Accounting Test 3 Ch 8-10
When is a liability for dividends created? a.at the date of declaration b.at the date of payment c.at the date of record d.at the end of each fiscal year
a.at the date of declaration
A Premium on Bonds Payable account would appear on the balance sheet as a.contra liability. b.an increase to a long-term liability. c.long-term asset. d.revenue.
b.an increase to a long-term liability.
Outstanding shares represent the a.number of shares that the corporation has sold. b.number of shares that are currently held by stockholders. c.maximum number of shares that can be sold by the corporation. d.number of previously issued shares that have been repurchased by the corporation.
b.number of shares that are currently held by stockholders.
Which of the following is one of the elements of stockholders' equity? a.net income b.retained earnings c.loss on the sale of equipment d.dividends payable
b.retained earnings
Which of the following preferred stock features authorizes the corporation to redeem shares at a fixed price on or after a specified date? a.the preemptive right b.the call provision c.the conversion privilege d.the residual claim
b.the call provision
Which of the following terms does not describe the interest rate printed on the bond certificate? a.coupon rate b.stated rate c.contract rate d.yield rate
d.yield rate
With the effective interest method of amortization, the amortization of a bond premium results in a(n) a.decrease of stockholders' equity. b.decrease in interest expense. c.increase in interest expense. d.increase in liabilities.
b.decrease in interest expense.
When bonds are sold for less than the par amount, this means that the a.bonds are sold at a premium. b.maturity value will be greater than the par amount. c.maturity value will be less than the par amount. d.stated rate of interest is less than the yield rate of interest.
d.stated rate of interest is less than the yield rate of interest.
On April 1, 2019, Guyton Sails accepted a $12,000 advance payment for maintaining a customer's fleet of sail boats. The contract is for a twelve month period. In May 2019, the company performed $1,200 worth of repairs. What is the remaining liability that would appear on the company's balance sheet at the end of May? a.$10,800 b.$12,000 c.$10,000 d.$1,200
c.$10,000
If a business has current assets of $62,000, total assets of $350,000, current liabilities of $31,000, and total liabilities of $125,000, then its current ratio will be a.0.5. b.2.0. c.3.0. d.2.8.
b.2.0.
A twenty-year lease obligation would appear on the balance sheet as a.stockholders' equity. b.current asset. c.long-term liability. d.long-term asset.
c.long-term liability.
Keller Company issued $1,000,000, 8%, 7 year bonds with interest payable semiannually when the yield rate was 8%. The bonds issued at a.This question cannot be answered without the time value of money tables. b.$887,037. c.$1,112,963. d.$1,000,000.
d.$1,000,000.
Which of the following statements about bond accounting under the effective interest method is correct? a.The interest expense is calculated as the carrying value × the yield rate. b.The difference between the interest expense and the interest paid is deducted from the carrying value of bonds sold at a discount. c.The cash interest paid is calculated as the bond face value × the yield rate. d.The difference between the cash interest paid and the interest expense is added to the carrying value of bonds sold at a premium.
a.The interest expense is calculated as the carrying value × the yield rate.
On January 1, 2019, this company issued $500,000, 10-year, 9% bonds for $480,745. The bonds pay interest on June 30 and December 31. The market rate is 10%. The company plans to use the effective interest method of amortizing bond discounts and premiums. Refer to Kaleidoscope Paint. What is the carrying value of the bonds on the maturity date? a.$500,000 b.$480,745 c.$19,255 d.$0
a.$500,000
A Discount on Bonds Payable account would appear on the balance sheet as a.contra-liability. b.long-term liability. c.current asset. d.current liability.
a.contra-liability.
GT Company has $200 in cash, $500 in accounts receivable, and $700 in inventory. The company also has $200 in accounts payable and $200 in unearned sales revenue. What is the company's quick ratio? a.3.00 b.1.75 c.3.50 d.2.25
b.1.75
The balance in the retained earnings account represents a.accumulated revenues from all prior years of operations. b.accumulated earnings that have not been distributed to stockholders. c.cash in the bank. d.the amount of cash available for dividends.
b.accumulated earnings that have not been distributed to stockholders.
