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Accounting MC: Reporting Losses, Corporations and Costs

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1. Romulan Corporation incurred the following losses:
■ Loss of $100,000 was incurred in the abandonment of equipment.
Accounts receivable of $30,000 were written off as uncollectible.
■ Several factories were shut down during a strike at a cost of $240,000.
■ Loss of $150,000 was sustained as a result of flood damage, an unusual and infrequent occurrence.
Ignoring income taxes, what amount of loss should Romulan report as extraordinary on its annual income statement?
A. $100,000 C. $270,000
B. $150,000 D. $520,000

2. Assume the following information:
The fiscal year end of Emu Meat Packing Corp. is 9/30/06.
The financial statements are to be issued on 12/31/06.
Which of the following would be an example of a subsequent event that needs to be disclosed in the financial statements on 12/31/06?
A. On 8/21/06, half the company's livestock of emus escaped into the wild during a storm, and only half were recovered.
B. On 9/28/06, the company was informed that they'll be a defendant in a lawsuit alleging cruelty to animals.
C. On 10/5/06, 80 percent of the company's production facilities were destroyed in a fire started by animal rights activists.
D. On 11/12/06, an article ran in newspapers across the country on the benefits of eating emu meat; due to this publicity the company expects increased sales in the future.

3. Pecan Company sold a computer for $50,000. The computer's original cost was $250,000, and the accumulated depreciation at the date of sale was $180,000. The sale of the computer should appear on Pecan's annual statement of cash flows (indirect method) as
A. a reduction in cash flows from operating activities of $20,000 and an increase in cash flows from investing activities of $50,000.
B. an increase in cash flows from operating activities of $20,000 and an increase in cash flows from investing activities of $50,000.
C. a reduction in cash flows from operating activities of $20,000 and an increase in cash flows from investing activities of $70,000.
D. an increase in cash flows from operating activities of $20,000 and an increase in cash flows from investing activities of $70,000.

4. Venus Corporation approved a formal plan to sell its manufacturing division, considered a business segment, on July 1, 2006. The sale will occur in March of 2007. The division had an operating loss of $1,200,000 for the six months ended December 31, 2006, and expects to incur a loss of $400,000 for the first quarter of 2007. The sale price is $46,000,000, and the carrying value at the date of sale should be $37,000,000. Venus' effective tax rate for 2006 and 2007 is 30 percent. For the year ended December 31, 2006, how much gain should Venus report on disposal of the manufacturing division?
A. $0 C. $6,300,000
B. $5,180,000 D. $9,000,000

5. Information from Blair Company's balance sheet is as follows:
Current assets:
Cash $ 1,200,000
Investment securities 3,750,000
Accounts receivable 28,800,000
Inventories 33,150,000
Prepaid expenses 600,000
Total current assets $67,500,000
Current liabilities:
Notes payable $ 750,000
Accounts payable 9,750,000
Accrued expenses 6,250,000
Income taxes payable 250,000
Payments due within one year on long-term debt 1,750,000
Total current liabilities $18,750,000
What is Blair's quick (acid test) ratio?
A. 0.26 to 1 C. 1.80 to 1
B. 0.30 to 1 D. 3.60 to 1

6. Eagle Co. prepared a draft of its 2006 balance sheet. The draft statement reported current liabilities totaling $200,000. However, none of the following items were included in this preliminary total at December 31, 2006:
Accounts payable $30,000
Bonds payable, due 2007 50,000
Discount on bonds payable, due 2007 6,000
Dividends payable on January 31, 2007 16,000
Notes payable, due 2008 40,000
At which amount should Eagle's current liabilities be correctly reported in the December 31, 2006, balance sheet?
A. $230,000 C. $296,000
B. $290,000 D. $302,000

7. On December 31, 2006 and 2007, Taft Corporation had 100,000 shares of common stock and 50,000 shares of noncumulative and nonconvertible preferred stock issued and outstanding. Additional information:
Stockholders' equity at 12/31/2007 $4,500,000
Net income year ended 12/31/2007 1,200,000
Dividends on preferred stock
year ended 12/31/2007 300,000
Market price per share of common stock at 12/31/2007 144
The price-earnings ratio on common stock at December 31, 2007, was
A. 10 to 1. C. 14 to 1.
B. 12 to 1. D. 16 to 1.

8. Barney Co.'s current ratio is 2:1. Which of the following transactions would normally increase Barney's current ratio?
A. Purchasing inventory on account
B. Borrowing money by signing a long-term note
C. Collecting an account receivable
D. Purchasing land for cash

9. When preparing a statement of cash flows using the indirect method, the amortization of trademarks should be reported as a/an:
A. increase in cash flows from investing activities.
B. reduction in cash flows from investing activities.
C. increase in cash flows from operating activities.
D. reduction in cash flows from operating activities.

10. The following expenses were recognized by Kalob Company, a retailer, during 2006:
Interest expense $120,000
Telephone expense 95,000
Loss on sale of store equipment 47,000
Legal fees 74,000
Officers' salaries 115,000
What should Kalob report as general and administrative expenses for 2006?
A. $210,000 C. $330,000
B. $284,000 D. $404,000

11. A change from the straight-line method of depreciation to an accelerated method should be accounted for as a/an
A. change in an accounting principle. C. prior period adjustment.
B. change in an accounting estimate. D. accounting error.

