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1. Which of the following statements is true about apartnership?

a. One capital and one drawings account is used for eachpartnership.

b. The capital account is used to record each partner'sinvestment and that partner's designated share of the earnings.

c. Partnerships are subject to separate income taxes.

d. The drawings account is closed to retained earnings at theend of the period.

2. Which of the followingstatements does not correctly describe preferred stock?

a. Preferred shareholders have a preference with respect todividend payments.

b. Preferred shareholders have a preference with respect toassets in the event of dissolution.

c. Preferred shareholders have voting rights on a per sharebasis.

d. Preferred stock typically has a fixed dividend rate.

3. Which of the followingstatements is false?

a. Common stockholders have a residual claim on assets in theevent of liquidation.

b. Shares of stock held in the treasury are subtracted from thenumber of issued shares in the determination of the number ofoutstanding shares.

c. Common stockholders have voting rights at annual stockholdermeetings.

d. Corporations are governed by their stockholders.

4. Which of the following would not be reportedas a financing activities cash flow?

a. Issuing common stock for cash.

b. Cash dividend payments.

c. Purchasing treasury stock.

d. Purchase of a building by signing a note payable.

5. Which of the following is not reported as acash flow from investing activities?

a. Sale of a depreciable asset for cash.

b. Purchasing land in exchange for common stock.

c. Selling a long-term investment at a loss for cash.

d. Purchase of a patent in exchange for cash.

6. Which of the following transactions would be reported withinthe investing section of the cash flow statement?

a. The cash sale of land at a loss.

b. The purchase of a building in exchange for common stock.

c. The receipt of a stock dividend from a stock investment.

d. The cash receipt of a dividend from a stock investment.

7. Which of the following would be subtracted from net incomewhen determining cash flows from operating activities under theindirect method?

a. A decrease in utilities payable.

b. Patent amortization expense.

c. A decrease in prepaid rent.

d. A loss on the sale of a depreciable asset.

7. Which of the following would be added to net income whendetermining cash flows from operating activities under the indirectmethod?

a. A decrease in accounts payable.

b. Patent amortization expense.

c. An increase in prepaid insurance.

d. A gain on the sale of a depreciable asset.

8. Which of the following would not be a cashflow from financing activities?

a. Issuance of common stock for cash.

b. Borrowing cash on a long-term note payable.

c. Collection of a cash dividend.

d. Repayment of principal on a long-term note payable.

9. The cash payment of a previously declared dividend increaseswhich of the following ratios?

a. Debt-to-equity.

b. Earnings per share.

c. Price/earnings ratio.

d. Asset turnover.

10. The debt-to-equity ratio measures which of thefollowing?

a. Liquidity.

b. Solvency.

c. Profitability.

d. Market strength.

11. Negative financial leverage occurs when the:

a. Average net (after tax) interest rate on borrowed funds isless than the company's earnings rate on its assets.

b. Return on assets is more than return on equity.

c. Return on equity is more than return on assets.

d. Operating expenses exceed gross profit.

12. Which of the following ratios is notconsidered to be a test of profitability?

a. Current ratio.

b. Profit margin.

c. Return on assets.

d. Earnings per share.

13. Home Depot's operating strategy is to offer a broadassortment of high-quality merchandise and services at competitiveprices using highly knowledgeable service-oriented personnel andaggressive advertising. Which of the following isnot as critical to achieving Home Depot'sstrategy?

a. Cost control

b. Product differentiation

c. High level of customer service

d. High sales volume

13. Which of the following ratios is not partof the DuPont model?

a. Asset turnover.

b. Debt-to-equity.

c. Net profit margin.

d. Return on equity.

Which of the following statements is notcorrect?

Purchasing fixed assets through debt financing decreases thefinancial leverage ratio.

Accruing an expense will affect the net profit margin ratio.

Return on equity may increase even when the financial leverageratio decreases.

Purchasing treasury stock results in a decrease in assetturnover.

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Casey Durgan
Casey DurganLv2
28 Sep 2019

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Trask Corporation, a public company whose shares are traded in the over-the-counter market, had the following shareholders' equity account balances at December 31, 2016:

Common stock $7,875,000

Additional paid-in capital (including stock options) $16,050,000

Retained earnings $16,445,000

Treasury common stock $750,000

Transactions during 2017 and other information relating to the shareholders' equity accounts follow:

As of January 1, 2017, Trask had 4,000,000 authorized shares of $5 par-value common stock; it had issued 1,575,000 shares of which 75,000 were held in treasury.

On January 21, 2017, Trask issued 50,000 shares of $100 par value, 6% cumulative preferred stock at par in exchange for all of Rover Company's assets and liabilities. On that date, the net carrying amount of Rover's assets and liabilities equaled their fair values.

