85. Glaus
Corp. signed a three-month, zero-interest-bearing $152,205 note on November 1,
2010 for the purchase of $150,000 of inventory. The adjusting entry made at
December 31, 2010 will include a
a. debit to Note
Payable for $735.
b. debit to Interest
Expense for $1,470.
c. credit to Note
Payable for $735.
d. credit to Interest
Expense for $1,470.
86. The
effective interest on a 12-month, zero-interest-bearing note payable of
$300,000, discounted at the bank at 10% is
a. 10.87%.
b. 10%.
c. 9.09%.
d. 11.11%.
87. On
September 1, Hydra purchased $9,500 of inventory items on credit with the terms
1/15, net 30, FOB destination. Freight charges were $200. Payment for the
purchase was made on September 18. Assuming Hydra uses the perpetual inventory
system and the net method of accounting for purchase discounts, what amount is
recorded as accounts payable from this purchase?
a. $9,405.
b. $9,605.
c. $9,700.
d. $9,500.
88. Sodium
Inc. borrowed $175,000 on April 1. The note requires interest at 12% and
principal to be paid in one year. How much interest is recognized for the
period from April 1 to December 31?
a. $0.
b. $21,000.
c. $5,250.
d. $15,750.
89. Collier
borrowed $175,000 on October 1 and is required to pay $180,000 on March 1. What
amount is the note payable recorded at on October 1 and how much interest is
recognized from October 1 to December 31?
a. $175,000 and $0.
b. $175,000 and
$3,000.
c. $180,000 and $0.
d. $175,000 and
$5,000.
90. On
September 30, Yang Company signed a HK$150,000, one-year zero-interest-bearing
note at First Solvent Bank. Yang’s
borrowing rate on such obligations is 12% (.89286 present value factor). The
September 30 journal entry to record issuance of the note would include:
a. a debit to Cash for
HK$150,000.
b. a debit to Notes
Receivable for HK$150,000.
c. a credit to Notes
Payable for HK$133,929.
d. a debit to Interest
Expense for HK$16,071.
91. On
June 20, Ying Company purchased goods from Chee-Chow Company for HK$30,000,
terms 2/10, n/30. The invoice was paid on June 27. The company uses a perpetual
inventory system and records purchases gross. The June 27 journal entry to
record payment of the account would include:
a. a credit to Cash
for HK$30,000.
b. a credit to
Purchases Discounts for HK$600.
c. a debit to Accounts
Payable for HK$29,400.
d. a credit to
Inventory for HK$600.
92. On
December 31, 2011, Frye Co. has £4,000,000 of
short-term notes payable due on February 28, 2012. On December 23, 2011, Frye
arranged a line of credit with County Bank which allows Frye to borrow up to £3,500,000 at one percent above the prime rate for
three years. On February 2, 2007, Frye borrowed £2,500,000
from County Bank and used £500,000
additional cash to liquidate £3,000,000 of
the short-term notes payable. The amount of the short-term notes payable that
should be reported as current liabilities on the December 31, 2011 statement of
financial position which is issued on March 15, 2012 is
a. $0.
b. $500,000.
c. $1,000,000.
d. $4,000,000.
93. Valencia
Corporation has the following liabilities at December 31, 2011:
8.9% note payable issued November 1, 2011, maturing
October 31, 2012 €1,150,000
7.25% note payable issued August 1, 2011, payable in twelve equal
annual installments of $90,000
beginning August 1, 2012 1,080,000
a. $0.
b. $1,080,000.
c. $1,150,000.
d. $2,230,000.
94. Purest
owes $1 million that is due on February 28. The company borrows $800,000 on
February 25 (5-year note) and uses the proceeds to pay down the $1 million note
and uses other cash to pay the balance. How much of the $1 million note is
classified as long-term in the December 31 financial statements?
a. $1,000,000.
b. $0.
c. $800,000.
d. $200,000.
95. Vista newspapers sold 4,000 of annual subscriptions at
$125 each on September 1. How much unearned revenue will exist as of December
31?
a. $0.
b. $333,333.
c. $166,667.
d. $500,000.
