Financial Accounting - Exam 3

link, Inc. has 1,000 shares of $10 par, 5% preferred stock, and 20,000 shares of $10 par common stock issued and outstanding. If the board of directors authorizes a $20,000 dividend, the payment to common shareholders will total $_______

$19,500 Divided to Common Shareholders = [Total Dividend]- [Dividend to Preferred Shareholders] Total Dividend: 20,000 x $10 = $20,000 Dividend to Preferred: 1,000 x $10 x (0.05) = $500 Dividend to Common Shareholders: $20,000 - $500 = $19,500

Zinc, Inc. has 10,000 shares of $5 par, 5% preferred stock, and 5,000 shares of $10 par common stock issued and outstanding. If the board of directors authorizes a $15,000 dividend, the payments to preferred shareholders will total _________.

$2,500 Paying PREFERRED shareholders, so use preferred stock #'s 10,000 shares x $5 x .05 = $2,500.

A company issued $50,000 of 8%, 10-year bonds on January 1. The bonds pay semi annual interest. The present value factor of a single amount of 20 periods at 8% is 0.2145.The present value of 10 periods at 4% is 0.6756. The present value of 20 periods at 4% is 0.4564. Determine the present value of the par value of the bonds.

$22,820 A 10-year bond paid semi-annually equals 20 payments So: use the present value of 20 periods at 4%: $50,000 x 0.4564 = $22,820

A company issues $100,000 of 6%, 5-year bonds dated January 1 that pay interest semiannually. The bonds are issued when the market rate is 8%. The present value tables indicate the present value factor of an annuity for 3% at 10 periods is 8.5302; and for 4% at 10 periods is 8.1109. To find the present value of the interest payments, multiply _______ by the present value factor _________.

$3,000 / 8.1109 Interest Payment = [Issued Value] x [Market Rate] x [0.5] *where 0.5 represents semi-annual interest payments Interest payment = [$100,000] x [6%] x [0.5] = $3,000. Then use present value that is 1/2 of market value = 4% = 8.1109

A company sells a 6-year, 6% bond with a par value of $100,000 when the market is 8% for $90,615 The bond requires semi-annual interest payments of $3,000. Using the effective interest amortization method, the company will recognize _____ for the amortization of the discount on the first semi-annual interest payment.

$3,000 is the cash payment. $3,000 is the semiannual cash payment. Market rate = 8% ---> so semi-annual market rate is (8% / 2 = 4%) -Carrying value of x semiannual market rate = bond interest expense (90,615) x (0.04) = $3,625 -Discount amortization = bond interest expense - cash payment $3,625 - $3,000 = $625.

There are five important steps to preparing a statement of cash flows. Rank the steps in order from first to last.

(1): Compute the net increase or decrease in cash. (2): Compute net cash provided or used by operating activities. (3): Compute net cash provided or used by investing activities. (4): Compute net cash provided or used by financing activities. (5): Compute the net cash from all sources and prove the change.

Which of the following statements about the statement of cash flows are correct? (1) In certain circumstances, it can replace the statement of retained earnings. (2) It is a detailed disclosure of cash flows. (3) The purpose is to report cash receipts and cash payments during a period.

(2) It is a detailed disclosure of cash flows. (3) The purpose is to report cash receipts and cash payments during a period.

Which of the following questions could not be answered from the statement of cash flows? (1) Where does a company spend its cash? (2) Can the company pay its debts? (3) Does the company have the resources to pursue opportunities? (4) What are the earnings-per-share of common stock?

(4) What are the earnings-per-share of common stock?

The statement of cash flows explains the difference between beginning and ending balances of cash and cash equivalents. A cash equivalent must satisfy which of the following criteria? (Choose all that apply) -Be readily convertible to a known amount of cash -Be backed by secured assets -Be held at a local institution -Be close to maturity

-Be readily convertible to a known amount of cash -Be close to maturity

A statement of stockholders' equity lists balances of:

-Retained Earnings -Common Stock Shares -Cash Dividends -Net Nncome "RECSS-CashNet"

Which of the following items are classified as noncash investing and financing activities? (Check all that apply.) -Retirement of debt by issuing stock -Issuance of common stock in exchange for land -Purchase of a building with a note -Repayment of a note with cash

-Retirement of debt by issuing stock -Issuance of common stock in exchange for land -Purchase of a building with a note

_________ stock is the number of shares that a corporation's charter allows it to sell.

Authorized

A company issues $50,000 of 8%, 10-year bonds dated January 1 that pay interest semiannually on June 30 and December 31, each year. If bonds are sold at par value, the issuer records the payment of principal at maturity with a debit to ______ in the amount of ______.

Bonds Payable / $50,000

A company issues $75,000 of 6%, 10-year bonds dated January 1 that pay interest semiannually on June 30 and December 31 each year. If bonds are sold at par value, the issuer records the payment of principal at maturity with a credit to ________ in the amount of ________.

Cash / $75,000

Identify the advantages of the corporate form of business.

