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Lesson 1: Business, Accounting, and You

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Lesson 1: Business, Accounting, and You

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The goal of this graded project is to create the following financial statements for J & L Accounting, Inc.:

 

Balance sheet

Income statement

Statement of retained earnings

Post-closing trial balance

 

The financial statements must be created in one Microsoft Word document (.doc or .docx  file). Alternatively, an Excel workbook may be  used (.xls or .xlsx file). The Word or Excel file will be  uploaded  for grading.

 

 

INSTRUCTIONS

The project is to be  done by  hand with a pencil and paper. Use the blank forms provided. At the end of the project, you’ll be  given instructions  for creating  and uploading  the financial statements  in a Word or Excel file for grading.

 

 

Note:  The formatting of financial statements is important. They follow  Generally Accepted Accounting Principles (GAAP), which creates a uniformity of financial statements for analyz- ing. This allows for an easier comparison, as all businesses follow  GAAP. Therefore, the financial statements should be created exactly the same way shown or referenced in the text- book. Failure to do  so will result in a loss of points.

 

The project references “debits equaling credits.” This is a fun- damental principle of accounting that can’t be  violated and if so is not  acceptable under any circumstance. Debits not equaling credits  allows for “cooking of the books,” which is presenting false information. It also allows for embezzlement, which is theft by  management or employees. If debits don’t equal credits, the cause may be  a lack of understanding of accounting principles, such as those presented in the text- book and assigned homework problems, or a lack of focus

and concentration when making journal entries, posting to ledger accounts, or completing math. Remember—instructors are available to help you with material you may be  struggling with. Mistakes of the lack-of-focus variety are best corrected by  going back over the work until the error is found.

 

The accounting equation must balance on the balance sheet. This is another fundamental principle of accounting that can’t be  violated and if so is completely unacceptable. When the equation doesn’t balance and the numbers are “fudged,”

this is easily detectable by  someone who knows accounting. If your debits equal your credits and you understand  which general ledger accounts belong on which financial state- ments, then the accounting equation should balance. It’s really all about understanding the concepts and applying

that understanding.

 

The following financial statements are provided from the prior accounting period for J & L Accounting, Inc.:

 

a)  Post-closing trial balance b)  Balance sheet

c)  Income statement

 

d)  Statement of retained earnings

 

J & L Accounting, Inc. Post-Closing Trial Balance December 31, 2012

 

BALANCE

 

ACCOUNT TITLE                                                      DEBIT                  CREDIT

 

Cash, Business Checking 20,500.00  
Accounts Receivable  
Prepaid Rent  
Vehicles 48,000.00
Accumulated Depreciation, Vehicles   12,000.00
Equipment 3,600.00  
Accumulated Depreciation, Equipment   600.00
Accounts Payable    
Common Stock   38,000.00
Retained Earnings   21,500.00
Dividends    
Service Revenue    
Advertising Expense    
Rent Expense    
Office Supplies Expense    
Telephone Expense    
Utilities Expense    
Depreciation Expense    
TOTALS 72,100.00 72,100.00

J & L Accounting, Inc.

Balance Sheet

As of December 31, 2012

 

ASSETS

 

Cash, Business Checking     20,500.00
Accounts Receivable     0.00
Prepaid Rent

Vehicles

  

48,000.00

   0.00
Less: Accumulated Depreciation, Vehicles 12,000.00   36,000.00
Equipment 3,600.00    
Less: Accumulated Depreciation, Equipment 600.00   3,000.00
 

TOTAL ASSETS

     59,500.00

 

 

LIABILITIES

Accounts Payable                                                                                                 0.00

 

TOTAL LIABILITIES                                                                                            0.00

 

 

STOCKHOLDERS’ EQUITY

 

Common Stock 38,000.00
Retained Earnings 21,500.00
TOTAL STOCKHOLDERS’ EQUITY 59,500.00

 

 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY                                      59,500.00

J & L Accounting, Inc. Income Statement

For the Month Ending December 31, 2012

 

REVENUES

 

Service Revenue                                                                                          10,275.00

 

EXPENSES

 

Advertising Expense 2,300.00  
Rent Expense 1,000.00
Office Supplies Expense 300.00
Telephone Expense 750.00
Utilities Expense 3,200.00
Depreciation Expense 1,100.00
TOTAL EXPENSES   8,650.00
 

NET INCOME

    

1,625.00

J & L Accounting, Inc. Statement of Retained Earnings

For the Month Ending December 31, 2012

 

 

Retained Earnings, December 1, 2012 19,875.00
Add: Net Income 1,625.00
 

Subtotal

  

21,500.00
Less: Dividends          0.00
Retained Earnings, December 31, 2012 21,500.00

1)  Using the following blank forms (make as many copies as necessary), set up the general ledger accounts for the general ledger and insert the beginning balances for the accounts from the post-closing trial balance. The balances from the post-closing trial balance become the beginning balances of the accounts for the next account period.

ACCOUNTING

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The Stine Company uses a job order cost system. On May 1, the company has a  balance in work in process inventory of $3,500 and two jobs in process:  Job No. 429 $2,000, and Job No. 430 $1,500. During May, a summary of  source documents reveals the following.

 

 

Materials                             Labor

Job NumberRequestition Slips                   Time Tickets

429                       $2,500                           $1,900

430                       $3,500                           $3,000

431                       $4,400      $10,400           $7,600         $12,500

general use                             800                                 1,200

$11,200                              $13,700

 

 

Stine Company applies manufacturing overhead to jobs at an overhead rate of 60% of direct labor cost. Job No. 429 is completed during the month.

 

(A)   Prepare summary journal entries to record (i) the requisition slips, (ii) the time tickets, iii) the assignment of manufacturing overhead to jobs,and (iv) the completion of Job No. 429.

 

(B)   Post entries to Work in Process Inventory, and prove the agreement of the control account with the job cost sheets. (Use a T-Account)

 

ACCOUNTING

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Centro-matic Company began the year with stockholders’ equity of $15,000. During the year, Centro-matic issued additional shares of stock in exchange for cash of $21,000, recorded expenses of $60,000, and paid dividends of $4,000. If Centro-matic’s ending stockholders’ equity was $56,000, what was the company’s revenue for the year?

 

$80,000.

$84,000.

$105,000.

$101,000.

 

Barsuk Company began the year with stockholders’ equity of $217,000. During the year, Barsuk issued stock for $294,000, recorded expenses of $840,000, and paid dividends of $56,000. If Barsuk’s ending stockholders’ equity was $581,000, what was the company’s revenue for the year?

