quiz accounting

Which of these statements about stock dividends is true? Stock dividends reduce a company's cash balance. A stock dividend has no effect on total stockholders' equity. A stock dividend decreases total stockholders' equity. A stock dividend ordinarily will increase total stockholders' equity.

B

5. (LO 2) Treasury stock may be repurchased: 1) to reissue the shares to officers and employees under bonus and stock compensation plans. 2) to signal to the stock market that management believes the stock is underpriced. 3) to have additional shares available for use in the acquisition of other companies. 4) More than one of the above.

Choice (a), (b), (c) are all correct, but (d) is the best answer.

Bennie Razor Company has decided to sell one of its old manufacturing machines on June 30, 2022. The machine was purchased for $80,000 on January 1, 2018, and was depreciated on a straight-line basis for 10 years assuming no salvage value. If the machine was sold for $26,000, what was the amount of the gain or loss recorded at the time of the sale? a. $18,000 loss. b. $54,000 loss. c. $22,000 gain. d. $46,000 gain.

a. $18,000 loss. [($80,000/10) × 4.5 years= 36,000 ($80,000 − $36,000)= 44,000 ($26,000 − $44,000),= - 18,000

For the bonds issued in the question above what is the carrying value of the bonds at the end of the third interest period? a. $492,000. b. $488,000. c. $472,000. d. $464,000.

a. $492,000. ($4,000 × 3 periods) which is added to the initial carrying value ($480,000)

The benefits to leasing include each of the following except: a. higher resale value. b. reduced risk of obsolescence. c. little or no down payment. d. shared tax advantages.

a. higher resale value.

The time period for classifying a liability as current is one year or the operating cycle, whichever is: a. longer. b. shorter. c. probable. d. possible.

a. longer.

Laurel Inc. issues 10-year bonds with a maturity value of $200,000. If the bonds are issued at a premium, this indicates that: a. the contractual interest rate exceeds the market interest rate. b. the market interest rate exceeds the contractual interest rate. c. the contractual interest rate and the market interest rate are the same. d. no relationship exists between the two rates.

a. the contractual interest rate exceeds the market interest rate.

In the stockholders' equity section, the cost of treasury stock is deducted from: a. total paid-in capital and retained earnings. b. retained earnings. c. total stockholders' equity. d. common stock in paid-in capital.

a. total paid-in capital and retained earnings.

Jefferson Company purchased a piece of equipment on January 1, 2022. The equipment cost $60,000 and has an estimated life of 8 years and a salvage value of $8,000. What was the depreciation expense for the asset for 2023 under the double-declining-balance method? a. $6,500. b. $11,250. c. $15,000. d. $6,562.

b. $11,250. [($60,000 − $15,000) × 25%]= 11,250

Ottman Company borrows $88,500 on September 1, 2022, from Farley State Bank by signing an $88,500, 12%, 1-year note. What is the accrued interest at December 31, 2022? a. $2,655. b. $3,540. c. $4,425. d. $10,620.

b. $3,540. ($88,500×12%×412)

Pierce Company incurred $150,000 of research and development costs in its laboratory to develop a new product. It spent $20,000 in legal fees for a patent granted on January 2, 2022. On July 31, 2022, Pierce paid $15,000 for legal fees in a successful defense of the patent. What is the total amount that should be debited to Patents through July 31, 2022? a. $150,000. b. $35,000. c. $185,000. d. $170,000.

b. $35,000. ($20,000 for granting patent and $15,000 for defense)

Alexis Company has total proceeds from sales of $4,515. If the proceeds include sales taxes of 5%, what is the amount to be credited to Sales Revenue? a. $4,000. b. $4,300. c. $4,289.25. d. The correct answer is not given.

b. $4,300. $4,515 ÷ 1.05

No Fault Insurance Company collected a premium of $18,000 for a 1-year insurance policy on April 1. What amount should No Fault report as a current liability for Unearned Insurance Premiums at December 31? a. $0. b. $4,500. c. $13,500. d. $18,000.

b. $4,500. (3 months × $1,500)

On January 1, Holly Ester Inc. issued $1,000,000, 10-year, 9% bonds for $938,554. The market rate of interest for these bonds is 10%. Interest is payable annually on December 31. Holly Ester uses the effective-interest method of amortizing bond discount. At the end of the first year, Holly Ester should report unamortized bond discount of: a. $54,900. b. $57,591. c. $51,610. d. $51,000.

b. $57,591. ($1,000,000 − $938,554)= 61,446 (1,000,000 * 0.09) = 90,000 (938,554*0.10)= 93,855 93855-90000= 3,855 61,446 - 3,855 = 57591

