# Accounting Study Notes

Review material BUS 5502 Ch. 8, 10, 11, 12, 13, 14, 15, 18 Receivables: 1. The Allowance for uncollectible accounts currently has a credit balance of \$900.

After analyzing the accounts in the accounts receivable subsidiary ledger, the company’s management estimates that uncollectible accounts will be \$15,000. What will be the amount of uncollectible accounts expense reported on the income statement? 1/11/2011| Accounts Receivable| a| \$ 900. 00 | | | Sales revenue| a| | \$ 900. 00 | | Uncollectable-Account expense| b| \$ 15,000. 00 | | | Allowance for uncollectible accounts| b| | \$ 15,000. 0| | | | | | | Balance Sheet:| | | | | Accounts Receivable| | \$ 900.

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00 | | | Less Allowance for uncollectible accounts| \$ 14, 100. 00| | | | | \$ 15, 000| | 2. 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? Date| Account| Post. Ref| Debit | Credit | 1/11/2011| Accounts Receivable| a| \$ 200. 0 | | | Sales revenue| a| | \$ 200. 00 | | Bad Debt Expense (115000 X 2. 5%)| b| \$ 2,875. 00 | | | Allowance for uncollectible accounts| b| | \$ 2,875.

00 | | | | | | | Balance Sheet:| | | | | Accounts Receivable| | \$ 3075. 00 | | | Less Allowance for uncollectible accounts| \$ 15,000. 00 | | | | | \$ 17,875. 00 | | 3. The allowance for uncollectible accounts currently has a credit balance of \$900.

After analyzing the accounts in the accounts receivable subsidiary ledger, the company’s management estimates that uncollectible accounts will be \$15,000.What will be the amount of allowance for uncollectible accounts reported on the balance sheet? 1/11/2011| Accounts Receivable| a| \$ 900. 00 | | | Sales revenue| a| | \$ 900. 00 | | Uncollectable-Account expense| b| \$ 15,000. 00 | | | Allowance for uncollectible accounts| b| | \$ 15,000.

00| | | | | | | Balance Sheet:| | | | | Accounts Receivable| | \$ 900. 00 | | | Less Allowance for uncollectible accounts| \$ 14, 100. 00| | | | | \$ 15,000. 00| | 4. The following information is from the 2010 records of Armadillo Camera Shop:Accounts receivable, December 31, 2010| \$20,000 (debit)| Allowance for uncollectible accounts, December 31, 2010 prior to adjustment| 600 (debit)| Net credit sales for 2010| 95,000| Accounts written off as uncollectible during 2010| 7,000| Cash sales during 2010| 27,000| Uncollectible accounts expense is estimated by the percent-of-sales method.

Management estimates that 3% of net credit sales will be uncollectible. Which of the following will be the amount of Uncollectible accounts expense? \$2850. 00 5. The following information is from the 2010 records of Armadillo Camera Shop:Accounts receivable, December 31, 2010| \$20,000 (debit)| Allowance for uncollectible accounts, December 31, 2010 prior to adjustment| 600 (debit)| Net credit sales for 2010| 95,000| Accounts written off as uncollectible during 2010| 7,000| Cash sales during 2010| 27,000| Uncollectible accounts expense is estimated by the aging-of-accounts-receivable method. Management estimates that \$2,850 of accounts receivable will be uncollectible.

Which of the following will be the amount of Uncollectible accounts expense? 2850 – 600 = \$2250 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 allowance for uncollectible accounts reported on the balance sheet? 115000 x . 025 = 2875 200 + 2875 = 3075 115000-2875 = 112125 The allowance for uncollectible accounts currently has a debit 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 accounts expense reported on the income statement? 115000 x . 025 = 2875 200 – 2875 = 2675The following information is from the 2009 records of Rawhide Leather Products.

