Financial Final Smart Book Questions

When a company issues a bond at a premium, the amount of cash collected from the issue is: a. less than the face value of the bond b. more than the face value of the bond c. equal to the face value of the bond

B

On Jan 1, Y1, Dixon Company issued bonds with a $50,000 face value at 96. The bonds had a 10-year term and an 8% stated rate of interest. Interest is payable in cash on Dec 31 of each year. Assuming straight-line amortization, which of the following statements regarding the recognition of interest expense on Dec 31, Y5 is true? a. Total assets increase by $3,800 b. Total assets decrease by $4,000 c. Total assets decrease by $4,200 d.. Total assets increase by $4,000

B The cash outflow for interest is determined by multiplying the face value of the bonds times the stated rate of interest ($50,000 x 8%= $4,000). The annual cash flow for interest is the same throughout the life of the bond.

On Jan 1, Y1, Dixon Company issued bonds with a $50,000 face value at 104. The bonds had a 10-year term and an 8% stated rate of interest. As a result of the bond issue, the: a. Statement of Cash Flows would not be affected b. Statement of Stockholders' Equity would not be affected c. Income Statement would not be affected d. Balance Sheet would not be affected

B, C

The journal entry to record a cash payment for interest on a bond that was issued at a discount will include a: a. debit to the bonds payable account b. credit to the cash account c. credit to the discount on bonds payable account d. debit to the interest expense account

B, C, D

The journal entry to record a cash payment for interest on a bond that was issued at a premium will include a: a. debit to the discount on bonds payable account b. credit to the cash account c. debit to the premium on bonds payable account d. debit to the interest expense account

B, C, D

How will borrowing money by issuing a bond affect a company's ledger accounts? a. The balance of the Bonds Payable account decreases. b. The balance of the Cash account increases. c. The balance of the Cash account decreases. d. The balance of the Bonds Payable account increases.

B, D

A partner's capital account will appear in which of the following financial statements? a. Statement of Retained Earnings b. Statement of Cash Flows c. Balance Sheet d. Income Statement

C

On Jan 1, Y1, Dixon Company issued bonds with a $50,000 face value at 104. The bonds had a 10-year term and an 8% stated rate of interest. Based on this, the statement of cash flows would: a. show a $50,000 cash inflow from FA b. show a $52,000 cash inflow from OA c. show a $52,000 cash inflow from FA d. show a $52,000 cash inflow from IA e. not be affected

C

On January 1, Y1, a company issued at face value a $10,000 bond that carried a 20 year term and an 8% annual interest rate. At the end of Y2, the company made a cash payment for interest. Based on this, the book value of the bond liability shown on the Y5 balance sheet would be: a. $8,400 b. $10,800 c. $10,000 d. $9,200 e. $11,600

C

Cloud company has 5,000 shares of 6%, $20 par value cumulative preferred stock outstanding. The company also has 8,000 shares of $10 par value common stock outstanding. Cloud paid no dividends in Y1 or Y2. In Y3, Cloud paid $30,000 of cash dividends. What was the amount of dividends paid to preferred stockholders? a. $12,000 b. $4,800 c. $18,000 d. $30,000

c

Stock certificates are used as evidence of ownership in which of the following types of business organization? a. partnerships b. nonprofit businesses c. corporations d. proprietorships

c

The journal entry to record a cash payment for interest on a bond payable will include a ___ to the interest expense account and a ___ to the cash account. (debit/credit)

debit; credit

The journal entry to record the issue of bonds payable at a discount will include a ___ to the cash account, a ___ to the discount on bonds payable account, and a ___ to the bonds payable account. (debit/credit)

debit; debit; credit

Companies that had paid dividends in the past are ___ likely to pay dividends in the future. (less/ more)

more

On Jan 1, Y1, a company issued at face value a $10,000 bond that carried a 20 year term and an 8% annual interest rate. At the end of Y2, the company made a cash payment for interest. Based on this, the book value of the bond liability shown on the Y5 balance sheet would be: a. $11,600 b. $10,000 c. $10,800 d. $8,400 e. $9,200

$10,000 When a bond is issued at the face value, the recognition of interest does not affect the book value of the bond. The bond is carried on the books at face value until the maturity date.

