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business
accounting principles
Accounting 20th Edition Carl S. Warren, James M. Reeve, Philip E. Fess - Solutions
If the unit selling price is $16, the unit variable cost is $12, and fixed costs are $160,000, what are the break- even sales (units)? LO2 A. 5,714 units C. 13.333 units B. 10,000 units D. 40.000 units
Based on the data presented in Question 3, how many units of sales would be required to realize income from operations of $20,000? LO2 A. 11,250 units C. 40,000 units B. 35,000 units D. 45,000 units
Based on the following operating data, what is the operating leverage? LO2 Sales $600,000 Variable costs 240,000 Contribution margin $360,000 Fixed costs 160,000 Income from operations $200,000 A. 0.8 B. 1.2 C. 1.8 D. 4.0
What are the three most common classifications of cost behavior? LO2
Describe how total variable costs and unit variable costs behave with changes in the level of activity. LO2
Describe the behavior of (a) total fixed costs and (b) unit fixed costs as the level of activity increases. LO2
In cost analyses, how are mixed costs treated? LO2
Which of the following graphs illustrates how total variable costs behave with changes in total units produced? LO2 Total Cost (a) 0 Total Units Produced 0 Total Cost (b) Total Units Produced
Which of the following graphs illustrates how unit variable costs behave with changes in total units produced? LO2 Unit Cost G 0 Total Units Produced 0 Unit Cost (b) Total Units Produced
Which of the following graphs best illustrates fixed costs per unit as the activity base changes? LO2 0 Costs per Unit Activity Base (a) 0 Costs per Unit Activity Base (b)
In applying the high-low method of cost estimation, how is the total fixed cost estimated? LO2
How is contribution margin calculated? LO2
If fixed costs increase, what would be the impact on the (a) contribution margin? (b) income from operations? LO2
What equation is used to determine the break-even point in sales units? LO2
If the unit cost of direct materials is decreased, what effect will this change have on the break-even point? LO2
If insurance rates are increased, what effect will this change in fixed costs have on the break-even point? LO2
How does the sales mix affect the calculation of the break-even point? LO2
How is the margin of safety calculated? LO2
a. How is operating leverage computed?b. What does operating leverage measure? LO2
What is the amount of depreciation, using the decliningbalance method (twice the straight-line rate) for the second year of use for equipment costing $9,000, with an estimated residual value of $600 and an estimated life of 3 years? LO2 A. $6,000 C. $2,000 B. $3,000 D. $400
An example of an accelerated depreciation method is: LO2 A. Straight-line C. Units-of-production B. Declining-balance D. Depletion
A fixed asset priced at $100,000 is acquired by trading in a similar asset that has a book value of $25,000.Assuming that the trade-in allowance is $30,000 and that $70,000 cash is paid for the new asset, what is the cost of the new asset for financial repotting purposes? LO2 A. $100,000 C. $70,000
Which of the following is an example of an intangible asset? LO2 A. Patents C. Copyrights B. Goodwill D. All of the above
Which of the following qualities arc characteristic of fixed assets? (a) tangible, (b)capable of repeated use in the operations of the business, (c) held for sale in the normal course of business, (d) used continuously in the operations of the business,(e) long-lived. LO2
Spiral Co. acquired an adjacent vacant lot with the hope of selling it in the future at a gain. The lot is not intended to be used in Spiral's business operations. Where should such real estate be listed in the balance sheet? LO2
Tensile Company solicited bids from several contractors to construct an addition to its office building. The lowest bid received was for $340,000. Tensile Company decided to constaict the addition itself at a cost of $325,000. What amount should be recorded in the building account? LO2
Are the amounts at which fixed assets are reported in the balance sheet their approximate market values as of the balance sheet date? Discuss. LO2
Name the three factors that need to be considered in determining the amount of periodic depreciation. LO2
Trigger Company purchased a machine that has a manufacturer's suggested life of 15 years. The company plans to use the machine on a special project that will last 11 years. At the completion of the project, the machine will be sold. Over how many years should the machine be depreciated? LO2
Of the three common depreciation methods, which is most widely used? LO2
A revision of depreciable fixed asset lives resulted in an increase in the remaining lives of certain fixed assets. The company would like to include, as income of the current period, the cumulative effect of the changes, which reduces the depreciation expense of past periods. Is this in accordance
Differentiate between the accounting for capital expenditures and revenue expenditures. LO2
Immediately after a used truck is acquired, a new motor is installed and the tires are replaced at a total cost of $4,750. Is this a capital expenditure or a revenue expenditure? LO2
In what sections of the income statement are gains and losses from the disposal of fixed assets presented? LO2
Differentiate between a capital lease and an operating lease. LO2
Describe the internal controls for acquiring fixed assets. LO2
