Fin Acct Ch 8,9,10

A typical credit period for payment is:

30 days

What are the two major classifications of leases?

Operating and Finance

Stockup, Inc. issued 1,000 shares of $1 par value common stock for $3,000. The Common Stock account will increase by __________.

$1,000 $1 x 1,000 = $1,000

On January 1, 2018, Bentley Corporation issued $1,000,000 of 10-year, 8% bonds at 105, when the market rate of interest was 7%. The bonds pay interest annually on December 31. How much cash did Bentley Corporation receive when the bonds were issued?

$1,050,000 1,000,000 x 1.05 = $1,050,000

On January 1, 2018, Debtor Corporation issued $2,000,000 of 20-year, 8% bonds at 96, when the market rate of interest was 8.5%. The bonds pay interest annually on December 31. How much cash did Debtor Corporation receive when the bonds were issued?

$1,920,000 .96 x 2,000,000 = 1,920,000

Equity Bank lends Boston Furniture Company $100,000 on December 1st on a 6%, 4-month note. What is the maturity value of the note?

$102,000 $100,000 x .06 x (4/12) months = $2,000 Maturity value is $100,000 + $2,000 = $102,000

Which type of bond is not secured by any type of asset, but backed only by the borrower's promise to pay?

Debenture bonds

Which account is NOT an example of an accrued liability?

accounts payable

On December 31st, end of current year, ABC Company needs to record 4 months of accrued interest on a loan for $10,000 at 5%. The note payable is not due for another 3 months. What is the amount of Interest Payable accrued on December 31st of the current year (round to the nearest dollar)?

$167 $10,000 x .05 x (4/12 months) = $167

Wall Welding Co. offers warranties on all products sold. Over the last several years, Wall's warranty claims have approximated 3% of total sales. Wall's currently has an Estimated Warranty Payable balance of $4,000, and sales for the year totaled $350,000. What is the amount of warranty expense recorded by Wall at year-end?

$10,500 $350,000 x .03= 10,500

Equity Bank lends Boston Furniture Company $100,000 on December 1st on a 6%, 4-month note. The total cash paid for interest (only) at maturity of the note is (Round your final answer to the nearest dollar.):

$2,000 $100,000 x .06 x (4/12) months = $2,000

Basil Company issued $640,000, 6%, 5-year bonds for 104, with interest paid annually. Assuming straight-line amortization, what is the amount of interest expense for the first year of the bond?

$33,280 selling price of $665,600 ($640,000 x 1.04) $665,600 - $640,00 face value = $25,600 premium. The bond is a 5-year bond, so $25,600 premium / 5 years = $5,120 reduction of premium per year that reduces interest expense. Cash paid for interest is $640,000 face value x .06 = $38,400 $38,400 - $5,120 = $33,280

Aria's, Inc. has 1,000 shares of 5%, $100 par value cumulative preferred stock and 10,000 shares of $1 par value common stock outstanding. The company has not paid dividends in two years. In its third year, it paid the common shareholders a $2 per-share dividend, plus the amount owed to preferred shareholders. What is the total amount of dividends paid?

$35,000 $100 x .05 x 1000 = $5,000 3yrs x $5,000 = $15,000 $2 x 10,000 = $20,000 $20,000 + 15,000 = $35,000

Wacky Welding Co. offers warranties on all products sold. Over the last several years, Wacky's warranty claims have approximated 2% of total sales. Wacky's currently has an Estimated Warranty Payable balance of $5,000, and sales for the year totaled $300,000. What is the amount of warranty expense recorded by Wacky at year-end?

$6000 $300,000 x .02=6000

Gloria Company has 100,000 shares of common stock authorized, 33,000 shares issued and outstanding. On September 1, 2018, the company declared a $3.30 per share dividend for those of record on October 1, 2018, to be paid on November 1, 2018. Based on this information, which of the following journal entries would Gloria Company make on November 1, 2018?

Dividends Payable: 108900 Cash 108900 33000 x 3.30 = 108,900

Which account would be reported on the income statement?

Interest Expense

Dalton Company issues 50, $1,000 face value, 10% bonds at 102.5. The journal entry includes which of the following?

a credit to Premium on Bonds Payable for $1,250 50 x 1,000 = 50,000 50,000 x 1.025 = 51,250 51,250 - 50,000 = 1,250

Preferred shareholders of Shelby International decided to convert some of their preferred shares into shares of Common Stock. The journal entry for this conversion will include all of the following except?

a credit to Retained Earnings

On January 1, 2018, Bentley Corporation issued $1,000,000 of 10-year, 8.5% bonds, when the market rate of interest was 8.0%. The bonds pay interest annually on December 31. These bonds sold at ________.

a premium

Long-term liabilities are usually associated with ____________.

a purchase of a building.

The most frequently used current liabilities are:

accounts payable, notes payable, and accrued liabilities.

