Diamond Company borrowed
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| Use the following to answer question 56: | ||||||||||
| Diamond Company borrowed $500,000 from BankTwo on January 1, 2006 in order to expand its mining capabilities. The five-year note required | ||||||||||
| annual payments of $130,218 and carried an annual interest rate of 9.5%. | ||||||||||
| 56 | What is the amount of expense Diamond must recognize on its 2007 income statement? | |||||||||
| A) | $47,500 | |||||||||
| B) | $39,642 | |||||||||
| C) | $35,129 | |||||||||
| D) | $31,037 | |||||||||
| Use the following to answer questions 57-60: | ||||||||||
| Silcon Company issued $800,000 of 6%, 10-year bonds on one of its interest dates for $690,960 to yield an effective annual rate of 8%. | ||||||||||
| The effective-interest method of amortization is to be used. | ||||||||||
| 57 | What amount of discount (to the nearest dollar) should be amortized for the first interest period? | |||||||||
| A) | $22,542 | |||||||||
| B) | $10,904 | |||||||||
| C) | $14,554 | |||||||||
| D) | $7,277 | |||||||||
| 58 | The journal entry on the first interest payment date, to record the payment of interest and amortization of discount will include a | |||||||||
| A) | debit to Bond Interest Expense for $48,000. | |||||||||
| B) | credit to Cash for $55,277. | |||||||||
| C) | credit to Discount on Bonds Payable for $7,277. | |||||||||
| D) | debit to Bond Interest Expense for $64,000. | |||||||||
| 59 | How much bond interest expense (to the nearest dollar) should be reported on the income statement for the end of the first year? | |||||||||
| A) | $55,422 | |||||||||
| B) | $55,277 | |||||||||
| C) | $55,131 | |||||||||
| D) | $48,000 | |||||||||
| 60 | The journal entry to be recorded at the end of the second year for the payment of interest and the amortization of discount will include a | |||||||||
| A) | debit to Bond Interest Expense for $48,000. | |||||||||
| B) | credit to Cash for $55,859. | |||||||||
| C) | credit to Discount on Bonds Payable for $7,277. | |||||||||
| D) | credit to Discount on Bonds Payable for $7,859. | |||||||||
| 61 | A company receives $132, of which $12 is for sales tax. The journal entry to record the sale would include a | |||||||||
| A) | debit to Sales Tax Expense for $12. | |||||||||
| B) | credit to Sales Tax Payable for $12. | |||||||||
| C) | debit to Sales for $132. | |||||||||
| D) | debit to Cash for $120. | |||||||||
| 62 | Jensen Company issued ten-year, 9%, bonds payable in 2007 at a premium. During 2007, the company's accountant failed to amortize any of the | |||||||||
| bond premium. The omission of the premium amortization will | ||||||||||
| A) | not affect net income for 2007. | |||||||||
| B) | cause retained earning at the end of 2007 to be overstated. | |||||||||
| C) | cause net income for 2007 to be overstated. | |||||||||
| D) | cause net income for 2007 to be understated. | |||||||||
| Use the following to answer question 63: | ||||||||||
| Porter Company received proceeds of $211,500 on 10-year, 8% bonds issued on January 1, 2006. The bonds had a face value of $200,000, pay interest | ||||||||||
| annually on December 31st, and have a call price of 102. Porter uses the straight-line method of amortization. | ||||||||||
| 63 | What is the amount of interest expense Porter will show with relation to these bonds for the year ended December 31, 2007? | |||||||||
| A) | $16,000 | |||||||||
| B) | $16,920 | |||||||||
| C) | $14,850 | |||||||||
| D) | $12,550 | |||||||||
| 64 | Failure to record a liability will probably | |||||||||
| A) | result in an overstated net income. | |||||||||
