#16 principles of ifa

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Ifa: The 16 Odu Ifa & Their Meaning.

The meaning of the 16 Odu Ifa of the Ifa is based on 16 symbolic or allegorical parables contained in the 16 Core Chapters or Principles that form the basis of the Ifá, a system of divination of the Yoruba people of Nigeria. The Grand Priest of Ifa, the Babalawo or Iyanifas are the Priests and Priestesses of the Ifa Oracle that receive and decode the meaning of the Divine Messages contained in the Odu Ifa Parables that are transmitted to them using a Divination Chain known as Opele or the Sacred Palm or Kola Nuts on a Wooden Divination Tray called the Opon Ifa. When the 16 Odu Ifa is combined, a total of 256 Odu emerges which is essentially a collection of 16 Odu, each of which has sixteen alternatives that are believed to reference all situations, circumstances, actions, and consequences in life. These form the basis of traditional Yoruba spiritual knowledge and are the foundation of all Yoruba divination systems. Ifá proverbs, stories, and poetry are not written down. Rather, they are passed down orally from one Babalawo to another. People consult Ifa for divine intervention and spiritual guidance. The 16 Odu Ifa:

- Eji Ogbe: The principle of Eji Ogbe is the idea of perfect alignment with Destiny. Ifa teaches that all human Destinies are rooted in the spiritual discipline of developing good character.

- Oyeku Meji: It references the idea that death represents the end of a cycle for example the end of poverty, the end of ill health, the end of confusion, and the end of loneliness.

iii) Iwori Meji: It focuses on the ability to identify REAL possibilities.

iv) Odi Meji: Odi means the spirit of female reproductive organs; it is known as the seal. To seal something in a ceremony is to guarantee it will manifest. A seal is anything irreversible such as birth.

v) Irosun Meji: Irosun Meji occupies the fifth position within the order of Odu Ifa in Yorubaland. Irosun means the spirit that protects the head and descends. The Odu is known as the sounding Osun. Osun is the spirit that protects the head (Ori). The head is where memories are stored, so by protecting the head, Osun preserves the past. Irosun Meji is the stable and inflexible reality of what has come before us.

vi) Owonrin Meji: Owonrin means brought by the hands. It says the solidification of the past lays the foundation for that which is to come. Humans are born with a spectrum of potential that cannot be changed. Within the spectrum, we can make choices affecting the way our potential becomes manifest.

vii) Obara Meji: Obara is the Odu that incarnates humility in the struggle with arrogance. For those who are struggling to find abundance cleaning away the negative effects of arrogance is the first step towards accessing your ability to create abundance.

viii) Okanran Meji: Here is a warning not to scatter your attention. Okanran refers to new beginnings and a change of direction in your life. This change needs to be focused and directed towards a specific goal in order to be effective.

ix) Ogunda Meji: Ogunda Meji is a reference to the courage of Ogun to face unknown obstacles. When some people have problems they complain and blame others. In Ifa, complaining and blaming others is called ibi. Ire comes from accessing Ogun’s Ase, which is the Ase of the courage to take responsibility for all of your problems and the willingness to face them head-on.

x) Osa Meji: There are some stories attached to his Odu, simply put, it is said according to the Odu Ifa Osa Meji Ifa explains what happened between the Iyami and human beings: When humans (eniyan) and birds (eye) came to earth (Aye) from the sky (Orun) they made the sacred promise they will never kill each other. Time passed by and human beings became hungry because there wasn’t food for them and so they started to die one by one; Esu came to humans and put in their minds why they were dying with so many birds around. Humans decided to break the promise and started to kill the birds and eat them. The Eleye became very furious and went to Eledumare who said that human beings were guilty and since that moment the Eleye or Iyami will have the power to interfere in the human’s life and do what they want with them. Human beings broke the promise, they broke the equilibrium and now they need Iyami’s favor to avoid negativities.

xi) Ika Meji: This speaks of running away from evil thoughts, evil actions, and evil utterances. IFA says evil does not pay, but doing good and thinking well, and speaking out good words attract enormous blessings from OLODUMARE.

xii) Oturupon-Meji: Oturupon-Meji occupies the twelfth position in Odu Ifa. It is an image of instability within the forces of the earth. Oturupon Meji reveals how the faculty of intelligence came to the world. It relates to Egungun (Ancestor Society). The Egungun should be allowed to comment on the resolution of any conflict. Oturupon deals with the spiritual consequence of lack of courage.

xiii) Otura Meji Otura meji means peace, harmony, love, and light through proper examination of mind, heart, and soul to find the infinite wisdom, infinite power, and the infinite supply of all that is necessary to achieve our earthly destiny and spiritual growth.

xiv) Irete Meji: Under this Odu, Orunmila speaks of possible initiation into IFA to guarantee long life and good health. This Odu speaks of the prosperity of life and the Exaltation of life if the possible offering of rituals, sacrifice, and initiation to encourage the fulfillment of life and happiness.

xv) Ose Meji: Ose Meji says there is a woman that is looking to have children but she has been unsuccessful up till this point. Ose Meji says this person must make a sacrifice. Ose Meji says that if this person can sacrifice, they will soon find a spouse, and birth to children, and receive a financial increase.

xvi) Ofun Meji: Ofun Meji occupies the sixteenth position within the order of Odu Ifa in Yorubaland, West Africa. In Ogbe Ofun, it means that the person is in alignment with their destiny and is receiving blessings as a result of the effectiveness of their prayers and spiritual discipline. Read the full article

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HOW TO PRACTICE IFA RELIGION

Many people come to me seeking out reputable priests and priestesses within traditional African systems. There are several available, but I know they can be difficult to find. That’s why I provide reputable Ifa readings through my website.

Since I started offering these services, a few of my clients have asked me to explain more about the beliefs and tenets of Ifa. So, I decided to cover this topic in more depth in a 16-part series. Since I don’t focus on Ifa as much on the African Spirit podcast, I will also address this topic in more depth over time. So, stay tuned if you want to know more about this sacred tradition.

It is important to note that Ifa is not a proselytizing religion. People do not actively seek to convert followers to Ifa. Instead, they focus on living their lives in accordance with Ifa principles. Therefore, it is unlikely that you will see signs and billboards pointing you to an Ifa temple or have random people approaching you with pamphlets about the religion.

Instead, you will have to search out Ifa resources on your own. It is a growing community but is not as easily visible as other religions. This is why this series and additional information about this system are crucial to new devotees.

ORISHAS OF THE IFA RELIGION

If you are new to Ifa, you should know a few things before you begin practicing the religion. First, it is vital to understand that Ifa is a monotheistic religion though devotees serve many deities. Some view the Ifa religion as polytheistic, meaning many gods or deities are worshiped.

However, the true essence of Ifa is monotheistic. Ifa devotees believe in a Supreme Creator referred to as Oludumare. Though, the Orishas and other forces created by Oludumare significantly impact our day-to-day lives. Therefore, they are reverenced or honored through offerings and sacrifices.

Some of the more well-known Orishas include the ones outlined below. But, there are many more Orishas that you will come in contact with as you develop your practice.

ORUNMILA

Also known as Orula or Orunla, this Orisha is associated with divination, wisdom, and prophecy and is often invoked for guidance and protection. Orunmila is one of the essential Orishas in the Yoruba religion and is widely revered among followers of other Orisha traditions in the Caribbean Islands and South America.

ESHU

Also referred to as Esu, this Orisha is considered the Orisha of mischief and change. Eshu is typically depicted as a man with two faces, one black and one red. These colors represent change and opposition. Eshu is often described as a trickster god, as he is known for playing tricks on people. He is also known for being very helpful as he is the god of crossroads, capable of opening doors of opportunity.

OBATALA

This is the Orisha of peace, purity, and creativity. Obatala is typically depicted in all white, which represents purity. He is known to be very fair and just, with little to no tolerance for immorality.

OSHUN

The Orisha of love, beauty, and fertility is known as Oshun or Osun in the Ifa and other diasporic traditions. Oshun is typically depicted as a beautiful woman with yellow or gold clothing, which symbolizes beauty and happiness.

OGUN

The Orisha of war and strength is popularly known as Ogun in many African diaspora traditions, including Ifa. Ogun is typically depicted as a man dressed in all black, carrying weapons. He is also associated with the colors green and black in Yoruba, which represent the forest or clearing a path. In diasporic traditions, he is most commonly associated with the color red, which embodies the energy of passion, power, and war.

SANGO

One of the most famous Orishas in Yorubaland, Sango, is the god of thunder and lightning. Sango is said to be a very powerful Orisha and is often considered to be the king of the Orishas in Yoruba. This Orisha is very passionate and can be both good and bad-tempered. Sango is usually depicted as a man carrying a double-headed ax and is often associated with the color red. Sango is also the patron of the Orisha of the Yoruba people.

OYA

Oya is a very important figure in the Ifa religion. She is the wife of Ogun, the god of war, and is also the goddess of the wind and storms. Oya is a powerful warrior goddess and is often depicted carrying a sword or spear. She is also associated with crows and birds of prey. Oya is a fierce and protective goddess who is sometimes invoked during trouble or conflict. She is also the patroness of women who experience difficult times, such as childbirth or menopause. Oya is a popular goddess. Her shrines can be found throughout Nigeria and other parts of West Africa.

These are just some of the few Orishas you should be aware of as you connect with Ifa. Some of them will be more prominent in your journey than others. However, all Orishas play a role in each of our lives in some way or another.

ANCESTOR VENERATION

It is also important to begin an ancestor veneration practice before starting any African spiritual system. This will help you connect to your African roots and the spirit world, as your ancestors will guide you along your journey.

This should be your first step before embarking on an Ifa spiritual journey. Your ancestors can help you find the right resources and connect with the right people along your path. But it may be necessary to do ancestor connection or elevation work before you begin venerating them. There are many ways to accomplish this goal.

STUDYING IFA

If you are interested in practicing Ifa, start by doing some research to learn more about the belief systems and the Orishas. Once you have a general understanding of the religion, begin incorporating Orisha worship into your own life in subtle ways. And finally, seek out an Ifa community that you can connect with and learn from.

To practice Ifa, followers must first learn about the Orishas that they may be working with. This can be done by reading religious texts, attending ceremonies, or speaking with a priest or priestess of the system. Once you have a general understanding of the system, you can begin to incorporate the principles and Orishas into your own life in healthy and productive ways.

By connecting with the system this way, you can begin to live your life according to Ifa principles. This includes living in harmony with nature, respecting your elders, and working hard to better yourself and your community.

Connecting with an Ifa community at the beginning of your journey is important. This can provide you with support and guidance as you learn more about the religion. There are Ifa temples in many parts of the world, so finding one near you should not be difficult. You can also find many resources online, such as books, articles, and websites dedicated to Ifa.

Here is a list of popular books about the Ifa tradition that you can get started with:

UNDERSTANDING IFA GUIDELINES

It is very important to understand Ifa guidelines before fully embracing the system. There is a strict set of rules and regulations that should be followed in order to avoid any negative consequences. Some of these guidelines include:

Do not engage in any activities that could result in spiritual or physical harm or abuse.

Do not abuse drugs or alcohol while participating in Ifa ceremonies or rituals.

Do not violate individual and community taboos.

You will become aware of many other guidelines as you continue your practice. But, do understand that Ifa is a tradition based on standards of moral conduct. Adherents are expected to live a life of good character to achieve success in life.

IFA RELIGION DIVINATION

Get as much information as you can about Ifa divination before you get a reading. Doing so will help you understand if your reading is legitimate or not. It will also help you understand what to expect during the process. If you have questions about Ifa, ask a knowledgeable priest, priestess, devotee, or mentor for guidance.

When you are ready to get your first Ifa reading, there are a few things you should keep in mind. First, it is important to find a reputable diviner who has been trained in the Ifa tradition. Second, you should be prepared to pay for the reading, as spiritual services are fee-based.

Finally, you should come with an open mind and be willing to accept whatever advice the diviner has to offer. By following these steps, you can ensure that you have a positive and productive experience with Ifa divination.

Once you feel ready, you should get your first Ifa reading. This will help you understand your relationship with the Orishas, your destiny, and what steps you need to take to lead a successful life. After your first reading, be sure to live your life according to Ifa principles so that you can succeed in all areas of your life.

CHOOSING A PRIEST OR PRIESTESS

Don’t be too hasty to commit to a Babalawo (Ifa priest) or Iyanifa (Ifa priestess) at first. Take your time, as this is a very important relationship. There are many Ifa priests and priestesses out there. Some are better than others. You want to find someone you can connect with personally and who you feel comfortable working with.

When you have found the right Babalawo or Iyanifa, it is important to build a relationship of trust with them. This means being honest about your goals and intentions and being open to their guidance. Being respectful of their time and energy is also important, as they offer you valuable services.

Once you have established a good relationship, you can receive Ifa readings and work towards your spiritual and life goals. By following these steps, you can begin practicing Ifa safely and effectively. Remember to respect the Orisha, live in accordance with Ifa principles, honor your taboos, and be open to different interpretations of the religion. By doing so, you will be well on your way to a successful Ifa practice.

Finally, continue to study and research as you practice Ifa. The more you know about Ifa, the easier it will be to follow its teachings and achieve success in all areas of your life.

#ifa religion #ifa tradition #Yoruba Religion #african spirituality

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Empowering Men's Health: Unveiling the Modern Niramaya Package in Delhi

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Our MODERN Niramaya Package 1.4 covers 94 tests under the following categories:

1. CBC 2. Rheumatoid Factor Test (Quantitative) 3. Hs Crp - High Sensitivity Crp 4. Immunoglobulin Ige 5. Folic Acid 6. Iron Profile -I 7. Hba1c 8. Urine Microalbumin 9. Urine Routine Examination 10. Lipid Profile 11. Liver Function Test 12. Kidney Function Test 13. Vitamin B12 14. 25 Hydroxy Vitamin D 15. Ana (Anti-Nuclear Antibodies) By IFA 16. PSA - Free 17. Prostate Specific Antigen (PSA) - Total 18. Thyroid Profile (T3,T4,Ultrasensitive Tsh) 19. Plasma Glucose – Fasting

Note: Minimum 12 Hours Fasting required for Lipid Profile Test within this package for accurate results.

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Overview of 8K AI Upscaling Technology

Experts have not yet finished arguing about the prospects for 4K TVs, but companies are already actively offering 8K models. Basically, skeptics of this trend use two fairly convincing arguments.

Introduction

First, many have not forgotten the relatively recent history of 3D TVs. The rapid growth of its popularity began after a demonstration at CES and IFA in 2010. Many experts quite logically predicted its excellent prospects. Unfortunately, the high cost of producing 3D content has become an insurmountable obstacle to its further development. As a result, almost all companies abandoned 3D support in their TVs. The second argument is based on the eye capabilities. Unfortunately, its maximum sharpness is significantly inferior, for example, to eagle vision. Of course, it would never occur to anyone to watch a 75-inch TV from a distance of, for example, up to 1 meter. But at a more adequate distance, the sharpness of our vision does not allow us to distinguish individual pixels smaller than a certain size. That is, vision does not perceive the difference between, for example, Full HD and 4K TVs with the same screen size. Perhaps the owners of a falcon or an eagle will be able to please their pets with a high-quality image, but they themselves will not see the difference. But these arguments have counterarguments. For example, companies are actively improving 8K AI upscaling technology.

At a minimum, 8K TVs with AI upscaling will provide better quality playback of lower resolution content. In addition, the results of experiments open up some new aspects. In particular, South Korean scientists have studied the effect of vernier acuity (hyperacuity) to image formation by our brain. Their results allowed scientists to hypothesize that the brain is less tired when perceiving content with high resolution. At the same time, it watching provides richer emotions due to high realism of the perceived content.

Resolution

Of course, any TV provides maximum playback quality for corresponding native content in pixel-to-pixel mode. Unfortunately, the real situation on the market is often different from the ideal. For example, the capabilities of modern TVs often significantly exceed the resolution of the content offered. But sometimes devices, on the contrary, do not support content resolution. Of course, companies solve this problem. Modern algorithms use several basic technologies. The simplest of them increases the image resolution, replacing each pixel with four copies of it. Bilinear interpolation is more efficient. These algorithms compare the missing pixel with the two nearest ones, forming a linear gradient to sharpen the image.

Even more efficient bicubic interpolation uses 16 closest points in all directions, increasing color accuracy. Unfortunately, it often provokes a halo effect.

Main methods

A list of the most popular modern methods includes supersampling, checkerboard rendering and upscaling. Supersampling is a spatial anti-aliasing method for removing the aliasing in the rendered images. In fact, it first renders the image in 4K, and then displays it in 1080p resolution. As a result, the detail of the final image increases. Of course, rendering requires sufficient processing power. The Insects screenshot from Microsoft on Full HD TV demonstrates this effect.

Checkerboard Rendering reduces computing power requirements. In particular, it removes every second pixel and forms an image from the rest. The diagrams show the differences between Standard Rendering and Checkerboard Rendering.

Removing pixels slightly reduces the image resolution, but significantly reduces the amount of computation. In fact, upscaling only resizes while maintaining its proportions. It can be considered the simplest method of converting image resolution. In this case, the TV processor forms additional pixels, providing the required resolution. Accordingly, the final image is a set of new averaged pixels.

Unfortunately, the final image comparison demonstrates a significant decrease in quality compared to native content.

Upscaling

A few years ago, Samsung was the first to use the marketing term UHD Upscaling. Strictly speaking, almost any smartphone or computer has long supported this feature. Of course, its quality directly depends on the content. For example, the quality of SD - UHD Upscaling is significantly lower compared to Full HD - UHD Upscaling due to the insufficient number of pixels in the original image. The picture illustrates the difference in quality between SD / HD / Full HD - 4K Upscaling.

But its visualization is almost disappearing for Full HD. The first 4K TVs did not have an AI processor and simply scaled the image to the entire screen area using traditional interpolation and increasing the pixels size. Unfortunately, bilinear interpolation provides a fairly low quality due to loss of information, reduced detail, blurring outlines of objects, noise, etc. Moreover, mutual influence complicates their elimination. For example, sharpening increases noise, and conversely, reducing noise reduces detail. But companies have improved technology by developing AI Upscaling. Using a powerful high-performance processor radically improved upscaling quality. Today, almost all leaders use 8K AI Upscaling technology under different names. But, of course, they all use the same principles. Samsung is one of the leaders in the development of this technology. The company uses the powerful 8K Quantum processor, optimized for neural networks and AI processing. Samsung's MLSR (Machine Learning Super Resolution) technology uses machine learning, object recognition algorithms, and software filters.

Samsung AI Upscaling

Simplified, this technology uses a constantly updated database of the images pairs in high and low resolution. It's formed as follows. The system selects an 8K image and lowers its resolution, adding noise and reducing the clarity of outlines. In addition, it performs several compression/decompression cycles with different quality levels to add characteristic artifacts. Generated images pairs of different quality are divided into classes, processed by algorithms based on neural networks and stored in a database. Subsequently, the processor analyzes the low-resolution image, finds the corresponding algorithm in the database with filters, and replaces it with an 8K pattern. In fact, the 8K AI Upscaling technology generates an image by analogy with the creation of Frankenstein from 8K patterns in the database. During processing, AI analyzes image fragments up to 60 times per second, correcting saturation, detail and white balance. CPU uses code lines of patterns base for localization of processing fragments. Such an algorithm increases the recognition accuracy of displayed objects. As a result, the processor almost accurately distinguishes, for example, the sky from its reflection in the windows. Moreover, the technology works quite well even with streaming video. But cloud computing for such content is not possible. Previously, AI machine learning used a formula bank, which is downloaded to the TV and updated periodically. But new Samsung Q950TS supports innovative Deep Learning using a neural network to expand machine learning. In fact, it creates its own formulas and algorithms, using processor-integrated basic training coefficients. Of course, Deep Learning has become a quality leap in AI processing. It is performed on a per-pixel basis with the use of noise reduction, restoration of contours, texture creation and restoration of small details. Deep Learning is primarily intended for small details and complex images.

Sony and LG 8K AI Upscaling

Sony's 8K AI Upscaling use dual database processing.

The first database recognizes compression noise, compares it with the patterns and eliminates artifacts. The second database increases resolution based on patterns. All new LG TVs use AI 8K Upscaling with new powerful α (Alpha) 9 Gen 3 AI processor with AI Deep Learning algorithms. In addition, it supports AI Picture Pro, AI Brightness and AI Sound Pro technologies.

Conclusions

Probably, experts will continue to argue about the reasonable limits of the screen resolution. But in any case, 8K AI upscaling provides improved quality for lower resolution content. In addition, technology has an added bonus. In particular, Deep Learning of neural networks provides continuous quality improvement due to the expansion of patterns base. Theoretically, the quality of 8K AI Upscaling will constantly improve, creating a paradoxical situation when the new TV works worse than the old model. But of course, the price remains one of the main criteria for the consumer when choosing. Today, this difference reaches several thousand dollars. But many consider it inadequately overpriced compared to the quality gain that provides the modern 8K AI Upscaling. Most likely, companies will continue to improve it performance, while lowering prices for 8K models. This video shows the capabilities of the Samsung 8K AI Upscaling Technology. Read the full article

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Huawei Launches Ground-Breaking Mate 30 Series

Huawei unveiled its ground-breaking Huawei Mate 30 Series at an exclusive launch event in Munich. Setting new standards in every area from aesthetic design through to hardware engineering and software innovation, the Huawei Mate 30 Series is the world’s first second generation 5G smartphone and the pinnacle of mobile technological development. 

Inspired by the design principle of minimalism, the Huawei Mate 30 Series showcases the perfect example of how aesthetic design fuses with technology. Its unique, iconic OLED Horizon Display offers an immersive viewing experience, while the Kirin 990 5G SoC – the first to integrate processing units and a 5G modem on the same chip using the 7nm+ EUV process– affords unrivalled levels of performance and efficiency.

A revolutionary integrated quad-camera includes the SuperSensing Cine Camera, a dual main camera system designed for amazing photographic and videographic results, while the HUAWEI SuperCharge and EMUI10 offer long-lasting battery life for heavy mobile users and an enhanced user experience.

Richard Yu, CEO of Huawei Consumer Business Group, said: “The HUAWEI Mate 30 Series unleashes the full potential of the smartphone. Designed to stand out, it challenges convention while delivering an unrivalled user experience. The era of 5G is an opportunity to rethink smartphone technology and the HUAWEI Mate 30 series is the ultimate expression of what’s possible.”

Futuristic iconic handset

The Huawei Mate 30 Series builds upon the aesthetic of the Mate 20 Series with a futuristic design that is sure to make a lasting impression. With an ultra-narrow notch design and the thinnest of bezels, the Huawei Mate 30 Pro features the Huawei  Horizon Display, which curves at an angle of 88 degrees to maximise the display area to provide an unparalleled, edge-to-edge immersive viewing experience.

Huawei Mate 30 Pro introduces the Intuitive Side-touch Interaction feature to replace the side volume buttons with invisible virtual keys. This feature also allows users to customise the volume key position on either sides of the device and makes the Mate 30 Pro the most integrated, all-in-one design smartphone currently available. Together, Huawei 3D Face Unlock and In-Screen Fingerprint provide high levels of biometric security and convenience.

Turn the device over and the iconic ring design of the quad-camera system immediately stands out, surrounded by a metallic ‘halo’. Mirroring the design of a DSLR camera and designed to be held comfortably, the Mate 30 Series makes the user the focus of the crowd, attracting all the attention. The Mate 30 Pro also features Huawei Acoustic Display Technology to deliver high-quality audio through a sound emitting display. 

World’s First 2nd Generation 5G Smartphone

The Mate 30 Series is powered by the Kirin 990 series chipset, Huawei’s most sophisticated smartphone chipset launched to date. The Kirin 990 5G challenges the limits of silicon-based physics by incorporating a three-level power efficiency architecture for the CPU, Huawei’s self-developed Da Vinci NPU architecture (large dual-NPU + tiny NPU cores) as well as a supersized 16-core GPU to deliver super-fast performance and high-power efficiency. 

Manufactured with the cutting-edge 7nm+ EUV process, the disruptive Kirin 990 5G supports 2G/3G/4G network and 5G Non-StandAlone (NSA) and StandAlone (SA) modes, along with Dual SIM, Dual Standby and FDD/TDD full frequency bands to deliver seamless connectivity. The HUAWEI Mate 30 Series has also been optimised for ultimate OS performance. As the world’s first 2nd generation 5G smartphone, the HUAWEI Mate 30 Pro 5G features 14 antennas for 5G, delivering ground-breaking speed with unrivalled connectivity.

The Mate 30 sports a large battery of 4200mAh, while HUAWEI Mate 30 Pro has an even bigger battery of 4500mAh. With TÜV Rheinland certified wired and wireless Huawei SuperCharge Technology, the 27W Wireless HUAWEI SuperCharge and the 40W HUAWEI SuperCharge provide users safe and fast charging, while wired and wireless in-car charging and a wired powerbank ensure a seamless experience across all scenarios.

Additionally, the Mate 30 Series provides upgraded reverse wireless charging bringing users a quick and convenient way to recharge other devices.

SuperSensing Cine Camera for Stunning Images and Videos

The Huawei Mate 30 is equipped with a SuperSensing Triple Camera, comprising a 40MP SuperSensing Camera, 16MP Ultra Wide-angle Camera and an 8MP Telephoto Camera. Coupled with an ISP 5.0 Image Signal Processor, the Mate 30 enables users to capture high quality photographs and videos.

The phone sports a revolutionary quad camera system with the 40MP Cine Camera, 40MP SuperSensing Camera, an 8MP Telephoto Camera and a 3D Depth Sensing Camera. 

The SuperSensing Cine Camera is a Dual-main camera system capable of taking stunning photos that rival high-end cameras. The Cine Camera features a large 1/1.54-inch sensor size with a high maximum Video ISO of 51200 to capture videos with an extended dynamic range at 4K/60fps as well as ultra slow-motion at the highest 7680 fps. It also supports 4K Low-light Ultra-wide time-lapse video.

The Mate 30 Pro also offers pro-bokeh capabilities while recoding for professional looking results. Additionally, the second of the dual-camera system is a 1/1.7-inch HUAWEI SuperSensing Camera which attracts 40% more lights to deliver stunning results in low light conditions with an impressive light sensitivity of ISO409600, making it the best low light one-shot device ever even for ultra-wide shots.

The 8MP Telephoto Camera offers 3x optical zoom, 5x Hybrid Zoom and up to 30x Digital Zoom. Optical Image Stabilisation (OIS) + AI Stabilisation (AIS) and 3D Depth Sensing, complete the package making the Mate 30 Series the most capable handset for smartphone photography and videography available to consumers. A front-facing 3D Depth Sensing Camera delivers pro-bokeh effects with accurate depth-of-field information for selfies and portraits. 

Faster, Safer and More Engaging Experience

The HUAWEI Mate 30 Series features a range of new features that deliver an amazingly smooth and engaging user experience. Including:

EMUI10 operating system featuring a contemporary magazine inspired layout, Always-On-Display (AOD) where the colour of the lock screen changes throughout the day;

Dark Mode brings enhanced legibility making the screen look gentler and more comfortable when night falls; 

Intuitive Side-touch Interaction to customise invisible virtual keys for volume adjustment, gaming and camera set-up as well as being ideal for both right and left-handed users; 

AI gesture control for contactless screen interaction, whereas AI Auto-Rotate and AI Private View are all designed to improve users experience; 

HiCar smart travel for advanced, seamless connectivity between device and a car’s communication and entertainment system; 

Multi-screen Collaboration allows users to transfer data and control multiple screens between Huawei devices; 

HUAWEI 3D Face Unlock and In-screen Fingerprint to provide advanced data security and privacy protection with (HUAWEI Mate 30 Pro only);

Huawei also launched its much anticipated Huawei Watch GT 2 range of wearables. Equipped with the self-developed Kirin AI chip, the GT 2 range offers class-leading battery life and a host of new features and functions including 15 sports modes, 10 training modes specifically for running, an enhanced music player and Bluetooth voice calls.

 Additionally, Huawei also announced the availability of its Huawei FreeBuds 3 true wireless Bluetooth earphones which won 11 Best of IFA media awards at the recent IFA consumer electronics show. The black and white versions of FreeBuds 3 will be available in China, Europe, Middle East, Russia, Asia Pacific and Latin America starting from October 2019.  

Colours, Pricing, and Availability 

The 6.53-inch Huawei Mate 30 Pro and 6.62-inch Huawei Mate 30 come in various colour variants and materials: Emerald Green, Space Silver, Cosmic Purple, Black, while Forest Green and Orange are available in vegan leather.

Huawei Mate 30 Pro (5G): EUR 1199

Huawei Mate 30 Pro: EUR 1099

Huawei Mate 30: EUR 99

The post Huawei Launches Ground-Breaking Mate 30 Series appeared first on Businessliveme.com.

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Towards a less arbitrary unequal: Designating last habitual residence in stateless asylum claims in the US

The following article was written by Jamila Odeh, a third-year student at University of Michigan Law School. It was originally published by RefLaw on 12 November 2018. It is reprinted here with permission.

Two-year-old Yazan is not a citizen of Syria like his parents, or of Lebanon, his birthplace.[1] He is one of the 80,000 stateless[2] children worldwide.[3] In the chaos of fleeing from war, Yazan was born with no way to prove national origin.[4] Luckily, his refugee status was already recognized,[5] affording surrogate national protection unavailable to many stateless people.[6]

Under the 1951 Convention Relating to the Status of Refugees,[7] stateless refugees are defined in a clause that is parallel to but distinct from the clause for individuals with a nationality:[8]

“The term refugee shall apply to any persons who ... owing to well-founded fear of being persecuted for [a convention reason] … is outside the country of his nationality and is unable, or owing to such fear, is unwilling to avail himself of the protection of that country; or who, not having a nationality and being outside the country of his former habitual residence [(CFHR)] ... is unable or, owing to such fear, is unwilling to return to it.”[9]

The Convention made status possible for stateless persons.[10] Yet, understanding which stateless persons are refugees is complex. Claimants like Yazan, a toddler who already resided in three countries, present additional difficulties.[11]

Determining status for people with multiple CFHR is this Note’s focus. Part I introduces an outlier in US case law and the traditional US method. Part II explores international case law and the use of CFHR. Part III argues for the consistent reference approach to CFHR,[12] a less arbitrary alternative for US law.

I. Ouda and Najjar: County of last habitual residence in US law

The applicant in Ouda v. Immigration and Naturalization Service[13] shares significant similarities with the applicants in the cases assessed in Part II[14]—they were all stateless Palestinians[15] born in Kuwait, where they lived for over twenty years.[16] They all fled around the start of the Gulf War.[17] Each applicant also lived in one or more additional countries for about two years, then moved to the country where they sought asylum.[18]

In Ouda, the court demonstrated confusion about applying the US country of reference test.[19] US law defines its reference point as “any country in which such person last habitually resided...”[20] Ouda fled Kuwait to Bulgaria but could not legally re-enter either.[21] The Immigration Judge (IJ), the Board of Immigration Appeals (BIA), and presumably the Sixth Circuit agreed that she faced no persecution in Bulgaria.[22] The IJ decided Bulgaria was her country of last habitual residence.[23] This choice aligned with the government’s argument that last habitual residence means immediately prior country of residence.[24] It is also supported by the replacement of the word “former” with “last” in the US definition.[25]

Ouda appealed, arguing that she never had citizenship in Bulgaria and could not return.[26] The BIA reasoned that IJ error would be harmless; alleged persecution in Kuwait was irrelevant, as return there was impossible.[27] The Sixth Circuit reversed, finding no reason at law to prevent an applicant from claiming asylum despite nonreturnability.[28] It also found a well-founded fear of persecution for a convention reason in Kuwait.[29] The court did not explain why Kuwait served as the reference point beyond rejecting BIA reasoning.[30]

Ouda is an outlier,[31] but Najjar v. Ashcroft illustrates the dominant understanding of US law.[32] Najjar, also a stateless Palestinian,[33] lived in Saudi Arabia for thirteen years, Egypt for eight,[34] and in United Arab Emirates (UAE) for two immediately prior to seeking asylum in the US.[35] Utilizing the same logic as the government in Ouda[36] the IJ, BIA, and Eleventh Circuit agreed that his last habitual residence was UAE.[37]

The Najjar approach can force arbitrary outcomes. Najjar’s country of reference did not reflect his closest national relationship.[38] Worse, if Najjar was persecuted in Egypt or Saudi Arabia, but not UAE, he may have been returned to his persecutors in violation of the duty of non-refoulement.[39] If the Ouda court followed Najjar, Ouda would have been deprived of status because of her brief stay in Bulgaria.[40] The Najjar approach may also offer unnecessary protection.[41] For example, imagine Najjar was persecuted in UAE but could have been protected in Egypt or Saudi Arabia. Comparing the US to other jurisdictions adds depth to this basic description of Ouda and Najjar.

II. CFHR in other jurisdictions   

CFHR has two uses as a point of reference: the well-founded fear inquiry and the alternative protection inquiry. One connects well-founded fear of persecution to status, and the other a caveat to status based on protection. The two questions are independent, but for each country of reference should be determined with a consistent approach.

An analogy between internal flight alternative (IFA) doctrine and the question of alternative protection for stateless applicants clarifies the term CFHR, although the stateless portion of the definition references ability to return instead of the availment of protection,[42] CFHR accounts for protection in some way.[43] Goodwin-Gill explained that CFHR “necessarily seem[s] to imply some degree of security, status, of entitlement to remain and to return.”[44] Similarly, Hathaway contended that CFHR “give[s] rise to a bond ... that approximates in critical respects the relationship between a citizen and her state.”[45] Thus, the question of return for stateless applicants must be understood in light of the expectation that return to a CFHR affords meaningful protection.

Hathaway’s insistence on IFA protection as “existence of some affirmative defense or safeguard,”[46] should be applied rigorously to inquiries about CFHR as alternative protection. There are “two key clauses” in the definition, “the well-founded fear clause … and the protection clause … the clearest textual home for IFA is in the protection clause.”[47] The danger is conflating the clauses, placing an inappropriate onus on the applicant.[48] For the same reason, it is inappropriate to attach legal returnability to an assessment of well-founded fear.[49] Asking a stateless applicant to run or hide from persecution before providing protection puts a high burden on the applicant, unrooted in the Convention. Moreover, the stateless applicant is formally rightless, elevating her risk on return.[50] The idea that CFHR accounts for meaningful protection informs the background for the consistent approach.

The case Thabet v. Canada contemplated an array of interpretations of CFHR, which provides a roadmap to the consistent approach to CFHR.[51] The facts resembled Ouda,[52] but the second CFHR was the US.[53] This Note alters Thabet’s march through CFHR interpretations by artificially separating methods into the component parts of use for a well-founded fear inquiry and alternative protection inquiry. The difficulty in pulling the issues apart reflects conceptual weakness in the review of stateless applicants.

To locate the country of reference for well-founded fear there are two basic methods. The first designates a single reference point by some arbitrary measure or proxy for the significance of state ties.[54] CFHR as last residence, discussed with Najjar, is an example of designating a single reference.[55] Importantly, any iteration of naming a single CFHR will not respect the duty of non-refoulement.[56] The second approach to the well-founded fear inquiry allows any CFHR to be the county where well-founded fear is established.[57] This method was adopted in Thabet for the first prong.[58] It removes some arbitrariness.[59] In addition, someone with multiple citizenships can have fear with respect to one and qualify, so it is a sensible way to make the statelessness clause more parallel to the citizenship clause. This method better identifies those who need protection for a convention reason, and is well aligned to the Convention’s object and purpose.

The method of designating the country of reference for the second prong, alternative protections, is highly contested. Grahl Madsen, rejecting the principle behind protection alternatives for stateless applicants altogether, advocated that CFHR is the place from which a person fled “in the first instance.” Once established, it “remains irrespective of subsequent residence changes.”[60] Yet, if that person were persecuted again in a different country, the persecution creates a renewed first instance and therefore a new country of reference. Thus, there is an implicit understanding any CFHR may establish well-founded fear and no CFHR may establish alternative protection.

Al-Anezi is an example of the Grahl-Madsen approach in Australian case law. The case features the same fact pattern presented in Ouda and Thabet,[61] the stateless Palestinian applicant was born and lived in Kuwait for some time and lived in two other CFHR. The court felt multiple CFHRs unfairly decreased chances of status by providing more possibilities for alternative protection, placing stateless individuals in a worse position than nationals.[62] Thus, once the applicant established well-founded fear in Kuwait, the court did not inquire about protection alternatives at other CRHR.[63]

In contrast, Hathaway’s second prong approach, adopted by Thabet,[64] exhausts all CFHRs.[65] The Convention requires applicants with dual or multiple citizenship to show inability to find protection in any other country of citizenship. Hathaway avoids favoring the stateless by allowing applicants to circumvent protection elsewhere.[66]

The consistent reference approach to CFHR demands that the two prongs, well-founded fear and alternate protection, are balanced. The prongs are assessed separately,[67] and CFHR is approached consistently for each. For example, if all CFHR may be considered for well-founded fear, the same would be true of the protection alternative inquiry. There is an inverse relationship: the first prong can help and the second prong can hurt applicants. It is essential not to allow slippage in the CFHR considered for each inquiry.[68] In the US, the arbitrary standard mixed with the most uneven structure may have increased confusion about CFHR determinations.[69] The Thabet test was well-formed as two separate questions, and it utilized all former residences as its consistent reference.

III. What was there all along

The judicial decision in Ouda could be read several ways.[70] The court decoupled returnability and well-founded fear.[71] The judge remarked that as “actual deportability of an alien is irrelevant to the issue of whether the alien qualifies as deportable, it stands to reason that the actual deportability of an alien is equally irrelevant to the issue of whether she qualifies as a refugee.”[72] The logic is upside-down, but the idea remains. The declaratory nature of status creates a duty to protect. Perhaps the judge dismissed the need for forward-looking risk because of the US presumption of continuing status based on past persecution.[73]

Alternatively, the decision could be chalked up to a choice that Ouda’s relationship with Bulgaria was not significant enough. It is plausible given that the reasoning and citations all addressed the relationship between deportability and well-founded fear.[74]

The final explanation could make the US approach less arbitrary. The issue of designating a country of last habitual residence can be sidestepped by showing either well-founded fear with respect to none or all potentially relevant countries.[75] In practice, the IJ, BIA, and Circuit Courts regularly do fact-specific inquiries about a claimant’s relationship with various countries down to the minutia of travel accommodations.

The Court, aware that the applicant most recently lived in Bulgaria for two years, citing to Najjar, found that Kuwait was the last habitual residence. It seems possible that the judge simply read the term “last” to mean before.[76] The US statutory language modifies country with “any last,” leaving a plural understanding open. The Ouda decision may open the door—even just a crack—to a less arbitrary way to designate the country of reference in the US.

IV. Conclusion

The consistent reference approach to CFHR is a more balanced way to adjudicate stateless applicants. The consistent approach may also aid in keeping well-founded fear and protection inquiries separate. It does not dictate the content of CFHR, except that the well-founded fear and alternate protection assessments occur with respect to the same countries of reference.

____

[1] Somini Sengupta & Hwaida Saad, As Refugees Flee, Thousands of Children Have No Country to Call Their Own, NY Times (Nov. 5, 2015), https://www.nytimes.com/2015/11/06/world/europe/as-refugees-flee-thousands-of-children-have-no-country-to-call-their-own.html.

[2] A stateless person is “a person who is not considered as a national by any State under the operation of its law.” Convention Relating to the Status of Stateless Persons, Art.1, Sept. 28, 1954, 360 U.N.T.S. 15, http://www.unhcr.org/en-us/protection/statelessness/3bbb25729/convention-relating-status-stateless-persons.html.

[3] Rep. of the UN High Commissioner for Refugees, at 10, U.N. Doc. A/74/12 (2017), http://www.refworld.org/pdfid/59c8d9594.pdf.

[4] Sengupta & Saad, supra note 1. Yazan’s mother could not declare paternal nationality, illustrative of the sexism often involved. See generally, Maryellen Fullerton, The Intersection of Statelessness and Refugee Protection in US Asylum Law Policy, 2 J. Migration and Hum. Sec. 144, 148–49, http://jmhs.cmsny.org/index.php/jmhs/article/view/30.

[5] Sengupta & Saad, supra note 1.

[6] The Convention Relating to the Status of Stateless Persons, Sept. 28, 1954, 360 U.N.T.S. 15, may also protect stateless persons. Yet, far fewer states ratified it. David C. Baluarte, Life After limbo: Stateless Persons in the United States and the Role of International Protection in Achieving a Legal Solution, 29 Geo. Immigr. L. J. 351, 357–58 (2015), https://scholarlycommons.law.wlu.edu/cgi/viewcontent.cgi?article=1508&context=wlufac

[7] Convention relating to the Status of Refugees, Jul. 28, 1951, 189 U.N.T.S. 137 [hereinafter Refugee Convention]; Protocol relating to the Status of Refugees, Jan. 31, 1967, 606 U.N.T.S. 267 [hereinafter Refugee Protocol].

[8] Refugee Convention, Art. 1(A)(2). See Guy S. Goodwin-Gill & Jane McAdam, The Refugee in International Law 67–70 (2007); Hathaway & Foster, supra note 8, at 64–75.

[9] Refugee Convention, Art. 1(A)(2) (emphasis added); Kate Darling, Protections of Stateless Persons in International Asylum and Refugee Law, 21 Int’l J. Refugee L. 742, 750 (2009).

[10] The Convention also set a higher bar for stateless applicants. See Darling, supra note 9, at 743 (“Even at its most generous, the international refugee protection regime requires more of stateless persons than it does of nationals who seek refugee status.”).

[11] Sengupta & Saad, supra note 1.

[12] This Note coins consistent reference approach as a descriptive term.

[13] 324 F.3d 445 (6th Cir. 2003).

[14] See infra Part II.

[15] The small exception is the Bedouin applicant in Al-Anezi v. Minister for Immigration and Multicultural Affairs, 92 FRC 283 (Aus. 1999), http://www.refworld.org/cases,AUS_FC,3ae6b7617.html. Bedouin are semi-nomadic people. Although they may not identify with Palestinian nationality, they historically lived in the Negev region of Palestine. See Emanuel Marx, Bedouin of the Negev, 7 (1967).

[16] See Ouda, 324 F.3d at 447; Al-Anezi, 92 FRC 283, (Aus. 1999) at ¶ 2–8; Thabet v. Canada, 1 F.C. 685 (C.A. 1998).

[17] See Ouda, 324 F.3d at 447; Al-Anezi, 92 FRC 283 at ¶ 2–8; Thabet, 1 F.C. 685 (C.A. 1998).

[18] See Ouda, 324 F.3d at 447; Al-Anezi, 92 FRC 283 at ¶ 2–8; Thabet, 1 F.C. 685 (C.A. 1998).

[19] See Ouda, 324 F.3d at 448; Sarah B. Fenn, Note, Paipovic. v. Gonzales: Defining Last Habitual Residence for Stateless Asylum Applicants, 40 U.C. Davis L. Rev. 1545, 1562 (2007), https://lawreview.law.ucdavis.edu/issues/40/4/note/DavisVol40No4_Fenn.pdf.

[20] 8 U.S.C. § 1101(a)(42)(A) (2012), https://www.gpo.gov/fdsys/pkg/USCODE-2011-title8/ pdf/USCODE-2011-title8-chap12-subchapI-sec1101.pdf. This is potentially distinct from CFHR, and arguably a Convention violation. See, Joan Fitzpatrick, The International Dimension of U.S. Refugee Law, 15 Berkeley J. of Int’l L. 1 (1997), https://scholarship.law.berkeley.edu/cgi/viewcontent.cgi?article=1154&context=bjil.

[21] Ouda, 324 F.3d at 447–48.

[22] Ouda, 324 F.3d at 448–450, 453.

[23] Id. at 448–50; Fenn, supra note 19, at 1562.

[24] Ouda, 324 F.3d at 449–50. See, 8 USC § 1101(a)(42)(A); Hathaway & Foster, supra note 8, at 73.

[25] Compare, Refugee Convention, Art. 1(A)(2), with 8 U.S.C. § 1101(a)(42)(A).

[26] Ouda, 324 F.3d at 449. Applicant’s argument is nonsensical as Kuwait, the correct reference point in her view, suffers identical deficiencies. See, Hathaway & Foster, supra note 8, at 69 (discussing the controversial usage of legal returnability as an indicator of CFHR).

[27] Id. at 450. Cf. Fenn, supra note 19, at 1561.

[28] Ouda, 324 F.3d at 452 (“we can find no support for the proposition that an asylum applicant is precluded from seeking asylum in the United States should it prove to be the case that the country from which she seeks asylum will not take her back if the INS tries to deport her.”).

[29] Ouda, 324 F.3d at 454.

[30] Id. In a sense, it is like the court is simply saying why not.

[31] See e.g. Najjar v. Ashcroft, 257 F.3d 1262, 1294–95 (11th Cir. 2001); Hathaway & Foster, supra note 8, at 72. But see, Fenn, supra note 19, at 1564 (suggesting the US approach was never well-settled).

[32] 257 F.3d 1262 (11th Cir. 2001).

[33] Id. Najjar’s facts deviate from this comment’s other examples. His first asylum and withholding hearings were done ex parte, in camera, due to an FBI terror investigation of the applicant. Id. at 1274. The case was eventually heard on public evidence, id.

[34] Id. at 1294.

[35] Id.

[36] Ouda, 324 F.3d at 449–50.

[37] Najjar, 257 F.3d at 1294.

[38] 257 F.3d at 1294; Hathaway & Foster, supra note 8, at 73 (discussing Najjar).

[39] See Refugee Convention, Art. 33.

[40] Ouda, 324 F.3d at 449–50. Not a refugee and not deportable is a common predicament for stateless US asylum applicants. Baluarte, supra note 6, at 352–353.

[41] Hathaway & Foster, supra note 8, at 72.

[42] Refugee Convention, Art.1(A)(2).

[43] Goodwin-Gill & McAdam, supra note 9, at 526.

[44] Id.

[45] Hathaway & Foster, supra note 8, at 67.

[46] Id. at 765 (quoting Hathaway and Foster).

[47] Refugee Protection at International Law: UNHCR’s Global Consultations on International Protection 365 (Erika Feller et al. eds. 2003).

[48] Id. at 25–26; Hathaway & Foster, supra note 8, at 335–41.

[49] The court in Thabet rejected its glossed version of Hathaway’s argument that tied unlikelihood of forward-looking fear to the issue of returnability. As the court correctly pointed out this short-cut does not work in all cases. For example, when persecution is expulsion and forward-looking risk may be faced abroad.

[50] Darling, supra note 9, at 756 (“However, the stateless person’s condition of rightlessness, a condition that makes all other fundamental human rights effectively precarious, remains persistent and protracted.”).

[51] 1 F.C. 685, 686 (F.C.A. 1998).

[52] See supra p. 3.

[53] Id.

[54] One such proxy may be an individual’s choice to reside with the intent to remain, supported with understanding “habitual” with a durability. See, 1951 Convention Relating to the Status of Refugees and its 1967 Protocol, 57 (Andreas Zimmerman et al. eds., 2011).

[55] See supra Part I. The Canadian court rejects this approach for its lack of adherence to the Convention. Thabet,1 F.C. at [694]. (“[I]t leaves open the possibility that a person may be returned to a persecuting state…).

[56] See infra Part I.

[57] Thabet, 1 F.C. at [695–96].

[58] Id.

[59] Id.

[60] Thabet, 1 F.C. at [695].

[61] See supra Part I.

[62] Al-Anezi, 92 FRC at para 22. The court added that stateless persons lacked “reciprocal rights and duties” to their country of residence. Id. at para 23.

[63] Id. at para 22.

[64] Thabet, 1 F.C. at [695]; But see, Guy S. Goodwin-Gil, Stateless Persons and Protection under the 1951 Convention; Refugees, Beware of Academic Error! (1992) (critiquing the introduction of the second prong portion of the Hathaway test and its original returnability language as needlessly complicating matters for applicants).

[65] Hathaway & Foster, supra note 8, at 72.

[66] Refugee Convention, Art. 1(A)(2).

[67] Cf. Refugee Protection at International Law: UNHCR’s Global Consultations on International Protection 26 (Erika Feller et al. eds. 2003) (making a similar point about internal protection alternatives).

[68] See e.g. Himri v. Ashcroft, 378 F.3d 932 (9th Cir. 2004), modified, No. 03–71152, 2004 WL 1879255 (Aug. 24, 2004). Applying different standards for designating countries of removal. Compare, 8 USC § 1101(a)(42)(A), with  8 USC § 1231(b).

[69] See e.g. Paripovic v. Gonzales, 418 F.3d 240, 241-42, 245 (3d Cir. 2005) (narrowing inquiry down to only temporal considerations); Ouda v. INS, 324 F.3d 445, 449-50 (6th Cir. 2003).

[70] Ouda, 324 F.3d at 450.

[71] Ouda, 324 F.3d at 449–50.

[72] Id. at 452.

[73] Id. at 453.

[74] Id.

[75] See, Fenn, supra note 19, at 1564.

[76] Reading ambiguity between possible meanings is easier with the Convention language “former/dernier.”

#refugees #refugee #stateless #statelessness #asylum #asylum seeker #Jamila Odeh #last habitual residence #Ouda #Najjar #former habitual residence

[robyn1bozeman-blog]

ACC 206 Week 9 Quiz – Strayer New

Click on the Link Below to Purchase A+ Graded Course Material

 http://budapp.net/ACC-206-Accounting-Principles-II-Week-9-Quiz-Strayer-267.htm

 Quiz 7 Chapter17

  THESTATEMENTOFCASHFLOWS

  CHAPTERSTUDYOBJECTIVES

 1.Indicatetheusefulnessofthestatementofcashflows.

 2.Distinguishamongoperating,investing,andfinancingactivities.

 3.Prepareastatementofcashflowsusingtheindirectmethod.

 4.Analyzethestatementofcashflows.

 5.Explainhowtouseaworksheettopreparethestatementofcashflowsusingtheindirectmethod.

 6.Prepareastatementofcashflowsusingthedirectmethod.

    TRUE-FALSESTATEMENTS

 1.     Thestatementofcashflowsisarequiredstatementthatmustbepreparedalongwithan income statement,balancesheet,andretainedearningsstatement.

 2.     Forexternalreporting,acompanymustprepareeitheranincomestatementora statementof cashflows,but notboth.

 3.     Aprimaryobjectiveofthestatementofcashflowsistoshowtheincomeorlosson investingandfinancingtransactions.

 4.     A statementofcashflows indicatesthe sourcesanduses of cashduringaperiod.

 5.     Inpreparingastatementofcashflows,cashequivalentsaresubtractedfrom cashinorder tocomputethenetchangeincashduring a period.

 6.     Cashequivalentsarehighly-liquidinvestmentsthathavematuritiesoflessthanthree months.

 7.     The useofcashtopurchasehighlyliquidshort-terminvestments(cashequivalents)would be reportedonthestatement of cashflowsasaninvestingactivity.

 8.     Inpreparingastatementofcashflows,theissuanceofdebtshouldbereported separately from theretirementof debt.

 9.     Noncashinvestingandfinancingactivitiesmustbereportedinthebodyofastatementof cashflows.

 10.     Thestatementofcashflowsclassifiescashreceiptsandpaymentsasoperating, nonoperating, financial,andextraordinaryactivities.

 11.     Thesaleof landfor cashwouldbeclassifiedasacashinflowfroman investingactivity.

 12.     Cashflowfrominvestingactivitiesisconsideredthemostimportantcategoryonthe statementof cashflowsbecauseit isconsideredthebestmeasureof expectedincome.

 13.     Thereceiptofdividends fromlong-term investments instockisclassified asacashinflow frominvestingactivities.

TheStatementof Cash Flows       17-5

   14.     Thepaymentofinterestonbondspayableisclassifiedasacashoutflowfromoperating activities.

 15.     Anyitemthatappearsontheincomestatementwouldbeconsideredaseitheracash inflowor cashoutflowfromoperatingactivities.

 16.     Theacquisitionofabuildingbyissuingbondswouldbeconsideredaninvestingand financing activity thatdidnot affectcash.

 17.     Allmajorfinancingandinvestingactivitiesaffectcash.

 18.     Cashprovidedbyoperationsisgenerallyequaltooperatingincome.

 19.     Usingtheindirectmethod,anincrease inaccountsreceivable duringaperiod isdeducted fromnetincomeincalculatingcashprovidedbyoperations.

 20.     Usingtheindirectmethod,anincreaseinaccountspayableduringaperiodisdeducted from netincomeincalculatingcashprovidedbyoperations.

 21.     Alossonsaleofequipmentisaddedtonetincomeindeterminingcashprovidedby operationsundertheindirectmethod.

 22.     Inpreparingastatementofcashflows,anincreaseintheCommonStockandTreasury Stockaccountsduringaperiodwouldbe an investingactivity.

 23.     Cashprovidedby operatingactivitiesfailsto take intoaccountthatacompanymust invest in newfixedassetsjusttomaintainits currentlevelofoperations.

 24.     Freecashflowequalscashprovidedbyoperationslesscapitalexpendituresandcash dividends.

 a25.     Theuseof aworksheetto prepareastatementofcashflowsis optional.

 a26.    Duringtheyear,IncomeTaxExpenseamountedto$30,000andIncomeTaxesPayable increasedby$3,000;therefore,thecashpaidforincometaxeswas$27,000.

 a27.     Inpreparingnetcashflowfromoperatingactivitiesusingthedirectmethod,eachitemin theincomestatementisadjustedfromtheaccrualbasistothecashbasis.

 a28.    Usingthedirectmethod,majorclassesofinvestingandfinancingactivitiesarelistedin theoperatingactivitiessection.

 a29.    Duringaperiod,costofgoodssold+anincreaseininventory+anincreaseinaccounts payable =cashpaidtosuppliers.

 a30.     Operatingexpenses+anincreaseinprepaidexpenses–adecreaseinaccrued expensespayable=cashpaymentsfor operatingexpenses.

17-6        

 Additional True-FalseQuestions

 31.     Thestatementofcashflowsclassifiescashreceiptsandcashpaymentsintotwo categories:operatingactivitiesand nonoperatingactivities.

 32.     Financingactivitiesincludetheobtainingofcashfromissuingdebtandrepayingthe amounts borrowed.

 33.     TheadjustedtrialbalanceistheonlyitemneededtopreparetheStatementofCash Flows.

 34.     Undertheindirectmethod,retainedearningsisadjustedforitemsthataffectedreported netincomebutdidnot affect cash.

 a35.    ThereconcilingentryfordepreciationexpenseinaworksheetisacredittoAccumulated DepreciationandadebittoOperating-DepreciationExpense.

 a36.    Underthedirectmethod,theformulaforcomputingcashcollectionsfromcustomersis salesrevenuesplustheincreaseinaccountsreceivableorminusthedecreasein accounts receivable.

     MULTIPLECHOICEQUESTIONS

  37.     Thestatementofcashflowsshouldhelpinvestorsandcreditorsassesseachofthe followingexceptthe

a.entity'sabilitytogeneratefutureincome. b.entity'sabilityto paydividends.

c.reasonsforthedifferencebetweennetincomeandnetcashprovidedbyoperating activities.

d.cashinvestingandfinancingtransactionsduringtheperiod.

 38.     Thestatementof cashflows

a.mustbepreparedona dailybasis.

b.summarizesthe operating,financing,andinvestingactivitiesofanentity. c.is anothernamefortheincomestatement.

d.isaspecialsectionof the incomestatement.

TheStatementof Cash Flows       17-7

 39.     Whichoneofthefollowingitemsisnotgenerallyusedinpreparingastatementofcash flows?

a.Adjustedtrialbalance

b.Comparativebalancesheets c.Currentincomestatementd.Additionalinformation

 40.     Theprimarypurposeofthestatementof cashflows is to

a.provideinformationabouttheinvestingandfinancingactivitiesduringaperiod. b.prove thatrevenuesexceedexpensesifthereis anetincome.

c.provideinformationaboutthecashreceiptsandcashpaymentsduringa period. d.facilitatebanking relationships.

 41.     Ifa companyreportsanet loss,it

a.maystillhavea netincreasein cash. b.willnotbe abletopaycashdividends. c.will not beabletogeta loan.

d.willnotbeable tomakecapitalexpenditures.

 42.     Inadditionto the three basicfinancialstatements,which ofthe following isalso arequired financialstatement?

a.the"CashBudget"

b.theStatementof CashFlows

c.theStatementof CashInflowsandOutflows d.the"CashReconciliation"

 43.     Thestatementof cashflowswillnotreportthe

a.amountof checksoutstanding atthe endof theperiod. b.sourcesofcashinthecurrentperiod.

c.uses of cashin thecurrentperiod.

d.changeinthecash balanceforthecurrentperiod.

 44.     Cashequivalentsdonotinclude a.short-termcorporatenotes. b.treasurybills.

c.moneymarketfunds.

d.2-yearcertificatesofdeposit.

 45.     Whichofthefollowing characteristicsdoesnotapplyto cashequivalents? a.Short-term

b.Highly-liquid

c.Readilyconvertibleintocash

d.Sensitiveto interestratechanges

 46.     Cashequivalentsaregenerally investmentswithmaturitiesof a.$1,000ormore.

b.threemonthsor less. c.atleastsixmonths.

d.oneyearorthe operatingcycle, whicheveris less.

17-8        

 47.     The bestmeasureof acompany'sabilitytogeneratesufficientcashtocontinueasagoing concern is netcashprovidedby

a.financingactivities. b.       investingactivities. c.operatingactivities. d.processingactivities.

 48.     Theacquisitionof landbyissuingcommonstockis

a.a noncashtransactionwhich is notreported inthebodyofastatementofcashflows. b.acashtransactionandwouldbereportedinthebodyof astatementofcashflows.

c.a noncashtransactionandwouldbereportedinthebodyofastatementof cashflows. d.onlyreportedif thestatement of cashflowsisprepared usingthedirectmethod.

 49.     Theorderof presentationofactivitiesonthestatement of cashflowsis a.operating,investing,andfinancing.

b.operating,financing,andinvesting. c.financing, operating,andinvesting. d.financing,investing,andoperating.

 50.     Financingactivitiesinvolve a.lendingmoney.

b.acquiringinvestments. c.issuingdebt.

d.acquiringlong-lived assets.

 51.     Investingactivitiesinclude

a.collecting cash on loansmade. b.obtainingcashfromcreditors. c.obtainingcapitalfromowners.

d.repayingmoneypreviouslyborrowed.

 52.     Generally,themostimportantcategoryonthestatementofcashflowsiscashflowsfrom a.operatingactivities.

b.investingactivities. c.financingactivities.

d.significantnoncash activities.

 53.     Thecategorythat isgenerally consideredtobe thebestmeasure ofacompany'sability to continue asagoingconcernis

a.cashflowsfromoperatingactivities. b.cashflowsfrominvestingactivities. c.cashflowsfromfinancingactivities. d.usuallydifferentfromyear to year.

 54.     Cashreceiptsfrom interestanddividendsareclassifiedas a.financingactivities.

b.investingactivities. c.operatingactivities.

d.eitherfinancingorinvestingactivities.

TheStatementof Cash Flows       17-9

 55.     Eachof thefollowingisanexampleof asignificantnoncashactivityexcept a.conversionofbonds intocommonstock.

b.exchangesof plantassets.

c.issuanceof debtto purchaseassets. d.stockdividends.

 56.     Ifacompanyhasbothaninflowandoutflowofcashrelatedtoproperty,plant,and equipment, the

a.twocasheffectscanbenettedandpresentedasoneitemintheinvestingactivities section.

b.cashinflowandcashoutflowshouldbereportedseparatelyintheinvestingactivities section.

c.twocasheffectscanbenettedandpresentedasoneiteminthefinancingactivities section.

d.cashinflowandcashoutflowshouldbereportedseparatelyinthefinancingactivities section.

 57.     Of theitemsbelow,theonethatappearsfirst onthestatementof cashflows is a.noncashinvesting andfinancingactivities.

b.netincrease(decrease)incash. c.cash attheendof theperiod.

d.cash atthebeginningoftheperiod.

 58.     Whichof thefollowingtransactionsdoesnotaffectcashduring aperiod? a.Write-offofanuncollectibleaccount

b.Collectionofanaccounts receivable c.Saleof treasurystock

d.Exerciseofthecalloptiononbondspayable

 59.    Significantnoncashtransactionswouldnotinclude a.conversionofbonds intocommonstock.b.assetacquisitionthroughbondissuance.

c.treasurystockacquisition. d.exchangeof plantassets.

 60.     Inpreparingastatementofcashflows,aconversionofbondsintocommonstockwillbe reported in

a.thefinancingsection.

b.the"extraordinary"section.

c.a separatescheduleornote tothefinancial statements. d.thestockholders'equitysection.

 Usethefollowing informationforquestions61–64.

 Foreachofthefollowingtransactions,indicatewhere,ifatall,itwouldbeclassifiedonthe statement of cashflows.Assumetheindirectmethodisused.

 61.     Paidincometaxes.

a.Operatingactivitiessection b.Investingactivitiessection c.Financingactivities section

d.Doesnotrepresentacashflow

17-10

 62.     Issuedcommonstockfor cash. a.Operatingactivitiessection b.Investingactivitiessectionc.Financingactivities section

d.Doesnotrepresentacashflow

 63.     Purchasedlandforcash.

a.Operatingactivitiessection b.Investingactivitiessection c.Financingactivities section

d.Doesnotrepresentacashflow

 64.     Purchasedlandandbuildingwithamortgage. a.Operatingactivitiessection

b.Investingactivitiessection c.Financingactivities section

d.Doesnotrepresentacashflow

 Usethefollowing informationforquestions65–66.

 JoyElle’sVegetableMarkethadthefollowingtransactionsduring 2008:

 1.Issued$25,000of par valuecommonstockforcash.

2.Repaida 6yearnotepayableintheamountof$11,000.

3.Acquiredlandbyissuingcommonstockof parvalue$50,000. 4.Declaredandpaidacashdividendof$1,000.

5.Solda long-terminvestment(cost$3,000)forcashof$3,000. 6.Acquiredan investmentinIBMstockforcashof $6,000.

 65.     Whatisthenetcash providedbyfinancingactivities? a.$13,000

b.$25,000 c.$14,000 d.$9,000

 66.     Whatisthenetcash providedbyinvestingactivities? a.$6,000

b.$16,000 c.($3,000) d.$3,000

 67.     MillerCompanypurchasedtreasurystockwithacostof$15,000during2008.Duringthe year,thecompanypaiddividendsof$20,000andissuedbondspayableforproceedsof $816,000.Cashflowsfromfinancingactivitiesfor2008total

a.$796,000net cashinflow. b.$811,000net cashinflow. c.$5,000netcashoutflow. d.$781,000net cashinflow.

TheStatementof Cash Flows       17-11

 68.     ClineCompanyissuedcommonstockforproceedsof$186,000during2008.The companypaiddividendsof$33,000andissuedalong-termnotepayablefor$45,000in exchangeforequipment duringtheyear.Thecompanyalsopurchased treasurystockthat hadacostof$7,000.Thefinancingsectionofthestatementofcashflowswillreportnet cash inflowsof

a.$146,000. b.$202,000. c.$153,000. d.$179,000.

 69.     InGentryCompany,landdecreased$120,000becauseofacashsalefor$120,000,the equipmentaccountincreased$40,000asaresultofacashpurchase,andBonds Payable increased$130,000fromissuanceforcashatfacevalue.Thenetcashprovidedby investingactivities is

a.$120,000. b.$210,000. c.$80,000. d.$90,000.

 70.     Accounts receivablearisingfromsalestocustomersamountedto$80,000and$70,000at thebeginningandendoftheyear,respectively.Incomereported ontheincomestatement fortheyearwas$240,000.Exclusiveoftheeffectofotheradjustments,thecashflows fromoperatingactivitiestobereportedonthestatement of cashflowsis

a.$240,000. b.$250,000. c.$310,000. d.$230,000.

 71.     Accounts receivablearisingfromsalestocustomersamountedto$35,000and$40,000at thebeginningandendoftheyear,respectively.Incomereported ontheincomestatement fortheyearwas$120,000.Exclusiveoftheeffectofotheradjustments,thecashflows fromoperatingactivitiestobereportedonthestatement of cashflowsis

a.$120,000. b.$125,000. c.$155,000. d.$115,000.

 72.     WiltonCompanyreportednetincomeof$40,000fortheyear.Duringtheyear,accounts receivabledecreasedby$7,000,accountspayableincreasedby$3,000anddepreciation expense of $5,000wasrecorded.Netcashprovidedbyoperatingactivitiesfortheyearisa.$30,000.

b.$55,000. c.$39,000. d.$35,000.

 73.     BusterCompanyreportedanetlossof$3,000fortheyearendedDecember31,2008. Duringtheyear,accountsreceivableincreased$7,000, merchandiseinventorydecreased $5,000,accountspayabledecreasedby$10,000,anddepreciationexpenseof$5,000 was recorded.During2007,operatingactivities

a.usednetcashof $10,000. b.usednetcashof $14,000.

c.providednetcash of$14,000. d.providednetcash of$9,000.

17-12

 74.     Thenetincomereportedontheincomestatementforthecurrentyearwas$205,000. Depreciationrecordedonplantassetswas$38,000.Accountsreceivableandinventories increasedby$2,000and$8,000,respectively.Prepaidexpensesandaccountspayable decreasedby$1,000and$11,000respectively.Howmuchcashwasprovidedby operatingactivities?

a.$185,000 b.$223,000 c.$205,000 d.$239,000

 75.     Thenetincomereportedontheincomestatementforthecurrentyearwas$220,000. Depreciationwas $50,000.Accountreceivableand inventoriesdecreasedby $10,000 and $30,000,respectively.Prepaidexpensesandaccountspayableincreased,respectively, by$1,000and$8,000.Howmuchcash wasprovidedbyoperating activities?

a.$281,000 b.$317,000 c.$301,000 d.$309,000

 76.     Ifagainof$10,000isincurredinselling(forcash)officeequipmenthavingabookvalue of$100,000,thetotalamount reportedinthecashflows frominvestingactivitiessectionof thestatementof cashflows is

a.$90,000. b.$110,000. c.$100,000. d.$10,000.

 77.     Ifa lossof $12,500 is incurred inselling(forcash)office equipmenthavinga bookvalueof $50,000,thetotalamountreportedinthecashflowsfrominvestingactivities sectionof the statement of cashflowsis

a.$37,500. b.$50,000. c.$62,500. d.$12,500.

 78.     HarborCompanyreportednetincomeof$60,000 fortheyearended December31,2008. Duringtheyear,inventoriesdecreasedby$12,000,accountspayabledecreasedby $18,000,depreciationexpensewas$20,000andagainondisposalofequipmentof $9,000wasrecorded.Netcashprovidedbyoperating activitiesin2008usingtheindirect methodwas

a.$119,000. b.$65,000. c.$77,000. d.$55,000.

 79.     Thethird(final)stepinpreparingthestatementofcashflowsisto a.analyzechanges innoncurrentassetandliabilityaccounts.

b.comparethenetchangeincashwiththechangeinthecashaccountreportedonthe balance sheet.

c.determinenet cashprovidedbyoperatingactivities. d.listthenoncashactivities.

TheStatementof Cash Flows       17-13

 80.     Whichoneof thefollowingitemsisnot necessaryinpreparinga statementofcashflows? a.Determinethechangeincash

b.Determinethecashprovidedbyoperations

c.Determinecashfromfinancingandinvestingactivities d.Determinethe cashin all bankaccounts

 81.     Ifaccountsreceivablehave increasedduringtheperiod,

a.revenuesonanaccrualbasisarelessthanrevenuesonacashbasis.

b.revenuesonanaccrualbasisaregreaterthanrevenuesonacashbasis. c.revenues onanaccrual basisarethesameasrevenues onacashbasis. d.expensesonanaccrualbasisaregreater thanexpensesonacashbasis.

 82.     Ifaccountspayablehaveincreasedduringaperiod,

a.revenuesonanaccrualbasisarelessthanrevenuesonacashbasis. b.expensesonanaccrualbasisarelessthanexpensesonacashbasis.

c.expensesonanaccrualbasisaregreater thanexpensesonacashbasis. d.expensesonanaccrualbasisarethesameasexpensesonacashbasis.

 83.     Whichoneof thefollowing affectscashduringaperiod? a.Recordingdepreciationexpense

b.Declarationof acashdividend

c.Write-offof anuncollectibleaccountreceivable d.Paymentof anaccountspayable

 84.     Incalculatingcashflowsfromoperatingactivitiesusingtheindirectmethod,againonthe sale ofequipmentis

a.addedtonet income.

b.deductedfrom netincome.

c.ignoredbecauseit doesnotaffectcash.d.notreportedonastatementof cashflows.

 85.     MeyerCompanyreportednetincomeof$50,000fortheyear.Duringtheyear,accounts receivableincreasedby$7,000,accountspayabledecreasedby$3,000anddepreciation expense of $5,000wasrecorded.Netcashprovidedbyoperatingactivitiesfortheyearisa.$45,000.

b.$65,000. c.$49,000. d.$50,000.

 86.     FlynnCompanyreportedanetlossof$20,000fortheyearendedDecember31,2008. Duringtheyear,accountsreceivabledecreased$10,000,merchandiseinventory increased$16,000,accountspayableincreasedby$20,000,anddepreciationexpense of $10,000wasrecorded.During2008,operatingactivities

a.usednetcashof $4,000. b.usednetcashof $16,000.

c.providednetcash of$4,000.d.providednetcash of$16,000.

17-14

 87.     Startingwithnetincomeandadjustingitforitemsthataffectedreportednetincomebut which didnot affect cashis calledthe

a.directmethod.b.indirectmethod.

c.workingcapitalmethod. d.cost-benefitmethod.

 88.     Incalculatingnetcashprovidedbyoperatingactivitiesusingtheindirectmethod,an increase inprepaidexpensesduringaperiodis

a.deductedfromnetincome. b.addedtonetincome.

c.ignoredbecauseit doesnotaffectincome.d.ignoredbecauseitdoesnotaffectexpenses.

 89.     Usingtheindirectmethod,patentamortizationexpenseforthe period a.isdeductedfromnetincome.

b.causescashto increase. c.causescashto decrease. d.is addedtonetincome.

 90.     Indevelopingthecashflowsfromoperatingactivities,mostcompaniesin theU.S. a.use thedirectmethod.

b.usetheindirectmethod.

c.presentboththeindirectanddirectmethodsintheirfinancialreports. d.preparetheoperatingactivitiessectionontheaccrualbasis.

 91.     Eachofthefollowingisaddedtonetincome incomputing netcashprovidedbyoperating activitiesexcept

a.amortizationexpense.

b.an increaseinaccruedexpensespayable. c.a gainon sale of equipment.

d.a decreaseininventory.

 92.     Whichofthefollowingwouldbesubtractedfromnet incomeusingtheindirect method? a.Depreciationexpense

b.An increaseinaccountsreceivable c.An increaseinaccountspayabled.Adecreaseinprepaidexpenses

 93.     Whichofthefollowingwouldbeaddedto netincomeusingthe indirectmethod? a.An increaseinaccountsreceivable

b.Anincreaseinprepaidexpenses c.Depreciationexpense

d.Adecreaseinaccountspayable

 94.     Whichofthefollowingwouldnotbeanadjustmenttonetincomeusingtheindirect method?

a.DepreciationExpense

b.An increaseinPrepaidInsurance c.AmortizationExpense

d.An increaseinLand

TheStatementof Cash Flows       17-15

 95.     Incalculatingcash flowsfromoperatingactivitiesusingtheindirect method,alossonthe sale ofequipmentwill appearasa(n)

a.subtractionfromnetincome. b.additiontonet income.

c.additiontocashflowfrominvestingactivities.

d.subtractionfromcashflowfrominvesting activities.

 96.     Whichofthefollowingadjustmentstoconvertnetincometonetcashprovidedby operatingactivitiesiscorrect?

  a.AccountsReceivable b.PrepaidExpenses

c.Inventory

d.TaxesPayable

Add to NetIncomeincrease increase decrease decrease

DeductfromNetIncome decrease decrease increaseincrease

 97.     Whichofthefollowingadjustmentstoconvertnetincometonetcashprovidedby operatingactivitiesisincorrect?

  a.AccountsReceivable b.PrepaidExpenses

c.Inventory

d.AccountsPayable

Add to NetIncome decrease increase decrease increase

DeductfromNetIncomeincreasedecreaseincreasedecrease

  98.     Whichofthefollowingadjustmentstoconvertnetincometonetcashprovidedby operatingactivitiesis notaddedto net income?

a.GainonSaleofEquipment b.DepreciationExpense

c.PatentAmortizationExpense d.DepletionExpense

 99.     Usingtheindirectmethod,ifequipmentissoldatagain,the

a.saleproceedsreceivedaredeductedinthe operatingactivitiessection. b.saleproceedsreceivedareaddedintheoperatingactivitiessection.

c.amountof thegainisadded intheoperating activitiessection.

d.amountofthegainis deducted intheoperatingactivitiessection.

 100.     Acompanyhadnetincomeof$180,000.Depreciationexpenseis$26,000.Duringthe year,AccountsReceivableandInventoryincreased$15,000and$40,000,respectively. PrepaidExpensesandAccountsPayabledecreased$2,000and$4,000,respectively. Therewasalsoalossonthesaleofequipmentof$3,000.Howmuchcashwasprovided byoperatingactivities?

a.$146,000 b.$152,000 c.$226,000 d.$238,000

 101.     Onthestatementofcashflowsusingthe indirectmethod,patentamortizationexpensewill a.beaddedtonetincomeintheoperatingsection.

b.be deductedfromnetincomeintheoperatingsection. c.appearasaninflowofcashintheinvesting section.d.appearasanoutflowofcashintheinvestingsection.

17-16

 102.     Theindirectanddirectmethodsofpreparingthestatementofcashflowsareidentical exceptforthe

a.significantnoncashactivitysection. b.operatingactivitiessection.

c.investingactivitiessection. d.financingactivitiessection.

 103.     Landacquiredfromtheissuanceofcommonstockisreported a.asafinancingactivity.

b.as aninvestingactivity. c.as anoperating activity.

d.inaseparatescheduleatthebottom ofthestatement.

 104.     If$250,000ofbondsareissuedduringtheyearbut$150,000ofoldbondsareretired during theyear,thestatementof cashflows willshowa(n)

a.netincreaseincashof$100,000. b.netdecreaseincashof$100,000.

c.increaseincash of $250,000 andadecreaseincashof $150,000. d.net gainonretirementof bonds of $100,000.

 105.     Whichof the followingchanges inretainedearningsduring aperiod willbereported in the financing activitiessectionofthe statementof cashflows?

 1.Declarationofacashdividendpaidduringtheperiod. 2.Net incomefortheperiod.

a.1 b.2

c.Neither1nor2. d.Both1and2.

 106.     Thestatementof cashflows

a.ispreparedinsteadofanincomestatementundergenerallyacceptedaccounting principles.

b.isusedtoassessanentity's abilityto paydividendsandmeetobligations. c.ispreparedfromcomparativeincomestatements.

d.reflectsearningspersharefiguresonacashbasisandonanaccrualbasisinthe bodyof thestatement.

 107.     Inpreparingthestatementof cashflows,determiningthenetincreaseor decreaseincash requirestheuseof

a.theadjustedtrialbalance.

b.thecurrentperiod'sbalancesheet. c.acomparativebalancesheet.

d.a comparativeincomestatement.

 108.     Todeterminethenetcashprovided(used)byoperatingactivities,it isnecessarytoanalyze a.thecurrentyear'sincomestatement.

b.a comparativebalancesheet. c.additionalinformation.

d.all ofthese.

TheStatementof Cash Flows       17-17

 109.     Whichofthefollowingwouldnotbeneededtodeterminenetcashprovidedbyoperating activities?

a.Depreciationexpense

b.Changeinaccountsreceivable c.Paymentof cashdividends

d.Changeinprepaidexpenses

 110.     Whenequipmentissoldforcash,the amountreceivedis reflectedasacash a.inflowintheoperatingsection.

b.inflowinthefinancingsection. c.inflowintheinvestingsection. d.outflowintheoperatingsection.

 111.      Thestatementof cashflowswillnotprovideinsightinto a.whydividends werenot increased.

b.whethercashflowis greaterthannet income. c.theexactproceedsof afuturebondissue.

d.howtheretirementof debtwasaccomplished.

 112.     Whichofthefollowingtransactionswouldnotbeclassifiedasafinancingactivity? a.Purchaseoftreasurystock

b.Paymentof dividends

c.Issuanceof bonds ata discount

d.Purchaseofalong-terminvestmentinbonds

 113.     Ameasurethatdescribesthecashremainingfromoperationsafteradjustmentforcapital expendituresand dividendsis

a.adjustedcashfromoperations. b.cashprovidedbyoperations.c.freecashflow.

d.netcashprovided byoperating activities.

 114.     Freecashflowequalscashprovidedby

a.operationslesscapitalexpenditures andcashdividends. b.operationslesscashdividends.

c.investingactivities lesscapitalexpendituresandcashdividends. d.operationslesscapitalexpenditures.

 115.     DV’sPestControlProductshasthefollowinginformationavailable:

 NetIncome

CashProvidedbyOperations CashSales

CapitalExpenditures DividendsPaid

 Whatis DV’sfreecashflow? a.$18,000

$15,000 21,000 65,000 11,000 3,000

 b.$10,000 c.$7,000 d.$1,000

17-18

 a116.Whenlistingaccountsinthestatementofcashflowsworksheet,theaccumulated depreciation accountisshown

a.withaccountsthathavecreditbalances. b.withaccountsthathavedebitbalances. c.as acreditunderthereconcilingitems. d.asadebit underthereconcilingitems.

 a117.Inthebottomportionof the statementof cashflowsworksheet, a.inflows ofcasharedebitsinthereconciling columns.

b.outflowsof casharedebitsinthereconcilingcolumns.

c.informationpertainingtoinvestingandfinancingactivitiesonly isentered. d.onlysignificantnoncashtransactionsareentered.

 a118.Onthe statementof cashflowsworksheet,

a.significant noncashinvestingand financingactivities arenotenteredinthereconciling columns.

b.adecreaseincashwillbeoffsetbyadebitinthereconcilingitemscolumnsatthe bottomoftheworksheet.

c.anincreaseincashwillbeoffsetbyadebitinthereconcilingitemscolumnatthe bottomoftheworksheet.

d.incomestatementaccountsarelistedafterbalancesheetaccountsinthetophalfof theworksheetundertheindirectmethod.

 a119.Eachof thefollowingwouldbereportedunderoperatingactivitiesexceptcashreceipts a.from sales of goods.

b.fromsalesofinvestments. c.of interestonloans.

d.of dividendsfrominvestments.

 a120.Whichofthefollowing statements concerningthestatementof cashflowsistrue?

a.Thestatementof cashflows isusuallymoreaccuratewhenusingtheindirect method. b.Ifthedirectmethodisused,asupplementaryschedulereconciling the netincometoa

netcashfrom operatingactivitiesmuststillbe provided.

c.Thestatementof cashflows reflectsbothearningspershareandcashper share.

d.Thestatementofcashflowsisanoptionalfinancialstatementforexternalreporting purposes.

 a121.CarterCompanyreportsthefollowing:

  Inventory AccountsPayable

End ofYear $25,000

30,000

Beginning of Year $40,000

10,000

 Ifcostofgoodssoldforthe yearis$170,000,theamountof cashpaidtosuppliersis a.$175,000.

b.$165,000. c.$135,000. d.$205,000.

