Basic Accounting Multiple Choice 80 questions

QUESTION 1

1. Retrievable documentation for every transaction and the basis for preparing financial statements are the two basic core elements of a proper __________.

		accounting system
		database structure
		accounting equation
		contra account

1.25 points   

QUESTION 2

1. If you sell $3,000.00 worth of clothing at your boutique, in which account would you post this amount to reflect the transaction?

		Revenues
		Liabilities
		Equity
		Expenses

1.25 points   

QUESTION 3

1. The collection of all accounts in an accounting system is called the __________.

		general ledger
		debit
		financial statement
		accounting equation

1.25 points   

QUESTION 4

1. When asset, expense, and dividend accounts have more debits than credits, they are said to have a

		normal debit balance.
		general ledger balance.
		normal credit balance.
		contra account balance.

1.25 points   

QUESTION 5

1. If you sell $250.00 worth of smoothies at your juice bar, in which account would you post this amount to reflect the transaction?

		Revenues
		Liabilities
		Equity
		Expenses

1.25 points   

QUESTION 6

1. The is the overall process that leads to the capture and communication of essential accounting information.

		accounting cycle
		balance sheet
		general ledger
		general journal

1.25 points   

QUESTION 7

1. The numbering system called the is used by a business for account hierarchy.

		chart of accounts
		debit
		credit
		accounting equation

1.25 points   

QUESTION 8

1. In the accounting cycle, the fourth step is __________.

		preparing the unadjusted trial balance
		posting general journal entries to the general ledger
		preparing an adjusted trial balance
		preparing financial statements

1.25 points   

QUESTION 9

1. You have just paid off an open credit card balance with cash and you would record the entry as a .

		debit to accounts payable, credit to cash
		credit to accounts payable, debit to cash
		debit to accounts payable, credit to sales
		debit to accounts payable, and debit to cash

1.25 points   

QUESTION 10

1. Which type of transaction is reflected on the right side of a t-account?

		Credit accounts
		Debit accounts
		Chart of accounts
		General ledger accounts

1.25 points   

QUESTION 11

1. What is the third step of the accounting cycle?

		Posting general journal entries to the general ledger
		Preparing an unadjusted trial balance
		Preparing an adjusted trial balance
		Preparing financial statements

1.25 points   

QUESTION 12

1. The two basic core elements of a proper accounting system include retrievable documentation for every transaction and the basis for preparing what?

		Financial statements
		Database structure
		Accounting equation
		Contra account

1.25 points   

QUESTION 13

1. Useful financial data for purposes of investment and business management comes from business transactions that have been analyzed and interpreted by

		accounting systems.
		source documents.
		a chart of accounts.
		a general ledger.

1.25 points   

QUESTION 14

1. What is the process of sorting data from the journal into the relevant general ledger accounts?

		Posting
		Transaction analysis
		Adjusting entries
		Period closing

1.25 points   

QUESTION 15

1. If you wish to look at all transactions for a given period according to the posting date, which of the following items would be the best choice to consult?

		General journal
		General ledger
		Account ledger
		Journal account

1.25 points   

QUESTION 16

1. What is the name for the numbering system used by a business for account hierarchy?

		Chart of accounts
		Debit
		Credit
		Accounting equation

1.25 points   

QUESTION 17

1. An entry that debits cash to increase the account is reflected on of the t-account.

		the left side
		the right side
		both sides
		neither side

1.25 points   

QUESTION 18

1. What is the name for the computerized accounting system component that serves as the basis for storing, indexing, and organizing data?

		Database structure
		General journal
		General ledger
		Source document

1.25 points   

QUESTION 19

1. An accounting system is essential for recording the daily transactions of a business as part of the .

		accounting cycle
		balance sheet
		general ledger
		general journal

1.25 points   

QUESTION 20

1. Which of the following requires an understanding of how to increase or decrease an account using debits and credits?

		Transaction analysis
		Adjusting entry
		Trial balance
		Journal entry

Part 2

QUESTION 1

1. In the accounting cycle, the ________ is prepared after the adjusting entries are posted.

		recorded transactions
		general ledger
		source documents
		adjusted trial balance

2.5 points   

QUESTION 2

1. A _________ is an expense that is recorded before it is paid for.

		prepaid expense
		depreciation
		accrued expense
		revenue

2.5 points   

QUESTION 3

1. The two primary accounts in the journal that are impacted by accrued interest are .

		notes payable and accounts receivable
		revenue and expenses
		revenue and accounts receivable
		cash and notes payable

2.5 points   

QUESTION 4

1. As you prepare payroll for the next pay period, the primary accounts impacted are

		cash and salaries expense.
		salaries payable and accounts receivable.
		cash and salaries payable.
		salaries payable and salaries expense.

