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Questions and Answers of
Financial And Managerial Accounting
Sensible Insurance Company collected a premium of $18,000 for a 1-year insurance policy on April 1.What amount should Sensible report as a current liability for Unearned Insurance Premiums at
The term used for bonds that are unsecured is:(a) callable bonds.(b) indenture bonds.(c) debenture bonds.(d) bearer bonds.
Karson Inc. issues 10-year bonds with a maturity value of $200,000. If the bonds are issued at a premium, this indicates that:(a) the contractual interest rate exceeds the market interest rate.(b)
Gester Corporation retires its $100,000 face value bonds at 105 on January 1, following the payment of semiannual interest. The carrying value of the bonds at the redemption date is $103,745. The
Colson Inc. converts $600,000 of bonds sold at face value into 10,000 shares of common stock, par value $1. Both the bonds and the stock have a market value of $760,000. What amount should be
Andrews Inc. issues a $497,000, 10%, 3-year mortgage note on January 1. The note will be paid in three annual installments of $200,000, each payable at the end of the year. What is the amount of
Howard Corporation issued a 20-year mortgage note payable on January 1, 2014. At December 31, 2014, the unpaid principal balance will be reported as:(a) a current liability.(b) a long-term
For 2014, Corn Flake Corporation reported net income of $300,000. Interest expense was $40,000 and income taxes were $100,000. The times interest earned ratio was:(a) 3 times.(b) 4.4 times.(c) 7.5
The market price of a bond is dependent on:(a) the payment amounts.(b) the length of time until the amounts are paid.(c) the interest rate.(d) All of the above.
On January 1, Besalius Inc. issued $1,000,000, 9% bonds for $938,554. The market rate of interest for these bonds is 10%. Interest is payable annually on December 31. Besalius uses the
On January 1, Dias Corporation issued $1,000,000, 10%, 5-year bonds with interest payable on July 1 and January 1. The bonds sold for $1,081,105. The market rate of interest for these bonds was 8%.
On January 1, Hurley Corporation issues $500,000, 5-year, 12% bonds at 96 with interest payable on July 1 and January 1. The entry on July 1 to record payment of bond interest and the amortization of
Which of the following is false?(a) Under IFRS, current liabilities must always be presented before noncurrent liabilities.(b) Under IFRS, an item is a current liability if it will be paid within the
Stevens Corporation issued 5% convertible bonds with a total face value of $3,000,000 for$3,000,000. If the bonds had not had a conversion feature, they would have sold for $2,600,000.Under IFRS, the
Which of the following is true regarding accounting for amortization of bond discount and premium?(a) Both IFRS and GAAP must use the effective-interest method.(b) GAAP must use the
Indicate whether each of the following statements is true or false.______ 1. Similar to partners in a partnership, stockholders of a corporation have unlimitedliability.______ 2. It is relatively
Cayman Corporation begins operations on March 1 by issuing 100,000 shares of $10 parvalue common stock for cash at $12 per share. On March 15, it issues 5,000 shares ofcommon stock to attorneys in
Santa Anita Inc. purchases 3,000 shares of its $50 par value common stock for $180,000cash on July 1. It will hold the shares in the treasury until resold. On November 1, thecorporation sells 1,000
MasterMind Corporation has 2,000 shares of 6%, $100 par value preferred stock outstanding at December 31, 2014. At December 31, 2014, the company declared a $60,000 cash dividend. Determine the
Sing CD Company has had five years of record earnings. Due to this success, the marketprice of its 500,000 shares of $2 par value common stock has tripled from $15 per share to$45. During this
Vega Corporation has retained earnings of $5,130,000 on January 1, 2014. During the year,Vega earned $2,000,000 of net income. It declared and paid a $250,000 cash dividend. In2014, Vega recorded an
On January 1, 2014, Siena Corporation purchased 2,000 shares of treasury stock. Otherinformation regarding Siena Corporation is provided below.Compute (a) return on common stockholders’ equity for
Rolman Corporation is authorized to issue 1,000,000 shares of $5 par value commonstock. In its first year, the company has the following stock transactions.Instructions(a) Journalize the
Which of the following is not a major advantage of a corporation?(a) Separate legal existence.(b) Continuous life.(c) Government regulations.(d) Transferable ownership rights.
