Week 5 Homework, Ch 14-17

| June 11, 2016

Week 5 Homework, Ch 14-17

Multiple choice (5 pts each) (highlight or clearly mark your answer)

1. Significant interest investments must be accounted for using the:

a. equity method.

b. consolidation method.

c. discounted cash flow method.

d. acquisition method.

2. Which of the following is a condition to record an investment as an available-for-sale security?

a. There should not be any annual cash flows from the investment.

b. It should have a maturity of less than two years.

c. It should be a debt security.

d. The ownership in the voting stock of the investee should be less than 20%.

3. When the market rate of interest on the date bonds are issued is higher than the face rate of interest on the bonds:

a. The proceeds from the issuance of the bonds will be greater than the face value of the bonds

b. The bonds are issued at a premium

c. The bonds are issued at a discount

d. Both a and c are correct

4. A business’s cash receipts and cash payments for a specific period are reported on a(n):

a. income statement.

b. balance sheet.

c. cash flow statement.

d. cash reconciliation statement

5. Preferred shareholders:

a. are guaranteed that they will not take a loss on their investment.

b. have higher voting rights than common shareholders.

c. are sold for a price lower than that of common stock.

d. have the first claim on dividend funds.

6. Which of the following statements is true of the direct and indirect methods of preparing the statement of cash flows?

a. The indirect method and the direct method will produce the same amount of net cash flow from operating activities.

b. The direct method begins with Net Income and adjusts to calculate operating and investing cash flows.

c. The indirect method shows three types of cash flows, but the direct method does not.

d. The operating activities section of both the direct and the indirect methods are the same.

Problems (10 pts each) (please show your work for partial credit)

1. Partridge Inc. provides the following information for the year 2014:

Net income


Market price per share of common stock


Dividends paid


Common stock outstanding at Jan 1, 2015


Common stock outstanding at Dec 31, 2016


The company has no preferred stock outstanding. Calculate the dividend yield for common stock.

2. Debra Technologies invested $50,000 to buy $50,000 face value, 8%, five-year in municipal bonds on January 2, 2010. The bonds will mature on January 2, 2015. The bonds pay interest semiannually on January 2 and July 2 every year till maturity. Based on the information provided, what is the Interest Revenue journal entry for the transaction on January 2, 2014? (amount and debit/credit)

3. Compute the present value of $30,000 discounted back 6 periods at 7%.

4. Rodriguez Inc. uses the indirect method to prepare its statement of cash flows. Refer to the following portion of the comparative balance sheet:


Additional information provided by the company includes the following:

1) Equipment costing $65,000 was purchased for cash.

2) Equipment with a cost of $32,000 and accumulated depreciation of $7,000 was sold for $45,000.

What was the amount of net cash provided by (used for) investing activities?

5. e-Bay Inc. has net sales on account of $1,200,000. The average net accounts receivable are $600,000. Calculate the days’ sales in receivables.

6. The net income of a company for the year ended was $500,000. The company has no preferred stock. Common stockholders’ equity was $1,000,000 at the beginning of the year and $2,000,000 at the end of the year. Calculate the return on common stockholders’ equity.

7. The following is summary of information presented on the financial statements of a company on December 31, 2015.




Current Assets



Accounts Receivable



Merchandise Inventory



Current Liabilities



Long-term Liabilities



Common Stock



Retained Earnings



What would a horizontal analysis report show with respect to long-term liabilities? (looking for % increase or decrease)

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