ACCT 201 Exam 3
1. If $40,000 is put in a savings account paying interest of 4% compounded annually, what amount will be in the account at the end of 5 years? a. $32,878 b. $48,000 c. $48,620 d. $48,666
d. $48,666
If Sloane Joyner invests $10,514.81 now and she will receive $30,000 at the end of 11 years, what annual rate of interest will she be earning on her investment? a. 8% b. 8.5% c. 9% d. 10%
d. 10%
Suzy Douglas has been offered the opportunity of investing $73,540 now. The investment will earn 8% per year and at the end of its life will return $200,000 to Suzy. How many years must Suzy wait to receive the $200,000? a. 10 b. 11 c. 12 d. 13
d. 13
Treasury stock is a. stock issued by the U.S. Treasury Department. b. stock purchased by a corporation and held as an investment in its treasury. c. corporate stock issued by the treasurer of a company. d. a corporation's own stock, which has been reacquired and held for future use.
d. a corporation's own stock, which has been reacquired and held for future use.
Treasury stock should be reported in the financial statements of a corporation as a(n) a. investment. b. liability. c. deduction from total paid-in capital. d. deduction from total paid-in capital and retained earnings.
d. deduction from total paid-in capital and retained earnings.
A $800,000 bond was retired at 98 when the carrying value of the bond was $824,000. The entry to record the retirement would include a a.gain on bond redemption of $24,000. b. loss on bond redemption of $24,000. c.loss on bond redemption of $40,000. d. gain on bond redemption of $40,000.
d. gain on bond redemption of $40,000.
A bond issued at a premium a.is issued by a corporation with an excellent credit rating. b.has a stated rate of interest that exceeds the market rate. c.sell at a price in excess of the face amount of the bond. d.both has a stated rate of interest that exceeds the market rate and sell at a price in excess of the face amount of the bond.
d.both has a stated rate of interest that exceeds the market rate and sell at a price in excess of the face amount of the bond.
Discount on Bonds Payable a.is a contra liability. b.is an expense. c.is deducted from bonds payable on the balance sheet. d.both is a contra liability and is deducted from bonds payable on the balance sheet.
d.both is a contra liability and is deducted from bonds payable on the balance sheet.
Hulse Corporation retires its $800,000 face value bonds at 105 on January 1, following the payment of annual interest. The carrying value of the bonds at the redemption date is $829,960. The entry to record the redemption will include a credit of $29,960 to Loss on Bond Redemption. debit of $29,960 to Premium on Bonds Payable. credit of $10,040 to Gain on Bond Redemption. debit of $40,000 to Premium on Bonds Payable.
debit of $29,960 to Premium on Bonds Payable.
The following totals for the month of March were taken from the payroll records of Kern Company. Salaries $270,000 FICA taxes withheld 20,655 Income taxes withheld 59,400 Medical insurance deductions 3,915 Federal unemployment taxes 2,160 State unemployment taxes 13,500 The entry to record accrual of employer's payroll taxes would include a debit to Payroll Tax Expense for $36,315 debit to Payroll Tax Expense for $95,715 debit to FICA Taxes Payable for $20,655. credit to Payroll Tax Expense for $36,315.
debit to Payroll Tax Expense for $36,315
Treasury stock should be reported in the financial statements of a corporation as a(n) investment. liability. deduction from total paid-in capital. deduction from total paid-in capital and retained earnings.
deduction from total paid-in capital and retained earnings.
The future value of 1 factor will always be equal to 1. greater than 1. less than 1. equal to the interest rate.
greater than 1.
The term residual claim refers to a stockholders' right to receive dividends. share in assets upon liquidation. acquire additional shares when offered. exercise a proxy vote.
share in assets upon liquidation.
A current liability is a debt that can reasonably be expected to be paid between 6 months and 18 months. out of currently recognized revenues. out of cash currently on hand. within one year, or the operating cycle, whichever is longer.
within one year, or the operating cycle, whichever is longer.
Hazel Company has just purchased equipment that requires annual payments of $40,000 to be paid at the end of each of the next 4 years. The appropriate discount rate is 15%. What is the present value of the payments? $114,199. $160,000. $46,975. $150,135.
$114,199.
If you are able to earn a 15% rate of return, what amount would you need to invest to have $15,000 one year from now? $14,852. $13,125. $12,750. $13,044.
$13,044.
