Chapter 4 ACCOUNTING 212

. A corporate charter specifies that the company may issue up to 20 million shares of stock. The company sells 12 million shares to investors and later buys back 3 million shares. The current number of shares of treasury stock after these transactions have been accounted for is: A) 3 million shares. B) 8 million shares. C) 9 million shares. D) 17 million shares.

A) 3 million shares.

. ABC Airlines collects $300 for a roundtrip ticket from Chicago to Los Angeles. The flights will not occur until the next accounting period. How does ABC Airlines record the $300 collected in advance? A) A debit to Cash of $300 and a credit to Unearned Revenue of $300 B) A debit to Unearned Revenue of $300 and a credit to Cash of $300 C) A debit to Cash of $300 and a credit to Revenue of $300 D) A debit to Revenue of $300 and a credit to Cash of $300

A) A debit to Cash of $300 and a credit to Unearned Revenue of $300

Which of the following would be included in cash flows from operating activities? A) Cash received from customers B) Cash received from an issuance of bonds C) Cash dividends paid to stockholders D) Cash used for purchases of equipment

A) Cash received from customers

Which of the following must be paid by both the employee and the employer? A) FICA taxes B) State unemployment tax C) State withholding tax D) Federal unemployment tax

A) FICA taxes

When interest is accrued on a note payable, but not paid, the A) Interest Expense account is increased; the Interest Payable account is increased. B) Interest Expense account is decreased; the Interest Payable account is increased. C) Notes Payable account is increased; the Interest Payable account is increased. D) Interest Expense account is increased; the Interest Payable account is decreased.

A) Interest Expense account is increased; the Interest Payable account is increased

What is the purpose of the statement of cash flows? A) It is intended to provide a cash-based view of a company. B) It illustrates the profitability of a company. C) It reports the financial position of a company at a specific point in time. D) It outlines the changes in stockholders' equity accounts from the beginning of the period to the end of the period.

A) It is intended to provide a cash-based view of a company.

. When preparing the balance sheet for AAA, Inc. for December 31, 2015, which item would not be classified as a current liability? A) Note payable due March 1, 2017 B) Accounts payable C) Income taxes due on September 15, 2016 D) The current portion of a 30-year mortgage

A) Note payable due March 1, 2017

Which of the following statements about cash flows from investing activities is correct? A) The proceeds from sales of investments are reported as cash inflows from investing activities. B) Cash flows from investing activities are calculated by making adjustments to net income. C) Cash paid to acquire long-lived assets is reported as a cash inflow from investing activities. D) Cash received from issuing a long-term payable is reported as a cash inflow from investing activities.

A) The proceeds from sales of investments are reported as cash inflows from investing activities.

A company loaned $1,000,000 with interest at 7% to another company. The interest revenue from this loan would be reported on the statement of cash flows as a: A) cash inflow from operating activities. B) cash inflow from investing activities. C) cash inflow from financing activities. D) noncash investing and/or financing activity.

A) cash inflow from operating activities.

Issuing a note payable for cash immediately results in a(n): A) increase in assets and an increase in liabilities. B) decrease in assets and an increase in liabilities. C) decrease in assets and a decrease liabilities. D) increase in liabilities and a decrease in stockholders' equity.

A) increase in assets and an increase in liabilities.

A major advantage of the corporate form of ownership is: A) limited legal liability. B) unlimited legal liability. C) ease of formation. D) that corporate earnings aren't taxed until they are distributed to owners as dividends.

A) limited legal liability.

. Corporations can raise large amounts of money because: A) shares of stock in public companies can easily be bought and sold by investors. B) the unlimited liability feature makes corporate ownership attractive to investors. C) corporate earnings are not taxed. D) all investments in corporate stock earn money for investors.

A) shares of stock in public companies can easily be bought and sold by investors.

National Corp. has 100,000 shares authorized, 70,000 shares issued and 5,000 shares of treasury stock. How many shares does National Corp. have outstanding? A) 5,000 B) 65,000 C) 75,000 D) 95,000

B) 65,000

Which of the following is the best measure of a company's profitability? A) Cash-based net income B) Accrual-based net income C) Accounts Receivable D) Sales Revenue

B) Accrual-based net income

Which of the following statements about issued and outstanding stock is correct? A) Outstanding stock includes all stock issued by a corporation. B) Issued stock equals the sum of outstanding stock and treasury stock. C) Issued stock is equal to authorized stock. D) Outstanding stock includes stock in the hands of investors, as well as treasury stock in the hands of the corporation.

B) Issued stock equals the sum of outstanding stock and treasury stock.

What does the par value of a stock represent? A) The average market value of a stock for the year to date B) It is a legal concept not related to the market value of a stock C) The amount that would be paid if a stock was purchased by the issuing company D) The current market value of a stock

B) It is a legal concept not related to the market value of a stock

If you own 200,000 shares of stock in a company with 8 million shares outstanding and the company issues an additional 2 million shares to its employees through a stock purchase plan, your ownership percentage: A) remains the same because the company now has more assets. B) falls from 2.5% to 2%. C) remains the same because the company now has fewer liabilities. D) increases because the company now has more stock outstanding.

