Accounting exam 3

Wyanot Company issued 1,000 shares of its 5%, $100 par value, cumulative preferred stock for $110 cash per share. The journal entry to record this transaction includes a

$10,000 credit to Additional Paid-in Capital - Preferred $110,000 debit to Cash $100,000 credit to Preferred Stock

Dilution Solutions, Inc. repurchased 500 shares of its $2 par value common stock for $10,000. The journal entry to record this transaction includes a

$10,000 debit to Treasury Stock $10,000 credit to Cash

X-Co issued 1,000 shares of its 5%, $100 par value, cumulative preferred stock for $100 cash per share. The journal entry to record this event includes a ______.

$100,000 debit to Cash $100,000 credit to Preferred Stock

Vests, Inc. has 1,000 shares of 5%, par $100, non-cumulative preferred stock and 10,000 shares of $1 par value common stock outstanding. Vests declared a $12,500 dividend. How much of the dividend is allocated to the preferred and common shares?

$7,500 is allocated to the common stock. $5,000 is allocated to the preferred stock.

Dive In, Inc. purchased 10,000 shares of Stock-up, Inc.'s 100,000 shares outstanding, $1 par value common stock for $8 per share. Dive In intends to trade the shares within the year. The entry to record Dive In's purchase includes a(n)

$80,000 debit to Investments

Which of the following investments are considered passive investments?-

12% investment of outstanding voting shares of X, Inc. Notes issued by other companies Bonds issued by other companies

Wok N Roll, Inc. began on January 1, 2017 by issuing 100,000 shares of $1 par value common stock and 1,000 shares of $100 par value, 5%, cumulative preferred stock. No dividends were declared in 2017 or 2018. In 2019, Wok N Roll declared and paid a $0.50 dividend to its common stockholders. Assuming all shares originally issued are outstanding, the total dividend declared and paid in 2019 equals

65000 Reason: Cumulative preferred stock receives 1,000 shares x $100 par x 5% x 3 years and common stock receives 100,000 shares x $0.50.

Cashews, Inc.'s financing activities section of the statement of cash flows reported a significant cash inflow from the issuance of bonds and cash outflow from the repurchase of treasury stock; all other financing activities were insignificant. As a result, which of the following may be expected to occur in the near future? (Check all that apply.)

A decrease in the number of shares outstanding An increase in interest expense

In an IPO on May 1, 2009, Timmy Hilfigure purchased 1,000 shares of Abner Crummie, Inc. for $5,000. On April 30, 2018, Timmy Hilfigure sold the 1,000 shares for $8,000 to Ralph Loring. What is the effect of the sale on April 30, 2018?

Abner Crummie, Inc., will not be directly affected by this transaction.

When are unrealized gains or losses on trading debt securities recognized on the income statement?

At the end of the accounting period, when the securities are revalued to fair value

Barclay, Inc. sold equipment that originally cost $30,000 four years ago for $8,000 cash. The equipment had accumulated depreciation totaling $24,000. How will this transaction be listed in the investing activities section of Barclay's statement of cash flows?

Cash inflow of $8,000

Daffy Duct Inc. issued 1,000 shares of $1 par value common stock for $4 each. Identify all appropriate account titles that may be used to record this issuance of stock

Common stock Additional paid-in capital

_____________________ financial statements means two or more companies' financial reports are combined into one. This occurs when a parent company has control over other subsidiaries.

Consolidated

Mars Inc. issues 5,000 shares of no par stock for $100,000. Which of the following entries is required?

Credit Common stock

Which of the following statements best describes the reason depreciation expense is added to net income when preparing the statement of cash flows?

Depreciation Expense originally reduced net income, but the expense does not involve paying cash.

Which of the following investments are considered passive investments?

Less than 20% investment in equity securities Debt securities

Identify which of the following are properly reported in a statement of cash flows.

Repayment of loan principal: cash outflow under financing activities Net proceeds from stock issuance: cash inflow under financing activities Cash paid for interest: cash outflow under operating activities

Which of the following accounts are classified as stockholders' equity?

Retained earnings Common stock Paid-in capital

Investors earn a return on stock investments by

Selling the stock for more than its cost and receiving dividends.

Which of the following classifications is not used to categorize cash inflows and cash outflows on the statement of cash flows?

