MGMT 200 Final Exam 156 Questions and Answers 2023

MGMT 200 Final Exam 156 Questions and Answers 2023 Mgmt 200 Final Exam/156 Questions and Answers. Woodcrest, Inc. borrowed $50,000 from a local bank and signed a promissory note. What entry should Woodcrest record? A. Debit Cash, $50,000; Credit Notes Receivable, $50,000. B. Debit Notes Receivable, $50,000; Credit Cash, $50,000. C. Debit Cash, $50,000; Credit Notes Payable, $50,000. D. Debit Notes Payable, $50,000; Credit Cash, $50,000. - Correct Answer -C True or False: We record interest expense in the period in which we pay it, rather than in the period we incur it - Correct Answer -False, Interest expense is recorded in the period incurred, not in the period in which we pay it. On November 1, 2018, Knomark, Inc. signed a $100,000, 6%, six‐month note payable with the amount borrowed plus accrued interest due six months later on May 1, 2019. Knomark should report interest payable at December 31, 2018, in the amount of A. $0. B. $1,000 C. $2,000 D. $3,000 - Correct Answer -B, [($100,000 × 6%) × 2/12] = $1,000 On November 1, 2018, Boiler Bakery signed a $200,000, 6%, six‐month note payable with the amount borrowed plus accrued interest due six months later on May 1, 2019. Boiler Bakery records the appropriate adjusting entry for the note on December 31, 2018. What amount of cash will be needed to pay back the note payable plus any accrued interest on May 1, 2019? A. $200,000. B. $202,000 C. $204,000 D. $206,000 - Correct Answer -D, $200,000 + [$200,000 × 6% × 6/12] = $206,000 A contingency is best described as a(n) a. current liability. b. probable liability. c. potential liability. d. estimated liability - Correct Answer -C If management can estimate the amount of loss that will occur due to litigation against the company, and the likelihood of the loss is reasonably possible, a contingent liability should be A. Disclosed, but not reported as a liability B. Disclosed and reported as a liability C. Neither disclosed nor reported as a liability D. Reported as a liability, but not disclosed - Correct Answer -A Reeves Co. filed suit against Higgins, Inc., seeking damages for copyright violations. Higgins' legal counsel believes it is probable that Higgins will settle the lawsuit for an estimated amount in the range of $100,000 to $200,000, with all amounts in the range considered equally likely. How should Higgins report this litigation? A. As a liability for $100,000 with disclosure of the range B. As a liability for $150,000 with disclosure of the range C. As a liability for $200,000 with disclosure of the range D. As a disclosure only. No liability is reported - Correct Answer -A, When no amount within a range of potential losses appears more likely than others, the liability is recorded at the minimum amount in the range Away Travel filed suit against West Coast Travel seeking damages for copyright violations. West Coast Travel's legal counsel believes it is reasonably possible that West Coast Travel will settle the lawsuit for an estimated amount in the range of $100,000 to $200,000, with all amounts in the range considered equally likely. How should West Coast Travel report this litigation? A. As a liability for $100,000 with disclosure of the range B. As a liability for $150,000 with disclosure of the range C. As a liability for $200,000 with disclosure of the range D. As a disclosure only. No liability is reported - Correct Answer -D, A contingent liability is not recorded if the likelihood of loss is only reasonably possible If management can estimate the amount of loss that will occur due to litigation against the company, and the likelihood of the loss is probable, a contingent liability should be A. Disclosed, but not reported as a liability B. Disclosed and reported as a liability C. Neither disclosed nor reported as a liability D. Reported as a liability, but not disclosed - Correct Answer -B Footnote disclosure is required for material potential losses when the loss is at least reasonably possible: A. Only if the amount is known. B. Only if the amount is known or reasonably estimable. C. Unless the amount is not reasonably estimable. D. Even if the amount is not reasonably estimable. - Correct Answer -D Ford estimates engine warranty expense in the year a car is sold. This best follows which of the following accounting principles? A. historical cost B. full disclosure C. consistency D. matching - Correct Answer -D True or False: The balance in the Warranty Liability account is always equal to Warranty Expense - Correct Answer -False, The Warranty Liability account is increased by warranty expense, but it is also reduced over time by actual warranty expenditures Strikers, Inc. sells soccer goals to customers over the Internet. History has shown that 2% of Strikers' goals will need repair under the warranty program. For the year, Strikers has sold 4,000 goals and 45 have been repaired. If the estimated cost to repair a goal is $200, what would be the warranty expense for the year? A. $0 B. $16,000 C. $7,000 D. $9,000 - Correct Answer -B, (4,000*2%)*200 Strikers, Inc. sells soccer goals to customers over the Internet. History has shown that 2% of Strikers' goals will need repair under the warranty program. For the year, Strikers has sold 4,000 goals and 45 have been repaired. If the estimated cost to repair a goal is $200, what would be the warranty liability at the end of the year? A. $0 B. $16,000 C. $7,000 D. $9,000 - Correct Answer -C True or False: We record gain contingencies when the gain is probable and the amount is