Accounting 201

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ryan666
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249368
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Accounting 201
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2013-12-05 20:19:31
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CHP 10 12 13 Exam
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3rd exam
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  1. On January 1, 2012, Plymouth Company purchases $100,000, 6% bonds at a price of 90.4 and a maturity date of January 1, 2016. Interest is paid semiannually, on January 1 and July 1. Plymouth Company has a calendar year end. The entry to record the purchase of the bond investment on January 1, 2012, includes a
    debit to Long-Term Investment in Bonds for$ 90,400.
  2. The balance in the Unrealized Gains and Losses on Available-for-sale Securities account appear in which financial statement?
    The balance sheet, as part of the stockholders' equity section
  3. Under the equity method, the Long-Term Investment account is debited when the
    investee reports net income.
  4. On January 1, 2012, Winston Company purchased 6% bonds for $50,000 cash. Interest is payable semiannually on July 1 and January 1. The entry to record the July 1 semiannual interest payment includes a
    credit to Interest Revenue for $1,500.
  5. Dole Company, the subsidiary company, borrowed $80,000 from Anderson Company, the parent company, on a note payable during the year. Before the consolidation entries were made, the balances in Anderson Company's Notes Receivable and Notes Payable accounts were $180,000 and $275,000, respectively. A consolidated balance sheet shows
    • Notes Receivable of $100,000 and Notes Payable of $275,000.
    • from the parent eliminated = $180,000 - $80,000
  6. The market value of an available-for-sale security has decreased from the last carrying value. The journal entry to record this decrease includes
    • a credit to the Allowance to Adjust Investment to Market.
    • a debit to the Unrealized Loss on Investment.
  7. Nantucket Company owns a 30% interest in the stock of Franklin Corporation. During the year, Nantucket debited the Investment account for $22,500 and credited the account for $15,000. Based on this information, Franklin must have paid dividends of
    15,000/.3=$50,000
  8. Unrealized gains and losses from available-for-sale investments arise from
    changes in the market value of the investment.
  9. The Allowance to Adjust Investment to Market has a debit balance. Therefore the Allowance account is
    added to the carrying amount.
  10. On January 1, 2012, Cashew Corporation purchased 70,000 of the 210,000 shares of outstanding stock of Peanut Company for $550,000. Net income reported by Peanut Company for 2012 was $450,000. Dividends paid by Peanut Company during 2012 were $150,000. The amount of the long-term investment will appear on Cashew Corporation's December 31, 2012 balance sheet as
    : $550,000 + (($450,000 - $150,000) * (70,000/210,000)) = $650,000
  11. If one company owns more than 50% of the common stock of another company
    a parent-subsidiary relationship exists.
  12. If an investor owns less than 20% of the common stock of another company as a long-term investment
    the investor usually is deemed to have little or no influence on the investee.
  13. Davis Company purchased 30% of the outstanding shares of Ocean Corporation on January 1 at a cost of $580,000. Ocean Corporation reported net income of $95,000 and paid total dividends of $25,000 for the year. At the end of the year, Ocean shares had a current market value of $590,000. After all necessary adjusting entries are made for the year, what will be the balance in Davis Company's Long-Term Investment account?
    $580,000 + (($95,000 - $25,000) * .3) = $601,000
  14. Receiving a stock dividend from an available-for-sale investment requires the following journal entry
    no journal entry. Investor makes a memorandum entry in the accounting records.
  15. Acme Company owns 35% of Superior Company. Superior Company paid $35,000 cash dividends for the year. Acme Company's journal entry to record the dividends includes a credit to
    Long-Term Investments for $12,250.
  16. The Unrealized Gain or the Unrealized Loss Account appears in other
    comprehensive income and accumulated other comprehensive income.
  17. Kelsey Company owns 30% interest in the stock of David Corporation. During the year, David pays $25,000 in dividends, and reports $100,000 in net income. What is the increase of Kelsey Company's investment in David?
    $22,500
  18. Perdue Company had the following transactions pertaining to stock investments:
    - February 1, Purchased 3,000 shares of Hudson Company (10% ownership) at the market price of $17 per share.
    - June 1, Received cash dividends of $6,000 on Hudson Company stock.
    - October 1, Sold 3,000 shares of Hudson stock for $54,000.
