ACCT 301B Exam 1 Practice Questions IN PROGRESS :)
Treasury stock sold for less than its cost decreases net income. A True B False
B
When the effective rate of a bond is lower than the stated rate, the bond sells at a discount. A True B False
B
Which of the following is not an example of "off-balance-sheet financing"? A Non-consolidated subsidiary. B Capital leases. C Special purpose entity. D Operating leases.
B
Which of the following sets of conditions would give rise to the accrual of a contingency under current generally accepted accounting principles? A Amount of loss is reasonably estimable and event occurs infrequently. B Amount of loss is reasonably estimable and occurrence of event is probable. C Event is unusual in nature and event occurs infrequently. D Event is unusual in nature and occurrence of event is probable.
B
Which of the following statements is false? A Cash dividends should be recorded as a liability when they are declared by the board of directors. B Stock dividends declared but not yet distributed are a reported as a liability until the stock is issued. C Unearned revenues represent advance payments for goods or services from customers. D A company may exclude a short-term obligation from current liabilities if the firm intends to refinance the obligation on a long-term basis and demonstrates an ability to complete the refinancing.
B
Gain contingencies are not recorded. A True B False
A
When a bond sells at a premium, interest expense will be: A less than the bond interest payment. B none of these answer choices are correct. C equal to the bond interest payment. D greater than the bond interest payment.
A
A bond that matures in installments is called a: A serial bond. B callable bond. C bearer bond. D term bond.
A
Accrued liabilities are disclosed in the financial statements by A appropriately classifying them as regular liabilities in the balance sheet. B showing the amount among the liabilities but not extending it to the liability total. C a footnote to the statements. D an appropriation of retained earnings.
A
Blowing Rock Inc. has 5,000 shares of 5%, $100 par value, cumulative preferred stock and 30,000 shares of $1 par value common stock outstanding at December 31, 2014. There were no dividends declared in 2012. The board of directors declares and pays a $45,000 dividend in 2013 and in 2014. What is the amount of dividends received by the common stockholders in 2014? A $15,000 B $25,000 C $45,000 D $0
A
Cash dividends are paid on the basis of the number of shares A outstanding. B outstanding less the number of treasury shares. C issued. D authorized.
A
Gain contingencies include all of the following except A All of the options are gain contingencies. B tax loss carryforwards. C possible receipts of donations and bonuses. D pending court cases where the probable outcome is favorable.
A
Gains and losses on early extinguishment of debt are reported as other gains and losses on the income statement. A True B False
A
Hise Inc., has 4,000 shares of 9%, $100 par value, cumulative preferred stock and 200,000 shares of $1 par value common stock outstanding at December 31, 2014, and December 31, 2013. The board of directors declared and paid a $25,000 dividend in 2013. In 2014, $74,000 of dividends are declared and paid. What are the dividends received by the preferred stockholders in 2014? A $ 47,000 B $ 74,000 C $11,000 D $36,000
A
Jackson Corporation issued a 100% stock dividend of its common stock which had a par value of $.01, and a market value of $123 before the dividend and $62 after the dividend. At what amount should retained earnings be capitalized for the additional shares issued? A Par value B Market value on the payment date C Market value on the declaration date D There should be no capitalization of retained earnings.
A
Liabilities are A obligations arising from past transactions and payable in assets or services in the future. B accounts having credit balances after closing entries are made. C deferred credits that are recognized and measured in conformity with generally accepted accounting principles. D obligations to transfer ownership shares to other entities in the future.
A
On January 1, 2014, Kimbrough Inc. issued $5,000,000, 9% bonds for $4,695,000. The market rate of interest for these bonds is 10%. Interest is payable annually on December 31. Kimbrough uses the effective-interest method of amortizing bond discount. At December 31, 2014, Kimbrough should report unamortized bond discount of A $285,500. B $274,500. C $258,050. D $255,000.