reasonably estimable - Correct Answer -False, we do not record gain contingencies until the gain is certain Which of the following is not a true statement? A. Companies that are believed to have high bankruptcy risk generally receive low credit ratings and must pay a higher interest rate for borrowing B. As a company's level of debt increases, the risk of bankruptcy increases C. Interest expense incurred when borrowing money, as well as dividends paid to stockholders, are both tax‐deductible D. The mixture of liabilities and stockholders' equity a business uses is called its capital structure - Correct Answer -C True or False: The mixture of debt and equity securities is generally the same for most companies. - Correct Answer -False True or False: A debt to equity ratio of 1.0 means that half of the company's assets are financed by creditors. - Correct Answer -True, indicates total liabilities equal equity True or False: Cash flow generally limits the amount of debt a business can finance. - Correct Answer -True, Debt financing can increase with stable and predictive cash flows The entry to record a monthly payment on an installment note A. Increases expense, decreases liabilities, and decreases assets. B. Increases expense, increases liabilities, and increases assets. C. Increases expense, decreases liabilities, and increases assets. D. Increases expense, increases liabilities, and decreases assets. - Correct Answer -A In each succeeding payment on an installment note A. The amount that goes to decreasing the carrying value of the note is unchanged. B. The amount that goes to decreasing the carrying value of the note decreases. C. The amount that goes to decreasing the carrying value of the note increases. D. The amounts paid for both interest and principal increase proportionately. - Correct Answer -C In each succeeding payment on an installment note A. The amount of interest expense increases. B. The amount of interest expense decreases. C. The amount of interest expense is unchanged. D. The amounts paid for both interest and principal increase proportionately. - Correct Answer -B A corporation obtains a $125,000, 6%, five‐year loan for equipment on January 1, 2018. If the monthly payment is $2,416.60, by how much will the carrying value decrease when the first payment is made on January 31, 2018 A. $1,791.60 B. $625.00 C. $2,416.60 D. $1,000.60 - Correct Answer -A, $125,000 × 6% × 1/12 = $625.00 (interest expense) $2,416.60 ‐ $625.00 = $1,791.60 (payment) - (interest) = ( reduction in carrying value) Which of the following definitions describes a term bond? A. Matures on a single date. B. Secured only by the "full faith and credit" of the issuing corporation. C. Matures in installments. D. Supported by specific assets pledged as collateral by the issuer. - Correct Answer -A True or False: A callable bond allows the holder to repay the bonds before their scheduled maturity date at a specified call price - Correct Answer -False The term used for bonds that are unsecured as to principal is A. series bonds B. debenture bonds C. indenture bonds. D.callable bonds - Correct Answer -B True or False: Convertible bonds allow the borrower to convert each bond into a specified number of shares of common stock - Correct Answer -False The advantages of obtaining long‐term funds by issuing bonds, rather than issuing additional common stock, include which of the following? A. Funds are obtained without surrendering ownership control. B. Interest expense is tax‐deductible. C. The company's default risk decreases. D. Funds are obtained without surrendering ownership control, as well as, interest expense is tax‐deductible. - Correct Answer -D The rate quoted in the bond contract used to calculate the cash payments for interest is called the A. Effective rate B. Yield rate C. Market rate D. Stated rate - Correct Answer -D, (face, coupon or nominal rates) True or False: We can calculate the issue price of a bond as the face amount plus the total periodic interest payments - Correct Answer -False, need to present value using the market interest rate True or False: A premium occurs when the issue price of a bond is above its face amount - Correct Answer -True A bond issue with a face amount of $500,000 bears interest at the rate of 7%. The current market rate of interest is 6%. These bonds will sell at a price that is: A. Equal to $500,000 B. More than $500,000 C. Less than $500,000 D. The answer cannot be determined from the information provided - Correct Answer -B The price of a bond is equal to: A. The future value of the face amount only B. The present value of the interest only C. The present value of the face amount plus the present value of the stated interest payments D. The future value of the face amount plus the future value of the stated interest payments - Correct Answer -C Bond X and Bond Y are both issued by the same company. Each of the bonds has a face value of $100,000 and each matures in 10 years. Bond X pays 8% interest while Bond Y pays 7% interest. The current market rate of interest is 7%. Which of the following is correct? A. Both bonds will sell for the same amount B. Bond X will sell for more than Bond Y C. Bond Y will sell for more than Bond X D. Both bonds will sell at a premium - Correct Answer -B Which of the following is true for bonds issued at a discount? A. The stated interest rate is greater than the market interest rate B. The market interest rate is greater than the stated interest rate C. The stated interest rate and the market interest rate are equal D. The stated interest