B) falls from 2.5% to 2%.

11. For a business to be considered a corporation: A) its stock must be sold in very large amounts. B) it must be organized as a separate legal entity. C) it must issue both common and preferred stock. D) it must pay dividends.

B) it must be organized as a separate legal entity.

Cash flows from financing activities include all of the following except: A) payment of long-term debt. B) payment of interest. C) proceeds from stock issuance. D) cash dividends paid.

B) payment of interest.

Which of the following items is considered to be a cash equivalent? A) An investment in a U. S. bond due in two years B) A one-year certificate of deposit due in six weeks C) A one-month Treasury bill due in two weeks D) A promissory note due from a customer in 7 months

C) A one-month Treasury bill due in two weeks

Which of the following would be classified as a financing activity on the statement of cash flows? A) Cash receipts from accounts receivable collections B) Cash receipts from sale of equipment C) Cash paid to purchase treasury stock D) Cash paid for interest on notes payable

C) Cash paid to purchase treasury stock

7. On November 1, 2015, ABC Corp. borrowed $100,000 cash on a 1year note payable with a 6% annual rate that requires ABC to pay all the interest as well as the principal on October 31, 2016. Assuming the November 1 transaction was properly recorded, how would the December 31, 2015, year-end adjusting entry affect the accounting equation? A) Liabilities decrease and stockholders' equity increases. B) Both assets and stockholders' equity increase. C) Liabilities increase and stockholders' equity decreases. D) Liabilities increase and stockholders' equity increases.

C) Liabilities increase and stockholders' equity decreases.

Suppose a company generally records revenues and expenses before receiving or making cash payments. Which of the following statements is not correct? A) If revenues are falling, a net loss could result even though the company reports a net cash inflow from operating activities. B) If revenues are rising, net income could result even though the company reports a net cash outflow from operating activities. C) Net income and net cash flows provided by operating activities will always agree. D) The income statement doesn't explain changes in cash because it focuses on just the operating results of the business.

C) Net income and net cash flows provided by operating activities will always agree.

6. On November 1, 2015, ABC Corp. borrowed $100,000 cash on a 1year, 6% note payable that requires ABC to pay both principal and interest on October 31, 2016. Given no prior adjusting entries have been recorded, the adjusting journal entry on December 31, 2015, ABC's year end, would include a: A) credit to Cash of $1,000. B) debit to Interest Expense of $6,000. C) credit to Interest Payable of $1,000. D) credit to Note Payable of $1,000.

C) credit to Interest Payable of $1,000.

The statement of cash flows cannot be used to determine: A) changes in working capital. B) expenditures on long-term assets. C) profitability as measured by specific revenues and expenses. D) reliance on external financing.

C) profitability as measured by specific revenues and expenses.

Holders of common stock receive certain benefits, such as a residual claim, which is the: A) right of stockholders to be paid back for their investment before anyone else if the company ceases operation. B) right to oversee management of the company. C) right to share in any remaining assets after creditors have been paid off, should the company cease operations. D) continuing right to receive a share of the company's profits in the form of dividends.

C) right to share in any remaining assets after creditors have been paid off, should the company cease operations.

. The total amount of interest that will be paid on a four-month, $6,500, 9% note payable equals: A) $585 B) $292 C) $146 D) $195

D) $195

Harry owns 1,000 shares of stock in Xit Corporation. What is the effect on Xit Corporation if Harry dies? A) Xit must reorganize to reflect the change in ownership. B) Xit will cancel Harry's shares of stock. C) Xit will have 3 months to resell the stock. D) A stockholder's death has no effect on a corporation.

D) A stockholder's death has no effect on a corporation.

Which of the following statements about equity and debt financing is correct? A) Equity financing is always better than debt financing. B) Equity financing requires dividends to be paid. C) Dividends are tax deductible. D) Equity financing can change stockholder control.

D) Equity financing can change stockholder control.

The Viviana Co. uses the indirect method to determine its cash flow from operations. Which of the following items will be subtracted from net income to find its cash flow from operations? A) Decrease in Supplies B) Increase in Accounts Payable C) Depreciation Expense D) Increase in Accounts Receivable.

D) Increase in Accounts Receivable.

Which of the following events does not create a liability? A) Buying goods and services on credit B) Obtaining a short-term loan C) Issuing long-term debt D) Remitting sales tax to the government

D) Remitting sales tax to the government

12. Advantages of the corporate form include all of the following except: A) easy to raise capital. B) shares can be purchased in small amounts. C) ownership interests are transferrable. D) legal liability of its owners is unlimited.

D) legal liability of its owners is unlimited.

A company typically records the amount owed to suppliers for goods or services when: A) they are ordered. B) a verbal commitment to purchase the goods or services has first been made. C) payment is made. D) the goods or services are received.

D) the goods or services are received.