For each of the following situations, indicate whether FIFO, LIFO, or weighted average applies: a. In a period of falling prices, net income would be highest. b. In a period of falling prices, the unit cost of goods would be the same for ending inventory and cost of goods sold. c. In a period of rising prices, net income would be highest. d. In a period of rising prices, cost of goods sold would be highest. e. In a period of rising prices, ending inventory would be highest.
> Assume that on July 1, Year 1, Big Corp. loaned Little Corp. $12,000 for a period of one year at 6 percent interest. What amount of interest revenue will Big report for Year 1? What amount of cash will Big receive upon maturity of the note?
> What two taxes are components of the FICA tax? What programs do they fund?
> What is the difference between wages and salaries?
> When is it acceptable to use the direct write-off method of accounting for uncollectible accounts?
> Does the recognition of depreciation expense affect cash flows? Why or why not?
> What is the purpose of internal controls in an organization?
> The following information was drawn from the Year 1 accounting records of Cozart Merchandisers. 1. Inventory with a list price of $40,000 was purchased under terms 2/10, net/30. 2. Cozart returned $4,200 of the inventory to the supplier five days after p
> Bloomin’ Brands, Inc. is the corporation behind five restaurant chains: Outback Steakhouse, Carrabba’s Italian Grill, Bonefish Grill, Fleming’s Prime Steakhouse and Wine Bar, and Roy’
> In what circumstances can an auditor disclose confidential information about a client without the client’s permission?
> When might an auditor issue a disclaimer on financial statements?
> What are the implications of an unqualified audit opinion?
> What is the difference between the liquidity and the solvency of a business?
> What makes an error in the financial statements material?
> What is an independent auditor? Why must auditors be independent?
> What is a financial statement audit? Who is qualified to perform it?
> What types of expenditures are usually made from a petty cash fund?
> What is the purpose of a petty cash fund?
> What is the purpose of the Cash Short and Over account?
> The following information was taken from the accounts of Adams’s Eatery, a delicatessen, at December 31, Year 1. The accounts are listed in alphabetical order, and each has a normal balance. Required: First, prepare an income statemen
> Is accounting terminology standard in all countries? What term is used in the United Kingdom to refer to sales? What term is used to refer to inventory? What is a gearing ratio? Is it important to know about these differences?
> Ripley Lumber Company purchased $240,000 of equipment on September 1, Year 1. Required: a. Compute the amount of depreciation expense that is deductible under MACRS for Year 1 and Year 2, assuming that the equipment is classified as a seven-year propert
> Crossroads Eye Care Company purchased $60,000 of equipment on March 1, Year 1. Required: a. Compute the amount of depreciation expense that is deductible under MACRS for Year 1 and Year 2, assuming that the equipment is classified as a seven-year proper
> What information is provided by the net income percentage (return-on-sales ratio)?
> What is the purpose of independent verification of performance?
> Consider the following events: 1. A petty cash fund of $200 was established on April 1, Year 1. 2. Employees were reimbursed when they presented petty cash vouchers to the petty cash custodian. 3. On April 30, Year 1, the petty cash fund contained vouche
> What is an example of a business that would have a high inventory turnover? A low inventory turnover?
> What information does inventory turnover provide?
> Suda Company sold land that cost $40,000 for $37,000 cash. Explain how this transaction would be shown on the statement of cash flows.
> Explain the difference between losses and expenses.
> In Year 1, Image Incorporated sold land for $82,000 cash. The land had originally cost $50,000. Also, Image sold inventory that had cost $176,000 for $265,000 cash. Operating expenses amounted to $41,000. Required: a. Prepare a Year 1 multistep income s
> Explain the difference between gains and revenues.
> Suzanne Hurley discovered significant fraud in the accounting records of a high profile client. Due to her client’s prestige, the story aired in the mainstream media. Unable to resolve her client’s remaining concerns with the company’s management team, H
> Consider the following events: 1. A petty cash fund of $200 was established on April 1, Year 1. 2. Employees were reimbursed when they presented petty cash vouchers to the petty cash custodian. 3. On April 30, Year 1, the petty cash fund contained vouche
> What is the purpose of giving credit terms to customers?
