Accounting for Decision Making Exam 3

If current assets amount to $150, total assets $350, current liabilities $65, and total liabilities $100, then the current ratio is

$150 (Current Assets) / $65 (Current Liabilities) = 2.31 to 1

Fairchild Company acquired a building valued at $210,000 for property tax purposes in exchange for 6,000 shares of its $10 par common stock. The stock is widely traded and selling for $31 per share. At what amount should the building be recorded by Fairchild Company?

$186,000

Pablos wants to save some money so that he can make a down payment of $3,000 on a car when he graduates from college 4 years from now. If he opens a savings account and earns 3% on his money, compounded annually, how much will he have to invest now?

$2,664

If a company purchases $3,200 worth of inventory with terms of 2/10, n/30 on March 3 and pays April 2, then the amount paid to the seller would be

$3,200

Josh and Sara want to buy a house in 4 years. If the house will cost $180,000, how much must they deposit at the end of every year for the next 4 years at 5% compounded annually in order to buy the house?

$41,763

Kingston inherited $140,000 from an aunt. If Kingston decides not to spend his inheritance but to leave the money in his savings account until he retires in 15 years, how much money will he have assuming an annual interest rate of 8%, compounded semiannually?

$454,020

Long-term assets are $800, current liabilities are $500, and long-term liabilities are $600. If the current ratio is 2.5 to 1, then current assets are

$500 (Current Liabilities) × 2.5 = $1,250 (Current Assets)

If interest is compounded annually, the total amount of interest on an $18,000 note payable for 4 years at 10% is

$8,352

On November 1, 2016, Brownsville Co. borrowed $80,000 from State Bank and signed a 12%, six-month note payable, all due at maturity. The interest on this loan is stated separately. At December 31, 2016, Brownsville Co.'s overall liability for this loan amounts to:

$81,600

A new company issues 2,000 shares of $5 par common stock in exchange for the services of a lawyer during its first month of business. The lawyer's normal fee is $15,000 for similar work. Which of the following would be recorded if the stock is not currently trading?

A credit to Additional Paid-In Capital—Common Stock of $5,000

Which of the following statements regarding the inclusion of liabilities on the statement of cash flows is true?

A decrease in a current liability from the beginning to the end of the year is accompanied by a decrease of cash.

Boston Trombley Company is a defendant in a lawsuit alleging damages of $3 billion. The litigation is anticipated to continue for several years, but no reasonable estimate can be made at this time regarding ultimate financial responsibility. This situation is an example of:

A loss contingency that should be disclosed in the notes to Boston's financial statements.

Which of the following is true?

Financing activities can be inflows or outflows of cash.

Which of the following statements with regard to large stock dividends is true?

As a result of the stock dividend, retained earnings is reduced by the par value of the stock issued.

Montana City Company began business on January 1, 2016. The corporate charter authorized issuance of 500 shares of $1 par value common stock and 400 shares of $4 par value, 3% cumulative preferred stock. What is the maximum amount that can be reported on the balance sheet for Common Stock and Preferred Stock, respectively, if all of the stock is issued? ​

Common Stock: $500 Preferred Stock: $1,600

Venture Enterprises' accountant determined the following:

In the Stockholders' Equity section of the balance sheet

If your bank gives you a $2,000 loan at 8% per year, but deducts the interest in advance, is 8% the "real" rate of interest that you will pay?

No. The interest rate is actually higher than 8 percent.

Basic Solutions Company reported net earnings of $60,000, declared and paid cash dividends on its common stock in the amount of $40,000 during the year, and sold 3,000 shares of $2 par value common stock for $15 per share during the year. What effects would these transactions have on the stockholders' equity accounts shown below?

Retained Earnings: increase Common Stock: increase

Which of the following is reported as a financing activity?

Sale of preferred stock

Which of the following should be considered when a company decides to declare a cash dividend on common stock?

The cash available and the retained earnings balance

When a company purchases treasury stock, which of the following statements is true?

The cost of the treasury stock reduces stockholders' equity.

What is the correct classification of the account: Discount on Notes Payable?

a contra liability

With regard to a corporation's stock, par value is

an arbitrary amount that exists to fulfill legal requirements.

The book value per share for a corporation is

based on the excess of total assets over total liabilities.

Port, Inc. paid a cash dividend on January 2 that had been declared prior to the end of its fiscal year. The entry to pay the dividend will

decrease Cash Dividend Payable and decrease Cash.

The primary reason for a stock split is to

decrease the market value of the stock.

An example of a current liability that must be accrued is

income taxes payable.

On October 1, Lawrence Company borrowed $60,000 from Fourth National Bank on a 1-year, 7% note. If the company's fiscal year ends as of December 31, Lawrence should make an entry to increase

interest payable, $1,050.

Authorized stock represents the

maximum number of shares that can be issued.

If a company has both common and preferred shares outstanding and wishes to calculate book value per share,

net assets, less the redemption value of the preferred stock, must be divided by the number of shares of common stock outstanding.