GE buys back 300,000 shares of its stock from investors at $45 a share. Two years later
it reissues this stock for $65 a share. The stock reissue would be recorded with a debit
to Cash for:
A) $19.5 million and a credit to Treasury Stock for $19.5 million.
B) $13.5 million, a debit to Additional Paid-in Capital for $6 million, a credit to
Treasury Stock for $13.5 million, and a credit to Stockholders’ Equity for $6 million.
C) $19.5 million, a credit to Treasury Stock for $13.5 million, and a credit to Additional
Paid-in Capital for $6 million.
D) $19.5 million, a credit to Treasury Stock for $13.5 million, and a credit to Gain on
Sale of Treasury Stock for $6 million.
The net amount shown on a balance sheet for an intangible asset with an unlimited life
should be:
A) the price for which it could be sold.
B) its book value or impaired fair value, whichever is lower.
C) its purchase price minus accumulated amortization.
D) its purchase price adjusted for inflation.
A cumulative dividend preference means that:
A) preferred stockholders are paid dividends before common stockholders are paid
dividends for the current year only.
B) unpaid dividends to preferred stockholders accumulate and must be paid before
common stockholders receive dividends.
C) preferred stockholders are paid their full fixed dividend rate each period as long as
the company is in operation.
D) unpaid cash dividends to preferred stockholders must be replaced with stock
dividends during the current period.
Which of the following statements would not explain why a company may want to
repurchase its stock?
A) To demonstrate to investors that it believes its own stock is worth purchasing.
B) To obtain shares to reissue to employees as part of an employee stock plan.
C) To obtain shares that can be reissued as payment for purchase of another company.
D) To increase the number of shares of outstanding stock.
The use of passcodes is an example of which internal control principle?
A) Segregate duties
B) Restrict access
C) Document procedures
D) Independently verify
Which of the following statements about loan terminology is correct?
A) Loan covenants are the collateral provided by a borrower to a lender as security on a
loan.
B) A secured loan means that the borrower has a pre-approved line of credit backing the
debt.
C) Lenders can revise loan terms if a borrower violates a loan covenant.
D) All companies are able to establish lines of credit which will allow them to borrow
money as needed, up to a prearranged limit.
All of the following would be classified as current on a classified balance sheet except:
A) Common Stock
B) Cash
C) Accounts Payable
D) Supplies
A real estate management company buys land that contains an abandoned apartment
building for $4.5 million. It pays a construction company $500,000 to demolish the
apartment building. Which of the following is correct?
A) The company would record $5 million as the cost of the land.
B) The company would record $4.5 million as the cost of the land.
C) The company would record $4 million as the cost of the land.
D) The company would record $500,000 as demolition expense.
Complete the table below by filling in the Formula blank with the letter that
corresponds to the correct formula for each ratio and filling in the Interpretation blank
with the letter that corresponds to the interpretation provided. Not all ratio formulas and
interpretations will be used.
Ratio Formulas
A. 365 / Inventory Turnover
B. (Sales – Cost of Goods Sold) / Sales
C. Net Income / Sales
D. Net Operating Income / Interest Expense
E. (Net income – Preferred dividends) / Average number of common shares outstanding
F. Total Liabilities / Total Assets
G. Current stock price (per share) / Earnings per Share
H. (Net income – Preferred dividends) / Average common stockholders’ equity
Ratio Interpretations
A. The portion of sales that is attributable to merchandise profit.
B. Ability of a company to pay its short-term debts as they come due.
C. The percent of each sales dollar that is left over after covering costs and expenses.
D. How many times more than the current year’s earnings investors are willing to pay
for a company’s common stock
E. Ability of a company to quickly pay its short-term debts as they come due.
F. The portion of a company’s total financing that comes from debt.
G. The amount of income generated for each share of common stock owned by
stockholders
H. How effectively a company is using its assets to generate revenue.
I. The amount of income earned for each dollar of common stockholders’ equity.
Use the information above to answer the following question. What journal entry
(entries) will Darin prepare on October 1 to record this sale?
A) Debit Accounts receivable and credit Sales Revenue for $6,500
B) Debit Sales Revenue for $6,500 and credit Accounts Receivable and credit for
$6,500; debit Cost of Goods Sold and credit Inventory for $4,200
C Debit Cost of Goods Sold for $4,200, debit Gross Profit for $2,300, and credit Sales
Revenue for $6,500
D) Debit Accounts Receivable and credit Sales Revenue for $6,500; debit Cost of
Goods Sold and credit Inventory for $4,200
A corporation had a net increase in Retained Earnings of $65,000 for the year. The
corporation also paid $20,000 of cash dividends that had been declared in the previous
year. This year, the corporation declared $18,000 of dividends but has not paid them as
of year-end. Given this information, the net income for the current year must have been:
A) $63,000
B) $85,000
C) $65,000
D) $83,000
A company sells a bond with a face value of $10,000 and receives a premium of $800.
Using simplified effective-interest amortization, what journal entry is used to record the
issuance of the bonds?
A) Debit Cash for $10,800 and credit Bonds Payable, Net for $10,800
B) Debit Cash for $10,800, credit Bonds Payable, Net for $10,000, and credit Premium
on Bond Payable for $800
C) Debit Cash for $10,000, debit Interest Expense for $800, credit Bonds Payable, Net
for $10,000, and credit Premium on Bonds Payable for $800
D) Debit Cash for $10,000, debit Interest Expense for $800, credit Bonds Payable for
$10,000, and credit Premium on Bonds Payable for $800
The machine was originally purchased on January 1, 2016 for $40,000. The machine
was estimated to have a useful life of 5 years and no residual value. The company uses
straight-line depreciation. On December 31, 2017, the machine was sold for $25,000.
Required:
Part a. Determine the gain (loss) on disposal, if any.
Part a. Prepare the journal entry to record the sale.
Part b. Assuming that the company had used the double-declining balance method
instead of the straight-line method, explain how this would this have affected the gain
(or loss) on the sale. (Do not include any calculations.)
Use the information above to answer the following question. The amount of liabilities at
the end of the year is
A) $30,000.
B) $33,000.
C) $28,000.
D) $32,000.