ACC201: Midterm 4 Chap11&17

Under IFRS, contingent liabilities are

disclosed if certain criteria are met.

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 accounting for warranty costs is based on the

expense recognition principle.

Each of the following would be reported under operating activities except cash receipts

from sales of investments.

If a company reports a net loss, it

may still have a net increase in cash.

Of the items below, the one that appears first on the statement of cash flows is

net increase (decrease) in cash.

The indirect and direct methods of preparing the statement of cash flows are identical except for the

operating activities section.

On January 1, 2020, Mazzeo Company, a calendar-year company, issued $1,600,000 of notes payable, of which $400,000 is due on January 1 for each of the next four years. Ignoring interest, the proper balance sheet presentation on December 31, 2020, is

$1,600,000 - $400,000 = $1,200,000(Tot. notes pay. - Portion coming due next yr. = L-T debt portion) Answ: Current Liabilities, $400,000; Long-term Debt, $1,200,000.

The interest charged on a $100,000 note payable, at the rate of 6%, on a 2-month note would be

$100,000 ´ .06 ´ 2/12 = $1,000(Prin. x Int. rate x Fraction of a yr. = Int.) Answ: $1,000

Under IFRS, some companies present which section of the cash flow statement as a single line item?

Operating activities

Wilson Company reported net income of $105,000 for the year ended December 31, 2020. During the year, inventories decreased by $15,000, accounts payable decreased by $20,000, depreciation expense was $18,000 and a gain on disposal of equipment of $9,000 was recorded. Net cash provided by operating activities in 2020 using the indirect method was

$105,000 + $15,000 - $20,000 + $18,000 - $9,000 = $109,000(NI + Dec. inv. - Dec. A/P + Dep. exp. - Gain = Cash op. act.) Answ: $109,000

On September 1, Bud's Painting Service borrows $150,000 from Highlands Bank on a 4-month, $150,000, 6% note. What entry must Bud's Painting Service make on December 31 before financial statements are prepared?

$150,000 ´ .06 ´ 4/12 = $3,000(Prin. x Int. rate x Fraction of a yr. = Int. exp.) Answ: Debit Interest Expense...........3,000 Credit Interest Payable...................3,000

Gonzo Company reports a $25,000 increase in inventory and a $12,000 decrease in accounts payable during the year. Cost of Goods Sold for the year was $185,000. Using the direct method of reporting cash flows from operating activities, cash payments made to suppliers were

$185,000 + $25,000 + $12,000 = $222,000(COGS + Inc. inv. + Dec. A/P = Cash pd. supp.) Answ: $222,000

Lulu Luxuries Company issued a four-year interest-bearing note payable for $200,000 on January 1, 2020. Each January the company is required to pay $50,000 on the note. How will this note be reported on the December 31, 2021 balance sheet?

$200,000 - $50,000 - $50,000 = $100,000[(Jan. 1, 2020 note pay bal. - Jan. 1, 2021 pmt = Bal. at Dec. 31, 2021); (Dec. 31, 2021 allocation: $50,000 as current liabl., $100,000 as L-T liabl.)] Answ: Long-term debt, $100,000; Long-term debt due within one year, $50,000.

The following data are available for Alamo Corporation. Sale of land.........................................225,000 Sale of Equipment...........................130,000 Insurance of common Stock.....140,000 Purchase of Equipment.................70,000 Payment of Cash Dividends..........120,000 Net cash provided by investing activities is:

$225,000 + $130,000 - $70,000 = $285,000(Cash sell. land + Cash sell. equip. - Cash purch. equip. = Cash invest. act.) Answ: $285,000

Ware Company had purchases of $260,000. The comparative balance sheet analysis revealed a $15,000 decrease in inventory and a $25,000 increase in accounts payable. What were Ware's cash payments to suppliers?

$260,000 - $25,000 = $235,000(Purch. - Inc. A/P = Cash pd. supp.) Answ: $235,00

In Alona Company, net income is $285,000. If accounts receivable increased $140,000 and accounts payable decreased $40,000, net cash provided by operating activities using the indirect method is:

$285,000 - $140,000 - $40,000 = $105,000(NI - Inc. A/R - Dec. A/P = Cash op. act.) Answ:$105,000.

Kanet Company issued common stock for proceeds of $386,000 during 2020. The company paid dividends of $80,000 and issued a long-term note payable for $95,000 in exchange for equipment during the year. The company also purchased treasury stock that had a cost of $15,000. The financing section of the statement of cash flows will report net cash inflows of

$386,000 - $80,000 - $15,000 = $291,000(Iss. comm. stk. - Cash div. pd. - Purch. treas. stk. = Cash fin. act.) Answ:$291,000.

Dailey Company does not ring up sales taxes separately on the cash register. Total receipts for February amounted to $48,150. If the sales tax rate is 7%, what amount must be remitted to the state for February's sales taxes?

