Acct Chp 9, 10, 11

Which financial statement summarizes the changes in the balance of each stockholders' equity account?

Statement of stockholders' equity only

which of the following is not a common long term debt? a. Bonds payable. b. Notes payable. c. Leases payable. d. Accounts payable.

accounts payable (typically due within 45 days)

A series of equal amounts paid or received over equal time periods is called a(n) __________

annuity

The number of shares authorized is set forth in the company's:

articles of incorporation

A frequent reason for a stock split is to

cause the market price per share to decline.

Which of the following are common characteristics or provisions of bonds? convertible callable secured or unsecured free or redeemable perpetual or periodic

convertible callable secured or unsecured

Limited liability and ease of raising outside capital are advantages of this business form:

coorperation

Bonds issued below face value.

discount (stated rate is lower than market value)

if stated rate is less than market rate or stated rate is greater than market rate, bond issued respectively at a

discount; premium

A distribution of a company's accumulated prior earnings is a(n) ______.

dividend

A distribution of assets to shareholders is referred to as a(n)

dividend

Similar to a stock split, a stock________also distributes additional shares of stock to existing stockholders on a pro rata basis at no cost to the stockholders.

dividend

Positive _______ represent the key to a company's long-run survival.

earnings

True or false: A corporation is owned by debt and equity holders.

false

Bonds will be issued a premium if the stated interest rate is

greater than the market interest rate.

Select all that apply Preferred stock is advantageous in that it: has priority over common stock when dividends are declared. has priority over creditors at liquidation. receives dividends before creditors are to receive any interest payments. has priority over common stock at liquidation.

has priority over common stock when dividends are declared. has priority over common stock at liquidation.

Quattro Lending Company is considering lending a large sum to Eleance Inc. During its decision process, Quattro should especially consider Eleance's existing:

long-term liabilities

Corporations will declare a stock split in order to ______.

reduce the market price of a share of stock and make it more attractive to some investors

Munster Inc. issues $20 million in bonds and pledges its land holdings as collateral. Munster's bonds are:

secured

Corporate bonds most often pay interest

semiannually

A corporation is owned by its_______

shareholders

_________ bonds require payment of the full principle amount of the bond at the end of the loan term.

term

Callable bonds can be redeemed at the choice of

the bond issuer

The statement of shareholders' equity reports

the changes in each shareholder equity account.

number of times earnings are greater than interest expense is best measured by what ratio?

times earned ratio

On January 2, 2018, Meister Company issues $200,000 of 6% bonds. Interest of $6,000 is payable semiannually on June 30 and December 31. The bonds mature in 5 years. The bonds were issued at face amount. On the date of issue, Meister should recognize a liability of Multiple choice question.

200k

On January 1, year 1, Klondike issued 10-year bonds with a stated rate of 10% and a face amount of $100,000. The bonds pay interest annually. The market rate of interest was 12%. Calculate the issue price of the bonds. Round your answer to the nearest dollar. $95,056 $88,699 $93,643 $100,000

88,699 (5.65022 x $10,000) + (0.32197 x $100,000) = $88,699

Which of the following is typically presented first in the equity section of the balance sheet?

Preferred stock

Which of the following ratios measures the ability of company management to generate earnings from the resources owners provide? Multiple choice question.

Return on equity

In a private placement of bonds, bonds may be sold to

a single large investor.

When a business incorporates, it must file its ______ with the state in which it incorporates.

articles of incorporation

The total number of shares that a company may sell is referred to as________ shares

authorized

why would you chose to borrow money rather than issue additional stock?

borrowed = tax deduction on interest dividends = not tax deductible

Convertible bonds: a. Provide potential benefits only to the lender. b. Provide potential benefits only to the borrower. c. Provide potential benefits to both the lender and the borrower. d. Provide no potential benefits.

c. Provide potential benefits to both the lender and the borrower.

Bonds can be secured or unsecured. Likewise, bonds can be term or serial bonds. Which is more common? a. Secured and term. b. Secured and serial. c. Unsecured and term. d. Unsecured and serial.

c. Unsecured and term.

