ACIS Exam 4

Which one of the following numbers is needed to calculate the P/E ratio but not typically available in the accounting records of a company? Number of Common Shares Outstanding Market Price Preferred Stock Dividends Net Income

Market Price

Clayton Company borrowed $6,000 from the State Bank on April 1, Year 1. The one-year note carried a 6% rate of interest. Which of the following journal entries would be required to recognize accrued interest on December 31, Year 1? Interest Payable270 Interest Expense270 Interest Expense360 Interest Payable360 Interest Expense270 Interest Payable270 Interest Payable360 Interest Expense

Interest Expense270 Interest Payable270

In general, common stockholders experience less risk and less potential rewards than preferred stockholders. greater risk and less potential rewards than preferred stockholders. less risk and greater potential rewards than preferred stockholders. greater risk and greater potential rewards than preferred stockholders.

greater risk and greater potential rewards than preferred stockholders.

The amount of cash paid to creditors each period for interest is _____ for a discounted bond. decreased increased not affected

not affected

When a corporation pays stockholders a dividend by issuing them additional shares of its stock, this type of event is called a: stock split. treasury stock issuance. stock dividend. cash dividend.

stock dividend.

When treasury stock is acquired by the issuing corporation, the Treasury Stock account is credited. the Common Stock account is credited. the Common Stock account is debited. the Treasury Stock account is debited.

the Treasury Stock account is debited.

Paying cash to settle a previously declared dividend will reduce the balance of the Retained Earnings account. This statement is

false

The lender issues a bond certificate to the borrower. This statement is

false

Which one of the following account balance changes would indicate a outflow from operating activities? An increase in Prepaid Insurance. An increase in Salaries Payable. A decrease in Accounts Receivable. An increase in Depreciation Expense.

An increase in Prepaid Insurance.

Which of the following entities receives cash when a company borrows money through a bond issue? Lender Bondholder Issuer

Issuer

Which of the following has a single owner? Partnership Corporation Sole proprietorship

Sole proprietorship

A corporation may have issued more shares of stock than it has outstanding. This statement is

true

When a borrower makes a payment on an installment loan, a portion of the amount paid reduces the principal balance of the note payable. This statement is

true

Omar Company reported $1,000 of current assets, $3,000 of long-term assets, $400 of current liabilities and $2,600 of long-term liabilities on its Year 1 Balance Sheet. Based on this information, Omar's current ratio is. 1.33 2.50 0.75 0.40

2.50

Barton Company has a line of credit with Sea View Bank. Barton can borrow up to $200,000 at any time over the course of Year 2. The following table shows the interest rate expressed as an annual percentage along with the amounts borrowed and repaid during the first three months of Year 2. Funds are borrowed or repaid on the first day of each month. Interest is payable in cash on the last day of the month. The interest rate is applied to the outstanding monthly balance. Borrowed (Repaid)Interest RateJanuary$25,0006%February(5,000)9%March20,0009% How much Interest Expense does Barton incur for February? $1,800 $450 $150 $300

$150

Clayton Company borrowed $6,000 from the State Bank on April 1, Year 1. The one-year note carried a 6% rate of interest. What amount of Interest Payable will appear on Clayton's Year 1 Balance Sheet? $90 $360 $270 $0

$270

Clayton Company borrowed $6,000 from the State Bank on April 1, Year 1. The one-year note carried a 6% rate of interest. What is the amount of interest expense Clayton would report in Year 2? $90 $360 $0 $270

$90

Which one of the following transactions could not produce shares of treasury stock? All of these transactions may result in the creation of treasury stock shares. A company issues a stock split. A company reissues its own stock. A company purchases its own stock.

A company reissues its own stock

On October 1, Allison Corporation declared a $70,000 cash dividend to be paid on December 15 to shareholders of record on November 1. Which of the following shows the journal entry necessary on November 1? Dividends70,000 Dividends Payable 70,000 A journal entry is not required on the day of record. Dividends Payable70,000 Dividends 70,000 Dividends70,000 Cash 70,000

A journal entry is not required on the day of record.

Which of the following is a financing activity? The purchase of inventory. The sale of land. A gain on the sale of equipment. A payment made to reduce the principal of a liability.

A payment made to reduce the principal of a liability.

