BA 211 Final (CH.8 -11)

Discount Travel has the following current assets: cash, $102 million; receivables, $94 million; inventory, $182 million; and other current assets, $18 million. Discount Travel also has the following liabilities: accounts payable, $98 million; current portion of long-term debt, $35 million; and long-term debt, $23 million. Based on these amounts, what is the current ratio?

2.98. (current assets divided by current liabilities)

On November 1, 2021, a company signed a $100,000, 6%, six-month note payable with the amount borrowed plus accrued interest due six months later on May 1, 2022. The company should report interest payable at December 31, 2021, in the amount of:

$1,000.

A company had the following cash flows for the year: (a) Purchased land, $60,000 (b) Borrowed from a local bank, $100,000 (c) Paid employee salaries, $50,000 (d) Issued common stock, $75,000 (e) Paid dividends, $20,000 (f) Sold equipment, $40,000 (g) Sold services to customers, $120,000 What amount would be reported for net financing cash flows in the statement of cash flows?

$155,000.

Laser World's income statement reported total revenues of $850,000 and total expenses (including $40,000 depreciation) of $720,000. The balance sheet reported the following: Accounts Receivable—beginning balance, $50,000 and ending balance, $60,000; Accounts Payable—beginning balance, $22,000 and ending balance, $28,000. Therefore, based only on this information, the net cash flows from operating activities were:

$166,000. net income of 130,000 plus depreciation of 40,000 minus 10,000 differnce in accounts receivable and plus 6,000 in differnce of accounts payable

Fashion, Inc. had a Retained Earnings balance of $12,000 at December 31, 2021. The company had an average income of $7,500 over the next 3 years, and an ending Retained Earnings balance of $15,000 at December 31, 2024. What was the total amount of dividends paid over the last three years?

$19,500. Beginning RE + Net income − Dividends = Ending RE.$12,000 + $22,500 ($7,500 × 3) − Dividends = $15,000.Dividends = $19,500.

Innovative Products reported net income of $205,000. Beginning and ending Inventory balances were $40,000 and $45,000, respectively. Accounts Payable balances at the beginning and end of the year were $35,000 and $33,000, respectively. Assuming that all relevant information has been presented, the company would report net operating cash flows of:

$198,000.

The ending Retained Earnings balance of Lambert Inc. increased by $1.5 million from the beginning of the year. The company's net income earned during the year is $3.5 million. What is the amount of dividends Lambert Inc. declared and paid?

$2.0 million. (Net income minus dividends equals the change in retained earnings.)

Suppose you buy dinner for $23.75 that includes an 8% sales tax. How much did the restaurant charge you for the dinner (excluding any tax) and how much does the restaurant owe for sales tax?

$21.99 for dinner and $1.76 for sales tax.

During 2021, Victory Solutions had the following cash flows: (1) received cash of $5,000 billed to a customer in 2020; (2) earned $20,000 of net income; (3) paid interest of $6,000 on a corporate bond issued; (4) paid dividends of $8,000 to its stockholders; (5) borrowed $40,000 from a local bank; and (6) purchased its own shares of common stock for $10,000. What is Victory Solutions' net cash flows from financing activities for 2021?

$22,000. (1), (2), and (3) are operating activities. (4), (5), and (6) are financing activities. (5) is a financing inflow, and (4) and (6) are financing outflows. Therefore, $40,000 − $8,000 − $10,000 = $22,000.

On December 1, 2021, Old World Deli signed a $300,000, 5%, six-month note payable with the amount borrowed plus accrued interest due six months later on June 1, 2022. Old World Deli records the appropriate adjusting entry for the note on December 31, 2021. What amount of cash will be needed to pay back the note payable plus any accrued interest on June 1, 2022?

$307,500.

The Pita Pit borrowed $100,000 on November 1, 2021, and signed a six-month note bearing interest at 12%. Principal and interest are payable in full at maturity on May 1, 2022. In connection with this note, The Pita Pit should report interest expense in 2022 for the amount of:

$4,000.

Which of the following is not correct about the statement of cash flows?

A company with a net loss on the income statement will always have a net cash outflow from operating activities.

When a company issues 25,000 shares of $1 par value common stock for $10 per share, the journal entry for this issuance would include:

A credit to Common Stock for $25,000.

When a company collects sales tax from a customer, the event is recorded by:

A debit to Cash and a credit to Sales Tax Payable.