TheStatementof Cash Flows       17-19

 a122.Duringtheyear,SalariesPayabledecreasedby$6,000.IfSalaryExpenseamountedto $190,000fortheyear,thecashpaidtoemployees(includingdeductionsfromgrosspay)is a.$196,000.

b.$190,000. c.$184,000. d.$202,000.

 a123.GaryCompanyreportsa$15,000 increaseininventoryanda$5,000increaseinaccounts payableduringtheyear.CostofGoodsSoldfortheyearwas$180,000.Thecash payments madeto supplierswere

a.$180,000. b.$190,000. c.$160,000. d.$175,000.

 a124.RaderCompanyhadcreditsalesof$600,000. Thebeginningaccountsreceivablebalance was$40,000andtheendingaccountsreceivablebalancewas$140,000.Whatwerethe cash collectionsfromcustomersduringtheperiod?

a.$700,000 b.$600,000 c.$500,000 d.$640,000

 a125.GorenInc.hadcashsalesof$300,000andcreditsalesof$1,150,000.Theaccounts receivablebalanceincreased$15,000duringtheyear.HowmuchcashdidGorenreceive fromits customers duringtheyear?

a.$1,435,000 b.$1,465,000 c.$1,135,000 d.$1,165,000

 a126.StineCompanyhadacostofpurchasesof$220,000.Thecomparativebalancesheet analysisrevealeda$10,000decreaseininventoryanda$20,000increaseinaccounts payable.WhatwereStine'scashpaymentsto suppliers?

a.$200,000 b.$190,000 c.$230,000 d.$250,000

 a127.WayneCompanyhadanincreaseininventoryof$40,000.Thecostofgoodssoldwas $80,000.Therewasa$5,000decreaseinaccountspayablefromthepriorperiod.What wereWayne'scashpaymentstosuppliers?

a.$125,000 b.$75,000c.$115,000 d.$85,000

 a128.Whichofthefollowingitemsdoesnotappearinthestatementofcashflowsunderthe direct method?

a.Cashpaymentstosuppliers

b.Cashcollectionsfromcustomers c.DepreciationExpense

d.Cashfromthesaleof equipment

17-20

 a129.NixonCompanyhasotheroperatingexpensesof$90,000.Therehasbeenadecreasein prepaidexpensesof$4,000duringtheyear,andaccruedliabilitiesare$6,000largerthan in thepriorperiod.WhatwereNixon'scashpaymentsfor operatingexpenses?

a.$92,000 b.$88,000 c.$80,000 d.$90,000

 a130.CarsenCorporationshowsincometaxexpenseof$90,000.Therehasbeena$5,000 decreaseinfederalincometaxespayableanda$7,000increaseinstateincometaxes payable duringtheyear.What wasCarsen'scashpaymentforincometaxes?

a.$90,000 b.$88,000 c.$85,000 d.$92,000

 a131.Whichofthefollowingwouldnotappearintheoperatingactivitiessectionofastatement ofcashflowspreparedunderthedirectmethod?

a.Cashreceiptsfromcustomers b.Cashpaidfor incometaxes

c.Gainonsaleof equipment d.Cashpaidto employees

 a132.Thecostofgoodssoldduringtheyearwas$165,000.Merchandiseinventorydecreased by$6,000duringtheyearandaccountspayabledecreasedby$3,000duringtheyear. Usingthedirectmethodofreportingcashflowsfromoperatingactivities,cashpayments formerchandisetotal

a.$168,000. b.$162,000. c.$156,000. d.$174,000.

 a133.BentCompanyreportsa$20,000increaseininventoryanda$5,000decreasein accountspayableduringtheyear.CostofGoodsSoldfortheyearwas$150,000.Using thedirectmethodofreportingcashflowsfromoperatingactivities,cashpaymentsmade tosupplierswere

a.$150,000. b.$165,000. c.$175,000. d.$135,000.

 a134.During2008,UnruhCompanyhad $160,000incashsalesand$1,400,000increditsales. Theaccounts receivable balances were$180,000 and$212,000atDecember31,2007 and2008,respectively.Usingthedirectmethodofreportingcash flowsfromoperating activities,whatwasthe totalcashcollectedfromallcustomersduring2008?

a.$1,368,000 b.$1,592,000 c.$1,560,000 d.$1,528,000

TheStatementof Cash Flows       17-21

 a135.LoganCompanyhasotheroperatingexpensesof$260,000.Therehasbeenanincrease inprepaidexpensesof$16,000duringtheyear,andaccruedliabilitiesare$24,000lower thaninthepriorperiod.Usingthedirectmethodofreportingcashflowsfromoperating activities,whatwereLogan'scashpaymentsforoperatingexpenses?

a.$248,000 b.$252,000 c.$220,000 d.$300,000

 Additional MultipleChoiceQuestions

 136.     Whichof thefollowing steps isnotrequired inpreparingthestatement of cashflows? a.Determinethechangeincash.

b.Determinethenetcashprovidedbyoperatingactivities. c.Determinecashfrominvestingandfinancingactivities. d.Determinethechangeincurrentassets.

 137.     Financingactivitiesinvolve

a.lendingmoneytootherentitiesandcollectingonthoseloans. b.cash receiptsfromsalesof goodsandservices.

c.acquiringanddisposingof productivelong-livedassets. d.long-termliabilityand owners'equityitems.

 138.     Theinformationtopreparethestatementofcashflowsusuallycomesfromeachofthe followingexcept

a.thecomparativebalancesheet. b.theretainedearningsstatement. c.additionalinformation.

d.thecurrentincomestatement.

 139.     Thestatementof cashflows ispreparedfromallofthefollowing except a.theadjustedtrialbalance.

b.comparativebalancesheets. c.selectedtransactiondata.

d.thecurrentincomestatement.

 140.     Theinformationinastatementofcashflowswillnothelpinvestorstoassesstheentity's abilityto

a.generatefuture cashflows.

b.obtainfavorableborrowingterms at abank. c.paydividends.

d.payits obligations whentheybecomedue.

 141.     Inconvertingnetincometonetcashprovidedbyoperatingactivities,undertheindirect method:

a.decreasesinaccountsreceivable and increasesinprepaidexpensesare added. b.decreasesininventoryandincreasesinaccruedliabilitiesareadded.

c.decreasesinaccountspayableanddecreasesin inventoryarededucted.

d.increasesinaccountsreceivable and increasesin accruedliabilitiesarededucted.

17-22

 142.     IntheFreyfogleCompany,landdecreased$60,000becauseofacashsalefor$60,000, theequipmentaccountincreased$20,000asaresultofacashpurchase,andBonds Payableincreased$70,000fromanissuanceforcashatfacevalue.Thenetcash provided by investingactivities is

a.$60,000.b.$110,000. c.$40,000. d.$50,000.

 a143.CribbetsCompanyusesthedirectmethodindeterminingnetcashprovidedbyoperating activities,Duringtheyear,operatingexpenseswere$260,000,prepaidexpenses increased$20,000,andaccruedexpensespayableincreased$30,000.Cashpayments for operatingexpenseswere

a.$210,000. b.$310,000. c.$270,000. d.$250,000.

 a144.BainbridgeCompanyusesthedirectmethodindeterminingnetcashprovidedby operatingactivities.Theincomestatementshowsincometaxexpense$60,000.Income taxespayablewere$25,000atthebeginningoftheyearand$18,000attheendofthe year.Cashpaymentsforincometaxesare

a.$53,000. b.$60,000. c.$67,000. d.$78,000.

 a145.Whena worksheetisused, all butoneof thefollowingstatementsiscorrect.The incorrect statementis

a.Reconcilingitemsontheworksheetarenotjournalizedor posted.

b.Thebottomportionof theworksheetshowsthestatementof cashflowseffects.

c.Thebalancesheetaccounts portion of the worksheetisdivided intotwo parts:assets, and liabilitiesandstockholders'equity.

d.Eachline pertainingtoabalancesheetaccountshouldfootacross.

      BRIEFEXERCISES

BE146

Selectedtransactionsfor the EldonCompanyarelistedbelow.

 1.Collectedaccountsreceivable.

2.Declaredandpaiddividends oncommonstock. 3.Soldlong-terminvestmentsforcash.

4.Issuedstockforequipment.

5.Repaidfiveyearnotepayable. 6.Paidemployeewages.

7.Convertedbonds payabletocommon stock. 8.Acquiredlong-term investmentwithcash.

9.Soldbuildingsand equipmentforcash. 10.Soldmerchandiseto customers.

 Instructions

 Classifyeachtransactionaseither(a)anoperatingactivity,(b)aninvestingactivity,(c)a financing activity,or(d) a noncashinvestingandfinancingactivity.

    BE147

 BertucciCompanyhadnetincomeof$204,000in2008.Depreciationexpensefortheyearis $45,000.Duringtheyear,AccountsReceivableincreased$9,000andPrepaidExpenses decreased$1,000.The companyalsosoldequipmentatalossof $2,000.

 Instructions

Calculatenet cashflowsfromoperatingactivitiesusingtheindirect method.

    BE148

 During2008,BaxterCompanysoldabuildingwithabookvalueof$145,000forproceedsof $132,000.Thecompanyalsosoldlong-terminvestmentsforproceedsof$45,000.Thecompany purchasedlandandanewbuildingfor$320,000bysigningalong-termnotepayable.Noother transactions impactedlong-term assetaccountsduring2008.

 Instructions

Computenet cashflowsfrom investingactivities.

    BE149

 MoverCompanyissuedcommonstockforproceedsof$14,000during2008.Thecompanypaid dividendsof$2,000.Thecompany alsoissued along-termnotepayable for$30,000inexchange forequipmentduringtheyear.Thecompanysoldtreasurystockthathadacostof$2,000for $4,000.

 Instructions

Computenet cashflowsfromfinancingactivities.

   BE150

 AtJanuary1,2008,BergmanEnterprisesreportedabalanceintheEquipmentaccountof $45,000.Duringtheyearthecompanypurchasedequipmentwithacostof$60,000andsold equipmentwithabookvalueof$30,000.Thecompany reportedalossonthesaleofequipment of$2,000. Assumethe indirectmethodisused.

 Instructions

 Determinewhatamountwillbereportedin(a)theoperatingactivitiessectionand(b)the investingactivitiessection withregardto thepurchaseandsaleof equipment.

      BE151

 Assumetheindirectmethodisusedtocomputecashflowsfromoperations.Foreachitemlisted below,indicatetheeffectonnetincomeinarrivingatcashflowsfromoperationsbychoosingone of thefollowingcodeletters.

CodeCashFlowsFromOperatingActivities

Addto NetIncome                                                     A DeductfromNetIncome                                             D

 1.     Increaseinaccountsreceivable 2.    Increaseininventory

3.     Decreaseinprepaidexpenses 4.        Decreaseinaccountspayable 5.        Increaseinaccruedliabilities

6.     Increaseinincometaxespayable 7.    Depreciationexpense

8.     Losson sale of investment

9.     Gainondisposalof equipment 10.    Amortizationexpense

   BE152

 DuttonCompanypreparedthetabulationbelowat December31,2008.

 NetIncome..............................................................................................................         $275,000

 Adjustmentstoreconcilenet incometonetcashprovidedbyoperatingactivities:

 Depreciationexpense,$25,000......................................................................

 Decreaseinaccountsreceivable,$55,000.....................................................

 Increase ininventory,$12,000.......................................................................

 Decreaseinaccountspayable,$6,600..........................................................

 Increase inincometaxespayable,$1,500.....................................................

 Loss onsaleofland,$5,000...........................................................................

 Netcashprovided(used)byoperatingactivities............................................

 Instructions

 Showhoweachitemshouldbereportedinthestatementofcashflows.Useparenthesesfor deductions.

  BE153

 Daimler Enterprisesreportedcash flowfromoperationsof$342,000. Thecompanymadecapital expendituresof $112,000andpaiddividends of $34,000.

 InstructionsComputefreecashflow.

 BE154

 SchickCompanyreportedcostofgoodssoldof$192,000onits2008incomestatement.The company’sbeginninginventorywas$35,000.Theendinginventorywasvaluedat$40,000.The AccountsPayablebalanceatJanuary1was$25,000.TheDecember31balanceinAccounts Payablewas $22,000.

 Instructions

Computecashpaymentstosuppliers.

   BE155

 HillerCompanyhadtotaloperatingexpensesof$135,000in2008,whichincludedDepreciation Expenseof$25,000.Alsoduring2008,prepaidexpensesdecreasedby$9,000andaccrued expenses increasedby$5,500.

 Instructions

 Calculatetheamountofcashpaymentsforoperatingexpensesin2008usingthedirectmethod.

   EXERCISES

Ex.156

Classifyeach ofthefollowing asa(n):

 A.OperatingActivity B.InvestingActivity C.FinancingActivity

 1Issuanceof bonds. 2.Saleofequipment.

3.Amortizationexpense.

 4.Purchaseof treasurystock.

 5.Receiptof dividendsoninvestment. 6.Purchaseof land.

   Ex.157

 SelectedtransactionsofEllerCompanyare listedbelow.

 1.Commonstockissoldforcashabove parvalue. 2.Bondspayableare issuedforcashatadiscount.

3.Interestreceivable onashort-termnotereceivableis collected. 4.Landis soldfor cashatbookvalue.

5.Accountspayable are paidincash.

6.Equipmentispurchasedbysigninga 3-year,10%notepayable. 7.Cashdividendsoncommonstockaredeclaredandpaid.

8.100sharesof XYZcommon stockarepurchasedforcash. 9.Merchandiseis soldtocustomersforcash.

10.Bondspayableareconvertedinto commonstock.

 Instructions

 Classifyeachtransactionaseither(a)anoperatingactivity,(b)aninvestingactivity,(c)a financing activity,or(d) anoncashinvestingandfinancingactivity.

   Ex.158

 (a)Identifyseveralalternativesforpresentingsignificantnoncashactivitiesinfinancial statements.

 (b)Givethreeexamplesof significantnoncashtransactions.

    Ex.159

 Thefollowinginformationis availableforSniderCompany:

 Receiptsfromcustomers Dividendsfrom stockinvestments Proceedsfrom saleofequipment Proceedsfrom issuanceofstock PaymentsforgoodsPaymentsforoperatingexpenses Interestpaid

Taxespaid Dividendspaid

$180,000 3,000 18,000 90,000 100,000 70,000 5,000 4,000 20,000

  Instructions

Basedonthe precedinginformation,computethenetcashprovided byoperating activities.

   Ex.160

 PierceCompanyreportednetincomeof$200,000forthecurrentyear.Depreciationrecordedon buildingsandequipmentamountedto$80,000fortheyear.Balancesofthecurrentassetand currentliability accountsat thebeginning andend of the year are asfollows:

  Cash Accountsreceivable Inventories

Prepaidexpenses Accountspayable Incometaxes payable

End ofYear $20,000

24,000 50,000 7,500 12,000 1,600

Beginning of Year $15,000

32,000 65,000 5,000 18,000 1,200

 Instructions

Preparethecashflowsfrom theoperatingactivitiessectionofthestatementof cashflowsusing theindirectmethod.

    Ex.161

 NealCompanyreportednetincomeof$120,000.For2008,depreciationwas$30,000,andthe companyreportedagainonsaleofinvestmentsof$10,000.Accountsreceivableincreased $25,000andaccountspayabledecreased$15,000.

 Instructions

 Computenet cashprovidedbyoperatingactivitiesusingtheindirectmethod.

    Ex.162

 Assumingastatementofcashflowsisprepared,indicatethereportingofthetransactionsand eventslistedbelow bymajorcategoriesonthestatement.Usethefollowingcodeletterstoindicate theappropriatecategoryunderwhichtheitemwould appearonthestatementof cashflows.

 CodeCashFlowsFromOperatingActivities

Addto NetIncome                                       A DeductfromNetIncome                              D CashFlowsFromInvestingActivities                IA

CashFlowsFromFinancingActivities                   FA

Category

 1.     Commonstockisissuedforcashat anamountaboveparvalue. 2.   Merchandiseinventoryincreasedduring theperiod.

3.     Depreciationexpenserecordedfortheperiod. 4.        Building waspurchasedforcash.

5.     Bondspayablewereacquiredandretiredattheircarryingvalue. 6.    Accountspayable decreasedduringtheperiod.

7.     Prepaidexpensesdecreasedduringtheperiod. 8.        Treasurystockwasacquiredfor cash.

9.     Landis soldfor cashatanamountequalto bookvalue. 10.    Patentamortizationexpense recordedfor aperiod.

  Ex.163

 AcomparativebalancesheetforLyonCompanyappearsbelow:

 LYONCOMPANY ComparativeBalanceSheet

  AssetsCash

Accountsreceivable Inventory

PrepaidexpensesLong-terminvestments Equipment

Accumulateddepreciation—equipment Totalassets

Dec.31, 2008

 $23,000 18,000 27,000 6,000

-0-60,000

(18,000) $116,000

Dec.31, 2007

 $10,000 14,000 18,000 9,000 18,000 32,000

(14,000) $87,000

  Liabilities and Stockholders'Equity

 Accountspayable Bondspayable Commonstock Retainedearnings

Totalliabilitiesandstockholders'equity

$17,000 37,000 40,000

   22,000$116,000

$7,000 47,000 23,000

10,000$87,000

  Additional information:

1.Netincomeforthe yearendingDecember31,2008was$24,000.2.Cashdividendsof $12,000weredeclaredandpaidduringthe year.

3.Long-terminvestmentsthathadacostof$18,000 weresoldfor$16,000. 4.Salesfor 2008were$120,000.

 Instructions

PrepareastatementofcashflowsfortheyearendedDecember31,2008,usingtheindirect method.

  Ex.164

 AcomparativebalancesheetforJenner Corporationis presentedbelow:

      CashAccountsreceivable (net) Prepaidinsurance

Land Equipment

Accumulateddepreciation TotalAssets

JENNER CORPORATION ComparativeBalanceSheet

  Assets

       2008                      2007    

 $36,000                 $31,000 80,000                  60,000 25,000                  17,000 18,000                 40,000 70,000                  60,000

(20,000)                 (13,000) $209,000 $195,000

  Liabilities and Stockholders'Equity Accountspayable        $11,000 Bondspayable                                                                                   27,000 Commonstock                                                                               140,000 Retainedearnings                                                                                                                   31,000

Totalliabilitiesandstockholders'equity                                     $209,000

 $6,000 19,000 115,000

   55,000$195,000

 Ex

164               (cont.) Additional information:

1.Netlossfor2008is$15,000.

 2.Cashdividendsof $9,000weredeclaredand paidin2008.

 3.Landwassoldforcashatalossof $7,000.Thiswasthe onlylandtransactionduringtheyear.

 4.Equipmentwithacostof$15,000andaccumulateddepreciationof$10,000wassoldfor $5,000cash.

 5.$12,000of bondswereretiredduringtheyearat carrying(book)value.

 6.Equipmentwasacquiredforcommonstock.Thefairmarketvalueofthestockatthetimeof theexchangewas$25,000.

 Instructions

 Prepareastatementofcashflowsfor the yearended2008,usingtheindirect method.

   Ex.165

 ThefollowinginformationisavailableforFryerCorporationfortheyearendedDecember31, 2008:

 Collectionof principalonlong-termloantoasupplier Acquisitionof equipmentforcash

Proceedsfrom thesale of long-terminvestmentatbookvalue Issuanceof commonstockfor cash

Depreciationexpense

Redemptionof bondspayable at carrying(book)value Paymentof cashdividends

Netincome

Purchaseof landbyissuing bondspayable

$15,000 10,000 27,000 20,000 35,000 24,000 14,000 30,000 40,000

  Inaddition, thefollowinginformationisavailablefromthecomparativebalancesheetforFryerat the endof 2007 and2008:

  CashAccountsreceivable (net) Prepaidinsurance

Totalcurrentassets

 Accountspayable SalariespayableTotalcurrentliabilities

   2008    

$87,000 20,000

   17,000$124,000

 $25,000

     4,000$29,000

   2007

$14,000 15,000

13,000$42,000

 $19,000

   7,000$26,000

 Instructions

PrepareFryer'sstatementofcashflowsfortheyearendedDecember31,2008usingtheindirect method.

17-36

  Ex.166

 TrentCompanypreparedthetabulationbelowat December31,2008.

 NetIncome..............................................................................................................         $300,000 Adjustmentstoreconcilenet incometonetcashprovidedbyoperatingactivities:

Depreciationexpense,$35,000...................................................................... Increaseinaccountsreceivable,$60,000...................................................... Decreaseininventory,$13,000...................................................................... Amortizationofpatent,$4,000........................................................................ Increaseinaccountspayable,$5,600............................................................ Decreaseininterestreceivable,$4,000......................................................... Increaseinprepaidexpenses,$6,000............................................................ Decreaseinincometaxespayable,$1,500.................................................... Gainonsaleofland,$5,000........................................................................... Netcashprovided (used)byoperatingactivities............................................

 Instructions

Showhoweachitemshouldbereportedinthestatementofcashflows.Useparenthesesfor deductions.

 Ex.167

 Thefollowinginformationis availableforVisserCorporation:

 Capitalexpenditures Cashdividends

Cashprovidedbyoperations Netincome

Sales

$115,000 65,000 200,000 130,000 500,000

 Instructions

ComputeVisser Corporation'sfreecashflow.

  Ex.168

 LeiterCompanyhasbegunaworksheetforpreparingastatementofcashflows.Thefollowing additionalinformation isprovided:

1.Cashdividendsof$15,000werepaidduringthe year.

2.Landwhichoriginallycost $60,000wassoldfor $55,000. 3.Commonstockwasissuedat par valuefor cash.

 Instructions

Completethe worksheetfor LeiterCompany.

 aEx.168       (cont.)

 LEITERCOMPANY Worksheet

StatementofCashFlows

FortheYearEndedDecember31,2008

  Balance SheetAccountsDebits

Cash Accountsreceivable Inventory

Land Equipment

Total

 Credits Accountspayable Bondspayable

Accumulateddepreciation— equipment

Commonstock Retainedearnings

Total

 Statement ofCashFlows Effects Operatingactivities

Netincome

Balance 12/31/07

 30,000 40,000 90,000 60,000 131,000351,000

  15,000 25,000

 81,000 170,000

60,000351,000

ReconcilingItems Debits    Credits

                   21,000

Balance 12/31/08

 55,000 58,000 110,000

-0-145,000368,000

  12,000 10,000

 95,000 180,000

71,000368,000

   Ex.169

 DolanCompany'sincomestatementshowedrevenuesof$250,000andoperatingexpensesof $160,000.Accountsreceivabledecreasedby$60,000andaccountspayableincreasedby $40,000duringtheyear.

 Instructions

Compute(a)cashreceiptsfromcustomersand(b)cashpayments foroperatingexpensesusing thedirect method.

  Ex.170

 Banner Company hadtotaloperatingexpenses of$140,000in2008,whichincludedDepreciation Expenseof$20,000.Also,during2008,prepaidexpensesincreasedby$5,000andaccrued expenses decreasedby$6,700.

 Instructions

Calculatetheamountofcashpaymentsforoperatingexpensesin2008usingthedirectmethod.

  Ex.171

 Thegeneralledgerof Lopez Companyprovidesthefollowinginformation:

  AccountsReceivable Inventory AccountsPayable

End ofYear $55,000

350,000 40,000

Beginning of Year $94,000

210,000 65,000

 Thecompany'snetsalesfortheyearwas$2,100,000andcostofgoodssoldamountedto $1,500,000.

 InstructionsComputethe following:

(a)     Cashreceiptsfromcustomers. (b)         Cashpaymentstosuppliers.

  Ex.172

 TheincomestatementofRedmanInc.fortheyearendedDecember31,2008,reportedthe following condensedinformation:

 Servicerevenue Operatingexpenses Incomefromoperations IncometaxexpenseNetincome

$600,000

360,000 240,000

   60,000$180,000

  Redman'sbalancesheetcontainedthefollowingcomparativedataat December31:

  Accountsreceivable Accountspayable Incometaxespayable

2008

$50,000 35,000 6,000

2007

$40,000 50,000 3,000

 Redmanhasnodepreciableassets.Accountspayable pertainstooperatingexpenses.

 Instructions

 Preparetheoperatingactivitiessectionof the statementof cashflowsusingthedirectmethod.

   Ex.173

 Theincomestatementof HaslettCompanyis shownbelow:

 HASLETT COMPANY IncomeStatement

FortheYearEndedDecember31,2008

 Sales

Costof goodssold Grossprofit Operatingexpenses

Sellingexpenses Administrativeexpense Depreciationexpense Amortizationexpense

Netincome

     $500,000 700,000 90,000

   30,000

$8,000,000

5,400,000 2,600,000

     1,320,000$1,280,000

 Ex.173         (cont.)

 Additionalinformation:

1.Accountsreceivable increased$500,000duringtheyear. 2.Inventoryincreased$250,000duringtheyear.

3.Prepaidexpensesincreased$200,000duringthe year.

4.Accountspayable tomerchandisesuppliers increased$150,000duringtheyear. 5.Accruedexpensespayableincreased$180,000duringthe year.

 Instructions

Preparetheoperatingactivitiessectionofthestatementofcashflowsfortheyearended December31, 2008,forHaslettCompany,usingthedirectmethod.

  Ex.174

 ThefinancialstatementsofLarkinCompanyappear below:

       Cash Accountsreceivable Merchandiseinventory

Property,plant,andequipment Accumulateddepreciation

Total

LARKINCOMPANY ComparativeBalanceSheet December31

 Assets

        2008                   2007    

 $43,000              $23,000 26,000               34,000 25,000               15,000 50,000               78,000

(20,000)              (24,000) $124,000    $126,000

   Accountspayable Incometaxespayable Bondspayable Commonstock Retainedearnings

Total

Liabilities and Stockholders'Equity

 $17,000 13,000 7,000 41,000

   46,000$124,000

  $23,000 8,000 33,000 24,000

   38,000$126,000

  LARKINCOMPANY Income Statement

FortheYearEndedDecember31,2008

 Sales

Costofgoodssold GrossprofitSellingexpenses

Administrativeexpenses Incomefromoperations Interestexpense Incomebeforeincometaxes Incometaxexpense

Netincome

    $20,000

16,000

$360,000

280,000 80,000

     36,000 44,000

   4,000 40,000

   12,000$28,000

 Thefollowingadditionaldatawereprovided:

1.Dividendsdeclaredandpaidwere$20,000.

2.Duringtheyear,equipmentwassoldfor$12,000cash.Thisequipmentcost$28,000 originallyand hadabook valueof $12,000at thetime of sale.

3.Alldepreciationexpenseis inthesellingexpensecategory. 4.Allsalesandpurchasesareonaccount.

5.Accountspayable pertaintomerchandisesuppliers.

6.Alloperatingexpensesexceptfordepreciationwerepaidincash.

 Instructions

Prepareastatementofcashflowsfor LarkinCompanyusingthedirectmethod.

  Ex.175

 CondensedfinancialdataofStiner Companyappear below:

       Cash Accountsreceivable Inventories

Prepaidexpenses Investments

Plantassets Accumulateddepreciation

Total

STINER COMPANY ComparativeBalanceSheet December31

 Assets

    2008                      2007

 $71,000           $35,000 85,000               53,000 120,000             132,000 19,000               25,000 90,000               75,000 315,000             250,000

(65,000)              (60,000) $635,000$510,000

    Accountspayable Accruedexpensespayable Bondspayable Commonstock Retainedearnings

Total

Liabilities and Stockholders'Equity

 $93,000 29,000 130,000 245,000

138,000$635,000

  $75,000 24,000 160,000 170,000

   81,000$510,000

  STINERCOMPANY Income Statement

FortheYearEndedDecember31,2008

 Sales Less:

Costofgoodssold

Operatingexpenses(excludingdepreciation) Depreciationexpense

Incometaxes Interestexpense

Lossonsaleof plantassets Netincome

   $280,000 60,000 17,000 15,000 18,000

     3,000

$470,000

       393,000$77,000

  Additionalinformation:

1.Newplantassetscosting$90,000werepurchasedfor cashin2008.

2.Oldplantassetscosting$25,000weresoldfor$10,000cashwhenbookvaluewas$13,000. 3.Bondswithafacevalueof $30,000wereconvertedinto$30,000of commonstock.

4.Acashdividendof $20,000wasdeclaredandpaidduringtheyear. 5.Accountspayable pertaintomerchandisepurchases.

 Instructions

 Prepareastatementofcashflowsfor the yearusingthedirectmethod.

  Ex.176

 TheincomestatementforJavierCompanyshowedcostofgoodssoldof$95,000andoperating expensesof$50,000.Thecomparativebalancesheetsfortheyearshowthatinventory decreased$3,000,prepaidexpensesincreased$7,000,accountspayableincreased$4,000,and accrued expensespayable decreased$5,000.

 Instructions

 Compute(a)cashpayments tosuppliersand(b)cashpaymentsforoperatingexpensesusingthe direct method.

  COMPLETIONSTATEMENTS

  177.Astatementofcashflowssummarizestheoperating,                                      ,and activitiesof anentity.

 178.Thecasheffectsofsellinggoodsandservicesappearsinthe                                                 activities section of astatementofcashflows.

 179.Theoperatingactivities sectionofthestatement ofcash flowsmaybepreparedusingthe

                               methodorthe                                 method.

 180.Netincomefromoperationsisgenerallynotthesameascashprovidedfromoperations becauserevenuesandexpensesarerecognizedintheincomestatementonthe

                             basis.

 181.Usingtheindirectapproach,noncashchargesintheincomestatementare

                                                             tonetincomeandnoncashcreditsare                                           tocompute cash providedbyoperations.

 182.Ifaccountsreceivableincreaseduringaperiod,revenuesonanaccrualbasisare

                               thanrevenuesonacashbasis.

 183.Thesaleofequipmentatlessthanitsbookvalueisa(n)                                                 ofcashthatis reported inthe                                                       activitiessection.

 184.Free                                    equalscashprovidedbyoperationslesscapitalexpendituresand cash dividends.

 a185.Underthedirectmethod,noncashcharges,suchasdepreciation,are                                                  

 inthestatementof cashflows.

 a186.Underthedirectmethod,thetwo largestclassesof itemsintheoperating activitiessection foramerchandisingcompanyarecash                                                                         andcash

                                                  .

 a187.Costofgoodssoldfortheyearamountedto$150,000,andduringtheyear,accounts payable                                           by$8,000andinventory                                   by$7,000resulting in cashpaidtosuppliersof$135,000.

 a188.Incomputingcashpaymentsforoperatingexpenses,adecreaseinprepaidexpensesis

                                                           andanincreaseinaccruedexpensespayableis                                              to (from)operatingexpenses,exclusiveof depreciation.

 a189.Incomputingcashpaymentsforincometaxes,adecreaseinincometaxespayableis

                               to(from)incometaxexpense.

   MATCHING

 Set1—IndirectMethod

 190.Foreachofthefollowingitems,indicatebyusingtheappropriate codeletter,howtheitem should be reported inthestatementof cashflows,usingtheindirect method.

 A.    Addedtonetincome

B.    Deductedfromnetincome

C.     Cashoutflow—investingactivity D.        Cashinflow—investingactivity E.    Cash outflow—financingactivity F.    Cash inflow—financingactivity

G.    Significantnoncashinvestingandfinancing activity

  1.Decreaseinaccountspayable duringaperiod

 2.Declarationandpaymentofacashdividend.

 3.Lossonsaleof land.

 4.Decreaseinaccountsreceivable duringaperiod.

 5.Redemptionof bondsforcash.

 6.Proceedsfrom saleofequipmentatbookvalue.

 7.Issuanceof commonstockfor cash.

 8.Purchaseofa buildingfor cash.

 9.Acquisitionof landinexchangeforcommonstock.

 10.Increaseinmerchandiseinventoryduringa period.

    Set2—DirectMethod

  a191.For eachof thefollowingitems, indicatebyusingthe appropriatecode letter, howtheitem should be reported inthestatementof cashflows,usingthedirectmethod.

 A.    Addedindeterminingcashreceiptsfromcustomers

B.    Deductedindeterminingcashreceiptsfromcustomers C.        Addedindeterminingcashpaymentstosuppliers

D.    Deductedindeterminingcashpaymentstosuppliers E.        Cashoutflow—investingactivity

F.     Cashinflow—investingactivityG.    Cash outflow—financingactivity H.    Cash inflow—financingactivity

I.    Significantnoncashinvestingandfinancing activity J.       Isnotshown

  1.Decreaseinaccountspayable duringaperiod.

 2.Declarationandpaymentofa cashdividend.

 3.Decreaseinaccountsreceivable duringaperiod.

 4.Depreciationexpense.

 5.Conversionof bondspayable intocommonstock.

 6.Decreaseinmerchandiseinventoryduringa period.

 7.Saleofequipmentforcashat bookvalue.

 8.Issuanceofpreferredstockfor cash.

 9.Purchaseof landfor cash.

         10.Lossonsale of aplant asset.

     SHORT-ANSWERESSAYQUESTIONS

S-AE192

Thestatementofcashflowsistheonlyrequiredfinancialstatementthatisnotpreparedfroman adjustedtrialbalance.Whatarethesourcesofinformationforpreparingastatementofcash flows? Explainhowtheaccrualbasis of accounting affectsthestatementof cashflows.

    S-AE193

 Cashflowsfromoperatingactivitiescanbecalculatedusingtheindirectordirectmethod.Briefly describehowthetwomethodsdifferyetarriveatthesameinformationaboutthenetcashflows fromoperatingactivities.

    S-AE194

 Howisitpossibleforacompanytosufferanetlossforagivenyear,yetproduceapositivenet cashflowfrom operatingactivities?

  S-AE195(Ethics)

 FlintHillsCompany'smostrecentfinancialstatementsshoweddismalperformance.Therewasa netlossof$10,000andthestatementofcashflowsshowedanetcashdecreaseinall categories.Thecompanypresidentcalledallthemanagerstogetherandaskedthemtodoall theycouldtomakesurethenextquarter'sperformance wasbetter.

 MelLaw,managerofthemanufacturingdivision,soldoffoldmanufacturingequipment.Healso reclassifiedseveralworkerstoparttime(30hoursperweek)andhiredadditionaltemporary workerstotakeuptheslack.Thissavedthecompanymoney,sincepart-timeworkersdonot havethe same insuranceandotherbenefitsasfull-timeworkers.

 JohnReed,financialmanager,immediatelysuspendedpaymentsonallaccountsexceptthose on which interest wouldaccrue.Healsoinstitutedaggressivecollectionprocedures.

 Required:

1.Were MelLaw'sactionsethical?Explain.

2.WereJohnReed'sactionsethical?Explain.

3.Werethecompanypresident's actionsethical?Explain.

    S-AE196(Communication)

 Youaretheaccountant forasmallmanufacturingfirm.Yourcompany isprivatelyheld,sothereis nocurrentrequirementtoissuefinancialstatementsusingGAAP.Youwerehiredfouryearsago, andatthattimeyouinstitutedacashbudgetingsystem.Presently,youpresentascheduleof predictedcashsourcesand cashneedsattheendof eachweekforthefollowingweek.

TheStatementof Cash Flows       17-53

 S-AE196(cont.)

 KenHarmon, thecompany'spresident,hasaskedwhetherastatementofcashflowswouldalso be useful.

 Required:

Preparea shortmemorandumtothepresident indicatingwhether youbelieve suchanadditionto thefinancialstatementstobeuseful.Includeinyourmemothebenefitsthatmightbeexpected fromastatementofcashflowsandwhetherthosearedifferentfromthebenefitsofacash sourcesandcashneedslisting.

#ACC 206 Week 9 Quiz – Strayer New

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ACC 206 Week 8 Quiz – Strayer

Click on the Link Below to Purchase A+ Graded Course Material

 http://budapp.net/ACC-206-Accounting-Principles-II-Week-8-Quiz-Strayer-266.htm

 Quiz 6 Chapter16

  INVESTMENTS

  CHAPTERSTUDYOBJECTIVES

 1.Discusswhycorporationsinvestindebtandstocksecurities.

 2.Explaintheaccountingfordebtinvestments.

 3.Explaintheaccountingforstockinvestments.

 4.Describetheuseofconsolidatedfinancialstatements.

 5.Indicatehowdebtandstockinvestmentsarereportedinfinancialstatements.

 6.Distinguishbetweenshort-termandlong-terminvestments.

  TRUE-FALSESTATEMENTS

  1.     Corporationspurchaseinvestmentsindebtorstocksecuritiesgenerallyforoneoftwo reasons.

 2.     Areasonsomecompaniespurchaseinvestmentsisbecausetheygenerateasignificant portion of theirearningsfrom investmentincome.

 3.     Theaccountingforshort-termdebtinvestmentsandforlong-termdebtinvestmentsis similar.

 4.     Forshort-termdebtinvestments,anybondpremiumordiscountisamortizedtointerest revenue over theremainingtermofthebonds.

 5.     Debtinvestmentsareinvestmentsingovernmentandcorporationbonds.

 6.     Inaccordancewiththecostprinciple,brokeragefeesshouldbeaddedtothecostofan investment.

 7.     Inaccordancewiththecostprinciple,thecostofdebtinvestmentsincludesbrokerage feesandaccruedinterest.

 8.     Inaccountingforstockinvestmentsof lessthan20%,the equity methodis used.

 9.     Dividendsreceivedon stock investmentsoflessthan 20%shouldbe creditedtothe Stock Investmentsaccount.

 10.     Ifaninvestor owns between 20%and50%ofaninvestee'scommonstock,itispresumed that the investorhassignificantinfluenceontheinvestee.

 11.     The StockInvestmentsaccountis debitedatacquisitionunderboththe equitymethodand cost methodof accountingfor investmentsincommonstock.

 12.     Undertheequity method, the investmentin commonstockis initiallyrecordedatcost, and the Stock Investments accountisadjustedannually.

 13.     Undertheequity method, thereceiptofdividendsfrom theinvesteecompanyresultsin an increase intheStockInvestmentsaccount.

 14.     Consolidatedfinancialstatementsareappropriatewhenaninvestorcontrolsaninvestee byownershipof morethan50% ofthe investee'scommonstock.

 15.     Consolidatedfinancial statementsare preparedinplace ofthe financialstatementsforthe parent andsubsidiarycompanies.

 16.     Consolidatedfinancialstatementsshouldbepreparedonlywhenasubsidiarycompany has a controllinginterestintheparentcompany.

 17.     Thevaluationofavailable-for-salesecuritiesissimilartotheproceduresfollowedfor tradingsecurities,exceptthatchangesinfairvaluearenotrecognizedincurrentincome.

Investments     16-5

 18.     Anunrealizedgainorlossontradingsecuritiesisreportedasaseparatecomponentof stockholders' equity.

 19.     Foravailable-for-salesecurities,theunrealizedgainorlossaccountiscarriedforwardto future periods.

 20.     Adeclineinthefairvalueofatradingsecurityisrecordedbydebitinganunrealizedloss accountandcreditingtheMarketAdjustmentaccount.

 21.     Ifthefairvalueofanavailable-for-salesecurityexceedsitscost,thesecurityshouldbe writtenup tofairvalueandarealizedgainshouldberecognized.

 22.     TheMarketAdjustmentaccountcanonlyhavea creditbalanceora zero balance.

 23.     Tobeclassifiedasashort-terminvestment,theinvestmentmustbereadilymarketable and intendedtobeconvertedinto cashwithinthenextyearor operatingcycle.

 24.     Aninvestmentisreadilymarketableifit ismanagement'sintenttoselltheinvestment.

 25.     StockstradedontheNewYork StockExchangeare consideredreadilymarketable.

 Additional True-FalseQuestions

 26.     Oneofthereasonsacorporationmaypurchaseinvestmentsisthat it hasexcesscash.

 27.     Whenrecordingbondinterest,InterestReceivableisreportedasafixedassetinthe balance sheet.

 28.     Underthecost method,the investmentisrecordedatcost andrevenueis recognizedonly when cashdividendsarereceived.

 29.     Consolidatedfinancialstatementspresentacondensedversionofthefinancial statements so investorswillnot experienceinformationoverload.

 30.     Available-for-salesecuritiesaresecuritiesboughtandheldprimarilyforsaleinthenear term togenerateincomeonshort-termpricedifferences.

 31.     "Intenttoconvert"doesnotincludeaninvestmentusedasaresourcethatwillbeused whenever theneedfor casharises.

       MULTIPLECHOICEQUESTIONS

  32.     Corporationsinvestexcesscashforshortperiodsof timeineachof thefollowingexcept a.equitysecurities.

b.highlyliquidsecurities. c.low-risksecurities.

d.governmentsecurities.

 33.     Corporationsinvestinother companiesfor allof thefollowingreasonsexceptto a.houseexcesscash untilneeded.

b.generateearnings.c.meetstrategicgoals.

d.increasetradingof theothercompanies’stock.

 34.     A typicalinvestmenttohouseexcesscashuntilneeded is a.stocksof companies inarelatedindustry.

b.debtsecurities.

c.low-risk,highlyliquidsecurities. d.stocksecurities.

 35.     A companymaypurchaseanoncontrollinginterest inanotherfirminarelatedindustry a.tohouseexcesscash until needed.

b.togenerateearnings. c.for strategicreasons.

d.for speculativereasons.

 36.     Pensionfundsandmutualfundsregularlyinvestin debtandstocksecuritiesto a.generateearnings.

b.houseexcesscashuntilneeded. c.meetstrategicgoals.

d.controlthecompanyin whichtheyinvest.

 37.     At thetimeofacquisitionofadebtinvestment, a.no journalentry isrequired.

b.thecostprincipleapplies.

c.theStockInvestments accountisdebitedwhenbondsarepurchased. d.the Investmentaccountiscreditedfor itscostplusbrokeragefees.

 38.     Whichofthefollowingisnot atrue statement regardingshort-termdebtinvestments? a.Thesecuritiesusuallypayinterest.

b.Investmentsarefrequentlygovernmentor corporatebonds.

c.Thistypeofinvestmentmustbecurrentlytradedinthesecuritiesmarket. d.Anybondpremiumordiscount isamortizedtointerestrevenue.

   Usethefollowing informationforquestions39–41.

 OnJanuary1,2008,TurnerCompanypurchasedatfacevalue,a$1,000,7%bondthatpays interest onJanuary1andJuly1.TurnerCompanyhas a calendaryearend.

Investments     16-7

 39.     TheentryforthereceiptofinterestonJuly1, 2008,is

 a.Cash.....................................................................................                    35

 InterestRevenue.........................................................                                      35

 b.Cash.....................................................................................                    70

InterestRevenue.........................................................                                      70

 c.InterestReceivable...............................................................                     35

InterestRevenue.........................................................                                      35

 d.InterestReceivable...............................................................                    70

InterestRevenue.........................................................                                      70

 40.     TheadjustingentryonDecember31,2008,is a.notrequired.

 b.Cash.....................................................................................                    35

InterestRevenue.........................................................                                      35

 c.InterestReceivable...............................................................                     35

InterestRevenue.........................................................                                      35

 d.InterestReceivable...............................................................                    35

 DebtInvestments.........................................................                                      35

 41.     TheentryforthereceiptofinterestonJanuary1,2009is

 a.Cash.....................................................................................                    70

 InterestRevenue.........................................................                                      70

 b.Cash.....................................................................................                    70

InterestReceivable......................................................                                      70

 c.Cash.....................................................................................                    35

InterestRevenue.........................................................                                      35

 d.Cash.....................................................................................                   35

InterestReceivable......................................................                                      35

 42.     OnJanuary1,BaroneCompanypurchasedasashort-terminvestmenta$1,000,8% bondfor$1,050.ThebondpaysinterestonJanuary1andJuly1.Thebondissoldon October1for$1,200plusaccruedinterest.Interesthasnotbeenaccruedsincethelast interestpaymentdate.Whatistheentrytorecordthecashproceedsatthetimethebond issold?

 a.Cash.....................................................................................               1,200

DebtInvestments........................................................                                  1,200

 b.Cash.....................................................................................               1,220

DebtInvestments.........................................................                                 1,050 Gainon Sale of DebtInvestments...............................                                 150 InterestRevenue.........................................................                                   20

 c.Cash.....................................................................................               1,220

DebtInvestments.........................................................                                 1,200 InterestRevenue.........................................................                                   20

 d.Cash.....................................................................................              1,200

DebtInvestments.........................................................                                 1,050 Gainon Sale of DebtInvestments...............................                                 150

16-8        

 43.     Whichofthefollowingisnotatruestatementabouttheaccountingforlong-termdebt investments?

a.The investmentisinitiallyrecordedatcost. b.Thecostincludes anybrokeragefees.

c.Theaccountingforlong-termdebtinvestmentsissimilartotheaccountingforshort-termdebtinvestments.

d.Thecostincludes anyaccruedinterest.

 44.     Thecostof debtinvestmentsincludeseachofthefollowingexcept a.brokeragefees.

b.commissions.

c.accruedinterest. d.thepricepaid.

 45.     Ifa short-termdebtinvestmentis sold,theInvestmentaccountis a.creditedforthebook valueof thebondsatthesaledate.

b.creditedforthecostof thebondsatthe saledate.

c.creditedforthefairvalueof thebondsatthesaledate. d.debitedforthecostof thebondsatthesaledate.

 46.     Anypremiumor discountonalong-termdebtinvestmentisamortized a.tointerestexpense overtheremainingterm ofthebonds.

b.onlyif the effective-interestmethodisused.

c.to interestrevenueovertheremainingtermof thebonds. d.iftheinvestorowns 20%ormoreofthebonds.

 Usethefollowing informationforquestions47–49.

 PimaCompanyacquires50,10%,5year,$1,000CommunitybondsonJanuary1,2008for $51,250.This includesabrokeragecommissionof $1,250.

 47.     Thejournalentrytorecordthis investmentincludesa debitto a.DebtInvestmentsfor$50,000.

b.DebtInvestmentsfor$51,250. c.Cashfor$51,250.

d.StockInvestmentsfor$50,000.

 48.     AssumeCommunitypaysinterestonJanuary1and July1,and theJuly1entry was done correctly.Thejournalentry at December31,2008wouldincludea creditto

a.InterestReceivablefor $2,500. b.InterestRevenuefor$5,000.c.AccruedExpensefor$5,000.d.InterestRevenuefor$2,500.

 49.     IfPimasellsallofitsCommunitybondsfor$52,000andpays$1,500inbrokerage commissions,whatgainor lossis recognized?

a.Gainof $2,000 b.Lossof$750c.Gain of $750d.Gainof $3,000

Investments     16-9

 50.     StevenCo.purchased 30,6%JohnstonCompanybondsfor$30,000cashplusbrokerage feesof$300.InterestispayablesemiannuallyonJuly1andJanuary1.Theentryto recordtheJuly1 semiannualinterestpaymentwouldincludea

a.debitto Interest Receivablefor$900. b.credittoInterest Revenuefor $900.c.credittoInterestRevenuefor $909.d.creditto Debt Investmentsfor$909.

 51.     StevenCo.purchased 30,6%JohnstonCompanybondsfor$30,000cashplusbrokerage feesof$300.InterestispayablesemiannuallyonJuly1andJanuary1.Theentryto recordthe December31interestaccrualwouldinclude a

a.debitto Interest Receivablefor$900. b.debittoInterest Revenuefor $900.c.credittoInterestRevenuefor $909.d.debitto DebtInvestmentsfor $900.

 52.     TolanCo.purchased60,6%IrickCompanybondsfor$60,000cashplusbrokeragefees of$600.InterestispayablesemiannuallyonJuly1andJanuary1.If15ofthesecurities aresoldonJuly1for$31,000less$300brokeragefees,theentrywouldincludeacredit to Gainon Saleof Debt Investmentsfor

a.$1,000. b.$700.c.$1,300. d.$400.

 53.     OnJanuary1,BurkettCompanypurchasedasaninvestmenta$1,000,8%bondfor $1,020.ThebondpaysinterestonJanuary1andJuly1.Whatistheentrytorecordthe interest accrualon December31?

a.InterestReceivable...............................................................                     40

InterestRevenue........................................................                                        40 b.DebtInvestments................................................................              40

InterestRevenue........................................................                                        40 c.InterestReceivable...............................................................              80

InterestRevenue........................................................                                        80 d.DebtInvestments................................................................              80

InterestRevenue........................................................                                        80

 54.     DarnetCorporationsells100sharesofcommonstockbeingheldasaninvestment.The shareswereacquired sixmonthsagoatacostof$30ashare.Darnetsoldtheshares for $40a share.Theentrytorecordthesaleis

a.Cash.....................................................................................               3,000 Losson Saleof StockInvestments.....................................                            1,000

StockInvestments......................................................                                  4,000

 b.StockInvestments...............................................................                4,000

Cash...........................................................................                                  4,000

 c.Cash.....................................................................................               4,000

Gainon Sale of StockInvestments............................                                   1,000 StockInvestments......................................................                                  3,000

 d.Cash.....................................................................................              4,000

StockInvestments......................................................                                  4,000

16-10

 55.     BrowneCorporationsells200sharesofcommonstockbeingheldasaninvestment.The shareswere acquiredsixmonthsagoata costof$50 ashare.Brownesoldthe sharesfor $40a share.Theentrytorecordthesaleis

a.Cash....................................................................................                8,000 Losson Saleof StockInvestments.....................................                            2,000

StockInvestments.....................................................                                 10,000

 b.Cash....................................................................................             10,000

Gainon Sale of StockInvestments............................                                   2,000 StockInvestments.....................................................                                   8,000

 c.Cash....................................................................................                8,000

StockInvestments.....................................................                                   8,000

 d.StockInvestments..............................................................                 8,000 Losson Saleof StockInvestments.....................................                            2,000

Cash...........................................................................                                10,000

   Usethefollowing informationforquestions56–58.

 NagenCompanyhadthesetransactionspertainingto stockinvestments:

 Feb.1         Purchased 2,000sharesofCagneyCompany(10%)for$33,200 cashplusbrokerage feesof$800.

June1         Receivedcashdividends of $2pershareonCagneystock.

Oct.1         Sold800shares of Cagneystockfor $16,000lessbrokeragefeesof$400.

 56.     Theentrytorecordthe purchaseofthe Cagneystockwouldincludea a.debit toStockInvestmentsfor$33,200.

b.creditto Cashfor$33,200.

c.debittoStockInvestmentsfor$34,000. d.debittoInvestmentExpensefor $800.

 57.     Theentrytorecordthereceiptofthedividendson June1wouldincludea a.debit toStockInvestmentsfor$4,000.

b.credittoDividendRevenuefor$4,000. c.debittoDividendRevenuefor$4,000. d.credit to StockInvestmentsfor$4,000.

 58.     Theentrytorecordthe saleof thestockwouldinclude a a.debitto Cashfor $16,000.

b.credittoGainon Saleof StockInvestmentsfor$800. c.debitto StockInvestmentsfor$13,600.

d.credittoGainon Saleof StockInvestmentsfor$2,000.

 59.     MounsCompanyowns40%interestinthestockofDarianCorporation.Duringtheyear, Darianpays$20,000individendstoMouns,andreports$100,000innetincome.Mouns Company’sinvestmentinDarianwillincreaseMouns’net incomeby

a.$20,000. b.$40,000. c.$32,000. d.$8,000.

Investments     16-11

 60.     MounsCompanyowns40%interestinthestockofDarianCorporation.Duringtheyear, Darianpays$25,000individendstoMouns,andreports$100,000innetincome.Mouns Company’sinvestmentinDarianwillincreaseby

a.$25,000. b.$40,000. c.$32,000. d.$15,000.

 61.     OnJanuary1,2008,JonseyCorporationpurchased30%ofthecommonstock outstandingofKarsenCorporationfor$200,000.During2008,KarsenCorporation reportednetincomeof$80,000andpaidcashdividendsof$40,000.Thebalanceofthe StockInvestments—KarsenaccountonthebooksofJonseyCorporationatDecember31, 2008is

a.$200,000. b.$240,000. c.$280,000. d.$212,000.

 62.     DeckerCorporation purchased1,000sharesofKentcommonstockat$70pershareplus $3,000brokeragefeesasashort-terminvestment.Thesharesweresubsequentlysoldat $80pershareless$3,400brokerage fees.Thecostofthesecuritiespurchasedandgain orloss on thesale were

Cost       Gain orLoss a.       $70,000                 $10,000gain b.                   $70,000                   $3,600gain c.                      $73,000                   $7,000gain d.                     $73,000                   $3,600gain

 63.     Inaccountingforstockinvestmentsbetween20%and50%,the                          methodisused. a.consolidatedstatements

b.controllinginterest c.cost

d.equity

 64.     Whenacompanyholdsstockofseveraldifferentcorporations,thegroupofsecuritiesis identifiedas a(n)

a.affiliatedinvestment.b.consolidatedportfolio. c.investmentportfolio.d.controllinginterest.

 65.     JacobsCorporationmakesashort-terminvestmentin100sharesofStarrCompany's commonstock.Thestockispurchasedfor$50ashareplusbrokeragefeesof$300.The entryforthepurchaseis

 a.DebtInvestments.................................................................               5,000 Cash............................................................................                             5,000

 b.StockInvestments................................................................               5,300 Cash............................................................................                             5,300

 c.StockInvestments................................................................               5,000 BrokerageFeeExpense.......................................................            300

Cash............................................................................                                5,300

16-12

  d.StockInvestments...............................................................               5,000

Cash...........................................................................                                  5,000

 66.     DobsonCorporationsells200sharesofcommonstockbeingheldasashort-term investment.Theshareswereacquiredsixmonthsagoatacostof$50ashare.Dobson sold thesharesfor $40ashare.Theentryto recordthesaleis

 a.Cash....................................................................................                8,000 Losson Saleof StockInvestments......................................                           2,000

StockInvestments......................................................                                10,000

 b.Cash....................................................................................             10,000

Gainon Sale of StockInvestments.............................                                  2,000 StockInvestments......................................................                                  8,000

 c.Cash....................................................................................                8,000

StockInvestments......................................................                                  8,000

 d.StockInvestments...............................................................               8,000 Losson Saleof StockInvestments......................................                           2,000

Cash...........................................................................                                10,000

  67.     Foraccountingpurposes,themethodusedtoaccountforlong-terminvestmentsin commonstockisdeterminedby

a.the amountpaidfor thestockbytheinvestor.

b.theextentofaninvestor'sinfluenceontheoperatingandfinancialaffairsofthe investee.

c.whetherthe stockhaspaid dividendsinpast years.

d.whethertheacquisitionof thestockbythe investorwas"friendly"or"hostile."

 68.     Ifaninvestorownslessthan20%ofthecommonstockofanothercorporationasalong-terminvestment,

a.the equitymethodofaccountingforthe investmentshouldbeemployed. b.nodividendscan beexpected.

c.it ispresumedthatthe investorhasrelativelylittleinfluenceontheinvestee. d.it ispresumedthatthe investorhassignificantinfluence ontheinvestee.

 69.     Ifthecostmethodisusedtoaccountforalong-terminvestmentincommonstock, dividends receivedshouldbe

a.creditedtotheStockInvestmentsaccount. b.creditedtotheDividendRevenue account. c.debitedtotheStockInvestmentsaccount.

d.recordedonlywhen20% ormoreofthestockis owned.

 70.     If10%ofthecommonstockofaninvesteecompanyispurchasedasalong-term investment, theappropriatemethodof accountingfortheinvestmentis

a.thecostmethod.b.the equitymethod.

c.thepreparationof consolidatedfinancialstatements.

d.determinedbyagreementwithwhomeverownstheremaining90% ofthestock.

Investments     16-13

 71.     Thecostmethodofaccountingforlong-terminvestmentsinstockshouldbeemployed when the

a.investorownsmorethan50% of the investee'sstock.

b.investorhassignificantinfluenceontheinvesteeandthestockheldbytheinvestor aremarketableequitysecurities.

c.marketvalueof thesharesheldisgreaterthantheirhistoricalcost. d.investor'sinfluenceonthe investeeis insignificant.

 72.     Whenan investorownsbetween20%and 50% ofthecommonstock ofa corporation,itis generallypresumedthatthe investor

a.hasinsignificant influenceontheinvesteeandthatthecost methodshouldbeused to account forthe investment.

b.shouldapplythe costmethodinaccountingforthe investment. c.will prepareconsolidatedfinancialstatements.

d.hassignificantinfluenceontheinvestee and thattheequitymethod should beusedto account forthe investment.

 73.     Undertheequity methodofaccounting forlong-terminvestmentsincommonstock,when a dividendis receivedfromtheinvesteecompany,

a.theDividendRevenueaccount is credited.b.theStockInvestmentsaccountis increased.

c.theStockInvestments accountisdecreased. d.noentryis necessary.

 74.     OnJanuary1,2008,CalisCorporationpurchased25%ofthecommonstockoutstanding ofLaneCorporation for$700,000.During2008,LaneCorporationreportednetincomeof $200,000 andpaidcashdividendsof$100,000.ThebalanceoftheStockInvestments— Lane accountonthebooks of CalisCorporationatDecember31,2008is

a.$700,000. b.$725,000. c.$750,000. d.$675,000.

 75.     Underthe equitymethod,theStockInvestmentsaccountisincreasedwhen the a.investeecompany reportsnetincome.

b.investeecompanypays adividend. c.investeecompanyreportsaloss.d.stockinvestmentissoldat again.

 76.     Theaccount,StockInvestments,is a.asubsidiaryledgeraccount.

b.a long-termliabilityaccount.

c.ageneralledgercontrolaccount.

d.anothernameforDebt Investments.

 77.     Which ofthefollowing wouldnotbeconsideredamotive formakingastockinvestmentin anothercorporation?

a.Appreciationinthemarketvalueofthestock investment b.Useof theinvestmentfor expandingits ownoperations c.Useof the investmenttodiversifyits ownoperations

d.An increaseinthe amountof interestrevenuefromthestockinvestment

16-14

 78.     Revenueisrecognizedwhencashdividendsarereceivedunder a.thecontrollinginterestmethod.

b.thecostmethod.c.the equitymethod.

d.boththecostand equitymethods.

 79.     Whichofthefollowingisthecorrectmatchingconcerninganinvestor'sinfluenceonthe operationsandfinancialaffairsof aninvestee?

 %of InvestorOwnership a.            Lessthan20%

b.         Between20%-50% c.  Morethan50%

d.         Between20%-50%

PresumedInfluence Short-term Significant

Long-term Controlling

  80.     Whichofthefollowingisthecorrectmatchingconcerningtheappropriateaccountingfor long-termstockinvestments?

 %ofInvestorOwnership a. Lessthan20%

b.         Between20%–50% c. Morethan50%

d.         Between20%–50%

AccountingGuidelinesCostmethod

Costmethod

Costor equitymethod Consolidatedfinancialstatements

  81.    If thecost method is usedtoaccountfor along-terminvestmentincommonstock, a.it ispresumedthatthe investorhassignificantinfluence ontheinvestee.

b.theearningofnetincomebytheinvesteeisconsideredaproperbasis forrecognition ofincomebythe investor.

c.netincomeoftheinvestee isnotconsideredearnedby theinvestoruntil dividendsare declared bytheinvestee.

d.theInvestmentaccountmaybe,attimes,greaterthantheacquisitioncost.

 82.     Ifa companyacquiresa40%commonstockinterest in anothercompany, a.theequitymethodisusuallyapplicable.

b.all influenceisclassified ascontrolling. c.thecostmethodisusuallyapplicable.

d.theabilitytoexertsignificantinfluenceovertheactivitiesoftheinvesteedoesnot exist.

 83.     Ifa commonstockinvestmentissoldat again,thegain a.isreportedasoperatingrevenue.

b.isreportedunderaspecialsection,"Discontinuedinvestments,"ontheincome statement.

c.isreportedinthe Other RevenueandGainsectionof theincomestatement. d.contributestogrossprofitontheincomestatement.

 84.     If the equitymethodisbeingused,cashdividendsreceived a.arecreditedtoDividendRevenue.

b.requirenoentrybecauseinvesteenetincomehasalreadybeenrecordedatthe properproportionontheinvestor'sbooks.

c.arecreditedtotheStockInvestmentsaccount.

d.are creditedtotheRevenuefromInvestmentinStockaccount.

Investments     16-15

 85.     If the equitymethodisbeingused,the RevenuefromInvestmentinStockaccountis a.justanothernamefora DividendRevenue account.

b.creditedwhendividends aredeclaredbytheinvestee. c.creditedwhennetincomeisreportedbytheinvestee. d.debitedwhendividendsaredeclaredbytheinvestee.

 86.     Underthe equitymethod,theStockInvestmentsaccountis creditedwhenthe a.investeereportsnetincome.

b.investeereportsanetloss.

c.investmentisoriginallyacquired.

d.investeereportsnetincomeandwhenthe investmentisoriginallyacquired.

 87.     Consolidatedfinancialstatementsarepreparedwhenacompany owns                               ofthe commonstockofanothercompany.

a.lessthan20%

b.between20%and 50% c.lessthan50%

d.morethan50%

 88.     Consolidatedfinancialstatements presentallof thefollowingexceptthe a.individualassetsandliabilities of theparentcompany

b.individualassetsandliabilitiesof thesubsidiary. c.totalrevenuesandexpensesof thesubsidiary.

d.Allof theseare presentedinconsolidatedfinancialstatements.

 89.     Thecompanywhosestockisownedbytheparentcompanyiscalledthe a.controlledcompany.

b.subsidiarycompany. c.investeecompany.d.siblingcompany.

 90.     Acompanythatownsmorethan50%ofthecommonstockofanothercompanyisknown as the

a.chargecompany.

b.subsidiarycompany. c.parentcompany.

d.managementcompany.

 91.     Ifonecompanyownsmorethan50%ofthecommon stock of anothercompany, a.thecostmethodshouldbeusedtoaccountforthe investment.

b.a partnershipexists.

c.a parent-subsidiaryrelationshipexists.

d.thecompanywhosestock isownedmustbeliquidated.

 92.     Ifaparentcompanyhastwowhollyownedsubsidiaries,howmanylegalandeconomic entities aretherefromtheviewpointof theshareholdersof theparentcompany?

 Legal         Economic a.      3                  3

b.      1                   2 c.  3          1 d.      2                   1

16-16

 93.     Whenacompanyownsmorethan50%ofthecommonstockof anothercompany, a.affiliatedfinancial statementsare prepared.

b.consolidatedfinancialstatements areprepared. c.controllingfinancialstatementsareprepared.d.significantfinancialstatementsareprepared.

 94.     Changesfromcostarereportedaspartof netincomefor a.available-for-salesecurities.

b.held-to-maturitysecurities. c.debtsecurities.

d.tradingsecurities.

 95.     Short-terminvestmentsare listedonthebalancesheetimmediatelybelow a.cash.

b.inventory.

c.accountsreceivable. d.prepaidexpenses.

 96.     Short-termstockinvestmentsshouldbevaluedon thebalancesheetat a.thelower of cost orfair value.

b.thehigherofcostor fairvalue. c.cost.

d.fairvalue.

 97.     Inrecognizingadeclineinthefairvalueofshort-termstockinvestments,anunrealized loss accountis debitedbecause

a.managementintendstorealize this loss inthenearfuture. b.thesecuritieshavenot beensold.

c.thestockmarket is volatile.

d.managementcannotdeterminetheexactamountofthe lossinvalue.

 98.     TheMarketAdjustmentaccount

a.issetupforeachsecurityinthecompany'sportfolio.

b.relatestotheentireportfolioofsecuritiesheldbythecompany. c.is closedatthe endof each accountingperiod.

d.appearsontheincomestatementasOtherExpenses andLosses.

 99.     Thecontra-account,MarketAdjustment,isalso calleda(n) a.offsetaccount.

b.adjustmentaccount. c.valuationaccount.d.oppositeaccount.

 100.     Reportinginvestmentsatfairvalueis a.applicableto stocksecuritiesonly. b.applicableto debtsecuritiesonly.

c.applicableto bothdebtandstocksecurities.

d.aconservativeapproachbecauseonlylossesarerecognized.

Investments     16-17

 Usethefollowing informationforquestions101–102.

 GrierCorporation'stradingportfolioattheendof theyearis asfollows:

        Security        

CommonStockA CommonStockB

Cost        

$10,000

   9,000$19,000

MarketValue $12,000

   5,000$17,000

  101.     At theendoftheyear,GrierCorporationshould

a.set upa MarketAdjustmentaccountforStockB.

b.set upa MarketAdjustmentaccountforthe portfolio.

c.recognizeanUnrealizedGainor Loss—Incomefor $4,000.

d.reportalossontheincome statementfor $4,000under"OtherExpensesandLosses."

 102.     GriersubsequentlysellsStockBfor$12,000.Whatentryismadetorecordthesale?

 a.Cash.....................................................................................             12,000

StockInvestments.......................................................                              12,000

 b.Cash.....................................................................................            12,000

MarketAdjustment.......................................................                                3,000 StockInvestments.......................................................                                 9,000

 c.Cash.....................................................................................             12,000

StockInvestments.......................................................                                 9,000 Gainon Sale of StockInvestments.............................                                                       3,000

 d.Cash.....................................................................................            12,000

StockInvestments.......................................................                                 5,000 Gainon Sale of StockInvestments.............................                                                       7,000

 103.     Whichofthefollowingwouldnotbereportedunder"OtherRevenuesandGains"onthe income statement?

a.Unrealizedgainonavailable-for-salesecurities b.Dividendrevenue

c.Interestrevenue

d.Gainonsaleof short-termdebtinvestments

 104.     ThebalanceintheUnrealizedLoss—Equityaccountwill a.appearonthebalancesheetasacontraasset.

b.appearontheincomestatementunderOtherExpensesandLosses. c.appearasadeductioninthestockholders'equitysection.

d.notbeshownonthefinancialstatementsuntilthesecuritiesaresold.

 105.     Ifthecostofanavailable-for-sale securityexceedsitsfairvalueby$40,000,theentryto recognizethe loss

a.isnotrequiredsincethesharepriceswill likelyreboundinthe longrun. b.will showadebitto an expenseaccount.

c.willshowacredittoacontra-assetaccountthatappearsinthestockholders'equity section of thebalancesheet.

d.willshowadebittoanunrealizedlossaccountthatisdeductedinthestockholders' equitysectionof thebalancesheet.

16-18

 106.     Thebalancesheetpresentationofanunrealizedlossonanavailable-for-salesecurityis similar to thestatementpresentationof

a.treasurystock.

b.discountonbondspayable.

c.allowancefor doubtfulaccounts. d.prepaidexpenses.

 Usethefollowing informationforquestions107–108.

 Attheendofitsfirstyear,thetradingsecuritiesportfolioconsistedofthefollowingcommon stocks.

Cost               Market AbleCorporation         $46,400        $50,000 BakerInc.                       60,000            53,800 ColeCorporation          80,00076,000

$186,400         $179,800

 107.     Theunrealizedlosstoberecognizedunderthefair valuemethodis a.$6,200.

b.$10,200. c.$6,600. d.$4,000.

 108.     Inthefollowingyear,theBakercommonstockissoldforcashproceedsof$58,000.The gain orlosstoberecognizedonthesaleisa

a.gainof$4,200. b.lossof$2,000. c.gainof$2,200. d.lossof $400.

 109.     Attheendofthefirstyearofoperations, thetotalcostofthetradingsecuritiesportfoliois $240,000.Totalfair valueis $250,000.Thefinancialstatementsshouldshow

a.anadditiontoanassetof$10,000andarealizedgain of $10,000.

b.anadditiontoanassetof$10,000andanunrealizedgainof$10,000inthe stockholders’ equitysection.

c.anadditiontoanassetof$10,000in thecurrentassetssection andanunrealizedgain of$10,000in―Otherrevenuesandgains.‖

d.anaddition toanassetof$10,000 inthecurrentassetssectionandarealizedgainof $10,000in―Otherrevenuesandgains.‖

 110.     NoellCorp.hascommonstockof$5,000,000,retainedearningsof$3,000,000,unrealized gainsontradingsecuritiesof$100,000andunrealizedlossesonavailable-for-sale securitiesof $200,000.Whatisthetotalamountofitsstockholders’equity?

a.$7,800,000 b.$8,000,000 c.$7,900,000 d.$8,100,000

 111.     Available-for-salesecuritiesareclassifiedas a.short-terminvestmentsonly.

b.long-terminvestmentsonly.

c.eithershort-termor long-terminvestments. d.currentassetsonly.

Investments     16-19

 112.     Whichoneof thefollowing wouldnot beclassifiedasashort-terminvestment? a.Marketablestocksecurities

b.Equitymethod investments c.Marketabledebtsecurities d.Short-termpaper

 113.     Short-terminvestmentsaresecuritiesthatarereadilymarketableandintendedtobe convertedintocashwithinthenext

a.year.

b.twoyears.

c.yearoroperatingcycle,whicheveris shorter. d.yearor operatingcycle,whicheveris longer.

 114.     Whichofthefollowingwouldnot beclassifiedasa short-terminvestment? a.Short-termcommercialpaper

b.Idlecashinabankcheckingaccount c.Marketablestocksecurities

d.Marketabledebtsecurities

 Additional MultipleChoiceQuestions

 115.     Whichofthefollowingreasonsbestexplainswhyacompanythatexperiencesseasonal fluctuationsinsalesmaypurchaseinvestments indebtorstocksecurities?

a.Thecompanymayhaveexcesscash.

b.Thecompanymaygenerateasignificantportionofitsearningsfrominvestment income.

c.Thecompanymayinvestforthestrategicreasonofestablishingapresenceina related industry.

d.Thecompanymayinvestforspeculativereasonstoincreasethevalueinpension funds.

 116.Whenbondsaresold,thegain or lossonsaleis thedifferencebetweenthe a.salespriceandthecost ofthebonds.

b.netproceedsandthecostof thebonds.

c.salespriceandthemarketvalueof thebonds.d.netproceedsandthemarketvalueof thebonds.

 117.Whichofthefollowingisamajordifferencewhenaccountingforlong-termdebt investmentsversusshort-termdebtinvestments?

a.Whensellinglong-terminvestments,nogain or lossisrecognized.

b.Attheendof the year, anyunrealizedgainorlosson long-termdebt investments must be recognizedinthe stockholders'equitysectionof thebalancesheet.

c.Interestrevenueis notrecognizedfor long-terminvestments.

d.Forshort-terminvestments,bondpremiumordiscountisnotamortizedtointerest revenue.

 118.     Underthe equitymethod,theinvestorrecordsdividendsreceivedbycrediting a.DividendRevenue.

b.InvestmentIncome.

c.RevenuefromInvestment. d.StockInvestments.

16-20

 119.     Acompanythatacquireslessthan20%ownershipinterestinanothercompanyshould account forthestockinvestmentinthatcompanyusing

a.thecostmethod.b.the equitymethod.

c.thesignificantmethod.

d.consolidatedfinancialstatements.

 120.     Theequitymethodofaccountingforaninvestmentinthecommonstockofanother companyshouldbeusedbythe investorwhentheinvestment

a.iscomposedof commonstockanditistheinvestor'sintenttovotethecommonstock. b.ensuresasourceofsupplyof rawmaterialsfortheinvestor.

c.enablestheinvestortoexercisesignificantinfluenceovertheinvestee. d.isobtainedbyanexchangeofstockforstock.

 121.     OnJanuary2,MatthewsCorporationacquired20%oftheoutstandingcommonstockof DennehyCompanyfor$450,000.FortheyearendedDecember31,Dennehyreported netincomeof$90,000andpaidcashdividendsof$30,000onitscommonstock.At December31,thecarryingvalueofMatthews'investmentinDennehyundertheequity method is

a.$444,000. b.$450,000. c.$456,000. d.$462,000.

 122.     Anunrealizedlossonavailable-for-salesecuritiesis

a.reportedunderOtherExpensesandLossesinthe incomestatement. b.closed-outat theendoftheaccountingperiod.

c.reportedasaseparatecomponentof stockholders'equity. d.deductedfromthecostoftheinvestment.

 123.     Securitiesboughtandheldprimarilyforsaleintheneartermtogenerateincomeonshort-termpricedifferencesare

a.tradingsecurities.

b.available-for-salesecurities. c.never-sellsecurities.

d.held-to-maturitysecurities.

 124.     Short-terminvestments are

a.(1) readilymarketableand(2) intendedto beconvertedinto cashafterthecurrentyear oroperatingcycle,whicheveris shorter.

b.(1)readilymarketableand(2)intendedtobeconvertedintocashwithinthecurrent yearoroperatingcycle,whicheverislonger.

c.(1) readilymarketableand(2) intendedto beconverted into cashafterthecurrentyear oroperatingcycle,whicheveris longer.

d.(1)readilymarketableand(2)intendedtobeconvertedintocashwithinthecurrent yearoroperatingcycle,whicheverisshorter.

Investments     16-21

 125.     Short-terminvestmentsare securitiesheldbyacompanythat are a.readilymarketable.

b.intendedtobeconvertedintocashwithinthenextyear.

c.readilymarketableandintendedtobeconvertedintocashwithinthenextyearor operatingcycle,whicheveris longer.

d.readilymarketableandintendedtobehelduntilmaturity.

   BRIEFEXERCISES

 BE126

 OnJanuary14,BlackwellCorporationpurchased20,11%,$1,000GoodingCompanybondsfor $20,000,plusbrokeragefeesof$400.OnNovember30,thecompanysold10oftheGooding Companybondsfor$11,000,less$300brokeragefees.Preparejournalentriesforthepurchase and sale oftheGoodingCompanybonds.

   BE127

 OnJanuary2,WestiesCompanypurchased30,10%,$1,000ArkansasCompanybondsfor $31,000cash,plusbrokeragefeesof$1,000.InterestispayablesemiannuallyonJuly1and January1.OnJuly1,thecompanyreceivedasemiannualinterestpaymentontheArkansas Companybonds.Journalizetheentriestorecord thepurchaseofthebonds andthereceiptofthe interest payment.

    BE128

 OnApril25,BraxtonCompanybuys4,200sharesofComputech commonstock for$82,000,plus brokeragefeesof$2,000.OnOctober31,Braxtonsells600sharesofComputechstockfor $15,500,lessbrokeragefeesof$500.Preparejournalentriesforthepurchaseandsaleofthe Computechcommonstock.

   BE129

 OnJanuary1,HillardCorporationpurchaseda40%equityinLewisCompanyfor$360,000.At December31,Lewisdeclaredandpaida$40,000cashdividendandreportednetincomeof $98,000.Preparethenecessaryjournal entriesfor HillardCorporation.

   BE130

 SteinCompanyhadthefollowingtransactionspertaining toitsshort-termstock investments.

 Jan.       1      Purchased600sharesofRiceCompany stockfor$6,700cashplusbrokeragefees of$350.

 June      1      Receivedcashdividendsof $0.50per shareontheRiceCompanystock.

 Sept.15         Sold300shares of theRiceCompanystockfor$3,600lessbrokeragefeesof$200.

 InstructionsJournalizethetransactions.

    BE131

 OnJanuary1,2008,OwenCompanypurchased5,000sharesofJenCompanystockfor $300,000.Owen’sinvestmentrepresents30percentofthetotaloutstandingsharesofJen. During2008,Jenpaidtotaldividendsof$100,000andreportednetincomeof$250,000.What revenuedoesOwen reportrelated tothisinvestmentandwhatistheamount tobereported asan investmentinJenstock at December31?

   BE132

 AtJanuary1,2008,thetradingsecuritiesportfolioheldbytheDarinCorporationconsistedofthe followinginvestments:

 1.2,000shares of Stitchcommonstockpurchasedfor $42pershare. 2.1,500shares of Marvelcommonstockpurchasedfor$50pershare.

 AtDecember31,2008,thefair valuesper sharewereStitch$36andMarvel$54.

   Instructions

(a)Preparea scheduleshowing thecostandfairvalueof theportfolioatDecember 31,2008.

 (b)Preparetheadjustingentrytoreporttheportfolioatfair valueat December31,2008.

    BE133

 AtDecember31,2008,thetradingsecuritiesforCarterCompanyareasfollows:

 Security XY

Cost

$17,000

34,000$51,000

Fair Value $20,000

33,000$53,000

  Preparetheadjustingentry at December31,2008,toreportthesecuritiesatfair value.

   BE134

 AtJanuary1,2008,GulfportCorporationheldone available-for-salesecurity:1,500sharesof Netblaster commonstockpurchasedfor$40pershare.AtDecember31,2008,themarketvalue persharefor Netblasterwas$44.Preparetheadjustingentrytoreporttheportfolioatfairvalueat December 31, 2008.

Investments     16-25

  BE135

 TerraFirmaCompanyhas thefollowingdataat December31, 2008for its securities:

 Securities Available-for-sale Trading

Cost

$35,000 45,000

Fair Value $38,000

40,000

     EXERCISES

 Ex.136

 MilnerCorporationhadthefollowingtransactionspertainingto debtinvestments.

 Jan.1       Purchased80,8%,$1,000VanoyCompanybondsfor$80,000,plusbrokeragefeesof $800.

 July1       Sold20 VanoyCompanybondsfor $24,000,less$400brokeragefees.

 Instructions

Preparejournalentriesfor thepurchaseandsaleof theVanoyCompanybonds.

    Ex.137

 Glaser Companyhadthe followingtransactions pertaining todebtsecuritiesheldasashort-term investment.

 Jan.1       Purchased40,8%,$1,000CotterCompanybondsfor$40,000cashplusbrokerage feesof$800.InterestispayablesemiannuallyonJuly1 andJanuary1.

 July1      Receivedsemiannualintereston CotterCompanybonds.

 Oct.1      Sold30CotterCompanybondsfor$32,000plusaccruedinterestless$500brokerage fees.

 Instructions

 (a)Journalizethetransactions.