Jackson Inc. reported net income of $186,000 during 2022 and paid dividends of $26,000 on common stock. It also paid dividends on its 10,000 shares of 6%, $100 par value, noncumulative preferred stock. Common stockholders' equity was $1,200,000 on January 1, 2022, and $1,600,000 on December 31, 2022. The company's return on common stockholders' equity for 2022 is: a. 10.0%. b. 9.0%. c. 7.1%. d. 13.3%.

b. 9.0% [$126,000/($1,200,000 + $1,600,000)/2)]

A major disadvantage of a corporation is: limited liability of stockholders. additional taxes. transferable ownership rights. None of the above.

b. Additional taxes are a disadvantage of a corporation. The other choices are advantages of a corporation.

Depreciation is a process of: a. valuation. b. cost allocation. c. cash accumulation. d. appraisal.

b. cost allocation.

When there is a change in estimated depreciation: a. previous depreciation should be corrected. b. current and future years' depreciation should be revised. c. only future years' depreciation should be revised. d. None of the above.

b. current and future years' depreciation should be revised.

Goethe Corporation redeems its $100,000 face value bonds at 105 on January 1, following the payment of interest. The carrying value of the bonds at the redemption date is $103,745. The entry to record the redemption will include a: a. credit of $3,745 to Loss on Bond Redemption. b. debit of $3,745 to Premium on Bonds Payable. c. credit of $1,255 to Gain on Bond Redemption. d. debit of $5,000 to Premium on Bonds Payable.

b. debit of $3,745 to Premium on Bonds Payable.

Thomas is nearing retirement and would like to invest in a stock that will provide a good steady income. Thomas should choose a stock with a: a. high current ratio. b. high dividend payout. c. high earnings per share. d. high price-earnings ratio.

b. high dividend payout.

On January 1, Nicholas Corporation issued $1,000,000, 14%, 5-year bonds with interest payable on December 31. The bonds sold for $1,072,096. The market rate of interest for these bonds was 12%. On the first interest date, using the effective-interest method, the debit entry to Interest Expense is for: a. $120,000. b. $125,581. c. $128,652. d. $140,000.

c. $128,652. $1,072,096 (initial carrying value of bond) × 12% (market rate)

Andrews Inc. issues a $497,000, 10% 3-year mortgage note on January 1. The note will be paid in three annual installments of $200,000, each payable at the end of the year. What is the amount of interest expense that should be recognized by Andrews Inc. in the second year? a. $16,567. b. $49,700. c. $34,670. d. $346,700.

c. $34,670. ($497,000 × 10%). [$497,000 principal − ($200,000 payment − $49,700 interest)] = 346,000 ($346,700* 10%) ($346,700 × 10%) = 34,670

Sampson Corp. purchased a piece of equipment by issuing a $20,000, 6% installment note payable. Quarterly payments on the note are $1,165. What will be the reduction in the principal portion of the note payable that results from the first payment? a. $1,165. b. $300. c. $865. d. $1,200.

c. $865. $1,165 − ($20,000 × 0.06 × 1/4)

Lake Coffee Company reported net sales of $180,000, net income of $54,000, beginning total assets of $200,000, and ending total assets of $300,000. What was the company's asset turnover? a. 0.90 b. 0.20 c. 0.72 d. 1.39

c. 0.72 Asset turnover = Net sales ($180,000)/Average total assets [($200,000 + $300,000)/2]= 0.72

In a recent year, Derek Corporation had net income of $150,000, interest expense of $30,000, and income tax expense of $20,000. What was Derek Corporation's times interest earned for the year? a. 5.00. b. 4.00. c. 6.67. d. 7.50.

c. 6.67. (net income+interest expense+income tax expense)/ interest expense

ABC Corp. issues 1,000 shares of $10 par value common stock at $12 per share. When the transaction is recorded, credits are made to: a. Common Stock $10,000 and Paid-in Capital in Excess of Stated Value $2,000. b. Common Stock $12,000. c. Common Stock $10,000 and Paid-in Capital in Excess of Par Value $2,000. d. Common Stock $10,000 and Retained Earnings $2,000.

c. Common Stock $10,000 and Paid-in Capital in Excess of Par Value $2,000.

Which of these is not a major advantage of a corporation? Separate legal existence. Continuous life. Government regulations. Transferable ownership rights.

c. Government regulations are a disadvantage of a corporation. The other choices are advantages of a corporation.

What term is used for bonds that have specific assets pledged as collateral? a. Callable bonds. b. Convertible bonds. c. Secured bonds. d. Discount bonds.

c. Secured bonds.

