Chapter 9,10,,12,13,14 Accounting Exam #3

What is the total stockholders' equity based on the following data? Line Item Description Amount Common Stock $850,000 Excess of Issue Price Over Par 350,000 Retained Earnings (deficit) (70,000)

1,130,000 Explained: Total stockholders' equity = common stock + excess of issue price over par - retained earnings because it is a deficit (850,000 + 350,000 - 70,000 = 1,130,000)

Three factors to determine depreciation expense are...

1. Asset's initial cost 2. The asset's expected useful life 3. Asset's estimated residual value

On January 8, Cargo Co. issued a $90,000, 6%, 120-day note payable to Roadside Co. Using a 360-day year, what is the maturity value of the note?

91,800 = 90,000 + (90,000 x .06 x 120 / 360) *with a 120 day not*

On the statement of cash flows, the "cash flows from (used for) financing activities" section would include

Cash received form issuing common stock

On the statement of cash flows, the investing activities section would include

Cash received from the sale of equipment (investments)

Arnold Company issues a 5-year, 5% installment note for $29,000 to County Bank. Annual payments are $6,698. The journal entry to record the issuance of the installment note payable would include a

Cash. 29,000 Notes payable. 29,000

T/f : a cost that has been incurred may be classified as a fixed assets, an investment, or an expense

Classifying costs

Which of the following is not characteristic of a corporation?

Corporations have less regulatory costs than other business forms

The purchase and resale of treasury stock is normally recorded using the

Cost method.

Working capital comparisons between companies can be difficult when

D. One company is significantly larger than another

Which of the following should be deducted from net income in determining net cash flows from operating activities using the indirect method?

Decrease in accounts payable

Which of the following is not a cost of acquiring a natural resource?

Depletion expense (using up of the natural resource, not a cost of acquiring it)

Which of the following taxes is paid by the employee and the employer?

FICA

T/F: The statement of cash flows is not one of the basic financial statements

False

The operating cash flow available for a company to use after purchasing the fixed assets that are necessary to maintain current operations is called the

Free cash flow

A corporation may reacquire (purchase) its own stock for the following reasons except to

Increase the par value of the stock

A company purchases equipment for $32,000 cash. This transaction should be shown on the statement of cash flows as a(n)

Investing activities

Which of the following is not classified as an intangible asset?

Investment (they are long-lived assets, held for future resale)

Free cash flow is net cash flows from operating activities less cash used for

Investments in PP&E needed to maintain current operations

retained earnings

Is the cumulative total of net incomes - net losses - dividends

A company is involved in a lawsuit for which the contingent liability is remote. How should the liability be treated on the balance sheet?

It should not be recorded and need not be disclosed.

An asset with a book value of $4,725 was discarded, having no market value. How much will be recorded as a loss or gain on disposal?

Loss of $4,725

An installment note that is secured by the purchased asset is called a(n)

Mortgage and the note

All of the following are factors used in determining depreciation expense with the straight-line method except the asset's

Net book value

The entry to journalize the issuance of common stock at a price above par includes a credit to

Paid-In Capital in Excess of Par—Common Stock.

Which of the following statements regarding prior period adjustments is not true?

Prior period adjustments are reported as an adjustment to the ending balance of retained earnings in the current period

Which of the following transactions would be reported as an investing activity on the statement of cash flows?

Purchased long-term assets

Which of the following will never require a journal entry?

Stock spilt

Treasury stock that was purchased for $3,400 is sold for $4,000. As a result of these two transactions combined,

Stockholders' equity will be increased by $600 Explained: = cost of treasury stock (3,400) minus the amount for which it is sold (4,000) = 600 Selling treasury stock would increase stockholder's equity bc its an contra equity account

The more efficiently a company is using its assets the....

The higher the fixed asset turnover

Which of the following statements regarding a corporation is not true?

