Exam 4

The current balance sheet of Handyman Inc. reports total assets of $20 million, total liabilities of $2 million, and owners' equity of $18 million. What is the additional amount that Handyman Inc. can borrow and not exceed a debt to equity ratio of .3?

3.4 milion

Discount on Bonds Payable is a balance sheet item for Generic Products Company. How would it most likely be classified on the balance sheet?

Contra-liability

Which of the following is reported as a financing activity?

Sale of preferred stock

A convertible bond is one where

The holder can convert the bond into common stock at a future time

Cosmic Company issued $1,000,000, 8%, 7 year bonds, interest payable semiannually. The market rate of interest was 6%. The issuance price of the bonds is

$1,112,840

Kiwi Charters reported the following information at December 31, 2012: Common stock, $1 par, 500,000 shares authorized, 100,000 shares issued $100,000 Additional paid-in-capital - Common $25,000 Retained Earnings $75,000 Total stockholder's equity $250,000 The average recorded value per share of common stock at December 31, 2012 is

$1.25

Use the incomplete stockholders' equity section of Tokin Company's balance sheet as of December 31, 2012 to answer the following questions. Common Stock, $7 par, 100,000 shares auth. $700,000 Additional paid-in-capital - Common $160,000 Retained Earnings $? Treasury stock (2,000 shares at cost) $(16,000) Total stockholders' equity $974,000 What is the amount of Tokin's retained earnings?

$130,000

On January 1, 2012, Breaker Inc. issued $400,000, 10-year, 10% bonds for $354,200. The bonds pay interest on June 30 and and December 31. The market rate is 12%. What is the carrying value of the bonds after the first interest payment is made on June 30, 2012?

$355,452

On January 2, 2012, Dock Master Construction, Inc. issued $500,000, 10-year bonds for $574,540. The bonds pay interest on June 30 and December 31. The face rate is 8% and the market rate is 6%. At the maturity date, besides an interest payment, Dock Master would repay the bondholders

$500,000

Which of the following statements with regard to large stock dividends is true?

As a result of the stock dividend, retained earnings is reduced by the par value of the stock issued

Occasionally, companies engage in important investing and financing activities which do not affect cash. If the amount of the transaction is significant, how should it be disclosed when financial statements are prepared

In a note to the financial statements or in a supplemental schedule

Which of the following items is treated as a cash equivalent?

Money market funds which can be obtained overnight from a bank or brokerage firm

Shuttle Master Airlines has leased an aircraft from Streamline Aircraft Company. The annual payments are $1,000,000 and the life of the lease is 18 years. It is estimated that the useful life of the aircraft is 20 years. How would Shuttle Master Airlines record the acquisition of the aircraft? The effective rate of interest is 9%.

The aircraft would be reported as an asset with a cost of $8,756,000

Micro Company wishes to issue $400,000 of 5-year, 6% bonds, with interest paid annually at the end of the year. The market rate of interest is currently 5%. What information is needed in order to determine the selling price?

The face amount of the bonds, the stated rate of interest, the market rate of interest, and the bond life

Which of the following lease conditions would result in a capital lease to the lessee?

The lessee can purchase the property for $1 at the end of the lease term

Surplus Mining Company has leased a machine from Craft Machinery Company. The annual payments are $6,000 and the life of the lease is 8 years. It is estimated that the useful life of the machine is 9 years. How would Surplus Mining record the acquisition of the machine?

The machine would be recorded as an asset, at the present value of the annual cash payments, $6,000 for 8 years

Which of the following statements is true with regard to contributed capital?

The shares that are in the hands of the stockholders are said to be outstanding

Weather Corp. issued 10-year, 8%, $100,000 bonds paying interest on an annual basis, at a $5,200 premium. Which one of the following statements is true?

Weather's annual interest expense on the bonds will be less than the amount of interest payments to bondholders each year

A decreasing long-term liability account is presented on the statement of cash flows as

a decrease in cash in the Financing Activities category

All of the following refer to the face rate of interest on a bond except:

effective rate

When a company declares a 3-for-1 stock split, the number of outstanding shares

is tripled compared to the number of shares that were outstanding prior to the split

If a company's bonds are callable

the issuing company is likely to retire the bonds before maturity if the bonds are paying 9% interest while the market rate of interest is 6%