MGMT 20010 FINAL
B. Bond X will sell for more than Bond Y
Bond X and Bond Y are both issued by the same company. Each of the bonds has a face value of $100,000 and each matures in 10 years. Bond X pays 8% interest while Bond Y pays 7% interest. The current market rate of interest is 7%. Which of the following is correct? A. Both bonds will sell for the same amount B. Bond X will sell for more than Bond Y C. Bond Y will sell for more than Bond X D. Both bonds will sell at a premium
C. Carrying value
Bonds payable should be reported as a long‐term liability in the balance sheet at: A. Face value B. Current bond market price C. Carrying value D. Face value less accrued interest since the last interest payment date
D. 150% increase 250,000 - 100,000 / 100,000 = 1.5 x 100 = 150%
Brady's Inflation Needle Co. reports accounts receivable of $100,000 in 2017 and $250,000 in 2018. Using horizontal analysis, what would be the percentage increase or decrease in accounts receivable? A. 60% decrease B. 60% increase C. 150% decrease D. 150% increase
C. Current asset and current liability accounts
We can identify operating activities from income statement information and changes in A. Long‐term asset accounts B. Long‐term liability accounts C. Current asset and current liability accounts D. Stockholders' equity accounts
d. A credit to Additional Paid‐in Capital for $225,000 Cash ....................... $250,000 Common Stock ........................ $25,000 Additional Paid-in Capital ... $225,000
When a company issues 25,000 shares of $1 par value common stock for $10 per share, the journal entry for this issuance would include: a. AdebittoCashfor$25,000 b. A debit to Additional Paid‐in Capital for $25,000 c. A credit to Common Stock for $250,000 d. A credit to Additional Paid‐in Capital for $225,000
D. The issuing company may report a non‐ operating gain or loss
When bonds are retired before their maturity date A. GAAP has been violated B. The issuing company will always report a non‐ operating gain C. The issuing company will always report a non‐ operating loss D. The issuing company may report a non‐ operating gain or loss
a. Decrease
When treasury stock is acquired, what is the effect on total stockholders' equity? a. Decrease b. Increase c. No effect d. Cannot tell from the given information
D. Even if the amount is not reasonably estimable
Footnote disclosure is required for material potential losses when the loss is at least reasonably possible: A. Only if the amount is known B. Only if the amount is known or reasonable estimable C. Unless the amount is not reasonably estimable D. Even if the amount is not reasonably estimable
D. Matching
Ford estimates engine warranty expense in the year a car is sold. This best follows which of the following accounting principles? A. Historical cost B. Full disclosure C. Consistency D. Matching
D. Bonds 1 and 2
Given the information below, which bond(s) will be issued at a discount? Bond 1 Bond 2 Bond 3 Bond 4 Stated 5% 7% 12% 10% Market 7% 8% 12% 9% A. Bond 1 B. Bond 2 C. Bond 4 D. Bonds 1 and 2
A. I and III
Given the items below, which of the following is an addition to net income to arrive at operating cash flows? I. Loss on sale of assets II. Increase in Supplies III. Increase in Accounts Payable IV. Increase in Accounts Receivable A. I and III B. I. only C. III. and IV D. II. and III
C. Financing activities
How are dividends paid reported on the statement of cash flows? A. Operating activities B. Investing activities C. Financing activities D. Schedule of noncash transactions E. Not on the statement of cash flows
False
T OR F: The mixture of debt and equity securities is generally the same for most companies.
False - arbitrary amount assigned to a share of common stock at incorporation.
T OR F: The par value of a share of common stock is normally equal to market value.
