ACTG 1B Mid-term II

Land costing $80,000 was sold for $110,000 cash. The gain on the sale was reported on the income statement as other income. On the statement of cash flows, what amount should be reported as an investing activity from the sale of land?

$110,000

The present value of $35,000 to be received in two years, at 10% compounded annually, is (rounded to nearest dollar):

1. 35,000 x 0.82645 = 28,925.45

Bonds, $100,000, 9%, dated January 1, 2000, semiannual interest payment dates, were issued when the market interest rate was 10%. The carrying value at the current interest payment date is $98,750. Determine the bond discount amortization using the straight-line method.

100,000-98,750=1,250/2=625

18. Operating. Will it be deduction or addition? Deduction The net income reported on the income statement for the current year was $120,000.Depreciation recorded on fixed assets and amortizations of bond discount for the year were $10,000 and $7,000 respectively.What is the amount of cash flows from operating activities that would appear on the statement of cash flows prepared by the indirect method?

120,000+10,000+7,000=$137,000

An investor purchased 750 shares of common stock, $25 par, for $74,250. Subsequently, 100 shares were sold for $89.50 per share. What is the amount of gain or loss on the sale?

74,250/750=99 100*(99-89.50)=950 Loss

On June 1, $1,000,000 of bonds were purchased as a long-term investment at 99 and $1,000 was paid as the brokerage commission. If the bonds bear interest at 12%, which is paid semiannually on January 1 and July 1, what is the total cost to be debited to the investment account?

990X1000=990,000 990,000+1,000=991,000

Bonds Payable has a balance of $2,000,000 and Discount on Bonds Payable had a balance of $15,000. If the issuing corporation redeems the bonds at 99, what is the amount of gain or loss on redemption?

990X2,000=1,980,000 2,000,000-15,000=1,985,000 1,985,000-1,980,000=5,000 Gain

What is a callable bond?

A bond that can be called back at the option of the issuer.

These can be redeemed by the issuing corporation within the period of time and at the price stated in the bond indenture:

Callable bonds

Cash dividends of $120,000 were declared during the year. Cash dividends payable were $30,000 and $40,000 at the beginning and end of the year, respectively. The amount of cash for the payment of dividends during the year is:

Cash dividends paid = Beginning balance of dividends payable + Dividends declared - ending balance of dividends payable

Depending on management's intent, Available-for-Sale debt securities may be presented as

Temporary Investments (Marketable Securities) Current Asset section of the Balance Sheet or as Investments with other long-term assets.

Depending on management's intent, available-for-sale debt investments may be presented as _

Temporary Investments, Marketable Securities current assets Investments are recorded long-term assets

There are two different types of methods for reporting the cash flows from operating activities section. They are:

The direct method and the indirect method

Define merger

The joining of two corporations when one corporation acquires the properties of another corporation and the latter then dissolves.

On the statement of cash flows, the cash flows from operating activities section would include

cash receipts from sales activities

What is "free cash flow?

operating activities - cash payments for planned long-term investments - dividends.

Name the three parts of the statements of cash flows.

· Operating · Investing · Financing

1. Bonds with a face value of $70,000 were purchased through a broker at 105 plus accrued interest of $950 and brokerage commission of $60. The amount to be debited to the investment account is:

Amount to be debited = 70 X 1050 = 73,500 amount to be debited = 73,500 + 60 = 73,560

18. The equity method of accounting for investments recognizes net income of the investee as___________________.

As an Increase in the Investment Account and as Revenue for the period.

How are trading debt investments recorded? How are temporary investments reported?

At cost at fair value on the balance sheet.

How can a non callable bond be purchased by the issuing organization?

At the open market and at the market price.

On the statement of cash flows prepared by the indirect method, a $60,000 gain on the sale of investments would be:

Cash inflow Cash outflow Both cash inflow and outflow NONE OF ABOVE

18. Define the term "consolidation."

Consolidation is when two or more corporations combine their financial statements and report it as a single company

They are reported at fair value on the balance sheet.

Income Statement, Statement of Stockholders' Equity, or Statement of Comprehensive Income.

Name the type of bonds issued on the general credit of the issuing corporation.

Debenture

1 The journal entry a company records for the issuance of bonds when the contract rate and the market rate are the same is:

Debit cash and Credit bonds payable

Is declaration of stock dividends considered to be cash inflow or outflow?

