Mid-term #1

Question 1

1. Define current liabilities.

Answer 1

Liabilities that are to be paid out of current assets & are due within a short time, usually one year, are called current liabilities.

Question 2

2. On June 5, Apex Co. issued a $100,000, 10%, 90-day note payable to Jones Co. What is the maturity value of the note?

Answer 2

$100,000 x 10% x 3/12 = $2,500

$100,000 + $2,500 = $102,500

Question 3

3. What is the journal entry to convert an existing account payable to a note payable?

Answer 3

Debit A/P, credit N/P

Question 4

4. Name the taxes that employers are required to withhold from employees.

Answer 4

Federal income tax, state income tax, social security tax, and Medicare tax

Question 5

5. Define the term “take-home” pay.

Answer 5

Take-home pay is gross earnings for a payroll period less payroll deductions.

Question 6

6. Define the term “gross pay”.

Answer 6

“Gross pay” is total earnings of an employee for a payroll period, including bonuses & overtime.

Question 7

7. An employee receives an hourly rate of $40, with time and a half for all hours worked beyond 40 during a week. Payroll data for the current week are as follows:
   Hours worked: 49
   Federal income tax withheld: $600
   Cumulative earnings for year prior to current week $105,600
   Social security: 6% on maximum of $106,000
   Medicare rate of 1.5% on all earnings.
   What is the gross pay for the employee?

Answer 7

$40 x 49 hours = $1,960
$20 x 9 hours = $180
Gross pay = $1,960 + $180 = $2,140

Question 8

8. An employee receives an hourly rate of $40, with time and a half for all hours worked beyond 40 during a week. Payroll data for the current week are as follows:
   Hours worked: 49
   Federal income tax withheld: $400
   Cumulative earnings for year prior to current week $105,600
   Social security: 6% on maximum of $106,000
   Medicare rate of 1.5% on all earnings.
   Employee contribution to retirement plans, $100
   Net Pay is?

Answer 8

$40 x 49 hours = $1,960
$20 x 9 hours = $180
Gross pay = $1,960 + $180 = $2,140

Gross pay						$2,140
Less:			
Pensions contribution			  $100
Federal income tax			  $400
	Social security				  $24.001
	Medicare				  $32.102	$555.10
Net pay						$1583.90

Question 9

9. A machine with a cost of $150,000 has an estimated residual value of $10,000 and an estimated life of 4 years or 18,000 hours. What is the amount of depreciation for the second full year, using the declining-balance method at double the straight-line rate?

Answer 9

First year: $150,000 x 2/4 = $75,000

Second year: ($150,000 - $75,000) x 2/4 = $37,500

Question 10

10. A machine with a cost of $250,000 has an estimated residual value of $10,000 and an estimated life of 4 years or 18,000 hours. What is the amount of depreciation for the fourth full year, using the declining-balance method at double the straight-line rate?

Answer 10

(250,000-10,000)/4=$60,000/2= 30,000 first year dep. Expense

Question 11

11. A machine with a cost of $150,000 has an estimated residual value of $10,000 and an estimated life of 4 years or 10,000 hours. Using the units-of-production method, what is the amount of depreciation for the second full year, during which the machine was used 4,000 hours?

Answer 11

($150,000 - $10,000)/10,000 hours = $14 per hour

$14 x 4,000 hours = $56,000

Question 12

12. A machine with a cost of $210,000 has an estimated residual value of $10,000 and an estimated life of 4 years or 16,000 hours. Using the straight-line method, what is the amount of depreciation for the first full year, during which the machine was used for 4,000 hours?

Answer 12

($210,000 - $10,000)/4 = $50,000

Question 13

13. In a lease agreement, the party who owns the asset is called

Answer 13

lessor

Question 14

What is the journal entry when a company is discarding an asset that is fully depreciated?

Answer 14

Debit Accumulated Depreciation, Credit Equipment

Question 15

Capital expenditures are

Answer 15

expenditures that increase an asset’s capacity or efficiency or extend its useful life. CE is debited to an asset account.

