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158 Cards in this Set
- Front
- Back
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An unsecured bond is usually called an indenture.
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False
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The use of financial leverage by a company does not result in increased risk for its investors.
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False
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The major disadvantages of issuing a bond are the risk of bankruptcy and the negative cash impact on
cash flow because debt must be repaid at a specified date in the future. |
True
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The market interest rate is almost always less than the stated interest rate on bonds.
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False
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The issuance price of a bond is the discounted present value of both the principal plus the cash
interest to be received over the life of the bonds discounted by the stated or coupon rate. |
False
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When the market interest rate is higher than the stated interest rate, a bond can be purchased at a
discount. |
True
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Amortization of a discount on a bond payable will make the amount of interest expense reported on
the income statement less than the cash paid for that year. |
False
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A bond issued at a discount will pay total cash payments for interest that ismorethanthetotalinterest expense recognized over the period the bond is issued.
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False
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Either straight-line or effective-interest amortization may be used for bond premiums or discounts
regardless of the amounts involved. |
False
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If a bond is issued at a discount or premium, the amount of annual cash interest paid will be different
than the amount paid by a bond issued at par. |
False
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The end of period adjusting entry required for a bond issued at a premium includes a debit to the
account, Premium on Bonds Payable. |
True
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A bond issued at a premium will pay cash interest in excess of the amount of interest expense
recognized for accounting purposes. |
True
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For the bondholder (investor), amortization of a bond premium each interest period will increase the
reported amount of interest revenue. |
False
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The debt to equity ratio is calculated by dividing total liabilities by total liabilities plus stockholders'
equity. |
False
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Companies which are investing heavily in fixed assets and acquiring other companies tend to use
more debt financing. |
True
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Any gains or losses from early retirement of bonds are included on the income statement.
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True
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If a company repurchases $1,000,000 of their bonds for $1,020,000 when their book value is
$950,000, then they will generate a loss of $20,000. |
False
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Issuance of bonds provides cash inflow from a financing activity.
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True
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Repayment of the bonds principal when they mature causes a cash outflow connected to investing
activities. |
False
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The cash paid for interest must be reported by a company but it can be disclosed in a variety of
ocations in the financial reports. |
True
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When a company prepares a bond indenture, certain provisions of the bonds are included. Which of
the following is/are not specified in the indenture? A. Dates of each interest payments. B. Rate of interest to be paid. C. Maturity date. D. Cash to be received at the issue date. |
D
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A bond contract that specifies the legal provisions of a bond issue is called
A. a junk bond. B. an indenture. C. a premium. D. a risk covenant. |
B
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An unsecured bond for which no assets are specifically pledged to guarantee repayment is called
A. a debenture B. a callable bond C. a convertible bond D. an indenture |
A
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Which of the following is not a reason that a corporation would want to issue bonds instead of
stock? A. Interest payments can be deducted for income tax purposes. B. Stockholders maintain control. C. The impact on earnings may be positive. D. There is less cash outflow resulting from bonds. |
D
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Bonds payable usually are classified on the balance sheet as
A. long-term liabilities. B. current liabilities. C. investments and funds. D. current assets. |
A
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The annual interest rate specified on a bond (which is based on the maturity amount of the bond)
appropriately can be called the A. stated rate. B. market rate. C. effective rate. D. .risk rate. |
A
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Bonds usually are issued to obtain cash for the purpose of
A. meeting working capital needs. B. investing in short-term marketable securities. C. purchasing insurance. D. acquisitions of long-term assets. |
D
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Callable bonds may be
A. turned in for early retirement at the option of the bondholder. B. converted to common stock at the option of the bondholder. C. called for early retirement at the option of the issuer. D. converted to registered bonds at the option of the company president. |
C
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Which of the following is a disadvantage to the corporation issuing bonds?
A. The required interest payment due at maturity. B. The liquid nature of the bonds makes them attractive to investors who may not want to hold them to maturity. C. The large principal payment due at maturity. D. The required dividend payments to bondholders each period. |
C
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Which of the following is an advantage of issuing bonds versus issuing stock to finance expansion?
A. Stockholders remain in control as bondholders cannot vote or share in the company's earnings. B. Interest expense is tax deductible but dividends are not. C. Money can usually be borrowed at a lower rate and then invested to earn a higher return on assets. D. All answers are advantages. |
D
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A bond where no specific assets are pledged to guarantee repayment is called a
A. debenture bond. B. callable bond. C. discount bond. D. convertible bond. |
A
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Which of the following statements is true?
A. Unsecured debt has a preferential claim against the liquidation of assets in relationship to other creditor claims. B. Convertible bonds may be retired before maturity at the option of the issuer. C. Junk bonds are those with a low rating and because their rating is below investment grade level, they are considered high risk. D. Secured debt does not have a preferential claim against the liquidation of assets in relationship to other creditor claims. |
C
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Which of the following statements is false?
A. Because junk bonds are higher risk than higher rated investment grade bonds, many banks, mutual funds and trusts are not allowed to invest in them. B. Callable bonds can be retired before maturity at the option of the bondholder for a predetermined cash call price. C. A debenture bond is one that is not secured by specific assets of the company. D. A debenture bond is also known as an unsecured bond. |
B
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Halverson's times interest earned ratio was 2.98 in 2009, 2.79 in 2008, and 2.31 in 2007. Which of
the following statements about their ratio is correct? A. Their increasing ratio indicates decreasing levels of debt on which interest is incurred. B. Their increasing ratio indicates their strategy of pursuing growth by investment in other companies which has increased debt but their profits have not yet increased from those investments. C. The higher ratio was adversely affected by the net loss they reported in 2007. D. Their increasing ratio would be considered by creditors to be an indicator of higher risk. |
A
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Which of the following is true?
