Accounting ch. 9,10,11,12
Which of the following shows the sources and uses of cash during a period?
a statement of cash flows
When sufficient cash is not available to pay dividends, what may corporations do to appease common stockholders?
distribute stock dividends
On the statement of cash flows, where is a conversion of bonds into common stock reported?
in a separate schedule or note to the financial statements
If a $10,000, 12%, 10-year bond that pays interest annually sells at an amount greater than face value, the market rate of interest could be ________ percent.
8
Jasper Trucking plans to issue $3 million in five-year bonds. They believe they can afford to pay $286,000 in interest to bondholders each year. Which annual interest rate should they use for their bonds? The current market interest rate is 10.2% for similar bonds.
9.5%
Which of the following is an example of a creditor?
A bank loaned money to a company and expects to be paid back at the end of the year.
Which of the following situations would be recorded as wages payable?
Sanchez Flooring owes $12,490 to their employees for time worked over the past three days.
Which of the following illustrates the difference between a secured and an unsecured bond?
Secured bonds have specific assets pledged, whereas unsecured bonds are issued against the general credit of the borrower.
When a company's revenues exceed their expenses, they record a net
income
An intangible asset is not amortized when its life is
indefinite
retirement of plant assets
is recorded by decreasing accumulated depreciation for the full amount of depreciation taken over the life of the asset
What is book value?
is the difference between the cost of plant asset and the accumulated depreciation to date
Which of the following is associated with financing activities?
issuing debt
Which of the following are considered investing activities?
lending money to other entities
The additional paid-in capital appears under the ________ subsection in the balance sheet under stockholders' equity.
paid- in capital
What constitutes capital stock in the stockholders' equity section of the balance sheet?
preferred and common stock at par
Sunshine Industries has a large fleet of delivery vehicles. Of the firm's fleet, 15 of the vehicles are fully depreciated, yet Sunshine continues to use them every day. In this situation, Sunshine will
realize a higher income if it delays the purchase of replacements
The board of directors of Pilgrim Company authorizes a $100,000 restriction of retained earnings for a future plant expansion. This action will
reduce the amount of retained earnings available for dividend declarations.
What are assets?
resources owned by a business
Companies that sell plant assets at the end of their useful lives estimate the ________ when determining how to depreciate the asset.
salvage value
have specific assets pledged as collateral.
secured bonds
A company with a poor credit rating needs to raise funds for expansion, but the bank will not give them a loan. In addition, their common stock prices are already low, so they do not want to issue more shares of common stock. What would be the best way for this company to raise funds for the expansion?
sell secured bonds
_______ must receive an annual report from publicly traded U.S. companies.
stockholders
When companies set their dividend payout, they generally aim for a rate that is
substainable
If the estimated useful life of equipment changes, then this change requires
that the amount of the periodic depreciation be changed in the current year and in future years.
What is the face value of a bond?
the amount of principle due at the maturity date
The operating cycle of a company is
the average time required to go from purchasing inventory to receiving cash from its sale.
Which of the following is used to determine the gain or loss on disposal of a plant asset?
the book value of the asset and the proceeds received from its sale
What is the contractual interest rate?
the rate used to determine the amount of interest the borrower pays and the investor receives from the bond
What is the main function of an auditor?
to conduct an independent examination of the accounting data presented by a company
Which of the following is listed under the total paid-in capital and retained earnings section of the balance sheet?
treasury stock
are issued against the general credit of the borrower.
unsecured bonds
When there is a restriction on retained earnings, it means that
a portion of retained earnings is unavailable for dividends.
On April 1st, 2022, Howard & Sons Law Firm, whose fiscal year-end is September 30th, purchased a building for $1,400,000. The building is expected to remain in service for 50 years, and it will be depreciated using the straight-line method. If the expected salvage value is $800,000, what will be the book value of the building on September 30th, 2033?
$1,262,000
Elizabeth Coal Ltd has total assets of $8,000,000, common stock of $4,200,000, and liabilities of $1,200,000. What is the amount for retained earnings?
$2,600,000.00
Maggie Sharrer Company borrows $88,500 on September 1, 2022, from Sandwich State Bank by signing an $88,500, 12%, one-year note. What is the accrued interest at December 31, 2022?
$3,540
Hamill Company purchased equipment on January 3rd, 2022, for $70,000. The equipment is expected to be used for four years and 12,000 hours (4,000 hours in the first year, 3,000 hours in year 2, and 2,500 per year for each of the last two years). Hamill hopes to sell the asset for $5,000 at the end of its useful life. Using the double-declining-balance method of depreciation, what amount of depreciation expense will Hamill report on the income statement for the year ended December 31st, 2022?
