____ 2. As part of the initial investment, Omar contributes accounts receivable that had a balance of $25,000 in the accounts of a sole proprietorship. Of this amount, $1,150 is completely worthless. For the remaining accounts, the partnership will establish a provision for possible future uncollectible accounts of $750. The amount debited to Accounts Receivable for the new partnership is
a. $23,100
b. $25,000
c. $24,250
d. $23,850
____ 3. Henry Jones contributed equipment, inventory, and $44,000 cash to the partnership. The equipment had a book value of $35,000 and market value of $28,000. The inventory has a book value of $25,000, but only had a market value of $12,000. due to obsolescence. The partnership also assumed a $15,000 note payable owed by Henry that was originally used to purchase the equipment.
What amount should Henry’s capital account be recorded?
a. $104,000
b. $89,000
c. $69,000
d. $84,000
____ 4. When a new partner is admitted to a partnership, there should be a(n)
a. the total assets of the partnership increase
b. new capital account is added to the ledger for the new partner
c. the total owner's equity of the partnership increases
d. the cash received by the current partner represents the amount of the debit to that partner's capital account.
____ 5. When an additional partner is admitted to a partnership by contribution of assets to the partnership
a. the total assets of the partnership do not change
b. no liabilities can be contributed at the same time
c. the amount of the cash contribution is the same as the amount of the debit to the new partner's capital account
d. the total of the owner's equity accounts increases
____ 9. Which of the following is not a prerequisite to paying a cash dividend?
a. formal action by the board of directors
b. market value in excess of par value per share
c. sufficient cash
d. sufficient retained earnings
____ 10. Treasury stock that had been purchased for $6,400 last month was reissued this month for $8,500. The journal entry to record the reissuance would include a credit to
a. Treasury Stock for $8,500
b. Paid-In Capital from Treasury Stock for $8,500
c. Paid-In Capital in Excess of Par/Common for $2,100
d. Paid-In Capital from Treasury Stock for $2,100
____ 11. The Dayton Corporation began the current year with a retained earnings balance of $25,000. During the year, the company corrected an error made in the prior year, which was a failure to record depreciation expense of $3,000 on equipment. Also, during the current year, the company earned net income of $12,000 and declared cash dividends of $5,000. Compute the year end retained earnings balance.
a. $29,000
b. $35,000
c. $39,000
d. $45,000
____ 13. A corporation has 50,000 shares of $28 par value stock outstanding that has a current market value of $150. If the corporation issues a 4-for-1 stock split, the market value of the stock will fall to approximately
a. $7
b. $112
c. $37.50
d. $600
____ 14. The present value of $40,000 to be received in one year, at 6% compounded annually, is (rounded to nearest dollar)
a. $37,736
b. $42,400
c. $40,000
d. $2,400
____ 15. The present value of $30,000 to be received in two years, at 12% compounded annually, is (rounded to nearest dollar)
a. $23,916
b. $37,632
c. $23,700
d. $30,000
____ 16. The journal entry a company records for the issuance of bonds when the contract rate is less than the market rate would be
a. debit Bonds Payable, credit Cash
b. debit Cash and Discount on Bonds Payable, credit Bonds Payable
c. debit Cash, credit Premium on Bonds Payable and Bonds Payable
d. debit Cash, credit Bonds Payable
____ 17. If the market rate of interest is greater than the contractual rate of interest, bonds will sell
a. at a premium.
b. at face value.
c. at a discount.
d. only after the stated rate of interest is increased.
____ 18. Bonds Payable has a balance of $900,000 and Premium on Bonds Payable has a balance of $10,000. If the issuing corporation redeems the bonds at 103, what is the amount of gain or loss on redemption?
a. $1,200 loss
b. $1,200 gain
c. $17,000 loss
d. $17,000 gain
____ 19. A $300,000 bond was redeemed at 103 when the carrying value of the bond was $315,000. The entry to record the redemption would include a
a. loss on bond redemption of $6,000.
b. gain on bond redemption of $6,000.
c. gain on bond redemption of $9,000.
d. loss on bond redemption of $9,000.
____ 20. On January 1, 2010, Zero Company obtained a $52,000, four-year, 6.5% installment note from Regional Bank. The note requires annual payments of $15,179, beginning on December 31, 2010. The December 31, 2012 carrying amount in the amortization table for this installment note will be equal to:
a. $0
b. $13,000
c. $14,252
d. $16,603
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____ 4. When a new partner is admitted to a partnership, there should be a(n)
a. the total assets of the partnership increase
b. new capital account is added to the ledger for the new partner
c. the total owner's equity of the partnership increases
d. the cash received by the current partner represents the amount of the debit to that partner's capital account.
