PP&E
On July 1, Campbell Company purchased new equipment for $90,000 by paying cash. Other costs associated with the equipment were: transportation costs, $1,800; sales tax paid, $7,200; and installation cost, $4,500. At what amount will the equipment be recorded on a balance sheet?
a) $97,200.
b) $103,500.
c) $91,800.
d) $96,300.
b) $103,500.
A company has 10 million common shares authorized and 2.5 million shares issued. The par value is $1 per share and the market price is $30 when the company declares a 4-for-1 stock split. Which of the following is correct?
A) The company will be unable to declare a 4-for-1 split because it does not have enough authorized shares to issue the split.
B) There will be a transfer of $2.5 million from retained earnings to the common stock account.
C) The shares issued and outstanding will all quadruple while the par value will be reduced to $0.25 per share.
D) For each share of stock owned, a shareholder will receive four shares and will now own 5 shares of stock.
C) The shares issued and outstanding will all quadruple while the par value will be reduced to $0.25 per share.
On October 1, 2022, Donna Equipment signed a one-year, 8% interest-bearing note payable for $50,000. If Donna Equipment maintains its books on a calendar year basis, how much interest expense should be reported in the 2023 income statement?
a) $4,000.
b) $1,000.
c) $3,000.
d) $2,000.
c) $3,000.
Which of the following statements incorrectly describes earnings per share (EPS)?
a) Earnings per share is a ratio calculated per common share outstanding.
b) An increase in the market price per common share does not result in a decrease in earnings per share.
c) An increase in dividends per share results in an increase in earnings per share.
d) The reissue of treasury stock decreases earnings per share.
c) An increase in dividends per share results in an increase in earnings per share.
Young Company is involved in a lawsuit. When would the lawsuit be recorded as a liability on the balance sheet?
a) When the loss probability is reasonably possible and the amount can be reasonably estimated.
b) When the loss is probable regardless of whether the loss can be reasonably estimated.
c) When the loss is probable and the amount can be reasonably estimated.
d) When the loss probability is remote and the amount can be reasonably estimated.
c) When the loss is probable and the amount can be reasonably estimated.
On January 1, 2022, Woodstock, Incorporated purchased a machine costing $40,000. Woodstock also paid $1,000 for transportation and installation. The expected useful life of the machine is 6 years and the residual value is $5,000.
If Woodstock uses the straight-line depreciation method, which of the following statements is incorrect?
a) The December 31, 2022 book value is $35,000.
b) The annual depreciation expense is $6,000.
c) The December 31, 2023 book value is $24,000.
d) The December 31, 2024 accumulated depreciation balance is $18,000.
b) The annual depreciation expense is $6,000.
c) The December 31, 2023 book value is $24,000.
Which of the following transactions does not result in either a cash inflow or a cash outflow?
A) Sale of equipment at book value.
B) A company purchased some of its own stock from a stockholder.
C) Payment of a cash dividend.
D) Amortization of a patent.
D) Amortization of a patent.
Frisco Company borrowed $75,000 cash on October 1, 2022, and signed a nine-month, 8% interest-bearing note payable with interest payable at maturity. The amount of interest expense to be reported during 2023 is which of the following?
a) $3,000.
b) $2,250.
c) $1,500.
d) $900.
a) $3,000.
Claire Company has provided the following information:
What is Claire's earnings per share (EPS)?
a) $4.44
b) $5.72
c) $4.00
d) $5.00
d) $5.00
Which of the following transactions would be reported in the cash flow statement as a cash flow from financing activities?
a) The cash payment of interest expense.
b) Purchasing shares of stock of another company using cash.
c) Acquiring land by signing a note payable.
d) Paying cash dividends to stockholders.
d) Paying cash dividends to stockholders.
A machine, acquired for a cash cost of $17,500, is being depreciated on a straight-line basis of $2,000 per year. The residual value was estimated to be 20% of cost. The estimated useful life is:
a) 5 years.
b) 6 years.
c) 8 years.
d) 7 years
d) 7 years
RKJ Company has provided the following information:
The 70,000 shares of issued common stock were issued for $9 per share.
Which of the following statements is correct?
A) Common stock is reported at $350,000 on the balance sheet.
B) Common stock is reported at $630,000 on the balance sheet.
C) Additional paid-in capital is reported at $260,000 on the balance sheet.
D) Treasury stock is reported at $45,000 on the balance sheet.
A) Common stock is reported at $350,000 on the balance sheet.
Mission Corporation borrowed $50,000 cash on April 1, 2022, and signed a one-year, 12% interest-bearing note payable. The interest and principal are both due on March 31, 2023.
The amount of interest expense for the year ended December 31, 2022 is:
a) $4,500.
b) $1,500.
c) $6,000.
d) $4,000.
a) $4,500.
CGJ Company has provided the following:
Which of the following statements is false?
a) Common stock is reported at $700,000 on the balance sheet.
b) Additional paid-in capital is reported at $840,000 on the balance sheet.
c) Stockholders' equity decreased $110,000 when the treasury stock was purchased.
d) There are 20,000 shares of treasury stock.
c) Stockholders' equity decreased $110,000 when the treasury stock was purchased.
Which of the following statements is false?
a) Stock splits reallocate amounts between retained earnings and contributed capital accounts.
b) Both stock splits and stock dividends have the impact of reducing the market price of the stock.
c) Both stock splits and stock dividends increase the number of common shares issued.
d) Both stock splits and stock dividends increase the number of common shares outstanding.
a) Stock splits reallocate amounts between retained earnings and contributed capital accounts.
