Price: $2.50
The comparative statements of Dillon Company are presented below.
Additional data:
The common stock recently sold at $19.50 per share.
The year-end balance in the allowance for doubtful accounts was $3,000 for 2009 and $2,400 for
2008.
Instructions
Compute the following ratios for 2009.
(a) Current. (h) Return on common stockholders’ equity.
(b) Acid-test. (i) Earnings per share.
(c) Receivables turnover. (j) Price-earnings.
(d) Inventory turnover. (k) Payout.
(e) Profit margin. (l) Debt to total assets.
(f) Asset turnover. (m) Times interest earned.
(g) Return on assets.
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P15-4 Financial information for Hanshew Company is presented below.
Price: $2.50
P15-4 Financial information for Hanshew Company is presented below.
1. Inventory at the beginning of 2008 was $118,000.
2. Receivables (net) at the beginning of 2008 were $88,000.The allowance for doubtful accounts
was $4,000 at the end of 2009, $3,800 at the end of 2008, and $3,700 at the beginning of 2008.
3. Total assets at the beginning of 2008 were $630,000.
4. No common stock transactions occurred during 2008 or 2009.
5. All sales were on account.
Instructions
(a) Indicate, by using ratios, the change in liquidity and profitability of Hanshew Company from
2008 to 2009. (Note: Not all profitability ratios can be computed.)
(b) Given below are three independent situations and a ratio that may be affected. For each situation,
compute the affected ratio (1) as of December 31, 2009, and (2) as of December 31,
2010, after giving effect to the situation. Net income for 2010 was $50,000. Total assets on
December 31, 2010, were $700,000.
P15-4 Financial information for Hanshew Company is presented below.
Hanshew Company | ||
Balance Sheets | ||
31-Dec | ||
Assets | 2009 | 2008 |
Cash | 70,000 | 65,000 |
Short-term investments | 52,000 | 40,000 |
Receivables (net) | 98,000 | 80,000 |
Inventory | 125,000 | 135,000 |
Prepaid expenses | 29,000 | 23,000 |
Land | 130,000 | 130,000 |
Building and equipment (net) | 180,000 | 175,000 |
684,000 | 648,000 | |
Liabilities and Stockholders’ Equity | ||
Notes payable | 100,000 | 100,000 |
Accounts payable | 48,000 | 42,000 |
Accrued liabilities | 50,000 | 40,000 |
Bonds payable, due 2010 | 150,000 | 150,000 |
Common stock | 200,000 | 200,000 |
Retained earnings | 136,000 | 116,000 |
684,000 | 648,000 |
Hanshew Company | ||||
Income Statement | ||||
For the Years Ended December 31 | ||||
Net sales | 850,000 | 790,000 | ||
Cost of goods sold | 620,000 | 575,000 | ||
Gross profit | 230,000 | 215,000 | ||
Operating expenses | 187,000 | 173,000 | ||
Net income | 43,000 | 42,000 |
1. Inventory at the beginning of 2008 was $118,000.
2. Receivables (net) at the beginning of 2008 were $88,000.The allowance for doubtful accounts
was $4,000 at the end of 2009, $3,800 at the end of 2008, and $3,700 at the beginning of 2008.
3. Total assets at the beginning of 2008 were $630,000.
4. No common stock transactions occurred during 2008 or 2009.
5. All sales were on account.
Instructions
(a) Indicate, by using ratios, the change in liquidity and profitability of Hanshew Company from
2008 to 2009. (Note: Not all profitability ratios can be computed.)
(b) Given below are three independent situations and a ratio that may be affected. For each situation,
compute the affected ratio (1) as of December 31, 2009, and (2) as of December 31,
2010, after giving effect to the situation. Net income for 2010 was $50,000. Total assets on
December 31, 2010, were $700,000.
Condensed balance sheet and income statement data for Kersenbrock Corporation
Price: $2.50
Condensed balance sheet and income statement data for Kersenbrock Corporation appear
below.
Additional information:
1. The market price of Kersenbrock’s common stock was $4.00, $5.00, and $8.00 for 2007, 2008,
and 2009, respectively.
2. All dividends were paid in cash.
Instructions
(a) Compute the following ratios for 2008 and 2009.
(1) Profit margin.
(2) Asset turnover.
(3) Earnings per share. (Weighted-average-common shares in 2009 were 32,000 and in 2008
were 31,000.)
(4) Price-earnings.
(5) Payout.
(6) Debt to total assets.
Condensed balance sheet and income statement data for Kersenbrock Corporation appear
below.
Kersenbrock Corporation | |||
Balance Sheet | |||
31-Dec | |||
2009 | 2008 | 2007 | |
Cash | 25,000 | 20,000 | 18,000 |
Receivables (net) | 50,000 | 45,000 | 48,000 |
Other current assets | 90,000 | 95,000 | 64,000 |
Investments | 75,000 | 70,000 | 45,000 |
Plant and equipment (net) | 400,000 | 370,000 | 358,000 |
640,000 | 600,000 | 533,000 | |
Current liabilities | 75,000 | 80,000 | 70,000 |
Long-term debt | 80,000 | 85,000 | 50,000 |
Common stock, $10 par | 340,000 | 310,000 | 300,000 |
Retained earnings | 145,000 | 125,000 | 113,000 |
640,000 | 600,000 | 533,000 |
Kersenbrock Corporation | ||
Income Statement | ||
For the Year Ended December 31 | ||
2,009 | 2,008 | |
Sales revenue | 740,000 | 700,000 |
Less: Sales returns and allowances | 40,000 | 50,000 |
Net sales | 700,000 | 650,000 |
Cost of goods sold | 420,000 | 400,000 |
Gross profit | 280,000 | 250,000 |
Operating expenses (incl. income taxes) | 235,000 | 220,000 |
Net income | 45,000 | 30,000 |
1. The market price of Kersenbrock’s common stock was $4.00, $5.00, and $8.00 for 2007, 2008,
and 2009, respectively.
2. All dividends were paid in cash.
Instructions
(a) Compute the following ratios for 2008 and 2009.
(1) Profit margin.
(2) Asset turnover.
(3) Earnings per share. (Weighted-average-common shares in 2009 were 32,000 and in 2008
were 31,000.)
(4) Price-earnings.
(5) Payout.
(6) Debt to total assets.
P15-2 The comparative statements of Villa Tool Company are presented below.
Price: $2.50
The comparative statements of Villa Tool Company are presented below.
VILLA TOOL COMPANY
Income Statement
For the Year Ended December 31
2009 2008
All sales were on account. The allowance for doubtful accounts was $3,200 on December 31,
2009, and $3,000 on December 31, 2008.
Instructions
Compute the following ratios for 2009.(Weighted-average-common shares in 2009 were 57,000.)
(a) Earnings per share. (f) Receivables turnover.
(b) Return on common stockholders’ equity. (g) Inventory turnover.
(c) Return on assets. (h) Times interest earned.
(d) Current. (i) Asset turnover.
(e) Acid-test. (j) Debt to total assets.
The comparative statements of Villa Tool Company are presented below.
VILLA TOOL COMPANY
Income Statement
For the Year Ended December 31
2009 2008
All sales were on account. The allowance for doubtful accounts was $3,200 on December 31,
2009, and $3,000 on December 31, 2008.
