Accounting 212 Test 1

The times interest earned ratio is computed as

(Income Before Income Tax + Interest Expense) ÷ Interest Expense

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

gain on sale of land

Which of the following items appear on the corporate income statement before income from continuing operations?

income tax expense.

The primary purpose of a stock split is to

reduce the market price of the stock per share

A common measure of liquidity is

the accounts receivable turnover

One potential advantage of a corporation issuing bonds rather than additional common stock is

the interest expense reduces taxable income and, thus, income tax expense

Treasury stock that had been purchased for $5,600 last month was reissued this month for $8,500. The journal entry for the reissuance would include a credit to

Paid-In Capital from Sale of Treasury Stock for $2,900. Effect of Reissuance of Treasury Stock = $8,500 - $5,600 = $2,900 $2,900 will be credited to Paid-In Capital from Sale of Treasury Stock.

Which of the following increases cash?

borrowing money by issuing a 6-month note

Which of the following would appear as an unusual item on the income statement?

gain resulting from the disposal of a segment of the business

On the statement of cash flows prepared by the indirect method, the operating activities section would include

gains or losses on fixed assets

What type of analysis is indicated by the following? Increase (Decrease) Current YearPreceding YearAmountPercentCurrent assets$430,000$500,000$(70,000)(14%)Fixed assets1,740,0001,500,000240,000 16

horizontal analysis

If the market rate of interest is 7%, the price of 6% bonds paying interest semiannually with a face value of $500,000 will be

less than $500,000. If the market rate is greater than the contract rate, the bonds will sell for less than their face value. Thus, the price of the bond will be less than $500,000.

When using the spreadsheet (work sheet) method to prepare the statement of cash flows using the indirect method, the first step is to

list the title of each balance sheet account in the Accounts column

If $1,000,000 of 8% bonds are issued at 102 3/4, the amount of cash received from the sale is

$1,027,500. Amount of Cash Received from Sale of Bonds = Face Value of Bond × Bond Quote = $1,000,000 × 1.0275 = $1,027,500

Bonds Payable has a balance of $1,000,000 and Discount on Bonds Payable has a balance of $10,000. If the issuing corporation redeems the bonds at 97.5, what is the amount of gain or loss on redemption?

$15,000 gain. Gain on Redemption of Bonds = Carrying Amount of Bonds - Redemption Value of Bonds = ($1,000,000 - $10,000) - ($1,000,000 × 0.975) = $990,000 - $975,000 = $15,000

The charter of a corporation provides for the issuance of 100,000 shares of common stock. Assume that 45,000 shares were originally issued and 5,000 were subsequently reacquired. What is the amount of cash dividends to be paid if a $2-per-share dividend is declared?

Amount of Cash Dividends to Be Paid = Number of Shares Outstanding × Dividend per Share = (45,000 - 5,000) × $2 = 40,000 × $2 = $80,000

Nebraska Inc. issues 3,000 shares of common stock for $45,000. The stock has a stated value of $10 per share. The journal entry for the stock issuance would include a credit to Common Stock for

Amount of Common Stock Issued = Number of Shares Issued × Par Value of Each Share = 3,000 × $10 = $30,000

what is the asset turnover?

Asset Turnover = Sales ÷ Average Total Assets = $85,000 ÷ $250,000 = 0.34

The following income statement information is for Sadie Company: Sales$175,000Cost of merchandise sold115,000Gross profit$60,000 Using vertical analysis of the income statement for Sadie Company, determine the change in gross profit.

Change in Gross Profit = Gross Profit ÷ Sales = $60,000 ÷ $175,000 = 34.3%

Alma Corp. issues 1,000 shares of $10 par common stock at $14 per share. When the transaction is journalized, credits are made to

Common Stock, $10,000, and Paid-In Capital in Excess of Par—Common Stock, $4,000. Total Cash Raised through Issue of Shares = 1,000 × $14 = $14,000 Par Value of Common Stock Issued = Number of Shares Issued × Par Value of Each Share = 1,000 × $10 = $10,000 Paid-In Capital in Excess of Par—Common Stock = $14,000 - $10,000 = $4,000

Which of the following statements concerning taxation is accurate?

