Accounting 2010 Final
Using the info on ABC Co's bond, what would be the cash paid for interest on the second annual interest payment using the effective-interest method
$1,000
ABC Co. received $9,631 for its 5-year, 10% bonds with a total face value of $10,000. The market rate of interest was 11%. The bonds pay interest annually on Dec 31. Approx how much interest expense will ABC record on the second annual interest payment date using an effective interest method?
$1,065.95
A corporate bond with a face value of $1000 is issued at 107. This means that the bond is sold for:
$1,070 and the stated interest rate was higher than the market interest rate
Consider a $125,000, 6%, five-year loan beginning on Jan 1, 2018. If the monthly payment is $2416.60, by how much will the carrying value decrease with the first payment on Jan 31, 2018?
$1,791.60
What does the par value of a stock represent?
It is a legal concept not related to the market value of a stock.
What is the purpose of the statement of cash flows?
It is intended to provide a cash-based view of a company.
A bond's stated interest rate is
always expressed as an annual interest rate, used to calculate interest payments
Bond _____ is the process that causes the balance in Premium on Bonds Payable to decline each period
amortization
Which accounts are credited when the journal entry to pay employees is recorded?
cash, withheld income tax payable, fica payable
Profitability Ratios
examines ability to generate income
Solvency Ratios
examines ability to pay interest and repay debt
Gross earnings for the pay period are $100,000. Required payroll deductions are: Social Security $6,700; Medicare $1,450; Federal Income tax $18,000 and State income tax $3,850. The journal entry to record wages paid includes a:
$100,000 debit to Salaries and Wages Expense.
The Ideal Corp has the following information for its payroll records: salary and wages earned: $100,000 Income taxes withheld: $15,000 FICA withheld: $5,000 Federal and State Unemployment: $4,000 Employer portion of FICA matches the Employee portion Based on the above, Wages Expense is _____ and Payroll Tax Expense is _____
$100,000; $9,000
Hermosa Vista Company issued $200,000 5-year, 7% bonds and received $202,274 in cash. The market rate of interest when the bonds were issued was 6.5%. What is the amount of interest expense to be recorded for the first annual interest period if the company uses simplified effective-interest amortization?
$13,147.81
Yamhill, Inc. began on January 1, 2016 by issuing 200,000 shares of $1 par value common stock and 2,000 shares of $100 par value, 5%, cumulative preferred stock. No dividends were declared in 2016 or 2017. In 2018, Yamhill declared and paid the preferred stockholders and a $0.50 dividend to its common stockholders. Assuming all shares originally issued are outstanding, the total dividend declared and paid in 2018 equals:
$130,000.
Engstrom Co makes a sale and collects a total of $37, which includes an 8% sales tax. What is the amount that will be credited to the Sales Revenue account?
$350
A one-year, $15,000, 6% note is signed on April 1. If the note is repaid on September 1 of the same year, how much interest expense is incurred?
$375
Times Interest Earned
(Net Income + Interest Expense + Income Tax Expense) / Interest Expense
Return on Equity (ROE)
(net income - preferred dividends) / average common stockholders' equity
Earnings Per Share (EPS)
(net income - preferred dividends) / average number of common shares outstanding
A corporate charter specifies that a company may sell up to 20 million shares of stock. The company originally sold 12 million shares to investors and eventually bought back 3 million shares. The company later had a seasoned new issue of 2 million shares. The current number of outstanding shares after these transactions have been accounted for is
11 million shares (12-3) = 9 (9+2)= 11
Galveston, Inc. has 308,000 shares authorized, 140,000 shares issued, and 14,000 shares of treasury stock. How many shares are outstanding?
126,000
Lyndale, Inc.'s sales are $513,000 and $360,000 during the current and prior years, respectively. The percentage change is:
42.5%.
discount on a bond
A bond currently trading for less than its par value in the secondary market is a discount bond. A bond will trade at a discount when it offers a coupon rate that is lower than prevailing interest rates
premium bond
A bond that is trading above its par value in the secondary market is a premium bond. it will have a higher coupon rate
If shares of common stock are issued at a market price greater than par value, the amount in excess of par should be credited to:
Additional Paid-in Capital.
