Financial Accounting
The primary purpose of the statement of cash flows is to provide information about
a.the cash inflows and outflows of the company.
Carson City Saloon purchased a $25,000 truck for catering from its restaurant. It made a down payment of one-fourth of the price. What combination of amounts would affect the income statement and statement of cash flows for the purchase of the truck?
$0 $(6,250)
Cory and Ginger want to buy an airplane. They find one that will cost $200,000. They must pay 10% down and can get the balance financed with a ten year loan at 7% interest and annual payments. What is their annual payment?
25,626
Mendes Charters reported the following information at December 31, 2017: Preferred stock, $100 par, 500 shares authorized, and outstanding; cumulative; nonparticipating; callable at par value$ 50,000Common stock, $12 par, 50,000 shares authorized and outstanding600,000Additional paid-in capital—common25,000Retained earnings 825,000 Mendes' total contributed capital is
675,000
A company has $8,000 in cash, $9,250 in accounts receivable, and $19,500 in inventory. If current liabilities are $14,350, then the quick ratio would be
c.1.2 to 1.
When a company declares a 2-for-1 stock split,
b.there is no effect on total stockholders' equity.
Pilot Company reported the following information for 2017 and 2018: Prepaid insurance, December 31, 2017$ 2,400Prepaid insurance, December 31, 20181,500Insurance expense—201814,200 How much cash was paid for insurance during 2018?
c.$13,300
If a company constructs an asset over a period of time and borrows money, the amount of interest incurred during construction on the borrowed money is
c.capitalized as part of the cost of the plant asset.
Weather Corp. issued ten-year, 8%, $100,000 bonds paying interest on an annual basis, at a $5,200 premium. Which one of the following statements is true?
d.Weather's annual interest expense on the bonds will be less than the amount of interest payments to bondholders each year.
Which of the following is not an operating activity?
d.Cash payments for dividends to stockholders
Comprehensive income is
d.an all-inclusive approach to income that includes transactions that affect stockholders' equity with the exception of those transactions that affect owners.
Gaulle Company began the year with a balance of $6,000 in Accounts Receivable and ended the year with $9,000 in the account. Revenues for the period amounted to $38,000. Under the direct method, Gaulle will report cash collected from customers of
a.$35,000.
A company has $200 in cash, $500 in accounts receivable, and $700 in inventory. If current liabilities are $400, then the quick ratio would be
a.1.75 to 1.
Presented below is the Operating Activities section of the statement of cash flows for Feline Friends Corp. for 2017: Operating activities: Cash collected from customers$165,000 Cash payments for merchandise(83,000) Cash payments for operating expenses (58,000) Net cash inflow from operating activities$ 24,000 Which method of preparing the Operating Activities section has Feline used?
c.The direct method
Use the equation presented below to answer the question that follows: Cash = CL + LTL + CS + RE - NCCA - LTA where:CL = Current liabilities LTL = Long-term liabilities CS = Common stock RE = Retained earnings NCCA = Noncash current assets LTA = Long-term assets Which of the following activities results in a cash inflow?
Increases in common stock (CS)
On January 1, 2017, Sharpsburg, Inc. issued $400,000, ten-year, 10% bonds for $354,200. The bonds pay interest on June 30 and December 31. The market rate is 12%. What is the carrying value of the bonds at the end of the ten years?
a.$400,000
If a company issues $5 par value common stock,
a.$5 per share is presented in the Common Stock account on the balance sheet.
Washington Corp. reported the following information for 2017 and 2018: 20172018Accounts receivable$101,000$93,000Prepaid expenses5,0006,000Accounts payable71,00076,000Salaries payable5,0004,000Net income 80,000Depreciation expense 9,000Gain on sale of equipment 5,000 If Washington uses the indirect method to prepare the Operating Activities section of the statement of cash flows, what amount will be reported as net cash inflow from operating activities for 2018?
a.$95,000
Which of the following statements regarding contingencies is true?
a.Contingencies that are probable and estimable must be recorded before the outcome of future events.
Which one of the following is an accurate description of Allowance for Doubtful Accounts?
a.Contra account
Rent owed to the landlord is a balance sheet item for Generic Products Company. How would it most likely be classified on the balance sheet?
a.Current liability
Fall Corp. uses plant assets that are subject to rapid decreases in value due to obsolescence and physical deterioration. Which of the following depreciation methods is most appropriate to measure the decline in the usefulness of the company's assets?
a.Double-declining-balance
Which of the following statements is true?
a.If a company reports net income on its income statement, it should report an increase in cash on its statement of cash flows. b.If a company uses the accrual basis of accounting, it will improve its cash position if it reports net income for the same period. c.If a company uses the accrual basis of accounting, its cash balance can increase even if it reports a net loss. d.If a company reports a net loss on its income statement, it should report a decrease in cash on its statement of cash flows. c.If a company uses the accrual basis of accounting, its cash balance can increase even if it reports a net loss.
