ACC 210 Chapters 8, Appendix C, 9, & 10

Jenkins Corp. plans to make an investment today that promises to return $15,000 each year for ten (10) years beginning one year from today. The investment account will earn 8% compounded annually. At the end of ten years, the investment account balance will be zero. Question: Rounding to the nearest whole dollar, what should be the amount of Jenkins Corp.'s original investment?

$100,651

In addition to its common stock, Johnson Corp. had 30,000 shares of $60 par value, 8%, cumulative preferred stock outstanding for all of 20X5. Johnson did not declare any dividends for the past two years (20X4 and 20X3); however, it will declare and pay a dividend of $500,000 in 20X5 to be distributed between its preferred and common shareholders. Question: What portion of the total 20X5 declared dividend amount should preferred stockholders receive?

$432,000

On 1/1/X1, Jupiter Corp. pays $40,000 to retire its bonds early. At the time of the retirement, the bonds have a face value of $42,000 and a carrying value of $45,000. Question: What should be the amount of gain or loss, if any, the company will record as a result of the early retirement?

$5,000 gain

On June 1, Jeff made a single deposit of $17,000 into an investment account that earns interest of 8% compounded annually. Question: Rounded to the nearest whole dollar, what will be the balance in his account at the end of fifteen (15) years?

$53,927

NJN, Inc.issues bonds due in 10 years with a coupon/stated interest rate of 7% and a total face value of $200,000. Interest payments are made semi-annually. The market rate for this type of bond is 8%. What is the issue price of the bond (rounded to nearest whole dollar? a. $214,877 b. $200,000 c. $139,609. d. $186,410 e. $178,346

d. $186,410

On January 1, 2020, Julee Enterprises borrows $30,000 to purchase a new Toyota Highlander by borrowing $30,000 from the bank at a 6% annual rate of interest. Payments of $704.55 are due at the end of each month beginning on January 31, 2020 and will run for 4 years. What is the loan balance immediately after making the second payment at the end of February? a. $29,445.45 b. $29,442.68 c. $28,590.90 d. $28,888.13

d. $28,888.13

A 4 year installment note with an original balance of $25,000 requires monthly payments of $587.13. With an annual interest rate of 6% (.5% per month), how much of the second payment represents a repayment of principal on the note? a. $125 b. $462.13 c. $122.69 d. $464.44 e. $463.78

d. $464.44

Mr. Sawyers has been offered the opportunity to invest $100,000 with the promise of earning 8% interest compounded annually. Approximately how many years will it take for the investment to double to $200,000? a. 10 years b. 7 years c. 8 years d. 9 years

d. 9 years

Wolfpack, Inc. retires a $40 million bond issue when the carrying value of the bonds is $36 million. The market value of the bonds (the price paid to redeem the bonds) is $42 million. The entry to record the retirement will include: a. No gain or loss on retirement. b. A debit of $2 million to a loss account c. A credit of $6 million to a gain account. d. A debit of $6 million to a loss account.

d. A debit of $6 million to a loss account.

An agreement that permits a company to borrow up to a prearranged limit is called: a. deferred revenue. b. a debt covenant. c. a fringe benefit. d. a line of credit. e. a contingent gain. f. a warranty. g. a contingent loss.

d. a line of credit.

If TNT Corp.invests $42,241 now and it will receive $100,000 at the end of 10 years, what annual rate of interest will TNT be earning on their investment? a. 6% b. 8% c. 10% d. 9% e. 7%

d. 9%

At December 31, 20X1, Chen Corp. has a note payable balance of $100,000. This note was originally issued on December 31, 20X1, and will be paid back in installments over a five-year period. $15,500 of the outstanding amount of $100,000 on December 31, 20X1, will be paid back in 20X2. Question: How should this note be classified in the liability section of Chen's balance sheet at December 31, 20X1? a. The full $100,000 should be classified in the current liability section. b. $15,500 should be classified in the current liability section, and $84,500 should be classified in the long-term liability section. c. $84,500 should be classified in the current liability section, and $15,500 should be classified in the long-term liability section. d. The full $100,000 should be classified in the long-term liability section

b. $15,500 should be classified in the current liability section, and $84,500 should be classified in the long-term liability section.

