10-12-16 General Purpose - BS&IS Flashcards
The following trial balance of JB Company at December 31, year five, has been adjusted except for income taxes. The income tax rate is 30%.
DR CR Accounts receivable, net 725,000 Accounts payable 250,000 Accumulated depreciation 125,000 Cash 185,000 Contributed capital 650,000 Expenses 3,750,000 Goodwill 140,000 Prepaid taxes 225,000 Property, plant and equipment 850,000 Retained earnings, 1/1/Yr. 5 350,000 Revenues 4,500,000 --------------------------------------------------------------------------------
5,875,000 5,875,000 During year five, estimated tax payments of $225,000 were paid and debited to prepaid taxes. There were no differences between financial statement and taxable income for year five. Included in accounts receivable is $400,000 due from a loyal customer. Special terms were granted to this customer to make payments of $100,000 semi-annually every March 1 and September 1. In JB Company's December 31, year five Balance Sheet, what amount should be reported as total retained earnings?
Retained earnings are calculated as follows:
Revenue
[4,500,000] - Expenses [3,750,000] 750,000
Income taxes = 0.30 * 750,000 (225,000)
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Net income 525,000
Retained earnings, 1/1/Yr. 5 350,000
.———————————————————————————-
Retained earnings, 12/31/Yr. 5 875,000
The following trial balance of JB Company at December 31, year five, has been adjusted except for income taxes. The income tax rate is 30%.
DR CR Accounts receivable, net 725,000 Accounts payable 250,000 Accumulated depreciation 125,000 Cash 185,000 Contributed capital 650,000 Expenses 3,750,000 Goodwill 140,000 Prepaid taxes 225,000 Property, plant and equipment 850,000 Retained earnings, 1/1/Yr. 5 350,000 Revenues 4,500,000 --------------------------------------------------------------------------------
5,875,000 5,875,000 During year five, estimated tax payments of $225,000 were paid and debited to prepaid taxes. There were no differences between financial statement and taxable income for year five. In JB Company's December 31, Year five Balance Sheet, what amount should be reported as total assets?
Total assets are calculated as follows:
Cash 185,000
Accounts receivable, net 725,000
Property, plant, and equipment 850,000
Accumulated depreciation (125,000)
Goodwill 140,000
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Total assets 1,775,000
In Baer Food Co.’s 20X5 single-step Income Statement, the section titled “Revenues” consisted of the following:
Net sales revenue $187,000
Results from discontinued operations:
Loss from operations of the segment (net of $1,200 tax effect) $(2,400)
Gain on the disposal of segment (net of $7,200 tax effect) 14,400 12,000
Interest revenue 10,200
Gain on the sale of equipment 4,700
Total revenues $213,900
Net sales 187,000
Interest revenue 10,200
Gain on equipment 4,700
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Total revenues $201,900
Discontinued operations is not a revenue; rather, it is a special item of disclosure found below income from continuing operations in the Income Statement.
The following costs were incurred by Griff Co., a manufacturer, during 20X4:
Accounting and legal fees $ 25,000
Freight-in 175,000
Freight-out 160,000
Officers’ salaries 150,000
Insurance 85,000
Sales representatives’ salaries 215,000
What amount of these costs should be reported as general and administrative expenses for 20X4?
The only costs included in general and administrative costs are:
Accounting and legal $ 25,000
Officers’ salaries 150,000
Insurance 85,000
Total G&A cost $ 260,000
The remaining costs are classified (in order of appearance) as product cost, distribution cost, and sales/promotional costs.
Blythe Corp. is a defendant in a lawsuit. Blythe’s attorneys believe it is reasonably possible that the suit will require Blythe to pay a substantial amount. What is the proper financial statement treatment for this contingency?
A. Accrued and disclosed.
B. Accrued but NOT disclosed.
C. Disclosed but NOT accrued.
D. No disclosure or accrual.
C. Disclosed but NOT accrued.
Key word is :
To accrue MUST say PROBABLE
since it is only “possible” you only Disclose
Contingencies are accrued and recognized as a liability when the occurrence of the liability is PROBABLE and the amount can be reasonably estimated.
This lawsuit is reasonably “possible”, but not probable. Reasonably possible is typically a 50/50 chance of occurrence, where probable is a higher likelihood of occurrence. This answer is correct because this lawsuit would be disclosed, but NOT accrued.
Lew Co. sold 200,000 corrugated boxes for $2 each. Lew’s cost was $1 per unit.