Under what conditions would a company most likely adopt the double-declining-balance method for financial reporting?
a) The company has high technology, robotic equipment in its plant that becomes obsolete quickly and declines in utility to the company more rapidly in the early years of the assets' lives.
b) The company wants to maximize its net income during the earlier years of the asset's life.
c) The company wants to maximize the total depreciation expense over the life of the asset.
d) The company wants to maximize the asset's book value in the earlier years of the asset's life.
a) The company has high technology, robotic equipment in its plant that becomes obsolete quickly and declines in utility to the company more rapidly in the early years of the assets' lives.
On February 1, 2022, Cue Company acquired 1,000 shares of its $1 par value stock for $47 per share and held these shares in treasury. On April 10, 2023, Cue resold all the treasury shares for $50 per share. Which of the following entries would be recorded when Cue Company resells the shares of treasury stock?
A)
Cash $50,000
Common Stock $1,000
APIC $49,000
B)
Cash $50,000
Treasury Stock $47,000
Gain on Sale of Treasury Stock $3,000
C)
Cash $50,000
Treasury Stock $47,000
Retained Earnings. $3,000
D)
Cash $50,000
Treasury Stock $47,000
Add'l Paid in Capital $3,000
D)
Cash $50,000
Treasury Stock $47,000
Add'l Paid in Capital $3,000
Mission Corporation borrowed $50,000 cash on April 1, 2022, and signed a one-year, 12% interest-bearing note payable. The interest and principal are both due on March 31, 2023.
What is the amount to be paid to the bank on March 31, 2023, for interest and principal?
a) $54,000.
b) $56,000.
c) $50,000.
d) $51,500.
b) $56,000.
Which of the following statements is false?
a) The dividend payment date is when the dividend liability is reduced.
b) The date of record is irrelevant with respect to recording a liability for a cash dividend.
c) The declaration of a cash dividend creates a liability as of the date of record.
d) The dividend liability for a cash dividend is created on the declaration date.
c) The declaration of a cash dividend creates a liability as of the date of record.
Alden Trucking Company is replacing part of its fleet of trucks by purchasing them under a note agreement with Kenworthy on January 1, 2022. Alden financed $37,908,000, and the note agreement will require $10 million in annual payments starting on December 31, 2022, and continuing for a total of four more years (final payment December 31, 2026). Kenworthy will charge Alden Trucking Company the market interest rate of 10% compounded annually.
Upon the first payment of the note on December 31, 2022, the amount of interest expense to be recorded is:
a) $2,790,800.
b) $3,790,800.
c) $1,000,000.
d) $4,000,000.
b) $3,790,800.
On December 31, 2022, Hamilton Incorporated sold a used industrial crane for $600,000 cash. The original cost of the crane was $5.0 million and its accumulated depreciation equalled $4.2 million on December 31, 2022. What is the gain or loss from the December 31, 2022 equipment sale?
a) $600,000 gain.
b) $600,000 loss.
c) $200,000 gain.
d) $200,000 loss.
d) $200,000 loss.
On October 1, 2021, Adoll Company acquired 1,000 shares of its $1 par value stock for $44 per share and held these shares in treasury. On March 1, 2023, Adoll resold all the treasury shares for $40 per share. Which of the following entries would be recorded when Adoll Company resells the shares of treasury stock?
A)
Cash $40,000
APIC $4,000
Treasury Stock $44,000
B)
Cash $40,000
Loss on Sale of Treasury Stock $4,000
Treasury Stock $44,000
C)
Cash $40,000
Common Stock $1,000
APIC $39,000
D)
Cash $40,000
APIC. $4,000
Common Stock $44,000
A)
Cash $40,000
APIC $4,000
Treasury Stock $44,000
Failure to make a necessary adjusting entry for accrued interest on a note payable would result in which of the following?
a) Net income and stockholders' equity would be overstated and liabilities would be understated.
b) Net income would be understated and liabilities would be understated.
c) Liabilities and stockholders' equity would both be understated.
d) Net income would be overstated and assets would be understated.
a) Net income and stockholders' equity would be overstated and liabilities would be understated.
On December 15, 2022, the board of directors of Cross Corporation declared a cash dividend, payable on January 8, 2023, of $0.80 per share on the 2,000,000 common shares outstanding. On December 15, 2022, Cross Corporation should:
a) not prepare a journal entry because the event has no effect on the corporation's financial position until 2023.
b) decrease cash by $1.6 million and decrease retained earnings by $1.6 million.
c) decrease retained earnings by $1.6 million and increase liabilities by $1.6 million.
d) decrease retained earnings by $1.6 million and increase expenses by $1.6 million.
c) decrease retained earnings by $1.6 million and increase liabilities by $1.6 million.
Straight Industries purchased a large piece of equipment from Curvy Company on January 1, 2022. Straight Industries signed a note, agreeing to pay Curvy Company $340,000 for the equipment on December 31, 2025. The market rate of interest for similar notes was 10%. The present value of $340,000 discounted at 10% for four years was $232,225. On January 1, 2022, Straight Industries recorded the purchase with a debit to equipment for $232,225 and a credit to notes payable for $232,225.
On December 31, 2022, Straight recorded an adjusting entry to account for interest that had accrued on the note. Assuming no adjusting entries have been made during the year, the interest expense accrued at December 31, 2022 is closest to:
a) $29,493.
b) $31,693.
c) $34,000.
d) $23,223.
d) $23,223.