The total amount of interest that will be paid on a 5-year, $90,000 note payable at 11% simple annual interest is? a.$9,900 b.$139,500 c.$49,500 d.$1,980
c.$49,500
A growing corporation had $180,000 of its $30 par common stock issued before its recent 3-for-1 stock split. The market price of the stock was $120 per share before the split. Which of the following is true as a result of the split? a.There were 24,000 shares (6,000 + 18,000) of common stock issued after the split. b.The balance in the common stock account increased to $540,000. c.The market price of the stock tripled. d.The par value of the stock decreased to $10 per share.
d.The par value of the stock decreased to $10 per share.
On January 1, 2019, a company issued 10,000 shares of 10%, $10 par value cumulative preferred stock. No dividends were declared in 2019 or 2020. In 2021, the company declared a dividend of $200,000. How much of the 2021 dividend should be paid to common stockholders? a.$200,000 b.$197,000 c.$190,000 d.$170,000
d.$170,000
Which of the following would appear on the balance sheet as a current liability? a.Potential damages from the risk of explosions in a fireworks factory. b.A loss that could be expected upon the occurrence of a strike by employees. c.A possible loss from a threatened lawsuit. d.Payments that are likely to occur for pension benefits to employees.
d.Payments that are likely to occur for pension benefits to employees.
Rent owed to the lessor under a short-term lease would appear on the balance sheet as a.long-term liability. b.current asset. c.owners' equity. d.current liability.
d.current liability.
If a corporation repurchases 500 shares of its previously-issued common stock for $5,000 and then reissues it for $4,000, which of the following statements is true regarding the difference in the amounts of the repurchase and reissuance? a.It is reported as a loss on the sale of treasury stock. b.It is an increase in stockholders' equity. c.It is reported as a gain on the sale of treasury stock. d.It is a decrease in stockholders' equity.
d.It is a decrease in stockholders' equity.
Kiss Greetings planned to raise $500,000 by issuing bonds. The bond certificates were printed bearing a stated interest rate of 6%, which was equal to the yield rate of interest. However, before the bonds could be issued, economic conditions forced the yield rate up to 7%. If the life of the bonds is 10 years and interest is paid annually on December 31, how much will the company receive from the sale of the bonds? a.More than $500,000 because the 6% stated rate of interest was less than the yield rate. b.The 6% bonds will not be sold at all. The company will be required to have the certificates reprinted bearing the new yield rate of 7%. c.Exactly $500,000 because the company would still pay interest at the stated rate. d.Less than $500,000 because the 7% yield rate of interest was higher than the stated rate.
d.Less than $500,000 because the 7% yield rate of interest was higher than the stated rate.
An addition to employee compensation whereby the corporation provides a right to purchase stock at a set price is called a. a call option. b.the conversion privilege. c.treasury stock. d.a stock option.
d.a stock option.
Labor Finders, Inc.Selected data from the company's financial statements are presented below: 2020 2019 Net income $ 150,000 . $ 120,000 Cash dividends paid on preferred stock 15,000 . 15,000 Cash dividends paid on common stock . 42,000 . 38,000 Common stock price . 15 14 Preferred stock price 31 26 Purchases of treasury stock 100,000 -0- Total stockholders' equity 2,300,000 2,157,000 Common stockholders' equity . 1,780,000 1,637,000 Average number of preferred shares outstanding 20,000 20,000 Average number of common shares outstanding 104,000 95,000 Refer to Labor Finders, Inc. The company's 2020 earnings per share is reported as a.$1.30 b.$1.08 c.$1.20 d.$1.43
a.$1.30
Lasik Vision, Inc. began business on June 1, 2019. The corporate charter authorized issuance of 1,000 shares of no-par common stock and 4,000 shares of $6 par, 6% cumulative preferred stock. As of the beginning of 2020, 200 shares of common stock had been issued and none of the preferred stock had been issued. If the company issues 400 shares of common stock on March 1, 2020 for $10 per share, the journal entry would include a a.$4,000 credit to common stock. b.$2,400 credit to common stock. c.$4,000 credit to paid-in capital in excess par--common stock. d.$2,400 credit to paid-in capital in excess of par--common stock.
a.$4,000 credit to common stock.