12. Mejarus Co.'s adjusted trial balance at December 31, 2006 includes the following account balances:
Common Stock, $3 par $360,000
Additional Paid-In Capital 480,000
Treasury Stock, at cost 30,000
Net Unrealized Loss on Available-for-
Sale Securities 12,000
Retained Earnings: Appropriated for
Uninsured Earthquake Losses 90,000
Retained Earnings: Unappropriated 120,000
What amount should Mejarus report as total stockholders' equity in its December 31, 2006, balance sheet?
A. $1,008,000 C. $1,068,000
B. $1,032,000 D. $1,092,000

13. Techtronics Corporation has current assets of $782,000 and current liabilities of $425,000. What is Techtronics current ratio?
A. 1.97 C. 1.45
B. 1.84 D. 1.39

14. Baggins Company prepared a draft of its 2006 balance sheet. The draft statement reported total assets of $437,500. Included in this total assets figure were the following items:
Treasury stock of Baggins Company at cost, which approximates market value on
December 31 $12,000
Unamortized patents 5,600
Long-term advances to corporate executives 6,850
Unrealized holding losses on available-for-sale securities 4,200
At which amount should Baggins' total assets be correctly reported in the December 31, 2006, balance sheet?
A. $420,850 C. $425,050
B. $421,300 D. $425,500

15. A mining company that has a long-term contract to sell its entire output of coal would recognize revenue when
A. the product is available for sale to a customer.
B. cash is received from the customer.
C. goods are delivered to the customer.
D. management chooses to do so.

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1. Romulan Corporation incurred the following losses:
■ Loss of $100,000 was incurred in the abandonment of equipment.
■ Accounts receivable of $30,000 were written off as uncollectible.
■ Several factories were shut down during a strike at a cost of $240,000.
■ Loss of $150,000 was sustained as a result of flood damage, an unusual and infrequent occurrence.
Ignoring income taxes, what amount of loss should Romulan report as extraordinary on its annual income statement?

A. $100,000 C. $270,000 ****B. $150,000 D. $520,000

Extraordinary is something which is unusual and infrequent and that is given as flood damage

2. Assume the following information:
The fiscal year end of Emu Meat Packing Corp. is 9/30/06.
The financial statements are to be issued on 12/31/06.
Which of the following would be an example of a subsequent event that needs to be
disclosed in the financial statements on 12/31/06?
A. On 8/21/06, half the company's livestock of emus escaped into the wild during a
storm, and only half were recovered.
B. On 9/28/06, the company was informed that they'll be a defendant in a lawsuit
alleging cruelty to animals.
****C. On 10/5/06, 80 percent of the company's production facilities were destroyed in a
fire started by animal rights activists.
D. On 11/12/06, an article ran in newspapers across the country on the benefits of eating
emu meat; due to this publicity the company expects increased sales in the future.

Subsequent events are material effects after the balance sheet date but before the financial results are released.

3. Pecan Company sold a computer for $50,000. The computer's original cost was $250,000, and the accumulated depreciation at the date of sale was $180,000. The sale of the computer should appear on Pecan's annual statement of cash flows (indirect method) as
A. a reduction in cash flows from operating activities of $20,000 and an increase in
cash flows from investing activities of $50,000.
****B. an increase in cash flows from operating activities of $20,000 and an increase in
cash flows from investing activities of $50,000.
C. a reduction in cash flows from operating activities of $20,000 and an increase in
cash flows from investing activities of $70,000.
D. an increase in cash flows from operating activities of $20,000 and an ...

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Confused on MC Questions - Must know the material.

Some questions I am confused on. Please explain? I have some notes underneath some.

1) On January 1, 2011, Nana Company paid $100,000 for 8,600 shares of Papa Company common stock. These securities were classified as trading securities. The ownership in Papa Company is 10%. Papa reported net income of $56,000 for the year ended December 31, 2011. The fair value of the Papa stock on that date was $53 per share. What amount will be reported in the balance sheet of Nana Company for the investment in Papa at December 31, 2011?

$410,800.
$395,800.
$455,800.
$380,800.

2) Goofy Inc. bought 15,000 shares of Crazy Co.'s stock for $192,000 on May 5, 2010, and classified the stock as available for sale. The market value of the stock declined to $118,000 by December 31, 2010. Goofy reclassified this investment as trading securities in December of 2011 when the market value had risen to $160,000. What effect on 2011 income should be reported by Goofy for the Crazy Co. shares?

$42,000 net gain.
$0.
$32,000 net loss.
$74,000 net loss.

** I believe it is a $32K net loss but I'm not sure when the loss is realized if at all when the re-class happens. My book does not answer this question.

3) Zwick Company bought 29,000 shares of the voting common stock of Handy Corporation in January 2011. In December, Handy announced $209,200 net income for 2011 and declared and paid a cash dividend of $6 per share on the 203,500 shares of outstanding common stock. Zwick Company's dividend revenue from Handy Corporation in December 2011 would be:

$ 0.
$29,812.
$174,000.
None of these is correct.

4) On September 1, 2011, Hiker Shoes issued a $114,000, 8-month, noninterest-bearing note. The loan was made by Second Commercial Bank whose stated discount rate is 10%. Hiker's effective interest rate on this loan is (Do not round intermediate calculations. Round your final answer to two decimal places, e.g., .1234 as 12.34%.):

10.64%.
10.00%.
10.63%.
10.71%.

I get 10.05% so I guess 10% ??

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