ACCT-311 Lecture Notes - Lecture 2: Income Statement
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At the start of the current year, SBC Corp. purchased 30% of SkyTech Inc. for $53 million. At the time of purchase, the carryingvalue of Sky Tech's net assets was $90 million. The fair value ofSky Tech's depreciable assets was $20 million in excess of theirbook value. For this year, Sky Tech reported a net income of $90million and declared and paid $20 million in dividends. |
The amount of purchased goodwill is: |
$20 million.
$33 million.
$73 million.
None of the above is correct.
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Universal Travel Inc. borrowed $500,000 on November 1, 2016, andsigned a 12-month note bearing interest at 6%. Interest is payablein full at maturity on October 31, 2017. In connection with thisnote, Universal Travel Inc. should report interest payable atDecember 31, 2016, in the amount of (Do not roundintermediate calculations. Round your final answer to the nearestwhole dollar amount): |
$5,000.
$20,000.
$25,000.
$30,000.
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Oklahoma Oil Corp. paid interest of $779,000 during 2016, andthe interest payable account decreased by $122,500. What wasinterest expense for the year? |
$656,500.
$779,000.
$901,500.
$534,000.
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Lake Co. receives nonrefundable advance payments with specialorders for containers constructed to customer specifications.Related information for 2016 is as follows ($ in millions): |
Customer advances balance, Dec. 31, 2015 | $118 |
Advances received with 2016 orders | 203 |
Advances applicable to orders shipped in 2016 | 181 |
Advances from orders canceled in 2016 | 43 |
What amount should Lake report as a current liability foradvances from customers in its Dec. 31, 2016, balance sheet? |
$97 million.
$0 million.
$321 million.
$140 million.
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On December 31, 2016, L Inc. had a $3,200,000 note payableoutstanding, due July 31, 2017. L borrowed the money to financeconstruction of a new plant. L planned to refinance the note byissuing long-term bonds. Because L temporarily had excess cash, itprepaid $670,000 of the note on January 23, 2017. In February 2017,L completed a $4,700,000 bond offering. L will use the bondoffering proceeds to repay the note payable at its maturity and topay construction costs during 2017. On March 13, 2017, L issued its2016 financial statements. What amount of the note payable should Linclude in the current liabilities section of its December 31,2016, balance sheet? |
$2,530,000.
$3,200,000.
$0.
$670,000.
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Branch Company, a building materials supplier, has $18,900,000of notes payable due April 12, 2017. At December 31, 2016, Branchsigned an agreement with First Bank to borrow up to $18,900,000 torefinance the notes on a long-term basis. The agreement specifiedthat borrowings would not exceed 75% of the value of the collateralthat Branch provided. At the date of issue of the December 31,2016, financial statements, the value of Branch's collateral was$19,100,000. On its December 31, 2016, balance sheet, Branch shouldclassify the notes as follows: |
$18,900,000 of long-term liabilities.
$18,900,000 of current liabilities.
$14,325,000 long-term and $4,575,000 current liabilities.
$4,725,000 long-term and $14,175,000current liabilities.
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At the beginning of 2016, Angel Corporation began offering a2-year warranty on its products. The warranty program was expectedto cost Angel 6% of net sales. Net sales made under warranty in2016 were $207 million. Fifteen percent of the units sold werereturned in 2016 and repaired or replaced at a cost of $5.20million. The amount of warranty expense on Angel's 2016 incomestatement is: |
$31.05 million.
$12.42 million.
$5.20 million.
$15.82 million.
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Henriettaâs Pine Bakery
Background
You are an Analyst for the professional service firm, BUSI 1043LLP. Your firm specializes in providing a wide variety of internalbusiness solutions for different clients. Given the outstandingfeedback you received on your first engagement working for BigSpenders Inc., a Senior Manager in the Financial Advisory grouprequested your support on a compilation engagement.
Additional Information
Henriettaâs was established in 1963 when it first opened itsdoors in Dwight, Muskoka on highway 60. Over the past 50 years,there have been four owners and is currently owned by Carine &Geoff Harris who incorporated and took over the store on January 1,2013. Their sons, Kyle and Nicholas have been an intricate part ofthe business from dishwashing to head bakers. Henrietta's has grownover the years with the addition of new items all the time, but the"Sticky Buns and Clouds" remain the most popular items amongst the150 varieties of breads and pastries.
