I need answers for all the questions on this practice final exam.

I've attached the file.

David A. Dittman, Financial Accounting Question Sheet HA 121 Final Exam Name: ___________________________________ CUID: _______________________ TRUE / FALSE AND MULTIPLE CHOICE QUESTIONS Directions: Answer Question 1 through 60 on the attached answer sheet. Each True / False Question is worth 1 point. Each Multiple Choice Question is worth 2 points. 1. With respect to a corporation, select the statement that is correct. A) Its organization requires an approved charter which is governed by state law. B) Ownership rights to the corporation are transferable. C) A corporation is a separate legal entity from its owners. D) Stockholders have limited liability. E) All of the above are correct. 2. Jackson Company gathered the following data to prepare its 20B statement of cash flows: N e t in c o m e ... ... ... ... ... ... ... ... ... ... ... ... ... D e p re c ia tio n e x p e n s e ... ... ... ... ... ... ... ... ... A c c o u n ts r e c e iv a b le d e c r e a s e ... ... ... ... ... .. W a g e s p a y a b le in c r e a s e ... ... ... ... ... ... ... ... A m o rtiz a tio n o f p a te n t... ... ... ... ... ... ... ... . In c o m e ta x p a y a b le d e c re a s e ... ... ... ... ... ... $ 4 0 ,0 5 ,0 3 ,0 4 ,0 1 ,0 2 ,0 0 0 0 0 0 0 0 0 0 0 0 0 Based only on the above data, the net cash inflow from operating activities during 20B was A) $43,000. B) $51,000. C) $53,000. D) $45,000. E) None of the above is correct. 3. Preferred stock dividends in arrears must be paid before dividends on common stock can be paid if the preferred stock has a cumulative dividend preference. Page 1 David A. Dittman, Financial Accounting Question Sheet HA 121 Final Exam Name: ___________________________________ CUID: _______________________ 4. Which of the following entries would be recorded when a company reissues 1,000 shares of treasury stock for $25 per share when they were reacquired at a cost of $22 per share and have a $1 par value? A) Cash 25,000 Treasury Stock 22,000 Paid in capital, treasury stock 3,000 B) Cash 25,000 Treasury Stock 22,000 Gain on sale of stock 3,000 C) Cash 25,000 Common Stock 1,000 Paid in capital, common stock 24,000 D) Cash 25,000 Treasury Stock 22,000 Investment income on treasury stock 3,000 5. Amortization of a premium on a held-to-maturity investment increases interest revenue. 6. The sales revenue reported on the income statement for 20A totaled $96,000, of which one third was on credit. The 20A beginning balance of accounts receivable was zero and the 20A ending balance reported on the balance sheet was $10,000; therefore, the 20A cash inflow from customer sales was $86,000. 7. At the end of 20C, Allen Corporation reported a retained earnings credit balance of $50,000. During 20D, Allen reported the following amounts: Cash dividends declared and paid $15,000, net income of $35,000, and a $5,000 prior period adjustment (debit). The 20D ending balance of total retained earnings was A) $75,000. B) $70,000. C) $65,000. D) $60,000. E) None of the above is correct. Page 2 David A. Dittman, Financial Accounting Question Sheet HA 121 Final Exam Name: ___________________________________ CUID: _______________________ 8. Garth Corporation reported 20B net income of $30,000, including the effects of depreciation expense, $7,000, and amortization expense on a patent, $1,000. Also, cash of $10,000 was borrowed on a 5-year note payable. Based only on these data, "total cash inflow from operating activities" for 20B was A) $37,000. B) $38,000. C) $32,000. D) $36,000. E) None of the above is correct. 9. On January 1, 20A, Garth company purchased as an available-for-sale investment, 10,000 shares (15% of the outstanding shares) of Brooks Corporation (cost, $40 per share, par $25) common stock. During November, 20A, Brooks declared and paid a cash dividend of $3 per share. At December 31, 20A, end of the accounting period, the Brooks shares were selling at $39 per share (assume this is the first time the shares were selling below cost). At December 31, 20A, financial statements for Garth Company should report the following amounts: A B C D E A) B) C) D) E) . . . . . L o n g -T e rm U n re a liz e d H o ld in g L o s s In v e s tm e n t o n L T In v e s tm e n ts $ 4 0 0 ,0 0 0 $ 1 0 ,0 0 0 $ 3 9 0 ,0 0 0 $ 1 0 ,0 0 0 $ 4 0 0 ,0 0 0 $ 2 0 ,0 0 0 $ 3 9 0 ,0 0 0 z e ro N o n e o f th e a b o v e is c o rre c t. In