96. Purchase
Retailer made cash sales during the month of October of $132,600. The sales are
subject to a 6% sales tax that was also collected. Which of the following would
be included in the summary journal entry to reflect the sale transactions?
a. Debit Cash for
$132,600.
b. Credit Sales Tax
Payable for $7,506.
c. Credit Sales for
$125,094.
d. Credit Sales Tax
Payable for $7,956.
97. On February 10, 2010, after issuance of its
financial statements for 2009, House Company entered into a financing agreement
with Lebo Bank, allowing House Company to borrow up to $4,000,000 at any time
through 2012. Amounts borrowed under the agreement bear interest at 2% above
the bank's prime interest rate and mature two years from the date of loan.
House Company presently has $1,500,000 of notes payable with First National
Bank maturing March 15, 2010. The company intends to borrow $2,500,000 under
the agreement with Lebo and liquidate the notes payable to First National. The
agreement with Lebo also requires House to maintain a working capital level of
$6,000,000 and prohibits the payment of dividends on ordinary shares without
prior approval by Lebo Bank. From the
above information only, the total short-term debt of House Company as of the
December 31, 2010 statement of financial position date is
a. $0.
b. $1,500,000.
c. $2,000,000.
d. $4,000,000.
98. On
December 31, 2010, Irey Co. has $2,000,000 of short-term notes payable due on
February 14, 2011. On January 10, 2011, Irey arranged a line of credit with
County Bank which allows Irey to borrow up to $1,500,000 at one percent above
the prime rate for three years. On February 2, 2011, Irey borrowed $1,200,000
from County Bank and used $500,000 additional cash to liquidate $1,700,000 of
the short-term notes payable. The amount of the short-term notes payable that
should be reported as current liabilities on the December 31, 2010 statement of
financial position which is issued on March 5, 2011 is
a. $0.
b. $300,000.
c. $500,000.
d. $800,000.
Use
the following information for questions 99 and 100.
Stine Co. is a retail store operating in a state
with a 6% retail sales tax. The retailer may keep 2% of the sales tax
collected. Stine Co. records the sales tax in the Sales account. The amount
recorded in the Sales account during May was $148,400.
99. The
amount of sales taxes (to the nearest dollar) for May is
a. $8,726.
b. $8,400.
c. $8,904.
d. $9,438.
100. The
amount of sales taxes payable (to the nearest dollar) to the state for the
month of May is
a. $8,551.
b. $8,232.
c. $8,726.
d. $9,249.
101. Vopat,
Inc., is a retail store operating in a state with a 5% retail sales tax. The state law provides that the retail sales
tax collected during the month must be remitted to the state during the
following month. If the amount collected
is remitted to the state on or before the twentieth of the following month, the
retailer may keep 3% of the sales tax collected. On April 10, 2010, Vopat remitted $81,480 tax
to the state tax division for March 2010 retail sales. What was Vopat 's March
2010 retail sales subject to sales tax?
a. $1,629,600.
b. $1,596,000.
c. $1,680,000.
d. $1,645,000.
102. Jenkins Corporation has $2,500,000 of
short-term debt it expects to retire with proceeds from the sale of 75,000 ordinary
shares. If the shares are sold for $20
per share subsequent to the statement of financial position date, but before
the statement of financial position is issued, what amount of short-term debt
could be excluded from current liabilities?
a. $1,500,000
b. $2,500,000
c. $1,000,000
d. $0
103. Ermler Corporation has $1,800,000 of
short-term debt it expects to retire with proceeds from the sale of 60,000 ordinary
shares. If the shares are sold for $20
per share subsequent to the statement of financial position date, but before
the statement of financial position is issued, what amount of short-term debt
could be excluded from current liabilities?
a. $1,200,000
b. $1,800,000
c. $600,000
d. $0
104. A company gives each of its 50 employees
(assume they were all employed continuously through 2010 and 2011) 12 days of
vacation a year if they are employed at the end of the year. The vacation accumulates and may be taken
starting January 1 of the next year. The
employees work 8 hours per day. In 2010,
they made $14 per hour and in 2011 they made $16 per hour. During 2011, they took an average of 9 days
of vacation each. The company’s policy
is to record the liability existing at the end of each year at the wage rate
for that year. What
amount of vacation liability would be reflected on the 2010 and 2011 balance
sheets, respectively?