$48,150 - ($48,150/1.07) = $3,150[Tot. sales - (Tot. sales ÷ (1 + Sales tax %) = Sales taxes] Answ: $3,150

During the year, Salaries Payable decreased by $5,000. If Salary Expense amounted to $174,000 for the year, the cash paid to employees (including deductions from gross pay) is

$5,000 + $174,000 = $179,000(Dec. sal. pay. + Sal. exp. = Cash pd. emply.) Answ: $179,000

The following totals for the month of April were taken from the payroll register of Asplend Company. Federal Unemployment Tax..........$192 State Unemployment Tax...............$1,296 FICA Taxes Withheld........................$5,508 The entry to record accrual of Asplend Company's payroll taxes would include a

$5,508 + $192 + $1,296 = $6,996(FICA taxes withheld + Fed. unemp. tax + State unemp. tax = Payroll tax exp.) Answ:debit to Payroll Tax Expense for $6,996.

The interest charged on a $50,000 note payable, at the rate of 6%, on a 60-day note would be

$50,000 ´ .06 ´ 60/360 = $500(Prin. x Int. rate x Fraction of a yr. = Int.) Answ: $500

Watunga County Bank agrees to lend Hoffman Granite Company $600,000 on January 1. Hoffman Granite Company signs a $600,000, 8%, 9-month note. What is the adjusting entry required if Hoffman Granite Company prepares financial statements on June 30?

$600,000 ´ .08 ´ 6/12 = $24,000(Prin. x Int. rate x Fraction of a yr. = Int. exp.) Answ: Debit to interest Expense.............24,000 Credit to interest Payable...............24,000

The following totals for the month of April were taken from the payroll register of Asplend Company. Salaries & Wages.................................72,000 FICA Tax Withheld...............................5,508 Income Tax Withheld.........................15,000 Medical Insurance Dectutions......2,700 Federal unemployment Tax.........192 State unemployment Tax.............1,296 The entry to record the payment of net payroll would include a

$72,000 - $5,508 - $15,000 - $2,700 = $48,792(Sal. & wages - FICA taxes withheld - Inc. tax withheld - Med. Ins. deducts. = Sal. & wages pay.) Answ: debit to Salaries and Wages Payable for $48,792.

In the Buans Company, land decreased $80,000 because of a cash sale for $80,000, the equipment account increased $35,000 as a result of a cash purchase, and Bonds Payable increased $60,000 from an issuance for cash at face value. The net cash provided by investing activities is

$80,000 - $35,000 = $45,000(Cash sell. land - Cash purch. equip. = Cash invest. act.) Answ: $45,000

Southern Foodie Company typically sells subscriptions on an annual basis, and publishes six times a year. The magazine sells 80,000 subscriptions in January at $30 each. What entry is made in January to record the sale of the subscriptions?

$80,000 x $30 = $2,400,000[Subscriptions x Selling price = Subscription Revenue] Answ: Debit to Cash...........$2,400,000 Credit to Unearned SubSciption Rev.........$2,400,000

Rhode Company does not ring up sales taxes separately on the cash register. Total receipts for October amounted to $81,900. If the sales tax rate is 5%, what amount must be remitted to the state for October's sales taxes?

$81,900 - ($81,900/1.05) = $3,900[Tot. sales - (Tot. sales ÷ (1 + Sales tax %)) = Sales taxes] Answ: $3,900

Christine Company had an increase in inventory of $55,000. The cost of goods sold was $95,000. There was a $6,000 decrease in accounts payable from the prior period. What were Christine's cash payments to suppliers?

$95,000 + $55,000 + $6,000 = $156,000(COGS + Inc. inv. + Dec. A/P = Cash pd. supp.) Answ:$156,000

Most companies involved in interstate commerce are required to compute overtime at

1.5 times the worker's regular hourly wage.

The following totals for the month of June were taken from the payroll register of Parks Company. Salaries & Wages Payable.............$80,000 The journal entry to record the monthly payroll on June 30 would include a

debit to Salaries and Wages Expense for $80,000.

The statement of cash flows reports each of the following except

Cash Sales

Which of the following steps is not required in preparing the statement of cash flows?

Determine the change in current assets.

Which one of the following is shown first under current liabilities by many companies as a matter of custom?

Notes Payable

The entry to record the payment of an interest-bearing note at maturity after all interest expense has been recognized is

Notes Payable: Debit Interest Payable: Debit ..........Cash: Credit

Which of the following adjustments to convert net income to net cash provided by operating activities is incorrect?

Prepaid Expenses: Increase to net income & Decrease To Net income

Current liabilities presented under IFRS are sometimes shown

after long-term liabilities.

Using the indirect method, if equipment is sold at a gain, the

amount of the gain is deducted in the operating activities section.

In Lynne Company, there was an increase in the land account during the year of $43,000. Analysis reveals that the change resulted from a cash sale of land at cost $115,000, and a cash purchase of land for $158,000. In the statement of cash flows, the change in the land account should be reported in the investment section:

as a purchase of land $158,000 and a sale of land $115,000.

The category that is generally considered to be the best measure of a company's ability to continue as a going concern is

cash flows from operating activities.

The following totals for the month of June were taken from the payroll register of Ford Company. Federal Unemployment Tax...........640 The entry to record the accrual of federal unemployment taxes would include a

credit to Federal Unemployment Taxes Payable for $640.