The entry to record the issuance of bonds at face value includes a debit to Cash and a credit to
Bonds Payable
Stock splits and large stock dividends have which of the following similarities or differences in their effects and requirements for a journal entry?
Both change the number of shares outstanding, the effect on par value per share changes only for a stock split, a journal entry is only required for a stock dividend
Which of the following would be classified as a financing activity on the statement of cash flows?
Cash paid to purchase treasury stock.
The entry to record the initial borrowing of cash by issuing a promissory note will include a debit to ________ and a credit to ________.
Cash; Notes Payable
Which of the following are not required payroll tax deductions from an employees gross earnings?
Charitable contributions, State unemployment tax, Federal Unemployment tax
T/F: A healthy company typically shows positive cash flows in the financing activities section on the statement of cash flows
False
_______ ______ on a classified balance sheet will report the obligations that will be paid or met within the company's operating cycle or within 1 year, whichever is longer
Current Liabilities
All else being equal, if net income decreases
EPS and ROE both decrease
What are the key events for the issuer of notes payable?
Establishing the note, recording principal paid, accruing interest incurred but not paid, recording interest paid
T/F: In the decline phase, the company continues to enjoy increasingly positive operating cash flows but stops spending cash on investing activities and instead uses its cash for financing activities such as repaying lenders and returning excess cash to shareholders
False
Which of the ratios assist in assessing the profitability of a company?
Fixed Asset turnover ratio
Horizontal Analysis
Horizontal analysis is used in financial statement analysis to compare historical data, such as ratios, or line items, over a number of accounting periods (aka trend analysis)
With the effective interest method, what happens to interest expense over the life of the bond?
Interest Expense rises for bonds sold at a discount and falls for bonds sold at a premium
Gross Profit Percentage
Net Sales Revenue - COGS/Net Sales Revenue x 100
___ ___ is a liability that represents the amount the company owes to others as a result of issuing a promissory note
Notes Payable
A stock dividend transfers:
Retained Earnings to contributed capital.
Price per Earnings
Stock Price/EPS
Which of the following statements is correct? - Stock Splits and stock dividends both reduce market price per share and reduce retained earnings -Stock Splits and stock dividends both reduce market price per share and par value per share -Stock Splits and stock dividends both reduce market price per share, but only stock dividends reduce the par value of a share -Stock Splits and stock dividends both reduce market price per share, but only stock splits reduce the par value of a share
Stock Splits and stock dividends both reduce market price per share, but only stock splits reduce the par value of a share
Liquidity Ratios
Sufficient current assets to cover liabilities
In each succeeding payment on an installment note,
The amount of interest expense decreases (principal paid increases while interest paid decreases)
Effective interest rate
The effective annual interest rate is the interest rate that is actually earned or paid on an investment, loan or other financial product due to the result of compounding over a given time period
Mountain View Co. buys back 3,000 shares of its $10 par value common stock from investors at $126 per share. This stock repurchase would be recorded with a debit to:
Treasury Stock and a credit to Cash for $378,000.
Par value of a stock refers to the
Value assigned to a share of stock in the corporate charter
Which of the following analysis techniques does not pertain to changes over time?
Vertical Analysis
Vertical Analysis
Vertical analysis is a method of financial statement analysis in which each line item is listed as a percentage of a base figure within the statement.
Sales tax collected by a company is normally reported as:
a current liability.
A $1000 bond was issued at 107.26. The 107.26 is
a percent and means the bond sold for $1072.60
A contingent liability is:
a potential obligation that depends on a future event.
Cash flows from operating activities include all of the following except -payments to employees for hours worked -receipt of cash dividends -a purchase of land -collections from customers on account
a purchase of land
A bond discount is
a result of the interest payments being less than the cost of borrowing
The discount on bonds payable becomes
additional interest expense over the life of the bonds
Payroll deductions:
are amounts subtracted from employees' gross earnings to determine their net pay.
