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Exam 3 - Practice - Practice Exam 3(Ch 8 — Ch 11 1...

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Unformatted text preview: Practice Exam 3 (Ch. 8 — Ch. 11) 1) Contingent liability refers to which of the following A liability that is owed but the amount owed is not certain b) A liability that may be owed based on a company’s past actions where the amount owed may or may not be reasonably estimable c) A liability that may be owed based on a company’s past actions where the ’\ amount owed is not reasonably estimable Q1) A liability that is owed to the company when they win a lawsuit 2) Which of the following is not typically a current liability? a) Salaries payable b) Current portion of long—term debt 0) Interest payable @ Bonds payable 3) Suzy earned $1500 during the most recent pay period. Withholdings from her salary include health insurance premiums, 5.65% FICA taxes, and federal income taxes. These withholdings total $400. In addition, her employer is responsible for the employer portion of FICA taxes (7.65% of her wages) and part of her health insurance premium ($200/ pay period). How much total expense will her employer record for this pay period? a) $1 814.75 ®$1700 c) $1500 (1) $1414.75 4) Olivia has a current ratio of 2. She goes to the bank to obtain a loan and the loan officer tells her that she needs to have a current ratio of at least 3 to get a loan. Which of the following things could Olivia do to increase her current ratio to 3? /e()/ Buy some inventory on account )3) Pay off a 5—year loan before it is due c Pay off her accounts payable with cash {é Collect an account receivable 5) Bonds that have a stated rate equal to the market rate will always sell at a discount to face value. a) True Ta); False 6) Kyle issues $50,000 face value of bonds. The bonds pay interest semi-annually at a stated rate of 5% and mature in 4 years. The market rate for bonds of similar riskiness is 6%. How much cash will Kyle receive from issuing these bonds? a) $49,107 b) $51,793 0) $48,245 7) Olivia has a credit balance of $345,072 in her bonds payable account. These bonds have a 6% market rate and pay interest semi—annually at a stated rate of 7%. The bonds have a face value of $325,000. How much interest expense will Olivia record when she makes her next interest payment? a) $12,078 b) $11,375 c) $ 1 0,3 52 d) $9,750 Cash Paid Interest Discount/Premium Carrying for Interest Expense Amortized Value Jan. 1, 2011 N/A N/A N/A $5,096,360 76,445 | 23,555 $5,072,805 ‘ Jun. 30,2011 100,000 Dec.31,2012 ? ? L ‘2 j_ ? j 8) Which of the following would be included in the June 30, 2011 journal entry for these bonds? /a)’ Cr. Cash 76,445 b) Cr. Carrying Value 5,072,805 2)” Dr. Interest Expense 100,000 ,6)“ Dr. Bonds Payable 23,555 9) What will be the carrying value of the bonds after the Dec. 31, 2012 interest payment? M $5,064,101 19) $5,053,906 @ $5,048,897 d) $5,039,147 10) The carrying value of bonds must equal the face value of bonds at maturity. True b) False 11) For a bond issued at a discount, which of the following is true? a) Cash paid for interest will be more than interest expense b) Cash paid for interest will be the same as interest expense Cc?) Cash paid for interest will be less than interest expense d) Cash paid for interest could be more or less than interest expense 12) Kyle sell bonds that don’t make any interest payments at all (such bonds do actually exist and are called zero—coupon bonds). The market rate when Kyle sold the bonds was 6%. Since Kyle makes no interest payments, he will not record any interest expense on these bonds. a) True ® False 13) The times interest earned ratio is calculated as: a) Net income divided by interest expense b) Net income plus interest expense divided by cash paid for interest 0) Net income plus income tax expense divided by interest expense d) Net income plus interest expense plus tax