Exam 2

For a cash dividend, the ex-dividend date:

Typically, is one business day before the date of record.

Net income

Sales revenue- cost of goods sold- operating expenses+ Foreign Currency

Hailey wants to cash in her winning lottery ticket. She can either receive eight $200,000 semiannual payments starting today, based on a 6% annual interest rate, or she can receive a single-amount payment today. What is the single-amount payment she can receive today that would be equivalent to the eight-payment option except that she would not have to wait for years to collect her prize money? (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)

$1,446,056. 200000 times percentage six periods present value

A series of equal periodic payments in which the first payment is made on the date of the contract is:

An annuity due.

A series of equal periodic payments in which the first payment is made one compounding period after the date of the contract is:

An ordinary annuity.

During the year ended December 31, year 8, Dalgiesh Co. had sales of $1,500, cost of goods sold of $800, and sales, general and administrative expenses of $200. In addition, Dalgiesh is involved in a restructuring process expected to last several years, and incurred restructuring costs in year 8 of $125. During the year the company also sold various investments for a net pre-tax gain of $125, and received $40 in dividends from investments. What amount of operating and nonoperating income will Dalgiesh present in its year 8 income statement?

$375 and $165 Both operating and nonoperating income are presented prior to tax effects on the income statement, as part of income from continuing operations. Because restructuring costs will be incurred for several more years to come, they will be presented as part of operating income, for total operating income of $1,500 - $800 - $200 - $125, or $375. The gain on sale of investments and the dividend income are components of nonoperating income, for a nonoperating total of $125 + $40, or $165.

The Richards Company purchased a machine for $5,000 down and $300 a month payable at the end of each of the next 36 months. How would the cash price of the machine be calculated, assuming the annual interest rate is given?

$5,000 plus the present value of an ordinary annuity of $300 for 36 periods.

The Compton Press Company reported income before taxes of $250,000. This amount included a $50,000 loss on discontinued operation. The amount reported as income from continuing operations, assuming a tax rate of 25%, is:

250000-(50000 times 0.25)

On a statement of cash flows prepared in conformity with GAAP, which of the following would not be included as a financing activity?

Dividends received from an investment

Which of the following captions would more likely be found in a multiple-step income statement?

Operating income

An item typically included in the income from continuing operations section of the income statement is:

Restructuring costs.

Comprehensive income equals:

The change in equity from transactions with nonowners.

The following items appeared in the year-end trial balance for the Brown Coffee Company: DebitsCreditsRevenues $600,000 Operating expenses$420,000 Income on discontinued operations 200,000 Restructuring costs 100,000 Interest expense 20,000 Gain on sale of investments 30,000 Income tax expense has not yet been accrued. The company's income tax rate is 25%. What amount should be reported in the company's income statement as income from continuing operations?

[$600,000 (revenues) - $420,000 (operating expenses) - $100,000 (restructuring costs) - $20,000 (interest expense) + $30,000 (gain on sale of investments)] x [1.0 - 0.25 (income tax rate)] = $67500

Bell Co. prepares its statement of cash flows using the indirect method. Selected items pertaining to its cash flow are listed below. What amount should Bell Co. report as net cash provided by financing activities in its statement of cash flows for the year? Bonds issued$90,000 Treasury stock repurchased$23,000 Trading securities purchased$35,000 Cash dividends paid$15,000 Gain on available-for-sale investment$11,000

cash flow from financing activities bond issued 90000 treasury stock repurchased -23000 cash dividend paid -15000 cash flow from financing activities 52000

Red, Inc. had the following activities during year 8: Acquired a bond investment for $40,000, which Red intends to hold to maturity. Sold equipment to another corporation for $24,000 when the carrying value was $22,000. Acquired a stock investment for $8,500, which Red intends to hold for trading. Made a loan to an employee for $12,500. Collected interest on a bond investment of $2,500. In Red's year 8 statement of cash flows, net cash used in investing activities should be

net cash used in investing activity acquired in bond investment -40000 sold equipment 24000 Made a loan to an employee -12500 net cash used in investing activity -28500

What is the effect of the declaration and subsequent issuance of a stock split (not effected in the form of a stock dividend) on each of the following?

no effect on both

Blue Co.'s worksheet for the preparation of its year 8 statement of cash flows included the following: December 31 January 1 Accounts receivable, before any allowance$19,000 $15,000 Allowance for uncollectible accounts 650 400 Prepaid insurance expense 5,200 8,300 Accounts payable 12,600 9,800 Blue's year 8 net income is $125,000. What amount should Blue include as net cash provided by operating activities in the statement of cash flows?

