financial accounting
egemen.ktu
FinancialAcctg_Finalexam.docxFinal Exam
Financial Accounting
12/05/2018
Name: __________________
Point: ___________________
1. Greer Company purchased land for $256,000. Additional costs include a $15,300 fee to a broker, a survey fee of $2,400, $1,750 to construct a fence and a legal fee of $8,500. What is the cost of the land?
|
|
a. |
$256,000 |
|
|
b. |
$282,200 |
|
|
c. |
$284,600 |
|
|
d. |
$281,000 |
2. Shidan Apartments purchased an apartment building to rent to university students on November 18, 2016. The following costs were incurred during 2016, before the tenants moved in:
|
Purchase price of the building |
$220,000 |
|
Purchase price of the land |
100,000 |
|
Transfer taxes |
10,000 |
|
Interest incurred on the mortgage loan to purchase |
4,000 |
|
Attorney and real estate agent's fees |
15,000 |
|
Repave the parking lot |
6,000 |
How much will Shidan Apartments record as an asset?
|
|
a. |
$320,000 |
|
|
b. |
$345,000 |
|
|
c. |
$351,000 |
|
|
d. |
$355,000 |
3. Cranberry Corp. constructed equipment to manufacture a new line of home products during 2016. The average balance of accumulated expenditures on the equipment during September through December 2016 was $500,000. Construction started on September 1, 2016 and was still in progress at the end of 2016. If Cranberry borrowed $500,000 for one year on September 1, 2016, to finance the construction, and the interest rate on the construction loan was 6%, how much interest can Cranberry capitalize as part of the equipment cost for 2016?
|
|
a. |
$ -0- |
|
|
b. |
$10,000 |
|
|
c. |
$20,000 |
|
|
d. |
$30,000 |
|
Wexford Co.
Wexford Co. purchased a new delivery truck at the beginning of 2016. The truck has a cost of $37,000, an estimated life of 5 years, and an estimated residual value of $7,000. A full year's depreciation expense is to be recorded in 2016. The truck was driven 20,000 miles during 2016 and 24,000 miles during 2017. The number of expected miles over five years is 100,000. |
|
|
|
4. Refer to information for Wexford Co. By what amount would double-declining-balance depreciation exceed straight-line depreciation over the 5-year life of the truck?
|
|
5. Refer to information for Wexford Co. What is the amount by which double-declining-balance depreciation exceeds straight-line depreciation over the 5-year life of the truck?
|
6. Blanket Airlines acquires a new aircraft. It has an estimated life of 15 years and should be used for 15,000 hours of flight. What is the most appropriate method of depreciation to properly match revenues and expenses?
|
|
a. |
Double-declining-balance |
|
|
b. |
Revenue expenditure method |
|
|
c. |
Straight-line |
|
|
d. |
Units-of-production |
7. Ramirez Stores purchased a trademark at the beginning of 2016 for $340,000. Economic benefits were expected for 10 years, but the trademark's legal life was 20 years. Also, during 2016, Ramirez incurred research and development costs of $200,000. The book value of the trademarks at December 31, 2016, is
|
|
a. |
$506,000 |
|
|
b. |
$306,000 |
|
|
c. |
$323,000 |
|
|
d. |
$486,000 |
8. The accounting life of intangible assets is determined by
|
|
a. |
their legal lives. |
|
|
b. |
their useful lives. |
|
|
c. |
their legal lives or useful lives, whichever is shorter. |
|
|
d. |
the tax life mandated by the IRS. |
9. If a company purchases $3,200 worth of inventory with terms of 3/10, n/30 on March 3 and pays March 12, then the amount paid to the seller would be
|
|
a. |
$96 |
|
|
b. |
$3,104 |
|
|
c. |
$3,200 |
|
|
d. |
None of these choices |
10. A bank loaned Darden Company $10,000 on a 1-year, 6% note, but deducted the interest in advance. The journal entry made by Darden to record receipt of the cash would include a
|
|
a. |
an increase in Cash for $9,400 |
|
|
b. |
an increase in Cash for $600 |
|
|
c. |
a decrease in Notes Payable for $10,600 |
|
|
d. |
a decrease in Notes Payable for $9,400 |
11. On November 1, 2016, Brownsville Co. borrowed $80,000 from State Bank and signed a 12%, six-month note payable, all due at maturity. The interest on this loan is stated separately. At December 31, 2016, the adjusting entry for this note includes a:
|
|
a. |
Debit to Interest Expense for $3,200. |
|
|
b. |
Credit to Notes Payable for $1,600. |
|
|
c. |
Credit to Cash for $4,800. |
|
|
d. |
Credit to Interest Payable for $1,600. |
12. Executive, Inc. has a weekly payroll of $10,000 for a 5-day workweek, Monday through Friday. If December 31, the last day of the accounting year, falls on Thursday, Executive would make an adjusting entry that would