> If some merchandise declines in value because of damage or obsolescence, what effect will the lower-of-cost-or-market rule have on the income statement? Explain.
> How does the phrase lower-of-cost-or-market apply to inventory valuation?
> Why do you think natural resources are called wasting assets?
> What is the advantage of using the allowance method of accounting for uncollectible accounts? What is the advantage of using the direct write-off method?
> Assume that on October 1, Year 1, Big Company borrowed $10,000 from the local bank at 6 percent interest. The note is due on October 1, Year 2. How much interest does Big pay in Year 1? How much interest does Big pay in Year 2? What amount of cash does B
> What is meant by segregation of duties? Give an illustration.
> The trial balance for The Bolt Co. as of January 1, Year 2, was as follows: The following events affected the company during the Year 2 accounting period: 1. Purchased merchandise on account that cost $8,200. 2. The goods in Event 1 were purchased FOB
> What is the difference between accounting controls and administrative controls?
> Sarah Johnson was a trusted employee of Evergreen Trust Bank. She was involved in everything. She worked as a teller, accounted for the cash at the other teller windows, and recorded many of the transactions in the accounting records. She was so loyal th
> Determine which party (buyer or seller) is responsible for freight charges in each of the following situations: a. Purchased merchandise, freight terms, FOB destination. b. Purchased merchandise, freight terms, FOB shipping point. c. Sold merchandise, fr
> For each of the following events, indicate whether the freight terms are FOB destination or FOB shipping point. a. Sold merchandise and the buyer paid the freight costs. b. Purchased merchandise and the seller paid the freight costs. c. Sold merchandise
> List the internal control procedures that pertain to the protection of business equipment.
> Regional Medical Centers (RMC) hired a new physician, Fred Clark, who was an immediate success. Everyone loved his bedside manner; he could charm the most cantankerous patient. Indeed, he was a master salesman, as well as an expert physician. Unfortunate
> What is included in the entry to record accrued interest expense? How does it affect the accounting equation?
> Required For each of the following situations, fill in the blank with FIFO, LIFO, or weighted average: a. ______would produce the highest amount of net income in an inflationary environment. b. ______would produce the highest amount of assets in an infla
> What is the purpose of the W-2 form? What is the purpose of the W-4 form?
> Raabe Sales experienced the following events during Year 1, its first year of operation: 1. Started the business when it acquired $80,000 cash from the issue of common stock. 2. Paid $35,000 cash to purchase inventory. 3. Sold inventory that cost $21,000
> Define the following terms: a. Maker b. Payee c. Principal d. Interest e. Maturity date f. Collateral
> What is the difference between the allowance method and the direct write-off method of accounting for uncollectible accounts?
> Explain straight-line, units-of-production, and double declining-balance depreciation. When is it appropriate to use each of these depreciation methods?
> How does issuing an $8,000 discount note with an 8 percent discount rate and a one-year term to maturity affect the accounting equation?
> Will the effective rate of interest be the same on a $10,000 face value, 6 percent interest-bearing note and a $10,000 face value, 6 percent discount note? Is the amount of cash received upon making these two loans the same? Why or why not?
> How do differences in expense recognition and industry characteristics affect financial performance measures?
> List some differences between U.S. GAAP and IFRS for long-term operational assets.
> What is the difference between an interest-bearing note and a discount note?
> The higher the company’s current ratio, the better the company’s financial condition. Do you agree with this statement? Explain.
> When a long-term operational asset is sold at a gain, how is the balance sheet affected? Is the statement of cash flows affected? If so, how?
> Wild Rose Co. experienced the following events for the Year 1 accounting period: 1. Acquired $20,000 cash from the issue of common stock. 2. Purchased $36,000 of inventory on account. 3. Received goods purchased in Event 2 FOB shipping point. Freight cos
> Does the method of depreciation required to be used for tax purposes reflect the use of a piece of equipment? Can you use double-declining-balance depreciation for tax purposes?
