Complete Accounting Problems

1. Wesley Hospital installs a new parking lot. The paving cost $30,000 and the lights to illuminate the new parking area cost $15,000. Which of the following statements is true with respect to these additions? $45,000 should be debited to Land Improvements. $30,000 should be debited to the Land account. $45,000 should be debited to the Land account. $15,000 should be debited to Land Improvements. 2. Equipment was purchased for $75,000. Freight charges amounted to $3,500 and there was a cost of $10,000 for building a foundation and installing the equipment. It is estimated that the equipment will have a $15,000 salvage value at the end of its 5year useful life. Depreciation expense each year using the straightline method will be $17,700. $12,300. $14,700. $12,000. 3. On May 1, 2010, Pinkley Company sells office furniture for $90,000 cash. The office furniture originally cost $225,000 when purchased on January 1, 2003. Depreciation is recorded by the straightline method over 10 years with a salvage value of $22,500. What gain should be recognized on the sale? $6,750. $27,000. $13,500. $14,250. 4. Equipment with an invoice price of $20,000 was purchased and freight costs were $900. The cost of the equipment would be $. 5. Simon Company issued 4,000 shares of its $5 par value common stock in payment of its attorney's bill of $35,000. The bill was for services performed in helping the company incorporate. Simon should record this transaction by debiting Legal Expense for $35,000. Organization Expense for $35,000. Legal Expense for $20,000. Organization Expense for $20,000. 6. S. Lawyer performed legal services for E. Corp. Due to a cash shortage, an agreement was reached whereby E. Corp. would pay S. Lawyer a legal fee of approximately $10,000 by issuing 5,000 shares of its common stock (par $1). The stock trades on a daily basis and the market price of the stock on the day the debt was settled is $1.80 per share. Given this information, the journal entry for E. Corp. to record this transaction is: Legal Expense Common Stock Paidin Capital in Excess of Par - Common Legal Expense Common Stock Legal Expense Common Stock Legal Expense Common Stock Paidin Capital in Excess of Par - Common 7. Rancho Corporation sold 200 shares of treasury stock for $40 per share. The cost for the shares was $30. The entry to record the sale will include a debit to Paidin Capital in Excess of Par Value for $2,000. credit to Treasury Stock for $8,000. credit to Gain on Sale of Treasury Stock for $6,000. credit to Paidin Capital from Treasury Stock for $2,000. 8. Match the items below by entering the appropriate code letter in the space provided. Treasury stock Legal capital Par value Preemptive right Retained earnings Cumulative feature Paidin capital Board of directors Capital stock Limited liability 1. Unit of ownership in a corporation. 2. Total amount paidin on capital stock. 3. Enables stockholders to maintain their same percentage ownership when new shares are issued. 4. The amount that must be retained in the business for the protection of creditors. 5. Creditors only have corporate assets to satisfy their claims. 6. Responsible to stockholders for corporate activity. 7. Corporation's own stock that has been reacquired by the corporation but not retired. 8. Net income retained in the corporation. 9. Preferred stockholders have a right to receive current and unpaid prioryear dividends before common stockholders receive any dividends. 10. The amount assigned to each share of stock in the corporate charter. 9. The effect of the declaration of a cash dividend by the board of directors is to Increase Decrease Stockholders' equity Assets Liabilities Liabilities a. b. c. d. Assets Liabilities Stockholders' equity Assets a b c d 10. Indicate the respective effects of the declaration of a cash dividend on the following balance sheet sections: Total Assets a. b. c. d. a. b. c. d. Total Liabilities Total Stockholders' Equity Increase No change Decrease Decrease Decrease Increase Increase No change No change Decrease Decrease Increase 11. Jennifer Company reports the following amounts for 2010: Net income Average stockholders' equity Preferred dividends Par value preferred stock $135,000 500,000 35,000 100,000 The 2010 rate of return on common stockholders' equity is 27.0%. 25.0%. 22.5%. 33.8%. 12. Norman Corporation had 250,000 shares of common stock outstanding during the year. Norman declared and paid cash dividends of $200,000 on the common stock and $160,000 on the preferred stock. Net income for the year was $880,000. What is Norman's earnings per share? $3.52 $2.88 $2.08 $2.72 13. On January 1, 2010, Grant Corporation issued $4,000,000, 10year, 8% bonds at 102. Interest is payable semiannually on January 1 and July 1. The journal entry to record this transaction on January 1, 2010 is Cash Bonds Payable Cash Bonds Payable Cash Bonds Payable Premium on Bonds Payable Premium on Bonds Payable Cash Bonds Payable 14. Four thousand bonds with a face value of $1,000 each, are sold at 103. The entry to record the issuance is Cash Premium on Bonds Payable Bonds Payable Cash Discount on Bonds Payable Bonds Payable Cash Bonds Payable Cash Premium on Bonds Payable Bonds Payable 15. If bonds with a face value of $150,000 are converted into common stock when the carrying value of the bonds is $135,000, the entry to record the conversion will include a debit to discount on bonds payable for $15,000. bonds payable for $150,000. bonds payable equal to the market price of the bonds on the date of conversion. bonds payable for $135,000. 