1 bond purchasers

Question

1. Bond purchasers will

• always pay the face value to purchase a bond
• may pay more or less than face value to purchase a bond
• not know the amount they are paying for the bond
• none of the above

2. Bond interest rates

• must be adjustable
• must be fixed
• can be adjustable or fixed
• none of the above

3. Bonds differ from stocks in that they

• are classified as a debt
• must be repaid
• have a maturity date
• all of the above

4. Which of the following is not a disadvantage of raising capital through the issue of bonds payable?

• the bonds are classified as a long-term liability
• interest must be paid even if the firm suffers a loss
• the face amount must be repaid at maturity
• interest is deductible for income tax purposes

5. Bonds with a face value of $400,000 were issued at 98. The entry to record the issuance will include a debit to the Cash account for

• $408,000.
• $400,000.
• $398,000.
• $392,000.

6. The corporation must maintain a subsidiary ledger showing who owns the bonds and is entitled to receive interest payments if the bonds are

• coupon bonds.
• registered bonds.
• bearer bonds.
• unregistered bonds.

7. Bonds with a face value of $400,000 were issued at 98. The entry to record the issuance will include a credit to the Bonds Payable account for

• $408,000.
• $392,000.
• $400,000.
• $398,000.

8. Bonds with a face value of $400,000 were issued at 98. The entry to record the issuance will include a debit to the Discount on Bonds Payable account for

• $2,000.
• $4,000.
• $6,000.
• $8,000.

9. The issuing corporation ___________________ the bond discount from the date of issue to the maturity date. Here a bond issued at a discount will increases the bond interest expense shown on the income statement

• records
• discounts
• omits
• amortizes

10 If bonds are issued for a price below their face value, the bond discount should be

• charged to expense on the date the bonds are issued.
• amortized over the life of the bond issue.
• shown as an addition to Bonds Payable in the Long-Term Liabilities section of the balance sheet.
• shown as a current liability on the balance sheet.

11. The amortization of the bond discount __________ the carrying value of the bond, while the amortization of the bond premium __________ the carrying value of the bond.

• decreases, increases
• increases, decreases
• increases, increases
• decreases, decreases

12. On December 31, 2013, a corporation issued $200,000 face value, 12 percent bonds that mature 10 years from the date of issue. The issue price was 103. If the firm uses the straight-line method of amortization, interest expense for 2014 will be reported at

• $24,600.
• $24,000.
• $23,400.
• $19,400.

13. A bond sinking fund investment is started on January 5, 2013, by transferring $12,000 in cash to the fund. This $12,000 is invested and earns $1,500 during 2013. On January 5, 2014, the amount of cash transferred to the sinking fund investment will be

• $10,500.
• $12,000.
• $13,500.
• $1,500.

14. Retained Earnings Appropriated for Bond Retirement appears as a separate line item

• on the Income Statement.
• on the Balance Sheet.
• on the Bond Interest Reconciliation Schedule.
• on the Statement of Cash Flows.

15. A bond sinking fund investment is started on January 5, 2013, by transferring $10,000 in cash to the fund. This $10,000 is invested and earns $1,100 during 2013. The entry to record the earnings made on the sinking fund investment includes

• a debit to Cash for $1,100 and a credit to Income from Sinking Fund Investment for $1,100.
• a debit to Cash for $1,100 and a credit to Bond Sinking Fund Investment for $1,100.
• a debit to Bond Sinking Fund Investment for $1,100 and a credit to Income from Sinking Fund Investment for $1,100.
• a debit to Cash for $1,100 and a credit to Interest Income for $1,100.

16. Twee Corporation creates a bond sinking fund on July 1, 2013, the first day of its fiscal year in preparation of payment of principal of $300,000 due in six years. Twee makes a $50,000 cash deposit into the account and invests it in an oil stock fund. During the year, $4,400 is earned on this investment. Fund administrative expenses for this fund amount to $50. What is the journal entry to record earnings on this investment?

• debit Bond Sinking Fund Investment for $4,400 and credit Income from Sinking Fund Investment for $4,400
• debit Bond Sinking Fund Investment for $4,350 and credit Income from Sinking Fund Investment for $4,350
• debit Bond Sinking Fund Investment for $4,350, debit Administrative Expenses for $50 and credit Income from Sinking Fund Investment $4,400
• None of the above

17. A planned fund established to accumulate assets to pay off bonds when they mature is called a bond ____________________ fund investment.