A. A higher times interest earned ratio could indicate a growing company. B. A lower times interest earned ratio is desired by creditors. C. A more important indicator that a company is able to meet its debt obligations would be the sufficiency of its cash flow from operating activities. D. A more important indicator that a company is able to meet its debt obligations would be the sufficiency of the current ratio. |
C
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In 2009, Patty's Pizza reported net income of $4,212 million, interest expense of $167 million and
income tax expense of $1,372 million. In 2008, they reported net income of $3,568 million, interest expense of $163 million and income tax expense of $1,424 million. Calculate the times interest earned ratio for 2009and 2008 respectively. A. 32.2 and 29.4 times B. 28.4 and 23.8 times C. 34.4 and 31.6 times D. 34.1 and 26.6 times |
C
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In 2009, NTV reported a times interest earned ratio of 32.7 times while Home Movie Channel
reported a ratio of 34.4 times. Which of the following statements is true? A. NTV and Home Movie Channel have more than adequate ratios demonstrating their ability to cover interest charges with their earnings levels. B. Home Movie Channel's ratio is significantly higher than NTV's ratio. C. Lenders would be pleased with the ratios of both companies and be willing to lend them money for future expansion. D. All statements are true. |
D
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If the market interest rate for a bond is higher than the stated interest rate, the bond will sell at
A. a discount. B. a premium. C. par. D. the price cannot be determined from the information given. |
A
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On November 1, 2009, Davis Company issued $30,000, ten-year, 7% bonds at 97. The bonds were
dated November 1, 2009, and interest is payable each November 1 and May 1. The amount of discount amortization at each semi-annual interest date would be (assume straight-line amortization): A. $ 50. B. $100. C. $600. D. $450. |
D
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Gammell Company issued $50,000 bonds payable, 9% annual interest, maturity in ten years. The
bonds were issued at $48,000. Gammel Company uses straight-line amortization. The amount of interest expense each full year would be A. $4,700. B. $4,300. C. $4,500. D. $4,680. |
A
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On January 1, 2009, Allison Company issued $600,000, five-year, 8% bonds at $570,000. The bonds
were dated January 1, 2009, and interest is payable each June 30 and December 31. The company uses the straight-line method of amortization. The amount of the net liability for bonds payable that would be reported on the December 31, 2009, balance sheet is A. $600,000. B. $597,000. C. $573,000. D. $576,000. |
D
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Moore Company issued $100 million of fixed interest rate bonds payable at $98 million. At year-end,
the bonds were selling in the bond market at $98 million. What entry would Moore Company make at year-end to record the change in selling price? A. Debit Bonds Payable $3 million; credit Interest Expense $3 million. B. Debit Interest Expense $3 million; credit Bonds Payable $3 million. C. Debit Investment in Bonds $3 million; credit Investment Revenue $3 million. D. No entry needed. |
D
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If a bond payable is issued at a discount, the amount of the carrying value (the long-term liability)
reported on the subsequent balance sheets A. remains constant. B. increases each year. C. decreases each year. D. changes from year to year depending upon the market rate of interest each year. |
B
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On January 1, 2009, Broker Corp. issued $3,000,000 par value 12%, 10 year bonds which pay
interest each December 31. If the market rate of interest was 14%, the issue price of the bonds should be? (The present value factor for $1 in 10 periods at 12% is .3220 and at 14% is .2697. The present value of an annuity of $1 factor for 10 periods at 12% is 5.6502 and at 14% is 5.2161.) A. $3,339,084 B. $2,843,172 C. $3,000,000 D. $2,686,896 |
D
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On January 1, 2009, Dorley Corporation issued $1 million of bonds for $1,073,613 when the market
rate of interest was 6%. They are 10-year bonds paying 8% interest annually. If Dorley Corporation is using the straight-line amortization method, interest expense on December 31, 2009 will be A. $ 80,000 B. $ 60,000 C. $ 87,361 D. $ 72,639 |
D
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General Tech Corporation issued $30,000 bonds payable, 5% annual interest, due in ten years. The
bonds were issued at $29,400. Assume straight-line amortization. Interest expense each year would be A. $1,500. B. $1,440. C. $1,560. D. $1,100. |
C
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If a bond is issued at 98, its stated rate of interest would be
A. higher than the market rate. B. lower than the market rate. C. equal to the market rate. D. unrelated to the market rate. |
B
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On January 1, 2009, Tonika Corporation issued a four-year, $10,000, 7% bond. The interest is
payable annually each December 31. The issue price was $9,668 based on an 8% effective interest rate. Assuming effective-interest amortization is used, the interest expense on the income statement for the year ended December 31, 2009 would be (to the nearest dollar) A. $ 1,547. B. $ 883. C. $ 773. D. $ 700. |
C
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When a bond investment is issued at a discount, subsequent amortization of the discount
A. increases interest expense. B. decreases interest expense. C. has no effect upon interest expense. D. decreases interest in the bond. |
A
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Which of the following is true when using the effective interest amortization method when a bond
has been issued at a discount? A. Interest expense is computed by adding the portion of amortized discount to the cash interest paid. B. The amount of interest expense recognized each period increases over time. C. The amount of discount amortized each period decreases over time. D. All of the answers are true. |
B
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Of the following statements, which is false regarding the effective-interest method of amortization?