The sales agreement gave the customer the right to return up to 60% of the boxes within the first six months, provided an appropriate reason was given.
It was immediately determined, with appropriate reason, that 5% of the boxes would be returned. Lew absorbed an additional $10,000 to process the returns and expects to resell the boxes.
What amount should Lew report as operating profit from this transaction?
Lew’s operating profit is computed and explained as follows:
Sales 200,000 units x $2 selling price = $400,000
Less: Provision returns 200,000 x .05 x $2 = 20,000[1]
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Net Sales = $380,000
COGS 200,000 units x $1 cost = $200,000
Less: Provision for returns 10,000 x $1 = 10,000
Net COGS 190,000 units x $1 = 190,000
Gross Profit $190,000
Less: Return processing cost 10,000[2]
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Operating profit $180,000
[1] The facts state that 5% of the (all) boxes sold would be returned. The fact that 60% could be returned only established the maximum returnable rate, whereas 5% is the expected return rate.
[2] Since Lew has “absorbed” $10,000 to process returns, it has charged that amount to sales. The fact that Lew expects to resell the boxes is not recognized until the boxes are actually resold.
A company has the following items on its year-end trial balance:
Net sales $500,000
Common stock 100,000
Insurance expense 75,000
Wages 50,000
Cost of goods sold 100,000
Cash 40,000
Accounts payable 25,000
Interest payable 20,000
What is the company’s gross profit?
Gross profit is sales less cost of goods sold. In this case gross profit is $500,000 - 100,000 = $400,000.
A multi-step Income Statement is prepared:
A. By all corporations.
B. By a company whose main activity is sales.
C. Because it is required by FASB.
D. Because it is more meaningful presentation of revenue and expenses.
D. Because it is more meaningful presentation of revenue and expenses.
A multi-step Income Statement is not required but is prepared because it is a more meaningful presentation of revenue and expenses. In a multi-step Income Statement, gross profit (margin), operating profit (margin), and pretax income from continuing operations are determined. The focus is on the determination of operating profit rather than simply income from continuing operations.
Brock Corp. reports operating expenses in two categories: (1) selling and (2) general and administrative. The adjusted trial balance at December 31, 20X5 included the following expense and loss accounts:
Accounting and legal fees $120,000
Advertising 150,000
Freight-out 80,000
Interest 70,000
Loss on the sale of long-term investments 30,000
Officers’ salaries 225,000
Rent for office space 220,000
Sales salaries and commissions 140,000
One-half of the rented premises is occupied by the sales department.
Brock’s total selling expenses for 20X5 are:
$4800,000
Advertising $150,000
Freight-out 80,000
Rent for office space ($220,000 x .5) 110,000
Sales salaries and commissions 140,000
Equals total selling expenses $480,000
Advertising is part of the overall selling effort. Freight-out is delivery expense. Offering delivery service is also part of the overall sales effort. Only 1/2 the rent is included in selling expenses because the sales department occupies only 1/2 the premises.
Which of the following should be included in general and administrative expenses?
Interest Advertising
Yes Yes
Yes No
No Yes
No No
Interest Advertising
No No
Neither expense is normally included in general and administrative expenses because interest and advertising are expenses that result from very specific activities and are frequently material in amount. They should be separately identified.
In a multi-step Income Statement:
A. Total expenses are subtracted from total revenues.
B. Gross profit (margin) is shown as a separate item.
C. Cost of sales and operating expense are subtracted from total revenues.
D. Other income is added to revenue from sales.
B. Gross profit (margin) is shown as a separate item.
In a multi-step Income Statement, gross profit (margin), operating profit (margin), and pretax income from continuing operations are determined. The focus is on the determination of operating profit rather than simply income from continuing operations. Gross profit (margin) is shown as a separate item.
A company’s activities for year two included the following:
Gross sales $3,600,000
Cost of goods sold 1,200,000
Selling and administrative expense 500,000
Adjustment for a prior-year understatement of amortization expense 59,000
Sales returns 34,000
Gain on sale of available-for-sale securities 8,000
Gain on disposal of
a discontinued business segment 4,000
Unrealized gain on
available-for-sale securities 2,000
The company has a 30% effective income tax rate. What is the company’s net income for year two?
$1,314,600
ALL items are included in net income
EXCEPT the prior year adjustment to amortization expense and the unrealized gain on the AFS securities.
The pre-tax income is $1,878,000 and after 30% taxes the net income is $1,314,600.
