Accounting Study Guide #3

If current assets amount to $150, total assets $350, current liabilities $65, and total liabilities $100, then the current ratio is 2.12 to 1 3.03 to 1 3.50 to 1 2.31 to 1

150/65 = 2.307 2.31 to 1

If interest is compounded annually, the total amount of interest on an $18,000 note payable for 4 years at 10% is 8,500 7,200 8,352 5,706

18000[1+.10/1]4 = 26353.8 26353.8 -18000 = 8,352

Pablos wants to save some money so that he can make a down payment of $3,000 on a car when he graduates from college 4 years ago from now. If he opens a savings account and earns 3% on his money, compounded annually, how much will he have to invest now? 3,000 2,910 2,664 2,520

2,664

A new company issues 2,000 shares of $5 par common stock in exchange for the services of a lawyer during its first month of business. The lawyer's normal fee is $15,000 for similar work. Which of the following would be recorded if the stock is not currently trading? A debit to Additional Paid-In Capital-Common Stock of $5,000 A debit to Common Stock for $10,000 A credit to Additional Paid-In Capital-Common Stock of $5,000 A credit to Common Stock for $15,000

2000 * 5 = 10000 15000 - 10000 = 5000 A credit to Additional Paid-In Capital-Common Stock of $5,000

If a company purchases $3,200 worth of inventory with terms of 2/10, n/30 on March 3 and pays April 2, then the amount paid to the seller would be 3,136 3,150 3,200 3,168

3,200

Fairchild Company acquired a building valued at $210,000 for property tax purposes in exchange for 6,000 shares of its $10 par common stock. The stock is widely traded and selling for $31 per share. At what amount should the building be recorded by Fairchild Company? 210,000 186,000 60,000 150,000

31 * 6000 = 186,000

Josh and Sara want to buy a house in 4 years. If the house will cost $180,000, how much must they deposit at the end of the every year for the next 4 years at 5% compounded annually in order to buy the house? 45,000 32,040 41,763 36,990

41,763

Kingston inherited $140,000 from an aunt. If Kingston decides not to spend his inheritance but to leave the money in his savings account until he retires in 15 years, how much money will he have assuming an annual interest rate of 8%, compounded semiannually? 7,851,900 454,020 308,000 509,880

454,020

Montana City Company began business on January 1, 2016. The corporate charter authorized issuance of 500 shares of $1 par value common stock and 400 shares of $4 par value, 3% cumulative preferred stock. What is the maximum amount that can be reported on the balance sheet for Common Stock and Preferred Stock, respectively, if all of the stock is issued? Common Stock Preferred Stock $500 $120 $5,000 $120 $500 $1,600 Not enough information provided

500 * 1 = 500 400 * 4 = 1600 500 1,600

Long-term assets are $800, current liabilities are $500, and long-term liabilities are $600. If the current ration is 2.5 to 1, then current assets are 1,250 2,000 200 625

500 * 2.5 = 1,250

On November 1, 2016, Brownsville Co. borrowed $80,000 from State Bank and signed a 12%, six-month note payable, all due at maturity. The interest on this loan is stated separately. At December 31, 2016, Brownsville Co.'s overall liability for this loan amounts to: 83,200 81,600 80,000 84,800

81,600

Which of the following statements with regard to large stock dividends is true? As a result of the stock dividend, retained earnings is reduced by the par value of the stock issued As a result of a 50% stock dividend, a stockholder who had previously held 20 shares will then hold 40 shares If the market price of the stock before a 50% stock dividend is $30 after the stock dividend it will be $45. Retained earnings is reduced by the market value of the stock issued in the stock dividend

As a result of the stock dividend, retained earnings is reduced by the par value of the stock issued

Ventures Enterprises' accountant determined the following: Common stock, 0.01 par value $50,000 Where would this item be reported on Venture's financial statements? In the Treasury Stock section of the balance sheet In the Stockholders' Equity section of the balance sheet On both the balance sheet and statement of retained earnings On the statement of retained earnings

In the stockholders' equity section of the balance sheet

If your bank gives a $2,000 loan at 8% per year, but deducts the interest in advance, is 8% the "real" rate of interest that you will pay? There is not enough information to answer this question accurately No. The interest rate is actually higher than 8 percent No. The interest rate is actually lower than 8 percent Yes

No. The interest rate is actually higher than 8 percent

Which of the following should be considered when a company decides to declare a cash dividend on common stock? The amount of authorized shares of common stock The cash available and the retained earnings balance The retained earnings balance only The book value of the company's stock

