Determine which answer is most correct and circle the corresponding letter.
1. Partners C and D each have a $40,000 capital balance and share income and losses in a 3:2. Cash equals $20,000, noncash assets equal $120,000, and liabilities equal $60,000. If the noncash assets are sold for $70,000, the C’s capital account will
a. decrease by $20,000.
b. decrease by $42,000.
c. increase by $42,000.
d. decrease by $30,000.
2) If the board of directors authorizes a $100,000 restriction of retained earnings for a future plant
expansion, the effect of this action is to
a. decrease total assets and total stockholders’ equity.
b. reduce the amount of retained earnings available for dividend declarations.
c. increase stockholders’ equity and to decrease total liabilities.
d. decrease total retained earnings and increase total liabilities.
3. Based on the following information, what is Company B’s price-earning ratio?
Company A Company B
Market price per share
$60.00 (A) $70.00 (B)
Earnings per share
Dividends per share
Investor’s cost per share
a. $5.00 b. $583 c. $1.75 d. $280
4. Which of the following is characteristic of a general partnership?
a. The partners have co-ownership of partnership property.
b. The partnership is subject to federal income tax.
c. The partnership has an unlimited life.
d. The partners have limited liability.
5) The cost of merchandise sold during the year was $45,000. Merchandise inventories were $12,500 and $10,500 at the beginning and end of the year, respectively. Accounts payable were $6,000 and $5,000 at the beginning and end of the year, respectively. Using the direct method of reporting cash flows from operating activities, cash payments for merchandise total
6) A company with 100,000 authorized shares of $4 par common stock issued 40,000 shares at $8. Subsequently, the company declared a 2% stock dividend on a date when the market price was $11 a share. What is the amount transferred from the retained earnings account to paid-in capital accounts as a result of the stock dividend?
7) An investor purchased 500 shares of common stock, $25 par, for $21,750. Subsequently, 100 shares were
sold for $47.50 per share. What is the amount of gain or loss on the sale?
a. $4,350 gain
b. $400 gain
c. $400 loss
d. $16,800 loss
8) The present value of $40,000 to be received in one year, at 6% compounded annually, is (rounded to
9) Free cash flow is
a. all cash in the bank
b. cash from operations
c. cash from financing, less cash used to purchase fixed assets to maintain productive
capacity and cash used for dividends
d. ash flow from operations, less cash used to purchase fixed assets to maintain productive capacity and cash used for dividends
10) As part of the initial investment, a partner contributes equipment that had originally cost $100,000 and on which accumulated depreciation of $75,000 has been recorded. If similar equipment would cost $150,000 to replace and the partners agree on a valuation of $40,000 for the contributed equipment, what amount should be debited to the equipment account?
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