ACCT 2301 Exam 3

A corporation purchased 10,000 shares of its $5 par common stock at $10 and subsequently sold 5,000 of the shares at $20. What is the amount of revenue realized from the sale?

$0

The following information is available from the current period financial statements: Net income $175,000 Depreciation expense 28,000 Increase in accounts receivable 16,000 Decrease in accounts payable 21,000 The net cash flow from operating activities using the indirect method is

166,000

Unit of output can be expressed in terms of hours, miles driven, or quantity produced Cost - Residual Value/Total Units of Output

Units of Output Method

distribution of a company's earnings to stockholders

cash dividend

Selling the bonds at a premium has the effect of

causing the interest expense to be lower than the bond interest paid.

Investing activities include

collecting cash on loans made

One of the main disadvantages of the corporate form is the

double taxation of dividends

The market interest rate related to a bond is also called the

effective interest rate

Payment of dividends to stockholders Issuance of bond payable

financing activity

Which of the following should be deducted from net income in calculating net cash flow from operating activities using the indirect method?

gain on sale of land

The percentage analysis of increases and decreases in individual items in comparative financial statements is called

horizontal analysis

Equipment with an original cost of $75,000 and accumulated depreciation of $20,000 was sold at a loss of $7,000. As a result of this transaction, cash would

increase by 48,000

A debit balance in the Allowance for Doubtful Accounts

indicates that actual bad debt write-offs have exceeded previous provisions for bad debts

Market rate is less than contract rate

Premium

On January 1, 2014, $1,000,000, 5-year, 10% bonds, were issued for $980,000. Interest is paid semiannually on January 1 and July 1. If the issuing corporation uses the straight-line method to amortize discount on bonds payable, the semiannual amortization amount is

$2,000

On January 1, 2014, the Horton Corporation issued 10% bonds with a face value of $200,000. The bonds are sold for $192,000. The bonds pay interest semiannually on June 30 and December 31 and the maturity date is December 31, 2018. Horton records straight-line amortization of the bond discount. The bond interest expense for the year ended December 31, 2014, is

$21,600

A corporation has 50,000 shares of $25 par value stock outstanding that has a current market value of $150. If the corporation issues a 5-for-1 stock split, what is the number of shares after the split?

$250,000

A corporation has 50,000 shares of $25 par value stock outstanding that has a current market value of $150. If the corporation issues a 5-for-1 stock split, the market value of the stock after the split will be approximately:

$30

The Dayton Corporation began the current year with a retained earnings balance of $32,000. During the year, the company corrected an error made in the prior year, which was a failure to record depreciation expense of $3,000 on equipment. Also, during the current year, the company earned net income of $12,000 and declared cash dividends of $7,000. Compute the year end retained earnings balance.

$34,000

What is the total stockholders' equity based on the following account balances? Common Stock $375,000 Paid-In Capital in Excess of Par 90,000 Retained Earnings 190,000 Treasury Stock 15,000

$640,000

A company with 100,000 authorized shares of $4 par common stock issued 40,000 shares at $8. Subsequently, the company declared a 2% stock dividend on a date when the market price was $11 a share. What is the amount of the stock dividend?

$8,800

If $1,000,000 of 8% bonds are issued at 103 1/2, the amount of cash received from the sale is

1,035,000

If $2,000,000 of 10% bonds are issued at 95, the amount of cash received from the sale is

1,900,000

Assets Cash and short-term investments $ 40,000 Accounts receivable (net) 30,000 Inventory 25,000 Property, plant and equipment 215,000 Total Assets $310,000 Liabilities and Stockholders' Equity Current liabilities $ 60,000 Long-term liabilities 95,000 Stockholders' equity-common 155,000 Total Liabilities and stockholders' equity $310,000 Income Statement Sales $ 90,000 Cost of goods sold 45,000 Gross margin 45,000 Operating expenses 20,000 Net income $ 25,000 Number of shares of common stock 6,000 Market price of common stock $20 What is the quick ratio for this company?

1.17

The following information pertains to Brock Company. Assume that all balance sheet amounts represent both average and ending balance figures. Assume that all sales were on credit. Assets Cash and short-term investments $ 40,000 Accounts receivable (net) 30,000 Inventory 25,000 Property, plant and equipment 215,000 Total Assets $310,000 Liabilities and Stockholders' Equity Current liabilities $ 60,000 Long-term liabilities 95,000 Stockholders' equity-common 155,000 Total Liabilities and stockholders' equity $310,000 Income Statement Sales $ 90,000 Cost of goods sold 45,000 Gross margin 45,000 Operating expenses 20,000 Net income $ 25,000 Number of shares of common stock 6,000 Market price of common stock $20 What is the current ratio for this company?

1.58

The charter of a corporation provides for the issuance of 100,000 shares of common stock. Assume that 60,000 shares were originally issued and 10,000 were subsequently reacquired. What is the amount of cash dividends to be paid if a $2 per share dividend is declared?