 

$966,000.

$1,260,000.

$910,000.

$1,204,000.

 

At December 1, 2014, Cursive Company’s accounts receivable balance was $1,200. During December, Cursive had credit revenues of $4,800 and collected accounts receivable of $4,000. At December 31, 2014, the accounts receivable balance is

 

$400 debit.

$400 credit.

$2,000 debit.

$2,000 credit.

 

At January 31, 2014, the balance in Aislers Inc.’s supplies account was $250. During February, Aislers purchased supplies of $300 and used supplies of $375. At the end of February, the balance in the supplies account should be

 

$175 debit.

$325 credit.

$175 credit.

$325 debit.

 

On October 3, Karl Schickele, a carpenter, received a cash payment for services previously billed to a client. Karl paid his telephone bill, and he also bought equipment on credit. For the three transactions, at least one of the entries will include a

 

credit to Retained Earnings.

credit to Notes Payable.

debit to Accounts Receivable.

credit to Accounts Payable.

 

A flower shop makes a large sale for $1,200 on November 30. The customer is sent a statement on December 5 and a check is received on December 10. The flower shop follows GAAP and applies the revenue recognition principle. When is the $1,200 considered recognized?

 

December 1.

December 5.

December 10.

November 30.

 

As of March 31, Macon Company owes $500 to Boswell Co. for equipment rented during March. An entry was not previously recorded for this transaction and the equipment will be returned on April 2. If no adjustment is made for this item at March 31, how will Macon’s financial statement be affected?

 

The financial statement will be accurate since the $500 does not have to be paid yet.

Cash will be overstated at March 31.

Net income for March will be overstated.

Stockholders’ equity will be understated.

 

A business pays weekly salaries of $25,000 on Friday for a five-day week ending on that day. The adjusting entry necessary at the end of the fiscal period ending on a Thursday is

 

debit Salaries and Wages Expense, $20,000; credit Salaries and Wages Payable, $20,000.

debit Salaries and Wages Payable, $20,000; credit Cash, $20,000.

debit Salaries and Wages Expense, $20,000; credit Cash, $20,000.

debit Salaries and Wages Expense, $5,000; credit Salaries and Wages Payable, $5,000.

 

Buffalo Tom Cruises purchased a five-year insurance policy for its ships on April 1, 2013 for $50,000. Assuming that April 1 is the effective date of the policy, the adjusting entry on December 31, 2013 is

 

Insurance Expense2,500

Prepaid Insurance2,500

 

Prepaid Insurance7,500

Insurance Expense7,500

 

Insurance Expense10,000

Prepaid Insurance10,000

 

Insurance Expense7,500

Prepaid Insurance7,500

 

 

The following information is for Bright Eyes Auto Supplies:

Bright Eyes Auto Supplies

Balance Sheet

December 31, 2013

 

Cash$ 20,000Accounts Payable$ 65,000

Prepaid Insurance40,000Salaries and Wages Payable25,000

Accounts Receivable50,000Mortgage Payable75,000

Inventory70,000Total Liabilities$165,000

Land Held for Investment90,000

Land125,000

Building$100,000Common Stock$120,000

Less AccumulatedRetained Earnings250,000370,000

Depreciation(30,000)70,000

Trademark70,000Total Liabilities and

Total Assets$535,000Stockholders’ Equity$535,000

 

The total dollar amount of assets to be classified as investments is

 

$90,000.

$125,000.

$0.

$70,000.

 

On May 25, Yellow House Company received a $650 check from Grizzly Bean for services to be performed in the future. The bookkeeper for Yellow House Company incorrectly debited Cash for $650 and credited Accounts Receivable for $650. The amounts have been posted to the ledger. To correct this entry, the bookkeeper should:

 

debit Accounts Receivable $650 and credit Unearned Service Revenue $650.

debit Accounts Receivable $650 and credit Cash $650.

debit Cash $650 and credit Unearned Service Revenue $650.

debit Accounts Receivable $650 and credit Service Revenue $650.

 

The following information is available for Baker Industries.

Baker Industies Inc.

Trial Balance

12/31/13

DebitCredit

Cash16

Accounts Receivable26

Supplies4

Equipment191

Accumulated Depreciation13

Accounts Payable21

Common Stock106

Retained Earnings56

Dividends11

Service Revenue189

Salaries and Wages Expense86

Depreciation Expense39

Supplies Expense12

385385

 

What is the balance in Retained Earnings after posting closing entries at December 31 for Baker Industries?

 

$97

$108

$237

$4

 

Which of the following companies would be least likely to use a worksheet to facilitate the adjustment process?

 

Small company with numerous accounts.

All companies, since worksheets are required under generally accepted accounting principles.

Large company with numerous accounts.

Small company with few accounts.

 

A lawyer collected $720 of legal fees in advance. He erroneously debited Cash for $270 and credited Accounts Receivable for $270. The correcting entry is

 

Cash…………………………………………450

Accounts Receivable……………..450

 

Cash…………………………………………450

Accounts Receivable……………………..270

Unearned Service Revenue…….720

 

Cash…………………………………………270

Accounts Receivable……………………..450

Unearned Service Revenue…….720

 

Cash…………………………………………720

Service Revenue………………….               720

 

 

The following information is available for Baker Industries.

Baker Industies Inc.

Trial Balance

12/31/13

DebitCredit

Cash16

Accounts Receivable26

Supplies4

Equipment191

Accumulated Depreciation13

Accounts Payable21

Common Stock106

Retained Earnings56

Dividends11

Service Revenue189

Salaries and Wages Expense86

Depreciation Expense39

Supplies Expense12

385385

 

What is the amount of total debits on the post-closing trial balance for Baker Industries?

 

$224

$237

$289

$248

 

On September 23, Sebagoh Company received a $350 check from Surfer Rosa Inc. for services to be performed in the future. The bookkeeper for Sebadoh Company incorrectly debited Cash for $350 and credited Accounts Receivable for $350. The amounts have been posted to the ledger. To correct this entry, the bookkeeper should

 

debit Accounts Receivable $350 and credit Cash $350.

debit Cash $350 and credit Unearned Service Revenue $350.

debit Accounts Receivable $350 and credit Service Revenue $350.

debit Accounts Receivable $350 and credit Unearned Service Revenue $350.

 

Accounting

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Accounting

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Complete the following exercises and problems in Excel:

· P1-41A

· P1-42A

· P2-29A

· P1-41A Using the accounting equation for transaction analysis

Christopher Turner started a new business, Turner Gymnastics, and completed the following transactions during December:

Dec. 1. Christopher contributed $21,000 cash in exchange for capital.

