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fundamentals financial accounting

Cornerstones Of Financial Accounting 1st Canadian Edition Jay Rich, Jefferson Jones, Maryanne Mowen, Don Hansen, Donald Jones - Solutions

Example 2.2 The dual effect of transactions on the accounting equation AC (Pty) Ltd commenced with activities on 2 January 20.7. AC (Pty) Ltd uses the perpetual inventory system to account for trade
Which of the following questions would be appropriate for an analyst to investigate regarding a company’s liabilities?a. Are all liabilities reported?b. Are the liabilities properly classified?c.
Corporations are required to disclose earnings per share on which of the following statements?a. statement of financial positionb. income statementc. statement of cash flowsd. all of these
Which of the following ratios is used to measure a firm’s profitability?a. Liabilities 4 Equityb. Sales 4 Assetsc. Assets 4 Equityd. Net income 4 Net sales
Selected information for Berry Company is as follows:Average common shares $600,000 Average contributed surplus 250,000 Average retained earnings 370,000 Sales revenue for year 915,000 Net income for
Which of the following is the formula to compute the net profit margin percentage?a. Net income 4 Net salesb. Operating income 4 Net salesc. Net income 4 Average equityd. Net income þ [Interest
Which of the following ratios is used to measure a firm’s efficiency?a. Net income 4 Equityb. Net sales 4 Average total assetsc. Assets 4 Equityd. Net income 4 Sales
A firm’s asset turnover ratio is typically computed as follows:a. Net sales 4 Average total assetsb. Gross profit 4 Net salesc. Operating income 4 Net salesd. Net income þ [Interest expense 3 (1
The statement of financial position for Sylvests Ltd. at the end of the first year of operations indicates the following:2014 2014 Total current assets $600,000 Total long-term liabilities $350,000
Total liabilities 4 Total equity equals:a. Times interest earned ratiob. Accounts payable turnover ratioc. Debt-to-equity ratiod. Receivables turnover ratio
Schuester Company has $40,000 in current liabilities, $20,000 in cash, and $25,000 in marketable securities. What is Schuester’s cash ratio?a. 1.125b. 0.889c. 1.6d. 0.625
A firm’s quick ratio is typically computed as follows:a. Total liabilities 4 Total assetsb. (Cash þ Short-term investments þ Receivables) 4 Current liabilitiesc. Current liabilities 4 Current
How is the cash ratio calculated?a. Current assets 4 Current liabilitiesb. (Cash þ marketable securities þ Accounts receivable) 4 Current liabilitiesc. (Cash þ marketable securities) 4 Current
Partial information from Fabray Company’s statement of financial position is as follows:Current Assets:Cash $ 1,200,000 Marketable securities 3,750,000 Accounts receivable 28,800,000 Inventories
How is the current ratio calculated?a. Current assets 4 Current liabilitiesb. (Cash þ marketable securities þ Accounts receivable) 4 Current liabilitiesc. (Cash þ marketable securities) 4 Current
Which statement would best provide information about a company’s current liquidity?a. statement of financial positionb. income statementc. statement of cash flowsd. none of these
Goodwill is calculated as the excess of the cost of an acquired company over the:a. carrying value of net assets acquired.b. fair value of assets acquired.c. fair value of identifiable net assets
Assume a parent has total assets and a subsidiary incorporated by the parent company has total assets of $4,000,000. If the parent owns 100% of the subsidiary’s common shares, what amount of assets
Consolidated financial statements are required:a. whenever the common shares of another corporation are owned.b. only when significant influence can be exerted over another company.c. when over 50%
Whopper Corporation owns a 40% interest in BigMac Corporation, which it purchased for $2.5 million. During fiscal year 2014, BigMac paid cash dividends of $50,000 and reported net income of $700,000.