A
On September 14, 2014, Gayot Company reacquired 12,000 shares of its $1 par value common stock for $40 per share. Gayot 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 $480,000. B Common Stock for $480,000. C Common Stock for $24,000 and Paid-in Capital in Excess of Par for $456,000. D Treasury Stock for $24,000.
A
Preferred stock has no voting rights. A True B False
A
Presented below is information related to Kaenzig Corporation: Common Stock , $1 par $2,100,000 Paid-in Capital in Excess of Par - Common Stock 550,000 Preferred 8 ½% Stock, $50 par 1,700,000 Paid-in Capital in Excess of Par—Preferred Stock 950,000 Retained Earnings 2,350,000 Treasury Common Stock (at cost) 250,000 The total stockholders' equity of Kaenzig Corporation is A $7,400,000. B $7,900,000. C $5,300,000. D $2,300,000.
A
Redeemable preferred stock should be classified as a liability on the balance sheet. A True B False
A
Short-term obligations expected to be refinanced are not classified as current liabilities because A their satisfaction will not require the use of assets classified as current as of the balance sheet date. B the obligations will be satisfied before the financial statements are issued. C none of these answers are correct. D they will be paid by the balance sheet date.
A
The acid-test ratio excludes inventory from the calculation. A True B False
A
The entry to record the collection of sales tax by a retailer may include credits to both Sales Revenue and Sales Tax Payable. A True B False
A
Under the effective interest method, interest expense: A is the same total amount as straight-line interest expense over the term of the bonds. B always increases each period the bonds are outstanding. C always decreases each period the bonds are outstanding. D is the same annual amount as straight-line interest expense.
A
Which of the following is not true about the discount on short-term notes payable? A The Discount on Notes Payable account should be reported as an asset on the balance sheet. B When there is a discount on a note payable, the effective interest rate is higher than the stated interest rate. C The amortization of Discount on Notes Payable increases interest expense. D The Discount on Notes Payable account is a contra liability and has a debit balance
A
Which of the following type of stock will not increase Additional Paid-in Capital when issued? A No-par value stock. B Stated value stock. C Preferred stock. D Par value stock.
A
A bond for which the issuer has the right to call and retire the bonds prior to maturity is a A retirable bond. B callable bond. C debenture bond. D convertible bond.
B
A large anticipated insurance recovery is reported as A deferred revenue. B a disclosure only. C an account receivable with additional disclosure explaining the nature of the contingency. D an accrued amount.
B
Additional paid-in capital is not affected by the issuance of: A stated value stock. B no-par stock. C par value stock. D preferred stock.
B
All of the following statements are true regarding preferred stock except: A a company often issues preferred stock instead of debt, because of a high debt-to-equity ratio. B a preference as to dividends assures the payment of dividends. C companies usually issue preferred stock with a par value. D the dividend preference for preferred stock is expressed as a percentage of the par value.
B
Bellingham Inc. sold bonds with a face value of $100,000,000 and a stated interest rate of 8% for $92,280,000 to yield 10%. If the company uses the effective interest method of amortization, interest expense for the first six months would be $4,000,000. A True B False
B
Bonds that are not recorded in the name of the bondholder are called unsecured bonds. A True B False
B
Boomchickapop Company elects the fair value option for a long-term note payable. In 2014, the company reported an unrealized holding gains which was reported as a component of Other Comprehensive Income. A True B False
B
Characteristics of the corporate form of organization include all of the following except: A variety of ownership interests. B unlimited liability of stockholders. C capital stock or share system. D formality of profit distribution.
B
Cumulative preferred dividends in arrears should be shown in a corporation's balance sheet as A an increase in stockholders' equity. B a footnote. C an increase in current liabilities. D an increase in current liabilities for the current portion and long-term liabilities for the long-term portion.
B
Current liabilities are defined as obligations whose liquidation is reasonably expected to A require use of current assets. B require use of current assets or creation of other current liabilities. C require the distribution of cash. D be paid within a year.
