ACC 122 Exam 2 Review

Under IFRS, interest paid can be reported as

A financing activity or an operating activity

At the end of the first year of operations, the total cost of the trading securities portfolio is $120,000. Total fair value is $115,000. The financial statements should show

A reduction of an asset of $5,000 in the current assets section and an unrealized loss of $5,000 in "Other expenses and losses."

Noler Company owns 30% of Lauer Company. For the current year, Lauer reports net income of $190,00 and declares and pays a $38,000 cash dividend.

To record equity in net income: 190,000×.30 Debit stock investments 57,000 Credit revenue from stock investments 57,000 To record dividends received: 30% × $38,000 Debit cash 11,400 Credit stock investments 11,400

Mouns company owns 40% interest in the stock of Darian Corporation. During the year, Darian pays $20,000 in dividends to Mouns, and reports $100,000 in net incomd. Mouns Company's investment in Darian will increase Mouns' net income by

Under the equity method, the investor reports its share of the investee's net income, in this case 40% of $100,000 = $40,000. The investor's share of dividends is recorded as a debit to Cash and a credit to the Stock Investments account.

IFRS requires that noncash items

be disclosed in the notes to the financial statements.

Available-for-sale securities are classified as

either short-term or long-term investments

When an investor owns between 20% and 50% of the common stock of a corporation, it is generally presumed that the investor

has significant influence on the investee and that the equity method should be used to account for the investment.

If accounts receivable have increased during the period,

revenues on an accrual basis are greater than revenues on a cash basis.

In the future, it appears likely that

the income statement and balance sheet will have headings of operating, investing, and financing, much like the statement of cash flows.

When listing accounts in the statement of cash flows worksheet, the Accumulated Depreciation account is shown

with accounts that have credit balances.

Wilson Company reported net income of $105,000 for the year ended December 31, 2016. During the year, inventories decreased by $15,000, accounts payable decreased by $20,000, depreciation expense was $18,000 and a gain on disposal of equipment of $9,000 was recorded. Net cash provided by operating activities in 2016 using the indirect method was

$105,000 + $15,000 - $20,000 + $18,000 - $9,000 = $109,000.

The beginning balance in accounts receivable is $44,000, the ending balance is $42,000, and sales revenue during the period are $129,000. What are cash receipts from customers?

$131,000

In Jude Company, land decreased $150,000 because of a cash sale for $150,000, the equipment account increased $60,000 as a result of a cash purchase, and Bonds Payable increased $120,000 from issuance for cash at face value. The net cash provided by investing activities is

$150,000 - $60,000 = $90,000.

Accounts receivable arising from sales to customers amounted to $80,000 and $70,000 at the beginning and end of the year, respectively. Income reported on the income statement for the year was $240,000. Exclusive of the effect of other adjustments, the cash flows from operating activities to be reported on the statement of cash flows is

$250,000

Accounts receivable arising from sales to customers amounted to $86,000 and $77,000 at the beginning and end of the year, respectively. Income reported on the income statement for the year was $290,000. Exclusive of the effect of other adjustments, the cash flows from operating activities to be reported on the statement of cash flows is

$290,000 + ($86,000 - $77,000) = $299,000.

Blaine Company had these transactions pertaining to stock investments: Feb. 1 Purchased 2,000 shares of Norton Company (10%) for $51,000. June 1 Received cash dividends of $2 per share on Horton stock. Oct. 1 Sold 1,200 shares of Horton stock for $33,000 less brokerage fees of $600. The entry to record the sale of the stock would include a

$32,400 - ($51,000 × 1,200 / 2,000) = $1,800 Gain.

Bush Company reported net income of $60,000 for the year. During the year, accounts receivable decreased by $8,000, accounts payable increased by $4,000 and depreciation expense of $5,000 was recorded. Net cash provided by operating activities for the year is

$60,000 + $8,000 + $4,000 + $5,000 = $77,000.