On January 22, 2017, Rover distributed the Trask shares to its stockholders in a complete liquidation and dissolution of Rover. Trask had 150,000 authorized shares of preferred stock.

On February 17, 2017, Trask formally retired 25,000 of 75,000 treasury common stock shares. The shares were originally issued at $15 per share and had been acquired on September 25, 2016, for $10 per share.

Trask owned 15,000 shares of Harbor Inc. common stock purchased in 2016 for $600,000. The Harbor stock shares are carried t fair value with price changes included in net income. On March 5, 2017, Trask declared a property dividend of one share of Harbor common stock for every 100 shares of Trask common stock held by a shareholder of record on April 16, 2017. Harbor stock's market price on March 5, 2017, was $60 per share. The property dividend was distributed on April 29, 2017.

On January 2, 2012, Trask granted stock options to employees to purchase 200,000 shares of the company's common stock at $12 per share, which was also the market price on that date. The options had a grant date fair value of $1.50 per share and are exercisable within a three-year period, beginning January 2, 2017. On June 1, 2017, employees exercised 150,000 options when the stock's market value was $25 per share. Trask issued new shares to settle the transaction.

On December 12, 2017, Trask declared the yearly cash dividend on preferred stock, payable on January 11, 2018, to shareholder of record on December 31, 2017.

On January 16, 2018, before the accounting records were closed for 2017, Trask learned that depreciation expense had been understated by $350,000 for the year ended December 31, 2016. The after-tax effect on 2016 net income was $245,000. The appropriate correcting entry to adjust January 1, 2017 retained earnings was recorded on the same day.

Net income for 2017 was $2,400,000.

Required:

Prepare a schedule to show how Trask's retained earnings changed from January 1, 2017, to December 31, 2017.

Prepare the shareholders' equity section of Trask's balance sheet at December 31, 2017.

Compute the book value per share of common stock at December 31, 2017

1-)Please refer to the following information for PeartreeCompany: • Common stock, $1.00 par, 100,000 issued, 95,000outstanding • Paid-in capital in excess of par: $2,150,000 •Retained earnings: $910,000 • Treasury stock: 5,000 sharespurchased at $20 per share If Peartree resold 1,000 shares oftreasury stock for $24 per share, what journal entry would berequired?

A) Debit Cash $24,000 and credit Treasury stock $24,000.

B) Debit Treasury stock $24,000 and credit Cash $24,000.

C) Debit Treasury stock $20,000, debit Paid-in capital $2,000and credit Cash $24,000.

D) Debit Cash $24,000, credit Treasury stock $20,000 and creditPaid-in capital $4,000.

2-)Which of the following is a common reason for companies toretire preferred stock?

A) To stop paying out dividends to preferred shareholders

B) To increase stockholders' equity

C) To reward the preferred shareholders

D) To make a profit on the retirement of preferred stock

3-)At January 1, 2014, Foxmore Company had 80,000 shares ofcommon stock outstanding and no preferred stock. During the year,they issued 40,000 additional shares of common stock. At December31, 2014, Foxmore had 120,000 shares of common stock outstanding,and no preferred stock. In addition, Foxmore reported the followingresults for the year 2014: Sales revenues from regular businessoperations $3,000,000 Cost of goods sold 900,000 Operating expensesfrom their regular business operations 600,000 Gain on disposal ofseveral items of property, plant & equipment 15,000 Income taxexpense on continuing operations 330,000 Loss on the termination ofa discontinued business segment, net of tax 120,000 Losses ondamage caused by earthquake, net of tax 280,000 At December 31,2014, how much is the earnings per share for income (loss) fromcontinuing operations? (Please round all calculations to thenearest cent.)

A) $(1.20)

B) $10.65 C)

$7.85

D) $11.85

4-)) A corporation has net income of $365,000 for the currentyear. It paid its required preferred dividend of $17,500 and had noother stock transactions during the year. The average number ofcommon shares outstanding during the year was 69,500. What is theearnings per share?

A) $1.00

B) $4.37

C) $5.84

D) $5.00

5-)Qtopia Company uses the direct method to prepare itsstatement of cash flows. It has reported sales revenues of $100,000on its income statement for the year 2012. If the balance inaccounts receivable has gone up by $4,000 during the year, then$4,000 will have to be added to $100,000 to calculate collectionsfrom customers. True or false

6-)Qtopia Company uses the direct method to prepare itsstatement of cash flows. It has reported operating expenses of$21,000 on its income statement for the year 2012. If the balancein accrued liabilities has gone up by $1,000 during the year, then$1,000 will have to be added to $21,000 as part of the process tocalculate payments to suppliers for operating expenses. true orfalse.

