Accounting Final
Depreciation methods
1. straight line 2. units of production 3. declining balance
Plant assets are ordinarily presented in the balance sheet
at cost less accumulated depreciation.
The amount of stock that may be issued according to the corporation's charter is referred to as the
authorized stock.
Cash generated from operations exceeds investing needs, and the company can begin retiring debt during the
maturity phase.
A current liability is a debt that can reasonably be expected to be paid
within one year, or the operating cycle, whichever is longer.
Blossom Company purchases land for $120000 cash. Blossom assumes $4500 in property taxes due on the land. The title and attorney fees totaled $1500. Blossom has the land graded for $3400. They paid $15000 for paving of a parking lot. What amount does Blossom record as the cost for the land?
$120000 + $4500 + $1500 + $3400 = $129400 (Pur. price + taxes + attor. fees. + grad. cost.)
Using the following data for Bonita Industries, compute the return on assets (rounded). Net Income $120000 Total Assets 12/31/17 2410000 Total Assets 12/31/16 1960000 Net Sales 200000
$120000 ÷ [($2410000 + $1960000) ÷ 2] = 5.5 Net sal. ÷ [(end. tot. assets + beg. tot. assets) ÷ 2]
Given the following account balances at year end, compute the total intangible assets on the balance sheet of Wildhorse Company. Cash $1620000 Accounts Receivable 1020000 Trademarks 1350000 Goodwill 3050000 Research & Development Costs 2550000
$1350000 + $3050000 = $4400000 (Trade. + Good.)
Blossom Company incurred $980000 of research and development costs in its laboratory to develop a new product. It spent $159000 in legal fees for a patent granted on January 2, 2017. On July 31, 2017, Blossom paid $80000 for legal fees in a successful defense of the patent. What is the total amount that should be debited to Patents through July 31, 2017?
$159000 + $80000 = $239000 (Leg. fees + def. leg. fees)
On October 1, Ayayai's Painting Service borrows $191000 from National Bank on a 3-month, $191000, 4% note. What entry must Ayayai's Painting Service make on December 31 before financial statements are prepared?
$191000 × 0.04 × 3/12 = $1910 (Amount bor. × 4% × 3/12)
During 2017, Ayayai Corp. reported net sales of $2000000, net income of $800000, and depreciation expense of $100000. Ayayai also reported beginning total assets of $1000000, ending total assets of $1300000, plant assets of $500000, and accumulated depreciation of $500000. Ayayai's asset turnover (rounded) is
$2000000 ÷ [($1000000 + $1300000) ÷ 2] = 1.74 Net sal. ÷ [(beg. tot. assets + end. tot. assets) ÷ 2)]
In Windsor, Inc., land decreased $229500 because of a cash sale for $229500, the equipment account increased $76500 as a result of a cash purchase, and Bonds Payable increased $255000 from issuance for cash at face value. The net cash provided by investing activities is
$229500 - $76500 = $153000 (Land dec. - equip. inc.)
A company has the following assets: Buildings and Equipment, less accumulated depreciation of $5900000 $23000000 Copyrights 2050000 Patents 15000000 Land 17000000 The total amount reported under Property, Plant, and Equipment would be
$23000000 + $17000000 = $40000000 (Bldg. & Equip. + Land)
The following selected amounts are available for Swifty Corporation. Retained earnings (beginning) $3050 Net loss 155 Cash dividends declared 160 Stock dividends declared 165 What is its ending Retained Earnings balance?
$3050 - $155 - ($160 + $165) = $2570 (Beg. R/E - Net Loss - Cash div. - st. div.)
Oriole Company had the following transactions during 2017: 1. Issued $310000 of par value common stock for cash. 2. Recorded and paid wages expense of $148800. 3. Acquired land by issuing common stock of par value $124000. 4. Declared and paid a cash dividend of $24800. 5. Sold a long-term investment (cost $7440) for cash of $7440. 6. Recorded cash sales of $992000. 7. Bought inventory for cash of $396800. 8. Acquired an investment in Zynga stock for cash of $52080. 9. Converted bonds payable to common stock in the amount of $1240000. 10. Repaid a 6-year note payable in the amount of $545600. What is the net cash provided by financing activities?