|
|
a. |
increase Wages Expense $8,000. |
|
|
b. |
decrease Wages Payable $2,000. |
|
|
c. |
decrease Cash $8,000. |
|
|
d. |
increase Wages Payable $2,000. |
13. Which of the following statements regarding contingencies is true?
|
|
a. |
Contingencies that are probable and not estimable appear on the balance sheet. |
|
|
b. |
Contingencies that are probable and not estimable are disclosed in the notes to the financial statements. |
|
|
c. |
Contingencies that are remote but estimable are disclosed in the notes to the financial statements. |
|
|
d. |
Contingent assets are recorded on the balance sheet, but not in the notes to the financial statements. |
14. To determine whether a lottery winner would prefer to receive the money in a single lump sum immediately or receive an equal amount over a period of years, you would use which type of time value of money calculation?
|
|
a. |
The future value of a single amount. |
|
|
b. |
The present value of a single amount. |
|
|
c. |
The future value of an annuity. |
|
|
d. |
The present value of an annuity. |
15. Using the future value table, a student found that the future value amount of $1 for 5 years at an annual interest rate of 10% is 1.611. The student also observed that the future value of $1 for 5 years at 10% compounded semiannually is 1.629. This means that
|
|
a. |
the more often the compounding, the higher the future value. |
|
|
b. |
the student was looking in the wrong column; the second amount should be 1.611/2. |
|
|
c. |
there was an error in the table. |
|
|
d. |
when interest is compounded semiannually, more money must be deposited to have a desired ending balance. |
16. What is the correct classification of the account: Discount on Notes Payable?
|
|
a. |
an asset |
|
|
b. |
an expense |
|
|
c. |
a revenue |
|
|
d. |
a contra liability |
17. Bonds are a popular source of financing because
|
|
a. |
bond interest expense is deductible for tax purposes, while dividends paid on stock are not. |
|
|
b. |
financial analysts tend to downgrade a company that has raised large amounts of cash by frequent issues of stock. |
|
|
c. |
a company having cash flow problems can postpone payment of interest to bondholders. |
|
|
d. |
the bondholders can always convert their bonds into stock if they choose. |
18. Bennington Corp. issued a $40,000, 10-year bond at the face rate of 8%, paid semiannually. How much cash will the bond investors receive at the end of the first interest period?
|
|
a. |
$800 |
|
|
b. |
$1,600 |
|
|
c. |
$3,200 |
|
|
d. |
$4,000 |
19. Endeavor Company issued 20-year bonds with a coupon rate of 6% when the market rate of interest was 9%. This means that the bonds were issued
|
|
a. |
at a premium. |
|
|
b. |
at a discount. |
|
|
c. |
at the face value. |
|
|
d. |
with an additional 3 years of interest. |
20. Churchill Company planned to raise $100,000 by issuing bonds. The bond certificates were printed bearing an interest rate of 8%, which was equal to the market rate of interest. However, before the bonds could be issued, economic conditions forced the market rate up to 9%. If the life of the bonds is 6 years and interest is paid annually on December 31, how much will Churchill receive from the sale of the bonds?
|
|
a. |
Exactly $100,000 because Churchill Company would still pay interest at the face rate of 8%. |
|
|
b. |
Less than $100,000 because the market rate of interest at 9% was more than the face rate. |
|
|
c. |
Greater than $100,000 because the face rate of interest at 8% was less than the market rate. |
|
|
d. |
The bonds would not be sold at all; Churchill Company would have the certificates reprinted bearing the market rate of 9%. |
21. On January 2, 2016, Lawn Master Construction, Inc. issued $500,000, 10-year bonds for $574,540. The bonds pay interest on June 30 and December 31. The face rate is 8% and the market rate is 6%. What is the carrying value of the bonds at the end of ten years before the final maturity payment is made?
