Multiple Choice Answers

CLICK HERE TO DOWNLOAD THIS TUTORIAL INSTANTLY $24 Only

Question 1
Current liabilities are expected to be paid within one year or the operating cycle, whichever is longer.
True
False

Question 2
During the month, a company sells goods for a total of $108,000, which includes sales taxes of $8,000; therefore, the company should recognize $100,000 in Sales Revenues and $8,000 in Sales Tax Expense.
True
False

Question 3
Current maturities of long-term debt are often identified as long-term debt due within one year on the balance sheet.
True
False

Question 4
Bond interest paid by a corporation is an expense, whereas dividends paid are not an expense of the corporation.
True
False

Question 5
A debenture bond is an unsecured bond which is issued against the general credit of the borrower.
True
False

Question 6
If $150,000 face value bonds are issued at 102, the proceeds received will be $102,000.
True
False

Question 7
Discount on bonds is an additional cost of borrowing and should be recorded as interest expense over the life of the bonds.
True
False

Question 8
A corporation that issues bonds at a discount will recognize interest expense at a rate which is greater than the market interest rate.
True
False

Question 9
If bonds are issued at a discount, the issuing corporation will pay a principal amount less than the face amount of the bonds on the maturity date.
True
False

Question 10
If bonds are issued at a premium, the carrying value of the bonds will be greater than the face value of the bonds for all periods prior to the bond maturity date.
True
False

Question 11
If the market interest rate is greater than the contractual interest rate, bonds will sell at a discount.
True
False

Question 12
If $800,000, 8% bonds are issued on January 1, and pay interest semiannually, the amount of interest paid on July 1 will be $32,000.
True
False

Question 13
The carrying value of bonds is calculated by adding the balance of the Discount on Bonds Payable account to the balance in the Bonds Payable account.
True
False

Question 14
The loss on bond redemption is the difference between the cash paid and the carrying value of the bonds.
True
False

Question 15
Bonds that mature at a single specified future date are called term bonds.
True
False

Question 16
The terms of the bond issue are set forth in a formal legal document called a bond indenture.
True
False

Question 17
Premium on Bonds Payable is a contra account to Bonds Payable.
True
False

Question 18
All of the following are reported as current liabilities except
accounts payable.
bonds payable.
notes payable.
unearned revenues.

Question 19
Liabilities are classified on the balance sheet as current or
deferred.
unearned.
long-term.
accrued.

Question 20
A corporation is not an entity which is separate and distinct from its owners.
True
False

Question 21
A corporation must be incorporated in each state in which it does business.
True
False

Question 22
A stockholder has the right to vote in the election of the board of directors.
True
False

Question 23
A proxy is a legal document that instructs a stockholder’s agent how to vote shares of stock for the stockholder.
True
False

Question 24
Treasury stock should not be classified as a current asset.
True
False

Question 25
Treasury stock purchased for $25 per share that is reissued at $20 per share, results in a Loss on Sale of Treasury Stock being recognized on the income statement.
True
False

Question 26
A 3 for 1 common stock split will increase total stockholders’ equity but reduce the par or stated value per share of common stock.
True
False

Question 27
Retained earnings represents the amount of cash available for dividends.
True
False

Question 28
Common Stock Dividends Distributable is shown within the Paid-in Capital subdivision of the stockholders’ equity section of the balance sheet.
True
False

Question 29
A dividend based on paid-in capital is termed a liquidating dividend.
True
False

Question 30
The chief accounting officer in a company is known as the
controller.
treasurer.
vice-president.
president.

Question 31
From the standpoint of the issuing company, a disadvantage of using bonds as a means of long-term financing is that
bond interest is deductible for tax purposes.
interest must be paid on a periodic basis regardless of earnings.
income to stockholders may increase as a result of trading on the equity.
the bondholders do not have voting rights.

Question 32
Investors who receive checks in their names for interest earned on bonds must hold
registered bonds.
coupon bonds.
bearer bonds.
direct bonds.

Question 33
A bondholder that sends in a coupon to receive interest payments must have a(n)
unsecured bond.
bearer bond.
mortgage bond.
serial bond.