• planning
• repayment
• sinking
• none of the above

18. Which of the following statements is correct?

• Market value is the figure selected by the organizers of the corporation to be assigned to each share of stock for accounting purposes.
• If there is only one class of stock, the stock is called preferred stock.
• The authorized capital stock is the number of shares that have been issued and are still in the hands of stockholders.
• In the event of liquidation, preferred stockholders have a claim on assets before that of common stockholders.

19. Subchapter S corporations

• have the disadvantage of double taxation.
• require that shareholders report their share of profits on their partnership tax returns.
• have the advantage that shareholders can take part in policy and operating decisions.
• are entities formed as corporations but are treated essentially as a partnership so the corporation pays no income tax.

20. Which of the following statements is correct?

• Shareholders have personal liability for a corporation's debts.
• Shareholders must obtain the consent of other shareholders to sell their shares or buy more shares.
• Limited liability partnership (LLP) partners have liability for their own actions and the actions of those under their control or supervision.
• Shareholders are legally prohibited from acting as an officer or employee of a corporation.

21. Santorini Corporation has outstanding 300,000 shares of $70 par-value preferred stock, issued at an average price of $84 a share. The preferred stock is convertible into common stock at the rate of four shares of common stock for each share of preferred stock. Maryann Miller owns 880 shares of the preferred stock. During the current year she decides to convert 220 shares into common stock.

How many shares of common stock will she receive?

• 220 shares
• 880 shares
• 300,000 shares
• 1,200,000 shares

22. The Maynard Corporation has outstanding 10,000 shares of 10 percent, $50 par-value, cumulative, nonparticipating preferred stock and 80,000 shares of $10 par-value common stock. The board of directors voted to distribute $40,000 as dividends in 2013, $55,000 in 2014, and $65,000 in 2012.

What is the total dividend paid to preferred stockholders in 2013?

• $10,000
• $20,000
• $30,000
• $40,000

23. A corporation has 4,000 shares of 5 percent, $100 par-value preferred stock and 50,000 shares of $2 par-value common stock outstanding. If the board of the directors decides to distribute dividends totaling $100,000, the common stockholders will receive a dividend of

• $1.00 a share.
• $1.60 a share.
• $2.00 a share.
• $2.40 a share.

24. A corporation received a subscription for 200 shares of 10 percent, $100 par-value preferred stock at $103 a share. The entry to record this transaction consists of a debit to Subscriptions Receivable-Preferred for $20,600 and a credit to

• Preferred Stock for $20,000 and a credit to Retained Earnings for $600.
• Preferred Stock Subscribed for $20,000 and a credit to Gain on Sale of Preferred Stock for $600.
• Preferred Stock Subscribed for $20,000 and a credit to Paid-in Capital in Excess of Par Value-Preferred Stock for $600.
• Preferred Stock Subscribed for $20,600.

25. An investor agrees to pay a preferred stock subscription in two monthly installments. Each collection will include a debit to Cash and a credit to

• Preferred Stock.
• Preferred Stock Subscribed.
• Subscriptions Receivable-Preferred.
• Common Stock Subscribed.

26. The entry to record the issuance of 500 shares of $10 par-value common stock for $14 a share consists of a debit to Cash for $7,000 and a credit to Common Stock for

• $5,000 and a credit to Treasury Stock for $2,000.
• $5,000 and a credit to Paid-in Capital in Excess of Par Value-Common Stock for $2,000.
• $5,000 and a credit to Gain on Sale of Common Stock for $2,000.
• $7,000.

27. Which of the following statements is not correct?

• The Paid-in Capital in Excess of Par Value-Common Stock account appears in the Stockholders' Equity section of the balance sheet.
• The Subscriptions Receivable account is shown in the Stockholders' Equity section of the balance sheet.
• The balance of the Common Stock account appears in the Stockholders' Equity section of the balance sheet.
• The balance of the Preferred Stock account appears in the Stockholders' Equity section of the balance sheet.

28. The net income reported for federal income tax purposes

• must be the same as reported for financial accounting purposes
• can be different that net income reported for financial accounting purposes
• is not reported to the IRS
• none of the above

29. The Paid-in Capital in Excess of Par Value-Preferred Stock account would be shown in the

• Assets section of the balance sheet.
• Stockholders' Equity section of the balance sheet.
• Revenue section of the income statement.
• Expense section of the income statement.