The owners are personally liable for corporate actions

When using the spreadsheet (work sheet) in preparing the statement of cash flows by the indirect method, the balance columns should total to:

Zero

Which of the following should be added to net income in determining the net cash flows from operating activities using the indirect method?

decrease in accounts receivable

Cash paid for preferred stock dividends should be shown on the statement of cash flows as a(n)

financing activity

Cash received from the issuance of a mortgage note payable would be classified as a(n)

financing activity

Which of the following is not considered a quick asset?

inventory

Which of the following represents an inflow of cash and therefore would be reported on the statement of cash flows?

issuance of long-term debt

Which of the following fixed assets is not depreciated?

land

Estimating and recording product warranty expense in the period of the sale best follows which of the following?

matching principle

All but which of the following will be included in the cost of a fixed asset?

mistakes in installation

The order of presentation of activities on the statement of cash flows is

operating, investing, financing

The number of shares remaining in the hands of shareholders after some stock has been reacquired is referred to as the shares

outstanding

Which of the following would not be classified as an operating activity?

payment of dividends

A major objective of a stock split is to

reduce the market price per share

Amortization and depreciation will be found on the income statement as

separate expenses.

Employees are not subject to

state unemployment tax

Last year, Clark Company had net income of $300,000 and preferred dividends of $25,000. The average number of common shares outstanding was 100,000. Its earnings per share were $2.75. This year, its income and preferred dividends are the same, but the company issued additional common shares of stock, increasing its common shares outstanding to 150,000 shares. What are its earnings per share in the current year?

A. $1.83 Explained: Earnings per share = (net income - preferred dividends) / average number of common shares outstanding = (300,000 - 25,000) / 150,000 = 1.83

An increase in the fixed asset turnover ratio from 2.0 to 2.7 indicates a(n)

Favorable change in the efficiency of using fixed assets to generate sales

Which of the following should be shown on a statement of cash flows in the financing activities section? A. Payment of cash tor entire a long-term note B. Purchase of a long-term investment in the common stock of another company C. Issuance of a long-term note to acquire land D. Proceeds from the sale of a building

Payment of cash to retire a long-term note

The agreed-upon monthly payment on an installment note normally consists of

Principal and interest

Cardinal Industries purchased a generator that cost $13,500. It has an estimated life of 5 years and a residual value of $1,000. It is estimated that it will be good for 5,000 hours. Compute the depreciation expense for the first full year using the straight-line method of depreciation.

2,500 = (13,500-1,000) / 5 years

A defined benefit plan requires an annual pension cost of $94,000 based on estimates of future pension liabilities. On December 31, the company pays $78,000 to the pension fund. The journal entry will include a

D. Credit to unfounded pension liability for 16,000 Why? Because the unpaid portion needs to be recognized as a liability. The full pension cost needs to be expensed

Which of the following can be found on the statement of cash flows? A. Cash of flows (used for) operating activties B. Total changes in stockholders' equity C. Changes in retained earnings D. Total assets

A. Cash of flows (used for) operating activties

All of the following assets will be included as intangible assets on the balance sheet except

buildings (ppe)

Cash paid to purchase long-term investments would be reported in.. A. The investing activties section of the statement of cash flows B. A separate schedule of noncash investing and financing activities C. The financing activties section of the statement of cash flows D. The operating activities section of the statement of cash flows

A. Investing activties section of the statement of cash flows

Under GAAP, cash received as interest and dividends is classified as

An operating activity

Based on the following data, what is the working capital? Account Amount Accounts payable $30,000 Accounts receivable 55,000 Accrued liabilities 4,000 Cash 55,000 Fixed assets 670,000 Intangible assets 40,000 Inventory 66,000 Long-term investments 80,000 Long-term liabilities 100,000 Prepaid expenses 1,000 Temporary investments 55,000

B. 198,000 Working capital = (cash + acc receivable + temporary investments + prepaid expenses + inventory) - (accounts payable + accrued liabilities) =

Luke Enterprises has 500,000 shares of $20 par common stock outstanding. On January 19, Luke Enterprises declared a 3% stock dividend. The market price of the stock on January 19 was $23 per share. The entry to journalize the stock dividend would include a

B. Credit to paid-in capital in excess of par-common stock for $45,000 Explained: 500,000 shares x 3% = 15,000 shares; 15,000 x $23 = 345,000; 15,000 shares x 20 = $300,000

Which of the following is the appropriate entry to journalize the declaration of cash dividends?