 (b)PreparetheadjustingentryfortheaccrualofinterestonDecember31.

    Ex.138

 Thefollowingtransactionswere made byWaite Company.Assumeall investmentsare short-term and arereadilymarketable.

 June    2 July      1 30

Sept.15 Dec.31

31

Purchased300sharesofBeatyCorporationcommonstockfor$45 pershare. Purchased200MengCorporationbondsfor$220,000.

Receivedacashdividendof $2persharefromBeatyCorporation. Sold90shares of BeatyCorporationstockfor$50pershare.

Receivedsemiannualinterestcheckfor$11,000fromMengCorporation.

 Receivedacashdividendof $2persharefromBeatyCorporation.

 InstructionsJournalizethetransactions.

Investments     16-27

  Ex.139

 OnApril1,SmithCompanybuys3,000sharesofThomascommonstockfor$60,000,plus brokeragefeesof$900.OnOctober1,Smithsells1,000sharesofThomasstockfor$23,000, less brokeragefeesof$500.

 Instructions

Preparejournalentriesfor thepurchaseandsaleof theThomas commonstock.

   Ex.140

 StoneCompanyhadthefollowingtransactionspertainingtoshort-terminvestmentsinequity securities.

 Jan.       1

  June      1 Sept.15

Dec.      1

Purchased1,000sharesofRenfroCompanystockfor$9,450cashplusbrokerage feesof $300.

 Receivedcashdividendsof $.50pershareon RenfroCompanystock.

 Sold400 sharesof RenfroCompanystockfor $3,800 lessbrokeragefeesof$100.

 Receivedcashdividendsof $.50pershareon RenfroCompanystock.

 Instructions

(a)Journalizethetransactions.

(b)Indicatetheincomestatementeffectsof thetransactions.

   Ex.141

 StineCorporation'sbalancesheetat December31, 2007,showed thefollowing: Short-term investments,atfair value                                                          $46,500

 StineCorporation'stradingportfolioofstockinvestmentsconsistedofthefollowingatDecember 31,2007:

             Stock                

DooleyCommonStock AdlerPreferredStock GriggsCommonStock

Numberof Shares 200

400 300

Cost

$30,000 6,000

           9,000$45,000

Investments     16-29

 Ex.141         (cont.)

 During2008,thefollowingtransactionstookplace:

 Feb.      5      Sold50shares of Dooleycommonstockfor$8,000.Mar.30             Purchased25sharesofGriggscommonstockfor$950.

Sept.     9      Purchased50sharesofGriggscommonstockfor$2,000.

 Atyearend onDecember31,2008,themarketvaluesper share were:

  DooleyCommonStock AdlerPreferredStock GriggsCommonStock

MarketValuePerShare $158.00

$14.00 $25.00

  Instructions

(a)Preparethejournalentriestorecordthe2008stocktransactions.

(b)OnDecember31,2008,prepareanyadjustingentrythatmightbenecessaryrelativetothe tradingportfolio.

(c)ShowhowthestockinvestmentswillappearonStineCorporation'sbalancesheetat December31, 2008.

    Ex.142

 OnJanuary5,2008,StoreyCompanypurchasedthefollowingstocksecuritiesasalong-term investment:

 300sharesMarksCorporationcommonstockfor$4,200. 500sharesWoodCorporationcommonstockfor$10,000. 600sharesLogenCorporationcommonstockfor$19,800.

 AssumethatStoreyCompanycannotexercisesignificantinfluenceovertheactivitiesofthe investee companies andthatthe costmethodisusedtoaccountforthe investments.

 OnJune30, 2008,StoreyCompany receivedthefollowingcashdividends:

 MarksCorporation........................................ WoodCorporation........................................ LogenCorporation........................................

$2.00pershare $1.00pershare $1.50pershare

  OnNovember15,2008,StoreyCompanysold200sharesofLogenCorporationcommonstock for $7,500.

 OnDecember31,2008,thefair valueof thesecuritiesheldbyStoreyCompanyisasfollows:

  MarksCorporationcommonstock WoodCorporationcommonstock LogenCorporationcommonstock

PerShare $10

16 32

  Instructions

PreparetheappropriatejournalentriesthatStoreyCompanyshouldmakeonthefollowingdates:

 January5,2008 June30,2008 November15,2008 December31, 2008

   Ex.143

 SeelyCompanypurchased42,000sharesofcommonstockofOttoCorporationasalong-term investmentfor$1,000,000.Duringtheyear,OttoCorporationreportednetincomeof$300,000 and paid dividendsof$100,000.

 Instructions

(a)     Assumingthatthe42,000sharesrepresenta15% interestinOttoCorporation: 1.Preparethejournalentrytorecordthe investmentinOtto stock.

2.Prepareanyentriesthat SeelyCompanyshouldmake inaccountingforitsinvestmentin Ottostockduring theyear.

3.What is thebalance of theStockInvestmentsaccounton SeelyCompany'sbooks at the end oftheyear?

 (b)    Repeatrequirement(a)aboveexceptassumethatthe42,000sharesrepresenta25% interestinOtto Corporation.

    Ex.144

 OnJanuary1,NeelyCorporationpurchaseda30%equityinPooleCompanyfor$120,000.At December31,Pooledeclaredandpaida$40,000cashdividendandreportednetincomeof $100,000.

 Instructions

 PreparethenecessaryjournalentriesforNeelyCorporation.

   Ex.145

 Informationpertainingto long-termstockinvestments in2008byTateCorporationfollows:

 Acquired10%ofthe250,000sharesofcommonstockofFriendCompanyatatotalcostof$8 pershareonJanuary1,2008.OnJuly1,FriendCompanydeclaredandpaidacashdividendof $2pershare.OnDecember31,Friend'sreportednet incomewas$654,000forthe year.

Investments     16-33

 Ex.145         (cont.)

 ObtainedsignificantinfluenceoverUnruhCompanybybuying25%ofUnruh's100,000 outstandingsharesofcommonstockatatotalcostof$22pershareonJanuary1,2008.On June15,UnruhCompanydeclaredandpaidacashdividendof$1.50pershare.OnDecember 31,Unruh'sreportednetincomewas$280,000.

 Instructions

Prepareallnecessaryjournalentriesfor2008forTateCorporation.

     Ex.146

 AtDecember31,2008,thetradingsecuritiesforCarterCompanyareasfollows:

 Security AB

Cost

$25,000

46,000$71,000

Fair Value $28,000

40,000$68,000

 Instructions

 Preparetheadjustingentry at December31,2008,toreportthesecuritiesatfair value.

   Ex.147

 RisonCorporationhasthefollowingtradingportfolioofstockinvestmentsasofDecember31, 2008.

 Security A

B C

   Cost

$19,000 22,000

34,000$75,000

Fair Value $16,000

26,000

31,000$73,000

  OnJanuary22, 2009,RisonCorporationsoldsecurityCfor $30,000.

 Instructions

(a)     PreparetheadjustingentryforRisonCorporationonDecember31,2008,toreportthe portfolio at fairvalue.

 (b)    Indicatethebalancesheetandincomestatementpresentationofthefairvaluedatafor RisonCorporationat December31,2008.

 (c)     Preparethejournalentryforthe2009sale.

   Ex.148

 ThefollowinginformationisavailableforClooneyCorporation'savailable-for-salesecuritiesat December31, 2008.

 Security XY

Cost

$35,000

22,000$57,000

Fair Value $33,000

28,000$61,000

  Instructions

Preparetheadjustingentry torecordthesecuritiesatfair valueat December31,2008.

Investments     16-35

  Ex.149

 AtJanuary1,2008,theavailable-for-salesecuritiesportfolioheldbyHoweCorporationconsisted of thefollowinginvestments:

 1.2,500shares of Meller commonstockpurchasedfor $42pershare. 2.1,500shares of Kanecommonstockpurchasedfor $60pershare.

 AtDecember31,2008,themarket valuespersharewere Meller $36and Kane$66.

 Instructions

 (a)Preparea scheduleshowing thecostandfairvalueof theportfolioatDecember 31,2008.

 (b)Preparetheadjustingentrytoreporttheportfolioatfair valueat December31,2008.

    Ex.150

 WeaverCompany hasthefollowingdataat December31,2008for itssecurities.

 SecuritiesTrading

Available-for-sale

Cost

$90,000 75,000

Fair Value $93,000

71,000

 Instructions

(a)     Preparetheadjustingentriestoreportthesecuritiesatfairvalue.

(b)     Indicatethestatementpresentationoftherelatedunrealizedgain(loss)accountsforeach class ofsecurities.

   COMPLETIONSTATEMENTS

  151.Debtinvestmentsareinvestmentsingovernmentand                                        bonds.

 152.Forlong-termdebtinvestments,anybondpremiumor                                            isamortizedto

                               overtheremainingtermof thebonds.

 153.Whenaninvestorownsbetween 20%and50%ofthecommonstockofacorporation,itis generallypresumedthattheinvestorhas                                         influenceovertheinvestee andtherefore,theappropriatemethodofaccountingforthistypeofinvestmentisthe

                               method.

 154.Underthecostmethod,dividendsreceivedfromaninvesteecompany arecreditedtothe

                                                                 account,whereasundertheequitymethod,dividendsreceivedfrom an investeecompanyarecreditedtothe                                            account.

 155.Atthebeginningoftheyear,GrantCorporationacquired15%ofDownsCompany commonstockfor$400,000.DownsCompanyreportednetincomefortheyearof $75,000andpaid$25,000cashdividendsduringtheyear.ThebalanceoftheStock Investments accountonthebooksofGrantCorporationattheendoftheyearshouldbe$           .

 156.Acompanythatownsmorethan50%ofthecommonstockofanothercompanyisknown asthe          companyand                                         financialstatementsareusually prepared.

 157.                                   securitiesareboughtandheldprimarilyfor saleinthenearfuture.

 158.MarketAdjustmentisavaluation                                        accountwhichis                                    

 to(from)thecostof the investments.

 159.At theend of anaccountingperiod,if thefairvalueof thetradingportfolioislessthanits cost, thenthecompanyshouldrecognize an                                             whichis reported onthe

                                  .

 160.AnunrealizedlossontradingsecuritiesisreportedunderOther                                                          

 ontheincomestatement.

 161.Anunrealizedgainorlossonavailable-for-salesecuritiesisreportedasaseparate componentof        .

 162.Short-terminvestmentsaresecuritiesthatare                                        and                                to be convertedintocash withinthenext year.

   MATCHING

  163.     Matchthe itemsbelowbyenteringtheappropriatecodeletter inthespaceprovided.

 A.Available-for-salesecurities B.Subsidiarycompany

C.Equitymethod

D.UnrealizedGainor Loss—Equity E.Fairvalue

F.Consolidatedfinancialstatements G.Controllinginterest

H.MarketAdjustment I.Parentcompany

J.Long-terminvestments

             1.     Valuationallowanceaccount.

           2.     Amountforwhicha securitycouldbesold.

           3.     Ownershipof morethan50% of another company'scommonstock.

           4.     Securitiesthatmaybesold inthefuture.

           5.     Investmentsthatarenotreadilymarketableandnotintendedtobeconvertedinto cash withinthenextyear.

           6.     Financialstatementsthatpresentthetotalassetsandliabilitiescontrolledbythe parent and thetotalrevenuesandexpensesof the subsidiarycompanies.

           7.     TheStockInvestmentsaccountisadjustedfornet incomeanddividendsreceived.

           8.     A companythatownsmorethan50%of thecommon stock of anotherentity.

           9.     Entitywhosestockisowned bytheparentcompany.

 10.     Anaccountthatisreportedinthe stockholders'equity section.

     SHORT-ANSWERESSAYQUESTIONS

S-AE164

TheMarketAdjustmentaccountisabalancesheetaccount.Identifytheassetaccountitis relatedto.Explainhowthisaccountisincreasedanddescribetheprocedurefollowedwhenits related assetaccountisdisposedof.

    S-AE165

 Aconsolidatedbalancesheetreportsthefinancialpositionoftwoormorelegalentitiesjustasif theywereonereportingunit.Explainwhyalltheindividualitemsappearingontheseparate balancesheetsofeachoftheaffiliatedcompaniescannotbeaddedtogethertoarriveata consolidatedtotalfor each item.

    S-AE166

 Whenayear-endadjustmentismadetoreducethetradingsecuritiesportfoliotomarket,what effect,ifany, willthe adjustment haveonthebalancesheetandthe incomestatement?

    S-AE167(Ethics)

 GreyhoundStables,Inc.operatesseveraldogracingtracksthroughouttheUnitedStates.Since mostfacilitiesareoutdoortracksonly,mostofthecashreceiptsforGreyhoundarereceivedfrom AprilthroughOctober.Thesefundsareusuallyinvestedinshort-term,veryliquidinvestments, suchasstocksandbonds.Amongthestockspurchasedlastyear,wasServitronics,acompany specializinginautomaticvendingequipment.

Investments     16-39

 S-AE167(cont.)

 Thecompany decidednottosellitsServitronicsstockattheendoflastyear,andhaspurchased moreofthestockthisyear.Thecompanyintendstocontinuetopurchasestockuntilitholds enoughtomakeatakeoverbidforthecompany.Theaccountantshavebeeninstructedto continuetoclassifytheinvestmentasshort-termuntilthetakeoverisaccomplished,sothatless attention willbedirectedto it. (Presently,Greyhoundhasnolong-terminvestmentinstock at all.)

 Required:

1.IsitethicalforGreyhoundtoattempttotakeoveranothercompany?Explain.

 2.IsitethicalforGreyhoundtoleaveitsinvestmentintheshort-terminvestmentcategory? Explain.

    S-AE168(Communication)

 AnnHarmanisthedaughterofFredHarman,thefounderandpresidentofBigSkyEnterprises. Shehasbeenworkinginvariousdepartmentsduringschoolvacationsthroughouthighschool. Sheburstintotheaccountingdepartmentexcitedlyonemorning.Shesaidthatthestockpriceof severalofthefirm'savailable-for-salesecuritiesareup,andthatherfathersaidthatthecompany hadmade over$10,000becauseofthisjumpinstockprices.Sheasks toseehow theincreaseis recorded.It is a verybusytimein theaccountingdepartment,andsoherquestionisdeferred.

 Required:

 Prepareabriefnoteto answerAnn'squestion.

#ACC 206 Week 8 Quiz – Strayer

[newsnigeria]

Check out New Post published on Ọmọ Oòduà

New Post has been published on http://ooduarere.com/news-from-nigeria/breaking-news/review-iphone-android-app/

Review: iPhone/Android Ifa Apps for consultation

I have lost counts of Ifa Apps on iPhone store and android play store. I will just review all of them in this post, this way people will not be fooled by many of this shame Apps.

First of all, understanding what IFa is and I will give me own definition of Ifa. Many may agree or disagree with me but the point is to make it clear to victims or potential victims or users of all these “Ifa Apps”.

What is Ifa ?

Ifa can be defined as the whole structure of Knowledge, Wisdom, Science, Technology, Peotry, Psychology, Mathematics/Physics, Music, Orisa Spirituality (Not Yoruba religion), Medicine, Pharmaceutical and much more, all embeded in compendiums handed over to Orunmila the harbinger and interpreter of the Divine Message of Olodumare. Orunmila (Baba Ifa) is knowm as the Father of Ifa.

Ifa is not just a collection of verses, proverbs, parables and anecdotes. Ifa is Olodumare’s (GOD) sacred message to mankind. It is the embodiment of the totality of human existence. As Orunmila (BA) told us in Ejiogbe 1:36, the basis for understanding the beginning and end of all things:

When you understand what Ifa means, it is the embodiment of Knowledge, research, development and even marketing strategies, ideas, then one can easily come to a conclusion that there is no way an app can be consulted for Ifa. There are load of books explaining Ifa, ese Ifa including Stories (Itan) according to the audio cd recorded by Araba Ifayemi Elebuibon

Anyone that calls Ifa a Yoruba religion is completely a novice and does not even know anything about Ifa. There is an aspect of Ifa known as the Ori(Orisa) which is totally different from religion. Ifa is not a religion and can never be. There is huge difference between Ori and religion and readers should take note of Orisa tradition or spirituality which is only an aspect of Ifa. So for someone to come up with an app claiming it contains all the Odus is just deceiving himself or herself.

Ifa is much bigger than what anyone could put in an App and for the most part, it has remained a sacred message among Oluwo, Agba Awo and Baba’Alawo or Iyanifa respectively. For a Babalawo or Iyanifa to be a certified one, he or she must have learned Ifa from another Oluwo (Olu Awo). The hierarchy is quit clear. To become a Baba’lawo or Iyanifa, one must first of all be initiated into the system and spend nothing less than 10-16 years to be a fully certified Ifa Chief Priest. ( A copy, modified and paste example of western position would be a Professor). There is no Equal in western tradition to the word Awo.

Is Orunmila Ifa ?

No, orunmila is not Ifa. The message is Ifa. Clearly, Orunmila hears and understands the message, but he is different and detached from it. Orunmila, as the Deputy of Olodumare in all things pertaining to omniscience, wisdom and spiritual salvation knows the secrets of man’s being. He was with Olodumare is the beginning and knows how creation was begun and completed.

  He is endowed with the extraordinary wisdom and foreknowledge, an attribute, which allows him to perceive the beginning and end of all things. He is present when every individual is created and when everyone’s Destiny is sealed. Thus, Orunmila can predict what will come to pass and prescribe remedies to effect or avert eventualities. Ifa, as the Divine Message is the Word, which was with Olodumare in the beginning. The Word is Olodumare, in as much as the Word (Ifa) cannot be divorced from its owner (Olodumare). Can any of the ‘Ifa Apps’ do this without Human being beind it ? The Answer is NO. Therefore, all the ‘Ifa apps’ claiming to be Ifa are all fake and does not know anything or the concept behind Ifa.

See example of fake “Ifa Apps” of the in the video bellow.

I suggest that all concerned are cautious with fishing expedition, intellectual property theft, copyright violation and all forms of criminality used by the enemy to steal from those who do not deserve the crimes unleashed at them.

In many aspects which comprise human existence on earth, Oodua (Yoruba race) and other Africans consult Ifa in order to know the wishes of Olodumare. Ifa, throughout the history of Ooduans (Yoruba race) over the past several millennia, has always been an essential part of life. The real key to the life of the Ooduans (Yoruba race) lies in Ifa. It forms the foundation of the all-governing principle of life for them.

Before a betrothal, before a marriage, before a child is born, at the birth of the child, at successive stages in one’s life, before an Oba is enthroned, before a chief is installed, before anyone is appointed to civic office, before a war is prosecuted, before a journey is made, in times of crises, in times of sickness, at any and all times, Ifa is consulted for guidance and assurance.

Can an App be consuled for this ????

You be the judge.

Concluion; All the “Ifa Apps”, on Iphone, APK/Android app store are all fake and possibly sponsored by those who have been trying everything since the last century to erase or change the Oodua history. Many undercover agents if you like. Ifa is not a Religion and there is no word like YORUBA in Ifa.

#ifa

[kimberlallen-blog]

ACC 206 Week 11 Final Exam – Strayer

Click on the Link Below to Purchase A+ Graded Course Material

 http://budapp.net/ACC-206-Accounting-Principles-II-Week-11-Final-Exam-Strayer-269.htm

  Chapter14 Through 19

  CORPORATIONS:DIVIDENDS,RETAINEDEARNINGS,ANDINCOMEREPORTING

  CHAPTERSTUDYOBJECTIVES

  1.Preparetheentriesforcashdividendsandstockdividends.

 2.Identifytheitemsreportedinaretainedearningsstatement.

 3.Prepareandanalyzeacomprehensivestockholders'equitysection.

 4.Describetheformandcontentofcorporationincomestatements.

 5.Computeearningspershare.

 TRUE-FALSESTATEMENTS

 1.         Dividendsmaybedeclaredandpaidincashor stock.

 2.     Cashdividends arenotaliability ofthecorporationuntiltheyaredeclaredbytheboardof directors.

 3.     Theamountofacashdividendliabilityisrecordedonthedateofrecordbecauseitison that datethatthepersonsor entitieswhowillreceivethedividendare identified.

 4.     A10%stockdividendwillincreasethenumberofsharesoutstandingbutthebookvalue pershare willdecrease.

 5.     A3for1commonstocksplitwillincreasetotalstockholders'equitybutreducetheparor stated valuepershareofcommonstock.

 6.     Retainedearningsrepresentstheamount of cashavailablefordividends.

 7.     Netincomeofacorporationshouldbeclosedtoretainedearningsandnetlossesshould be closed to paid-incapitalaccounts.

 8.     A debitbalanceintheRetained Earningsaccountis identifiedasadeficit.

 9.     AcorrectioninincomeofapriorperiodinvolveseitheradebitorcredittotheRetained Earningsaccount.

 10.     Priorperiodadjustmentsto incomearereportedinthecurrentyear'sincomestatement.

 11.     Retainedearningsthat are restrictedareunavailablefordividends.

 12.     Restrictedretainedearnings areavailableforpreferredstockdividendsbutunavailablefor commonstockdividends.

 13.     Aretainedearningsstatementshowsthesameinformationasacorporationincome statement.

 14.     Adetailedstockholders'equitysectioninthebalancesheetwilllistthenamesof individualswhoare eligibletoreceivedividendsonthedateofrecord.

 15.     CommonStockDividendsDistributableisshownwithinthePaid-inCapitalsubdivisionof thestockholders'equitysectionof thebalancesheet.

 16.     Returnoncommonstockholders’equityiscomputedbydividingnetincomebyending stockholders’ equity.

 17.     Manycompaniesprepareastockholders’equitystatementinsteadofpresentinga detailed stockholders’ equity sectioninthebalancesheet.

 18.     Amajordifferenceamongcorporations,proprietorships,andpartnershipsisthata corporation's incomestatementreportsincometaxexpense.

 19.     A corporationincursincometaxexpense onlyifitpaysdividendsto stockholders.

Corporations:Dividends,RetainedEarnings,andIncomeReporting          14-5

 20.     Incometaxexpenseusuallyappearsasaseparatesectiononacorporationincome statement.

 21.     Earningspershareiscalculatedbydividingnetincomebytheweightedaveragenumber ofshares ofpreferredstock and commonstockoutstanding.

 22.     Preferreddividendspaidareaddedbacktonetincomeincalculatingearningspershare for commonstockholders.

 23.     Earningspershareindicatesthenetincomeearnedbyeachshareofoutstanding commonstock.

 24.     Earningsper shareis reportedfor both preferredandcommonstock.

 25.     Mostcompaniesarerequiredtoreportearningspershareonthefaceoftheincome statement.

 Additional True-FalseQuestions

 26.     A dividendbasedonpaid-incapitalis termeda liquidatingdividend.

 27.     CommonStockDividendsDistributableisreportedasadditionalpaid-incapitalinthe stockholders' equitysection.

 28.     Apriorperiodadjustmentisreportedasanadjustmentofthebeginningbalanceof RetainedEarnings.

 29.     Incometaxexpenseandtherelatedliabilityforincometaxespayablearerecordedwhen taxes are paid.

 30.     Earningsper shareis reportedonlyforcommonstock.

     MULTIPLECHOICEQUESTIONS

 31.     Eachof thefollowingdecreasesretainedearningsexcepta a.cashdividend.

b.liquidatingdividend. c.stockdividend.

d.All of thesedecreaseretainedearnings.

 32.     Eachof thefollowingdecreasestotal stockholders'equityexcepta a.cashdividend.

b.liquidatingdividend. c.stockdividend.

d.Allof thesedecreasetotalstockholders'equity.

 33.     Whichoneofthefollowingisnotnecessaryinorderforacorporationtopayacash dividend?

a.Adequatecash

b.Approvalof stockholders

c.Declarationof dividendsbytheboardof directors d.Retainedearnings

 34.     Ifa corporationdeclaresa dividendbasedupon paid-in capital,it isknownasa a.scrip dividend.

b.propertydividend. c.paiddividend.

d.liquidatingdividend.

 35.     Thedateonwhichacashdividendbecomesabindinglegalobligationison the a.declarationdate.

b.date of record. c.paymentdate.

d.lastdayofthefiscalyear-end.

 36.     The effectofthedeclarationofacashdividendbytheboardof directorsis to

          Increase          

a.Stockholders'equity b.          Assets

c.            Liabilities d. Liabilities

        Decrease          

Assets Liabilities

Stockholders'equity Assets

  37.     Thecumulativeeffectofthedeclarationandpaymentofacashdividendonacompany's financial statementsis to

a.decreasetotal liabilitiesandstockholders'equity. b.increasetotalexpensesandtotal liabilities.

c.increasetotal assetsand stockholders'equity. d.decreasetotalassetsandstockholders'equity.

Corporations:Dividends,RetainedEarnings,andIncomeReporting          14-7

 38.     CommonStock DividendsDistributableisclassifiedasa(n) a.assetaccount.

b.stockholders'equityaccount. c.expenseaccount.

d.liabilityaccount.

 39.     The effectofastockdividend isto

a.decreasetotalassetsandstockholders'equity. b.change thecompositionofstockholders'equity. c.decreasetotal assetsandtotal liabilities.

d.increasethebook valuepershareofcommonstock.

 40.     Ifacorporationdeclaresa10%stockdividendonitscommonstock,theaccounttobe debited onthedateofdeclaration is

a.CommonStock DividendsDistributable. b.CommonStock.

c.Paid-inCapitalinExcessofPar. d.RetainedEarnings.

 41.     Whichoneofthefollowingeventswouldnotrequireaformaljournalentryona corporation's books?

a.2for 1 stocksplit

b.100%stockdividend c.2%stockdividend

d.$1 persharecashdividend

 42.     Stockdividendsandstocksplitshavethefollowingeffectsonretainedearnings:

 StockSplits a.         Increaseb.    Nochange c.     Decreased.    Nochange

StockDividendsNochange

Decrease Decrease Nochange

  43.     Dividendsarepredominantlypaidin a.scrip.

b.property. c.cash.

d.stock.

 44.     Ifastockholderreceivesadividendconsistingofapromissorynote,thestockholderhas received a

a.stockdividend. b.cashdividend.

c.contingentdividend. d.scripdividend.

 45.     Of thefourdividendstypes,thetwomostcommontypesinpracticeare a.cashandscrip.

b.cashand property. c.cashandstock.

d.propertyandstock.

14-8        

 46.     Regulardividendsaredeclared outof

a.Paid-inCapitalinExcessofPar Value. b.TreasuryStock.

c.CommonStock.

d.RetainedEarnings.

 47.     A corporationiscommittedto alegalobligationwhen it declares a.acashdividend.

b.eitheracashdividendorastockdividend. c.astockdividend.

d.astocksplit.

 48.     Whichofthefollowingisnot asignificantdate withrespectto dividends? a.Thedeclarationdate

b.The incorporationdate c.Therecorddate

d.Thepaymentdate

 49.     Onthedividendrecorddate,

a.a dividendbecomesa currentobligation. b.noentryisrequired.

c.anentrymaybe requiredifit isastockdividend. d.DividendsPayableis debited.

 50.     Whichofthefollowingstatementsregarding thedateofacashdividenddeclaration isnot accurate?

a.Thedividendcan berescindedonceit hasbeendeclared. b.Thecorporationiscommittedto alegal,bindingobligation.

c.Theboard of directorsformallyauthorizesthecashdividend. d.A liabilityaccountmustbe increased.

 51.     DividendsPayableisclassifiedas a a.long-termliability.

b.contrastockholders'equityaccountto RetainedEarnings. c.currentliability.

d.stockholders'equityaccount.

 52.     Indicatetherespectiveeffectsofthedeclarationofacashdividendonthefollowing balance sheet sections:

 Total Assets a.       Increaseb.    Nochange c.     Decrease d.     Decrease

Total LiabilitiesDecrease Increase IncreaseNochange

Total Stockholders'EquityNochange

Decrease Decrease Increase

 53.     Whichofthefollowingstatements aboutdividendsisnotaccurate? a.Manycompanies declareandpaycashquarterlydividends.

b.Lowdividendsmaymeanhigh stockreturns.

c.Theboard of directorsis obligatedtodeclaredividends. d.A legaldividendmaynot beafeasibleone.

Corporations:Dividends,RetainedEarnings,andIncomeReporting          14-9

#ACC 206 Week 11 Final Exam – Strayer

[jonathanrhodes-me-blog]

ACC 206 Week 11 Final Exam – Strayer

Click on the Link Below to Purchase A+ Graded Course Material

 http://budapp.net/ACC-206-Accounting-Principles-II-Week-11-Final-Exam-Strayer-269.htm

  Chapter14 Through 19

  CORPORATIONS:DIVIDENDS,RETAINEDEARNINGS,ANDINCOMEREPORTING

  CHAPTERSTUDYOBJECTIVES

  1.Preparetheentriesforcashdividendsandstockdividends.

 2.Identifytheitemsreportedinaretainedearningsstatement.

 3.Prepareandanalyzeacomprehensivestockholders'equitysection.

 4.Describetheformandcontentofcorporationincomestatements.

 5.Computeearningspershare.

 TRUE-FALSESTATEMENTS

 1.         Dividendsmaybedeclaredandpaidincashor stock.

 2.     Cashdividends arenotaliability ofthecorporationuntiltheyaredeclaredbytheboardof directors.

 3.     Theamountofacashdividendliabilityisrecordedonthedateofrecordbecauseitison that datethatthepersonsor entitieswhowillreceivethedividendare identified.

 4.     A10%stockdividendwillincreasethenumberofsharesoutstandingbutthebookvalue pershare willdecrease.

 5.     A3for1commonstocksplitwillincreasetotalstockholders'equitybutreducetheparor stated valuepershareofcommonstock.

 6.     Retainedearningsrepresentstheamount of cashavailablefordividends.

 7.     Netincomeofacorporationshouldbeclosedtoretainedearningsandnetlossesshould be closed to paid-incapitalaccounts.

 8.     A debitbalanceintheRetained Earningsaccountis identifiedasadeficit.

 9.     AcorrectioninincomeofapriorperiodinvolveseitheradebitorcredittotheRetained Earningsaccount.

 10.     Priorperiodadjustmentsto incomearereportedinthecurrentyear'sincomestatement.

 11.     Retainedearningsthat are restrictedareunavailablefordividends.

 12.     Restrictedretainedearnings areavailableforpreferredstockdividendsbutunavailablefor commonstockdividends.

 13.     Aretainedearningsstatementshowsthesameinformationasacorporationincome statement.

 14.     Adetailedstockholders'equitysectioninthebalancesheetwilllistthenamesof individualswhoare eligibletoreceivedividendsonthedateofrecord.

 15.     CommonStockDividendsDistributableisshownwithinthePaid-inCapitalsubdivisionof thestockholders'equitysectionof thebalancesheet.

 16.     Returnoncommonstockholders’equityiscomputedbydividingnetincomebyending stockholders’ equity.

 17.     Manycompaniesprepareastockholders’equitystatementinsteadofpresentinga detailed stockholders’ equity sectioninthebalancesheet.

 18.     Amajordifferenceamongcorporations,proprietorships,andpartnershipsisthata corporation's incomestatementreportsincometaxexpense.

 19.     A corporationincursincometaxexpense onlyifitpaysdividendsto stockholders.

Corporations:Dividends,RetainedEarnings,andIncomeReporting          14-5

 20.     Incometaxexpenseusuallyappearsasaseparatesectiononacorporationincome statement.

 21.     Earningspershareiscalculatedbydividingnetincomebytheweightedaveragenumber ofshares ofpreferredstock and commonstockoutstanding.

 22.     Preferreddividendspaidareaddedbacktonetincomeincalculatingearningspershare for commonstockholders.

 23.     Earningspershareindicatesthenetincomeearnedbyeachshareofoutstanding commonstock.

 24.     Earningsper shareis reportedfor both preferredandcommonstock.

 25.     Mostcompaniesarerequiredtoreportearningspershareonthefaceoftheincome statement.

 Additional True-FalseQuestions

 26.     A dividendbasedonpaid-incapitalis termeda liquidatingdividend.

 27.     CommonStockDividendsDistributableisreportedasadditionalpaid-incapitalinthe stockholders' equitysection.

 28.     Apriorperiodadjustmentisreportedasanadjustmentofthebeginningbalanceof RetainedEarnings.

 29.     Incometaxexpenseandtherelatedliabilityforincometaxespayablearerecordedwhen taxes are paid.

 30.     Earningsper shareis reportedonlyforcommonstock.

     MULTIPLECHOICEQUESTIONS

 31.     Eachof thefollowingdecreasesretainedearningsexcepta a.cashdividend.

b.liquidatingdividend. c.stockdividend.

d.All of thesedecreaseretainedearnings.

 32.     Eachof thefollowingdecreasestotal stockholders'equityexcepta a.cashdividend.

b.liquidatingdividend. c.stockdividend.

d.Allof thesedecreasetotalstockholders'equity.

 33.     Whichoneofthefollowingisnotnecessaryinorderforacorporationtopayacash dividend?

a.Adequatecash

b.Approvalof stockholders

c.Declarationof dividendsbytheboardof directors d.Retainedearnings

 34.     Ifa corporationdeclaresa dividendbasedupon paid-in capital,it isknownasa a.scrip dividend.

b.propertydividend. c.paiddividend.

d.liquidatingdividend.

 35.     Thedateonwhichacashdividendbecomesabindinglegalobligationison the a.declarationdate.

b.date of record. c.paymentdate.

d.lastdayofthefiscalyear-end.

 36.     The effectofthedeclarationofacashdividendbytheboardof directorsis to

          Increase          

a.Stockholders'equity b.          Assets

c.            Liabilities d. Liabilities

        Decrease          

Assets Liabilities

Stockholders'equity Assets

  37.     Thecumulativeeffectofthedeclarationandpaymentofacashdividendonacompany's financial statementsis to

a.decreasetotal liabilitiesandstockholders'equity. b.increasetotalexpensesandtotal liabilities.

c.increasetotal assetsand stockholders'equity. d.decreasetotalassetsandstockholders'equity.

Corporations:Dividends,RetainedEarnings,andIncomeReporting          14-7

 38.     CommonStock DividendsDistributableisclassifiedasa(n) a.assetaccount.

b.stockholders'equityaccount. c.expenseaccount.

d.liabilityaccount.

 39.     The effectofastockdividend isto

a.decreasetotalassetsandstockholders'equity. b.change thecompositionofstockholders'equity. c.decreasetotal assetsandtotal liabilities.

d.increasethebook valuepershareofcommonstock.

 40.     Ifacorporationdeclaresa10%stockdividendonitscommonstock,theaccounttobe debited onthedateofdeclaration is

a.CommonStock DividendsDistributable. b.CommonStock.

c.Paid-inCapitalinExcessofPar. d.RetainedEarnings.

 41.     Whichoneofthefollowingeventswouldnotrequireaformaljournalentryona corporation's books?

a.2for 1 stocksplit

b.100%stockdividend c.2%stockdividend

d.$1 persharecashdividend

 42.     Stockdividendsandstocksplitshavethefollowingeffectsonretainedearnings:

 StockSplits a.         Increaseb.    Nochange c.     Decreased.    Nochange

StockDividendsNochange

Decrease Decrease Nochange

  43.     Dividendsarepredominantlypaidin a.scrip.

b.property. c.cash.

d.stock.

 44.     Ifastockholderreceivesadividendconsistingofapromissorynote,thestockholderhas received a

a.stockdividend. b.cashdividend.

c.contingentdividend. d.scripdividend.

 45.     Of thefourdividendstypes,thetwomostcommontypesinpracticeare a.cashandscrip.

b.cashand property. c.cashandstock.

d.propertyandstock.

14-8        

 46.     Regulardividendsaredeclared outof

a.Paid-inCapitalinExcessofPar Value. b.TreasuryStock.

c.CommonStock.

d.RetainedEarnings.

 47.     A corporationiscommittedto alegalobligationwhen it declares a.acashdividend.

b.eitheracashdividendorastockdividend. c.astockdividend.

d.astocksplit.

 48.     Whichofthefollowingisnot asignificantdate withrespectto dividends? a.Thedeclarationdate

b.The incorporationdate c.Therecorddate

d.Thepaymentdate

 49.     Onthedividendrecorddate,

a.a dividendbecomesa currentobligation. b.noentryisrequired.

c.anentrymaybe requiredifit isastockdividend. d.DividendsPayableis debited.

 50.     Whichofthefollowingstatementsregarding thedateofacashdividenddeclaration isnot accurate?

a.Thedividendcan berescindedonceit hasbeendeclared. b.Thecorporationiscommittedto alegal,bindingobligation.

c.Theboard of directorsformallyauthorizesthecashdividend. d.A liabilityaccountmustbe increased.

 51.     DividendsPayableisclassifiedas a a.long-termliability.

b.contrastockholders'equityaccountto RetainedEarnings. c.currentliability.

d.stockholders'equityaccount.

 52.     Indicatetherespectiveeffectsofthedeclarationofacashdividendonthefollowing balance sheet sections:

 Total Assets a.       Increaseb.    Nochange c.     Decrease d.     Decrease

Total LiabilitiesDecrease Increase IncreaseNochange

Total Stockholders'EquityNochange

Decrease Decrease Increase

 53.     Whichofthefollowingstatements aboutdividendsisnotaccurate? a.Manycompanies declareandpaycashquarterlydividends.

b.Lowdividendsmaymeanhigh stockreturns.

c.Theboard of directorsis obligatedtodeclaredividends. d.A legaldividendmaynot beafeasibleone.

Corporations:Dividends,RetainedEarnings,andIncomeReporting          14-9

 54.     Thecumulativeeffectofthedeclarationandpaymentofacashdividendonacompany's balance sheet isto

a.decreasecurrent liabilitiesand stockholders'equity. b.increasetotalassetsandstockholders'equity.

c.increasecurrentliabilitiesandstockholders'equity. d.decreasestockholders' equityandtotalassets.

 55.     Thedeclarationanddistributionof a stockdividendwill a.increasetotalstockholders'equity.

b.increasetotalassets. c.decreasetotal assets.

d.havenoeffectontotalassets.

 56.     ABC,Inc.has1,000sharesof4%,$100parvalue,cumulativepreferredstockand50,000 sharesof$1parvaluecommonstockoutstandingatDecember31,2008.Whatisthe annual dividend on thepreferred stock?

a.$40pershare b.$4,000intotal c.$400intotald.$.40pershare

 57.     Agler,Inc.has10,000sharesof6%,$100parvalue,cumulativepreferredstockand 100,000sharesof$1parvaluecommonstockoutstandingatDecember31,2008.Ifthe board ofdirectors declaresa$50,000dividend,the

a.preferredshareholderswillreceive1/10thofwhatthecommonshareholderswill receive.

b.preferredshareholders willreceivetheentire$50,000.

c.$50,000willbeheldasrestrictedretainedearningsandpaidoutatsomefuturedate.d.preferredshareholderswill receive$25,000and the commonshareholders will receive

$25,000.

 58.     Manner,Inc.has5,000sharesof6%,$100parvalue,noncumulativepreferredstockand 20,000sharesof$1parvaluecommonstockoutstandingatDecember31,2008.There werenodividendsdeclaredin2007.Theboardofdirectorsdeclaresandpaysa$55,000 dividendin2008.Whatistheamountofdividendsreceivedbythecommonstockholders in 2008?

a.$0

b.$30,000 c.$55,000 d.$25,000

 59.     Lopez,Inc.has2,000sharesof6%,$50parvalue,cumulativepreferredstockand50,000 sharesof$1parvaluecommonstockoutstandingatDecember31,2007,andDecember 31,2008.Theboardofdirectorsdeclaredandpaida$4,000dividendin2007.In2008, $20,000ofdividendsaredeclaredandpaid.Whatarethedividendsreceivedbythe preferredandcommonshareholdersin2008?

 Preferred a. $12,000 b.       $10,000 c.       $8,000d.          $6,000

Common $8,000 $10,000 $12,000 $14,000

14-10

 60.     Norton, Inc.has10,000sharesof6%,$100 par value,noncumulativepreferredstockand 100,000sharesof$1parvaluecommonstockoutstandingatDecember31,2008,and December31,2009. Theboard ofdirectors declared andpaida$50,000dividend in2008. In2009,$100,000ofdividendsaredeclaredandpaid.What arethedividendsreceivedby thepreferredandcommonshareholdersin 2009?

 Preferred a.$0

b.$60,000 c.$50,000 d.$100,000

Common $100,000 $40,000 $50,000 $0

  61.     Theboardof directorsmustassignapersharevalueto a stockdividenddeclaredthat is a.greaterthantheparor statedvalue.

b.lessthanthe parorstated value. c.equaltotheparor statedvalue.

d.atleastequaltothe parorstatedvalue.

 62.     Corporationsgenerallyissuestock dividendsinorderto a.increasethemarketpricepershare.

b.exceedstockholders'dividendexpectations. c.increasethemarketabilityof thestock.

d.decreasetheamountofcapitalinthe corporation.

 63.     A stockholderwhoreceivesastockdividendwould a.expectthemarketpricepershareto increase. b.own moreshares ofstock.

c.expectretainedearningstoincrease.

d.expecttheparvalueof the stocktochange.

 64.     Whenstockdividendsaredistributed,

a.CommonStock DividendsDistributableisdecreased. b.RetainedEarningsisdecreased.

c.Paid-inCapitalin ExcessofPar Valueisdebitedifitis a smallstockdividend. d.noentryis necessaryifit isalargestock dividend.

 65.     A smallstockdividendisdefinedas

a.lessthan30%butgreaterthan25%of thecorporation's issuedstock. b.between50%and100%ofthecorporation's issuedstock.

c.morethan30%ofthecorporation's issuedstock.

d.lessthan20–25% of thecorporation'sissuedstock.

 66.     Thepershareamountnormallyassignedbytheboardofdirectorstoalargestock dividend is

a.themarketvalueof thestock onthedate of declaration.

b.theaveragepricepaidbystockholdersonoutstandingshares. c.thepar or stated valueof thestock.

d.zero.

Corporations:Dividends,RetainedEarnings,andIncomeReporting          14-11

 67.     Thepershareamountnormallyassignedbytheboardofdirectorstoasmallstock dividend is

a.themarketvalue of thestock onthedateof declaration.

b.theaveragepricepaidbystockholdersonoutstandingshares. c.thepar or stated valueof thestock.

d.zero.

 68.     Identifytheeffectthedeclarationofastockdividendhasontheparvaluepershareand book valuepershare.

 Par Valueper Share a.          Increase

b.         Noeffect c.        Decrease d.     Noeffect

Book ValueperShareDecrease Increase Decrease Decrease

  69.     Thedeclarationof astockdividendwill a.increasepaid-incapital.

b.changethetotal of stockholders'equity. c.increasetotal liabilities.

d.increasetotalassets.

 70.     Whichofthefollowingshowthepropereffectofastocksplitandastockdividend?

                Item                    

a.         Totalpaid-incapitalb.     Totalretainedearnings

c.Totalpar value(common) d.    Parvaluepershare

StockSplit Increase

Decrease Decrease Decrease

StockDividend Increase Decrease IncreaseNochange

#ACC 206 Week 11 Final Exam – Strayer

[fuzzyflowerobservation-blog]

ACC 206 Week 11 Final Exam – Strayer

Click on the Link Below to Purchase A+ Graded Course Material

 http://budapp.net/ACC-206-Accounting-Principles-II-Week-11-Final-Exam-Strayer-269.htm

  Chapter14 Through 19

  CORPORATIONS:DIVIDENDS,RETAINEDEARNINGS,ANDINCOMEREPORTING

  CHAPTERSTUDYOBJECTIVES

  1.Preparetheentriesforcashdividendsandstockdividends.

 2.Identifytheitemsreportedinaretainedearningsstatement.

 3.Prepareandanalyzeacomprehensivestockholders'equitysection.

 4.Describetheformandcontentofcorporationincomestatements.

 5.Computeearningspershare.

 TRUE-FALSESTATEMENTS

 1.         Dividendsmaybedeclaredandpaidincashor stock.

 2.     Cashdividends arenotaliability ofthecorporationuntiltheyaredeclaredbytheboardof directors.

 3.     Theamountofacashdividendliabilityisrecordedonthedateofrecordbecauseitison that datethatthepersonsor entitieswhowillreceivethedividendare identified.

 4.     A10%stockdividendwillincreasethenumberofsharesoutstandingbutthebookvalue pershare willdecrease.

 5.     A3for1commonstocksplitwillincreasetotalstockholders'equitybutreducetheparor stated valuepershareofcommonstock.

 6.     Retainedearningsrepresentstheamount of cashavailablefordividends.

 7.     Netincomeofacorporationshouldbeclosedtoretainedearningsandnetlossesshould be closed to paid-incapitalaccounts.

 8.     A debitbalanceintheRetained Earningsaccountis identifiedasadeficit.

 9.     AcorrectioninincomeofapriorperiodinvolveseitheradebitorcredittotheRetained Earningsaccount.

 10.     Priorperiodadjustmentsto incomearereportedinthecurrentyear'sincomestatement.

 11.     Retainedearningsthat are restrictedareunavailablefordividends.

 12.     Restrictedretainedearnings areavailableforpreferredstockdividendsbutunavailablefor commonstockdividends.

 13.     Aretainedearningsstatementshowsthesameinformationasacorporationincome statement.

 14.     Adetailedstockholders'equitysectioninthebalancesheetwilllistthenamesof individualswhoare eligibletoreceivedividendsonthedateofrecord.

 15.     CommonStockDividendsDistributableisshownwithinthePaid-inCapitalsubdivisionof thestockholders'equitysectionof thebalancesheet.

 16.     Returnoncommonstockholders’equityiscomputedbydividingnetincomebyending stockholders’ equity.

 17.     Manycompaniesprepareastockholders’equitystatementinsteadofpresentinga detailed stockholders’ equity sectioninthebalancesheet.

 18.     Amajordifferenceamongcorporations,proprietorships,andpartnershipsisthata corporation's incomestatementreportsincometaxexpense.

 19.     A corporationincursincometaxexpense onlyifitpaysdividendsto stockholders.

Corporations:Dividends,RetainedEarnings,andIncomeReporting          14-5

 20.     Incometaxexpenseusuallyappearsasaseparatesectiononacorporationincome statement.

 21.     Earningspershareiscalculatedbydividingnetincomebytheweightedaveragenumber ofshares ofpreferredstock and commonstockoutstanding.

 22.     Preferreddividendspaidareaddedbacktonetincomeincalculatingearningspershare for commonstockholders.

 23.     Earningspershareindicatesthenetincomeearnedbyeachshareofoutstanding commonstock.

 24.     Earningsper shareis reportedfor both preferredandcommonstock.

 25.     Mostcompaniesarerequiredtoreportearningspershareonthefaceoftheincome statement.

 Additional True-FalseQuestions

 26.     A dividendbasedonpaid-incapitalis termeda liquidatingdividend.

 27.     CommonStockDividendsDistributableisreportedasadditionalpaid-incapitalinthe stockholders' equitysection.

 28.     Apriorperiodadjustmentisreportedasanadjustmentofthebeginningbalanceof RetainedEarnings.

 29.     Incometaxexpenseandtherelatedliabilityforincometaxespayablearerecordedwhen taxes are paid.

 30.     Earningsper shareis reportedonlyforcommonstock.

     MULTIPLECHOICEQUESTIONS

 31.     Eachof thefollowingdecreasesretainedearningsexcepta a.cashdividend.

b.liquidatingdividend. c.stockdividend.

d.All of thesedecreaseretainedearnings.

 32.     Eachof thefollowingdecreasestotal stockholders'equityexcepta a.cashdividend.

b.liquidatingdividend. c.stockdividend.

d.Allof thesedecreasetotalstockholders'equity.

 33.     Whichoneofthefollowingisnotnecessaryinorderforacorporationtopayacash dividend?

a.Adequatecash

b.Approvalof stockholders

c.Declarationof dividendsbytheboardof directors d.Retainedearnings

 34.     Ifa corporationdeclaresa dividendbasedupon paid-in capital,it isknownasa a.scrip dividend.

b.propertydividend. c.paiddividend.

d.liquidatingdividend.

 35.     Thedateonwhichacashdividendbecomesabindinglegalobligationison the a.declarationdate.

b.date of record. c.paymentdate.

d.lastdayofthefiscalyear-end.

 36.     The effectofthedeclarationofacashdividendbytheboardof directorsis to

          Increase          

a.Stockholders'equity b.          Assets

c.            Liabilities d. Liabilities

        Decrease          

Assets Liabilities

Stockholders'equity Assets

  37.     Thecumulativeeffectofthedeclarationandpaymentofacashdividendonacompany's financial statementsis to

a.decreasetotal liabilitiesandstockholders'equity. b.increasetotalexpensesandtotal liabilities.

c.increasetotal assetsand stockholders'equity. d.decreasetotalassetsandstockholders'equity.

Corporations:Dividends,RetainedEarnings,andIncomeReporting          14-7

 38.     CommonStock DividendsDistributableisclassifiedasa(n) a.assetaccount.

b.stockholders'equityaccount. c.expenseaccount.

d.liabilityaccount.

 39.     The effectofastockdividend isto

a.decreasetotalassetsandstockholders'equity. b.change thecompositionofstockholders'equity. c.decreasetotal assetsandtotal liabilities.

d.increasethebook valuepershareofcommonstock.

 40.     Ifacorporationdeclaresa10%stockdividendonitscommonstock,theaccounttobe debited onthedateofdeclaration is

a.CommonStock DividendsDistributable. b.CommonStock.

c.Paid-inCapitalinExcessofPar. d.RetainedEarnings.

 41.     Whichoneofthefollowingeventswouldnotrequireaformaljournalentryona corporation's books?

a.2for 1 stocksplit

b.100%stockdividend c.2%stockdividend

d.$1 persharecashdividend

 42.     Stockdividendsandstocksplitshavethefollowingeffectsonretainedearnings:

 StockSplits a.         Increaseb.    Nochange c.     Decreased.    Nochange

StockDividendsNochange

Decrease Decrease Nochange

  43.     Dividendsarepredominantlypaidin a.scrip.

b.property. c.cash.

d.stock.

 44.     Ifastockholderreceivesadividendconsistingofapromissorynote,thestockholderhas received a

a.stockdividend. b.cashdividend.

c.contingentdividend. d.scripdividend.

 45.     Of thefourdividendstypes,thetwomostcommontypesinpracticeare a.cashandscrip.

b.cashand property. c.cashandstock.

d.propertyandstock.

14-8        

 46.     Regulardividendsaredeclared outof

a.Paid-inCapitalinExcessofPar Value. b.TreasuryStock.

c.CommonStock.

d.RetainedEarnings.

 47.     A corporationiscommittedto alegalobligationwhen it declares a.acashdividend.

b.eitheracashdividendorastockdividend. c.astockdividend.

d.astocksplit.

 48.     Whichofthefollowingisnot asignificantdate withrespectto dividends? a.Thedeclarationdate

b.The incorporationdate c.Therecorddate

d.Thepaymentdate

 49.     Onthedividendrecorddate,

a.a dividendbecomesa currentobligation. b.noentryisrequired.

c.anentrymaybe requiredifit isastockdividend. d.DividendsPayableis debited.

 50.     Whichofthefollowingstatementsregarding thedateofacashdividenddeclaration isnot accurate?

a.Thedividendcan berescindedonceit hasbeendeclared. b.Thecorporationiscommittedto alegal,bindingobligation.

c.Theboard of directorsformallyauthorizesthecashdividend. d.A liabilityaccountmustbe increased.

 51.     DividendsPayableisclassifiedas a a.long-termliability.

b.contrastockholders'equityaccountto RetainedEarnings. c.currentliability.

d.stockholders'equityaccount.

 52.     Indicatetherespectiveeffectsofthedeclarationofacashdividendonthefollowing balance sheet sections:

 Total Assets a.       Increaseb.    Nochange c.     Decrease d.     Decrease

Total LiabilitiesDecrease Increase IncreaseNochange

Total Stockholders'EquityNochange

Decrease Decrease Increase

 53.     Whichofthefollowingstatements aboutdividendsisnotaccurate? a.Manycompanies declareandpaycashquarterlydividends.

b.Lowdividendsmaymeanhigh stockreturns.

c.Theboard of directorsis obligatedtodeclaredividends. d.A legaldividendmaynot beafeasibleone.

Corporations:Dividends,RetainedEarnings,andIncomeReporting          14-9

 54.     Thecumulativeeffectofthedeclarationandpaymentofacashdividendonacompany's balance sheet isto

a.decreasecurrent liabilitiesand stockholders'equity. b.increasetotalassetsandstockholders'equity.

c.increasecurrentliabilitiesandstockholders'equity. d.decreasestockholders' equityandtotalassets.

 55.     Thedeclarationanddistributionof a stockdividendwill a.increasetotalstockholders'equity.

b.increasetotalassets. c.decreasetotal assets.

d.havenoeffectontotalassets.

 56.     ABC,Inc.has1,000sharesof4%,$100parvalue,cumulativepreferredstockand50,000 sharesof$1parvaluecommonstockoutstandingatDecember31,2008.Whatisthe annual dividend on thepreferred stock?

a.$40pershare b.$4,000intotal c.$400intotald.$.40pershare

 57.     Agler,Inc.has10,000sharesof6%,$100parvalue,cumulativepreferredstockand 100,000sharesof$1parvaluecommonstockoutstandingatDecember31,2008.Ifthe board ofdirectors declaresa$50,000dividend,the

a.preferredshareholderswillreceive1/10thofwhatthecommonshareholderswill receive.

b.preferredshareholders willreceivetheentire$50,000.

c.$50,000willbeheldasrestrictedretainedearningsandpaidoutatsomefuturedate.d.preferredshareholderswill receive$25,000and the commonshareholders will receive

$25,000.

 58.     Manner,Inc.has5,000sharesof6%,$100parvalue,noncumulativepreferredstockand 20,000sharesof$1parvaluecommonstockoutstandingatDecember31,2008.There werenodividendsdeclaredin2007.Theboardofdirectorsdeclaresandpaysa$55,000 dividendin2008.Whatistheamountofdividendsreceivedbythecommonstockholders in 2008?

a.$0

b.$30,000 c.$55,000 d.$25,000

 59.     Lopez,Inc.has2,000sharesof6%,$50parvalue,cumulativepreferredstockand50,000 sharesof$1parvaluecommonstockoutstandingatDecember31,2007,andDecember 31,2008.Theboardofdirectorsdeclaredandpaida$4,000dividendin2007.In2008, $20,000ofdividendsaredeclaredandpaid.Whatarethedividendsreceivedbythe preferredandcommonshareholdersin2008?

 Preferred a. $12,000 b.       $10,000 c.       $8,000d.          $6,000

Common $8,000 $10,000 $12,000 $14,000

14-10

 60.     Norton, Inc.has10,000sharesof6%,$100 par value,noncumulativepreferredstockand 100,000sharesof$1parvaluecommonstockoutstandingatDecember31,2008,and December31,2009. Theboard ofdirectors declared andpaida$50,000dividend in2008. In2009,$100,000ofdividendsaredeclaredandpaid.What arethedividendsreceivedby thepreferredandcommonshareholdersin 2009?

 Preferred a.$0

b.$60,000 c.$50,000 d.$100,000

Common $100,000 $40,000 $50,000 $0

  61.     Theboardof directorsmustassignapersharevalueto a stockdividenddeclaredthat is a.greaterthantheparor statedvalue.

b.lessthanthe parorstated value. c.equaltotheparor statedvalue.

d.atleastequaltothe parorstatedvalue.

 62.     Corporationsgenerallyissuestock dividendsinorderto a.increasethemarketpricepershare.

b.exceedstockholders'dividendexpectations. c.increasethemarketabilityof thestock.

d.decreasetheamountofcapitalinthe corporation.

 63.     A stockholderwhoreceivesastockdividendwould a.expectthemarketpricepershareto increase. b.own moreshares ofstock.

c.expectretainedearningstoincrease.

d.expecttheparvalueof the stocktochange.

 64.     Whenstockdividendsaredistributed,

a.CommonStock DividendsDistributableisdecreased. b.RetainedEarningsisdecreased.

c.Paid-inCapitalin ExcessofPar Valueisdebitedifitis a smallstockdividend. d.noentryis necessaryifit isalargestock dividend.

 65.     A smallstockdividendisdefinedas

a.lessthan30%butgreaterthan25%of thecorporation's issuedstock. b.between50%and100%ofthecorporation's issuedstock.

c.morethan30%ofthecorporation's issuedstock.

d.lessthan20–25% of thecorporation'sissuedstock.

 66.     Thepershareamountnormallyassignedbytheboardofdirectorstoalargestock dividend is

a.themarketvalueof thestock onthedate of declaration.

b.theaveragepricepaidbystockholdersonoutstandingshares. c.thepar or stated valueof thestock.

d.zero.

Corporations:Dividends,RetainedEarnings,andIncomeReporting          14-11

 67.     Thepershareamountnormallyassignedbytheboardofdirectorstoasmallstock dividend is

a.themarketvalue of thestock onthedateof declaration.

b.theaveragepricepaidbystockholdersonoutstandingshares. c.thepar or stated valueof thestock.

d.zero.

 68.     Identifytheeffectthedeclarationofastockdividendhasontheparvaluepershareand book valuepershare.

 Par Valueper Share a.          Increase

b.         Noeffect c.        Decrease d.     Noeffect

Book ValueperShareDecrease Increase Decrease Decrease

  69.     Thedeclarationof astockdividendwill a.increasepaid-incapital.

b.changethetotal of stockholders'equity. c.increasetotal liabilities.

d.increasetotalassets.

 70.     Whichofthefollowingshowthepropereffectofastocksplitandastockdividend?

                Item                    

a.         Totalpaid-incapitalb.     Totalretainedearnings

c.Totalpar value(common) d.    Parvaluepershare

StockSplit Increase

Decrease Decrease Decrease

StockDividend Increase Decrease IncreaseNochange

  71.     A stocksplit

a.mayoccurinthe absenceof retainedearnings. b.willincreasetotalpaid-incapital.

c.will increasethetotalparvalueof thestock.

d.willhavenoeffectontheparvaluepershareof stock.

 72.     OutstandingstockoftheApexCorporationincluded20,000sharesof$5parcommon stockand5,000sharesof6%,$10parnoncumulativepreferredstock.In2007,Apex declaredandpaiddividendsof$2,000.In2008,Apexdeclaredandpaiddividendsof $6,000.Howmuchof the 2008dividendwasdistributedtopreferredshareholders?

a.$4,000 b.$7,000 c.$3,000

d.Noneof theabove

 73.     OutstandingstockoftheBellCorporationincluded20,000sharesof$5parcommonstock and10,000sharesof6%,$10parnoncumulativepreferredstock.In2007,Belldeclared andpaiddividendsof$4,000.In2008,Belldeclaredandpaiddividendsof$12,000.How muchofthe2008 dividendwasdistributedtopreferredshareholders?

a.$8,000b.$14,000 c.$6,000

d.Noneof theabove

14-12

 74.     OnJanuary1,BluefieldCorporationhad800,000sharesof$10parvaluecommonstock outstanding.OnMarch31,thecompanydeclareda10%stockdividend.Marketvalueof thestockwas$15/share.Asaresultof thisevent,

a.Bluefield’sPaid-in Capitalin ExcessofParValueaccountincreased $400,000. b.Bluefield’stotalstockholders’equitywasunaffected.

c.Bluefield’sRetained Earningsaccountdecreased$1,200,000. d.All of the above.

 75.     OnJanuary1,GarrisonCorporationhad1,000,000sharesof$10parvaluecommon stockoutstanding.OnMarch31,thecompanydeclareda10%stockdividend.Market value of thestockwas $15/share.Asaresultofthisevent,

a.Garrison’sPaid-inCapitalinExcessofParValueaccountincreased $500,000. b.Garrison’stotal stockholders’equitywasunaffected.

c.Garrison’sRetainedEarningsaccountdecreased$1,500,000. dAllof theabove.

 76.     SunInc.has5,000sharesof6%,$100parvalue,cumulativepreferredstockand50,000 sharesof$1parvaluecommonstockoutstandingatDecember31,2008.Whatisthe annual dividend on thepreferred stock?

a.$60pershareb.$30,000intotal c.$3,000intotald.$0.60pershare

 77.     Allstate,Inc.,has20,000sharesof6%,$100parvalue,noncumulativepreferredstock and100,000sharesof$1parvaluecommonstockoutstandingatDecember31,2008.If the boardofdirectorsdeclaresa$200,000dividend,the

a.preferredstockholderswillreceive2/10th    ofwhatthecommonstockholderswill receive.

b.preferredstockholders willreceivetheentire$200,000.

c.$120,000willbeheldasrestrictedretainedearningsandpaidoutat somefuturedate. d.preferredstockholderswillreceive$120,000andthecommonstockholderswill

receive$80,000.

  78.     Archer,Inc., has 10,000sharesof8%,$100par value, noncumulativepreferredstock and 40,000sharesof$1parvaluecommonstockoutstandingatDecember31,2008.There werenodividendsdeclaredin2007.Theboardofdirectors declaresandpaysa$120,000 dividendin2008.Whatistheamountofdividendsreceivedbythecommonstockholders in 2008?

a.$0

b.$80,000c.$120,000 d.$40,000

 79.     LutherInc.,has2,000sharesof8%,$50parvalue,cumulativepreferredstockand 100,000sharesof$1parvaluecommonstockoutstandingatDecember31,2008,and December31,2007.Theboardofdirectorsdeclaredandpaida$6,000dividendin2007. In2008,$24,000ofdividendsaredeclaredandpaid.Whatarethedividendsreceivedby thepreferredstockholdersin2008?

Corporations:Dividends,RetainedEarnings,andIncomeReporting          14-13

  a.$14,000 b.$12,000 c.$10,000 d.$8,000

  `80.     Anders,Inc.,has5,000sharesof6%,$100parvalue,cumulativepreferredstockand 20,000sharesof$1parvaluecommonstockoutstandingatDecember31,2009.There werenodividendsdeclaredin2007.Theboardofdirectorsdeclaresandpaysa$50,000 dividendin2008andin2009.Whatistheamountofdividendsreceivedbythecommon stockholdersin2009?

a.$10,000 b.$30,000 c.$50,000 d.$0

 81.    CutherInc.,has1,000sharesof8%,$50parvalue,cumulativepreferredstockand 50,000sharesof$1parvaluecommonstockoutstandingatDecember31,2007,and December31,2008.Theboardofdirectorsdeclaredandpaida$3,000dividendin2007. In2008,$12,000ofdividendsaredeclaredandpaid.Whatarethedividendsreceivedby thecommonstockholdersin 2008?

a.$7,000 b.$6,000 c.$5,000 d.$4,000

 82.     OnJanuary1,BrunnerCorporationhad60,000sharesof$10parvaluecommonstock outstanding.OnMarch17,thecompanydeclareda10%stockdividendtostockholders ofrecordonMarch20.Marketvalueofthestockwas$13onMarch17.Theentryto recordthetransactionofMarch17wouldincludea

a.creditto Retained Earningsfor$18,000. b.creditto Cashfor$78,000.

c.credittoCommonStockDividendsDistributablefor$60,000. d.debitto CommonStockDividendsDistributablefor $60,000.

 83.     OnJanuary1,BrunnerCorporationhad60,000sharesof$10parvaluecommonstock outstanding.OnMarch17,thecompanydeclareda10%stockdividendtostockholders ofrecordonMarch20.Marketvalueofthestockwas$13onMarch17.Thestockwas distributedonMarch30.TheentrytorecordthetransactionofMarch30wouldincludea

a.creditto Cashfor$60,000.

b.debittoCommonStockDividendsDistributablefor$60,000. c.credittoPaid-inCapitalinExcessofParValuefor$18,000. d.debittoRetainedEarningsfor $18,000.

 84.     OnJanuary1,SandfordCorporationhad80,000sharesof$10parvaluecommonstock outstanding.OnJune17,thecompanydeclareda10%stockdividendtostockholdersof recordonJune20.Marketvalueofthestockwas$15onJune17.Theentrytorecordthe transactionofJune17wouldincludea

a.debitto RetainedEarningsfor $120,000. b.creditto Cashfor$120,000.

c.credittoCommonStockDividendsDistributablefor$120,000. d.creditto CommonStockDividendsDistributablefor$40,000.

14-14

 85.     OnJanuary1,SanfordCorporationhad80,000sharesof$10parvaluecommonstock outstanding.OnJune17,thecompanydeclareda10%stockdividendtostockholdersof recordonJune20.Marketvalueofthestockwas$15onJune17.Thestockwas distributedonJune30.The entrytorecordthetransactionof June30wouldincludea

a.creditto Common Stockfor $80,000.

b.debitto CommonStockDividendsDistributablefor $120,000. c.creditto Paid-inCapitalin ExcessofParValuefor $40,000.d.debitto RetainedEarningsfor $40,000.

 86.     Thefollowingselectedamounts areavailablefor SandersCompany.

 Retainedearnings(beginning)              $1,000 Netloss                                                   100 Cashdividendsdeclared                         100 Stockdividendsdeclared                          50

 Whatis its ending retainedearningsbalance? a.$850

b.$900 c.$750 d.$800

 87.     TurquoiseandTopazSistershadretainedearningsof$10,000onthebalancesheetbut disclosedinthefootnotesthat$2,000ofretainedearningswasrestrictedforplant expansionand$1,000wasrestricted forbondrepayments.Cashof$2,000hadbeenset asidefortheplantexpansion.Howmuchofretainedearningsisavailablefor dividends?

a.$7,000b.$8,000c.$10,000 d.$5,000

 88.     Irwin,Inc.had300,000sharesofcommonstockoutstandingbeforeastocksplitoccurred, and 600,000sharesoutstandingafterthestocksplit.Thestocksplitwas

a.3for6. b.6for1. c.1 for6. d.2for1.

 89.     Restrictingretainedearningsforthecostoftreasurystockpurchasedisa a.contractualrestriction.

b.legalrestriction. c.stockrestriction.

d.voluntaryrestriction.

 90.     Apriorperiodadjustmentthatcorrectsincomeofapriorperiodrequiresthatanentrybe madeto

a.an incomestatementaccount.

b.a currentyearrevenueor expenseaccount. c.theretainedearningsaccount.

d.an assetaccount.

Corporations:Dividends,RetainedEarnings,andIncomeReporting          14-15

 91.     Iftheboardofdirectors authorizes a$100,000 restrictionofretainedearnings forafuture plantexpansion,the effect of thisaction isto

a.decreasetotalassetsandtotal stockholders'equity.

b.increasestockholders' equity anddecreasetotalliabilities.

c.decreasetotalretainedearningsandincreasetotalliabilities.

d.reducetheamount of retainedearningsavailablefor dividenddeclarations.

 92.     Acreditbalanceinretainedearnings represents a.theamount ofcashretained inthebusiness. b.aclaimonspecificassets of thecorporation.

c.a claimonthe aggregateassetsofthecorporation.

d.theamountofstockholders'equityexemptedfromthestockholders'claimontotal assets.

 93.     A netloss

a.occursifoperatingexpensesexceedcostofgoodssold.

b.isnotclosedto RetainedEarningsifitwouldresult ina debitbalance.c.isclosedto RetainedEarningseven ifit wouldresult inadebitbalance.

d.isclosedtothepaid-incapitalaccountofthestockholders'equitysectionofthe balance sheet.

 94.     Priorperiodadjustmentsarereported

a.inthefootnotesofthecurrent year'sfinancialstatements. b.on thecurrent year'sbalancesheet.

c.onthecurrentyear's incomestatement.

d.onthecurrent year'sretainedearnings statement.

 95.     Retainedearningsareoccasionallyrestricted a.tosetasidecashfordividends.

b.tokeepthelegalcapitalassociatedwithpaid-incapitalintact. c.duetocontractualloanrestrictions.

d.ifpreferreddividendsare inarrears.

 96.     Retainedearningsis increasedbyeachof thefollowingexcept a.netincome.

b.priorperiodadjustments.

c.somedisposals of treasury stock.

d.Allof theseincreaseretainedearnings.

 97.     A priorperiodadjustmentfor understatementofnet incomewill a.becreditedto theRetainedEarningsaccount.

b.be debitedto theRetainedEarningsaccount.

c.showasagain onthecurrentyear'sIncomeStatement. d.showasanassetonthecurrentyear'sBalanceSheet.

 98.     Theretainedearningsstatement

a.istheowners'equitystatementfor acorporation.

b.willshowanadditiontothebeginningretainedearningsbalanceforanunderstate-ment ofnet incomeinaprioryear.

c.willnotreflect netlosses.

d.will,insomecases,failtoreconcilethebeginningandendingretainedearnings balances.

14-16

 99.     Inthe stockholders'equitysectionof thebalancesheet,

a.CommonStockDividendsDistributablewillbeclassifiedaspartofadditionalpaid-in capital.

b.CommonStockDividendsDistributablewillappearinitsownsubsectionofthestock-holders'equity.

c.AdditionalPaid-inCapitalappearsunder thesubsection Paid-inCapital. d.Dividendsinarrearswillappearasarestrictionof RetainedEarnings.

 100.     Thereturnoncommonstockholders'equityiscomputedbydividingnetincomeavailable tocommonstockholdersby

a.endingtotalstockholders'equity.

b.endingcommonstockholders'equity. c.averagetotalstockholders'equity.

d.averagecommonstockholders'equity.

 101.     Thereturnoncommonstockholders’equityis computedbydividing a.netincomebyendingcommonstockholders’equity.

b.netincomebyaveragecommonstockholders’equity.

c.net incomeless preferreddividendsbyendingcommonstockholders’equity.d. netincomelesspreferreddividendsbyaveragecommonstockholders’equity.

 Usethefollowing informationforquestions102–103.

 CarterCorporationhadnetincomeof$250,000andpaiddividendsof$50,000tocommon stockholdersand$20,000topreferredstockholdersin2008.CarterCorporation’scommon stockholders’equityatthebeginningandendof2008was$870,000and$1,130,000, respectively.Thereare100,000weighted-averagesharesofcommonstockoutstanding.

 102.     CarterCorporation’sreturn oncommonstockholders’equitywas a.25%.

b.23%. c.20%. d.18%.

  103.     CarterCorporation’searnings persharefor 2008was a.$2.50.

b.$2.30. c.$2.00. d.$1.80.

 Usethefollowing informationforquestions104–105.

 ThefollowinginformationpertainstoGreenwichCompany.Assumethatallbalancesheet amounts representaveragebalancefigures.

 Stockholders’equity—common Totalstockholders’ equitySales

Netincome

Numberof sharesofcommonstock Commonstockdividends Preferredstockdividends

$150,000 200,000 100,000 25,000 10,000 10,000 4,000

Corporations:Dividends,RetainedEarnings,andIncomeReporting          14-17

 104.     Whatisthereturnoncommon stockholders’equityratioforGreenwich? a.16.7%

b.14.0% c.12.7% d.10.5%

  105.     WhatistheearningspershareforGreenwich? a.$2.50

b.$2.10 c.$1.50 d.$1.10

 106.     A corporationdiffersfrom aproprietorshipandapartnershipinthat

a.assetsandliabilitiesarepresenteddifferentlyonthebalancesheet.

b.a corporationisconsideredaseparatelegalentityfortaxationpurposes. c.thecostprincipleonlyapplies to proprietorshipsandpartnerships.

dthe ownersof thecorporationdonothavea claimonthe netassetsofthebusiness.

 107.     Incomestatementsforcorporationsarethesameasthestatementsforproprietorships exceptforthereportingof

a.grossprofit.

b.incomefromoperations. c.incometaxexpense.

d.otherrevenuesandgains.

 108.     Incomestatementsforcorporationsarethesameastheincomestatementsfor proprietorships exceptfor thereportingof

a.costof goodssold. b.incometaxes.

c.grossprofit.

d.otherrevenuesandotherexpenses.

 109.     Corporationincometaxexpenseis

a.usuallyaccrued intheadjustingentryprocess.

b.notusuallyaccruedbecause itisnotknownwhattheexactliabilitywillbeuntilthetax return isfiled.

c.notreportedinaseparatesectionof acorporateincomestatement. d.reportedsimilarlyforcorporations andpartnerships.

 110.     Whencomputingearningspershare,

a.anadjustmentrelatedtopreferredstockdividendsismadeinthenumeratorand denominator of theearningspershareformula.

b.anadjustmentforthepreferreddividendsismadeinthedenominatoroftheearnings pershare formula.

c.thedividendsforcumulativepreferredstockaredeductedfromnetincomeonlyifthe preferreddividendshavebeendeclared.

d.thedividends forcumulativepreferredstockaredeductedfromnetincomewhetheror notpreferreddividendshavebeendeclared.

14-18

 111.     Eachof thefollowingstatementsiscorrectexceptthatearningspershareisreported a.belownet income.

b.for bothcommonandpreferredstock. c.onthefaceof theincomestatement.

d.basedontheweighted-averagenumberof commonsharesoutstanding.

 112.     West,Inc.hasanetincomeof$400,000for2008,andthereare200,000weighted-averagesharesofcommonstockoutstanding.Dividendsdeclaredandpaidduringthe yearamountedto$80,000onthepreferredstockand$120,000onthecommonstock. Theearningspersharefor 2008is

a.$2.00. b.$.60.c.$1.60. d.$1.00.

 113.     Theformulafor computingearningspershareis net income a.dividedbytheendingcommonsharesoutstanding.

b.dividedbytheweighted-averagenumberof commonsharesoutstanding.

c.lesspreferreddividendsdividedbytheendingcommonsharesoutstanding.

d.lesspreferreddividendsdividedbytheweighted-averagenumberofcommonshares outstanding.

   Additional MultipleChoiceQuestions

 114.     Whichofthefollowingstatements aboutacashdividend is incorrect? a.The legalityofacashdividenddependsonstatecorporationlaws.

b.The legalityofa dividenddoesnotindicate a company's abilityto payadividend. c.Dividendsare nota liabilityuntildeclared.

d.Shareholdersusuallyvotetodeterminetheamountofincometobedistributedinthe formof adividend.

 115.     Thedateacashdividendbecomesa bindinglegalobligationto acorporationisthe a.declarationdate.

b.earningsdate. c.paymentdate. d.recorddate.

 116.     AbbottCorporationsplitsitscommonstock4for1,whenthemarketvalueis$40per share.Priortothesplit,Abbotthad50,000sharesof$10parvaluecommonstockissued and outstanding.Afterthesplit,theparvalueof thestock

a.remainsthesame.

b.isreducedto $2pershare.

c.isreducedto $2.50 pershare. d.isreducedto $10pershare.

Corporations:Dividends,RetainedEarnings,andIncomeReporting          14-19

 117.     Whichofthefollowingstatements aboutretainedearningsrestrictionsisincorrect?

a.Manystatesrequireacorporationtorestrictretainedearningsforthecostoftreasury stockpurchased.

b.Long-termdebtcontractsmayimposea restrictionon retainedearningsasacondition for the loan.

c.Theboardofdirectorsofacorporationmayvoluntarilycreateretainedearnings restrictionsfor specificpurposes.

d.Retainedearningsrestrictionsaregenerallydisclosedthroughajournalentryonthe booksofacompany.

 118.     Priorperiodadjustments

a.mayonlyincreaseretainedearnings. b.mayonlydecreaseretainedearnings.

c.mayeitherincreaseor decreaseretainedearnings. d.donotaffectretainedearnings.

 119.     JenniferCompanyreportsthefollowing amountsfor2008:

 Netincome Averagestockholders'equity Preferreddividends

Parvaluepreferredstock

$125,000 500,000 35,000 100,000

 The2008rate ofreturnoncommonstockholders'equityis a.18.0%.

b.22.5%. c.25.0%. d.31.3%.

 120.     Thereturnoncommonstockholders'equityis computed bydividing a.netincomebyendingcommonstockholders'equity.

b.netincomebyaveragecommonstockholders'equity.

c.net incomeminus preferreddividendsbyendingcommonstockholders'equity.d. netincomeminuspreferreddividendsbyaveragecommonstockholders'equity.

 121.    MilnerCorporationhad200,000sharesofcommonstockoutstandingduringtheyear. Milnerdeclaredandpaidcashdividendsof$200,000onthecommonstockand$160,000 onthepreferredstock.Netincomefortheyearwas$880,000.WhatisMilner’searnings pershare?

a.$2.60 b.$3.40 c.$3.60 d.$4.40

 122.     Whenacorporationhasbothpreferredandcommonstockoutstanding,earningsper share iscomputed bydividingnetincome

a.byendingcommonsharesoutstanding.

b.byweightedaveragecommonsharesoutstanding.

c.lesspreferreddividendsbyendingcommonsharesoutstanding.

d.lesspreferreddividendsbytheweightedaverageofcommonsharesoutstanding.

14-20

 123.    Indeterminingearningspershare,dividendsforthecurrentyearonnoncumulative preferredstock shouldbe

a.disregarded.

b.addedbacktonetincomewhetherdeclaredornot. c.deductedfromnetincomeonlyifdeclared.

d.deductedfromnetincomewhetherdeclaredornot.

     BRIEFEXERCISES

 BE124

 OnNovember27,theboardofdirectorsofIndiaStarCompanydeclareda$.35pershare dividend.ThedividendispayabletoshareholdersofrecordonDecember7onDecember24. IndiaStarhas25,500sharesof$1parcommonstockoutstandingatNovember27.Journalize theentriesneededonthe declarationandpaymentdates.

   BE125

 OnOctober10,theboardofdirectorsofPitcherCorporationdeclareda5%stockdividend.On October10,thecompanyhad10,000sharesof$1parcommonstockissuedandoutstanding withamarketpriceof$15pershare.ThestockdividendwillbedistributedonOctober31to shareholdersofrecordonOctober25.Journalizetheentriesneededforthedeclarationand distribution ofthestock dividend.

    BE126

 DevonsCompanyhas24,000sharesof$1parcommonstockissuedandoutstanding.The companyalsohas2,000sharesof$100par3%cumulativepreferredstockoutstanding.The companydidnotpaythepreferred dividends in2007or2008.Whatamount ofdividendsmust the companypaythepreferredshareholdersin2009iftheywishtopaythecommonstockholdersa dividend?

    BE127

 OnNovember1,2008,MatesCorporation’sstockholders’equity sectionisasfollows:

 Commonstock,$10parvalue

Paid-incapitalinexcessofparvalue Retainedearnings

Totalstockholders’ equity

$600,000 180,000

200,000$980,000

  OnNovember1,Matesdeclaresanddistributesa10%stockdividendwhenthemarketvalueof thestockis$14per share.

 Instructions

 Indicatethebalancesinthestockholders’equityaccountsafterthestockdividendhasbeen distributed.

