ACC 2101 Final

The closing entry for Service Revenue includes

A debit to Service Revenue and a credit to Retained Earnings.

Which of the following statements is FALSE

Accumulated depreciation represents a growing amount of cash to be used to replace the existing asset.

An adjusting entry recorded April salary expense that will be paid in May. Which statement best describes the effect of this adjusting entry on the company's accounting equation?

Assets are not affected, liabilities increase, and stockholder's equity decreases

Which of the following transactions would increase total assets? I. Borrowed cash on a note payable, $80,000 II. Provided services on account, $10,000 III. Received cash from a customer as payment on account, $8,000 IV. Received a utility bill that will be paid later, $1,200

I and II

Infinity Corporation purchased equipment with a 10-year useful life and zero residual value for $10,000. At the end of the fifth year, the equipment was destroyed in a fire. If the equipment is not insured, the entry to record the retirement of this asset will include _______. Assume the straight-line depreciation method is used. (Select all that apply.) I. a debit to Accumulated Depreciation for $5,000 II. a debit to Loss for $5,000 III. a credit to Equipment for $5,000 IV. a credit to Equipment for $10,000 V. a debit to Depreciation Expense for $5,000

I, II, IV

The accounting treatment for a lawsuit depends on: (Select all that apply.) I. the ability to estimate the amount of payment II. the amount of time until the lawsuit is settled III. the likelihood of payment IV. the type of contingency

I, III

Which of the following is true regarding LIFO and FIFO?

In a period of rising costs, LIFO results in lower net income than FIFO.

When a corporation issues stock to the general public for the first time, it is known as a(n):

Initial Public Offering (IPO)

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.

In accounting, goodwill

May be recorded when a company purchases another business.

Which of the following best describes the indirect method of preparing the operating activities section of the statement of cash flows?

Net income reconciled from accrual basis to cash basis.

Which of the following is an example of a noncash activity?

Purchase of long-term assets by issuing debt

Both cash dividends and stock dividends:

Reduce retained earnings.

A loss is recorded on the sale of a plant asset when the:

Asset's book value is greater than the amount of cash received from the sale

The Surf's Up issues 1,000 shares of 6%, $100 par value preferred stock at the beginning of 2017. All remaining shares are common stock. The company was not able to pay dividends in 2017, but plans to pay dividends of $18,000 in 2018. Assuming the preferred stock is cumulative, how much of the $18,000 dividend will be paid to preferred stockholders and how much will be paid to common stockholders in 2018?

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

Bricker Enterprises purchased a machine for $200,000 on April 1, 2016. The estimated service life is ten years with a $20,000 residual value. What is depreciation expense for 2016 if Bricker uses double-declining balance depreciation?

$30,000

A company had net income of $242,000. Depreciation expense is $26,000. During the year, accounts receivable and inventory increased $15,000 and $40,000, respectively. Prepaid expenses and accounts payable decreased $2,000 and $14,000, respectively. There was also a loss on the sale of equipment of $17,000. How much cash was provided by operating activities?

242,000 - 26,000 + 2,000 =$218,000

The Viper retires a $40 million bond issue when the carrying value of the bonds is $42 million, but the market value of the bonds is $36 million. The entry to record the retirement will include:

A credit of $6 million to a gain account.

Innovative Media issues 1,000 shares of 8%, $50 par value preferred stock for $60 per share. Which of the following will be recorded at the time of the issue?

A credit to Additional Paid-in Capital for $10,000

Using the allowance method, the entry to record a write-off of accounts receivable will include

A debit to Allowance for Uncollectible Accounts.

Which of the following statements is TRUE I. All else equal, the higher the debt to equity ratio, the higher the risk of bankruptcy. II. One advantage of debt is that it has the potential to increase the return to stockholders. III. The higher the market interest rate compared to the stated rate, the lower the bond issue price will be.

ALL TRUE

When considering total depreciation recorded over the entire life span of an asset, the method resulting in the highest total depreciation is:

All three methods result in the same amount of total depreciation.

Which of the following would be added to net income when determining cash flows from operating activities under the indirect method?

Amortization expense.

When bonds are issued at a premium and the effective interest method is used for amortization, at each subsequent interest payment date, the cash paid is:

Greater than the interest expense.

