Financial Accounting Final Exam
Equipment is acquired by issuing a note payable for $62,000 and a down payment of $16,000. The statement of cash flows will report a:
$16,000 cash outflow in the investing activities section
Equipment with a book value of $13,000 is sold for $2,000 cash. The statement of cash flows will report a:
$2,000 cash inflow in the investing activities section
Illinois Bank lends Lisle Furniture Company $80,000 on Dec 1. Lisle Furniture Company signs a $80,000, 6%, 4-month note. The total cash paid at maturity of the note is
$81,600
Cubs Corporation issues $550,000, 12%, 5-year bonds on January 1, 2014 for $449,000. Interest is paid annually on January 1. If Cubs Corporation uses the straight-line method of amortization of bond discount, the amount of interest expense recorded at December 31, 2014 would be:
$86,200
Drury Corporation wants to raise $2,300,000. The corporation plans on selling 110,000 shares of $18 par value common stock. Drury Corporation currently has 120,000 shares of stock outstanding and net income of $1,800,000. The $2,300,000 from the stock sale is expected to generate additional income of $600,000 before interest and taxes. The income tax rate is 30%. What are the earnings per share after the sale of 110,000 shares of stock>
$9.65
Calculate Company Y's total asset turnover based on the following info for the current year: net income - $400,000 assets at the beginning of year - $110,000 assets at the end of year - $100,000 net sales - $500,000
4.76
Frank's Boat Shop, Inc reports net income of $68,000, income before taxes of $100,000 and interest expense of $15,000. The weighted-average number of shares of common stock outstanding during the year was 40,000 shares. What is the times-interest-earned ratio?
7.7
Barbarino Corporation purchased land and a building for $800,000. An appraisal indicates that the land's market value is $400,000 and the building's market value is $600,000. When recording this transaction Barbarino should debit:
Land for $320,000
Kolonas, Inc. sold equipment for $5,400 cash. The equipment cost $73,900 and has accumulated depreciation through the date of sale os $70,000. At the date of sale, the journal entry to record the sale will have:
a Gain on Sale of Equipment for $1,500
U.S. Generally Accepted Accounting Principles differ from the IFRS in the accounting treatment of:
R and D costs, reversals of write-downs due to the impairment of plant assets, AND capitalization of internally generated intangible assets (all of the above)
Franco Company sold office furniture for $2,300 cash. The furniture cost $60,000 and had accumulated depreciation through the date of sale totaling $38,000. The company will recognize:
a loss of $19,700
What is the accounts payable turnover?
a measure of liquidity, a measure of the number of times a year a company is able to pay off its accounts payable, AND purchases on account from suppliers divided by avg accounts payable (all of the above)
Bonds with a 7% interest rate were issued when the market rate of interest was 6%. This bond was issued at:
a premium
As a depreciable plant asset is used in operations:
accumulated depreciation increases and the book value of the asset decreases
Under the effective-interest method, the amount of bond discount amortized each interest period is equal to the:
amount of interest expense less the cash paid for interest
If the market interest rate is greater than the stated interest rate on bonds, bonds will sell:
at a discount
Which cost is NOT included in the cost of Land Improvements?
back property taxes on land parcel AND lights on exterior of new building
If a company wants to maximize earnings per share it would issue:
bonds instead of stock
The impairment loss on long-term plant assets equals:
book value minus fair value
On June 1, Roadway's Trucking Company paid $3,000 to overhaul the engine on a delivery truck to allow it to be used for two additional years. It also paid $7,100 changing the storage capacity of the truck so that it could haul more merchandise. Which of the following statements is TRUE?
both items are capital expenditures
Pat's Pets recently paid to have the engine in its delivery van overhauled. The estimated useful life of the van was originally estimated to be 4 years. The overhaul is expected to extend the useful life of the van to 10 years. The overhaul is regarded as a(n):
capital expenditure
Another name for book value is:
carrying value
Under the effective-interest method of amortization, interest expense for each interest period can be calculated by multiplying the:
carrying value of the bonds times the effective-interest rate for the appropriate time period.
