C1.The interest charged on a $100,000 note payable, at the rate of 8%, on a 90-day
note would be
a. $8,000.
b. $4,444.
c. $2,000.
d. $667
C2.On January 1, 2008, Brunson Company, a calendar-year company, issued
$400,000 of notes payable, of which $100,000 is due on January 1 for each of
the next four years. The proper balance sheet presentation on December 31,
2008, is
a. Current Liabilities, $400,000.
b. Long-term Debt , $400,000.
c. Current Liabilities, $100,000; Long-term Debt, $300,000.
d. Current Liabilities, $300,000; Long-term Debt, $100,000.
C3.The current ratio is
a. current assets plus current liabilities.
b. current assets minus current liabilities.
c. current assets divided by current liabilities.
d. current assets multiplied by current liabilities.
B4.The accounting for warranty costs is based on the
a. going concern principle.
b. matching principle.
c. conservatism principle.
d. objectivity principle.
C5.A current liability is a debt the company reasonably expects to pay from existing
current assets within
a. one year.
b. the operating cycle.
c. one year or the operating cycle, whichever is longer.
d. one year or the operating cycle, whichever is shorter.
C6. Bob is investing in a partnership with Jerry. Bob contributes equipment that
originally cost $63,000, has a book value of $30,000, and a fair market value
of $39,000. The entry that the partnership makes to record Bob's initial
contribution includes a
a. debit to Equipment for $33,000.
b. debit to Equipment for $63,000.
c. debit to Equipment for $39,000.
d. credit to Accumulated Depreciation for $33,000.
C7.
In the liquidation of a partnership, any gain or loss on the realization of
noncash assets should be allocated
a. first to creditors and the remainder to partners.
b. to the partners on the basis of their capital balances.
c. to the partners on the basis of their income-sharing ratio.
d. only after all creditors have been paid.
C8.Partners A, B, and C have capital account balances of $120,000 each. The
income and loss ratio is 5:2:3, respectively. In the process of liquidating the
partnership, noncash assets with a book value of $100,000 are sold for
$40,000. The balance of Partner B's Capital account after the sale is
a. $90,000.
b. $102,000.
c. $108,000.
d. $132,000.
C9.In the final step of the liquidation process, remaining cash is distributed to partners
a. on an equal basis.
b. on the basis of the income ratios.
c. on the basis of the remaining capital balances.
d. regardless of capital deficiencies.
C10.A, B and C are partners, sharing income 2:1:2. After selling all of the assets for
cash, dividing gains and losses on realization, and paying liabilities, the
balances in the capital accounts are as follows: A, $10,000 Cr; B, $10,000 Cr;
and C, $30,000 Cr. How much cash should be distributed to A?
a. $6,000
b. $20,000
c. $10,000
d. $16,667
11
Tom Byers sells televisions with a 2-year warranty. Past experience indicates that 2%
of the units sold will be returned during the warranty period for repairs. The average
cost of repairs under warranty is estimated to be $50 per unit. During 2008, 7,000
units were sold at an average price of $400. During the year, repairs were made on 55
units at a cost of $2,400.
Instructions
Prepare journal entries to record the repairs made under warranty and estimated
warranty expense for the year.
Solution 11 (5 min.)
Estimated Warranty Liability ...............................................................
2,400
Repair Parts/Wages Payable .....................................................
2,400
(To record cost of honoring 55 warranties)
Warranty Expense ..............................................................................
7,000
Estimated Warranty Liability .......................................................
12
Presley Company sells a product that includes a one-year warranty on parts and
labor. During the year, 10,000 units are sold. Presley expects that 3% of the units will
be defective and that the average warranty cost will be $50 per unit. Actual warranty
costs incurred during the year were $14,000.
Instructions
Prepare the journal entries to record (a) the estimated warranty costs and (b) the
actual costs incurred.
Solution 12 (5 min.)
(a) Warranty Expense (10,000 × 3% × $50)
Estimated Warranty Liability
(b) Estimated Warranty Liability
15,000
15,000
14,000
Repair Parts, Wages Payable, etc.
14,000
Ex. 13
The Smith and Wilson partnership reports net income of $45,000. Partner salary
allowances are Smith $18,000 and Wilson $12,000. Any remaining income is shared
60:40.
Instructions
Determine the amount of net income allocated to each partner.
7,000
Solution 13 (5 min.)
Salary allowance
Smith
Wilson
Total
$18,000
$12,000
$30,000
6,000
15,000
$18,000
$45,000
Remaining income, $15,000
Smith ($15,000 × 60%)
9,000
Wilson ($15,000 × 40%)
Total division
$27,000
Ex. 14
Prior to the distribution of cash to the partners, the accounts of ABC Company are:
Cash $30,000, Alt Capital (Dr.) $10,000, Bell Capital (Cr.) $25,000, and Cole Capital
(Cr.) $15,000. They share income on a 5:3:2 basis.
Instructions
Prepare entries to record (a) the absorption of Alt's capital deficiency by the other
partners and (b) the distribution of cash to the partners with credit balances.
Solution 14 (8 min.)
(a)
Bell, Capital ($10,000 × 3/5) ........................................................
6,000
Cole, Capital ($10,000 × 2/5) .......................................................
4,000
Alt, Capital ..........................................................................
(b)
10,000
Bell, Capital ($25,000 – $6,000) ..................................................
19,000
Cole, Capital ($15,000 – $4,000) .................................................
11,000
Cash ...................................................................................
30,000