If the net income for the current year had been $196,400 in Exercise 3-23, what would have been the correct net income if the proper adjusting entries had been made? In Exercise 3-23 The accountant for Healthy Life Company, a medical services consulting firm, mistakenly omitted adjusting entries for (a) Unearned revenue earned during the year ($34,900) and (b) Accrued wages ($12,770).
> Describe two reports provided by independent auditors in the annual report to shareholders.
> Kroger, a grocery store, recently had a price-earnings ratio of 17.5, while the average price-earnings ratio in the grocery store industry was 21.4. What might explain this difference?
> Prepare a journal entry for the purchase of office equipment on February 19 for $18,500 paying $4,500 cash and the remainder on account.
> How would the current and quick ratios of a service business compare?
> Why are most large companies like Microsoft, PepsiCo, Caterpillar, and AutoZone organized as corporations?
> What is the advantage of using comparative statements for financial analysis rather than statements for a single date or period?
> Indicate whether each of the following would be added to or deducted from net income in determining net cash flow from operating activities by the indirect method: a. Increase in merchandise inventory b. Increase in prepaid expenses c. Depreciation of fi
> Identify the type of cash flow activity for each of the following events (operating, investing, or financing): a. Redeemed bonds b. Issued preferred stock c. Paid cash dividends d. Net income e. Sold equipment f. Purchased treasury stock g. Purchased pat
> A retail business, using the accrual method of accounting, owed merchandise creditors (accounts payable) $320,000 at the beginning of the year and $350,000 at the end of the year. How would the $30,000 increase be used to adjust net income in determining
> A corporation issued $2,000,000 of common stock in exchange for $2,000,000 of fixed assets. Where would this transaction be reported on the statement of cash flows?
> What are the major advantages of the indirect method of reporting cash flows from operating activities?
> Name five common major classes of operating cash receipts or operating cash payments presented on the statement of cash flows when the cash flows from operating activities are reported by the direct method.
> For the current year, Packers Company decided to switch from the indirect method to the direct method for reporting cash flows from operating activities on the statement of cash flows. Will the change cause the amount of net cash flow from operating acti
> The treasury stock in Discussion Question 7 is resold for $3,750,000. a. What is the effect on the corporation’s revenue of the period? b. What is the effect on stockholders’ equity?
> Fully depreciated equipment costing $50,000 is discarded. What is the effect of the transaction on cash flows if (a) $15,000 cash is received for the equipment, (b) No cash is received for the equipment?
> A corporation issued $2,000,000 of 20-year bonds for cash at 98. How would the transaction be reported on the statement of cash flows?
> Prepare a journal entry for the purchase of office supplies on September 30 for $2,500, paying $800 cash and the remainder on account.
> During the current year, merchandise is sold for $315,800 cash and $1,225,000 on account. The cost of the merchandise sold is $875,000. What is the amount of the gross profit?
> At the market close on May 12 of a recent year, McDonald’s Corporation had a closing stock price of $129.51. In addition, McDonald’s Corporation had a dividend per share of $3.56 during the previous year. Determine McDonald’s Corporation’s dividend yield
> How does the accounting for a dividend received differ between the cost method and the equity method?
> When is the equity method the appropriate accounting for equity investments?
> How would a debit balance in Unrealized Gain (Loss) on Available-for-Sale Investments be reported in the financial statements?
> If Valuation Allowance for Available-for-Sale Investments has a credit balance, how is it treated on the balance sheet?
> If an investor owns more than 50% of an investee, how is the investment treated on the investor’s financial statements?
> A corporation reacquires 60,000 shares of its own $10 par common stock for $3,000,000, recording it at cost. a. What effect does this transaction have on revenue or expense of the period? b. What effect does it have on stockholders’ equity?
> On January 1, you win $60,000,000 in the state lottery. The $60,000,000 prize will be paid in equal installments of $6,000,000 over 10 years. The payments will be made on December 31 of each year, beginning on December 31 of the current year. If the curr
> The financial statements for Nike, Inc., are presented in Appendix D at the end of the text. What is the major source of financing for Nike?
> In what section of the balance sheet would a bond payable be reported if (a) It is payable within one year and (b) It is payable beyond one year?
> What is a mortgage note?
> A tractor acquired at a cost of $420,000 has an estimated residual value of $30,000, has an estimated useful life of 25,000 hours, and was operated 1,850 hours during the year. Determine (a) The depreciable cost, (b) The depreciation rate, and (c) The un
> Bonds Payable has a balance of $5,000,000, and Discount on Bonds Payable has a balance of $150,000. If the issuing corporation redeems the bonds at 98, is there a gain or loss on the bond redemption?
