Back to Ex a ms
Review: Accounting Crash Course Retake
Exam v4
Score: 92%, 24 correct out of 26 | Taken On: 06-19-20
Question 1
Assume US GAAP to answer this question.
In 2017, $2 million in wages were earned and no cash wages were paid.
In 2018, $8 million in wages were earned and $9 million in cash wages were paid.
Cash wages were used to first pay wages earned in 2017 with the remainder used to pay wages
earned in 2018.
Any earned but unpaid wages will be paid during the first quarter of 2019.
Using only the information provided, which of the following statements is most accurate?
Liabilities decr eased by $1.0 million in 2018.
Liabilities increased by $6.0 million in 2018.
Assets d ecr eased by $7.0 million in 2018.
Retained earnings decreased by $10.0 million in 2018.
Retained earnings decreased by $9.0 million in 2018.
Your answer is correct.
Since wages were earned in 2017 but not yet paid, the opening balance sheet in 2018 would have an accrued
wages liability of $2.0. These were paid in 2018, reversing the liability. However, since there is only $7.0 million
in cash ($9.0 less the $2.0 million used to pay 2017 wages) available to pay wages earned in 2018, that leaves
$1.0 million in earned wages unpaid, lowering the accrued wages liability to $1.0 million. The net impact to the
liability is -$1.0 million (-$2.0 + $1 million). The only asset impacted is cash, which decreases by $9.0 million,
while retained earnings decreases by $8.0 million, since wages are expensed when they are earned, not when
they are paid.
See Lesson: Payable, Accrued Expenses, Deferred Revenue & Debt
Question 2
A company reported gross profit of $22 million in 2018. In addition, it recorded the following activities:
Sales and marketing expenses were $6 million.
Interest expense was $1 million.
Sold equipment for $13 million that had a net book value of $9 million.
$3 million in preferred stock issuance.
Company’s tax rate is 40%.
Calculate the company’s net income.
$9.0 million
$9.6 million
$11.4 million
$12.6 million
$15.0 million
Your answer is correct.
Gross profit 22.0
Selling and marketing expenses (6.0)
Interest expense (1.0)
Gain on sale 4.0
Pretax income 19.0
Tax rate 40%
Net income 11.4
Gain on sale is calculated as the sale price less the net book value.
See Lessons:
Net Income, EPS & Dividends
Property, Plant & Equipment, Part 2
Question 3
The next two questions use the following data from TGX Global, a heavy equipment manufacturer (this
information will be repeated on the next question):
TGX Global sells excavators, with an average sale price of $750,000 per excavator.
TGX received new orders for 100 excavators in 2018.
TGX produced & delivered 130 excavators in 2018: 70 of these delivered excavators were ordered in
2017 and the rest (60 excavators) were part of the 100 ordered in 2018.
TGX received payment for 120 excavators.
TGX began selling 1-year maintenance services contracts for $60,000 per excavator in 2018, which begin
after the excavator is delivered. Contracts were sold on 50% of all excavator orders made in 2018 (no
contracts were sold on orders placed in 2017)
Assume all excavators delivered in 2018 are delivered at year end.
Calculate TGX’s 2018 revenue based on the transactions described above.
$75.0 million
$78.0 million
$97.5 million
$100.5 million
$101.4 million
Your answer is correct.
According to the revenue recognition principle, a company cannot record revenue until that order is shipped
to a customer (or a service has been provided) and collection from that customer is reasonably assured. 130
excavators were shipped and delivered in 2018 at a price of $750,000 each, which implies $97.5 million of
revenue. The maintenance agreement cannot be recognized as revenue until the service is provided, since
excavators were delivered at year end, no revenue from the service agreement can be recognized in 2018.
See Lesson: Basic Accounting Principles
Question 4
This question uses the same TGX Global data as the previous question, repeated below:
TGX Global sells excavators, with an average sale price of $750,000 per excavator.
TGX received new orders for 100 excavators in 2018.
TGX produced & delivered 130 excavators in 2018: 70 of these delivered excavators were ordered in
2017 and the rest (60 excavators) were part of the 100 ordered in 2018.
TGX received payment for 120 excavators.
TGX began selling 1-year maintenance services contracts for $60,000 per excavator in 2018, which begin
after the excavator is delivered. Contracts were sold on 50% of all excavator orders made in 2018 (no
contracts were sold on orders placed in 2017).
Assume now that instead of the revenue recognized in the previous question, TGX recognized $75 million in
revenue for 100 excavators (and assume no maintenance contract revenue was recognized). In addition, the
following occurred in 2018:
TGX recognized $3 million in shipping and delivery costs for its excavators.
TGX recognized $7 million in direct labor expenses.
TGX recognized $3 million in commissions paid to its salespeople for selling the excavators.
TGX purchased $60 million in raw materials in 2018, of which $50 million was in cash.
Raw materials required to assemble each excavator cost $500,000 per excavator.
Calculate TGX’s 2018 gross profit based on the transactions described above.
