PART 1

1. Ramos Corporation sold 400 shares of treasury stock for $45 per share. The cost for the shares was $35. The entry to record the sale will include a

Answer

credit to Gain on Sale of Treasury Stock for $14,000.

credit to Paid-in Capital from Treasury Stock for $4,000.

debit to Paid-in Capital in Excess of Par for $4,000.

credit to Treasury Stock for $18,000.

2. Each of the following decreases retained earnings except

Answer

cash dividend.

liquidating dividend.

stock dividend.

All of these decrease retained earnings.

3. Paid-In Capital in Excess of Stated Value

 Answer

is credited when no-par stock does not have a stated value.

is reported as part of paid-in capital on the balance sheet.

represents the amount of legal capital.

normally has a debit balance.

4. A computer company has $2,800,000 in research and development costs. Before accounting for these costs, the net income of the company is $2,000,000. What is the amount of net income or loss after these R & D costs are accounted for?

 Answer

$800,000 loss

$2,000,000 net income

$0

Cannot be determined from the information provided.

5. A plant asset was purchased on January 1 for $100,000 with an estimated salvage value of $20,000 at the end of its useful life. The current year’s Depreciation Expense is $10,000 calculated on the straight-line basis and the balance of the Accumulated Depreciation account at the end of the year is $50,000. The remaining useful life of the plant asset is

Answer

10 years.

8 years.

5 years.

3 years.

6. Goodwill can be recorded

Answer

when customers keep returning because they are satisfied with the company’s products.

when the company acquires a good location for its business.

when the company has exceptional management.

only when there is an exchange transaction involving the purchase of an entire business.

7. Which of the following statements concerning IFRS and U.S. GAAP is true?

Answer

IFRS permits revaluation of all intangible assets, whereas U.S. GAAP prohibits revaluation of intangible assets.

Gains on exchange of assets when the exchange has commercial substance are recognized under both IFRS and U.S. GAAP.

Changes in depreciation method under IFRS are reported in current and future periods, under U.S. GAAP such changes are treated as prior period adjustments.

All of the choices are true regarding IFRS and U.S. GAAP.

8. A company has the following assets: Buildings and Equipment, less accumulated depreciation of $2,000,000 $9,600,000 Copyrights 960,000 Patents 4,000,000 Timberlands, less accumulated depletion of $2,800,000 4,800,000 The total amount reported under Property, Plant, and Equipment would be

Answer

$19,360,000.

$14,400,000.

$18,400,000.

$15,360,000.

9. Powell’s Courier Service recorded a loss of $9,000 when it sold a van that originally cost $84,000 for $15,000. Accumulated depreciation on the van must have been

Answer

$78,000.

$24,000.

$75,000.

$60,000.

10.On October 1, 2015, Holt Company places a new asset into service. The cost of the asset is $120,000 with an estimated 5-year life and $30,000 salvage value at the end of its useful life. What is the book value of the plant asset on the December 31, 2015, balance sheet assuming that Holt Company uses the double-declining-balance method of depreciation?

Answer

$78,000

$90,000

$108,000

$114,000

11. The balance in the Accumulated Depreciation account represents the

Answer

cash fund to be used to replace plant assets.

amount to be deducted from the cost of the plant asset to arrive at its fair market value.

amount charged to expense in the current period.

amount charged to expense since the acquisition of the plant asset.

11. The times interest earned is computed by dividing

Answer

net income by interest expense.

income before income taxes by interest expense.

income before interest expense by interest expense.

income before income taxes and interest expense by interest expense.

13. A $1,000 face value bond with a quoted price of 98 is selling for

Answer

$1,000.

$980.

$908.

$98.

14. Hardy Company has current assets of $95,000, current liabilities of $100,000, long-term assets of $180,000 and long-term liabilities of $80,000. Hardy Company’s working capital and its current ratio are:

Answer

$85,000 and .95:1.

-$5,000 and 1.95:1.

$5,000 and .95:1.

-$5,000 and .95:1.

15. The interest charged on a $50,000, 60-day note payable, at the rate of 6%, would be

Answer

$3,000.

$1,667.

$750.

$500.

16. Beonce Company received proceeds of $188,000 on 10-year, 6% bonds issued on January 1, 2013. The bonds had a face value of $200,000, pay interest semi-annually on June 30 and December 31, and have a call price of 101. Beonce uses the straight-line method of amortization. Beonce Company decided to redeem the bonds on January 1, 2015. What amount of gain or loss would Beonce report on its 2015 income statement?

