Suppose a company issues a $200,000, 9% bond, due in 10 years, with interest payable semi-annually. If the market rate for this bond is 10%, for what amount would the company credit Bonds Payable at the time of issuance?

December 5, 2015

Suppose a company issues a $200,000, 9% bond, due in 10 years, with interest payable semi-annually. If the market rate for this bond is 10%, for what amount would the company credit Bonds Payable at the time of issuance?

Receive cash from customers	$100,000
Pay cash to purchase building	$90,000
Receive cash from issuance of stock	$50,000
Pay cash for employee salaries	$40,000
Pay cash for dividend to stockholders	$20,000
Receive cash from sale of land	$70,000
Pay cash for repayment of borrowing	$80,000
Receive cash from long-term borrowing	$60,000
Pay cash for purchase of supplies	$30,000

Calculate the amount of financing cash flows?

	a.	$10,000
	b.	–$20,000
	c.	$160,000
	d.	$90,000
	e.	–$50,000

6 points

QUESTION 2

Information related to the sale of a building for cash is below:

Original cost	$200,000
Accumulated Depreciation at the time of the sale	$150,000
Sale price	$70,000

How would the sale of the building be reported in the Statement of Cash Flows using the indirect method?

	a.	Add $70,000 for investing cash inflow
	b.	Subtract $200,000 for investing cash outflow
	c.	Subtract $20,000 from net income for operating cash flows
	d.	Add $70,000 for financing cash inflow
	e.	Both A and C

6 points

QUESTION 3

At the end of the year, Littleton reports the following receivables:

Due

Amount

Est. Uncollectible

Not yet due

$40,000

5%

Past due 1-30 days

$10,000

20%

Past due > 30 days

$4,000

50%

In addition, the balance of Allowance for Uncollectible Accounts (before any adjustment) is $500 debit. Calculate the necessary adjustment to the Allowance account.

a.
$5,000

b.
$5,500

c.
$6,000

d.
$6,500

e.
$7,000

6 points

QUESTION 4

On October 1, 2012, Tempest Co. lends $20,000 to one of its employees by accepting a two-year, 8% note. Principal and interest are receivable on October 1, 2014. How much interest revenue is recognized in 2013?

a.
$400

b.
$800

c.
$1,200

d.
$1,600

e.
$3,200

6 points

QUESTION 5

Gaston Co. reports the following cash activities for the year:

Receive cash from customers	$100,000
Pay cash to purchase building	$90,000
Receive cash from issuance of stock	$50,000
Pay cash for employee salaries	$40,000
Pay cash for dividend to stockholders	$20,000
Receive cash from sale of land	$70,000
Pay cash for repayment of borrowing	$80,000
Receive cash from long-term borrowing	$60,000
Pay cash for purchase of supplies	$30,000

Calculate the amount of investing cash flows?

	a.	$10,000
	b.	–$20,000
	c.	$160,000
	d.	$90,000
	e.	–$50,000

6 points

QUESTION 6

At the time a company declares a dividend:

a.
Net income decreases

b.
Assets decrease

c.
Revenues increase

d.
Stockholders’ equity decreases

e.
Treasury stock increases

6 points

QUESTION 7

Suppose a company issues a $200,000, 9% bond, due in 10 years, with interest payable semi-annually. If the market rate for this bond is 10%, for what amount would the company credit Bonds Payable at the time of issuance?

a.
$200,000

b.
$187,538

c.
$213,590

d.
$75,378

e.
$291,278

6 points

QUESTION 8

The disadvantages of the corporate form of business include:

a.
Ability to transfer ownership.

b.
Additional taxes.

c.
Limited liability.

d.
Ability to raise capital.

e.
None of the above.

6 points

QUESTION 9

A company declares a dividend of $1 per share on December 1 for stockholders of record on December 15. Dividends are paid on December 31. What will happen on December 31?

	a.	The company will debit Dividends
	b.	The company’s stock price will increase by $1 (all else equal)
	c.	The company will debit Dividends Payable
	d.	The company’s stock price will decline by $1 (all else equal)
	e.	C and D will occur

6 points

QUESTION 10

Gaston Co. reports the following amounts:

Total interest expense in 2012
$100,000

Interest Payable at the end of 2012
$20,000

Interest Payable at the end of 2011
$30,000

Calculate the amount of cash paid for interest in 2012?

a.
$130,000

b.
$120,000

c.
$110,000

d.
$100,000

e.
$90,000

6 points

QUESTION 11

Mayston Co. issued $10,000 shares of $0.01 par value stock for $20 per share. To record this transaction, Mayston will:

	a.	Credit Common Stock for $200,000
	b.	Debit Additional Paid-In Capital for $199,900
	c.	Credit Common Stock for $100
	d.	Credit Additional Paid-In Capital for $200,000
	e.	Debit Cash for $100

