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2.Houghton Company has the following items: common stock, $720,000; treasury stock,
$85,000; deferred taxes, $100,000 and retained earnings, $313,000. What total amount
should Houghton Company report as stockholders’ equity?
A. $848,000.
B. $948,000.
C. $1,048,000.
D. $1,118,000.
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5.For Grimmett Company, the following information is available:
Capitalized leases $200,000
Trademarks 65,000
Long-term receivables 75,000
In Grimmett’s balance sheet, intangible assets should be reported at
A. $65,000.
B. $75,000.
C. $265,000.
D. $275,000.
6.Houghton Company has the following items: common stock, $720,000; treasury stock,
$85,000; deferred taxes, $100,000 and retained earnings, $313,000. What total amount
should Houghton Company report as stockholders’ equity?
A. $848,000.
B. $948,000.
C. $1,048,000.
D. $1,118,000.
10.In 2010, Benfer Corporation reported net income of $350,000. It declared and paid
common stock dividends of $40,000 and had a weighted average of 70,000 common
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shares outstanding. Compute the earnings per share to the nearest cent.
A. $4.43
B. $3.50
C. $4.50
D. $5.00
14.Extraordinary loss is
A. $8,400.
B. $12,000.
C. $14,700.
D. $21,000.
15.Murphy Company sublet a portion of its warehouse for five years at an annual rental of
$24,000, beginning on May 1, 2010. The tenant, Sheri Charter, paid one year's rent in
advance, which Murphy recorded as a credit to Unearned Rental Revenue. Murphy
reports on a calendar-year basis. The adjustment on December 31, 2010 for Murphy
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should be
A. No entry
B. Unearned Rent Revenue ............................................................... 8,000
Rent Revenue ..................................................................
8,000
C. Rent Revenue ............................................................................... 8,000
Unearned Rent Revenue ..................................................
8,000
D. Unearned Rent Revenue ............................................................... 16,000
Revenue Revenue.............................................................
16,000
16.During the first year of Wilkinson Co.'s operations, all purchases were recorded as assets.
Store supplies in the amount of $19,350 were purchased. Actual year-end store supplies
amounted to $6,450. The adjusting entry for store supplies will
A. increase net income by $12,900.
B. increase expenses by $12,900.
C. decrease store supplies by $6,450.
D. debit Accounts Payable for $6,450.
18.On June 1, 2010, Nott Corp. loaned Horn $400,000 on a 12% note, payable in five annual
installments of $80,000 beginning January 2, 2011. In connection with this loan, Horn
was required to deposit $5,000 in a noninterest-bearing escrow account. The amount held
in escrow is to be returned to Horn after all principal and interest payments have been
made. Interest on the note is payable on the first day of each month beginning July 1,
2010. Horn made timely payments through November 1, 2010. On January 2, 2011, Nott
received payment of the first principal installment plus all interest due. At December 31,
2010, Nott's interest receivable on the loan to Horn should be
A. $0.
B. $4,000.
C. $8,000.
D. $12,000.
19.Allen Corp.'s liability account balances at June 30, 2011 included a 10% note payable in
the amount of $2,400,000. The note is dated October 1, 2009 and is payable in three equal
annual payments of $800,000 plus interest. The first interest and principal payment was
made on October 1, 2010. In Allen's June 30, 2011 balance sheet, what amount should be
reported as accrued interest payable for this note?
A. $180,000.
B. $120,000.
C. $60,000.
D. $40,000.
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C. Provide information that is useful to assess the amounts, timing, and uncertainty
of perspective cash receipts.
D. Provide information that excludes claims to the resources.
22.Which of the following are the two components of the revenue recognition principle?
A. Cash is received and the amount is material.
B. Recognition occurs when earned and realized or realizable.
C. Production is complete and there is an active market for the product.
D. Cash is realized or realizable and production is complete.
24.What is the general approach as to when product costs are recognized as expenses?
A. In the period when the expenses are paid.
B. In the period when the expenses are incurred.
C. In the period when the vendor invoice is received.
D. In the period when the related revenue is recognized.
1. 2. 3. 4. 5. 6. 7.