2.5 points   

QUESTION 5

1. _________ is the prevailing income measurement model that is primarily driven by a transactions and events and uses past data that are viewed as objective and verifiable.

		The periodicity assumption
		Revenue recognition
		The historical cost principle
		Depreciation

2.5 points   

QUESTION 6

1. Earned Interest that is yet to be paid to the holder of the note is __________.

		periodicity assumption
		accrued interest
		prepaid expense
		systematic allocation

2.5 points   

QUESTION 7

1. The expense recognition principle that explains the manner in which a large proportion of business costs are to be recorded is called the ___________.

		systematic allocation.
		immediate recognition.
		matching principle.
		periodicity assumption.

2.5 points   

QUESTION 8

1. Which of the following accounts is used when you record a deposit for work that will not begin until next month?

		Cash
		Revenue
		Unearned revenue
		Prepaid expense

2.5 points   

QUESTION 9

1. The is used for costs that are not seen as benefiting any future periods and are not linked to any revenue production.

		periodicity assumption
		immediate recognition
		matching principle
		systematic allocation

2.5 points   

QUESTION 10

1. _____________ is the process for recording the purchase of assets and then gradually transferring their cost to expense.

		Matching principle
		Immediate recognition
		Depreciation
		Prepaid expenses

Part 3

QUESTION 1

1. When reviewing a worksheet, an accountant can quickly identify the balance of accounts, which are carried forward each period.

		dividend
		expense
		permanent
		temporary

5 points   

QUESTION 2

1. At the end of an accounting cycle, which of the following is the best indication that a company had a net income?

		Moving a negative amount from temporary accounts to retained earnings
		Resetting all revenue, expense, and dividend accounts to a zero balance
		Experiencing a lower than anticipated rate of accumulated depreciation
		Transferring a positive amount from temporary accounts to retained earnings

5 points   

QUESTION 3

1. At the end of an accounting cycle, the accountant for Carson Manufacturing transfers $10,000 from the firm's temporary accounts to its retained earnings account. The accountant's action most likely suggests that Carson Manufacturing

		doubled its profitability.
		adjusted its trial balance.
		experienced a net income.
		experienced a net loss.

5 points   

QUESTION 4

1. The primary purpose of the closing process is to

		post journal entries to the appropriate ledger accounts.
		transfer net income into temporary accounts.
		prepare for the start of the next accounting period.
		set permanent accounts back to a zero balance.

5 points   

QUESTION 5

1. A fiscal year reporting period is often based on what?

		Government requirements
		A firm's natural business cycle
		The natural calendar
		A firm's mission and vision

part 4

QUESTION 1

1. Which method for recording uncollectible accounts receivable ensures that a bad debt expense is recorded in the same period as the initial credit sale?

		Direct write-off method
		Allowance method
		Net realizable value method
		Contra asset method

5 points   

QUESTION 2

1. Rockwell Used Cars sells a truck to Marcus for $12,000 on October 1, 2015. Rockwell issues a 6-month note to Marcus at an interest rate of 5%. Which of the following belongs in the blank space of the following journal entry? 

10-01-15	________________________	12,000
	Sales		12,000
		Interest Receivable
		Accounts Receivable
		Cash
		Notes Receivable

5 points   

QUESTION 3

1. An accountant who uses an income statement approach to estimate the expected amount of bad debts is using the method:

		percentage of sales
		percentage of accounts receivable
		aging of accounts receivable
		direct write-off

5 points   

QUESTION 4

1. Which of the following represents amounts that customers owe to a business for purchasing goods or services from the business on credit?