30. After all revenue and expense accounts, other than Income Tax Expense, have been extended to the Income Statement section of the worksheet of Carlton Corporation, the net income is determined to be $50,000. Using the following corporate income tax rates, compute the corporation's federal income taxes payable. (Assume that the firm's taxable income is the same as its income for financial accounting purposes.)

Taxable Income Tax Rate
First $50,000 15%
Next $25,000 25%
Next $25,000 34%
Next $235,000 39%
Over $335,000 See IRS Publication

• $0
• $3,250
• $7,500
• None of the above

31. When closing Income Summary for a corporation, the balance is transferred to

• Stockholders' Equity
• Retained Earnings
• Cash
• None of the above

32. A corporation has paid estimated income taxes of $57,500 during the year 2013. At the end of the year, the corporation's tax bill is computed to be $52,100. The journal entry to record the adjustment would be:

• Debit Income Tax Refund $5,400; credit Income Tax Expense $5,400
• Debit Income Tax Expense $5,400; credit Income Tax Payable $5,400
• Debit Income Tax Refund $5,400; credit Cash $5,400
• None of the above

33. The entry to record the declaration of a cash dividend consists of a debit to

• Dividend Expense and a credit to Cash.
• Retained Earnings and a credit to Common Stock Dividend Distributable.
• Dividends Payable and a credit to Retained Earnings.
• Retained Earnings and a credit to Dividends Payable.

34. Total stockholders' equity would be decreased by

• a stock split.
• an appropriation of retained earnings.
• a cash dividend.
• a stock dividend.

35. A corporation reported a net income of $90,000 for its fiscal year and declared and paid cash dividends of $60,000. A stock dividend recorded at $30,000 was also distributed during the year. If the beginning balance of the Retained Earnings account was $140,000, the ending balance is

• $230,000.
• $170,000.
• $140,000.
• $130,000.

36. An example of real property is

• machinery.
• factory equipment.
• computer equipment.
• buildings.

37. The cost of an intangible asset

• should be immediately charged to expense if the cost was incurred to develop the intangible asset.
• should be immediately charged to expense whether the intangible asset was developed internally or purchased.
• should be recorded as an asset whose cost, like the cost of land, will not be allocated to expense.
• should be charged to expense over the life of the intangible asset.

38. What is the journal entry to record the following transaction?

• Purchased office equipment for $6,000. The freight charge was $48 and installation charge was $200
• debit office equipment 6,000, debit freight expense $48, debit installation expense $200; credit Cash 6,248
• debit office equipment 6,200, debit freight expense 48 and credit cash 6,248
• debit office equipment 6,248; credit cash 6,248
• none of the above

39. Which of the following is NOT a class under MACRS for personal property?

• 5 year class
• 7 year class
• 10 year class
• 27.5 year class

40. A firm purchases an asset for $50,000 and estimates that it will have a useful life of five years and a salvage value of $5,000. Under the straight-line method, the balance in the accumulated deprecation account, after the second year, will be

• $9,000
• $18,000
• $10,000
• $20,000

41. An asset that cost $25,000 was sold for $8,000 cash. Accumulated depreciation on the asset was $16,000. The entry to record this transaction includes the recognition of

• a gain of $8,000.
• a loss of $1,000.
• neither a gain nor a loss.
• a gain of $1,000.

42. An asset that cost $14,000 was sold for $9,000 cash. Accumulated depreciation on the asset was $7,000. The entry to record this transaction includes the recognition of

• a gain of $2,000.
• a loss of $5,000.
• neither a gain nor a loss.
• a loss of $2,000.

43. When journalizing the sale of Office Furniture

• Cash is the only account debited
• Cash and Accumulated Depreciation-Office Furniture are debited
• Accumulated Depreciation is credited
• Office Furniture is debited

44. In 2013 a mining company paid $150,000 for mining rights. It is estimated that a total of 200,000 tons of ore are available to be extracted. During 2013, 18,000 tons of ore were mined. What is the amount of Depletion Expense recorded in the adjusting entry for 2013?

• $24,000
• $13,500
• $150,000
• none of the above

45. The allocation of the costs of natural resources, such as minerals, to the units produced is referred to as

• depreciation
• depletion
• amortization
• salvage value

46. C Coal Company purchased the coal rights in an area for $4,050,000. They estimated that the area contained 9,000,000 tons of coal. The first year of operations in the area yielded 110,000 tons of coal. What is the depletion for the first year?

