COMPREHENSIVE EXAMINATION C
(Chapters 9 – 11)
Approximate
Problem Topic Points Minutes
C – I Multiple Choice ……………………………………. 18 18
C – II Ratios ………………………………………………… 18 12
C – III Corporation Entries ………………………………. 20 15
C – IV Bonds and Notes Payable ………………………. 16 10
C – V Long-Lived Asset Entries ………………………. _28 15
100 70
Checking Work ……………………………………. 10
80
Test Bank for Accounting, Fifth Edition
C-2
Problem C – I — Multiple Choice (18 points)
Instructions: Designate the best answer for each of the following questions.
1. Mack Pharmaceutical issued bonds at a premium. Which of the statements below is true of
the premium?
a. It will increase bond interest expense throughout the bond term.
b. It represents a reduction in the cost of borrowing.
c. It is an extra payment the bond issuer must pay to the bond investors.
d. It is a reduction of the interest payments the bond issuer must pay to bond investors.
2. Which one of the following is considered an advantage of the corporate form of
organization?
a. Unlimited liability of stockholders
b. Separation of ownership and management
c. Continuous life
d. Government regulation
3. Which one of the following is not one of the functions that impact the market value of
bonds?
a. The length of time until the amounts are received
b. The market interest rate
c. The dollar amounts to be received
d. The method of amortizing the bond interest
4. Which of the following transactions affects the Retained Earnings account?
a. Declare a cash dividend
b. Acquire treasury stock
c. Pay a cash dividend
d. Stock split
5. Harvey Food Store issued common stock with a par value of $1 per share. What is par
value?
a. The anticipated selling price of each share of stock
b. The legal capital that must be retained in a company for the protection of shareholders
c. The amount assigned to each share of stock in a company’s corporate charter
d. The amount to be debited to Common Stock for each share of stock issued
6. Which one of the following amounts is capitalized and depreciated?
a. $7,000 paid for closing costs on the acquisition of land on which an office building will
be constructed
b. $4,200 mortgage payments on a warehouse built to store inventory
c. $65,000 paid to construct a parking lot adjacent to the company’s building
d. $40 paid for an oil change in one of the company’s delivery vehicles
7. What is the purpose of recording depreciation?
a. To allocate the cost of the assets to the accounting periods in which the assets are
used to produce benefits
b. To reduce the value of the assets on the balance sheet to their fair values
c. To pay for possible future repairs and eventual replacement of the assets
d. To avoid overstating the book value of the assets
Comprehensive Examination C
C-3
8. Bell North Industries has total sales of $143,000 and sales taxes collected totaling $10,010
based on a 7% tax rate during June. Bell North submitted $5,600 of the taxes to the State
before the end of June. Which one of the following will be reported on Bell North’s financial
statements at the end of June?
a. Sales Tax Expense for $10,010
b. Sales for $153,010
c. Sales Taxes Payable for $4,410
d. Net sales for $147,410
9. A company sold a delivery truck for $3,000 that had originally cost $42,000, and had a
book value of $4,200. Which of the following is the correct reporting of the respective
amounts?