On October 1, Allison Corporation declared a $70,000 cash dividend to be paid on December 15 to shareholders of record on November 1. Which one of the following shows Allison's financial statements as of October 31? CashFlowCash=Dividends Payable+Common Stock+Retained Earnings70,000(70,000) CashFlowCash=Dividends Payable+Common Stock+Retained EarningsFA(70,000)(70,000) CashFlowCash=Dividends Payable+Common Stock+Retained Earnings CashFlowCash=Dividends Payable+Common Stock+Retained EarningsFA70,000(70,000)

CashFlowCash=Dividends Payable+Common Stock+Retained Earnings70,000(70,000)

A Balance Sheet that displays assets and liabilities in Current versus Non-current categories is commonly called a: Classified Balance Sheet. Categorized Balance Sheet. Dual Display Balance Sheet. Current Balance Sheet.

Classified Balance Sheet

Which of the following statements is true? Higher current ratios suggest greater liquidity. Companies should maintain the lowest current ratio possible. Lower current ratios suggest greater liquidity. Companies should maintain the highest current ratio possible.

Higher current ratios suggest greater liquidity.

The primary difference between a bond payable and a note payable is: In addition to interest, the repayment of the note is equal to the amount borrowed while the repayment of a bond may be at an amount greater than or less than the amount borrowed. Only the note payable requires interest payments. Only the bond payable requires interest payments. Bonds are short-term while notes are long-term

In addition to interest, the repayment of the note is equal to the amount borrowed while the repayment of a bond may be at an amount greater than or less than the amount borrowed.

Which one of the following items is not added to Net Income under the indirect method of determining net cash flow from operating activities? Non-cash expenses Increase in non-cash current assets Increase in current liabilities Losses

Increase in non-cash current assets

When using the indirect method, which one of the following items should be added to the amount of Net Income when determining the amount of net cash flow from operating activities? The amount of an increase in the balane of a Land account. The amount of an increase in the balance of an Accounts Receivable account. The amount of a decrease in the balance of a Salaries Payable account. The amount of a decrease in the balance of a Prepaid Rent account.

The amount of a decrease in the balance of a Prepaid Rent account.

What type of accounts are Treasury Stock and Paid-in Capital from Treasury Stock? Treasury Stock is a equity account and Paid-in Capital from Treasury Stock is an contra-equity account. Treasury Stock is a contra-equity account and Paid-in Capital from Treasury Stock is an equity account. Both Treasury Stock and Paid-in Capital from Treasury Stock are contra-equity accounts. Both Treasury Stock and Paid-in Capital from Treasury Stock are equity accounts.

Treasury Stock is a contra-equity account and Paid-in Capital from Treasury Stock is an equity account.

The shares of stock issued as part of a stock dividend are valued at: None of these prices is correct. the same price as the initial sale of stock. current market price. par value.

current market price.

The liability account Bond Payable Premium will _____ over the life of the bond. increase decrease remain the same

decrease

Smith Company paid $270 cash to settle its sales tax liability. This event will: decrease assets and liabilities. increase assets and liabilities. decrease assets and increase liabilities. increase assets and decrease liabilities.

decrease assets and liabilities.

If investors require more interest than the rate of interest stated in a bond, the bond must be sold at a _____ in order to motivate the investors to purchase the bond. discount face value premium

discount

Perry Corporation was established on January 1, Year 1 when it issued: 20,000 shares of $50 par, 5 percent, cumulative preferred stock and 30,000 shares of $10 par value common stock. Perry had a $60,000 Net Loss in Year 1. $50,000 is the amount of: dividends paid to preferred stockholders. dividends in arrears. dividends paid to common stockholders.

dividends in arrears.

A line of credit normally has a fixed interest rate and a one year term to maturity. This statement is

false

Clayton Company borrowed $6,000 from the State Bank on April 1, Year 1. The one-year note carried a 6% rate of interest. The loan and interest were paid when the note matured. What amount of Interest Payable should appear on Clayton's Year 2 Balance Sheet? $360 $0 $270 $90

$0

Jefferson Company borrowed $6,000 on April 1, Year 1. The one-year note carried a 6% rate of interest. The amount of cash outflow from operating activities that Jefferson would report in Year 1 and Year 2, respectively would be $0, and $360. $360, and $0. $270, and $90.