Declaration of stock dividends is neither, declaration of dividends is a non cash transaction.

he excess of par over issue price is termed as:

Discount

In which segment of statement of cash flows would acquisition of treasury stock appear?

Financing, it is a reduction of cash

If a loss of $30,000 is incurred in selling (for cash) office equipment having a book value of $45,000, the total amount reported in the cash flows from investing activities section of the statement of cash flows is:

Gain (Loss)= Book Values- Cash received (30,000)= 45,000- cash received Cash received= $15,000

What is the journal entry to record a callable bond redeemed below its carrying value?

Gain on Redemption of Bonds is credited

1. Name the organizations that can issue bonds.

Government Publicly held corporations

Investments in bonds or other debt securities that management intends to hold to their maturity are called:

Held-to maturity securities

1. A corporation issues for cash $600,000 of 12%, 15-year bonds, interest payable annually, at a time when the market rate of interest is 10%. The straight-line method is adopted for the amortization of bond discount or premium. Determine the amount of interest expense.

Interest payment= 600,000 X.12 = 72,000 Cash received by the issuer = 72,000 (PVIFA for 15 periods and 10%) +600,000 (PVIF for 15 years and 10%) Cash received by the issuer = (72,000 X 7.60608) + (600,000 X .23939) Cash received by the issuer = 143,634 + 547,637.76 Cash received by the issuer = 691,271.76 Premium on Bonds Payable = 691,271.76 - 600,000 Premium on Bonds Payable = 91, 271,76 Amortized amount = 91, 271,76/15 Amortized amount = 6,084.78 Interest Expense = 72,000 - 6,084.78 = 65,915

Cash paid for equipment would be reported in the statement of cash flows in:

Investing Activities

18. The net income reported on the income statement for the current year was $135,000. Depreciation recorded on fixed assets and amortization of bond discount for the year were $12,000 and $5,000, respectively. What is the amount of cash flows from operating activities that would appear on the statement of cash flows prepared by the indirect method? End Beginning Cash $ 50,000 $ 60,000 Accounts receivable 112,000 109,000 Inventories 105,000 90,000 Prepaid expenses 4,500 6,500 Accounts payable (merchandise creditors) 75,000 90,000

Net Income $ 135,000 Depreciation 12,000 Amortization 5,000 Prepaid Expense 2,000 A/R (3,000) Inventory (15,000) Accounts payable (15,000) Cash provided from operations 121,000

Accounts receivable arising from trade transactions amounted to $85,000 and $95,000 at the beginning and end of the year, respectively. Income reported on the income statement for the year was $160,000. Exclusive of the effect of other adjustments, the cash flows from operating activities to be reported on the statement of cash flows prepared by the indirect method is:

Net Income $ 160,000 A/R (10,000) Cash provided from operations 150,000

Does discarding an asset that had been fully depreciated appear in the statement of cash flows?

No

What type of transaction is included in the separate part (schedule) of the statement of cash flows?

Non cash investing & financing transactions are reported in the separate schedule.

In which segment of statement of cash flows a $60,000 gain on the sale of investments would appear? Will it be deduction or addition?

Operating Deduction

In which segment of statement of cash flows would depreciation on factory equipment be reported? Will it be as an addition or subtraction?

Operating Addition

Precision Company owns 85% of the outstanding stock of Tooly Company. Precision Company is referred to as the:

Parent Company

When the contract rate of interest on bonds is higher than the market rate of interest, the bonds sell at:

Premium

An example of a cash flow from financing activities is:

Receipt of cash received from the sale of bonds

Precision Company owns 85% of the outstanding stock of Tooly Company. Tooly Company is referred to as the:

Subsidiary Company

A business issues 20-year bonds payable in exchange for preferred stock. In which segment of statement of cash flows would this transaction appear?

This transaction would appear as a separate section, usually appearing at the bottom of statement of cash flows.

Define the term "affiliated company."

Two or more corporations closely related through stock ownership are sometimes called affiliated companies.

The balance in Discount on Bonds Payable:

Would be subtracted from the related bonds payable on the balance sheet

18. The cost method of accounting for investments recognizes the net income of investee as _____________________________________.

as revenue: Dr. Cash & Cr. Dividend Revenue