A major disadvantage of a corporation is:(a) limited liability of stockholders.(b) additional taxes.(c) transferable ownership rights.(d) None of the above.
Which of the following statements is false?(a) Ownership of common stock gives the owner a voting right.(b) The stockholders’ equity section begins with paid-in capital.(c) The authorization of
ABC Corporation issues 1,000 shares of $10 par value common stock at $12 per share. In recording the transaction, credits are made to:(a) Common Stock $10,000 and Paid-in Capital in Excess of Stated
XYZ, Inc. sells 100 shares of $5 par value treasury stock at $13 per share. If the cost of acquiring the shares was $10 per share, the entry for the sale should include credits to:(a) Treasury Stock
In the stockholders’ equity section, the cost of treasury stock is deducted from:(a) total paid-in capital and retained earnings.(b) retained earnings.(c) total stockholders’ equity.(d) common
Preferred stock may have priority over common stock except in:(a) dividends.(b) assets in the event of liquidation.(c) cumulative dividend features.(d) voting.
M-Bot Corporation has 10,000 shares of 8%, $100 par value, cumulative preferred stock outstanding at December 31, 2014. No dividends were declared in 2012 or 2013. If M-Bot wants to pay $375,000 of
Entries for cash dividends are required on the:(a) declaration date and the payment date.(b) record date and the payment date.(c) declaration date, record date, and payment date.(d) declaration date
Which of the following statements about small stock dividends is true?(a) A debit to Retained Earnings for the par value of the shares issued should be made.(b) A small stock dividend decreases total
All but one of the following is reported in a retained earnings statement. The exception is:(a) cash and stock dividends.(b) net income and net loss.(c) sales revenue.(d) prior period adjustments.
A prior period adjustment is:(a) reported in the income statement as a nontypical item.(b) a correction of an error that is recorded directly to retained earnings.(c) reported directly in the
In the stockholders’ equity section of the balance sheet, common stock:(a) is listed before preferred stock.(b) is added to total capital stock.(c) is part of paid-in capital.(d) is part of
Which of the following is not reported under additional paid-in capital?(a) Paid-in capital in excess of par value.(b) Common stock.(c) Paid-in capital in excess of stated value.(d) Paid-in capital
Katie Inc. reported net income of $186,000 during 2014 and paid dividends of $26,000 on common stock. It also has 10,000 shares of 6%, $100 par value, noncumulative preferred stock outstanding.
When a stockholders’ equity statement is presented, it is not necessary to prepare a (an):(a) retained earnings statement.(b) balance sheet.(c) income statement.(d) None of the above.
The ledger of JFK, Inc. shows common stock, common treasury stock, and no preferred stock. For this company, the formula for computing book value per share is:(a) total paid-in capital and retained
Under IFRS, a purchase by a company of its own shares is recorded by:(a) an increase in Treasury Stock.(b) a decrease in contributed capital.(c) a decrease in share capital.(d) All of these are
Which of the following is true?(a) In the United States, the primary corporate stockholders are financial institutions.(b) Share capital means total assets under IFRS.(c) The IASB and FASB are
Under IFRS, the amount of capital received in excess of par value would be credited to:(a) Retained Earnings. (c) Share Premium.(b) Contributed Capital. (d) Par value is not used under IFRS.
Which of the following does not represent a pair of GAAP/IFRS-comparable terms?(a) Additional paid-in capital/Share premium.(b) Treasury stock/Repurchase reserve.(c) Common stock/Share capital.(d)
Which item in not considered part of reserves?(a) Accumulated other comprehensive income. (c) Retained earnings.(b) Revaluation surplus. (d) Issued shares.
Under IFRS, a statement of comprehensive income must include:(a) accounts payable.(b) retained earnings.(c) income tax expense.(d) preference stock.