6 points

QUESTION 12

Which of the following expenditures associated with Equipment would not be capitalized?

	a.	Original purchase cost
	b.	Cost necessary to transport the equipment during original purchase
	c.	Cost necessary to provide utilities to operate the equipment
	d.	Cost of a major upgrade one year after the equipment is purchased
	e.	C and D would not be capitalized

6 points

QUESTION 13

At the end of the year, Littleton reports the following receivables:

Due

Amount

Est. Uncollectible

Not yet due

$40,000

5%

Past due 1-30 days

$10,000

20%

Past due > 30 days

$4,000

50%

In addition, the balance of Allowance for Uncollectible Accounts (before any adjustment) is $500 credit. Calculate the ending balance of the Allowance account after any necessary adjustment.

a.
$5,000

b.
$5,500

c.
$6,000

d.
$6,500

e.
$7,000

6 points

QUESTION 14

An advantage of the corporate form of business is:

a.
Easier to make a profit

b.
Easier to raise debt capital

c.
Limited double taxation

d.
Limited regulation

e.
Limited liability

6 points

QUESTION 15

On January 1, 2012, Liberty purchases equipment for $70,000. The equipment is expected to last for 10 years with a residual value of $10,000, and is depreciated using the straight-line method. If Liberty sells the equipment at the end of 2014 for $60,000, what would be the reported gain or loss?

a.
$11,000 gain

b.
$10,000 loss

c.
$18,000 gain

d.
$8,000 gain

e.
No gain or loss

6 points

QUESTION 16

Which of the following would require an adjusting entry at the end of the current year?

	a.	Unpaid salaries at the end of the year.
	b.	Estimated bad debts in the following year
	c.	Cash received from customers for services to be performed next year
	d.	All of the above
	e.	A and B

6 points

QUESTION 17

A company has the following three events during the year:

1. Receive cash from customers for services provided last year, $2,500

2. Received cash from customers for services provided in the current year, $10,000

3. Receive cash from customers for services to be provided next year, $4,000

How much would be recorded as revenue in the current year?

a.
$2,500

b.
$10,000

c.
$4,000

d.
$14,000

e.
$6,500

6 points

QUESTION 18

Which of the following ratios measures the underlying risk of a company?

a.
Return on assets

b.
Asset turnover

c.
Gross profit ratio

d.
Debt to equity

e.
Profit margin

6 points

QUESTION 19

What is the financial statement effect of recording a contra revenue account?

a.
Increase expenses

b.
Decrease assets

c.
Increase liabilities

d.
Decrease net income

e.
Increase stockholders’ equity

6 points

QUESTION 20

Gaston Co. reports the following amounts:

Total revenue in 2012
$100,000

Accounts Receivable at the end of 2012
$20,000

Accounts Receivable at the end of 2011
$30,000

Calculate the amount of cash collected from customers in 2012?

a.
$130,000

b.
$120,000

c.
$110,000

d.
$100,000

e.
$90,000

6 points

QUESTION 21

Which of the following is allowed under international accounting rules but not allowed under U.S. accounting rules?

	a.	Capitalization of product development cost
	b.	Reversal of previous inventory write down
	c.	Recording an increase in the fair value of property and equipment
	d.	Reporting cash flows from interest paid as a financing activity
	e.	All of the above are allowed under international accounting rules and not allowed under U.S. accounting rules

6 points

QUESTION 22

On March 5, American Corp. provides services on account to National Corp. for $1,500, with terms 2/10, n/30. On March 13, American receives payment from National and records the following:

	a.	Debit to Accounts Receivable for $1,500
	b.	Credit to Sales Discounts for $30
	c.	Credit to Service Revenue for $1,470
	d.	Debit to Cash for $1,500
	e.	Credit to Accounts Receivable for $1,500.

6 points

QUESTION 23

Clothing Emporium was organized on January 1, 2015. The firm was authorized to issue 100,000 shares of $5 par value common stock. During 2015, Clothing Emporium had the following transactions relating to shareholders’ equity:

Issued 30,000 shares of common stock at $7 per share.

Issued 20,000 shares of common stock at $8 per share.

Reported a net income of $100,000.

Paid dividends of $50,000.

What is the total amount recorded in the Common Stock account at the end of 2015?

a.
$420,000.

b.
$370,000.

c.
$470,000.

d.
$250,000.

e.
No amount is correct.

