Just wanted verification to see if I did anything wrong for the following questions. file attached.
1. Forbes Company paid $7,200 on June 1, 2004 for a two-year insurance policy and recorded the entire amount as Insurance Expense. The December 31, 2004 adjusting entry is
a. debit Insurance Expense and credit Prepaid Insurance, $2,100.
b. debit Insurance Expense and credit Prepaid Insurance, $5,100.
c. debit Prepaid Insurance and credit Insurance Expense, $2,100
d. debit Prepaid Insurance and credit Insurance Expense, $5,100.
2. Rice Corporation loaned $60,000 to another corporation on December 1, 2004 and received a 3-month, 8% interest-bearing note with a face value of $60,000. What adjusting entry should Rice make on December 31, 2004?
a. Debit Interest Receivable and credit Interest Revenue, $1,200.
b. Debit Cash and credit Interest Revenue, $400.
c. Debit Interest Receivable and credit Interest Revenue, $400.
d. Debit Cash and credit Interest Receivable, $1,200.
3. Dolan Co. pays all salaried employees on a biweekly basis. Overtime pay, however, is paid in the next biweekly period. Dolan accrues salaries expense only at its December 31 year end. Data relating to salaries earned in December 2004 are as follows:
Last payroll was paid on 12/26/04, for the 2-week period ended 12/26/04.
Overtime pay earned in the 2-week period ended 12/26/04 was $5,000.
Remaining work days in 2004 were December 29, 30, 31, on which days there was no overtime.
The recurring biweekly salaries total $90,000.
Assuming a five-day work week, Dolan should record a liability at December 31, 2004 for accrued salaries of
4. In 2004 Rowe Company changed from straight-line to double-declining-balance depreciation. The total difference in depreciation for all years through 2003 was $104,000 and for 2004 the difference was $10,000. The tax rate is 30%. The amount that should be reported in the income statement for 2004 as a change in accounting principle is
a. $72,800 debit.
b. $72,800 credit.
c. $79,800 debit.
d. $79,800 credit.
5. Baker Corp. reports operating expenses in two categories: (1) selling and (2) general and administrative. The adjusted trial balance at December 31, 2004 included the following expense and loss accounts:
Accounting and legal fees $70,000
Loss on sale of long-term investment 15,000
Officers' salaries 115,000
Rent for office space 110,000
Sales salaries and commissions 75,000
One-half of the rented premises is occupied by the sales department. Baker's total selling expenses for 2004 are
6. Which of the following should be reported as a prior period adjustment?
Change in Estimated Lives Change from Unaccepted
of Depreciable Assets Principle to Accepted Principle
a. Yes Yes
b. No Yes
c. Yes No
d. No No
7. Which of the following is a limitation of the balance sheet?
a. Many items that are of financial value are omitted.
b. Judgments and estimates are used.
c. Current fair value is not reported.
d. All of these
8. The basis for classifying assets as current or noncurrent is conversion to cash within
a. the accounting cycle or one year, whichever is shorter.
b. the operating cycle or one year, whichever is longer.
c. the accounting cycle or one year, whichever is longer.
d. the operating cycle or one year, whichever is shorter.
9. In preparing a statement of cash flows, cash flows from operating activities
a. are always equal to accrual accounting income.
b. are calculated as the difference between revenues and expenses.
c. can be calculated by appropriately adding to or deducting from net income those items in the income statement that do not affect cash.
d. can be calculated by appropriately adding to or deducting from net income those items in the income statement that do affect cash.
10. On January 4, 2004, Frye Co. leased a building to Cole Corp. for a ten-year term at an annual rental of $120,000. At inception of the lease, Frye received $480,000 covering the first two years' rent of $240,000 and a security deposit of $240,000. This deposit will not be returned to Cole upon expiration of the lease but will be applied to payment of rent for the last two years of the lease. What portion of the $480,000 should be shown as a current and long-term liability in Frye's December 31, 2004 balance sheet?
Current Liability Long-term Liability
a. $0 $480,000
b. $120,000 $240,000
c. $240,000 $240,000
d. $240,000 $120,000
11. An accountant wishes to find the present value of an annuity of $1 payable at the beginning of each period at 10% for eight periods. The accountant has only one present value table which shows the present value of an annuity of $1 payable at the end of each period. To compute the present value, the accountant would use the present value factor in the 10% column for
a. seven periods.
b. eight periods and multiply by (1 + .10).
c. eight periods.
d. nine periods and multiply by (1 - .10).
12. How much must be deposited on January 1, 2004 in a savings account paying 6% annually in order to make annual withdrawals of $5,000 at the end of the years 2004 and 2005? The present value of one at 6% for one period is .9434.