| B) | result in overstated total liabilities and owner's equity. | |||||||||
| C) | have no effect on net income. | |||||||||
| D) | result in understated total assets. | |||||||||
| 65 | The Muffin Company issued a five-year interest-bearing note payable for $75,000 on January 1, 2006. Each January the company is required to pay | |||||||||
| $15,000 on the note. How will this note be reported on the December 31, 2007, balance sheet? | ||||||||||
| A) | Long-term Debt, $75,000 | |||||||||
| B) | Long-term Debt, $60,000 | |||||||||
| C) | Long-term Debt, $45,000; Long-term Debt due within one year, $15,000 | |||||||||
| D) | Long-term Debt of $60,000; Long-term Debt due within one year, $15,000 | |||||||||
| 66 | The adjusted trial balance for Lifesaver Corp. at the end of the current year, 2007, contained the following accounts. | |||||||||
| 5-year Bonds Payable 8% | $1,000,000 | |||||||||
| Bond Interest Payable | 50,000 | |||||||||
| Premium on Bonds Payable | 100,000 | |||||||||
| Notes Payable (3 mo.) | 40,000 | |||||||||
| Notes Payable (5 yr.) | 165,000 | |||||||||
| Mortgage Payable ($15,000 due currently) | 200,000 | |||||||||
| Salaries Payable | 18,000 | |||||||||
| Taxes Payable (due 3/15 of next yr) | 25,000 | |||||||||
| The total long-term liabilities reported on the balance sheet are | ||||||||||
| A) | $1,365,000 | |||||||||
| B) | $1,350,000 | |||||||||
| C) | $1,465,000 | |||||||||
| D) | $1,450,000 | |||||||||
| 67 | The sale of bonds above face value | |||||||||
| A) | is a rare occurrence. | |||||||||
| B) | will cause the total cost of borrowing to be less than the bond interest paid. | |||||||||
| C) | will cause the total cost of borrowing to be more than the bond interest paid. | |||||||||
| D) | will have no net effect on Interest Expense by the time the bonds mature. | |||||||||
| 68 | Lahey Corporation retires its $500,000 face value bonds at 105 on January 1, following the payment of annual interest. The carrying value of the bonds at the | |||||||||
| redemption date is $518,725. The entry to record the redemption will include a | ||||||||||
| A) | credit of $18,725 to Loss on Bond Redemption. | |||||||||
| B) | debit of $18,725 to Premium on Bonds Payable. | |||||||||
| C) | credit of $6,275 to Gain on Bond Redemption. | |||||||||
| D) | debit of $25,000 to Premium on Bonds Payable. | |||||||||
| 69 | A measure of a company's solvency is the | |||||||||
| A) | acid-test ratio. | |||||||||
| B) | current ratio. | |||||||||
| C) | times interest earned ratio. | |||||||||
| D) | asset turnover ratio. | |||||||||
| 70 | In a recent year Dillon Corporation had net income of $130,000, interest expense of $20,000, and tax expense of $30,000. What was Dillon Corporation's | |||||||||
| times interest earned ratio for the year? | ||||||||||
| A) | 6.5 | |||||||||
| B) | 7.5 | |||||||||
| C) | 8 | |||||||||
| D) | 9 | |||||||||
| 71 | The Paid-in Capital in Excess of Par Value is increased in the accounting records when | |||||||||
| A) | the number of shares issued exceeds par value. | |||||||||
| B) | the stated value of capital stock is greater than the par value. | |||||||||
| C) | the market value of the stock rises above par value. | |||||||||
| D) | capital stock is issued at an amount greater than par value. | |||||||||
| Use the following to answer questions 72-73: | ||||||||||
| The Ice Corporation issues 30,000 shares of $50 par value preferred stock for cash at $60 per share. | ||||||||||
| 72 | The entry to record the transaction will consist of a debit to Cash for $1,800,000 and a credit or credits to | |||||||||
| A) | Preferred Stock for $1,800,000. | |||||||||