v e s tm e n t R evenue $ 3 0 ,0 0 0 $ 3 0 ,0 0 0 $ 1 0 ,0 0 0 z e ro Line A Line B Line C Line D Line E 10. When the equity method is used to account for an investment in another company, dividends received decrease the balance of the long-term investment account. Page 3 David A. Dittman, Financial Accounting Question Sheet HA 121 Final Exam Name: ___________________________________ CUID: _______________________ 11. Kristen's grandmother promises to give her $3,000 at the end of three years and $4,000 at the end of four years. How much is the money worth today if Kristen could earn 6% annual interest on the funds? A) $ 5,545. B) $ 5,687. C) $16,237. D) $21,879. E) $ 7,000. 12. The unrealized gain or loss on trading securities would be reported in the income statement. 13. On January 1, 20A, Winston Corporation sold 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, the interest expense on the 20A income statement would be (to the nearest dollar) A) $ 1,547. B) $ 883. C) $ 773. D) $ 700. E) None of the above is correct. 14. A stock split results in the reduction of the par or stated value per share and a proportionate increase in the number of shares outstanding. 15. On November 1, 20A, Duval Company sold (issued) 300, $1,000, ten-year, 7% bonds at 97. The bonds were dated November 1, 20A, and interest is payable each November 1 and May 1. The amount of discount amortization at each semi-annual interest date would be (assume straight-line amortization): A) $ 50. B) $100. C) $600. D) $450. E) None of the above is correct. 16. Convertible preferred stock may be exchanged for common stock at the discretion of the stockholder. Page 4 David A. Dittman, Financial Accounting Question Sheet HA 121 Final Exam Name: ___________________________________ CUID: _______________________ 17. To finance a new department, Dannella Yogurt Corporation borrowed $80,000 at an interest rate of 10% On April 1, 20A. Considering the income tax rate of 40%, what is the effective interest rate (net of tax) for 20A? A) 4%. B) 6%. C) 10%. D) 14%. E) None of the above is correct. 18. The dividend yield ratio measures the dividend return on the current price of the stock. 19. To pay a cash dividend, a corporation needs adequate cash, authorization from the board of directors, and adequate retained earnings. 20. Corrections of errors in the financial statements of a prior period are reported as extraordinary items in the income statement of the current period to conform to the full disclosure principle. 21. Bonds sold at a discount will have an effective (market) interest rate that is higher than the stated interest rate. 22. Which of the following transactions is not a direct use of cash? A) Acquisition of inventory for cash. B) Exchanges of bonds payable for land. C) Purchase of treasury stock with cash. D) Cash dividend paid. E) All of the above are direct uses of cash. 23. Treasury stock is a corporation's own stock that was sold, issued, reacquired, and is still held by the corporation. 24. There is a reciprocal relationship between the A) present value of the annuity of $1 and the present value of $1. B) future value of $1 and the future value of an annuity. C) present value of $1 and the future value of $1. D) present value of the annuity of $1 and the future value of annuity of $1. E) Two of the above are correct. 25. A major advantage that a corporation has over a proprietorship or partnership is that it Page 5 David A. Dittman, Financial Accounting Question Sheet HA 121 Final Exam Name: ___________________________________ CUID: _______________________ allows individuals to participate in ownership by purchasing small amounts of stock. 26. Which of the following is the best description of investments in trading securities? A) Investments in bonds that management intends to hold to maturity. B) Investments in stocks or bonds that are held primarily for the purpose of selling them in the near future. C) Investments in more than fifty percent of the voting stock of another company. D) Investments that grant the investor significant influence, but not control over the investee company. E) None of the above is correct. 