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? 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 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? B) C) D) 8. Janson Corporation Co.'s trial balance included the following account balances at December 31, 2018: Accounts receivable $ 12,000 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? 6. Freda's Florist reported the following before-tax income statement items for the year ended December 31, 2018: 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: 9. A company reports the following amounts at the end of the current year: Sales revenue $ 860,000 Under normal circumstances (ignoring tax effects), permanent earnings would be computed as: 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? 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? 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) 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 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) 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? B) C) D) 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? B) C) D) 8. The following information relates to Halloran Co.'s accounts receivable for 2018: Accounts receivable balance, 1/1/2018 $ 840,000 What amount should Halloran report for accounts receivable, before allowances, at December 31, 2018? 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? 10. The following aging information pertains to Jacobsen Co.'s accounts receivable at December 31, 2018: Days Outstanding Amount Estimated % Uncollectible 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? 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: B) C) D) 15. Excerpts from Huckabee Company's December 31, 2018 and 2017, financial statements are presented below: 2018
2017 Huckabee's 2018 receivables turnover (rounded) is: 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. What
amount should Constance Corporation report as inventory in its December 31, 2018, balance sheet? 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? Answer: B Beginning inventory $ 94,000 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? 5. Data related to the inventories of Mountain Ski Equipment and Supplies is presented below: Skis Boots Apparel
Supplies In applying the lower of cost or market rule, the inventory of boots would be valued at: 6. Data related to the inventories of Alpine Ski Equipment and Supplies is presented below: Skis Boots Apparel Supplies In applying the lower of cost or net realizable value rule, the inventory of skis would be valued at: 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 The numerator for the current period's cost-to-retail percentage is: 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 Current period cost-to-retail percentage is: 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 Estimated ending inventory at retail is: n Vijay Inc. purchased a three-acre tract of land for a building site for $320,000. Lake Incorporated purchased all of the outstanding stock of Huron Company Cantor Corporation acquired a manufacturing facility on four acres of land for a Horton Stores exchanged land and cash of $5,000 for similar land. The book 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: Answer: D 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. B) C) D) Answer: A 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. Answer: C 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? Answer: B |