Chapter 10/12
The formula to compute annual straight-line depreciation is:
(Cost - salvage value) / useful life in periods.
What is retained earnings?
The cumulative net income (and loss) not distributed as dividends to its stockholders.
A corporation has invested in debt securities. The Corporation intends to actively buy and sell this investment for profit. This investment is classified as:
A trading security.
What does the statement of cash flows report?
The cash receipts (in flows) and cash payments (outflows) for an accounting period.
The ability to meet short-term obligations and efficiently generate revenues is called:
Liquidity and efficiency.
Which business type has the advantage of limited liability and no additional business income tax?
Limited Liability Company (LLC).
A Corporation declared a $0.50 per share cash dividend on its common shares. The company has 25,000 shares authorized, 13,000 shares issued, and 12,000 shares of common stock outstanding. The journal entry to record the dividend payment is:
Debit Common Dividend Payable $6,000
Credit Cash $6,000.
Accounting for long-term investments in equity securities with controlling influence uses the:
Consolidation method.
The section in the statement of cash flows for reporting the purchase of equipment for cash is:
Investing activities.
A corporation reported Accounts Receivable of $20,000 and total assets of $200,000 on its balance sheet. Its common-size percent for AR equals:
10%
In their partnership agreement, Zayn and Perez agree to share their income and loss based on a stated ratio. Zayn is to receive 2/3 of income or loss and Perez is to receive 1/3. If the partnership income is $60,000, how is the income allocated?
Zayn = $40,000
Perez = $20,000
A company had a beginning balance in retained earnings of $500,000. It had net income of $100,000 and declared and paid cash dividends of $53,000 in the current period. The ending balance in retained earnings equals:
$547,000
What percent of ownership in a company would indicate 'Significant Influence'?
20% - 50%
Which section of the cash flow would a decrease in the Principle on a long-term Note payable effect?
Financing Activities (decrease in cash)
Comparative financial statements in which each individual financial statement amount is expressed as a percentage of a base amount are called:
Common-size comparative statements.
If the useful life of an asset was increased from 5 years to 7 years, how does this affect the depreciation in the prior years and the current year?
No effect in the prior years, current years depreciation expense would decrease compared to the prior year.
A Corporation sold 10,000 shares of $1 par value common stock at a cash price of $3 per share. What amounts are credited to Common Stock, $1 Par Value and Paid-in Capital in excess of par value?
Common Stock = $10,000
APIC = $20,000
A corporation purchased a $200,000, 6% bond at par value that will mature in 10 months. The bond pays semi-annual interest. The company plans to hold the bonds until they mature. What is the journal entry to record the purchase of this bond?
Debit Debt Investments - HTM 200,000
Credit Cash 200,000
What are the main categories of items reported in the Operating Activities section of the statement of cash Flows?
Current Assets, Current Liabilities, and Revenues/Expenses (Income Statement items)
What does the Current Ratio tell us? Is a higher current Ratio always good?
Current Ratio lets us know the short-term debt paying ability of a company. A higher current ratio suggests a strong ability to meet current obligations. However, there is such a thing as too high of a current ratio. This could indicate that a company is not using their current assets efficiently.
A piece of equipment is purchased for $100,000 on Sep 1, 2022, has an estimated salvage value of $10,000, and has an estimated useful life of 5 years. Using Straight-line depreciation what is the adjusting entry made on Dec 31, 2022?
Depreciation Expense 6,000
Accumulated depreciation 6,000
A company issues a 10%, 20-year bond with a par value of $1,000,000 that pays interest semiannually. What is the semi annual payment paid to the bondholders?
$1,000,000 * .1 * ½ year = $50,000
A company has purchased stock investments with insignificant influence for $70,000. This is the company’s first and only purchase of stock. At year-end, the fair value of the stock is $65,000. What would be the debit to record this year-end adjusting entry?
Unrealized Loss-Income 5,000
If Inventory increases by $30,000 from 2020 to 2021, which section of the cash flow is affected and does this increase or decrease the cash flow?
Decreases the operating activities by 30,000
Which of the following companies is the best investment option and why?
Lulu Fabletics UA
Current Ratio 1.67 1.45 .83
Debt Ratio 51% 60% 45%
Profit Margin 35% 25% 29%
LuluLemon