DV's Pest Control Products has the following information available: net income, $15,000; cash provided by operating activities, $21,000; cash sales, $65,000; capital expenditures, $11,000; and dividends paid, $3,000. What is DV's free cash flow?

$7,000

In Angel Company, the Land account decreased $90,000 as a result of a cash sale for $100,000 and recognized a gain on the sale of $10,000. The Equipment account increased $20,000 as a result of a cash purchase. Angel Company also purchased a truck for $25,000 by issuing a five-year note. Bonds payable increased from an issuance of bonds for cash for $50,000. The net cash provided by investing activities is

$80,000

Mize Company owns 30% interest in the stock of Lyte Corporation. During the year, Lyte pays $20,000 in dividends to Mize, and reports $300,000 in net income. Mize Company's investment in Lyte will increase Mize's net income by

$90,000 $300,000*30%

Randall Corporation purchased 1,000 shares of finister common stock at $60 per share plus brokerage fees of $4,000 as a short term investment. The shares were subsequently sold for $70 per share less brokerage fees of $3,500. The cost of securities purchased and the gain or loss on the sale of the investment were

1000×60=60000 60,000+4,000=64000 70×1000=70000 70000-3500=66500 66500-64000=2500 64000 cost and 2500 gain on sale.

All of the following are reasons corporations purchase investments in debt or equity securities except to

Avoid a takeover by disgruntled investors.

The equity method of accounting for long-term investments in stock should be used when the investor has significant influence over an investee and owns

Between 20% and 50% of the investee's common stock.

Under IFRS, the equity method of accounting for long-term investments in common stock should be used when the investor has significant influence over an investee and owns

Between 20% and 50% of the investee's common stock.

When a company owns more than 50% of the common stock of another company

Consolidated financial statements are prepared.

Uttinger Company has the following data at December 31, 2017. Securities Cost Fair Value Trading $121,200 $125,500 Available-for-sale 100,800 96,800

Debit Fair Value Adjustment-Trading 4,300 Credit Unrealized Gain- Income 4,300 Debit Unrealized Gain or Loss-Equity 4,000 Credit Fair Value Adjustment- Available for Sale 4,000 Company Name Balance Sheet (partial) December 31, 2017 Current Assets Short term investments at fair value $125,500 Investments Investments in Stock of Less than 20% 96,800 Stockholders' Equity Less: Unrealized Loss on Available-for-Sale Securities Company Name Income Statement (Detailed) For the Year Other revenues and gain Unrealized gain on trading securities $4,300

To record sale of bonds gains

Debit cash Credit gain Credit debt investments

Record interest revenue

Debit cash Credit interest receivable

Record purchase of bonds

Debit debt investments Credit cash

Adjusting entry for the accrual of interest

Debit interest receivable Credit interest revenue

To record sales of bonds loss

Debt cash Debit loss on sale of debt investments Credit debt investments

cost and fair value data for the trading securities of McMahon Company at December 31, 2017, are $110,000 and $85,000, respectively. Which of the following correctly presents the adjusting journal entry to record the securities at fair value?

Dec. 31 Unrealized loss-- 25,000 Fair Value adjustment-Trading 25,000

Flynn Company purchased 85 Rinehart Company 7%, 10-year, $1,530 bonds on January 1, 2017, for $130,050. The bonds pay interest annually on January 1. On January 1, 2018, after receipt of interest, Flynn Company sold 55 of the bonds for $71,528.

December 31, 2017 Interest Receivable = ($130,050 × 7%) = $9,104 January 1, 2018 Debt Investments = (55/85 × $130,050) = $84,150 Jan. 1 2017 debit debt investments 130,050 credit cash 130,050 Dec. 31 2017 interest receivable 9,104 130,050*7% interest revenue 9,104 Jan 1 2018 debit cash 9,104 credit interest receivable 9,104 Jan 1 2018 Debit cash 71,528 Debit Loss on sale of debt investments 12,622 Credit Debt Investment 84,150

Under the indirect method of preparing the statement of cash flows, which of the following is added to net income in the operating activities section?

