五、western Financial Accounting

　　l. True - False （5 ）

　　a. A Past - due account receivable should not be included in the currentassets.

　　b. A machine with an estimated useful life of l0 years wil1 become fully depreciated in five years if the double - dec1ining - balance method of depreciation is used.

　　c. Use of MACRS depreciation rates often causes an asset‘s book value to differ from its basis for income tax purposes.

　　d. Discount on Notes Payable is a contra - liability account which is shown in the balance sheet as a deduction from Notes Payable.

　　e. The time period principle increases the usefulness of accounting information but also makes that information less reliable.

　　2. Multiple choice （5）

　　A. The term paid - in capital means：

　　a. All assets other than retained earnings.

　　b. Legal capital plus retained earnings.

　　d. Legal capital minus retained earnings.

　　B. Fully diluted earnings per share is a hypothetical computation to warn stockholders what could happen if：

　　a. Loss contingencies turn out adversely.

　　b. Convertib1e securities are converted into shares of common stock.

　　c. Extraordinary losses were to recur.

　　d. Consideration were given to the loss from operations discontinued during the current period.

　　C. AInortizing a discount ol1 bonds payable：

　　a. Increases interest expense.

　　b. Increases periodic cash payTnents to bondholders.

　　c. Decreases interest expense.

　　d. Decreases periodic cash payments to bondholders.

　　D. For purPOse of preparing a cash flow statement， which of the following is not considered

　　a “cash equivalent” ？

　　a. A money market fund.

　　b. An investment in IBM bonds.

　　c. Treasury bill.

　　d. Commercial paper.

　　E. Solo Corporation has net assets of $1，500，000 and paid - in capital of $450，000. The only stock issue consists of 75， 000 outstanding shares of common stock. From this information， it can be deduced that the company has：。

　　a. Retained earnings of $1，500，000.

　　b. Adeficit of $l，050，00.

　　c. A book value of $20 per share of common stock.

　　d. A book value of $l4 per share of common stock.

　　3. The Cash account in the ledge of Raintree Ranch shows a balance of $l6，200 at Dec.

　　3l， 1993. The Dec. 3l bank statement shows a balance of $19，025. The only recon- ciling items consist of ：

　　a. Bank service charges of $12.

　　b. Outstanding check totaling $4， 800.

　　c. NSF check from customer P. J. Floyd in the amount of $228.

　　d. Error in recording check No. 970 for utilities； check was written in the amount of $458 but was recorded in Raintree RaIlch‘s accounting records as $548.

　　e. A deposit in transit.

　　（1） What is the amount of the adjusted cash balance at Dec. 3l， l993？

　　（2） What is the amount of the deposit in transit at Dec. 31， l993？ （5）

　　4. On Nov. l， 1993， Lantana Company so1d equiPment in exchange for six - month mote receivable. An interest charge， computed at an annual rate of 10 %， was included in the face amount of the note. In its Dec. 3l， l993， balance sheet correctly presented the note receivable as follows：

　　Note receivable， due May l， l994　　　　　　 $88， 200

　　less： Discount on note receivable　　　　　　 （2，800）

　　$85，400

　　（l） What was the total amount of interest charge included in the face amount of the note on Nov. l l993？

　　（2） How much interest revenue from this note receivable should Lantana recognize in 1994 ？ （5 ）

　　5. Adlla Corporation has outstanding 50， 000 shares of $l par value common stock as well as 10， 000 s shares of 6 %， $100 par value cumulative preferred stock. At the begin- ning of the year， the balance in retained earnings was $500， 000， and one year‘s dividends were in arrears. Net income for the current year is $260， 000’ Compute the balance in retail1ed earnings at the end of the year if Adella Corporation pays a dividend of $2 per common share. （5）

　　6. An analysis of 1997 financial statements of oourmet Provisions reveals the fOllowing：

　　a. Accounts payable to suppliers of merchandise decreased by $40，000 during l997

　　b. Dividends of $l20， 000 were declared in Nov， l997， to be paid in Jan， 1998.

　　c. Dividends of $l05， 000 decIared in Nov， 1996， were paid in Jan， l997.

　　d. Inventory levels increased by $76，000 during l997.

　　e. Depreciation expense for l997 amounted to $39，000.

　　f. Land， which had a cost of $200， 00， was soId in 1997 for $320， 000 cash， re- sulting in a gain of $120， 000.

　　g. Net income fOr l997 was $630， 000. Using only the above information， follow the indirect methOd to compute Gourmet Provi sions‘ net cash flow from operating activities fOr 1997. （10）