Exam 3 - Spring 2011

Exam 3 - Spring 2011 - Name: M: J Neil (Print) Signature: w...

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Unformatted text preview: Name: M: J Neil (Print) Signature: w M ,, :v-::;;:;;w-_ 7, Ma, Where do you sit? Row No. L Accounting 2103 A. FICA taxes are paid only by the employee. B. FICA taxes are paid only by the employer. . ICA taxes are paid in equal amounts by the employee and the employer. D. FICA taxes are paid in different amounts by the employee and the employer. 2. If management can estimate the amount of loss that will occur due to litigation against the company, and the likelihood of the loss is reasonably possible, a contingent liability should be Disclosed, but not reported as a liability. l3. Disclosed and reported as a liability. C. Neither disclosed nor reported as a liability. «fit eported as a liability, but not disclosed. 3. Away Travel filed suit against West Coast Travel seeking damages for copyright violations. Away Travel’s legal counsel believes it is probable (but not certain) that Away Travel will win the lawsuit for an estimated amount in the range of $100,000 to $200,000, with all amounts in the range considered equally likely. How should Away yel report this litigation? {2% As a receivable for $100,000 with disclosure of the range. . As a receivable for $150,000 with disclosure'of the range. . As a receivable for $200,000 with disclosure of the range. As a disclosure only. No receivable is reported. 4. When a gain contingency is probable and the amount of gain can be reasonably :timated, the gain should be: ivy? ' > ;; 5. Which of the following are included in an employer's payroll tax expense? A. Employer portion of FICA taxes. B. Federal unemployment taxes. C. State unemployment taxes. @11 of the other answers are correct 6. The acid-test ratio is A. Current assets divided by current liabilities. B. Cash and short—term investments divided by current liabilities. @ash, short-term investments, and accounts receivable divided by current liabilities. . Cash, short-term investments, accounts receivable, and inventory divided by current liabilities. 7. The employer records amounts deducted from employee payroll as liabilities until it pays them to the appropriate organizations. B) False 8. Which of the following is not a current liability? A. Accounts payable. . note payable due in 2 years. . Current portion of long—term debt. D. Sales tax payable. 9. The advantages of obtaining long—term funds by issuing bonds, rather than issuing additional common stock, include which of the following? 3. Interest payments are tax deductible to. the company. while dividends are not. I). The risk of going bankrupt decreases. 0. Expansion is achieved Without surrendering mvnership control. a. and o. 10. The price of a bond is equal to: A. the future value of the face amount only. I B. the present value of the interest only. @016 present value of the face amount plus the present value of the stated interest 7 “layments. D. the future value of the face amount plus the future value of the stated interest payments. //\\11. A $500,000 bond issue SOld for $510,000. Therefore, the bonds: 1'" "Sold at a premium because the stated interest rate was higher than the market rate. ,/ . 5/ ’. Sold for the $500,000 face amount plus $10,000 of accrued interest. f/i . ’ C. sold at a discount because the stated interest rate was higher than the market rate. ia Wold at a premium because the market interest rate was higher than the stated rate. \h N i. \am 12. BOnd X and Bond Y are both issued by the same company. Each of the bonds has a face value of $100,000 and each matures in 10 years. Bond X pays 8% interest while Bond Y pays 9% interest. The current market rate of interest is 8%. Which of the following is correct? A. Both bonds will sell for the same amounW B. Bond X will sell for more than Bond Y. ‘ @Bond Y will sell for more than Bond X. D. Both bonds willsell at a discount. VERSION A 13. Raiders Company issues a bond With a stated interest rate of 10%, face value of $50,000, and due in 5 years. Interest payments are made semi-annually. The market rate for this type of bond is 8%. What is the issue price of the bond? :1. $83,920 R? Soc) b. $4643.20 K . :10 X. S f ,/' .‘54.055 p. , 9C :ROOUU 1:.»an ...;13£.::- 1:; pt: 9 to) 335 T "$3 7?? . ‘HOCM \ Q . x) _ 20/2’77léfis Discount—Mart issues $10 million in bonds on January 1, 2012. The bonds have a ten— year term and pay interest semiannually on June 30 and December 31 each year. Below is a partial bond amortization schedule for the bonds: Cash Interest Decrease in Carrying Date Paid Expense Carrying Value Value 1112 $8.640.967 6.30.12 $300000 $345.63?) $45.63?) 8.686.606 12-31512 300000 347.464 47.464 8.734.070 653013 300.000 349.363 49.363 8.783.433 12-731. 13 300.000 3.5 .337 51.337 8.834770 14. What is the stated annual rate of interest on the bonds? A. 3%. B. 4%. K (7;, . 0. D. 8%. 15. What is the market annual rate of interest on the bonds? A. 3%. B. 4%. ,_ «A p C. 6%. 