B
Ferrone Company issues $10,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2014. Interest is paid on June 30 and December 31. The proceeds from the bonds are $9,802,072. Ferrone uses effective-interest amortization. What amount of interest expense will Ferrone record for the June 30 payment? A $784,164 B $392,082 C $390,000 D $400,000
B
Gulfport Corporation was organized in January 2014 with authorized capital of $.0001 par value common stock. On February 1, 2012, shares were issued at par for cash. On March 1, 2014, the corporation's attorney accepted 5,000 shares of common stock in settlement for legal services with a fair value of $25,250. Additional paid-in capital would increase on 2/1/2014 3/1/2014 A Yes Yes B No Yes C No No D Yes No
B
If a bond sold at 97, the market rate was: A equal to the stated rate. B greater than the stated rate. C equal to the coupon rate. D less than the stated rate.
B
If a company elects the fair value option for its long-term liabilities, a decrease in the fair value of a bond payable will result in an unrealized holding loss. A True B False
B
If a company intends to refinance a short-term liability on a long-term basis, the liability must be reported as current unless the company has consummated the refinancing agreement by the balance sheet date. A True B False
B
If bonds are initially sold at a discount and the straight-line method of amortization is used, interest expense in the earlier years will A be less than the stated (nominal) rate of interest. B exceed what it would have been had the effective-interest method of amortization been used. C be less than what it would have been had the effective-interest method of amortization been used. D be the same as what it would have been had the effective-interest method of amortization been used.
B
McCaffrey Corporation owned 15,000 shares of Harper Corporation's $5 par value common stock. These shares were purchased in 2010 for $326,000. On May 4, 2014, McCaffrey declared a property dividend of one share of Harper for every twenty shares of McCaffrey stock held by a stockholder. On that date, when the market price of Harper was $34 per share, there were 280,000 shares of McCaffrey outstanding. What net reduction in retained earnings would result from this property dividend? A $150,000 B $304,267 C $476,000 D $176,000
B
Note disclosures for long-term debt generally include all of the following except A restrictions imposed by the creditor. B names of specific creditors. C assets pledged as security. D call provisions and conversion privileges.
B
On December 31, 2013, SoBou Co. has $5,000,000 of short-term notes payable due on February 14, 2014. On January 10, 2014, SoBou arranged a line of credit with Suntrust Bank which allows SoBou to borrow up to $3,500,000 at one percent above the prime rate for three years. On February 3, 2014,SoBou borrowed $3,500,000 from Suntrust and used $500,000 additional cash to liquidate $4,000,000 of the short-term notes payable. The amount of the short-term notes payable that should be reported as a current liability on the December 31, 2013 balance sheet which is issued on March 2, 2014 is A $1,000,000. B $1,500,000. C $0. D $500,000.
B
On January 1, Gasperson Inc. issued $100,000,000, 7% bonds at 102. The journal entry to record the issuance of the bonds will include A a credit to Interest Expense for $2,000,000. B a credit to Premium on Bonds Payable for $2,000,000. C a credit to Bonds Payable for $102,000,000. D a debit to Cash for $100,000,000.
B
Stock splits increase total stockholders' equity. A True B False
B
The covenants and other terms of the agreement between the issuer of bonds and the lender are set forth in the A bond coupon. B bond indenture. C bond debenture. D registered bond.
B
The effective interest method calculates bond interest expense by multiplying the carrying value of the bonds at the beginning of the period by the stated rate of interest. A True B False
B
The interest rate written in the terms of the bond indenture is known as the A yield rate. B coupon rate, nominal rate, or stated rate. C effective rate. D market rate.
B
The rate of return on common stock equity is computed by dividing: A net income by ending common stockholders' equity. B net income less preferred dividends by average common stockholders' equity. C net income by average common stockholders' equity. D net income less preferred dividends by ending common stockholders' equity.
