Accounting 131 ISU Final Exam MC Questions

Harvey Corporation shows the following in the stockholders' equity section of its balance sheet: The par value of its common stock is $0.25 and the total balance in the Common Stock account is $50,000. Also noted is that 15,000 shares are currently designated as treasury stock. The number of shares outstanding is: 185,000. 196,250. 200,000. 215,000.

A

How is the current ratio calculated? Current Assets/Current Liabilities Cash Flows from Operating Activities/Current Liabilities (Cash + Marketable Securities)/Current Liabilities (Cash + Marketable Securities + Accounts Receivable)/Current Liabilities

A

If a company purchases treasury stock for $6,000 and then reissues it for $5,000, the difference of $1,000 is: a decrease in stockholders' equity. a gain in stockholders' equity. treated as a loss on the sale. treated as a gain on the sale.

A

If bonds are issued at 101.25, this means that a $1,000 bond sold for $1,012.50. a $1,000 bond sold for $101.25. the bonds sold at a discount. the bond rate of interest is 10.125% of the market rate of interest.

A

Jerabek Inc. decided to sell one of its fixed assets that had a cost of $55,000 and accumulated depreciation of $35,000 on July 1, 2019. On that date, Jerabek sold the fixed asset for $15,000. What was the resulting gain or loss from the sale of the asset? $5,000 loss $5,000 gain $15,000 loss $15,000 gain

A

Kinsella Seed borrowed $200,000 on October 1, 2019, at 10% interest. The interest and principal are due on October 1, 2020. What journal entry should be made with respect to the interest payment on October 1, 2020? Debit Interest Expense 15,000; debit Interest Payable 5,000; credit Cash 20,000. Debit Interest Expense 15,000; credit Cash 15,000. Debit Cash 20,000; credit Interest Expense 15,000; credit Interest Payable 5,000. Debit Interest Expense 20,000; credit Cash 20,000.

A

Kinsella Seed borrowed $200,000 on October 1, 2019, at 10% interest. The interest and principal are due on October 1, 2020. What journal entry should be recorded on December 31, 2019? Debit Interest Expense 5,000; credit Interest Payable 5,000. Debit Interest Payable 5,000; credit Interest Expense 5,000. Debit Interest Receivable 20,000; credit Interest Expense 20,000. No entry is necessary.

A

Normal repair and maintenance of an asset is an example of what? Revenue expenditure Capital expenditure An expenditure that will be depreciated An expenditure that should be avoided

A

When a credit is made to federal income taxes withholding payable account related to taxes withheld from an employee, the corresponding debit is made to Wages Expense Taxes Expense Taxes Payable Cash

A

When bonds are issued at a premium, the interest expense for the period is the amount of interest payment for the period minus the premium amortization for the period. plus the premium amortization for the period. plus the discount amortization for the period. minus the discount amortization for the period.

A

When depreciation is recorded each period, what account is debited? Depreciation Expense Cash Accumulated Depreciation The fixed asset account involved

A

Which of the following is not an example of an accrued liability? Accounts payable Interest payable Wages payable Property taxes payable

A

Which of the following is true? No journal entries or footnotes are necessary if the probability of a contingent liability is remote. A contingent liability should always be recorded in the footnotes to the financial statements. A contingent liability should always be recorded within the financial statements. A company can choose to record a contingent liability either within its financial statements or in the footnotes to the financial statements.

A

With regard to preferred stock, its stockholders may have the right to participate, along with common stockholders, if an extra dividend is declared. its issuance provides no flexibility to the issuing company because its terms always require mandatory dividend payments. no dividends are expected by the stockholders. there is a legal requirement for a corporation to declare a dividend on preferred stock.

A

Bonds are sold at a premium if the market rate of interest was more than the stated rate at the time of issue. market rate of interest was less than the stated rate at the time of issue. company will have to pay a premium to retire the bonds. issuing company has a better reputation than other companies in the same business.

B

Bonds in the amount of $100,000 with a life of 10 years were issued by the Roundy Company. If the stated rate is 6% and interest is paid semiannually, what would be the total amount of interest paid over the life of the bonds? $120,000 $60,000 $30,000 $6,000

B

Cox Inc. acquired a machine for $800,000 on January 1, 2019. The machine has a salvage value of $20,000 and a 5-year useful life. Cox expects the machine to run for 15,000 machine hours. The machine was actually used for 4,200 hours in 2019 and 3,450 hours in 2020. What amount would Cox record as depreciation expense at December 31, 2020, if the double-declining-balance method were used? $187,200 $192,000 $195,200 $312,000

B

DAE Parts Shop began business on January 1, 2019. The corporate charter authorized issuance of 20,000 shares of $5 par value common stock and 5,000 shares of $10 par value, 5% cumulative preferred stock. DAE issued 12,000 shares of common stock at $25 per share on January 2, 2019. What effect does the entry to record the issuance of stock have on total stockholders' equity? increase of $340,000 increase of $300,000 increase of $150,000 increase of $120,000

