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1. 1The carrying value of bonds at maturity is always equal to:

   1. Athe amount of cash originally received in exchange for the bonds.
   2. Bthe par value that the issuer pays the holder.
   3. Cthe amount of discount or premium.
   4. Dthe amount of cash originally received in exchange for the bonds plus any unamortized discount or less any premium.
   5. E$0.
2. 2Promissory notes that require the issuer to make a series of payments consisting of both interest and principal are:

   1. ADebentures
   2. BDiscounted notes.
   3. CInstallment notes.
   4. DIndentures.
   5. EInvestment notes.
3. 3A bond traded at 102½ means that:

   1. AThe bond pays 2.5% interest.
   2. BThe bond traded at $1,025 per $1,000 bond.
   3. CThe market rate of interest is 2.5%.
   4. DThe bonds were retired at $1,025 each.
   5. EThe market rate of interest is 2 ½% above the contract rate.
4. 4A company borrowed $50,000 cash from the bank and signed a 6-year note at 7%. The present value of an annuity for 6 years at 7% is 4.7665. The annual annuity payments equal:

   1. A$10,489.88.
   2. B$11,004.88.
   3. C$50,000.00.
   4. D$52,450.00.
   5. E$238,325.00.
5. 5Pitt Corporation's most recent balance sheet reports total assets of $35,000,000 and total liabilities of $17,500,000. Management is considering issuing $5,000,000 of par value bonds (at par) with a maturity date of ten years and a contract rate of 7%. What effect, if any, would issuing the bonds have on the company's debt-to-equity ratio?

   1. AIssuing the bonds would cause the firm's debt-to-equity ratio to improve from 1.0 to 1.3.
   2. BIssuing the bonds would cause the firm's debt-to-equity ratio to worsen from 1.0 to 1.3.
   3. CIssuing the bonds would cause the firm's debt-to-equity ratio to remain unchanged.
   4. DIssuing the bonds would cause the firm's debt-to-equity ratio to improve from .5 to .8.
   5. EIssuing the bonds would cause the firm's debt-to-equity ratio to worsen from .5 to .8.
6. 6A bond sells at a discount when the:

   1. AContract rate is above the market rate.
   2. BContract rate is equal to the market rate.
   3. CContract rate is below the market rate.
   4. DBond has a short-term life.
   5. EBond pays interest only once a year.
7. 7A company issued 5-year, 7% bonds with a par value of $100,000. The company received $97,947 for the bonds. Using the straight-line method, the amount of interest expense for the first semiannual interest period is:

   1. A$3,294.70.
   2. B$3,500.00.
   3. C$3,705.30.
   4. D$7,000.00.
   5. E$7,410.60.
8. 8Adidas issued 10-year, 8% bonds with a par value of $200,000. Interest is paid semiannually. The market rate on the issue date was 7.5%. Adidas received $206,948 in cash proceeds. Which of the following statements is true?

   1. AAdidas must pay $200,000 at maturity and no interest payments.
   2. BAdidas must pay $206,948 at maturity and no interest payments.
   3. CAdidas must pay $200,000 at maturity plus 20 interest payments of $8,000 each.
   4. DAdidas must pay $206,948 at maturity plus 20 interest payments of $8,000 each.
   5. EAdidas must pay $200,000 at maturity plus 20 interest payments of $7,500 each.
9. 9On January 1, a company issues bonds dated January 1 with a par value of $300,000. The bonds mature in 5 years. The contract rate is 9%, and interest is paid semiannually on June 30 and December 31. The market rate is 8% and the bonds are sold for $312,177. The journal entry to record the issuance of the bond is:

   1. ADebit Cash $312,177; credit Discount on Bonds Payable $12,177; credit Bonds Payable $300,000.
   2. BDebit Cash $300,000; debit Premium on Bonds Payable $12,177; credit Bonds Payable $312,177.
   3. CDebit Bonds Payable $300,000; debit Interest Expense $12,177; credit Cash $312,177.
   4. DDebit Cash $312,177; credit Premium on Bonds Payable $12,177; credit Bonds Payable $300,000.
   5. EDebit Cash $312,177; credit Bonds Payable $312,177.
10. 10A company issues 9%, 20-year bonds with a par value of $750,000. The current market rate is 8%. The amount of interest owed to the bondholders for each semiannual interest payment is.

