Accounting 041 Final Study Questions

CH11: Dividends in arrears on cumulative preferred stock are considered a liability. True/False

False

CH11: In the stockholders' equity section, paid-in capital and retained earnings are reported and the specific sources of paid-in capital are identified. True/False

True

CH10: If the market interest rate is 10%, a $10,000, 12%, 10-year bond that pays interest annually would sell at an amount a. greater than face value. b. that cannot be determined. c. equal to face value. d. less than face value.

A

CH10: Beonce Company received proceeds of $188,000 on 10-year, 6% bonds issued on January 1, 2013. The bonds had a face value of $200,000, pay interest annually on January 1, and have a call price of 101. Beonce uses the straight-line method of amortization. Beonce Company decided to redeem the bonds on January 1, 2015. What amount of gain or loss would Beonce report on its 2015 income statement? a. $11,600 loss b. $9,600 loss c. $9,600 gain d. $11,600 gain

A $200,000 - {$12,000 - [($12,000/10) × 2]} = $190,400; ($200,000 × 1.01) - $190,400 = $11,600 loss.

CH9: Mehring Company reported net sales of $540,000, net income of $72,000, beginning total assets of $240,000, and ending total assets of $360,000. What was the company's asset turnover? a. 1.8 times b. 2.3 times c. 0.6 times d. 1.5 times

A $540,000 ÷ [($240,000 + $360,000) ÷ 2] = 1.8.

CH11:Darman Company issued 700 shares of no-par common stock for $7,700. Which of the following journal entries would be made if the stock has a stated value of $2 per share? a.) Cash 7,700 Common Stock 1,400 Paid-in Capital in Excess of Stated Value 6,300 b.) Cash 7,700 Common Stock 1,400 Paid-in Capital in Excess of Par 6,300 c.) Cash 7,700 Common Stock 7,700 d.) Common Stock 7,700 Cash

A 700 × $2 = $1,400; $7,700 - $1,400 = $6,300.

CH11:A 10% stock dividend will increase the number of shares outstanding but the book value per share will decrease. True/False

True

CH10: Hardy Company has current assets of $95,000, current liabilities of $100,000, long-term assets of $180,000 and long-term liabilities of $80,000. Hardy Company's working capital and its current ratio are: a. $5,000 and .95:1. b. -$5,000 and .95:1. c. -$5,000 and 1.95:1. d. $85,000 and .95:1.

B

CH11:Which of the following show the proper effect of a stock split and a stock dividend? Item Stock Split Stock Dividend a. Total retained earnings Decrease Decrease b. Par value per share Decrease No change c. Total paid-in capital Increase Increase d. Total par value (common) Decrease Increase

B

CH9: Yocum Company purchased equipment on January 1 at a list price of $120,000, with credit terms 2/10, n/30. Payment was made within the discount period and Yocum was given a $2,400 cash discount. Yocum paid $6,000 sales tax on the equipment, and paid installation charges of $1,760. Prior to installation, Yocum paid $4,000 to pour a concrete slab on which to place the equipment. What is the total cost of the new equipment? a. $125,360 b. $129,360 c. $131,760 d. $123,600

B $120,000 - $2,400 + $6,000 + $1,760 + $4,000 = $129,360.

CH13: Bush Company reported net income of $60,000 for the year. During the year, accounts receivable decreased by $8,000, accounts payable increased by $4,000 and depreciation expense of $5,000 was recorded. Net cash provided by operating activities for the year is a. $59,000. b. $77,000. c. $48,000. d. $55,000.

B $60,000 + $8,000 + $4,000 + $5,000 = $77,000.

CH9: Equipment was purchased for $300,000. Freight charges amounted to $14,000 and there was a cost of $40,000 for building a foundation and installing the equipment. It is estimated that the equipment will have a $60,000 salvage value at the end of its 5-year useful life. Depreciation expense each year using the straight-line method will be a. $48,000. b. $58,800. c. $70,800. d. $49,200.

B ($300,000 + $14,000 + $40,000 - $60,000) ÷ 5 = $58,800.

CH10: On December 1, 2014, Crawley Corporation incurs a 15-year $600,000 mortgage liability in conjunction with the acquisition of an office building. This mortgage is payable in monthly installments of $7,200, which include interest computed at the rate of 12% per year. The first monthly payment is made on December 31, 2014. The portion of the second monthly payment made on January 31, 2015, which represents repayment of principal is: a. $1,200. b. $1,212. c. $7,200. d. $5,988.