B

In 2019, Drew Company issued $200,000 of bonds for $189,640. If the stated rate of interest was 6% and the yield was 6.73%, how would Drew calculate the interest expense for the first year on the bonds using the effective interest method? $189,640 × 8% $189,640 × 6.73% $200,000 × 8% $200,000 × 6.73%

B

McKean Corporation authorized 500,000 shares of common stock in its articles of incorporation. On May 1, 2019, 100,000 shares were sold to the company's founders. However, on October 15, 2019, McKean repurchased 20,000 shares to settle a dispute among the founders. At this date, how many shares were issued and outstanding, respectively? 80,000 and 100,000 100,000 and 80,000 100,000 and 100,000 500,000 and 100,000

B

McLaughlin Corporation's balance sheet showed the following amounts: current liabilities, $75,000; total liabilities, $100,000; total assets, $200,000. What is the debt to total assets ratio? 2 1 0.875 0.50

B

Payroll taxes typically include all of the following except Social Security taxes Federal excise taxes Medicare taxes Federal unemployment taxes

B

Sean Corp. issued a $40,000, 10-year bond, with a stated rate of 8%, paid semiannually. How much cash will the bond investors receive at the end of the first interest period? $800 $1,600 $3,200 $4,000

B

Serenity Company issued $100,000 of 6%, 10-year bonds when the market rate of interest was 5%. The proceeds from this bond issue were $107,732. Using the effective interest method of amortization, which of the following statements is true? Assume interest is paid annually. Amortization of the premium for the first interest period will be $1,464. Amortization of the premium for the first interest period will be $613. Interest payments to bondholders each period will be $5,000. Interest payments to bondholders each period will be $6,464.

B

To record warranties, the adjusting journal entry would be a debit to Warranty Liability and a credit to Warranty Expense. a debit to Warranty Expense and a credit to Warranty Liability. a debit to Warranty Expense and a debit to Cash. a debit to Warranty Liability and a credit to Cash.

B

Warranty expense is recorded as it is incurred. recorded in the period of sale. capitalized as a warranty asset. none of these.

B

When a company retires its own common stock, the company must: record a gain or loss depending on the difference between original selling price and repurchase cost. decrease the Common Stock account balances by the original issue price. get the approval of the state to do so. issue a different class of stock to the former stockholders.

B

When reporting liabilities on a balance sheet, in theory, what measurement should be used? Present value of the present outflow Present value of the future outflow Future value of the present outflow Future value of the future outflow

B

Which of the following should be considered when a company decides to declare a cash dividend on common stock? the retained earnings balance only the cash available and the retained earnings balance the amount of authorized shares of common stock the book value of the company's stock

B

Which of the following statements is true? The outstanding number of shares is the maximum number of shares that can be issued by a corporation. The shares that are in the hands of the stockholders are said to be outstanding. It is very unlikely that corporations will have more than one class of stock outstanding. Preferred stock is stock that has been retired.

B

Which of the following statements regarding the new accounting rules, which take effect in 2019, for leases is false? If the lease term is one year or longer, a liability must be recognized. If the lease term is less than one year, an asset must be recognized. The new lease accounting rules will result in more assets and liabilities being recognized on the balance sheet. Leasing will likely remain popular under the new lease accounting rules because leases do not require a large initial outlay of cash.

B

A company would repurchase its own stock for all of the following reasons except: it wishes to prevent unwanted takeover attempts. it wishes to increase the earnings per share. it believes the stock is overvalued. it needs the stock for employee bonuses.

C

All of the following represent taxes commonly collected by businesses from customers except City sales taxes Federal excise taxes Unemployment taxes State sales taxes

C

Ames Corporation repurchases 10,000 shares of its common stock for $12 per share. The shares were originally issued at an average price of $10 per share. Later it resells 6,000 of the shares for $15 per share and the remaining 4,000 shares for $17 per share. How much gain or loss should Ames report on its income statement as a result of these transactions? $38,000 gain $20,000 loss and $38,000 gain $0 $20,000 loss

C

As a result of a stock split, stockholders' equity is increased. the stockholders have a higher proportionate ownership of the company. the par value of the stock is changed in the reverse proportion as the stock split. the market price of the outstanding stock is increasing because a split is evidence of a profitable company.

C

Bonds are a popular source of financing because a company having cash flow problems can postpone payment of interest to bondholders. financial analysts tend to downgrade a company that has raised large amounts of cash by frequent issues of stock. bond interest expense is deductible for tax purposes, while dividends paid on stock are not. the bondholders can always convert their bonds into stock if they choose.

