Project #42802 - acct

 

 
Xavier and Yolonda have original investments of $50,000 and $100,000 respectively in a partnership. The articles of partnership include the following provisions regarding the division of net income: interest on original investment at 10%, salary allowances of $27,000 and $18,000 respectively, and the remainder equally. How much of the net loss of $6,000 is allocated to Xavier?
 a. $3,000
b. $6,000
c. $1,000
d. $4,000

 

Jackson and Campbell have capital balances of $100,000 and $300,000 respectively. Jackson devotes full time and Campbell one-half time to the business. Determine the division of $150,000 of net income when there is no reference to division in partership agreement.
 a. $100,000 and $50,000
b. $112,500 and $37,500
c. $37,500 and $112,500
d. $75,000 and $75,000

Robert Johnson contributed equipment, inventory, and $42,000 cash to the partnership. The equipment had a book value of $25,000 and market value of $28,000. The inventory has a book value of $50,000, but only had a market value of $15,000 due to obsolescence. The partnership also assumed a $12,000 note payable owed by Robert that was originally used to purchase the equipment. What amount should Robert's capital account be recorded?

 a. $117,000

b. $85,000

c. $105,000

 

d. $73,000

 
 
Soledad and Winston are partners who share income in the ratio of 1:3 and have capital balances of $100,000 and $140,000 at the time they decide to terminate the partnership. After all noncash assets are sold and all liabilities are paid, there is a cash balance of $130,000. What amount of loss on realization should be allocated to Soledad?
 a. $92,500
b. $27,500
c. $32,500
d. $60,000
 
The units of production depreciation method provides a good match of expenses against revenue.
  a. true
 b. false
 
the issue price of zero-coupon bonds is the present value of their face amount.
 
true
 b. false

 

When a property, plant, and equipment asset is sold for cash, any gain or loss on the asset sold should be recorded.

  a. true

 b. false

Residual value is not incorporated in the initial calculations for double-declining-balance depreciation.

  a. true

 b. false

A fixed asset with a cost of $41,000 and accumulated depreciation of $36,000 is traded for a similar asset priced at $50,000. Assuming a trade-in allowance of $4,000, the cost basis of the new asset is

 a. $45,000

b. $51,000

c. $50,000

 

d. $54,000

The prices of bonds are quoted as a percentage of the bonds' market value.

  a. true

 

 b. false

The Limited Liability Company may elect to be manager managed rather than member managed which means that only authorized members may legally bind the corporation.

  a. true

 

 b. false

The Calvin-Dogwood Partnership owns inventory that was purchased for $90,000, has a current replacement cost of $85,900, and is priced to sell for $125,000. At what amount should the inventory be recorded in the accounts of the new partnership if Alexis is to be admitted?

 a. $125,000

b. $85,900

c. $129,100

 

d. $90,000

A fixed asset with a cost of $41,000 and accumulated depreciation of $36,500 is traded for a similar asset priced at $60,000. Assuming a trade-in allowance of $3,000, the recognized loss on the trade is

 a. $4,500

b. $ 500

c. $1,500

 

d. $3,000

As part of the initial investment, a partner contributes equipment that had originally cost $125,000 and on which accumulated depreciation of $100,000 has been recorded. If similar equipment would cost $150,000 to replace and the partners agree on a valuation of $38,000 for the contributed equipment, what amount should be debited to the equipment account?

 a. $125,000

b. $38,000

c. $100,000

 

d. $150,000

When a new partner purchases the entire interest of an old partner, the new partner's capital account should be credited for the amount he or she paid to the old partner.

  a. true

 

 b. false

 

The chart of accounts for a partnership, with the exception of drawing and capital accounts, does not differ from the chart of accounts for a sole proprietorship.

  a. true

 b. false

Machinery was purchased on January 1, 2010 for $51,000. The machinery has an estimated life of 7 years and an estimated salvage value of $9,000. Double-declining balance depreciation for 2011 would be

 a. $10,500

b. $10,929

c. $6,000

 

d. $10,408

 

Both callable and non-callable bonds can be purchased by the issuing corporation in the open market.

  a. true

 b. false

 

If a fixed asset with a book value of $10,000 is traded for a similar fixed asset, and a trade-in allowance of $15,000 is granted by the seller, if the transaction is deemed to have commercial substance, the buyer would report a gain on disposal of fixed assets of $5,000.

  a. true

 

 b. false

Bonds that are subject to retirement at a stated dollar amount prior to maturity at the option of the issuer are called

 a. debentures

b.

options.

 c.

callable bonds.

 d.

early retirement bonds.

A corporation issues for cash $2,000,000 of 8%, 15-year bonds, interest payable annually, at a time when the market rate of interest is 7%. The straight-line method is adopted for the amortization of bond discount or premium. Which of the following statements is true?

 a. The carrying amount decreases from its amount at issuance date to $2,000,000 at maturity.

b. The carrying amount increases from its amount at issuance date to $2,000,000 at maturity.

c. The amount of annual interest paid to bondholders increases over the 15-year life of the bonds.

d. The amount of annual interest expense decreases as the bonds approach maturity.