1/0 m ‘55“; W ' s; l 1' "I ""7 4w 3’) 16. In each succeeding payment on an installment note (like a car or house loan) : A. The amount of interest expense increases. he amount of interest expense decreases. C. The amount of interest expense is unchanged. D. The amounts paid for both interest and principal increase proportionately. X2 issued callable bonds on January 1, 2012. The bonds pay interest annually on December 31 each year. X2’s accountant has projected the following amortization schedule from issuance until maturity: Cash Interest Decrease in Carrying Date Paid Expense Carrying Value Value 1 1 10 $104112 12 11 $711100 $6353 $747 103465 “6208 N _, .N 1 1231 13 7.000 6.160 ' ' ' 840 101.833 12-31 14 7.000 6.110 890 100.943 12 31 15 7.000 6.057 943 100.000 17. X2 buys back the bonds for $103,000 immediately after the interest payment on 12/31/12 and retires them. What gain or loss, if any, would X2 record on this date? A. No gain or loss. B. $3,000 gain. C. $1,202 loss. 18. A bond issued at a premium indicates that at the date of issue: a. Its stated rate was lower than the prevailing market rate of interest on similar bonds. .7. 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. 19. How would the carrying value of bonds payable change over time for bonds issued at a: Discount Premium a. No effect No effect b. No effect Increase Increase Decrease d. Decrease Increase 20. Samson Enterprises issued a ten-year, $20 million bond with a 10% interest rate for $19,500,000. The entry to record the bond issuance would have what effect on the financial statements? a. Increase assets. b. Increase liabilities. 0. Increase stockholders‘ equity. nd. b. 21. Common stockholders usually have all of the following rights except: A. To receive dividends when declared. B. To share in the distribution of assets. C. To elect board of directors. participate in the day—to—day operations. y 22. Which of the following is a reason that a corporation would prefer to issue stock instead of bonds? a. Dividend payments can be deducted for income tax purposes but interest pay-'inents cannot. V. . Expansion accomplished Without surrendering 0\V"11€1'Shll) control. he risk of going bankrupt is less. X All of the above are reasons for issuing stock. 23. The disadvantages of the corporate form of business include: A. Lack of mutual agency. )2" @dditional taxes. C. Limited liabilityéat‘ D. Ability to raise capital}? 24. Outstanding common stock refers to the total number of shares: A. Issued. B. Issued plus treasury stock. @sued less treasury stock. D. Authorized. 25. The par value of shares issued is normally recorded in the: A. Additional Paid—in Capital account. @ommon Stock account. C. Retained Earnings account. D. Treasury Stock account. 26. The balance of Retained Earning at the end of the year represents: a. current year‘s profits less payments to owners. total earnings less pin-11mins to owners over the life of the company. 0. total contrilmtions from owners less withdrawals over the life of the company. d. total earnings over the life of the company. 27. Jade Jewelers issued 15,000 shares of $1 par value st true about the journal entry to record the issuance? a. Credit Common Stock $300,000, ' 0‘ Credit Cash $3 (110.0(le -' 9.; Credit Common Stock $15.01)(). Debit Additional Paid—In (i‘apital $285000. ’ 8. Hayes Corporation issues 100 shares of its $1 par value common stock for $15 per share. The entry to record the issuance will L191 include a: a. Debit to Cash $1.500. I). Credit to Additional Paid-In Capital $1.400. c. Credit to Common Stool; of $100. ("a of the other options would. be included ock for $20 per share. What is 29. Preferred stock is called preferred because it usually has two preferences over common stock. These preferences relate to: A. Dividends and voting rights. 1' ar value and dividends. _’ The preemptive right and voting rights. i i . Dividends and distribution of assets if the corporation is dissolved. 30. Which of the following financing alternatives has the highest preference of payment in a case where the company liquidates its assets (i.e. the company goes out of business)? A. Common Stock. B. Preferred Stock. . onds. . They have equal preference. 31. When treasury stock is resold at a price above cost: A. A gain account is credited. B. A loss is reported. C. A revenue account is credited. @Additional Paid-in Capital is increased. 32. Both cash dividends and stock dividends: A. reduce total assets. B. reduce total liabilities. educe total stockholders' equity. . educe retained earnings. 33. A feature common to both stock splits and stock dividends is a That there no effect on total stockholders equity. 