2. Received $3,500 cash from customers for services performed.

5. Paid $200 cash for office supplies.9Performed services for a customer and billed the customer for services rendered, $2,000.

10. Received $300 bill for utilities due in two weeks.

15. Paid for advertising in the local paper, $325.20Paid utility bill received on Dec. 10.

25. Collected cash from customer billed on Dec. 9.

28. Paid rent for the month, $2,000.

28. Paid $1,250 to assistant for wages.

30. Received $1,800 cash from customers for services performed.

31. Christopher withdrew $5,000 cash from the business.

Total Assets $19,425

Analyze the effects of the transactions on the accounting equation of Turner Gymnastics using a format similar to Exhibit 1-4 (See attached).

 

 

 

 

 

 

 

· P1-42A Preparing financial statements

· Presented here are the accounts of Gate City Answering Service for the year ended December 31, 2014.

Land- $ 8,000 Owner contribution, 2014- $ 28,000

Notes Payable- $32,000 Accounts Payable- $11,000

Property Tax Expense- 2,600 Accounts Receivable 1,000

Wayne, Withdrawals- 30,000 Advertising Expense- 15,000

Rent Expense 13,000 Building 145,200

Salaries Expense 65,000 Cash 3,000

Salaries Payable 1,300 Equipment 16,000

Service Revenue 192,000 Insurance Expense 2,500

Office Supplies 10,000 Interest Expense 7,000

Wayne, Capital, 12/31/13 54,000

Net Income $86,900

 

Requirements

1. Prepare Gate City Answering Service’s income statement.

2. Prepare the statement of owner’s equity.

3. Prepare the balance sheet.

 

 

 

 

 

 

 

P1-43A Journalizing transactions, posting journal entries to T-accounts, and preparing atrial balance

Vernon Yung practices medicine under the business title Vernon Yung, M.D. During July, the medical practice completed the following transactions:

Jul. 1 Yung contributed $68,000 cash to the business in exchange for capital.

5. Paid monthly rent on medical equipment, $560.

9. Paid $16,000 cash to purchase land to be used in operations.

10. Purchased office supplies on account, $1,600.

19. Borrowed $23,000 from the bank for business use. Yung signed a note payable to the bank in the name of the business.

22. Paid $1,300 on account.

28. The business received a bill for advertising in the daily newspaper to be paid in August, $240.

31. Revenues earned during the month included $6,500 cash and $5,800 on account.

31. Paid employees’ salaries $2,500, office rent $1,000, and utilities, $400. Record as a compound entry.

31. The business received $1,140 for medical screening services to be performed next month.

31. Yung withdrew cash of $7,000.

Cash Balance $69,880

 

The business uses the following accounts: Cash; Accounts Receivable; Office Supplies; Land; Accounts Payable; Advertising Payable; Unearned Revenue; Notes Payable; Yung, Capital; Yung, Withdrawals; Service Revenue; Salaries Expense; Rent Expense; Utilities Expense; and Advertising Expense.

Requirements

1.Journalize each transaction. Explanations are not required.

2.Post the journal entries to the T-accounts, using transaction dates as posting references in the ledger accounts. Label the balance of each account Bal.

3.Prepare the trial balance of Vernon Yung, M.D. as of July 31, 2015.

Accounting

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The case study,

requirement:

  • Read the question closely; be sure you know what is being asked. Briefly, indicated the facts of the case and write a brief outline of what you want to fit into your 3 pages.
  • Identify the dilemma: explain the ethical issue and support for alternative choices. Contrast reasons using prepositions: benefit/consequences of doing or not doing…
  • Explain the benefits/ consequences in terms of who, when, dollar amount, and certainty positive and negative consequences. Consider long run versus short run consequence.
  • Choose one position and explain the reason it is more ethical than the alterbatives refuting your support for the other positions. Where there is a dilemma, explain why ethical support for one choice is better than support for the other choices. Explain why this case is important.

Case also can be found at the attached PDF file page 257.

Please use the knowledge related to the book. No outside resource allowed.

Thanks.

“Yeah, I know all of the details weren’t completed until

January 2, 2014, but we agreed on the transaction on

December 30, 2013. By my way of reasoning, it’s a continuation

transaction and the $12 million revenue belongs in the

results for 2013.” This comment was made by Carl Land, the

CFO of Family Games, Inc. The company has annual sales of

about $50 million from a variety of manufactured board and

electronic games that are designed for use by the entire family.

However, during the past two years, the company reported

a net loss due to cost-cutting measures that were necessary to

compete with overseas manufacturers and distributors.

Land made the previous comment to Helen Strom, the

controller of Family Games, after Strom had expressed her

concern that because the lawyers did not sign off on the transaction

until January 2, the revenue should not be recorded in

  1. Strom emphasized that the product was not shipped

until January 2 and there was no way of justifying its inclusion

in the previous year’s operating results.

Land felt that Strom was being hypertechnical because

the merchandise had been placed on the carrier (truck) on

December 31, 2013. The items weren’t shipped until January 2

because of the holiday. “Listen, Helen, this comes from

the top,” Land said. “The big boss said we need to have the

$12 million recorded in the results for 2013.”

“I don’t get it,” Helen said to Land. “Why the pressure?”

“The boss wants to increase his performance bonus by

increasing earnings in 2013. Apparently, he lost some money

in Vegas over the Christmas weekend and left a sizable IOU

at the casino,” Land responded.

Helen shook her head in disbelief. She didn’t like the idea

of operating results being manipulated based on the personal

needs of the CEO. She knows that the CEO has a gambling

problem. This sort of thing had happened before. The difference

this time is that it has the prospect of affecting the

reported results, and she is being asked to do something that

she knows is wrong.

“I can’t change the facts,” Helen said.

“All you have to do is backdate the sales invoice to

December 30, when the final agreement was reached,” Land

responded. “As I said before, just think of it as a revenuecontinuation

transaction that started in 2013 and, but for one

minor technicality, should have been recorded in 2014.”

“You’re asking me to ‘cook the books,’ ” Helen said. “I

won’t do it.”

“I hate to play hardball with you, Helen, but the boss

authorized me to tell you he will stop reimbursing you in

the future for child care costs so that your kid can have a

live-in nanny 24-7 unless you are a team player on this issue.

Remember, Helen, this is a one-time request only.” Land said.

