GB518 - Unit 5 Quiz

1.            Question :           A company issues at par 7% bonds with a par value of $500,000 on June 1, which is 5 months after the most recent interest date. How much total cash interest is received on May 1 by the bond issuer?

                                                  $0

                                                  $2,916.66

                                                  $100,000.00

                                                  $14,583.33

                                                  $35,000.00

Question 2.         Question :           A corporation's distribution of additional shares of its own stock to its stockholders without the receipt of any payment in return is called a:

                                                  Stock dividend

                                                  Stock subscription

                                                  Premium on stock

                                                  Discount on stock

                                                  Treasury stock

Question 3.         Question :           The contract between the bond issuer and the bondholders, which identifies the rights and obligations of the parties is called a(n):

                                                  Debenture

                                                  Bond indenture

                                                  Mortgage

                                                  Installment note

                                                  Mortgage contract

Question 4.         Question :           A dividend preference for preferred stock means that:

                                                  Preferred stockholders receive their dividends before common shareholders

                                                  Preferred shareholders are guaranteed dividends

                                                  Dividends are paid quarterly

                                                  Preferred stockholders prefer dividends more than common stockholders

                                                  Dividends must be declared on preferred stock

Question 5.         Question :           Stock that was reacquired by the company and is still held by the issuing corporation is called:

                                                  Capital stock

                                                  Treasury stock

                                                  Redeemed stock

                                                  Preferred stock

Question 6.         Question :           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:

                                                  Credit to Interest Income

                                                  Credit to Premium on Bonds Payable

                                                  Credit to Discount on Bonds Payable

                                                  Debit to Premium on Bonds Payable

Question 7.         Question :           A premium on common stock:

                                                  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 8.         Question :           A bond traded at 102 ½ means that:

                                                  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 9.         Question :           Sinking fund bonds:

                                                  Require the issuer to set aside assets in order 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 10.      Question :           To provide security to creditors and to reduce interest costs, bonds and notes payable can be secured by:

                                                  Safe deposit boxes

                                                  Mortgages

                                                  Equity

                                                  The FASB

                                                  Debentures

Question 11.      Question :           Bonds owned by investors whose names and addresses are recorded by the issuing company and for which interest payments are made with checks to the bondholders, are called:

                                                  Callable bonds

                                                  Serial bonds

                                                  Registered bonds

                                                  Coupon bonds

Question 12.      Question :           Promissory notes that require the issuer to make a series of payments consisting of both interest and principal are:

                                                  Debentures

                                                  Discounted notes

                                                  Installment notes

                                                  Indentures

                                                  Investment notes

Question 13.      Question :           Secured bonds:

                                                  Are also referred to as 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 14.      Question :           What is the debt to equity ratio for a company who has $700,000 in total liabilities and $3,500,000 in total equity?

                                                  20%

                                                  5

                                                  $2,100,000

                                                  2%

                                                  .5

Question 15.      Question :           The total amount of stock that a corporation's charter allows it to issue is referred to as:

                                                  Issued stock

                                                  Outstanding stock

                                                  Common stock

                                                  Preferred stock

                                                  Authorized Stock

Question 16.      Question :           Shamrock Company had net income of $30,000. On January 1, there were 8,000 shares of common stock outstanding. On April 1, the company issued an additional 2,000 shares of common stock. There were no other stock transactions. The company has an earnings per share of:

                                                  $3.75

                                                  $3.00

                                                  $3.33

                                                  $15.00

                                                  $3.16

Question 17.      Question :           Preferred stock on which the right to receive dividends is forfeited for any year that the dividends are not declared is called:

                                                  Noncumulative preferred stock

                                                  Participating preferred stock

                                                  Callable preferred stock

                                                  Cumulative preferred stock

                                                  Convertible preferred stock

Question 18.      Question :           A company must repay the bank $10,000 cash in 3 years for a loan. The loan agreement specifies 8% interest compounded annually. The present value factor for 3 years at 8% is 0.7938. The present value of the loan is:

                                                  $10,000

                                                  $12,400

                                                  $7,938

                                                  $9,200

                                                  $7,600

Question 19.      Question :           Owners of preferred stock often do not have:

                                                  Ownership rights to assets of the corporation

                                                  Voting rights

                                                  Preference to dividends

                                                  The right to sell their stock on the open market

                                                  Preference to assets at liquidation

Question 20.      Question :           Bonds with a par value of less than $1,000 are known as:

                                                  Junk bonds

                                                  Baby bonds

                                                  Callable bonds

                                                  Unsecured bonds

                                                  Convertible bonds

Question 21.      Question :           If an issuer sells a bond at any other date than the interest payment date:

                                                  This means the bond sells at a premium

                                                  This means the bond sells at a discount

                                                  The issuing company will report a loss on the sale of the bond

                                                  The issuing company will report a gain on the sale of the bond

                                                  The buyer normally pays the issuer the purchase price plus any interest accrued since the prior interest payment date

Question 22.      Question :           A company borrowed $50,000 cash from the bank and signed a 6-year note at 7%. The present value factor for an annuity for 6 years at 7% is 4.7665. The annual annuity payments equal $10,490. The present value of the loan is:

                                                  $10,490

                                                  $11,004

                                                  $50,000

                                                  $52,450

                                                  $238,325

Question 23.      Question :           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:

                                                  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 Contributed Capital in Excess of Par Value, Common Stock for $5,000

                                                  A debit to Contributed Capital in Excess of Par Value, Common Stock for $2,000

Question 24.      Question :           A company's board of directors’ votes to declare a cash dividend of $0.75 per share. The company has 15,000 shares authorized, 10,000 issued and 9,500 shares outstanding. The total amount of the cash dividend is:

                                                  $375

                                                  $4,125

                                                  $7,125

                                                  $7,500

                                                  $11,250

Question 25.      Question :           Which of the following statements is true?

                                                  Interest on bonds is tax deductible

                                                  Interest on bonds is not tax deductible

                                                  Dividends to stockholders are tax deductible

                                                  Bonds do not have to be repaid

                                                  Bonds always decrease return on equity