Net Income & Loss Account - Accounting Exam

Net Income & Loss Account – Accounting Exam

These Finance chapters discuss Net Income & Loss Account – The Accounting Exam is based on these chapters.

Changes in all of E’s balance sheet accounts during the current year, EXCEPT the change in E’s retained earnings account, follow:

Cash increased $45,000
Fixed assets increased $25,000
Accumulated depreciation increased $10,000
Accounts payable increased $12,000
Unearned revenue decreased $20,000
Common stock increased $21,000
Additional paid-in-capital increased $22,000

What was E’s net income (or net loss) for the year assuming the only two entries E made to her retained earnings account during the year were for a cash dividend declared and paid of $5,000 and for her net income (or net loss) for the year.

$25,000 net loss

$50,000 net income

$27,000 net income

$30,000 net income – Correct

$24,000 net income

Ace Company reported the following items in the most recent year:

*Issuance of notes payable…………………….$90,000
*Purchase of fixed assets………………………$70,000
*Depreciation expense…………………………..$15,000
*Decrease in prepaid expenses………………$10,000
*Cash dividends paid……………………………. $25,000
*Net income………………………………………….$95,000
*Increase in unearned revenues……………..$17,000
*Increase in accounts receivable…………….$20,000

What was Ace’s net cash provided by operating activities and its net increase in cash, respectively?

$103,000, $112,000

$117,000, $122,000

$97,000, $122,000

$100,000, $152,000

$117,000, $112,000 – Correct

Argo Boat Manufacturing Company had the following transactions during the year ending 12-31-19:

*$900,000 of gains from selling its investments in Facebook and Target stock.
*$500,000 of sales of boats
*$150,000 of losses from selling some of its fixed assets
*$40,000 of losses from writing down some of its boat inventory

Argo is subject to a 20% tax rate. On its Income Statement for the year ending 12-31-19, Argo should report “Other net gains/losses” of:

$1,210,000 gain

$568,000 gain

$280,000 gain

$710,000 gain – Correct

$968,000 gain

Assume S Company only prepares AJEs as of December 31, the end of S’s accounting year. On March 1, S received $12,000 of rent for 12 months in advance and recorded the receipt in a nominal account. The AJE S will make on December 31 will include a(an)

$2,000 credit to unearned rent – Correct

$10,000 debit to rent revenue

$3,000 debit to unearned rent

$3,000 debit to rent revenue

$2,000 debit to unearned rent

$25,000 net loss

$50,000 net income

$27,000 net income

$30,000 net income – Correct

$24,000 net income

$103,000, $112,000

$117,000, $122,000

$97,000, $122,000

$100,000, $152,000

$117,000, $112,000 – Correct

$1,210,000 gain

$568,000 gain

$280,000 gain

$710,000 gain – Correct

$968,000 gain

The failure to properly record an adjusting entry to accrue an expense will result in an

overstatement of expenses and an overstatement of assets.

understatement of expenses and an understatement of assets.

understatement of expenses and an understatement of liabilities. – Correct

the understatement of expenses and an overstatement of liabilities.

understatement of net income.

The following information was taken from the D Company’s balance sheets:

	12-31-18	12-31-19
Unearned consulting fees	$60,000	$80,000
Prepaid advertising	$30,000	$60,000
Advertising payable	$95,000	$55,000
Consulting fees receivable	$45,000	$35,000
Unearned advertising income	$75,000	$25,000
Wages payable	$10,000	$70,000

Additional information for D follows.

For the year ended 12-31-19, D reported $300,000 of wages expense.

During the year ended 12-31-19, D made cash payments of $200,000 related to advertising.

For the year ended 12-31-19, D reported $600,000 of consulting fees revenue.

How much cash did D collect during the year ended 12-31-19 related to consulting fees?

$610,000

$590,000

$630,000 – Correct

$570,000

$600,000

Based on an aging of its accounts receivable, the required balance in Portage’s allowance for doubtful accounts is $40,000. Portage’s unadjusted trial balance currently has a debit balance of $4,000. After adjustment, Portage’s bad debt expense for the period is:

$40,000

$42,000.

$44,000. – Correct

$36,000.

$4,000.

What is “recourse” as it relates to selling, i.e., factoring, receivables?

The obligation of the factor to pay the seller of the receivables in case the customer fails to pay.

obligation of the seller of the receivables to pay the factor when the customer returns a product.

The obligation of the seller of the receivables to pay the factor in case the customer fails to pay. – Correct

obligation of the factor to pay the seller of the receivables when the customer returns a product.

The obligation of the factor to pay the seller of the receivables if all of the receivables are collected.

As of 12-31-19, Dot’s allowance for doubtful accounts had a balance of $50,000. During 2020, Dot wrote off uncollectible accounts receivable of $37,000 and collected $6,000 of accounts receivable Dot had written off during 2019. The aging schedule of Dot’s accounts receivable indicated that as of 12-31-20, Dot needed a $63,000 allowance for doubtful accounts. What amount of bad debts expense did Dot record for the year ended 12-31-20?

$56,000

$44,000 – Correct

$50,000

$82,000

$45,000

Mellow purchased a machine to be used in its factory for $100,000. In receiving and installing the machine, Mellow incurred the following additional costs: $16,000 of shipping costs and $14,000 of installation costs. In addition, Mellow incurred and paid $4,000 of costs caused by damage during the installation. What amount should Mellow capitalize in its machine account?