| B) | Preferred Stock for $1,500,000 and Paid-in Capital in Excess of Par Value-Preferred Stock for $300,000. | |||||||||
| C) | Preferred Stock for $1,500,000 and Retained Earnings for $300,000. | |||||||||
| D) | Paid-in Capital from Preferred Stock for $1,800,000. | |||||||||
| 73 | In the stockholders' equity section, the effects of the transaction above will be reported | |||||||||
| A) | entirely within the capital stock section. | |||||||||
| B) | entirely within the additional paid-in capital section. | |||||||||
| C) | under both the capital stock and additional paid-in capital sections. | |||||||||
| D) | entirely under the retained earnings section. | |||||||||
| 74 | What is the total stockholders' equity based on the following account balances? | |||||||||
| Common Stock | $550,000 | |||||||||
| Paid-In Capital in Excess of Par | 50,000 | |||||||||
| Retained Earnings | 180,000 | |||||||||
| Treasury Stock | 30,000 | |||||||||
| A) | $600,000 | |||||||||
| B) | $810,000 | |||||||||
| C) | $780,000 | |||||||||
| D) | $750,000 | |||||||||
| 75 | Sun Inc. has 5,000 shares of 6%, $100 par value, cumulative preferred stock and 50,000 shares of $1 par value common stock outstanding at December 31, 2007. | |||||||||
| What is the annual dividend on the preferred stock? | ||||||||||
| A) | $60 per share | |||||||||
| B) | $30,000 in total | |||||||||
| C) | $3,000 in total | |||||||||
| D) | $0.60 per share | |||||||||
| 76 | If common stock is issued for an amount greater than par value, the excess should be credited to | |||||||||
| A) | Cash. | |||||||||
| B) | Retained Earnings. | |||||||||
| C) | Paid-in Capital in Excess of Par Value. | |||||||||
| D) | Legal Capital. | |||||||||
| 77 | Treasury shares plus outstanding shares equal | |||||||||
| A) | authorized stock. | |||||||||
| B) | issued stock. | |||||||||
| C) | unissued stock. | |||||||||
| D) | distributable stock. | |||||||||
| 78 | Which of the following represents the largest number of common shares? | |||||||||
| A) | Treasury shares | |||||||||
| B) | Issued shares | |||||||||
| C) | Outstanding shares | |||||||||
| D) | Authorized shares | |||||||||
| 79 | A corporation purchases 20,000 shares of its own $20 par common stock for $35 per share, recording it at cost. What will be the effect on total stockholders' | |||||||||
| equity? | ||||||||||
| A) | Increase by $700,000 | |||||||||
| B) | Decrease by $400,000 | |||||||||
| C) | Decrease by $700,000 | |||||||||
| D) | Decrease by $400,000 | |||||||||
| 80 | Treasury stock should be reported in the financial statements of a corporation as a(n) | |||||||||
| A) | investment. | |||||||||
| B) | liability. | |||||||||
| C) | deduction from total paid-in capital. | |||||||||
| D) | deduction from total paid-in capital and retained earnings. | |||||||||
| Use the following to answer question 81: | ||||||||||
| Carter Corporation had net income of $250,000 and paid dividends of $50,000 to common stockholders and $20,000 to preferred stockholders in 2007. | ||||||||||
| Carter Corporation's common stockholders' equity at the beginning and end of 2007 was $870,000 and $1,130,000, respectively. | ||||||||||
| 81 | Carter Corporation's payout ratio for 2007 was | |||||||||
| A) | $5 per share. | |||||||||
| B) | 25%. | |||||||||
| C) | 20%. | |||||||||
| D) | 12.5%. | |||||||||
| 82 | Those most responsible for the major policy decisions of a corporation are the | |||||||||
| A) | stockholders. | |||||||||
| B) | board of directors. | |||||||||
| C) | management. | |||||||||
| D) | employees. | |||||||||
| 83 | On January 1, Garrison Corporation had 1,000,000 shares of $10 par value common stock outstanding. On March 31 the company declared a 10% stock dividend. | |||||||||
