Exam 1- Chapters 12, 13, 14, 16

An advantage of bonds is: a) bonds do not affect owner control b) bonds require payment of par value at maturity c) bonds can decrease return on equity d) bond payments can be burdensome when income and cash flow are low

a) bonds do not affect owner control

Dividend yield is the percent of cash dividends paid to common stockholders relative to the: a) common stock's market value b) earnings per share c) investors' purchase price of the stock d) amount of retained earnings

a) common stock's market value

Bonds that have interest coupons attached to their certificates, which the bondholders present to a bank or broker for collection, are called: a) coupon bonds b) callable bonds c) serial bonds d) convertible bonds

a) coupon bonds

The reporting of net cash provided or used by operating activities that lists the major items of operating cash receipts, such as receipts from customers, and subtracts the major items of operating cash disbursements, such as cash paid for merchandise, is referred to as the: a) direct method of reporting net cash provided or used by operating activities b) cash basis of accounting c) classified statement of cash flows d) indirect method of reporting net cash provided or used by operating activities

a) direct method of reporting net cash provided or used by operating activities

The cash flow on total assets ratio is calculated by: a) dividing cash flows from operations by average total assets b) dividing total cash flows by average total assets c) dividing average total assets by cash flows from financing activities d) dividing average total assets by total cash flows

a) dividing cash flows from operations by average total assets

Which of the following statements is true? a) interest on bonds is tax deductible b) interests on bonds is not tax deductible c) dividends to stockholders are tax deductible d) bonds do not have to be repaid

a) interest on bonds is tax deductible

The price-earnings ratio is calculated by dividing: a) market value per share by earnings per share b) earnings per share by par value per share c) dividends per share by earnings per share d) dividends per share by market value per share

a) market value per share by earnings per share

The right of common shareholders to purchase their proportional share of any common stock later issued by the corporation is called a: a) preemptive right b) proxy right c) right to call d) financial leverage

a) preemptive right

When a partner is added to the partnership: a) the previous partnership ends b) the underlying business operations end c) the underlying business operations must close then re-open d) the partnership must continue

a) the previous partnership ends

The Discount on Bonds Payable account is: a) a liability b) a contra liability c) an expense d) a contra expense

b) a contra liability

The contract between the bond issuer and the bondholders identifying the rights and obligations of the parties, is called a(n): a) debenture b) bond indenture c) mortgage d) installment note

b) bond indenture

Bonds that have an option giving the issuer the right to retire them at a stated dollar amount before maturity are known as: a) coupon bonds b) callable bonds c) serial bonds d) convertible bonds

b) callable bonds

A partnership that has general and limited partners, where the limited partners have no personal liability beyond the amounts they invest in the partnership is a: a) mutual agency b) limited partnership c) limited liability partnership d) general partnership

b) limited partnership

The least amount that the buyers of stock must contribute to the corporation or be at risk to pay creditors at a future date is called the: a) par value of preferred b) minimum legal capital c) premium capital d) stated value

b) minimum legal capital

A contract pledging title to assets as security for a note or bond is known as a(n): a) sinking fund b) mortgage c) equity d) lease

b) mortgage

A class of stock for which there is no minimum legal capital is called: a) convertible stock b) no-par stock c) callable stock d) noncumulative stock

b) no-par stock

The party that has the right to exercise a call option on callable bonds is: a) the bondholder b) the bond issuer c) bond indenture d) bond trustee

b) the bond issuer

The carrying value of bonds at maturity always equals: a) the amount of cash originally received in exchange for the bonds b) the par value of the bond c) the amount of discount or premium d) the amount of cash originally received in exchange for the bonds plus any unamortized discount or less any premium

b) the par value of the bond

Prior period adjustments to financial statements can result from: a) changes in estimates of salvage value b) unacceptable accounting practices c) discontinued operations d) changes in tax law

b) unacceptable accounting practices

Par value of a stock refers to the: a) issue price of the stock b) value assigned per share by the corporate charter c) market value of the stock on the date of the financial statement d) maximum selling price of the stock

