MGMT 200 EXAM 3 AND PRACTICE EXAMS (PURDUE UNIVERSITY), Exams of Nursing

Download MGMT 200 EXAM 3 AND PRACTICE EXAMS (PURDUE UNIVERSITY) and more Exams Nursing in PDF only on Docsity! MGMT 200 EXAM 3 AND PRACTICE EXAMS (PURDUE UNIVERSITY) WITH ACTUAL CORRECT QUESTIONS AND VERIFIED DETAILED RATIONALES ANSWES LATEST 2024 (NEWEST) ALREADY GRADED A+ MGMT 200 EXAM 3 Which of the following definitions describes a term bond? A. Matures on a single date. B. Secured only by the "full faith and credit" of the issuing corporation. C. Matures in installments. D. Supported by specific assets pledged as collateral by the issuer. Matures on a single date Which of the following is not true regarding callable bonds? A. This feature allows the borrower to repay the bonds before their scheduled maturity date. B. This feature helps protect the borrower against future decreases in interest rates. C. Callable bonds benefit the bond investor. D. A bond can be both callable and convertible. Callable bonds benefit the bond investor The term used for bonds that are unsecured as to principal is A. series bonds. B. indenture bonds. C. debenture bonds. D.callable bonds. Debenture Bonds The amount at a present time that is equivalent to a series of payments and interest in the future. A. Present value of a single amount B. Future value of a single amount C. Present value of an annuity D. Future value of an annuity Present value of an annuity What measurement should be used when reporting long‐term liabilities on a balance sheet? A. Present value of the present outflow B. Present value of the future outflow C. Future value of the present outflow D. Future value of the future outflow Present value of the future outflow The price of a bond is equal to: A. The present value of the interest only B. The future value of the face amount only C. The future value of the face amount plus the future value of the stated interest payments D. The present value of the face amount plus the present value of the stated interest payments The present value of the face amount plus the present value of the stated interest payments On January 1, 2018, San Bruno, Inc. issued twenty‐year bonds payable with a face value of $50,000,000 and a face interest rate of 5 percent. The bonds were issued with a market interest rate of 6 percent. Interest is payable semi‐annually on January 1 and July 1. In calculating the present value of the bond issue on January 1, 2018, A. the 5 percent rate will be used to calculate the present value of the face amount and the present value of the periodic interest payments B. the 6 percent rate will be used to calculate the present value of the face amount and the present value of the periodic interest payments. C. a 3 percent rate will be used to calculate the present value of the face amount and the present value of the periodic interest payments. D. the 6 percent rate will be used to calculate the present value of The carrying amount always approaches the face value over the life of the bond. A. True B. False True The carrying value will increase each year: A. If the bonds were sold at either a discount or a premium B. If the bonds were sold at a premium C. If the bonds were sold at a discount (see following) D. The carrying value of bonds will never increase If the bonds were sold at a discount When bonds are redeemed by the issuer prior to their maturity date, any gain or loss on the redemption, if material, is A. amortized over the period remaining to maturity and reported as an extraordinary item in the income statement. B. amortized over the period remaining to maturity and reported as part of income from continuing operations in the income statement. C. reported in the income statement as non‐operating income (loss) in the period of redemption. D. reported in the income statement as part of operating income in the period of redemption. Reported in the income statement as non-operating A gain or loss is recorded on bonds retired at maturity A. True B. False False Carrying value is the face value of a bond plus the unamortized premium or less the amount of unamortized discount. A. true B. false True The premium on bonds payable is shown on the Balance Sheet as A. a contra asset. B. a reduction of an expense. C. an addition to a long‐term liability. D. a subtraction from a long‐term liability. an addition to a long-term liability Unamortized Bond Premium is subtracted from Bonds Payable on the balance sheet. A. True B. False False The interest expense each period is calculated as the carrying value times the market interest rate A. True B. False True Bonds payable should be reported as a long‐term liability in the balance sheet at: A. Current bond market price B. Carrying value C. Face value D. Face value less accrued interest since the last interest payment date Carrying Value Which of the following is an example of vertical analysis? A. Comparing operating income across companies B. Comparing debt with industry averages C. Comparing the change in income over time D. Comparing income statement items as a percentage of sales Comparing income statement items as a percentage of sales In a common‐size financial statement, a designation of 25 percent could not be given to A. net revenues. B. total current assets. C. total long‐term debt. D. net earnings. Net revenues In horizontal analysis, the base year is the most current year being examined. A. True B. False False Which of the following is an example of horizontal analysis? A. Comparing the change in stockholders' equity over time B. Comparing gross profit across companies C. Comparing gross profit with operating expenses D. Comparing assets with equity comparing the change in stockholders' equity over time Assuming a current ratio of 1.5, how will the collection of an accounts receivable affect the ratio? A. No change to the current ratio B. Increase the current ratio C. Decrease the current ratio D. Could either increase or decrease the current ratio There is no change to current ratio Why is it incorrect to assume that the company with a higher current ratio is a better company? A. Companies may be different sizes. B. A high current ratio may indicate inadequate inventory on hand. C. Companies may define working capital in different terms. D. A high current ratio may indicate inefficient use of various assets and liabilities. A high current ratio may indicate inefficient use of carious assets and liabilities Will the profit margin of a business be higher than its gross margin? A. Yes B. No No c. Debit Cash $300,000 d. Credit Additional Paid‐In Capital $285,000 Credit common stock 300,000 Preferred stock is called preferred because it usually has two preferences over common stock. These preferences relate to a. dividends and distribution of assets if the corporation is dissolved. b. dividends and voting rights. c. par value and dividends. d. the conversion to a bond and voting rights Dividends and distribution of assets if the corporation Dividends in arrears pertain to noncumulative preferred stock. A. True B. False False Preferred stock is least likely to have which of the following characteristics? A. Preference as to dividends. B. The right of the holder to vote at stockholders' meetings. C. Preference as to assets upon liquidation of the corporation. D. The right of the holder to convert to common stock. The right of the holder to vote at stockholders' meetings The Golden, Inc. issues 1,000 shares of 3%, $100 par value preferred stock at the beginning of 2017. All remaining shares are common stock. Golden was not able to pay dividends in 2017, but plans to pay dividends of $10,000 in 2018. Assuming the preferred stock is noncumulative, how much of the $10,000 dividend will be paid to preferred stockholders and how much will be paid to common stockholders in 2018? a. $10,000 to preferred stockholders and $0 to common stockholders. b. $6,000 to preferred stockholders and $4,000 to common stockholders c. $3,000 to preferred stockholders and $7,000 to common stockholders. d. none to preferred stockholders and $10,000 to common stockholders c. $3,000 to preferred stockholders and $7,000 to common stockholders. Sharon Textiles Corporation has 1,000 shares of 5%, $100 par cumulative preferred stock and 25,000 shares of common stock outstanding. Sharon declared no dividends in 2016 and had no dividends in arrears prior to 2016. In 2017, Sharon declares a total dividend of $30,000. How much of the dividends go to the preferred stockholders? A. $ ‐ 0 ‐ B. $15,000 C. $10,000 D. $20,000 10,000 When treasury stock is acquired, what is the effect on total stockholders' equity? a.Decrease b.No effect c. Increase d.Cannot tell from the given information Decrease because cash is used to purchase the stock According to generally accepted accounting principles, treasury stock usually should be recorded at A. market value. B. par value. C. cost. D. net realizable value. Cost When a company purchases treasury shares at $10,000 and then sells the shares at $8,000, the difference of $2,000 A. is recorded as a loss on the income statement. B. reduces stockholders' equity. C. increases stockholders' equity. D. is recorded as a gain on the income statement. Reduces stockholders' equity When Allegheny Corporation declares a cash dividend which of the following is true? A. Allegheny's assets are decreased B. Stockholders' equity is increased C. Allegheny's assets are increased D. Allegheny's liabilities are increased Liabilities are increased Accounting for stock splits and large stock dividends have a different effects on a company's retained earnings and total stockholders' equity a) True b) False True The balance of the $.10 par value common stock account for Leeds Corporation was $5,000,000 before its recent 2‐for 1 stock split. The market price of the stock was $50 per share before the stock split. What occurred as a result of the stock split? A. The balance in the retained earnings account decreased by the par value of the new shares. B. The balance in the common stock account was increased by $5,000,000 C. The market price of the stock dropped to approximately $40 per share. D. The market price of the stock dropped to approximately $25 per share. The market price per share dropped to about $25 A stock dividend requires an entry in the accounting records because stock dividends A. represent a transfer from retained earnings to common stock account. B. increases the stockholders' equity. C. require a liability to be recorded on the declaration date. D. increases assets and equity of the company . represents a transfer from retained earnings to common stock account. A feature common to both stock splits and stock dividends is a) a transfer of the par value for the new shares a) True b) False True-Used money to lower accounts payable Which of the following represents an increase in cash flows? a) decrease in Accounts Payable b) increase in Inventory c) decrease in Wages Payable d) increase in Deferred Revenue Increase in Deferred Revenue Cotswolds Corporation repaid a 90‐day note payable to