Shackley Ltd. owns three equity securities held for trading, which have yielded the following fiscal year-end results:A. Dividend income: $350 B. Gain on sale: $2,000 C. Unrealized loss: $600 Which
EMK Corp. is holding two bonds to maturity, both of which have a carrying value of $132,000.At the end of the fiscal year, the fair market value of bond A is $118,000, and the fair market value of
The equity method requires dividend income to be recorded as:a. an investment account increaseb. an investment account decreasec. income statement revenued. an increase in retained earnings
Which of the following is true?a. Cash flow from operating activities must be prepared using the indirect method.b. The indirect method adjusts sales for changes in noncash items to produce net cash
Which of the following is an example of a cash inflow from an operating activity?a. Collection of cash relating to a note receivableb. Sale of property, plant, and equipmentc. Collection of an
Garnean Inc. issued $50,000 in common share dividends. Its net income for the year was$250,000. What is Garnean’s dividend payout ratio?a. 0.2b. 0.5c. 2.5d. 5
Comprehensive income:a. is considered an appropriation of retained earnings.b. includes transactions that affect shareholders’ equity with the exception of those transactions that involve owners.c.
RVR Enterprises shows net income of $100,000 for 2014 and retained earnings of$500,000 on its December 31, 2014, statement of financial position. During the year, RVR declared and paid $60,000 in
Shea Company Ltd. has issued 100,000 6%, $50 stated value, cumulative preferred shares.In 2013, no dividends were declared on preferred shares. In 2014, Shea had a profitable year and decided to pay
As a result of a stock split,a. shareholders’ equity is increased.b. the stated value of the shares recorded in share capital is changed in the reverse proportion as the stock split.c. the
Which of the following should be considered when a company decides to declare a cash dividend on common shares?a. the retained earnings balance onlyb. the amount of authorized common sharesc. the
Thornwood Partners began business on January 1, 2014. The corporate charter authorized issuance of unlimited no par value common shares, and 8,000 $3 stated value, 10% cumulative preferred shares. On
DAE Parts Shop began business on January 1, 2014. The corporate charter authorized issuance of 20,000 no par value common shares and 5,000 $10 stated value, 5% cumulative preferred shares.DAE issued
With regard to preferred shares,a. their issuance provides no flexibility to the issuing company because their terms always require mandatory dividend payments.b. their shareholders may have the
Assad Corporation repurchases 10,000 of its shares for $12 per share. The shares were originally issued at an average price of $10 per share. How much gain or loss should Assad report on its
Harvey Corporation shows the following in the shareholders’ equity section of its statement of financial position: The stated value of its common shares is $0.25 and the total balance in the common
McKean Corporation authorized 500,000 common shares in its articles of incorporation.On May 1, 2014, 100,000 shares were sold to the company’s founders. However, on October 15, 2014, McKean
Authorized shares represent the:a. number of shares that have been sold.b. number of shares that are currently held by shareholders.c. number of shares that have been repurchased by the
Which of the following statements is true?a. The shares that are in the hands of the shareholders are said to be outstanding.b. It is very unlikely that corporations will have more than one class of
Which of the following is not a component of shareholders’ equity?a. loss on sale of equipmentb. dividends payablec. retained earningsd. net income
Garnean Inc. issued $50,000 in common share dividends. Its net income for the year was$250,000. What is Garnean’s dividend payout ratio?a. 0.2b. 0.5c. 2.5d. 5
Comprehensive income:a. is considered an appropriation of retained earnings.b. includes transactions that affect shareholders’ equity with the exception of those transactions that involve owners.c.
RVR Enterprises shows net income of $100,000 for 2014 and retained earnings of$500,000 on its December 31, 2014, statement of financial position. During the year, RVR declared and paid $60,000 in
Shea Company Ltd. has issued 100,000 6%, $50 stated value, cumulative preferred shares.In 2013, no dividends were declared on preferred shares. In 2014, Shea had a profitable year and decided to pay
When a company declares a 3-for-1 stock split, the number of outstanding shares:a. triples.b. stays the same, but the number of issued shares triples.c. is reduced by one-third.d. is reduced by
The balance of the no par value common share account for Patrice Company was$240,000,000 before its recent 2-for-1 stock split. The market price of the shares was $50 per share before the stock
As a result of a stock split,a. shareholders’ equity is increased.b. the stated value of the shares recorded in share capital is changed in the reverse proportion as the stock split.c. the
What is the effect of a stock dividend on shareholders’ equity?a. Shareholders’ equity is decreased.b. Total shareholders’ equity stays the same.c. Contributed surplus is decreased.d. Retained
When a company declares a cash dividend, which of the following is true?a. Assets are decreased.b. Assets are increased.c. Liabilities are increased.d. Shareholders’ equity is increased.