A. The amount of interest expense is different each period. B. The amount of discount or premium that is amortized is the same each period. C. The amount of cash interest paid is constant e D. None of the other answers are false. |
B
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Which of the following statements is true?
A. Bonds are always issued at their par value. B. Bonds issued at more than par value are said to be issued at a discount. C. Once bonds are issued; the bonds will trade in the bond market above or below par depending on changes in interest rates. D. Bondholders must hold their bonds to maturity to receive cash for their investment. |
C
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Eaton Company issued $5 million in bonds. The stated rate of interest was 10% and the market rate
11%. Which of the following statements is true? A. The bonds were issued at a premium. B. Annual interest expense will exceed the company's actual cash payments for interest. C. Annual interest expense will be $500,000. D. Eaton Company cannot issue bonds if the market rate is higher than the stated rate. |
B
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On January 1, 2009, Jason Company issued $5 million of 10-year bonds at a 10% stated interest rate
to be paid annually. The following present value factors have been provided to answer the subsequent questions: T. Period Interest PV $ PV Anunity 10 10% .386 6.145 10 8% .463 6.710 10 12 % .322 5.659 Calculate the issuance price if the market rate of interest is 8%. A. $5,000,000 B. $5,670,000 C. $5,387,500 D. $5,712,500 |
B
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On January 1, 2009, Jason Company issued $5 million of 10-year bonds at a 10% stated interest rate
to be paid annually. The following present value factors have been provided to answer the subsequent questions: T. Period Interest PV $ PV Anunity 10 10% .386 6.145 10 8% .463 6.710 10 12 % .322 5.659 Calculate the issuance price if the market rate of interest is 12%. A. $4,427,500 B. $4,477,500 C. $4,435,000 D. $5,000,000 |
C
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On January 1, 2009, Jason Company issued $5 million of 10-year bonds at a 10% stated interest rate
to be paid annually. The following present value factors have been provided to answer the subsequent questions: T. Period Interest PV $ PV Anunity 10 10% .386 6.145 10 8% .463 6.710 10 12 % .322 5.659 If Jason issued the bonds for $5,325,000, how much would the premium amortization be on December 31, 2009 under the straight-line method? A. $32,500 B. $59,125 C. $16,250 D. $27,956 |
A
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On January 1, 2009, Jason Company issued $5 million of 10-year bonds at a 10% stated interest rate
to be paid annually. The following present value factors have been provided to answer the subsequent questions: T. Period Interest PV $ PV Anunity 10 10% .386 6.145 10 8% .463 6.710 10 12 % .322 5.659 How much cash interest would be paid by Jason on December 31, 2009? A. $500,000 B. $250,000 C. $300,000 D. $200,000 |
A
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On January 1, 2009, Jason Company issued $5 million of 10-year bonds at a 10% stated interest rate
to be paid annually. The following present value factors have been provided to answer the subsequent questions: T. Period Interest PV $ PV Anunity 10 10% .386 6.145 10 8% .463 6.710 10 12 % .322 5.659 If Jason issued the bonds for $5,325,000, the amount of interest expense on December 31, 2009 under the straight-line amortization method equals A. $567,500 B. $540,875 C. $532,500 D. $490,044 |
C
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On January 1, 2009, Jason Company issued $5 million of 10-year bonds at a 10% stated interest rate
to be paid annually. The following present value factors have been provided to answer the subsequent questions: T. Period Interest PV $ PV Anunity 10 10% .386 6.145 10 8% .463 6.710 10 12 % .322 5.659 If Jason issued the bonds at a price of 106.5, what is the book value of Jason's bonds on December 31, 2009 after the interest payment assuming the straight-line method is used? A. $5,297,044 B. $5,292,500 C. $5,265,875 D. $5,308,750 |
B
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Skylar Corporation issued $50,000,000 of its 10% bonds at par on January 1, 2009. On December 31,
2009 the bonds were trading on the bond exchange at 102½. Since the issue date, the market rate of interest on similar risk bonds has A. Increased. B. Decreased. C. Stayed the same. D. None of the other answers is correct. |
B
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On July 1, 2009, GardenWorks, Inc. issued 300, $1,000, ten-year, 7% bonds at 101. The bonds were
dated July 1, 2009, and semi-annual interest will be paid each December 31 and June 30. GardenWorks Inc., uses straight-line amortization. The bond liability that would be reported on the balance sheet at December 31, 2009, is A. $300,000. B. $302,850. C. $302,700. D. $303,000 |
B
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On July 1, 2009, Jackson Company issued $300,000, five-year, 9% bonds at $309,000. The reason
Jackson Company issued the bonds at a premium was A. the stated rate of interest was higher than the rate being paid on investments with comparable risk. B. the stated rate of interest was the same as the rate being paid on investments with comparable risk. C. the stated rate of interest was lower than the rate being paid on investments with comparable risk. D. the bonds were callable. |
A
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Straight-line amortization of a premium related to a bond issuance would
A. require interest expense be calculated by multiplying the market interest rate times the book value of the bonds. B. lead to higher premium amortization in the early years and lower interest expense over the life of the bonds. C. require computing the constant amount of premium to be amortized and then deducting it from cash interest to calculate interest expense. D. require interest expense be calculated by multiplying the market interest rate times the book value of the bonds and lead to higher premium amortization in the early years and lower interest expense over the life of the bonds. |
C
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The amortization of bond premium by the issuer will
