ACC 252 Exam 1

Charlene Tilson and Jade Petricka decide to organize the Petson partnership. Tilson invests $15,000 cash, and Petricka contributes $12,000 cash and two assets from her sole proprietorship (accounts receivable $9,000 less allowance for doubtful accounts $1,000, and land having a book value of $7,000). Prepare the entry to record Petricka's investment in the partnership, assuming the net realizable value of the receivables is $7,500 and the land has a fair value of $10,000.

(DR) Cash ... 12,000 (DR) Accounts Receivable ... 9,000 (DR) Land ... 10,000 (CR) Allow. for Doubtful Accts. ... 1,500 (CR) Petricka, Capital ... 29,500

Issued 2,000 shares of $100 par value preferred stock for cash at $120 per share. Journalize the transaction.

(DR) Cash ... 240,000 (2,000 x $120) (CR) Preferred Stock ... 200,000 (2,000 x $100) (CR) Paid-in Capital in Excess of Par— Preferred Stock ... 40,000 (2,000 x $20)

Issued 50,000 shares of $1 par value common stock for cash of $360,000 Journalize the transaction.

(DR) Cash ... 360,000 (CR) Common Stock ... 50,000 (50,000 x $1) (CR) Paid-in Capital in Excess of Par— Common Stock ... 310,000

On April 10, Leury Corporation issues 3,000 shares of $5 par value common stock for cash at $14 per share. Journalize the issuance of the stock. Prepare entries for issuance of par value common stock.

(DR) Cash ... 42,000 (3,000 x $14) (CR) Common Stock ... 15,000 (3,000 x $5) (CR) Paid-in Capital in Excess of Par—Common Stock ... 27,000 (3,000 x $5)

M. Gomez (beginning capital $50,000) and I. Inez (beginning capital $80,000) are partners. During 2020, the partnership earned net income of $60,000, and Gomez made drawings of $15,000 while Inez made drawings of $20,000. a.) Assume the partnership income-sharing agreement calls for income to be divided 55% to Gomez and 45% to Inez. Prepare the journal entry to record the allocation of net income.

(DR) Income Summary ... 60,000 (CR) Gomez, Capital (55%) ... 33,000 (CR) Inez, Capital (45%) ... 27,000

M. Gomez (beginning capital $50,000) and I. Inez (beginning capital $80,000) are partners. During 2020, the partnership earned net income of $60,000, and Gomez made drawings of $15,000 while Inez made drawings of $20,000. c.) Assume the partnership income-sharing agreement calls for income to be divided with a salary of $40,000 to Gomez and $30,000 to Inez, interest of 10% on beginning capital, and the remainder divided 50%-50%. Prepare the journal entry to record the allocation of net income.

(DR) Income Summary ... 60,000 (CR) Gomez, Capital ... 33,500 [$40,000 + $5,000 − ($23,000 x 50%)] (CR) Inez, Capital ... 26,500 [$30,000 + $8,000 − ($23,000 x 50%)]

M. Gomez (beginning capital $50,000) and I. Inez (beginning capital $80,000) are partners. During 2020, the partnership earned net income of $60,000, and Gomez made drawings of $15,000 while Inez made drawings of $20,000. b.) Assume the partnership income-sharing agreement calls for income to be divided with a salary of $30,000 to Gomez and $20,000 to Inez with the remainder divided 55% to Gomez and 45% to Inez. Prepare the journal entry to record the allocation of net income.

(DR) Income Summary ... 60,000 (CR) Gomez, Capital ... 35,500 [$30,000 + ($10,000 x 55%)] (CR) Inez, Capital ... 24,500 [$20,000 + ($10,000 x 45%)]

Issued 4,000 shares of $1 par value common stock to attorneys in payment of a bill for $35,000 for services performed in helping the company to incorporate. Journalize the transaction.

