ACCT. 2 Review

A company issues $15,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2019. Interest is paid on June 30 and December 31. The proceeds from the bonds are $14,703,108. Using effective-interest amortization, what will the carrying value of the bonds be on the December 31, 2020 balance sheet? a.$14,709,481 b.$15,000,000 c.$14,718,844 d.$14,706,232

Ans: A

Which of the following is an example of a contingent liability? a.Obligations related to product warranties. b.Possible receipt from a litigation settlement. c.Pending court case with a probable favorable outcome. d.Tax loss carryforwards.

Ans: A

Milo Co. had 800,000 shares of common stock outstanding on January 1, issued 126,000 shares on May 1, purchased 63,000 shares of treasury stock on September 1, and issued 54,000 shares on November 1. The weighted average shares outstanding for the year is a.851,000. b.872,000. c.893,000. d.914,000.

Ans: B

On January 1, 2020, Huber Co. sold 12% bonds with a face value of $2,000,000. The bonds mature in five years, and interest is paid semiannual-ly on June 30 and December 31. The bonds were sold for $2,154,500 to yield 10%. Using the effective-interest method of amortization, interest expense for 2020 is a.$200,000. b.$214,836. c.$215,400. d.$240,000.

Ans: B

Palco Co., which has a taxable payroll of $1,200,000, is subject to FUTA tax of 0.8% and a state contribution rate of 4.0%. What is the total amount of federal and state unemployment tax for Palco Co.? a.$139,200 b.$57,600 c.$48,000 d.$33,600

Ans: B

Quirk Corporation issued a 100% stock dividend of its common stock which had a par value of $10 before and after the dividend. At what amount should retained earnings be capitalized for the additional shares issued? a.There should be no capitalization of retained earnings. b.Par value c.Fair value on the declaration date d.Fair value on the payment date

Ans: B

Which of the following is not a condition allowing a company to exclude a short-term obligation from current liabilities? a.Liability is contractually due to be settled more than a year after the balance sheet date. b.Obligation must be due within one year. c.A contractual right to defer settlement of the liability at least a year after the balance sheet date. d.Subsequently refinance the obligation on a long-term basis.

Ans: B

A primary source of stockholders' equity is a.income retained by the corporation. b.appropriated retained earnings. c.contributions by stockholders. d.both income retained by the corporation and contributions by stockhold-ers.

Ans: D

Manning Company issued 10,000 shares of its $5 par value common stock having a fair value of $25 per share and 15,000 shares of its $15 par value preferred stock having a fair value of $20 per share for a lump sum of $520,000. How much of the proceeds would be allocated to the common stock? a.$250,000 b.$236,364 c.$283,636 d.$276,250

Ans: B

Stockholders' equity is generally classified into two major categories= a.contributed capital and appropriated capital. b.appropriated capital and retained earnings. c.retained earnings and unappropriated capital. d.earned capital and contributed capital.

Ans: D

Fogel Co. has $4,000,000 of 8% convertible bonds outstanding. Each $1,000 bond is convertible into 30 shares of $30 par value common stock. The bonds pay interest on January 31 and July 31. On July 31, 2021, the holders of $1,280,000 bonds exercised the conversion privilege. On that date the market price of the bonds was 105 and the market price of the common stock was $36. The total unamortized bond premium at the date of conversion was $280,000. Fogel should record, as a result of this conversion, a a.credit of $217,600 to Paid-in Capital in Excess of Par. b.credit of $192,000 to Paid-in Capital in Excess of Par. c.credit of $89,600 to Premium on Bonds Payable. d.loss of $12,800.

Ans: A

If bonds are issued initially at a premium and the effective-interest method of amortization is used, interest expense in the earlier years will be a.greater than if the straight-line method were used. b.greater than the amount of the interest payments. cthe same as if the straight-line method were used. d.less than if the straight-line method were used.

Ans: A

In January 2020, Finley Corporation, a newly formed company, issued 10,000 shares of its $10 par common stock for $15 per share. On July 1, 2020, Finley Corporation reacquired 1,000 shares of its outstanding stock for $12 per share. The acquisition of these treasury shares a.decreased total stockholders' equity. b.increased total stockholders' equity. c.did not change total stockholders' equity. d.decreased the number of issued shares.

