1.
A company issued $4 million in 20-year bonds. Where will this transaction appear on the cash flow statement?
Correct Answer
B. The financing section
Explanation
The issuance of $4 million in 20-year bonds represents a financing activity for the company. The cash flow statement categorizes cash flows into three sections: operating, investing, and financing. The operating section includes cash flows from the company's core operations, such as revenue and expenses. The investing section includes cash flows from the purchase or sale of long-term assets. The financing section includes cash flows from activities related to raising or repaying capital, such as issuing bonds or repurchasing stock. Therefore, the transaction of issuing bonds will appear in the financing section of the cash flow statement.
2.
A company signed a $5 million, 5% 10-year note. Where will this transaction appear on the cash flow statement?
Correct Answer
B. The financing section
Explanation
This transaction will appear in the financing section of the cash flow statement because it involves a long-term borrowing arrangement. The company signed a note, indicating that they have taken on debt, and the amount of $5 million represents the financing activity. The interest rate of 5% and the 10-year term further support that this is a financing transaction.
3.
Huston Corp paid $3,000,000 for a building in June 2004. In its December 31, year-end financial statements this cash flow will appear
Correct Answer
B. In the investing section of the cash flow statement
Explanation
The cash flow of $3,000,000 paid for the building represents an investment made by the company in acquiring a long-term asset. Therefore, it will appear in the investing section of the cash flow statement, which records cash flows related to the acquisition or sale of long-term assets.
4.
Hollaback Corporation paid $674,000 for a piece of production equipment. This transaction will appear in the Statement of Cash Flows as
Correct Answer
D. An investing cash outflow
Explanation
The transaction of paying $674,000 for a piece of production equipment represents an outflow of cash from the company. This is because the company is using its cash to acquire a long-term asset, which falls under the category of investing activities in the Statement of Cash Flows. Therefore, the correct answer is "an investing cash outflow."
5.
Which of the following would appear as a current asset on the balance sheet?
Correct Answer
C. Accounts receivable
Explanation
Accounts receivable would appear as a current asset on the balance sheet because it represents the amount of money owed to a company by its customers for goods or services that have been delivered but not yet paid for. This is considered a current asset because it is expected to be collected within a year. Goodwill, automobiles used by the sales staff, and an increase in the market value of land held are not classified as current assets.
6.
A company issued preferred stock last year. In this year's financial statements, which of the following balances would include the amount for which the stock was issued?
Correct Answer
A. Contributed capital
Explanation
The amount for which the preferred stock was issued would be included in the balance of contributed capital. Contributed capital represents the amount of money or assets that shareholders have invested in the company in exchange for ownership. When a company issues preferred stock, it receives capital from investors in exchange for the stock. This capital is considered contributed capital and is reflected in the balance sheet as a part of shareholders' equity.
7.
Assets appear on which of the following financial statements?
Correct Answer
A. Balance sheet
Explanation
Assets appear on the balance sheet. The balance sheet is a financial statement that provides a snapshot of a company's financial position at a specific point in time. It includes assets, liabilities, and shareholders' equity. Assets are resources owned by the company that have economic value and can be used to generate future benefits. Examples of assets include cash, accounts receivable, inventory, property, and equipment. The balance sheet helps stakeholders assess the company's liquidity, solvency, and overall financial health.
8.
At the end of the year, a company has the following balances: Current Assets = $55,000; Non-current Assets = $145,000; Current Liabilities = $40,000. Assume no stock transactions. What is the amount of total liabilities and equities?
Correct Answer
C. $200,000
Explanation
The amount of total liabilities and equities can be determined by adding the current liabilities to the sum of current assets and non-current assets. In this case, the current liabilities are $40,000, the current assets are $55,000, and the non-current assets are $145,000. Adding these amounts together gives a total of $240,000. Therefore, the correct answer is $200,000.
9.
At the end of the year, a company has the following balances: Current Assets = $55,000; Non-current Assets = $145,000; Current Liabilities = $40,000. Assume no stock transactions. If non-current liabilities =$35,000, what is the end of the year shareholder's equity balance?
Correct Answer
C. $125,000
Explanation
The end of the year shareholder's equity balance can be determined by subtracting the total liabilities from the total assets. In this case, the current assets ($55,000) and non-current assets ($145,000) amount to a total of $200,000. The current liabilities are given as $40,000 and non-current liabilities as $35,000, which sum up to $75,000 in total liabilities. Subtracting the total liabilities from the total assets ($200,000 - $75,000) gives us a shareholder's equity balance of $125,000.