Which set of terms can be used to describe total stockholders’ equity under IFRS?(a) Shareholders’ equity, capital and reserves, other comprehensive income.(b) Capital and reserves,
Waldo Corporation had the following transactions pertaining to debt investments. Jan. 1 Purchased 30, $1,000 Hillary Co. 10% bonds for $30,000, plus brokerage fees of $900. Interest is payable
Some of Powderhorn Corporation’s investment securities are classified as trading securities and some are classified as non-trading. The cost and fair value of each category at December 31, 2014,
Identify where each of the following items would be reported in the financial statements.1. Interest earned on investments in bonds.2. Fair value adjustment—non-trading.3. Unrealized loss on
In its first year of operations, DeMarco Company had the following selected transactions in stock investments that are considered trading securities.Instructions (a) Journalize the transactions.(b)
Which of the following is not a primary reason why corporations invest in debt and equity securities?(a) They wish to gain control of a competitor.(b) They have excess cash.(c) They wish to move into
Debt investments are initially recorded at:(a) cost.(b) cost plus accrued interest.(c) fair value.(d) None of the above.
Hanes Company sells debt investments costing $26,000 for $28,000, plus accrued interest that has been recorded. In journalizing the sale, credits are to:(a) Debt Investments and Loss on Sale of Debt
Pryor Company receives net proceeds of $42,000 on the sale of stock investments that cost $39,500. This transaction will result in reporting in the income statement a:(a) loss of $2,500 under
Assume that Horicon Corp acquired 25% of the common stock of Sheboygan Corp. on January 1, 2014, for $300,000. During 2014 Sheboygan Corp. reported net income of $160,000 and paid total dividends of
Using the information in Self-Test Question 6, what entry would Horicon make to record the receipt of the dividend from Sheboygan?Data from Self-Test Question 6Assume that Horicon Corp acquired 25%
You have a controlling interest if:(a) you own more than 20% of a company’s stock.(b) you are the president of the company.(c) you use the equity method.(d) you own more than 50% of a company’s
Which of the following statements is not true? Consolidated financial statements are useful to:(a) determine the profitability of specific subsidiaries.(b) determine the total profitability of
At the end of the first year of operations, the total cost of the trading securities portfolio is $120,000. Total fair value is $115,000. The financial statements should show:(a) a reduction of an
At December 31, 2014, the fair value of non-trading securities is $41,300 and the cost is $39,800. At January 1, 2014, there was a credit balance of $900 in the Fair Value Adjustment—Non-Trading
Short-term debt investments must be readily marketable and expected to be sold within:(a) 3 months from the date of purchase.(b) the next year or operating cycle, whichever is shorter.(c) the next
Pate Company pays $175,000 for 100% of Sinko’s common stock when Sinko’s stockholders’ equity consists of Common Stock $100,000 and Retained Earnings $60,000. In the worksheet for the
Which of the following statements about intercompany eliminations is true?(a) They are not journalized or posted by any of the subsidiaries.(b) They do not affect the ledger accounts of any of the
Which one of the following statements about consolidated income statements is false?(a) A worksheet facilitates the preparation of the statement.(b) The consolidated income statement shows the
Under IFRS, at the end of the first year of operations, the total cost of the trading investments portfolio is $120,000. Total fair value is $115,000. The financial statement should show:(a) a
Under IFRS, unrealized gains on non-trading stock investments should:(a) be reported as other revenues and gains in the income statement as part of net income.(b) be reported as other gains on the
During its first week, Duffy & Stevenson Company had these transactions.1. Issued 100,000 shares of $5 par value common stock for $800,000 cash.2. Borrowed $200,000 from Castle Bank, signing a 5-year
Josh’s PhotoPlus reported net income of $73,000 for 2014. Included in the income statement were depreciation expense of $7,000 and a gain on disposal of plant assets of $2,500.Josh’s comparative
Use the information below and on the next page to prepare a statement of cash flows using the indirect method.Additional information:1. Operating expenses include depreciation expense of $33,000.2.
