Accounting Exam 3

Dividends in arrears on cumulative preferred stock

should be disclosed in the notes to the financial statements.

A disadvantage of the corporate form of business is

taxation

Corporation have certain characteristics including

their owners are not personally liable for its debts

Amount of sales

total cash received/(1+ sales tax rate)

Time value of money

Money available today is worth more than an identical sum available in the future, This difference occurs due to the earning capacity of money.

A corporation declared a cash dividend on November 15 to be paid on December 15 to stockholders owning the stock on November 30. Given these facts, the date of December 15, is referred to as the

Payment date

The company pays the dividend previously declared to the stockholders of record

Payment date

Total stockholders' equity

Retained earnings-treasury stock + paid-in capital in excess of par value + common stock

Annual amortization amount

(Bond issuance amount- bonds original amount)/years

Times Interest Earned

(Net Income + Interest Expense + Income Tax Expense) / Interest Expense

At the start of its first year, a corporation issued 10,000 shares of 7%, $100 par value, cumulative preferred stock and 40,000 shares of $1 par value common stock. There were no dividends declared in the first year. In its second year, the corporation declared and paid dividends of $150,000. What is the amount of dividends received by the common stockholders in the second year?

$10,000

On October 1, 2021, a company issued a note payable of $100,000, of which $10,000 will be repaid each year. What is the proper classification of this note on the company's December 31, 2023 balance sheet?

$10,000 current liability; $70,000 long-term liability

If 1,000 shares of $5 par common stock are reacquired by a corporation for $12 a share, by how much will total stockholders' equity change?

$12,000 decrease

A corporation issues $2,000,000 of 15-year, 7% bonds dated January 1 at 99. The journal entry to record the issuance includes

A debit to cash for $1,980,000

A corporation's year-end balance sheet showed the following: 6% preferred stock, $50 par value, cumulative, 30,000 shares authorized; 12,000 shares issued $ 600,000 Common stock, $10 par value, 3,000,000 shares authorized; 1,950,000 shares issued, 1,920,000 shares outstanding 19,500,000 Paid-in capital in excess of par value--Preferred stock 60,000 Paid-in capital in excess of par value--Common stock 27,000,000 Retained earnings 7,650,000 Treasury stock (30,000 shares) 630,000 During the year, the corporation declared and paid a $100,000 cash dividend. If the company's dividends in arrears prior to the current year were $48,000, the corporation's common stockholders would receive

$16,000

A corporation issued 10-year bonds with a face value of $300,000 and a contractual rate of interest of 6% at 99. What is its total cost of borrowing?

$183,000

A corporation issues $250,000 of 10-year, 8% bonds at 104. What is its total cost of borrowing?

$190,000

Carrabelle Corporation issues $200,000, 10%, 10-year bonds on January 1 for $190,000. Interest is paid annually on January 1. If the corporation uses the straight-line method of amortization of bond discount, the amount of bond interest expense to be recognized in the year issued is

$21,000

In the current year, a corporation has a times interest earned ratio of 8.00. Its interest expense is $40,000 and its tax expense is $50,000. Its net sales were $500,000 and its cost of goods sold was $200,000. What was the company's net income?

$230,000

On January 1, a company issued $2,000,000 of 5-year, 10% bonds for $2,120,000. Interest is paid annually. If the issuing corporation uses the straight-line method of amortization, the annual amortization amount is

$24,000

Oak Corporation has 10,000 shares of 8%, $100 par value, cumulative preferred stock outstanding. It did not declare a dividend for two years. In the third year, it declares and pays $375,000 of dividends. How much does it pay to its common stockholders?

$240,000

A corporation issues a $250,000, 7%, 30-year mortgage note. The terms provide for annual installment payments of $20,147. What is the remaining unpaid principal balance of the mortgage payable account after the second annual payment?

$244,522

A corporation issues a $250,000, 10%, 30-year mortgage note. The terms provide for annual installment payments of $26,520. What is the remaining unpaid principal balance of the mortgage payable account after the first annual payment?

$248,480

Bonds with a face value of $250,000 and a quoted price of 101 have a selling price of

$252,500

A company does not segregate sales and sales taxes when it charges customers at the register. Its register total for a given day is $3,250, which includes a 4% sales tax. How much should be recognized as sales revenue and sales taxes payable, respectively?