Which of the following statements is TRUE I.Under the indirect method, the operating activities section of the cash flow statement begins with net income. II. The statement of cash flows reports business activities on an accrual basis. III. Depreciation expense is added back to net income in calculating operating cash flows.

I, III

Identify financing activities from the items given below. (Select all that apply.) I. Receipt of dividends II. Lending with notes receivable III. Issuance of notes payable IV. Collection of accounts receivable V. Repayment of bonds VI. Payment of dividends

III, V, VI

Which of the following statements is TRUE I. Earnings per share is most useful in comparing earnings performance of one company with another. II. Value stocks are stocks that are priced high in relation to current earnings. III. In the stockholders' equity section of the balance sheet, common stock is listed before preferred stock. IV. For a profitable company that pays little in dividends, the balance in retained earnings will increase over time.

IV ONLY!

If a company issues 1,000 shares of $1 par value common stock for $20 per share, what would be the effect on the accounting equation?

Increase assets and increase stockholders' equity.

When bonds are issued at a discount and the effective interest method is used for amortization, at each interest payment date, the interest expense:

Increases.

Net income - $120,000 Receive cash from issuing stock - 80,000 Pay cash for equipment - 90,000 Increase in accounts receivable - 10,000 Depreciation expense - $30,000 Increase in accounts payable - 5,000 Receive cash from sale of land - 75,000 Pay cash dividends - 20,000

Investing Activities: pay cash for equiipment : (90,000) - negative cash from sale of land: 75,000 - positive increase in accounts payable - 50,000 - positive (90,000) + 75,000 + 5,000 = (15,000)

Advantages of the corporate form that have led to the growth of this form of business ownership include all of the following except:

Low government regulation.

Large stock dividends and stock splits are issued primarily to:

Lower the trading price of the stock per share.

On January 1, Year 1, McGee Corporation issues 5%, 10-year bonds with a face amount of $100,000. Interest is paid semiannually on June 30 and December 31. On issuance date, the market rate of interest is 5%; therefore, the issue price of the bonds is $100,000. The journal entry for the issuance of the bonds will include a:

credit to Bonds Payable for $100,000

What is the amount of the bond premium on December 31, 2013?

decrease in carrying value + (carrying value - end (face) value)

Net income - $120,000 Receive cash from issuing stock - 80,000 Pay cash for equipment - 90,000 Increase in accounts receivable - 10,000 Depreciation expense - $30,000 Increase in accounts payable - 5,000 Receive cash from sale of land - 75,000 Pay cash dividends - 20,000

financing activities: Receive cash from issuing stocks: 80,000 - positive Pay cash dividends: 20,000 - negative 80,000 - 20,000 = 60,000

Boyd Corporation borrows $300,000 from a bank on March 1, Year 1, by signing a 6 percent, nine-month note for the amount borrowed plus accrued interest due nine months later. On issuance date, this transaction

increases assets and increases liabilities.

An attorney adds an air purification system to his office building. The addition:

increases future benefits and should be capitalized.

We record goodwill as an intangible asset in the balance sheet only when

it is part of an acquisition of another business

Net income - $120,000 Receive cash from issuing stock - 80,000 Pay cash for equipment - 90,000 Increase in accounts receivable - 10,000 Depreciation expense - $30,000 Increase in accounts payable - 5,000 Receive cash from sale of land - 75,000 Pay cash dividends - 20,000

operating activities: net income: 120,000 - positive depreciation: 30,000 - positive increase in accounts payable: (5,000) - negative 120,000 + 30,000 - 5,000 = 145,000

Havier Corporation borrows $1 million from a bank on September 1, Year 1, by signing a 6 percent, nine-month note for the amount borrowed plus accrued interest due nine months later on June 1, Year 2. Which of the following is recorded on December 31, Year 1?

$20,000 credit to Interest Payable

Trivia Company reports a gross profit of $100, income tax expense of $15, selling, general, and administrative expenses of $35, nonoperating revenues of $10, and nonoperating expenses of $15. What is the company's operating income?