  BE128

 Matcheachitem/eventpairbelowwiththeindicatedchangeintheitem.Anindividual classificationmaybeusedmorethanonce,ornotatall.Foreachdividend,assumethatboth declaration andpaymentor distributionhasoccurred.

 Classifications

A.Itemincreases B.Itemdecreases

C.Itemisunchanged

D.Directionofchangecannot bedetermined

 Item

 1.     Bookvaluepershare

 2.     Totalretainedearnings

Event StockDividend

StockSplit

 3.     Totalstockholders’ equity

  4.     Earningspercommonshare 5.        Totalretainedearnings

6.     Totalpaid-incapital

Priorperiodadjustmentincreaseslast year’s netincome

 Restrictionof retainedEarnings Cashdividend

Stockdividend

    BE129

 Identifywhichofthefollowingitemswouldbereportedasadditions(A)ordeductions(D)ina RetainedEarningsStatement.

1.NetIncome 2.NetLoss

3.CashDividends 4.StockDividends

5.Priorperiodadjustmentstocorrectfor overstatementof prioryears’net income6.Priorperiodadjustmentstocorrectfor understatementof prioryears’ net income

Corporations:Dividends,RetainedEarnings,andIncomeReporting          14-23

  BE130

 ThebalanceinretainedearningsonJanuary1,2008,forEttengerInc,was$600,000.Duringthe year,thecorporationpaidcashdividendsof$70,000anddistributedastockdividendof$8,000. Inaddition, thecompanydetermined thatithadoverstateditsdepreciationexpenseinprioryears by$50,000.Netincomefor 2008was$100,000.

 Instructions

 Preparetheretainedearnings statementfor2008.

    BE131

 Thefollowinginformationis availableforWheelerCorporation

  Averagecommonstockholders’equity Averagetotalstockholders’equity Commondividendsdeclaredandpaid Preferreddividendsdeclaredandpaid Netincome

     2008

$1,500,000 2,000,000 72,000 30,000 300,000

     2007

$1,000,000 1,500,000 50,000 30,000 250,000

 Instructions

Computethe returnoncommonstockholders’equity ratioforbothyears.Brieflycommenton your findings.

 BE132

 ThefollowinginformationisavailableforRyderCorporationfortheyearendedDecember31, 2008:

 Correctedoverstatementof2007depreciationexpense Costofgoodssold

Declaredcashdividends Operatingexpenses

Otherexpensesandlosses Otherrevenuesandgains Sales

Taxrate

$    15,000 600,000 50,000 170,000 40,000 50,000 1,000,000 30%

  Instructions

 Prepareacorporateincomestatementingoodform.

    EXERCISES

 Ex.133

 Thestockholders'equitysectionofEllisCorporationatDecember31,2007,includedthe following:

 6%preferredstock,$100parvalue,cumulative,

10,000sharesauthorized,8,000sharesissuedand outstanding.......                $800,000

 Commonstock,$10parvalue,250,000sharesauthorized,

200,000shares issuedand outstanding............................................            $2,000,000

 Dividendswerenot declaredonthepreferredstockin2007andareinarrears.

 OnSeptember15,2008,theboardofdirectorsofEllisCorporationdeclareddividendsonthe preferredstockfor2007and2008,tostockholdersofrecordonOctober1,2008,payableon October15,2008.

 OnNovember1,2008,theboardofdirectorsdeclareda$.90persharedividendonthecommon stock,payableNovember30,2008,tostockholdersof recordonNovember15,2008.

 Instructions

PreparethejournalentriesthatshouldbemadebyEllisCorporationonthedatesindicated below:

September15,2008                  November1,2008 October1, 2008                                                November15,2008 October15,2008                      November30,2008

    Ex.134

 Richman Corporationhas120,000sharesof$5parvaluecommonstockoutstanding.Itdeclared a15%stockdividendonJune1whenthemarketpricepersharewas$12.Theshareswere issued onJune30.

 Instructions

 Preparethenecessaryentriesforthedeclarationand paymentof the stockdividend.

   Ex.135

 IrvingCorporation'sstockholders' equity sectionat December31,2007appears below:

 Stockholders'equity Paid-incapital

Commonstock,$10 par,60,000outstanding Paid-incapitalinexcessofpar

Totalpaid-incapital Retainedearnings

Totalstockholders'equity

   $600,000

150,000

     $750,000

150,000 $900,000

 OnJune30,2008,theboardofdirectorsofIrvingCorporationdeclareda15%stockdividend, payableonJuly31,2008,tostockholdersofrecordonJuly15,2008.Thefairmarketvalueof IrvingCorporation'sstockonJune30, 2008, was$15.

 OnDecember1, 2008,the boardofdirectorsdeclareda2for1 stocksplit effectiveDecember15, 2008.IrvingCorporation'sstockwassellingfor$20onDecember1,2008,beforethestocksplit wasdeclared.Parvalueofthestockwasadjusted.Netincomefor2008was$190,000andthere were no cash dividendsdeclared.

 Instructions

 (a)Preparethejournalentriesontheappropriatedatestorecordthestockdividendandthe stock split.

 (b)Fillintheamountthatwouldappearinthestockholders'equitysection forIrvingCorporation atDecember31,2008,for thefollowingitems:

 1.Commonstock                                                      $                        

 2.Numberof sharesoutstanding

 3.Parvaluepershare                                                   $                        

 4.Paid-incapitalinexcessofpar                                  $                        

 5.Retainedearnings                                                  $                        

 6.Totalstockholders' equity                                      $                        

Corporations:Dividends,RetainedEarnings,andIncomeReporting          14-27

  Ex.136

 DerekCorporation wasorganizedonJanuary1,2007. During its first year,the corporationissued 40,000shares of $5parvaluepreferredstockand 400,000sharesof $1par valuecommonstock. AtDecember31,thecompanydeclaredthefollowingcashdividends:

 2007                            $10,000 2008                                    $30,000 2009                                    $70,000

 Instructions

 (a)Showtheallocationofdividendstoeachclassofstock,assumingthepreferredstock dividend is 6%andnot cumulative.

 (b)Showtheallocationofdividendstoeachclassofstock,assumingthepreferredstock dividend is 8%andcumulative.

 (c)JournalizethedeclarationofthecashdividendatDecember31,2009usingtheassumption ofpart (b).

  Ex.137

 OnNovember1,2008,LambertCorporation'sstockholders'equitysectionis asfollows:

 Commonstock,$10parvalue

Paid-incapitalinexcessofparvalue Retainedearnings

Totalstockholders'equity

$600,000 205,000

   240,000$1,045,000

 OnNovember1,Lambertdeclaresanddistributesa10%stockdividendwhenthemarketvalue of the stockis $13pershare.

 Instructions

(a)     Computethebookvaluepershare(1)beforethestockdividendand(2)afterthestock dividend.

 (b)    Indicatethebalancesin thestockholders'equityaccountsafterthestock dividendhasbeen distributed.

    Ex.138

 During2008,PineCorporationhadthefollowingtransactionsandevents: 1.Issuedparvaluepreferredstockforcashatpar value.

2.Issuedparvaluecommon stockfor cashatanamountgreaterthanparvalue.

3.Completeda2for1stocksplitinwhichthe$10parvaluecommonstockwaschanged to$5 parvalue stock.

4.Declaredasmallstockdividendwhenthemarketvaluewashigherthantheparvalue. 5.Declaredacashdividend.

6.Madea priorperiodadjustmentforunderstatementofnetincome. 7.Issuedparvaluecommon stockfor cashatparvalue.

8.Paidthecashdividend.

9.Issuedthesharesofcommonstockrequiredbythe stockdividend declarationin4.above.

 Instructions

 Indicatetheeffect(s)ofeachoftheforegoingitemsonthesubdivisionsofstockholders'equity. Presentyouranswersintabularformwiththefollowingcolumns.Use(I)forincrease,(D)for decrease,and(NE)for noeffect.

    Item

     Ex.139

 Thefollowinginformationis availablefor EllisCorporation:

 Common Stock($5par) RetainedEarnings

$1,500,000 600,000

 A10% stockdividendisdeclaredandpaidwhenthe marketvaluewas$15 pershare.

 Instructions

Computeeachofthefollowing afterthestockdividend. (a)Totalstockholders'equity.

(b)Numberof sharesoutstanding. (c)Bookvaluepershare.

  Ex.140

 OnJanuary1,2008,BoltenCorporationhad$2,000,000of$10parvaluecommonstock outstandingthatwasissuedatparandretainedearningsof$1,000,000.Thecompanyissued 200,000sharesofcommonstockat$13pershareonJuly1.OnDecember15,theboardof directorsdeclareda10%stockdividendtostockholdersofrecordonDecember31,2008, payableonJanuary15,2009.ThemarketvalueofBoltenCorporationstockwas$15pershare on December15 and$16pershareonDecember31.Netincomefor 2008was$500,000.

 Instructions

(1)JournalizetheissuanceofstockonJuly1andthedeclarationofthestockdividendon December15.

 (2)Preparethestockholders'equitysectionofthebalancesheetforBoltenCorporationat December31, 2008.

    Ex.141

 OnJanuary 1,2008,Dolan Corporationhad 60,000sharesof$1parvalue common stockissued and outstanding.Duringtheyear,thefollowingtransactionsoccurred:

 Mar.      1      Issued20,000sharesofcommonstockfor $400,000.

 June      1      Declaredacashdividendof $2.00persharetostockholdersofrecordonJune15. June30             Paidthe$2.00 cashdividend.

Dec.      1      Purchased4,000sharesofcommonstockforthetreasuryfor $22pershare.

 Dec.15         Declared acashdividendonoutstandingsharesof$2.25persharetostockholders ofrecordonDecember31.

 Instructions

 Preparejournalentriesto recordtheabovetransactions.

     Ex.142

 Recordthefollowingtransactionsfor HarperCorporationonthedatesindicated.

 1.OnMarch31,2008,HarperCorporationdiscoveredthatDepreciationExpenseonfactory equipmentfortheyearendedDecember31,2007,hadbeenrecordedtwice,foratotal amount of $50,000insteadof thecorrectamountof$25,000.

 2.OnJune30,2008,thecompany'sinternalauditorsdiscoveredthattheApril2008telephone bill for $2,500haderroneouslybeenchargedtotheInterestExpenseaccount.

 3.OnAugust14,2008,cashdividends onpreferredstockof$110,000declaredonJuly 1,2008, were paid.

 Ex.143

 ThefollowinginformationisavailableforOrsonCorporation:

 RetainedEarnings,December31,2008

NetIncomeforthe yearendedDecember31,2009

    $1,500,000 $250,000

 Thecompanyaccountant,inpreparingfinancialstatementsfortheyearendingDecember31, 2009,hasdiscoveredthefollowinginformation:

 Thecompany'spreviousbookkeeper,whohasbeenfired,hadrecordeddepreciationexpenseon amachinein2007and2008usingthedouble-declining-balancemethodofdepreciation.The bookkeeperneglectedtousethestraight-linemethodofdepreciationwhichisthecompany's policy.Thecumulativeeffectsoftheerroronprioryearswas$15,000,ignoringincometaxes. Depreciation wascomputedbythestraight-linemethodin2009.

 Instructions

 (a)Preparetheentryforthepriorperiodadjustment. (b)Preparetheretainedearningsstatementfor 2009.

  Ex.144

 Thefollowinginformationis availableforSandersInc.:

 Beginningretainedearnings CashdividendsdeclaredNetincomefor2008

Stockdividenddeclared

Understatementof lastyear'sdepreciationexpense

    $600,000 50,000 120,000 10,000 40,000

 Instructions

 Basedonthe precedinginformation,preparearetainedearningsstatementfor2008.

    Ex.145

 OnJanuary1,2008,WindomCorporationhadRetainedEarningsof$378,000.Duringtheyear, Windom hadthefollowingselectedtransactions:

1.Declaredstockdividendsof$40,000. 2.Declaredcashdividendsof $90,000.

3.A2for1stocksplitinvolvingtheissuanceof200,000sharesof$5parvaluecommonstock for 100,000sharesof $10 parvaluecommonstock.

4.Suffereda netloss of$70,000.

5.Correctedunderstatementof2007net incomebecauseofan inventoryerror of $68,000.

 Instructions

 Preparearetainedearningsstatementforthe year.

 Ex.146

 ThefollowingaccountsappearintheledgerofNorlandInc.afterthebooksareclosedat December31, 2008.

 CommonStock,$1 parvalue,500,000sharesauthorized,400,000shares issued

CommonStock DividendsDistributable

Paid-inCapitalin ExcessofParValue—CommonStock

PreferredStock,$100parvalue,8%,10,000sharesauthorized;2,000shares issued

RetainedEarnings

TreasuryStock(10,000commonshares)

Paid-inCapitalin ExcessofParValue—PreferredStock

 $400,000 80,000 650,000

 200,000 950,000 85,000 310,000

 Instructions

Preparethestockholders'equitysectionatDecember31,2008,assuming thatretainedearnings isrestrictedfor plantexpansionintheamountof $200,000.

    Ex.147

 Thefollowinginformationis availableforWengerCorporation:

 Beginningstockholders'equity Dividendspaidto commonstockholders Dividendspaidto preferredstockholders Endingstockholders'equity

Netincome

$700,000 50,000 30,000 800,000 165,000

 Instructions

 Basedonthe precedinginformation,calculatereturn oncommonstockholders'equity.

     Ex.148

 Preparea2008incomestatementfor CarneyCorporation basedonthefollowinginformation:

 Costofgoodssold Operatingexpenses

Otherexpensesand losses Sales

Taxrate

$420,000 100,000 30,000 700,000 30%

    Ex.149

 FeldmanCorporationgatheredthefollowinginformationforthefiscalyearendedDecember31, 2008:

Sales                                                                   $1,600,000 Sellingandadministrativeexpenses                     160,000 Costofgoodssold                                             1,040,000 Lossonsale ofequipment                 ��                    40,000

 FeldmanCorporationissubjectto a30%incometaxrate.

 Instructions

 Prepareapartialincomestatement,beginningwithincomefromoperations.

    Ex.150

 AtDecember31,2008,RossiCompanyhas$500,000of$100parvalue,8%,cumulative preferredstockoutstandingand$2,000,000of$10parvaluecommonstockissued.Rossi'snet incomeforthe yearis $500,000.

 Instructions

 Computeearningspershareofcommonstockfor2008underthefollowingindependent situations.(Roundtotwodecimals.)

 (a)Thedividendtopreferredstockholderswasdeclared,andtherehasbeennochangeinthe numberof sharesofcommonstockoutstandingduringtheyear.

 (b)Thedividendtopreferredstockholderswasnotdeclared,and10,000sharesofcommon treasurystock wereheldthroughouttheyear.Thepreferredstockiscumulative.

   Ex.151

 Thefollowinginformationis availableforVincentCorporation:

 Dividendspaidto commonstockholders Dividendspaidto preferredstockholders Netincome

Weightedaveragecommonsharesoutstanding

$45,000 20,000 145,000 100,000

 Instructions

Computetheearningsper shareof commonstock.

   COMPLETIONSTATEMENTS

  152.Threeimportantdatesassociatedwithdividendsarethe:(1)       , (2)                                               ,and(3)                                         .

 153.Theentrytorecordthedeclaration ofastockdividendincreases                                               ,and decreases                                                   .

 154.Bothastocksplitandastockdividendwill              thenumberofshares outstanding andhave                                                                        ontotalstockholders'equity.

 155.Corporations         sometimes      segregate      retained     earnings      into     two     categories: (1)retainedearningsand(2)retainedearnings.

 156.Thecorrectionofanerrorinpreviouslyissuedfinancialstatementsisknownasa

                                    .

 157.Thereturnon                                          showshowmanydollarsofnetincomewereearned for eachdollar investedbyowners.

 158.Thereturnoncommonstockholders’equityiscomputedbydividing minus                                          dividendsbyaveragecommonstockholders’equity.

 159.Incomestatementsforcorporationsreport                                        in aseparatesectionbefore netincome.

 160.Earningspershareisreported onlyfor                                           .

 161.Earningspershareiscalculatedbydividing      availableforcommon stockholdersbythe   numberof commonsharesoutstanding.

     MATCHING

 162.Matchtheitemsbelowbyenteringtheappropriatecodeletterinthespaceprovided.

 A.Deficit

B.Priorperiodadjustment C.Liquidatingdividend

D.Retainedearningsrestrictions E.Earningspershare

F.     Returnoncommonstockholders’equity G.Cashdividend

H.Declarationdate I.  StockdividendJ.          Stocksplit

             1.     A dividenddeclaredoutofpaid-incapital.

           2.     Retainedearningscurrentlyunavailablefor dividends.

           3.     Thecorrectionof anerrorinpreviouslyissuedfinancialstatements.

           4.     A proratadistributionofcashtostockholders.

           5.     A debitbalanceinretainedearnings.

           6.     A proratadistributionofthecorporation'sownstocktostockholders.

           7.     Showshowmanydollarsofnetincomewereearnedforeachdollarinvestedbythe owners.

           8.     Thedatetheboardofdirectorsformallydeclaresthedividendandannouncesitto stockholders.

           9.     Theissuanceofadditionalsharesofstocktostockholdersaccompaniedbya reduction inthepar or statedvalueper share.

 10.     Widelyusedbystockholdersandpotentialinvestorsinevaluatingtheprofitabilityofa company.

      SHORT-ANSWERESSAYQUESTIONS

S-AE163

Theultimateeffectofincurringanexpenseistoreducestockholders'equity.Thedeclarationofa cashdividendalsoreducesstockholders'equity.Explainthedifferencebetweenanexpenseand a cashdividend andexplain whytheyhavethesame effectonstockholders'equity.

    S-AE164

 Alargestockdividendandstocksplitcanfrequentlyhavethesameeffectonthemarketpriceof acorporation'sstock.Explainhowstockdividendsandstocksplitsaffectthemarketpriceofa corporation'sstock.

    S-AE165

 Whymusta corporationhavesufficientretainedearnings beforeit maydeclare cashdividends?

   S-AE166(Ethics)

 JakeHightower,thepresidentandCEOofEarthSystems,Inc.,awastemanagementfirm,was recentlyhospitalized,sufferingfromexhaustionandaheartailment.Immediatelypriortohis hospitalization,EarthSystemshadexperiencedasharpdeclineinitsstockprice,andtrading activitybecamealmostnonexistent.Theprimaryreasonforthiswasconcernexpressedinthe mediaoveranewuntestedwastemanagementsystemimplementedbythecompany.Mr. Hightowerhadbeenunwillingtosubmittheproceduretotestingbeforeimplementation,buthe reluctantlyagreedtolimitedtestsafterthesystemwasoperational.Noproblemshavebeen identified bytheteststodate.

 Theothermembersofmanagementcalledameetingtodeterminewhattheyshoulddo.Roger Donovan,themarketingmanager,suggestedthatthecompanypurchasealargenumberof sharesoftreasurystock.Inthatway,investorsmightnoticethatactivityhadpickedup,andmight decidetobuysomemoreshares.Thisplanwoulduseupmostofthecompany'savailablecash, sothattherewillbenomoneyavailableforacashdividend.EarthSystemshaspaidcash dividends everyquarterfor overtenyears.

 Required:

 1.IsMr. Donovan’ssuggestionethical?Explain.

2.Isitethicaltodiscontinuethecashdividend?Explain.

     S-AE167(Communication)

 AspartofaCareersinAccountingprogramsponsoredbyaccountingorganizationsand supportedbyyourcompany,youwillbetakingagroupofhigh-schoolstudentsthroughthe accountingdepartmentinyourcompany.Youwillalsoprovidethemwithvariousmaterialsto explaintheworkofanaccountant.OneofthematerialsyouwillprovideistheStockholders’ Equity sectionofarecent balancesheet.

 S-AE167(cont.)

 Required:

Prepareasentenceortwoexplainingeachmajorsection:CommonStock,AdditionalPaid-in Capital,andRetainedEarnings.Youshouldtrytobebriefbut clear.

  CHAPTER15

  LONG-TERMLIABILITIES

  CHAPTERSTUDYOBJECTIVES

  1.Explainwhybondsareissued.

 2.Preparetheentriesfortheissuanceofbondsandinterestexpense.

 3.Describetheentrieswhenbondsareredeemedorconverted.

 4.Describetheaccountingforlong-termnotespayable.

 5.Contrasttheaccountingforoperatingandcapitalleases.

 6.Identifythemethodsforthepresentationandanalysisoflong-termliabilities.

 7.Computethemarketpriceofabond.

 8.Applytheeffective-interestmethodofamortizingbonddiscountandbondpremium.

 a9.Applythestraight-linemethodofamortizingbonddiscountandbondpremium.

    TRUE-FALSESTATEMENTS

 1.     Eachbondholdermayvotefortheboardofdirectorsinproportiontothenumberofbonds held.

 2.     Bondinterestpaidbyacorporationisanexpense,whereasdividendspaidarenotan expense of thecorporation.

 3.     RegisteredbondsarebondsthataredeliveredtoownersbyU.S.registeredmailservice.

 4.     Adebenturebondisanunsecuredbondwhichisissuedagainstthegeneralcreditofthe borrower.

 5.     Bondsareaform of interest-bearingnotespayable.

 6.     Neithercorporatebond interestnordividendsaredeductiblefor taxpurposes.

 7.     A10%stockdividendistheequivalentofa$1,000parvaluebondpayingannualinterest of10%.

 8.     Theholderofaconvertiblebondcanconvertaninterestpaymentreceivedintoacash dividend paidoncommonstock if thedividendisgreaterthantheinterestpayment.

 9.     Theboardof directorsmayauthorizemorebondsthanare issued.

 10.     Thecontractualinterestrateisalwaysequaltothemarketinterestrateonthedatethat bonds areissued.

 11.     If$150,000face valuebondsareissuedat 102,theproceedsreceivedwill be$102,000.

 12.     Discountonbondsisanadditionalcostofborrowingandshouldberecordedasinterest expense overthe lifeofthebonds.

 13.     Ifacorporationissuedbondsatanamountlessthanfacevalue,itindicatesthatthe corporation hasaweakcreditrating.

Long-TermLiabilities     15-5

 14.     Acorporationthatissuesbondsatadiscountwillrecognizeinterestexpenseatarate which is greaterthanthemarketinterestrate.

 15.     Ifbondsareissuedatadiscount,theissuingcorporationwillpayaprincipalamountless thantheface amountof thebondsonthematuritydate.

 16.     Ifbondsareissuedatapremium, thecarryingvalueofthebondswillbegreaterthanthe facevalueof thebondsfor allperiodspriortothebondmaturitydate.

 17.     Ifthemarketinterestrateisgreaterthanthecontractualinterestrate,bondswillsellata discount.

 18.     If$800,000,8%bondsareissuedonJanuary1,andpayinterestsemiannually,the amount of interestpaidon July1 willbe$32,000.

 19.     Ifbonds sell atapremium, theinterestexpenserecognizedeach yearwillbegreaterthan thecontractualinterestrate.

 20.     The carryingvalue ofbondsiscalculatedbyadding thebalanceoftheDiscountonBonds Payableaccountto thebalance intheBondsPayableaccount.

 21.     Thelossonbondredemptionisthedifferencebetweenthecashpaidandthecarrying value of thebonds.

 22.     If$200,000parvalue bondswithacarrying value of$190,400 areredeemedat97,aloss on redemptionwill berecorded.

 23.     Gainsandlossesarenotrecognizedwhenconvertiblebondsareconvertedintocommon stock.

 24.     Generally,convertiblebondsdonotpayinterest.

 25.     Eachpaymentonamortgagenotepayableconsistsofinterestontheoriginalbalanceof theloan andareductionoftheloanprincipal.

 26.     Along-term notethatpledgestitletospecificpropertyassecurityforaloanisknown asa mortgagepayable.

 27.     A capitalleaserequiresthelesseetorecordthe leaseasapurchaseof anasset.

 28.     Thetimesinterestearnedratiois computed bydividingnetincome byinterestexpense.

 a29.    Thepresentvalueofabondisafunctionoftwovariables:(1)thepaymentamountsand (2)theinterest(discount)rate.

 a30.     Theeffective-interestmethodofamortizationresultsinvaryingamountsofamortization and interestexpenseperperiodbut aconstantinterestrate.

 Additional True-FalseQuestions

 31.     Bondsthatmatureat asinglespecifiedfuturedatearecalledtermbonds.

15-6      

 32.     Thetermsofthebondissuearesetforthinaformallegaldocumentcalledabond indenture.

 33.     Thecarryingvalueof bondsatmaturityshouldbe equaltotheface valueof thebonds.

 34.     PremiumonBondsPayableisacontraaccounttoBondsPayable.

 35.     Whenbondsareconvertedintocommonstock,thecarryingvalueofthebondsis transferredto paid-incapital accounts.

 36.     Operatingleasesareleasesthatthelesseemustcapitalizeonitsbalancesheetasan asset.

 37.     Underacapitallease,thelease/assetisreportedonthebalancesheetunderplant assets.

 38.     Long-termliabilitiesarereportedinaseparatesectionofthebalancesheetimmediately followingcurrent liabilities.

     MULTIPLECHOICEQUESTIONS

 39.     Eachof thefollowingiscorrectregarding bondsexcepttheyare a.aformofinterest-bearingnotespayable.

b.attractivetomanyinvestors.

c.issuedbycorporations andgovernmentalagencies. d.soldin largedenominations.

 40.     Fromthestandpointoftheissuingcompany,adisadvantageofusingbondsasameans oflong-termfinancingisthat

a.bondinterestis deductiblefortaxpurposes.

b.interestmustbepaidonaperiodicbasisregardlessofearnings.

c.incometo stockholdersmayincreaseasaresultof tradingonthe equity. d.thebondholdersdonothavevotingrights.

 41.     Ifacorporationissued$2,000,000inbondswhichpay10%annualinterest,whatisthe annual netcashcostof thisborrowingif theincometaxrateis30%?

a.$2,000,000 b.$60,000

c.$200,000 d.$140,000

Long-TermLiabilities     15-7

 42.     Securedbondsarebondsthat

a.areinthepossessionof abank.

b.areregisteredinthenameof theowner.

c.havespecificassetsof the issuerpledged ascollateral. d.havedetachableinterestcoupons.

 43.     Alegaldocumentwhichsummarizestherightsandprivilegesofbondholdersaswellas theobligationsandcommitmentsof theissuingcompanyiscalled

a.a bondindenture. b.abonddebenture.

c.tradingonthe equity. d.atermbond.

 44.     Stockholdersofacompanymaybereluctanttofinanceexpansionthroughissuingmore equitybecause

a.leveragingwithdebtisalwaysa betteridea. b.theirearningspersharemaydecrease.

c.thepriceofthestockwillautomaticallydecrease. d.dividendsmust bepaidonaperiodicbasis.

 45.     Whichofthefollowingisnot anadvantageof issuingbondsinsteadof commonstock? a.Stockholdercontrolisnot affected.

b.Earningsper shareoncommonstockmaybelower. c.Incometocommonshareholdersmayincrease.

d.Taxsavingsresult.

 46.     Bondsthataresecuredbyrealestate aretermed a.mortgagebonds.

b.serialbonds.c.debentures.d.bearerbonds.

 47.     Bondsthatmatureat asinglespecifiedfuturedate arecalled a.couponbonds.

b.termbonds. c.serialbonds. d.debentures.

 48.     Bondsthatmaybeexchangedforcommonstockattheoptionofthebondholdersare called

a.options.

b.stockbonds.

c.convertiblebonds. d.callablebonds.

 49.     Bondsthataresubjecttoretirementatastateddollaramountpriortomaturityatthe option of theissuerarecalled

a.callablebonds.

b.earlyretirementbonds. c.options.

d.debentures.

15-8        

 50.     Investorswhoreceivechecksintheirnamesfor interestearnedonbondsmusthold a.registeredbonds.

b.couponbonds. c.bearerbonds. d.directbonds.

 51.     A bondholderthatsendsina coupontoreceiveinterestpaymentsmusthavea(n) a.unsecuredbond.

b.bearerbond.

c.mortgagebond. d.serialbond.

 52.     Bondsthatmaybedirectlytransferredtoanotherpartybydeliveryare a.couponbonds.

b.debentures.

c.registeredbonds.

d.transportablebonds.

 53.     Bondsthatmustbecancelledandreissuedasnewbondsinordertohaveownership interest transferred are

a.couponbonds. b.bearerbonds. c.serialbonds.

d.registeredbonds.

 54.     Corporationsaregrantedthepowertoissuebondsthrough a.taxlaws.

b.statelaws.

c.federalsecuritylaws. d.bonddebentures.

 55.     Thepartywhohastherighttoexerciseacalloptionon bondsisthe a.investmentbanker.

b.bondholder. c.bearer.

d.issuer.

 56.     A majordisadvantageresultingfromtheuseofbonds isthat a.earningspersharemaybe lowered.

b.interestmustbepaidonaperiodicbasis. c.bondholdershave votingrights.

d.taxesmayincrease.

 57.     Bondswillalwaysfall intoallbut which oneof thefollowingcategories? a.Callableorconvertible

b.Termor serial

c.Registeredor bearerd.Securedor unsecured

Long-TermLiabilities     15-9

 58.     Whichof thefollowingstatements concerningbonds is notatruestatement? a.Bondsaregenerallysoldthroughaninvestmentcompany.

b.Thebondindentureispreparedafterthebondsare printed.

c.Thebondindenture and bondcertificateare separatedocuments. d.Thetrusteekeepsrecords of eachbondholder.

 59.     A bondtrusteedoesnot a.issuethebonds.

b.keeparecord of eachbondholder.

c.holdconditionaltitletopledgedproperty. d.maintaincustody of unsoldbonds.

 60.     Thecontractualinterestrate is alwaysstatedasa(n) a.monthlyrate.

b.dailyrate.

c.semiannualrate. d.annualrate.

 61.     Whenauthorizingbondsto be issued,theboardof directorsdoesnotspecifythe a.totalnumberof bondsauthorizedtobe sold.

b.contractualinterestrate. c.sellingprice.

d.totalfacevalueof thebonds.

 Usethefollowing exhibitforquestions62–63.

         Bonds                            Close Kmart83/8    17                 100¼

Yield             Volume 8.4                  35

NetChange +7/8

 62.     Thecontractualinterestrateof theKmartbonds is a.greaterthanthemarketinterestrate.

b.lessthanthemarketinterestrate. c.equaltothemarketinterestrate. d.notdeterminable.

 63.    Onthedayof tradingreferred toabove, a.noKmartbondsweretraded.

b.bondswithmarketpricesof $3,500weretraded.

c.at closing,thesellingpriceof thebondwashigherthanthe previousday'sprice. d.thebondsoldfor $100.25

 64.     A $1,000face valuebondwitha quotedpriceof98issellingfor a.$1,000.

b.$980. c.$908. d.$98.

 65.     A bondwithafacevalueof$100,000andaquotedpriceof102¼ hasasellingpriceof a.$120,225.

b.$102,025. c.$100,225. d.$102,250.

15-10

 66.     PremiumonBondsPayable a.hasadebitbalance.

b.isacontraaccount.

c.isconsideredto beareduction inthecostofborrowing. d.is deductedfrombondspayableon thebalancesheet.

 67.     If themarketinterestrateisgreaterthanthecontractualinterestrate,bondswillsell a.at apremium.

b.atfacevalue. c.at adiscount.

d.onlyafterthestatedinterestrate is increased.

 68.     OnJanuary1,2008,GrantCorporationissued$3,000,000,10-year,8%bondsat102. InterestispayablesemiannuallyonJanuary1andJuly1.Thejournalentrytorecordthis transactiononJanuary1, 2008is

a.Cash....................................................................................3,000,000

BondsPayable............................................................                           3,000,000

 b.Cash.................................................................................... BondsPayable............................................................

 c.PremiumonBondsPayable................................................ Cash.................................................................................... BondsPayable............................................................

 d.Cash.................................................................................... BondsPayable............................................................ PremiumonBondsPayable.......................................

3,060,000

  60,000 3,000,000

  3,060,000

 3,060,000

   3,060,000

  3,000,000 60,000

 69.     Thetotalcost of borrowingis increasedonlyifthe a.bondswereissuedatapremium.

b.bondswereissuedatadiscount. c.bondsweresoldatface value.

d.marketinterestrateislessthanthecontractualinterestrateonthat date.

 70.     Ifthemarketinterestrateis10%,a$10,000,12%,10-yearbond,thatpaysinterest semiannually wouldsellat anamount

a.lessthanfacevalue. b.equaltofacevalue.

c.greaterthanfacevalue.

d.thatcannotbedetermined.

 71.     Thepresentvalueofa$10,000,5-yearbond,willbelessthan$10,000if the a.contractualinterestrate is lessthanthemarketinterestrate.

b.contractualinterestrate isgreaterthanthemarketinterestrate. c.bondis convertible.

d.contractualinterestrate isequaltothemarket interestrate.

 72.     GomezCorporationissues1,000,10-year,8%,$1,000bondsdatedJanuary1,2008,at 98.Thejournalentryto recordtheissuancewillshowa

a.debitto Cashof$1,000,000.

b.creditto DiscountonBondsPayablefor $20,000. c.creditto BondsPayablefor$980,000.

d.debitto Cashfor $980,000.

Long-TermLiabilities     15-11

 73.     Themarketinterestrate isoftencalledthe a.statedrate.

b.effectiverate. c.couponrate.

d.contractualrate.

 74.     Ifbonds areissuedat adiscount,itmeansthatthe a.financialstrengthof theissuerissuspect.

b.marketinterestrateishigher thanthecontractualinterestrate. c.marketinterestrateis lower thanthecontractualinterestrate.

d.bondholderwillreceiveeffectivelylessinterestthanthecontractualinterestrate.

 75.     Eachof thefollowingaccountsis reportedas long-term liabilitiesexcept a.BondInterestPayable.

b.BondsPayable.

c.Discounton BondsPayable. d.Premiumon BondsPayable.

 76.     Thestatementthat"Bondpricesvaryinverselywithchangesinthemarketinterestrate" meansthatif the

a.marketinterestrateincreases,thecontractualinterest rate willdecrease. b.contractualinterest rate increases, thenbondpriceswillgo down.

c.marketinterestratedecreases,thenbond priceswillgo up.

d.contractualinterestrate increases,themarketinterestratewilldecrease.

 77.     Thecarryingvalueofbondswillequalthemarketprice a.at thecloseof everytrading day.

b.attheendofthefiscalperiod. c.onthedateof issuance.

d.everysixmonthsonthedateinterestispaid.

 78.     Thesaleof bondsabovefacevalue a.isa rareoccurrence.

b.willcausethetotalcostof borrowingto belessthanthebondinterestpaid.c.will causethe totalcostof borrowingtobemorethanthebondinterestpaid. d.willhaveno net effectonInterestExpensebythetimethebondsmature.

 79.     Inthebalancesheet,theaccount,Premium on BondsPayable, is a.addedtobondspayable.

b.deductedfrom bondspayable.

c.classifiedasastockholders'equityaccount. d.classifiedasarevenueaccount.

 80.     Twothousandbondswithafacevalueof$1,000each,aresoldat103.Theentryto record theissuanceis

a.Cash....................................................................................2,060,000

BondsPayable...........................................................                            2,060,000

 b.Cash....................................................................................2,000,000 PremiumonBondsPayable................................................             60,000

BondsPayable...........................................................                            2,060,000

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  c.Cash...................................................................................2,060,000 PremiumonBondsPayable......................................

BondsPayable...........................................................

 60,000 2,000,000

 d.Cash...................................................................................2,060,000 DiscountonBondsPayable.......................................

BondsPayable...........................................................

 60,000 2,000,000

  81.     Bondinterestpaidis

a.higherwhenbondssellat a discount. b.lower whenbondssellat apremium.

c.thesame whetherbondssellat adiscountorapremium.

d.higherwhenbondssellat a discountandlowerwhenbondssellata premium.

 82.       MendezCorporationissues2,000,10-year,8%,$1,000bondsdatedJanuary1,2008,at 103.Thejournalentrytorecordtheissuancewillshowa

a.debitto Cashof$2,000,000.

b.creditto Premium onBonds Payablefor $60,000. c.creditto BondsPayablefor$2,030,000.

d.creditto Cashfor$2,060,000.

 Usethefollowing informationforquestions83–86.

 GoldenCompanyreceivedproceedsof$94,250on10-year,8%bondsissuedonJanuary1, 2007.Thebondshadafacevalueof$100,000,payinterestsemi-annuallyonJune30and December31, andhavea call price of 101.Goldenusesthestraight-linemethodof amortization.

 83.     Whatisthe amountof interestGoldenmustpaythebondholdersin2007? a.$7,540

b.$8,000 c.$8,575 d.$7,425

 a84.    WhatistheamountofinterestexpenseGoldenwillshowwithrelationtothesebondsfor theyearendedDecember31,2008?

a.$8,000 b.$7,540 c.$8,575 d.$7,425

 a85.    Whatisthecarryingvalueof thebonds onJanuary1, 2009? a.$100,000

b.$95,400 c.$98,850 d.$94,825

 86.     GoldenCompanydecidedtoredeemthebondsonJanuary1, 2009.Whatamountofgain orlosswouldGoldenreportonits2009incomestatement?

a.$4,600gain b.$5,600gain c.    $5,600loss d.$4,600loss

Long-TermLiabilities     15-13

 87.     Bryce Companyhas$500,000ofbondsoutstanding.Theunamortizedpremiumis$7,200. Ifthecompanyredeemedthebondsat101,whatwouldbethegainorlossonthe redemption?

a.$2,200gain b.$2,200loss c.$5,000gain d.$5,000loss

 88.     ThecurrentcarryingvalueofJensen’s$600,000facevaluebondsis$597,750.Ifthe bonds are retiredat102, what wouldbetheamountJensenwouldpayits bondholders?a.$597,750

b.$600,000 c.$603,000 d.$612,000

 89.     LaheyCorporationretiresits$500,000facevaluebondsat105onJanuary1,following thepaymentofannual interest.The carryingvalueofthebondsatthe redemptiondateis $518,725.Theentrytorecordtheredemptionwillincludea

a.creditof $18,725toLosson BondRedemption. b.debitof $18,725toPremiumon BondsPayable. c.credit of $6,275toGainon BondRedemption.d.debitof $25,000toPremiumon BondsPayable.

 90.     A$900,000bondwasretiredat103whenthecarryingvalueofthebondwas$933,000. Theentrytorecordtheretirement wouldincludea

a.gainonbondredemptionof $27,000. b.losson bondredemptionof$6,000.c.lossonbondredemptionof$27,000. d.gainonbondredemptionof $6,000.

 91.     Ifforty$1,000 convertiblebondswitha carrying value of$46,000areconvertedinto6,000 shares of$5parvaluecommonstock,thejournalentrytorecordtheconversionis

a.BondsPayable....................................................................               46,000 CommonStock...........................................................                           46,000

 b.BondsPayable....................................................................               40,000 PremiumonBondsPayable................................................         6,000

CommonStock...........................................................                               46,000

 c.BondsPayable....................................................................               40,000 PremiumonBondsPayable................................................         6,000

CommonStock...........................................................                               30,000 Paid-inCapitalin Excess ofPar.................................                                           16,000

 d.BondsPayable....................................................................               46,000

DiscountonBondsPayable.......................................                                     6,000 CommonStock...........................................................                           30,000 Paid-inCapitalin Excess ofPar.................................                            10,000

 92.     A corporationrecognizesagainorloss

a.onlywhenbondsareconverted intocommonstock. b.onlywhenbondsareredeemedbeforematurity.

c.whenbondsareredeemedat orbeforematurity.

d.whenbondsareconvertedintocommonstockandwhentheyareredeemedbefore maturity.

15-14

 93.     If thereisa lossonbondsredeemedearly,it is a.debiteddirectlyto RetainedEarnings.

b.reportedasan"OtherExpense"onthe incomestatement.

c.reportedas an"ExtraordinaryItem"ontheincomestatement. d.debitedtoInterest Expense,asa cost offinancing.

 94.     Ifbondscanbeconvertedintocommonstock,

a.theywill sellat a lower pricethancomparablebondswithoutaconversionfeature.

b.theywillcarryahigherinterestratethancomparablebondswithouttheconversion feature.

c.theywillbeconvertedonlyif the issuercallsthem inforconversion.

d.thebondholdermaybenefitifthemarketpriceofthecommonstockincreases substantially.

 95.     Whenbondsareconvertedintocommonstock,

a.themarketpriceofthestockonthedateofconversioniscreditedtotheCommon Stockaccount.

b.themarketpriceofthebondsonthedateofconversioniscreditedtotheCommon Stockaccount.

c.themarketpriceof thestock andthebondsisignoredwhenrecordingtheconversion. d.gainsor lossesontheconversionarerecognized.

 96.     Ifbonds withafacevalueof$90,000areconvertedintocommonstockwhenthecarrying value of thebondsis $81,000,theentrytorecordtheconversionwillinclude adebitto

a.BondsPayablefor $90,000. b.BondsPayablefor $81,000.

c.Discounton BondsPayablefor$9,000.

d.BondsPayableequaltothemarketpriceof thebonds onthedateofconversion.

 97.     A$900,000bondwasretiredat98whenthecarryingvalueofthebondwas$888,000. Theentrytorecordtheretirement wouldincludea

a.gainonbondredemptionof $12,000. b.losson bondredemptionof$6,000.c.lossonbondredemptionof$12,000. d.gainonbondredemptionof $6,000.

 98.     Twenty$1,000bondswithacarryingvalueof$25,600areconverted into2,000sharesof $5parvaluecommonstock.Thecommonstockhadamarketvalueof$9pershareon thedate of conversion.Theentrytorecordtheconversion is

a.BondsPayable...................................................................                25,600 CommonStock..........................................................                            10,000 Paid-inCapitalin Excess ofPar..................................                            15,600

b.BondsPayable...................................................................                20,000 PremiumonBondsPayable...............................................          5,600

CommonStock..........................................................                                18,000 Paid-inCapitalin Excess ofPar.................................                              7,600

c.BondsPayable...................................................................                20,000 Premiumon BondsPayable...............................................          5,600

CommonStock..........................................................                                10,000 Paid-inCapitalin Excess ofPar..................................                                          15,600

d.BondsPayable...................................................................                25,600 CommonStock..........................................................                            18,000 Paid-inCapitalin Excess ofPar..................................                              7,600

Long-TermLiabilities     15-15

 99.     Which oneofthefollowingamounts increaseseachperiod whenaccountingforlong-term notes payable?

a.Cashpaymentb.Interestexpense

c.Principalbalance

d.Reductionofprincipal

 100.     Inthebalancesheet,mortgagenotespayablearereportedas a.acurrentliability only.

b.a long-termliabilityonly.

c.bothacurrentanda long-term liability.

d.a currentliability exceptfor thereductioninprincipalamount.

 101.     Amortgagenotepayablewithafixedinterestraterequirestheborrowertomake installmentpaymentsoverthetermoftheloan.Eachinstallmentpaymentincludes interestontheunpaidbalanceoftheloanandapaymentontheprincipal.Witheach installmentpayment,indicatetheeffectontheportionallocatedtointerestexpenseand theportionallocatedtoprincipal.

 PortionAllocatedto InterestExpense

a.         Increases b.     Increases c.      Decreases d.    Decreases

PortionAllocatedtoPaymentof Principal

Increases Decreases Decreases Increases

  102.     Theentrytorecordaninstallment paymentona long-term notepayableis a.MortgageNotesPayable

Cash

b.InterestExpense Cash

c.MortgageNotesPayable InterestExpense

Cash

d.BondsPayable Cash

 Usethefollowing informationforquestions103–104.

 DelmarCompanypurchasedabuildingonJanuary2bysigningalong-term$840,000mortgage with monthlypaymentsof$7,700.Themortgagecarriesan interestrateof 10percent.

 103.     Theentrytorecordthefirstmonthlypaymentwill includea a.debittotheCashaccountfor$7,700.

b.creditto theCashaccountfor$7,000.

c.debittotheInterestExpenseaccountfor $7,000.d.creditto the MortgagePayableaccountfor$7,700.

 104.     Theamountowedonthemortgageafterthefirstpayment will be a.$840,000.

b.$839,300. c.$833,000. d.$832,300.

15-16

 Usethefollowing informationforquestions105–106.

 Diamond Companyborrowed$500,000fromBankTwoonJanuary1,2007inordertoexpandits miningcapabilities.Thefive-yearnoterequiredannualpaymentsof$130,218andcarriedan annual interest rate of 9.5%.

 105.     Whatisthe amountof expenseDiamondmustrecognizeonits2008income statement? a.$47,500

b.$39,642 c.$35,129 d.$31,037

 106.     Whatisthebalanceinthenotespayable accountat December31,2008? a.$500,000

b.$326,706 c.$417,282 d.$405,000

 107.     The lesseehassubstantiallyall of thebenefitsand risksof ownership ina(n) a.apartmentlease.

b.capitallease.

c.operatinglease.

d.operatingleaseandacapitallease.

 108.     Aleasewheretheintentistemporaryuseofthepropertybythelesseewithcontinued ownership of thepropertybythe lessoris called

a.off-balancesheetfinancing. b.anoperatinglease.

c.acapitallease.

d.a purchaseofproperty.

 109.     Whichofthefollowingisnotaconditionwhichwouldrequiretherecordingofalease contractasa capitallease?

a.The leasetransfers ownershipof thepropertytothelessee. b.Theleasecontainsabargainpurchaseoption.

c.Theleaseterm islessthan75% oftheeconomiclife oftheleasedproperty.

d.Thepresentvalueoftheleasepaymentsequalsorexceeds90%ofthefairmarket value of theleasedproperty.

 110.     Inaleasecontract,

a.theowner of thepropertyiscalledthe lessee.

b.thepresenceof abargainpurchaseoptionindicatesthatit is acapitallease. c.therenterof the propertyiscalledthe lessor.

d.thereisalwaysatransferof ownershipat the end oftheleaseterm.

 111.     Whichofthefollowingstatements concerningleases istrue? a.Capitalleasesarefavoredbylessees.

b.Theappearanceoftheaccount,LeasedAsset,onthebalancesheet,signifiesan operatinglease.

c.Theportionofaleaseliabilityexpectedtobepaidinthenextyearisreportedasa currentliability.

d.Presentvalueisirrelevantinaccountingfor leases.

Long-TermLiabilities     15-17

 112.     Ifthepresentvalueofleasepaymentsequalsorexceeds90%ofthefairmarketvalueof theleasedproperty, the

a.conditionsaremetfortheleasetobeconsideredacapitallease. b.leaseis uneconomical andshouldnot beenteredinto.

c.leasemaybeclassifiedasanoperatinglease.

d.recordingofaleaseliabilityisoptional—that is,theoff-balancesheet approachcan be elected.

 113.     Eachof thefollowingmaybe shownin asupportingscheduleinsteadofthe balancesheet exceptthe

a.currentmaturitiesof long-term debt. b.conversionprivileges.

c.interestrates.d.maturitydates.

 114.     Thetimesinterestearnedratiois computed bydividing a.netincomebyinterestexpense.

b.incomebeforeincometaxesbyinterestexpense.

c.incomebeforeinterestexpensebyinterestexpense.

d.incomebeforeincometaxesandinterestexpensebyinterestexpense.

 115.     Thediscountonbondspayableorpremiumonbondspayableisshownonthebalance sheetasanadjustmenttobondspayabletoarriveatthecarryingvalueofthebonds. Indicatetheappropriateadditionor subtractiontobondspayable:

 Premiumon Bonds Payable

a.               Addb.           Deduct c.     Addd.           Deduct

Discounton Bonds Payable AddAddDeductDeduct

  116.     InarecentyearDartCorporationhadnetincomeof$140,000,interestexpenseof $30,000,andtaxexpenseof$20,000.WhatwasDartCorporation’s timesinterestearned ratiofor theyear?

a.6.33 b.4.66 c.5.33 d.6.00

 117.     InarecentyearDayCorporationhadnetincomeof$150,000,interestexpenseof $30,000,andatimesinterestearnedratioof9.WhatwasDayCorporation’sincome beforetaxesfortheyear?

a.$300,000 b.$270,000 c.$240,000

d.Noneof theabove.

15-18

 118.     TheadjustedtrialbalanceforLifesaverCorp.attheendofthecurrentyear,2008, containedthefollowingaccounts.

 5-yearBondsPayable8% BondInterestPayable PremiumonBondsPayable NotesPayable(3mo.)NotesPayable(5yr.)

MortgagePayable($15,000duecurrently) SalariesPayable

TaxesPayable(due3/15 of2009)

$1,000,000 50,000 100,000 40,000 165,000 200,000 18,000 25,000

 Thetotallong-term liabilitiesreportedonthebalancesheetare a.$1,365,000.

b.$1,350,000. c.$1,465,000. d.$1,450,000.

 119.     The2008financialstatementsofShadowCo.containthefollowingselecteddata(in millions).

 CurrentAssets                       $75 TotalAssets                           120 CurrentLiabilities                     40 TotalLiabilities                         85 Cash                                          8

 Thedebttototalassetsratiois a.70.8%.

b.53.3%. c.29.2%. d.1.41%.

 a120.Thepresentvalueofa bondisalsoknownasits a.facevalue.

b.marketprice.c.futurevalue.d.deferredvalue.

 a121.$3million,10%,10-yearbondsareissuedatfacevalue.Interestwillbepaidsemi-annually.Whencalculatingthemarketpriceof the bond,thepresentvalueof

a.$300,000receivedfor10periodsmustbecalculated. b.$3 millionreceived in10periodsmustbecalculated. c.$3millionreceived in 20periodsmustbecalculated. d.$150,000receivedfor 10periodsmustbecalculated.

 a122.Eitherthestraight-linemethodortheeffective-interestmethodofamortizationwillalways resultin

a.thesameamountof interestexpensebeingrecognizedovertheterm of thebonds. b.thesameamountof interestexpensebeingrecognizedeachyear.

c.moreinterestexpensebeingrecognizedthanifpremiumordiscountswerenot amortized.

d.thesamecarrying valueeachyearduringtheterm of thebonds.

Long-TermLiabilities     15-19

 a123.Acorporationissued$300,000,10%,5-yearbondsonJanuary1,2008for$324,333, whichreflectsaneffective-interestrateof8%.InterestispaidsemiannuallyonJanuary1 andJuly1.Ifthecorporationusestheeffective-interestmethodofamortizationofbond premium, theamountofbondinterestexpensetoberecognizedonJuly1,2008,is

a.$15,000. b.$12,000. c.$16,217. d.$12,973.

 a124.A bonddiscountmust

a.alwaysbeamortizedusingstraight-lineamortization.

b.alwaysbeamortizedusingtheeffective-interestmethod.

c.beamortizedusingtheeffective-interestmethodifityieldsannualamountsthatare materiallydifferentthanthe straight-linemethod.

d.beamortizedusingthestraight-linemethodifityieldsannualamountsthatare materiallydifferentthantheeffective-interestmethod.

 a125.Whenthe effective-interestmethodof bonddiscountamortizationis used,

a.theapplicableinterestrateusedtocomputeinterestexpenseistheprevailingmarket interest rateonthedateofeachinterestpaymentdate.

b.thecarrying valueof thebondswilldecreaseeachperiod.

c.interestexpensewillnotbeaconstantdollar amountoverthelife ofthebond.

d.interestpaidtobondholderswillbeafunction oftheeffective-interestrateonthedate thebondsare issued.

  a126.Whentheeffective-interestmethodofbondpremiumamortizationisused,the a.amountofpremiumamortizedwillgetlargerwithsuccessive amortization. b.carrying valueof thebondswill increasewithsuccessive amortization.

c.interestpaidto bondholderswillincreaseaftereach interestpayment date. d.interestrateusedtocalculate interestexpensewillbethecontractualrate.

 Usethefollowing informationforquestions127–129.

 SilconCompanyissued$800,000of6%,10-yearbondsononeofitsinterestdatesfor$690,960 toyieldaneffectiveannualrateof8%.Theeffective-interestmethodofamortizationistobe used.

 a127.Whatamountofdiscount(tothenearestdollar)shouldbeamortizedforthefirstinterest period?

a.$22,542 b.$10,904 c.$14,554 d.$7,277

 a128.Thejournalentryonthe firstinterestpaymentdate,torecordthepaymentofinterestand amortization ofdiscountwillincludea

a.debitto BondInterestExpensefor$48,000. b.creditto Cashfor$55,277.

c.credittoDiscountonBonds Payablefor $7,277. d.debitto BondInterestExpensefor$64,000.

15-20

 a129.Howmuchbond interestexpense(tothenearestdollar) should be reported on theincome statementfortheend of thefirst year?

a.$55,422 b.$55,277 c.$55,131 d.$48,000

 a130.OnJanuary1,JeanLopteinInc.issued$3,000,000,9%bondsfor$2,817,000.The marketrateofinterest forthesebonds is10%.Interestispayableannually onDecember 31.JeanLopteinusestheeffective-interestmethodofamortizingbonddiscount.Atthe end of thefirst year,JeanLopteinshouldreportunamortizedbonddiscountof

a.$164,700. b.$171,300. c.$154,830. d.$153,000.

 a131.OnJanuary1,CleopatraCorporationissued$2,000,000,14%,5-yearbondswithinterest payableonDecember31.Thebondssoldfor$2,144,192.Themarketrateofinterestfor thesebondswas12%.Onthefirstinterestdate,usingtheeffective-interestmethod,the debitentryto BondInterest Expenseisfor

a.$240,000. b.$251,162. c.$257,304. d.$280,000.

 a132.OnJanuary1,HurleyCorporationissues$1,000,000,5-year,12%bondsat96with interestpayableonJuly1andJanuary1.TheentryonDecember31torecordaccrued bondinterestandtheamortizationofbonddiscountusingthestraight-linemethodwill include a

a.debitto Interest Expense,$60,000.b.debittoInterest Expense,$120,000.

c.credittoDiscountonBonds Payable,$4,000. d.creditto DiscountonBonds Payable,$8,000.

 133.     OnJanuary1,2008,$1,000,000,10-year,10%bonds,wereissuedfor$970,000.Interest ispaidannuallyonJanuary1.Iftheissuingcorporationusesthestraight-linemethodto amortize discountonbonds payable,themonthlyamortizationamountis

a.$9,700. b.$3,000. c.$808.d.$250.

 134.     Acorporationissues$100,000,10%,5-yearbondsonJanuary1,2008,for$95,800. InterestispaidannuallyonJanuary1.Ifthecorporationusesthestraight-linemethodof amortizationofbonddiscount,theamountofbondinterestexpensetoberecognizedin December 31, 2008’sadjusting entryis

a.$10,840. b.$10,000. c.$9,160. d.$840.

Long-TermLiabilities     15-21

 a135.RomanCompanyissued $400,000 of6%,5-yearbondsat98,withinterestpaidannually. Assumingstraight-line amortization, whatisthetotalinterestcost ofthe bonds?

a.$120,000 b.$128,000 c.$112,000 d.$116,000

 a136.SunwoodCompanyissued$500,000of6%,5-yearbondsat98,withinterestpaid annually.Assumingstraight-line amortization,whatisthecarryingvalueofthebondsafter one year?

a.$490,000 b.$491,000 c.$492,000 d.$494,000

 a137.TerranceCompanyissued$200,000of8%,5-yearbondsat106.Assumingstraight-line amortizationandannualinterestpayments,howmuchbondinterestexpenseisrecorded on thenext interestdate?

a.$16,000 b.$18,400 c.$13,600 d.$2,400

 a138.GarciaCompanyissued$800,000of8%, 5-yearbondsat106,withinterestpaidannually. Assumingstraight-lineamortization,whatisthecarryingvalueofthebondsafterone year?

a.$848,000 b.$843,200 c.$838,400 d.$852,800

 a139.OnJanuary1,2008,$5,000,000,5-year,10%bonds,wereissuedfor$4,850,000.Interest ispaidsemiannuallyonJanuary1andJuly1.Iftheissuingcorporationusesthestraight-line methodtoamortizediscountonbondspayable,themonthlyamortizationamountis

a.$29,040. b.$30,000. c.$2,420. d.$2,500.

 a140.Acorporationissues$300,000,10%,5-yearbondsonJanuary1,2008for$287,400. Interest ispaidsemiannuallyonJanuary1andJuly1.Ifthecorporation usesthestraight-linemethodofamortizationofbonddiscount,theamountofbondinterestexpensetobe recognized onJuly1, 2008is

a.$31,260. b.$15,000. c.$16,260. d.$13,740.

  a141.Overthetermof thebonds,thebalanceintheDiscountonBonds Payableaccountwill a.fluctuateupanddownif themarketis volatile.

b.decrease. c.increase.

d.be unaffecteduntilthebondsmature.

15-22

 a142.Bonddiscountshouldbeamortizedtocomplywith a.thehistoricalcostprinciple.

b.thematchingprinciple.

c.therevenuerecognitionprinciple. d.conservatism.

  a143.Ifbondshavebeenissued at adiscount,overthe life of thebonds,the a.carryingvalueof thebondswilldecrease.

b.carryingvalueof thebondswill increase.

c.interestexpensewillincrease,ifthediscountisbeingamortizedonastraight-line basis.

d.unamortizeddiscountwill increase.

   Additional MultipleChoiceQuestions

 144.     Themarketvalue(presentvalue) of abondisafunctionofallof thefollowingexceptthe a.dollaramountstobereceived.

b.lengthoftimeuntiltheamounts arereceived. c.marketrate of interest.

d.lengthoftimeuntilthe bondissold.

 145.     Onthedateofissue,ChudzickCorporationsells$2millionof5-yearbondsat97.The entry torecordthesale willincludethefollowingdebitsandcredits:

 Bonds Payable a.$1,940,000Cr. b.$2,000,000Cr. c.$2,000,000Cr. d.$2,000,000Cr.

Discount onBondsPayable $0 Dr.

$60,000Dr. $500,000Dr. $6,000Dr.

 146.     Themarketrateofinterestfora bondissue whichsellsformorethanitsfacevalueis a.independentoftheinterestratestatedonthebond.

b.higherthanthe interestrate statedonthebond. c.equaltotheinterestratestatedonthebond.

d.lessthanthe interestratestatedonthebond.

 147.     Whenacompanyretiresbondsbeforematurity,thegainorlossonredemptionisthe differencebetween thecashpaidandthe

a.carryingvalueof thebonds. b.facevalueof thebonds.

c.originalselling priceofthebonds. d.maturityvalueof thebonds.

 148.     Hoffman Corporationretiresitsbondsat106onJanuary1,followingthepaymentofsemi-annualinterest.Thefacevalueofthebondsis$400,000.Thecarryingvalueofthebonds at theredemptiondateis$419,800.Theentryto recordtheredemptionwillincludea

a.creditof $19,800to LossonBondRedemption. b.debit of $24,000toPremiumonBondsPayable. c.creditof $4,200toGainon BondRedemption.d.debitof $19,800toPremiumon BondsPayable.

Long-TermLiabilities     15-23

 149.     Eachpaymentonamortgagenotepayable consistsof a.interestonthe originalbalance of theloan.

b.reductionof loanprincipalonly.

c.interestontheoriginalbalance of the loanandreduction of loanprincipal. d.interestonthe unpaidbalance ofthe loanandreductionof loanprincipal.

 150.     Whichofthefollowingisnotaconditionunderwhichthelesseemustrecordtheleaseof an asset?

a.The leasecontainsabargainpurchaseoption.

b.The leasetransfers ownershipof thepropertytothelessee.

c.Theleaseterm isequalto 60% of theeconomiclife oftheleaseproperty.

d.Thepresent valueofthelease paymentsis90%ofthefairmarketvalueoftheleased property.

 151.     Thelesseemustrecorda leaseasanassetifthelease a.transfersownershipof thepropertytothelessor.

b.containsapurchaseoption.

c.termis75%ormoreof theusefullifeoftheleasedproperty.

d.paymentsequalorexceed90% ofthefairmarketvalueof the leasedproperty.

 152.     BuffonElectronicsCompanyissuesan$800,000,10%,20-yearmortgagenoteon January1.Thetermsprovideforsemiannualinstallmentpayments,exclusiveofreal estatetaxesandinsurance,of$46,621.Afterthefirstinstallmentpayment,theprincipal balance is

a.$800,000. b.$786,427. c.$793,379. d.$779,125.

 153.     Thedebttototalassetsratioiscomputedbydividing a.long-termliabilities bytotalassets.

b.totaldebtbytotalassets. c.totalassetsbytotal debt.

d.totalassetsbylong-termliabilities.

 a154.Themarketpriceof abond isthe

a.presentvalueofitsprincipalamountatmaturityplusthepresentvalueofallfuture interest payments.

b.principalamount plusthepresentvalueofallfutureinterestpayments. c.principalamount plusallfutureinterestpayments.

d.presentvalueof its principalamountonly.

     BRIEFEXERCISES

BE155

ShafferInc.isconsideringtwo alternativestofinance itsconstructionofanew$5millionplant. (a)Issuanceof 500,000sharesof commonstockatthemarketpriceof $10 per share.

(b)Issuanceof $5million,8%bondsatpar.

 Instructions

Completethefollowingtable.

 Incomebeforeinterestandtaxes

   Issue Stock $1,400,000

   IssueBonds $1,400,000

  Interestexpensefrombonds

 Incomebeforeincometaxes                                         $                                  $

 Incometaxexpense(30%)

 Netincome                                                                  $                $                                  

 Outstandingshares                                                                                         700,000

 Earningspershare

  BE156

 OnJanuary1,2008,BeltwayEnterprisesissued11%,5-yearbondswithafaceamountof $900,000atpar.Interestis payablesemiannuallyonJune30andDecember31.

 Instructions

Preparetheentriestorecordtheissuanceofthebondsandthefirstsemiannualinterest payment.

    BE157

 OnJanuary1,2008,KentwoodCompany issuedbondswith afacevalue of$500,000.Thebonds carryastatedinterestof7% payableeachJanuary1 andJuly1.

 Instructions

 a.     Preparethejournalentryfortheissuanceassumingthebondsareissuedat 97.b.       Preparethejournalentryfortheissuanceassumingthebondsareissuedat 102.

  BE158

 OnJuly1,2008,FrodoCorporationissued$800,000, 6%, 10-yearbondsatfacevalue. Interestis payable semiannuallyon January1 andJuly1.Frodo Corporationhasacalendaryearend.

 Instructions

 Prepareallentriesrelatedtothebond issuefor2008.

    BE159

 OnJanuary1,2008,ZoolandEnterprisessold12%,10-yearbondswithafaceamountof $1,000,000for$970,000.InterestispayablesemiannuallyonJuly1 andJanuary1.

 Instructions

Calculatethecarryingvalue of thebondat December31,2008and2009.

    BE160

 DeltaCompanyissuedbondswithafaceamountof$1,000,000in2003.AsofJanuary1,2008, thebalanceinDiscount onBondsPayableis$4,800.Atthattime,Deltaredeemed thebondsat 102.

 Instructions

 Assumingthatnointerestispayable,maketheentrytorecordtheredemption.

   BE161

 NicholsonInc.issuesan$800,000,10%,10-yearmortgagenoteonDecember31,2008,to obtainfinancingforanewbuilding.Thetermsprovideforsemiannualinstallmentpaymentsof $64,194.

 Instructions

 PreparetheentrytorecordthemortgageloanonDecember31,2008,andthefirstinstallment payment.

   BE162

 FrancoCorporationreportsthefollowingselectedfinancialstatementinformationatDecember 31,2008:

TotalAssets                                              $89,000 TotalLiabilities                                         65,000 NetIncome                                               27,000 InterestIncome                                           1,600 InterestExpense                                           900 TaxExpense                                                 300

 Instructions

Calculatethe debttototalassetsandtimesinterest earnedratios.

   BE163

 OnJanuary1,2008,FabianEnterprisesissued9%,10-yearbondswithafaceamountof $700,000at96. InterestispayablesemiannuallyonJune 30and December31.Thebondswere issued foran effectiveinterestrateof 10%.

 Instructions

Preparetheentriesto recordthe issuanceofthebonds andthefirst semiannualinterestpayment assumingthatthecompanyuseseffective-interestamortization.

  BE164

 OnJanuary1,2008,HalstonEnterprisesissued8%,20-yearbondswithafaceamountof $3,000,000at 101.Interest ispayablesemiannuallyonJune30andDecember31.

 Instructions

 Preparetheentriesto recordthe issuanceofthebonds andthefirst semiannualinterestpayment assumingthatthecompanyusesstraight-line amortization.

   EXERCISES

Ex.165

BanksCompanyisconsideringtwoalternativestofinanceitspurchaseofanew$4,000,000 office building.

(a)Issue400,000sharesof commonstockat $10per share. (b)Issue8%,10-year bondsatpar($4,000,000).

 Incomebefore interestand taxes isexpectedtobe$2,000,000.Thecompanyhasa30%tax rate and has 600,000sharesofcommonstockoutstanding priortothenewfinancing.

 Instructions

Calculateeachofthefollowingforeachalternative: (1)Netincome.

(2)Earningsper share.

Long-TermLiabilities     15-29

  Ex.166

 The board ofdirectorsofFinleyCorporationisconsideringtwoplans forfinancing thepurchase of newplantequipment.Plan#1wouldrequiretheissuanceof$4,000,000,6%,20-yearbondsat facevalue.Plan#2wouldrequiretheissuanceof100,000sharesof$5parvaluecommonstock whichissellingfor$40pershareontheopenmarket.FinleyCorporationcurrentlyhas100,000 sharesofcommonstockoutstandingandtheincometaxrateisexpectedtobe30%.Assume thatincomebeforeinterestandincometaxesisexpectedtobe$700,000ifthenewfactory equipmentispurchased.

 Instructions

 Prepareaschedulewhichshowstheexpectednetincomeaftertaxesandtheearningspershare on commonstockundereach of theplansthattheboardof directorsisconsidering.

   Ex.167

 UnitedHealthisconsideringtwoalternativesforthefinancingofsomehightechnologymedical equipment.Thesetwoalternativesare:

 1.Issue50,000sharesof$10par valuecommonstockat $50pershare. 2.Issue$2,500,000,10%,10-yearbondsat par.

15-30

 Ex.167         (cont.)

 Itisestimatedthatthecompanywillearn$800,000beforeinterestandtaxesasaresultof acquiringthemedicalequipment.Thecompanyhasanestimatedtaxrateof30%andhas 100,000shares of commonstockoutstanding priortothenewfinancing.

 Instructions

Determinethe effectonnet incomeandearningsper shareforthesetwomethodsoffinancing.

    Ex.168

 Threeplansforfinancinga$20,000,000corporationareunderconsiderationbyitsorganizers. Undereachofthe followingplans, thesecurities willbeissuedattheirparorfaceamount andthe incometaxrateisestimated at30%.

    Plan1                     Plan2                     Plan3    

9%Bonds                                                         —                          —                 $10,000,000 6%PreferredStock,$100par                                   —                $10,000,000             5,000,000 CommonStock,$10par                       $20,000,00010,000,000     5,000,000Total                                                     $20,000,000$20,000,000                                 $20,000,000

 Itisestimatedthatincomebeforeinterestandtaxes willbe$4,000,000.

 Instructions

 Determineforeachplan,the expectednet incomeandtheearningspershareoncommonstock.

Long-TermLiabilities     15-31

  Ex.169

 TaylorCorporationissued$3million,10-year,6%bondsonJanuary1, 2008.

 Instructions

Preparetheentrytorecordthesaleof thesebonds, assumingtheywereissuedat (a)98.

(b)103.

    Ex.170

 OnJanuary1,2008,KohlCorporationissued$700,000,8%,10-yearbondsatfacevalue. InterestispayablesemiannuallyonJuly1andJanuary1.KohlCorporationhasacalendaryear end.

 Instructions

Prepareallentriesrelatedtothebond issuefor2008.

  Ex.171

 OnJanuary1, PorterCorporationissued$800,000,6%, 5-yearbondsatfacevalue.Interestis payable semiannuallyon July1 andJanuary1.

 Instructions

Preparejournalentriestorecordthe (a)Issuanceofthebonds.

(b)Paymentof interestonJuly1, assumingnopreviousaccrualofinterest. (c)Accrualof intereston December31.

    Ex.172

 WoodCompanyretired$300,000facevalue, 9%bondsonJune30,2008at 98.Thecarrying value of thebondsattheredemptiondate was$305,000.

 Instructions

Preparethejournalentrytorecordtheredemptionof thebonds.

   Ex.173

 Presentedbelowarethreeindependentsituations:

 (a)HowellCorporationpurchased$250,000ofitsbondsonJune30,2008,at102and immediatelyretiredthem.Thecarryingvalueofthebondsontheretirementdatewas $229,500.ThebondspaysemiannualinterestandtheinterestpaymentdueonJune30, 2008,hasbeenmadeandrecorded.

 (b)Justice,Inc.purchased$200,000ofitsbondsat97onJune30,2008,andimmediately retiredthem.Thecarryingvalueofthebondsontheretirementdatewas$196,500.The bondspaysemiannualinterestandtheinterestpaymentdueonJune30,2008,hasbeen made andrecorded.

 (c)StarrCompanyhas$80,000,10%,12-yearconvertiblebondsoutstanding.Thesebonds weresoldatfacevalueandpaysemiannualinterestonJune30andDecember31ofeach year.Thebondsareconvertibleinto40sharesofStarr$5parvalue commonstockforeach $1,000parvaluebond.OnDecember31,2008,afterthebondinteresthasbeenpaid, $30,000parvalue ofbonds wereconverted.The marketvalueofStarr'scommonstockwas $38pershare onDecember31,2008.

 Instructions

 Foreachoftheindependentsituations,preparethejournalentrytorecordtheretirementor conversion ofthebonds.

   Ex.174

 RileyCompanyissueda$1,500,000,10%,10-yearmortgagenotepayabletofinancethe constructionofabuildingatDecember31,2008.Thetermsprovideforsemiannualinstallment paymentsof$120,365.

 Instructions

Preparetheentrytorecord:

(a)themortgageloanonDecember31,2008. (b)thefirst installmentpayment.

    Ex.175

 DowneyCorporationissuesa$2,000,000,12%,20-yearmortgagenotepayableonDecember 31,2008,toobtain neededfinancingfortheconstructionofa building addition.The terms provide for semiannualinstallmentpaymentsof $132,924onJune30and December31.

 Instructions

 (a)Prepare thejournal entries torecord themortgageloanonDecember 31,2008,andthefirst installment payment.

 (b)Willtheamountofprincipalreductioninthesecondinstallmentpaymentbemoreorless than with thefirst installment payment?

    Ex.176

 PresentedbelowarethreedifferentaircraftleasetransactionsthatoccurredforMidwestAirways in2008.AlltheleasesstartonJanuary1,2008.InnocasedoesMidwestreceivetitletothe aircraftduring oratthe end of theleaseperiod;noristhereabargainpurchaseoption.

                                           Lessor                                                  

   Typeof property Yearlyrental Leaseterm

Estimatedeconomiclife Fairmarketvalueof

leasedasset Presentvalueoflease

rentalpayments

VannoyInsurance

 747Aircraft $7,445,064 15years25years

 $69,300,000

 $63,000,000

MarkLeasing

 727Aircraft $5,449,423 15years25years

 $54,000,000

 $46,000,000

Gregg Leasing

 L-1011Aircraft $2,851,861

20years 25years

 $32,000,000

 $28,000,000

 Instructions

(a)Whichoftheaboveleasesareoperatingleasesandwhicharecapitalleases?Explainyour answer.

(b)Howshouldthe leasetransactionwith VannoyInsuranceberecordedin2008? (c)Howshouldthe leasetransactionwith MarkLeasingberecordedin2008?

    Ex.177

 LeyCorporationenteredintothefollowing transactions:

 1.GantCarRentalleasedacartoLeyCorporationforoneyear.Termsoftheoperatinglease callfor monthlypaymentsof$750.

 2.OnJanuary1,2008,LeyCorporationenteredintoanagreementtolease20machinesfrom WeissCorporation.Thetermsoftheleaseagreementrequireaninitialpaymentof$300,000 andthenthreeannualrentalpaymentsof$360,000beginningonDecember31,2008.The present valueofthethree rentalpaymentsis$895,265.Theleaseisacapitallease.

 Instructions

 Prepare theappropriatejournalentriestobemadebyLeyCorporationinJanuaryrelatedtothe lease transactions.

  Ex.178

 OnJanuary1,2008,RileeInc.enteredintoanagreementtoleaseequipmentfromFinley Corporation.Theleaseagreementrequiresfiveannualrentalpaymentsof$70,000beginning December31,2008.Thepresentvalueoftherentalpaymentsis$265,356.Theleasetransfers substantiallyallthe benefitsandrisksof ownershipto Rilee.

 Instructions

Preparetheentrytorecordtheleaseagreementonthebooksof RileeInc.onJanuary1, 2008.

    Ex.179

 TheadjustedtrialbalanceforPayneCorporationattheendofthecurrentyearcontainedthe followingaccounts:

 Bondspayable,10%............................................................. Bondinterestpayable........................................................... Discountonbondspayable.................................................. Leaseliability........................................................................ Mortgagenotespayable,9%,due2011............................... Accountspayable.................................................................

$800,000 20,000 40,000 60,000 80,000 120,000

 Instructions

(a)Preparethelong-termliabilitiessectionofthebalancesheet.

(b)Indicatetheproperbalancesheetclassificationfortheaccountslistedabovethatdonot belonginthe long-termliabilitiessection.

   Ex.180

 OnJanuary1,2008,QuayleCorporationissued$400,000,9%,5-yearbondsfor$384,556.The bondsweresoldtoyieldaneffective-interestrateof10%.InterestispaidsemiannuallyonJune 30andDecember31.Thecompanyusesthe effective-interestmethodofamortization.

 Instructions

(a)Prepareabonddiscountamortizationschedulewhichshowstheamortizationofdiscountfor the first twointerestpaymentdates.(Roundtothenearestdollar.)

 (b)Prepare the journal entries thatQuayleCorporation wouldmakeonJanuary1,June30,and December31, 2008,relatedtothe bondissue.

  Ex.181

 On June 30, 2008,Wayne,Inc. sold $2,000,000(face value)ofbonds.Thebondsare datedJune 30,2008,payinterestsemiannuallyonDecember31andJune30,andwillmatureonJune30, 2011.Thefollowingschedulewaspreparedbytheaccountantfor2008.

 Semi-Annual Interest Period

 1

Interestto

 bePaid

 $80,000

Interest Expense

 $87,750

 Amortization

 $7,750

Unamortized

Amount

$50,000 42,250

Bond CarryingValue

$1,950,000 1,957,750

 Instructions

Onthebasisof theabove information,answerthefollowingquestions.(Round your answerto the nearest dollar or percent.)

 1.Whatisthestatedinterestrateforthisbondissue?

 2.Whatisthemarketinterestrateforthis bondissue?

 3.Whatwasthesellingpriceof thebondsasapercentageof theface value?

 4.Preparethejournalentrytorecordthesaleof thebondissueonJune30,2008.

 5.Preparethe journalentry torecordthepaymentofinterest and amortizationonDecember31, 2008.

  Ex.182

 OnJanuary1,2008,LesterCorporationissued$2,000,000,9%,5-yearbondsdatedJanuary1, 2008,at96.Thebonds paysemiannualinterestonJanuary 1andJuly1.Thecompany usesthe straight-linemethodof amortizationandhasacalendaryearend.

 Instructions

PrepareallthejournalentriesthatLesterCorporationwouldmakerelatedtothisbondissue throughJanuary1, 2009.Besuretoindicatethe dateonwhichtheentrieswouldbemade.

 Ex.183

 UnruhCompanyissued$900,000,10%,20-yearbondsonJanuary1,2008,at104.Interestis payablesemiannuallyonJuly1andJanuary1.Unruhusesthestraight-linemethodof amortization and hasa calendaryearend.

 Instructions

 Preparealljournalentriesmadein2008relatedto thebondissue.

  Ex.184

 KarlyCompanyissued$250,000,11%,10-yearbondsonDecember31,2008,for$230,000. InterestispayablesemiannuallyonJune30andDecember31.Karlyusesthestraight-line methodofamortizationand hasacalendaryear end.

 Instructions

Preparetheappropriatejournalentrieson (a)         December31,2008.

(b)    June30,2009.

   COMPLETIONSTATEMENTS

 185.Bondsthatmatureatasinglespecifiedfuturedatearecalled                                                   bonds, whereas bondsthatmatureininstallmentsarecalledbonds.

 186.Thetermsofabondissuearesetforthinaformallegaldocumentcalledabond

                                 .

 187.Unsecuredbondsthatareissuedagainstthegeneralcreditoftheborrowerarecalled

                                   bonds.

 188.Ifbondswereissuedatapremium,thenthecontractualinterest ratewas                                            

 thanthemarketinterestrate.

 189.DiscountonBondsPayableis                                                  (from)(to)bondspayableonthe balancesheet.PremiumonBondsPayableis                                     (from)(to)bonds payableonthebalancesheet.

 190.Ifbondsareissuedatfacevalue(par),itindicatesthatthe                                                       interest rate mustbeequaltothe                                               interestrate.

 191.Ifa$1million,10%,10-yearbondissuewassoldat96,thecashproceedsfromthe issuance ofthebondsamountedto$                                                     .

 192.Whenbondsareconvertedintocommonstockandtheconversionisrecorded,the

                                   of thebondsis transferredtopaid-incapitalaccounts.

 193.Aleasemaybeclassifiedasan                                                 leaseorasa                                          

 lease.

 a194.Themarketpriceofabondisobtainedbydiscountingtoitspresentvaluethe

                                                                                                     paidatmaturity,andall                              paymentstobemadeover thetermof thebond.

 a195.Whenthereisa                                            differencebetweenthestraight-lineandeffective-interestmethodsofamortization,the        methodisrequiredunder GAAP.

 a196.Amethodofamortizingbonddiscountorpremiumthatallocatesanequalamounteach period isthe method.

 a197.Thestraight-linemethodofamortizationallocatesthesameamountto                                              

 ineachinterestperiod.

  MATCHING

  198.Matchtheitemsbelowbyenteringtheappropriatecodeletterinthespaceprovided.

 A.Serialbonds

B.Debenturebonds C.Bondindenture

D.Premiumonbondspayable E.Discountonbondspayable

F.Effective-interestmethodofamortization

G.Straight-linemethodofamortization H.Bonds

I.     Debtto totalassetsratio J. Capitallease

K.OperatingleaseL.    Registeredbonds

              1.Acontractualarrangementwhichis ineffecta purchaseofproperty.

             2.A legaldocumentthat setsforththetermsofa bondissue.

             3.Bondsthatmatureininstallments.

           a4.Producesaperiodicinterestexpenseequaltoaconstantpercentageofthecarrying value ofthebonds.