On December 31, Strike Company has decided to sell one of its batting cages. The initial cost of the equipment was $310,000 with an accumulated depreciation of $260,000. Depreciation has been taken up to the end of the year. The company found a company that is willing to buy the equipment for $55,000. What is the amount of the gain or loss on this transaction?

 a. Gain of $55,000

b. No gain or loss

c. Gain of $ 5,000

d. Cannot be determined

 Which of the following below is an example of a capital expenditure? a. tune-up for a company truck b. cleaning the carpet in the front room c. replacing an engine in a company car d. replacing all burned

-out light bulbs in the factory

Debtors are interested in the times-interest-earned ratio because they want to

 a. be sure their debt is backed by collateral

b. know the tax effect of lending to a corporation

c. have adequate protection against a potential drop in earnings jeopardizing their interest payments

 

d. know what rate of interest the corporation is paying

 

Minerals removed from the earth are classified as intangible assets.

  a. true

 

 b. false

Xavier and Yolonda have original investments of $50,000 and $100,000 respectively in a partnership. The articles of partnership include the following provisions regarding the division of net income: interest on original investment at 15%, salary allowances of $22,000 and $20,000 respectively, and the remainder equally. How much of the net income of $90,000 is allocated to Xavier?

 a. $45,000

b. $47,750

c. $42,250

 

d. $30,250

 

Abby and Bailey are partners who share income in the ratio of 2:1 and have capital balances of $60,000 and $30,000 respectively. With the consent of Bailey, Sandra buys one half of Abby's interest for $35,000. For what amount will Abby's capital account be debited to record admission of Sandra to the partnership?

 a. $35,000

b. $30,000

c. $15,000

d. $40,000

The operating agreement for a Limited Liability Company is sometimes called:

 a. Schedule C

b. articles of partnership

c. articles of organization

 

d. the Uniform Partnership Act

Callable bonds can be redeemed by the issuing corporation at the fair market price of the bonds.

  a. true

 

 b. false

When a partner withdraws from the partnership by selling his or her interest back to the partnership, the remaining partners must pay the withdrawing partner a specified amount from their personal assets.

  a. true

 

 b. false

Assets may be grouped according to common traits and depreciated by using a single composite rate.

  a. true

 

 b. false

 

Expenditures that add to the utility of fixed assets for more than one accounting period are

 a. committed expenditures

b. capital expenditures

c. revenue expenditures

d. utility expenditures

Sinking Fund Income is reported in the income statement as

 a. extraordinary

b. gain on sinking fund transactions

c. income from operations

 

d. other income

The book value of a fixed asset reported on the balance sheet represents its market value on that date.

  a. true

 

 b. false

Alpha and Beta are partners who share income in the ratio of 1:2 and have capital balances of $40,000 and $70,000 at the time they decide to terminate the partnership. After all noncash assets are sold and all liabilities are paid, there is a cash balance of $50,000. What amount of loss on realization should be allocated to Alpha?

 a. $30,000

b. $50,000

c. $20,000

 

d. $60,000

In a partnership liquidation, gains and losses on the sale of partnership assets are divided among the partners' capital accounts on the basis of their capital balances.

  a. true

 b. false

Benson and Orton are partners who share income in the ratio of 1:3 and have capital balances of $70,000 and $30,000 respectively. Ramsey is admitted to the partnership and is given a 40% interest by investing $20,000. What is Orton's capital balance after admitting Ramsey?

 a. $20,000

b. $9,000

c. $63,000

 

d. $70,000

If a partner's capital balance is a debit after it has absorbed its share of the loss on realization, the balance is referred to as a deficiency.

  a. true

 

 b. false

 

When a new partner is admitted to a partnership, there should be a(n)

 a. revaluation of assets

b. return of assets

c. allocation of assets

 

d. realization of assets

 

The times interest earned ratio is calculated by dividing Bonds Payable by Interest Expense.

  a. true

 b. false

 

Partnership income and losses are usually divided on the basis of interest, salaries, and stated ratios because

 a. this method reflects the amount of time devoted to the partnership by the partners

b. partners seldom contribute time and resources equally

c. it prevents arguments among the partners

 

d. it is simpler than following the legal rules

Bonds of major corporations are traded on bond exchanges.

  a. true

 

 b. false

 

Paul and Roger are partners who share income in the ratio of 3:2. Their capital balances are $90,000 and $130,000 respectively. Income Summary has a credit balance of $50,000. What is Roger's capital balance after closing Income Summary to Capital?

 a. $110,000

b. $115,000

c. $155,000

 

d. $150,000

 

Equipment with a cost of $160,000, an estimated residual value of $40,000, and an estimated life of 15 years was depreciated by the straight-line method for 4 years. Due to obsolescence, it was determined that the useful life should be shortened by 3 years and the residual value changed to zero. The depreciation expense for the current and future years is

 a. $16,000

b. $11,000

c. $11,636

 

d. $8,000

Long-lived assets that are intangible in nature, used in the operations of the business, and not held for sale in the ordinary course of business are called fixed assets.

  a. true

 

 b. false

All of the following below are needed for the calculation of straight-line depreciation except

 a. units produced

b. estimated life

c. residual value

 

d. cost

 

On June 1, 2014, Aaron Company purchased equipment at a cost of $120,000 that has a depreciable cost of $90,000 and an estimated useful life of 3 years and 30,000 hours. Using straight line depreciation, calculate depreciation expense for the last year.

 a. $40,000

b. $12,500

c. $17,500

 

d. $30,000

 

