ACCT5301 Exam 2-Sample Problems

ACCT5301 Exam 2-Sample Problems

1. Which of the following would most likely not be a revenue expenditure?
A. Repairing the carpet in the sales department offices.
B. Repairing a leaky roof.
C. Putting a hydraulic lift on a delivery truck making it easier and quicker to deliver appliances.
D. Painting the exterior of the factory building.

2. Augie Corporation purchased a truck at a cost of $60,000. It has an estimated useful life of five years and estimated residual value of $5,000. At the beginning of year three, Augie's managers concluded that the total useful life would be four years, rather than five. There was no change in the estimated residual value. What is the amount of depreciation that Augie should record for year 3 under the straight-line depreciation method?
A. $15,500
B. $8,250
C. $11,000
D. $16,500

3. How much needs to be invested today if your goal is to be able to withdraw $10,000 for each of the next nine years beginning one year from today and $50,000 ten years from today? The return on the investment is expected to be 6%.
A. $68,017
B. $95,937
C. $78,176
D. $132,075

4. SRJ Corporation entered into the following transactions:
 The accrual of interest expense on a six-month note payable.
 Collected cash for services to be provided within the next six months.
 The accrual of revenue.
Which of the following statements is correct with respect to determining the net cash flow from operating activities on a statement of cash flows?
A. The accrual of interest expense is added to net income.
B. Collecting cash for services to be provided in the future is deducted from net income.
C. The accrual of revenue is added to net income.
D. Collecting cash for services to be provided in the future doesn't require an adjustment to net income.

5. On November 1, 2009, Davis Company issued $30,000, ten-year, 7% bonds for $29,100. The bonds were dated November 1, 2009, and interest is payable each November 1 and May 1. Which of the following is incorrect assuming the straight-line method of amortization is utilized?
A. The market rate of interest exceeded the stated rate of interest when the bonds were issued.
B. The semi-annual interest expense is $1,095.
C. The book value of the bonds increases $45 every six months.
D. The semi-annual interest expense is less than the semi-annual cash interest payment.

6. On January 1, 2010, Tonika Corporation issued a four-year, $10,000, 7% bond. The interest is payable annually each December 31. The issue price was $9,668 based on an 8% effective interest rate. Assuming effective-interest amortization is used, what is the December 31, 2011 book value after the December 31, 2011 interest payment was made (to the nearest dollar)?
A. $9,662
B. $9,820
C. $9,668
D. $9,723

7. Which of the following represents the maximum number of shares of stock issuable to the public?
A. Authorized shares
B. Issued shares
C. Outstanding shares
D. Treasury shares

8. Wendell Company provided the following pertaining to its recent year of operation:
 Common stock with a $10,000 par value was sold for $50,000 cash.
 Cash dividends totaling $20,000 were declared, of which $15,000 were paid.
 Net income was $70,000.
 A 5% stock dividend resulted in a common stock distribution, which had a $5,000 par value and a $23,000 market value.
 Treasury stock costing $9,000 was sold for $7,000.
How much did Wendell's contributed capital increase during the recent year of operation?
A. $15,000
B. $71,000
C. $58,000
D. $75,000

9. Which of the following statements correctly describes either the dividend yield or earnings per share?
A. The dividend yield decreases when net income increases.
B. Earnings per share are per share of both common and preferred stock.
C. The dividend yield increases when the market price per share decreases.
D. Earnings per share decreases when dividends per share decrease.

10. Which of the following statements about earnings per share is correct?
A. Increased net income would cause earnings per share to decrease.
B. Issuance of more common shares would cause earnings per share to increase.
C. Purchasing treasury shares would cause earnings per share to decrease.
D. It is calculated using the number of common shares of stock outstanding.

11. On January 1, 2010, Palmer, Inc. bought 40% of the outstanding shares of Arnold Corporation at a cost of $137,000. The equity method of accounting for this investment is used. During 2010, Arnold Corporation reported $30,000 of net income and paid $10,000 in cash dividends. At the end of 2010, the shares had a market value of $150,000. At what amount should the Arnold investment be reported at on the December 31, 2010 balance sheet?
A. $150,000
B. $158,000
C. $145,000
D. $148,000

12. Idaho Company purchased 30% of the outstanding preferred stock (nonvoting) of Potato Corporation as a long-term investment. Which of the following classifications should be used by Idaho Company in accounting for the investment?
A. Trading securities.
B. Held-to-maturity.
C. Available-for-sale.
D. Consolidation.

13. Lyrical Company purchased equity securities for $500,000 and classified them as trading securities on September 15, 2010. On December 31, 2010, the current market value of the securities was $481,000. How should the investment be reported within the 2010 financial statements?
A. The investment in trading securities would be reported in the balance sheet at its $481,000 market value.
B. The investment in trading securities would be reported in the balance sheet at its $500,000 cost.
C. A realized holding loss on the trading securities would be reported on the income statement.
D. The investment in trading securities would be reported in the balance sheet at its $481,000 market value and a realized holding loss on the trading securities would be reported on the income statement.

14. Libby Company purchased equity securities for $100,000 and classified them as available-for-sale securities on September 15, 2010. At December 31, 2010, the current market value of the securities was $105,000. How should the investment be reported in the 2010 financial statements?
A. The investment in available-for-sale securities would be reported on the balance sheet at its $100,000 cost.
B. The $5,000 unrealized gain is reported within the income statement.
C. The $5,000 realized gain is reported within the income statement.
D. The investment in available for sale securities would be reported in the balance sheet at its $105,000 market value and an unrealized holding gain on available-for-sale securities would be reported in the stockholders' equity section of the balance sheet.

