ACT 311 Fall 2014 QUIZ TWO (chapters 4,5,6,7)

1. Silver Gym had two different kinds of business under operation. One kind of business was

discontinued and sold at a gain. How should this gain be reported?

A. As “extraordinary gain.”

B. As “gain from discontinued operation”

C. Both of the above

D. None of the above.

2. The Robinson suffered damage from a hurricane and had an extraordinary loss of $10,000. Assuming

a tax rate of 10%, what is the effect the loss net-of-tax?

A. $1,000 gain B. $9,000 gain C. $11,000 gain D. $9,000 loss.

3. A company had Service Revenue of $120,000, wages expense of $40,000, interest revenue of $3,000,

loss on discontinued operations of $8,000, extraordinary loss of $4,000 and a tax rate of 20%. What is

the amount of income from continuing operations (After tax)?

A. $56,800 B. $60,000 C. $66,400 D. $83,000 E. 80,000

4. A company changed its inventory costing method from weighted average to FIFO inventory. Identify

the appropriate treatment for this situation.

A. Prospective treatment C. Retrospective treatment

B. Discontinued operations D. Extraordinary item

5. The MacGruber Co. sold equipment that it was not using for $21,000 cash. In what section of the

Statement of Cash Flows should the transaction be reported?

A. Operating activities. C. Investing activities

B. Liquidity activities. D. Financing activities

6. The O’Malley Corp. paid cash dividends to stockholders. In what section of the Statement of Cash

Flows should it be reported?

A. operating activities. B. investing activities C. financing activities D. Should not be reported.

7. The Sylvia Co. has an investment portfolio consisting trading securities, held-to-maturity securities,

and available-for-sale securities. Which of those investments is (are) NOT reported at fair value?

A. Trading securities B. Held-to-maturity securities C. Available-for-sale securities D. Both A & C

8. Which of the following investments in never an equity security?

A. Held-to-maturity security B. Trading securities C. Available-for-sale security D. Both B&C2

9. Which of the following assets of the Santos Co. would not be classified as a current asset?

A. goodwill

B. property, plant and equipment

C. notes receivable due in 18 months

D. All of the above

10. You are asked to rank five assets in the order of liquidity. These assets are accounts receivable,

short-term investment in stocks, goodwill, machinery, and inventory. Which asset is most liquid?

A. Goodwill B. inventory C. Accounts receivable D. short-term investment in stocks

11. The following information is available for Criminy Company: Accounts Receivable, 12/31/10 =

$83,000; Allowance for doubtful accounts at 12/31/10: $3,000 (credit balance). As a result of a review

and aging of accounts receivable, it has been estimated that 10% of the accounts receivable will never

be collected. There is no write-off of A/R. Grover is getting ready to record its 12/31/10 adjusting

journal entries. By what amount should it debit “bad debt expense”?

A. $3,000 B. $5,300 C. $8,300 D. $11,300

12. Which of the following is true?

A. When an account is written off, Allowance for Doubtful Accounts is credited.

B. When an account is written off, bad debt expense is credited.

C. When an account is written off, Allowance for Doubtful Accounts is debited.

D. When an account is written off, Bad debt expense is debited.

13. Which of the following entry is correct for estimating bad debt expense under the allowance

method?

A. Debit bad debt expense, credit accounts receivable.

B. Debit bad debt expense, credit allowance for doubtful accounts.

C. Debit Allowance for doubtful accounts, credit accounts receivable.

D. Debit accounts receivable, credit allowance for doubtful accounts.

14. Tom Grouper will need $360,000 four years from today, how much must he invest today, assuming

an earnings rate of 10%. Choose the closest answer.

A. $327,273 B. $527,076 C. $245,885 D. $693,0003

15. What is the present value of a 100,000 (face value) bond issued at coupon rate 20%, due in 3 years,

interest payable annually. Assume the effective market interest rate is 12%.

A. 100,000 B. 71,178 C. 119,215 D. 48,037

16. What is the present value of a 200,000 (face value) bond issued at coupon rate 10%, due in 3 years,

interest payable semi-annually. Assume the effective market interest rate is 12%.

A. 200,000 B. 140,992 C. 190,165 D. 49,173

17. The Showman Co. issued a bond with the following characteristics: $60,000 principal, four-year

duration, 10% annual coupon rate., interest paid semi-annually. The effective market rate at the time

of issue was 8% annually. What should be the market price of this bond on the date of issue?

A. $49,656 B. 50,491 C. $60,000 D. $64,040 E. 56,769

18. Joseph will start school on 9/1/14. He is expected to attend school for four years and will need to

pay tuition of $50,000 on September 1st of each year. His uncle wants to make an investment on

9/1/10 that will provide sufficient funds for four years of tuition. Assuming he can earn 5% annually,

how much must invest on 9/1/10. Choose the closest answer

A. $27,282 B. $37,976 C. $104,167 D. $200,000 E. $153,1564

19. Quanto Co. is evaluating a contingent liability. For which case below, may the company make no

disclosure:

A. The likelihood of the liability is “probable”

B. The liability is “reasonably possible”

C. The liability is remote.

D. Both A & C

20. In preparing its bank reconciliation for the month of April 2010, Johnson, Inc. has available the

following information.

Balance per bank statement, 4/30/10 $30,140

NSF check returned with April 2010 bank statement 450

Deposits in transit, 4/30/10 4,000

Outstanding checks, 4/30/10 5,200

Bank service charges for April 20

What should be the “true cash balance” at April 30, 2010? Hint: you can solve this problem without

knowing the balance per books.

A. $28,470 B. $31,340 C. $28,940 D.$30,870