Accounting Exam 2
Jing Company was started on January 1, Year 1 when it issued common stock for $50,000 cash. Also, on January 1, Year 1 the company purchased office equipment that cost $34,000 cash. The equipment was delivered under terms FOB shipping point, and transportation cost was $2,000. The equipment had a five-year useful life and a $12,000 expected salvage value. At the end of Year 5, assuming the equipment had not been sold, the book value of the office equipment using straight-line depreciation and double-declining-balance depreciation, respectively, would be: $12,000 and $1,680. $12,000 and $12,000. $0 and $0. None of these answer choices are correct.
$12,000 and $12,000 At the end of Year 5, the end of the office equipment's 5-year useful life, the book value will be equal to the $12,000 salvage value, regardless of which depreciation method is used.
At the end of the accounting period, Houston Company had $5,000 of par value common stock issued, additional paid-in capital in excess of par value − common of $5,800, retained earnings of $6,000, and $2,250 of treasury stock. The total amount of stockholders' equity is: $19,050. $8,550. $14,050. $14,550.
$14,550. $5,000 common stock + $5,800 additional paid-in capital in excess of par value + $6,000 retained earnings − $2,250 treasury stock = $14,550
Harding Corporation acquired real estate that contained land, building and equipment. The property cost Harding $1,900,000. Harding paid $350,000 and issued a note payable for the remainder of the cost. An appraisal of the property reported the following values: Land, $374,000; Building, $1,100,000 and Equipment, $726,000. Assume that Harding uses the units-of-production method when depreciating its equipment. Harding estimates that the purchased equipment will produce 1,000,000 units over its 5-year useful life and has salvage value of $34,000. Harding produced 265,000 units with the equipment by the end of the first year of purchase. Which amount below is closest to the amount Harding will record for depreciation expense for the equipment in the first year? Note: Do not round your intermediate calculations. $125,200 $193,450 $157,145 $165,890
$157,145 Percent of purchase price to be allocated to equipment = (Appraised value of equipment of $726,000 ÷ Total appraised value of $2,200,000 (or $374,000 + $1,100,000 + $726,000) = 33%; Cost of equipment = Purchase price of $1,900,000 × 33% = $627,000; Cost per unit of production = (Cost of equipment of $627,000 − Salvage value of $34,000) ÷ Productive capacity of 1,000,000 units = $0.593 per unit; Year 1 depreciation = $0.593per unit × 265,000 units = $157,145
Madison Company owned an asset that had cost $44,000. The company sold the asset on January 1, Year 4, for $16,000. Accumulated depreciation on the day of sale amounted to $32,000. Based on this information, the sale would result in a: $16,000 increase in total assets. $16,000 cash inflow in the investing activities section of the cash flow statement. $4,000 cash inflow in the financing activities section of the cash flow statement. $4,000 gain in the investing activities section of the statement of cash flows.
$16,000 cash inflow in the investing activities section of the cash flow statement. This transaction increases assets (cash) by $16,000, decreases assets (the book value of asset) by $12,000 (or cost of $44,000 − accumulated depreciation of $32,000), resulting in a net increase in assets of $4,000. Because the cash proceeds of $16,000 exceed the asset's book value of $12,000, Madison also reports a gain on the sale of $4,000, which increases revenue (gain), net income, and stockholders' equity (retained earnings). The gain is not reported in the investing activities section; instead, the $16,000 cash proceeds are reported as a cash inflow for investing activities.
Madison Company owned an asset that had cost $44,000. The company sold the asset on January 1, Year 4, for $16,000. Accumulated depreciation on the day of sale amounted to $32,000. Based on this information, the sale would result in a: $16,000 increase in total assets. $4,000 cash inflow in the financing activities section of the cash flow statement. $4,000 gain in the investing activities section of the statement of cash flows. $16,000 cash inflow in the investing activities section of the cash flow statement.
$16,000 cash inflow in the investing activities section of the cash flow statement. This transaction increases assets (cash) by $16,000, decreases assets (the book value of asset) by $12,000 (or cost of $44,000 − accumulated depreciation of $32,000), resulting in a net increase in assets of $4,000. Because the cash proceeds of $16,000 exceed the asset's book value of $12,000, Madison also reports a gain on the sale of $4,000, which increases revenue (gain), net income, and stockholders' equity (retained earnings). The gain is not reported in the investing activities section; instead, the $16,000 cash proceeds are reported as a cash inflow for investing activities.
Chico Company paid $950,000 for a basket purchase that included office furniture, a building and land. An appraiser provided the following estimates of the market values of the assets if they had been purchased separately: Office furniture $190,000; Building $740,000, Land $132,000. Based on this information, the amount of cost that would be allocated to the office furniture is closest to: Note: Round your intermediate percentages to 2 decimal places: ie 0.054231 = 5.42%. $190,000. $316,667. $105,000. $171,000.
$171,000 The total price of a basket purchase must be allocated among the assets acquired. Accountants commonly allocate the purchase price using the relative fair market value method. Percentage allocated to office furniture = Appraised amount for office furniture of $190,000 ÷ Total appraised values of $1,062,000 (or $190,000 + $740,000 + $132,000) = 17.89%; Allocation of purchase price to office furniture = Total purchase price of $950,000 × 17.89% = $169,955.
On January 1, Year 1, Phillips Company made a basket purchase including land, a building and equipment for $380,000. The appraised values of the assets are $20,000 for the land, $340,000 for the building and $40,000 for equipment. Phillips uses the double-declining-balance method of depreciation for the equipment which is estimated to have a useful life of four years and a salvage value of $5,000. The depreciation expense for Year 1 for the equipment is: $17,000. $20,000. $19,000. $9,500.
$19,000. $40,000 ÷ ($20,000 + $340,000 + $40,000) = 10% of total appraised value; $380,000 purchase price × 10% = $38,000 cost of equipment; $38,000 × (2 × 25% straight-line rate) = $19,000 depreciation expense in Year 1.
On January 1, Year 2, Grande Company had a $16,000 balance in the Accounts Receivable account and a zero balance in the Allowance for Doubtful Accounts account. During Year 2, Grande provided $104,000 recognized service revenue on account. The company collected $97,000 cash from accounts receivable. Uncollectible accounts are estimated to be 2% of sales on account. The amount of uncollectible accounts expense recognized on the Year 2 income statement is: $1,000. $320. $1,940. $2,080.