Ans: A

On December 31, 2020, the stockholders' equity section of Arndt, Inc., was as follows Common stock, par value $10 authorized 30,000 shares issued and outstanding 9,000 shares $90,000 Additional paid-in capital 116,000 Retained earnings 184,000 Total stockholders' equity $390,000 On March 31, 2021, Arndt declared a 10% stock dividend, and accordingly 900 additional shares were issued, when the fair value of the stock was $18 per share. For the three months ended March 31, 2021, Arndt sustained a net loss of $40,000. The balance of Arndt's retained earnings as of March 31, 2021, should be a.$127,800. b.$135,000. c.$136,800. d.$144,000.

Ans: A

Porter Corp. purchased its own par value stock on January 1, 2020 for $20,000 and debited the treasury stock account for the purchase price. The stock was subsequently sold for $12,000. The $8,000 difference between the cost and sales price should be recorded as a deduction from a.additional paid-in capital to the extent that previous net "gains" from sales of the same class of stock are included therein, otherwise, from retained earnings. b.additional paid-in capital without regard as to whether or not there have been previous net "gains" from sales of the same class of stock included therein. c.retained earnings. d.net income.

Ans: A

What condition(s) is/are necessary to recognize an asset retirement obligation? a.Company has an existing legal obligation and can reasonably estimate the amount of the liability. b.Company can reasonably estimate the amount of the liability. c.Company has an existing legal obligation. d.Obligation event has occurred.

Ans: A

When convertible debt is retired by the issuer, any material difference between the cash acquisition price and the carrying amount of the debt should be a.reflected currently in income. b.reflected currently in income as a discontinued operations item. c.treated as a prior period adjustment. d.treated as an adjustment of additional paid-in capital.

Ans: A

Craig borrowed $700,000 on October 1, 2020 and is required to pay $720,000 on March 1, 2021. What amount is the note payable recorded at on October 1, 2020 (notes payable minus any discount on notes payable) and how much in-terest is recognized from October 1 to December 31, 2020? a.$700,000 and $0. b.$700,000 and $12,000. c.$720,000 and $0. d.$700,000 and $20,000.

Ans: B

Gannon Company acquired 20,000 shares of its own common stock at $20 per share on February 5, 2020, and sold 10,000 of these shares at $27 per share on August 9, 2021. The fair value of Gannon's common stock was $24 per share at December 31, 2020, and $25 per share at December 31, 2021. The cost method is used to record treasury stock transactions. What ac-count(s) should Gannon credit in 2021 to record the sale of 10,000 shares? a.Treasury Stock for $270,000. b.Treasury Stock for $200,000 and Paid-in Capital from Treasury Stock for $70,000. c.Treasury Stock for $200,000 and Retained Earnings for $70,000. d.Treasury Stock for $240,000 and Retained Earnings for $30,000.

Ans: B

Greeson Corp. signed a three-month, zero-interest-bearing note on November 1, 2020 for the purchase of $500,000 of inventory. The face value of the note was $507,800. Greeson used a "Discount of Note Payable" account to initially record the note. Assuming that the discount will be amortized equally over the 3-month period and that there was no adjusting entry made for November, the adjusting entry made at December 31, 2020 will include a a.debit to Discount on Note Payable for $2,600. b.debit to Interest Expense for $5,200. c.credit to Discount on Note Payable for $2,600. d.credit to Interest Expense for $5,200.

Ans: B

Kant Corporation retires its $500,000 face value bonds at 102 on January 1, following the payment of interest. The carrying value of the bonds at the re-demption date is $481,250. The entry to record the redemption will include a a.credit of $18,750 to Loss on Bond Redemption. b.credit of $18,750 to Discount on Bonds Payable. c.debit of $28,750 to Gain on Bond Redemption. d.debit of $10,000 to Premium on Bonds Payable.

Ans: B

Litke Corporation issued at a premium of $10,000 a $200,000 bond issue convertible into 4,000 shares of common stock (par value $20). At the time of the conversion, the unamortized premium is $4,000, the market value of the bonds is $220,000, and the stock is quoted on the market at $60 per share. If the bonds are converted into common, what is the amount of paid-in capital in excess of par to be recorded on the conversion of the bonds? a.$130,000 b.$124,000 c.$144,000 d.$120,000

Ans: B

On January 1, 2021, Bacon Co. leased a building to Horner Corp. for a ten-year term at an annual rental of $175,000. At inception of the lease, Bacon received $700,000 covering the first two years' rent of $350,000 and a security deposit of $350,000. This deposit will not be returned to Horner upon expiration of the lease but will be applied to payment of rent for the last two years of the lease. What portion of the $700,000 should be shown as a current and long-term liabil-ity, respectively, in Bacon's December 31, 2021 balance sheet? Current Liability Long-term Liability a. $0 $700,000 b. $175,000 $350,000 c. $350,000 $350,000 d. $350,000 $175,000