|
|
a. |
$574,540 |
|
|
b. |
$525,000 |
|
|
c. |
$500,000 |
|
|
d. |
$425,460 |
22. Which of the following lease conditions would result in a capital lease to the lessee?
|
|
a. |
The lessee will return the property to the lessor at the end of the lease term. |
|
|
b. |
The lessee can purchase the property for $1 at the end of the lease term. |
|
|
c. |
The fair market value of the property at the inception of the lease is $18,000; the present value of the minimum lease payments is $15,977. |
|
|
d. |
The lease term is 70% of the property's economic life. |
23. Happy Corporation leased a building from Sensor Company. The 10-year lease is recorded as a capital lease. The annual payments are $10,000 and the recorded cost of the asset is $67,100. The straight-line method is used to calculate depreciation. Which of the following statements is true?
|
|
a. |
Depreciation expense of $6,710 will be recorded each year. |
|
|
b. |
Depreciation expense of $10,000 will be recorded each year. |
|
|
c. |
No depreciation expense will be recorded by Happy Corporation. |
|
|
d. |
No interest expense will be recorded by Happy Corporation. |
24. One example of a temporary difference between financial and tax reporting results from
|
|
a. |
rent expense. |
|
|
b. |
tax-exempt interest from municipal bonds. |
|
|
c. |
life insurance proceeds resulting from the death of an executive. |
|
|
d. |
depreciation of long-term assets. |
25. Which of the following statements is false with respect to bonds?
|
|
a. |
Firms issue bonds in very large single issues. |
|
|
b. |
Bonds must be held until maturity by the initial investor. |
|
|
c. |
The denomination of the bond is usually referred to as the face value. |
|
|
d. |
Bonds that are not backed by specific collateral of the issuing company are known as debenture bonds. |
26. Use the incomplete stockholders' equity section of Wilmerding Company’s balance sheet as of December 31, 2016, to answer the following question.
|
Common stock, $7 par, 100,000 shares authorized |
$ 700,000 |
|
Additional paid-in capital—common |
160,000 |
|
Retained earnings |
? |
|
Treasury stock (2,000 shares at cost) |
(16,000) |
|
Total stockholders' equity |
974,000 |
What is the amount of Wilmerding’s retained earnings?
|
|
a. |
$130,000 |
|
|
b. |
$98,000 |
|
|
c. |
$860,000 |
|
|
d. |
$114,000 |
27. Mendes Charters reported the following information at December 31, 2016:
|
Preferred stock, $100 par, 500 shares authorized, and outstanding; cumulative; nonparticipating; callable at par value |
$ 50,000 |
|
Common stock, $12 par, 50,000 shares authorized and outstanding |
600,000 |
|
Additional paid-in capital—Common |
25,000 |
|
Retained earnings |
825,000 |
Mendes’ total contributed capital is
|
|
a. |
$650,000 |
|
|
b. |
$675,000 |
|
|
c. |
$1,500,000 |
|
|
d. |
$625,000 |
28. Use the incomplete stockholders' equity section of Box Company’s balance sheet as of December 31, 2016, to answer the following question.
|
Common stock, $7 par, 100,000 shares authorized |
$ 700,000 |
|
Additional paid-in capital—common |
160,000 |
|
Retained earnings |
? |
|
Treasury stock (2,000 shares at cost) |
(16,000) |
|
Total stockholders' equity |
974,000 |
How many shares of common stock are outstanding?
|
|
a. |
100,000 |
|
|
b. |
98,000 |
|
|
c. |
78,000 |
|
|
d. |
68,000 |
29. Stockholders prefer to invest in preferred stock because
|
|
a. |
preferred stock confers preferred voting rights. |
|
|
b. |
preferred stock can always be converted to common stock if they desire. |
|
|
c. |
the dividends are generally increased each year. |
|
|
d. |
the dividends are paid on preferred stock before they are paid on common stock. |
30. On January 1, 2016, Bogart Acres Company issued 10,000 shares of 10%, $20 par value cumulative preferred stock. In 2016 and 2017, no dividends were declared on preferred stock. In 2018, Bogart had a profitable year and decided to pay dividends to stockholders of both preferred and common stock. If it has $200,000 available for dividends in 2018, how much could it pay to the common stockholders?