1). A reduction in the contributed capital of a corporation. c. A transfer to earned capital of a COI’pOl’Eltif)lL d. An increase in total liabilities of a corporation. \ 34. How does the stockholders' equity section in the balance sheet differ from the statement of stockholders' equity? A. The stockholders' equity section is more detailed than the statement of stockholders' e uity. . he stockholders' equity section shows balances at a point in time, whereas the statement of stockholders' equity shows activity over a period of time. C. The stockholders' equity section shows activity over a period of time, whereas the statement of stockholders' equity is at a point time. PTThere are no differences between them. i 35. Stock dividends and stock splits are issued primarily to: @Lower the trading price of the stock per share. . Increase the number of authorized shares. C. Increase legal capital. D. Increase the number of outstanding shares. 36. On November 6, Coleman Corp. reacquired 1,000 shares of its $2 par value common stock for $27 each. On November 20, Coleman Corp. reissued 400 shares for $30 each. Which of the following is correct regarding the effect of the journal entry for the reissued shares? A) Debit cash for $800 B) Debit treasury stock for $2000 * Credit Additional Paid in Capital for sizoow D) Debit Common Stock for 2000 2"),{9639 37, The corporation's own stock that has been issued and then repurchased by the company is referred to as: a. Preferred Stock, 1). Authorized Stock. Treasury Stock. d. (30111111011 Stock. 38. The purchase of land is classified in the statement of cash flows as a(n): A. Operating activity. nvesting activity. C. Financing activity. D. Noncash activity. 39. Operating cash flows exclude: A. Interest received. B. Interest paid. \ C. Dividends received. {@Dividends paid. 40. The statement of cash flows reports cash flows from the activities of: A. Operating, purchasing, and investing. B. Borrowing, paying, and investing. s, C. perating, investing, and financing. D. Using, investing, and financing. 41. The purchase of treasury stock is classified in the statement of cash flows as a(n): A. Operating activity. B. Investing activity. @Financing activity. ‘10. Noncash activity. 42. Which of the following is correct about the statement of cash flows? fly A company with a net loss on the income statement will always have a net. cash / V outflow from operating activities. A purchase of equipment is classified as a cash inflow from investing activities @C‘ash dividends received on stock investments are classified as cash flows from x/ operating activities. (I r; Cash dividends paid are classified as cash flows from operating activities. a 43. Under what section of the Statement of Cash Flows would you classify the purchase of equipment by issuing a long—term note payable? 2:. C.)perating. b. \ Investing. 0-. Financing. @Noncash activity. 44. We calculate cash return on assets as A The change in cash divided by average total assets. et cash flows from operating activities divided by average total assets. C. The change in cash divided by ending total assets. D. Met cash flows from operating activities divided by ending total assets. 45. Shively Mfg. Co. sold land costing $10,000 for $12,000. Shively would report: A. Operating cash inflows of $12,000. . Investing cash inflows of $12,000. C. Financing cash inflows of $12,000. D. Financing cash inflows of $2,000. 46. is an investing cash flow and is a financing cash flow, as It a. Issuing bonds; selling investments. Purchasing land; repaying a bank loan. 0. Receiving cash from the sale of inventory; paving cash dividends. d. Purchasing treasury stock; lending cash to an employee. 47. Assuming Net Income for the year is $115,000, what is the Operating Cash Flows given the following information: . ~ _ _M‘ Increase 111 Salaries Payable $15J.){)0 E “ ’ Depreciation Expense *1?" $6000 Increase in Prepaid Rent m $24000 Loss on sale of asset $1000 Increase in Accounts Payable a» $25,000 Increase in Inventory r $504300 a. $111000. 6). $88J)00. c. siisnoo. do sisaoon 48. Kela Corporation reports net income of $450,000 that includes depreciation expense of $70,000. Also, cash of $50,000 was borrowed on a 5—year note payable. Based on this data, total cash inflows from operating activities are: g 15:1,.“ Lré , ; «saws/‘4 ;‘/V// “3‘ iv ~49 a. $380000. b. $470.000. sizmim @Mmooo. 49. Lense Laboratories’ net income was $25 0,000. Given the account information below, what is the net operating cash flows for Lense Laboratories? Increase in Accounts Receivable Increase in Salaries Payable Decrease in Inventory Depreciation Expense Increase in Prepaid Insurance a. $151000. \ b. $278030. I @ $3i2non ‘ c $438imiui). 50. The board of directors of Capstone Inc. declared a $0.60 per share cash dividend on its $1 par common stock. On the date of declaration, there were 50,000 shares authorized, 20,000 shares issued, and 5,000 shares held as treasury stock. What is the entry for the dividend declaration? Retained earnings 9,000 Dividends payable 9,000 Retained earnings 9,000 3 Cash 9,000 Retained earnings 10,000 0 Dividends payable 10,000 Retained earnings 10,000 D Cash 10,000 ...
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Exam 3 - Spring 2011 - Name: M: J Neil (Print) Signature: w...

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