Why is a physical count of fixed assets necessary? LO2
What is the term applied to the periodic charge for (a) ore removed from a mine. (b) the use of an intangible asset? LO2
a. Over what period of time should the cost of a patent acquired by purchase be amortized?b. In general, what is the required treatment for research and development costs? LO2
How should (a) fixed assets and (b) intangible assets be reported in the balance sheet? LO2
A business issued a $5,000, 60-day, 12% note to the bank. The amount due at maturity is: LO2 A. $4,900 C. $5,100 B. $5,000 D. $5,600
A business issued a $5,000, 60-day note to a supplier, which discounted the note at 12%. The proceeds are: LO2 A. $4,400 C. $5,000 B. $4,900 D. $5,100
An employee's rate of pay is $20 per hour, with time and a half for all hours worked in excess of 40 during a week. The social security rate is 6.0% on the first $80,000 of annual earnings, and the Medicare rate is 1.5% on all earnings. The following additional data are available: LO2 Hours worked
What two types of transactions cause most current liabilities? LO2
When are short-term notes payable issued? LO2
When should the liability associated with a product warranty be recorded? Discuss. LO2
Compaq Computer Corporation reported $752 million of product warranties in the current liabilities section of a recent balance sheet. How would costs of repairing a defective product be recorded? LO2
What programs are funded by the FICA (Federal Insurance Contributions Act) tax? LO2
a. Identify the federal taxes that most employers are required to withhold from employees,b. Give the titles of the accounts to which the amounts withheld are credited. LO2
For each of the following payroll-related taxes, indicate whether there is a ceiling on the annual earnings subject to the tax: (a) social security tax, (b) Medicare tax,(c) federal income tax, (d) federal unemployment compensation tax. LO2
Why are deductions from employees' earnings classified as liabilities for the employer? LO2
Do payroll taxes levied against employers become liabilities at the time the liabilities for wages are incurred or at the time the wages are paid? LO2
Taylor Company, with 20 employees, is expanding operations. It is trying to decide whether to hire one employee full-time for $25,000 or two employees part-time for a total of $25,000. Would any of the employer's payroll taxes discussed in this chapter have a bearing on this decision? Explain. LO2
For each of the following payroll-related taxes, indicate whether they generally apply to (a) employees only, (b) employers only, (c) both employees and employers: LO2 1. Social security tax 2. Medicare tax 3. Federal income tax 4. Federal unemployment compensation tax 5. State unemployment
What are the principal reasons for using a special payroll checking account? LO2
In a payroll system, what type of input data are referred to as (a ) constants,
To strengthen internal controls, what department should provide written authoriza- tions for the addition of names to the payroll? LO2
Identify several factors that influence the future pension obligation of an employer under a defined benefit pension plan. LO2
Where should the unfunded pension liability from a defined benefit pension plan be reported on the balance sheet? LO2
What are some examples of postretirement benefits other than pensions that employees may earn for themselves and their dependents? LO2
If a corporation has outstanding 1,000 shares of $9 cumulative preferred stock of $100 par and dividends have been passed for the preceding three years, what is the amount of preferred dividends that must be declared in the current year before a dividend can be declared on common stock? LO5 A. $
Paid-in capital for a corporation may arise from which of the following sources? LO5 A. Issuing cumulative preferred stock B. Receiving donations of real estate C. Selling the corporation's treasury stock D. All of the above
The Stockholders' Equity section of the balance sheet may include: LO5 A. Common Stock B. Donated Capital C. Preferred Stock D. All of the above
A corporation has issued 25,000 shares of $100 par common stock and holds 3,000 of these shares as treasury stock. If the corporation declares a $2 per share cash dividend, what amount will be recorded as cash dividends? LO5 A. $22,000 C. $44,000 B. $25,000 D. $50,000
Contrast the owners' liability to creditors of (a) a partnership (partners) and (b) a corporation (stockholders). LO5
Why is it said that the earnings of a corporation are subject to double taxation?Discuss. LO5
Why are most large businesses organized as corporations? LO5
a. What type of expenditure is charged to the organization costs account?b. Give examples of such expenditures. LO5
Distinguish between paid-in capital and retained earnings of a corporation. LO5
The retained earnings account of a corporation at the beginning of the year had a credit balance of $65,000. The only other entry in the account during the year was a debit of $150,000 transferred from the income summary account at the end of the year, (a) What is the term applied to the $150,000
What are the three basic rights that accompany ownership of a share of common stock? LO5
a. Differentiate between common stock and preferred stock.b. Describe briefly ( 1 ) nonparticipating preferred stock and (2) cumulative preferred stock. LO5
