I have an exam that I would really like to do well on. It has 21 T/F and M/C 42…

1.

Question :

An amortization schedule provides a summary of the cash interest payments, interest expense, and changes in carrying value for each period.

Student Answer:

 True

 False

Points Received:

2 of 2

Comments:

 2.

Question :

When a company borrows cash from a bank promising to repay the amount borrowed plus interest, the borrower reports its liability as notes payable.

 3.

Question :

The market interest rate represents the true interest rate used by investors to value a company’s bond issue.

 5.

Question :

When a company collects sales taxes from a customer, the event is recorded by:

Student Answer:

 A debit to sales tax expense and a credit to sales tax payable.

 A debit to sales tax payable and a credit to sales tax expense.

 A debit to sales tax payable and a credit to cash.

 A debit to cash and a credit to sales tax payable.

 6.

Question :

For a bond issue that sells for less than the bond face amount, the stated interest rate is:

Student Answer:

 More than the market rate.

 The Wall Street Journal prime rate.

 Less than the market rate.

 The rate printed on the face of the bond.

 7.

Question :

Which of the following is true for bonds issued at a premium?

Student Answer:

 The stated interest rate is greater than the market interest rate.

 The stated interest rate and the market interest rate are unrelated.

 The stated interest rate and the market interest rate are equal.

 The market interest rate is greater than the stated interest rate.

 8.

Question :

Which of the following statements is correct?

Student Answer:

 Bonds issued at more than their face value are said to be issued at a discount.

 Bondholders must hold their bonds until maturity to receive cash for their investment.

 Bonds are always issued at their face value.

 None of these is correct

Points Received:

0 of 2

Comments:

 9.

Question :

Treasury stock is a contra-equity account since treasury stock increases total stockholders’ equity.

 10.

Question :

Cumulative preferred stock means that dividends accumulate interest during the year.

Student Answer:

 True

 False

 11.

Question :

Total assets, total liabilities, and total stockholders’ equity do not change as a result of a stock dividend.

 12.

Question :

Preferred stock is called preferred because it usually has two preferences over common stock. These preferences relate to:

Student Answer:

 Dividends and voting rights.

 Par value and dividends.

 The preemptive right and voting rights.

 Dividends and distribution of assets if the corporation is dissolved.

 13.

Question :

Outstanding common stock is:

Student Answer:

 Stock issued plus treasury stock.

 Stock that has been authorized by the state for issue.

 Stock that is performing well on the New York Stock Exchange.

 Stock in the hands of shareholders.

 None of the above.

 14.

Question :

What would be the impact on the accounting equation when a company purchases treasury stock?

Student Answer:

 No effect on the accounting equation.

 Decrease assets and decrease owners’ equity.

 Increase assets and increase owners’ equity.

 Increase assets and decrease owners’ equity.

 15.

Question :

The sale of land is reported in the operating section of the statement of cash flows.

 16.

Question :

Depreciation expense is not reported on the statement of cash flows under the direct method.

 17.

Question :

We need to add any loss on sale of land back in the operating section of the statement of cash flows in order to eliminate the noncash component of net income.

 19.

Question :

Which of the following statements is 
true
?

Student Answer:

 Repayment of long-term debt is classified as a cash outflow from investing activities on the Statement of Cash Flows.

 Investment in another company’s common stock is classified as a cash outflow from financing activities on the Statement of Cash Flows.

 Losses on the sale of long-term assets are an adjustment reported in the operating activities section of the Statement of Cash Flows under the indirect method.

 Dividends paid are classified as a cash outflow from operating activities on the Statement of Cash Flows.

 20.

Question :

The statement of cash flows reports cash flows from the activities of:

Student Answer:

 Financing, investing, and operating.

 Borrowing, paying, and investing.

 Operating, purchasing, and investing.

 Using, investing, and financing.

 21.

Question :

On September 1, 2010, ABC Co. signed an $153,000, 8%, six-month note payable with the amount borrowed plus accrued interest due six months later on March 1, 2011. ABC Co. should report interest payable at December 31, 2010, in the amount of what?  Input only the whole number with no punctuation.

