Penny Company owns 20% interest in the stock of Lynn Corporation. During the year,
Lynn pays $25,000 in dividends, and reports $200,000 in net income. Penny Company’s
investment in Lynn will increase by
a. $25,000.
b. $40,000.
c. $45,000.
d. $35,000.
Answer:
The following information is available for Dibble Corporation:
Instructions
Calculate each of the following for 2015:
(a) Payout ratio
(b) Return on common stockholders’ equity
Answer:
In calculating cash flows from operating activities using the indirect method, a gain on
the sale of equipment is
a. added to net income.
b. deducted from net income.
c. ignored because it does not affect cash.
d. not reported on a statement of cash flows.
Answer:
During the year, Slick’s Pet Shop’s inventory decreased by $25,000. If the company’s
cost of goods sold for the year was $500,000, purchases must have been
a. $475,000.
b. $500,000.
c. $525,000.
d. Unable to determine.
Answer:
(a) Identify several alternatives for presenting significant noncash activities in financial
statements.
(b) Give three examples of significant noncash transactions.
Answer:
A bank may issue a credit memorandum for
a. a bank service charge.
b. an NSF (not sufficient funds) check from a customer.
c. the collection of a note receivable for the depositor by the bank.
d. the cost of printing checks.
Answer:
If a parent company acquires wholly owned subsidiary at an amount greater than the
book value, the excess should be
a. allocated to expense on the date of acquisition.
b. allocated to identifiable assets to the extent of their fair values, with any remainder
allocated to goodwill.
c. allocated to goodwill, with any remainder allocated to the identifiable assets.
d. set up as a liability to the controlling interest.
Answer:
Which of the following statements about dividends is not accurate?
a. Many companies declare and pay cash quarterly dividends.
b. Low dividends may mean high stock returns.
c. The board of directors is obligated to declare dividends.
d. A legal dividend may not be a feasible one.
Answer:
A net loss will result during a time period when
a. assets exceed liabilities.
b. assets exceed stockholders’ equity.
c. expenses exceed revenues.
d. revenues exceed expenses.
Answer:
Anne Company has total cash register receipts of $39,690. This total includes a 5%
sales tax. The entry to record the receipts will include a
a. debit to Sales Tax Expense for $1,890.
b. credit to Sales Revenue for $36,690.
c. credit to Sales Taxes Payable for $1,986.
d. credit to Sales Taxes Payable for $1,890.
Answer:
A company that acquires less than 20% ownership interest in another company should
account for the stock investment in that company using
a. the cost method.
b. the equity method.
c. the significant method.
d. consolidated financial statements.
Answer:
Lawford Company’s equipment account increased $800,000 during the period; the
related accumulated depreciation increased $60,000. New equipment was purchased at
a cost of $1,400,000 and used equipment was sold at a loss of $40,000. Depreciation
expense was $200,000. Proceeds from the sale of the used equipment were
a. $420,000.
b. $500,000.
c. $560,000.
d. $640,000.
Answer:
The statement that “Bond prices vary inversely with changes in the market interest rate”
means that if the
a. market interest rate increases, the contractual interest rate will decrease.
b. contractual interest rate increases, then bond prices will go down.
c. market interest rate decreases, then bond prices will go up.
d. contractual interest rate increases, the market interest rate will decrease.
Answer:
Partridge Bookstore had 500 units on hand at January 1, costing $9 each. Purchases and
sales during the month of January were as follows:
Partridge does not maintain perpetual inventory records. According to a physical count,
365 units were on hand at January 31.
The cost of the inventory at January 31, under the LIFO method is:
a. $3,285.
b. $3,650.
c. $3,900.
d. $4,015.
Answer:
Candy Claws Company gathered the following reconciling information in preparing its
August bank reconciliation:
The adjusted cash balance per books on August 31 is
a. $11,160.
b. $12,060.
c. $23,160.
d. $24,060.
Answer:
The retained earnings statement
a. is the owners’ equity statement for a corporation.
b. will show an addition to the beginning retained earnings balance for an
understatement of net income in a prior year.
c. will not reflect net losses.
d. will, in some cases, fail to reconcile the beginning and ending retained earnings
balances.
Answer:
If the month-end bank statement shows a balance of $72,000, outstanding checks are
$54,000, a deposit of $15,000 was in transit at month end, and a check for $3,000 was
erroneously charged by the bank against the account, the correct balance in the bank
account at month end is
a. $33,000.
b. $36,000.
c. $72,000.
d. $114,000.
Answer:
Banner Company had the following payroll data for the year:
Assume the following:
Instructions
Compute Banner’s payroll tax expense for the year. Make a summary journal entry to
record the payroll tax expense.
Answer:
The following items are taken from the adjusted trial balance of Westley Company for
the month ending July 31, 2015:
Prepare the current assets section of Westley’s classified balance sheet.
Answer:
When credit sales are made, _________________ Expense is considered a normal and
necessary risk of doing business on a credit basis.
Answer:
The following adjusting entries for Donkey Company were prepared after completing a
bank reconciliation. For each of the following adjustments, prepare a probable
explanation for the adjusting entry.
Answer:
Under the equity method, the receipt of dividends from the investee company results in
an increase in the Stock Investments account.
Answer:
If bonds are issued at a discount, the issuing corporation will pay a principal amount
less than the face amount of the bonds on the maturity date.
Answer:
Uncle Tupelo’s Gifts signs a three-month note payable to help finance increases in
inventory for the Christmas shopping season. The note is signed on November 1 in the
amount of $75,000 with annual interest of 12%. What is the adjusting entry to be made
on December 31 for the interest expense accrued to that date, if no entries have been
made previously for the interest?
Answer:
The difference between the cash in bank balance shown on the company’s books and
the cash balance shown on the bank statement may be caused by ______________ and
by ______________ in recording transactions by either party.
Answer:
When vacation benefits are paid, Vacation Benefits Expense is debited.
Answer: