Accounting 207 Practice Exam 3

When the straight-line method of amortization is used for a bond discount, the amount of interest expense for an interest period is calculated by: A) Adding the amount of discount amortization for the period to the amount of cash paid for interest during the period. B) Multiplying the carrying value of the bonds by the effective interest rate. C) Multiplying the face value of the bonds by the face interest rate. D) Deducting the amount of discount amortization for the period from the amount of cash paid for interest during the period.

A) Adding the amount of discount amortization for the period to the amount of cash paid for interest during the period.

Which of the following is a cash flow from operating activities? A) Purchase of merchandise for resale. B) Sale of a piece of land no longer used in operations. C) Sale of long-term investments in common stock. D) Payment of a note payable. E) None of the above is correct.

A) Purchase of merchandise for resale.

If the market rate of interest is higher than the face interest rate at the date of issuance, bonds will: A) Sell at a discount. B) Sell at a premium. C) Sell at face value. D) Not sell until the face interest rate is adjusted.

A) Sell at a discount.

The declaration date for a dividend is the date on which the company: A) debits Dividends Declared and credits Dividends Payable for the amount of the dividend. B) debits Dividend Expense and credits Cash for the dividend amount. C) debits Dividends Payable and credits Cash for the dividend amount. D) establishes who will receive the dividend payment.

A) debits Dividends Declared and credits Dividends Payable for the amount of the dividend.

The incorporation of companies in the U.S. is controlled by: A) state governments. B) local governments. C) the Federal government. D) the courts

A) state governments.

Stockholders' equity is: A) the amount the company received for all stock when issued plus the amount of retained earnings minus treasury stock. B) the amount the company received for all stock authorized plus the amount of retained earnings and treasury stock. C) the par value the company received for all stock issued plus the amount of retained earnings minus treasury stock. D) the amount the company received for all stock when issued minus the amount of retained earnings and treasury stock.

A) the amount the company received for all stock when issued plus the amount of retained earnings minus treasury stock.

A company issues 100,000 shares of preferred stock for $40 a share. The stock has a fixed annual dividend rate of 5% and a par value of $3 per share. Preferred stockholders can anticipate receiving a dividend of: A) $200,000 each year. B) $15,000 each year. C) 5% of net income each year. D) 5% of the market value of the stock at the time the dividend is declared.

B) $15,000 each year.

A corporate charter specifies that the company may sell up to 20 million shares of stock. The company sells 12 million shares to investors and later buys back 3 million shares. Of the 3 million shares bought back, the company cancels 2 million and holds 1 million. The number of authorized shares after these transactions are accounted for is: A) 12 million shares. B) 20 million shares. C) 9 million shares. D) 18 million shares.

B) 20 million shares

On February 16, a company declares a 34¢ dividend to be paid on April 5. There are 2 million shares of common stock outstanding and 100,000 shares of treasury stock. What does the company record in February? A) A debit to Dividends Payable and a credit to Cash, each for $714,000. B) A debit to Dividends Declared and a credit to Dividends Payable, each for $680,000. C) A debit to Dividends Payable and a credit to Cash, each for $680,000. D) A debit to Dividends Declared and a credit to Dividends Payable, each for $714,000.

B) A debit to Dividends Declared and a credit to Dividends Payable, each for $680,000.

Which of the following transactions would not create a cash flow? A) The company purchased some of its own stock from a stockholder. B) Amortization of patent for the period. C) Payment of a cash dividend. D) Sale of equipment at book value (i.e. no gain or loss). E) None of the above is correct.

B) Amortization of patent for the period.

Which of the following information is not needed in calculating the value of a bond? A) Market interest rate. B) Future value of periodic interest payments. C) Face interest rate. D) Present value of face (maturity) amount.

B) Future value of periodic interest payments.

Which of the following represent cash outflows from financing activities? A) Distributing a stock dividend. B) Paying a bond's face value at maturity. C) Issuing long-term bonds at a discount. D) Paying interest on promissory notes.

