Accounting II MIDTERM

Franklin Corporation issues $50,000, 10%, 5-year bonds on January 1, for $52,100. Interest is paid semiannually on January 1 and July 1. If Franklin uses the straight-line method of amortization of bond premium, the amount of bond interest expense to be recognized on July 1 is

$2,290

On January 1 of the current year, the Barton Corporation issued 10% bonds with a face value of $200,000. The bonds are sold for $191,000. The bonds pay interest semiannually on June 30 and December 31, and the maturity date is December 31, five years from now. Barton records straight-line amortization of the bond discount. The bond interest expense for the year ended December 31 is

$21,800

A corporation uses the Indirect Statement of Cash Flows. A fixed asset has been sold for $25,000 representing a gain of $3,750. The value in the operating activities section regarding this event would be:

$3,750

A corporation has 50,000 shares of $25 par value stock outstanding that has a current market value of $150. If the corporation issues a 5-for-1 stock split, the market value of the stock after the split will be approximately:

$30

Miriah Inc. has 6,000 shares of 5%, $100 par value, cumulative preferred stock and 50,000 shares of $1 par value common stock outstanding at December 31, 2012. What is the annual dividend on the preferred stock?

$30,000 in total

The current period statement of cash flows includes the flowing: Cash balance at the beginning of the period $310,000 Cash provided by operating activities 185,000 Cash used in investing activities 43,000 Cash used in financing activities 97,000 The cash balance at the end of the period is

$355,000

On January 1, $2,000,000, 5-year, 10% bonds, were issued for $1,960,000. Interest is paid semiannually on January 1 and July 1. If the issuing corporation uses the straight-line method to amortize discount on bonds payable, the semiannual amortization amount is

$4,000

Cash dividends of $50,000 were declared during the year. Cash dividends payable were $10,000 and $20,000 at the beginning and end of the year, respectively. The amount of cash for the payment of dividends during the year is

$40,000

Bonds Payable has a balance of $1,000,000 and Discount on Bonds Payable has a balance of $15,500. If the issuing corporation redeems the bonds at 98.5, what is the amount of gain or loss on redemption?

$500 loss

If a gain of $9,000 is incurred in selling (for cash) office equipment having a book value of $55,000, the total amount reported in the cash flows from investing activities section of the statement of cash flows is

$64,000

Land costing $46,000 was sold for $79,000 cash. The gain on the sale was reported on the income statement as other income. On the statement of cash flows, what amount should be reported as an investing activity from the sale of land?

$79,000

Accounts receivable from sales transactions were $44,000 at the beginning of the year and $53,000 at the end of the year. Net income reported on the income statement for the year was $105,000. Exclusive of the effect of other adjustments, the cash flows from operating activities to be reported on the statement of cash flows prepared by the indirect method is

$96,000

Describe the two distinct obligations incurred by a corporation when issuing bonds

1. Is the obligation to pay face amount of bonds on date. 2. pay interest at percentage of face amount.

A corporation has 40,000 shares of $25 par value stock outstanding. If the corporation issues a 3-for-1 stock split, the number of shares outstanding after the split will be

120,000 shares

The charter of a corporation provides for the issuance of 100,000 shares of common stock. Assume that 45,000 shares were originally issued and 5,000 were subsequently reacquired. What is the number of shares outstanding?

40,000

Balance sheet and income statement data indicate the following: Bonds payable, 6% (this is year 4 of 20 years) $1,200,000 Preferred 8% stock, $100 par (no change during the year) 200,000 Common stock, $50 par (no change during the year) 1,000,000 Income before income tax for year 340,000 Income tax for year 80,000 Common dividends paid 60,000 Preferred dividends paid 16,000 ​ Based on the data presented above, what is the number of times bond interest charges were earned (round to two decimal

5.72

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 number of shares outstanding?

50,000

An installment note payable for a principal amount of $94,000 at 6% interest requires Lawson Company to repay the principal and interest in equal annual payments of $22,315 beginning December 31, of the first year, for each of the next five years. After the final payment, the carrying amount on the note will be

$0

Eddie Industries issues $1,500,000 of 8% bonds at 105, the amount of cash received from the sale is

$1,575,000

If $2,000,000 of 10% bonds are issued at 97, the amount of cash received from the sale is

$1,940,000

Bonds Payable has a balance of $1,000,000 and Discount on Bonds Payable has a balance of $10,000. If the issuing corporation redeems the bonds at 97.5, what is the amount of gain or loss on redemption?