rate and the market interest rate are unrelated - Correct Answer -B Seaside issues a bond with a stated interest rate of 10%, face value of $50,000, and due in 5 years. Interest payments are made semi‐annually. The market rate for this type of bond is 8%. What is the issue price of the bond? A. $83,920 B. $46,320 C. $54,055 D. $50,000 - Correct Answer -C, ($50,000 x .67556)+($2,500 x 8.11090) use market interest rate?? Samson Enterprises issued a ten‐year, $20 million bond with a 10% interest rate for $19,500,000. The entry to record the bond issuance would have what effect on the financial statements? A. Increase assets B. Increase liabilities C. Increase stockholders' equity D. Increase assets and liabilities - Correct Answer -D Bonds payable should be reported as a long‐term liability in the balance sheet at: A. Face value B. Current bond market price C. Carrying value D. Face value less accrued interest since the last interest payment date - Correct Answer -C True or False: The cash payment each period is calculated as the carrying value times the market rate - Correct Answer -False, The cash payment each period is calculated as the face value times the stated interest rate. Interest expense on bonds payable is calculated as the: A. Face amount times the stated interest rate B. Face amount times the market interest rate C. Carrying value times the market interest rate D. Carrying value times the stated interest rate - Correct Answer -C True or False: When bonds are issued at a premium (above face amount), the carrying value and the corresponding interest expense increase over time - Correct Answer -False, When bonds are issued at a premium (above face amount), the carrying value and the corresponding interest expense decrease over time True or False: For bonds issued at a premium, the difference between interest expense and the cash paid increases the carrying value of the bonds - Correct Answer -False, For bonds issued at a premium, the difference between interest expense and the cash paid decreases the carrying value of the bonds The carrying value, using the effective interest method, would increase each year: A. The carrying value of bonds will never increase B. If the bonds were sold at either a discount or a premium C. If the bonds were sold at a premium D. If the bonds were sold at a discount - Correct Answer -D A $500,000 bond issue sold for $510,000. Therefore, the bonds A. Sold at a premium because the stated interest rate was higher than the market rate B. Sold for the $500,000 face amount plus $10,000 of accrued interest C. Sold at a discount because the stated interest rate was higher than the market rate D. Sold at a premium because the market interest rate was higher than the stated rate - Correct Answer -A For the issuer of ten‐year bonds, the amount of amortization using the effective‐interest method would increase each year if the bonds were sold at a Discount Premium a. Yes Yes b. No No c. Yes No d. No Yes - Correct Answer -A An amortization schedule for a bond issued at a discount: A. Has a carrying value that decreases over time B. Is contained in the balance sheet C. Is a schedule that reflectsthe changes in bonds payable over its term to maturity D. Reflectsinterest expense decreasing over the term of the bond - Correct Answer -C Bonds usually sell at a discount when A. investors are willing to invest in the bonds only at rates that are higher than the stated interest rate. B. investors are willing to invest in the bonds at rates that are lower than the stated interest rate. C. investors are willing to invest in the bonds at the stated interest rate. D. a capital gain is expected. - Correct Answer -A True or False: If bonds are retired by an issuer by purchase on the open market at a price below the bonds' carrying value, a gain will result. - Correct Answer -True True or False: Gains/losses on the early extinguishment of debt are reported as part of operating income in the income statement - Correct Answer -False: Gains/losses on the early extinguishment of debt are reported as non‐operating items in the income statement True or False: When bonds are called for retirement, any excess of the bonds' call price over the bonds' carrying value is reported as a loss on the income statement. - Correct Answer -True True or False: A gain or loss is recorded on bonds retired at maturity - Correct Answer -False, No gain or loss is recorded on bonds retired at maturity, as the carrying value at maturity is equal to the face amount of the bond When using vertical analysis, we express income statement accounts as a percentage of A. Net income B. Sales C. Total expenses D. Gross profit - Correct Answer -B When using vertical analysis, we express balance sheet accounts as a percentage of A. Cash B. Total assets C. Total liabilities D. Total stockholders' equity - Correct Answer -B Which of the following is an example of vertical analysis? A. Comparing gross profit across companies B. Comparing income statement items as a percentage of sales C. Comparing debt with industry averages D. Comparing the change in sales over time - Correct Answer -B To calculate a year‐to‐year percentage change in any financial statement line item such as sales, you should take the current year's amount, subtract the prior year's amount, then divide by ______, and finally multiply the result by 100 A. net income B. total assets C. the current year's amount D. the prior year's amount - Correct Answer -D Brady's Inflation Needle Co. reports accounts receivable of $200,000 in 2017 and $250,000 in 2018. Using horizontal analysis, what would be the percentage increase or decrease in accounts receivable? A. 25% decrease B. 25% increase C. 150% decrease D. 150% increase - Correct Answer -B, [(250,000-200,000)/200,000] -- . 