Suppose you have a winning lottery ticket and you are given the option of accepting $3,000,000 three years from now or taking the present value of the $3,000,000 now. The sponsor of the prize uses a 6% discount rate. If you elect to receive the present value of the prize now, the amount you will receive is $2,518,860. $2,591,520. $2,670,000. $3,000,000.
$2,518,860.
McGoff Company deposits $20,000 in a fund at the end of each year for 5 years. The fund pays interest of 4% compounded annually. The balance in the fund at the end of 5 years is computed by multiplying $20,000 by the future value of 1 factor. $100,000 by 1.04. $100,000 by 1.20. $20,000 by the future value of an annuity factor.
$20,000 by the future value of an annuity factor.
On January 1, Weatherholt Inc. issued $5,000,000, 9% bonds for $4,695,000. The market rate for these bonds is 10%. Interest is payable annually on December 31. Jean Weatherholt uses effective-interest method of amortizing bond discount. At the end if the first year, Weatherholt should report unamortized bond discount of $285,500 $274,500 $258,050 $255,000
$285,500
If $30,000 is deposited in a savings account at the end of each year and the account pays interest of 5% compounded annually, what will be the balance of the account at the end of 10 years? $48,867. $315,000. $377,337. $450,000.
$377,337.
Nance Corporation's December 31, 2017 balance sheet showed the following: 6% preferred stock, $20 par value, cumulative, 30,000 shares authorized; 20,000 shares issued $ 400,000 Common stock, $10 par value, 3,000,000 shares authorized; 1,950,000 shares issued, 1,920,000 shares outstanding 19,500,000 Paid-in capital in excess of par value - preferred stock 60,000 Paid-in capital in excess of par value - common stock 28,000,000 Retained earnings 9,650,000 Treasury stock (30,000 shares) 630,000 Nance declared and paid a $90,000 cash dividend on December 15, 2017. If the company's dividends in arrears prior to that date were $24,000, Nance's common stockholders received $66,000. $53,000. $42,000. no dividends.
$42,000.
Outstanding stock of the West Corporation included 40,000 shares of $5 par common stock and 10,000 shares of 5%, $10 par non-cumulative preferred stock. In 2016, West declared and paid dividends of $4,000. In 2017, West declared and paid dividends of $20,000. How much of the 2017 dividend was distributed to preferred shareholders? $9,000. $15,000. $5,000. None of these answer choices are correct.
$5,000.
Nance Corporation's December 31, 2017 balance sheet showed the following: 6% preferred stock, $20 par value, cumulative, 30,000 shares authorized; 20,000 shares issued $ 400,000 Common stock, $10 par value, 3,000,000 shares authorized; 1,950,000 shares issued, 1,920,000 shares outstanding 19,500,000 Paid-in capital in excess of par value - preferred stock 60,000 Paid-in capital in excess of par value - common stock 28,000,000 Retained earnings 9,650,000 Treasury stock (30,000 shares) 630,000 Nance's total stockholders' equity was $58,240,000. $47,330,000. $57,610. $56,980,000.
$56,980,000.
Bonds with a face value of $600,000 and a quoted price of 104¼ have a selling price of $625,500. $624,150. $602,550 $624,000
$625,500.
The amount you must deposit now in your savings account, paying 5% interest, in order to accumulate $10,000 for your first tuition payment when you start college in 3 years is $8,500. $7,830. $8,638. $8,860.
$8,638.
The difference between the face value of a bond and its selling price when a bond is sold for less than its face value.
Discount
Which of the following most likely would be classified as a current liability? Dividends payable. Bonds payable in 5 years. Three-year notes payable. Mortgage payable as a single payment in 10 years
Dividends payable.
Rate established when bonds are issued that remains constant in each interest period.
Effective-interest rate
Indicate the respective effects of the declaration of a cash dividend on the following balance sheet sections: Total Assets Total Liabilities Total Stockholders' Equity Increase Decrease No change No change Increase Decrease Decrease Increase Decrease Decrease No change Increase
No change Increase Decrease
Peter Johnson invests $35,516.80 now for a series of $5,000 annual returns beginning one year from now. Peter will earn 10% on the initial investment. How many annual payments will Peter receive? 10. 12. 13. 15.
13.
On January 1, McCarver Corporation had 800,000 shares of $10 par value common stock outstanding. On March 31 the company declared a 10% stock dividend. Market value of the stock was $15/share. As a result of this event, McCarver's Paid-in Capital in Excess of Par Value account increased $400,000. McCarver's total stockholders' equity was unaffected McCarver's Stock Dividends account increased $1,200,000. All of these answer choices are correct.