Deferred income taxes is a balance sheet item for Iowa Products Company. How would it most likely be classified on the balance sheet?
a.Liability
Cash interest is computed annually when a bond is issued for other than its face value. For a bond issued at a premium, how will this component change under the effective interest method as the bond approaches maturity?
a.Remain constant
Which of the following costs related to the purchase of production equipment incurred by Newark Company during 2017 would be considered a revenue expenditure?
a.Repair and maintenance costs during the equipment's first year of service
Where would you tell someone to find the information needed to compute the cash flow adequacy ratio?
a.The statement of cash flows and the notes to the statements
The book value per share for a corporation is
a.the cost of investments in stock of other corporations.
All of the following statements are true except
a.the criteria to determine whether a lease contract should be considered a capital lease are applied in a more rigid way under U.S. GAAP than IFRS. b.the lease criteria under IFRS are to be used as guidelines rather than rules. c.the criteria to determine whether a lease contract should be considered a capital lease are applied in a more rigid way under IFRS than U.S. GAAP. d.IFRS require more accounting judgment than U.S. GAAP in the determination of whether a lease is classified as an operating lease or a capital lease. the criteria to determine is the correct answer
The Stockholders' Equity section of Deer Lakes Manor's balance sheet on January 1, 2017, appeared as follows: Common stock, $30 par, 20,000 shares issued and outstanding$ 600,000Additional paid-in capital—common240,000Retained earnings 700,000Total stockholders' equity$1,540,000 On March 1, 2017, Deer Lakes reacquired 4,000 shares of common stock at $50 per share. All common shares were originally sold for $42 each. How much should be reported in the Treasury Stock account on the March 31, 2017, balance sheet?
b.$200,000
Marsh Corporation borrowed $90,000 by issuing a 12%, six-month note payable, all due at the maturity date. After one month, the company's total liability for this loan amounts to
b.$90,900.
Frank Crawford Corporation's balance sheet showed the following amounts: Current Liabilities, $15,000; Bonds Payable, $8,000; Lease Obligations, $9,000; and Notes Payable, $5,600. Total stockholders' equity was $17,000. The debt-to-equity ratio is
b.2.21.
Lasiter Corp. reported net credit sales of $2,000,000 and cost of goods sold of $1,400,000 for 2017. On January 1, 2017, accounts receivable was $250,000. Amounts owed by customers increased by $20,000 during 2017. Rounding to two decimal places, what is Lasiter's accounts receivable turnover ratio for 2017?
b.7.69
Which of the following items is not a cash equivalent?
b.A corporate bond investment that has five years until maturity when it is purchased
Use the equation presented below to answer the question that follows: Cash = CL + LTL + CS + RE - NCCA - LTA where:CL = Current liabilities LTL = Long-term liabilities CS = Common stock RE = Retained earnings NCCA = Noncash current assets LTA = Long-term assets Which of the following activities results in a cash inflow?
b.Increases in common stock (CS)
Which of the following statements is true regarding the two allowance methods used to account for bad debts?
b.The percentage of accounts receivable approach takes into account the existing balance in the Allowance for Doubtful Accounts account.
During 2017, the accounts payable balance of Andreas Corp. decreased. Which of the following statements is true?
b.This decrease is deducted from net income in the Operating Activities section of a statement of cash flows prepared under the indirect method.
If bonds are issued at 101.25, this means that
b.a $1,000 bond sold for $1,012.50.
If a company borrows money from its bank and the bank deducts the interest in advance, the company would record the amount of the interest deduction as
b.a discount.
With regard to preferred stock,
b.its stockholders may have the right to participate, along with common stockholders, if an extra dividend is declared.
Norwood, Inc. purchased a crane at a cost of $80,000. The crane has an estimated residual value of $5,000 and an estimated life of eight years, or 12,500 hours of operation. The crane was purchased on January 1, 2017, and was used 2,700 hours in 2017 and 2,600 hours in 2018.Refer to the information for Norwood, Inc.If Norwood uses the double-declining-balance depreciation method, what amount is the depreciation expense for 2018?
c.$15,000
Shidan Apartments purchased an apartment building to rent to university students on November 18, 2017. The following costs were incurred during 2017, before the tenants moved in:Purchase price of the building$220,000Purchase price of the land100,000Transfer taxes10,000Interest incurred on the mortgage loan to purchase4,000Attorney and real estate agent's fees15,000Repave the parking lot6,000How much will Shidan Apartments record as an asset? a.$320,000
c.$351,000
A company's weekly payroll amounts to $50,000 and payday for the week is every Friday. Employees work five days per week, Monday through Friday. The appropriate journal entry was recorded at the end of the accounting period, Monday, March 31, 2017. What amount is wages expense in April for the payday, Friday, April, 4, 2017?
c.$40,000
On January 1, 2017, Grove City Corp. purchased a ship for $2,000,000. It has a ten-year useful life and a residual value of $50,000. The company uses the double-declining-balance method.What was the depreciation expense for Grove City Corp. for the year ended December 31, 2017? a.$195,000
c.$400,000
Anole Company was incorporated as a new business on January 1, 2017. The company is authorized to issue 20,000 shares of $5 par value common stock and 10,000 shares of 6%, $10 par value, cumulative, participating preferred stock. On January 1, 2017, the company issued 8,000 shares of common stock for $15 per share and 2,000 shares of preferred stock for $30 per share. Net income for the year ended December 31, 2017, was $375,000.Refer to the information about Anole Company.Anole's total stockholders' equity reported on the balance sheet at December 31, 2017, is
c.$555,000.