$3,125 and $125

A company borrows $92,500 on September 1 from a bank. It signs a $92,500, 11%, 18-month note. How much interest expense should the company record on December 31 if the company uses a calendar year-end and records adjusting entries only at year-end?

$3,392

On January 1, $2,000,000, 5-year, 4% bonds, were issued for $2,150,000. Interest is paid annually on January 1. If the issuing corporation uses the straight-line method to amortize discounts and premiums on bonds payable, the annual amortization amount is

$30,000

A corporation reports the following balances and amounts:Accounts payable, $60,000 Cash provided by operations, $150,000 Accounts receivable, $25,000 Net income, $50,000 Average number of common shares, 12,000 Salaries and wages payable, $45,000 Average current liabilities, $220,000 Stockholders' equity, $200,000 Average total assets, $500,000 Current assets, $200,000 Average total liabilities, $320,000 Current liabilities, $150,000 Dividends paid to preferred shareholders, $2,000 Determine its earnings per share?

$4.00

On January 1, a company issues $500,000, 5-year, 12% bonds at 95 with interest payable on January 1. What is the carrying value of the bonds at the end of the third interest period if amortization if $5,000 per year using the straight-line amortization method?

$490,000

A company has bonds with a principal value of $1,000,000 outstanding. The unamortized discount on the bonds is $14,000. The company redeemed the bonds at 104. What is the company's gain or loss on the redemption?

$54,000 loss

A partial list of a corporation's accounts shows the following account balances: Retained earnings, $315,000 Treasury stock, $10,000 Dividends payable, $30,000 Paid-in capital in excess of par value, $55,000 Common stock, $215,000 How much is total stockholders' equity? Group of answer choices

$575,000

A corporation sells bonds with a face value of $1,000,000 and a contractual interest rate of 8% for $1,200,000. The bonds will mature in 10 years. Using the straight-line method of amortization, how much interest will be recognized in year 1?

$60,000

A corporation issues a $750,000, 13%, 15-year mortgage note. The terms provide for annual installment payments of $102,319. What is the remaining unpaid principal balance of the mortgage payable account after the second annual payment?

$739,735

A company has bonds with a principal value of $500,000 outstanding. The unamortized premium on the bonds is $12,000. The company redeemed the bonds at 104. What is the company's gain or loss on the redemption?

$8,000 loss

A professional team sells season tickets to its fans. There are 10 home games during the season. This year's season tickets sold for a total of $12,000,000 cash. What will be the Unearned Ticket Revenue account balance after three home games have been played?

$8,400,000

A corporation issues $1,000,000 of 10%, 20-year mortgage note. The terms provided for semiannual installment payments of $58,278. What is the remaining unpaid principal balance of the mortgage payable account after the first semiannual payment?

$991,722

A corporation issues a $1,000,000, 10%, 20-year mortgage note. The terms provide for semiannual installment payments of $58,278. What is the remaining unpaid principal balance of the mortgage payable account after the first semiannual payment?

$991,722

A company reports the following selected accounts and balances after posting adjusting entries: Accounts payable, $16,000 9-month, 8%, note payable, $46,000 Income tax expense, $5,000 Salaries and wages expense, $23,000 3-year, 10% note payable, $200,000 Salaries and wages payable, $10,000 Mortgage payable ($22,000 due next year), $1,000,000 Rent payable, $8,000 Its current assets are $210,000 at year-end. How much is its current ratio at year-end?

2.06

A company reports the following selected accounts and balances after posting adjusting entries: Accounts payable, $14,000 6-month, 8%, note payable, $44,000 Income tax payable, $5,000 Salaries and wages expense, $23,000 3-year, 10% note payable, $200,000 Salaries and wages payable, $8,000 Mortgage payable ($20,000 due next year), $1,000,000 Rent payable, $6,000 Its current assets are $256,000 at year-end. How much is its current ratio at year-end?

2.64

A company reports the following selected accounts and balances after posting adjusting entries: Accounts payable, $12,000 10-month, 8%, note payable, $42,000 Income tax expense, $5,000 Salaries and wages expense, $23,000 3-year, 10% note payable, $200,000 Salaries and wages payable, $6,000 Mortgage payable ($18,000 due next year), $1,000,000 Rent payable, $4,000 Its current assets are $265,000 at year-end. How much is its current ratio at year-end?