|
|
a. |
$140,000 |
|
|
b. |
$160,000 |
|
|
c. |
$180,000 |
|
|
d. |
$200,000 |
31. Perry Corporation issues 20,000 shares of $0.50 par common stock for $6 per share; the Additional Paid-in Capital—Common account will increase by
|
|
a. |
$110,000 |
|
|
b. |
$10,000 |
|
|
c. |
$120,000. |
|
|
d. |
$130,000. |
32. If a company purchases treasury stock for $10,000 and then reissues it for $3,000, the difference of $7,000 is
|
|
a. |
treated as a gain on the sale. |
|
|
b. |
treated as a loss on the sale. |
|
|
c. |
an increase in stockholders' equity. |
|
|
d. |
a decrease in stockholders' equity. |
33. Port, Inc. paid a cash dividend on January 2 that had been declared prior to the end of its fiscal year. The entry to pay the dividend will
|
|
a. |
increase Cash and increase Cash Dividend Payable. |
|
|
b. |
decrease Cash Dividend Payable and decrease Cash. |
|
|
c. |
decrease Retained Earnings and increase Cash Dividend Payable. |
|
|
d. |
decrease Cash Dividend Payable and increase Retained Earnings. |
34. All of the following statements are true about a 3-for-1 split, except:
|
|
a. |
Total contributed capital increases. |
|
|
b. |
The market price will probably decrease. |
|
|
c. |
Par value per share is reduced to one-third of what it was before the split. |
|
|
d. |
A stockholder with twenty shares before the split owns sixty shares after the split. |
35. Which of the following statements is true?
|
|
a. |
If a company reports net income on its income statement, it should report an increase in cash on its statement of cash flows. |
|
|
b. |
If a company reports a net loss on its income statement, it should report a decrease in cash on its statement of cash flows. |
|
|
c. |
If a company uses the accrual basis of accounting, it will improve its cash position if it reports net income for the same period. |
|
|
d. |
If a company uses the accrual basis of accounting, its cash balance can increase even if it reports a net loss. |
36. Below is information for Dakota Corp. for 2016 and 2017:
|
Bonds payable, December 31, 2016 |
$500,000 |
|
Bonds payable, December 31, 2017 |
800,000 |
|
Loss on bond retirement—2017 |
15,000 |
|
Interest expense on bonds—2017 |
45,000 |
At the end of 2017, Dakota issued bonds at par value for $800,000 cash. The proceeds from these bonds were used to retire the $500,000 bond issue outstanding at the end of 2017 (before their maturity date). All interest expense was paid in cash during 2017. The following statements describe how Dakota reported the cash flow effects of the items described above on its 2017 statement of cash flows. The indirect method is used to prepare the operating activities section. Which of the following has been reported incorrectly by Dakota?
|
|
a. |
Proceeds of $800,000 from the issuance of bonds were reported as a cash inflow in the financing activities section. |
|
|
b. |
The loss on bond retirement of $15,000 was added to net income in the operating activities section. |
|
|
c. |
Payments of $560,000 were reported as a cash outflow in the investing activities section. |
|
|
d. |
Interest expense of $45,000 was not reported separately because it is included in net income in the operating activities section. |
37. In 2016, Valencia Company purchased equipment for $363,000 and also sold some special purpose machinery with a book value of $155,000 for $182,000. In its statement of cash flows for 2016, Valencia should report the following with respect to the above transactions:
|
|
a. |
$363,000 cash used by operating activities; $182,000 cash provided by financing activities. |
|
|
b. |
$181,000 net cash used by investing activities. |
|
|
c. |
$181,000 net cash used by investing activities; $27,000 net cash provided by operating activities. |
|
|
d. |
$363,000 net cash used by investing activities. |
38. Below are the transactions for the Louisville Company:
|
Proceeds from issuance of bonds payable |
$635,000 |
|
Payment to purchase equipment |
$275,000 |
|
Payment of wages |
$115,000 |
|
Payment of dividends |
$155,000 |
|
Payment to pay off notes payable |
$195,000 |
Based on these transactions, what is the net cash flow from financing activities?