$310000 - $24800 - $545600 = ($260400) (Cash. st. - iss. div. paid. - N/P. paid)
Cheyenne Corporation's December 31, 2017 balance sheet showed the following: 6% preferred stock, $20 par value, cumulative, 30000 shares authorized; 19000 shares issued $ 380000 Common stock, $10 par value, 3,000,000 shares authorized; 1,950,000 shares issued, 1,920,000 shares outstanding 19500000 Paid-in capital in excess of par value - preferred stock 51000 Paid-in capital in excess of par value - common stock 27600000 Retained earnings 9650000 Treasury stock (30,000 shares) 589000 Cheyenne total paid-in capital was
$380000 + $19500000 + $51000 + $27600000 = $47531000 Pref. st. + com. st. + Pref PIC + Com PIC
The following totals for the month of April were taken from the payroll records of Swifty Corporation. Salaries $68400 FICA taxes withheld 5235 Income taxes withheld 15000 Medical insurance deductions 2700 Federal unemployment taxes 550 State unemployment taxes 3400 The entry to record accrual of employer's payroll taxes would include a
$5235 + $550 + $3400 = $9185 (FICA tax. + fed. unemp. tax. + st. unemp. tax) debit to Payroll Tax Expense for $9185.
Bramble Corp. issued common stock for proceeds of $547000 during 2017. The company paid dividends of $97000 and issued a long-term note payable for $368000 in exchange for equipment during the year. The company also purchased treasury stock that had a cost of $79000. The financing section of the statement of cash flows will report net cash inflows of
$547000 - $97000 - $79000 = $371000 (Com. st. proc. - div. paid - trea. st. pur.)
Whispering Winds Corp. had the following transactions during 2017: 1. Issued $235000 of par value common stock for cash. 2. Recorded and paid wages expense of $112800. 3. Acquired land by issuing common stock of par value $94000. 4. Declared and paid a cash dividend of $18800. 5. Sold a long-term investment (cost $5640) for cash of $5640. 6. Recorded cash sales of $752000. 7. Bought inventory for cash of $300800. 8. Acquired an investment in Zynga stock for cash of $39480. 9. Converted bonds payable to common stock in the amount of $940000. 10. Repaid a 6-year note payable in the amount of $413600. What is the net cash provided by investing activities?
$5640 - $39480 = ($33840) (Invest. sale - invest. pur.)
Sunland Company purchased equipment and these costs were incurred: Cash price $63000 Sales taxes 2100 Insurance during transit 890 Installation and testing 1650 Total costs $67640 What amount should be recorded as the cost of the equipment?
$63000 + $2100 + $890 + $1650 = $67640 (cash price + sal. tax. + insur. + insut.)
Cheyenne Corp. had the following transactions during 2017: 1. Issued $220000 of par value common stock for cash. 2. Recorded and paid wages expense of $105600. 3. Acquired land by issuing common stock of par value $88000. 4. Declared and paid a cash dividend of $17600. 5. Sold a long-term investment (cost $5280) for cash of $5280. 6. Recorded cash sales of $704000. 7. Bought inventory for cash of $281600. 8. Acquired an investment in Zynga stock for cash of $36960. 9. Converted bonds payable to common stock in the amount of $880000. 10. Repaid a 6-year note payable in the amount of $387200. What is the net cash provided by operating activities?
$704000 - $281600 - $105600 = $316800 (Cash Sal. - inv. pur.- wag. pd.)
During 2017, Whispering Winds Corp. reported cash provided by operations of $730000, cash used in investing of $631000, and cash used in financing of $175000. In addition, cash spent for fixed assets during the period was $254000. Average current liabilities were $598000 and average total liabilities were $1579000. No dividends were paid. Based on this information, what was Whispering free cash flow?
$730000 - $254000 = $476000 (Cash from oper. - fix. asset pur.)
The 2017 financial statements of Sunland Company contain the following selected data (in millions). Current assets $95 Total assets 169 Current liabilities 46 Total liabilities 81 Cash 5 Interest expense 6 Income taxes 8 Net income 18 The debt to assets ratio (rounded) is
$81 ÷ $169 = 47.9% (Tot. liab. ÷ Tot. assets)
The interest charged on a $84000 note payable, at the rate of 6%, on a 60-day note would be (Use 360 days for calculation.)