$130,000 – Correct

$100,000

$116,000

$134,000

$118,000

The amount of fixed assets reported on the balance sheet may include

equipment that is no longer being used and is awaiting sale.

none of the answers are correct. – Correct

deposits on machinery and equipment that has not yet been received.

land currently being held as an investment.

office furniture intended to be sold and currently being held in a warehouse.

$40,000

$42,000.

$44,000. – Correct

$36,000.

$4,000.

What is “recourse” as it relates to selling, i.e., factoring, receivables?

The obligation of the factor to pay the seller of the receivables in case the customer fails to pay.

obligation of the seller of the receivables to pay the factor when the customer returns a product.

The obligation of the seller of the receivables to pay the factor in case the customer fails to pay. – Correct

obligation of the factor to pay the seller of the receivables when the customer returns a product.

The obligation of the factor to pay the seller of the receivables if all of the receivables are collected.

On April 1, Mooney Corporation purchased a tract of land for $1,500,000. The land purchase included a warehouse and an office building that were on the premises. The current assessed valuation and the owner’s original cost, respectively, of each fixed asset follows:

Land: $600,000, $150,000
Warehouse; $300,000, $270,000
Office building: $900,000, $680,000

What are the amounts that Mooney should record for the land, warehouse, and office building, respectively?

Land, $500,000; warehouse, $500,000; office building, $500,000.

Land, $204;545; warehouse, $368,182; office building, $927,273.

Land, $150,000; warehouse, $270,000; office building, $680,000.

Land, $600,000; warehouse, $300,000; office building, $900,000.

Land, $500,000; warehouse, $250,000; office building, $750,000. – Correct

Acme Company reported the following relating to its only inventory item:

Inventory on hand, January 1, 25 units costing $32 per unit
Purchases, January 8, 30 units costing $38 per unit
the Purchases, January 15, 20 units costing $41 per unit
Purchases, January 26, 15 units costing $45 per unit
Total cost of goods available for sale equaled 90 units costing $3,435

Total sales equaled 60 units for sales revenues of $4,800

Assuming Acme uses a weighted average costing method and rounds its unit cost to the nearest penny. What was Acme’s ending inventory?

$1,140

$1,133

$1,145 – Correct

$1,520

$1,600

On October 1, 2019, M purchased machinery for $200,000. Salvage value was estimated at $10,000. The machinery will be depreciated over 4 years using a double-declining balance method. If depreciation is computed on the basis of the nearest full month, what should M record as depreciation for 2020?

$83,333

$84,167

$83,125

$87,500 – Correct

$50,000

Acme Company reported the following relating to its only inventory item:

Inventory on hand, January 1, 25 units costing $16 per unit
Purchases, January 8, 30 units costing $38 per unit
the Purchases, January 15, 20 units costing $41 per unit
Purchases, January 26, 15 units costing $45 per unit
Total cost of goods available for sale equaled 90 units costing $3,035

Sales, January 9, 25 units
And Sales, January 16, 30 units
Sales, January 28, 5 units
Total sales equaled 60 units for sales revenues of $4,200

Assuming Acme uses a perpetual LIFO costing method, what was Acme’s ending inventory and cost of goods sold, respectively?

$770, $3,430

$625, $2,410

$1,185, $1,850

$1,185, $3,015

$770, $2,265 – Correct

H owns machinery with a book value of $190,000. H estimates the machinery will generate future net cash inflows of $200,000. The machinery has a fair value of $140,000. H should recognize an impairment loss of

$140,000.

$10,000.

$50,000.

$0. – Correct

$60,000.

New England Co. had net cash provided by operating activities of $351,000; net cash used by investing activities of $420,000; and cash provided by financing activities of $250,000.

New England’s cash balance was $27,000 on January 1. During the year, there was a sale of land that resulted in a gain of $25,000, and proceeds of $40,000 were received from the sale.

What was New England’s cash balance at the end of the year?

$208,000 – Correct

$40,000

$27,000

$248,000

Explanation
Correct answer iconThe cash balance at the end of the year equals the cash balance at the beginning of the year, $27,000, plus the net sum of the three categories of cash flows: $351,000 operating − $420,000 investing + $250,000 financing. The ending balance is $208,000.

The $40,000 proceeds from land sale are included in the net cash outflow from investing activities.

Net Income & Loss Account

Weaver Company sells magazine subscriptions for a 1-year, 2-year, or 3-year period. Cash receipts from subscribers are credited to magazine subscriptions collected in advance, and this account had a balance of $1,700,000 at December 31, year 1. Information for the year ended December 31, year 2, is as follows:

Cash receipts from subscribers		$2,100,000

Magazine subscriptions revenue (credited at 12/31/Y2)		1,500,000

In its December 31, year 2 balance sheet, what amount should Weaver report as the balance for magazine subscriptions collected in advance?

$1,400,000

$2,100,000

$1,900,000

$2,300,000 – Correct

Explanation
As receipts are collected, the liability is credited to record the additional subscriptions owed to customers. In addition, the liability is decreased as revenue from the subscriptions is earned. Based upon the information given, Weaver should report $2,300,000 of subscriptions collected in advance at December 31, year 2.

Net Income & Loss Account

Presented below are data for Antwerp Corp.

	2020		2021
Assets, January 1		$4200		$5040
Liabilities, January 1		2520		?
Stockholders’ Equity, Jan. 1		?		?
Dividends		840		630
Common Stock		756		672
Stockholders’ Equity, Dec. 31		?		?
Net Income		840		672