Accounting Exam 4 Multiple Choice Practice

A corporation issued 5,000 shares of its $4 par value common stock in exchange for land that has a market value of $100,000. The entry to record this transaction would include: A. A credit to Common Stock for $20,000. B. A debit to Land for $20,000. C. A credit to Land for $20,000. D. A credit to Paid-in Capital in Excess of Par Value, Common Stock for $100,000. e. A credit to Common Stock for $100,000.

A. A credit to Common Stock for $20,000.

When using the indirect method to prepare the operating activities section of the statement of cash flows, how is a decrease in accounts payable handled? A. It is subtracted from net income in the cash flows from operating activities section. B. It is subtracted from current assets in the cash flows from financing activities section. C. It is added to net income in the cash flows from operating activities section. D. It is added to inventory purchases in the cash flows from investing activities section.

A. It is subtracted from net income in the cash flows from operating activities section.

Deacon Company declared and distributed a 5% stock dividend on 24,000 shares of issued and outstanding $5 par value common stock. The market price per share was $13 on the declaration date. Which of the following correctly describes the effect of accounting for the declaration and distribution of the stock dividend? A. Retained earnings decreased $15,600. B. Retained earnings decreased $16,800. C. Common stock increased $15,600. D. Additional paid-in capital increased $10,800.

A. Retained earnings decreased $15,600.

On January 1, 2021, a company issued $400,900 of 10-year, 12% bonds. The interest is payable semiannually on June 30 and December 31. The issue price was $415,403 based on a 10% market interest rate. The effective-interest method of amortization is used. Rounding all calculations to the nearest whole dollar, what is the interest expense for the six-month period ending June 30, 2021? A. $20,045. B. $20,770. C. $24,054. D. $24,924.

B. $20,770.

A company reported the following asset and liability balances at the end of 2020 and 2021: Assets -- 2020: $152,100 || 2021: $181,400 Liabilities -- 2020: $71,750 || 2021: $80,700 If no transactions affected stockholder's equity except a declared and paid cash dividend of $5,700 and net income in 2021, what is the amount of net income for 2021? A. $20,350. B. $26,050 C. $80,350. D. $106,400.

B. $26,050

On August 1, Year 1, Deacon Company issued a one-year $80,000 face value interest-bearing note with a stated interest rate of 9% to Tarheel Bank. Deacon accrues interest expense on December 31, Year 1, its calendar year-end. What is the cash flow from financing activities that will be reported during the year ending December 31, Year 1? A. $0 B. $80,000 inflow C. $83,000 inflow D. ($87,200) outflow

B. $80,000 inflow

On January 1, a company issues bonds dated January 1 with a par value of $370,000. The bonds mature in 5 years. The contract rate is 11%, and interest is paid semiannually on June 30 and December 31. The market rate is 10% and the bonds are sold for $384,280. The journal entry to record the first interest payment using straight-line amortization is: (Rounded to the nearest dollar.) A. Debit Bond Interest Expense $18,922; debit Discount on Bonds Payable $1,428; credit Cash $20,350. B. Debit Bond Interest Expense $18,922; debit Premium on Bonds Payable $1,428; credit Cash $20,350. C. Debit Interest Payable $20,350; credit Cash $20,350. D. Debit Bond Interest Expense $21,778; credit Premium on Bonds Payable $1,428; credit Cash $20,350. E. Debit Bond Interest Expense $21,778; credit Discount on Bonds Payable $1,428; credit Cash $20,350.

B. Debit Bond Interest Expense $18,922; debit Premium on Bonds Payable $1,428; credit Cash $20,350.

Under the indirect method, which of the following items would be added to net income to determine the cash flow from operating activities? A. Gain on the sale of equipment B. Depreciation expense C. Increase in interest receivable D. Decrease in accounts payable

B. Depreciation expense

A company has 8 million common shares authorized and 1 million shares issued. The par value is $3 per share and the market price is $25 when the company declares a 3-for-1 stock split. Which of the following is correct? A. There will be a transfer of $3 million from retained earnings to the common stock account. B. For every one share of stock owned, a shareholder will receive an additional 2 shares of stock. C. The shares issued and outstanding will all triple while the par value will remain the same. D. The company will be unable to declare a 3-for-1 split because it does not have enough authorized shares to issue the split.

