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42 multiple choice 1st year accounting problems.

Question 1
Moss County Bank agrees to lend the Blackwood Brick Company $100,000 on January 1. Blackwood Brick Company signs a $100,000, 6%, 9-month note.
The entry made by Blackwood Brick Company on January 1 to record the proceeds and issuance of the note is

a. Debit Interest Expense 4,500
Debit Cash 95,500
Credit Notes Payable 100,000
b. Debit Cash 100,000
Credit Notes Payable 100,000
c. Debit Cash 100,000
Debit Interest Expense 4,500
Credit Notes Payable 104,500
d. Debit Cash 100,000
Debit Interest Expense 4,500
Credit Notes Payable 100,000
Credit Interest Payable 4,500

Question 2
What is the adjusting entry required if Blackwood Brick Company prepares financial statements on June 30?

a. Debit Interest Expense 3,000
Credit Interest Payable 3,000
b. Debit Interest Expense 3,000
Credit Cash 3,000
c. Debit Interest Payable 3,000
Credit Cash 3,000
d. Debit Interest Payable 3,000
Credit Interest Expense 3,000

Question 3
What entry will Blackwood Brick Company make to pay off the note and interest at maturity assuming that interest has been accrued to September 30?

a. Debit Notes Payable 104,500
Credit Cash 104,500
b. Debit Notes Payable 100,000
Debit Interest Payable 4,500
Credit Cash 104,500
c. Debit Interest Expense 4,500
Debit Notes Payable 100,000
Credit Cash 104,500
d. Debit Interest Payable 3,000
Debit Notes Payable 100,000
Debit Interest Expense 1,500
Credit Cash 104,500

Question 4
A cash register tape shows cash sales of $1,000 and sales taxes of $60. The journal entry to record this information is

a. Debit Cash 1,000
Credit Sales 1,000
b. Debit Cash 1,060
Credit Sales Tax Revenue 60
Credit Sales 1,000
c. Debit Cash 1,000
Debit Sales Tax Expense 60
Credit Sales 1,060
d. Debit Cash 1,060
Credit Sales 1,000
Credit Sales Taxes Payable 60

Question 5
Use the following information to answer the following four questions.
Totals taken from the payroll register of Main Company:
Salaries..................................$12,000
FICA taxes withheld.................... 550
Income taxes withheld...............2,500
Medical insurance deductions.......450

Tax Rates:
Federal unemployment Taxes .8%
State Unemployment Taxes....1.8%
None of the employees have yet exceeded the $7,000 maximum annual limit.

The journal entry to record the monthly payroll on April 30 would include a

a. debit to Salaries Expense for $12,000.
b. credit to Salaries Payable for $12,000.
c. debit to Salaries Payable for $12,000.
d. debit to Salaries Expense for $8,500.

Question 6
The entry to record the payment of net payroll would include a

a. debit to Salaries Payable for $8,050.
b. debit to Salaries Payable for $8,500.
c. debit to Salaries Payable for $7,950.
d. credit to Cash for $9,050.

Question 7
The entry to record accrual of employer's payroll taxes would include a

a. debit to Payroll Tax Expense for $312.
b. debit to Payroll Tax Expense for $862.
c. credit to FICA Taxes Payable for $1,100.
d. credit to Payroll Tax Expense for $312.

Question 8
The entry to record the payment of federal unemployment tax would include a

a. debit to Federal Unemployment Taxes Payable for $96.
b. credit to Federal Unemployment Taxes Expense for $960.
c. debit to Payroll Tax Expense for $960.
d. credit to Federal Unemployment Taxes Payable for $96.

Question 9
Which of the following is not an advantage of issuing bonds instead of common stock?

a. Stockholder control is not affected.
b. Earnings per share on common stock may be lower.
c. Income to common shareholders may increase.
d. Tax savings result

Question 10
Bonds that may be exchanged for common stock at the option of the bondholders are called

a. options.
b. stock bonds.
c. convertible bonds.
d. callable bonds.

Question 11
A bond with a face value of $100,000 and a quoted price of 103 ΒΌ has a selling price of

a. $130,325.
b. $103,025.
c. $100,325.
d. $103,250.

Question 12
If the market rate of interest is greater than the contractual rate of interest, bonds will sell

a. at a premium.
b. at face value.
c. at a discount.
d. only after the stated rate of interest is increased.

Question 13
A corporation issues $100,000, 10%, 5-year bonds on January 1, 2003, for $95,800. Interest is paid semiannually on January 1 and July 1. If the corporation uses the straight-line method of amortization of bond discount, the amount of bond interest expense (include the discount amortizaton) to be recognized on July 1, 2003, is

a. $10,420.
b. $5,000.
c. $5,420.
d. $4,580.