Convertible bonds allow the lender to convert each bond into:

common stock

The Discount on Bonds Payable account is classified as a(n)

contra liability

Werner issues bonds at a discount. The related Discount account should be classified as a(n) _______ ________

contra liability

If ABC Company receives $100,000 cash in exchange for issuing 100 bonds at their $1,000 face value, the transaction will be recorded with: debit to Bonds payable of $100,000 and a credit to Cash of $100,000. debit to Cash of $100,000 and a credit to Bonds payable of $100,000. debit to Cash of $100,000 and a credit to Bonds payable of $99,000 and to Premium on bonds payable of $1,000.

debit to Cash of $100,000 and a credit to Bonds payable of $100,000.

Dividends payable is recorded as a credit on the

declaration date.

Investors who acquire preferred stock: Select all that apply have preference over creditors. will receive more dividends than common stockholders. do not have voting rights. have preference as to dividends.

do not have voting rights. have preference as to dividends.

The amount of money paid into a company by its owners is referred to as:

invested capital

In a corporation, the stockholders' potential loss is

limited to the amount invested

A common reason for redeeming a bond prior to its maturity date is that

market interest rates decreased.

Merkel Corporation issues $200,000 face amount bonds with a stated interest rate of 6%. If the market interest rate is 5%, the bonds will issue at: face amount. a discount. a premium.

premium

Dorothea Inc. is selling all of its bonds to a large pension fund. This an example of a(n)

private

A corporation's accumulated income that has not been distributed as dividends to shareholders is referred to as _______ earnings

retained

Earned capital increases ____.

retained earnings

A corporation's accumulated, undistributed net income or loss is referred as

retained earnings.

Most corporate bonds pay interest

semiannually

price of the bond is equal to

the present value of the face amount plus the present value of the stated interest payments

Shares of stock previously sold by the corporation that are repurchased are called

treasury stock.

True or false: The debt to equity ratio is calculated as total liabilities divided by common stock.

False

earned capital = invested capital=

RE common stock

Which of the following are common characteristics or provisions of bonds?

Secured and unsecured term serial callable convertible

Periodic payments on installment notes typically include

a portion that reflects interest. a portion that reduces the outstanding loan balance.

When bonds are issued at a premium, what happens to the carrying value and interest expense over the life of the bonds? a. Carrying value and interest expense increase. b. Carrying value and interest expense decrease. c. Carrying value decreases and interest expense increases. d. Carrying value increases and interest expense decreases.

b. Carrying value and interest expense decrease

Bonds issued at a discount are: a. Issued above face value. b. Issued below face value. c. Issued at face value. d. Riskier bonds sold at a bargain price

b. Issued below face value.

A formal debt instrument that obligates the borrower to repay a stated amount (referred to as the principal or face amount) at a specified maturity date can be a note or a(n)

bond

interest expense on bonds payable is calculated as

carrying value times market interest rate

The journal entry to record the issuing of 100 bonds at their $1,000 face value will include a debit to ______ and a credit to ______.

cash; bonds payable

______________ bonds are retired when the bondholder exchanges them for the issuing company's stock.

convertible

Financial leverage is best measured by which of the following ratios? a. The return on assets ratio. b. The return on equity ratio. c. The times interest earned ratio. d. The debt to equity ratio.

d. The debt to equity ratio.

financing with ________ requires borrowing, whereas financing with _________ requires issuing shares of stock.

debt;equity

The advantages to the corporate form of business include

ease of raising capital. transferability of ownership.

The debt to equity and the times interest earned ratios provide investors and creditors with a measure of ________ risk

financial

Select all that apply Preferred stock is "preferred" over common stock by providing preferred stock holders with these rights: guaranteed dividends first right to specified amount of dividends consistently higher return than earned by common stockholders preference in distribution of assets during dissolution of corporation

first right to specified amount of dividends preference in distribution of assets during dissolution of corporation

Preferred stockholders:

have the right to receive dividends only in the years the board of directors declares dividends.

interest payment formula

stated rate X face amount

Which of the following will decrease the par value of shares?

stock split

On January 1, year 1, Ziegler issued 5-year bonds with a stated rate of 8% and a face amount of $100,000. The bonds pay interest semiannually. The market rate of interest was 10%. Calculate the issue price of the bonds. Round your answer to the nearest dollar.

