Quiz/Test 3

Shamrock Company had net income of $30,000. On January 1, the number of shares of common stock outstanding were 8,000 and the company issued an additional 2,000 shares of common stock. There were no other stock transactions. The company's earnings per share is:

3.00

A proxy is:

A document that gives a designated agent of a stockholder the right to vote the stock.

A disadvantage of bonds is:

All of the above

Amortizing a bond discount:

Allocates a part of the total discount to each interest period

The total amount of stock that a corporation's charter allows it to issue is referred to as:

Authorized stock

Bonds that have an option exercisable by the issuer to retire them at a stated dollar amount prior to maturity are known as:

Callable bonds

The statement of cash flows reports:

Cash inflows and cash outflows for an accounting period.

Given the following information, determine the amount of cash flows from investing and financing activities. Net income $50,000 Loss on sale of plant assets $15,000 Cash received from sale of plant assets $26,000 Cash received from issuing stock $70,000 Increase in income taxes payable $120,000

Cash provided by investing activities, $26,000; Cash provided by financing activities, $70,000.

Treasury stock is classified as:

Contra equity account

The Discount on Bonds Payable account is:

Contra liability

A bond sells at a discount when the

Contract rate is below the market rate.

Bonds that have interest coupons attached to their certificates, which the bondholders detach during each interest period and present to a bank for collection, are called:

Coupon bonds

The appropriate section in the statement of cash flows for reporting the issuance of common stock for cash is:

Financing activities

The accounting principle that requires significant noncash financing and investing activities be reported on the statement of cash flows is the

Full disclosure principle

Secured bonds:

Have specific assets of the issuer pledged as collateral for the bonds

A corporation's minimum legal capital is often defined to be the total par value of the shares:

Issued

The first line item in the operating activities section of a spreadsheet for a statement of cash flows prepared using the indirect method is:

Net income

When analyzing the changes on a spreadsheet used to prepare a statement of cash flows, the cash flows from investing activities generally affect:

Noncurrent assets

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:

Operating activities

Cash flows from interest received are reported in the statement of cash flows as part of:

Operating activities

The appropriate section in the statement of cash flows for reporting the receipt of cash dividends from investments in securities is:

Operating activities

The costs of bringing a corporation into existence, including legal fees, promoter fees, and amounts paid to obtain a charter are called:

Organization costs

The right of common shareholders to protect their proportionate interest in a corporation by having the first opportunity to buy additional proportionate shares of common stock issued by the corporation is called a:

Preemptive rights

Prior period adjustments are reported in the:

Statement of retained earnings

Plant assets are:

Tangible assets used in the operation of a business that have a useful life of more than one accounting period

A bond traded at 102 ½ means that:

The bond traded at $1,025 per $1,000 bond

When a bond sells at a premium:

The contract rate is above the market rate

Stock that was reacquired and is still held by the issuing corporation is called:

Treasury stock

Prior period adjustments to financial statements can result from:

Using unacceptable accounting principles

Par value of a stock refers to the:

Value assigned to a share of stock by the corporate charter

Owners of preferred stock often do not have:

Voting rights

Cardco Inc. has an annual accounting period which ends on December 31. During the current year a depreciable asset which cost $42,000 was purchased on September 2. The asset has a $4,000 estimated salvage value. The company uses straight-line depreciation and expects the asset to have a 5 year life. What is the total depreciation expense for the current year?

$2,533.33

A company issued 5-year, 7% bonds with a par value of $100,000. The market rate when the bonds were issued was 6.5%. The company received $101,137 cash for the bonds. Using the straight-line method, the amount of recorded interest expense for the first semiannual interest period is:

$3,386.30

A company issued 5-year, 7% bonds with a par value of $100,000. The company received $97,947 for the bonds. Using the straight-line method, the amount of interest expense for the first semiannual interest period is:

$3,705.30

A company borrowed $300,000 cash from the bank by signing a 5-year, 8% installment note. The present value of an annuity at 8% for 5 years is 3.9927. Each annuity payment equals $75,137. The present value of the note is:

$300,000

A company issues 9%, 20-year bonds with a par value of $750,000. The current market rate is 9%. The amount of interest owed to the bondholders for each semiannual interest payment is.

$33,750

A company has 3,000 shares of $2 par value common stock and 1,500 shares of 8%, $150 par, non-cumulative preferred stock outstanding. The balance in Retained Earnings at the beginning of the year was $400,000. The Net Loss for the current year was $30,000. If the company paid a dividend of $1 per share on its common stock, what is the balance in Retained Earnings at the end of the year?

$349000

A company had a beginning balance in retained earnings of $43,000. It had net income of $6,000 and paid out cash dividends of $5,625 in the current period. The ending balance in retained earnings equals:

$43,375

When originally purchased, a vehicle had an estimated useful life of 8 years. The vehicle cost $23,000 and its estimated salvage value is $1,500. After 4 years of straight-line depreciation, the asset's total estimated useful life was revised from 8 years to 6 years and there was no change in the estimated salvage value. The depreciation expense in year 5 equals:

$5,375.00

Prior to June 1, a company has never had any treasury stock transactions. A company repurchased 100 shares of its common stock on June 1 for $5,000. On July 1, it reissued 50 of these shares at $52 per share. On August 1, it reissued the remaining treasury shares at $49 per share. What is the balance in the Contributed Capital, Treasury Stock account on August 2?

$50

A company borrowed $50,000 cash from the bank and signed a 6-year note at 7%. The present value of an annuity for 6 years at 7% is 4.7665. The annual annuity payments equal $10,490. The present value of the loan is:

$50,000

A company must repay the bank $10,000 cash in 3 years for a loan it entered into. The loan is at 8% interest compounded annually. The present value factor for 3 years at 8% is 0.7938. The present value of the loan is:

$7,938

A company has 2,000 shares of $1 par value common stock and 200 shares of 5%, $110 par, non-cumulative preferred stock outstanding. The balance in Retained Earnings at the beginning of the year was $500,000. Net income for the current year was $300,000. If the company paid a dividend of $2 per share on its common stock, what is the balance in Retained Earnings at the end of the year?

$794900

A company issued 10-year, 8% bonds with a par value of $200,000. The company received $190,000 for the bonds. Using the straight-line method, the amount of interest expense for the first semiannual interest period is:

$8,500

A company discarded a display case it had originally purchased for $8,000. The case had $7,200 worth of accumulated depreciation. The company should recognize a (an):

$800 loss

Salvage value is:

- also called residual value. - also called scrap value. - an estimate of the asset's value at the end of its benefit period. - a factor relevant to determining depreciation.

A cash equivalent is an investment that:

- is readily convertible to a known amount of cash. - is sufficiently close to its maturity date so its market value is unaffected by interest rate changes. - generally is within 3 months of its maturity date. - is highly liquid.

Typical cash flows from investing activities include:

- payments to purchase property, plant and equipment or other productive assets (excluding inventory) - proceeds from the sale (discounting) of notes receivable made by the company - proceeds from collecting the principal amount of notes receivable - payments to acquire held-to maturity securities of other entities, except cash equivalents

An advantage of bond financing is:

-Bonds do not affect owners' control -Interest on bonds is tax deductible -Bonds can increase return on equity -It allows firms to trade on the equity

The following data were reported by a corporation: Authorized shares 20,000 Issued shares 15,000 Treasury shares 3,000 The number of outstanding shares is:

12,000