A. increase interest expense. B. decrease interest expense. C. have no effect on interest expense. D. determine the cash paid for interest. |
B
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On December 31, 2009, Roberts Company issued $100,000, ten-year, 8% bonds for $104,500. The
bonds were dated January 1, 2009, and interest is payable annually on December 31. Roberts Company uses the straight-line amortization method. Roberts Company should report the book value, or carrying value, for the bonds on the December 31, 2009, balance sheet as A. $100,000. B. $103,400. C. $104,000. D. $104,500. |
D
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If a bond is issued at 101, the stated rate of interest was
A. higher than market rate. B. lower than market rate. C. equal to market rate. D. not related to market rate. |
A
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Mayberry, Inc., issued $100,000 of 10 year, 12% bonds dated April 1, 2009, for $102,360 on April 1,
2009. The bonds pay interest annually on April 1. Straight-line amortization is used by the company. What entry is needed at April 1, 2010 for the first interest payment? |
A
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In 2009, Tommy's Toys had total liabilities of $5,443 million and total assets of $9,768 million. In
2008, their total liabilities were $6,291 million and total assets were $10,265 million. Which of the following statements is true? A. The company had a decrease in their debt to equity ratio from 2008 to 2009. B. The company had more creditor financing versus stockholder equity financing in 2009. C. Their debt to equity ratio in 2009 means they have less than half their financing provided by creditors. D. All answers are true. |
A
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69.In 2009, General Tech had a debt to equity ratio of .21 while their competitor in the biotechnology
field, American Bio had a debt to equity ratio of .24. Which of the following statements is false? A. General Tech has a larger portion of its assets financed by equity than American Bio does. B. When compared to General Tech, American Bio's use of more debt funding increases financial risk and causes their stockholders to have a lower return on equity when return on assets exceeds the after-tax interest rate. C. General Tech's ratio implies that less than 20% of its assets are financed by equity. D. American Bio's ratio implies that less than 25% of its assets are financed by equity. |
B
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In 2008, The Mickey Co. had total liabilities of $20,645 million and total assets of $43,699 million.
In 2007, they had total liabilities of $20,918 million and total assets of $45,027 million. Calculate their debt to equity ratio for 2008 and 2007 respectively. A. 1.12 and 1.15 B. .90 and .87 C. .47 and .46 D. .52 and .54 |
B
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In 2010, Western Wear Inc. reported total liabilities of $382 million and total stockholders' equity of
$1,967 million. In 2009, their total liabilities were $343 million and total stockholders' equity was $1,900 million. Which statement about their debt to equity position is true? A. While their debt level increased, their debt to equity ratio decreased slightly. B. Western Wear Inc. has a very low debt to equity ratio. C. Stockholders' equity increased at a faster rate than the rate of increase in liabilities. D. All answers are true. |
B
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72. If a company retires bonds payable early by purchasing the bonds in the open market,
A. any gain or loss would be reported in the income statement as an extraordinary item. B. the amount paid would always equal the par value. C. any unamortized premium or discount would be reclassified to stockholders' equity as contributed capital. D. the gain or loss would be presented in the asset section of the balance sheet. |
A
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On July 1, 2011, immediately after recording interest payments, Salsa, Inc. retired one fifth of its
$500,000 bonds payable for $97,500. The bonds were originally issued at par value in 2006. Which statement is correct? A. Cash of $100,000 will be paid to the bondholders. B. A gain of $2,500 will be reported in the income statement. C. A loss of $2,500 will be reported in the income statement. D. A loss of $2,500 will be reported as a separate component of stockholder's equity in the balance sheet. |
B
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On the maturity date of bonds payable after interest has been paid, the issuing company will
A. record a loss if the market rate of interest on the maturity date exceeds the stated rate of interest. B. pay bondholders the original amount the bondholders paid to purchase the bonds. C. debit Bonds Payable and credit Cash for the par value of the bonds. D. debit Cash and credit Bonds Payable for the carrying amount of the bonds. |
C
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Which of the following is true?
A. Bonds can be retired early through calling them or repurchasing them in the market. B. Early retirement of bonds will always be at face value as any premium or discount would have been amortized. C. Bondholders cannot sell their bonds prior to maturity. D. When interest rates rise, bond prices also rise. |
A
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On March 31, 2009, Bundy Corporation retires $10 million of bonds which have an unamortized
premium of $500,000 by repurchasing them in the market for $9,850,000. Calculate the gain or loss on the retirement of the bonds. A. $150,000 loss. B. $150,000 gain. C. $650,000 gain. D. $350,000 loss. |
C
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Which of the following statements is true?
A. The corporation will have cash inflow when bonds are issued for an amount equal to, greater than, or less than the par value of the bonds. B. The corporation will have to pay cash to bond investors when those investors demand to call the bonds. C. The corporation will have an outflow of cash connected to a financing activity when interest is paid to bond investors. D. All of these are false. |
A
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Which of the following is true?