Quark Corp. issues bonds on January 1, 2020 with a face value of $100,000, a coupon (stated) rate of 8%, and they mature in ten years. The market rate is 10% on January 1, 2020. The bonds sell for $87,538 and pay interest semi-annually on 6/30 and 12/31 each year. What is the amount of interest expense recognized by Quark on June 30, 2020? a. $4,207 b. $4,377 c. $3,502 d. $5,000 e. $4,000

b. $4,377

Which of the following is an example of a contra liability account? a. Bonds Payable b. Discount on Bonds Payable c. Allowance for Uncollectible Accounts d. Note Payable e. Interest Payable f. Premium on Bonds Payable

b. Discount on Bonds Payable

When bonds are issued at a discount and the effective interest method is used for amortization, at each subsequent interest payment date, the cash paid is: a. More than if the bonds had been sold at a premium b. Less than the interest expense c. Equal to the interest expense d. Greater than the interest expense e. Less than if the bonds had been sold at a premium

b. Less than the interest expense

In 2021, RED Company estimates that warranty expenditures in the following year will be $45,000. Actual warranty expenditures in 2022 are only $40,000. What is the effect on the accounting equation when recording actual warranty expenditures in 2022? a. Stockholder's Equity decreases b. Liabilities decrease c. Liabilities increase d. Stockholder's Equity increases

b. Liabilities decrease

A $500,000 bond issue sold for $490,000. Therefore, the bonds: a. Sold at a discount because the company was having financial problems. b. Sold at a discount because the market interest rate was higher than the stated rate. c. Sold at a discount because the stated interest rate was higher than the market rate. d. Two of the above are correct answers.

b. Sold at a discount because the market interest rate was higher than the stated rate.

Which of the following are included as part of a company's "Payroll Tax Expense" account balance? (Check all that apply) a. Federal Income Tax b. State Unemployment Tax (SUTA) c. Salaries Expense d. Health Insurance Premiums e. Federal Unemployment Tax (FUTA) f. FICA Tax (employer's share)

b. State Unemployment Tax (SUTA) e. Federal Unemployment Tax (FUTA) f. FICA Tax (employer's share)

Which of the following statements is true regarding how net income should be shown on a statement of stockholders' equity? a. The net income amount should appear in the "Common Stock" column. b. The net income amount should appear in the "Retained Earnings" column. c. The net income amount should not appear on the statement of stockholders' equity.

b. The net income amount should appear in the "Retained Earnings" column.

Which of the following are common reasons for why a particular company would buy back its own stock? (check all that apply) a. To increase the number of shares outstanding. b. To raise the market price of its stock. c. To increase earnings per share. d. To decrease the market price of its stock. e. To satisfy employee stock ownership plans. f. To distribute excess cash to existing stockholders without paying them a dividend. g. To decrease the par value per share. h. To decrease earnings per share.

b. To raise the market price of its stock. c. To increase earnings per share. e. To satisfy employee stock ownership plans. f. To distribute excess cash to existing stockholders without paying them a dividend.

A company issues a bond with a face value of $600,000 for an issue price of a $563,000. This bond is being issued at a: a. premium. b. discount.

b. discount.

With respect to installment notes where the installment payment stays the same over time, there is a pattern we should expect to see with respect to the portion of each payment allocated towards interest compared to the portion allocated towards the outstanding loan balance (remaining principal). "As time goes by, the principal portion of each installment payment should __ _________

be increasing

D&D Inc.estimates warranty expense at 3% of sales. Sales during the year were $800,000 and warranty related cash expenditures were $8,000. What was the balance in the Warranty Liability account at the end of the year? a. $24,000 credit b. $8,000 debit c. $16,000 credit d. $16,000 debit

c. $16,000 credit

Bonds that allow the investor to transfer each bond into shares of common stock are called: a. callable bonds b. term bonds c. convertible bonds d. common bonds e. redeemable bonds

c. convertible bonds

From the corporation's perspective, the issuance of its stock is an example of which type of business activity? a. investing b. operating c. financing

c. financing

Besides salaries or wages, additional employee benefits paid for by the employer are called: a. payroll taxes b. deferred revenues c. fringe benefits d. warranty expense e. dividends f. cost of good sold

c. fringe benefits

Bonds which are collateralized by specific assets in the event the borrowing company defaults on bond payments are called: a. serial bonds. b. callable bonds. c. secured bonds. d. unsecured bonds. e. convertible bonds

c. secured bonds.