$0, and $360.

Barton Company has a line of credit with Sea View Bank. Barton can borrow up to $200,000 at any time over the course of Year 2. The following table shows the interest rate expressed as an annual percentage along with the amounts borrowed and repaid during the first three months of Year 2. Funds are borrowed or repaid on the first day of each month. Interest is payable in cash on the last day of the month. The interest rate is applied to the outstanding monthly balance. Borrowed (Repaid)Interest RateJanuary$25,0006%February(5,000)9%March20,0009% What is Barton's outstanding balance for February? $40,000 $20,000 $5,000 $25,000

$20,000

Perry Corporation was established on January 1, Year 1 when it issued: 20,000 shares of $50 par, 5 percent, cumulative preferred stock and 30,000 shares of $10 par value common stock. Perry earned $70,000 Net Income in Year 1. What is the maximum dividend that could be paid to common stockholders? $50,000 $0 $70,000 $20,000

$20,000

On January 1, Residence Company issued bonds with a $50,000 face value. The bonds were issued at 96 resulting in a 4% discount. They had a 20 year term and a stated rate of interest of 7%. Based on this information, total liabilities on January 1, Year 1 is: $50,000 $53,500 $48,000 $44,500

$48,000

Perry Corporation was established on January 1, Year 1 when it issued: 20,000 shares of $50 par, 5 percent, cumulative preferred stock and 30,000 shares of $10 par value common stock. Perry earned $70,000 Net Income in Year 1. What is the dividend amount preferred stockholders expect in Year 1? $20,000. $70,000. $0. $50,000.

$50,000.

Crowe Company began operations on January 1, Year 1. The company was organized as a sole proprietorship. During Year 1, Crowe acquired $50,000 cash from John Crowe, the owner. Also, during Year 1 the company earned Net Income of $20,000 cash. Based on this information, how much can Crowe withdraw from the business? $20,000 $50,000 $70,000

$70,000

A review of Pueblo Company's Balance Sheet revealed a beginning balance in its Land account of $150,000. The ending balance in the account was $225,000. All transactions associated with the purchase or sale of land were cash transactions. Based on this information alone, Pueblo would show a $225,000 cash outflow in the Investing Activities section of its Statement of Cash Flows. $225,000 cash outflow in the Financing Activities section of its Statement of Cash Flows. $75,000 cash outflow in the Investing Activities section of its Statement of Cash Flows. $75,000 cash outflow in the Financing Activities section of its Statement of Cash Flows.

$75,000 cash outflow in the Investing Activities section of its Statement of Cash Flows.

On January 1, Year 1, Barnes Company issued a $100,000 installment note. The note had a 10-year term and an 8 percent interest rate. Barnes agreed to repay the principal and interest in 10 payments of $14,903 at the end of each year. How much of the first $14,903 payment was applied to interest in Year 1? $8,000 A value not listed here was applied to interest. $0 $14,903

$8,000

Omar Company reported $1,000 of current assets, $3,000 of long-term assets, $400 of current liabilities and $2,600 of long-term liabilities shown on its Year 1 Balance Sheet. Based on this information Omar's debt to assets ratio is 2.50. 1.33. 0.40. 0.75.

0.75

On January 1, Year 1, Barnes Company issued a $100,000 installment note. The note had a 10-year term and an 8 percent interest rate. Barnes agreed to repay the principal and interest in 10 payments of $14,903 at the end of each year. How much of the first $14,903 payment was applied to interest in Year 2? a number greater than $8,000 but less than $14,903 $8,000 $14,903 A number less than $8,000

A number less than $8,000

The book value of a share of stock may be All of the answers are correct. more than the market value of the stock. equal to the market value of the stock. less than the market value of the stock.

All of the answers are correct.

Smith Company provided services for $3,000 cash. Assume the event is subject to a state sales tax of 9%. Recognizing the event will require Smith to: increase liabilities. increase revenue. All of the answers describe effects that would result from recognizing the sales event. increase assets.

All of the answers describe effects that would result from recognizing the sales event.

Which of the following items is normally included in a bond certificate issued by a corporation? The stated rate of interest The face value of the bond All of the answers represent items that are normally included in a corporate bond certificate. The term to the maturity date

All of the answers represent items that are normally included in a corporate bond certificate.