27. Mine Company owns a 40% interest in the voting common stock of YourCorporation as a long-term investment. For 20C, Your Corporation reported net income of $60,000 and declared and paid cash dividends of $10,000. The carrying value of the Your investment was $125,000 on January 1, 20C. Mine should recognize revenue from YourCorporation for 20C of A) $20,000. B) $24,000. C) $21,000. D) $57,750. E) None of the above is correct. Use the following to answer questions 28-29: Bennett Industries purchased a large piece of equipment from Crumpet Company on January 2, 20A. Bennett signed a note, agreeing to pay Crumpet $400,000 for the equipment on December 31, 20C. The market rate of interest for similar notes was 8%. The present value of $400,000 discounted at 8% for three years is $317,520. On January 2, 20A, Bennett recorded the purchase with a debit to equipment for $317,520 and a credit to notes payable for $317,520. 28. Accrued interest was recorded annually. On December 31, 20C, the due date of the note, Bennett paid the amount due and recorded the transaction with a A) debit to notes payable $400,000. B) debit to notes payable $317,520. C) credit to notes payable for $400,000. D) credit to notes payable for $317,520. E) credit to cash for $317,520. Page 6 David A. Dittman, Financial Accounting Question Sheet HA 121 Final Exam Name: ___________________________________ CUID: _______________________ 29. On Bennett's 20A year-end balance sheet, the book value of the liability for notes payable related to this purchase would equal A) $317,520. B) an amount less than $317,520. C) an amount more than $317,520. D) an amount more or less than $317,520 depending upon Bennett's income for the year. 30. If an investor owns more than 20% but not more than 50% of the voting stock of another company, the long-term investment usually should be accounted for by the market value method. 31. Randy, Inc., issued $50,000 of bonds, paid cash dividends of $8,000, sold long-term investments for $12,000, received $5,000 of dividend revenue, purchased treasury stock for $15,000, and purchased new equipment for $19,000. The net cash flow from financing activities would be A) $70,000. B) $27,000. C) $80,000. D) ($20,000). E) None of the above is correct. 32. The 20B income statement for Ryan Corporation showed the following: N e t in c o m e D e p re c ia tio n e x p e n s e T h e b a la n c e s h e e t s h o w e d : A c c o u n ts R e c e iv a b le in c re a s e P re p a id E x p e n s e s d e c re a s e Cash flow from operating activities is A) $66,000. B) $70,000. C) $82,000. D) $86,000. E) None of the above is correct. Page 7 $ 8 1 ,0 0 0 8 ,0 0 0 $ 5 ,0 0 0 2 ,0 0 0 David A. Dittman, Financial Accounting Question Sheet HA 121 Final Exam Name: ___________________________________ CUID: _______________________ 33. If a company retires bonds payable early by purchasing the bonds in the open market, A) any gain or loss would be reported in the income statement as an extraordinary item. B) the amount paid would always equal the par value. C) any unamortized premium or discount would be reclassified to stockholders' equity as contributed capital. D) the gain or loss would be presented in the asset section of the balance sheet. E) None of the above is correct. 34. On January 1, 20A, Straight Company acquired 15% of the outstanding voting stock of George Company as a long-term investment in available-for-sale securities. On December 31, 20A, George Company reported net income of $400,000 and dividends declared and paid of $10,000. For 20A, Straight Company should report "Revenue from long-term investments" amounting to A) $60,000. B) $10,000 C) $ 4,500. D) $ 1,500. E) None of these amounts is correct. 35. Conceptually, effective-interest amortization is superior to straight-line amortization. 36. Cash equivalents are defined as short-term, highly liquid investments that are readily convertible into known amounts of cash and so near their maturity that there is insignificant risk of changes in their value due to interest rate changes. 37. When investors redeem their bonds prior to maturity, it creates a cash outflow for the corporation connected to financing activities. 38. The statement of cash flows reports directly on the A) financial position of the business. B) accrual basis in accordance with GAAP. C) causes of the inflows and outflows of cash. D) financial operating performance of the business. E) None of the above is correct. 39. The dividend payout ratio discloses the portion of current earnings distributed as a dividend to common stockholders. 