Spending

To adjust available-for-sale debt securities for an increase in their fair values, the entry to will include a _____.

credit to Unrealized Gain

Mini-mall, Inc. purchased 10, $1,000 par value 12% bonds for a total of $11,080 which included $80 transaction fees. Mini-mall expects to sell these bonds before they mature. These bonds should be reported at

fair value

True or false: Changes in cash are classified as either operating activities, direct activities or indirect activities.

false

Preferred stockholders

have the right to receive dividends only in the years the board of directors declares dividends

Investments that management intends not to sell are called ______ investments

held-to-maturity

Passive investments may be categorized as ______ investments. (Check all that apply.)

held-to-maturity trading available-for-sale

Balloon Tycoon, Inc. frequently trades securities. It purchased 1% of Inflatables, Inc.'s outstanding stock for $10,000. During the year, the stock paid a $200 dividend, and at year-end, the stock's fair value was $10,400. The effect of these securities on Balloon Tycoon's net income is to

increase it by $600

Net cash from operating activities is considered favorable if it is a net cash

inflow

Cash paid for property, plant and equipment is found in the cash outflows from the activities section of the statement of cash flows.

investing

The amortized cost method results in investments in debt securities being reported at their _______.

issue price (cost) adjusted for the amortization of any discount or premium

The number of shares outstanding equals the number of shares

issued minus the number of shares in treasury

In preparing the operating activities section of a statement of cash flows using the indirect method, net income should be adjusted for ______.

loss from sale of asset gain from sale of asset depreciation expense

Depreciation Expense is added back to net income when preparing the cash flow from operating activities section because depreciation represents a(n) ______ reduction to net income.

noncash

Available-for-sale securities are intended to

not be held to maturity or actively traded

The activities section of the statement of cash flows indicates how well a company is able to generate cash through its normal business activities and management of working capital. (Enter one word per blank.)

operating

The indirect method of preparing the statement of cash flows affects how ______ activities section is(are) prepared.

operating

payment accounts payable payment to stockholders payment new truck

operating financing investing

Select the categories found on a statement of cash flows.

operating activities investing activities financing activities

The ______ activities section is very important, since ______ are the only continuing, internal source of cash for the business.

operating; operations

A company that reports a significant negative cash flows from investing activities due to the purchase of a building will most likely report a ______.

positive cash flow from financing activities

Which of the following are cash outflows from investing activities?

purchase of land purchase of long-term investments Purchase of building

Passive investments in equity securities held at year end are

reported at fair value on the balance sheet and changes in fair value are reported in net income on the income statement

At year end, changes in the fair value of investments in trading debt securities are

reported in net income on the income statement

At year end, changes in the fair value of investments in available-for-sale debt securities are

reported on the Statement of Comprehensive Income

Investments in affiliates on the balance sheet indicates that the company has

significant influence over the affiliate, but owns less than 50% of the affiliates outstanding stock

The number of shares issued represents the number of shares

sold

The ______ reports three broad categories: operating, investing, and financing activities.

statement cash flows

A corporation is owned by its __________.

stockholders

Which of the following receive dividends if declared?

stockholders

The direct and indirect methods of preparing the statement of cash flows will result in ______. (Check all that apply.)

the same net cash flows from operating, investing and financing activities different approaches to arriving at the same net cash flow from operating activities

Which of the following are typical benefits to being a shareholder?

voting rights residual claim dividends

XYZ Co. sold equipment that originally cost $14,000 with accumulated depreciation of $11,000 for $4,000 cash, resulting in a gain of $1,000. Which of the statements below are correct regarding the treatment of this transaction on the statement of cash flows for the current period? (Check all that apply.)

$4,000 is a cash inflow in investing activities. $1,000 is deducted from operating activities.

Which of the following are the financial statement effects investments in equity securities?

Investments are reported on the balance sheet at fair value Changes in fair values are reported as Unrealized gains (losses) on the income statement Dividend revenue is reported on the income statement

The fair value method is used to report which of the following investments?

Investments in trading debt securities

How is the change in cash classified on the statement of cash flows?

It is the sum of the operating, investing, and financing activities sections.

Passive investment Investment for significant influence Investment for control

Owns 40% of bond issuance owns between 20 and 50% of outstanding shares owns>50% of outstanding shares

Which of the following is necessary for a company to remain in business for the long run?