Answer

$9,600 gain

$11,600 gain

$11,600 loss

$9,600 loss

17. Hernandez Corporation issues 2,000, 10-year, 8%, $1,000 bonds dated January 1, 2015, at 98. The journal entry to record the issuance will show a

Answer

debit to Cash of $2,000,000.

credit to Discount on Bonds Payable for $40,000.

credit to Bonds Payable for $2,040,000.

debit to Cash for $1,960,000.

18. The market price of a bond is the

Answer

present value of its principal amount at maturity plus the present value of all future interest payments.

principal amount plus the present value of all future interest payments.

principal amount plus all future interest payments.

present value of its principal amount only.

19. Thirty $1,000 bonds with a carrying value of $39,600 are converted into 4,000 shares of $5 par value common stock. The common stock had a market value of $9 per share on the date of conversion. The entry to record the conversion is

Answer

Bonds Payable ………………………………………………………………. 39,600

Common Stock ……………………………………………………… 20,000

Paid-in Capital in Excess of Par…………………………………… 19,600

Bonds Payable ………………………………………………………………. 30,000

Premium on Bonds Payable ………………………………………………. 9,600

Common Stock ……………………………………………………… 30,000

Paid-in Capital in Excess of Par ………………………………….. 3,600

Bonds Payable ………………………………………………………………. 30,000

 Premium on Bonds Payable ………………………………………………. 9,600

Common Stock ……………………………………………………… 20,000

Paid-in Capital in Excess of Par…………………………………… 19,600

Bonds Payable ………………………………………………………………. 39,600

Common Stock ……………………………………………………… 36,000

Paid-in Capital in Excess of Par…………………………………… 3,600

 

PART 2

Question 1

If $250,000 of bonds are issued during the year but $130,000 of old bonds are retired during the year, the statement of cash flows will show a(n) Answer

net increase in cash of $120,000.

net decrease in cash of $120,000.

increase in cash of $250,000 and a decrease in cash of $130,000.

net gain on retirement of bonds of $120,000.

Solution:

Question 2

Generally, the most important category on the statement of cash flows is cash flows from Answer

operating activities.

investing activities.

financing activities.

significant noncash activities.

Question 3

Squeeze Company reports the following: End of Year Beginning of Year Inventory $25,000 $42,000 Accounts Payable 22,000 12,000 If cost of goods sold for the year is $220,000, the amount of cash paid to suppliers is

Answer

$227,000.

$205,000.

$193,000.

$247,000.

Question 4

The statement of cash flows should help investors and creditors assess each of the following except the

Answer

entity’s ability to generate future income.

entity’s ability to pay dividends.

reasons for the difference between net income and net cash provided by operating activities.

cash investing and financing transactions during the period.

Question 5

Accounts receivable arising from sales to customers amounted to $86,000 and $77,000 at the beginning and end of the year, respectively. Income reported on the income statement for the year was $290,000. Exclusive of the effect of other adjustments, the cash flows from operating activities to be reported on the statement of cash flows is Answer

$290,000.

$299,000.

$213,000.

$280,000.

Question 6

Which of the following would be added to net income using the indirect method?

 Answer

An increase in accounts receivable

An increase in prepaid expenses

Depreciation expense

A decrease in accounts payable

Which of the following transactions does not affect cash during a period?

Answer

Write-off of an uncollectible account

Collection of an accounts receivable

Sale of treasury stock

Exercise of the call option on bonds payable

Question 8

A company had net income of $210,000. Depreciation expense is $27,000. During the year, Accounts Receivable and Inventory increased $17,000 and $42,000, respectively. Prepaid Expenses and Accounts Payable decreased $5,000 and $6,000, respectively. There was also a loss on the sale of equipment of $2,000. How much cash was provided by operating activities? Answer

$175,000

$179,000

$241,000

$271,000

Question 9

The order of presentation of nontypical items that may appear on the income statement is Answer

Extraordinary items, Discontinued operations, Other revenues and expenses.

Discontinued operations, Extraordinary items, Other revenues and expenses.

Other revenues and expenses, Discontinued operations, Extraordinary items.

Other revenues and expenses, Extraordinary items, Discontinued operations.