B. For every one share of stock owned, a shareholder will receive an additional 2 shares of stock.

A company repurchased shares of its common stock for $17,500. The stock was initially issued for $13,200 and had a $4,600 par value. Which of the following statements correctly describes the effects of the repurchase of company's common stock shares? A. Common stock decreases by $13,200. B. Stockholders' equity decreases by $17,500. C. Net income decreases by $8,600. D. Net income increases by $8,600.

B. Stockholders' equity decreases by $17,500.

If a bond is issued at 102, the coupon rate was: A. lower than the market rate of interest. B. higher than the market rate of interest. C. equal to the market rate of interest. D. not related to the market rate of interest.

B. higher than the market rate of interest.

The financial statements of Gregg Co. reported wages expense of $160,000 during Year 2, wages payable of $16,000 at the beginning of Year 2, and wages payable of $22,000 at the end of Year 2. What amount of cash was paid for wages during Year 2? A. $176,000 B. $160,000 C. $154,000 D. $144,000

C. $154,000

Gammell Company issued $50,700 of 9% bonds with annual interest payments. The bonds mature in ten years. The bonds were issued at $48,350. Gammell Company uses the straight-line method of amortization. What is the amount of the annual interest expense? A. $4,563. B. $4,747. C. $4,798. D. $4,328

C. $4,798.

On January 1, 2020 a company issued and sold a $500,000, 5%, 10-year bond payable, and received proceeds of $496,000. Interest is payable each July 1 and January 1. The company uses the straight-line method to amortize the discount. The carrying value of the bonds immediately after the January 1, 2021 interest payment is: A. $500,000. B. $499,800. C. $496,400. D. $495,800.

C. $496,400.

Which of the following items would be classified as a cash flow from investing activities? 1) Issue common stock for cash 2) Payment on principal of note payable 3) Payment of dividends 4) Sale of equipment for cash A. 1 and 4 B. 3 only C. 4 only D. 1, 2, 3, and 4

C. 4 only

The following data has been collected about Deacon Company's stockholders' equity accounts: Common stock $10 par value; 16,000 shares authorized, 8,000 shares issued, 2,400 shares outstanding: $80,000 Paid-in capital in excess of par value, common stock: $46,000 Retained earnings: $21,000 Treasury stock: $26,640 Assuming the treasury shares were all purchased at the same price, the number of shares of treasury stock is: A. 21,600. B. 13,600. C. 5,600. D. 2,664.

C. 5,600.

Deacon Company declared a $0.50 per share cash dividend. The company has 190,000 shares issued, and 10,000 shares in treasury stock. The journal entry to record the dividend declaration is: A. Debit Retained Earnings $5,000; credit Common Dividends Payable $5,000. B. Debit Common Dividends Payable $95,000; credit Cash $95,000. C. Debit Retained Earnings $90,000; credit Common Dividends Payable $90,000. D. Debit Common Dividends Payable $90,000; credit Cash $90,000. E. Debit Retained Earnings $95,000; credit Common Dividends Payable $95,000.

C. Debit Retained Earnings $90,000; credit Common Dividends Payable $90,000.

Which of the following statements does not correctly describe the accounting for bonds that were issued at their face (maturity) value? A. The market rate of interest equals the coupon rate. B. The interest expense over the life of the bonds will equal the total cash interest payments. C. The carrying value of the bond liability decreases when interest payments are made on the due dates. D. There is no premium or discount recorded when the bonds are issued.

C. The carrying value of the bond liability decreases when interest payments are made on the due dates.

On January 1, 2021, a company issued $400,000 of 10-year, 12% bonds. The interest is payable semi-annually on June 30 and December 31. The issue price was $413,153 based on a 10% market interest rate. The effective-interest method of amortization is used.Which of the following statements is incorrect? A. The carrying value of the bond will decrease as the bond reaches maturity.A. The market rate of interest on the sale date was less than the coupon rate of interest. B. The carrying value of the bond will decrease as the bond reaches maturity. C. The interest expense will increase as the bond reaches maturity. D. The amortization of the premium on bonds payable will increase as the bond matures.

