NEW MATERIAL FINAL ACTG 211

A stock split will A) have no effect on retained earnings. B) increase total paid-in capital. C) increase the total par value of the stock. D) have no effect on the par value per share of stock.

A - A stock split changes the par value and # of shares outstanding but does not result in an economic transaction for the company and there is no impact on the balance sheet or income statement.

If accounts receivable have increased during the period A) revenues on an accrual basis are less than revenues on a cash basis. B) revenues on an accrual basis are greater than revenues on a cash basis. C) revenues on an accrual basis are the same as revenues on a cash basis. D) expenses on an accrual basis are greater than expenses on a cash basis.

B - Accounts receivable increases with Sales on Credit and decreases from Cash Collections. Therefore, if the balance in Accounts Receivable grew during the year, then Sales made on credit were greater than the Cash collected.

On January 1, Shady Creek Resort borrowed $250,000 cash by signing a 10-year, 8% installment note requiring annual equal payments each December 31 of $37,258. What is the balance in the Installment Note account after the second annual payment? 8. 9. A) $250,000 B) $214,103 C) $0 D) $285,897

B - Amortization schedule Year 1: $250,000 * 8% = $20,000 in interest therefore principal paid is $17,258 (total payment $37,258). Year 2: ($250,000 - $17,258) * 8% = $18,619 in interest therefore principal paid is $18,639 (total payment $37,258). After these two payments are made the principal will be $214,103 ($250,000 - $17,258 - $18,639)

Dividends in arrears on cumulative preferred stock A) never have to be paid, even if common dividends are paid. B) must be paid before common stockholders can receive a dividend. C) should be recorded as a current liability until they are paid. D) enable the preferred stockholders to share equally in corporate earnings with the common stockholders.

B - Cumulative Preferred Stock requires that all dividends owed since the stock has been issued must be paid to the owner of the preferred stock before any dividends can be paid to common stockholders.

Colie Company had an increase in inventory of $120,000. The cost of goods sold was $490,000. There was a $30,000 decrease in accounts payable from the prior period. What were Colie's cash payments to suppliers? A) $640,000. B) $580,000. C) $370,000. D) $310,000.

A - Accounts Payable is: Beginning + Purchases on Credit - Cash Payments = Ending and Inventory is: Beginning + Purchases - COGS = Ending. Therefore, if Inventory increased $120,000 and COGS were $490,000 then Purchases were $610,000 ( = $120,000 + $490,000). If we put that amount as a Credit (Increase) in Accounts Payable and overall, there was a decrease of $30,000 then cash payments to vendors were $640,000.

On April 12, Hong Company agrees to accept a 60-day, 10%, $4,500 note from Indigo Company to extend the due date on an overdue account. What is the journal entry that Indigo Company would make, when it records payment of the note on the maturity date? (Use 360 days a year.) A) Debit Notes Payable $4,500; debit Interest Expense $75; credit Cash $4,575. B) Debit Notes Payable $4,500; credit Interest Expense $75, credit Cash $4,425. C) Debit Cash $4,575; credit Interest Revenue $75; credit Notes Payable $4,500. D) Debit Notes Payable $4,500; debit Interest Expense $112; credit Cash $4,612.

A - At maturity the principal of $4,500 will be repaid along with interest of $75 ($4,500 * 10% * 60/360) for a total cash payment of $4,575.

McLaughlin Company issued common stock for proceeds of $372,000 during 2014. The company paid dividends of $66,000 and issued a long-term note payable for $250,000 in exchange for equipment during the year. The company also purchased treasury stock that had a cost of $54,000. The financing section of the statement of cash flows will report net cash inflows of A) $252,000. B) $556,000. C) $306,000. D) $502,000.

A - Financing activities would include: Sale of common stock, payment of dividends and repurchase of treasury stock ($372,000 - $66,000 - $54,000 = $252,000). The issuance of a note for equipment is a 'non-cash' transaction.