Question 14
If the market rate of interest is 10%, a $10,000, 12%, 10-year bond that pays interest semiannually would sell at an amount

a. less than face value.
b. equal to the face value.
c. greater than face value.
d. that cannot be determined.

Question 15
The Torrez Corporation issues 1,000, 10-year bonds, 8%, $1,000 bonds dated January 1, 2004, at 97. The journal entry to record the issuance will show a

a. debit to Cash of $1,000,000.
b. credit to Discount on Bonds Payable for $30,000.
c. credit to Bonds Payable for $970,000.
d. debit to Cash for $970,000.

Question 16
One thousand bonds with a face value of $1,000 each, are sold at 103. The entry to record the issuance is

a. Debit Cash 1,030,000
Credit Bonds Payable 1,030,000
b. Debit Cash 1,000,000
Debit Premium on Bonds Payable 30,000
Credit Bonds Payable 1,030,000
c. Debit Cash 1,030,000
Credit Premium on Bonds Payable 30,000
Credit Bonds Payable 1,000,000
d. Debit Cash 1,030,000
Credit Discount on Bonds Payable 30,000
Credit Bonds Payable 1,000,000

Question 17
If bonds have been issued at a discount, then over the life of the bonds the

a. carrying value of the bonds will decrease.
b. carrying value of the bonds will increase.
c. interest expense will increase, if the discount is being amortized on a straight-line basis.
d. unamortized discount will increase.

Question 18
In a recent year Night Corporation had net income of $130,000, interest expense of $30,000, and tax expense of $20,000. What was Night Corporation's times interest earned ratio for the year?

a. 4.33
b. 6.50
c. 9.00
d. 6.00

Question 19
Sunwood Company issued $200,000 of 6%, 5-year bonds at 98, which pays interest annually. Assuming straight-line amortization, what is the carrying value of the bonds after one year?

a. $196,000
b. $196,400
c. $196,800
d. $197,600

Question 20
Terrance Company issued $200,000 of 8%, 5-year bonds at 106, which pays interest annually. Assuming straight-line amortization, what is the total interest cost of the bonds (don't forget the premium)?

a. $92,000
b. $68,000
c. $56,000
d. $80,000

Question 21
Terrance Company issued $200,000 of 8%, 5-year bonds at 106, which pays interest annually. Assuming straight-line amortization, what is the carrying value of the bonds after one year?

a. $212,000
b. $210,800
c. $209,600
d. $213,200

Question 22
Terrance Company issued $200,000 of 8%, 5-year bonds at 106. Assuming straight-line amortization and annual interest payments, what is the amount of the amortization at each interest payment point?

a. $1,200
b. $2,400
c. $16,000
d. $13,600

Question 23
Under the corporate form of business organization

a. a stockholder is personally liable for the debts of the corporation.
b. stockholders' acts can bind the corporation even though the stockholders have not been appointed as agents of the corporation.
c. the corporation's life is stipulated in its charter.
d. stockholders wishing to sell their corporation shares must get the approval of other stockholders.

Question 24
Which of the following statements is not considered a disadvantage of corporate form of organization?

a. Additional taxes
b. Government regulations
c. Limited liability of stockholders
d. Separation of ownership and management

Question 25
The amount of stock that may be issued according to the corporation's charter is referred to as the

a. authorized stock.
b. issued stock.
c. unissued stock.
d. outstanding stock.

Question 26
If Lesser Company issues 1,000 shares of $5 par value common stock for $70,000, the account

a. Common stock will be credited for $70,000.
b. Paid-in capital in excess of par value will be credited for $5,000.
c. Paid-in capital in excess of par value will be credited for $65,000.
d. Cash will be debited for $65,000.

Question 27
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:

a. Common stock $10,000 and Paid-in capital in excess of state value $4,000.
b. Common stock $14,000.
c. Common stock $10,000 and Paid-in capital in excess of par value $4,000.
d. Common stock $10,000 and Retained earnings $4,000.

Question 28
Treasury stock is

a. stock issued by the U.S. Treasury Department.
b. stock purchased by a corporation and held as an investment in its treasury.
c. corporate stock issued by the treasurer of a company.
d. a corporation's own stock, which has been reacquired and held for future use.

Question 29
The acquisition of treasury stock by a corporation

a. increases its total assets and total stockholders' equity.
b. decreases its total assets and total stockholders' equity.
c. has no effect on total assets and total stockholders' equity.
d. requires that a gain or loss be recognized on the income statement.