7-Please refer to the following information for Petra SalesCompany: • Common stock, $1.00 par, 200,000 issued, 180,000outstanding • Paid-in capital in excess of par: $1,600,000 •Retained earnings: $2,440,000 • Treasury stock: 20,000 sharespurchased at $12 per share If Petra Sales sells 10,000 shares oftreasury stock at $14 per share, the company will record a gain onthe sale of treasury stock of $20,000. True or false

8- Public companies are required to publish financialstatements, but privately held companies are generally not requiredto do so.true or false

QUESTION 1

Which of the following is not an equity security?

a. Common stock

b.Warrants

c. Call options

d. Redeemable preferred stock with a mandatory redemptionperiod

QUESTION 2

On January 1, 2005, N Inc. purchased 10-year bonds issued by BCompany. The bonds have a face value of $500,000 and pay interestannually at 8 percent on each December 31. N purchased the bondsfor $550,000. N�s accounting year ends on December 31. N�smanagement has chosen to treat the bonds purchased as anavailable-for-sale security. There are no other securities in theavailable-for-sale portfolio. Assume that on December 31, 2005, thefair market value of the bonds was $510,000. The company uses thestraight-line method of amortization. What is the amount ofinterest income to be reported on the 2005 incomestatement?

a.$35,000

b. $40,000

c. $44,000

d. $45,000

QUESTION 3

At December 31, 2005 and 2006, C Corp. had outstanding 4,000shares of $100 par value, 6 percent cumulative preferred stock and20,000 shares of $10 par value common stock. At December 31, 2005,dividends in arrears on the preferred stock were $12,000. Cashdividends declared in 2006 totaled $44,000. Of the $44,000, whatamounts were payable on each class of stock?

Preferred Stock

Common Stock

a. $44,000

$0

b. $36,000

$8,000

c. $32,000

$12,000

d. $24,000

$20,000

QUESTION 4

A liability for a cash dividend exists atthe

a. end of each year

b. date of declaration

c. date of record

d. date of payment

QUESTION 5

Coe Corp. issued 20,000 shares of $5 par common stock at $10 pershare. On December 31, 2005, Coe's retained earnings were $300,000.In March 2006, Coe reacquired 5,000 shares of its common stock at$20 per share. In June 2006, Coe sold 1,000 of these shares to itscorporate officers for $25 per share. Coe uses the cost method toaccount for its treasury stock. Net income for the year endedDecember 31, 2006, was $60,000. At December 31, 2006, what amountshould Coe report as retained earnings?

a. $360,000

b. $365,000

c.$375,000

d. $380,000

QUESTION 6

William Corp. issued 10,000 shares of its $1 par value commonstock for a building. The building was listed for sale at $500,000.William�s common stock is currently selling for $45 per share.William Corp. should record the buildingat

a.$10,000

b. $440,000

c. $450,000

d. $500,000

QUESTION 7

Assume that S Company makes sales of $400,000 during 2004 andreports the amount as sales revenue on its income statement. Alsoassume that the company wishes to delay the reporting of a portionof that amount for tax purposes and uses the installment salesmethod for tax purposes. Assume that $100,000 of collectionsoccurred during 2004, $150,000 occurred in 2005, and the remainderwill occur in 2006. Assuming a tax rate of 40 percent, what is theamount of the entry into the Deferred Tax account at the end of theyear 2004?

a. $40,000

b.$60,000

c.$120,000

d. $160,000

QUESTION 8

The Company purchases an asset on January 1, 2005, for $200,000.The straight-line method of depreciation is used for book purposes,resulting in depreciation of $50,000 per year. An acceleratedmethod is used for tax purposes, resulting in depreciation of$80,000, $60,000, $40,000, and $20,000 for the years 2005, 2006,2007, and 2008, respectively. Assume that the tax rate is 40percent for all years and that depreciation is the only temporarydifference between book and tax purposes. The 2005 journal entrywould include a

a. debit to Deferred Tax Liability of$12,000

b. debit to Deferred Tax Liability of $4,000

c. credit to Deferred Tax Asset of$4,000

d. credit to Deferred Tax Liability of $12,000

QUESTION 9

Which of the following has no effect on comprehensiveincome?

a. Unrealized gains and losses on held-to-maturityinvestments

b. Unrealized gains and losses on available-for-saleinvestments

c. Unrealized gains and losses on tradingsecurities

d. Realized gains and losses on available-for-sale securitiesthat were held in previous periods