Cash dividends Cash dividend payable

The statement of cash flows is not useful for

calculating the net worth of a company

Earnings per share is computed as

net income - preferred dividends / average # of common shares outstanding

Cash flow per share is

not required to be reported on any statement

In the computation of earnings per share, preferred stock dividends are

subtracted from net income

Employees' weekly gross earnings were $6,400, and their federal income tax withholding was $1,113.50. Assuming the social security rate is 6.0% and the Medicare tax rate is 1.5%, what is the net amount to be paid to employees?

$4,806.50 = $6,400 - 1,113.50 - (6,400 x.06) - (6,400 x .015) = 6,400 - 1,113.50 - $384 - $96 = $4,806.50

All of the following are examples of current liabilities except

accounts receivable (current assets)

Cumulative preferred stockholders have the right to receive

dividends in arrears before common stockholders are paid any dividends.

The expensing of intangible assets is called

amortization

Cash dividends paid on common stock would be reported on the statement of cash flows in

the cash flows from financing activities section

Cash paid for equipment would be reported on the statement of cash flows in

the cash flows from investing activities section

Depletion can be compared to which of the following depreciation methods?

units of activity

Postretirement benefits may include all of the following except

vacation pay

Current liabilities are debts that are expected to be satisfied

within one year

A corporation has 90,000 shares of $25 par value stock outstanding. If the corporation issues a 3-for-1 stock split, the number of shares outstanding after the split will be

270,000 shares Explained: Stock spilt = # of shares outstanding of current shares x # of the spilt (90,000 x 3 = 270,000 shares)

Financial statement data for the year ending December 31 for Sharp Company are as follows: Line Item Description Amount Sales $1,209,500 Fixed assets: Beginning of year 270,000 End of year 320,000 Determine the fixed asset turnover ratio for the year.

4.1 ((270,000 + 320,000) / 2 = 295,000)); ((1,209,500 / 295,000 = 4.1))

Gemstones Miner Co. acquired mineral rights for $105,000,000. It is estimated that there are 2,500,000 tons of the resource; during the current year, 500,000 tons were mined and sold. What is the rate of depletion?

42 per ton (105,000,000 / 2,500,000 tons = 42 per ton)

A copy machine was purchased for $41,000 and had accumulated depreciation of $24,000. The machine was traded in for a new one that had a sticker price of $50,000. The vendor agreed to give a trade-in allowance for the old equipment in the amount of $8,000. How much will the company need to pay in cash, and what is the amount of the gain or loss?

42,000, loss of 9,000 Journal entry: Acc. Depreciation. 24,000 Loss one chance of equipment 9,000 Equipment (NEW). 50,000 Equipment (old). 41,000 Cash. 42,000

Puzzles Company sells merchandise with a 1-year warranty. In Year 1, sales consisted of 2,900 units. It is estimated that warranty repairs will average $20 per unit sold, and 40% of the repairs will be made in Year 1 and 60% in Year 2. In the income statement for Year 1, Puzzles Company should show warranty expense of

58,000 2,900 units x $20 per unit = 58,0000

Equipment was purchased at a cost of $73,000. The equipment had an estimated useful life of 5 years and a residual value of $3,000. Assuming the equipment was sold at the end of Year 4 for $10,000, which of the following will be included in the journal entry? (Assume the straight-line depreciation method.)

B. Debit to accumulated depreciation for $56,000 (73,000 - 3,000 / 5 = 14,000; 14,000 x 4 = 56,000; 73,000 - 56,000 = 17,000; 10,000 - 17,000= $7,000 loss) Journal entry: Acc. Depreciation. 56,000 Cash. 10,000 Loss on sale of equipment. 7,000 Equipment. 73,000

The entry a company uses to journalize fully funded pension rights for its salaried employees at the end of the year is

debit Pension Expense; credit Cash

Which of the following increases cash?

borrowing money by issuing a 6-month note

If a product is repaired under warranty, the seller would prepare a journal entry that includes a

debit to Product Warranty Payable.

On the statement of cash flows, the operating activities section would include

cash receipts from sales of merchandise

A gain or loss on the exchange of similar assets will be recorded if the transaction has

commercial substance

All of the following are considered fixed assets except

copyrights

Liabilities are classified on the balance sheet as

current and long term