Data related to the inventories of Mountain Ski Equipment and Supplies is presented below

4) Eve's Apples opened its business on January 1, 2018, and paid for two insurance policies effective that date. The liability policy was $36,000 for 18 months, and the crop damage policy was $12,000 for a two-year term. What is the balance in Eve's prepaid insurance as of December 31, 2018?
A) $9,000.
B) $18,000.
C) $30,000.
D) $48,000.

5) On June 1, Royal Corp. began operating a service company with an initial cash investment by shareholders of $2,000,000. The company provided $6,400,000 of services in June and received full payment in July. Royal also incurred expenses of $3,000,000 in June that were paid in August. During June, Royal paid its shareholders cash dividends of $1,000,000. What was the company's income before income taxes for the two months ended July 31 under the following methods of accounting? Cash Basis Accrual Basis
a. $ 3,400,000 $ 3,400,000
b. $ 5,400,000 $ 2,400,000
c. $ 6,400,000 $ 3,400,000
d. $ 6,400,000 $ 2,400,000

13) On September 1, 2018, Fortune Magazine sold 600 one-year subscriptions for $81 each. The total amount received was credited to deferred subscriptions revenue. What is the required adjusting entry at December 31, 2018?
A)
Deferred subscriptions revenue 48,600
Subscriptions revenue 16,200
Prepaid subscriptions 32,400

B)
Deferred subscriptions revenue 16,200
Subscriptions revenue 16,200

C)
Deferred subscriptions revenue 16,200
Subscriptions payable 16,200

D)
Deferred subscriptions revenue 32,400
Subscriptions revenue 32,400

8. Janson Corporation Co.'s trial balance included the following account balances at December 31, 2018:

Accounts receivable $ 12,000
Inventories 40,000
Patent 12,000
Investments 30,000
Prepaid insurance 6,000
Note receivable, due 2021 50,000

Investments consist of treasury bills that were purchased in November, 2018 and mature in January, 2019. Prepaid insurance is for two years. What amount should be included in the current asset section of Janson's December 31, 2018, balance sheet?
A) $88,000.
B) $85,000.
C) $55,000.
D) $135,000.

6. Freda's Florist reported the following before-tax income statement items for the year ended December 31, 2018:
Operating income $ 250,000
Income on discontinued operations 70,000

All income statement items are subject to a 40% income tax rate. In its 2018 income statement, Freda's separately stated income tax expense and total income tax expense would be:
A) $128,000 and $128,000, respectively.
B) $128,000 and $100,000, respectively.
C) $100,000 and $128,000, respectively.
D) $100,000 and $100,000, respectively.

9. A company reports the following amounts at the end of the current year:

Sales revenue $ 860,000
Selling expenses 250,000
Gain on the sale of land 30,000
Interest expense 10,000
Cost of goods sold 520,000

Under normal circumstances (ignoring tax effects), permanent earnings would be computed as:
A) $90,000.
B) $110,000.
C) $80,000.
D) $50,000.

10. On October 28, 2018, Mercedes Company committed to a plan to sell a division that qualified as a component of the entity according to GAAP regarding discontinued operations and was properly classified as held for sale on December 31, 2018, the end of the company's fiscal year. The division's loss from operations for 2018 was $2,000,000.

The division's book value and fair value less cost to sell on December 31 were $3,000,000 and $3,500,000, respectively. What before-tax amount(s) should Mercedes report as loss on discontinued operations in its 2018 income statement?
A) $2,000,000 loss.
B) $2,500,000 loss.
C) No loss would be reported.
D) $500,000 gain included in continuing operations and a $2,000,000 loss from discontinued operations.

13. Rothbart Manufacturing agrees to manufacture bumper cars for 12 Banners Amusement Parks. Under the terms of the contract, 12 Banners will pay Rothbart a total of $60,000, and 12 Banners can cancel the contract if it so chooses but must pay Rothbart for work completed. Rothbart believes that, if 12 Banners cancelled the contract, Rothbart could sell the bumper cars to another amusement park and still make a profit. The manufacturing contract is expected to last six months, and as of December 31, 2018, the job is 80% complete. How much revenue should Rothbart recognize in 2018 for this contract?
A) $0
B) $12,000
C) $48,000
D) $60,000

7. Mary Alice just won the lottery and is trying to decide between the options of receiving the annual cash flow payment option of $250,000 per year for 25 years beginning today, or receiving one lump-sum amount today. Mary Alice can earn 6% investing this money. At what lump-sum payment amount would she be indifferent between the two alternatives? (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1)
A) $6,250,000.
B) $3,195,840.
C) $3,637,590.
D) $3,387,590.