The accounting principle that requires a company to record warranty expense in the same period that it records sales revenue is the:

expense recognition principle.

According to DuPont analysis, the impact of debt on a company's profitability is measured by the ________ ratio.

leverage

Aria's, Inc. has 1,000 shares of 5%, $100 par value cumulative preferred stock and 10,000 shares of $1 par value common stock outstanding. The company has not paid dividends in two years. In its third year, it paid the common shareholders a $2 per-share dividend. How much must each preferred shareholders have received?

$15 per share 100 x .05 = $5 $5 x 3yrs = $15

On January 1, 2018, Debtor Corporation issued $2,000,000 of 20-year, 8% bonds at 96, when the market rate of interest was 8.5%. The bonds pay interest annually on December 31. The company uses the effective interest method of amortization. How much cash will bondholders receive on December 31, 2018, the first interest payment date?

$160,000 $2,000,000 x 8% = $160,000

On January 1, 2018, Debtor Corporation issued $2,000,000 of 20-year, 8% bonds at 96, when the market rate of interest was 8.5%. The bonds pay interest annually on December 31. The company uses the effective interest method of amortization. How much interest expense will Debtor Corporation report on its income statement for the year ended December 31, 2018?

$163,200 $2,000,000 x .96 = $1,920,000 $1,920,000 x 8.5% = $163,200

Angel Enterprises reported the following stockholder's equity at year-end: Preferred Stock, 3%, $200 Par, 10,000 shares authorized, 600 shares outstanding $120,000 Common Stock, $3 Par, 1,000,000 shares authorized, 77,000 shares outstanding 231,000 Paid-in Capital in Excess of Par - Common 770,000 Retained Earnings 1,040,000 Treasury Stock (500 shares @ $25 per share) 12,500 What is the total stockholder's equity reported on the balance sheet for Angel?

$2,148,500 Add all - treasury stock = 2,148,500

Angel Enterprises reported the following stockholder's equity at year-end: Preferred Stock, 3%, $200 Par, 10,000 shares authorized, 600 shares outstanding $120,000 Common Stock, $? Par, 1,000,000 shares authorized, 77,000 shares outstanding 231,000 Paid-in Capital in Excess of Par - Common 770,000 Retained Earnings 1,040,000 Treasury Stock (500 shares @ $25 per share) 12,500 What is the par value per share of Angel's Common Stock?

$3 $231,000 / 77,000 = $3

Basil Company issued $640,000, 6%, 5-year bonds for 104, with interest paid annually. Assuming straight-line amortization, what is the carrying value of the bonds after one year?

$660,480 selling price of $665,600 ($640,000 x 1.04) $665,600 - $640,00 face value = $25,600 premium. The bond is a 5-year bond, so $25,600 premium / 5 years = $5,120 reduction of premium per year. $665,600 selling price - $5,120 premium for year 1 = $660,480 carrying value

On January 1, 2018, Bentley Corporation issued $1,000,000 of 10-year, 8% bonds at 105, when the market rate of interest was 7%. The bonds pay interest annually on December 31. The company uses the effective interest method of amortization. How much cash will bondholders receive on December 31, 2018, the first interest payment date?

$80,000 1,000,000 x .08 = $80,000

Taylor and Company has the following: Total Assets: $100,000 Total Current Liabilities: $20,000 Total Long-Term Liabilities: $25,000 Total Common Stock: $65,000 What is Taylor Company's debt ratio (round to two decimal places)?

($20,000 + $25,000) / $100,000 = .45

On December 31st, Castello, Inc. has cost of goods sold of $400,000, ending inventory of $110,000, beginning inventory of $130,000, and average accounts payable of $150,000. What is the accounts payable turnover?

($400,000 + $110,000 - $130,000) / $150,000 = 2.5

On December 31st, Alex, Inc. has cost of goods sold of $500,000, ending inventory of $110,000, beginning inventory of $130,000, and average accounts payable of $100,000. What is the accounts payable turnover?

($500,000 + $110,000 - $130,000) / $100,000 = 4.8

Bengal Builders had operating income as of December 31st of the current year of $1,420,000, as well as the following outstanding debt: Bonds Payable, $2,000,000, 5%, issued at Par, outstanding the entire year Notes Payable, $500,000, 4%, issued on July 1st of the current year What is Bengal's times-interest-earned ratio on December 31st?