(DR) Organization Expense ... 35,000 (CR) Common Stock ... 4,000 (4,000 x $1) (CR) Paid-in Capital in Excess of Par— Common Stock ... 31,000

On June 1, Omar Corporation purchases 600 shares of its $5 par value common stock for the treasury at a cash price of $10 per share. On August 15, it sells 400 shares of the treasury stock for cash at $13 per share. Journalize the two treasury stock transactions

(DR) Treasury Stock ... 6,000 (600 x $10) (CR) Cash ... 6,000 -------------------------------------------------------------- Cash (400 x $13) 5,200 (CR) Treasury Stock ... 4,000 (400 x $10) (CR) Paid-in Capital from Treasury Stock ... 1,200 (400 x $3)

Purchased 2,000 shares of treasury stock for $70,000. Journalize the transaction.

(DR) Treasury Stock ... 70,000 (CR) Cash ... 70,000

After liquidating noncash assets and paying creditors, account balances in Mann Co. are Cash $33,000; Zach, Capital (Cr.) $13,000; Put, Capital (Cr.) $10,000; and Nam, Capital (Cr.) $10,000. The partners share income equally. Journalize the final distribution of cash to the partners.

(DR) Zach, Capital ... 13,000 (DR) Put, Capital ... 10,000 (DR) Nam, Capital ... 10,000 (CR) Cash ... 33,000

Retained Earnings Equation

Beginning Retained Earnings + Net Income - Dividends = Ending Retained Earnings

On what Dividend Dates do you journalize?

Date of Declaration Date of Payment

What type of account is Dividend Distributable?

Liability

Giovanni Corporation has 70,000 shares of common stock outstanding. It declares a $2 per share cash dividend on November 15 to stockholders of record on December 15. The dividend is paid on December 31. Prepare the entries on the appropriate dates to record the declaration and payment of the cash dividend.

Nov. 15 Cash Dividends ... 140,000 (70,000 x $2/share) (CR) Dividends Payable 140,000 Dec. 31 (DR) Dividends Payable ... 140,000 (CR) Cash ... 140,000

What type of account is Retained Earnings?

Stockholders' Equity

(ch.12) Which of the following is not a characteristic of a partnership? a. Taxable entity. b. Co-ownership of property. c. Mutual agency. d. Limited life.

a. Taxable entity.

Encore Inc. declared an $80,000 cash dividend. It currently has 3,000 shares of 7%, $100 par value cumulative preferred stock outstanding. It is one year in arrears on its preferred stock. Howmuch cash will Encore distribute to the common stockholders? a. $38,000. b. $42,000. c. $59,000. d. None.

a. $38,000 Preferred- (3,000 x .07 x $100 x 2 years = 42,000) Common- (80,000-42,000)

(ch.12) Ben and Sam Jenkins formed a partnership. Ben contributed $8,000 cash and a used truck that originally cost $35,000 and had accumulated depreciation of $15,000. The truck's fair value was $16,000. Sam, a builder, contributed a new storage garage. His cost of construction was $40,000. The garage has a fair value of $55,000. What is the combined total capital that would be recorded on the partnership books for the two partners? a. $79,000. b. $60,000. c. $75,000. d. $90,000.

a. $79,000. $8,000 (cash) + $16,000 (fair value of truck) + $55,000 (fair value of the new storage garage)

Total stockholders' equity (in the absence of treasury stock) equals: a. Total paid-in capital + Retained earnings. b. Paid-in capital + Capital stock + Retained earnings. c. Capital stock + Additional paid-in capital − Retained earnings. d. Common stock + Retained earnings.

a. Total paid-in capital + Retained earnings.

XYZ, Inc. 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 the sale should include credits to: a. Treasury Stock $1,000 and Paid-in Capital from Treasury Stock $300. b. Treasury Stock $500 and Paid-in Capital from Treasury Stock $800. c. Treasury Stock $1,000 and Retained Earnings $300. d. Treasury Stock $500 and Paid-in Capital in Excess of Par $800.

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

Entries for cash dividends are required on the: a. declaration date and the payment date. b. record date and the payment date. c. declaration date, record date, and payment date. d. declaration date and the record date.

a. declaration date and the payment date.

In the stockholders' equity section, the cost of treasury stock is deducted from: a. total paid-in capital and retained earnings. b. retained earnings. c. total stockholders' equity. d. common stock in paid-in capital.

a. total paid-in capital and retained earnings.