If Lantz Company issues 5,000 shares of $5 par value common stock for $210,000, the account A) Common Stock will be credited for $25,000. B) Paid-in Capital in Excess of Par Value will be credited for $25,000. C) Paid-in Capital in Excess of Par Value will be credited for $210,000. D) Cash will be debited for $185,000.

A - If common stock has a par value then the amount put in the common stock account upon issuance of shares is par value * # of shares issued ($5 * 5,000 = $25,000). The difference between par and market value will go to the Paid-in Capital in Excess of Par Value account ($210,000-$25,000 = $185,000).

Investing activities include A) collecting cash on loans made. B) obtaining cash from creditors. C) obtaining capital from owners. D) repaying money previously borrowed.

A - Investing activities in a statement of cash flows relate to investments made in the business and/or to generate a return. Collecting principal funds on monies lent would qualify as 'investing'. All of the other options (B, C and D) are Financing activities.

Berman Inc. has 6,000 shares of 8%, $50 par value, cumulative preferred stock and 50,000 shares of$1 par value common stock outstanding at December 31, 2013, and December 31, 2014. The board of directors declared and paid an $18,000 dividend in 2013. In 2014, $72,000 of dividends are declared and paid. What are the dividends received by the common stockholders in 2014? A) $42,000. B) $36,000. C) $30,000. D) $24,000.

A - Preferred shareholders are owed dividends of $24,000 annually ($50 * 8% * 6,000). Therefore in year 1 preferred shareholders would receive all of the $18,000 in dividends declared and $6,000 would be in arrears; in year 2 the preferred shareholders would receive $30,000 ($6,000 from year 1 and $24,000 for year 2) which would leave $42,000 ($72,000 - $30,000) to be paid to common shareholders.

During the year, Salaries Payable decreased by $12,000. If Salary Expense amounted to $400,000 for the year, the cash paid to employees (including deductions from gross pay) is A) $412,000. B) $388,000. C) $400,000. D) $404,000.

A - Salaries Payable is: Beginning + Accrual of Wages (Salary Expense) - Payment of Wages = Ending. Therefore, if Accrual of Wages (Salary Expense) was $400,000 and the account decreased by $12,000 then total cash paid to employees was $412,000.

The statement of cash flows will not report the A) amount of check soutstanding at the end of the period. B) sources of cash in the current period. C) uses of cash in the current period. D) change in the cash balance for the current period.

A - The Statement of Cash Flows reflects the cash in and out flows during the period. Outstanding checks are not a cash flow.

The board of directors of Yancey Company declared a cash dividend of $1.50 per share on 42,000 shares of common stock on July 15, 2014. The dividend is to be paid on August 15, 2014, to stockholders of record on July 31, 2014. The effects of the journal entry to record the declaration of the dividend on July 15, 2014, are to A) decrease stockholders' equity and increase liabilities. B) decrease stockholders' equity and decrease assets. C) increase stockholders' equity and increase liabilities. D) increase stockholders' equity and decrease assets.

A - The date the Board of Directors of a Corporation 'declares' a dividend is the legally binding date and therefore the date the journal entry to record the liability is recorded - Debit to Dividends (reduces Stockholders' Equity) and Credit to Dividends Payable (increases Liabilities).

The date on which a cash dividend becomes a binding legal obligation is on the A) declaration date. B) date of record. C) payment date. D) last day of the fiscal year end.

A - The date the Board of Directors of a Corporation 'declares' a dividend is the legally binding date and therefore the date the journal entry to record the liability is recorded - Debit to Dividends (which will be closed to Retained Earnings at year-end) and Credit to Dividends Payable.

Which of the following adjustments to convert net income to net cash provided by operating activities is not added to net income? A) Gain on Disposal of Equipment. B) Depreciation Expense. C) Patent Amortization Expense. D) Depletion Expense.

A - Under the Indirect method for the Operating section of cash flows: Net Income + Depreciation - Gains + Losses +/- Changes in Operating Assets. Therefore, a gain on disposal would be subtracted, not added. All others are added because they are or are related to Depreciation (they are all non-cash expenses that impacted net income and need added back).