25*100= 25% Which of the following is an example of horizontal analysis? A. Comparing gross profit across companies B. Comparing gross profit with operating expenses C. Comparing assets with equity D. Comparing the change in sales over time - Correct Answer -D True or False: A company with a current ratio of 2.0 is considered more liquid than one with a current ratio of 3.0. - Correct Answer -False, Assuming a current ratio of 1.0, how will the purchase of supplies with cash affect the ratio? A. Increase the current ratio B. No change to the current ratio C. Decrease the current ratio D. Could either increase or decrease the current ratio - Correct Answer -B True or False: Profit margin and gross margin are the same thing. - Correct Answer -False Which type of account is gross margin? A. An income account B. An expense account C. An asset account D. None of these are correct - Correct Answer -D Will the profit margin of a business be higher than its gross margin? A. Yes B. No - Correct Answer -B Richard's Sporting Goods reports net income of $100,000, net sales of $500,000, and average assets of $1,000,000. The profit margin is A. 10% B. 20% C. 50% D. 5 times - Correct Answer -B (100,000/500,000) When a corporation is formed what document is filed with a state jurisdiction? a) Charter of organization b) Common stock registration form c) Articles of incorporation d) Articles of business organization - Correct Answer -C The CEO of a company is elected by a vote of the shareholders. a. true b. false - Correct Answer -False (Appointed by the board of directors) Limited liability means that even in the event of bankruptcy, stockholders in a corporation can lose no more than the amount they invested in the company a. True b. False - Correct Answer -True All publicly held corporations are regulated by what government organization? a. TheFinancialAccountingStandardsBoard b. The Commission on Accounting Procedures c. The Accounting Principles Board d. The Securities and Exchange Commission - Correct Answer -D Advantages of the corporate form of business include which of the following? I. Double taxation II. Ability to raise capital III. Ability to transfer ownership IV. More paperwork V. Limited liability a. II b. II., III., V c. I., II., III d. II.,IV.,V - Correct Answer -B Which of the following is a reason that a corporation would prefer to issue stock instead of bonds? a. Dividend payments can be deducted for income tax purposes but interest payments cannot b. Expansion is accomplished without surrendering ownership control c. The risk of going bankrupt is less d. All of these - Correct Answer -C Contributed capital is the amount stockholders have invested in the company a. true b. false - Correct Answer -True The par value of common stock represents the a. liquidation value of the stock b. book value of the stock c. amount received by the corporation when the stock was originally issued d. legal nominal value assigned to the stock - Correct Answer -D Authorized stock is the number of shares that have been sold to investors a. True b. False - Correct Answer -False, Authorized stock is the total number of shares available to sell, stated in the company's articles of incorporation. Issued stock is the number of shares that have been sold to investors True or False: Par value is the legal capital per share of stock that's assigned when the corporation is first established - Correct Answer -True True or False: The number of shares outstanding is equal to the number of shares issued minus the number of shares repurchased. - Correct Answer -True Outstanding common stock refers to the total number of shares a. Issued b. Issued plus treasury stock c. Issued less treasury stock d. Authorized. - Correct Answer -C The par value of shares issued is normally recorded in the a. Additional Paid‐in Capital account b. Common Stock account c. Retained Earnings account d. Treasury Stock account - Correct Answer -B True or False: A company credits Additional Paid‐in Capital for the portion of the cash proceeds above par value received for the issuance of stock - Correct Answer -True Hayes Corporation issues 100 shares of its $1 par value common stock for $15 per share. The entry to record the issuance will include a: a. Debit to Cash $1,500 b. Credit to Additional Paid‐In Capital $1,400 c. Credit to Common Stock of $100 d. All of these - Correct Answer -D If a company issues 1,000 shares of $1 par value common stock for $20 per share, which of the following accounts would be debited? a. Treasury Stock b. Cash c. Additional Paid‐in Capital d. Retained Earnings - Correct Answer -B Jade Jewelers issued 15,000 shares of $1 par value stock for $20 per share. What is true about the journal entry to record the issuance? a. Credit Common Stock $300,000 b. Credit Cash $300,000 c. Debit Common Stock $15,000 d. Credit Additional Paid‐In Capital $285,000 - Correct Answer -D When a company issues 25,000 shares of $1 par value common stock for $10 per share, the journal entry for this issuance would include: a. A debit to Cash for $25,000 b. A debit to Additional Paid‐in Capital for $25,000 c. A credit to Common Stock for $25,000 d. A debit to Additional Paid‐in Capital for $225,000 - Correct Answer -C Preferred stock is called preferred because it usually has two preferences over common stock. These preferences