Financial Accounting Questions and Answers

TechSystems, Architects earned $3,600,000 during 2012 using 20 employees. During 2013, the firm reduced revenues to $3,200,000 and reduced the staff to 16 employees. a. Determine the revenue per employee for each year. b. Interpret the results. Answer: a. 2012: $3,600,000/20 employees = $180,000 per employee 2013: $3,200,000/16 employees = $200,000 per employee b. TechSystems, Architects reduced revenues by $400,000 ($3,600,000 – $3,200,000), or 11.1% ($400,000/$3,600,000). The number of employees declined by 4, or 20% (4/20). The decline in revenue was less than the decline in number of employees; thus, the revenue per employee improved between the two years. The firm is more efficient in generating revenues from its staff resources between the two years.  

Prior to liquidating their partnership, Chow and Fuentes had capital accounts of $85,000 and $165,000, respectively. The partnership assets were sold for $45,000. The partnership had no liabilities. Chow and Fuentes share income and losses equally. a. Determine the amount of Chow’s deficiency. b. Determine the amount distributed to Fuentes, assuming Chow is unable to satisfy the deficiency. Answer: a. Chow’s equity prior to liquidation................................   $ 85,000   Realization of asset sales............................................. $ 45,000  Book value of assets.....................................................  250,000*  Loss on liquidation........................................................ $(205,000)  Chow’s share of loss (50% × $205,000).......................    (102,500)  Chow’s deficiency.........................................................   $ (17,500)   *$85,000 + $165,000   b. $45,000. ($...

Aaron and Rogers, CPAs earned $12,600,000 during 2012 using 90 employees. During 2013, the firm grew revenues to $14,400,000 and expanded the staff to 96 employees. a. Determine the revenue per employee for each year. b. Interpret the results. Answer: a. 2012: $12,600,000/90 employees = $140,000 per employee 2013: $14,400,00/96 employees = $150,000 per employee b. Aaron and Rogers, CPAs grew revenues by $1,800,000 ($14,400,000 – $12,600,000), or 14.3% ($1,800,000/$12,600,000). The number of employees  expanded by 6, or 6.7% (6/90). The growth in revenue was more than the growth in number of employees; thus, the revenue per employee improved between the two years. The firm is more efficient in generating revenues from its staff resources between the two years.

Prior to liquidating their partnership, Jolly and Haines had capital accounts of $80,000 and $45,000, respectively. The partnership assets were sold for $30,000. The partnership had no liabilities. Jolly and Haines share income and losses equally. a. Determine the amount of Haines’ deficiency. b. Determine the amount distributed to Jolly, assuming Haines is unable to satisfy the deficiency. Answer: a. Haines’ equity prior to liquidation................................   $ 45,000   Realization of asset sales............................................. $ 30,000  Book value of assets.....................................................  125,000*  Loss on liquidation........................................................ $ (95,000)  Haines’ share of loss (50% × $95,000).........................    (47,500)  Haines’ deficiency.........................................................   $ (2,500)   *$80,000 + $45,000   b. $30,000. ...

Prior to liquidating their partnership, Fowler and Ericson had capital accounts of $26,000 and $40,000, respectively. Prior to liquidation, the partnership had no cash assets other than what was realized from the sale of assets. These partnership assets were sold for $86,000. The partnership had $12,000 of liabilities. Fowler and Ericson share income and losses equally. Determine the amount received by Fowler as a final distribution from liquidation of the partnership. Answer: Fowler’s equity prior to liquidation.....................................   $26,000  Realization of asset sales.................................................... $86,000 Book value of assets ($26,000 + $40,000 + $12,000).........  78,000 Gain on liquidation............................................................... $ 8,000 Fowler’s share of gain (50% × $8,000)................................    4,000 Fowler’s cash distribution...................................................  ...

Prior to liquidating their partnership, Quinn and Kestor had capital accounts of $200,000 and $120,000, respectively. Prior to liquidation, the partnership had no cash assets other than what was realized from the sale of assets. These partnership assets were sold for $240,000. The partnership had $30,000 of liabilities. Quinn and Kestor share income and losses equally. Determine the amount received by Quinn as a final distribution from liquidation of the partnership. Answer: Quinn’s equity prior to liquidation......................................   $200,000  Realization of asset sales.................................................... $240,000 Book value of assets ($200,000 + $120,000 + $30,000) .....  350,000 Loss on liquidation .............................................................. $110,000 Quinn’s share of loss (50% × $110,000).............................    (55,000) Quinn’s cash distribution.................................................... ...