$127,150 A $4,000 increase in accounts receivable indicates that collections were actually lower than sales for the period. In calculating cash flows from operating activities, the increase would decrease net income. A $250 increase in the allowance for doubtful accounts results from the recognition of bad debts expense, which reduced income without requiring the use of cash. It will be added to income. A $3,100 decrease in prepaid insurance expense (an asset) indicates that some of the insurance that had been prepaid in an earlier period was used toward the current period's expense, requiring less cash for insurance. It will also be added to income. A $2,800 increase in accounts payable indicates that the entity did not pay for all of the purchases included in cost of sales, requiring the use of less cash. It will also be added to income. As a result, cash flows from operating activities will be ($125,000 − $4,000 + $250 + $3,100 + $2,800) $127,150.

Harry Morgan plans to make 30 quarterly deposits of $200 into a savings account at the end of each quarter. The savings account pays interest at an annual rate of 8%, compounded quarterly.

$200 x FVA (2%, 30 periods)= $200 x 40.5681 = $8,114

Harry Morgan plans to make 30 quarterly deposits of $200 into a savings account. The first deposit will be made immediately. The savings account pays interest at an annual rate of 8%, compounded quarterly. How much will Harry have accumulated in the savings account at the end of the seven and a half-year period? (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)

$200 x FVAD (2%, 30 periods)= $200 x 41.3794 = $8,276

The Strug Company purchased office furniture and equipment for $8,600 and agreed to pay for the purchase by making five annual installment payments beginning immediately. The installment payments include interest at 8%. What is the required annual installment payment?

$8,600 / PVAD (8%, 5 periods)= $8,600 / 4.31213 = $1,994

Capstone Corp. reported $150,000 of comprehensive income for year 8. It also reported the following: Beginning retained earnings$300,000 Income tax expense$60,000 Ending retained earnings$320,000 Cash dividends declared$80,000 Other comprehensive income$50,000 What was Capstone's net income for year 8?

( 320,200-300,000) + Cash dividends declared

Red Co. had the following transactions through December 31: Cash proceeds from the sale of investment in Gold Co. stock$15,000 Dividends received on investment in Blue Co. stock$10,000 Repaid principal on a loan to the bank$35,000 Acquired investment in Yellow Co. stock$75,000 Proceeds from the disposal of factory equipment$12,000 What amount should Red report as net cash used by investing activities in its statement of cash flows for the period ended December 31?

($15,000 - $75,000 + 12,000).

Wellman Company is considering investing in a two-year project. Wellman's required rate of return is 10%. The present value of $1 for one period at 10% is 0.909 and for two periods at 10% is 0.826. The project is expected to create cash flows, net of taxes, of $80,000 in the first year, and $100,000 in the second year. Wellman should invest in the project if the project's cost is less than or equal to:

($80K x 0.909) + ($100K x 0.826) = $155,320

A company issued a 20-year, $1,000 par value bond that pays semiannual interest of $40. If the semiannual market rate of interest is 5%, at what amount did the bond sell? (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) (Do not round intermediate calculations. Round your final answer to nearest whole dollar amount.)

(1000 *0.142045682 (PV 5% 40)) + (40 *17.15908635 (PVA5% 40) =828.41

Liberty Corporation had net income of $120,000 during the year. Depreciation expense was $6,000. The following information is available: Held- to-Maturity Bonds purchased25,000increaseCommon Stock issued70,000increaseAccounts Receivable10,000decreaseAccounts Payable15,000increaseGain on sale of AFS Investment5,000increase What amount should Liberty report as net cash provided by operating activities in its statement of cash flows for the year?

