Acct 557 midterm exam

Question 1

If $250,000 of bonds are issued during the year but $130,000 of old bonds are retired during the year, the statement of cash flows will show a(n) Answer

net increase in cash of $120,000.

net decrease in cash of $120,000.

increase in cash of $250,000 and a decrease in cash of $130,000.

net gain on retirement of bonds of $120,000.

Solution:

Question 2

Generally, the most important category on the statement of cash flows is cash flows from Answer

operating activities.

investing activities.

financing activities.

significant noncash activities.

Question 3

Squeeze Company reports the following: End of Year Beginning of Year Inventory $25,000 $42,000 Accounts Payable 22,000 12,000 If cost of goods sold for the year is $220,000, the amount of cash paid to suppliers is

Answer

$227,000.

$205,000.

$193,000.

$247,000.

Question 4

The statement of cash flows should help investors and creditors assess each of the following except the

Answer

entity's ability to generate future income.

entity's ability to pay dividends.

reasons for the difference between net income and net cash provided by operating activities.

cash investing and financing transactions during the period.

Question 5

Accounts receivable arising from sales to customers amounted to $86,000 and $77,000 at the beginning and end of the year, respectively. Income reported on the income statement for the year was $290,000. Exclusive of the effect of other adjustments, the cash flows from operating activities to be reported on the statement of cash flows is Answer

$290,000.

$299,000.

$213,000.

$280,000.

Question 6

Which of the following would be added to net income using the indirect method?

 Answer

An increase in accounts receivable

An increase in prepaid expenses

Depreciation expense

A decrease in accounts payable

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

Answer

Write-off of an uncollectible account

Collection of an accounts receivable

Sale of treasury stock

Exercise of the call option on bonds payable

Question 8

A company had net income of $210,000. Depreciation expense is $27,000. During the year, Accounts Receivable and Inventory increased $17,000 and $42,000, respectively. Prepaid Expenses and Accounts Payable decreased $5,000 and $6,000, respectively. There was also a loss on the sale of equipment of $2,000. How much cash was provided by operating activities? Answer

$175,000

$179,000

$241,000

$271,000

Question 9

The order of presentation of nontypical items that may appear on the income statement is Answer

Extraordinary items, Discontinued operations, Other revenues and expenses.

Discontinued operations, Extraordinary items, Other revenues and expenses.

Other revenues and expenses, Discontinued operations, Extraordinary items.

Other revenues and expenses, Extraordinary items, Discontinued operations.

Question 10

Wrapp Company has income before taxes of $350,000 and an extraordinary loss of $70,000. If the income tax rate is 30% on all items, the income statement should show income before irregular items and an extraordinary loss, respectively, of: Answer

$350,000 and ($70,000)

$245,000 and ($24,000)

$245,000 and ($49,000)

$105,000 and ($21,000)

Question 11

Which one of the following would not be considered a liquidity ratio?

Answer

Current ratio

Inventory turnover

Acid-test ratio

Return on assets

If a company has an acid-test ratio of 1.2:1, what respective effects will the borrowing of cash by short-term debt and collection of accounts receivable have on the ratio? Short-term Borrowing Collection of Receivable

Answer

Increase No effect

Increase Increase

Decrease No effect

Decrease Decrease

Question 13

Under which of the following cases may a percentage change be computed?

Answer

The trend of the balances is decreasing but all balances are positive.

There is no balance in the base year.

There is a positive balance in the base year and a negative balance in the subsequent year.

There is a negative balance in the base year and a positive balance in the subsequent year.

Question 14

Blaney Clothing Store had a balance in the Accounts Receivable account of $437,500 at the beginning of the year and a balance of $500,000 at the end of the year. Net credit sales during the year amounted to $3,000,000. The average collection period of the receivables in terms of days was

Answer

53.2 days.

365 days.

60.1 days.

57 days.

Question 15

A company has an average inventory on hand of $60,000 and the days in inventory is 73 days. What is the cost of goods sold?

Answer

$300,000

$4,380,000

$600,000

$2,190,000

Question 16

Comparisons of financial data made within a company are called

Answer

intracompany comparisons.

interior comparisons.

intercompany comparisons.

intramural comparisons.

Each of the following is a liquidity ratio except the

Answer

acid-test ratio.

current ratio.

debt to assets ratio.

inventory turnover.

Beak Corporation sells 200 shares of common stock being held as an investment. The shares were acquired six months ago at a cost of $25 a share. Beak sold the shares for $40 a share. The entry to record the sale is

Answer

Cash........................................................................................ 5,000

Loss on Sale of Stock Investments ............................ 3,000

            Stock Investments ........................................................... 8,000

Stock Investment....................................................................... 8,000

            Cash .............................................................................. 8,000

Cash........................................................................................... 8,000

            Gain on Sale of Stock Investments .................................................. 3,000

            Stock Investments ............................................................................ 5,000

Cash............................................................................................ 8,000

            Stock Investments ............................................................................ 8,000

Question 19

A consolidated income statement will show

Answer

revenue and expense transactions between the consolidated entity and parties outside the affiliated group.

only the parent company’s net income.

only the income of partially owned subsidiaries.

only the income of wholly owned subsidiaries.

Question 20

Blaine Company had these transactions pertaining to stock investments: Feb. 1 Purchased 2,000 shares of Norton Company (10%) for $51,000. June 1 Received cash dividends of $2 per share on Horton stock. Oct. 1 Sold 1,200 shares of Horton stock for $32,400. The entry to record the sale of the stock would include a

Answer

debit to Cash for $30,600.

credit to Gain on Sale of Stock Investments for $1,200.

debit to Stock Investments for $30,600.

credit to Gain on Sale of Stock Investments for $1,800.

Question 21

Pension funds and mutual funds regularly invest in debt and stock securities to

Answer

generate earnings.

house excess cash until needed.

meet strategic goals.

control the company in which they invest.

Question 22

Consolidated financial statements are prepared when a company owns _________ of the common stock of another company.

Answer

less than 20%

between 20% and 50%

less than 50%

more than 50%

Question 23

A typical investment to house excess cash until needed is

Answer

stocks of companies in a related industry.

debt securities.

low-risk, highly liquid securities.

stock securities.

Question 24

The cost of debt investments includes each of the following except

Answer

brokerage fees.

commissions.

accrued interest.

the price paid.

Comanic Corp. has common stock of $5,400,000, retained earnings of $2,000,000, unrealized gains on trading securities of $100,000 and unrealized losses on available-for-sale securities of $200,000. What is the total amount of its stockholders’ equity?

Answer

$7,200,000

$7,400,000

$7,300,000

$7,500,000