Make your own free website on Tripod.com
 
    Name:     ID: 
 
    Email: 

ACC 2052 Test #1

Multiple Choice
Identify the letter of the choice that best completes the statement or answers the question.
 

1. 

The account Investment in Bonds is reported:
a.
at fair market value because that is all that is required
b.
at cost as a long-term asset less any amortized premium, or plus any amortized discount
c.
at cost as a long-term asset less Discount on Bond Investments or plus Premium on Bond Investments
d.
at cost as a long-term liability along with the current portion reported as a current liability
 

2. 

Extraordinary items should not be:
a.
unusual and infrequent in nature
b.
identified in the income statement as extraordinary items
c.
reported in the income statement net of related income tax
d.
reported in the balance sheet
 

3. 

On the statement of cash flows, a $20,000 gain on the sale of fixed assets would be:
a.
deducted from dividends declared in converting the dividends declared to the cash flows from financing activities related to dividends
b.
added to net income in converting the net income reported on the income statement to cash flows from operating activities
c.
added to dividends declared in converting the dividends declared to the cash flows from financing activities related to dividends
d.
deducted from net income in converting the net income reported on the income statement to cash flows from operating activities
 

4. 

The journal entry a company records for the issuance of bonds when the contract rate is greater than the market rate would be:
a.
debit Bonds Payable, credit Cash
b.
debit Cash and Discount on Bonds Payable, credit Bonds Payable
c.
debit Cash, credit Premium on Bonds Payable and Bonds Payable
d.
debit Cash, credit Bonds Payable
 

5. 

If a gain of $100,000 is incurred in selling equipment having a book value of $250,000, the total amount reported in the cash flows from investing activities section of the statement of cash flows is:
a.
$100,000
b.
$350,000
c.
$150,000
d.
$250,000
 

6. 

The board of directors voted to appropriate $100,000 of retained earnings for contingencies.  What is the effect of the appropriation on cash and total retained earnings?
a.
no effect on cash or total retained earnings
b.
cash increases, total retained earnings increases
c.
cash increases, total retained earnings decreases
d.
cash decreases, total retained earnings decreases
 

7. 

Cash dividends of $100,000 were declared during the year, and the balance in the cash dividends payable account at the beginning and at the end of the year was $20,000 and $35,000, respectively.  What amount would be reported as payment of dividends in the cash flows from financing activities section of the statement of cash flows?
a.
$35,000
b.
$100,000
c.
$115,000
d.
$85,000
 

8. 

Bonds issued on the general credit of the issuing corporation are called:
a.
debenture bonds
b.
term bonds
c.
serial bonds
d.
callable bonds
 

9. 

Sinking Fund Income is reported in the income statement as:
a.
gain on sinking fund transactions
b.
extraordinary income
c.
income from operations
d.
other income
 

10. 

Which of the following is not one of the four basic financial statements?
a.
statement of changes in financial position
b.
income statement
c.
balance sheet
d.
statement of cash flows
 

11. 

When the market rate of interest on bonds is higher than the contract rate, the bonds will sell at:
a.
their face value
b.
a premium
c.
a discount
d.
their maturity value
 

12. 

Which of the following is not a part of comprehensive income?
a.
unrealized gains and losses
b.
additions to stockholders' equity from issuing common stock
c.
foreign currency items
d.
pension liability adjustments
 

13. 

On the statement of cash flows prepared by the indirect method, the cash flows from operating activities section would include:
a.
receipts from the sale of investments
b.
payments for cash dividends
c.
amortization of premium on bonds payable
d.
receipts from the issuance of capital stock
 

14. 

On May 1, $200,000 of bonds were purchased as a long-term investment at 98 and $390 was paid as the brokerage commission.  If the bonds bear interest at 10%, which is paid semiannually on January 1 and July 1, what is the total cost to be debited to the investment account?
a.
$200,390
b.
$196,000
c.
$200,000
d.
$196,390
 

15. 

The net income reported on the income statement for the current year was $125,000.  Depreciation recorded on fixed assets and amortization of bond discount for the year were $15,000 and $7,000, respectively.  What is the amount of cash flows from operating activities that would appear on the statement of cash flows prepared by the indirect method?
a.
$125,000
b.
$140,000
c.
$147,000
d.
$128,000
 

16. 

One potential advantage of financing corporations through the use of bonds rather than common stock is:
a.
the interest expense is deductible for tax purposes by the corporation
b.
the interest on bonds must be paid when due
c.
the corporation must pay the bonds at maturity
d.
a higher earnings per share is guaranteed for existing common shareholders
 

17. 

The entry to record the amortization of a discount on bonds payable is:
a.
debit Interest Expense, credit Cash
b.
debit Interest Expense, credit Discount on Bonds Payable
c.
debit Bonds Payable, credit Interest Expense
d.
debit Discount on Bonds Payable, credit Interest Expense
 

18. 

During the year in which Parent Company owned 80% of the outstanding common stock of Subsidiary Company, the subsidiary reported net income of $390,000 and dividends declared and paid of $45,000.  What is the amount of net increase in minority interest for the year?
a.
$360,000
b.
$69,000
c.
$45,000
d.
$390,000
 

19. 