QUESTION 10

Assume that Grandzol Company believes that $120,000 of a$600,000 deduction will not be utilized in future periods and thatthe tax rate is 40 percent for all periods. What is the amount ofthe valuation allowance?

a.$48,000

b. $120,000

c. $192,000

d. $240,000

QUESTION 11

Information regarding Silly Co.�s portfolio ofavailable-for-sale securities is as follows:

a. Aggregate cost as of 12/31/05 $170,000

b. Unrealized gains as of 12/31/05 4,000

c. Unrealized losses as of 12/31/05 26,000

d. Net realized gains during 2005 30,000

At December 31, 2004, Silly reported an unrealized holding lossfrom available-for-sale securities of $1,500 on the statement ofstockholders� equity. Assuming the application of SFAS No. 115,�Accounting for Certain Investments in Debt and Equity Securities,�what amount should Silly report on its December 31, 2005, balancesheet as an unrealized holding loss?

a.$26,000

b. $22,000

c.$20,500

d. $0

QUESTION 12

Treasury stock is a(n)

a. asset account

b. contra-asset account

c. equityaccount

d. contra-equity account

QUESTION 13

On March 1, 2004, LeoCorp. was formed by issuing 100,000 shares of $1 par value commonstock at $5 per share and 20,000 shares of $100 par value preferredstock at $101 per share. If Leo earned $35,000 in its first year ofoperations, total stockholders� equity at year end would be

a. $335,000

b. $735,000

c. $2,135,000.

d. $2,555,000

QUESTION 14

Interest received from available-for-sale debt securities shouldbe reportedas

a. an unrealized holdinggain�income

b. an unrealized holding gain�equity

c. other revenue on the income statement

d. a reclassification adjustment on the statement ofcomprehensive income

QUESTION 15

During 2005, Bob Co. issued 5,000 shares of $100 par convertiblepreferred stock for $110 per share. One share of preferred stockcan be converted into three shares of Bob's $25 par common stock atthe option of the preferred shareholder. On December 31, 2006, whenthe market value of the common stock was $40 per share, all of thepreferred stock was converted. What amount should Bob credit toCommon Stock and to Additional Paid-in Capital as a result of theconversion?

Common Stock

Additional Paid-in-Capital

a. $375,000

$175,000

b. $375,000

$225,000

c. $500,000

$50,000

d. $600,000

$0

QUESTION 16

If a company reissued at $20 per share 100 shares of treasurystock that it had previously acquired for $28 per share and therewasn�t any Paid-in Capital from Treasury Stock, it would debit

a. Loss on Sale of Treasury Stock for $800

b. Paid-in Capital from Common Stock for $800

c. Retained Earnings for $800

d. Treasury Stock for $800

QUESTION 17

B Corp. issued 200,000 shares of common stock when it beganoperations in 2004 and issued an additional 100,000 shares in 2005.B also issued preferred stock convertible into 100,000 shares ofcommon stock. In 2006, B purchased 75,000 shares of its commonstock and held it in the treasury. At December 31, 2006, how manyshares of B's common stock were outstanding?

a. 400,000

b.325,000

c.300,000

d. 225,000

QUESTION 18

Assume that Bad Company makes sales of $200,000 during 2004 andreports the amount as sales revenue on its income statement. Alsoassume that the company wishes to delay the reporting of a portionof that amount for tax purposes and uses the installment salesmethod for tax purposes. Assume that $60,000 of collectionsoccurred during 2004 and the remainder will occur in 2005. What isthe amount of the temporary difference at the end of the year2004?

a.$200,000

b.$140,000

c.$60,000

d. $0

QUESTION 19

Rent income received in advance that is included for taxpurposes when received, but recorded for book purposes when earnedresults in

a. expense items and deductions being taken for tax purposesbefore bookpurposes

b. expense items and deductions being recorded for book purposesbefore tax purposes

c. purposes income being included for tax purposes beforebook

d. income being recorded for book purposes before taxpurposes.

QUESTION 20

Debt securities that are classified as available-for-salesecurities are reported on the balance sheet at

a. fair value

b. historical cost

c. amortized cost

d. lower of amortized cost or fair value

QUESTION 21

Dividends are a(n)

a.expense

b. distribution to owners

c. asset

d. increase in equity

QUESTION 22

Which of the following does not use the Adjustment andUnrealized Holding Gain (Loss) accounts?

a. Held-to-maturitysecurities

b. Tradingsecurities

c. Available-for-salesecurities

d. Both held-to-maturity and trading securities

QUESTION 23

Other comprehensive income includes changes in the fair valueof

a. held-to-maturity securities

b. tradingsecurities

c. available-for-sale securities

d. investments accounted for under the equity method

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