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Download WGU D104 Intermediate Accounting II Units 4-6 EXAM TEST WITH LATEST UPDATED (QUESTIONS AND and more Exams Biology in PDF only on Docsity!
WG6GU D104 Intermediate Accounting II Units 4-6 EXAM TEST WITH LATEST UPDATED (QUESTIONS AND ANSWERS) GET IT RIGHT| Already passed!! Asset Turnover Ratio : net sales/average total assets Profit Margin Ratio ! net income/total sales Rate of return on assets ! net income/average total assets Current ratio : current assets/current liabilities acid-test ratio (cash + short-term investments + net ! receivables) / current liabilities rate of return on common stock equity (net income - preferred dividends) / i average common stockholders’ i equity payout ratio cash dividends / (net income - | preferred dividends) book value per share common stockholders’ equity / : outstanding shares sum-of-the-years'-digits method Accelerated depreciation with higher depreciation cost in beginning and lower charges in the end. Numerator is the # of years of est. life remaining at the 1st of the year, denominator is : sum of the years individually. (e.g. 5/15, 4/15, 3/15, 2/15, 1/15) Variable charge depreciation method (activity method or units-of-activity/ production approach) ((cost - salvage value) X current units) / total estimated units activity method (actual activity in period / total estimate activity) X (cost - salvage value) double declining balance method An accelerated depreciation method that computes annual depreciation by multiplying the depreciable asset's decreasing book value by a constant percent that is two times the straight- line depreciation rate. Multiple assets group depreciation method ' Assets similar in nature and have : approx. same useful lives. Total of the annual depreciation expense for all assets in the group / total cost of the assets. Multiple assets composite depreciation method Assets are dissimilar and have : different lives. Total annual depreciation expense of all assets / ! total cost of all assets. Composite life (Original cost - salvage value) / total annual depreciation Journal entry to record the ore sold Debit cost of goods sold, credit : inventory (ore) Journal entry to record depletion expense for mine Debit depletion expense, credit accumulated depletion Types of current liabilities Accounts payable, notes payable, dividends payable, customer advances/deposits, unearned (deferred) revenues, sales tax payable, current maturities of long- term debt Journal entry to record issuance of a note Debit cash, credit notes payable Journal entry to record payment of the note at maturity Debit notes payable, debit interest expense, credit cash Journal entry to record issuance of a zero interest bearing note Debit cash, debit discount on notes payable, credit notes payable Journal entry to record payment of a zero interest bearing note at maturity : Debit notes payable, credit cash Journal entry to record sale of gift certificate booklet Debit cash, credit unearned gift card revenue Journal entry to record redemption of gift cards debit unearned gift card revenue, credit sales revenue Journal entry to record a sale with sales tax and a loss on sales tax Debit cash, debit loss on sales tax collection, credit sales revenue, credit sales tax payable Journal entry to record payment to the sales tax agency Debit sales tax payable, credit cash Journal entry to record a sale when sales tax is not segregated Debit cash, credit sales revenue Journal entry to record payment to sales tax agency when sales tax is not segregated with a loss on sales tax Debit sales revenue, debit loss on sales tax collection, credit cash Journal entry to record sale with segregated sales tax and a gain on sales tax Debit cash, credit gain on sales tax collection, credit sales revenue, credit sales tax payable Journal entry to record payment to sale tax agency with sales tax segregated Debit sales tax payable, credit cash Journal entry to record payment to sales tax agency if sales tax is not segregated and there is a gain on sales tax Debit sales revenue, credit gain on sales tax collection, credit cash Journal entry to record accrued interest expense Debit interest expense, credit interest payable Journal entry to record along term loan with payment due during the current fiscal year Debit cash, credit current maturities of long term debt, credit note payable Long term debt due on demand Considered a current liability or will be due on demand within a year. Long term debt that matures within one year and is to be converted into stock should be reported as? Noncurrent and accompanied with a note explaining the method to be used in its liquidation. Companies should accrue an estimated loss from a loss contingency by: A charge to expense and a liability recorded only if it is probable (70% or more) and reasonably estimated. Journal entry to record warranty costs incurred Debit warranty liability, credit