Accounting Review

On January 1, 2012, a company issued 10,000 shares of 10%, $10 par value cumulative preferred stock. No dividends were declared in 2012 or 2013. In 2014, the company declared a dividend of $200,000. How much of the 2014 dividend should be paid to common stockholders?

$170,000

A company purchased a patent for $100,000 at the beginning of 2013 which it believes has an expected useful life of 5 years. Fortunately, the patent has a legal life of 20 years. How much amortization expense should be recorded in 2013?

$20,000

A company needs to record 6 months of accrued interest on a 4-year, 12%, $12,000 promissory note payable. How much interest expense should be accrued?

$720

Fleet Rentals purchased equipment with a cost of $200,000 at the beginning of 2013. The equipment has an estimated life of 10 years or 100,000 units of product. The estimated residual value is $20,000. During 2013, 11,000 units of product were produced with this machinery. Determine the book value at the end of 2013 using straight-line depreciation

($200,000 - $20,000) / 10 = $18,000 $200,000 - $18,000 = $182,000

Fleet Rentals purchased equipment with a cost of $200,000 at the beginning of 2013. The equipment has an estimated life of 10 years or 100,000 units of product. The estimated residual value is $20,000. During 2013, 11,000 units of product were produced with this machinery. Determine the amount of total accumulated depreciation at December 31, 2013, using units-of- production depreciation

($200,000 - $20,000) / 100,000 X 11,000 = $19,800

Why would a company choose units-of-production depreciation instead of straight-line?

(A company may use units-of-production when the usage of the plant asset is a better indicator of the cost used up as compared to a time allocation.) This situation exists primarily when production is erratic or seasonal

Which inventory costing method results in the highest inventory balance during a period of rising purchase prices?

FIFO

A significant disadvantage of financing with debt rather than stock is the fact that the interest expense on debt is not tax-deductible

False

Acquisition cost includes all of the costs that are normal and necessary to acquire and maintain a plant asset over its useful life

False

A liability must be recognized when a business is required to transfer assets or provide services to another entity at some point in the future for activities that have already occurred

True

When is a liability for dividends created?

at the date of declaration

Bonds sell at a premium when the

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

What is the purpose of an internal control system?

to provide reasonable assurance that the company objectives are being met (in three areas: 1. effectiveness and efficiency of operations 2. of financial reporting 3. compliance with applicable laws and regulations)

Floors 4 U uses straight-line depreciation for its equipment. The company purchased equipment for $250,000 and estimated its useful life at 8 years. The bookkeeper failed to consider the residual value of $25,000

Both earnings per share and operating income will be understated

If a company is concerned about minimizing its income tax burden, it would use the straight-line depreciation method to accomplish this objective

False

The following costs were incurred to acquire and prepare land for a new parking lot: purchase price for land, cost to clear the land, cost of paving, cost of lighting for the parking lot, and cost of landscaping for the parking lot. How should the company determine which costs should be recorded as Land Improvements and which costs should be recorded as Land?

The costs with an unlimited life are debited to Land, and the costs with a limited useful life are debited to Land Improvements

Coffski, Inc. sold merchandise to a customer on credit. The invoice amount was $1,000; the invoice date was June 10th; credit terms were 1/10, n/30. Which of the following statements is true?

The customer should pay $1,000 if the invoice is paid on July 9th

Giff Services Company experienced some difficulties with cash flow so it approached one of its vendors about a payment extension. The vendor agreed to the extension on the condition that the company sign a note that includes 9% interest. What is the impact on the accounting equation of recording a note payable in exchange for the account payable?

There is no net impact, as there are corresponding increases and decreases in liability accounts

Costs incurred to keep plant assets in normal operating condition are called revenue expenditures.

True

Cumulative and participating dividend features are typically associated with preferred stock

True

Dividend-related dates follow this chronological order: declaration date, record date, and payment date

True

The accounts receivable turnover ratio is used to evaluate how well a company does in collecting its accounts receivable

True

The contract rate is also called the coupon or stated rate

True

Under the allowance of accounting for bad debts, the company estimates the amount of bad debts before those debts actually occur

True

On January 15, 2014, a corporation paid a cash dividend that had been declared prior to the end of its previous fiscal year. The entry to pay the dividends includes a debit to

dividends payable and a credit to cash