relate to a. Dividends and voting rights b. Par value and dividends c. The preemptive right and voting rights d. Dividends and distribution of assets if the corporation is dissolved - Correct Answer -D Which of the following shareholder rights is most commonly enhanced in an issue of preferred stock? a. The right to vote for the board of directors b. The right to maintain one's proportional interest in the corporation c. The right to receive a full cash dividend before dividends are paid to other classes of stock d. The right to vote on major corporate issues - Correct Answer -C A company issued 1,000 shares of $1 par value preferred stock for $5 per share. What is true about the journal entry to record the issuance? a. Debit Preferred Stock $5,000 b. Credit Cash $5,000 c. Credit Preferred Stock $5,000 d. Credit Additional Paid‐In Capital $4,000 - Correct Answer -D True or False: Cumulative preferred stock means that dividends accumulate interest during the year. - Correct Answer -False, Cumulative preferred stock means shares receive priority for future dividends, if dividends are not paid in a given year. Which of the following is the most likely to have voting rights? a. Common Stock b. Preferred Stock c. Bonds d. They all have similar voting rights - Correct Answer -A ATI Company has not declared or paid dividends on its cumulative preferred stock in the last three years. These dividends should be reported a. as a current liability. b. as a reduction in stockholders' equity. c. in a note to the financial statements. d. as a noncurrent liability. - Correct Answer -C Luther Inc., has 4,000 shares of 6%, $50 par value, cumulative preferred stock and 100,000 shares of $1 par value common stock outstanding at December 31, 2015, and December 31, 2014. The board of directors declared and paid a $10,000 dividend in 2014. In 2015, $48,000 of dividends are declared and paid. What are the dividends received by the preferred stockholders in 2015? a) $34,000 b) $24,000 c) $14,000 d) $12,000 - Correct Answer -C The Surf's Up issues 1,000 shares of 6%, $100 par value preferred stock at the beginning of 2017. All remaining shares are common stock. The company was not able to pay dividends in 2017, but plans to pay dividends of $18,000 in 2018. Assuming the preferred stock is noncumulative, how much of the $18,000 dividend will be paid to preferred stockholders and how much will be paid to common stockholders in 2018? a. $6,000 to preferred stockholders and $12,000 to common stockholders. b. $18,000 to preferred stockholders and $0 to common stockholders. c. $12,000 to preferred stockholders and $6,000 to common stockholders d. $9,000 to preferred stockholders and $9,000 to common stockholders - Correct Answer -A, $6 dividend/share x 1,000 shares = $6,000 Which of the following stock terms is least like the others? a. Market value b. Stated value c. Par Value d. Legal Capital - Correct Answer -A Preferred Stock= $60,000 Common Stock= 112,000 Additional Paid‐in Capital, Preferred =14,000 Additional Paid‐in Capital, Common =36,000 Retained Earnings =80,000 A balance sheet prepared on December 31, 2016, would report total contributed capital of a. $172,000 b. $186,000 c. $222,000 d. $302,000 - Correct Answer -C True or False: For accounting purposes, stated value is treated differently than par value. - Correct Answer -False True or False: The word preferred in the phrase preferred stock means that an owner of preferred stock has some advantages over a bondholder - Correct Answer -False Knomark Corporation has 3,000 shares of $200 par value, 7 percent cumulative preferred stock, and 10,000 shares of $20 par value common stock outstanding during its first five years of operation. Knomark Corporation paid cash dividends as follows: 2009, $33,000; 2010, $0; 2011, $130,000; 2011, $60,000; 2013, $30,000. The amount of dividends the common stockholders received during 2009 was a. $ ‐ 0‐ b. $16,500 c. $33,000 d. $49,500 - Correct Answer -A, Preferred dividends: 3,000 x $200 x .07 =$42,000 Total dividends paid in 2009: $33,000 No common dividends paid A corporation has 10,000 shares of 8 percent cumulative preferred stock and 20,000 shares of common stock outstanding. Par value for each is $200. No dividends were paid last year, but this year a $400,000 dividend is paid. How much of this $400,000 goes to the holders of common stock? a. $80,000 b. $160,000 c. $320,000 d. $360,000 - Correct Answer -A, Preferred stock dividend: 10,000 x $200 x . 08 x 2 years = $320,000 Common stock dividend: $400,000 - $320,000 = $80,000 Treasury Stock: a. Has a normal debit balance b. Increases stockholders' equity c. Is recorded as an investment d. Increases stockholders' equity - Correct Answer -A When treasury stock is acquired, what is the effect on total stockholders' equity? a. Increase b. Decrease c. No effect - Correct Answer -B When treasury stock is resold at a price above cost: a. A gain account is credited b. Additional Paid‐in Capital is increased c. A loss is reported d. Additional Paid‐in Capital is decreased - Correct Answer -B When treasury stock is resold at a gain, the difference between its cost and the cash received when resold: a. Increases net income b. Increases stockholders' equity c. Has no effect on net income or stockholders' equity d. Increases net income but decreases stockholders' equity - Correct Answer -B A company reissues 400 shares of its own common stock for $20 per share. The company had acquired these shares two months before for $15 per share. The reissuance of this stock would be recorded