Which of the following transactions does not affect cash during a period? A) Write-off of an uncollectible account. B) Collection of an accounts receivable. C) Sale of treasury stock. D) Redeeming bonds before maturity.

A - Writing off an Accounts Receivable is accomplished with a Debit to Allowance for Doubtful Accounts and a Credit to Accounts Receivable. This entry has no cash impact.

Tomlinson Packaging Corporation began business in 2014 by issuing 30,000 shares of $5 par common stock for $8 per share and 5,000 shares of 6%, $10 par preferred stock for par. At year end, the common stock had a market value of$10. On its December 31, 2014 balance sheet, Tomlinson Packaging would report A) Common Stock of $300,000. B) Common Stock of $150,000. C) Common Stock of $240,000. D) Paid-in Capital of $200,000.

B - If common stock has a par value then the amount put in the common stock account upon issuance of shares is par value * # of shares issued ($5 * 30,000 = $150,000). The company does not record changes in the market value of its common stock after the stock has been issued.

Sizemore, Inc. has 10,000 shares of 5%, $100 par value, cumulative preferred stock and 100,000 shares of $1 par value common stock outstanding at December 31, 2014. If the board of directors declares a $30,000 dividend, the A) preferred stockholders will receive I/10th of what the common stockholders will receive. B) preferred stockholders will receive the entire $30,000. C) $30,000 will be held as restricted retained earnings and paid out at some future date. D) preferred stockholders will receive $15,000 and the common stockholders will receive $15,000.

B - Preferred shareholders must receive their dividends before Common shareholders can receive any portion of the dividend. Preferred dividends are Par * Dividend Rate (%) * # of shares which means that $50,000 is owed ($100 * 5% * 100,000 shares), however, given there is only $30,000 available (declared) the preferred shareholders would receive the entire amount.

What is the total stockholders' equity based on the following account balances? Common Stock $1,800,000 Paid-In Capital in Excess of Par 120,000 Retained Earnings 570,000 Treasury Stock 60,000 A) $2,190,000. B) $2,430,000. C) $2,550,000. D) $1,680,000.

B - Stockholders equity would be: Common Stock plus Paid-In Capital plus Retained Earnings minus Treasury Stock ($1,800,000 + $120,000 + $570,000 - $60,000 = $2,430,000).

The number of shares of issued stock equals A) unissued shares minus authorized shares. B) outstanding shares plus treasury shares. C) authorized shares minus treasury shares. D) outstanding shares plus authorized shares.

B - Total shares "Issued" are those "Outstanding" (held by stockholders) plus those held in "Treasury" by the corporation themselves.

A corporation purchases 20,000 shares of its own $10 par common stock for $25 per share, recording it at cost. What will be the effect on total stockholders' equity? A) Increase by $200,000. B) Decrease by $500,000. C) Increase by $500,000. D) Decrease by $200,000.

B - Treasury Stock is a contra-equity account which is therefore a 'decrease' to total equity. The entry would be a Debit to Treasury Stock ($25 * 20,000 shares) and a Credit to Cash.

In calculating cash flows from operating activities using the indirect method, a gain on the sale of equipment is A) added to net income. B) deducted from net income. C) ignored because it does not affect cash. D) not reported on a statement of cash flows.

B - Under the Indirect method for the Operating section of cash flows: Net Income + Depreciation - Gains + Losses +/- Changes in Operating Assets. Gains are subtracted because they are included in Net Income but do not reflect the cash component of the equipment sale, therefore they are taken out and the cash component of the equipment sell will be reported in the Investing section of the statement of cash flows.

Which of the following would be subtracted from net income using the indirect method? A) Depreciation expense. B) An increase in accounts receivable. C) An increase in accounts payable. D) A decrease in prepaid expenses.