Bonds which require the face value (principal) amount to be paid back in installments over the life of the bond are called: a. convertible bonds. b. term bonds. c. serial bonds. d. callable bonds. e. unsecured bonds. f. secured bonds.

c. serial bonds.

The total number of shares a corporation may sell or issue is known as: a. the cumulative number of shares. b. the issued number of shares. c. the authorized number of shares. d. the outstanding number of shares. e. the unissued number of shares.

c. the authorized number of shares.

Repurchased shares which a company has bought back from stockholders with the intention of reissuing at a later date are known as: a. inventory shares. b. unissued shares. c. treasury shares. d. capital shares. e. preferred shares.

c. treasury shares.

If the bond's face interest rate is less than the market rate of interest, it will be issued at: For each of the situations described below, indicate whether the bond should be issued at face value, at a premium, or at a discount.

A discount

If the bond's face interest rate is greater than the market rate of interest, it will be issued at: For each of the situations described below, indicate whether the bond should be issued at face value, at a premium, or at a discount.

A premium

DEC offers a new employee two options. First, the employee can receive a one-time signing bonus at the date of employment. Second, the employee can take $8,000 at the date of employment plus $20,000 at the end of each of his first three years of service. Assuming the employee's time value of money is 10% annually, what single payment in the first option would be equal to the total of the payments in the second option? A.$57,737. B.$23,026. C. $62,711 D. None of the choices are correct.

A.$57,737.

When a company borrows funds from creditors, it is considered a form of: A. equity financing. B. debt financing

B. debt financing.

On November 1, 2021, a company signed a $100,000, 6%, six-month note payable with the amount borrowed plus accrued interest due six months later on May 1, 2022. The company should report interest payable at December 31, 2021, in the amount of: A.$0. B.$1,000. C.$2,000 D.$3,000.

B.$1,000.

At the end of each quarter, Miguel deposits $500 into an account that pays 12% interest compounded quarterly. How much will Miguel have in the account in three years? A.$7,013. B.$7,096 C. $7,129 D. $8,880

B.$7,096

Mike wants to invest money in a 6% CD that compounds semiannually and would like the account to have a balance of $100,000 four years from now. How much must Mike deposit to accomplish his goal? A.$25,336. B.$78,941. C.$22,510. D.$88,848

B.$78,941.

Pisgah Adventures has 15 employees each working 40 hours per week and earning $30 an hour. Federal income taxes are withheld at 15% and state income taxes at 6%. FICA taxes are 7.65% for both employee and employer and unemployment taxes (employer only) are 3.8% of the total salaries earned. How much does Pisgah actually pay the 15 employees in total for the first week of January? A.$18,000. B.$13,923. C.$12,843 D. $5,157

C.$12,843

At the end of each of the next five years, an investment is expected to generate net cash flows of $5,000, $6,000, $7,000, $5,000, and $4,000, respectively. What are the cash flows worth today if a 6% interest rate properly reflects the time value of money in this situation? A.$21,781. B.$22,560. C.$22,884. D. $23,142

C.$22,884.

Atlantic Corp. retired its bonds early which resulted in a gain of $40,000. Question: In the journal entry to record the retirement, how should the gain be recorded, and what will be the effect of the gain on the company's net income? A Gain account should be _______ and the gain will cause the company's net income to ______

Credited Increase

What is the value today of receiving $3,000 at the end of each year for the next three years, assuming an interest rate of 3% compounded annually? A.$9,273. B.$9,000. C.$8,251. D. $8,486

D. $8,486

Mike borrows $600,000 to be paid off in three years. The loan payments are semiannual with the first payment due in six months, and interest is at 8%. What is the amount of each payment? A.$122,018. B.$81,790. C.$129,789. D.$114,457.

D.$114,457.

ABC Corp deposited $100,000 in a three-year, 12% CD that compounds quarterly. What is the maturity value of the CD? A.$119,410. B.$309,090. C.$109,270. D.$142,576.