a. $67,200; $93,600
b. $76,800; $96,000
c. $67,200; $96,000
d. $76,800; $93,600
105. A company gives each of its 50 employees (assume they were all
employed continuously through 2010 and 2011) 12 days of vacation a year if they
are employed at the end of the year. The
vacation accumulates and may be taken starting January 1 of the next year. The employees work 8 hours per day. In 2010, they made $17.50 per hour and in
2011 they made $20 per hour. During
2011, they took an average of 9 days of vacation each. The company’s policy is to record the
liability existing at the end of each year at the wage rate for that year. What amount of vacation liability would be
reflected on the 2010 and 2011 balance sheets, respectively?
a. $84,000; $117,000
b. $96,000; $120,000
c. $84,000; $120,000
d. $96,000; $117,000
Use the following information for questions 106
and 107.
Vargas Company has 35 employees who work 8-hour
days and are paid hourly. On January 1, 2010, the company began a program of
granting its employees 10 days of paid vacation each year. Vacation days earned
in 2010 may first be taken on January 1, 2011. Information relative to these
employees is as follows:
Hourly Vacation Days Earned Vacation Days Used
Year Wages by Each Employee by Each Employee
2010 $25.80 10 0
2011 27.00 10 8
2012 28.50 10 10
Vargas has chosen to accrue the liability for
compensated absences at the current rates of pay in effect when the compensated
time is earned.
106. What
is the amount of expense relative to compensated absences that should be
reported on Vargas’s income statement for 2010?
a. $0.
b. $68,880.
c. $75,600.
d. $72,240.
107. What is the amount of the accrued liability
for compensated absences that should be reported at December 31, 2012?
a. $94,920.
b. $90,720.
c. $79,800.
d. $95,760.
108. CalCount
pays a weekly payroll of $85,000 that includes federal taxes withheld of $12,700,
FICA taxes withheld of $7,890, and pension withholdings of $9,000. What is the
effect of assets and liabilities from this transaction?
a. Assets decrease
$85,000 and liabilities do not change.
b. Assets decrease
$64,410 and liabilities increase $20,590.
c. Assets decrease
$64,410 and liabilities decrease $20,590.
d. Assets decrease
$55,410 and liabilities increase $29,590.
109. CalCount
provides its employees two weeks of paid vacation per year. As of December 31,
65 employees have earned two weeks of vacation time to be taken the following
year. If the average weekly salary for these employees is $950, what is the
required journal entry?
a. Debit Wages Expense
for $123,500 and credit Vacation Wages Payable for $123,500.
b. No journal entry
required.
c. Debit Vacation
Wages Payable for $123,000 and credit Wages Expense for $123,000.
d. Debit Wages Expense
for $61,750 and credit Vacation Wages Payable for $61,750.
110. Recycle
Exploration is involved with innovative approaches to finding energy reserves.
Recycle recently built a facility to extract natural gas at a cost of $15
million. However, Recycle is also legally responsible to remove the facility at
the end of its useful life of twenty years. This cost is estimated to be $21
million (the present value of which is $8 million). What is the journal entry
required to record the environmental liability?
a. No journal entry
required.
b. Debit Natural Gas
Facility for $21,000,000 and credit Environmental Liability for $21,000,000
c. Debit Natural Gas
Facility for $6,000,000 and credit Environmental Liability for $6,000,000.
d. Debit Natural Gas
Facility for $8,000,000 and credit Environmental Liability for $8,000,000.
111. Warranty4U provides extended service
contracts on electronic equipment sold through major retailers. The standard
contract is for three years. During the current year, Warranty4U provided
21,000 such warranty contracts at an average price of $81 each. Related to
these contracts, the company spent $200,000 servicing the contracts during the
current year and expects to spend $1,050,000 more in the future. What is the
net profit that the company will recognize in the current year related to these
contracts?
a. $451,000.
b. $1,501,000.
c. $150,333.
d. $367,000.
