Acct-221

Please answer all multiple choice questions and problems.

 

1. The following data are available for Two-off Company.

Increase in accounts payable $120,000
Increase in bonds payable 250,000
Sale of investments 150,000
Issuance of common stock 160,000
Payment of cash dividends 80,000

 

Net cash provided by financing activities is:

a. $180,000.

b. $360,000.

c. $320,000.

d. $330,000

 

 

 

2.        If a company reports a net loss, it

a.      will not be able to pay cash dividends.

b.      may still have a net increase in cash.

c.      will not be able to get a loan.

d.      will not be able to make capital expenditures.

 

 

 3.     A creditor would be most interested in evaluating which of the following ratios?

a.     Asset turnover

b.     Earnings per share

c.     Payout ratio

d.     Current asset ratio

 

4.         In preparing a statement of cash flows, a conversion of bonds into common stock will be reported in

a.   the financing section.

b    a separate schedule or note to the financial statements.

c.   the stockholders’ equity section.

d.   the “extraordinary” section.

 

 

5.         The current carrying value of Lane’s $800,000 face value bonds is $797,000. If the bonds are retired at 103, what would be the amount Lane would pay its bondholders?

a.   $797,000

b.   $800,000

c.   $820,910

d.   $824,000

 

6.         Which one of the following affects cash during a period?

a.   Recording depreciation expense

b.   Payment of an accounts payable

c.   Declaration of a cash dividend

d.   Write-off of an uncollectible account receivable

 

7.         Horizontal analysis evaluates a series of financial statement data over a period of time

a.   that has been arranged from the highest number to the lowest number.

b.   that has been arranged from the lowest number to the highest number.

c.   to determine which items are in error.

d.   to determine the amount and/or percentage increase or decrease that has taken place.

 

8. The net income reported on the income statement for the current year was $220,000. Depreciation recorded on plant assets was $35,000. Accounts receivable and inventories increased by $2,000 and $8,000, respectively. Prepaid expenses and accounts payable decreased by $2,000 and $12,000 respectively. How much cash was provided by operating activities?

a. $200,000

b. $220,000

c. $235,000

d.$255,000

 

9.         Which one of the following is not a characteristic generally evaluated in analyzing financial statements?

a.   Liquidity

b.   Profitability

c.   Marketability

d.   Solvency

 

 

10.       A major disadvantage resulting from the use of bonds is that

a.   earnings per share may be lowered.

b.   bondholders have voting rights.

c.   taxes may increase.

d.   interest must be paid on a periodic basis.

 

 

 

11.     If sixty $1,000 convertible bonds with a carrying value of $70,000 are converted into 9,000 shares of $5 par value common stock, the journal entry to record the conversion is

a.   Bonds Payable …………………………………………………………….        70,000

Common Stock …………………………………………………..                             70,000

 

b.   Bonds Payable …………………………………………………………….        60,000

Premium on Bonds Payable ………………………………………….        10,000

Common Stock …………………………………………………..                             70,000

 

c.   Bonds Payable …………………………………………………………….        60,000

Premium on Bonds Payable ………………………………………….        10,000

Common Stock …………………………………………………..                             45,000

Paid-in Capital in Excess of Par …………………………….                             25,000

 

d.   Bonds Payable …………………………………………………………….        70,000

Discount on Bonds Payable ………………………………….                             10,000

Common Stock …………………………………………………..                             45,000

Paid-in Capital in Excess of Par …………………………….                             15,000

 

 

12.       When bonds are converted into common stock,

a.   the market price of the stock on the date of conversion is credited to the Common Stock account.

b.   the market price of the stock and the bonds is ignored when recording the conversion.

 

c.   the market price of the bonds on the date of conversion is credited to the Common Stock account.

d.   gains or losses on the conversion are recognized.

 

 

13.       If a stockholder receives a dividend that reduces retained earnings by the fair market value of the stock, the stockholder has received a

a.   large stock dividend.

b.   cash dividend.

c.   contingent dividend.

d.   small stock dividend

 

 

14.       If bonds are originally sold at a discount using the straight-line amortization method:

a.   Interest expense in the earlier years of the bond’s life will be less than the interest to be paid.

b.   Interest expense in the earlier years of the bond’s life will be the same as interest to be paid.

c.   Unamortized discount is subtracted from the face value of the bond to determine its carrying value.

d.    Unamortized discount is added to the face value of the bond to determine its carrying value.

 

 

15.       Each of the following is added to net income in computing net cash provided by operating activities except

a.   amortization expense.

b.   an increase in accrued expenses payable.

c.   a gain on sale of equipment.

d.   a decrease in inventory.

 

 

16        All of the following statements about short-term investments are true except:

a.   Short-term investments are also called marketable securities

b.   Trading securities are always classified as short-term investments.

c    Short-term assets must be readily marketable.

d.   Short-term investments are listed below accounts receivable in the current asset section of the balance sheet.