(ch. 12) The NBC Company reports net income of $60,000. If partners N, B, and C have an income ratio of 50%, 30%, and 20%, respectively, C's share of the net income is: a. $30,000. b. $12,000. c. $18,000. d. No correct answer is given.

b. $12,000. $60,000 (partnership income) x 20% (partner C's income ratio)

Which of the following is not reported under additional paid-in capital? a. Paid-in capital in excess of par. b. Common stock. c. Paid-in capital in excess of stated value. d. Paid-in capital from treasury stock.

b. Common stock.

The income statement for Nadeen, Inc. shows income before income taxes $700,000, income tax expense $210,000, and net income $490,000. If Nadeen has 100,000 shares of common stock outstanding throughout the year, earnings per share is: a. $7.00. b. $4.90. c. $2.10. d. No correct answer is given.

b. Earnings per share equals Net income ($700,000 − $210,000) less Preferred dividends ($0) divided by Weighted-average common shares outstanding (100,000) = $4.90 per share. The other choices are therefore incorrect.

A major disadvantage of a corporation is: a. limited liability of stockholders. b. additional taxes. c. transferable ownership rights. d. separate legal existence.

b. additional taxes.

Costs incurred in the formation of a corporation: a. do not include legal fees. b. are expensed as incurred. c. are recorded as an asset. d. provide future benefi ts whose amounts and timing are easily determined.

b. are expensed as incurred.

Corporation income statements may be the same as the income statements for unincorporated companies except for: a. gross profit. b. income tax expense. c. operating income. d. net sales.

b. income tax expense.

The account Retained Earnings is: a. a subdivision of paid-in capital. b. net income retained in the corporation. c. reported as an expense in the income statement. d. closed to capital stock.

b. net income retained in the corporation.

(ch.12) The advantages of a partnership do not include: a. ease of formation. b. unlimited liability. c. freedom from government regulation. d. ease of decision-making.

b. unlimited liability.

Preferred stock may have priority over common stock except in: a. dividends. b. assets in the event of liquidation. c. cumulative dividend features. d. voting.

d. voting.

(ch. 12) Using the data in Practice Multiple-Choice Question 6*, what is B's share of net income if the percentages are applicable after each partner receives a $10,000 salary allowance? a. $12,000. b. $20,000. c. $19,000. d. $21,000. *The NBC Company reports net income of $60,000. If partners N, B, and C have an income ratio of 50%, 30%, and 20%

c. $19,000. [$60,000−($10,000 x 3)]= $9000 (Allocation of sal. allow.) $9,000 ($30,000 x 30%)= $19000 (share of income)

A-Team Corporation issued 1,000 shares of $5 par value stock for land. The stock is actively traded at $9 per share. The land was advertised for sale at $10,500. The land should be recorded at: a. $4,000. b. $5,000. c. $9,000. d. $10,500

c. $9,000

ABC Corporation issues 1,000 shares of $10 par value common stock at $13 per share. In recording the transaction, credits are made to: a. Common Stock $10,000 and Paid-in Capital in Excess of Stated Value $3,000. b. Common Stock $13,000. c. Common Stock $10,000 and Paid-in Capital in Excess of Par $3,000. d. Common Stock $10,000 and Retained Earnings $3,000.

c. Common Stock $10,000 and Paid-in Capital in Excess of Par $3,000.

Which of the following is not a major advantage of a corporate form of organization? a. Separate legal existence. b. Continuous life. c. Government regulations. d. Transferable ownership rights.

c. Government regulations.

Which of the following statements about a 3-for-1 stock split is true? a. It will triple the market price of the stock. b. It will triple the amount of total stockholders' equity. c. It will have no eff ect on total stockholders' equity. d. It requires the company to distribute cash.

c. It will have no eff ect on total stockholders' equity.

Which of the following statements about small stock dividends is true? a. A debit to Retained Earnings should be made for the par value of the shares issued. b. A small stock dividend decreases total stockholders' equity. c. Market price per share should be assigned to the dividend shares. d. A small stock dividend ordinarily will have an eff ect on par value per share of stock.

c. Market price per share should be assigned to the dividend shares.

(ch.12) A partnership agreement should include each of the following except: a. names and capital contributions of partners. b. rights and duties of partners as well as basis for sharing net income or loss. c. basis for splitting partnership income taxes. d. provision for withdrawal of assets.

c. basis for splitting partnership income taxes.

(ch. 12) To close a partner's drawings account, an entry must be made that: a. debits that partner's drawings account and credits Income Summary. b. debits that partner's drawings account and credits that partner's capital account. c. credits that partner's drawings account and debits that partner's capital account. d. credits that partner's drawings account and debits the fi rm's dividend account.

c. credits that partner's drawings account and debits that partner's capital account.

(ch.12) Upon formation of a partnership, each partner's initial investment of assets should be recorded at their: a. book values. b. cost. c. fair values. d. appraised values

c. fair values.

The return on common stockholders' equity is defi ned as: a. net income divided by total assets. b. cash dividends divided by average common stockholders' equity. c. income available to common stockholders divided by average common stockholders' equity. d. None of these is correct.

c. income available to common stockholders divided by average common stockholders' equity.

In the stockholders' equity section of the balance sheet, common stock: a. is listed before preferred stock. b. is added to total capital stock. c. is part of paid-in capital. d. is part of additional paid-in capital.

c. is part of paid-in capital.

If everything else is held constant, earnings per share is increased by: a. the payment of a cash dividend to common shareholders. b. the payment of a cash dividend to preferred shareholders. c. the issuance of new shares of common stock. d. the purchase of treasury stock.

d. the purchase of treasury stock.

Orlando Company has a beginning balance in retained earnings of $100,000. During the year, it had a net loss of $20,000, paid cash dividends of $3,000, and issued a small stock dividend that had a market value of $7,000 and a par value of $1,000. The ending balance in retained earnings is: a. $120,000. b. $80,000. c. $79,000. d. $70,000.

d. $70,000. [(100,000-(20,000+7,000+1,000)]

Which of the following can cause a restriction in retained earnings? a. State laws regarding treasury stock. b. Long-term debt contract terms. c. Authorizations by the board of directors in light of planned expansion of corporate facilities. d. All of these answer choices are correct.

d. All of these answer choices are correct.

Treasury stock may be repurchased: a. to reissue the shares to offi cers and employees under bonus and stock compensation plans. b. to signal to the stock market that management believes the stock is underpriced. c. to have additional shares available for use in the acquisition of other companies. d. All the above.

d. All the above.

Which of the following statements is false? a. Ownership of common stock gives the owner a voting right. b. The stockholders' equity section begins with paid-in capital. c. The authorization of capital stock does not result in a formal accounting entry. d. Legal capital per share applies to par value stock but not to no-par value stock.

d. Legal capital per share applies to par value stock but not to no-par value stock.

Lucroy Corporation issues 100 shares of $10 par value preferred stock at $12 per share. In recording the transaction, credits are made to: a. Preferred Stock $1,200. b. Preferred Stock $1,000 and Retained Earnings $200. c. Preferred Stock $1,000 and Paid-in Capital in Excess of Preferred Value $200. d. Preferred Stock $1,000 and Paid-in Capital in Excess of Par—Preferred Stock $200.

d. Preferred Stock $1,000 and Paid-in Capital in Excess of Par—Preferred Stock $200.

Which of the following statements about partnership financial statements is true? a. Details of the distribution of net income are shown in the owners' equity statement. b. The distribution of net income is shown on the balance sheet. c. Only the total of all partner capital balances is shown in the balance sheet. d. The owners' equity statement is called the partners' capital statement.

d. The owners' equity statement is called the partners' capital statement.

In the stockholders' equity section, Common Stock Dividends Distributable is reported as a(n): a. deduction from total paid-in capital and retained earnings. b. addition to additional paid-in capital. c. deduction from retained earnings. d. addition to capital stock.

d. addition to capital stock.

Raptor Inc. has retained earnings of $500,000 and total stockholders' equity of $2,000,000. It has 100,000 shares of $8 par value common stock outstanding, which is currently selling for $30 per share. If Raptor declares a 10% stock dividend on its common stock: a. net income will decrease by $80,000. b. retained earnings will decrease by $80,000 and total stockholders' equity will increase by $80,000. c. retained earnings will decrease by $300,000 and total stockholders' equity will increase by $300,000. d. retained earnings will decrease by $300,000 and total paid-in capital will increase by $300,000.

d. retained earnings will decrease by $300,000 and total paid-in capital will increase by $300,000.