Joshi has a capital balance of $80,000 after adjusting assets to fair market value. Costas contributes $40,000 to receive a 40% interest in a new partnership with Joshi. Determine the amount and recipient of the partner bonus. Answer: Equity of Joshi ................................................................................ $ 80,000 Costas’ contribution .......................................................................  40,000 Total equity after admitting Costas ............................................... $120,000 Costas’ equity interest.................................................................... × 40% Costas’ equity after admission...................................................... $ 48,000 Costas’ contribution .......................................................................  40,000 Bonus paid to Costas ..................................................................... $ 8,000 

Naseef Asad invested $75,000 in the Lionel and Morehouse partnership for ownership equity of $75,000. Prior to the investment, equipment was revalued to a market value of $57,000 from a book value of $33,000. Justin Lionel and Courtney Morehouse share net income in a 2:1 ratio. a. Provide the journal entry for the revaluation of equipment. b. Provide the journal entry to admit Asad. Answer: a. Equipment........................................ 24,000              Justin Lionel, Capital .......................... 16,000*              Courtney Morehouse, Capital......................  8,000   *($57,000 – $33,000) × 2/3 b. Cash.............................................. 75,000             Naseef Asad, Capital.............................. 75,000

Sharpe has a capital balance of $300,000 after adjusting assets to fair market value. Rojas contributes $250,000 to receive a 60% interest in a new partnership with Sharpe. Determine the amount and recipient of the partner bonus. Answer: Equity of Sharpe.............................................................................. $300,000 Rojas’ contribution..........................................................................  250,000 Total equity after admitting Rojas.................................................. $550,000 Rojas’ equity interest...................................................................... × 60% Rojas’ equity after admission ........................................................ $330,000   Rojas’ contribution.......................................................................... $250,000 Rojas’ equity after admission ........................................................  330,000 Bonus paid to Sharpe..................................

Alex Conyers and Shaunika Stevens formed a partnership, dividing income as follows: 1. Annual salary allowance to Stevens of $45,000. 2. Interest of 8% on each partner’s capital balance on January 1. 3. Any remaining net income divided equally. Conyers and Stevens had $50,000 and $160,000, respectively, in their January 1 capital balances. Net income for the year was $200,000. How much net income should be distributed to Stevens? Answer: Distributed to Conyers and Stevens:  Conyers Stevens  Total   Annual salary.................................................. $ — $ 45,000 $ 45,000 Interest............................................................  4,0001  12,8002  16,800 Remaining income .........................................  69,100  69,1003  138,200 Total distributed to partners ......................... $73,100 $126,900 $200,000  1$50,000 × 8% 2$160,000 × 8% 3($200,000 – $45,000 – $16,800) × 50%   Stevens: $126,900

Antoine Dodd purchased one-half of Kyle Bryan’s interest in the Rich and Bryan partnership for $24,000. Prior to the investment, land was revalued to a market value of $110,000 from a book value of $84,000. Zach Rich and Kyle Bryan share net income equally. Bryan had a capital balance of $25,000 prior to these transactions. a. Provide the journal entry for the revaluation of land. b. Provide the journal entry to admit Dodd. Answer: a. Land........................................... 26,000                Zach Rich, Capital ...........................  13,000*                Kyle Bryan, Capital...........................  13,000   *($110,000 – $84,000) × 50% b. Kyle Bryan, Capital............................ 19,000              Antoine Dodd, Capital.........................  19,000*   *($25,000 + $13,000) × 50%

Cody Paulson and Hannah O’Brien formed a partnership, dividing income as follows: 1. Annual salary allowance to Paulson of $26,000. 2. Interest of 5% on each partner’s capital balance on January 1. 3. Any remaining net income divided to Paulson and O’Brien, 2:1. Paulson and O’Brien had $50,000 and $120,000, respectively, in their January 1 capital balances. Net income for the year was $33,000. How much net income should be distributed to Paulson? Answer: Distributed to Paulson and O’Brien:   Paulson O’Brien  Total   Annual salary.................................................... $26,000 $ — $26,000 Interest..............................................................  2,5001  6,0002  8,500 Deduct excess of allowances over income....  (1,000)3  (500)4   (1,500) Total distributed to partners ........................... $27,500 $5,500 $33,000  1$50,000 × 5% 2$120,000 × 5% 3($33,000 – $26,000 – $8,500) × 2/3 4($33,000 – $26,000 – $8,500) ...

Brittany Adams contributed a patent, accounts receivable, and $61,000 cash to a partnership. The patent had a book value of $56,000. However, the technology covered by the patent appeared to have significant market potential. Thus, the patent was appraised at $240,000. The accounts receivable control account was $78,000, with an allowance for doubtful accounts of $4,000. The partnership also assumed a $15,000 account payable from Adams. Provide the journal entry for Adams’ contribution to the partnership. Answer: Cash .............................................. 61,000 Accounts Receivable................................ 78,000 Patent............................................ 240,000           Accounts Payable..................................  15,000           Allowance for Doubtful Accounts ...................  4,000           Brittany Adams, Capital .........................  360,000

