Accounting Midterm 2
Tomas and Saturn are partners who share income in the ratio of 3:1. Their capital balances are $80,000 and $120,000 respectively. Income Summary has a credit balance of $30,000. What is Tomas' capital balance after closing Income Summary to Capital?
$102,500
Tomas and Saturn are partners who share income in the ratio of 3:1. Their capital balances are $80,000 and $120,000 respectively. Income Summary has a credit balance of $30,000. What is Saturn's capital balance after closing Income Summary to Capital?
$127,500
Adriana and Belen are partners who share income in the ratio of 3:2 and have capital balances of $50,000 and $90,000 at the time they decide to terminate the partnership. After all noncash assets are sold and all liabilities are paid, there is a cash balance of $90,000. How much cash should be distributed to Adriana?
$20,000
The present value of $30,000 to be received in two years, at 12% compounded annually, is (rounded to nearest dollar)
$23,916
What is par value?
a dollar amount assigned to each stock
The par value per share of common stock represents
an arbitrary amount established in the articles of incorporation
Sinking Fund Cash would be classified on the balance sheet as
an investment
If the market rate of interest is greater than the contractual rate of interest, bonds will sell
at a discount
What is face amount?
bonds will sell at this if the market rate equals the contract rate
Investment in certificates of deposit and other securities that do not change in value are reported in the balance sheet as:
cash and cash equivalents
What is a bond indenture?
contract between the company issuing the bond and the bonds holder
What are dividends?
distributions of a corporation's earning that are issued to stockholders
What is a mutual agency?
each partner is an agent of the partnership and may act on behalf of the entire partnership; thus, any liabilities created by one partner become liabilities of all partners
An advantage of the partnership form of business organization is
ease of formation
How do you calculate discount?
face amount - selling price
A $300,000 bond was redeemed at 104 when the carrying value of the bond was $315,000. The entry to record the redemption would include a
gain on bond redemption of $3,000.
What is cumulative preferred stock?
has right to receive regular dividends that were not declared (paid) in prior years
What are the characteristics of LLC?
moderately complex to form, limited legal liability, not taxable, unlimited life, moderate ability to raise capital
What are retained earnings?
net income retained in the business
Yankton Company began the year without an investment portfolio. During the year they purchased investments classified as available-for-sale securities at a cost of $13,000. At the end of the year, the market value of the securities was $11,000. The Yankton Company's financial statements for the current year should show
no loss on the income statement, available-for-sale securities of $11,000 and an unrealized loss of $2,000 as a stockholders' equity adjustment on the balance sheet
What is in arrears?
stock dividends that have no been paid in prior years
What is the purpose of stock split?
to reduce the market price per share of stock
What is common stock?
when only one class of stock is issued; each share has equal rights
When the market rate of interest was 11%, Munson Corporation issued $1,000,000, 12%, 8-year bonds that pay interest semiannually. The selling price of this bond issue was
$1,052,310
Jackson and Campbell have capital balances of $100,000 and $300,000 respectively. Jackson devotes full time and Campbell one-half time to the business. Determine the division of $150,000 of net income in ratio of time devoted to business.
$100,000 and $50,000
Singer and McMann are partners in a business. Singer's original capital was $40,000 and McMann's was $60,000. They agree to salaries of $12,000 and $18,000 for Singer and McMann respectively and 10% interest on original capital. If they agree to share remaining profits and losses on a 3:2 ratio, what will McMann's share of the income be if the income for the year was $15,000?
$14,000
Bonds Payable has a balance of $900,000 and Premium on Bonds Payable has a balance of $10,000. If the issuing corporation redeems the bonds at 103, what is the amount of gain or loss on redemption?
$17,000 loss
On January 1, 2011, Zero Company obtained a $52,000, four-year, 6.5% installment note from Regional Bank. The note requires annual payments of $15,179, beginning on December 31, 2011. The December 31, 2012 carrying amount in the amortization table for this installment note will be equal to:
$27,635
Benson and Orton are partners who share income in the ratio of 2:3 and have capital balances of $60,000 and $40,000 respectively. Ramsey is admitted to the partnership and is given a 10% interest by investing $20,000. What is Orton's capital balance after admitting Ramsey?
$44,800
Xavier and Yolanda have original investments of $50,000 and $100,000 respectively in a partnership. The articles of partnership include the following provisions regarding the division of net income: interest on original investment at 20%, salary allowances of $27,000 and $18,000 respectively, and the remainder equally. How much of the net income of $91,000 is allocated to Yolanda?
$46,000
Xavier and Yolanda have original investments of $50,000 and $100,000 respectively in a partnership. The articles of partnership include the following provisions regarding the division of net income: interest on original investment at 20%, salary allowances of $34,000 and $26,000 respectively, and the remainder equally. How much of the net income of $100,000 is allocated to Yolanda?
