Accounting Exam 2 Prep
E; Total stockholders' equity includes $50,000 of common stock issued with a stated value of $0.50, and 5,000 shares of treasury stock with a total cost of $25,000. How many total shares are outstanding?
95,000 Common stock issued = $50,000/$0.50 = 100,000 shares Treasury stock repurchased = 5,000 shares Shares outstanding = 100,000 - 5,000 = 95,000
A; If a company reports goodwill as an intangible asset on its financial statements, what is the one thing you know with certainty?
The company has purchased another company.
L; The Discount on Bonds Payable account is shown on the balance sheet as
a contra-liability account that reduces the bond to market value at the issue date.
E; A corporation issues 20,000 shares of stock on January 1, 2023 for $25 per share. On November 2, 2023, they repurchase 500 of these same shares of common stock for $22 per share. The repurchase of the 500 shares results in
a reduction of $11,000 in total stockholders' equity on the balance sheet. The repurchase of the stock is classified as treasury stock. Treasury stock is a contra-equity account and is recorded at cost ($22 per share). This transaction will reduce total stockholders' equity by $11,000
L; 1The Premium on Bonds Payable account is shown on the balance sheet as
a separate liability that increases the bond to market value at the issue date.
A; Depreciation is
an effort to match the cost of fixed assets with related revenues
A; Assets classified as property, plant, and equipment are reported at
each asset's original cost less depreciation since acquisition.
E; Treasury shares represent the
number of previously issued shares that have been repurchased by the corporation.
L; When bonds are sold for less than par (i.e., at a discount), this means that the
stated rate of interest is less than the market rate of interest.
A; What sets of factors are needed to calculate depreciation on plant and equipment?
the estimated life of the asset, its acquisition cost, and its estimated residual value
L; On January 1, 2022, Larry Farms purchased a tractor for $200,000. The company signed a 6% installment note to pay off the debt with 60 monthly payments over 5 years. Each payment is $3,867, with the first payment due February 1, 2022. What amount of the second payment made on March 1, 2022 will be interest expense, rounded to the nearest dollar?
$986 February 1 payment: Interest expense = $200,000 x (6%/12) = $1,000 Total payment $3,867 Interest expense on first payment $1,000 Principal paid with first payment $2,867 Loan balance after first payment $197,133 March 1 payment: Interest expense = $197,133 x (6%/12) = $986
L; A company whose fiscal year ends Tuesday, December 31, 2024 has a weekly payroll of $100,000. Employees work 5 days per week, Monday through Friday and payday is every Friday. The adjusting entry needed on December 31, 2024 would include which of the following?
A credit to wages payable for $40,000 Wage expense for December 30 - 31, 2024 = $100,000 x 2/5 = $40,000 DR Wage expense $40,000 CR Wages payable $40,000
L; Which of the following would appear on the balance sheet as a contingent liability?
A probable loss in the amount of $4 million from a pending lawsuit.
CF; What is an example of a cash flow from an operating activity?
Payment of cash for interest on note payable.
CF; Which of the following is an example of a cash flow from a financing activity?
Receipt of cash from the issuance of bonds.
E; Par value represents the
arbitrary amount that establishes a minimum price for the stock when it is first issued.
E; On June 1, a board of directors declared a $3 per share cash dividend, payable on June 30 to all common stockholders of record on June 15. As of June 15, the company has 10,000 shares of common stock authorized, 1,000 shares issued, and 200 shares in the treasury. The entry on June 30 includes a
debit to dividends payable for $2,400 Shares outstanding on date of record = 1,000 - 200 = 800; Dividend amount = 800 x $3 = $2,400 June 1 entry - date of declaration: DR Retained earnings $2,400 CR Dividends payable $2,400 June 30 entry - date of payment: DR Dividends payable $2,400 CR Cash $2,400
A; At the end of 2022, Koosharem Corp. calculated and recorded $50,000 in depreciation on a building that it had purchased five years earlier. How will this depreciation affect Koosharem's 2022 financial statements?
decrease assets, decrease net income
A; Totals of major classes of assets can be shown
in the balance sheet, with asset details disclosed in the notes to the financial statements.
CF; During 2022, Purple Inc. sold equipment with a cost of $50,000 and accumulated depreciation of $30,000 for cash. A loss of $10,000 was recognized on the sale of the equipment. What amount would be reported as an investing cash inflow from the sale of equipment on the statement of cash flows for 2022?
$10,000 Journal entry for sale: DR Cash ? DR Accum Dep $30,000 DR Loss on sale $10,000 CR Equip $50,000 Cash/proceeds = $10,000
L; When determining the amount of interest to be paid on a bond, which of the following information is necessary?
the stated rate of interest on the bonds
L; On January 2, 2022, Karter Company issued $1,000,000, 10-year bonds for $1,150,000. The bonds pay interest every December 31. The stated rate on the bonds is 10% and the market rate on the date of issue was around 8%. The company uses the straight-line method of amortizing bond discounts and premiums. What is the amount of the cash interest payment Karter Company made on December 31, 2022 related to the bond?
$100,000 Cash interest payment = $1,000,000 x 10% = $100,000
A; Gotham Corp. purchased equipment for $100,000. In connection with the purchase, Gotham paid an additional $8,000 in taxes, $1,000 to have the equipment delivered, and $5,000 for installation. What amount should Gotham capitalize in connection with the equipment (before considering depreciation)?
$114,000 ($100,000 + $8,000 + $1,000 + $5,000 = $114,000)
CF; What is true about the statement of cashflows?
It is one of the basic financial statements. It provides information about cash receipts and cash payment of an entity during a period. It provides information about the operating, investing, and financing activities of the business.
A; Peete Company purchased equipment for $90,000 on January 1, 2022. The equipment is expected to have a six-year life and a residual value of $15,000. On December 31, 2024, the company sold the equipment for $50,000. Determine the gain or loss the company will report on their 2024 financial statement for the sale of the equipment.
$2,500 loss ($90,000 - $15,000)/6) = $12,500 x 3 = $37,500 accumulated depreciation. NBV = $90,000 - $37,500 = $52,500. Loss on sale = $50,000 - $52,500 = $2,500
A; Santorini Enterprises purchased equipment for $150,000 on October 1, 2022. The equipment is expected to have a five-year life and a residual value of $20,000. Using the straight-line depreciation method, what will Santorini report on its December 31, 2023 balance sheet for the equipment (i.e., what is the net book value of the equipment on December 31, 2023)?
$117,500 ($150,000 - $20,000)/5) = $26,000 annual depreciation 2022 depreciation: $26,000 x 3/12 = $6,500 2023 depreciation: $26,000 NBV reported on 2023 balance sheet: $150,000 - $6,500 - $26,000 = $117,500
CF; Which of the following is an example of a cash flow from an investing activity?
Receipt of cash from the sale of operating assets.
E; Buster Inc. reported $8,500 in net income for 2023. The company had a beginning balance in retained earnings on January 1, 2023 of $28,900. If the ending balance in retained earnings on December 31, 2023 was $34,800, how much did Buster declare in dividends during 2023?
$2,600 Beg. RE + NI - Dividends = End RE $28,900 + $8,500 - Dividends = $34,800 Dividends = $2,600
A; In 2022, Payson Inc. purchased a copyright for $25,000. The company also had an independent appraiser value their corporate brand at $150,000. What amount should Payson record in the Intangible Assets account of its 2022 annual balance sheet?
$25,000 Only purchased intangible assets are reported the balance sheet. A company's corporate brand in considered to be internally developed.
L; On January 1, 2022, Larry Farms purchased a tractor for $200,000. The company signed a 6% installment note to pay off the debt with 60 monthly payments over 5 years. Each payment is $3,867, with the first payment due February 1, 2022. How much interest must be paid over the life of the loan, rounded to the nearest dollar?
$32,020 ($3,867 x 60) - $200,000 = $32,020
L; On January 1, 2023, Jonny Company issued $500,000, 5-year bonds at 92.4. The bonds pay interest every December 31. The stated rate on the bonds is 8% and the market rate on the date of issue was around 10%. The company uses the straight-line method of amortizing bond discounts and premiums. What is the amount of the interest expense Jonny Company will record on December 31, 2023 related to the bond?
$32,400 Total discount = $500,000 - $462,000 = $38,000 Annual amortization of premium = $38,000/5 years = $7,600 per year Interest expense = Cash interest payment - amortization of premium Cash interest payment = $500,000 x 8% = $40,000 Interest expense = $40,000 - $7,600 = $32,400
L; On January 1, 2023, Jonny Company issued $500,000, 5-year bonds at 92.4. The bonds pay interest every December 31. The stated rate on the bonds is 8% and the market rate on the date of issue was around 10%. The company uses the straight-line method of amortizing bond discounts and premiums. What is the amount of the cash Jonny Company received on January 1, 2023 when they issued the bond?
$462,000 Cash received = $500,000 x 92.4% = $462,000
L; On January 2, 2022, Karter Company issued $1,000,000, 10-year bonds for $1,150,000. The bonds pay interest every December 31. The stated rate on the bonds is 10% and the market rate on the date of issue was around 8%. The company uses the straight-line method of amortizing bond discounts and premiums. What is the amount of the interest expense Karter Company recorded on December 31, 2022 related to the bond?
$85,000 Total premium = $1,150,000 - $1,000,000 = $150,000 Annual amortization of premium = $150,000/10 years = $15,000 per year Interest expense = Cash interest payment - amortization of premium Interest expense = $100,000 - $15,000 = $85,000
E; On June 1, the board of directors declared a $100,000 cash dividend to be distributed to common stockholders of record on June 15. The dividend will be paid on July 1. The required journal entry on June 1 includes a
debit to retained earnings for $100,000.
