Accounting Exam 2 Study Guide

Bonds sell at a premium when the

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

When using the indirect method to determine operating cash flows, how is the issuance of stock for cash shown on the statement of cash flows?

Financing activity

A manufacturing company's weekly payroll is $100,000 for a 5-day work week beginning each Monday and ending each Friday. The last time salaries and wages were recorded was Friday, December 26. What adjustment is needed on Wednesday, December 31, on the last day of the company's reporting period?

(100,000/5)x3=$60,000 Credit to wages payable for $60,000.

Clock company's balance sheet showed the following amounts: Current assets 600,000 PPE 240,000 Current liabilities 340,000 Long-term liabilities 340,000 Common stock 100,000 Additional paid in capital 300,000 Retained earnings 80,000 What is the company's debt-to-equity ratio?

(200,000+340,000)/(100,000+300,000+80,000)=1.125

XYZ Corp. purchased equipment for $200,000 on July 1, 2022. The equipment is expected to have a 10 year life and a residual value of $20,000. Using the straight-line depreciation method, what will XYZ Corp. report on its December 31, 2023 balance sheet for the equipment (i.e. what is the net book value of the equipment on December 31, 2023)?

200-18-9=173

XYZ Corp. purchased equipment for $28,000. In connection with the purchase, XYZ paid an additional $2,000 in sales tax, $4,000 to have the equipment delivered, and $3,000 for installation. XYZ expects to spend $10,000 in maintenance over the asset's ten-year useful life. What amount should XYZ record on its balance sheet for the equipment once it is installed (before considering depreciation)?

37k

The stockholders' equity section of the December 31, 2022, balance sheet is provided below: Common Stock, $30 par, 20,000 shares issued and outstanding 600,000 Paid-In Capital in Excess of Par-Common Stock 240,000 Retained Earnings 700,000 Total Stockholders' equity 1,540,000 Assume that all of the 20,000 shares of stock that was issued as of December 31, 2022, was issued for $42 per share. On March 1,2023, the company repurchased 4,000 shares of its common stock for $50 per share. How much sho

4,000 shares x $50 = $200,000

XYZ Inc. purchased equipment for $500,000 on January 1, 2022. The equipment is expected to have an eight-year life and a residual value of $100,000. Using the straight-line depreciation method, how much did XYZ Inc. record as a depreciation expense on its 2022 annual Income Statement?

50k

Common Stock, $7 par 700,000 Additional Paid in capital-common stock 160,000 Retained Earnings ? Treasury Stock, 2,000 shares at cost 15,000 Total stockholders' equity 975,000 What is the amount of retained earnings for Orange inc?

975,000 + 15,000 - 700,000 - 160,000 = 130,000

On June 1, 2022, XYZ Manufacturing Company paid $13,000 to install a new roof on their factory. The new roof will extend the life of the building for 7 additional years. XYZ also paid $275 to replace 5 windows in the factory. The journal entries to record the two expenditures will include:

Ans: debit factory building $13,000, Credit cash $13,000. Debit maintenance expense $275, credit cash $275.

Morty Inc. provided the following select information from their financial records: Equipment, 12/31/2021 300,000 Equipment, 12/31/2022 400,000 Accumulated Depreciation, 12/31/2021 80,000 Accumulated Depreciation 60,000 During 2022, the company sold equipment with a cost of 50,000 and accumulated depreciation of 30,000. This was the only equipment sale during the year. What amount would be reported as an investing cash outflow from the purchase of equipment on the statement of cash flows for 2022

Beginning balance eqip + Asset purchases - Asset sold = Ending balance equipment 300,000 + asset purchases - 50,000 = 400,000 Asset purchases= $150,000

What does it mean to capitalize rather than expense a cash expenditure?

Capitalizing is recording a cost under the belief that benefits can be derived over the long term, whereas expensing a cost implies the benefits are short-lived.