120000- 5000+6000+ 10000+15000= 146000

The net income for World Class Corporation was $140 million for the year ended December 31, 2021. Related information follows: Amortization of patent, $1 million.Cash dividends paid, $14 million.Decrease in accounts receivable, $9 million.Decrease in salaries payable, $1 million.Depreciation expense, $20 million.Increase in long-term notes payable, $13 million.Sale of preferred stock for cash, $17 million. Cash flows from operating activities during 2021 should be reported as:

169 million- Cash flows from operating activities = $140 + $1 (amortization of patent) + $9 (decrease in accounts receivable) - $1 (decrease in salaries payable) + $20 (depreciation expense).

Consider the following items: (a) Decrease in accounts receivable (b) Issuance of common stock (c) Increase in interest receivable (d) Purchase of land (e) Decrease in accounts payable (f) Gain on the sale of equipment (g) Depreciation expense (h) Payment of dividends (i) Decrease in utilities payable (j) Increase in inventory How many of these items would beaddedto net income when using the indirect method to prepare the operating activities section of the statement of cash flows?

2

On May 31, 20X1, the Arlene Corporation adopted a plan to sell its cosmetics line of business, considered a component of the entity. By the end of the year, the assets have not been sold. The book value of those assets equals $1,100,000, and the company estimates their fair value to be $850,000. The component generated operating income for the year of $450,000. In its income statement for the year ended December 31, 20X1, for what amount would the company report income from operations of a discontinued component (ignoring taxes).

200000

On May 31, 20X1, the Arlene Corporation adopted a plan to sell its cosmetics line of business, considered a component of the entity. By the end of the year, the assets have not been sold. The book value of those assets equals $850,000, and the company estimates their fair value to be $1,100,000. The component generated operating income of $450,000 for the year. In its income statement for the year ended December 31, 20X1, for what amount would the company report income from operations of a discontinued component (ignoring taxes).

450000

On February 1, Pinn Corp., paid $40,000 in advertising expenses for ads that will run in a periodical for the entire calendar year. On July 3, Pinn paid $430,000 for anticipated major repairs to their machinery used for business. The repairs will benefit operations for the remainder of the calendar year. Assuming Pinn is a calendar year corporation, what amount of these expenses should Pinn include in its third quarter interim financial statements?

225,000. Expenses incurred in an interim period that are expected to benefit that and one or more other interim periods in the same fiscal year are allocated among the interim periods benefited. The $40,000 in advertising expenses benefits the entire year and will be recognized at $10,000 per quarter. The anticipated major repairs will benefit the last two quarters of Pinn's year and will be allocated at the rate of $215,000 per quarter. The total affecting the third quarter would therefore be $10,000 + $215,000, or $225,000.

At the beginning of 2021, Priester Dental Supplies had outstanding 4 million shares of $100 par, 8% cumulative, non-participating preferred stock and 20 million shares of $1 par common stock. During 2021, Priester declared and paid cash dividends of $100 million. No dividends had been declared or paid during 2020. On January 12, Priester issued a 5% common stock dividend when the quoted market price the common stock was $20 per share. What amount of cash did Priester distribute to common shareholders?

36$100 million - $64 [8% x $100 par x 4 million shares x 2 years (the current year plus one year in arrears)].

The corporate charter of CD, Inc. authorized the issuance of 6 million, $1 par common shares. During 2021, its first year of operations, CD had the following transactions: February 4 sold 4 million shares at $15 per shareOctober 12 purchased 1 million treasury shares at $18 per shareDecember 30 resold the 1 million treasury shares at $20 per share What amount should CD report as additional paid-in capital in its December 31, 2021, balance sheet?

4 times 14= 56 1 times 2=2 58

Selected information from Isadore Bell Corporation's accounting records and financial statements for 2021 is as follows ($ in millions): Cash paid to acquire equipment$18 Treasury stock purchased for cash 25 Proceeds from sale of land and buildings 45 Gain from the sale of land and buildings 26 Investment revenue received 33 Cash paid to acquire office equipment 40 On its statement of cash flows, Isadore Bell should report net cash outflows from investing activities of:

45-18-40=13

a) Decrease in accounts receivable (b) Issuance of common stock (c) Increase in interest receivable (d) Purchase of land (e) Decrease in accounts payable (f) Gain on the sale of equipment (g) Depreciation expense (h) Payment of dividends (i) Decrease in utilities payable (j) Increase in inventory How many of these items would be subtracted from net income when using the indirect method to prepare the operating activities section of the statement of cash flows?