B - Under the Indirect method for the Operating section of cash flows: Net Income + Depreciation - Gains + Losses +/- Changes in Operating Assets. Increases in Current Assets are subtracted (decreases are added). Increases in Current Liabilities are added (decreases are subtracted). Accounts Receivable is a current asset so an increase would be subtracted.

Catalina Company reported net income of $10,000 for the year ended December 31, 2014. During the year, accounts receivable increased $5,000, inventory increased $8,000, accounts payable decreased by $10,000, and depreciation expense of $6,000 was recorded. During 2014, operating activities A) used net cash of $3,000. B) used net cash of $7,000. C) provided net cash of $3,000. D) provided net cash of $7,000.

B - Under the Indirect method for the Operating section of cash flows: Net Income + Depreciation - Gains + Losses +/- Changes in Operating Assets. The result is $10,000 + Depreciation Expense $6,000 - AR Increase $5,000 - Inventory Increase $8,000 - A/P Decrease $10,000 = ($7,000) referred to as 'net cash used'.

Minette Company reported net income of$120,000 for the year ended December 31, 2014. During the year, inventories decreased by $24,000, accounts payable decreased by $36,000, depreciation expense was $27,000 and a gain on disposal of equipment of $9,000 was recorded. Net cash provided by operating activities in 2014 using the indirect method was A) $168,000. B) $126,000. C) $147,000. D) $144.000.

B - Under the Indirect method for the Operating section of cash flows: Net Income + Depreciation - Gains + Losses +/- Changes in Operating Assets. The result is $120,000 + decrease of Inventory $24,000 - decrease of Accounts Payable of $36,000 + Depreciation of $27,000 - Gain of $9,000 = $126,000 referred to as 'net cash provided'.

During June, Vixen Company sells $850,000 in merchandise that has a one year warranty. Experience shows that warranty expenses average about 3% of the selling price. Customers returned $14,000 of merchandise for warranty replacement during the month. The entry to settle the customer warranties is: A) Debit Warranty Expense $14,000; credit Estimated Warranty Liability $14,000 B) Debit Estimated Warranty Liability $14,000; credit Merchandise Inventory $14,000 C) Debit Estimated Warranty Liability $11,500; credit Merchandise Inventory $11,500 D) Debit Estimated Warranty Liability $25,500; credit Warranty Expense $25,500

B - Warranty repairs, when made, are paid for from the Estimated Warranty Liability account that has been established. The liability account is reduced (Debited) and either Inventory (if the product is replaced) or Cash (if a repair had to be paid for) must be reduced (Credited).

If accounts payable have increased during a period A) revenues on an accrual basis are less than revenues on a cash basis. B) expenses on an accrual basis are less than expenses on a cash basis. C) expenses on an accrual basis are greater than expenses on a cash basis. D) expenses on an accrual basis are the same as expenses on a cash basis.

C - Accounts payable increases with Purchases on Credit and decreases from Cash Payments made. Therefore, if the balance in Accounts Payable grew during the year the Purchases made on credit were greater than the Cash payments made.

If $2,500,000 of bonds are issued during the year but $4,000,000 of old bonds are retired during the year, the statement of cash flows will show a(n) A) net increase in cash of $1,500,000. B) net decrease in cash of $4,000,000. C) increase in cash of $2,500,000 and a decrease in cash of $4,000,000. D) net loss on retirement of bonds of$1,500,000.

C - Bond transactions will be in the Financing section and are shown on a 'gross' basis. The proceeds from sale of $2.5m and the payment of principal of $4m will be reported separately.

Contingent liabilities are recorded or disclosed unless they are: A) Probable and estimable. B) Probable and not estimable. C) Remote. D) Possible and estimable.

C - Contingent liabilities if Probable or Possible must be disclosed and/or accrued as a liability. Only those contingent liabilities that are deemed remote are not disclosed.