Helen was surprised by the threat and dubious of the

“one-time-event” explanation. She sat down and reflected on

the fact that the reimbursement payments for her child care

were $35,000, 35 percent of her annual salary. She is a single

working mother. Helen knows that there is no other way that

she can afford to pay for the full-time care needed by her

autistic son.

Questions

  1. Briefly discuss the rules for revenue recognition in accounting

and how they pertain to this case. Does the proposed

handling of the $12 million violate those rules? Be

specific.

  1. Assume Carl Land is a CPA and Helen Strom holds the

Certificate in Management Accounting (CMA). What

ethical issues exist for them in this situation? Identify the

stakeholders in this case and Strom’s ethical obligations

to them.

  1. To what extent should Helen consider the gambling problems

of her boss in deciding on a course of action? To

what extent should Helen consider her child care situation

and the threatened cutoff of reimbursements? If you were

Helen, what would you do given the directions from Carl

Land. Why?

 

ACCOUNTING

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1.

value:
10.00 points

 Disk City, Inc. is a retailer for digital video disks. The projected net income for the current year is $2,320,000 based on a sales volume of 230,000 video disks. Disk City has been selling the disks for $19 each. The variable costs consist of the $5 unit purchase price of the disks and a handling cost of $2 per disk. Disk City’s annual fixed costs are $440,000.
     Management is planning for the coming year, when it expects that the unit purchase price of the video disks will increase 30 percent. (Ignore income taxes.)

 

Required:

 

1. Calculate Disk city’s break-even point for the current year in number of video disks. (Round your answer to the nearest whole number.)

 

  Break-even point units

 

2. What will be the company’s net income for the current year if there is a 15 percent increase in projected unit sales volume? (Omit the “$” sign in your response.)

 

  Net income $

 

3. What volume of sales (in dollars) must Disk City achieve in the coming year to maintain the same net income as projected for the current year if the unit selling price remains at $19? (Do not round intermediate calculations and round your final answer to 2 decimal places. Omit the “$” sign in your response.)

 

    Volume of sales $  
4. In order to cover a 30 percent increase in the disk’s purchase price for the coming year and still maintain the current contribution-margin ratio, what selling price per disk must Disk City establish for the coming year? (Do not round intermediate calculations and round your final answer to 2 decimal places. Omit the “$” sign in your response.)

 

  Selling price $

 

[The following information applies to the questions displayed below.]

 

Corrigan Enterprises is studying the acquisition of two electrical component insertion systems for producing its sole product, the universal gismo. Data relevant to the systems follow.

 

Model no. 6754:
     Variable costs, $17.00 per unit
     Annual fixed costs, $986,100

 

Model no. 4399:
     Variable costs, $11.80 per unit
     Annual fixed costs, $1,114,000

 

Corrigan’s selling price is $62 per unit for the universal gismo, which is subject to a 5 percent sales commission. (In the following requirements, ignore income taxes.)

 

2.

value:
10.00 points

 

 

Required:

 

1. How many units must the company sell to break even if Model 6754 is selected? (Do not round intermediate calculations and round your final answer to the nearest whole number.)

 

  Break-even point units

references

Worksheet Learning Objective: 07-01 Compute a break-even point using the contribution-margin approach and the equation approach.  
Difficulty: Medium Learning Objective: 07-04 Apply CVP analysis to determine the effect on profit of changes in fixed expenses, variable expenses, sales prices, and sales volume.  

 

3.

value:
10.00 points

 

2-a. Calculate the net income of the two systems if sales and production are expected to average 44,000 units per year. (Omit the “$” sign in your response.)

 

  Net Income
  Model 6754 $
  Model 4399 $

 

2-b. Which of the two systems would be more profitable?
   
 
Model 4399
Model 6754

references

Worksheet Learning Objective: 07-01 Compute a break-even point using the contribution-margin approach and the equation approach.  
Difficulty: Medium Learning Objective: 07-04 Apply CVP analysis to determine the effect on profit of changes in fixed expenses, variable expenses, sales prices, and sales volume.  

 

 

 

 

4.

value:
10.00 points

 

 

3. Assume Model 4399 requires the purchase of additional equipment that is not reflected in the preceding figures. The equipment will cost $450,000 and will be depreciated over a five-year life by the straight-line method. How many units must Corrigan sell to earn $961,000 of income if Model 4399 is selected? As in requirement (2), sales and production are expected to average 44,000 units per year. (Do not round intermediate calculations and round your final answer to the nearest whole number.)

 

  Required sales units

references

Worksheet Learning Objective: 07-01 Compute a break-even point using the contribution-margin approach and the equation approach.  
Difficulty: Medium Learning Objective: 07-04 Apply CVP analysis to determine the effect on profit of changes in fixed expenses, variable expenses, sales prices, and sales volume.  

 

5.

value:
10.00 points

 

 

4. Ignoring the information presented in part (3), at what volume level will the annual total cost of each system be equal? (Round your answer to the nearest whole number.)

 

  Volume level units

 

 

 

 

6.

value:
10.00 points

 

Houston-based Advanced Electronics manufactures audio speakers for desktop computers. The following data relate to the period just ended when the company produced and sold 44,000 speaker sets:

 

       
  Sales $ 3,520,000  
  Variable costs   880,000  
  Fixed costs   2,250,000  
 

 

Management is considering relocating its manufacturing facilities to northern Mexico to reduce costs. Variable costs are expected to average $18 per set; annual fixed costs are anticipated to be $2,170,000. (In the following requirements, ignore income taxes.)

 

Required:
1. Calculate the company’s current income and determine the level of dollar sales needed to double that figure, assuming that manufacturing operations remain in the United States. (Omit the “$” sign in your response.)

 

   
  Current income $
  Required sales $

 

2. Determine the break-even point in speaker sets if operations are shifted to Mexico.

 

  Break-even point units

 

3. Assume that management desires to achieve the Mexican break-even point; however, operations will remain in the United States.

 

a. If variable costs remain constant, by how much must fixed costs change? (Input the amount as positive value. Omit the “$” sign in your response.)

 

  Fixed costs by $

 

b. If fixed costs remain constant, by how much must unit variable cost change? (Input the amount as positive value. Do not round your intermediate calculations. Round your answer to 2 decimal places. Omit the “$” sign in your response.)

