Q&A

On January 1, 20X1, two individuals invested $150,000 each to form Hornbeck Corporation. Hornbeck had total
revenues of $15,000 during 20X1 and $40,000 during 20X2. Total expenses for the same periods were $8,000
and $22,000, respectively. Cash dividends paid out to shareholders totaled $6,000 in 20X1 and $12,000 in 20X2.
What was the ending balance in Hornbeck's retained earnings account at the end of 20X1 and 20X2?
● $1,000 and $7,000, respectively.
● 20A: 1,000 = 15,000-8,000-6,000
● 20B: 7,000 = Beg.Retained earnings (1,000) + 40,000-22,000-12,000

The HAT Corporation had revenues of $210,000, expenses of $85,000, and an income tax rate of 20 percent
in 20X2. What would profit after taxes be?
● $100000

Brown Corporation reported the following amounts at the end of the first year of operations,
December 31, 20X1: Share capital $20,000; Sales revenue $95,000; Total assets $85,000, No
dividends, and Total liabilities $35,000. What would shareholders' equity and total expenses be?
● Shareholders equity = Total assets - Total liabilities

= $85000-35000 = $50000

● Total Expesnses = Total sales - (Equity - Share capital)

= $95000-(50000-20000) = 95000-30000 = $65000

Statement of Financial Position : Investments, Deferred revenues

Statement of Income : Cost of Goods Sold
Statement of changes in equity : Dividends declared
​Statement of cash flows : Cash from Operations, Repayments of debt

Which of the following is a disadvantage of forming a corporation?Legal fees can be high

and separate tax returns have to be filed for owners and the business.

What is the primary purpose of the statement of financial position?

To report the financial position of the reporting entity at a particular point in time.
Current assets: Prepaid expenses, Short-term investments, cash
Non-Current assets: Equipment
Current liabilities: Notes payable - due in 3 months, salaries payable
Non-Current liabilities: Deferred revenue (performance to occur in two years), Bank loan (due in
five years)
Shareholder's Equity: Contributed capital

Willie Inc.'s shareholder's equity equals 50 percent of the company's assets. If Willie Inc.'s liabilities
are $ 700000, how much is Willie Inc.'s shareholder's equity?

$700000
Liabilities * Percentage of the company's assets / ((100 - Percentage of the company's assets))

Golden Hawks Inc. reported the following amounts on its statement of financial position at December 31,
2020

Accounts receivable $ 40000 Cash 14000 Deferred revenue 60000

Inventory 20000 Land ? Notes payable 247000

Retained earnings 320000 Share capital 240000

How much was land ? 793000

Assets =Accounts receivable + Cash + Inventory + Land

Liabilities= Deferred revenue +Notes payable

Equity = Retained earnings + Share capital

Assets = Liabilities + Equity

What is the primary purpose of financial statements? To help users make

decisions.
Debit: Increase in cash, Decrease in bank loan payable, Increase in inventory,
Decrease in share capital

Credit: Decrease in accounts receivable, Increase in deferred revenue, Increase in

accounts payable, decrease in equipment

Laurier Inc. had retained earnings at the end of the year of $110000. During the year
Laurier Inc. earned net income of $100000 and declared and paid dividends of $10000.
What was Laurier Inc.'s retained earnings at the beginning of the year?

Answer: 20000
Beginning retained earnings + Net income – Dividends = Ending retained earnings

Beginning retained earnings = Ending retained earnings – Net income + Dividends

The periodicity assumption is the basis for which of the following?dividing the activities of a
business into a series of time periods for accounting and reporting purposes.

If total revenues are the same as total expenses, then a company has which of the following?
neither a profit nor a loss.

Financial analysts look to the statement of earnings to determine which of the following?
whether the company has generated profits from operations.

Hawkies Inc. has a November 30 fiscal year. On August 1, 2019 Hawkies Inc. paid $ 48000
for rent from August 1, 2019 to July 31, 2020. On August 1, 2020 Hawkies Inc. paid $
126000 for rent from August 1, 2020 to July 31, 2021.

Calculate rent expense for the year ended November 30, 2020. Round your answer to the
nearest dollar.

