Use the incomplete stockholders’ equity section of Tokin Company’s balance sheet

| March 31, 2017

Question
Test 5 11-12

Multiple Choice

Identify the choice that best completes the statement or answers the question.

____ 1. Use the incomplete stockholders’ equity section of Tokin Company’s balance sheet as of December 31, 2012, to answer the following question.

Common stock, $7 par, 100,000 shares authorized

$700,000

Additional paid-in capital–common

160,000

Retained earnings

?

Treasury stock (2,000 shares at cost)

(16,000)

Total stockholders’ equity

974,000

What is the amount of Tokin’s retained earnings?

a.

$130,000

c.

$860,000

b.

$ 98,000

d.

$114,000

____ 2. Dali Company has 15,000 shares of stock authorized at January 1. Dali issues 4,500 shares to the stockholders during the year and then the company repurchases 1,500 shares as treasury stock. Based on this information, how many shares are outstanding at December 31?

a.

15,000

b.

18,000

c.

4,500

d.

3,000

____ 3. Which of the following is an account in stockholders’ equity?

a.

Dividends Payable

c.

Retained Earnings

b.

Loss on Sale of Equipment

d.

Net income

____ 4. On January 1, 2012, Sandy Shores Company issued 10,000 shares of 10%, $20 par value cumulative preferred stock. In 2012 and 2013, no dividends were declared on preferred stock. In 2014, Sandy Shores had a profitable year and decided to pay dividends to stockholders of both preferred and common stock. If they have $200,000 available for dividends in 2014, how much could it pay to the common stockholders?

a.

$140,000

c.

$180,000

b.

$160,000

d.

$200,000

____ 5. Roehr Corporation issues 20,000 shares of $0.50 par common stock for $6 per share; the Additional Paid-in Capital–Common account will increase by

a.

$10,000.

c.

$120,000.

b.

$110,000.

d.

$130,000.

____ 6. When a company purchases treasury stock, which of the following statements is true?

a.

Treasury stock is considered to be an asset because cash is paid for the stock.

b.

The cost of the treasury stock reduces stockholders’ equity.

c.

Dividends continue to be paid on the treasury stock because it is still issued.

d.

Since treasury stock is held by the original issuer, it is no longer considered to be issued.

____ 7. If a company purchases treasury stock for $6,000 and then reissues it for $5,000, the difference of $1,000 is

a.

treated as a gain on the sale.

c.

an increase in stockholders’ equity.

b.

treated as a loss on the sale.

d.

a decrease in stockholders’ equity.

____ 8. Port, Inc. paid a cash dividend on January 2 that had been declared prior to the end of its fiscal year. The entry to pay the dividend will

a.

increase Cash and increase Cash Dividend Payable.

b.

decrease Cash Dividend Payable and decrease Cash.

c.

decrease Retained Earnings and increase Cash Dividend Payable.

d.

decrease Cash Dividend Payable and increase Retained Earnings.

____ 9. The stockholders’ equity section of the balance sheet for Front Page News Corporation appeared as follows before its recent stock dividend:

Common stock, $5 par, 100,000 shares issued and outstanding

$ 500,000

Additional paid-in capital

100,000

Retained earnings

725,000

Total stockholders’ equity

$1,325,000

Front Page declared a 10% stock dividend when the market price per share was $8. After the stock dividend was distributed, the components of the stockholders’ equity section were:

Common StockAdd’l. Paid-in CapitalRetained Earnings

a.

$580,000 $100,000 $645,000

b.

$550,000 $100,000 $675,000

c.

$550,000 $130,000 $645,000

d.

There would be no change in the components of stockholders’ equity.

____ 10. When a company declares a stock dividend, which of the following occurs?

a.

A liability is created.

b.

Retained earnings is reduced.

c.

Stockholders’ equity is decreased.

d.

The financing section of the statement of cash flows is decreased.

____ 11. Using the concept of comprehensive income, which of the following items is included as part of comprehensive income but not as part of net income?

a.

Extraordinary items

c.

Unrealized holding gains or losses

b.

Accounting changes

d.

Loss on sale of investments

____ 12. The statement of stockholders’ equity

a.

is one of the required financial statements for the annual report, when changes have occurred in the stockholders’ equity accounts.

b.

shows the changes in retained earnings for the period, which includes the increase or decrease as a result of net income or loss for the period, and dividends for the period.

c.

includes accounts, such as the retained earnings and common stock accounts, but not changes to the retained earnings account, since those items are reported on the statement of retained earnings.

d.

is used only if a corporation frequently issues common stock.