3.23

In the current year, a corporation had sales of $500,000, net income of $200,000, interest expense of $40,000, and tax expense of $30,000. Its net sales were $1,000,000 and its cost of goods sold was $200,000. What was its times interest earned for the year?

6.75

In the current year, a corporation had net income of $100,000, interest expense of $20,000, and tax expense of $30,000. Its net sales were $1,000,000 and its cost of goods sold was $400,000. What was its times interest earned for the year?

7.5

In the current year, a corporation had net income of $90,000, interest expense of $15,000, and a tax expense of $18,000. Its net sales were $500,000 and its cost of goods sold was $200,000. What was its times interest earned for the year?

8.2

Total Cost of Borrowing

=Interest Payments + Discounts on bond Interest Payments = PxRxT Discount= Principalxbonds %

A corporation retires its $100,000 face value bonds at 104 on January 1, following the payment of interest. The carrying value of the bonds at the redemption date is $102,745. Which of the following is part of the entry to record the bond redemption?

A debit of $2,745 to Premium on Bonds Payable

On August 1, a company borrowed $60,000 from a bank for six months at 8%. Interest was properly accrued on December 31. The journal entry needed to record the payment of the note and accrued interest on the due date includes

A debit to Interest Payable for $2,000

A company sells annual magazine subscriptions and it publishes eight magazines each a year. The company sells 45,000 subscriptions in December at $10 each. What journal entry in December to record the sale of the subscriptions?

A debit to the Cash account for $450,000 and credit an unearned revenue account for $450,000.

A company sells annual magazine subscriptions and it publishes six magazines each a year. The company sells 75,000 subscriptions in December at $10 each. The journal entry in December to record the sale of the subscriptions should include

A debit to the Cash account for $750,000 and credit an unearned revenue for $750,000.

To be classified as a current liability, a debt must be expected to be paid:

A debt must be expected to be paid and out of existing current assets.

If the market interest rate for a bond is lower than the stated interest rate, the bond will sell at

A premium

If the market rate of interest is lower than the contractual interest rate, the bonds will sell at

A premium

Treasury stock may be repurchased:

All of the above

in its first year, a company made sales of $100,000 on account. All of the customers paid their accounts before year-end. the merchandise sold is subject to product warranties. the company assumes that warranty costs will be 3% of sales. during the same year, the company replaced $2,000 of defective warranted products. it expects to replace $1,000 of the merchandise sold in the first year during the second year. the company uses the accrual-method of accounting. which of the following is true?

All of these are true.

Which of the following is not a typical current liability?

Bonds payable

When bonds are redeemed before maturity, the gain or loss on redemption is the difference between the cash paid and the:

Carrying value of the bonds

When the effective-interest method of amortization is used for a bond premium, the amount of interest expense for an interest period is calculated multiplying the

Carrying value of the bonds at the beginning of the period by the effective interest rate.

A company issues a $200,000, 6%, 6-month note on December 1. It has a December 31 year-end. The entry made by the company on December 1 to record the issuance of the note is...

Cash.... 200,000 Notes Payable 200,000

The effective-interest method of amortization of bond premiums and discounts is considered superior to the straight-line method because it results in a(n)

Constant rate of interest

A corporation issued 8,000 shares of $10 par value per share stock for $15 per share. The journal entry to record this transaction would include a

Credit to Common Stock for $80,000

On October 1, a company borrows $100,000 from a bank. It signs a 4-month, $100,000, 4% note. The company uses a December 31 year-end. What adjusting entry should the company record on December 31?

Credit to Interest Expense $1,000 Debit to Interest Payable $1,000

A company receives $282, of which $21 is for sales tax. The journal entry to record the sale and sales tax would include a

Credit to Sales Revenue for $261

A company receives $192, of which $16 is for sales tax. The journal entry to record the sale with sales tax would include a

Credit to Sales Taxes Payable for $16.