The cash available and the retained earnings balance

When a company purchases treasury stock, which of the following statements is true? Since treasury stock is held by the original issuer, it is no longer considered to be issued The cost of the treasury stock reduces stockholders' equity Dividends continue to be paid on the treasury stock because it is still issued Treasury stock is considered to be an asset because cash is paid for the stock

The cost of the treasury stock reduces stockholders' equity

What is the correct classification of the account: Discount on Notes Payable? an expense an asset a revenue a contra liability

a contra liability

Which of the following statements regarding the inclusion of liabilities on the statement of cash flow is true? a decrease in a current liability from the beginning to the end of the year is accompanied by an inflow of cash long-term liabilities generally affect the investing activities section a decrease in a current liability from the beginning to the end of the year is accompanied by a decrease of cash all current liabilities affect the operating activities section

a decrease in a current liability from the beginning to the end of the year is accompanied by a decrease of cash

Boston Trombley Company is a defendant in a lawsuit alleging damages of $3 billion. The litigation is anticipated to continue for several years, but no reasonable estimate can be made at this time regarding ultimate financial responsibility. This situation is an example of: A loss contingency that should be disclosed in the notes to Boston's financial statements An estimated liability that must appear in Boston Trombley Company's balance sheet An $3 billion expense to be recorded in the income statement during the year of the suit None of these. No accrual or disclosure is required in Boston's financial statements

a loss contingency that should be disclosed in the notes to Boston's financial statements

With regard to a corporation's stock, par value is an arbitrary amount that exist to fulfill legal requirements the amount at which the stock has been repurchased the current market price of the stock the amount at which treasury stock can be sold

an arbitrary amount that exist to fulfill legal requirements

The book value per share for a corporation is based on the excess of total assets over total liabilities the market price of the stock the costs of investments in stock of other corporations the amount stockholders would receive if they sold their shares back to the corporation

based on the excess of total assets over total liabilities

Port, Inc. paid a cash dividend on January 2 that had been declared prior to the end of its fiscal year. The entry to pay the dividend will decrease Cash Dividend Payable and increase Retained Earnings decrease Cash Dividend Payable and decrease Cash increase Cash and increase Cash Dividend Payable decrease Retained Earnings and increase Cash Dividend Payable

decrease Cash Dividend Payable and decrease Cash

The primary reason for a stock split is to decrease the number of shares outstanding decrease the market value of the stock increase the contributed capital of the contribution distribute cash to the investor

decrease the market value of the stock

Which of the following is true? the issuance of a stock dividend is an investing activity companies usually disclose cash flow per share on their financial statements financing activities can be inflows or outflows of cash companies usually disclose the sales price of each individual stock transaction on their financial statements

financing activities can be inflows or outflows of cash

An example of a current liability that must be accrued is accounts payable income taxes payable current maturity of long-term debt revenue received in advance

income taxes payable

Basic Solutions Company reported net earnings of 60,000, declared and paid cash dividends on its common stock in the amount of $40,000 during the year, and sold 3,000 shares of $2 par value common stock for $15 per share during the year. What effects would these transactions have on the stockholders' equity accounts shown below? Retained Earnings Common Stock increase increase increase decrease decrease decrease decrease increase

increase increase

On October 1, Lawrence Company borrowed $60,000 from Fourth National Bank on a 1-year, 7% note. If the company's fiscal year ends as of December 31, Lawrence should make an entry to increase interest expense, 4,200 notes payable, 1,050 prepaid interest, 3,150 interest payable, 1,050

interest payable, 1,050

Authorized stock represents the number of shares have been sold number of shares that have been repurchased by the corporation maximum number of shares that can be issued number of shares that are currently held by stockholders

maximum number of shares that can be issued

If a company has both common and preferred shares outstanding and wishes to calculate book value per share, stockholders' equity must be divided by the total number of both classes of stock net assets must be divided by the total number of both classes of stock net assets, less the redemption value of the preferred stock, must be divided by the number of shares of common stock outstanding stockholders' equity, less the cost of treasury shares held, must be divided by the number of common shares outstanding

net assets, less the redemption value of the preferred stock, must be divided by the number of shares of common stock outstanding

Which of the following is reported as a financing activity? sale of preferred stock stock split declaration of dividends conversion of preferred stock to common stock

sale of preferred stock