             5.Bondsissuedin thename oftheowner.

             6.Aform ofinterest-bearingnotespayableusedbycorporations.

             7.Occurswhenthecontractualinterestrateisgreaterthanthemarketinterestrate.

             8.Unsecuredbondsissuedagainstthegeneralcredit oftheborrower.

             9.Acontractualarrangementthatgivesthelesseetemporaryuseof property.

           10.Asolvencymeasurethatindicatesthepercentageof assetsprovidedbycreditors.

           11.Occurswhenthecontractualinterestrateis lessthanthemarketinterestrate.

           a12.Producesaperiodicinterest expensethat isthesameamounteachinterest period.

   SHORT-ANSWERESSAYQUESTIONS

S-AE199

Bondsarefrequentlyissuedatamounts greaterorlessthanfacevalue.Describehowthemarket interestrate,relativetothecontractualinterestrate,affectsthesellingpriceofbonds.Also explaintherationaleforrequiringaninvestortopayaccruedinterestwhenabondispurchased between interest paymentdates.

       S-AE200

 Acompanydesirestoreplaceitscurrentplantequipmentwithnewequipmentthatcosts $10,000,000.Onepossibilitywouldbeforthecompanytoissue$10,000,000ofbondsanduse theproceedstopurchasetheequipment.Anotherpossibilityistoacquiretheuseofthe equipmentbysigningalong-termcapitalleasewithaleasingcompany.Describeandcompare the financialstatementeffectsofthesetwoalternatives.

    S-AE201

 Whenabondsellsatadiscount,whatisprobablytrueaboutthemarketinterestrateversusthe stated interestrate?Discuss.

    S-AE202

 Bondsmayberedeemed(retired)beforematuritybytheissuingcorporation.Explainwhya companywoulddecidetoretirebondsbeforematurityandthenecessarystepstorecordthe redemption.

    S-AE203(Ethics)

 JeffWeaver,a26-year-oldentrepreneur,startedBells&Whistles(B&W),Inc.,afirmthat specializesintop-of-the-lineadd-onsforcomputersystems.Thefirmhasacapitalstructureof approximately60%debt.ThiswasnecessitatedbytherapidgrowthofB&W,andMr.Weaver's lackofpersonalfundstosustainthegrowth.The60%debtamountisquitehighforfirmsinthis field,andinfactslightlyexceedsthedebtcovenantsnegotiatedwiththebank.B&Wrecently receivednoticethatthebankconsidersthecompany'sdebttobeexcessive,andthatsome acceleratedrepaymentschedulewillbeadopted.Thenoticecameataparticularlybadtime. B&Wisinthemidstofamajorupgradeofitsowncomputersystem.Thehardwarewastohave been purchasedoutright,financedbytheseller,Mike Bogg,longtimefriendofMr.Weaver.

 Mr.BoggreallyneedsMr.Weaver’sbusiness.Bothbelieveinthelong-termstrengthofB&W.He thereforesuggeststoMr.Weaverthattheequipmentbepurchasedbymeansofashort-term lease.Mr.Weaver couldrenewthe leaseannually.

 Required:

1.Is Mr.Bogg'ssuggestionethical?Explain.

2.IfMr.Weaveracceptsthesuggestion,is hebehavingethically?Explain.

   S-AE204(Communication)

 BettyJonesworksforTrendPress,afairlylargebookpublishingfirm.Herbestfriendandrival, Rita,worksforWaldenBooks,asmallerpublisher.Bothcompaniesissue$100,000inbondson July1.Trend'sbondswereissuedatadiscount,whileWalden'swereissuedatapremium.Rita sentBettyafaxthenextday.ShetoldBettythatitwasobviouswhothebetterpublisherwas— themarkethadshownitspreference!SheremindedBettyagainofherrecentincreaseinsalary asfurtherproofofthesuperiority ofWaldenBooks.

 Required:

 DraftashortnoteforBettytosendto Rita.Explainhowsucharesultcouldoccur.

     CHAPTER16

  INVESTMENTS

  CHAPTERSTUDYOBJECTIVES

 1.Discusswhycorporationsinvestindebtandstocksecurities.

 2.Explaintheaccountingfordebtinvestments.

 3.Explaintheaccountingforstockinvestments.

 4.Describetheuseofconsolidatedfinancialstatements.

 5.Indicatehowdebtandstockinvestmentsarereportedinfinancialstatements.

 6.Distinguishbetweenshort-termandlong-terminvestments.

  TRUE-FALSESTATEMENTS

  1.     Corporationspurchaseinvestmentsindebtorstocksecuritiesgenerallyforoneoftwo reasons.

 2.     Areasonsomecompaniespurchaseinvestmentsisbecausetheygenerateasignificant portion of theirearningsfrom investmentincome.

 3.     Theaccountingforshort-termdebtinvestmentsandforlong-termdebtinvestmentsis similar.

 4.     Forshort-termdebtinvestments,anybondpremiumordiscountisamortizedtointerest revenue over theremainingtermofthebonds.

 5.     Debtinvestmentsareinvestmentsingovernmentandcorporationbonds.

 6.     Inaccordancewiththecostprinciple,brokeragefeesshouldbeaddedtothecostofan investment.

 7.     Inaccordancewiththecostprinciple,thecostofdebtinvestmentsincludesbrokerage feesandaccruedinterest.

 8.     Inaccountingforstockinvestmentsof lessthan20%,the equity methodis used.

 9.     Dividendsreceivedon stock investmentsoflessthan 20%shouldbe creditedtothe Stock Investmentsaccount.

 10.     Ifaninvestor owns between 20%and50%ofaninvestee'scommonstock,itispresumed that the investorhassignificantinfluenceontheinvestee.

 11.     The StockInvestmentsaccountis debitedatacquisitionunderboththe equitymethodand cost methodof accountingfor investmentsincommonstock.

 12.     Undertheequity method, the investmentin commonstockis initiallyrecordedatcost, and the Stock Investments accountisadjustedannually.

 13.     Undertheequity method, thereceiptofdividendsfrom theinvesteecompanyresultsin an increase intheStockInvestmentsaccount.

 14.     Consolidatedfinancialstatementsareappropriatewhenaninvestorcontrolsaninvestee byownershipof morethan50% ofthe investee'scommonstock.

 15.     Consolidatedfinancial statementsare preparedinplace ofthe financialstatementsforthe parent andsubsidiarycompanies.

 16.     Consolidatedfinancialstatementsshouldbepreparedonlywhenasubsidiarycompany has a controllinginterestintheparentcompany.

 17.     Thevaluationofavailable-for-salesecuritiesissimilartotheproceduresfollowedfor tradingsecurities,exceptthatchangesinfairvaluearenotrecognizedincurrentincome.

Investments     16-5

 18.     Anunrealizedgainorlossontradingsecuritiesisreportedasaseparatecomponentof stockholders' equity.

 19.     Foravailable-for-salesecurities,theunrealizedgainorlossaccountiscarriedforwardto future periods.

 20.     Adeclineinthefairvalueofatradingsecurityisrecordedbydebitinganunrealizedloss accountandcreditingtheMarketAdjustmentaccount.

 21.     Ifthefairvalueofanavailable-for-salesecurityexceedsitscost,thesecurityshouldbe writtenup tofairvalueandarealizedgainshouldberecognized.

 22.     TheMarketAdjustmentaccountcanonlyhavea creditbalanceora zero balance.

 23.     Tobeclassifiedasashort-terminvestment,theinvestmentmustbereadilymarketable and intendedtobeconvertedinto cashwithinthenextyearor operatingcycle.

 24.     Aninvestmentisreadilymarketableifit ismanagement'sintenttoselltheinvestment.

 25.     StockstradedontheNewYork StockExchangeare consideredreadilymarketable.

 Additional True-FalseQuestions

 26.     Oneofthereasonsacorporationmaypurchaseinvestmentsisthat it hasexcesscash.

 27.     Whenrecordingbondinterest,InterestReceivableisreportedasafixedassetinthe balance sheet.

 28.     Underthecost method,the investmentisrecordedatcost andrevenueis recognizedonly when cashdividendsarereceived.

 29.     Consolidatedfinancialstatementspresentacondensedversionofthefinancial statements so investorswillnot experienceinformationoverload.

 30.     Available-for-salesecuritiesaresecuritiesboughtandheldprimarilyforsaleinthenear term togenerateincomeonshort-termpricedifferences.

 31.     "Intenttoconvert"doesnotincludeaninvestmentusedasaresourcethatwillbeused whenever theneedfor casharises.

       MULTIPLECHOICEQUESTIONS

  32.     Corporationsinvestexcesscashforshortperiodsof timeineachof thefollowingexcept a.equitysecurities.

b.highlyliquidsecurities. c.low-risksecurities.

d.governmentsecurities.

 33.     Corporationsinvestinother companiesfor allof thefollowingreasonsexceptto a.houseexcesscash untilneeded.

b.generateearnings.c.meetstrategicgoals.

d.increasetradingof theothercompanies’stock.

 34.     A typicalinvestmenttohouseexcesscashuntilneeded is a.stocksof companies inarelatedindustry.

b.debtsecurities.

c.low-risk,highlyliquidsecurities. d.stocksecurities.

 35.     A companymaypurchaseanoncontrollinginterest inanotherfirminarelatedindustry a.tohouseexcesscash until needed.

b.togenerateearnings. c.for strategicreasons.

d.for speculativereasons.

 36.     Pensionfundsandmutualfundsregularlyinvestin debtandstocksecuritiesto a.generateearnings.

b.houseexcesscashuntilneeded. c.meetstrategicgoals.

d.controlthecompanyin whichtheyinvest.

 37.     At thetimeofacquisitionofadebtinvestment, a.no journalentry isrequired.

b.thecostprincipleapplies.

c.theStockInvestments accountisdebitedwhenbondsarepurchased. d.the Investmentaccountiscreditedfor itscostplusbrokeragefees.

 38.     Whichofthefollowingisnot atrue statement regardingshort-termdebtinvestments? a.Thesecuritiesusuallypayinterest.

b.Investmentsarefrequentlygovernmentor corporatebonds.

c.Thistypeofinvestmentmustbecurrentlytradedinthesecuritiesmarket. d.Anybondpremiumordiscount isamortizedtointerestrevenue.

   Usethefollowing informationforquestions39–41.

 OnJanuary1,2008,TurnerCompanypurchasedatfacevalue,a$1,000,7%bondthatpays interest onJanuary1andJuly1.TurnerCompanyhas a calendaryearend.

Investments     16-7

 39.     TheentryforthereceiptofinterestonJuly1, 2008,is

 a.Cash.....................................................................................                    35

 InterestRevenue.........................................................                                      35

 b.Cash.....................................................................................                    70

InterestRevenue.........................................................                                      70

 c.InterestReceivable...............................................................                     35

InterestRevenue.........................................................                                      35

 d.InterestReceivable...............................................................                    70

InterestRevenue.........................................................                                      70

 40.     TheadjustingentryonDecember31,2008,is a.notrequired.

 b.Cash.....................................................................................                    35

InterestRevenue.........................................................                                      35

 c.InterestReceivable...............................................................                     35

InterestRevenue.........................................................                                      35

 d.InterestReceivable...............................................................                    35

 DebtInvestments.........................................................                                      35

 41.     TheentryforthereceiptofinterestonJanuary1,2009is

 a.Cash.....................................................................................                    70

 InterestRevenue.........................................................                                      70

 b.Cash.....................................................................................                    70

InterestReceivable......................................................                                      70

 c.Cash.....................................................................................                    35

InterestRevenue.........................................................                                      35

 d.Cash.....................................................................................                   35

InterestReceivable......................................................                                      35

 42.     OnJanuary1,BaroneCompanypurchasedasashort-terminvestmenta$1,000,8% bondfor$1,050.ThebondpaysinterestonJanuary1andJuly1.Thebondissoldon October1for$1,200plusaccruedinterest.Interesthasnotbeenaccruedsincethelast interestpaymentdate.Whatistheentrytorecordthecashproceedsatthetimethebond issold?

 a.Cash.....................................................................................               1,200

DebtInvestments........................................................                                  1,200

 b.Cash.....................................................................................               1,220

DebtInvestments.........................................................                                 1,050 Gainon Sale of DebtInvestments...............................                                 150 InterestRevenue.........................................................                                   20

 c.Cash.....................................................................................               1,220

DebtInvestments.........................................................                                 1,200 InterestRevenue.........................................................                                   20

 d.Cash.....................................................................................              1,200

DebtInvestments.........................................................                                 1,050 Gainon Sale of DebtInvestments...............................                                 150

16-8        

 43.     Whichofthefollowingisnotatruestatementabouttheaccountingforlong-termdebt investments?

a.The investmentisinitiallyrecordedatcost. b.Thecostincludes anybrokeragefees.

c.Theaccountingforlong-termdebtinvestmentsissimilartotheaccountingforshort-termdebtinvestments.

d.Thecostincludes anyaccruedinterest.

 44.     Thecostof debtinvestmentsincludeseachofthefollowingexcept a.brokeragefees.

b.commissions.

c.accruedinterest. d.thepricepaid.

 45.     Ifa short-termdebtinvestmentis sold,theInvestmentaccountis a.creditedforthebook valueof thebondsatthesaledate.

b.creditedforthecostof thebondsatthe saledate.

c.creditedforthefairvalueof thebondsatthesaledate. d.debitedforthecostof thebondsatthesaledate.

 46.     Anypremiumor discountonalong-termdebtinvestmentisamortized a.tointerestexpense overtheremainingterm ofthebonds.

b.onlyif the effective-interestmethodisused.

c.to interestrevenueovertheremainingtermof thebonds. d.iftheinvestorowns 20%ormoreofthebonds.

 Usethefollowing informationforquestions47–49.

 PimaCompanyacquires50,10%,5year,$1,000CommunitybondsonJanuary1,2008for $51,250.This includesabrokeragecommissionof $1,250.

 47.     Thejournalentrytorecordthis investmentincludesa debitto a.DebtInvestmentsfor$50,000.

b.DebtInvestmentsfor$51,250. c.Cashfor$51,250.

d.StockInvestmentsfor$50,000.

 48.     AssumeCommunitypaysinterestonJanuary1and July1,and theJuly1entry was done correctly.Thejournalentry at December31,2008wouldincludea creditto

a.InterestReceivablefor $2,500. b.InterestRevenuefor$5,000.c.AccruedExpensefor$5,000.d.InterestRevenuefor$2,500.

 49.     IfPimasellsallofitsCommunitybondsfor$52,000andpays$1,500inbrokerage commissions,whatgainor lossis recognized?

a.Gainof $2,000 b.Lossof$750c.Gain of $750d.Gainof $3,000

Investments     16-9

 50.     StevenCo.purchased 30,6%JohnstonCompanybondsfor$30,000cashplusbrokerage feesof$300.InterestispayablesemiannuallyonJuly1andJanuary1.Theentryto recordtheJuly1 semiannualinterestpaymentwouldincludea

a.debitto Interest Receivablefor$900. b.credittoInterest Revenuefor $900.c.credittoInterestRevenuefor $909.d.creditto Debt Investmentsfor$909.

 51.     StevenCo.purchased 30,6%JohnstonCompanybondsfor$30,000cashplusbrokerage feesof$300.InterestispayablesemiannuallyonJuly1andJanuary1.Theentryto recordthe December31interestaccrualwouldinclude a

a.debitto Interest Receivablefor$900. b.debittoInterest Revenuefor $900.c.credittoInterestRevenuefor $909.d.debitto DebtInvestmentsfor $900.

 52.     TolanCo.purchased60,6%IrickCompanybondsfor$60,000cashplusbrokeragefees of$600.InterestispayablesemiannuallyonJuly1andJanuary1.If15ofthesecurities aresoldonJuly1for$31,000less$300brokeragefees,theentrywouldincludeacredit to Gainon Saleof Debt Investmentsfor

a.$1,000. b.$700.c.$1,300. d.$400.

 53.     OnJanuary1,BurkettCompanypurchasedasaninvestmenta$1,000,8%bondfor $1,020.ThebondpaysinterestonJanuary1andJuly1.Whatistheentrytorecordthe interest accrualon December31?

a.InterestReceivable...............................................................                     40

InterestRevenue........................................................                                        40 b.DebtInvestments................................................................              40

InterestRevenue........................................................                                        40 c.InterestReceivable...............................................................              80

InterestRevenue........................................................                                        80 d.DebtInvestments................................................................              80

InterestRevenue........................................................                                        80

 54.     DarnetCorporationsells100sharesofcommonstockbeingheldasaninvestment.The shareswereacquired sixmonthsagoatacostof$30ashare.Darnetsoldtheshares for $40a share.Theentrytorecordthesaleis

a.Cash.....................................................................................               3,000 Losson Saleof StockInvestments.....................................                            1,000

StockInvestments......................................................                                  4,000

 b.StockInvestments...............................................................                4,000

Cash...........................................................................                                  4,000

 c.Cash.....................................................................................               4,000

Gainon Sale of StockInvestments............................                                   1,000 StockInvestments......................................................                                  3,000

 d.Cash.....................................................................................              4,000

StockInvestments......................................................                                  4,000

16-10

 55.     BrowneCorporationsells200sharesofcommonstockbeingheldasaninvestment.The shareswere acquiredsixmonthsagoata costof$50 ashare.Brownesoldthe sharesfor $40a share.Theentrytorecordthesaleis

a.Cash....................................................................................                8,000 Losson Saleof StockInvestments.....................................                            2,000

StockInvestments.....................................................                                 10,000

 b.Cash....................................................................................             10,000

Gainon Sale of StockInvestments............................                                   2,000 StockInvestments.....................................................                                   8,000

 c.Cash....................................................................................                8,000

StockInvestments.....................................................                                   8,000

 d.StockInvestments..............................................................                 8,000 Losson Saleof StockInvestments.....................................                            2,000

Cash...........................................................................                                10,000

   Usethefollowing informationforquestions56–58.

 NagenCompanyhadthesetransactionspertainingto stockinvestments:

 Feb.1         Purchased 2,000sharesofCagneyCompany(10%)for$33,200 cashplusbrokerage feesof$800.

June1         Receivedcashdividends of $2pershareonCagneystock.

Oct.1         Sold800shares of Cagneystockfor $16,000lessbrokeragefeesof$400.

 56.     Theentrytorecordthe purchaseofthe Cagneystockwouldincludea a.debit toStockInvestmentsfor$33,200.

b.creditto Cashfor$33,200.

c.debittoStockInvestmentsfor$34,000. d.debittoInvestmentExpensefor $800.

 57.     Theentrytorecordthereceiptofthedividendson June1wouldincludea a.debit toStockInvestmentsfor$4,000.

b.credittoDividendRevenuefor$4,000. c.debittoDividendRevenuefor$4,000. d.credit to StockInvestmentsfor$4,000.

 58.     Theentrytorecordthe saleof thestockwouldinclude a a.debitto Cashfor $16,000.

b.credittoGainon Saleof StockInvestmentsfor$800. c.debitto StockInvestmentsfor$13,600.

d.credittoGainon Saleof StockInvestmentsfor$2,000.

 59.     MounsCompanyowns40%interestinthestockofDarianCorporation.Duringtheyear, Darianpays$20,000individendstoMouns,andreports$100,000innetincome.Mouns Company’sinvestmentinDarianwillincreaseMouns’net incomeby

a.$20,000. b.$40,000. c.$32,000. d.$8,000.

Investments     16-11

 60.     MounsCompanyowns40%interestinthestockofDarianCorporation.Duringtheyear, Darianpays$25,000individendstoMouns,andreports$100,000innetincome.Mouns Company’sinvestmentinDarianwillincreaseby

a.$25,000. b.$40,000. c.$32,000. d.$15,000.

 61.     OnJanuary1,2008,JonseyCorporationpurchased30%ofthecommonstock outstandingofKarsenCorporationfor$200,000.During2008,KarsenCorporation reportednetincomeof$80,000andpaidcashdividendsof$40,000.Thebalanceofthe StockInvestments—KarsenaccountonthebooksofJonseyCorporationatDecember31, 2008is

a.$200,000. b.$240,000. c.$280,000. d.$212,000.

 62.     DeckerCorporation purchased1,000sharesofKentcommonstockat$70pershareplus $3,000brokeragefeesasashort-terminvestment.Thesharesweresubsequentlysoldat $80pershareless$3,400brokerage fees.Thecostofthesecuritiespurchasedandgain orloss on thesale were

Cost       Gain orLoss a.       $70,000                 $10,000gain b.                   $70,000                   $3,600gain c.                      $73,000                   $7,000gain d.                     $73,000                   $3,600gain

 63.     Inaccountingforstockinvestmentsbetween20%and50%,the                          methodisused. a.consolidatedstatements

b.controllinginterest c.cost

d.equity

 64.     Whenacompanyholdsstockofseveraldifferentcorporations,thegroupofsecuritiesis identifiedas a(n)

a.affiliatedinvestment.b.consolidatedportfolio. c.investmentportfolio.d.controllinginterest.

 65.     JacobsCorporationmakesashort-terminvestmentin100sharesofStarrCompany's commonstock.Thestockispurchasedfor$50ashareplusbrokeragefeesof$300.The entryforthepurchaseis

 a.DebtInvestments.................................................................               5,000 Cash............................................................................                             5,000

 b.StockInvestments................................................................               5,300 Cash............................................................................                             5,300

 c.StockInvestments................................................................               5,000 BrokerageFeeExpense.......................................................            300

Cash............................................................................                                5,300

16-12

  d.StockInvestments...............................................................               5,000

Cash...........................................................................                                  5,000

 66.     DobsonCorporationsells200sharesofcommonstockbeingheldasashort-term investment.Theshareswereacquiredsixmonthsagoatacostof$50ashare.Dobson sold thesharesfor $40ashare.Theentryto recordthesaleis

 a.Cash....................................................................................                8,000 Losson Saleof StockInvestments......................................                           2,000

StockInvestments......................................................                                10,000

 b.Cash....................................................................................             10,000

Gainon Sale of StockInvestments.............................                                  2,000 StockInvestments......................................................                                  8,000

 c.Cash....................................................................................                8,000

StockInvestments......................................................                                  8,000

 d.StockInvestments...............................................................               8,000 Losson Saleof StockInvestments......................................                           2,000

Cash...........................................................................                                10,000

  67.     Foraccountingpurposes,themethodusedtoaccountforlong-terminvestmentsin commonstockisdeterminedby

a.the amountpaidfor thestockbytheinvestor.

b.theextentofaninvestor'sinfluenceontheoperatingandfinancialaffairsofthe investee.

c.whetherthe stockhaspaid dividendsinpast years.

d.whethertheacquisitionof thestockbythe investorwas"friendly"or"hostile."

 68.     Ifaninvestorownslessthan20%ofthecommonstockofanothercorporationasalong-terminvestment,

a.the equitymethodofaccountingforthe investmentshouldbeemployed. b.nodividendscan beexpected.

c.it ispresumedthatthe investorhasrelativelylittleinfluenceontheinvestee. d.it ispresumedthatthe investorhassignificantinfluence ontheinvestee.

 69.     Ifthecostmethodisusedtoaccountforalong-terminvestmentincommonstock, dividends receivedshouldbe

a.creditedtotheStockInvestmentsaccount. b.creditedtotheDividendRevenue account. c.debitedtotheStockInvestmentsaccount.

d.recordedonlywhen20% ormoreofthestockis owned.

 70.     If10%ofthecommonstockofaninvesteecompanyispurchasedasalong-term investment, theappropriatemethodof accountingfortheinvestmentis

a.thecostmethod.b.the equitymethod.

c.thepreparationof consolidatedfinancialstatements.

d.determinedbyagreementwithwhomeverownstheremaining90% ofthestock.

Investments     16-13

 71.     Thecostmethodofaccountingforlong-terminvestmentsinstockshouldbeemployed when the

a.investorownsmorethan50% of the investee'sstock.

b.investorhassignificantinfluenceontheinvesteeandthestockheldbytheinvestor aremarketableequitysecurities.

c.marketvalueof thesharesheldisgreaterthantheirhistoricalcost. d.investor'sinfluenceonthe investeeis insignificant.

 72.     Whenan investorownsbetween20%and 50% ofthecommonstock ofa corporation,itis generallypresumedthatthe investor

a.hasinsignificant influenceontheinvesteeandthatthecost methodshouldbeused to account forthe investment.

b.shouldapplythe costmethodinaccountingforthe investment. c.will prepareconsolidatedfinancialstatements.

d.hassignificantinfluenceontheinvestee and thattheequitymethod should beusedto account forthe investment.

 73.     Undertheequity methodofaccounting forlong-terminvestmentsincommonstock,when a dividendis receivedfromtheinvesteecompany,

a.theDividendRevenueaccount is credited.b.theStockInvestmentsaccountis increased.

c.theStockInvestments accountisdecreased. d.noentryis necessary.

 74.     OnJanuary1,2008,CalisCorporationpurchased25%ofthecommonstockoutstanding ofLaneCorporation for$700,000.During2008,LaneCorporationreportednetincomeof $200,000 andpaidcashdividendsof$100,000.ThebalanceoftheStockInvestments— Lane accountonthebooks of CalisCorporationatDecember31,2008is

a.$700,000. b.$725,000. c.$750,000. d.$675,000.

 75.     Underthe equitymethod,theStockInvestmentsaccountisincreasedwhen the a.investeecompany reportsnetincome.

b.investeecompanypays adividend. c.investeecompanyreportsaloss.d.stockinvestmentissoldat again.

 76.     Theaccount,StockInvestments,is a.asubsidiaryledgeraccount.

b.a long-termliabilityaccount.

c.ageneralledgercontrolaccount.

d.anothernameforDebt Investments.

 77.     Which ofthefollowing wouldnotbeconsideredamotive formakingastockinvestmentin anothercorporation?

a.Appreciationinthemarketvalueofthestock investment b.Useof theinvestmentfor expandingits ownoperations c.Useof the investmenttodiversifyits ownoperations

d.An increaseinthe amountof interestrevenuefromthestockinvestment

16-14

 78.     Revenueisrecognizedwhencashdividendsarereceivedunder a.thecontrollinginterestmethod.

b.thecostmethod.c.the equitymethod.

d.boththecostand equitymethods.

 79.     Whichofthefollowingisthecorrectmatchingconcerninganinvestor'sinfluenceonthe operationsandfinancialaffairsof aninvestee?

 %of InvestorOwnership a.            Lessthan20%

b.         Between20%-50% c.  Morethan50%

d.         Between20%-50%

PresumedInfluence Short-term Significant

Long-term Controlling

  80.     Whichofthefollowingisthecorrectmatchingconcerningtheappropriateaccountingfor long-termstockinvestments?

 %ofInvestorOwnership a. Lessthan20%

b.         Between20%–50% c. Morethan50%

d.         Between20%–50%

AccountingGuidelinesCostmethod

Costmethod

Costor equitymethod Consolidatedfinancialstatements

  81.    If thecost method is usedtoaccountfor along-terminvestmentincommonstock, a.it ispresumedthatthe investorhassignificantinfluence ontheinvestee.

b.theearningofnetincomebytheinvesteeisconsideredaproperbasis forrecognition ofincomebythe investor.

c.netincomeoftheinvestee isnotconsideredearnedby theinvestoruntil dividendsare declared bytheinvestee.

d.theInvestmentaccountmaybe,attimes,greaterthantheacquisitioncost.

 82.     Ifa companyacquiresa40%commonstockinterest in anothercompany, a.theequitymethodisusuallyapplicable.

b.all influenceisclassified ascontrolling. c.thecostmethodisusuallyapplicable.

d.theabilitytoexertsignificantinfluenceovertheactivitiesoftheinvesteedoesnot exist.

 83.     Ifa commonstockinvestmentissoldat again,thegain a.isreportedasoperatingrevenue.

b.isreportedunderaspecialsection,"Discontinuedinvestments,"ontheincome statement.

c.isreportedinthe Other RevenueandGainsectionof theincomestatement. d.contributestogrossprofitontheincomestatement.

 84.     If the equitymethodisbeingused,cashdividendsreceived a.arecreditedtoDividendRevenue.

b.requirenoentrybecauseinvesteenetincomehasalreadybeenrecordedatthe properproportionontheinvestor'sbooks.

c.arecreditedtotheStockInvestmentsaccount.

d.are creditedtotheRevenuefromInvestmentinStockaccount.

Investments     16-15

 85.     If the equitymethodisbeingused,the RevenuefromInvestmentinStockaccountis a.justanothernamefora DividendRevenue account.

b.creditedwhendividends aredeclaredbytheinvestee. c.creditedwhennetincomeisreportedbytheinvestee. d.debitedwhendividendsaredeclaredbytheinvestee.

 86.     Underthe equitymethod,theStockInvestmentsaccountis creditedwhenthe a.investeereportsnetincome.

b.investeereportsanetloss.

c.investmentisoriginallyacquired.

d.investeereportsnetincomeandwhenthe investmentisoriginallyacquired.

 87.     Consolidatedfinancialstatementsarepreparedwhenacompany owns                               ofthe commonstockofanothercompany.

a.lessthan20%

b.between20%and 50% c.lessthan50%

d.morethan50%

 88.     Consolidatedfinancialstatements presentallof thefollowingexceptthe a.individualassetsandliabilities of theparentcompany

b.individualassetsandliabilitiesof thesubsidiary. c.totalrevenuesandexpensesof thesubsidiary.

d.Allof theseare presentedinconsolidatedfinancialstatements.

 89.     Thecompanywhosestockisownedbytheparentcompanyiscalledthe a.controlledcompany.

b.subsidiarycompany. c.investeecompany.d.siblingcompany.

 90.     Acompanythatownsmorethan50%ofthecommonstockofanothercompanyisknown as the

a.chargecompany.

b.subsidiarycompany. c.parentcompany.

d.managementcompany.

 91.     Ifonecompanyownsmorethan50%ofthecommon stock of anothercompany, a.thecostmethodshouldbeusedtoaccountforthe investment.

b.a partnershipexists.

c.a parent-subsidiaryrelationshipexists.

d.thecompanywhosestock isownedmustbeliquidated.

 92.     Ifaparentcompanyhastwowhollyownedsubsidiaries,howmanylegalandeconomic entities aretherefromtheviewpointof theshareholdersof theparentcompany?

 Legal         Economic a.      3                  3

b.      1                   2 c.  3          1 d.      2                   1

16-16

 93.     Whenacompanyownsmorethan50%ofthecommonstockof anothercompany, a.affiliatedfinancial statementsare prepared.

b.consolidatedfinancialstatements areprepared. c.controllingfinancialstatementsareprepared.d.significantfinancialstatementsareprepared.

 94.     Changesfromcostarereportedaspartof netincomefor a.available-for-salesecurities.

b.held-to-maturitysecurities. c.debtsecurities.

d.tradingsecurities.

 95.     Short-terminvestmentsare listedonthebalancesheetimmediatelybelow a.cash.

b.inventory.

c.accountsreceivable. d.prepaidexpenses.

 96.     Short-termstockinvestmentsshouldbevaluedon thebalancesheetat a.thelower of cost orfair value.

b.thehigherofcostor fairvalue. c.cost.

d.fairvalue.

 97.     Inrecognizingadeclineinthefairvalueofshort-termstockinvestments,anunrealized loss accountis debitedbecause

a.managementintendstorealize this loss inthenearfuture. b.thesecuritieshavenot beensold.

c.thestockmarket is volatile.

d.managementcannotdeterminetheexactamountofthe lossinvalue.

 98.     TheMarketAdjustmentaccount

a.issetupforeachsecurityinthecompany'sportfolio.

b.relatestotheentireportfolioofsecuritiesheldbythecompany. c.is closedatthe endof each accountingperiod.

d.appearsontheincomestatementasOtherExpenses andLosses.

 99.     Thecontra-account,MarketAdjustment,isalso calleda(n) a.offsetaccount.

b.adjustmentaccount. c.valuationaccount.d.oppositeaccount.

 100.     Reportinginvestmentsatfairvalueis a.applicableto stocksecuritiesonly. b.applicableto debtsecuritiesonly.

c.applicableto bothdebtandstocksecurities.

d.aconservativeapproachbecauseonlylossesarerecognized.

Investments     16-17

 Usethefollowing informationforquestions101–102.

 GrierCorporation'stradingportfolioattheendof theyearis asfollows:

        Security        

CommonStockA CommonStockB

Cost        

$10,000

   9,000$19,000

MarketValue $12,000

   5,000$17,000

  101.     At theendoftheyear,GrierCorporationshould

a.set upa MarketAdjustmentaccountforStockB.

b.set upa MarketAdjustmentaccountforthe portfolio.

c.recognizeanUnrealizedGainor Loss—Incomefor $4,000.

d.reportalossontheincome statementfor $4,000under"OtherExpensesandLosses."

 102.     GriersubsequentlysellsStockBfor$12,000.Whatentryismadetorecordthesale?

 a.Cash.....................................................................................             12,000

StockInvestments.......................................................                              12,000

 b.Cash.....................................................................................            12,000

MarketAdjustment.......................................................                                3,000 StockInvestments.......................................................                                 9,000

 c.Cash.....................................................................................             12,000

StockInvestments.......................................................                                 9,000 Gainon Sale of StockInvestments.............................                                                       3,000

 d.Cash.....................................................................................            12,000

StockInvestments.......................................................                                 5,000 Gainon Sale of StockInvestments.............................                                                       7,000

 103.     Whichofthefollowingwouldnotbereportedunder"OtherRevenuesandGains"onthe income statement?

a.Unrealizedgainonavailable-for-salesecurities b.Dividendrevenue

c.Interestrevenue

d.Gainonsaleof short-termdebtinvestments

 104.     ThebalanceintheUnrealizedLoss—Equityaccountwill a.appearonthebalancesheetasacontraasset.

b.appearontheincomestatementunderOtherExpensesandLosses. c.appearasadeductioninthestockholders'equitysection.

d.notbeshownonthefinancialstatementsuntilthesecuritiesaresold.

 105.     Ifthecostofanavailable-for-sale securityexceedsitsfairvalueby$40,000,theentryto recognizethe loss

a.isnotrequiredsincethesharepriceswill likelyreboundinthe longrun. b.will showadebitto an expenseaccount.

c.willshowacredittoacontra-assetaccountthatappearsinthestockholders'equity section of thebalancesheet.

d.willshowadebittoanunrealizedlossaccountthatisdeductedinthestockholders' equitysectionof thebalancesheet.

16-18

 106.     Thebalancesheetpresentationofanunrealizedlossonanavailable-for-salesecurityis similar to thestatementpresentationof

a.treasurystock.

b.discountonbondspayable.

c.allowancefor doubtfulaccounts. d.prepaidexpenses.

 Usethefollowing informationforquestions107–108.

 Attheendofitsfirstyear,thetradingsecuritiesportfolioconsistedofthefollowingcommon stocks.

Cost               Market AbleCorporation         $46,400        $50,000 BakerInc.                       60,000            53,800 ColeCorporation          80,00076,000

$186,400         $179,800

 107.     Theunrealizedlosstoberecognizedunderthefair valuemethodis a.$6,200.

b.$10,200. c.$6,600. d.$4,000.

 108.     Inthefollowingyear,theBakercommonstockissoldforcashproceedsof$58,000.The gain orlosstoberecognizedonthesaleisa

a.gainof$4,200. b.lossof$2,000. c.gainof$2,200. d.lossof $400.

 109.     Attheendofthefirstyearofoperations, thetotalcostofthetradingsecuritiesportfoliois $240,000.Totalfair valueis $250,000.Thefinancialstatementsshouldshow

a.anadditiontoanassetof$10,000andarealizedgain of $10,000.

b.anadditiontoanassetof$10,000andanunrealizedgainof$10,000inthe stockholders’ equitysection.

c.anadditiontoanassetof$10,000in thecurrentassetssection andanunrealizedgain of$10,000in―Otherrevenuesandgains.‖

d.anaddition toanassetof$10,000 inthecurrentassetssectionandarealizedgainof $10,000in―Otherrevenuesandgains.‖

 110.     NoellCorp.hascommonstockof$5,000,000,retainedearningsof$3,000,000,unrealized gainsontradingsecuritiesof$100,000andunrealizedlossesonavailable-for-sale securitiesof $200,000.Whatisthetotalamountofitsstockholders’equity?

a.$7,800,000 b.$8,000,000 c.$7,900,000 d.$8,100,000

 111.     Available-for-salesecuritiesareclassifiedas a.short-terminvestmentsonly.

b.long-terminvestmentsonly.

c.eithershort-termor long-terminvestments. d.currentassetsonly.

Investments     16-19

 112.     Whichoneof thefollowing wouldnot beclassifiedasashort-terminvestment? a.Marketablestocksecurities

b.Equitymethod investments c.Marketabledebtsecurities d.Short-termpaper

 113.     Short-terminvestmentsaresecuritiesthatarereadilymarketableandintendedtobe convertedintocashwithinthenext

a.year.

b.twoyears.

c.yearoroperatingcycle,whicheveris shorter. d.yearor operatingcycle,whicheveris longer.

 114.     Whichofthefollowingwouldnot beclassifiedasa short-terminvestment? a.Short-termcommercialpaper

b.Idlecashinabankcheckingaccount c.Marketablestocksecurities

d.Marketabledebtsecurities

 Additional MultipleChoiceQuestions

 115.     Whichofthefollowingreasonsbestexplainswhyacompanythatexperiencesseasonal fluctuationsinsalesmaypurchaseinvestments indebtorstocksecurities?

a.Thecompanymayhaveexcesscash.

b.Thecompanymaygenerateasignificantportionofitsearningsfrominvestment income.

c.Thecompanymayinvestforthestrategicreasonofestablishingapresenceina related industry.

d.Thecompanymayinvestforspeculativereasonstoincreasethevalueinpension funds.

 116.Whenbondsaresold,thegain or lossonsaleis thedifferencebetweenthe a.salespriceandthecost ofthebonds.

b.netproceedsandthecostof thebonds.

c.salespriceandthemarketvalueof thebonds.d.netproceedsandthemarketvalueof thebonds.

 117.Whichofthefollowingisamajordifferencewhenaccountingforlong-termdebt investmentsversusshort-termdebtinvestments?

a.Whensellinglong-terminvestments,nogain or lossisrecognized.

b.Attheendof the year, anyunrealizedgainorlosson long-termdebt investments must be recognizedinthe stockholders'equitysectionof thebalancesheet.

c.Interestrevenueis notrecognizedfor long-terminvestments.

d.Forshort-terminvestments,bondpremiumordiscountisnotamortizedtointerest revenue.

 118.     Underthe equitymethod,theinvestorrecordsdividendsreceivedbycrediting a.DividendRevenue.

b.InvestmentIncome.

c.RevenuefromInvestment. d.StockInvestments.

16-20

 119.     Acompanythatacquireslessthan20%ownershipinterestinanothercompanyshould account forthestockinvestmentinthatcompanyusing

a.thecostmethod.b.the equitymethod.

c.thesignificantmethod.

d.consolidatedfinancialstatements.

 120.     Theequitymethodofaccountingforaninvestmentinthecommonstockofanother companyshouldbeusedbythe investorwhentheinvestment

a.iscomposedof commonstockanditistheinvestor'sintenttovotethecommonstock. b.ensuresasourceofsupplyof rawmaterialsfortheinvestor.

c.enablestheinvestortoexercisesignificantinfluenceovertheinvestee. d.isobtainedbyanexchangeofstockforstock.

 121.     OnJanuary2,MatthewsCorporationacquired20%oftheoutstandingcommonstockof DennehyCompanyfor$450,000.FortheyearendedDecember31,Dennehyreported netincomeof$90,000andpaidcashdividendsof$30,000onitscommonstock.At December31,thecarryingvalueofMatthews'investmentinDennehyundertheequity method is

a.$444,000. b.$450,000. c.$456,000. d.$462,000.

 122.     Anunrealizedlossonavailable-for-salesecuritiesis

a.reportedunderOtherExpensesandLossesinthe incomestatement. b.closed-outat theendoftheaccountingperiod.

c.reportedasaseparatecomponentof stockholders'equity. d.deductedfromthecostoftheinvestment.

 123.     Securitiesboughtandheldprimarilyforsaleintheneartermtogenerateincomeonshort-termpricedifferencesare

a.tradingsecurities.

b.available-for-salesecurities. c.never-sellsecurities.

d.held-to-maturitysecurities.

 124.     Short-terminvestments are

a.(1) readilymarketableand(2) intendedto beconvertedinto cashafterthecurrentyear oroperatingcycle,whicheveris shorter.

b.(1)readilymarketableand(2)intendedtobeconvertedintocashwithinthecurrent yearoroperatingcycle,whicheverislonger.

c.(1) readilymarketableand(2) intendedto beconverted into cashafterthecurrentyear oroperatingcycle,whicheveris longer.

d.(1)readilymarketableand(2)intendedtobeconvertedintocashwithinthecurrent yearoroperatingcycle,whicheverisshorter.

Investments     16-21

 125.     Short-terminvestmentsare securitiesheldbyacompanythat are a.readilymarketable.

b.intendedtobeconvertedintocashwithinthenextyear.

c.readilymarketableandintendedtobeconvertedintocashwithinthenextyearor operatingcycle,whicheveris longer.

d.readilymarketableandintendedtobehelduntilmaturity.

   BRIEFEXERCISES

 BE126

 OnJanuary14,BlackwellCorporationpurchased20,11%,$1,000GoodingCompanybondsfor $20,000,plusbrokeragefeesof$400.OnNovember30,thecompanysold10oftheGooding Companybondsfor$11,000,less$300brokeragefees.Preparejournalentriesforthepurchase and sale oftheGoodingCompanybonds.

   BE127

 OnJanuary2,WestiesCompanypurchased30,10%,$1,000ArkansasCompanybondsfor $31,000cash,plusbrokeragefeesof$1,000.InterestispayablesemiannuallyonJuly1and January1.OnJuly1,thecompanyreceivedasemiannualinterestpaymentontheArkansas Companybonds.Journalizetheentriestorecord thepurchaseofthebonds andthereceiptofthe interest payment.

    BE128

 OnApril25,BraxtonCompanybuys4,200sharesofComputech commonstock for$82,000,plus brokeragefeesof$2,000.OnOctober31,Braxtonsells600sharesofComputechstockfor $15,500,lessbrokeragefeesof$500.Preparejournalentriesforthepurchaseandsaleofthe Computechcommonstock.

   BE129

 OnJanuary1,HillardCorporationpurchaseda40%equityinLewisCompanyfor$360,000.At December31,Lewisdeclaredandpaida$40,000cashdividendandreportednetincomeof $98,000.Preparethenecessaryjournal entriesfor HillardCorporation.

   BE130

 SteinCompanyhadthefollowingtransactionspertaining toitsshort-termstock investments.

 Jan.       1      Purchased600sharesofRiceCompany stockfor$6,700cashplusbrokeragefees of$350.

 June      1      Receivedcashdividendsof $0.50per shareontheRiceCompanystock.

 Sept.15         Sold300shares of theRiceCompanystockfor$3,600lessbrokeragefeesof$200.

 InstructionsJournalizethetransactions.

    BE131

 OnJanuary1,2008,OwenCompanypurchased5,000sharesofJenCompanystockfor $300,000.Owen’sinvestmentrepresents30percentofthetotaloutstandingsharesofJen. During2008,Jenpaidtotaldividendsof$100,000andreportednetincomeof$250,000.What revenuedoesOwen reportrelated tothisinvestmentandwhatistheamount tobereported asan investmentinJenstock at December31?

   BE132

 AtJanuary1,2008,thetradingsecuritiesportfolioheldbytheDarinCorporationconsistedofthe followinginvestments:

 1.2,000shares of Stitchcommonstockpurchasedfor $42pershare. 2.1,500shares of Marvelcommonstockpurchasedfor$50pershare.

 AtDecember31,2008,thefair valuesper sharewereStitch$36andMarvel$54.

   Instructions

(a)Preparea scheduleshowing thecostandfairvalueof theportfolioatDecember 31,2008.

 (b)Preparetheadjustingentrytoreporttheportfolioatfair valueat December31,2008.

    BE133

 AtDecember31,2008,thetradingsecuritiesforCarterCompanyareasfollows:

 Security XY

Cost

$17,000

34,000$51,000

Fair Value $20,000

33,000$53,000

  Preparetheadjustingentry at December31,2008,toreportthesecuritiesatfair value.

   BE134

 AtJanuary1,2008,GulfportCorporationheldone available-for-salesecurity:1,500sharesof Netblaster commonstockpurchasedfor$40pershare.AtDecember31,2008,themarketvalue persharefor Netblasterwas$44.Preparetheadjustingentrytoreporttheportfolioatfairvalueat December 31, 2008.

Investments     16-25

  BE135

 TerraFirmaCompanyhas thefollowingdataat December31, 2008for its securities:

 Securities Available-for-sale Trading

Cost

$35,000 45,000

Fair Value $38,000

40,000

     EXERCISES

 Ex.136

 MilnerCorporationhadthefollowingtransactionspertainingto debtinvestments.

 Jan.1       Purchased80,8%,$1,000VanoyCompanybondsfor$80,000,plusbrokeragefeesof $800.

 July1       Sold20 VanoyCompanybondsfor $24,000,less$400brokeragefees.

 Instructions

Preparejournalentriesfor thepurchaseandsaleof theVanoyCompanybonds.

    Ex.137

 Glaser Companyhadthe followingtransactions pertaining todebtsecuritiesheldasashort-term investment.

 Jan.1       Purchased40,8%,$1,000CotterCompanybondsfor$40,000cashplusbrokerage feesof$800.InterestispayablesemiannuallyonJuly1 andJanuary1.

 July1      Receivedsemiannualintereston CotterCompanybonds.

 Oct.1      Sold30CotterCompanybondsfor$32,000plusaccruedinterestless$500brokerage fees.

 Instructions

 (a)Journalizethetransactions.

 (b)PreparetheadjustingentryfortheaccrualofinterestonDecember31.

    Ex.138

 Thefollowingtransactionswere made byWaite Company.Assumeall investmentsare short-term and arereadilymarketable.

 June    2 July      1 30

Sept.15 Dec.31

31

Purchased300sharesofBeatyCorporationcommonstockfor$45 pershare. Purchased200MengCorporationbondsfor$220,000.

Receivedacashdividendof $2persharefromBeatyCorporation. Sold90shares of BeatyCorporationstockfor$50pershare.

Receivedsemiannualinterestcheckfor$11,000fromMengCorporation.

 Receivedacashdividendof $2persharefromBeatyCorporation.

 InstructionsJournalizethetransactions.

Investments     16-27

  Ex.139

 OnApril1,SmithCompanybuys3,000sharesofThomascommonstockfor$60,000,plus brokeragefeesof$900.OnOctober1,Smithsells1,000sharesofThomasstockfor$23,000, less brokeragefeesof$500.

 Instructions

Preparejournalentriesfor thepurchaseandsaleof theThomas commonstock.

   Ex.140

 StoneCompanyhadthefollowingtransactionspertainingtoshort-terminvestmentsinequity securities.

 Jan.       1

  June      1 Sept.15

Dec.      1

Purchased1,000sharesofRenfroCompanystockfor$9,450cashplusbrokerage feesof $300.

 Receivedcashdividendsof $.50pershareon RenfroCompanystock.

 Sold400 sharesof RenfroCompanystockfor $3,800 lessbrokeragefeesof$100.

 Receivedcashdividendsof $.50pershareon RenfroCompanystock.

 Instructions

(a)Journalizethetransactions.

(b)Indicatetheincomestatementeffectsof thetransactions.

   Ex.141

 StineCorporation'sbalancesheetat December31, 2007,showed thefollowing: Short-term investments,atfair value                                                          $46,500

 StineCorporation'stradingportfolioofstockinvestmentsconsistedofthefollowingatDecember 31,2007:

             Stock                

DooleyCommonStock AdlerPreferredStock GriggsCommonStock

Numberof Shares 200

400 300

Cost

$30,000 6,000

           9,000$45,000

Investments     16-29

 Ex.141         (cont.)

 During2008,thefollowingtransactionstookplace:

 Feb.      5      Sold50shares of Dooleycommonstockfor$8,000.Mar.30             Purchased25sharesofGriggscommonstockfor$950.

Sept.     9      Purchased50sharesofGriggscommonstockfor$2,000.

 Atyearend onDecember31,2008,themarketvaluesper share were:

  DooleyCommonStock AdlerPreferredStock GriggsCommonStock

MarketValuePerShare $158.00

$14.00 $25.00

  Instructions

(a)Preparethejournalentriestorecordthe2008stocktransactions.

(b)OnDecember31,2008,prepareanyadjustingentrythatmightbenecessaryrelativetothe tradingportfolio.

(c)ShowhowthestockinvestmentswillappearonStineCorporation'sbalancesheetat December31, 2008.

    Ex.142

 OnJanuary5,2008,StoreyCompanypurchasedthefollowingstocksecuritiesasalong-term investment:

 300sharesMarksCorporationcommonstockfor$4,200. 500sharesWoodCorporationcommonstockfor$10,000. 600sharesLogenCorporationcommonstockfor$19,800.

 AssumethatStoreyCompanycannotexercisesignificantinfluenceovertheactivitiesofthe investee companies andthatthe costmethodisusedtoaccountforthe investments.

 OnJune30, 2008,StoreyCompany receivedthefollowingcashdividends:

 MarksCorporation........................................ WoodCorporation........................................ LogenCorporation........................................

$2.00pershare $1.00pershare $1.50pershare

  OnNovember15,2008,StoreyCompanysold200sharesofLogenCorporationcommonstock for $7,500.

 OnDecember31,2008,thefair valueof thesecuritiesheldbyStoreyCompanyisasfollows:

  MarksCorporationcommonstock WoodCorporationcommonstock LogenCorporationcommonstock

PerShare $10

16 32

  Instructions

PreparetheappropriatejournalentriesthatStoreyCompanyshouldmakeonthefollowingdates:

 January5,2008 June30,2008 November15,2008 December31, 2008

   Ex.143

 SeelyCompanypurchased42,000sharesofcommonstockofOttoCorporationasalong-term investmentfor$1,000,000.Duringtheyear,OttoCorporationreportednetincomeof$300,000 and paid dividendsof$100,000.

 Instructions

(a)     Assumingthatthe42,000sharesrepresenta15% interestinOttoCorporation: 1.Preparethejournalentrytorecordthe investmentinOtto stock.

2.Prepareanyentriesthat SeelyCompanyshouldmake inaccountingforitsinvestmentin Ottostockduring theyear.

3.What is thebalance of theStockInvestmentsaccounton SeelyCompany'sbooks at the end oftheyear?

 (b)    Repeatrequirement(a)aboveexceptassumethatthe42,000sharesrepresenta25% interestinOtto Corporation.

    Ex.144

 OnJanuary1,NeelyCorporationpurchaseda30%equityinPooleCompanyfor$120,000.At December31,Pooledeclaredandpaida$40,000cashdividendandreportednetincomeof $100,000.

 Instructions

 PreparethenecessaryjournalentriesforNeelyCorporation.

   Ex.145

 Informationpertainingto long-termstockinvestments in2008byTateCorporationfollows:

 Acquired10%ofthe250,000sharesofcommonstockofFriendCompanyatatotalcostof$8 pershareonJanuary1,2008.OnJuly1,FriendCompanydeclaredandpaidacashdividendof $2pershare.OnDecember31,Friend'sreportednet incomewas$654,000forthe year.

Investments     16-33

 Ex.145         (cont.)

 ObtainedsignificantinfluenceoverUnruhCompanybybuying25%ofUnruh's100,000 outstandingsharesofcommonstockatatotalcostof$22pershareonJanuary1,2008.On June15,UnruhCompanydeclaredandpaidacashdividendof$1.50pershare.OnDecember 31,Unruh'sreportednetincomewas$280,000.

 Instructions

Prepareallnecessaryjournalentriesfor2008forTateCorporation.

     Ex.146

 AtDecember31,2008,thetradingsecuritiesforCarterCompanyareasfollows:

 Security AB

Cost

$25,000

46,000$71,000

Fair Value $28,000

40,000$68,000

 Instructions

 Preparetheadjustingentry at December31,2008,toreportthesecuritiesatfair value.

   Ex.147

 RisonCorporationhasthefollowingtradingportfolioofstockinvestmentsasofDecember31, 2008.

 Security A

B C

   Cost

$19,000 22,000

34,000$75,000

Fair Value $16,000

26,000

31,000$73,000

  OnJanuary22, 2009,RisonCorporationsoldsecurityCfor $30,000.

 Instructions

(a)     PreparetheadjustingentryforRisonCorporationonDecember31,2008,toreportthe portfolio at fairvalue.

 (b)    Indicatethebalancesheetandincomestatementpresentationofthefairvaluedatafor RisonCorporationat December31,2008.

 (c)     Preparethejournalentryforthe2009sale.

   Ex.148

 ThefollowinginformationisavailableforClooneyCorporation'savailable-for-salesecuritiesat December31, 2008.

 Security XY

Cost

$35,000

22,000$57,000

Fair Value $33,000

28,000$61,000

  Instructions

Preparetheadjustingentry torecordthesecuritiesatfair valueat December31,2008.

Investments     16-35

  Ex.149

 AtJanuary1,2008,theavailable-for-salesecuritiesportfolioheldbyHoweCorporationconsisted of thefollowinginvestments:

 1.2,500shares of Meller commonstockpurchasedfor $42pershare. 2.1,500shares of Kanecommonstockpurchasedfor $60pershare.

 AtDecember31,2008,themarket valuespersharewere Meller $36and Kane$66.

 Instructions

 (a)Preparea scheduleshowing thecostandfairvalueof theportfolioatDecember 31,2008.

 (b)Preparetheadjustingentrytoreporttheportfolioatfair valueat December31,2008.

    Ex.150

 WeaverCompany hasthefollowingdataat December31,2008for itssecurities.

 SecuritiesTrading

Available-for-sale

Cost

$90,000 75,000

Fair Value $93,000

71,000

 Instructions

(a)     Preparetheadjustingentriestoreportthesecuritiesatfairvalue.

(b)     Indicatethestatementpresentationoftherelatedunrealizedgain(loss)accountsforeach class ofsecurities.

   COMPLETIONSTATEMENTS

  151.Debtinvestmentsareinvestmentsingovernmentand                                        bonds.

 152.Forlong-termdebtinvestments,anybondpremiumor                                            isamortizedto

                               overtheremainingtermof thebonds.

 153.Whenaninvestorownsbetween 20%and50%ofthecommonstockofacorporation,itis generallypresumedthattheinvestorhas                                         influenceovertheinvestee andtherefore,theappropriatemethodofaccountingforthistypeofinvestmentisthe

                               method.

 154.Underthecostmethod,dividendsreceivedfromaninvesteecompany arecreditedtothe

                                                                 account,whereasundertheequitymethod,dividendsreceivedfrom an investeecompanyarecreditedtothe                                            account.

 155.Atthebeginningoftheyear,GrantCorporationacquired15%ofDownsCompany commonstockfor$400,000.DownsCompanyreportednetincomefortheyearof $75,000andpaid$25,000cashdividendsduringtheyear.ThebalanceoftheStock Investments accountonthebooksofGrantCorporationattheendoftheyearshouldbe$           .

 156.Acompanythatownsmorethan50%ofthecommonstockofanothercompanyisknown asthe          companyand                                         financialstatementsareusually prepared.

 157.                                   securitiesareboughtandheldprimarilyfor saleinthenearfuture.

 158.MarketAdjustmentisavaluation                                        accountwhichis                                    

 to(from)thecostof the investments.

 159.At theend of anaccountingperiod,if thefairvalueof thetradingportfolioislessthanits cost, thenthecompanyshouldrecognize an                                             whichis reported onthe

                                  .

 160.AnunrealizedlossontradingsecuritiesisreportedunderOther                                                          

 ontheincomestatement.

 161.Anunrealizedgainorlossonavailable-for-salesecuritiesisreportedasaseparate componentof        .

 162.Short-terminvestmentsaresecuritiesthatare                                        and                                to be convertedintocash withinthenext year.

   MATCHING

  163.     Matchthe itemsbelowbyenteringtheappropriatecodeletter inthespaceprovided.

 A.Available-for-salesecurities B.Subsidiarycompany

C.Equitymethod

D.UnrealizedGainor Loss—Equity E.Fairvalue

F.Consolidatedfinancialstatements G.Controllinginterest

H.MarketAdjustment I.Parentcompany

J.Long-terminvestments

             1.     Valuationallowanceaccount.

           2.     Amountforwhicha securitycouldbesold.

           3.     Ownershipof morethan50% of another company'scommonstock.

           4.     Securitiesthatmaybesold inthefuture.

           5.     Investmentsthatarenotreadilymarketableandnotintendedtobeconvertedinto cash withinthenextyear.

           6.     Financialstatementsthatpresentthetotalassetsandliabilitiescontrolledbythe parent and thetotalrevenuesandexpensesof the subsidiarycompanies.

           7.     TheStockInvestmentsaccountisadjustedfornet incomeanddividendsreceived.

           8.     A companythatownsmorethan50%of thecommon stock of anotherentity.

           9.     Entitywhosestockisowned bytheparentcompany.

 10.     Anaccountthatisreportedinthe stockholders'equity section.

     SHORT-ANSWERESSAYQUESTIONS

S-AE164

TheMarketAdjustmentaccountisabalancesheetaccount.Identifytheassetaccountitis relatedto.Explainhowthisaccountisincreasedanddescribetheprocedurefollowedwhenits related assetaccountisdisposedof.

    S-AE165

 Aconsolidatedbalancesheetreportsthefinancialpositionoftwoormorelegalentitiesjustasif theywereonereportingunit.Explainwhyalltheindividualitemsappearingontheseparate balancesheetsofeachoftheaffiliatedcompaniescannotbeaddedtogethertoarriveata consolidatedtotalfor each item.

    S-AE166

 Whenayear-endadjustmentismadetoreducethetradingsecuritiesportfoliotomarket,what effect,ifany, willthe adjustment haveonthebalancesheetandthe incomestatement?

    S-AE167(Ethics)

 GreyhoundStables,Inc.operatesseveraldogracingtracksthroughouttheUnitedStates.Since mostfacilitiesareoutdoortracksonly,mostofthecashreceiptsforGreyhoundarereceivedfrom AprilthroughOctober.Thesefundsareusuallyinvestedinshort-term,veryliquidinvestments, suchasstocksandbonds.Amongthestockspurchasedlastyear,wasServitronics,acompany specializinginautomaticvendingequipment.

Investments     16-39

 S-AE167(cont.)

 Thecompany decidednottosellitsServitronicsstockattheendoflastyear,andhaspurchased moreofthestockthisyear.Thecompanyintendstocontinuetopurchasestockuntilitholds enoughtomakeatakeoverbidforthecompany.Theaccountantshavebeeninstructedto continuetoclassifytheinvestmentasshort-termuntilthetakeoverisaccomplished,sothatless attention willbedirectedto it. (Presently,Greyhoundhasnolong-terminvestmentinstock at all.)

 Required:

1.IsitethicalforGreyhoundtoattempttotakeoveranothercompany?Explain.

 2.IsitethicalforGreyhoundtoleaveitsinvestmentintheshort-terminvestmentcategory? Explain.

    S-AE168(Communication)

 AnnHarmanisthedaughterofFredHarman,thefounderandpresidentofBigSkyEnterprises. Shehasbeenworkinginvariousdepartmentsduringschoolvacationsthroughouthighschool. Sheburstintotheaccountingdepartmentexcitedlyonemorning.Shesaidthatthestockpriceof severalofthefirm'savailable-for-salesecuritiesareup,andthatherfathersaidthatthecompany hadmade over$10,000becauseofthisjumpinstockprices.Sheasks toseehow theincreaseis recorded.It is a verybusytimein theaccountingdepartment,andsoherquestionisdeferred.

 Required:

 Prepareabriefnoteto answerAnn'squestion.

    CHAPTER17

  THESTATEMENTOFCASHFLOWS

  CHAPTERSTUDYOBJECTIVES

 1.Indicatetheusefulnessofthestatementofcashflows.

 2.Distinguishamongoperating,investing,andfinancingactivities.

 3.Prepareastatementofcashflowsusingtheindirectmethod.

 4.Analyzethestatementofcashflows.

 5.Explainhowtouseaworksheettopreparethestatementofcashflowsusingtheindirectmethod.

 6.Prepareastatementofcashflowsusingthedirectmethod.

    TRUE-FALSESTATEMENTS

 1.     Thestatementofcashflowsisarequiredstatementthatmustbepreparedalongwithan income statement,balancesheet,andretainedearningsstatement.

 2.     Forexternalreporting,acompanymustprepareeitheranincomestatementora statementof cashflows,but notboth.

 3.     Aprimaryobjectiveofthestatementofcashflowsistoshowtheincomeorlosson investingandfinancingtransactions.

 4.     A statementofcashflows indicatesthe sourcesanduses of cashduringaperiod.

 5.     Inpreparingastatementofcashflows,cashequivalentsaresubtractedfrom cashinorder tocomputethenetchangeincashduring a period.

 6.     Cashequivalentsarehighly-liquidinvestmentsthathavematuritiesoflessthanthree months.

 7.     The useofcashtopurchasehighlyliquidshort-terminvestments(cashequivalents)would be reportedonthestatement of cashflowsasaninvestingactivity.

 8.     Inpreparingastatementofcashflows,theissuanceofdebtshouldbereported separately from theretirementof debt.

 9.     Noncashinvestingandfinancingactivitiesmustbereportedinthebodyofastatementof cashflows.

 10.     Thestatementofcashflowsclassifiescashreceiptsandpaymentsasoperating, nonoperating, financial,andextraordinaryactivities.

 11.     Thesaleof landfor cashwouldbeclassifiedasacashinflowfroman investingactivity.

 12.     Cashflowfrominvestingactivitiesisconsideredthemostimportantcategoryonthe statementof cashflowsbecauseit isconsideredthebestmeasureof expectedincome.

 13.     Thereceiptofdividends fromlong-term investments instockisclassified asacashinflow frominvestingactivities.

TheStatementof Cash Flows       17-5

   14.     Thepaymentofinterestonbondspayableisclassifiedasacashoutflowfromoperating activities.

 15.     Anyitemthatappearsontheincomestatementwouldbeconsideredaseitheracash inflowor cashoutflowfromoperatingactivities.

 16.     Theacquisitionofabuildingbyissuingbondswouldbeconsideredaninvestingand financing activity thatdidnot affectcash.

 17.     Allmajorfinancingandinvestingactivitiesaffectcash.

 18.     Cashprovidedbyoperationsisgenerallyequaltooperatingincome.

 19.     Usingtheindirectmethod,anincrease inaccountsreceivable duringaperiod isdeducted fromnetincomeincalculatingcashprovidedbyoperations.

 20.     Usingtheindirectmethod,anincreaseinaccountspayableduringaperiodisdeducted from netincomeincalculatingcashprovidedbyoperations.

 21.     Alossonsaleofequipmentisaddedtonetincomeindeterminingcashprovidedby operationsundertheindirectmethod.

 22.     Inpreparingastatementofcashflows,anincreaseintheCommonStockandTreasury Stockaccountsduringaperiodwouldbe an investingactivity.

 23.     Cashprovidedby operatingactivitiesfailsto take intoaccountthatacompanymust invest in newfixedassetsjusttomaintainits currentlevelofoperations.

 24.     Freecashflowequalscashprovidedbyoperationslesscapitalexpendituresandcash dividends.

 a25.     Theuseof aworksheetto prepareastatementofcashflowsis optional.

 a26.    Duringtheyear,IncomeTaxExpenseamountedto$30,000andIncomeTaxesPayable increasedby$3,000;therefore,thecashpaidforincometaxeswas$27,000.

 a27.     Inpreparingnetcashflowfromoperatingactivitiesusingthedirectmethod,eachitemin theincomestatementisadjustedfromtheaccrualbasistothecashbasis.

 a28.    Usingthedirectmethod,majorclassesofinvestingandfinancingactivitiesarelistedin theoperatingactivitiessection.

 a29.    Duringaperiod,costofgoodssold+anincreaseininventory+anincreaseinaccounts payable =cashpaidtosuppliers.

 a30.     Operatingexpenses+anincreaseinprepaidexpenses–adecreaseinaccrued expensespayable=cashpaymentsfor operatingexpenses.

17-6        

 Additional True-FalseQuestions

 31.     Thestatementofcashflowsclassifiescashreceiptsandcashpaymentsintotwo categories:operatingactivitiesand nonoperatingactivities.

 32.     Financingactivitiesincludetheobtainingofcashfromissuingdebtandrepayingthe amounts borrowed.

 33.     TheadjustedtrialbalanceistheonlyitemneededtopreparetheStatementofCash Flows.

 34.     Undertheindirectmethod,retainedearningsisadjustedforitemsthataffectedreported netincomebutdidnot affect cash.

 a35.    ThereconcilingentryfordepreciationexpenseinaworksheetisacredittoAccumulated DepreciationandadebittoOperating-DepreciationExpense.

 a36.    Underthedirectmethod,theformulaforcomputingcashcollectionsfromcustomersis salesrevenuesplustheincreaseinaccountsreceivableorminusthedecreasein accounts receivable.

     MULTIPLECHOICEQUESTIONS

  37.     Thestatementofcashflowsshouldhelpinvestorsandcreditorsassesseachofthe followingexceptthe

a.entity'sabilitytogeneratefutureincome. b.entity'sabilityto paydividends.

c.reasonsforthedifferencebetweennetincomeandnetcashprovidedbyoperating activities.

d.cashinvestingandfinancingtransactionsduringtheperiod.

 38.     Thestatementof cashflows

a.mustbepreparedona dailybasis.

b.summarizesthe operating,financing,andinvestingactivitiesofanentity. c.is anothernamefortheincomestatement.

d.isaspecialsectionof the incomestatement.

TheStatementof Cash Flows       17-7

 39.     Whichoneofthefollowingitemsisnotgenerallyusedinpreparingastatementofcash flows?

a.Adjustedtrialbalance

b.Comparativebalancesheets c.Currentincomestatementd.Additionalinformation

 40.     Theprimarypurposeofthestatementof cashflows is to

a.provideinformationabouttheinvestingandfinancingactivitiesduringaperiod. b.prove thatrevenuesexceedexpensesifthereis anetincome.

c.provideinformationaboutthecashreceiptsandcashpaymentsduringa period. d.facilitatebanking relationships.

 41.     Ifa companyreportsanet loss,it

a.maystillhavea netincreasein cash. b.willnotbe abletopaycashdividends. c.will not beabletogeta loan.

d.willnotbeable tomakecapitalexpenditures.

 42.     Inadditionto the three basicfinancialstatements,which ofthe following isalso arequired financialstatement?

a.the"CashBudget"

b.theStatementof CashFlows

c.theStatementof CashInflowsandOutflows d.the"CashReconciliation"

 43.     Thestatementof cashflowswillnotreportthe

a.amountof checksoutstanding atthe endof theperiod. b.sourcesofcashinthecurrentperiod.

c.uses of cashin thecurrentperiod.

d.changeinthecash balanceforthecurrentperiod.

 44.     Cashequivalentsdonotinclude a.short-termcorporatenotes. b.treasurybills.

c.moneymarketfunds.

d.2-yearcertificatesofdeposit.

 45.     Whichofthefollowing characteristicsdoesnotapplyto cashequivalents? a.Short-term

b.Highly-liquid

c.Readilyconvertibleintocash

d.Sensitiveto interestratechanges

 46.     Cashequivalentsaregenerally investmentswithmaturitiesof a.$1,000ormore.

b.threemonthsor less. c.atleastsixmonths.

d.oneyearorthe operatingcycle, whicheveris less.

17-8        

 47.     The bestmeasureof acompany'sabilitytogeneratesufficientcashtocontinueasagoing concern is netcashprovidedby

a.financingactivities. b.       investingactivities. c.operatingactivities. d.processingactivities.

 48.     Theacquisitionof landbyissuingcommonstockis

a.a noncashtransactionwhich is notreported inthebodyofastatementofcashflows. b.acashtransactionandwouldbereportedinthebodyof astatementofcashflows.

c.a noncashtransactionandwouldbereportedinthebodyofastatementof cashflows. d.onlyreportedif thestatement of cashflowsisprepared usingthedirectmethod.

 49.     Theorderof presentationofactivitiesonthestatement of cashflowsis a.operating,investing,andfinancing.

b.operating,financing,andinvesting. c.financing, operating,andinvesting. d.financing,investing,andoperating.

 50.     Financingactivitiesinvolve a.lendingmoney.

b.acquiringinvestments. c.issuingdebt.

d.acquiringlong-lived assets.

 51.     Investingactivitiesinclude

a.collecting cash on loansmade. b.obtainingcashfromcreditors. c.obtainingcapitalfromowners.

d.repayingmoneypreviouslyborrowed.

 52.     Generally,themostimportantcategoryonthestatementofcashflowsiscashflowsfrom a.operatingactivities.

b.investingactivities. c.financingactivities.

d.significantnoncash activities.

 53.     Thecategorythat isgenerally consideredtobe thebestmeasure ofacompany'sability to continue asagoingconcernis

a.cashflowsfromoperatingactivities. b.cashflowsfrominvestingactivities. c.cashflowsfromfinancingactivities. d.usuallydifferentfromyear to year.

 54.     Cashreceiptsfrom interestanddividendsareclassifiedas a.financingactivities.

b.investingactivities. c.operatingactivities.

d.eitherfinancingorinvestingactivities.

TheStatementof Cash Flows       17-9

 55.     Eachof thefollowingisanexampleof asignificantnoncashactivityexcept a.conversionofbonds intocommonstock.

b.exchangesof plantassets.

c.issuanceof debtto purchaseassets. d.stockdividends.

 56.     Ifacompanyhasbothaninflowandoutflowofcashrelatedtoproperty,plant,and equipment, the

a.twocasheffectscanbenettedandpresentedasoneitemintheinvestingactivities section.

b.cashinflowandcashoutflowshouldbereportedseparatelyintheinvestingactivities section.

c.twocasheffectscanbenettedandpresentedasoneiteminthefinancingactivities section.

d.cashinflowandcashoutflowshouldbereportedseparatelyinthefinancingactivities section.

 57.     Of theitemsbelow,theonethatappearsfirst onthestatementof cashflows is a.noncashinvesting andfinancingactivities.

b.netincrease(decrease)incash. c.cash attheendof theperiod.

d.cash atthebeginningoftheperiod.

 58.     Whichof thefollowingtransactionsdoesnotaffectcashduring aperiod? a.Write-offofanuncollectibleaccount

b.Collectionofanaccounts receivable c.Saleof treasurystock

d.Exerciseofthecalloptiononbondspayable

 59.    Significantnoncashtransactionswouldnotinclude a.conversionofbonds intocommonstock.b.assetacquisitionthroughbondissuance.

c.treasurystockacquisition. d.exchangeof plantassets.

 60.     Inpreparingastatementofcashflows,aconversionofbondsintocommonstockwillbe reported in

a.thefinancingsection.

b.the"extraordinary"section.

c.a separatescheduleornote tothefinancial statements. d.thestockholders'equitysection.

 Usethefollowing informationforquestions61–64.

 Foreachofthefollowingtransactions,indicatewhere,ifatall,itwouldbeclassifiedonthe statement of cashflows.Assumetheindirectmethodisused.

 61.     Paidincometaxes.

a.Operatingactivitiessection b.Investingactivitiessection c.Financingactivities section

d.Doesnotrepresentacashflow

17-10

 62.     Issuedcommonstockfor cash. a.Operatingactivitiessection b.Investingactivitiessectionc.Financingactivities section

d.Doesnotrepresentacashflow

 63.     Purchasedlandforcash.

a.Operatingactivitiessection b.Investingactivitiessection c.Financingactivities section

d.Doesnotrepresentacashflow

 64.     Purchasedlandandbuildingwithamortgage. a.Operatingactivitiessection

b.Investingactivitiessection c.Financingactivities section

d.Doesnotrepresentacashflow

 Usethefollowing informationforquestions65–66.

 JoyElle’sVegetableMarkethadthefollowingtransactionsduring 2008:

 1.Issued$25,000of par valuecommonstockforcash.

2.Repaida 6yearnotepayableintheamountof$11,000.

3.Acquiredlandbyissuingcommonstockof parvalue$50,000. 4.Declaredandpaidacashdividendof$1,000.

5.Solda long-terminvestment(cost$3,000)forcashof$3,000. 6.Acquiredan investmentinIBMstockforcashof $6,000.

 65.     Whatisthenetcash providedbyfinancingactivities? a.$13,000

b.$25,000 c.$14,000 d.$9,000

 66.     Whatisthenetcash providedbyinvestingactivities? a.$6,000

b.$16,000 c.($3,000) d.$3,000

 67.     MillerCompanypurchasedtreasurystockwithacostof$15,000during2008.Duringthe year,thecompanypaiddividendsof$20,000andissuedbondspayableforproceedsof $816,000.Cashflowsfromfinancingactivitiesfor2008total

a.$796,000net cashinflow. b.$811,000net cashinflow. c.$5,000netcashoutflow. d.$781,000net cashinflow.

TheStatementof Cash Flows       17-11

 68.     ClineCompanyissuedcommonstockforproceedsof$186,000during2008.The companypaiddividendsof$33,000andissuedalong-termnotepayablefor$45,000in exchangeforequipment duringtheyear.Thecompanyalsopurchased treasurystockthat hadacostof$7,000.Thefinancingsectionofthestatementofcashflowswillreportnet cash inflowsof

a.$146,000. b.$202,000. c.$153,000. d.$179,000.

 69.     InGentryCompany,landdecreased$120,000becauseofacashsalefor$120,000,the equipmentaccountincreased$40,000asaresultofacashpurchase,andBonds Payable increased$130,000fromissuanceforcashatfacevalue.Thenetcashprovidedby investingactivities is

a.$120,000. b.$210,000. c.$80,000. d.$90,000.

 70.     Accounts receivablearisingfromsalestocustomersamountedto$80,000and$70,000at thebeginningandendoftheyear,respectively.Incomereported ontheincomestatement fortheyearwas$240,000.Exclusiveoftheeffectofotheradjustments,thecashflows fromoperatingactivitiestobereportedonthestatement of cashflowsis

a.$240,000. b.$250,000. c.$310,000. d.$230,000.

 71.     Accounts receivablearisingfromsalestocustomersamountedto$35,000and$40,000at thebeginningandendoftheyear,respectively.Incomereported ontheincomestatement fortheyearwas$120,000.Exclusiveoftheeffectofotheradjustments,thecashflows fromoperatingactivitiestobereportedonthestatement of cashflowsis

a.$120,000. b.$125,000. c.$155,000. d.$115,000.

 72.     WiltonCompanyreportednetincomeof$40,000fortheyear.Duringtheyear,accounts receivabledecreasedby$7,000,accountspayableincreasedby$3,000anddepreciation expense of $5,000wasrecorded.Netcashprovidedbyoperatingactivitiesfortheyearisa.$30,000.

b.$55,000. c.$39,000. d.$35,000.

 73.     BusterCompanyreportedanetlossof$3,000fortheyearendedDecember31,2008. Duringtheyear,accountsreceivableincreased$7,000, merchandiseinventorydecreased $5,000,accountspayabledecreasedby$10,000,anddepreciationexpenseof$5,000 was recorded.During2007,operatingactivities

a.usednetcashof $10,000. b.usednetcashof $14,000.

c.providednetcash of$14,000. d.providednetcash of$9,000.

17-12

 74.     Thenetincomereportedontheincomestatementforthecurrentyearwas$205,000. Depreciationrecordedonplantassetswas$38,000.Accountsreceivableandinventories increasedby$2,000and$8,000,respectively.Prepaidexpensesandaccountspayable decreasedby$1,000and$11,000respectively.Howmuchcashwasprovidedby operatingactivities?

a.$185,000 b.$223,000 c.$205,000 d.$239,000

 75.     Thenetincomereportedontheincomestatementforthecurrentyearwas$220,000. Depreciationwas $50,000.Accountreceivableand inventoriesdecreasedby $10,000 and $30,000,respectively.Prepaidexpensesandaccountspayableincreased,respectively, by$1,000and$8,000.Howmuchcash wasprovidedbyoperating activities?

a.$281,000 b.$317,000 c.$301,000 d.$309,000

 76.     Ifagainof$10,000isincurredinselling(forcash)officeequipmenthavingabookvalue of$100,000,thetotalamount reportedinthecashflows frominvestingactivitiessectionof thestatementof cashflows is

a.$90,000. b.$110,000. c.$100,000. d.$10,000.

 77.     Ifa lossof $12,500 is incurred inselling(forcash)office equipmenthavinga bookvalueof $50,000,thetotalamountreportedinthecashflowsfrominvestingactivities sectionof the statement of cashflowsis

a.$37,500. b.$50,000. c.$62,500. d.$12,500.

 78.     HarborCompanyreportednetincomeof$60,000 fortheyearended December31,2008. Duringtheyear,inventoriesdecreasedby$12,000,accountspayabledecreasedby $18,000,depreciationexpensewas$20,000andagainondisposalofequipmentof $9,000wasrecorded.Netcashprovidedbyoperating activitiesin2008usingtheindirect methodwas

a.$119,000. b.$65,000. c.$77,000. d.$55,000.

 79.     Thethird(final)stepinpreparingthestatementofcashflowsisto a.analyzechanges innoncurrentassetandliabilityaccounts.

b.comparethenetchangeincashwiththechangeinthecashaccountreportedonthe balance sheet.

c.determinenet cashprovidedbyoperatingactivities. d.listthenoncashactivities.

TheStatementof Cash Flows       17-13

 80.     Whichoneof thefollowingitemsisnot necessaryinpreparinga statementofcashflows? a.Determinethechangeincash

b.Determinethecashprovidedbyoperations

c.Determinecashfromfinancingandinvestingactivities d.Determinethe cashin all bankaccounts

 81.     Ifaccountsreceivablehave increasedduringtheperiod,

a.revenuesonanaccrualbasisarelessthanrevenuesonacashbasis.

b.revenuesonanaccrualbasisaregreaterthanrevenuesonacashbasis. c.revenues onanaccrual basisarethesameasrevenues onacashbasis. d.expensesonanaccrualbasisaregreater thanexpensesonacashbasis.

 82.     Ifaccountspayablehaveincreasedduringaperiod,

a.revenuesonanaccrualbasisarelessthanrevenuesonacashbasis. b.expensesonanaccrualbasisarelessthanexpensesonacashbasis.

c.expensesonanaccrualbasisaregreater thanexpensesonacashbasis. d.expensesonanaccrualbasisarethesameasexpensesonacashbasis.