5

Green Co. reported the following in its year-end statement of cash flows: net cash provided by operating activities of $209,000; net cash used for investing activities of $354,000; and net cash provided by financing activities of $190,000. Included in those cash flows is the sale of equipment during the year that resulted in a gain of $7,200 and proceeds of $55,000. Green's cash balance at the beginning of the year was $36,500. What was Green's cash balance at the end of the year?

81,500 Since cash provided by operating activities is $209,000, cash used by investing activities is $354,000, and cash provided by financing activities is $190,000, the net increase in cash for the period is $209,000 − $354,000 + $190,000 or $45,000. This is added to the beginning cash balance of $36,500 to give an ending cash balance of $81,500. The proceeds from the sale of equipment would already be included in cash flows from investing activities and the gain on sale would have been eliminated in measuring cash flows from operating activities.

Selected information from the accounting records of Dunn's Auto Dealers is as follows: Cost of furniture purchased for cash$8,000 Proceeds from bank loan 100,000 Repayment of bank loan (includes interest of $4,000) 44,000 Proceeds from sale of equipment 5,000 Cash collected from customers 320,000 Purchase of stock of another corporation as an investment 20,000 Common stock issued for cash 200,000 In its statement of cash flows, Dunn's should report net cash outflows from investing activities of:

= Proceeds from sale of equipment - Cost of furniture purchased for cash - Purchase of stock of another corporation as an investment = $5,000 - $8,000 - $20,000 = $23,000

switched from the completed contract method to the percentage-of-completion method of accounting for its long-term construction contracts. This is an example of:

A change in accounting principle

Treasury stock transactions may cause:

A decrease in the balance of retained earnings.

A series of equal periodic payments that starts more than one period after the agreement is called:

A deferred annuity.

In determining cash flows from operating activities (indirect method), adjustments to net income should be included:

An addition for depreciation expense. A deduction for bond premium amortization. An addition for patent amortization.

In a statement of cash flows (indirect method), a decrease in inventory should be reported as:

An addition to net income in determining cash flows from operating activities.

Interest paid to bondholders is reported in connection with a statement of cash flows as:

An operating activity.

Which of the following items is included in the investing activities section of the statement of cash flows?

Cash effects of transaction involving the acquisition of property, plant, and equipment.

Which of the following items would be included as a cash flow from operating activities in a statement of cash flows?

Collections from customers. Interest on note payable. Purchase of inventory.

On March 31, 2021, the Freeman Company leased a machine. The lease agreement requires Freeman to pay 10 annual payments of $6,000 on each March 31, with the first payment due on March 31, 2021. Assuming an interest rate of 10% and that this lease is treated as an installment sale, Freeman will initially value the machine by multiplying $6,000 by which of the following factors?

Correct answer is: Present value of annuity due of $1 at 10% for 10 periods 10 annual payments to be made each of $6000 with the Discount factor of Present value of annuity due of $1 at 10% for 10 periods Freeman will get the initial value (Present value which is to be paid in future

For a manufacturing company, each of the following items would be considered nonoperating income for income statement purposes except:

Cost of goods sold.

Encore Industries owned investment securities with a book value of $45 million on August 12. At that time, Encore's board of directors declared a property dividend consisting of these securities. The fair value of the securities was as follows: Declaration - August 12$58million Record date - September 1 62million Distribution date - September 20 60million What amount of gain should Encore recognize in earnings in connection with this property dividend?

Declaration- 45 million= 13 million

What is the effect of the declaration and subsequent issuance of a 5% stock dividend on each of the following?

Decrease in retailed earnings and increase in paid in capital

Laser World's income statement reported total revenues of $850,000 and total expenses (including $40,000 depreciation) of $720,000. The balance sheet reported the following: Accounts Receivable—beginning balance, $50,000 and ending balance, $60,000; Accounts Payable—beginning balance, $22,000 and ending balance, $28,000. Therefore, based only on this information, the net cash flows from operating activities were:

Net income = Total revenues - Total expenses = 850,000 - 720,000 = $130,000 = 130,000 + 40,000 - (60,000 - 50,000) + (28,000 - 22,000) = 130,000 + 40,000 - 10,000 + 6,000 = $166,000

What is the effect of the declaration and subsequent issuance of a stock split (effected in the form of a stock dividend) on each of the following?