 

 

17.       If bonds with a face value of $150,000 are converted into common stock when the carrying value of the bonds is $135,000, the entry to record the conversion will include a debit to

a.   Bonds Payable for $150,000.

b.   Bonds Payable for $135,000.

c.   Discount on Bonds Payable for $15,000.

d.   Bonds Payable equal to the market price of the bonds on the date of conversion.

 

18.       Penny Company owns 20% interest in the stock of Lynn Corporation. During the year, Lynn pays $25,000 in dividends, and reports $200,000 in net income. Penny Company’s investment in Lynn will increase by

a.   $25,000.

b.   $40,000.

c.   $45,000.

d.   $35,000.

 

 

 

19.       Which of the following transactions does not affect cash during a period?

a.   Write-off of an uncollectible account

b.   Collection of an accounts receivable

c.   Sale of treasury stock

d.   Exercise of the call option on bonds payable

 

 

 

 

20.       If the cost of an available-for-sale security exceeds its fair value by $40,000, the entry to recognize the loss

a.   is not required since the share prices will likely rebound in the long run.

b.   will show a debit to an unrealized loss account that is deducted in the stockholders’ equity section of the balance sheet.

c.   will show a debit to an expense account.

d.   will show a credit to a contra-asset account that appears in the stockholders’ equity section of the balance sheet.

 

 

 

 

 

 

 

PROBLEM 1

James (investor) Corporation acquires 45% of the common shares of Heck (investee) Company for $200,000 on January 1, 2010.  For 2010, Heck reports net income of $70,000 and paid dividends of $20,000.

Instructions

(a)   Prepare the entries for these transactions that James Corporation would make in the space provided below.

Compute the balance in the stock investment account of James Corporation

 

 

(a)

Date Account Debit Credit
 

 

     
 

 

     
 

 

     
 

 

     
       
 

 

     
 

 

     
 

 

     
 

 

     
 

 

     
 

 

     
 

 

     

 

 

 

(b)

 

 

 

 

 

 

 

 

 

Table of Contents

PROBLEM 2

On January 1, Porter Corporation issued $500,000, 8%, 5-year bonds at 105. Interest is payable semiannually on July 1 and January 1.

 

 

Instructions

Prepare journal entries to record the

(a)   Issuance of the bonds.

(b)   Payment of interest on July 1, assuming no previous accrual of interest.

(c)   Accrual of interest on December 31.

 

 

 

Date Account Debit Credit
 

 

     
 

 

     
 

 

     
 

 

     
       
 

 

     
 

 

     
 

 

     
 

 

     
 

 

     
       
 

 

     

 

 

 

 

PROBLEM 3

On January  1, Porter Corporation issued $300,000, 8%, 5-year bonds at 96. Interest is payable semiannually on July 1 and January 1.

 

Instructions

Prepare journal entries to record the

(a)   Issuance of the bonds.

(b)   Payment of interest on July 1, assuming no previous accrual of interest.

(c)   Accrual of interest on December 31.

 

 

Date Account Debit Credit
 

 

     
 

 

     
 

 

     
 

 

     
       
 

 

     
 

 

     
 

 

     
 

 

     
 

 

     
       
 

 

     

 

 

 

 

 

 

 

 

 

 

 

 

 

PROBLEM 4

 

Here are comparative balance sheets for Tom Jones Company.

 

 

 

TOM JONES COMPANY
Comparative Balance Sheets
December 31
Assets 2010   2009
Cash $72,710   $22,001
Accounts receivable 85,652   76,161
Inventories 169,800   188,601
Land 75,070   100,300
Equipment 259,540   200,580
Accumulated depreciation (65,861)   (32,198)
     Total $596,911   $555,445
       
Liabilities and Stockholders’ Equity    
Accounts payable $39,209   $46,636
Bonds payable 151,530   203,230
Common stock ($1 par) 214,140   175,750
Retained earnings 192,032   129,829
     Total $596,911   $555,445

 

Additional information:

 

  1. Net income for 2010 was $101,690, depreciation was $33,663.
  2. Cash dividends of $39,487 were declared and paid.
  3. Bonds payable amounting to $51,700 were redeemed for cash $51,700.
  4. Common stock was issued for $38,390 cash.
  5. Land was sold for $25,230 cash, there was no loss.
  6. Equipment was purchased for $58,960 cash.

 

Instructions

Prepare a statement of cash flows for 2010 using the indirect method. Use the template provided on the next page.

 

TOM JONES COMPANY

Statement of Cash Flows

For the Year Ended December 31, 2010

 
 

Cash flows from operating activities

 
Net income

 

   
Adjustments to reconcile net income to

net cash provided by operating activities:

 
 

 

     
 

 

     
 

 

     
       
 

 

     
            Net cash provided by operating activities

 

     
 

Cash flows from investing activities

 
     
     
                        Net cash provided by investing activities    
 

Cash flows from financing activities

   
     
     
     
                        Net cash used by financing activities    
Net Increase in cash    
Cash at beginning of period    
Cash at end of period    
     

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