Athena Company provides employee health insurance that costs $5,000 per month. In addition, the company contributes an amount equal to 5% of the employees' $120,000 gross salary to a retirement program. The entry to record the accrued benefits for the month would include a A) Debit to Medical Insurance Payable $5,000. B) Debit to Employee Retirement Program Payable $6,000. C) Debit to Employee Benefits Expense $11,000. D) Debit to Payroll Taxes Expense $11,000.

C - Employee benefit expense is recorded each month to ensuring matching with the wage expense incurred by the employees. The total benefit expense for the month would be $5,000 for health insurance plus $6,000 for retirement (5% * $120,000). These are expenses to employer so must be debited to an appropriate expense account 'Employee Benefit Expense'.

Dividends in arrears are dividends on A) cumulative preferred stock that have been declared but have not been paid. Page 3 B) non-cumulative preferred stock that have not been declared for a given period of time. C) cumulative preferred stock that have not been declared for a given period of time. D) common dividends that have been declared but have not yet been paid.

C - If dividends on Cumulative Preferred Stock have not been declared and paid, the amount owed is referred to as 'dividends in arrears'.

If a gain of $45,000 is incurred in selling (for cash) office equipment having a book value of $180,000, the total amount reported in the cash flows from investing activities section of the statement of cash flows is A) $135,000. B) $180,000. C) $225,000. D) $45,000.

C - Sales of plant, property and equipment will be reported in the Investing section at the cash amount of the proceeds: $225,000 = $180,000 book value + gain $45,000.

Retro Company is authorized to issue 10,000 shares of 8%, $100 par value preferred stock and 500,000 shares of no-par common stock with a stated value of$1 per share. If Retro issues 5,000 shares of common stock to pay its recent attorney's bill of$25,000 for legal services on a land access dispute, which of the following would be the best journal entry for Retro to record? A) debit Legal Expense 5,000, credit Common Stock 5,000 B) debit Legal Expense 25,000, credit Common Stock 25,000 C) debit Legal Expense 25,000, credit Common Stock 5,000, credit Paid-in Capital in Excess of Stated Value-Common 20,000 D) debit Legal Expense 25,000, credit Common Stock 5,000, credit Paid-in Capital in Excess of Par - Common 20,000

C - Stock may be issued for things other than cash. The company is effectively paying for the legal costs with stock, therefore Legal Expense must be Debited and stock issuance recorded. The par or stated value ($1 * 5,000) will be recorded to the common stock account with the additional amount ($25,000 - $5,000) being recorded to Paid in Capital in Excess of Stated-Value. Although Par and Stated value function in the same way, discrete accounts and names would be used.

The authorized stock of a corporation A) only reflects the initial capital needs of the company. B) is determined by the board of directors. C) is indicated in its charter. D) must be recorded in a formal accounting entry.

C - The charter for a corporation specifies the number of total share the company is Authorized to issue.

Financing activities involve A) lending money. B) acquiring investments. C) issuing debt. D) acquiring long-lived assets.

C - The financing section of the statement of cash flows reflects transactions related to debt and equity of the company necessary to finance it's growth and operations. These commonly include: issuance of debt, payments on debt, issuance of stock, repurchase of stock, payment of dividends. The other options (A, B and D) are all items that would be reported in the Investing section of the statement of cash flows.

Hunter Company reported a net loss of $6,000 for the year ended December 31, 2014. During the Page 6 year, accounts receivable decreased $14,000, inventory increased $10,000, accounts payable increased by $15,000, and depreciation expense of$12,000 was recorded. During 2014, operating activities A) used net cash of $7,000. B) used net cash of $25,000. C) provided net cash of $25,000. D) provided net cash of $37,000.

C - Under the Indirect method for the Operating section of cash flows: Net Income + Depreciation - Gains + Losses +/- Changes in Operating Assets. The result is $(6,000) + Depreciation Expense $12,000 + AR Decrease $14,000 - Inventory Increase $10,000 + A/P Increase $15,000 = $25,000 referred to as 'net cash provided'.