A company issues a $300,000, 6%, 9-month note on July 1. It has a December 31 year-end. The entry made by the company on July 1 to record the issuance of the note is

Credit to cash for $300,000 Debit to Notes Payable for $300,000

Current Ratio Formula

Current Ratio = Current Assets / Current Liabilities

At the start of the current year, a company issued a $250,000 note to a bank. The company must pay the bank $50,000 plus interest each January 1 for the next five years starting at the beginning of next year. The company will report the note payable on its current year's balance sheet as

Current liabilities, $50,000; Long-term Debt, $200,000.

Florida Corporation issues 1,000 shares of $10 par value common stock at $12 per share. Which of the following describes the journal entry to record this transaction?

Debit cash for $12,000, credit common stock $10,000, and credit paid-in capital in excess of par value for $2,000.

The cash register tape indicates sales are $1,500 and sales taxes are $100. What journal entry is needed to record this information?

Debit the Cash account for $1,600, credit the Sales account for $1,500, and credit the Sales Taxes Payable for $100.

A company operates a consulting practice. New clients are required to pay the firm in two transactions. First, clients must pay $250 before receiving consulting services. Second, clients must pay $750 once the consulting firm finishes providing services to the client. How does the company account for the first transaction?

Debit the Cash account for $250 and credit the Unearned Revenue account for $250.

Which of the following is the appropriate general journal entry to record the payment of a previously declared cash dividend?

Debit the Dividends Payable account and credit the Cash account

A corporation issued a $100,000, 8%, 10 year bond at 98 on January 1, 2021. Interest is paid annually on December 31 of each year. The journal entry to record the issuance of the bonds would include:

Debit to Discount on Bonds Payable for $2,000

The following totals for the month of June were taken from the payroll records of a certain company: Salaries, $100,000 FICA taxes withheld, $6,650 Income taxes withheld, $18,000 Federal unemployment taxes, $550 State unemployment taxes, $3,100 The entry to record accrual of employer's payroll taxes would include a

Debit to Payroll Tax Expense for $10,300

The dividend becomes a liability to the corporation on the date of...

Declaration date

Entries for cash dividends are required on the:

Declaration date and payment date

A corporation issues $1,000,000 of 8%, 5-year bonds when bonds of similar risk are paying 7.5%. The 7.5% rate of interest is called the _______ rate.

Effective

A company issues a $200,000, 6%, 6-month note. It is due on October 1. The company uses a December 31 year-end. It always records its year-end adjusting entries properly. What entry will the company record on March 31 when the note matures?

Interest Payable $3,000 Notes Payable $200,000 Interest Expense $3,000 Credit Cash $206,000 (PxRxT)

On January 1, 2021 a corporation issued a $100,000 bond with a stated interest rate of 6%. The bonds were issued for $96,403 when market rates are 6.5%. Interest will be paid annually on December 31. The corporation uses the straight-line method to amortize discounts and premiums. What amount of interest expense that should be reported on the corporation's 2021 income statement? What is the carrying value of the bonds on the corporation's December 31, 2021 balance sheet?

Interest expense (Interest payment + Amortization of discount) = $6,719.40 Carrying value (face value- discount) = $97,122.40

Compounding

Interest is paid to bondholders periodically, such as annually, semi-annually. Compounding refers to how often interest is computed.

Each payment on a mortgage note payable consists of:

Interest on the unpaid balance of the loan and reduction of the loan principal.

Discount on bonds payable

Is a contra account

What is the effect of amortizing a bond premium?

It decreases the carrying value of the bonds.

Which statement describes the market interest rate?

It is the rate investors' demand for loaning funds

Bonds payable

Liabilities or obligations that typically are incurred and remain outstanding for five, ten, or more years that are evidence by a bond certificate issued by the debtor. A bond is a specific type of note.

Mortgage payable

Liabilities or obligations that typically are issued to purchase the property and typically remain outstanding for 15 or 30 years. A mortgage is a specific type of note.

Notes Payable

Liabilities that result from issuing a note promising future payment on a specific maturity date. If the maturity date is beyond one year or operating cycle, whichever is longer then the note payable is a long-term liability. Notes usually require the payment of interest.

The rate of interest investors demand for loaning funds to a corporation is the:

Market interest rate.

Which of the following is typical current liability?