10.
At the end of the year, a company has the following balances: Current Assets = $55,000; Non-current Assets = $145,000; Current Liabilities = $40,000. Assume no stock transactions. If the company earned $15,000 net income for the year and paid $5,000 in dividends, how much was beginning shareholders' equity?
Correct Answer
B. $115,000
Explanation
The beginning shareholders' equity can be calculated by subtracting the net income and dividends from the ending shareholders' equity. Since no information is provided about the ending shareholders' equity, it cannot be calculated. Therefore, the correct answer is "Cannot be calculated with the info provided."
11.
At the end of the year a company has the following balances: Current Assets = $65,000; Non-current Assets = $145,000; Current Liabilities = $50,000. Assume no stock transactions. If non-current liabilities = $45,000, what is the end of the year shareholder's equity balance?
Correct Answer
C. $115,000
Explanation
The end of the year shareholder's equity balance can be calculated by subtracting the total liabilities from the total assets. In this case, the total assets are the sum of current assets ($65,000) and non-current assets ($145,000), which equals $210,000. The total liabilities are the sum of current liabilities ($50,000) and non-current liabilities ($45,000), which equals $95,000. Subtracting the total liabilities from the total assets gives us the end of the year shareholder's equity balance of $115,000.
12.
At the end of the year a company has the following balances: Current Assets = $65,000; Non-current Assets = $145,000; Current Liabilities = $50,000. Assume no stock transactions. If the company earned $25,000 net income for the year and paid $5,000 in dividends, how much was beginning shareholder's equity?
Correct Answer
A. $95,000
Explanation
The beginning shareholder's equity can be calculated by subtracting the net income and dividends from the ending shareholder's equity. Since the ending shareholder's equity is not provided, it cannot be calculated with the information provided. Therefore, the correct answer is "cannot be calculated with the info provided".
13.
In its December 31, 2004 year-end financial statements Jet Corporation showed the following balances: Current assets, $400,000; Non-current assets, $500,000; Current liabilities, $300,000; Non-current liabilities $150,000; Contributed Capital $200,000. Assume no stock transactions during the year. What is the amount of total liabilities and equities?
Correct Answer
D. $700,000
Explanation
To calculate the amount of total liabilities and equities for Jet Corporation, you can use the accounting equation:
Total Liabilities + Total Equity = Total Assets
Total Liabilities (Current Liabilities + Non-current Liabilities) + Total Equity (Contributed Capital) = Total Assets (Current Assets + Non-current Assets)
Total Liabilities ($300,000 + $150,000) + $200,000 = $400,000 + $500,000
Total Liabilities ($450,000) + $200,000 = $900,000
Now, subtract the equity from both sides to find the total liabilities:
Total Liabilities = $900,000 - $200,000 = $700,000
So, the total liabilities and equities for Jet Corporation amount to $700,000.
14.
In its December 31, 2004 year-end financial statements Jet Corporation showed the following balances: Current assets, $400,000; Non-current assets, $500,000; Current liabilities, $300,000; Non-current liabilities $150,000; Contributed Capital $200,000. Assume no stock transactions during the year. If the company reported earnings of $50,000 for 2004 and paid no dividends, what was the year-end balance in retained earnings?
Correct Answer
B. $250,000
Explanation
The year-end balance in retained earnings can be calculated by subtracting the net income (earnings) from the beginning balance of retained earnings. In this case, the beginning balance of retained earnings is not given, but it can be calculated by subtracting the contributed capital from the total equity. The total equity is the sum of current assets, non-current assets, current liabilities, and non-current liabilities. Therefore, the beginning balance of retained earnings is $400,000 + $500,000 - $300,000 - $150,000 - $200,000 = $250,000. Since the company reported earnings of $50,000 and paid no dividends, the year-end balance in retained earnings is $250,000 + $50,000 = $300,000.
15.
In its December 31, 2004 year-end financial statements Jet Corporation showed the following balances: Current assets, $400,000; Non-current assets, $500,000; Current liabilities, $300,000; Non-current liabilities $150,000; Contributed Capital $200,000. Assume no stock transactions during the year. If the company reported earnings of $50,000 and paid $50,000 in dividends, what was the 2003 year-end balance in retained earnings?
