ACCY 301 MC
A company that borrows funds at 6% and then generates a return on those funds of 9% typically has:
- Greater default risk - Favorable financial leverage - Higher return on equity ALL OF THESE
Cal Farms reported supplies expense of $2,000,000 this year. The supplies account decreased by $200,000 during the year to an ending balance of $400,000. What was the cost of supplies that Cal Farms purchased during the year?
$1,800,000
Mustard's Inc. sold the rights to use one of its patented processes that will result in cash receipts of $2,500 at the end of each of the next four years and a lump sum receipt of $4,000 at the end of the fifth year. The total present value of these payments if interest is at 9% is:
$10,699
Jose wants to cash in his winning lottery ticket. He can either receive five $5,000 annual payments starting today, or he can receive one lump-sum payment today based on a 3% annual interest rate. What would be the lump-sum payment?
$23,586
On January 1, 2021, you are considering making an investment that will pay three annual payments of $10,000. The first payment is not expected until December 31, 2024. You are eager to earn 3%. What is the present value of the investment on January 1, 2021?
$25886
On January 1, 2021, Rupar Retailers purchased $100,000 of Anand Company bonds at a premium of $5,000. The Anand bonds pay 7% interest but were purchased when the market interest rate was 6% for bonds of similar risk and maturity. The bonds pay interest semiannually on June 30 and December 31 of each year. Rupar accounts for the bonds as a held-to-maturity investment, and uses the effective interest method. In Rupar's December 31, 2021, journal entry to record the second period of interest, Rupar would record a credit to interest revenue of:
$3,140
What total unrealized holding gain would Beresford report in its 2021 income statement relative to its investments in bonds?
$36,900
Ireland Corporation obtained a $40,000 note receivable from a customer on June 30, 2021. The note, along with interest at 6%, is due on June 30, 2022. On September 30, 2021, Ireland discounted the note at Cloverdale bank. The bank's discount rate is 10%. What amount of cash did Ireland receive from Cloverdale Bank?
$39,220
Mary signed up and paid $1200 for a 6-month ceramics course on June 1st with Choplet Ceramics. As of August 1st, Choplet's accounting records would indicate:
$400 of revenue, $800 of deferred revenue
Frasquita acquired equipment from the manufacturer on 6/30/2021 and gave a noninterest-bearing note in exchange. Frasquita is obligated to pay $550,000 on 4/30/2022 to satisfy the obligation in full. If Frasquita accrued interest of $15,000 on the note in its 2021 year-end financial statements, what amount would it have recorded the equipment for on 6/30/2021?
$525,000
Trell Corporation transferred $50,000 of accounts receivable to a local bank. The transfer was made without recourse. The local bank remits 80% of the factored amount to Trell and retains the remaining 20%. When the bank collects the receivables, it will remit to Trell the retained amount less a fee equal to 3% of the total amount factored. Trell estimates a fair value of its 20% interest in the receivables of $8,000 (not including the 3% fee). Trell will show an amount receivable from factor of:
$6,500
In its income statement for the year ended December 31, 2016, Jamison would report a before-tax loss on discontinued operations of:
$65 million
Minarski Electronics sells computers and provides hardware maintenance services. On April 1st, Minarski sold a package deal containing a computer and a one-year unlimited maintenance/repair service for the computer at a bundle price of $1,000. If sold separately, the computer costs $840 and the one-year unlimited maintenance/repair service costs $360. How much revenue does Minarski Electronics recognize for the month ended April 30th, assuming that revenue is accrued monthly?
$725
Murgatroyd Co. purchased equipment on January 1, 2019, for $900,000, estimating a five-year useful life and $100,000 residual value. In 2019 and 2020, Murgatroyd depreciated the asset using the double-declining-balance method. In 2021, Murgatroyd changed to straight-line depreciation for this equipment. What depreciation would Murgatroyd record for the year 2021 on this equipment?
$74,667
An investor purchases a 20-year, $1,000 par value bond that pays semiannual interest of $40. If the semiannual market rate of interest is 5%, what is the current market value of the bond?