Henriettaâs runs out of 90 square meters (1,000 share feet) ofspace. It has one entrance into the bakery and doors leading out tohighway 60. Henriettaâs pays $5,000 per month for the rental of thespace. Carine and Geoff were able to negotiate with the landlordand were not required to pay the first monthâs rend in advance. Allof the rental payments are current and up to date. For the last twoyears, Henriettaâs has had a very reliable accountant prepare itsyear-end financial statements and everything has been correct. Thisyear, Henriettaâs accountant retired and Geoff did the best hecould recording his own financial information. For the informationhe was not sure about, he kept all of the required supportingdocumentation. Geoff hired your firm, BUSI 1043 LLP to prepare hisfinancial statements for the year. Geoff supplied you with hisunadjusted trial balance and the information in Exhibit I to assistyou.
Supplementary information:
The amount currently sitting in prepaids arose due the insurancepolicy last year. Geoff didnât know how to correct it, so he leftit. This yearâs insurance policy was purchased on November 1 for$9,000. The policy runs from November 1 to October 31 of eachyear.
Geoff has a note that he owed $900 in wages to his employees forthe period ending December 31st.
The loan was incurred when the bakery was opened. The loancarried an interest rate of 8%. The interest is payable two monthsafter year end and the principal is due in 2019.
Henriettaâs will sometimes book special events with smallorganizations that are allowed to pay after the event has takenplace. On December 29th, a small company had a gatheringat the bakery. The company was billed $1,089 and has 30 days to payit. Geoff has not yet recorded this in his financial records.
Henriettaâs declared a dividend of $5,000 on December30th.
Geoff didnât know how to record amortization for the year and soleft it for you to record. Amortization for all assets is chargedusing a straight-line method by taking the cost of the asset anddividing it by its expected useful life. The assets have expecteduseful lives as follows:
Computer: 5 years
Bakery equipment: 10 years
Furniture and fixtures: 20 years
The information shows that Henriettaâs owes $400 for a telephonebill and $400 for electricity for December. These amounts have notbeen recorded yet.
Exhibit I
Henriettaâs Pine Bakery
Unadjusted Trial Balance
December 31, 2015
Account Name | Debit | Credit |
Cash | $35,000 | |
Accounts Receivable | 5,600 | |
Food Inventory | 21,000 | |
Merchandise Inventory | 62,500 | |
Prepaids | 3,400 | |
Computers | 30,000 | |
Accumulated Amortization â Computers | 12,000 | |
Bakery Equipment | 90,000 | |
Accumulated Amortization â Bakery Equipment | 18,000 | |
Furniture and Fixtures | 150,000 | |
Accumulated Amortization â Furniture and Fixtures | 15,000 | |
Accounts Payable | 18,000 | |
Accrued Liabilities | - | |
Interest Payable | ||
Dividend Payable | - | |
Long-term Loan | 220,000 | |
Common Shares | 50,000 | |
Retained Earnings | 22,000 | |
Food Revenue | 468,500 | |
Internet Revenue | 127,000 | |
Merchandise Revenue | 103,000 | |
Food Expense | 240,000 | |
Internet Expense | 54,000 | |
Electricity Expense | 65,000 | |
Telephone Expense | 20,000 | |
Interest Expense | 0 | |
Salary Expense | 200,000 | |
Insurance Expense | 9,000 | |
Supplies Expense | 8,000 | |
Depreciation Expense | - | |
Rent Expense | 60,000 | |
1,053,500 | 1,053,500 |
Required
Based on the information you have, prepare the adjusting journalentries, an adjusting trial balance, the statement of earnings(income statement), statement of financial position (balancesheet), and statement of retained earnings. After you havecompleted the statements, prepare the closing journal entries andthe posting closing trial balance. Ensure you show all of yourwork, and prepare proper journal entries and properly formattedfinancial statements.
Henriettaâs Pine Bakery
Background
You are an Analyst for the professional service firm, BUSI 1043LLP. Your firm specializes in providing a wide variety of internalbusiness solutions for different clients. Given the outstandingfeedback you received on your first engagement working for BigSpenders Inc., a Senior Manager in the Financial Advisory grouprequested your support on a compilation engagement.