12.91 times $2,000,000 x .05 x 12/12 = 100,000 $500,000 x .04 x 6/12 = 10,000 100,000 + 10,000=110,000 1,420,000/ 110,000 = 12.91

On December 31, Jones Corporation has the following data available: Net Income $190,000 Interest expense 20,000 Total assets at the beginning of the year 810,000 Total assets at the end of the year 750,000 Total stockholders' equity at the beginning of the year 600,000 Total stockholders' equity at the end of the year 480,000 What is return on assets? (Round your final answer to two decimal places)

24.36% Average total assets = ($810,000 + $750,000) / 2 = $780,000 Return on assets = $190,000 / (($810,000 + $750,000) / 2) = 24.36%

If the accounts payable turnover is 6.7, what is the days' payable outstanding (round to the nearest day):

365 / 6.7 = 54 days

On December 31, Joe Deer Corporation has the following data available: Net Income $200,000 Interest expense 20,000 Total assets at the beginning of the year 850,000 Total assets at the end of the year 780,000 Total common stockholders' equity at the beginning of the year 550,000 Total common stockholders' equity at the end of the year 490,000 What is Joe Deer's return on equity? (Round your answer to 2 decimal places.)

38.46% Average total common stockholders' equity = ($550,000 + $490,000) / 2 = $520,000 Return on Equity = $200,000 / $520,000 = 38.46%

If the accounts payable turnover is 8.2, what is the days' payable outstanding (round to the nearest day):

45 days 365 / 8.2 = 45 days

Sally's Dress Shop, Inc. reports operating income of $200,000 and interest expense of $18,000. The average common stockholders' equity during the year was $20,000. The beginning assets balance is $80,000 and ending assets balance is $120,000. What is the leverage ratio? (Round your final answer to two decimal places.)

5.00 [(80,000 + 120,000)/2] / $20,000 = 5.00

Under IFRS, if it is greater than ____ probability that an obligation is going to arise, and the amount can be estimated, then a "provision" should be recorded by making a journal entry.

50%

Which of the following statements describing a corporation is true?

A corporation is subject to greater government regulation than a proprietorship or a partnership

ABC Co. had several contingent liabilities at year-end. Which of the following treatments of contingent liabilities is correct?

ABC had several contingent liabilities for which it believes it is reasonably possible it will result in a loss, so ABC disclosed all of these in the notes to the financial statements.

Which of the following leases would NOT be classified as a Finance Lease?

ABC leased a vehicle from GHI. The vehicle is expected to last for 10 years and the term of the lease is 5 years, at which point ABC will return the vehicle to GHI. The present value of the lease payments made by ABC is $10,000, while the vehicle has a current market value of $17,500.

Kaldon, Inc. acquired 2,500 of its own shares at $30 per share. The shares are to be held in treasury. The par value of Kaldon's common stock is $4 per share. If Kaldon were to resell all its treasury stock at $32 per share, what journal entry would Kaldon make?

Cash 80,000 Treasury Stock 75,000 Paid-in Capital from Treasury Stock Transactions 5,000 Cash (2,500 shares x $32) Treasury Stock (2,500 shares x $30) 80,000 - 75000 = 5,000

If convertible notes payable are converted into common stock, the entry to record the conversion would include a debit to:

Convertible Notes Payable

How do you compute the purchases from suppliers?

Cost of goods sold + ending inventory - beginning inventory.

Lenders of Chief Distributors decided to convert $75,000 of convertible notes payable into 10,000 shares of $1 par Common Stock. Which of the following would be included in the journal entry for this conversion?

Credit Paid-in- Capital in Excess of Par - Common $65,000 75,000 -(10,000 x 1) = 65,000

Kaldon, Inc. had the following account balances related to treasury shares: Treasury Stock (2,500 shares @ $30 per share) - $75,000 Paid-in Capital from Treasury Stock Transactions - $2,000 If Kaldon, Inc. were to resell all its treasury stock at $34 per share, the journal would include which of the following?

Debit cash $85,000 2500 x 34 = 85,000

Tangers Jewelers recorded cash sales of $100,000 on May 8. Tangers also collected an additional 7% in sales tax payable to the state of Kansas. Which of the following would be included in the journal entry to record this sales transaction?

Debit to Cash $107,000 $100,000 + ($100,000 x .07)=107,000

Jules Jewelers recorded cash sales of $200,000 on April 24. Jules also collected an additional 6% in sales tax payable to the state of Maryland. Which of the following would be included in the journal entry to record this sales transaction?

Debit to Cash $212,000 $200,000 + ($200,000 x .06)= 212,000

Which of the following would be included in the journal entry to record the issuance of new shares of common stock to employees as part of a stock-based compensation plan?

Debit to Compensation Expense

Southern Airlines received payment from a customer on December 1, 2018, for a round trip airline ticket from Baltimore to Orlando in the amount of $500. The flight from Baltimore to Orlando occurs on December 23, 2018, and the return flight to Baltimore is on January 11, 2019. Which of the following is included in the adjusting entry needed on December 31st to record earned revenue from this transaction?