Student Answer:

  12240

(A correct answer: 4080)

Instructor Explanation:

4080

Points Received:

0 of 4

Comments:

 22.

Question :

ABC issues 6.0%, 7-year bonds with a face amount of $46,000. The market interest rate for bonds of similar risk and maturity is 8.0%. Interest is paid semi-annually.

Required:

What will be the issue price of the bonds?  Input only the whole number with no punctuation.

Student Answer:

(A correct answer: 41141)

Instructor Explanation:

41141

 23.

Question :

When a company issues 40,000 shares of $5 par value common stock for $50 per share, the journal entry for this issuance would include a credit to additional paid in capital for what amount?  Input only the whole number with no punctuation.

Student Answer:

  1800000

Instructor Explanation:

1800000

Points Received:

4 of 4

Comments:

 27.

Question :

The Disney Company began business on January 1, 2011 by issuing all of its 1,900,000 authorized shares of its $4 par value common stock for $25 per share. 
6/30, they declared a cash dividend of $1.20 per share to stockholders of record on 7/31. 
They paid the cash dividend on 8/30. 
11/1, Disney reacquired 120,000 of its own shares of stock for $30 per share. 
12/22 they resold half of the shares they reacquired for $35 per share.
 

Required.

Prepare all of the necessary journal entries to record the events described above.

Student Answer:

Dr Cash 47500000 Cr Common stock 7600000 Cr Additional Paid-in capital 39900000 Dr Dividends declared 2280000 Cr Dividends payable 2280000 Dr Dividends payable 2280000 Cr Cash 2280000 Dr Treasury Stock 3600000 Cr Cash 3600000 Dr Cash 2100000 Cr Treasury stock 1800000 Cr Paid-in Capital from Treasury Stock 300000

Instructor Explanation:

General Journal

Debit

Credit

  cash

       common stock

       additional PIC

  dividends declared

       dividends payable

  dividends payable

       cash

  treasury stock

       cash

  cash

       treasury stock

       additional PIC

Points Received:

10 of 10

Comments:

 28.

Question :

Mickey Mouse, Inc., had assets of $66,746 and liabilities of $15,366 at the close of 2010 with 10,418 shares of outstanding common stock. Net income for 2010 was $6,929. At the end of 2011, assets were $80,170, liabilities were $19,250, and Mickey Mouse had 11,570 shares of outstanding stock trading at a price of $10 per share. Net income for 2011 was $9,593.
 

(a)

Calculate EPS for 2011.  YOU MUST SHOW YOUR WORK!

Student Answer:

EPS= Net income/ Average number of common shares outstanding EPS= 9593/((10418+11570)/2) EPS=9593/10994 EPS=$0.87 per share

Instructor Explanation:

(a)

EPS = Net income/Average number of outstanding common shares.

Average number of outstanding common shares = (10,418 + 11,570)/2 = 10,994

EPS = $9,593/10,994 = $.87

Points Received:

6 of 6

Comments:

1. The market interest rate represents the true interest rate used by investors to value a company’s bond issue. (Points : 2)

       True 
       False 

2. At the maturity date, the carrying value will equal the face amount. (Points : 2)

       True 
       False 

3. When bonds are issued at a discount (below face amount), the carrying value and the corresponding interest expense increase over time. (Points : 2)

       True 
       False 

4. Interest is stated in terms of a percentage rate to be applied to the face value of the loan. (Points : 2)

       True 
       False 

5. We record treasury stock at the cost of the shares reacquired. (Points : 2)

       True 
       False 

6. The amount of retained earnings equals net income minus dividends for the current year. (Points : 2)

       True 
       False 

7. Dividends are paid on all shares issued by the company including treasury stock. (Points : 2)

       True 
       False 

8. We add a decrease in income tax payable to income tax expense to calculate cash paid for income taxes. (Points : 2)

       True 
       False 

9. If there are no current assets or liabilities associated with operating expenses, the amounts we report for these expenses in the income statement must equal the amount of cash we paid for these items. (Points : 2)

       True 
       False 

10. Financing activities include cash receipts and cash payments for transactions relating to revenue and expense activities. (Points : 2)

       True 
       False 

11. For a bond issue that sells for more than the bond face amount, the stated interest rate is: (Points : 2)

       Less than the market rate.
       The Wall Street Journal prime rate.
       More than the market rate.
       The rate printed on the face of the bond.