A. Interest payments reduce cash flow from operating activities. B. Calling the bonds would reduce cash from investing activities. C. Issuance of bonds would increase cash from investing activities. D. All answers are true. |
A
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Which of the following is true?
A. An outflow of cash for interest payments is a financing activity. B. An outflow of cash when convertible bonds are converted is a financing activity. C. An outflow of cash when callable bonds are recalled by the issuer is a financing activity. D. None of these answers are true. |
C
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Which of the following is true?
A. It is common for companies to both retire debt and issue new bonds in the same year as a way to replace higher interest rate debt with lower rate issuances. B. Payment of interest is a financing activity since we would not have interest unless we borrowed money or issued bonds to the public. C. Repurchasing bonds requires cash outflow connected to investing activities when the issuing corporation buys back the bonds. D. None of the other answers are true. |
A
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Outstanding shares of stock are those shares which a corporation has the ability to issue as
documented in its charter in the state where incorporated. |
False
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A major advantage a corporation has over a proprietorship or partnership is that it allows individuals
to participate in ownership by purchasing small amounts of stock. |
True
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The shares issued can be less than those outstanding when the corporation has repurchased some of
their shares which are called treasury shares. |
False
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Kansas City Company has 2,000,000 shares issued and 100,000 treasury shares. They report net
income of $5,200,000 in 2009. Earnings per share equals $2.60. |
False
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Treasury stock is a corporation's own stock that was sold, issued, repurchased, and is still held by the
corporation. |
True
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When a company repurchases some of its shares of stock (treasury stock), the number of shares
issued is reduced. |
False
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To pay a cash dividend, a corporation needs adequate cash, authorization from the board of directors,
and adequate retained earnings. |
True
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A company has 5,000,000 shares issued and 400,000 held in the treasury. If the board of directors
declares a $16 million cash dividend, then the dividends per share would be $3.20. |
False
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On the date of payment of a cash dividend, the company would debit retained earnings and credit
cash. |
False
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The dividend yield ratio is a measure of the immediate return investors are receiving from dividends
stated as a percentage of market price. |
True
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A company reported earnings per share of $3.50 and dividends per share of $1.00 when the market
price of the stock was $80.00. The dividend yield is 20%. |
False
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A stock split results in the reduction of the par or stated value per share and a proportionate increase
in the number of shares outstanding. |
True
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The most common reason a company would declare a stock split is to reduce the market price of its
stock to increase the trading activity. |
True
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Preferred stock often has a preference in the distribution of assets over common stock in the event of
dissolution of the corporation. |
True
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When preferred stock is cumulative and the board of directors passes on a dividend, the arrearage
must be shown as a liability on the balance sheet and a reduction from retained earnings on the statement of stockholders' equity and the balance sheet. |
False
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Restrictions on retained earnings usually occur when a company borrows money and the creditor
wants to restrict the amount of dividends that can be distributed. |
True
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When a company reissues treasury stock, it creates cash inflow from an investing activity because
treasury stock is an investment asset on the balance sheet. |
False
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Payment of a cash dividend creates a cash outflow from an operating activity
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False
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Partnerships, sole proprietorships, and corporations are three basic forms of business organizations.
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True
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All businesses pay income taxes.
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False
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Advantages of a corporation include all of the following except
A. ease of participating in ownership B. stockholders are not liable for a corporation's debts. C. the ownership rights of corporations are easily transferred. D. stockholders have a mutual agency relationship. |
D
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From an investor's viewpoint, in today's litigious environment, what would be considered the most
advantageous characteristic of the corporate form of organization? A. Taxation. B. Ease of capital assembly. C. Continuity of life for the corporation. D. Limited liability for stockholders. |
D
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Which of the following statements about a corporation is false?
A. Corporations are the dominant form of business organization in terms of volume of operations. B. Their owners have limited liability. C. Corporations allow even small investors to participate in ownership. D. Corporations are separate legal entities from their owners. |
A
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Which of the following is true about the corporate form of business but is not true for a proprietorship
or partnership? A. It is a separate economic entity from its owners. B. Investment in a corporation's stock is less risky than investing in bonds. C. It is easier for individuals to become owners in a corporation by buying small amounts of stock than it is to own a proprietorship or partnership share. D. A corporation is easier to form than a partnership. |
C
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Which of the following statements is false?
A. Most small shareholders do not attend the corporation's annual meeting so they cast their vote by proxy card. B. Corporations are created by application to a specific state not the federal government. C. Most large corporations are chartered out of Delaware since it has very favorable laws of incorporation. D. Corporations have a limited life. |
D
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Which of the following represents the maximum shares of stock issuable to the public?
A. Authorized shares B. Issued shares C. Outstanding shares D. Unissued shares |
A
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Which of the following represents the shares currently in the hands of investors?
A. Authorized shares B. Issued shares C. Outstanding shares D. Unissued shares |
C
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Which of the following represents the shares sold in either an initial public offering or subsequent
seasoned new issuances? A. Authorized shares B. Issued shares C. Outstanding shares D. Unissued shares |
B
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Which of the following about earnings per share is true?
A. It indicates the portion of earnings distributed to the owners as an immediate return on their investment. B. Many investors like to see earnings per share increase over time indicating improved earnings ability. C. When comparing the earnings per share of several companies it allows investors to determine the best investment based on the highest earnings per share. D. If earnings per share equals $5.00, then the maximum dividend payment would be $5.00. |
B
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Which of the following statements about earnings per share is true?