40. If the market rate of interest is 10%, a rational person would just as soon receive $1,100 Page 8 David A. Dittman, Financial Accounting Question Sheet HA 121 Final Exam Name: ___________________________________ CUID: _______________________ three years from now as what amount today (round to the nearest dollar)? A) $ 783. B) $ 826. C) $1,000. D) $1,100. E) None of the above is correct. 41. Brooks Company sold equipment for $100,000, purchased a building for $80,000, sold long-term investments for $20,000 and repaid a note payable for $25,000 plus $1,500 of interest. The net cash flow from investing activities was (parentheses indicate an outflow): A) $15,000. B) $40,000. C) ($45,000). D) $13,500. E) None of the above is correct. 42. Restless Company's 20B income statement reported total sales revenue of $100,000. The 20A-20B, comparative balance sheets showed that accounts receivable decreased by $10,000. The 20B "cash receipts from customers" would be A) $100,000. B) $110,000. C) $ 90,000. D) $ 80,000. E) None of the above is correct. 43. Seal Company purchased bonds at a discount as a long-term investment and classified them as held-to-maturity securities. Which of the following is correct? A) The bonds will be recorded as a liability at cost. B) The discount will be amortized over the remaining life of the bonds. C) The discount will not be amortized because the bonds will be held to maturity. D) The bonds will be reported at fair value in the balance sheet with the unrealized gain or loss reported in the income statement. E) None of the above is correct. Page 9 David A. Dittman, Financial Accounting Question Sheet HA 121 Final Exam Name: ___________________________________ CUID: _______________________ 44. Assume the following shares outstanding: (a) Preferred stock, 6%, $50 par value, cumulative, 1,000 shares with dividends in arrears 3 years, for 20A, 20B, and 20C. (b) Common stock, $100 par value, 2,000 shares. Total dividends declared in 20D were $30,000. The total amount of dividends to which common stockholders are entitled is A) $30,000. B) $27,000. C) $21,000. D) $18,000. E) None of the above is correct. 45. Freeman, Inc., reported net income of $40,000 for 20A. The income tax return excluded a revenue item of $3,000 (reported on the income statement) because under the tax laws the $3,000 would not be reported for tax purposes until 20B. Assuming a 30% income tax rate, this situation would cause a 20A deferred tax amount of A) $3,000 (debit). B) $3,000 (credit). C) $ 900 (debit). D) $ 900 (credit). E) None of the above is correct. 46. Kristen's grandmother promises to give her $1,000 at the end of each of the next five years. How much is the money worth today, assuming Kristen could invest the money and earn a 6% annual rate of return? (Round to the nearest dollar). A) $ 747. B) $4,212. C) $1,338. D) $5,637. E) $5,000. 47. How much would Kristen have to deposit in the bank at the end of each of the next five years if she wishes to have $5,000 in the bank at the end of that time period, assuming she will be earning 6% annual rate of return? (Round to the nearest dollar). A) $ 887. B) $ 943. C) $1,000. D) $1,187. E) $5,000. 48. Kristen's grandmother promises to give her $1,000 at the end of five years. How much is Page 10 David A. Dittman, Financial Accounting Question Sheet HA 121 Final Exam Name: ___________________________________ CUID: _______________________ the money worth today, assuming Kristen could invest the money and earn a 6% annual rate of return? (Round to the nearest dollar). A) $ 747. B) $4,212. C) $1,338. D) $5,637. E) $1,000. 49. On January 1, 20A, Ross Company acquired a truck that had a purchase price of $20,000. The seller agreed to allow Ross to pay for the truck over a two-year period at 10% interest with equal payments due at the end of 20A and 20B. The amount of each annual payment the company must make is (round to the nearest dollar) A) $22,267. B) $11,524. C) $14,151. D) $17,751. E) None of the above is correct. 50. On January 1, 20A, Tie Company purchased a machine that had a sticker (list) price of $22,000. The seller agreed to allow Tie Company to pay for the machine over a threeyear period at 10% interest on the unpaid balance and with equal payments of $8,444 due at the end of 20A, 20B, and 20C. The amount that should be debited to the asset account, Machinery, on the day the contract was initiated is (rounded to the nearest dollar) A) $27,865. B) $25,332. C) $22,000. D) $20,999. E) None of the above is correct. 