$84000 × 0.06 × 60/360 = $840 (Face val. × 6% × 60/360)
The following totals for the month of April were taken from the payroll records of Sunland Company. Salaries $86400 FICA taxes withheld 6610 Income taxes withheld 19000 Medical insurance deductions 3500 Federal unemployment taxes 690 State unemployment taxes 4300 The entry to record the payment of net payroll would include a
$86400 - $6610 - $19000 - $3500 = $57290 (Salar. - FICA tax. - inc. tax. - ins. ded.) debit to Salaries and Wages Payable for $57290.
Bonds with a face value of $864000 and a quoted price of 98.50 have a selling price of
$864000 × 0.9850 = $851040 (Face val. × 98.50%)
A plant asset with a cost of $460000 and accumulated depreciation of $420000 is sold for $87000. What is the amount of the gain or loss on disposal of the plant asset?
$87000 - ($460000 - $420000) = ($47000) (sell. price - (cost - A/D))
The current carrying value of Vaughn's $896000 face value bonds is $893000. If the bonds are retired at 102, what would be the amount Vaughn would pay its bondholders?
$896000 × 1.02 = $913920 (Carry. Val. × 102%)
On May 1, 2017, Wildhorse Co. purchased the copyright to Novak Corp. for $100800. It is estimated that the copyright will have a useful life of 4 years. The amount of amortization expense recognized for the year 2017 would be
($100800 ÷ 4) × 8/12 = $16800 (Cost ÷ 4 yrs) × 6/12
In a recent year Ayayai Corp. had net income of $140000, interest expense of $27500, and income tax expense of $37500. What was Ayayai Corp.'s times interest earned (rounded) for the year?
($140000 + $27500 + $37500) ÷ $27500 = 7.45 (Net inc. + int. exp. + inc. tax exp) ÷ int. exp.
Pharoah Company reported a net loss of $15000 for the year ended December 31, 2017. During the year, accounts receivable decreased $7500, inventory increased $12000, accounts payable increased by $15000, and depreciation expense of $9000 was recorded. During 2017, operating activities
($15000) + $7500 - $12000 + $15000 + $9000 = $4500 ((Net loss) + A/R dec. − inv. inc. + A/P inc.+ dep. exp.)
The following information pertains to Whispering Winds Corp.. Assume that all balance sheet amounts represent average balance figures. Total assets $363000 Stockholders' equity-common 194500 Total stockholders' equity 288000 Sales revenue 116000 Net income 24500 Number of shares of common stock 8000 Common dividends 5500 Preferred dividends 5000 What is Whispering return on common stockholders' equity?
($24500 - $5000) ÷ $194500 = 10.03% (Net inc. - Pref. div.) ÷ com. st. eq.
Sunland Company has $2640000 of bonds outstanding. The unamortized premium is $38000. If the company redeemed the bonds at 101, what would be the gain or loss on the redemption?
($2640000 + $38000) - ($2640000 × 1.01) = $11600 (Face val. + unamor. prem.) - (face val. × 101%)
Three Major steps in the statement of cashflows
1) Determine net cash provided/used by operating activities by converting net income from an accrual basis to a cash basis. 2) Analyze changes in non current asset and liability account and record as investing and financing activities, or disclose as noncash transactions. 3) Compare the net change in cash on the statement of cash flow with the change in cash account reported on the balance sheet to make sure the amounts agree.
What types of things are included in the cost of land?
1: Cash Purchase price 2: Closing cost such as title attorney fees 3: Real estate brokers commissions 4: Accrued property taxes and other liens on the land assumed by the purchaser
Which one of the following events would not require a journal entry on a corporation's books?
2-for-1 stock split.
Assume that the Fitzgerald Corporation uses the indirect method to depict cash flows. Indicate where, if at all, long-term debt retired with cash would be classified on the statement of cash flows.
Financing activities section.
Marigold Corp. has 6000 shares of 5%, $100 par value, cumulative preferred stock and 12000 shares of $1 par value common stock outstanding at December 31, 2017. There were no dividends declared in 2015. The board of directors declares and pays a $54000 dividend in 2016 and in 2017. What is the amount of dividends received by the common stockholders in 2017?
54000 - (6000 × $100 × 0.05) - [($30000 × 2) - $54000] = $18000 Div. decl. - (Pref. sh. × PV/sh. × div. rate) - [(ann. div. × 2) - div. dec.]