Accounts Receivable, December 31, 2009| \$330,000 (debit)| Allowance for uncollectible accounts, December 31, 2009prior to adjustment| 4,500 (credit)| Net credit sales for 2009| 1,500,000| Accounts written off as uncollectible during 2009| 25,500| Cash sales during 2009| 270,000| Uncollectible accounts expense is estimated by the aging-of-accounts-receivable method. Management estimates that \$35,000 of accounts receivable will be uncollectible. Which of the following will be the amount of Uncollectible accounts expense? 35000 -4500 = 30,500Liability: A \$20,000, 90-day, 8% note payable was issued on November 1, 2015. Using a 360-day year, what is the amount of accrued interest on December 31, 2015? 20,000 x . 08 x 61/360 = 271 Joe signs a \$5000, 8%, 6-month note dated September 1, 2009.

What is Joe’s 2010 interest expense for this note? 5000 x . 008 x 2/12 = 6. 67% ABC Company signed a 5-year note payable for \$80,000 at 9% annual interest. What is the interest expense for December 31, 2009 if the note was signed on May 1, 2009? 80000 X . 09 X 8/12 = 4800 A \$12,500, 9% note is dated April 9 and is due in 90 days. The note will mature on what date?July 8, RGF Manufacturing recently signed a \$200,000, 138-day note on June 22.

The interest rate is 5%. When will the note be due? November 7 RGF Manufacturing recently signed a \$200,000, 138-day note on June 22. The interest rate is 5%. Using a 365-day year, how much interest will be due on the note? 200000 x . 05 x 138/365 = 3781 The payment due at maturity on a \$489. 52, 8% note, dated May 28 and due July 31 is __________ using a 360-day year to compute interest.

489. 52 x . 08 x 64/360 = 6. 96 Carter Company records sales on account of \$950,500. The company operates in a state that imposes a 5% sales tax.Which of the following would be the amount of the sales tax payable to the state? 950, 500 x .

05 = 47,525 Ace Appliances sells dishwashers with a 3-year warranty. They expect 3% of the dishwashers to need repairs in year 1, 7% in year 2 and 15% in year 3. They sell 500 dishwashers in 2009 with the warranty in effect from 2009 to 2011. Each repair is estimated at \$40. What is the total estimated warranty payable for Ace regarding the sales in 2009? .

03 x 500 x 40 = 600 Ace Appliances sells dishwashers with a 3-year warranty. They expect 3% of the dishwashers to need repairs in year 1, 7% in year 2 and 15% in year 3.They sell 500 dishwashers in 2009 with the warranty in effect from 2009 to 2011. Each repair is estimated at \$40. If 4% of the dishwashers need repairs in 2009, what is the 2009 warranty expense? .04 x 500 x 40 = 800 In the current year, a company sells 1,000 units of a product for \$100 each.

Each product is sold with a one-year warranty. It is estimated that warranty costs will be 10% of the cost of the product. Historically, 60% of the warranty repairs are completed in the year of sale and 40% of the warranty repairs are completed in the year after the sale. What is the correct amount of warranty expense for the current year? 000 x 100 x . 10 x . 60 = 6000 Corporations: Paid-in Capital and the Balance Sheet Which of the following would be included in the entry to record the issuance of 5,000 shares of \$10 par value common stock at \$13 per share? A) Cash would be debited for \$65,000.

B) Common stock would be debited for \$50,000. C) Common stock would be credited for \$65,000. D) Paid in capital in excess of par, common would be debited for \$5,000. Prepare journal entries for each of the following transactions. a. The corporation issues 12,000 shares of \$10 par common stock for \$13.

00 per share. b.The corporation issues 5,000 shares of \$50 par, 10% cumulative preferred stock for \$59 per share. c. The corporation receives a building with a market value of \$115,000 and issues 6,400 shares of \$10 par common stock in exchange. d.