B) Paying a bond's face value at maturity.

The effect of a stock dividend is to: A) decrease total assets and stockholders' equity. B) change the composition of stockholders' equity. C) decrease total assets and total liabilities. D) increase the market value per share of common shares.

B) change the composition of stockholders' equity.

A company sells 1 million shares of stock with no par value for $15 a share. In recording the transaction, it would: A) debit Cash for $20,000 and credit Common Stock for $20,000. B) debit Cash for $15 million and credit Common Stock for $15 million. C) debit Cash for $15 million, credit Common Stock for $20,000 and credit Additional Paid-in Capital for $14,980,000. D) debit Cash for $20,000, debit Capital Receivable for $14,980,000, credit Common Stock for $20,000 and credit Additional Paid-in Capital for $14,980,000.

B) debit Cash for $15 million and credit Common Stock for $15 million.

Treasury stock: A) does not appear on the balance sheet. B) is recorded as a contra-equity account. C) is recorded as an asset account. D) is recorded as paid-in capital.

B) is recorded as a contra-equity account.

Jackson Company gathered the following data to prepare its 20B statement of cash flows: Net Income $40,000 Depreciation expense 5,000 Accounts receivable decrease 3,000 Wages payable increase 4,000 Amortization of patent 1,000 Based only of the above data, the net cash inflow from operating activities during 20B was: A) $43,000 B) $51,000 C) $53,000 D) $45,000 E) None of the above is correct.

C) $53,000

Kela Corporation reported 20D net income of $580,000 including the effects of depreciation expense, $60,000 and amortization expense on a patent, $5,000. Also, cash of $50,000 was borrowed on a 5-year note payable. Based on this data, total cash inflow from operating activities for 20D was A) $640,000 B) $695,000 C) $645,000 D) $585,000 E) None of the above is correct.

C) $645,000

A company purchases a $300,000 building, paying $200,000 in cash and signing a $100,000 promissory note. What will be reported on the statement of cash flows as a result of this transaction? A) A $300,000 cash outflow for investing activities. B) A $200,000 cash outflow for investing activities and a $100,000 cash inflow is recorded for financing activities. C) A $200,000 cash outflow for investing activities. D) A $300,000 cash outflow for investing activities and a $100,000 cash inflow is recorded for financing activities.

C) A $200,000 cash outflow for investing activities.

Cash transactions relating to the purchase and sale of which types of assets affect a company's cash flows from investing activities? A) All of a company's assets. B) All of a company's assets except inventory. C) All of a company's non-current assets. D) Only property, plant and equipment.

C) All of a company's non-current assets.

Which of the following would be reported as a cash outflow from investing activities? A) Donating an old piece of equipment to charity. B) Repaying the bond principal. C) Buying another company's bonds with cash. D) Paying for an investment asset by issuing company stock.

C) Buying another company's bonds with cash.

Which of the following statements about dividends is not true? A) Dividends represent a sharing of corporate profits with owners. B) Both stock dividends and cash dividends reduce retained earnings. C) Cash dividends paid to stockholders reduce net income. D) Dividends are declared at the discretion of the board of directors.

C) Cash dividends paid to stockholders reduce net income.

Which of the following would not be a cash flow from financing activities? A) Issuance of common stock. B) Borrowing on a long-term note payable. C) Collection of a cash dividend. D) Repayment of principal on a long-term note payable. E) None of the above is correct.

C) Collection of a cash dividend.

Which of the following represent cash inflows from financing activities? A) Issuing stock in exchange for another company's shares. B) Paying a bond's face value at maturity. C) Issuing long-term bonds at a discount. D) Receiving interest on promissory notes.

C) Issuing long-term bonds at a discount.

A cash inflow from financing activities includes: A) Proceeds from selling investments in equity securities of another company. B) Proceeds from selling equipment. C) Proceeds from issuance of bonds payable. D) Receipt of interest payments. E) None of the above is correct.

C) Proceeds from issuance of bonds payable.

