Exam 6: Operating Transactions Revenues, Expenses, and Working Capital

Le Casa Corporation reported net income before extraordinary items and taxes of $200,000 for the year 2009.During 2009, the average number of common shares outstanding was 35,000.Basic net earnings per share for 2009 are reported to be only $2.00.Le Casa's income tax rate is 30%.How much was Le Casa's extraordinary gain or loss (before tax) from a major theft that was perpetrated by Le Casa's payroll clerk? The theft loss was the only item that was reported net of tax in the income statement for 2009.

For each item numbered below, identify the letter of the best description by selecting from items a through e below.You may use each letter more than once or not at all. -Quick ratio

Martin Corporation reported a cumulative effect of the change in accounting (net of tax) in the amount of $30,000 in its income statement for 2009.Martin's income tax rate is 25%.The gross amount of the effect of the change in accounting was

For each item numbered below, identify the letter of the best description by selecting from items a through e below.You may use each letter more than once or not at all. -Current assets

A major airline issues frequent flyer credits that allow the passenger to receive credit toward future flights.For every ticket sold the customer receives a credit which, when 40 are collected, can be exchanged for a free ticket.During the year, the airline company recorded revenues of $60 million, which represented 100,000 tickets.The airline did not recognize the flyer credits on its income statement or its balance sheet.In the context of contingent liabilities, comment on the airline's accounting procedures.

The following are the revenue and expense accounts of the current year for ABCO Corporation: All items are before income taxes.The income tax rate is 20%.Calculate any extraordinary gain or loss that should be disclosed on the income statement.

For each item numbered below, identify the letter of the best description by selecting from items a through e below.You may use each letter more than once or not at all. -Working capital

For each item numbered below, select the appropriate effect on liabilities listed in a through e that each transaction describes.You may use each letter more than once or not at all.In some cases, two effects are correct. -Accrued warranty expense.

Given below are several items that will be reported on a company's financial statements.Select the letter of the proper financial statement reporting section listed as a through f.You may use each letter more than once or not at all. -A large loss of inventory incurred by a meat-packing factory due to a government FDA inspection which found dangerously high levels of bacteria; no previous situations in the company's history

Ursula Clothing has cost of goods sold of $12,000 with beginning and ending inventories of $4,000 and $2,000, respectively.Purchases during the period are

For each item listed in, place the letter (a through e) of the accounting effect in the space provided.You may use each letter more than once or not at all. -A company applies lower-of-cost-or-market for valuing ending inventory when cost is less than market price.

For each item listed in, place the letter (a through e) of the accounting effect in the space provided.You may use each letter more than once or not at all. -During an extended period of constant prices, a company adopts LIFO instead of FIFO.

For each item numbered below, select the appropriate effect on liabilities listed in a through e that each transaction describes.You may use each letter more than once or not at all.In some cases, two effects are correct. -Purchased supplies on account.

For each item numbered below, select the appropriate effect on liabilities listed in a through e that each transaction describes.You may use each letter more than once or not at all.In some cases, two effects are correct. -In a lawsuit filed against the firm, counsel indicates that the potential $10,000 loss is reasonably possible.

For each item numbered below, select the appropriate effect on liabilities listed in a through e that each transaction describes.You may use each letter more than once or not at all.In some cases, two effects are correct. -Amortized the discount of the short-term note payable.

For each item listed in, place the letter (a through e) of the accounting effect in the space provided.You may use each letter more than once or not at all. -During a period of increasing inventory and rising prices, a company decides to use averaging instead of FIFO.

The following is a partial balance sheet for Que Company dated December 31, 2010: During 2010, $4,000 of accounts receivable were written off and bad debts expense recognized on Que's 2010 net income statement was $8,000.However, the president of the company believes that $2,500 of these receivables were written off too soon.She correctly believes that there is a good chance that they will be collected next year. The reason for her position is that Que has a debt covenant requiring it to maintain a current ratio of 1.5.The president believes that by reversing the write-off of $2,500 of accounts receivable, the current assets will be $97,500 and the current ratio will be 1.5.However, the chief financial officer states that a better approach is to pay off some accounts payable.If the company paid $5,000 of accounts payable, the current ratio would become the minimum 1.5 required by the debt covenant. Comment, with numerical illustration, on the president's and chief financial officer's positions.

For each item numbered below, select the appropriate effect on liabilities listed in a through e that each transaction describes.You may use each letter more than once or not at all.In some cases, two effects are correct. -In a lawsuit filed against the firm, counsel indicates that the potential $10,000 loss is highly probable.