Kevin LaRoche contributed land, inventory, and $28,000 cash to a partnership. The land had a book value of $65,000 and a market value of $135,000. The inventory had a book value of $60,000 and a market value of $51,000. The partnership also assumed a $50,000 note payable owed by LaRoche that was used originally to purchase the land. Provide the journal entry for LaRoche’s contribution to the partnership. Answer: Cash .................................... 28,000 Inventory............................... 51,000 Land.................................... 135,000             Notes Payable...........................  50,000             Kevin LaRoche, Capital.................  164,000

Tappert Company reported the following current assets and liabilities for December 31, 2012 and 2011: Dec. 31, 2012 Dec. 31, 2011 Cash $  990 $  860 Temporary investments 1,910 1,500 Accounts receivable 1,600 1,280 Inventory 2,000 1,400 Accounts payable 3,000 2,800  a. Compute the quick ratio for December 31, 2012 and 2011. b. Interpret the company’s quick ratio. Is the quick ratio improving or declining? Answer: a. December 31, 2012 Quick Ratio = Quick Assets ÷ Current Liabilities   Quick Ratio = ($990 + $1,910 + $1,600) ÷ $3,000 Quick Ratio = 1.5   December 31, 2011 Quick Ratio = Quick Assets ÷ Current Liabilities   Quick Ratio = ($860 + $1,500 + $1,280) ÷ $2,800 Quick Ratio = 1.3 b. The quick ratio of Tappert Company has improved from 1.3 in 2011 to 1.5 in 2012. This increase is the result of a large increase in the three types of quick assets (cash, short-term investments, and accounts receivable) compared to a relatively smaller increase in the current...

Grangel Company reported the following current assets and liabilities for December 31, 2012 and 2011: Dec. 31, 2012 Dec. 31, 2011 Cash $  620 $  560 Temporary investments 1,330 1,250 Accounts receivable 850 830 Inventory 1,000 1,000 Accounts payable 2,800 2,200  a. Compute the quick ratio for December 31, 2012 and 2011. b. Interpret the company’s quick ratio. Is the quick ratio improving or declining? Answer: a. December 31, 2012 Quick Ratio = Quick Assets ÷ Current Liabilities   Quick Ratio = ($620 + $1,330 + $850) ÷ $2,800 Quick Ratio = 1.0   December 31, 2011 Quick Ratio = Quick Assets ÷ Current Liabilities   Quick Ratio = ($560 + $1,250 + $830) ÷ $2,200 Quick Ratio = 1.2 b. The quick ratio of Grangel Company has declined from 1.2 in 2011 to 1.0 in 2012. This decrease is the result of a large increase in accounts payable compared to relatively smaller increases in the three types of quick assets (cash, short-term investments, and accounts receivable).

Wang Equipment Company provides its employees vacation benefits and a defined benefit pension plan. Employees earned vacation pay of $42,000 for the period. The pension formula calculated a pension cost of $273,000. Only $210,000 was contributed to the pension plan administrator. Provide the journal entry for the (a) vacation pay and (b) pension benefit. Answer: a. Vacation Pay Expense.................................. 42,000             Vacation Pay Payable.................................. 42,000                Vacation pay accrued for the period.   b. Pension Expense ....................................... 273,000           Cash................................................... 210,000           Unfunded Pension Liability............................. 63,000                 To record pension cost and funding.

Zinn Co. sold $500,000 of equipment during May under a one-year warranty. The cost to repair defects under the warranty is estimated at 5% of the sales price. On October 10, a customer required a $100 part replacement, plus $65 of labor under the warranty. Provide the journal entry for (a) the estimated warranty expense on May 31 and (b) the October 10 warranty work. Answer: a. May 31 Product Warranty Expense............................ 25,000               Product Warranty Payable............................ 25,000                    To record warranty expense for May,                5.0% × $500,000. b. Oct. 10 Product Warranty Payable................................. 165             Supplies ................................................ 100             Wages Payable .....................................

Caldwell Industries sold $410,000 of consumer electronics during August under a ninemonth warranty. The cost to repair defects under the warranty is estimated at 4% of the sales price. On October 15, a customer was given $110 cash under terms of the warranty. Provide the journal entry for (a) the estimated warranty expense on August 31 and (b) the October 15 cash payment. Answer: a. Aug. 31 Product Warranty Expense............................. 16,400             Product Warranty Payable............................. 16,400                  To record warranty expense for August,              4% × $410,000. b. Oct. 15 Product Warranty Payable.................................. 110          Cash...................................................... 110

The payroll register of Russert Construction Co. indicates $18,000 of social security withheld and $4,500 of Medicare tax withheld on total salaries of $300,000 for the period. Retirement savings withheld from employee paychecks were $18,000 for the period. Federal withholding for the period totaled $59,400. Provide the journal entry for the period’s payroll. Answer: Salaries Expense......................................... 300,000           Social Security Tax Payable .............................. 18,000           Medicare Tax Payable...................................... 4,500           Employees Federal Income Tax Payable...................... 59,400           Retirement Savings Deductions Payable .................... 18,000           Salaries Payable......................................... 200,100