$51,000
On May 1, 2014, Stanton Company purchased $60,000 of Harris Company's 12% bonds at 100 plus accrued interest of $2,400. On June 30, 2014, Stanton received its first semiannual interest. On February 1, 2015, Stanton sold $50,000 of the bonds at 103 plus accrued interest.What are the total proceeds from the February 1, 2015 sale?
$52,000
Benton and Orton are partners who share income in the ratio of 1:3 and have capital balances of $70,000 and $30,000 respectively. Ramsey is admitted to the partnership and is given a 40% interest by investing $20,000. What is Benton's capital balance after admitting Ramsey?
$63,000
What is the total stockholders' equity based on the following account balances? Common Stock $375,000 Paid-In Capital in Excess of Par 90,000 Retained Earnings 190,000 Treasury Stock 15,000
$640,000
A company with 100,000 authorized shares of $4 par common stock issued 40,000 shares at $8. Subsequently, the company declared a 2% stock dividend on a date when the market price was $11 a share. What is the amount transferred from the retained earnings account to paid-in capital accounts as a result of the stock dividend?
$8,800
Any difference between the fair market values of the securities and their cost is a realized gain or loss.
False
In admitting a new partner, where the company chooses to use the purchase of an interest method, the capital interest of the new partner is obtained from the current partners and both the total assets and total capital are increased.
False
Investments in stocks that are expected to be held for the long term are listed in the stockholder's equity section of the balance sheet.
False
It is not possible for one company to influence the operating policies of another company unless it owns more than 50% interest in that company.
False
Only callable bonds can be purchased by the issuing corporation before maturity.
False
The balance in Premium on Bonds Payable should be reported as a deduction from Bonds Payable on the balance sheet.
False
The initial owners of stock of a newly formed corporation are called directors.
False
Under the cost method, when treasury stock is purchased by the corporation, the par value and the price at which the stock was originally issued are important.
False
When a corporation issues bonds, it executes a contract with the bondholders, known as a bond debenture.
False
When a new partner is admitted by making an investment in the partnership, the old partners' capital accounts are always credited.
False
On the first day of the fiscal year, Lisbon Co. issued $1,000,000 of 10-year, 7% bonds for $1,050,000, with interest payable semiannually. Orange Inc. purchased the bonds on the issue date for the issue price. The journal entry to record the amortization of the premium (by the straight line method) for the year by Lisbon Co. includes a debit to:
Premium on Bonds Payable for $5,000
Jarvis Corporation makes an investment in 100 shares of Saxton Company's common stock. The stock is purchased for $45 a share plus brokerage fees of $280. The entry for the purchase is:
Stock Investments - Saxton Company 4,780 Cash 4,780
A 10% stock dividend will increase the number of shares outstanding but the book value per share will decrease.
True
If bonds are sold for a discount, the carrying value of the bonds is equal to the face value less the unamortized discount.
True
In the liquidating process, any uncollected cash becomes a loss to the partnership and is divided among the remaining partners' capital balances based on their income-sharing ratio.
True
The balance in Retained Earnings at the end of the period is created by closing entries.
True
The equity method causes the investment account to mirror the proportional changes in book value of the investee.
True
The equity reporting for a Limited Liability Company is similar to that of a partnership but the changes in capital are shown on a statement of members' equity.
True
The financial statements resulting from combining parent and subsidiary statements are called consolidated statements.
True
The partner capital accounts may change due to capital additions, net income, or withdrawals.
True
The special fund that is set aside to provide for the payment of bonds at maturity is called a sinking fund.
True
What are the characteristics of a corporation?
a legal entity, district and separate from individuals who create and operate; may acquire, own and dispose of property in its own name; may incur liabilities and enter into contracts; can sell shares of ownership called stock
What is a mortgage note?
a note secured by an asset
When Bayou Corporation was formed on January 1, 20xx, the corporate charter provided for 100,000 share of $10 par value common stock. The following transaction was among those engaged in by the corporation during its first month of operation: The corporation issued 9,000 shares of stock at a price of $23 per share. The entry to record the above transaction would include a debit to Cash for $90,000
credit to Paid in Capital in Excess of Par for $117,000
What is date of declaration?
date the board of directors formally authorize the payment of dividend
What is date of record?
date the corporation uses to determine which stockholders will receive the dividend
What is date of payment?
date the corporation will pay the dividend to the stockholders who owned the stock on the date of record
Explain purchase of bonds journal entry.
debit an investment account for the purchase price of the bonds, including brokerage commission)
Explain sales of bonds journal entries.
if the sale exceeds the book value (cost) of the bonds, record as a gain; if the sale is less than the book value (cost), record as a loss
Explain sale of stock journal entry.
if the sale exceeds the cost of the stock it is a gain; if the sale is less than the cot of the stock it is a loss
What is a bond?
interest baring note that requires periodic interest payments with the face amount to be repaid at the maturity date
What is a partnership agreement?
matters such as amounts to be invested, limits on withdrawals, distributions of incomes and losses, and admission and withdrawal of partners — an attorney is often used
What are the characteristics of proprietorship?