    1. A$60,000.
    2. B$33,750.
    3. C$67,500.
    4. D$30,000.
    5. E$375,000.

11. 11On January 1 of Year 1, Drum Line Airways issued $3,500,000 of par value bonds for $3,200,000. The bonds pay interest semiannually on January 1 and July 1. The contract rate of interest is 7% while the market rate of interest for similar bonds is 8%. The bond premium or discount is being amortized at a rate of $10,000 every six months.
    The amount of interest expense recognized by Drum Line Airways on the bond issue in Year 1 would be:

    1. A$132,500.
    2. B$225,000.
    3. C$265,000.
    4. D$245,000.
    5. E$280,000.
12. 12On January 1, a company issued and sold a $400,000, 7%, 10-year bond payable, and received proceeds of $396,000. Interest is payable each June 30 and December 31. The company uses the straight-line method to amortize the discount. The journal entry to record the first interest payment is:

    1. ADebit Bond Interest Expense $14,000; credit Cash $14,000.
    2. BDebit Bond Interest Expense $28,000; credit Cash $28,000.
    3. CDebit Bond Interest Expense $14,200; credit Cash $14,000; credit Discount on Bonds Payable $200.
    4. DDebit Bond Interest Expense $13,800; debit Discount on Bonds Payable $200; credit Cash $14,000.
    5. EDebit Bond Interest Expense $14,000; debit Discount on Bonds Payable $200; credit Cash $14,200.
13. 13A company issues at par 9% bonds with a par value of $100,000 on April 1. The bonds pay interest semi-annually on January 1 and July 1. The cash received on July 1 by the bond holder(s) is:

    1. A$1,500.
    2. B$3,000.
    3. C$4,500.
    4. D$6,000.
    5. E$7,500.
14. 14A corporation borrowed $125,000 cash by signing a 5-year, 9% installment note requiring equal annual payments each December 31 of $32,136. What journal entry would the issuer record for the first payment?

    1. ADebit Interest Expense $7,136; debit Notes Payable $25,000; credit Cash $32,136.
    2. BDebit Notes Payable $32,136; debit Interest Payable $11,250; credit Cash $43,386.
    3. CDebit Interest Expense $11,250; debit Notes Payable $20,886; credit Cash $32,136.
    4. DDebit Notes Payable $32,136; credit Cash $32,136.
    5. EDebit Notes Payable $11,250; credit Cash $11,250.
15. 15A company purchased equipment and signed a 7-year installment loan at 9% annual interest. The annual payments equal $9,000. The present value of an annuity for 7 years at 9% is 5.0330. The present value of the loan is:

    1. A$9,000.
    2. B$5,033.
    3. C$63,000.
    4. D$57,330.
    5. E$45,297.
16. 16The number of shares that a corporation's charter allows it to sell is referred to as:

    1. AIssued stock.
    2. BOutstanding stock.
    3. CCommon stock.
    4. DPreferred stock.
    5. EAuthorized stock.
17. 17In many states, the minimum amount that stockholders must contribute to the corporation, and which is intended to protect the creditors of the corporation, is called the:

    1. APar value of preferred.
    2. BMinimum legal capital.
    3. CPremium capital.
    4. DStated value.
    5. EWorking capital.
18. 18The total amount of cash and other assets received by a corporation from its stockholders in exchange for its stock is:

    1. AAlways equal to its par value.
    2. BAlways equal to its stated value.
    3. CReferred to as paid-in capital.
    4. DReferred to as retained earnings.
    5. EAlways below its stated value.
19. 19Stockholders' equity consists of:

    1. ALong-term assets.
    2. BPaid-in capital and retained earnings.
    3. CPaid-in capital and par value.
    4. DRetained earnings and cash.
    5. EPremiums and discounts.
20. 20A corporation's minimum legal capital is established by recording the par or stated value of the number of shares:

    1. AIssued
    2. BAuthorized.
    3. CSubscribed
    4. DOutstanding.
    5. EIn treasury.
21. 21Retained earnings:

    1. AGenerally consists of a company's cumulative net income less any net losses and dividends declared since its inception.
    2. BCan only be appropriated by setting aside a cash fund.
    3. CRepresent an amount of cash available to pay shareholders.
    4. DAre never adjusted for anything other than net income or dividends.
    5. EAll of the choices are correct.
22. 22Shamrock Company had net income of $30,000. The weighted-average common shares outstanding were 8,000. The company declared a $2,700 dividend on its noncumulative, nonparticipating preferred stock. There were no other stock transactions. The company's earnings per share is:

    1. A$2.87.
    2. B$2.73.
    3. C$3.41.
    4. D$3.16.
    5. E$3.75.
23. 23Book value per common share is computed by:

    1. AMultiplying the number of common shares outstanding times the market price per common share.
    2. BDividing total assets by the number of shares outstanding.
    3. CDividing stockholders' equity applicable to common shares by the number of common shares outstanding.
    4. DMultiplying the number of common shares outstanding by par value per share.
    5. EDividing the number of common shares outstanding by stockholders' equity applicable to common shares.
24. 24A corporation was formed on January 1. The corporate charter authorized 100,000 shares of $10 par value common stock. During the first month of operation, the corporation issued 300 shares to its attorneys in payment of a $5,000 charge for drawing up the articles of incorporation. The entry to record this transaction would include:

    1. AA debit to Organization Expenses for $3,000.
    2. BA debit to Organization Expenses for $5,000.
    3. CA credit to Common Stock for $5,000.
    4. DA credit to Paid-in Capital in Excess of Par Value, Common Stock for $5,000.
    5. EA debit to Paid-in Capital in Excess of Par Value, Common Stock for $2,000.
25. 25A corporation issued 6,000 shares of its $10 par value common stock in exchange for land that has a market value of $84,000. The entry to record this transaction would include:

    1. AA debit to Common Stock for $60,000.
    2. BA debit to Land for $60,000.
    3. CA credit to Land for $60,000.
    4. DA credit to Paid-in Capital in Excess of Par Value, Common Stock for $24,000.
    5. EA credit to Common Stock for $84,000.
26. 26A corporation issued 5,000 shares of $10 par value common stock in exchange for some land with a market value of $60,000. The entry to record this exchange is:

    1. ADebit Land $60,000; credit Common Stock $50,000; credit Paid-In Capital in Excess of Par Value, Common Stock $10,000.
    2. BDebit Land $60,000; credit Common Stock $60,000.
    3. CDebit Land $50,000; credit Common Stock $50,000.
    4. DDebit Common Stock $50,000; debit Paid-In Capital in Excess of Par Value, Common Stock $10,000; credit Land $60,000.
    5. EDebit Common Stock $60,000; credit Land $60,000.
27. 27The date the directors vote to pay a dividend is called the:

    1. ADate of stockholders' meeting.
    2. BDate of declaration.
    3. CDate of record.
    4. DDate of payment.
    5. ELiquidating date.
28. 28A corporation had 50,000 shares of $20 par value common stock outstanding on July 1. Later that day the board of directors declared a 10% stock dividend when the market value of each share was $27. The entry to record this dividend is:

    1. ADebit Retained Earnings $135,000; credit Common Stock Dividend Distributable $135,000.
    2. BDebit Retained Earnings $135,000; credit Cash $135,000.
    3. CDebit Retained Earnings $135,000; credit Common Stock Dividend Distributable $100,000; credit Paid-In Capital in Excess of Par Value, Common Stock $35,000.
    4. DDebit Retained Earnings $100,000; credit Common Stock Dividend Distributable $100,000.
    5. ENo entry is made until the stock is issued.
29. 29A dividend preference for preferred stock means that:

    1. APreferred stockholders are allocated their dividends before dividends are allocated to common shareholders.
    2. BPreferred shareholders are guaranteed dividends.
    3. CDividends are paid quarterly.
    4. DPreferred stockholders prefer dividends more than common stockholders.
    5. EDividends must be declared on preferred stock.
30. 30Short-term investments:

    1. AAre securities that management intends to convert to cash within the longer of one year or the current operating cycle, and are readily convertible to cash.
    2. BInclude funds earmarked for a special purpose such as bond sinking funds.
    3. CInclude stocks not intended to be converted into cash.
    4. DInclude bonds not intended to be converted into cash.
    5. EInclude sinking funds not intended to be converted into cash.
31. 31NSC Corporation has invested in 10% of the outstanding stock of VC Corporation. NSC intends to actively manage this investment for profit. This investment is classified as:

    1. AAn available-for-sale security.
    2. BA held-to-maturity security.
    3. CA trading security.
    4. DA significant influence security.
    5. EA controlling influence security.
32. 32At acquisition, debt securities are:

    1. ARecorded at their cost, plus total interest that will be paid over the life of the security.
    2. BRecorded at the amount of interest that will be paid over the life of the security.
    3. CRecorded at cost.
    4. DNot recorded, because no interest is due yet.
    5. ERecorded at cost plus the amount of dividend income to be received.
33. 33A company owns 9% bonds with a par value of $100,000 that pay interest on October 1 and April 1. The amount of interest accrued on December 31 (the company's year-end) would be:

    1. A$750.
    2. B$1,500.
    3. C$2,250.
    4. D$4,500.
    5. E$9,000.
34. 34Everrine Corporation owns 3,000 shares of JRW Corporation. JRW Corporation has 25,000 shares of stock outstanding. JRW paid $4 per share in cash dividends to its stockholders. The entry to record the receipt of these dividends is:

    1. ADebit Cash, $12,000; credit Long-Term Investments, $12,000.
    2. BDebt Long-Term Investment, $12,000; credit Cash, $12,000.
    3. CDebit Cash, $12,000; credit Dividend Revenue, $12,000.
    4. DDebit Unrealized Gain-Equity, $12,000; credit Cash, $12,000.
    5. EDebit Cash, $12,000; credit Unrealized Gain-Equity, $12,000.
35. 35A company paid $37,800 plus a broker's fee of $525 to acquire 8% bonds with a $40,000 maturity value. The company intends to hold the bonds to maturity. The cash proceeds the company will receive when the bonds mature equal:

    1. A$37,800.
    2. B$38,325.
    3. C$40,000.
    4. D$40,525.
    5. E$43,200.
36. 36The price of one currency stated in terms of another currency is called a(n):

    1. AForeign exchange rate.
    2. BCurrency transaction.
    3. CHistorical exchange rate.
    4. DInternational conversion rate.
    5. ECurrency rate.
37. 37If the exchange rate for Canadian and U.S. dollars is 0.82777 to 1, this implies that 3 Canadian dollars will buy ____ worth of U.S. dollars.

    1. A$0.2759
    2. B$0.82777
    3. C$1.82777
    4. D$2.48
    5. E$1.00
38. 38Doherty Corporation had net income of $30,000, net sales of $1,000,000, and average total assets of $500,000. Its return on total assets is:

    1. A3%.
    2. B200%.
    3. C6%.
    4. D17%.
    5. E1.5%.
39. 39Investments in debt and equity securities that the company actively manages and trades for profit are referred to as short-term investments in:

    1. AAvailable-for-sale securities.
    2. BHeld-to-maturity securities.
    3. CTrading securities.
    4. DRealizable securities.
    5. ELiquid securities.
40. 40A decrease in the fair value of a security that has not yet been realized through an actual sale of the security is called a(n):

    1. AContingent loss.
    2. BRealizable loss.
    3. CUnrealized loss.
    4. DCapitalized loss.
    5. EMarket loss.
41. 41Available-for-sale debt securities are:

    1. ARecorded at cost and remain at cost over the life of the investment.
    2. BReported at historical cost, adjusted for the amortized amount of any difference between cost and maturity value.
    3. CReported at fair value on the balance sheet.
    4. DIntended to be held to maturity.
    5. EAlways classified with Long-Term Liabilities.
42. 42Six months ago, a company purchased an investment in stock for $65,000. The investment is classified as available-for-sale securities. The current fair value of the stock is $68,500. The company should record a:

    1. ADebit to Unrealized Loss-Equity for $3,500.
    2. BCredit to Unrealized Gain-Equity for $3,500.
    3. CDebit to Investment Revenue for $3,500.
    4. DCredit to Market Adjustment - Available-for-Sale for $3,500.
    5. ECredit to Investment Revenue for $3,500.
43. 43If a company owns more than 20% of the stock of another company and the stock is being held as a long-term investment, which method would the investor normally use to account for this investment?

    1. AEquity method.
    2. BFair value method.
    3. CHistorical cost method.
    4. DCost with amortization method.
    5. EEffective method.
44. 44Micron owns 35% of Martok. Martok pays a total of $47,000 in cash dividends for the period. Micron's entry to record the dividend transaction would include a:

    1. ACredit to Long-Term Investments for $16,450.
    2. BDebit to Long-Term Investments for $16,450.
    3. CDebit to Cash for $47,000.
    4. DCredit to Cash for $16,450.
    5. ECredit to Investment Revenue for $47,000.
45. 45Parris Corporation purchased 40% of Samitz Corporation for $100,000 on January 1. On November 17 of the same year, Samitz Corporation declared total cash dividends of $12,000. At year-end, Samitz Corporation reported net income of $60,000. The balance in the Parris Corporation's Long-Term Investment-Samitz account at December 31 should be:

    1. A$80,800.
    2. B$100,000.
    3. C$95,200.
    4. D$119,200.
    5. E$124,000.

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Quiz on Untitled, created by annabananarae on 13/12/2014.

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