No effect on both

On May 31, 20X1, the Arlene Corporation adopted a plan to sell its cosmetics line of business, considered a component of the entity. The assets of the component were sold on October 13, 20X1, for $1,200,000. The book value of those assets equaled $1,000,000 at the time of the sale. The component generated an operating loss of $300,000 from January 1, 20X1, through disposal. The company's tax rate is 25%. For what amount would the company report income from discontinued operations?

Gain on disposal of discontinued operations = Sale price of assets - Book value of assets = 1,200,000 - 1,000,000 = $200,000 Hence, Gain on disposal of discontinued operations, net of taxes = 200,000 - 200,000 x 25% = 200,000 - 50,000 = $150,000 Loss on discontinued operations, before income tax = $300,000 Hence, Loss on discontinued operations, net of income tax = $300,000 - 300,000 x 25% = 300,000 - 75,000 = $(225,000) Net amount to be reported under discontinued operations = Gain on disposal of discontinued operations, net of taxes - Loss on discontinued operations, net of income tax = 150,000 - 225,000 = $75,000 loss

When preparing interim financial statements, an enterprise should: I. Use the same accounting principles followed in preparing its latest annual financial statements. II. Allocate expenses among all interim periods benefited, if the expenses are expected to benefit not only the period of occurrence but also additional period(s) in the same fiscal year. III. Allocate revenues and expenses evenly over the quarters, regardless of when they actually occurred.

I and II only.

A multiple-step income statement and a single-step income statement would report the same subtotal for which of the following amounts?

Income before taxes.

On May 31, 20X1, the Arlene Corporation adopted a plan to sell its cosmetics line of business, considered a component of the entity. The assets of the component were sold on October 13, 20X1, for $1,120,000. The component generated operating income of $300,000 from January 1, 20X1, through disposal. In its income statement for the year ended December 31, 20X1, the company reported before-tax income from operations of a discontinued component of $620,000. What was the book value of the assets of the cosmetics component?

Income from Operation of a Discontinued Components= $620,000 Less: Income from Operations = ($300,000) Gain on Sale of the Assets = $320,000 Sale Value of the Asset = $1,120,000 Gain on Sale of Assets = $320,000 Book Value of Assets= $800,000

The following data were reported in the shareholders' equity section of the Jetson Company's comparative balance sheets for the years ended December 31: ($ in millions) 2021 2020Common stock, $1 par per share$306 $300 Paid-in capital - excess of par 174 150 Retained earnings 314 300 During 2021, Jetson declared and paid cash dividends of $45 million. The company also declared and issued a stock dividend. No other changes occurred in shares outstanding during 2021. What was Jetson's net income for 2021?

Increase in common stock from 2015 to 2016 is $6 million (ie. $306 - $300) Increase in Paid-in capital - excess of par from 2015 to 2016 is $24 million (ie. $174 - $150) Total increases = $6 million + $24 million = $30 million 30 million is total stock dividend declared. 45 million is total cash dividend declared. Total stock dividend + Cash dividend = $30 million + $45 million = $75 million $75 million is total Dividend declared 2016 retained earning - 2015 retained earnings + Dividend declared = Net income for 2016 = $314 - $300 + $75 = $89 million net income for 2016

Dunavant Service Company views share repurchases as treasury stock. Dunavant purchased shares and then later sold the shares at more than their acquisition price. What is the effect of the sale of the treasury stock on each of the following?

Just an Increase on retained earnings

Westside Shipping issued "preemptive rights" to its existing shareholders without consideration whereby each shareholder is offered the opportunity to buy a percentage of any new shares issued equal to the percentage of shares he/she owns at the time. When Westside issues the rights, which of the following accounts will be increased?

No to both

Danielle wants to know how much she should invest now at 5% interest in order to accumulate a sum of $45,000 in four years. She should use a table for the:

Present value of $1. Explanation: Present value of $1 table is used to compute the present value of the amount given at the end of any specific year.

Consider the following year-end information for a company: Cost of goods sold$420,000 Sales revenue 800,000 Nonoperating expenses 10,000 Operating expenses 170,000 Income tax expense 80,000 What amount will the company report for operating income?