12. When a product or service is delivered for which a customer advance has been previously received, the appropriate journal entry includes: (Points : 2)

       A debit to a revenue and a credit to a liability account.
       A debit to a revenue and a credit to an asset account.
       A debit to a liability and a credit to a revenue account.
       A debit to an asset and a credit to a revenue account.

13. Volt Electronics sells equipment that includes a three-year warranty. Repairs under the warranty are performed by an independent service company under a contract with Volt. Based on prior experience, warranty costs are estimated to be $25 per item sold. Volt should recognize these warranty costs: (Points : 2)

       Evenly over the life of the warranty.
       When the repairs are performed.
       When the equipment is sold.
       When payments are made to the service firm.

14. A bond issue with a face amount of $500,000 bears interest at the rate of 10%. The current market rate of interest is 11%. These bonds will sell at a price that is: (Points : 2)

       The answer cannot be determined from the information provided.
       More than $500,000.
       Equal to $500,000.
       Less than $500,000.

15. When bonds are issued at a premium and the effective interest method is used for amortization, at each subsequent interest payment date, the cash paid is: (Points : 2)

       Equal to the interest expense.
       Greater than the interest expense.
       More than if the bonds had been sold at a discount.
       Less than the interest expense.

16. When treasury shares are resold at a price below cost: (Points : 2)

       A gain is taken on the income statement.
       Additional paid-in capital is increased.
       A loss is taken on the income statement.
       Additional paid-in capital is decreased.

17. The retained earnings balance reported on the balance sheet typically is not affected by: (Points : 2)

       Dividends paid.
       Net loss.
       Net income.
       Stock splits.
       All of these affect retained earnings.

18. The balance of Retained Earning at the end of the year represents: (Points : 2)

       current year’s profits less payments to owners.
       total contributions from owners less withdrawals over the life of the company.
       total earnings over the life of the company.
       all earnings less payments to owners over the life of the company.

19. The issuance of bonds is classified in the statement of cash flows as a(n): (Points : 2)

       Investing activity.
       Noncash activity.
       Financing activity.
       Operating activity.

20. Which of the following would be classified as an investing cash flow? (Points : 2)

       Repurchase the company’s own shares of common stock
       Receiving cash in advance from a customer
       Sell a piece of equipment at its book value
       Issue common stock

21. Which of the following transactions would not create a cash flow? (Points : 2)

       The company purchased a machine with a note payable.
       The company purchased some of its own stock from a shareholder.
       Payment of a dividend.
       Sale of equipment at book value.
       All of these would create a cash flow.

22. On November 1, 2010, ABC Co. signed a $207,000, 6%, six-month note payable with the amount borrowed plus accrued interest due six months later on May 1, 2011. ABC Co. records the appropriate adjusting entry for the note on December 31, 2010. What amount of cash will be needed to pay back the note payable plus any accrued interest on May 1, 2011?  Input only the whole number with no punctuation. (Points : 4)
      

23. On January 1, your company issues a 5-year bond with a face value of $10,000 and a stated interest rate of 8%. The market interest rate is 6%. The issue price of the bond was $10,916. Using the effective-interest method of amortization and rounding to the nearest dollar, the interest expense for the first year ended December 31 would be what?  Input only the whole number with no punctuation. (Points : 4)
      

24. A company issued 1,500 shares of $4 par value preferred stock for $5 per share. This journal entry requires a credit to common stock in what amount?  Input only the whole number with no punctuation. (Points : 4)
      

