Popular in Accounting Principles I- Financial
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This 11 page Study Guide was uploaded by ktaha Notetaker on Tuesday May 3, 2016. The Study Guide belongs to Acct 2331 at University of Houston taught by Mary Reeves Sykes in Spring 2016. Since its upload, it has received 33 views. For similar materials see Accounting Principles I- Financial in Accounting at University of Houston.
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Date Created: 05/03/16
If you have anything to add to existing answers, please feel free to do so! A2331 Final Exam 33 More Practice Questions (additional to course compass) : 1. Which of the following is not a characteristic of debenture Bonds? A) payment of interest to bondholders is required B) they are not secured by any specific assets of the corporation C) bondholders have priority over common stockholders in the liquidation of assets D) bonds cannot be retired before the end of their life so the explanation should be all bonds can be retired due to call feature accompanying most bonds or if no calable feature, issuing comping able to retire bonds early by purchasing them on the open market (from the book) are you sure? I got D, because they are not backed. The answer is for sure D. 2. F Corporation has authorized an issue of 15%, 10year bonds. At the issue date the market rate of interest for this type of bond is 13.5%. On these facts it might be expected that: A) The company will find it difficult to sell the bonds B) The bonds will be sold at a premium C) The bonds will be sold at a discount D) The bonds will be sold at face value E) The bond contract will be rewritten because it is inconsistent. Explanation for #2: Stated interest rate (15%) is greater than market interest rate (13.5%). stated>market= bond sold at a premium ***USE THE FOLLOWING INFORMATION TO ANSWER THE NEXT TWO (2) QUESTIONS*** On January 1, 2002, ABC Company issued $10,000 of 8%, 12 year bonds for $9,632 cash. The bonds are dated January 1, 2002, and pay interest annually each December 31. The market rate of interest on the bonds is 8.5% on the issue date. 3. The bond interest expense to be reported on the income statement for the year ended December 31, 2002 will be somewhere between: A) 0 and $774 B) $775794 C) $795814 D) $815834 E) $835 and $1,000 Explanation for #3: $9,632 x .085 = $818.72 interest expense=Carrying value *market rate.????> 8 4. The cash paid for interest on December 31, 2002 would be: A) $768 B) $800 C) $816 D) $850 Explanation for #4: 10,000 x .08 =$800 (face value x stated interest rate) The following factors from the present value tables may be of use when answering the next 2 questions: Present value of $1.00 4 % 5 % 6 % 5 periods 0.8219 (.7835) 0.7473 10 periods 0.6756 0.6139 0.5584 Present value of an Annuity of $1.00 4 % 5 % 6 % 5 periods 4.4518 4.3295 4.2124 10 periods 8.1109 7.7217 7.3601 5. An investor wishes to have $1,000 available inive years How much should be invested today, if the current interest rate5 percent (round to the nearest dollar)? A) $784 B) $614 C) $433 D) $772 Explanation: All you have to do is multiply each answer choice by 1.05^5 until one gives you 1,000. In this case, 784 * 1.05^5 = 1,000 Explanation: For this question, it's asking for much of (1000) should be invested today (PV of $1.00) if the current interest rate is 5%? So you would go up to the PV of $1.00 and go under 5%; on the right hand side you would go to 5 periods (5 years) and multiply (.7835) X (1,000)=784. Your answer would be A. 6. On January 1, 2002, Sawyer Company issued $100,000 of its 10 year bonds payable to generate cash for expansion. The bonds will retire in 10 years, and have a stated rate of 5 percent. Interest will be paid annually each December 31, starting December 31, 2002. If Sawyer issued the bonds to yield an effective (market) rate of 4 percent, what amount of cash would Sawyer receive at issue (round to nearest whole dollar)? A) $100,000 B) $108,115 C) $ 67,560 D) $ 92,277 Explanation for #6: Since the stated rate is 5% and the market rate is 4%, the bond is issued at a premium. Because its issued at a premium, the issue price has to be greater than the face value amount which is $100,000. This leaves B as the only possibility. 100,000* 0.6756= 67,560 5,000* 8.1109 = 40,554.5 ( 5,000 is interest payment, stated int. rate * face value) * PVA 67,560+40,554.5= 108,114.5 issuance price How do you calculate the answer using a formula? f 7. XYZ Company reported net income of $8,000. It has 100 shares outstanding of 8%, $100 par value preferred stock. Also, there are 1,000 shares of $10 par value common stock issued and 950 shares outstanding. What are the earnings per share of common stock (rounded to the nearest cent)? a. $7.20 b. $7.58 c. $8.00 d. $8.42 Explanation: Earnings Per Share = Net Income Preferred Dividend / Common Stock , so , 8000 800 / 950 = 7.58 How did you get Preferred Dividend as 800? I believe it’s the “100 shares outstanding of 8%, $100 par value” so 100*.08*100… I think… (thanks!) yeah you’re right Preferred dividend: 100 shares x 8% outstanding x 100$ par value preferred. are you sure it is /common