 

  Variable costs by $

 

4. Determine the impact (increase, decrease, or no effect) of the following operating changes.

 

     
a.  Effect of an increase in direct material costs on the break-even point.
b.  Effect of an increase in fixed administrative costs on the unit contribution margin.
c.  Effect of an increase in the unit contribution margin on net income.
d.  Effect of a decrease in the number of units sold on the break-even point.

rev: 10_30_2013_QC_38310, 02_27_2014_QC_46037

7.

value:
10.00 points

 

Tim’s Bicycle Shop sells 21-speed bicycles. For purposes of a cost-volume-profit analysis, the shop owner has divided sales into two categories, as follows:

 

  Product Type Sales Price Invoice Cost Sales Commission
  High-quality $ 500   $ 275   $ 25  
  Medium-quality   300     135     15  

 

Three-quarters of the shop’s sales are medium-quality bikes. The shop’s annual fixed expenses are $65,000. (In the following requirements, ignore income taxes.)

 

Required:

 

1. Compute the unit contribution margin for each product type. (Omit the “$” sign in your response.)

 

  Bicycle Type Unit
Contribution Margin
  High-quality $
  Medium-quality  

 

2. What is the shop’s sales mix? (Omit the “%” sign in your response.)

 

  Sales mix
  High-quality bicycles %
  Medium-quality bicycles %

 

3. Compute the weighted-average unit contribution margin, assuming a constant sales mix. (Round your answer to 2 decimal places. Omit the “$” sign in your response.)

 

  Weighted-average unit contribution margin $

 

4. What is the shop’s break-even sales volume in dollars? Assume a constant sales mix. (Round intermediate calculations to 2 decimal places. Omit the “$” sign in your response.)

 

  Break-even sales volume $

 

5. How many bicycles of each type must be sold to earn a target net income of $48,750? Assume a constant sales mix. (Round intermediate calculations to 2 decimal places.)

 

  Number of
bicycles
  High-quality  
  Medium-quality  

 

8.

value:
10.00 points

 

A contribution income statement for the Nantucket Inn is shown below. (Ignore income taxes.)

 

       
  Revenue $  
  Less: Variable expenses    
 
  Contribution margin $  
  Less: Fixed expenses    
 
  Net income $  
 

 

Consider each requirement independently.

 

Required:

 

1. Show the hotel’s cost structure by indicating the percentage of the hotel’s revenue represented by each item on the income statement. (Input all amounts as positive values. Omit the “$” & “%” signs in your response.)

 

  Amount Percent
  Revenue $  
  Variable expenses    
 
  Contribution margin $  
  Fixed expenses    
 
  Net income $  
 

 

2. Suppose the hotel’s revenue declines by 15 percent. Use the contribution-margin percentage to calculate the resulting decrease in net income. (Omit the “$” sign in your response.)

 

  Decrease in net income $

 

3. What is the hotel’s operating leverage factor when revenue is $500,000?

 

  Operating leverage factor  

 

4. Use the operating leverage factor to calculate the increase in net income resulting from a 20 percent increase in sales revenue. (Omit the “%” sign in your response.)

 

  Percentage increase in net income %

 

 

 

 

9.

value:
10.00 points

 

A contribution income statement for the Nantucket Inn is shown below. (Ignore income taxes.)

 

       
  Revenue $  
  Less: Variable expenses    
 
  Contribution margin $  
  Less: Fixed expenses    
 
  Net income $  
 

 

Required:

 

1. Prepare a contribution income statement if the hotel’s volume of activity increases by 20 percent, and fixed expenses increase by 40 percent. (Input all amounts as positive values. Omit the “$” sign in your response.)

 

   
  Revenue $
  Less: Variable expenses  
 
  Contribution margin $
  Less: Fixed expenses  
 
  Net income $
 

 

2. Prepare a contribution income statement if the ratio of variable expenses to revenue doubles. There is no change in the hotel’s volume of activity. Fixed expenses decline by $25,000. (Input all amounts as positive values except losses which should be indicated with a minus sign. Omit the “$” sign in your response.)

 

   
  Revenue $
  Less: Variable expenses  
 
  Contribution margin $
  Less: Fixed expenses  
 
  Net loss $
 

 

10.

value:
10.00 points

 

Hydro Systems Engineering Associates, Inc. provides consulting services to city water authorities. The consulting firm’s contribution-margin ratio is 20 percent, and its annual fixed expenses are $120,000. The firm’s income-tax rate is 40 percent.

 

Consider each requirement independently.

 

Required:

 

1. Calculate the firm’s break-even volume of service revenue. (Omit the “$” sign in your response.)

 

  Break-even volume $

 

2. How much before-tax income must the firm earn to make an after-tax net income of $48,000?. (Omit the “$” sign in your response.)

 

  Before tax income $

 

3. What level of revenue for consulting services must the firm generate to earn an after-tax net income of $48,000? (Omit the “$” sign in your response.)

 

  Service revenue $

 

4. Suppose the firm’s income-tax rate rises to 45 percent. What will happen to the break-even level of consulting service revenue?
   
 
The break-even level of consulting service revenue will not change.
The break-even level of consulting service revenue will change.

 

 

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Santana Rey expects second quarter 2012 sales of her new line of computer furniture to be the same as the first quarter’s sales (reported below) without any changes in strategy. Monthly sales averaged 40 desk units (sales price of $1,250) and 20 chairs (sales price of $500).

 

  Sales† $ 180,000
  Cost of goods sold‡ $ 135,000
  Gross profit 45,000
  Expenses
  Sales commissions (10%) 18,000
  Advertising expenses 9,000
  Other fixed expenses 18,000
  Total expenses $ 45,000
  Net income $ 0

 

Reflects revenue and expense activity only related to the computer furniture segment.
† Revenue: (120 desks × $1,250) + (60 chairs × $500) = $150,000 + $30,000 = $180,000
‡ Cost of goods sold: (120 desks × $750) + (60 chairs × $250) + $30,000 = $135,000

 

Santana Rey believes that sales will increase each month for the next three months (April, 48 desks, 32 chairs; May, 52 desks, 35 chairs; June, 56 desks, 38 chairs) if selling prices are reduced to $1,150 for desks and $450 for chairs, and advertising expenses are increased by 10% and remain at that level for all three months. The products’ variable cost will remain at $750 for desks and $250 for chairs. The sales staff will continue to earn a 10% commission, the fixed manufacturing costs per month will remain at $10,000 and other fixed expenses will remain at $6,000 per month.

 

Required:
1. Prepare budgeted income statements for each of the months of April, May, and June that show the expected results from implementing the proposed changes. Use a three-column format, with one column for each month. (Input all amounts as positive values except any net loss which should be indicated by a minus sign. Omit the “$” sign in your response.)

