Acct102 Quiz
2006 Summer ACCT102 L1 Quiz 2
NAME: STUDENT ID: Mark:
Multiple Choice Questions (10 marks):
1. On December 1, Martin Company signed a $5,000 3-month 6% note payable, with the principle plus interest due on March 1 of the following year. What amount of interest expense is accrued at December 31 on the note? ( B ) A) $0 B) $25 C) $50 D) $75 E) $300
2. During 2000, Tito Corporation had revenues of $99,000 and expenses of $64,000. Dividends of $14,000 were paid during the year and additional stock was issued for $10,700. If total assets and total liabilities on January 1, 2000, were $65,000 …show more content…
and $28,000, respectively, how much is owners' equity on December 31, 2000? ( A ) A. $68,700 B. $54,700 C. $40,700 D. $31,700 E. $32,700
3. A company sold $12,000 worth of computers with an extended warranty. It estimates that 2% of these sales will result in warranty work. The company should: ( C ) A) Consider the warranty expense a remote liability and not disclose since the rate is only 2%. B) Recognize warranty expense at the time the warranty work is performed. C) Recognize warranty expense and liability in the year of the sale. D) Consider the warranty expense a prepaid expense. E) Recognize warranty liability when the company purchases the computers.
4. The statement of cash flows is: ( C )
A) Another name for the statement of financial position. B) A financial statement that presents information about changes in equity during a period. C) A financial statement that reports the cash inflows and cash outflows for an accounting period, and that classifies those cash flows as operating activities, investing activities, or financing activities. D) A financial statement that lists the types and amounts of assets, liabilities, and equity of a business on a specific date.
E) A financial statement that lists the types and amounts of the revenues and expenses of a business for an accounting period.
5. A short-term note payable: ( A ) A) Is a written promise to pay a specified amount on a definite future date within one year or the company's operating cycle, whichever is longer. B) Is a contingent liability. C) Is an estimated liability. D) Is not a liability until the due date. E) Cannot be used to extend the payment period for an account payable.
6. Which of the following items is reported on the statement of cash flows under financing activities?
A) Declaration of a cash dividend. B) Payment of a cash dividend. C) Declaration of a stock dividend. D) Payment of a stock dividend. E) Stock split.
Answer: B
7. Long-term investments include:
A) Investments in bonds and stocks that are not marketable. B) Investments in marketable stocks that are intended to be converted into cash in the …show more content…
short-term. C) Investments in marketable bonds that are intended to be converted into cash in the short-term. D) Only investments readily convertible to cash. E) Investments intended to be converted to cash within one year.
Answer: A
8. Adidas issued 10-year, 8% bonds with a par value of $200,000. Interest is paid semiannually. The market rate on the issue date was 7.5%. Adidas received $206,948 in cash proceeds. Which of the following statements is true?
A) Adidas must pay $200,000 at maturity and no interest payments. B) Adidas must pay $206,948 at maturity and no interest payments. C) Adidas must pay $200,000 at maturity plus 20 interest payments of $8,000 each. D) Adidas must pay $206,948 at maturity plus 20 interest payments of $8,000 each. E) Adidas must pay $200,000 at maturity plus 20 interest payments of $7,500 each.
Answer: C
9. A discount on bonds payable:
A) Occurs when a company issues bonds with a contract rate less than the market rate. B) Occurs when a company issues bonds with a contract rate more than the market rate. C) Increases the Bond Payable account. D) Decreases the total bond interest expense. E) Is not allowed in many states to protect creditors.
Answer: A
10. The appropriate section in the statement of cash flows for reporting the receipt of cash dividends from investments in securities is:
A) Operating activities. B) Financing activities. C) Investing activities. D) Schedule of noncash investing or financing activity. E) None of these. This is not reported on the statement of cash flows.
Answer: A
11. Liabilities: ( B ) A) Must be certain. B) Must sometimes be estimated. C) Must be for a definite amount. D) Must always have a definite date for payment. E) Must involve an outflow of cash.