B. More than $500,000
A bond issue with a face amount of $500,000 bears interest at the rate of 7%. The current market rate of interest is 6%. These bonds will sell at a price that is: A. Equal to $500,000 B. More than $500,000 C. Less than $500,000 D. The answer cannot be determined from the information provided
B. Operating activities section
A company collected an accounts receivable. Indicate which section, if any, the above transaction would appear in, or relate to, on a statement of cash flows. A. Does not represent a cash flow B. Operating activities section C. Financing activities section D. Investing activities section
A. $155,000 (b) Borrowed from a local bank, $100,000 (c) Issued common stock, $75,000 (d) Paid dividends, $20,000 = $155,000
A company had the following cash flows for the year: (a) Purchased land, $60,000 (b) Borrowed from a local bank, $100,000 (c) Issued common stock, $75,000 (d) Paid dividends, $20,000 (e) Sold equipment, $40,000 What amount would be reported for net financing cash flows on the Statement of Cash Flows? A. $155,000 B. $70,000 C. ($20,000) D. $40,000
d. Credit Additional Paid‐In Capital $4,000 Cash ........... $5,000 Preferred Stock ........................ $1,000 Additional Paid-in Capital .... $4,000
A company issued 1,000 shares of $1 par value preferred stock for $5 per share. What is true about the journal entry to record the issuance? a. Debit Preferred Stock $5,000 b. Credit Cash $5,000 c. Credit Preferred Stock $5,000 d. Credit Additional Paid‐In Capital $4,000
D. Financing activities section
A company issued common stock for cash. Indicate which section, if any, the above transaction would appear in, or relate to, on a statement of cash flows. A. Operating activities section B. Does not represent a cash flow C. Investing activities section D. Financing activities section
d. Credit to Additional Paid‐In Capital for $2,000 Cash (400 x $20) ....... 8,000 Treasure stock (400 x $15) ...... 6,000 Additional Paid-in capital ....... 2,000
A company reissues 400 shares of its own common stock for $20 per share. The company had acquired these shares two months before for $15 per share. The reissuance of this stock would be recorded with a: a. Credit to Treasury Stock for $8,000 b. Debit to Additional Paid‐In Capital for $2,000 c. Debit to Common Stock for $8,000 d. Credit to Additional Paid‐In Capital for $2,000
C. Potential liability
A contingency is best described as a(n) A. current liability B. probable liability C. potential liability D. estimated liability
A. $1,791.60 $125,000 x 6% x 1/12 = $625.00 (interest expense) $2,416.60 - $625.000 = $1,791.60 (payment) - (interest) = (reduction in carrying value)
A corporation obtains a $125,000, 6%, five‐year loan for equipment on January 1, 2018. If the monthly payment is $2,416.60, by how much will the carrying value decrease when the first payment is made on January 31, 2018? A. $1,791.60 B. $625.00 C. $2,416.60 D. $1,000.60
b) that there is no effect on total stockholders' equity
A feature common to both stock splits and stock dividends is: a) a transfer to earned capital of a corporation b) that there is no effect on total stockholders' equity c) an increase in total liabilities of a corporation d) a reduction in the contributed capital of a corporation
b. II., III., V
Advantages of the corporate form of business include which of the following? I. Double taxation II. Ability to raise capital III. Ability to transfer ownership IV. More paperwork V. Limited liability a. II b. II., III., V c. I., II., III d. II.,IV.,V
C. I, III, IV, V.
All classifications on the Balance Sheet have a general relationship with sections identified on the Statement of Cash Flows. Indicate which relationships are correctly identified in the table below: I Bonds Payable Financing II Equipment Operating III Common Stock Financing IV Accounts Payable Operating V Accounts Receivable Operating A. IV, V B. I, II, III C. I, III, IV, V. D. All of these
d. The Securities and Exchange Commission
All publicly held corporations are regulated by what government organization? a. TheFinancialAccountingStandardsBoard b. The Commission on Accounting Procedures c. The Accounting Principles Board d. The Securities and Exchange Commission
B. No change to the current ratio
Assuming a current ratio of 1.0, how will the purchase of inventory with cash affect the ratio? A. Increase the current ratio B. No change to the current ratio C. Decrease the current ratio D. Could either increase or decrease the current ratio
D. As a disclosure only. No liability is reported *A contingent liability is not recorded if the likelihood of loss is only reasonably possible
Away Travel filed suit against West Coast Travel seeking damages for copyright violations. West Coast Travel's legal counsel believes it is reasonably possible that West Coast Travel will settle the lawsuit for an estimated amount in the range of $100,000 to $200,000, with all amounts in the range considered equally likely. How should West Coast Travel report this litigation? A. As a liability for $100,000 with disclosure of the range B. As a liability for $150,000 with disclosure of the range C. As a liability for $200,000 with disclosure of the range D. As a disclosure only. No liability is reported
a. $420,000 (30,000 × $7) + (20,000 × $8) + $100,000 ‐ $50,000 = $420,000
Clothing Emporium was organized on January 1, 2018. The firm was authorized to issue 100,000 shares of $5 par value common stock. During 2018, Clothing Emporium had the following transactions relating to shareholders' equity: -Issued 30,000 shares of common stock at $7 per share. -Issued 20,000 shares of common stock at $8 per share. -Reported a net income of $100,000. -Paid dividends of $50,000. What is the total stockholders' equity at the end of 2018? a. $420,000 b. $370,000 c. $470,000 d. $250,000
C. $22,000 Bank borrowing ....................... $40,000 Cash dividends paid ............. (8,000) Treasury stock purchases ... (10,000) Net cash flows from financing activities ... $22,000