____ 13. Simple Solutions Company reported net earnings of $60,000, declared and paid cash dividends on its common stock in the amount of $40,000 during the year, and sold 3,000 shares of $2 par value common stock for $15 per share during the year. What effects would these transactions have on the stockholders’ equity accounts shown below?

Retained EarningsCommon Stock

a.

increase increase

b.

increase decrease

c.

decrease increase

d.

decrease decrease

____ 14. Planet & Co. reported net income for the current year. Which of the following business transactions would cause cash from operating activities to be higher than the amount of net income?

a.

Cash dividends were paid to stockholders during the year.

b.

Depreciation expense was recorded for the year.

c.

A bank loan was repaid during the year.

d.

Equipment was purchased for cash during the year.

____ 15. Which of the following items is treated as a cash equivalent?

a.

Commercial paper with a 6-month maturity when purchased and 4 months until maturity at the balance sheet date.

b.

Investment in corporate stocks which management intends to sell within 3 months after the balance sheet date.

c.

Money market funds which can be obtained overnight from a bank or brokerage firm.

d.

Investments in corporate bonds which have 5 years until maturity when they are purchased.

____ 16. Cash flows from acquiring and selling products are classified as

a.

operating activities.

c.

financing activities.

b.

investing activities.

d.

distribution activities.

____ 17. Cash flows from issuing and repurchasing stock or issuing and repaying (retiring) debt are classified as

a.

operating activities.

c.

financing activities.

b.

investing activities.

d.

borrowing activities.

____ 18. Below is information for Fargo Corp. for 2013 and 2014:

Bonds payable, December 31, 2013

$500,000

Bonds payable, December 31, 2014

800,000

Loss on bond retirement–2014

15,000

Interest expense on bonds–2014

45,000

At the end of 2014, Fargo issued bonds at par value for $800,000 cash. The proceeds from these bonds were used to retire the $500,000 bond issue outstanding at the end of 2013 (before their maturity date). All interest expense was paid in cash during 2014.

The following statements describe how Fargo reported the cash flow effects of the items described above on its 2014 statement of cash flows. The indirect method is used to prepare the operating activities section. Which of the following has been reported incorrectly by Fargo?

a.

Proceeds of $800,000 from the issuance of bonds were reported as a cash inflow in the financing activities section.

b.

The loss on bond retirement of $15,000 was added to net income in the operating activities section.

c.

Payments of $560,000 were reported as a cash outflow in the investing activities section.

d.

Interest expense of $45,000 was not reported separately because it is included in net income in the operating activities section.

____ 19. Operating, investing, and financing activities affect certain balance sheet accounts. Which of the following statements is true?

a.

Operating activities primarily involve transactions which affect noncurrent assets.

b.

Investing activities primarily involve U.S. government securities and long-term productive assets.

c.

Financing activities primarily involve transactions which affect current liabilities.

d.

Different balance sheet accounts are affected depending on whether the direct or indirect method is used.

____ 20. Which balance sheet accounts are most affected by operating activities?

a.

Current assets and current liabilities.

b.

Long-term assets.

c.

Long-term liabilities.

d.

Stockholders’ equity.

____ 21. Turtle Island Music Store reported net income of $200,000. Cash from operations

a.

will be more than $200,000.

b.

will be less than $200,000.

c.

will be equal to $200,000.

d.

cannot be determined without more information.

____ 22. Upon review of Young’s Garden Center statement of cash flows, the following was noted:

Cash flows from operating activities

$15,000

Cash flows from investing activities

80,000

Cash flows from financing activities

(60,000)

From this information, the most likely explanation is that Young’s is

a.

using cash from operations and selling long-term assets to pay back debt.

b.

using cash from operations and borrowing to purchase long-term assets.

c.

using its profits to expand growth.

d.

using cash from investors to provide for operations

____ 23. A mortgage incurred in exchange for an office building would be reported in the statement of cash flows in

a.

the cash flows from financing activities section

b.

the cash flows from investing activities section

c.

a separate schedule

d.

the cash flows from operating activities section

____ 24. Presented below is the operating activities section of the statement of cash flows for Golden Consulting for 2012:

Operating activities:

Net income

$ 92,000

Add: Depreciation

20,000

Decrease in accounts receivable

8,000

$120,000

Deduct: Decrease in accounts payable

(6,000)

Net cash inflow from operating activities

$114,000

Which method of preparing the operating activities section has Golden Consulting used?

a.

The direct method.

b.

The indirect method.

c.

Either method.

d.

Cannot be determined without further information.