A company whose fiscal year ends December 31, has a weekly payroll of $100,000. Employees work 5 days per week, Monday through Friday and payday is every Friday. How much wages expense will be recorded on the Friday, January 3 payday? a.$60,000 b.$100,000 c.$0 d.$40,000
a.$60,000
What is the primary reason for a stock split? a.To decrease the market value of the stock. b.To distribute cash to the investor. c.To increase the capital stock of the corporation. d.To decrease the number of shares outstanding.
a.To decrease the market value of the stock.
Par value represents the a.arbitrary amount that establishes a minimum price for the stock when it is first issued. b.amount for which treasury shares may be reissued. c.current market price of the stock. d.amount for which any treasury shares have been acquired by the corporation.
a.arbitrary amount that establishes a minimum price for the stock when it is first issued.
The Discount on Bonds Payable account is shown on the balance sheet as a.an asset. b.a contra-liability account that reduces the bond to market value at the issue date. c.an expense.' d.a long-term liability.
b.a contra-liability account that reduces the bond to market value at the issue date.
The current portion of long-term debt would appear on the balance sheet as a.long-term liability. b.current liability. c.current asset. d.long-term debt.
b.current liability.
The payment of Accounts Payable results in a(n) a.decrease in liabilities and increase in assets. b.decrease in both liabilities and assets. c.increase in liabilities and decrease in stockholders' equity. d.decrease in liabilities and increase in stockholders' equity.
b.decrease in both liabilities and assets.
A landlord records the collection of a tenant's security deposit as a(n) a.contra liability. b.liability. c.contingent liability. d.prepaid expense.
b.liability.
Kaleidoscope Paint On January 1, 2019, this company issued $500,000, 10-year, 9% bonds for $480,745. The bonds pay interest on June 30 and December 31. The market rate is 10%. The company plans to use the effective interest method of amortizing bond discounts and premiums. Refer to Kaleidoscope Paint. The cash payment on June 30, 2019, is a.$25,000. b.$45,000. c.$50,000. d.$22,500.
d.$22,500.
Which of the following statements regarding accounts payable is false? a.Accounts payable seldom require the payment of interest. b.Accounts payable arise when a business purchases goods or services on credit. c.Accounting for accounts payable is really just the flip side of accounts receivable. d.Accounts payable arise when a business promises to purchase goods or services in the future.
d.Accounts payable arise when a business promises to purchase goods or services in the future.
After a corporation declares a cash dividend, what takes place on the date of record? a.stockholders' equity decreases b.no entry is necessary c.cash decreases d.liabilities decrease
b.no entry is necessary
Many stockholders choose to invest in preferred stock because a.preferred stock can always be converted into common stock at the stockholder's option. b.the preferred dividend distributions are generally increased each year. c.preferred stock includes the right to participate in management decisions through voting privileges. d.dividends are distributed to preferred stockholders before common stockholders.
d.dividends are distributed to preferred stockholders before common stockholders.
When bonds are issued by a company, the accounting entry shows an a.increase in liabilities and a decrease in stockholders' equity. b.increase in liabilities and an increase in stockholders' equity. c.increase in assets and an increase in stockholders' equity. d.increase in assets and an increase in liabilities.
d.increase in assets and an increase in liabilities.
Bonds sell at a premium when the a.issuing company agrees to repay the maturity before the due date. b.issuing company has a better reputation than other companies in the same business. c.yield rate of interest is more than the stated rate at the time of issue. d.market rate of interest is less than the stated interest rate at the time of issue.
d.market rate of interest is less than the stated interest rate at the time of issue.
A bond issuing at 101.25 means that the bond a.stated rate is lower than the market rate of interest. b.sold at a discount. c.sold for $101.25. d.sold for $1,012.50.
d.sold for $1,012.50.
