ACCO 230 Study Guide - Midterm Guide: Gross Profit, Retained Earnings, Net Income
Document Summary
Get access
Related Documents
Related Questions
Question 11
The Kerchin Company purchased $60,000 worth of stock in theXeronics company in 2006. In 2012 the stock was sold for $78,000.On the statement of cash flows prepared using the indirect methodthe company will report:
| A. | a subtraction of $60,000 in the investing section. | |
| B. | an addition to net income of $18,000 in the operatingsection. | |
| C. | a subtraction from net income of $18,000 in the operatingsection. | |
| D. | an addition of $18,000 in the investing section. |
2 points
Question 12
When preparing the operating section of a statement of cashflows using the indirect method, various adjustments are needed.Which of the following adjustments is incorrectly stated?
| A. | Add gains on sale of equipment. | |
| B. | Add to net income any increases in current liabilities. | |
| C. | Add to net income depreciation and amortization expense. | |
| D. | Deduct any increases in inventories from net income. |
2 points
Question 13
In 2011 Armstrong Company sold for $76,000 cash, an asset whichhad an original cost of $204,000 and accumulated depreciation of$98,000. On the statement of cash flows prepared using the indirectmethod the company should report:
| A. | an addition to net income in the operating section of$30,000. | |
| B. | a subtraction from net income of $30,000 in the operatingsection. | |
| C. | a subtraction of $106,000 in the investing section. | |
| D. | an addition of $76,000 in the investing section. | |
| E. | Both A and D are correct. |
2 points
Question 14
In 2011 Covington Company sold an asset which had an originalcost of $54,000 and accumulated depreciation of $28,000 for $15,000in cash. On the statement of cash flows prepared using the indirectmethod the company should report:
| A. | an addition to net income in the operating section of$11,000. | |
| B. | a subtraction from net income in the operating section of$11,000. | |
| C. | a source of cash of $15,000 in the investing section. | |
| D. | a use of cash in the investing section of $39,000. | |
| E. | Both a and c are correct. |
2 points
Question 15
Henry Company's statement of cash flows indicated a $52,000decrease in cash during the year. The statement also indicated that$63,000 was provided by operating activities and $71,000 was usedby investing activities. How much are net cash used by financingactivities?
| A. | $86,000 | |
| B. | ($44,000) | |
| C. | $42,000 | |
| D. | $40,000 |
2 points
Question 16
Which of the following would be an example of a cashequivalent?
| A. | Notes receivable. | |
| B. | Accounts receivable. | |
| C. | Money market funds. | |
| D. | Investment in GMC stock. |
2 points
Question 17
Carte Company reported cost of goods sold for $100,000 anddepreciation expense totaling $7,000. On January 1, Carte hadinventory and accounts payable of $21,000 and $24,000,respectively. On December 31, inventory and accounts payable were$28,000 and $20,000, respectively. Net income is $60,000. Beginningaccounts receivable was $13,000 and ending was $12,000. How muchare the cash flows from operating activities using the indirectmethod?
| A. | $57,000 | |
| B. | $50,000 | |
| C. | $65,000 | |
| D. | $77,000 |
2 points
Question 18
The statement of cash flows is typically used to determine if acompany can:
| A. | generate enough cash to pay cash dividends to stockholders. | |
| B. | generate enough cash to pay an increase in employees wages. | |
| C. | generate enough cash to acquire another company. | |
| D. | generate enough cash to buy equipment. |
2 points
Question 19
Cash flows related to buying and selling long-term assets areclassified as:
| A. | financing activities. | |
| B. | investing activities. | |
| C. | non-cash activities. | |
| D. | operating activities. |
2 points
Question 20
Given the following information, what amount of cash wascollected from customers during 2012? All sales are on account.