$11.0 million
$14.0 million
$15.0 million
$18.0 million
$35.0 million
Your answer is correct.
Gross profit is revenue less cost of goods sold. Cost of Goods sold represents a company's direct cost to
manufacture or procure goods and services. According to the matching principle, costs associated with the
production of the book should be recorded in (matched to) the same period as the revenue from the book’s
sale. Revenue from 100 excavators was recognized and the corresponding cost of $500,000 each or $50
million should be matched. In addition, shipping, delivery and direct labor costs are included i n the direct
production of the excavator and should thus be included in COGS. Sales, marketing and general expenses are
not included in COGS.
See Lesson: COGS & Gross Profit
Question 5
Fairview Corporation recorded the following in 2018:
After-tax net income was $25 million in 2018.
The actual share count at the beginning of the year was 15.0 million.
Fairview repurchased 3 million shares at $12/share in the middle of 2018.
Fairview issued preferred dividends of $5 million and common dividends of $5 million.
Fairview issued 5 million stock options in 2018, 1 milllion of which vested in the middle of 2018.
Calculate 2018 basic earnings per share (EPS).
1.07
1.29
1.43
1.67
1.79
Your answer is correct.
Net income must be reduced by preferred dividends in the basic EPS calculation. Unvested shares do not get
included in the basic share count, only the diluted. The share count is a weighted average. Both shares were
repurchased and options vested in the middle of the year , the average is = 14.0 million weighted average
shares.
Net income 25.0
Preferred dividends (5.0)
Net income to common 20.0
Basic Shares - BOP 15.0
Basic Shares - EOP 13.0
Basic Shares - Weighted Average 14.0
Basic EPS 1.43
See Lessons:
Net Income, EPS & Dividends
Financial Statement A nalysis
Question 6
Dynamic Resources reported the following information for year ending June 30, 2016 (values in millions):
Plant, Property & Equipment, gross $5,000
Accumulated Depreciation 1,500
Plant, Property & Equipment, net 3,500
Salvage Value 300
The company also reported the following transactions on the first day of fiscal 2017:
Sale of asset with gross PP&E of $700 million for $500 million and useful life of 7 years and no salvage
value. Recorded a gain on sale of $400 million.
Write off of asset with gross PP&E of $600 million. Asset was purchased 3 years ago with original useful
life of 4 years and salvage value of $300 million.
Purchase of new equipment for $1,600 million with useful life of 8 years and no salvage value
(purchased on the first day of fiscal 2017).
Review: Accounting Crash Course Retake
Exam v4
Score: 92%, 24 correct out of 26 | Taken On: 06-19-20
Question 1
Assume US GAAP to answer this question.
In 2017, $2 million in wages were earned and no cash wages were paid.
In 2018, $8 million in wages were earned and $9 million in cash wages were paid.
Cash wages were used to first pay wages earned in 2017 with the remainder used to pay wages
earned in 2018.
Any earned but unpaid wages will be paid during the first quarter of 2019.
Using only the information provided, which of the following statements is most accurate?
Liabilities decr eased by $1.0 million in 2018.
Liabilities increased by $6.0 million in 2018.
Assets d ecr eased by $7.0 million in 2018.
Retained earnings decreased by $10.0 million in 2018.
Retained earnings decreased by $9.0 million in 2018.
Your answer is correct.
Since wages were earned in 2017 but not yet paid, the opening balance sheet in 2018 would have an accrued
wages liability of $2.0. These were paid in 2018, reversing the liability. However, since there is only $7.0 million
in cash ($9.0 less the $2.0 million used to pay 2017 wages) available to pay wages earned in 2018, that leaves
$1.0 million in earned wages unpaid, lowering the accrued wages liability to $1.0 million. The net impact to the
liability is -$1.0 million (-$2.0 + $1 million). The only asset impacted is cash, which decreases by $9.0 million,
while retained earnings decreases by $8.0 million, since wages are expensed when they are earned, not when
they are paid.
See Lesson: Payable, Accrued Expenses, Deferred Revenue & Debt
Question 2
A company reported gross profit of $22 million in 2018. In addition, it recorded the following activities:
Sales and marketing expenses were $6 million.
Interest expense was $1 million.
Sold equipment for $13 million that had a net book value of $9 million.
$3 million in preferred stock issuance.
Company’s tax rate is 40%.
Calculate the company’s net income.
$9.0 million
$9.6 million
$11.4 million
$12.6 million
$15.0 million
Your answer is correct.
Gross profit 22.0
Selling and marketing expenses (6.0)
Interest expense (1.0)
Gain on sale 4.0
Pretax income 19.0
Tax rate 40%
Net income 11.4
Gain on sale is calculated as the sale price less the net book value.
See Lessons:
Net Income, EPS & Dividends
Property, Plant & Equipment, Part 2
Question 3
The next two questions use the following data from TGX Global, a heavy equipment manufacturer (this
information will be repeated on the next question):
TGX Global sells excavators, with an average sale price of $750,000 per excavator.
