Bonds payable issued between interest dates – early retirement
Deegan Imports received authorization on December 31, Year 1, to issue $4,500,000
face value of 8%, 20-year bonds. The interest payment dates are June 30 and December
31. All the bonds were issued at par, plus accrued interest on February 1, Year 2. The
bonds are callable by Deegan at any time at 105.
(a) Prepare the journal entry to record the issuance of the bonds on February 1, Year 2.
(b) Prepare the journal to record the first interest payment on the bonds at June 30, Year
2
(c) What is the amount of bond interest expense reported in Deegan Imports’ Year 2
income statement relating to these bonds? $____________
(d) What is the amount of bond interest payable appearing in Deegan Imports’ balance
sheet at December 31, Year 2, with respect to these bonds? $_____________
(e) Deegan exercises the call provision and retires one-third of the bond issue on July 1,
Year 3.
Prepare the journal entry to record this transaction on July 1, Year 3.
The concept of materiality:
A. Treats as material only those items that are greater than 2% or 3% of net income.
B. Justifies ignoring the matching principle or the realization principle in certain
circumstances.
C. Affects only items reported in the income statement.
D. Results in financial statements that are less useful to decision makers because many
details have been omitted.
Shown below is information relating to the stockholders’ equity of Clydsdale
Corporation at December 31, 2015:
Refer to the information above. The average issue price per share of the preferred stock
was:
A. $40.
B. $80.
C. $120.
D. $160.
Financial reporting of net losses and retained earnings
A recent annual report of Dobbs, Inc., reported a net loss of approximately $63 million
and retained earnings of approximately $1.6 billion.
(a) Which financial statement shows computation of the $63 million net loss?
(b) Which financial statement includes the retained earnings figure of $1.6 billion?
(c) Explain how it is possible for Dobbs to report both a net loss of $63 million and
retained earnings of $1.6 billion in a single set of financial statements.
Patterson’s Department Store prepares monthly income statements by sales
departments. These income statements are organized to show contribution margin,
performance margin, and responsibility margin for each sales department, as well as
operating income for the store as a whole.
Refer to the information above. In deciding how the store will benefit most from
increasing the sales of selected departments, the store manager should be most
interested in the:
A. Total sales of each department.
B. Contribution margin ratios of each department.
C. Fixed costs traceable to each department.
D. Responsibility margins of each department.
Determining book value per share
Shown below is information relating to the stockholders’ equity of Churchill, Inc.:
From the above information, compute the following:
(a) Number of shares of preferred stock issued and outstanding
(b) Average issue price per share of common stock
(c) Total paid-in capital
(d) Total stockholders’ equity
(e) Book value per share of common stock
In preparing a bank reconciliation, a service charge shown on the bank statement should
be:
A. Added to the balance per the bank statement.
B. Deducted from the balance per the bank statement.
C. Added to the balance per the depositor’s records.
D. Deducted from the balance per the depositor’s records.
Low individualism and high long-term orientation is indicative of which culture?
A. United States.
B. Great Britain.
C. Japan.
D. Germany.
An analysis of changes in selected balance sheet accounts of Johnson Corporation
shows the following for the current year:
Johnson’s income statement for the current year includes a $14,000 loss on disposal of
plant assets. All payments and proceeds relating to purchase or sale of plant assets were
in cash.
Refer to the information above. Total cash proceeds received by Johnson from sales of
plant assets during the current year amounted to:
A. $13,000.
B. $104,000.
C. $195,000.
D. $41,000.
Starbright manufactures children car seats, strollers, and baby swings. Starbright’s
manufacturing costs are budgeted as follows:
Factory utilities $105,000
Factory foremen salaries $75,000
Machinery setup costs $30,000
Total manufacturing overhead $210,000
The company uses activity-based costing to allocate its manufacturing overhead costs to
products based on the following schedule:
During the current month, the following levels of activities were incurred:
What are the factory utilities costs allocated to Baby Swings during the current month?
A. $210,000.
B. $51,808.
C. $34,016.
D. $19,177.
Evans Products uses a process costing system with two processing departments: the
Mixing Department and the Finishing Department. In June, unit costs incurred by the
Mixing Department amounted to $4.00 per unit. Unit costs transferred to the finished
goods warehouse during the month amounted to $22. Work-in-process inventories are
reduced to zero each month.
Refer to the information above. If 80% of all inventory was sold at $32 per unit and
3,500 units were sold, what is the cost of the finished goods inventory at year-end?
A. $16,800.
B. $77,000.
C. $19,250.
D. $96,250.
This transaction involves:
A. The sale of land and building for $286,000.
B. Payment of $221,000 on a note payable.
C. The receipt of $65,000 cash.
D. An increase in liabilities of $221,000.
The benefits of budgeting include all of the following except:
A. Enabling the company to produce more for less cost.
B. Assigning responsibility for situations that require corrective action.
C. Coordinating activities between departments within the organization.
D. Creating standards for evaluating performance.
Gourmet Shop purchased cash registers on April 1 for $12,000. If this asset has an
estimated useful life of four years, what is the book value of the cash registers on May
31?