Potential liabilities that depend on future events arising out of past events are called:
contingent liabilities
Minor Company purchased some land and is preparing the land for a new building. Which of the following costs should be included in the cost of the land by Minor Company?
cost of removing an old building AND cost of clearing and grading the land (both A and B)
Solderman Company issued $530,000, 7%, 10-year bonds for $412,800 with a market rate of 9%. The effective-interest method of amortization is to be used and interest is paid annually. The journal entry on the first interest payment date would include a:
credit to Discount on Bonds Payable of $52
On January 1, Hanley Corporation issued $2,300,000, 10-year, 7% bonds at 105. The journal entry to record this transaction would include a:
credit to Premium on Bonds Payable $115,000
At the end of the year a company makes a journal entry to accrue the interest expense on a short-term note payable. As a result of this transaction:
current liabilities increase and stockholder's equity decreases
Notes payable due in six months are reported as:
current liabilities on the balance sheet
Bonds which are backed only by the good faith of the borrower are referred to as:
debenture bonds
Kathy's Corner Store has total cash sales for the month of $34,000 excluding sales taxes. If the sales tax rate is 3% what journal entry is needed? (ignore Cost of Goods Sold)
debit Cash $35,020, credit Sales $34,000 and credit Sales Tax Payable $1,020
Smiley Corporation sold equipment costing $73,000 with $66,000 of accumulated depreciation for $10,000 cash. Which of the following journal entries should be prepared?
debit Cash for $10,000, debit Accumulated Depreciation for $66,000, credit Equipment for $73,000 and credit Gain on Sale of Equipment for $3,000
madison Bank lends Neenah Paper Company $110,000 on Jan 1, 2014. Neenah Paper Company signs a $110,000, 7%, 6-month note. The journal entry made by Neenah Paper Company on Jan 1, 2014 is:
debit Cash for $110,000 and credit Notes Payable for $110,000
Equipment costing $50,000 with a book value of $18,000 is sold for $28,000. Which journal entry is used to record the sale?
debit Cash for $28,000, debit Accumulated Depreciation for $32,000, credit Equipment for $50,000 and credit Gain on Sale of Equipment for $10,000
The journal entry to record depreciation expense is:
debit Depreciation Expense, credit Accumulated Depreciation
A company has a lawsuit pending with regard to patent infringement. The amount of the loss ca be estimated and has a probable chance of occurrence. What journal entry is required?
debit Estimated Lawsuit Loss and credit Estimated Lawsuit Liability
Aisha Company paid $1,500 cash to replace a wheel on equipment sold under a two-year warranty in the prior year. The entry to record the payment would be to:
debit Estimated Warranty Payable and credit cash
Wisconsin Bank lends Local Furniture Company $80,000 on Nov 1. Local Furniture Company signs a $80,000, 10%, 4-month note. The fiscal year end of Local Furniture Company is Dec 31. The journal entry made by local Local Furniture Company on Dec 31 is:
debit Interest Expense and credit Interest Payable for $1,334
A company purchased a machine for $200,000 many years earlier. The accumulated depreciation on the machine is $140,000. The machine is scrapped. Which journal entry is prepared to record the disposal?
debit Loss on Disposal of Machine for $60,000, debit Accumulated Depreciation for $140,000 and credit Machine for $200,000.
The journal entry to record salaries earned by 10 employees will:
debit Salary Expense for the gross pay, credit FICA Tax Payable, credit Employee Income Tax Payable and credit Salary Payable for the net pay
Smith Corporation issues $2,100,000, 10-year, 6% bonds payable at a price of 97. The journal entry to record the issuance will include a:
debit to Cash for $2,037,000
On January 1, 2014, a bond was issued at a discount. The journal entry to record the semiannual interest payment on July 1, 2014 would include a:
debit to Interest Expense, a credit to Discount on Bonds Payable and a credit to Cash
The journal entry to record an addition to an office building would include:
debit to Office Building
Morgan Oaks Company replaced the windshields and painted several of its vehicles during the year. These costs should be:
debited to Repair Expense
The journal entry to record a semiannual interest payment on a bond payable issued at par:
debits Interest Expense and credits Cash
How does the journal entry to amortize a copyright affect the accounting equation?
decreases assets and stockholder's equity
The current ratio is current assets:
divided by current liabilities
The market interest rate is also referred to as the:
effective rate
Which is the preferred method to use when amortizing a bond discount or premium?
effective-interest method of amortization
Monthly sales are $470,000. Warranty costs are estimated at 6% of monthly sales. Warranties are honored with replacement products. No defective products are returned during the month. At the end of the month, the company should record a journal entry with a credit to:
estimated Warranty Payable for $28,200
The depreciation process follows the _____ principle.
expense recognition
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
Costs that do not extend a plant asset's capacity or its useful life, but merely maintain the asset or restore it to working order are recorded as:
expenses
If a company capitalizes a plant asset that should have been expensed:
expenses will be understated and net income will be overstated in the year of the error
Capital expenditures are not immediately expensed because these items:
extend the useful life of a plant asset
Under the effective-interest method of amortization, the bond cash payment on each interest date is calculated by multiplying the:
face value of the bonds times the stated interest rate for the appropriate time period
The disposal of a plant asset will be reported on the statement of cash flows as a financing activity
false
Land improvements include:
fences, lights in parking lot, AND neon signs on property (all of the above)
A disadvantage of issuing stock instead of debt is that stock:
generally results in lower earnings per share
Which intangible asset is NOT amortized?