$35,000
On July 1st, 2022, Weston Company places a new asset into service. The cost of the asset is $30,000 with an estimated 5-year life and $5,000 salvage value at the end of its useful life. What is the depreciation expense for 2023 if Weston Company uses the straight-line method of depreciation?
5,000
If $400,000 bonds are issued on January 1 and pay $24,000 interest annually, what is the rate of interest?
6%
What would happen to assets and net income if a company capitalized their research and development costs?
Both would be overstated.
________ are the costs incurred to increase the operating efficiency or useful life of a plant asset.
Capital expenditures
Gopher Excavation, a calendar-year firm, purchased equipment on January 1st, 2018, for $175,000. The equipment had an estimated life of 10 years and no expected salvage value, and Gopher depreciated it using the straight-line method. On July 1st, 2022, Gopher sold the equipment for $120,000. How should Gopher record the sale on its balance sheet?
Cash = Debit of $120,000; Accumulated Depreciation—Equipment = Debit of $78,750; Equipment = Credit of $175,000; Gain on Disposal of Plant Assets = Credit of $23,750
What is one way that cash flows from investing activities are the opposite of cash flows from financing activities?
Cash flows from investing activities frequently reflect cash flows related to cash the company has loaned to others, whereas cash flows from financing activities frequently reflect cash flows related to cash the company has borrowed from others.
Xenon Tech acquired a patent on January 1st, 2018, for $26,400. The patent was estimated to have a useful life of 12 years. On July 1st, 2022, the company incurred legal fees of $6,000 to successfully defend the patent in an infringement suit. How much amortization expense will Xenon Tech recognize on the Income Statement for the year ended December 31st, 2022?
Do this mary
sale of plant assets
In the sale of an asset, the book value if the asset is compared with the proceeds from the sale. If the proceeds exceed the book value, gain on disposal occurs. Conversely, if proceeds from the sale are less than the book value, a loss on disposal occurs
In good years, Dailey Industries often loans cash to other companies, but in difficult years, they have to borrow cash from other entities. How would they record these differently on the statement of cash flows?
Loaning money would be classified as an investing activity, whereas borrowing money would be classified as a financing activity.
Rainbow Toys wants continuous legal protection for the logo they have developed for their brand. What action should they take?
Register their trade name and trademark and then renew it every twenty years.
Lisa is an accountant for Aloha Swimwear who is preparing the statement of the cash flows. She has the current income statement. What should she do next?
Obtain the comparative balance sheets.
What is the difference between the contractual interest rate and the market interest rate?
The contractual interest rate is used to determine the actual amount of cash interest the issuer pays and the investor receives, whereas the market interest rate is the general rate investors demand for loaning funds.
Which is most important to evaluate when considering extending credit to a small business and why?
The relationship of current assets to current liabilities which represents a company's ability to meet short-term debt obligations when due.
Which of the following is true about corporations?
The transfer of stock is entirely at the discretion of the stockholder. It does not require the approval of either the corporation or other stockholders.
Which of the following statements about liabilities is true?
They are reported as current and long-term liabilities on the balance sheet.
On December 31, 2021, Bates Company had on their books an assembly machine that was purchased for $392,000 and had accumulated $352,800 in depreciation. On April 1, 2022, Bates Company sold the machine for $40,000. On the date of the sale, they recorded the following journal entry: What error did Bates Company make in this journal entry?
They did not account for a partial year of accumulated depreciation.
Which of the following is an example of an investing activity?
a clothing manufacturing company purchasing a sewing machine
If the market rate of interest is 8% and the contractual rate of interest is 6%, the bonds will sell at
a discount
The system that keeps track of the results of each of the three business activities is called a(n) ________ system.
accounting information
Halcyon Company purchased equipment on January 2nd, 2019, for $75,000. On December 30th, 2022, when the book value was $16,225, the company decided to discard the equipment. Journalize the appropriate entry on December 30th, 2022.
accumulated depreciation- equipment 58,775 Loss on disposal of plant assets 16225 Equipment 75,000
An investor is looking to invest in companies that do not pay regular dividends now but instead reinvest their retained earnings back into the company. What is one likely goal of this investor?
achieving capital gains on the stock purchases
What is represented in the accumulated depreciation account?
amount charged to expense since the accumulated depreciation account
A debit to Accumulated Depreciation occurs when
an asset is disposed of
Pine Valley Lumber issues 15,000 shares of 9%, $45 par value preferred stock with a cumulative dividend feature for $65 cash per share. What is the minimum annual dividend the holders of this stock can collectively expect to receive?