16. Match the items below by entering the appropriate code letter in the space provided. Operating lease Debenture bonds Premium on bonds payable Straightline method of amortization Bonds Discount on bonds payable Registered bonds Debt to total assets ratio Effectiveinterest method of amortization Serial bonds Bond indenture Capital lease 1. Produces a periodic interest expense that is the same amount each interest period. 2. A legal document that sets forth the terms of a bond issue. 3. Produces a periodic interest expense equal to a constant percentage of the carrying value of the bonds. 4. A form of interestbearing notes payable used by corporations. 5. Occurs when the contractual interest rate is less than the market interest rate. 6. Unsecured bonds issued against the general credit of the borrower. 7. A contractual arrangement which is in effect a purchase of property. 8. Bonds that mature in installments. 9. A contractual arrangement that gives the lessee temporary use of property. 10. Bonds issued in the name of the owner. 11. A solvency measure that indicates the percentage of assets provided by creditors. 12. Occurs when the contractual interest rate is greater than the market interest rate. 17. Bonds are frequently issued at amounts greater or less than face value. Describe how the market interest rate, relative to the contractual interest rate, affects the selling price of bonds. Also explain the rationale for requiring an investor to pay accrued interest when a bond is purchased between interest payment dates. 18. On January 1, 2010, Milton Company purchased at face value, a $1,000, 6% bond that pays interest on January 1 and July 1. Milton Company has a calendar year end. The entry for the receipt of interest on July 1, 2010, is Interest Receivable 60 Interest Revenue Cash 60 Interest Revenue Cash 30 Interest Revenue Interest Receivable 30 Interest Revenue 19. Barr Company acquires 60, 10%, 5 year, $1,000 Community bonds on January 1, 2010 for $61,250. This includes a brokerage commission of $1,250. If Barr sells all of its Community bonds for $62,500 and pays $1,500 in brokerage commissions, what gain or loss is recognized? Gain of $2,500 Loss of $250 Gain of $1,250 Gain of $250 20. Decker Corporation purchased 1,000 shares of Kent common stock at $75 per share plus $3,000 brokerage fees as a shortterm investment. The shares were subsequently sold at $80 per share less $3,400 brokerage fees. The cost of the securities purchased and gain or loss on the sale were Cost Gain or Loss $78,000 $75,000 $75,000 $78,000 21. Lanier industries owns 45% of McCoy Company. For the current year, McCoy reports net income of $250,000 and declares and pays a $60,000 cash dividend. Which of the following correctly presents the journal entries to record Lanier's equity in McCoy's net income and the receipt of dividends from McCoy? Dec. 31 Stock Investments 85,500 Revenue from Investment in McCoy Company Dec. 31 Stock Investments 112,500 Revenue from Investment in McCoy Company Dec. 31 Cash 60,000 Stock Investments Dec. 31 Revenue from Investment in McCoy Company Stock Investments Dec. 31 Stock Investments 27,000 Cash Dec. 31 Stock Investments 112,500 Revenue from Investment in McCoy Company Dec. 31 Cash 27,000 Stock Investments 22. Joy Elle's Vegetable Market had the following transactions during 2010: 1. Issued $50,000 of par value common stock for cash. 2. Repaid a 6 year note payable in the amount of $22,000. 3. Acquired land by issuing common stock of par value $100,000. 4. Declared and paid a cash dividend of $2,000. 5. Sold a longterm investment (cost $63,000) for cash of $6,000. 6. Acquired an investment in IBM stock for cash of $12,000. What is the net cash provided by financing activities? $50,000 $28,000 $18,000 $26,000 23. In Rooney Company, Treasury Stock increased $30,000 from a cash purchase, and Retained Earnings increased $80,000 as a result of net income of $124,000 and cash dividends paid of $44,000. Net cash used by financing activities is: $30,000. $44,000. $74,000. $110,000. 24. In the Green Company, the beginning and ending balances in Land were $198,000 and $240,000 respectively. During the year, land costing $45,000 was sold for $45,000 cash, and land costing $87,000 was purchased for cash. The entries in the reconciling columns of the worksheet will include a: credit to Land $45,000 and a debit to Sale of Land $45,000 under financing activities. credit to Land $45,000 and a debit to Sale of Land $45,000 under investing activities. debit to Land $87,000 and a credit to Purchase of Land $87,000 under financing activities. net debit to Land $42,000 and a credit to Purchase of Land $42,000 under investing activities. 