 83.     Whichoneof thefollowing affectscashduringaperiod? a.Recordingdepreciationexpense

b.Declarationof acashdividend

c.Write-offof anuncollectibleaccountreceivable d.Paymentof anaccountspayable

 84.     Incalculatingcashflowsfromoperatingactivitiesusingtheindirectmethod,againonthe sale ofequipmentis

a.addedtonet income.

b.deductedfrom netincome.

c.ignoredbecauseit doesnotaffectcash.d.notreportedonastatementof cashflows.

 85.     MeyerCompanyreportednetincomeof$50,000fortheyear.Duringtheyear,accounts receivableincreasedby$7,000,accountspayabledecreasedby$3,000anddepreciation expense of $5,000wasrecorded.Netcashprovidedbyoperatingactivitiesfortheyearisa.$45,000.

b.$65,000. c.$49,000. d.$50,000.

 86.     FlynnCompanyreportedanetlossof$20,000fortheyearendedDecember31,2008. Duringtheyear,accountsreceivabledecreased$10,000,merchandiseinventory increased$16,000,accountspayableincreasedby$20,000,anddepreciationexpense of $10,000wasrecorded.During2008,operatingactivities

a.usednetcashof $4,000. b.usednetcashof $16,000.

c.providednetcash of$4,000.d.providednetcash of$16,000.

17-14

 87.     Startingwithnetincomeandadjustingitforitemsthataffectedreportednetincomebut which didnot affect cashis calledthe

a.directmethod.b.indirectmethod.

c.workingcapitalmethod. d.cost-benefitmethod.

 88.     Incalculatingnetcashprovidedbyoperatingactivitiesusingtheindirectmethod,an increase inprepaidexpensesduringaperiodis

a.deductedfromnetincome. b.addedtonetincome.

c.ignoredbecauseit doesnotaffectincome.d.ignoredbecauseitdoesnotaffectexpenses.

 89.     Usingtheindirectmethod,patentamortizationexpenseforthe period a.isdeductedfromnetincome.

b.causescashto increase. c.causescashto decrease. d.is addedtonetincome.

 90.     Indevelopingthecashflowsfromoperatingactivities,mostcompaniesin theU.S. a.use thedirectmethod.

b.usetheindirectmethod.

c.presentboththeindirectanddirectmethodsintheirfinancialreports. d.preparetheoperatingactivitiessectionontheaccrualbasis.

 91.     Eachofthefollowingisaddedtonetincome incomputing netcashprovidedbyoperating activitiesexcept

a.amortizationexpense.

b.an increaseinaccruedexpensespayable. c.a gainon sale of equipment.

d.a decreaseininventory.

 92.     Whichofthefollowingwouldbesubtractedfromnet incomeusingtheindirect method? a.Depreciationexpense

b.An increaseinaccountsreceivable c.An increaseinaccountspayabled.Adecreaseinprepaidexpenses

 93.     Whichofthefollowingwouldbeaddedto netincomeusingthe indirectmethod? a.An increaseinaccountsreceivable

b.Anincreaseinprepaidexpenses c.Depreciationexpense

d.Adecreaseinaccountspayable

 94.     Whichofthefollowingwouldnotbeanadjustmenttonetincomeusingtheindirect method?

a.DepreciationExpense

b.An increaseinPrepaidInsurance c.AmortizationExpense

d.An increaseinLand

TheStatementof Cash Flows       17-15

 95.     Incalculatingcash flowsfromoperatingactivitiesusingtheindirect method,alossonthe sale ofequipmentwill appearasa(n)

a.subtractionfromnetincome. b.additiontonet income.

c.additiontocashflowfrominvestingactivities.

d.subtractionfromcashflowfrominvesting activities.

 96.     Whichofthefollowingadjustmentstoconvertnetincometonetcashprovidedby operatingactivitiesiscorrect?

  a.AccountsReceivable b.PrepaidExpenses

c.Inventory

d.TaxesPayable

Add to NetIncomeincrease increase decrease decrease

DeductfromNetIncome decrease decrease increaseincrease

 97.     Whichofthefollowingadjustmentstoconvertnetincometonetcashprovidedby operatingactivitiesisincorrect?

  a.AccountsReceivable b.PrepaidExpenses

c.Inventory

d.AccountsPayable

Add to NetIncome decrease increase decrease increase

DeductfromNetIncomeincreasedecreaseincreasedecrease

  98.     Whichofthefollowingadjustmentstoconvertnetincometonetcashprovidedby operatingactivitiesis notaddedto net income?

a.GainonSaleofEquipment b.DepreciationExpense

c.PatentAmortizationExpense d.DepletionExpense

 99.     Usingtheindirectmethod,ifequipmentissoldatagain,the

a.saleproceedsreceivedaredeductedinthe operatingactivitiessection. b.saleproceedsreceivedareaddedintheoperatingactivitiessection.

c.amountof thegainisadded intheoperating activitiessection.

d.amountofthegainis deducted intheoperatingactivitiessection.

 100.     Acompanyhadnetincomeof$180,000.Depreciationexpenseis$26,000.Duringthe year,AccountsReceivableandInventoryincreased$15,000and$40,000,respectively. PrepaidExpensesandAccountsPayabledecreased$2,000and$4,000,respectively. Therewasalsoalossonthesaleofequipmentof$3,000.Howmuchcashwasprovided byoperatingactivities?

a.$146,000 b.$152,000 c.$226,000 d.$238,000

 101.     Onthestatementofcashflowsusingthe indirectmethod,patentamortizationexpensewill a.beaddedtonetincomeintheoperatingsection.

b.be deductedfromnetincomeintheoperatingsection. c.appearasaninflowofcashintheinvesting section.d.appearasanoutflowofcashintheinvestingsection.

17-16

 102.     Theindirectanddirectmethodsofpreparingthestatementofcashflowsareidentical exceptforthe

a.significantnoncashactivitysection. b.operatingactivitiessection.

c.investingactivitiessection. d.financingactivitiessection.

 103.     Landacquiredfromtheissuanceofcommonstockisreported a.asafinancingactivity.

b.as aninvestingactivity. c.as anoperating activity.

d.inaseparatescheduleatthebottom ofthestatement.

 104.     If$250,000ofbondsareissuedduringtheyearbut$150,000ofoldbondsareretired during theyear,thestatementof cashflows willshowa(n)

a.netincreaseincashof$100,000. b.netdecreaseincashof$100,000.

c.increaseincash of $250,000 andadecreaseincashof $150,000. d.net gainonretirementof bonds of $100,000.

 105.     Whichof the followingchanges inretainedearningsduring aperiod willbereported in the financing activitiessectionofthe statementof cashflows?

 1.Declarationofacashdividendpaidduringtheperiod. 2.Net incomefortheperiod.

a.1 b.2

c.Neither1nor2. d.Both1and2.

 106.     Thestatementof cashflows

a.ispreparedinsteadofanincomestatementundergenerallyacceptedaccounting principles.

b.isusedtoassessanentity's abilityto paydividendsandmeetobligations. c.ispreparedfromcomparativeincomestatements.

d.reflectsearningspersharefiguresonacashbasisandonanaccrualbasisinthe bodyof thestatement.

 107.     Inpreparingthestatementof cashflows,determiningthenetincreaseor decreaseincash requirestheuseof

a.theadjustedtrialbalance.

b.thecurrentperiod'sbalancesheet. c.acomparativebalancesheet.

d.a comparativeincomestatement.

 108.     Todeterminethenetcashprovided(used)byoperatingactivities,it isnecessarytoanalyze a.thecurrentyear'sincomestatement.

b.a comparativebalancesheet. c.additionalinformation.

d.all ofthese.

TheStatementof Cash Flows       17-17

 109.     Whichofthefollowingwouldnotbeneededtodeterminenetcashprovidedbyoperating activities?

a.Depreciationexpense

b.Changeinaccountsreceivable c.Paymentof cashdividends

d.Changeinprepaidexpenses

 110.     Whenequipmentissoldforcash,the amountreceivedis reflectedasacash a.inflowintheoperatingsection.

b.inflowinthefinancingsection. c.inflowintheinvestingsection. d.outflowintheoperatingsection.

 111.      Thestatementof cashflowswillnotprovideinsightinto a.whydividends werenot increased.

b.whethercashflowis greaterthannet income. c.theexactproceedsof afuturebondissue.

d.howtheretirementof debtwasaccomplished.

 112.     Whichofthefollowingtransactionswouldnotbeclassifiedasafinancingactivity? a.Purchaseoftreasurystock

b.Paymentof dividends

c.Issuanceof bonds ata discount

d.Purchaseofalong-terminvestmentinbonds

 113.     Ameasurethatdescribesthecashremainingfromoperationsafteradjustmentforcapital expendituresand dividendsis

a.adjustedcashfromoperations. b.cashprovidedbyoperations.c.freecashflow.

d.netcashprovided byoperating activities.

 114.     Freecashflowequalscashprovidedby

a.operationslesscapitalexpenditures andcashdividends. b.operationslesscashdividends.

c.investingactivities lesscapitalexpendituresandcashdividends. d.operationslesscapitalexpenditures.

 115.     DV’sPestControlProductshasthefollowinginformationavailable:

 NetIncome

CashProvidedbyOperations CashSales

CapitalExpenditures DividendsPaid

 Whatis DV’sfreecashflow? a.$18,000

$15,000 21,000 65,000 11,000 3,000

 b.$10,000 c.$7,000 d.$1,000

17-18

 a116.Whenlistingaccountsinthestatementofcashflowsworksheet,theaccumulated depreciation accountisshown

a.withaccountsthathavecreditbalances. b.withaccountsthathavedebitbalances. c.as acreditunderthereconcilingitems. d.asadebit underthereconcilingitems.

 a117.Inthebottomportionof the statementof cashflowsworksheet, a.inflows ofcasharedebitsinthereconciling columns.

b.outflowsof casharedebitsinthereconcilingcolumns.

c.informationpertainingtoinvestingandfinancingactivitiesonly isentered. d.onlysignificantnoncashtransactionsareentered.

 a118.Onthe statementof cashflowsworksheet,

a.significant noncashinvestingand financingactivities arenotenteredinthereconciling columns.

b.adecreaseincashwillbeoffsetbyadebitinthereconcilingitemscolumnsatthe bottomoftheworksheet.

c.anincreaseincashwillbeoffsetbyadebitinthereconcilingitemscolumnatthe bottomoftheworksheet.

d.incomestatementaccountsarelistedafterbalancesheetaccountsinthetophalfof theworksheetundertheindirectmethod.

 a119.Eachof thefollowingwouldbereportedunderoperatingactivitiesexceptcashreceipts a.from sales of goods.

b.fromsalesofinvestments. c.of interestonloans.

d.of dividendsfrominvestments.

 a120.Whichofthefollowing statements concerningthestatementof cashflowsistrue?

a.Thestatementof cashflows isusuallymoreaccuratewhenusingtheindirect method. b.Ifthedirectmethodisused,asupplementaryschedulereconciling the netincometoa

netcashfrom operatingactivitiesmuststillbe provided.

c.Thestatementof cashflows reflectsbothearningspershareandcashper share.

d.Thestatementofcashflowsisanoptionalfinancialstatementforexternalreporting purposes.

 a121.CarterCompanyreportsthefollowing:

  Inventory AccountsPayable

End ofYear $25,000

30,000

Beginning of Year $40,000

10,000

 Ifcostofgoodssoldforthe yearis$170,000,theamountof cashpaidtosuppliersis a.$175,000.

b.$165,000. c.$135,000. d.$205,000.

TheStatementof Cash Flows       17-19

 a122.Duringtheyear,SalariesPayabledecreasedby$6,000.IfSalaryExpenseamountedto $190,000fortheyear,thecashpaidtoemployees(includingdeductionsfromgrosspay)is a.$196,000.

b.$190,000. c.$184,000. d.$202,000.

 a123.GaryCompanyreportsa$15,000 increaseininventoryanda$5,000increaseinaccounts payableduringtheyear.CostofGoodsSoldfortheyearwas$180,000.Thecash payments madeto supplierswere

a.$180,000. b.$190,000. c.$160,000. d.$175,000.

 a124.RaderCompanyhadcreditsalesof$600,000. Thebeginningaccountsreceivablebalance was$40,000andtheendingaccountsreceivablebalancewas$140,000.Whatwerethe cash collectionsfromcustomersduringtheperiod?

a.$700,000 b.$600,000 c.$500,000 d.$640,000

 a125.GorenInc.hadcashsalesof$300,000andcreditsalesof$1,150,000.Theaccounts receivablebalanceincreased$15,000duringtheyear.HowmuchcashdidGorenreceive fromits customers duringtheyear?

a.$1,435,000 b.$1,465,000 c.$1,135,000 d.$1,165,000

 a126.StineCompanyhadacostofpurchasesof$220,000.Thecomparativebalancesheet analysisrevealeda$10,000decreaseininventoryanda$20,000increaseinaccounts payable.WhatwereStine'scashpaymentsto suppliers?

a.$200,000 b.$190,000 c.$230,000 d.$250,000

 a127.WayneCompanyhadanincreaseininventoryof$40,000.Thecostofgoodssoldwas $80,000.Therewasa$5,000decreaseinaccountspayablefromthepriorperiod.What wereWayne'scashpaymentstosuppliers?

a.$125,000 b.$75,000c.$115,000 d.$85,000

 a128.Whichofthefollowingitemsdoesnotappearinthestatementofcashflowsunderthe direct method?

a.Cashpaymentstosuppliers

b.Cashcollectionsfromcustomers c.DepreciationExpense

d.Cashfromthesaleof equipment

17-20

 a129.NixonCompanyhasotheroperatingexpensesof$90,000.Therehasbeenadecreasein prepaidexpensesof$4,000duringtheyear,andaccruedliabilitiesare$6,000largerthan in thepriorperiod.WhatwereNixon'scashpaymentsfor operatingexpenses?

a.$92,000 b.$88,000 c.$80,000 d.$90,000

 a130.CarsenCorporationshowsincometaxexpenseof$90,000.Therehasbeena$5,000 decreaseinfederalincometaxespayableanda$7,000increaseinstateincometaxes payable duringtheyear.What wasCarsen'scashpaymentforincometaxes?

a.$90,000 b.$88,000 c.$85,000 d.$92,000

 a131.Whichofthefollowingwouldnotappearintheoperatingactivitiessectionofastatement ofcashflowspreparedunderthedirectmethod?

a.Cashreceiptsfromcustomers b.Cashpaidfor incometaxes

c.Gainonsaleof equipment d.Cashpaidto employees

 a132.Thecostofgoodssoldduringtheyearwas$165,000.Merchandiseinventorydecreased by$6,000duringtheyearandaccountspayabledecreasedby$3,000duringtheyear. Usingthedirectmethodofreportingcashflowsfromoperatingactivities,cashpayments formerchandisetotal

a.$168,000. b.$162,000. c.$156,000. d.$174,000.

 a133.BentCompanyreportsa$20,000increaseininventoryanda$5,000decreasein accountspayableduringtheyear.CostofGoodsSoldfortheyearwas$150,000.Using thedirectmethodofreportingcashflowsfromoperatingactivities,cashpaymentsmade tosupplierswere

a.$150,000. b.$165,000. c.$175,000. d.$135,000.

 a134.During2008,UnruhCompanyhad $160,000incashsalesand$1,400,000increditsales. Theaccounts receivable balances were$180,000 and$212,000atDecember31,2007 and2008,respectively.Usingthedirectmethodofreportingcash flowsfromoperating activities,whatwasthe totalcashcollectedfromallcustomersduring2008?

a.$1,368,000 b.$1,592,000 c.$1,560,000 d.$1,528,000

TheStatementof Cash Flows       17-21

 a135.LoganCompanyhasotheroperatingexpensesof$260,000.Therehasbeenanincrease inprepaidexpensesof$16,000duringtheyear,andaccruedliabilitiesare$24,000lower thaninthepriorperiod.Usingthedirectmethodofreportingcashflowsfromoperating activities,whatwereLogan'scashpaymentsforoperatingexpenses?

a.$248,000 b.$252,000 c.$220,000 d.$300,000

 Additional MultipleChoiceQuestions

 136.     Whichof thefollowing steps isnotrequired inpreparingthestatement of cashflows? a.Determinethechangeincash.

b.Determinethenetcashprovidedbyoperatingactivities. c.Determinecashfrominvestingandfinancingactivities. d.Determinethechangeincurrentassets.

 137.     Financingactivitiesinvolve

a.lendingmoneytootherentitiesandcollectingonthoseloans. b.cash receiptsfromsalesof goodsandservices.

c.acquiringanddisposingof productivelong-livedassets. d.long-termliabilityand owners'equityitems.

 138.     Theinformationtopreparethestatementofcashflowsusuallycomesfromeachofthe followingexcept

a.thecomparativebalancesheet. b.theretainedearningsstatement. c.additionalinformation.

d.thecurrentincomestatement.

 139.     Thestatementof cashflows ispreparedfromallofthefollowing except a.theadjustedtrialbalance.

b.comparativebalancesheets. c.selectedtransactiondata.

d.thecurrentincomestatement.

 140.     Theinformationinastatementofcashflowswillnothelpinvestorstoassesstheentity's abilityto

a.generatefuture cashflows.

b.obtainfavorableborrowingterms at abank. c.paydividends.

d.payits obligations whentheybecomedue.

 141.     Inconvertingnetincometonetcashprovidedbyoperatingactivities,undertheindirect method:

a.decreasesinaccountsreceivable and increasesinprepaidexpensesare added. b.decreasesininventoryandincreasesinaccruedliabilitiesareadded.

c.decreasesinaccountspayableanddecreasesin inventoryarededucted.

d.increasesinaccountsreceivable and increasesin accruedliabilitiesarededucted.

17-22

 142.     IntheFreyfogleCompany,landdecreased$60,000becauseofacashsalefor$60,000, theequipmentaccountincreased$20,000asaresultofacashpurchase,andBonds Payableincreased$70,000fromanissuanceforcashatfacevalue.Thenetcash provided by investingactivities is

a.$60,000.b.$110,000. c.$40,000. d.$50,000.

 a143.CribbetsCompanyusesthedirectmethodindeterminingnetcashprovidedbyoperating activities,Duringtheyear,operatingexpenseswere$260,000,prepaidexpenses increased$20,000,andaccruedexpensespayableincreased$30,000.Cashpayments for operatingexpenseswere

a.$210,000. b.$310,000. c.$270,000. d.$250,000.

 a144.BainbridgeCompanyusesthedirectmethodindeterminingnetcashprovidedby operatingactivities.Theincomestatementshowsincometaxexpense$60,000.Income taxespayablewere$25,000atthebeginningoftheyearand$18,000attheendofthe year.Cashpaymentsforincometaxesare

a.$53,000. b.$60,000. c.$67,000. d.$78,000.

 a145.Whena worksheetisused, all butoneof thefollowingstatementsiscorrect.The incorrect statementis

a.Reconcilingitemsontheworksheetarenotjournalizedor posted.

b.Thebottomportionof theworksheetshowsthestatementof cashflowseffects.

c.Thebalancesheetaccounts portion of the worksheetisdivided intotwo parts:assets, and liabilitiesandstockholders'equity.

d.Eachline pertainingtoabalancesheetaccountshouldfootacross.

      BRIEFEXERCISES

BE146

Selectedtransactionsfor the EldonCompanyarelistedbelow.

 1.Collectedaccountsreceivable.

2.Declaredandpaiddividends oncommonstock. 3.Soldlong-terminvestmentsforcash.

4.Issuedstockforequipment.

5.Repaidfiveyearnotepayable. 6.Paidemployeewages.

7.Convertedbonds payabletocommon stock. 8.Acquiredlong-term investmentwithcash.

9.Soldbuildingsand equipmentforcash. 10.Soldmerchandiseto customers.

 Instructions

 Classifyeachtransactionaseither(a)anoperatingactivity,(b)aninvestingactivity,(c)a financing activity,or(d) a noncashinvestingandfinancingactivity.

    BE147

 BertucciCompanyhadnetincomeof$204,000in2008.Depreciationexpensefortheyearis $45,000.Duringtheyear,AccountsReceivableincreased$9,000andPrepaidExpenses decreased$1,000.The companyalsosoldequipmentatalossof $2,000.

 Instructions

Calculatenet cashflowsfromoperatingactivitiesusingtheindirect method.

    BE148

 During2008,BaxterCompanysoldabuildingwithabookvalueof$145,000forproceedsof $132,000.Thecompanyalsosoldlong-terminvestmentsforproceedsof$45,000.Thecompany purchasedlandandanewbuildingfor$320,000bysigningalong-termnotepayable.Noother transactions impactedlong-term assetaccountsduring2008.

 Instructions

Computenet cashflowsfrom investingactivities.

    BE149

 MoverCompanyissuedcommonstockforproceedsof$14,000during2008.Thecompanypaid dividendsof$2,000.Thecompany alsoissued along-termnotepayable for$30,000inexchange forequipmentduringtheyear.Thecompanysoldtreasurystockthathadacostof$2,000for $4,000.

 Instructions

Computenet cashflowsfromfinancingactivities.

   BE150

 AtJanuary1,2008,BergmanEnterprisesreportedabalanceintheEquipmentaccountof $45,000.Duringtheyearthecompanypurchasedequipmentwithacostof$60,000andsold equipmentwithabookvalueof$30,000.Thecompany reportedalossonthesaleofequipment of$2,000. Assumethe indirectmethodisused.

 Instructions

 Determinewhatamountwillbereportedin(a)theoperatingactivitiessectionand(b)the investingactivitiessection withregardto thepurchaseandsaleof equipment.

      BE151

 Assumetheindirectmethodisusedtocomputecashflowsfromoperations.Foreachitemlisted below,indicatetheeffectonnetincomeinarrivingatcashflowsfromoperationsbychoosingone of thefollowingcodeletters.

CodeCashFlowsFromOperatingActivities

Addto NetIncome                                                     A DeductfromNetIncome                                             D

 1.     Increaseinaccountsreceivable 2.    Increaseininventory

3.     Decreaseinprepaidexpenses 4.        Decreaseinaccountspayable 5.        Increaseinaccruedliabilities

6.     Increaseinincometaxespayable 7.    Depreciationexpense

8.     Losson sale of investment

9.     Gainondisposalof equipment 10.    Amortizationexpense

   BE152

 DuttonCompanypreparedthetabulationbelowat December31,2008.

 NetIncome..............................................................................................................         $275,000

 Adjustmentstoreconcilenet incometonetcashprovidedbyoperatingactivities:

 Depreciationexpense,$25,000......................................................................

 Decreaseinaccountsreceivable,$55,000.....................................................

 Increase ininventory,$12,000.......................................................................

 Decreaseinaccountspayable,$6,600..........................................................

 Increase inincometaxespayable,$1,500.....................................................

 Loss onsaleofland,$5,000...........................................................................

 Netcashprovided(used)byoperatingactivities............................................

 Instructions

 Showhoweachitemshouldbereportedinthestatementofcashflows.Useparenthesesfor deductions.

  BE153

 Daimler Enterprisesreportedcash flowfromoperationsof$342,000. Thecompanymadecapital expendituresof $112,000andpaiddividends of $34,000.

 InstructionsComputefreecashflow.

 BE154

 SchickCompanyreportedcostofgoodssoldof$192,000onits2008incomestatement.The company’sbeginninginventorywas$35,000.Theendinginventorywasvaluedat$40,000.The AccountsPayablebalanceatJanuary1was$25,000.TheDecember31balanceinAccounts Payablewas $22,000.

 Instructions

Computecashpaymentstosuppliers.

   BE155

 HillerCompanyhadtotaloperatingexpensesof$135,000in2008,whichincludedDepreciation Expenseof$25,000.Alsoduring2008,prepaidexpensesdecreasedby$9,000andaccrued expenses increasedby$5,500.

 Instructions

 Calculatetheamountofcashpaymentsforoperatingexpensesin2008usingthedirectmethod.

   EXERCISES

Ex.156

Classifyeach ofthefollowing asa(n):

 A.OperatingActivity B.InvestingActivity C.FinancingActivity

 1Issuanceof bonds. 2.Saleofequipment.

3.Amortizationexpense.

 4.Purchaseof treasurystock.

 5.Receiptof dividendsoninvestment. 6.Purchaseof land.

   Ex.157

 SelectedtransactionsofEllerCompanyare listedbelow.

 1.Commonstockissoldforcashabove parvalue. 2.Bondspayableare issuedforcashatadiscount.

3.Interestreceivable onashort-termnotereceivableis collected. 4.Landis soldfor cashatbookvalue.

5.Accountspayable are paidincash.

6.Equipmentispurchasedbysigninga 3-year,10%notepayable. 7.Cashdividendsoncommonstockaredeclaredandpaid.

8.100sharesof XYZcommon stockarepurchasedforcash. 9.Merchandiseis soldtocustomersforcash.

10.Bondspayableareconvertedinto commonstock.

 Instructions

 Classifyeachtransactionaseither(a)anoperatingactivity,(b)aninvestingactivity,(c)a financing activity,or(d) anoncashinvestingandfinancingactivity.

   Ex.158

 (a)Identifyseveralalternativesforpresentingsignificantnoncashactivitiesinfinancial statements.

 (b)Givethreeexamplesof significantnoncashtransactions.

    Ex.159

 Thefollowinginformationis availableforSniderCompany:

 Receiptsfromcustomers Dividendsfrom stockinvestments Proceedsfrom saleofequipment Proceedsfrom issuanceofstock PaymentsforgoodsPaymentsforoperatingexpenses Interestpaid

Taxespaid Dividendspaid

$180,000 3,000 18,000 90,000 100,000 70,000 5,000 4,000 20,000

  Instructions

Basedonthe precedinginformation,computethenetcashprovided byoperating activities.

   Ex.160

 PierceCompanyreportednetincomeof$200,000forthecurrentyear.Depreciationrecordedon buildingsandequipmentamountedto$80,000fortheyear.Balancesofthecurrentassetand currentliability accountsat thebeginning andend of the year are asfollows:

  Cash Accountsreceivable Inventories

Prepaidexpenses Accountspayable Incometaxes payable

End ofYear $20,000

24,000 50,000 7,500 12,000 1,600

Beginning of Year $15,000

32,000 65,000 5,000 18,000 1,200

 Instructions

Preparethecashflowsfrom theoperatingactivitiessectionofthestatementof cashflowsusing theindirectmethod.

    Ex.161

 NealCompanyreportednetincomeof$120,000.For2008,depreciationwas$30,000,andthe companyreportedagainonsaleofinvestmentsof$10,000.Accountsreceivableincreased $25,000andaccountspayabledecreased$15,000.

 Instructions

 Computenet cashprovidedbyoperatingactivitiesusingtheindirectmethod.

    Ex.162

 Assumingastatementofcashflowsisprepared,indicatethereportingofthetransactionsand eventslistedbelow bymajorcategoriesonthestatement.Usethefollowingcodeletterstoindicate theappropriatecategoryunderwhichtheitemwould appearonthestatementof cashflows.

 CodeCashFlowsFromOperatingActivities

Addto NetIncome                                       A DeductfromNetIncome                              D CashFlowsFromInvestingActivities                IA

CashFlowsFromFinancingActivities                   FA

Category

 1.     Commonstockisissuedforcashat anamountaboveparvalue. 2.   Merchandiseinventoryincreasedduring theperiod.

3.     Depreciationexpenserecordedfortheperiod. 4.        Building waspurchasedforcash.

5.     Bondspayablewereacquiredandretiredattheircarryingvalue. 6.    Accountspayable decreasedduringtheperiod.

7.     Prepaidexpensesdecreasedduringtheperiod. 8.        Treasurystockwasacquiredfor cash.

9.     Landis soldfor cashatanamountequalto bookvalue. 10.    Patentamortizationexpense recordedfor aperiod.

  Ex.163

 AcomparativebalancesheetforLyonCompanyappearsbelow:

 LYONCOMPANY ComparativeBalanceSheet

  AssetsCash

Accountsreceivable Inventory

PrepaidexpensesLong-terminvestments Equipment

Accumulateddepreciation—equipment Totalassets

Dec.31, 2008

 $23,000 18,000 27,000 6,000

-0-60,000

(18,000) $116,000

Dec.31, 2007

 $10,000 14,000 18,000 9,000 18,000 32,000

(14,000) $87,000

  Liabilities and Stockholders'Equity

 Accountspayable Bondspayable Commonstock Retainedearnings

Totalliabilitiesandstockholders'equity

$17,000 37,000 40,000

   22,000$116,000

$7,000 47,000 23,000

10,000$87,000

  Additional information:

1.Netincomeforthe yearendingDecember31,2008was$24,000.2.Cashdividendsof $12,000weredeclaredandpaidduringthe year.

3.Long-terminvestmentsthathadacostof$18,000 weresoldfor$16,000. 4.Salesfor 2008were$120,000.

 Instructions

PrepareastatementofcashflowsfortheyearendedDecember31,2008,usingtheindirect method.

  Ex.164

 AcomparativebalancesheetforJenner Corporationis presentedbelow:

      CashAccountsreceivable (net) Prepaidinsurance

Land Equipment

Accumulateddepreciation TotalAssets

JENNER CORPORATION ComparativeBalanceSheet

  Assets

       2008                      2007    

 $36,000                 $31,000 80,000                  60,000 25,000                  17,000 18,000                 40,000 70,000                  60,000

(20,000)                 (13,000) $209,000 $195,000

  Liabilities and Stockholders'Equity Accountspayable        $11,000 Bondspayable                                                                                   27,000 Commonstock                                                                               140,000 Retainedearnings                                                                                                                   31,000

Totalliabilitiesandstockholders'equity                                     $209,000

 $6,000 19,000 115,000

   55,000$195,000

 Ex

164               (cont.) Additional information:

1.Netlossfor2008is$15,000.

 2.Cashdividendsof $9,000weredeclaredand paidin2008.

 3.Landwassoldforcashatalossof $7,000.Thiswasthe onlylandtransactionduringtheyear.

 4.Equipmentwithacostof$15,000andaccumulateddepreciationof$10,000wassoldfor $5,000cash.

 5.$12,000of bondswereretiredduringtheyearat carrying(book)value.

 6.Equipmentwasacquiredforcommonstock.Thefairmarketvalueofthestockatthetimeof theexchangewas$25,000.

 Instructions

 Prepareastatementofcashflowsfor the yearended2008,usingtheindirect method.

   Ex.165

 ThefollowinginformationisavailableforFryerCorporationfortheyearendedDecember31, 2008:

 Collectionof principalonlong-termloantoasupplier Acquisitionof equipmentforcash

Proceedsfrom thesale of long-terminvestmentatbookvalue Issuanceof commonstockfor cash

Depreciationexpense

Redemptionof bondspayable at carrying(book)value Paymentof cashdividends

Netincome

Purchaseof landbyissuing bondspayable

$15,000 10,000 27,000 20,000 35,000 24,000 14,000 30,000 40,000

  Inaddition, thefollowinginformationisavailablefromthecomparativebalancesheetforFryerat the endof 2007 and2008:

  CashAccountsreceivable (net) Prepaidinsurance

Totalcurrentassets

 Accountspayable SalariespayableTotalcurrentliabilities

   2008    

$87,000 20,000

   17,000$124,000

 $25,000

     4,000$29,000

   2007

$14,000 15,000

13,000$42,000

 $19,000

   7,000$26,000

 Instructions

PrepareFryer'sstatementofcashflowsfortheyearendedDecember31,2008usingtheindirect method.

17-36

  Ex.166

 TrentCompanypreparedthetabulationbelowat December31,2008.

 NetIncome..............................................................................................................         $300,000 Adjustmentstoreconcilenet incometonetcashprovidedbyoperatingactivities:

Depreciationexpense,$35,000...................................................................... Increaseinaccountsreceivable,$60,000...................................................... Decreaseininventory,$13,000...................................................................... Amortizationofpatent,$4,000........................................................................ Increaseinaccountspayable,$5,600............................................................ Decreaseininterestreceivable,$4,000......................................................... Increaseinprepaidexpenses,$6,000............................................................ Decreaseinincometaxespayable,$1,500.................................................... Gainonsaleofland,$5,000........................................................................... Netcashprovided (used)byoperatingactivities............................................

 Instructions

Showhoweachitemshouldbereportedinthestatementofcashflows.Useparenthesesfor deductions.

 Ex.167

 Thefollowinginformationis availableforVisserCorporation:

 Capitalexpenditures Cashdividends

Cashprovidedbyoperations Netincome

Sales

$115,000 65,000 200,000 130,000 500,000

 Instructions

ComputeVisser Corporation'sfreecashflow.

  Ex.168

 LeiterCompanyhasbegunaworksheetforpreparingastatementofcashflows.Thefollowing additionalinformation isprovided:

1.Cashdividendsof$15,000werepaidduringthe year.

2.Landwhichoriginallycost $60,000wassoldfor $55,000. 3.Commonstockwasissuedat par valuefor cash.

 Instructions

Completethe worksheetfor LeiterCompany.

 aEx.168       (cont.)

 LEITERCOMPANY Worksheet

StatementofCashFlows

FortheYearEndedDecember31,2008

  Balance SheetAccountsDebits

Cash Accountsreceivable Inventory

Land Equipment

Total

 Credits Accountspayable Bondspayable

Accumulateddepreciation— equipment

Commonstock Retainedearnings

Total

 Statement ofCashFlows Effects Operatingactivities

Netincome

Balance 12/31/07

 30,000 40,000 90,000 60,000 131,000351,000

  15,000 25,000

 81,000 170,000

60,000351,000

ReconcilingItems Debits    Credits

                   21,000

Balance 12/31/08

 55,000 58,000 110,000

-0-145,000368,000

  12,000 10,000

 95,000 180,000

71,000368,000

   Ex.169

 DolanCompany'sincomestatementshowedrevenuesof$250,000andoperatingexpensesof $160,000.Accountsreceivabledecreasedby$60,000andaccountspayableincreasedby $40,000duringtheyear.

 Instructions

Compute(a)cashreceiptsfromcustomersand(b)cashpayments foroperatingexpensesusing thedirect method.

  Ex.170

 Banner Company hadtotaloperatingexpenses of$140,000in2008,whichincludedDepreciation Expenseof$20,000.Also,during2008,prepaidexpensesincreasedby$5,000andaccrued expenses decreasedby$6,700.

 Instructions

Calculatetheamountofcashpaymentsforoperatingexpensesin2008usingthedirectmethod.

  Ex.171

 Thegeneralledgerof Lopez Companyprovidesthefollowinginformation:

  AccountsReceivable Inventory AccountsPayable

End ofYear $55,000

350,000 40,000

Beginning of Year $94,000

210,000 65,000

 Thecompany'snetsalesfortheyearwas$2,100,000andcostofgoodssoldamountedto $1,500,000.

 InstructionsComputethe following:

(a)     Cashreceiptsfromcustomers. (b)         Cashpaymentstosuppliers.

  Ex.172

 TheincomestatementofRedmanInc.fortheyearendedDecember31,2008,reportedthe following condensedinformation:

 Servicerevenue Operatingexpenses Incomefromoperations IncometaxexpenseNetincome

$600,000

360,000 240,000

   60,000$180,000

  Redman'sbalancesheetcontainedthefollowingcomparativedataat December31:

  Accountsreceivable Accountspayable Incometaxespayable

2008

$50,000 35,000 6,000

2007

$40,000 50,000 3,000

 Redmanhasnodepreciableassets.Accountspayable pertainstooperatingexpenses.

 Instructions

 Preparetheoperatingactivitiessectionof the statementof cashflowsusingthedirectmethod.

   Ex.173

 Theincomestatementof HaslettCompanyis shownbelow:

 HASLETT COMPANY IncomeStatement

FortheYearEndedDecember31,2008

 Sales

Costof goodssold Grossprofit Operatingexpenses

Sellingexpenses Administrativeexpense Depreciationexpense Amortizationexpense

Netincome

     $500,000 700,000 90,000

   30,000

$8,000,000

5,400,000 2,600,000

     1,320,000$1,280,000

 Ex.173         (cont.)

 Additionalinformation:

1.Accountsreceivable increased$500,000duringtheyear. 2.Inventoryincreased$250,000duringtheyear.

3.Prepaidexpensesincreased$200,000duringthe year.

4.Accountspayable tomerchandisesuppliers increased$150,000duringtheyear. 5.Accruedexpensespayableincreased$180,000duringthe year.

 Instructions

Preparetheoperatingactivitiessectionofthestatementofcashflowsfortheyearended December31, 2008,forHaslettCompany,usingthedirectmethod.

  Ex.174

 ThefinancialstatementsofLarkinCompanyappear below:

       Cash Accountsreceivable Merchandiseinventory

Property,plant,andequipment Accumulateddepreciation

Total

LARKINCOMPANY ComparativeBalanceSheet December31

 Assets

        2008                   2007    

 $43,000              $23,000 26,000               34,000 25,000               15,000 50,000               78,000

(20,000)              (24,000) $124,000    $126,000

   Accountspayable Incometaxespayable Bondspayable Commonstock Retainedearnings

Total

Liabilities and Stockholders'Equity

 $17,000 13,000 7,000 41,000

   46,000$124,000

  $23,000 8,000 33,000 24,000

   38,000$126,000

  LARKINCOMPANY Income Statement

FortheYearEndedDecember31,2008

 Sales

Costofgoodssold GrossprofitSellingexpenses

Administrativeexpenses Incomefromoperations Interestexpense Incomebeforeincometaxes Incometaxexpense

Netincome

    $20,000

16,000

$360,000

280,000 80,000

     36,000 44,000

   4,000 40,000

   12,000$28,000

 Thefollowingadditionaldatawereprovided:

1.Dividendsdeclaredandpaidwere$20,000.

2.Duringtheyear,equipmentwassoldfor$12,000cash.Thisequipmentcost$28,000 originallyand hadabook valueof $12,000at thetime of sale.

3.Alldepreciationexpenseis inthesellingexpensecategory. 4.Allsalesandpurchasesareonaccount.

5.Accountspayable pertaintomerchandisesuppliers.

6.Alloperatingexpensesexceptfordepreciationwerepaidincash.

 Instructions

Prepareastatementofcashflowsfor LarkinCompanyusingthedirectmethod.

  Ex.175

 CondensedfinancialdataofStiner Companyappear below:

       Cash Accountsreceivable Inventories

Prepaidexpenses Investments

Plantassets Accumulateddepreciation

Total

STINER COMPANY ComparativeBalanceSheet December31

 Assets

    2008                      2007

 $71,000           $35,000 85,000               53,000 120,000             132,000 19,000               25,000 90,000               75,000 315,000             250,000

(65,000)              (60,000) $635,000$510,000

    Accountspayable Accruedexpensespayable Bondspayable Commonstock Retainedearnings

Total

Liabilities and Stockholders'Equity

 $93,000 29,000 130,000 245,000

138,000$635,000

  $75,000 24,000 160,000 170,000

   81,000$510,000

  STINERCOMPANY Income Statement

FortheYearEndedDecember31,2008

 Sales Less:

Costofgoodssold

Operatingexpenses(excludingdepreciation) Depreciationexpense

Incometaxes Interestexpense

Lossonsaleof plantassets Netincome

   $280,000 60,000 17,000 15,000 18,000

     3,000

$470,000

       393,000$77,000

  Additionalinformation:

1.Newplantassetscosting$90,000werepurchasedfor cashin2008.

2.Oldplantassetscosting$25,000weresoldfor$10,000cashwhenbookvaluewas$13,000. 3.Bondswithafacevalueof $30,000wereconvertedinto$30,000of commonstock.

4.Acashdividendof $20,000wasdeclaredandpaidduringtheyear. 5.Accountspayable pertaintomerchandisepurchases.

 Instructions

 Prepareastatementofcashflowsfor the yearusingthedirectmethod.

  Ex.176

 TheincomestatementforJavierCompanyshowedcostofgoodssoldof$95,000andoperating expensesof$50,000.Thecomparativebalancesheetsfortheyearshowthatinventory decreased$3,000,prepaidexpensesincreased$7,000,accountspayableincreased$4,000,and accrued expensespayable decreased$5,000.

 Instructions

 Compute(a)cashpayments tosuppliersand(b)cashpaymentsforoperatingexpensesusingthe direct method.

  COMPLETIONSTATEMENTS

  177.Astatementofcashflowssummarizestheoperating,                                      ,and activitiesof anentity.

 178.Thecasheffectsofsellinggoodsandservicesappearsinthe                                                 activities section of astatementofcashflows.

 179.Theoperatingactivities sectionofthestatement ofcash flowsmaybepreparedusingthe

                               methodorthe                                 method.

 180.Netincomefromoperationsisgenerallynotthesameascashprovidedfromoperations becauserevenuesandexpensesarerecognizedintheincomestatementonthe

                             basis.

 181.Usingtheindirectapproach,noncashchargesintheincomestatementare

                                                             tonetincomeandnoncashcreditsare                                           tocompute cash providedbyoperations.

 182.Ifaccountsreceivableincreaseduringaperiod,revenuesonanaccrualbasisare

                               thanrevenuesonacashbasis.

 183.Thesaleofequipmentatlessthanitsbookvalueisa(n)                                                 ofcashthatis reported inthe                                                       activitiessection.

 184.Free                                    equalscashprovidedbyoperationslesscapitalexpendituresand cash dividends.

 a185.Underthedirectmethod,noncashcharges,suchasdepreciation,are                                                  

 inthestatementof cashflows.

 a186.Underthedirectmethod,thetwo largestclassesof itemsintheoperating activitiessection foramerchandisingcompanyarecash                                                                         andcash

                                                  .

 a187.Costofgoodssoldfortheyearamountedto$150,000,andduringtheyear,accounts payable                                           by$8,000andinventory                                   by$7,000resulting in cashpaidtosuppliersof$135,000.

 a188.Incomputingcashpaymentsforoperatingexpenses,adecreaseinprepaidexpensesis

                                                           andanincreaseinaccruedexpensespayableis                                              to (from)operatingexpenses,exclusiveof depreciation.

 a189.Incomputingcashpaymentsforincometaxes,adecreaseinincometaxespayableis

                               to(from)incometaxexpense.

   MATCHING

 Set1—IndirectMethod

 190.Foreachofthefollowingitems,indicatebyusingtheappropriate codeletter,howtheitem should be reported inthestatementof cashflows,usingtheindirect method.

 A.    Addedtonetincome

B.    Deductedfromnetincome

C.     Cashoutflow—investingactivity D.        Cashinflow—investingactivity E.    Cash outflow—financingactivity F.    Cash inflow—financingactivity

G.    Significantnoncashinvestingandfinancing activity

  1.Decreaseinaccountspayable duringaperiod

 2.Declarationandpaymentofacashdividend.

 3.Lossonsaleof land.

 4.Decreaseinaccountsreceivable duringaperiod.

 5.Redemptionof bondsforcash.

 6.Proceedsfrom saleofequipmentatbookvalue.

 7.Issuanceof commonstockfor cash.

 8.Purchaseofa buildingfor cash.

 9.Acquisitionof landinexchangeforcommonstock.

 10.Increaseinmerchandiseinventoryduringa period.

    Set2—DirectMethod

  a191.For eachof thefollowingitems, indicatebyusingthe appropriatecode letter, howtheitem should be reported inthestatementof cashflows,usingthedirectmethod.

 A.    Addedindeterminingcashreceiptsfromcustomers

B.    Deductedindeterminingcashreceiptsfromcustomers C.        Addedindeterminingcashpaymentstosuppliers

D.    Deductedindeterminingcashpaymentstosuppliers E.        Cashoutflow—investingactivity

F.     Cashinflow—investingactivityG.    Cash outflow—financingactivity H.    Cash inflow—financingactivity

I.    Significantnoncashinvestingandfinancing activity J.       Isnotshown

  1.Decreaseinaccountspayable duringaperiod.

 2.Declarationandpaymentofa cashdividend.

 3.Decreaseinaccountsreceivable duringaperiod.

 4.Depreciationexpense.

 5.Conversionof bondspayable intocommonstock.

 6.Decreaseinmerchandiseinventoryduringa period.

 7.Saleofequipmentforcashat bookvalue.

 8.Issuanceofpreferredstockfor cash.

 9.Purchaseof landfor cash.

         10.Lossonsale of aplant asset.

     SHORT-ANSWERESSAYQUESTIONS

S-AE192

Thestatementofcashflowsistheonlyrequiredfinancialstatementthatisnotpreparedfroman adjustedtrialbalance.Whatarethesourcesofinformationforpreparingastatementofcash flows? Explainhowtheaccrualbasis of accounting affectsthestatementof cashflows.

    S-AE193

 Cashflowsfromoperatingactivitiescanbecalculatedusingtheindirectordirectmethod.Briefly describehowthetwomethodsdifferyetarriveatthesameinformationaboutthenetcashflows fromoperatingactivities.

    S-AE194

 Howisitpossibleforacompanytosufferanetlossforagivenyear,yetproduceapositivenet cashflowfrom operatingactivities?

  S-AE195(Ethics)

 FlintHillsCompany'smostrecentfinancialstatementsshoweddismalperformance.Therewasa netlossof$10,000andthestatementofcashflowsshowedanetcashdecreaseinall categories.Thecompanypresidentcalledallthemanagerstogetherandaskedthemtodoall theycouldtomakesurethenextquarter'sperformance wasbetter.

 MelLaw,managerofthemanufacturingdivision,soldoffoldmanufacturingequipment.Healso reclassifiedseveralworkerstoparttime(30hoursperweek)andhiredadditionaltemporary workerstotakeuptheslack.Thissavedthecompanymoney,sincepart-timeworkersdonot havethe same insuranceandotherbenefitsasfull-timeworkers.

 JohnReed,financialmanager,immediatelysuspendedpaymentsonallaccountsexceptthose on which interest wouldaccrue.Healsoinstitutedaggressivecollectionprocedures.

 Required:

1.Were MelLaw'sactionsethical?Explain.

2.WereJohnReed'sactionsethical?Explain.

3.Werethecompanypresident's actionsethical?Explain.

    S-AE196(Communication)

 Youaretheaccountant forasmallmanufacturingfirm.Yourcompany isprivatelyheld,sothereis nocurrentrequirementtoissuefinancialstatementsusingGAAP.Youwerehiredfouryearsago, andatthattimeyouinstitutedacashbudgetingsystem.Presently,youpresentascheduleof predictedcashsourcesand cashneedsattheendof eachweekforthefollowingweek.

TheStatementof Cash Flows       17-53

 S-AE196(cont.)

 KenHarmon, thecompany'spresident,hasaskedwhetherastatementofcashflowswouldalso be useful.

 Required:

Preparea shortmemorandumtothepresident indicatingwhether youbelieve suchanadditionto thefinancialstatementstobeuseful.Includeinyourmemothebenefitsthatmightbeexpected fromastatementofcashflowsandwhetherthosearedifferentfromthebenefitsofacash sourcesandcashneedslisting.

    CHAPTER18

  FINANCIALSTATEMENTANALYSIS

  CHAPTERSTUDYOBJECTIVES

  1.Discusstheneedforcomparativeanalysis.

 2.Identifythetoolsoffinancialstatementanalysis.

 3.Explainandapplyhorizontal(trend)analysis.

 4.Describeandapplyverticalanalysis.

 5.Identifyandcomputeratiosusedinanalyzingafirm'sliquidity,profitability,andsolvency.

 6.Understandtheconceptofearningpower,andindicatehowirregularitemsarepresented.

 7.Understandtheconceptofqualityofearnings.

  TRUE-FALSESTATEMENTS

 1.     Intracompanycomparisonsofthesamefinancialstatementitemscanoftendetect changes infinancialrelationships andsignificanttrends.

 2.     Calculatingfinancialratiosisafinancialreportingrequirementundergenerallyaccepted accountingprinciples.

 3.     Measuresofacompany'sliquidityareconcernedwiththefrequencyandamountsof dividend payments.

 4.     Analysisof financialstatementsis enhancedwith theuseof comparativedata.

 5.     Comparisonsofcompanydatawithindustryaveragescanprovidesomeinsightintothe company's relativepositionintheindustry.

 6.     Verticalandhorizontalanalysesareconcernedwiththeformatusedtopreparefinancial statements.

 7.     Horizontal,vertical,andcircularanalysesarethemostcommontoolsoffinancial statementanalysis.

 8.     Horizontalanalysisisatechniqueforevaluatingafinancialstatementiteminthecurrent yearwith otheritemsinthecurrentyear.

 9.     Anothernamefortrendanalysisishorizontalanalysis.

 10.     Ifacompanyhassalesof$110in2008and$154in2009,thepercentageincreasein sales from2008to2009is140%.

 11.     Inhorizontalanalysis,ifanitemhasanegativeamountinthebaseyear,andapositive amount inthefollowingyear,nopercentagechangeforthatitemcanbecomputed.

 12.     Commonsizeanalysisexpresseseachitemwithinafinancialstatementintermsofa percent of a baseamount.

 13.     Verticalanalysisisa moresophisticatedanalyticaltoolthanhorizontal analysis.

 14.     Verticalanalysisisusefulinmakingcomparisonsofcompaniesofdifferentsizes.

 15.     Meaningfulanalysisoffinancialstatementswillincludeeitherhorizontalorvertical analysis,butnotboth.

 16.     Usingvertical analysisoftheincomestatement,acompany'snetincome asapercentage ofnetsalesis10%;therefore,thecostofgoodssoldasapercentageofsalesmustbe 90%.

 17.     Intheverticalanalysisoftheincomestatement,eachitemisgenerallystatedasa percentage of net income.

 18.     A ratiocanbeexpressedasapercentage,arate,oraproportion.

 19.     Asolvencyratiomeasurestheincomeoroperatingsuccessofanenterpriseforagiven period of time.

 20.     Thecurrentratiois ameasure of alltheratioscalculatedforthe currentyear.

 21.     Inventoryturnovermeasuresthenumberoftimesontheaveragetheinventorywassold during theperiod.

 22.     Profitabilityratiosarefrequentlyusedasabasisforevaluatingmanagement'soperating effectiveness.

 23.     Therateofreturnontotalassetswillbegreaterthantherateofreturnoncommon stockholders' equity ifthe companyhas beensuccessful intrading ontheequityat again.

 24.     Fromacreditor's pointofview,thehigherthetotaldebttototalassetsratio,thelowerthe risk that thecompanymaybeunableto payits obligations.

 25.     Acurrentratioof1.2to1indicatesthatacompany'scurrentassetsexceeditscurrent liabilities.

 26.     Usingborrowedmoneytoincreasetherateofreturnoncommonstockholders'equityis called "tradingontheequity."

 27.     Whenthedisposalofasignificantsegmentoccurs,theincomestatementshouldreport both incomefromcontinuingoperationsandincome(loss)fromdiscontinuedoperations.

 28.     Aneventortransactionshouldbeclassifiedasanextraordinaryitemifitisunusualin nature orifit occurs infrequently.

 29.     Variationsamongcompaniesintheapplicationofgenerallyacceptedaccounting principles mayreducequalityofearnings.

 30.     Proformaincomeusuallyexcludesitemsthatthecompanythinksareunusualor nonrecurring.

   Additional True-FalseQuestions

 31.     Thethreebasictoolsofanalysisarehorizontalanalysis,verticalanalysis,andratio analysis.

 32.     A percentagechangecan becomputedonlyif thebaseamountiszeroorpositive.

 33.     Inverticalanalysis, the baseamountinanincomestatementisusuallynetsales.

 34.     Profitabilityratiosmeasuretheabilityoftheenterprisetosurviveoveralongperiodof time.

 35.     Thedaysin inventoryiscomputedbymultiplyinginventoryturnoverby365.

 36.     Extraordinaryitemsarereportednetofapplicabletaxesinaseparatesectionofthe income statement.

   MULTIPLECHOICEQUESTIONS

  37.     Whichoneof thefollowingisprimarilyinterestedintheliquidityof acompany? a.Federalgovernment

b.Stockholders

c.Long-termcreditors d.Short-termcreditors

 38.     Whichoneof thefollowing isnot a characteristic generallyevaluatedin analyzingfinancial statements?

a.Liquidity

b.Profitabilityc.Marketability d.Solvency

 39.     Inanalyzingthefinancialstatementsofacompany,asingleitemonthefinancial statements

a.shouldbereported inbold-facetype.

b.ismoremeaningfulif comparedtootherfinancialinformation. c.is significantonlyifit is large.

d.shouldbeaccompaniedbyafootnote.

 40.     Short-termcreditorsareusuallymostinterestedinevaluating a.solvency.

b.liquidity.

c.marketability. d.profitability.

 41.     Long-termcreditorsareusuallymostinterestedinevaluating a.liquidityandsolvency.

b.solvencyandmarketability. c.liquidityandprofitability.

d.profitabilityandsolvency.

 42.     Stockholdersaremostinterestedinevaluating a.liquidityandsolvency.

b.profitabilityandsolvency. c.liquidityandprofitability.

d.marketabilityandsolvency.

FinancialStatementAnalysis      18-7

 43.     A stockholderis interestedintheabilityof afirmto a.payconsistentdividends.

b.appreciateinshareprice.c.surviveovera longperiod. d.all of these.

 44.     Comparisonsoffinancialdatamadewithina companyarecalled a.intracompanycomparisons.

b.interiorcomparisons.

c.intercompanycomparisons. d.intramuralcomparisons.

 45.     Atechniqueforevaluatingfinancialstatementsthatexpressestherelationshipamong selected items offinancialstatementdatais

a.commonsizeanalysis. b.horizontalanalysis.

c.ratioanalysis.

d.verticalanalysis.

 46.     Whichoneof thefollowingisnotatool infinancialstatementanalysis? a.Horizontalanalysis

b.Circularanalysis c.Verticalanalysis d.Ratioanalysis

 47.     Inanalyzingfinancialstatements,horizontalanalysis is a a.requirement.

b.tool.

c.principle. d.theory.

 48.     Horizontalanalysisis also called a.linearanalysis.

b.verticalanalysis. c.trendanalysis.

d.commonsizeanalysis.

 49.    Verticalanalysisisalsoknownas a.perpendicularanalysis.

b.commonsizeanalysis. c.trendanalysis.

d.straight-lineanalysis.

 50.     Inratioanalysis,theratiosareneverexpressedasa a.rate.

b.negativefigure. c.percentage.

d.simpleproportion.

18-8        

 51.     Theformulaforhorizontalanalysisofchangessincethebaseperiodisthecurrentyear amount

a.dividedbythebaseyearamount.

b.minusthebaseyearamountdividedbythe base yearamount.c.minusthebase yearamountdividedbythe currentyearamount. d.plusthebaseyearamountdividedbythebase yearamount.

 52.     Horizontalanalysisevaluatesaseriesoffinancialstatementdataovera periodof time a.that hasbeenarrangedfromthehighestnumbertothelowestnumber.

b.that hasbeenarrangedfromthelowestnumbertothehighestnumber. c.todeterminewhichitemsareinerror.

d.todeterminetheamountand/orpercentageincreaseordecreasethathastaken place.

 53.     Horizontalanalysisevaluatesfinancialstatementdata a.withina periodof time.

b.overa periodof time. c.onacertaindate.

d.as it mayappearinthefuture.

 54.     Assumethefollowingsalesdatafor a company:

 2010                      $1,000,000 2009                          900,000 2008                          750,000 2007                          600,000

 If2007isthebaseyear, whatis thepercentageincreaseinsalesfrom2007to 2009? a.100%

b.150% c.50%d.66.7%

 55.     Comparativebalancesheetsareusuallypreparedfor a.oneyear.

b.twoyears.c.threeyears. d.four years.

 56.     Horizontalanalysisisappropriatelyperformed a.onlyonthe incomestatement.

b.onlyonthebalancesheet.

c.onlyonthestatementof retainedearnings. d.onallthreeofthesestatements.

 57.     Ahorizontalanalysisperformedonastatementofretainedearningswouldnotshowa percentagechangein

a.dividendspaid. b.netincome.

c.expenses.

d.beginningretained earnings.

FinancialStatementAnalysis      18-9

 58.     Under whichofthefollowingcasesmaya percentagechangebecomputed? a.Thetrendofthe balancesisdecreasingbutallbalancesarepositive.

b.Thereis nobalanceinthebaseyear.

c.There is apositivebalancein thebaseyear andanegativebalancein thesubsequent year.

d.There is anegativebalancein thebaseyearandapositivebalanceinthe subsequent year.

 59.     Assumethefollowingsalesdatafor a company:

 2009                $945,000 2008                 780,000 2007                 650,000

 If2007isthebaseyear,whatis thepercentageincreaseinsalesfrom2007to 2008? a.25%

b.20%c.125% d.143%

 60.     Assumethefollowingcost ofgoodssolddatafora company:

 2009             $1,500,000 2008              1,200,000 2007                 900,000

 If2007isthebaseyear,whatisthepercentage increase incostofgoodssoldfrom2007 to2009?

a.167% b.67%c.60% d.40%

 Usethefollowing informationforquestions61–62:

 MoonBeam,Inc.hasthefollowingincomestatement(inmillions):

 MOON BEAM, INC. IncomeStatement

FortheYearEndedDecember31,2008

 NetSales                                                                    $180 CostofGoodsSold                                               120 GrossProfit                                                                 60 OperatingExpenses                                             33NetIncome                                                                                  $27

 61.     Usingverticalanalysis,whatpercentageisassignedto Costof GoodsSold? a.    67%

b.     33% c.100%

d.Noneof theabove

18-10

 62.     Usingverticalanalysis,whatpercentageis assignedto NetIncome? a.100%

b.85% c.15%

d.Noneof theabove

 63.     Verticalanalysisisalsocalled a.commonsizeanalysis.

b.horizontalanalysis. c.ratioanalysis.

d.trendanalysis.

 64.     Verticalanalysisisa techniquewhichexpresseseachitemwithinafinancialstatement a.in dollarsandcents.

b.intermsof apercentageoftheiteminthepreviousyear. c.in terms of apercentofa baseamount.

d.starting withthe highestvaluedowntothe lowestvalue.

 65.     Incommonsizeanalysis,

a.a baseamountisrequired. b.abase amountisoptional.

c.thesamebaseisusedacross allfinancialstatementsanalyzed.

d.theresultsof thehorizontalanalysisarenecessaryinputsforperformingtheanalysis.

 66.     Inperforminga verticalanalysis,thebaseforprepaid expensesis a.totalcurrentassets.

b.totalassets.

c.totalliabilitiesandstockholders'equity. d.prepaidexpenses.

 67.     Inperforminga verticalanalysis,thebaseforsalesrevenuesontheincomestatementis a.netsales.

b.sales.

c.net income.

d.costof goodsavailablefor sale.

 68.     Inperforminga verticalanalysis,thebaseforsalesreturnsandallowancesis a.sales.

b.salesdiscounts. c.netsales.

d.totalrevenues.

 69.     Inperforminga verticalanalysis,thebaseforcost ofgoodssoldis a.totalsellingexpenses.

b.netsales.

c.totalrevenues. d.totalexpenses.

FinancialStatementAnalysis      18-11

 70.     Eachof thefollowingisa liquidityratioexceptthe a.acid-testratio.

b.currentratio.

c.debttototal assetsratio. d.inventoryturnover.

 71.     A ratiocalculatedinthe analysisof financialstatements

a.expressesamathematicalrelationshipbetweentwonumbers. b.showsthepercentageincreasefromone yeartoanother.

c.restatesallitemsonafinancialstatementintermsofdollarsofthesamepurchasing power.

d.ismeaningfulonlyifthenumeratorisgreaterthanthedenominator.

 72.     A liquidityratiomeasuresthe

a.incomeoroperatingsuccessof anenterpriseovera periodoftime. b.abilityoftheenterpriseto surviveovera longperiodof time.

c.short-termabilityoftheenterprisetopayitsmaturingobligationsandtomeet unexpectedneedsforcash.

d.numberoftimesinterestisearned.

 73.     Thecurrentratiois

a.calculatedbydividingcurrentliabilitiesbycurrentassets.

b.usedtoevaluateacompany'sliquidityandshort-termdebtpayingability. c.usedtoevaluate acompany's solvencyandlong-term debtpayingability. d.calculatedbysubtractingcurrentliabilitiesfromcurrentassets.

 74.     Theacid-test(quick)ratio

a.isusedtoquickly determineacompany'ssolvencyand long-termdebtpayingability. b.relatescash, short-terminvestments,andnetreceivablestocurrentliabilities.

c.iscalculatedbytakingoneitemfromtheincomestatementandoneitemfromthe balance sheet.

d.isthesameasthecurrentratioexceptitis roundedtothenearest wholepercent.

 75.     WalkerClothingStorehadabalanceintheAccountsReceivableaccountof$780,000at thebeginningoftheyearandabalanceof$820,000attheendoftheyear.Netcredit salesduringtheyearamountedto$8,000,000.Theaveragecollectionperiodofthe receivables interms ofdays was

a.30 days.b.365days. c.10days. d.37days.

 76.     ParrHardwareStorehadnetcreditsalesof$5,200,000andcostofgoodssoldof $4,000,000fortheyear.TheAccountsReceivablebalancesatthebeginningandendof theyearwere$600,000and$700,000,respectively.Thereceivablesturnover was

a.7.4times. b.8.7times. c.6.2times. d.8times.

18-12

 Usethefollowing informationforquestions77–78.

 WatersDepartmentStorehadnetcreditsalesof$12,000,000andcostofgoodssoldof $9,000,000fortheyear.Theaverageinventoryfor the year amountedto $2,000,000.

 77.     Inventoryturnoverforthe yearis a.6 times.

b.10.5times. c.4.5times. d.3times.

 78.     Theaveragenumberof daysininventoryduringthe yearwas a.122days.

b.81days. c.61days. d.35days.

 79.     Eachof thefollowingis includedincomputingtheacid-testratio except a.cash.

b.inventory.c.receivables.

d.short-terminvestments.

 80.     Whichoneof thefollowing wouldnot beconsidereda liquidityratio? a.Currentratio

b.Inventoryturnover c.Acid-testratio

d.Returnonassets

 81.     Assetturnovermeasures

a.howoftenacompanyreplacesitsassets.

b.howefficientlyacompanyusesits assetstogeneratesales.c.theportionof theassetsthathavebeenfinancedbycreditors. d.theoverallrateof returnonassets.

 82.     Profitmarginis calculatedbydividing a.salesbycost ofgoodssold.

b.grossprofitbynetsales.

c.net incomebystockholders'equity. d.netincomebynetsales.

 Usethefollowing informationforquestions83–84.

 RaneyCorporationhadnetincomeof$200,000andpaiddividendstocommonstockholdersof $50,000in2008.Theweightedaveragenumberofsharesoutstandingin2008was50,000 shares.RaneyCorporation'scommonstockissellingfor$40pershareontheNewYorkStock Exchange.

 83.     RaneyCorporation's price-earningsratiois a.2.5times.

b.10times.c.13.3times. d.4times.

FinancialStatementAnalysis      18-13

 84      RaneyCorporation's payout ratiofor2008is a.$4pershare.

b33.3%. c.25%.d.10%.

  85      Holt Companyreportedthefollowingon its income statement:

 Incomebeforeincometaxes Incometaxexpense

Netincome

$420,000

120,000$300,000

 Ananalysisoftheincomestatementrevealedthatinterestexpensewas$50,000.Holt Company'stimesinterestearnedwas

a.9 times. b.8times. c.7times. d.6times.

 86.     Thedebttototalassetsratiomeasures a.thecompany'sprofitability.

b.whetherinterest canbepaidondebtinthecurrentyear. c.theproportionofinterestpaidrelativetodividendspaid. d.thepercentageofthetotalassetsprovidedbycreditors.

 87.     Tradingontheequity(leverage)referstothe a.amountof workingcapital.

b.amountof capitalprovidedbyowners.

c.useof borrowedmoneyto increasethereturnto owners. d.numberoftimesinterestis earned.

 88.     ThecurrentassetsofKileCompanyare$150,000.Thecurrentliabilitiesare$120,000. Thecurrentratioexpressedasaproportion is

a.125%. b.1.25:1 c..80:1

d.$150,000÷$120,000.

 89.     Thecurrentratiomayalso bereferredto asthe a.shortrunratio.

b.acid-testratio.

c.workingcapitalratio. d.contemporaryratio.

 90.     A weaknessofthecurrentratiois a.thedifficultyof thecalculation.

b.that itdoesn'ttakeintoaccountthecompositionof thecurrentassets. c.thatitis rarelyusedbysophisticatedanalysts.

d.that itcanbeexpressedasapercentage,asarate, orasaproportion.

18-14

 91.     A suppliertoacompanywouldbemostinterestedinthecompany’s a.asset turnover.

b.profitmargin. c.currentratio.

d.earningspershare.

 92.     Whichoneofthefollowingratioswouldnotlikelybeusedbyashort-termcreditorin evaluatingwhethertoselloncreditto acompany?

a.Currentratio b. Acid-testratio c. Assetturnover

d.Receivablesturnover

 93.     Ratiosareusedastoolsinfinancialanalysisa.insteadof horizontal and verticalanalyses.

b.becausetheymayprovideinformationthatisnotapparentfrominspectionofthe individualcomponents of theratio.

c.becauseevensingleratiosbythemselvesarequitemeaningful. d.becausetheyareprescribedbyGAAP.

 94.     Theratiosthat areusedto determineacompany'sshort-termdebtpaying abilityare a.assetturnover,timesinterest earned,currentratio, andreceivablesturnover.

b.timesinterestearned,inventory turnover,currentratio,andreceivables turnover. c.timesinterestearned,acid-test ratio,currentratio,andinventoryturnover.

d.currentratio,acid-testratio, receivablesturnover,andinventoryturnover.

 95.     A measureof thepercentage of eachdollarof salesthatresultsinnetincome is a.profit margin.

b.returnonassets.

c.returnoncommon stockholders'equity. d.earningspershare.

 Usethefollowing informationforquestions96–97.

 RisenCompanyhad$250,000ofcurrentassetsand$90,000ofcurrentliabilitiesbefore borrowing$50,000fromthebankwitha 3-monthnotepayable.

 96.     WhateffectdidtheborrowingtransactionhaveontheamountofRisenCompany's working capital?

a.Noeffect

b.    $50,000increase c.    $90,000increase d.$50,000decrease

 97.     WhateffectdidtheborrowingtransactionhaveonRisenCompany'scurrentratio? a.Theratioremained unchanged.

b.Thechangeinthecurrentratiocannotbedetermined. c.The ratiodecreased.

d.Theratioincreased.

FinancialStatementAnalysis      18-15

 98.     Ifequal amountsareaddedtothenumeratorand thedenominatorofthecurrent ratio, the ratiowill always

a.increase. b.decrease.

c.staythesame. d.equalzero.

 99.     Theacid-testratio

a.isaquick calculationofanapproximationof thecurrentratio. b.doesnot includeallcurrentliabilitiesinthecalculation.

c.doesnotincludeinventoryaspart ofthenumerator.

d.doesincludeprepaidexpensesas part of the numerator.

 100.     Ifacompanyhasanacid-testratioof1.2:1,whatrespectiveeffectswilltheborrowingof cash byshort-termdebtandcollectionof accountsreceivablehaveontheratio?

 Short-termBorrowing a.    Increase

b.            Increase c.    Decrease d.     Decrease

Collection ofReceivableNoeffectIncrease

Noeffect Decrease

  101.     Acompanyhasareceivablesturnoverof10times.Theaveragenetceivablesduringthe period are$500,000.Whatistheamount of netcreditsalesfortheperiod?

a.$50,000

b.$5,000,000 c.$600,000

d.Cannotbedeterminedfromtheinformationgiven

 102.     If theaveragecollectionperiodis 35days,whatisthereceivablesturnover? a.9.49times

b.10.43times c.5.22times

d.Noneof these

 103.     Ageneralruleto useinassessingtheaveragecollectionperiodisthat a.it shouldnotexceed30days.

b.itcanbeany lengthas long asthecustomercontinuestobuymerchandise. c.it shouldnotgreatlyexceedthediscountperiod.

d.itshouldnotgreatlyexceedthecredittermperiod.

 104.     Inventoryturnoveriscalculatedbydividing

a.costofgoodssoldbythe endinginventory.

b.costofgoodssoldbythe beginninginventory. c.costofgoodssoldbytheaverageinventory.d.averageinventorybycostofgoodssold.

 105.     Acompanyhasan averageinventoryon handof$100,000andthedaysin inventoryis73 days.Whatisthecostofgoodssold?

a.$500,000b.$7,300,000 c.$1,000,000 d.$3,650,000

18-16

 106.     A successfulgrocerystorewouldprobablyhave a.a lowinventoryturnover.

b.a highinventoryturnover. c.zeroprofitmargin.

d.lowvolume.

 107.     Anaircraftcompanywouldmostlikelyhave a.ahighinventoryturnover.

b.lowprofitmargin. c.highvolume.

d.a lowinventoryturnover.

 108.     Net salesare$4,500,000,beginningtotalassetsare $2,100,000,andthe assetturnoveris 3.0times.Whatistheending totalassetbalance?

a.$1,500,000 b.$900,000c.$2,100,000 d.$1,200,000

 109.     Earningspershareiscalculated a.onlyfor commonstock.

b.onlyfor preferredstock.

c.forcommonand preferredstock. d.onlyfortreasurystock.

 110.     Whichofthefollowingisnot a profitabilityratio? a.Payoutratio

b.Profitmargin

c.Timesinterestearned

d.Returnoncommonstockholders'equity

 111.     Timesinterestearnedisalsocalledthe a.moneymultiplier.

b.interestcoverageratio. c.couponcoverageratio. d.premiumratio.

 112.     Theratiothatusesweightedaveragecommonsharesoutstandinginthedenominatoris the

a.price-earningsratio.

b.returnoncommonstockholders'equity. c.earningspershare.

d.payoutratio.

 113.     Net incomedoesnotappearinthenumerator ofthe a.profitmargin.

b.returnonassets.

c.returnoncommon stockholders'equity. d.payoutratio.

FinancialStatementAnalysis      18-17

 114.     FallClothingStorehadabalanceintheAccountsReceivableaccountof$820,000atthe beginningoftheyearandabalanceof$880,000attheendoftheyear.Netcreditsales during theyear amountedto $6,120,000.Thereceivablesturnover ratiowas

a.7.2times. b.7times.c.6.9times. d.6.8times.

 115.     FallClothingStorehadabalanceintheAccountsReceivableaccountof$810,000atthe beginningoftheyearandabalanceof$850,000attheendoftheyear.Netcreditsales duringtheyearamountedto$5,814,980.Theaveragecollectionperiodofthereceivables in termsofdays was

a.50 days.b.52.1days. c.       365days. d.52.9days.

 Usethefollowing informationforquestions116–117.

 LuthorCorporationhadnetincomeof$160,000andpaiddividendstocommonstockholdersof $40,000in2008.Theweightedaveragenumberofsharesoutstandingin2008was50,000 shares.LuthorCorporation'scommonstockissellingfor$50pershareontheNewYorkStock Exchange.

 116.     LuthorCorporation'sprice-earningsratiois a.3.2times.

b.15.6times. c.10times.d.5 times.

 117.     LuthorCorporation'spayout ratiofor2008is a.$5pershare.

b.25%. c.20%. d.12.5%.

  118.     RayeCompany reportedthefollowingon itsincome statement:

 Incomebeforeincometaxes Incometaxexpense

Netincome

$500,000

150,000$350,000

 Ananalysisoftheincomestatementrevealedthatinterestexpensewas$80,000.Raye Company'stimesinterestearnedwas

a.8 times.

b.7.25times. c.6.25times. d.4.4times.

18-18

 Usethefollowing informationforquestions119-125.

 ThefollowinginformationpertainstoSohoCompany.Assumethatallbalancesheetamounts represent both averageandendingbalancefigures. Assumethatallsaleswereoncredit.

 Assets

 Cashandshort-terminvestments Accountsreceivable (net) Inventory

Property,plantandequipment TotalAssets

 Liabilities and Stockholders’EquityCurrentliabilities

Long-termliabilities Stockholders’equity—common

TotalLiabilitiesandStockholders’Equity

  $40,000 25,000 20,000

210,000$295,000

   $60,000 85,000

150,000$295,000

   Sales

Costofgoodssold Grossmargin Operatingexpenses

Netincome

Income Statement

$85,000

   45,000 40,000

20,000$20,000

 Numberof sharesof commonstock                                                                6,000 Marketprice of commonstock                                                                       $20 Dividendspershare                                                                                       .90

 119.     Whatisthecurrentratioforthiscompany? a.1.42

b..80c.1.16 d..60

 120.     Whatisthereceivablesturnoverforthiscompany? a.2.8times

b.2timesc.3.4times d.3times

 121.     Whatistheinventoryturnoverforthiscompany? a.2 times

b.2.25times c.1time

d..44times

 122.     Whatisthereturnonassetsforthiscompany? a.6.8%

b.10.5% c.11.7% d.26.7%

FinancialStatementAnalysis      18-19

 123.     Whatisthe profitmarginforthiscompany? a.42.86%

b.18.75% c.23.5% d.15.0%

  124.     Whatisthereturnoncommon stockholders’equityforthiscompany? a.13.3%

b.5%

c.23.3% d.53.3%

 125.     Whatisthe price-earningsratioforthiscompany? a.6 times

b.2.5times c.8timesd.4 times

 Usethefollowing informationforquestions126–129.

 ThefollowinginformationpertainstoCasheCompany.Assumethatallbalancesheetamounts represent both averageandendingbalancefigures.Assumethatallsaleswereoncredit.

 AssetsCashandshort-terminvestments Accountsreceivable (net)

Inventory

Property,plantandequipment TotalAssets

 $40,000 30,000 25,000

215,000$310,000

 Liabilitiesand Stockholders’Equity Currentliabilities

Long-termliabilities Stockholders’equity—common

TotalLiabilitiesandStockholders’Equity

 $60,000 95,000

155,000$310,000

  Sales

Costofgoodssold Grossmargin Operatingexpenses

Netincome

Income Statement

$90,000

   45,000 45,000

   20,000$25,000

 Numberof sharesof commonstock                                                                6,000 Marketprice of commonstock                                                                       $20 Dividendspershare                                                                                     1.00

 126.     Whatisthereturnonassetsforthiscompany? a.6.8%

b.10.5% c.8.1% d.16.1%

18-20

 127.     Whatisthe profitmarginforthiscompany? a.50.0%

b.55.6% c.23.5% d.27.8%

  128.     Whatisthereturnoncommon stockholders’equityforthiscompany? a.7.3%

b.16.1% c.23.5% d.53.3%

 129.     Whatisthe price-earningsratioforthiscompany? a.6 times

b.4.2times c.8timesd.4.8times

 Usethefollowing informationforquestions130–131.

 ThefollowinginformationisavailableforCharlesCompany:

  Accountsreceivable Inventory

Netcreditsales Costofgoodssold Netincome

    2008    

$360,000 280,000 3,000,000 1,200,000 300,000

    2007    

$400,000 320,000 1,400,000 1,060,000 170,000

  130.     Thereceivablesturnoverratiofor2008 is a.8.3times.

b.     3.9times. c.     7.9times. d.10.0times.

 131.     Theinventoryturnoverratiofor2008is a.4.3times.

b.4.0times. c.2.0times. d.2.4times.

 Usethefollowing informationforquestions132–134.

 Thefollowingamountsweretakenfromthefinancialstatementsof PalmerCompany:

  Totalassets Netsales Grossprofit Netincome

Weightedaveragenumberof commonsharesoutstanding Marketprice of commonstock

2008

$800,000 720,000 352,000 144,000 120,000 $36

    2007    

$1,000,000 650,000 320,000 117,000 120,000$40

FinancialStatementAnalysis      18-21

 132.     Thereturnonassetsratiofor2008is a.18%.

b.16%. c.36%. d.32%.

  133.     Theprofitmarginratiofor 2008is a.10%.

b.15%. c.20%. d.30%.

 134.     Theprice-earningsratiofor2008is a.30times.

b.20times. c.10times. d.5times.

 Usethefollowing informationforquestions135–136.

 PanzaCorporationhadnetincomeof$250,000andpaiddividendstocommonstockholdersof $50,000in2008.Theweightedaveragenumberofsharesoutstandingin2008was50,000 shares.PanzaCorporation'scommonstockissellingfor$40pershareontheNewYorkStock Exchange.

 135.     PanzaCorporation'sprice-earningsratiois a.2 times.

b.8 times.c.10times. d.5 times.

 136.     PanzaCorporation'spayout ratiofor 2008is a.$5pershare.

b.25%. c.20%. d.12.5%.

 137.     Ester’sBunnyBarnhasexperienceda$40,000lossduetotornadodamagetoits inventory.Tornadoshaveneverbeforeoccurredinthisarea.Assumingthatthe company’staxrateis30%,whatamountwillbereportedforthislossontheincome statement?

a.$40,000 b.$28,000 c.$12,000 d.$36,000

 138.     WengerCompanyreportedincomebeforetaxes of$600,000andanextraordinarylossof $150,000.Assumethatthecompany’staxrateis30%. Whatamountswillbereportedon theincomestatementforincomebeforeirregularitemsandextraordinaryitems, respectively?

a.$420,000and$150,000 b.$420,000 and$105,000 c.$495,000and$150,000 d.$495,000and $105,000

18-22

 139.     KandyKaneCorporationhasincomebeforetaxesof$400,000andanextraordinarygain of$100,000. Iftheincometaxrateis25%onallitems,theincomestatement shouldshow income beforeirregularitemsandextraordinaryitems,respectively,of

a.$325,000and$100,000. b.$325,000and$75,000.c.$300,000and$100,000. d.$300,000and$75,000.

 140.     HardyInc.hasaninvestmentinavailable-for-salesecuritiesof$50,000.Thisinvestment experiencedanunrealizedlossof$3,000duringthecurrentyear.Assuminga35%tax rate, the effectof thisloss oncomprehensiveincomewill be

a.no effect.

b.$50,000increase. c.$17,500decrease. d.$3,000decrease.

 141.     The disposalof a significant segmentofabusinessiscalled a.achangeinaccountingprinciple.

b.an extraordinaryitem. c.anotherexpense.

d.discontinuedoperations.

 142.     ABCCompanyreportsincomebeforeincometaxesof$1,800,000andhadanextra-ordinary loss of$600,000.If thetaxrateis30%,

a.theincomebeforetheextraordinary itemis$1,440,000.

b.theextraordinarylosswouldbereportedontheincome statementat$600,000. c.the incomebeforetheextraordinary itemis$1,260,000.

d.theextraordinarylosswillbereportedat$180,000.