Sales tax payable

Sales Tax Payable

The amount charged subtracted by the amount recorded as sales revenue

Principal value

The amount the issuing entity promises to pay at maturity other than interest.

Contract rate

The annual interest rate used to determine cash interest paid from the bond issuer to the bondholder. Since the contractual interest rate is stated on the bond certificate it is sometimes called the stated interest rate, nominal rate, or coupon rate.

Which of these statements is false?

The authorization of capital stock is journalized.

Convertible bonds

The bond issuer allows bondholders the option to exchange the bond for shares of stock of the issuing company.

Unsecured bond

The bond issuer does not pledge specific assets as collateral for the bond in case it defaults on paying interest and/or repaying the principal. Can also be called debenture bonds

Secured bond

The bond issuer has specific assets that it pledges as collateral in case the bond issuer defaults on paying interest and/or repaying the principal.

A company borrowed $7,000 on July 1 by issuing a 36-month, 10% note. Both the note and the interest will be paid when the note matures. Which statement is true at December 31?

The company has $350 of interest payable that is a long-term liability.

A company borrowed $700,000 on December 1 by issuing a 24-month, 11% note. Both the note and the interest will be paid when the note matures. Which statement is true at December 31?

The company has $6,417 of interest payable that is a long-term liability.

A company borrowed $70,000 on March 1 by issuing an 18-month, 12% note. Both the note and the interest will be paid when the note matures. Which statement is true at December 31?

The company has $7,000 of interest payable that is a current liability.

In its first year, a company made sales of $100,000 on account. All of the customers paid their accounts before year-end. The merchandise sold is subject to product warranties. The company assumes that warranty costs will be 3% of sales. During the same year, the company replaced $2,000 of defective warranted products. It expects to replace $1,000 of the merchandise sold in the first year during the second year. The company uses the accrual-method of accounting. Which of the following is true?

The company's warranty payable at the end of the first year is $1,000

In its first year, a company made sales of $100,000 on account. All of the customers paid their accounts before year-end. The merchandise sold is subject to product warranties. The company assumes that warranty costs will be 4% of sales. During the same year, the company replaces $3,000 of defective warranted products. It exports to replace $1,000 of the merchandise sold in the first year during the second year. The company uses the accrual-method of accounting. Which of the following is true?

The company's warranty payable at the end of the first year is $1,000.

A corporation issues 10-year bonds with a maturity value of $200,000. If the bonds are issued at a premium, what does this indicate?

The contractual interest rate exceeds the market interest rate.

Patterson inc. issues 10-year bonds with a maturity value of $200,000. If the bonds are issued at premium this indicates that:

The contractual interest rate exceeds the market interest rate.

Present value

The current value of some future amount or sum of money

Maturity date

The date when the bond issuer promises to pay the principal value.

The journal entry to record issuing bonds at a discount will include a debit to the Cash account for the following amount:

The face value of the bonds minus the amount of the discount

Market interest rate

The rate investors demand for loaning funds to the corporation.

Which of the following is a stockholder's right?

The right to share in assets upon liquidation in proportion

Future value

The value of an asset at a specific future date given a specified rate of return.

A professional team sells season tickets to its fans. There are 10 home games during the season. This year's season tickets sold for a total of $12,000,000 cash. What will be credited by the team after each home game is played?

Ticket Revenue for $1,200,000

Which one of the following is not a typical current liability?

Unpaid note payable that is due in three years

The time period for classifying a liability as current is one year or the operating cycle, whichever is

Within one year or the operating cycle, whichever is shorter.

The following totals for the month of June were taken from the payroll records of a certain company: Salaries, $100,000 FICA taxes withheld, $18,000 Income taxes withheld, $18,000 Federal unemployment taxes, $550 State unemployment taxes, $3,100 The entry to record accrual of employer's payroll taxes would include a

debit to Payroll Tax Expense for $10,300

The following totals for the month of June were taken from the payroll records of a certain company: Salaries, $100,000 FICA taxes withheld, $5,650 Income taxes withheld, $18,000 Federal unemployment taxes, $450 State unemployment taxes, $2,500 The entry to record accrual of employer's payroll taxes would include a

debit to Payroll Tax Expense for $8,600.

Interest Expense

principal x rate x time