Final Exam Practice

Net sales are $3,250,000, beginning total assets are $1,400,000, and the asset turnover is 2.5 times. What is the ending total asset balance?

$1,200,000 $3,250,000 / 2.5 = $1,300,000; ($1,400,000 + X) / 2 = $1,300,000; X = $1,200,000

Spa Company uses the direct method in determining net cash provided by operating activities. The income statement shows income tax expense $85,000. Income taxes payable were $35,000 at the beginning of the year and $20,000 at the end of the year. Cash payments for income taxes are

$100,000 $85,000 + ($35,000 - $20,000) = $100,000

In Alona Company, net income is $285,000. If accounts receivable increased $140,000 and accounts payable decreased $40,000, net cash provided by operating activities using the indirect method is:

$105,000. $285,000 - $140,000 - $40,000 = $105,000

Christine Company had an increase in inventory of $55,000. The cost of goods sold was $95,000. There was a $6,000 decrease in accounts payable from the prior period. What were Thomas' cash payments to suppliers?

$156,000 $95,000 + $55,000 + $6,000 = $156,000

Stellar, Inc. decided on January 1 to discontinue its telescope manufacturing division. On July 1, the division's assets with a book value of $1,260,000 are sold for $900,000. Operating income from January 1 to June 30 for the division amounted to $195,000. Ignoring income taxes, what total amount should be reported on Stellar's income statement for the current year under the caption, Discontinued Operations?

$165,000 loss ($900,000 - $1,260,000) + $195,000 = ($165,000)

A company had net income of $210,000. Depreciation expense is $27,000. During the year, Accounts Receivable and Inventory increased $17,000 and $42,000, respectively. Prepaid Expenses and Accounts Payable decreased $5,000 and $6,000, respectively. There was also a loss on the sale of equipment of $2,000. How much cash was provided by operating activities?

$179,000. $210,000 + $27,000 - $17,000 - $42,000 + $5,000 - $6,000 + $2,000 = $179,000

During the year, Salaries and Wages Payable decreased by $5,000. If Salaries and Wages Expense amounted to $174,000 for the year, the cash paid to employees (including deductions from gross pay) is

$179,000. $5,000 + $174,000 = $179,000

Squeeze Company reports the following: End of Year Beginning of Year Inventory $25,000 $42,000 Accounts Payable 22,000 12,000 If cost of goods sold for the year is $220,000, the amount of cash paid to suppliers is

$193,000. $220,00 - ($42,000 - $25,000) - ($22,000 - $12,000) = $193,000

Gonzo Company reports a $25,000 increase in inventory and a $12,000 decrease in accounts payable during the year. Cost of Goods Sold for the year was $185,000. Using the direct method of reporting cash flows from operating activities, cash payments made to suppliers were

$222,000. $185,000 + $25,000 + $12,000 = $222,000

The following data are available for Sampson Corporation. Net income $200,000 Depreciation expense 60,000 Dividends paid 90,000 Loss on sale of land 15,000 Decrease in accounts receivable 30,000 Decrease in accounts payable 45,000 Net cash provided by operating activities is:

$260,000.

Outstanding stock of the Zone Corporation included 20,000 shares of $5 par common stock and 5,000 shares of 6%, $10 par noncumulative preferred stock. In 2017, Zone declared and paid dividends of $2,000. In 2018, Zone declared and paid dividends of $6,000. How much of the 2018 dividend was distributed to preferred shareholders?

$3,000 5,000 x $10 x .06 = $3,000

Julie's Boutique has total receipts for the month of $31,920 including sales taxes. If the sales tax rate is 5%, what are Julie's sales for the month?

$30,400 $31,920/1.05 = $30,400

Presented here is a partial amortization schedule for Roseland Company who sold $300,000, five year 10% bonds on January 1, 2017 for $312,000 and uses annual straight-line amortization. BOND AMORTIZATION SCHEDULE Interest Period Interest Paid Interest Expense Premium Amortization Unamortized Premium Bond Carrying Value January 1, 2017 $12,000 $312,000 January 1, 2018 (i) (ii) (iii) (iv) (v) Which of the following amount should be shown in cell (v)?