To be classified as a current liability, a debt must be expected to be paid within: a. 1 year. b. the operating cycle. c. 2 years. d. (a) or (b), whichever is longer.

d. (a) or (b), whichever is longer.

If a company reports goodwill as an intangible asset on its books, what is the one thing you know with certainty? a. The company is a valuable company worth investing in. b. The company has a well-established brand name. c. The company purchased another company. d. The goodwill will generate a lot of positive business for the company for many years to come.

c. The company purchased another company.

Indicate which one of these statements is true. a. Since intangible assets lack physical substance, they need to be disclosed only in the notes to the financial statements. b. Goodwill should be reported as a contra account in the stockholders' equity section. c. Totals of major classes of assets can be shown in the balance sheet, with asset details disclosed in the notes to the financial statements. d. Intangible assets are typically combined with plant assets and inventory and then shown in the property, plant, and equipment section.

c. Totals of major classes of assets can be shown in the balance sheet, with asset details disclosed in the notes to the financial statements.

A company would minimize its depreciation expense in the first year of owning an asset if it used: a. a high estimated life, a high salvage value, and declining-balance depreciation. b. a low estimated life, a high salvage value, and straight-line depreciation. c. a high estimated life, a high salvage value, and straight-line depreciation. d. a low estimated life, a low salvage value, and declining-balance depreciation.

c. a high estimated life, a high salvage value, and straight-line depreciation.

The return on common stockholders' equity is usually increased by all of the following, except: a. an increase in the return on assets ratio. b. an increase in the use of debt financing. c. an increase in the company's stock price. d. an increase in the company's net income.

c. an increase in the company's stock price.

On January 1, 2022, Kelly Corp. issues $200,000, 5-year, 7% bonds at face value. The entry to record the issuance of the bonds would include a: a. debit to Cash for $14,000. b. debit to Bonds Payable for $200,000. c. credit to Bonds Payable for $200,000. d. credit to Interest Expense of $14,000.

c. credit to Bonds Payable for $200,000.

On January 1, Xiang Corporation issues $500,000, 5-year, 12% bonds at 96 with interest payable on January 1. The entry on December 31 to record accrued bond interest and the amortization of bond discount using the straight-line method will include a: a. debit to Interest Expense $57,600. b. debit to Interest Expense $60,000. c. credit to Discount on Bonds Payable $4,000. d. credit to Discount on Bonds Payable $2,000.

c. credit to Discount on Bonds Payable $4,000. [$500,000 − (96% × $500,000)] = $20,000; $20,000 ÷ 5 = $4,000

Employer payroll taxes do not include: a. federal unemployment taxes. b. state unemployment taxes. c. federal income taxes. d. FICA taxes.

c. federal income taxes.

In the stockholders' equity section of the balance sheet, common stock: a. is listed before preferred stock. b. is added to total capital stock. c. is part of paid-in capital. d. is part of additional paid-in capital.

c. is part of paid-in capital.

The market interest rate: a. is the contractual interest rate used to determine the amount of cash interest paid by the borrower. b. is listed in the bond indenture. c. is the rate investors demand for loaning funds. d. More than one of the above is true.

c. is the rate investors demand for loaning funds.

Howard Corporation issued a 20-year mortgage note payable on January 1, 2022. At December 31, 2022, the unpaid principal balance will be reported as: a. a current liability. b. a long-term liability. c. part current and part long-term liability. d. interest payable.

c. part current and part long-term liability.

When recording payroll: a. gross earnings are recorded as salaries and wages payable. b. net pay is recorded as salaries and wages expense. c. payroll deductions are recorded as liabilities. d. More than one of the above.

c. payroll deductions are recorded as liabilities.

Able Towing Company purchased a tow truck for $60,000 on January 1, 2022. It was originally depreciated on a straight-line basis over 10 years with an assumed salvage value of $12,000. On December 31, 2024, before adjusting entries had been made, the company decided to change the remaining estimated life to 4 years (including 2024) and the salvage value to $2,000. What was the depreciation expense for 2024? a. $6,000. b. $4,800. c. $15,000. d. $12,100.

d. $12,100. {[($60,000 − $12,000)/10 years] × 2 years} = 9600 ($60,000 − $9,600 − $2,000) = 48,400 ($48,400/4) = 12,100

U-Bet Corporation has 10,000 shares of 8%, $100 par value, cumulative preferred stock outstanding at December 31, 2022. No dividends were declared in 2020 or 2021. If U-Bet wants to pay $375,000 of dividends in 2022, common stockholders will receive: $0. $295,000. $215,000. $135,000.

d. $135,000. ($375,000 − $240,000)