B
Treasury stock is classified on the balance sheet as an asset. A True B False
B
A debt instrument with no ready market is exchanged for property whose fair market value is currently indeterminable. When such a transaction takes place A the directors of both entities involved in the transaction should negotiate a value to be assigned to the property. B the board of directors of the entity receiving the property should estimate a value for the property that will serve as a basis for the transaction. C the present value of the debt instrument must be approximated using an imputed interest rate. D it should not be recorded on the books of either party until the fair market value of the property becomes evident.
C
Bonds which do not pay interest unless the issuing company is profitable are called A debenture bonds. B secured bonds. C income bonds. D term bonds.
C
Eckert Company issues $10,000,000, 6%, 5-year bonds dated July 1, 2014 on July 1, 2014. The bonds pay interest semiannually on December 31 and June 30. 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 0.88385 0.86261 0.78353 0.74726 Present value of a single sum for 10 periods 0.78120 0.74409 0.61391 0.55839 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 $10,000,000 B $10,434,616 C $10,437,618 D $10,432,988
C
Entry field with correct answer A A mortgage note payable is a promissory note secured by a document that pledges title to property as security for the loan. B Mortgage notes payable are payable in full at maturity or in installments. C Mortgage notes payable are always reported as a long-term liability. D Mortgage notes payable are the most common form of long-term notes payable.
C
In 2013, General Dynamics Corporation began selling a new line of products that carries a two-year warranty against defects. Based upon past experience with other products, the estimated warranty costs related to dollar sales are as follows: First year of warranty 2% Second year of warranty 5% Sales and actual warranty expenditures for 2013 and 2014 are presented below: 2013 2014 Sales $600,000 $800,000 Actual warranty expenditures 20,000 40,000 What is the estimated warranty liability at the end of 2014? A $16,000. B $98,000. C $38,000. D $58,000.
C
Stonehenge, Inc. issued bonds with a maturity amount of $5,000,000 and a maturity eight years from date of issue. If the bonds were issued at a premium, this indicates that A no necessary relationship exists between the two rates. B the market rate of interest exceeded the stated rate. C the stated rate of interest exceeded the market rate. D the market and stated rates coincided.
C
Terpsichore Inc., has 1,000 shares of 5%, $100 par value, cumulative preferred stock and 200,000 shares of $1 par value common stock outstanding at December 31, 2014, and December 31, 2013. No dividends were paid in 2013. In 2014, $75,000 of dividends are declared and paid. If the preferred stock is nonparticipating, what are the dividends received by the preferred stockholders in 2014? A $65,000. B $5,000. C $10,000. D $42,500.
C
The current ratio measures A Profitability. B Solvency. C Liquidity. D All of these options are correc
C
The most common type of preferred stock is: A callable preferred stock. B convertible preferred stock. C cumulative preferred stock. D participating preferred stock.
C
The printing costs and legal fees associated with the issuance of bonds should A be reported as a deduction from the face amount of bonds payable. B not be reported as an expense until the period the bonds mature or are retired. C be accumulated in a deferred charge account and amortized over the life of the bonds. D be expensed when incurred.
C
The selling price of a bond is the sum of the present values of the principal and the periodic interest payments. The present values are determined by discounting using the A nominal rate. B coupon rate. C market rate. D stated rate.
C
When a note is exchanged for property in a bargained transaction, the stated interest rate is presumed to be fair unless: A the stated face amount of the note is materially different from the current cash sales price for similar items. B no interest rate is stated. C all of these answer choices are correct. D the stated interest rate is unreasonable.
C
Which of the following dividends do not reduce total stockholders' equity? A All of these answer choices reduce total stockholders' equity. B Liquidating dividends. C Stock dividends. D Cash dividends.
C
Which of the following features of preferred stock makes the security more like debt than an equity instrument? A Participating B Voting C Redeemable D Noncumulative
C
Which of the following is not an example of a current liability? A Dividends Payable. B Salaries Payable. C Preferred dividends in arrears. D Unearned Service Revenue.