Question 10

Wrapp Company has income before taxes of $350,000 and an extraordinary loss of $70,000. If the income tax rate is 30% on all items, the income statement should show income before irregular items and an extraordinary loss, respectively, of: Answer

$350,000 and ($70,000)

$245,000 and ($24,000)

$245,000 and ($49,000)

$105,000 and ($21,000)

Question 11

Which one of the following would not be considered a liquidity ratio?

Answer

Current ratio

Inventory turnover

Acid-test ratio

Return on assets

If a company has an acid-test ratio of 1.2:1, what respective effects will the borrowing of cash by short-term debt and collection of accounts receivable have on the ratio? Short-term Borrowing Collection of Receivable

Answer

Increase No effect

Increase Increase

Decrease No effect

Decrease Decrease

Question 13

Under which of the following cases may a percentage change be computed?

Answer

The trend of the balances is decreasing but all balances are positive.

There is no balance in the base year.

There is a positive balance in the base year and a negative balance in the subsequent year.

There is a negative balance in the base year and a positive balance in the subsequent year.

Question 14

Blaney Clothing Store had a balance in the Accounts Receivable account of $437,500 at the beginning of the year and a balance of $500,000 at the end of the year. Net credit sales during the year amounted to $3,000,000. The average collection period of the receivables in terms of days was

Answer

53.2 days.

365 days.

60.1 days.

57 days.

Question 15

A company has an average inventory on hand of $60,000 and the days in inventory is 73 days. What is the cost of goods sold?

Answer

$300,000

$4,380,000

$600,000

$2,190,000

Question 16

Comparisons of financial data made within a company are called

Answer

intracompany comparisons.

interior comparisons.

intercompany comparisons.

intramural comparisons.

Each of the following is a liquidity ratio except the

Answer

acid-test ratio.

current ratio.

debt to assets ratio.

inventory turnover.

Beak Corporation sells 200 shares of common stock being held as an investment. The shares were acquired six months ago at a cost of $25 a share. Beak sold the shares for $40 a share. The entry to record the sale is

Answer

Cash……………………………………………………………………………. 5,000

Loss on Sale of Stock Investments ………………………. 3,000

            Stock Investments …………………………………………………..      8,000

Stock Investment…………………………………………………………….. 8,000

            Cash ……………………………………………………………………                     8,000

Cash………………………………………………………………………………. 8,000

            Gain on Sale of Stock Investments ………………………………………….. 3,000

            Stock Investments …………………………………………………………………. 5,000

Cash……………………………………………………………………………….. 8,000

            Stock Investments …………………………………………………………………. 8,000

Question 19

A consolidated income statement will show

Answer

revenue and expense transactions between the consolidated entity and parties outside the affiliated group.

only the parent company’s net income.

only the income of partially owned subsidiaries.

only the income of wholly owned subsidiaries.

Question 20

Blaine Company had these transactions pertaining to stock investments: Feb. 1 Purchased 2,000 shares of Norton Company (10%) for $51,000. June 1 Received cash dividends of $2 per share on Horton stock. Oct. 1 Sold 1,200 shares of Horton stock for $32,400. The entry to record the sale of the stock would include a

Answer

debit to Cash for $30,600.

credit to Gain on Sale of Stock Investments for $1,200.

debit to Stock Investments for $30,600.

credit to Gain on Sale of Stock Investments for $1,800.

Question 21

Pension funds and mutual funds regularly invest in debt and stock securities to

Answer

generate earnings.

house excess cash until needed.

meet strategic goals.

control the company in which they invest.

Question 22

Consolidated financial statements are prepared when a company owns _________ of the common stock of another company.

Answer

less than 20%

between 20% and 50%

less than 50%

more than 50%

Question 23

A typical investment to house excess cash until needed is

Answer

stocks of companies in a related industry.

debt securities.

low-risk, highly liquid securities.

stock securities.

Question 24

The cost of debt investments includes each of the following except

Answer

brokerage fees.

commissions.

accrued interest.

the price paid.

Comanic Corp. has common stock of $5,400,000, retained earnings of $2,000,000, unrealized gains on trading securities of $100,000 and unrealized losses on available-for-sale securities of $200,000. What is the total amount of its stockholders’ equity?

Answer

$7,200,000

$7,400,000

$7,300,000

$7,500,000