During 2018, Victory Solutions had the following cash flows: (1) earned $20,000 of net income; (2) paid interest of $6,000 on a corporate bond issued; (3) paid dividends of $8,000 to its stockholders; (4) borrowed $40,000 from a local bank; and (5) purchased its own shares of common stock for $10,000. What is Victory Solution's net cash flows from financing activities for 2018? A. $40,000 B. $30,000 C. $22,000 D. $16,000
B. Operating activities & decrease in cash
How is a increase in inventory reported on the statement of cash flows. What is the effect on cash flows? A. Operating activities & increase in cash B. Operating activities & decrease in cash C. Investing activities & increase in cash D. Financing activities & increase in cash E. Noncash transaction & no effect on cash
E. Noncash transaction & no effect on cash
How is a purchase of land and buildings with a bank mortgage reported on the statement of cash flows. What is the effect on cash flows? A. Operating activities & increase in cash B. Financing activities & decrease in cash C. Investing activities & decrease in cash D. Financing activities & increase in cash E. Noncash transaction & no effect on cash
D. Financing activities & increase in cash
How is sale of treasury stock reported on the statement of cash flows. What is the effect on cash flows? A. Operating activities & increase in cash B. Operating activities & decrease in cash C. Investing activities & increase in cash D. Financing activities & increase in cash E. Noncash transaction & no effect on cash
B. Financing activities & decrease in cash
How is the retirement of long‐term debt reported on the statement of cash flows. What is the effect on cash flows? A. Operating activities & increase in cash B. Financing activities & decrease in cash C. Investing activities & increase in cash D. Financing activities & increase in cash E. Noncash transaction & no effect on cash
A) 2 a) decrease in accounts receivable g) depreciation expense
How many of these items would be added to net income to prepare the operating activities section of the statement of cash flows? a) decrease in accounts receivable b) issuance of common stock c) increase in interest receivable d) purchase of land e) decrease in accounts payable f) gain on the sale of equipment g) depreciation expense h) payments of dividends i) decrease in utilities payable j) increase in inventory A) 2 B) 4 C) 1 D) 3
c. Increase assets and increase stockholders' equity Cash ................................. $20,000 Common Stock .... $1,000 Additional Paid-in Capital ... $19,000
If a company issues 1,000 shares of $1 par value common stock for $20 per share, what would be the effect on the accounting equation? a. Increase assets and increase liabilities b. Increase assets and increase revenue c. Increase assets and increase stockholders' equity d. Increase assets and decrease stockholders' equity
c. Additional Paid‐in Capital Cash ...................... $20,000 Common Stock ........................ $1,000 Additional Paid-in Capital ... $19,000
If a company issues 1,000 shares of $1 par value common stock for $20 per share, which of the following accounts would be credited? a. Treasury Stock b. Cash c. Additional Paid‐in Capital d. Retained Earnings
d) should be issued for each period for which an income statement is presented.
If a company issues both a balance sheet and an income statement with comparative figures from last year, a statement of cash flows: a) is no longer necessary; but may be used at the company's option. b) should not be issued. c) should be issued for the current year only. d) should be issued for each period for which an income statement is presented.
B. Disclosed and reported as a liability
If management can estimate the amount of loss that will occur due to litigation against the company, and the likelihood of the loss is probable, a contingent liability should be: A. Disclosed, but not reported as a liability B. Disclosed and reported as a liability C. Neither disclosed nor reported as a liability D. Reported as a liability, but not disclosed
A. Disclosed, but not reported as a liability *must be probable
If management can estimate the amount of loss that will occur due to litigation against the company, and the likelihood of the loss is reasonably possible, a contingent liability should be: A. Disclosed, but not reported as a liability B. Disclosed and reported as a liability C. Neither disclosed nor reported as a liability D. Reported as a liability, but not disclosed
B. The amount of interest expense decreases.
In each succeeding payment on an installment note A. The amount of interest expense increases. B. The amount of interest expense decreases. C. The amount of interest expense is unchanged. D. The amounts paid for both interest and principal increase proportionately.
C. The amount that goes to decreasing the carrying value of the note increases.
In each succeeding payment on an installment note A. The amount that goes to decreasing the carrying value of the note is unchanged. B. The amount that goes to decreasing the carrying value of the note decreases. C. The amount that goes to decreasing the carrying value of the note increases. D. The amounts paid for both interest and principal increase proportionately.
B. $198,000 Net income ......................................... $205,000 Subtract increase in inventory ... ($5,000) Subtract decrease in A/P ............. ($2,000) Cash flows from operating activities $198,000
Innovative Products reported net income of $205,000. Beginning and ending Inventory balances were $40,000 and $45,000, respectively. Accounts Payable balances at the beginning and end of the year were $35,000 and $33,000, respectively. Assuming that all relevant information has been presented, the company would report net operating cash flows of: A. $202,000 B. $198,000 C. $212,000 D. $205,000
C. Carrying value times the market interest rate
Interest expense on bonds payable is calculated as the: A. Face amount times the stated interest rate B. Face amount times the market interest rate C. Carrying value times the market interest rate D. Carrying value times the stated interest rate
False - The cash payment each period is calculated as the face value times the stated interest rate.
