When shareholders are entitled to stock dividends in amounts equal to fractional units,
corporations issue additional shares for whole units plus cash equal to the market value
of the fractional units.
A line of credit is a written promise to repay the loan principal plus interest at a specific
future date.
When a stock dividend is less than 20% of the outstanding shares, generally accepted
accounting principles require the stock dividend to be accounted for at its par value.
Advance cash payments for future services to be received create noncash assets in the
balance sheet.
A stock split can be accounted for as a large stock dividend.
The ending balance in retained earnings appears on the income statement.
If the credit portion of a journal entry is posted but the debit side is not, liabilities will
always be overstated.
If a company normally sells merchandise for $5,000, but allows a $200 trade discount,
then the company would state that its revenue on this transaction was $4,800.
The auditor’s opinion is also called an independent opinion.
An entity’s ability to meet its immediate financial obligations as they become due is
known as profitability.
Expenditures are purchases of goods or services, whether for cash or on credit.
A balance sheet is dated for a period of time, such as “for the year ended December 31,
20X2.”
Brandy Bottling signs an agreement on January 1, 20X4, to lease office equipment for a
5-year period. The estimated useful life of the office equipment is 8 years. The market
value of the office equipment is $235,000. The lease agreement calls for lease payments
of $55,040. The first payment is due on December 31, 20X4, all subsequent payments
are made each December 31 thereafter. The interest rate stated in the lease agreement is
8%. The present value of the lease payments is $219,758. At the end of the lease term,
the equipment reverts back to the lessor.
Prepare journal entries to record
a. the lease agreement on January 1, 20X4.
b. the first lease payment on December 31, 20X4.
c. the amortization of the leased asset on December 31, 20X4.
A long term contract to provide services for New York City was awarded to Mason
Technology on December 30, 20X1. The 4-year contract is set for $160 million and
payment is certain. Services are to be provided evenly over 20X2 through 20X5.
Progress measures are dependable, the contract obligations are explicit and the buyer
and seller are expected to meet their obligations.
A) In 20X2, Mason should recognize no revenue.
B) In 20X2, Mason should recognize $160 million in revenue.
C) In 20X3, Mason should recognize no revenue.
D) In 20X3, Mason should recognize $40 million in revenue.
E) In 20X3, Mason should recognize $160 million in revenue.
Compatibility Services acquired an $80,000 machine on January 1, 20X3. The machine
is estimated to have a useful life of 8 years, and a residual value of $4,000. For
units-of-production depreciation purposes, the machine is expected to produce 400,000
units. If Compatibility Services uses double-declining-balance depreciation, what is the
net book value of the machine on December 31, 20X5?
A) $ -0-
B) $ 30,000
C) $ 33,750
D) $40,000
E) $46,250
The value today of a future cash inflow or outflow is the
A) present value.
B) annuity value.
C) future value.
D) rate of return.
E) estimated return.
When comparing preferred stock to common stock and bonds, which of the following is
incorrectly stated?
A) Preferred stock and bonds have a specific maturity date.
B) Both bonds and preferred stock pay a specific return to the investor.
C) Both preferred stock and common stock can pay dividends.
D) Both preferred stock dividends and common stock dividends become liabilities only
when the board of directors declares them.
E) Common stock, and typically preferred stock, have indefinite lives.
Which of the following statements is considered incorrect?
A) Depreciation methods provide a systematic way to expense the cost of an asset,
although this expense is not a negative cash flow.
B) Depreciation is an allocation of the original cost of an asset to the periods in which
the asset is used.
C) Accumulated depreciation is the summation of the amount of the original cost of an
asset already written off to expense in prior periods.
D) Accumulated depreciation is not a pile of cash waiting to be used.
E) Depreciation expense provides a means of setting aside cash for the replacement of
an asset.
When prices and costs are rising, most companies that use LIFO
A) have a higher inventory value than they would under FIFO.
B) report their LIFO reserve on the balance sheet or in the footnotes.
C) have higher total assets than they would under FIFO.
D) have higher stockholders’ equity than they would under FIFO.
E) are very rare.
Chorba Chocolates had the following account balances on its balance sheets at
December 31, 2012 and 2011, respectively:
Depreciation expense for 2012 was $7,000. There were no gains or losses on the 2012
income statement. One fixed asset with an original cost of $8,000 was sold during
2012.What would be the net cash flow from investing activities for Chorba Chocolates
in 2012?
A) ($2,000)
B) ($8,000)
C) ($13,000)
D) ($15,000)
E) ($21,000)
Caltrac Company had net cash used by operating activities of $(150,000), had proceeds
from the sale of a stock investment of $100,000, and incurred capital expenditures of
$50,000. What is Caltrac Company’s free cash flow?
A) $100,000
B) $(50,000)
C) $(200,000)
D) $0
E) $50,000
Lorna Company has the following data available:
What is the working capital for Lorna Company in 2X13? Has the working capital
improved or not improved since 2X12?
A) $125, improved
B) $100, improved
C) $100, not improved
D) $60, improved
E) $125, not improved
Flores Materials gave inventory to Jared Industries to settle short-term credit for
$4,000. Which of the following is the journal entry to be made by Flores Materials?
On January 1, 20X9, Stack ’em Up acquired a $550,000 face value bond. The bond has
a 10% coupon rate and pays interest semi-annually every June 30 and December 31.
The bond matures in 10 years. Stack ’em Up acquired the bond at a price that would
yield 8%. Using the present value tables, determine the balance sheet presentation of
the bond on the December 31, 20X9, balance sheet of Stack ’em Up. The company
plans to hold the bond until maturity. The company uses the effective interest method of
discount or premium amortization.
On September 1, 2X12, Yelter Oil purchased trading securities consisting of common
and preferred stocks. The portfolio consists of:
What will be the net gain or loss recorded on Yelter Oil’s income statement for the
quarter ended September 30, 2X12?
The issuance of 1,000, $.01 par value shares of common stock at $5 per share would
include which of the following journal entries?
Nunn Industries had the following items on its December 31, 20X3, balance sheet:
Prepare the current liabilities section of Nunn Industries’ balance sheet.
Presented below are the balance sheets of Blanco, Inc. and Stalle Company at January
1, 2X13:
On January 1, 2X13, Stalle Company acquired 70% of the outstanding common stock
of Blanco, Inc., for $119 in cash. Assume the book value of Blanco’s assets and
liabilities equals the market value.
What journal entry will Blanco, Inc. make on January 1, 2X13?
Prepare a classified balance sheet dated December 31, 2012 given the following
account balances of Helder Company.
Listed below are several accounts from Process Improvements, Inc. for the year ended
December 31, 2012. Next to each account indicate its normal balance and whether you
would need to debit or credit the account to decrease it. Use DR for debit and CR for
credit.