> Explain MACRS depreciation. When is its use appropriate?
> Who pays the FICA tax? Is there a ceiling on the amount of tax that is paid?
> Use the following information to prepare a multistep income statement and a balance sheet for Trias Company for Year 2. $ 45,000 48,000 45,000 10,000 $ 6,500 350,000 9,600 92,000 10,500 4,500 Operating Expenses Accounts Payable Allowance for Doubtfu
> Thorne Inc. experienced the following transactions for Year 1, its first year of operations: 1. Issued common stock for $60,000 cash. 2. Purchased $210,000 of merchandise on account. 3. Sold merchandise that cost $165,000 for $310,000 on account. 4. Coll
> The following information pertains to Kee Cabinet Company’s sales on account and accounts receivable: After several collection attempts, Kee Cabinet Company wrote off $3,100 of accounts that could not be collected. Kee estimates that
> During the first year of operation, Year 1, Home Renovation recognized $261,000 of service revenue on account. At the end of Year 1, the accounts receivable balance was $46,300. Even though this is his first year in business, the owner believes he will c
> The following transactions apply to Sports Consulting for Year 1, the first year of operation: 1. Issued $5,000 of common stock for cash. 2. Recognized $70,000 of service revenue earned on account. 3. Collected $62,000 from accounts receivable. 4. Adjust
> Three different companies each purchased a machine on January 1, Year 1, for $64,000. Each machine was expected to last five years or 200,000 hours. Salvage value was estimated to be $6,000. All three machines were operated for 50,000 hours in Year 1, 55
> Bostick Co. acquired the assets of Belk Co. for $1,200,000 in Year 1. The estimated fair market value of the assets at the acquisition date was $1,000,000. Goodwill of $200,000 was recorded at acquisition. In Year 2, because of negative publicity, one-ha
> TRS Company experienced the following events: 1. Purchased merchandise inventory for cash. 2. Sold merchandise inventory on account. Label the revenue recognition 2a and the expense recognition 2b. 3. Returned merchandise purchased on account. 4. Purchas
> Doug’s Diner acquired a fast food restaurant for $1,500,000. The fair market values of the assets acquired were as follows. No liabilities were assumed. Required: a. Calculate the amount of goodwill acquired. b. Prepare the journal en
> Metals Exploration Corporation engages in the exploration and development of many types of natural resources. In the last two years, the company has engaged in the following activities: Jan. 1, Year 1 Purchased a coal mine estimated to contain 300,000 to
> Delta Manufacturing paid $62,000 to purchase a computerized assembly machine on January 1, Year 1. The machine had an estimated life of eight years and a $2,000 salvage value. Delta’s financial condition as of January 1, Year 4, is show
> Tringle Inc. recorded the following transactions over the life of a piece of equipment purchased in Year 1: Jan. 1, Year 1 Purchased the equipment for $38,000 cash. The equipment is estimated to have a five-year life and $3,000 salvage value and was to b
> Floyd Company made several purchases of long-term assets in Year 1. The details of each purchase are presented here. New Office Equipment 1. List price: $50,000; terms: 1/10 n/30; paid within the discount period. 2. Transportation-in: $1,200. 3. Install
> Todd Service Company purchased a copier on January 1, Year 1, for $25,000 and paid an additional $500 for delivery charges. The copier was estimated to have a life of four years or 1,000,000 copies. Salvage value was estimated at $1,500. The copier produ
> Friendly Corporation purchased a delivery van for $28,500 in Year 1. The firm’s financial condition immediately prior to the purchase is shown in the following horizontal statements model: The van was expected to have a useful life of
> Scott Company began operations when it acquired $40,000 cash from the issue of common stock on January 1, Year 1. The cash acquired was immediately used to purchase equipment for $40,000 that had a $4,000 salvage value and an expected useful life of four
> National Laundry Services purchased a new steam press on January 1 for $42,000. It is expected to have a five-year useful life and a $4,000 salvage value. National expects to use the steam press more extensively in the early years of its life. Required:
> The following trial balance was prepared for Village Cycle Sales and Service on December 31, Year 1, after the closing entries were posted: Village Cycle had the following transactions in Year 2: 1. Purchased merchandise on account for $260,000. 2. Sol
> Which of the following would be debited to the Inventory account for a merchandising business using the perpetual inventory system? Required: a. Transportation-in. b. Allowance received for damaged inventory. c. Purchase of inventory. d. Purchase of off
> Identify each of the following independent transactions as an asset source (AS), asset use (AU), asset exchange (AE), or claims exchange (CE). Also explain how each event affects assets, liabilities, stockholders’ equity, net income, an
> Diamond Supply Company had the following transactions in Year 1: 1. Acquired $50,000 cash from the issue of common stock. 2. Purchased $120,000 of merchandise for cash in Year 1. 3. Sold merchandise that cost $95,000 for $180,000 during the year under th
> The following information comes from the accounts of Legoria Company: Required: a. There were $160,000 in sales on account during the accounting period. Writeoffs of uncollectible accounts were $1,200. What was the amount of cash collected from account
> The following transactions apply to Cheng Co. for Year 1, its first year of operations: 1. Issued $60,000 of common stock for cash. 2. Provided $94,000 of services on account. 3. Collected $84,500 cash from accounts receivable. 4. Loaned $10,000 to Swan
> During the first year of operation, Year 1, Direct Service Co. recognized $290,000 of service revenue on account. At the end of Year 1, the accounts receivable balance was $46,000. For this first year in business, the owner believes uncollectible account
> The following transactions apply to Jova Company for Year 1, the first year of operation: 1. Issued $10,000 of common stock for cash. 2. Recognized $210,000 of service revenue earned on account. 3. Collected $162,000 from accounts receivable. 4. Paid $12
> The following trial balance was prepared for Tile, Etc., Inc. on December 31, Year 1, after the closing entries were posted: Tile, Etc. had the following transactions in Year 2: 1. Purchased merchandise on account for $580,000. 2. Sold merchandise that
> Northwest Sales had the following transactions in Year 1: 1. The business was started when it acquired $200,000 cash from the issue of common stock. 2. Northwest purchased $900,000 of merchandise for cash in Year 1. 3. During the year, the company sold m
> The following transactions apply to Hooper Co. for Year 1, its first year of operations: 1. Issued $60,000 of common stock for cash. 2. Provided $90,000 of services on account. 3. Collected $78,000 cash from accounts receivable. 4. Loaned $20,000 to Mosb
> Use the following information to prepare a multistep income statement and a balance sheet for Sherman Equipment Co. for Year 2. $ 69,000 Operating Expenses 100,000 Cash Flow from Investing Activities 24,000 Prepaid Rent 7,800 Land 8,100 Cash Salarle
> Musgrove Basket Company had an $8,500 beginning balance in its Merchandise Inventory account. The following information regarding Musgrove’s purchases and sales of inventory during its Year 1 accounting period was drawn from the company’s accounting reco
> Roth Inc. experienced the following transactions for Year 1, its first year of operations: 1. Issued common stock for $50,000 cash. 2. Purchased $140,000 of merchandise on account. 3. Sold merchandise that cost $110,000 for $250,000 on account. 4. Collec
> The following information is available for Quality Book Sales’ sales on account and accounts receivable: After several collection attempts, Quality Book Sales wrote off $2,850 of accounts that could not be collected. Quality Book Sale
> The following transactions apply to Barclay Co. for Year 1, its first year of operations: 1. Received $50,000 cash from the issue of a short-term note with a 5 percent interest rate and a one-year maturity. The note was made on April 1, Year 1. 2. Receiv
> Ingals Co. issued $10,000 of common stock when the company was started. In addition, Ingals borrowed $20,000 from the local bank on April 1, Year 1. The note had an 8 percent annual interest rate and a one-year term to maturity. Ingals Co. recognized $54
> Ball Company was started in Year 1. The following summarizes transactions that occurred during Year 1: 1. Issued a $40,000 face value discount note to Golden Savings Bank on April 1, Year 1. The note had a 6 percent discount rate and a one-year term to m