a bank. Indicate which section, if any, this transaction would appear in, or relate to, on a statement of cash flows. A. Operating activities section B. Investing activities section C. Financing activities section D. Schedule of noncash investing and financing transactions Financing Activities Which of the following is an example of a cash inflow from a financing activity? A. Sale of an intangible asset B. Issuance of bonds C. Receipt of cash dividends D. Sale of land Issuance of Bonds, because you are using them to bring cash into your company Repayments of accounts payable or accrued liabilities are considered repayments of loans under financing activities. A. True B. False False In preparing a statement of cash flows using the indirect method cash flows from operating activities A. is calculated as the difference between revenues and expenses plus the beginning cash balance. B. can be calculated by adding to or deducting from net income those items in the income statement that do not affect cash. C. can be calculated by adding to or deducting from net income those items in the income statement that affect cash and accruals for current assets and current liabilities. D. is always equal to the sum of cash flows from investing activities and cash flows from financing activities. Can be calculated by adding to or deducting from net income those items in the income statement that affect cash and accruals for current assets and current liabilities. When preparing a reconciliation of net income to cash from operations, an increase in the ending inventory over the beginning inventory will result in an adjustment to reported net income because a) cash is increased because inventory is a current asset. b) inventory is an expense deducted in computing net earnings, but is not a use of cash. c) all changes in noncash accounts must be disclosed. d) cash is decreased due to additional purchases or investment in product related costs cash is decreased due to additional purchases or investment in products related costs Operating activities are most closely related to A. current assets and current liabilities. B. long‐term liabilities and stockholders' equity. C. cash dividends and purchases of treasury stock. D. long‐term assets Current assets and current liabilities Given the items below, which of the following is an addition to net income to arrive at operating cash flows? I. Gain on sale of assets II. Increase in Supplies III. Decrease in Accounts Receivable IV. Increase in Accounts Payable A. I and IV B. I. only C. III. and IV D. II. and III C Kensal Green, Inc. reports net income of $100,000. The accounting records reveal Depreciation Expense of $30,000 as well as increases in Prepaid Rent, Accounts Payable, and Income Tax Payable of $50,000,$10,000, and $10,000, respectively. What is the net cash flows from operating activities? A. $100,000 B. $140,000 C. $150,000 D. $180,000 100000 A machine with a cost of $200,000 and accumulated depreciation of $50,000 is sold for $100,000 cash. The amount reported as a source of cash under cash flows from investing activities is A. $20,000 B. $80,000 C. $100,000 D. zero; this is a financing activity E. zero; this is a operating activity 100,000 because that's is what the machine sold for. Which of the following is an example of a cash outflow from a financing activity? A. 5% stock dividend to shareholders. B. Sale of treasury stock C. Net payments on short‐term borrowings. D. Issuance of common stock for cash. Net payments on short-term borrowings Brighton, Inc. issued 25,000 shares of $10 par value common stock for $500,000, purchased 10,000 shares of treasury stock with a par value of $10 for $300,000, and paid $20,000 in cash dividends. Net cash flows from financing activities totaled A. $0. B. $330,000. C. $180,000. D. ($570,000) 180,000 Woodcrest Corporation issued common stock for $50,000 to payoff a notes payable of the same amount. How will the transaction be reported on the Statement of Cash Flows? A. Financing activities - payment of a notes payable of $50,000. B. Financing activities - cash received of $50,000 for the issuance of common stock. C. Non‐cash activities disclosure. D. Both answers (a.) and (b.) are correct. C. Disclosed, but not reported as a liability D. Reported as a liability, but not disclosed C. Disclosed, but not reported as a liability Kensal Green, Inc. is facing a class‐action lawsuit in the upcoming year. It is probable that the corporation will have to pay a settlement of approximately $10,000,000 in the next twelve months. How would this fact be reported, if financial statements are prepared at the end of the current month? A. Report $10,000,000 as a current liability and describe the matter in the notes to the financial statements. B. Report $10,000,000 as a long‐term liability and describe the matter in the notes to the financial statements. C. Describe the potential liability in the notes to the financial statements. D. Reporting is not required for this matter A. Report $10,000,000 as a current liability and describe the matter in the notes to the financial statements. Bampton Corporation filed suit against Cambridge, Inc., seeking damages for patent violations. Cambridge's legal counsel believes it is probable that Cambridge will settle the lawsuit for an estimated amount in the range of $500,000 to $1,000,000, with all amounts in the range considered equally likely. How should Cambridge report this litigation? A. As a liability for $1,000,000 with disclosure of the range. B. As a liability for $750,000 with disclosure of the range. C. As a liability for $500,000 with disclosure of the range. D. As a disclosure only. No liability is reported. C. As a liability for $500,000 with disclosure of the range. Subaru estimates warranty parts & labor costs in the same year a vehicle is sold. This best follows which of the following accounting principles? A. historical cost B. consistency C. relevance D. matching D. matching Greenwich, Inc. sells deluxe grass mowers to customers over the internet. History has shown that 5% of Greenwich's mowers will need repair under a warranty program. For the year, Greenwich has sold 5,000 mowers and 150 have been repaired. If the estimated cost to repair a mower is $80, what would be the warranty expense for the year? A. $20,000 B. $25,000 C. $15,000 D. $10,000 A. $20,000 Greenwich, Inc. sells deluxe grass mowers to customers over the internet. History has shown that 5% of Greenwich's mowers will need repair under the warranty program. For the year, Greenwich has sold 5,000 mowers and 150 have been repaired. If the estimated cost to repair a mower is $80, what would be the warranty liability at the end of the year? A. $ 6,000 B. $12,000 C. $ 8,000 D. $10,000 C. $ 8,000 When a gain contingency is probable and the amount of gain is reasonably estimable, the gain should be A. Offset against stockholders' equity. B. Reported in the income statement and disclosed. C. Reported in the income statement, but not disclosed. D. Disclosed, but not recognized in the income statement. D. Disclosed, but not recognized in the income statement. Banks will charge a very profitable company a higher interest rate as compared to a company with minimal income since the high‐income business will be better able to pay the extra interest cost. A. True B. False B. False Liquidity is the ability to earn a satisfactory net income. A. True B. False B. False A company needs to raise 10 million and issues debt (bonds) for that amount rather than selling common stock (equity). Which of the following is not a likely reason the company chose debt financing? A. Management plans to increase profits by using financial leverage. B. The cost of borrowing is reduced because interest expense is tax deductible. C. Adding new owners increases the possibility of bankruptcy (insolvency). D. Excess profits (cash) can be used to reduce debt. C. Adding new owners increases the possibility of bankruptcy (insolvency). The higher the debt to equity ratio, the greater the financial risk the company is taking. A. True B. False A. True The mixture of debt and equity securities is generally the same for most companies. A. True B. False B. False A debt to equity ratio of 0.5 means that half of the company's assets are financed by creditors. A. True B. False B. False Cash flow generally limits the amount of debt a business can finance. A. True B. False A. True Monthly installment payments on a note payable include both an amount that represents interest and an amount that represents a reduction of the outstanding loan balance. A. True B. False A. True The entry to record a monthly payment on an installment note A. Increases expense, decreases liabilities, and increases assets. B. Increases expense, increases liabilities, and increases assets. rate. B. investors are willing to invest in the bonds at rates that are lower than the stated interest rate C. investors are willing to invest in the bonds at the stated interest rate. D. An unfavorable tax event will impact the buyer. A. investors are willing to invest in the bonds only at rates that are higher than the stated interest rate. If the market interest rate at the date of issuance of a bond exceeds the face interest rate, the bond will probably be sold at a premium. A. True B. False B. False If bonds are issued at a premium, the face interest rate is A. lower than the market rate of interest. B. higher than the market rate of interest. C. too low to attract investors. D. adjusted to a higher effective rate of interest. B. higher than the market rate of interest. If the market interest rate at the date of issuance of a bond exceeds the face interest rate, the present value of the face value plus the present value of all the future interest payments will equal an amount greater than the face value of the bond. A. True B. False (amount will be less than face value or a discount) B. False (amount will be less than face value or a discount) If the face interest rate at the date of bond issuance exceeds the market interest rate, the bond will probably be sold at a discount. A. True B. False (amount will be more than face value or a premium) B. False (amount will be more than face value or a premium) Issuing bonds at a discount has the effect of decreasing interest expense below the face amount of interest. A. True B. False (see amortization schedule following) B. False (see amortization schedule following) face interest rate = stated interest rate The carrying value amount always approaches the face value over the life of the bond. A. True B. False A. True JW Enterprises, Inc. issued a ten‐year, $20 million bond with a 10% interest rate for $19,500,000. The entry to record the bond issuance would have what effect on the financial statements? A. Increase assets B. Increase liabilities C. Increase stockholders' equity D. Increase assets and liabilities D. Increase assets and liabilities The carrying value, using the effective interest method, would decrease each year: A. If the bonds were sold at either a discount or