2011 | 2012 | |
| Accounts receivable | $ 800,000 | $ 580,000 |
| Sales | 3,100,000 | 3,250,000 |
| A. | $2,880,000 | |
| B. | $3,620,000 | |
| C. | $2,670,000 | |
| D. | $3,470,000 |
2 points
Question 39
Carte Company reported cost of goods sold for $100,000 anddepreciation expense totaling $7,000. On January 1, Carte hadinventory and accounts payable of $21,000 and $24,000,respectively. On December 31, inventory and accounts payable were$28,000 and $20,000, respectively. Net income is $60,000. Beginningaccounts receivable was $13,000 and ending was $12,000. How muchare the cash flows from operating activities using the indirectmethod?
| A. | $57,000 | |
| B. | $77,000 | |
| C. | $50,000 | |
| D. | $65,000 |
2 points
Question 40
The Washington Company had the following results in 2012:
Account Balances |
End of | Beginning of | |
Year | Year |
| Property, plant, and equipment | $358,000 | $347,000 |
| Accumulated depreciation | (256,000) | (220,000) |
| Net Property, plant, and equipment | $102,000 | $127,000 |
During the year the company sold an asset which had an originalcost of $55,000 and accumulated depreciation of $31,000. How muchdepreciation expense for 2012 will be reported on the statement ofcash flows?
| A. | $67,000 | |
| B. | Not enough information is provided. | |
| C. | $36,000 | |
| D. | $5,000 |
Question 43
Cinema Theatre had a current ratio of 2.5 to 1 on December 31 ofthe current year. On that date, the company's assets were asfollows:
| Cash | $ 100,000 |
| Accounts receivable (net) | 600,000 |
| Inventory | 960,000 |
| Prepaid expenses | 25,000 |
| Equipment (net) | 2,200,000 |
| Total assets | 3,885,000 |
What impact would collecting $55,000 due from customers have on itsinventory turnover ratio?
| A. | Decrease. | |
| B. | Not enough information is given. | |
| C. | Increase. | |
| D. | Stay the same. |
2 points
Question 45
Axilrode Company reported earnings per share of common stock $12in 2012 and paid dividends of $3 per share. The current marketprice per share is $102 and the book value per share is $54. Howmuch is the company's price-earnings ratio?
| A. | $11.80 | |
| B. | $11.30 | |
| C. | $1.90 | |
| D. | $8.50 |
2 points
Question 46
Which is the most stringent test of a company's ability to meetits current obligations?
| A. | Times interest earned. | |
| B. | Debt-equity ratio. | |
| C. | Current ratio. | |
| D. | Quick ratio. |
2 points
Question 47
Cost of goods sold in 2011 for the Cego Tire Company totaled$4,670,000. If gross profit was 64%, how much would sales be?
| A. | $2,988,800 | |
| B. | $8,302,080 | |
| C. | $12,972,222 | |
| D. | $1,681,200 |
2 points
Question 48
Blackstone Company has total assets of $550,000 and owners'equity of $220,000, of which $65,000 of the equity is common stock.To which of the following is the company's debt-to-equity ratioclosest?
| A. | 0.60 | |
| B. | 1.50 | |
| C. | 5.08 | |
| D. | 0.67 |
2 points
Question 49
Inventory turnover is
| A. | sales divided by inventory. | |
| B. | sales divided by accounts receivable. | |
| C. | sales divided by cost of goods sold. | |
| D. | cost of goods sold divided by inventory. |
2 points
Question 50
Selling an old piece of machinery is a(n)
| A. | financing activity. | |
| B. | operating activity. | |
| C. | investing activity. | |
| D. | general activity. |
Topics 1 to 3 - Consolidation: Principles, accounting requirements, intra-group transactions and non-controlling interests
Parent Ltd acquired 80% of the issued shares of Subsidiary Ltd on 1 July 2014. At the acquisition date, the equity of Subsidiary Ltd consisted of Share Capital of $200,000; Retained Earnings of $ 74,000 and General Reserve of $6,000.
Parent Ltd uses the full goodwill method. The fair value of non-controlling interest at 1 July 2014 was $63,000.
All the identifiable net assets of Subsidiary Ltd were recorded at fair value at the date of acquisition, except for the following assets:4
| Carrying amount | Fair value | |
| $ | $ | |
| Plant (cost $150,000) | 100,000 | 110,000 |
| Land | 60,000 | 76,000 |
The plant has a further 10-year life, with benefits expected to be received evenly over that period. The land was sold on 1 February 2015 for $80,000. Any valuation reserve in relation to the land is transferred to retained earnings on consolidation.
