Accounting Final Exam Review (Prof. W)

If bonds are issued at a discount, it means that the

market interest rate is higher than the contractual interest rate

Recording depreciation each period is necessary in accordance with the

matching principle - Expense recognition

A note payable is in the form of

A written promissory note

All of the following are reported as current liabilities except

Bonds payable

A $1,000 face value bond with a quoted price of 98 is selling for

$980 (1000 x 0.98)

A company purchased land for $90,000 cash. Real estate brokers' commission was $5,000 and $7,000 was spent for demolishing an old building on the land before construction of a new building could start. Under the historical cost principle, the cost of land would be recorded at

$102,000 (90,000 + 5,000 + 7,000)

Company has 10,000 shares of 8%, $100 par value, cumulative preferred stock outstanding at 12/31/17. No dividends were declared in 2015 or 2016. If company wants to pay $375, 000 of dividends in 2017, common stockholders will receive:

$135,000; 375,000 - 240,000 (dividends)

Gagner Clinic purchases land for $175,000 cash. The clinic assumes $1,500 in property taxes due on the land. The title and attorney fees totaled $1,000. The clinic has the land graded for $2,200. What amount does Gagner Clinic record as the cost for the land?

$179,700 (175,000 + 1500 + 1000 + 2200)

A bond with a face value of $200,000 and a quoted price of 102.25 has a selling price of

$204,500

Wesley Hospital installs a new parking lot. The paving cost $40,000 and the lights to illuminate the new parking area cost $25,000. Which of the following statements is true with respect to these additions?

$65,000 debited to land improvements (40,000 + 25,000)

Hull Company acquires land for $86,000 cash. Additional costs are as follows: Removal of shed 300 Filling and grading 1,500 Salvage value of lumber of shed 120 Broker commission 1,130 Paving of parking lot 10,000 Closing costs 560 Hull will record the acquisition cost of land as:

$89370 (86,000 + 300 +1500 - 120 +1130 + 560)

Grimwood Trucking purchased a tractor trailer for $171,500. Interline uses the units-of-activity method for depreciating its trucks and expects to drive the truck 1,000,000 miles over its 12-year useful life. Salvage value is estimated to be $24,500. If the truck is driven 90,000 miles in its first year, how much depreciation expense should Grimwood record?

(171500 - 24500) ÷ 1,000,000 = 0.147 → 0.147 x 90,000 = 13,230

What is the formula for computing book value per share when a corporation has only common stock?

(Total assets - total liabilities) ÷ Number of shares of common stock outstanding

A company purchased factory equipment on April 1, 2015 for $160,000. It is estimated that the equipment will have a $20,000 salvage value at the end of its 10-year useful life. Using the straight-line method of depreciation, the amount to be recorded as depreciation expense at December 31, 2015 is

10,500 ; [(160,000 - 20,000) ÷ 10] x 9/12 = 10,500 (April to December)

The 2015 financial statements of Marker Co. contain the following selected data (in millions). Current Assets $75 Total Assets 140 Current Liabilities 40 Total Liabilities 90 Cash 8 The debt to assets ratio is:

140: 90 = 14:9

Equipment was purchased for $150,000. Freight charges amounted to $7,000 and there was a cost of $20,000 for building a foundation and installing the equipment. It is estimated that the equipment will have a $30,000 salvage value at the end of its 5-year useful life. Depreciation expense each year using the straight-line method will be

150,000 + 7,000 + 20,000 = 177,000 - 30,000/ 5 = 29400

A truck was purchased for $180,000 and it was estimated to have a $36,000 salvage value at the end of its useful life. Monthly depreciation expense of $3,000 was recorded using the straight-line method. The annual depreciation rate is

25% (3,000 x 12) / (180,000 - 36,000)

Sargent Corporation bought equipment on January 1, 2015. The equipment cost $360,000 and had an expected salvage value of $60,000. The life of the equipment was estimated to be 6 years. The depreciable cost of the equipment is

360,000 - 60,000 = 300,000

Four thousand bonds with a face value of $1,000 each are sold at 105. The entry to record the issuance is

4,200,000; 4000 x 1000 = 4M x 1.05

A company purchased office equipment for $40,000 and estimated a salvage value of $8,000 at the end of its 5-year useful life. The constant percentage to be applied against book value each year if the double-declining-balance method is used is

40%; (100% ÷ 5) x 2

Presto Company purchased equipment and these costs were incurred: Cash price $65,000 Sales taxes 3,600 Insurance during transit 640 Installation and testing 860 Total costs $70,100 Presto will record the acquisition cost of the equipment as

70,100

Company reported net income of $186,000 during 2017 and paid dividends of $26,000 on common stock. It also has 10,000 shares of 6%, $100 par value, noncumulative preferred stock outstanding and paid dividends of $60,000 on preferred stock. Common stockholder's equity for 2017 is:

9.0%

A legal document which summarizes the rights and privileges of bondholders as well as the obligations and commitments of the issuing company is called

A bond indenture

A prior period adjustment is:

A correction of an error that is recorded directly to retained earnings

The declining-balance method of depreciation produces

A decreasing depreciation expense each period

What is required for a corporation to pay a cash dividend?