a premium B. If the bonds were sold at a premium (see following) C. If the bonds were sold at a discount D. The carrying value of bonds will never increase B. If the bonds were sold at a premium (see following) For bonds issued at a discount, the difference between interest expense and the cash paid increases the carrying value of the bonds A. True B. False A. True When bonds are redeemed by the issuer prior to their maturity date, any gain or loss on the redemption, if material, is A. amortized over the period remaining to maturity and reported as an extraordinary item in the income statement. B. amortized over the period remaining to maturity and reported as part of income from continuing operations in the income statement. C. reported in the income statement as non‐operating income (loss) in the period of redemption. D. reported in the income statement as part of operating income in the period of redemption. C. reported in the income statement as non‐operating income (loss) in the period of redemption. A gain or loss is recorded on bonds retired at maturity A. True B. False B. False Unamortized Bond Premium is subtracted from the bond's face value on the balance sheet. A. True B. False B. False The interest expense each period is calculated as the carrying value times the market interest rate A. True B. False A. True Bonds payable should be reported as a long‐term liability in the balance sheet at: A. Current bond market price B. Carrying value C. Face value A. No change to the current ratio Will the profit margin of a business be higher than its gross margin? A. Yes B. No B. No Allegheny Corporation's 2017 gross margin ratio on the following schedule is: A. 30.0%. B. 25.0%. C. 15.0%. D. 10.0%. B. 25.0% A disadvantage of the corporate form of business is A. centralized authority and responsibility. B. its status as a separate legal entity. C. government regulation. D. continuous existence. C. government regulation. When a corporation is formed what documents are filed with the state jurisdiction? a) Articles of incorporation & by‐laws b) State entity registration form & common stock certificate form c) Articles of incorporation & common stock certificate form d) By‐laws & state entity registration form a) Articles of incorporation & by‐laws Advantages of the corporate form of business include which of the following? I. Double taxation II. Ability to raise capital III. Ability to transfer ownership IV. More paperwork V. Limited liability a. II b. I., II., III c. II., IV., V d. II., III., V d. II., III., V Limited liability means that even in the event of bankruptcy, stockholders in a corporation can lose no more than the amount they invested in the company a. True b. False a. True Treasury shares plus outstanding shares equal A. unissued shares. B. available shares. C. authorized shares. D. issued shares. D. issued shares. Contributed capital is the amount stockholders have invested in the company. a. true b. false a. true (external funds) The par value of shares issued is normally recorded in the a. Additional Paid‐in Capital account. b. Retained Earnings account. c. Common Stock account. d. asset account Common Stock. c. Common Stock account. Meadows Racetrack, Inc. issues 1,000 shares of $1 par value common stock for $20 per share, what would be the effect on the accounting equation? a. Increase assets and increase liabilities b. Increase assets and increase revenue c. Increase assets and decrease stockholders' equity d. Increase assets and increase stockholders' equity d. Increase assets and increase stockholders' equity Charring Cross, Inc. issued 5,000 shares of $1 par value stock for $5 per share. What is true about the journal entry to record the issuance? a. Credit Cash $25,000 b. Credit Common Stock $25,000 c. Credit Additional Paid‐In Capital $24,500 d. Credit Common Stock $5,000 d. Credit Common Stock $5,000 Bampton Corporation issued 15,000 shares of $1 par value stock for $20 per share. What is true about the journal entry to record the issuance? a. Credit Common Stock $300,000 b. Debit Common Stock $15,000 c. Credit Cash $300,000 d. Credit Additional Paid‐In Capital $285,000 d. Credit Additional Paid‐In Capital $285,000 The word preferred in the phrase preferred stock means that an owner of preferred stock has some advantages over a bondholder. A. True B. False B. False Preferred stock is least likely to have which of the following characteristics? A. Preference as to dividends. B. The right of the holder to vote at stockholders' meetings. C. Preference as to assets upon liquidation of the corporation. D. The right of the holder to convert to common stock. B. The right of the holder to vote at stockholders' meetings. c. increase stockholders' equity and decrease assets. d. increase stockholders' equity and increase liabilities. a. decrease stockholders' equity and increase liabilities. The board of directors of Hayne, Inc. declared a $0.50 per share cash dividend on its $1 par common stock. On the date of declaration, there were 100,000 shares authorized, 50,000 shares issued, and 10,000 shares held as treasury stock. What is the entry when the dividends are declared? Question - LO5 A. Dividends 25,000 Dividends Payable 25,000 B. Dividends 25,000 Cash 25,000 C. Dividends 20,000 Dividends Payable 20,000 D. Dividends 20,000 Cash 20,000 C. Dividends 20,000 Dividends Payable 20,000 Retained Earnings represent a company's a. Undistributed net assets. b. Profits less dividends since the inception of the company c. Total paid‐in capital d. Undistributed cash b. Profits less dividends since the inception of the company Unlike a stock split, a stock dividend requires a formal journal entry in the financial accounting records because stock dividends A. represent a transfer from Retained Earnings to Capital Stock. B. increase the stockholders' equity in the issuing firm. C. are payable on the date they are declared. D. increase the relative book value of an individual's stock holdings. A. represent a transfer from Retained Earnings to Capital Stock. A feature common to both stock splits and stock dividends is a) a transfer to earned capital of a corporation b) an increase in total liabilities of a corporation c) a reduction in the contributed capital of a corporation d) that there is no effect on total stockholders' equity d) that there is no effect on total stockholders' equity Large stock dividends and stock splits are issued primarily to a. Lower the trading price of the stock per share b. Increase the number of authorized shares c. Increase legal capital d. Increase the number of outstanding shares a. Lower the trading price of the stock per share The issuer of a 100% common stock dividend (large stock dividend) to common stockholders should debit stock dividends for an amount equal to the a. Par value of the shares issued b. Book value of the shares issued c. Market value of the shares issued d. Minimum legal requirements a. Par value of the shares issued The issuer of a 3% common stock dividend to common stockholders should debit stock dividends for an amount equal to the a. Fair or market value of the shares issued. b. Book value of the shares issued. c. Par or stated value of the shares issued. d. Minimum legal requirements. a. Fair or market value of the shares issued. On June 30, 2017, when Cotswolds, Inc.'s common stock was selling at $50 per share, its capital accounts were as follows: Common stock (par value $1; 50,000 shares issued) $ 50,000 Additional Paid‐in Capital $ 200,000 Retained earnings $4,000,000 If a 10% stock dividend was declared and distributed, Additional Paid‐in Capital would be a. $200,000 b. $445,000 ($200,000 + $245,000) c. $205,000 d. $225,000 b. $445,000 ($200,000 + $245,000) At the date of the financial statements, common stock shares issued would exceed common stock shares outstanding as a result of the A. declaration of a stock split. B. purchase of treasury stock. C. declaration of a small stock dividend. D. declaration of a large stock dividend. B. purchase of treasury stock. The primary purpose of the statement of cash flows is to provide information A. about a company's investing and financing activities during an accounting period. B. regarding a company's financial position at the end of an accounting period. C. about a company's cash receipts and cash payments during an accounting period. D. regarding the results of operations for a period of time. C. about a company's cash receipts and cash payments during an accounting period. The income statement indicates a company's success or failure in deriving a profit from its operations, it also reflects the inflow and outflow of cash from operating activities. A. True B. False B. False The total of the cash flows from operating, investing, and financing activities equals the net increase or decrease in cash for the period. flows from operating activities by choosing one of the following: A. Add to net income to arrive at net cash flows from operating activities B. Subtract from net income to arrive at net cash flows from operating activities C. Not used to adjust net income to calculate net cash flows from operating activities B. Subtract from net income to arrive at net cash flows from operating activities This item is extracted from an analysis of the balance sheet ‐ Depreciation expense Indicate the effect on net income in arriving at net cash flows from operating activities by choosing one of the following: A. Add to net income to arrive at net cash flows from operating activities B. Subtract from net income to arrive at net cash flows from operating activities C. Not used to adjust net income to calculate net cash flows from operating activities A. Add to net income to arrive at net cash flows from operating activities Using the following information to determine a company's net cash provided by operating activities. Net income $25,000 Depreciation expense + 10,000 Gain on sale of land ‐ 5,000 Increase in inventory ‐ 10,000 Net cash provided by operating activities 20,000 A. $20,000 B. $30,000 C. $40,000 D. $50,000 A. $20,000 A gain on the sale of long‐term assets is added back to net income to arrive at net cash flows from operating activities. A. True B. False B. False Investing activities centers on the long‐term assets shown on the balance sheet and does not include any short‐term investments shown under current assets on the balance sheet. A. True B. False B. False Cambridge Corporation sold buildings and a machine for cash. Indicate which section, if any, this transaction would appear in, or relate to, on a statement of cash flows. A. Operating activities section B. Investing activities section C. Financing activities section D. Does not appear on cash flow statement B. Investing activities section A machine with a cost of $200,000 and accumulated depreciation of $100,000 is sold for $80,000 cash. The amount reported as a source of cash under cash flows from investing activities is A. $20,000 B. $80,000 C. $100,000 D. zero; this is a financing activity E. zero; this is a operating activity B. $80,000 