1) Alden Trucking Company is replacing part of their fleet of trucks by purchasing them
under a note agreement with Kenworthy on January 1, 2014. Alden financed
$37,908,000, and the note agreement will require $10 million in annual payments
starting on December 31, 2014 and continuing for a total of four more years (final
payment December 31, 2018). Kenworthy will charge Alden Trucking Company the
market interest rate of 10% compounded annually. How much is the 2015 interest
expense?
A.$3,169,880.
B.$3,290,800.
C.$4,000,000.
D.$2,790,800.
2015 Interest expense = $3,169,880 = Note payable liability December 31, 2014 x
Interest rate.
2) The following information has been provided to you by RKJ Company:
Using the indirect method, what is the net cash provided by operating activities?
A.$231,000.
B.$187,000.
C.$206,000.
D.$168,000.
3) On January 1, 2014, a corporation issued $400,000 of 10-year, 12% bonds. The
interest is payable semi-annually on June 30 and December 31. The issue price was
$413,153 based on a 10% effective (market) interest rate. Assuming the
effective-interest method of amortization is used, what is the book value of the bond
liability as of June 30, 2014 (to the nearest dollar)?
A.$400,000.
B.$416,495.
C.$409,811.
D.$403,342.
4) Which of the following transactions will decrease the accounts payable turnover
ratio?
A.Using cash to pay an accounts payable balance.
B.Selling inventory on account.
C.Selling inventory for cash.
D.A customer returning inventory sold on account.
5) Which of the following journal entries correctly records the receipt of a utility bill,
which will be paid for in later weeks?
A.Option A
B.Option B
C.Option C
D.Option D
6) On March 15, 2014, Ryan Company purchased $10,000 of merchandise on credit
subject to terms of 2/10, n/30. Ryan Company records its purchases using the gross
amount. The periodic inventory system is used. Which of the following journal entries
is correct when Ryan Company pays for these goods on March 30, 2014?
A.Option A
B.Option B
C.Option C
D.Option D
7) Which of the following describes the primary objective of the balance sheet?
A.To measure the net income of a business up to a particular point in time.
B.To report the difference between cash inflows and cash outflows for the period.
C.To report the financial position of the reporting entity at a particular point in time.
D.To report the market value of assets, liabilities, and stockholders’ equity at a
particular point in time.
8) What is the effect on the financial statements when a company fails to accrue interest
expense at year-end?
A.Net income is overstated and assets are overstated.
B.Expenses are understated and liabilities are understated.
C.Expenses are understated and stockholders’ equity is understated.
D.Net income is overstated and liabilities are overstated.
Failure to accrue interest expense results in expenses being understated and the
resulting interest payable is not increased to reflect the obligation to pay this expense.
9) Which of the following transactions is not reported in the statement of cash flows as
a cash flow from investing activities?
A.Selling a depreciable asset for cash at a loss.
B.Purchasing a patent using cash.
C.Purchasing land in exchange for common stock.
D.Purchasing shares of common stock of another company using cash.
10) Which of the following is correct?
A.Failure to report a gain on the sale of an asset results in an overstatement of net
income.
B.Failure to report a gain on the sale of an asset results in an understatement of
stockholders’ equity.
C.Failure to report a loss on the sale of an asset results in an understatement of net
income.
D.Failure to report a loss on the sale of an asset results in an understatement of earnings
per share.
11) On January 1, 2014, Tonika Corporation issued a four-year, $10,000, 7% bond. The
interest is payable annually each December 31. The issue price was $9,668 based on an
8% effective interest rate. Assuming the effective-interest amortization is used, and
rounding calculations to the nearest whole dollar, which of the following journal entries
correctly records the 2014 interest expense?
A.Option A
B.Option B
C.Option C
D.Option D
12) Which of the following adjusting journal entries is created as the result of an
accrual?
A.Option A
B.Option B
C.Option C
D.Option D
13) Heartfelt Company owns a 40% interest in the voting common stock of Candle
Corporation, and Heartfelt accounts for the investment using the equity method. During
2014, Candle Corporation reported net income of $100,000 and declared and paid cash
dividends of $10,000. The carrying value of the Candle investment was $500,000 on
January 1, 2014. How much investment income should Heartfelt report during 2014
from the Candle investment?
A.$36,000.
B.$40,000.
C.$4,000.
D.$10,000.
Equity in Affiliate Earnings = $40,000 = Affiliate net income 40% ownership
percentage.
14) On January 1, 2014, Dr. Beth Hill started a new professional corporation, Beth Hill,
P.C., to practice medicine with an initial investment of $100,000 in exchange for 20,000
shares of $2 par value common stock. On June 30, 2014, the accounting records showed
the following amounts:
Requirement:
1. Calculate the amounts for common stock and additional paid-in capital.
2. Prepare a balance sheet as of June 30, 2014.
15) On January 1, 2014, Heitzman Company purchased the following shares of stock as
a long-term investment in available-for-sale securities:
16) During 2014, Sanders Corporation prepared the following journal entry to record
the declaration and payment of a cash dividend:
The total par values of common and preferred stock outstanding were $70,000 and
$40,000, respectively. No dividends were declared or paid during 2013. There are 1,000
shares of common treasury stock.
17) On March 1, 2014, Jose, Inc. issued a $1,000, 6%, five-year bond for $1,060. The
bond was dated on March 1, 2014, and interest is payable each February 28. Jose, Inc.
has a December 31 year-end and uses the straight-line method of amortization.
A Prepare the journal entry required on March 1, 2014.B Prepare the journal entry
required on December 31, 2014. No adjusting journal entries were made during the
year.
C Prepare the entry required on February 28, 2015.
D Was the bond issued at par, at a premium, or at a discount?
E What is the carrying value (book value) of the bond at December 31, 2014?
F. Where in the financial statements does the carrying value of the bond appear? (Be
specific).
G. On what date does the bond issue mature?
18) Frankel Feed purchased a new machine on January 1, 2014. Relevant information is
as follows:
It is now the beginning of year 6 and the management reevaluated the estimates related
to the machine.
19) Cosmos Corporation was established on December 31, 2013, by a group of
investors who invested a total of $1,000,000 for shares of the new corporation’s
common stock. During the month of January 2014, Cosmos provided services to
customers for which the total revenue was $100,000. Of this amount, $10,000 had not
been collected by the end of January. Cosmos recorded salary expense of $20,000, of
which 90% had been paid by the end of the month; rent expense of $5,000, which had
been paid on January 1; and other expenses of $12,000, which had been paid by check.
On January 31, 2014, Cosmos purchased a van by paying cash of $30,000. There were
no other transactions that affected cash.
Requirements:
1. In which section of the statement of cash flows would the amount of cash paid for
rent be reported?
2. In which section of the statement of cash flows would the amount of cash paid for the
van purchase be reported?
3. By how much did Cosmos’s cash increase or decrease during January 2014?
4. What was Cosmos’s net income or net loss (after income tax expense) for the month
of January 2014?
21) On January 1, 2014, the accounts of Mac Corporation showed the following:
During 2014, the following transactions occurred which affected stockholders’ equity
(in the order given):
