) Actual sales − Contribution margin.
Marshall Company had actual sales of $600,000 when break-even sales were $420,000. What is the margin of safety ratio?(a) 25%. (b) 30%. (c) 331⁄3%.(d) 45%.
International Company has land that cost $450,000 but now has a fair value of $600,000. International Company decides to use the revaluation method specified in IFRS to account for the land. Which of
Francisco Corporation is constructing a new building at a total initial cost of $10,000,000. The building is expected to have a useful live of 50 years with no residual value. The building’s
Under IFRS, value-in-use is defined as:(a) net realizable value.(b) fair value.(c) future cash flows discounted to present value.(d) total future undiscounted cash flows.
DuPage Company purchases a factory machine at a cost of $18,000 on January 1, 2014.DuPage expects the machine to have a salvage value of $2,000 at the end of its 4-year useful life.During its useful
You and several classmates are studying for the next accounting examination. They ask you to answer the following questions.1. If cash is borrowed on a $50,000, 6-month, 12% note on September 1, how
State whether each of the following statements is true or false. 1. Mortgage bonds and sinking fund bonds are both examples of secured bonds. 2. Unsecured bonds are also known as debenture bonds. 3.
Giant Corporation issues $200,000 of bonds for $189,000. (a) Prepare the journal entry to record the issuance of the bonds, and (b) show how the bonds would be reported on the balance sheet at the
R & B Inc. issued $500,000, 10-year bonds at a premium. Prior to maturity, when the carrying value of the bonds is $508,000, the company retires the bonds at 102. Prepare the entry to record the
Cole Research issues a $250,000, 8%, 20-year mortgage note to obtain needed financing for a new lab. The terms call for semiannual payments of $12,631 each. Prepare the entries to record the mortgage
Snyder Software Inc. has successfully developed a new spreadsheet program. To produce and market the program, the company needed $2 million of additional financing. On January 1, 2014, Snyder
Gardner Corporation issues $1,750,000, 10-year, 12% bonds on January 1, 2014, at $1,968,090, to yield 10%. The bonds pay semiannual interest July 1 and January 1. Gardner uses the effective-interest
Glenda Corporation issues $1,750,000, 10-year, 12% bonds on January 1, 2014, for $1,968,090 to yield 10%. The bonds pay semiannual interest July 1 and January 1. Glenda uses the straight-line method
The time period for classifying a liability as current is one year or the operating cycle, whichever is:(a) longer.(b) shorter.(c) probable.(d) possible.
To be classified as a current liability, a debt must be expected to be paid:(a) out of existing current assets.(b) by creating other current liabilities.(c) within 2 years.(d) Both (a) and (b).
Maggie Sharrer Company borrows $88,500 on September 1, 2014, from Sandwich State Bank by signing an $88,500, 12%, one-year note. What is the accrued interest at December 31,
Becky Sherrick Company has total proceeds from sales of $4,515. If the proceeds include sales taxes of 5%, the amount to be credited to Sales Revenue is:(a) $4,000.(b) $4,300.(c) $4,289.25.(d) No
Employer payroll taxes do not include:(a) federal unemployment taxes.(b) state unemployment taxes.(c) federal income taxes.(d) FICA taxes.
Sensible Insurance Company collected a premium of $18,000 for a 1-year insurance policy on April 1.What amount should Sensible report as a current liability for Unearned Insurance Premiums at
The term used for bonds that are unsecured is:(a) callable bonds.(b) indenture bonds.(c) debenture bonds.(d) bearer bonds.
Karson Inc. issues 10-year bonds with a maturity value of $200,000. If the bonds are issued at a premium, this indicates that:(a) the contractual interest rate exceeds the market interest rate.(b)
Gester Corporation retires its $100,000 face value bonds at 105 on January 1, following the payment of semiannual interest. The carrying value of the bonds at the redemption date is $103,745. The
Colson Inc. converts $600,000 of bonds sold at face value into 10,000 shares of common stock, par value $1. Both the bonds and the stock have a market value of $760,000. What amount should be
Andrews Inc. issues a $497,000, 10%, 3-year mortgage note on January 1. The note will be paid in three annual installments of $200,000, each payable at the end of the year. What is the amount of
Howard Corporation issued a 20-year mortgage note payable on January 1, 2014. At December 31, 2014, the unpaid principal balance will be reported as:(a) a current liability.(b) a long-term
For 2014, Corn Flake Corporation reported net income of $300,000. Interest expense was $40,000 and income taxes were $100,000. The times interest earned ratio was:(a) 3 times.(b) 4.4 times.(c) 7.5
The market price of a bond is dependent on:(a) the payment amounts.(b) the length of time until the amounts are paid.(c) the interest rate.(d) All of the above.