TGX received new orders for 100 excavators in 2018.
TGX produced & delivered 130 excavators in 2018: 70 of these delivered excavators were ordered in
2017 and the rest (60 excavators) were part of the 100 ordered in 2018.
TGX received payment for 120 excavators.
TGX began selling 1-year maintenance services contracts for $60,000 per excavator in 2018, which begin
after the excavator is delivered. Contracts were sold on 50% of all excavator orders made in 2018 (no
contracts were sold on orders placed in 2017)
Assume all excavators delivered in 2018 are delivered at year end.
Calculate TGX’s 2018 revenue based on the transactions described above.
$75.0 million
$78.0 million
$97.5 million
$100.5 million
$101.4 million
Your answer is correct.
According to the revenue recognition principle, a company cannot record revenue until that order is shipped
to a customer (or a service has been provided) and collection from that customer is reasonably assured. 130
excavators were shipped and delivered in 2018 at a price of $750,000 each, which implies $97.5 million of
revenue. The maintenance agreement cannot be recognized as revenue until the service is provided, since
excavators were delivered at year end, no revenue from the service agreement can be recognized in 2018.
See Lesson: Basic Accounting Principles
Question 4
This question uses the same TGX Global data as the previous question, repeated below:
TGX Global sells excavators, with an average sale price of $750,000 per excavator.
TGX received new orders for 100 excavators in 2018.
TGX produced & delivered 130 excavators in 2018: 70 of these delivered excavators were ordered in
2017 and the rest (60 excavators) were part of the 100 ordered in 2018.
TGX received payment for 120 excavators.
TGX began selling 1-year maintenance services contracts for $60,000 per excavator in 2018, which begin
after the excavator is delivered. Contracts were sold on 50% of all excavator orders made in 2018 (no
contracts were sold on orders placed in 2017).
Assume now that instead of the revenue recognized in the previous question, TGX recognized $75 million in
revenue for 100 excavators (and assume no maintenance contract revenue was recognized). In addition, the
following occurred in 2018:
TGX recognized $3 million in shipping and delivery costs for its excavators.
TGX recognized $7 million in direct labor expenses.
TGX recognized $3 million in commissions paid to its salespeople for selling the excavators.
TGX purchased $60 million in raw materials in 2018, of which $50 million was in cash.
Raw materials required to assemble each excavator cost $500,000 per excavator.
Calculate TGX’s 2018 gross profit based on the transactions described above.
$11.0 million
$14.0 million
$15.0 million
$18.0 million
$35.0 million
Your answer is correct.
Gross profit is revenue less cost of goods sold. Cost of Goods sold represents a company's direct cost to
manufacture or procure goods and services. According to the matching principle, costs associated with the
production of the book should be recorded in (matched to) the same period as the revenue from the book’s
sale. Revenue from 100 excavators was recognized and the corresponding cost of $500,000 each or $50
million should be matched. In addition, shipping, delivery and direct labor costs are included i n the direct
production of the excavator and should thus be included in COGS. Sales, marketing and general expenses are
not included in COGS.
See Lesson: COGS & Gross Profit
Question 5
Fairview Corporation recorded the following in 2018:
After-tax net income was $25 million in 2018.
The actual share count at the beginning of the year was 15.0 million.
Fairview repurchased 3 million shares at $12/share in the middle of 2018.
Fairview issued preferred dividends of $5 million and common dividends of $5 million.
Fairview issued 5 million stock options in 2018, 1 milllion of which vested in the middle of 2018.
Calculate 2018 basic earnings per share (EPS).
1.07
1.29
1.43
1.67
1.79
Your answer is correct.
Net income must be reduced by preferred dividends in the basic EPS calculation. Unvested shares do not get
included in the basic share count, only the diluted. The share count is a weighted average. Both shares were
repurchased and options vested in the middle of the year , the average is = 14.0 million weighted average
shares.
Net income 25.0
Preferred dividends (5.0)
Net income to common 20.0
Basic Shares - BOP 15.0
Basic Shares - EOP 13.0
Basic Shares - Weighted Average 14.0
Basic EPS 1.43
See Lessons:
Net Income, EPS & Dividends
Financial Statement A nalysis
Question 6
Dynamic Resources reported the following information for year ending June 30, 2016 (values in millions):
Plant, Property & Equipment, gross $5,000
Accumulated Depreciation 1,500
Plant, Property & Equipment, net 3,500
Salvage Value 300
The company also reported the following transactions on the first day of fiscal 2017:
Sale of asset with gross PP&E of $700 million for $500 million and useful life of 7 years and no salvage
value. Recorded a gain on sale of $400 million.
Write off of asset with gross PP&E of $600 million. Asset was purchased 3 years ago with original useful
life of 4 years and salvage value of $300 million.
Purchase of new equipment for $1,600 million with useful life of 8 years and no salvage value
(purchased on the first day of fiscal 2017).