A. Increased net income would cause earnings per share to decrease. B. Issuance of more common shares would cause earnings per share to increase. C. Repurchase of treasury shares would cause earnings per share to decrease. D. None of the other answers is true. |
D
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The par value of common stock is the
A. average market price of the stock during the period in which it is sold. B. ceiling (maximum) amount above which the stock may not be sold initially. C. nominal value per share established in the corporate charter. D. selling price of the stock at the date it was issued by the corporation. |
C
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Depot Company has one class of capital stock issued. It is
A. common stock. B. preferred stock, voting. C. preferred stock, noncumulative. D. common stock, nonvoting. |
A
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If Hayes Corporation sells and issues 100 shares of its $1 par value common stock at $15 per share,
the entry to record the sale will not include a A. Debit to cash of $1,500. B. Credit to capital in excess of par of $1,400. C. Credit to common stock of $100. D. Credit to retained earnings of $1,500. |
D
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Choose the correct definition for par value from the following:
A. The amount that a corporation must pay when it exercises its right to convert shares of stock. B. The equity of one share of outstanding stock in the issuing corporation's net assets as recorded in the corporation's accounts. C. An arbitrary value placed on a share of stock at the time the stock is authorized in the corporate charter. D. The costs of bringing a corporation into existence, such as legal fees, promoter's fees, and amounts paid to the state to secure a charter. |
C
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Irish Corporation issued (sold) 10,000 shares of its no par common stock for $70 per share. The
bylaws established a stated value of $10 per share. The transaction would increase common stock by A. zero B. $600,000 C. $100,000 D. $700,000 |
C
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Which of the following statements about stock option plans is true?
A. Offering stock options to a company's managers reduces the likelihood they will not always act in the best interest of the investors. B. Stock option plans are often a major part of an executive's compensation plan. C. Stock options usually have a grant price equal to the market price of the stock when the options are first offered to the executives. D. All of these are true. |
D
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Which of the following statements about treasury stock transactions is true?
A. The total number of shares issued increases when treasury stock is purchased. B. The total number of shares authorized changes when treasury stock is purchased. C. Gains and losses on treasury stock transactions are reported on the income statement. D. A stockholders' equity account is debited when treasury stock is purchased. |
D
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The balance sheet of Werther Company showed the following data about its common stock, par $1:
authorized shares, 10,000,000; outstanding shares, 4,300,000; and issued shares 4,700,000. Therefore, the number of treasury stock shares was A. 0. B. 4,700,000. C. 4,300,000. D. 400,000. |
D
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Which of the following is a "contra" stockholders' equity account?
A. Retained earnings. B. Preferred Stock. C. Treasury stock. D. Capital in excess of par value. |
C
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During 2008, Thomas Corporation repurchased some shares of its own common stock. It records
treasury stock at cost. What effect did this transaction have on 2008 stockholders' equity and earnings per share, respectively? S. Equity Earning Per Share A. Decrease No Effect B. Increase No Effect C. Decrease Decrease D. Decrease Increase |
D
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McGuire Company had the following stockholders' equity section:
Capital Stock per 10(20,000 shares issued- $200,000 Capital in excess of par value- 15,000 Retained Earning balance January 1, 2009- 80,000 Revenues earned during 2009- 400,000 Expenses( excluding income tax) incurred during 2009- 320,000 Cash dividends declared and paid- 30,000 Treasury stock( 2,000 Shares) At what amount per share was the treasury stock purchased? A. $17.00. B. $10.00. C. $12.75. D. $15.00. |
C
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In the case of a cash dividend, a dividend liability comes into existence on the
A. date of declaration. B. date of record. C. date of dividend payment. D. last day of the month in which the dividend is declared. |
A
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Shares of stock eligible for dividends are
A. the number of shares of authorized. B. the number of shares issued. C. the number of shares outstanding. D. the number of treasury shares. |
C
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Mosiman reported the following asset and liability balances at the end of 2009 and 2010
2009 2010 Total Asset 6,800,000 7,600,000 Total Liabilities 3,200,000 3,600,000 Cash 750,000 920,000 During 2010, cash dividends of $50,000 were declared and paid. Additional capital stock was issued for $100,000. Therefore, the net income (or net loss) for 2010 was A. $400,000 B. $480,000 C. $350,000 D. $300,000 |
C
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Accounting entries associated with a cash dividend usually are made on the
A. record date and payment date. B. payment date only. C. declaration date and record date. D. declaration date and payment date. |
D
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On December 15, 2009, the board of directors of Cross Corporation declared a cash dividend,
payable on January 8, 2010 of $.80 per share on the 2,000,000 common shares outstanding. The accounting period ends December 31. Because of this action, on December 15, 2009, Cross Corporation should A. make no journal entry because the event had no effect on the corporation's financial position until 2010. B. decrease retained earnings $1.6 million and increase contributed capital $1.6 million. C. decrease retained earnings $1.6 million and increase liabilities by $1.6 million. D. decrease cash $1.6 million and decrease retained earnings $1.6 million. |
C
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The declaration and payment of a cash dividend
A. reduces retained earnings and increases liabilities by the amount of the dividend. B. reduces retained earnings and increases contributed capital by the same amount. C. reduces assets and increases liabilities each by the amount of the dividend. D. reduces assets and retained earnings each by the amount of the dividend. |
D
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In 2008, Fast Franks had a dividend yield of .1% and Blazing Burgers was .2%. Which of the
following is false? A. Dividend yield will usually drop when the market price per share drops. B. They pay very little in dividends because they reinvest their earnings in expansion of operations. C. They provide very little immediate return to their investors. D. Dividend yield will usually drop when the market price per share rises. |
A
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When a stock dividend (on par value stock) is declared and issued
A. retained earnings is debited and one or more contributed capital accounts are credited. B. capital in excess of par value is debited and retained earnings is credited. C. the number of shares outstanding increases while the par value of each share decreases. D. .the number of shares outstanding decreases while the par value of each share increases. |
A
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A stock dividend
A. results in a transfer of retained earnings to contributed capital. B. increases the number of shares outstanding and involves a pro rata reduction in the par value per share. C. is accounted for in exactly the same manner as a stock split. D. results in a transfer of retained earnings to contributed capital and also increases the number of shares outstanding and involves a pro rata reduction in the par value per share. |
A
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Chicago Clock Corporation issued a 3-for-2 stock split (i.e., three new shares in exchange for each
two old shares turned in) of its common stock which had a par value of $100 before the split. What dollar amount of retained earnings should be transferred to the common stock account? A. Par value of $100 per share. B. Market value per share on the issue date. C. Half of the previous total amount in the common stock account(s). D. None should be transferred. |
D
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Which of the following statements is false?