 

BUSINESS SOLUTIONS
Budgeted Income Statement
For Months of April, May, and June
April May June
$
Required:
1. Prepare a table that shows the computation of cash collections of its credit sales (accounts receivable) in each of the months of June and July. (Omit the “$” & “%” signs in your response.)
Cash collections of credit sales (accounts receivable)
  From sales in Total % Collected June July
  April $

2. Prepare a table that shows the computation of budgeted ending inventories (in units) for April, May, June, and July. (Omit the “%” sign in your response.)
Budgeted ending inventories (in units)
April May June July
  Next month’s budgeted sales
3. Prepare the merchandise purchases budget for May, June, and July. Report calculations in units and then show the dollar amount of purchases for each month. (Amounts to be deducted should be indicated with a minus sign. Omit the “$” sign in your response.)
ABACUS COMPANY
Merchandise Purchases Budgets
For May, June, and July
May June July
$

4. Prepare a table showing the computation of cash payments on product purchases for June and July.(Round your answers to the nearest dollar amount. Omit the “$” & “%” signs in your response.)
Cash payments on product purchases (for June and July)
  From purchases in Total % Paid June July
  May $

5. Prepare a cash budget for June and July, including any loan activity and interest expense. Compute the loan balance at the end of each month. (Leave no cells blank – be certain to enter “0” wherever required. Input all amounts as positive values except preliminary cash balance and any repayments to bank which should be indicated by a minus sign. Round intermediate calculations and final answers to the nearest dollar amount. Omit the “$” sign in your response.)

 

 

 

ABACUS COMPANY
Cash Budget
June and July
June July
$ $ $

1. Monthly sales budgets. (Omit the “$” sign in your response.)
SIMID SPORTS CO.
Sales Budget
January, February, and March 2012
Budgeted
Units		 Budgeted
Unit Price		 Budgeted
Total Dollars
  January 2012
2. Monthly merchandise purchases budgets. (Units to be deducted should be indicated with a minus sign. Omit the “$” & “%” signs in your response.)
SIMID SPORTS CO.
Merchandise Purchases Budget
January, February, and March 2012
January February March Total
$ $

3. Monthly selling expense budgets. (Omit the “$” & “%” signs in your response.)
SIMID SPORTS CO.
Selling Expense Budget
January, February, and March 2012
January February March Total
$
4. Monthly general and administrative expense budgets. (Do not round your intermediate calculations. Round your final answers to the nearest whole dollar. Omit the “$” sign in your response.)
SIMID SPORTS CO.
General and Administrative Expense Budget
January, February, and March 2012
January February March Total
$
5. Monthly capital expenditures budgets. (Leave no cells blank – be certain to enter “0” wherever required. Input all amounts as positive values. Omit the “$” sign in your response.)
SIMID SPORTS CO.
Capital Expenditures Budget
January, February, and March 2012
January February March
$
6. Monthly cash budgets. (Leave no cells blank – be certain to enter “0” wherever required. Input all amounts as positive values except negative preliminary cash balance and repayment of loan to bank which should be indicated by a minus sign. Round your intermediate calculations and final answers to the nearest dollar amount. Omit the “$” sign in your response.)
SIMID SPORTS CO.
Cash Budget
January, February, and March 2012
January February March
$ $ $

7. Budgeted income statement for the entire first quarter (not for each month). (Round your answers to the nearest dollar amount. Input all amounts as positive values. Omit the “$” sign in your response.)
SIMID SPORTS CO.
Budgeted Income Statement
For Three Months Ended March 31, 2012
$ $ $

8. Budgeted balance sheet as of March 31, 2012. (Be sure to list the assets in order of their liquidity. Round your answers to the nearest dollar amount. Leave no cells blank – be certain to enter “0” wherever required. Input all amounts as positive values. Round your intermediate calculations and final answers to the nearest dollar amount. Omit the “$” sign in your response.)
SIMID SPORTS CO.
Budgeted Balance Sheet
March 31, 2012
  Assets
$ $ $ $ [removed]
  Total Stockholders’ Equity [removed]
  Total Liabilities & Equity $ [removed]

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XYZ is a calendar-year corporation that began business on January 1, 2012. For 2012, it reported the following information in its current year audited income statement. Notes with important tax information are provided below.

XYZ corp.
Income statement
Book For current year Income
Revenue from sales $40,000,000
Cost of Goods Sold (27,000,000)
——————————————————————————–
Gross profit $13,000,000
Other income:
Income from investment in corporate stock 300,000 (Note 1)
Interest income 20,000 (Note 2)
Capital gains (losses) (4,000)
Gain or loss from disposition of fixed assets 3,000 (Note 3)
Miscellaneous income 50,000
——————————————————————————-
Gross Income $13,369,000
Expenses:
Compensation (7,500,000) (Note 4)
Stock option compensation (200,000) (Note 5)
Advertising (1,350,000)
Repairs and Maintenance (75,000)
Rent (22,000)
Bad Debt expense (41,000) (Note 6)
Depreciation (1,400,000) (Note 7)
Warranty expenses (70,000) (Note 8)
Charitable donations (500,000) (Note 9)
Meals and entertainment (18,000)
Goodwill impairment (30,000) (Note 10)
Organizational expenditures (44,000) (Note 11)
Other expenses (140,000) (Note 12)
——————————————————————————-
Total expenses $(11,390,000)
——————————————————————————–
Income before taxes $1,979,000
Provision for income taxes (720,000) (Note 13)
——————————————————————————–
Net Income after taxes $1,259,000 (Note 14)
——————————————————————————–

1. XYZ owns 30 percent of the outstanding Hobble Corp. (HC) stock. Hobble Corp. reported $1,000,000 of income for the year. XYZ accounted for its investment in HC under the equity method and it recorded its pro rata share of HC’s earnings for the year. HC also distributed a $200,000 dividend to XYZ.

2. Of the $20,000 interest income, $5,000 was from a City of Seattle bond (issued in 2007) that was used to fund public activities, $7,000 was from a Tacoma City bond (issued in 2008) used to fund private activities, $6,000 was from a fully taxable corporate bond, and the remaining $2,000 was from a money market account.

3. This gain is from equipment that XYZ purchased in February and sold in December (that is, it does not qualify as §1231 gain).

4. This includes total officer compensation of $2,500,000 (no one officer received more than $1,000,000 compensation).

5. This amount is the portion of incentive stock option compensation that vested during the year (recipients are officers).

6. XYZ actually wrote off $27,000 of its accounts receivable as uncollectible.

7. Regular tax depreciation was $1,900,000 and AMT (and ACE) depreciation was $1,700,000.

8. In the current year, XYZ did not make any actual payments on warranties it provided to customers.

9. XYZ made $500,000 of cash contributions to qualified charities during the year.

10. On July 1 of this year XYZ acquired the assets of another business. In the process it acquired $300,000 of goodwill. At the end of the year, XYZ wrote off $30,000 of the goodwill as impaired.

