Multiple Choice
1. A company received $25,000 for 1,000 shares of $5 par value stock. Which of the following is the appropriate journal entry to record this transaction?
A.
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Cash..........................................................
Common stock...........................
Additional paid-in capital........
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25,000
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5,000
20,000
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B.
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Common stock.............................................
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5,000
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|
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Additional paid-in capital..........................
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20,000
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|
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Cash....................................................
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25,000
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C.
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Cash................................................................
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25,000
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|
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Common stock...................................
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25,000
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D.
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Common stock.............................................
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25,000
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|
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Cash...................................................
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25.000
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2. Treasury stock held by a corporation:
A. Is subtracted from total stockholders' equity on the balance sheet.
B. Receives dividends.
C. Has voting rights.
D. Is included in assets.
3. Parkway Corporation has $200,000 of 6%, preferred stock outstanding which carries a cumulative dividend preference. Parkway also has 10,000 shares of $1 par value common stock outstanding. In the company's first year of operations, no dividends were paid. During the second year, Parkway paid cash dividends of $18,000. The dividend should be distributed as follows:
A. $12,000 preferred; $6,000 common.
B. $8,000 preferred; $10,000 common.
C. $0 preferred; $18,000 common.
D. $18,000 preferred; $0 common.
4. A company had a beginning balance in retained earnings of $65,000. Net income for the current year was $122,000 and cash dividends of $8,500 were paid. The ending balance in retained earnings equals:
A. $113,500.
B. $178,500.
C. $ (48,500).
D. $187,000.
5. A corporation issued 50,000 shares of its $1 par value common stock in exchange for land with a market value of $64,000. The entry to record this transaction would include a:
A. Credit to Additional paid-in capital for $14,000.
B. Credit to common stock for $64,000.
C. Debit to land for $50,000.
D. Debit to common stock for $50,000.
6. The three key elements of a bond include all of the following except:
A. Maturity date.
B. Stated interest rate.
C. Face value.
D. Bond holder.
7. A discount on bonds payable is recorded when:
A. A company issues bonds with a stated rate that is more than the market rate.
B. A company issues bonds with a stated rate that is less than the market rate.
C. A company issues bonds with a stated rate that is equal to the market rate.
D. Bond proceeds are greater than the face value.
8. Which of the following expenses is recorded on an operating lease?
A. Depreciation expense
B. Interest expense
C. Rent expense
D. Other expense
9. Which of the following describes a bond that is issued without security?
A. Serial
B. Debenture
C. Callable
D. Convertible
10. A company originally issued bonds a face value of $100,000. The bonds were retired early and the company paid $110,093 for the bond retirement. The company should record:
A. A gain on bond retirement of $10,093.
B. A loss on bond retirement of $10,093.
C. No gain or loss on bond retirement.
D. Cash paid of $100,000.
11. Which of the following methods is used to account for long-term investments in equity securities when the investor has a significant influence?
A. Market value method
B. Investment method
C. Equity method
D. Consolidation method
12. On November 1, 2010, Montel Inc. purchased a $100,000, 6% bond. The bond pays interest annually on October 31 and will mature in five years on October 31, 2015. Management plans to hold the bonds until maturity. What is the appropriate adjusting journal entry to record the accrued interest as of December 31, 2010?
A.
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Interest Revenue.............................................
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1,000
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Interest Receivable............................
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1.000
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B.
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Interest Receivable...........................................
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1,000
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Interest Revenue.................................
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1,000
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C.
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Interest Revenue..............................................
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500
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Interest Receivable...............................
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500
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D.
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Interest Receivable ........................................
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6,000
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Interest Revenue...................................
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6,000
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13. Deuce Corporation owns 45% of the outstanding voting shares of Ace Corporation. Ace pays a total of $123,000 in cash dividends to its shareholders. Deuce's entry to record the receipt of dividends should include a:
A. Credit to Cash for $123,000.
B. Credit to Investments for $55,350.
C. Debit to Investment Income for $123,000.
D. Debit to Investments for $55,360.
14. When a company owns more than 50% of the outstanding voting shares of another company, which of the following is true?
A. The investment should be accounted for using the equity method.
B. The results of the operations of the two companies should be reported together in consolidated financial statements.
C. The investments should be accounted for using the market value method.
D. The investments should be accounted for using the amortized cost method.
15. If Elm Company owns 15% of Maple Company and intends to hold the stock for at least four years. At the end of the current year, how would Elm Company report its investment in Maple Company?
A. At original cost in the current assets section of the balance sheet.
B. At the year end market value in the current assets section of the balance sheet.
C. At original cost under long-term assets on the balance sheet.
D. At the year end market value in the long-term assets section of the balance sheet.
16. The ____________ method for reporting cash flows from operating activities on the statement of cash flows begins with net income.
A. Direct
B. Cash flow
C. Operating
D. Indirect
17. Madison Company has the following cash flows for the current year:
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Payments for wages
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($1,000)
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Receipt for inventory sold
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17,000
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Sale of equipment
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8,000
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Payment of dividends
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(10,000)
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Purchased land
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(80,000)
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Sale of investments
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50,000
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Loan proceeds
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18,000
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Issuance of stock
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20,000
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Interest paid
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(1,000)
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Payment on principal
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(15,000)
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What is the net cash flows provided by (used for) investing activities?
A. $13,000
B. $22,000
C. ($22,000)
D. $5,000
18. Cash flows from interest received should be reported on the statement of cash flows under:
A. Investing activities.
B. Financing activities.
C. Owner's activities.
D. Operating activities.
19. The following information was taken from a company's records for the plant and equipment account:
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Plant and Equipment
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Beg. bal.