The corporation has net income of \$66,000 at the end of its first year of operations. Answer: General Journal Date| Account| Debit| Credit| a. | Cash| 156,000| | | Common stock| | 120,000| | Paid-in capital in excess of par – common| | 36,000| b. | Cash| 295,000| | | Preferred stock| | 250,000| | Paid-in capital in excess of par – preferred| | 45,000| c. Building| 115,000| | | Common stock| | 64,000| | Paid-in capital in excess of par – common| | 51,000| d.

| Income summary| 66,000| | | Retained earnings| | 66,000| The following information is from the balance sheet of Tudor Corporation as of December 31, 2010. Preferred stock, \$100 par| | \$ 500,000| Paid-in capital in excess of par – preferred| | 35,000| Common stock, \$1 par| | 190,000| Paid-in capital in excess of par – common| | 380,000| Retained earnings| | 131,500| Total stockholders’ equity| | \$1,236,500| What was the average issue price of the common stock shares? 90,000 + 380,000 = 570,000/190 = \$3. 00 The following information is from the balance sheet of Tudor Corporation as of December 31, 2010. Preferred stock, \$100 par| | \$ 500,000| Paid-in capital in excess of par – preferred| | 35,000| Common stock, \$1 par| | 190,000| Paid-in capital in excess of par – common| | 380,000| Retained earnings| | 131,500| Total stockholders’ equity| | \$1,236,500| What is the average issue price of the preferred stock shares? (500000 + 35000)/(500000/100) = \$107 A corporation declares a dividend of \$. 75 per share on 12,500 shares of common stock.

Which of the following would be included in the entry to record the declaration? A) Retained earnings would be debited for \$9,375. B) Paid-in capital in excess of par-common would be credited for \$9,375. C) Retained earnings would be credited for \$9,375. D) Dividends payable would be debited for \$9,375. Which of the following would be included in the entry to record the payment of a previously declared dividend of \$.

25 per share on 12,500 shares of common stock? A) Retained earnings would be debited for \$3,125. B) Cash would be debited for \$3,125. C) Dividends payable would be credited for \$3,125.D) Dividends payable would be debited for \$3,125. A corporation has 10,000 shares of 10%, \$50 par, noncumulative preferred stock outstanding and 20,000 shares of no-par common stock outstanding. At the end of the current year, the corporation declares a dividend of \$120,000.

How is the dividend allocated between preferred and common stockholders? 10,000 x . 10 x 50 = 50,000 preferred 120000 – 50000 = 70,000 common A corporation has 15,000 shares of 10%, \$50 par cumulative preferred stock outstanding and 25,000 shares of no-par common stock outstanding. Dividends of \$37,500 are in arrears.At the end of the current year, the corporation declares a dividend of \$120,000. What is the divided allocated between preferred and common shareholders? 15000 x .

10 x 50 = 75000 + 37500 =112500 preferred 120000-112500 = 7500 common A corporation has 15,000 shares of 10%, \$50 par cumulative preferred stock outstanding and 25,000 shares of no-par common stock outstanding. Dividends of \$37,500 are in arrears. At the end of the currentyear, the corporation declares a dividend of \$120,000. What is the dividend per share for preferred shares and for common shares? 112500/15000 = 7. 5A corporation has 15,000 shares of 10%, \$50 par, noncumulative preferred stock outstanding and 25,000 shares of no-par common stock outstanding.

No dividends were declared in 2008. At the end of 2009, the corporation declares a dividend of \$150,000. What is the dividend allocated between preferred and common shareholders? ( 15000 x . 10 x 50) 7500/25000 = . 30 per share perferred 7500/15000 = 5 common Prepare entries for the following transactions.

Dec. 5 The corporation declared the required cash dividend for \$45,000 of \$100 par, 6% cumulative preferred stock, 7,500 shares issued. Dec. The corporation declared a \$. 40 dividend on 130,000 shares of common stock. Dec.

20 The corporation paid the dividends declared on December 5. Dec. 31 The corporation sold 5,000 shares of \$10 par value common stock for \$20 per share. Answer: General Journal Date| Account| Debit| Credit| Dec. 5| Retained earnings| 45,000| | | Dividends payable| | 45,000| Dec.

5| Retained earnings| 52,000| | | Dividends payable| | 52,000| Dec. 20| Dividends payable| 97,000| | | Cash| | 97,000| Dec. 31| Cash| 100,000| | | Common stock| | 50,000| | Paid in capital in excess of par – common| | 50,000|Corporations: Effects on Retained Earnings and the Income Statement A company releases an additional 15,000 shares of common stock as a dividend. The current number of shares before the dividend is 45,000. This represents: Large stock dividend 15000/45000 = . 33 (more than 20%) A company issued 40,000 shares of \$5 common stock at \$8.

