FAR: ALL: 4/18/2018 Flashcards
When preparing a draft of its 20X5 balance sheet, Mont, Inc. reported net assets totaling $875,000. Included in the asset section of the balance sheet were the following:
Treasury stock of Mont, Inc. at cost, which approximates market value on December 31 $24,000
Idle machinery 11,200
Cash surrender value of life insurance on corporate executives 13,700
Allowance for decline in market value of noncurrent equity investments 8,400
At what amount should Mont’s net assets be reported in the December 31, 20X5 balance sheet?
1) $851,000
2) $850,100
3) $842,600
4) $834,500
$851,000
Preadjusted Balance $875,000
Less Treasury Stock of Mont ($24,000)
Correct Asset Balance = $851,000
Utica Company’s net accounts receivable were $250,000 at December 31, year 1, and $300,000 at December 31, year 2. Net cash sales for year 2 were $100,000. The accounts receivable turnover for year 2 was 5.0. What were Utica’s total net sales for year 2?
1) $1,475,000
2) $1,500,000
3) $1,600,000
4) $2,750,000
$1,475,000
The amount of cash sales ($100,000) was given, so credit sales must be computed to calculate total net sales. The formula for accounts receivable turnover is
AR turnover = Credit sales
Average AR
The information given can be inserted into the above equation.
Credit sales = 5.0 (250,000 + 300,000/2)
Credit sales are $1,375,000. Thus, total sales are $1,475,000 ($1,375,000 credit sales + $100,000 cash sales).
In a lease that is recorded as a sales-type lease by the lessor, interest revenue
1) Does not arise.
2) Should be recognized over the period of the lease using the interest method.
3) Should be recognized over the period of the lease using the straight-line method.
4) Should be recognized in full as revenue at the lease’s inception.
Should be recognized over the period of the lease using the interest method.
Per ASC Topic 840, revenue is to be recognized for a sales-type lease over the lease term in order to produce a constant rate of return on the net investment in the lease. This requires the use of the interest method.
On July 1, year 2, Marseto Corporation borrows $100,000 on a 10%, five-year interest-bearing note. At December 31, year 2, the fair value of the note is determined to be $97,500. Marseto elects the fair value option for reporting its financial liabilities. On its December 31, year 2 financial statements, what amounts should be presented for this note?
Interest Expense Note Payable Gain (Loss)
1) $10,000 $100,000 $0
2) $10,000 $ 97,500 $ 2,500
3) $ 5,000 $ 97,500 $ 2,500
4) $0 $ 97,500 $(7,500)
Interest Exp: $5,000, Note Payable: $97,500, Gain (loss): $2,500
Interest is calculated for the amount of time the loan is outstanding. In this case, the loan was outstanding for six months
Abbey Corporation prepares its financial statements in accordance with IFRS. Abbey acquired equipment by signing a $100,000 note payable with the seller of the equipment. How should this transaction be reported on the statement of cash flows?
1) As an outflow of cash from investing activities and an inflow of cash from financing activities
2) As an inflow of cash from financing activities and an outflow of cash from operating activities
3) At the bottom of the statement of cash flows as a significant noncash transaction
4) In the notes to the financial statements as a significant noncash transaction
In the notes to the financial statements as a significant noncash transaction
This transaction did not involve an exchange of cash; therefore, it is not included on the statement of cash flows. IFRS requires that significant noncash transactions be reported in the notes to the financial statements.
Which of the following would a nongovernmental not-for-profit educational institution report as program services?
1) Publicity costs
2) Teacher salaries
3) Management salaries
4) Fundraising expenses
Teacher Salaries
Teacher Salaries = Program Services
Fund Raising Expenses = Supporting Expense
On June 1, 2005, Yola Corp. loaned Dale $500,000 on a 12% note, payable in five annual installments of $100,000 beginning January 2, 2006. In connection with this loan, Dale was required to deposit $5,000 in a noninterest-bearing escrow account.
The amount held in escrow is to be returned to Dale after all principal and interest payments have been made. Interest on the note is payable on the first day of each month beginning July 1, 2005. Dale made timely payments through November 1, 2005. On January 2, 2006, Yola received payment of the first principal installment plus all interest due.
On December 31, 2005, Yola’s interest receivable on the loan to Dale should be
1) $0
2) $5,000
3) $10,000
4) $15,000
$10,000
As of December 31, 2005, two months of interest have accrued since the last interest payment on November 1. Thus, interest receivable at that date reflects two months’ interest at 12% on the $500,000 principal. No principal payments have yet been made as of this date.
