ACCT Test 2
On April 2, Year 1, Victor, Incorporated acquired a new piece of filtering equipment. The cost of the equipment was $220,000 with a residual value of $20,000 at the end of its estimated useful lifetime of 10 years. Victor uses a calendar year-end for financial reporting. Assume that in its financial statements, Victor uses straight-line depreciation and the half-year convention. Depreciation recognized on this equipment in Year 1 and Year 2 will be:
$10,000 in Year 1 and $20,000 in Year 2.
The Cash account in the records of Clear Windows shows a balance of $13,620 at September 30. The bank statement, however, shows a balance of $17,153 at the same date. The only reconciling items consist of a bank service charge of $27, a large number of outstanding checks totaling $5,340, and a deposit in transit. What is the adjusted cash balance in the September 30 bank reconciliation?
$13,620 − $27 = $13,593
Shown below is selected information from the statement of financial position (balance sheet) of Comoros, a small electronics store (dollar amounts are in thousands): Cash$ 76 Accounts receivable$ 136 Inventory$ 245 Total assets$ 905 Current liabilities$ 310 Noncurrent liabilities$ 380 What is the amount of working capital?
$147
Century Corporation issued 400,000 shares of $4 par value common stock at the time of its incorporation. The stock was issued for cash at a price of $16 per share. During the first year of operations, the company sustained a net loss of $100,000. The year-end balance sheet would show the balance of the Common Stock account to be:
$16 * 100,000 loss= 1,600,000
As of December 31, Year 1, Valley Company has $17,120 cash in its checking account, as well as several other items listed below: Bank credit card slips signed by customers$ 1,225 Money market fund balance$ 20,000 Investment in U.S. Treasury bills, mature within 90 days$ 40,000 Checks received from customers, but not yet deposited in the bank$ 1,580 Investment in 4,500 shares of Coca-Cola capital stock$ 49,000 What amount should be shown in Valley's December 31, Year 1, balance sheet as "Cash and cash equivalents"?
$17,120 + $1,225 + $20,000 + $40,000 + $1,580 = $79,925
Land is purchased for $256,000. Additional costs include a $15,300 fee to a broker, a survey fee of $2,400, $1,750 to construct a fence, and a legal fee of $8,500. What is the cost of the land?
$282,200 (everything added together besides construct fence)
The Cash account in the records of Hensley, Incorporated showed a balance of $3,100 at June 30. The bank statement, however, showed a balance of $3,900 at the same date. The only reconciling items consisted of a $700 deposit in transit, a bank service charge of $7, and a large number of outstanding checks. What is the "adjusted cash balance" at June 30?
$3,100- $7 =$3,093
On April 2, Year 1, Victor, Incorporated acquired a new piece of filtering equipment. The cost of the equipment was $480,000 with a residual value of $30,000 at the end of its estimated useful lifetime of 4 years. Victor uses a calendar year-end for financial reporting. If Victor uses straight-line depreciation with the half-year convention, the book value of the equipment at December 31, Year 2 will be:
$311,250.
Land and a warehouse were acquired for $890,000. What amounts should be recorded in the accounting records for the land and for the warehouse if an appraisal showed the estimated values to be $400,000 for the land and $700,000 for the warehouse? (Round intermediate percentage calculations to 1 decimal place.)
$323,960 for land; $566,040 for warehouse = 890,000*400,000/ (400,000+ $700,000) = 323,960 =890,000*700,000/(400,000 + 700,000)= 566,040
Beech Soda, Incorporated uses a perpetual inventory system. The company's beginning inventory of a particular product and its purchases during the month of January were as follows: QuantityUnit CostTotal CostBeginning inventory (January 1)20$ 15$ 300 Purchase (January 11) 16$ 21 336 Purchase (January 20)27$ 23621 Total. 63 $ 1,257 On January 14, Beech Soda, Incorporated sold 29 units of this product. The other 34 units remained in inventory at January 31. Assuming that Beech Soda uses the FIFO cost flow assumption, the cost of goods sold to be recorded at January 14 is:
(20 × $15) + (9 × $21) = $489
On April 2, Year 1, Victor, Incorporated acquired a new piece of filtering equipment. The cost of the equipment was $160,000 with a residual value of $20,000 at the end of its estimated useful lifetime of 4 years. Victor uses a calendar year-end for financial reporting. If Victor uses straight-line depreciation with the half-year convention, the book value of the equipment at December 31, Year 2 will be:
...
Cardinal Company's bank statement showed a balance at May 31 of $180,974. The only reconciling items consisted of a large number of outstanding checks totaling $51,847. At May 31, what balance should Cardinal's Cash account show?