Cuso Company purchased equipment on January 1, 2021, at a total invoice cost of $400,000. The equipment has an estimated salvage value of $10,000 and an estimated useful life of 5 years. What is the amount of accumulated depreciation at December 31, 2022, if the straight-line method of depreciation is used? a. $80,000. b. $160,000. c. $78,000. d. $156,000.

d. $156,000. ($400,000 − $10,000)/5 = $78,000 ($78,000 + $78,000) = $156,000

Corrieten Company purchased equipment and incurred these costs: Cash price $24,000 Sales taxes. 1,200 Insurance during transit. 200 Installation and testing. 400 Total costs. $25,800 What amount should be recorded as the cost of the equipment? a. $24,000. b. $25,200. c. $25,400. d. $25,800.

d. $25,800. $1,200 + $200 + $400+ $24,000

Kant Enterprises purchased a truck for $11,000 on January 1, 2021. The truck will have an estimated salvage value of $1,000 at the end of 5 years. If you use the units-of-activity method, the balance in accumulated depreciation at December 31, 2022, can be computed by the following formula: a. ($11,000 ÷ Total estimated activity) × Units of activity for 2022. b. ($10,000 ÷ Total estimated activity) × Units of activity for 2022. c. ($11,000 ÷ Total estimated activity) × Units of activity for 2021 and 2022. d. ($10,000 ÷ Total estimated activity) × Units of activity for 2021 and 2022.

d. ($10,000 ÷ Total estimated activity) × Units of activity for 2021 and 2022.

Which of the following measures provides an indication of how efficient a company is in employing its assets? a. Current ratio. b. Profit margin. c. Debt to assets ratio. d. Asset turnover.

d. Asset turnover.

Which of the following is a measure of liquidity? a. Debt to assets ratio. b. Working capital. c. Current ratio. d. Both working capital and current ratio.

d. Both working capital and current ratio.

Which of these statements is false? Ownership of common stock gives the owner a voting right. The stockholders' equity section begins with paid-in capital. The authorization of capital stock does not result in a formal accounting entry. Legal capital is intended to protect stockholders.

d. Legal capital is intended to protect creditors, not stockholders. The other choices are true statements.

Which of the following statements is false? a. If an intangible asset has a finite life, it should be amortized. b. The amortization period of an intangible asset can exceed 20 years. c. Goodwill is recorded only when a business is purchased. d. Research and development costs are expensed when incurred, except when the research and development expenditures result in a successful patent.

d. Research and development costs are expensed when incurred, except when the research and development expenditures result in a successful patent.

JD Company borrowed $70,000 on December 1 on a 6-month, 12% note. At December 31: neither the note payable nor the interest payable a. is a current liability. b. the note payable is a current liability but the interest payable is not. c. the interest payable is a current liability but the note payable is not. d. both the note payable and the interest payable are current liabilities.

d. both the note payable and the interest payable are current liabilities.

Additions to plant assets are: a. revenue expenditures. b. debited to the Maintenance and Repairs Expense account. c. debited to the Purchases account. d. capital expenditures.

d. capital expenditures.

Prescher Corporation issued bonds that pay interest every January 1. The entry to accrue bond interest at December 31 includes a: a. debit to Interest Payable. b. credit to Cash. c. credit to Interest Expense. d. credit to Interest Payable.

d. credit to Interest Payable.

Entries for cash dividends are required on the: a. declaration date and the record date. b. record date and the payment date. c. declaration date, record date, and payment date. d. declaration date and the payment date.

d. declaration date and the payment date.

Zealot Inc. has retained earnings of $500,000 and total stockholders' equity of $2,000,000. It has 100,000 shares of $8 par value common stock outstanding, which is currently selling for $30 per share. If Zealot declares a 10% stock dividend on its common stock: a. net income will decrease by $80,000. b. retained earnings will decrease by $80,000 and total stockholders' equity will increase by $80,000. c. retained earnings will decrease by $300,000 and total stockholders' equity will increase by $300,000. d. retained earnings will decrease by $300,000 and total paid-in capital will increase by $300,000.

d. retained earnings will decrease by $300,000 and total paid-in capital will increase by $300,000. 10,000*30/share

If everything else is held constant, earnings per share is increased by: a. the payment of a cash dividend to common shareholders. b. the payment of a cash dividend to preferred shareholders. c. the issuance of new shares of common stock. d. the purchase of treasury stock.

d. the purchase of treasury stock.

Preferred stock may have priority over common stock except in: a. dividend preference. b. preference to assets in the event of liquidation. c. cumulative dividends. d. voting.

d. voting.