Foundations of Accounting

Test One: Chapters 1 - 4

10 Problems Each orth 10 points
1. During 2010, Green Corporation incurred the following transactions.
Transactions Assets Liabilities Euit!
a. "urchased in#entor! for $%,000 on
credit.
b. &old $'0,000 of the co(pan!)s
co((on stoc* for cash.
c. "aid $%,000 owed to the +nternal
,e#enue &er#ice.
d. &old $10,000 of long-ter( bonds.
e. "urchased a $2%,000 piece of
(achiner!.
Required:
Anal!.e the effects of each of the following transactions on Green Corporation)s assets,
liabilities, and stoc*holders) euit!. +dentif! increases with a /01 and decreases with a /-1.
+dentif! no effect with a /01.
2. The following financial infor(ation for three different co(panies has so(e (issing a(ounts.
Co(pan! A Co(pan! 2 Co(pan! C
Assets $1%0,000 $%30,000 4444444
Liabilities $100,000 4444444 $5%0,000
6wners) Euit! 4444444 $130,000 $100,000
,e#enues $'2%,000 $72%,000 4444444
E8penses $11%,000 4444444 $53%,000
9et +nco(e 4444444 $1'0,000 $23%,000
Required:
:or each of the co(panies listed abo#e, find the (issing a(ounts.
'. The following transactions occurred in ;i(berl! Corp. during 2010<
6perating +n#esting :inancing
a. &old stoc* in the corporation to in#estors 44444444 4444444 44444444
b. 2ought a (achine for use in the corporation 44444444 4444444 44444444
c. &old ser#ices to custo(ers 44444444 4444444 44444444
d. +ncurred e8penses in (a*ing custo(er sales 44444444 4444444 44444444
e. &old a sales(an)s car that had =0,000 (iles 44444444 4444444 44444444
f. 2ought stoc* in Lantana Corporation 44444444 4444444 44444444
g. 2orrowed (one! b! issuing a long-ter( bond 44444444 4444444 44444444
h. "aid e(plo!ee wages during the !ear 44444444 4444444 44444444
Required:
+ndicate whether each of these transactions would be shown as an operating, in#esting, or
financing acti#it! on ;i(berl!)s state(ent of cash flows for 2010.
5. >aidar Co.)s trial balance at Dece(ber '1, 2010, included the following account balances<
&ales $1,000,000
+nterest E8pense 20,000
Ad#ertising E8pense 30,000
Accounts "a!able 200,000
&alaries E8pense 22%,000
Co((on &toc* 20,000
Cost of Goods &old
Depreciation E8pense
5%0,000
2%,000
Accu(ulated Depreciation 30,000
Required:
a. Calculate >aidar)s gross profit for 2010.
b. Calculate >aidar)s gross profit percentage for 2010.
c. Calculate >aidar)s net inco(e for 2010.
%. 6n ?anuar! 1, 2010, Great ;hite Corporation purchased an office building for $1,000,000.
The building hasd an esti(ated sal#age #alue of $100,000 and an esti(ated useful life of 1%
!ears. Great ;hite uses the straight-line (ethod of depreciation.
Required:
a. Co(pute depreciation e8pense on this asset for 2010.
b. Co(pute depreciation e8pense on this asset for 2011.
c. Co(pute accu(ulated depreciation on this asset at the end of 201'.
d. Co(pute the building)s boo* #alue at the end of 201'.
7. Accounting infor(ation should ha#e certain attributes and characteristics.
Required:
@atch each ter( listed below with the appropriate ter(. Ter(s (a! be used once, (ore
than once, or not at all.
A! Accounting "eriod "! 9eutralit!
#! Co(parabilit! $! "redicti#e Aalue
C! E8pense ,ecognition ,ules %! ,ele#ance
&! :eedbac* Aalue '! ,eliabilit!
E! :ull Disclosure (! ,epresentational :aithfulness
F! Going Concern )! ,e#enue ,ecognition ,ules
*! >istorical Cost +! Aerifiabilit!
a. 44444
+s #erifiable, neutral, and representionall! faithful.
b. 44444 A business will continue /long enough to use its longest-li#ed
asset.1
c. 44444
@ultiple persons can #alidate infor(ation.
d. 44444
+s ti(el! and has predicti#e #alue andBor feedbac* #alue.
e. 44444
Di#ides reporting inter#als into eual lengths.
f. 44444 Enables decision-(a*ers to confir( or correct earlier
e8pectations.
g. 44444 The ease with the accounting infor(ation of an entit! can be
co(pared with its si(ilar prior period infor(ation and with
si(ilar infor(ation reported b! other business entities.
h. 44444
@ost assets are shown at their original cost.
i. 44444 Accounting data should portra!, to the greatest e8tent possible,
the true nature of a business)s econo(ic resources, obligations,
and transactions.
