1) A company's board of directors votes to declare a cash dividend of 75¢ per share. The company has 15,000 shares authorized, 10,000 issued, and 9,500 shares outstanding. The total amount of the cash dividend is:
a. $ 375.
b. $ 4,125.
c. $ 7,125.
d. $ 7,500.
e. $11,250.
2) Xtreme Sports has $100,000 of 8% noncumulative, nonparticipating, preferred stock outstanding. Xtreme Sports also has $500,000 of common stock outstanding. In the company's first year of operation, no dividends were paid. During the second year, Xtreme Sports paid cash dividends of $30,000. This dividend should be distributed as follows:
a. $8,000 preferred; $22,000 common.
b. $16,000 preferred; $14,000 common.
c. $7,500 preferred; $22,500 common.
d. $15,000 preferred; $15,000 common.
e. $0 preferred; $30,000 common.
3) A company has 1,000 shares of $50 par value, 4.5% cumulative and nonparticipating preferred stock and 10,000 shares of $10 par value common stock outstanding. The company paid total cash dividends of $1,000 in its first year of operation. The cash dividend that must be paid to preferred stockholders in the second year before any dividend is paid to common stockholders is:
a. $1,000.
b. $1,250.
c. $2,250.
d. $3,500.
e. $4,500.
4) Prior to June 1, a company has never had any treasury stock transactions. A company repurchased 100 shares of its common stock on June 1 for $5,000. On July 1, it reissued 50 of these shares at $52 per share. On August 1, it reissued the remaining treasury shares at $49 per share. What is the balance in the Paid-in Capital, Treasury Stock account on August 2?
a. $5,050.
b. $2,600.
c. $100.
d. $50.
e. $0.
5) A bond traded at 102½ means that:
a. The bond pays 2.5% interest.
b. The bond traded at $1,025 per $1,000 bond.
c. The market rate of interest is 2.5%.
d. The bonds were retired at $1,025 each.
e. The market rate of interest is 2 ½ % above the contract rate.
6) A company must repay the bank $10,000 cash in 3 years for a loan it entered into. The loan is at 8% interest compounded annually. The present value factor for 3 years at 8% is 0.7938. The present value of the loan is:
a. $10,000.
b. $12,400.
c. $ 7,938.
d. $ 9,200.
e. $ 7,600.
7) A company borrowed $300,000 cash from the bank by signing a 5-year, 8% installment note. The present value of an annuity at 8% for 5 years is 3.9927. Each annuity payment equals $75,137. The present value of the note is:
a. $ 75,137.
b. $ 94,013.
c. $ 300,000.
d. $ 375,685.
e. $1,197,810.
8) A 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 $10,490. The present value of the loan is:
a. $ 10,490.
b. $ 11,004.
c. $ 50,000.
d. $ 52,450.
e. $238,325.
9) A 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:
a. $ 9,000.
b. $ 5,033.
c. $63,000.
d. $57,330.
e. $45,297.
10) A bondholder that owns a $1,000, 10%, 10-year bond has:
a. Ownership rights.
b. The right to receive $10 per year until maturity.
c. The right to receive $1,000 at maturity.
d. The right to receive $10,000 at maturity.
e. The right to receive dividends of $1,000 per year.
11) Pitt 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?
a. Issuing the bonds would cause the firm's debt-to-equity ratio to improve from 1.0 to 1.3.
b. Issuing the bonds would cause the firm's debt-to-equity ratio to worsen from 1.0 to 1.3.
c. Issuing the bonds would cause the firm's debt-to-equity ratio to remain unchanged.
d. Issuing the bonds would cause the firm's debt-to-equity ratio to improve from .5 to .8.
e. Issuing the bonds would cause the firm's debt-to-equity ratio to worsen from .5 to .8.