6 points

QUESTION 24

What is a possible impact of closing entries on account balances?

a.
Increase assets

b.
Decrease liabilities

c.
Decrease revenues

d.
Decrease assets

e.
A, B, and C

6 points

QUESTION 25

Distributions to stockholders are referred to as:

a.
Dividends

b.
Expenses

c.
Common Stock

d.
Cash

e.
Additional Paid-In Capital

6 points

QUESTION 26

Betterment Company usually sells nearly all of its current inventory before purchasing additional inventory. The company’s policy is to limit the amount of old inventory to make sure current inventory consists of the newest items. Under these operating conditions:

	a.	The company actually operates using FIFO and cannot report assuming LIFO
	b.	The company actually operates using LIFO and cannot report assuming FIFO
	c.	The company actually operates using FIFO and can report assuming LIFO
	d.	The company actually operates using LIFO and can report assuming FIFO
	e.	The company does not need to report inventory transactions

6 points

QUESTION 27

When a company sells inventory which costs $8,000 to customers for $12,000 on account, which of the following is recorded.

	a.	Debit Inventory for $8,000
	b.	Debit Cost of Goods Sold for $12,000
	c.	Credit Sales Revenue for $12,000
	d.	Debit Accounts Receivable for $8,000
	e.	Credit Inventory for $12,000

6 points

QUESTION 28

The true interest rate used by investors to value a bond is called the:

a.
Face interest rate.

b.
Cash payment rate.

c.
Market interest rate.

d.
Stated interest rate.

e.
Coupon interest rate.

6 points

QUESTION 29

Conservative accounting will usually result in the appearance of:

	a.	Lower risk and lower profitability
	b.	Lower risk and higher profitability
	c.	Higher risk and lower profitability
	d.	Higher risk and higher profitability
	e.	Being aggressive

6 points

QUESTION 30

The accounting group responsibility for the establishment of worldwide financial accounting rules is:

	a.	The International Accounting Standards Board
	b.	United Way
	c.	International Organization of Securities Commissions
	d.	The World Bank
	e.	The Financial Accounting Standards Board

6 points

QUESTION 31

Gaston Co. reports the following amounts:

Net income	$25,000
Depreciation Expense	$4,000
Increase in Accounts Receivable	$1,000
Issuance of common stock	$15,000
Decrease in Taxes Payable	$3,000
Sale of land	$20,000
Loss on the sale of land	$2,000
Payment of dividends	$5,000

Calculate the amount of operating cash flows:

	a.	$27,000
	b.	$57,000
	c.	$30,000
	d.	$35,000
	e.	$18,000

6 points

QUESTION 32

According to the conceptual framework, relevant information possesses which qualitative characteristics?

	a.	Completeness and freedom from error
	b.	Freedom from error and predictive value
	c.	Predictive value and freedom from error
	d.	Predictive value and confirmatory value
	e.	Neutrality and completeness

6 points

QUESTION 33

A company can fund the purchase of assets through:

	a.	Debt financing such as the issuance of bonds
	b.	Internal financing through prior profits retained in the business
	c.	Equity financing such as the issuance of common stock
	d.	All of the above
	e.	None of the above

6 points

QUESTION 34

To calculate the value today of receiving $1,000 each year for the next 10 years, you would use which Table?

	a.	Table 1 – Future Value of $1
	b.	Table 2 – Present Value of $1
	c.	Table 3 – Future Value of an Annuity
	d.	Table 4 – Present Value of an Annuity
	e.	Table 5 – Market Value

6 points

QUESTION 35

Which of the following accurately describe financial accounting measurements?

	a.	Revenues and expenses are not necessarily cash flows at the time they are recorded.
	b.	Reported amounts sometimes involve estimates and assumptions that are subject to being incorrect.
	c.	Reported amounts can be manipulated by managers for personal gain.
	d.	Reported amounts that involve assumptions and estimates are generally useful to financial statement users.
	e.	All of the above describe financial accounting measurements.

6 points

QUESTION 36

The accounting measure of the value of a corporation to its owners is referred to as:

a.
Total Assets

b.
Revenues

c.
Net Income

d.
Stockholders’ Equity

e.
Paid-In Capital

6 points

QUESTION 37

Timberline Co. generally provides services for $1,200, but offers a $200 discount to senior citizens. When providing a service on account to a senior citizen for $1,000, Timberline would record the following:

	a.	Credit Service Revenue for $1,000
	b.	Debit Sales Discounts for $200
	c.	Credit Accounts Receivable for $1,200
	d.	Credit Service Revenue for $1,200
	e.	Debit Accounts Receivable for $1,200

6 points

QUESTION 38

If a company fails to record its estimate of future bad debts at the end of the current year:

a.
Net income is overstated

b.
Assets are understated

c.
Liabilities are understated

d.
Revenue is overstated

e.
The accounting equation is unaffected

6 points

QUESTION 39

Taylor Co. and John Co. have the following ratios:

	Taylor Co.	John Co.
Debt to equity ratio	60%	80%
Return on assets	10%	12%
Return on equity	6%	9%
Current ratio	3.0	2.0

What do the ratios tell us about the companies?

	a.	Taylor has lower risk and lower profitability
	b.	Taylor has lower risk and higher profitability
	c.	Taylor has higher risk and lower profitability
	d.	Taylor has higher risk and higher profitability
	e.	There is no clear answers based on the ratios given