All of these answer choices are correct.
A legal document that indicates the name of the issuer, the face value of the bonds, and such other data as the contractual interest rate and maturity date of the bonds.
Bond certificate
Five thousand bonds with a face value of $1,000 each, are sold at 97. The entry to record the issuance is Cash ......................................................................... 4,850,000 Bonds Payable................................................................ 4,850,000 Cash ......................................................................... 4,850,000 Discount on Bonds Payable............................. 150,000 Bonds Payable....................................................................... 5,000,000 Cash ............................................................................. 4,850,000 Premium on Bonds Payable................................ 150,000 Bonds Payable.................................................................... 5,000,000 Cash ......................................................................... 5,000,000 Discount on Bonds Payable............................................ 150,000 Bonds Payable..................................................................... 4,850,000
Cash ........................................................ 4,850,000 Discount on Bonds Payable............. 150,000 Bonds Payable................................................... 5,000,000
Moss County Bank agrees to lend the Sadowski Brick Company $500,000 on January 1. Sadowski Brick Company signs a $500,000, 6%, 9-month note. The entry made by Sadowski Brick Company on January 1 to record the proceeds and issuance of the note is Interest Expense....................................................... 22,500 Cash. ............................................................................ 477,500 Notes Payable..................................................................... 500,000 Cash ............................................................................ 500,000 Notes Payable................................................................. 500,000 Cash ............................................................................ 500,000 Interest Expense .............................................................. 22,500 Notes Payable ................................................................ 522,500 Cash ............................................................................ 500,000 Interest Expense...................................................... 22,500 Notes Payable........................................................................ 500,000 Interest Payable...................................................................... 22,500
Cash ........................................................... 500,000 Notes Payable..................................................... 500,000
A cash register tape shows cash sales of $8,000 and sales taxes of $400. The journal entry to record this information is Cash ................................................................................ 8,000 Sales Revenue................................................................ 8,000 Cash ................................................................................ 8,400 Sales Tax Revenue......................................................... 400 Sales Revenue................................................................ 8,000 Cash ................................................................................ 8,000 Sales Tax Expense.. .............................................................. 400 Sales Revenue................................................................ 8,400 Cash ................................................................................ 8,400 Sales Revenue................................................................ 8,000 Sales Taxes Payable....................................................... 400
Cash ................................................................. 8,400 Sales Revenue............................................................. 8,000 Sales Taxes Payable...................................................... 400
Alt Corp. issues 5,000 shares of $10 par value common stock at $14 per share. When the transaction is recorded, credits are made to: Common Stock $50,000 and Paid-in Capital in Excess of Stated Value $20,000. Common Stock $70,000. Common Stock $50,000 and Paid-in Capital in Excess of Par Value $20,000. Common Stock $50,000 and Retained Earnings $20,000.
Common Stock $50,000 and Paid-in Capital in Excess of Par Value $20,000.
Events with uncertain outcomes, such as a potential liability that may become an actual liability sometime in the future.
Contingencies
Rate used to determine the amount of interest the borrower pays and the investor receives.Times
Contractual interest rate
Moss County Bank agrees to lend the Sadowski Brick Company $500,000 on January 1. Sadowski Brick Company signs a $500,000, 6%, 9-month note. What is the adjusting entry required if Sadowski Brick Company prepares financial statements on June 30? Interest Expense............................................ 15,000 Interest Payable............................................................... 15,000 Interest Expense........................................... 15,000 Cash................................................................................. 15,000 Interest Payable............................................ 15,000 Cash................................................................................. 15,000 Interest Payable............................................... 15,000 Interest Expense.............................................................. 15,000
Interest Expense........................................ 15,000 Interest Payable........................................................ 15,000
Leary Manufacturing Corporation purchased 5,000 shares of its own previously issued $10 par common stock for $125,000. As a result of this event, Leary's Common Stock account decreased $50,000. Leary's total stockholders' equity decreased $125,000. Leary's Paid-in Capital in Excess of Par Value account decreased $75,000. All of these answer choices are correct.
Leary's total stockholders' equity decreased $125,000.
Which of the following statements is not considered a disadvantage of the corporate form of organization? Additional taxes. Government regulations. Limited liability of stockholders. Separation of ownership and management.
Limited liability of stockholders.
The difference between the selling price and face value of bond when a bond is sold for more than its face value.