cash, | inventory, accrued payroll Journal entry to record the revenue recognized on the service type warranty Debit unearned warranty revenue, credit warranty revenue Service type warranty Sold separately from the product. It's recorded as a separate performance obligation in an unearned warranty revenue account. It's recognized on a straight line basis over the warranty period. Journal entry to record bond issuance at par/face/ maturity value Debit cash, credit bonds payable. Journal entry to record issuance of bond at discount Debit cash, debit discount, credit bonds payable Journal entry to record issuance of bond at premium Debit cash, credit premium, credit bonds payable Journal entry to record bond interest payment mid-year Debit interest expense, credit cash Journal entry to record bond interest payment end of the year Debit interest expense, credit interest payable Journal entry to record bond interest payment end of the year with a discount Debit Interest expense, credit discount on bonds payable, credit interest payable How is a discount on a bond amortized? Calculate discount rate by multiplying the percent discount by face value of bond. Divide by term and calculate the current portion during bond interest payment. Journal entry to record bond interest payment mid year with a discount Debit interest expense, credit discount on bonds payable, credit cash. Journal entry to record interest expense on a bond at premium mid year Debit interest expense, debit premium on bonds payable, credit cash. Journal entry to record interest expense on a bond at a premium at the end of the year Debit interest expense, debit premium on bonds payable, credit interest payable Journal entry to record the issuance of a bond with a discount dated 1/1/20 on 3/1/20 Debit cash, debit discount on bonds payable, credit bonds payable, credit accrued interest payable. When interest payment dates of a bond are May 1 and Nov. 1, anda bond issue is sold on June 1, the amount of cash received by the issuer will be Increased by accrued interest from May 1 to June 1. Bond issuance costs should Be accumulated in a deferred charge account and amortized over the life of the bonds. Is there a gain on a bond held to maturity? There is no gain or loss on bonds held to maturity because the maturity value is exactly equal to the carrying amount of the bond. How much should be recorded in the cash account on closing with 4 points upon closing Face value less the points percentage. Journal entry to record interest on a note Debit interest expense, credit cash. Premium on bonds payable is what kind of liability Long term liability Times interest earned ratio (Net Income + Interest Expense + Income Tax Expense) / Interest Expense Times interest earned ratio measures what i The ability of a company to pay its debt obligations. It indicates the margin of safety provided to creditors. Debt to assets ratio total liabilities / total assets Debt equity ratio total liabilities/total equity The preemptive right enables a stockholder to receive the same amount of dividends on a percentage basis as the preferred stockholders. Stockholders’ equity is comprised of Capital stock (common and : preferred), additional paid in capital, retained earnings, treasury stock as a ' contra account. Stockholders’ equity is generally classified into two major categories earned capital and contributed capital. Stock may be issued in exchange for cash, property or services. How is it Property or service is recorded at the fair or market value of the stock. If recorded? the fair or market value is not available, the fair or market value of the property or services received is ! used. Journal entry to record the exchange of stock for land if the fair value of the land is unknown Debit land, credit common stock, credit additional paid-in capital (fair value of stock vs par value). Journal entry to record the exchange of stock for land if the fair value of the stock is unknown. Debit land, credit common stock, credit additional paid-in capital (fair value of land vs par value of stock). Journal entry to record the exchange of stock for land if the fair value of stock and land are unknown, but an appraiser values the land. Debit land, credit common stock, credit additional paid in capital. Direct costs incurred to sell stock such as underwriting costs, accounting, and legal fees, and printing cost should be shown as a debit to additional paid in capital. Purchase of treasury stock Debit treasury stock (cost), credit cash. Sale of treasury stock above cost Debit cash, credit treasury stock (cost), credit paid in capital from treasury stock. Sale of treasury stock below cost Debit cash, debit paid in capital from treasury stock (remove any previous ' credit balance in this account), debit retained earnings (plug figure to balance debit and credit columns), credit treasury stock (cost). A 2-for-1 stock split will Decrease the total par value