Accounting- Which of the following transactions would be considered a financing activity in preparing a statement

| January 31, 2017

Question
LP7 Comprehensive Practice Exam Part VII

Multiple Choice Questions.(Chapter 22, 23, 24)

1. Which of the following transactions would be considered a financing activity in preparing a statement of cash flows?

a. Amortizing a discount on bonds payable

b. Recording net income from operations

c. Selling common stock

d. Purchasing inventory

2. The net income for the year ended December 31, 2015, for Tax Consultants INC. was $990,000. Additional information is as follows:

Capital expenditures $1,200,000

Depreciation on plant assets 450,000

Cash dividends paid on common stock 180,000

Increase in noncurrent deferred tax liability 45,000

Amortization of patents 21,000

Based on the information given above, what should be the net cash provided by operating activities in the statement of cash flows for the year ended December 31, 2015?

a. $1,326,000.

b. $1,416,000.

c. $1,461,000.

d. $1,506,000.

3. Information concerning the debt of Cole Company is as follows:

Short-term borrowings:

Balance at December 31, 2014 $525,000

Proceeds from borrowings in 2015 325,000

Payments made in 2015 (450,000)

Balance at December 31, 2015 $400,000

Current portion of long-term debt:

Balance at December 31, 2014 $1,625,000

Transfers from caption “Long-Term Debt” 500,000

Payments made in 2015 (1,225,000)

Balance at December 31, 2015 $ 900,000

Long-term debt:

Balance at December 31, 2014 $9,000,000

Proceeds from borrowings in 2015 2,250,000

Transfers to caption “Current Portion of Long-Term Debt” (500,000)

Payments made in 2015 (1,500,000)

Balance at December 31, 2015 $9,250,000

In preparing a statement of cash flows for the year ended December 31, 2015, for Cole Company, cash flows from financing activities would reflect

Outflow

a. $2,000,000

b. $2,250,000

c. $2,575,000

d. $3,175,000

4. In considering interim financial reporting, how did the Accounting Principles Board conclude that such reporting should be viewed?

a. As a “special” type of reporting that need not follow generally accepted accounting principles.

b. As useful only if activity is evenly spread throughout the year so that estimates are unnecessary.

c. As reporting for a basic accounting period.

d. As reporting for an integral part of an annual period.

5. Which of the following items represents a potential use of cash?

a. Patent amortization

b. Sale of plant assets at a loss

c. Net loss from operations

d. Declaration of a stock dividend

6. Worthington Company purchased a machine on January 1, 2012, for $6,400,000. At the date of acquisition, the machine had an estimated useful life of six years with no salvage. The machine is being depreciated on a straight-line basis. On January 1, 2015, Worthington determined, as a result of additional information, that the machine had an estimated useful life of eight years from the date of acquisition with no salvage. An accounting change was made to reflect this additional information. What amount of depreciation expense should be reported in Worthington’s income statement for the year ended December 31, 2015?

a. $1,066,667

b. $800,000

c. $640,000

d. $400,000

7. On January 7, 2013, Yoder Corporation acquired machinery at a cost of $2,100,000. Yoder adopted the sum-of-the-years’-digits method of depreciation for this machine and had been recording depreciation over an estimated life of five years, with no residual value. At the beginning of 2015, a decision was made to change to the straight-line method of depreciation for this machine. Assuming a 30% tax rate, the cumulative effect of this accounting change, net of tax, is?

a. $0

b. $280,000

c. $294,000

d. $420,000

8. Information from Collins Company’s balance sheet is as follows:

Current assets:

Cash $ 12,000,000

Short-term investments 20,000,000

Accounts receivable 50,000,000

Inventories 66,000,000

Prepaid expenses 2,000,000

Total current assets $150,000,000

Current liabilities:

Notes payable $ 21,000,000

Accounts payable 18,000,000

Accrued expenses 13,000,000

Income taxes payable 3,000,000

Current portion of long-term debt 5,000,000

Total current liabilities $ 60,000,000

What is the acid-test (quick) ratio?

a. 1.03 to 1

b. 1.37 to 1

c. 1.40 to 1

d. 2.50 to 1

9. Fargo, Inc. disclosed the following information as of and for the year ended December 31, 2015:

Net cash sales 600,000

Net credit sales 960,000

Inventory at beginning 100,000

Inventory at end 150,000

Net income 30,000

Accounts receivable at beginning of year 110,000

Accounts receivable at end of year 130,000

Fargo’s receivables turnover is?

a. 7.4 to 1.

b. 8.0 to 1.

c. 12.0 to 1.

d. 13.0 to 1.