112. Electronics4U manufactures high-end whole
home electronic systems. The company provides a one-year warranty for all
products sold. The company estimates that the warranty cost is $200 per unit
sold and reported a liability for estimated warranty costs $6.5 million at the
beginning of this year. If during the current year, the company sold 50,000
units for a total of $243 million and paid warranty claims of $7,500,000 on
current and prior year sales, what amount of liability would the company report
on its statement of financial position at the end of the current year?
a. $2,500,000.
b. $3,500,000.
c. $9,000,000.
d. $10,000,000.
113. A company offers a cash rebate of $1 on
each $4 package of light bulbs sold during 2010. Historically, 10% of customers mail in the
rebate form. During 2010, 4,000,000
packages of light bulbs are sold, and 140,000 $1 rebates are mailed to
customers. What is the rebate expense
and liability, respectively, shown on the 2010 financial statements dated
December 31?
a. $400,000; $400,000
b. $400,000; $260,000
c. $260,000; $260,000
d. $140,000; $260,000
114. A company buys an oil rig for $1,000,000 on
January 1, 2010. The life of the rig is
10 years and the expected cost to dismantle the rig at the end of 10 years is
$200,000 (present value at 10% is $77,110).
10% is an appropriate interest rate for this company. What expense
should be recorded for 2010 as a result of these events?
a. Depreciation
expense of $120,000
b. Depreciation
expense of $100,000 and interest expense of $7,711
c. Depreciation expense
of $100,000 and interest expense of $20,000
d. Depreciation
expense of $107,711 and interest expense of $7,711
115 . Ziegler Company self insures its property
for fire and storm damage. If the
company were to obtain insurance on the property, it would cost them $1,000,000
per year. The company estimates that on
average it will incur losses of $800,000 per year. During 2010, $350,000 worth of losses were
sustained. How much total expense and/or loss should be recognized by Ziegler
Company for 2010?
a. $350,000 in losses
and no insurance expense
b. $350,000 in losses
and $450,000 in insurance expense
c. $0 in losses and
$800,000 in insurance expense
d. $0 in losses and
$1,000,000 in insurance expense
116. A company offers a cash rebate of $1 on
each $4 package of batteries sold during 2010.
Historically, 10% of customers mail in the rebate form. During 2010, 6,000,000 packages of batteries
are sold, and 210,000 $1 rebates are mailed to customers. What is the rebate expense and liability,
respectively, shown on the 2010 financial statements dated December 31?
a. $600,000; $600,000
b. $600,000; $390,000
c. $390,000; $390,000
d. $210,000; $390,000
117. A company buys an oil rig for $2,000,000 on
January 1, 2010. The life of the rig is
10 years and the expected cost to dismantle the rig at the end of 10 years is
$400,000 (present value at 10% is $154,220).
10% is an appropriate interest rate for this company. What expense
should be recorded for 2010 as a result of these events?
a. Depreciation expense
of $240,000
b. Depreciation
expense of $200,000 and interest expense of $15,422
c. Depreciation
expense of $200,000 and interest expense of $40,000
d. Depreciation expense
of $215,422 and interest expense of $15,422
118. During 2010, Vanpelt Co. introduced a new
line of machines that carry a three-year warranty against manufacturer’s
defects. Based on industry experience, warranty costs are estimated at 2% of
sales in the year of sale, 4% in the year after sale, and 6% in the second year
after sale. Sales and actual warranty expenditures for the first three-year
period were as follows:
Sales Actual Warranty Expenditures
2010 $
600,000 $ 9,000
2011 1,500,000 45,000
2012
2,100,000 135,000
$4,200,000 $189,000
What
amount should Vanpelt report as a liability at December 31, 2012?
