Acct 206 Quizzes 9,10,11,12,13
Madison Company issued an interest-bearing note payable with a face value of $7,200 and a stated interest rate of 8% to Metropolitan Bank on August 1, Year 1. The note carried a one-year term. Based on this information alone, what is the amount of cash flow from operating activities reported on Madison's Year 1 statement of cash flows?
$0 The 7,200 borrowed is classifed as a financing activity not an operating activity
Riley Company borrowed $16,000 on April 1, Year 1 from Titan Bank. The note issued by Riley carried a one-year term and a 5% annual interest rate. Riley earned cash revenues of $820 during Year 1 and $430 during Year 2. Assume no other transactions. Based on this information alone, what is the amount of net income (loss) that will be reported on the Year 2 income statement?
$230 Interest expense = 16,000 x 0.05 x (3/12) = 200 Net income = 430 - 200 = 230
On January 1, Year 1, Mahoney Company borrowed $178,000 cash from Sun Bank by issuing a 5-year, 8% term note. The principal and interest are repaid by making annual payments beginning on December 31, Year 1. The annual payment on the loan equals $40,975. What is the amount of principal repayment included in the payment made on December 31, Year 1?
$26,735 178,000 x 0.08 = 14,240 40,975 - 14,240 = 26,735
On September 1, Year 1, West Company borrowed $24,000 from Valley Bank. West agreed to pay interest annually at the rate of 8% per year. The note issued by West carried an 18-month term. West Company has a calender year end/ What is the amount of interest expense that will be reported on West's income statement for Year 1?
$640 ( 24,000 x .08% x 4/12 = 640 )
For the year ended December 31, Year 1, Fields Company made cash payments of $56,800 for dividends, paid interest of $25,600, paid $34,800 cash to suppliers, and purchased equipment for $72,800 cash. What is the net cash used by investing activities for Year 1?
$72,800
If net cash from opertaing activities was $29,000, net cash used for investing activities was $(49,500) and the net change in cash was $56,100, what was net cash from/used for financing activities?
$76,600 56,100 - 29,000 + 49,500 = 76,600
A company's classified balance sheet shows current assets of $8,650 and current liabilities of $6,000. What is the company's current ratio?
1.44 to 1 ( 8,650 / 6,000 = 1.44 )
The following information is taken from the balance sheet of Atlanta Company: Current assets $1,428 Current liabilities $840 Property, Plant & Equipment 1,840 Noncurrent liabilities 760 Total assets $3,268 Total liabilities $1,600 What is Atlanta Company's current ratio?
1.7 to 1 ( 1,428 / 840 = 1.7 )
Kier Company issued $500,000 in bonds on January 1, Year 1. The bonds were issued at face value and carried a 3-year term to maturity. The bonds have a 5.50% stated rate of interest and interest is payable in cash on December 31 each year. Based on this information alone, what are the amounts of interest expense and cash flows from operating activities, respectively, that will be reported in the financial statements for the year ending December 31, Year 1?
27,500 and 27,500 500,000 x 0.055 = 27,500
Which of the following items would be classified as a cash flow from investing activities? 1) Issue common stock for cash 2) Payment on principal of note payable 3) Payment of dividends 4) Sale of equipment for cash
4 only
Montana Company was authorized to issue 120,000 shares of common stock. The company had issued 51,000 shares of stock when it purchased 8,000 shares of treasury stock. After the purchase of treasury stock, the number of outstanding shares of common stock was which of the following?
43,000 51,000 - 8,000 = 43,000
Which of the following entities would have a "Paid-in Capital in Excess" account in the equity section of the balance sheet?
A corporation
Which of the following correctly describes an installment note?
An installment note requires equal payments of interest and principal in which the amount of interest decreases over the life of the note.
How is treasury stock reported on a corporation's balance sheet?
As a deduction in determining total stockholders' equity
How is the cash paid to purchase land reported in the statement of cash flows?
Cash outflow from investing activites
Which form of business organization is established as a separate legal entity?
Corporation
What is another term used to describe unsecured bonds?
Debentures
Chico Company borrowed $40,000 on a four-year, 8% installment note. How will Chico record the issuance of this note?
Debit Cash 40,000 Credit Notes Payable 40,000
Which of the following describes the effect of remitting the sales tax to the tax authority?