51. Kristen deposits $5,000 in the bank today. She will be earning 6% interest annually on her deposit. How much money will she have in the bank at the end of 5 years? (Round to the nearest dollar). A) $ 3,736. B) $ 6,691. C) $21,062. D) $28,186. E) $ 5,000. Page 11 David A. Dittman, Financial Accounting Question Sheet HA 121 Final Exam Name: ___________________________________ CUID: _______________________ 52. Lori Company sold an operational asset, a machine, for cash. It originally cost $20,000. The accumulated depreciation at the date of disposal was $15,000. A gain on the disposal of $2,000 was reported. Therefore, the cash inflow from this transactions was A) $7,000. B) $3,000. C) $4,000. D) $5,000. E) None of the above is correct. 53. Wide World Corporation issued a 3-for-2 stock split (i.e., three new shares in exchange for each two old shares turned in) of its common stock which had a par value of $100 before the split. What dollar amount of retained earnings should be transferred to the common stock account? A) Par value of $100 per share. B) Market value per share on the issue date. C) Half of the previous total amount in the common stock account(s). D) None should be transferred. E) None of the above is correct. 54. The quality of income ratio is calculated by dividing net income by cash flow from operations. 55. A bond sinking fund should be reported on the balance sheet under the caption A) investments and funds. B) long-term liabilities. C) current assets. D) marketable securities. E) None of the above is correct. Page 12 David A. Dittman, Financial Accounting Question Sheet HA 121 Final Exam Name: ___________________________________ CUID: _______________________ 56. What is the correct entry for the sale of 200 shares of $10 par preferred stock for $5,000? A . B. C. D . A) B) C) D) C ash P re fe rre d S to c k C ash P re fe rre d S to c k P re fe rre d S to c k C o n trib u te d C a p ita l in e x c e s s o f p a r C ash C ash P re fe rre d S to c k C o n trib u te d C a p ita l in e x c e s s o f p a r 5 ,0 0 0 5 ,0 0 0 2 ,0 0 0 2 ,0 0 0 2 ,0 0 0 3 ,0 0 0 5 ,0 0 0 5 ,0 0 0 2 ,0 0 0 3 ,0 0 0 Entry A Entry B Entry C Entry D 57. Brooks Company purchased marketable equity securities for $100,000 as trading securities on September 29, 20A. At December 31, 20A, the current market value of the securities was $98,000. How should the investment be reported in the December 31, 20A financial statements? A) The investment in trading securities would be reported in the balance sheet at its $100,000 cost. B) The investment in trading securities would be reported in the balance sheet at its $98,000 market value. C) An unrealized holding gain on trading securities would be reported in the stockholders' equity section of the balance sheet. D) An unrealized holding loss of $2,000 would be reported in the income statement. E) Both B and D are correct. 58. Typically, a bond sinking fund is a separate cash fund built up over time to meet the large cash demand encountered at the maturity date of a bond issue. Page 13 David A. Dittman, Financial Accounting Question Sheet HA 121 Final Exam Name: ___________________________________ CUID: _______________________ 59. In 1999, Walmart had a dividend yield ratio of 0.3% and J.C. Penney reported a yield in 1999 of 6.9%. What is the most likely reason for Walmart's relatively low dividend yield in comparison to J.C. Penney's ratio? A) Walmart is paying little in dividends because it continues to grow through expansion of store locations financed by operations. B) Walmart does not generate sufficient cash from operations to be able to pay a dividend. C) Walmart does not generate sufficient operating income to support declaring a dividend. D) None of the above is the likely reason. 60. Bonds payable usually are classified on the balance sheet as A) long-term liabilities. B) current liabilities. C) investments and funds. D) current assets. E) None of the above is correct. Page 14 David A. Dittman, Financial Accounting Question Sheet HA 121 Final Exam Name: ___________________________________ CUID: _______________________ EXTRA CREDIT QUESTIONS Directions: Answer Question 61 through 70 on the attached answer sheet. Each Multiple Choice Question is worth 2 points. Use the following to answer questions 61-63: Liberty Company estimates that its annual bad debts approximate 4% of credit sales. Liberty had the following balances at year-end prior to recording adjusting entries: Credit Sales Accounts Receivable Allowance for Doubtful Accounts $160,000 30,000 100 (debit) 61. On Liberty's income statement for the year, bad debt expense would amount to A) $6,400. B) $6,500. C) $6,300. D) $5,200. E) None of the above is correct. 