expense divided by interest expense 14) Kyle issues 10,000 shares of $1 par value common stock at a price of $10 per share. Which of the following journal entries would he make to record this sale of stock? a) Dr. Cash 100,000 Cr. Common Stock 100,000 b) Dr. Cash 10,000 Cr. Common Stock 10,000 @ Dr. Cash 100,000 Cr. Common Stock 10,000 Cr. Additional Paid-in-Capital 90,000 10 ‘000 ‘ J” d) Dr. Cash 100,000 ‘ Cr. Common Stock 90,000 1‘0 C7 0, 0 0 Cr. Additional Paid-in-Capital 10,000 15) On Jan. 1, 2009, Kyle issues 500 shares of cumulative, $40 par value, 5% preferred stock. On Dec. 31, 2011, Kyle pays his first ever dividend of $5,000. How much of the dividend will go to preferred stockholders? $1,000 $2,000 V67 $3,000 d) $4,000 16) Olivia resells some treasury stock for less than she purchased it for. Which of the following could not be part of the journal entry to record this transaction? a) A debit to treasury stock b) A debit to additional paid-in-capital CC) A debit to retained earnings (1) A debit to cash 17) Which of the following dates related to dividends would not involve making a . journal entry? Cg Declaration date b) Record date c) Payment date 18) Claire declares and pays a $2,000 dividend. What journal entry would she make on the payment date? ‘ a) No journal entry is required on the payment date b) Dr. Dividends 2000 Cr. Cash 2000 « c) Dr. Dividends Payable 2000 Cr. Cash 2000 d) Dr. Dividends 2000 Cr. Dividends Payable 2000 19) Kyle pays a 30% stock dividend on his common stock. Prior to the dividend, there are 10,000 shares outstanding. The stock has a $0.10 per share par value and a $20 per share market value. After closing entries, what effect will this stock dividend have on retained earnings? a) This stock dividend would have no effect on retained earnings b) Retained earnings will decrease by $300 c) Retained earnings will decrease by $60,000 d) Retained earnings will increase 20) Paying dividends is an example of ,a’) An operating cash flow vb) An investing cash flow ‘6) A financing cash flow 21-24) Use the following information to answer questions 21 -24 For the year 2012: Net Income: $120,000 Depreciation expense: $15,000 Amortization expense: $2,000 Gain on sale of land: $9,000 201 1 2012 Current Assets Cash 26,000 32,000 Accounts Receivable, net of allowance 18,000 20,500 Inventories 13,500 14,300 Prepaid Expenses 5,200 4,800 Total Current Assets 62,700 71,600 Long-term Assets Property, Plant and Equipment 95,000 125,000 Less Accumulated Depreciation (50,000) (65,000) Property, Plant and Equipment 4 net 45,000 60,000 Copyrights 10,000 15,000 Total Assets 117,700 146,600 Current Liabilities Accounts Payable 12,000 11,100 Salaries and Wages Payable 3,500 4,100 Interest Payable 1,050 1,300 Unearned Revenue 1,450 1,100 Total Current Liabilities 18,000 17 ,600' Long-term Liabilities Bonds Payable 25,000 25,000 Total Liabilities 43,000 42,600 Stockholders’ Equity Common Stock and Additional Paid—in-Capital 10,000 10,000 Retained Earnings 64,700 94,000 Total Stockholder’s Equity 74,700 104,000 Total Liabilities and Stockholder’s Equity 117,700 146,600 The land sold had an original cost of $20,000. All dividends paid were cash dividends. 21) What was operating cash flow for the year 2012? a) $90,700 b) $1 18,700 c) $124,700 d) $131,300 e) $142,700 \ c, tat‘uoo H1 "[00 Mlthoo 22) How much property, plant and equipment did the company buy during the year? a) $21,000 ® $30,000 c) $39,000 d) $50,000 e) $59,000 23) What was investing cash flow for the year 2012? a) ($21,000) b) ($26,000) 0) ($28,000) d) ($30,000) e) ($37,000) 24) How much dividends did the company pay during the year? a) $29,300 b) $38,700 0) $90,700 d) $149,300 25) The sum of operating cash flow plus investing cash flow plus financing cash flow must equal the total change in cash for the year that is shown on the balance sheet. a) True *b) False ...
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