T OR F: The cash payment each period is calculated as the carrying value times the market rate.
c. Credit Common Stock $15,000 Cash ........ $300,000 Common Stock ........................ $15,000 Additional Paid-in Capital ... $285,000
Jade Jewelers issued 15,000 shares of $1 par value stock for $20 per share. What is true about the journal entry to record the issuance? a. Credit Common Stock $300,000 b. Credit Cash $300,000 c. Credit Common Stock $15,000 d. Debit Additional Paid‐In Capital $285,000
c. Declaration date and payment date
Journal entries to record cash dividends are made on the: a. Declaration date, record date, and payment date b. Record date and payment date. c. Declaration date and payment date d. Declaration date and record date
C. $520,000 *$50,000 = financing activity $450,000 + $70,000 = $520,000
Knomark Corporation reports net income of $450,000 that includes depreciation expense of $70,000. Also, cash of $50,000 was borrowed on a 5‐year note payable. Based on this data, total cash inflows from operating activities are: A. $380,000 B. $470,000 C. $520,000 D. $570,000
a. Lower the trading price of the stock per share
Large stock dividends and stock splits are issued primarily to a. Lower the trading price of the stock per share b. Increase the number of authorized shares c. Increase legal capital d. Increase the number of outstanding shares
D. $148,000 Net Income $95,000 Adjustments to reconcile net income to net cash flows from operating activities: Depreciation Expense $50,000 Increase in prepaid rent (40,000) Increase in accounts payable 23,000 Increase in income tax payable 20,000 Net cash flows provided by operating activities: $148,000
LePage's Inc. reports net income of $95,000. The accounting records reveal Depreciation Expense of $50,000 as well as increases in Prepaid Rent, Accounts Payable, and Income Tax Payable of $40,000, $23,000, and $20,000, respectively. What is the net cash flows from operating activities? A. $188,000 B. $228,000 C. $128,000 D. $148,000
A. $132,000 Net income $135,000 Subtract increase in A/R (1,000) Subtract decrease in A/P (2,000) Net cash flows from operating activities $132,000
LePage's, Inc. reported net income of $135,000. Beginning balances in Accounts Receivable and Accounts Payable were $29,000 and $26,000, respectively. Ending balances in these accounts were $30,000 and $24,000, respectively. Assuming that all relevant information has been presented, LePage's net cash flows from operating activities would be: A. $132,000 B. $134,000 C. $136,000 D. $138,000
c) $14,000 2,000 * due from 2014 12,000 * due from 2015 $14,000 total received in 2015 6% x $50 par value = $3 dividend for each share $3 per share x 4,000 shares = $12,000 dividends per year
Luther Inc., has 4,000 shares of 6%, $50 par value, cumulative preferred stock and 100,000 shares of $1 par value common stock outstanding at December 31, 2015, and December 31, 2014. The board of directors declared and paid a $10,000 dividend in 2014. In 2015, $48,000 of dividends are declared and paid. What are the dividends received by the preferred stockholders in 2015? a) $34,000 b) $24,000 c) $14,000 d) $12,000
b. Credit Treasury Stock $10,800 Cash (400 x $15) ................. 6,000 Additional PIC or R/E ...... 4,800 Treasury Stock (400 x $27) ..... 10,800
On December 2, Coley Corp. acquired 1,000 shares of its $2 par value common stock for $27 each. On December 20, Coley Corp. reissued 400 shares for $15 each. Which of the following is correct regarding the journal entry for the reissued shares? a. Debit Cash $15,000 b. Credit Treasury Stock $10,800 c. Credit Additional Paid in Capital $5,200 d. Credit Treasury Stock $6,000
c. $5,000,000 *transfer par value of $2.5 million (50,000 shares x $50 par value) from retained earnings
On June 30, 2014, when Knomark Co.'s common stock was selling at $65 per share, its capital accounts were as follows: Common stock (par value $50, 50,000 shares issued) $2,500,000 Paid-in-capital $600,000 Retained earnings $4,200,000 If a 100% stock dividend was declared and distributed, common stock would be: a. $2,500,000 b. $3,100,000 c. $5,000,000 d. $7,300,000
D. $206,000 $200,000 + [$200,000 x 6% x 6/12] = $206,000
On November 1, 2018, Boiler Bakery signed a $200,000, 6%, six-month note payable with the amount borrowed plus accrued interest due six months later on May 1, 2019. Boiler Bakery records the appropriate adjusting entry for the note on December 31, 2018. What amount of cash will be needed to pay back the note payable plus any accrued interest on May 1, 2019? A. $200,000 B. $202,000 C. $204,000 D. $206,000
B. $1,000 [($100,000 x 6%) x 2/12] = $1,000
On November 1, 2018, Knomark, Inc. signed a $100,000, 6%, six-month note payable with the amount borrowed plus accrued interest due six months later on May 1, 2019. Knomark should report interest payable at December 31, 2018, in the amount of: A. $0 B. $1,000 C. $2,000 D. $3,000
C. $3,000 [($100,000 x 9%) x 4/12] = $3,000
On September 1, 2018, ATI Corporation signed a $100,000, 9%, six-month note payable with the amount borrowed plus accrued interest due six months later on Match 1, 2019. ATI should report interest payable at December 31, 2018, in the amount of: A. $0 B. $1,500 C. $3,000 D. $4,500
c. Issued less treasury stock
Outstanding common stock refers to the total number of shares a. Issued b. Issued plus treasury stock c. Issued less treasury stock d. Authorized.
