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1) Where must earnings per share be disclosed in the financial statements to satisfy
generally accepted accounting principles?
a.On the face of the statement of retained earnings (or, statement of stockholders'
equity)
b.In the footnotes to the financial statements
c.On the face of the income statement
d.On the face of the balance sheet
2) Unrealized holding gains or losses which are recognized in income are from
securities classified as
a.held-to-maturity
b.available-for-sale
c.trading
d.None of these answers are correct
3) Theoretically, in computing the accounts receivable turnover, the numerator should
include
a.net sales
b.net credit sales
c.total sales
d.total credit sales
4) Identifiable assets for the 4 industry segments of Brittle Company are as follows:
Candy$120,000
Stix$240,000
Chips$980,000
Gum$ 45,000
Brittle Company uses IFRS for its external financial reporting. Using only the
identifiable assets test, which of the segments are reportable?
a.Under IFRS, all four segments must be reported
b.Candy, Stix, and Chips only
c.Chips only
d.Stix and Chips only
5) Financial statements for Hilton Company are presented below:
Hilton Company
Balance Sheet
December 31, 2014
AssetsLiabilities & Stockholders Equity
Cash$ 40,000Accounts payable$ 20,000
Accounts receivable35,000Bonds payable50,000
Buildings and equipment150,000Common stock65,000
Accumulated depreciationRetained earnings 60,000
buildings and equipment(50,000)$195,000
Patents 20,000
$195,000
Hilton Company
Statement of Cash Flows
For the Year Ended December 31, 2014
Cash flows from operating activities
Net income$55,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Increase in accounts receivable$(16,000)
Increase in accounts payable8,000
Depreciationbuildings and equipment15,000
Gain on sale of equipment(6,000)
Amortization of patents 2,000 3,000
Net cash provided by operating activities58,000
Cash flows from investing activities
Sale of equipment12,000
Purchase of land(25,000)
Purchase of buildings and equipment (48,000)
Net cash used by investing activities(61,000)
Cash flows from financing activities
Payment of cash dividend(15,000)
Sale of bonds 30,000
Net cash provided by financing activities 15,000
Net increase in cash12,000
Cash, January 1, 2014 28,000
Cash, December 31, 2014$40,000
At the beginning of 2014, Accounts Payable amounted to $12,000 and Bonds Payable
was $20,000.
Instructions
Calculate the following for Hilton Company:
a.Current cash debt coverage
b.Cash debt coverage
c.Free cash flow
d.Explain the purpose of free cash flow analysis.
6) On January 1, 2015, Yancey, Inc. signs a 10-year noncancelable lease agreement to
lease a storage building from Holt Warehouse Company. Collectibility of lease
payments is reasonably predictable and no important uncertainties surround the amount
of costs yet to be incurred by the lessor. The following information pertains to this lease
agreement.
(a)The agreement requires equal rental payments at the beginning each year.
(b)The fair value of the building on January 1, 2015 is $4,000,000; however, the book
value to Holt is $3,300,000.
(c)The building has an estimated economic life of 10 years, with no residual value.
Yancey depreciates similar buildings on the straight-line method.
(d)At the termination of the lease, the title to the building will be transferred to the
lessee.
(e)Yanceys incremental borrowing rate is 11% per year. Holt Warehouse Co. set the
annual rental to insure a 10% rate of return. The implicit rate of the lessor is known by
Yancey, Inc.
(f)The yearly rental payment includes $10,000 of executory costs related to taxes on the
property.
Future Value of Ordinary Annuity of 1
Period 5% 6% 8% 10% 12%
11.000001.000001.000001.000001.00000
22.050002.060002.080002.100002.12000
33.152503.183603.246403.310003.37440
44.310134.374624.506114.641004.77933
55.525635.637095.866606.105106.35285
66.801916.975327.335927.715618.11519
78.142018.393848.922809.4871710.08901
89.549119.8974710.6366311.4358912.29969
911.0265611.4913212.4875613.5794814.77566
1012.5778913.1807914.4865615.9374317.54874
Present Value of an Ordinary Annuity of 1
Period 5% 6% 8% 10% 12%
1.95238.94340.92593.90909.89286
21.859411.833391.783261.735541.69005
32.723252.673012.577102.486852.40183
43.545953.465113.312133.169863.03735
54.329484.212363.992713.790793.60478
65.075694.917324.622884.355264.11141
75.786375.582385.206374.868424.56376
86.463216.209795.746645.334934.96764
97.107826.801696.246895.759025.32825
107.721737.360096.710086.144575.65022
From the lessors viewpoint, what type of lease is involved?
a.Sales-type lease
b.Sale-leaseback
c.Direct-financing lease
d.Operating lease
7) The current assets section of the balance sheet should include
a.machinery
b.patents
c.goodwill
d.inventory
8) The underlying theme of the conceptual framework is
a.decision usefulness
b.understandability
c.faithful representation
d.comparability
9) Indicate for each of the following what should be disclosed on a statement of cash
flows (SCF) (indirect method). If not disclosed, write "Not shown." If an item is a
noncash transaction that should be shown separately, write "noncash." If an item is
added to net income, write "Add," and if an item is deducted from net income, write
"Deduct." Show financing and investing outflows in parentheses. For example, an
answer might be: Deduct $4,700 or Investing ($31,000). There is more than one answer
for some items.
(a)For 2015, income before an extraordinary loss was $460,000. A tornado damaged a
building and its contents. The proceeds from insurance companies totaled $120,000,
which was $50,000 less than the book values. The tax rate was 30%. (Show the
calculation of the net income shown on the SCF, and indicate how other items should be
shown on the SCF.)
(b)Amortization of bond premium, $1,100.
(c)The balance in Retained Earnings was $875,000 on December 31, 2014 and
$1,310,000 on December 31, 2015 . Net income was $1,170,000. A stock dividend was
declared and distributed which increased common stock $325,000 and paid-in capital
$170,000. (Show calculation of the cash dividend and indicate how it and the stock
dividend would be shown on the SCF.)
(d)Equipment, that cost $115,000 and had accumulated depreciation of $53,000, was
sold for $66,000.
(e)The deferred tax liability increased $18,000.
(f)Issued 3,000 shares of preferred stock, $50 par, with a market value of $110 per share
for land. (Show the amount also.)
10) Chang Corporation issued $4,000,000 of 9%, ten-year convertible bonds on July 1,
2014 at 96.1 plus accrued interest. The bonds were dated April 1, 2014 with interest
payable April 1 and October 1 . Bond discount is amortized semiannually on a
straight-line basis. On April 1, 2015, $800,000 of these bonds were converted into 500
shares of $20 par value common stock. Accrued interest was paid in cash at the time of
conversion.
What should be the amount of the unamortized bond discount on April 1, 2015 relating
to the bonds converted?
a.$31,200
b.$28,800
c.$15,600
d.$29,600