Corporations pay federal and state income taxes.

Based on the following data for the current year, what is the number of days' sales in receivables? Sales on account during year$584,000Cost of merchandise sold during year300,000Accounts receivable, beginning of year45,000Accounts receivable, end of year35,000Merchandise inventory, beginning of year90,000Merchandise inventory, end of year110,000

Number of Days' Sales in Receivables = Average Accounts Receivable ÷ Average Daily Sales = [($45,000 + $35,000) ÷ 2] ÷ ($584,000 ÷ 365 days) = 25 days

The charter of a corporation provides for the issuance of 100,000 shares of common stock. Assume that 40,000 shares were originally issued and 10,000 were subsequently reacquired. What is the number of shares outstanding?

Number of Shares Outstanding = Number of Shares Originally Issued - Number of Shares Reacquired = 40,000 - 10,000 = 30,000

se the information provided for Harding Company to answer the question that follow. Harding CompanyAccounts payable$40,000Accounts receivable65,000Accrued liabilities7,000Cash30,000Intangible assets40,000Inventory72,000Long-term investments110,000Long-term liabilities75,000Notes payable (short-term)30,000Property, plant, and equipment625,000Prepaid expenses2,000Temporary investments36,000 Based on the data for Harding Company, what is the quick ratio (rounded to one decimal place)?

Quick Ratio = Quick Assets ÷ Current Liabilities = (Accounts Receivable + Cash + Temporary Investments) ÷ (Accounts Payable + Accrued Liabilities + Notes Payable) = ($65,000 + $30,000 + $36,000) ÷ ($40,000 + $7,000 + $30,000) = $131,000 ÷ $77,000 = 1.7

what is the return on stockholders equity?

Return on Stockholders' Equity = Net Income ÷ Average Total Stockholders' Equity = $30,000 ÷ $220,000 = 13.6%

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

a decrease in accounts payable

The last item on the statement of cash flows prior to the schedule of noncash investing and financing activities reports

cash at the end of the period

On the statement of cash flows, the financing activities section would include all of the following except

cash paid for the interest on bonds payable

A disadvantage of the corporate form of business entity is

corporations are subject to more governmental regulations

The adjusting entry for the amortization of a discount on bonds payable is

debit Interest Expense, credit Discount on Bonds Payable

The following information is available from the current period financial statements: Net income$165,000Depreciation expense28,000Increase in accounts receivable16,000Decrease in accounts payable21,000 The net cash flows from operating activities using the indirect method is

$156,000. Cash flows from (used for) operating activities: Net income$165,000 Adjustments to reconcile net income to net cash flows from (used for) operating activities: Depreciation expense28,000 Changes in current operating assets and liabilities: Increase in accounts receivable(16,000) Decrease in accounts payable(21,000) Net cash flows from operating activities$156,000

On January 1, Year 1, Zero Company obtained a $52,000, 6.5%, 4-year installment note from Regional Bank. The note requires annual payments of $15,179, beginning on December 31, Year 1. The December 31, Year 2 carrying amount in the amortization table for this installment note will be equal to

$27,635

Sabas Company has issued and outstanding 20,000 shares of $100 par, 2% cumulative preferred stock and 100,000 shares of $50 par common stock. The following amounts were distributed as dividends: Year 1$10,000Year 245,000Year 390,000 Determine the dividend per share for preferred and common stock for the third year.