$15,000 gain

Bonds Payable has a balance of $900,000 and Premium on Bonds Payable has a balance of $10,000. If the issuing corporation redeems the bonds at 103, what is the amount of gain or loss on redemption?

$17,000 loss

The following information is available from the current period financial statements: Net income $165,000 Depreciation expense 28,000 Increase in accounts receivable 16,000 Decrease in accounts payable 21,000 The net cash flow from operating activities using the indirect method is

$188,000

The Sneed 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 Paid-in Capital in Excess of Par Value—Preferred Stock for $200,000.

Dylan Corporation issues for cash $2,000,000 of 8%, 15-year bonds, interest payable annually, at a time when the market rate of interest is 9%. The straight-line method is adopted for the amortization of bond discount or premium. Which of the following statements is true?

The amount of annual interest paid to bondholders remains the same over the life of the bonds.

What is treasury stock and why would a company have treasury stock?

Treasury stock is basically a company buying back their own company's stock. Companies would have this to pay for investments.

If wages payable was $100,000 at the beginning of the year and $75,000 at the end of the year, should the $25,000 decrease be added or deducted from income to determine the amount of cash flows from operating activities by the indirect method? Explain in your own word why.

When a current liability decreases, we subtract it using the indirect method.

A bond indenture is

a contract between the corporation issuing the bonds and the bond holders

The entry to record the amortization of a premium on bonds payable on an interest payment date would

a debit to Premium on Bonds Payable

Preferred stock issued in exchange for land would be reported in the statement of cash flows in

a separate schedule

When the corporation issuing the bonds has the right to redeem the bonds prior to the maturity, the bonds are

callable bonds

The entry to record the issuance of common stock at a price above par includes a debit to

cash

The last item on the statement of cash flows prior to the schedule of noncash investing and financing activities reports

cash at the end of the year

On the statement of cash flows, the cash flows from operating activities section would include

cash receipts from sales activities

Selling the bonds at a premium has the effect of

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

On January 1, Gemstone Company obtained a $165,000, 10-year, 7% installment note from Guarantee Bank. The note requires annual payments of $23,492, with the first payment occurring on the last day of the fiscal year. The first payment consists of interest of $11,550 and principal repayment of $11,942. The journal entry to record the issuance of the installment note for cash on January 1 would include a

credit to notes payable for $165,000

The liability for a dividend is recorded on which of the following dates?

date of declaration

The journal entry a company records for the issuance of bonds when the contract rate is less than the market rate would be

debit Cash and Discount on Bonds Payable, credit Bonds Payable

The Freeman Corporation issues 2,000, 10-year, 8%, $1,000 bonds dated January 1 at 96. The journal entry to record the issuance will show a

debit to Cash for $1,920,000

The Glenn Corporation issues 1,000, 10-year, 8%, $2,000 bonds dated January 1 at 96. The journal entry to record the issuance will show a

debit to Discount on Bonds Payable for $80,000

Which of the following should be added to net income in calculating net cash flow from operating activities using the indirect method?

decrease in accounts receivable

On the statement of cash flows prepared by the indirect method, a $50,000 gain on the sale of investments would be

deducted from net income in converting the net income reported on the income statement to cash flows from operating activities

Treasury stock should be reported in the financial statements of a corporation as a(n)

deduction from stockholders' equity

One of the main disadvantages of the corporate form is the

double taxation of dividends

When the bonds are sold for more than their face value, the carrying value of the bonds is equal to

face value plus the unamortized premium

A ten-year bond was issued at par for $250,000 cash. This transaction should be shown on a statement of cash flows under

financing activities

Cash paid for preferred stock dividends should be shown on the statement of cash flows under

financing activities

If the market rate of interest is 10%, a $10,000, 12%, 10-year bond that pays interest semiannually would sell at an amount

greater than face value

Debtors are interested in the number of times interest charges are earned because they want to

have adequate protection against a potential drop in earnings jeopardizing their interest payments