12. A company's Inventory balance at 12/31/04 was $200,000 and was $188,000 at 12/31/05. Its Accounts Payable balance at 12/31/04 was $80,000 and was $84,000 at 12/31/05, and its cost of goods sold for 2005 was $720,000. The company's total amount of cash payments for merchandise in 2005 equals:
A) $704,000. B) $712,000. C) $720,000. D) $728,000. E) $736,000.
Answer: A Calculation: Decrease in merchandise = $200,000 - $188,000 = $12,000 Purchases = $720,000 -$12,000 = $708,000 Increase in Accounts Payable = $84,000 - $80,000 = $4,000 Cash paid for merchandise = $708,000 - $4,000 = $704,000
13. The statement of changes in stockholders' equity: ( C ) A) Is part of the statement of retained earnings. B) Shows only the ending balances in stockholders' equity. C) Describes changes in contributed capital and retained earnings. D) Does not include changes in treasury stock. E) Is reported by very few companies.
14. A corporation sold 14,000 shares of its $10 par value common stock at a cash price of $13 per share. The entry to record this transaction would include: ( D ) A) A debit to Contributed Capital in Excess of Par Value, Common Stock for $42,000. B) A debit to Cash for $140,000. C) A credit to Common Stock for $182,000. D) A credit to Common Stock for $140,000. E) A credit to Contributed Capital in Excess of Par Value, Common Stock for $182,000.
15. A complete income statement potentially includes information on: ( E ) A) Continuing operations. B) Discontinued operations. C) Extraordinary items. D) Changes in accounting principles. E) All of the above.
True or False Questions (10 marks):
1. Financing activities include (a) the purchase and sale of long-term assets, (b) the purchase and sale of short-term investments, and (c) lending and collecting on loans. ( F )
2. A bond's par value is not necessarily the same as its market value. ( T )
3. A corporation can issue two kinds of stock – common and preferred. ( T )
4. Extraordinary items are reported in the operating section to get operating profit of the income statement. ( F )
5. Sparrow Company had net income of $63,000. At January 1, there were 8,000 shares of common stock outstanding. On July 1, the company issued an additional 2,000 shares of common stock. The earnings per share equals $7.00 per share. ( T )
6. A stock dividend reduces a corporation's assets and its stockholders' equity. ( F )
7. Callable bonds have an option exercisable by the issuers to retire them at a stated dollar amount prior to maturity.
Answer: True
8. The full disclosure principle requires the reporting of contingent liabilities that are reasonably possible. ( T )
9. Income statement can reflect the financial position of certain company during certain time period. ( F )
10. A contingent liability is a potential obligation that depends on a future event arising from a past transaction or event, and will not be disclosed in financial statements. ( F )
11. When an equity security is sold, the sale proceeds are compared with the cost, and if the cost is greater than the proceeds, a gain on the sale of the security is recorded.
Answer: False
12. Most mortgage contracts grant the lender the right to foreclose on the property that is identified as security for the mortgage if the borrower fails to pay in accordance with the terms of the contract.
Answer: True
13. When preparing the operating section of the statement of cash flows using the indirect method, noncash operating expenses are added back to net income.
Answer: True
14. Equity securities reflect a creditor relationship such as investments in notes, bonds, and certificates of deposit.
Answer: False
15. A company performed warranty repair work for a customer that cost $1,000. The journal entry to record the work should be a debit of $1,000 to Warranty Expense and a credit of $1,000 to Estimated Warranty Liability.
Answer: False
Prepare the Journal Entries :
1. A company sells its product subject to a warranty that covers the cost of parts for repairs during the six months after the date of sale. Warranty costs are estimated to be 6% of sales. During the month of June, the company performed warranty work and used $12,000 worth of parts to do the warranty work. Sales for June amounted to $450,000.
1.
Record the warranty expense for the month of June. 2. Record the costs of the warranty work completed in June.
Answer:
|1. |Warranty Expense ($450,000 x .06) |27,000 | |
| | Estimated Warranty Liability | |27,000 |
| | | | |
|2. |Estimated Warranty Liability |12,000 | |
| | Parts Inventory | |12,000 |
| | | | |
2. On July 31, a company declared a cash dividend of $0.25 per common share to the shareholders of record on August 15. The cash dividend will be paid on August 25. This company has 500,000 shares authorized and 100,000 shares outstanding. Prepare the journal entries required on July 31, August 15 and August
25.