Question 34
A $1,000 face value bond with a quoted price of 98 is selling for
$1,000.
$980.
$908.
$98.

Question 35
A bond with a face value of $100,000 and a quoted price of 102 1/4 has a selling price of
$120,225.
$102,025.
$100,225.
$102,250.

Question 36
Mendez Corporation issues 2,000, 10-year, 8%, $1,000 bonds dated January 1, 2008, at 103. The journal entry to record the issuance will show a
debit to Cash of $2,000,000.
credit to Premium on Bonds Payable for $60,000.
credit to Bonds Payable for $2,030,000.
credit to Cash for $2,060,000.

Question 37
On the date of issue, Chudzick Corporation sells $2 million of 5-year bonds at 97. The entry to record the sale will include the following debits and credits:

Question 38
Becker Company is a publicly held corporation whose $1 par value stock is actively traded at $20 per share. The company issued 2,000 shares of stock to acquire land recently advertised at $50,000. When recording this transaction, Becker Company will
debit Land for $50,000.
credit Common Stock for $40,000.
debit Land for $40,000.
credit Paid-In Capital in Excess of Par Value for $48,000.

Question 39
New Corp. issues 1,000 shares of $10 par value common stock at $14 per share. When the transaction is recorded, credits are made to
Common Stock $10,000 and Paid-in Capital in Excess of Stated Value $4,000.
Common Stock $14,000.
Common Stock $10,000 and Paid-in Capital in Excess of Par Value $4,000.
Common Stock $10,000 and Retained Earnings $4,000.

Question 40
Kim, Inc. issued 5,000 shares of stock at a stated value of $10/share. The total issue of stock sold for $15/share. The journal entry to record this transaction would include a
debit to Cash for $50,000.
credit to Common Stock for $50,000.
credit to Paid-in Capital in Excess of Par Value for $25,000.
credit to Common Stock for $75,000.

Question 41
Rancho Corporation sold 100 shares of treasury stock for $40 per share. The cost for the shares was $30. The entry to record the sale will include a
credit to Gain on Sale of Treasury Stock for $3,000.
credit to Paid-in Capital from Treasury Stock for $1,000.
debit to Paid-in Capital in Excess of Par Value for $1,000.
credit to Treasury Stock for $4,000.

Question 42
Each of the following is correct regarding treasury stock except that it has been
issued.
fully paid for.
reacquired.
retired.

Question 43
Dividends in arrears on cumulative preferred stock
never have to be paid.
must be paid before common stockholders can receive a dividend.
should be recorded as a current liability until they are paid.
enable the preferred stockholders to share equally in corporate earnings with the common stockholders.

Question 44
The cumulative effect of the declaration and payment of a cash dividend on a company’s financial statements is to
decrease total liabilities and stockholders’ equity.
increase total expenses and total liabilities.
increase total assets and stockholders’ equity.
decrease total assets and stockholders’ equity.

Question 45
If a corporation declares a 10% stock dividend on its common stock, the account to be debited on the date of declaration is
Common Stock Dividends Distributable.
Common Stock.
Paid-in Capital in Excess of Par.
Retained Earnings.

Question 46
Which of the following is not a significant date with respect to dividends?
The declaration date
The incorporation date
The record date
The payment date

Question 47
On the dividend record date,
a dividend becomes a current obligation.
no entry is required.
an entry may be required if it is a stock dividend.
Dividends Payable is debited.

Question 48
The declaration and distribution of a stock dividend will
increase total stockholders’ equity.
increase total assets.
decrease total assets.
have no effect on total assets.

Question 49
On January 1, Sandford Corporation had 80,000 shares of $10 par value common stock outstanding. On June 17, the company declared a 10% stock dividend to stockholders of record on June 20. Market value of the stock was $15 on June 17. The entry to record the transaction of June 17 would include a
debit to Retained Earnings for $120,000.
credit to Cash for $120,000.
credit to Common Stock Dividends Distributable for $120,000.
credit to Common Stock Dividends Distributable for $40,000.

Question 50
A prior period adjustment that corrects income of a prior period requires that an entry be made to
an income statement account.
a current year revenue or expense account.
the retained earnings account.
an asset account.