Kasey Hartman is the controller for Wholemart Company, which hasnumerous long-term investments in debt securities. Wholemartâsinvestments are mainly five-year bonds. Hartman is preparing itsyear-end financial statements. In accounting for the long-term debtsecurities, she knows that each long-term, investment must bedesigned as a held-to-maturity or available-for-sale security.Interest rates rose sharply this past year causing the portfolioâsfair value to substantially decline. The company does not intend tohold the bonds for the entire five years. Hartman also earns abonus each year, which is computed as a percentage of net income.Discuss if Hartmanâs bonus will increase based on theclassification of the debt securities and explain the reasons why.For this discussion, also evaluate the criteria Hartman would useto classify the securities as held-to-maturity oravailable-for-sale, if it is likely there might be a companyoversight of a classification choice, and determine the ethicalchallenge of her decision.
Kasey Hartman is the controller for Wholemart Company, which hasnumerous long-term investments in debt securities. Wholemartâsinvestments are mainly five-year bonds. Hartman is preparing itsyear-end financial statements. In accounting for the long-term debtsecurities, she knows that each long-term, investment must bedesigned as a held-to-maturity or available-for-sale security.Interest rates rose sharply this past year causing the portfolioâsfair value to substantially decline. The company does not intend tohold the bonds for the entire five years. Hartman also earns abonus each year, which is computed as a percentage of net income.Discuss if Hartmanâs bonus will increase based on theclassification of the debt securities and explain the reasons why.For this discussion, also evaluate the criteria Hartman would useto classify the securities as held-to-maturity oravailable-for-sale, if it is likely there might be a companyoversight of a classification choice, and determine the ethicalchallenge of her decision.
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Related questions
1 of 50
Investments in debt securities, such as bonds, may be classifiedas either current or long-term assets.
| True | |
| False |
Question
2 of 50
Marketable securities that are held until the due date of thesecurities are
| trading and held-to-maturitysecurities. | |
| available-for sale securities. | |
| held-to-maturity securities. | |
| trading securities. |
Question
3 of 50
Which of the following business types is most common as measuredby the amount of business transacted?
| Government entities | |
| Proprietorships | |
| Partnerships | |
| Corporations |
Question
4 of 50
Depreciation is based upon cost, useful life, and salvagevalue.
| True | |
| False |
Question
5 of 50
Because depreciation is not cash-based, it is NOT reported inthe direct method of the statement of cash flows.
| True | |
| False |
Question
6 of 50
A company has a petty cash fund of $200. At the end of themonth, $6.41 remains in the fund along with $190.96 in variousreceipts. The journal entry to replenish the fund would show adebit(s) to
| various expenses for $190.96 andCash Short of $2.63. | |
| Cash for $190.96. | |
| Cash for $193.59. | |
| various expenses for $190.96 andCash Over of $2.63. |
Question
7 of 50
A 12-month, 8% note dated August 1, 2013 for $5,000 would haveaccrued interest payable on December 31, 2013 of $166.67.
| True | |
| False |
Question
8 of 50
Warranty expense must be estimated and matched to revenues.
| True | |
| False |
Question
9 of 50
Upgrading the RAM on a computer would be an example of a(n)
| capital expense. | |
| betterment. | |
| ordinary repair. | |
| extraordinary repair. |
Question
10 of 50
The formula for the quick ratio is quick assets divided bynoncurrent assets.
| True | |
| False |
Question
11 of 50
Which of the following are considered to be legal entities thatexist separate and distinct from their owners?
| Sole proprietorships | |
| Organizations with more than 100partners | |
| Partnerships | |
| Corporations |
Question
12 of 50
Patents and copyrights can be seen, held, or touched.
| True | |
| False |
Question
13 of 50
Which of the following would be considered part of the cost ofmachinery and equipment?
| Repairs after start-up | |
| Insurance after purchase | |
| Maintenance | |
| Sales taxes |
Question
14 of 50
The business or person that signs the note and promises to paythe required amount is called the payee.