Ans: B

On January 1, 2021, Yang Corporation granted compensatory stock options for 25,000 shares of its $24 par value common stock to certain of its key employees. The market price of the common stock on that date was $31 per share and the option price was $28. Using a fair value option pricing model, total compensation expense is determined to be $100,000. The options are exercisable beginning January 1, 2023, providing those key employees are still in the employ of the company at the time the options are exercised. The options expire on January 1, 2024. On January 4, 2023, when the market price of the stock was $36 per share, all options for the 25,000 shares were exercised. The service period is for two years beginning January 1, 2021. Using the fair value method, what should be the amount of compensation expense recorded by Yang Corporation for these options on December 31, 2021? a.$100,000 b.$50,000 c.$23,438 d.$0

Ans: B

On January 1, Patterson Inc. issued $5,000,000, 9% bonds for $4,695,000. The market rate of interest for these bonds is 10%. Interest is payable annual-ly on December 31. Patterson uses the effective-interest method of amortiz-ing bond discount. At the end of the first year, Patterson should report unamortized bond discount of a.$274,500. b.$285,500. c.$258,050. d.$255,000.

Ans: B

Reich, Inc. issued bonds with a maturity amount of $200,000 and a maturity ten years from the date of issue. If the bonds were issued at a premium, this indicates that a.the effective yield or market rate of interest exceeded the stated (nominal) rate. b.the nominal rate of interest exceeded the market rate. c.the market and nominal rates coincided. d.no necessary relationship exists between the two rates.

Ans: B

Sandy Shoes Foot Inc. is involved in litigation regarding a faulty product sold in a prior year. The company has consulted with its attorney and determined that it is possible that they may lose the case. The attorneys estimated that there is a 40% chance of losing. If this is the case, their attorney estimated that the amount of any payment would be $800,000. What is the required journal entry as a re-sult of this litigation? a.Debit Litigation Expense for $800,000 and credit Litigation liability for $800,000. b.No journal entry is required. c.Debit Litigation Expense for $320,000 and credit Litigation Liability for $320,000. d.Debit Litigation Expense for $480,000 and credit Litigation Liability for $480,000.

Ans: B

The 10% bonds payable of Nixon Company had a net carrying amount of $2,850,000 on December 31, 2020. The bonds, which had a face value of $3,000,000, were issued at a discount to yield 12%. The amortization of the bond discount was recorded under the effective-interest method. Interest was paid on January 1 and July 1 of each year. On July 2, 2021, several years be-fore their maturity, Nixon retired the bonds at 102. The interest payment on July 1, 2021 was made as scheduled. What is the loss that Nixon should rec-ord on the early retirement of the bonds on July 2, 2021? Ignore taxes. a.$60,000. b.$189,000. c.$168,000. d.$210,000.

Ans: B

Which of the following is not true about the discount on short-term notes paya-ble? a.The Discount on Notes Payable account has a debit balance. b.The Discount on Notes Payable account should be reported as an asset on the balance sheet. c.When there is a discount on a note payable, the effective interest rate is higher than the stated discount rate. d.Discount on Notes Payable is a contra account to Notes Payable.

Ans: B

A company issues $15,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2020. Interest is paid on June 30 and December 31. The proceeds from the bonds are $14,703,108. Using effective-interest amortization, how much interest expense will be recognized in 2020? a.$585,000 b.$1,170,000 c.$1,176,373 d.$1,176,249

Ans: C

Bond interest paid is equal to the a.carrying value of the bonds multiplied by the effective-interest rate. b.carrying value of the bonds multiplied by the stated interest rate. c.face amount of the bonds multiplied by the stated interest rate. d.face amount of the bonds multiplied by the effective-interest rate.

Ans: C

Compensation expense resulting from a compensatory stock option plan is generally a.recognized in the period of exercise. b.recognized in the period of the grant. c.allocated to the periods benefited by the employee's required service. d.allocated over the periods of the employee's service life to retirement.

