ACCT Test 3

Land Improvements are generally charged to the Land account

False

The contractual interest rate is always stated as a(n)

annual rate

a bond discount must

be amortized using the effective-interest method if it yields annual amounts that are materially different than the straight-line method.

Dividends Payable is classified as a

current liability

Organizational costs are capitalized by debiting an intangible asset entitled Organization Costs.

false

The term residual claim refers to a stockholders' right to

share in assets upon liquidation

Which of the following is not a right or preference associated with preferred stock?

the right to vote

Legal capital per share cannot be equal to the

total proceeds from the sale of par value stock above par value.

If bonds with a face value of $140,000 are converted into common stock when the carrying value of the bonds is $135,000, the entry to record the conversion will include a debit to

Bonds Payable for 140000

Jarrett Company issued 900 shares of no-par common stock for $13,200. Which of the following journal entries would be made if the stock has no stated value?

Cash 13,200 Common Stock 13,200

Evergreen Manufacturing Corporation purchased 5,000 shares of its own previously issued $10 par common stock for $115,000. As a result of this event,

Evergreen's total stockholders' equity decreased $115,000.

A corporation can issue more shares than it is authorized in its charter, if the board of directors approves of an increase in the number of authorized shares.

False

Current maturities of long-term debt refers to the amount of interest on a note payable that must be paid in the current year.

False

Depletion cost per unit is computed by dividing the total cost of a natural resource by the estimated number of units in the resource.

False

If a corporation issued bonds at an amount less than face value, it indicates that the corporation has a weak credit rating.

False

If bonds sell at a premium, the interest expense recognized each year will be greater than the contractual interest rate.

False

Once cost is established for a plant asset, it becomes the basis of accounting for the asset unless the asset appreciates in value, in which case, market value becomes the basis for accountability.

False

The cost of Land includes all of the following except

Parking Lots

A company purchases a remote site building for computer operations. The building will be suitable for operations after some expenditures. The wiring must be replaced to computer specifications. The roof is leaky and must be replaced. All rooms must be repainted and recarpeted and there will also be some plumbing work done. Which of the following statements is true?

The cost of the building will include the cost of replacing the roof.

Once an asset is fully depreciated, no additional depreciation can be taken even though the asset is still being used by the business.

True

The IRS does not require the taxpayer to use the same depreciation method on the tax return that is used in preparing financial statements.

True

A legal document which summarizes the rights and privileges of bondholders as well as the obligations and commitments of the issuing company is called

a bond indenture

If a plant asset is retired before it is fully depreciated and no salvage value is received,

a loss on disposal occurs

A company would not acquire treasury stock

as an asset investment

If the market interest rate is greater than the contractual interest rate, bonds will sell

at a discount

Which of the following represents the largest number of common shares?

authorized shares

A patent should

be amortized over its useful life or 20 years, whichever is shorter

The cumulative effect of the declaration and payment of a cash dividend on a company's balance sheet is to

decrease stockholders equity and total assets

The acquisition of treasury stock by a corporation

decreases its total assets and total stockholders equity

Interest may be included in the acquisition cost of a plant asset

during the construction period of a self-constructed asset.

Generally, convertible bonds do not pay interest.

false

The market value (present value) of a bond is a function of all of the following except the

length of time until the bond is sold

Common Stock Dividends Distributable is classified as a(n)

stockholders equity account

If bonds can be converted into common stock,

the bondholder may benefit if the market price of the common stock increases substantially.

Under the corporate form of business organization

the corporation's life is stipulated in its charter.

The per share amount normally assigned by the board of directors to a large stock dividend is

the par or stated value of the stock

The book value of a plant asset is the difference between the

cost of the asset and the accumulated depreciation to date.

Working capital is current assets divided by current liabilities.

false

An asset that cannot be sold individually in the marketplace is a

goodwill

The calculation of depreciation using the declining balance method,

ignores salvage value in determining the amount to which a constant rate is applied.

Gains and losses are not recognized when convertible bonds are converted into common stock.

true