D.$142,576.

Panthers Inc. guarantees all of its products for one year. While no products sold in 2021 have been returned yet, based upon previous years, Panthers Inc. estimates that 3% of its products will need repairs or be replaced within the next year. What effect would this warranty have on assets, liabilities, and stockholders' equity in 2021? A. A decrease in assets and decrease in stockholders' equity. B.No journal entry is necessary until products under warranty are returned. C.An increase in stockholders' equity and a decrease in liabilities. D.A decrease in stockholders' equity and an increase in liabilities.

D.A decrease in stockholders' equity and an increase in liabilities.

On Aug 18, Garcia Corp. issued 900 shares of its $1 par value common stock for $20 per share. Required: In the journal below, prepare the entry to record the stock issuance.

Debit Cash $18,000 Credit Common Stock $900 Credit Additional Paid-in Capital $17,100

Assuming a term bond is issued at a premium, the interest expense amount calculated every period using the effective interest method should be

Decreasing

The loss is possible and reasonably estimable. Possible responses are recorded and disclosed, disclosed only, and neither recorded nor disclosed.

Disclosed only

The loss is probable and not reasonably estimable. Possible responses are recorded and disclosed, disclosed only, and neither recorded nor disclosed.

Disclosed only

If the bond's face interest rate is equal to the market rate of interest, it will be issued at: For each of the situations described below, indicate whether the bond should be issued at face value, at a premium, or at a discount.

Face value

For purposes of electing the company's board of directors, preferred stockholders can cast more votes than common stockholders. True or False

False

Preferred shareholders are guaranteed to receive a higher dividend amount than common shareholders. True or False

False

True or False: Assume you wish to have a certain amount saved six years from today, and you plan to make a one-time deposit today in an interest-bearing account earning interest of 10%. As the compounding frequency of interest increases, the amount you need to invest today in order to achieve your goal will increase.

False

True or False: When a company borrows money to finance the purchase of an asset to use in its business, one of their likely goals is to earn a rate of return on that asset which is lower than the interest rate on the loan borrowing.

False

True or False: At a given interest rate, if $6,000 is invested today for five years, the future value will be lower if interest is compounded quarterly rather than compounded annually.

False

True or False: Corporations are required to have a par value for their common stock.

False

True or False: Different types of current assets are equally liquid.

False

True or False: The main reason a company declares a stock split is to give each shareholder a greater percentage of the company.

False

True or False: The times interest earned ratio measures how many times during the year a company can borrow money before it becomes bankrupt.

False

True or False: When stock is issued for more than its par value, the excess is considered to be revenue and should be reported on the income statement.

False

When bonds are issued at a discount, the amount of interest actually paid in cash to a bond holder (owner) changes each period. True or False

False

When deciding on whether to finance its operations through the issuance of stock or through the issuance of bonds, companies often consider tax effects. True or False: Both interest expense related to bonds as well as dividends paid are tax deductible.

False

Assuming a term bond is issued at a discount, the carrying value over time should be

Increasing

Assuming a term bond is issued at either a premium or a discount, the carrying value on the issuance date should be equal to the bond's

Issue Price

Assuming a term bond is issued at a premium, the cash interest payment calculated every period should:

Stay the same

At the start of 20X5, Garris Corp. had 50,000 shares of $3 par common stock issued and outstanding. All 50,000 shares had been issued in the prior year for $30 per share. On February 1, 20X5, Garris repurchased 4,000 shares of its own stock for $17 per share. It plans to reissue these shares at a future time. Question: What journal entry should Garris make to record the February 1, 20X5 transaction? It should debit _______ ______ for ______ and credit ____ for _______

Treasury Stock $68,000 Cash $68,000

In a year in which dividends are declared, preferred stockholders receive their portion of dividends before common stockholders receive theirs. True or False

True

In the event the corporation is dissolved, preferred stockholders receive their share of assets before common stockholders. True or False

True

True or False: Companies prefer that their working capital be a positive amount rather than a negative amount.

True

True or False: Compound interest is a method of calculating interest for which interest is computed on the initial investment amount as well as on any previous interest.

True

True or False: Interest is the cost of borrowing money.

True

True or False: Time value of money concepts are essential to understand and apply when making many business decisions.