180,947- 51,847= $129,127.
Zigma Corporation is authorized to issue 2,000,000 shares of $4 par value capital stock. The corporation issued half the stock for cash at $8 per share, earned $336,000 during the first three months of operation, and declared a cash dividend of $60,000. The total paid-in capital of Zigma Corporation after three months of operation is:
2,000,000*$4 = $8,000,000.
If a retail store has a current ratio of 2.5 and current assets of $195,000, the amount of working capital is:
2.5* 198,000= 78,000 198,000-78,000= 117,000 answer: 117,000
Shown below is information relating to the stockholders' equity of Grant Corporation at December 31, Year 1: 6% cumulative preferred stock, $100 par value; authorized, 10,000 shares; issued and outstanding, 6,000 shares$ 600,000Common stock, $3 par value; authorized, 500,000 shares; issued and outstanding, 300,000 shares$ 900,000Additional paid-in capital: preferred stock$ 60,000Additional paid-in capital: common stock$ 1,900,000Retained earnings$ 1,090,000 Dividends have been declared and paid for Year 1. The average issue price per share of Grant's preferred stock was:
600,000+60,000=$660,000 / 6,000= $110 $110
Land and a warehouse were acquired for $890,000. What amounts should be recorded in the accounting records for the land and for the warehouse if an appraisal showed the estimated values to be $580,000 for the land and $880,000 for the warehouse? (Round intermediate percentage calculations to 1 decimal place.)
89,000*580,000/(580,000+880,000)= 353,330 890,000* 880,000/ (580,000+880,000) = 536,670 $353,330 for land; $536,670 for warehouse
An asset that costs $97,600 and has accumulated depreciation of $82,000 is sold for $18,000. What amount of gain or loss will be recognized when the asset is sold?
A gain of $2,400. 97,600-82,000= 15600 18,000-15,600= 2,400
A high quality of earnings is indicated by:
A history of increasing earnings and conservative accounting methods.
The cost of a new windshield wiper on a delivery vehicle would be classified as:
A revenue expenditure.
Which of the following is not considered a cash equivalent?
Accounts receivable
While preparing the bank reconciliation, an accountant discovered that a $426 check returned with the bank statement had been recorded erroneously in the depositor's accounting records as $462. In preparing the bank reconciliation the appropriate action to correct this error would be to:
Add $36 to the balance per the depositor's records.
Which of the following is not a capital expenditure?
Advertising expenditures to introduce a new product line
Shown below is selected information from the statement of financial position (balance sheet) of Comoros, a small electronics store (dollar amounts are in thousands): Cash$ 69 Accounts receivable$ 129 Inventory$ 210 Total assets$ 870 Current liabilities$ 240 Noncurrent liabilities$ 345 What is the current ratio?
Assets/liabilities Cash+AR+INV/ Current liabilities
In a statement of cash flows, the term "cash" includes:
Bank accounts, cash on hand, and cash equivalents.
All things being equal, if investors expect earnings to increase substantially from current levels, the price to earnings ratio will:
Be quite high.
Which method will yield higher cash flows from operating activities?
Both direct and indirect methods will yield the same amount.
Cash flows from investing activities include all of the following except:
Cash proceeds from borrowing.
Net income differs from net cash flows from operations because of all the following except:
Cash received in exchange for goods sold in the normal course of operations.
Which of the following is not an example of internal control over cash?
Combining the functions of signing checks with the approval of expenditures
The ratio that measures total liabilities as a percentage of total assets is called the:
Debt ratio.
Which of the following would have no effect on Retained Earnings?
Declaration of a stock split
When preparing a bank reconciliation, outstanding checks will:
Decrease the balance per the bank statement.
The book value of equipment:
Decreases with the passage of time.
If the preferred stock of a corporation is cumulative:
Dividends in arrears must be paid on preferred stock before any dividend can be paid on common stock.
Which of the following would not be presented in the cash flows from operating activities section of the statement of cash flows when the direct method is used?
Dividends paid.
The valuation principle of "fair value accounting" applied to investments classified as marketable equity securities:
Enhances usefulness of the balance sheet in evaluating the financial position of a business.
Which of the following results in the inventory being stated at the most current acquisition costs?
FIFO
A cash dividend paid to shareholders is reported on the:
Financing activities section of the statement of cash flows.
Earnings per share figures are shown in the income statement:
For income from continuing operations, discontinued operations, and net income.