An informal agreement that allows a company to borrow up to a prearranged limit without having to follow formal loan procedures and prepare paperwork is known as:

A line of credit

California Adventures issues 5,000 shares of 8%, $100 par value preferred stock at the beginning of 2020. All remaining shares are common stock. The company was not able to pay dividends in 2020, but plans to pay dividends of $100,000 in 2021.Assuming the preferred stock is noncumulative, how much of the $100,000 dividend will be paid to preferred stockholders and how much will be paid to common stockholders in 2021?

$40,000 to preferred stockholders and $60,000 to common stockholders.

Union Apparel has sales including sales taxes for the month of $551,200. If the sales tax rate is 6%, what are Union Apparel's sales for the month?

$520,000.

The Surf's Up issues 1,000 shares of 6%, $100 par value preferred stock at the beginning of 2020. All remaining shares are common stock. The company was not able to pay dividends in 2020, but plans to pay dividends of $18,000 in 2021.Assuming the preferred stock is noncumulative, how much of the $18,000 dividend will be paid to preferred stockholders and how much will be paid to common stockholders in 2021?

$6,000 to preferred stockholders and $12,000 to common stockholders.

Suppose you buy lunch for $8.39 that includes a 5% sales tax. How much did the restaurant charge you for the lunch (excluding any tax) and how much does the restaurant owe for sales tax? (Do not round intermediate calculations. Round the answers to 2 decimal places.)

$7.99 for lunch and $0.40 for sales tax.

Over the first four years of the company's life, the company earned the following net income (loss): $6,000; $3,000; $6,000, and ($2,000). If the company's ending retained earnings is $10,000 after year 4, what is the average amount of dividends paid per year?

$750. ($6,000 + $3,000 + $6,000 − $2,000) = $13,000 − $10,000 = $3,000/4 = $750.

A company had the following cash flows for the year: (a) Purchased inventory, $60,000 (b) Sold goods to customers, $90,000 (c) Received loan from a local bank, $150,000 (d) Purchased land, $180,000 (e) Purchased treasury stock, $40,000 (f) Paid dividends, $10,000 (g) Sold delivery truck, $30,000 What amount would be reported for net investing cash flows in the statement of cash flows?

($150,000). $150,000) = $30,000 (g) − $180,000 (d)

(a) Purchased land, $60,000 (b) Borrowed from a local bank, $100,000 (c) Paid employee salaries, $50,000 (d) Issued common stock, $75,000 (e) Paid dividends, $20,000 (f) Sold equipment, $40,000 (g) Sold services to customers, $120,000 What amount would be reported for net investing cash flows in the statement of cash flows?

($20,000). ($20,000) = $40,000 (f) − $60,000 (a).

During the year, Next Tec Corp. had the following cash flows: receipt from customers, $10,000; receipt from the bank for long-term borrowing, $6,000; payment to suppliers, $5,000; payment of dividends, $1,000; payment to workers, $2,000; and payment for machinery, $8,000. What amount would be reported for net investing cash flows in the statement of cash flows?

($8,000).

How many of the following transactions increase a company's liquidity? Provide services on account. Pay workers' salaries in the current period. Purchase office supplies with cash. Pay dividends to stockholders.

1.

Cash flows from investing activities do not include cash flows from:

Borrowing.

Which of the following is not correct about the statement of cash flows?

Cash dividends paid are classified as cash flows from operating activities.

Cash flows from investing activities include:

Cash outflows from acquiring land.

The par value of shares issued is normally recorded in the:

Common Stock account.

In terms of total sales, assets, and earnings, the dominant form of business organization is a:

Corporation.

Jade Jewelers issued 15,000 shares of $1 par value stock for $20 per share. What is true about the journal entry to record the issuance?

Credit Common Stock $15,000.

On December 2, Coley Corp. acquired 1,000 shares of its $2 par value common stock for $27 each.On December 20, Coley Corp. resold 400 shares for $15 each. Which of the following is correct regarding the journal entry for the resold shares?

Credit Treasury Stock $10,800.

A company resells 400 shares of its own common stock for $20 per share. The company had acquired these shares two months before for $15 per share. The resale of this stock would be recorded with a:

Credit to Additional Paid-In Capital for $2,000

Brian Inc. borrowed $8,000 from First Bank and signed a promissory note. What entry should First Bank record?

Debit Notes Receivable, $8,000; Credit Cash, $8,000.

