Smoltz has beginning merchandise inventory of $10,000 and ending merchandise of $15,000. It had net purchases of $231,000 during the year. How much did Smoltz disburse to vendors during the year if the change in accounts payable is zero?
A) $226,000
B) $231,000
C) $241,000
D) $236,000

Out of Africa, a multi-national corporation, had a very successful year. The board of directors declared and paid a cash dividend of $50,000. The prior year, Out of Africa did not pay dividends on its 400 shares of cumulative, 8% $100 par preferred stock. How much of the cash dividends were paid to the preferred shareholders?
A) $6,400
B) $3,200
C) $8,000
D) $4,000

A linear model that uses accounting ratios to predict corporate bond ratings is termed the
A) Horrigan model.
B) Ketz model.
C) Altman model.
D) Beaver-Kettler-Scholes model.


R Stop Inc. just bought ten new cars for its sales staff. The company expects to use these cars for two or three years and then replace them. If R Stop Inc. calculates straight-line depreciation using an estimated useful life of two years, the is accounting choice would be considered
A) conservative.
B) fundamental.
C) aggressive.
D) basic.

If anyone could give me some guidance or suggestions for any of these problems it would be greatly appreciated

The first one can be done using a t account, entering the numbers you have, and working backwards to missing numbers.

Second one - do you know how to figure out the required dividend on preferred stock?

Third - never heard of it and never seen it taught in an accounting class.

Fourth - it's pretty logical. What does it sound like?

How about telling us what you do and do not already understand, and we would know how to guide you a little better. As is, this is just a shot in the dark and I'm not going to go into lengthy explanations of stuff you might already know. Give us something to go on here.

For the first one I got a) 226,000

2) I do not know how to determine the required dividend on preferred stock. I do remember that preferred stock receives the dividend before common stock

3) I guess I will just have to guess. I looked in a couple accounting textbooks and the web and didn't find anything on that.

4) I am going to say aggressive since the cars are brand new and only have a short useful life and the depreciation will be a ton each year.

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for the first one i got a) 226,000

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Correct.

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2) i do not know how to determine the required dividend on preferred stock. I do remember that preferred stock receives the dividend before common stock

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It's the 8% that tells you how much they pay in dividends. It's 8% of the par value, per share. So you figure that first and then figure what that would be for the total number of shares they have.

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3) i guess i will just have to guess. I looked in a couple accounting textbooks and the web and didn't find anything on that.

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I'm not surprised you didn't find it in an accounting text - I wouldn't consider it an accounting topic and don't recall seeing it in an accounting text. (Maybe "finance accounting" which is an ambiguous cross between accounting, management and finance.) But not to find it on the web? Really? Did you try all four names? That's a little sad when they're asking you something you can't even find on the huge internet, huh?

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4) i am going to say aggressive since the cars are brand new and only have a short useful life and the depreciation will be a ton each year.

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The concepts of aggressive versus non-aggressive in accounting don't mean how quickly you do something. This is tough to answer without just answering cause it means defining the answer. (I'll tell you, but let's give you one more shot.) What they're getting at is how much depreciation expense they have. If you had the choice to depreciate something over two or three years, and you chose to do it over two years, what would this do to the depreciation expense over each of those two years compared to doing it over three? And what would that do to the net book value of the asset itself? And more importantly, what do expenses do to net income? So by depreciating over 2 years instead of 3, are they really being "aggressive" with their books?

I got $3,200 for the second question. Sound right?

And for the last one my second guess would be conservative.

How does that look?

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Originally Posted by camaroracr21

i got $3,200 for the second question. sound right?

and for the last one my second guess would be conservative.

how does that look?

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All but one thing. Cumulative preferred stock means that if it can't be paid in some year, it has to be made up for later. If it's not paid, it goes "into arrears." (i.e. like a late bill being in arrears) Read it again. You're almost there.

Conservative is correct. Conservatism is a concept saying that when it doubt, go the most conservative amount, i.e. like the opposite of buffing up your statements. Since they had 2-3 years, expensing more over the shorter term and reducing the value faster is more conservative from a financial statement point of view.

Just adding my two-bits' worth, if I may...

Check out Exhibit 2.7 on Page 46 Hidden financial risk: understanding ... - Google Books

... you can see the bond-rating Z-model is indeed linear. As some added assurance as to the answer, Altman's famous Z-score model dealt with bankruptcy prediction, and Beaver, Kettler, and Scholes used accounting ratio data to develop market-beta estimates, for valuating corporate equity.

And I'm with you, Morgaine; the inclusion of this one in an accounting question-set is baffling... unless the model was actually mentioned in the background material. Cheers, all!

You know, one of these days I'm going to have to ask you about some bond stuff. Except for like present values and such, I know diddly about them.

It's an interesting topic. I'm in the majority camp in thinking that Connery was the best Bond, but I also liked Timothy Dalton's portrayal. It was really cool the way they went "back to the beginning" with Daniel Craig in Casino Royale, but I confess I haven't seen Quantum of Solace

As far as the Bond Girls, hoo boy, where do I start... ;)

Oh, you meant like munis and debentures and stuff? Well, that's also an "interest"ing topic. I would enjoy the chat, Ms M! (Speaking of "M", wasn't it neat that even though Daniel Craig's Casino Royale took a "back to the beginning" approach, they still had Judi Dench as "M"?)

LOL. Not a fan, sorry. Though I do like Sean Connery.