    The entry to record the sale of the stock includes a
    • credit to Long-Term Investment for $51,000.
    • 3,000 shares @ $17/share
  19. On the balance sheet, available-for-sale investments in stock are reported as
    either current assets or long-term assets, depending on when the investment is expected to be sold.
  20. Carmel Corporation purchased 5% bonds for $42,000 on January 1, 2012. On July 1, 2012, Carmel received cash interest of $1,050. The journal entry to record the receipt of interest on July 1 includes a
    debit to Cash $1,050.
  21. Ace Company purchased 1,000 shares of Nott Company at $40 per share. Ace received an additional 250 shares from Nott Company as a stock dividend. After receiving the stock dividend, the total value of the investment in Nott and cost per share of Nott, respectively, is
    $40,000 and $32.
  22. The Allowance to Adjust Investment to Market account has a current credit balance of $892. Available-for-sale investments with a cost of $17,000 have a current market value of $18,500. The adjusting entry will require a:
    debit to Allowance to Adjust Investments to Market for $2,392.
  23. On January 1, 2012, Plymouth Company purchases $100,000, 6% bonds at a price of 90.4 and a maturity date of January 1, 2016. Interest is paid semiannually, on January 1 and July 1. Plymouth Company has a calendar year end. The entry to record the purchase of the bond investment on January 1, 2012, includes a
    debit to Long-Term Investment in Bonds for$ 90,400.
  24. Big League Corporation owns 500 shares of Small Time Company's common stock. Small Time has 100,000 shares of common stock outstanding. Big League Corporation will show the investment on their books as
    an asset
  25. On the balance sheet, Available-for-sale investments in stock are reported at
    their current market value.
  26. Trudy Corporation has $10 par value Common Stock with 1,000,000 shares authorized, and a value of $7,000,000 before purchasing 3,000 shares of common stock. The resulting number of common shares issued and outstanding is
    7,000,000 value/10 par = 700,000 shares issue 700,000 shares issued – 3,000 treasury = 697,000 shares outstanding
  27. A corporation purchased 10,000 shares of its own $20 par value common stock for $30 per share. What is the effect on total stockholders’ equity?
    30 x 10,000 = 300,000
  28. The entry to record the declaration and distribution of a stock dividend includes a
    credit to Common Stock and a debit to Retained Earnings.
  29. Gertrudis Corporation has $10 par value Common Stock and has 1,000,000 shares authorized, 750,000 shares issued. What is the entry to record Gertrudis’ purchase of 10,000 shares of common stock at $15 per share?
    Debit Treasury Stock for $150,000.
  30. The number of shares of stocks outstanding is the same as the number of stock that is
    currently in the hands of the stockholders.
  31. A corporation’s own stock that it has issued and later reacquired is called
    treasury stock.
  32. The entry to record the issuance of 1,000 shares of $1 par value common stock at $10 per share includes a
    • Common stock at par value = 1000 * 1 = 1,000
    • Paid-in-capital in excess of par value = 1000 * (10-1) =  9,000
  33. Which of the following is a disadvantage of the corporate form of business organization?
    Governmental regulation at both the federal and state levels
  34. What is the amount of owners' equity attributable to each share of stock known as?
    Book value per share
  35. Which of the following is not an advantage of forming a corporation as compared to organizing as a partnership or proprietorship?
    Limited taxation
  36. Wall Corporation issued 5,000 shares of its $1 par value common stock as a stock dividend when the shares were selling for $10 per share. At the time of the dividend, Wall had 100,000 shares of common stock outstanding. These shares were originally issued for $5 per share. The entry to record the stock dividend includes a debit to Retained Earnings for
    • Small stock dividend uses market value
    •         5,000 x 10 = 50,000
  37. The arbitrary amount assigned by a company to a share of its stock is the
    par value
  38. Hergert Company declared a 2-for-1 stock split on its 200,000 shares of $10 par value common stock. As a result of this transaction
    none of these answers is correct
  39. The amount of stockholders’ equity that the corporation has earned through profitable operation of the business and has not given back to stockholders is
    retained earnings
  40. If treasury stock is sold at a price greater than its reacquisition costs, the difference is
    credited to Paid-in Capital from Treasury Stock Transactions
  41. Frost Corporation issues 100 shares of no-par common stock for $10 per share. The stock has a stated value of $1 per share. This transaction includes a credit to Common Stock for
    • Common stock at stated value = 100 * 1=100
    •  Paid-in-capital in excess of stated value = 100 * (10-1) = 900
  42. When a company issues its stock, it
    cannot recognize a gain or a loss.