The company has now issued a 5% stock dividend when the market price of the stock is \$10 a share. What is the amount transferred from the Retained earnings account to the Paid-in capital accounts as a result of the stock dividend? 400000 x . 05 x 8 = 16000 40000 x . 05 x 10 = 20,000 0,000 – 16,000 = 4000 A company originally issued 40,000 shares of \$5 common stock at \$8. The company has now issued a 5% stock dividend when the market price of the stock is \$10 a share. What is the amount to be credited to the Common stock account when the shares are distributed? 40000 x .

05 x 8 = 16,000 A company originally issued 10,000 shares of \$5 common stock at \$7. The board of directors declares a 10% stock dividend when the market price of the stock is \$9 a share. Which of the following is included in the entry to record the stock dividend? 10000 x 9 x . 10 = 9000 10000 x 7 x . 10 = 7000Debit Credit Cash 9000 Common Stock 7000 Pain in access 2000 The Statement of Cash Flows A cash flow statement shows \$13,000 from operations, (\$9,000) from investing, and \$21,000 from financing.

The cash balance must have increased or decreased by: 13000 – 9000 + 21000 = 25000 A company uses the indirect method to prepare the statement of cash flows. It presents the following amounts on its December 31, 2007 financial statements. | December 31, 2007| December 31, 2006| Accounts receivable| \$110,000| \$100,000| Cost of goods sold| 560,000| |Sales revenue| 830,000| | Accounts payable*| 75,000| 67,000| Inventory| 86,000| 105,000| Salary payable| 13,000| 10,000| Salary expense| 49,000| 45,000| *Relates solely to the acquisition of inventory What will appear in the operating activities section related to accounts payable? Increase in Accounts Payable by \$8,000 A company reported beginning plant assets, net of depreciation, of \$645,000 and an ending amount of \$732,500. Depreciation expense of \$48,300 and a loss on the sale of equipment of \$5,600 were reported on the income statement. The company acquired \$213,000 of plant assets during the year.How much will be reported as cash received from the sale of equipment in the investing activities section of the statement of cash flows? 645,000 +213,000 – \$48,300 – 5600 – n = 732500 N = 71600 The beginning and ending balances of long-term debt are \$61,500 and \$35,400, respectively, and cash payments for long-term debt during the year were \$35,100.

How much new long-term debt was issued during the year? 61500 -35100 = 26400 35400 – 26400 = \$9000 A company uses the direct method to prepare the statement of cash flows. It presents the following amounts on its December 31, 2009 financial statements. | December 31, 2009| December 31, 2008|Accounts receivable| \$110,000| \$100,000| Cost of goods sold| 560,000| | Sales revenue| 830,000| | Accounts payable*| 75,000| 67,000| Inventory| 86,000| 105,000| Salary payable| 13,000| 10,000| Salary expense| 49,000| 45,000| *Relates solely to the acquisition of inventory What will appear in the operating activities section related to accounts receivable? Increase of \$10,000 Financial Statement Analysis The following is a summary of information presented on the financial statements of The Cake Company on December 31, 2007. Account| 2007| 2006| Current assets| \$65,000| \$50,000| Accounts receivable| 80,000| 75,000|Merchandise inventory| 50,000| 40,000| Current liabilities| 75,000| 50,000| Long-term liabilities| 30,000| 50,000| Common stock (2007: 5,000 shares; 2006: 4,000 shares)| 50,000| 40,000| Retained earnings| 40,000| 25,000| | | | Net sales revenue| \$525,000| \$500,000| Cost of goods sold| 400,000| 395,000| Gross profit| 125,000| 105,000| Selling and general expenses| 45,000| 50,000| Net income before income tax expense| 80,000| 55,000| Income tax expense| 24,000| 16,500| Net income| \$56,000| \$38,500| What would horizontal analysis report with respect to selling and general expenses? 50000-4500 = 5000/50000 = 10%A company reported the following amounts of net income: 2006| \$18,000| 2007| \$24,000| 2008| \$26,000| Which of the following is the percentage change in net income from 2007 to 2008? 26000-24000 = 2000/24000 = . 083 A company reported the following amounts of net income: 2006| \$18,000| 2007| \$24,000| 2008| \$26,000| 24000-1800 =6000/24000 = . 333 Which of the following is the percentage change in net income from 2006 to 2007? (b-a)/a * 100 24000-18000/18000 *100 = 33.