Three years after acquisition, the financial information at 30 June 2017 of the two companies appears as follows:
|
| Parent Ltd | Subsidiary Ltd |
| $ | $ | |
| Sales | 632,000 | 440,000 |
| Other revenue: | ||
| Debenture interest | 10,000 | - |
| Management and consulting fees | 10,000 | - |
| Dividends from Subsidiary Ltd | 24,000 | - |
| Total revenue | 676,000 | 440,000 |
| Cost of sales | 260,000 | 170,000 |
| Manufacturing expenses | 180,000 | 120,000 |
| Depreciation on plant | 30,000 | 30,000 |
| Administrative expenses | 30,000 | 16,000 |
| Financial expenses | 22,000 | 10,000 |
| Other expenses | 28,000 | 24,000 |
| Total expenses | 550,000 | 370,000 |
| Profit before tax | 126,000 | 70,000 |
| Income tax expense | (50,000) | (34,000) |
| Operating profit after tax | 76,000 | 36,000 |
| Retained earnings 1 July 2016 | 100,000 | 90,000 |
| 176,000 | 126,000 | |
| Transfer to general reserve | 6,000 | - |
| Interim dividend paid | 20,000 | 20,000 |
| Final dividends declared | 20,000 | 10,000 |
| 46,000 | 30,000 | |
| Retained earnings 30 June 2017 | 130,000 | 96,000 |
| General reserve | 100,000 | 20,000 |
| Other components of equity | 26,000 | 20,000 |
| Share capital | 600,000 | 200,000 |
| Debentures | 400,000 | 200,000 |
| Current tax liability | 50,000 | 34,000 |
| Dividend payable | 20,000 | 10,000 |
| Deferred tax liability | - | 14,000 |
| Other liabilities | 180,000 | 24,000 |
| 1,506,000 | 618,000 | |
| Assets | ||
| Financial assets | 100,000 | 120,000 |
| Debentures in Subsidiary Ltd | 200,000 | - |
| Shares in Subsidiary Ltd | 263,200 | - |
| Plant (cost) | 240,000 | 204,000 |
| Accumulated depreciation â plant | (130,000) | (110,000) |
| Other depreciable assets | 152,000 | 110,000 |
| Accumulated depreciation | (80,000) | (50,000) |
| Inventory | 180,000 | 170,000 |
| Deferred tax asset | 170,800 | 60,000 |
| Land | 402,000 | 114,000 |
| Dividend receivable | 8,000 | - |
| 1,506,000 | 618,000 |
Additional information:
(a) The inventory on hand of Subsidiary Ltd on 1 July 2016 included a quantity priced at $20,000 that was transferred from Parent Ltd during the prior financial year. This inventory had cost Parent Ltd $15,000. This entire inventory was sold by Subsidiary Ltd to parties external to the group during the current financial year.
(b) Subsidiary Ltd sold inventory to Parent Ltd for $120,000 during the year. This inventory had an original cost to Subsidiary Ltd of $110,000. This entire inventory was held by Parent Ltd during the year.
(c) On 1 January 2016, Subsidiary Ltd sold an item from its inventory to Parent Ltd for $40,000. Parent Ltd had treated this item as an addition to its plant. The item was put into service as soon as received by Parent Ltd and depreciation charged at 20% p.a. The cost of that item to Subsidiary Ltd was $30,000.
(d) The management and consulting fees of Parent Ltd were all paid by Subsidiary Ltd and represented charges made for administration $4,400 and technical services $5,600. The latter were recognised as manufacturing expenses by Subsidiary Ltd.
(e) All debentures issued by Subsidiary Ltd are held by Parent Ltd. The related interest has been recorded by Parent Ltd accordingly and Subsidiary Ltd recorded the interest paid in financial expenses.
(f) Other components of equity relate to movements in the fair values of the financial assets. The balance of these accounts on 1 July 2016 was $20,000 for Parent Ltd and $16,000 for Subsidiary Ltd.
(g) The tax rate is 30%.
Required:
Prepare an acquisition analysis and the consolidation journal entries necessary for preparation of the consolidated financial statements for the year ending 30 June 2017 for the group comprising Parent Ltd and Subsidiary Ltd.
Note: show all necessary workings and narrations.
| Question 1 | Max. marks allocated |
| Acquisition analysis | 5 |
| Consolidation entries - accuracy | 35 |
| Total | 40 |