On January 1, 19x4, Holzman Corporation issued ten-year bonds payable with a face value of $400,000 and a face interest rate of 9 percent. The bonds were issued to yield an effective (market) rate of 10 percent. Interest is payable semiannually on January 1 and July 1. In calculating the present value of the bond issue on January 1, 19x4. A) The 9 percent rate will be used to calculate the present value of the face amount and the present value of the periodic interest payments. B) The 10 percent rate will be used to calculate the present value of the face amount and the present value of the periodic interest payments. C) The 10 percent rate will be used to calculate the present value of the face amount and a 5 percent rate will be used to calculate the present value of the periodic interest payments. D) The present value of the periodic interest payments.

C) The 10 percent rate will be used to calculate the present value of the face amount and a 5 percent rate will be used to calculate the present value of the periodic interest payments.

Your company owned equipment with a book value of $120,000 that was sold during this accounting period for $30,500 in cash, and purchased new equipment for $148,000. Your company would record: A) a credit of $30,500 and a debit of $148,000 to the cash account for a net cash outflow of $117,500. B) a debit of $148,000 and a credit of $89,500 to the cash account for a net cash outflow of $58,500. C) a debit of $30,500 and a credit of $148,000 to the cash account for a net cash outflow of $117,500. D) a debit of $89,500 and a credit of $148,000 to the cash account for a net cash outflow of $58,500.

C) a debit of $30,500 and a credit of $148,000 to the cash account for a net cash outflow of $117,500.

The payment date for a dividend is the date on which the company: A) debits Dividends Declared and credits Dividends Payable for the amount of the dividend. B) debits Dividend Expense and credits Cash for the dividend amount. C) debits Dividends Payable and credits Cash for the dividend amount. D) establishes who will receive the dividend payment.

C) debits Dividends Payable and credits Cash for the dividend amount.

Waxman Company's 20D income statement reported total revenues, $850,000 and total expenses (including $40,000 depreciation) of $720,000. The 20D balance sheet reported the following: accounts receivable---beginning balance, $50,000 and ending balance, $40,000; accounts payable---beginning balance, $22,000 and ending balance, $28,000. Therefore, based only on this information, the 20D net cash inflow from operating activities was A) $126,000 B) $166,000 C) $174,000 D) $186,000 E) None of the above is correct.

D) $186,000

Matlock Company reported total sales revenue of $55,000 and total expenses amounting to $45,000 (i.e., net income $10,000) on its income statement for the year ended December 31, 20B. During 20B, accounts receivable decreased by $4,000, merchandise inventory decreased by $6,000, accounts payable increased by $2,000 and depreciation of $8,000 was recorded. Therefore, based only on this information, the net cash flow from operating activities for 20B was: A) $10,000 B) $18,000 C) $19,000 D) $30,000 E) None of the above is correct.

D) $30,000

Stockholders' equity frequently includes which of the following: A) the present value of future dividends to be paid. B) the total par value of common stock. C) retained earnings. D) B and C, but not A.

D) B and C, but not A.

Which of the following would not be a cash flow from investing activities? A) Purchase of long-term investments. B) Sale of a patent. C) Collection of principal from a long-term note receivable. D) Collection of interest revenue on a long-term note. E) None of the above is correct.

D) Collection of interest revenue on a long-term note.

If a corporation declares and distributes a 10% stock dividend on its common shares, the account debited is: A) Dividends Payable. B) Common Shares. C) Share Capital. D) Retained Earnings.

D) Retained Earnings.

Cash dividends can be paid only when: A) the retained earnings account has a positive balance greater than the dividend. B) the cash account has a balance greater than the amount of the dividend declared. C) the board of directors has declared the dividend. D) all of the above.

D) all of the above.

The date of record for a dividend is the date on which the company: A) debits Dividends Declared and credits Dividends Payable for the amount of the dividend. B) debits Dividend Expense and credits Cash for the dividend amount. C) debits Dividends Payable and credits Cash for the dividend amount. D) establishes who will receive the dividend payment.

D) establishes who will receive the dividend payment.