stock and not /average shares outstanding? Yeah it outstanding shares/common stock. thanks for clearing that up 8. Turbo Distributors issued bonds with a face value of $100,000 on January 1, 20X1 for $110,000. On December 31, 20x5, they retired these bonds at $104,000. At that time, the balance in the premium account was $5000. What is the gain or loss reported on the retirement of the bonds? A) $5,000 loss B) $5,000 gain C) $1,000 loss D) $1,000 gain Explanation: Issued at $110,000 with a face value of $100,000. The bonds that THEY issued were bought back at $104,000 while they still held a premium value of $5,000. so they could potentially reissue them at $105,000, giving them a net gain of $1,000 Is the 104 in the problem 104%*100,000 yeah I think it is. or else the numbers wouldn’t add up. 9. Which of the following is NOT a true statement about accounting for corporations? A) The dividends account is closed out to retained earnings. B) The balance in retained earnings at any point in time is equal to the total accumulated earnings of the business (net of losses) less the total dividends since the inception of the corporation. C) Any income or loss is closed out to the common stock account. D) Retained earnings may have a debit balance. E) Two primary sources of equity capital are contributed capital and earned capital (retained earnings). Explanation: Correct me if im wrong but Any income or loss is closed out of the retained earnings account and not the common stock account. 10. Nelson Corporation issues 50,000 shares of $0.50 par value stock. The market price of the stock is $8 per share. Additional paidin capital on this transaction would be: A) debited for $400,000 B) credited for $375,000 C) debited for $375,000 D) credited for $25,000 Explanation: market value of the stocks is $8 x 50,000, equaling 400,000. Par value has to be subtracted to find paid in capital, so to get the par value, multiply the 50,000 shares by $0.50, giving you $25,000. finally, 400,000 $25,000 = 375,000 that must be credited. 11. Liabilities: a. Are obligations b. Require a probable future sacrifice of economic benefits. c. Are a result of past transactions or events. d. All of the above Explanation: Are obligations, results of past transactions, and are subject to a sacrifice to pay for past benefits. The answer is all of the above 12. On December 15, 19x5, FLM Corporation exchanged 2,000 shares of $10 par value common stock for land. The current market price of the stock was $20 per share. The value of the land was not readily determinable. Which of the following entries should be made to record the issuance of the stock? A) Land 20,000 Common Stock 20,000 B) Land 40,000 Common Stock 40,000 C) Land 40,000 Common Stock 20,000 Paidin Capital in Excess of Par Value 20,000 D) Cannot be determined. Explanation: 2000 shares at $20 per share would be $40000 worth of stock which was traded for land. Because the Par value was $10, Common stock (par value * shares) would be 20,000. Take this value and subtract it from the total price of stock (40000) would equal the paidin capital in excess of par value. The answer is C 13. Which of the following is the best definition of retained earnings? A) Accumulated earnings of the corporation since the date of incorporation minus any losses and minus all dividends declared B) Stockholders' equity minus capital stock C) Net assets minus capital stock and all dividends paid since date of incorporation D) Extraordinary gains minus extraordinary losses plus income from operations since date of incorporation Explanation: Retained earning are what a company keeps for itself that aren’t given out to stockholders or spent. So What is earned is kept, after subtracting any expenses, such as losses or dividends first. Therefore, A is the correct answer. ***USE THE FOLLOWING INFORMATION TO ANSWER THE NEXT TWO QUESTIONS:*** Subara Corporation purchases 1,000 shares of its own $10 par value stock for $15 per share. The transaction is recorded using the cost method 14..Proper recording of this transaction will A) result in a decrease in stockholders’ equity B) result in a decrease in net income C) result in an increase in investments D) include a debit to an Additional PaidIn Capital for $5,000 Explanatio n: When you buy back your own shares you are reducing stockholders equity. The answer is A, because any time a company repurchases its shares/stocks it will decrease Stockholders Equity c 15.Assume that Subara reissued the stock for $14 per share. Which of the following statements is true? A) Common Stock will be credited for $5,000 B) Treasury Stock will be credited for $15,000 C) Net income will be reduced by a loss on treasury stock of $1,000 D) An Additional PaidIn Capital account will be credited for $2,000 Explanation: Cash(=1000 shares * $14)............14000 (debit) Additional Paid in Capital(=1000 shares * $1[the difference between buy/sell]) …..1000(debit) Treasury Stock(= 1000 shares * $15)......15000(credit) *I don’t get how you found the Additional Paid in Capital or Treasury stock. Can someone explain that part in a different way or different words please? Just make sure it balances out so 