C. The interest expense will increase as the bond reaches maturity.

Deacon Corporation issued 18,000 shares of common stock for $62 per share. The bylaws established a par value of $10 per share. What is the amount of increase in the Paid-in Capital in Excess of Par - Common Stock account as a result of this transaction? A. $1,116,000. B. $0. C. $180,000. D. $936,000.

D. $936,000.

Adonis Corporation issued 10-year, 9% bonds with a par value of $120,000. Interest is paid semiannually. The market rate on the issue date was 8%. Adonis received $128,156 in cash proceeds. Which of the following statements is true? A. Adonis must pay $128,156 at maturity and no interest payments. B. Adonis must pay $128,156 at maturity plus 20 interest payments of $5,400 each. C. Adonis must pay $120,000 at maturity and no interest payments. D. Adonis must pay $120,000 at maturity plus 20 interest payments of $5,400 each. E. Adonis must pay $120,000 at maturity plus 20 interest payments of $4,800 each.

D. Adonis must pay $120,000 at maturity plus 20 interest payments of $5,400 each.

On January 1, Parson Freight Company issues 8%, 10-year bonds with a par value of $3,200,000. The bonds pay interest semiannually. The market rate of interest is 9% and the bond selling price was $2,991,873. The bond issuance should be recorded as: A. Debit Cash $2,991,873; credit Bonds Payable $2,991,873. B. Debit Cash $3,200,000; credit Bonds Payable $3,200,000. C. Debit Cash $3,200,000; credit Bonds Payable $2,991,873; credit Discount on Bonds Payable $208,127. D. Debit Cash $2,991,873; debit Discount on Bonds Payable $208,127; credit Bonds Payable $3,200,000. E. Debit Cash $2,991,873; debit Interest Expense $208,127; credit Bonds Payable $3,200,000.

D. Debit Cash $2,991,873; debit Discount on Bonds Payable $208,127; credit Bonds Payable $3,200,000.

Deacon Corporation's balance sheet reports equipment that originally cost $65,000. The accumulated depreciation for the equipment is $25,000. Warren sells the equipment for $37,000. What would the effect be on its Income Statement (Gain/Loss) and Statement of Cash Flows (+/- in Cash Flow Operating, Investing or Financing)? A. Income Statement Gain of $37,000; Cash Flow Investing Activities + $37,000 B. Income Statement Gain of $3,000; Cash Flow Operating Activities − $3,000 C. Income Statement Loss of $3,000; Cash Flow Operating Activities − $3,000 D. Income Statement Loss of $3,000; Cash Flow Investing Activities + $37,000

D. Income Statement Loss of $3,000; Cash Flow Investing Activities + $37,000

How would the issuance of a $120,000 mortgage note payable in exchange for a building be reported on the statement of cash flows? A. Financing activity B. Investing activity C. Financing activity D. Noncash financing and investing activity E. Investing and Financing Activities

D. Noncash financing and investing activity

How does the payment of a previously declared cash dividend affect the elements of the financial statements? A. Decreases assets and stockholders' equity B. Decreases liabilities and increases stockholders' equity C. Increases liabilities and decreases stockholders' equity D. None of these answer choices are correct.

D. None of these answer choices are correct.

Which of the following statements is false? A. The declaration of a cash dividend creates a liability as of the date of declaration. B. The date of record is irrelevant with respect to recording a liability for a cash dividend. C. The dividend payment date is when the cash dividend liability is reduced. D. The declaration and issuance of a stock dividend reduces total stockholders' equity.