25. For each of the following items, indicate by using the appropriate code letter, how the item should be reported in the statement of cash flows, using the indirect method. A. Added to net income B. Deducted from net income C. Cash outflowinvesting activity D. Cash inflowinvesting activity E. Cash outflowfinancing activity F. Cash inflowfinancing activity G. Significant noncash investing and financing activity 1. Decrease in accounts payable during a period 2. Declaration and payment of a cash dividend. 3. Loss on sale of land. 4. Decrease in accounts receivable during a period. 5. Redemption of bonds for cash. 6. Proceeds from sale of equipment at book value. 7. Issuance of common stock for cash. 8. Purchase of a building for cash. 9. Acquisition of land in exchange for common stock. 10. Increase in merchandise inventory during a period. 26. The statement of cash flows is the only required financial statement that is not prepared from an adjusted trial balance. What are the sources of information for preparing a statement of cash flows? Explain how the accrual basis of accounting affects the statement of cash flows. 27. The current assets of Kile Company are $150,000. The current liabilities are $100,000. The current ratio expressed as a proportion is $150,000 $100,000. .67 : 1 1.5 : 1 150%. 28. The following information pertains to Soho Company. Assume that all balance sheet amounts represent both average and ending balance figures. Assume that all sales were on credit. Assets Cash and shortterm investments $45,000 Accounts receivable (net) 25,000 Inventory 20,000 Property, plant and equipment 210,000 Total Assets $300,000 Liabilities and Stockholders' Equity Current liabilities $50,000 Longterm liabilities 90,000 Stockholders' equitycommon 160,000 Total Liabilities and Stockholders' Equity $300,000 Income Statement Sales $120,000 Cost of goods sold 66,000 Gross margin 54,000 Operating expenses 30,000 Net income $24,000 Number of shares of common stock 6,000 Market price of common stock $20 Dividends per share .50 What is the current ratio for Soho? .64 1.30 1.80 1.40 29. The following amounts were taken from the financial statements of Palmer Company: 2010 Total assets 2009 $800,000 $1,000,000 Net sales 720,000 650,000 Gross profit 352,000 320,000 Net income 126,000 117,000 90,000 90,000 $35 $39 Weighted average number of common shares outstanding Market price of common stock The profit margin ratio for 2010 is 18.4%. 36.0%. 18.0%. 17.5%. 30. The following financial statement information is available for Howard Corporation: 2010 Stockholders' equity common 2009 $330,000 $270,000 Net sales 784,000 697,000 Cost of goods sold 406,000 377,000 Net income 112,000 80,000 Tax expense 48,000 29,000 Interest expense 14,000 14,000 Dividends paid to preferred stockholders 22,000 20,000 Dividends paid to common stockholders 15,000 10,000 The return on common stockholders' equity for 2010 is 25.0%. 37.3%. 30.0%. 27.3%. 31. Direct materials and direct labor of a company total $6,000,000. If manufacturing overhead is $3,000,000, what is direct labor cost? $6,000,000 $3,000,000 $0 Cannot be determined from the information provided 32. Cost of goods manufactured is calculated as follows: Direct materials used + direct labor + manufacturing overhead - beginning WIP + ending WIP. Beginning WIP + direct materials used + direct labor + manufacturing overhead - ending WIP. Direct materials used + direct labor + manufacturing overhead - ending WIP - beginning WIP. Beginning WIP + direct materials used + direct labor + manufacturing overhead + ending WIP. 33. Dolan Manufacturing Company's accounting records reflect the following inventories: Dec. 31, 2010 Raw materials inventory Work in process inventory Finished goods inventory Dec. 31, 2009 $310,000 300,000 190,000 $260,000 160,000 150,000 During 2010, $400,000 of raw materials were purchased, direct labor costs amounted to $500,000, and manufacturing overhead incurred was $480,000. The total raw materials available for use during 2010 for Dolan Manufacturing Company is $350,000 $660,000 $260,000 $710,000 34. Given the following data for Mehring Company, compute (A) total manufacturing costs and (B) cost of goods manufactured: Direct materials used Direct labor Manufacturing overhead Operating expenses (A) (B) $555,000 $180,000 150,000 225,000 263,000 Beginning work in process Ending work in process Beginning finished goods Ending finished goods $30,000 15,000 38,000 23,000 $540,000 $570,000 $555,000 35. Barr Mfg. provided the following information from its accounting records for 2010: Expected production 30,000 labor hours Actual production 28,000 labor hours Budgeted overhead $600,000 Actual overhead $580,000 How much is the overhead application rate if Barr bases the rate on direct labor hours? $18.67 per hour $20.71 per hour $20.00 per hour $19.33 per hour 36. Gulick Company developed the following data for the current year: Beginning work in process inventory Direct materials used $120,000 72,000 Actual overhead 144,000 Overhead applied 108,000 Cost of goods manufactured 132,000 Total manufacturing costs 360,000 Gulick Company's direct labor cost for the year is $180,000. $108,000. $144,000. $36,000. 