b) value assigned per share by the corporate charter

If a company is using the indirect method to prepare the statement of cash flows, identify where an increase in the accounts receivable account should be reported: a) an increase in cash flows from operating activities b) an increase in cash flows from investing activities c) a decrease in cash flows from operating activities d) a decrease in cash flows from investing activities

c) a decrease in cash flows from operating activities

The statement of cash flows is: a) another name for the statement of financial position b) a financial statement that presents information about changes in equity during a period c) a financial statement that reports the cash inflows and outflows for an accounting period, and that classifies those cash flows as operating activities, investing activities, or financing activities d) a financial statement that lists the types and amounts of assets, liabilities, and equity of a business on a specific date

c) a financial statement that reports the cash inflows and outflows for an accounting period, and that classifies those cash flows as operating activities, investing activities, or financing activities

A capital deficiency means that: a) the partnership has a loss b) the partnership has more liabilities than assets c) a partner has a debit balance in her capital account d) a partner has a credit balance in her capital account

c) a partner has a debit balance in her capital account

Partnership accounting is the same as accounting for: a) foreign entity b) a C corporation c) a sole proprietorship, except that separate capital and withdrawal accounts are kept for each partner d) an S corporation

c) a sole proprietorship, except that separate capital and withdrawal accounts are kept for each partner

The dividend yield is computed by dividing: a) annual cash dividends per share by earnings per share b) earnings per share by cash dividends per share c) annual cash dividends per share by the market value per share d) par value per share by cash dividends per share

c) annual cash dividends per share by the market value per share

A statement of cash flows explains the differences between the beginning and ending balances of: a) net income b) equity c) cash and cash equivalents d) working capital

c) cash and cash equivalents

Preparation of the statement of cash flows does not involve: a) computing the net increase or decrease of cash b) computing and reporting net cash provided or used by operations c) computing the profit compared to the net increase or decrease in cash d) computing and reporting net cash provided or used by financing activities e) computing and reporting net cash provided or used by investing activities

c) computing the profit compared to the net increase or decrease in cash

Book value per common share is computed by: a) multiplying the number of common shares outstanding times the market price per common share b) dividing total assets by number of shares outstanding c) dividing stockholders' equity applicable to common shares by the number of common shares outstanding d) multiplying the number of common shares outstanding by par value per share

c) dividing stockholders' equity applicable to common shares by the number of common shares outstanding

A partnership in which all partners have mutual agency and unlimited liability is called: a) limited partnership b) limited liability partnership c) general partnership d) s corporation e) limited liability company

c) general partnership

The appropriate section in the statement of cash flows reporting the purchase of equipment for cash is: a) operating activities b) financing activities c) investing activities d) schedule of non-cash investing or financing activity

c) investing activities

A partnership which protects innocent partners from malpractice or negligence claims resulting from acts of another partner is a(n): a) partnership b) sole proprietorship c) limited liability partnership d) general partnership

c) limited liability partnership

Activities that involve the production or purchase of merchandise and the sale of goods and services to customers, including expenditures related to administering the business, are classified as: a) financing activities b) investing activities c) operating activities d) direct activities

c) operating activities

All of the following are examples of non-cash financing and investing except: a) retirement of debt by issuing equity stock b) purchase of equipment by issuing a note payable c) purchase of inventory using cash d) purchase of a building by issuing stock

c) purchase of inventory using cash

Which of the following statements is true? a) partners are employees of the partnership b) salaries to partners are expenses on the partnership income statement c) salary allowances usually reflect the relative value of services provided by partners d) salary allowances are expenses

c) salary allowances usually reflect the relative value of services provided by partners

Which of the following statements is true? a) partners are employees of the partnership b) salaries to partners are expenses on the partnership income statement c) salary allowances usually reflect the relative value of services provided by partners d) salary allowances are expenses

c) salary allowances usually reflect the relative value of services provided by partners