C
Which of the following is not an example of off-balance-sheet financing? A Special purpose entity. B Operating lease. C Non-interest bearing note. D Non-consolidated subsidiary.
C
A bond issued in the name of the owner is a: A convertible bond. B income bond. C bearer bond. D registered bond.
D
A loss related to general or unspecified business risks is A usually accrued. B sometimes accrued. C always accrued. D not accrued.
D
At the date of declaration of a large common stock dividend, the entry should include A a credit to Paid-in Capital in Excess of Par. B a credit to Cash. C a credit to Common Stock Dividend Payable. D a debit to Retained Earnings.
D
Before declaring a cash dividend, management must consider the A effect on paid-in capital. B current market price of the stock. C legal capital of the stock. D availability of funds.
D
Black Water Inc. is being sued by former employees as a result of negligence on the company's part. Black Water's lawyers state that it is probable that the company will lose the suit and be found liable for a judgment costing the company anywhere from $100,000,000 to $200,000,000. However, the lawyer states that the most probable cost is $125,000,000. As a result of the above facts, Black Water should accrue A no loss contingency but disclose a contingency of $100,000,000 to $200,000,000. B a loss contingency of $125,000,000 but not disclose any additional contingency. C a loss contingency of $100,000,000 and disclose an additional contingency of up to $100,000,000. D a loss contingency of $125,000,000 and disclose an additional contingency of up to $75,000,000.
D
Duszynski Company issues 20,000 shares of its $.50 par value common stock having a market value of $25 per share and 6,000 shares of its $25 par value preferred stock having a market value of $50 per share for a lump sum of $750,000. The proceeds allocated to the common stock is A $500,000 B $705,000 C $450,000 D $468,750
D
Gain contingencies are recorded when: A. it is probable that a benefit will be received. B. the amount of the gain can be reasonably estimated. C. both A and B. D. none of these answers is correct.
D
In every corporation the one class of stock that represents the basic ownership interest is called A owners' stock. B preferred stock. C cumulative stock. D common stock.
D
Lyric Company issued a 90-day zero-interest-bearing note with a face amount of $3,000. The present value of the note is $2,855. The journal entry to record the issuance of the note will include A a debit to Interest Expense for $145. B a credit to Notes Payable for $2,855. C none of these answers are correct. D a debit to Cash for $2,855.
D
On January 1, 2014, Trinity Company loaned $901,560 to Litton Industries in exchange for a 3 year, zero-interest-bearing note with a face amount, $1,200,000. The prevailing rate of interest for a loan of this type is 10%. The adjusting journal entry made by Litton at December 31, 2014 with regard to the note will include A a credit to Interest Payable for $60,000. B a debit to Interest Expense for $29,850. C a debit to Interest Expense for $120,000. D a credit to Discount on Notes Payable for $90,156.
D
On January 1, 2014, Vancleave Corporation had 110,000 shares of its $.001 par value common stock outstanding. On November 27, when the market price of the stock was $8, the corporation declared a 10% stock dividend to be issued to stockholders of record on December 28, 2014. What was the impact of the 10% stock dividend on the balance of the retained earnings account? A No effect B $11,000 decrease C $77,000 decrease D $88,000 decrease
D
On June 30, 2014, Baker Co. had outstanding 8%, $6,000,000 face amount, 15-year bonds maturing on June 30, 2024. Interest is payable on June 30 and December 31. The unamortized balances in the bond discount and deferred bond issue costs accounts on June 30, 2014 were $210,000 and $60,000, respectively. On June 30, 2014, Baker acquired all of these bonds at 94 and retired them. What net carrying amount should be used in computing gain or loss on this early extinguishment of debt? A $5,790,000. B $5,640,000. C $5,940,000. D $5,730,000.