8. Simpson Mining is obligated to restore leased land to its original condition after its excavation activities are completed in three years. The cash flow possibilities and probabilities for the restoration costs in three years are as follows:

Cash Outflow Probability
$ 100,000 40 %
150,000 30 %
200,000 30 %

The company's credit-adjusted risk-free interest rate is 5%. The liability that Simpson must record at the beginning of the project for the restoration costs is: (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1)
A) $129,576.
B) $145,000.
C) $125,257.
D) $172,768.

4. On November 10 of the current year, Flores Mills sold carpet to a customer for $8,000 with credit terms 2/10, n/30. Flores uses the gross method of accounting for cash discounts.

What is the correct entry for Flores on November 10?
A)
Accounts receivable 7,840
Sales 7,840

B)
Accounts receivable 8,000
Sales 8,000

C)
Accounts receivable 7,840
Cash discounts 160
Sales 8,000

D)
Accounts receivable 8,000
Cash discounts 160
Sales 7,840

5. On November 10 of the current year, Cherokee Industries sold materials to a customer for $8,000 with credit terms 2/10, n/30. Cherokee uses the net method of accounting for cash discounts.

What entry would Cherokee make on December 10, assuming the correct payment was received on that date?
A)
Cash 8,000
Accounts receivable 7,840
Discounts revenue 160

B)
Cash 8,000
Accounts receivable 7,840
Sales discounts forfeited 160

C)
Cash 8,160
Accounts receivable 8,000
Sales discounts forfeited 160

D)
Cash 8,000
Accounts receivable 8,000

8. The following information relates to Halloran Co.'s accounts receivable for 2018:

Accounts receivable balance, 1/1/2018 $ 840,000
Credit sales for 2018 3,300,000
Accounts receivable written off during 2018 70,000
Collections from customers during 2018 3,100,000
Allowance for uncollectible accounts balance, 12/31/2018 210,000

What amount should Halloran report for accounts receivable, before allowances, at December 31, 2018?
A) $1,040,000.
B) $970,000.
C) $760,000.
D) None of these answer choices are correct.

9. In the balance sheet at the end of its first year of operations, Dinty Inc. reported an allowance for uncollectible accounts of $82,000. During the year, Dinty wrote off $32,000 of accounts receivable it had attempted to collect and failed. Credit sales for the year were $2,200,000, and cash collections from credit customers totaled $1,950,000.

What bad debt expense would Dinty report in its first-year income statement?
A) $50,000.
B) $82,000.
C) $114,000.
D) Can't be determined from the given information

10. The following aging information pertains to Jacobsen Co.'s accounts receivable at December 31, 2018:

Days Outstanding Amount Estimated % Uncollectible
0-30 $ 420,000 2 %
31-60 140,000 5 %
61-120 100,000 10 %
Over 120 120,000 20 %

During 2018, Jacobsen wrote off $18,000 in receivables and recovered $6,000 that had been written off in prior years. Jacobsen's December 31, 2017, allowance for uncollectible accounts was $40,000. Using the balance sheet approach, what amount of allowance for uncollectible accounts should Jacobsen report at December 31, 2018?
A) $55,400.
B) $28,000.
C) $49,400.
D) $31,400.

14. Chen Inc. accepted a two-year noninterest-bearing note for $605,000 on January 1, 2018. The note was accepted as payment for merchandise with a fair value of $500,000. The effective interest rate is 10%.

The cash collection on December 31, 2019, would be recorded as:
A)
Discount on note receivable 55,000
Cash 605,000
Note receivable 605,000
Interest revenue 55,000

B)
Cash 605,000
Note receivable 605,000

C)
Cash 605,000
Note receivable 500,000
Discount on note receivable 105,000

D)
Cash 605,000
Discount on note receivable 105,000
Note receivable 605,000
Interest revenue 105,000

15. Excerpts from Huckabee Company's December 31, 2018 and 2017, financial statements are presented below:

2018 2017
Accounts receivable $ 80,000 $ 72,000
Merchandise inventory 58,000 72,000
Net sales 400,000 372,000
Cost of goods sold 240,000 220,000

Huckabee's 2018 receivables turnover (rounded) is:
A) 3.69.
B) 5.00.
C) 5.26.
D) 3.16.

6. The Constance Corporation's inventory at December 31, 2018, was $125,000 (at cost) based on a physical count of inventory on hand, before any necessary adjustment for the following:

Merchandise costing $15,000, shipped f.o.b. shipping point from a vendor on December 27, 2019, was received by Constance on January 5, 2019.
Merchandise costing $45,000 was shipped to a customer f.o.b. shipping point on December 28, 2018, arrived at the customer's location on January 6, 2019.
Merchandise costing $21,000 was being held on hand for Jess Company on consignment.
Estimated sales returns are 10% of annual sales. Sales revenue was $550,000 with a gross profit ratio of 25%.

