Exam 2 (quiz 4,5,6,)

James leases a ski chalet to his best friend, Janet. The lease term is five years with $16,000 annual payments due at the beginning of each year. What is the present value of the payments discounted at 8% per annum? A. $68,994. B. $63,884. C. $61,077. D. $57,990.

A. $68,994 $16,000 × 4.31214 = $68,994

Bella requires $120,000 in four years to purchase a new home. What amount must be invested today in an investment that earns 6% interest, compounded annually? A. $95,051. B. $98,724. C. $145,337. D. $151,497.

A. $95,051 $120,000 × .79209 = $95,051

Manning Company has the following items: write-down of inventories, $360,000; loss on disposal of Sports Division, $555,000; and loss due to strike, $339,000. Ignoring income taxes, what total amount should Manning Company report as extraordinary losses? A. $ -0-. B. $555,000. C. $699,000. D. $894,000.

A. $ -0-.

Houghton Company has the following items: common stock, $900,000; treasury stock, $105,000; deferred taxes, $125,000 and retained earnings, $390,000. What total amount should Houghton Company report as stockholders' equity? A. $1,060,000. B. $1,185,000. C. $1,310,000. D. $1,395,000.

B. $1,185,000 $900,000 - $105,000 + $390,000 = $1,185,000

Ziggy is considering purchasing a new car. The cash purchase price for the car is $33,600. What is the annual interest rate if Ziggy is required to make annual payments of $7,800 at the end of the next five years? A. 4%. B. 5%. C. 6%. D. 7%.

B. 5% $33,600 ÷ $7,800 = 4.30769; 4.30769 is PV factor for 5%

Peter invests $100,000 in a 3-year certificate of deposit earning 3.5% at his local bank. Which time value concept would be used to determine the maturity value of the certificate? A. Present value of one. B. Future value of one. C. Present value of an annuity due. D. Future value of an ordinary annuity.

B. Future value of one

An example of an item which is not an element of working capital is A. accrued interest on notes receivable. B. goodwill. C. goods in process. D. temporary investments.

B. goodwill.

The current cash debt coverage ratio is often used to assess A. financial flexibility. B. liquidity. C. profitability. D. solvency.

B. liquidity

Limitations of the income statement include all of the following except A. items that cannot be measured reliably are not reported. B. only actual amounts are reported in determining net income. C. income measurement involves judgment. D. income numbers are affected by the accounting methods employed.

B. only actual amounts are reported in determining net income.

One criticism not normally aimed at a balance sheet prepared using current accounting and reporting standards is A. failure to reflect current value information. B. the extensive use of separate classifications. C. an extensive use of estimates. D. failure to include items of financial value that cannot be recorded objectively.

B. the extensive use of separate classifications.

Angie invested $100,000 she received from her grandmother today in a fund that is expected to earn 10% per annum. To what amount should the investment grow in five years if interest is compounded semi-annually? A. $155,134. B. $161,050. C. $162,890. D. $177,156.

C. $162,890 $100,000 × 1.62890 = $162,890

What would you pay for an investment that pays you $3,000,000 after forty years? Assume that the relevant interest rate for this type of investment is 6%. A. $93,540. B. $935,400. C. $291,660. D. $311,010.

C. $291,660. $3,000,000 × .09722 = $291,660

Altman Company will invest $500,000 today. The investment will earn 6% for 5 years, with no funds withdrawn. In 5 years, the amount in the investment fund is A. $500,000. B. $650,000. C. $669,115. D. $670,145.

C. $669,115 $500,000 × 1.33823 = $669,115

The stockholders' equity section is usually divided into what three parts? A. Preferred stock, common stock, treasury stock B. Preferred stock, common stock, retained earnings C. Capital stock, additional paid-in capital, retained earnings D. Capital stock, appropriated retained earnings, unappropriated retained earnings

C. Capital stock, additional paid-in capital, retained earnings

A material item which is unusual in nature or infrequent in occurrence, but not both should be shown in the income statement Net of Tax/Disclosed Sep A. No No B. Yes Yes C. No Yes D. Yes No

C. No Yes

Which of the following is true? A. Rents occur at the beginning of each period of an ordinary annuity. B. Rents occur at the end of each period of an annuity due. C. Rents occur at the beginning of each period of an annuity due. D. None of these.