d. Dividends and distribution of assets if the corporation is dissolved
Preferred stock is called preferred because it usually has two preferences over common stock. These preferences relate to a. Dividends and voting rights b. Par value and dividends c. The preemptive right and voting rights d. Dividends and distribution of assets if the corporation is dissolved
A. As a liability for $100,000 with disclosure of the range *When no amount within a range of potential losses appears more likely than others, the liability is recorded at the minimum amount in the range
Reeves Co. filed suit against Higgins, Inc., seeking damages for copyright violations. Higgins' legal counsel believes it is probable that Higgins will settle the lawsuit for an estimated amount in the range of $100,000 to $200,000, with all amounts in the range considered equally likely. How should Higgins report this litigation? A. As a liability for $100,000 with disclosure of the range B. As a liability for $150,000 with disclosure of the range C. As a liability for $200,000 with disclosure of the range D. As a disclosure only. No liability is reported
a. Net income less dividends since the company first began operations
Retained Earnings represent a company's a. Net income less dividends since the company first began operations b. Undistributed net assets. c. Extra paid‐in capital d. Undistributed cash
B. 20% 100,000/500,000 = 20%
Richard's Sporting Goods reports net income of $100,000, net sales of $500,000, and average assets of $1,000,000. The profit margin is A. 10% B. 20% C. 50% D. 5 times
D. Increase assets and liabilities Assets = Liabilities + Equity (+) Cash = (+) Bonds payable
Samson Enterprises issued a ten‐year, $20 million bond with a 10% interest rate for $19,500,000. The entry to record the bond issuance would have what effect on the financial statements? A. Increase assets B. Increase liabilities C. Increase stockholders' equity D. Increase assets and liabilities
C. $54,055 ($33,778 + $20,277) PV of face amount - $50,000 x .67556 = $33,778 PV of the stated interest payments - $2,500 x 8.11090 = $20,277 *use market interest rate
Seaside issues a bond with a stated interest rate of 10%, face value of $50,000, and due in 5 years. Interest payments are made semi‐annually. The market rate for this type of bond is 8%. What is the issue price of the bond? A. $83,920 B. $46,320 C. $54,055 ($33,778 + $20,277) D. $50,000
B. $16,000 4,000 goals x 2% ............ 800 goals cost to repair ............... x $200/goal ............................................. = $16,000
Strikers, Inc. sells soccer goals to customers over the Internet. History has shown that 2% of Strikers' goals will need repair under the warranty program. For the year, Strikers has sold 4,000 goals and 45 have been repaired. If the estimated cost to repair a goal is $200, what would be the warranty expense for the year? A. $0 B. $16,000 C. $7,000 D. $9,000
C. $7,000 Warranty Liability Account DEBIT CREDIT $16,000 $9,000 =$7,000 45 x $200/goal = $9,000
Strikers, Inc. sells soccer goals to customers over the Internet. History has shown that 2% of Strikers' goals will need repair under the warranty program. For the year, Strikers has sold 4,000 goals and 45 have been repaired. If the estimated cost to repair a goal is $200, what would be the warranty liability at the end of the year? A. $0 B. $16,000 C. $7,000 D. $9,000
False - borrow or the company
T OR F: A callable bond allows the holder to repay the bonds before their scheduled maturity date at a specified call price.
True
T OR F: A company credits Additional Paid‐in Capital for the portion of the cash proceeds above par value received for the issuance of stock.
False - indicates that current assets are 2x current liabilities
T OR F: A company with a current ratio of 1.0 is considered more liquid than one with a current ratio of 2.0.
True - indicates total liabilities equal equity
T OR F: A debt to equity ratio of 1.0 means that half of the company's assets are financed by creditors.
True
T OR F: A decrease in wages payable represents a decrease in cash.
False - No gain or loss is recorded on bonds retired at maturity, as the carrying value at maturity is equal to the face amount of the bond
T OR F: A gain or loss is recorded on bonds retired at maturity.
True
T OR F: A premium occurs when the issue price of a bond is above its face amount.
True
T OR F: A reduction of inventory represents an increase in cash.
False
T OR F: An increase in accounts receivable represents a increase in cash.
False - Authorized stock is the total number of shares available to sell, stated in the company's articles of incorporation. Issued stock is the number of shares that have been sold to investors.
T OR F: Authorized stock is the number of shares that have been sold to investors.
True - Debt financing can increase with stable and predictive cash flows.
T OR F: Cash flow generally limits the amount of debt a business can finance.