Additional Information
Henriettaâs was established in 1963 when it first opened itsdoors in Dwight, Muskoka on highway 60. Over the past 50 years,there have been four owners and is currently owned by Carine &Geoff Harris who incorporated and took over the store on January 1,2013. Their sons, Kyle and Nicholas have been an intricate part ofthe business from dishwashing to head bakers. Henrietta's has grownover the years with the addition of new items all the time, but the"Sticky Buns and Clouds" remain the most popular items amongst the150 varieties of breads and pastries.
Henriettaâs runs out of 90 square meters (1,000 share feet) ofspace. It has one entrance into the bakery and doors leading out tohighway 60. Henriettaâs pays $5,000 per month for the rental of thespace. Carine and Geoff were able to negotiate with the landlordand were not required to pay the first monthâs rend in advance. Allof the rental payments are current and up to date. For the last twoyears, Henriettaâs has had a very reliable accountant prepare itsyear-end financial statements and everything has been correct. Thisyear, Henriettaâs accountant retired and Geoff did the best hecould recording his own financial information. For the informationhe was not sure about, he kept all of the required supportingdocumentation. Geoff hired your firm, BUSI 1043 LLP to prepare hisfinancial statements for the year. Geoff supplied you with hisunadjusted trial balance and the information in Exhibit I to assistyou.
Supplementary information:
The amount currently sitting in prepaids arose due the insurancepolicy last year. Geoff didnât know how to correct it, so he leftit. This yearâs insurance policy was purchased on November 1 for$9,000. The policy runs from November 1 to October 31 of eachyear.
Geoff has a note that he owed $900 in wages to his employees forthe period ending December 31st.
The loan was incurred when the bakery was opened. The loancarried an interest rate of 8%. The interest is payable two monthsafter year end and the principal is due in 2019.
Henriettaâs will sometimes book special events with smallorganizations that are allowed to pay after the event has takenplace. On December 29th, a small company had a gatheringat the bakery. The company was billed $1,089 and has 30 days to payit. Geoff has not yet recorded this in his financial records.
Henriettaâs declared a dividend of $5,000 on December30th.
Geoff didnât know how to record amortization for the year and soleft it for you to record. Amortization for all assets is chargedusing a straight-line method by taking the cost of the asset anddividing it by its expected useful life. The assets have expecteduseful lives as follows:
Computer: 5 years
Bakery equipment: 10 years
Furniture and fixtures: 20 years
The information shows that Henriettaâs owes $400 for a telephonebill and $400 for electricity for December. These amounts have notbeen recorded yet.
Exhibit I
Henriettaâs Pine Bakery
Unadjusted Trial Balance
December 31, 2015
Account Name | Debit | Credit |
Cash | $35,000 | |
Accounts Receivable | 5,600 | |
Food Inventory | 21,000 | |
Merchandise Inventory | 62,500 | |
Prepaids | 3,400 | |
Computers | 30,000 | |
Accumulated Amortization â Computers | 12,000 | |
Bakery Equipment | 90,000 | |
Accumulated Amortization â Bakery Equipment | 18,000 | |
Furniture and Fixtures | 150,000 | |
Accumulated Amortization â Furniture and Fixtures | 15,000 | |
Accounts Payable | 18,000 | |
Accrued Liabilities | - | |
Interest Payable | ||
Dividend Payable | - | |
Long-term Loan | 220,000 | |
Common Shares | 50,000 | |
Retained Earnings | 22,000 | |
Food Revenue | 468,500 | |
Internet Revenue | 127,000 | |
Merchandise Revenue | 103,000 | |
Food Expense | 240,000 | |
Internet Expense | 54,000 | |
Electricity Expense | 65,000 | |
Telephone Expense | 20,000 | |
Interest Expense | 0 | |
Salary Expense | 200,000 | |
Insurance Expense | 9,000 | |
Supplies Expense | 8,000 | |
Depreciation Expense | - | |
Rent Expense | 60,000 | |
1,053,500 | 1,053,500 |
Required
Based on the information you have, prepare the
1) adjusting journal entries,
2) an adjusting trial balance,
3) the statement of earnings (income statement),
4) statement of financial position (balance sheet), andstatement of retained earnings. After you have completed thestatements,
5) prepare the closing journal entries and the
6) posting closing trial balance.
Ensure you show all of your work, and prepare proper journalentries and properly formatted financial statements.