		Accounts payable
		Interest charges
		Accounts receivable
		Operating expenses

5 points   

QUESTION 5

1. A customer for Dailey Enterprises had a $1,000 balance in his account that was deemed uncollectible and written off using an allowance method. However, the customer has now contacted Dailey Enterprises and stated he will pay the $1,000 balance in the next 10 days. Which of the following phrases belongs in the journal entry?

3-1-X5	Accounts receivable	1,000
	_______________		1,000
		Net Realizable Value
		Cash
		Accounts payable
		Allowance for Uncollectible Accounts

Part 6

QUESTION 1

1. The future value of $1,000, assuming an interest rate of 5%, compounded yearly, for three years is $.

(Your answer should be to two decimal places.)

5 points   

QUESTION 2

1. The present value of $2,000 invested at 6% interest, compounded yearly, for three years is ________.

		$1,689.24
		$1,679.24
		$1,699.24
		$1,669.24

5 points   

QUESTION 3

1. Arnold wishes to open a small business and has the opportunity to borrow $30,000 from his brother, Fred, at an interest rate of 2%.Though the money is available to him now, Arnold is not logistically ready to open the business for another year. What would be the advantage for Arnold to take the money now?

		There is no advantage.
		He will pay less interest.
		He could earn interest on the money in the meantime.

5 points   

QUESTION 4

1. Chad has borrowed $80,000 from the bank to open a second espresso cart. The interest rate is 7% and the loan term is one year. Once the repayment is completed, Chad will have repaid __________ to the bank.

		$136,000
		$85,600
		$74,400
		$87,000

5 points   

QUESTION 5

1. The present value of an annuity that you make payments of $1,000 yearly for three years, has an interest rate of 5%, compounded yearly, is __________.

		$2,523.25
		$2,823.25
		$2,923.25
		$2,723.25

Part 7

QUESTION 1

1. True or false. Unlike a merchandising business, a manufacturing business uses multiple inventory accounts to reflect the cost of raw materials, partially completed goods, and finished goods.

		TRUE
		FALSE

2.5 points   

QUESTION 2

1. For a manufacturing business, the finished goods inventory account reflects the cost of what?

		Shipping
		Partially completed goods
		Completed goods
		Raw materials

2.5 points   

QUESTION 3

1. Super Goods, an electronics retailer, purchases $80,000 worth of computers from a manufacturer in Taiwan. The terms of the purchase are FOB shipping point. Freight costs total $9,000. The goods are shipped on June 1 and delivered on June 15. On June 1, which two accounts should be debited by Super Goods in the following journal entry? Date Account Dr. Cr. 6-01-XX 80000.00 9000.00 Accounts Payable 89000.00

		Inventory and Freight-out
		Accounts Receivable and Freight-out
		Inventory and Freight-in
		Accounts Receivable and Freight-in

2.5 points   

QUESTION 4

1. At the time of shipment, goods that are purchased FOB shipping point are

		reported on the seller's balance sheet.
		considered the responsibility of the buyer.
		designated as freight-out.
		categorized as partially completed inventory.

2.5 points   

QUESTION 5

1. On February 15, a buyer purchases $30,000 worth of goods from a manufacturer. The manufacturer offers the buyer a 3% discount ($900) if payment for the goods is made within 10 days. The buyer pays for the merchandise on February 20. In a journal entry, the seller should debit ________ and credit ________ for $900.

		Sales; Purchase Discounts
		Accounts Receivable; Sales
		Sales; Accounts Receivable
		Accounts Payable; Inventory

2.5 points   

QUESTION 6

1. A buyer receives a sales discount from a seller for paying for purchased goods within a specific period of time. In what way does the sales discount affects the buyer?

		Reducing freight-in costs
		Reducing the cost of inventory
		Increasing freight-out costs
		Increasing the cost of inventory

2.5 points   

QUESTION 7

1. For a manufacturing business, the __________ inventory account reflects the cost of products that have been manufactured and are ready to be sold.