Premium
DMV leases a building for 20 years. The lease requires 20 annual payments of $12,000 each, with the first payment due immediately. The interest rate in the lease is 10%. What is the present value of the cost of leasing the building?
Solution Use Table 4.$12,000 + ($12,000 8.36492) = $112,379.04
Pleasant Company has decided to begin accumulating a fund for plant expansion. The company deposited $80,000 in a fund on January 2, 2013. Pleasant will also deposit $40,000 annually at the end of each year, starting in 2013. The fund pays interest at 4% compounded annually. What is the balance of the fund at the end of 2017 (after the 2017 deposit)?
Solution Use Tables 1 and 2.$80,000 × 1.21665 (5 periods and 4%; Table 1) = $ 97,332.00$40,000 × 5.41632 (5 periods and 4%; Table 2) = 216,652.80Fund Balance at 12-31-17$313,984.80
A 9% $100,000 bond dated January 1, 2017 and having interest payment dates of June 30 and December 31 of each year for five years. Market interest rate is 8%. What is the issuing price of the bond?
Solution: 4500*PVOA factor(n=10, i=4%) + 100,000*PV of $1 (10, 4%)=4500*8.111+100,000*0.676=36,500+67,600=104,100
A measure of a company's solvency, calculated by dividing income before interest expense and taxes by interest expense.
Times interest earned ratio
9. Nance Corporation's December 31, 2017 balance sheet showed the following:6% preferred stock, $20 par value, cumulative, 30,000 shares authorized; 20,000 shares issued$ 400,000 Common stock, $10 par value, 3,000,000 shares authorized; 1,950,000 shares issued, 1,920,000 shares outstanding19,500,000Paid-in capital in excess of par value - preferred stock 60,000Paid-in capital in excess of par value - common stock28,000,000Retained earnings9,650,000Treasury stock (30,000 shares)630,000Nance's total paid-in capital was a. $47,960,000. b. $48,590,000. c. $47,330,000. d. $28,060,000.
a. $47,960,000. Solution: $400,000 + $19,500,000 + $60,000 + $28,000,000 $47,960,000(Pref. st. + com. st. + Pref PIC + Com PIC
The amount of stock that may be issued according to the corporation's charter is referred to as the a. authorized stock. b. issued stock. c. unissued stock. d. outstanding stock.
a. authorized stock
The two ways that a corporation can be classified by ownership are a. publicly held and privately held. b. stock and non-stock. c. inside and outside. d. majority and minority.
a. publicly held and privately held.
Bonds with a face value of $500,000 and a quoted price of 97¼ have a selling price of a.$486,250. b. $485,125. c.$485,013. d. $487,500.
a.$486,250.
Bonds that are subject to retirement at a stated dollar amount prior to maturity at the option of the issuer are called a.callable bonds. b. early retirement bonds. c.options. d. debentures.
a.callable bonds.
The present value of a $10,000, 5-year bond, will be less than $10,000 if the a.contractual rate of interest is less than the market rate of interest. b. contractual rate of interest is greater than the market rate of interest. c.bond is convertible. d. contractual rate of interest is equal to the market rate of interest.
a.contractual rate of interest is less than the market rate of interest.
If the single amount of $2,000 is to be received in 2 years and discounted at 11%, its present value is a. $1,818. b. $1,623. c. $1,802. d. $2,754.
b. $1,623.
Perdue Company has purchased equipment that requires annual payments of $30,000 to be paid at the end of each of the next 6 years. The appropriate discount rate is 12%. What amount will be used to record the equipment? a. $180,000 b. $123,342 c. $165,772 d. $115,650
b. $123,342
What is the total stockholders' equity based on the following account balances?Common Stock$2,300,000Paid-In Capital in Excess of Par120,000Retained Earnings570,000Treasury Stock60,000 a. $2,690,000. b. $2,930,000. c. $3,050,000. d. $2,180,000.
b. $2,930,000.
On January 1, Weatherholt 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. Jean Weatherholt uses the effective-interest method of amortizing bond discount. At the end of the first year, Weatherholt should report unamortized bond discount of a.$274,500. b. $285,500. c.$258,050. d. $255,000.
b. $285,500. Solution: ($4,695,000 .10) ($5,000,000 .09) $19,500; [($5,000,000 $4,695,000) $19,500] $285,500(Sell. Price × 10%) - (Face val. × 9%) = dis. amort; (Face val. - sell. price) - dis. amort.
