Accounting Final

Many stockholders choose to invest in preferred stock because:

Dividends are distributed to preferred stockholders before common stockholders.

The Jones Corporation issues 10,000 shares of $50 par value preferred stock for cash at $70 per share. The entry to record the transaction will consist of a debit to Cash for $700,000 and a credit or credits to:

Preferred Stock for $500,000 and Additional Paid-in Capital for $200,000.

When bonds are sold at a premium, which of the following statements is true?

The market rate of interest is less than the stated rate of interest.

When will bonds sell at a discount?

The stated rate of interest is less than the market rate of interest at the time of issue

Under the effective interest method, which of the following calculates the effective interest expense?

Carrying Value × Yield Rate × Time (in years)

Which of the following accounts is debited in every bond issuance whether at par, premium, or discount?

Cash

On January 1, 2012, Nunn Inc. issued $800,000, 10-year, 9% bonds for $662,356. The bonds pay interest on June 30 and December 31. The market rate is 12%. Refer to the information provided for Nunn Inc. The interest payment on June 30, 2012, is:

$36,000

Assume a company issues a bond with a face value of $110,000. The bond matures in 10 years and has a 15% interest rate. If interest on the bond is paid monthly, how much interest will be paid on the bond each month?

$1,375

If $100,000, 5% bonds are sold at 103, what amount will be credited to Bonds Payable?

$100,000

If $130,000 face value bonds are issued at 98, how much cash would the corporation receive for the bonds?

$127,400

Dominic Incorporated issued 5-year, $700,000, 8% bonds at 97. The discount at the time of the sale was $21,000. These bonds pay interest semiannually. What amount of the discount will be amortized each semiannual period under the straight-line method?

$2,100

The interest charged by the bank, at the rate of 9%, on a 3-month, discounted note payable for $100,000 is:

$2,250

Use the information provided for Nunn Inc. to answer the question(s) using the effective interest method. On January 1, 2012, Nunn Inc. issued $800,000, 10-year, 9% bonds for $662,356. The bonds pay interest on June 30 and December 31. The market rate is 12%. Refer to the information provided for Flounder Inc. The interest expense on the bonds at June 30, 2012, is:

$39,741.38

Amazon issued bonds in the amount of $500,000 with a stated interest rate of 8%. If the interest is paid semiannually and the bonds are due in 10 years, what would be the total amount of interest paid over the life of the bonds?

$400,000

Roberts Company issued $1,000,000 of 7% bonds due in 5 years with interest payable annually on December 31. The yield rate was 6%. The bond was issued with a premium of $42,124. The cash paid on December 31 of the first year will be $70,000. How much will interest expense be (rounded to the nearest dollar) using the effective interest rate method?

$62,527

On January 1, 2012, Nunn Inc. issued $800,000, 10-year, 9% bonds for $662,356. The bonds pay interest on June 30 and December 31. The market rate is 12%. Refer to the information provided for Nunn Inc. What is the carrying value of the bonds after the first interest payment is made on June 30, 2012?

$666,097.78

Assume a company issues a bond with a face value of $490,000. The bond matures in 10 years and has a 15% interest rate. If interest on the bond is paid annually, how much interest will be paid on the bond each year?

$73,500

Carney's Feed Mill sold for cash 2,800 bags of grain during the month of July at $20 per bag. Sales taxes for the state of Ohio are 6.5%. All sales taxes will be paid to the appropriate taxing authoring at the end of September. How much did Carney's collect from its customers?

2,800 x $20 = $56,000 $56,000 x .065 = $3,640 $56,000 + $3,640 = $59,640

If bonds are issued at 101.25, this means that:

A $1,000 bond sold for $1,012.50.

What is a liability?

A probable future sacrifice of economic benefit. Liabilities usually require the payment of cash, the transfer of assets other than cash, or the performance of services.

Long-term debt generally refers to obligations that extend beyond 1 year. Which of the following is NOT a long-term debt?

Accounts Payable

Which of the following accounts is classified as a current liability?

Accounts Payable

Which of the following statements about warranties is true?

Actual warranty claims are unlikely to exactly equal the business's estimate

The excess of sales price of treasury stock over its cost should be credited to:

Additional Paid-In Capital

When the stated interest rate is lower than the market interest rate, is the bond traded at a premium or discount?

Discount

Contingent Liability

An obligation whose amount or timing is uncertain and depends on future events. For example, a firm may be contingently liable for damages under a lawsuit that has yet to be decided by the courts

Debt that gives the issuer the opportunity to pay off the remaining interest and principal before maturity date.

Callable Bonds

Debt that allows the creditor to swap it for other securities, typically common stock.

Convertible Bonds

The current ratio is often used to analyze a company's ability to meet its current obligations. How is the current ratio calculated?

Current assets / Current liabilities

Which of the following is the entry that will be made to record the repayment of the bond at maturity?

Debit Bonds Payable; Credit Cash

A note payable arises when a business borrows money. The company should use which of the following entries to correctly record borrowing money from a bank?

Debit Cash; Credit Notes Payable

An account payable is a liability that arises when a business purchases goods or services on credit. Which of the following is the correct entry to record a purchase of goods for resale on credit?

Debit Inventory; Credit Accounts Payable

If bonds were initially issued at a premium, the carrying value of the bonds on the issuer's books will:

Decrease as the bonds approach their maturity date.

One of the main disadvantages of the corporate form is the:

Double taxation of dividends.

Current liabilities are:

Due and payable within one year.

When a corporation declares a cash dividend, which of the following is true?

Equity decreases.

When a corporation declares a stock dividend, which of the following is true?

Equity remains the same

Cash paid for preferred stock dividends should be shown on the statement of cashflows under:

Financing activities.

Most liabilities are recognized when ________

Goods or services are received or money is borrowed.

All of the following are reasons that a corporation may purchase treasury stock except:

If it desires to make an investment in its own stock and is reported as an asset.

Which of the following best describes a warranty?

It is a guarantee that the company will repair the product or replace it if the product is defective during a period following the sale

Debt that does not have collateral to back it up and is relatively risky. This comes with a high rate of interest payment.

Junk Bonds

Bonds may be sold as secured or unsecured. Which of the following types of bonds is always secured?

Mortgage Bonds

If the likelihood that the contingent liability will occur is remote, __________

No journal entry is made; information regarding the contingency should be disclosed in the financial statement footnotes

When a company borrows money from a bank, it typically signs a formal agreement with the bank. The company also creates a liability that must be recorded in its accounting records. This liability is called a(n) __________

Note Payable.

Issued shares represent the:

Number of shares that the corporation has distributed to owners to date.

Which of the following would most likely be classified as a current liability?

Portion of long-term debt due within one year

When the stated interest rate is higher than the market interest rate, is the bond traded at a premium or discount?

Premium

Under the effective interest method, the cash paid on each interest payment date will:

Remain constant regardless of the issuance price.

The issuer provides collateral to back up their required payments, which the creditor can "repossess" upon failed payment.

Secured Bonds

The effective interest rate method does a better job of matching the __________ to the proper period.

Time Value of Money

Which of the following statements about bonds is NOT true?

Under the effective interest rate method, the interest expense is the same every period.

Debt that does not have collateral to back it up, often called "debentures".

Unsecured Bonds