1500014000=1000 **Whenever you reissue stock, your treasury stock is always CREDITED with the original amount. So Subara Corporation purchased 1000 shares for $15 per share = $15,000. That original amount is then credited to Treasury Stock as you debit Common Stock for $14,000 (1000 shares x $14 per share). APIC can be found from subtracting the two. 16. The beginning balance of Retained Earnings was $100 and the ending balance of Retained Earnings was $125. Dividends declared for the period were $30. What was the net income? A) $25 B) $55 C) $15 D) $5 Explanation: the beginning value was $100, and then ending balance was $125, giving a shown increase of $25. Because there were dividends declared, that means that is money the company made but gave to stockholders, which should be added to net income. 30+ 25 = $55. Beginning Balance + Net Income Dividends = Ending Balance 100 + 55 30 = 125 17. Which of the following occurs when accrued interest is accrued on a note payable, at year end? a. Interest is accrued for the number of days the note is outstanding in the subsequent period. b. Interest is accrued for the number of days the note is outstanding in the current period. c. Interest is accrued for the total life of the note. d. None of the above. Explanation: At year end, you would only accrue the interest for the current period because that is the period in which the note was used (think matching principle). Therefore it cannot be A or D because you don’t accrue the interest for the entire life of the note or the subsequent period in the current yearend financial statements. You would have to wait until the note is due and payment for interest is needed. Therefore, the answer is B. QUESTIONS RELATING TO CHAPTERS 17 18. A piece of equipment purchased on January 1, 2000 for $15,000 has a salvage value of $3,000 and an estimated useful life of 6 years. The asset was depreciated straightline for two years, then sold on January 1, 2002 for $9,000. What is the amount of the gain or loss that should be recorded? A) $3,000 loss B) $3,000 gain C) $2,000 loss D) $4,000 loss Explanation : for straight line method , you have to do 15k 3k divided by 6 years. That gives you 2k depreciation expense per year. So, 2k a year, and its been 2 years. 20002002, so thats 4k. You bought it for 15k, so 15k4k = 11k, thats how much it’s worth right now. You sold it for 9k so that means you lost 2k, and the answer is C. 19. In 2002, Company XX developed a patent, which has a 20 year legal life, and a 10 year useful life. How should Company XX account for the research and development costs (for scientists’ salaries) that were incurred to develop the patent? A) capitalize and amortize over a 10 year period. B) expense as incurred. C) capitalize and amortize over a 20 year period. D) capitalize, but do not amortize. PrExplanation: Research and development cost for a patent are expensed no matter what. 20. If your company purchases land and a building for $100,000, and it intends to tear down the existing building to allow construction of a new warehouse, the purchase price should be allocated to the following accounts: A) $100,000 to the Construction Expense account B) $100,000 to the Land account and $0 to the Building account C) Prorated to the Land account and Building account based on the appraised values of each. D) $100,000 to the Building account and $0 to the Land account Explanation for 20: We should not allocate to the existing building, all to the land, so B. Explanation can be found in chp. 7, this is just the basic concept. 21. After aging Accounts Receivable, Z Company estimates uncollectible for 2002 to be $4,000. The balance in the allowance account at January 1, 2002 was a $300 credit. During the year, Z Co. wrote off $400 of accounts receivable. The debit to bad debts expense for 2002 would be for what amount? A) $3,700 B) $3,900 C) $4,000 D) $4,100 Explanation for #21 is because there was already a $300 credit (carry over from previous year), you subtract that from $400 which gives you $100. Add that to $4000 and you get $4100. This isn’t that great of an explanation so if anyone could expand on it, that’d be great. 22. Net accounts receivable is defined as A) total accounts receivable less the amounts written off this year. B) total sales less the accounts receivable collected this year. C) total accounts receivable less the estimated amounts expected to be uncollectible in the future. D) total cash sales plus total credit sales less the bad debt expense recognized this year. Explanation: definition of Net accounts receivable(also referred to as net realizable value) is the difference between total accounts receivable and the allowance for uncollectible accounts. answer is C ***USE THE FOLLOWING INFORMATION TO ANSWER THE NEXT TWO QUESTIONS.