Ans: C

Corporations issue convertible debt for two main reasons. One is the desire to raise equity capital that, assuming conversion, will arise when the original debt is converted. The other is a.the ease with which convertible debt is sold even if the company has a poor credit rating. b.the fact that equity capital has issue costs that convertible debt does not. c.that many corporations can obtain debt financing at lower rates. d.that convertible bonds will always sell at a premium.

Ans: C

Downing Company issues $5,000,000, 6%, 5-year bonds dated Janu-ary 1, 2020 on January 1, 2020. The bonds pay interest semiannually on June 30 and December 31. The bonds are issued to yield 5%. What are the proceeds from the bond issue? 2.5% 3.0% 5.0% 6.0% Present value of a single sum for 5 periods .88385 .86261 .78353 .74726 Present value of a single sum for 10 periods .78120 .74409 .61391 .55839 Present value of an annuity for 5 periods 4.64583 4.57971 4.32948 4.21236 Present value of an annuity for 10 periods 8.75206 8.53020 7.72173 7.36009 a.$5,000,000 b.$5,216,494 c.$5,218,809 d.$5,217,309

Ans: C

Excom manufactures high-end whole home electronic systems. The company provides a one-year warranty for all products sold. The company estimates that the warranty cost is $300 per unit sold and reported a liability for estimated war-ranty costs $10.4 million at the beginning of this year. If during the current year, the company sold 60,000 units for a total of $324 million and paid warranty claims of $12,000,000 on current and prior year sales, what amount of liability would the company report on its balance sheet at the end of the current year? a.$3,733,333. b.$6,000,000. c.$16,400,000. d.$18,000,000.

Ans: C

Feller Company issues $20,000,000 of 10-year, 9% bonds on March 1, 2020 at 97 plus accrued interest. The bonds are dated January 1, 2020, and pay interest on June 30 and December 31. What is the total cash received on the issue date? a.$19,400,000 b.$20,450,000 c.$19,700,000 d.$19,100,000

Ans: C

Horton Co. was organized on January 2, 2021, with 500,000 authorized shares of $10 par value common stock. During 2021, Horton had the follow-ing capital transactions January 5—issued 375,000 shares at $14 per share. July 27—purchased 25,000 shares at $11 per share. November 25—sold 15,000 shares of treasury stock at $13 per share. Horton used the cost method to record the purchase of the treasury shares. What would be the balance in the Paid-in Capital from Treasury Stock ac-count at December 31, 2021? a.$0. b.$15,000. c.$30,000. d.$45,000.

Ans: C

On January 2, 2021, Worth Co. issued at par $2,000,000 of 7% convertible bonds. Each $1,000 bond is convertible into 10 shares of common stock. No bonds were converted during 2021. Worth had 200,000 shares of common stock outstanding during 2021. Worth's 2021 net income was $900,000 and the income tax rate was 30%. Worth's diluted earnings per share for 2021 would be (rounded to the nearest penny) a.$5.00. b.$4.54. c.$4.50. d.$4.72.

Ans: C

On June 30, 2021, when Ermler Co.'s stock was selling at $65 per share, its capital accounts were as follows Capital stock ((par value $50) 60,000 shares issued) $3,000,000 Premium on capital stock 600,000 Retained earnings 4,200,000 If a 100% stock dividend were declared and distributed, capital stock would be a. $3,000,000. b. $3,600,000. c. $6,000,000. d. $7,800,000.

Ans: C

Overton Corporation, a manufacturer of household paints, is preparing annual financial statements at December 31, 2020. Because of a recently proven health hazard in one of its paints, the government has clearly indicated its inten-tion of having Overton recall all cans of this paint sold in the last six months. The management of Overton estimates that this recall would cost $800,000. What accounting recognition, if any, should be accorded this situation? a.No recognition b.Note disclosure only c.Operating expense of $800,000 and liability of $800,000 d.Appropriation of retained earnings of $800,000

Ans: C

Pierson Corporation owned 15,000 shares of Hunter Corporation. These shares were purchased in 2017 for $135,000. On November 15, 2021, Pierson declared a property dividend of one share of Hunter for every ten shares of Pierson held by a stockholder. On that date, when the market price of Hunter was $28 per share, there were 135,000 shares of Pierson outstand-ing. What gain and net reduction in retained earnings would result from this property dividend? Gain Net Reduction in Retained Earnings a. $0 $378,000 b. $0 $121,500 c. $256,500 $121,500 d. $256,500 $ 34,000

Ans: C

The following information is available for Barone Corporation January 1, 2021 Shares outstanding 4,000,000 April 1, 2021 Shares issued 640,000 July 1, 2021 Treasury shares purchased 240,000 October 1, 2021 Shares issued in a 100% stock dividend 4,400,000 The number of shares to be used in computing earnings per common share for 2021 is a.9,041,600. b.8,760,000. c.8,720,000. d.5,460,000.

