Financial Accounting (OFFICIAL FORMULA PROBLEMS)

Question 1

What is breakeven point in units?

Sale price $7.50 per unit
Variable cost $2.25 per unit
Fixed cost $10,000
Units sold 20,000

Answer 1

Fixed Cost / (Price – VC)

10,000 / (7.50 - 2.25) = 1905

Question 2

An Accounts Receivable previously written off as uncollectable is finally collected. The amount collected was 500.
Which of the following journal entries is correct (assuming the allowance method is used)?

a. Cash 500
Accounts Receivable 500

b. Uncollectible Accounts (Bad Debt) Expense 500
Cash 500

c. Accounts Receivable 500
Uncollectible Accounts (Bad Debt) Expense 500
Cash 500
Accounts Receivable 500

d. Accounts Receivable $500
Allowance for Uncollectible Accounts $500
Cash 500
Accounts Receivable 500

Answer 2

d. Accounts Receivable $500
Allowance for Uncollectible Accounts $500
Cash 500
Accounts Receivable 500

Question 3

A company ages its accounts receivables to determine its end of period adjustment for bad debts. At the end of the current year, management estimated that 15,750 of the accounts receivable balance would be uncollectible. Prior to any year-end adjustments, the Allowance for Doubt full Accounts had a debit balance of 175. What adjusting entry should the company make at the end of the current year to record its estimated bad debts expense?

a. Bad Debts Expense……………………………………………… 15,750
Allowance for Doubtful Accounts……………………….. 15,750

b. Bad Debts Expense……………………………………………… 15,575
Allowance for Doubtful Accounts……………………….. 15,575

c. Bad Debts Expense……………………………………………… 15,925
Allowance for Doubtful Accounts……………………….. 15,925

d. Accounts Receivable……………………………………………. 15,750
Bad Debts Expense……………………………………………… 175
Sales……………………………………………………………… 15,750

e. Accounts Receivable……………………………………………… 15,925
Allowance for Doubtful Accounts……………………….. 15,925

Answer 3

c. Bad Debts Expense……………………………………………… 15,925 (15,750 + 175)
Allowance for Doubtful Accounts……………………….. 15,925

Question 4

On January 1, 20X1, Williams Corporation acquired a machine costing 45,000. The estimated life is five years and the salvage value is 3,000. Determine the depreciation expense for the first two years using the straight-line method.

a. 8,400; 8,400
b. 9,000; 9,000
c. 9,600; 9,600
d. 9,000; 8,500
e. None of the options listed

Answer 4

a. 8,400; 8,400

Annual Dep. Exp: (Cost – Salvage Value) / Useful Life (45,000 - 3,000) / 5 = 8,400

Question 5

If owner’s equity is 30,000 and liabilities are 73,000, then assets equal:

a. 30,000.
b. 73,000.
c. 103,000.
d. 43,000.
e. 60,000.

Answer 5

c. 103,000. A = L + SE

Question 6

Which of the following journal entries is correct for an issuance of 2,000 shares of 20 par value preferred stock in exchange for land valued at 45,000?
a. Cash 45,000
Preferred Stock 40,000
Premium on Preferred Stock 5,000
Land 45,000
Cash 45,000		

b. Cash 45,000
Preferred Stock 45,000
Land 45,000
Cash 45,000

c. Land 45,000
Preferred Stock 40,000
Premium on Preferred Stock 5,000

d. Land 45,000
Preferred Stock 45,000

e. None of the options listed

Answer 6

c. Land 45,000
Preferred Stock 40,000
Premium on Preferred Stock 5,000

Question 7

The Village Laundry Company purchased 6,500 worth of laundry supplies on June 2 and recorded the purchase as an asset. On June 30, an inventory of the laundry supplies in dictated only 3,000 on hand. The adjusting entry that should be made by the company on June 30 is

a. Debit Laundry Supplies Expense, 3,000; Credit Laundry Supplies, 3,000.
b. Debit Laundry Supplies Expense, 3,500;CreditLaundrySupplies,3,000.
c. Debit Laundry Supplies, 3,500; Credit Laundry Supplies Expense, 3,500.
d. Debit Laundry Supplies Expense, 3,500; Credit Laundry Supplies, 3,500.
e. None of the options listed

Answer 7

d. Debit Laundry Supplies Expense, 3,500; Credit Laundry Supplies, 3,500. 6,500 - 3,000 = 3,500

Question 8

A company had a market price of 37.50 per share, earnings per share of 1.25, and dividends per share of 0.40. This implies its price- earnings ratio equals:

a. 3.1.
b. 30.0.
c. 93.8.
d. 32.0.
e. 3.3.