Cash and cash equivalents include assets that
are short-term, highly liquid, and purchased by the entity within three months of maturity
The direct exchange of debt for equipment would be shown
as a supplementary disclosure to the statement of cash flows
If an adjusting entry is required for interest owed, then the ____ will report ____
balance sheet; Notes payable, interest payable AND income statement; Interest Expense
The issue price of a bond is
based on a present value calculation, based on what the market is willing to pay
Liquidity and Solvency Ratios
both measure the ability to meet financial obligations
On November 1, 2018, Sky Mountain Co. borrowed $200,000 cash on a 1-year, 6% note payable that requires Sky Mountain to pay both principal and interest on October 31, 2019. Given no prior adjusting entries have been recorded, the adjusting journal entry on December 31, 2018, Sky Mountain's year-end, would include a:
credit to Interest Payable of $2,000.
A company recorded the issuance of its bonds with a debit to Cash for $107,260 and a credit to Bonds Payable $100,000, and a ______ on Bonds Payable for $7,260
credit to Premium
XYZ borrowed $50k in December 31, 2018. Half of the loan will be repaid in 2019 and the remainder will be paid the following year, which is longer than XYZ's operating cycle. On it's balance sheet at the end of this year, XYZ will show _______
current portion of long term debt of $25k, long term debt of $25k
Dividends Payable is recorded as a credit on the
declaration date
A corporations board of directors could prefer a stock split to a stock dividend because a stock split
does not reduce retained earnings, so it does not reduce the ability to declare a cash dividend in the future
The entry to record the payment of previous purchases made on account includes a ______
dr. Accounts Payable cr. Cash
A company issues 1 million shares of common stock with a par value of $0.02 for $15 a share. The entry to record this transaction includes a debit to Cash for
dr. Cash $15,000,000 cr. Common Stock. $20,000 cr. Additional Paid-in Capital $14,980,000
if treasury stock was originally purchased for $78 per share and 10,000 treasury shares are reissued for $50 per share, what JE must be prepared to record the transaction?
dr. Cash. $500,000 dr. Additional Paid in Capital. $280,000 cr. Treasury Stock $780,000
A company pays $9,000 in interest on notes consisting of $6,000 of interest that was accrued during the last accounting period and $3,000 of interest that accumulated during the current accounting period but has not yet been accrued on the books. The journal entry for the interest payment should include a:
dr. Interest Expense $3,000 dr. Interest Payable $6,000 cr. Cash $9,000
If a $1,000 bond is issued at 100, then bond sold at ____
face value
Cash flows from investing activities include cash:
inflows from the sale of long-term investments.
The stated rate is the rate used to determine the
interest payment
A bond's issue price is determined by the
investors
Horizontal analysis
is used to identify trends over time.
Assets are financed with ___ and stockholders' equity.
liabilities
Employee's gross earnings differ from their net pay because of ____
payroll deductions
A company has outstanding 9 million shares of $2 par value common stock and 1 million shares of $4 par value preferred stock. The preferred stock has an 8% dividend rate. The company declares $600,000 in total dividends for the year. Which of the following is correct if dividends in arrears are $30,000?
preferred stockholders will receive $350,000; common stock holders will receive $250,000
When the amount of a contingent liability can be reasonably estimated and its likelihood is probable, the company should
record the estimated amount of the liability on the balance sheet
The stated rate
remains the same throughout the life of the bonds
The three key pieces of information that are stated on a bond certificate are the:
stated interest rate, the face value of the bond, and the maturity date.
The JE to record the payment of salaries and wages for work performed in the current accounting period causes
stockholder's equity to decrease, assets to decrease, and liabilities to increase
A bond's maturity date is
the date on which the bond principal will be repaid in full
On a common size balance sheet, each item on the balance sheet is expressed as a percentage of:
total assets.
Debt-to-Assets
total liabilities/total assets
Long-term liabilities are accounted for in the same way as short-term liabilities, except that long-term liabilities are on the books for more than one _____
year