False
T OR F: Common stock is listed before preferred stock in the balance sheet
True - external funds
T OR F: Contributed capital is the amount stockholders have invested in the company
False - bondholder or investor
T OR F: Convertible bonds allow the borrower to convert each bond into a specified number of shares of common stock.
False - Cumulative preferred stock means shares receive priority for future dividends, if dividends are not paid in a given year.
T OR F: Cumulative preferred stock means that dividends accumulate interest during the year.
False - For bonds issued at a premium, the difference between interest expense and the cash paid decreases the carrying value of the bonds.
T OR F: For bonds issued at a premium, the difference between interest expense and the cash paid increases the carrying value of the bonds
False - Gains/losses on the early extinguishment of debt are reported as non‐operating items in the income statement
T OR F: Gains/losses on the early extinguishment of debt are reported as part of operating income in the income statement
True
T OR F: Limited liability means that even in the event of bankruptcy, stockholders in a corporation can lose no more than the amount they invested in the company
True
T OR F: Monthly installment payments on a note payable include both an amount that represents interest and an amount that represents a reduction of the outstanding loan balance
True
T OR F: Par value is the legal capital per share of stock that's assigned when the corporation is first established
False
T OR F: Profit margin and gross margin are the same thing.
False - large stock dividend reduces R/E by the par value of the stock
T OR F: Stock splits and large stock dividends have the same effect on a company's retained earnings and total stockholders' equity.
False - appointed by the board of directors
T OR F: The CEO of a company is elected by a vote of the shareholders.
False - The Warranty Liability account is increased by warranty expense, but it is also reduced over time by actual warranty expenditures
T OR F: The balance in the Warranty Liability account is always equal to Warranty Expense.
True
T OR F: The long‐term assets section of the balance sheet is the place to look for investing activities.
False - Purchase of long‐term assets by issuing debt is reported as a noncash activity either directly after the cash flow statement or in a separate note to the financial statements.
T OR F: The purchase of long‐term assets by issuing debt is recorded as both an investing activity and a financing activity.
True
T OR F: The total of the cash flows from operating, investing, and financing activities equals the net increase or decrease in cash for the period.
False - Need to present value using the market interest rate.
T OR F: We can calculate the issue price of a bond as the face amount plus the total periodic interest payments.
False - We do not record gain contingencies until the gain is certain.
T OR F: We record gain contingencies when the gain is probable and the amount is reasonably estimable.
False - Interest expense is recorded in the period incurred, not in the period in which we pay it.
T OR F: We record interest expense in the period in which we pay it, rather than in the period we incur it.
True
T OR F: We report interest paid on bonds or notes payable with operating activities rather than financing activities.
False - When bonds are issued at a premium (above face amount), the carrying value and the corresponding interest expense decrease over time.
T OR F: When bonds are issued at a premium (above face amount), the carrying value and the corresponding interest expense increase over time.
c) The number of common shares issued × the stock's par value per share
The Common Stock account on a company's balance sheet is measured as: a) The number of common shares outstanding × the stock's par value per share b) The number of common shares outstanding × the stock's current market value per share c) The number of common shares issued × the stock's par value per share d) The number of common shares issued × the stock's current market value per share
a. $6,000 to preferred stockholders and $12,000 to common stockholders. $6 dividend / share x 1,000 shares = $6,000
The Surf's Up issues 1,000 shares of 6%, $100 par value preferred stock at the beginning of 2017. All remaining shares are common stock. The company was not able to pay dividends in 2017, but plans to pay dividends of $18,000 in 2018. Assuming the preferred stock is noncumulative, how much of the $18,000 dividend will be paid to preferred stockholders and how much will be paid to common stockholders in 2018? a. $6,000 to preferred stockholders and $12,000 to common stockholders. b. $18,000 to preferred stockholders and $0 to common stockholders. c. $12,000 to preferred stockholders and $6,000 to common stockholders d. $9,000 to preferred stockholders and $9,000 to common stockholders
D. Funds are obtained without surrendering ownership control, as well as, interest expense is tax‐deductible.
The advantages of obtaining long‐term funds by issuing bonds, rather than issuing additional common stock, include which of the following? A. Funds are obtained without surrendering ownership control. B. Interest expense is tax‐deductible. C. The company's default risk decreases. D. Funds are obtained without surrendering ownership control, as well as, interest expense is tax‐deductible.