$65 - only subtract the expenses

Equipment purchased for $85,000 on January 1, 2016, was sold on July 1, 2019 for $30,000. The company uses the straight-line method of computing depreciation, assuming a five year useful life and no salvage value. When recording the sale, the company should record a debit to Accumulated Depreciation for:

$85,000 / 5 = 17,000 16,17,18 -> full years -> 17,000 *3 = 51,000 full 6 months (1/2) of full year: 8500 $51,000 + 8,500 = $59,500

Windsor, Inc., issues 7%, 10-year bonds with a face amount of $1 million on January 1, Year 1, for $932,048, when the market rate of interest is 8%. Interest expense associated with this bond for the first semiannual period is:

($932048 * 0.08) /2 = $37,282

Lego, Inc., issued common stock in Year 1. It issued 10,000 shares of 8%, $100 par value cumulative preferred stock for $110 per share at the beginning of Year 4. It did not pay any dividends during Year 4. In December of Year 5, it declares total dividends of $200,000. How much will the preferred stockholders of Lego receive as dividends in Year 5?

10,000 * 0.08 = 800 800* $100 (par value) = $80,000 per year $80,000 *2 (year 4 AND 5) =$160,000

Cole Corporation was organized on January 1, Year 1. The company was authorized to issue 100,000 shares of $1 par value common stock. During the year, the company had the following transactions relating to stockholders' equity: 1. Issued 40,000 shares of common stock at $8 per share. 2. Reported a net income of $60,000. 3. Paid dividends of $30,000. 4. Purchased 5,000 shares of treasury stock at $10 per share. What is total stockholders' equity at the end of Year 1?

1: 40,000 * 8 = $320,000 (positive) 2: net income of $60,000 (positive) 3: dividends: $30,000 (negative) 4: 5000 * 10 = $50,000 (negative) 320,000 + 60,000 - 30,000 - 50,000 = 300,000

The balance sheet of Werther Company showed the following data about its common stock, par $1: authorized shares, 10,000,000; outstanding shares, 4,300,000; and issued shares 4,700,000. Therefore, the number of treasury stock shares was

400,000.

Bond X and Bond Y are both issued by the same company. Each of the bonds has a face value of $100,000 and each matures in 10 years. Bond X pays 8% interest while Bond Y pays 7% interest. The current market rate of interest is 7%. Which of the following is correct?

Bond X will sell for more than Bond Y. - because bond x has a higher interest rate than the current market rate

Which of the following would not be a cash flow from financing activities?

Collection of a cash dividend.

At the end of May, a company receives a utility bill for $500 associated with operations in May. The company plans to pay the bill on June 10. In May, the adjusting entry is recorded as:

Debit Utilities Expense $500, Credit Utilities Payable $500

Ontario Resources, a natural energy supplier, borrowed $80,000 cash on October 1, 2016, to fund a geological survey. Ontario Resources issued a 9-month, 12% note payable with principal and interest payable at maturity on June 30, 2017. Assume adjusting entries are recorded only once a year on December 31, the fiscal year-end. The journal entry on June 30, 2017 would include:

Debit to Interest Payable of $2,400

Treasury stock

Decreases stockholders' equity.

On September 1, 2016, Cooking with Tarla sold 600 one-year magazine subscriptions for $81 each. Subscriptions start immediately. The total amount received was recorded as Deferred (Unearned) Subscriptions Revenue. Which of the following accounts and amounts will appear on the unadjusted trial balance at December 31, 2016?

Deferred Subscriptions Revenue, $48,600 credit balance

Which of the following would be a cash flow from financing activities?

Dividends paid to shareholders.

Operating cash flows exclude:

Dividends paid.

Roberts Inc. uses the double-declining balance method for depreciation on its computers. Which item is not needed to compute depreciation for the first year?

Estimated residual value

Research and development costs should be:

Expensed in the period incurred.

Lail Inc. accounts for bad debts using the allowance method. On June 1, Lail Inc. wrote off Andrew Green's $2,500 account. Based on Lail's estimation, Andrew Green will never pay any portion of the balance in his account. What effect will this write-off have on Lail Inc.'s balance sheet at the time of the write-off?

No effect.

The research and development (R&D) team at a pharmaceutical company is developing a drug for colon cancer. Which of the following is true of the R&D costs incurred in developing this drug during the current year?

