accounting final exam 3

Selected financial information presented below was obtained from the financial statements of Terripin Industries: Current Assets$80,000 Property and Equipment, net 120,000 Current Liabilities 90,000 Noncurrent Liabilities 70,000 Stockholder's Equity 40,000 Sales Revenue 100,000 Net Income 36,000 What is the debt-to-assets ratio?

0.80

Mountain View Co. buys back 3,000 shares of its $10 par value common stock from investors at $126 per share. This stock repurchase would be recorded with a debit to:

Treasury Stock and a credit to Cash for $378,000.

Palomino Enterprises reissued 2,000 shares of its treasury stock for $20,000. Prior to the reissuance, the Treasury Stock balance was $24,000, which included the $16,000 cost of the 2,000 shares reissued. After recording this transaction:

Treasury Stock will equal $8,000.

In 2008, Morena Manufacturing issued $180,000 of 20-year bonds at face value. Ten years later, in 2018, the company retired the bonds early by purchasing them in the open market at $181,800. The entry to record this transaction includes a:

debit to Loss on Bond Retirement of $1,800.

Sierra Blanca Co. is required to match $82,620 for its portion of FICA and $8,460 for federal and state unemployment taxes. The entry to record Sierra Blanca's payroll taxes includes:

debit to Payroll Tax Expense for $91,080.

Deferred Revenues are liabilities because:

goods or services have been paid for, but not yet provided to the customer.

An increase in EPS is an indicator of:

higher profitability.

Debentures are:

unsecured bonds.

Salmon, Inc. issues 500,000 shares of preferred stock for $60 a share. The stock has a fixed annual dividend rate of 5% and a par value of $18 per share. The current price of the preferred stock is $64 a share. If sufficient dividends are declared, preferred stockholders can anticipate receiving annual dividends of:

$0.90 per share.

On January 1, 2017, Bank & Rupp, Inc. issued 100,000 shares of $1 par value common stock and 1,000 shares of $50 par value, 6%, cumulative preferred stock. No dividends were declared in 2017. In 2018, Bank & Rupp declared and paid the preferred stockholders and a $1 per share dividend to its common stockholders. Assuming all shares originally issued are outstanding, the total dividend paid to the preferred stockholders equals:

$6,000.

Which of the following is not a characteristic of corporate ownership?

Corporate earnings are distributed as interest payments.

On January 1, 2018, Manzanita Manufacturing purchased a machine for $345,000 with an expected life of 5 years and a residual value of $37,500. In addition, the company paid delivery costs of $3,000 and $12,000 to have the machine installed. Manzanita uses the double-declining-balance method of depreciation.If the company sells the machine at the end of 5 years and receives $28,750, the journal entry to record the sale will include which of the following?

Debit to Loss on Sale for $8,750.

Which of the following below correctly states the sequence of dates related to dividends on common stock?

Declaration date, Date of record, Date of payment

If a company expenses costs that should be capitalized, how is its income statement for the current period impacted?

Expenses are overstated.

Which of the following is an advantage of debt financing?

Interest is tax deductible.

California Spas recently learned that the value of its building required a write-down because of the discovery that it was on an earthquake fault line. The building cost $2,000,000 and has a book value of $1,570,000 before the discovery and the fair value was $975,000 after the discovery. Which of the following journal entries will be used to record the asset impairment?

Debit Accumulated Depreciation and credit Building for $430,000

Disco World began its business on November 1 and sold contracts to twelve students for dance lessons that day. The lessons cost $375 per person for a three-month period and the students are required to pay in advance. Assuming Disco World adjusts its accounts only at its December 31 year-end, what entry must Disco World make to account for the services provided through that date?

Debit Deferred Revenue and credit Dance Lessons Revenue for $3,000.

On September 1, 2019, Rowen Manufacturing issued a $90,000, 6-month, 9% note payable to purchase equipment. At December 31, 2019, the company records an adjusting entry to accrue interest incurred by not paid. The company pays the note with interest at the maturity date. What is the entry to record the payment of interest at the maturity date of the note?

Debit Interest Payable for $2,700, debit Interest Expense for $1,350, and credit Cash for $4,050.

A company purchased a computer system on January 2, 2018 for $1,600,000. The company used the straight-line depreciation method with an estimated useful life of 6 years and a residual value of $130,000. The company prepares financial statements at December 31.Which of the following is correct about the depreciation recorded?

Depreciation expense will be debited for $245,000.

Why don't all companies use the same depreciation method?

Different depreciation methods might better reflect the pattern in which assets' economic benefits are used.

The following 6%, $1,000 notes were issued on November 1. Which of the following is the correct method of calculation for the interest accrued as of December 31 of the same year on each of the notes described?

Interest on a 4-month note is calculated as: $1,000 × 6% × 2 / 12.

Which of the following items would not be considered a long-lived asset?

