Question

1. The following are categories of accounts reported in the financial statements:

1. Current Assets                                                E.  Long-Term Liabilities
2. Fixed Assets                                                    F.  Stockholders’ Equity
3. Intangible Assets                                            G.  Revenue
4. Current Liabilities                                           H.  Expense

Indicate where eachof the following accounts would be reported (classified) in the financial statement categoriesnoted above (categories may be used more than once or not at all).  Identify only onecategory for each account listed below.  

_______Bonds Payable                                    ________Buildings

_______Accrued Liabilities                              ________Intangibles

_______Inventory                                            ________Unearned Rent Revenues

_______Accumulated Depreciation                ________Retained Earnings

2.  

_____i. What is total Stockholders’ Equity based on the following account balances?

Paid in Capital:

Common Stock	$728,000
Paid-in-Capital in excess of par	9,322,000
Retained Earnings	19,751,000
Other Comprehensive Income	62,000
Treasury Stock	65,000

   Total Stockholders’ Equity = ________________

_____ii.__Treasury stock represents

1. Outstanding stock
2. The cost of company shares repurchased by the company
3. A reduction of stockholders’ equity
4. b and c are both correct

3.

_____i. Bonds are popular source of financing because:

1. Financial analysts tend to downgrade a company that has raised large amounts of cash by frequent issue of stock.
2. Bond interest expense is deductible for tax purposes, while dividends paid on stock are not.
3. A company having cash flow problems can postpone payment of interest to bondholders.
4. The bondholders can always convert their bonds into stock if they choose.

____ii. Assume bonds were issued during the month of September.  

When comparing the balance sheets for August 31 to September 30: if total Assets increased by $250,000 and total Liabilities increased by $120,000, then the change in Stockholders’ Equity would be _________________. (Indicate amount and if it is an increase or decrease.)

_____4. The time it takes McDonald’s to purchase beef patties, cook and sell burgers, and collect cash from customers is known as the:

1. Accounting cycle
2. Financing cycle
3. Investing cycle
4. Operating cycle
5. Cooking cycle

_____5. Which of the following is a current liability?

Prepaid insurance

Accounts receivable

Salaries expense

Unearned rent revenue

Bonds payable

_____ 6.  The Notes to the financial statements indicate the types of sales included in the receivables accounts along with the uncollectible amounts balance (Allowance for Doubtful Accounts).  

T or F:  If gross receivables are $350,000 and the allowance for doubtful accounts is 20,000, the Balance Sheet will indicate a line item for “Receivables, net” = $330,000.

The valuation methodfor receivables is called:

1. Historical cost
2. Net realizable value
3. Fair value
4. Lower of cost or net realizable value (LCNRV)
5. Net present value

7.  The following information has been provided about the restaurant building:

Original Cost               $220,000

                        Residual Value            $5,000

                        Estimated Life             40 years

                        Depreciation Method = Straight-line

______i. The depreciation expense for year 2 equals:

a.  $5,000

b.  $5,375

c.  $5,240

d.  $5,500

ii.  The building is classified as _______________ because of its long life and it is held for use in the business.

Answer 1

1

Long-Term Liabilities	Bonds Payable
Current Liabilities	Accrued Liabilities
Current Assets	Inventory
Fixed Assets	Accumulated Depreciation
Fixed Assets	Buildings
Intangible Assets	Intangibles
Current Liabilities	Unearned Rent Revenue
Stockholders’ Equity	Retained Earnings

2)

Common Stock	728,000.00
Paid-in-Capital in excess of par	9,322,000.00
Retained Earnings	19,751,000.00
Other Comprehensive Income	62,000.00
Treasury Stock	-       65,000.00
	29,798,000.00

3i)bond interest expense is deductible for tax purposes, while dividends paid on stock are not

3ii)130,000 increased

4)Operating Cycle

5)Unearned Rent Revenue

6)True

Net Realizable value

7)5,375

Long Term Assets