of the stock and increase the number of shares outstanding. A stock split i has no effect on total stockholders’ Journal entry to record stock dividend when declared with fair market value above par { equity. Debit retained earnings, credit ! common stock dividend distributable, credit paid in capital i excess of par - common stock. Journal entry to record stock issued : debit common stock dividend distributable, credit common stock. A small stock dividend will have no effect on total assets or total stockholders’ equity. Journal entry to record distribution of ! common stock dividend when the market value is more than the par value Debit retained earnings, credit common stock, credit paid in capital in excess of par - common stock. How does the declaration and distribution of a stock dividend affect stockholders’ equity? The balances of different accounts in stockholders’ equity will change, but total stockholders equity is unchanged. If a dividend exceeds 25% : The par value method is used. ; Retained earnings is debited and common stock is credited for the stock's par value. Payout ratio cash dividends declared on common stock / (net income - preferred dividends) Book value per share common stockholders’ equity / outstanding common shares Rate of return on common stock equity (net income - preferred dividends) / average common stockholders’ equity A company wants to improve it's return on equity to be more attractive } to investors. How could this be accomplished? Increase preferred dividends Journal entry to record the conversion of preferred stock to common stock debit preferred stock, debit additional paid in capital, credit common stock, credit additional paid in capital Journal entry to record the issuance of convertible preferred stock debit cash, credit preferred stock, credit paid in capital in excess of par - preferred stock Journal entry to record the issuance of bonds with detachable warrants Debit cash, debit discount on bonds payable, credit bonds payable. Debit cash, credit paid in capital - stock | warrants. Proportional method allocates the bond sale proceeds between the bond and warrants based on their respective fair values warrants i certificates entitling the holder to : acquire shares of commons stock at a certain price within a stated period of time. Intrinsic value method (stocks) measures stock compensation by the excess of the market price of the Journal entry to record the issue of restricted stock to an employee debit unearned compensation, credit common stock, credit additional paid in capital - common stock Unearned compensation is reported | in stockholders’ equity in the balance : sheet as a contra equity account. Journal entry to record restricted stock each year to record compensation expense debit compensation expense, credit unearned compensation Journal entry to record restricted stock if the employee leaves the company debit common stock, debit additional paid in capital - common stock, credit compensation expense, credit unearned compensation. If an employee doesn't fulfill vesting requirements stock options and restricted stock both require that compensation expense recorded to date be ! reversed. Employee stock purchase plans generally permit all employees to purchase stock at a discounted price for a short period of time. These plans are compensatory unless 1. all full time employees may participate equally 2. the discount is small. If under 5% no compensation recorded. 3. The plan offers no substantive option feature. This would make it non-compensatory. Earnings per share (net income (after tax) - preferred dividends) / weighted average ' outstanding common stock (i.e. 3/12, : 12/12) What is the effect on earnings per share when a company acquires shares of it's own stock on the open market? Increase Dilutive security a security that can be converted to ! common stock. Which of the following is not considered a dilutive security? participating preferred stock. Which of the following is not a dilutive security? nonconvertible preferred stock. A complex capital structure might include all of the following stock rights, convertible bonds, stock warrants. A complex capital structure exists when a company has convertible securities (bonds/ preferred stock), options, warrants, or other rights that upon conversion or exercise could dilute earnings per share. Dilution refers to the effect that convertible securities and rights such as options, stock rights and stock warrants could have on basic earnings per share if these securities were exchanged for common stock. The if-converted method assumes the conversion of the convertible securities at the beginning of the period (or at the time of issuance of the security, if issued during the period). diluted earnings per share (net income - preferred dividends) + (convertible debt interest) X (1 - tax rate) / (weighted average common shares outstanding + shares from conversion of conv. debt) 