		Raw materials
		Work-in-process
		Freight-in
		Finished goods

2.5 points   

QUESTION 8

1. Which term refers to goods that a merchandising business purchases and resells?

		Inputs
		Frieght
		Supplies
		Inventory

2.5 points   

QUESTION 9

1. On February 15, a buyer purchases $10,000 worth of goods from a manufacturer, who spent $5,000 to manufacture the goods. The terms of sale are FOB shipping point, and shipping costs are $800. The goods will be shipped on June 1. The manufacturer must make two journal entries on June 1. In the second journal entry, the manufacturer should debit ________ and credit ________. Date Account Dr. Cr. 6-01-XX Accounts Receivable 10,000.00 Cash 800.00 Sales 10,000.00 Date Account Dr. Cr. 6-01-XX 5,000.00 5,000.00

		Cash; Cost of Goods Sold
		Cost of Goods Sold; Inventory
		Cost of Goods Sold; Cash
		Inventory; Cash

2.5 points   

QUESTION 10

1. Which statement about FOB shipping point is true?

		Goods are the buyer's property on the shipment date.
		The seller and buyer share all freight costs.
		Lost goods are the responsibility of the seller.
		The seller reports shipping costs as an expense.

Part 8

QUESTION 1

1. Which inventory costing approach calculates a new cost per unit every time a purchase is made?

		Periodic
		LIFO
		FIFO
		Average cost

2.5 points   

QUESTION 2

1. If a company that is facing rising prices wants to reduce the amount of its taxable income, which cost flow assumption should be used?

		average cost
		FIFO
		LIFO
		retail method

2.5 points   

QUESTION 3

1. Simply Shoes uses the FIFO system in conjunction with a perpetual inventory accounting system to track transactions that affect the store's shoe inventory. On August 1, 2015, the store had 50 pairs of shoes in inventory valued at $60 each. On August 8, the store bought 100 pairs of shoes at $65 each. Assuming the store has not sold any shoes, what was the ending inventory on August 9?

		$9,000
		$9,500
		$9,750
		$9,450

2.5 points   

QUESTION 4

1. Super Sportz uses the FIFO system in conjunction with a perpetual inventory accounting system to track transactions that affect the store's inventory of sporting goods. On July 1, there were 100 basketballs in inventory, all valued at $5 each. On July 9, the store sold 30 basketballs for $15 each. The store's accountant made two journal entries for July 9. Which two did the accountant make?

7-9-xx	Accounts Receivable	450.00
	Sales		450.00
7-9-xx	_________________	150.00
	_________________		150.00
		Debit to Inventory; credit to Cost of Goods Sold
		Debit to Cost of Goods Sold; credit to Inventory
		Debit to Sales; credit to Cost of Goods Sold
		Debit to Accounts Payable; credit to Inventory

2.5 points   

QUESTION 5

1. Which of the following best explains the increasing use of perpetual inventory accounting systems?

		Changes in government regulations
		Demands of globalization
		Improvements in technology
		Increases in consumer awareness

2.5 points   

QUESTION 6

1. The selling price of every item offered by Dailey Department Store is marked up 5% over the actual cost of the merchandise. Given this information, Dailey Department Store can estimate its ending inventory balance using the method.

		lower-of-cost-or-market
		retail

2.5 points   

QUESTION 7

1. Tom's Tools uses the LIFO system and made the following purchases and sales in August. The cost of goods available for sale for Tom's Tools is 

Date	Purchases	Sales	Remaining Inventory Balance
Aug 1			100 units @ $5
Aug 7		40 units @ $12
Aug 14	80 units @ $7
Aug 21		60 units @ $14
Aug 28	90 units @ $8

		$1,320.00
		$460.00
		$1,780.00
		$1,280.00

2.5 points   

QUESTION 8

1. DIY Hardware's inventory purchases 

	Date	Quantity Purchased	Cost per Unit	Total Cost
Beginning Balance	July 1	800	$2.00	$1,600
Purchase 2	July 15	600	$2.25	$1,350
Purchase 3	July 24	700	$2.10	$1,470
		Cost of goods available for sale
		Operating expenses
		Accounts receivable
		Cost of goods sold

2.5 points   

QUESTION 9

1. True or false. A firm's decision to use FIFO, LIFO, or average costing depends on its needs and preferences. However, all three methods typically result in the same values for ending inventory, cost of goods sold, gross margin, and net income.

