Treasure Distributors, Inc. had no investments in short-term marketable securities prior
to 2012. During 2012, the company engaged in the following investment transactions:
At the end of 2012, the Toledo Company stock had a market value of $18 per share. A)
Prepare journal entries for the three transactions assuming the stock is classified as
trading securities.
B) Prepare the journal entry, if required, to recognize the investment’s year-end market
value. What is the income statement effect of the entry, if any?
C) How will this investment be reported on the company’s balance sheet at December
31, 2012?
D) Determine the realized gain or loss if Treasure Distributors, Inc. sells the remaining
Toledo Company stock for $18.50 per share in early 2013.
Tipper Company acquires Tacoma Company for $1,000,000. On the acquisition date,
Tacoma has the following balances: Assets
A) Record the entry Tipper Company will make to acquire Tacoma Company under
each of the following assumptions:
1) Tacoma Company sells Tipper Company its net assets and goes out of existence as a
corporation; and
2) Tacoma Company sells Tipper Company its stock but continues as a legal entity. B)
Explain the difference in the consolidated financial statements for the two companies.
Select the incorrect statement about worksheets.
a. Worksheets facilitate the preparation of financial statements.
b. The income summary account is used to determine net income for the period.
c. Two trial balances appear on the worksheet.
d. The income statement section precedes the retained earnings statement section.
Increase in the unearned revenue balance.
Use the following codes to indicate how the cash flow effect, if any, of each transaction
or event would be reported on a statement of cash flows if the operating activities
section is prepared using the indirect method. (Choices may be used more than once.)
a. Operating activity-add to net income
b. Operating activity-deduct from net income
c. Inflow from investing activity
d. Outflow from investing activity
e. Inflow from financing activity
f. Outflow from financing activity
g. Noncash investing and financing activity
h. Not reported on statement of cash flows
What is the effect on the accounting equation when a company recognizes rent as
earned that had previously been received in advance from customers?
a. Assets increase
b. Revenues decrease
c. Liabilities increase
d. Net income increases
Refer to the information provided for Dollar Town. Calculate the net cost of goods
purchased.
Dollar Town
Dollar Town is a merchandising company that uses the periodic inventory system.
Selected account balances are listed below:
a. $50,400
b. $54,000
c. $61,800
d. $70,200
Mercury Corporation reported the following information on its financial statements:
If the company uses the indirect method to prepare the operating activities section of
the statement of cash flows, what amount will be reported as net cash inflow from
operating activities for 2014?
a. $171,000
b. $215,000
c. $245,000
d. $183,000
You have determined that a company uses straight line depreciation. However, the
depreciation expense is different than you expected it to be. What could be the reason
for this difference?
a. different residual values
b. same residual values
c. same useful lives
d. Cannot be determined.
Most companies
a. agree that a current ratio of 0.75 is sufficient for business operations.
b. try to maintain protection from creditors by keeping only a small amount of cash
available.
c. are not concerned with the debt management ratios when cash flows are good.
d. strive for an appropriate balance between debt and equity financing.
Cash flows from acquiring and disposing of long-term assets are classified as
a. operating activities.
b. investing activities.
c. financing activities.
d. purchasing activities.
Debt investments that management intends to hold until the debt contract requires the
borrower to repay the debt in its entirety
Match the following terms to their correct definition:
a. equity security j. held-to-maturity securities
b. debt security k. amortized cost method
c. passive l. fair value method
d. significant influence m. unrealized gains and losses
e. control n. equity method
f. parent o. consolidation worksheet
g. subsidiary p. minority interest
h. trading securities q. business combination
i. available-for-sale securities r. Goodwill
Refer to Fabian Woodworks. Based on the information presented above, what method
of depreciation will maximize depreciation expense in 2013?
Fabian Woodworks This company purchased a truck at a cost of $12,000. The truck
has an estimated residual value of $2,000 and an estimated life of 5 years, or 100,000
hours of operation. The truck was purchased on January 1, 2012, and was used 27,000
hours in 2012 and 26,000 hours in 2013. a. straight-line
b. double-declining-balance
c. units-of-production
d. All methods produce the same expense in 2013.
When using the direct method to determine operating cash flows, how is the payment of
a cash dividend shown on the Statement of Cash Flows?
a. operating activity
b. investing activity
c. financing activity
d. noncash investing and financing activity
e. not reported on the statement of cash flows
Date which the total interest and principal must be repaid
Select the term that matches each of the following descriptions.
a. Interest
b. Maturity Value
c. Principal
d. Lender
e. Factoring
f. Fraction of year
g. Maturity date
h. Implicit
i. Maker
Exclusive right to conduct a certain type of business in some particular geographic area
Match these terms with their correct definition.
a. Franchise e. Organizational costs
b. Intangible operating assets f. Property, plant, and equipment
c. Natural resources g. Trademark
d. Operating assets h. Voluntary disposal
Refer to Landmark Company. If the company repurchased 500 shares of its common
stock for $20 per share, what is the amount of total stockholders’ equity after this
transaction?
Landmark Company
This company reported the following information in the stockholders’ equity section of
its December 31, 2014, balance sheet:
a. $1,510,000
b. $1,500,000
c. $1,494,000
d. $1,490,000
Refer to the information provided for Aaron Corporation. Calculate net income.
Aaron Corporation
Aaron Corporation is a merchandising company. Selected account balances are listed
below:
a. $144,500
b. $70,500
c. $65,500
d. $58,000
Marvin’s Manufacturing can invest in a new process, but will need to purchase new
equipment. The cost of the equipment is $75,000 and needs to be in place in 8 years.
The company invests the money at 8% interest compounded semiannually. How much
will they need to invest in order to have $75,000 in 8 years?
All treasury stock is outstanding.
Date on which shareholders receive dividends that have been declared.
A company’s bank statement balance shows that there is $4,230 in the checking account
at the end of the month. Comparing the company’s records with the bank statement
reveals several additional items, such as outstanding checks of $2,880, deposits in
transit of $1,280, an NSF check of $160, and a bank service charge of $40. Calculate
the adjusted cash balance for this checking account.
What is the relationship between the book value of a plant asset, the market value of the
plant asset, and the salvage value of a plant asset? Explain.
Great Dane Trailers has the following data available for its March 31, 2013, payroll:
Federal unemployment tax and state unemployment tax are also applicable at rates of
0.8% and 3.5%, respectively. All wages are subject to these taxes. Prepare the journal
entries to record the wages earned and payroll taxes.