Which of the following is an example of a cash outflow from a financing activity? A. Sale of an intangible asset (investing ‐ inflow) B. Purchase of treasury shares (financing ‐ outflow) C. Issuance of bonds (financing ‐ inflow) D. Distribution of stock dividends (non‐cash item) B. Purchase of treasury shares (financing ‐ outflow) A company issued common stock for cash. Indicate which section, if any, the above transaction would appear in, or relate to, on a statement of cash flows. A. Operating activities section B. Does not represent a cash flow C. Investing activities section D. Financing activities section D. Financing activities section Brighton, Inc. issued 25,000 shares of $10 par value common stock for $500,000, purchased 10,000 shares of treasury stock with a par value of $10 for $150,000, and paid $20,000 in cash dividends. Net cash flows from financing activities totaled A. $0. B. $330,000. C. $180,000. D. ($570,000). B. $330,000 Noncash investing and financing activities, if material, are A. not reported or disclosed because they have no impact on cash. B. disclosed in a note or separate schedule accompanying the statement of cash flows. B. disclosed in a note or separate schedule accompanying the statement of cash flows. Kensal Green Corporation acquired a property site with a building by borrowing a 20‐year mortgage payable. In Kensal Green's statement of cash flows, this transaction should be shown A. only as a cash flow from operating activity for the purchase of the land and building. B. only as a cash flow from financing activity for the issuance of the mortgage payable. C. as both a cash flow from investing activity and a cash flow from financing activity. D. in the schedule of noncash investing and financing transactions. 9LO1- The higher the debt to equity ratio, the greater the financial risk the company is taking. A. True B. False A. True 9LO1- The mixture of debt and equity securities is generally the same for most companies. A. True B. False B. False 9LO1- A debt to equity ratio of 0.5 means that half of the company's assets are financed by creditors. A. True B. False B. False Indicates creditors are financing 1/3 of the company's assets 9LO4- Callable bonds A. can be redeemed by the issuer at some time at a pre‐specified price. B. can be converted to stock. C. mature in a series of payments. D. can be redeemed by the bondholder at some time at a pre‐specified price. A. can be redeemed by the issuer at some time at a pre-specified price 9LO4- Term bonds require payments in installments over a series of years. A. True B. False B. False 9LO4- The term used for bonds that are unsecured as to principal is A.debenture bonds. B. series bonds. C. indenture bonds. D.callable bonds. A. debenture bonds 9LO4- Which of the following is not true regarding callable bonds? A. This feature allows the borrower to repay the bonds before their scheduled maturity date. B. This feature helps protect the borrower against future decreases in interest rates. C. Callable bonds benefit the bond investor. D. A bond can be both callable and convertible. C. Callable bonds benefit the bond investor 9LO5- When the present value of a bond issue is calculated, both the present value of a single sum table and the present value of an annuity table must be used. A. True B. False A. True 9LO5- On January 1, 2018, Paddington Corporation issued ten‐year bonds payable with a face value of $400,000 and a face interest rate of 9 percent. The bonds were issued with a market interest rate of 10 percent. Interest is payable semi‐annually on January 1 and July 1. In calculating the present value of the bond issue on January 1, 2018, A. the 9 percent rate will be used to calculate the present value of the face amount and the present value of the periodic interest payments B. a 5 percent rate will be used to calculate the present value of the face amount and the present value of the periodic interest payments. C. the 10 percent rate will be used to calculate the present value of the face amount and the present value of the periodic interest payments. D. the 10 percent rate will be used to calculate the present value of the face amount and a 5 percent rate will be used to calculate the present value of the periodic interest payments B. a 5 percent rate will be used to calculate the present value of the face amount and the present value of the periodic interest payments. 9LO5- The price of a bond is equal to: A. The present value of the interest only B. The future value of the face amount only C. The future value of the face amount plus the future value of the stated interest payments D. The present value of the face amount plus the present value of the stated interest payments D. The present value of the face amount plus the present value of the stated interest payments 9LO5- The market interest rate on bonds is lower than the stated rate when bonds sell A. above face value. B. at maturity value. C. below face value. D. at face value. A. above face value 9LO5- Bonds usually sell at a discount when A. investors are willing to invest in the bonds only at rates that are higher than the stated interest rate. B. investors are willing to invest in the bonds at rates that are lower than the stated interest rate C. investors are willing to invest in the bonds at the stated interest rate. D. An unfavorable tax event will impact the buyer. A. investors are willing to invest in the bonds only at rates that are higher than the stated interest rate. 9LO5- If the market interest rate at the date of issuance of a bond exceeds the face interest rate, the bond will probably be sold at a premium. A. True B. False B. False 9LO5- If bonds are issued at a premium, the face interest rate is A. lower than the market rate of interest. B. higher than the market rate of interest. C. too low to attract investors. D. adjusted to a higher effective rate of interest. B. higher than the market rate of interest 9LO5- If the market interest rate at the date of issuance of a bond exceeds the face interest rate, the present value of the face value plus the present value of all the future interest payments will equal an amount greater than the face value of the bond. A. True B. False B. False 9LO5- If the face interest rate at the date of bond issuance exceeds the market interest rate, the bond will probably be sold at a discount. A. True B. False B. False 9LO6- Issuing bonds at a discount has the effect of decreasing interest expense below the face amount of interest. A. True B. False B. False 9LO6- The carrying amount always approaches the face value over the life of the bond. A. True B. False A. True 9LO6- The carrying value, using the effective (market) interest method, would increase each year: A. If the bonds were sold at either a discount or a premium B. If the bonds were sold at a premium C. If the bonds were sold at a discount D. The carrying value of bonds will never increase 12LO1- In a common‐size financial statement, a designation of 25 percent could not be given to A. net revenues. B. total current assets. C. total long‐term debt. D. net earnings. A. net revenues 12LO1- Common‐size financial statement enable a financial analyst to do? A. Analyze and evaluate financial statements of companies within a given industry that are the same size. B. Determine which companies in the same industry are at approximately the same stage of development. C. Evaluate companies of similar size in different industries. D. Compare the mix of assets, liabilities, capital, revenue, and expenses within a company over time or between companies within a given industry without respect to relative size. D. Compare the mix of assets, liabilities, capital, revenue, and expenses within a company over time or between companies within a given industry without respect to relative size. 12LO2- Brady's Inflation Needle Co. reports accounts receivable of $100,000 in 2017 and $250,000 in 2018. Using horizontal analysis, what would be the percentage increase or decrease in accounts receivable? A. 60% decrease B. 60% increase C. 150% decrease D. 150% increase D. 150% increase ($250,000 - $100,000)/$100,000 = 150% 12LO2- To calculate a year‐to‐year percentage change in operating income, you should take the current year's amount, subtract the prior year's amount, then divide by ______, and finally multiply the result by 100 A. the current year's amount B. net income C. sales D. the prior year's amount D. the prior year's amount 12LO2- Horizontal analysis of a company's balance sheet would report that A. accounts receivable was 21% of total assets. B. accounts receivable turnover was 8x. C. at year‐end the current ratio was 1.2. D. inventories increased 5% from the prior year. D. inventories increased 5% from the prior year 12LO2- In horizontal analysis, the base year is the most current year being examined. A. True B. False B. False 12LO2- Horizontal analysis will reveal, for example, the percentage of net sales consumed by salaries expense. A. True B. False B. False 12LO2- Which of the following is an example of horizontal analysis? A. Comparing the change in stockholders' equity over time B. Comparing gross profit across companies C. Comparing gross profit with operating expenses D. Comparing assets with equity A. Comparing the change in stockholders' equity over time 12LO3- Assuming a current ratio of 1.5, how will the collection of an accounts receivable affect the ratio? A. No change to the current ratio B. Increase the current ratio C. Decrease the current ratio D. Could either increase or decrease the current ratio A. No change to the current ratio 12LO3- A company with a current ratio of 1.5 is considered more liquid than one with a current ratio of 1.0. A. True B. False A. True Indicates that current assets are 1.5x current liabilities 12LO3- Why is it incorrect to assume that the company with a higher current ratio is a better company? A. Companies may be different sizes. B. A high current ratio may indicate inadequate inventory on hand. C. Companies may define working capital in different terms. D. A high current ratio may indicate inefficient use of various assets and liabilities. D. A high current ratio may indicate inefficient use of various assets and liabilities. 