When a company replaces a component of property, plant and equipment, which statement below does not account for one of the steps in the process?

 a. book value of the replaced component is written off to depreciation expense

b. any cost to remove the old component is charged to expense

c. the asset cost of the replaced component is credited

d. the identifiable direct costs associated with the new component are capitalized

 

Bonds are sold at face value when the contract rate is equal to the market rate of interest.

  a. true

 

 b. false

 

The balance in a bond discount account should be reported on the balance sheet as a deduction from the related bonds payable.

  a. true

 

 b. false

 

 

If the bondholder has the right to exchange a bond for shares of common stock, the bond is called a convertible bond.

  a. true

 

 b. false

 

A fixed asset with a cost of $52,000 and accumulated depreciation of $47,500 is traded for a similar asset priced at $60,000 in a transaction with commercial substance. Assuming a trade-in allowance of $5,000, the cost basis of the new asset is

 a. $59,500

b. $60,000

c. $54,000

 

d. $60,500

 

 

Revising depreciation estimates does affect the amounts of depreciation expense recorded in past periods.

  a. true

 

 b. false

 

 

If a new partner is to be admitted to a partnership and a bonus is attributed to the old partnership, the bonus should be divided between the capital accounts of the original partners according to their capital balances.

  a. true

 

 b. false

 

 

Sinking Fund Cash would be classified on the balance sheet as

 a. a current asset

b. an intangible asset

c. an investment

 

d. a fixed asset

 

A partnership is subject to federal income taxes.

  a. true

 

 b. false

 

Tomas and Saturn are partners who share income in the ratio of 3:1. Their capital balances are $80,000 and $120,000 respectively. Income Summary has a credit balance of $30,000. What is Tomas' capital balance after closing Income Summary to Capital?

 a. $127,500

b. $22,500

c. $57,500

d. $102,500

 

 

Each partner may withdraw the assets he or she contributed to the partnership at any time.

  a. true

 

 b. false

 

Tomas and Saturn are partners who share income in the ratio of 3:1. Their capital balances are $80,000 and $120,000 respectively. Income Summary has a credit balance of $30,000. What is Saturn's capital balance after closing Income Summary to Capital?

 a. $120,000

b. $112,500

c. $102,500

 

d. $127,500

 

 

If not enough partnership cash or other assets are available to pay the withdrawing partner, a liability may be created for the amount owed the withdrawing partner.

  a. true

 

 b. false

 

 

Samuel and Darci are partners. The partnership capital for Samuel is $50,000 and for Darci is $60,000. Josh is admitted as a new partner by investing $50,000 cash. Josh is given a 20% interest in return for his investment. The amount of the bonus to the old partners is

 a. $8,000

b. $18,000

c. $10,000

 

d. $0

 

 

A disadvantage of partnerships is the mutual agency of all partners.

  a. true

 

 b. false

 

The effective interest method produces a constant dollar amount of interest expense to be reported each interest period.

  a. true

 

 b. false

 

Tomas and Saturn are partners who share income in the ratio of 3:1. Their capital balances are $40,000 and $60,000 respectively. Income Summary has a credit balance of $20,000. What is Tomas's capital balance after closing Income Summary to Capital?

 a. $65,000

b. $55,000

c. $75,000

 

d. $45,000

 

A ratio of 3:2:1 is the same as

 a. 30%:20%:10%

b. 3/6:2/6:1/6

c. 3/10:2/10:1/20

 

d. None of these

 

When a new partner is admitted by making an investment in the partnership, the old partners' capital accounts are always credited.
  a. true
 b. false

 

Details of the division of partnership income should normally be disclosed in the financial statements.

  a. true

 b. false

 

Adriana and Belen are partners who share income in the ratio of 3:2 and have capital balances of $50,000 and $90,000 at the time they decide to terminate the partnership. After all noncash assets are sold and all liabilities are paid, there is a cash balance of $90,000. How much cash should be distributed to Adriana?

 a. $50,000

b. $20,000

c. $45,000

 

d. $30,000

 

 

If the net income of a partnership is less than the total of the allowances provided by the partnership agreement, the difference must be divided among the partners in the income-sharing ratio.

  a. true

 

 b. false

 

 

In the distribution of income, the net income is less than the salary and interest allowances granted; the remaining balance will be a negative amount that must be divided among the partners as though it were a loss.

  a. true

 

 b. false

 

 

Douglas pays Selena $45,000 for her 30% interest in a partnership with total net assets of $125,000. Following this transaction, Douglas' capital account should have a credit balance of

 a. $13,500

b. $37,500

c. more than $45,000

 

d. $45,000

 

Once the useful life of a depreciable asset has been estimated and the amount to be depreciated each year has been determined, the amounts can not be changed.

  a. true

 

 b. false

 

Partners Ken and Macki each have a $40,000 capital balance and share income and losses in a 3:2. Cash equals $20,000, noncash assets equal $120,000, and liabilities equal $60,000. If the noncash assets are sold for $60,000, and both partners agree to make up an capital deficits with personal cash contributions, Partner Macki will eventually receive cash of

 a. $0.

b. $4,000.

c. $24,000.

 

d. $16,000.