| True | |
| False |
Question
15 of 50
Conley Company has a petty cash fund of $300. At the end of themonth, $42.38 remains in the fund along with $260.75 in variousreceipts. The journal entry to replenish the fund would bedebit
| Petty Cash for $257.62 and creditCash for $257.62. | |
| various expenses, $260.75 andcredit Cash for $260.75. | |
| various expenses, $260.75, creditCash Over for $3.13, and credit Cash for $257.62. | |
| various expenses, $254.49, debitCash Short for $3.13, and credit Cash for $257.62. |
Question
16 of 50
Neither land nor land improvements are depreciated.
| True | |
| False |
Question
17 of 50
Using a 365-day year, the maturity value of a 180-day note for$2,700 at 9% annual interest is (rounded to the nearest cent)
| $2,819.84. | |
| $2,821.50. | |
| $2,943.00. | |
| $ 119.84. |
Question
18 of 50
On January 1, Bestway, Inc. signed a $175,000, 8%, 30-yearmortgage that requires semiannual payments of $7,735 on June 30 andDecember 31 of each year. The journal entry to record the secondsemiannual payment would be (round interest calculation to thenearest dollar) to
| debit Interest expense, $764; debitMortgage payable, $6,971; credit Cash, $7,735. | |
| debit Mortgage payable, $7,735;credit Cash, $7,735. | |
| debit Interest expense, $6,971;debit Mortgage expense, $764; credit Cash, $7,735. | |
| debit Interest expense, $6,971;debit Mortgage payable, $764; credit Cash, $7,735. |
Question
19 of 50
Allied Industries purchased a piece of equipment for $65,000with an estimated salvage value of $15,000 on January 1. Itsestimated life is five years. To the nearest dollar, what is theequipment's depreciation using double-declining-balance for yeartwo?
| $ 26,000 | |
| $ 12,000 | |
| $ 20,000 | |
| $ 15,600 |
Question
20 of 50
Payroll is also called employee compensation and can consist ofmany parts.
| True | |
| False |
Question
21 of 50
The number of shares of stock that a corporation is given theright to sell is called
| authorized stock. | |
| issued stock. | |
| outstanding stock. | |
| capital stock. |
Question
22 of 50
Which of the following would NOT be considered part of the costof machinery and equipment?
| In-transit insurance costs | |
| Delivery charges | |
| Installation costs | |
| Repairs and maintenance afterstart-up |
Question
23 of 50
Equipment costing $118,000 has accumulated depreciation of$92,000. The equipment is a trade-in for new equipment costing$187,000. If the trade-in value received for the old equipment is$30,000, the journal entry to record this transaction is to
| debit Equipment (New) for $187,000,debit Accumulated Depreciation â Equipment for $92,000, creditEquipment (Old) for $118,000, and credit Cash for $161,000. | |
| debit Equipment (New) for $187,000and credit Cash for $187,000. | |
| debit Accumulated Depreciation âTruck for $50,000, debit Loss on Disposal $6,000, and credit Truckfor $56,000. | |
| debit Equipment (New) for $187,000,debit Accumulated Depreciation â Equipment for $92,000, debit Losson Exchange of Assets for $26,000, credit Equipment (Old) for$118,000 and credit Cash for $187,000. |
Question
24 of 50
Liberty Company has declared a $40,000 cash dividend toshareholders. The company has 5,000 shares of $20-par, 6% preferredstock and 10,000 shares of $15-par common stock. The preferredstock is cumulative. How much will be distributed to the preferredand common stockholders on the date of payment if the preferredstock is $12,000 in arrears?
| $18,000 preferred, $22,000common | |
| $20,000 preferred, $20,000common | |
| $6,000 preferred, $34,000common | |
| $40,000 preferred, $0 common |
Question
25 of 50
In accounting, what is the meaning of capitalized?
| Capitalized means that a given cityhas been selected as a government center. | |
| Capitalized means that the cost ofan asset is recorded as a debit (increase) to expense. | |
| Capitalized means that a liabilityaccount is credited (increase | |
| Capitalized means that an assetaccount is debited (increased) for the cost of an asset. |
Question
26 of 50
Interest is an expense to the debtor and income to thecreditor.
| True | |
| False |
Question
27 of 50
Cash consists of anything that a bank will take as adeposit.
| True | |
| False |
Question
28 of 50
The cost of long-term assets must be allocated to an expense asthe asset is used up.