Decrease Liabilites
All of the following are considered to be measures of a company's short-term debt-paying ability except:
Earnings per share
Employers must withhold unemployment taxes from employee salaries.
False
T or F: A corporation must record a liability for cash dividends on the date of record.
False
T or F: All lawsuits in which a company has been named a defendant should be either disclosed in the company's notes to the financial statements, or recognized as a liability on its balance sheet.
False
T or F: Lack of ease in transferability of ownership is one of the disadvantages of the corporate form of business organization.
False
T or F: Sales tax is reported as revenue when it is collected, and reported as an expense when it is paid.
False
T or F: The class or type of stock that every corporation must have is preferred stock.
False
T or F: Vogel Company purchased $8,000 of equipment by making a $500 down payment and issuing a note for the remainder. As a result of this event, assets increased by $8,000.
False Assets (equipment) increase by $8,000 and assets (cash) decreases by $500, for a net increase of $7,500. Liabilities (notes payable) increase by $7,500.
T or F: Van Buren Corporation issued 5,000 shares of $6 par common stock for $24 per share. For this transaction, Common Stock should be credited (increased) for $120,000.
False credit 30,000 5,000 x $6 = 30,000
Which of the following is not an item deducted from salary expense to arrive at net pay?
Federal unemployment tax
Which of the following statements is true regarding the straight-line method of amortizing discounts and premiums on bonds?
It assigns the same amount of interest to each interest period over the life of the bond
Fixit Corporation issued 14,000 shares of $10 par value common stock at its current market price of $20. How does this event affect total stockholders' equity?
It increases by $280,000
What is the name used for the type of secured bond that requires a pledge of a designated piece of property in case of default?
Mortgage bond
Which of the following terms designates the maximum number of shares of stock that a corporation may issue?
Number of shares authorized
Which of the following items would most likely not be classified as a current asset?
Office equipment
How are cash receipts from interest on a note receivable classified on a statement of cash flows prepared using the direct method?
Operating activity
Which of the following best describes how each share of par value stock issued is reported in the Common Stock account?
Par or stated value
Which of the following statements about par value is true?
Par value has little connection to the market value of the stock
Which of the following would not be a cash flow from financing activities?
Payment of interest on bonds payable
How does the amortization of the principal balance on an installment note payable affect the amount of interest expense recorded each succeeding year?
Reduces the amount of interest expense each year
Which of the following is one of the main advantages of using long-term debt financing instead of equity financing?
Tax-deductibillity of interest
On January 2, Year 1, Torres Corporation issued 17,000 shares of $12 par-value common stock for $18 per share. Which of the following statements is true?
The Paid-in Capital in Excess of Par Value account will increase by $102,000
Which of the following describes what happens when bonds are issued when the market interest rate is less than the stated interest rate?
The bonds are issued at a premium
A discount or premium on bonds payable can be defined by which of the following statements?
The difference between the market price on the issue date and the face value
Under what condition should a pending lawsuit be recognized as a liability on a company's balance sheet?
The outcome is probable and the amount can be reasonably estimated
Which of the following is not normally a preference given to the holders of preferred stock?
The right to vote before the common stockholders at the corporations annual meeting
On January 1, Year 1, Strang Incorporated issued bonds with a face value of $500,000, a stated rate of interest of 8%, and a 5-year term to maturity. The effective rate of interest was 10%. Interest is payable in cash on June 30 and December 31 of each year. Which of the following statements is true?
This bond was issued at a discount, and each semiannual cash payment is $20,000 500,000 x 0.08 x 1/2 = 20,000
T or F: When calculating interest expense on a 6-month note, multiply the principal by the interest rate, and then multiply by (6 ÷ 12).
True Interest rates are always expressed as annual rates, so it is necessary to multiply by 6 out of 12 months for a 6-month note
Select the correct statement regarding vertical analysis.
Vertical analysis of the income statement involves showing each item as a percentage of sales. Vertical analysis of the balance sheet involves showing each asset as a percentage of total assets. Vertical analysis examines two or more items from the financial statements of one accounting period.
The study of an individual financial statement item over several accounting periods is called:
horizontal analysis
Common methods of financial statement analysis include all of the following except:
incremental analysis
According to GAAP a contingent liability can be classified as
probable and estimate resonably possible, or probable but not estimate remote