 

 

Partners Ken and Macki each have a $40,000 capital balance and share income and losses in a 3:2. Cash equals $20,000, noncash assets equal $120,000, and liabilities equal $60,000. If the noncash assets are sold for $50,000, and each partner is personally insolvent, Partner Macki will eventually receive cash of

 a. $0.

b. $12,000.

c. $20,000.

d. $10,000.

Benton and Orton are partners who share income in the ratio of 1:3 and have capital balances of $70,000 and $30,000 respectively. Ramsey is admitted to the partnership and is given a 40% interest by investing $20,000. What is Benton's capital balance after admitting Ramsey?

 a. $63,000

b. $70,000

c. $7,000

 

d. $20,000

 

 

The depreciation method that does not use residual value in calculating the first year's depreciation expense is a. double-declining-balance b. units-of-production c. straight-line d. none of the above

 

A change in the ownership of a partnership results in the a. realization of the partnership b. dissolution of the partnership c. consolidating of the partnership d. liquidating of the partnership 

 

X sells to A one-half of a partnership capital interest that totals $70,000 for $40,000. A's capital account in the partnership should be credited for $40,000. a. true b. false 

 

 

When a partnership is formed, assets contributed by the partners should be recorded on the partnership books at their a. book values on the partners' books prior to their being contributed to the partnership b. assessed values for property purposes c. original costs to the partner contributing them d. fair market value at the time of the contribution

 

When a new partner is admitted to a partnership, all partnership assets should be revised to reflect current prices.

  a. true

 

 b. false

 

Partnership's asset accounts should be changed from cost to fair market value when a new partner is admitted to a firm or an existing partner withdraws and dies.

  a. true

 

 b. false

 

Ofelia and Teresa share income and losses in a 2:1 ratio after allowing for salaries to Ofelia of $48,000 and $60,000 to Teresa. Net income for the partnership is $132,000. Income should be divided as follows:

 a. Ofelia, $72,000; Teresa, $60,000

b. Ofelia, $64,000; Teresa, $68,000

c. Ofelia, $60,000; Teresa, $72,000

 

d. Ofelia, $56,000; Teresa, $76,000

 

The capital accounts of Hawk and Martin have balances of $160,000 and $140,000, respectively, on January 1, 2010, the beginning of the current fiscal year. On April 10, Hawk invested an additional $10,000. During the year, Hawk and Martin withdrew $86,000 and $68,000, respectively, and net income for the year was $258,000. The articles of partnership make no reference to the division of net income.

Based on this information, the statement of partners' equity for 2010 would show what amount as total capital for the partnership on December 31, 2010?

 a. $412,600

b. $404,000

c. $384,600

 

d. $414,000

 

 

Singer and McMann are partners in a business. Singer's original capital was $40,000 and McMann's was $60,000. They agree to salaries of $12,000 and $18,000 for Singer and McMann respectively and 10% interest on original capital. If they agree to share remaining profits and losses on a 3:2 ratio, what will McMann's share of the income be if the income for the year was $15,000?

 a. $14,000

b. $9,400

c. $6,000

d. $12,600

  

On January 1, 2014, Gemstone Company obtained a $165,000, 10-year, 7% installment note from Guarantee Bank. The note requires annual payments of $23,492, with the first payment occurring on the last day of the fiscal year. The first payment consists of interest of $11,550 and principal repayment of $11,942. The journal entry to record the issuance of the installment note for cash on January 1, 2014 would include:

 a. a credit to Interest Payable of $11,550

b. a debit to Notes Payable of $165,000

c. a credit to Notes Payable of $165,000

 

d. a debit to Interest Expense of $11,550

 

 

After all noncash assets have been converted to cash and all liabilities paid, A, B, and C have capital balances of $10,000 (debit), $5,000 (debit), and $25,000 (credit). The cash available for distribution to the partners is $10,000.

  a. true

 

 b. false

 

 

 

A machine with a cost of $75,000 has an estimated residual value of $5,000 and an estimated life of 4 years or 18,000 hours. What is the amount of depreciation for the second full year, using the double declining-balance method?

 a. $18,750

b. $37,500

c. $17,500

 

d. $16,667

 

Xavier and Yolanda have original investments of $50,000 and $100,000 respectively in a partnership. The articles of partnership include the following provisions regarding the division of net income: interest on original investment at 20%, salary allowances of $34,000 and $26,000 respectively, and the remainder equally. How much of the net income of $100,000 is allocated to Xavier?

 a. $49,000

b. $56,000

c. $51,000

d. $50,000

 

Compton and Danson form a partnership in which Compton contributes $70,000 in assets and agrees to devote half time to the partnership. Danson contributed $50,000 in assets and agrees to devote full time to the partnership. If no additional information is available, how will Compton and Danson share in the division of income?

 a. 1:2

b. 1:1

c. 5:2

d. 5:7

 

 

Sarno has a capital balance of $42,000 after adjusting the assets to fair market value. Minton contributes $22,000 to receive a 30% interest in the new partnership. The bonus paid by Minton is $2,800.

  a. true

 

 b. false

 

 

The characteristic of a partnership that gives the authority to any partner to legally bind the partnership and all other partners to business contracts is called

 a. mutual agency

b. unlimited liability

c. ease of formation

 

d. dissolution

 

A partnership liquidation occurs when

 a. the assets are sold, liabilities paid, and business operations terminated

b. a new partner is admitted

c. the ownership interest of one partner is sold to a new partner

 

d. a partner dies

 