> The following data relate to a $2,000,000, 8% bond issued for a selected semiannual interest period: Bond carrying amount at beginning of period …………. $2,125,000 Interest paid during period ……………………………………….. 160,000 Interest expense allocable to the peri
> How many postings to Fees Earned for the month would be needed in Discussion Question 3 if the procedure described in (a) Had been used; if the procedure described in (b) Had been used? In Discussion Question 3 In recording 400 fees earned on account du
> In recording 400 fees earned on account during a single month, how many times will it be necessary to write Fees Earned (a) If each transaction, including fees earned, is recorded individually in a two-column general journal; (b) If each transaction for
> What are the major advantages of the use of special journals?
> Why would a company maintain separate accounts receivable ledgers for each customer, as opposed to maintaining a single accounts receivable ledger for all customers?
> What happens to the special journal in a computerized accounting system that uses electronic forms?
> When are transactions posted in a computerized accounting system?
> Assuming the use of a two-column general journal, a purchases journal, and a cash payments journal as illustrated in this chapter, indicate the journal in which each of the following transactions should be recorded: a. Purchase of office supplies on acco
> If bonds issued by a corporation are sold at a discount, is the market rate of interest greater or less than the contract rate?
> Prior to closing, total revenues were $12,840,000 and total expenses were $9,975,000. During the year, the owner made no additional investments and withdrew $630,000. After the closing entries, how much did the owner’s capital account change?
> From the list that follows, identify the accounts that should be closed to the owner’s capital account at the end of the fiscal year: a. Accounts Receivable b. Accumulated Depreciation c. Building d. Depreciation Expense e. Fees Earned f. Jackie Lindsay,
> Why are closing entries required at the end of an accounting period?
> During the current year, merchandise is sold for $18,300 cash and $295,700 on account. The cost of the merchandise sold is $188,000. What is the amount of the gross profit?
> What types of accounts are referred to as temporary accounts?
> Why do some accountants prepare an end-of-period spreadsheet?
> What is the natural business year?
> What is the purpose of the post-closing trial balance?
> What is the difference between adjusting entries and closing entries?
> A corporation issues $26,000,000 of 9% bonds to yield interest at the rate of 7%. (a) Was the amount of cash received from the sale of the bonds greater or less than $26,000,000? (b) Identify the following amounts as they relate to the bond issue: (1) Fa
> For a recent year, the balance sheet for The Campbell Soup Company includes accrued expenses of $553 million. The income before taxes for Campbell for the year was $1,073 million. a. Assume the adjusting entry for $553 million of accrued expenses was not
> For a recent period, the balance sheet for Costco Wholesale Corporation reported accrued expenses of $3,446 million. For the same period, Costco reported income before income taxes of $3,197 million. Assume that the adjusting entry for $3,446 million of
> The balance in the equipment account is $3,150,000, and the balance in the accumulated depreciation—equipment account is $2,075,000. a. What is the book value of the equipment? b. Does the balance in the accumulated depreciation account mean that the equ
> The estimated amount of depreciation on equipment for the current year is $8,200. Journalize the adjusting entry to record the depreciation.
> On February 3, Clairemont Repair Service extended an offer of $360,000 for land that had been priced for sale at $400,000. On February 28, Clairemont Repair Service accepted the seller’s counteroffer of $380,000. On October 23, the land was assessed at a
> At August 31, the end of the first month of operations, the usual adjusting entry transferring prepaid insurance expired to an expense account is omitted. Which items will be incorrectly stated, because of the error, on (a) The income statement for Augus
> The supplies and supplies expense accounts at February 28, after adjusting entries have been posted at the end of the first year of operations, are shown in the following T accounts: Determine the amount of supplies purchased during the year. Suppl
> The balance in the supplies account, before adjustment at the end of the year, is $4,850. Journalize the adjusting entry required if the amount of supplies on hand at the end of the year is $880.
> At the end of January, the first month of the business year, the usual adjusting entry transferring rent earned from the unearned rent account to a revenue account was omitted. Indicate which items will be incorrectly stated, because of the error, on (a)
> The balance in the unearned fees account, before adjustment at the end of the year, is $18,000. Journalize the adjusting entry required if the amount of unearned fees at the end of the year is $3,600.
> Explain the meaning of each of the following terms as they relate to a bond issue: (a) Convertible and (b) Callable.
> What is the primary purpose of a stock split?
> An owner of 2,500 shares of Simmons Company common stock receives a stock dividend of 50 shares. a. What is the effect of the stock dividend on the stockholder’s proportionate interest (equity) in the corporation? b. How does the total equity of 2,550 sh
> A corporation with both preferred stock and common stock outstanding has a substantial credit balance in its retained earnings account at the beginning of the current fiscal year. Although net income for the current year is sufficient to pay the preferre
> A stockbroker advises a client to “buy preferred stock. . . . With that type of stock, . . . [you] will never have to worry about losing the dividends.” Is the broker correct?
> Of two corporations organized at approximately the same time and engaged in competing businesses, one issued $80 par common stock and the other issued $1 par common stock. Do the par designations provide any indication as to which stock is preferable as
> Why might a partnership pay a bonus to a newly admitted partner?