On the statement of cash flows, the cash flows from operating activities section would include:
a.
receipts from the sale of investments
b.
cash receipts from sales activities
c.
payments for the acquisition of investments
d.
receipts from the issuance of capital stock
 

20. 

A corporation paid $670,000 of federal income tax during the year, based on estimated income. What journal entry should be recorded at the end of the year if the corporation has underpaid its taxes?
a.
Debit Income Tax, credit Income Tax Payable
b.
Debit Income Tax Receivable, credit Income Tax
c.
Debit Income Tax Receivable, credit Cash
d.
Debit Income Tax, credit Deferred Income Tax
 

21. 

Bonds Payable has a balance of $1,000,000 and Discount on Bonds Payable has a balance of $12,500.  If the issuing corporation redeems the bonds at 98, what is the amount of gain or loss on redemption?
a.
$7,500 gain
b.
$32,000 loss
c.
$32,000 gain
d.
$7,500 loss
 

22. 

The amortization of discount on bonds purchased as a long-term investment:
a.
decreases the amount of the investment account
b.
increases the amount of the investment account
c.
increases the amount of interest expense
d.
decreases the amount of interest expense
 

23. 

Parent Corporation owns 80% of the outstanding common stock of Subsidiary Company, which has no preferred stock outstanding.  What is the term applied to the remaining stock interest?
a.
parent interest
b.
majority interest
c.
minority interest
d.
subsidiary interest
 

24. 

Based on the following information, what is earnings per share?

Common shares outstanding at the beginning
 
  of the accounting period
200,000
Common shares outstanding at the end of the
 
  accounting period
240,000
Weighted-average common shares outstanding
 
  during the period
230,000
Preferred stock dividend declared and paid
$ 80,000
Preferred stock dividend in arrears
$ 20,000
Net income
$600,000
a.
$2.608
b.
$3.00
c.
$2.1667
d.
$2.2608
 

25. 

When callable bonds are redeemed below carrying value:
a.
Retained Earnings is credited
b.
Retained Earnings is debited
c.
Loss on Redemption of Bonds is debited
d.
Gain on Redemption of Bonds is credited
 

26. 

Cash paid to purchase long-term investments would be reported in the statement of cash flows in:
a.
the cash flows from investing activities section
b.
the cash flows from financing activities section
c.
the cash flows from operating activities section
d.
a separate schedule
 

27. 

A corporation issues for cash $6,000,000 of 14%, 30-year bonds, interest payable annually, at a time when the market rate of interest is 13%.  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 unamortized discount decreases from its balance at issuance date to a zero balance at maturity.
b.
The amount of the annual interest expense is computed at 14% of the bond carrying amount at the beginning of the year.
c.
The amount of unamortized premium decreases from its balance at issuance date to a zero balance at maturity.
d.
The amount of the annual interest expense gradually increases over the life of the bonds.
 

28. 

Retained earnings:
a.
over time will have a direct relationship with the amount of cash on hand if the corporation is profitable
b.
is the same as contributed capital
c.
cannot have a debit balance
d.
changes are summarized in the retained earnings statement
 

29. 

On the statement of cash flows, the cash flows from investing activities section would include:
a.
receipts from the sale of investments
b.
receipts from the issuance of capital stock
c.
payments for retirement of bonds payable
d.
payments for dividends
 

30. 

Boen Corporation purchased 40% of the outstanding shares of common stock of Logan Corporation as a long-term investment.  Subsequently, Logan Corporation reported net income and declared and paid cash dividends.  What journal entry would Boen Corporation use to record its share of the earnings of Logan Corporation?
a.
debit Investment in Logan Corporation; credit Income of Logan Corporation
b.
debit Investment in Logan Corporation Stock; credit Cash
c.
debit Cash; credit Investment in Logan Corporation
d.
debit Cash; credit Dividend Revenue
 

31. 

The following information is available for Willing Corp.:

 
2003
Market price per share of common stock
$36.00
Earnings per share on common stock
  3.00

Which of the following statements is correct?
a.
The market price per share and the earnings per share are not statistically related to each other.
b.
The price-earnings ratio is 8.3% and a share of common stock was selling for 8.3% more than the amount of earnings per share at the end of 2003.
c.
The price-earnings ratio is 12 and a share of common stock was selling for 150 times the amount of earnings per share at the end of 2003.
d.
The price-earnings ratio is 12 and a share of common stock was selling for 12 times the amount of earnings per share at the end of 2003.
 

32. 

Free cash flow is:
a.
cash flow from operations, less cash used to purchase fixed assets to maintain productive capacity and cash used for dividends
b.
cash from operations
c.
all cash in the bank
d.
cash from financing, less cash used to purchase fixed assets to maintain productive capacity and cash used for dividends
 

33. 

The statement of retained earnings can be combined with the:
a.
balance sheet
b.
statement of stockholders' equity
c.
income statement
d.
statement of cash flows
 

34. 