On January 1, Besalius Inc. issued $1,000,000, 9% bonds for $938,554. The market rate of interest for these bonds is 10%. Interest is payable annually on December 31. Besalius uses the
On January 1, Dias Corporation issued $1,000,000, 10%, 5-year bonds with interest payable on July 1 and January 1. The bonds sold for $1,081,105. The market rate of interest for these bonds was 8%.
On January 1, Hurley Corporation issues $500,000, 5-year, 12% bonds at 96 with interest payable on July 1 and January 1. The entry on July 1 to record payment of bond interest and the amortization of
Which of the following is false?(a) Under IFRS, current liabilities must always be presented before noncurrent liabilities.(b) Under IFRS, an item is a current liability if it will be paid within the
Stevens Corporation issued 5% convertible bonds with a total face value of $3,000,000 for$3,000,000. If the bonds had not had a conversion feature, they would have sold for $2,600,000.Under IFRS, the
Which of the following is true regarding accounting for amortization of bond discount and premium?(a) Both IFRS and GAAP must use the effective-interest method.(b) GAAP must use the
Indicate whether each of the following statements is true or false.______ 1. Similar to partners in a partnership, stockholders of a corporation have unlimitedliability.______ 2. It is relatively
Cayman Corporation begins operations on March 1 by issuing 100,000 shares of $10 parvalue common stock for cash at $12 per share. On March 15, it issues 5,000 shares ofcommon stock to attorneys in
Santa Anita Inc. purchases 3,000 shares of its $50 par value common stock for $180,000cash on July 1. It will hold the shares in the treasury until resold. On November 1, thecorporation sells 1,000
MasterMind Corporation has 2,000 shares of 6%, $100 par value preferred stock outstanding at December 31, 2014. At December 31, 2014, the company declared a $60,000 cash dividend. Determine the
Sing CD Company has had five years of record earnings. Due to this success, the marketprice of its 500,000 shares of $2 par value common stock has tripled from $15 per share to$45. During this
Vega Corporation has retained earnings of $5,130,000 on January 1, 2014. During the year,Vega earned $2,000,000 of net income. It declared and paid a $250,000 cash dividend. In2014, Vega recorded an
On January 1, 2014, Siena Corporation purchased 2,000 shares of treasury stock. Otherinformation regarding Siena Corporation is provided below.Compute (a) return on common stockholders’ equity for
Rolman Corporation is authorized to issue 1,000,000 shares of $5 par value commonstock. In its first year, the company has the following stock transactions.Instructions(a) Journalize the
Which of the following is not a major advantage of a corporation?(a) Separate legal existence.(b) Continuous life.(c) Government regulations.(d) Transferable ownership rights.
A major disadvantage of a corporation is:(a) limited liability of stockholders.(b) additional taxes.(c) transferable ownership rights.(d) None of the above.
Which of the following statements is false?(a) Ownership of common stock gives the owner a voting right.(b) The stockholders’ equity section begins with paid-in capital.(c) The authorization of
ABC Corporation issues 1,000 shares of $10 par value common stock at $12 per share. In recording the transaction, credits are made to:(a) Common Stock $10,000 and Paid-in Capital in Excess of Stated
XYZ, Inc. sells 100 shares of $5 par value treasury stock at $13 per share. If the cost of acquiring the shares was $10 per share, the entry for the sale should include credits to:(a) Treasury Stock
In the stockholders’ equity section, the cost of treasury stock is deducted from:(a) total paid-in capital and retained earnings.(b) retained earnings.(c) total stockholders’ equity.(d) common
Preferred stock may have priority over common stock except in:(a) dividends.(b) assets in the event of liquidation.(c) cumulative dividend features.(d) voting.
M-Bot Corporation has 10,000 shares of 8%, $100 par value, cumulative preferred stock outstanding at December 31, 2014. No dividends were declared in 2012 or 2013. If M-Bot wants to pay $375,000 of
Entries for cash dividends are required on the:(a) declaration date and the payment date.(b) record date and the payment date.(c) declaration date, record date, and payment date.(d) declaration date
Which of the following statements about small stock dividends is true?(a) A debit to Retained Earnings for the par value of the shares issued should be made.(b) A small stock dividend decreases total
All but one of the following is reported in a retained earnings statement. The exception is:(a) cash and stock dividends.(b) net income and net loss.(c) sales revenue.(d) prior period adjustments.
A prior period adjustment is:(a) reported in the income statement as a nontypical item.(b) a correction of an error that is recorded directly to retained earnings.(c) reported directly in the
In the stockholders’ equity section of the balance sheet, common stock:(a) is listed before preferred stock.(b) is added to total capital stock.(c) is part of paid-in capital.(d) is part of
Which of the following is not reported under additional paid-in capital?(a) Paid-in capital in excess of par value.(b) Common stock.(c) Paid-in capital in excess of stated value.(d) Paid-in capital
Katie Inc. reported net income of $186,000 during 2014 and paid dividends of $26,000 on common stock. It also has 10,000 shares of 6%, $100 par value, noncumulative preferred stock outstanding.