Singer and McMann are partners in a business. Singer's original capital was $40,000 and McMann's was $60,000. They agree to salaries of $12,000 and $18,000 for Singer and McMann respectively and 10% interest on original capital. If they agree to share remaining profits and losses on a 3:2 ratio, what will Singer's share of the income be if the income for the year was $50,000?

 a. $23,400

b. $22,000

c. $24,000

d. $16,000

 

  

 

A partner withdraws from a partnership by selling her interest to another person who currently is not associated with the firm. As a results of this transaction, the capital account balance of the other partners in the partnership

 a. may increase, decrease, or remain the same

b. will decrease

c. will remain the same

d. will increase

 

A corporation issues for cash $10,000,000 of 8%, 30-year bonds, interest payable annually, at a time when the market rate of interest is 9%. The straight-line method is adopted for the amortization of bond discount or premium. Which of the following statements is true?

 a. The amount of annual interest expense decreases as the bonds approach maturity.

b. The amount of annual interest paid to bondholders remains the same over the life of the bonds.

c. The carrying amount decreases from its amount at issuance date to $10,000,000 at maturity.

 

d. The amount of annual interest paid to bondholders increases over the 30-year life of the bonds.

 

 

Alma Corp. issues 1,000 shares of $10 par value common stock at $14 per share. When the transaction is recorded, credits are made to:

 a. Common Stock $10,000 and Paid-in Capital in Excess of Par Value $4,000.

b. Common Stock $14,000.

c. Common Stock $10,000 and Retained Earnings $4,000.

 

d. Common Stock $4,000 and Paid-in Capital in Excess of Stated Value $10,000.

 

If $1,000,000 of 8% bonds are issued at 105, the amount of cash received from the sale is

 a. $950,000

b. $1,080,000

c. $1,050,000

 

d. $1,000,000

 

The cumulative effect of the declaration and payment of a cash dividend on a company's financial statements is to

 a.

increase total expenses and total liabilities.

 b.

decrease total liabilities and stockholders' equity.

 c.

increase total assets and stockholders' equity.

 d.

decrease total assets and stockholders' equity.

 

  

Treasury stock shares are

 a. unissued shares that are held by the treasurer of the corporation

b. part of the total outstanding shares but not part of the total issued shares of a corporation

c. shares held by the U.S. Treasury Department

 

d. issued shares that have been reacquired by a corporation

 

 

A restriction/appropriation of retained earnings establishes cash assets that are set aside for a specific purpose.

  a. true

 

 b. false

 

All of the following are normally found in a corporation's stockholders' equity section except

 a. Paid-In Capital in Excess of Par

b. Retained Earnings

c. Common Stock

 

d. Dividends in Arrears

 

 

Twenty percent of all businesses in the United States are corporations and they account for 80% of the total business dollars generated.

  a. true

 

 b. false

 

 

A corporation has 60,000 shares of $25 par value stock outstanding that has a current market value of $120. If the corporation issues a 5-for-1 stock split, the number of shares outstanding will be:

 a. 60,000

b. 30,000

c. 300,000

 

d. 10,000

 

A corporation has 50,000 shares of $28 par value stock outstanding that has a current market value of $150. If the corporation issues a 4-for-1 stock split, the market value of the stock will fall to approximately

 a. $7.00

b. $112.00

c. $37.50

 

d. $600.00

 

If the market rate of interest is 10%, a $10,000, 12%, 10-year bond that pays interest semiannually would sell at an amount

 a. that cannot be determined.

b. greater than face value.

c. equal to the face value.

 

d. less than face value.

 

 

If 50,000 shares are authorized, 41,000 shares are issued, and 2,000 shares are reacquired, the number of outstanding shares is 43,000.

  a. true

 

 b. false

 

 

When a corporation issues stock at a premium, it reports the premium as an other income item on the income statement.

  a. true

 

 b. false

 

While some businesses have been granted charters under state laws, most businesses receive their charters under federal laws.

  a. true

 

 b. false

 

A corporation has 50,000 shares of $25 par value stock outstanding that has a current market value of $150. If the corporation issues a 5-for-1 stock split, the market value of the stock after the split will be approximately:

 a. $5

b. $25

c. $150

 

d. $30

 

 

The authorized stock of a corporation

 a. is indicated in its by-laws.

b. must be recorded in a formal accounting entry.

c. is indicated in its charter.

 

d. only reflects the initial capital needs of the company.

 

 

When no-par stock is issued, the Common Stock account is credited for the selling price of the stock issued.

  a. true

 

 b. false

 

The issuance of common stock affects both paid-in capital and retained earnings.

  a. true

 

 b. false

 

The reduction in the par or stated value of common stock, accompanied by the issuance of a proportionate number of additional shares, is called a stock split.

  a. true

 

 b. false

 

The price at which a stock can be sold depends upon a number of factors. Which statement below is not one of those factors?

 a. investor expectations of the corporation's earning power

b.

how high the par value is

 c. the financial condition, earnings record, and dividend record of the corporation

 

d. general business and economic conditions and prospects

 

 

A corporation has 50,000 shares of $25 par value stock outstanding. If the corporation issues a 3-for-1 stock split, the number of shares outstanding after the split will be

 a. 16,666 shares

b. 50,000 shares

c. 100,000 shares

 

d. 150,000 shares

 

 

What is the total stockholders' equity based on the following account balances?