Question 16

Revenue expenditures

Answer 16

expenditures that merely maintains an asset in its existing condition or restores the asset to good working order. Revenue expenditures are expensed (matched against revenue).

Question 17

The journal entry when a company acquires equipment and issue a promissory note for the entire purchase price is:

Answer 17

Debit Equipment, Credit Notes Payable4

Question 18

An unfunded pension liability is recorded on the balance sheet as:

Answer 18

Either current liability or long-term liability depending upon when the pension liability is to be paid

Question 19

A fixed asset with a cost of $40,000 and accumulated depreciation of $37,000 is sold for $4,500. What is the amount of gain or loss on disposal of the fixed asset?

Answer 19

40,000-37,000=3,000

Gain=4,500-3,000=1,500

Question 20

20. Name payroll taxed generally paid by employers

Answer 20

They are FICA, SUTA, and FUTA

Question 21

21. A used machine with a purchase price of $70,000, requiring an overhaul costing $20,000, installation costs of $6,000, and special acquisition cost of $1,000. The cost base of the machine is?

Answer 21

70,000+20,000+6,000+1,000=97,000

Question 22

23. Tractor World offers warranties on all their tractors. They estimate warranty expense at 3 % of sales. At the beginning of 2013, the Estimated warranty payable account had a credit balance of $100. During the year, Tractor World had $300,000 of sales, and had to pay out $5,100 in warranty payments. At the end of the year, what balance in Estimated warranty payable would be included in the balance sheet?

Answer 22

Calculations: $100 + $9,000 – $5,100 = $4,000

Question 23

24. Vincent purchased a property that included both land and a building for $280,000. Vincent hired an appraiser who determined that the market value of the land was $190,000 and the market value of the building was $70,000. At what amount should Vincent record the building cost?

Answer 23

190,000/(190,000+70,000)=.731
0.731*280,000=204,615 Value of land to be recorded
280,000-204,615=75,385

Question 24

25. The outstanding stock is composed of 20,000 shares of $100 par, cumulative, nonparticipating preferred $7 stock, and 50,000 shares of no-par common stock. Preferred dividends have been paid every year except for the preceding two years and the current year. If $400,000 is to be distributed as a dividend for the current year, what total amount will be distributed to the preferred stockholders?

Answer 24

20,000 X7 =140,000
140,000 X 2 = 280,000 Preferred stock dividends for the past two years
140,000 Preferred stock dividends for the current year
Total dividends given to PS is $400,000
Dividends in arrears for the current year =20,000

Question 25

26. The charter of a corporation provides for the issuance of 200,000 shares of common stock. Assume that 50,000 shares were originally issued and 6,000 were subsequently reacquired. What is the number of shares outstanding?

Answer 25

No. of shares outstanding = 50000 – 6,000 = 44000

Question 26

27. Amos Company acquired land in exchange for 20,000 shares of its $15 par common stock. The fair market value of the land is not determinable, but the stock is widely traded and was selling for $30 per share when exchanged for the land. At what amount should the land be recorded by Amos Company?