If a company's bonds are callable, a.the bondholder has the right to sell an option on the bond. b.the bonds are never allowed to remain outstanding until the maturity date. c.the investor never knows what the redemption price will be until the bonds are actually called. d.the issuing company is likely to retire the bonds before maturity if the bonds are paying 8% interest while the market rate of interest is 4%.
d.the issuing company is likely to retire the bonds before maturity if the bonds are paying 8% interest while the market rate of interest is 4%.
Convertible bonds are attractive to bondholders because a.they usually carry a higher rate of interest than non-convertible bonds. b.they carry a convertible interest rate that can be increased when the market rate of interest increases .c.the issuing company cannot retire the bonds before maturity. d.they can be converted into stock at the bondholder's option.
d.they can be converted into stock at the bondholder's option.
The salon sells $50,000 of gift cards in May 2019. These gift cards may be used anytime before their expiration on May 31, 2020. Refer to Georgia's Salon. On May 31, 2020, all but $1,500 of the gift cards had been redeemed for salon services. Which of the following is the correct journal entry to record for the expired gift cards? a.Unearned Sales Revenue 1,500 Accounts Payable 1,500 b.No entry is necessary.c.Loss on Gift Cards 1,500 Sales Revenue 1,500 d.Unearned Sales Revenue 1,500 Sales Revenue 1,500
d.Unearned Sales Revenue 1,500 Sales Revenue 1,500
On October 1st, a company borrowed $60,000 from Eighth National Bank on a 1-year, 7% note. If the company's fiscal year ends on December 31st, a year-end adjusting entry is required to increase a.interest payable by $1,050. b.interest expense by $4,200 .c.prepaid interest by $3,150. d.notes payable by $1,050.
a.interest payable by $1,050.
On May 1, a company borrowed $30,000 from the First National Bank on a 1-year, 6% note. Assuming the company keeps its records on a calendar year basis, an entry is needed on December 31st to increase a.interest payable by $1,200. b.interest expense by $1,800. c.interest payable by $900. d.interest expense by $600.
a.interest payable by $1,200.
Which of the following is not classified as a current liability account? a.note payable, due in 2 years b.accounts payable c.salaries and wages payable d.income taxes payable
a.note payable, due in 2 years
Treasury shares represent the a.number of previously issued shares that have been repurchased by the corporation. b.number of shares that the corporation has sold. c.number of shares that are currently held by stockholders. d.maximum number of shares that can be sold by the corporation.
a.number of previously issued shares that have been repurchased by the corporation.
The salon sells $50,000 of gift cards in May 2019. These gift cards may be used anytime before their expiration on May 31, 2020. Refer to Georgia's Salon. During May 2019, $10,000 of the gift cards were redeemed for salon services. Which of the following is the correct journal entry to record the redemption of the gift cards? a.Unearned Sales Revenue 10,000 Cash 10,000 b.Unearned Sales Revenue 10,000 Sales Revenue 10,000 c.Unearned Sales Revenue 10,000 Accounts Payable 10,000 d.Prepaid Sales Revenue 10,000 Sales Revenue 10,000
b.Unearned Sales Revenue 10,000 Sales Revenue 10,000
Authorized stock represents the a.number of shares that the corporation has sold. b.maximum number of shares that can be issued for each class of stock. c.number of previously issued shares that have been repurchased by the corporation. d.number of shares that are currently held by stockholders.
b.maximum number of shares that can be issued for each class of stock.
Kaleidoscope Paint On January 1, 2019, this company issued $500,000, 10-year, 9% bonds for $480,745. The bonds pay interest on June 30 and December 31. The market rate is 10%. The company plans to use the effective interest method of amortizing bond discounts and premiums. Refer to Kaleidoscope Paint. The interest expense on the bonds at June 30, 2019, is a.$22,500. b.$21,634. c.$24,037. d.$43,267.
c.$24,037.
On the issuance date, the Bonds Payable account has a balance of $55,000,000 and Premium on Bonds Payable has a balance of $5,000,000. These bonds issued at a.a price that cannot be determined without knowing the stated and market interest rates. b.$55,000,000. c.$60,000,000. d.$50,000,000.
c.$60,000,000.