Common Stock$375,000

Paid-In Capital in Excess of Par90,000

Retained Earnings190,000

Treasury Stock15,000

 a. $565,000

b. $670,000

c. $640,000

 

d. $655,000

 

 

A 10% stock dividend will increase the number of shares outstanding but the book value per share will decrease.

  a. true

 

 b. false

 

 

Which of the following statements is not true about a 2-for-1 split?

 a. A stockholder with ten shares before the split owns twenty shares after the split.

b.

The market price will probably decrease.

 c.

Par value per share is reduced to half of what it was before the split.

 

 d. Total contributed capital increases.

 

Those most responsible for the major policy decisions of a corporation are the

 a. board of directors.

b.

management.

 c.

stockholders.

 d. employees.

 

  

One of the main disadvantages of the corporate form is the

 a. professional management

b. charter

c. corporation must issue stock

 

d. double taxation of dividends

 

The Sneed Corporation issues 10,000 shares of $50 par value preferred stock for cash at $75 per share. The entry to record the transaction will consist of a debit to Cash for $750,000 and a credit or credits to

 a. Preferred Stock for $500,000 and Retained Earnings for $250,000.

b. Paid-in Capital from Preferred Stock for $750,000.

c. Preferred stock for $500,000 and Paid-in Capital in Excess of Par Value—Preferred Stock for $250,000.

 

d. Preferred Stock for $750,000.

 

The primary purpose of a stock split is to

 a. increase paid-in capital

b. reduce the market price of the stock per share

c. increase retained earnings

 

d. increase the market price of the stock per share

 

 

The financial loss that each stockholder in a corporation can incur is usually limited to the amount invested by the stockholder.

  a. true

 

 b. false

 

The primary purpose of a stock split is to reduce the number of shares outstanding in order to encourage more investors to enter the market for the company's shares.

  a. true

 

 b. false

 

The entry to record the issuance of common stock at a price above par includes a debit to

 a. Cash

b. Paid-In Capital in Excess of Par-Common Stock

c. Organizational Expenses

 

d. Common Stock

 

 

A corporation has 10,000 shares of $100 par value stock outstanding. If the corporation issues a 5-for-1 stock split, the number of shares outstanding after the split will be 40,000.

  a. true

 

 b. false

 

 

 

Under the Internal Revenue Code, corporations are required to pay federal income taxes.

  a. true

 

 b. false

 

Paid-in capital may originate from real estate donated to the corporation.

  a. true

 

 b. false

 

 

A sale of treasury stock may result in a decrease in paid-in-capital. All decreases should be charged to the Paid-In-Capital from Sale of Treasury account.

  a. true

 

 b. false

 

 

 

When old equipment is traded in for a new equipment, the difference between the list price and the trade in allowance is called boot.

  a. true

 

 b. false

 

 

When exchanging equipment, if the trade-in allowance is greater than the book value a loss results.

  a. true

 

 b. false

 

 

Callable bonds are redeemable by the issuing corporation within the period of time and at the price stated in the bond indenture.

  a. true

 

 b. false

 

On January 1, 20xx, Swenson Corporation had 40,000 shares of $10 par value common stock issued and outstanding. All 40,000 shares had been issued in a prior period at $20.00 per share. On February 1, 20xx, Swenson purchased 4,000 shares of treasury stock for $24 per share and later sold the treasury shares for $21 per share on March 1, 20xx. The journal entry to record the purchase of the treasury shares on February 1, 20xx, would include a

 a. credit to a gain account for $120,000.

b. credit to Treasury Stock for $96,000.

c. debit to Treasury Stock for $96,000.

 

d. debit to a loss account for $120,000

 

When no-par common stock with a stated value is issued for cash, the common stock account is credited for an amount equal to the cash proceeds.

  a. true

 

 b. false

 

 

The entry to record the issuance of 150 shares of $5 par common stock at par to an attorney in payment of legal fees for organizing the corporation includes a credit to

 a. Goodwill

b. Cash

c. Common Stock

 

d. Organizational Expenses

 

Which of the following is the appropriate general journal entry to record the declaration of a cash dividends?

 a.

Cash Dividends payable

Cash

b.

Retained earnings

 

Cash

 c.

Cash Dividends

Cash Dividends Payable

d.

Paid-in capital

 

Cash Dividends payable

 

 

Nexis Corp. issues 1,000 shares of $15 par value common stock at $22 per share. When the transaction is recorded, credits are made to:

 a.

Common Stock $22,000 and Retained Earnings $15,000.

 b.

Common Stock $22,000.

 c.

Common Stock $7,000 and Paid-in Capital in Excess of Stated Value $15,000.

 d.

Common Stock $15,000 and Paid-in Capital in Excess of Par Value $7,000.

 

  

 

Stockholders' equity

 a. includes paid-in capital and liabilities

b. is usually equal to cash on hand

c. includes retained earnings and paid-in capital

 

d. is shown on the income statement

 

 

 

If the dividend amount of preferred stock, $50 par value, is quoted as 8%, then the dividends per share would be $4.

  a. true

 

 b. false

 

 

On December 31, Strike Company has decided to sell one of its batting cages. The initial cost of the equipment was $310,000 with an accumulated depreciation of $260,000. Depreciation has been taken up to the end of the year. The company found a company that is willing to buy the equipment for $50,000. What is the amount of the gain or loss on this transaction?

 a. Cannot be determined

b. Loss of $50,000

c. No gain or loss

 

d. Gain of $50,000

 

 

The day on which the board of directors of the corporation distributes a dividend is called the declaration date.

  a. true

 

 b. false

 

Under the corporate form of business organization

 a. stockholders' acts can bind the corporation even though the stockholders have not been appointed as agents of the corporation.

b. a stockholder is personally liable for the debts of the corporation.

c. ownership rights are easily transferred.