Positive cash flows from operating activities

Vests, Inc. has 1,000 shares of 5%, par $100 preferred stock and 10,000 shares of $1 par value common stock outstanding. If the common stockholders received $2 per share in dividends, then the preferred stock dividend was ______ per share

Reason: $5 = $100 par value x 5% dividend rate

Stockable, Inc. began business on January 1, 2018 by issuing 100,000 shares of $1 par value common stock and 1,000 shares of 6%, noncumulative, $100 par value preferred stock. No dividends were declared in 2018. In 2019, Stockable declared and paid a $0.50 dividend to its common stockholders. Which of the following is true?

Stockable, Inc. has no legal obligation to pay a dividend to preferred stockholders in 2018.

True or false: Investments that can be classified as held-to-maturity are investments in debt securities that management intends not to sell.

True Reason: The only investments that can be classified as held-to-maturity are the investments in debt securities that management intends not to sell. Equity securities do not mature and thus cannot be held until maturity.

Barry Rich, Inc., owns less than 20% of the outstanding voting stock of Rich Farms, Inc.. When assessing whether Barry Rich, Inc., has significant influence, which of the following factors should be considered? (Check all that apply.)

Whether Barry is a board member Whether Barry has significant operating transactions with Rich Farms Whether Barry participates in the policy-making process of Rich Farms

In assessing whether an investment is an investment in stock for control, which of the following should be considered?

Whether ownership is greater than 50% of outstanding voting stock Whether the investor has significant voting rights

Treasury stock represents

a contra-equity account the amount paid for stock reacquired and currently held in treasury

Each accounting period, the investment account for passive investments in trading debt securities is ______.

adjusted for changes in fair value, and the change is reported as an unrealized holding gain or loss

Held-to-maturity investments are adjusted over time using using the ______ method.

amoritized costs

When cash from operating activities is presented using the indirect method, net income must be adjusted for increases and decreases in balance sheet accounts that relate to

amounts presented in the income statement

Passive equity investments differ from investments in affiliates in that passive investments

are reported at fair value

Investments in trading debt securities are reported on the ______ as ______.

balance sheet; current assets

Both Company A and Company B purchased $10,000 of debt securities on November 1. Company A recorded the purchase as an investment available-for-sale and Company B recorded the purchase as an investment in trading securities. Assuming both companies sell the stock at the same time and price, the cumulative amount reported in net income over the time the securities are held will ______.

be the same

Preferred stock carries priority over common stock ______

both for dividends and at liquidation

ABC Company issued 30,000 shares of common stock in January. In August, the company repurchased 5,000 shares for the treasury. When reporting these transactions in the statement of cash flows, ABC Company ______ combine them into one transaction in the ______ activities section.

cannot; financing

The two types of adjustments to net income for the indirect method are adjustments for ______

changes in operating assets and liabilities during the period that affected cash and were not in net income components of net income that do not affect cash

Ownership structure can vary from one company to another, but the most basic form of corporation offers

common stock

The two types of adjustments to net income for the indirect method are adjustments for ______.

components of net income that do not affect cash changes in operating assets and liabilities during the period that affected cash and were not in net income

When preparing the statement of cash flows using the indirect method, one of the purposes of adjusting net income for changes to certain balance sheet accounts is to

convert items included in net income to cash

When a company purchases less than 20 percent of the outstanding voting stock of another company, the purchase is recorded at

cost

Balloon Tycoon, Inc. has trading debt securities of $100,000. At year end, the debt securities are trading at $110,000. The adjusting entry required includes a ______ for $10,000.

credit to Unrealized gain

At year end, increases in the fair value of investments in trading debt securities are ______.

credited to Unrealized Gain

The fair value method used for reporting passive investments in equity securities requires the investment be reported at the ______.2

current market value or orderly sale

Dilution Solutions, Inc. repurchased 1,000 shares of its $1 par value common stock for $5,000. The journal entry to record this transaction includes a $5,000 to Treasury Stock

debit

Balloon Tycoon, Inc. has trading debt securities of $100,000. At year end, the debt securities are trading at $90,000. The adjusting entry required includes a ______ for $10,000.

debit to Unrealized loss

The only investments that can be held to maturity are

debt securities

The only investments that can be held to maturity are ______.

debt securities

A distribution of a company's accumulated prior earnings is a(n)

dividend

When a corporation distributes assets of the company to its investors, it is referred to as a(n)

dividend

Passive investments in marketable securities are reported at ______.

fair value because it can be measured objectively and is more relevant than cost in predicting future cash flows

Issuing bonds payable is an example of a(n) activity.

financing.