RD always expensed directly in the income statement

On December 1, 2016, Debbie's Plantscape receives $2,400 in advance for an agreement to care, with equal monthly effort, for a client's office plants during the months of December, January, and February. Assume adjusting entries have been recorded for 2016. As of December 31, 2016, Debbie's Plantscape would have:

Recognized $800 revenue under accrual accounting, or $2,400 revenue under cash-basis accounting

Frederick Corporation reports net income of $410,000. Accounts Payable balances at the beginning and end of the year were $50,000 and $39,000, respectively. Interest Payable balances at the beginning and end of the year were $27,000 and $30,000, respectively. What is the company's cash inflows from operating activities?

SUBTRACT difference of Accounts Payable ADD difference of Interest Payable

On January 1, Year 1, a company issues $100,000 of 8% bonds maturing in 10 years when the market rate of interest is 9%. The bonds were issued at a discount. Market interest rates drop to 6% by December 31, Year 2. The company retires these bonds on December 31, Year 2. Which of the following is true?

The company will incur a loss

The corporation's own stock that has been issued and then repurchased by the company is referred to as:

Treasury Stock.

The following information pertains to Alpha Computing at the end of 2018: Assets $970,000 Liabilities $560,000 Net Income $90,000 Common Stock $350,000 Alpha Computing's Retained Earnings account had a zero balance at the beginning of 2018. What amount of dividends did the company pay in 2018?

USE ACCOUNTING EQUATION 970,000 HAS TO = 560,000+90,000+350,000 970,000 DOES NOT = 1,000,000 difference = amount of dividends =$30,000.

Boston Beer reported they sold equipment for $222 million and purchased $1,515 million of new equipment. The equipment sold had a net book value of $150 million. Cash flow from investing activities would show

an inflow of $222 million and outflow of $1,515 million.

Universal Travel Inc. borrowed $500,000 on November 1, 2016, and signed a 12-month note bearing interest at 6%. Interest is payable in full at maturity on October 31, 2017. In connection with this note, Universal Travel Inc. should report interest payable at December 31, 2016, in the amount of:

annual interest: $30,000 30,000 / 12 = 2500 2500 * 2 = 5.000

On January 1, Year 1, a company purchases a machine for $18,000. The estimated residual value is $6,000, and the estimated service life is 8 years or 30,000 units. After three years of use, the company estimates the remaining service life of the machine to be nine years rather than the original eight. Using the straight-line method, calculate the amount of depreciation for Year 4.

before change - same straight line price for years before -> $18,000-6,000= $12000 / 8 = $1500 per year after change - (org. value - years before change ) / (# of new total years ) [$12,000 - (1500*3)] / (8-3+1)= $1,250

Marina, Inc., acquires 1 million shares of its own $1 par value common stock at $70 per share. It later resells the 1 million shares of treasury stock for $75. We record the $5 difference per share as a:

credit to Additional Paid-in Capital

During its first year of operations, Kimbrough Corporation sold $14 million worth of goods on account. At the end of the year, $5 million remains due from customers. If the company estimates that 20% of the total year-end accounts receivable will not be collected, it will record a:

credit to Allowance for Uncollectible Accounts for $1 million

Zoum Corporation had the following transactions during 2016: 1. Issued $125,000 of par value common stock for cash. 2. Recorded and paid wages expense of $60,000. 3. Declared and paid a cash dividend of $10,000. 4. Sold a long-term investment (cost $3,000) for cash of $3,000. 5. Recorded cash sales of $400,000. 6. Bought inventory for cash of $160,000. 7. Acquired an investment in Zynga stock for cash of $21,000. What is the net cash provided by operating activities?

paid wages: (60,000) - negative bought inventory (160,000) - negative cash sales 400,000 - positive (60,000) + (160,000) +400,000 =180,000

Earnings not distributed as dividends to stockholders is known as:

retained earnings

At what amount should Sandwich Express record the bread machine?

should include all (tax, shipping, installation)

Total stockholder's equity for Dearborn Inc. at the beginning and end of 2016 was $20,000 and $25,000, respectively. Assets at the beginning of 2016 were $32,000. If liabilities increased by $9,000 in 2016, how much were Dearborn's total assets at the end of 2016?

stock holder's equity: $25,000 - $20,000 = $5,000 liabilities increased: $9,000 $5,000 + 9,000 = 14,000 $14,000 + 32,000 = $46000

Return on assets measures:

the amount of income generated for each $1 of assets.