 

d. stockholders wishing to sell their corporation shares must get the approval of other stockholders.

 

A capital expenditure results in a debit to

 a. a liability account

b. an expense account

c. a capital account

 

d. an asset account

 

When a company discards machinery that is fully depreciated, this transaction would be recorded with the following entry

 a. debit Depreciation Expense; credit Accumulated Depreciation

b. debit Machinery; credit Accumulated Depreciation

c. debit Cash; credit Accumulated Depreciation

 

d. debit Accumulated Depreciation; credit Machinery

 

 

An intangible asset is one that has a physical existence.

  a. true

 

 b. false

 

A legal document that indicates the name of the issuer, the face value of the bond and such other data is called

 a.

a bond debenture.

 b.

a bond certificate.

 c.

convertible bond.

 d.

trading on the equity.

 

  

Which of the following is included in the cost of land?

 a. fences on the land

b. cost of paving a parking lot

c. outdoor parking lot lighting attached to the land

d. brokerage commission

 

  

 

Sabas Company has 20,000 shares of $100 par, 2% cumulative preferred stock and 100,000 shares of $50 par common stock. The following amounts were distributed as dividends:

Year 1:$10,000

Year 2:45,000

Year 3:90,000

Determine the dividends per share for preferred and common stock for the second year.

 a. $2.25 and $0.00

b. $2.00 and $0.45

c. $0.00 and $0.45

 

d. $2.25 and $0.45

 

 

When determining whether to record an asset as a fixed asset, what two criteria must be met?

 a. Must be a tangible asset and must be an investment.

b. Must be long lived and must use the asset in a productive manner.

c. Must be short lived and must be a tangible asset.

 

d. Must be an investment and must be long lived.

 

 

Which one of the following would not be considered an advantage of the corporate form of organization?

 a. Separate legal existence

b.

Government regulation

 c.

Limited liability of stockholders

 d.

 

Continuous life

 

 

Which of the following statements concerning taxation is accurate?

 a. Corporations pay federal and state income taxes.

b. Corporations pay income taxes but their owners do not.

c. Corporations pay federal income taxes but not state income taxes.

 

d. Only the owners must pay taxes on corporate income.

 

Merritt Company acquired a building valued at $210,000 for property tax purposes in exchange for 12,000 shares of its $5 par common stock. The stock is widely traded and selling for $18 per share. At what amount should the building be recorded by Merritt Company?

 a. $216,000

b. $156,000

c. $60,000

 

d. $210,000

 

 

Which of the following would appear as a prior-period adjustment?

 a. loss from the restructuring of assets

b. loss resulting from the sale of fixed assets

c. error in the computation of depreciation expense in the preceding year

 

d. difference between the actual and estimated uncollectible accounts receivable

 

 

Cash dividends are normally paid on shares of treasury stock.

  a. true

 

 b. false

 

 

Cash dividends become a liability to a corporation on the date of record.

  a. true

 

 b. false

 

 

The main source of paid-in-capital is from issuing stock.

  a. true

 

 b. false

 

 

The charter of a corporation provides for the issuance of 100,000 shares of common stock. Assume that 40,000 shares were originally issued and 10,000 were subsequently reacquired. What is the number of shares outstanding?

 a. 10,000

b. 40,000

c. 30,000

 

d. 50,000

 

 

Sabas Company has 20,000 shares of $100 par, 2% cumulative preferred stock and 100,000 shares of $50 par common stock. The following amounts were distributed as dividends:

Year 1:$10,000

Year 2:45,000

Year 3:90,000

Determine the dividends per share for preferred and common stock for the first year.

 a. $0.00 and $0.10

b. $0.50 and $0.00

c. $0.50 and $0.10

 

d. $2.00 and $0.00

 

The par value of common stock must always be equal to its market value on the date the stock is issued.

  a. true

 

 b. false

 

A corporation purchased 1,000 shares of its $5 par common stock at $10 and subsequently sold 500 of the shares at $20. What is the amount of revenue realized from the sale?

 a. $0

b. $2,500

c. $5,000

 

d. $10,000

 

The date on which a cash dividend becomes a binding legal obligation is on the

 a.

date of record.

 b.

declaration date.

 c. payment date.

d.

 

last day of the fiscal year.

 

Which of the following is not a right possessed by common stockholders of a corporation?

 a. the right to share in assets upon liquidation

b. the right to receive a minimum amount of dividends

c. the right to vote in the election of the board of directors

 

d. the right to sell their stock to anyone they choose

 

The par value of stock is an arbitrary per share amount defined in many states as legal capital.

  a. true

 

 b. false

 

Which of the following is not classified as paid-in capital on the balance sheet?

 a. treasury stock

b. common stock

c. donated capital

 

d. common stock distributable

 

Which of the following is not true of a corporation?

 a.