A. Stock splits shuffle amounts between retained earnings and contributed capital accounts. B. Both stock splits and stock dividends increase the common shares issued. C. Both stock splits and stock dividends increase the common shares outstanding. D. Both stock splits and stock dividends have the impact of reducing the market price of the stock. |
A
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A company has 4 million common shares authorized, 2.5 million shares issued and 100,000 treasury
shares. Their par value is $1 per share and the market price is $30 when the company declares a 4/1 stock split. Which of the following is true? A. There will be a transfer of $2.4 million from retained earnings to contributed capital. B. Only the shares outstanding will quadruple to 4.8 million and the par value will be reduced to $.25 per share. C. The shares authorized, issued, outstanding, and held in treasury will all quadruple while the par value will be reduced to $.25 per share. D. The company will be unable to declare a 4/1 split because they do not have enough authorized shares to issue the needed 4.8 million shares. |
C
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A company declares a 40% stock dividend when there are 4.0 million common shares outstanding
with a $1 par value. Their current market price is $20 per share. Which of the following will be the effect of the stock dividend? A. Retained earnings will decrease by $1.6 million and contributed capital will increase by $1.6 million. B. Contributed capital will decrease by $1.6 million and retained earnings will increase by $1.6 million. C. Retained earnings will decrease by $32 million and contributed capital will increase by $32 million. D. Contributed capital will decrease by $32 million and retained earnings will increase by $32 million. |
A
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The following information is available for the Davidson Company. They have 10,000,000 common
shares issued, 500,000 million shares held in treasury, par value of $2 per share, and current market price of $25 per share. They declare a 15% stock dividend. Which of the following is true? A. Retained earnings will decrease and common stock will increase by $3 million. B. Retained earnings will decrease and common stock will increase by $2.85 million. C. Retained earnings will decrease and common stock will increase by $35.625 million D. Retained earnings will decrease and common stock will increase by $36.0 million. |
C
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With respect to preferred stock, select the statement that is correct.
A. It must have a par value. B. It cannot exist unless there also is common stock. C. It is never issued without voting privileges. D. It always provides for a fixed payment to be made to the stockholders even for years when no dividends have been declared. |
B
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The conversion feature on convertible preferred stock enables the stockholder to convert it to
A. convertible bonds. B. cash. C. common stock. D. products of the company. |
C
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What is the correct entry for the sale of 1,000 shares of $10 par preferred stock for $50,000?
A. Cash 50,000 Preferred Stock 50,000 B. Cash 10,000 Preferred Stock 10,000 C. Preferred Stock 10,000 Capital in excess of Par value 40,000 Cash 50,000 D. Cash 50,000 Preferred Stock 10,000 Capital in excess of par value 40,000 |
D
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Which is false about preferred stock?
A. Preferred stock has a higher priority status relative to common stock. B. The same capital accounts are used to record the issuance of preferred stock and common stock. C. It usually does not carry voting rights. D. Preferred stockholders receive dividends in arrears only if the shares are cumulative. |
B
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Which of the following statements is true?
A. Common stock has a dividend rate fixed by the stock contract. B. Preferred stock has a volatile market value; therefore, it is a more risky investment than common stock. C. As a company's profits and cash flow increases, the board of directors may choose to increase the dividends received by common stockholders. D. All other answers are false. |
C
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Assume the following shares outstanding:
Preferred stock, 6%, $50 par value, cumulative, 1,000 shares with dividends in arrears 3 years, for 2006, 2007, and 2008. Common stock, $100 par value, 2,000 shares. Total dividends declared in 2009 were $50,000. The total amount of dividends to which common stockholders are entitled is A. $62,000. B. $50,000. C. $45,000. D. $38,000. |
D
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Slickers, Inc. had the following shares outstanding during 2008:
Preferred stock, 7%, $50 par value, cumulative, 1,000 shares with dividends in arrears for 2006 and 2007. Common stock, $100 par value, 2,000 shares. The total dividends declared for the current year were $50,000. The total amount of dividends to which the preferred stockholders are entitled is A. $ 3,500. B. $ 7,000. C. $10,500. D. $12,000. |
C
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At January 1, 2009, Grabowski Corporation had outstanding capital stock as shown below. On
December 31, 2009, it declared and paid cash dividends of $48,000 to the preferred stockholders. Common stock—1,000,000 shares outstanding, $1 par value. Preferred stock—2,000 shares outstanding, $75 par, 8%, cumulative. The stock was issued at a price of $15 per share. At December 31, 2009, how many years were the preferred dividends in arrears? A. One year. B. Two years. C. Three years. D. Four years. |
C
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What is the difference between cumulative and noncumulative preferred stock?
