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Question(s) / Instruction(s):

Question1

A corporation sold 14,000 shares of its $10 par value common stock at a cash price of $13 per share. The entry to record this transaction would include:

a. A debit to Contributed Capital in Excess of Par Value, Common Stock for $42,000.        

b. A debit to Cash for $140,000.

c. A credit to Common Stock for $182,000.           

d. A credit to Common Stock for $140,000.          

e. A credit to Contributed Capital in Excess of Par Value, Common Stock for $182,000.    

 

Question2

Operating leases differ from capital leases in that

a. For a capital lease the lessee records the lease payments as rent expense, but for an operating lease the lessee reports the lease payments as depreciation expense.   

b. For an operating lease the lessee depreciates the asset acquired under lease, but for the capital lease the lessee does not.       

c. Operating leases create a long-term liability on the balance sheet, but capital leases do not.   

d. Operating leases do not transfer ownership of the asset under the lease, but capital leases often do.               

e. Operating lease payments are generally greater than capital lease payments.               

 

Question3

The Discount on Bonds Payable account is:

a. A liability.       

b. A contra liability.         

c. An expense. 

d. A contra expense.     

e. A contra equity.          

 

Question4

The total amount of stock that a corporation's charter allows it to issue is referred to as:

a. Issued stock.

b. Outstanding stock.    

c. Common stock.           

d. Preferred stock.         

e. Authorized Stock.      

 

Question5

The market value of a bond is equal to:

a. The present value of all future cash payments provided by a bond.    

b. The present value of all future interest payments provided by a bond.             

c. The present value of the principal for an interest-bearing bond.           

d. The future value of all future cash payments provided by a bond.       

e. The future value of all future interest payments provided by a bond.

 

Question6

Stockholders' equity consists of :

a. Long-term assets.      

b. Contributed capital and retained earnings.     

c. Contributed capital and par value.      

d. Retained earnings and cash. 

e. Premiums and discounts.       

 

Question7

Corporations often buy back their own stock:

a. To avoid a hostile take-over. 

b. To have shares available for a merger or acquisition. 

c. To have shares available for employee compensation.              

d. To maintain market value for the company stock.       

e. All of the above.              

 

Question8

The total amount of cash and other assets received by a corporation from its stockholders in exchange for common stock is:

a. Always equal to its par value.

b. Always equal to its stated value.         

c. Referred to as contributed capital.     

d. Referred to as retained earnings.       

e. Always below its stated value.             

 

Question9

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.      

 

Question10

When a bond sells at a premium:

a. The contract rate is above the market rate.    

b. The contract rate is equal to the market rate.               

c. The contract rate is below the market rate.    

d. It means that the bond is a zero coupon bond.             

e. The bond pays no interest.    

 

Question11

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.          

 

Question12

The date a board of directors votes to pay a dividend is called the:

a. Date of stockholders' meeting.            

b. Date of declaration.  

c. Date of record.            

d. Date of payment.      

e. Liquidating date.        

 

Question13

The right of common shareholders to protect their proportionate interest in a corporation by having the first opportunity to buy additional proportionate shares of common stock issued by the corporation is called a:

a. Preemptive right.       

b. Proxy right.   

c. Right to call.  

d. Financial leverage.     

e. Voting right. 

 

Question14

A company issues at par 7% bonds with a par value of $500,000 on December 1. How much total cash interest is received on May 1 the following year by the bond holder?

a. $ 0     

b. $ 2,916.66      

c. $14,583.33     

d. $17,500.00     

e. $35,000.00     

 

Question15

A bond traded at 102 ½ 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. 

 

Question16

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.   

 

Question17

On December 1, Martin Company signed a $5,000 3-month 6% note payable, with the principle plus interest due on March 1 of the following year. What amount of interest expense is accrued at December 31 on the note?

a. $0      

b. $25   

c. $50    

d. $75   

e. $300 

 

Question18

The carrying value of a long-term note payable:

a. Is computed as the future value of all remaining future payments, using the market rate of interest. 

b. Is the face value of the long-term note less the total of all future interest payments.

c. Is computed as the present value of all remaining future payments, discounted using the market rate of interest at the time of issuance.             

d. Is computed as the present value of all remaining interest payments, discounted using the note's rate of interest.     

e. Decreases each time period the discount on the note is amortized.   

 

Question19

A contingent liability:

a. Is always of a specific amount.             

b. Is a potential obligation that depends on a future event arising out of a past transaction or event.      

c. Is an obligation not requiring future payment.              

d. Is an obligation arising from the purchase of goods or services on credit.         

e. Is an obligation arising from a future event.   

 

Question20

The distribution of assets to stockholders is called a(n):

a. Liability.          

b. Dividend.       

c. Expense.        

d. Contribution.               

e. Investment. 

 

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