Debit to Unearned Revenue, $250. 500 x 1/2 = 250

NorthEast Airlines received payment from a customer on December 1, 2018, for a round trip airline ticket from Baltimore to Orlando in the amount of $1,000. The flight from Baltimore to Orlando occurs on December 27, 2018, and the return flight to Baltimore is on January 10, 2019. Which of the following is included in the adjusting entry needed on December 31 to record earned revenue from this transaction?

Debit to Unearned Revenue, $500. $1000 x 1/2= 500

A corporation issues 1,800 shares of $10 par value common stock in exchange for land with a current market value of $23,000. How would this be recorded in the Land account?

Debited for $23,000

Cash inflows and outflows related to bonds payable and long-term notes payable are reported on which section of the statement of cash flows?

Financing Activities section

The journal entry to record accrued interest on a short-term note payable includes a debit to:

Interest Expense and a credit to Interest Payable.

Which of the following best describes paid-in capital?

Investments by the stockholders of a corporation

Which of the following is not something that must be completed by the incorporators in order to bring a corporation into existence?

Issues shares of stock

On January 2, 2019, Lot Company issues $200,000 face value, 6% bonds for $196,000. What can be concluded about the effective (market) rate of interest?

It is more than 6%.

Mangelo Restaurant had liabilities with a carrying value of $425,000 and fair value of $600,000. How should Mangelo report these liabilities on the balance sheet?

Mangelo should report the liabilities at the carrying value and disclose the fair value of the liabilities in a note to the financial statements.

Which of the following equity-related transaction would NOT be included in the financing activities section of the statement of cash flows?

Matty Manufacturing declared and distributed a 10% stock dividend on common shares outstanding during the year.

How would most companies prefer to classify leases? Why?

Operating, because finance leases have a negative effect on the debt ratio

Morton Company began operations on January 1, 2019. The company has the following items included in its stockholders' equity section of the balance sheet on December 31, 2020: 6% Preferred stock, $100 par, 100,000 shares authorized, 25,000 shares issued and outstanding $2,500,000 Common stock, $3 par, 500,000 share authorized; 150,000 shares issued and outstanding 450,000 Additional paid-in capital 2,250,000 Total dividends for 2019 & 2020 were: During 2019, Dividends not paid During 2020, Dividends Declared and paid $160,000 If Morton Company's preferred stock was noncumulative, how much of the 2020 dividends would have been distributed to preferred and common stockholders?

Preferred: $150,000; Common: $10,000 .06 x $100 x 25,000 = 150,000 160,000 - 150,000 = 10,000

Which number that is not normally reported on the financial statements is needed to calculate the accounts payable turnover ratio?

Purchases from suppliers

Hancock Company has 900,000 shares authorized and 350,000 shares issued and outstanding of its $2 par value common stock. The stock is currently selling for $20 per share. If Hancock Company declared and issued a 5% stock dividend, what journal entry would the company make?

Retained Earnings 350,000 Common stock 35,000 Paid-in Capital in Excess of Par - Common 315,000

Hancock Company has 900,000 shares authorized and 350,000 shares issued and outstanding of its $2 par value common stock. The stock is currently selling for $20 per share. If Hancock Company declared and distributed a 30% stock dividend, what journal entry would the company make?

Retained earnings 210,000 Common stock 210,000 350,000 x .3 = 105,000 105000 x $2 = 210,000

The journal entry to accrue salaries earned by employees will debit:

Salary Expense for gross pay, credit FICA Tax Payable, credit Employee Income Tax Payable and credit Salary Payable for net pay.

Mr. Cello bought 4,000 shares of Ventures, Inc. of $1 par value common stock directly from Ventures, Inc. for $80,000. Mr. Cello later sold 1,000 of these purchased shares to Mr. Bill for $30,000. Which of the following is true of the sale of these shares by Mr. Cello?

Shareholders' equity of Ventures, Inc. will be unaffected by the sale.

Which of the following equity-related transaction would NOT be included in the financing activities section of the statement of cash flows?

Smith Company declared and distributed a 20% stock dividend on common shares outstanding during the year.

The interest rate paid by the issuer of the bond is referred to as the:

Stated rate.

Jordan Inc. had 20,000 shares of $2 par common stock outstanding when it decided to split its common stock 2-for-1. The shares were trading for $60 per share. How will total stockholder's equity change as a result of this stock split?

Total stockholder's equity is unchanged by a stock split

When a business receives cash from customers before earning the revenue, the ________ account is credited

Unearned Revenue

A company had the following treasury-stock related account balances: Treasury Stock - $150,000 Paid-in Capital from Treasury Stock Transactions - $15,000 If the company resells Treasury Stock that originally cost $50,000 for $40,000, then __________.

paid-in capital from treasury stock transactions is reduced $10,000 50,000 - 40,000 = 10,000

Bonds that mature in installments over a period of time are called:

serial bonds.

All of the following are reported as current liabilities EXCEPT:

unearned revenues for services to be provided in 16 months.