Devor corporation issues 100, five-year, 10%, $1000 bonds dated Jan 1, 2017, at 100 (100% of face value). The entry to record the sale is Prepare the entry Devor would make to accrue interest on December 31 ($100,000 x 10% x 12/12)
Cash 100,000 Bonds Payable 100,000 Interest Expense 10,000 Interest Payable 10,000
Assume that the candlestick inc. bonds previously described sell at 102 rather than at 98. The entry to record the sale is:
Cash 102,000 Bonds Payable 100,000 Premium on bonds payable 2,000
Five thousand bonds with a face value of $2000 each, are sold at 106. The entry to record the issuance is
Cash 10600000 Premium on Bonds Payable 600000 Bonds Payable 10000000 (5000 × $2000) × 1.06 = $10600000 (Num. of bonds × $2000) × 1.06
Bramble Corp. typically sells subscriptions on an annual basis, and publishes 6 times a year. The magazine sells 88200 subscriptions in January at $8 each. What entry is made in January to record the sale of the subscriptions?
Cash 705600 Unearned Subscription Revenue 705600 $88200 × $8 = $705600
Five thousand bonds with a face value of $2000 each, are sold at 88. The entry to record the issuance is
Cash 8800000 Discount on Bonds Payable 1200000 Bonds Payable 10000000 (5000 × $2000) × 0.88 = $8800000 (Num. of bonds × $2000) × 88%
Assume that on January 1, 2017, Candlestick inc. sells $100,000, five-year, 10% bonds at 98 (98% of face value) with interest payable on Jan. 1 The entry to record the issuance is
Cash 98000 discount on bonds payable 2000 bonds payable 100,000
Windsor, Inc. issues 5000 shares of $10 par value common stock at $12 per share. When the transaction is recorded, credits are made to:
Common Stock $50000 and Paid-in Capital in Excess of Par Value $10000.
Disadvantages of a corporation
Continuous Life Corporation Management Goverment Regulations Additional Taxes
What is Common Stock
Corporation's basic ownership share; also generically called capital stock. Term used to describe the total amount paid in by stockholders for the shares they purchase.
The payroll tax expense account normally has a
Debit Balance
Common Stock
Declaration date: we are going to pay x dividend Measurement date: is the date they will issue Payment date: the date they pay
Which one of the following items is not necessary in preparing a statement of cash flows?
Determine the cash in each of the bank accounts.
Payroll Tax Expense
FICA + FUDA + SUDA
Which of the following show the proper effect of a stock split and a stock dividend?
Item Stock Split Stock Dividend Par value per share Decrease No change
Which of the following statements is not considered a disadvantage of the corporate form of organization?
Limited liability of stockholders.
Compton Inc. made a $500 ordinary repair to a piece of equipment. Compton's accountant debited this amount to the asset account, Equipment and credited Cash. Was this the correct entry and if not, why not?
No, the correct entry would be a debit to Maintenance and Repairs Expense and a credit to Cash.
Assume that the Quinn Corporation uses the indirect method to depict cash flows. Indicate where, if at all, income taxes paid would be classified on the statement of cash flows.
Operating activities section.
intangible assets
Rights, privileges, and competitive advantages that result from the ownership of long-lived assets that do not possess physical substance.
Premiums on bonds
Sale of bonds above face value causes the total cost of borrowing to be less than the bond interest paid. The borrower is not required to pay the bond premium at the maturity date of the bonds. Thus, the bond premium is considered to be a reduction in the cost of borrowing. Exp: Bonds Payable $100,000 add: Premium on bonds payable 2000 $102,000
Discounts on a bond
Sale of bonds below face value causes the total cost of borrowing to be more than the bond interest paid. The issuing corporation not only must pay the contractual interest rate over the term of the bonds but also must Pay the face value (rather than the issuance price) at maturity Exp: Bonds payable $100,000 Less: Discounts on bonds payable $2000 $98000
Advantages of a Corporation
Separate legal existence limited liability of stockholders transferable ownership rights ability to acquire capital continuous life
Which of the following is not a right or preference associated with preferred stock?
The right to vote.