Correct Answer
B. $250,000
Explanation
The 2003 year-end balance in retained earnings can be calculated by subtracting the earnings and dividends from the previous year's balance. Since there were no stock transactions during the year, the contributed capital remains the same. Therefore, the calculation would be: 2003 Retained Earnings = Previous year's retained earnings + Earnings - Dividends = $200,000 + $50,000 - $50,000 = $200,000.
16.
At its December 31 year-end, Dookie Inc. had the following balances: $400,000 Current Assets; $250,000 Current Liabilities; $100,000 Long-term Debt; $1,000,000 Total Liabilities and Equities. Dookie, Inc. had no stock transactions during the year. How much did Dookie Inc. have in Non-Current Assets?
Correct Answer
C. $600,000
Explanation
Based on the given information, we know that the total liabilities and equities of Dookie Inc. are $1,000,000. We also know that the current liabilities are $250,000 and the long-term debt is $100,000. To find the non-current assets, we subtract the total liabilities and equities from the sum of current assets and current liabilities. Therefore, non-current assets can be calculated as follows: ($400,000 + $250,000) - ($1,000,000) = $650,000. Since none of the answer choices match this amount, the correct answer is none of the above.
17.
At its December 31 year-end, Dookie Inc. had the following balances: $400,000 Current Assets; $250,000 Current Liabilities; $100,000 Long-term Debt; $1,000,000 Total Liabilities and Equities. Dookie, Inc. had no stock transactions during the year. How much is ending Retained Earnings, if Dookie Inc. has a beginning Retained Earnings balance of $200,000, an annual income of $50,000 and paid no dividends?
Correct Answer
C. $250,000
Explanation
The ending Retained Earnings can be calculated by adding the beginning Retained Earnings balance, annual income, and subtracting any dividends paid. In this case, since Dookie Inc. paid no dividends, the ending Retained Earnings would be the sum of the beginning Retained Earnings balance ($200,000) and the annual income ($50,000), which totals $250,000.
18.
How much is ending Retained Earnings, if instead Dookie, Inc. has a beginning Retained Earnings balance of $200,000, paid $50,000 dividends during the year, and had an annual income of $50,000?
Correct Answer
B. $200,000
Explanation
The ending Retained Earnings can be calculated by adding the beginning Retained Earnings to the annual income and then subtracting the dividends paid. In this case, the beginning Retained Earnings is $200,000, the annual income is $50,000, and the dividends paid is $50,000. Therefore, the ending Retained Earnings would be $200,000.
19.
A company has assets totaling $400,000 and liabilities totaling $250,000. Which of the following statements may be true?
Correct Answer
D. All of the above
Explanation
The given answer, "all of the above," may be true because if the company has assets totaling $400,000 and liabilities totaling $250,000, it means that the total liabilities and equities equal $400,000. Additionally, if the contributed capital equals $100,000 and the retained earnings equal $50,000, it also satisfies the given information. Therefore, all of the statements mentioned in the answer may be true based on the provided details.
20.
A ___________ is the simplest and cheapest way to start operation.
Correct Answer
A. Sole proprietorship
Explanation
A sole proprietorship is the simplest and cheapest way to start an operation because it involves only one individual who owns and operates the business. There is no need for complex legal procedures or formalities, and the owner has complete control over the business. Additionally, there are minimal costs involved in setting up and maintaining a sole proprietorship compared to other business structures such as partnerships or corporations.
21.
________________ are companies that sell consumer goods that are produced by other companies.
Correct Answer
D. Retail companies
Explanation
Retail companies are businesses that sell consumer goods that are produced by other companies. These companies act as intermediaries between the manufacturers and the end consumers. They purchase products in bulk from manufacturers and sell them in smaller quantities to individual customers. Retail companies can operate through physical stores, online platforms, or a combination of both. They play a crucial role in the distribution and marketing of consumer goods, making them an essential part of the supply chain.
22.
A __________ is an artificial being, invisible, intangible, and existing only in contemplation of the law.
Correct Answer
C. Corporation
Explanation
A corporation is an artificial being, invisible, intangible, and existing only in contemplation of the law. This means that a corporation is a legal entity created by law, separate from its owners or shareholders. It has its own rights, responsibilities, and liabilities, and can enter into contracts, own property, and be held legally accountable. The term "artificial being" refers to the fact that a corporation is not a natural person, but rather a legal construct. The term "invisible, intangible" emphasizes that a corporation does not have a physical presence and cannot be perceived by the senses.
