Problem 1: Which of the following current liabilities is/are a known amount?
A. Unearned Revenue
B. Accounts Payable
C. Payroll Liabilities
D. All of the above are known amounts.
Problem 2: The Fuller Company issued a $500,000, 5-year, 6% bond at par. It is a semiannual bond with interest paid on June 30th and December 31st. The entry to record the sale of the bond would include a:
A. $500,000 credit to Cash.
B. $500,000 credit to Bonds Payable.
C. $30,000 debit to Interest Expense.
D. $500,000 debit to Accounts Payable.
Problem 3: Refer to Problem 2. The entry to record the semiannual interest payment is:
A. Interest Expense 15,000
Cash 15,000
B. Interest Expense 30,000
Cash 30,000
C. Interest Expense 30,000
Interest Payable 30,000
D. Interest Expense 15,000
Interest Payable 15,000
Problem 4: Which of the following is true about a contingent liability:
A. Depends on future outcome of future events.
B. Should not be disclosed in a footnote.
C. Must be disclosed if it is reasonably possible.
D. None of the above
Problem 5: Lei Company is considering financing with debt or stock. Which one of these facts is true for the company?
A. The principal amount must be repaid at the maturity of the stock.
B. Earnings per share will generally be higher when a company is financed with debt rather than stock.
C. "Trading on the equity" means that the business earns less by investing borrowed funds than it pays in interest expense on bonds.
D. Dividends are tax-deductible while interest expense is not tax-deductible.
Problem 6: Hector Sales Co. began operations early this year, selling a product that carries a 1-year warranty; any defective units will be replaced within that time. The product has a cost to Hector Sales of $55 and a selling price of $107. Hector estimates that approximately 1% of the units will be defective. During the year, 62,000 units were sold and 274 units were returned for replacement. What is the balance in Warranty Payable at the end of the current year?
A. $34,100
B. $15,070
C. $53,130
D. $19,030
Problem 7: On January 1st, JK Company issued $400,000, 5-year, 4% bonds. The market rate at the time of the sale was greater than 4% so the bonds were sold at 93. Interest is payable June 30th and December 31st. The entry to record the sale of the bonds would include a:
A. Debit to Cash for $400,000.
B. Debit to Discount on Bonds Payable for $28,000.
C. Credit to Cash for $372,000.
D. Credit to Bonds Payable for $372,000.
Problem 8: Refer to Problem 7. If the JK Company uses the straight-line method to amortize discount on the bonds, the entry to record the first interest payment would include:
A. Credit to Cash for $10,800.
B. Debit to Interest Expense for 8,000.
C. Debit to Interest Expense for $10,800.
D. Debit to Discount on Bonds Payable for $2,800.
Problem 9: On July 1, 2017, a company issued $200,000, 8-year, 4% bonds payable for $186,944, when the market rate of interest was 5%. Interest payment dates are June 30 and December 31. Using the effective interest method of amortization, the December 31, 2017, carrying amount of the bonds (rounded to the closest dollar) will be:
A. $186,270
B. $187,618
C. $199,326
D. $200,000
Problem 10: Which of the following statements is TRUE regarding pension liabilities?
A. If the plan assets exceed the pension liability, the asset and obligation amounts are reported only in the notes to the financial statements.
B. If the market value of the plan assets exceeds the amount of the pension obligation, that excess is reported as a liability.
C. Every business is required by law to provide retirement compensation for its employees.
D. All of the above are true.
Problem 11: Which of the following is/are part of stockholders' equity?
A. Retained earnings
B. Paid-in capital
C. Both A and B.
D. None of the above.
Problem 12: Which of the following is/are true?
A. Preferred stock is usually voting stock.
B. Common stock is usually voting stock.
C. Common dividends are usually paid first, before preferred dividends.
D. Both B and C are true.
Problem 13: B&B Corporation is authorized to sell 60,000 shares of $10 par, 6% cumulative preferred stock and 90,000 shares of $6 par common stock. There are 30,000 shares of preferred stock outstanding and 30,000 shares of common stock outstanding. A $40,000 cash dividend has been declared by the board of directors. No dividends in arrears exist. What is the total amount to be given to the preferred shareholders?
A. $40,000
B. $20,000
C. $36,000
D. $18,000
Problem 14: Refer to Problem 3. What is the common stock dividend per share amount (rounded)?
A. $.733
B. $.367
C. $.244
D. $1.333
Problem 15: Ursula Corporation issued 50,000 shares of $1 par common stock at a price of $10 per share. On June 1, Ursula purchased 2,000 shares of its own stock at a cost of $14 per share. On December 1, Ursula resold all the shares for $16 each. The entry on December 1 would include which of these?
A. Credit to Paid-in Capital from Treasury Stock Transactions, $4,000.
B. Credit to Treasury Stock, $32,000.
C. Credit to Gain on the Sale of Treasury Stock, $4,000.
D. Debit to Cash, $28,000.
Problem 16: Queensboro Corp. issued 1,000 shares of $12 par common stock at $17 per share. Later, the company purchased 300 of these shares from the shareholders. If Queensboro later declares a 15% stock dividend, they should distribute an additional _____ shares:
A. 1,000
B. 105
C. 150
D. 45
Problem 17: Which of the following statements is true regarding stock transactions?
A. Dividends in arrears can apply to both common and preferred stock.
B. The journal entry for a stock split includes a credit to Common Stock.
C. A large stock dividend is recorded at par value.
D. The purchase of treasury stock is recorded in a contra-equity account with a credit balance.
Problem 18: Authorized stock is which of the following?
A. The maximum number of shares the company can issue.
B. The number of shares the company has issued to its stockholders.
C. The number of shares that the stockholders own.
D. The number of shares that will be distributed in a stock dividend.
Problem 19: Ryder Company uses the DuPont model to analyze profitability. Which statement(s) is (are) correct?
A. The correct formula is ROE × Leverage ratio = ROA.
B. ROE should always exceed ROA.
C. The correct formula is ROA × Leverage ratio = ROE.
D. Both B and C are correct.
Problem 20: In calculating total stockholders' equity, which account is included?
A. Discount on Bonds Payable
B. Preferred Stock
C. Accounts Receivable
D. Long-term Investments
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