Ans: C

What effect does the issuance of a 2-for-1 stock split have on each of the fol-lowing? Par Value per Share Retained Earnings a. No effect No effect b. Increase No effect c. Decrease No effect d. Decrease Decrease

Ans: C

What effect will the acquisition of treasury stock have on stockholders' equity and earnings per share, respectively? a.Decrease and no effect b.Increase and no effect c.Decrease and increase d.Increase and decrease

Ans: C

Which of the following statements about property dividends is not true? a.A property dividend is usually in the form of securities of other companies. b.A property dividend is also called a dividend in kind. c.The accounting for a property dividend should be based on the carrying value (book value) of the nonmonetary assets transferred. d.Property dividends may be merchandise or real estate.

Ans: C

A company issues $15,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2020. Interest is paid on June 30 and December 31. The proceeds from the bonds are $14,703,108. What is interest expense for 2020, using straight-line amortization? a.$1,540,208 b.$1,170,000 c.$1,176,894 d.$1,184,845

Ans: D

An early extinguishment of bonds payable, which were originally issued at a premium, is made by purchase of the bonds between interest dates. At the time of reacquisition a.any costs of issuing the bonds must be amortized up to the purchase date. b.the premium must be amortized up to the purchase date. c.interest must be accrued from the last interest date to the purchase date. d.All of these answers are correct.

Ans: D

Antidilutive securities a.should be included in the computation of diluted earnings per share but not basic earnings per share. b.are those whose inclusion in earnings per share computations would cause basic earnings per share to exceed diluted earnings per share. c.include stock options and warrants whose exercise price is less than the average market price of common stock. d.should be ignored in all earnings per share calculations.

Ans: D

Berry Corporation has 100,000 shares of $10 par common stock au-thorized. The following transactions took place during 2020, the first year of the corporation's existence Sold 20,000 shares of common stock for $13.50 per share. Issued 20,000 shares of common stock in exchange for a patent valued at $300,000 (Berry determined that the fair value of the patent is more clearly determinable than that of its common shares). At the end of the Berry's first year, total paid-in capital amounted to a. $120,000. b. $270,000. c. $300,000. d. $570,000.

Ans: D

During 2019, Rao Co. introduced a new line of machines that carry a three-year warranty against manufacturer's defects. Based on industry experience, warran-ty costs are estimated at 2% of sales in the year of sale, 3% in the year after sale, and 4% in the second year after sale. Sales and actual warranty expendi-tures for the first three-year period were as follows (assume the accrual meth-od) Sales Actual Warranty Expenditures 2019 $1,600,000 $39,000 2020 2,500,000 65,000 2021. 2,100,000. 135,000 $6,200,000 $239,000 What amount should Rao report as a liability at December 31, 2021? a.$0 b.$71,000 c.$84,000 d.$319,000

Ans: D

In computing earnings per share for a simple capital structure, if the preferred stock is cumulative, the amount that should be deducted as an adjustment to the numerator (earnings) is the a.preferred dividends in arrears. b.preferred dividends in arrears times (one minus the income tax rate). c.annual preferred dividend times (one minus the income tax rate). d.annual preferred dividend

Ans: D

Liabilities are ___________________ a.any accounts having credit balances after closing entries are made. b.deferred credits that are recognized and measured in conformity with gener-ally accepted accounting principles. c.obligations to transfer ownership shares to other entities in the future. d.obligations arising from past transactions and payable in assets or services in the future.

Ans: D

On January 1, 2021, Ritter Company granted stock options to officers and key employees for the purchase of 20,000 shares of the company's $1 par common stock at $20 per share as additional compensation for services to be rendered over the next three years. The options are exercisable during a five-year period beginning January 1, 2024 by grantees still employed by Ritter. The Black-Scholes option pricing model determines total compensation expense to be $180,000. The market price of common stock was $26 per share at the date of grant. The journal entry to record the compensation expense related to these options for 2021 would include a credit to the Paid-in Capital—Stock Options account for a.$0. b.$36,000. c.$40,000. d.$60,000.