Answer:74000

Rent expense from December 1, 2019 to July 31, 2020 (8 months ) =$48000×8/12 = 32,000

Rent expense for August 1, 2020 to November 30, 2020 (4 months) = $126000×4/12 =$42,000

Therefore, Total Rent expense for year ended November 30, 2020 is $74000 ($32000+$42,000).
Hawks News Inc. sells a monthly magazine called "The Hawk". Hawks News Inc. has chosen a
December 31 fiscal year end and began operations in 2020. During the year ended December 31,
2020 Hawks News Inc. received customer subscription payments as follows:

Subscriptions for the period October 2020-September 2021 $ 5760

Subscriptions for the period November 2020-October 2021 $ 7620

Subscriptions for the period December 2020-November 2021 $ 12660

Hawks News Inc. delivered the magazine subscriptions for October, November and December.
Calculate the amount of unearned subscriptions revenue at December 31, 2020. Round your answer to
the nearest dollar.

Answer: 22275

5760*(9/12) + 7620*(10/12) + 12660*(11/12) = 22275

The primary responsibility of an independent auditor who is a professional

accountant is to: Evaluate the "fair presentation" of the company's financial reports.

indicate the order in which the following tasks would be completed in the normal
financial statement preparation process.

1. Prepare journal entries for transactions occurring during the period.

2. Prepare adjusting journal entries.
3. Prepare an adjusted trial balance.
4. Prepare a statement of earnings.
5. Prepare a statement of financial position.
6. Prepare closing entries.

A retail company accepts credit cards as payments for all the following reasons
EXCEPT:Because the fee for the service is small compared to the benefits

A sale should, not be recognized as revenue by the seller at the time of sale if: the
buyer has a right to return the product and the amount of future returns cannot be
reasonably estimated.
Hawky Dawky Ltd. began operations on July 1, 2020 and had the following sales and collection activities during 2020:

Sale to Customer 1 on August 1, 2020 $ 120000 Collections from Customer 1 during the year 24000

Sale to Customer 2 on November 1, 2020 104000 Collections from Customer 2 during the year 68000

Sale to Customer 3 on December 15, 2020 90000 Collections from Customer 3 during the year 25000

There were no other transactions during the year. Hawky Dawky Ltd. offers its customers terms of 2/10 net 30.

Hawky Dawky estimates that the likelihood of not being able to collect an accounts receivable is as follows

Accounts not yet due 3 % Accounts overdue but less than 90 days overdue 4 % Accounts overdue 90 days or more 13 %

Calculate the net balance of accounts receivable at the end of the year.

Answer:181130

Customer 1: 120 000-24000=96000*13%=12480 96000-12480=83520

Customer 2: 104000-68000=36000*4%=1440 36000-1440=34560

Customer 3: 90000-25000=65000*3%=1950 =63050

83520+34560+63050=181130

The following information was available to you when preparing a monthly bank reconciliation:

Balance per general ledger at the end of the month $ 15000

(before adjustments)

Interest earned during the month $ 10000 Outstanding cheques at the end of the month $ 3000

Outstanding deposits at the end of the month $ 20000 Bank service charges during the month $ 600

Bank error $ 50 Cheque returned NSF $ 2100

What is the correct adjusted general ledger bank balance at the end of the month?

Answer:22300
Laurier Inc. uses the periodic method and reported the following amounts for the year.

Ending inventory $ 40000 Opening inventory $ 53500

Sales revenue $ 108000 Purchases $ 68000

Purchase discounts $ 5800 Purchase returns and allowances $ 4600

Calculate cost of sales for the year.

Answer: 71100

Cost of sales = Opening inventory – Ending inventory + Purchases – Purchase discounts –

Purchase returns and allowances

ABC. Ltd. uses a perpetual inventory system and the weighted average cost method. The
following represents complete information on inventory transactions for ABC. Ltd. for the year:

January 1: Opening inventory 10000 units at $ 4 per unit

June 1: Purchased 5000 units at $ 6 per unit

August 1: Purchased 3500 units at $ 11 per unit

October 1: Sold 11000 units at $ 23 per unit

Calculate the gross profit (margin) for the year. Round your answer to the nearest dollar.