Answer 8

b. 30.0.
Price- Earnings Ratio: Stock Price per Share / Earnings per Share

37.50 / 1.25 = 30

Question 9

A $20,000 machine is purchased by paying $5,000 cash and signing a note payable for the remainder. The journal entry should include a:

a. credit to note payable.
b. debit to cash.
c. credit to notes receivable.
d. credit to machinery.
e. none of the options listed

Answer 9

a. credit to note payable.

Question 10

The inventory of product Y at January 1 consisted of 15,000 units valued at a cost of $112,500. Purchases during the year were:
(Mar 5) 20,500 units @ $7.75 per unit = $158,875
(May 12) 33,000 units @ $8.00 per unit = $264,000
(Sep 15) 23,000 units @ $8.30 per unit = $190,900
(Nov 28) 8,500 units @ $8.44 per unit = $71,740

On December 31, there were 30,000 units on hand.

Compute the December 31 inventory using the first-in, first-out method.

a. $250,190
b. $228,750
c. $235,150
d. $246,370
e. None of the options listed

Answer 10

December
30,000 - 8,500 = 21,500
21,500 * $8.30 = 178,450
178,450 + 71,740 = 250,190

a. $250,190

Question 11

Based on the following data, what is the amount of working capital?

Accounts payable……………………………………………………….. $31,000
Accounts receivable…………………………………………………… ….57,000
Cash…………………………………………………………………… …15,000
Intangible assets………………………………………………………… 50,000
Inventory……………………………………………………… ………….69,000
Long-term investments………………………………………………… ….80,000
Long-liabilities…………………………………… ………………………100,000
Marketable securities…………………………………………………… …40,000
Notes payable (short-term)……………………………………………… ..28,000
Land, building, and equipment……………………………………… ……….670,000
Prepaid expenses………………………………………………………. …..1,000

a. $123,000
b. $151,000
c. $203,000
d. $53,000
e. None of the options listed

Answer 11

(Total Current Asset – Total Current Liability)

CA: 57,000+15,000+69,000+40,000+1,000 = 182,000

CL: 31,000+28,000 = 59,000

182,000 - 59,000 = 123,000

Question 12

Use the following information for Smart Company.

Net Sales $300,000
Cost of Goods Sold 230,000
Gross Profit $ 70,000
Operating Expenses 25,000

Net Income $ 45,000
=======
What is the return on sales for Smart Company? 
a. 13% 
b. 15%    	
c. 64% 
d. 35% 
e. None of the options listed

Answer 12

b. 15% (Net Income / Sales = 45,000 / 300,000 =15%)

Question 13

NiKe has beginning equity of $4,350 million, net income of $490 million, dividends (withdrawals) of $100 million, and an increase in equity due to other items of $50 million. Its ending equity is:

a. $3,810 million.
b. $4,690 million.
c. $4,790 million.
d. $4,990 million.
e. $3,710 million

Answer 13

c. $4,790 million.

4,350 + 490 – 100 + 50 = 4,790

Question 14

If you are able to earn an 8% rate of return, what amount would you need to invest to have $2,000 one year from now? (Round to the nearest dollar.)

8%, 1 year annually Factor 
Present value of $1 0.926 
Future value of $1 1.080 
Present value of an annuity 0.926 
Future value of an annuity 1.000 

a. $2160
b. $1,852
c. $2000
d. $1,980
e. None of the options listed

Answer 14

b. $1,852

PV: FV / (1 + r)^n PV: 2000 / (1+ 8%) = 1,852

Question 15

An individual is planning to set-up an education fund for her children. She plans to invest $10,000 annually at the end of each year. She expects to withdraw money from the fund at the end of 10 years and expects to earn an annual return of 8%. What will be the total value of the fund at the end of 10 years? (Round to the nearest dollar)

8%, 10 years annually Factor 
Present value of $1 0.463 
Future value of $1 2.159 
Present value of an annuity 6.710 
Future value of an annuity 14.487 

a. $ 46,320.
b. $ 67,107.
c. $100,000.
d. $144,870.
e. $215,890.