How does appropriating Retained Earnings affect total assets? Appropriating Retained Earnings reduces total assets. Appropriating Retained Earnings has no affect on total assets. Appropriating Retained Earnings increases total assets.

Appropriating Retained Earnings has no affect on total assets.

Which of the following would not likely appear in the Current Liabilities section of a Classified Balance Sheet? Accounts Payable Sales Taxes Payable Bonds Payable Salaries Payable

Bonds Payable

Which one of the following statements is false? Both of these statements are false. The direct and indirect method of calculating cash flow from operating activities will produce the same result. Both of these statements are true. The direct and indirect method of calculating cash flow from operating activities both analyze the difference between the beginning and ending balance of each non-cash current asset and current liability account as well as various figures from the Income Statement.

Both of these statements are true.

Which item would not appear in the Investing Activities section of the Statement of Cash Flows? Cash inflow from the sale of land. Cash outflow from the purchase of equipment. Cash inflow from the issue of common stock.

Cash inflow from the issue of common stock.

Smith Company provided services for $3,000 cash. Assume the event is subject to a state sales tax of 9%. Which of the following journal entries would be required to record the sales event? Cash3000 Sales Tax Payable270 Revenue2730 Cash3270 Sales Tax Payable270 Revenue3000 Cash3270 Sales Revenue3270 Cash3000Sales Tax Expense270 Revenue3270

Cash3270 Sales Tax Payable270 Revenue3000

On November 1, Year 1 Cove Company borrowed $7,000 cash from Shelter Company. Cove issued a one-year note that carried a 7% annual rate of interest. Which of the following journal entries would be necessary to record the issue of the note by Cove on November 1, Year 1? Notes Payable7,000 Cash 7,000 Interest Payable490 Cash 490 Cash7,000 Notes Payable 7,000 Cash490 Interest Payable 490

Cash7,000 Notes Payable 7,000

On January 1, Year 1 Graham Corporation issued 200 shares of $5 par value common stock for $40 per share. Which of the following journal entries shows how this event would be recorded on January 1, Year 1? Common Stock1,000 Paid-in Capital in Excess of Par7,000 Cash 8,000 Cash8,000 Common Stock 7,000 Paid-in Capital in Excess of Par 1,000 Cash8,000 Common Stock 1,000 Paid-in Capital in Excess of Par 7,000 Cash9,000 Common Stock 1,000 Paid-in Capital in Excess of Par8,000

Cash8,000 Common Stock 1,000 Paid-in Capital in Excess of Par 7,000

On August 1, Year 1 Gomez Company borrowed $48,000 cash. The one-year note carried a 5% rate of interest. Which of the following shows how the December 31, Year 1 recognition of accrued interest will effect Gomez's financial statements? CashflowAssets=Liabilities+Equity(Revenue-Expense)OA1,000(1,000)1,000 CashflowAssets=Liabilities+Equity(Revenue-Expense)1,000(1,000) CashflowAssets=Liabilities+Equity(Revenue-Expense)1,000(1,000)1,000 CashflowAssets=Liabilities+Equity(Revenue-Expense)FA1,000(1,000)1,000

CashflowAssets=Liabilities+Equity(Revenue-Expense)1,000(1,000)1,000

Which of the following shows how remitting (paying) sales tax will affect the financial statements of the company making the payment? CashflowAssets=Liabilities+Equity(Revenue-Expenses)OA-- CashflowAssets=Liabilities+Equity(Revenue-Expenses)OA-+ CashflowAssets=Liabilities+Equity(Revenue-Expenses)-- CashflowAssets=Liabilities+Equity(Revenue-Expenses)OA--+

CashflowAssets=Liabilities+Equity(Revenue-Expenses)OA--

Wilson Company earned $2,000 of cash sales. Sales tax is 6%. Which of the following shows how this event would affect the company's financial statements? CashflowAssets=Liabilities+Equity(Revenue-Expenses)212012020002000 CashflowAssets=Liabilities+Equity(Revenue-Expenses)OA212012020002000 CashflowAssets=Liabilities+Equity(Revenue-Expenses)OA200012018801880 CashflowAssets=Liabilities+Equity(Revenue-Expenses)OA212012020002120