owned by a single individual; simple to form, no limitation on legal liability, not taxable, limited life, and limited ability to raise capital
Parker Company owns 83% of the outstanding stock of Tadeo Company. Parker Company is referred to as the
parent
What is the statement of stockholders equity?
prepared when a corporation has changes in stock and paid in capital accounts
What is stock split?
process by which a corporation reduces the par of stated value of its common stock and issues a proportionate number of additional shares; does not require a journal entry
What are the four legal forms of business?
proprietorship, corporation, partnership, limited liability company
Explain purchase of stock journal entry.
recorded as its cost
What is a callable bond?
redeemed by the issuing corporation within the period of time and at the price stated in the bond indenture
Explain receipt of dividends journal entry.
reported as part of Other Income on income statement
How do you calculate premium?
selling price - face amount
What is a discount?
stock issued (sold) for a price that is less than its par
What is a premium?
stock issued (sold) for a price that is more than its par
What is treasury stock?
stock that a corporation has issued and then reacquired
What is subsidiary company?
the corporation that is being controlled
What is a contract rate?
the interest rate to be paid on the face amount of the bond
What happens if a mortgage note is not paid?
the lender has the rights to take possession of the asset and sell it to pay off debt
What is market rate of interest?
the rate determined from sales and purchases on similar bonds (effects by factors such as: investors' expectations of currents and future economic conditions) • Effective rate of interest
When a portion of a bond issue is redeemed, a related proportion of the unamortized premium or discount must be written off.
True
What are the characteristics of partnership?
2 or more persons who own a business; moderately complex to form, no limitation on legal liability, not taxable, limited life, limited ability to raise capital, co-ownership of property, mutual agency, participation in income
A ratio of 3:2:1 is the same as
3/6:2/6:1/6
The charter of a corporation provides for the issuance of 100,000 shares of common stock. Assume that 40,000 shares were originally issued and 10,000 were subsequently reacquired. What is the number of shares outstanding?
30,000
A corporation has 60,000 shares of $25 par value stock outstanding that has a current market value of $120. If the corporation issues a 5-for-1 stock split, the number of shares outstanding will be:
300,000
A partnership requires only an agreement between two or more persons to organize.
True
The account Unrealized Gain (Loss) on Available-For-Sale Securities should be included in the
Balance sheet as an adjustment to Stockholders' Equity
Bonds with a face amount $1,000,000, are sold at 96. The entry to record the issuance is
Cash 960,000 Discount on Bonds Payable 40,000 Bonds Payable 1,000,000
Ruben Company purchased $100,000 of Evans Company bonds at 100 plus $1,500 in accrued interest. The bond interest rate is 8% and interest is paid semi-annually. The journal entry to record the receipt of interest on the next interest payment date would be:
Debit: Cash $4,000; Credit: Interest Receivable $1,500 and Interest Revenue $2,500
What are some disadvantages of a partnership compared to a LLC?
In a partnership, your assets can be seized.
Nick is admitted to an existing partnership by investing cash. Nick agrees to pay a bonus for his ownership interest because of the past success of the partnership. When Nick's investment in the partnership is recorded
a bonus will be distributed to the old partners' capital accounts.
What is a parent company?
a corporation owning all or a majority of the voting stock of another corporation
On May 1, 2014, Stanton Company purchased $60,000 of Harris Company's 12% bonds at 100 plus accrued interest of $2,400. On June 30, 2014, Stanton received its first semiannual interest. On February 1, 2015, Stanton sold $50,000 of the bonds at 103 plus accrued interest.The journal entry Stanton will record on February 1, 2015, will include:
a credit to Gain on Sale of Investments for $1,500.
On January 1, 2014, Gemstone Company obtained a $165,000, 10-year, 7% installment note from Guarantee Bank. The note requires annual payments of $23,492, with the first payment occurring on the last day of the fiscal year. The first payment consists of interest of $11,550 and principal repayment of $11,942. The journal entry to record the issuance of the installment note for cash on January 1, 2014 would include:
a credit to Notes Payable of $165,000
On February 12, Addison, Inc. purchased 6,000 shares of Lucas Company at $22 per share plus a $240 brokerage fee. On August 22, Lucas paid a $0.42 dividend per share. On November 10, 4,000 shares of Lucas stock were sold for $28 per share less a $160 brokerage fee. The journal entry for the sale would include:
a debit to Cash for $111,840
On April 1, 2011, Albert Company purchased $50,000 of Tetter Company's 12% bonds at 100 plus accrued interest of $2,000. On June 30, 2011, Albert received its first semiannual interest. On February 1, 2012, Albert sold $40,000 of the bonds at 103 plus accrued interest. The journal entry Albert will record on April 1, 2011 for the purchase of the bonds will include:
a debit to Investments - Tetter Company for $50,000.
What is an installment note?
a debt that requires the borrower to make equal periodic payments to the lender for the term of the note