goodwill
A lump-sum purchase of multiple, long-term plant assets:
requires the company to divide the total cost among the various assets according to their market values
The financing option that has the lowest risk to a company is financing by:
retained earnings
Following the DuPont analysis model, the higher the leverage ratio, the higher the:
return on stockholders' equity
The expected cash value of a plant asset at the end of its useful life is known as:
scrap value, salvage value, AND residual value (all of the above)
Bonds that are secured by real estate are called:
secured bonds AND mortgage bonds (both B and C)
Bonds in a particular issue which mature in installments over a period of time are called:
serial bonds
The Loss on Disposal of Equipment account is reported as Other Losses and Expenses on the income statement.
true
To account for the disposal of a plant asset, the cost of the asset and its related accumulated depreciation are removed from the books.
true
Treating a capital expenditure as an immediate expense:
understates assets and stockholder's equity in the year of the error
When a business receives cash from a customer earning the revenue, they credit:
unearned Revenue
All of the following are reported as current liabilities EXCEPT:
unearned revenues for services to be provided in 16 months
The computation of depletion expense is most closely related to which method for computing depreciation?
units-of-production
Samson Company has a machine with the following data: net book value - $910,000 estimated future cash flows - $700,000 fair value - $63,000 Is the machine impaired?
yes, the estimated future cash flows from the machine are less than the book value of the machine
A company has return on assets of 11%. Return on sales are 4%. The leverage ratio is 2. Following DuPont analysis, what is return on equity?
22%
Land, a building and equipment are acquired for a lump sum of $8,000,000. The market values of the land, building, and equipment are $400,000, $700,000 and $300,000 respectively. What is the cost assigned to the equipment?
$1,714,286
Dammer Corporation wants to raise $2,300,000. The corporation plans to sell 9%, 10-year bonds at the face value of $2,300,000. Dammer Corporation currently has 170,000 shares of stock outstanding and net income of $1,700,000. The $2,300,000 from the bond sale is expected to generate additional income of $600,000 before interest and taxes. The income tax rate is 40%. What are the earnings per share after the sale of bonds?
$11.39
A bond with a face value of $130,000 and a quoted price of 106 has a selling price of:
$137,800
A company incurred the following costs for a new vehicle: purchase price of delivery truck - $140,000 sales tax on truck - $7,400 delivery charge on delivery truck - $1,000 special racks for storage put on truck - $3,000 normal repairs to truck before it's used for the first time - $1,100 signs painted on truck - $2,000 insurance on truck before used in business $3,000 What is the cost of the delivery truck?
$157,500
NBC Corporation issued $560,000, 9%, 5-year bonds on January 1, 2014 for $638,930 when the market interest rate was 7%. Interest is paid semiannually on January 1 and July 1. The corporation uses the effective-interest method to amortize bond premium. The total amount of bond interest expense recognized on July 1, 2014 is:
$22,363
Land is purchased for $200,000. Back taxes paid by the purchaser were $8,000; total costs to demolish an existing building were $16,000 and the cost to clear the land was $16,000. The cost of paving the parking lot was $740,000. What is the cost of the land and land improvements?
$240,000; $740,000
Sylvia Company has a long-term plant asset with the following info as of the end of the year: net book value - $87,600 estimated future cash flows - $69,000 fair value - $62,000 The amount of the impairment loss is:
$25,600
A company incurred the following costs: purchase price of land - $260,000 survey fees - $6,000 payment for demolition of old building on land - $30,000 back property taxes on land - $1,000 paving costs for parking lot - $50,000 fence around perimeter of land - $15,000 lights in parking lot - $90,000 signs for new business - $5,000 What is the cost of the land?
$297,000
A $4,000, 8% bond is sold at 93. When the bond is issued, the Cash account will be increased by:
$3,720
Equipment acquired on January 1, 2014 is sold on June 30, 2018 for $11,200. The equipment cost $46,500, had an estimated residual value of $,6400, and an estimated useful life of 5 years. The company prepared financial statements on Dec 31 and the equipment has been depreciated using the straight-line method. On June 30, 2018 the company should record Depreciation Expense of:
$4,010
Michigan Bank lends Detroit Furniture Company $140,000 on Dec 1. Detroit Furniture Company signs a $140,000, 10%, 4-month note. The total cash paid for interest (only) at maturity of the note is:
$4,666
A machine is purchased for $60,000. The transportation costs were $1,000, installation costs were $1,000, and taxes on the purchase price were $500. Testing runs of the new machine cost $2,000. What is the cost of the machine?
$64,500
A company has days' payable outstanding of 70 days. If credit terms of purchases are 2/10, net 30, is the company paying accounts payable in a timely basis?
No days' payable outstanding exceeds the discount period of 10 days and the net period of 30 days
The total earned wages of an employee for the payroll period is the _____. The amount of earned wages the employee takes him is _______.
gross pay; net pay
When compared to the other methods of depreciation, the double-declining-balance method of depreciation gives depreciation expense that is:
higher in the earlier periods
The book value of a plant asset is defined as:
historical cost minus accumulated depreciation
The depreciable cost of a plant asset equals the:
historical cost of the asset minus the estimated residual vlaue
U.S. Generally Accepted Principles require the reporting of plant assets at _______ on the balance sheet. International Financial Reporting Standards allow the reporting of plant assets at ______ on the balance sheet.
historical cost; fair market value
Return on assets measures:
how much the entity earned for each dollar of assets invested AND return on sales times total asset turnover
Which of the following is a CORRECT statement about asset impairment?
if a asset is impaired, the impairment loss is the difference between the net book value and the fair value
Under the effective-interest method, if bonds are issued at a discount, the amount of interest expense:
increases each period as the bonds move towards maturity
Major Company purchased a piece of equipment. All of the following costs should be included in the cost of equipment EXCEPT for:
insurance costs after the equipment is up and running
Amortization expense is recorded for:
intangible assets with a finite life
A disadvantage of using bonds instead of stocks as a method of long-term financing is that with bonds:
interest must be paid regardless of the level of earnings
What is the impairment test for long-term plant assets?
is the book value greater than the expected future cash flows?
The financing option that creates no liabilities or interest expense is financing by:
issuing stock
The long-term asset that does not depreciate or amortize is:
land
The cost of installing lights in a company's parking lot should be recorded as a cost of:
land improvements
Bonds with a 6% interest rate were issued when the market rate of interest was 7%. The quoted bond price will be:
less than 100
According to DuPont analysis, the impact of debt on a company's profitability is measured by the:
leverage ratio
Which of the following should be included in the cost of land improvements?
lighted signs, fencing, AND sprinkler system for bushes and lawn (all of the above)
All of the following are needed to measure depreciation, EXCEPT for:
market value
The records of Milwaukee Sprinkler Systems report net sales of $520,000, net income of $130,000 and avg total assets of $360,000. Using DuPont analysis calculate the two ratios used for return on assets
net profit margin ratio is 25% and total asset turnover is 1.44
A company has a pending lawsuit that has a remote possibility of being settled in favor of the plaintiff who is a former employee. What should the company do?
nothing
A conservative policy with regard to capitalizing or expensing costs associated with plant assets avoids:
overstating profits and assets
The exclusive right to produce and sell an invention like the smart phone requires a:
patent
Bonds with a face value of $200,000 were sold at an effective interest rate of 8% to yield cash proceeds in excess of $200,000. It is apparent that the bonds had a:
stated interest rate greater than 8%
A depreciation method in which an equal amount of depreciation expense is assigned to each year of the asset's use is the:
straight-line method
Cost minus residual value divided by useful life in years is the:
straight-line method
Which of the following should be included in the cost of equipment?
testing costs to see if the equipment is working properly, platform for the equipment, AND employee training costs for the use of the new equipment (all of the above)
When determining the rate of return on assets:
the DuPont model calculates the rate of return on assets as the net profit margin ratio times total asset turnover ratio
A bond will sell at a premium when:
the coupon rate is greater than the effective rate
The interest rate that investors require for loaning their money is referred to as:
the market rate of interest
Which of the following costs associated with a delivery van should NOT be capitalized?
the van is repainted
A company purchased a machine for $100,000 many years earlier. The accumulated depreciation on the machine is $100,000. Which os the following statements is TRUE regarding the disposal of the machine for no cash proceeds?
there will be no gain or loss on the disposal.
The leverage ratio is equal to:
total assets divided by total stockholders' equity
The leverage ration is equal to:
total assets divided by total stockholders' equity
The debt ration is computed by dividing:
total debt by total assets
When a company uses borrowed money to earn a higher profit than the cost of the interest, this is called:
trading on equity
A Loss on Sale of Equipment will result when the book value of the equipment exceeds the cash received from the sale of the equipment.
true
A purchaser is willing to pay for goodwill when they feel the company they are buying has abnormal earning power
true
As accumulated depreciation gets bigger, book value gets smaller.
true
Corporations borrow large amounts of money by issuing (selling) bonds to the public.
true
Gains on the sale of equipment increase net income while losses on the sale of equipment decrease net income.
true
If a long-term plant asset is impaired, the owner is required to adjust the carrying value downward to its fair value.
true
Intangible assets can have finite or infinite lives.
true
Return on assets measures how profitably management has used its assets.
true
Some intangible assets are not amortized.
true