Operating income = Sales revenue- cost of goods - operating expenses

Ordinary Annuity vs. Annuity Due

Ordinary Annuity = at the end of the month (start later) Annuity due = start at the beginning (-1 = ordinary)

The Jamison Corporation agrees to pay an employee $10,000 a year for five years beginning three years from today and decides to fund the payments by depositing one lump sum in a savings account today. The company should use which present value concept to determine the required deposit?

PV of a Deferred Annuity

The Sanchez Company purchased a delivery truck on February 1, 2021. The purchase agreement required Sanchez to pay the total amount due of $15,000 on February 1, 2022. Assuming an 8% rate of interest, the calculation of the price of the truck would involve multiplying $15,000 by the:

Present value of $1

Sandra wants to calculate how much money she needs to deposit today into a savings account which earns 5% in order to be able to withdraw $3,000 at the end of each of the next 6 years. She should use which present value concept?

Present value of an ordinary annuity of $1 for 6 periods. The annual withdrawals for 6 periods is required. Therefore, annuity table is applied. However, the withdrawals are to be made at the end of each period. Therefore, ordinary annuity table shall be applicable.

Laura won $5,000,000 in the state lottery, which she has elected to receive at the end of each month over the next 30 years. She will receive 7% interest on unpaid amounts. To determine the amount of her monthly check, she should use a table for the:

Present value of an ordinary annuity of $1.

Chapman Chairs, a family-owned corporation, declared and distributed a property dividend from its overstocked inventory in place of its usual cash dividend. The inventory's book value exceeded its fair value. The excess is:

Reported as a loss.

In the current year, a company has a gain of $50,000. The company's accountant is deciding whether to report this gain as part of nonoperating income in the income statement or as part of other comprehensive income. Which of the following is true?

Retained earnings will be greater if the gain is reported as part of net income.

The corporate charter of Pharaoh Tent Co. authorized the issuance of 6 million, $1 par common shares. During 2021, its first year of operations, Pharaoh had the following transactions: February 4 sold 4 million shares at $15 per shareOctober 12 retired 1 million shares at $18 per shareDecember 30 sold the 1 million shares at $20 per share What amount should Pharaoh report as additional paid-in capital in its December 31, 2021, balance sheet?

Sale of 4 million shares: 56 4 times (15-1) 1 million shares: 1 times 14= -14 Sale of 1 million shares 1 times 20 -1= 19 61 million shares

Comprehensive income A company reports the following information as of December 31st: Sales revenue$350,000 Cost of goods sold$150,000 Operating expenses$110,000 Foreign currency translation adjustment$25,000 Ignoring income taxes, what amount should the company report as comprehensive income as of December 31st?

Sales revenue- cost of goods sold- operating expenses + Foreign Currency

Which of the following describes the modified retrospective approach to implementing a change in accounting principle?

The new standard is applied only to the current period and all future periods, and the cumulative effects of prior periods is shown as an adjustment to retained earnings.

Given a set of present value tables, an annual interest rate, the dollar amount of equal payments made, and the number of semiannual payments, what other information is necessary to calculate the present value of the series of payments?

The timing of the payments (whether they are at the beginning or end of the period).

A company reacquired some of its own stock to be held as treasury stock and used for its employee's 401K plan. In their statement of cash flows how would this cash outflow be reported?

Under financing activities.

Earnings per share should be reported for each of the following income statement captions except:

operating income

Selected information from the accounting records of Dunn's Auto Dealers is as follows: Cost of furniture purchased for cash$8,000 Proceeds from bank loan 100,000 Repayment of bank loan (includes interest of $4,000) 44,000 Proceeds from sale of equipment 5,000 Cash collected from customers 320,000 Purchase of stock of another corporation as an investment 20,000 Common stock issued for cash 200,000 In its statement of cash flows, Dunn's should report net cash inflows from financing activities of:

proceeds bank loan- replacements of bank loan+ common stock issued from customers

Present Value

the amount of money today that would be needed, using prevailing interest rates, to produce a given future amount of money

Future Value (FV)

the amount to which a cash flow or series of cash flows will grow over a given period of time when compounded at a given interest rate