Question 3 (2 Points)

Question 3 (2 points)

When all of the authorized shares have the same rights and characteristics, the stock is called

Question 3 options:

/ Preferred stock.
/ Common stock.
/ Par value stock.
/ Stated value stock.
/ No-par value stock.

Question 4 (2 points)

The total amount of cash and other assets received by a corporation from its stockholders in exchange for its stock is:

Question 4 options:

/ Always equal to its par value.
/ Always equal to its stated value.
/ Referred to as paid-in capital.
/ Referred to as retained earnings.
/ Always below its stated value.

Question 5 (2 points)

Stockholders' equity consists of:

Question 5 options:

/ Long-term assets.
/ Paid-in capital and retained earnings.
/ Paid-in capital and par value.
/ Retained earnings and cash.
/ Premiums and discounts.

Question 6 (2 points)

Stock options are often used to encourage employees to:

Question 6 options:

/ Focus on company performance.
/ Take a long-run approach.
/ Remain with the company.
/ None of these.
/ All of these.

Question 7 (2 points)

The statement of changes in stockholders' equity:

Question 7 options:

/ Is part of the statement of retained earnings.
/ Shows only the ending balances in stockholders' equity.
/ Describes changes in paid-in capital and retained earnings subcategories.
/ Does not include changes in treasury stock.
/ Is reported by very few companies.

Question 8 (2 points)

Retained earnings:

Question 8 options:

/ Generally consists of a company's cumulative net income less any net losses and dividends declared since its inception.
/ Can be subject to a statutory restriction by a state.
/ Can be subject to restrictions due to loan agreements.
/ Can be subject to appropriation by a corporation's directors for special activities.
/ All of these.

Question 9 (2 points)

Shamrock Company had net income of $30,000. The weighted-average common shares outstanding were 8,000. The company sold 3,000 shares before the end of the year. There were no other stock transactions. The company's earnings per share is:

Question 9 options:

/ $3.75.
/ $3.00.
/ $3.33.
/ $10.00.
/ $3.16.

Question 10 (2 points)

A company has net income of $850,000. It has 125,000 weighted-average common shares outstanding, a market value per share of $115, and a book value of $100 per share. The company's price-earnings ratio equals:

Question 10 options:

/ 16.9.
/ 14.7.
/ 92.0.
/ 13.5.
/ 8.0.

Question 11 (2 points)

The dividend yield is computed by dividing:

Question 11 options:

/ Annual cash dividends per share by earnings per share.
/ Earnings per share by cash dividends per share.
/ Annual cash dividends per share by the market value per share.
/ Market price per share by cash dividends per share.
/ Cash dividends per share by retained earnings.

Question 12 (2 points)

Stocks that pay relatively large cash dividends on a regular basis are called:

Question 12 options:

/ Small capital stocks.
/ Mid capital stocks.
/ Growth stocks.
/ Large capital stocks.
/ Income stocks.

Question 13 (2 points)

Book value per common share is computed by:

Question 13 options:

/ Multiplying the number of common shares outstanding times the market price per common share.
/ Dividing total assets by the number of shares outstanding.
/ Dividing stockholders' equity applicable to common shares by the number of common shares outstanding.
/ Multiplying the number of common shares outstanding by par value per share.
/ Dividing the number of common shares outstanding by stockholders' equity applicable to common shares.

Question 14 (2 points)

A corporation was formed on January 1. The corporate charter authorized 100,000 shares of $10 par value common stock. During the first month of operation, the corporation issued 300 shares to its attorneys in payment of a $5,000 charge for drawing up the articles of incorporation. The entry to record this transaction would include:

Question 14 options:

/ A debit to Organization Expenses for $3,000.
/ A debit to Organization Expenses for $5,000.
/ A credit to Common Stock for $5,000.
/ A credit to Paid-in Capital in Excess of Par Value, Common Stock for $5,000.
/ A debit to Paid-in Capital in Excess of Par Value, Common Stock for $2,000.

Question 15 (2 points)

A premium on common stock:

Question 15 options:

/ Is the amount paid in excess of par by purchasers of newly issued stock.
/ Is the difference between par value and issue price when the amount paid is below par.
/ Represents profit from issuing stock.
/ Represents capital gain on sale of stock.
/ Is prohibited in most states.

Question 16 (2 points)

A liability for dividends exists:

Question 16 options:

/ When cumulative preferred stock is sold.
/ On the date of declaration.
/ On the date of record.
/ On the date of payment.
/ For dividends in arrears on cumulative preferred stock.

Question 17 (2 points)

A stock dividend transfers:

Question 17 options:

/ Contributed capital to retained earnings.
/ Retained earnings to contributed capital.
/ Retained earnings to assets.
/ Contributed capital to assets.
/ Assets to contributed capital.