C

Chapman Inc. purchased a piece of equipment in 2018. Chapman depreciated the equipment on a straight-line basis over a useful life of 10 years and used a residual value of $12,000. Chapman's depreciation expense for 2019 was $11,000. What was the original cost of the building? $98,000 $110,000 $122,000 $134,000

C

Cox Inc. acquired a machine for $800,000 on January 1, 2019. The machine has a salvage value of $20,000 and a 5-year useful life. Cox expects the machine to run for 15,000 machine hours. The machine was actually used for 4,200 hours in 2019 and 3,450 hours in 2020. What amount would Cox record as depreciation expense for 2019 if the units-of-production method were used (Note: Round your answer to the nearest dollar)? $179,400 $184,000 $218,400 $224,000

C

Cox Inc. acquired a machine for $800,000 on January 1, 2019. The machine has a salvage value of $20,000 and a 5-year useful life. Cox expects the machine to run for 15,000 machine hours. The machine was actually used for 4,200 hours in 2019 and 3,450 hours in 2020. What would be the balance in the accumulated depreciation account at December 31, 2020, if the straight-line method were used? $156,000 $160,000 $312,000 $328,000

C

How is the cash ratio calculated? Current Assets/Current Liabilities Cash Flows from Operating Activities/Current Liabilities (Cash + Marketable Securities)/Current Liabilities (Cash + Marketable Securities + Accounts Receivable)/Current Liabilities

C

RVR Enterprises shows net income of $100,000 for 2019 and retained earnings of $500,000 on its December 31, 2019 balance sheet. During the year, RVR declared and paid $60,000 in dividends. What was RVR's retained earnings balance at December 31, 2018? $400,000 $440,000 $460,000 $540,000

C

Shea Company has 100,000 shares of 6%, $50 par value, cumulative preferred stock. In 2018, no dividends were declared on preferred stock. In 2019, Shea had a profitable year and decided to pay dividends to stockholders of both preferred and common stock. If they have $750,000 available for dividends in 2019, how much could it pay to the common stockholders? $750,000 $450,000 $150,000 $0

C

The balance of the $2.50 par value Common Stock account for Patriot Company was $240,000,000 before its recent 2-for-1 stock split. The market price of the stock was $50 per share before the stock split. What occurred as a result of the stock split? The balance in the common stock account was increase to $480,000. The balance in the retained earnings account decreased. The market price of the stock dropped to approximately $25 per share. The market price of the stock was not affected.

C

The cost principle requires that companies record fixed assets at: fair value. book value. historical cost. market value.

C

The premium on bonds payable account is shown on the balance sheet as a contra asset. a reduction of an expense. an addition to a long-term liability. a subtraction from a long-term liability.

C

Thornwood Partners began business on January 1, 2019. The corporate charter authorized issuance of 75,000 shares of $1 par value common stock and 8,000 shares of $3 par value, 10% cumulative preferred stock. On July 1, Thornwood issued 20,000 shares of common stock in exchange for 2 years' rent on a retail location. The cash rental price is $3,000 per month, and the rental period begins on July 1. What is the correct entry to record the July 1 transaction? Debit to Cash, $72,000; credit to Prepaid Rent, $57,600 Debit to Prepaid Rent, $72,000; credit to Common Stock, $72,000 Debit to Prepaid Rent, $72,000; credit to Common Stock, $20,000; credit to Additional Paid-In Capital—Common Stock, $52,000 Debit to Prepaid Rent, $72,000; credit to Common Stock, $60,000; credit to Additional Paid-In Capital—Common Stock, $12,000

C

What best describes the discount on bonds payable account? A liability An asset A contra liability An expense

C

When a company purchases treasury stock, which of the following statements is true? Dividends continue to be paid on the treasury stock. It is no longer considered to be issued. The cost of the treasury stock reduces stockholders' equity. Treasury stock is considered to be an asset because cash is paid for the stock.

C

When bonds are issued at a discount, the interest expense for the period is the amount of interest payment for the period plus the premium amortization for the period. minus the premium amortization for the period. plus the discount amortization for the period. minus the discount amortization for the period.

C

Which of the following statements regarding bonds payable is true? Generally, bonds are issued in denominations of $100. When an issuing company's bonds are traded in the "secondary" market, the company will receive part of the proceeds when the bonds are sold from the first purchaser to the second purchaser. The entire principal amount of most bonds mature on a single date. A debenture bond is backed by specific assets of the issuing company.

C

ABC Advisors is being sued by a former customer. ABC's lawyers say that it is possible, but not probable, that the company will lose the lawsuit and the trial should last approximately 18 more months. Should ABC lose, they will most likely have to pay approximately $750,000. How should this lawsuit be reported in the financial statements? Current liability of $750,000 and Expense of $750,000 Long-term liability of $750,000 and Expense of $750,000 No disclosure is required. No effect on the balance sheet or income statement, but described in the footnotes.