Answer 15

d. $144,870.

10,000 * (1 + 8%)^10 10,000 * 14.487 = 144,870

Question 16

Charles Corporation reports the following information for 20X1.

Accounts Receivable – 1/1 $100,000
Accounts Receivable – 12/31 150,000
Inventory – 1/1 40,000
Inventory – 12/31 55,000
Net Credit Sales 800,000
Cost of Goods Sold 450,000
Accumulated Depreciation 15,000

What is the average age of inventory for Charles Corporation?

a. 32.4 days
b. 39.9 days
c. 44.6 days
d. 38.5 days
e. None of the options listed

Answer 16

d. 38.5 days

Question 17

A truck costing $12,000 and on which $9,000 of accumulated depreciation has been recorded was discarded as having no value. The entry to record this event would include a:

a. gain of $3,000.
b. loss of $3,000.
c. credit to accumulated depreciation for $9,000.
d. credit to accumulated depreciation for $12,000.
e. none of the options listed

Answer 17

b. loss of $3,000.

Question 18

Johnny’s Car Repair Shop started the year with total assets of $60,000 and total liabilities of $40,000. During the year the business recorded $100,000 in car repair revenues, $55,000 in expenses, and dividends of $10,000.
Stockholders’ equity at the end of the year was ?

a. $45,000 	
b. $65,000 	
c. $55,000  	 
d. $35,000 	
e. None of the options listed

Answer 18

c. $55,000

Question 19

Based on the following data, what is the amount of current assets?
Accounts payable………………………………………………………..$31,000
Accounts receivable…………………………………………………….. 57,000
Cash………………………………………………………………………. 15,000
Intangible assets………………………………………………………… 50,000
Inventory…………………………………………………………………. 69,000
Long-term investments…………………………………………………. 80,000
Long-liabilities…………………………………………………………….100,000
Marketable securities……………………………………………………. 40,000
Notes payable……………………………………………………………. 28,000
Plant assets………………………………………………………………670,000
Prepaid expenses (assets)………………………………………………..…..1,000
a. $142,000
b. 182,000
c. $113,000
d. $112,000
e. None of the options listed

Answer 19

b. 182,000

57,000+15,000+69,000+40,000+1,000 = 182,000

Question 20

If Susanna Metro invests $7,009.87 now and she will receive $20,000 at the end of 11 years, what annual rate of interest will she be earning on her investment?

Future value of $1	Factor
7%, 11 years annually	2.105
8%, 11 years annually	2.332
9%, 11 years annually	2.580
10%, 11 years annually	2.853

a. 8%
b. 7%
c. 9%
d. 10%
e. None of the options listed

Answer 20

d. 10%

20,000 / 2.105 = 9,501
20,000 / 2.332 = 8,576
20,000 / 2.580 = 7,752

20,000 / 2.853 = 7,010 this amount is close to 7,009.87

Question 21

If the single amount of $900 is to be received in 3 years and discounted at 6%, its present value is: (Round to the nearest dollar.)
6%, 3 years annually Factor
Present value of $1 0.840
Future value of $1 1.191
Present value of an annuity 2.673
Future value of an annuity 3.184

a. $756.
b. $849.
c. $780.
d. $846.
e. None of the options listed

Answer 21

a. $756.

900 * 0.840 = 756

Question 22

At December 31, 2001, before any year-end adjustments, Brant Company’s Prepaid Insurance account had a balance of $1,900. It was determined that $1,500 of the Prepaid Insurance had expired. The adjusted balance for Prepaid Insurance for the year would be:

a. $1,500. 	
b. $400.   
c. $2,225. 	
d. $1,125. 	
e. None of the options listed

Answer 22

b. $400.

1,900 – 1,500 = 400

Question 23

Which of the following journal entries is correct for an issuance of 1,000 shares of 10 par value common stock for 25 per share?
a. Cash 25,000
Common Stock 25,000

b. Common Stock 25,000
Cash 25,000

c. Cash 25,000
Common Stock 10,000
Premium on Common Stock 15,000

d. Common Stock 10,000
Premium on Common Stock 15,000
Cash 15,000

e. None of the options listed

Answer 23

c. Cash 25,000
Common Stock 10,000
Premium on Common Stock 15,000

Question 24

Westec Corporation has the following accounts on their financial statement. Calculate net income.
Professional Fee Income 31,000 RentExpense7,000
Advertising Expense 10,000 Insurance Expense 6,000
Accumulated Depreciation 1,000 Interest Expense 1,000
Commission Expense 4,000 Dividends 2,000