with a: a. Credit to Treasury Stock for $8,000 b. Debit to Additional Paid‐In Capital for $2,000 c. Debit to Common Stock for $8,000 d. Credit to Additional Paid‐In Capital for $2,000 - Correct Answer -D On December 2, Coley Corp. acquired 1,000 shares of its $2 par value common stock for $27 each. On December 20, Coley Corp. reissued 400 shares for $15 each. Which of the following is correct regarding the journal entry for the reissued shares? a. Debit Cash $15,000 b. Credit Treasury Stock $10,800 c. Credit Additional Paid in Capital $5,200 d. Credit Treasury Stock $6,000 - Correct Answer -B Which of the following is the appropriate entry to record the declaration of cash dividends? a. Additional Paid‐in Capital - Debit; Dividends Payable - Credit b. Dividends- Debit; Dividends Payable - Credit c. Retained Earnings- Debit; Cash - Credit d. Dividends Payable - Debit; Cash - Credit - Correct Answer -B Retained Earnings represent a company's a. Net income less dividends since the company first began operations b. Undistributed net assets. c. Extra paid‐in capital d. Undistributed cash - Correct Answer -A Journal entries to record cash dividends are made on the: a. Declaration date, record date, and payment date b. Record date and payment date. c. Declaration date and payment date d. Declaration date and record date - Correct Answer -C The board of directors of Amalgamated Corporation declared a cash dividend on July 15, 2013, to be paid on August 15, 2013, to shareholders holding the stock on August 1, 2013. Given these facts, the date August 15, 2013, is referred to as the a. date of declaration b. date of payment c. ex‐dividend date d. date of record - Correct Answer -B The ending Retained Earnings balance of Lambert Inc. increased by $1.5 million from the beginning of the year. The company's net income earned during the year is $3.5 million. What is the amount of dividends Lambert Inc. declared and paid? a. $1.5 million b. $3.5 million c. $2.0 million d. $5.0 million - Correct Answer -C, Net income ($3.5 million) minus dividends ($2.0 million) equals the change in retained earnings ($1.5 million). The board of directors of Blount Corporation declared a cash dividend of $5.00 per share on 57,000 shares of common stock on April 14, 2013. The dividend is to be paid on May 15, 2013, to shareholders of record on May 1, 2013. The effects of the entry to record the declaration of the dividend on April 14, 2013, are to a. decrease stockholders' equity and increase liabilities b. increase stockholders' equity and increase liabilities c. decrease stockholders' equity and decrease assets d. increase stockholders' equity and decrease assets - Correct Answer -A A feature common to both stock splits and stock dividends is a) a transfer to earned capital of a corporation b) that there is no effect on total stockholders' equity c) an increase in total liabilities of a corporation d) a reduction in the contributed capital of a corporation - Correct Answer -B True or False: Stock splits and large stock dividends have the same effect on a company's retained earnings and total stockholders' equity - Correct Answer -False, large stock dividend reduces R/E by the par value of the stock Lincoln Corporation has 5,000,000 authorized shares, issued shares of 3,000,000 and 600,000 shares in treasury stock. Can Lincoln Corporation's board of directors declare a 2‐for‐1 stock split? a. Yes b. No - Correct Answer -B, Shares after the stock split will exceed authorized shares The issuer of a 100% common stock dividend (large stock dividend) to common stockholders should debit stock dividends for an amount equal to the a. Book value of the shares issued b. Par value of the shares issued c. Market value of the shares issued d. Minimum legal requirements - Correct Answer -B Large stock dividends and stock splits are issued primarily to a. Lower the trading price of the stock per share b. Increase the number of authorized shares c. Increase legal capital d. Increase the number of outstanding shares - Correct Answer -A The issuer of a 5% common stock dividend (small stock dividend) to common stockholders should debit stock dividends for an amount equal to the a. Book value of the shares issued b. Par or stated value of the shares issued c. Market value of the shares issued d. Minimum legal requirements - Correct Answer -C On June 30, 2014, when Knomark Co.'s common stock was selling at $65 per share, its capital accounts were as follows: Common stock (par value $50; 50,000 shares issued) =$2,500,000 Paid‐in‐capital =$ 600,000 Retained earnings =$4,200,000 If a 100% stock dividend was declared and distributed, common stock would be a. $2,500,000 b. $3,100,000 c. $5,000,000 d. $7,300,000 - Correct Answer -C, transfer par value of $2.5 million (50,000 shares x $50 par value) from retained earnings True or False: Common stock is listed before preferred stock in the balance sheet - Correct Answer -False The Common Stock account on a company's balance sheet is measured as: a) The number of common shares outstanding × the stock's par value per share b) The number of common shares outstanding × the stock's current market value per share c) The number of common shares issued × the stock's par value per share d) The number of common shares issued × the stock's current market value per share - Correct Answer -C Clothing Emporium was organized on January 1, 2018. The firm was authorized to issue 100,000 shares of $5 par value common stock. During 2018, Clothing Emporium had the following transactions relating to shareholders' equity: Issued 30,000 shares of common stock at $7 per share. Issued 20,000 shares of common stock at $8 per share. Reported a net income of $100,000. Paid dividends of $50,000. What is the total stockholders' equity at the end of 2018? a. $420,000 b. $370,000 c. $470,000 d. $250,000 - Correct Answer -A, (30,000 × $7) + (20,000 × $8) + $100,000 ‐ $50,000 = $420,000. If a company issues both a balance sheet and an income statement with comparative figures from last year, a statement of cash flows: A. should be issued if cash is presented on the balance sheet. B. should be presented for only those periods that the accrual basis is significantly different than the cash basis. C. should be issued for the current year only. D. should be issued for each period for which an income statement is presented. - Correct Answer -D The primary purpose of the statement of cash flows is to provide information A. about a company's cash receipts and cash payments during an accounting period. B. about a company's investing and financing activities during an accounting period. C. regarding a company's financial position at the end of an accounting period. D. cash availability at a point in time. - Correct Answer -A True or False: The income statement indicates a business's success or failure in earning an income from its operating activities, it also reflects the inflow and outflow of cash from operating activities - Correct Answer -False, cash flows statement True or False: The statement of cash flows explains the difference between net income as shown on the income statement and the net cash flows generated from operations. - Correct Answer -True The most likely situation in which reported earnings are positive but operations are consuming rather than generating cash would be a A. company reporting large noncash expenses B. rapidly growing company C. company using very conservative accounting standards that lower earnings D. company paying large cash dividends to its shareholders - Correct Answer -B True or False: An decrease in accounts receivable represents a increase in cash. - Correct Answer -True True or False: An increase in supplies represents an increase in cash. - Correct Answer -False True or False: An increase in wages payable represents a decrease in cash. - Correct Answer -False True or False: The purchase of treasury stock represents an increase in cash. - Correct Answer -False True or False: An increase in inventory represents an increase in cash. - Correct Answer -False Which of the following represents an increase in cash flows? a) Increase in Inventory b) Decrease in Accounts Payable c) Decrease in Wages Payable d) Decrease in Prepaid Insurance - Correct Answer -D How is sale of treasury stock reported on the statement of cash flows. What is the effect on cash flows? A. Operating activities & increase in cash B. Operating activities & decrease in cash C. Investing activities & increase in cash D. Financing activities & increase in cash E. Noncash transaction & no effect on cash - Correct Answer -C A company purchased office supplies. Indicate which section, if any, the above transaction would appear in, or relate to, on a statement of cash flows. A. Does not represent a cash flow B. Operating activities section C. Financing activities section D. Investing activities section - Correct Answer -B How is a decrease in inventory reported on the statement of cash flows. What is the effect on cash flows? A. Operating activities & increase in cash B. Operating activities & decrease in cash C. Investing activities & increase in cash D. Financing activities & increase in cash E. Noncash transaction & no effect on cash - Correct Answer -A How are dividends paid reported on the statement of cash flows? A. Operating activities B. Investing activities C. Financing activities D. Schedule of noncash transactions E. Not on the statement of cash flows - Correct Answer -C A company issued common stock for cash. Indicate which section, if any, the above transaction would appear in, or relate to, on a statement of cash flows. A. Operating activities section B. Does not represent a cash flow C. Investing activities section D. Financing activities section - Correct Answer -D We can identify operating activities from income statement information and changes in A. Long‐term asset accounts B. Long‐term liability accounts C. Current asset and current liability accounts D. Stockholders' equity accounts - Correct Answer -C Which of the following would be added to net income to arrive at net cash flows from operating activities? A. Decrease in accrued liabilities B. Loss on sale of investments C. Increase in prepaid expenses D. Increase in accounts receivable - Correct Answer -B Assume net income was $100,000, depreciation expense was $8,000, accounts receivable decreased by $17,500, and accounts payable decreased by $2,500. The amount of net cash flows from operating activities is A. $123,000 B. $100,000 C. $108,000 D. $113,000 - Correct Answer -A, $100,000 + $8,000 + $17,500 ‐ $2,500 = $123,000 LePage's Inc. reports net income of $95,000. The accounting records reveal Depreciation Expense of $50,000 as well as increases in Prepaid Rent, Accounts Payable, and Income Tax Payable of $40,000, $23,000, and $10,000, respectively. What is the net cash flows from operating activities? A. $138,000 B. $228,000 C. $128,000 D. $148,000 - Correct Answer -A LePage's, Inc. reported net income of $135,000. Beginning balances in Accounts Receivable and Accounts Payable were $29,000 and $26,000, respectively. Ending balances in these accounts