11. XYZ expensed all of its organizational expenditures for book purposes. It expensed the maximum amount of organizational expenditures allowed for tax purposes.

12. The other expenses do not contain any items with book-tax differences.

13. This is an estimated tax provision (federal tax expense) for the year. (In a subsequent class period, we will learn how to compute the correct tax provision.) Assume that XYZ is not subject to state income taxes.

14. XYZ calculated that its domestic production activities deduction (DPAD) is $90,000. This amount is not included on the audited income statement numbers.

Estimated tax information:
XYZ made four equal estimated tax payments totaling $480,000. Assume for purposes of estimated tax liabilities, XYZ was in existence in 2011 and it reported a tax liability of $800,000. During 2012, XYZ determined its taxable income at the end of each of the four quarters as follows:

Quarter-end Cumulative taxable income (loss)
First $350,000
Second $800,000
Third $1,000,000
——————————————————————————-

Finally, assume that XYZ is not a large corporation for purposes of estimated tax calculations (Round your answers to the nearest dollar amount. Omit the “$” sign in your response.)

a. Compute XYZ’s taxable income.

b. Compute XYZ’s regular income tax liability.

This problem uses 2012 Tax Rules

Please include a step-by-step explanation of how to arrive at the correct answers

 

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Case 2

 

“Yeah, I know all the details weren’t completed until January 2, 2011, but we agreed on the transaction on December 30, 2010.  By my way of reasoning, it’s a continuation transaction and the $12 million revenue belongs in the results for 2010.”

The previous comment was made by Carl Land, the chief financial officer, of Family Games, Inc.  The company has sales of about $50 million each year from a variety of manufactured board and electronic games that are designed for use by the entire family.  However, during the past two years the company had a net loss due to cost cutting measures that were necessary to compete with overseas manufacturers and distributors.

Land made the comment to Helen Strom, the controller of Family Games, after Strom had expressed her concern that since the lawyers did not sign off on the transaction until January 2, the revenue should not be recorded in 2010.  Strom emphasized that the product was not shipped until January 2 and there was no way of justifying its inclusion in the previous years’ operating results.

Land felt Strom was being hyper-technical since the merchandise had been placed on the carrier (truck) on December 31, 2010. The items weren’t shipped until January 2 because of the holiday. “Listen, Helen, this comes from the top.  The big boss said we need to have the $12 million recorded in the results for 2010.”

“I don’t get it,” Helen said to Land.  “Why the pressure?”

“The boss wants to increase his performance bonus by increasing earnings in 2010.   Apparently, he lost some money in Vegas over the Christmas weekend and left a sizeable “I Owe U” at the casino.”  Land responded.

Helen just shook her head.  She doesn’t like the idea of operating results being manipulated based on the personal needs of the chief executive officer.  She knows that the CEO has a gambling problem.  It had happened before.  The difference this time is it appears to have affected company operations and she is being asked to do something that she knows is wrong.

“I can’t change the facts,” said Helen.

“All you have to do is backdate the sales invoice to December 30 when final agreement was reached.”  Land responded.  “As I said before, just think of it as a revenue-continuation transaction that started in 2010, and but for one minor technicality, should have been recorded in 2011.”

“You’re asking me to ‘cook the books’,” Helen said.  “I won’t do it.”

“I hate to play hardball with you Helen but the boss authorized me to tell you he will cut off reimbursement payments in the future that the company makes so that your kid can have a live-in nanny 24-7 unless you are a team player on this issue. Remember, Helen, this is the only time we will request that you go along.”

Helen was surprised by the threat and dubious of the one-time-event explanation.  She sat down in her chair and reflected on the fact that the reimbursement payments are $35,000, 35 percent of her annual salary.  She is a single working mother.  Helen knows there is no other way that she can afford to pay for the full-time care needed by her autistic son.

 

This case discusses improper revenue recognition. This case is further complicated by a personal situation of the controller.

 

Ethical Issues

The case looks at the integrity of the controller and CFO of Family Games, and whether they will subordinate their judgment given pressures and threats. The gambling habit of the boss (CEO) is an indicator of the tone at the top; a gambler may be keeping secrets of debt and deceits. This case can be used to discuss with students whether someone playing dirty (threats) release an accountant from the duty to follow rules (i.e., threaten back, break confidence, or even blackmail)? Another way to look at this is it alright to use unethical means to solve an ethical dilemma?

 

From a right perspective, the stakeholders have a right to financial statements in accordance with GAAP and with adequate disclosure. Helen has a right to work in a job without threats to her family security. From a deontology perspective, Helen and Land have a duty to meet professional obligation of not subordinating judgment and following accounting standards. From an utilitarian perspective all stakeholders, not just the gambling boss or dependent employees, must be considered in the greatest number and benefits. From a virtue perspective, the values of trustworthiness, respect, responsibility, fairness and caring must be addressed.

 

Due to Helen receiving reimbursements for autistic son, Helen needs to develop a short term and long term strategy to the situation. In the short run Helen can resist Land, look for a job quickly, and quit. Helen could also give into the threat from Land and look for a job less quickly. In the long run Helen may consider taking the situation to the audit committee and the Board of Directors. She may threaten the CEO with exposure of his gambling problem. Helen may consider in some way blow the whistle on the situation. If Helen gives into the threats, there will more pressures and threats of exposure, in addition to current threats, the next time or year when improper revenue recognition or another accounting treatment is needed.

 

Questions

  1. Briefly discuss the rules for revenue recognition in accounting.  How does the proposed handling of the $12 million violate those rules?  Be specific.

 

  1. Assume Carl Land and Helen Strom are both CPAs.  What ethical issues exist for them in this situation?  Identify the stakeholders in this case and Strom’s ethical obligations to them.

 

  1. To what extent should Helen consider the gambling problems of her boss in deciding on a course of action? To what extent should Helen consider her child care situation and the threatened cut off of reimbursements? If you were Helen Strom, what would you do?  Why?

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1) Which of the following is included in the category Other receivables?

A) Loans to employees

B) Accounts receivables

C) Notes receivables

D) Investments

 

2) GAAP prefers companies to use the:

A) direct write-off method to evaluate bad debts.

B) allowance method to evaluate bad debts.

C) amortization method to evaluate bad debts.

D) 360-day method to evaluate bad debts.

