accounting survey

Problem

I. Define the following principles, concepts and terminology. Give an example of each:

• Matching • Cost • Conservatism • Entity • Going Concern • Depreciation • Breakeven • Variable cost

2. Under the balance sheet classification of property, plant, and equipment, some accounts need ad stment atthe end of each month and others do not. Which do and why? Which do NOT and why?

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3. Classify the following items as: a. accrued revenue (accrued asset) b. deferred revenue (unearned revenue) c. accrued expense (accrued liability) d. deferred expense (prepaid expense)

(1) Three months' rent paid in advance (2) Rental income for six months received in advance (3) Jobs completed but not yet billed at month-end (4) Interest payable accrued on a note, but not yet paid (5) Telephone bill owed but not yet paid (6) A three-year premium paid on auto fleet insurance policy

4. Details of invoices for purchases of merchandise are as follows:

Merchandise Returns and AllowancesTransportation Terms

a. $1,000 b.5,000 c.4,000 d.5,000

$200 400 150

$25 FOB shipping point, 1110, n/30 FOB destination, n/30 FOB shipping point, 2110, n/30 FOB destination, 1110, n/30

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Determine the amount to be paid in full settlement of each of the invoices, assuming that credit f, returns and allowances was received prior to payment and that all invoices were paid within the discount eriod.

5. Determine the amount to be added to Allowance for Doubtful Accounts in each of the following (a) Balance of$500 in the allowance account just prior to adjustment. Analysis of

accounts receivable indicates doubtful accounts of$9,500. (b) Balance of $950 in the allowance account just prior to adjustment. Uncollectibles are

estimated at 3.5% of sales, which totaled $1,000,000 for the year.

6. The following units are available for sale during the year:

January 1 April 3 August 31 September 29 December 31

Beginning Inventory Purchases Purchases Purchases Ending Inventory

10 un its @ $ 18 30 units @ $20 28 units @ $25 17 units @$30 21 units

Determine ending inventory cost by (a) FIFO, (b) LIFO, and (c) average cost.

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7. On the basis of the following data related to current assets for Mission Co. at December 2010, pr pare a partial balance sheet in good form.

Cash and cash equivalents Notes receivable Accounts receivable Allowance for doubtful accounts Interest receivable Merchandise inventory-at lower of cost (first-in, first-out method) or market

$100,000 50,000

290,000 20,000

750 120,000

8. Indicate the section of the balance sheet (current assets, fixed assets, investments, current liabiliti s,long- term liabilities, and stockholders' equity) in which each of the following is reported: (a) Note receivable due in 3 years (b) Note receivable due in 90 days (c) Allowance for doubtful accounts

9. You have been hired by a high-growth startup company to assist in the determination of what dep eciation method to employ for financial reporting. The company's fixed assets are equally divided among buildings and high-tech equipment (heavily used in the initial years). (a) Can the company select different methods of depreciation for financial reporting?

Explain. (b) Explain to company management which method of depreciation would be suitable for

each type of fixed assets the company employs. Also, state why. (c) Which method of depreciation would the company choose for taxes? Explain why.

10. A machine with a useful life of 6 years and a residual value of $3,000 was purchased at the begin ing of year 1 for $30,000. The machine was sold for $15,000 on April 1 in year 4. (a) What was the book value ofthe equipment at the end of year 3 assuming the straight-

line method of depreciation is used? (b) Illustrate the effects on the accounts and financial statements of the depreciation from

January 1 to April 1 of year 4. (c) Illustrate the effects on the accounts and financial statements of the sale of the machine

on April 1.

11. A company acquired mineral rights for $7,500,000. The mineral deposit is estimated at 600,000 t ns and during the year 100,000 tons were extracted and sold. (a) Calculate depletion expense for the year. (b) Show the effects on the accounts and financial statements of the company. (c) What is the book value of the mineral rights at the end of the current year?

12. During 2009, Lexie, Inc. acquired Lena, Inc. for $10,000,000. The fair market value of the net ass ts of Lena, Inc. was $8,500,000 on the date of purchase. During 2012, Lexie, Inc. determined the good ill resulting from the Lena acquisition was impaired and had a value of$l,OOO,OOO. (a) Determine the amount of goodwill implied during 2009. (b) Illustrate the effects on the accounts and the financial statements ofthe

amortization for 2012.

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13. For each of the following items indicate whether the transactions listed below increased (+), dec eased (- ) or had no effect (0) by inserting the appropriate symbol.

(a) Sold equipment for cash at a gain

Owners' Equity

Cash Flows

Net Income Assets Liabilities

(b) lRecorded amortization expense on patents

c) lPaid cash for minor repairs to an asset (d) lRecorded a revenue expenditure

incurred on account e) !paid cash to remove old building from

land being prepared for use

14. Indicate whether the following actions would (+) increase, (-) decrease, or (0) not affec a company's total assets, liabilities, and stockholders' equity.

(1) Declaring a cash dividend (2) Paying the cash dividend declared in (1) (3) Declaring a stock dividend (4) Issuing stock certificates for the stock

dividend declared in (3)

Assets Stockholders'

Liabilities Equity

15. Tops Company sells Products D and E and has made the following estimates for the coming yea:

Product D E

Unit Selling Price $30 70

Unit Variable Cost $24

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Sales Mix 60% 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 0 each product necessary to be sold to reach the break-even point for the coming year, and (c) the estim ted sales in units of the overall product necessary to realize an operating income of $119,600 for the comi g year.

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(a) If Henry Company's budgeted sales are $800,000, fixed costs are $350,000, and variable costs are $600,000, what is the budgeted contribution margin ratio?

(b) Ifthe contribution margin ratio is 30% for Gray Company, sales are $900,000, and fixed costs are $180,000, what is the operating profit?

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Plan I Plan II

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16. A corporation, which had 20,000 shares of common stock outstanding, declared a 3-for-l sto k split. (a) What will be the number of shares outstanding after the split? (b) If the common stock had a market price of $240 per share before the stock split, hat

would be an approximate market price per share after the split?

17. Smith Co. is considering the following alternative plans for financing the company:

Issue 10% Bonds (at face) Issue $10 Common Stock $3,000,000

$1,000,000 $2,000,000

Income tax is estimated at 40% of income.

Determine the earnings per share of common stock under the two alternative financing plans, ass mmg income before bond interest and income tax is $1,000,000.