Execucomp Corporation's financial statements in the current year show a loss from discontinued operations, a prior period adjustment, and an unusual and infrequent gain. If Execucomp's income statement is prepared according to generally accepted accounting principles (as illustrated in your text), which of the following four items would appear second in sequence in the income statement?
Income from continuing operations
In a multiple-step income statement, income taxes are not classified as operating expenses because:
Income taxes do not contribute to the production of revenue.
After preparing a bank reconciliation, a journal entry would be required for which of the following:
Interest earned on the company's checking account.
Each of these categories of assets is normally shown in the balance sheet at current value, except:
Inventories.
Which of the following statements is not a characteristic of the LIFO method of pricing inventory?
Inventory is valued at relatively current costs.
During the current year, Carl Equipment Stores had net sales of $600 million, a cost of goods sold of $500 million, average accounts receivable of $75 million, and average inventory of $50 million. Carl Equipment's inventory turnover rate is:
Inventory turn over ratio= COGS/ AVERAGE INVENTORY 500mil / 50 mil = 10 times
Which of the following is not classified among the investing activities in a statement of cash flows?
Investment of cash made in the business by the owners.
Castle TV, Incorporated purchased 1,700 monitors on January 5 at a per-unit cost of $147, and another 1,700 units on January 31 at a per-unit cost of $258. In the period from February 1 through year-end, the company sold 3,200 units of this product. At year-end, 200 units remained in inventory. Assume that Castle TV, Incorporated uses the FIFO flow assumption. The cost of the 200 units in inventory at year-end is:
Jan cost * cost of units $258* 200 = 51,600
Castle TV, Incorporated purchased 1,000 monitors on January 5 at a per-unit cost of $185, and another 1,000 units on January 31 at a per-unit cost of $230. In the period from February 1 through year-end, the company sold 1,800 units of this product. At year-end, 200 units remained in inventory. Assume that Castle TV, Incorporated uses the LIFO flow assumption. The cost of the 200 units in the year-end inventory is: Multiple
LIF0 = $185* 200units = $37,000
During periods of inflation, which method will yield the smallest ending inventory and the largest cost of goods sold?
LIFO
Which of the following inventory approaches is not in accord with the physical flow of merchandise in most businesses?
LIFO
Which of the following assets is not subject to depreciation and does not decline in usefulness over time?
Land
An advocate of the just-in-time inventory system would advocate:
Maintaining a small inventory supply.
Public corporations are required by law or regulation to perform all of the following except:
Make regularly scheduled dividend payments to all stockholders.
Which of the following practices best illustrates efficient management of cash?
Management arranges for a loan to cover projected cash shortages during the production phase of the business cycle each year.
The price-earnings ratio is the:
Market price of a share of common stock divided by EPS.
Which of the following best describes the book value of a share of stock?
Net assets divided by the number of shares outstanding.
On common size income statements, each component in the income statement is represented as a percentage of:
Net sales
Dividends become a liability of a corporation:
On the date the board of directors declares the dividend.
On the basis of the above information alone, what is Global Data's net cash flow from financing activities?
Payment to retire bonds payable - Proceeds from borrowing at bank (note payable) = 147,000
During Year 2, the cash flows related to Global Data, Incorporated's lending and borrowing activities are summarized as follows: Cash lent to borrowers$ 137,100 Payment to retire bonds payable$ 376,500 Proceeds from borrowing at bank (note payable)$ 225,000 Interest received from borrowers$ 36,000 Interest payments made on bonds payable$ 46,500 On the basis of the above information alone, what is Global Data's net cash flow from financing activities?
Payment to retire bonds payable - proceeds from borrowing ar bank 376,000-225,000 = 151,500
An accelerated depreciation method:
Recognizes more depreciation expense in the early years of an asset's useful life and less in the later years.
The choice of inventory valuation method can help achieve each of the following independent goals, except:
Reduce cost of merchandise acquired from suppliers.
Armstrong Company recently acquired a new computer system. Which of the following costs associated with the computer should not be debited to the Equipment account?
Replacement of several circuit boards damaged during installation
An example of a non-cash investing or financing activity that is disclosed in a supplementary schedule accompanying the statement of cash flows is:
Selling land in exchange for a note receivable.
In a corporation's organization chart, who has/have the highest position?
Stock Holders
Which of the following is not a characteristic of the corporate form of organization?
Stockholders have authority to decide by majority vote the amount of dividends to be paid.
Which depreciation method is most commonly used among publicly owned corporations?
Straight-line
If a corporation has only common stock outstanding, which of the following constitutes legal capital at a particular date?
The amount in the Common Stock account.