A sufficient balance in retained earnings and cash necessary to pay the dividend

In the balance sheet the account Premium on Bonds Payable is

Added to bonds payable

A major disadvantage of a corporation is:

Additional taxes

The balance in the Accumulated Depreciation account represents the

Amount charged to expense since the acquisition of the plant asset

The cost of land does not include

Annual property taxes

The contractual interest rate is always stated as a(n)

Annual rate

Which is not an important date, which needs to be recognized in accordance with cash dividends?

Anything that's not: Needs to be recognized: declaration date + payment date

Bonds that are subject to retirement at a stated dollar amount prior to maturity at the option of the issuer are called

Callable bonds

On January 1, 2015, Carter Corporation issued $5,000,000, 10-year, 8% bonds at 102. Interest is payable annually on January 1. The journal entry to record this transaction on January 1, 2015 is

Cash................................................... 5,100,000 (5M x1.02) Bonds Payable....................................................5,000,000 Premium on Bonds Payable (102).............100,000

Admire County Bank agrees to lend Givens Brick Company $600,000 on January 1. Givens Brick Company signs a $600,000, 8%, 9-month note. The entry made by Givens Brick Company on January 1 to record the proceeds and issuance of the note is

Cash.......................600,000 Notes Payable.........600,000

Which of the following is not reported under additional paid-in capital?

Common stock

ABC Corporation issues 1,000 shares of $10 par value common stock at $12 per share. In recording the transaction, credits are made to:

Common stock $10,000 and Paid-in Capital in Excess of Par $2000

Bonds that may be exchanged for common stock at the option of the bondholders are called

Convertible bonds

All of the following factors in computing depreciation are estimates except

Cost

Depreciation is a process of

Cost allocation, not asset valuation. allocating the cost of an asset to expense over its useful life in a rational and systematic manner.

The cost of a purchased building includes all of the following except

Costs occurred after renovation

Bonds issued against the general credit of the borrower are called

Debenture bonds/ unsecured bonds

Companies with good credit ratings use _________________ bonds extensively.

Debenture/ unsecured

Entries for cash dividends are required on the:

Declaration date and the payment date

Interest may be included in the acquisition cost of a plant asset

During the construction period of a self-constructed asset

With an interest-bearing note, the amount of assets received upon issuance of the note is generally

Equal to the note's face value

The entry to record the issuance of an interest-bearing note credits Notes Payable for the note's

Face value

Employee payroll deductions include each of the following except

Federal unemployment taxes

Which of the following is not a major advantage of a corporate form of organization?

Government regulations

A large stock dividend is a distribution of stock that is?

Greater than 25% of the outstanding shares

In the stockholder's equity section of the balance sheet, common stock:

Is part of a paid-in capital

Which of the following assets does not decline in service potential over the course of its useful life?

Land

The four subdivisions for plant assets are

Land, land improvements, buildings, and equipment

Liabilities are classified on the balance sheet as current or

Long-term

Which of the following statements about small stock dividends is true?

Market price per share should be assigned to the dividend shares

Bonds that are secured by real estate are termed

Mortgage bonds

Which is not a disadvantage of a corporation?

NOT these: governmental regulation, corporate taxation, and corporate management

Which is not one of the 3 classes of stock?

NOT these: par value, no par value, stated value

Which is not an advantage of a corporation?

NOT these: separate legal entity, limited liability of stockholders, transferable ownership rights, continuous life, lack of mutual agency for stockholders, ease of capital accumulation, corporate management

Which of the following is usually not an accrued liability?

Notes payable

Most companies pay current liabilities

Out of current assets

Which of the following statements is false?

Par value and market price of a company's stock are the same

What type of stock has priority over common stock?

Preferred Stock

When a stockholder's equity statement is presented, it is not necessary to prepare a(n):

Retained earnings statement

All but one of the following is reported in a retained earnings statement. The exception is:

Sales revenue

A bond secured by specific assets set aside to redeem the bonds is called a

Sinking fund bond

Corporations are granted the power to issue bonds through

State laws

The depreciation method that applies a constant percentage to depreciable cost in calculating depreciation is

Straight line

Who elects the Board of Directors for a corporation?

The stockholders

In the stockholders' equity section, the cost of treasury stock is deducted from:

Total paid-in capital and retained earnings

The ledger of company shows common stock, common treasury stock, and no preferred stock. For this company, the formula for computing book value per share is:

Total stockholders' equity ÷ Number of shares of common stock outstanding

What is it called when a company re-purchases shares of its own stock?

Treasury Stock

Company sells 100 shares of $5 par value treasury stock at $13 per share. If the cost of acquiring the shares was $10 per share, the entry for sale should include credits to:

Treasury stock $1,000 and Paid-in Capital from Treasury Stock $300

Which one of the following items is not considered a part of the cost of a truck purchased for business use?

Truck license, insurance

Which of the following methods of computing depreciation is production based?

Units of activity

Preferred Stock may have priority over common stock except in:

Voting

A current liability is a debt that can reasonably be expected to be paid

Within one year, or the operating cycle, whichever is longer

Why do companies re-purchase shares of its own stock?

a) To use the shares to acquire another corporation b) To purchase shares to avoid a hostile takeover of the company c) To reissue them to employees as compensation d) To maintain a strong market for their stock or to show management confidence in the current price

Working capital is

current assets - current liabilities

The current ratio is

current assets÷current liabilities

Secured bonds are bonds that

have specific assets of the issuer pledged as collateral

The interest rate investors demand for loaning funds is the

market interest rate

The Modified Accelerated Cost Recovery System (MACRS) is a depreciation method which

specifies straight line