$309,600 $12,000/5 = $2,400; $312,000 - $2,400 = $309,600

Silk Company issued $500,000 of 7%, 10-year bonds on its interest date for $431,850 to yield an effective annual rate of 9%. The effective-interest method of amortization is to be used. How much bond interest expense (to the nearest dollar) should be reported on the income statement for the end of the first year?

$38,867 $431,850 x .09 = $38,867

A corporation issues $500,000, 8%, 10-year bonds on January 1, 2018 for $479,000. Interest is paid annually on January 1. If the corporation uses the straight- line method of amortization of bond discount, the amount of bond interest expense to be recognized on December 31, 2018 is

$42,100. ($500,000 x .08) + [($500,000 - $479,000)/10] = $42,100

In a recent year Cold Corporation had net income of $250,000, interest expense of $50,000, and a times interest earned of 10. What was Cold Corporation's income before taxes for the year?

$450,000 ($250,000 + $50,000 + Tax exp.)/$50,000 = 10, Tax exp. = $200,000; $250,000 + $200,000 = $450,000

Crawford Company has total proceeds (before segregation of sales taxes) from sales of $7,155. If the sales tax is 6%, the amount to be credited to the account Sales Revenue is:

$6,750. $7,155/(1 + .06) = $6,750

Rubble Company reported net income of $70,000 for the year. During the year, accounts receivable increased by $6,000, accounts payable decreased by $5,000 and depreciation expense of $8,000 was recorded. Net cash provided by operating activities for the year is

$67,000. $70,000 - $6,000 - $5,000 + $8,000 = $67,000

In Jude Company, land decreased $150,000 because of a cash sale for $150,000, the equipment account increased $60,000 as a result of a cash purchase, and Bonds Payable increased $120,000 from issuance for cash at face value. The net cash provided by investing activities is

$90,000. $150,000 - $60,000 = $90,000

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?

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

The following amounts were taken from the financial statements of Ando Company: 2017 2016 Total assets $800,000 $1,000,000 Net sales 720,000 650,000 Gross profit 352,000 320,000 Net income 108,000 117,000 Weighted average number of common shares outstanding 90,000 90,000 Market price of common stock $42 $39 The return on assets for 2017 is

12% $108,000 / [($800,000 + $1,000,000)/2] = 12%

Kong Inc. reported net income of $298,000 during 2018 and paid dividends of $26,000 on common stock. It also has 10,000 shares of 6%, $100 par value cumulative preferred stock outstanding. Common stockholders' equity was $1,200,000 on January 1, 2018, and $1,600,000 on December 31, 2018. The company's return on common stockholders' equity for 2018 is:

17.0% ($298,000 - $60,000)/[($1,200,000 + $1,600,000)/2] = 17%

The following information pertains to Unique Company. Assume that all balance sheet amounts represent both average and ending balance figures. Assume that all sales were on credit. Assets Cash and short-term investments $ 40,000 Accounts receivable (net) 25,000 Inventory 20,000 Property, plant and equipment 210,000 Total Assets $295,000 Liabilities and Stockholders' Equity Current liabilities $ 60,000 Long-term liabilities 85,000 Stockholders' equity—common 150,000 Total Liabilities and Stockholders' Equity $295,000 Income Statement Sales revenue $ 85,000 Cost of goods sold 45,000 Gross profit 40,000 Operating expenses 20,000 Net income $ 20,000 Number of shares of common stock 6,000 Market price of common stock $20 Dividends per share on common stock 0.90 Cash provided by operations $30,000 What is the accounts receivable turnover for this company?