The Route 66 Gift Shop, which records sales and sales tax separately, had sales on account of $1,500 and cash sales of $1,000. The state sales tax is 8%. The journal entry to record the sales would include a:

Debit to Accounts Receivable of $1,620 and a debit to Cash of $1,080.

A company acquires 1,000 shares of its own $1 par common stock for $15 per share. This purchase would be recorded with a:

Debit to Treasury Stock for $15,000

Journal entries to record cash dividends are made on the:

Declaration date and payment date.

The sale of gift cards by a company is a direct example of:

Deferred revenues.

Which of the following is not subtracted from net income as an adjustment under the indirect method of preparing the statement of cash flows?

Depreciation expense.

Which of the following statements regarding the corporate form of business is correct?

Disadvantages are that the business is subject to government regulations and double taxation on its income.

Ogden Motors, Inc. is involved in a lawsuit. It is reasonably possible that the jury will find in favor of the plaintiff and Ogden will owe ten million dollars. What is the appropriate reporting of this lawsuit and what is the effect in the balance sheet?

Disclose; no effect in the balance sheet.

If management can estimate the amount of loss that will occur due to litigation against the company, and the likelihood of the loss is probable, a contingent liability should be

Disclosed and reported as a liability.

If management can estimate the amount of loss that will occur due to litigation against the company, and the likelihood of the loss is reasonably possible, a contingent liability should be

Disclosed, but not reported as a liability.

Preferred stock is called preferred because it usually has two preferences over common stock. These preferences relate to:

Distribution of assets if the corporation is dissolved and payment of dividends.

Note disclosure is required for material potential losses when the loss is at least reasonably possible:

Even if the amount is not reasonably estimable.

The purchase of treasury stock is classified in the statement of cash flows as a(n):

Financing activity.

Given the items below, which of the following is a subtraction from net income to arrive at operating cash flows using the I. indirect method? II. Loss on sale of assets III. Increase in Supplies IV. Increase in Accounts Payable Depreciation expense

II. only.

Advantages of the corporate form of business include which of the following? I. Double taxation II. Ability to raise capital III. Ability to transfer ownership IV. More paperwork V. Limited liability

II., III., V.

Which of the following would not result in an increase in both the current ratio and the acid-test ratio?

Increase in inventory

Retained Earnings normally has an account balance that:

Increases stockholders' equity.

Cash flows from financing activities do not include:

Interest received.

Which of the following is an example of a cash inflow from a financing activity?

Issuance of bonds.

Outstanding common stock refers to the total number of shares:

Issued less treasury stock.

Given a choice, most companies would prefer to report a liability as long-term rather than current because:

It may cause the firm to appear less risky to investors and creditors. It may reduce interest rates on borrowing. It may cause the company to appear more stable, commanding a higher stock price for new stock listings. All of the Above

Deferred Revenues is a(n):

Liability account.

Which of the following statements is true?

Losses on the sale of long-term assets are an adjustment reported in the operating activities section of the statement of cash flows under the indirect method.

Large stock dividends and stock splits are issued primarily to:

Lower the trading price of the stock per share.

The Retained Earnings balance reported in the balance sheet typically is affected by:

Net income. Net loss. Dividends paid. All of the other answer choices are correct.

Assuming a current ratio of 1.2 and an acid-test ratio of 0.80, how will the purchase of inventory with cash affect each ratio?

No change to the current ratio and decrease the acid-test ratio.

When an investment is made in another corporation's common stock, what is the effect on total stockholders' equity?

No effect.

Under what section of the Statement of Cash Flows would you classify the purchase of equipment by issuing a long-term note payable?

Noncash activity.

The payment of salaries is classified in the statement of cash flows as a(n):

Operating activity.

The collection of cash from customers would be classified as which type of cash flow on the Statement of Cash Flows?

Operating.

The correct order from the smallest number of shares to the largest number of shares is:

Outstanding, issued, and authorized.

The issuer of a 100% common stock dividend (large stock dividend) to common stockholders should debit stock dividends for an amount equal to the

Par value of the shares issued.

Which of the following is an example of a cash outflow from an investing activity?

Payment of cash for the purchase of land.

Young Company is involved in a lawsuit. The liability that could arise as a result of this lawsuit should be recorded on the books if the probability of Young owing money as a result of the lawsuit is:

Probable and the amount is reasonably estimable.

Cash flows from investing activities do not include:

Proceeds from the issuance of common stock.

A noncash asset that is distributed to stockholders is referred to as a:

Property dividend.