The acts of its owners bind the corporation.

 b.

It may buy, own, and sell property.

 c.

It may sue and be sued.

 d.

 

It may enter into binding legal contracts in its own name.

 

 

The declaration of a cash dividend decreases a corporation's stockholders equity and decreases its assets.

  a. true

 

 b. false

 

 

The stock dividends distributable account is listed in the current liability section of the balance sheet.

  a. true

 

 b. false

 

Accumulated Depreciation

 a. is used to show the amount of cost expiration of intangibles

b. is the same as Depreciation Expense

c. is a contra asset account

 

d. is used to show the amount of cost expiration of natural resources

 

 

 

Regardless of the depreciation method, the amount that will be depreciated during the life of the asset will be the same.

  a. true

 

 b. false

 

 

The buyer determines how much to pay for bonds by computing the present value of future cash receipts using the contract rate of interest.

  a. true

 

 b. false

 

 

The balance in Retained Earnings should be interpreted as representing surplus cash left over for dividends.

  a. true

 

 b. false

 

 

When Bayou Corporation was formed on January 1, 20xx, the corporate charter provided for 100,000 share of $10 par value common stock. The following transaction was among those engaged in by the corporation during its first month of operation: The corporation issued 9,000 shares of stock at a price of $23 per share. The entry to record the above transaction would include a

 a. credit to Paid in Capital in Excess of Par for $117,000

b. debit to Common Stock for $90,000

c. credit to Common Stock for $207,000

 

d. debit to Cash for $90,000

 

 

Par value

 a. represents what a share of stock is worth.

b. is established for a share of stock after it is issued.

c. is the monetary value assigned per share in the corporate charter.

 

d. represents the original selling price for a share of stock.

 

 

Organizational expenses are classified as intangible assets on the balance sheet.

  a. true

 

 b. false

 

 

Treasury stock which was purchased for $3,000 is sold for $3,500. As a result of these two transactions combined

 a. stockholders' equity will be increased by $3,500

b. stockholders' equity will be increased by $500

c. stockholders' equity will not change

 

d. income will be increased by $500

 

 

 

 

Zero-coupon bonds do not provide for interest payments.

  a. true

 

 b. false

 

 

The face value of a term bond is payable at a single specific date in the future.

  a. true

 

 b. false

 

 

An operating lease is accounted for as if the lessee has purchased the asset.

  a. true

 

 b. false

 

 

The Reagan Corporation issues 1,000, 10-year, 8%, $1,000 bonds dated January 1, 2014, at 92. The journal entry to record the issuance will show a

 a.

credit to Cash for $920,000.

 b.

debit to Cash of $1,000,000.

 c.

credit to Bonds Payable for $1,000,000.

 d.

 

credit to Discount on Bonds Payable for $80,000.

 

 

Both the initial cost of the asset and the accumulated depreciation will be taken off the books with the disposal of the asset.

  a. true

 

 b. false

 

 

 

If bonds are issued at a discount, it means that the

 a.

market interest rate is higher than the contractual interest rate.

 b.

bondholder will receive effectively less interest than the contractual rate of interest.

 c. market interest rate is lower than the contractual interest rate.

d.

financial strength of the issuer is suspect.

 

 

 

Expenditures that increase operating efficiency or capacity for the remaining useful life of a fixed asset are betterments.

  a. true

 

 b. false

 

 

The price of a bond is equal to the sum of the interest payments and the face amount of the bonds.

  a. true

 

 b. false

 

 

On the first day of the fiscal year, Lisbon Co. issued $1,000,000 of 10-year, 7% bonds for $1,050,000, with interest payable semiannually. Orange Inc. purchased the bonds on the issue date for the issue price. If the company uses the straight-line method for amortizing the premium, the journal entry to record the first semiannual interest payment by Lisbon Co. would include a debit to:

 a. Premium on Bonds Payable for $5,500

b. Cash for $70,000

c. Interest Expense for $32,500

 

d. Interest Payable for $30,000

 

 

A $300,000 bond was redeemed at 98 when the carrying value of the bond was $296,000. The entry to record the redemption would include a

 a. gain on bond redemption of $2,000.

b. loss on bond redemption of $2,000.

c. gain on bond redemption of $4,000.

 

d. loss on bond redemption of $4,000.

 

 

The interest rate specified in the bond indenture is called the

 a. discount rate

b. effective rate

c. market rate

 

d. contract rate

 

 

 

Bondholders claims on the assets of the corporation rank ahead of stockholders.

  a. true

 

 b. false

 

 

Which of the following is not an advantage of issuing bonds instead of common stock?

 a.

Tax savings result

 b.

Income to common shareholders may increase.

 c. Earnings per share on common stock may be lower.

 

d. Stockholder control is not affected.

 

 

If the market rate of interest is 8% and a corporation's bonds bear interest at 7%, the bonds will sell at a premium.

  a. true

 

 b. false

 

 

When the maturities of a bond issue are spread over several dates, the bonds are called

 a. debenture bonds

b. bearer bonds

c. term bonds

 

d. serial bonds

 

 

 

 

 

 

 

  

 

 

 

 

 

 

 

 

 

 

  

 

 

 

 

  

 

 

 

  

 

 

 

 

 

 

 

 

 

 

 

 

  

 

 

 

 

 

 

 

 

 

 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

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