When a stockholders’ equity statement is presented, it is not necessary to prepare a (an):(a) retained earnings statement.(b) balance sheet.(c) income statement.(d) None of the above.
The ledger of JFK, Inc. shows common stock, common treasury stock, and no preferred stock. For this company, the formula for computing book value per share is:(a) total paid-in capital and retained
Under IFRS, a purchase by a company of its own shares is recorded by:(a) an increase in Treasury Stock.(b) a decrease in contributed capital.(c) a decrease in share capital.(d) All of these are
Which of the following is true?(a) In the United States, the primary corporate stockholders are financial institutions.(b) Share capital means total assets under IFRS.(c) The IASB and FASB are
Under IFRS, the amount of capital received in excess of par value would be credited to:(a) Retained Earnings. (c) Share Premium.(b) Contributed Capital. (d) Par value is not used under IFRS.
Which of the following does not represent a pair of GAAP/IFRS-comparable terms?(a) Additional paid-in capital/Share premium.(b) Treasury stock/Repurchase reserve.(c) Common stock/Share capital.(d)
Which item in not considered part of reserves?(a) Accumulated other comprehensive income. (c) Retained earnings.(b) Revaluation surplus. (d) Issued shares.
Under IFRS, a statement of comprehensive income must include:(a) accounts payable.(b) retained earnings.(c) income tax expense.(d) preference stock.
Which set of terms can be used to describe total stockholders’ equity under IFRS?(a) Shareholders’ equity, capital and reserves, other comprehensive income.(b) Capital and reserves,
Waldo Corporation had the following transactions pertaining to debt investments. Jan. 1 Purchased 30, $1,000 Hillary Co. 10% bonds for $30,000, plus brokerage fees of $900. Interest is payable
Some of Powderhorn Corporation’s investment securities are classified as trading securities and some are classified as non-trading. The cost and fair value of each category at December 31, 2014,
Identify where each of the following items would be reported in the financial statements.1. Interest earned on investments in bonds.2. Fair value adjustment—non-trading.3. Unrealized loss on
In its first year of operations, DeMarco Company had the following selected transactions in stock investments that are considered trading securities.Instructions (a) Journalize the transactions.(b)
Which of the following is not a primary reason why corporations invest in debt and equity securities?(a) They wish to gain control of a competitor.(b) They have excess cash.(c) They wish to move into
Debt investments are initially recorded at:(a) cost.(b) cost plus accrued interest.(c) fair value.(d) None of the above.
Hanes Company sells debt investments costing $26,000 for $28,000, plus accrued interest that has been recorded. In journalizing the sale, credits are to:(a) Debt Investments and Loss on Sale of Debt
Pryor Company receives net proceeds of $42,000 on the sale of stock investments that cost $39,500. This transaction will result in reporting in the income statement a:(a) loss of $2,500 under
Assume that Horicon Corp acquired 25% of the common stock of Sheboygan Corp. on January 1, 2014, for $300,000. During 2014 Sheboygan Corp. reported net income of $160,000 and paid total dividends of
Using the information in Self-Test Question 6, what entry would Horicon make to record the receipt of the dividend from Sheboygan?Data from Self-Test Question 6Assume that Horicon Corp acquired 25%
You have a controlling interest if:(a) you own more than 20% of a company’s stock.(b) you are the president of the company.(c) you use the equity method.(d) you own more than 50% of a company’s
Which of the following statements is not true? Consolidated financial statements are useful to:(a) determine the profitability of specific subsidiaries.(b) determine the total profitability of
At the end of the first year of operations, the total cost of the trading securities portfolio is $120,000. Total fair value is $115,000. The financial statements should show:(a) a reduction of an
At December 31, 2014, the fair value of non-trading securities is $41,300 and the cost is $39,800. At January 1, 2014, there was a credit balance of $900 in the Fair Value Adjustment—Non-Trading
Short-term debt investments must be readily marketable and expected to be sold within:(a) 3 months from the date of purchase.(b) the next year or operating cycle, whichever is shorter.(c) the next
Pate Company pays $175,000 for 100% of Sinko’s common stock when Sinko’s stockholders’ equity consists of Common Stock $100,000 and Retained Earnings $60,000. In the worksheet for the
Which of the following statements about intercompany eliminations is true?(a) They are not journalized or posted by any of the subsidiaries.(b) They do not affect the ledger accounts of any of the
Which one of the following statements about consolidated income statements is false?(a) A worksheet facilitates the preparation of the statement.(b) The consolidated income statement shows the
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