ACCT 2500 - Exam II Review wih Answers-1

docx

School

North Carolina Central University *

*We aren’t endorsed by this school

Course

2500

Subject

Accounting

Date

Apr 3, 2024

Type

docx

Pages

Uploaded by MinisterButterflyPerson4155

ACCT 2500 - EXAM II Review 1. What is the three different methods of accounting for stock investments?  Less than 20% o Cost method is used o Assumes presumed influence on investee is insignificant o At acquisition, recorded at cost o Revenue is recognized only on receipt of cash dividends  20% - 50% o Equity method is used o Assumes the investor has influence on the investee’s financial and operating activities of the investee o At acquisition, recorded at cost o Can often have a seat on the investee’s board of directors o At acquisition, recorded at cost o Adjustment for the proportionate share of income and dividends  Earnings or losses when earned by investee  Dividends paid by investee  >50% o A controlling interest exists o Requires that combined “consolidated” financial statements of the parent and subsidiary companies are presented 2. Cricket Corp. had the following transactions pertaining to debt securities held as an investment . Jan. 1 Purchased 69, 5%, $1,000 Wachung Company bonds for $69,000 cash. Interest is payable annually on January 1. Dec. 31 Accrued $3,450 annual interest on Wachung Company bonds. Journalize the purchase and the receipt of interest. Assume no interest has been accrued. Date Account Titles and Explanation Debit Credit Jan. 1 Debt Investments 69,000 Cash 69,000 Dec. 31 Interest Receivable 3,450 Interest Revenue 3,450 69000 x .05 = 3,450 = Interest Revenue 3. On January 1, Church Company purchased a 25% equity investment in Trim Company for $355,000. At December 31, Trim Company declared and paid a $22,000 dividend and reported net income of $145,600. Journalize the transactions on the books of Church Company. Date Account Titles and Explanation Debit Credit Jan. 1 Stock Investments 355,000 Cash 355,000 Dec. 31 Cash 5,500 Stock Investments 5,500

(To record dividends received) (22000 x .25 = 5500) Dec. 31 Stock Investments 36,400 Revenue from Stock Investments 36,400 (To record equity in Trim Company's net income) (145600 x.25 = 36,400) b. Determine the amount to be reported on Church Company's balance sheet as an investment in Trim Company stock at December 31. Investment in Trim Company, December 31 $385,900 (355,000 - 5,500 + 36,400 = 385,900) 4. The following transactions were made by Blossom Company. Assume all investments are temporary . July1 Purchased 300 shares of Nash Corporation common stock for $30 per share. July 30 Received a cash dividend of $1.00 per share from the Nash Corporation. Sept. 15 Sold 50 shares of Nash Corporation stock for $32 per share. Journalize the transactions. Date Account Titles and Explanation Debit Credit July 1 Stock Investments 9,000 Cash 9,000 July 30 Cash 300 Dividend Revenue 300 Sept. 15 Cash 1,600 Stock Investments 1,500 Gain on Sale of Stock Investments 100 (300 x 30 = 9,000) = Cost of shares (300 x 1.00 = $300) = Dividends received (Proceeds from sale: 50 x 32 = 1,600); cost of shares sold = 50 x 30 = 1,500; Gain on sale of 50 shares = 1600-1500 = $100

5. Crush, Inc. reported net income of $1.5 million in 2025. Depreciation for the year was $200,000, accounts receivable decreased $305,000, and accounts payable decreased $254,000. Compute net cash provided by operating activities using the indirect method. Crush, INC. Statement of Cash Flows (Partial) – Indirect Method For the Year Ended December 31, 2025 Cash Flows from Operating Activities Net Income $1,500,000 Adjustments to reconcile net income to Net Cash Provided by Operating Activities: Depreciation Expense $200,000 Decrease in Accounts Receivable 305,000 Decrease in Accounts Payable (254,000) 251,000 Net Cash Provided by Operating Activities 1,751,000 6. Suppose that during 2025 Cypress Semiconductor Corporation reported net cash provided by operating activities of $88,975,120, cash used in investing of $40,811,040, and cash used in financing of $7,120,720. In addition, cash spent for plant assets during the period was $22,735,920. No dividends were paid. Calculate free cash flow. Free Cash Flow = Net Cash Flow Provided by Operating Activities – Capital Expenditures – Cash Dividends Free cash flow $66,239,200 (88,975,120 – 22,735,920) 7. What is the purpose of the statement of cash flow : A statement of cash flow is used to summarize operating, investing and financing activities of an organization. It shows net change in cash for the organization resulting from operating, investing, and financing activities during a period. 8. Examples of items classified under Operating activities :  Purchase of inventory  Current assets and current liabilities  Depreciation expense  Receipt of dividends  Gains and losses 9. Examples of Investing activities :  Collecting cash on loans made to other companies  Lending money  Sale or purchase of property, plant and equipment 10. Examples of Financing activities :  Issuing debt e.g. bonds  Issuing common stock  Paying dividends to stockholders

Your preview ends here

Eager to read complete document? Join bartleby learn and gain access to the full version

Access to all documents
Unlimited textbook solutions
24/7 expert homework help

11. Example of a non-cash investing and financing activity  Issuance of bonds (debt)to purchase land (an asset) 12. What would indicate that a company has significant influence over another company.  Investor has representation on the investee’s board  There are large number of other stockholders with small investments in the company  Investor participates in the investee’s policy making 13. Concord Supply Company reported net income of $85,000 for the year 2025. During 2025, accounts receivable increased by $7000, accounts payable decreased by $3000 and depreciation expense of $10000 was recorded. Net cash provided by operating activities for 2025 is Select answer from the options below $73000. $85,000. $99,000. $64000. (85,000 – 7000 – 3000 + 10000 = 85,000)