 

3) Which of the following are the two methods of accounting for uncollectible receivables?

A) The direct write-off method and the liability method

B) The asset method and the sales method

C) The allowance method and the liability method

D) The allowance method and the direct write-off method

 

4) The Allowance for uncollectible accounts currently has a credit balance of $200.  The company’s management estimates that 2.5% of net credit sales will be uncollectible.  Net credit sales are $115,000. What will be the amount of Uncollectible account expense reported on the income statement?

A) $3,275

B) $3,075

C) $2,875

D) $2,675

 

5) A newly created design business called Smart Art is just finishing up its first year of operations.  During the year, there were credit sales of $40,000 and collections of $36,000.  One account for $650 was written off.  Smart Art uses the percent-of-sales method to account for uncollectible account expense, and has decided to use a factor of 2% for their year-end adjustment of uncollectible account expense.  At the end of the year, what is the ending balance in Accounts receivable?

A) $4,000

B) $36,000

C) $3,350

D) $39,350

 

6) A newly created design business called Smart Art is just finishing up its first year of operations.  During the year, there were credit sales of $40,000 and collections of $36,000.  One account for $650 was written off.  Smart Art uses the aging method to account for uncollectible account expense, and has calculated an amount of $200 as their estimate of uncollectible amounts at year-end. At the end of the year, what is the ending balance in Accounts receivable?

A) $4,000

B) $36,000

C) $3,350

D) $39,350

 

7) A newly created design business called Smart Art is just finishing up its first year of operations.  During the year, there were credit sales of $40,000 and collections of $36,000.  One account for $650 was written off.  Smart Art uses the aging method to account for uncollectible account expense, and has calculated an amount of $200 as their estimate of uncollectible amounts at year-end. At the end of the year, what is the ending balance in the Allowance for uncollectible accounts?

A) $150

B) $800

C) $200

D) $1,450

 

8) Accounts receivable has a balance of $16,000 and the Allowance for uncollectible accounts has a credit balance of $1,700.  What is Net accounts receivable before and after a $60 account receivable is written off?

A) $14,300 before and $14,240 after

B) $14,300 before and $14,300 after

C) $16,000 before and $15,940 after

D) $16,000 before and $16,000 after

 

9) Under the direct write-off method, a customer who doesn’t pay their bills is written off with what journal entry?

A) Debit Accounts receivable and credit Uncollectible account expense

B) Debit Uncollectible account expense and credit Cash

C) Debit Uncollectible account expense and credit Accounts receivable

D) Debit Lost revenue and credit Accounts receivable

 

10) Archer Company and Zorro Company both have significant amounts of accounts receivable at any time, and both experience uncollectible accounts from time to time.  Archer uses the percent-of-sales method to account for uncollectible accounts, and Zorro uses the direct write-off method.  Which of the following statements is FALSE?

A) Zorro Company’s method complies with GAAP.

B) Archer Company’s method will provide better matching of revenues and expenses.

C) Archer Company’s net income is more accurate due to their accounting method.

D) Zorro Company’s method does not provide good matching of revenues and expenses.

 

11) Which of the following exists if the maker of a promissory note fails to pay the note on the due date?

A) A discounted note

B) A depreciated note

C) An amortized note

D) A dishonored note

 

12) What is the maturity value of a 3-month, 12% note for $20,000?

A) $20,000

B) $22,400

C) $21,200

D) $20,600

 

13) What is the maturity value of a note?

A) The principal amount minus interest due

B) The principal amount plus interest due

C) The face amount of the note

D) The principal amount times the interest rate

 

14) On October 1, 2014, Allen Jewelry Company accepted a 4-month, 10% note for $2,400 in settlement of an overdue account receivable. If the company accrues interest at year-end only, how much interest revenue should be accrued on December 31, 2014?

A) $80

B) $60

C) $240

D) $40

 

15) Which of the following is included in the denominator of the acid-test ratio?

A) All current liabilities except accounts payable

B) Total liabilities

C) Total current liabilities

D) Total current assets

 

16) Which of the following is included in the cost of a plant asset?

A) Amounts paid to ready the asset for its intended use

B) Regular maintenance cost

C) Normal repair cost

D) Wages of workers who use the asset

 

17) Which of the following would be capitalized and depreciated, rather than expensed?

A) Modification for new use

B) Paint job

C) Replacement of tires

D) Normal repair of engine

 

18) Which of the following items should NOT be depreciated, depleted, or amortized?

A) Natural resources

B) Land

C) Tangible property, plant, and equipment, other than land

D) Intangible property

 

19) On January 1, 2013, Zane Manufacturing Company purchased a machine for $40,000.  The company expects to use the machine a total of 24,000 hours over the next 6 years.  The estimated sales price of the machine at the end of 6 years is $4,000.  The company used the machine 8,000 hours in 2013 and 12,000 in 2014.

What is the book value of the machine at the end of 2014 if the company uses straight-line depreciation?

A) $10,000

B) $28,000

C) $17,778

D) $20,000

 

20) Which of the following items is included in the journal entry if a company sells equipment at a price equal to its book value?

A) A debit to Loss on sale of equipment

B) A credit to Equipment for its original cost

C) A credit to Accumulated depreciation

D) A debit to Equipment for its book value

 

21) Which of the following items should be depleted?

A) Intangible property

B) Land

C) Natural resources

D) Tangible property, plant, and equipment, other than land

 

22) Azimuth Company purchases a small business for $500,000.  The market value of the business’s assets are $850,000, and the market value of the liabilities are $400,000.  How much goodwill should Azimuth record?

A) None

B) $500,000

C) $450,000

D) $50,000

 

23) The decline in value of a copyright is accounted for by:

A) depreciation.

B) amortization.

C) depletion.

D) deterioration.

 

24) Which of the following intangible assets bars other manufacturers from using the same name for a product?

A) Trademark

B) Patent

C) Copyright

D) Franchise

 

25) Which of the following accounting methods is usually used to compute amortization expense?

A) Declining-balance

B) Units-of-production

C) Straight-line

D) First-In, First-Out

 

26)  On September 1, 2012, Algernon Company sold a truck for $15,000 cash.  The truck was originally purchased for $40,000, had an estimated salvage value of $4,000 and an estimated life of 6 years.  Algernon had recorded depreciation of $30,000 through the end of 2011 using Straight-Line.  First, Algernon had to update the depreciation prior to sale. Then Algernon recorded the sale transaction.  What was the effect of that transaction on the net income of the company?

A) No gain or loss

B) Gain of $9,000

C) Gain of $15,000

D) Loss of $9,000