$2,080 $104,000 sales on account x 2% = 2080
On January 1, Year 2, Grande Company had a $16,000 balance in the Accounts Receivable account and a zero balance in the Allowance for Doubtful Accounts account. During Year 2, Grande provided $104,000 recognized service revenue on account. The company collected $97,000 cash from accounts receivable. Uncollectible accounts are estimated to be 2% of sales on account. The amount of uncollectible accounts expense recognized on the Year 2 income statement is: $1,940. $320. $2,080. $1,000.
$2,080. $104,000 sales on account × 2% = $2,080 uncollectible accounts expense
Allegheny Company ended Year 1 with balances in Accounts Receivable and Allowance for Doubtful Accounts of $23,000 and $900, respectively. During Year 2, Allegheny wrote off $1,500 of Uncollectible Accounts. After aging its receivables, Allegheny estimates that the ending Allowance for Doubtful Accounts balance should be $1,600. What will Allegheny report as Uncollectible Accounts Expense on its Year 2 income statement? $700 $1,600 $2,200 $1,500
$2,200 $900 beginning allowance balance − $1,500 write-offs + uncollectible accounts expense = $1,600 ending allowance balance; uncollectible accounts expense = $1,600 − $900 + $1,500 = $2,200
Madison Company issued an interest-bearing note payable with a face amount of $24,000 and a stated interest rate of 8% to the Metropolitan Bank on August 1, Year 1. The note carried a one-year term. Based on this information alone, the amount of total liabilities appearing on Madison's Year 1 balance sheet would be: $24,800. $25,920. $24,720. $24,000.
$24,800. $24,000 × 8% × 5/12 = $800 interest payable; $24,000 notes payable + $800 interest payable = $24,800 total liabilities.
The inventory records for Radford Company reflected the following Beginning inventory on May 1100 units @ $4.00First purchase on May 7300 units @ $4.40second purchase on May 17500 units @ $4.60Third purchase on May 23100 units @ $4.80Sales on May 31900 units @ $7.80 What is the amount of gross margin assuming the FIFO cost flow method is used? $3,420 $3,000 $2,920 $4,020
$3,000 Under FIFO, the cost of the items purchased first is reported on the income statement, and the cost of the items purchased last is reported on the balance sheet. Cost of goods sold = (100 × $4.00) + (300 × $4.40) + (500 × $4.60) = $4,020; Gross margin = $7,020 sales − $4,020 cost of goods sold = $3,000.
On March 1, Bartholomew Company purchased a new stamping machine with a list price of $34,000. The company paid cash for the machine; therefore, it was allowed a 5% discount. Other costs associated with the machine were: transportation costs, $550; sales tax paid, $1,360; installation costs, $450; routine maintenance during the first month of operation, $500. The cost recorded for the machine was: $32,300. $34,210. $35,160. $34,660.
$34,660 The cost includes the purchase price (less discounts) plus any costs necessary to get the asset in the location and condition for its intended use. Maintenance costs are the costs of routine maintenance and minor repairs that are incurred to keep an asset in good working order. These costs are expensed in the period in which they are incurred. Cost of machine = $34,000 − ($34,000 × 5%) + $550 transportation + $1,360 sales tax + $450 installation = $34,660.
On March 1, Bartholomew Company purchased a new stamping machine with a list price of $34,000. The company paid cash for the machine; therefore, it was allowed a 5% discount. Other costs associated with the machine were: transportation costs, $550; sales tax paid, $1,360; installation costs, $450; routine maintenance during the first month of operation, $500. The cost recorded for the machine was: $32,300. $34,210. $35,160. $34,660.
$34,660. The cost includes the purchase price (less discounts) plus any costs necessary to get the asset in the location and condition for its intended use. Maintenance costs are the costs of routine maintenance and minor repairs that are incurred to keep an asset in good working order. These costs are expensed in the period in which they are incurred. Cost of machine = $34,000 − ($34,000 × 5%) + $550 transportation + $1,360 sales tax + $450 installation = $34,660.
On January 1, Year 1, Friedman Company purchased a truck that cost $48,000. The truck had an expected useful life of 8 years and an $8,000 salvage value. The company uses the double-declining balance method. The book value of the truck at the end of Year 1 is: $38,000. $36,000. $40,000. $43,000.
$36,000 $48,000 × (2 × 12.5%) = $12,000 Depreciation expense for Year 1; $48,000 Cost − $12,000 Accumulated depreciation at end of Year 1 = $36,000 book value at the end of Year 1
On January 1, Year 1, Friedman Company purchased a truck that cost $48,000. The truck had an expected useful life of 8 years and an $8,000 salvage value. The company uses the double-declining balance method. The book value of the truck at the end of Year 1 is: $40,000. $38,000. $36,000. $43,000.
$36,000 $48,000 × (2 × 12.5%) = $12,000 Depreciation expense for Year 1; $48,000 Cost − $12,000 Accumulated depreciation at end of Year 1 = $36,000 book value at the end of Year 1
The inventory records for Radford Company reflected the following What is the amount of cost of goods sold assuming the LIFO cost flow method is used? $3,600 $4,100 $4,320 $2,360
$4,100 Under LIFO, the cost of the items purchased last is reported on the income statement, and the cost of the items purchased first is reported on the balance sheet. Cost of goods sold = (100 × $4.80) + (500 × $4.60) + (300 × $4.40) = $4,100
The inventory records for Radford Company reflected the following What is the amount of ending inventory assuming the FIFO cost flow method is used? $940 $440 $400 $480
$480 Under FIFO, the cost of the items purchased first is reported on the income statement, and the cost of the items purchased last is reported on the balance sheet. Ending inventory = 1,000 units available for sale − 900 units sold = 100 units in ending inventory; Cost of ending inventory = 100 × $4.80 = $480
The inventory records for Radford Company reflected the following Beginning inventory on May 1 100 units @ $4.00 First purchase on May 7 300 units @ $4.40 second purchase on May 17 500 units @ $4.60 Third purchase on May 23 100 units @ $4.80 Sales on May 31900 units @ $7.80 What is the amount of ending inventory assuming the FIFO cost flow method is used? $940 $440 $480 $400
$480 Under FIFO, the cost of the items purchased first is reported on the income statement, and the cost of the items purchased last is reported on the balance sheet. Ending inventory = 1,000 units available for sale − 900 units sold = 100 units in ending inventory; Cost of ending inventory = 100 × $4.80 = $480
The Miller Company recognized $190,000 of service revenue earned on account during Year 2. There was no beginning balance in the accounts receivable and allowance accounts. During Year 2, Miller collected $136,000 of cash from accounts receivable. The company estimates that it will be unable to collect 3% of its sales on account. The amount of uncollectible accounts expense recognized on the Year 2 income statement was: $54,000. $4,080. $5,700. $1,320.