A stockbroker advises a client to "buy cumulative preferred stock. . . . With that type of stock, . . . [you] will never have to worry about losing the dividends." Is the broker right? LO5
What are some sources of paid-in capital other than the issuance of stock? LO5
If a corporation is given land as an inducement to locate in a particular community,(a) how should the amount of the debit to the land account be determined, and (b)what is the title of the account that should be credited for the same amount? LO5
If common stock of $100 par is sold for $130, what is the $30 difference between the issue price and par called? LO5
What are some of the factors that influence the market price of a corporation's stock? LO5
When a corporation issues stock at a premium, is the premium income? Explain. LO5
Land is acquired by a corporation for 15,000 shares of its $25 par common stock, which is currently selling for $70 per share on a national stock exchange. What accounts should be credited to record the transaction? LO5
Indicate which of the following accounts would be reported as part of paid-in capital on the balance sheet: LO5a. Retained Earningsb. Common Stockc. Donated Capitald. Preferred Stock
a. In what respect does treasury stock differ from unissued stock?b. How should treasury stock be presented on the balance sheet? LO5
The treasury stock in Question 19 is resold for $400,000. (a) What is the effect on the corporation's revenue of the period? (b) What is the effect on stockholders' equity? LO5
What is the primary purpose of a stock split? LO5
What are the three conditions for the declaration and the payment of a cash dividend? LO5
The dates in connection with the declaration of a cash dividend are October 1, November 15, and December 30. Identify each date. LO5
A corporation with both cumulative preferred stock and common stock outstanding has a substantial credit balance in its retained earnings account at the beginning of the current fiscal year. Although net income for the current year is sufficient to pay the preferred dividend of $100,000 each
An owner of 200 shares of Dunston Company common stock receives a stock dividend of 4 shares. ( a ) What is the effect of the stock dividend on the stockholder's proportionate interest (equity) in the corporation? (b) How does the total equity of 204 shares compare with the total equity of 200
a. Where should a declared but unpaid cash dividend be reported on the balance sheet?b, Where should a declared but unissued stock dividend be reported on the balance sheet? LO5
During its first year of operations, a corporation elected to use the straight-line method of depreciation for financial reporting purposes and MACRS in determining taxable income. If the income tax is 40% and the amount of depreciation expense is $60,000 under the straight-line method and $100,000
A material gain resulting from condemning land for public use would be reported on the income state- ment as: LO3 A. an extraordinary item B. an other income item C. revenue from sales D. a change in estimate
Parker Corporation. which owns 100% of Sweeney Company. sold merchandise costing $50,000 to Sweeney Company for $75,000. Sweeney then sold the merchandise to a customer for $100,000. Before con- solidation, Parker and Sweeney reported the follow- ing sales, cost of merchandise sold. and gross
Cisneros Corporation owns 75% of Harrell Inc. Dur- ing the current year. Harrell Inc. reported net income of $150,000 and declared dividends of $40,000. How much would Cisneros Corporation increase Investment in Harrell Inc. Stock for the current year? LO3A. SO B. $30,000 C. D. $112,500 $82.500
A corporation has paid estimated federal income tax during the year on the basis of its estimated income. Indicate the accounts that would be debited and credited at the end of the year if the corporation (a) owes an additional tax; (b) overpaid its tax. LO3
How- would the amount of deferred income tax payable be reported in the balance sheet if (a) it is payable within one year and (b) it is payable beyond one year? LO3
What two criteria must be met to classify an item as an extraordinary item on the income statement? LO3
During the current year, -rO acres of land that cost $200,000 were condemned for construction of an interstate highway. Assuming that an award of $350,000 in cash was received and that the applicable income tax on this transaction is 40%, howwould this information be presented in the income
Corporation X realized a material gain when its facilities at a designated floodwav were acquired by the urban renewal agency. How should the gain be reported in the income statement? LO3
An annual report of Sears, Roebuck and Co. disclosed the discontinuance of sct eral business segments, including Coldwell Banker Residential Services. The estimated loss on disposal of these operations was $64 million, including S22 million ot tax expense. Indicate how the loss from discontinued
If significant changes are made in the accounting principles applied from one period to the next, why should the effect of these changes be disclosed in the financial statements? LO3
A corporation reports earnings per share of SI. 38 for the most recent year and SI. 10 for the preceding year. The $1.38 includes a $0.-r5-per-share gain from insurance proceeds related to a fully depreciated asset that was destroyed by fire, (a) Should the composition of the $1.38 be disclosed in
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