Answer: 188486

(10000*4)+(5000*6)+(3500*11)/(10000+3500+5000) = 5.864864*11000 = 64513.504

(23*11000)=253000-64513.504=188486

For each of the following independent inventory errors below indicate the effect on reported income/profit for
the year ended December 31, 2020.

1. Overstatement of reported income/profit for the year ended December 31, 2020. :
a. Overstatement of ending inventory at December 31, 2020.
2. Understatement of reported income/profit for the year ended December 31, 2020:
a. Overstatement of opening inventory at January 1, 2020.
3. No effect on reported income/profit for the year ended December 31, 2020.:
a. Overstatement of opening inventory at January 1, 2019,
b. Understatement of ending inventory by the same amount at January 1, 2020, and December 31,
2020.
Which of the following is not an inventory account in a manufacturing company? Goods available
for sale

Which of the following should be included in the cost of inventory? Receiving and inspection costs

On March 10, Frazier Company received merchandise for resale from its normal supplier. The
invoice price was $3,600 with terms of 2/10, n/30 for 100 units of Part #345. The invoice was paid
on March 17. Freight costs were $120 and the company paid $108 of interest on a loan to buy the
inventory. What is the unit cost that should be recorded for each of the 100 units of Part #345?
[($3,600 × 98%) + 120] ÷ 100 =$36.48

X Ltd. acquired a piece of land and a building for $ 185000. An appraisal valued the
land at $ 106000 and the building at $ 94000. After the purchase and the appraisal,
the building was renovated at a cost of $ 19000. How much will the building be
recorded at? Round your answer to the nearest dollar.

Answer: 105950

Land and Building acquired for = $185,0000 Appraisal Value Land= $106,000 Appraisal Value
Building = $94,000

Cost of Building Acquired = $185,0000* $94,000/[$106,000+$94,000] = 86950

Cost of Renovation = 19000

Building to be Recorded at =$105950 [$86950+$19000]

On January 1, year 1, ABC. Ltd. purchased a piece of equipment for $ 400000 plus installation
costs of $ 60000 that were necessary to make the equipment operational. ABC. Ltd. uses
the double declining balance method. The piece of equipment is expected to have a useful
life of 20 years at which time it will have a residual value of $ 10000. What is the book value
of the equipment as of December 31, year 3. Round any value to two decimal places in
intermediate steps and round your final answer to the nearest dollar.

Answer: 335340

Cost of Equipment: 400000+60000=460000 2*(1/20)=0.1 or 10% (double declining

deprecation rate)

1. Year 1 460000*.1=46000
2. Year 2 460000-46000=414000*.1=41400
3. Year 3 460000-46000-41400=37260

460000-46000-41400-37260=335340
On January 1, year 1, ABC. Ltd. purchased a piece of equipment with a cost of $ 140000. The
equipment has a useful life of 6 years and a residual value of $ 30000 and is being depreciated
under the straight line method. The equipment was sold on July 1, year 3 for $ 10000.
Calculate the gain or loss on disposal. Round any value to two decimal places in intermediate
steps and round your final answer to the nearest dollar.

Answer -84167

Depreciation per year: (140000-30000)/6+18333.33333

140000-(18333.3*2)=103333.3-(18333.3/2)=94166.6833

94166.6833-10000=84166.6833 LOSS

Depletion is recorded for which of the following? Natural resources

All of the following are examples of intangible assets except: Research cost

Intangible assets are reported separately from Property, Plant, and Equipment.

Laurier Inc. has borrowed $ 71000 from its bank. The annual interest rate on the loan is 36%
compounded monthly and the loan is to be paid back in 10 equal monthly payments. Calculate
the amount of the required monthly loan payments. Round your answer to the nearest dollar.

Answer:8323

I: 36/12=3 n=10 PV annuity=8.5302 71000/8.5302=8323

Hawks Delivery Inc. purchased a van to deliver goods. The vendor offered Hawks Delivery
Inc. financing terms that required Hawks Delivery Inc. to make 7 equal payments of $ 38000
at the end of each year. The current interest rate for Hawks Delivery Inc. is 8 %.How much
would Hawks Delivery Inc. record as the initial purchase price of the van? Round your
answer to the nearest dollar.