37. Greer Company developed the following data for the current year: Beginning work in process inventory $68,000 Direct materials used 104,000 Actual overhead 88,000 Overhead applied 92,000 Cost of goods manufactured 450,000 Total manufacturing costs 428,000 How much is Greer Company's direct labor cost for the year? $164,000 $254,000 $300,000 $232,000 38. Essay Question (a) Distinguish between the two types of cost accounting systems. (b) May a company use both types of cost accounting systems? 39. In applying the highlow method, what is the fixed cost? Month Miles Total Cost January 80,000 $ 96,000 February 50,000 80,000 March 70,000 94,000 April 90,000 130,000 $14,000 $50,000 $36,000 $17,500 40. Fessler, Inc. has a product with a selling price per unit of $200, the unit variable cost is $75, and the total monthly fixed costs are $300,000. How much is Fessler's contribution margin ratio? 37.5% 62.5% 150% 266.6% 41. A company sells a product which has a unit sales price of $5, unit variable cost of $3 and total fixed costs of $120,000. The number of units the company must sell to break even is 24,000 units. 40,000 units. 60,000 units. 240,000 units. 42. Fixed costs are $300,000 and the variable costs are 75% of the unit selling price. What is the breakeven point in dollars? $1,200,000 $400,000 $900,000 $700,000 43. Sales (50,000 units) $1,000,000, direct materials and direct labor $500,000, other variable costs $50,000, and fixed costs $180,000. What is Boswell breakeven point in units? 28,125. 25,556. 16,364. 20,000. 44. A company's planned activity level for next year is expected to be 100,000 machine hours. At this level of activity, the company budgeted the following manufacturing overhead costs: Variable Indirect materials Indirect labor Factory supplies $140,000 200,000 20,000 Fixed Depreciation $60,000 Taxes 10,000 Supervision 50,000 A flexible budget prepared at the 80,000 machine hours level of activity would show total manufacturing overhead costs of $384,000. $408,000. $360,000. $288,000. 45. A company's planned activity level for next year is expected to be 100,000 machine hours. At this level of activity, the company budgeted the following manufacturing overhead costs: Variable Indirect materials $120,000 Indirect labor 160,000 Factory supplies 20,000 Fixed Depreciation $50,000 Taxes 10,000 Supervision 40,000 A flexible budget prepared at the 90,000 machine hours level of activity would show total manufacturing overhead costs of $300,000. $360,000. $370,000. $270,000. 46. A company's planned activity level for next year is expected to be 100,000 machine hours. At this level of activity, the company budgeted the following manufacturing overhead costs: Variable Fixed Indirect materials $90,000 Depreciation Indirect labor 120,000 Taxes Factory supplies 15,000 Supervision A flexible budget prepared at the 90,000 machine hours level of activity would show total manufacturing overhead costs of $202,500. $277,500. $225,000. $270,000. 47. Match the items below by entering the appropriate code letter in the space provided. Direct fixed costs $37,500 7,500 30,000 Investment center Flexible budget Return on Investment Budgetary control Indirect fixed costs Controllable costs Profit center Static budget Responsibility reporting system Responsibility accounting Management by exception 1. A measure of the profitability of an investment center computed by dividing controllable margin (in dollars) by average operating assets. 2. A part of management accounting that involves accumulating and reporting revenues and costs on the basis of the individual manager who has the authority to make the daytoday decisions about the items. 3. A projection of budget data at one level of activity. 4. The use of budgets to control operations. 5. Costs which are incurred for the benefit of more than one profit center. 6. A responsibility center that incurs costs, generates revenues, and has control over the investment funds available for use. 7. The review of budget reports by top management directed entirely or primarily to differences between actual results and planned objectives. 8. The preparation of reports for each level of responsibility shown in the company's organization char. 9. Costs that relate specifically to a responsibility center and are incurred for the sole benefit of the center. 10. Costs that a manager has the authority to incur within a given period of time. 11. A responsibility center that incurs costs and also generates revenues. 12. A projection of budget data for various levels of activity. 48. Essay Question The master budget and flexible budgets are important aids to management in performing the management functions of planning and control. Briefly describe how planning and control are facilitated by preparing a master budget and flexible budgets. How are these two types of budgets interrelated with planning and control? 49. Essay Question Managers are motivated to accomplish objectives if they feel that their efforts will be fairly evaluated. Explain why an organization may use different bases for evaluating the performance of managers of different types of responsibility centers