What amount should Constance Corporation report as inventory in its December 31, 2018, balance sheet?
A) $160,250.
B) $145,250.
C) $187,250.
D) $190,250.

7. Northwest Fur Co. started 2018 with $94,000 of merchandise inventory on hand. During 2018, $400,000 in merchandise was purchased on account with credit terms of 1/15, n/45. All discounts were taken. Purchases were all made f.o.b. shipping point. Northwest paid freight charges of $7,500. Merchandise with an invoice amount of $5,000 was returned for credit. Cost of goods sold for the year was $380,000. Northwest uses a perpetual inventory system.

What is ending inventory assuming Northwest uses the gross method to record purchases?
A) $112,490.
B) $112,550.
C) $116,500.
D) $120,300.

Answer: B
Explanation:

Beginning inventory $ 94,000
Inventory purchased 400,000
Freight-in 7,500
Merchandise returned (5,000 )
Discounts [($400,000 − $5,000) × 1%)] (3,950 )
Cost of goods available for sale $ 492,550
Cost of goods sold 380,000
Ending inventory $ 112,550

8. Northwest Fur Co. started 2018 with $94,000 of merchandise inventory on hand. During 2018, $400,000 in merchandise was purchased on account with credit terms of 1/15, n/45. All discounts were taken. Purchases were all made f.o.b. shipping point. Northwest paid freight charges of $7,500. Merchandise with an invoice amount of $5,000 was returned for credit. Cost of goods sold for the year was $380,000. Northwest uses a perpetual inventory system.

Assuming Northwest uses the gross method to record purchases, what is the cost of goods available for sale?
A) $492,500.
B) $496,500.
C) $490,500.
D) $492,550.

5. Data related to the inventories of Mountain Ski Equipment and Supplies is presented below:

Skis Boots Apparel Supplies
Selling price $ 180,000 $ 150,000 $ 120,000 $ 60,000
Cost 128,000 133,000 90,000 48,000
Replacement cost 120,000 130,000 110,000 50,000
Sales commission 10 % 10 % 10 % 10 %
Normal gross profit ratio 20 % 20 % 15 % 15 %

In applying the lower of cost or market rule, the inventory of boots would be valued at:
A) $135,000.
B) $133,000.
C) $130,000.
D) $105,000.

6. Data related to the inventories of Alpine Ski Equipment and Supplies is presented below:

Skis Boots Apparel Supplies
Selling price $ 180,000 $ 140,000 $ 120,000 $ 60,000
Cost 128,000 133,000 90,000 45,000
Replacement cost 120,000 130,000 110,000 41,000
Sales commission 10 % 10 % 10 % 10 %

In applying the lower of cost or net realizable value rule, the inventory of skis would be valued at:
A) $162,000.
B) $128,000.
C) $120,000.
D) $180,000.

11. Harvey's Junk Jewelry started business January 1, 2018, and uses the LIFO retail method to estimate ending inventory. Listed below is data accumulated for the year ended December 31, 2018:

Cost Retail
Beginning inventory $ 15,000 $ 23,000
Purchases 49,000 78,000
Freight-in 2,500
Purchase returns 1,700 2,600
Net markups 2,000
Net markdowns 4,100
Net sales 70,600
Employee discounts 700

The numerator for the current period's cost-to-retail percentage is:
A) $64,800.
B) $48,100.
C) $47,700.
D) $49,800.

13. Data below for the year ended December 31, 2018, relates to Houdini Inc. Houdini started business January 1, 2018, and uses the LIFO retail method to estimate ending inventory.

Cost Retail
Beginning inventory $ 66,000 $ 104,000
Net purchases 280,000 420,000
Net markups 20,000
Net markdowns 40,000
Net sales 375,000

Current period cost-to-retail percentage is:
A) 70.0%.
B) 68.7%.
C) 63.6%.
D) 63.5%.

15. Data below for the year ended December 31, 2018, relates to Houdini Inc. Houdini started business January 1, 2018, and uses the LIFO retail method to estimate ending inventory.