3% 56000-38500= 17500/38500 45% The following is a summary of information presented on the financial statements of The Cake Company on December 31, 2007.Account| 2007| 2006| Current assets| \$65,000| \$50,000| Accounts receivable| 80,000| 75,000| Merchandise inventory| 50,000| 40,000| Current liabilities| 75,000| 50,000| Long-term liabilities| 30,000| 50,000| Common stock (2007: 5,000 shares; 2006: 4,000 shares)| 50,000| 40,000| Retained earnings| 40,000| 25,000| | | | Net sales revenue| \$525,000| \$500,000| Cost of goods sold| 400,000| 395,000| Gross profit| 125,000| 105,000| Selling and general expenses| 45,000| 50,000| Net income before income tax expense| 80,000| 55,000| Income tax expense| 24,000| 16,500| Net income| \$56,000| \$38,500|What would horizontal analysis report with respect to net income before income tax expense and net income? 55000-80000= -25000/80000 = . 3125 The following is a summary of information presented on the financial statements of The Cake Company on December 31, 2007. Account| 2007| 2006| Current assets| \$65,000| \$50,000| Accounts receivable| 80,000| 75,000| Merchandise inventory| 50,000| 40,000| Current liabilities| 75,000| 50,000| Long-term liabilities| 30,000| 50,000| Common stock (2007: 5,000 shares; 2006: 4,000 shares)| 50,000| 40,000| Retained earnings| 40,000| 25,000| | | |Net sales revenue| \$525,000| \$500,000| Cost of goods sold| 400,000| 395,000| Gross profit| 125,000| 105,000| Selling and general expenses| 45,000| 50,000| Net income before income tax expense| 80,000| 55,000| Income tax expense| 24,000| 16,500| Net income| \$56,000| \$38,500| What would horizontal analysis report with respect to long-term liabilities? (50000-40000)/40000 * 100 = 25% The net income for a company was \$630,000 last year and \$540,000 this year. The percentage of increase or decrease was from last year to this year is: (630000-540000)/540000 = 16. 6 Introduction to Management AccountingThe following information pertains to Bright Toy Company’s operating activities for 2009.

The company sells light box toys and sold 10,000 units in 2009. Purchases| \$ 126,000| Selling and Administrative Expenses| 90,000| Merchandise inventory, 1/1/2009| 14,000| Merchandise inventory, 12/31/2009| 10,000| Sales Revenue| 250,000| What is the cost of goods available for sale for 2009? \$126,000 + 14, 000 = 140, 000 The following information pertains to Bright Toy Company’s operating activities for 2009. The company sells light box toys and sold 10,000 units in 2009. Purchases| \$ 126,000|Selling and Administrative Expenses| 90,000| Merchandise inventory, 1/1/2009| 14,000| Merchandise inventory, 12/31/2009| 10,000| Sales Revenue| 250,000| What is the cost of goods sold for 2009? 126,000 +14, 000 – 10,000 = 130, 000 The following information pertains to Bright Toy Company’s operating activities for 2009. The company sells light box toys and sold 10,000 units in 2009. Purchases| \$ 126,000| Selling and Administrative Expenses| 90,000| Merchandise inventory, 1/1/2009| 14,000| Merchandise inventory, 12/31/2009| 10,000| Sales Revenue| 250,000| What is the gross profit for 2009? 50,000 – 130, 000 = 120, 000 The following information pertains to Bright Toy Company’s operating activities for 2009.