12) Tart Company's most recent balance sheet reports total assets of $42,000,000, total liabilities of $16,000,000 and stockholders' equity of $26,000,000. Management is considering using $3,000,000 of excess cash to prepay $3,000,000 of outstanding bonds. What effect, if any, would prepaying the bonds have on the company's debt-to-equity ratio?
a. Prepaying the debt would cause the firm's debt-to-equity ratio to improve from .62 to .50.
b. Prepaying the debt would cause the firm's debt-to-equity ratio to improve from .62 to .57.
c. Prepaying the debt would cause the firm's debt-to-equity ratio to worsen from .62 to .50.
d. Prepaying the debt would cause the firm's debt-to-equity ratio to worsen from .62 to .57.
e. Prepaying the debt would cause the firm's debt-to-equity ratio to remain unchanged.
13) A company issues 9%, 20-year bonds with a par value of $750,000. The current market rate is 9%. The amount of interest owed to the bondholders for each semiannual interest payment is.
a. $ 0.
b. $ 33,750.
c. $ 67,500.
d. $ 750,000.
e. $1,550,000.
14) On 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 company's December 31, Year 1 balance sheet should reflect total liabilities associated with the bond issue in the amount of:
a. $3,220,000.
b. $3,342,500.
c. $3,097,500.
d. $3,780,000.
e. $3,902,500.
15) On 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:
a. $132,500.
b. $225,000.
c. $265,000.
d. $245,000.
e. $280,000.
16) On 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 using the straight-line method at a rate of $10,000 every six months.
The life of these bonds is:
a. 15 years.
b. 30 years.
c. 26.5 years.
d. 32 years
e. 35 years.
17) A 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:
a. $3,294.70.
b. $3,500.00.
c. $3,705.30.
d. $7,000.00.
e. $7,410.60.
18) A company issued 7%, 5-year bonds with a par value of $100,000. The market rate when the bonds were issued was 7.5%. The company received $97,947 cash for the bonds. Using the effective interest method, the amount of interest expense for the first semiannual interest period is:
a. $3,500.00.
b. $3,673.01.
c. $3,705.30.
d. $7,000.00.
e. $7,346.03.
19) Adidas 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 point)
a. Adidas must pay $200,000 at maturity and no interest payments.
b. Adidas must pay $206,948 at maturity and no interest payments.
c. Adidas must pay $200,000 at maturity plus 20 interest payments of $8,000 each.
d. Adidas must pay $206,948 at maturity plus 20 interest payments of $8,000 each.
20) A company received cash proceeds of $206,948 on a bond issue with a par value of $200,000. The difference between par value and issue price for this bond is recorded as a:
a. Credit to Interest Income.
b. Credit to Premium on Bonds Payable.
c. Credit to Discount on Bonds Payable.
d. Debit to Premium on Bonds Payable.
e. Debit to Discount on Bonds Payable.
21) A company issues at par 9% bonds with a par value of $100,000 on April 1, which is 4 months after the most recent interest date. How much total cash interest is received on April 1 by the bond issuer?
a. $ 750.
b. $5,250.
c. $1,500.
d. $3,000.
e. $6,000.
22) A 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. How much total cash interest is received on July 1 by the bond holder?
a. $1,500.
b. $3,000.
c. $4,500.
d. $6,000.
e. $7,500.
23) A company issued 5-year, 7% bonds with a par value of $100,000. The market rate when the bonds were issued was 6.5%. The company received $101,137 cash for the bonds. Using the straight-line method, the amount of recorded interest expense for the first semiannual interest period is:
a. $3,386.30.
b. $3,500.00.
c. $3,613,70.
d. $6,633.70.
e. $7,000.00.
24) A company issued 5-year, 7% bonds with a par value of $100,000. The market rate when the bonds issued was 6.5%. The company received $101,137 cash for the bonds. Using the effective interest method, the amount of recorded interest expense for the first semiannual interest period is:
a. $3,500.00,
b) $7,000.00,
c)$3,286.95,
d)$6,573.90
e)$1,750.00