25.
ABC reported net income of $138,000. Beginning balances in accounts receivable and accounts payable were $28,500 and $20,500 respectively. Ending balances in these accounts were $30,500 and $14,000, respectively. Assuming that all relevant information has been presented, ABC’s cash flows from operating activities would be what amount?  Input only the whole number with no punctuation.
(Points : 4)
      

26. On February 22, ABC Corporation reacquired 220 shares of its $2 par value common stock for $27 each. On March 15, the company reissued 60 shares for $29 each. Record the journal entry for reissuing their shares.  Indicate debits with DR and credits with CR. (Points : 6)
      
      

27.

ABC has 110,000 shares of common stock outstanding as of the beginning of 2010. ABC has the following transactions affecting stockholders’ equity in 2010.

 March

1  

Issues 57,500 additional shares of $1 par value common stock for $68 per share.

 May

10  

Repurchases 13,500 shares of treasury stock for $75 per share.

 June

1  

Declares a cash dividend of $7.00 per share to all stockholders of record on June 15. (Hint:Dividends are not paid on treasury stock.)

 July

1  

Pays the cash dividend declared on June 1.

 October

21  

Reissues 3,500 shares of treasury stock purchased on May 10 for $97 per share.

Required:

1. Indicate the effects of each transaction on the basic accounting equation.  Be sure to follow the format provided in the exam instructions.

2. Record the journal entry for each of these transactions.  Indicate debits with DR and credits with CR.

(Points : 9)
      
      

28. On January 1, 2010, ABC issues $48 million of 7% bonds, due in 7 years, with interest payable semi-annually on June 30 and December 31 each year.  Assume the market interest rate is 8%.  Compute the issue price of the bonds.
YOU MUST SHOW YOUR WORK TO EARN CREDIT! (Points : 6)
      
      

29.

Balance sheets for XYZ Corporation along with additional information are provided below:

XYZ Corporation
Balance Sheets
December 31, 2010 and 2009

2010

2009

Assets:

Current Assets:

Cash

$146,700

$139,900

Accounts receivable

77,800

91,900

Inventory

96,000

79,300

Prepaid rent

3,900

2,500

Long-Term Assets:

Land

478,000

478,000

Equipment

785,000

673,000

Accumulated depreciation

(425,000)

(269,000)

Total Assets

$1,162,400

$1,195,600

Liabilities and Stockholders’ Equity:

Current Liabilities:

Accounts payable

$99,600

$84,400

Interest payable

6,200

11,600

Income tax payable

7,600

5,600

Long-Term Liabilities:

Notes payable

109,000

204,000

Stockholders’ Equity:

Common stock

709,000

709,000

Retained earnings

231,000

181,000

Total Liabilities and Equity

$1,162,400

$1,195,600

Additional Information for 2010:

1.

Net income is $76,000.

2.

The company purchases $112,000 in equipment.

3.

Depreciation expense is $156,000.

4.

The company repays $95,000 in notes payable.

5.

The company declares and pays a cash dividend of 26,000.

Required:

Prepare the ENTIRE statement of cash flows using the indirect method.

(Points : 12)
      
      

30.
XYZ, Inc., reports sales revenue of $2,640,000, cost of goods sold of $1,600,000, and income tax expense of $143,000 for the year ended December 31, 2010. Selected balance sheet accounts are as follows:

Mega Screens, Inc.
Selected Balance Sheet Data
December 31

2010

2009

Increase (I)or
Decrease (D)

Cash

$145,000

$190,000

$45,000

(D)

Accounts receivable

282,000

223,000

59,000

(I)

Inventory

123,000

156,000

33,000

(D)

Accounts payable

114,000

133,000

19,000

(D)

Income tax payable

20,600

14,400

6,200

(I)

Required:

Using the direct method, calculate cash received from customers, cash paid to suppliers, and cash paid for income taxes.

YOU MUST SHOW YOUR WORK TO EARN CREDIT! (Points : 9)