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1) Sun Inc assigns $3,000,000 of its accounts receivables as collateral for a $1 million
8% loan with a bank. Sun Inc. also pays a finance fee of 1% on the transaction upfront.
What would be recorded as a gain (loss) on the transfer of receivables?
a.Loss of $30,000
b.Loss of $240,000
c.Loss of $270,000
d.$0.
2) Which of the following is true about the information provided in the income
statement?
a.It helps in evaluating the past performance of the enterprise
b.It provides a basis for predicting future performance
c.It helps assess the risk or uncertainty of achieving future cash flows
d.All of these answer choices are correct
3) The condensed financial statements of Marks Company for the years 2014-2015 are
presented below:
Marks Company
Comparative Balance Sheets
As of December 31, 2014 and 2015
2015 2014
Cash$ 420,000$ 120,000
Accounts receivable (net)360,000300,000
Inventories380,000340,000
Plant and equipment1,800,0001,112,000
Accumulated depreciation (260,000) (192,000)
$2,700,000$1,680,000
Accounts payable$ 340,000$ 160,000
Dividends payable-0-40,000
Bonds payable400,000-0-
Common stock ($10 par)1,520,0001,200,000
Retained earnings 440,000 280,000
$2,700,000$1,680,000
Additional data:
Market value of stock at 12/31/15 is $80 per share.
Marks sold 32,000 shares of common stock at par on July 1, 2015 .
Marks Company
Condensed Income Statement
For the Year Ended December 31, 2015
Sales revenue$2,400,000
Cost of goods sold 1,650,000
Gross profit750,000
Administrative and selling expenses 500,000
Net income$ 250,000
Instructions
Compute the following financial ratios by placing the proper amounts in the
parentheses provided for numerators and denominators.
a.Current ratio at 12/31/15
b.Acid test ratio at 12/31/15
c.Accounts receivable turnover in 2015
d.Inventory turnover in 2015
e.Profit margin on sales in 2015
f.Earnings per share in 2015
g.Return on common stock equity in 2015
h.Price earnings ratio at 12/31/15
i.Debt to assets at 12/31/15
j.Book value per share at 12/31/15
4) Research and development costs
a.are intangible assets
b.may result in the development of a patent
c.are easily identified with specific projects
d.All of these answer choices are correct
5) Messersmith Company is constructing a building. Construction began in 2014 and
the building was completed 12/31/14. Messersmith made payments to the construction
company of $2,000,000 on 7/1, $4,200,000 on 9/1, and $4,000,000 on 12/31.
Weighted-average accumulated expenditures were
a.$2,050,000
b.$2,400,000
c.$6,200,000
d.$10,200,000
6) Before year-end adjusting entries, Dunn Company's account balances at December
31, 2014, for accounts receivable and the related allowance for uncollectible accounts
were $1,200,000 and $90,000, respectively. An aging of accounts receivable indicated
that $125,000 of the December 31 receivables are expected to be uncollectible. The net
realizable value of accounts receivable after adjustment is
a.$1,165,000
b.$1,075,000
c.$985,000
d.$1,110,000
7) Sawyer Corporation has a machine (Machine A) that it acquired on 1/1/14 for
$540,000. On 12/31/14 such machines have a selling price and fair value of $621,000.
When used in production, such machines have an estimated useful life of 10 years with
no salvage value. Use the straight-line method.
Brown Corporation has a machine (Machine B) that it acquired on 1/1/14 for $729,000.
On 12/31/14 such machines have a selling price and fair value of $540,000. When used
in production, such machines have an estimated useful life of 10 years with no salvage
value. Use the straight-line method.
On 12/31/14 Brown gave Machine B plus $81,000 cash to Sawyer in return for
Machine A.
Given the assumptions in 15 above except that the selling prices and fair market values
of A and B are $756,000 and $675,000, respectively, at what amount will Brown record
Machine A?
a.$656,100
b.$607,500
c.$756,000
d.$675,000
8) In a business combination, companies record identifiable intangible assets that they
can reliably measure. All other intangible assets, too difficult to identify or measure, are
recorded as
a.other assets
b.indirect costs
c.goodwill
d.direct costs
9) The purpose of Statements of Financial Accounting Concepts is to
a.establish GAAP
b.modify or extend an existing FASB Accounting Standards Update
c.form a conceptual framework for solving existing and emerging problems
d.determine the need for FASB involvement in an emerging issue
10) Companies should test indefinite life intangible assets at least annually for
a.recoverability
b.amortization
c.impairment
d.estimated useful life
11) A company buys an oil rig for $3,000,000 on January 1, 2014 . The life of the rig is
10 years and the expected cost to dismantle the rig at the end of 10 years is $600,000
(present value at 10% is $231,330). 10% is an appropriate interest rate for this
company. What expense should be recorded for 2014 as a result of these events?
a.Depreciation expense of $360,000
b.Depreciation expense of $300,000 and interest expense of $23,133
c.Depreciation expense of $300,000 and interest expense of $60,000
d.Depreciation expense of $323,133 and interest expense of $23,133
12) Which of the following is true about accounts payable?
1>Accounts payable are also called trade accounts payable.
2>When accounts payable are recorded at the net amount, a Purchase Discounts
account will be used.
3>When accounts payable are recorded at the gross amount, a Purchase Discounts Lost
account will be used.
a.1
b.2
c.3
d.Both 2 and 3 are true
13) 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 was the effective interest rate on the bonds when they were issued?
a.9%
b.Above 9%
c.Below 9%
d.Cannot determine from the information given
14) Maso Company recorded journal entries for the issuance of common stock for
$160,000, the payment of $52,000 on accounts payable, and the payment of salaries
expense of $84,000. What net effect do these entries have on owners equity?
a.Increase of $160,000
b.Increase of $108,00
c.Increase of $76,000
d.Increase of $24,000