Instructions
Compute the following ratios for 2009.(Weighted-average-common shares in 2009 were 57,000.)
(a) Earnings per share. (f) Receivables turnover.
(b) Return on common stockholders’ equity. (g) Inventory turnover.
(c) Return on assets. (h) Times interest earned.
(d) Current. (i) Asset turnover.
(e) Acid-test. (j) Debt to total assets.
P15-1 Comparative statement data for Douglas Company and Maulder Company, two competitors,
Price: $2.50
P15-1 Comparative statement data for Douglas Company and Maulder Company, two competitors,
appear below. All balance sheet data are as of December 31, 2009, and December 31,
2008.
Instructions
(a) Prepare a vertical analysis of the 2009 income statement data for Douglas Company and
Maulder Company in columnar form.
(b) Comment on the relative profitability of the companies by computing the return
on assets and the return on common stockholders’ equity ratios for both companies
P15-1 Comparative statement data for Douglas Company and Maulder Company, two competitors,
appear below. All balance sheet data are as of December 31, 2009, and December 31,
2008.
Douglas Company | Maulder Company | |||
2009 | 2008 | 2009 | 2008 | |
Net sales | 1,549,035 | 339,038 | ||
Cost of goods sold | 1,080,490 | 241,000 | ||
Operating expenses | 302,275 | 79,000 | ||
Interest expense | 8,980 | 2,252 | ||
Income tax expense | 54,500 | 6,650 | ||
Current assets | 325,975 | 312,410 | 83,336 | 79,467 |
Plant assets (net) | 521,310 | 500,000 | 139,728 | 125,812 |
Current liabilities | 65,325 | 75,815 | 35,348 | 30,281 |
Long-term liabilities | 108,500 | 90,000 | 29,620 | 25,000 |
Common stock, $10 par | 500,000 | 500,000 | 120,000 | 120,000 |
Retained earnings | 173,460 | 146,595 | 38,096 | 29,998 |
(a) Prepare a vertical analysis of the 2009 income statement data for Douglas Company and
Maulder Company in columnar form.
(b) Comment on the relative profitability of the companies by computing the return
on assets and the return on common stockholders’ equity ratios for both companies
Yadier Corporation has income from continuing operations of $290,000
Price: $1.99
Yadier Corporation has income from continuing operations of $290,000 for the year
ended December 31, 2008. It also has the following items (before considering income taxes).
1. An extraordinary loss of $80,000.
2. A gain of $30,000 on the discontinuance of a division
3. A correction of an error in last year’s financial statements that resulted in a $20,000 understatement of 2007 net income.
Assume all items are subject to income taxes at a 30% tax rate.
Instructions
Prepare an income statement, beginning with income from continuing operations.
Yadier Corporation has income from continuing operations of $290,000 for the year
ended December 31, 2008. It also has the following items (before considering income taxes).
1. An extraordinary loss of $80,000.
2. A gain of $30,000 on the discontinuance of a division
3. A correction of an error in last year’s financial statements that resulted in a $20,000 understatement of 2007 net income.
Assume all items are subject to income taxes at a 30% tax rate.
Instructions
Prepare an income statement, beginning with income from continuing operations.
Francis Equipment Co. closes its books regularly on December 31, but at the end of 2010
Price: $3.99
Francis Equipment Co. closes its books regularly on December 31, but at the end of 2010 it held its cash book open so that a more favorable balance sheet could be prepared for credit purposes. Cash receipts and disbursements for the first 10 days of January were recorded as December transactions. The information is given on the next page
1. January cash receipts recorded in the December cash book totaled $45,640, of which $28,000 represents cash sales, and $17,640 represents collections on account for which cash discounts of $360
were given.
2. January cash disbursements recorded in the December check register liquidated accounts payable
of $22,450 on which discounts of $250 were taken.
3. The ledger has not been closed for 2010.
4. The amount shown as inventory was determined by physical count on December 31, 2010.
The company uses the periodic method of inventory.
Instructions
(a) Prepare any entries you consider necessary to correct Francis’s accounts at December 31.
(b) To what extent was Francis Equipment Co. able to show a more favorable balance sheet at
December 31 by holding its cash book open? (Compute working capital and the current ratio.)
Assume that the balance sheet that was prepared by the company showed the following amounts:
Dr. Cr.
Cash $39,000
Receivables 42,000
Inventories 67,000
Accounts payable $45,000
Other current liabilities 14,200
Francis Equipment Co. closes its books regularly on December 31, but at the end of 2010 it held its cash book open so that a more favorable balance sheet could be prepared for credit purposes. Cash receipts and disbursements for the first 10 days of January were recorded as December transactions. The information is given on the next page
1. January cash receipts recorded in the December cash book totaled $45,640, of which $28,000 represents cash sales, and $17,640 represents collections on account for which cash discounts of $360
were given.
2. January cash disbursements recorded in the December check register liquidated accounts payable
of $22,450 on which discounts of $250 were taken.
3. The ledger has not been closed for 2010.
4. The amount shown as inventory was determined by physical count on December 31, 2010.
The company uses the periodic method of inventory.
Instructions
(a) Prepare any entries you consider necessary to correct Francis’s accounts at December 31.
(b) To what extent was Francis Equipment Co. able to show a more favorable balance sheet at
December 31 by holding its cash book open? (Compute working capital and the current ratio.)
Assume that the balance sheet that was prepared by the company showed the following amounts:
Dr. Cr.
Cash $39,000
Receivables 42,000
Inventories 67,000
Accounts payable $45,000
Other current liabilities 14,200
E8-25 (Dollar-Value LIFO) Presented below is information related to Martin Company.
Price: $2.99
E8-25 (Dollar-Value LIFO) Presented below is information related to Martin Company.
Ending Inventory Price
Date (End-of-Year Prices) Index
December 31, 2007 $ 80,000 100
December 31, 2008 111,300 105
December 31, 2009 108,000 120
December 31, 2010 122,200 130
December 31, 2011 147,000 140
December 31, 2012 176,900 145
Instructions
Compute the ending inventory for Martin Company for 2007 through 2012 using the dollar-value LIFO
method.
E8-25 (Dollar-Value LIFO) Presented below is information related to Martin Company.
Ending Inventory Price
Date (End-of-Year Prices) Index
December 31, 2007 $ 80,000 100
December 31, 2008 111,300 105
December 31, 2009 108,000 120
December 31, 2010 122,200 130
December 31, 2011 147,000 140
December 31, 2012 176,900 145
Instructions
Compute the ending inventory for Martin Company for 2007 through 2012 using the dollar-value LIFO
method.
Francis Equipment Co. closes its books regularly on December 31
Price: $3.99
Francis Equipment Co. closes its books regularly on December 31, but at the end of 2010 it held its cash book open so that a more favorable balance sheet could be prepared for credit purposes. Cash receipts and disbursements for the first 10 days of January were recorded as December transactions. The information is given on the next page
1. January cash receipts recorded in the December cash book totaled $45,640, of which $28,000 represents cash sales, and $17,640 represents collections on account for which cash discounts of $360
were given.
2. January cash disbursements recorded in the December check register liquidated accounts payable
of $22,450 on which discounts of $250 were taken.
3. The ledger has not been closed for 2010.
4. The amount shown as inventory was determined by physical count on December 31, 2010.
The company uses the periodic method of inventory.
Instructions
(a) Prepare any entries you consider necessary to correct Francis’s accounts at December 31.
(b) To what extent was Francis Equipment Co. able to show a more favorable balance sheet at
December 31 by holding its cash book open? (Compute working capital and the current ratio.)
Assume that the balance sheet that was prepared by the company showed the following amounts:
Dr. Cr.
Cash $39,000
Receivables 42,000
Inventories 67,000
Accounts payable $45,000
Other current liabilities 14,200
Francis Equipment Co. closes its books regularly on December 31, but at the end of 2010 it held its cash book open so that a more favorable balance sheet could be prepared for credit purposes. Cash receipts and disbursements for the first 10 days of January were recorded as December transactions. The information is given on the next page
1. January cash receipts recorded in the December cash book totaled $45,640, of which $28,000 represents cash sales, and $17,640 represents collections on account for which cash discounts of $360
were given.
2. January cash disbursements recorded in the December check register liquidated accounts payable
of $22,450 on which discounts of $250 were taken.
3. The ledger has not been closed for 2010.
4. The amount shown as inventory was determined by physical count on December 31, 2010.
The company uses the periodic method of inventory.
Instructions
(a) Prepare any entries you consider necessary to correct Francis’s accounts at December 31.
(b) To what extent was Francis Equipment Co. able to show a more favorable balance sheet at
December 31 by holding its cash book open? (Compute working capital and the current ratio.)
Assume that the balance sheet that was prepared by the company showed the following amounts:
Dr. Cr.
Cash $39,000
Receivables 42,000
Inventories 67,000
Accounts payable $45,000
Other current liabilities 14,200
Molini Corporation reports the following partial data
Price: $1.99
For its fiscal year ending October 31, 2008, Molini Corporation reports the following
partial data.
The flood loss is considered an extraordinary item.The income tax rate is 30% on all items.
Instructions
(a) Prepare a correct income statement, beginning with income before income taxes.
For its fiscal year ending October 31, 2008, Molini Corporation reports the following
partial data.
Income before income taxes | 540,000 |
Income tax expense (30% x 390000) | 117,000 |
Income before extraordinary items | 423,000 |
Extraordinary loss from fl ood | 150,000 |
Net income | 273,000 |
The flood loss is considered an extraordinary item.The income tax rate is 30% on all items.
Instructions
(a) Prepare a correct income statement, beginning with income before income taxes.
Scully Corporation’s comparative
Price: $2.99
E15-11 Scully Corporation’s comparative balance sheets are presented below.
SCULLY CORPORATION
Balance Sheets
December 31
2008 2007
Cash $ 4,300 $ 3,700
Accounts receivable 21,200 23,400
Inventory 10,000 7,000
Land 20,000 26,000
Building 70,000 70,000
Accumulated depreciation (15,000) (10,000)
Total $110,500 $120,100
Accounts payable $ 12,370 $ 31,100
Common stock 75,000 69,000
Retained earnings 23,130 20,000
Total $110,500 $120,100
Scully’s 2008 income statement included net sales of $100,000, cost of goods sold of $60,000, and
net income of $15,000.
Instructions
Compute the following ratios for 2008.
(a) Current ratio.
(b) Acid-test ratio.
(c) Receivables turnover.
(d) Inventory turnover.
(e) Profit margin.
(f) Asset turnover.
(g) Return on assets.
(h) Return on common stockholders’ equity.
(i) Debt to total assets ratio.
E15-11 Scully Corporation’s comparative balance sheets are presented below.
SCULLY CORPORATION
Balance Sheets
December 31
2008 2007
Cash $ 4,300 $ 3,700
Accounts receivable 21,200 23,400
Inventory 10,000 7,000
Land 20,000 26,000
Building 70,000 70,000
Accumulated depreciation (15,000) (10,000)
Total $110,500 $120,100
Accounts payable $ 12,370 $ 31,100
Common stock 75,000 69,000
Retained earnings 23,130 20,000
Total $110,500 $120,100
Scully’s 2008 income statement included net sales of $100,000, cost of goods sold of $60,000, and
net income of $15,000.
Instructions
Compute the following ratios for 2008.
(a) Current ratio.
(b) Acid-test ratio.
(c) Receivables turnover.
(d) Inventory turnover.
(e) Profit margin.
(f) Asset turnover.
(g) Return on assets.
(h) Return on common stockholders’ equity.
(i) Debt to total assets ratio.
E15-10 Rees Corporation experienced a fire on December 31, 2009, in which its financial
Price: $1.99
Rees Corporation experienced a fire on December 31, 2009, in which its financial
records were partially destroyed. It has been able to salvage some of the records and has ascertained
the following balances.
Additional information:
1. The inventory turnover is 3.5 times.
2. The return on common stockholders’ equity is 24%. The company had no additional paid-in
capital.
3. The receivables turnover is 8.8 times.
4. The return on assets is 20%.
5. Total assets at December 31, 2008, were $605,000.
Instructions
Compute the following for Rees Corporation.
(a) Cost of goods sold for 2009.
(b) Net sales (credit) for 2009.
(c) Net income for 2009.
(d) Total assets at December 31, 2009.
Rees Corporation experienced a fire on December 31, 2009, in which its financial
records were partially destroyed. It has been able to salvage some of the records and has ascertained
the following balances.
31-Dec-09 | 31-Dec-08 | |
Cash | 30,000 | 10,000 |
Receivables (net) | 72,500 | 126,000 |
Inventory | 200,000 | 180,000 |
Accounts payable | 50,000 | 90,000 |
Notes payable | 30,000 | 60,000 |
Common stock, $100 par | 400,000 | 400,000 |
Retained earnings | 113,500 | 101,000 |
Additional information:
1. The inventory turnover is 3.5 times.
2. The return on common stockholders’ equity is 24%. The company had no additional paid-in
capital.
3. The receivables turnover is 8.8 times.
4. The return on assets is 20%.
5. Total assets at December 31, 2008, were $605,000.
Instructions
Compute the following for Rees Corporation.
(a) Cost of goods sold for 2009.
(b) Net sales (credit) for 2009.
(c) Net income for 2009.
(d) Total assets at December 31, 2009.
E14-9 The income statement for Christensen, Inc., appears below.
Price: $1.99
The income statement for Christiansen, Inc., appears below.
Christiansen, Inc. | |
Income Statement | |
For the Year Ended December 31, 2014 | |
Net sales | 400,000 |
Cost of goods sold | 235,000 |
Gross profit | 165,000 |
Expenses (including $14,000 interest and $17,000 income taxes) | 105,000 |
Net income | 60,000 |
Additional information:
1. The weighted-average common shares outstanding in 2014 were 30,000 shares.
2. The market price of Christiansen, Inc. stock was $10.80 in 2014.
3. Cash dividends of $21,000 were paid, $6,000 of which were to preferred stockholders.
Instructions
Compute the following ratios for 2014.
(a) Earnings per share.
(b) Price-earnings.
(c) Payout.
(d) Times interest earned.
E15-8 Selected comparative statement data for Willingham Products Company
Price: $1.99
E15-8 Selected comparative statement data for Willingham Products Company. All balance sheet data are as of December 31.