12LO4- Woodcrest Company reports net sales of $500, cost of sales of $300, and net income of $50. What is the gross profit percentage and the profit margin? A. Gross profit percentage is 60% and the profit margin is 25% B. Gross profit percentage is 10% and the profit margin is 40% C. Gross profit percentage is 10% and the profit margin is 6% D. Gross profit percentage is 40% and the profit margin is 10% D. Gross profit = (500-300)/500 = 40% Profit margin = 50/500 = 10% 12LO4- Which type of account is gross profit A. An income account B. An expense account C. An asset account D. None of these are correct D. None 12LO4- Will the profit margin of a business be higher than its gross margin? A. Yes B. No B. No 12LO4- Allegheny Co. has a net sales of 200,000 and cost of goods sold of 150,000. What is their gross profit ratio? A. 30% B. 25% C. 15% D. 10% B. 25% Gross profit x (sales - cogs)/sales = GM% 12LO4- An example of an accounting method that could affect operating income is A. inventory valuation method. B. revenue recognition method. C. depreciation method. D. all of these could affect operating income. D. all of these 10LO1- All publicly held corporations are regulated by what government organization? a. The Financial Accounting Standards Board b. The Commission on Accounting Procedures c. The Accounting Principles Board d. The Securities and Exchange Commission d. The Securities and Exchange Commission 10LO1- A disadvantage of the corporate form of business is A. centralized authority and responsibility B. its status as a separate legal entity A. true B. false A. true 10LO3- The word preferred in the phrase preferred stock means that an owner of preferred stock has some advantages over a bondholder. A. True B. False B. False 10LO3- Preferred stock is least likely to have which of the following characteristics? A. Preference as to dividends. B. The right of the holder to vote at stockholders' meetings. C. Preference as to assets upon liquidation of the corporation. D. The right of the holder to convert to common stock. B. The right of the holder to vote at stockholders' meetings 10LO3- Kensal Green Corporation issued 500 shares of $100 par value preferred stock for $500 per share. What is true about the journal entry to record the issuance? a. Credit Preferred Stock $50,000 b. Credit Cash $250,000 c. Credit Preferred Stock $250,000 d. Debit Additional Paid‐In Capital $200,000 a. Credit Preferred Stock $50,000 10LO3- Dividends in arrears pertain to noncumulative preferred stock. A. True B. False B. False 10LO3- The Golden, Inc. issues 1,000 shares of 3%, $100 par value preferred stock at the beginning of 2017. All remaining shares are common stock. Golden was not able to pay dividends in 2017, but plans to pay dividends of $10,000 in 2018. Assuming the preferred stock is noncumulative, how much of the $10,000 dividend will be paid to preferred stockholders and how much will be paid to common stockholders in 2018? a. $10,000 to preferred stockholders and $0 to common stockholders. b. $6,000 to preferred stockholders and $4,000 to common stockholders c. $3,000 to preferred stockholders and $7,000 to common stockholders. d. none to preferred stockholders and $10,000 to common stockholders c. $3,000 to preferred stockholders and $7,000 to common stockholders 10LO3- Sharon Textiles Corporation has 1,000 shares of 5%, $100 par cumulative preferred stock and 25,000 shares of common stock outstanding. Sharon declared no dividends in 2016 and had no dividends in arrears prior to 2016. In 2017, Sharon declares a total dividend of $30,000. How much of the dividends go to the preferred stockholders? A. $ ‐ 0 ‐ B. $15,000 C. $10,000 D. $20,000 C. $10,000 2016 (1,000 shares x $5/share) = $5,000 2017 (1,000 shares x $5/share) = $5,000 Total = $10,000 10LO4- San Bruno Corporation's stockholders' equity section shows the par value of its common stock at $.25 and the balance in the common stock account of $50,000. Also, the equity section reflects 15,000 shares of treasury stock. What is the number of shares outstanding? A. 215,000 B. 200,000 C. 50,000 D. 185,000 D. 185,000 Issued ($50,000/$0.25) = 200,000 Less treasury (15,000) Outstanding = 185,000 10LO4- When a company purchases treasury shares at $10,000 and then sells the shares at $8,000, the difference of $2,000 A. is recorded as a loss on the income statement. B. reduces stockholders' equity. C. increases stockholders' equity. D. is recorded as a gain on the income statement. B. reduces stockholders' equtiy 10LO4- According to generally accepted accounting principles, treasury stock usually should be recorded at A. market value. B. par value. C. cost. D. net realizable value. C. cost 10LO4- The purchase of treasury stock will result in A. no net changes in assets, liabilities, or stockholders' equity. B. a decrease in assets and a decrease in stockholders' equity. C. an increase in assets and an increase in liabilities. D. an increase in assets and an increase in stockholders' equity B. a decrease in assets and a decrease in stockholders' equity 10LO4- Hillsborough Inc. sold treasury stock at a price above cost: a. A loss is reported b. A revenue account is credited c. Additional Paid‐in Capital is increased d. A gain account is credited c. Additional Paid-in Capital is increased 10LO4- On March 1, Cambridge Corp. acquired 1,000 shares of its $1 par value common stock for $20 each. On December 1, Cambridge reissued 500 shares for $18 each. Which of the following is correct regarding the journal entry for the reissued shares? a. Credit Cash $9,000 b. Debit Treasury Stock $9,000 c. Debit Additional Paid‐in Capital $10,000 d. Credit Treasury Stock $10,000 d. Credit Treasury Stock $10,000 cash (500 shares x $18) = 9,000 additional paid-in (500 shares x $2 loss) = 1,000 treasury stock (500 shares x $20 stock) = 10,000 10LO5- When Allegheny Corporation declares a cash dividend which of the following is true? A. Allegheny's assets are decreased B. Stockholders' equity is increased C. Allegheny's assets are increased D. Liabilities are increased D. Liabilities are increased Debits Dividends, Credits dividends payable 10LO5- Funston Corporation's board of directors declared a cash dividend of $1.00 per share on 50,000 shares of common stock on April 1, 2016. The dividend is to be paid on April 30, 2016, to shareholders of record on April 15, 2016. The effects of the entry to record the declaration of the dividend on April 1, 2016, are to a. decrease stockholders' equity and increase liabilities. b. decrease stockholders' equity and decrease assets. c. increase stockholders' equity and decrease assets. d. increase stockholders' equity and increase liabilities. a. decrease stockholders' equity and increase liabilities b. $445,000 c. $205,000 d. $225,000 b. $445,00 ($200,000+$245,000) 10LO7- At the date of the financial statements, common stock shares issued would exceed common stock shares outstanding as a result of the A. declaration of a stock split. B. purchase of treasury stock. C. declaration of a small stock dividend. D. declaration of a large stock dividend. B. purchase of treasury stock 10LO7- Which of the following transactions affects total retained earnings? A. Purchase of treasury stock B. Payment of previously declared cash dividend C. Declaration of a stock dividend D. Declaration of a stock split C. Declaration of a stock dividend 10LO7- Which of the following events decreases a company's stockholders' equity? A. A payment of a previously declared cash dividend B. A declaration of a $.10 cash dividend per share on preferred stock C. A 5‐for‐4 stock split D. A declaration of a two percent stock dividend B. A declaration of a $0.10 cash dividend per share on preferred stock 10LO7- Clifton Gardens, Inc. was organized on January 1, 2017. The firm was authorized to issue 100,000 shares of $1 par value common stock. During 2017, Clifton Gardens had the following transactions relating to shareholders' equity: 1. Issued 10,000 shares of common stock at $7 per share. 2. Issued 5,000 shares of common stock at $8 per share. 3. Reported a net income of $200,000. 4. Paid dividends of $20,000. What is the total amount recorded in the Common Stock account at the end of 2017? a) $110,000 b) $15,000 c) $310,000 d) $290,000 b) $15,000 10,000 shares x $1/par = $10,000 5,000 shares x $1/par = $5,000 11LO1- The primary purpose of the statement of cash flows is to provide information A. about a company's investing and financing activities during an accounting period. B. regarding a company's financial position at the end of an accounting period. C. about a company's cash receipts and cash payments during an accounting period. D. regarding the results of operations for a period of time. C. about a company's cash receipts and cash payments during an accounting period 11LO1- The income statement indicates a company's success or failure in deriving a profit from its operations, it also reflects the inflow and outflow of cash from operating activities. A. True B. False B. False 11LO1- The total of the cash flows from operating, investing, and financing activities equals the net increase or decrease in cash for the period. A. True B. False A. True 11LO1- An increase in inventories during the accounting period represents an increase in cash. a) True b) False b) False 11LO1- An increase in accrued wages during the accounting period represents an increase in cash. a) True b) False a) True 11LO1- Which of the following represents a decrease in cash flows? a) Increase in Accounts Payable b) Decrease in Inventory c) Decrease in Wages Payable d) Increase in Deferred Revenue c) Decrease in Wages Payable 11LO1- Cotswolds Corporation repaid a 90‐day note payable to a bank. Indicate which section, if any, this transaction would appear in, or relate to, on a statement of cash flows. A. Operating activities section B. Investing activities section C. Financing activities section D. Schedule of non-cash investing and financing transactions C. Financing activities section 11LO1- A reduction of inventory represents an increase in cash a) True b) False a) True 11LO1- A decrease in wages payable during the accounting period represents a decrease in cash. a) True b) False a) True 11LO1- Which of the following would not appear in the investing activities of the statement of cash flows? A. Sale of investments B. Purchase of land C. Purchase of inventory D. All of the above would appear in the investing section of the statement of cash flows C. Purchase of inventory (operating activity) 11LO1- Repayments of accounts payable or accrued liabilities are considered repayments of loans under financing activities. A. True B. False B. False 11LO2- All classifications on the Balance Sheet have a general relationship with sections identified on the Statement of Cash Flows. Indicate which relationships are correctly identified below I. Deferred Revenue: Operating II. Equipment: Operating III. Common Stock: Investing IV. Accounts Receivable: Financing V. Accrued Wages: Operating A. IV, V B. I, V C. I, III, IV, V D. All of these B. I, V 11LO2- Which of the following would be subtracted from net income to arrive at net cash flows from operating activities? A. Increase in Notes Payable B. Decrease in Inventory C. Issuance of bonds D. Distribution of stock dividends B. Purchase of treasury shares 11LO3- A company issued common stock for cash. Indicate which section, if any, the above transaction would appear in, or relate to, a statement of cash flows. A. Operating activities section B. Does not represent a cash flow C. Investing activities section D. Financing activities section D. Financing activities section 11LO3- Brighton, Inc. issued 25,000 shares of $10 par value common stock for $500,000, purchased 10,000 shares of treasury stock with a par value of $10 for $150,000, and paid $20,000 in cash dividends. Net cash flows