Accounting Exam Study Guide
On December 31 2015 the fair value of available-for-sale securities is $41,300 and the cost is $39,800. On January 1, 2015, there was a credit balance of $900 in the Fair Value Adjustment--Available-for-Sale- account. The required adjusting entry would be (Chapter 12)
debit Fair Value Adjustment--Available-for-Sale for $2,400 and credit Unrealized Gain or Loss--Equity for $2,400. (First determine whether there is an unrealized gain or loss, then, by comparing the balance of the Fair Value Adjustment--Available-for-Sale account to the required balance, determine the adjusting entry necessary).
Barton Company is a publicly held corporation whose $1 par value stock is actively traded at $31 per share. The company issued 3,000 shares of stock to acquire land recently advertised at $100,000. When recording this transaction, Barton Company will (Chapter 11)
debit Land for $93,000. (3,000 x $31 = $93,000).
On October 1, 2014, Pennington Company issued a $90,000, 10%, nine-month interest-bearing note. Assuming interest was accrued in June 30, 2015, the entry to record the payment of the note on July 1, 2015, will include a: (Chapter 10)
debit to Interest Payable of $6,750. ($90,000 x .10 x 9 / 12 = $6,750). extra* Notes Payable 90,000 Interest Payable 90,000 Cash 96,750
On December 1, 2014, Crawley Corporation incurs a 15-year $600,000 mortgage liability in conjunction with the acquisition of an office building. This mortgage is payable in monthly installments of $7,200, which include interest computed at the rate of 12% per year. The first monthly payment is made on December 31, 2014. The portion of the second monthly payment made on January 31, 2015, which represents repayment of principal is: (Chapter 10)
$1,212 ($600,000 x .01 = $6,000; <$600,000 -($7,200 - $6,000)> x .01 = $5,988; $7,200 - $5,988 = $1,212).
Brown Company has 1,000 shares of 5%, $100 par cumulative preferred stock outstanding at December 31, 2015. No dividends have been on this stock for 2014 or 2015. Dividends in arrears at December 31, 2015 total (Chapter 11)
$10,000 ((1,000 x $100 x .05) x 2 = $10,000).
Lakeland, Inc. has 25,000 shares of 6%, $100 par value, noncumulative preferred stock and 50,000 shares of $1 par value common stock outstanding at December 31, 2015. There were no dividends declared in 2014. The board of directors declares and pays a $250,000 dividend in 2015. What is the amount of dividends received by the common stockholders in 2015? (Chapter 11)
$100,000 ($250,000 - (25,000 x $100 x .06) = $100,000).
Reliable Insurance Company collected a premium of $36,000 for a 1-year insurance policy on May 1. What amount should Reliable report as a current liability for Unearned Insurance Revenue at December 31? (Chapter 10)
$12,000 (($36,000 / 12) x 4 = $12,000).
A bond with a face value of $200,000 and a quoted price of 102(1/4) has a selling price of (Chapter 10)
$204,500 ($200,000 x 1.0225 = $204,500).
Marion, Inc. has 5,000 shares of 5%, $100 par value, noncumulative preferred stock and 20,000 shares of $1 par value common stock outstanding at December 31, 2015. There were no dividends declared in 2014. The board of directors declares and pays a $65,000 dividend in 2015. What is the amount of dividends received by the common stockholders in 2015? (Chapter 11)
$40,000 (5,000 x $100 x .05 = $25,000; $65,000 - $25,000 = $40,000).
Mouns Company owns 40% interest in the stock of Darian Corporation. During the year, Darian pays $20,000 in dividends to Mouns, and reports $100,000 in net income. Mouns Company's investment in Darian will increase Mouns' net income by (Chapter 12)
$40,000 (To determine the impact on Mouns' net income, apply the ownership percentage to the investee's net income).
On January 2, Matthews Corporation acquired 20% of the outstanding common stock of Dennehy Company for $450,000. For the year ended December 31, Dennehy reported net income of $90,000 and paid cash dividends of $30,000 on its common stock. On December 31, the carrying value of Matthews' investment in Dennehy under the equity method is (Chapter 12)
$462,000 (First, determine the investor's share of investor's net income and dividends; then adjust the investment account accordingly).
Crawford Company has total proceeds (before segregation of sales taxes) from sales of $7,155. If the sales tax is 6%, the amount to be credited to the account Sales Revenue is: (Chapter 10)
$6,750 ($7,155 / (1 + .06) = $6,750).