d. date of record
The board of directors of Amalgamated Corporation declared a cash dividend on July 15, 2013, to be paid on August 15, 2013, to shareholders holding the stock on August 1, 2013. Given these facts, the date August 1, 2013, is referred to as the a. date of declaration b. date of payment c. ex‐dividend date d. date of record
a. decrease stockholders' equity and increase liabilities
The board of directors of Blount Corporation declared a cash dividend of $5.00 per share on 57,000 shares of common stock on April 14, 2013. The dividend is to be paid on May 15, 2013, to shareholders of record on May 1, 2013. The effects of the entry to record the declaration of the dividend on April 14, 2013, are to a. decrease stockholders' equity and increase liabilities b. increase stockholders' equity and increase liabilities c. decrease stockholders' equity and decrease assets d. increase stockholders' equity and decrease assets
D. If the bonds were sold at a discount
The carrying value, using the effective interest method, would increase each year: A. The carrying value of bonds will never increase B. If the bonds were sold at either a discount or a premium C. If the bonds were sold at a premium D. If the bonds were sold at a discount
C. ($3,900) Sale of land .............................. 100 Purchase of equipment ..... (4,000) Net cash outflows from investing activities (3,900)
The company would report net cash inflows (outflows) from investing activities in the amount of: Cash Received From: Sale of land ...................................... 100 Sale of common stock ............... 600 Issuance of debt securities ...... 2,000 Cash Paid For: Interest on debt ............................ 300 Debt principal reduction .......... 1,500 Purchase of equipment ............. 4,000 Dividends on common stock .. 200 A. ($4,000) B. $100 C. ($3,900) D. ($1,900)
c. $2.0 million Net income ($3.5 million) minus dividends ($2.0 million) equals the change in retained earnings ($1.5 million).
The ending Retained Earnings balance of Lambert Inc. increased by $1.5 million from the beginning of the year. The company's net income earned during the year is $3.5 million. What is the amount of dividends Lambert Inc. declared and paid? a. $1.5million b. $3.5 million c. $2.0 million d. $5.0 million
A. Increases expense, decreases liabilities, and decreases assets. Assets = Liabilities + Equity (-) cash = (-) notes payable (-) interest expense
The entry to record a monthly payment on an installment note: A. Increases expense, decreases liabilities, and decreases assets. B. Increases expense, increases liabilities, and increases assets. C. Increases expense, decreases liabilities, and increases assets. D. Increases expense, increases liabilities, and decreases assets.
b. Par value of the shares issued
The issuer of a 100% common stock dividend (large stock dividend) to common stockholders should debit stock dividends for an amount equal to the a. Book value of the shares issued b. Par value of the shares issued c. Market value of the shares issued d. Minimum legal requirements
c. Market value of the shares issued
The issuer of a 5% common stock dividend (small stock dividend) to common stockholders should debit stock dividends for an amount equal to the a. Book value of the shares issued b. Par or stated value of the shares issued c. Market value of the shares issued d. Minimum legal requirements
b. Common Stock account
The par value of shares issued is normally recorded in the a. Additional Paid‐in Capital account b. Common Stock account c. Retained Earnings account d. Treasury Stock account
C. The present value of the face amount plus the present value of the stated interest payments
The price of a bond is equal to: A. The future value of the face amount only B. The present value of the interest only C. The present value of the face amount plus the present value of the stated interest payments D. The future value of the face amount plus the future value of the stated interest payments
C. Financing activity
The purchase of treasury stock is classified in the statement of cash flows as a(n): A. Investing activity B. Operating activity C. Financing activity D. Noncash activity
D. Stated rate *face, coupon or nominal rates
The rate quoted in the bond contract used to calculate the cash payments for interest is called the A. Effective rate B. Yield rate C. Market rate D. Stated rate
B. debenture bonds
The term used for bonds that are unsecured as to principal is A. series bonds B. debenture bonds C. indenture bonds. D. callable bonds.
D. the prior year's amount
To calculate a year‐to‐year percentage change in any financial statement line item such as sales, you should take the current year's amount, subtract the prior year's amount, then divide by ______, and finally multiply the result by 100 A. net income B. total assets C. the current year's amount D. the prior year's amount
b. Decreases stockholders' equity
Treasury Stock: a. Has a normal credit balance b. Decreases stockholders' equity c. Is recorded as an investment d. Increases stockholders' equity
b. Increases stockholders' equity
When treasury stock is resold at a gain, the difference between its cost and the cash received when resold: a. Increases net income b. Increases stockholders' equity c. Has no effect on net income or stockholders' equity d. Increases net income but decreases stockholders' equity
d. Additional Paid‐in Capital is increased
When treasury stock is resold at a price above cost: a. A gain account is credited b. A loss is reported c. A revenue account is credited d. Additional Paid‐in Capital is increased
B. Total assets
When using vertical analysis, we express balance sheet accounts as a percentage of A. Sales B. Total assets C. Total liabilities D. Total stockholders' equity
C. Sales
When using vertical analysis, we express income statement accounts as a percentage of A. Net income B. Gross profit C. Sales D. Total assets
A. Matures on a single date.
Which of the following definitions describes a term bond? A. Matures on a single date. B. Secured only by the "full faith and credit" of the issuing corporation. C. Matures in installments. D. Supported by specific assets pledged as collateral by the issuer.