from financing activities totaled A. $0. B. $330,000. C. $180,000. D. ($570,000). B. $330,000 $500,000 - $150,000 - $20,000 = $330,000 11LO4- Non-cash investing and financing activities, if material, are A. not reported or disclosed because they have no impact on cash. B. disclosed in a note or separate schedule accompanying the statement of cash flows. B. disclosed in a note or separate schedule accompanying the statement of cash flows 11LO4- Kensal Green Corporation acquired a property site with a building by issuing a 20‐year mortgage payable. In Kensal Green's statement of cash flows, this transaction should be shown A. only as a cash flow from operating activity for the purchase of the land and building. B. only as a cash flow from financing activity for the issuance of the mortgage payable. C. as both a cash flow from investing activity and a cash flow from financing activity. D. in the schedule of non-cash investing and financing transactions. D. in the schedule of non-cash investing and financing transactions 11LO4- Which of the following events will not appear in the cash flows from financing activities section of the statement of cash flows? A. Issuance of stock in exchange for plant assets B. Borrowing cash from a bank C. Sales of common stock D. Payment of dividends on preferred stock A. Issuance of stock in exchange for plant assets Non-cash transaction requiring disclosure at the bottom of the statement or in the footnotes Woodcrest, Inc. borrowed $50,000 from a local bank and signed a promissory note. What entry should Woodcrest record? a) debit Cash, $50,000; credit Notes Receivable, $50,000 b) debit Notes Receivable, $50,000; credit Cash, $50,000 c) debit Cash, $50,000; credit Notes Payable, $50,000 d) debit Notes Payable, $50,000; credit Cash, $50,000 debit Cash, $50,000; credit Notes Payable, $50,000 We record interest expense in the period in which we pay it, rather than in the period we incur it. a) true b) false false (Interest expense is recorded in the period incurred, not in the period in which we pay it) On November 1, 2018, Knomark, Inc. signed a $100,000, 6%, six-month note payable with the amount borrowed plus accrued interest due six months later on May 1, 2019. Knomark should report interest payable at December 31, 2018, in the amount of a) $0 b) $1,000 c) $2,000 d) $3,000 $1,000 [($100,000 x 6%) x 2/12] = $1,000 On November 1, 2018, Boiler Bakery signed a $200,000, 6%, six-month note payable with the amount borrowed plus accrued interest due six months later on May 1, 2019. Boiler Bakery records the appropriate adjusting entry for the note on December 31, 2018. What amount of cash will be needed to pay back the note payable plus any accrued interest on May 1, 2019? a) $200,000 b) $202,000 c) $204,000 d) $206,000 $206,000 $200,000 + ($200,000 x 6% x 6/12) = $206,000 A contingency is best described as a(n) a) current liability b) probable liability c) potential liability d) estimated liability potential liability If management can estimate the amount of loss that will occur due to litigation against the company, and the likelihood of the loss is reasonably possible, a contingent liability should be a) disclosed, but not reported as a liability b) disclosed and reported as a liability c) neither disclosed or reported as a liability d) reported as a liability, but not disclosed disclosed, but not reported as a liability (must be probable) Reeves Co. filed suit against Higgins, Inc., seeking damages for copyright violations. Higgins' legal counsel believes it is probable that Higgins will settle the lawsuit for an estimated amount in the range of $100,000 to $200,000, with all amounts in the range considered equally likely. How should Higgins report this litigation? a) As a liability for $100,000 with disclosure of the range b) As a liability for $150,000 with disclosure of the range c) As a liability for $200,000 with disclosure of the range d) As a disclosure only, no liability is reported As a liability for $100,000 with disclosure of the range (When no amount within a range of potential losses appears more likely than others, the liability is recorded at the minimum amount in the range) Away Travel filed suit against West Coast Travel seeking damages for copyright violations. West Coast Travel's legal counsel believes it is reasonably possible that West Coast Travel will settle the lawsuit for an estimated amount in the range of $100,000 to $200,000, with all amounts in the range considered equally likely. How should West Coast Travel report this litigation? a) As a liability for $100,000 with disclosure of the range b) As a liability for $150,000 with disclosure of the range c) As a liability for $200,000 with disclosure of the range d) As a disclosure only, no liability is reported As a disclosure only, no liability is reported (A contingent liability is not recorded if the likelihood of loss is only reasonably possible) If management can estimate the amount of loss that will occur due to litigation against the company, and the likelihood of the loss is probable, a contingent liability should be a) disclosed, but not reported as a liability b) disclosed and reported as a liability c) neither disclosed nor reported as a liability d) reported as a liability, but not disclosed disclosed and reported as a liability increases expense, decreases liabilities, and decreases assets In each succeeding payment on an installment note a) the amount that goes to decreasing the carrying value of the note is unchanged b) the amount that goes to decreasing the carrying value of the note decreases c) the amount that goes to decreasing the carrying value of the note increases d) the amounts paid for both interest and principal increase proportionately the amount that goes to decreasing the carrying value of the note increases In each succeeding payment on an installment note a) the amount of interest expense increases b) the amount of interest expense decreases c) the amount of interest expense is unchanged d) the amounts paid for both interest and principal increase proportionately the amount of interest expense decreases A corporation obtains a $125,000, 6%, five-year loans for equipment on January 1, 2018. If the monthly payment is $2,416.60, by how much will the carrying value decrease when the first payment is made on January 31, 2018 a) $1,791.60 b) $625.00 c) $2,416.60 d) $1,000.60 $1,791.60 $625.00 (interest expense) = $125,000 x 6% x 1/12 payment - interest = reduction in carrying value Which of the following definitions describes a term bond? a) matures on a single date b) secured only by the "full faith and credit" of the issuing corporation c) matures in installments d) supported by specific assets pledged as collateral by the issuer matures on a single date A callable bond allows the holder to repay the bonds before their scheduled maturity date at a specified call price. a) true b) false false (should be the borrower or the company instead of the holder) The term used for bonds that are unsecured as to principal is a) series bonds b) debenture bonds c) indenture bonds d) callable bonds debenture bonds Convertible bonds allow the borrower to convert each bond into a specified number of shares of common stock a) true b) false false (should be bondholder or investor instead of the borrower) The advantages of obtaining long-term funds by issuing bonds, rather than issuing additional common stock, include which of the following? a) funds are obtained without surrendering ownership control b) interest expense is tax-deductible c) the company's default risk decreases d) funds are obtained without surrendering ownership control, as well as, interest expense is tax- deductible funds are obtained without surrendering ownership control, as well as, interest expense is tax- deductible The rate quoted in the bond contract used to calculate the cash payments for interest is called the a) effective rate b) yield rate c) market rate d) stated rate stated rate (face, coupon or nominal rates) We can calculate the issue price of a bond as the face amount plus the total periodic interest payments a) true b) false false (need to present value using the market interest rate) A premium occurs when the issue price of a bond is above its face amount a) true b) false true A bond issue with a face amount of $500,000 bears interest at the rate of 7%. The current market rate of interest is 6%. These bonds will sell at a price that is: a) equal to $500,000 b) more than $500,000 c) less than $500,000 d) the answer cannot be determined from the information provided more than $500,000 The price of a bond is equal to: a) the future value of the face amount only b) the present value of the interest only c) the present value of the face amount plus the present value of the stated interest payments d) the future value of the face amount plus the future value of the stated interest payments the present value of the face amount plus the present value of the stated interest payments Bond X and Bond Y are both issued by the same company. Each of the bonds has a face value of $100,000 and each matures in 10 years. Bond X pays 8% interest while Bond Y pays 7% interest. The current market rate of interest is 7%. Which of the following is correct? a) both bonds will sell for the same amount b) Bond X will sell for more than Bond Y c) Bond Y will sell for more than Bond X d) both bonds will sell at a premium Bond X will sell for more than Bond Y Given the information below, which bond(s) will be issued at a discount? Stated Rate of Return: Bond 1- 5%, Bond 2- 7%, Bond 3- 12%, Bond 4- 10% Market Rate of Return: Bond 1- 7%, Bond 2- 8%, Bond 3- 12%, Bond 4- 9% a) Bond 1 b) Bond 2 c) Bond 4 d) Bonds 1 and 2 Bonds 1 and 2 a) discount- yes, premium- yes b) discount- no, premium- no c) discount- yes, premium- no d) discount- no, premium- yes discount- yes, premium- yes An amortization schedule for a bond issued at a discount: a) has a carrying value that decreases over time b) is contained in the balance sheet c) is a schedule that reflects the changes in bonds payable over its term to maturity d) reflects interest expense decreasing over the term of the bond is a schedule that reflects the changes in bonds payable over its term to maturity Bonds usually sell at a discount when a) investors are willing to invest in the bonds only at rates that are higher than the stated interest rate b) investors are willing to invest in the bonds at rates that are lower than the stated interest rate c) investors are willing to invest in the bonds at the stated interest rate d) a capital gain is expected investors are willing to invest in the bonds only at rates that are higher than the stated interest rate How do you find stated interest rate from an amortization schedule? cash paid / face value How do you find market interest rate from an amortization schedule? interest expense / previous carrying value If bonds are retired by an issuer by purchase on the open market at a price below the bonds' carrying value, a gain will result. a) true