The amount you must deposit now in your savings account, paying 6% interest, in order to accumulate $6,000 for a down payment 5 years from now on a new car is a. $1,200. b. $4,484. c. $4,477. d. $4,200.
b. $4,484
Which of the following statements about treasury stock is true? a. Few corporations have treasury stock. b. Purchasing treasury stock is done to eliminate hostile shareholder buyouts. c. Companies acquire treasury stock to increase the number of shares outstanding. d. Companies acquire treasury stock to decrease earnings per share.
b. Purchasing treasury stock is done to eliminate hostile shareholder buyouts.
Which of the following statements regarding the effective interest method of accounting for bonds is false? a.GAAP requires use of the effective interest method. b. The amount of periodic interest expense decreases over the life of a discounted bond issue when the effective interest method is used. c.Over the life of the bond, the carrying value increases for discounted bonds when using the effective interest method. d. The effective interest method applies a constant percentage to the bond carrying value to compute interest expense.
b. The amount of periodic interest expense decreases over the life of a discounted bond issue when the effective interest method is used.
Bonds that are issued against the general credit of the borrower are called a.callable bonds. b. debenture bonds (Unsecured bonds). c.secured bonds. d. term bonds.
b. debenture bonds (Unsecured bonds).
The acquisition of treasury stock by a corporation a. increases its total assets and total stockholders' equity. b. decreases its total assets and total stockholders' equity. c. has no effect on total assets and total stockholders' equity. d. requires that a gain or loss be recognized on the income statement.
b. decreases its total assets and total stockholders' equity.
Assume the tax rate in your state is 8%. Your cash register does not have a key for sales tax. However, the total amount of cash received for sales and sales tax during the month of June was $27,000. Sales for the month of June totaled a.$24,840. b.$25,000. c.$27,000. d.none of these answer choices are correct.
b.$25,000. （27,000/1.08=25,000）
10. Racer Corporation's December 31, 2017 balance sheet showed the following:6% preferred stock, $20 par value, cumulative, 40,000 shares authorized; 25,000 shares issued$ 500,000Common stock, $10 par value, 4,000,000 shares authorized; 2,600,000 shares issued, 2,560,000 shares outstanding26,000,000Paid-in capital in excess of par value - preferred stock80,000Paid-in capital in excess of par value - common stock37,000,000Retained earnings12,200,000Treasury stock (30,000 shares)840,000Racer declared and paid a $100,000 cash dividend on December 15, 2017. If the company's dividends in arrears prior to that date were $30,000, Racer's common stockholders received a. $70,000. b. $60,000. c. $40,000. d. no dividend.
c. $40,000. Solution: $100,000 $30,000 ($500,000 .06) $40,000Div. dec. div. in arr. (Pref. PV div. rate)How about changing the dividends in arrears to date were $120,000, not $30,000? Answers: 0 to commonHow about dividends declared and paid in 2016 was $80,000 and in 2017 was $100,000. Dividends in arrears at the beginning of 2016 were $90,000? Answers: Dividends to Common in 2017 = 100,000-(90,000-80,000)-500,000*6%*2 (2016 and 2017) = 30,000
If Norben Company issues 6,000 shares of $5 par value common stock for $210,000, the account a. Common Stock will be credited for $210,000. b. Paid-in Capital in Excess of Par Value will be credited for $30,000. c. Paid-in Capital in Excess of Par Value will be credited for $180,000. d. Cash will be debited for $180,000.
c. Paid-in Capital in Excess of Par Value will be credited for $180,000.
Five thousand bonds with a face value of $1,000 each, are sold at 102. The entry to record the issuance is a.Cash......................................................................................5,100,000 Bonds Payable ..............................................................................5,100,000 b. Cash......................................................................................5,000,000 Premium on Bonds Payable............................................100,000 Bonds Payable ..............................................................................5,100,000 c.Cash......................................................................................5,100,000 Premium on Bonds Payable ..........................................................100,000 Bonds Payable ................................................................................5,000,000 d. Cash......................................................................................5,100,000 Discount on Bonds Payable ..........................................................100,000 Bonds Payable ................................................................................5,000,000
c.Cash......................................................5,100,000 Premium on Bonds Payable ..............................100,000 Bonds Payable ...................................................5,000,000
When the market rate of interest is greater than the contractual rate of interest a.bonds will be issued at a premium. b.the financial strength of the issuer is exceptional. c.bonds will be issued at a discount. d.the financial strength of the issuer is suspect.
c.bonds will be issued at a discount.