Inventory

On January 11, 2018, Orangewood Industries bought a new cash register for $7,500. In calculating depreciation expense for the year ended December 31, 2018, Orangewood's accountant will assume that the cash register was purchased on:

January 1, 2018

Sheridan Manufacturing purchased a new building with the surrounding land. The price paid was $2,400,000, including the commission charged on the sale. An appraisal of the land and building at the time of purchase indicated that the market value of the land was $2,000,000 and the market value of the building was $1,000,000. What amounts would be recorded for the purchase of the two assets?

Land $1,600,000, Building $800,000

Which of the following terms does not mean the same as the others?

Long-lived assets

Which of the following is not the same as book value?

Market value

On September 1, Primrose Industries with 100,000 shares of $5 par value common stock and $2,000,000 of Retained Earnings issues a 2-for-1 stock split. The market price of the stock on that date is $24 per share. Which of the following statements is correct concerning this stock split?

No entry will be made for this transaction.

Buckeye Industries purchased a truck and trailer for $81,000. The appraised values of the truck and trailer are $57,000 and $28,500, respectively. What is the amount of the cost that should be assigned to the trailer?

$27,000

Which of the following are generally recorded as liabilities on the balance sheet if the loss can be reasonably estimated?

Probable contingent liabilities

Brazee Company has the following paid-in capital: Preferred stock, 6%, $5 par value, 100,000 shares authorized, 40,000 shares issued and outstanding$2,000,000 Common stock, $9 par value, 300,000 shares authorized, 220,000 shares issued and outstanding$1,980,000 If the company pays a $70,000 dividend, and the preferred stock is cumulative and two years' dividends are in arrears, what is the amount the common stockholders will receive?

$34,000

Your company rents computers to local businesses and schools. You have 1,000 computers with a book value of $160,000. As a result of changing technology, your computers are more difficult to rent so you must drastically reduce your rental price, which causes a decrease in estimated future cash flows. The fair value of the computers is estimated to be $125,000 because of their outdated technology. Your company should report an asset impairment loss of:

$35,000.

Holly, Inc. has a building that originally cost $562,500. Holly expects to be able to sell the facility for $160,500 at the end of its useful life. The balance of the related Accumulated Depreciation account is $387,000. The depreciable cost of the facility is:

$402,000.

Ferris Company reported the following on its balance sheet: total contributed capital of $186,000, treasury stock of $19,500 and total stockholder's equity of $237,500. Ferris had 1,000,000 authorized shares of its $0.01 par value common stock of which 200,000 were outstanding.During the following year, Ferris Company earned net income of $75,000, issued 5,000 shares of $1 par common stock at an average market price of $44 per share, and declared dividends of $20,500. What amount was the total stockholder's equity reported on the balance sheet at the end of that year?

$512,000

A company issued 10-year, 7% bonds with a face value of $100,000. The company received $97,947 for the bonds. Using the straight-line method of amortization, the amount of interest expense for the first annual interest period is:

$7,205.30

Wool Co. makes a sale and collects a total of $756, which includes an 8% sales tax. What is the amount that will be credited to the Sales Revenue account?

$700

Augusta Hayward Co. purchased a building for $800,000. At the end of the current year, the book value of the building is $440,000 and its fair value is $360,000. Assuming the building is rented to a tenant, the sum of future cash flows from the rental of the building is expected to be $320,000. What is the amount of impairment loss?

$80,000

All of the following are a part of contributed capital except:

Retained Earnings.

ABC Company is in the process of issuing bonds. The bonds have a stated interest rate of 6%, which is 2% above the current market rate. What effect will the two interest rates have on the bond issue price?

The issue price will be above the bond's face value.

Cholla Co. issued 20,000 shares of no-par value common stock at $10 per share. Mr. Ivanhoe, the bookkeeper, recorded the transaction with a $200,000 debit to Cash and $200,000 credit to Common Stock. Which of the following statements about this situation is correct?

This entry is correct.

Current liabilities could include all of the following except:

a bank loan due in 18 months.

If Company A has a contractual right to sell certain products or services, use certain trademarks, or perform activities in a certain geographical regions, then Company A has:

a franchise.

All costs to get an asset in place and ready for use should be:

capitalized.

The account entitled Premium on Bonds Payable:

decreases when amortization entries are made and its balance is equal to zero at the maturity date of the bond.

The fixed asset turnover ratio measures the:

efficiency with which the investment in fixed assets produces revenue.

Orangewood Industries bought a new cash register for $7,500. Orangewood originally planned to use the cash register for 4 years and then sell it for $600. After 4 years, Orangewood had recorded $6,900 of depreciation. If the company continues to use the cash register, still planning to sell it eventually for $600, then Orangewood should record:

no additional depreciation.

The entry to record a bond retirement at maturity usually involves:

no gain or loss.

The book value of a depreciable asset can never be less than its:

residual value.

Holders of common stock receive certain benefits, such as a residual claim, which is the:

right to share in any remaining assets after creditors have been paid off, should the company cease operations.

A gain on the disposal of an asset occurs when the:

selling price is greater than the asset's book value.

Advantages of debt financing over equity financing include that:

stockholders' control will not be diluted.