____ 25. The following items were reported on the balance sheets and income statement for Kensington Co.:

Accounts receivable, December 31, 2013

$185,000

Accounts receivable, December 31, 2014

178,000

Sales — 2014

850,000

What amount would be reported in the operating activities section of the statement of cash flows for collections from customers under the direct method assuming that all sales are on credit?

a.

$850,000

b.

$857,000

c.

$843,000

d.

Cannot be determined without further information.

____ 26. The following items were reported on the balance sheets and income statement for Oxford Inc., a service company:

Accounts payable, December 31, 2013

$ 64,000

Accounts payable, December 31, 2014

48,000

Operating expenses — 2014

170,000

What amount would be reported in the operating activities section of the statement of cash flows for payments for operating expenses under the direct method?

a.

$186,000

c.

$180,000

b.

$154,000

d.

$170,000

____ 27. The following items were reported on the balance sheets and income statement for Infantini Corp.:

Accounts payable, December 31, 2013

$ 42,000

Accounts payable, December 31, 2014

48,000

Operating expenses

286,000

How would the change in accounts payable be reported in the operating activities section of the statement of cash flows under the indirect method?

a.

As an addition to operating expenses.

b.

As a deduction from operating expenses.

c.

As an addition to net income.

d.

As a deduction from net income.

____ 28. During 2013, the accounts receivable balance of Dawson Corp. increased. Which of the following statements is true?

a.

This indicates that Dawson sold more than it collected in cash during the period.

b.

This increase is added to net income in the operating activities section of a statement of cash flows prepared under the indirect method.

c.

This increase is added to sales recognized on the income statement to determine the cash collections from customers during the period

d.

This increase is considered only when the operating activities section of a statement of cash flows is prepared under the indirect method.

____ 29. When using the direct method, how is the purchase of equipment for cash shown on the statement of cash flows?

a.

Operating activity

b.

Investing activity

c.

Financing activity

d.

Noncash investing and financing activity

____ 30. When using the direct method, how is the collection of cash from customers shown on the statement of cash flows?

a.

Operating activity

b.

Investing activity

c.

Financing activity

d.

Noncash investing and financing activity

____ 31. When using the direct method, how are salaries paid to employees reported on the statement of cash flows?

a.

Operating activity

b.

Investing activity

c.

Financing activity

d.

Noncash investing and financing activity

____ 32. When using the direct method, how is the sale of long-term investments for cash reported on the statement of cash flows?

a.

Operating activity

b.

Investing activity

c.

Financing activity

d.

Noncash investing and financing activity

____ 33. When using the indirect method, how is the issuing of stock for cash shown on the statement of cash flows?

a.

Operating activity

b.

Investing activity

c.

Financing activity

d.

Non cash investing and financing activity

____ 34. When using the indirect method, how is the receipt of cash from the sale of long-term investments treated on the statement of cash flows?

a.

Operating activity

b.

Investing activity

c.

Financing activity

d.

Noncash investing or financing activity

____ 35. Rent expense in Volusia Company’s 2014 income statement is $420,000. If Prepaid Rent was $70,000 at December 31, 2013, and is $95,000 at December 31, 2014, the cash paid for rent during 2014 is:

a.

$480,000

b.

$445,000

c.

$395,000

d.

$420,000

____ 36. Use the information below for Oakland Inc. for 2013 and 2014 to answer the following question.

Equipment, December 31, 2013

$65,000

Equipment, December 31, 2014

72,000

Accumulated depreciation, December 31, 2013

39,000

Accumulated depreciation, December 31, 2014

30,000

During 2014, Oakland Inc. sold equipment with a cost of $30,000 and accumulated depreciation of $25,000. A gain of $3,000 was recognized on the sale of the equipment This was the only equipment sale during the year.

What was depreciation expense for 2014?

a.

$ 9,000

c.

$21,000

b.

$16,000

d.

$30,000

____ 37. Which of the following statements is false regarding how the cash flow effects of the changes in the equipment and accumulated depreciation accounts would be reported on a statement of cash flows if the indirect method is used to prepare the operating activities section?

a.

Cash proceeds from the sale of the equipment would be reported as a cash inflow in the investing activities section.

b.

The cash paid to purchase equipment would be reported as a cash outflow in the investing activities section

c.

Depreciation expense would be added to net income in the operating activities section.

d.

A loss on the sale of the equipment would be subtracted from net income in the operating activities section

____ 38. Use the information below for Main Street Corp. for 2013 and 2014 to answer the following question.

Retained earnings, December 31, 2013

$300,000

Retained earnings, December 31, 2014

345,000

Dividends payable, December 31, 2013

19,000

Dividends payable, December 31, 2014

29,000

Net income–2014

150,000

Assume that there were no retained earnings transactions other than those dealing with dividends and net income. How much dividends did Main Street declare during 2014?

a.