D
On June 30, 2014, Prouty Co. had outstanding 9%, $5,000,000 face amount, 10-year bonds that pay interest semi-annually on June 30 and December 31. The unamortized balances in the bond discount and deferred bond issue costs accounts on June 30, 2014 were $200,000 and $50,000, respectively. On June 30, 2014, Prouty acquired all of these bonds at 101 and retired them. What amount of gain or loss would Prouty record on this early extinguishment of debt? A $200,000 gain. B $250,000 loss. C $505,000 gain. D $300,000 loss.
D
On October 31, 2014, Lexington Corp. declared and issued a 12% common stock dividend. Prior to this dividend, Lexington had 302,000 shares of $.001 par value common stock issued and outstanding. The fair value of Lexington's common stock was $16.75 per share on October 31, 2014. As a result of this stock dividend, the company's total stockholders' equity A decreased by $5,058,198. B increased by $302,000. C decreased by $5,058,500. D did not change.
D
Pontchartrain Company issues $20,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2014. Interest is paid on June 30 and December 31. The proceeds from the bonds are $19,604,145. The company uses effective-interest amortization. Interest expense reported on the 2014 income statement will total A $1,529,115 B $1,560,000 C $1,600,000 D $1,568,498
D
Presented below is information related to Polaris Corporation: Common Stock, $1 par $10,350,000 Paid-in Capital in Excess of Par—Common Stock 6,520,000 Paid-in Capital in Excess of Cost—Treasury Stock 400,000 Retained Earnings 9,543,000 Treasury Common Stock (at cost) 695,000 The total stockholders' equity of Polaris Corporation is A $27,108,000. B $27,508,000. C $25,318,000. D $26,118,000.
D
Presented below is information related to Schoenthaler Corporation: Common Stock , $5 par $1,100,000 Paid-in Capital in Excess of Par - Common Stock 400,000 Preferred 5 ½% Stock, $100 par 1,500,000 Paid-in Capital in Excess of Par—Preferred Stock 500,000 Retained Earnings 2,000,000 Paid-in Capital in Excess of Cost - Treasury Stock 150,000 The total stockholders' equity of Schoenthaler Corporation is A $5,500,000. B $3,650,000. C $5,350,000. D $5,650,000.
D
The acid-test ratio relates total current liabilities to cash A and short-term investments. B receivables, and inventory. C and receivables. D short-term investments, and receivables.
D
The residual interest in a corporation belongs to A Management. B the preferred stockholders. C the Board of Directors. D the common stockholders.
D
When a business enterprise enters into what is referred to as off-balance-sheet financing, the company A is in violation of generally accepted accounting principles. B is attempting to conceal the debt from shareholders by having no information about the debt included in the balance sheet. C wishes to confine all information related to the debt to the income statement and the statement of cash flow. D can enhance the quality of its financial position and perhaps permit credit to be obtained more readily and at less cost.
D
Which of the following best describes a possible result of treasury stock transactions by a corporation? A May increase net income if the cost method is used. B May increase but not decrease retained earnings. C May decrease but not increase net income. D May decrease but not increase retained earnings.
D
Which of the following factors need not be considered in determining whether a liability should be recorded with respect to pending or threatened litigation? A The probability of an unfavorable outcome. B The time period in which the cause of action occurred. C The ability to make a reasonable estimate of the loss. D All of the options must be considered.
D
Which of the following is not acceptable treatment for the presentation of current liabilities? A Showing currently maturing long-term debt as part of current liabilities. B Listing current liabilities according to amount. C Listing current liabilities in order of maturity. D Offsetting current liabilities against assets that are to be applied to their liquidation.
D
Which of the following statements related to dividends is incorrect? A Dividends must comply with stock contracts as to preferences and participation. B Dividends must be declared by the Board of Directors. C Distributions to owners must be in compliance with the state laws. D Dividends must be paid in the period declared.
D
Which one of the following is not a right of common stockholders? A To share proportionately in any new issues of stock of the same class. B To share proportionately in corporate assets upon liquidation. C To share proportionately in profits and losses. D To share proportionately in all management decisions.
D