Continuous life Ease of capital accumulation Limited liability

A company issues $90,000 of 5%, 5-year bonds dated January 1 that pay interest semiannually on June 30 and December 31 each year. If the issuer accepts $95,000 for the bonds, the issuer will record the sale with a (debit/credit) ______ to (Discount/Premium) ______ on Bonds Payable in the amount of $5,000.

Credit / Premium

The _________ method allocates total bond interest expense over the bonds' life in a way that yields a constant rate of interest.

Effective Interest

While the straight-line method of amortizing bond premium or discounts keeps the amortization equal over the life of the bond, the effective interest method keeps the __________ equal over the life of the bond.

Interest Rate

A(n) _______ is a legal agreement that helps to protect a lender if a borrower fails to make required payments on notes or bonds. This agreement gives the lender the right to be paid from the cash proceeds of the sale of the borrower's assets, as identified in the agreement.

Mortgage

Lakeview, Inc.'s statement of cash flows reports financing activities with payments that exceed receipts. This means that Lakeview had a net cash (inflow/outflow) from financing activities.

Outflow

Identify which of the following items is not a non-cash investing and financing activity that must be reported in a note to the statement of cash flows. (Check all that apply.) -Purchase of a plant asset with cash -Retirement of debt by issuing stock -Repayment of a note with cash -Purchase of a plant asset by issuing debt

Purchase of a plant asset with cash Repayment of a note with cash

The statement of cash flows reports noncash investing and financing transactions in _________.

a note or separate schedule

The statement of cash flows does not report the following transactions (1) between cash and cash equivalents (2) cash inflows (3) cash outflows

between cash and cash equivalents

Darby, Inc. has 25,000 shares of stock issued and outstanding. All the shares of stock have the same rights and characteristics; therefore, the stock is called

common

Treasury stock is a(n) ______ equity account, with a normal debit balance. It is reported on the stockholders' equity section of the balance sheet as a reduction to stockholders' equity.

contra

A ___________ is an entity created by law that is separate from its owners. Owners are called stockholders or shareholders. These entities can be privately or publicly held.

corporation

On June 1, the board of directors of Dylan, Inc. declare a cash dividend of $1 per share. On June 1, there are 1,000 shares of stock issued and outstanding. The journal entry required on the date of declaration will include a (debit/credit) to the Common Dividend Payable account.

credit

On May 25, Tyler, Inc. issues 100 shares of $10 par value preferred stock for $5,000 cash. The entry to record this transaction would include a (debit/credit) ________ to the preferred stock account in the amount of _______.

credit / $1,000 When Issuing preferred stock: credit the par value, not market value

Niren, Inc.'s charter authorizes 1,000,000 shares of stock at a par value of $1 per share. Niren sells 100 shares of stock at its initial offering for $1 per share. The journal entry to record this transaction will include a (debit/credit) to Common Stock, $1 par for _____

credit / $100 When shares are sold/ issued, Common stock will be Credited with the value of the shares (at part value).

A company issues $100,000 of 6%, 10-year bonds dated January 1 that pay interest semiannually on June 30 and December 31 each year. If the issuer accepts $103,000 for the bonds, the issuer will record the sale with a (debit/credit) ______ to Bond Payable in the amount of _______.

credit / $100,000

The Treasury Stock account is a contra equity account and therefore has a normal ________ balance.

debit

Dane, Inc. purchased 10 shares of its own $5 par value common stock for $20 per share. The journal entry to record this transaction would include a (debit/credit) to the Treasury Stock account in the amount of $_______

debit / $200

The format of a statement of cash flows includes reporting cash flows from three activities including:

financing operating investing "F.I.O."

A net cash ______ occurs when the receipts in a category exceed the payments.

inflow

The ______ value per share is the price at which a stock is bought and sold.

market

Star Bank provided cash to a customer, J. Brown, to pay for a building. Star required that Brown also sign _______ note payable, which allows the bank to be paid by the cash proceeds of the sale of the building if Brown fails to pay on the note.

mortgage

A(n) _______ occurs when the receipts in a category exceed the payments.

net cash inflow

A net cash ______ occurs when the payments in a category exceed the receipts.

outflow

Corporations can be separated into two types. A _____ held corporation does not offer its stock for public sale and usually has few stockholders. A _____ held corporation offers its stock for public sale and can have thousands of stockholders.

privately / publicly

A charter application usually must be signed by the prospective stockholders called incorporaters or _______. Then, it is filed with the appropriate state official.

promoters

On March 15, the board of directors of Richmond, Inc. declare a cash dividend of $1 per share. On March 15, there are 1,000 shares of stock issued and outstanding. The journal entry required on the date of declaration will include a debit to the _________ account.

retained earnings

The ___________ lists the beginning and ending balances of key equity accounts and describes the changes that occur during the period.

statement of stockholders' equity

Two of the biggest disadvantages of the corporate form of business are government regulation and corporate ________

taxation

Stockholders have the right to _____ at stockholders' meetings.

vote