CashflowAssets=Liabilities+Equity(Revenue-Expenses)OA212012020002000

On January 1, Year 1 Graham Corporation issued 200 shares of $5 par value common stock for $40 per share. Which of the following shows how the stock issue will affect Graham's financial statements on January 1, Year 1? CashflowCash=Common Stock+PIC Excess of Par(Revenue-Expenses)FA8,0001,0007,000 CashflowCash=Common Stock+PIC Excess of Par(Revenue-Expenses)OA8,0001,0007,0007,000 CashflowCash=Common Stock+PIC Excess of Par(Revenue-Expenses)FA8,0007,0001,000 CashflowCash=Common Stock+PIC Excess of Par(Revenue-Expenses)FA1,0001,0007,000

CashflowCash=Common Stock+PIC Excess of Par(Revenue-Expenses)FA8,0001,0007,000

Which one of the following values is not needed to calculate Earnings Per Share? Common Stock Dividends Net Income Common Shares Outstanding Preferred Stock Dividends

Common Stock Dividends

When we use the direct method to prepare a Statement of Cash Flows, which one of the following sections of the Balance Sheet will be used to help identify cash flows from Operating Activities? Equities Current Liabilities Long-term Liabilities Plant Assets

Current Liabilities

Which of the following would not likely appear on a Classified Balance Sheet? All of these would appear on a Classified Balance Sheet. Long-term Liabilities Current Retained Earnings Current Assets

Current Retained Earnings

Which of the following is not a date associated with the declaration and payment of dividends? Date of disposal Date of declaration Date of payment Date of record

Date of disposal

On October 1, Allison Corporation declared a $70,000 cash dividend to be paid on December 15 to shareholders of record on November 1. Which of the following shows the journal entry necessary on December 15? Cash70,000 Dividends Payable 70,000 Dividends Payable70,000 Cash 70,000 Dividends70,000 Dividends Payable 70,000 Dividends Payable70,000 Dividends 70,000

Dividends Payable70,000 Cash 70,000

Which one of the following is a disadvantage of a corporate form of business? Double taxation Limited liability Transferability of ownership Continuity of existence

Double taxation

Which one of the following formulas yields the return-on-equity ratio? Net Income divided by total Common Stock Net Income divided by Total Stockholders' Equity Sales divided by Total Stockholders' Equity Net Income divided by price paid to purchase stock

Net Income divided by Total Stockholders' Equity

Which of the following would appear in the Operating Activities section of a Statement of Cash Flows prepared in accordance with the direct method? Depreciation Expense None of the answers describes items that would appear in the Operating Activities section of the Statement of Cash Flows using the direct method. Losses on the sale of land Gains on the sale of equipment

None of the answers describes items that would appear in the Operating Activities section of the Statement of Cash Flows using the direct method.

Crowe Company began operations on January 1, Year 1. The company was organized as a sole proprietorship. During Year 1, Crowe acquired $40,000 of capital from John Crowe, the owner. Also, during Year 1 the company earned Net Income of $20,000 and John Crowe withdrew $15,000 from the business. Based on this information, the Company would show $45,000 of Retained Earnings on its Year 1 Balance Sheet. $5,000 of Retained Earnings on its Year 1 Balance Sheet. $60,000 of Retained Earnings on its Year 1 Balance Sheet. None of the answers is correct.

None of the answers is correct.

Forest Beach Company experienced an event that had the following effects on its financial statements. CashflowAssets=Liabilities+Equities(Revenue-Expenses)FAdecreasedecrease Which of the following events could have caused these effects? Paid cash to acquire a long-term asset Paid cash to settle the principal balance of note payable Paid cash to settle accrued interest payable Paid cash for interest expense

Paid cash to settle the principal balance of note payable

Which one of the following transactions does not require a journal entry? Stock split Appropriation of Retained Earnings Acquisition of treasury stock Stock dividend

Stock split

Each time a payment is made on an installment note, the portion of the next payment associated with notes payable increases. This statement is

True

Which of the following is not a typical characteristic associated with preferred stock? Fixed dividends Cumulative dividends Voting rights Priority in business liquidations

Voting rights

Assuming all transactions are cash transactions an increase in the balance in the Land account suggests a cash inflow occurred. a decrease in the balance in the Manufacturing Equipment account suggests a cash inflow occurred.

a decrease in the balance in the Manufacturing Equipment account suggests a cash inflow occurred.