Answer:
|July 31 |Retained Earnings |25,000 | |
| | Common Dividend Payable | |25,000 |
| | | | |
|Aug 15 |No entry required. | | |
| | | | |
|Aug 25 |Common Dividend Payable |25,000 | |
| | Cash | |25,000 |
3. For each of the following separate cases, use the information provided to calculate the missing cash inflow or cash outflow:
|(a) |Accounts receivable balances: | |
| | Beginning of year |$ 60,000 |
| | End of year |57,000 |
| |Sales revenue (all on credit) |375,000 |
| |Cash received from customers |$______ |
| | | |
|(b) |Accounts payable balances: | |
| | Beginning of year |$ 42,000 |
| | End of year |45,000 |
| |Merchandise inventory balances: | |
| | Beginning of year |50,000 |
| | End of year |47,500 |
| |Cost of goods sold |250,000 |
| |Cash paid for merchandise inventory |$______ |
| | | |
|(c) |Interest payable balances: | |
| | Beginning of year |$ 7,500 |
| | End of year |9,200 |
| |Interest expense |35,000 |
| |Cash paid for interest |$______ |
| | | |
Answer:
|(a) |Sales revenue |$375,000 | |
| |Decrease in accounts receivable | | |
| | ($60,000 - $57,000) | 3,000 | |
| |Cash received from customers |$378,000 | |
| | | | |
| (b) |Cost of goods sold |$250,000 | |
| |Decrease in merchandise inventory | | |
| | ($50,000 - $47,500) | (2,500 |)|
| |Merchandise purchases |247,500 | |
| |Increase in accounts payable | | |
| | ($45,000 - $42,000) | (3,000 |)|
| |Cash paid for merchandise inventory |$244,500 | |
| | | | |
| (c) |Interest expense |$35,000 | |
| |Increase in interest payable ($9,200 - $7,500) | (1,700 |)|
| |Cash paid for interest |$33,300 | |
| | | | |
NAME: STUDENT ID: Mark:
Multiple Choice Questions (10 marks):
1. On December 1, Martin Company signed a $5,000 3-month 6% note payable, with the principle plus interest due on March 1 of the following year. What amount of interest expense is accrued at December 31 on the note? ( B ) A) $0 B) $25 C) $50 D) $75 E) $300
2. During 2000, Tito Corporation had revenues of $99,000 and expenses of $64,000. Dividends of $14,000 were paid during the year and additional stock was issued for $10,700. If total assets and total liabilities on January 1, 2000, were $65,000 …show more content…
and $28,000, respectively, how much is owners' equity on December 31, 2000? ( A ) A. $68,700 B. $54,700 C. $40,700 D. $31,700 E. $32,700
3. A company sold $12,000 worth of computers with an extended warranty. It estimates that 2% of these sales will result in warranty work. The company should: ( C ) A) Consider the warranty expense a remote liability and not disclose since the rate is only 2%. B) Recognize warranty expense at the time the warranty work is performed. C) Recognize warranty expense and liability in the year of the sale. D) Consider the warranty expense a prepaid expense. E) Recognize warranty liability when the company purchases the computers.
4. The statement of cash flows is: ( C )
A) Another name for the statement of financial position. B) A financial statement that presents information about changes in equity during a period. C) A financial statement that reports the cash inflows and cash outflows for an accounting period, and that classifies those cash flows as operating activities, investing activities, or financing activities. D) A financial statement that lists the types and amounts of assets, liabilities, and equity of a business on a specific date.
E) A financial statement that lists the types and amounts of the revenues and expenses of a business for an accounting period.
5. A short-term note payable: ( A ) A) Is a written promise to pay a specified amount on a definite future date within one year or the company's operating cycle, whichever is longer. B) Is a contingent liability. C) Is an estimated liability. D) Is not a liability until the due date. E) Cannot be used to extend the payment period for an account payable.