On January 1 of the current year, Benson Corporation purchased 25% of the common stock outstanding of Landon Corporation for $600,000. During the year, Landon Corporation reported net income of $200,000 and paid cash dividends of $80,000. The balance of the Stock Investments on the books of Benson Corporation at the end of the year is (Chapter 12)
$630,000 (First, determine the investor's share of investor's net income and dividends; then adjust the Stock Investments account accordingly).
The interest charged on a $400,000, 90-day note payable, at the rate of 8% would be (Chapter 10)
$8,000 ($400,000 x .08 x 90 / 360 = $8,000).
The current carrying value of Kane's $800,000 face value bonds is $797,000. If the bonds are retired at 103, what would be the amount Kane would pay its bondholders? (Chapter 10)
$824,000 (800,000 x 103%).
The following data is available for Blaine Corporation at December 31, 2015: Common stock, par $10 (authorized 30,000 shares) $250,000 Treasury Stock (at cost $15 per share) 900 Based on the data, how many shares of common stock are outstanding? (Chapter 11)
24,940 (($250,000 / $10) - ($900 / $15) = 24,940).
Thirty $1,000 bonds with a carrying value of $39,600 are converted into 4,000 shares of $5 par value common stock. The common stock had a market value of $9 per share on the date of conversion. The entry to record the conversion is (Chapter 10)
Bonds Payable 30,000 Premium on Bonds Payable 9,600 Common Stock 20,000 Paid-in Capital in Excess of Par 19,600
If bonds with a face value of $140,000 are converted into common stock when the carrying value of the bonds is $135,000, the entry to record the conversion will include a debit to (Chapter 10)
Bonds Payable for $140,000
A cash register tape shows cash sales of $1,800 and sales taxes of $126. The journal entry to record this information is (Chapter 10)
Cash 1,926 Sales Taxes Payable 126 Sales Revenue 1,800
Jarrett Company issued 900 shares of no-par common stock for $13,200. Which of the following journal entries would be made if the stock has no stated value? (Chapter 11)
Cash 13,200 Common Stock 13,200
On January 1, 2015, Carter Corporation issued $5,000,000, 10-year, 8% bonds at 102. Interest is payable annually on January 1. The journal entry to record this transaction on January 1, 2015 is (Chapter 10)
Cash 5,100,000 Bonds Payable 5,000,000 Premium on Bonds Payable 100,000 Note: $5m x 102 = $5.1M Cash so that eliminates a) and b). Bond Payable is always the amount payable at maturity regardless of Cash received on issuance. Premium is a credit balance account.
Admire County Bank agrees to lend Givens Brick Company $600,000 on January 1. Givens Brick Company signs a $600,000, 8%, 9-month note. The entry made by Givens Brick Company on January 1 to record the proceeds and issuance of the note is (Chapter 10)
Cash 600,000 Notes Payable 600,000
Bacon Corporation began business by issuing 180,000 shares of $5 par value common stock for for $25 per share. During its first year, the corporation sustained a net loss of $30,000. The year-end balance sheet would show (Chapter 11)
Common stock of $900,000. (180,000 x $5 = $900,000).
On January 1, 2015, Howard Company, a calendar-year company, issued $900,000 of notes payable, of which $225,000 is due on January 1 for each of the next four years. The proper balance sheet presentation on December 31, 2015, is (Chapter 10)
Current Liabilities, $225,000; Long-term Debt, $675,000. ($900,000 - $225,000 = $675,000).
On January 1 of the current year, Jack Company purchased as a short-term investment, a $1,000, 8% bond, for $1,000. The bond pays interest semiannually on January 1 and July 1. Jackson Company has a December 31 fiscal year end. The bond is sold on July 1 for $1,100 plus the accrued interest. What entry will be made on the books of Jackson Company at the time the bond is sold? (Chapter 12)
Debit to Cash, $1,120, credit to Debt Investments, $1,000 credit to Gain on Sale of Debt Investments, $100, and credit to Interest Revenue, $20.
How does Procter & Gamble, which owns 90% of Gillette Company, report its equity investment in Gillette Company on the balance sheet? (Chapter 12)
Gillette's majority owned assets and liabilities are reported separately under "Other Investments at Cost."
Admire County Bank agrees to lend Given Brick Company $600,000 on January 1. Givens Brick Company signs a $600,000, 8%, 9-month note. What is the adjusting entry required if Givens Brick Company prepares financial statements on June 30? (Chapter 10)
Interest Expense 24,000 Interest Payable 24,000 ($600,000 x .08 x 6 / 12 = $24,000).
On October 1, Steve's Carpet Service borrows $350,000 from First National Bank on a 3-month, $350,000, 8% note. What entry must Steve's Carpet Service make on December 31 before financial statements are prepared? (Chapter 10)
Interest Expense 7,000 Interest Payable 7,000 ($350,000 x .08 x 3 / 12 = $7,000).