| True | |
| False |
Question
29 of 50
The process of acquiring merchandise from a supplier begins withthe
| purchase order. | |
| check for payment. | |
| receiving report. | |
| invoice. |
Question
30 of 50
Appleway Corporation purchases a machine for $125,000. It has anestimated salvage value of $10,000 and is expected to produce50,000 units in its lifetime. During the first year of operation,it produced 14,500 units. To the nearest dollar, the depreciationfor the first year under the units of production method will be
| $35,500. | |
| $31,250. | |
| $36,250. | |
| $33,350. |
Question
31 of 50
Book value is depreciable cost minus accumulateddepreciation.
| True | |
| False |
Question
32 of 50
The records of Inland Equipment showed a net loss of $30,000,depreciation expense of $25,000, and an increase in supplies onhand of $5,000. The amount of net cash flow from operatingactivities using the indirect method is
| ($10,000). | |
| $15,000. | |
| $20,000. | |
| ($15,000). |
Question
33 of 50
Retained earnings represent internally generated capital.
| True | |
| False |
Question
34 of 50
A company issues 15,000 shares of its $25 par common stock for$29 per share. The amount to be debited to Cash is
| $435,000. | |
| $375,000. | |
| $405,000. | |
| $ 60,000. |
Question
35 of 50
On September 1, 2012, Juno Corp. lent $2,400 to Bill Askins on asix-month 8% promissory note. The journal entry to record the notefor Juno Corp. would be to:
| debit Note Receivable/Tim, $2,400;credit Cash, $2,400. | |
| debit Note Receivable/Tim, $96;credit Interest Income, $96. | |
| debit Note Receivable/Tim, $2,496;credit Cash, $2,496. | |
| debit Cash, $2,400; credit NotePayable/Tim, $2,400. |
Question
36 of 50
Separation of duties is essential for internal control over cashreceipts and cash payments.
| True | |
| False |
Question
37 of 50
Which of the following would indicate poor internal control overaccounts receivable?
| The same person handling cashreceipts also records the accounts receivable transactions. | |
| The person handling cash receiptspasses the receipts to someone who enters them into accountsreceivable. | |
| The mailroom employees open themail and give the cash receipts to another employee. | |
| The person who handles accountsreceivable would not write off accounts as uncollectible. |
Question
38 of 50
Limited liability means that the stockholders of a corporationshare a personal liability for all debts of the corporation.
| True | |
| False |
Question
39 of 50
Accumulated depletion is a(n)
| contra-asset account. | |
| cash account. | |
| contra-liability account. | |
| expense account. |
Question
40 of 50
Allied Industries reported net income of $52,000, depreciationexpenses of $13,000, a gain on a land sale of $3,000, and adecrease in accounts receivable of $1,500. Under the indirectmethod, net cash flows from operations is
| $63,500. | |
| $66,500. | |
| $69,500. | |
| $60,555. |
Question
41 of 50
The portion of stockholders' equity that can be used fordividends is referred to as legal capital.
| True | |
| False |
Question
42 of 50
Franklin Industries had total assets of $560,000; totalliabilities of $250,000; and total stockholders' equity of$310,000. Franklin Industries debt ratio is
| 55.4%. | |
| 28.7%. | |
| 44.6%. | |
| 80.6%. |
Question
43 of 50
Financial analysis is used to predict the future of abusiness.
| True | |
| False |
Question
44 of 50
Online banking should NOT be used to reconcile the bankaccount.
| True | |
| False |
Question
45 of 50
Costs of testing machinery or equipment before they are usedwould be included in the price of the machinery or theequipment.
| True | |
| False |
Question
46 of 50
There are two methods for accounting for uncollectiblereceivables.
| True | |
| False |
Question
47 of 50
Assets that are NOT expected to provide benefits for a number ofaccounting periods are called
| current assets. | |
| property, plant, andequipment. | |
| long-term assets. | |
| natural resources. |
Question
48 of 50
The allowance method of accounting for bad debts is required byGAAP because of the materiality principle.
| True | |
| False |
Question
49 of 50
A stock dividend affects total stockholders' equity.
| True | |
| False |
Question
50 of 50
Realized gains and losses only occur when the security is soldfor more or less than the original cost.
| True | |
| False |