Investments in equity securities are deemed to be ‘‘passive’’ if:

a. less than 20% of the firm’s stock is owned.

b. between 20% and 50% of the firm’s stock is owned.

c. between 50% and 100% of the firm’s stock is owned.

d. 100% of the firm’s stock is owned.

Hummel Inc. has $30,000 in current assets and$15,000 in current liabilities. What is Hummel’s current ratio?

a. 3

b. 2

c. 1

d. 0.5

Which of the following ratios is not a debt management ratio?

a. return on equity ratio

b. debt to equity ratio

c. long-term debt to equity ratio

d. times interest earned

Which statement would best provide information about a company’s current liquidity?

a. income statement

b. balance sheet

c. statement of cash flows

d. none of these

Which of the following use financial statement data to make decisions?

a. customers

b. investors

c. suppliers

d. all of these

The following financial statement information is from five separate companies.

$$\begin{matrix} & \text{Company A} & \text{Company B} & \text{Company C} & \text{Company D} & \text{Company E}\\ \text{December 31,2016}\\ \text{Assets} \ldots\ldots\ldots & \text{\$55,000} & \text{\$34,000} & \text{\$24,000} & \text{\$60,000} & \text{\$119,000}\\ \text{Liabilities} \ldots\ldots\ldots & \text{24,500} & \text{21,500} & \text{9,000} & \text{40,000} & \text{?}\\ \text{December 31,2017}\\ \text{Assets} \ldots\ldots\ldots & \text{58,000} & \text{40,000} & \text{?} & \text{85,000} & \text{113,000}\\ \text{Liabilities} \ldots\ldots\ldots & \text{?} & \text{26,500} & \text{29,000} & \text{24,000} & \text{70,000}\\ \text{During year 2017}\\ \text{Stock Issuances} \ldots\ldots\ldots & \text{6,000} & \text{1,400} & \text{9,750} & \text{?} & \text{6,500}\\ \text{Net Income (loss)} \ldots\ldots\ldots & \text{8,500} & \text{?} & \text{8,000} & \text{14,000} & \text{20,000}\\ \text{Cash dividends} \ldots\ldots\ldots & \text{3,500} & \text{2,000} & \text{5,875} & \text{0} & \text{11,000}\\ \end{matrix}$$

1. Answer the following questions about Company A. a. What is the amount of equity on December 31,2016? b. What is the amount of equity on December 31, 2017? c. What is the amount of liabilities on December 31, 2017? 2. Answer the following questions about Company B. a. What is the amount of equity on December 31, 2016? b. What is the amount of equity on December 31, 2017? c. What is net income for year 2017? 3. Compute the amount of assets for Company C on December 31, 2017. 4. Compute the amount of stock issuances for Company D during year 2017. 5. Compute the amount of liabilities for Company E on December 31, 2016.

Elite Realty acts as an agent in buying, selling, renting, and managing real estate. The unadjusted trial balance on March 31, 2014, is shown below.

$$\begin{array}{c} \textbf{Elite Realty}\\ \textbf{Unadjusted Trial Balance}\\ \textbf{March 31, 2014} \end{array}$$

$$\begin{array}{llrr} \hline{\text{}}&&\textbf{Debit}\hspace{8pt}&\textbf{Credit}\hspace{5pt}\\ {\text{}}&&\textbf{Balances}&\textbf{Balances}\\\hline \text{11}&\text{Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . .}&\text{\$\hspace{10pt}26,300}\\ \text{12}&\text{Accounts Receivable . . . . . . . . . . . . . . . .}&\text{61,500}\\ \text{13}&\text{Prepaid Insurance . . . . . . . . . . . . . . . . . . }&\text{3,000}\\ \text{14}&\text{Office Supplies . . . . . . . . . . . . . . . . . . . . .}&\text{1,800}\\ \text{16}&\text{Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . .}&\text{-}\\ \text{21}&\text{Accounts Payable . . . . . . . . . . . . . . . . . . }&&\text{\$\hspace{10pt}14,000}\\ \text{22}&\text{Unearned Rent . . . . . . . . . . . . . . . . . . . . .}&&\text{-}\\ \text{23}&\text{Notes Payable . . . . . . . . . . . . . . . . . . . . . }&&\text{-}\\ \text{31}&\text{Lester Wagner, Capital . . . . . . . . . . . . . .}&&\text{46,000}\\ \text{32}&\text{Lester Wagner, Drawing . . . . . . . . . . . . .}&\text{2,000}\\ \text{41}&\text{Fees Earned . . . . . . . . . . . . . . . . . . . . . . .}&&\text{240,000}\\ \text{51}&\text{Salary and Commission Expense . . . . . . . }&\text{148,200}\\ \text{52}&\text{Rent Expense . . . . . . . . . . . . . . . . . . . . . .}&\text{30,000}\\ \text{53}&\text{Advertising Expense . . . . . . . . . . . . . . . . }&\text{17,800}\\ \text{54}&\text{Automobile Expense . . . . . . . . . . . . . . . .}&\text{5,500}\\ \text{59}&\text{Miscellaneous Expense . . . . . . . . . . . . . . .}&\text{\underline{\hspace{20pt}3,900}}&\text{\underline{\hspace{44pt}}}\\ &&\underline{\underline{\$\hspace{5pt}\text{300,000}}}&\underline{\underline{\$\hspace{5pt}\text{300,000}}}\\ \end{array}$$