Question 18 (2 points)

A corporation had 10,000 shares of $10 par value common stock outstanding when the board of directors declared a stock dividend of 3,000 shares. At the time of the stock dividend, the market value per share was $12. The entry to record this dividend is:

Question 18 options:

/ Debit Retained Earnings $36,000; credit Common Stock Dividend Distributable $36,000.
/ Debit Retained Earnings $36,000; credit Common Stock Dividend Distributable $30,000; credit Paid-In Capital in Excess of Par Value, Common Stock $6,000.
/ Debit Common Stock Dividend Distributable $36,000; credit Retained Earnings $36,000.
/ Debit Retained Earnings $30,000; credit Common Stock Dividend Distributable $30,000.
/ No entry is needed.

Question 19 (2 points)

Preferred stock which confers no right to prior periods' unpaid dividends if they were not declared is called:

Question 19 options:

/ Noncumulative preferred stock.
/ Participating preferred stock.
/ Callable preferred stock.
/ Cumulative preferred stock.
/ Convertible preferred stock.

Question 20 (2 points)

Preferred stock is often issued:

Question 20 options:

/ To initiate or increase financial leverage.
/ To raise capital without sacrificing control.
/ To appeal to investors who believe that common stock is too risky.
/ To boost the return earned by common shareholders.
/ All of these.

Question 21 (2 points)

Xtreme Sports has $100,000 of 8% noncumulative, nonparticipating, preferred stock outstanding. Xtreme Sports also has $500,000 of common stock outstanding. In the company's first year of operation, no dividends were paid. During the second year, Xtreme Sports paid cash dividends of $30,000. This dividend should be distributed as follows:

Question 21 options:

/ $8,000 preferred; $22,000 common.
/ $16,000 preferred; $14,000 common.
/ $7,500 preferred; $22,500 common.
/ $15,000 preferred; $15,000 common.
/ $0 preferred; $30,000 common.

Question 22 (2 points)

A company issued 7% preferred stock with a $100 par value. This means that:

Question 22 options:

/ Preferred shareholders have a guaranteed dividend.
/ The amount of the potential dividend is $7 per year per preferred share.
/ Preferred shareholders are entitled to 7% of the annual income.
/ The market price per share will approximate $100 per share.
/ Only 7% of the total paid-in capital can be preferred stock.

Question 23 (2 points)

Treasury stock is classified as:

Question 23 options:

/ An asset account.
/ A contra asset account.
/ A revenue account.
/ A contra equity account.
/ A liability account.

Question 24 (2 points)

The retirement of stock:

Question 24 options:

/ Reduces the number of issued shares.
/ Does not reduce the number of authorized shares.
/ Removes all paid-in capital amounts related to the retired shares.
/ Reduces retained earnings if the purchase price exceeds the net amount removed from paid-in capital.
/ All of these.

Question 25 (2 points)

The following data has been collected about a company's stockholders' equity accounts:

The treasury shares were all purchased at the same price.
The cost per share of the treasury stock is:

Question 25 options:

/ $1.15.
/ $1.28.
/ $11.50.
/ $10.50.
/ $10.00.

Question 26 (2 points)

Sinking fund bonds:

Question 26 options:

/ Require the issuer to set aside assets to retire the bonds at maturity.
/ Require equal payments of both principal and interest over the life of the bond issue.
/ Decline in value over time.
/ Are registered bonds.
/ Are bearer bonds.

Question 27 (2 points)

A bond traded at 102½ means that:

Question 27 options:

/ The bond pays 2.5% interest.
/ The bond traded at $1,025 per $1,000 bond.
/ The market rate of interest is 2.5%.
/ The bonds were retired at $1,025 each.
/ The market rate of interest is 2 ½ % above the contract rate.

Question 28 (2 points)

Secured bonds:

Question 28 options:

/ Are called debentures.
/ Have specific assets of the issuing company pledged as collateral.
/ Are backed by the issuer's bank.
/ Are subordinated to those of other unsecured liabilities.
/ Are the same as sinking fund bonds.

Question 29 (2 points)

Bonds owned by investors whose names and addresses are recorded by the issuing company, and for which interest payments are made with checks or cash transfers to the bondholders, are called:

Question 29 options:

/ Callable bonds.
/ Serial bonds.
/ Registered bonds.
/ Coupon bonds.
/ Bearer bonds.

Question 30 (2 points)

Bonds that mature at different dates with the result that the entire principal amount is repaid gradually over a number of periods are known as:

Question 30 options:

/ Registered bonds.
/ Bearer bonds.
/ Callable bonds.
/ Sinking fund bonds.
/ Serial bonds.