Which of the following transactions would generally result in an investing cash inflow?

Receive cash from the sale of land.

The purchase of treasury stock can boost earnings per share by:

Reducing the number of shares outstanding.

The current portion of long-term debt should be

Reported as a current liability in the balance sheet.

Liabilities are defined as:

Resources owed by an entity as a result of past transactions.

Which of the following is a disadvantage of an S Corporation?

Restrictions on number of stockholders

Which of the following is subtracted from net income as an adjustment under the indirect method of preparing the statement of cash flows?

Salaries payable decrease.

Which of the following accounts is not reported in the stockholders' equity section of the balance sheet?

Sales Revenue.

Statement of Cash Flows

Shows that the change in total cash from one year to the next is equal to the net operating, investing, and financing cash flows.

Which financial statement separates business activities into operating, investing, and financing activities?

Statement of Cash Flows

Outstanding common stock specifically refers to:

Stock in the hands of stockholders.

Which of the following statements about treasury stock transactions is true?

Stockholders' equity is reduced when treasury stock is acquired.

Authorized common stock refers to the total number of shares:

That can be issued.

All publicly held corporations are regulated by what government organization?

The Securities and Exchange Commission.

In the operating activities section of the statement of cash flows, we start with net income when using:

The indirect method.

The par value of common stock represents:

The legal capital per share of stock assigned when the corporation was first established.

A contingent liability should be disclosed in a note to the financial statements rather than being recorded if:

The likelihood of a loss is reasonably possible.

The articles of incorporation describe:

The nature of the firm's business activities. The shares of stock to be issued. The initial board of directors. All of the other answer choices are correct.

Why would a corporation purchase its own stock?

To distribute surplus cash without paying dividends. To boost earnings per share. To satisfy employee stock ownership plans. All of the other answer choices are correct.

Common stockholders usually have all of the following rights except:

To participate in the day-to-day operations.

Which of the following financing alternatives has the highest preference for dividends/interest payments?

bonds

classification on balance sheet

bonds payable - financing common stock- financing accounts payable- operating accounts recievable- operating

par value stock

capital stock that has been assigned a value per share in the corporate charter

The current ratio is

current assets divided by current liabilities

A company's liquidity refers to its:

Ability to pay currently maturing debts

In preparing a statement of cash flows under the indirect method, a decrease in accounts receivable would be reported as a(n):

Addition to net income in the operating activities section.

In preparing a statement of cash flows under the indirect method, an increase in accounts payable would be reported as a(n):

Addition to net income in the operating activities section.

The disadvantages of the corporate form of business include:

Additional taxes.

Away Travel filed suit against West Coast Travel seeking damages for copyright violations. West Coast Travel's legal counsel believes it is reasonably possible that West Coast Travel will settle the lawsuit for an estimated amount in the range of $100,000 to $200,000, with all amounts in the range considered equally likely. How should West Coast Travel report this litigation?

As a disclosure only. No liability is reported.

Bear Essentials borrowed $50,000 from Stacks Bank and signed a promissory note. What entry should Stacks Bank record?

Bear Essentials borrowed $50,000 from Stacks Bank and signed a promissory note. What entry should Stacks Bank record?

On March 31, 2021, a company sells $1,200 of gift cards to customers. The gift cards expire one year from the date of sale. What entry should the company record on March 31, 2021?

Debit Cash, $1,200; credit Deferred Revenue, $1,200.

Brian Inc. borrowed $8,000 from First Bank and signed a promissory note. What entry should Brian Inc. record?

Debit Cash, $8,000; Credit Notes Payable, $8,000.

On October 1, 2021, a company sells $800 of gift cards to customers. The gift cards expire one year from the date of sale. By October 1, 2022, $750 of the gift cards have been redeemed and the sales recorded at the time of redemption. What entry, if any, should the company record on October 1, 2022?

Debit Deferred Revenue, $50; credit Sales Revenue, $50.

On November 1, 2021, a company signed a $100,000, 6%, six-month note payable with the amount borrowed plus accrued interest due six months later on May 1, 2022. The company records the appropriate adjusting entry for the note on December 31, 2021. In recording the payment of the note plus accrued interest at maturity on May 1, 2022, the company would:

Debit Interest Expense, $2,000.

Treasury Stock

decreases stockholders' equity

The account "Warranty Liability":

is adjusted at the end of the year

Both cash dividends and stock dividends:

reduce retained earnings