Equipment costing $170000 with a salvage value of $18000 and an estimated life of 8 years has been depreciated using the straight-line method for 2 years. Assuming a revised estimated total life of 6 years and no change in the salvage value, the depreciation expense (rounded) for Year 3 would be
[($170000 - $18000) ÷ 8] × 2 = $38000; [($170000 - $38000) - $18000] ÷ (6 - 2) = $28500 [(Cost - sal. val.) ÷ 8] × 2= A/D; [(Cost - A/D) - sal. val.] ÷ (6 - 2)
Sheridan Company purchased machinery with a list price of $86000. They were given a 10% discount by the manufacturer. They paid $400 for shipping and sales tax of $4000. Sheridan estimates that the machinery will have a useful life of 10 years and a residual value of $35000. If Sheridan uses straight-line depreciation, annual depreciation will be
[($86000 × 0.90) + $400 + $4000 - $35000] ÷ 10 = $4680 ([List price × (1 - 0.10)] + ship. + sal. tax - sal. val.) ÷ 10 yrs
Treasury stock is
a corporation's own stock, which has been reacquired and held for future use.
If the market interest rate for a bond is higher than the stated interest rate, the bond will sell at
a discount.
preferred stock
a nonvoting share of ownership in a corporation that pays a fixed dividend A special type of stock whose owners, though not generally having a say in running the company, have a claim to profits before other stockholders do.
If the market rate of interest is lower than the contractual interest rate, the bonds will sell at
a premium.
Preferred stock issued in exchange for land would be reported in the statement of cash flows in
a separate schedule or note to the financial statements.
The information to prepare the statement of cash flows comes from all of the following sources except
adjusted trial balance.
The balance in the Accumulated Depreciation account represents the
amount charged to expense since the acquisition of the plant asset.
Those most responsible for the major policy decisions of a corporation are the
board of directors.
Bonds that are subject to retirement at a stated dollar amount prior to maturity at the option of the issuer are called
callable bonds.
The Paid-in Capital in Excess of Par Value is increased in the accounting records when
capital stock is issued at an amount greater than par value.
A company receives $184, of which $17 is for sales tax. The journal entry to record the sale would include a
credit to Sales Taxes Payable for $17.
Dividends in arrears are dividends on
cumulative preferred stock that have not been declared for a given period of time.
Cash from investing becomes less positive and cash from financing becomes more negative during the
decline phase.
The net effects on the corporation of the declaration and payment of a cash dividend are to
decrease assets and decrease stockholders' equity.
In the balance sheet, the account Discount on Bonds Payable is
deducted from bonds payable.
Treasury stock should be reported in the financial statements of a corporation as a(n)
deduction from total paid-in capital and retained earnings.
All of the following adjustments would be deducted in determining net cash provided by operating activities except a(n): decrease in accrued expenses payable. increase in inventories. gain on disposal of plant assets. depreciation expense.
depreciation expense.
The ability of a corporation to obtain capital is
enhanced because of limited liability and ease of share transferability.
If accounts payable have increased during a period
expenses on an accrual basis are greater than expenses on a cash basis.
Copyrights are granted by the federal government
for the life of the creator plus 70 years.
Secured bonds are bonds that
have specific assets of the issuer pledged as collateral.
A loss on disposal of a plant asset is reported in the financial statements
in the Other Expenses and Losses section of the income statement.
Using the indirect method, patent amortization expense for the period
is added to net income.
Goodwill
is only recorded when the purchase of an entire business occurs.
Par value
is the value assigned per share in the corporate charter.
The statement of cash flows
is used to assess an entity's ability to pay dividends and meet obligations.
Research and development costs
must be expensed when incurred under generally accepted accounting principles.
The indirect and direct methods of preparing the statement of cash flows are identical except for the
operating activities section.
Cash receipts from interest and dividends are classified as
operating activities.
Three opportunities of cash flow:
operating, investing, financing
The number of shares of issued stock equals
outstanding shares plus treasury shares.
Types of Intangible Assets
patents, copyrights, trademarks, franchises, goodwill
Tamarisk, Inc. has 12000 shares of 4%, $100 par value, cumulative preferred stock and 120000 shares of $1 par value common stock outstanding at December 31, 2017. If the board of directors declares a $30000 dividend, the
preferred stockholders will receive the entire $30000.
If disposal of a plant asset occurs during the year, depreciation is
recorded for the fraction of the year to the date of the disposal.
Intangible assets
should be reported as a separate classification on the balance sheet.
The contractual interest rate on a bond is often referred to as the
stated rate.
Secured note or bond means
that there is collateral
Depreciation Expense
the process of allocating the cost of an asset, such as equipment, to expense over the useful life of the asset. 1: Process of cost allocation, not asset valuation 2: Applies to land improvements, buildings, equipment NOT LAND 3: Depreciable, because the revenue producing ability of asset will decline over the assets useful life.