Assuming all transactions are cash transactions an increase in the balance in the Common Stock account suggests a cash inflow occurred. a decrease in the Notes Payable account suggests a cash inflow occurred. a decrease in the Retained Earnings caused by dividends suggests a cash inflow occurred.

an increase in the balance in the Common Stock account suggests a cash inflow occurred.

The Current Ratio is calculated by: subtracting current liabilities from current assets. dividing current assets by current liabilities. subtracting current assets from current liabilities. dividing current liabilities by current assets.

dividing current assets by current liabilities.

The debt to assets ratio is calculated by dividing total liabilities by total assets. subtracting total liabilities from total assets. dividing total assets by total liabilities. subtracting total assets from total liabilities.

dividing total liabilities by total assets.

A current asset is an asset that is cash or an asset that will be converted into cash within one year or one operating cycle whichever is shorter

false

A net cash outflow in the Investing Activities section of the Statement of Cash Flows is an indication that a business is shrinking. This statement is

false

A two-for-one stock split will double the amount of Total Stockholder's equity shown on the Balance Sheet. This statement is:

false

Each time a payment is made on an installment note, the portion of the next payment associated with interest expense increases. This statement is

false

The entire cash outflow resulting from a payment on an installment loan is shown as a financing activity on the statement of cash flows. This statement is

false

As a bond discount is amortized, it will _____ the Interest Expense recorded for each period. not affect increase decrease

increase

When a bond is issued at a discount, the carrying value of this bond will _____ over the term of the bond. increase remain the same decrease

increase

Normally companies sell stock for an amount that is less than the par value. equal to the par value. more than the par value.

more than the par value.

Yang Company sold merchandise for $2,000. The event is subject to a state sales tax of 9%. Based on this information, Yang would be required to recognize sales revenue of $1,820. sales tax liability of $180. sales tax expense of $180. sales revenue of $2,180.

sales tax liability of $180

The debt to asset ratio is a measure of liquidity. solvency. earning capacity.

solvency.

To prepare a Statement of Cash Flows for the current year, using the direct method, you need: the current year's Balance Sheet, the current year's Income Statement and the previous year's Income Statement. the current year's Balance Sheet, the previous year's Balance Sheet and the current year's Income Statement. the current year's Balance Sheet and the current year's Income Statement.

the current year's Balance Sheet, the previous year's Balance Sheet and the current year's Income Statement.

When treasury stock is purchased, it is recorded at: the price paid to acquire the stock. None of these prices is correct. The par value of the stock. The price at which the shares were originally issued.

the price paid to acquire the stock.

When treasury stock is sold, the Treasury Stock account is reduced for: the price paid to sell the treasury stock. the price paid when the treasury stock was originally issued as common stock. None of these prices is correct. the price paid to acquire the treasury stock.

the price paid to acquire the treasury stock.

The amount of the cash flow from operating activities shown on the Statement of Cash Flows will be lower if the company used the direct method than it would be if the indirect method were used. the same regardless of whether the company uses the direct or the indirect method. higher if the company used the direct method than it would be if the indirect method were used.

the same regardless of whether the company uses the direct or the indirect method.

A Classified Balance Sheet separates assets and liabilities into categories that distinguish between accounts that are identified as current from those that are identified as long-term. This statement is

true

Accrued Interest Expense will appear on the Income Statement but not on the Statement of Cash Flows. This statement is

true

Appropriating Retained Earnings reduces the amount of Retained Earnings that are available for the declaration of dividends. This statement is:

true

Both Bonds Payable and Notes Payable are obligations that usually arise from borrowing money. This statement is

true

Financing Activities involve transactions between a company and its creditors or owners. This statement is

true

In a business organized as a sole proprietorship, retained earnings and capital acquired from owners are combined is a single account. This statement is

true

Interest Expense is shown on the Income Statement as a non operating activity; however cash outflow for interest payments is shown as an operating activity on the Statement of Cash Flows. This statement is

true

Partnerships are frequently managed by the owners of the business. This statement is

true

The par value or stated value of stock represents the amount of legal capital that a corporation must maintain for the protection of the creditors. This statement is:

true