To answer the questions, we need to understand the concepts related to partnerships, dividends, treasury stock, retained earnings, stock splits, and present value calculations.
2. To determine the amount debited to Accounts Receivable for the new partnership, we need to subtract the completely worthless accounts and the provision for future uncollectible accounts from the initial balance of $25,000:
Amount debited = Initial balance - Completely worthless accounts - Provision for uncollectible accounts
Amount debited = $25,000 - $1,150 - $750
Amount debited = $23,100
Therefore, the answer is option a. $23,100.
3. To calculate Henry's capital account, we need to add the values of equipment, inventory, cash, and any assumed liabilities. We should consider the market values rather than the book values for the contributions:
Henry's capital account = Market value of equipment + Market value of inventory + Cash + Assumed liabilities
Henry's capital account = $28,000 + $12,000 + $44,000 - $15,000
Henry's capital account = $69,000
Therefore, the answer is option c. $69,000.
4. When a new partner is admitted to a partnership, a new capital account is added to the ledger for the new partner. This means option b. is the correct answer.
5. When an additional partner is admitted to a partnership by contributing assets to the partnership, the total assets of the partnership do not change (option a.). However, the total of the owner's equity accounts increases since a new partner's capital account is added.
9. Prerequisites for paying a cash dividend include formal action by the board of directors, sufficient cash, and sufficient retained earnings. Market value in excess of par value per share is not a prerequisite. Therefore, the answer is option b. market value in excess of par value per share.
10. When treasury stock is reissued, the journal entry should include a credit to Paid-In Capital from Treasury Stock to account for the amount received on reissuance. Therefore, the answer is option b. Paid-In Capital from Treasury Stock for $8,500.
11. To compute the year-end retained earnings balance, we need to calculate the net effect of various transactions on the retained earnings balance:
Retained earnings balance = Beginning balance + Net income - Corrections - Dividends
Retained earnings balance = $25,000 + $12,000 - $3,000 - $5,000
Retained earnings balance = $29,000
Therefore, the answer is option a. $29,000.
13. Stock split does not affect the market value of the stock. The number of shares increases, but the market price per share adjusts accordingly. Therefore, the answer is option c. $37.50.
14. To calculate the present value of $40,000 to be received in one year at 6% compounded annually, we need to use the present value formula:
Present value = Future value / (1 + interest rate)^n
Present value = $40,000 / (1 + 0.06)^1
Present value = $37,735.85
Rounded to the nearest dollar, the answer is option a. $37,736.
15. To calculate the present value of $30,000 to be received in two years at 12% compounded annually, we use the same present value formula:
Present value = $30,000 / (1 + 0.12)^2
Present value = $23,916.15
Rounded to the nearest dollar, the answer is option a. $23,916.
16. When the contractual rate is less than the market rate, the bonds are issued at a discount. The journal entry to record the issuance is:
Debit Cash
Debit Discount on Bonds Payable
Credit Bonds Payable
Therefore, the answer is option b. Debit Cash and Discount on Bonds Payable, Credit Bonds Payable.
17. When the market rate of interest exceeds the contractual rate, bonds will sell at a discount. Therefore, the answer is option c. at a discount.
18. To calculate the gain or loss on redemption, we need to compare the redemption price with the carrying value of the bond:
Redemption price = Bonds Payable + Premium on Bonds Payable
Redemption price = $900,000 + $10,000 = $910,000
Gain or loss on redemption = Redemption price - Carrying value
Gain or loss on redemption = $910,000 - $900,000 = $10,000 gain
Therefore, the answer is option b. $10,000 gain.
19. To record the redemption of a bond with a carrying value of $315,000 at 103, we need to determine the redemption amount:
Redemption amount = Carrying value * Redemption price
Redemption amount = $315,000 * 1.03 = $324,450
Since the redemption amount is greater than the carrying value, there will be a gain:
Gain on bond redemption = Redemption amount - Carrying value
Gain on bond redemption = $324,450 - $315,000 = $9,450 gain
Therefore, the answer is option c. Gain on bond redemption of $9,000.
20. To calculate the carrying amount of the installment note on December 31, 2012, we need to calculate the remaining principal balance after two years of payments. This can be done using an amortization table or the present value of an annuity formula. Since the question asks for the carrying amount, the answer is option b. $13,000.
Please note that the explanations provided are for educational purposes. It is always advisable to consult the relevant accounting standards and professional guidance for specific situations.