$92,278(7.72173 x $8,000 x 0.5) + (0.61391 x $100,000) = $92,278

A business that incorporates must file a document with the state, which includes a description of the business activities, the shares to be issued, and the composition of the board of directors. Which of the following terms are used to describe this document? Select all that apply: Corporate proxy Corporate tax return Articles of incorporation Corporate charter

Articles of incorporation Corporate charter

Which of the following statements is correct? Bonds can be retired only at maturity. Bonds for which the effective interest rate rises must be retired early. Bonds may be retired at maturity or retired early.

Bonds may be retired at maturity or retired early.

Which of the following statements is correct? Bonds for which the effective interest rate rises must be retired early. Bonds can be retired only at maturity. Bonds may be retired at maturity or retired early.

Bonds may be retired at maturity or retired early.

Select all that apply Identify the characteristics of an annuity. A series of amounts that vary from period to period Equal time periods between payment dates A series of amounts that are equal Varying time periods between payment dates

Equal time periods between payment dates A series of amounts that are equal

Albert Inc. has both common and preferred stock outstanding. Which should be listed first in the stockholders' equity section of the balance sheet?

Preferred stock

Which of the following is included in the rights of common stockholders? Multiple choice question. Right to dividend payment every year. Right to vote on certain matters. Right to purchase assets of the corporation. Right to restrict preferred stock.

Right to vote on certain matters.

Which of the following are correct regarding bonds?

They obligate the issuing company to repay the bonds at a specific date. They obligate the issuing company to pay a specific amount.

Select all that apply: Identify two ratios commonly used to assess a company's financial risk. Equity yield ratio Times interest earned ratio Current ratio Gross profit ratio Debt to equity ratio

Times interest earned ratio Debt to equity ratio

Evaluation of the company's profitability requires consideration of the amount of a company's earnings in relation to the size of the

investment.

A _______ is a contractual arrangement in which an owner provides a user the right to use an asset for a specified period of time.

lease

The cash paid for interest on bonds payable is calculated as: a. Face amount times the stated interest rate. b. Carrying value times the market interest rate. c. Face amount times the market interest rate. d. Carrying value times the stated interest rate.

a. Face amount times the stated interest rate.

Douglas County Fairgrounds retires a $50 million bond issue when the carrying value of the bonds is $52 million, but the market value of the bonds is only $47 million. The entry to record the retirement will include: a. A debit of $5 million to loss on early extinguishment. b. A credit of $5 million to gain on early extinguishment. c. No gain or loss on retirement. d. A debit to cash for $47 million.

b. A credit of $5 million to gain on early extinguishment.

The number of shares outstanding equals the number of shares ______.

issued minus the number of shares in treasury

Which of the following is true for bonds issued at a premium? a. The stated interest rate is greater than the market interest rate. b. The market interest rate is greater than the stated interest rate. c. The stated interest rate and the market interest rate are equal. d. The stated interest rate and the market interest rate are unrelated.

a. The stated interest rate is greater than the market interest rate. issue price will be greater than face value

In order to assess a company's financial risk, investors and creditors frequently consider and analyze the company's: long-term debt total assets net income current liabilities

long term debt

interest expense and interest payments are computed respectively by using

market rate; stated rate

Select all that apply Special contractually granted features can make preferred stock: cumulative redeemable convertible extraordinary

cumulative redeemable convertible

Which of the following leases is simply a rental? a. An operating lease. b. A capital lease. c. Both an operating and a capital lease. d. Neither an operating lease nor a capital lease.

A

Totito Inc. issues $100,000 face amount bonds at $98,000. The journal entry to record the issuance should include: SELECT ALL THAT APPLY A debit to loss on bond issuance A credit to discount on bonds payable for $2,000 A credit to bonds payable for $100,000 A debit to discount on bonds payable for $2,000

A credit to bonds payable for $100,000 A debit to discount on bonds payable for $2,000

Which of the following transactions are classified as a stock dividend? A distribution of stock options to current employees as incentive compensation. A distribution of additional shares of a corporation's stock to current shareholders of the corporation. A distribution of shares of stock held as an investment to stockholders of the corporation. A distribution of stock to corporate executives as an inducement to extend their contract with the corporation.

