Tail Winds Corporation acquired the following equity securities during 2013:
The company’s investment in these two companies is passive and classified as
available-for-sale. During 2013, TICO paid a dividend of $1.10 per share and Thankful
paid a dividend of $1.75 per share. At December 31, 2013, the market value of these
securities was $79 per share for TICO and $23 per share for Thankful. A) Prepare
journal entries to record the purchase of these two investments and the receipt of
dividends.
B) Calculate the market value of the company’s short-term investment portfolio at
December 31, 2013.
C) Prepare the necessary journal entry at December 31, 2013.
D) How should these investments be disclosed in the company’s December 31, 2013,
financial statements?
Which of the following profitability ratios would be determined through a common size
vertical analysis of the income statement?
a. gross profit percentage
b. return on assets
c. return on equity
d. earnings per share
In July of 2015, the accountant discovered an error affecting the 2014 computation of
amortization expense related to the company’s patent. As a result of this error, 2014
amortization expense was understated by $21,000 and 2014 net income after taxes
(which are paid at a rate of 30%) was overstated by $14,700.
Which of the following statements is true regarding vertical analysis?
a. Cross-sectional analysis compares financial data for a single entity over time.
b. Common size financial statements are used to compare companies of different sizes.
c. Trend analysis compares a company’s financial data to industry averages.
d. Time series analysis is effective for comparison of different companies over time.
Refer to Ladder Distributors. What is the total amount of stockholders’ equity that will
be presented on the company’s March 31, 2015, balance sheet?
Ladder Distributors
The stockholders’ equity section of the December 31, 2014, balance sheet is provided
below:
Assume that all of the 20,000 shares of stock that was issued as of December 31, 2014,
was issued for $42 per share. On March 1, 2015, the company reacquired 4,000 shares
of its common stock for $50 per share.
a. $1,340,000
b. $1,372,000
c. $1,708,000
d. $1,740,000
Many companies use MACRS (Modified Accelerated Cost Recovery System)
depreciation for
a. financial reporting purposes and a different method for tax purposes.
b. financial reporting purposes because depreciation is not allowed for tax purposes.
c. tax purposes because it results in a larger net income in the early years of a plant
asset’s life.
d. tax purposes because of a desire to report higher expenses in early years in order to
pay lower taxes.
Geiss Motorsports sold 50 motorbikes for $1,000 each. The bikes carry a 2-year
warranty for repairs. Estimates indicate that repair costs will average 2% of the total
selling price. What is the amount that would be recorded in the estimated warranty
liability account as a result of selling the bikes?
a. $1,000
b. $ 500
c. $ 20
d. No liability should be recorded until the bikes are returned for repairs.
Loss on disposal of plant asset Identify where each of the following accounts would be
reported on the financial statements. (Choices may be used more than once.)
a. Balance Sheet-Property, Plant, and Equipment
b. Balance Sheet-Intangible Assets
c. Balance Sheet-Current Assets
d. Balance Sheet-Other Assets
e. Income Statement-Operating Section
f. Income Statement-Other Revenue and Expense Section
Refer to Labor Finders, Inc. The company’s 2015 total payout ratio is reported as
Labor Finders, Inc.
Selected data from the company’s financial statements are presented below:
a. 94.67%.
b. 105.19%.
c. 28.00%.
d. 9.47%.
Which of the following is an internal event?
a. Caddie salaries are paid by a country club.
b. Dividends are distributed to a company’s stockholders.
c. Potatoes used to make French fries in a fast-food restaurant are purchased.
d. Products are transferred from the assembly area to the painting station.
A capital lease liability would appear on the balance sheet as
a. stockholder’s equity.
b. long-term liability.
c. current asset.
d. long-term asset.
Credit entries are used to
a. increase asset accounts.
b. increase liability accounts.
c. increase expense accounts.
d. increase dividends.
A collection of all the individual financial statement accounts that a company uses.
Match the following terms with their correct definition.
a. Account f. Debit
b. Accounting cycle g. Event
c. Chart of accounts h. General ledger
d. Cost vs. benefit i. Journal
e. Credit j. Trial balance
A(n) ____________________ occurs when the cash received from selling an item of
property, plant, and equipment is greater than the book value of the asset sold. It is also
shown in the operating activities section of the statement of cash flows prepared using
the indirect method.
____________________ are receivables that generally specify an interest rate and a
maturity date at which any interest and principal must be repaid.
How are research and development costs reported in the financial statements? Why is
this treatment required?
The current ratio is calculated as follows: Current Assets / Current Liabilities.
What are accrued liabilities, and what are some examples of accounts that would be
classified as accrued liabilities in the current liabilities section of a balance sheet?
An accounting system must be computerized in order to ensure the company has proper
internal control.
The ____________________ side, or left-side, of a liability account is used to record
decreases in the account balance.