True

True or False: A liability should be classified on the balance sheet as a "current liability" when the company expects to decrease or satisfy the liability within one year or the operating cycle, whichever is longer.

True

True or False: All else being equal, as a company's debt to equity ratio increases, the higher the risk of bankruptcy.

True

True or False: Dividends declared and paid cause a corporation's retained earnings balance to decrease in the year they were declared.

True

True or False: Earnings per share (EPS) is best applied when comparing a company to itself over time rather than to a different company.

True

Wolfpack, Inc. issues a bond with a stated (coupon) interest rate of 7%, face value of $100,000, and due in 15 years. Interest payments are made semi-annually. The market rate for this type of bond is 5%. What is the issue price of the bond? a. $120,930 b. $80,458 c. $100,000 d. $118,424 e. $123,145

a. $120,930

CP Inc. borrowed $500,000 on November 1, 20X1, and signed a nine-month note bearing interest at 5%. Principal and interest are payable in full at maturity in 20X2. In connection with this note, NYJ, Inc. should record interest expense in 20X2 in the amount of: a. $14,583 b. $12,500 c. $20,417 d. $18,750 e. $25,000

a. $14,583

TORR, Inc. issues a $500,000, 6%, six-year note payable on January 1, 20X1. If the monthly payment is $8,286, what is the note's carrying value after the first month's payment is made on January 31, 20X1? a. $494,214 b. $497,500 c. $498,214 d. $500,000 e. $491,714

a. $494,214

Which of the following is an example of a "quick asset" for purposes of applying the acid-test or quick ratio? (Check all that apply) a. Current Investments b. Land c. Accounts Receivable d. Cash e. Inventory f. Prepaid Rent

a. Current Investments c. Accounts Receivable d. Cash

What does a current ratio of 2.15 indicate? a. It indicates that for every $1 of current liabilities, the company has $2.15 of current assets. b. It indicates that for every $1 of current assets, the company has $2.15 of revenues. c. It indicates that for every $1 of expenses, the company has $2.15 of revenues. d. It indicates that for every $2.15 in cash, the company has $1.00 of net profit.

a. It indicates that for every $1 of current liabilities, the company has $2.15 of current assets.

Jordan Corp. and Miller Corp. have current ratios of 1.3 and 1.75, respectively. All else being equal, which of the following statements is more likely to be true? a. Miller Corp. is more liquid than Jordan Corp. b. Miller Corp. is more profitable than Jordan Corp. c. Miller Corp. is less liquid than Jordan Corp. d. Miller Corp. has more current assets than Jordan Corp. e. Miller Corp. has more fewer assets than Jordan Corp. f. Miller Corp. is less profitable than Jordan Corp.

a. Miller Corp. is more liquid than Jordan Corp.

ATB, Inc. is being sued by DGH Corp.for $1,000,000. At the end of the year, ATB feels it is reasonably possible that it will pay $1,000,000 at some point in the following year. What should ATB Inc. and DGH Corp record at the end of the year concerning the lawsuit? a. Neither company records a contingency loss or a contingency gain b. ATB does not record a contingency loss and DGH records a $1,000,000 contingency gain. c. ATB records a $1,000,000 contingency loss; DGH does not record any contingency gain d. ATB records a $1,000,000 contingency loss; DGH records a $1,000,000 contingency gain

a. Neither company records a contingency loss or a contingency gain

A type of corporation that avoids double taxation is a(n): a. S corporation. b. publicly-held corporation. c. common corporation. d. C corporation. e. preferred corporation.

a. S corporation.

A company receives $264, of which $24 is for sales tax. The journal entry to record the sale would include a a. a credit to sales revenue for $240 b. a debit to sales tax payable for $24 c. a credit to sales revenue for $264 d. a debit to sales tax expense for $24

a. a credit to sales revenue for $240

Complete the following sentence: A company which has sufficient cash, or other current assets convertible into cash in a relatively short period of time, in order to pay currently maturing debts is said to be ______. a. liquid. b. profitable.

a. liquid.