Cost Retail
Beginning inventory $ 66,000 $ 104,000
Net purchases 280,000 420,000
Net markups 20,000
Net markdowns 40,000
Net sales 375,000

Estimated ending inventory at retail is:
A) $65,000.
B) $169,600.
C) $25,000.
D) $129,000.

n Vijay Inc. purchased a three-acre tract of land for a building site for $320,000.
On the land was a building with an appraised value of $120,000. The company
demolished the old building at a cost of $12,000, but was able to sell scrap from
the building for $1,500. The cost of title insurance was $900 and attorney fees
for reviewing the contract were $500. Property taxes paid were $3,000, of which
$250 covered the period subsequent to the purchase date. The capitalized cost
of the land is:
Answer
$336,400.
$336,150.
$334,650.
$201,1

Lake Incorporated purchased all of the outstanding stock of Huron Company
paying $950,000 cash. Lake assumed all of the liabilities of Huron. Book values
and fair values of acquired assets and liabilities were:
Book Value Fair Value
Current assets (net) $ 130,000 $ 125,000
Property, plant, equip. (net) 600,000 750,000
Liabilities 150,000 175,000
Lake would record goodwill of:
Answer
$0.
$75,000.
$445,000.
$250,000.

Cantor Corporation acquired a manufacturing facility on four acres of land for a
lump-sum price of $8,000,000. The building included used but functional
equipment. According to independent appraisals, the fair values were
$4,500,000, $3,000,000, and $2,500,000 for the building, land, and equipment,
respectively. The initial values of the building, land, and equipment would be:
Building Land Equipment
a. $ 4,500,000 $ 3,000,000 $ 2,500,000
b. $ 4,500,000 $ 3,000,000 $ 500,000
c. $ 3,600,000 $ 2,400,000 $ 2,000,000
d. None of these answer choices are correct.

Horton Stores exchanged land and cash of $5,000 for similar land. The book
value and the fair value of the land were $90,000 and $100,000, respectively.
Assuming that the exchange has commercial substance, Horton would record
land-new and a gain/(loss) of:
Land Gain/(loss)
a. $ 105,000 $ 0
b. $ 105,000 $ 10,000
c. $ 95,000 $ 0
d. $ 95,000 $ 10,000

3. Cutter Enterprises purchased equipment for $72,000 on January 1, 2018. The equipment is expected to have a five-year life and a residual value of $6,000.

Using the double-declining balance method, the book value at December 31, 2019, would be:
A) $14,400.
B) $24,960.
C) $27,360.
D) $25,920.

Answer: D
Explanation: Depreciation, 2018 = $72,000 × 40% = $28,800
Depreciation, 2019 = [$72,000 - ($72,000 × 40%)] × 40% = $17,280
Book value, 12/31/2019 = $72,000 - 28,800 - 17,280 = $25,920

4. Equipment was acquired on January 1, 2018, for $15,000 with an estimated 4-year life and $1,000 residual value. The company uses straight-line depreciation. Record the gain or loss if the equipment was sold on December 31, 2020, for $5,000.
A)
Cash 5,000
Accumulated Depreciation 10,500
Equipment 15,000
Gain 500

B)
Cash 5,000
Equipment 4,500
Gain 500

C)
Cash 5,000
Equipment 3,500
Gain 1,500

D)
Cash 5,000
Accumulated Depreciation 7,000
Loss 3,000
Equipment 15,000

Answer: A
Explanation: Depreciation = ($15,000 − $1,000)/4 years = $3,500/year.
Accumulated depreciation = $3,500 × 3 years = $10,500.
Book value = $15,000 - $10,500 = $4,500.
Gain = $5,000 - $4,500 = $500

5. An asset was acquired on October 1, 2018, for $78,000 with an estimated 5-year life and $13,000 residual value. The company uses units-of-production depreciation and expects the asset to produce 20,000 units. Calculate the gain or loss if the asset was sold on March 31, 2021, for $58,000. Actual production was: 2018=500 units; 2019=3,000 units; 2020=3,500 units; 2021=1,000 units.

A) $11,200 gain.
B) $19,000 gain.
C) $6,000 gain.
D) $12,500 gain.

Answer: C
Explanation: Depreciation = ($78,000 − $13,000)/20,000 units = $3.25/unit.
Accumulated depreciation = $3.25/unit × 8,000 units = $26,000.
Book value = $78,000 - $26,000 = $52,000.
Gain = $58,000 - $52,000 = $6,000.

8. Tatsuo Corporation purchased farm equipment on January 1, 2016, for $280,000. In 2016 and 2017, Tatsuo depreciated the asset on a straight-line basis with an estimated useful life of five years and a $90,000 residual value. In 2018, due to changes in technology, Tatsuo revised the residual value to $30,000 but still plans to use the equipment for the full five years. What depreciation would Tatsuo record for the year 2018 on this equipment?
A) $52,000.
B) $58,000.
C) $50,000.
D) $28,000.

Answer: B
Explanation: The depreciation for 2016 and 2017 was 2 × [($280,000 - 90,000) ÷ 5] = $76,000. This leaves a book value of $204,000 (i.e., $280,000 - 76,000). The revised residual value is $30,000 and three years remain so that the depreciation in 2018 would be ($204,000 − $30,000) ÷ 3 = $58,000.