*** The following inventory, purchases, and sales data are for the FLM Company. FLM uses the periodic method. \ Beginning Inventory Inventory Purchases No. of Units Sold 4 at $4 each 1st 8 units at $5 each 15 2nd 6 units at $6 each 3rd 4 units at $10 each 23. Under FIFO, the ending inventory value is A) $30. B) $74. C) $58. D) $60. Explanation: FIFO is first in first out, so if 15 units are sold, the first 4 are sold at at $4 each, the next 8 are sold at $5 each, and then 3 are sold at $6 each. The remaining 3 are worth 6 each plus the 4 units worth $10. Giving a grand total of $58 24. Under LIFO, the ending inventory value is A) $58. B) $31. C) $101. D) $60. LIFO is last in first out, so if 15 units are sold, the last 4 are sold at at $10 each, the next 6 are sold at $6 each, and then 5 of the first units are sold at $5 each are sold. The remaining 3 are worth 5 each plus the 4 worth 4. giving a grand total of $31 dollars 25. How would the following transaction affect the balances of assets, liabilities, and equity? Buying equipment on account Assets Liabilities Equity A) Increase Increase No change B) Increase No change Increase C) Decrease Decrease No change D) Decrease No Change Decrease Explanation: Buying equipment on accounts would only affect two balances: Assets and liabilities. Gaining equipment is gaining an assets, while purchasing it on account mean that you are promising to pay them at a future date, which is a liability. This increase the asset AND liability account, so A is the correct answer. 26. Beginning Inventory is $22,000; Purchases are $9,000; Ending Inventory is $2,000; and Income is $33,200. How much is Goods Available for Sale? A) $ 4,200 B) $ 9,200 C) $31,000 D) $62,200 All you do is add 22000 with 9000 which equals 31000. ending inventory and income is unnecessary in this question. They are there for distraction. = 27. Adjusting entries are necessary A) to correct estimates made in prior accounting periods. B) to transfer the balances in the temporary accounts into the capital account. C) to bring certain account balances up to date to reflect the accrual of revenues and expenses. D) to create problems for accounting students. Explanation:Adjusting entries are important because the end of the year balance doesn’t always reflect where the company stands currently, because they could have long term assets or liabilities that haven't been accounted for yet. To do so they adjust the entry at the end of a certain period to reflect where they are now. The answer is C 28. During 2001, the Electra Company debited Office Supplies for $124,000 for purchases made during the year. The balance in the Office Supplies account at the beginning of 2001 was $1,000. On December 31, 2001, $2,000 of the supplies remained unused. The adjusting journal entry at 12/31/01 to recognize the supplies used would include a debit to Supplies Expense for: A) $125,000 B) $124,000 C) $123,000 D) $122,000 Explanation for #28: Because it says they debited office supplies, that means an increase in the supplies account for $124000. Since they already had $1000, you add that with $124,000 to get $125000. At the end of the year, they have $2000 unused. $125000$2000=$123000. Answer is C 29. Castle financed the purchase of a delivery truck by borrowing cash from EZ Credit on January 1. The annual interest on this loan is $750 payable on January 1 of each year. What is the adjusting entry to accrue interest on December 31 at fiscal year end? A) debit Interest Expense $750; credit Interest Payable $750 B) debit Interest Income $750, credit Interest Payable $750 C) debit Interest Expense $750; credit Cash $750 D) debit Interest Payable $750; credit Interest Expense $750 best guess is that because its accrued, you have to still account for the interest expense per year(current period) even though you don’t pay it. Credit interest payable instead of cash because you aren’t paying cash until the due date for the loan. For accruing interest, you debit interest expense and credit interest payable. 30. The qualitative conceptual characteristic concerned with providing investors with information that is useful in their decisions to buy, sell or hold is: A) Relevance. B) Entity. C) Continuity. D) Period of time. E) Monetary Unit. Has to be relevant to them, because if it’s not, they won’t invest. 31. Valuation of assets at liquidation values rather than at cost is basically inconsistent with: A) Consistency concept B) Materiality concept C) Full disclosure. D) Monetary concept. E) "Going Concern" concept. Explanation: The going concern assumption is that t he accountants pretty much believe that the company will not liquidate in the near future so by valuing assets at liquidation values, this is inconsistent with E. It would probably be a good idea to learn the definitions of the other answer choices 32. The statement of cash flows: A) Provides information on the financial position of a firm at a particular point in time. B) Provides detailed data on the specific revenues and expenses of a firm. C) Provides details of the equity of the owners of a firm. D) Provides information on the sources and uses of cash. E) Provides the details of the assets, liabilities, and owner's equity of a firm. Explanation: The answer is D because that’s the only one having to deal with cash. 33. Of the following ownership rights, which is NOT usually associated with preferred stock? A) Cumulative rights B) Voting rights C) Dividend rights D) Liquidation rights Explanation:
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