2.4 times

The following information pertains to Blue Flower Company. Assume that all balance sheet amounts represent both average and ending balance figures. Assume that all sales were on credit. Assets Cash and short-term investments $ 45,000 Accounts receivable (net) 30,000 Inventory 25,000 Property, plant and equipment 210,000 Total Assets $310,000 Liabilities and Stockholders' Equity Current liabilities $ 60,000 Long-term liabilities 95,000 Stockholders' equity—common 155,000 Total Liabilities and Stockholders' Equity $310,000 Income Statement Sales revenue $ 116,000 Cost of goods sold 66,000 Gross margin 50,000 Operating expenses 30,000 Net income $ 20,000 Number of shares of common stock 6,000 Market price of common stock $20 Dividends per share on common stock .50 Cash provided by operations $35,000 What is the inventory turnover for this company?

2.6 times $66,000 / $25,000 = 2.6

The following data is available for Blaine Corporation at December 31, 2018: Common stock, par $10 (authorized 30,000 shares) $250,000 Treasury Stock (at cost $15 per share) 900 Based on the data, how many shares of common stock are outstanding?

24,940

The following amounts were taken from the financial statements of Ando Company: 2017 2016 Total assets $800,000 $1,000,000 Net sales 720,000 650,000 Gross profit 352,000 320,000 Net income 108,000 117,000 Weighted average number of common shares outstanding 90,000 90,000 Market price of common stock $42 $39 The price-earnings ratio for 2017 is

35 times. $42 / ($108,000 / 90,000) = 35

Hickory Hills Pro Shop had a balance in the Accounts Receivable account of $800,000 at the beginning of the year and a balance of $900,000 at the end of the year. Net credit sales during the year amounted to $8,040,000. The average collection period of the receivables in terms of days was

38.4 days. 365 / ($8,040,000 / $850,000) = 38.4

Assume the following cost of goods sold data for a company: 2018 $1,400,000 2017 1,200,000 2016 1,000,000 If 2016 is the base year, what is the percentage increase in cost of goods sold from 2016 to 2018?

40% ($1,400,000 - $1,000,000) / $1,000,000 = 40%

Akers Corporation reported net income $36,000; net sales $480,000; and average assets $800,000 for 2017. What is the 2017 profit margin?

7.5% $36,000 / $480,000 = 7.5%

Aps Company reported the following on its income statement: Income before income taxes $420,000 Income tax expense 120,000 Net income $300,000 An analysis of the income statement revealed that interest expense was $60,000. Aps Company's times interest earned was

8 times. ($60,000 + $420,000) / $60,000 = 8

The discount on bonds payable or premium on bonds payable is shown on the balance sheet as an adjustment to bonds payable to arrive at the carrying value of the bonds. Indicate the appropriate addition or subtraction to bonds payable: Premium on Bonds Payable Discount on Bonds Payable

Add Deduct

If bonds with a face value of $140,000 are converted into common stock when the carrying value of the bonds is $135,000, the entry to record the conversion will include a debit to

Bonds Payable for $140,000.

Pickett Company typically sells subscriptions on an annual basis, and publishes six times a year. The magazine sells 90,000 subscriptions in January at $15 each. What entry is made in January to record the sale of the subscriptions?

Cash 1,350,000 Unearned Subscription Revenue 1,350,000 $90,000 x $15 = $1,350,000

A cash register tape shows cash sales of $1,800 and sales taxes of $126. The journal entry to record this information is

Cash 1,926 Sales Taxes Payable 126 Sales Revenue 1,800

New Corp. issues 2,000 shares of $10 par value common stock at $16 per share. When the transaction is recorded, credits are made to

Common Stock $20,000 and Paid-in Capital in Excess of Par $12,000. 2,000 x $10 = $20,000; ($16 - $10) x 2,000 = $12,000

A mortgage note payable with a fixed interest rate requires the borrower to make installment payments over the term of the loan. Each installment payment includes interest on the unpaid balance of the loan and a payment on the principal. With each installment payment, indicate the effect on the portion allocated to interest expense and the portion allocated to principal. Portion Allocated to Interest Expense Portion Allocated to Payment of Principal

Decreases Increases

Indicate where the event purchase of land and a building with a mortgage would appear, if at all, on the indirect statement of cash flows.

