ACC557 Final Exam Part 2 ANSWER

Question 1
If $250,000 of bonds are issued during the year but $130,000 of old bonds are retired during the year, the statement of cash flows will show a(n) Answer
net increase in cash of $120,000.
net decrease in cash of $120,000.
increase in cash of $250,000 and a decrease in cash of $130,000.
net gain on retirement of bonds of $120,000.
Solution: 
Question 2
Generally, the most important category on the statement of cash flows is cash flows from Answer
operating activities.
investing activities.
financing activities.
significant noncash activities.
Question 3
Squeeze Company reports the following: End of Year Beginning of Year Inventory $25,000 $42,000 Accounts Payable 22,000 12,000 If cost of goods sold for the year is $220,000, the amount of cash paid to suppliers is 
Answer
$227,000.
$205,000.
$193,000.
$247,000.
Question 4
The statement of cash flows should help investors and creditors assess each of the following except the 
Answer
entity's ability to generate future income.
entity's ability to pay dividends.
reasons for the difference between net income and net cash provided by operating activities.
cash investing and financing transactions during the period.
Question 5
Accounts receivable arising from sales to customers amounted to $86,000 and $77,000 at the beginning and end of the year, respectively. Income reported on the income statement for the year was $290,000. Exclusive of the effect of other adjustments, the cash flows from operating activities to be reported on the statement of cash flows is Answer
$290,000.
$299,000.
$213,000.
$280,000.
Question 6
Which of the following would be added to net income using the indirect method?
 Answer
An increase in accounts receivable
An increase in prepaid expenses
Depreciation expense
A decrease in accounts payable
Which of the following transactions does not affect cash during a period? 
Answer
Write-off of an uncollectible account
Collection of an accounts receivable
Sale of treasury stock
Exercise of the call option on bonds payable
Question 8
A company had net income of $210,000. Depreciation expense is $27,000. During the year, Accounts Receivable and Inventory increased $17,000 and $42,000, respectively. Prepaid Expenses and Accounts Payable decreased $5,000 and $6,000, respectively. There was also a loss on the sale of equipment of $2,000. How much cash was provided by operating activities? Answer
$175,000
$179,000
$241,000
$271,000
Question 9
The order of presentation of nontypical items that may appear on the income statement is Answer
Extraordinary items, Discontinued operations, Other revenues and expenses.
Discontinued operations, Extraordinary items, Other revenues and expenses.
Other revenues and expenses, Discontinued operations, Extraordinary items.
Other revenues and expenses, Extraordinary items, Discontinued operations.
Question 10
Wrapp Company has income before taxes of $350,000 and an extraordinary loss of $70,000. If the income tax rate is 30% on all items, the income statement should show income before irregular items and an extraordinary loss, respectively, of: Answer
$350,000 and ($70,000)
$245,000 and ($24,000)
$245,000 and ($49,000)
$105,000 and ($21,000)
Question 11
Which one of the following would not be considered a liquidity ratio?
Answer
Current ratio
Inventory turnover
Acid-test ratio
Return on assets
If a company has an acid-test ratio of 1.2:1, what respective effects will the borrowing of cash by short-term debt and collection of accounts receivable have on the ratio? Short-term Borrowing Collection of Receivable 
Answer
Increase No effect
Increase Increase
Decrease No effect
Decrease Decrease
Question 13
Under which of the following cases may a percentage change be computed?
Answer
The trend of the balances is decreasing but all balances are positive.
There is no balance in the base year.
There is a positive balance in the base year and a negative balance in the subsequent year.
There is a negative balance in the base year and a positive balance in the subsequent year.
Question 14
Blaney Clothing Store had a balance in the Accounts Receivable account of $437,500 at the beginning of the year and a balance of $500,000 at the end of the year. Net credit sales during the year amounted to $3,000,000. The average collection period of the receivables in terms of days was
Answer
53.2 days.
365 days.
60.1 days.
57 days.
Question 15
A company has an average inventory on hand of $60,000 and the days in inventory is 73 days. What is the cost of goods sold? 
Answer
$300,000
$4,380,000
$600,000
$2,190,000
Question 16
Comparisons of financial data made within a company are called
Answer
intracompany comparisons.
interior comparisons.
intercompany comparisons.
intramural comparisons.
Each of the following is a liquidity ratio except the 
Answer
acid-test ratio.
current ratio.
debt to assets ratio.
inventory turnover.
Beak Corporation sells 200 shares of common stock being held as an investment. The shares were acquired six months ago at a cost of $25 a share. Beak sold the shares for $40 a share. The entry to record the sale is 
Answer
Cash........................................................................................ 5,000 
Loss on Sale of Stock Investments ............................ 3,000 
	Stock Investments ...........................................................      8,000
Stock Investment....................................................................... 8,000 
	Cash .............................................................................. 		8,000
Cash........................................................................................... 8,000 
	Gain on Sale of Stock Investments .................................................. 3,000 
	Stock Investments ............................................................................ 5,000
Cash............................................................................................ 8,000 
	Stock Investments ............................................................................ 8,000
Question 19
A consolidated income statement will show 
Answer
revenue and expense transactions between the consolidated entity and parties outside the affiliated group.
only the parent company- net income.
only the income of partially owned subsidiaries.
only the income of wholly owned subsidiaries.
Question 20
Blaine Company had these transactions pertaining to stock investments: Feb. 1 Purchased 2,000 shares of Norton Company (10%) for $51,000. June 1 Received cash dividends of $2 per share on Horton stock. Oct. 1 Sold 1,200 shares of Horton stock for $32,400. The entry to record the sale of the stock would include a 
Answer
debit to Cash for $30,600.
credit to Gain on Sale of Stock Investments for $1,200.
debit to Stock Investments for $30,600.
credit to Gain on Sale of Stock Investments for $1,800.
Question 21
Pension funds and mutual funds regularly invest in debt and stock securities to 
Answer
generate earnings.
house excess cash until needed.
meet strategic goals.
control the company in which they invest.
Question 22
Consolidated financial statements are prepared when a company owns _________ of the common stock of another company. 
Answer
less than 20%
between 20% and 50%
less than 50%
more than 50%
Question 23
A typical investment to house excess cash until needed is 
Answer
stocks of companies in a related industry.
debt securities.
low-risk, highly liquid securities.
stock securities.
Question 24
The cost of debt investments includes each of the following except 
Answer
brokerage fees.
commissions.
accrued interest.
the price paid.
Comanic Corp. has common stock of $5,400,000, retained earnings of $2,000,000, unrealized gains on trading securities of $100,000 and unrealized losses on available-for-sale securities of $200,000. What is the total amount of its stockholders’ equity?
Answer
$7,200,000
$7,400,000
$7,300,000
$7,500,000