c) Issuance of common stock in exchange for land
Which of the following is a non‐cash transaction that should be disclosed in a schedule accompanying the statement of cash flows? a) Sale of an investment for cash b) Purchase of a machine for cash c) Issuance of common stock in exchange for land d) Declaration and payment of a cash dividend on common stock
c. The risk of going bankrupt is less
Which of the following is a reason that a corporation would prefer to issue stock instead of bonds? a. Dividendpaymentscanbedeductedfor income tax purposes but interest payments cannot b. Expansion is accomplished without surrendering ownership control c. The risk of going bankrupt is less d. All of these
B. Issuance of bonds
Which of the following is an example of a cash inflow from a financing activity? A. Sale of an intangible asset B. Issuance of bonds C. Receipt of cash dividends D. Purchase of land
D. Comparing the change in sales over time
Which of the following is an example of horizontal analysis? A. Comparing gross profit across companies B. Comparing gross profit with operating expenses C. Comparing assets with equity D. Comparing the change in sales over time
B. Comparing income statement items as a percentage of sales
Which of the following is an example of vertical analysis? A. Comparing gross profit across companies B. Comparing income statement items as a percentage of sales C. Comparing debt with industry averages D. Comparing the change in sales over time
C. Interest expense incurred when borrowing money, as well as dividends paid to stockholders, are both tax‐deductible
Which of the following is not a true statement? A. Companies that are believed to have high bankruptcy risk generally receive low credit ratings and must pay a higher interest rate for borrowing B. As a company's level of debt increases, the risk of bankruptcy increases C. Interest expense incurred when borrowing money, as well as dividends paid to stockholders, are both tax‐deductible D. The mixture of liabilities and stockholders' equity a business uses is called its capital structure
C. Callable bonds benefit the bond investor.
Which of the following is not true regarding callable bonds? A. This feature allows the borrower to repay the bonds before their scheduled maturity date. B. This feature helps protect the borrower against future decreases in interest rates. C. Callable bonds benefit the bond investor. D. A bond can be both callable and convertible.
A. Conversion of long‐term liability to common stock
Which of the following is reported as a noncash investing and financing transaction on the statement of cash flows? A. Conversion of long‐term liability to common stock B. Purchase of treasury stock C. Payment of long‐term debt D. Sale of preferred stock
c. Dividends- Debit; Dividends Payable - Credit
Which of the following is the appropriate entry to record the declaration of cash dividends? a. Dividends Payable - Debit ;Cash - Credit b. Additional Paid‐in Capital - Debit; Dividends Payable - Credit c. Dividends- Debit; Dividends Payable - Credit d. Retained Earnings- Debit; Cash - Credit
B. The market interest rate is greater than the stated interest rate
Which of the following is true for bonds issued at a discount? A. The stated interest rate is greater than the market interest rate B. The market interest rate is greater than the stated interest rate C. The stated interest rate and the market interest rate are equal D. The stated interest rate and the market interest rate are unrelated
B. Increase in Accounts Payable
Which of the following represents an increase in cash flows? a) Increase in Inventory b) Increase in Accounts Payable c) Decrease in Accounts Payable d) Increase in Prepaid Insurance
C. Decrease in prepaid expenses
Which of the following would be added to net income to arrive at net cash flows from operating activities? A. Decrease in accrued liabilities B. Gain on sale of investments C. Decrease in prepaid expenses D. Increase in accounts receivable
D. None of these are correct
Which type of account is gross margin? A. An income account B. An expense account C. An asset account D. None of these are correct
B) No
Will the profit margin of a business be higher than its gross margin? A) Yes B) No
B. Investing cash inflows of $12,000 *The gain on land sale ($2,000) is included in investing activities and excluded from operating activities.
Woodcrest Mfg. Co. sold land costing $10,000 for $12,000. Shively would report: A. Investing cash inflows of $10,000 B. Investing cash inflows of $12,000 C. Financing cash inflows of $12,000 D. Financing cash inflows of $10,000
C. Debit Cash, $50,000; Credit Notes Payable, $50,000.
Woodcrest, Inc. borrowed $50,000 from a local bank and signed a promissory note. What entry should Woodcrest record? A. Debit Cash, $50,000; Credit Notes Receivable, $50,000. B. Debit Notes Receivable, $50,000; Credit Cash, $50,000. C. Debit Cash, $50,000; Credit Notes Payable, $50,000. D. Debit Notes Payable, $50,000; Credit Cash, $50,000.
A. 5 c) increase in interest receivable e) decrease in accounts payable f) gain on the sale of equipment i) decrease in utilities payable j) increase in inventory
a) decrease in accounts receivable b) issuance of common stock c) increase in interest receivable d) purchase of land e) decrease in accounts payable f) gain on the sale of equipment g) depreciation expense h) payments of dividends i) decrease in utilities payable j) increase in inventory How many of these items would be subtracted from net income when using the indirect method to prepare the operating activities section of the statement of cash flows? A. 5 B. 4 C. 1 D. 2