a. 9,000
b. 0
c. 1,000
d. 3,000
e. None of the options listed

Answer 24

d. 3,000

31,000 – (7,000+10,000+6,000+1,000+4,000) = 3,000

Question 25

Paula Bonner invests $7,103.00 now for a series of $1,000 annual returns beginning one year from now. Paula will earn 10% on the initial investment. How many annual payments will Paula receive?
Present value of an annuity
10% Factor 
10 periods 6.145 
12 periods 6.814 
13 periods 7.103 
14 periods 7.606 

a. 10
b. 12
c. 13
d. 15
e. None of the options listed

Answer 25

c. 13

Question 26

If the single amount of $400 is to be received in 2 years and discounted at 12%, its present value is: (Round to the nearest dollar.)

12%, 2 years annually Factor 
Present value of $1 0.797 
Future value of $1 1.254 
Present value of an annuity 1.690 
Future value of an annuity 2.120 

a. $502.
b. $319.
c. $676.
d. $331.
e. None of the options listed

Answer 26

b. $319.

Question 27

Jim’s Tune-Up Shop follows the revenue recognition principle. Jim services a car on July 31. The customer picks up the vehicle on August 1 and mails the payment to Jim on August 5. Jim receives the check in the mail on August 6. When should Jim show that the revenue was earned?

a. July 31
b. August 1
c. August 5
d. August 6
e. None of the options listed

Answer 27

a. July 31 Because he did the work.

Question 28

A truck was purchased for $15,000 and it was estimated to have a $3,000 salvage value (residual value) at the end of its useful life. The truck has a 4-year life. The annual depreciation expense using the straight-line method is:

a. $4,000
b. $4,500
c. $3,750
d. $3,000
e. None of the options listed

Answer 28

d. $3,000

Question 29

Company used Strait-Line depreciation for an item that cost 12,000 had a salvage value of 2,000 and a 5 year useful life After depreciating the assets for 3 complete years, the salvage value was reduced to 1,200 and its total useful life was increased from 5 years to 6 years. Determine the amount of depreciation to be changed against the machine during each of the remaining years of its useful life.

A 1,000
B. 1,800
C. 1,467  
D. 1,600 
E. 2,160

Answer 29

D. 1,600

Question 30

Y during accounting period the asset increases by 5,000 equity increased by 1,000. How did liability damage?

A. Increase by 6,000   
B. Increase by 4,000
C. Decrease by 4,000
D. Decrease by 6,000
E. Decrease by 1,000

Answer 30

B. Increase by 4,000

Question 31

A $130 credit to Office Equipment was credited to Fees Earned by mistake. By what amounts are the accounts under or overstated as a result of this error?

A. Office Equipment, understated $130; Fees Earned, overstated $130
B. Office Equipment, understated $260; Fees Earned, overstated $130
C. Office Equipment, overstated $130; Fees Earned, overstated $130
D. Office Equipment, overstated $130; Fees Earned, understated $130
E. Office Equipment, overstated $260; Fees Earned, understated $130

Answer 31

C. Office Equipment, overstated $130; Fees Earned, overstated $130

Question 32

Net sales	300,000
	COGS		230,000
	Gross Profit 	70,000
	Owner’s equity 	25,000
	Net Income	450,000

What is the gross profit margin?

Answer 32

23%

(Net income / net sales) * 100

Question 33

A dress shop makes a large sale for $1,000 on November 30. The customer is sent a statement on December 5 and a check is received on December 10. The dress shop follows GAAP and applies the revenue recognition principle. When is the $1,000 considered to be earned?

a. December 5
b. December 10
c. November 30
d. December 1

Answer 33

b. December 10

Question 34

Which of the following journal entries is correct for an issuance of 1,000 shares of 10 par value common stock for 25 per share?
a. Cash 25,000
Common Stock 25,000

b. Common Stock 25,000
Cash 25,000

c. Cash 25,000
Common Stock 10,000
Premium on Common Stock 15,000

d. Common Stock 10,000
Premium on Common Stock 15,000
Cash 15,000

e. None of the options listed

Answer 34

c. Cash 25,000
Common Stock 10,000
Premium on Common Stock 15,000