Depreciation expense

Securities that are reported at amortized cost are

Held to maturity securities.

The following asset is not considered a financial asset under IFRS

Inventories

Which of the following is incorrect about the statement of cash flows?

It reconciles the ending cash account balance to the balance per the bank statement.

Wen Corporation obtained significant influence over Hunsaker Company by buying 30% of Hunsaker's 116,000 outstanding shares of common stock at a cost of $19 per share on January 1, 2017. On May 15, Hunsaker declared and paid a cash dividend of $116,000. On December 31, Hunsaker reported net income of $216,000 for the year.

Jan. 1 Debit Stock Investments 661,200 Credit Cash 661, 200 May 15 Debit Cash 34,800 116,00*30% Credit Stock Investments 34,800 Dec 31 Debit Stock Investments 64,800 216,000*30% Credit Revenue from Stock Investments 64,800

Kurtyka Corporation had the follwing transactions relating to debt investments: Jan. 1, 2017 purchased 20, $1,850, 10% Spiller Company bonds for $37,000. Interest is payable annually on January 1. Dec. 31, 2017 accrued interest on spiller company bonds. Jan. 1, 2018 received interest from Spiller Company bonds. Jan. 1, 2018 sold 12 spiller company bonds for $20,350.

Jan. 1,2017 debit debt investments 37,000 Credit cash 37,000. To record interest revenue Jan. 1, 2018 debit cash 3,700 37000×10% Credit interest receivable 3,700 To record sales of bonds Cash 20350 Loss on sale of debt 22000-20350=1850 Debt investments 12× 1850=22200 Prepare adjusting entry for accrual of interest dec 31 2017 Debit interest receivable 3700 Credit interest revenue 3700

Inc acquired 10% of the 416,000 shares of common stock of corp at a total cost of $15 per share on june 17, 2017. On sept 3, declared and paid a $116,000 dividend. Dec 31 reported net income.

June 17 debit stock investments 624,000 Credit cash 624,000. Sept 3 debit Cash 11,600 116,000 ×10% Credit dividend revenue 11,600 Dec 31 no entry 0 No entry 0

Kruger Corporation has the following long-term investments. [1] Common stock of Eidman, co. (10% ownership) held as available-for-sale securities, cost $109,500, fair value $116,500. [2] Common stock of Pickerill Inc. (30% ownership), cost $209, 500, equity $259,500.

Kruger Corporation Balance Sheet Investments Investment In Stock, at fair value 116,500 Investment In Stock, at Equity 259,500 Total Investments $376,000

When bonds investments are sold, the gain or loss on sale is the difference between the

Net proceeds and the cost of the bonds.

Under IFRS, the unrealized loss on trading investments should be reported

On the income statement reducing net income.

Which of the following is correct?

The majority of companies following GAAP and the majority following IFRS employ the indirect approach to the statement of cash flows.

Which of the following would not be reported under "Other revenues and gains" on the income statement?

Unrealized gain on available-for-sale securities.

At the end of the first year of operations, the total cost of the trading securities portfolio is $245,000. Total fair value is $250,000. The financial statements should show

an addition to an asset of $5,000 in the current assets section and an unrealized gain of $5,000 in "other revenues and gains"

Which of the following would not be an adjustment to net income using the indirect method?

an increase in land

Reporting investments at fair value is

applicable to both debt and stock securities

The sale of equipment would require a

debit to the cash t-account in the operating section.

Under IFRS

dividends received can be either an operating or investing activity.

Starting with net income and adjusting it for items that affected reported net income but which did not affect cash is called the

indirect method

The following asset is not considered a financial asset under IFRS:

inventories

Cash receipts from interest and dividends are classified as

operating activities

The best measure of a company's ability to generate sufficient cash to continue as a going concern is net cash provided by

operating activities