ch. 9-11 accounting final exam

If a company issues $5 par value common stock,

$5 per share is presented in the common stock account on the balance sheet.

The stockholders' equity section of Twilight Time's balance sheet on January 1, 2016, appeared as follows: Common stock, $2 par, 2,000 shares issued and outstanding $ 4,000 Additional paid-in capital—Common1,600 Retained earnings 5,400 Total stockholders' equity. $11,000 On March 1, 2016, Twilight reacquired 800 shares of common stock at $10 per share. Twilight sold 400 of the treasury shares on November 15 for $12 per share. The entry to record the sale on November 15 would show:

.a decrease in Treasury Stock, $4,000.

The total amount of simple interest calculated annually on a $6,000 note payable for 3 years at 11% is

1,980 take : 6,000*11%*3

A cereal company includes one premium coupon in every cereal box. Upon returning 10 such coupons to the company, a customer will be sent a free cereal bowl. In a recent year, the company sold 200,000 boxes of cereal for $1 a box. It is estimated that 20% of the coupons will be returned. If the cereal bowls cost the company $3 each, what amount of liability for premium redemptions must be recorded by the company?

12,000 take : 200,000*20%=40,000 40,000/10*3= 12,000

On January 1, 2016, Bogart Acres Company issued 10,000 shares of 10%, $20 par value cumulative preferred stock. In 2016 and 2017, no dividends were declared on preferred stock. In 2018, Bogart had a profitable year and decided to pay dividends to stockholders of both preferred and common stock. If it has $200,000 available for dividends in 2018, how much could it pay to the common stockholders?

140,000 take : 200000-(10000*20*10%)*3 200,000-60,000= 140,000

In 2016, Aspinwall Company issued $200,000 of bonds for $175,000. If the face rate of interest was 9% and the effective rate of interest was 7.99%, how would Aspinwall calculate the interest expense for the first year on the bonds using the effective interest method?

175,000 * 9%

If current assets amount to $150, total assets $350, current liabilities $65, and total liabilities $100, then the current ratio is

2.31 to 1

The Stockholders' Equity section of the balance sheet of Sea Turtle Company reveals the following information: Common stock, $3 par value$150,000Additional paid-in capital—common850,000 There have been two issues of stock since the corporation began business. The average issue price per share of stock was

20.00 take : 150,000+850,000= 1,000,000 then take 1,000,000/ (150,000/ $3)= $20.00

Irwin, Inc. issued $41,000,000 of bonds. Assuming the most common denomination of bonds, the number of bonds sold was

41,000

In 2016, Morton Co. sold 100 hot air balloons at $4,000 each. The balloons carry a 5-year warranty for defects. Morton estimates that repair costs will average 4% of the total selling price. The estimated warranty liability at the beginning of the year was $42,000. $11,000 in claims was actually incurred during the year to honor their warranty. What was the balance in the ending estimated warranty liability at the end of the year?

47,000 take : 42,000+(400,000*4%)-11,000

A $1,000 5% coupon bond that sells for $1,000 has a bond yield of:

5%

Carrington, Inc. recorded $97,000 in salary expense for January 2016. Its beginning balance in salaries payable was $3,000 and its ending balance was $4,000. How much was paid in cash for salaries during January 2016?

96,000 take : 3000-97000+4,000

Flagg Company issued $500,000 of bonds for $498,351, Interest is paid semiannually. The bond markets and the financial press are likely to state the bond issue price as

99.67 take: 498,351 / 500,000 = 0.9967...* 100 = 99.67

The term 2/10, n/30, means:

A 2% discount is available if payment occurs within the first ten days.

What impact do current liabilities have?

A decrease in a current liability account indicates that cash has been used to pay the liability and should appear as a deduction on the cash-flow statement.

Which of the following statements regarding the inclusion of liabilities on the statement of cash flows

A decrease in a current liability from the beginning to the end of the year is accompanied by a decrease of cash.