$ 95,000

c.

$140,000

b.

$105,000

d.

$150,000

____ 39. Arizona Inc. reported the following information for 2013 and 2014.

2013

2014

Accounts receivable

$51,000

$57,000

Inventories

42,000

39,000

Accounts payable

43,000

48,000

Net income

60,000

Depreciation expense

8,000

If Arizona uses the indirect method to prepare the operating activities section of the statement of cash flows, what amount will be reported as net cash inflow from operating activities for 2014?

a.

$64,000

c.

$68,000

b.

$66,000

d.

$70,000

____ 40. Where would you tell someone to find the information needed to compute the cash flow adequacy ratio?

a.

the balance sheet only

b.

the statement of cash flows and the notes to the statements

c.

the statement of cash flows only

d.

the income statement only

Problem

1. Playlinda Surf Shop provided the following information from its 2012 financial statements:

Total Assets

$655,000

Total Liabilities

225,000

In addition, the stockholders’ equity section of the balance sheet showed:

Preferred stock, 10%, $2 par value, 10,000 authorized,

8,000 issued and outstanding, $5 liquidation value

$16,000

Common stock, $4 par value, 20,000 shares authorized,

10,000 issued and outstanding

40,000

The common stock had a year-end market price of $24.

A)

Calculate the book value per common share at year-end.

B)

Indicate the usefulness of this ratio for Playlinda Surf Shop.

2. The Stockholders’ Equity section of the balance sheet for High Five Design Company appeared as follows before its recent stock dividend:

Common stock, $3 par, 100,000 shares issued and outstanding

$300,000

Additional paid-in capital–common

150,000

Retained earnings

425,000

Total stockholders’ equity

$875,000

High Five declared a 10% stock dividend when the market price per share was $7. In the space provided, write in the amounts of each of the components of the stockholders’ equity section, after the stock dividend was distributed.

Common stock

$________________________

Additional paid-in capital — Common stock

$________________________

Retained earnings

$________________________

3. The following events occurred at Cute Canines Company during its first year of business:

a. To establish the company, the two owners contributed a total of $60,000 in exchange for common stock.

b. Grooming service revenue for the first year amounted to $175,000, of which $50,000 was on account.

c. Customers owe $15,000 at the end of the year from the services provided on account.

d. At the beginning of the year, a storage building was rented. The company was required to sign a three-year lease for $15,000 per year and make a $3,000 refundable security deposit. The first year’s lease payment and the security deposit were paid at the beginning of the year.

e. At the beginning of the year, the company purchased a patent at a cost of $120,000 for a revolutionary system to be used for dog grooming. The patent is expected to be useful for ten years. The company paid 20% down in cash and signed a four-year note at the bank for the remainder.

f. Operating expenses, including amortization of the patent and rent on the storage building, totaled $90,000 for the first year. No expenses were accrued or unpaid at the end of the year.

g. The company declared and paid a $25,000 cash dividend at the end of the first year.

REQUIRED:

1. Prepare an income statement for the first year.

2. Prepare a statement of cash flows for the first year using the direct method in the Operating Activities section.

3. Did the company generate more or less cash flow from operations than it earned in net income? Explain why there is a difference.

4. Prepare a balance sheet as of the end of the first year.

Utah Corp.

Use the following selected data and additional information from the records of Utah Corp. to answer the questions that follow.

Balance Sheet Data

2014

2013

Accounts receivable

$ 36,000

$ 42,000

Inventories

28,000

25,000

Accounts payable

31,000

35,000

Salaries payable

2,000

1,000

Equipment

60,000

40,000

Accumulated depreciation

12,000

16,000

Bonds payable

50,000

100,000

Common stock

150,000

100,000

Retained earnings

38,000

20,000

Income Statement Data

2014

Net sales

$420,000

Cost of goods sold

300,000

Operating expenses (excluding depreciation

expense)

84,000

Net income

30,000

Gain on sale of equipment (included in net

income above)

2,000

Additional information:

(1)

Equipment with a cost of $15,000 and a book value of $3,000 was sold for $5,000 during 2012.

(2)

Common stock was issued to retire bonds payable during 2014.

(3)

The only items affecting retained earnings in 2014 were net income and dividends declared and paid.

4. Review the data for Utah Corp.

REQUIRED:

Prepare the operating activities section of a statement of cash flows for Utah Corp. for 2014 if the indirect method is used to determine net cash flow from operating activities

Get a 30 % discount on an order above $ 50
Use the following coupon code:
COCONUT
Order your essay today and save 30% with the discount code: COCONUTOrder Now
Positive SSL