The primary advantage of a just-in-time inventory system is:
The amount of money tied up in inventory is minimized.
When a corporation issues capital stock at a price higher than the par value:
The amount received in excess of par value becomes part of paid-in capital.
Harris Corporation's inventory of a particular product includes 200 units purchased at a per-unit cost of $50, and another 100 units purchased at a unit cost of $60. If Harris sells 10 units of this product, the cost of goods sold will be:
The answer will depend upon the inventory cost flow assumption in use.
A bank reconciliation explains the differences between:
The balance per bank statement and the cash balance per the accounting records of the depositor.
The gain on the disposal of equipment is recognized when:
The book value of the equipment is less than the value received.
When comparing the units-of-output method of depreciation with straight-line depreciation:
The depreciation expense in the first year may be greater than, equal to, or less under the units-of-output method.
Which of the following would usually be the greatest amount?
The number of shares authorized
The measurement that best reflects investors' expectations about future earnings is:
The price-earnings ratio
On January 1, Year 1, Juniper Corporation issued 60,000 shares of its total 200,000 authorized shares of $4 par value common stock for $8 per share. On December 31, Year 1, Juniper Corporation's common stock is trading at $12 per share. Assuming Juniper Corporation did not issue any more common stock in Year 1, how does the increase in value of its outstanding stock affect Juniper?
This increase in market value of outstanding stock is not recorded in the financial statements of Juniper Corporation.
When a bank reconciliation has been satisfactorily completed, the only related entries to be made in the depositor's records are:
To record items that explain the difference between the balance per the accounting records and the adjusted cash balance.
The net assets of a corporation are equal to:
Total assets − total liabilities.
The term paid-in capital means:
Total stockholders' equity minus retained earnings.
The board of directors' primary functions include all of the following except:
Transacting corporate business.
The changes in financial statement items from a base year to following years are sometimes expressed as:
Trend percentages.
Murphy, Inc., purchased a new inventory item two times during the month of April, as follows. Apr. 5100 units @ $5.00Apr. 15100 units @ $5.05 a. What is the amount of the ending inventory of this item on April 30 if the company has sold 75 units and uses the LIFO inventory method? b. What is the amount of the ending inventory of this item on April 30 if the company has sold 75 units and uses the FIFO inventory method?
Units in ending inventory: 100 + 100 − 75 = 125 units LIFO: (25 @ $5.05) + (100 @ $5.00) = $626.25 FIFO: (25 @ $5.00) + (100 @ $5.05) = $630 The difference is only $3.75 due to the relatively small difference in unit price of the two purchases ($0.05).
The excess of current assets over current liabilities is called:
Working capital.
Capital expenditures are recorded as:
an asset
Shown below is information relating to the stockholders' equity of Brookdale Corporation at December 31, Year 1: 11% cumulative preferred stock, $130 par value; authorized, 100,000 shares; issued and outstanding, 10,000 shares$ 1,300,000Common stock, $1.25 par value; authorized, 1,000,000 shares; issued, 600,000 shares (of which 6,000 are held in treasury)750,000Additional paid-in capital: Preferred stock500,000Common stock900,000Treasury stock transactions6,000Treasury stock (at cost: 6,000 common shares)(192,000)Retained earnings1,350,000 What was the average issue price per share of common stock?
common stock = 750,000 additional paid-in capital:common stock= 900,000 =900,000+750,000= 1,650,000 average issue price per share of common stock= common shareholder paid in capital/ number of common share issued =1,650,000/ 600,000 = $2.75
Responsibility for selection of the depreciation methods used in financial reporting rests with:
company management
When short-term investments appear in the balance sheet at their current market values, it is an exception to the ______ principle.
cost
The debt ratio is used primarily as a measure of:
creditors long term risk
What is the quick ratio?
current assets / current liabilities
All of the following are measures of liquidity except:
debt ratio
The current ratio will be _______________ the quick ratio.
greater than or equal to
Financial assets include all of the following except:
inventories
Short-term creditors are most likely to use the quick ratio instead of the current ratio in evaluating the solvency of a company with large, slow-moving:
inventories
When a stock dividend is declared, total stockholders' equity will:
not change
In a statement of cash flows, collections of accounts receivable are classified as:
operating activity
On the basis of the above transactions alone, determine the net cash flow from financing activities.
payment of purchase equipment + Payment of wages = 285,000
One number expressed as a percentage of another is called:
ratios
Which of the following does not decrease the cash flow from operating activities?
the purchase of operating equipment
Most preferred stocks have one or more of the following characteristics, except:
voting rights