  43. Shareholder rights may include
    the right to proportionate share of assets in the event of a liquidation.
  44. What is an increase in the number of authorized, issued and outstanding shares of stock coupled with a proportionate reduction in the stock’s par value known as?
    A stock split
  45. When 100 shares of $10 par value Common Stock are issued at $53 per share, Paid-in Capital in Excess of Par value - Common will
    100 x (53-10) = 4,300
  46. Limited liability of a corporation means
    a shareholders' potential loss is limited to their investment in the corporation.
  47. The group elected by the stockholders to set policy for a corporation and to appoint its officers is the
    board of directors.
  48. The entry to record common stock issued at its par value includes a
    credit to the Common Stock account.
  49. Paid-in capital is the amount of stockholders’ equity that the
    stockholders have contributed to the corporation.
  50. A company’s balance in its land account, which represented one piece of land, was $100,000. During the year, the piece of land was sold for $165,000. The amount reported in the investing activities section of the Statement of Cash Flows is
    $165,000.
  51. Under the indirect method of preparing a Statement of Cash Flows, dividends paid during the year are
    reflected in the financing activities section.
  52. Acquisitions of treasury stock are reported on a Statement of Cash Flows as
    financing activities
  53. A company sold an unused building for $177,000. The building's book value on the date of sale was $172,000. This transaction will appear in a Statement of Cash Flows prepared using the indirect method as a
    $177,000 increase in investing activities and $5,000 decrease in operating activities.
  54. Increases and decreases in the long-term liability accounts are reported on the Statement of Cash Flows as
    financing activities.
  55. Which statement is false?
    A decrease in a current liability increases cash.
  56. Rocky Company uses the indirect method to prepare its Statement of Cash Flows. Rocky's Accumulated Depreciation - Equipment account increased during the period. Rocky did not purchase or sell equipment during the period. The increase in Accumulated Depreciation - Equipment is
    added to net income to determine net cash provided by operating activities.
  57. The purchase of bonds is reported on a Statement of Cash Flows as a(an)
    investing activity.
  58. On a Statement of Cash Flows prepared using the indirect method, an increase in Accounts Receivable during the period is
    deducted from net income to determine net cash provided by operating activities.
  59. Under the indirect method of preparing the Statement of Cash Flows, the starting point to determine net cash from operating activities is
    net income.
  60. Creditors analyze the Statement of Cash Flows to determine
    whether the company can pay interest on its debt
  61. Cash receipts from interest and dividends are classified in the Statement of Cash Flows as
    operating activities
  62. Where would cash paid for income taxes appear on the Statement of Cash Flows?
    Operating activities
  63. Tech Support, Inc. issued common stock for $470,000 cash in 2012. The company paid cash dividends of $50,000 and purchased treasury stock at a cost of $20,000. The financing section of the Statement of Cash Flows will report net cash inflows of
    $470,000 - $50,000 - $20,000
  64. When preparing the Statement of Cash Flows using the indirect method, which of the following is false?
    Losses on the sale of long-term assets are subtracted from net income
  65. Under the indirect method of preparing a Statement of Cash Flows, amortization expense for the current period is
    added in the operating activities section.
  66. Activities that obtain cash to launch and sustain a company are reported on which of the following sections in the Statement of Cash Flows?
    Financing
  67. During the year, New Liberty Corporation's treasury stock increased $30,000 from a cash purchase, cash dividends paid totaled $44,000 and the company reported net income of $220.000. Net cash used by financing activities is
    Calculations = Cash used by financing activities = $30,000 + $44,000
  68. If $350,000 of bonds are issued during the year, but $150,000 of old bonds are retired during the year, the Statement of Cash Flows will show a(n)
    increase in cash of $350,000 and a decrease in cash of $150,000.
  69. Under the indirect method of preparing a Statement of Cash Flows, cash disbursed for the acquisition of a plant asset is
    subtracted in the investing activities section.