On Jan 1, Y1, Dixon Company issued bonds with a $50,000 face value at 96. The bonds had a 10-year term and an 8% stated rate of interest. Recognizing the bond issue would cause the Bonds Payable account to: a. increase by $50,000 b. decrease by $50,000 c. increase by $52,000 d. decrease by $52,000

A The face value of the bonds is recorded in the Bonds Payable account. The account balance is not affected by the discount.

A payment on an installment loan will: a. affect the statement of stockholder's equity b. affect the balance sheet c. not affect the statement of cash flows d. not affect the income statement

A, B

Assume Stanley Company paid $25 per share to purchase 200 shares of its $10 par value common stock. If Stanley resells 100 shares of the treasury stock for $30 per share: a. there would be no impact on the income statement b. Stanley would recognize a $500 increase in additional paid-in capital from treasury stock transactions c. there would be no impact on stockholders' equity d. Stanley would recognize a $500 gain on the sale of treasury stock

A, B

Common reasons corporations purchase treasury stock include which of the following? a. to have stock available to satisfy the requirements of employee stock option plans b. to avoid a hostile takeover c. to keep the price of stock high when it appears to be falling d. to be in a position to cast votes for the members of the board of directors e. to generate gains, thereby improving the amount of net income

A, B, C

The retirement of bonds on the maturity date will: a. decrease assets b. decrease cash flow from operating activities c. increase liabilities d. not affect stockholders' equity

A, D

On Jan 1, Y1, Dixon Company issued bonds with a $50,000 face value at 96. The bonds had a 10-year term and an 8% stated rate of interest. On Dec 31, Y10, after the last cash payment for interest has been made, the entry to retire the bonds will: a. cause assets to decrease by $52,000 b. cause assets to decrease by $50,000 c. cause assets to decrease by $48,000 d. not affect total assets

B

Purchasing treasury stock is a(n): a. asset source event b. claims exchange event c. asset exchange event d. asset use event

D

Which of the following statements is true? a. Preferred stock dividends in arrears must be paid before dividends can be distributed to common stockholders. b. If a company skips a dividend on noncumulative preferred stock, the dividend is lost forever. c. Like creditors, preferred stockholders can force a company into bankruptcy if dividends in arrears are not paid. d. Dividends in arrears must be paid before a company can pay interest on debt.

a, b

Which of the following financial statements is affected when a corporation issues a stock dividend? a. statement of changes in stockholders' equity b. statement of cash flows c. balance sheet d. income statement

a, c

Which of the following are privileges that are frequently assigned to preferred stockholders? a. Preferred stock dividends are paid before dividends are distributed to common stockholders. b. Preferred stock has a liquidation value that, in case of bankruptcy, is paid before assets are distributed to creditors. c. Preferred stockholders have the exclusive right to vote in the election of members of the board of directors. d. Preferred stock has a liquidation value that, in case of bankruptcy, is paid before assets are distributed to common stockholders.

a, d

How will declaring a cash dividend affect a corporation's financial statements? a. Total liabilities will decrease and total stockholders' equity will increase. b. Total liabilities will increase and total stockholders' equity will decrease. c. Total liabilities and total stockholders' equity will increase. d. Total liabilities and total stockholders' equity will decrease.

b

The Treasury Stock account appears on which of the following financial statements? a. income statement b. balance sheet c. statement of cash flows

b

Match the account title shown in the right column with the order in which they are presented in the stockholders' equity section of a balance sheet. Use the number 1 to represent the account title shown first, the number 2 to represent the second title, and so on. a. Retained Earnings b. Par Value Preferred Stock c. Class B Common Stock d. Paid-in Capital in Excess of Stated Value Common Stock e. Paid-in Capital in Excess of Par Value Preferred Stock f. Stated Value Common Stock

b f c e d a

Cumulative dividends: a. are paid to preferred stockholders only after common stockholders receive their dividends. b. are dividends that accumulate for future payment when a company fails to pay a periodic dividend. c. may also be called dividends in arrears. d. normally assigned to common stock.

b, c

When Grey Company borrowed money by issuing bonds, the balance in the Bonds Payable account ___ and the balance in the Cash account ___.

increases, increases

When a bond is issued at a premium, the ___ rate of interest is higher than the ___ rate of interest.

stated; effective