$5,700 $190,000 revenue on account x 3% = $5,700
Domino Company uses the aging of accounts receivable method to estimate uncollectible accounts expense. Domino began Year 2 with balances in Accounts Receivable and Allowance for Doubtful Accounts of $76,500 and $5,800, respectively. During the year, the company wrote off $4,640 in uncollectible accounts. In preparation for the company's Year 2 estimate, Domino prepared the following aging schedule: Number of Days Receivables Percentage Likely to BePast DueAmountUncollectibleCurrent$ 104,0001%0 to 3045,0005%31 to 609,92010%61 to 904,44025%Over 903,80050%Total$ 167,160 What will Domino record as Uncollectible Accounts Expense for Year 2? $7,292 $4,640 $1,512 $6,132
$6,132 ($104,000 × 1%) + ($45,000 × 5%) + ($9,920 × 10%) + ($4,440 × 25%) + ($3,800 × 50%) = $7,292 estimated ending allowance balance; $5,800 beginning allowance balance + uncollectible accounts expense − $4,640 write-offs = $7,292 ending allowance balance; uncollectible accounts expense = $7,292 − $5,800 + $4,640 = $6,132
Jing Company was started on January 1, Year 1 when it issued common stock for $50,000 cash. Also, on January 1, Year 1 the company purchased office equipment that cost $34,000 cash. The equipment was delivered under terms FOB shipping point, and transportation cost was $2,000. The equipment had a five-year useful life and a $12,000 expected salvage value. Assume that Jing Company earned $30,000 cash revenue and incurred $19,000 in cash expenses in Year 3. Using straight-line depreciation and assuming that the office equipment was sold on December 31, Year 3 for $16,000, the amount of net income or (loss) appearing on the December 31, Year 3 income statement would be: ($6,600). $5,400. $600. $6,600.
$600 ($36,000 cost − $12,000 salvage value) ÷ 5 years = $4,800 annual depreciation expense; $36,000 cost − (3 years × $4,800) accumulated depreciation = $21,600 book value at the end of Year 3. $16,000 proceeds from sale − $21,600 = ($5,600) loss on sale of equipment; $30,000 revenue − $19,000 cash expenses − $4,800 depreciation expense − $5,600 loss on sale = $600 net income
Rosewood Company made a loan of $16,000 to one of the company's employees on April 1, Year 1. The one-year note carried a 6% rate of interest. The amount of interest revenue that Rosewood would report during the years ending December 31, Year 1 and Year 2, respectively, would be: $7,292 $4,640 $1,512 $6,132
$720 and $240 $16,000 × 6% × 9/12 months = $720 interest revenue in April − December, Year 1; $16,000 × 6% × 3/12 months = $240 interest revenue in January − March, Year 2
Rosewood Company made a loan of $16,000 to one of the company's employees on April 1, Year 1. The one-year note carried a 6% rate of interest. The amount of interest revenue that Rosewood would report during the years ending December 31, Year 1 and Year 2, respectively, would be: $240 and $720. $720 and $240. $960 and $0. $0 and $960.
$720 and $240. $16,000 × 6% × 9/12 months = $720 interest revenue in April − December, Year 1; $16,000 × 6% × 3/12 months = $240 interest revenue in January − March, Year 2
Riley Company borrowed $36,000 on April 1, Year 1 from the Titan Bank. The note issued by Riley carried a one year term and a 7% annual interest rate. Riley earned cash revenue of $1,700 in Year 1 and $1,400 in Year 2. Assume no other transactions. The amount of net income on the Year 2 income statement would be: $770. $630. $(190). $1,890.
$770 $36,000 × 7% × 3/12 months = $630 interest expense; $1,400 revenue − $630 interest expense = $770 net income
Blair Scott started a sole proprietorship by depositing $75,000 cash in a business checking account. During the accounting period the business borrowed $30,000 from a bank, earned $18,000 of net income, and Scott withdrew $12,000 cash from the business. Based on this information, at the end of the accounting period Scott's capital account contained a balance of: $111,000. $93,000. $81,000. $72,000.
$81,000. $75,000 + $18,000 net income − $12,000 withdrawal = $81,000 ending balance in capital account
Blair Scott started a sole proprietorship by depositing $75,000 cash in a business checking account. During the accounting period the business borrowed $30,000 from a bank, earned $18,000 of net income, and Scott withdrew $12,000 cash from the business. Based on this information, at the end of the accounting period Scott's capital account contained a balance of: $72,000. $93,000. $81,000. $111,000.
$81,000. $75,000 + $18,000 net income − $12,000 withdrawal = $81,000 ending balance in capital account
Anton Company uses the perpetual inventory method. Anton purchased 400 units of inventory that cost $12.00 each. At a later date the company purchased an additional 600 units of inventory that cost $16.00 each. If Anton uses the FIFO cost flow method and sells 700 units of inventory, the amount of cost of goods sold will be: $10,400. $9,600. $8,400. $11,200.