another do this mary
Which financial statement summarizes the financial position of a company?
balance sheet
In selecting a depreciation method, a company should choose the method that
best measures the plant asset's contribution to revenue for its useful life
If no gain or loss on disposal is recorded, then the ________ value of the plant asset equals its fair value at the date of sale.
book
How is the carrying value of a bond issued at a discount calculated?
by subtracting the balance of the discount account from the balance of the Bonds Payable account
Contractual loan restrictions
cause occasional restrictions of retained earnings.
can be retired by the issuing company before the maturity date.
callable bonds
Lease liabilities
can be reported as either current or long-term.
If the paid-in capital in excess of par value increases in the accounting records, it means that
capital stock is issued at an amount greater than par value.
Which of the following describes free cash flow?
cash provided by operations less capital expenditures and cash dividends
The Discount on Bonds Payable account is a ________ account.
contra
Which of the following is the cause for occasional restrictions of retained earnings?
contractual loan restrictions
can be replaced with shares of common stock at the option of the bondholder.
convertible bonds
Amortization refers to the
cost allocation of an intangible asset.
From a liquidity standpoint, which is more desirable for a company to have?
current assets exceed current liabilities
The dollar values to be received from a bond, the length of time required to receive those values, and the market rate of interest all combine to determine the ________ of a bond.
current market price
The present value of all future cash payments promised by a bond is equal to the ________ of the bond.
current market value
what is depreciation?
depreciation is the process of allocating to expense the cost of a plant asset over its useful life in a rational and systematic manner.
Bent Corporation issues 500, 10-year, 6%, $4,000 bonds dated January 1, 2022, at 96. The journal entry to record the issuance will show a
debit to Cash for $1,920,000.
Additions and improvements to a plant asset that increase the asset's operating efficiency, productive capacity, or expected useful life are generally
debited to the plant asset affected.
If a company wants to ignore the salvage value in their depreciation calculations, which depreciation method should they use?
declining balance
Salvage value, useful life, and cost are three considerations when determining a plant asset's
depreciation expense
Four companies have each issued $6 million in bonds. Which company will have the lowest balance in a contra account, without having a zero balance, assuming this is the first bond issuance for all four companies?
do this mary
Popular Company utilizes a calendar year as its fiscal year and depreciates plant assets using the straight-line method. On January 2nd, 2018, the company purchased a delivery truck for $28,000 with a useful life of five years and an estimated salvage value of $3,000. On January 1st, 2022, the company decides to extend the useful life to seven years while decreasing the estimated salvage value to $2,000. What amount will Popular report as depreciation expense for the year ended December 31st, 2022?
do this mary
Simons Company has $400,000 of bonds outstanding. The unamortized premium is $7,400. If the company redeemed the bonds at 101, what would be the gain or loss on the redemption?
do this mary
Voltage Industries, a calendar-year company, purchases equipment for $85,000 on January 2nd, 2022. The equipment's expected useful life is five years, and the expected salvage value of the equipment is $5,000. What is the book value of the equipment on December 31st, 2023, if Voltage uses the double-declining-balance method?
do this mary
Which depreciation method generally results in the lowest net income for the first year a plant asset is utilized?
double declining-balance
When bonds are retired before maturity, a company may record ________ on redemption.
either gain or loss
Fultz Home Furnishings is considering issuing stocks or bonds to raise money to purchase a new manufacturing facility. If they want to issue securities in small denominations, which type of security should they choose?
either stocks or bonds
Bonds that are sold at face value have an interest rate that is ________ the market interest rate.
equal to
Which of the following are ways that plant assets can be disposed of?
exchange
What type of activity is borrowing money?
financing
Tedman Industries is planning to issue $5 million in bonds. Based on a poll of potential investors, they have the highest chance of raising the funds they need with one of four sets of bond characteristics. Which option would cost them the LEAST amount in total interest over the life of the bond?
five-year bond with 7.5% annual interest rate
Cash proceeds from a sale of a plant asset that exceed that asset's book value result in a
gain on disposal
When a company sets the date that the final payment is due to the bondholder, they are setting the ________ date.
maturity
Which of the following are included on a bond certificate?
maturity date
If a company is preparing its statement of cash flows, where, if at all, would inventory purchased with cash be classified on the statement of cash flows?
operating activities section
The statement of cash flows is divided into which of the following major categories?
operating, investing, and financing activities
Wilson Company reports the following expenditures related to plant assets for the most recent fiscal year:
overstated by $3,800.