23.
Central Corporation has developed brand name recognition for its products. Management expects this brand name recognition to provide benefits to the firm in its future business activities. The corporation made various expenditures, primarily for advertising and marketing to build recognition. Should the corporation recognize an asset in its financial statements? If so, what is the value of the asset?
Correct Answer
A. No, the future benefits cannot be reliably measured
Explanation
The correct answer is no, the future benefits cannot be reliably measured. This means that the corporation should not recognize an asset in its financial statements because the future benefits that the brand name recognition will provide cannot be accurately determined or quantified. Therefore, it is not appropriate to recognize the value of the asset in the financial statements.
24.
A firm acquires shares of common stock in Garco, Inc. for $640,000. The firm holds these shares with the expectation of developing long-term relations with Garco. Does this transaction give rise to a non-cash asset? If so, what is the account title and value?
Correct Answer
D. Investment in securities
Explanation
The correct answer is "investment in securities". This is because when the firm acquires shares of common stock in Garco, Inc., it is making an investment in securities. The $640,000 represents the value of the investment in securities.
25.
A firm receives notice from a supplier that has shipped by freight raw materials billed at $640,000 with payment due in 30 days. The company obtains title to the goods as soon as the supplier ships them. Does this transaction give rise to an asset? If so, what is the account title and value?
Correct Answer
C. Inventory, $640,000
Explanation
The transaction gives rise to an asset because the company obtains title to the goods as soon as the supplier ships them. The account title for this asset is Inventory, and the value is $640,000.
26.
A firm hires its president under a three-year contract beginning next month. The contract calls for $600,000 of compensation each year. Does this transaction give rise to liability? If so, what are the account title and amounts?
Correct Answer
A. The firm will not recognize a liability
Explanation
The firm will not recognize a liability because the president's contract has not yet started. As per the information given, the contract begins next month. Therefore, no liability has been incurred yet, and there is no need to recognize any account title or amounts related to this transaction.
27.
A firm receives $300,000 from customers for insurance coverage beginning next month. Does this transaction give rise to liability? If so, what are the account title and amount?
Correct Answer
D. Unearned revenue, $300,000
Explanation
The transaction of receiving $300,000 from customers for insurance coverage beginning next month gives rise to unearned revenue. Unearned revenue is a liability account that represents the amount of money received in advance for goods or services that have not yet been provided. In this case, the firm has received the payment in advance for insurance coverage that will start next month, so it should be recorded as unearned revenue. The amount of the liability is $300,000.
28.
Pevco received a down payment of $5,000 cash in advance from a customer. Pevco expects to produce and deliver products with a total value of $20,000 to the customer over the next six months. In addition to increasing the balance in its cash account, Pevco should recognize
Correct Answer
C. A current liability in the amount of $5,000
Explanation
Pevco received a down payment of $5,000 cash in advance from a customer. This implies that Pevco has an obligation to deliver products worth $20,000 to the customer over the next six months. Therefore, Pevco should recognize a current liability in the amount of $5,000, as this represents the unearned revenue that they have received in advance.
29.
A company receives an order from a customer for $15,000 of products. Will, the company recognized an asset? If so, what is the account name and how much is the value?
Correct Answer
D. No.
Explanation
The company does not recognize an asset in this scenario. An asset is something of value that the company owns or has a right to. In this case, the company has received an order from a customer, but it has not yet delivered the products or received any payment. Therefore, there is no asset to recognize at this point.
30.
When a company recorded a transaction it debited a liability and credited an asset. Which of the following explanations best describes the transaction?
Correct Answer
B. The company paid for inventory previously purchased on account
Explanation
The transaction described in the question involves the company paying for inventory that was previously purchased on account. This means that the company had initially recorded the purchase of the inventory as a liability (accounts payable) and now, by making the payment, they are debiting the liability account and crediting the asset account (cash). This transaction reflects the settlement of the company's outstanding payable for the inventory.
31.
A company signed a contract with a new CEO. The contract specifies that the CEO will earn $1 million a year. At the time the contract is signed, does the company recognize an asset? If so, what is it?
Correct Answer
D. No.
Explanation
The company does not recognize an asset at the time the contract is signed because an asset represents a future economic benefit. In this case, the CEO's salary is an expense that will be incurred in the future, not an asset that the company currently possesses. Therefore, the correct answer is No.