Financing Activities

Question 1

Prorok Music Inc. decides to sell an old piece of equipment and receives $5,000 cash for it. The original cost of the equipment was $50,000 and it had accumulated depreciation of $47,000 associated with it.

Which of the following items would be increased by the sale of the old equipment? (check all that apply)

ÿ        Total Assets

ÿ        Net Income

ÿ        Gain on Sale

ÿ        Accumulated Other Comprehensive Income

ÿ        Cash from Financing Activities

Question 2

In 2010, Stohs Seafood Inc. acquired Boychuk Barbies Ltd. in a hostile takeover. However, the expected synergies never materialized. In 2013, Stohs decided to write-off $45 million of Goodwill on the financial statements to recognize that the Goodwill had become impaired.

Which of the following items would be decreased by the impairment of Goodwill? (check all that apply)

ÿ        Goodwill

ÿ        Total Shareholders’ Equity

ÿ        Accumulated Other Comprehensive Income

ÿ        Cash from Financing Activities

ÿ        Accumulated Amortization

Question 3

In January 2013, Anhuth Bancorp acquired $100,000 of marketable securities and classified them as Available for Sale. On March 31, 2013, Anhuth prepared its10-Q and marked the securities down to their market value of $85,000. On April 4, 2013, Anhuth sold the securities for $93,000 cash.

Which of the following items would be increased by the sale of the marketable securities? (check all that apply)

ÿ        Cash from Investing Activities

ÿ        Loss on Sale of Investments

ÿ        Total Assets

ÿ        Net Income

ÿ        Marketable Securities

Question 4

On January 1, 2012, Bertsmith Enterprises borrowed $100,000 from a bank on a three-year mortgage with an interest rate of 5% per year. On December 30, 2012, Bertsmith paid the bank $36,721. Bertsmith uses US GAAP to prepare its financial statements.

Which of the following items would be decreased by the mortgage payment? (check all that apply)

ÿ        Net Income

ÿ        Cash from Operating Activities

ÿ        Mortgage Payable

ÿ        Total Shareholders’ Equity

ÿ        Interest Expense

Question 5

On January 1, 2013, Mamo Pty. issued a $100,000 face value bond for proceeds of $97,654. On June 30, 2013, Mamo sent checks to the bondholders for the first coupon payment on the bond.

Which of the following items would be increased by the coupon payment transaction? (check all that apply)

ÿ        Interest Expense

ÿ        Cash from Investing Activities

ÿ        Net Income

ÿ        Total Liabilities

ÿ        Total Assets

Question 6

In March 2012, Lavdiotis-Marathon Inc.. decided to retire an outstanding bond issue before maturity. The coupon rate on the bond issue was 5%. The bond was issued in 2011 at an effective interest rate of 6%. On the day Lavdiotis-Marathon retired the bond issue, the market interest rate was 4%.

Which of the following items would be decreased by the bond retirement transaction? (check all that apply)

Cash from Operating Activities

ÿ        Net Income

ÿ        Total Assets

ÿ        Bonds Payable

ÿ        Gain on Retirement

Question 7

During fiscal year 2012, Esnault Cie earned $10,000 of interest revenue on an investment in a tax-free municipal bond.

Which of the following items would be increased by the municipal bond revenue? (check all that apply)

ÿ        Pre-Tax Income

ÿ        Income Tax Expense

ÿ        Income Tax Payable

ÿ        Statutory Tax Rate

ÿ        Deferred Tax Liabilities

Question 8

At the end of December 2013, Lamb Co. had $10,000 of Deferred Tax Assets related to its Allowance for Doubtful Accounts. In response to low public approval ratings (and after a particularly boisterous holiday party), the US Congress passed a law to reduce the Federal Statutory Tax Rate from 35% to 20% on December 31, 2013. As a US company, Lamb had to immediately adjust the balance of its DTAs based on the new law.

Which of the following items would be decreased by the entry to adjust the balance in Deferred Tax Assets? (check all that apply)

ÿ        Total Assets

ÿ        Net Income

ÿ        Income Tax Expense

ÿ        Accumulated Other Comprehensive Income

ÿ        Cash from Financing Activities

Question 9

Due to years of poor management, Hoang Inc. had $350 million in Deferred Tax Assets due to NOL carryforwards in its various subsidiaries around the world. At the end of 2012, Hoang had a Valuation Allowance of $280 million related to these DTAs. In January 2013, Hoang hired Dakota Jordan to take over the Liechtenstein subsidiary, which quickly returned to profitability. At the end of 2013, Hoang decided that it was “more likely than not” that the Liechtenstein subsidiary would be profitable enough to use the NOLs in Liechtenstein by 2014 and made the appropriate adjustment to the Valuation Allowance.

Which of the following items would be increased by the adjustment to the Valuation Allowance? (check all that apply)

ÿ        Total Assets

ÿ        Net Income

ÿ        Income Taxes Payable

ÿ        Income Tax Expense

ÿ        Accumulated Other Comprehensive Income

Question 10

On November 12, 2013, Argyris Gyro Co. repurchased 10,000 shares of its own stock at a price of $20 per share. Argyris had originally issued the stock in 2010 at a price of $15 per share.

Which of the following items would be decreased by the stock repurchase transaction? (check all that apply)

ÿ        Total Shareholders’ Equity

ÿ        Treasury Stock

ÿ        Gain on Repurchase

ÿ        Net Income

ÿ        Cash from Operating Activities

Question 11

On September 26, 2013, Kotkovets Industries announced a 3-for-1 common stock split.

Which of the following items would be increased by the stock split? (check all that apply)

ÿ        Total Assets

ÿ        Shares Issued

ÿ        Common Stock

ÿ        Cash from Investing Activities

ÿ        Par Value

Question 12

On January 1, 2011, Stewart Tea Co. granted its CEO, Caroline Stewart, 1,000 stock options with an exercise price of $30 per share as compensation. The options vest over four years and expire after 10 years. The stock price on the grant date was $30 and the fair value of the option grant was $10 per share. On December 31, 2012, Stewart Tea Co. recorded a journal entry related to this option grant.

Which of the following items would be decreased by the December 31, 2012 journal entry? (check all that apply)

ÿ        Cash from Operating Activities

ÿ        Compensation Expense

ÿ        Cash from Financing Activities

ÿ        Additional Paid in Capital

ÿ        Net Income