Grayson Company is considering purchase of equipment that costs $49,000 and is
expected to offer annual cash inflows of $13,000. Grayson’s minimum required rate of
return is 10%. How many years must the cash flows last, for the investment to be
acceptable? (Do not round your PV factors and intermediate calculations. Round to
nearest whole year.)
A.4
B.5
C.3
D.6
On January 1, 2014, Santa Fe Company purchased a truck that cost $34,000. The truck
had an expected useful life of 5 years and a $4,000 salvage value. Based on this
information alone:
A.The amount of depreciation expense recognized in 2015 would be greater if Santa Fe
depreciates the asset under the straight-line method than if the double declining balance
method is used.
B.The total amount of depreciation expense recognized over the five year useful life
will be greater under the double declining balance method than the straight-line method.
C.At the end of 2015, the amount in accumulated depreciation account will be less if
the double declining balance method is used than it would be if the straight-line method
is used.
D. The amount of depreciation expense recognized in 2015 would be greater if Santa Fe
depreciates the asset under the straight-line method than if the double declining balance
method is used and at the end of 2015, the amount in accumulated depreciation account
will be less if the double declining balance method is used than it would be if the
straight-line method is used.
The purposes of the postaudit for capital investments include all of the following
except:
A.continuous improvement.
B.rewarding managers for increasing idle cash.
C.determining whether the project generated the results expected.
D. encouraging managers to closely scrutinize capital investment decisions.
Young Corporation is considering purchasing equipment that costs $80,000 and is
expected to provide the following cash inflows over its five-year useful life:
What is the payback period of this investment project (rounded to the nearest year)?
A.2 years
B.4 years
C.3 years
D.6 years
If retained earnings decreased during the year, and no dividends were paid, which of the
following must be true?
A.Expenses for the year exceeded revenues
B.The company did not have enough cash to pay its expenses
C.Total equity decreased
D.Liabilities increased during the year
Bledsoe Company received $15,000 cash from the issue of stock on January 1, 2013.
During 2013 Bledsoe earned $8,500 of revenue on account. The company collected
$6,000 cash from accounts receivable and paid $5,400 cash for operating expenses.
Based on this information alone, during 2013.
A.Total assets increased by $24,100.
B.Total assets increased by $600.
C.Total assets increased by $18,100.
D.Total assets did not change.
A company acquired a new piece of equipment on January 1, 2011 at a cost of
$200,000. The equipment is expected to have a useful life of 10 years, a residual value
of $20,000 and is depreciated on a straight-line basis. On January 1, 2013, the
equipment was appraised and determined to have a fair value of $190,000 and a
residual value of $25,000 and a remaining useful life of 10 years.
At what amount should the equipment be reported on the December 31, 2013 balance
sheet under the IFRS cost model?
A.$160,000
B.$150,000
C.$146,000
D.$140,000
E.$116,000
The following transactions apply to Warren Fitness Center for 2012.
1) Started the business by issuing $38,000 of common stock for cash.
2) Provided services to clients and received $28,500 cash.
3) Borrowed $7,500 from the bank.
4) Paid $6,500 for rent of equipment.
5) Purchased land for $12,000.
6) Paid $16,600 of salary expense.
7) Cash dividends of $4,500 were paid to the stockholders.
Required:
a) What are the total assets of the business at the end of 2012?
b) Prepare a Statement of Cash Flows for 2012.
Each of the following requirements is independent of the others.
a) Viking Corporation has liabilities of $85,000 and equity of $115,000. What is the
amount of Viking’s assets?
_________________________________________________
b) Garibaldi Company has assets of $310,000 and liabilities of $95,000. What is the
amount of Garibaldi’s equity?
______________________________________________________
c) King Company has assets of $70,000 and liabilities of $25,000. What is the amount
of King’s claims?
_____________________________________________________________
The following information pertains to inventory held by a company on December 31,
2013.
What amount of inventory should be reported under U.S. GAAP?
A.$16,000.
B.$27,000.
C.$30,000.
D.$21,600.
E.$20,000.
Select the incorrect statement regarding horizontal analysis.
A.Percentage analysis involves establishing the relationship of one amount to another.
B.A horizontal analysis of cost of goods sold on the income statement includes dividing
net income by total revenue.
C.Percentage analysis attempts to eliminate the materiality problem of comparing firms
of different sizes.
D.In doing horizontal analysis, an account is expressed as a percentage of the previous
balance of the same account.
For each of the following situations, select the best answer concerning the classification
of the liability.
(A) Unsecured without priority
(B) Unsecured with priority
(C) Partially secured
(D) Fully secured
___ 1) Payroll taxes payable.
___ 2) Land and building valued at $427,000 mortgaged by a bank loan in the amount
of $517,000.
___ 3) Equipment valued at $73,000 securing a loan to an individual in the amount of
$32,100.
___ 4) Salaries payable to employees in the following amounts: $1,250; $1,876; $4,500.
___ 5) Electric bill owed to a local utility.
___ 6) Unpaid defined contribution pension plan payments in the amount of $4,000
(none in excess of $375 per employee).
___ 7) Obligations arising from the purchase of materials on July 5, 2013. (Bankruptcy
petition filed July 14, 2013).
___ 8) Fees charged by bankruptcy trustee.
___ 9) Inventory valued at $61,895 collateralizing a note payable to a bank in the
amount of $56,982.
___ 10) Delivery trucks valued at $389,900 securing a lien by General Motors for
$400,000.
Bristles Hair Salon is considering installing spray tanning booths. The booths cost
$220,000 and have an estimated five-year useful life. Ignore income taxes. The
following pro forma income statement is provided:
Required:
1) Bristles would like to recoup its original investment in less than four years. Compute
the payback period for the tanning booth investment. Would you recommend that the
booths be purchased? Why or why not?
2) Bristles’ minimum acceptable unadjusted rate of return is 11%. Compute the
unadjusted rate of return on the original investment. Would you recommend that the
booths be purchased? Why or why not?
Columbus Company is considering a project that requires an initial investment of
$400,000. Its incremental cash flows are expected to be $150,000 per year for five
years. The project would be depreciated on a straight-line basis over 5 years with no
expected salvage value. The company has a stated policy that all projects must return
their required investment dollars within the first 75% of the project’s life. The company
is subject to a 40% income tax rate, and its cost of capital is 10%.
Required:
1) Compute the project’s after-tax net cash flows (NCF) by completing the following
table:
2) Compute the project’s net present value by completing the following table:
3) Compute the project’s payback period.
4) Should the project be accepted? Why or why not?
Reed, Sharp, and Tucker were partners with capital account balances of $80,000,
$100,000, and $70,000, respectively. They agreed to admit Upton to the partnership.
Upton purchased 30% of each partner’s interest, with payments directly to Reed, Sharp,
and Tucker of $32,000, $40,000, and $28,000, respectively. Before the admission of
Upton, the profit and loss sharing ratio was 2:3:2. The partners agreed to use the book
value method to account for the admission of Upton to the partnership.
Required:
Prepare the journal entry to record the admission of Upton to the partnership.
From what three sources does a business obtain its assets?
How are the operations of the SEC funded?
Why are the terms of the Articles of Partnership important to partners?
What information is required in proxy statements?
What is the role of the trustee in the liquidation of a company?
What is a private placement of securities?