Prep Quiz

stock dividend

A pro rata (proportional to ownership) distribution of the corporation's own stock to stockholders.

callable bonds

Bonds that include a feature allowing the issuer to pay them off prior to maturity are ___________

T/F: A corporation that issues bonds at a discount will recognize interest expense at a rate which is greater than the market rate of interest.

False

T/F: Any item that appears on the income statement would be considered as either a cash inflow or cash outflow from operating activities.

False

T/F: As soon as a corporation is authorized to sell stock, an accounting journal entry should be made recording the total value of the shares authorized.

False

T/F: Cash flow from investing activities is considered the most important category on the statement of cash flows because it is considered the best measure of expected income.

False

T/F: During the month, a company sells goods for a total of $106,000, which includes sales taxes of $6,000; therefore, the company should recognize $100,000 in Sales Revenue and $6,000 in Sales Tax Expense.

False

T/F: Each bondholder may vote for the board of directors in proportion to the number of bonds held.

False

T/F: If any portion of a long-term debt is to be paid in the next year, the entire debt should be classified as a current liability.

False

T/F: If bonds sell at a premium, the interest expense recognized each year will be greater than the bond interest paid.

False

T/F: Return on common stockholders' equity is computed by dividing net income by ending stockholders' equity.

False

T/F: The activity from the balance sheet to be presented in the financing activities section of the statement of cash flows is based on an analysis of stockholders' equity only.

False

T/F: The amount of a cash dividend liability is recorded on the date of record because it is on that date that the persons or entities who will receive the dividend are identified.

False

T/F: The contractual interest rate is always equal to the market rate of interest on the date that bonds are issued.

False

T/F: The face value is the amount of principal and interest due at the maturity date.

False

T/F: The growth phase of the product life cycle occurs when the company is purchasing fixed assets and beginning to produce and sell.

False

T/F: The payout ratio is computed by dividing total cash dividends paid on common stock by retained earnings

False

T/F: The statement of cash flows classifies cash receipts and payments as operating, non operating, financial, and extraordinary activities.

False

T/F: Treasury stock is reported as an asset on the balance sheet because treasury stock may later be resold.

False

T/F: When the effective-interest method of amortization is used, the amount of interest expense for a given period is calculated by multiplying the face rate of interest by the bond's carrying value at the beginning of the given period.

False

present value

The _________ is the value now of a single amount to be paid or received in the future.

T/F: A $150,000 bond with a quoted priced of 102 ¼ is sold for $153,375.

True

T/F: A corporation can be organized for the purpose of making a profit or it may be nonprofit.

True

T/F: A loss on sale of equipment is added to net income in determining cash provided by operations under the indirect method.

True

T/F: A stockholder has the right to vote in the election of the board of directors.

True

T/F: Analysis of the changes in all of the non cash balance sheet accounts will explain the change in the Cash account.

True

T/F: During the introductory phase, cash from operations and cash from investing activities are expected to be negative.

True

T/F: For accounting purposes, stated value is treated the same way as par value.

True

T/F: If $500,000 par value bonds with a carrying value of $476,000 are redeemed at 97, a loss on redemption will be recorded.

True

T/F: If a retailer sells goods for a total price of $200, which includes a 5% sales tax, the amount of the sales tax is $9.52.

True

T/F: If the market rate of interest is greater than the contractual rate of interest, bonds will sell at a discount.

True

T/F: Interest expense is reported under Other Expenses and Losses in the income statement.

True

T/F: Noncash investing and financing transactions, such as the exchange of common stock to purchase assets, represent significant investing and financing activities and are reflected either in a schedule separate from the statement of cash flows or in a separate note to the financial statements.

True

T/F: Paid-in capital is the amount paid in to the corporation by stockholders in exchange for shares of ownership.

True

T/F: Payroll taxes include the employer's share of Social Security taxes as well as state and federal unemployment taxes.

True

T/F: The acquisition of a building by issuing bonds would be considered an investing and financing activity that did not affect cash.

True

T/F: The cost of treasury stock is deducted from total paid-in capital and retained earnings in determining total stockholders' equity.

True

T/F: The current market value of a bond is equal to the present value of all future cash payments (both principal and interest) promised by the bond.

True

T/F: The debt to assets ratio measures the percentage of the total assets provided by creditors.

True

T/F: The liability of a stockholder is usually limited to the stockholder's investment in the corporation.

True

T/F: The number of common shares outstanding can never be greater than the number of shares issued.

True

T/F: The primary purpose of the statement of cash flows is to provide information about a company's cash receipts and cash payments during an accounting period.

True

T/F: The statement of cash flows explains the difference between net income, as shown on the income statement, and the net cash flows generated from operations.

True

T/F: The statement of cash flows is a required statement that must be prepared along with an income statement, balance sheet, and retained earnings statement.

True

T/F: Treasury stock is a contra stockholders' equity account.

True

T/F: Under the indirect method, gains and losses from the sale of equipment used in operations would be included in the cash flows from operating activities section on the statement of cash flows.

True

T/F: When preferred stock is cumulative, preferred dividends not declared in a given period are called dividends in arrears.

True

annuity

__________ is a series or stream of identical payments received at equal intervals over a period of years.

current ratio

a measure of a company's short term liquidity

times interest earned

a measure of a company's solvency

par value

amount assigned to each share of stock in the corporate charter

callable bonds

bonds subject to retirement at a stated dollar amount prior to maturity

serial bonds

bonds that mature in installments

convertible bond

can be exchanged for stock in the corporation

outstanding stock

capital stock that is currently owned by stockholders

treasury stock

corporation's own stock that has been reacquired by the corporation but not retired

declaration date

date the board of directors formally obligates the company to pay a dividend

record date

date when the company determines ownership of outstanding shares for dividend purposes

preemptive right

enables stockholders to maintain their same percentage ownership when new shares are issued

stock split

issuance of additional shares of stock to stockholders accompanied by a reduction in the par or stated value per share

bond certificate

legal document that sets forth the terms of the bond issued

authorized stock

maximum number of shares that a corporation is permitted to sell as indicated in its charter

payout ratio

measures the percentage of earnings distributed in the form of dividends to common stockholders

discount on bonds payable

occurs when the contractual rate of interest is less than the market rate of interest

premium on bonds payable

occurs when the contractual rate of interest is more than the market rate of interest

operating leases vs. capital leases

operating are similar to renting. capital are similar to owning.

cumulative feature

preferred stockholders have a right to receive current and unpaid prior year dividends before common stockholders receive any dividends

carrying value

the bond's face value plus unamortized premium or minus unamortized discount

payable date

the date that cash dividends are actually disbursed to stockholders

market interest rate

the rate investors demand for loaning funds to a corporation

maturity date

the time that the final payment on a bond is due from the bond issuer

debenture bonds

unsecured bonds issued against the general credit of the borrower