10. The calculation of the number of times interest is earned involves dividing

a. net income by annual interest expense.

b. net income plus income taxes by annual interest expense.

c. net income plus income taxes and interest expense by annual interest expense.

d. none of these answers are correct.

Analysis of Financial Statements.(Chapter 24 Appendix 24A)

The market value of Farmington Corp.’s common shares was quoted at $54 per share at December 31, 2015, and 2014. Planetarium’s balance sheet at December 31, 2015, and 2014, and statement of income and retained earnings for the years then ended are presented below:

Farmington Corp.

Balance Sheet

December 31

2015 2014

Assets:

Current assets:

Cash $ 9,000,000 $ 5,200,000

Short-term investments 17,200,000 15,400,000

Accounts receivable (net) 109,000,000 111,000,000

Inventories, lower of cost or market 122,000,000 140,000,000

Prepaid expenses 4,000,000 2,800,000

Total current assets $261,200,000 $274,400,000

Property, plant, and equipment (net) 350,000,000 315,000,000

Investments, at equity 2,800,000 3,500,000

Long-term receivables 15,000,000 20,000,000

Copyrights and patents (net) 6,000,000 7,000,000

Other assets 8,000,000 9,100,000

Total assets $643,000,000 $629,000,000

Liabilities and Stockholders’ Equity:

Current liabilities:

Notes payable $ 7,000,000 $ 17,000,000

Accounts payable 55,000,000 52,000,000

Accrued expenses 27,500,000 30,000,000

Income taxes payable 1,500,000 2,000,000

Current portion of long-term debt 10,000,000 9,500,000

Total current liabilities 101,000,000 110,500,000

Long-term debt 180,000,000 190,000,000

Deferred income taxes 69,000,000 65,000,000

Other liabilities 15,000,000 9,500,000

Total liabilities 365,000,000 375,000,000

Stockholders’ equity:

Common stock, par value $1; authorized 20,000,000

shares; issued and outstanding 12,000,000 shares 12,000,000 12,000,000

10% cumulative preferred shares, par value $100;

$100 liquidating value; authorized 100,000 shares;

issued and outstanding 60,000 shares 6,000,000 6,000,000

Additional paid-in capital 119,000,000 119,000,000

Retained earnings 141,000,000 117,000,000

Total stockholders’ equity 278,000,000 254,000,000

Total liabilities and stockholders’ equity $643,000,000 $629,000,000

Farmington Corp.

Statement of Income and Retained Earnings

Year ended December 31

2015 2014

Net sales $540,000,000 $500,000,000

Cost and expenses:

Cost of goods sold 390,900,000 400,000,000

Selling, general, and administrative expenses 70,000,000 65,000,000

Other, net 9,100,000 6,000,000

Total costs and expenses 470,000,000 471,000,000

Income before income taxes 70,000,000 29,000,000

Income taxes 21,000,000 11,600,000

Net income 49,000,000 17,400,000

Retained earnings at beginning of period 117,000,000 113,100,000

Dividends on common stock (24,400,000) (12,900,000)

Dividends on preferred stock (600,000) (600,000)

Retained earnings at end of period $141,000,000 $117,000,000

Instructions

Based on the above information, compute the following (for the year 2015 only): (Show supporting computations in good form.)

(a) Current ratio.

(b) Acid-test (quick) ratio.

(c) Receivables turnover.

(d) Inventory turnover.

(e) Book value per share of common stock.

(f) Earnings per share on common stock.

(g) Price-earnings ratio on common stock.

(h) Payout ratio on common stock.

Segment Reporting.(Chapter 24)

Baden Company is a diversified company which has developed the following information about its five segments:

SEGMENTS

A B C D E

Total sales $ 800,000 $1,700,000 $ 300,000 $ 320,000 $ 580,000

Operating profit (loss) (270,000) 480,000 40,000 (300,000) (10,000)

Identifiable assets 2,600,000 5,800,000 1,200,000 3,900,000 5,600,000

Instructions

Identify which segments are significant enough to warrant disclosure in accordance with FASB No. 131, “Reporting Disaggregated Information about a Business Enterprise,” by applying the following quantitative tests:

a. Revenue test

b. Operating profit or loss test

c. Identifiable assets test

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