Question 1

Barkley Company will receive $400,000 in a future year.If the future receipt is discounted at an interest rate of 8%, its present value is $252,068.In how many years is the $400,000 received?

Accepted Answer

The answer of Barkley Company will receive $400,000 in a...

Question 2

On September 1, 2017 Culver Corp.issued a 9% note payable to National Bank for $750,000, payable in three equal annual principal payments of $250,000, plus interest.On this date, the bank's prime rate was 8%.The first payment for interest and principal was made on September 1, 2018.At December 31, 2018, Culver should record accrued interest payable of

Accepted Answer

The answer of On September 1, 2017 Culver Corp.issued a...

Question 3

Frog Corporation had revenues of $300,000, expenses of $200,000, and dividends of $45,000.When Income Summary is closed to Retained Earnings, the amount of the debit or credit to Retained Earnings is a

Accepted Answer

Income Summary is closed to Retained Earnings for the purpose of transferring net income or loss to the owners' equity account. In this case, Frog Corporation had revenues of $300,000 and expenses of $200,000, which results in net income of $100,000 ($300,000 - $200,000). However, the company also paid dividends of $45,000, which reduces the amount of net income retained by the company. Therefore, the credit to Retained Earnings would be $55,000 ($100,000 - $45,000), which means that the answer is C.

Question 4

On June 1, 2017, Carr Corp.loaned Farr Corp.$600,000 on a 5% note, payable in five annual instalments of $120,000 (plus interest), beginning January 2, 2018.Interest on the note is payable on the first day of each month beginning July 1, 2017.Farr made timely payments through November 1, 2017.On January 2, 2018, Carr received payment of the first principal instalment plus all interest due.At December 31, 2017, Carr's interest receivable on this loan is

Accepted Answer

Interest for December 2017 is $600,000 x 5% / 12 = $2,500. Interest for January 1, 2018 is $600,000 x 5% / 12 = $2,500. Total interest receivable at December 31, 2017 is $5,000.

Question 5

On December 1, 2017, Flynn Consulting paid $27,000 for a three-year insurance policy (December 1, 2017 to November 30, 2020)and debited the entire amount to Prepaid Insurance.The December 31, 2017 required adjusting entry in connection with this policy would be

Accepted Answer

The adjusting entry for prepaid insurance is made at the end of the accounting period to recognize the portion of the prepaid insurance that has expired or been used up. In this case, the insurance policy covers three years, so the portion that has expired at the end of the first year (December 31, 2017) is one-third of the total ($27,000/3 = $9,000).

To adjust for this, we need to reduce the balance in Prepaid Insurance (a balance sheet account) and recognize an expense for the amount that has expired (an income statement account). The adjusting entry is:

Debit Insurance Expense $9,000
Credit Prepaid Insurance $9,000

Option B correctly represents this entry, debiting Insurance Expense (recognizing the expense) and crediting Prepaid Insurance (reducing the asset account). Option A and D are incorrect because they do not recognize the amount that has expired correctly. Option C is incorrect because it credits Insurance Expense instead of debiting it, which would decrease expenses and result in an incorrect net income.

Question 6

Mark-Wall Corp.'s trademark was licensed to Rodgers Inc.for royalties of 12% of sales of the trademarked items.Royalties are payable semi-annually on March 15 for sales in July through December of the previous year, and on September 15 for sales in January through June of the same year.Mark-Wall received the following royalties from Rodgers:  Rodgers estimates that sales of the trademarked items would total $67,000 for July through December 2018.On their statement of comprehensive income for calendar 2018, Mark-Wall's royalty revenue should be

Accepted Answer

To calculate royalties for July through December 2018, we use the formula:
Royalties = Sales x Royalty Rate
Royalties = $67,000 x 12% = $8,040

Since royalties are payable semi-annually, Mark-Wall will receive half of this amount, or $4,020, on March 15, 2019, and the other half on September 15, 2019.

On the statement of comprehensive income for calendar 2018, Mark-Wall should recognize the total royalty revenue earned in 2018, which is the sum of the two semi-annual payments:
$4,020 + $4,020 = $8,040

Therefore, the correct answer is C ($14,040).

Question 7

Rathbone Corp.sells major household appliance service contracts for cash.The service contracts are for a one-year, two-year, or three-year period.Cash receipts from contracts are credited to Unearned Service Revenues.This account had a balance of $1,100,000 at December 31, 2017 before year-end adjustment.Service contract costs are charged as incurred to the Service Contract Expense account, which had a balance of $325,000 at December 31, 2017.
Service contracts still outstanding at December 31, 2017 expire as follows: 
What amount should be reported as Unearned Service Revenues on Rathbone's December 31, 2017 statement of financial position?

Accepted Answer

The answer of Rathbone Corp.sells major household appliance service contracts...

Question 8

Grant Limited pays all salaried employees on a biweekly basis.Overtime pay, however, is paid in the next biweekly period.Grant accrues salaries expense only at its December 31 year end.Data relating to salaries earned in December 2017 are as follows:
Last payroll was paid on Dec 27, 2017, for the two-week period ended Dec 27, 2017.
Overtime pay earned in the two-week period ended Dec 27, 2017 was $7,000.
Remaining work days in 2017 were December 28, 29, 30, on which days there was no overtime.
The regular biweekly salaries total $100,000.Assuming a five-day work week, Grant should record a liability at December 31, 2017 for accrued salaries of

Accepted Answer

The regular biweekly salaries total $100,000 which means that each biweekly payroll is $50,000. The last payroll for the two-week period ended on December 27, 2017, which means that the last two remaining work days in 2017 are not included in that payroll.

Therefore, the regular biweekly salaries earned in the two remaining work days in 2017 are $100,000 / 10 days = $10,000 per day x 2 days = $20,000.

In addition, there was overtime pay earned in the two-week period ended Dec 27, 2017 was $7,000 which will be paid in the next biweekly period.

Thus, the accrued salaries at December 31, 2017 are as follows:

Regular biweekly salaries earned in the two remaining work days in 2017: $20,000.

Overtime pay earned in the two-week period ended Dec 27, 2017: $7,000.

Total accrued salaries at December 31, 2017: $20,000 + $7,000 = $27,000.

Therefore, the best choice is C) $37,000.

Quiz 3: The Accounting Information System and Measurement Issues

Barkley Company will receive $400,000 in a future year.If the future receipt is discounted at an interest rate of 8%, its present value is $252,068.In how many years is the $400,000 received?

Frog Corporation had revenues of $300,000, expenses of $200,000, and dividends of $45,000.When Income Summary is closed to Retained Earnings, the amount of the debit or credit to Retained Earnings is a

On December 1, 2017, Flynn Consulting paid $27,000 for a three-year insurance policy (December 1, 2017 to November 30, 2020) and debited the entire amount to Prepaid Insurance.The December 31, 2017 required adjusting entry in connection with this policy would be