Issuing 1,000 shares of 5%, $100 par value, cumulative preferred stock for $110 in cash per share affects the accounting equation by

increasing total stockholders' equity increasing total assets increasing Additional Paid-in Capital

The sale of its intangible asset, trademark, is considered a(n)

investing activity because the purchase and sale of assets that benefit the company for more than one year are classified as such

Ima Vestor, Inc., owns 60% of the outstanding voting shares of Big Seats Furniture, Inc. Ima Vestor, Inc., does not transact with Big Seats, nor does its management assist Big Seats' management team. Ima Vestor's investment in Big Seats should be categorized as a(n)

investment in stock for control

Ima Vestor, Inc., owns 45% of the outstanding voting shares of Big Seats Furniture, Inc. Ima Vestor, Inc.'s investment In Big Seats Furniture should be categorized as a(n)

investment in stock for significant influence

The equity method is used to record ___

investments in affiliates

When a shareholder of Limited, Inc. sells its shares to another investor on the stock exchange, Limited, Inc.'s accounting equation

is not affected because the corporation is separate from its owners

A current dividend preference requires that

preferred dividends must be paid before any dividends are paid to common stockholders

The purpose of investing in trading debt securities is to generate

profits on changes in prices over the short-term

The purpose of investing in trading debt securities is to generate _____.

profits on changes in prices over the short-term

Net cash flows provided by operating activities will be ______ when using the direct method compared to the indirect method.

the same

A company may purchase greater than 50% of another company's stock to achieve ___________integration by acquiring the company's supplier,___________ growth by purchasing similar companies in foreign countries, and by increasing profitability through __________.

vertical - horizontal - synergy

Which method of preparing the statement of cash flows is more widely used and why?

The indirect method is because it is less expensive to implement.

Which of the following transactions would be classified as investing activities

The purchase of equipment The purchase of investments for cash The sale of a building used in the business

What are the benefits of common stock?

The right to receive dividends if they are declared A residual claim on assets after creditors and preferred stockholders have been satisfied Voting rights

When a company repurchases its own securities, the stock is recorded in which account?

Treasury stock

Certain unrealized holding gains or losses and foreign currency translation gains or losses are included in Accumulated Other Comprehensive Income but are not included in Net Income on the income statement.

True

Available for sale debt securities trading debt securities

Unrealized gains (losses) are reported in Other Comprehensive Income Unrealized gain (losses) are reported in Net Income

Vango, Inc. sold its delivery van with an original cost of $40,000 and an accumulated depreciation balance at the time of sale of $30,000. Given it was sold at a $1,000 loss, proceeds from the disposal of the van will equal ______ on the statement of cash flows under ______ activities.

$9,000; investing

Justin Corp. issues 10,000 shares of $1 par value common stock for $5 per share. The journal entry to record this transaction will include which of the following?

Credit to Common stock $10,000 Credit to Additional paid-in capital $40,000

Which of the following items would be added to Net income in the operating activities section of the statement of cash flows prepared using the indirect method?

Depreciation and amortization expense Loss on sale of investing asset Decreases in operating assets

After an initial sale of stock to the public by X, Inc., when investors sell their shares in secondary markets, X's total stockholders' equity will increase.

False

True or false: The word consolidated in the title of financial statements means that many of company's accounts are combined and reported as one line item.

False Reason: Consolidated financial statements means more than one company's financial reports are combined into one. This occurs when a parent company has control over other subsidiaries.

True or false: When presenting the operating activities section of the statement of cash flows, the direct method starts with net income and adjusts it by eliminating the effects of transactions that do not involve cash. The indirect method reports the total cash inflow or cash outflow from each main type of transaction.

False Reason: The direct method reports the total cash inflow or cash outflow from each main type of transaction. The indirect method starts with net income and adjusts it by eliminating the effects of transactions that do not involve cash.

Which of the following are included in Accumulated Other Comprehensive Income but are not included in Net Income on the income statement?

Foreign currency translation gains or losses Certain unrealized holding gains or losses