Answer:197842

I=8% n=7 PV annuity=5.2064 38000*5.2064=197843

Vintage Car Warranties Inc. offers warranties on recently restored classic cars. At the end of 2020,
Vintage Car Warranties Inc. had deferred warranty revenue of $ 66000. During 2021, Vintage Car
Warranties Inc. signed new warranty contracts for $ 28000. At the end of 2021, Vintage Car
Warranties Inc. had deferred warranty revenue of $ 45000.How much revenue would Vintage Car
Warranties Inc. recognize from its warranty contracts during 2021?

Answer: 49000

Opening Deferred Revenue + New Contracts - Revenue Earned = Ending Deferred Revenue

Therefore Revenue Earned = Opening Deferred Revenue + New Contracts - Ending Deferred
Revenue (66000+28000-45000=49000)

Failure to record a liability will probably result in overstated net earnings.

An employee receives a bi-weekly gross salary of $2,000. Income tax is $218, CPP is $99, EI is
$36, and union dues are $50. What is the amount of the employee's take-home pay (net pay)
on a bi-weekly basis? 1,597=2000-218-99-36-50

Bonds that the issuer can by back at the issuer's option are called
Redeemable bonds

On January 1, year 1, ABC. Corp. issued bonds as follows:

Face value $9000000. Stated (or coupon) annual rate of interest 13 %. Coupon is paid twice annually.
Market annual rate of interest 4 %. Term in years 3

How much did the bond sell for? Round your answer to the nearest dollar.

Answer:11268819

PV Factor x Face Value + Face Value x Stated Interest rate x PV Annuity factor

SINGLE AMOUNT9000000*0.888(2%at 6 periods)=7992000

ANNUITY9000000*.13/2=585000*5.6014(2%at 6 periods)=3276819

7992000+3276819=11268819
Barney Inc. has bonds outstanding that were issued at a premium. The bonds were issued on January
1 and pay interest on June 30 and December 31. At the beginning of the current year the bonds had a
carrying value of $ 105000. The bonds have a face value of $ 91000. The bonds pay interest at an
annual interest rate of 9 %. The annual market rate on the bonds at the time they were issued was 2
%. The current annual market rate on bonds is 9 %. Round any value to two decimal places in
intermediate steps and round your final answer to the nearest dollar. Calculate interest expense for the
year on the bonds. Round your answer to the nearest dollar. (Please note that you do not require
present value tables to answer this question so their omission is deliberate.)

Answer: 2070

Interest expense = 105000*2%*(6/12) = $1050

Amount Paid = 91000* 9%*(6/12) = $4095

New carrying amount on June 30 = 105000+1050-4095+101955

Interest expense July-Dec 101955*2%*(6/12)=1019.55+1050=2070

If the market interest rate is higher than the coupon interest rate (or stated rate) of the bond, the
bond sells: at a discount

When a bond is issued at a discount, the amount of interest expense for an interest period is
calculated by multiplying the _______ amount times the _______ interest rate during the period.
Carrying, market.

Which item listed below does not influence the issue price (present value) of a bond? The reason
the bond was issued

Laurier Inc. has the following shares outstanding 4000 Common shares outstanding. 600 Preferred
shares outstanding, cumulative, with 2 years of outstanding dividends in addition to the current year.
The preferred shares pay dividends of $ 0.70 per share per year. During the current year, a dividend of
$ 6000 was declared. How much would the common shareholder's receive per share. Round your
answer to the nearest cent.

Answer: 1.19

Preferred stock 600*.7=420 Common stock 4000*.7*2=840 420+840=1260

6000-1260=4740 4740/4000=1.19
Indicate the impact that a share dividend that has been declared and paid has on each of the following
statement of financial position elements.

● Capital shares issued. INCREASE.

● Total liabilities,Total assets,Total shareholder's equity. NO EFFECT.
● Retained earnings. DECREASE.