13. A machine is purchased by making payments of $20,000 at the beginning of each of the next five years. The interest rate was 10%. The future value of an ordinary annuity of 1 for five periods is 6.10510. The present value of an ordinary annuity of 1 for five periods is 3.79079. What was the cost of the machine?
14. Under the completed-contract method
a. revenue, cost, and gross profit are recognized during the production cycle.
b. revenue and cost are recognized during the production cycle, but gross profit recognition is deferred until the contract is completed.
c. revenue, cost, and gross profit are recognized at the time the contract is completed.
d. none of these.
Use the following information for questions 23 and 24:
Logan, Inc. began work in 2004 on a contract for $6,300,000. Other data are:
Costs incurred to date $2,700,000 $4,200,000
Estimated costs to complete 1,800,000 ?
Billings to date 2,100,000 6,300,000
Collections to date 1,500,000 5,400,000
15. If Logan uses the percentage-of-completion method, the gross profit to be recognized in 2004 is
16. If Logan uses the completed-contract method, the gross profit to be recognized in 2005 is
17. When preparing a statement of cash flows, a decrease in prepaid insurance during a period would require which of the following adjustments in determining cash flows from operating activities?
Indirect Method Direct Method
a. Increase Decrease
b. Decrease Increase
c. Increase Increase
d. Decrease Decrease
18. The net cash provided by operating activities in Moon Company's statement of cash flows for 2004 was $154,000. For 2004, depreciation on plant assets was $60,000, amortization of goodwill was $10,000, and cash dividends paid on common stock was $72,000. Based only on the information given above, Moon's net income for 2004 was
19. Bell Corp.'s comparative balance sheet at December 31, 2004 and 2003 reported accumulated depreciation balances of $1,280,000 and $960,000, respectively. Property with a cost of $80,000 and a carrying amount of $60,000 was the only property sold in 2004. Depreciation charged to operations in 2004 was
20. A company that uses the last-in, first-out (LIFO) method of inventory pricing finds at an interim reporting date that there has been a partial liquidation of the base period inventory level. The decline is considered temporary and the partial liquidation is expected to be replaced prior to year-end. The amount shown as inventory at the interim reporting date should
a. be shown at the actual level, and cost of sales for the interim reporting period should include the expected cost of replacement of the liquidated LIFO base.
b. be shown at the actual level, and cost of sales for the interim reporting period should reflect the historical cost of the liquidated LIFO base.
c. not give effect to the LIFO liquidation, and cost of sales for the interim reporting period should reflect the historical cost of the liquidated LIFO base.
d. be shown at the actual level, and the decrease in inventory level should not be reflected in the cost of sales for the interim reporting period.
21. Which of the following subsequent events (post-balance sheet events) would require adjustment of the accounts before issuance of the financial statements?
a. Loss of plant as a result of fire
b. Changes in the quoted market prices of securities held as an investment
c. Loss on an uncollectible account receivable resulting from a customer's major flood loss
d. Loss on a lawsuit, the outcome of which was deemed uncertain at year end.
22. In January 2004, Pace, Inc. estimated that its year-end bonus to executives would be $480,000 for 2004. The actual amount paid for the year-end bonus for 2003 was $440,000. The estimate for 2004 is subject to year-end adjustment. What amount, if any, of expense should be reflected in Pace's quarterly income statement for the three months ended March 31, 2004?
a. $ -0-.
Problem - 10 Points
Financial statement analysis.
The condensed financial statements of Elton Company for the years 2003-2004 are presented below:
Comparative Balance Sheets
As of December 31, 2004 and 2003
Cash $ 315,000 $ 90,000
Receivables (net) 345,000 225,000
Inventories 285,000 255,000
Plant and equipment 1,275,000 834,000
Accumulated depreciation (195,000) (144,000)
Accounts payable $ 180,000 $ 120,000
Dividends payable -0- 30,000
Bonds payable 300,000 -0-
Common stock ($10 par) 1,140,000 900,000
Retained earnings 405,000 210,000
Market value of stock at 12/31/04 is $60 per share.
Elton sold 24,000 shares of common stock at par on July 1, 2004.
Condensed Income Statement
For the Year Ended December 31, 2004
Cost of goods sold 1,200,000
Gross profit 600,000
Administrative and selling expense 375,000
Net income $ 225,000
Compute the following financial ratios by placing the proper amounts in the parentheses provided for numerators and denominators.
a. Current ratio at 12/31/04 ( )
b. Acid test ratio at 12/31/04 ( )
c. Receivables turnover in 2004 ( )
d. Inventory turnover in 2004 ( )
e. Profit margin on sales in 2004 ( )
Forbes Company paid $7,200 on June 1, 2004 for a two-year insurance policy and recorded the entire amount as Insurance Expense. The December 31, 2004 adjusting entry is...