		TRUE
		FALSE

2.5 points   

QUESTION 10

1. Which inventory costing method depends on a firm's markup being the same for all inventory items?

		FIFO
		LIFO
		Retail method
		Lower-of-cost-or-market method

Part 9

QUESTION 1

1. On January 1, 2015, Madison Manufacturing purchased a piece of equipment that cost $600,000 and has a 10-year life. The Madison accountant, who uses the double-declining balance depreciation method, needs to make a journal entry to indicate the machine’s depreciation in its second year. What amount should be debited and credited in the following entry?

Date	Account	Dr.	Cr.
12-31-16	Depreciation Expense
	Accumulated Depreciation
		$192,000
		$96,000
		$120,000
		$60,000

5 points   

QUESTION 2

1. The units-of-activity method of depreciation relies on units of _________________ to determine an asset’s depreciation.

		time
		use

5 points   

QUESTION 3

1. The accountant for Dawson Dairy uses the straight-line depreciation method. The business recently purchased a refrigerated truck for $180,000. The truck’s salvage value is $30,000, and has a service life of 6 years. What is the truck’s annual depreciation?

		$20,000
		$30,000
		$35,000
		$25,000

5 points   

QUESTION 4

1. Top-Notch Construction purchased a bulldozer on January 1, 2012 for $120,000. The bulldozer has an estimated service life of 80,000 machine hours, and a salvage value of $20,000. The number of hours the bulldozer was used for the first 4 years is as follows: 8,000 hours in 2012; 9,000 hours in 2013; 7,000 hours in 2014; and 10,000 hours in 2015. The accountant for Top-Notch uses the units-of-activity method of depreciation. Which of the following is the correct journal entry for recording the depreciation for 2014?

		Date Account Dr. Cr. 12-31-14 Accumulated Depreciation 8,750.00          Depreciation Expense   8,750.00
		Date Account Dr. Cr. 12-31-14  Accumulated Depreciation 10,500.00           Depreciation Expense   10,500.00
		Date Account Dr. Cr. 12-31-14 Depreciation Expense 10,500.00          Accumulated Depreciation   10,500.00
		Date Account Dr. Cr. 12-31-14 Depreciation Expense 8,750.00          Accumulated Depreciation   8,750.00

5 points   

QUESTION 5

1. Which term refers to spreading the cost of an asset over the asset’s service life?

		Depreciation
		Adjusting
		Forecasting
		Transation

Part 10

QUESTION 1

1. The process of depletion applies to which of the following?

		Timber
		Patents
		Equipment
		Real estate

3.125 points   

QUESTION 2

1. On January 1, 2009, Dixon Enterprises purchased a delivery truck for $60,000 to be used for 10 years. The truck has no salvage value. On November 30, 2015, the company sold the truck for $20,000 in cash. The journal entry below records the truck's depreciation for 2015.

Date	Account	Dr.	Cr.
11-30-15	Depreciation Expense	5,500.00
	Accumulated Depreciation		5,500.00

Which of the following journal entries correctly removes the asset and its accumulated depreciation account from the books?

		Date Account Dr.  Cr. 11-30-15 Accumulated Depreciation 41,500.00     Loss 20,000.00          Equipment      60,000.00
		Date Account Dr.  Cr. 11-30-15 Equipment 60,000.00     Gain   1,500.00          Accumulated Depreciation     41,500.00        Cash     20,000.00
		Date Account Dr.  Cr. 11-30-15 Equipment 60,000.00     Loss   1,500.00          Accumulated Depreciation     41,500.00        Cash     20,000.00
		Date Account Dr.  Cr. 11-30-15 Accumulated Depreciation 41,500.00     Cash 20,000.00          Gain     1,500.00        Equipment   60,000.00

3.125 points   

QUESTION 3

1. In 2014, Medco Pharmaceuticals spent $1,000,000 on research and development (R&D). In 2015, Medco scientists developed a new medication as a result of the 2014 R&D findings. Given this information, Medco should have

		credited the R&D expenses in 2014.
		amortized the R&D expenses between 2014 and 2015.
		recorded R&D expenses in 2014.
		recorded R&D expenses in 2015.

3.125 points   

QUESTION 4

1. Which term refers to allocating the cost of a natural resource to all accounting periods benefitting from its use?

		Amortization
		Depreciation
		Depletion
		Retirement

3.125 points   

QUESTION 5

1. The owner of Rosie's Flower Shop recently spent $300 to install a GPS navigation system in the shop's delivery truck, and spent $40 to replace the truck's oil. Which of the following statements about this situation is true?