Excel Corporation had net earnings of $500,000. It paid $125,000 in dividends to the
preferred shareholders. Excel Corporation had a weighted average of 1,500,000 common
shares and 250,000 preferred shares. Excel Corporation's earnings per share was: $0.25

500000-125000=375000/15000000=0.25

Domus Realty Limited has 20,000 common shares issued and outstanding at January 1,
20X4. On July 1, the company sold an additional 10,000 common shares for proceeds of
$100,000. Net income for the year was $30,000. What would the earnings per share be?
$1.20

Which of the following statements is false? Repurchases of shares at prices lower than the
average issue price result in profit for the issuing company.

The cash flow statement will not report the: amount of cheques outstanding at the end of the
period.

Which of the following is a cash inflow from financing activities?Proceeds from issuance of
bonds payable.

The following data relates to Laurier Inc.

Total assets, December 31, year 1 262000 Total assets, December 31, year 2 443000

Total liabilities, December 31, year 1 52000 Total liabilities, December 31, year 2 116000

Sales for year 2 1440000 Income for year 2 60000

Calculate the total asset turnover rate for year 2. Round your answer to two digits. Answer: 4.09

262000+443000=352500 1440000/352500=4.085
Laurier Inc. had total assets at the beginning of the year of $ 5000000 and total assets at the end of the
year of $ 7000000. The following contains information on Laurier Inc.'s statement of income for the
year:

Sales $ 800000 Interest expense $ 18000

Income tax expense $20000 Net income $150000

Calculate Laurier Inc.'s return on assets (ROA) for the year. Express your answer as a percentage
rounded to two digits (i.e. 3.84).

Answer: 2.76

Pretax earnings 150000+20000=170000

Tax expense 20000
Net income 150000
Tax rate =20000/170000=11.76%

ROA =Net income + interest expense (1-tax rate)/Average total assets

=150000+18000 (1-.1176) /6,000,000 (5000000+7000000/2)

= 2.76%

Laurier Inc. had the following account balances at the end of the year

Cash 45000 Equipment 195000 Accounts payable 54000

Accounts receivable 54000 Bonds payable 77000 due in five years Share capital 69000

Income tax payable 6000 Inventory 96000

Calculate the current ratio. Round your answer to two decimal places.

Answer:3.25 (45000+54000+96000)=195000 (54000+6000)=60000 195000/60000=3.25

Current ratio is current assets divided by current liabilities. Current assets include cash, accounts receivable and
inventory. Current liabilities include accounts payable and income taxes payable. Equipment is not a current
asset so should not be used in the calculation. Bonds payable are not a current liability so should not be used in
the calculation.

On May 1 XYX Inc. paid accounts payable of 18000. Prior to the payment, XYX Inc. had current assets
of 110000 and a current ratio of 1. Calculate XYX Inc.'s current ratio after the payment of the
accounts payable. Round your answer to two decimal places.

Answer: 1.00 Current assest: 110000-18000=92000 Current liabilities:

(110000/1)-18000=92000 92000/92000=1.00
Net sales are $2,700,000, beginning total assets are $750,000, and the asset turnover is 3.0.
What is the ending total asset balance? $1050000

Assets turn over = Net Sales / Average Total Assets

3.0 = $2,700,000 / Average Total Assets

Average Total Assets = $2,700,000 / 3

= $900,000

Average Total Assets = (Beginning total assets + Ending total assets) / 2

$900,000 = ($750,000 + Ending total assets) / 2

$750,000 + Ending total assets = $1,800,000

Ending total assets = $1,800,000 - $750,000

= $1,050,000

The records of ZZZZ Better Corporation include the following:

Average total assets $60,000 Average total liabilities 45,000 Total revenue 107,600

Total expense (including income tax) 104,000

What is the return on equity? 24%

= net income/ average stock holders equity

Net income = total revenue - total expenses = 107,600 - 104,000 = $ 3,600.

Average stock holders equity = Average total Assets - average total liabilities

= $60,000 - 45,000 =$ 15,000.

Return on equity = 3,600/15,000*100 =24%.

A company that is leveraged is one that is partially debt financed.