Ans: D

On September 1, 2020, Valdez Company reacquired 30,000 shares of its $10 par value common stock for $15 per share. Valdez uses the cost method to account for treasury stock. The journal entry to record the reacquisition of the stock should debit a.Treasury Stock for $300,000. b.Common Stock for $300,000. c.Common Stock for $300,000 and Paid-in Capital in Excess of Par for $150,000. d.Treasury Stock for $450,000.

Ans: D

Percy Corporation was organized on January 1, 2021, with an authorization of 1,200,000 shares of common stock with a par value of $6 per share. Dur-ing 2021, the corporation had the following capital transactions January 5 issued 600,000 shares @ $10 per share July 28 purchased 80,000 shares @ $11 per share December 31 sold the 80,000 shares held in treasury @ $18 per share Percy used the cost method to record the purchase and reissuance of the treasury shares. What is the total amount of additional paid-in capital as of December 31, 2021? a.$-0-. b.$1,840,000. c.$2,400,000. d.$2,960,000.

Ans: D

Stine Inc. had 1,000,000 shares of common stock issued and outstanding at December 31, 2020. On July 1, 2021 an additional 1,000,000 shares were issued for cash. Stine also had stock options outstanding at the beginning and end of 2021 which allow the holders to purchase 300,000 shares of common stock at $28 per share. The average market price of Stine's common stock was $35 during 2021. The number of shares to be used in computing diluted earnings per share for 2021 is a.2,240,000 b.2,060,000 c.1,740,000 d.1,560,000

Ans: D

Under the effective-interest method of bond discount or premium amortiza-tion, the periodic interest expense is equal to a.the stated (nominal) rate of interest multiplied by the face value of the bonds. b.the market rate of interest multiplied by the face value of the bonds. c.the stated rate multiplied by the beginning-of-period carrying amount of the bonds. d.the market rate multiplied by the beginning-of-period carrying amount of the bonds.

Ans: D

When computing diluted earnings per share, convertible bonds are a.ignored. b.assumed converted whether they are dilutive or antidilutive. c.assumed converted only if they are antidilutive. d.assumed converted only if they are dilutive.

Ans: D

Which of the following is a current liability? a.A long-term debt maturing currently, which is to be paid with cash in a sink-ing fund b.A long-term debt maturing currently, which is to be retired with proceeds from a new debt issue c.A long-term debt maturing currently, which is to be converted into common stock d.None of these answers are correct.

Ans: D

Which of the following is the proper way to report some gain contingencies? a.As an accrued amount. b.As deferred revenue. c.As an account receivable with additional disclosure explaining the nature of the contingency. d.As a disclosure only.

Ans: D

Which of these is not included in an employer's payroll tax expense? a.F.I.C.A. (social security) taxes b.Federal unemployment taxes c.State unemployment taxes d.Federal income taxes

Ans: D

Xtra Processes is involved with innovative approaches to finding energy re-serves. Xtra recently built a facility to extract natural gas at a cost of $12 million. However, Xtra is also legally responsible to remove the facility at the end of its useful life of twenty years. This cost is estimated to be $17 million (the present value of which is $6.5 million). What is the journal entry required to record the asset retirement obligation? a.No journal entry required. b.Debit Natural Gas Facility for $17,000,000 and credit Asset Retirement Obli-gation for $17,000,000 c.Debit Natural Gas Facility for $5,000,000 and credit Asset Retirement Obli-gation for $5,000,000. d.Debit Natural Gas Facility for $6,500,000 and credit Asset Retirement Obli-gation for $6,500,000.

Ans: D

Hill Corp. had 600,000 shares of common stock outstanding on January 1, issued 900,000 shares on July 1, and had income applicable to common stock of $2,940,000 for the year ending December 31, 2021. Earnings per share of common stock for 2021 would be a.$4.90. b.$2.32. c.$2.80. d.$3.28.

Ans: C

If a company chooses the fair value option, a decrease in the fair value of the liability is recorded by crediting a.Bonds Payable. b.Gain on Restructuring of Debt. c.Unrealized Holding Gain/Loss-Income. d.Realized Holding Gain.

Ans: C

The rate of interest actually earned by bondholders is called the a.stated rate. b.coupon rate. c.nominal rate. d.effective rate.

Ans: D

Total stockholders' equity represents a.a claim to specific assets contributed by the owners. b.the maximum amount that can be borrowed by a company. c.a claim against a portion of the total assets of a company. d.only the amount of earnings that have been retained in the business. Ans

C