6. Which of the following items is reported on the statement of cash flows under financing activities?
A) Declaration of a cash dividend. B) Payment of a cash dividend. C) Declaration of a stock dividend. D) Payment of a stock dividend. E) Stock split.
Answer: B
7. Long-term investments include:
A) Investments in bonds and stocks that are not marketable. B) Investments in marketable stocks that are intended to be converted into cash in the …show more content…
short-term. C) Investments in marketable bonds that are intended to be converted into cash in the short-term. D) Only investments readily convertible to cash. E) Investments intended to be converted to cash within one year.
Answer: A
8. Adidas issued 10-year, 8% bonds with a par value of $200,000. Interest is paid semiannually. The market rate on the issue date was 7.5%. Adidas received $206,948 in cash proceeds. Which of the following statements is true?
A) Adidas must pay $200,000 at maturity and no interest payments. B) Adidas must pay $206,948 at maturity and no interest payments. C) Adidas must pay $200,000 at maturity plus 20 interest payments of $8,000 each. D) Adidas must pay $206,948 at maturity plus 20 interest payments of $8,000 each. E) Adidas must pay $200,000 at maturity plus 20 interest payments of $7,500 each.
Answer: C
9. A discount on bonds payable:
A) Occurs when a company issues bonds with a contract rate less than the market rate. B) Occurs when a company issues bonds with a contract rate more than the market rate. C) Increases the Bond Payable account. D) Decreases the total bond interest expense. E) Is not allowed in many states to protect creditors.
Answer: A
10. The appropriate section in the statement of cash flows for reporting the receipt of cash dividends from investments in securities is:
A) Operating activities. B) Financing activities. C) Investing activities. D) Schedule of noncash investing or financing activity. E) None of these. This is not reported on the statement of cash flows.
Answer: A
11. Liabilities: ( B ) A) Must be certain. B) Must sometimes be estimated. C) Must be for a definite amount. D) Must always have a definite date for payment. E) Must involve an outflow of cash.
12. A company's Inventory balance at 12/31/04 was $200,000 and was $188,000 at 12/31/05. Its Accounts Payable balance at 12/31/04 was $80,000 and was $84,000 at 12/31/05, and its cost of goods sold for 2005 was $720,000. The company's total amount of cash payments for merchandise in 2005 equals:
A) $704,000. B) $712,000. C) $720,000. D) $728,000. E) $736,000.
Answer: A Calculation: Decrease in merchandise = $200,000 - $188,000 = $12,000 Purchases = $720,000 -$12,000 = $708,000 Increase in Accounts Payable = $84,000 - $80,000 = $4,000 Cash paid for merchandise = $708,000 - $4,000 = $704,000
13. The statement of changes in stockholders' equity: ( C ) A) Is part of the statement of retained earnings. B) Shows only the ending balances in stockholders' equity. C) Describes changes in contributed capital and retained earnings. D) Does not include changes in treasury stock. E) Is reported by very few companies.
14. A corporation sold 14,000 shares of its $10 par value common stock at a cash price of $13 per share. The entry to record this transaction would include: ( D ) A) A debit to Contributed Capital in Excess of Par Value, Common Stock for $42,000. B) A debit to Cash for $140,000. C) A credit to Common Stock for $182,000. D) A credit to Common Stock for $140,000. E) A credit to Contributed Capital in Excess of Par Value, Common Stock for $182,000.
15. A complete income statement potentially includes information on: ( E ) A) Continuing operations. B) Discontinued operations. C) Extraordinary items. D) Changes in accounting principles. E) All of the above.
True or False Questions (10 marks):
1. Financing activities include (a) the purchase and sale of long-term assets, (b) the purchase and sale of short-term investments, and (c) lending and collecting on loans. ( F )
2. A bond's par value is not necessarily the same as its market value. ( T )
3. A corporation can issue two kinds of stock – common and preferred. ( T )
4. Extraordinary items are reported in the operating section to get operating profit of the income statement. ( F )
5. Sparrow Company had net income of $63,000. At January 1, there were 8,000 shares of common stock outstanding. On July 1, the company issued an additional 2,000 shares of common stock. The earnings per share equals $7.00 per share. ( T )