 143.     Evers,Inc.disposesofanunprofitablesegmentofitsbusiness.Theoperationofthe segmentsuffereda$240,000lossintheyearofdisposal.Thelossondisposalofthe segmentwas$120,000.Ifthetaxrateis30%,andincomebeforeincometaxeswas $1,500,000,

a.theincometaxexpenseontheincomebeforediscontinuedoperationsis $342,000. b.theincomefromcontinuingoperationsis$1,050,000.

c.net incomeis$1,140,000.

d.thelossesfrom discontinuedoperationsarereportednetof incometaxes at $180,000.

 144.     Eachof thefollowingisanextraordinaryitemexceptthe a.effectsof majorcasualties,ifrareinthearea.

b.effectsof anewlyenactedlaworregulation.

c.expropriationof propertybyaforeigngovernment. d.lossesattributabletolabor strikes.

 145.     Thediscontinuedoperationssectionof theincomestatementrefersto a.discontinuanceof a product line.

b.theincomeor loss onproductsthathavebeencompletedandsold. c.obsoleteequipment anddiscontinuedinventoryitems.

d.thedisposalof asignificantsegmentofabusiness.

FinancialStatementAnalysis      18-23

 146.     Whichoneof thefollowing wouldbeclassifiedasanextraordinaryitem? a.Expropriationof propertybyaforeigngovernment

b.Lossesattributedtoa laborstrike c.Write-downofinventories

d.Gainsorlossesfromsalesof equipment

 147.     A lossonthewritedownofobsoleteinventoryshouldbereported as a."otherexpensesandlosses."

b.part of discontinuedoperations. c.anoperatingexpense.

d.an extraordinaryitem.

 148.     Ifan itemmeetsone(butnotboth)of thecriteriaforanextraordinaryitem,it a.onlyneedstobedisclosedinthefootnotesof thefinancialstatements.

b.maybetreatedassalesrevenue (ifitisagain)andasanoperatingexpense (ifitisa loss).

c.isreportedas an"otherrevenue orgain"or"otherexpenseandloss,"netof tax.

d.isreportedatitsgrossamountasan"otherrevenueorgain"or"otherexpenseor loss."

 149.     Theorderof presentationofnontypicalitemsthatmayappear ontheincomestatementis a.Extraordinaryitems,Discontinuedoperations,Otherrevenuesandexpenses.

b.Discontinuedoperations,Extraordinary items,Otherrevenuesandexpenses. c.Otherrevenuesandexpenses, Discontinuedoperations,Extraordinaryitems. d.Other revenuesandexpenses,Extraordinaryitems,Discontinuedoperations.

 150.     Eachof thefollowingisafactoraffectingqualityof earningsexcept a.alternativeaccountingmethods.

b.improperrecognition. c.proformaincome.

d.extraordinaryitems.

   Additional MultipleChoiceQuestions

 151.     Comparisonscan bemadeoneachof thefollowingbasesexcept a.industryaverages.

b.intercompanybasis. c.intracompanybasis.

d.Eachoftheseis abasisforcomparison.

 152.    Comparisonsofdatawithinacompanyareanexampleofthefollowingcomparative basis:

a.Industryaverages b.Intercompany

c.Intracompany d.Interregional

18-24

 153.     SilvaCorporationreportednetsalesof$240,000,$420,000,and$540,000intheyears 2007, 2008,and2009respectively. If2007isthebaseyear,whatisthetrendpercentage for 2009?

a.129% b.135% c.164% d.225%

 154.     Inverticalanalysis, the baseamountfor eachincome statementitemis a.grossprofit.

b.netincome. c.netsales.d.sales.

 155.     Whenperformingverticalanalysis,thebaseamountforadministrativeexpenseis generally

a.administrativeexpenseina previousyear. b.netsales.

c.grossprofit. d.fixedassets.

 156.     Ratiosthatmeasuretheshort-termabilityofthecompanytopayitsmaturingobligations are

a.liquidityratios.

b.profitabilityratios. c.solvencyratios.d.trendratios.

 157.     Whattypeofratiosbestmeasuretheshort-termabilityoftheenterprisetopayits maturing obligationsandtomeetunexpectedneedsfor cash?

a.Leverageb.Solvencyc.Profitability d.Liquidity

 158.     Theacid-testratiois alsoknownasthe a.currentratio.

b.quickratio. c.fastratio.

d.timesinterestearnedratio.

 159.     Thedebttototalassetsratio a.is asolvencyratio.

b.iscomputedbydividingtotalassetsbytotal debt.

c.measuresthetotalassets providedbystockholders. d.isaprofitabilityratio.

 160.     Anextraordinaryitemisonethat

a.occursinfrequentlyandisuncontrollableinnature. b.occursinfrequently andisunusualinnature.

c.ismaterialand isunusualinnature.

d.ismaterialandis uncontrollableinnature.

FinancialStatementAnalysis      18-25

 161.     Galileo,Inc.decidedonJanuary1todiscontinueitstelescopemanufacturingdivision.On July1,thedivision’sassetswithabookvalueof$630,000aresoldfor$450,000. OperatingincomefromJanuary1toJune30forthedivisionamountedto$75,000. Ignoringincometaxes,whattotalamountshouldbereportedonGalileo’sincome statementforthecurrent yearunderthecaption,DiscontinuedOperations?

a.$75,000

b.$105,000loss c.$180,000loss d.$255,000

 162.     Whentherehasbeena changeinaccountingprinciple,

a.theoldprincipleshouldbeusedinreportingtheresultsofoperationsforthecurrent year.

b.thecumulativeeffectofthechangeshouldbereportedinthecurrentyear’sretained earningsstatement.

c.thechangeshouldbereportedretroactively.

d.thenewprincipleshouldbeusedunreportingtheresultsofoperationsofthecurrent year,but thereisnochangeto prioryears.

      BRIEFEXERCISES

BE163

ThefollowingitemsweretakenfromthefinancialstatementsofHorace,Inc.,overathree-year period:

            Item            

NetSales

CostofGoodsSold GrossProfit

2009        

$355,000

214,000$141,000

2008

$336,000

206,000$130,000

2007

$300,000

186,000$114,000

 Instructions

Computethe followingfor each ofthe abovetimeperiods.a.Theamountandpercentagechangefrom2007to 2008. b.Theamountandpercentagechangefrom2008to 2009.

    BE164

 IfParthenonCompanyhadnetincomeof$672,300 in2009and itexperienceda20% increasein netincomeover2008,whatwasits 2008netincome?

    BE165

 Horizontal analysis(trendanalysis)percentagesforVishnuCompany’ssales,costofgoodssold, and expenses are listedhere.

 Horizontal Analysis                2009

Sales                                          98.2% Costof goodssold                 102.5 Expenses                               108.6

2008          2007

104.8%                  100.0% 98.0         100.0 96.4       100.0

FinancialStatementAnalysis      18-27

 BE165          (cont.)

 Instructions

 ExplainwhetherVishnu’snetincomeincreased,decreased,orremainedunchangedoverthe3-yearperiod.

    BE166

 Usingthefollowingoperating datafor Manchac Corporation,illustrate horizontal analysis.

  Netsales

Costof goodssold Operatingexpenses Netincome

2008                     2007

$350,000           $320,000 200,000             180,000 120,000             100,000 30,000               40,000

    BE167

 UsingthedatapresentedforManchacCompanyinBE166,prepareascheduleshowinga vertical analysis for2008.

   BE168

 UsingthesedatafromthecomparativebalancesheetofLucaCompany,performvertical analysis.

  Accountsreceivable Inventory

Totalassets

December 31,2009 $500,000

780,000 3,220,000

December 31,2008 $400,000

600,000 2,800,000

   BE169

 Foreachoftheratioslistedbelow,indicatebytheappropriatecodeletter,whetheritisaliquidity ratio(L),a profitability ratio (P),orasolvencyratio(S).

 1.Timesinterestearnedratio 2.Assetturnover

3.Receivablesturnover

 4.Debtto total assets ratio 5.Currentratio

6.Payoutratio

   BE170

 Selectedfinancial statementdatafor MeyerCompanyarepresented below.

  Cash

Short-terminvestments Accountsreceivable Inventories

Totalcurrent liabilities

12/31/08 $10,000 15,000 60,000 75,000 110,000

 Instructions

Computethefollowingratios at December31,2008: (a)Current.

(b)Acid-test.

    BE171

BreaktownCompanyhadnetincomeof$152,000andnetsalesof$625,000in2008.The company’stotalassetsfor2007/2008averaged$3,900,000.Itscommonstockholders’equityfor theperiodaveraged$2,340,000.Calculate(a)profitmargin,(b)returnonassets,and(c)return on common stockholders’ equity.

    BE172

 BermanCompanyreported thefollowing financialinformation:

  Accountsreceivable Netcredit sales

12/31/08$320,000

2,100,000

12/31/07$360,000

2,420,000

 Compute(a) thereceivables turnoverand(b) theaveragecollection periodfor2008.

  BE173

 Prepareapartialincomestatement,beginningwithincomebeforeincometaxesusingthe followinginformationforSlidellCorporationfor thefiscal yearended December31, 2008:

 Sales Extraordinary loss

Sellingand administrative expenses Costof goodssold

Losson sale ofland

$800,000 100,000 180,000 500,000 25,000

  SlidellCorporation issubject toa30% incometaxrate.

  EXERCISES

Ex.174

Selectedfinancial informationforBradleyCorporation is presentedbelow.

  CurrentassetsLong-termliabilities Retainedearnings

December 31,2009 $60,000

100,000 115,000

December 31,2008 $50,000

80,000 100,000

  Instructions

Prepareaschedule showingahorizontal analysisfor 2009 using 2008asthe baseyear.

  Ex.175

 ComparativeinformationtakenfromtheWellsCompanyfinancial statements is shown below:

  (a)     Notesreceivable(b)         Accountsreceivable (c)            Retainedearnings

(d)    Incometaxes payable (e)            Sales

(f)     Operatingexpenses

   2009                     2008

$20,000                 $-0-182,000                140,000

30,000               (40,000) 44,000                 20,000 960,000                750,000 170,000               200,000

  Instructions

 Using horizontalanalysis,showthepercentagechangefrom2008to2009with2008asthebase year.

  Ex.176

 EatonCorporationhadnetincomeof$6,000,000in2007.Using2007asthebaseyear,net income decreased by70% in 2008 andincreasedby140% in 2009.

 Instructions

 Computethe net incomereported by EatonCorporationfor 2008and 2009.

    Ex.177

 Thefollowingitemswere takenfromthefinancialstatements ofRitz, Inc., over a four-year period:

            Item            

NetSales

Costof Goods Sold GrossProfit

   2010

$800,000

560,000$240,000

   2009

$700,000

500,000$200,000

   2008

$550,000

420,000$130,000

   2007

$500,000

400,000$100,000

 Instructions

Usinghorizontalanalysisand2007asthebaseyear,computethetrendpercentagesfornet sales,costofgoodssold,andgrossprofit.Explainwhetherthetrendsarefavorableor unfavorablefor each item.

    Ex.178

 Thecomparative balance sheetof Greer Companyappears below:

 GREER COMPANY ComparativeBalance Sheet December31,

———————————————————————————————————————————

 Assets                                                                                                              2009           2008

Currentassets......................................................................................             $330                $280 Plantassets..........................................................................................             670                                                           520Totalassets..........................................................................................                                                                                                                         $1,000             $800

 Liabilities and stockholders' equity

Currentliabilities...................................................................................       $160            $120 Long-termdebt.....................................................................................            240              160 Commonstock.....................................................................................             340              320 Retainedearnings................................................................................       260200Totalliabilities and stockholders'equity.........................................       $1,000$800

FinancialStatementAnalysis      18-33

  Ex.178         (cont.)

 Instructions

(a)     Usinghorizontalanalysis,showthepercentagechangeforeachbalancesheetitemusing 2008as abase year.

 (b)    Usingvertical analysis, preparea common size comparative balance sheet.

   Ex.179

 UsingthefollowingselecteditemsfromthecomparativebalancesheetofAndersCompany, illustrate horizontal andverticalanalysis.

  AccountsReceivable Inventory

TotalAssets

December 31,2009 $900,000

975,000 4,000,000

December 31,2008 $600,000

750,000 2,500,000

   Ex.180

 Operatingdatafor Manning Corporation are presented below.

  Netsales

Costof goodssold Operatingexpenses Netincome

2008        

$500,000 340,000 120,000 40,000

 Instructions

Prepareaschedule showingavertical analysis for2008.

   Ex.181

 Thefollowinginformationwas takenfrom thefinancial statementsofLeeCompany:

  Grossprofit on sales............................................................ Incomebefore incometaxes................................................ Netincome........................................................................... Netincome as apercentageofnet sales.............................

   2009

$750,000 280,000 200,000 8%

   2008

$800,000 230,000 180,000 9%

  Instructions

(a)     Computethe netsalesforeach year.

(b)    Computethe cost of goods sold indollarsandasa percentage ofnet salesforeach year. (c)         Computeoperatingexpensesindollarsandasapercentageofnetsalesforeachyear.

(Incometaxes are notoperatingexpenses).

    Ex.182

 Selectedfinancial statementdatafor Morton Companyarepresented below.

  Cash

Short-terminvestments Receivables(net) Inventories

Totalcurrent liabilities

December 31,2009 $20,000

25,000 100,000 85,000 100,000

December 31,2008 $30,000

18,000 80,000 65,000 90,000

 During2009,netsaleswere $810,000, and cost of goodssold was $615,000.

 Instructions

Computethefollowingratios at December31,2009: (a)Current.

(b)Acid-test.

(c)Receivables turnover. (d)Inventory turnover.

    Ex.183

 SelectedinformationfromthecomparativefinancialstatementsofFrymanCompanyfortheyear ended December31,appearsbelow:

   2009                        2008

Accountsreceivable (net)                                      $180,000                  $200,000 Inventory                                                                 140,000                160,000 Totalassets                                                         1,200,000                800,000 Currentliabilities                                                     140,000                110,000 Long-termdebt                                                        340,000                300,000 Netcredit sales                                                     1,520,000                700,000 Costof goodssold                                                   750,000                530,000 Interestexpense                                                       40,000                  25,000 Incometaxexpense                                                   60,000                  29,000 Netincome                                                              160,000                  85,000

 Instructions

AnswerthefollowingquestionsrelatingtotheyearendedDecember31,2009.Showcomputa-tions.

 1.Inventory turnoverfor 2009 is                         .

 2.Times interest earned in2009 is                           .

 3.Thedebt to total assets ratiofor2009 is                            .

 4.Receivables turnoverfor2009is                           .

 5.Return onassets for2009 is                            .

    $750,000

————————————

Ex.184

 Thefinancial statements ofDobsonCompanyappear below:

 DOBSON COMPANY Comparative Balance Sheet December 31,

———————————————————————————————————————————

 AssetsCash................................................................................................. Short-terminvestments.................................................................... Accountsreceivable (net)................................................................ Inventory.......................................................................................... Property,plant and equipment (net)................................................

Totalassets...............................................................................

 Liabilities and stockholders' equity

Accountspayable............................................................................. Short-termnotespayable................................................................. Bondspayable................................................................................. Commonstock................................................................................. Retainedearnings............................................................................ Totalliabilities and stockholders'equity.....................................

   2009

$35,000 15,000 50,000 50,000

250,000$400,000

   $10,000 40,000 88,000 160,000

102,000$400,000

   2008

$40,000 60,000 30,000 70,000

300,000$500,000

   $30,000 90,000 160,000 145,000

   75,000$500,000

   DOBSON COMPANY Income Statement

Forthe YearEndedDecember 31, 2009

 Netsales.......................................................................................... Costof goodssold........................................................................... Grossprofit...................................................................................... Expenses

Interestexpense......................................................................... Sellingexpenses........................................................................ Administrativeexpenses............................................................ Totalexpenses.....................................................................Incomebefore incometaxes............................................................ Incometaxexpense......................................................................... Netincome.......................................................................................

     $12,000 40,000

59,000

$360,000

198,000 162,000

     111,000 51,000

           15,000$36,000

   Additional information:

a.     Cash dividends of$9,000 were declared andpaid in 2009.

b.    Weighted-averagenumberofsharesofcommonstockoutstandingduring2009was30,000 shares.

c.     Marketvalue ofcommon stock onDecember31,2009,was $21 pershare.

————=3

$50,000

$12,000

18-38

 Ex.184(cont.)

 Instructions

Usingthefinancialstatementsandadditionalinformation,compute thefollowingratiosforCoulter Companyfor2009.Showall computations.

Computations

 1.     Current ratio                   .

 2.     Returnoncommonstockholders'equity                        .

 3.     Price-earningsratio                      .

 4.     Acid-test ratio                   .

 5.     Receivables turnover                    .

 6.     Times interest earned                     .

 7.     Profit margin                   .

 8.     Days in inventory                  .

 9.     Payout ratio                    .

 10.     Returnonassets                       .

  Ex.185

 Thefollowing ratios have been computedfor Pratt Companyfor 2009.

 Profitmargin

Times interest earned Receivables turnover Acid-test ratioCurrentratio

Debttototal assets ratio

20% 15times

5times 1.60:1

3 : 1 26%

  PrattCompany’s 2009financial statements with missing informationfollow:

 PRATTCOMPANY ComparativeBalance Sheet December31,

———————————————————————————————————————————

 AssetsCash........................................................................................... Short-termInvestments.............................................................. Accountsreceivable (net).......................................................... Inventory.................................................................................... Property,plant,andequipment (net).........................................

Totalassets........................................................................

 Liabilities and stockholders' equity

Accountspayable....................................................................... Short-termnotespayable........................................................... Bondspayable........................................................................... Commonstock........................................................................... Retainedearnings...................................................................... Totalliabilities and stockholders'equity..............................

   2009

$25,000 15,000

?         (6) ?          (8)

200,000

$      ?     (9)

   $      ?         (7) 35,000

?        (10) 200,000

   59,000

$      ?     (11)

   2008

$35,000 15,000 60,000 50,000

150,000$310,000

   $25,000 30,000 20,000 200,000

   35,000$310,000

18-40

 Ex.185         (cont.)

 PRATTCOMPANY Income Statement

Forthe YearEndedDecember 31, 2009 ———————————————————————————————————————————

 Netsales.................................................................................... Costof goodssold...................................................................... Grossprofit................................................................................. Expenses:

Depreciation expense........................................................... Interestexpense................................................................... Sellingexpenses.................................................................. Administrativeexpenses...................................................... Totalexpenses...............................................................Incomebefore incometaxes...................................................... Incometaxexpense.............................................................Netincome.................................................................................

$250,000

125,000 125,000

 $     ?                             (5) 5,000

10,000

15,000

      ?     (4) ?          (2)

      ?     (3) $         ?          (1)

 Instructions

 UsetheaboveratiosandinformationfromthePrattCompanyfinancialstatementstofillinthe missinginformationonthefinancialstatements.Followthesequenceindicated.Show computationsthat support youranswers.

     Ex.186

 SelecteddataforNancy's Store appearbelow.

  Netsales

Costof goodssold Inventoryatend ofyear

Accountsreceivable at end ofyear

       2009                      2008

$650,000              $520,000 455,000               345,000 65,000                  85,000 80,000                  50,000

  Instructions

Computethefollowing for 2009: (a)    Gross profitrate.

(b)     Inventory turnover.(c)   Receivables turnover.

  Ex.187

 Selectedfinancial statementdatafor Holmes Companyarepresented below.

 Netsales

Costof goodssold Interestexpense Netincome

Totalassets (ending)

Totalcommon stockholders' equity(ending)

$1,200,000 700,000 10,000 180,000 850,000 650,000

  Totalassetsatthebeginningoftheyearwere$750,000;totalcommonstockholders'equitywas $550,000atthe beginning of theperiod.

 Instructions

Computeeach of thefollowing: (a)Asset turnover

(b)Profitmargin

(c)Return onassets

(d)Return oncommonstockholders'equity

    Ex.188

 WinterCorporationhasissuedcommonstockonly.Thecompanyhasbeensuccessfulandhasa grossprofitrateof20%.Theinformationshownbelowwastakenfromthecompany'sfinancial statements.

 Beginninginventory Purchases

Endinginventory

Averageaccountsreceivable

Averagecommonstockholders'equity Sales(all on credit)

Netincome

$482,000 5,636,000

? 700,000

3,500,000 7,000,000 525,000

 Instructions

Computethefollowing:

(a)Receivables turnoverand theaverage collectionperiod. (b)Inventory turnover andthe days in inventory.

(c)Return oncommonstockholders'equity.

   Ex.189

 BoyleCorporation had thefollowingcomparativecurrentassetsandcurrentliabilities:

  Currentassets Cash

Short-terminvestments Accountsreceivable Inventory

PrepaidexpensesTotalcurrentassets

 Currentliabilities Accountspayable Salariespayable Incometax payable

Totalcurrent liabilities

Dec.31,2009

 $20,000 40,000 55,000 110,000

   35,000 $260,000

  $140,000 40,000

   20,000 $200,000

Dec.31,2008

 $30,000 10,000 95,000 90,000

   20,000 $245,000

  $110,000 30,000

   15,000 $155,000

  During2009,credit salesand cost of goodssoldwere $600,000 and$350,000, respectively.

 Instructions

Computethefollowingliquiditymeasuresfor2009: 1.Current ratio.

2.Workingcapital. 3.Acid-test ratio.

4.Receivables turnover. 5.Inventory turnover.

   Ex.190

 SelecteddatafromOates Companyarepresented below:

 Totalassets Averageassets NetincomeNetsales

Averagecommonstockholders'equity

$1,600,000 1,750,000 175,000 1,225,000 1,000,000

 Instructions

Calculatethe profitability ratiosthat canbe computedfrom the above information.

   Ex.191

 Thefollowingdata are takenfrom thefinancial statementsofDoyle Company:

  Monthlyaverage accounts receivable Netsales onaccount

Termsfor all sales are 2/10,n/30

   2009      

$520,000 5,460,000

   2008      

$500,000 4,500,000

  Instructions

(a)Computethereceivables turnoverandthe average collectionperiodfor both years.

(b)Whatconclusioncan ananalystdrawabout themanagement of the accounts receivable?

—————

—————

FinancialStatementAnalysis      18-47

  Ex.192

 Statetheeffectofthefollowingtransactionsonthecurrentratio.Useincrease,decrease,orno effect for youranswer.

 (a)     Collection ofan accountsreceivable. (b) Declaration ofcash dividends.

(c)     Additional stock issold for cash.

 (d)    Short-term investmentsare purchasedfor cash. (e)         Equipmentispurchasedfor cash.

(f)     Inventory purchasesaremadefor cash. (g)         Accountspayable are paid.

   Ex.193

 Thebalancesheet for FarleyCorporation attheend of thecurrent yearindicatesthe following:

 Bondspayable,7%.............................................................. 6%Preferredstock, $100 par............................................... Commonstock,$10par.......................................................

$4,000,000 1,000,000 3,000,000

  Incomebeforeincometaxeswas$1,120,000andincometaxesexpenseforthecurrentyear amountedto$336,000.Cashdividendspaidoncommonstockwere$300,000,andthecommon stockwassellingfor$45pershareattheendoftheyear.Therewerenoownershipchanges during theyear.

 Instructions

Determineeach of thefollowing:

(a)     timesthatbondinterest was earned. (b)         earningsper sharefor commonstock. (c)  price-earningsratio.

   Ex.194

 TheincomestatementforStovalCompanyfortheyearendedDecember31,2008appears below.

 Sales

Costof goodssold Grossprofit Expenses

Netincome

$610,000

380,000 230,000

170,000*$60,000

  *Includes$30,000 ofinterest expense and $18,000 ofincometax expense.

—————————————

 Ex.194         (cont.) Additional information:

1.CommonstockoutstandingonJanuary1,2008was40,000shares.OnJuly1,2008,10,000 more shares were issued.

 2.Themarket price ofStoval'sstockwas $15 at the endof2008.

 3.Cash dividends of$30,000were paid,$6,000ofwhich were paid topreferredstockholders.

 Instructions

Computethefollowingratiosfor2008: (a)earnings per share.

(b)price-earnings.

(c)times interestearned.

   $60,000–$6,000              54,000

  Ex.195

 GumbleCorporationhadincomefromcontinuingoperationsof$300,000fortheyearended December31, 2008. It also hadthe followingitems(before incometaxes):

1.Extraordinaryflood lossof$150,000.

2.Lossof$60,000 ondiscontinuanceofa division.

 Allitemsare subject to incometaxesata 30%tax rate.

 Instructions

Preparea partial incomestatement,beginningwith incomefrom continuing operations.

  Ex.196

 LawrenzCorporationgatheredthefollowinginformationforthefiscalyearendedDecember31, 2008:

Sales                                                                   $1,400,000 Extraordinary fire loss                                           140,000 Sellingand administrative expenses                    160,000 Costof goodssold                                               900,000 Losson sale ofequipment                                      40,000

 LawrenzCorporation issubject to a 30% incometaxrate.

 Instructions

 Preparea partial incomestatement,beginningwith incomebefore incometaxes.

   Ex.197

 DennehyCorporationhadtheinformationlistedbelowavailableinpreparinganincomestatement fortheyearendedDecember31,2008.Allamountsarebeforeincometaxes.Assumea30% incometaxratefor all items.

 Sales

Expropriationofpropertybyaforeigngovernment (loss) Incomefromoperation ofdiscontinued cement division Lossfrom disposal ofcement division

Operatingexpenses

Gainon sale ofequipment Costof goodssold

$600,000 $(120,000) $100,000$(80,000) $125,000$85,000$360,000

FinancialStatementAnalysis      18-51

 Ex.197         (cont.)

 Instructions

Prepareamultiple-stepincomestatementingoodformwhichtakesintoaccountintraperiod incometaxallocation. Ignore EPScomputations.

    Ex.198

 Indicatewhetherthefollowingitemswouldbereportedasanordinaryoranextraordinaryitemin LoganCorporation'sincome statement.

 (a)Lossattributabletolabor strike. (b)Gain onsale offixed assets.

(c)Lossfrom fire.Logan isa chemicalcompany. (d)Lossfromsale ofshort-term investments.

(e)Expropriation ofproperty byaforeigngovernment.

 (f)    Lossfrom tornadodamage.Logan Corporation is locatedin the Midwest's tornado alley. (g)Lossfrom governmentcondemnation of propertythroughnewly enacted law.

  Ex.199

 PotterCompanyhasincomefromcontinuingoperationsof$480,000fortheyearended December31, 2008. It also hasthefollowingitems (beforeconsideringincometaxes):

 (1)An extraordinaryfire lossof$180,000.

 (2)A gainof$110,000 on the discontinuance ofamajor segment.

 (3)Acorrectionofanerrorinlastyear'sfinancialstatementthatresultedina$100,000 overstatementof2007netincome.

 Assumeall itemsare subject toincometaxes ata30%taxrate.

 Instructions

 (a)     Prepare an incomestatement,beginningwith incomefrom continuing operations. (b)         Indicatethestatement presentation ofany itemnot included in (a)above.

   COMPLETIONSTATEMENTS

  200.Inanalyzingand interpretingfinancial statement information,threemajor characteristics aregenerallyevaluated:(1)                              , (2)                           ,and(3)                             .

 201.                                  analysis,alsocalledtrendanalysis,isatechniqueforevaluatinga percentageincrease or decreasefor afinancial statementitem overa period of time.

 202.Expressingeachitemwithinafinancialstatementasapercentageofabaseamountis called   analysis.

 203.Theratiosusedinevaluatingacompany'sliquidityandshort-termdebtpayingabilitythat complementeach otherarethe                                                               ratio andthe                                ratio.

 204.Thereceivablesturnoveriscalculatedbydividing                                                          byaverage

                                        .

 205.Ifinventoryturnoveris5times,andtheaverageinventorywas$400,000,thecostof goodssoldduringtheyearwas$                                                                                           andthedaysininventorywas

                            days.

 206.HansenCorporationhadnetincomefortheyearof$300,000andaprofitmarginof25%. Iftotalaverage assetswere $400,000,theasset turnoverratio was                                                                            times.

 207.The                                  ratio measures the percentageofearningsdistributed in theformof cash dividends.

 208.Thelowerthe                                    to                              ratio,themoreequity"buffer"there isavailable to thecreditors.

 209.Timesinterestearnedis calculatedbydividing                                      before                                

 and                                   by interestexpense.

 210.Discontinued operationsrefers tothedisposal of a                                      ofabusiness.

 211.Thetwo criteria necessaryfor an itemtobe classifiedas an extraordinaryitem arethat the transactionoreventmustbe(1)                                            and(2)                                         .

 212.Achangeininventorymethodsduringtheyearwouldbeclassifiedasachangein

                                      .

   MATCHING

 SETA

  213.Foreachoftheratioslistedbelow,indicatebytheappropriatecodeletter,whetheritisa liquidity ratio, aprofitability ratio, orasolvencyratio.

 Code:

L     =     Liquidity ratio

P     =     Profitability ratio S            =        Solvency ratio

  1.Price-earningsratio

 2.Assetturnover

 3.Receivablesturnover

 4.Earningsper share

 5.Payoutratio

 6.Currentratio

 7.Acid-testratio

 8.Debttototal assets ratio

 9.Timesinterestearned

         10.Inventoryturnover

    SETB

  214.Matchtheratioswiththeappropriateratiocomputationbyenteringtheappropriateletterin the spaceprovided.

 A.Current ratioB.Acid-test ratio C.Profit marginD.Assetturnover

E.Price-earnings ratio

F.Times interestearned G.Inventory turnover

H.Averagecollection period I.Days in inventory

J.Payout ratio

           1.

             2.

             3.

             4.

             5.

             6.

             7.

             8.

             9.

   10.

Costof goodssold Average inventory

 —————

Netincome Netsales

 ———————

Cashdividends Netincome

 ———————

Netsales Average assets

 ————————

Currentassets Current liabilities

 ——————————

365daysReceivables turnover

 ——————————————

Marketpriceper share of stock Earnings pershare

 ————————

365daysInventory turnover

 ——————————————————————

Incomebefore incometaxes and interestexpense Interest expense

 Cash+short-term investments +receivables (net)

 Current liabilities

    SHORT-ANSWERESSAYQUESTIONS

S-AE215

Horizontalandverticalanalysesareanalyticaltoolsfrequentlyusedtoanalyzefinancial statements.Whattypeofinformationorinsightscanbeobtainedbyusingthesetwotechniques? Explainhowtheoutputofhorizontalanalysisandverticalanalysiscanbecomparedtoindustry averages and/or competitive companies.

    S-AE216

 ManuelMentirosa,theCEOofMysticalProducts,isasuccessfulentrepreneurbutapoorstudent ofaccounting.Heasksyoutoexplaintohim,inamemo,thebasesofcomparisonforratio analysis.

   S-AE217(Ethics)

 AtrustedemployeeofWildernessTourswascaughtintheactofembezzlingfunds.He confessedtoearlierembezzlements,butretractedtheconfessionontheadviceofhisattorney. Overthecourse of themost recentquarter, it has been determined that $20,000 was embezzled.

 WildernessTourshassufferedadversepublicityintherecentpastbecauseofseriousinjuryto fivetouriststhatoccurredduringatwoweek"WinterWildsAdventure"tour.Thecompanyhas thereforedecidedtoavoidpublicityandhasagreedtodropallchargesagainsttheembezzling employee.Inreturn,theemployeehasagreedtoanotationof"Terminated—NottobeRehired" tobeappendedtohispersonnelfile.

 Required:

1.Whoarethestakeholders in thedecision not to prosecute?

 2.Was it ethicalfor thecompany to decide not to prosecute? Explain.

    S-AE218(Communication)

 KwikExpressspecializesintheovernighttransportationofmedicalequipmentandlaboratory specimens.Thecompanyhasselectedthefollowinginformationfromitsmostrecentannual reportto be thesubjectofan immediatepressrelease.

•     Thefinancial statementsare beingreleased.

•     Netincome this yearwas $2.2million.Last year's netincomehadbeen$2.0 million. •         Thecurrent ratio haschanged to2:1fromlastyear's 1.5:1

•     Thedebt/total assets ratio haschangedto4:5fromlastyear's 3:5

•     Thecompanyexpandeditstruckfleetsubstantiallybypurchasingtennewdeliveryvans.The companyalreadyhad twelve delivery vans.

•     Thecompanyis nowthe largest medicalcourierin themid-Atlanticregion.

 Required:

 Prepareabriefpressreleaseincorporatingtheinformationabove.Includeallinformation.Think

carefullywhich information (ifany) isgoodnewsfor thetcompany,andwhich (ifany)is badnews.

      CHAPTER19

  MANAGERIALACCOUNTING

   CHAPTERSTUDYOBJECTIVES

 1.Explainthedistinguishingfeaturesofmanagerialaccounting.

 2.Identifythethreebroadfunctionsofmanagement.

 3.Definethethreeclassesofmanufacturingcosts.

 4.Distinguishbetweenproductandperiodcosts.

 5.Explainthedifferencebetweenamerchandisingandamanufacturingincomestatement.

 6.Indicatehowcostofgoodsmanufacturedisdetermined.

 7.Explainthedifferencebetweenamerchandisingandamanufacturingbalancesheet.

  TRUE-FALSESTATEMENTS

  1.     Reportspreparedinfinancialaccountingaregeneral-purposereports,whereasreports prepared inmanagerialaccountingareusuallyspecial-purposereports.

 2.     Managerialaccounting informationgenerallypertainstoanentityasawholeandishighly aggregated.

 3.     Managerialaccountingappliesto allformsofbusinessorganizations.

 4.     Determiningtheunitcostof manufacturinga product isanoutput offinancialaccounting.

 5.     Managerialaccountinginternalreportsarepreparedmorefrequentlythanareclassified financialstatements.

 6.     Themanagementfunctionoforganizinganddirectingismainlyconcernedwithsetting goalsand objectives fortheentity.

 7.     TheSarbanes-OxleyActreplacesgenerallyacceptedaccountingprinciplesina manufacturing company.

 8.     Controllingistheprocessofdeterminingwhetherplannedgoalsarebeingmet.

 9.     Decision-makingisan integralpart oftheplanning,directing,andcontrollingfunctions.

 10.     Bothdirectlaborcostand indirectlabor costareproductcosts.

 11.     Manufacturingcoststhatcannotbeclassifiedasdirectmaterialsordirectlaborare classifiedasmanufacturingoverhead.

 12.     Rawmaterialsareequaltodirectmaterials minusindirectmaterials.

 13.     Rawmaterialsthat canbe convenientlyand directlyassociated withafinishedproduct are called materialsoverhead.

 14.     Thetotalcostofafinished productdoesnotgenerallycontain equalamountsof materials, labor,andoverheadcosts.

 15.     Directmaterialscosts and indirectmaterialscosts aremanufacturingoverhead.

 16.     Periodcostsincludesellingandadministrativeexpenses.

 17.     Indirectmaterialsandindirectlaborare bothinventoriablecosts.

 18.     Directmaterialsanddirect labor aretheonlyproductcosts.

 19.     Totalperiodcostsaredeductedfromtotalcostofworkinprocesstocalculatecostof goodsmanufactured.

 20.     Periodcostsarenot inventoriablecosts.

 21.     Endingfinishedgoodsinventoryappearsonboththebalancesheetandtheincome statementofamanufacturingcompany.

 22.     Thebeginningworkinprocessinventoryappearsonboththebalancesheetandthecost of goodsmanufacturedscheduleof amanufacturingcompany.

 23.     Incalculating grossprofitforamanufacturingcompany,thecostofgoods manufacturedis deductedfrom netsales.

 24.     Finishedgoods inventorydoesnotappearonacostofgoodsmanufacturedschedule.

 25.     Iftheendingworkinprocessinventoryisgreaterthanthebeginningworkinprocess inventory,thenthecostofgoodsmanufactured willbelessthantotalmanufacturingcosts for theperiod.

 26.     Finishedgoodsinventoryforamanufacturingcompanyisequivalenttomerchandise inventory for amerchandisingcompany.

 27.     Rawmaterialsinventoryis not anassetuntilitis usedtomakeaproduct.

 28.     Rawmaterialsinventoryshowsthecostofcompletedgoodsavailableforsaleto customers.

 29.     Thesupplychainis alltheactivitiesassociatedwithprovidingaproductorservice.

 30.     Manycompanieshavesignificantlyloweredinventorylevelsandcostsusingjust-in-time inventorymethods.

 Additional True-FalseQuestions

 31.     Managerialaccountingisprimarilyconcernedwithmanagersandexternalusers.

 32.     Planninginvolvescoordinatingthediverseactivitiesandhumanresourcesofacompany toproduceasmoothrunningoperation.

 33.     Whenthephysicalassociationofrawmaterialswiththefinishedproductistoosmallto trace in termsof cost,theyareusuallyclassifiedasindirectmaterials.

 34.     Productcostsarealsocalledinventoriablecosts.

 35.     Directmaterialsbecomeacostofthefinishedgoodsmanufacturedwhentheyare acquired,not whentheyareused.

 36.     Thesumofthedirect materialscosts,directlaborcosts,andbeginningworkinprocess is the totalmanufacturingcostsfor theyear.

 37.     Inamanufacturingcompanybalance sheet,manufacturinginventoriesarereportedinthe currentassetssectionintheorderof theirexpecteduseinproduction.

    MULTIPLECHOICEQUESTIONS

  38.     Managerialaccountingappliesto each of thefollowing types of businessesexcept a.servicefirms.

b.merchandisingfirms. c.manufacturingfirms.

d.Managerialaccountingappliestoalltypesoffirms.

 39.     Managerialaccountinginformationisgenerallypreparedfor a.stockholders.

b.creditors.c.managers.

d.regulatoryagencies.

 40.     Managerialaccountinginformation

a.pertainstotheentityasawholeandishighlyaggregated. b.pertainstosubunitsof theentityandmaybe verydetailed. c.is preparedonlyoncea year.

d.isconstrainedbytherequirementsof generallyacceptedaccountingprinciples.

 41.     Themajorreportingstandardfor presentingmanagerialaccountinginformationis a.relevance.

b.generallyacceptedaccountingprinciples. c.thecost principle.

d.thecurrenttaxlaw.

 42.     Managerialaccountingisalsocalled a.managementaccounting.

b.controlling.

c.analyticalaccounting. d.insidereporting.

 43.     Whichofthefollowingisnot aninternaluser? a.Creditor

b.Departmentmanager c.Controller

d.Treasurer

ManagerialAccounting     19-7

 44.     Managerialaccountingdoesnotencompass a.calculatingproductcost.

b.calculatingearningsper share. c.determiningcostbehavior.

d.profitplanning.

 45.     Managerialaccountingisapplicableto a.serviceentities.

b.manufacturingentities. c.not-for-profitentities.d.all ofthese.

 46.     Managementaccountantswouldnot a.assistin budgetplanning.

b.preparereportsprimarilyfor externalusers. c.determinecostbehavior.

d.be concernedwiththe impactof costandvolumeon profits.

 47.     Internalreportsmustbecommunicated a.daily.

b.monthly. c.annually.

d.as needed.

 48.     Financialstatementsforexternaluserscanbedescribedas a.user-specific.

b.general-purpose. c.special-purpose.

d.managerialreports.

 49.     Managerialaccountingreports canbedescribedas a.general-purpose.

b.macro-reports.c.special-purpose.

d.classifiedfinancial statements.

 50.     Thereportingstandardfor externalfinancialreports is a.industry-specific.

b.company-specific.

c.generallyacceptedaccountingprinciples. d.department-specific.

 51.     Whichofthefollowingstatements aboutinternalreports isnottrue?

a.Thecontentofinternalreportsmayextendbeyondthedouble-entryaccounting system.

b.Internalreportsmayshowallamountsatmarketvalues. c.Internalreportsmaydiscussprospectiveevents.

d.Mostinternalreportsaresummarizedratherthandetailed.

19-8        

 52.     Inananalogous sense, externaluseristointernaluserasgenerally acceptedaccounting principles areto

a.timely.

b.special-purpose.

c.relevancetodecision. d.SEC.

 53.     Internalreports aregenerally a.aggregated.

b.detailed.c.regulated. d.unreliable.

 54.     A distinguishingfeatureofmanagerialaccountingis a.externalusers.

b.general-purposereports. c.verydetailedreports.

d.quarterlyandannualreports.

 55.     Whatactivitiesandresponsibilities are notassociatedwithmanagement'sfunctions? a.Planning

b.Accountability c.Controlling

d.Directing

 56.     Planningisafunctionthatinvolves

a.hiringtheright peopleforaparticularjob.

b.coordinatingtheaccountinginformationsystem. c.settinggoalsandobjectivesfor anentity.

d.analyzingfinancial statements.

 57.     Themanagerialfunctionofcontrolling

a.isperformedonlybythecontrollerof acompany.

b.isonlyapplicablewhenthecompanysustainsa loss.

c.isconcernedmainlywithoperatingamanufacturingsegment. d.includesperformance evaluationbymanagement.

 58.     Whichofthefollowingisnot amanagementfunction? a.Constraining

b.Planningc.Controlling d.Directing

 59.     A managerthat isestablishingobjectives isperformingwhichmanagementfunction? a.Controlling

b.Directing c.Planning

d.Constraining

ManagerialAccounting     19-9

 60.     Themanagementfunctionthatrequiresmanagerstolookaheadandestablishobjectives is

a.controlling. b.directing.c.planning.

d.constraining.

 61.     Indeterminingwhetherplannedgoalsarebeingmet,amanager isperformingthefunction of

a.     planning. b.follow-up. c.directing.d.controlling.

 62.     Whichofthefollowingisnot aseparatemanagementfunction? a.Planning

b.Directing

c.Decision-making d.Controlling

 63.     Directingincludes

a.providingaframeworkformanagementtohavecriteriatoterminateemployeeswhen needed.

b.runningadepartment underqualitycontrolstandardsuniversallyaccepted.

c.coordinatingacompany'sdiverseactivitiesandhumanresourcestoproducea smooth-running operation.

d.developingacomplexperformancerankingsystemtogivecertainhighperformers goodraises.

 64.     Bothdirectmaterialsandindirectmaterialsare a.rawmaterials.

b.manufacturingoverhead. c.merchandiseinventory.

d.solddirectlyto customersbyamanufacturingcompany.

 65.     Theworkoffactoryemployeesthatcanbephysicallyanddirectlyassociatedwith converting rawmaterialsintofinishedgoodsis

a.manufacturingoverhead. b.indirectmaterials.

c.indirectlabor. d.directlabor.

 66.     Whichoneof thefollowing wouldnotbeclassifiedasmanufacturingoverhead? a.Indirectlabor

b.Directmaterials

c.Insuranceonfactorybuilding d.Indirectmaterials

 67.     Manufacturingcostsinclude

a.directmaterialsand directlaboronly.

b.directmaterialsandmanufacturingoverheadonly. c.directlaborandmanufacturingoverheadonly.

d.directmaterials,directlabor,andmanufacturingoverhead.

19-10

 68.     Whichoneof thefollowingis notadirectmaterial? a.Atireusedfora lawnmower

b.Plasticusedinthecoveredcasefor ahomePC

c.Steelusedinthemanufacturingof steel-radialtires d.Lubricantforaball-bearingjointfor alarge crane

 69.     Whichoneof thefollowingis notacost elementinmanufacturingaproduct? a.Manufacturingoverhead

b.Directmaterials c.Officesalariesd.Directlabor

 70.     Amanufacturingprocess requiressmallamounts ofglue.Theglueusedintheproduction process is classifiedasa(n)

a.periodcost.

b.indirectmaterial. c.directmaterial.

d.miscellaneousexpense.

 71.     The wagesof atimekeeperinthefactory wouldbeclassifiedas a.aperiodcost.

b.directlabor.c.indirectlabor.

d.compliancecosts.

 72.     Whichoneof thefollowingisnotconsidered asmaterialcosts? a.Partiallycompletedmotorenginesforamotorcycleplant

b.Boltsusedinmanufacturingthecompressorofanengine c.Rivets forthewingsof a newcommercialjetaircraft

d.Lumberusedtobuildtables

 73.     Whichofthefollowingisnot amanufacturingcostcategory? a.Costofgoodssold

b.Directmaterials c.Directlabor

d.Manufacturingoverhead

 74.     Ascurrenttechnologychangesmanufacturingprocesses, it is likelythatdirect a.laborwill increase.

b.laborwilldecrease.

c.materialswill increase. d.materialswilldecrease.

 75.     Fortheworkoffactoryemployeestobeconsideredasdirectlabor,theworkmustbe conveniently and

a.materiallyassociatedwithrawmaterialsconversion.b.periodicallyassociatedwithrawmaterialsconversion. c.physicallyassociatedwith rawmaterials conversion. d.promptlyassociated with rawmaterialsconversion.

ManagerialAccounting     19-11

 76.     Whichofthefollowingisnotclassifiedasdirectlabor? a.Bottlersofbeer ina brewery

b.Copymachineoperatorsat acopyshop c.Wagesof supervisors

d.Bakersinabakery

 77.     Cotterpinsandlubricantsusedirregularlyina productionprocessareclassifiedas a.miscellaneousexpense.

b.directmaterials.c.indirectmaterials.

d.nonmaterialmaterials.

 78.     Whichofthefollowingisnot anothernamefor thetermmanufacturingoverhead? a.Factoryoverhead

b.Pervasivecosts c.Burden

d.Indirectmanufacturingcosts

 79.     Becauseof automation,whichcomponentof product costisdeclining? a.Directlabor

b.Directmaterials

c.Manufacturingoverhead d.Advertising

 80.     Theproductcostthatismostdifficulttoassociatewitha productis a.directmaterials.

b.directlabor.

c.manufacturingoverhead. d.advertising.

 81.     Manufacturing coststhatcannotbeclassifiedaseitherdirectmaterialsordirectlaborare known as

a.periodcosts.

b.nonmanufacturingcosts.

c.sellingandadministrativeexpenses. d.manufacturingoverhead.

 82.     Whichoneof thefollowingisanexampleofa periodcost?

a.AchangeinbenefitsfortheunionworkerswhoworkintheNewYorkplantofa Fortune1000manufacturer

b.Workers'compensation insuranceonfactoryworkers' wagesallocatedtothefactory c.Aboxcost associatedwith computers

d.Amanager'ssalaryfor workthat isdoneinthecorporateheadoffice

 83.     Whichoneof thefollowingcosts wouldnotbe inventoriable? a.Periodcosts

b.Factoryinsurancecosts c.Indirectmaterials

d.Indirectlabor costs

19-12

 84.     Directmaterialsanddirectlaborofacompanytotal$6,000,000.Ifmanufacturing overheadis$3,000,000,whatis directlaborcost?

a.$3,000,000 b.$6,000,000 c.$0

d.Cannotbedeterminedfromtheinformationprovided

 85.     Whichofthefollowingare periodcosts? a.Rawmaterials

b.Directmaterialsanddirectlabor

c.Directlaborandmanufacturingoverhead d.Sellingexpenses

 86.     Salescommissionsare classifiedas a.overheadcosts

b.periodcosts.c.productcosts. d.indirectlabor.

 87.     Productcostsconsistof

a.directmaterialsand directlaboronly.

b.directmaterials,directlabor,andmanufacturingoverhead. c.sellingandadministrativeexpenses.

d.periodcosts.

 88.     Whichoneof thefollowingrepresentsaperiodcost? a.The VPof Sales'salaryandbenefits

b.Overheadallocatedtothemanufacturingoperations c.Laborcostsassociatedwithqualitycontrol

d.Fringebenefitsassociatedwithfactoryworkers

 89.     Productcostsarealsocalled a.directcosts.

b.overheadcosts.

c.inventoriablecosts. d.capitalizablecosts.

 90.     For inventoriablecoststo becomeexpensesunderthematchingprinciple, a.theproductmust befinishedandinstock.

b.theproductmustbeexpensedbasedonitspercentage-of-completion. c.theproductto whichtheyattachmustbesold.

d.allaccountspayablemust besettled.

 91.     Asinventoriablecostsexpire, theybecome a.sellingexpenses.

b.grossprofit.

c.cost of goodssold. d.salesrevenue.

ManagerialAccounting     19-13

 92.     A manufacturingcompanycalculatescostofgoods soldasfollows:

a.BeginningFG inventory+costofgoodspurchased– endingFGinventory.

b.EndingFGinventory–costofgoods manufactured+beginningFGinventory. c.BeginningFGinventory –costofgoodsmanufactured–endingFGinventory. d.BeginningFG inventory+costofgoodsmanufactured– endingFGinventory.

 93.     A manufacturingcompanyreportscostofgoodsmanufacturedasa(n) a.currentasset onthe balancesheet.

b.administrativeexpenseontheincomestatement.

c.componentinthecalculationof costofgoodssold ontheincomestatement. d.componentof therawmaterialsinventoryonthebalancesheet.

 94.     Thesubtotal,"Costofgoodsmanufactured"appearson a.amerchandisingcompany'sincomestatement.

b.a manufacturingcompany'sincomestatement.

c.bothamanufacturingand amerchandisingcompany'sincomestatement.d.neitheramerchandisingnoramanufacturingcompany's incomestatement.

 95.     Cost ofgoodsmanufacturedinamanufacturingcompanyis analogousto a.Endinginventoryinamerchandisingcompany.

b.Beginninginventory ina merchandisingcompany.

c.Costofgoodsavailablefor saleinamerchandisingcompany. d.Costofgoods purchasedinamerchandisingcompany.

 96.     Costofgoodssold

a.onlyappearsonmerchandisingcompanies'income statements. b.onlyappearsonmanufacturingcompanies'incomestatements.

c.appearsonbothmanufacturingandmerchandisingcompanies'incomestatements. d.iscalculatedexactlythesameformerchandisingandmanufacturingcompanies.

 97.     HollernCombines,Inc.has$10,000ofendingfinishedgoodsinventoryasofDecember 31,2008.Ifbeginningfinishedgoodsinventorywas$5,000andcostofgoodssoldwas $20,000,howmuchwould Hollernreportforcostof goodsmanufactured?

a.$22,500 b.$5,000c.$25,000 d.$15,000

 98.     Costofgoodsmanufacturediscalculatedasfollows:

a.BeginningWIP+directmaterialsused+directlabor+manufacturingoverhead+ endingWIP.

b.Directmaterialsused+directlabor+manufacturingoverhead–beginningWIP+ endingWIP.

c.BeginningWIP+directmaterialsused+directlabor+manufacturingoverhead– endingWIP.

d.Directmaterialsused+directlabor+manufacturingoverhead–endingWIP– beginningWIP.

19-14

 99.    Iftheamountof"Costofgoodsmanufactured"duringaperiodexceedstheamountof "Totalmanufacturingcosts"fortheperiod, then

a.endingworkinprocessinventoryisgreaterthanorequaltotheamountofthe beginningworkin processinventory.

b.endingworkinprocessisgreaterthantheamountofthebeginningworkinprocess inventory.

c.endingwork inprocessis equalto thecost ofgoodsmanufactured.

d.endingworkinprocessislessthantheamountofthebeginningworkinprocess inventory.

 100.     Onthecosts ofgoodsmanufacturedschedule,depreciationonfactoryequipment

a.isnotlistedbecauseitisincludedwithDepreciationExpenseontheincome statement.

b.appearsinthemanufacturingoverheadsection. c.isnot listedbecauseitisnotaproductcost.

d.isnotaninventoriablecost.

 101.     Onthecostsofgoodsmanufacturedschedule,theitemrawmaterialsinventory(ending) appearsasa(n)

a.additiontorawmaterialspurchases.

b.additiontorawmaterialsavailablefor use.

c.subtractionfromrawmaterialsavailableforuse. d.subtractionfromrawmaterialspurchases.

 Usethefollowing informationforquestions102–104.

 CarlyManufacturingCompany'saccountingrecordsreflectthefollowinginventories:

  Rawmaterialsinventory Workinprocessinventory Finishedgoods inventory

Dec. 31,2008 $310,000

300,000 190,000

Dec.31, 2007 $260,000

160,000 150,000

 During2008,$500,000ofrawmaterialswerepurchased,directlaborcostsamountedto $600,000,andmanufacturingoverheadincurredwas$480,000.

 102.     Thetotalrawmaterialsavailablefor useduring2008forCarlyManufacturingCompanyis a.$810,000.

b.$260,000. c.$450,000. d.$760,000.

  103.     Carly ManufacturingCompany's totalmanufacturingcostsincurredin2008amountedto a.$1,530,000.

b.$1,490,000. c.$1,390,000. d.$1,580,000.

 104.     IfCarlyManufacturingCompany'scostofgoodsmanufacturedfor2008amountedto $1,390,000,itscostof goodssoldfor the year is

a.$1,500,000. b.$1,250,000. c.$1,350,000. d.$1,430,000.

ManagerialAccounting     19-15

 105.     Whatis work inprocess inventorygenerallydescribedas?

a.Costsapplicabletounitsthathavebeenstartedinproductionbutareonlypartially completed

b.Costsassociatedwiththeendstageofmanufacturingthatarealmostalways completeandreadyfor customers

c.Costsstrictlyassociatedwithdirectlabor

d.Beginningstageproductioncostsassociatedwithlaborcostsdealingwithbringingin rawmaterialsfromtheshippingdocks

 106.     UtleyManufacturingCompanyreportedthefollowingyear-endinformation:beginning workinprocessinventory,$180,000;costofgoodsmanufactured,$516,000;beginning finishedgoodsinventory,$252,000;endingworkinprocessinventory,$220,000;and endingfinishedgoodsinventory,$264,000.UtleyManufacturingCompany'scostofgoods soldforthe yearis

a.$504,000. b.$528,000. c.$476,000. d.$252,000.

 107.     NeeleyManufacturing Companyreportedthefollowingyear-endinformation:

 Beginningworkinprocessinventory Beginningrawmaterialsinventory Endingwork inprocessinventory Endingrawmaterialsinventory

Rawmaterialspurchased Directlabor Manufacturingoverhead

$1,080,000 300,000 900,000 480,000 960,000 900,000 600,000

 NeeleyManufacturing Company's cost ofgoodsmanufacturedfortheyearis a.$2,280,000.

b.$2,460,000. c.$2,100,000. d.$2,640,000.

 Usethefollowing informationforquestions108–110.

 HopkinsManufacturingInc.'saccountingrecordsreflectthefollowinginventories:

  Rawmaterialsinventory Workinprocessinventory Finishedgoods inventory

Dec.31, 2007 $80,000

104,000 100,000

Dec.31, 2008 $64,000

116,000 92,000

  During2008,Hopkinspurchased$760,000ofrawmaterials,incurreddirectlaborcostsof $100,000,andincurredmanufacturingoverheadtotaling$128,000.

 108.     Howmuchisrawmaterialstransferredtoproductionduring2008forHopkins Manufacturing?

a.$992,000 b.$776,000 c.$760,000 d.$744,000

19-16

 109.     Howmuchis totalmanufacturingcosts incurredduring2008for Hopkins? a.$992,000

b.$1,004,000 c.$988,000d.$1,000,000

 110.     AssumeHopkinsManufacturing‘scostofgoodsmanufacturedfor2008amountedto $960,000.Howmuch would it reportascost ofgoods soldfor theyear?

a.$968,000b.$1,000,000 c.$1,060,000 d.$952,000

 111.     McNally Manufacturing Companyreportedthefollowingyear-endinformation:

 Beginningworkinprocessinventory Beginningrawmaterialsinventory Endingworkinprocessinventory Endingrawmaterialsinventory

Rawmaterialspurchased Directlabor Manufacturingoverhead

$46,000 24,000 50,000 20,000 680,000 240,000 100,000

 HowmuchisMcNally Manufacturing‘scostofgoodsmanufacturedfortheyear? a.$684,000

b.$1,024,000 c.$1,020,000 d.$1,028,000

 Usethefollowing informationforquestions112–113.

 ModineManufacturing Inc.'s accountingrecordsreflect thefollowinginventories:

  Rawmaterialsinventory Workinprocess inventory Finishedgoods inventory

Dec.31, 2007 $120,000

156,000 150,000

Dec.31, 2008 $96,000

174,000 138,000

  During2008,Modinepurchased$1,140,000ofrawmaterials,incurreddirectlaborcostsof $150,000,andincurredmanufacturingoverheadtotaling$192,000.

  112.     Howmuchis totalmanufacturingcosts incurredduring2008for Modine? a.$1,488,000

b.$1,506,000 c.$1,482,000 d.$1,500,000

 113.     HowmuchwouldModine Manufacturingreportascost ofgoodsmanufacturedfor2008? a.$1,464,000

b.$1,524,000 c.$1,518,000 d.$1,488,000

ManagerialAccounting     19-17

 114.     SauderManufacturing Companyreportedthefollowingyear-endinformation:

 Beginningworkinprocessinventory Beginningrawmaterialsinventory Endingworkinprocessinventory Endingrawmaterialsinventory

Rawmaterialspurchased Directlabor Manufacturingoverhead

$35,000 18,000 38,000 15,000 510,000 180,000 75,000

 HowmuchisSauder Manufacturing‘stotalcostof work inprocessfortheyear? a.$513,000

b.$768,000 c.$765,000 d.$803,000

 115.     HardiganManufacturingCompanyreportedthefollowingyear-endinformation:beginning workinprocessinventory,$80,000;costofgoodsmanufactured,$980,000;beginning finishedgoodsinventory, $50,000;endingworkinprocessinventory,$70,000;andending finishedgoodsinventory,$40,000.HowmuchisHardigan‘scostofgoodssoldforthe year?

a.$980,000b.$990,000c.$970,000d.$1,000,000

 Usethefollowing informationforquestions116–119.

 Rawmaterialsinventory,January1 Rawmaterialsinventory,December31 Workinprocess,January1

Workinprocess, December31 Finishedgoods, January1 Finishedgoods, December31 RawmaterialspurchasesDirectlabor

Factoryutilities Indirectlabor Factorydepreciation

Sellingandadministrativeexpenses

  $     20,000 40,000 18,000 12,000 40,000 32,000 1,000,000 460,000 150,000 50,000 400,000 420,000

  116.   Directmaterialsusedis a.$1,060,000.b.$1,020,000.c.$1,000,000.

d.$980,000.

 117.     Assumeyouranswertoquestion116aboveis$1,000,000.Totalmanufacturingcosts equal

a.$2,060,000. b.$2,054,000. c.$1,860,000. d.$2,480,000.

19-18

 118.     Assumeyouranswertoquestion117aboveis$2,000,000.Costofgoodsmanufactured equals

a.$1,992,000. b.$1,994,000. c.$2,006,000. d.$2,008,000.

 119.     Assumeyouranswertoquestion118aboveis$2,040,000.Thecostofgoodssoldis a.$2,046,000.

b.$2,008,000. c.$2,032,000. d.$2,048,000.

 Usethefollowing informationforquestions120–123:

 Rawmaterialsinventory,January1 Rawmaterialsinventory,December31 Workinprocess,January1

Workinprocess, December31 Finishedgoods, January1 Finishedgoods, December31 RawmaterialspurchasesDirectlabor

Factoryutilities Indirectlabor Factorydepreciation

Sellingandadministrativeexpenses

  $     30,000 60,000 27,000 18,000 60,000 48,000 1,500,000 690,000 225,000 75,000 600,000 630,000

  120.   Directmaterialsusedis a.$1,590,000.b.$1,530,000.c.$1,500,000.d.$1,470,000.

 121.     Assumeyouranswertoquestion120aboveis$1,500,000.Totalmanufacturingcosts equal

a.$3,090,000. b.$3,081,000. c.$2,790,000. d.$3,720,000.

 122.Assumeyouranswertoquestion121aboveis$3,000,000.Costofgoodsmanufactured equals

a.$2,988,000. b.$2,991,000. c.$3,009,000. d.$3,012,000.

 123.     Assumeyouranswertoquestion122aboveis$3,060,000.Thecostofgoodssoldis a.$3,069,000.

b.$3,012,000. c.$3,048,000. d.$3,072,000.

ManagerialAccounting     19-19

 124.     SamsonCompanyreportedtotalmanufacturingcostsof$130,000,manufacturing overheadtotaling$26,000,anddirectmaterialstotaling$32,000.                Howmuchisdirect laborcost?

a.Cannotbedeterminedfromtheinformationprovided. b.$188,000

c.$58,000 d.$72,000

 125.     Giventhefollowingdatafor MehringCompany,compute(A)totalmanufacturingcostsand (B)costsofgoodsmanufactured:

 Directmaterialsused Directlabor Manufacturingoverhead Operatingexpenses

$180,000 75,000 225,000 263,000

Beginningworkinprocess Endingworkinprocess Beginningfinishedgoods Endingfinishedgoods

$30,000 15,000 38,000 23,000

      (A)    

a.      $465,000 b.  $480,000 c.     $480,000 d.     $495,000

    (B)    

$495,000 $465,000 $495,000 $510,000

  126.     PennerCompanyreportedtotalmanufacturingcostsof$195,000,manufacturing overheadtotaling$39,000,anddirectmaterialstotaling$48,000.                Howmuchisdirect laborcost?

a.Cannotbedeterminedfromtheinformationprovided. b.$282,000

c.$87,000d.$108,000

 127.     GiventhefollowingdataforGlennonCompany,compute(A)totalmanufacturingcosts and (B) costs ofgoodsmanufactured:

 Directmaterialsused Directlabor Manufacturingoverhead Operatingexpenses

      (A)    

a.         $620,000 b.     $640,000 c.     $640,000 d.     $660,000

$240,000 100,000 300,000 350,000

      (B)    

$660,000 $620,000 $660,000 $680,000

Beginningworkinprocess Endingworkinprocess Beginningfinishedgoods Endingfinishedgoods

$40,000 20,000 50,000 30,000

 128.     Whattermdescribesallactivitiesassociatedwithprovidingaproductorservice? a.Themanufacturingchain

b.Theproductchain c.Thesupplychain d.Thevaluechain

19-20

 129.     Whichoneofthefollowingdoesnotappearonthebalancesheetofamanufacturing company?

a.Finishedgoods inventory b.Workinprocess inventory

c.Costofgoodsmanufactured d.Rawmaterialsinventory

 130.     The equivalentof finishedgoodsinventoryfor amerchandisingfirmisreferred toas a.purchases.

b.costof goodspurchased. c.merchandiseinventory.d.rawmaterialsinventory.

 131.     Howhavemanycompaniessignificantlyloweredinventorylevelsandcosts? a.Theyuseactivity-basedcosting.

b.Theyutilizeanenterpriseresourceplanning system. c.Theyhavea just-in-timemethod.

d.Theyfocusonatotalqualitymanagementsystem.

   Additional MultipleChoiceQuestions

 132.     Financialandmanagerialaccountingaresimilarinthatboth a.havethesameprimaryusers.

b.producegeneral-purposereports.

c.havereportsthat arepreparedquarterlyand annually. d.dealwiththeeconomiceventsofanenterprise.

  133.     Thefunctionthat pertainstokeepingtheactivitiesof theenterpriseontrackis a.planning.

b.directing.c.controlling.

d.accounting.

  134.     Propertytaxesonamanufacturingplantareanelementofa

 Product Cost a.  Yes

b.             Yes c.              No d.             No

Period CostNoYesYesNo

  135.     For amanufacturingcompany,which ofthefollowingisan exampleofaperiodcost rather than a productcost?

a.Depreciationonfactoryequipment b.Wagesof salespersons

c.Wagesofmachineoperators

d.Insuranceonfactoryequipment

ManagerialAccounting     19-21

 136.     For amanufacturingfirm,cost ofgoodsavailablefor saleiscomputedbyaddingthe beginningfinishedgoodsinventoryto

a.costof goodspurchased.

b.costofgoodsmanufactured. c.netpurchases.

d.totalmanufacturingcosts.

 137.     Ifthecostofgoodsmanufacturedislessthanthecostofgoodssold,whichofthe followingis correct?

a.FinishedGoodsInventoryhasincreased.b.WorkinProcessInventoryhasincreased. c.FinishedGoodsInventoryhasdecreased. d.Work in ProcessInventoryhasdecreased.

 138.     Theprincipaldifferencebetweenamerchandisingandamanufacturingincomestatement is the

a.costofgoodssoldsection. b.extraordinaryitemsection. c.operatingexpensesection. d.revenuesection.

 139.     Ifthe totalmanufacturingcostsare greater than thecostofgoodsmanufactured,whichof the followingiscorrect?

a.WorkinProcessInventoryhasincreased. b.FinishedGoodsInventoryhasincreased. c.WorkinProcessInventoryhasdecreased. d.FinishedGoodsInventoryhasdecreased.

 140.     Thesumof thedirectmaterialscosts,directlaborcosts,andmanufacturingoverhead incurredisthe

a.costofgoodsmanufactured.b.totalmanufacturingoverhead. c.totalmanufacturingcosts.

d.totalcostof workinprocess.

 141.    Theinventoryaccountsthatshowthecostofcompletedgoodsonhandandthecosts applicable toproductionthat isonlypartiallycompletedare,respectively

a.WorkinProcessInventoryandRawMaterialsInventory.b.FinishedGoodsInventoryandRawMaterialsInventory.c.FinishedGoodsInventoryandWorkinProcessInventory. d.RawMaterialsInventoryandWorkinProcessInventory.

      BRIEFEXERCISES

 BE142

 PresentedbelowareTruckCompany‘smonthlymanufacturingcostdatarelatedtoitspersonal computerproducts.

 (a)Taxesonfactorybuilding (b)Rawmaterials

(c)Depreciationonmanufacturingequip. (d)Wagesforassembly lineworkers

$820,000 66,000 210,000 340,000

 Instructions

 Entereachcost iteminthefollowingtable,placingan―X‖ under theappropriateheadings.

   DirectMaterials (a)

(b) (c) (d)

ProductCosts

DirectLabor           Factory Overhead

   BE143

 Determinewhethereachofthefollowingcostsshouldbeclassifiedasdirectmaterials(DM), directlabor(DL), ormanufacturingoverhead(MO).

 a.              Depreciationonfactoryequipment

 b.              Tablelegsused inmanufacturingtables c.                 Wagespaidto assemblylineworkers

d.             Factoryrent

    BE144

 Indicatewhethereachof thefollowingcosts ofapencilmanufacturerwould beclassifiedasdirect materials (DM),directlabor(DL), ormanufacturingoverhead(MO).

 a.              Depreciationof pencilpaintingmachinery b.                 Leadinsertedintopencils

c.              Factoryutilities

 d.             Wagesof assemblyline worker e.    Salaryof supervisor

f.              Factorymachinerymaintenance g.  Wood

h.              Erasercompound

   BE145

 PresentedbelowareCricketCompany‘smonthlymanufacturingcostdatarelatedtoitspersonal computerproducts.

a.Harddrivesandmemorysticks                                     $30,000 b.Wagesto assembleequipment                                                       $65,000 c.Insuranceonmanufacturingbuilding                          $41,000 d.Wagesforfactorysupervisors                                     $64,000

 Instructions

 Entereachcost iteminthefollowingtable,placingan‗X‘ undertheappropriateheadings.

  ProductCosts

    DirectMaterials

 DirectLabor

 Factory Overhead

  a.

     b.

     c.

     d.

            BE146

 Identifywhethereachofthefollowingis classifiedasaproductcost or aperiod cost.

                                1.Directlabor

                                2.Directmaterials

                                3.Factoryutilities

                                4.Repairsto officeequipment

                                5.Propertytaxesonfactorybuilding

                                6.Salessalaries

   BE147

 CribaManufacturingCompanyhasthefollowingdata:directlabor$630,000,directmaterials used $421,000,totalmanufacturingoverhead$206,000,andbeginning work inprocess$42,000.

 Instructions

 Compute(a)totalmanufacturingcosts and(b)total costof workin process.

    BE148

 Presentedbelowareincomplete2009manufacturingcostdatafor SwartnezCorporation.

  DirectMaterialsUsed

 (a)              $17,000

  (b)              $148,000

DirectLabor

 $42,000

  ?

FactoryOverhead

 ?

  $112,000

TotalManufacturingCosts

 $73,000

  $420,000

  Instructions

Determinethemissingamounts.

   BE149

 Presentedbelowareincomplete2008manufacturingcostdatafor SupremeCorporation.

  DirectMaterialsUsed

  DirectLabor

  FactoryOverhead

  TotalManufacturingCosts

  (a)

  $38,000

  $72,000

  ?

  $164,000

  (b)

  $95,000

  ?

  $70,000

  $305,000

  (c)

  ?

  $80,000

  $120,000

  $260,000

  Instructions

 Determinethemissingamounts.

     BE150

 RaynorManufacturingCompanyhasthefollowingdata:

 Directlabor

Directmaterialsused

Totalmanufacturingoverhead Endingwork inprocess Beginningworkinprocess

$46,000 84,000 60,000 30,000 40,000

  Instructions

Compute(a)totalmanufacturingcosts and(b)cost ofgoodsmanufactured.

   BE151

 InalphabeticalorderbelowarecurrentassetitemsforSudlerCompanyasofDecember31, 2008.Preparethecurrent assetssectionof thecompany‘sbalancesheetasof thesamedate.

 Accountsreceivable Cash

Finishedgoods Prepaidexpenses Rawmaterials Workinprocess

$41,000 56,000 21,000 3,000 12,000 32,000

  EXERCISES

Ex.152

 Financialaccountinginformationandmanagerialaccountinginformationhaveanumberof distinguishingcharacteristics.Foreachofthecharacteristicslistedbelow,indicatewhich characteristicsaremorecloselyrelatedtofinancialaccountingbyplacingtheletter"F"inthe spacetotheleftoftheitemandindicatethosecharacteristicswhicharemorecloselyassociated with managerialaccountingbyplacingtheletter"M" totheleftof theitem.

 1.     General-purposereports2.        Reportsareusedinternally

3.     Preparedinaccordancewithgenerallyacceptedaccountingprinciples 4.        Specialpurposereports

5.     Limitedto historicalcostdata

 6.     Reportingstandard isrelevancetothedecisiontobemade 7.        Financialstatements

8.     Reportsgenerallypertaintothebusinessasawhole 9.        Reportsgenerallypertaintosubunits

10.     Reportsissuedquarterlyor annually

  Ex.153

 Determinewhethereachof thefollowing isclassified as:

 DM:Directmaterials DL:Directlabor

MO:Manufacturingoverhead

           1.Assemblylineworkers'wages.

           2.Factorysupervisors'salaries.

           3.Steelusedinmanufacturingproduct.

           4.Insuranceonfactorybuilding.

           5.Rivetsandscrewsusedinproduction.

           6.Tiresusedinmanufacturingvehicles.

    Ex.154

 Presentedbelowis a listofcostsandexpensesincurredinthefactorybyNu-WayCorporation,a manufacturer ofrecreationalvehicles.

 1.     Propertytaxesonthefactory land 2.        Nailsandglueusedin production 3.        Cabinetmaker'swages

4.     Factorysupervisors‘salaries 5.        Metalusedinmanufacturing

6.     Depreciationonfactorymachines 7.        Factoryutilities

8.     Carpetingfortherecreationalvehicles 9.        Propertytaxesonthefactory building

10.     Insuranceonfactoryequipment

ManagerialAccounting     19-29

 Ex.154         (cont.)

 Instructions

Classifytheaboveitemsintothefollowingcategories:

 DM— Direct Materials DL— DirectLabor

MO— ManufacturingOverhead

    Ex.155

 Foreachitem, identifyall applicablecostlabels. Usethefollowing codeinyouranswer:

 1— ProductCost 2— PeriodCost

 a.     Advertising

 b.     Directmaterialsused c.        Salessalaries

d.    Indirectfactorylabor

 e.     Repairsto office equipment f.        Factorymanager'ssalaryg.        Directlaborused

h.     Indirectmaterials

    Ex.156

 Foreach itemlistedbelow,indicate in thespacetotheleftwhethertheitemwouldbeconsidered a productcost or aperiodcostfor amanufacturingcompany.Usethefollowingcode:

 Pr=Productcost Pe=Periodcost

 1.Factorysupervisorysalaries

 2.Salescommissions

 3.Incometax expense

 4.Indirectmaterialsused

 5.Indirectlabor

 6.Officesalariesexpense

 7.Propertytaxesonfactorybuilding

 8.Salesmanager'ssalary

 9.Factorywagesexpense

 10.Directmaterialsused

    Ex.157

 YatesManufacturingCompanyincursthefollowingmanufacturingcostsandexpensesduringthe month ofMay.

1.Assemblylinewages

2.Rawmaterialsuseddirectly inproduct 3.Depreciationonofficeequipment

4.Propertytaxesonfactorybuilding 5.Rentonfactorybuilding

6.Salescommissions

7.Depreciationonfactoryequipment 8.Factoryutilities

9.Wagesforfactorymaintenanceworkers 10.Advertising

11.Indirectmaterialsusedinproduction 12.Factorymanager'ssalary

 Instructions

CompletethefollowingmatrixbyplacinganXmarkundertheappropriateheadings.

  Cost Item 1.

2. 3. 4. 5. 6. 7. 8. 9. 10. 11.

12.

Direct        Direct Materials Labor

Manufacturing      Period

Overhead              Costs

   Ex.158

 Presentedbelowareincomplete2008manufacturingcostdataforTardyCorporation.

  Total             Workin        Workin                               Costof DirectMaterials    Direct                  Manufacturing                               Manufacturing      Process        Process           Goods

Used              Labor          Overhead            Costs               (1/1)          (12/31)                       Manufactured

 (a)      $38,000       $72,000        $48,000                 ?              $120,000     $96,000          ?

(b)$149,000          $53,000        $90,000          $292,000              ?            $98,000          $331,000 (c)                     $53,000    $116,000      $121,000 $290,000       $463,000          ?   $515,000

  Instructions

Determinethemissingamounts.

    Ex.159

 AmongtheitemsthatGentryPrintShopaccountsfor arethefollowing:

 1.Directlabor

 2.Officesuppliesused

 3.Depreciationonprintingmachines 4.Finishedgoods inventory,12/315.Rawmaterialsinventory,1/1

6.Costofgoodsmanufactured 7.Workinprocess,1/1

8.Officesuppliesinventory,12/31 9.Indirectlabor

10.Heatandelectricityfortheprintshop

 GentryPrint Shoppreparesthefollowing scheduleandfinancialstatementsonayearlybasis: (a)         Costofgoodsmanufacturedschedule.

(b)    Incomestatement. (c)         Balancesheet.

 Instructions

Foreachitem, indicateby using theappropriateletter(s)thescheduleand/orfinancialstatements in which theitemwillappear.

  Ex.160

 IsaacCompanymanufacturesboats.DuringSeptember,2008,thecompanypurchased100 cellularphonesatacostof$100each.Isaacwithdrew 70phonesfromthewarehouseduringthe month.Twentyofthese phoneswereinstalled insalespersons‘carsand theremaining50phones were put inboatsmanufacturedduringthemonth.

 OftheboatsputintoproductionduringSeptember,2008,80%werecompletedandtransferred to thecompany'sstoragelot.Fiftypercentoftheboatscompletedduringthemonthweresoldby September30.

 Instructions

Determinethecostofcellularphonesthatwouldappearineachofthefollowingaccountsat September30,2008:

Rawmaterialsinventory Work inprocess inventory Finished goods inventory CostofgoodssoldSellingexpenses

   Ex.161

 ManningManufacturingCompanyhasthefollowingdataat June30,2008:

 Rawmaterialsinventory,June1 Workinprocessinventory,June1 Finishedgoods inventory,June1 Totalmanufacturingcosts

Sales

Workinprocessinventory,June30 Finishedgoods inventory,June30 Rawmaterialsinventory,June30

$13,800 18,100 43,500 510,000 590,000 30,400 50,200 18,000

 Instructions

(a)     Prepareanincomestatementthroughgrossprofitforthemonthof June. (b)         Indicatethebalancesheet presentationof theJune 30 inventories.

    Ex.162

 Fromtheaccountbalanceslistedbelow,prepareascheduleofcostofgoodsmanufacturedfor TimmonsManufacturingCompanyforthemonthendedDecember31,2008.

  FinishedGoodsInventory,December31 FactorySupervisorySalariesIncomeTax Expense

RawMaterialsInventory,December1 WorkIn ProcessInventory,December31 SalesSalariesExpense FactoryDepreciationExpense FinishedGoodsInventory,December1 RawMaterialsPurchases

WorkIn ProcessInventory,December1 FactoryUtilitiesExpense

DirectLabor

RawMaterialsInventory,December31 SalesReturnsandAllowances

IndirectLabor

AccountBalances $42,000

12,000 18,000 12,000 25,000 14,000 8,000 35,000 95,000 30,000 4,000 70,000 19,000 5,000 21,000

    Ex.163

 RabidManufacturingCompanyhasthefollowingdata:

 Directlabor

Directmaterialsused

Totalmanufacturingoverhead Beginningworkinprocess

$160,000 191,000 208,000 21,000

 Instructions

Compute(a)totalmanufacturingcosts and(b)total costof workin process.

    Ex.164

 ThefollowingcostsandinventorydataweretakenfromtheaccountsofReserCompanyfor 2008:

  Inventories:

Rawmaterials Workinprocess Finishedgoods

January 1,2008

 $8,000 15,000 16,000

December 31,2008

 $7,000 13,000 10,000

  Costsincurred:

Rawmaterialspurchases Directlabor

Factoryrent Factoryutilities Indirectmaterials Indirectlabor Sellingexpenses

Administrativeexpenses

 $93,000 42,000 8,000 7,000 4,000 6,000 5,000 12,000

 Instructions

a.Prepareascheduleshowing theamountof directmaterialsused inproductionduringthe year.

 b.Computetheamountof manufacturingoverheadincurredduringtheyear.

 c.Prepareascheduleof CostofGoodsManufacturedfor ReserCompanyfortheyearended December31, 2008ingoodform.

 d.PreparetheCostofGoodsSoldsection ofthe Income StatementforReserCompanyforthe yearendedDecember31, 2008ingoodform.

 Ex.165

 ManufacturingcostsforCarsonCompanyforselectedmonthsareasfollows:

  Beginningworkinprocess Directmaterialsused Directlabor Manufacturingoverhead Totalmanufacturingcosts

Totalcostof work inprocess Endingwork inprocessCostofgoodsmanufactured Beginningfinishedgoods

Costofgoodsavailablefor sale Endingfinishedgoods

Costofgoodssold

April                          July                     October $80,000                      (f)                   $98,000

280,000               $190,000                 155,000 195,000                170,000                     (j)

(a)                     150,000                   90,000 720,000       510,000                470,000

(b)                     650,000                      (k) 75,000                     (g)                         (l)

(c)                     505,000                 385,000 (d)                      68,000                   (m)

960,000                      (h)                     450,000 (e)                      75,000                     (n)

790,000                       (i)                     355,000

 Instructions

Indicatethemissing amounts.(Showcomputations.)