Does not represent a cash flow

On October 1, Steve's Carpet Service borrows $350,000 from First National Bank on a 3-month, $350,000, 8% note. What entry must Steve's Carpet Service make on December 31 before financial statements are prepared?

Interest Expense 7,000 Notes Payable 7,000 $350,000 x .08 x 3/12 = $7,000

Indicate where the purchase of land for cash would appear, if at all, on the indirect statement of cash flows.

Investing activities section

If common stock is issued for an amount greater than par value, the excess should be credited to

Paid-in Capital in Excess of Par.

Ed's Drive-In had $175,000 of current assets and $80,000 of current liabilities before borrowing $60,000 from the bank with a 3-month note payable. What effect did the borrowing transaction have on Ed's Drive-In's current ratio?

The ratio decreased.

The following schedule is a display of what type of analysis? Amount Percent Current assets $100,000 25% Property, plant, and equipment 300,000 75% Total assets $400,000 100%

Vertical analysis

In vertical analysis

a base amount is required.

A corporation commits to a legal obligation when it declares

a cash dividend.

The amount of sales tax collected by a retail store when making sales is

a current liability.

The acquisition of land by issuing common stock is

a noncash transaction which is not reported in the body of a statement of cash flows.

Other comprehensive income is reported on the statement of comprehensive income immediately

after discontinued operations.

In Lynne Company, there was an increase in the land account during the year of $43,000. Analysis reveals that the change resulted from a cash sale of land at cost $115,000, and a cash purchase of land for $158,000. In the statement of cash flows, the change in the land account should be reported in the investment section:

as a purchase of land $158,000 and a sale of land $115,000.

If the market interest rate is greater than the contractual interest rate, bonds will sell

at a discount.

A bond discount must

be amortized using the effective-interest method if it yields annual amounts that are materially different than the straight-line method.

In reporting discontinued operations, the income statement should show in a special section 1. gains on the disposal of a discontinued component. 2. losses on the disposal of a discontinued component.

both 1 and 2.

If bonds have been issued at a discount, over the life of the bonds, the

carrying value of the bonds will increase.

If a company has both an inflow and outflow of cash related to property, plant, and equipment, the

cash inflow and cash outflow should be reported separately in the investing activities section.

A balance sheet that displays only component percentages is called a ________ balance sheet.

common size

If a corporation has only one class of stock, it is referred to as

common stock.

The chief accounting officer in a corporation is the

controller.

In the Garnet Company, the beginning and ending balances in Land were $198,000 and $240,000 respectively. During the year, land costing $50,000 was sold for $50,000 cash, and land costing $92,000 was purchased for cash. The entries in the reconciling columns of the worksheet will include a:

credit to Land $50,000 and a debit to Sale of Land $50,000 under investing activities.

Seven thousand shares of treasury stock of Marker, Inc., previously acquired at $14 per share, are sold at $20 per share. The entry to record this transaction will include a

credit to Paid-In Capital from Treasury Stock for $42,000. ($20 - $14) x $7,000 = $42,000

Sales taxes collected by a retailer are recorded by

crediting Sales Taxes Payable.

Sales taxes collected by a retailer are reported as

current liabilities.

Companies with good credit ratings use _________________ bonds extensively.

debenture bonds.

Lark Corporation retires its $800,000 face value bonds at 104 on January 1, following the payment of annual interest. The carrying value of the bonds at the redemption date is $829,960. The entry to record the redemption will include a

debit of $2,040 to Loss on Bond Redemption. ($800,000 x 1.04) - $829,960 = $2,040 loss

Hernandez Corporation issues 2,000, 10-year, 8%, $1,000 bonds dated January 1, 2018, at 98. The journal entry to record the issuance will show a

debit to Cash for $1,960,000. 2,000 x $1,000 x .98 = $1,960,000

On October 1, 2017, Pennington Company issued a $90,000, 10%, nine-month interest-bearing note. Assuming interest was accrued in June 30, 2018, the entry to record the payment of the note on July 1, 2018, will include a:

debit to Interest Payable of $6,750. $90,000 x .10 x 9/12 = $6,750

The date a cash dividend becomes a binding legal obligation to a corporation is the

declaration date.