Instructions
Compute the following ratios for 2009.
(a) Profit margin.
(b) Asset turnover.
(c) Return on assets.
(d) Return on common stockholders’ equity.
E15-8 Selected comparative statement data for Willingham Products Company. All balance sheet data are as of December 31.
2009 | 2008 | |||
Net sales | 760,000 | 720,000 | ||
Cost of goods sold | 480,000 | 440,000 | ||
Interest expense | 7,000 | 5,000 | ||
Net income | 50,000 | 42,000 | ||
Accounts receivable | 120,000 | 100,000 | ||
Inventory | 85,000 | 75,000 | ||
Total assets | 580,000 | 500,000 | ||
Total common stockholders' equity | 430,000 | 325,000 |
Compute the following ratios for 2009.
(a) Profit margin.
(b) Asset turnover.
(c) Return on assets.
(d) Return on common stockholders’ equity.
Nordstrom Inc
Price: $1.99
Nordstrom, Inc. operates department stores in numerous states. Selected financial
statement data for the year ending January 30, 2010, are shown below.
For the year, net sales were $8,258 and cost of goods sold was $5,328 (in millions).
Instructions
a)Compute the four liquidity ratios at the end of the year. (Round ratios to 2 decimal places
eg 10.57:1 and turnovers to 1 decimal place, eg 10.5.)
b) Using the data in the chapter, compare Nordstrom's liquidity with (1) that of Jc Penny &
(2) the industry averages for department stores (Round ratios to 2 decimal place
Nordstrom is ________ JC Penney for the current & acid test ratios and the receivables
turnover. Nordstrom is _____ than JC Penney for inventory turnover.
Nordstrom is ______ than the industry average for the current and acid test ratio,
but ___ the industry average receivables turnover and the inventory turnover ratios.
Nordstrom, Inc. operates department stores in numerous states. Selected financial
statement data for the year ending January 30, 2010, are shown below.
Nordstrom, Inc. | ||
Balance Sheet (Partial) | ||
(In millions) | End of Year | Beg. Of Year |
Cash and cash equivalents | 795 | 72 |
Accounts receivable (net) | 2,035 | 1,942 |
Merchandise inventory | 898 | 900 |
Prepaid expenses | 88 | 93 |
Other current assets | 238 | 210 |
Total current assets | 4,054 | 3,217 |
Total current liabilities | 2,014 | 1,601 |
For the year, net sales were $8,258 and cost of goods sold was $5,328 (in millions).
Instructions
a)Compute the four liquidity ratios at the end of the year. (Round ratios to 2 decimal places
eg 10.57:1 and turnovers to 1 decimal place, eg 10.5.)
b) Using the data in the chapter, compare Nordstrom's liquidity with (1) that of Jc Penny &
(2) the industry averages for department stores (Round ratios to 2 decimal place
Nordstrom is ________ JC Penney for the current & acid test ratios and the receivables
turnover. Nordstrom is _____ than JC Penney for inventory turnover.
Nordstrom is ______ than the industry average for the current and acid test ratio,
but ___ the industry average receivables turnover and the inventory turnover ratios.
Beka Company owns equipment that cost $50,000
Price: $1.99
Beka Company owns equipment that cost $50,000 when purchased on January 1, 2008.
It has been depreciated using the straight-line method based on estimated salvage value of
$5,000 and an estimated useful life of 5 years.
Instructions
Prepare Beka Company’s journal entries to record the sale of the equipment in these four independent
situations.
(a) Sold for $28,000 on January 1, 2011.
(b) Sold for $28,000 on May 1, 2011.
(c) Sold for $11,000 on January 1, 2011.
(d) Sold for $11,000 on October 1, 2011.
Beka Company owns equipment that cost $50,000 when purchased on January 1, 2008.
It has been depreciated using the straight-line method based on estimated salvage value of
$5,000 and an estimated useful life of 5 years.
Instructions
Prepare Beka Company’s journal entries to record the sale of the equipment in these four independent
situations.
(a) Sold for $28,000 on January 1, 2011.
(b) Sold for $28,000 on May 1, 2011.
(c) Sold for $11,000 on January 1, 2011.
(d) Sold for $11,000 on October 1, 2011.
Silver River Company sells Products S and T and has made the
Price: $2.99
Silver River Company sells Products S and T and has made the following estimates for the coming year:
Product Unit Selling Price Unit Variable Cost Sales Mix
S $30 $24 60%
T 70 56 40
Fixed costs are estimated at $202,400. Determine (a) the estimated sales in units of the overall product necessary to reach the break-even point for the coming year, (b) the estimated number of units of each product necessary to be sold to reach the break-even point for the coming year, and (c) the estimated sales in units of the overall product necessary to realize an operating income of $119,600 for the coming year.
Silver River Company sells Products S and T and has made the following estimates for the coming year:
Product Unit Selling Price Unit Variable Cost Sales Mix
S $30 $24 60%
T 70 56 40
Fixed costs are estimated at $202,400. Determine (a) the estimated sales in units of the overall product necessary to reach the break-even point for the coming year, (b) the estimated number of units of each product necessary to be sold to reach the break-even point for the coming year, and (c) the estimated sales in units of the overall product necessary to realize an operating income of $119,600 for the coming year.
All of the following factors in computing depreciation are estimates except
Price: $10.99
1. A company purchases a remote site building for computer operations. The building will be suitable for operations after some expenditures. The wiring must be replaced to computer specifications. The roof is leaky and must be replaced. All rooms must be repaired and re-carpeted and there will also be some plumbing work done.Which of the following statements is true.
a. the cost of the building will include the cost of replacing the roof
b. the cost of the building is the purchase price of the building, while the additional expenditures are all capitalized as Building improvements.
c. the wiring is part of the computer costs, not the building cost
d. the cost of the building will not include the re-carpeting cost
2. All of the following factors in computing depreciation are estimates except
a. useful life
b. cost
c. residual value
d. selvedge value
3. Accountants do not attempt to measure the change in the plant asset’s market value during ownership because
a. losses would have to be recognized
b. the assets are not held for resale
c. plant assets can not be sold
d. it is management’s responsibility to determine fair values
4. In computing depreciation, selvedge value is
a. the fair market value of a plant asset on the date of acquisition
b. ignored in all the depreciation methods
c. subtracted from accumulated depreciation to determine the plant asset’s depreciable cost
d. an estimate of a plant asset’s value at the end of its useful life
5. Useful life is expressed in terms of use expected from the asset under the
a. declining-balance method
b. straight-line method
c. units-of-activity method
d. none of these
6. Management should select the depreciation method that
a. best measures the plant asset’s market value over its useful life
b. best measure the plant asset’s contribution to revenue over its useful life
c. has been used most often in the past by the company.