Question 31 (2 points)

A company purchased equipment and signed a 7-year installment loan at 9% annual interest. The annual payments equal $9,000. The present value of an annuity for 7 years at 9% is 5.0330. The present value of the loan is:

Question 31 options:

/ $9,000.
/ $5,033.
/ $63,000.
/ $57,330.
/ $45,297.

Question 32 (2 points)

A pension plan

Question 32 options:

/ Is a contractual agreement between an employer and its employees in which the employer provides benefits to employees after they retire.
/ Can be underfunded if the accumulated benefit obligation is more than the plan assets.
/ Can include a plan administrator who receives payments from the employer, invests them in pension assets, and makes benefit payments to pension recipients.
/ Can be a defined benefit plan in which future benefits are set, but the employer's contributions vary depending on assumptions about future pension assets and liabilities.
/ All of these.

Question 33 (2 points)

The party that has the right to exercise the call option on callable bonds is(are):

Question 33 options:

/ The bondholders.
/ The bond issuer.
/ The bond indenture.
/ The bond trustee.
/ The bond underwriter.

Question 34 (2 points)

Which of the following accurately describes a debenture?

Question 34 options:

/ A legal contract between the bond issuer and the bondholders.
/ A type of bond issued in the names and addresses of the bondholders.
/ A type of bond which requires the bond issuer to create a sinking fund of assets set aside at specified amounts and dates to repay the bonds.
/ A type of bond which is not collateralized but backed only by the issuer's general credit standing.
/ A type of bond that can be exchanged for a fixed number of shares of the issuing corporation's common stock.

Question 35 (2 points)

Pitt Corporation's most recent balance sheet reports total assets of $35,000,000 and total liabilities of $17,500,000. Management is considering issuing $5,000,000 of par value bonds (at par) with a maturity date of ten years and a contract rate of 7%. What effect, if any, would issuing the bonds have on the company's debt-to-equity ratio?

Question 35 options:

/ Issuing the bonds would cause the firm's debt-to-equity ratio to improve from 1.0 to 1.3.
/ Issuing the bonds would cause the firm's debt-to-equity ratio to worsen from 1.0 to 1.3.
/ Issuing the bonds would cause the firm's debt-to-equity ratio to remain unchanged.
/ Issuing the bonds would cause the firm's debt-to-equity ratio to improve from .5 to .8.
/ Issuing the bonds would cause the firm's debt-to-equity ratio to worsen from .5 to .8.

Question 36 (2 points)

Tart Company's most recent balance sheet reports total assets of $42,000,000, total liabilities of $16,000,000 and stockholders' equity of $26,000,000. Management is considering using $3,000,000 of excess cash to prepay $3,000,000 of outstanding bonds. What effect, if any, would prepaying the bonds have on the company's debt-to-equity ratio?

Question 36 options:

/ Prepaying the debt would cause the firm's debt-to-equity ratio to improve from .62 to .50.
/ Prepaying the debt would cause the firm's debt-to-equity ratio to improve from .62 to .57.
/ Prepaying the debt would cause the firm's debt-to-equity ratio to worsen from .62 to .50.
/ Prepaying the debt would cause the firm's debt-to-equity ratio to worsen from .62 to .57.
/ Prepaying the debt would cause the firm's debt-to-equity ratio to remain unchanged.

Question 37 (2 points)

A bond sells at a discount when the:

Question 37 options:

/ Contract rate is above the market rate.
/ Contract rate is equal to the market rate.
/ Contract rate is below the market rate.
/ Bond has a short-term life.
/ Bond pays interest only once a year.

Question 38 (2 points)

A company issues 9%, 20-year bonds with a par value of $750,000. The current market rate is 8%. The amount of interest owed to the bondholders for each semiannual interest payment is.

Question 38 options:

/ $60,000.
/ $33,750.
/ $67,500.
/ $30,000.
/ $375,000.

Question 39 (2 points)

On January 1 of Year 1, Drum Line Airways issued $3,500,000 of par value bonds for $3,200,000. The bonds pay interest semiannually on January 1 and July 1. The contract rate of interest is 7% while the market rate of interest for similar bonds is 8%. The bond premium or discount is being amortized at a rate of $10,000 every six months.
The company's December 31, Year 1 balance sheet should reflect total liabilities associated with the bond issue in the amount of:

Question 39 options:

/ $3,220,000.
/ $3,342,500.
/ $3,097,500.
/ $3,780,000.
/ $3,902,500.

Question 40 (2 points)

A company issued 7%, 5-year bonds with a par value of $100,000. The market rate when the bonds were issued was 7.5%. The company received $97,947 cash for the bonds. Using the effective interest method, the amount of interest expense for the first semiannual interest period is:

Question 40 options:

/ $3,500.00.
/ $3,673.01.
/ $3,705.30.
/ $7,000.00.
/ $7,346.03.

