Accounting Exam 2 Study Guide

(100,000/5) = 20,000 per day x 3 days (mon, tues, wed)= 60,000 credit to wages payable $60,000

A manufacturing company's weekly payroll is $100,000 for a 5-day work week beginning each Monday and ending each Friday. The last time salaries and wages were recorded was Friday, December 26. What adjustment is needed on Wednesday, December 31, on the last day of the company's reporting period?

Operating Activity

Activity that creates cash inflows or outflows through day-to-day operations (cost of goods sold, interest expense, buying inventory)

Statement of Retained Earnings

Beginning Retained Earnings + Net Income - Dividends = Ending Retained Earnings

market rate of interest is less than the stated rate of interest at the time of issue

Bonds sell at a premium when the

Operating section

Cash received for interest payments from an investment purchased in 2016 appears in which section of the statement of cash flows?

Investing

Cash received from the sale of old production equipment would appear in which section of the statement of cash flows?

(200,000 + 340,000) / (100,000 + 300,000 + 80,000) = 1.125

Clock company's balance sheet showed the following amounts: Current assets 600,000 PPE 240,000 Current liabilities 200,000 Long-term liabilities 340,000 Common stock 100,000 Additional paid in capital 300,000 Retained earnings 80,000 What is the company's debt-to-equity ratio?

Share issued = (700,000/7) = 100,000 Shares outstanding = 100,000 - 2,000 = 98,000

Common Stock, $7 par 700,000 Additional Paid in capital-common stock 160,000 Retained Earnings ? Treasury Stock, 2,000 shares at cost 15,000 Total stockholders' equity 975,000 How many shares of common stock are outstanding for Orange Inc?

975,000 + 15,000 - 700,000 - 160,000 = 130,000

Common Stock, $7 par 700,000 Additional Paid in capital-common stock 160,000 Retained Earnings ? Treasury Stock, 2,000 shares at cost 15,000 Total stockholders' equity 975,000 What is the amount of retained earnings for Orange inc?

1,000,000 / ([180,000 + 110,000]/2) = 6.90

Consider the following for XYZ Company: 2022 2021 PP&E, net $180,000 $110,000 Depreciation expense $62,500 $47,500 Revenue $1,000,000 $900,000 Total Assets $625,000 $475,000 What is the company's FIXED asset turnover ratio for 2022?

Only the stuff purchased (50k). Internally developed does NOT get capitalized!

During 2022, XYZ Manufacturing spent $125,000 on research and development of a trademark and purchased a patent from its competitor for $50,000. What amount should XYZ record in the Intangible Assets account of its 2022 annual Balance Sheet?

Less than $500,000 because the 7% market rate of interest was higher than the stated rate.

Gable Corp. planned to raise $500,000 by issuing bonds. The bond certificates were printed on November 1, 2022, bearing a stated interest rate of 6%. The bonds were issued on December 31, 2022, when the market rate was 7%. How much will the company receive from the sale of the bonds on December 31, 2022?

Using cash from operations and selling long-term assets to pay back debt

Missy Company's Statement of Cash Flows includes the following: Cash flows from operating activities 30,000 Cash flows from investing activities 80,000 Cash flows from financing activities 130,000 From this info, it is likely that the company is:

Beg. balance equip + Asset purchases - Asset sold = End balance equip 300,000 + asset purchases - 50,000 = 400,000 Asset purchases= $150,000

Morty Inc. provided the following select information from their financial records: Equipment, 12/31/2021 300,000 Equipment, 12/31/2022 400,000 Accumulated Depreciation, 12/31/2021 180,000 Accumulated Depreciation, 12/31/2022 60,000 During 2022, the company sold equipment with a cost of 50,000 and accumulated depreciation of 30,000. This was the only equipment sale during the year. What amount would be reported as an investing cash outflow from the purchase of equipment on the statement of cash flows for 2022

DR Cash $10,000 DR Accumulated Depreciation $40,000 DR Loss on sale $80,000 CR production machine $130,000

On December 31, 2022, XYZ Corp. decided to sell one of its production machines for $10,000 cash. The machine, which originally cost $130,000, had accumulated depreciation of $40,000 as of December 31, 2022. The journal entry to record the sale would include:

debit factory building $13,000, Credit cash $13,000. Debit maintenance expense $275, credit cash $275

On June 1, 2022, XYZ Manufacturing Company paid $13,000 to install a new roof on their factory. The new roof will extend the life of the building for 7 additional years. XYZ also paid $275 to replace 5 windows in the factory. The journal entries to record the two expenditures will include:

DR retained earnings $20,000 CR dividends payable $20,000 DR dividends payable $20,000 CR cash $20,000

On June 1, the board of directors declared a $20,000 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:

DR interest expense $2,100 CR interest payable $2,100 120,000 x (0.07/12) = 700 (per month) x 3 months = $2,100

On October 1, 2023, Bailey Company borrowed $120,000 from National Bank on a 1-year, 7% note. The adjusting entry needed on December 31, 2023, would include:

True

Selling an investment in Amazon stock for cash is not a financing activity for companies (unless you are Amazon).