    Ex.166

 FillinthemissinginformationonthecostofgoodsmanufacturedscheduleofMaddox ManufacturingCompany:

 MADDOX MANUFACTURINGCOMPANY CostofGoodsManufacturedScheduleFor theYearEndedDecember31,2008

 Workinprocess(1/1) Directmaterials

Rawmaterialsinventory(1/1) Rawmaterialspurchases

Rawmaterialsavailablefor use Rawmaterialsinventory(12/31)

Directmaterialsused Directlabor Manufacturingoverhead

Indirectlabor Factorydepreciation Factoryutilities

Totaloverhead Totalmanufacturingcosts

Totalcostof work inprocess Less:Workinprocess(12/31) Costofgoodsmanufactured

   $              ?

271,000?

   37,000

    24,000 38,000 39,000

       $280,000?

     ?

$320,000

             ? ?

292,000$520,000

    Ex.167

 Dataforthecostof directmaterialsforthemonthendedMarch31, 2008,areasfollows:

 Materialsinventory,March1, 2008 Materialsinventory,March31, 2008

$76,000 85,000

  DuringMarch,thecompanypurchased$220,000ofrawmaterialsonaccountfromPine Companyand$72,000ofrawmaterialsforcashfromFryeCompany.Inaddition,$50,000was paid on thePineaccountbalance.

 Instructions

 Computethe costofdirectmaterialsusedduring March.

     Ex.168

 Presentedbelowareincomplete2008manufacturingcostdataforTardyCorporation.

  DirectMaterials                                              Factory                          TotalManufacturing Used               DirectLabor        Overhead                   Costs

 (a) (b) (c)

 $36,000                 $72,000                              $54,000               ?

?                       $53,000                              $90,000                              $272,000 $53,000                     ?                  $101,000               $290,000

  Instructions

Determinethemissingamounts.

    Ex.169

 Indicatewhether eachof thefollowingwouldappearonthe:

 A—Cost ofgoodsmanufacturedschedule B—Incomestatement

C—Balancesheet

 Note:Ifitwouldappearin morethanjustone,indicate whichones.

              1. Costofgoodssold

              2. Finishedgoodsinventory,12/31

              3. Directmaterialsused

              4. Rawmaterialsinventory,1/1

              5.Insuranceonfactoryequipment

              6.Workinprocess, 12/31

              7.Indirect labor

              8. Propertytaxesonofficebuilding

     Ex.170

 Listedbelowarecurrentassetitemsfor KlugmanCompanyat December31,2008.

 Finishedgoods inventory Cash

Prepaidexpenses Accountsreceivable

$35,000 20,000 2,000 4,000

Short-terminvestments Rawmaterialsinventory Workinprocessinventory Supplies

$28,000 12,000 18,000 500

 Instructions

 Preparethecurrentassetssection ofthebalancesheet.(Includeacompleteheading.)

   COMPLETIONSTATEMENTS

  171.Financialaccountinginformation ispreparedmainlyfor                                       users,while

 managerial accountinginformationispreparedprimarilyfor                                    users.

 172.Thetypesofreportspreparedinmanagerialaccountingareoften                                                       -

 purposereportspreparedfor aspecificdecision.

 173.Managerialaccountingreportsgenerallypertainto                                            ofabusinessand

 maybe verydetailed.

 174.Threebroadmanagerialfunctionsare:(1)                                            ,(2)                               ,and

 (3)                             .

 175.The                                    functionisconcernedwithsettinggoalsandobjectivesforthe

 entity.

 176.Exercisinggoodjudgmentinperformingthemanagerialfunctionsandchoosingamong alternativecoursesofactioniscalled                                    .

 177.Thethreecostelementsinmanufacturingaproductare(1)                                                                 ,

 (2)                             ,and(3)                              .

 178.Theworkoffactoryemployeesthatcanbephysicallyanddirectlyassociatedwith

 converting rawmaterialsinto productsisclassifiedas                                    .

 179.Indirectmaterialsandindirectlaborareclassifiedas                                         .

 189.Eachof themanufacturingcostcomponentsisa                                          cost.

 181.Amajordifferencebetweentheincomestatementsofamerchandisingcompanyanda manufacturingcompanyisthatthecostofgoodssoldsectionofamerchandising companyshowscostofgoods                                                                                   ,whereasamanufacturingcompany shows costof goods.

 182.                                           isaddedtodirectlaborandmanufacturingoverheadtogettotal

 manufacturing costsforthecurrentperiod.

 183.Theendingworkinprocessinventoryis subtractedfromthetotalcostof work inprocess tocalculate            .

 184.Amanufacturingcompanycomputescostofgoodssoldbyaddingcostofgoods manufactured tothe                                                                           andsubtractingthe                                        .

 185.A manufacturingcompany               usuallyhas         threeinventory        accountswhichare (1),(2)                                      ,and(3)                                      .

  MATCHING

 186.Matchtheitemsinthetwocolumnsbelowbyenteringtheappropriatecodeletterinthe space provided.

 A.Managerialaccounting B.FinancialaccountingC.Planning

D.DirectingE.Controlling

F.     Workinprocessinventory G.Directmaterials

H.Manufacturingoverhead I.  Periodcosts

J.     Valuechain

              1.      Thecostof productsthatarepartiallycomplete.

             2.      Thefunctionofkeepingactivitiesinaccordancewithplans.

             3.      Primarilyconcernedwith internalusersandreportspertainto subunitsof theentity.

             4.      Materialsthatcanbephysicallyanddirectlyassociatedwithmanufacturinga product.

             5.      Thefunctionof settinggoals andobjectives.

             6.      Indirectcosts ofmanufacturingaproduct.

             7.      Primarilyconcernedwithexternalusersandreportspertaintotheentityasa whole.

             8.      Coststhatare noninventoriable.

             9.      Allactivitiesassociatedwithprovidingaproductor service.

           10.      Thefunctionofcoordinatingdiverseactivitiestoproduceasmooth-running operation.

  SHORT-ANSWERESSAYQUESTIONS

S-AE187

Financialandmanagerialaccountingarebothconcernedwiththeeconomiceventsofan enterprise.Similaritiesbetweenfinancialandmanagerialaccountingdoexist,buttheydohave differentfocus.Brieflydistinguishbetweenfinancialandmanagerialaccountingastheyrelateto (1)theprimaryusers, (2)the type and frequencyofreports, (3)thepurposeofreports, and (4)the content of reports.

    S-AE188

 Amanufacturingcompanymakestheproductsthatitsells.Brieflyidentifyanddefinethecost elementsthatareincurredinmakingaproduct.Afterproductcostelementsareidentified,howis thecostofgoodsmanufacturedforaperioddetermined?

   S-AE189

 Assumeyouhavejusttakenapositionascontrollerforanewcompanythatmanufacturesand sellswroughtironwallhangings.Althoughthefounderofthecompany,whoisthepresidentand CEO,is agreatartisan,shehas verylimitedknowledgeof accounting.

 Instructions

Tohelpyournewbossbetterunderstandaccountingforamanufacturingorganization,preparea responsetoherinwhichyou:(1)identify,(2)describe,and(3)provideexamplesofthethree manufacturingcostsandthethreeinventoryaccountsusedinaccountingforamanufacturing company.

    S-AE190(Ethics)

 MillionDollarMillsisatextilemanufacturingfirmlocatedinthesouthernUnitedStates.The companycarefullypreparesallfinancialstatementsinaccordancewithGAAP,andgivesacopy ofallfinancialstatementstoeachdepartment.Inaddition,thecompanykeepsrecordsonquality control,safety,andenvironmentalpollutionbythecompany.Itthenprepares"scorecards"for eachdepartmentindicatingtheirperformance.Recently,thefinancialimpactofthesecondsetof informationwasadded,andtheinformationhasbeenusedintheevaluationofemployeesfor merit payand promotions.

 Atthemostrecentemployeemeeting,TylerHanes,marketingmanager,expressedhis discomfortwiththesystem.Hesaidtherewasnoguaranteethatthesecondsetofinformation wasfair,sincetherewerenogenerallyacceptedprinciplesforthiskindofinformation.Healso saidthatitwaskindoflikekeepingtwosetsofbooks—onefollowingalllegalrequirements,and theotheroneactuallyusedbythecompany.

 S-AE190(cont.)

 Required:

1.Isitethicaltoevaluatemanagersinthewaydescribed?Explainbriefly.

 2.Nameatleasttwosafeguardsthecompanycouldbuildintoitssystemtoensuretheethical treatmentof employees.

     S-AE191(Communication)

 Volumetrica,aproducerofaudioequipmentforlargecomputersystems,isreviewingitspolicies aspartofabiannual self-examinationofthecompany.Aspartofthisprocess,allmanagershave beenaskedtocarefullyexaminecostsanddetermineascloselyaspossiblewhichcostsare directandwhich are indirect.

 MarieRamseyandDanWilson,managersofdifferentmanufacturingdepartmentsinthesame building,havebeenworkingtogether.Theyfoundthefollowingfourcoststhatcouldbe economicallytracedto theproducts,but havehistoricallybeena partof overhead:

 •    Costofsettingupthemachineryforadifferentproductionrun.

 •    Costofminorassemblycomponentssuch asknobs andswitches. •     Costofpackaging,whichisquitedifferentforeachmodel.

•    Costof inspecting andtestingeachmodel.

 Noneofthecostsissignificantbyitself,buttogetherthesefourcostsmakeupbetween10and 15%ofthetotalcostoftheproduct.Mariefavors"leavingwellenoughalone,"assheputsit,and leavingthesecostsinoverhead.Sheisafraidthathervolunteering totracethesecostswillresult inherhavingtotracemanymorecostsinthefuture.Dan,ontheotherhand,preferstohavethe productcostasaccurateaspossible.Hepointsoutthatthesecostsarealreadyknown,andthe processwould requirelittleextra work.

 Required:

Youhavebeencalledoninyourfunctionasaccountingmanagertoresolvethedispute.Writea memotoMarieandDan,supportingoneortheotherposition.Besuretoadequatelydefendyour position,butbe brief.

#ACC 206 Week 11 Final Exam – Strayer

[usuallyeclectictyphoon-blog]

ACC 206 Week 11 Final Exam – Strayer

ACC 206 Week 11 Final Exam – Strayer

 Click on the Link Below to Purchase A+ Graded Course Material

 http://budapp.net/ACC-206-Accounting-Principles-II-Week-11-Final-Exam-Strayer-269.htm

  Chapter14 Through 19

  CORPORATIONS:DIVIDENDS,RETAINEDEARNINGS,ANDINCOMEREPORTING

  CHAPTERSTUDYOBJECTIVES

  1.Preparetheentriesforcashdividendsandstockdividends.

 2.Identifytheitemsreportedinaretainedearningsstatement.

 3.Prepareandanalyzeacomprehensivestockholders'equitysection.

 4.Describetheformandcontentofcorporationincomestatements.

 5.Computeearningspershare.

 TRUE-FALSESTATEMENTS

 1.         Dividendsmaybedeclaredandpaidincashor stock.

 2.     Cashdividends arenotaliability ofthecorporationuntiltheyaredeclaredbytheboardof directors.

 3.     Theamountofacashdividendliabilityisrecordedonthedateofrecordbecauseitison that datethatthepersonsor entitieswhowillreceivethedividendare identified.

 4.     A10%stockdividendwillincreasethenumberofsharesoutstandingbutthebookvalue pershare willdecrease.

 5.     A3for1commonstocksplitwillincreasetotalstockholders'equitybutreducetheparor stated valuepershareofcommonstock.

 6.     Retainedearningsrepresentstheamount of cashavailablefordividends.

 7.     Netincomeofacorporationshouldbeclosedtoretainedearningsandnetlossesshould be closed to paid-incapitalaccounts.

 8.     A debitbalanceintheRetained Earningsaccountis identifiedasadeficit.

 9.     AcorrectioninincomeofapriorperiodinvolveseitheradebitorcredittotheRetained Earningsaccount.

 10.     Priorperiodadjustmentsto incomearereportedinthecurrentyear'sincomestatement.

 11.     Retainedearningsthat are restrictedareunavailablefordividends.

 12.     Restrictedretainedearnings areavailableforpreferredstockdividendsbutunavailablefor commonstockdividends.

 13.     Aretainedearningsstatementshowsthesameinformationasacorporationincome statement.

 14.     Adetailedstockholders'equitysectioninthebalancesheetwilllistthenamesof individualswhoare eligibletoreceivedividendsonthedateofrecord.

 15.     CommonStockDividendsDistributableisshownwithinthePaid-inCapitalsubdivisionof thestockholders'equitysectionof thebalancesheet.

 16.     Returnoncommonstockholders’equityiscomputedbydividingnetincomebyending stockholders’ equity.

 17.     Manycompaniesprepareastockholders’equitystatementinsteadofpresentinga detailed stockholders’ equity sectioninthebalancesheet.

 18.     Amajordifferenceamongcorporations,proprietorships,andpartnershipsisthata corporation's incomestatementreportsincometaxexpense.

 19.     A corporationincursincometaxexpense onlyifitpaysdividendsto stockholders.

Corporations:Dividends,RetainedEarnings,andIncomeReporting          14-5

 20.     Incometaxexpenseusuallyappearsasaseparatesectiononacorporationincome statement.

 21.     Earningspershareiscalculatedbydividingnetincomebytheweightedaveragenumber ofshares ofpreferredstock and commonstockoutstanding.

 22.     Preferreddividendspaidareaddedbacktonetincomeincalculatingearningspershare for commonstockholders.

 23.     Earningspershareindicatesthenetincomeearnedbyeachshareofoutstanding commonstock.

 24.     Earningsper shareis reportedfor both preferredandcommonstock.

 25.     Mostcompaniesarerequiredtoreportearningspershareonthefaceoftheincome statement.

 Additional True-FalseQuestions

 26.     A dividendbasedonpaid-incapitalis termeda liquidatingdividend.

 27.     CommonStockDividendsDistributableisreportedasadditionalpaid-incapitalinthe stockholders' equitysection.

 28.     Apriorperiodadjustmentisreportedasanadjustmentofthebeginningbalanceof RetainedEarnings.

 29.     Incometaxexpenseandtherelatedliabilityforincometaxespayablearerecordedwhen taxes are paid.

 30.     Earningsper shareis reportedonlyforcommonstock.

     MULTIPLECHOICEQUESTIONS

 31.     Eachof thefollowingdecreasesretainedearningsexcepta a.cashdividend.

b.liquidatingdividend. c.stockdividend.

d.All of thesedecreaseretainedearnings.

 32.     Eachof thefollowingdecreasestotal stockholders'equityexcepta a.cashdividend.

b.liquidatingdividend. c.stockdividend.

d.Allof thesedecreasetotalstockholders'equity.

 33.     Whichoneofthefollowingisnotnecessaryinorderforacorporationtopayacash dividend?

a.Adequatecash

b.Approvalof stockholders

c.Declarationof dividendsbytheboardof directors d.Retainedearnings

 34.     Ifa corporationdeclaresa dividendbasedupon paid-in capital,it isknownasa a.scrip dividend.

b.propertydividend. c.paiddividend.

d.liquidatingdividend.

 35.     Thedateonwhichacashdividendbecomesabindinglegalobligationison the a.declarationdate.

b.date of record. c.paymentdate.

d.lastdayofthefiscalyear-end.

 36.     The effectofthedeclarationofacashdividendbytheboardof directorsis to

          Increase          

a.Stockholders'equity b.          Assets

c.            Liabilities d. Liabilities

        Decrease          

Assets Liabilities

Stockholders'equity Assets

  37.     Thecumulativeeffectofthedeclarationandpaymentofacashdividendonacompany's financial statementsis to

a.decreasetotal liabilitiesandstockholders'equity. b.increasetotalexpensesandtotal liabilities.

c.increasetotal assetsand stockholders'equity. d.decreasetotalassetsandstockholders'equity.

Corporations:Dividends,RetainedEarnings,andIncomeReporting          14-7

 38.     CommonStock DividendsDistributableisclassifiedasa(n) a.assetaccount.

b.stockholders'equityaccount. c.expenseaccount.

d.liabilityaccount.

 39.     The effectofastockdividend isto

a.decreasetotalassetsandstockholders'equity. b.change thecompositionofstockholders'equity. c.decreasetotal assetsandtotal liabilities.

d.increasethebook valuepershareofcommonstock.

 40.     Ifacorporationdeclaresa10%stockdividendonitscommonstock,theaccounttobe debited onthedateofdeclaration is

a.CommonStock DividendsDistributable. b.CommonStock.

c.Paid-inCapitalinExcessofPar. d.RetainedEarnings.

 41.     Whichoneofthefollowingeventswouldnotrequireaformaljournalentryona corporation's books?

a.2for 1 stocksplit

b.100%stockdividend c.2%stockdividend

d.$1 persharecashdividend

 42.     Stockdividendsandstocksplitshavethefollowingeffectsonretainedearnings:

 StockSplits a.         Increaseb.    Nochange c.     Decreased.    Nochange

StockDividendsNochange

Decrease Decrease Nochange

  43.     Dividendsarepredominantlypaidin a.scrip.

b.property. c.cash.

d.stock.

 44.     Ifastockholderreceivesadividendconsistingofapromissorynote,thestockholderhas received a

a.stockdividend. b.cashdividend.

c.contingentdividend. d.scripdividend.

 45.     Of thefourdividendstypes,thetwomostcommontypesinpracticeare a.cashandscrip.

b.cashand property. c.cashandstock.

d.propertyandstock.

14-8        

 46.     Regulardividendsaredeclared outof

a.Paid-inCapitalinExcessofPar Value. b.TreasuryStock.

c.CommonStock.

d.RetainedEarnings.

 47.     A corporationiscommittedto alegalobligationwhen it declares a.acashdividend.

b.eitheracashdividendorastockdividend. c.astockdividend.

d.astocksplit.

 48.     Whichofthefollowingisnot asignificantdate withrespectto dividends? a.Thedeclarationdate

b.The incorporationdate c.Therecorddate

d.Thepaymentdate

 49.     Onthedividendrecorddate,

a.a dividendbecomesa currentobligation. b.noentryisrequired.

c.anentrymaybe requiredifit isastockdividend. d.DividendsPayableis debited.

 50.     Whichofthefollowingstatementsregarding thedateofacashdividenddeclaration isnot accurate?

a.Thedividendcan berescindedonceit hasbeendeclared. b.Thecorporationiscommittedto alegal,bindingobligation.

c.Theboard of directorsformallyauthorizesthecashdividend. d.A liabilityaccountmustbe increased.

 51.     DividendsPayableisclassifiedas a a.long-termliability.

b.contrastockholders'equityaccountto RetainedEarnings. c.currentliability.

d.stockholders'equityaccount.

 52.     Indicatetherespectiveeffectsofthedeclarationofacashdividendonthefollowing balance sheet sections:

 Total Assets a.       Increaseb.    Nochange c.     Decrease d.     Decrease

Total LiabilitiesDecrease Increase IncreaseNochange

Total Stockholders'EquityNochange

Decrease Decrease Increase

 53.     Whichofthefollowingstatements aboutdividendsisnotaccurate? a.Manycompanies declareandpaycashquarterlydividends.

b.Lowdividendsmaymeanhigh stockreturns.

c.Theboard of directorsis obligatedtodeclaredividends. d.A legaldividendmaynot beafeasibleone.

Corporations:Dividends,RetainedEarnings,andIncomeReporting          14-9

 54.     Thecumulativeeffectofthedeclarationandpaymentofacashdividendonacompany's balance sheet isto

a.decreasecurrent liabilitiesand stockholders'equity. b.increasetotalassetsandstockholders'equity.

c.increasecurrentliabilitiesandstockholders'equity. d.decreasestockholders' equityandtotalassets.

 55.     Thedeclarationanddistributionof a stockdividendwill a.increasetotalstockholders'equity.

b.increasetotalassets. c.decreasetotal assets.

d.havenoeffectontotalassets.

 56.     ABC,Inc.has1,000sharesof4%,$100parvalue,cumulativepreferredstockand50,000 sharesof$1parvaluecommonstockoutstandingatDecember31,2008.Whatisthe annual dividend on thepreferred stock?

a.$40pershare b.$4,000intotal c.$400intotald.$.40pershare

 57.     Agler,Inc.has10,000sharesof6%,$100parvalue,cumulativepreferredstockand 100,000sharesof$1parvaluecommonstockoutstandingatDecember31,2008.Ifthe board ofdirectors declaresa$50,000dividend,the

a.preferredshareholderswillreceive1/10thofwhatthecommonshareholderswill receive.

b.preferredshareholders willreceivetheentire$50,000.

c.$50,000willbeheldasrestrictedretainedearningsandpaidoutatsomefuturedate.d.preferredshareholderswill receive$25,000and the commonshareholders will receive

$25,000.

 58.     Manner,Inc.has5,000sharesof6%,$100parvalue,noncumulativepreferredstockand 20,000sharesof$1parvaluecommonstockoutstandingatDecember31,2008.There werenodividendsdeclaredin2007.Theboardofdirectorsdeclaresandpaysa$55,000 dividendin2008.Whatistheamountofdividendsreceivedbythecommonstockholders in 2008?

a.$0

b.$30,000 c.$55,000 d.$25,000

 59.     Lopez,Inc.has2,000sharesof6%,$50parvalue,cumulativepreferredstockand50,000 sharesof$1parvaluecommonstockoutstandingatDecember31,2007,andDecember 31,2008.Theboardofdirectorsdeclaredandpaida$4,000dividendin2007.In2008, $20,000ofdividendsaredeclaredandpaid.Whatarethedividendsreceivedbythe preferredandcommonshareholdersin2008?

 Preferred a. $12,000 b.       $10,000 c.       $8,000d.          $6,000

Common $8,000 $10,000 $12,000 $14,000

14-10

 60.     Norton, Inc.has10,000sharesof6%,$100 par value,noncumulativepreferredstockand 100,000sharesof$1parvaluecommonstockoutstandingatDecember31,2008,and December31,2009. Theboard ofdirectors declared andpaida$50,000dividend in2008. In2009,$100,000ofdividendsaredeclaredandpaid.What arethedividendsreceivedby thepreferredandcommonshareholdersin 2009?

 Preferred a.$0

b.$60,000 c.$50,000 d.$100,000

Common $100,000 $40,000 $50,000 $0

  61.     Theboardof directorsmustassignapersharevalueto a stockdividenddeclaredthat is a.greaterthantheparor statedvalue.

b.lessthanthe parorstated value. c.equaltotheparor statedvalue.

d.atleastequaltothe parorstatedvalue.

 62.     Corporationsgenerallyissuestock dividendsinorderto a.increasethemarketpricepershare.

b.exceedstockholders'dividendexpectations. c.increasethemarketabilityof thestock.

d.decreasetheamountofcapitalinthe corporation.

 63.     A stockholderwhoreceivesastockdividendwould a.expectthemarketpricepershareto increase. b.own moreshares ofstock.

c.expectretainedearningstoincrease.

d.expecttheparvalueof the stocktochange.

 64.     Whenstockdividendsaredistributed,

a.CommonStock DividendsDistributableisdecreased. b.RetainedEarningsisdecreased.

c.Paid-inCapitalin ExcessofPar Valueisdebitedifitis a smallstockdividend. d.noentryis necessaryifit isalargestock dividend.

 65.     A smallstockdividendisdefinedas

a.lessthan30%butgreaterthan25%of thecorporation's issuedstock. b.between50%and100%ofthecorporation's issuedstock.

c.morethan30%ofthecorporation's issuedstock.

d.lessthan20–25% of thecorporation'sissuedstock.

 66.     Thepershareamountnormallyassignedbytheboardofdirectorstoalargestock dividend is

a.themarketvalueof thestock onthedate of declaration.

b.theaveragepricepaidbystockholdersonoutstandingshares. c.thepar or stated valueof thestock.

d.zero.

Corporations:Dividends,RetainedEarnings,andIncomeReporting          14-11

 67.     Thepershareamountnormallyassignedbytheboardofdirectorstoasmallstock dividend is

a.themarketvalue of thestock onthedateof declaration.

b.theaveragepricepaidbystockholdersonoutstandingshares. c.thepar or stated valueof thestock.

d.zero.

 68.     Identifytheeffectthedeclarationofastockdividendhasontheparvaluepershareand book valuepershare.

 Par Valueper Share a.          Increase

b.         Noeffect c.        Decrease d.     Noeffect

Book ValueperShareDecrease Increase Decrease Decrease

  69.     Thedeclarationof astockdividendwill a.increasepaid-incapital.

b.changethetotal of stockholders'equity. c.increasetotal liabilities.

d.increasetotalassets.

 70.     Whichofthefollowingshowthepropereffectofastocksplitandastockdividend?

                Item                    

a.         Totalpaid-incapitalb.     Totalretainedearnings

c.Totalpar value(common) d.    Parvaluepershare

StockSplit Increase

Decrease Decrease Decrease

StockDividend Increase Decrease IncreaseNochange

  71.     A stocksplit

a.mayoccurinthe absenceof retainedearnings. b.willincreasetotalpaid-incapital.

c.will increasethetotalparvalueof thestock.

d.willhavenoeffectontheparvaluepershareof stock.

 72.     OutstandingstockoftheApexCorporationincluded20,000sharesof$5parcommon stockand5,000sharesof6%,$10parnoncumulativepreferredstock.In2007,Apex declaredandpaiddividendsof$2,000.In2008,Apexdeclaredandpaiddividendsof $6,000.Howmuchof the 2008dividendwasdistributedtopreferredshareholders?

a.$4,000 b.$7,000 c.$3,000

d.Noneof theabove

 73.     OutstandingstockoftheBellCorporationincluded20,000sharesof$5parcommonstock and10,000sharesof6%,$10parnoncumulativepreferredstock.In2007,Belldeclared andpaiddividendsof$4,000.In2008,Belldeclaredandpaiddividendsof$12,000.How muchofthe2008 dividendwasdistributedtopreferredshareholders?

a.$8,000b.$14,000 c.$6,000

d.Noneof theabove

#ACC 206 Week 11 Final Exam – Strayer

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ACC 206 Week 11 Final Exam – Strayer

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  Chapter14 Through 19

  CORPORATIONS:DIVIDENDS,RETAINEDEARNINGS,ANDINCOMEREPORTING

  CHAPTERSTUDYOBJECTIVES

  1.Preparetheentriesforcashdividendsandstockdividends.

 2.Identifytheitemsreportedinaretainedearningsstatement.

 3.Prepareandanalyzeacomprehensivestockholders'equitysection.

 4.Describetheformandcontentofcorporationincomestatements.

 5.Computeearningspershare.

 TRUE-FALSESTATEMENTS

 1.         Dividendsmaybedeclaredandpaidincashor stock.

 2.     Cashdividends arenotaliability ofthecorporationuntiltheyaredeclaredbytheboardof directors.

 3.     Theamountofacashdividendliabilityisrecordedonthedateofrecordbecauseitison that datethatthepersonsor entitieswhowillreceivethedividendare identified.

 4.     A10%stockdividendwillincreasethenumberofsharesoutstandingbutthebookvalue pershare willdecrease.

 5.     A3for1commonstocksplitwillincreasetotalstockholders'equitybutreducetheparor stated valuepershareofcommonstock.

 6.     Retainedearningsrepresentstheamount of cashavailablefordividends.

 7.     Netincomeofacorporationshouldbeclosedtoretainedearningsandnetlossesshould be closed to paid-incapitalaccounts.

 8.     A debitbalanceintheRetained Earningsaccountis identifiedasadeficit.

 9.     AcorrectioninincomeofapriorperiodinvolveseitheradebitorcredittotheRetained Earningsaccount.

 10.     Priorperiodadjustmentsto incomearereportedinthecurrentyear'sincomestatement.

 11.     Retainedearningsthat are restrictedareunavailablefordividends.

 12.     Restrictedretainedearnings areavailableforpreferredstockdividendsbutunavailablefor commonstockdividends.

 13.     Aretainedearningsstatementshowsthesameinformationasacorporationincome statement.

 14.     Adetailedstockholders'equitysectioninthebalancesheetwilllistthenamesof individualswhoare eligibletoreceivedividendsonthedateofrecord.

 15.     CommonStockDividendsDistributableisshownwithinthePaid-inCapitalsubdivisionof thestockholders'equitysectionof thebalancesheet.

 16.     Returnoncommonstockholders’equityiscomputedbydividingnetincomebyending stockholders’ equity.

 17.     Manycompaniesprepareastockholders’equitystatementinsteadofpresentinga detailed stockholders’ equity sectioninthebalancesheet.

 18.     Amajordifferenceamongcorporations,proprietorships,andpartnershipsisthata corporation's incomestatementreportsincometaxexpense.

 19.     A corporationincursincometaxexpense onlyifitpaysdividendsto stockholders.

Corporations:Dividends,RetainedEarnings,andIncomeReporting          14-5

 20.     Incometaxexpenseusuallyappearsasaseparatesectiononacorporationincome statement.

 21.     Earningspershareiscalculatedbydividingnetincomebytheweightedaveragenumber ofshares ofpreferredstock and commonstockoutstanding.

 22.     Preferreddividendspaidareaddedbacktonetincomeincalculatingearningspershare for commonstockholders.

 23.     Earningspershareindicatesthenetincomeearnedbyeachshareofoutstanding commonstock.

 24.     Earningsper shareis reportedfor both preferredandcommonstock.

 25.     Mostcompaniesarerequiredtoreportearningspershareonthefaceoftheincome statement.

 Additional True-FalseQuestions

 26.     A dividendbasedonpaid-incapitalis termeda liquidatingdividend.

 27.     CommonStockDividendsDistributableisreportedasadditionalpaid-incapitalinthe stockholders' equitysection.

 28.     Apriorperiodadjustmentisreportedasanadjustmentofthebeginningbalanceof RetainedEarnings.

 29.     Incometaxexpenseandtherelatedliabilityforincometaxespayablearerecordedwhen taxes are paid.

 30.     Earningsper shareis reportedonlyforcommonstock.

     MULTIPLECHOICEQUESTIONS

 31.     Eachof thefollowingdecreasesretainedearningsexcepta a.cashdividend.

b.liquidatingdividend. c.stockdividend.

d.All of thesedecreaseretainedearnings.

 32.     Eachof thefollowingdecreasestotal stockholders'equityexcepta a.cashdividend.

b.liquidatingdividend. c.stockdividend.

d.Allof thesedecreasetotalstockholders'equity.

 33.     Whichoneofthefollowingisnotnecessaryinorderforacorporationtopayacash dividend?

a.Adequatecash

b.Approvalof stockholders

c.Declarationof dividendsbytheboardof directors d.Retainedearnings

 34.     Ifa corporationdeclaresa dividendbasedupon paid-in capital,it isknownasa a.scrip dividend.

b.propertydividend. c.paiddividend.

d.liquidatingdividend.

 35.     Thedateonwhichacashdividendbecomesabindinglegalobligationison the a.declarationdate.

b.date of record. c.paymentdate.

d.lastdayofthefiscalyear-end.

 36.     The effectofthedeclarationofacashdividendbytheboardof directorsis to

          Increase          

a.Stockholders'equity b.          Assets

c.            Liabilities d. Liabilities

        Decrease          

Assets Liabilities

Stockholders'equity Assets

  37.     Thecumulativeeffectofthedeclarationandpaymentofacashdividendonacompany's financial statementsis to

a.decreasetotal liabilitiesandstockholders'equity. b.increasetotalexpensesandtotal liabilities.

c.increasetotal assetsand stockholders'equity. d.decreasetotalassetsandstockholders'equity.

Corporations:Dividends,RetainedEarnings,andIncomeReporting          14-7

 38.     CommonStock DividendsDistributableisclassifiedasa(n) a.assetaccount.

b.stockholders'equityaccount. c.expenseaccount.

d.liabilityaccount.

 39.     The effectofastockdividend isto

a.decreasetotalassetsandstockholders'equity. b.change thecompositionofstockholders'equity. c.decreasetotal assetsandtotal liabilities.

d.increasethebook valuepershareofcommonstock.

 40.     Ifacorporationdeclaresa10%stockdividendonitscommonstock,theaccounttobe debited onthedateofdeclaration is

a.CommonStock DividendsDistributable. b.CommonStock.

c.Paid-inCapitalinExcessofPar. d.RetainedEarnings.

 41.     Whichoneofthefollowingeventswouldnotrequireaformaljournalentryona corporation's books?

a.2for 1 stocksplit

b.100%stockdividend c.2%stockdividend

d.$1 persharecashdividend

 42.     Stockdividendsandstocksplitshavethefollowingeffectsonretainedearnings:

 StockSplits a.         Increaseb.    Nochange c.     Decreased.    Nochange

StockDividendsNochange

Decrease Decrease Nochange

  43.     Dividendsarepredominantlypaidin a.scrip.

b.property. c.cash.

d.stock.

 44.     Ifastockholderreceivesadividendconsistingofapromissorynote,thestockholderhas received a

a.stockdividend. b.cashdividend.

c.contingentdividend. d.scripdividend.

 45.     Of thefourdividendstypes,thetwomostcommontypesinpracticeare a.cashandscrip.

b.cashand property. c.cashandstock.

d.propertyandstock.

14-8        

 46.     Regulardividendsaredeclared outof

a.Paid-inCapitalinExcessofPar Value. b.TreasuryStock.

c.CommonStock.

d.RetainedEarnings.

 47.     A corporationiscommittedto alegalobligationwhen it declares a.acashdividend.

b.eitheracashdividendorastockdividend. c.astockdividend.

d.astocksplit.

 48.     Whichofthefollowingisnot asignificantdate withrespectto dividends? a.Thedeclarationdate

b.The incorporationdate c.Therecorddate

d.Thepaymentdate

 49.     Onthedividendrecorddate,

a.a dividendbecomesa currentobligation. b.noentryisrequired.

c.anentrymaybe requiredifit isastockdividend. d.DividendsPayableis debited.

 50.     Whichofthefollowingstatementsregarding thedateofacashdividenddeclaration isnot accurate?

a.Thedividendcan berescindedonceit hasbeendeclared. b.Thecorporationiscommittedto alegal,bindingobligation.

c.Theboard of directorsformallyauthorizesthecashdividend. d.A liabilityaccountmustbe increased.

 51.     DividendsPayableisclassifiedas a a.long-termliability.

b.contrastockholders'equityaccountto RetainedEarnings. c.currentliability.

d.stockholders'equityaccount.

 52.     Indicatetherespectiveeffectsofthedeclarationofacashdividendonthefollowing balance sheet sections:

 Total Assets a.       Increaseb.    Nochange c.     Decrease d.     Decrease

Total LiabilitiesDecrease Increase IncreaseNochange

Total Stockholders'EquityNochange

Decrease Decrease Increase

 53.     Whichofthefollowingstatements aboutdividendsisnotaccurate? a.Manycompanies declareandpaycashquarterlydividends.

b.Lowdividendsmaymeanhigh stockreturns.

c.Theboard of directorsis obligatedtodeclaredividends. d.A legaldividendmaynot beafeasibleone.

Corporations:Dividends,RetainedEarnings,andIncomeReporting          14-9

 54.     Thecumulativeeffectofthedeclarationandpaymentofacashdividendonacompany's balance sheet isto

a.decreasecurrent liabilitiesand stockholders'equity. b.increasetotalassetsandstockholders'equity.

c.increasecurrentliabilitiesandstockholders'equity. d.decreasestockholders' equityandtotalassets.

 55.     Thedeclarationanddistributionof a stockdividendwill a.increasetotalstockholders'equity.

b.increasetotalassets. c.decreasetotal assets.

d.havenoeffectontotalassets.

 56.     ABC,Inc.has1,000sharesof4%,$100parvalue,cumulativepreferredstockand50,000 sharesof$1parvaluecommonstockoutstandingatDecember31,2008.Whatisthe annual dividend on thepreferred stock?

a.$40pershare b.$4,000intotal c.$400intotald.$.40pershare

 57.     Agler,Inc.has10,000sharesof6%,$100parvalue,cumulativepreferredstockand 100,000sharesof$1parvaluecommonstockoutstandingatDecember31,2008.Ifthe board ofdirectors declaresa$50,000dividend,the

a.preferredshareholderswillreceive1/10thofwhatthecommonshareholderswill receive.

b.preferredshareholders willreceivetheentire$50,000.

c.$50,000willbeheldasrestrictedretainedearningsandpaidoutatsomefuturedate.d.preferredshareholderswill receive$25,000and the commonshareholders will receive

$25,000.

 58.     Manner,Inc.has5,000sharesof6%,$100parvalue,noncumulativepreferredstockand 20,000sharesof$1parvaluecommonstockoutstandingatDecember31,2008.There werenodividendsdeclaredin2007.Theboardofdirectorsdeclaresandpaysa$55,000 dividendin2008.Whatistheamountofdividendsreceivedbythecommonstockholders in 2008?

a.$0

b.$30,000 c.$55,000 d.$25,000

 59.     Lopez,Inc.has2,000sharesof6%,$50parvalue,cumulativepreferredstockand50,000 sharesof$1parvaluecommonstockoutstandingatDecember31,2007,andDecember 31,2008.Theboardofdirectorsdeclaredandpaida$4,000dividendin2007.In2008, $20,000ofdividendsaredeclaredandpaid.Whatarethedividendsreceivedbythe preferredandcommonshareholdersin2008?

 Preferred a. $12,000 b.       $10,000 c.       $8,000d.          $6,000

Common $8,000 $10,000 $12,000 $14,000

14-10

 60.     Norton, Inc.has10,000sharesof6%,$100 par value,noncumulativepreferredstockand 100,000sharesof$1parvaluecommonstockoutstandingatDecember31,2008,and December31,2009. Theboard ofdirectors declared andpaida$50,000dividend in2008. In2009,$100,000ofdividendsaredeclaredandpaid.What arethedividendsreceivedby thepreferredandcommonshareholdersin 2009?

 Preferred a.$0

b.$60,000 c.$50,000 d.$100,000

Common $100,000 $40,000 $50,000 $0

  61.     Theboardof directorsmustassignapersharevalueto a stockdividenddeclaredthat is a.greaterthantheparor statedvalue.

b.lessthanthe parorstated value. c.equaltotheparor statedvalue.

d.atleastequaltothe parorstatedvalue.

 62.     Corporationsgenerallyissuestock dividendsinorderto a.increasethemarketpricepershare.

b.exceedstockholders'dividendexpectations. c.increasethemarketabilityof thestock.

d.decreasetheamountofcapitalinthe corporation.

 63.     A stockholderwhoreceivesastockdividendwould a.expectthemarketpricepershareto increase. b.own moreshares ofstock.

c.expectretainedearningstoincrease.

d.expecttheparvalueof the stocktochange.

 64.     Whenstockdividendsaredistributed,

a.CommonStock DividendsDistributableisdecreased. b.RetainedEarningsisdecreased.

c.Paid-inCapitalin ExcessofPar Valueisdebitedifitis a smallstockdividend. d.noentryis necessaryifit isalargestock dividend.

 65.     A smallstockdividendisdefinedas

a.lessthan30%butgreaterthan25%of thecorporation's issuedstock. b.between50%and100%ofthecorporation's issuedstock.

c.morethan30%ofthecorporation's issuedstock.

d.lessthan20–25% of thecorporation'sissuedstock.

 66.     Thepershareamountnormallyassignedbytheboardofdirectorstoalargestock dividend is

a.themarketvalueof thestock onthedate of declaration.

b.theaveragepricepaidbystockholdersonoutstandingshares. c.thepar or stated valueof thestock.

d.zero.

Corporations:Dividends,RetainedEarnings,andIncomeReporting          14-11

 67.     Thepershareamountnormallyassignedbytheboardofdirectorstoasmallstock dividend is

a.themarketvalue of thestock onthedateof declaration.

b.theaveragepricepaidbystockholdersonoutstandingshares. c.thepar or stated valueof thestock.

d.zero.

 68.     Identifytheeffectthedeclarationofastockdividendhasontheparvaluepershareand book valuepershare.

 Par Valueper Share a.          Increase

b.         Noeffect c.        Decrease d.     Noeffect

Book ValueperShareDecrease Increase Decrease Decrease

  69.     Thedeclarationof astockdividendwill a.increasepaid-incapital.

b.changethetotal of stockholders'equity. c.increasetotal liabilities.

d.increasetotalassets.

 70.     Whichofthefollowingshowthepropereffectofastocksplitandastockdividend?

                Item                    

a.         Totalpaid-incapitalb.     Totalretainedearnings

c.Totalpar value(common) d.    Parvaluepershare

StockSplit Increase

Decrease Decrease Decrease

StockDividend Increase Decrease IncreaseNochange

  71.     A stocksplit

a.mayoccurinthe absenceof retainedearnings. b.willincreasetotalpaid-incapital.

c.will increasethetotalparvalueof thestock.

d.willhavenoeffectontheparvaluepershareof stock.

 72.     OutstandingstockoftheApexCorporationincluded20,000sharesof$5parcommon stockand5,000sharesof6%,$10parnoncumulativepreferredstock.In2007,Apex declaredandpaiddividendsof$2,000.In2008,Apexdeclaredandpaiddividendsof $6,000.Howmuchof the 2008dividendwasdistributedtopreferredshareholders?

a.$4,000 b.$7,000 c.$3,000

d.Noneof theabove

 73.     OutstandingstockoftheBellCorporationincluded20,000sharesof$5parcommonstock and10,000sharesof6%,$10parnoncumulativepreferredstock.In2007,Belldeclared andpaiddividendsof$4,000.In2008,Belldeclaredandpaiddividendsof$12,000.How muchofthe2008 dividendwasdistributedtopreferredshareholders?

a.$8,000b.$14,000 c.$6,000

d.Noneof theabove

14-12

 74.     OnJanuary1,BluefieldCorporationhad800,000sharesof$10parvaluecommonstock outstanding.OnMarch31,thecompanydeclareda10%stockdividend.Marketvalueof thestockwas$15/share.Asaresultof thisevent,

a.Bluefield’sPaid-in Capitalin ExcessofParValueaccountincreased $400,000. b.Bluefield’stotalstockholders’equitywasunaffected.

c.Bluefield’sRetained Earningsaccountdecreased$1,200,000. d.All of the above.

 75.     OnJanuary1,GarrisonCorporationhad1,000,000sharesof$10parvaluecommon stockoutstanding.OnMarch31,thecompanydeclareda10%stockdividend.Market value of thestockwas $15/share.Asaresultofthisevent,

a.Garrison’sPaid-inCapitalinExcessofParValueaccountincreased $500,000. b.Garrison’stotal stockholders’equitywasunaffected.

c.Garrison’sRetainedEarningsaccountdecreased$1,500,000. dAllof theabove.

 76.     SunInc.has5,000sharesof6%,$100parvalue,cumulativepreferredstockand50,000 sharesof$1parvaluecommonstockoutstandingatDecember31,2008.Whatisthe annual dividend on thepreferred stock?

a.$60pershareb.$30,000intotal c.$3,000intotald.$0.60pershare

 77.     Allstate,Inc.,has20,000sharesof6%,$100parvalue,noncumulativepreferredstock and100,000sharesof$1parvaluecommonstockoutstandingatDecember31,2008.If the boardofdirectorsdeclaresa$200,000dividend,the

a.preferredstockholderswillreceive2/10th    ofwhatthecommonstockholderswill receive.

b.preferredstockholders willreceivetheentire$200,000.

c.$120,000willbeheldasrestrictedretainedearningsandpaidoutat somefuturedate. d.preferredstockholderswillreceive$120,000andthecommonstockholderswill

receive$80,000.

  78.     Archer,Inc., has 10,000sharesof8%,$100par value, noncumulativepreferredstock and 40,000sharesof$1parvaluecommonstockoutstandingatDecember31,2008.There werenodividendsdeclaredin2007.Theboardofdirectors declaresandpaysa$120,000 dividendin2008.Whatistheamountofdividendsreceivedbythecommonstockholders in 2008?

a.$0

b.$80,000c.$120,000 d.$40,000

 79.     LutherInc.,has2,000sharesof8%,$50parvalue,cumulativepreferredstockand 100,000sharesof$1parvaluecommonstockoutstandingatDecember31,2008,and December31,2007.Theboardofdirectorsdeclaredandpaida$6,000dividendin2007. In2008,$24,000ofdividendsaredeclaredandpaid.Whatarethedividendsreceivedby thepreferredstockholdersin2008?

Corporations:Dividends,RetainedEarnings,andIncomeReporting          14-13

  a.$14,000 b.$12,000 c.$10,000 d.$8,000

  `80.     Anders,Inc.,has5,000sharesof6%,$100parvalue,cumulativepreferredstockand 20,000sharesof$1parvaluecommonstockoutstandingatDecember31,2009.There werenodividendsdeclaredin2007.Theboardofdirectorsdeclaresandpaysa$50,000 dividendin2008andin2009.Whatistheamountofdividendsreceivedbythecommon stockholdersin2009?

a.$10,000 b.$30,000 c.$50,000 d.$0

 81.    CutherInc.,has1,000sharesof8%,$50parvalue,cumulativepreferredstockand 50,000sharesof$1parvaluecommonstockoutstandingatDecember31,2007,and December31,2008.Theboardofdirectorsdeclaredandpaida$3,000dividendin2007. In2008,$12,000ofdividendsaredeclaredandpaid.Whatarethedividendsreceivedby thecommonstockholdersin 2008?

a.$7,000 b.$6,000 c.$5,000 d.$4,000

 82.     OnJanuary1,BrunnerCorporationhad60,000sharesof$10parvaluecommonstock outstanding.OnMarch17,thecompanydeclareda10%stockdividendtostockholders ofrecordonMarch20.Marketvalueofthestockwas$13onMarch17.Theentryto recordthetransactionofMarch17wouldincludea

a.creditto Retained Earningsfor$18,000. b.creditto Cashfor$78,000.

c.credittoCommonStockDividendsDistributablefor$60,000. d.debitto CommonStockDividendsDistributablefor $60,000.

 83.     OnJanuary1,BrunnerCorporationhad60,000sharesof$10parvaluecommonstock outstanding.OnMarch17,thecompanydeclareda10%stockdividendtostockholders ofrecordonMarch20.Marketvalueofthestockwas$13onMarch17.Thestockwas distributedonMarch30.TheentrytorecordthetransactionofMarch30wouldincludea

a.creditto Cashfor$60,000.

b.debittoCommonStockDividendsDistributablefor$60,000. c.credittoPaid-inCapitalinExcessofParValuefor$18,000. d.debittoRetainedEarningsfor $18,000.

 84.     OnJanuary1,SandfordCorporationhad80,000sharesof$10parvaluecommonstock outstanding.OnJune17,thecompanydeclareda10%stockdividendtostockholdersof recordonJune20.Marketvalueofthestockwas$15onJune17.Theentrytorecordthe transactionofJune17wouldincludea

a.debitto RetainedEarningsfor $120,000. b.creditto Cashfor$120,000.

c.credittoCommonStockDividendsDistributablefor$120,000. d.creditto CommonStockDividendsDistributablefor$40,000.

14-14

 85.     OnJanuary1,SanfordCorporationhad80,000sharesof$10parvaluecommonstock outstanding.OnJune17,thecompanydeclareda10%stockdividendtostockholdersof recordonJune20.Marketvalueofthestockwas$15onJune17.Thestockwas distributedonJune30.The entrytorecordthetransactionof June30wouldincludea

a.creditto Common Stockfor $80,000.

b.debitto CommonStockDividendsDistributablefor $120,000. c.creditto Paid-inCapitalin ExcessofParValuefor $40,000.d.debitto RetainedEarningsfor $40,000.

 86.     Thefollowingselectedamounts areavailablefor SandersCompany.

 Retainedearnings(beginning)              $1,000 Netloss                                                   100 Cashdividendsdeclared                         100 Stockdividendsdeclared                          50

 Whatis its ending retainedearningsbalance? a.$850

b.$900 c.$750 d.$800

 87.     TurquoiseandTopazSistershadretainedearningsof$10,000onthebalancesheetbut disclosedinthefootnotesthat$2,000ofretainedearningswasrestrictedforplant expansionand$1,000wasrestricted forbondrepayments.Cashof$2,000hadbeenset asidefortheplantexpansion.Howmuchofretainedearningsisavailablefor dividends?

a.$7,000b.$8,000c.$10,000 d.$5,000

 88.     Irwin,Inc.had300,000sharesofcommonstockoutstandingbeforeastocksplitoccurred, and 600,000sharesoutstandingafterthestocksplit.Thestocksplitwas

a.3for6. b.6for1. c.1 for6. d.2for1.

 89.     Restrictingretainedearningsforthecostoftreasurystockpurchasedisa a.contractualrestriction.

b.legalrestriction. c.stockrestriction.

d.voluntaryrestriction.

 90.     Apriorperiodadjustmentthatcorrectsincomeofapriorperiodrequiresthatanentrybe madeto

a.an incomestatementaccount.

b.a currentyearrevenueor expenseaccount. c.theretainedearningsaccount.

d.an assetaccount.

Corporations:Dividends,RetainedEarnings,andIncomeReporting          14-15

 91.     Iftheboardofdirectors authorizes a$100,000 restrictionofretainedearnings forafuture plantexpansion,the effect of thisaction isto

a.decreasetotalassetsandtotal stockholders'equity.

b.increasestockholders' equity anddecreasetotalliabilities.

c.decreasetotalretainedearningsandincreasetotalliabilities.

d.reducetheamount of retainedearningsavailablefor dividenddeclarations.

 92.     Acreditbalanceinretainedearnings represents a.theamount ofcashretained inthebusiness. b.aclaimonspecificassets of thecorporation.

c.a claimonthe aggregateassetsofthecorporation.

d.theamountofstockholders'equityexemptedfromthestockholders'claimontotal assets.

 93.     A netloss

a.occursifoperatingexpensesexceedcostofgoodssold.

b.isnotclosedto RetainedEarningsifitwouldresult ina debitbalance.c.isclosedto RetainedEarningseven ifit wouldresult inadebitbalance.

d.isclosedtothepaid-incapitalaccountofthestockholders'equitysectionofthe balance sheet.

 94.     Priorperiodadjustmentsarereported

a.inthefootnotesofthecurrent year'sfinancialstatements. b.on thecurrent year'sbalancesheet.

c.onthecurrentyear's incomestatement.

d.onthecurrent year'sretainedearnings statement.

 95.     Retainedearningsareoccasionallyrestricted a.tosetasidecashfordividends.

b.tokeepthelegalcapitalassociatedwithpaid-incapitalintact. c.duetocontractualloanrestrictions.

d.ifpreferreddividendsare inarrears.

 96.     Retainedearningsis increasedbyeachof thefollowingexcept a.netincome.

b.priorperiodadjustments.

c.somedisposals of treasury stock.

d.Allof theseincreaseretainedearnings.

 97.     A priorperiodadjustmentfor understatementofnet incomewill a.becreditedto theRetainedEarningsaccount.

b.be debitedto theRetainedEarningsaccount.

c.showasagain onthecurrentyear'sIncomeStatement. d.showasanassetonthecurrentyear'sBalanceSheet.

 98.     Theretainedearningsstatement

a.istheowners'equitystatementfor acorporation.

b.willshowanadditiontothebeginningretainedearningsbalanceforanunderstate-ment ofnet incomeinaprioryear.

c.willnotreflect netlosses.

d.will,insomecases,failtoreconcilethebeginningandendingretainedearnings balances.

14-16

 99.     Inthe stockholders'equitysectionof thebalancesheet,

a.CommonStockDividendsDistributablewillbeclassifiedaspartofadditionalpaid-in capital.

b.CommonStockDividendsDistributablewillappearinitsownsubsectionofthestock-holders'equity.

c.AdditionalPaid-inCapitalappearsunder thesubsection Paid-inCapital. d.Dividendsinarrearswillappearasarestrictionof RetainedEarnings.

 100.     Thereturnoncommonstockholders'equityiscomputedbydividingnetincomeavailable tocommonstockholdersby

a.endingtotalstockholders'equity.

b.endingcommonstockholders'equity. c.averagetotalstockholders'equity.

d.averagecommonstockholders'equity.

 101.     Thereturnoncommonstockholders’equityis computedbydividing a.netincomebyendingcommonstockholders’equity.

b.netincomebyaveragecommonstockholders’equity.

c.net incomeless preferreddividendsbyendingcommonstockholders’equity.d. netincomelesspreferreddividendsbyaveragecommonstockholders’equity.

#ACC 206 Week 11 Final Exam – Strayer

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ACC 206 Week 11 Final Exam – Strayer

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  Chapter14 Through 19

  CORPORATIONS:DIVIDENDS,RETAINEDEARNINGS,ANDINCOMEREPORTING

  CHAPTERSTUDYOBJECTIVES

  1.Preparetheentriesforcashdividendsandstockdividends.

 2.Identifytheitemsreportedinaretainedearningsstatement.

 3.Prepareandanalyzeacomprehensivestockholders'equitysection.

 4.Describetheformandcontentofcorporationincomestatements.

 5.Computeearningspershare.

 TRUE-FALSESTATEMENTS

 1.         Dividendsmaybedeclaredandpaidincashor stock.

 2.     Cashdividends arenotaliability ofthecorporationuntiltheyaredeclaredbytheboardof directors.

 3.     Theamountofacashdividendliabilityisrecordedonthedateofrecordbecauseitison that datethatthepersonsor entitieswhowillreceivethedividendare identified.

 4.     A10%stockdividendwillincreasethenumberofsharesoutstandingbutthebookvalue pershare willdecrease.

 5.     A3for1commonstocksplitwillincreasetotalstockholders'equitybutreducetheparor stated valuepershareofcommonstock.

 6.     Retainedearningsrepresentstheamount of cashavailablefordividends.

 7.     Netincomeofacorporationshouldbeclosedtoretainedearningsandnetlossesshould be closed to paid-incapitalaccounts.

 8.     A debitbalanceintheRetained Earningsaccountis identifiedasadeficit.

 9.     AcorrectioninincomeofapriorperiodinvolveseitheradebitorcredittotheRetained Earningsaccount.

 10.     Priorperiodadjustmentsto incomearereportedinthecurrentyear'sincomestatement.

 11.     Retainedearningsthat are restrictedareunavailablefordividends.

 12.     Restrictedretainedearnings areavailableforpreferredstockdividendsbutunavailablefor commonstockdividends.

 13.     Aretainedearningsstatementshowsthesameinformationasacorporationincome statement.

 14.     Adetailedstockholders'equitysectioninthebalancesheetwilllistthenamesof individualswhoare eligibletoreceivedividendsonthedateofrecord.

 15.     CommonStockDividendsDistributableisshownwithinthePaid-inCapitalsubdivisionof thestockholders'equitysectionof thebalancesheet.

 16.     Returnoncommonstockholders’equityiscomputedbydividingnetincomebyending stockholders’ equity.

 17.     Manycompaniesprepareastockholders’equitystatementinsteadofpresentinga detailed stockholders’ equity sectioninthebalancesheet.

 18.     Amajordifferenceamongcorporations,proprietorships,andpartnershipsisthata corporation's incomestatementreportsincometaxexpense.

 19.     A corporationincursincometaxexpense onlyifitpaysdividendsto stockholders.

Corporations:Dividends,RetainedEarnings,andIncomeReporting          14-5

 20.     Incometaxexpenseusuallyappearsasaseparatesectiononacorporationincome statement.

 21.     Earningspershareiscalculatedbydividingnetincomebytheweightedaveragenumber ofshares ofpreferredstock and commonstockoutstanding.

 22.     Preferreddividendspaidareaddedbacktonetincomeincalculatingearningspershare for commonstockholders.

 23.     Earningspershareindicatesthenetincomeearnedbyeachshareofoutstanding commonstock.

 24.     Earningsper shareis reportedfor both preferredandcommonstock.

 25.     Mostcompaniesarerequiredtoreportearningspershareonthefaceoftheincome statement.

 Additional True-FalseQuestions

 26.     A dividendbasedonpaid-incapitalis termeda liquidatingdividend.

 27.     CommonStockDividendsDistributableisreportedasadditionalpaid-incapitalinthe stockholders' equitysection.

 28.     Apriorperiodadjustmentisreportedasanadjustmentofthebeginningbalanceof RetainedEarnings.

 29.     Incometaxexpenseandtherelatedliabilityforincometaxespayablearerecordedwhen taxes are paid.

 30.     Earningsper shareis reportedonlyforcommonstock.

     MULTIPLECHOICEQUESTIONS

 31.     Eachof thefollowingdecreasesretainedearningsexcepta a.cashdividend.

b.liquidatingdividend. c.stockdividend.

d.All of thesedecreaseretainedearnings.

 32.     Eachof thefollowingdecreasestotal stockholders'equityexcepta a.cashdividend.

b.liquidatingdividend. c.stockdividend.

d.Allof thesedecreasetotalstockholders'equity.

 33.     Whichoneofthefollowingisnotnecessaryinorderforacorporationtopayacash dividend?

a.Adequatecash

b.Approvalof stockholders

c.Declarationof dividendsbytheboardof directors d.Retainedearnings

 34.     Ifa corporationdeclaresa dividendbasedupon paid-in capital,it isknownasa a.scrip dividend.

b.propertydividend. c.paiddividend.

d.liquidatingdividend.

 35.     Thedateonwhichacashdividendbecomesabindinglegalobligationison the a.declarationdate.

b.date of record. c.paymentdate.

d.lastdayofthefiscalyear-end.

 36.     The effectofthedeclarationofacashdividendbytheboardof directorsis to

          Increase          

a.Stockholders'equity b.          Assets

c.            Liabilities d. Liabilities

        Decrease          

Assets Liabilities

Stockholders'equity Assets

  37.     Thecumulativeeffectofthedeclarationandpaymentofacashdividendonacompany's financial statementsis to

a.decreasetotal liabilitiesandstockholders'equity. b.increasetotalexpensesandtotal liabilities.

c.increasetotal assetsand stockholders'equity. d.decreasetotalassetsandstockholders'equity.

Corporations:Dividends,RetainedEarnings,andIncomeReporting          14-7

 38.     CommonStock DividendsDistributableisclassifiedasa(n) a.assetaccount.

b.stockholders'equityaccount. c.expenseaccount.

d.liabilityaccount.

 39.     The effectofastockdividend isto

a.decreasetotalassetsandstockholders'equity. b.change thecompositionofstockholders'equity. c.decreasetotal assetsandtotal liabilities.

d.increasethebook valuepershareofcommonstock.

 40.     Ifacorporationdeclaresa10%stockdividendonitscommonstock,theaccounttobe debited onthedateofdeclaration is

a.CommonStock DividendsDistributable. b.CommonStock.

c.Paid-inCapitalinExcessofPar. d.RetainedEarnings.

 41.     Whichoneofthefollowingeventswouldnotrequireaformaljournalentryona corporation's books?

a.2for 1 stocksplit

b.100%stockdividend c.2%stockdividend

d.$1 persharecashdividend

 42.     Stockdividendsandstocksplitshavethefollowingeffectsonretainedearnings:

 StockSplits a.         Increaseb.    Nochange c.     Decreased.    Nochange

StockDividendsNochange

Decrease Decrease Nochange

  43.     Dividendsarepredominantlypaidin a.scrip.

b.property. c.cash.

d.stock.

 44.     Ifastockholderreceivesadividendconsistingofapromissorynote,thestockholderhas received a

a.stockdividend. b.cashdividend.

c.contingentdividend. d.scripdividend.

 45.     Of thefourdividendstypes,thetwomostcommontypesinpracticeare a.cashandscrip.

b.cashand property. c.cashandstock.

d.propertyandstock.

14-8        

 46.     Regulardividendsaredeclared outof

a.Paid-inCapitalinExcessofPar Value. b.TreasuryStock.

c.CommonStock.

d.RetainedEarnings.

 47.     A corporationiscommittedto alegalobligationwhen it declares a.acashdividend.

b.eitheracashdividendorastockdividend. c.astockdividend.

d.astocksplit.

 48.     Whichofthefollowingisnot asignificantdate withrespectto dividends? a.Thedeclarationdate

b.The incorporationdate c.Therecorddate

d.Thepaymentdate

 49.     Onthedividendrecorddate,

a.a dividendbecomesa currentobligation. b.noentryisrequired.

c.anentrymaybe requiredifit isastockdividend. d.DividendsPayableis debited.

 50.     Whichofthefollowingstatementsregarding thedateofacashdividenddeclaration isnot accurate?

a.Thedividendcan berescindedonceit hasbeendeclared. b.Thecorporationiscommittedto alegal,bindingobligation.

c.Theboard of directorsformallyauthorizesthecashdividend. d.A liabilityaccountmustbe increased.

 51.     DividendsPayableisclassifiedas a a.long-termliability.

b.contrastockholders'equityaccountto RetainedEarnings. c.currentliability.

d.stockholders'equityaccount.

 52.     Indicatetherespectiveeffectsofthedeclarationofacashdividendonthefollowing balance sheet sections:

 Total Assets a.       Increaseb.    Nochange c.     Decrease d.     Decrease

Total LiabilitiesDecrease Increase IncreaseNochange

Total Stockholders'EquityNochange

Decrease Decrease Increase

 53.     Whichofthefollowingstatements aboutdividendsisnotaccurate? a.Manycompanies declareandpaycashquarterlydividends.

b.Lowdividendsmaymeanhigh stockreturns.

c.Theboard of directorsis obligatedtodeclaredividends. d.A legaldividendmaynot beafeasibleone.

Corporations:Dividends,RetainedEarnings,andIncomeReporting          14-9

 54.     Thecumulativeeffectofthedeclarationandpaymentofacashdividendonacompany's balance sheet isto

a.decreasecurrent liabilitiesand stockholders'equity. b.increasetotalassetsandstockholders'equity.

c.increasecurrentliabilitiesandstockholders'equity. d.decreasestockholders' equityandtotalassets.

 55.     Thedeclarationanddistributionof a stockdividendwill a.increasetotalstockholders'equity.

b.increasetotalassets. c.decreasetotal assets.

d.havenoeffectontotalassets.

 56.     ABC,Inc.has1,000sharesof4%,$100parvalue,cumulativepreferredstockand50,000 sharesof$1parvaluecommonstockoutstandingatDecember31,2008.Whatisthe annual dividend on thepreferred stock?

a.$40pershare b.$4,000intotal c.$400intotald.$.40pershare

 57.     Agler,Inc.has10,000sharesof6%,$100parvalue,cumulativepreferredstockand 100,000sharesof$1parvaluecommonstockoutstandingatDecember31,2008.Ifthe board ofdirectors declaresa$50,000dividend,the

a.preferredshareholderswillreceive1/10thofwhatthecommonshareholderswill receive.

b.preferredshareholders willreceivetheentire$50,000.

c.$50,000willbeheldasrestrictedretainedearningsandpaidoutatsomefuturedate.d.preferredshareholderswill receive$25,000and the commonshareholders will receive

$25,000.

 58.     Manner,Inc.has5,000sharesof6%,$100parvalue,noncumulativepreferredstockand 20,000sharesof$1parvaluecommonstockoutstandingatDecember31,2008.There werenodividendsdeclaredin2007.Theboardofdirectorsdeclaresandpaysa$55,000 dividendin2008.Whatistheamountofdividendsreceivedbythecommonstockholders in 2008?

a.$0

b.$30,000 c.$55,000 d.$25,000

 59.     Lopez,Inc.has2,000sharesof6%,$50parvalue,cumulativepreferredstockand50,000 sharesof$1parvaluecommonstockoutstandingatDecember31,2007,andDecember 31,2008.Theboardofdirectorsdeclaredandpaida$4,000dividendin2007.In2008, $20,000ofdividendsaredeclaredandpaid.Whatarethedividendsreceivedbythe preferredandcommonshareholdersin2008?

 Preferred a. $12,000 b.       $10,000 c.       $8,000d.          $6,000

Common $8,000 $10,000 $12,000 $14,000

14-10

 60.     Norton, Inc.has10,000sharesof6%,$100 par value,noncumulativepreferredstockand 100,000sharesof$1parvaluecommonstockoutstandingatDecember31,2008,and December31,2009. Theboard ofdirectors declared andpaida$50,000dividend in2008. In2009,$100,000ofdividendsaredeclaredandpaid.What arethedividendsreceivedby thepreferredandcommonshareholdersin 2009?

 Preferred a.$0

b.$60,000 c.$50,000 d.$100,000

Common $100,000 $40,000 $50,000 $0

  61.     Theboardof directorsmustassignapersharevalueto a stockdividenddeclaredthat is a.greaterthantheparor statedvalue.

b.lessthanthe parorstated value. c.equaltotheparor statedvalue.

d.atleastequaltothe parorstatedvalue.

 62.     Corporationsgenerallyissuestock dividendsinorderto a.increasethemarketpricepershare.

b.exceedstockholders'dividendexpectations. c.increasethemarketabilityof thestock.

d.decreasetheamountofcapitalinthe corporation.

 63.     A stockholderwhoreceivesastockdividendwould a.expectthemarketpricepershareto increase. b.own moreshares ofstock.

c.expectretainedearningstoincrease.

d.expecttheparvalueof the stocktochange.

 64.     Whenstockdividendsaredistributed,

a.CommonStock DividendsDistributableisdecreased. b.RetainedEarningsisdecreased.

c.Paid-inCapitalin ExcessofPar Valueisdebitedifitis a smallstockdividend. d.noentryis necessaryifit isalargestock dividend.

 65.     A smallstockdividendisdefinedas

a.lessthan30%butgreaterthan25%of thecorporation's issuedstock. b.between50%and100%ofthecorporation's issuedstock.

c.morethan30%ofthecorporation's issuedstock.

d.lessthan20–25% of thecorporation'sissuedstock.

 66.     Thepershareamountnormallyassignedbytheboardofdirectorstoalargestock dividend is

a.themarketvalueof thestock onthedate of declaration.

b.theaveragepricepaidbystockholdersonoutstandingshares. c.thepar or stated valueof thestock.

d.zero.

Corporations:Dividends,RetainedEarnings,andIncomeReporting          14-11

 67.     Thepershareamountnormallyassignedbytheboardofdirectorstoasmallstock dividend is

a.themarketvalue of thestock onthedateof declaration.

b.theaveragepricepaidbystockholdersonoutstandingshares. c.thepar or stated valueof thestock.

d.zero.

 68.     Identifytheeffectthedeclarationofastockdividendhasontheparvaluepershareand book valuepershare.

 Par Valueper Share a.          Increase

b.         Noeffect c.        Decrease d.     Noeffect

Book ValueperShareDecrease Increase Decrease Decrease

  69.     Thedeclarationof astockdividendwill a.increasepaid-incapital.

b.changethetotal of stockholders'equity. c.increasetotal liabilities.

d.increasetotalassets.

 70.     Whichofthefollowingshowthepropereffectofastocksplitandastockdividend?

                Item                    

a.         Totalpaid-incapitalb.     Totalretainedearnings

c.Totalpar value(common) d.    Parvaluepershare

StockSplit Increase

Decrease Decrease Decrease

StockDividend Increase Decrease IncreaseNochange

  71.     A stocksplit

a.mayoccurinthe absenceof retainedearnings. b.willincreasetotalpaid-incapital.

c.will increasethetotalparvalueof thestock.

d.willhavenoeffectontheparvaluepershareof stock.

 72.     OutstandingstockoftheApexCorporationincluded20,000sharesof$5parcommon stockand5,000sharesof6%,$10parnoncumulativepreferredstock.In2007,Apex declaredandpaiddividendsof$2,000.In2008,Apexdeclaredandpaiddividendsof $6,000.Howmuchof the 2008dividendwasdistributedtopreferredshareholders?

a.$4,000 b.$7,000 c.$3,000

d.Noneof theabove

 73.     OutstandingstockoftheBellCorporationincluded20,000sharesof$5parcommonstock and10,000sharesof6%,$10parnoncumulativepreferredstock.In2007,Belldeclared andpaiddividendsof$4,000.In2008,Belldeclaredandpaiddividendsof$12,000.How muchofthe2008 dividendwasdistributedtopreferredshareholders?

a.$8,000b.$14,000 c.$6,000

d.Noneof theabove

14-12

 74.     OnJanuary1,BluefieldCorporationhad800,000sharesof$10parvaluecommonstock outstanding.OnMarch31,thecompanydeclareda10%stockdividend.Marketvalueof thestockwas$15/share.Asaresultof thisevent,

a.Bluefield’sPaid-in Capitalin ExcessofParValueaccountincreased $400,000. b.Bluefield’stotalstockholders’equitywasunaffected.

c.Bluefield’sRetained Earningsaccountdecreased$1,200,000. d.All of the above.

 75.     OnJanuary1,GarrisonCorporationhad1,000,000sharesof$10parvaluecommon stockoutstanding.OnMarch31,thecompanydeclareda10%stockdividend.Market value of thestockwas $15/share.Asaresultofthisevent,

a.Garrison’sPaid-inCapitalinExcessofParValueaccountincreased $500,000. b.Garrison’stotal stockholders’equitywasunaffected.

c.Garrison’sRetainedEarningsaccountdecreased$1,500,000. dAllof theabove.

 76.     SunInc.has5,000sharesof6%,$100parvalue,cumulativepreferredstockand50,000 sharesof$1parvaluecommonstockoutstandingatDecember31,2008.Whatisthe annual dividend on thepreferred stock?

a.$60pershareb.$30,000intotal c.$3,000intotald.$0.60pershare

 77.     Allstate,Inc.,has20,000sharesof6%,$100parvalue,noncumulativepreferredstock and100,000sharesof$1parvaluecommonstockoutstandingatDecember31,2008.If the boardofdirectorsdeclaresa$200,000dividend,the

a.preferredstockholderswillreceive2/10th    ofwhatthecommonstockholderswill receive.

b.preferredstockholders willreceivetheentire$200,000.

c.$120,000willbeheldasrestrictedretainedearningsandpaidoutat somefuturedate. d.preferredstockholderswillreceive$120,000andthecommonstockholderswill

receive$80,000.

  78.     Archer,Inc., has 10,000sharesof8%,$100par value, noncumulativepreferredstock and 40,000sharesof$1parvaluecommonstockoutstandingatDecember31,2008.There werenodividendsdeclaredin2007.Theboardofdirectors declaresandpaysa$120,000 dividendin2008.Whatistheamountofdividendsreceivedbythecommonstockholders in 2008?

a.$0

b.$80,000c.$120,000 d.$40,000

 79.     LutherInc.,has2,000sharesof8%,$50parvalue,cumulativepreferredstockand 100,000sharesof$1parvaluecommonstockoutstandingatDecember31,2008,and December31,2007.Theboardofdirectorsdeclaredandpaida$6,000dividendin2007. In2008,$24,000ofdividendsaredeclaredandpaid.Whatarethedividendsreceivedby thepreferredstockholdersin2008?

Corporations:Dividends,RetainedEarnings,andIncomeReporting          14-13

  a.$14,000 b.$12,000 c.$10,000 d.$8,000

  `80.     Anders,Inc.,has5,000sharesof6%,$100parvalue,cumulativepreferredstockand 20,000sharesof$1parvaluecommonstockoutstandingatDecember31,2009.There werenodividendsdeclaredin2007.Theboardofdirectorsdeclaresandpaysa$50,000 dividendin2008andin2009.Whatistheamountofdividendsreceivedbythecommon stockholdersin2009?

a.$10,000 b.$30,000 c.$50,000 d.$0

 81.    CutherInc.,has1,000sharesof8%,$50parvalue,cumulativepreferredstockand 50,000sharesof$1parvaluecommonstockoutstandingatDecember31,2007,and December31,2008.Theboardofdirectorsdeclaredandpaida$3,000dividendin2007. In2008,$12,000ofdividendsaredeclaredandpaid.Whatarethedividendsreceivedby thecommonstockholdersin 2008?

a.$7,000 b.$6,000 c.$5,000 d.$4,000

 82.     OnJanuary1,BrunnerCorporationhad60,000sharesof$10parvaluecommonstock outstanding.OnMarch17,thecompanydeclareda10%stockdividendtostockholders ofrecordonMarch20.Marketvalueofthestockwas$13onMarch17.Theentryto recordthetransactionofMarch17wouldincludea

a.creditto Retained Earningsfor$18,000. b.creditto Cashfor$78,000.

c.credittoCommonStockDividendsDistributablefor$60,000. d.debitto CommonStockDividendsDistributablefor $60,000.

 83.     OnJanuary1,BrunnerCorporationhad60,000sharesof$10parvaluecommonstock outstanding.OnMarch17,thecompanydeclareda10%stockdividendtostockholders ofrecordonMarch20.Marketvalueofthestockwas$13onMarch17.Thestockwas distributedonMarch30.TheentrytorecordthetransactionofMarch30wouldincludea

a.creditto Cashfor$60,000.

b.debittoCommonStockDividendsDistributablefor$60,000. c.credittoPaid-inCapitalinExcessofParValuefor$18,000. d.debittoRetainedEarningsfor $18,000.

 84.     OnJanuary1,SandfordCorporationhad80,000sharesof$10parvaluecommonstock outstanding.OnJune17,thecompanydeclareda10%stockdividendtostockholdersof recordonJune20.Marketvalueofthestockwas$15onJune17.Theentrytorecordthe transactionofJune17wouldincludea

a.debitto RetainedEarningsfor $120,000. b.creditto Cashfor$120,000.

c.credittoCommonStockDividendsDistributablefor$120,000. d.creditto CommonStockDividendsDistributablefor$40,000.

14-14

 85.     OnJanuary1,SanfordCorporationhad80,000sharesof$10parvaluecommonstock outstanding.OnJune17,thecompanydeclareda10%stockdividendtostockholdersof recordonJune20.Marketvalueofthestockwas$15onJune17.Thestockwas distributedonJune30.The entrytorecordthetransactionof June30wouldincludea

a.creditto Common Stockfor $80,000.

b.debitto CommonStockDividendsDistributablefor $120,000. c.creditto Paid-inCapitalin ExcessofParValuefor $40,000.d.debitto RetainedEarningsfor $40,000.

 86.     Thefollowingselectedamounts areavailablefor SandersCompany.

 Retainedearnings(beginning)              $1,000 Netloss                                                   100 Cashdividendsdeclared                         100 Stockdividendsdeclared                          50

 Whatis its ending retainedearningsbalance? a.$850

b.$900 c.$750 d.$800

 87.     TurquoiseandTopazSistershadretainedearningsof$10,000onthebalancesheetbut disclosedinthefootnotesthat$2,000ofretainedearningswasrestrictedforplant expansionand$1,000wasrestricted forbondrepayments.Cashof$2,000hadbeenset asidefortheplantexpansion.Howmuchofretainedearningsisavailablefor dividends?

a.$7,000b.$8,000c.$10,000 d.$5,000

 88.     Irwin,Inc.had300,000sharesofcommonstockoutstandingbeforeastocksplitoccurred, and 600,000sharesoutstandingafterthestocksplit.Thestocksplitwas

a.3for6. b.6for1. c.1 for6. d.2for1.

 89.     Restrictingretainedearningsforthecostoftreasurystockpurchasedisa a.contractualrestriction.

b.legalrestriction. c.stockrestriction.

d.voluntaryrestriction.

 90.     Apriorperiodadjustmentthatcorrectsincomeofapriorperiodrequiresthatanentrybe madeto

a.an incomestatementaccount.

b.a currentyearrevenueor expenseaccount. c.theretainedearningsaccount.

d.an assetaccount.

Corporations:Dividends,RetainedEarnings,andIncomeReporting          14-15

 91.     Iftheboardofdirectors authorizes a$100,000 restrictionofretainedearnings forafuture plantexpansion,the effect of thisaction isto

a.decreasetotalassetsandtotal stockholders'equity.

b.increasestockholders' equity anddecreasetotalliabilities.

c.decreasetotalretainedearningsandincreasetotalliabilities.

d.reducetheamount of retainedearningsavailablefor dividenddeclarations.

 92.     Acreditbalanceinretainedearnings represents a.theamount ofcashretained inthebusiness. b.aclaimonspecificassets of thecorporation.

c.a claimonthe aggregateassetsofthecorporation.

d.theamountofstockholders'equityexemptedfromthestockholders'claimontotal assets.

 93.     A netloss

a.occursifoperatingexpensesexceedcostofgoodssold.

b.isnotclosedto RetainedEarningsifitwouldresult ina debitbalance.c.isclosedto RetainedEarningseven ifit wouldresult inadebitbalance.

d.isclosedtothepaid-incapitalaccountofthestockholders'equitysectionofthe balance sheet.

 94.     Priorperiodadjustmentsarereported

a.inthefootnotesofthecurrent year'sfinancialstatements. b.on thecurrent year'sbalancesheet.

c.onthecurrentyear's incomestatement.

d.onthecurrent year'sretainedearnings statement.

 95.     Retainedearningsareoccasionallyrestricted a.tosetasidecashfordividends.

b.tokeepthelegalcapitalassociatedwithpaid-incapitalintact. c.duetocontractualloanrestrictions.

d.ifpreferreddividendsare inarrears.

 96.     Retainedearningsis increasedbyeachof thefollowingexcept a.netincome.

b.priorperiodadjustments.

c.somedisposals of treasury stock.

d.Allof theseincreaseretainedearnings.

 97.     A priorperiodadjustmentfor understatementofnet incomewill a.becreditedto theRetainedEarningsaccount.

b.be debitedto theRetainedEarningsaccount.

c.showasagain onthecurrentyear'sIncomeStatement. d.showasanassetonthecurrentyear'sBalanceSheet.

 98.     Theretainedearningsstatement

a.istheowners'equitystatementfor acorporation.

b.willshowanadditiontothebeginningretainedearningsbalanceforanunderstate-ment ofnet incomeinaprioryear.

c.willnotreflect netlosses.

d.will,insomecases,failtoreconcilethebeginningandendingretainedearnings balances.

14-16

 99.     Inthe stockholders'equitysectionof thebalancesheet,

a.CommonStockDividendsDistributablewillbeclassifiedaspartofadditionalpaid-in capital.

b.CommonStockDividendsDistributablewillappearinitsownsubsectionofthestock-holders'equity.

c.AdditionalPaid-inCapitalappearsunder thesubsection Paid-inCapital. d.Dividendsinarrearswillappearasarestrictionof RetainedEarnings.

 100.     Thereturnoncommonstockholders'equityiscomputedbydividingnetincomeavailable tocommonstockholdersby

a.endingtotalstockholders'equity.

b.endingcommonstockholders'equity. c.averagetotalstockholders'equity.

d.averagecommonstockholders'equity.

 101.     Thereturnoncommonstockholders’equityis computedbydividing a.netincomebyendingcommonstockholders’equity.

b.netincomebyaveragecommonstockholders’equity.

#ACC 206 Week 11 Final Exam – Strayer