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    Accounting for Decision Making

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    In the space provided, classify each as it would be reported on a balance sheet. Use the following code:

    CA= current asset CL = current liability SE= stockholders' equity

    NCA= noncurrent asset NCL=_ noncurrent liability

    1. Accounts Payable
    2. Accounts Receivable
    3. Buildings
    4. Cash
    5. Contributed Capital
    6. Land
    7. Merchandise Inventory
    8. Income Taxes Payable
    9. Leasehold Improvements
    10. Notes Payable (due in three years)
    11. Notes Receivable (due in six months)
    12. Prepaid Rent
    13. Retained Earnings
    14. Supplies
    15. Utilities Payable
    16. Wages Payable

    1. The use of prenumbered checks in disbursing cash is an application of the principle of:
    (a) establishment of responsibility.
    (b) segregation of duties.
    (c) physical, mechanical, and electronic controls.
    (d) documentation procedures.

    2. Net credit sales for the month are $800,000. The accounts receivable balance is $160,000. The allowance is calculated as 7.5% of the receivables balance using the percentage of receivables basis. If the Allowance for Doubtful Accounts has a credit balance of $5,000 before adjustment, what is the balance after adjustment?

    (a) $12,000. (c) $17,000.
    (b) $7,000. (d) $31,000.

    3. Cuso Inc. issues 10-year bonds with a maturity value of $200,000. If the bonds are issued at a premium, this indicates that:
    (a)the contractual interest rate exceeds the market interest rate.
    (b)the market interest rate exceeds the contractual interest rate.
    (c)the contractual interest rate and the market interest rate are the same.
    (d)no relationship exists between the two rates.

    4. Preferred stock may have which of the following features?
    (a) dividend preference.
    (b) preference to assets in the event of liquidation.
    (c) cumulative dividends.
    (d) all of the above.

    5. Indicate which of the following items would be reported as an extraordinary item on Food Feast Corporation's income statement.

    (a) Loss from damages caused by a volcano eruption.
    (b) Loss from the sale of short-term investments.
    (c) Loss attributable to a labor strike.
    (d) Loss caused when the Food and Drug Administration prohibited the manufacture and sale of a product line.
    (e) Loss of inventory from flood damage because a warehouse is located on a flood plain that floods every 5 to 10 years.

    1.Explain the difference between accounting and administrative controls.

    2. What criteria must be met before a contingency must be recorded as a liability? How should the contingency be disclosed if the criteria are not met?

    3. What three conditions must be met before a cash dividend is paid?

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