b) false true Gains/losses on the early extinguishment of debt are reported as operating income in the income statement. a) true b) false false (gains/losses on the early extinguishment of debt are reported as non-operating items in the income statement) When bonds are called for retirement, any excess of the bonds' call price over the bonds' carrying value is reported as a loss on the income statement. a) true b) false true A gain or loss is recorded on bonds retired at maturity. a) true b) false false (no gain or loss is recorded on bonds retired at maturity, as the carrying value at maturity is equal to the face amount of the bond) When using vertical analysis, we express income statement accounts as a percentage of: a) net income b) sales c) total expenses d) gross profit sales When using vertical analysis, we express balance sheet accounts as a percentage of: a) cash b) total assets c) total liabilities d) total stockholders' equity total assets Which of the following is an example of vertical analysis? a) comparing gross profit across companies b) comparing income statement items as a percentage of sales c) comparing debt with industry averages d) comparing the change in sales over time comparing income statement items as a percentage of sales To calculate a year-to-year percentage change in any financial statement line item such as sales, you should take the current year's amount, subtract the prior year's amount, then divide by _________, and finally multiply the result by 100. a) net income b) total assets c) the current year's amount d) the prior year's amount the prior year's amount Brady's Inflation Needle Co. reports accounts receivable of $200,000 in 2017 and $250,000 in 2018. Using horizontal analysis, what would be the percentage increase or decrease in accounts receivable? a) 25% decrease b) 25% increase c) 150% decrease d) 150% increase 25% increase ($250,000 - $200,000 / $200,000) = .25 Which of the following is an example of horizontal analysis? a) comparing gross profit across companies b) comparing gross profit with operating expenses c) comparing assets with equity d) comparing the change in sales over time comparing the change in sale over time How do you find the current ratio of a schedule? current assets / current liabilities A company with a current ratio of 2.0 is considered more liquid than one with a current ratio of 3.0. a) true b) false false (indicates that current assets are 3x current liabilities) Assuming a current ratio of 1.0, how will the purchase of supplies with cash affect the ratio? a) increase the current ratio b) no change to the current ratio c) decrease the current ratio d) could either increase or decrease the current ratio no change to the current ratio Profit margin and gross margin are the same thing. a) true b) false false Which type of account is gross margin? a) an income account b) an expense account c) an asset account d) none of these are correct none of these are correct (subtotal) false (authorized stock is the total number of shares available to sell, stated in the company's articles of incorporation) Par value is the legal capital per share of stock that's assigned when the corporation is first established. a) true b) false true The number of shares outstanding is equal to the number of shares issued minus the number of shares repurchased. a) true b) false true Outstanding common stock refers to the total number of shares: a) issued b) issued plus treasury stock c) issued less treasury stock d) authorized issued less treasury stock The par value of shares issued is normally recorded in the: a) additional paid-in capital account b) common stock account c) retained earnings account d) treasury stock account common stock account A company credits Additional Paid-In Capital for the portion of the cash proceeds above par value received for the issuance of stock. a) true b) false true Hayes Corporation issues 100 shares of its $1 par value common stock for $15 per share. The entry to record the issuance will include a: a) debit to Cash, $1,500 b) credit to Additional Paid-In Capital, $1,400 c) credit to Common Stock of $100 d) all of these all of these If a company issues 1,000 shares of $1 par value common stock for $20 per share, which of the following accounts would be debited? a) treasury stock b) cash c) additional paid-in capital d) retained earnings cash Jade Jewelers issued 15,000 shares of $1 par value stock for $20 per share. What is true about the journal entry to record the issuance? a) credit Common Stock, $300,000 b) credit Cash, $300,000 c) debit Common Stock, $15,000 d) credit Additional Paid-In Capital, $285,000 credit Additional Paid-In Capital, $285,000 When a company issues 25,000 shares of $1 par value common stock for $10 per share, the journal entry for this issuance would include: a) a debit to Cash for $25,000 b) a debit to Additional Paid-In Capital for $25,000 c) a credit to Common Stock for $25,000 d) a debit to Additional Paid-In Capital for $225,000 a credit to Common Stock for $25,000 Preferred stock is called preferred because it usually has two preferences over common stock. These preferences relate to: a) dividends and voting rights b) par value and dividends c) the preemptive right and voting rights d) dividends and distribution of assets if the corporation is dissolved dividends and distribution of assets if the corporation is dissolved Which of the following shareholder rights is most commonly enhanced in an issue of preferred stock? a) the right to vote for the board directors b) the right to maintain one's proportional interest in the corporation c) the right to receive a full cash dividend before dividends are paid to other classes of stock d) the right to vote on major corporate issues the right to receive a full cash dividend before dividends are paid to other classes of stock A company issued 1,000 shares of $1 par value preferred stock for $5 per share. What is true about the journal entry to record the issuance? a) debit Preferred Stock, $5,000 b) credit Cash, $5,000 c) credit Preferred Stock, $5,000 d) credit Additional Paid-In Capital, $4,000 credit Additional Paid-In Capital, $4,000 Cumulative preferred stock means that dividends accumulate interest during the year. a) true b) false false (cumulative preferred stock means shares receive priority for future dividends, if dividends are not paid in a given year) Which of the following is the most likely to have voting rights? a) common stock b) preferred stock c) bonds d) they all have similar voting rights common stock ATI Company has not declared or paid dividends on its cumulative preferred stock in the last three years. These dividends should be reported: a) as a current liability b) as a reduction in stockholder's equity c) in a note to the financial statements d) as a noncurrent liability in a note to the financial statements Luther Inc., has 4,000 shares of 6%, $50 par value, cumulative preferred stock and 100,000 shares of $1 par value common stock outstanding at December 31, 2015, and December 31, 2014. The board of directors declared and paid a $10,000 dividend in 2014. In 2015, $48,000 of dividends are declared and paid. What are the dividends received by the preferred stockholders in 2015? a) $34,000 b) $24,000 c) $14,000 d) $12,000 b) decrease c) no effect decrease (decreases cash because you are purchasing the stock and decreases stockholders' equity because you are taking away shares that were owned by investors) When treasury stock is resold at a price above cost: a) a gain account is credited b) Additional Paid-In Capital is increased c) a loss is reported d) Additional Paid-In Capital is decreased Additional Paid-In Capital is increased When treasury stock is resold at a gain, the difference between its cost and the cash received when resold: a) increases net income b) increases stockholders' equity c) has no effect on net income or stockholders' equity d) increases net income but decreases stockholders' equity increases stockholders' equity A company reissues 400 shares of its own common stock for $20 per share. The company had acquired these shares two months before for $15 per share. The reissuance of this stock would be recorded with a: a) credit to Treasury Stock for $8,000 b) debit to Additional Paid-In Capital for $2,000 c) debit to Common Stock for $8,000 d) credit to Additional Paid-In Capital for $2,000 credit to Additional Paid-In Capital for $2,000 On December 2, Coley Corp. acquired 1,000 shares of $2 par value common stock for $27 each. On December 20, Coley Corp. reissued 400 shares for $15 each. Which of the following is correct regarding the journal entry for the reissued shares? a) debit Cash, $15,000 b) credit Treasury Stock, $10,800 c) credit Additional Paid-In Capital, $5,200 d) credit Treasury Stock, $6,000 credit Treasury Stock, $10,800 Which of the following is the appropriate entry to record the declaration of cash dividends? a) debit Additional Paid-In Capital; credit Dividends Payable b) debit Dividends; credit Dividends Payable c) debit Retained Earnings; credit Cash d) debit Dividends Payable; credit Cash debit Dividends; credit Dividends Payable Retained Earnings represent a company's: a) net income less dividends since the company first began operations b) undistributed net assets c) extra paid-in capital d) undistributed cash net income less dividends since the company first began operations Journal entries to record cash dividends are made on the: a) declaration date, record date, and payment date b) record date and payment date c) declaration date and payment date d) declaration date and record date declaration date and payment date The board of directors of Amalgamated Corporation declared a cash dividend on July 15, 2013, to be paid on August 15, 2013, to shareholders holding the stock on August 1, 2013. Given these facts, the date August 15, 2013, is referred to as: a) date of declaration b) date of payment c) ex-dividend date d) date of record date of payment The board of directors of Capstone Inc. declared a $0.60 per share cash dividend on its $1 par common stock. On the date of declaration, there were 50,000 shares authorized, 25,000 shared issued, and 5,000 shares held as treasury stock. What is the entry when the dividends are declared? a) debit Dividends, $9,000; credit Dividends Payable, $9,000 b) debit Dividends, $9,000; credit Cash, $9,000 c) debit Dividends, $12,000; credit Dividends Payable, $12,000 d) debit Dividends, $12,000; credit Cash, $12,000 debit Dividends, $12,000; credit Dividends Payable, $12,000 The ending Retained Earnings balance of Lambert Inc. increased by $1.5 million from the beginning of the year. The company's net income earned during the year is $3.5 millions. What is the amount of dividends Lambert Inc. declared and paid? a) $1.5 million b) $3.5 million c) $2.0 million d) $5.0 million $2.0 million net income ($3.5 million) minus dividends ($2.0 million) equals the change in retained earnings ($1.5 million) The board of directors of Blount Corporation declared a cash