Professional Documents
Culture Documents
Accounting
Test 3
In 2011, Laundry’s Restaurants’ sales were $1,105.8 million and their property and
equipment assets were $9566 million. In 2010, their sales were $746.6 million and
property and equipment was $830.0 million. Laundry’s fixed asset turnover in 2011
equals:
1.23
In 2011, Delta Air Lines has a fixed asset turnover of 0.80 compared to United Airlines of
0.85. What is the most likely cause of United’s higher ratio?
United is able to generate greater sales from its operational assets.
Salvia Company recently purchased a truck. The price negotiated with the dealer was
$40,00. Salvia also paid sales tax of $2,00 on the purchase; shipping and preparation
costs of $3,000; and costs of $4,000 to repair body damage sustained while driving the
truck off the lot. For the truck, what amount should be debited to the asset account
Vehicles?
$45,000
A machine, acquired for a cash cost of $15,000, is being deprecated on a straightline
basis of $2,700 per year. The residual value was estimated to be 10% of cost. The
estimated useful life is
5 years
Schaeger Company purchased a computer system on January 1, 2011, at a cash cost of
$25,000. The estimated useful life is 10 years, and the estimated residual value is $3,000.
The company will use the decliningbalance method based on a 200 percent acceleration
rate. Depreciation expense for the second year will be
$4,000
On December 31, 2011, Hamilton Inc. sold a used industrial crane for $600,000 cash. The
original cost of the crane was $5.0 million and its accumulated deprecation equaled $4.2
million on December 31, 2011. What is the gain or loss on the equipment on December
31, 2011?
$200,000 loss
Which of the following statements is false?
Use of more debt in the company’s capital structure usually reduces the rate of return
generated for stockholders.
The federal government requires:
Both the employer and the employee to pay FICA taxes
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A contingent liability that is “probable” but “cannot reasonably be estimated “
Must only be disclosed as a note to the financial statements
When inventory increases from last year to the current year and accounts payable
decreases during the period, the following are the cash effects.
Cash is decreased for both the increase in inventory and decrease in accounts payable.
Present value can be defined as the
Value today of future cash inflow(s).
When a bond investment is sold (issued) at a discount, subsequent amortization of the
discount
Increases interest expense
On January 1, 2011, Jason Company issued $5 million of 10year bonds at a 10% stated
interest rate to be paid annually. The following present value factors have been provided
to answer the subsequent questions:
Calculate the issuance price if the market rate of interest is 8%
$5,670,000
Calculate the issuance price if the market rate of interest is 12%
$4,435,000
If Jason issued the bonds at a price of 106.5, how much would the premium amortization
be on December 31, 2011 under the straightline method?
$32,500
How much cash interest would be paid by Jason on December 31, 2011?
$500,000
If Jason issued the bonds at price of 106.5, the amount of interest expense on December
31, 2011 under the straightline amortization method equals
$467,500
If Jason issued the bonds at a price of 106.5, what is the book value of Jason’s bonds on
December 31, 2011 after the interest payment assuming the straightline method is usd?
$5,292,500
On the maturity date of bonds payable after interest has been paid, the issuing company
will
Debit Bonds Payable and credit Cash for the par value of the bonds.
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If a current ratio has been increasing over the past several years, which of the following
would cause the ratio to rise?
An increase in inventories.
Newton Corporation sold its $1,000,000, 7% tenyear bonds to the public on January 1,
2011. The bonds pay interest annually, beginning on December 31, 2011. Newton received
$1,153,420 in cash at the issuance of the bonds. The market rate of interest when the
bonds were sold was 5%.
Compute the amount of the premium that Newton Corporation should amortize on
December 31, 2011, assuming the “effectiveinterest” method is used.
Premium: 12,329
Interest Expense: 57,671
Carrying Value: 1,141,091
Statement of Cash Flows
Return on Equity: net income/average shareholders’ equity
Profitability: net income/net sales how well company converts net sales into net
income
Efficiency: net sales/average total assets how well company uses assets to create
sales
Leverage: average total assets/average shareholders’ equity risk, debt
Convert net income into cash (profitability and efficiency)
Cash Flow Yield (Quality of Income)
CFOA/net income 1 to 3
If less than one, problem with w/concept (?)
If greater than three, problem with profitability
CFOA convert accrual based (GAAP) net income into cash based (cash receipts vs cash
disbursements)
+/ CFIA
+/ CFFA
change in cash
Buy and pay for $50K in inventory, sell for $100K or credit; nothing has been collected
Income Statement
GAAP
Accrual Basis
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Revenues: $100,000
Expense: $50,000
Net Income: $50,000
Structure of CF
CR: $0
CD: <$50,000>
CFOA: <$50,000> represents cash being spun off by company
Assets with EARNING POWER – invest! – long term: PPE, intellectual property,
business, CFIA
Extra Cash, Marketable Securities
S/E: “invest” interest bearing liabilities, pay down debt, dividend treasury stock, CFFA
CFOA +
CFIA –
CFFA –
CFOA/net income = 1.23, within sweet spot! (Apple in 2009)
No Debt, but they should have some debt because higher ROE, higher stock prices,
cheapest form of capital is debt (interest expense is taxdeductible) – they don’t have to
have debt, Apple is darling of Wall Street
Net Cash (663 Million) LOSS – this is leading factor in terms of telling how a company
is doing
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