| Market value of the stock was $15/share. As a result of this event, | ||||||||||
| A) | Garrison's Paid-in Capital in Excess of Par Value account increased $500,000. | |||||||||
| B) | Garrison's total stockholders' equity was unaffected. | |||||||||
| C) | Garrison's Retained Earnings account decreased $1,500,000. | |||||||||
| D) | All of the above. | |||||||||
| 84 | The date on which a cash dividend becomes a binding legal obligation is on the | |||||||||
| A) | declaration date. | |||||||||
| B) | date of record. | |||||||||
| C) | payment date. | |||||||||
| D) | last day of the fiscal year end. | |||||||||
| 85 | The board of directors of Weston Company declared a cash dividend of $1.50 per share on 42,000 shares of common stock on July 15, 2007. The dividend is to | |||||||||
| be paid on August 15, 2007, to stockholders of record on July 31, 2007. The correct entry to be recorded on July 15, 2007, will include a | ||||||||||
| A) | debit to Dividends Payable | |||||||||
| B) | debit to Retained Earnings. | |||||||||
| C) | credit to Cash. | |||||||||
| D) | credit to Retained Earnings. | |||||||||
| 86 | Accounts receivable arising from sales to customers amounted to $80,000 and $70,000 at the beginning and end of the year, respectively. Income reported | |||||||||
| on the income statement for the year was $240,000. Exclusive of the effect of other adjustments, the cash flows from operating activities to be reported | ||||||||||
| on the statement of cash flows is | ||||||||||
| A) | $240,000.00 | |||||||||
| B) | $250,000.00 | |||||||||
| C) | $310,000.00 | |||||||||
| D) | $230,000.00 | |||||||||
| 87 | The cost of goods sold during the year was $165,000. Merchandise inventory decreased by $6,000 during the year and accounts payable decreased by $3,000 | |||||||||
| during the year. Using the direct method of reporting cash flows from operating activities, cash payments for merchandise total | ||||||||||
| A) | $168,000.00 | |||||||||
| B) | $162,000.00 | |||||||||
| C) | $156,000.00 | |||||||||
| D) | $174,000.00 | |||||||||
| 88 | Bent Company reports a $20,000 increase in inventory and a $5,000 decrease in accounts payable during the year. Cost of Goods Sold for the year was $150,000. | |||||||||
| Using the direct method of reporting cash flows from operating activities, cash payments made to suppliers were | ||||||||||
| A) | $150,000.00 | |||||||||
| B) | $165,000.00 | |||||||||
| C) | $175,000.00 | |||||||||
| D) | $135,000.00 | |||||||||
| 89 | Simon Company had credit sales of $1,050,000. The beginning accounts receivable balance was $60,000 and the ending accounts receivable balance was | |||||||||
| $210,000. Using the direct method of reporting cash flows from operating activities, what were the cash collections from customers during the period? | ||||||||||
| A) | $1,200,000 | |||||||||
| B) | $1,050,000 | |||||||||
| C) | $900,000 | |||||||||
| D) | $1,110,000 | |||||||||
| 90 | A company had net income of $242,000. Depreciation expense is $26,000. During the year, accounts receivable and inventory increased $15,000 and $40,000, | |||||||||
| respectively. Prepaid expenses and accounts payable decreased $2,000 and $4,000, respectively. There was also a loss on the sale of equipment of $3,000. | ||||||||||
| How much cash was provided by operating activities? | ||||||||||
| A) | $214,000.00 | |||||||||
| B) | $207,000.00 | |||||||||
| C) | $274,000.00 | |||||||||
| D) | $295,000.00 | |||||||||
| 91 | Which of the following would be added to net income using the indirect method? | |||||||||
| A) | An increase in accounts receivable | |||||||||
| B) | An increase in prepaid expenses | |||||||||