Question 41 (2 points)

The market value of a bond is equal to:

Question 41 options:

/ The present value of all future cash payments provided by a bond.
/ The present value of all future interest payments provided by a bond.
/ The present value of the principal for an interest-bearing bond.
/ The future value of all future cash payments provided by a bond.
/ The future value of all future interest payments provided by a bond.

Question 42 (2 points)

A company received cash proceeds of $206,948 on a bond issue with a par value of $200,000. The difference between par value and issue price for this bond is recorded as a:

Question 42 options:

/ Credit to Interest Income.
/ Credit to Premium on Bonds Payable.
/ Credit to Discount on Bonds Payable.
/ Debit to Premium on Bonds Payable.
/ Debit to Discount on Bonds Payable.

Question 43 (2 points)

A company issues at par 9% bonds with a par value of $100,000 on April 1, which is 4 months after the most recent interest date. The cash received for accrued interest on April 1 by the bond issuer is:

Question 43 options:

/ $750.
/ $5,250.
/ $1,500.
/ $3,000.
/ $6,000.

Question 44 (2 points)

A company issued 5-year, 7% bonds with a par value of $100,000. The market rate when the bonds were issued was 6.5%. The company received $101,137 cash for the bonds. Using the straight-line method, the amount of recorded interest expense for the first semiannual interest period is:

Question 44 options:

/ $3,386.30.
/ $3,500.00.
/ $3,613,70.
/ $6,633.70.
/ $7,000.00.

Question 45 (2 points)

A company issued 5-year, 7% bonds with a par value of $100,000. The market rate when the bonds were issued was 6.5%. The company received $101,137 cash for the bonds. Using the effective interest method, the amount of recorded interest expense for the first semiannual interest period is:

Question 45 options:

/ $3,500.00.
/ $7,000.00.
/ $3,286.95.
/ $6,573.90.
/ $1,750.00.

Question 46 (2 points)

A company may retire bonds by:

Question 46 options:

/ Exercising a call option.
/ The holders converting them to stock.
/ Purchasing the bonds on the open market.
/ Paying them off at maturity.
/ All of these.

Question 47 (2 points)

On January 1, Year 1, Merrill Company borrowed $100,000 on a 10-year, 7% installment note payable. The terms of the note require Merrill to pay 10 equal payments of $14,238 each December 31 for 10 years. The required general journal entry to record the first payment on the note on December 31, Year 1 is:

Question 47 options:

/ Debit Interest Expense $7,000; debit Notes Payable $7,238; credit Cash $14,238.
/ Debit Notes Payable $7,000; debit Interest Expense $7,238; credit Cash $14,238.
/ Debit Notes Payable $10,000; debit Interest Expense $7,000; credit Cash $17,000.
/ Debit Notes Payable $14,238; credit Cash $14,238.
/ Debit Notes Payable $10,000; debit Interest Expense $4,238; credit Cash $14,238.

Question 48 (2 points)

On January 1, a company issues bonds dated January 1 with a par value of $300,000. The bonds mature in 5 years. The contract rate is 9%, and interest is paid semiannually on June 30 and December 31. The market rate is 8% and the bonds are sold for $312,177. The journal entry to record the issuance of the bond is:

Question 48 options:

/ Debit Cash $312,177; credit Discount on Bonds Payable $12,177; credit Bonds Payable $300,000.
/ Debit Cash $300,000; debit Premium on Bonds Payable $12,177; credit Bonds Payable $312,177.
/ Debit Bonds Payable $300,000; debit Interest Expense $12,177; credit Cash $312,177.
/ Debit Cash $312,177; credit Premium on Bonds Payable $12,177; credit Bonds Payable $300,000.
/ Debit Cash $312,177; credit Bonds Payable $312,177.

Question 49 (2 points)

On January 1, a company issues bonds dated January 1 with a par value of $400,000. The bonds mature in 5 years. The contract rate is 7%, and interest is paid semiannually on June 30 and December 31. The market rate is 8% and the bonds are sold for $383,793. The journal entry to record the issuance of the bond is:

Question 49 options:

/ Debit Cash $400,000; debit Discount on Bonds Payable $16,207; credit Bonds Payable $416,207.
/ Debit Cash $383,793; debit Discount on Bonds Payable $16,207; credit Bonds Payable $400,000.
/ Debit Bonds Payable $400,000; debit Interest Expense $16,207; credit Cash $416,207.
/ Debit Cash $383,793; debit Premium on Bonds Payable $16,207; credit Bonds Payable $400,000.
/ Debit Cash $383,793; credit Bonds Payable $383,793.

Question 50 (2 points)