C. 44444
Allows a user to forecast occurrences fro( current infor(ation.
3. The following account balances ha#e been ta*en fro( the pre-closing Dece(ber '1, 2010
accounts of 2ur*e Co.<
Accounts ,ecei#able $ D,000
,ent E8pense 10,3%0
,etained Earnings 1',000
&alaries E8pense 1%,=70
Enearned &ubscription ,e#enue 1,=00
Etilities E8pense 7,0D0
+nco(e Ta8es E8pense 1,320
Accu(ulated Depreciation 3,%00
Di#idends "a!able 700
&ubscription ,e#enue 52,D70
Depreciation E8pense 1,'00
"repaid ,ent 5,%00
Di#idends 1,200
&alaries "a!able 1,7D0
Required:
a. "repare the appropriate Dece(ber '1 closing entries for 2ur*e Co.
b. ;hat was the co(pan!)s net inco(e for 2010F
c. ;hat is the !ear-end balance of ,etained Earnings for 2ur*e Co.F
d. ;here would each of the accounts be shown in the !ear-end financial state(entsF
=. The following infor(ation is a#ailable for Cluff Corporation, which esti(ates uncollectible
accounts based on sales at !ear-end.
?anuar! 1 Custo(er purchased $10,000 of (erchandise on credit with ter(s 2B10,
net 70.
?anuar! 5 Custo(er purchased (erchandise for $20,000 cash.
?anuar! D Custo(er who purchased (erchandise on ?anuar! 1 re(itted appropriate
cash pa!(ent.
?anuar! 10 Custo(er who purchased (erchandise on ?anuar! 5 returned $',000 of
goods for a refund.
?anuar! 1% ;rote off an uncollectible account recei#able of $2,000.
?anuar! 13 Custo(er purchased $10,000 of (erchandise with his ;orldCard.
;orldCard deducts a 'G fee when re(itting the charges (ade b! its
custo(er to #endors.
?anuar! 20 Cluff recei#es the appropriate cash pa!(ent fro( ;orldCard related to
?anuar! 13 transaction.
?anuar! 22 A custo(er who had purchased $%,000 of (erchandise with credit ter(s
of 2B10, net '0 on Dece(ber 10 reuested that Cluff transfer the account
to an =G, 5-(onth note. The note is signed and e8changed.
Required:
?ournali.e each of these transactions or e#ents in Cluff)s accounting records.
D. The following transactions in#ol#e Lus* Enterprises, which uses a percentage of credit
sales (ethod to esti(ate uncollectible accounts e8pense. Assu(e that the co(pan! records its
uncollectibles esti(ate (onthl!.
April 1 ;rote off an uncollectible account of $20,000.
April 5 A custo(er whose $5,000 account was written off last !ear (ade
restituition to Lus* at the rate of $0.'0 on the dollar.
April '0 Lus* esti(ates that 1G of all credit sales will be uncollectible. Credit sales
for April were $1,700,000
Required:
?ournali.e each of these transactions in Lus*)s accounting records.
10. +(ar Corp.)s 200D and 2010 balance sheets and inco(e state(ents follow.
1,-.1-0/ 1, -.1-10
Cash $ 200,000 $ '2%,000
Accounts ,ecei#able 500,000 5%%,000
+n#entor! 500,000 '20,000
6ffice &upplies ',000 %,000
+ntangible Assets 70,000 %5,000
Total Assets $1,07',000 $1,1%D,000
Accounts "a!able $ 'D7,000 $ 520,000
&hort-ter( 9otes "a!able 100,000 100,000
Co((on &toc* ',000 ',000
,etained Assets %75,000 7'7,000
Total Liabilities and 6wner)s Euit! $1,07',000 $1,1%D,000
F0 ,00/ F0 ,010
&ales ,e#enue $1,000,000 $1,277,0=0
&ales Discounts H2%,000I H5',250I
&ales ,eturns and Allowances H'0,000I H1=,73%I
Cost of Goods &old H500,000I H%00,000I
Ad#ertising E8pense H20,000I H2%,'%0I
6ffice &upplies E8pense H10,000I H1',100I
+nterest E8pense H%,000I H%,03%I
9et +nco(e $ %10,000 $ 770,750
Additional +nfor(ation
&i8t! percent of +(ar)s net sales are net credit sales.
Required:
a. Calculate +(ar)s net credit sales for 2010. H,ound to the nearest $100.I
b. Calculate +(ar)s uic* ratio for 2010.
c. Calculate +(ar)s a#erage accounts recei#able for 2010.
d. Calculate +(ar)s accounts recei#able turno#er ratio.
e. Calculate the a#erage age of +(ar)s recei#ables. Assu(e a '70-da! !ear and round to
the nearest da!.