		The oil change is a betterment, as well as a capital expenditure.
		The satellite is a betterment, as well as a revenue expenditure.
		The satellite is a betterment, as well as a capital expenditure.
		The oil change is a replacement outlay, as well as a capital expenditure.

3.125 points   

QUESTION 6

1. In July 2015, the owner of Carlson Construction decides to retire a dump truck before the end of its service life because the truck is no longer reliable. The truck has no salvage value. The company's accountant needs to create two journal entries in this scenario. The first journal entry records depreciation for the first 7 months of the year. Which of the following explains the purpose of the second journal entry?

		Recording the revenue expenditures associated with the asset
		Removing the asset and its accumulated depreciation from the books
		Removing the asset from the books and recording its replacement cost
		Recording the gain on disposition at the time of retirement

3.125 points   

QUESTION 7

1. Sunshine Hamburgers, a fast-food chain, purchases the copyright to a song that the company plans to use in all of its commercials. Sunshine pays the songwriter $40,000 in cash for the copyright and expects to use the song for 4 years. Based on this information, which of the following statements is true?

		Depreciation Expense should be debited for $10,000, annually.
		The copyright purchase is reported as goodwill on the balance sheet.
		Amortization Expense should be debited for $10,000, annually.
		The copyright is an intangible asset, so its costs are not amortized.

3.125 points   

QUESTION 8

1. DIY-Mart owns timber that it uses to make into the plywood and lumber sold in its stores. As the timber is processed into lumber, the DIY-Mart accountant needs to do which of the following to the cost of the timber?

		Depreciate it.
		Amortize it.
		Retire it.
		Deplete it.

Part 11

QUESTION 1

1. On December 1, 2015, Winston Enterprises secured a loan from a bank for $300,000 to purchase manufacturing equipment. The loan will be repaid in 5 years with payments due every month and an interest rate of 4%. What will be the interest expense for the first payment on January 1, 2016?

		$500
		$1,000
		$300
		$1,200

2.5 points   

QUESTION 2

1. Which type of bond gives the corporation the right to redeem the bond before the maturity date?

		Serial bond
		Callable bond
		Term bond
		Convertible bond

2.5 points   

QUESTION 3

1. On November 1, Carlson Flooring purchased copy paper and printer ink in the amount of $500 from Office Mart. The purchase was made on account. On November 20, Carlson's accountant paid the full amount of the invoice using a company check. Which journal entry correctly records the invoice payment?

		DR CR 11/1/2015 Office Supplies 500.00         Accounts Payable   500.00
		DR CR 11/20/2015 Accounts Payable 500.00         Cash   500.00
		DR CR 11/20/2015 Accounts Payable 500.00         Office Supplies   500.00
		DR CR 11/1/2015 Office Supplies 500.00         Cash   500.00

2.5 points   

QUESTION 4

1. True or false. When a business borrows a large sum of money from a bank, a notes payable serves as the contractual agreement between the two parties.

		TRUE
		FALSE

2.5 points   

QUESTION 5

1. Collins Clothing Company has an operating cycle of 90 days. How much time does Collins have to repay its current liabilities?

		2 years
		1 year
		90 days
		6 months

2.5 points   

QUESTION 6

1. The board of directors at Cameron Industries recently approved the firm's first bond issue. On November 1, 2015, the company issued $20 million in bonds with a 2% interest rate, payable annually, and at a market interest rate of 2%. The bonds will mature in 10 years. Which is recorded in the journal entry shown below?

		DR	CR
11/1/2025	Bonds Payable	20,000.00
	Cash		20,000.00
		Repaying a bond issued at face value
		Repaying a bond at a discount
		Issuing a bond at face value
		Paying interest on a bond issued at face value

2.5 points   

QUESTION 7

1. The board of directors at Cameron Industries recently approved the firm's first bond issue. On November 1, 2015, the company issued $20 million in bonds with a 2% interest rate, payable annually, and at a market interest rate of 2%. The bonds will mature in 10 years. Which correctly records the bonds being issued?