Stockholders' equity

includes retained earnings and paid-in capital

A company purchases equipment for $32,000 cash. This transaction should be shown on the statement of cash flows under

investing activities

Treasury stock shares are

issued shares that have been reacquired by a corporation

The balance in Discount on Bonds Payable that is applicable to bonds due in three years would be reported on the balance sheet in the section entitled

long-term liabilities

If bonds are issued at a discount, it means that the

market interest rate is higher than the contractual interest rate

The order of presentation of activities on the statement of cash flows is

operating, investing, financing

Under the corporate form of business organization

ownership rights are easily transferred

If common stock is issued for an amount greater than par value, the excess should be credited to

paid in capital in excess of par

What are the two parts of stockholder's equity?

paid in capital- all amounts from stockholders retailed earnings- distributed

Which of the following types of transactions would be reported as a cash flow from investing activity on the statement of cash flows?

purchase of noncurrent assets

On the statement of cash flows, the cash flows from financing activities section would include

receipts from the issuance of capital stock

The primary purpose of a stock split is to

reduce the market price of the stock per share

'The term deficit is used to refer to a debit balance in which of the following accounts of a corporation?

retained earnings

When the maturities of a bond issue are spread over several dates, the bonds are called

serial bonds

Characteristics of a corporation include

shareholders who have limited liability

Which of the following is not one of the four basic financial statements?

statement of changes in financial position

The reduction of par or stated value of stock by issuance of a proportionate number of additional shares is termed a

stock split

Cash dividends paid on capital stock would be reported in the statement of cash flows in

the cash flows from financing activities section

Cash paid for equipment would be reported in the statement of cash flows in

the cash flows from investing activities section

Cash paid to purchase long-term investments would be reported in the statement of cash flows in

the cash flows from investing activities section

Depreciation on factory equipment would be reported in the statement of cash flows prepared by the indirect method in

the cash flows from operating activities section

Which of the following should be shown on a statement of cash flows under the financing activity section?

the payment of cash to retire a long-term note

The balance in Premium on Bonds Payable

would be added to the related bonds payable on the balance sheet

If Everly Company issues 1,000 shares of $5 par value common stock for $75,000, the account

Paid-in Capital in excess of Par Value will be credited for $70,000.

Bonds with a face amount of $1,000,000 are sold at 98. The entry to record the issuance is

Cash 980,000 Discount on Bonds Payable 20,000 Bonds Payable 1,000,000

Which of the following is the appropriate general journal entry to record the declaration of a cash dividends?

Cash Dividends Cash Dividends Payable

A stockbroker advises a client to "buy preferred stock....with that type of stock you will never have to worry about losing the dividends". Is the broker correct? Why or why not?

Companies may choose not to pay dividends at all, which means the preferred shareholders wouldn't receive theirs.

If you asked your broker to buy you a 12% bond when the market interest rate for such bonds was 11%, would you expect to pay more or less than the face amount of the bond. Explain.

Definitely pay more than the face amount since the rate in bond contract is more than market rate.

For 10 points explain why depreciation expense is added to net income under the operating section using the indirect method of preparing the statement of cash flows.

Depreciation expense is added to net income under the operating section of the statement of cash flows using the indirect method because it is a non-cash expense that needs to be adjusted to reconcile net income to the actual cash generated from operating activities.

Which of the following is not an advantage of issuing bonds instead of common stock?

Earnings per share on common stock may be lower.

Which of the following should be deducted from net income in calculating net cash flow from operating activities using the indirect method?

Gain on sale of land

What is the purpose of a stock split?

It does increase the number of shares for the stockholders, but the ultimate purpose is to reduce the market price to make it easier for more investors to purchase shares of stock.

On the statement of cash flows prepared by the indirect method, the cash flows from operating activities section would include

amortization of premium on bonds payable

Any unamortized premium should be reported on the balance sheet of the issuing corporation as

an addition to the face amount of the bonds in the liabilities section

The par value per share of common stock represents

an arbitrary amount established in the articles of incorporation

Which one of the following below should be added to net income in calculating net cash flow from operating activities using the indirect method?

an increase in accrued liabilities

How is treasury stock shown on the balance sheet?

as a decrease in stockholders' equity

Those most responsible for the major policy decisions of a corporation are the

board of directors

A legal document that indicates the name of the issuer, the face value of the bond and such other data is called

bond indenture