$9,600 Under FIFO, the cost of the items purchased first is reported on the income statement, and the cost of the items purchased last is reported on the balance sheet. Cost of goods sold = (400 × $12.00) + (300 × $16.00) = $9,600
Harding Corporation acquired real estate that contained land, building and equipment. The property cost Harding $1,900,000. Harding paid $350,000 and issued a note payable for the remainder of the cost. An appraisal of the property reported the following values: Land, $374,000; Building, $1,100,000 and Equipment, $726,000. What value will be recorded for the building? $175,000 $1,100,000 $950,000 $800,000
$950,000 The total price of a basket purchase must be allocated among the assets acquired. Accountants commonly allocate the purchase price using the relative fair market value method. Percentage allocated to building = Appraised amount for building of $1,100,000 ÷ Total appraised values of $2,200,000 (or $374,000 + $1,100,000 + $726,000) = 50%; Allocation of actual purchase price to building = Total purchase price of $1,900,000 × 50% = $950,000
Jing Company was started on January 1, Year 1 when it issued common stock for $50,000 cash. Also, on January 1, Year 1 the company purchased office equipment that cost $34,000 cash. The equipment was delivered under terms FOB shipping point, and transportation cost was $2,000. The equipment had a five-year useful life and a $12,000 expected salvage value. Using double-declining-balance depreciation, what is the amount of depreciation expense and the amount of accumulated depreciation, respectively, that would appear on the December 31, Year 3 financial statements? $8,640 and $23,040 $0 and $24,000 $960 and $24,000 $5,184 and $28,224
$960 and $24,000 ($34,000 + $2,000) × (2 × 20%) = $14,400 depreciation in Year 1 Ending book value in Year 1 = $36,000 − $14,400 = $21,600 $21,600 × (2 × 20%) = $8,640 depreciation in Year 2 Ending book value in Year 2 = $21,600 − $8,640 = $12,960 $12,960 − $12,000 salvage value = $960 depreciation expense in Year 3 ($12,960 × 40% would depreciate the office equipment below its $12,000 salvage value) $14,400 + $8,640 + $960 = $24,000 accumulated depreciation at the end of Year 3
Jing Company was started on January 1, Year 1 when it issued common stock for $50,000 cash. Also, on January 1, Year 1 the company purchased office equipment that cost $34,000 cash. The equipment was delivered under terms FOB shipping point, and transportation cost was $2,000. The equipment had a five-year useful life and a $12,000 expected salvage value. Using double-declining-balance depreciation, what is the amount of depreciation expense and the amount of accumulated depreciation, respectively, that would appear on the December 31, Year 3 financial statements? $960 and $24,000 $8,640 and $23,040 $5,184 and $28,224 $0 and $24,000
$960 and $24,000 ($34,000 + $2,000) × (2 × 20%) = $14,400 depreciation in Year 1 Ending book value in Year 1 = $36,000 − $14,400 = $21,600 $21,600 × (2 × 20%) = $8,640 depreciation in Year 2 Ending book value in Year 2 = $21,600 − $8,640 = $12,960 $12,960 − $12,000 salvage value = $960 depreciation expense in Year 3 ($12,960 × 40% would depreciate the office equipment below its $12,000 salvage value) $14,400 + $8,640 + $960 = $24,000 accumulated depreciation at the end of Year 3
Jing Company was started on January 1, Year 1 when it issued common stock for $50,000 cash. Also, on January 1, Year 1 the company purchased office equipment that cost $34,000 cash. The equipment was delivered under terms FOB shipping point, and transportation cost was $2,000. The equipment had a five-year useful life and a $12,000 expected salvage value. Using double-declining-balance depreciation, what is the amount of depreciation expense and the amount of accumulated depreciation, respectively, that would appear on the December 31, Year 3 financial statements?
$960 and $24,000 ($34,000 + $2,000) × (2 × 20%) = $14,400 depreciation in Year 1 Ending book value in Year 1 = $36,000 − $14,400 = $21,600 $21,600 × (2 × 20%) = $8,640 depreciation in Year 2 Ending book value in Year 2 = $21,600 − $8,640 = $12,960 $12,960 − $12,000 salvage value = $960 depreciation expense in Year 3 ($12,960 × 40% would depreciate the office equipment below its $12,000 salvage value) $14,400 + $8,640 + $960 = $24,000 accumulated depreciation at the end of Year 3
Jing Company was started on January 1, Year 1 when it issued common stock for $50,000 cash. Also, on January 1, Year 1 the company purchased office equipment that cost $34,000 cash. The equipment was delivered under terms FOB shipping point, and transportation cost was $2,000. The equipment had a five-year useful life and a $12,000 expected salvage value. Using double-declining-balance depreciation, what is the amount of depreciation expense and the amount of accumulated depreciation, respectively, that would appear on the December 31, Year 3 financial statements? $0 and $24,000 $960 and $24,000 $5,184 and $28,224 $8,640 and $23,040
$960 and $24,000 ($34,000 + $2,000) × (2 × 20%) = $14,400 depreciation in Year 1 Ending book value in Year 1 = $36,000 − $14,400 = $21,600 $21,600 × (2 × 20%) = $8,640 depreciation in Year 2 Ending book value in Year 2 = $21,600 − $8,640 = $12,960 $12,960 − $12,000 salvage value = $960 depreciation expense in Year 3 ($12,960 × 40% would depreciate the office equipment below its $12,000 salvage value) $14,400 + $8,640 + $960 = $24,000 accumulated depreciation at the end of Year 3
On January 1, Year 2, Grande Company had a $16,000 balance in the Accounts Receivable account and a zero balance in the Allowance for Doubtful Accounts account. During Year 2, Grande recognized $104,000 of service revenue earned on account. The company collected $97,000 cash from accounts receivable. Uncollectible accounts are estimated to be 2% of sales on account. Based on this information, the amount of cash flow from operating activities that would appear on the Year 2 statement of cash flows is: $89,520. $95,060. $97,000. $104,000.
$97,000. $97,000 cash collected from accounts receivable is a cash inflow for operating activities.
Montana Company was authorized to issue 95,000 shares of common stock. The company had issued 36,000 shares of stock when it purchased 5,500 shares of treasury stock. The number of outstanding shares of common stock was: 41,500. 36,000. 89,500. 30,500.
30,500. 36,000 shares issued − 5,500 shares of treasury stock = 30,500 shares outstanding
Flagler Corporation shows a total of $660,000 in its common stock account and $1,600,000 in its paid-in capital in excess of par value − common stock account. The par value of Flagler's common stock is $8. How many shares of Flagler stock have been issued? 117,500 200,000 82,500 It cannot be determined.
82,500 $660,000 total par value ÷ $8 par value per share = 82,500 shares issued
Flagler Corporation shows a total of $660,000 in its common stock account and $1,600,000 in its paid-in capital in excess of par value − common stock account. The par value of Flagler's common stock is $8. How many shares of Flagler stock have been issued? 200,000 82,500 117,500 It cannot be determined.
82,500 $660,000 total par value ÷ $8 par value per share = 82,500 shares issued
Which of the following entities would report income tax expense on its income statement? A sole proprietorship A corporation A partnership All of these answer choices are correct
A corporation Corporations are separate legal entities and pay income taxes on their earnings. Since sole proprietorships and partnerships are not separate legal entities, company earnings are taxable to the owners rather than to the company itself.
Which of the following entities would have a paid-in capital in excess of par (or stated) value account in the equity section of the balance sheet? A corporation A municipality A sole proprietorship A partnership
A corporation Only a corporation issues stock; as such, it is the only type of entity that would have a paid-in capital in excess of par (or stated) value account.
Which of the following entities would have a paid-in capital in excess of par (or stated) value account in the equity section of the balance sheet? A partnership A municipality A corporation A sole proprietorship
A corporation Only a corporation issues stock; as such, it is the only type of entity that would have a paid-in capital in excess of par (or stated) value account.
The term "Retained Earnings" is best explained by which of the following statements? Cash retained in a separate bank account designated for emergency uses. Money set aside for the redemption of bonds. A measure of capital generated through earnings. The difference between total revenue and total expenses in an accounting period.
A measure of capital generated through earnings. As a corporation generates earnings, stockholders' equity is increased by increasing the retained earnings account. In a proprietorship or partnership, earnings increase the owner(s)'s capital account.