  70. Leo Textiles sold used weaving equipment with a book value of $60,000 for $56,000. The indirect method used to prepare the Statement of Cash Flows will reflect an addition of
    $56,000 in the investing activities section and an addition of $4,000 in the operating activities section.
  71. The receipt of interest on loans is reported on a Statement of Cash Flows under
    operating activities.
  72. Increases and decreases in the long-term assets available to a company are reported on the Statement of Cash Flows as
    investing activities.
  73. On a Statement of Cash Flows prepared using the indirect method, an increase in Accounts Payable during the period is
    added to net income to determine net cash provided by operating activities.
  74. Cash received from customers is reported on the Statement of Cash Flows
    under operating activities.
  75. Depots Clothing Store had an accounts receivable balance of $420,000 at the beginning of the year and a year-end balance of $510,000. Net sales for the year totaled $2,100,000. What was the average collection period of the receivables?
    • Calculations: Day’s sales = $2,100,000/365 day  = $5,753
    • Average days = ($420,000 + $510,000)/$5,753
    •     = 80.82 or 81 days
  76. To compute the operating income (profit) percentage, divide
    operating income by net sales.
  77. If economic value added (EVA) is negative, stockholders’
    wealth has decreased.
  78. If ABC Corporation's debt ratio is higher than its major competitors, ABC may
    be unable to pay its debts.
  79. Expressing cash and cash equivalents as a percentage of total assets is an example of
    vertical analysis.
  80. Which of the following statements is true?
    A positive EVA suggests an increase in stockholder wealth.
  81. The ratio that tells whether the entity can pay all its current liabilities if they come due immediately is the
    acid-test ratio.
  82. Cost of goods sold for the current year was $170,000. Last year's cost of goods sold was $190,000. What was the percentage change and direction of change for the current year?
    • Calculations: (170,000 (Current year) - 190,000 (Last year))/190,000 (Last year)
    •         -20,000/190,000 = 10.5% decrease
  83. The ratio that measures a company’s success in using its assets to earn income for the entities that finance the business is the
    rate of return on total assets.
  84. Which of the following is used as the base in a vertical analysis of an income statement?
    Net sales
  85. Horizontal analysis focuses on
    percentage changes in comparative financial statements.
  86. Beginning inventory was $28,000 and ending inventory was $22,000. Cost of goods sold was $190,000 and net sales were $360,000. Inventory turnover for the year was closest to
    190,000 (CoGS)/(28,000 (Beginning inventory) + 22,000 (Ending inventory))/2 = 7.6
  87. Which of the following ratios do not directly relate to the analysis of a given stock as an investment?
    Current ratio
  88. Calculations:     Current ratio = 190,000 (Current assets)/110,000 (Current liabilities)
            Current ratio = 1.73
  89. Of the items listed below, the one most helpful in the comparison of different size companies is
    preparation of common-size financial statements.
  90. Total revenues and net income for 2011 for Clam Corporation is $3,500,000 and $280,000, respectively. Clam Corporation has had 400,000 common shares of stock outstanding for all of 2011. The selling price of a share of Clampton common stock on December 31, 2011 is $18. Earnings per share for 2011 are
    280,000 (Net income)/400,000 (Shares of common stock) = .70
  91. A company wishing to improve its acid-test or quick ratio should
    sell inventory on account.
  92. A financial statement showing each item on the statement as a percentage of one key item on the statement, called the base, is referred to as
    common-size statement.
  93. Analyzing the statement of cash flows may help analysts determine the financial health of a company. Which of the following signs is an indicator of a financially unhealthy company?
    The company's operations are a major use (not a source) of cash
  94. Which of the following groups of ratios measure a company’s ability to pay its current liabilities?
    Current ratio and acid-test ratio
  95. Horizontal analysis evaluates financial data
    over a period of time.
  96. Red flags in financial statement analysis can include
    • a slowdown in inventory turnover. 
    • quick or acid test ratio declining. 
    • debt ratio higher than average.
  97. A vertical analysis is primarily concerned with
    individual financial statement items expressed as a percentage of a base (which represents 100%).
  98. A measure of a company’s ability to collect cash from credit customers is the
    accounts receivable turnover.
  99. Calculations:  115,000 (Cash)/1,650,000 (Total assets) = 6.9% rounded to 7%

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