The cumulative effect of the declaration and payment of a cash dividend on a company's financial statements is to

decrease total assets and stockholders' equity.

In converting net income to net cash provided by operating activities, under the indirect method:

decreases in inventory and increases in accrued liabilities are added.

Comprehensive income would not include

dividends declared.

An income statement would not include

dividends paid.

A statement of comprehensive income is presented in

either a one- or two-statement format.

The ability of a corporation to obtain capital is

enhanced because of limited liability and ease of share transferability.

A corporate board of directors does not generally

execute policy.

A $600,000 bond was retired at 102 when the carrying value of the bond was $622,000. The entry to record the retirement would include a

gain on bond redemption of $10,000. $622,000 - ($600,000 x 1.02) = $10,000 gain

Land acquired from the issuance of common stock is reported

in a separate schedule at the bottom of the statement of cash flows.

Corporations generally issue stock dividends in order to

increase the marketability of the stock.

Starting with net income and adjusting it for items that affected reported net income but which did not affect cash is called the

indirect method.

Comparisons of financial data made within a company are called

intracompany comparisons.

All of the following may be indicators of channel stuffing except

inventory levels that reflect seasonal demand levels.

Lending money and collecting the loans are

investing activities.

Dillon Corporation splits its common stock 2 for 1, when the market value is $40 per share. Prior to the split, Dillon had 50,000 shares of $10 par value common stock issued and outstanding. After the split, the par value of the stock

is reduced to $5 per share. $10/2 = $5

Financing activities involve

issuing debt.

Each of the following decreases retained earnings except a

liquidating dividend.

A stock split

may occur in the absence of retained earnings.

Dividends in arrears on cumulative preferred stock

must be paid before common stockholders can receive a dividend.

Reardon Inc. has an investment in trading securities of $140,000. This investment experienced an unrealized loss of $7,000 during the current year. Assuming a 35% tax rate, the effect of this loss on comprehensive income will be

no effect.

Barr, Inc. reports $4,000,000 of common stock, and $6,000,000 of additional paid-in capital on its balance sheet. The number of common shares issued and outstanding is 500,000 shares. The book value per share is

not determinable.

Free cash flow equals cash provided by

operations less capital expenditures and cash dividends.

All of the following are ways that a company's current ratio would decrease except

paying off one-third of its accounts payable.

A bond secured by specific assets set aside to redeem the bonds is called a

sinking fund bond.

If a stockholder receives a dividend that reduces retained earnings by the fair value of the stock, the stockholder has received a

small stock dividend.

Long-term creditors are usually most interested in evaluating

solvency.

Retained earnings is affected by each of the following except

some disposals of treasury stock.

Book value per share is

the equity a common stockholder has in the net assets of the corporation from owning one share of stock.

Lupton Inc. disposes of an unprofitable segment of its business. The operation of the segment suffered a $200,000 loss in the year of disposal. The loss on disposal of the segment was $100,000. If the tax rate is 30%, and income before income taxes was $1,600,000,

the income from continuing operations is $1,120,000. $1,600,000 x (1 - 0.3) $1,120,000

Either the straight-line method or the effective-interest method of amortization will always result in

the same amount of interest expense being recognized over the term of the bonds.

Stockholders of a company may be reluctant to finance expansion through issuing more equity because

their earnings per share may decrease.

In a common size balance sheet, the 100 percent figure is

total assets.

Significant noncash transactions would not include

treasury stock acquisition.

Cooke Corporation issues 10,000 shares of $50 par value preferred stock for cash at $60 per share. In the stockholders' equity section, the effects of the transaction above will be reported

under both the capital stock and additional paid-in capital sections.

The current ratio is

used to evaluate a company's liquidity and short-term debt paying ability.