A company has total assets of $350,000 consisting of current assets of $115,000, property, plant, and equipment of $200,000, and other assets of $35,000. The company has total liabilities of $100,000 consisting of current liabilities of $65,000 and other liabilities of $35,000. What is the current ratio? a.3.50 b.1.77 c.1.15 d.5.38
b.1.77
Total stockholders' equity includes $50,000 of common stock with a stated value of $0.50, and 5,000 shares of treasury stock with a total cost of $25,000. How many total shares are outstanding? a.105,000 b.95,000 c.150,000 d.100,000
b.95,000
GTO Division has $14,000 in current assets, $2,000 in accounts payable, and $2,000 in unearned sales revenue. What is the division's current ratio? a.3.00 b.2.25 c.3.50 d.1.75
c.3.50
The salon sells $50,000 of gift cards in May 2019. These gift cards may be used anytime before their expiration on May 31, 2020. Refer to Georgia's Salon. Which of the following is the correct journal entry to record the sale of the gift cards? a.Cash 50,000 Sales Revenue 50,000 b.Cash 50,000 Prepaid Sales Revenue 50,000 c.Cash 50,000 Unearned Sales Revenue 50,000 d.Cash 50,000 Accounts Payable 50,000
c.Cash 50,000 Unearned Sales Revenue 50,000
The amount of a current liability reported on the balance sheet for interest payable includes a.all interest to be paid within one year into the future related to amounts borrowed in past transactions. b.all interest paid-to-date related to amounts borrowed in past transactions. c.all interest currently owed related to amounts borrowed in past transactions. d.all interest to be paid in the future related to amounts borrowed in past transactions.
c.all interest currently owed related to amounts borrowed in past transactions.
Long-term debt generally includes a.obligations that will be satisfied within one year. b.accounts payable, because they are interest-bearing. c.obligations that extend beyond one year. d.accrued expenses.
c.obligations that extend beyond one year.
Kaleidoscope Paint On January 1, 2019, this company issued $500,000, 10-year, 9% bonds for $480,745. The bonds pay interest on June 30 and December 31. The market rate is 10%. The company plans to use the effective interest method of amortizing bond discounts and premiums. Refer to Kaleidoscope Paint. What is the carrying value of the bonds after the first interest payment is made on June 30, 2019? a.$482,282 b.$500,000 c.$503,245 d.$480,745
a.$482,282
Which of the following would describe a callable bond? a.Borrower has the right to pay off the bonds prior to due date. b.Borrower has the right to call off the interest payments on the bonds. c.Borrower has the right to issue more bonds prior to due date of existing bonds. d.Investor has the right to call off the interest payments on the bonds.
a.Borrower has the right to pay off the bonds prior to due date.
What is the impact on the accounting equation of recording a payment to a supplier on account? a.Both assets and liabilities decrease. b.Liabilities decrease and stockholders' equity increases. c.Liabilities increase and stockholders' equity decreases. d.Both assets and stockholders' equity decrease.
a.Both assets and liabilities decrease.
Common stock usually has all of the following features except a.conversion privilege. b.voting rights. c.preemptive right. d.residual claim to net assets.
a.conversion privilege.
A corporation has 5,000 shares of $5 par, 6% cumulative preferred stock outstanding and 25,000 shares of $2 par common stock outstanding. No dividends have been paid for the past 2 years. If the company wishes to distribute $2 per share to the common stockholders this year, what is the total amount of dividends that must be paid? a.$4,500 b.$54,500 c.$51,500 d.$50,000
b.$54,500
The salon sells $50,000 of gift cards in May 2019. These gift cards may be used anytime before their expiration on May 31, 2020. Refer to Georgia's Salon. On May 31, 2020, all but $1,500 of the gift cards had been redeemed for salon services. What is the impact on the accounting equation of recording the expired gift cards? a.Assets and liabilities increase. b.Liabilities decrease and stockholders' equity increases. c.Liabilities increase and stockholders' equity decreases. d.Assets and liabilities decrease.
b.Liabilities decrease and stockholders' equity increases.