> During the current year, Marsha Engles withdrew $4,000 monthly from the partnership of Engles and Cox Water Management Consultants. Is it possible that her share of partnership net income for the current year might be more or less than $48,000? Explain.
> A truck acquired at a cost of $69,000 has an estimated residual value of $12,000, has an estimated useful life of 300,000 miles, and was driven 77,000 miles during the year. Determine (a) The depreciable cost, (b) The depreciation rate, and (c) The unit
> What are the major features of a partnership agreement for a partnership or an operating agreement for a limited liability company?
> What are the disadvantages of a partnership over a limited liability company form of organization for a profit-making business?
> PepsiCo, Inc., reported the following information about its long-term debt in the notes to a recent financial statement (in millions): Long-term debt is comprised of the following: a. How much of the long-term debt was disclosed as a current liability
> General Motors Corporation reported $2.6 billion of product warranties in the Current Liabilities section of a recent balance sheet. How would costs of repairing a defective product be recorded?
> When should the liability associated with a product warranty be recorded? Discuss.
> Explain how a defined contribution pension plan works.
> To match revenues and expenses properly, should the expense for employee vacation pay be recorded in the period during which the vacation privilege is earned or during the period in which the vacation is taken? Discuss.
> What are the principal reasons for using a special payroll bank account?
> For each of the following payroll-related taxes, indicate whether they generally apply to (a) Employees only, (b) Employers only, or (c) Both employees and employers: 1. Federal income tax 2. Medicare tax 3. Social security tax 4. Federal unemployment co
> Why are deductions from employees’ earnings classified as liabilities for the employer?
> What is the role of accounting in business?
> Employees are subject to taxes withheld from their paychecks. a. List the federal taxes withheld from most employee paychecks. b. Give the title of the accounts credited by amounts withheld.
> Does a discounted note payable provide credit without interest? Discuss.
> A storage tank acquired at the beginning of the fiscal year at a cost of $75,000 has an estimated residual value of $10,000 and an estimated useful life of 20 years. Determine the following: (a) The amount of annual depreciation by the straight-line meth
> A diesel-powered tractor with a cost of $90,000 and estimated residual value of $15,000 is expected to have a useful operating life of 30,000 hours. During April, the tractor was operated 120 hours. Determine the depreciation for the month.
> A refrigerator used by a wholesale warehouse has a cost of $64,000, an estimated residual value of $5,200, and an estimated useful life of 12 years. What is the amount of the annual depreciation computed by the straight-line method?
> Bridger Ski Co. has developed a tract of land into a ski resort. The company has cut the trees, cleared and graded the land and hills, and constructed ski lifts. (a) Should the tree cutting, land clearing, and grading costs of constructing the ski slopes
> a. Over what period of time should the cost of a patent acquired by purchase be amortized? b. In general, what is the required accounting treatment for research and development costs? c. How should goodwill be amortized?
> Immediately after a used truck is acquired, a new motor is installed at a total cost of $3,850. Is this a capital expenditure or a revenue expenditure?
> Is it necessary for a business to use the same method of computing depreciation for all classes of its depreciable assets?
> Keyser Company purchased a machine that has a manufacturer’s suggested life of 20 years. The company plans to use the machine on a special project that will last 12 years. At the completion of the project, the machine will be sold. Over how many years sh
> On March 31, Higgins Repair Service extended an offer of $415,000 for land that had been priced for sale at $460,000. On April 15, Higgins Repair Service accepted the seller’s counteroffer of $437,500. On September 9, the land was assessed at a value of
> Alpine Company solicited bids from several contractors to construct an addition to its office building. The lowest bid received was for $1,200,000. Alpine decided to construct the addition itself at a cost of $1,100,000. What amount should be recorded in
> Bullwinkle Co. acquired an adjacent vacant lot with the hope of selling it in the future at a gain. The lot is not intended to be used in Bullwinkle business operations. Where should such real estate be listed on the balance sheet?
> O’Neil Office Supplies has a fleet of automobiles and trucks for use by salespersons and for delivery of office supplies and equipment. Collins Auto Sales Co. has automobiles and trucks for sale. Under what caption would the automobiles and trucks be rep
> A firm has consistently adjusted its allowance account at the end of the fiscal year by adding a fixed percent of the period’s sales on account. After seven years, the balance in Allowance for Doubtful Accounts has become very large in relation to the ba
> What kind of an account (asset, liability, etc.) is Allowance for Doubtful Accounts, and is its normal balance a debit or a credit?
> Dan’s Hardware is a small hardware store in the rural township of Twin Bridges. It rarely extends credit to its customers in the form of an account receivable. The few customers who are allowed to carry accounts receivable are long-time residents of Twin
> What are the three classifications of receivables?
> The maker of a $240,000, 6%, 90-day note receivable failed to pay the note on the due date of November 30. What accounts should be debited and credited by the payee to record the dishonored note receivable?
> Neptune Company issued a note receivable to Sailfish Company. (a) Who is the payee? (b) What is the title of the account used by Sailfish Company in recording the note?