dividend of $5.00 per share on 57,000 shares of common stock on April 14, 2013. The dividend is to be paid on May 15, 2013, to shareholders of record on May 1, 2013. The effects of the entry to record the declaration of the dividend on April 14, 2013, are to: a) decrease stockholders' equity and increase liabilities b) increase stockholders' equity and increase liabilities c) decrease stockholders' equity and decrease assets d) increase stockholders' equity and decrease assets decrease stockholders' equity and increase liabilities A feature common to both stock splits and stock dividend is: a) a transfer to earned capital of a corporation b) that there is no effect on total stockholders' equity c) an increase in total liabilities of a corporation d) a reduction in the contributed capital of a corporation that there is no effect on total stockholders' equity Stock splits and large stock dividends have the same effect on a company's retained earnings and total stockholders' equity. a) true b) false false (large stock dividend reduces retained earnings by the par value of the stock) Lincoln Corporation has 5,000,000 authorized shares, issued shares of 3,000,000 and 600,000 shares in treasury stock. Can Lincoln Corporation's board of directors declare a 2-for-1 stock split? a) yes b) no no (shares after the stock split will exceed authorized shares) The issuer of a 100% common stock dividend (large stock dividend) to common stockholders should debit stock dividends for an amount equal to the: a) book value of the shares issued b) par value of the shares issued c) market value of the shares issued d) minimum legal requirements true The most likely situation in which reported earnings are positive but operations are consuming rather than generating cash would be a: a) company reporting large non-cash expenses b) rapidly growing company c) company using very conservative accounting standards that lower earnings d) company paying large cash dividends to its shareholders rapidly growing company A decrease in accounts receivable represents an increase in cash. a) true b) false true An increase in supplies represents an increase in cash. a) true b) false false An increase in wages payable represents a decrease in cash. a) true b) false false The purchase of treasury stock represents an increase in cash. a) true b) false false An increase in inventory represents an increase in cash. a) true b) false false Which of the following represents an increase in cash flows? a) increase in Inventory b) decrease in Accounts Payable c) decrease in Wages Payable d) decrease in Prepaid Insurance decrease in Prepaid Insurance How is sale of treasury stock reported on the statement of cash flows. What is the effect on cash flows? a) operating activities & increase cash b) operating activities & decrease cash c) investing activities & increase cash d) financing activities & increase cash e) non-cash transaction & no effect on cash financing activities & increase in cash A company purchased office supplies. Indicate which section, if any, the above transaction would appear in, or related to, on a statement of cash flows. a) does not represent a cash flow b) operating activities section c) financing activities section d) investing activities section operating activities section Identify which are correct: I. Bonds Payable - Financing II. Equipment - Operating III. Common Stock - Financing IV. Bank Loan Payable - Operating V. Accounts Receivable - Operating a) IV, V b) I, II, III c) I, III, V d) all of these I, III, V (IV is also correct, but c is the best answer choice) How is a decrease in inventory reported on the statement of cash flows. What is the effect on cash flows? a) operating activities & increase cash b) operating activities & decrease cash c) investing activities & increase cash d) financing activities & increase cash e) non-cash transaction & no effect on cash operating activities & increase in cash How are dividends paid reported on the statement of cash flows? a) operating activities b) investing activities c) financing activities d) schedule of non-cash transactions e) not on the statement of cash flows financing activities A company issued common stock for cash. Indicated which section, if any, the above transaction would appear in, or relate to, on a statement of cash flows. a) operating activities section b) does not represent a cash flow c) investing activities section d) financing activities section financing activities section We can identify operating activities from income statement information and changes in: a) long-term asset accounts b) long-term liability accounts c) current asset and current liability accounts d) stockholders' equity current asset and current liability accounts Which of the following would be added to net income to arrive at net cash flows from operating activities? a) decrease in accrued liabilities b) loss on sale of investments c) increase in prepaid expenses d) increase in accounts receivable loss on sale of investments Assume net income was $100,000, depreciation expense was $8,000, accounts receivable decreased by $17,500, and accounts payable decreased by $2,500. The amount of net cash flows from operating activities is: a) $123,000 b) $100,000 c) $108,000 d) $113,000 $123,000 $100,000 + $8,000 + $17,500 - $2,500 LePage's Inc. reports net income of $95,000. The accounting records reveal Depreciation Expense of $50,000 as well as increases in Prepaid Rent, Accounts Payable, and Income Tax Payable of $40,000, $23,000, and $10,000, respectively. What is the net cash flows from operating activities? a) $138,000 b) $228,000 c) $128,000 d) $148,000 a) is a direct outflow of cash b) reduces net income but does not involve an outflow of cash c) reduces net income and involves an outflow of cash d) is an outflow of cash to a fund established for the replacement of assets reduces net income but does not involve an outflow of cash The long-term assets section of the balance sheet is one place to look for investing activities: a) true b) false true When preparing a reconciliation of net income to cash from operations, an increase in the ending inventory over the beginning inventory will result in an adjustment to reported net income because: a) cash is increased because inventory is a current asset b) inventory is an expense deducted in computing net earnings, but is not a use of cash c) the net increase in inventory is part of the difference between cost of goods sold and cash paid to suppliers d) all changes in non-cash accounts must be disclosed the net increase in inventory is part of the difference between cost of goods sold and cash paid to suppliers Investing activities centers on the long-term assets shown on the balance sheet and does not include any short-term investments shown under current assets on the balance sheet. a) true b) false false Which of the following independent transactions would cause net income to be more than cash from operating activities? a) a decrease in the accounts receivable account b) an increase in the merchandise inventory account c) an increase in the accounts payable account d) an increase in the accrued wages payable account an increase in the merchandise inventory account When presenting decreases in long-term investments in the investing activities section of the statement of cash flows, the amount reflected equals the amount of the gain(s) or loss(es) from the transaction(s). a) true b) false false (includes the decrease in the investment & the gain or loss) Which of the following is not classified as an operating activity? a) interest received b) interest paid c) dividends received d) dividends paid dividends paid Purchases and sales of long-term investments for the period should be netted for disclosure in the investing activities section of the statement of cash flows. a) true b) false false Thornberry Mfg. Co. sold land costing $10,000 for $12,000. Thornberry would report: a) investing cash inflows of $10,000 b) financing cash inflows of $10,000 c) investing cash inflows of $12,000 d) financing cash inflows of $12,000 investing cash inflows of $12,000 (the gain on land sale is included in investing activities and excluded from operating activities) A loss on the sale of machinery in the ordinary course of business should be presented in a statement of cash flows prepared under the indirect method as a(n): a) inflow from operating activities b) inflow from investing activities c) adjustment to reconcile net income to cash from operating activities d) outflow from investing activities adjustment to reconcile net income to cash from operating activities The activity on the balance sheet to be presented in the financing activities section of the statement of cash flows is based on an analysis of stockholders' equity only. a) true b) false false Which of the following is an example of a cash inflow from a financing activity? a) sale of an intangible asset b) issuance of bonds c) receipt of cash dividends d) purchase of land issuance of bonds How is the retirement of long-term debt reported on the statement of cash flows. What is the effect on cash flows? a) operating activities & increase cash b) financing activities & decrease cash c) investing activities & increase cash d) financing activities & increase cash e) non-cash transaction & no effect on cash financing activities & decrease in cash Which of the following transactions would not be reported on the statement of cash flows? a) purchase of treasury stock b) declaration of a cash dividend which has not yet been paid c) patent amortization d) purchase of an operational asset by issuing common stock declaration of a cash dividend which has not yet been paid We report interest paid on bonds or notes payable in operating activities rather than financing activities. a) true b) false true (US GAAP requirement) The purchase of long-term assets by issuing debt is recorded as both an investing activity and a financing activity. a) true b) false false (purchase of long-term assets by issuing debt is reported as a non-cash activity either directly after the cash flow statement or in a separate note to the financial statements) Which of the following is a non-cash transaction that should be disclosed in a schedule accompanying the statement of cash flows? a) sale of an investment for cash b) purchase of a machine for cash c) issuance of common stock in exchange for land d) declaration and payment of a cash dividend on common stock issuance of common stock in exchange for land Brighton, Inc. borrowed $50,000 from a bank and signed a note agreement. What journal entry should Brighton record? A. Debit Notes Receivable, $50,000; Credit Cash, $50,000. B. Debit Notes Payable, $50,000; Credit Cash, $50,000. C. Debit Cash, $50,000; Credit Notes Payable, $50,000. D. Debit Cash, $50,000; Credit Notes Receivable, $50,000. C On November 1, 2017, Burlingame, Inc. signed a $100,000, 6%, six‐month note payable with the amount borrowed plus accrued interest due six months later on May 1, 2018. What is the amount of the