6. A stock dividend reduces a corporation's assets and its stockholders' equity. ( F )
7. Callable bonds have an option exercisable by the issuers to retire them at a stated dollar amount prior to maturity.
Answer: True
8. The full disclosure principle requires the reporting of contingent liabilities that are reasonably possible. ( T )
9. Income statement can reflect the financial position of certain company during certain time period. ( F )
10. A contingent liability is a potential obligation that depends on a future event arising from a past transaction or event, and will not be disclosed in financial statements. ( F )
11. When an equity security is sold, the sale proceeds are compared with the cost, and if the cost is greater than the proceeds, a gain on the sale of the security is recorded.
Answer: False
12. Most mortgage contracts grant the lender the right to foreclose on the property that is identified as security for the mortgage if the borrower fails to pay in accordance with the terms of the contract.
Answer: True
13. When preparing the operating section of the statement of cash flows using the indirect method, noncash operating expenses are added back to net income.
Answer: True
14. Equity securities reflect a creditor relationship such as investments in notes, bonds, and certificates of deposit.
Answer: False
15. A company performed warranty repair work for a customer that cost $1,000. The journal entry to record the work should be a debit of $1,000 to Warranty Expense and a credit of $1,000 to Estimated Warranty Liability.
Answer: False
Prepare the Journal Entries :
1. A company sells its product subject to a warranty that covers the cost of parts for repairs during the six months after the date of sale. Warranty costs are estimated to be 6% of sales. During the month of June, the company performed warranty work and used $12,000 worth of parts to do the warranty work. Sales for June amounted to $450,000.
1.
Record the warranty expense for the month of June. 2. Record the costs of the warranty work completed in June.
Answer:
|1. |Warranty Expense ($450,000 x .06) |27,000 | |
| | Estimated Warranty Liability | |27,000 |
| | | | |
|2. |Estimated Warranty Liability |12,000 | |
| | Parts Inventory | |12,000 |
| | | | |
2. On July 31, a company declared a cash dividend of $0.25 per common share to the shareholders of record on August 15. The cash dividend will be paid on August 25. This company has 500,000 shares authorized and 100,000 shares outstanding. Prepare the journal entries required on July 31, August 15 and August
25.
Answer:
|July 31 |Retained Earnings |25,000 | |
| | Common Dividend Payable | |25,000 |
| | | | |
|Aug 15 |No entry required. | | |
| | | | |
|Aug 25 |Common Dividend Payable |25,000 | |
| | Cash | |25,000 |
3. For each of the following separate cases, use the information provided to calculate the missing cash inflow or cash outflow:
|(a) |Accounts receivable balances: | |
| | Beginning of year |$ 60,000 |
| | End of year |57,000 |
| |Sales revenue (all on credit) |375,000 |
| |Cash received from customers |$______ |
| | | |
|(b) |Accounts payable balances: | |
| | Beginning of year |$ 42,000 |
| | End of year |45,000 |
| |Merchandise inventory balances: | |
| | Beginning of year |50,000 |
| | End of year |47,500 |
| |Cost of goods sold |250,000 |
| |Cash paid for merchandise inventory |$______ |
| | | |
|(c) |Interest payable balances: | |
| | Beginning of year |$ 7,500 |
| | End of year |9,200 |
| |Interest expense |35,000 |
| |Cash paid for interest |$______ |
| | | |
Answer:
|(a) |Sales revenue |$375,000 | |
| |Decrease in accounts receivable | | |
| | ($60,000 - $57,000) | 3,000 | |
| |Cash received from customers |$378,000 | |
| | | | |
| (b) |Cost of goods sold |$250,000 | |
| |Decrease in merchandise inventory | | |
| | ($50,000 - $47,500) | (2,500 |)|
| |Merchandise purchases |247,500 | |
| |Increase in accounts payable | | |
| | ($45,000 - $42,000) | (3,000 |)|
| |Cash paid for merchandise inventory |$244,500 | |
| | | | |
| (c) |Interest expense |$35,000 | |
| |Increase in interest payable ($9,200 - $7,500) | (1,700 |)|
| |Cash paid for interest |$33,300 | |
| | | | |