AC210 Spring 2015 Final Exam Version B
Name ______________________________________ CWID ____________________________
1. A company issues 1 million shares of preferred stock with a par value of $2 and a market price of $26 per share. The issuance should be recorded as:
a. a debit to Cash of $26 million and a credit to Preferred Stock of $26 million.
b. a debit to Cash of $2 million and a credit to Preferred Stock of $2 million.
c. a debit to Cash of $26 million, a credit to Preferred Stock of $2 million, and a credit to Additional Paid-in Capital of $24 million.
d. a debit to Cash of $26 million, a credit to Additional Paid-in Capital of $2 million, and a credit to Preferred Stock of $24 million.
2. Ivy Corporation is authorized to issue 2,000,000 shares of $4 par value capital stock. The corporation issued half the stock for cash at $8 per share, earned $336,000 during the first three months of operation, and declared a cash dividend of $60,000. At the end of the year, what is the balance in additional paid-in capital?
3. Golden Gate Corporation issued 400,000 shares of $4 par value common stock at the time of its incorporation. The stock was issued for cash at a price of $16 per share. During the first year of operations, the company sustained a net loss of $100,000. The year-end balance sheet would show the balance of the Common Stock account to be:
4. Which of the following is not a capital expenditure?
a. Sales tax paid in conjunction with the purchase of new machinery.
b. Installation of elevators to replace escalators.
c. Shipping costs for computer equipment.
d. An amount paid to acquire a patent with a remaining life of only three years.
e. Advertising expenditures to introduce a new product line.
5. The application of the matching principle to depreciation of plant and equipment can best be described as:
a. The matching of the book value of an asset with its market value.
b. Offsetting revenue of an accounting period with the portion of the cost of plant and equipment estimated to have been used up during the accounting period.
c. Offsetting the revenue of an accounting period with the estimated decline in market value of plant and equipment during the accounting period.
d. The matching of the depreciation expense reported in the income statement for an accounting period with the accumulated depreciation reported in the balance sheet.
6. The management has determined that a company’s equipment has been impaired. What effect will this have on the company’s financial statements now?
a. Total assets and total equity will decrease without a change in total liabilities.
b. Nothing, as there has to be an external event that causes an expense to be recognized.
c. Total assets and total liabilities will decrease without a change in total equity.
d. Total assets, total liabilities, and total equity will increase.
e. Total liabilities will increase and total equity will decrease, without a change in total assets.
7. Zoe, an employee of Terra Nova, $20 per hour and works 40 hours this week. $110 in federal and state income taxes are withheld from her paycheck. FICA and Medicare taxes of $61 are also withheld. Unemployment taxes are $56. What is her net pay for the week?
8. Which of the following are investing activities on the statement of cash flows?
a. Selling stock and bonds to investors
b. Purchasing an office building and selling equipment
c. Paying dividends and selling stock to investors
d. Paying interest on loans and buying treasury stock
e. Buying treasury stock and selling bonds
9. Professional, Inc. has a weekly payroll of $10,000 for a 5-day workweek, Monday through Friday; payroll is paid on Friday for that work week. If December 31, the last day of the accounting year, falls on Thursday, Executive would make an adjusting entry on that Thursday to accrue wages that would:
a. decrease Wages Payable $2,000.
b. decrease Cash $8,000.
c. increase Wages Expense $8,000.
d. increase Wages Payable $2,000.
10.On January 2, 2015, Dry Wall Construction, Inc. issued $500,000, 10-year bonds for $574,540. The bonds pay interest on June 30 and December 31. The stated rate is 8% and the market rate is 6%. At the maturity date, besides an interest payment, Roof Master would repay the bondholders
11.Which of the following statements regarding a stock split is true?
a. A stock split decreases retained earnings.
b. Stock splits are the same as stock dividends.
c. Stock splits increase the par value per share.
d. Stock splits do not require a journal entry.
12. A company has outstanding 9 million shares of $2 par value common stock and 1 million shares of $4 par value preferred stock. The preferred stock has an 8% dividend rate. The company declares $600,000 in total dividends for the year. Which of the following is true if dividends in arrears are $30,000?
a. Preferred stockholders will receive $60,000. Common stockholders will receive $540,000.
b. Preferred stockholders will receive $320,000. Common stockholders will receive $280,000.
c. Preferred stockholders will receive $350,000. Common stockholders will receive $250,000.
d. Preferred stockholders will receive $90,000. Common stockholders will receive $510,000.
13. Island Enterprises purchased equipment for $72,000 on January 1, 2016. The equipment is expected to have a five-year life and a residual value of $6,000. Using the straight-line method, depreciation expense for 2017 and the equipment's book value at December 31, 2017, would be:
a. $14,400 $43,200
b. $13,200 $45,600
c. $28,800 $37,200
d. $13,200 $39,600
14. On June 30, 2016, Green Equipment purchased a precision laser-guided steel punch that has an expected capacity of 300,000 units and no residual value. The cost of the machine was $450,000 and is to be depreciated using the units-of-production method. During the six months of 2016, 24,000 units of product were produced. During 2017, 70,000 units were produced. Prego would report depreciation expense in 2016 of:
15. A piece of equipment was acquired on January 1, 2013, at a cost of $92,000, with an estimated residual value of $4,000 and an estimated useful life of Four years. The company uses the double-declining-balance method. What is its book value at December 31, 2014?