1. A 2. B 3. D 4. B 5. C
6. D 7. C 8. D 9. C 10. A
11. D 12. B 13. D 14. C 15. B
16. C 17. B 18. B 19. A 20. D
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II. (18%) Data relating to the balances of various accounts affected by adjusting or closing
entries appear below. (The entries which caused the changes in the balances are not
given.) You are asked to supply the missing journal entries which would logically account
for the changes in the account balances.
1. Interest receivable at 1/1/10 was $1,000. During 2010 cash received from debtors for
interest on outstanding notes receivable amounted to $5,000. The 2010 income statement
showed interest revenue in the amount of $5,400. You are to provide the missing
adjusting entry that must have been made, assuming reversing entries are not made.
2. Unearned rent at 1/1/10 was $5,300 and at 12/31/10 was $8,000. The records indicate
cash receipts from rental sources during 2010 amounted to $40,000, all of which was
credited to the Unearned Rent Account. You are to prepare the missing adjusting entry.
3. Accumulated depreciation—equipment at 1/1/10 was $230,000. At 12/31/10 the balance
of the account was $270,000. During 2010, one piece of equipment was sold. The
equipment had an original cost of $40,000 and was 3/4 depreciated when sold. You are to
prepare the missing adjusting entry.
4. Allowance for doubtful accounts on 1/1/10 was $50,000. The balance in the allowance
account on 12/31/10 after making the annual adjusting entry was $65,000 and during
2010 bad debts written off amounted to $30,000. You are to provide the missing adjusting
entry.
5. Prepaid rent at 1/1/10 was $9,000. During 2010 rent payments of $120,000 were made
and charged to "rent expense." The 2010 income statement shows as a general expense
the item "rent expense" in the amount of $125,000. You are to prepare the missing
adjusting entry that must have been made, assuming reversing entries are not made.
6. Retained earnings at 1/1/10 was $150,000 and at 12/31/10 it was $210,000. During 2010,
cash dividends of $50,000 were paid and a stock dividend of $40,000 was issued. Both
dividends were properly charged to retained earnings. You are to provide the missing
closing entry.
Solution 3-134
1. Interest Receivable .............................................................................. 1,400
Interest Revenue .................................................................... 1,400
Interest revenue per books $5,400
Interest revenue received related to 2010
($5,000 – $1,000) 4,000
Interest accrued $1,400
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III. (20%) Presented below is information related to Farr Company.
Retained earnings, December 31, 2010 $ 650,000
Sales 1,400,000
Selling and administrative expenses 240,000
Hurricane loss (pre-tax) on plant (extraordinary item) 290,000
Cash dividends declared on common stock 33,600
Cost of goods sold 780,000
Gain resulting from computation error on depreciation charge in 2009 (pre-tax)
520,000
Other revenue 120,000
Other expenses 100,000
Instructions
Prepare in good form a multiple-step income statement for the year 2011. Assume a
30% tax rate and that 80,000 shares of common stock were outstanding during the
year.
Solution 4-124
Farr Company
INCOME STATEMENT
For the Year Ended December 31, 2011
Sales $1,400,000
Cost of goods sold 780,000
Gross profit 620,000
Selling and administrative expenses 240,000
Income from operations 380,000
Other revenue 120,000
Other expenses (100,000)
Income before taxes 400,000
Income taxes (120,000)
Income before extraordinary item 280,000
Extraordinary loss, net of applicable income taxes of $87,000 (203,000)
Net income $ 77,000
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IV. (22%) The following balance sheet was prepared by the bookkeeper for Kraus
Company as of December 31, 2010.
Kraus Company
Balance Sheet
as of December 31, 2010
Instructions
Prepare a balance sheet in good form (stockholders' equity details can be omitted.)
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Solution 5-118
Kraus Company
Balance Sheet
As of December 31, 2010
Assets
Current assets
Cash $ 73,100
(1)
Trading securities 19,000
Accounts receivable $ 57,000 (2)
Less: Allowance for doubtful accounts 3,800 53,200
Inventories 60,000
(3)
*Equipment held for sale 1,000
(4)
Total current assets 206,300
Investments
Available-for-sale securities 48,300
Cash surrender value 9,400 57,700
Intangible assets
Patents 32,000
Franchises 9,000 41,000
Total assets $400,000
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