• $4,050,00
• $49,500
• $244,200
• None of the above

47. An impairment has been recorded on an asset. It is later sold for a gain. Which of the following is false?

• The sale of the asset is recorded as any other sale
• The amount charged-off is reinstated prior to recording the sale
• The gain is recorded
• None of the above is false - all are true.

48. Impairment

• does not need to be recorded in the journal
• must be recorded in the journal
• is noted but not recorded
• none of the above

49. All of the following refer to the handling of a decline in value of property, plant, and equipment except

• depreciation.
• impairment.
• realization principle.
• conservatism constraint.

50. Information about the Maxwell Company's inventory of one item during 2013 is given below.

	Units	Unit Cost
Beginning Inventory, Jan 1, 2013	80	$24
Purchases:
March 2013	45	$24
July 2013	75	$22
November 2013	100	$21
Ending Inventory, Dec 31, 2013	55

Compute the cost of goods sold under the average cost method

• $6,750
• $5,430
• $5,512.50
• $5,595

51. The weighted average cost of an inventory item is calculated by

• dividing the sum of the unit cost on the purchase invoices by the number of units purchased.
• dividing the cost of goods available for sale by the number of units on the ending inventory.
• dividing the cost of goods available for sale by the number of units available during the period.
• dividing the cost of goods sold by the number of units available during the period.

52. A firm that sells a single product had a beginning inventory of 4,000 units with a total cost of $16,000. Early in the year, 8,000 units were purchased at $6 each. Using LIFO, what is the value of the ending inventory of 2,000 units?

• $12,000
• $10,000
• $8,000
• $24,000

53. A price reduction below the original markon is ________________.

• markup
• profit
• markdown
• price

54. The ________________ method of inventory costing must be used for financial accounting purposes if it is chosen for federal income tax purposes.

• LIFO
• FIFO
• Average Cost
• Specific Identification

55. If other items remain the same, the larger the ending inventory valuation, the

• higher the cost of goods sold.
• higher the reported net income.
• lower the reported gross profit on sales.
• lower the reported net income.

56. The Lower of Cost or Market rule is based on which accounting principle?

• conservatism
• revenue recognition
• matching
• full disclosure

57. Which of the following is NOT a way to apply the lower of cost or market rule?

• by item
• by size
• in total
• by group

58.

Description	Quantity	Unit Cost	Market Value
Department A:
Model XP 235	50	$22.90	$21.50
Model XP 376	75	$26.75	$25.00
Model XP 522	60	$20.00	$21.00
Department B:
Model ZY 1141	15	$75.00	$75.00
Model ZY 232	24	$100.00	$92.00
Model ZY 183	12	$145.00	$142.50

What is the lower of total cost or total market by department?

• $9,193
• $9,253
• $9,000
• none of the above

59. The ____________________ method of estimating ending inventory involves estimating the cost of goods sold by applying a company's cost/sales ratio to its sales for the current period.

• lower of cost or market
• LIFO
• average cost
• gross profit

60. The gross profit method of determining ending inventory cost

• can be used without taking a physical count of merchandise.
• provides accurate information about the number of units in inventory.
• requires that a firm keep inventory and purchases data at retail value as well as at cost.
• requires that the inventory be classified into groups of items of about the same rate of mark on.

61. The merchandise available for sale cost a company $90,000 and was marked to sell at a retail price of $125,000. Sales during the period totaled $80,000. If the retail method is used, the estimated cost of the ending inventory is

• $32,400.
• $12,600.
• $22,400.
• $45,000.

62. The merchandise available for sale cost a company $90,000 and was marked to sell at a retail price of $125,000. Sales during the period totaled $80,000. If the retail method is used, the estimated cost of the ending inventory is

• $32,400
• $12,600
• $22,400
• $45,000

63. The difference between the cost and the initial retail price of merchandise is

• markup.
• markon.
• markdown.
• market price

64. Cost ratio is calculated by

• dividing merchandise available for sale at cost by merchandise available for sale at retail.
• dividing merchandise available for sale at retail by merchandise available for sale at cost.
• dividing net retail sales by the cost of the merchandise sold.
• dividing the cost of merchandise sold by net retail sales.