a. $0
b. $15,000
c. $204,000
d. $315,000
119. Palmer Frosted Flakes Company offers its
customers a pottery cereal bowl if they send in 3 boxtops from Palmer Frosted
Flakes boxes and $1.00. The company estimates that 60% of the boxtops will be
redeemed. In 2010, the company sold 675,000 boxes of Frosted Flakes and
customers redeemed 330,000 boxtops receiving 110,000 bowls. If the bowls cost
Palmer Company $2.50 each, how much liability for outstanding premiums should
be recorded at the end of 2010?
a. $25,000
b. $37,500
c. $62,500
d. $87,500
120. During 2010, Stabler Co. introduced a new
line of machines that carry a three-year warranty against manufacturer’s
defects. Based on industry experience, warranty costs are estimated at 2% of
sales in the year of sale, 4% in the year after sale, and 6% in the second year
after sale. Sales and actual warranty expenditures for the first three-year
period were as follows:
Sales Actual Warranty Expenditures
2010 $
400,000 $ 6,000
2011 1,000,000 30,000
2012
1,400,000 90,000
$2,800,000 $126,000
What
amount should Stabler report as a liability at December 31, 2012?
a. $0
b. $10,000
c. $136,000
d. $210,000
121. LeMay Frosted Flakes Company offers its
customers a pottery cereal bowl if they send in 4 boxtops from LeMay Frosted
Flakes boxes and $1.00. The company estimates that 60% of the boxtops will be
redeemed. In 2010, the company sold 500,000 boxes of Frosted Flakes and
customers redeemed 220,000 boxtops receiving 55,000 bowls. If the bowls cost
LeMay Company $2.50 each, how much liability for outstanding premiums should be
recorded at the end of 2010?
a. $20,000
b. $30,000
c. $50,000
d. $70,000
Use
the following information for questions 122–124.
Mott Co. includes one coupon in each bag of dog
food it sells. In return for eight coupons, customers receive a leash. The
leashes cost Mott $2.00 each. Mott estimates that 40 percent of the coupons
will be redeemed. Data for 2010 and 2011
are as follows:
2010
2011
Bags of dog food sold 500,000 600,000
Leashes purchased 18,000 22,000
Coupons redeemed 120,000 150,000
122. The
premium expense for 2010 is
a. $25,000.
b. $30,000.
c. $35,000.
d. $50,000.
123. The
estimated premium liability at December 31, 2010 is
a. $7,500.
b. $10,000.
c. $17,500.
d. $20,000.
124. The
estimated premium liability at December 31, 2011 is
a. $11,250.
b. $21,250.
c. $22,500.
d. $42,500.
125. Nance Company estimates its annual warranty
expense as 4% of annual net sales. The
following data relate to the calendar year 2010:
Net sales $1,500,000
Warranty liability account
Balance,
Dec. 31, 2010 $10,000 debit before adjustment
Balance,
Dec. 31, 2010 50,000 credit after adjustment
Which
one of the following entries was made to record the 2010 estimated warranty
expense?
a. Warranty Expense ................................................................ 60,000
Retained
Earnings (prior-period adjustment) ............. 10,000
Warranty
Liability ........................................................ 50,000
b. Warranty Expense ................................................................ 50,000
Retained
Earnings (prior-period adjustment) ........................ 10,000
Warranty
Liability ........................................................ 60,000
c. Warranty Expense ................................................................ 40,000
Warranty
Liability ........................................................ 40,000
d. Warranty Expense ................................................................ 60,000
Warranty
Liability ........................................................ 60,000
126. In
2010, Payton Corporation began selling a new line of products that carry a
two-year warranty against defects. Based upon past experience with other
products, the estimated warranty costs related to dollar sales are as follows:
First year of warranty 2%
Second year of warranty 5%
Sales and actual warranty
expenditures for 2010 and 2011 are presented below:
2010
2011
Sales $300,000 $400,000
Actual warranty expenditures 10,000 20,000
What is the estimated warranty
liability at the end of 2011?
a. $19,000.
b. $29,000.
c. $49,000.
d. $8,000.