Benitez Company had sales of $800,000 in Year 1. The company expects to incur warranty expenses amounting to 3% of sales. There were $13,000 of warranty obligations paid in cash during Year 1. Based on this information: Warranty expenses would decrease net earnings by $24,000 in Year 1. Cash would decrease by $13,000 as a result of the accounting events associated with warranties in Year 1. The warranties payable account would increase by $11,000 in Year 1. All of these answer choices are correct.
All of these answer choices are correct. $800,000 × 3% = $24,000 warranty expense is recognized in Year 1. Cash decrease by $13,000 when the warranty obligations are paid. Warranties payable increases by $24,000 when warranty expense is recognized and decreases by $13,000 when warranty obligations are paid, for a net increase of $11,000.
Which of the following statements best describes the term "par value?" The amount that must be paid to purchase a share of stock Determined by dividing total stockholders' equity by the number of shares of stock The number of shares currently in the hands of stockholders An amount used in determining a corporation's legal capital
An amount used in determining a corporation's legal capital While par value is used to determine legal capital, it has no real economic significance.
Which of the following statements best describes the term "par value?" The amount that must be paid to purchase a share of stock The number of shares currently in the hands of stockholders An amount used in determining a corporation's legal capital Determined by dividing total stockholders' equity by the number of shares of stock
An amount used in determining a corporation's legal capital While par value is used to determine legal capital, it has no real economic significance.
Which of the following represents the impact of a taxable cash sale of $1,120 on the accounting equation if the sales tax rate is 5%? An increase to cash for $1,176, an increase to sales tax expense for $56, and an increase to sales revenue for $1,120. An increase to cash for $1,120, an increase to sales tax payable for $56, and an increase to sales revenue for $1,064. An increase to cash for $1,176, an increase to sales tax payable for $56, and an increase to sales revenue for $1,120. None of these answer choices is correct.
An increase to cash for $1,176, an increase to sales tax payable for $56, and an increase to sales revenue for $1,120. The transaction is recorded as an increase to cash of $1,176, the amount of the sale, plus the 5% sales tax collected, an increase to sales tax payable of $56, the amount owed to the state, and an increase to sales revenue of $1,120, the amount of the sale.
Which of the following represents the impact of a taxable cash sale of $700 on the accounting equation if the sales tax rate is 4%? An increase to cash for $728, an increase to sales tax expense for $28, and an increase to sales revenue for $700. An increase to cash for $700, an increase to sales tax payable for $28, and an increase to sales revenue for $672. An increase to cash for $728, an increase to sales tax payable for $28, and an increase to sales revenue for $700. None of these answer choices is correct.
An increase to cash for $728, an increase to sales tax payable for $28, and an increase to sales revenue for $700. The transaction is recorded as an increase to cash of $728, the amount of the sale, plus the 4% sales tax collected, an increase to sales tax payable of $28, the amount owed to the state, and an increase to sales revenue of $700, the amount of the sale.
Which of the following correctly describes an installment note? An installment note requires equal interest payments with the entire principal balance paid at maturity. An installment note requires equal payments of interest and principal in which the amount of interest decreases over the life of the note. An installment note requires equal payments of interest and principal in which the amount of interest increases over the life of the note. The installment note requires decreasing payments of interest and principal in which the amount of interest remains constant over the life of the note.
An installment note requires equal payments of interest and principal in which the amount of interest decreases over the life of the note. As the principal balance of the note decreases over time the portion of the payment that is applied to interest expense decreases. However, the amount of the payment remains constant.
Which of the following correctly describes an installment note? An installment note requires equal interest payments with the entire principal balance paid at maturity. An installment note requires equal payments of interest and principal in which the amount of interest increases over the life of the note. Incorrect The installment note requires decreasing payments of interest and principal in which the amount of interest remains constant over the life of the note. An installment note requires equal payments of interest and principal in which the amount of interest decreases over the life of the note.
An installment note requires equal payments of interest and principal in which the amount of interest decreases over the life of the note. As the principal balance of the note decreases over time the portion of the payment that is applied to interest expense decreases. However, the amount of the payment remains constant.
Where is treasury stock reported on a corporation's balance sheet? As a deduction from total paid-in capital As an addition to total paid-in capital As a deduction from total stockholders' equity, following retained earnings As a deduction from retained earnings
As a deduction from total stockholders' equity, following retained earnings Treasury stock is a contra equity account that reduces total stockholders' equity. It is listed after the retained earnings section. It does not affect paid-in capital or retained earnings.
The party who borrows money in a note payable is known as the: Maker. Payee. Issuer. Both Maker and Issuer.
Both Maker and Issuer. The party who borrows money is the issuer or the maker of the note.
The term "double taxation" refers to which of the following? - Corporations must pay income taxes on their net income, and their stockholders must pay income taxes on the dividends they receive from the corporation. - A sole proprietorship must pay income taxes to both the state government and the federal government. - In a partnership, both partners are required to claim their share of net income on their tax returns. - A sole proprietorship must pay income taxes on its net income and the owner is also required to pay income taxes on withdrawals.
Corporations must pay income taxes on their net income, and their stockholders must pay income taxes on the dividends they receive from the corporation. Corporations pay income taxes on their earnings; dividends are not deductible in terms of computing those earnings. Stockholders then pay income taxes on the dividends they receive from corporations.
Which of the following terms is used to identify the process of expense recognition for property, plant and equipment? Depletion Revision Depreciation Amortization
Depreciation Depreciation is the process of expense recognition for property, plant and equipment. Amortization is used for intangible assets and depletion is used for natural resources. The term, revision, is not used to describe a process of expense recognition.
Which of the following terms is used to identify the process of expense recognition for property, plant and equipment? Revision Amortization Depreciation Depletion
Depreciation Depreciation is the process of expense recognition for property, plant and equipment. Amortization is used for intangible assets and depletion is used for natural resources. The term, revision, is not used to describe a process of expense recognition.
Blake Company purchased two identical inventory items. The item purchased first cost $16.00, and the item purchased second cost $18.00. Blake sold one of the items for $24.00. Which of the following statements is true? Cost of goods sold will be higher if Blake uses the FIFO cost flow method than if weighted average cost flow method was used. Ending inventory will be lower if Blake uses the weighted average cost flow method than if the FIFO cost flow method was used. The dollar amount assigned to ending inventory will be the same no matter which cost flow method is used. Gross margin will be higher if Blake uses LIFO than it would be if FIFO were used.
