ACCT-2043: Financial Accounting 2 : Solution Essays

Part A: Multiple-Choice (1 mark each for a .total of 20 marks)

For each question, choose the correct answer by circling only one of the letters a, b, c, or d.

 

1. The Star Wars Industries has the following account balances:

Retained earnings

$75,000

Revenue

$365,000

Operating Expenses

$297,000

Interest Expense

$17,500

On the corporate income statement what will be the amount reported as “profit” given an income tax rate of 20%?

a) $50,500

b) $40,400

c) $60,000

d) $36,900

 

2. Chimo Ltd reported profit of $1,000,000. It has no preferred shares. At the beginning of the year it had 1,000 common shares and issued a further 200 shares at the start of the fourth month. Chimo’s earnings per share is

a) $869.

b) $952.

c) $909.

d) $1,000.

 

3. Common examples of non-current liabilities include all of the following except

a) accounts payable.

b) instalment notes payable.

c) bonds payable.

d) finance lease.

 

4. When preparing the operating section using the indirect method, common adjustments include all of the following except:

a) gains and losses.

b) issuing common shares.

c) changes in noncash current assets and liabilities.

d) noncash expenses such as depreciation.

 

5. The following information is available Mobily Corporation.

Retained earnings beginning balance

$105,000

Dividends paid during the year

$167,000

Cash dividends declared

$67,000

Revenue

$100,000

Expenses

$73,000

What is the ending retained earnings balance?

a) $38,000

b) $145,000

c) $132,000

d) $65,000

6. Common Stock Dividends Distributable is classified as

a) an asset account.

b) a liability account.

c) a shareholders’ equity account.

d) an expense account.

 

7. What impact will the amortization of a bond discount have on reported interest expense?

a) increase or decrease depending on the amortized cost

b) decrease

c) increase

d) no impact

 

8. Barker Inc. had cash sales of $300,000 and credit sales of $500,000. The accounts receivable balance increased $10,000 during the year. How much cash did Barker receive from its customers during the year?

a) $490,000

b) $790,000

c) $810,000

d) $510,000

 

9. Profit for Sandos Inc., was $10,000 in 2021. Shareholders’ equity was $100,000 at December 31, 2019, $200,000 at December 31, 2020, and $300,000 at December 31, 2021. Return on equity for 2021 is

a) 4%

b) 5%

c) 3.3%

d) 10%

 

10. The impact of a stock split on shareholders’ equity accounts is

a) Retained Earnings is decreased.

b) Retained Earnings is decreased and Stock Dividends Distributable is increased.

c) Stock Dividend Distributable will decrease and Common Shares is increased.

d) The number of shares issued increases but there is no effect on equity account balances.

 

11. A lease where the intent is temporary use of the property by the lessee and the lessor retains the risks and rewards of ownership is called

a) a purchase of property.

b) off-balance sheet financing.

c) a capital or finance lease.

d) an operating lease.

 

 

12. The category that is generally considered to be the best measure of a company’s ability to continue as a going concern is

a) usually different from year to year.

b) cash flows from operating activities.

c) cash flows from investing activities.

d) cash flows from financing activities.

 

13. Which of the following is NOT generally a right or preference associated with preferred shares?

a) The right to vote.

b) Preference to corporate assets in case of liquidation.

c) To receive dividends in arrears before common shareholders receive dividends.

d) First claim to dividends.

 

14. Big Money Inc. has sold its distribution division in the current year. Big Money has a $120,000 loss from operation of the distribution division and a gain on sale of the division’s assets of $40,000. Assuming Big Money has a tax rate of 30%, the results from discontinued operations reported on Big Money’s income statement is

a) loss of $24,000.

b) loss of $56,000.

c) loss of $12,000.

d) loss of $80,000.

 

15. At Reilly Company’s year end of September 30, 2021, the company has an instalment note payable with a total outstanding balance of $660,000 to be repaid evenly each month plus interest over the next 5 years. How much would Reilly report for this item on the September 30, 2021 balance sheet under non-current liabilities?

a) $660,000

b) $528,000

c) $11,000

d) $132,000

 

16. When equipment is sold for cash, the amount received is reflected as a cash

a) outflow in the operating section.

b) inflow in the investing section.

c) inflow in the operating section.

d) inflow in the financing section.

 

17. Abraham Griffin has invested $800,000 in a privately held family corporation. The corporation does NOT do well and must declare bankruptcy. What amount does Griffin stand to lose?

a) zero

b) $400,000

c) the $800,000 plus any personal assets the creditors demand

d) up to his total investment of $800,000

 

18. The following information is available regarding a corporation’s common shares: authorized 30,000 shares; issued 10,500 at $100,000; and 15,000 at $175,000. The average per share amount of the corporation’s shares is

a) $11.67.

b) $18.33.

c) $10.00.

d) $11.00.

 

19. A $300,000 bond was retired at 98 when the amortized cost of the bond was $296,000. The entry to record the retirement would include a

a) gain on bond redemption of $1,000.

b) loss on bond redemption of $2,000.

c) loss on bond redemption of $1,000.

d) gain on bond redemption of $2,000.

 

20. Which of the following transactions does NOT affect cash during a period?

a) issue of common shares

b) collection of an accounts receivable

c) issue of notes payable

d) write off of an uncollectible account

 

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