26. Company X paid Company Y $3.25 million for a new plant. During the same acco

Question

26. Company X paid Company Y $3.25 million for a new plant. During the same accounting period, Company X experienced the following changes in its balance sheet: Cash decreased by $360,000, Accounts Receivable increased by $323,200, Inventory increased by $277,700, Property, Plant, and Equipment increased by $754,800, and Bonds Payable increased by $3 million. The net cash flow provided by financing activities is:

A. An inflow of $754,800.

B. An outflow of $360,000.

C. An inflow of $3.25 million.

D. An inflow of $3 million.

27. Why is inventory reported as a current asset?

A. Inventory is not a current asset it is a noncurrent asset because inventory is often sold on account and not for cash.

B. Inventory is not reported as a current asset.

C. Inventory is reported as a current asset because it has been sold.

D. Inventory is reported as a current asset because it will be converted into cash within a year of the balance sheet date.

29. A company had 1,300,000 shares of $10 par value common stock outstanding. The amount of additional paid-in capital is $6,500,000, and Retained Earnings is $1,950,000. The company issues a 2-for-1 stock split. The market price of the stock is $11. What is the balance in the Common Stock account after this issuance?

A. $26,000,000

B. $27,300,000

C. $13,000,000

D. $19,500,000

30. A company lends its supplier $174,000 for 3 years at a 6% annual interest rate. Interest payments are to be made twice a year. Each interest payment will be for:

A. $5,220.

B. $10,440.

C. $15,660.

D. $31,320.

32. When the amount of a contingent liability cannot be reasonably estimated but its likelihood is probable, the company should:

A. record the amount of the liability times the probability of its occurrence.

B. exclude the information about the contingent liability from its financial statements and footnotes.

C. include a description in the notes to the financial statements.

D. record the amount of the liability as a long-term liability on the balance sheet.

Explanation / Answer

Solution:

Question 26 The answer to the above question is D. Inflow of $ 3 million This can be explained as, the only financing activities in the above mentioned transaction is Bonds payable increased. Bonds payable increase due to issue of more bonds or inflow of cash. Question 27 The answer to the above question is D. Inventory is reported as a current asset because it will be converted into cash within a year of the balance sheet date. Question 30 The answer to the above question is $ 174,000 * 6 % / 2 = $ 5,220 A. $ 5,220 Question 29 The answer to the above question is C. $ 13,000,000 Only the stocks are split in to two. The amount has not been changed, thus, the amount in Common Stock account will $ 13,000,000

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