Test #3 Financial Accounting

8/31/12 Dividends Payable = $22,500 Preferred Stock, $100 par = $150,000 Paid-in Capital in Excess of Par Common = $100,000 Cash = $124,000 Common Stock, $1 par = $200,000 Retained Earnings = $400,000 The total paid-in capital on 8/31/12 is...?

$100,000 (Paid-in Capital in Excess of Par Common)

8/31/12 Dividends Payable = $22,500 Preferred Stock, $100 par = $150,000 Paid-in Capital in Excess of Par Common = $100,000 Cash = $124,000 Common Stock, $1 par = $200,000 Retained Earnings = $400,000 How many shares of common stock were issued?

$200,000 (Common Stock, $1 par)

Dividends Payable = $22,500 Preferred Stock, $100 par = $150,000 Paid-in Capital in Excess of Par Common = $100,000 Cash = $124,000 Common Stock, $1 par = $200,000 Retained Earnings = $400,000 The total stockholders' equity as of 8/31/12 is...?

$827,500 (?)

Whata are the 3 types of shares?

1) Authorized 2) Issued 3) Outstanding

The 2 categories in Treasury Stock?

1) Par Value 2) Market Price

The DIscount on Bonds Payable is a ...(blank 1)... to ...(blank 2)...

1. contra asset 2) bonds payable.

What is Allowance for Bad Debts?

An Estimated Liability

corporation issue 5,000 shares of its $5 par value common stock in payment for attorney services of $40,000. corporation stocks has been actively trading at $20 per share, this transaction would include a. a. credit to Paid in Capital in excess of par $40,000 b. Credit to Paid in Capital in excess of par $15,000 c. credit common stock $100,000

B Fair value of attorney services= $40,000 Par value= $5x 5,000=$25,000 Difference=$40,000 -$25,000= $15,000

The carrying of Bonds Payable equals...?

Bonds Payable - Discount on Bonds Payable

When 100 shares at $1 par value common stock are issued at $25 per share, paid in cap. in excess of par PAR VALUE-COMMON SOCK WILL.... a. increase $100 b. increase$25000 c. increase $2400 d. stay the same.

C ($25-$1)x100 shares

What are Bonds Payable?

Corporations borrow from investors.

A bond discount normally has what type of balance?

Debit

Liabilities are used in...?

Debt Financing.

Recording estimated warranty expense in the current year best follows which accounting principle?

Expense Recognition (matching)

T/F a debit balance in retained earnings indicates that a company's lifetime earnings exceeded its lifetime losses and dividends issue.

F

T/T of the 3 types of business activities reported on a statement of cash flows, investing activities are the most important when evaluating a business.

F ( Operating)

T/F the audit report is signed off by the corporation's management, confirming the audit was completed properly

F (not management)

T/F publicly traded co. have the option to produce audited financial statements.

F (required)

T/F Horizontal analysis compares financial statement items in the current period with other items in the current period.

F ...the PRIOR period

T/F The purchase of treasury stock has the same effect of issuing stock.

F OPPOSITE of purchasing treasury stock

T/F The purchase of treasury stock by a corporation increases total assets and stockholder's equity.

F decreases total assets and decreases stockholders' equity

T/F A current liability must be paid out of current profits?

F paid from cash!

What is Face Value?

Maturity of stocks.

When are Dividends required to be declared by the Board of Directors?

Never

When do dividends increase stockholders' equity?

Never

When does a cash dividend become a legal liability?

On date of declaration

T/F If the market interest rate is greater than the stated interest rate, the bonds will sell at a discount.

T

T/F Purchasing merchandise inventory on account results in a liability

T

T/F an audit report is addressed to the board of directors and stockholders of the company?

T

T/F the total stockholders' equity remains the same before and after a stock split.

T

T/FIt is the independent auditor's responsibility to determine whether the co. financial statements comply with GAAP

T

T/F treasury stock is a contra-stockholders' equity account

T reduces stockholders equity

T/F an unqualified opinion by independent auditors indicates the fairness of the co. financial statement and the effectiveness of its internal controls

True (unqualified = no exceptions)

When is Par used?

Use it when recording a transaction.

What is Interest Rate?

What has been paid.

If stock is issued for an asset other than cash, the asset should be recorded on the books of the corporation at? a. fair market value b. cost c. par value of the stock d. zero

a

Which entity requires co. issuing publicly traded stock to have their financial statements audited by an external auditor a. securities and exchange commission b. internal revenue service c. committee of sponsoring org d. financial accounting standards board

a

the effect of the declaration of cash dividends is a..... a. increase to liabilities and a decrease to stockholder's equity b. increase to liabilities and a decrease to assets c increase to assets and a decrease to liabilities d. increase to stock holders equity and a decrease to assets

a

a share has a 5% preferred stock has a par value of $50 and market value f $75. the owners of the preferred stock will receive a dividend of: a. $2.50 per share b. $3.75 per share c. $5 per share d. $50 per share

a (5% x par value $50)

The discount on a bond payable becomes ...(blank)... over the life of the bonds.

additional interest expense

The statement of cash flows is designed to fulfill all the following purposes EXCEPT a. show the relationship of net income to changes in the company's cash b. assess the collectability of accounts receivable c. evaluate management decisions d. help predict future cash flow

b

the date when a cash dividend becomes a legal obligation is on the a. date of record b. declaration date c. last day of the corporate year d. payment date

b

When a preferred stock is cumulative, preferred dividends not paid in a year are: a. distributions of earnings b. called dividends in arrears c. liability d. never paid to the preferred stockholders

b (not liability)

Corp. issue 5,000 shares of its $5 par value common stock in payment for attorney serv. of $40000 . company stock has been actively trading at $20 per share. this transaction would include a...... a. debit to legal expense $100,000 b. debit to legal exp $40,000 c. credit to common stock $100,000 d. credit to common stock $40,000

b. debit to legal expense $40,000

The Interest Paid = Interest Expense when a...?

bond is issued below par.

earnings per share is the amount of a company's net income per share of its a. preferred stock b. treasury stock c. outstanding common stock d. total stockholders' equity

c

prior period adjustments a. only decrease retained earnings b. only increase retained earnings c. can either increase or decrease retained earnings d. do not affect reatained earnings

c

a prior period adjustment that corrects income of a prior period requires an entry to a. a liability account b. an income statement account c. retained earnings d. expense account

c (adjust retained earnings)

if a corporation declares a $100,000 cash dividend, the account to be debited on the date of declaration is: a. common stock b. dividends payable c. retained earnings d. paid in capital excess of par

c (debit retained e. and credit liability (dividends payable))

Liabilities and bonds Payable are both...?

current and long-term.

When a company declares a Dividend, the balance in the Retained Earnings is...?

debited.

T/F public traded co. have to file their financial statements with the IRS

f (tax returns)

A bond that matures in installments is called a...?

serial bond.

The value that appears in the Paid in Capital in Excess of par is...?

the difference between Par value and price.