D. The declaration and issuance of a stock dividend reduces total stockholders' equity.

Firefly Inc. sold land for $225,000 cash. The land had been purchased five years earlier for $275,000. The loss on the sale was reported on the income statement. On the statement of cash flows, what amount should Firefly report as an investing activity from the sale of the land? a. $225,000 b. $275,000 c. $50,000 d. $500,000

a. $225,000

Clabber Company has bonds outstanding with a par value of $109,000 and a carrying value of $102,700. If the company calls these bonds at a price of $99,500, the gain or loss on retirement is: a. $3,200 gain. b. $6,300 loss. c. $9,500 loss. d. $6,300 gain. e. $3,200 loss.

a. $3,200 gain.

Marshland Company is preparing the company's statement of cash flows for the fiscal year just ended. The following information is available: Cash dividends declared for the year: $40,000 Cash dividends payable at the beginning of the year: $17,000 Cash dividends payable at the end of the year: $13,000 The amount of cash paid for dividends was: a. $44,000. b. $40,000. c. $57,000. d. $53,000. e. $36,000.

a. $44,000.

Net income for the year was $45,500. Accounts receivable increased $5,500, and accounts payable increased by $11,200. Under the indirect method, the cash flow from operations is a. $51,200 b. $45,500 c. $62,200 d. $28,800

a. $51,200

Northington, Inc. is preparing the company's statement of cash flows for the fiscal year just ended. Using the following information, determine the amount of cash flows from investing activities: Net income: $182,000 Gain on the sale of equipment: 12,300 Proceeds from the sale of equipment: 92,300 Depreciation expense - equipment: 50,000 Payment of bonds at maturity: 100,000 Purchase of land: 200,000 Issuance of common stock: 300,000 Increase in merchandise inventory: 35,400 Decrease in accounts receivable: 28,800 Increase in accounts payable: 23,700 Payment of cash dividends: 32,000 a. ($107,700). b. $107,700. c. ($200,000). d. ($139,700). e. ($207,700).

a. ($107,700).

The total interest expense over the entire life of a bond is equal to the sum of the interest payments plus the total discount or minus the total premium related to the bond. a. True b. False

a. True

If the amount of a bond premium on an issued 11%, 4-year, $100,000 bond is $12,928, the annual interest expense is $5,500. a. True b. False

b. False

When the effective interest rate method of amortization is used, the amount of interest expense for a given period is calculated by multiplying the face rate of interest by the bond's carrying value at the beginning of the given period. a. True b. False

b. False

A company with 100,000 authorized shares of $4 par common stock issued 50,000 shares at $9. Subsequently, the company declared a 2% stock dividend on a date when the market price was $10 a share. The effect of the declaration and issuance of the stock dividend is to a. decrease retained earnings, increase common stock, and increase paid-in capital b. increase retained earnings, decrease common stock, and decrease paid-in capital c. increase retained earnings, decrease common stock, and increase paid-in capital d. decrease retained earnings, increase common stock, and decrease paid-in capital

a. decrease retained earnings, increase common stock, and increase paid-in capital

Changes in current assets and current liabilities are reported on the statement of cash flows, indirect method, in the a. operating activities b. financing activities c. investing activities d. separate schedule of noncash activities

a. operating activities

Accounts receivable resulting from sales to customers amounted to $40,000 and $31,000 at the beginning and end of the year, respectively. Income reported on the income statement for the year was $120,000. Exclusive of the effect of other adjustments, the net cash flows from operating activities to be reported on the statement of cash flows using the indirect method is a. $120,000 b. $129,000 c. $151,000 d. $111,000

b. $129,000

Cash dividends of $45,000 were declared during the year. Cash dividends payable were $10,000 at the beginning of the year and $15,000 at the end of the year. The amount of cash for the payment of dividends during the year is a. $50,000 b. $40,000 c. $55,000 d. $35,000

b. $40,000

Texas Inc. has 10,000 shares of 6%, $125 par value preferred stock and 50,000 shares of $1 par value common stock outstanding at December 31. What is the annual dividend on the preferred stock? a. $60 per share b. $75,000 in total c. $10,000 in total d. $0.75 per share

b. $75,000 in total

Which of the following statements is not true about a 2-for-1 split? a. Par value per share is reduced to half of what it was before the split. b. Total contributed capital increases. c. The market price will probably decrease. d. A stockholder with ten shares before the split owns twenty shares after the split.

b. Total contributed capital increases.