were $30,000 and $24,000, respectively. Assuming that all relevant information has been presented, LePage's net cash flows from operating activities would be: A. $132,000 B. $134,000 C. $136,000 D. $138,000 - Correct Answer -A Given the items below, which of the following is an addition to net income to arrive at operating cash flows? I. Loss on sale of assets II. Increase in Supplies III. Increase in Accounts Payable IV. Increase in Accounts Receivable A. I and III B. I. only C. III. and IV D. II. and III - Correct Answer -A Knomark Corporation reports net income of $450,000 that includes depreciation expense of $70,000. Also, cash of $50,000 was borrowed on a 5‐year note payable. Based on this data, total cash inflows from operating activities are A. $380,000 B. $470,000 C. $520,000 D. $570,000 - Correct Answer -C, $450,000 + $70,000 = $520,000. Innovative Products reported net income of $205,000. Beginning and ending Inventory balances were $40,000 and $45,000, respectively. Accounts Payable balances at the beginning and end of the year were $35,000 and $33,000, respectively. Assuming that all relevant information has been presented, the company would report net operating cash flows of: A. $202,000 B. $198,000 C. $212,000 D. $205,000 - Correct Answer -B On a reconciliation of net income to cash from operations, depreciation is added back to net income since depreciation a) is a direct outflow of cash. b) reduces net income but does not involve an outflow of cash. c) reduces net income and involves an outflow of cash. d) is an outflow of cash to a fund established for the replacement of assets. - Correct Answer -B True or False: The long‐term assets section of the balance sheet is one place to look for investing activities - Correct Answer -True When preparing a reconciliation of net income to cash from operations, an increase in the ending inventory over the beginning inventory will result in an adjustment to reported net income because A. cash is increased because inventory is a current asset B. inventory is an expense deducted in computing net earnings, but is not a use of cash C. the net increase in inventory is part of the difference between cost of goods sold and cash paid to suppliers D. all changes in noncash accounts must be disclosed - Correct Answer -C True or False: Investing activities centers on the long‐term assets shown on the balance sheet and does not include any short‐term investments shown under current assets on the balance sheet. - Correct Answer -False, includes investments classified as current and non‐current Which of the following independent transactions would cause net income to be more than cash from operating activities? A. A decrease in the accounts receivable account. B. An increase in the merchandise inventory account. C. An increase in the accounts payable account. D. An increase in the accrued wages payable account. - Correct Answer -B True or False: When presenting decreases in long‐term investments in the investing activities section of the statement of cash flows, the amount reflected equals the amount of the gain(s) or loss(es) from the transaction(s). - Correct Answer -False, includes the decrease in the investment + the gain or loss Which of the following is not classified as an operating activity? A. Interest received B. Interest paid C. Dividends received D. Dividends paid - Correct Answer -D True or False: Purchases and sales of long‐term investments for the period should be netted for disclosure in the investing activities section of the statement of cash flows - Correct Answer -False Thornberry Mfg. Co. sold land costing $10,000 for $12,000. Thornberry would report: A. Investing cash inflows of $10,000 B. Financing cash inflows of $10,000 C. Investing cash inflows of $12,000 D. Financing cash inflows of $12,000 - Correct Answer -C, The gain on land sale ($2,000) is included in investing activities and excluded from operating activities. True or False: The activity on the balance sheet to be presented in the financing activities section of the statement of cash flows is based on an analysis of stockholders' equity only - Correct Answer -False, and an analysis of borrowed money in liabilities Which of the following is an example of a cash inflow from a financing activity? A. Sale of an intangible asset B. Issuance of bonds C. Receipt of cash dividends D. Purchase of land - Correct Answer -B How is the retirement of long‐term debt reported on the statement of cash flows. What is the effect on cash flows? A. Operating activities & increase in cash B. Financing activities & decrease in cash C. Investing activities & increase in cash D. Financing activities & increase in cash E. Noncash transaction & no effect on cash - Correct Answer -B True or False: We report interest paid on bonds or notes payable in operating activities rather than financing activities - Correct Answer -True, U.S. GAAP requirement True or False: The purchase of long‐term assets by issuing debt is recorded as both an investing activity and a financing activity - Correct Answer -False, Purchase of long‐term assets by issuing debt is reported as a noncash activity either directly after the cash flow statement or in a separate note to the financial statements. Which of the following is a non‐cash transaction that should be disclosed in a schedule accompanying the statement of cash flows? A. Sale of an investment for cash B. Purchase of a machine for cash C. Issuance of common stock in exchange for land D. Declaration and payment of a cash dividend on common stock - Correct Answer -C