Accounting

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63 terms

True

If the proceeds from the sale of bonds held as a long-term investment exceed the carrying amount of the bonds, a gain is realized.

True

Bonds payable would be listed at their carrying value on the balance sheet.

True

The fair market value of bond investments should be disclosed, either on the face of the financial statements or in an accompanying note.

True

Investments in bonds that management intends to hold to maturity are called held-to-maturity securities.

True

Although marketable securities may be retained for several years, the continue to be classified as temporary, provided they are readily marketable and can be sold for cash at any time.

True

Ordinarily, a corporation owning a significant protion of the voting stock of another corporation accounts for the investment using the equity method.

True

The corporation owning all or a majority of the voting stock of another corporation is known as the parent company.

False

It is not possible for one company to influence the operating policies of another company unless it owns more than 50% interest in that company.

the interest expense is deductible for tax purpose by the corporation

One potential advantage of financing corporations through the use of bonds rather than common stock is

Cost

A long-term investment in debt securities is carried at

$390,500
400,000x.975=390,000+500

On June 1st, $400,000 of bonds were purchased as a long-term investment as 97.5 and $500 was paid as the brokerage commission. If the bonds bear interest at 12%, which is paid semiannualy on Jan 1st and July 1st. what is the total cost to be debited to the investment account?

requires the investment to be reported at its market value

The cost method of accounting for investments

600 gain

21,750/500=43.50
49.50-43.50=6.00x100=600

An investor purchased 500 shares of common stock, $25 par for $21,750. Subsequently, 100 shares were sold for $49.50 per share. What is the ammount of gain or loss on the sale"

Investment in Vallerio

Under the equity method, the receipt of cash dividends on an investment in common stock of Vallerio Corporation is accounted for as a debit to cash and a credit to

Equity method

The method of accounting for investments in equity securities in which the investor records its share of periodic net income of the investee is the

recorded at cost but reported at fair market value

Temporary Investments are

the investment plus Wedell's share of Porter net income earned since the investment was purchased minus the total amount of dividends Wendell has received from Porter since the investment was purchased

Wendell Company owns 28% of the common stock of Porter Company and accounts for the investment using the equity method. Assuming that Wendell Company purchased the stock several years ago, the balance in the investment account would be equal to the cost of

debit Investment in Worton Corporation Stock
credit Income of Worton Corporation

Blanton Corporation purchased 35% of the outstanding shares of common stock of Worton Corporation as a long-term investmen. Subsequently, Worton Corporation reporten net income and delcared and paid cash dividends. What journal entry would Blanton Corporation use to record its ahre of the earnings?

debit to loss
credit to the investment account for 20,000

Sach company owns 40% of the voting stock of Tomas Corporation and uses the equity method in recording this investment. Tomas Corporation reported a 20,000 net loss. this entry would be...

parent

Parker company owns 83% of the outstanding stock of Tadeo Company. Parker Company is referred to as the

subsidiary

Gale company owns 87% of the outstanding stock of Leonardo Company. Leonardo company is referred to as the

the extent of an investor's influence over the operating and finacial affairs of the investee

For accountin purposes, the methos used to account for investments in common stock is determined by

False

The statement of cash flows is not one of the basic financial statements

True

The statement of cash flows reports a firm's major source of cash receips and major uses of cash payments for a period.

True

Cash flows from financing activities, as part of the statement of cash flows, include payments for dividends.

False

Cash flows from investing activities, as part of the statement of cash flows, include payments for the purchase of treasury stock.

True

There are two alternatives to reporting cash flows from operating activities in the statement of cash flows 1 the direct method 2. the indirect method

the cash flows from investing activities section

Cash paid to purchase long-term investments would be reported in the statement of cash flows in

financing activities

Cash paid for perferred stock dividends should be shown on the statement of cash flows under

cash at end of year

The last item on the statement of cash flows prior to the schedule of noncash investing and financing activities reports

the cash flows from operating activities section

Depreciation on factory equipment would be reported in the statement of cash flows prepared by the indirect method in

False

In horizontal analysis, the current year is the base year

True

The relationship of each asset item as a percent of total assets is an example of vertical analysis

False

Vertical analysis refers to comparing the financial statements of a single company for several years

True

In a common size income statement, net sales are represented by 100%

True

The excess of current assets over current liabilities is referred to as working capital

common-sized financial statements

most useful in analyzing companies of different sizes

solvency and profitability

the ability of a business to pay its debts as they come due and earn a reasonable amount of income is referred to as

cost method and equity method

Two methods of accounting for investments in stock are the

cost method

Investments of less than 20% of the investor's outstanding stock are accounted using

equity method

20-50% ownership uses

business combination

The purchase of more than 50% ownership of the investee's stock is

parent company

a corporation owning all or a majority of the voting stock of another corporation is

subsidiary company

the corporation that is contolled is

the statement of cash flows

Reports a company's cash inflows and outflows for a period

1.generate cash from operations
2. maintain and expand its operating capacity
3. meet its financial obligations
4. pay dividends

statement of cash flows provides

cash flows from operating activities
ex. purchase and sale of merchandise by a retailer

cash flows from tansactions that affect net income of the company

cash flows from investing activities
ex. purchase and sale fo fixed assets, such as equipment and buildings

cash flows from transactions that affect investments in the noncurrent assets of the company

cash flows from financing activities
ex. issuing or retiring equity and debt securities

cash flows from transactions that affect the dept and equity of the company

horizontal analysis

percentage analysis of increases and decreases in related items in comparative financial statements

vertical analysis

percentage analysis of the relationship of each compnent in a finacial statement to a total withing the statement

common-sized statements

all items are expressed as percentages with no dollar amounts shown

solvency

meet its financial obligations(debts)

profitability

earn income

working capital

current assets- current liabilities

current ratio

current assets/ current liabilities

quick ratio

a ratio that measures the instant debt-paying ability of a company. sometimes called the acid-test ratio
quick assets/current liabilites

quick assets

cash and other current assets the can be easily converted to cash

accounts receivable turnover

net sales/average accounts receivable

number of days slaes in receivables

average accounts receivable/average daily sales

inventory turnover

cost of good sold/average inventory

earneings per share

measures the share of profits that are earned by a share of common strock. must be reported in the income statement
net income-preferred dividends/shares of common stock outstanding

price-earnings ration

on common stock measure of a company's futre earnings prospects. often quoted in the financial press.
market price per share of common stock/ earnings per share on common stock

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