The following business transactions were completed by Elite Realty during April 2014: Apr. 1.    Paid rent on office for month, $6,500.         2.   Purchased office supplies on account,$2,300.         5.   Paid insurance premiums, $6,000.       10.   Received cash from clients on account,$52,300.       15.   Purchased land for a future building site for $200,000, paying$30,000 in cash and giving a note payable for the remainder.       17.   Paid creditors on account, $6,450.       20.   Returned a portion of the office supplies purchased on April 2, receiving full credit for their cost,$325.       23.   Paid advertising expense, $4,300. Enter the following transactions on Page 19 of the two-column journal.       27.   Discovered an error in computing a commission; received cash from the salesperson for the overpayment,$2,500.       28.   Paid automobile expense (including rental charges for an automobile), $1,500.       29.   Paid miscellaneous expenses,$1,400.       30.   Recorded revenue earned and billed to clients during the month, $57,000.       30.   Paid salaries and commissions for the month,$11,900.       30.   Withdrew cash for personal use, $4,000.       30.   Rented land purchased on April 15 to local merchants association for use as a parking lot in May and June, during a street rebuilding program; received advance payment of$10,000.

Instructions

1. Record the April 1, 2014, balance of each account in the appropriate balance column of a four-column account, write Balance in the item section, and place a check mark in the Posting Reference column.
2. Journalize the transactions for April in a two-column journal beginning on Page 18. Journal entry explanations may be omitted.
3. Post to the ledger, extending the account balance to the appropriate balance column after each posting.
4. Prepare an unadjusted trial balance of the ledger as of April 30, 2014.
5. Assume that the April 30 transaction for salaries and commissions should have been $19,100. (a) Why did the unadjusted trial balance in (4) balance? (b) Journalize the correcting entry. (c) Is this error a transposition or slide?

On January 1, 2019, Quick Stop, a convenience store, purchased a new soft-drink cooler. Quick Stop paid $15,380 cash for the cooler. Quick Stop also paid$750 to have the cooler shipped to its location. After the new cooler arrived, Quick Stop paid $222 to have the old cooler dismantled and removed. Quick Stop also paid$1,020 to a contractor to have new wiring and drains installed for the new cooler. Quick Stop estimated that the cooler would have a useful life of 8 years and a residual value of $500. Quick Stop uses the straight-line method of depreciation.

Required:

If Quick Stop had used a useful life of 12 years and a residual value of$800, how would this effect depreciation expense for 2019 and the book value of the cooler at the end of 2019?

Mooney Sounds, a local stereo retailer, needed a new store because it had outgrown the leased space it had used for several years. Mooney acquired and remodeled a former grocery store. As a part of the acquisition, Mooney incurred the following costs:

If management misclassified a portion of the building’s cost as part of the cost of the land, what would be the effect on the financial statements?

On January 1, 2019, Quick Stop, a convenience store, purchased a new soft-drink cooler. Quick Stop paid $15,380 cash for the cooler. Quick Stop also paid$750 to have the cooler shipped to its location. After the new cooler arrived, Quick Stop paid $222 to have the old cooler dismantled and removed. Quick Stop also paid$1,020 to a contractor to have new wiring and drains installed for the new cooler. Quick Stop estimated that the cooler would have a useful life of 8 years and a residual value of $500. Quick Stop uses the straight-line method of depreciation.

Required:

1. Prepare any necessary journal entries to record the cost of the cooler.

2. Prepare the adjusting entry to record 2019 depreciation expense on the new cooler.

3. What is the book value of the cooler at the end of 2019?

4. If Quick Stop had used a useful life of 12 years and a residual value of$800, how would this effect depreciation expense for 2019 and the book value of the cooler at the end of 2019?

Colson Photography Service purchased a new digital imaging machine on April 15 for $11,200. During installation Colson incurred and paid in cash the following costs:

Colson also paid $160 to replace a bracket on the digital imager that was damaged when one of Colson’s employees dropped a box on it while it was being installed.

Items that may relate to property, plant, and equipment follow:

1. Purchase price of a machine

2. Delinquent property taxes at the time of purchase

3. Interest on debt used to purchase equipment

4. Sales taxes paid on purchase of equipment

5. Costs to install a machine

6. Ordinary repairs to equipment

7. Cost to remodel a building

8. Architectural fees paid for design of a building

9. Cost of training employees to run equipment

10. Transportation costs to have furniture delivered

Required:

Determine whether each item is included as part of the cost of property, plant, and equipment. For any item excluded from the cost of property, plant, and equipment, explain why the item was excluded.

Colson Photography Service purchased a new digital imaging machine on April 15 for $11,200. During installation Colson incurred and paid in cash the following costs:

Colson also paid $160 to replace a bracket on the digital imager that was damaged when one of Colson’s employees dropped a box on it while it was being installed.

Required:

1. Determine the cost of the digital imaging machine.

2. CONCEPTUAL CONNECTION Explain why you included or excluded the$160 bracket replacement cost.

Consider the following accounting methods for long-term investments:

a. Amortized cost method

b. Fair value method

c. Equity method

d. Consolidation of parent and sub

Required:

Match one or more of these methods with each of the investments described below:

1. Mueller Inc. owns 75% of Johnston Corporation’s outstanding common stock.

2. Anderson Inc. owns 25% of Peterson Corporation’s outstanding common stock.

3. Wixon Corporation owns 12% of the outstanding common stock of Gilman Inc., which is classified as available-for-sale.

4. Kohler Corporation holds a $40,000 long-term note receivable from Bennett Inc., a major customer. Kohler expects to sell the note within the next 2 or 3 years.

5. Janis Products Inc. holds$200,000 in Gibson Manufacturing bonds. Janis plans to hold these until they mature.