62. Liberty estimates that its annual bad debt approximate 4% of credit sales. The net realizable value of the receivables on Liberty's year-end balance sheet would be A) $29,900. B) $23,700. C) $23,600. D) $23,500. E) None of the above is correct. 63. Following the completion of an aging analysis, the accountant for Liberty estimated that $1,100 of the receivables would be uncollectible. The net realizable year-end balance sheet would be A) $28,800. B) $28,900. C) $29,900. D) $30,100. E) None of the above is correct. Page 15 David A. Dittman, Financial Accounting Question Sheet HA 121 Final Exam Name: ___________________________________ CUID: _______________________ 64. The following information was available to the accountant of Dove Company when preparing the monthly bank reconciliation: Cash balance per bank $3,450 Outstanding checks 972 NSF check returned with the bank statement 58 Deposits in transit 351 Bank service charges 33 Notes receivable from customer, collected by bank 575 Error: cash payment of $532 received from a customer was incorrectly recorded on the books as 523 The cash balance of Dove Company prior to beginning the bank reconciliation was A) $2,238. B) $2,270. C) $2,336. D) $2,354. E) None of the above is correct. 65. If beginning inventory is understated by $1,300 and ending inventory is understated by $700, pretax income for the period will be: A) understated by $600. B) understated by $2,000. C) overstated by $600. D) overstated by $2,000. E) None of the above. 66. A company reports its cost of goods sold as $20.0 billion in 20B. It has $1.8 billion in inventory and reports accounts payable at $1.6 billion in 20B. In 20A, ending inventory was reported at $1.2 billion and accounts payable was $1.1 billion. How much cash was paid to suppliers for 20B? A) $21.2 billion B) $19.9 billion C) $19.5 billion D) $20.1 billion E) None of the above Page 16 David A. Dittman, Financial Accounting Question Sheet HA 121 Final Exam Name: ___________________________________ CUID: _______________________ 67. Bethany Company plans to depreciate a new building using declining-balance depreciation with 200 percent acceleration rate. The building cost $400,000. The estimated residual value of the building is $50,000 and it has an expected useful life of 25 years. Assuming the first year's depreciation expense was recorded properly, what would be the amount of depreciation expense for the second year? A) $15,360. B) $16,000. C) $29,440. D) $32,000. E) None of the above is correct. 68. Helm Corporation purchased a machine with an initial cost of $80,000, a residual value of $5,000, and an estimated useful life of 10 years. At the beginning of the fifth year, Helm spent $10,000 for an extraordinary repair. Following the repair, Helm estimated that the machine had a remaining useful life of 8 years, and that the residual value was unchanged. Calculate depreciation expense on the machine for the fifth year, assuming that Helm uses the straight-line method. A) $5,625. B) $7,250. C) $7,500. D) $6,875. E) None of the above is correct. 69. A revision of an asset's estimated useful life from 20 to 25 years after the asset has been depreciated for 10 years would result in A) reporting a lower fixed asset turnover ratio for year 11. B) a lower earnings per share reported in year 11. C) a lower return on equity for year 11. D) none of the above. E) all of the above. Page 17 David A. Dittman, Financial Accounting Question Sheet HA 121 Final Exam Name: ___________________________________ CUID: _______________________ 70. Bennett Industries purchased a large piece of equipment from Crumpet Company on January 2, 20A. Bennett signed a note, agreeing to pay Crumpet $400,000 for the equipment on December 31, 20C. The market rate of interest for similar notes was 8%. The present value of $400,000 discounted at 8% for three years is $317,520. On January 2, 20A, Bennett recorded the purchase with a debit to equipment for $317,520 and a credit to notes payable for $317,520. On December 31, 20A, Bennett recorded an adjusting entry to account for interest that had accrued on the note. The approximate amount of interest expense that would have accrued at December 31, 20A, would be A) $25,400. B) $32,000. C) $76,200. D) $96,000. E) $50,803. Page 18