Which of the following should be considered when a company decides to declare a cash dividend on common shares?a. the retained earnings balance onlyb. the amount of authorized common sharesc. the
When a company retires its own common shares, the company must:a. decrease the common share account balances by the original issue price.b. record a gain or loss depending on the difference between
When a company purchases treasury shares, which of the following statements is true?a. Dividends continue to be paid on the treasury shares.b. They are no longer considered to be issued.c. Treasury
A company would repurchase its own shares for all of the following reasons except:a. it believes the shares are overvalued.b. it wishes to increase the earnings per share.c. it wishes to prevent
Thornwood Partners began business on January 1, 2014. The corporate charter authorized issuance of unlimited no par value common shares, and 8,000 $3 stated value, 10% cumulative preferred shares. On
DAE Parts Shop began business on January 1, 2014. The corporate charter authorized issuance of 20,000 no par value common shares and 5,000 $10 stated value, 5% cumulative preferred shares.DAE issued
With regard to preferred shares,a. their issuance provides no flexibility to the issuing company because their terms always require mandatory dividend payments.b. their shareholders may have the
Assad Corporation repurchases 10,000 of its shares for $12 per share. The shares were originally issued at an average price of $10 per share. How much gain or loss should Assad report on its
Harvey Corporation shows the following in the shareholders’ equity section of its statement of financial position: The stated value of its common shares is $0.25 and the total balance in the common
McKean Corporation authorized 500,000 common shares in its articles of incorporation.On May 1, 2014, 100,000 shares were sold to the company’s founders. However, on October 15, 2014, McKean
Authorized shares represent the:a. number of shares that have been sold.b. number of shares that are currently held by shareholders.c. number of shares that have been repurchased by the
Which of the following statements is true?a. The shares that are in the hands of the shareholders are said to be outstanding.b. It is very unlikely that corporations will have more than one class of
Which of the following is not a component of shareholders’ equity?a. loss on sale of equipmentb. dividends payablec. retained earningsd. net income
(Appendix 9A) The bond issue price is determined by calculating thea. present value of the stream of interest payments and the future value of the maturity amount.b. future value of the stream of
McLaughlin Corporation’s statement of financial position showed the following amounts:current liabilities, $75,000; total liabilities, $100,000; total assets, $200,000. What is the total debt to
Kinsella Corporation’s statement of financial position showed the following amounts: current liabilities, $75,000; total liabilities, $100,000; total assets, $200,000. What is the total longterm
Willow Corporation’s statement of financial position showed the following amounts: current liabilities, $5,000; bonds payable, $1,500; lease obligations, $2,300. Total shareholders’ equity was
On January 2, 2014, Sylvester Metals Co. leased a mining machine from EDH Leasing Corp. The lease qualifies as an operating lease. The annual payments are $4,000 paid at the end of each year, and the
Which of the following lease conditions would result in a finance lease to the lessee?a. The lessee can purchase the property for $1 at the end of the lease term.b. The lease term is 70% of the
Which of the following statements regarding leases is false?a. Lease agreements are a popular form of financing the purchase of assets because leases do not require a large initial outlay of cash.b.
Bonds are a popular source of financing becausea. a company having cash flow problems can postpone payment of interest to bondholders.b. bond interest expense is deductible for tax purposes, while
Serenity Company issued $100,000 of 6%, 10-year bonds when the market rate of interest was 5%. The proceeds from this bond issue were $107,732. Using the effective interest rate method of
The result of using the effective interest rate method of amortization of the discount on bonds is thata. a constant interest rate is charged against the debt carrying value.b. the amount of interest
In 2014, Dvorak Company issued $200,000 of bonds for $189,640. If the stated rate of interest was 6% and the yield was 6.73%, how would Dvorak calculate the interest expense for the first year on the
Installment bonds differ from typical bonds in what way?a. Essentially they are the same.b. Installment bonds do not have a stated rate.c. A portion of each installment bond payment pays down the
When bonds are issued at a premium, the interest expense for the period isa. the amount of interest payment for the period plus the premium amortization for the period.b. the amount of interest
When bonds are issued at a discount, the interest expense for the period isa. the amount of interest payment for the period plus the premium amortization for the period.b. the amount of interest
Sean Corp. issued a $40,000, 10-year bond, with a stated rate of 8%, paid semiannually.How much cash will the bond investors receive at the end of the first interest period?a. $4,000b. $3,200c.