A. They both receive dividends in arrears. B. Cumulative stock's undeclared dividends accumulate each year until paid, while noncumulative stock's right to receive dividends is forfeited in any year that dividends are not declared. C. Cumulative does not receive dividends but noncumulative does. D. Cumulative preferred stock's right to receive dividends is forfeited in any year that dividends are not declared. However, noncumulative stock's undeclared dividends accumulate each year until paid. |
B
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Cornhusker Corporation plans to raise $10 million cash on January 1, 2009, by issuing either bonds
payable (8% interest rate) or cumulative preferred stock (8% dividend rate). The accounting period ends December 31. How would the annual interest amount or annual preferred dividend amount (if paid) affect the net income for the year ended December 31, 2009? A. Net income would be reduced by the annual interest and by the preferred stock dividends. B. Net income would be reduced by the interest but not by the preferred stock dividends. C. Net income would not be reduced by the annual interest nor by the preferred stock dividends. D. Net income would be reduced by the preferred dividends but not by the interest |
B
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The Candle Barn has the following classes of stock:
Preferred stock, 8%, $100 par, 100,000 shares issued and outstanding, cumulative. Common stock, par $5, 100,000 shares issued 50,000 shares outstanding. It paid no dividends in its first year of existence. In 2010, its second year of existence, the board of directors of The Candle Barn declared a total dividend of $1,800,000 that was paid to the holders of preferred and common stock. What was the amount of the dividend paid in 2010 on each share of preferred stock? A. $16.00 B. $ 8.00 C. $12.00 D. None of these is correct. |
A
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Retained earnings
A. is an asset. B. has a debit balance for a successful corporation. C. represents the future dividend liability of the company. D. represents the income that has been earned by the company, less any dividends declared since the first day of operations. |
D
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CBA Company reported total stockholders' equity of $85,000 on its balance sheet dated December
31, 2008. During the year ended December 31, 2009, it reported a net income of $10,000, declared and paid a cash dividend of $2,000, and issued additional capital stock of $20,000. Therefore, total stockholders' equity at December 31, 2010, was A. $117,000. B. $113,000. C. $109,000. D. $101,000. |
B
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Raceway Company reported the following balance sheet amounts at December 31, 2009
The total amount of retained earnings on December 31, 2009, was A. $50,000. B. $40,000. C. $30,000. D. $20,000. |
B
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Before the journal entry to record income tax and before the closing entries were recorded at the end
of the accounting period (December 31, 2009), the following data were taken from the accounts of BestDeals Corporation: The total amount of stockholders' equity that should be reported on the balance sheet dated December 31, 2009, is A. $278,000. B. $398,000. C. $576,000. D. $614,000. |
D
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Which of the following statements is false?
A. Issuance of stock creates cash inflow connected to financing activities. B. Payment of a cash dividend creates cash outflow connected to investing activities. C. Repurchase of the company's stock, called treasury stock, creates cash outflow connected to financing activities. D. All other answers are false. |
B
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Which of the following is true?
A. Cash dividends reduce cash from operating activities. B. Cash from financing activities will increase when treasury shares are reissued. C. Issuance of stock would reduce cash from financing activities. D. Repurchase of treasury shares would create a decrease in cash from investing activities. |
B
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Which of the following is false?
A. Cash from financing activities increases when treasury shares are reissued. B. Cash dividends decrease cash from financing activities. C. Cash from investing activities decreases when we reacquire treasury shares. D. Issuance of a seasoned new issuance of stock increases cash flow from financing activities. |
C
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The following information was available for General Tech in 2009. What was the net effect on cash
flows connected to financing activities of the following amounts?' A. $768,280 increase. B. $768,280 decrease. C. $468,896 decrease. D. $617,224 decrease. |
B
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Which of the following accounts would appear in the general ledger of a partnership?
A. Retained earnings account. B. Dividends paid account. C. Common stock accounts. D. Drawings accounts. |
D
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A primary advantage of a general partnership, compared with a corporation, does not include
A. ease of formation. B. limited liability for the owners. C. no income tax on the business itself. D. complete control by the partners. |
B
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Which of the following is true about a proprietorship?
A. The capital account is used to record only the investments of the owner. B. The drawing account records distribution of assets to the proprietor. C. A proprietorship is a separate legal entity from the owner. D. A proprietorship is subject to income tax. |
B
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Which of the following is true about a partnership?
A. One capital and drawing account is used for each partnership. B. The capital account is used to record each partner's investment and their designated share of the earnings. C. Partnerships are subject to income taxes. D. The drawings account is closed to retained earnings at the end of the period. |
B
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