100,000

The net income reported on the income statement for the current year was $275,000. Depreciation recorded on fixed assets and amortization of patents for the year were $40,000 and $9,000, respectively. Balances of current asset and current liability accounts at the end and at the beginning of the year are as follows: End Beginning Cash $ 50,000 $ 60,000 Accounts receivable 112,000 108,000 Inventories 105,000 93,000 Prepaid expenses 4,500 6,500 Accounts payable (merchandise creditors) 75,000 89,000 What is the amount of cash flows from operating activities reported on the statement of cash flows prepared by the indirect method?

296,000

The charter of a corporation provides for the issuance of 100,000 shares of common stock. Assume that 40,000 shares were originally issued and 10,000 were subsequently reacquired. What is the number of shares outstanding?

30,000

The following information pertains to Brock Company. Assume that all balance sheet amounts represent both average and ending balance figures. Assume that all sales were on credit. Assets Cash and short-term investments $ 40,000 Accounts receivable (net) 30,000 Inventory 25,000 Property, plant and equipment 215,000 Total Assets $310,000 Liabilities and Stockholders' Equity Current liabilities $ 60,000 Long-term liabilities 95,000 Stockholders' equity-common 155,000 Total Liabilities and stockholders' equity $310,000 Income Statement Sales $ 90,000 Cost of goods sold 45,000 Gross margin 45,000 Operating expenses 20,000 Net income $ 25,000 Number of shares of common stock 6,000 Market price of common stock $20 What is the Working Capital for this company?

35,000

Cash dividends of $45,000 were declared during the year. Cash dividends payable were $10,000 at the beginning of the year and $15,000 at the end of the year. The amount of cash for the payment of dividends during the year is

40,000

The current period statement of cash flows includes the flowing: Cash balance at the beginning of the period $450,000 Cash provided by operating activities 185,000 Cash used in investing activities 43,000 Cash used in financing activities 97,000 The cash balance at the end of the period is

495,000

Land costing $71,000 was sold for $50,000 cash. The loss on the sale was reported on the income statement as other expense. On the statement of cash flows, what amount should be reported as an investing activity from the sale of land?

50,000

Miriah Inc. has 10,000 shares of 5%, $100 par value, cumulative preferred stock and 50,000 shares of $1 par value common stock outstanding at December 31, 2014. What is the annual dividend on the preferred stock?

50,000 in total

The Marx Company issued $100,000 of 12% bonds on April 1, 2010 at face value. The bonds pay interest semiannually on January 1 and July 1. The bonds are dated January 1, 2010, and mature on January 1, 2014. The total interest expense related to these bonds for the year ended December 31, 2010 is

9,000

Computer equipment was acquired at the beginning of the year at a cost of $57,000 that has an estimated residual value of $9,000 and an estimated useful life of 5 years. Determine the second-year depreciation using the straight-line method.

Annual Depreciation = (Cost - Residual Value) / Useful Life = ($57,000 - $9,000) / 5 = $9,600 Depreciation expense for the second year = $9,600

Assume the following sales data for a company: Current year $325,000 Preceding year 250,000 ​What is the percentage increase in sales from the preceding year to the current year?

Answer: 30% Percentage increase in sales in the current year = [(Current year sales - Preceding year sales) / Preceding year sales] × 100 = [($325,000 - $250,000) / $250,000] × 100 = [$75,000 / $250,000] × 100 = 30%​​

On July 8, Williams Company issued an $90,000, 6%, 120-day note payable to Brown Industries. Assuming a 360-day year and the fiscal year of the seller end July 31, what is the maturity date of the note?

Answer: November 5 July: 23 August: 31 September: 30 October: 31 November: ? Total: 115 120-115= 5 Only need 5 days in November.

The allowance method of estimating uncollectible accounts receivable based on an analysis of receivables shows that $640 of accounts receivable are uncollectible. The Allowance for Doubtful Accounts has a debit balance of $110. The adjusting entry at the end of the year will include a credit to Allowance for Doubtful Accounts in the amount of:

Credit to Allowance for Doubtful Accounts = Uncollectible accounts estimate − Unadjusted allowance for doubtful accounts = $640 − ($110) = $750​

Market rate is greater than contract rate

Discount

Residual Value is not considered Rate X Cost= Depreciation Expense; Cost - Depreciation Expense

Double Declining Balance Method

Market rate equals contract rate

Face value

On July 8, Williams Company issued an $90,000, 6%, 120-day note payable to Brown Industries. Assuming a 360-day year and the fiscal year of the seller end July 31, what is the interest expense?