| C) | Depreciation expense | |||||||||
| D) | A decrease in accounts payable | |||||||||
| 92 | Which one of the following affects cash during a period? | |||||||||
| A) | Recording depreciation expense | |||||||||
| B) | Declaration of a cash dividend | |||||||||
| C) | Write-off of an uncollectible account receivable | |||||||||
| D) | Payment of an accounts payable | |||||||||
| 93 | Using the indirect method, patent amortization expense for the period | |||||||||
| A) | is deducted from net income. | |||||||||
| B) | causes cash to increase. | |||||||||
| C) | causes cash to decrease. | |||||||||
| D) | is added to net income. | |||||||||
| 94 | Cline Company issued common stock for proceeds of $186,000 during 2007. The company paid dividends of $33,000 and issued a long-term note payable for | |||||||||
| $45,000 in exchange for equipment during the year. The company also purchased treasury stock that had a cost of $7,000. The financing section of the | ||||||||||
| statement of cash flows will report net cash inflows of | ||||||||||
| A) | $146,000.00 | |||||||||
| B) | $202,000.00 | |||||||||
| C) | $153,000.00 | |||||||||
| D) | $179,000.00 | |||||||||
| 95 | The cost of goods sold during the year was $220,000. Merchandise inventory increased by $8,000 during the year and accounts payable decreased by $4,000 | |||||||||
| during the year. Using the direct method of reporting cash flows from operating activities, cash payments for merchandise total | ||||||||||
| A) | $224,000.00 | |||||||||
| B) | $216,000.00 | |||||||||
| C) | $208,000.00 | |||||||||
| D) | $232,000.00 | |||||||||
| Use the following to answer questions 96-98: | ||||||||||
| Joy Elle's Vegetable Market had the following transactions during 2007: | ||||||||||
| 1. Issued $25,000 of par value common stock for cash. | ||||||||||
| 2. Recorded and paid wages expense of $10,000. | ||||||||||
| 3. Acquired land by issuing common stock of par value $50,000. | ||||||||||
| 4. Declared and paid a cash dividend of $1,000. | ||||||||||
| 5. Sold a long-term investment (cost $3,000) for cash of $3,000. | ||||||||||
| 6. Recorded cash sales of $20,000. | ||||||||||
| 7. Bought inventory for cash of $2,000. | ||||||||||
| 8. Acquired an investment in IBM stock for cash of $6,000. | ||||||||||
| 9. Converted bonds payable to common stock in the amount of $10,000. | ||||||||||
| 10. Repaid a 6 year note payable in the amount of $11,000. | ||||||||||
| 96 | What is the net cash provided by operating activities? | |||||||||
| A) | $20,000.00 | |||||||||
| B) | $18,000.00 | |||||||||
| C) | $10,000.00 | |||||||||
| D) | $8,000.00 | |||||||||
| 97 | What is the net cash provided by investing activities? | |||||||||
| A) | $6,000.00 | |||||||||
| B) | $16,000 | |||||||||
| C) | ($3,000). | |||||||||
| D) | $3,000.00 | |||||||||
| 98 | What is the net cash provided by financing activities? | |||||||||
| A) | $13,000.00 | |||||||||
| B) | $25,000.00 | |||||||||
| C) | $14,000.00 | |||||||||
| D) | $9,000.00 | |||||||||
| 99 | To determine the net cash provided (used) by operating activities, it is necessary to analyze | |||||||||
| A) | the current year's income statement. | |||||||||
| B) | a comparative balance sheet. | |||||||||
| C) | additional information. | |||||||||
| D) | all of the above. | |||||||||
| 100 | Cash receipts from customers are greater than sales revenues when there is a(n) | |||||||||
| A) | increase in accounts receivable. | |||||||||
| B) | decrease in accounts receivable. | |||||||||
| C) | increase in cost of goods sold. | |||||||||
| D) | decrease in cost of goods sold. | |||||||||
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