On December 31, 2022, XYZ Corp. decided to sell one of its production machines for $10,000 cash. The machine, which originally cost $130,000, had accumulated depreciation of $40,000 as of December 31, 2022. The journal entry to record the sale would include:

Debit cash $10,000, Debit Accumulated depreciation $40,000, Debit to Loss on sale $80,000 with a Credit to Production machine of $130,000.

XYZ Corp has decided to issue equity to raise capital to expand operations. The company has received approval from the board of directors to issue 200,000 shares of the company's common stock on May 1, 2023. On the date of issue, the common stock has a par value of $0.25 and a market value of $5. The journal entry to record the issue of stock on May 1, 2023 would include a:

Debit cash of 1,000,000. Credit APIC (Common stock) of 950,000. Credit of common stock $50,000.

On June 1, the board of directors declared a $20,000 cash dividend to be distributed to common stockholders of record on June 15. The dividend will be paid on July 1. The required journal entry on June 1 includes a:

Debit to retained earnings for $20,000, and credit cash. Debit Dividends payable, credit cash.

What is goodwill?

Goodwill is recorded as an asset when a business pays a premium to acquire another business

On October 1, 2023 Bailey Company borrowed $120,000 from National Bank on a 1-year, 7% note. The adjusting entry needed on December 31,2023 would include:

Interest payable/payable=$120,000 x .07/12 x 3 = 0.0175 $2,100 Debit of Interest Expense $2,100, Credit Interest Payable: $2,100

On January 1, 2022, Wonder Company issued a 10-year, $5,000,000 bonds with a stated interest rate of 5% for $4,300,000. The bonds pay interest each December 31. The market rate of interest when the bonds were issued was approximately 7%. What is the amount of the cash interest payment Wonder Company made on December 31, 2022 related to the bond?

Interest payment = $5,000,000 x 5% = $250,000.00

Cash received from the sale of old production equipment would appear in which section of the statement of cash flows?

Investing Section

Gable Corp. planned to raise $500,000 by issuing bonds. The bond certificates were printed on November 1, 2022, bearing a stated interest rate of 6%. The bonds were issued on December 31, 2022, when the market rate was 7%. How much will the company receive from the sale of the bonds on December 31, 2022?

Less than $500,000 because the 7% market rate of interest was higher than the stated rate.

After a corporation declares a cash dividend, what entry takes place on the date of record?

None

During 2022, XYZ Manufacturing spent $125,000 on research and development of a trademark and purchased a patent from its competitor for $50,000. What amount should XYZ record in the Intangible Assets account of its 2022 annual Balance Sheet?

Only the stuff purchased (50k). Internally developed does NOT get capitalized!

Cash received for interest payments from an investment purchased in 2016 appears in which section of the statement of cash flows?

Operating Section

Common Stock, $7 par 700,000 Additional Paid in capital-common stock 160,000 Retained Earnings ? Treasury Stock, 2,000 shares at cost 15,000 Total stockholders' equity 975,000 How many shares of common stock are outstanding for Orange Inc?

Share issued = 700,000/7=100,000 Shares outstanding= 100,000 - 2,000 = 98,000

Consider the following for XYZ Company: 2022 2021 Property, plant and equipment, net $180,000 $110,000 Depreciation expense $62,500 $47,500 Revenue $1,000,000 $900,000 Total Assets $625,000 $475,000 What is the company's fixed asset turnover ratio for 2022?

Use the equation on formula sheet: $1,000,000/($180,000 + $110,000/2) =

Missy Company's Statement of Cash Flows includes the following: Cash flows from operating activities 30,000 Cash flows from investing activities 80,000 Cash flows from financing activities 130,000 From this info, it is likely that the company is:

Using cash from operations and selling long-term assets to pay back debt.

Retained earnings represents

all of the profits (minus all the losses), minus dividends paid out to owners, that have been kept in the company.

All else equal, depreciation expense causes

cash from operating activities to be higher than net income.

Earnings per share (EPS) indicates how much the company

earned for each share of outstanding common stock. (possibly given a formula)

The cost of treasury stock is a

reduction in stockholders equity.