		DR CR 11/1/2025     Cash     20,400,000          Bonds Payable                  20,000,000         Premium on Bonds Payable              400,000
		DR CR 11/1/2025     Cash     20,000,000          Bonds Payable           20,000,000
		DR CR 11/1/2025     Cash     20,000,000     Discount on Bond Payable           400,000               Bonds Payable         20,400,000
		DR CR 11/1/2025     Bonds Payable     20,000,000          Cash           20,000,000

2.5 points   

QUESTION 8

1. Wilson Industries needs to raise capital to pay for costly new production equipment, so the firm obtains a 20-year bank loan at an interest rate of 5%. Which statement about this situation is most likely true?

		Interest payments will be considered tax-deductible expenses.
		The loan will be considered a current liability because of the interest fees.
		If the loan is repaid before the due date, no interest will be charged.
		If the loan is repaid in a lump sum, no interest will be charged.

2.5 points   

QUESTION 9

1. Collins Clothing Company manufactures men's apparel and conducts all business on credit. Which item, when purchased, is considered a current liability for Collins?

		Land to build a new facility
		Fabric to make shirts
		Trucks to deliver clothes to retailers
		Buildings to store inventory

2.5 points   

QUESTION 10

1. How does a company benefit from issuing callable bonds?

		Retiring and reissuing bonds when interest rates drop
		Delaying the lump sum repayment of bonds
		Repaying bonds in increments when interest rates are low
		Issuing bonds without any collateral

Part 12

QUESTION 1

1. True or false. Davidson Corporation has 1,000,000 shares of $10 par value common stock issued and outstanding. The market price of the stock is $25 per share. On March 1, 2016, the company's board of directors declared a 5% stock dividend. The value of the stock dividend on the declaration date would be $500,000.

		TRUE
		FALSE

2.5 points   

QUESTION 2

1. True or false. On November 12, 2016, Barber Corporation issued 100,000 shares of its $2 par value common stock for $20 per share. The journal entry to record this transaction is:

		TRUE
		FALSE

2.5 points   

QUESTION 3

1. Which statement about preferred shareholders/stock is true?

		Preferred shareholders are not guaranteed a return on their investment in the form of cash dividends.
		Preferred stock cannot be converted to common stock.
		In the event the corporation goes out of business (liquidates), common shareholders will be paid any unpaid dividends (in arrears), plus the value of their stock holdings before preferred shareholders.
		Preferred shareholders do not have voting rights.

2.5 points   

QUESTION 4

1. On November 12, 2016, Barber Corporation issued 100,000 shares of its $2 par value common stock for $20 per share. Part of the journal entry to record this transaction would be a __________ to Paid-in Capital in Excess of Par for $1,800,000.

		credit
		debit

2.5 points   

QUESTION 5

1. What is a disadvantage to issuing stock instead of bonds?

		The payment of cash dividends is not a tax deductible expense.
		A corporation is required to pay cash dividends.
		The company must buy back its stock.
		Payment of dividends reduces the company's net income and profitability.

2.5 points   

QUESTION 6

1. True or false. Each share of common stock entitles the owner to own a proportionate share of the company.

		TRUE
		FALSE

2.5 points   

QUESTION 7

1. Babel Corporation has 2,000,000 shares of $10 par value common stock issued and outstanding. The market price of the stock was $100 per share. Suppose the company decided to declare a 4-for-1 stock split. What is the market price of the shares after the stock split?

		$25
		$2.50
		$50
		$5.00

2.5 points   

QUESTION 8

1. True or false. A key advantage of stock financing over bond financing is that there is no repayment.

		TRUE
		FALSE

2.5 points   

QUESTION 9

1. On June 15, 2016, Fabin Corporation purchased 15,000 shares of its common stock for $50 per share for its treasury. On December 1, 2016, the company sold 5,000 of its treasury shares for $40 per share. Part of the journal entry to record the sale of the treasury stock on December 1, 2016 would be a __________ to Retained Earnings for $50,000.

		debit
		credit

2.5 points   

QUESTION 10

1. Davidson Corporation has 1,000,000 shares of $10 par value common stock issued and outstanding. The market price of the stock is $25 per share. On March 1, 2016, the company's board of directors declared a 5% stock dividend. The value of the stock dividend on the declaration date would be:

		$25,000,000
		$50,000
		$500,000
		$1,250,000