Which of the following show the proper effect of a stock split and a stock dividend? Item Stock Split Stock Dividend (Chapter 11)
Item Stock Split Stock Dividend Par value per share Decrease No change
Crain Company issued 2,000 shares of its $5 par value common stock in payment of its attorney's bill of $30,000. The bill was for services performed in helping the company incorporate. Crain should record the transaction by debiting (Chapter 11)
Organization Expense for $30,000.
If Vickers Company issues 5,000 shares of $5 par value common stock for $175,000, (Chapter 11)
Paid-In Capital in Excess of Par will be credited for $150,000. (175,000-(5,000 x $5))
Library, Inc. has 2,500 shares of 4%, $50 par value, cumulative preferred stock and 50,000 shares of $1 par value common stock outstanding at December 31, 2014, and December 31, 2015. The board of directors declared and paid a $3,000 dividend in 2014. In 2015, $18,000 of dividends are declared and paid. What are the dividends received by the preferred and common shareholders in 2015? Preferred Common (Chapter 11)
Preferred Common 7,000 11,000 (2,500 x $50 x .04 = $5,000; ($5,000 - $3,000) + $5,000 = $7,000; $18,000 - $7,000 = $11,000).
Indicate the respective effects of the declaration of a cash dividend on the following balance sheet sections: Total Assets Total Liabilities Total Stockholders' Equity (Chapter 11)
Total Assets Total Liabilities Total Stockholders' Equity No change Increase Decrease
At the end of the first year of operations, the total cost of the trading securities portfolio is $120,000. Total fair value is $115,000. The financial statements should show (Chapter 12)
a reduction of an asset of $5,000 in the current assets section and an unrealized loss of $5,000 in "other expenses and losses."
On January 1, Sway Corporation had 60,000 shares of $10 par value common stock outstanding. On March 17, the company declared a 10% stock dividend to stockholders of record on March 20. Market value of the stock was $13 on March 17. The entry to record the transaction of March 17 would include a (Chapter 11)
credit to Common Stock Dividends Distributable for $60,000. (60,000 x $10 x .10 = $60,000).
On January 1, Soft Corporation had 80,000 shares of $10 par value common stock outstanding. On June 17, the company declared a 10% stock dividend to stockholders of record on June 20. Market value of the stock was $15 on June 17. The stock was distributed on June 30. The entry to record the transaction of June 30 would include a (Chapter 11)
credit to Common Stock for $80,000 (80,000 x $10 x .10 = $80,000).
Seven thousand shares of treasury stock of Marker, Inc., previously acquired at $14 per share, are sold at $20 per share. The entry to record this transaction will include a (Chapter 11)
credit to Paid-In Capital from Treasury Stock for $42,000. (($20 - $14) x 7,000 = $42,000).
Salon Company originally issued 4,000 shares of $10 par value common stock for $120,000 ($30 per share). Salon subsequently purchases 400 shares of treasury stock for $27 per share and resells the 400 shares of treasury stock for $29 per share. In the entry to record the sale of the treasury stock, there will be a (Chapter 11)
credit to Paid-in Capital from Treasury Stock for $800. (($29 - $27) x 400 = $800).
If short-term debt investment is sold, the Debt Investments account is (Chapter 12)
credited for the cost of the bonds on the sale date.
Aaron, Inc. paid $120,000 to buy back 10,000 shares of its $1 par value common stock. This stock was sold later at a selling price of $8 per share. The entry to record the sale includes a (Chapter 11)
debit to Retained Earnings for $40,000 (<($120,000 / 10,000) - $8> x 10,000 = $40,000).
Pryor Company receives net proceeds of $42,000 on the sale of stock investments that cost $39,500. This transaction will result in reporting in the income statement a (Chapter 12)
gain of $2,500 under "Other revenues and gains."
The return on common stockholders' equity is computed by dividing (Chapter 11)
net income minus preferred dividends by average common stockholders' equity.
A corporation has the following account balances: Common stock, $1 par value, $60,000; Paid-in Capital in Excess of Par, $1,300,000. Based on this information, the (Chapter 11)
number of shares issued are 60,000.
Debt investments are recorded at the (Chapter 12)
price paid for the bonds plus brokerage fees.
Land Inc. has retained earnings of $800,000 and total stockholders' equity of $2,000,000. It has 300,000 shares of $5 par value common stock outstanding, which is currently selling for $30 per share. If Land declares a 10% stock dividend on its common stock: (Chapter 11)
retained earnings will decrease by $900,000 and total paid-in capital will increase by $900,000. (300,000 x $30 x .10 = $900,000).