Chicago Corporation issued the following statement of cash flows for 2014.(a) Compute free cash flow for Chicago Corporation. (b) Explain why free cash flow often provides better information than
The income statement for the year ended December 31, 2014, for Kosinski Company contains the following condensed information.Instructions Prepare the statement of cash flows using the indirect
The income statement for Kosinski Company contains the following condensed information.Instructions Prepare the statement of cash flows using the direct method. Kosinski Company Income Statement For
Which of the following is incorrect about the statement of cash flows?(a) It is a fourth basic financial statement.(b) It provides information about cash receipts and cash payments of an entity
Which of the following will not be reported in the statement of cash flows?(a) The net change in plant assets during the year.(b) Cash payments for plant assets purchased during the year.(c) Cash
The statement of cash flows classifies cash receipts and cash payments by these activities:(a) operating and nonoperating.(b) investing, financing, and operating.(c) financing, operating, and
Which is an example of a cash flow from an operating activity?(a) Payment of cash to lenders for interest.(b) Receipt of cash from the sale of capital stock.(c) Payment of cash dividends to the
Which is an example of a cash flow from an investing activity?(a) Receipt of cash from the issuance of bonds payable.(b) Payment of cash to repurchase outstanding capital stock.(c) Receipt of cash
Cash dividends paid to stockholders are classified on the statement of cash flows as:(a) operating activities.(b) investing activities.(c) a combination of (a) and (b).(d) financing activities.
Which is an example of a cash flow from a financing activity?(a) Receipt of cash from sale of land.(b) Issuance of debt for cash.(c) Purchase of equipment for cash.(d) None of the above.
Which of the following is incorrect about the statement of cash flows?(a) The direct method may be used to report cash provided by operations.(b) The statement shows the cash provided (used) for
Net income is $132,000, accounts payable increased $10,000 during the year, inventory decreased $6,000 during the year, and accounts receivable increased $12,000 during the year. Under the indirect
Items that are added back to net income in determining cash provided by operating activities under the indirect method do not include:(a) depreciation expense.(b) an increase in inventory.(c)
The following data are available for Allen Clapp Corporation.Net cash provided by operating activities is:(a) $160,000. (b) $220,000.(c) $240,000.(d) $280,000. Net income Depreciation expense
The following data are available for Orange Peels Corporation.Net cash provided by investing activities is:(a) $120,000.(b) $130,000. (c) $150,000.(d) $190,000. Sale of land Sale of equipment
The following data are available for Something Strange!Net cash provided by financing activities is:(a) $90,000.(b) $130,000.(c) $160,000.(d) $170,000. Increase in accounts payable Increase in bonds
The statement of cash flows should not be used to evaluate an entity’s ability to:(a) earn net income.(b) generate future cash flows.(c) pay dividends.(d) meet obligations.
Free cash flow provides an indication of a company’s ability to:(a) generate net income.(b) generate cash to pay dividends.(c) generate cash to invest in new capital expenditures.(d) Both (b) and
In a worksheet for the statement of cash flows, a decrease in accounts receivable is entered in the reconciling columns as a credit to Accounts Receivable and a debit in the:(a) investing activities
In a worksheet for the statement of cash flows, a worksheet entry that includes a credit to accumulated depreciation will also include a:(a) credit in the operating section and a debit in another
The beginning balance in accounts receivable is $44,000, the ending balance is $42,000, and sales during the period are $129,000. What are cash receipts from customers?(a) $127,000. (b) $129,000.
Which of the following items is reported on a statement of cash flows prepared by the direct method?(a) Loss on sale of building.(b) Increase in accounts receivable.(c) Depreciation expense.(d) Cash
Under IFRS, interest paid can be reported as:(a) only a financing element.(b) a financing element or an investing element.(c) a financing element or an operating element.(d) only an operating element.
In the future, it appears likely that:(a) the income statement and balance sheet will have headings of operating, investing, and financing, much like the statement of cash flows.(b) cash and cash
Under IFRS:(a) taxes are always treated as an operating item.(b) the income statement uses the headings operating, investing, and financing.(c) dividends received can be either an operating or
Which of the following is correct?(a) Under IFRS, the statement of cash flows is optional.(b) IFRS requires use of the direct approach in preparing the statement of cash flows.(c) The majority of
Summary financial information for Rosepatch Company is as follows.Compute the amount and percentage changes in 2014 using horizontal analysis, assuming 2013 is the base year. Current assets Plant
The condensed financial statements of John Cully Company, for the years ended June 30, 2014 and 2013, are presented below.Compute the following ratios for 2014 and 2013.(a) Current ratio.(b)
Match each of the following terms with the phrase that best describes it.1. _______ Measures the ability of the company to survive over a long period of time.2. _______ Usually excludes items that a
The events and transactions of Dever Corporation for the year ending December 31, 2014, resulted in the following data.Analysis reveals that:1. All items are before the applicable income tax rate of
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