Ending inventory will be lower if Blake uses the weighted average cost flow method than if the FIFO cost flow method was used. If Blake uses weighted average, ending inventory will be $17.00. The weighted average method calculates an average cost of inventory ($16 + $18 = $34; $34/2 units = $17 average cost per unit). If the company uses FIFO, ending inventory will be $18.00. The FIFO method assumes that inventory purchased first is sold first. Therefore, the item purchased first costing $16 will be sold first and the item costing $18 will remain in ending inventory.
If prices are rising, which inventory cost flow method will produce the lowest amount of cost of goods sold? Weighted average LIFO FIFO LIFO, FIFO, and weighted average will all produce equal amounts.
FIFO When prices are rising, FIFO will produce the lowest cost of goods sold compared with other methods because it is based on the earliest, lowest priced, purchases.
Houff Company uses the allowance method to account for uncollectible accounts. An account that had been previously written-off as uncollectible was recovered. How would the recovery affect the company's accounting equation? Have no effect on total assets, liabilities or stockholders' equity Increase total assets and increase stockholders' equity Increase total assets and decrease liabilities Reduce liabilities and increase stockholders' equity
Have no effect on total assets, liabilities or stockholders' equity The first step is to reinstate the account receivable by reversing the previous write-off. This is an asset exchange transaction. The balances in accounts receivable and the allowance for doubtful accounts increase. Since the Allowance is a contra asset account, the increase in it offsets the increase in the Accounts Receivable account and total assets are unchanged. Next, Houff Company records collection of the receivable, which increases assets (cash) and decreases assets (accounts receivable). This step is also an asset exchange transaction. The cash collection of the receivable is reported as a cash inflow for operating activities on the statement of cash flows.
Which financial statement(s) is (are) affected when depreciation expense is recognized? Balance sheet Income statement, balance sheet, and statement of cash flows Income statement and balance sheet Statement of cash flows Income statement
Income statement and balance sheet On the income statement, recognizing depreciation increases expenses which decreases net income. On the balance sheet, recognizing depreciation decreases assets (book value of the asset) and stockholders' equity (retained earnings). The statement of cash flows is not affected at the time depreciation expense is recognized.
Ogilvie Corporation issued 12,000 shares of no-par stock for $40 per share. Ogilvie was authorized to issue 35,000 shares. What effect will this event have on the company's financial statements? Increase assets by $1,400,000, increase stockholders' equity by $1,400,000. Increase assets by $480,000, increase stockholders' equity by $480,000. Increase cash flow from investing activities by $480,000. None of these answer choices are correct.
Increase assets by $480,000, increase stockholders' equity by $480,000. Assets (cash) and stockholders' equity (common stock) both increase by $480,000 (12,000 shares × $40). The cash inflow is a financing activity, not an investing activity.
Which inventory costing method will produce an amount for cost of goods sold that is closest to current market value? Specific identification Weighted average LIFO FIFO
LIFO LIFO will produce cost of goods sold that is based on the most recent purchases.
When prices are rising, which method of inventory, if any, will result in the lowest relative net cash outflow (including the effects of taxes, if any)? LIFO FIFO Weighted average None of these; inventory methods cannot affect cash flows.
LIFO When prices are rising, LIFO will result in the highest cost of goods sold (most recent purchases), and therefore will result in the lowest income tax expense. Income tax expense is the only cash flow affected by the choice of a cost flow method.
Which of the following is not considered an advantage of the corporate form of business organization? Ease of transferability of ownership Lack of government regulation Correct Continuity of existence Ability to raise capital
Lack of government regulation The large amount of government regulation is a disadvantage of the corporate form of business.
Which of the following would be classified as a tangible asset? Trademark Land Copyright Goodwill
Land Copyright, goodwill, and trademark are all examples of intangible assets, as they do not have physical existence. Land is an example of property, plant, and equipment, and is a tangible asset.
Alberta Company accepts a credit card as payment for $450 of services provided for the customer. The credit card company charges a 4% handling charge for its collection services. Select the answer that shows how the entry to record the sale would affect Alberta's financial statements. Option A Option B Option C Option D
Option C The sale increases assets (accounts receivable) by $432, the amount to be collected from the credit card company, increases revenue by $450, and increases expenses (credit card expense) by $18 (4% of $450). Net income and stockholders' equity both increase by $432. The statement of cash flows is not affected.
Alberta Company accepts a credit card as payment for $450 of services provided for the customer. The credit card company charges a 4% handling charge for its collection services. Select the answer that shows how the entry to record the sale would affect Alberta's financial statements. Balance SheetIncome StatementStatement of Cash FlowsAssets=Liabilities+Stockholders' EquityRevenue−Expense=Net IncomeA.432 NA 432432 NA 432432OAB.432 NA 432450 18 432432OAC.432 NA 432450 18 432 NAD.450 NA 450450 NA 450 NA Option A Option B Option C Option D
Option C The sale increases assets (accounts receivable) by $432, the amount to be collected from the credit card company, increases revenue by $450, and increases expenses (credit card expense) by $18 (4% of $450). Net income and stockholders' equity both increase by $432. The statement of cash flows is not affected.
Monthly remittance of sales tax: Reduces liabilities. Is a claims exchange transaction. Reduces stockholders' equity. All of these answer choices are correct.
Reduces liabilities Remittance of sales tax reduces assets (cash) and reduces liabilities (sales tax payable).
Monthly remittance of sales tax: Reduces liabilities. Is a claims exchange transaction. Reduces stockholders' equity. All of these answer choices are correct.
Reduces liabilities. Remittance of sales tax reduces assets (cash) and reduces liabilities (sales tax payable).
Which of the following statements about the impact of treasury stock on the amounts reported on the balance sheet is correct? The balance in the treasury stock account reduces paid-in capital. The balance in the treasury stock account reduces total stockholders' equity. The balance in the treasury stock reduces retained earnings. The balance in the treasury stock account increases paid-in capital.
The balance in the treasury stock account reduces total stockholders' equity. Treasury stock is a contra equity account that neither affects paid-in capital nor retained earnings.
Which of the following statements about the impact of treasury stock on the amounts reported on the balance sheet is correct? The balance in the treasury stock reduces retained earnings. The balance in the treasury stock account reduces paid-in capital. The balance in the treasury stock account increases paid-in capital. The balance in the treasury stock account reduces total stockholders' equity.
The balance in the treasury stock account reduces total stockholders' equity. Treasury stock is a contra equity account that neither affects paid-in capital nor retained earnings.
Under what condition is a pending lawsuit recognized as a liability on a company's balance sheet? The amount can be reasonably estimated. The outcome is reasonably possible. The outcome is probable. The outcome is probable and can be reasonably estimated.