$3.25 and $0.25. Preferred stock dividend to be paid$40,000$70,000*$65,000**Preferred stock dividend paid10,00045,000 65,000 Arrears$30,000$25,000 $0 *$40,000 + $30,000 **$40,000 + $25,000 Common Stock Dividend to Be Paid in Year 3 = $90,000 - $65,000 = $25,000 Dividend per share: Preferred stock: $65,000 ÷ 20,000 = $3.25 Common stock: $25,000 ÷ 100,000 = $0.25

On January 1, a $2,000,000, 10%, 5-year bond was issued for $1,960,000. Interest is paid semiannually on January 1 and July 1. If the issuing corporation uses the straight-line method to amortize the discount on bonds payable, the semiannual amortization amount is

$4,000. Semiannual Discount Amortization Amount = (Face Value - Issue Price) ÷ (5 × 2) = ($2,000,000 - $1,960,000) ÷ 10 = $4,000

The cost of merchandise sold during the year was $50,000. Merchandise inventories were $12,500 and $10,500 at the beginning and end of the year, respectively. Accounts payable were $6,000 and $5,000 at the beginning and end of the year, respectively. Using the direct method of reporting cash flows from operating activities, cash paid for merchandise during the year is

$49,000. Cash Paid for Merchandise = Cost of Merchandise Sold - Decrease in Inventories + Decrease in Accounts Payable = $50,000 - ($12,500 - $10,500) + ($6,000 - $5,000) = $50,000 - $2,000 + $1,000 = $49,000

Bonds Payable has a balance of $1,000,000, and Discount on Bonds Payable has a balance of $15,500. If the issuing corporation redeems the bonds at 98.5, what is the amount of gain or loss on redemption?

$500 loss. Loss on Redemption = Redemption Value of Bonds - Carrying Value of Bonds = ($1,000,000 × 0.985) - ($1,000,000 - $15,500) = $985,000 - $984,500 = $500.

Cash dividends of $50,000 were declared during the year. Cash dividends payable were $10,000 and $5,000 at the beginning and end of the year, respectively. The amount of cash paid for dividends during the year is

$55,000. Cash Paid for Dividends During Year = Dividends Payable at Beginning of Year + Dividends Declared During Year - Dividends Payable at End of Year = $10,000 + $50,000 - $5,000 = $55,000

The balance sheets at the end of each of the first 2 years of operations indicate the following: Kellman CompanyYear 2Year 1Total current assets$600,000$560,000Total investments60,00040,000Total property, plant, and equipment900,000700,000Total current liabilities125,00065,000Total long-term liabilities350,000250,000Preferred 9% stock, $100 par100,000100,000Common stock, $10 par600,000600,000Paid-in capital in excess of par—common stock75,00075,000Retained earnings310,000210,000 Using the balance sheets for Kellman Company, if net income is $250,000 and interest expense is $30,000 for Year 2, what are the earnings per share on common stock for Year 2 (rounded to the nearest cent)?

Earnings per Share (EPS) on Common Stock for Year 2 = (Net Income − Preferred Dividends) ÷ Shares of Common Stock Outstanding = [$250,000 - ($100,000 × 9%)] ÷ ($600,000 ÷ $10) = $241,000 ÷ 60,000 = $4.02

Bonds payable, 6% (due in 15 years)$1,200,000Preferred 8% stock, $100 par (no change during the year)200,000Common stock, $50 par (no change during the year)1,000,000Income before income tax for year320,000Income tax for year80,000Common dividends paid60,000Preferred dividends paid16,000 Based on the data presented, what is the times interest earned ratio (round to two decimal places)?

Times Interest Earned = (Income Before Income Tax + Interest Expense) ÷ Interest Expense = [$320,000 + ($1,200,000 × 6%)] ÷ ($1,200,000 × 6%) = ($320,000 + $72,000) ÷ $72,000 = $392,000 ÷ $72,000 = 5.44

Kansas Company acquired a building valued at $210,000 for property tax purposes in exchange for 12,000 shares of its $5 par common stock. The stock is widely traded and selling for $15 per share. At what amount shoul

Value of Building = Market Price of Shares × Number of Shares Exchanged = $15 × 12,000 = $180,000