Answer 26

20000 X 30 = 600,000

Question 27

28. Name 3 advantages of corporation.

Answer 27

``` o Separate legal existence o Transferability of ownership o Limited liability to stockholders o Lack of mutual agency o Continuous life o Ability to raise capital ```

Question 28

29. Name 3 disadvantages of corporation.

Answer 28

a. Separation of ownership from management b. Double taxation c. Government regulation d. Less control

Question 29

30. Name the term that is used for debit balance in retained earnings.

Answer 29

Deficit

Question 30

31. Name 9 types of stockholders’ equity accounts including the normal balance for each account.

Answer 30

a. Cr. Common Stock b. Dr. Treasury Stock c. Cr. Preferred Stock d. Cr. Paid-In Capital in Excess of Par e. Cr. Paid-In Capital from sale of Treasury Stock f. Cr. Retained Earnings g. Cr. Donated Capital h. Dr. Stock Dividends i. Cr. Stock Dividends Distributable j. Dr. Cash Dividends

Question 31

32. The entry to record 50 shares of $20 par common stock to an attorney in payment of legal fees for organizing the corporation is:

Answer 31

Organizational Expenses 1000 | Common Stock 1000

Question 32

33. A corporation purchased 8,000 shares of its own $35 per share of $10 par value common stock recording it at cost. What will be the effect (increase or decrease) on total stockholders’ equity? Please present the entry for this transaction.

Answer 32

Total stockholders equity will decrease by $280,000

Question 33

34. If a corporation issues only one type of stock, it is called

Answer 33

Common Stock

Question 34

35. What is the entry to record the declaration of common stock dividends at a price above par?

Answer 34

Stock Dividends XXX Stock Dividends Distributable XXX Paid-In Capital in Excess of Par-Common Stock XXX

Question 35

36. The outstanding stock is composed of 9,000 shares of $100 par, cumulative, nonparticipation preferred $8 stock, and 45,000 shares of no-par common stock. Preferred dividends have been paid every year except for the preceding year and the current year. If $400,000 is to be distributed as dividends for the current year, what total amount will be distributed to preferred and common stockholders?

Answer 35

Total amount to be distributed to: Preferred Stockholders 9.000 x $8 x 2 years = $144,000 Common Stockholders: $400,000 - $144,000 = $256,000

Question 36

37. The entry to record the issuance of common stock at price above par is:

Answer 36

Cash XXX Common Stock XXX Paid-In Capital in Excess of Par-Common Stock XXX

Question 37

38. Name the segment of the balance sheet that displays Treasury Stock.

Answer 37

Stockholders’ equity

Question 38

39. What does PE ratio assess?

Answer 38

The PE ratio is the ratio of the Market Price of a Share of common stock to the company’s EPS. The price-earnings ratio assesses the firm’s growth potential and future earnings prospects and is indicated by how much the market is willing to pay per dollar of a company’s earnings.

Question 39

40. Define deficit

Answer 39

A debit balance in Retained Earnings is called a deficit.

Question 40

41. In the table below, indicate whether stock split would increase (+), decrease (-), or not affect (0) total assets, liabilities and stockholders’ equity of Microsoft Corp.:

Answer 40

Assets: 0 Liabilities: 0 Stockholders' equity: 0

Question 41

42. In the table below, indicate whether stock dividends would increase (+), decrease (-), or not affect (0) total assets, liabilities and stockholders’ equity of Microsoft Corp.:

Answer 41

Assets: 0 Liabilities: 0 Stockholders' equity: 0

Question 42

43. In the table below, indicate whether cash dividends would increase (+), decrease (-), or not affect (0) total assets, liabilities and stockholders’ equity of Microsoft Corp.:

Answer 42

Assets: - Liabilities: 0 Stockholders's equity

Question 43

44. The charter of a corporation provides for the issuance of 150,000 shares of common stock. Assume that 22,000 shares were originally issued and 3,500 were subsequently reacquired. What is the number of shares outstanding?

Answer 43

22,000-3,500=18,500

Question 44

45. A machine with a cost of $150,000 has an estimated residual value of $10,000 and an estimated life of 5 years or 18,000 hours. At the beginning of the third year, the company revised its estimated life of the machine to four years. What is the amount of depreciation for the third year at the straight-line method?

Answer 44

($150,000-10,000) /5= $28,000 28,000*2=56,000 Book value at the beginning of year 3= 150,000 – 56,000 = 94,000 (94,000-10,000)/2 = 47,000 Depreciation for year 3

Question 45

46. On which statement are prior period adjustments shown?

Answer 45

On the statement of retained earnings as correction to the beginning of the balance.

Question 46

47. What is the name of expense that results from use of natural resources?

Answer 46

Depletion

Question 47

When note matures, the entry is:

Answer 47

Debit N/P & Interest Expense, Credit Cash