Changes in retained earnings are commonly reported in the: a) statement of cash flows b) balance sheet c) statement of stockholders' equity d) multiple-step income statement

c) statement of stockholders' equity

Characteristics of a general partnership include all the following except: a) limited life b) mutual agency c) unlimited liability d) a corporate business income tax e) voluntary association

d) a corporate business income tax

An investment that is readily convertible to a known amount of cash and that is sufficiently close to its maturity date so that its market value is unaffected by interest rate changes is a(n): a) equity method investment b) operating activity c) common stock d) cash equivalent

d) cash equivalent

In the absence of a partnership agreement, income (and loss) should be allocated based on: a) a fractional basis b) the ratio of capital investments c) salary allowances d) equal shares

d) equal shares

Stated value of no-par stock is: a) Another name for redemption value b) An amount assigned to par value stock by the state of incorporation c) The market value of the stock on the date of issuance d) The difference between the par value of stock and the amount below or above par value contributed by the stockholder e) An amount assigned to no-par stock by the corporation's board of directors

e) An amount assigned to no-par stock by the corporation's board of directors

A cash dividend payment to shareholders during the year should be reported on the statement of cash flows as: a) an increase in cash flows from financing activities b) an increase in cash flows from investing actives c) a decrease in cash flows from operating activities d) a decrease in cash flows from investing activities e) a decrease in cash flows from financing activities

e) a decrease in cash flows from financing activities

Mutual agency means: a) creditors can apply their claims to partners' personal assets b) partners are taxed on partnership withdrawals c) all partners must agree before the partnership can act d) the partnership has a limited life e) a partner can bind the partnership to contracts

e) a partner can bind the partnership to contracts

Changes in accounting estimates are: a) considered accounting errors b) reported as prior adjustments c) accounted for with a cumulative "catch-up" adjustment d) statement of cash flow items e) accounted for in current and future periods

e) accounted for in current and future periods

The board of directors of a corporation: a) are elected by the corporate registrar b) are responsible for day-to-day operations of the business c) do not have the power to bind the corporations to contracts, due to lack of mutual agency d) may not also be executive officers of the corporation, due to the separate entity principle e) are responsible for overseeing corporate activities

e) are responsible for overseeing corporate activities

A disadvantage of bond financing is: a) bonds do not affect owners' control b) interest on bonds is tax deductible c) bonds can increase return on equity d) it allows firms to trade on equity e) bonds pay periodic interest and the repayment of par value on maturity

e) bonds pay periodic interest and the repayment of par value on maturity

Bonds that give the issuer an option of retiring them before they mature are: a) debentures b) serial bonds c) sinking fund bonds d) registered bonds e) callable bonds

e) callable bonds

A partner can withdraw from a partnership by any of the following means except: a) selling his/her interest to another person for cash b) selling his/her interest to another person in exchange for assets c) receiving cash from the partnership in the amount of his/her interest d) receiving assets from the partnership in the amount of his/her interests e) close the business and liquidate the assets under the mutual agency principle

e) close the business and liquidate the assets under the mutual agency principle

Partnership accounting does not: a) use a capital account for each partner b) use a withdrawal account for each partner c) allocate net income to each partner according to the partnership agreement d) allocate net loss to each partner according to the partnership agreement e) tax the business entity

e) tax the business entity

If an issuer sells bonds at a premium: a) the carrying value of the bond stays constant over time b) the carrying value increases from the par value to the issue price over the bonds term c) the carrying value decreases from the par value to the issue price over the bonds term d) the carrying value increases from the issue price to the par value over the bonds term e) the carrying value increases from the issue price to the par value over the bonds term

e) the carrying value increases from the issue price to the par value over the bonds term

The statement of cash flows reports all but which of the following: a) cash flows from operating activities b) cash flows from financing activities c) cash flows from investing activities d) significant non-cash financing and investing activities e) the financial position of the company at the end of the accounting period

e) the financial position of the company at the end of the accounting period