During 2014, Bronze Company had $130,000 in cash sales and $970,000 in credit sales. The accounts receivable balances were $180,000 and $212,000 at December 31, 2013 and 2014, respectively. What was the total cash collected from all customers during 2014? A) $1,368,000. Page 7 B) $1,592,000. C) $1,132,000. D) $1,068,000.

D - Accounts Receivable is: Beginning + Sales on Credit - Write-Offs - Cash Collected equals Ending. Therefore $180,000 + $970,000 - X = $212,000 which means X is $938,000 + $130,000 of cash sales for a total of $1,068,000 of cash collections.

On January 1, Shady Creek Resort borrowed $250,000 cash by signing a 10-year, 8% installment note requiring annual equal payments each December 31 of $37,258. What is the journal entry to record the second annual payment? A) Debit Notes Payable $37,258; credit Cash $37,258. B) Debit Interest Expense $20,000; debit Notes Payable $17,258; credit Cash $37,258. C) Debit Interest Expense $37,258; credit Cash $37,258. D) Debit Interest Expense $18,619; debit Notes Payable $18,639; credit Cash

D - Amortization schedule Year 1: $250,000 * 8% = $20,000 in interest therefore principal paid is $17,258 (total payment $37,258). Year 2: ($250,000 - $17,258) * 8% = $18,6169 in interest therefore principal paid is $18,639 (total payment $37,358).

On the statement of cash flows, the cash flows from operating activities section would include A) receipts from the issuance of capital stock. B) receipts from the sale of investments. C) payments for the acquisition of investments. D) cash receipts from sales activities.

D - Operating activities in a statement of cash flows reflect the core activities of the business which would include cash received from sales. All of the other options (A, B and C) are Investing and Financing activities.

Zoum Corporation had the following transactions during 2014: 1. Issued $125,000 of par value common stock for cash. 2. Recorded and paid wages expense of $60,000. 3. Acquired land by issuing common stock of par value $50,000. 4. Declared and paid a cash dividend of $10,000. 5. Sold a long-term investment (cost $3,000) for cash of$3,000. 6. Recorded cash sales of $400,000. 7. Bought inventory for cash of $160,000. 8. Acquired an investment in Zynga stock for cash of $21,000. Page 5 9. Converted bonds payable to common stock in the amount of$500,000. 10. Repaid a 6 year note payable in the amount of $220,000.What is the net cash provided by operating activities? A) $305,000. B) $290,000. C) $240,000. D) $180,000.

D - Operating activities would include: Wages, Sales, Inventory (-$60,000 + $400,000 - $160,000 = $180,000)

Which of the following measures the expectations of future growth for the company: A) Debt to Equity Ratio B) Dividend Yield C) Growth Ratio D) PE Ratio

D - Price to Earnings Ratio (PE) is the ratio of share price of a stock to its earnings per share (EPS). PE ratio reveals the market expectations for the stock. Some analysts interpret this ratio as what price the market is willing to pay for a company's current earnings stream.

$100,000 in 5 year bonds are issued on January 1 at par by a company with a stated rate of interest of 6% with interest paid semi-annually on June 30 and December 31 (use 360 day year). The journal entry on December 31 of the first year is: A) Debit Bonds Payable $100,000; Credit Cash $100,000 B) Debit Interest Expense $3,000; Credit Interest Payable $3,000 C) Debit Interest Expense $6,000; Credit Cash $6,000 D) Debit Interest Expense $3,000; Credit Cash $3,000

D - The bonds have semi-annual interest payments, therefore: $100,000 * 6% * 180/360 = $3,000. Since the bonds were issued at par the cash payment and the interest expense are equal.

Treasury stock is A) stock issued by the U.S. Treasury Department. B) stock purchased by a corporation and held as an investment in its treasury. C) corporate stock issued by the treasurer of a company. D) a corporation's own stock, which has been reacquired and held for future use.

D - When a corporation purchases its own stock, the share remain 'issued' but are no longer 'outstanding' and are recorded in a contra-equity account called Treasury Stock.