On the statement of cash flows prepared by the indirect method, the cash flows from operating activities section would include a. receipts from the sale of investments b. amortization of premium on bonds payable c. payments for cash dividends d. receipts from the issuance of capital stock

b. amortization of premium on bonds payable

The adjusting entry to record the amortization of a discount on bonds payable is a. debit Discount on Bonds Payable, credit Interest Expense b. debit Interest Expense, credit Discount on Bonds Payable c. debit Interest Expense, credit Cash d. debit Bonds Payable, credit Interest Expense

b. debit Interest Expense, credit Discount on Bonds Payable

In calculating cash flows from operating activities using the indirect method, a gain on the sale of equipment is a. added to net income b. deducted from net income c. ignored because it does not affect cash d. reported supplementally as a noncash investing and financing activity

b. deducted from net income

On the statement of cash flows, the cash flows from operating activities section would include a. receipts from the issuance of capital stock b. payment for interest on short-term notes payable c. payments for the purchase of investments d. payments for cash dividends

b. payment for interest on short-term notes payable

Use the following information and the indirect method to calculate the net cash provided or used by operating activities: Net income: $86,900 Depreciation expense: 13,600 Gain on sale of land: 6,700 Increase in merchandise inventory: 3,650 Increase in accounts payable: 7,750 a. $17,100. b. $31,600. c. $97,900. d. $38,300. e. $16,200.

c. $97,900.

If Dakota Company issues 1,500 shares of $6 par common stock for $75,000, a. Common Stock will be credited for $75,000 b. Paid-In Capital in Excess of Par will be credited for $9,000 c. Paid-In Capital in Excess of Par will be credited for $66,000 d. Cash will be debited for $66,000

c. Paid-In Capital in Excess of Par will be credited for $66,000

The interest expense recorded on an interest payment date is increased a. only if the market rate of interest is less than the stated rate of interest on that date b. by the amortization of premium on bonds payable c. by the amortization of discount on bonds payable d. only if the bonds were sold at face value

c. by the amortization of discount on bonds payable

The journal entry a company records for the issuance of bonds when the contract rate is greater than the market rate would be a. debit Bonds Payable, credit Cash b. debit Cash and Discount on Bonds Payable, credit Bonds Payable c. debit Cash, credit Premium on Bonds Payable and Bonds Payable d. debit Cash, credit Bonds Payable

c. debit Cash, credit Premium on Bonds Payable and Bonds Payable

The charter of a corporation provides for the issuance of 100,000 shares of common stock. Assume that 60,000 shares were originally issued and 10,000 were subsequently reacquired. What is the amount of cash dividends to be paid if a $2 per share dividend is declared? a. $60,000 b. $20,000 c. $120,000 d. $100,000

d. $100,000

Selling the bonds at a premium has the effect of a. raising the effective interest rate above the stated interest rate b. attracting investors that are willing to pay a lower rate of interest than on similar bonds c. causing the interest expense to be higher than the bond interest paid d. causing the interest expense to be lower than the bond interest paid

d. causing the interest expense to be lower than the bond interest paid

The cumulative effect of the declaration and payment of a cash dividend on a company's financial statements is to a. decrease total liabilities and stockholders' equity b. increase total expenses and total liabilities c. increase total assets and stockholders' equity d. decrease total assets and stockholders' equity

d. decrease total assets and stockholders' equity

If accounts payable have increased during a period, a. revenues on an accrual basis are less than revenues on a cash basis b. expenses on an accrual basis are less than expenses on a cash basis c. expenses on an accrual basis are the same as expenses on a cash basis d. expenses on an accrual basis are greater than expenses on a cash basis

d. expenses on an accrual basis are greater than expenses on a cash basis

On the statement of cash flows, the cash flows from financing activities section would include all of the following except a. receipts from the sale of bonds payable b. payments for dividends c. payments for purchase of treasury stock d. payments of interest on bonds payabled.

d. payments of interest on bonds payabled.