16. Swift trucking company sold its fleet of trucks for $56,700. The trucks had originally cost $1,491,000 and had accumulated depreciation of $1,286,000 through the date of disposal. What gain or loss did the trucking company record when it sold the fleet of trucks?
a. Loss of $148,300.
b. Loss of $56,700.
c. Gain of $148,300.
d. Gain of $56,700.
17. Fast and Furious Corporation acquired an office building on three acres of land for a lump-sum price of $2,400,000. The building was completely furnished. According to independent appraisals, the fair values were $1,300,000, $780,000, and $520,000 for the building, land, and furniture and fixtures, respectively. The initial values of the building, land, and furniture and fixtures would be:
None of these answer choices are correct.
18. Hunts Company borrowed $21,000 cash on October 1, 2014, and signed a six-month, 6% interest-bearing note payable with interest payable at maturity. Assuming that adjusting entries have not been made during the year, how much interest payable should be recorded on December 31, 2014?
19. Target Corp. borrowed $106,000 cash on September 1, 2014, and signed a one-year 6%, interest-bearing note payable. The interest and principal are both due on August 31, 2015. Assume that the appropriate adjusting entry was made on December 31, 2014 and that no adjusting entries have been made during 2015. Which of the following would be the required journal entry to pay the note on August 31, 2015?
a. Interest expense
b. Interest payable
c. Notes payable
d. Interest expense
20. Coconut Company reported net income of $23,000 for the year ended December 31, 2014. During the year, inventories decreased by $7,500, accounts payable decreased by $8,250, depreciation expense was $10,500, and accounts receivable increased by $7,000. Net cash provided by operations in 2014, computed using the indirect method was:
21. Which of the following statements is false?
a. Total depreciation is the same over the life of an asset regardless of the method of depreciation used.
b. The equipment cost initially reported on the balance sheet includes the equipment-related installation and transportation costs.
c. Accelerated depreciation methods are used primarily in the financial statements of publicly traded corporations.
d. The most depreciation expense you can take over the life of the asset is limited to the original cost minus any residual value.
22. Which of the following statements is false?
a. The times interest earned ratio is primarily used by stockholders to measure their return on investment.
b. A current liability is created when a customer pays cash for services to be provided in the future.
c. The withholding of taxes from an employee's pay is a liability to the company.
d. When bonds are issued at a discount, the borrower receives less than the face value of the bond on the date of the issuance.
23. Which of the following statements is false?
a. The quick ratio is a stricter measure of solvency than the current ratio.
b. If a company’s P/E ratio suddenly decreases, the market probably has reacted to some bad news that is expected to affect the company in the future.
c. The effect of a stock dividend is to decrease total assets and total stockholders’ equity.
d. Depreciation and amortization are examples of non-cash expenses.
24. Which of the following statements is true?
a. When sales tax is collected from a customer at the point of sale, the seller credits Sales Tax Revenue.
b. Retained earnings is the amount of cash that the company has retained since its inception.
c. Patents in the U.S. have an indefinite life and therefore cannot be amortized.
d. An asset is recorded on the balance sheet for externally purchased goodwill, but not for internally developed goodwill.
25. Which of the following statements is true?
a. The return on equity ratio measures the return stockholders receive in dividends for each dollar of assets in the company.
b. The purchase of equipment belongs in the investing activities section of the statement of cash flows.
c. A cumulative dividend preference means that preferred stockholders are paid dividends before common stockholders are paid dividends for the current year only.
d. The additional paid-in capital account represents profit to the corporation and, as such, it is credited to Retained Earnings as part of the closing process.
26. Which of the followings statements is true?
a. Treasury stock is stock that is authorized and outstanding, but has not been issued.
b. Treasury stock is often used to pay for acquisitions of other companies and to compensate employees in stock.
c. Treasury stock increases total stockholders’ equity.
d. When treasury stock is reissued above cost, the corporation recognizes a gain on the income statement.
e. Companies that show profits on the income statement will always show positive cash flows from operating activities.
27. Which of the following best describes the accrual of interest?
a. Expenses and liabilities increase.
b. Assets and stockholders' equity decrease.
c. Assets and liabilities decrease.
d. Net income and expenses decrease.
28. Flower Company is involved in a lawsuit. When would the lawsuit be recorded as a liability on the balance sheet?
a. When the loss probability is remote and the amount can be reasonably estimated.
b. When the loss probability is reasonably possible and the amount can be reasonably estimated.
c. When the loss is probable and the amount can be reasonably estimated.
d. When the loss is probable regardless of whether the loss can be reasonably estimated.
29. A corporation prepared its statement of cash flows for the year. The following information is taken from that statement:
Net cash provided by operating activities
Net cash provided by investing activities
Cash balance, beginning of year
Cash balance, end of year
What is the amount of net cash provided by (used in) financing activities?
30. A company declared a $0.85 per share cash dividend. The company has 210,000 shares authorized, 67,000 shares issued, and 64,000 shares of common stock outstanding. What is the journal entry to record the dividend declaration?
a. Dividends Declared
b. Dividends Declared
c. Dividends Payable
d. Dividends Payable
31. Given the information below, which bond(s) will be issued at a discount?
Stated rate of return
Market rate of return
a. Bond 4
b. Bond 1
c. Bond 3
d. Bond 1 and 3
32. A company has 110,000 shares authorized, 50,000 shares issued, and 5,000 shares of treasury stock. How many shares are outstanding?