B $600,000 × .01 = $6,000; [$600,000 - ($7,200 - $6,000)] × .01 = $5,988; $7,200 - $5,988 = $1,212.

CH13: Which one of the following affects cash during a period? a. Declaration of a cash dividend b. Write-off of an uncollectible account receivable c. Payment of an accounts payable d. Recording depreciation expense

C

CH13: Jean's Vegetable Market had the following transactions during 2017: 1. Issued $50,000 of par value common stock for cash. 2. Repaid a 6 year note payable in the amount of $22,000. 3. Acquired land by issuing common stock of par value $50,000. 4. Declared and paid a cash dividend of $7,000. 5. Sold a long-term investment (cost $3,000) for cash of $6,000. 6. Acquired an investment in IBM stock for cash of $10,000. What is the net cash provided by financing activities? a. $0 b. $28,000 c. $21,000 d. $67,000

C $50,000 - $22,000 - $7,000 = $21,000.

CH13: Jean's Vegetable Market had the following transactions during 2017: 1. Issued $50,000 of par value common stock for cash. 2. Repaid a 6 year note payable in the amount of $22,000. 3. Acquired land by issuing common stock of par value $100,000. 4. Declared and paid a cash dividend of $2,000. 5. Sold a long-term investment (cost $3,000) for cash of $8,000. 6. Acquired an investment in IBM stock for cash of $15,000. What is the net cash provided used by investing activities? Entry field with correct answer a. $15,000 b. $33,000 c. ($7,000) d. $8,000

C $8,000 - $15,000 = ($7,000).

CH9: A company purchased office equipment for $40,000 and estimated a salvage value of $8,000 at the end of its 5-year useful life. The constant percentage to be applied against book value each year if the double-declining-balance method is used is a. 25%. b. 20%. c. 40%. d. 5%.

C (1 ÷ 5) × 2 = .40.

CH11: Barton Company is a publicly held corporation whose $1 par value stock is actively traded at $31 per share. The company issued 3,000 shares of stock to acquire land recently advertised at $100,000. When recording this transaction, Barton Company will a. credit Common Stock for $93,000. b. credit Paid-In Capital in Excess of Par for $93,000. c. debit Land for $93,000. d. debit Land for $100,000.

C 3,000 × $31 = $93,000.

CH11:On January 1, Soft Corporation had 80,000 shares of $10 par value common stock outstanding. On June 17, the company declared a 10% stock dividend to stockholders of record on June 20. Market value of the stock was $15 on June 17. The stock was distributed on June 30. The entry to record the transaction of June 30 would include a a. credit to Paid-in Capital in Excess of Par for $40,000. b. debit to Stock Dividends for $40,000. c. credit to Common Stock for $80,000. d. debit to Common Stock Dividends Distributable for $120,000.

C 80,000 × $10 × .10 = $80,000.

CH10: On January 1, 2015, Carter Corporation issued $5,000,000, 10-year, 8% bonds at 102. Interest is payable annually on January 1. The journal entry to record this transaction on January 1, 2015 is a.) Premium on Bonds Payable 100,000 Cash 5,000,000 Bonds Payable 5,100,000 b.) Cash 5,000,000 Bonds Payable 5,000,000 c.) Cash 5,100,000 Bonds Payable 5,100,000 d.) Cash 5,100,000 Bonds Payable 5,000,000 Premium on Bonds Payable 100,000

D

CH11: If Vickers Company issues 5,000 shares of $5 par value common stock for $175,000, a. Common Stock will be credited for $175,000. b. Cash will be debited for $150,000. c. Paid-In Capital in Excess of Par will be credited for $25,000. d. Paid-In Capital in Excess of Par will be credited for $150,000.

D

CH13: The statement of cash flows ______ . a. is another name for the income statement. b. must be prepared on a daily basis. c. is a special section of the income statement. d. summarizes the operating, financing, and investing activities of an entity.