A distribution of additional shares of a corporation's stock to current shareholders of the corporation.

Stock splits Stock splits and stock dividends Stock dividends

Cause the par value per share to change Cause total stockholders' equity to remain the same Require a journal entry

Select all that apply Totito Inc. issues $100,000 face amount bonds at $98,000. The journal entry to record the issuance of the bonds should include debit(s) to: Discount on bonds payable for $2,000 Cash for $98,000 A debit to loss on bond issuance for $2,000 Cash for $100,000

Discount on bonds payable for $2,000 Cash for $98,000

The rights of common stockholders typically include which of the following? Select all that apply: Right to distribution of assets in liquidation. Right to receive a percentage of net income each year. Right to dividends when declared. Right to vote for corporate directors.

Right to distribution of assets in liquidation. Right to dividends when declared. Right to vote for corporate directors.

ABC Company is in the process of issuing bonds. The bonds have a stated interest rate of 6%, which is 2% above the current market rate. What effect will the two interest rates have on the bond issue price?

The issue price will be above the bond's face value.

Select all that apply Morgan Company issued cumulative preferred stock. What additional special feature(s) could also have been granted to preferred stock holders? A variable interest rate that increased each year The right to convert the shares to common shares The right to redeem the preferred shares for cash

The right to convert the shares to common shares The right to redeem the preferred shares for cash

ABC Company issues a bond with a face value of $100,000 at face amount on January 1. The bond carries a stated annual interest rate of 6% payable in cash on December 31 of each year. If ABC issues monthly financial statements, it must make an adjusting entry on January 31 that includes ______. SELECT ALL THAT APPLY a debit to Interest expense of $6,000 a debit to Interest expense of $500 a credit to Cash of $500 a credit to Interest payable of $500 a credit to Cash of $6,000

a debit to Interest expense of $500 a credit to Interest payable of $500

ABC Company issues a bond with a face value of $100,000 at face amount on January 1. ABC prepares financial statements only at December 31, so no adjusting entries are made during the year to accrue interest. If the bond carries a stated interest rate of 6% payable in cash on December 31 of each year, the journal entry to record the first bond interest payment includes ______. a debit to Interest payable of $6,000 a credit to Interest expense of $6,000 a debit to Interest expense of $6,000 a credit to Cash of $6,000

a debit to Interest expense of $6,000 a credit to Cash of $6,000

The two types of financing are

equity financing. debt financing.

Merkel Corporation issues $200,000 face amount bonds with a stated interest rate of 6%. If the market interest rate is 6%, the bonds will issue at

face amount

Select all that apply The effect on the accounting equation of declaring a dividend that will be paid at a later date includes a(n): increase in liabilities. increase in stockholders' equity. increase in assets. decrease in stockholders' equity. decrease in liabilities. decrease in assets.

increase in liabilities. decrease in stockholders' equity.

Loans requiring periodic payments of interest and principle are referred to as _______ notes

installment

A contract in which an owner provides a user the right to use an asset in return for periodic cash payments over a period of time is called a(n)

lease

Neumann Corporation is planning to issues bonds with a face amount of $2 million. If Neumann's accountant, Betty, wants to calculate the expected issue she should calculate the ____ of the related future cash payments using the ____ interest rate.

present value; market

When a corporation repurchases its bonds from the bondholders, the corporation _________ the bonds.

retired

_________ bonds are supported by a specific asset the issuer pledges as collateral.

secured

The number of shares issued represents the number of shares:

sold

The rate of interest printed on the face of a bond is referred to as the__________ interest rate

stated

the ________ rate of interest is used to compute the cash interest paid to bondholders

stated

Bonds that require payment of the full principle amount of the bond at the end of the loan term are referred to as

term bonds

The debt to equity ratio is calculated as total liabilities divided by total stockholders' equity. current liabilities divided by total stockholders' equity. long-term debt divided by total stockholders' equity. noncurrent liabilities divided by current liabilities + stockholders' equity.

total liabilities divided by total stockholders' equity.

Shares of stock that are repurchased are referred to as _______ stock

treasury