d. is easiest to apply
7. A change in the estimated useful life of equipment requires
a. that the amount of periodic depreciation be changed in the current year and in future years
b. that income for the current year be increased
c. that no change be made in the periodic depreciation so that depreciation amounts are comparable over the life of the asset
d. a retroactive change in the amount of periodic depreciation recognized in the previous year
8. Additions and improvements
a. typically only benefit the current accounting period
b. normally involve immaterial expenditures
c. increase the book value of the plant assets when incurred
d. occur frequently during the ownership of a plant asset
9. If a plant asset is retired before it is fully depreciated, and no selvedge or scrap value is received
a. phantom depreciation must be taken as though the asset were still on the books
b. no gain or loss on disposal will be recorded
c. a gain on disposal will be recorded
d. a loss on disposal will be recorded
10. On a balance sheet, natural resources may be described more specifically as all of the following except
a. timberlands
b. land improvements
c. mineral deposits
d. oil reserves
11. A patent should
a. be amortized over its useful life or 20 yes, whichever is longer
b. be amortized over its useful life or 20 yrs, whichever is shorter
c. be amortized over a period of 20 yrs
d. not be amortized if it has an indefinite life
12. The balance in accumulated depreciation is
a. deducted from intangible assets on the balance sheet
b. deducted from retained earnings in the stockholders’ equity section of the balance sheet
c. generally not reported in the financial statements
d. deducted from plant and equipment on the balance sheet
13. A gain on sale of a plant asset occurs when the proceeds of the sale are greater than the
a. market value of the asset sold
b. selvedge value of the asset sold
c. accumulated depreciation on the asset sold
d. book value of the asset sold
14. A purchased patent has a legal life of 20 yrs. It should be
a. amortized over its useful life if less than 20 yrs
b. expensed in the year of acquisition
c. not amortized
d. amortized over 20 yrs regardless of its useful life
15. A truck was purchased for $120,000 and it was estimated to have a $24,000 selvedge value at the end of its useful life. Monthly depreciation expense of$2000 was recorded using the straight-line method. The annual depreciation rate is
a. 25%
b. 8%
c. 20%
d. 2%
16. All of the following are reported as current liabilities except
a. bonds payable
b. notes payable
c. accounts payable
d. unearned revenues
17. The relationship between current liabilities and current assets is
a. useful in determining the amount of a company’s long-term debt
b. useful in evaluating a company’s liquidity
c. called the matching principle
d. useful in determining income
18. Most companies pay current liabilities
a. out of current assets
b. by issuing interest-bearing notes payable
c. by issuing stock
d. by creating long-term liabilities
19. From a liquidity standpoint, it is more desirable for a company to have current
a. liabilities exceed current assets
b. assets equal current liabilities
c. assets exceeds current liabilities
d. liabilities exceed long-term liabilities
20. In most companies, current liabilities are paid within
a. one year through the creation of other current liabilities
b. the operating cycle out of current assets
c. the operating cycle through the creation of other current liabilities
d. one year out of current assets
21. The entry to record the issuance of an interest-bearing note credits Note Payable for the note’s
a. market value
b. maturity value
c. face value
d. cash realizable value
22. As interest is recorded on an interest-bearing note, the Interest Expense account is
a. decreased; the Interest Payable account is increased
b. increased; the Interest Payable account is increased
c. increased; the Notes Payable account is increased
d. increased; the Notes Payable account is decreased
23. Unearned Rental Revenue is
a. a revenue account
b. a contra account to Rental Revenue
c. reported as a current liability
d. debited when rent is received in advance
24. The amount of sales tax collected by a retail store when making sales is
a. recorded as an operating expense
b. not recorded because it is a tax paid by the customer
c. a miscellaneous revenue for the store
d. a current liability
25. Bonds that are secured by real estate are termed
a. bearer bonds
b. mortgage bonds
c. serial bonds
d. debentures
26. A major disadvantage resulting from the use of bonds is that
a. bond holders have voting rights
b. earning per share may be lowered
c. interest must be paid on a periodic basis
d. taxes may increase
27. Which one of the following amounts increases each period when accounting for long-term notes payable?
a. interest expense
b. principal balance
c. reduction of principal
d. cash payment
28. The entry to record an installment payment on a long-term note payable is
a. Mortgage notes Payable
Interest Expense
Cash
b. Bonds Payable
Cash
c. Interest Expense
Cash
d. Mortgage Notes Payable
Cash
29. Each of the following may be shown in a supporting schedule instead of the balance sheet except the
a. maturity dates
b. conversion privileges
c. interest rate
d. current maturities of long-term debt
30. The discount on bonds payable on premium or bond payable is shown on the balance sheet as an adjustment to bonds payable to arrive at the carrying value of the bonds. Indicate the appropriate addition or subtraction to bonds payable:
Premium on Discount on
Bonds Payable Bonds payables
----------------- -------------------
a. Deduct Deduct
b. Deduct Add
c. Add Add
d. Add Deduct
1. A company purchases a remote site building for computer operations. The building will be suitable for operations after some expenditures. The wiring must be replaced to computer specifications. The roof is leaky and must be replaced. All rooms must be repaired and re-carpeted and there will also be some plumbing work done.Which of the following statements is true.
a. the cost of the building will include the cost of replacing the roof
b. the cost of the building is the purchase price of the building, while the additional expenditures are all capitalized as Building improvements.
c. the wiring is part of the computer costs, not the building cost
d. the cost of the building will not include the re-carpeting cost
2. All of the following factors in computing depreciation are estimates except
a. useful life
b. cost
c. residual value
d. selvedge value
3. Accountants do not attempt to measure the change in the plant asset’s market value during ownership because
a. losses would have to be recognized
b. the assets are not held for resale
c. plant assets can not be sold
d. it is management’s responsibility to determine fair values
4. In computing depreciation, selvedge value is
a. the fair market value of a plant asset on the date of acquisition
b. ignored in all the depreciation methods
c. subtracted from accumulated depreciation to determine the plant asset’s depreciable cost
d. an estimate of a plant asset’s value at the end of its useful life
5. Useful life is expressed in terms of use expected from the asset under the
a. declining-balance method
b. straight-line method
c. units-of-activity method
d. none of these
6. Management should select the depreciation method that
a. best measures the plant asset’s market value over its useful life
b. best measure the plant asset’s contribution to revenue over its useful life
c. has been used most often in the past by the company.