Interest of the note = $90,000 × 6% ×( 120 ÷ 360) = $1,800 Per day: $1,800/120= $15 July 31-July 8= 23 X 15= 345

If the market rate of interest is 8%, the price of 6% bonds paying interest semiannually with a face value of $250,000 will be

Less than $250,000

On July 8, Williams Company issued an $90,000, 6%, 120-day note payable to Brown Industries. Assuming a 360-day year and the fiscal year of the seller end July 31, what is the maturity value of the note?

Maturity value of the note = [$90,000 + ($90,000 × 6% × 120 ÷ 360)] = $91,800

If Dakota Company issues 1,500 shares of $6 par common stock for $75,000,

Paid-In Capital in Excess of Par will be credited for $66,000 Total cash raised through the issue of shares = $75,000 Par value of common stock issued = ​1,500 shares × $6 = $9,000 Paid-In Capital in Excess of Par = $75,000 - $9,000 = $66,000

Easiest method Cost - Residual Value/ Useful Life

Straight-line method

The Sneed Corporation issues 10,000 shares of $50 par preferred stock for cash at $75 per share. The entry to record the transaction will consist of:

Total cash raised through the issue of shares = Number of shares issued × Par value of the stock = 10,000 × $50 = $500,000 Paid-In Capital in Excess of Par—Preferred Stock = $750,000 - $500,000 = $250,000

account used when shares are issued for an amount greater than par value

additional paid in capital

account used when issue price exceeds par value of stock a value established for the protection of creditors the number of shares currently held by stockholders

additional paid in capital par value outstanding checks

1.the allocation of a premium or discount over the life of a bond 2.the value reported on the income statement 3.the return required by the market on the day of issuance 4.if the contract rate exceeds the effective rate 5.he rate printed on the bond certificate 6.if the contract rate is less than the effective rate 7.face value times contract rate

amortization interest expense effective rate bond premium contract date bond discount interest payment

The par value per share of common stock represents

an arbitrary amount established in the articles of incorporation

How is treasury stock shown on the balance sheet?

as a decrease in stockholders' equity

The liability for a dividend is recorded on which of the following dates?

date of declaration

1.a bond issued without any collateral or security 2.the entire principal of the bond is paid back on maturity date 3.the value of a bond stated on the bond certificate 4.the legal contract between issuer and bond holder 5.allows the issuer to redeem bonds before maturity date 6.allows the bond hold to exchange bond for shares of stock

debenture term bond face value indenture callable bond convertible bond

A check drawn by a company for $340 in payment of a liability was recorded in the journal as $430. What entry is required in the company's accounts?

debit Cash; credit Accounts Payable

To record estimated uncollectible receivables using the allowance method, the adjusting entry would be a

debit to Bad Debt Expense and a credit to Allowance for Doubtful Accounts

The date on which a cash dividend becomes a binding legal obligation is on the

declaration date

this event creates a liability to company

declaration date

Which of the following should be added to net income in calculating net cash flow from operating activities using the indirect method?

decrease in accounts receivable

A company purchases equipment for $32,000 cash. This transaction should be shown on the statement of cash flows under

investing activities

Sale of machinery held for use by the company Purchase of non-current assets such as equipment

investing activity

Treasury stock shares are

issued shares that have been reacquired by a corporation

Financing activities include

issuing debt

If bonds are issued at a discount, it means that the

market interest rate is higher than the contractual interest rate

Increase in income taxes payable Collecting cash on loans made. Decrease in inventory Increase in accounts receivable

operating expense

The order of presentation of activities on the statement of cash flows is

operating, investing, financing

when dividends are actually distributed to stockholders

payment date

entitled to receive dividends first

preferred stock

1.a class of stock that does not provide voting rights for shareholders 2.the maximum number of shares a company can issue to shareholders 3.the number of sharing originally sold to stockholders 4.a class of stock that provides voting rights for shareholders 5.a value that the stock is worth on the stock exchange

preferred stock authorized users issues shares common stock market price

Which of the following types of transactions would be reported as a cash flow from investing activity on the statement of cash flows?

purchase on noncurrent assets

the date that a share of stock must be owned to receive current dividend

record date

The primary purpose of a stock split is to

reduce the market price of the stock per share

Which of the following is not one of the four basic financial statements?

statement in changes in financial position

equity account reflecting shares "owed" to stockholders

stock dividends distrubutable

In which section of the financial statements would Paid-In Capital from Sale of Treasury Stock be reported?

stockholders equity on balance sheet

Treasury stock which was purchased for $4,000 is sold for $4,500. As a result of these two transactions combined

stockholders' equity will be increased by $500

Cash paid to purchase long-term investments would be reported in the statement of cash flows in

the cash flows from the investing activities section

Shares of common stock re-acquired by a company

treasury stock

The current ratio is

used to evaluate a company's liquidity and short-term debt paying ability

An analysis in which all the components of an income statement are expressed as a percentage of sales is a

vertical analysis

The percent of fixed assets to total assets is an example of

vertical analysis