6 points

QUESTION 40

By matching expenses with revenues:

	a.	The accounting equation remains in balance.
	b.	Debits equal credits
	c.	Benefits are matched with their associated costs
	d.	The company accurately records the balance in Retained Earnings
	e.	The company’s financial statements are free of manipulation

6 points

QUESTION 41

Which of the following is an example of a temporary account?

a.
Accounts Payable

b.
Interest Revenue

c.
Common Stock

d.
Retained Earnings

e.
Cash

6 points

QUESTION 42

Which of the following would be an example of aggressive accounting?

	a.	Using double-declining deprecation instead of straight-line deprecation
	b.	Estimating bad debts to be 10% of accounts receivable instead of 15%
	c.	Estimating that a contingent liability is probable instead of reasonably likely
	d.	Using LIFO instead of FIFO when inventory costs are increasing
	e.	Estimating warranty obligations to be 5% of products sold instead of 3%

6 points

QUESTION 43

At the end of the year, a company has two types of inventory with the following information:

Type

Units

Cost per Unit

Market per Unit

A

20

$6

$4

B

30

$7

$8

The year-end adjustment, if any, would include a:

a.
Credit to Inventory for $10

b.
Credit to Cost of Goods Sold for $40

c.
Debit to Cost of Goods Sold for $10

d.
Credit to Inventory for $40

e.
No adjustment is necessary

6 points

QUESTION 44

In the first three years of operations, Mattel reports the following amounts:

	Year 1	Year 2	Year 3
Revenues	$1,000	$2,300	$4,100
Cash inflows	1,200	1,800	$4,300
Expenses	800	1,500	3,000
Cash outflows	1,300	1,400	2,900
Dividends	100	200	300

Calculate the balance of Retained Earnings at the end of Year 3.

	a.	$1,100
	b.	$1,000
	c.	$2,100
	d.	$800
	e.	$1,500

6 points

QUESTION 45

On January 1, 2012, Liberty purchases equipment for $70,000. The equipment is expected to produce 10,000 units of output with a residual value of $10,000. Calculate the amount of Accumulated Depreciation that will be reported in the 2014 financial statements using the activity-based method. Actual production in 2012, 2013, and 2014 was 1,000, 1,000, and 2,000, respectively.

a.
$7,000

b.
$24,000

c.
$6,000

d.
$28,000

e.
$12,000

6 points

QUESTION 46

What does the amount of operating cash flows represent?

	a.	The amount reported for Cash in the Balance Sheet
	b.	The amount of cash flows from long-term debt and equity activities needed to operate the company
	c.	The amount of cash flows from buying and selling long-term operating assets
	d.	The amount of cash flows from all activities
	e.	The amount of cash flows associated with revenue and expense activities

6 points

QUESTION 47

The net increase/decrease in cash reported in the Statement of Cash Flows equals:

	a.	Net income reported in the Income Statement
	b.	The change in stockholders’ equity reported in the Statement of Stockholders’ Equity
	c.	Stockholders’ Equity reported in the Balance Sheet
	d.	The change in the balance of the Cash account reported in the Balance Sheet
	e.	The amount of revenues less expenses and dividends during the year

6 points

QUESTION 48

When issuing stock, a corporation must obtain approval from the:

	a.	Financial Accounting Standards Board
	b.	Securities and Exchange Commission
	c.	Internal Revenue Service
	d.	International Accounting Standards Board
	e.	Government Accountability Office

6 points

QUESTION 49

Hayes Corporation issues 100 shares of its $1 par value common stock for $15 per share. The entry to record the issuance will not include a:

	a.	Debit to Cash $1,500.
	b.	Credit to Additional Paid-In Capital $1,400.
	c.	Credit to Common Stock of $100.
	d.	Debit Dividends for $1,500
	e.	Three of the above answers are correct..

6 points

QUESTION 50

A bond issued at a discount indicates that at the date of issue:

	a.	Its stated rate was lower than the prevailing market rate of interest on similar bonds.
	b.	Its stated rate was higher than the prevailing market rate of interest on similar bonds.
	c.	The bonds were issued at a price greater than their face value.
	d.	The bonds must be non-interest bearing.
	e.	The bonds are junk bonds and should be retired.

joyce

Due	Amount	Est. Uncollectible
Not yet due	$40,000	5%
Past due 1-30 days	$10,000	20%
Past due > 30 days	$4,000	50%

	a.	$5,000
	b.	$5,500
	c.	$6,000
	d.	$6,500
	e.	$7,000

	a.	$400
	b.	$800
	c.	$1,200
	d.	$1,600
	e.	$3,200

	a.	$200,000
	b.	$187,538
	c.	$213,590
	d.	$75,378
	e.	$291,278