A current liability includes obligations which must be repaid a.within one year or within the operating cycle, whichever is longer. b.within one year. c.within one year or within the operating cycle, whichever is shorter. d.by the end of the operating cycle.
a.within one year or within the operating cycle, whichever is longer.
What is the impact on the accounting equation of recording the accrual of interest expense? a.Liabilities increase and stockholders' equity decreases. b.Both assets and stockholders' equity decrease. c.Liabilities decrease and stockholders' equity increases. d.Both assets and liabilities decrease.
a.Liabilities increase and stockholders' equity decreases.
Suppose a corporation issues 5,000 shares of $1 par common stock for $30 per share. In addition to the increase in cash, what effect does this transaction have on the accounting equation? a.Paid-in capital in excess of par increases $145,000. b.Retained earnings increases $150,000 .c.Gain on stock issuance increases $145,000. d.Common stock increases $150,000.
a.Paid-in capital in excess of par increases $145,000.
When a corporation declares a cash dividend, which of the following is true? a.stockholders' equity decreases b.cash decreases c.liabilities decrease d.no entry is necessary
a.stockholders' equity decreases
What is the impact on the accounting equation of recording the accrual of wages expense? a.Both assets and liabilities decrease. b.Liabilities increase and stockholders' equity decreases. c.Liabilities decrease and stockholders' equity increases. d.Both assets and stockholders' equity decrease.
b.Liabilities increase and stockholders' equity decreases.
Which of the following statements is true with regard to 7% cumulative, participating preferred stock? a.Stockholders who hold this type of stock are guaranteed a dividend each year. b.The issue price of this stock is reported in the preferred stock account on the balance sheet. c.If the corporation pays a per share dividend in excess of 7% of the preferred stock's par value and there are no dividends in arrears, the preferred shares will receive a share of the amounts available for distribution as dividends to other classes of stock. d.If dividends are not declared, they accumulate and a liability must be reported on the balance sheet for any amount in arrears that is owed to the preferred stockholders.
c.If the corporation pays a per share dividend in excess of 7% of the preferred stock's par value and there are no dividends in arrears, the preferred shares will receive a share of the amounts available for distribution as dividends to other classes of stock.
When a corporation issues a stock dividend, which of the following is true? a.Retained earnings is increased. b.Cash decreases. c.Total stockholders' equity decreases. d.Total stockholders' equity remains the same.
d.Total stockholders' equity remains the same.
During January, Gaston Wholesalers experienced some difficulties with cash flow so it approached one of its vendors about a payment extension. The vendor agreed to the extension on the condition that the company sign a 30-day note that includes 9% interest. What journal entry is needed to record the retirement of the note on the maturity date? a.Debit notes payable and credit cash. b.Debit accounts payable, debit interest expense, and credit notes payable. c.Debit notes payable, debit interest expense, and credit cash. d.Debit notes payable, credit interest expense, and credit cash.
c.Debit notes payable, debit interest expense, and credit cash.
When will bonds sell at a discount? a.The stated rate of interest is less than the yield rate of interest at the time of issue. b.The stated rate of interest is more than the yield rate of interest at the time of issue. c.The issuing company will be able to retire the bonds at less than face at maturity. d.The credit standing of the issuing company is not as good as other companies in a similar line of business.
a.The stated rate of interest is less than the yield rate of interest at the time of issue.
If a corporation issues cumulative, participating preferred stock, which of the following is true regarding the rights of the preferred stockholders? a.They will share in the dividends that exceed a specified amount. b.They will have an option to convert their shares to common stock at a specified date. c.They will received a fixed dividend regardless of the amount of dividends declared. d.They must forego dividends for any periods when no dividends are declared.
a.They will share in the dividends that exceed a specified amount.
Which of the following statements regarding contingent liabilities is true? a.The accounting principle that determines whether a contingent liability is to be recorded is that of Historical Cost. b.If they are probable and estimable, then they must be recorded even before the outcome of the future event. c.If they are probable and estimable, then they should be disclosed in the notes to the financial statements. d.Contingencies that are not estimable should not be recorded or disclosed in the financial statements even if they are probable.
b.If they are probable and estimable, then they must be recorded even before the outcome of the future event.