d. is easiest to apply
7. A change in the estimated useful life of equipment requires
a. that the amount of periodic depreciation be changed in the current year and in future years
b. that income for the current year be increased
c. that no change be made in the periodic depreciation so that depreciation amounts are comparable over the life of the asset
d. a retroactive change in the amount of periodic depreciation recognized in the previous year
8. Additions and improvements
a. typically only benefit the current accounting period
b. normally involve immaterial expenditures
c. increase the book value of the plant assets when incurred
d. occur frequently during the ownership of a plant asset
9. If a plant asset is retired before it is fully depreciated, and no selvedge or scrap value is received
a. phantom depreciation must be taken as though the asset were still on the books
b. no gain or loss on disposal will be recorded
c. a gain on disposal will be recorded
d. a loss on disposal will be recorded
10. On a balance sheet, natural resources may be described more specifically as all of the following except
a. timberlands
b. land improvements
c. mineral deposits
d. oil reserves
11. A patent should
a. be amortized over its useful life or 20 yes, whichever is longer
b. be amortized over its useful life or 20 yrs, whichever is shorter
c. be amortized over a period of 20 yrs
d. not be amortized if it has an indefinite life
12. The balance in accumulated depreciation is
a. deducted from intangible assets on the balance sheet
b. deducted from retained earnings in the stockholders’ equity section of the balance sheet
c. generally not reported in the financial statements
d. deducted from plant and equipment on the balance sheet
13. A gain on sale of a plant asset occurs when the proceeds of the sale are greater than the
a. market value of the asset sold
b. selvedge value of the asset sold
c. accumulated depreciation on the asset sold
d. book value of the asset sold
14. A purchased patent has a legal life of 20 yrs. It should be
a. amortized over its useful life if less than 20 yrs
b. expensed in the year of acquisition
c. not amortized
d. amortized over 20 yrs regardless of its useful life
15. A truck was purchased for $120,000 and it was estimated to have a $24,000 selvedge value at the end of its useful life. Monthly depreciation expense of$2000 was recorded using the straight-line method. The annual depreciation rate is
a. 25%
b. 8%
c. 20%
d. 2%
16. All of the following are reported as current liabilities except
a. bonds payable
b. notes payable
c. accounts payable
d. unearned revenues
17. The relationship between current liabilities and current assets is
a. useful in determining the amount of a company’s long-term debt
b. useful in evaluating a company’s liquidity
c. called the matching principle
d. useful in determining income
18. Most companies pay current liabilities
a. out of current assets
b. by issuing interest-bearing notes payable
c. by issuing stock
d. by creating long-term liabilities
19. From a liquidity standpoint, it is more desirable for a company to have current
a. liabilities exceed current assets
b. assets equal current liabilities
c. assets exceeds current liabilities
d. liabilities exceed long-term liabilities
20. In most companies, current liabilities are paid within
a. one year through the creation of other current liabilities
b. the operating cycle out of current assets
c. the operating cycle through the creation of other current liabilities
d. one year out of current assets
21. The entry to record the issuance of an interest-bearing note credits Note Payable for the note’s
a. market value
b. maturity value
c. face value
d. cash realizable value
22. As interest is recorded on an interest-bearing note, the Interest Expense account is
a. decreased; the Interest Payable account is increased
b. increased; the Interest Payable account is increased
c. increased; the Notes Payable account is increased
d. increased; the Notes Payable account is decreased
23. Unearned Rental Revenue is
a. a revenue account
b. a contra account to Rental Revenue
c. reported as a current liability
d. debited when rent is received in advance
24. The amount of sales tax collected by a retail store when making sales is
a. recorded as an operating expense
b. not recorded because it is a tax paid by the customer
c. a miscellaneous revenue for the store
d. a current liability
25. Bonds that are secured by real estate are termed
a. bearer bonds
b. mortgage bonds
c. serial bonds
d. debentures
26. A major disadvantage resulting from the use of bonds is that
a. bond holders have voting rights
b. earning per share may be lowered
c. interest must be paid on a periodic basis
d. taxes may increase
27. Which one of the following amounts increases each period when accounting for long-term notes payable?
a. interest expense
b. principal balance
c. reduction of principal
d. cash payment
28. The entry to record an installment payment on a long-term note payable is
a. Mortgage notes Payable
Interest Expense
Cash
b. Bonds Payable
Cash
c. Interest Expense
Cash
d. Mortgage Notes Payable
Cash
29. Each of the following may be shown in a supporting schedule instead of the balance sheet except the
a. maturity dates
b. conversion privileges
c. interest rate
d. current maturities of long-term debt
30. The discount on bonds payable on premium or bond payable is shown on the balance sheet as an adjustment to bonds payable to arrive at the carrying value of the bonds. Indicate the appropriate addition or subtraction to bonds payable:
Premium on Discount on
Bonds Payable Bonds payables
----------------- -------------------
a. Deduct Deduct
b. Deduct Add
c. Add Add
d. Add Deduct
McCarty Pointers Corporation expects to begin operations on January
Price: $3.99
Problem 14-16 Preparing a sales budget and schedule of cash receipts
McCarty Pointers Corporation expects to begin operations on January 1, 2012; it will operate as a
specialty sales company that sells laser pointers over the Internet. McCarty expects sales in January
2012 to total $200,000 and to increase 10 percent per month in February and March. All sales are on
account. McCarty expects to collect 70 percent of accounts receivable in the month of sale, 20 percent
in the month following the sale, and 10 percent in the second month following the sale.
Required
a. Prepare a sales budget for the first quarter of 2012.
b. Determine the amount of sales revenue McCarty will report on the first 2012 quarterly pro
forma income statement.
c. Prepare a cash receipts schedule for the first quarter of 2012.
d. Determine the amount of accounts receivable as of March 31, 2012.
Problem 14-16 Preparing a sales budget and schedule of cash receipts
McCarty Pointers Corporation expects to begin operations on January 1, 2012; it will operate as a
specialty sales company that sells laser pointers over the Internet. McCarty expects sales in January
2012 to total $200,000 and to increase 10 percent per month in February and March. All sales are on
account. McCarty expects to collect 70 percent of accounts receivable in the month of sale, 20 percent
in the month following the sale, and 10 percent in the second month following the sale.
Required
a. Prepare a sales budget for the first quarter of 2012.
b. Determine the amount of sales revenue McCarty will report on the first 2012 quarterly pro
forma income statement.
c. Prepare a cash receipts schedule for the first quarter of 2012.
d. Determine the amount of accounts receivable as of March 31, 2012.
E14-7 Naftel Company sells lamps and other lighting fixtures
Price: $2.99
E14-7 Naftel Company sells lamps and other lighting fixtures. The purchasing department manager
prepared the following inventory purchases budget. Naftel’s policy is to maintain an ending
inventory balance equal to 10 percent of the following month’s cost of goods sold. April’s
budgeted cost of goods sold is $75,000.
January February March
Budgeted cost of goods sold $50,000 $54,000 $60,000
Plus: Desired ending inventory 5,400 ? ?
Inventory needed 55,400 ? ?
Less: Beginning inventory 5,000 ? ?
Required purchases (on account) $50,400 ? ?
Required
a. Complete the inventory purchases budget by filling in the missing amounts.
b. Determine the amount of cost of goods sold the company will report on its first quarter pro
forma income statement.
c. Determine the amount of ending inventory the company will report on its pro forma balance
sheet at the end of the first quarter.
E14-7 Naftel Company sells lamps and other lighting fixtures. The purchasing department manager
prepared the following inventory purchases budget. Naftel’s policy is to maintain an ending
inventory balance equal to 10 percent of the following month’s cost of goods sold. April’s
budgeted cost of goods sold is $75,000.
January February March
Budgeted cost of goods sold $50,000 $54,000 $60,000
Plus: Desired ending inventory 5,400 ? ?
Inventory needed 55,400 ? ?
Less: Beginning inventory 5,000 ? ?
Required purchases (on account) $50,400 ? ?
Required
a. Complete the inventory purchases budget by filling in the missing amounts.
b. Determine the amount of cost of goods sold the company will report on its first quarter pro
forma income statement.
c. Determine the amount of ending inventory the company will report on its pro forma balance
sheet at the end of the first quarter.
E14-2 Welch Company, which expects to start operations on January
Price: $2.99
Welch Company, which expects to start operations on January 1, 2011, will sell digital cameras in shopping malls. Welch has budgeted sales as indicated in the following table. The company expects a 10 percent increase in sales per month for February and March. The ratio of cash sales to sales on account will remain stable from January through March.
Sales January February March
Cash sales $ 40,000 ? ?
Sales on account 100,000 ? ?