On the statement of cash flows:

A decrease in a long-term liability account should appear as a subtraction, or reduction, and an increase in a long-term liability account should appear on the statement of cash flows

Neville Company issued $100,000 of 6%, 10 year bonds when the market rate of interest was 5%. The proceeds from this bond issue were $107,732. Using the effective interest method of amortization, which of the following statements is true? Assume interest is paid annually

Amortization of the premium for the first interest period will be $613. take: 107,732 * 5% = 5387 and 100,000 * 6% = 6000 6000-5387=613

Notes Payable

Are amounts owed that are represented by a formal contract.

Current liabilities:

Are obligations that will be satisfied within one year or within the current operating cycle.

Museum Corporation acquired a new manufacturing building by issuing 10,000 shares of its $50 par value preferred stock with a $75 per share market price. Similar buildings have recently cost $780,000. What are the effects of this transaction on the accounting equation for Museum?

Building increases $750,000; Preferred Stock increases $500,000; Additional Paid-in Capital—Preferred increases $250,000.

Differences between contingent liabilities and contingent assets are:

Continent liabilities are recorded in the balance sheet if probable and can be reasonably estimated.

Differences in FASB and IFRS standards concerning current liabilities include:

FASB does not require a classified balance sheet.

Differences in FASB and IFRS standards concerning contingent liabilities include:

FASB requires contingent liabilities to be recorded in the balance sheet if they are probable and can be reasonably estimated, and IFRS does not.

Cumulative stock means that the preferred stock:

Has the right to dividends in arrears before the current-year dividend is distributed.

The times interest earned ratio is computed as:

Income before interest and tax divided by interest expense.

On May 1, the Chris Company borrowed $30,000 from the Third Street Bank on a 1-year, 6% note. If the company keeps its records on a calendar year, an entry is needed on December 31 to increase

Interest Payable, $1,200.

Bond issue price equals the present value of future cash flows, which are comprised of:

Interest receipts and repayment of principal.

Accrued liabilities represent:

Items such as taxes payable, salaries, or interest payable.

Which of these best describes preferred stock?

Preferred stock offers holders a preference to dividends declared by the corporation

A common contingent liability that firms must present as a liability involve:

Product warranties and guarantees.

The placement of long-term liabilities on the cash flow statement is:

Reflected in the Financing Activities category.

additional paid-in capital

The amount received for the issuance of stock in excess of the par value of the stock.

Features that often appear on bond certificates include:

The issuer, the par value, and the maturity date.

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.

The debt to equity ratio is computed as:

Total liabilities divided by total stockholders' equity.

The Discount on Bonds Payable account is shown on the balance sheet as

a contra long term liability

How is treasury stock shown on the balance sheet?

a decrease in stockholders' equity.

Which of these is true? a. If Market Rate = Face Rate, THEN bonds are issued at face value amount. b. If Market Rate > Face Rate, THEN bonds are issued at a discount. c. If Market Rate < Face Rate, THEN bonds are issued at a premium. d. All of the above are true.

a. If Market Rate = Face Rate, THEN bonds are issued at face value amount.

Which of the following is an example of a contingent liability?

a.A lawsuit pending against a restaurant chain for improper preparation of food.

Which of the following items should not appear in the long-term liability section of the balance sheet?

a.Accrued income taxes

With regard to a corporation's stock, par value is

an arbitrary amount that exists to fulfill legal requirements.

Contingent liabilities are:

an existing condition for which the outcome is not known but depends on some future event.

A bank loaned Darden Company $10,000 on a 1-year, 6% note, but deducted the interest in advance. The journal entry made by Darden to record receipt of the cash would include a

an increase in cash for $9,400. take 10,000 * 6% = 600 10,000 - 600 = 9400

A long-term liability is:

an obligation that will not be satisfied within one year or the current operating cycle.