127. Fuller
Food Company distributes to consumers coupons which may be presented (on or
before a stated expiration date) to grocers for discounts on certain products
of Fuller. The grocers are reimbursed
when they send the coupons to Fuller. In Fuller's experience, 50% of such
coupons are redeemed, and generally one month elapses between the date a grocer
receives a coupon from a consumer and the date Fuller receives it. During 2010 Fuller issued two separate series
of coupons as follows:
Consumer Amount Disbursed
Issued On Total Value Expiration Date as of 12/31/10
1/1/10 $375,000 6/30/10 $177,000
7/1/10 540,000 12/31/10 225,000
The only journal entries to date
recorded debits to coupon expense and credits to cash of $536,000. The December
31, 2010 statement of financial position should include a liability for
unredeemed coupons of
a. $0.
b. $45,000.
c. $93,000.
d. $270,000.
85. b $152,205
– $150,000 = $2,205.
$2,205
× 2/3 = $1,470.
86. d $30,000
÷ ($300,000 – $30,000) = 0.1111 = 11.11%.
87. a ($9,500
× .99) = $9,405.
88. d $175,000
× .12 × 9/12 = $15,750.
89. b ($180,000
– $175,000) × 3/5 = $3,000.
90. c PV
of $1 for 1 period at 12% = .89286; .89286 × HK$150,000 = HK$133,929.
91. d HK$30,000
× .02= HK$600.
92. b ₤500,000 additional cash (classifieds as current
asset).
93. b €1,080,000 (refinancing not yet completed).
94. c $800,000.
95. b (4,000
× $125) × 8/12 = $333,333.
96. d $132,600
× .06 = $7,956.
97. b $1,500,000.
98. d $2,000,000
– $1,200,000 = $800,000.
99. b S
+ .06S = $148,400, \ S = $140,000.
$148,400
– $140,000 = $8,400.
100. b $8,400
× .98 = $8,232.
101. c .05S
× .97 = $81,480, \ S = $1,680,000.
102. a 75,000
× $20 = $1,500,000.
103. a 60,000
× $20 = $1,200,000.
104. c 50
× 12 × 8 × $14 = $67,200; 50 × 15 × 8 × $16 = $96,000.
105. c 50
× 12 × 8 × $17.50 = $84,000; 50 × 15 × 8 × $20 = $120,000.
106. d $25.80
× 8 × 10 × 35 = $72,240.
107. a ($28.50
× 8 × 10 × 35) + ($27.00 × 8 × 2 × 35) = $94,920.
108. d $12,700
+ $7,890 + $9,000 = $29,590;
$85,000
– $29,590 = $55,410.
109. a 65
× 2 weeks × $950/week = $123,500.
110. d Present
value of the removal cost.
111. d [(21,000 × $81) ¸ 3 yrs.] – $200,000 = $367,000.
112. c $6,500,000
+ (50,000 × $200) – $7,500,000 = $9,000,000.
113. b 4,000,000
× .10 × $1 = $400,000; $400,000 – $140,000 = $260,000.
114. d ($1,000,000
+ $77,110) ÷ 10 = $107,711; $77,110 × .10
= $7,711.
115. a
116. b 6,000,000
× .10 × $1 = $600,000; $600,000 – $210,000 = $390,000.
117. d ($2,000,000
+ $154,220) ÷ 10 = $215,422; $154,220 ×
.10 = $15,422.
118. d ($4,200,000
× .12) – $189,000 = $315,000.
119. b {[(675,000
× .60) – 330,000] ÷ 3} × $1.50 = $37,500.
120. d ($2,800,000
x .12) – $126,000 = $210,000.
121. b {[(500,000
× .60) – 220,000] ÷ 4} × $1.50 = $30,000.
122. d [(500,000
× .4) ÷ 8] × $2 = $50,000.
123. d [(200,000
– 120,000) ÷ 8] × $2 = $20,000.
124. d {[(600,000
× .4) – 150,000] ÷ 8} × $2 = $22,500.
$22,500
+ $20,000 = $42,500.
125. d $1,500,000
× .04 = $60,000.
126. a [($300,000
+ $400,000) × .07] – $30,000 = $19,000.
127. b ($540,000
× .5) – $225,000 = $45,000.