Total budgeted sales $140,000 ? ?
Required
a. Complete the sales budget by filling in the missing amounts.
b. Determine the amount of sales revenue Welch will report on its first quarter pro formal income statement.
Welch Company, which expects to start operations on January 1, 2011, will sell digital cameras in shopping malls. Welch has budgeted sales as indicated in the following table. The company expects a 10 percent increase in sales per month for February and March. The ratio of cash sales to sales on account will remain stable from January through March.
Sales January February March
Cash sales $ 40,000 ? ?
Sales on account 100,000 ? ?
Total budgeted sales $140,000 ? ?
Required
a. Complete the sales budget by filling in the missing amounts.
b. Determine the amount of sales revenue Welch will report on its first quarter pro formal income statement.
DeHoag Corporation provided the following information
Price: $9.99
1. DeHoag Corporation provided the following information from its financial records:
What is the amount of the company's earnings per share?
$0.72
$0.76
$0.80
$3.20
2. Which of the following is a factor involved in communicating useful financial information?
Attributes of the users
Purpose for which the information will be used
Process by which the information is analyzed
All of the above
3. Select the incorrect statement regarding the return on equity (ROE) measure.
ROE is used to measure the profitability of the firm in relation to the amount invested by stockholders.
A company’s ROE is lower than its return on investment because ROE does not consider that part of the business that is financed by debt.
ROE is affected by a company’s use of leverage.
ROE equals net income divided by average total stockholders' equity.
4. Select the incorrect decision rule from the following.
A 2:1 current ratio is generally preferred over a 1:1 current ratio.
A 30-day average collection period for accounts receivable is generally preferred over a 40-day average collection period.
A 2% dividend yield is generally preferred over a 3% dividend yield.
A 10% net margin is generally preferred over an 8% net margin.
5. Select the incorrect statement regarding net margin.
Net margin refers to the average amount of each sales dollar remaining after all expenses are subtracted.
Net margin may be calculated in several ways.
The smaller the net margin the better.
The amount of net margin is affected by a company’s choices of accounting principles.
6. Accrual accounting requires the use of many estimates, including:
uncollectible accounts expense.
warranty costs.
assets’ useful lives.
all of the above.
7. Select the correct statement regarding vertical analysis.
Vertical analysis of the income statement involves showing each item as a percentage of sales.
Vertical analysis of the balance sheet involves showing each asset as a percentage of total assets.
Vertical analysis examines two or more items from the financial statements of one accounting period.
All of the above are correct.
8. Otteman Company reported net income of $16,700 on gross sales of $80,000. The company has average total assets of $115,200, of which $100,000 is property, plant, and equipment. What is the company's return on investment?
69.4%
18.0%
14.5%
12.5%
9. Select the incorrect statement regarding horizontal analysis.
Percentage analysis involves establishing the relationship of one amount to another.
In doing horizontal analysis, an account is expressed as a percentage of the previous balance of the same account.
Percentage analysis attempts to eliminate the materiality problem of comparing firms of different sizes.
A horizontal analysis of cost of goods sold on the income statement would involve dividing cost of goods sold by total sales revenue.
10. You are considering an investment in Ingram Company stock and wish to assess the company's position in the stock market. All of the following ratios can be used for this purpose except:
current ratio.
earnings per share.
dividend yield.
price-earnings ratio.
11. Which of following practices is considered an effective means of re-engineering business systems?
Identifying the best practices used by world-class competitors
Improving the accuracy of cost allocations
Eliminating non-value added activities
All of the above
12. Howard Lumber Company mistakenly classified as an expense a product cost that totaled $20,000. The company produced 2,000 units of product and sold 1,000 of them during the year. Management is paid a bonus equal to 2% of net income. In the year in which the mistake was made:
product costs were overstated.
management bonuses were overstated.
the company's income statement portrayed a more favorable position than actually existed.
the company's net income was understated.
13. During its first year of operations, Martin Company paid $4,000 for direct materials and $8,500 for production workers' wages. Lease payments and utilities on the production facilities amounted to $7,500 while general, selling, and administrative expenses totaled $3,000. The company produced 5,000 units and sold 4,000 units at a price of $7.50 a unit.
What is the amount of gross margin for the first year?
$20,000
$12,000
$7,500
$14,000
14. Which of the following transactions would cause net income for the period to be lower?
Paid $1,600 cash for raw material cost
Paid administrative salaries of $2,500
Depreciated production equipment for $3,000
Purchased $5,000 of merchandise inventory
15. For a manufacturing company, product costs include all of the following except:
direct material costs.
direct labor costs.
research and development costs.
overhead costs.
16. During its first year of operations, Martin Company paid $4,000 for direct materials and $8,500 for production workers' wages. Lease payments and utilities on the production facilities amounted to $7,500 while general, selling, and administrative expenses totaled $3,000. The company produced 5,000 units and sold 4,000 units at a price of $7.50 a unit.
What was Martin’s net income for the first year in operation?
$11,000
$7,000
$14,000
$20,000
17. Which of the following costs would not be classified as overhead for a company that produces small appliances?
Assembly labor
Plant supervisory labor
Indirect material costs
Plant utilities costs
18. As a Certified Management Accountant, Zandra is bound by the standards of ethical conduct issued by the Institute of Management Accountants. During the course of business, Zandra learned that her company has decided to discontinue a major product line. If she mentions this fact to her brother, who is a stockbroker, Zandra could be in violation of the:
competence standard.
confidentiality standard.
integrity standard.
objectivity standard.
19. Susan Mason is the manager of one department in a large store. In this capacity, which of the following kinds of information would she be interested in?
Information that is local, relevant, and timely
Information that is global and pertains to the business as a whole
Information that meets cost/benefit criteria
Both A and C
20. Which of the following is not one of the four Standards of Ethical Conduct for Management Accountants?
Competence
Confidentiality
Integrity
Education
1. DeHoag Corporation provided the following information from its financial records:
Net income | $200,000 | Number of common shares outstanding 1/1 | 200,000 | |
Common stock dividends | $10,000 | Number of common shares outstanding 12/31 | 300,000 | |
Sales | $800,000 |
What is the amount of the company's earnings per share?
$0.72
$0.76
$0.80
$3.20
2. Which of the following is a factor involved in communicating useful financial information?
Attributes of the users
Purpose for which the information will be used
Process by which the information is analyzed
All of the above
3. Select the incorrect statement regarding the return on equity (ROE) measure.
ROE is used to measure the profitability of the firm in relation to the amount invested by stockholders.
A company’s ROE is lower than its return on investment because ROE does not consider that part of the business that is financed by debt.
ROE is affected by a company’s use of leverage.
ROE equals net income divided by average total stockholders' equity.
4. Select the incorrect decision rule from the following.
A 2:1 current ratio is generally preferred over a 1:1 current ratio.
A 30-day average collection period for accounts receivable is generally preferred over a 40-day average collection period.
A 2% dividend yield is generally preferred over a 3% dividend yield.
A 10% net margin is generally preferred over an 8% net margin.
5. Select the incorrect statement regarding net margin.
Net margin refers to the average amount of each sales dollar remaining after all expenses are subtracted.
Net margin may be calculated in several ways.
The smaller the net margin the better.
The amount of net margin is affected by a company’s choices of accounting principles.