4,000 shares x $50 = $200,000

The stockholders' equity section of the December 31, 2022, balance sheet is provided below: Common Stock, $30 par, 20,000 shares issued and outstanding 600,000 Paid-In Capital in Excess of Par-Common Stock. 240,000 Retained Earnings 700,000 Total Stockholders' equity 1,540,000 Assume that all of the 20,000 shares of stock that were issued as of December 31, 2022, were issued for $42 per share. On March 1, 2023, the company repurchased 4,000 shares of its common stock for $50 per share. How much should be reported on the company's March 31, 2023 balance sheet for treasury stock?

Retained earnings

What ALWAYS cancels out dividends (debits and credits)?

financing activity

When using the indirect method to determine operating cash flows, how is the issuance of stock for cash shown on the statement of cash flows?

DR cash $1,000,000 CR common stock $50,000 CR Additional paid in capital $950,000

XYZ Corp has decided to issue equity to raise capital to expand operations. The company has received approval from the board of directors to issue 200,000 shares of the company's common stock on May 1, 2023. On the date of issue, the common stock has a par value of $0.25 and a market value of $5. The journal entry to record the issue of stock on May 1, 2023 would include a:

$173k

XYZ Corp. purchased equipment for $200,000 on July 1, 2022. The equipment is expected to have a 10 year life and a residual value of $20,000. Using the straight-line depreciation method, what will XYZ Corp. 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)?

37K

XYZ Corp. purchased equipment for $28,000. In connection with the purchase, XYZ paid an additional $2,000 in sales tax, $4,000 to have the equipment delivered, and $3,000 for installation. XYZ expects to spend $10,000 in maintenance over the asset's 10 year useful life. What amount should XYZ record on its balance sheet for the equipment once it is installed (before considering depreciation)?

50k

XYZ Inc. purchased equipment for $500,000 on January 1, 2022. The equipment is expected to have an eight-year life and a residual value of $100,000. Using the straight-line depreciation method, how much did XYZ Inc. record as a depreciation expense on its 2022 annual Income Statement?

1. interest: $2,500 Principal: $800 2. interest: $2,497.67 Principal: $803.33

XYZ purchased a building on January 1st by signing a long-term (20 years) $600,000 mortgage with monthly payments of $3,300. The mortgage carries an interest rate of 5% per year. 1. How much of the first payment (due on January 31) is interest and how much is principal? 2. For payment 2, how much of the payment is interest and how much is principal?

1. interest: 20,000 x (0.06/12) = $100 principal decline: 469.70 - 100 = 369.70 2. interest: 20,000 - 369.70 = 19,630.30 x (0.06/12) = 98.15 principle decline: 469.70 - 98.15 = 371.55

You borrow $20,000 with an interest rate of 6%. You will pay off this loan over 48 installment payments. Your monthly payment is $469.70 (same amount every month). 1. Of your FIRST payment of $469.70, what amount will go towards interest and by what amount will the principal decline on your loan? 2. Of your SECOND payment of $469.70, what amount will go towards interest and by what amount will the principal decline on your loan?

1. 469.70 x 48 = $22,545.60 2. 22,545.60 - 20,000 = $2,545.60

You borrow $20,000 with an interest rate of 6%. You will pay off this loan over 48 installment payments. Your monthly payment is $469.70. 1. What is the total amount of your 48 payments? 2. How much of that is interest?

capitalizing

adding value; extending the useful life of an asset

cash from operating activities to be higher than Net Income

all else equal, depreciation expense causes...

Short-term (current) asset

asset that gets used/sold within 1 year

Long-term (noncurrent) asset

asset we have longer than 1 year

equity is made up of...

contributed capital and retained earnings

the cost of operating assets to expenses over the time period which benefit from the use of the asset

depreciation divides/distributes...

long-term debt

includes bonds or obligations that mature in more than a year

short-term (current) liability

obligation to be paid off within 1 year

long-term (noncurrent) liability

obligations that come due in more than one year

expensing

paying money to maintain useful life

Investing Activity

paying money to make more money (buying equipment)

payment = amount of principle paying down + (principal x interest [adjusted] x periods)

payment formula

Long-term asset example

plant, property, and equipment (PP&E)

Financing Activity

receiving money to get operations going (loans, bonds payable, receiving cash for shares)

goodwill

recorded as an asset when a business pays a premium to acquire another business

the cost of treasury stock

reduction of shareholder's equity

fixed asset

reported on the balance sheet as PP&E. also known as a non-current asset

all of the profits (minus all the losses), minus dividends paid out to owners, that have been kept in the company

retained earnings represents...

NONE (trick quesh)

what entry takes place on the date of record after a corporation declares a cash dividend?

treasury stock

when a company repurchases its common stock it becomes...