C. Rents occur at the beginning of each period of an annuity due.

A series of equal receipts at equal intervals of time when each receipt is received at the beginning of each time period is called an A. ordinary annuity. B. annuity in arrears. C. annuity due. D. unearned receipt.

C. annuity due

For the year ended December 31, 2012, Transformers Inc. reported the following: Net income $120,000 Preferred dividends declared 20,000 Common dividend declared 4,000 Unrealized holding loss, net of tax 2,000 Retained earnings, beginning balance 160,000 Common stock 80,000 Accumulated Other Comprehensive Income, Beginning Balance 10,000 What would Transformers report as the ending balance of Retained Earnings? A. $278,000 B. $266,000 C. $256,000 D. $254,000

C. $256,000 $160,000 + $120,000 - $20,000 - $4,000 = $256,000

Benedict Corporation reports the following information: Net income $750,000 Dividends on common stock 210,000 Dividends on preferred stock 90,000 Weighted average common shares outstanding 100,000 Benedict should report earnings per share of A. $4.50. B. $5.40 C. $6.60. D. $7.50.

C. $6.60 ($750,000 - $90,000) ÷ 100,000 = $6.60

Companies use intraperiod tax allocation for all of the following items except A. Discontinued operations. B. Extraordinary items. C. Changes in accounting estimates. D. Income from continuing operations.

C. Changes in accounting estimates.

Kohler Company owns the following investments: Trading securities (fair value) $120,000 Available-for-sale securities (fair value) 70,000 Held-to-maturity securities (amortized cost) 94,000 Kohler will report securities in its long-term investments section of A. exactly $190,000. B. exactly $214,000. C. exactly $284,000. D. $164,000 or an amount less than $164,000, depending on the circumstances.

D. $164,000 or an amount less than $164,000, depending on the circumstances.

Which of the following is a change in accounting principle? A. A change in the estimated service life of machinery B. A change from FIFO to LIFO C. A change from straight-line to double-declining-balance D. A change from FIFO to LIFO and a change from straight-line to double-declining-balance

D. A change from FIFO to LIFO and a change from straight-line to double-declining balance

Which of the following is not a method of disclosing pertinent information? A. Supporting schedules B. Parenthetical explanations C. Cross reference and contra items D. All of these are methods of disclosing pertinent information.

D. All of these are methods of disclosing pertinent information

If you invest $50,000 to earn 8% interest, which of the following compounding approaches would return the lowest amount after one year? A. Daily. B. Monthly. C. Quarterly. D. Annually.

D. Annually

Balance sheet information is useful for all of the following except A. assessing a company's risk B. evaluating a company's liquidity C. evaluating a company's financial flexibility D. determining free cash flows.

D. determining free cash flows.

The current assets section of the balance sheet should include A. machinery. B. patents. C. goodwill. D. inventory.

D. inventory

The income statement reveals A. resources and equities of a firm at a point in time. B. resources and equities of a firm for a period of time. C. net earnings (net income) of a firm at a point in time. D. net earnings (net income) of a firm for a period of time.

D. net earnings (net income) of a firm for a period of time.

A limitation of the balance sheet that is not also a limitation of the income statement is A. the use of judgments and estimates B. omitted items C. the numbers are affected by the accounting methods employed D. valuation of items at historical cost

D. valuation of items at historical cost

Which of the following would represent the least likely use of an income statement \ prepared for a business enterprise? A. Use by customers to determine a company's ability to provide needed goods and services. B. Use by labor unions to examine earnings closely as a basis for salary discussions. C. Use by government agencies to formulate tax and economic policy. D. Use by investors interested in the financial position of the entity.

D. Use by investors interested in the financial position of the entity.

Classification as an extraordinary item on the income statement would be appropriate for the A. gain or loss on disposal of a component of the business. B. substantial write-off of obsolete inventories. C. loss from a strike. D. none of these.

D. none of these. Many answers are possible