The outcome is probable and can be reasonably estimated. A contingent liability should be recorded in the financial statements as a liability if the outcome is considered probable and the amount owed can be reasonably estimated. If the outcome is considered only reasonably possible, it is only disclosed in the notes to the financial statements.
Which of the following is not normally a preference given to the holders of preferred stock? The right to receive a specified amount of dividends prior any being paid to common stockholders The right to vote before the common stockholders at the corporation's annual meeting The right to receive preference over common stockholders as to the distribution of assets during a liquidation process All of these are preferences given to preferred stock.
The right to vote before the common stockholders at the corporation's annual meeting Preferred stockholders do not have voting rights.
Which of the following would be classified as a long-term operational asset? Trademark Correct Inventory Accounts receivable Notes receivable
Trademark A trademark is an intangible long-term operational asset. While notes receivable could be long-term, it is not considered an operational asset. Inventory and accounts receivable are current assets.
Which of the following is a negative or contra equity account? Retained earnings Appropriated retained earnings Paid-in capital in excess of par value Treasury stock
Treasury stock Treasury stock is a contra equity account that is reported as a negative number (that is, a reduction of total stockholders' equity) on the balance sheet.
Which of the following is a negative or contra equity account? Retained earnings Paid-in capital in excess of par value Appropriated retained earnings Treasury stock
Treasury stock Treasury stock is a contra equity account that is reported as a negative number (that is, a reduction of total stockholders' equity) on the balance sheet.
When do the effects of product warranties appear on the statement of cash flows? When the sale of merchandise is made. When the warranty obligation is recognized. When there is a settlement of a warranty claim made by a customer. None of these answer choices are correct.
When there is a settlement of a warranty claim made by a customer. Cash is usually used to settle a warranty claim made by a customer, but is never used at the time the obligation is recognized as an expense. Although cash may be collected when the sale is made, that cash is not related to the warranty.
In an inflationary environment: a company's net income will be the same regardless of whether LIFO or FIFO is used. a company's assets will be lower if it uses LIFO as opposed to FIFO cost flow. a company's cost of goods sold will be lower if it uses LIFO as opposed to FIFO. a company's net income will be higher if it uses LIFO than if it uses FIFO.
a company's assets will be lower if it uses LIFO as opposed to FIFO cost flow. In an inflationary environment, prices are rising. LIFO will produce the lowest ending inventory (earliest purchases) compared with FIFO.
At the time that Kirby Company issued a 2-for-1 stock split, the company had 5,000 shares of $6 par value common stock outstanding. Stockholders' equity also contained $15,000 of additional paid-in capital and $22,000 of retained earnings. Immediately after the stock split the: balance in the retained earnings account would amount to $11,000. number of outstanding shares of common stock would be 2,500. amount of paid-in capital in excess of par-common would be equal to $150,000. balance in the common stock account would amount to $30,000.
balance in the common stock account would amount to $30,000. Stock splits do not affect a company's account balances. The common stock account after the stock split would be $30,000 (= 10,000 shares × $3), the same total amount as before the split.
The year-end adjusting entry to recognize uncollectible accounts expense will: - decrease assets and decrease stockholders' equity. - increase liabilities and increase stockholders' equity. - decrease liabilities and increase stockholders' equity. - increase assets and decrease stockholders' equity.
decrease assets and decrease stockholders' equity. The adjusting entry will decrease assets by increasing the contra asset allowance for doubtful accounts and will increase uncollectible accounts expense, which decreases stockholders' equity.
The recognition of depreciation expense acts to: - increase assets, stockholders' equity, and cash flow from operating activities. - decrease assets and stockholders' equity, and does not affect cash flow. - decrease assets, stockholders' equity, and cash flow from operating activities. - increase cash flow from operating activities, and does not affect the amount of total assets.
decrease assets and stockholders' equity, and does not affect cash flow. Depreciation expense decreases assets (by increasing the contra asset account called accumulated depreciation, which decreases the book value of the asset) and stockholders' equity (retained earnings). The statement of cash flows is not affected at the time depreciation expense is recognized.
Interest charges on notes payable may be based on a(n): fixed or variable interest rate. fixed interest rate. variable interest rate. installment interest rate.
fixed or variable interest rate. Interest charges may be based on a fixed interest rate that remains constant during the term of the loan or may be based on a variable interest rate that fluctuates up or down during the loan period.
The par value of a company's stock: is generally greater than market value. may be revised each time a company issues more shares of stock. has little connection to the market value of the stock. dictates the initial price of the stock.
has little connection to the market value of the stock. Par value is an arbitrary number, but is typically lower than market value.
The par value of a company's stock: may be revised each time a company issues more shares of stock. has little connection to the market value of the stock. is generally greater than market value. dictates the initial price of the stock.
has little connection to the market value of the stock. Par value is an arbitrary number, but is typically lower than market value.
The net effect of the entries to recognize the receipt of a previously written-off account under the allowance method is to: have no effect on total assets or stockholders' equity. decrease total assets. increase total stockholders' equity only. increase total assets and stockholders' equity.
have no effect on total assets or stockholders' equity. When a company receives payment on a previously written-off account, it must first reinstate the written-off account. The reinstatement increases assets (accounts receivable) and decreases assets (increases the contra asset allowance for doubtful accounts), with no overall effect on the financial statements. Next, the company records collection of the receivable, which increases assets (cash) and decreases assets (accounts receivable), again with no overall effect on assets. The event is reported as a cash inflow for operating activities on the statement of cash flows.
Franklin Company issued a $40,000 note to the Mercantile Bank on August 1, Year 1. The note carried a one-year term and a 12% rate of interest. The accrual of interest on December 31, Year 1 will: decrease assets and decrease retained earnings by $2,000. increase liabilities and decrease stockholders' equity by $2,000. increase liabilities and decrease stockholders' equity by $1,600. decrease stockholders' equity and increase liabilities by $4,800
increase liabilities and decrease stockholders' equity by $2,000. $40,000 principal × 12% × 5 months ÷ 12 months = $2,000 interest expense. The accrual will increase liabilities (interest payable) and increase expenses, which will decrease net income and stockholders' equity (retained earnings).
Bonds payable are usually classified on the balance sheet as: current liabilities. long-term liabilities. investments and funds. other assets.
long-term liabilities. Bonds will not be repaid until many accounting periods from the issue date. Therefore, they are classified as long-term liabilities.
The issuance of a stock dividend will: not affect total equity. decrease paid-in capital. decrease total assets. increase retained earnings.
not affect total equity. Stock dividends decrease retained earnings and increase common stock and paid-in capital in excess of par value. There is no overall impact on stockholders' equity.