D

Anniston Company purchased equipment and incurred the following costs: Purchase price $68,500 Cost of trial runs 400 Installation costs 325 Sales tax 3,425 What is the cost of the equipment? $68,500 $71,925 $72,250 $72,650

D

Authorized stock represents the: number of shares that are currently held by stockholders. number of shares that have been sold. number of shares that have been repurchased by the corporation. maximum number of shares that can be issued.

D

Bower Company sold $100,000 of 20-year bonds for $95,000. The stated rate on the bonds was 7%, and interest is paid annually on December 31. What entry would be made on December 31 when the interest is paid? (Numbers are omitted.) Interest Expense Cash Interest Expense Bonds Payable Cash Interest Expense Discount on Bonds Payable Cash Interest Expense Discount on Bonds Payable Cash

D

Bradley Company purchased a machine for $34,000 on January 1, 2017. It depreciates the machine using the straight-line method over a useful life of 8 years and a $2,000 residual value. On January 1, 2019, Bradley revised its estimate of residual value to $1,000 and shortened the machine's useful life to 4 more years. Depreciation expense for 2019 is: $4,000. $5,750. $6,000. $6,250.

D

Installment bonds differ from typical bonds in what way? Essentially they are the same. The entire principal balance is paid off at maturity for installment bonds. Installment bonds do not have a stated rate. A portion of each installment bond payment pays down the principal balance.

D

Kinsella Corporation's balance sheet showed the following amounts: current liabilities, $75,000; total liabilities, $100,000; total assets, $200,000. What is the long-term debt to equity ratio? 0.75 0.375 0.25 0.125

D

Kramerica Inc. sold 350 oil drums to Thompson Manufacturing for $75 each. In addition to the $75 sale price per drum, there is a $1 per drum federal excise tax and a 7% state sales tax. What journal entry should be made to record this sale? Debit Accounts Receivable 28,438; credit Sales Revenue 28,438. Debit Accounts Receivable 26,250; credit Sales Revenue 26,250. Debit Accounts Receivable 26,250; debit Taxes Expense 2,188; credit Excise Taxes Payable (Federal) 350; credit Sales Taxes Payable (State) 1,838; credit Sales Revenue 26,250. Debit Accounts Receivable 28,438; credit Excise Taxes Payable (Federal) 350; credit Sales Taxes Payable (State) 1,838; credit Sales Revenue 26,250.

D

Liabilities are recognized in exchange for borrowing money. services. goods. all of these.

D

The result of using the effective interest method of amortization of the discount on bonds is that the cash interest payment is greater than the interest expense. the amount of interest expense decreases each period. the interest expense for each amortization period is constant. a constant interest rate is charged against the debt carrying value.

D

What is the effect of a stock dividend on stockholders' equity? Stockholders' equity is decreased. Retained earnings is increased. Additional paid-in capital is decreased. Total stockholders' equity stays the same.

D

When a company declares a 3-for-1 stock split, the number of outstanding shares: is reduced by one-third. is reduced by one-third and the number of issued shares is tripled. stays the same, but the number of issued shares triples. triples.

D

When a company declares a cash dividend, which of the following is true? Assets are decreased. Assets are increased. Stockholders' equity is increased. Liabilities are increased.

D

When bonds are issued by a company, the accounting entry typically shows an increase in liabilities and a decrease in stockholders' equity. increase in assets and an increase in stockholders' equity. increase in liabilities and an increase in stockholders' equity. increase in assets and an increase in liabilities.

D

When should a contingent liability be recognized? When a reasonable estimation can be made When the contingent liability is probable neither a nor b a and b

D

Which of the following is not a component of stockholders' equity? retained earnings net income loss on sale of equipment dividends payable

D

Which of the following is not a current liability? Accounts payable Unearned revenue Sales taxes payable Bonds payable due in 5 years

D

Which of the following statements is true regarding depreciation methods? The use of a declining balance method of depreciation will produce lower depreciation charges in the early years of an asset's life compared to the straight-line depreciation method. Over the life of an asset, a declining balance depreciation method will recognize more depreciation expense relative to the straight-line method. The use of a declining balance method instead of the straight-line method will produce higher book values for an asset in the early years of the asset's life. The use of a higher estimated life and a higher residual value will lower the annual amount of depreciation expense recognized on the income statement.

D

Which of the following transactions would cause the current ratio to increase (assuming the current ratio is currently greater than 1)? Purchased inventory on credit. Purchased property, plant, and equipment for cash. Received money from a customer related to an accounts receivable. Paid off a payable.

D

Willow Corporation's balance sheet showed the following amounts: current liabilities, $5,000; bonds payable, $1,500; lease obligations, $2,300. Total stockholders' equity was $6,000. The debt to equity ratio is 1.47. 1.42. 0.83. 0.63.

D