15. When accounting for investments in trading securities, any decline in market value below cost of the investments is reported in which of the following ways?
A. On the income statement as a realized loss.
B. On the income statement as an unrealized holding loss.
C. On the balance sheet as a realized loss.
D. On the balance sheet as an unrealized holding loss in the stockholders' equity section.

16. The primary difference in accounting for available-for-sale investments in stock and accounting for trading investments in stock is which of the following?
A. Measuring the market value of the long-term and short-term investment portfolios on the balance sheet.
B. Determination of the acquisition cost.
C. Where the unrealized holding loss or gain on investments is reported within the financial statements.
D. Determination of the unrealized holding gain or loss.

17. Heartfelt Company owns a 40% interest in the voting common stock of Candle Corporation, accounted for using the equity method. During 2010, Candle Corporation reported net income of $100,000 and declared and paid cash dividends of $10,000. The carrying value of the Candle investment was $500,000 on January 1, 2010. At what amount is the Candle investment reported on the December 31, 2010 balance sheet?
A. $500,000.
B. $540,000.
C. $496,000.
D. $536,000.

18. Photo Finish Corporation bought a 40% interest in the voting stock of Click It Corporation's $1 par value common stock for $20 million (2 million shares at a $10 market price) on March 31, 2011. On December 31, 2011, Click It paid a $1 million cash dividend declared earlier in 2011 and reported net income for the year ended 2011 of $10 million. On December 31, 2011, Click It's stock was trading at $11.50 per share.
What effect will the dividend have on Photo Finish's financial statements?
A. It would increase cash and increase investment income.
B. It would increase cash and decrease investment in Click It.
C. It would increase cash and increase net unrealized gains/losses.
D. It would increase cash and increase the allowance to value at market account.

19. McGinn Company purchased 10% of RJ Company's common stock during 2010 for $100,000. The 10% investment in RJ had a $90,000 fair value at the end of 2010 and a $105,000 fair value at the end of 2011. Which of the following statements is correct if McGinn classified the investment as a trading security and sold it at the beginning of 2012 for $102,000?
A. The 2012 realized loss reported on the income statement is $3,000.
B. The 2012 realized gain reported on the income statement is $2,000.
C. The 2012 unrealized gain reported on the income statement is $2,000.
D. The 2012 unrealized loss reported on the income statement is $3,000.

20. Which of the following would not be a cash flow from financing activities?
A. Issuance of common stock for cash.
B. Borrowing cash on a long-term note payable.
C. Collection of a cash dividend.
D. Repayment of principal on a long-term note payable.

21. Canadian Beer reported they sold equipment for $222 million cash and purchased $1,515 million of new equipment using cash. The equipment sold had a net book value of $150 million. Cash flow from investing activities would show
A. an inflow of $222 million and outflow of $1,515 million.
B. an inflow of $222 million and outflow of $150 million.
C. cash paid for equipment of $1,293 million.
D. a net outflow of $1,365 million.

22. Roberts Company sold equipment for $250,000, purchased a building for $6,500,000, sold short-term investments for $280,000, repaid principal on a note payable for $2,300,000 plus $230,000 of interest, and paid cash dividends of $20,000. How much was the net cash flow from investing activities?
A. $6,250,000 outflow
B. $8,320,000 outflow
C. $8,270,000 outflow
D. $5,970,000 outflow

23. Which of the following items about the statement of cash flows is correct?
A. Non-cash expenses such as depreciation are deducted from net income with the indirect method in computing cash flows from operating activities.
B. Cash equivalents are highly liquid investments with maturities at the date of purchase of less than three months.
C. The acquisition of land by issuing bonds payable would not appear on the statement of cash flows.
D. Cash paid for interest would be classified as a financing cash flow.

24. Which of the following statements about the statement of cash flows is correct?
A. A company with a net loss on the income statement will always have a net cash outflow from operating activities.
B. A purchase of equipment is classified as a cash inflow from investing activities.
C. Cash dividends received on stock investments are classified as cash flows from operating activities.
D. Cash dividends paid are classified as cash flows from operating activities.

25. Which statement regarding the indirect method is false?
A. Depreciation expense is added to net income.
B. An increase in accounts receivable is added to net income.
C. An increase in accounts payable is added to net income.
D. An increase in merchandise inventory is subtracted from net income.

26. Which of the following is not reported as a cash flow from investing activities?
A. Sale of a depreciable asset for cash.
B. Purchasing land in exchange for common stock.
C. Selling a long-term investment at a loss for cash.
D. Purchase of a patent in exchange for cash.

27. Flow Company has provided the following information for the year ended December 31, 2010:
 Cash paid for interest, $20,000;
 Cash paid for dividends, $6,000;
 Cash dividends received, $4,000;
 Cash proceeds from bank loan, $29,000;
 Cash purchase of treasury stock, $11,000;
 Cash paid for equipment purchase, $27,000;
 Cash received from common stock sale, $37,000;
 Cash received from sale of land with a $32,000 book value, $25,000;
 Acquisition of land costing $51,000 in exchange for preferred stock issuance.
 Paid a $100,000 note payable by exchanging used machinery with a $77,000 book value.

How much was Flow's net cash flow from investing activities?
A. A net outflow of $2,000.
B. A net inflow of $2,000.
C. A net outflow of $53,000
D. A net inflow of $49,000

28. Aaron Inc. reported operating expenses during 2011 of $765,000 (including $80,000 of depreciation expense). Prepaid expenses increased $25,000 while accrued liabilities increased $43,000. How much cash was paid for operating expenses during 2011?
A. $702,000
B. $622,000
C. $667,000
D. $703,000

29. Which of the following would not be a financing activities cash flow?
A. Issuing common stock for cash.
B. Cash dividend payments.
C. Purchasing treasury stock.
D. Purchase of a building by signing a note payable.

ANSWERS

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