When the common stock account is disclosed on the balance sheet, it is reported at: average issue price. par or stated value. current market value. lower of cost or market.
par or stated value. The par value of the stock is recorded in the common stock account and any additional amount received is recorded in the paid-in capital in excess of par value account.
On January 1, Year 1, Eller Company purchased an asset that had cost $24,000. The asset had an 8-year useful life and an estimated salvage value of $1,000. Eller depreciates its assets on the straight-line basis. On January 1, Year 5, the company spent $6,000 to improve the quality of the asset. Based on this information, the recognition of depreciation expense in Year 5 would: increase total stockholders' equity by $4,625. reduce total stockholders' equity by $4,375. increase total assets by $4,375. reduce total assets by $4,625.
reduce total stockholders' equity by $4,375. ($24,000 cost − $1,000 salvage) ÷ 8 years = $2,875 original annual depreciation; $2,875 × 4 years = $11,500 accumulated depreciation at time of improvement; ($24,000 original cost − $11,500 accumulated depreciation + $6,000 improvement − $1,000 salvage) ÷ 4 remaining years = $4,375 new annual depreciation; Recognizing the Year 5 depreciation expense decreases assets (book value of the asset) and increases expenses (depreciation expense) by $4,375. Net income and stockholders' equity (retained earnings) also decrease by $4,375.
On January 1, Year 1, Eller Company purchased an asset that had cost $24,000. The asset had an 8-year useful life and an estimated salvage value of $1,000. Eller depreciates its assets on the straight-line basis. On January 1, Year 5, the company spent $6,000 to improve the quality of the asset. Based on this information, the recognition of depreciation expense in Year 5 would: reduce total stockholders' equity by $4,375. increase total stockholders' equity by $4,625. increase total assets by $4,375. reduce total assets by $4,625.
reduce total stockholders' equity by $4,375. ($24,000 cost − $1,000 salvage) ÷ 8 years = $2,875 original annual depreciation; $2,875 × 4 years = $11,500 accumulated depreciation at time of improvement; ($24,000 original cost − $11,500 accumulated depreciation + $6,000 improvement − $1,000 salvage) ÷ 4 remaining years = $4,375 new annual depreciation; Recognizing the Year 5 depreciation expense decreases assets (book value of the asset) and increases expenses (depreciation expense) by $4,375. Net income and stockholders' equity (retained earnings) also decrease by $4,375.
A company that uses the allowance method to account for uncollectible accounts: - records Uncollectible Accounts Expense when a receivable is written off. - does not record uncollectible accounts until the amount becomes significant. - reports the net realizable value of its accounts receivable on the balance sheet. - None of these answer choices are correct.
reports the net realizable value of its accounts receivable on the balance sheet. A company that uses the allowance method estimates uncollectible accounts expense before they actually become uncollectible, using a contra asset account known as allowance for doubtful accounts, and reports the net realizable value of accounts receivable on the balance sheet.
Madison Company issued an interest-bearing note payable with a face amount of $24,000 and a stated interest rate of 8% to the Metropolitan Bank on August 1, Year 1. The note carried a one-year term. The amount of cash flow from operating activities on the Year 1 statement of cash flows would be: $1,920. $800. zero. $24,000.
zero The $24,000 borrowed is classified as a financing activity, not an operating activity. No interest was paid in Year 1, so there is no cash flow related to the interest.
Currie Company borrowed $14,000 from the Sierra Bank by issuing a 11% three-year note. Currie agreed to repay the principal and interest by making annual payments in the amount of $5,729. Based on this information, the amount of the interest expense associated with the second payment would be: $1,079. $1,540. $772. $4,421.
$1,079. Interest expense in year 1: $14,000 × 11% = $1,540; Principal reduction in year 1: $5,729 − $1,540 = $4,189; Principal balance at beginning of year 2: $14,000 − $4,189 = $9,811; Interest expense in year 2: $9,811 × 11% = $1,079.
Riley Company borrowed $36,000 on April 1, Year 1 from the Titan Bank. The note issued by Riley carried a one year term and a 7% annual interest rate. Riley earned cash revenue of $1,700 in Year 1 and $1,400 in Year 2. Assume no other transactions. The amount of cash flow from operating activities that would appear on the Year 2 statement of cash flows would be: $38,520 outflow. $1,400 inflow. $770 inflow. $1,120 outflow.
$1,120 outflow $36,000 × 7% = $2,520 cash paid for interest on the note; $1,400 inflow from revenue − $2,520 outflow for interest = $1,120 outflow for operating activities. The repayment of principal is a financing activity.
Curtain Company paid dividends of $1,500; $3,000; and $4,000 during Year 1, Year 2, and Year 3, respectively. The company had 700 shares of 3.5%, $100 par value preferred stock outstanding that paid a cumulative dividend. The amount of dividends received by the common shareholders during Year 3 would be: $1,500. $950. $2,450. $1,150.
$1,150. The annual preferred dividends each year = $100 × 700 shares × 3.5% = $2,450. In Year 1, there were $950 of dividends in arrears ($2,450 preferred dividends − $1,500 paid). In Year 2, there were $400 in arrears ($950 beginning + $2,450 preferred dividends − $3,000 paid). In Year 3, the preferred dividends was $2,450 + $400 in arrears = $2,850. The remaining $1,150 was paid to common shareholders.
Currie Company borrowed $24,000 from the Sierra Bank by issuing a 9% three-year note. Currie agreed to repay the principal and interest by making annual payments in the amount of $9,482. Based on this information, the amount of the interest expense associated with the second payment would be: $2,160. $1,405. $5,421. $1,501.
$1,501 Interest expense in year 1: $24,000 × 9% = $2,160; Principal reduction in year 1: $9,482 − $2,160 = $7,322; Principal balance at beginning of year 2: $24,000 − $7,322 = $16,678; Interest expense in year 2: $16,678 × 9% = $1,501.
Curtain Company paid dividends of $10,000; $12,500; and $14,000 during Year 1, Year 2, and Year 3, respectively. The company had 2,100 shares of 5.5%, $100 par value preferred stock outstanding that paid a cumulative dividend. The amount of dividends received by the common shareholders during Year 3 would be: $1,850. $2,500. $11,550. $1,550.
$1,850. The annual preferred dividends each year = $100 × 2,100 shares × 5.5% = $11,550. In Year 1, there were $1,550 of dividends in arrears ($11,550 preferred dividends − $10,000 paid). In Year 2, there were $600 in arrears ($1,550 beginning + $11,550 preferred dividends − $12,500 paid). In Year 3, the preferred dividends was $11,550 + $600 in arrears = $12,150. The remaining $1,850 was paid to common shareholders.