$828
On December 31, 2020, Coolwear, Inc. had a balance in its prepaid insurance account of $48,400. During 2021, $86,000 was paid for insurance. At the end of 2021, after adjusting entries were recorded, the balance in the prepaid insurance account was $42,000. Insurance expense for 2021 was:
$92,400
Recording revenue before it is collected is an example of:
An accrued receivable transaction
The accounting equation can be stated as:
A - L - OE = 0
Which of the following would not be accounted for using the prospective approach?
A change from the weighted-average method of inventory costing to FIFO.
The adjusting entry required when amounts previously recorded as deferred revenues are recognized includes:
A debit to a liability
Which of the following is incorrect?
A decrease in salaries payable decreases net income.
A series of equal periodic payments that starts more than one period after the agreement is called:
A deferred annuity
Hawk Corporation purchased 1,000 Diamond Corporation bonds in 2018 for $500 per bond and classified the investment as securities available-for-sale. The value of the Diamond investment was $600 per bond on December 31, 2019, and $650 per bond on December 31, 2020. During 2021, Hawk sold all of its Diamond investment at $700 per bond. In its 2021 income statement, Hawk would report:
A gain of $200,000
When the amount of interest receivable decreases during an accounting period:
Accrual-basis interest revenue is less than cash collection from borrowers
Arizona Desert Homes (ADH) constructed a new subdivision during 2020 and 2021 under contract with Cactus Development Co. Relevant data are summarized below: ADH recognizes revenue over time with respect to these contracts. In its December 31, 2020, balance sheet, ADH would report:
An asset, construction in progress in excess of billings, of $500,000
The purpose of closing entries is to transfer:
Balances in temporary accounts to a permanent account
Which of the following is NOT true about accounting for long-term construction contracts? - Long-term construction contracts could show a contract asset or contract liability, depending on the relation btwn construction in progress and billings - Billings on contracts in progress is a contra account to accounts receivable - Gross profit is debited to construction in progress - When a customer is billed for payment due, billings on contracts in progress is credited at the same time accounts receivable is debited
Billings on contracts in progress is a contra account to accounts receivable
On November 10 of the current year, Cherokee Industries sold materials to a customer for $8,000 with credit terms 2/10, n/30. Cherokee uses the net method of accounting for sales discounts. What entry would Cherokee make on December 10, assuming the correct payment was received on that date?
Cash 8000 A/R 7,840 Sales Discounts Forfeited 160
A firm's comprehensive income always:
Could be greater than or less than net income
Summary data for Benedict Construction Co.'s (BCC) Job 1227, which was completed in 2021, are presented below: ... Assuming BCC recognizes revenue upon project completion, what would gross profit have been in 2020 and 2021 (rounded to the nearest thousand)?
D) 2020: $0 2021: $75,000
Asset retirement obligations: A)Increase the balance in the related asset account. B) Are measured at fair value in the balance sheet. C) Are liabilities associated with the restoration of a long-term asset. D) All of these answer choice are correct
D) All of these answer choices are correct
A major addition to equipment should have been capitalized in the year 2021 but was incorrectly expensed. Which of the following is (are) true? A) Income in 2021 is understated. B) Income in future years is overstated. C) Assets in 2021 are understated. D) All of these answer choices are true.
D) All of these answer choices are true
Research and development expense for a given period includes:
Depreciation on a research and development facility
Which of the following best demonstrates the full disclosure principle?
Disclosure notes to financial statements.
Accounting for the pledging of accounts receivable as collateral for a loan requires:
Disclosure of the arrangement in notes to the financial statements.
Chen Inc. accepted a two-year noninterest-bearing note for $605,000 on January 1, 2021. The note was accepted as payment for merchandise with a fair value of $500,000. The effective interest rate is 10%. The entry to record interest on December 31, 2021 would be:
Discount on Notes Rec 50,000 Interest Revenue 50,000
Loan A has the same original principal, interest rate, and payment amount as Loan B. However, Loan A is structured as an annuity due, while Loan B is structured as an ordinary annuity. The maturity date of Loan A will be:
Earlier than Loan B
With respect to delaying revenue recognition until completion of a long-term contract, it is the case that:
Estimated losses on the overall contract are recognized before the contract is completed.