6. Accrual accounting requires the use of many estimates, including:
uncollectible accounts expense.
warranty costs.
assets’ useful lives.
all of the above.
7. Select the correct statement regarding vertical analysis.
Vertical analysis of the income statement involves showing each item as a percentage of sales.
Vertical analysis of the balance sheet involves showing each asset as a percentage of total assets.
Vertical analysis examines two or more items from the financial statements of one accounting period.
All of the above are correct.
8. Otteman Company reported net income of $16,700 on gross sales of $80,000. The company has average total assets of $115,200, of which $100,000 is property, plant, and equipment. What is the company's return on investment?
69.4%
18.0%
14.5%
12.5%
9. Select the incorrect statement regarding horizontal analysis.
Percentage analysis involves establishing the relationship of one amount to another.
In doing horizontal analysis, an account is expressed as a percentage of the previous balance of the same account.
Percentage analysis attempts to eliminate the materiality problem of comparing firms of different sizes.
A horizontal analysis of cost of goods sold on the income statement would involve dividing cost of goods sold by total sales revenue.
10. You are considering an investment in Ingram Company stock and wish to assess the company's position in the stock market. All of the following ratios can be used for this purpose except:
current ratio.
earnings per share.
dividend yield.
price-earnings ratio.
11. Which of following practices is considered an effective means of re-engineering business systems?
Identifying the best practices used by world-class competitors
Improving the accuracy of cost allocations
Eliminating non-value added activities
All of the above
12. Howard Lumber Company mistakenly classified as an expense a product cost that totaled $20,000. The company produced 2,000 units of product and sold 1,000 of them during the year. Management is paid a bonus equal to 2% of net income. In the year in which the mistake was made:
product costs were overstated.
management bonuses were overstated.
the company's income statement portrayed a more favorable position than actually existed.
the company's net income was understated.
13. During its first year of operations, Martin Company paid $4,000 for direct materials and $8,500 for production workers' wages. Lease payments and utilities on the production facilities amounted to $7,500 while general, selling, and administrative expenses totaled $3,000. The company produced 5,000 units and sold 4,000 units at a price of $7.50 a unit.
What is the amount of gross margin for the first year?
$20,000
$12,000
$7,500
$14,000
14. Which of the following transactions would cause net income for the period to be lower?
Paid $1,600 cash for raw material cost
Paid administrative salaries of $2,500
Depreciated production equipment for $3,000
Purchased $5,000 of merchandise inventory
15. For a manufacturing company, product costs include all of the following except:
direct material costs.
direct labor costs.
research and development costs.
overhead costs.
16. During its first year of operations, Martin Company paid $4,000 for direct materials and $8,500 for production workers' wages. Lease payments and utilities on the production facilities amounted to $7,500 while general, selling, and administrative expenses totaled $3,000. The company produced 5,000 units and sold 4,000 units at a price of $7.50 a unit.
What was Martin’s net income for the first year in operation?
$11,000
$7,000
$14,000
$20,000
17. Which of the following costs would not be classified as overhead for a company that produces small appliances?
Assembly labor
Plant supervisory labor
Indirect material costs
Plant utilities costs
18. As a Certified Management Accountant, Zandra is bound by the standards of ethical conduct issued by the Institute of Management Accountants. During the course of business, Zandra learned that her company has decided to discontinue a major product line. If she mentions this fact to her brother, who is a stockbroker, Zandra could be in violation of the:
competence standard.
confidentiality standard.
integrity standard.
objectivity standard.
19. Susan Mason is the manager of one department in a large store. In this capacity, which of the following kinds of information would she be interested in?
Information that is local, relevant, and timely
Information that is global and pertains to the business as a whole
Information that meets cost/benefit criteria
Both A and C
20. Which of the following is not one of the four Standards of Ethical Conduct for Management Accountants?
Competence
Confidentiality
Integrity
Education
Allen Corporation was organized on July 15, 2012. It was authorized to issue 150,000
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Allen Corporation was organized on July 15, 2012. It was authorized to issue 150,000 shares of $25 par value common stock and 50,000 shares of 6% cumulative preferred stock. The preferred stock had a stated value of $50 per share. The following stock transactions relate to Allen Corporation.
• Issued 55,000 shares of common stock for $33 per share.
• Issued 2,750 shares of the class A preferred stock for $62 per share.
• Issued 27,500 shares of common stock for $35 per share.
Required:
1) Indicate the effect of each of these transactions on Allen's financial statements. Include dollar amounts in the model, below. After recording the three transactions, calculate column totals.
2) After these transactions have been recorded, what is the total amount of stockholders' equity?
3) After these transactions have been recorded, how many shares of common stock are outstanding?
Allen Corporation was organized on July 15, 2012. It was authorized to issue 150,000 shares of $25 par value common stock and 50,000 shares of 6% cumulative preferred stock. The preferred stock had a stated value of $50 per share. The following stock transactions relate to Allen Corporation.
• Issued 55,000 shares of common stock for $33 per share.
• Issued 2,750 shares of the class A preferred stock for $62 per share.
• Issued 27,500 shares of common stock for $35 per share.
Required:
1) Indicate the effect of each of these transactions on Allen's financial statements. Include dollar amounts in the model, below. After recording the three transactions, calculate column totals.
2) After these transactions have been recorded, what is the total amount of stockholders' equity?
3) After these transactions have been recorded, how many shares of common stock are outstanding?
Villarente Company issued 5-year $200,000 face value bonds at 95 on January
Price: $2.99
Villarente Company issued 5-year $200,000 face value bonds at 95 on January 1, 2012. The stated interest rate on these bonds is 9%, and the effective interest rate is 10.33%. Use the effective interest rate method to complete the amortization schedule below.
Villarente Company issued 5-year $200,000 face value bonds at 95 on January 1, 2012. The stated interest rate on these bonds is 9%, and the effective interest rate is 10.33%. Use the effective interest rate method to complete the amortization schedule below.
Cash Payment | Interest Expense | Discount Amortization | Carrying Value | |
January 1, 2012 | ||||
December 31, 2012 | ||||
December 31, 2013 | ||||
December 31, 2014 | ||||
December 31, 2015 | ||||
December 31, 2016 | ||||
Totals |
The Jiffy Manufacturing Company started operations in 2012 when it acquired
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The Jiffy Manufacturing Company started operations in 2012 when it acquired $100,000 from its owners. During the year, the company incurred the following costs:
Raw materials used 40,000
Labor 50000
Overhead 20000
Selling and administrative costs 30000
The company placed 12,000 units into production, completed 10,000 units, and sold 8,000 units. The average selling price was $17 per unit.
Required:
1) Prepare a schedule of cost of goods manufactured and sold for the year ended December 31, 2012.
2) Prepare an income statement for the year ended December 31, 2012.
The Jiffy Manufacturing Company started operations in 2012 when it acquired $100,000 from its owners. During the year, the company incurred the following costs:
Raw materials used 40,000
Labor 50000
Overhead 20000
Selling and administrative costs 30000
The company placed 12,000 units into production, completed 10,000 units, and sold 8,000 units. The average selling price was $17 per unit.
Required:
1) Prepare a schedule of cost of goods manufactured and sold for the year ended December 31, 2012.
2) Prepare an income statement for the year ended December 31, 2012.
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