Which of these best illustrates the balance sheet?

assets = liabilities + stockholders equity

Endeavor Company issued 20-year bonds with a coupon rate of 6% when the market rate of interest was 9%. This means that the bonds were issued

at a discount

Corporate balance sheets report the number of shares in which three categories?

athorized, issued, and outstanding shares

If a $10,000 coupon bond has a coupon rate of 12 percent, then the coupon payment every year is:

b. 1,200

Which of these is correct? a. Convertible bonds can be converted into serial bonds at a future time. b. Callable generally refers to the issuer's right to retire the bonds. c. With serial bonds, the entire principal is due on the same date. d. Debenture bonds are backed by specific collateral of the issuing company.

b. Callable generally refers to the issuer's right to retire the bonds.

Boston Trombley Company is a defendant in a lawsuit alleging damages of $3 billion. The litigation is anticipated to continue for several years, but no reasonable estimate can be made at this time regarding ultimate financial responsibility. This situation is an example of:

b.A loss contingency that should be disclosed in the notes to Boston's financial statements.

Almost all current liabilities affect the operating category of the statement of cash flows, but one that does not affect cash provided by operating activities is

b.notes payable.

Long-term liability categories include:

bonds payable, notes payable, and deffered tax income

Which of the following statements regarding contingencies is true?

c. Contingencies that are probable and estimable must be recorded before the outcome of future events.

Which of the following statements regarding bonds payable is true?

c.Most bonds are term bonds, meaning that the entire principal amount will mature on a single date.

Which of the following statements about bond accounting under the effective interest method is correct?

c.The interest expense is calculated as the carrying value × the effective rate.

The current ratio is:

calculated as the ratio of current assets to current liabilities.

Convertible stock means that the preferred stock:

can be exchanged for common stock

Which of the following combinations appropriately reflects the type of accounts represented by the Treasury Stock account and Additional Paid-in Capital—Treasury Stock account? Treasury Stock Additional Paid-in Capital—Treasury Stock

contra stockholders' equity and stockholders' equity

if the current assets amount to 62,000, total assets $350,000, current liabilities $31,000 and total liabilities $125,000 then the current ratio is

current ratio is 2:1 take current assets/ current liabilities 62,000/31,000=2

Factors affecting the bond price include: a. The face rate of interest. b. The market rate of interest. c. The maturity length of the bond. d. All of the above.

d. All of the above.

Some bonds may be issued as: a. Debenture bonds. b. Convertible bonds. c. Callable bonds. d. All of the above.

d. All of the above.

Which the following best defines a bond? a. Bonds are sold, or issued, to investors who want a return on their investment. b. A bond is a security or financial instrument that allows firms to borrow money and repay the loan over a long period of time. c.The borrower promises to pay interest on a bond on specified dates and to repay the principal on a specified date. d. All of the above.

d. All of the above.

Fox Chapel 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?

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

A discount on a bond is the:

excess of the face value of bonds over the issue price.

A premium on a bond is the:

excess of the issue price over the face value of the bonds.

When a stock is issued for cash, the amount of its par value should be reported:

in the stock account

Executive, Inc. has a weekly payroll of $10,000 for a 5-day workweek, Monday through Friday. If December 31, the last day of the accounting year, falls on Thursday, the Executive would make an adjusting entry that would

increase Wages Expense $8,000.

A company's balance sheet shows the account, Notes Payable. This resulted from a loan made by the company's bank. If the end-of-year balance in the notes payable account exceeds the beginning-of-year balance by $5,000, this is shown on the cash flow statement as an

inflow of cash of $5,000 in the financing activities category

Preferred stock terms can be all of the following except:

refundable

When a stock is issued for noncash consideration, the transaction should be:

reported at fair market value of the consideration given or the value of the consideration received.

Which of the following is an account in stockholders' equity?

retained earnings

The change in the balance of each current liability account:

should be reflected in the Operating Activities category of the statement of cash flows.

Advantages of issuing stock include all of the following, except:

tax consequences