The net income reported on the income statement for the current year was $250,000.  Depreciation recorded on fixed assets and amortization of bond premium for the year were $20,000 and $8,000, respectively.  What is the amount of cash flows from operating activities that would appear on the statement of cash flows prepared by the indirect method?
a.
$262,000
b.
$270,000
c.
$242,000
d.
$278,000
 

35. 

On the statement of cash flows, the cash flows from financing activities section would include all of the following except:
a.
payments for redemption of bonds payable
b.
receipts from the issuance of bonds payable
c.
payments for interest on bonds payable
d.
receipts from the issuance of capital stock
 

36. 

Which of the following is an example of a temporary difference between taxable income and reported income?
a.
using the straight-line depreciation method for income statement reporting and MACRS depreciation for taxable income
b.
using the installment method of determining revenue for taxable income and for income statement reporting
c.
using the straight-line depreciation method for some assets and MACRS depreciation for other assets
d.
including tax-exempt municipal bond interest in net income and not including any tax-exempt municipal bond interest in taxable income
 

37. 

The journal entry a company records for the payment of interest, interest expense, and amortization of bond premium is:
a.
debit Interest Expense, credit Cash and Premium on Bonds Payable
b.
debit Interest Expense and Premium on Bonds Payable, credit Cash
c.
debit Interest Expense, credit Cash
d.
debit Interest Expense, credit Interest Payable and Premium on Bonds Payable
 

38. 

The bond indenture may provide that funds for the payment of bonds at maturity be accumulated over the life of the issue.  The amounts set aside are kept separate from other assets in a special fund called a(n):
a.
sinking fund
b.
special assessments fund
c.
enterprise fund
d.
general fund
 

39. 

Bonds that may be exchanged for other securities under certain conditions are called:
a.
serial bonds
b.
callable bonds
c.
debenture bonds
d.
convertible bonds
 

40. 

Cash flows from operating activities, as reported on the statement of cash flows using the indirect method, would include:
a.
net income
b.
payments for dividends
c.
receipts from the issuance of capital stock
d.
receipts from the sale of investments
 

41. 

Which of the following types of transactions would be reported as a cash flow from investing activity on the statement of cash flows?
a.
issuance of capital stock
b.
purchase of noncurrent assets
c.
issuance of bonds payable
d.
purchase of treasury stock
 

42. 

Which of the following is an example of a permanent difference between taxable income and reported income?
a.
using the installment method of determining revenue for taxable income and recognizing revenue when the sale is made for income statement reporting
b.
including tax-exempt municipal bond interest in net income and not including any tax-exempt municipal bond interest in taxable income
c.
using the straight-line depreciation method for income statement reporting and MACRS depreciation for taxable income
d.
using the straight-line depreciation method for taxable income and MACRS depreciation for income statement reporting
 

43. 

Land costing $75,000 was sold for $60,000 cash.  The loss on the sale was reported on the income statement as other expense.  On the statement of cash flows, what amount should be reported as an investing activity from the sale of land?
a.
$180,000
b.
$60,000
c.
$100,000
d.
$20,000
 

44. 

A Company owns 16,000 of the 50,000 shares of common stock outstanding of T Company and exercises a significant influence over its operating and financial policies.  The investment should be accounted for by the:
a.
cost method
b.
equity method
c.
market method
d.
cost or market method
 

45. 

The statement of cash flows reports:
a.
total assets
b.
total changes in stockholders' equity
c.
changes in retained earnings
d.
cash flows from operating activities
 

46. 

A business issues 20-year bonds payable in exchange for preferred stock.  This transaction would be reported on the statement of cash flows in:
a.
the cash flows from financing activities section
b.
the cash flows from operating activities section
c.
a separate schedule
d.
the cash flows from investing activities section
 

47. 

When the contract rate of interest on bonds is higher than the market rate of interest, the bonds sell at:
a.
their face value
b.
their maturity value
c.
a premium
d.
a discount
 

48. 

Cash dividends of $75,000 were declared during the year.  Cash dividends payable were $10,000 and $20,000 at the beginning and end of the year, respectively.  The amount of cash for the payment of dividends during the year is:
a.
$65,000
b.
$55,000
c.
$20,000
d.
$10,000
 

49. 

G Company owns 90% of the outstanding stock of K company.  K Company is referred to as the:
a.
affiliate
b.
parent
c.
subsidiary
d.
minority interest
 

50. 

The net income reported on the income statement for the current year was $300,000.  Depreciation recorded on fixed assets and amortization of patents for the year were $50,000 and $12,000, respectively.  Balances of current asset and current liability accounts at the end and at the beginning of the year are as follows:

 
End  
Beginning
Cash
$ 50,000
$ 60,000 
Accounts receivable
112,000
108,000 
Inventories
105,000
93,000 
Prepaid expenses
4,500
6,500 
Accounts payable  (merchandise creditors)
75,000
89,000 

What is the amount of cash flows from operating activities reported on the statement of cash flows prepared by the indirect method?
a.
$200,000
b.
$334,000
c.
$344,000
d.
$362,000
 



 
Submit          Reset Help