The FASB's conceptual framework's qualitative characteristics of accounting information include:
Faithful representation
Consider the following three scenarios: I. ABC Lawncare performed lawn maintenance services for Drake Inc. on June 1st, and received payment of $500 for those services. II. On June 1st, Melly Corp received payment for 100 pounds of raw material to be delivered to Drake Inc. in 6 months. III. Lodo, LLC collected cash on June 1st for services rendered on May 1st. Given these scenarios, revenue cannot be recognized on June 1st for:
II, III only
Shively Mfg. Co. sold for $18,000 equipment that cost $40,000 and had a book value of $30,000. Shively would report:
Investing cash inflow of $18,000.
When a company accrues salaries at the end of the accounting period:
Its debt to equity ratio increases
Horton Stores exchanged land and cash of $5,000 for similar land. The book value and the fair value of the land were $90,000 and $100,000, respectively. Assuming that the exchange has commercial substance, Horton would record land—new and a gain/(loss) on exchange of assets in the amounts of:
Land: $105,000 Gain/Loss: $10,000
Charging off the cost of a wastebasket with an estimated useful life of 10 years as an expense of the period when purchased is an example of the application of the
Materiality constraint.
Which of the following is incorrect about adjusting entries?
Never affect equity Correct: -Never affect cash -Each adj entry affects one income statement and one balance sheet account -Are prepared to achieve a proper match between revenues and expenses of the same period
The Economic entity assumption:
assumes all transactions can be identified with a particular entity
The balance in retained earnings at the end of the year is determined by retained earnings at the beginning of the year:
Plus net income, minus dividends
Ford Motor Company purchases services from suppliers on account and sells its products to distributors on short-term credit. As a result, do each of these events affect net income faster than they affect net operating cash flows?
Purchase Services: yes Sell Products: yes
Selected account balances from XYZ Company Dec 2018, 2017: find return on equity for 2018 rounded:
ROE = Return on assets * Equity Multiplier = 10.3% * 2.36 = 24.3%
If Ziggy Company concluded that an investment originally classified as held-to-maturity would now more appropriately be classified as available-for-sale, Ziggy would:
Reclassify the investment as available-for-sale and immediately recognize in accumulated other comprehensive income any unrealized holding gain or loss on the reclassification date.
Which one of the following is NOT one of the five steps for recognizing revenue? - Identify contract with customer - Recognize revenue when all performance obligations have been satisfied - Identify separate performance obligations in the contract - Allocate the transaction price to the separate performance obligations
Recognize revenue when all performance obligations have been satisfied
Indiana Co. began a construction project in 2021 with a contract price of $150 million to be received when the project is completed in 2023. During 2021, Indiana incurred $36 million of costs and estimates an additional $84 million of costs to complete the project. Indiana recognizes revenue over time and for this project recognizes revenue over time according to the percentage of the project that has been completed. Indiana:
Recognized $9 million gross profit on the project in 2021
Liquidity refers to:
The readiness of an asset to be converted to cash
Long-term solvency refers to:
The risk that a company will not be able to pay its long-term debt.
Sloan Company has owned a debt securities investment during 2021 that has increased in fair value. After all closing entries for 2021 are completed, the effect of the increase in fair value on total shareholders' equity would be:
The same amount under the available-for-sale and trading-securities approaches.
Recent financial statement data for Harmony Health Foods (HHF) Inc. Find times interest earned ratio:
Times interest earned ratio = income before interest and taxes / interest expense =$125/36 = 3.47
During the year, a company's investment in debt securities increases in fair value, resulting in an unrealized gain on the investment. The investment is not sold by the end of the year. The company is considering whether to report the unrealized gain as a component of net income or as a component of other comprehensive income. Under which reporting requirement would the company have a higher ending balance of total shareholders' equity?
Total shareholders' equity would be the same with either reporting requirement.
Recognition of impairment for property, plant, and equipment is required if book value exceeds:
Undiscounted expected cash flows.
A journal entry to record receipt of interest on an interest-bearing note receivable will include a:
credit to interest revenue.
Return on Equity (ROE)
profit margin X asset turnover X equity multiplier (6.31%)
Net income equals:
revenues minus expenses