The company sells light box toys and sold 10,000 units in 2009. Purchases| \$ 126,000| Selling and Administrative Expenses| 90,000| Merchandise inventory, 1/1/2009| 14,000| Merchandise inventory, 12/31/2009| 10,000| Sales Revenue| 250,000| What is the operating income for 2009? 120,000 – 90, 000 = 30, 000 The following information pertains to Bright Toy Company’s operating activities for 2009. The company sells light box toys and sold 10,000 units in 2009. Purchases| \$ 126,000|Selling and Administrative Expenses| 90,000| Merchandise inventory, 1/1/2009| 14,000| Merchandise inventory, 12/31/2009| 10,000| Sales Revenue| 250,000| What is the profit margin percentage? (Operating income / sales revenue) x 100 = 30,000/250,000 x 100 = 12% Cost-Volume-Profit Analysis Jenny was reviewing the water bill for her doggy day spa and determined that her highest bill, \$3,000, occurred in July when she washed 2,000 dogs and her lowest bill, \$2,000, occurred in November when she washed 1,000 dogs. What was the fixed cost associated with Jenny’s water bill? 3,000 – 2,000 = 1000 000 – 1000 = 1000 1000/1000 = 1\$ Dakota Company provides the following information about its single product: Targeted operating income| \$40,000| Selling price per unit| \$3. 50| Variable cost per unit| \$1.

05| Total fixed costs| \$90,000| What is the contribution margin ratio? Operating + Total Cost = Sales revenue 90000 + 40000/(3. 50 – 1. 05) = 53, 061. 22 (2. 45/3.

50) x 100 = 70% Marino Company’s average manufacturing cost was \$5. 40 when 50,000 units were manufactured and was \$5. 25 when 80,000 units were manufactured. How much was Marino’s variable cost per unit? 50000 x 5. 40 = 270000 0000 x 5.

25 = 420,000 80000-50000 = 30000 (420000 – 27000)/30000 = \$5 Pennell Company gathered the following information for the year ended December 31, 2009: Fixed costs:| Manufacturing \$165,000| Marketing \$52,000| Administrative \$24,000| Variable costs:| Manufacturing \$113,000| Marketing \$39,000| Administrative \$48,000| During the year, Pennell produced and sold 75,000 units of product at a sale price of \$6. 50 per unit. What is the operating income (loss)? (75000 x 6. 5) – 165000-52000-24000-113000-39000-48000 = \$46,500 Canine Company produces and sells dog treats for discriminating pet owners.The unit selling price is \$10, unit variable costs are \$7, and total fixed costs are \$3,300.

How many dog treats must Canine Company sell to breakeven? 3300/(10-7) = 1100 units Canine Company produces and sells dog treats for discriminating pet owners. The unit selling price is \$10, unit variable costs are \$7, and total fixed costs are \$3,300. What is the breakeven point in sales dollars? 1100 x10 = 11000 Fixed Company produces a single product selling for \$30 per unit. Variable costs are \$12 per unit and total fixed costs are \$4,000. What is the contribution margin ratio? (30 – 12)/30 = 60%If the sales price per unit is \$7, the unit contribution margin is \$3, and total fixed expenses are \$19,500, what is the breakeven point in units? 19,500/(7-3) = 4875 units If the sale price per unit is \$24. 50, the variable expense per unit is \$17, and total fixed expenses are \$324,000, what is the breakeven point in sales dollars? (24.

5 – 17) /24. 5 = 30. 61% 324000/ 30. 61 = 10, 585 Assuming 10,000 units are sold, what is the contribution margin? Total fixed costs| \$15,000| Sale price per unit| \$23| Variable costs per unit| \$15| 23 x 10000 = 230000 15 x 10000 = 150000 230000 – 150000 = 80,000If sales revenue per unit increases to \$25 and 10,000 units are sold, what is the contribution margin? Total fixed costs| \$15,000| Sale price per unit| \$23| Variable costs per unit| \$15| (25 x 10000) = 250,000 (15 x 10000) = -150,000 100,000 The Pearson Company has a contribution margin ratio of 25%. Pearson’s operating income was \$100,000 when sales totaled \$1,000,000. What were Pearson’s fixed expenses? 1,000,000 x .

25 = 250000 1,000,000 – 250,000 – 100,000 = 650,000 If the sales price per unit is \$35, the unit contribution margin is \$7. 50, and total fixed expenses are \$56,000, what is the breakeven point in units? 56000/7. 5 = 7467