Bonds in the amount of $100,000 with a life of 10 years were issued by Roundy Company.If the stated rate is 6% and interest is paid semiannually, what will be the total amount of interest paid over
Bower Company sold $100,000 of 20-year bonds for $95,000. The stated rate on the bonds was 7%, and interest is paid annually on December 31. What entry would be made on December 31 when the interest
When bonds are issued by a company, the accounting entry typically shows ana. increase in assets and an increase in liabilities.b. increase in assets and an increase in shareholders’ equity.c.
The premium on bonds payable account is shown on the statement of financial position asa. an addition to a long-term liability.b. a subtraction from a long-term liability.c. a contra asset.d. a
What best describes the discount on bonds payable account?a. a liabilityb. a contra liabilityc. an assetd. an expense
If bonds are issued at 101.25, this means thata. a $1,000 bond sold for $101.25.b. a $1,000 bond sold for $1,012.50.c. the bonds sold at a discount.d. the bond rate of interest is 10.125% of the
Bonds are sold at a premium if thea. issuing company has a better reputation than other companies in the same business.b. market rate of interest was more than the stated rate at the time of issue.c.
Which of the following statements regarding bonds payable is true?a. When an issuing company’s bonds are traded in the ‘‘secondary’’ market, the company will receive part of the proceeds
Which of the following transactions would cause the current ratio to increase (assuming the current ratio is currently greater than 1)?a. Receiving money from a customer related to an account
How is the cash ratio calculated?a. (Cash þ Marketable securities)/Current liabilitiesb. Current assets/Current liabilitiesc. Cash flows from operating activities/Current liabilitiesd. (Cash þ
How is the current ratio calculated?a. Cash flows from operating activities/Current liabilitiesb. Current assets/Current liabilitiesc. (Cash þ Marketable securities)/Current liabilitiesd. (Cash þ
To record warranties, the adjusting journal entry would be:a. a debit to Warranty Liability and a credit to Cash.b. a debit to Warranty Expense and a credit to Warranty Liability.c. a debit to
Warranty expense is:a. recorded as it is incurred.b. capitalized as a warranty asset.c. recorded in the period of sale.d. none of these.
Arcand Advisers is being sued by a former customer. Arcand’s lawyers say that it is possible, but not probable, that the company will lose the lawsuit and that the trial should last approximately
Which of the following is true?a. A contingent liability should always be recorded in the footnotes to the financial statements.b. A contingent liability should always be recorded within the
When should a contingent liability be recognized?a. when the contingent liability is probableb. when a reasonable estimation can be madec. neither A nor Bd. A and B
When a credit is made to the income taxes payable account related to taxes withheld from an employee, the corresponding debit is made to:a. Cashb. Taxes Expensec. Taxes Payabled. Wages Expense
Payroll taxes typically include all of the following except:a. Healthcare plan deductionsb. Employment Insurance contributionsc. Canada Pension Plan contributionsd. Federal excise taxes
All of the following represent taxes commonly collected by businesses except:a. Employment Insurance taxesb. Federal sales taxesc. Provincial sales taxesd. Harmonized sales taxes
Labrador Inc. sold 350 oil drums to Tesla Manufacturing for $75 each. In addition to the$75 sale price per drum, there is a $1 per drum federal tax and a 7% provincial sales tax. What journal entry
Which of the following is not an example of an accrued liability?a. wages payableb. interest payablec. accounts payabled. property taxes payable
Which of the following is not a current liability?a. sales tax payableb. bonds payable due in five yearsc. accounts payabled. unearned revenue
Refer to the information in Exercise 8-3. What journal entry should be made with respect to the interest payment on October 1, 2015?a. Debit Cash 20,000; credit Interest Expense 15,000; credit

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