Which of the following types of information is required to be included in a corporation's articles of incorporation (also known as its corporate charter)? (select all that apply) a. the types of shares to be issued b. information regarding its board of directors c. the nature of the corporation's primary business activities

a. the types of shares to be issued b. information regarding its board of directors c. the nature of the corporation's primary business activities

A current liability is a debt that is expected to be paid: a. within one year or the operating cycle, whichever is longer b. between 6 months and 18 months c. out of cash currently on hand d. within one year or the operating cycle, whichever is shorter

a. within one year or the operating cycle, whichever is longer

How many of the following transactions increase a company's liquidity? Provide services on account Pay workers' salaries in the current period Purchase office supplies with cash Pay dividends to stockholders a. Three b. Four c. Two d. None e. One

e. One

Working capital is measured as follows: a. total assets plus total liabilities b. total assets minus total liabilities c. current assets divided by current liabilities d. current assets plus current liabilities e. current assets minus current liabilities

e. current assets minus current liabilities

An agreement between a borrower and a lender that requires certain minimum financial measures to be met in order to prevent the lender from recalling the debt is called: a. a contingent gain. b. a warranty. c. a contingent loss. d. a line of credit. e. a fringe benefit. f. a debt covenant

f. a debt covenant

Bonds which permit the bondholder to convert the bonds into shares of stock are called: a. serial bonds. b. unsecured bonds. c. callable bonds. d. term bonds. e. secured bonds. f. convertible bonds.

f. convertible bonds.

The loss is probable and reasonably estimable. Possible responses are recorded and disclosed, disclosed only, and neither recorded nor disclosed.

Recorded and disclosed

On July 1, Jovani plans to make a single (lump-sum) deposit into an investment account that earns 5% compounded annually. He wants this investment to be worth $25,000 eight (8) years later. Question: Rounding to the nearest whole dollar, what should be the amount of Jovani's initial investment on July 1?

$16,921

In 20X1, Stevens Corp. began a new product line of wearable technology that carries a 24-month warranty against manufacturer defects. Based on industry experience, Stevens expects warranty costs to be an amount equal to approximately 9% of total sales dollars. During 20X1, new sales of this technology totaled $3,000,000. The costs incurred to satisfy warranty claims in 20X1 was $95,000. What should Stevens report as the "Warranty Liability" balance on its balance sheet at 12/31/X1?

$175,000

In 20X1, Stevens Corp. began a new product line of wearable technology that carries a 24-month warranty against manufacturer defects. Based on industry experience, Stevens expects warranty costs to be an amount equal to approximately 9% of total sales dollars. During 20X1, new sales of this technology totaled $3,000,000. The costs incurred to satisfy warranty claims in 20X1 was $95,000. Question #1: What should Stevens report as the "Warranty Expense" balance on its 20X1 income statement?

$270,000

On January 1, 20X1, Wolfpack Corp. issues twenty-year bonds with a face value of $800,000 and a stated interest rate of 7%, payable semiannually on June 30 and December 31.At the time of the issue, the market rate for bonds of similar risk and maturity is 6%. QUESTION: Rounded to the nearest whole dollar, what should be the bonds' issue price?

$892,462

On December 1, Surry Corp. had 40,000 shares of $2 par value common stock outstanding before it declared a 2-for-1 stock split. Before the split, the stock had a market value of $50 per share. Question: After the split, how many shares of common stock are outstanding, and what is their par value per share? After the split, the number of shares outstanding is _______ and the par value per share is ___

80,000 $1

On March 1, Serena Corp. had 20,000 shares of common stock authorized and 3,000 shares of $5 par common stock issued and outstanding when it declared an $.85 (eighty-five cents) per share dividend to be paid on March 31. Required: In the journal below, record the journal entry on the declaration and payment dates.

Mar 1: Debit Dividends $2,550 Credit Dividends Payable $2,550 Mar 31: Debit Dividends Payable $2,550 Credit Cash $2,550

The loss is remote and reasonably estimable. Possible responses are recorded and disclosed, disclosed only, and neither recorded nor disclosed.

Neither recorded nor disclosed

Assume today is March 1, and you plan to invest $7,000 today in an account earning interest of 12% compounded semi-annually. You would like to calculate the amount your investment will grow to three years from now. Question: What should be the correct "n" and "i" to use for factor table purposes to answer your question?

n = 6 i = 6%