a. $3,000 as an operating cash flow on the statement of cash flows, and $42,000 as a
loss on the income statement
b. $3,000 as an investing cash flow on the statement of cash flows, and $1,200 as a loss
on the income statement
c. $4,200 as an investing cash flow on the statement of cash flows, and $3,000 as a gain
on the income statement
d. $1,200 as an investing cash flow on the statement of cash flows, and $3,000 as a gain
on the income statement
Test Bank for Accounting, Fifth Edition
C-4
Problem C – II — Ratios (18 points)
The following information is available for Zanatech Enterprises:
2014 2013
Current liabilities $ 210,000 $245,000
Long-term liabilities 340,000 420,000
Common stockholders’ equity 915,000 1,100,000
Preferred stockholders’ equity 135,000 135,000
Dividends paid to common stockholders 50,400 42,000
Dividends paid to preferred stockholders 39,400 12,000
Interest expense 25,000 21,000
Net income 120,000 200,000
Income tax expense 42,500 54,000
Net sales 5,950,000 6,200,000
Common shares outstanding 80,000 74,000
Instructions: Calculate each of the following for 2014:
1. Payout ratio
2. Return on common stockholders’ equity
3. Times interest earned
4. Debt to assets ratio
5. Return on assets
6. Asset turnover
Comprehensive Examination C
C-5
Problem C – III — Corporation Entries (20 points)
Travel Expectations’ paid no dividends during 2013. It records common and preferred dividends in
separate liability accounts. Its stockholders’ equity consists of the following on January 1, 2014:
Stockholders’ Equity
Paid-in capital
Capital stock
Preferred stock, 4%, $50 par value, cumulative, 80,000
shares authorized, 12,000 shares issued and outstanding $ 600,000
Common stock, no par, $0.50 stated value, 1,000,000 shares
authorized, 400,000 shares issued and outstanding 200,000
Total capital stock 800,000
Additional paid-in capital
Paid-in capital in excess of par value—preferred stock $140,000
Paid-in capital in excess of stated value—common stock 220,000 360,000
Total paid-in capital 1,160,000
Retained earnings 780,000
Total stockholders‘ equity $1,940,000
Instructions: Prepare the appropriate journal entries, if any, for the following transactions in 2014.
You may omit journal entry explanations. Show computations.
Jan. 25 Issued 8,000 shares of common stock for $12 per share.
Feb. 18 The Board of Directors declared a cash dividend on preferred and common stock
totaling $62,000, payable on March 15, to stockholders of record on February 28.
Feb. 28 Date of record for cash dividends on preferred and common stock.
Mar. 15 Paid the cash dividend to preferred and common stockholders.
July 7 Purchased 6,000 shares of common stock for the treasury at $15 per share.
Test Bank for Accounting, Fifth Edition
C-6
Problem C – IV — Bonds and Notes Payable (16 points)
Instructions: Prepare the appropriate journal entries for each of the following transactions in
2014. You may omit journal entry explanations. Show computations.
1. On January 1, 2014, Satterfield Fuel Cells issued bonds with a face value of $800,000. The
bonds carry a stated interest of 6% payable each January 1. Prepare the journal entry for the
issuance assuming the bonds are issued at 102.
2. Acree Analysts purchased $300,000 of its bonds on June 30, 2014, at 101 and immediately
retired them. The carrying value of the bonds on the retirement date was $294,000. The bonds
pay semiannual interest and the interest payment due on June 30, 2014 has been made and
recorded. Prepare the journal entry for the retirement of the bond.
3. On April 1, Way Company borrows $30,000 from Wells Fargo Bank by signing a 5-month, 5%,
interest-bearing note.
(a) Prepare the entry for Way on April 1 when the note was issued.
(b) Prepare any adjusting entries necessary on June 30 for Way in order to prepare the
semiannual financial statements.
(c) Prepare the entry to record payment of the note by Way at maturity.
Comprehensive Examination C
C-7
Problem C – V — Long-Lived Asset Entries (28 points)
Instructions: Prepare the necessary journal entries to record the following transactions in 2014
for the Dynacore Pharmaceuticals.
Jan. 11 Discarded old store equipment that originally cost $25,000 and had a book value of
$5,200 on the date of disposal. Depreciation on the equipment has already been
recorded for the current year.
Mar. 6 Sold a delivery truck for $8,400. The delivery truck originally cost $53,000 and had
accumulated depreciation of $46,000 on the date of sale. The depreciation on the truck
has already been recorded for the current year.
Mar. 31 Straight-line depreciation is recorded for the first quarter of 2014 on equipment with a
4-year useful life that was purchased on January 1, 2012, for $27,400 with an
estimated salvage value of $3,400.
May. 10 Incurred and paid for $560,000 of costs to develop a new patent. The patent has a
legal life of 20 years.
Sept. 30 Paid the corporate attorney $66,000 to register the new patent (see May 10).
Nov. 1 Acquired RT Zone, a small parts company, for $310,000 cash. RT Zone had net assets
totaling $880,000, net liabilities totaling $650,000.
Dec. 31 Recognized amortization for the last quarter of 2014.
Test Bank for Accounting, Fifth Edition
C-8
Solutions — Comprehensive Examination C
Comprehensive Examination C
C-9