D

CH13: Wilson Company reported net income of $105,000 for the year ended December 31, 2017. During the year, inventories decreased by $15,000, accounts payable decreased by $20,000, depreciation expense was $18,000 and a gain on disposal of equipment of $9,000 was recorded. Net cash provided by operating activities in 2017 using the indirect method was a. $120,000. b. $101,000. c. $118,000. d. $109,000.

D

CH9: This response is incorrect as it credits Loss on Disposal, instead of debiting it. To compute gain/loss on disposal, book value ($61,000 = $72,000 - $11,000) of the disposed asset is compared to the cash proceeds from the disposal ($57,000). Since the cash proceeds ($57,000) are less than the book value ($61,000), the difference represents a Loss on Disposal which is debited for $4,000. A truck which had an original cost of $72,000 and accumulated depreciation of $11,000 was sold for $57,000. The journal entry to record the sale will include a a. credit to Loss on Disposal for $4,000. b. credit to Equipment for $57,000. c. debit to Loss on Disposal for $15,000. d. debit to Loss on Disposal for $4,000 .

D

CH10: Valerie's Salon has total receipts for the month of $20,670 including sales taxes. If the sales tax rate is 6%, what are Valerie's sales for the month? Entry field with correct answer a. $21,910 b. It cannot be determined. c. $19,637 d. $19,500

D $20,670/1.06 = $19,500.

CH13: Accounts receivable arising from sales to customers amounted to $86,000 and $77,000 at the beginning and end of the year, respectively. Income reported on the income statement for the year was $290,000. Exclusive of the effect of other adjustments, the cash flows from operating activities to be reported on the statement of cash flows is Entry field with correct answer a. $290,000. b. $213,000. c. $280,000. d. $299,000.

D $290,000 + ($86,000 - $77,000) = $299,000.

CH9: A plant asset cost $90,000 when it was purchased on January 1, 2008. It was depreciated by the straight-line method based on a 9-year life with no salvage value. On June 30, 2015, the asset was discarded with no cash proceeds. What gain or loss should be recognized on the retirement? a. $20,000 loss. b. $10,000 gain. c. No gain or loss. d. $15,000 loss.

D $90,000 - [($90,000 - 0) ÷ 9] × 7.5 = $15,000.

CH9: A coal company invests $15 million in a mine estimated to have 20 million tons of coal and no salvage value. It is expected that the mine will be in operation for 5 years. In the first year, 1,000,000 tons of coal are extracted and sold. What is the depletion expense for the first year? a. Cannot be determined from info provided b. $300,000 c. $75,000 d. $750,000

D ($15 ÷ 20) × 1,000,000 = $750,000.

CH11:On January 1, Collins Corporation had 800,000 shares of $10 par value common stock outstanding. On March 31, the company declared a 10% stock dividend. Market value of the stock was $15/share. As a result of this event, a. Collins' Paid-in Capital in Excess of Par account increased $400,000. b. Collins' total stockholders' equity was unaffected. c. Collins' Stock Dividends account increased $1,200,000. d. All of these answers are correct.

D 800,000 × $10 × .10 = $1,200,000.

CH10: If bonds are issued at a discount, the issuing corporation will pay a principal amount less than the face amount of the bonds on the maturity date. True/False

False

CH11: Treasury stock purchased for $25 per share that is reissued at $20 per share, results in a Loss on Sale of Treasury Stock being recognized on the income statement. True/False

False

CH9: Recording depreciation on plant assets affects the balance sheet and the income statement. True/False

False

CH9: When purchasing land, the costs for clearing, draining, filling, and grading should be charged to a Land Improvements account. True/False

False

CH13: The acquisition of a building by issuing bonds would be considered an investing and financing activity that did not affect cash. True/False

True

CH13: The sale of land for cash would be classified as a cash inflow from an investing activity. True/False

True

CH13: Using the indirect method, an increase in accounts receivable during a period is deducted from net income in calculating cash provided by operations. True/False

True

CH9: Depletion expense for a period is only recognized on natural resources that have been extracted and sold during the period. True/False

True

CH10: A $30,000, 8%, 9-month note payable requires an interest payment of $1,800 at maturity. True/False

True

CH10: If $800,000, 6% bonds are issued on January 1, and pay interest annually, the amount of interest paid on the following January 1 will be $48,000. True/False

True

CH10: The loss on bond redemption is the difference between the cash paid and the carrying value of the bonds. True/False

True