|
|
a. |
$285,000 net cash provided by financing activities. |
|
|
b. |
$275,000 net cash used for financing activities. |
|
|
c. |
$0, because cash inflows equal cash outflows from financing activities. |
|
|
d. |
$440,000 net cash provided by financing activities. |
39. Upon review of Young’s Garden Center statement of cash flows, the following was noted:
|
Cash flows from operating activities |
$ 15,000 |
|
Cash flows from investing activities |
80,000 |
|
Cash flows from financing activities |
(60,000) |
From this information, the most likely explanation is that Young’s is
|
|
a. |
using cash from operations and selling long-term assets to pay back debt. |
|
|
b. |
using cash from operations and borrowing to purchase long-term assets. |
|
|
c. |
using its profits to expand growth. |
|
|
d. |
using cash from investors to provide for operations |
40. During 2016, the accounts payable balance of Andreas Corp. decreased. Which of the following statements is true?
|
|
a. |
This decrease indicates that Andreas paid less during the period than it recognized as expenses on the income statement. |
|
|
b. |
This decrease is added to net income in the operating activities section of a statement of cash flows prepared under the indirect method. |
|
|
c. |
This decrease is deducted from net income in the operating activities section of a statement of cash flows prepared under the indirect method. |
|
|
d. |
This decrease is considered only when the operating activities section of a statement of cash flows is prepared under the direct method. |
41. At the end of the first year of operations, the balance sheet of Huntington Beach Co. Industries had the following balances: Accounts Receivable, $5,000; Accounts Payable, $6,000; Inventory, $3,000; and Unexpired Insurance, $2,000. The corporation reported net income of $79,000 for the year, including depreciation expense of $5,000, and uses the indirect method of computing net cash flow from operating activities. Based on this information, net cash flow from operating activities is:
|
|
a. |
$82,000 |
|
|
b. |
$78,000 |
|
|
c. |
$80,000 |
|
|
d. |
$77,000 |
42. Caler Corp. reported the following information for 2016 and 2017.
|
Accounts receivable, December 31, 2016 |
$ 67,000 |
|
Accounts receivable, December 31, 2017 |
63,000 |
|
Sales (all on credit)—2017 |
745,000 |
How much cash was collected from customers during 2017?
|
|
a. |
$741,000 |
|
|
b. |
$745,000 |
|
|
c. |
$749,000 |
|
|
d. |
$753,000 |
43. Which of the following statements is true regarding valuation amounts on the balance sheet?
|
|
a. |
Stockholders' equity reflects the amount the stockholders would receive upon liquidation. |
|
|
b. |
Assets are recorded at current cost. |
|
|
c. |
Stockholders' equity reflects the current market value of the stock |
|
|
d. |
There are a variety of assumptions used in determining amounts reported on the balance sheet. |
|
Mother Nature Supplies Following are selected data from the financial statements of Mother Nature Supplies:
|
|
44. Refer to the data for Mother Nature Supplies. Which of the following would result from a horizontal analysis of its balance sheet?
|
45. Refer to the data for Mother Nature Supplies.
Which of the following would not result from a vertical analysis of its balance sheet?
|
|
a. |
Accounts receivable increased $22,000 or 36.7% during 2017. |
|
|
b. |
Accounts receivable is five times larger than Merchandise inventory in 2017. |
|
|
c. |
Accounts receivable is 13.3% of total assets for 2017. |
|
|
d. |
Merchandise inventory is 2.7% of total assets for 2017. |
46. Which of the following ratios is least useful in evaluating a company's ability to pay its current debts as they become due?
|
|
a. |
current ratio |
|
|
b. |
debt-to-equity ratio |
|
|
c. |
debt service coverage ratio |
|
|
d. |
acid-test ratio |
47. Moonbeam Gift Shop’s inventory turned over six times during the year. Similar gift shops have an inventory turnover equal to twelve times per year. What explains Moonbeam’s state of inventory management?
|
|
a. |
Moonbeam sold too much inventory during the year. |
|
|
b. |
Moonbeam needs to increase sales and decrease the amount of inventory on hand. |
|
|
c. |
Moonbeam is performing twice as well as its competitors. |
|
|
d. |
Moonbeam should increase the amount of goods on hand to accommodate the additional inventory demand. |
|
Westmoreland Company Following are selected data from Westmoreland Company’s financial statements.
|
||||||||||||||||||||||||||||||||||||
|
48. Refer to the Westmoreland Company data. Westmoreland’s debt-to-equity ratio for 2017 is:
|
|
49. Refer to the Westmoreland Company data. The company’s times interest earned ratio for 2017
|
50. Back Company sold merchandise on credit. Its gross profit ratio is 23%. The effect of this transaction is that the
|
|
a. |
earnings per share decreased |
|
|
b. |
current ratio was unchanged |
|
|
c. |
debt-to-equity ratio increased |
|
|
d. |
earnings per share increased |