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25,000
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Purchases
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57,000
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Sale
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34,000
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End bal.
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48,000
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What would appear on the statement of cash flows for the activity in this account?
A. Only proceeds from sale of plant and equipment of $34,000.
B. Net change in plant and equipment account $23,000.
C. Proceeds from sale of plant and equipment of $34,000 and payment for purchase of plant and equipment of ($57,000).
D. Only payment for purchase of plant and equipment ($57,000).
20. Which of the following does not represent information provided by the free cash flow measure?
A. A company's ability to make additional capital investments without external financing.
B. A company's ability to generate a profit on their investments.
C. A company's ability to pay down debt or repurchase stock.
D. A company's ability to pay future dividends.
21. Expressing each financial statement item as a percentage of another amount on that statement is known as:
A. Vertical analysis.
B. Horizontal analysis.
C. Ratio analysis.
D. Risk analysis.
22. Which of the following represents the calculation for determining the year-to-year percentage change for horizontal analysis?
A. [(Current year amount - prior year amount)/prior year amount] x 100
B. [(Prior year amount - current year amount)/prior year amount] x 100
C. [(Prior year amount - current year amount)/current year amount] x 100
D. [(Current year amount - prior year amount)/current year amount] x 100
23. Which ratio can be used to assess how much profit was made, on average, on each dollar of sales, after deducting the cost of goods sold?
A. Net profit margin.
B. Return on sales ratio.
C. Gross profit percentage.
D. Earnings per share.
24. A company had a stock price of $45 per share, earnings per share of $0.75, and dividends per share of $0.20. What is the company's price/earnings ratio?
A. 1.7
B. 60.0
C. 225.0
D. 81.8
25. A company reported total sales of $1,200,000 and $1,322,000 for the years 2010 and 2011 respectively. What is the year-over-year percentage increase in sales for 2011?
A. 10.2%
B. 9.2%
C. 108.4%
D. 122.0%
26. The December 31, 2014 stockholders' equity section of Cedar, Inc. is as follows:
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Preferred stock, 5%, $20 par, 600 shares authorized, 200 shares issued
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$4,000
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Additional paid-in capital - preferred
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8,000
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Common stock, $1 par, 4,000 shares authorized, 1,000 shares issued
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1,000
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Additional paid-in capital - common
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10,000
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Retained earnings
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22,000
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Total
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$45,000
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Treasury stock (50 common shares at cost)
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8,000
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Total Stockholders' Equity
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$37,000
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The market price of the common stock on December 31, 2014, was $10 per share. Answer the following independent questions:
1. What will the balance in the retained earnings account be immediately after the declaration of a 2-for-1 stock split?
2. If a cash dividend of $1 per share was declared to both common and preferred shareholders, what will the balance be in retained earnings immediately after the declaration?
3. What balance will be in the retained earnings account immediately after the declaration of a 20% common stock dividend on December 31, 2010?
27. A corporation had 50,000 shares of $2 par value common stock outstanding on March 1. On that date the board of directors approved a 10% stock dividend when the market value for the stock was $13 per share. What is the required journal entry to record this dividend?
28. The following stockholders' equity information is available for Danner Corporation regarding its common stock:
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Par value
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$1
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Number of shares outstanding
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132,000
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Number of shares authorized
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500,000
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Number of shares of treasury stock
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20,000
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Current selling price
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$18
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Required:
1. What is the maximum number of new shares that Danner Corporation can issue?
2. Prepare the journal entry for the sale of 30,000 additional shares at the current selling price.
29. On January 1, 2014, Mars Corporation issued $900,000, 5%, 5-yearbonds dated January 1, 2014, at 98. The bonds pay semiannualinterest on January 1 and July 1. The company uses thestraight-line method of amortization and has a calendar year end.
INSTRUCTIONS:
Prepare all the journal entries that Mars Corporation would make related to this bond issue through January 1, 2015. Be sure to indicate the date on which the entries would be made.
30. Dane Corporation had the following comparative current assets and current liabilities:
Dec. 31, 2014 Dec. 31, 2013
-------------- -------------
Current assets
Cash $ 60,000 $ 40,000
Marketable securities 50,000 10,000
Accounts receivable 70,000 100,000
Inventory 100,000 90,000
Prepaid expenses 30,000 20,000
------------- ------------
Total current assets $310,000 $260,000
Current liabilities
Accounts payable $140,000 $100,000
Salaries payable 50,000 30,000
Income tax payable 20,000 10,000
------------- ------------
Total current liabilities $210,000 $140,000
During 2014, credit sales and cost of goods sold were $800,000 and $400,000, respectively.
INSTRUCTIONS
Compute the following liquidity measures for 2014 (round to 2 decimal places) SHOW ALL CALCULATIONS:
1. Current ratio.
2. Working capital.
3. Acid-test ratio.
4. Receivables turnover.
5. Inventory turnover.
31. The following information related to comparative balance sheets is available for Metro Corporation:
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Increase in Cash
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50,000
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Decrease in accounts receivable
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(15,000)
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Decrease in Inventory
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(25,000)
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Increase in prepaid insurance
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11,000
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Increase in accounts payable
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10,000
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Additional selected information from the income statement was also provided:
1. Depreciation expense of $20,000
2.A loss on sale of equipment $3,500
3. Net income $122,000
Prepare the cash flows from operating activities using the indirect method.