A. $250.
B. $3,000.
C. $9,000.
D. $11,500.
The following information is available:
What is the return on equity? (round to the nearest number)
A. 5%.
B. 20%.
C. 25%.
D. 15%.
Given below are comparative balance sheets and an income statement for Eleva
Corporation.
All sales were made on account. Cash dividends declared during the year totaled
$22,984.
Refer to the information above. Eleva Corporation’s days to sell the average inventory
for 2015 is:
A. 91.5 days.
B. 67.3 days.
C. 94.0 days.
D. 125.4 days.
Which cost is not relevant in making financial decisions?
A. Sunk costs.
B. Opportunity costs.
C. Incremental costs.
D. Out-of-pocket costs.
Ross Corporation makes all sales on account. The June 30th balance sheet balance in its
accounts receivable is $400,000, of which $240,000 pertain to sales that were made
during June. Budgeted sales for July are $1,250,000. Ross collects 70% of sales in the
month of sale; 20% in the following month; and the final 10% in the second month after
the sale.
Refer to the information above. What is the budgeted balance of Ross’s accounts
receivable as of July 31?
A. $375,000.
B. $455,000.
C. $415,000.
D. $396,000.
The management of Trylon Farms is considering the purchase of equipment costing
$320,000. The equipment has a useful life of eight years, with $20,000 residual value.
The use of this equipment will produce positive annual cash flow of $60,000 for eight
years, as well as $20,000 from sale of the equipment at the end of the eighth year.
Compute the net present value of this investment, discounted at an annual rate of 10%.
(Present value of $1 due in eight years, discounted at 10%, is 0.467; present value of $1
received annually for eight years, discounted at 10%, is 5.335.)
A. $9,340.
B. $320,100.
C. $9,440.
D. $329,440.
An effective just-in-time system will include:
A. Specialized employees.
B. An efficient plant layout.
C. Sizable inventories of raw materials.
D. Many suppliers.
The purchase of office equipment at a cost of $7,600 with an immediate payment of
$4,200 and agreement to pay the balance within 60 days is recorded by:
A. A debit of $7,600 to Office Equipment, a debit of $4,200 to Accounts Receivable,
and a credit of $3,400 to Accounts Payable.
B. A debit of $7,600 to Office Equipment, a credit of $4,200 to Cash, and a credit of
$3,400 to Accounts Receivable.
C. A debit of $3,400 to Accounts Receivable, a debit of $4,200 to Cash, and a credit of
$7,600 to Office Equipment.
D. A debit of $7,600 to Office Equipment, a credit of $4,200 to Cash, and a credit of
$3,400 to Accounts Payable.
Declaring a dividend will:
A. Increase net income.
B. Decrease net income.
C. Not change net income.
D. Increase the net worth of a company.
Which of the following liabilities would most likely be listed last on a statement of
financial position?
A. Bonds payable, due in 20 years.
B. Accounts payable.
C. Note payable, due in 3 years.
D. Income taxes payable.
After preparing a bank reconciliation, a journal entry would be required for which of
the following:
A. A deposit in transit.
B. A check for $48 given to a supplier but not yet recorded by the company’s bank.
C. Interest earned on the company’s checking account.
D. A deposit made by a company with a similar name and credited to your account.
Revenue expenditures are recorded as:
A. An expense.
B. An asset.
C. A liability.
D. Income.
Suppose investors decided to sell their holdings of capital stock in order to purchase
outstanding bonds payable and as a result, the prices of bonds payable increased. What
would be the likely impact on market interest rates?
A. Market interest rates will be unaffected.
B. Market interest rates will increase.
C. Market interest rates will fall.
D. Although interest rates will change, it is impossible to predict the direction of
change.
Refer to the information above. What is the return on investment for Mahen, Inc.?
A. 5%.
B. 6%.
C. 10%.
D. 20%.
Refer to the information above. Before the journal entry above, Wood had assets,
liabilities, and owners’ equity of $450,000, $100,000, and $350,000, respectively. What
are total assets immediately after the above transaction occurs?
A. $221,000.
B. $671,000.
C. $735,500.
D. $450,000.
Inventory systems
Indicate whether you would expect each of the following businesses to maintain a
perpetual or a periodic inventory system. Explain the reasoning behind your answers:
(a) A jewelry store.
(b) A roadside vegetable stand.
Harding Systems, Inc. uses a periodic inventory system. The purchases of a particular
product during the year are shown below:
At December 31 the ending inventory consisted of 1,500 units.
Refer to the information above. Compute the cost of goods sold for the current year
based on the LIFO method of inventory valuation.
A. $12,500.
B. $29,175.
C. $10,975.
D. $27,650.
The SEC requires corporate officers to sign the Form 10-K, which is filed annually with
the SEC. Which of the following officers is not among those required to sign?
A. CEO (Chief Executive Officer).
B. CAO (Chief Accounting Officer).
C. CFO (Chief Financial Officer).
D. COO (Chief Operating Officer).