Bonds in the amount of $100,000 with a life of ten years were issued by Focus Company. If the face rate is 6% and interest is paid semiannually, what would be the total amount of interest paid over the life of the bonds?
c.$60,000
Dali Company has 15,000 shares of stock authorized at January 1. Dali issues 4,500 shares to the stockholders during the year and then the company repurchases 1,500 shares as treasury stock. Based on this information, how many shares are outstanding at December 31?
c.18,000
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 the impact on the accounting equation if the stock is not currently trading?
c.An increase to Additional Paid-In Capital—Common Stock of $5,000
When using the direct method, how is the purchase of equipment for cash shown on the statement of cash flows?
c.As an investing activity
When using the direct method, how is the sale of long-term investments for cash reported on the statement of cash flows?
c.As an investing activity
A company purchased machinery by issuing 2,000 shares of $3 par value common stock. Since the company is new, there is no established market price for its stock. How would the company record the transaction?
c.At the fair market value of the machine
Which of the following accounts is not classified as a current liability?
c.Note payable, due in three years
What is the distinguishing characteristic between accounts receivable and notes receivable?
c.Notes receivable result from a written promise to pay within a specified amount of time.
Which of the following would appear on the balance sheet as a current liability?
c.Premium offers in cereal boxes
When a company declares a stock dividend, which of the following occurs?
c.Retained earnings is reduced.
For a given single sum invested at 8% for four years, how will the future value be affected if the compounding period is changed from quarterly to annually?
c.The future value will decrease.
A decreasing long-term liability account is presented on the statement of cash flows as
c.a decrease in cash in the Financing Activities category.
A mortgage incurred in exchange for an office building would be reported in the statement of cash flows in
c.a separate schedule.
On July 1, 2017, Falcon Company received a $20,000 promissory note from Jordyn Company. The annual interest rate is 5%. Principal and interest are paid in cash at the maturity date of June 30, 2018.If Falcon's fiscal year ends September 30, 2017, an adjustment is needed to
c.increase interest receivable by $250.
When a note receivable has been discounted by a company,
c.it may be shown as a contingent liability in the footnotes.
There are some liabilities, such as income tax payable, for which the amounts must be estimated. Failure to estimate these amounts and record them would be a violation of the
c.matching principle.
When constructing assets, capitalized interest is based on
c.the average accumulated expenditures.
Depreciation is a process by which
c.the cost of plant and equipment is allocated to expense over the time periods which benefit from the use of the asset.
Use the information below for Flora Inc. for 2017 and 2018 to answer the following question: Equipment, December 31, 2017$65,000Equipment, December 31, 201872,000Accumulated depreciation, December 31, 201739,000Accumulated depreciation, December 31, 201830,000 During 2018, Flora Inc. sold equipment with a cost of $30,000 and accumulated depreciation of $25,000. A gain of $3,000 was recognized on the sale of the equipment. This was the only equipment sale during the year.What was depreciation expense for 2018?
d.$16,000
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?
d.$454,076
When using the indirect method, how would the retirement of bonds payable at their maturity date be shown on the statement of cash flows?
d.As a financing activity
What are the effects on the accounting equation when a company makes the adjustment to record bad debts expense using the allowance method?
d.Assets and stockholders' equity decrease.
If a company uses the allowance method to account for bad debts, when will the company's owners' equity decrease?
d.At the end of the accounting period when an adjustment for bad debts is recorded
Where can the amounts needed to compute the accounts receivable turnover ratio be found?
d.Both the income statement and balance sheet
Which of the following is reported as a financing activity on the statement of cash flows?
d.Payment of cash dividends
Shuttle Master Airlines has leased an aircraft from Streamline Aircraft Company. The annual payments are $1,000,000, and the life of the lease is 18 years. It is estimated that the useful life of the aircraft is 20 years. How would Shuttle Master Airlines record the acquisition of the aircraft? The effective rate of interest is 9%.
d.The aircraft would be recorded as an asset with a cost of $8,756,000.
Which of the following sets of factors is needed to calculate depreciation on plant and equipment?
d.The estimated life of the asset, its acquisition cost, and its estimated residual value
When using the allowance method, what are the effects on the accounting equation when a company writes off a bad debt?
d.There is no effect on overall assets or equity.
You are interested in accumulating $10,000 so that you can take a cruise in three years. If you try to solve for the amount that you need to invest each year, earning 6% interest compounded annually, the $10,000 represents
d.a future value.
Amortization of a bond discount results in a(n)
d.decrease in stockholders' equity.
Below are several transactions for Louisville Company: Proceeds from issuance of bonds payable$635,000Payment to purchase equipment275,000Payment of wages115,000Payment of dividends155,000Payment to pay off notes payable195,000 Based on these transactions, what is the net cash flow from financing activities?
$285,000 net cash provided by financing activities