Question 30
Which of the following is the appropriate general journal entry to record the declaration of cash dividends?

a. Debit Retained earnings
Credit Cash
b. Debit Dividends payable
Credit Cash
c. Debit Paid-in capital
Credit Dividends payable
d. Debit Retained earnings
Credit Dividends Payable

Question 31
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, 2005. The dividend is to be paid on August 15, 2005, to stockholders of record on July 31, 2005. The effects of the journal entry to record the declaration of the dividend on July 15, 2005, are to

a. decrease stockholders' equity and increase liabilities.
b. decrease stockholders' equity and decrease assets.
c. increase stockholders' equity and increase liabilities.
d. increase stockholders' equity and decrease assets.

Question 32
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, 2005. The dividend is to be paid on August 15, 2005, to stockholders of record on July 31, 2005. The correct entry to be recorded on August 15, 2005, will include a

a. debit to Retained Earnings.
b. credit to Retained Earnings.
c. credit to Dividends Payable.
d. debit to Dividends Payable.

Question 33
Indicate the respective effects of the declaration of a cash dividend on the following balance sheet sections:
Total Assets ............Total Liabilities ........Total Stockholders' Equity

a. Increase................ Decrease ............................No change
b. No change ..............Increase............................... Decrease
c. Decrease............... Increase............................... Decrease
d. Decrease............... No change ............................Increase

Question 34
Sun Inc. has 5,000 shares of 5%, $100 par value, cumulative preferred stock and 50,000 shares of $1 par value common stock outstanding at December 31, 2005. What is the annual dividend on the preferred stock?

a. $50 per share
b. $25,000 in total
c. $600 in total
d. $0.50 per share

Question 35
Cuther Inc., has 1,000 shares of 8%, $50 par value, cumulative preferred stock and 50,000 shares of $1 par value common stock outstanding at December 31, 2004, and December 31, 2005. The board of directors declared and paid a $3,000 dividend in 2004. In 2005, $12,000 of dividends are declared and paid. What are the dividends received by the common stockholders in 2005?

a. $7,000
b. $6,000
c. $5,000
d. $4,000

Question 36
Which of the following show the proper effect of a stock split and a stock dividend?
.................Item........................ Stock Split...........Stock Dividend

a. Total paid-in capital ..............Increase................ Increase
b. Total retained earnings.......... Decrease.............. Decrease
c. Total par value (common) .....Decrease ................Increase
d. Par value per share .................Decrease .............No change

Question 37
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

Question 38
Paid-in capital in excess of stated value would appear on a balance sheet under the category

a. capital stock.
b. retained earnings.
c. additional paid-in capital.
d. contra to stockholders' equity.

Question 39
Two classifications appearing in the paid-in capital section of the balance sheet are

a. preferred stock and common stock.
b. paid-in capital and retained earnings.
c. capital stock and additional paid-in capital.
d. capital stock and treasury stock.

Question 40
On January 1, Runner Corporation had 60,000 shares of $10 par value common stock outstanding. On March 17 the company declared a 10% stock dividend to stockholders of record on March 20. Market value of the stock was $13 on March 17. The entry to record the transaction of March 17 would include a

a. debit to Retained Earnings for $78,000.
b. credit to Cash for $78,000.
c. credit to Common Stock Distributable for $78,000.
d. credit to Common Stock Distributable for $18,000.

Question 41
On January 1, Runner Corporation had 60,000 shares of $10 par value common stock outstanding. On March 17 the company declared a 10% stock dividend to stockholders of record on March 20. Market value of the stock was $13 on March 17. The stock was distributed on March 30. The entry to record the transaction of March 30 would include a

a. credit to Common stock for $60,000.
b. debit to Common stock distributable for $60,000.
c. credit to Paid-in capital in excess of par value for $18,000.
d. debit to Retained earnings for $18,000.

Question 42
Which one of the following events would not require a journal entry on a corporation's books?

a. 2 for 1 stock split
b. 100% stock dividend
c. 2% stock dividend
d. $1 per share cash dividend

Solution Preview

Moss County Bank agrees to lend the Blackwood Brick Company $100,000 on January 1. Blackwood Brick Company signs a $100,000, 6%, 9-month note.
The entry made by Blackwood Brick Company on January 1 to record the proceeds and issuance of the note is

a. Debit Interest Expense 4,500
Debit Cash 95,500
Credit Notes Payable 100,000
b. Debit Cash 100,000
Credit Notes Payable 100,000
c. Debit Cash 100,000
Debit Interest Expense 4,500
Credit Notes Payable 104,500
d. Debit Cash 100,000
Debit Interest Expense 4,500
Credit Notes Payable 100,000
Credit Interest Payable 4,500

Question 2
What is the adjusting entry required if Blackwood Brick Company prepares financial statements on June 30?

a. Debit Interest Expense 3,000
Credit Interest Payable 3,000
b. Debit Interest Expense 3,000
Credit Cash 3,000
c. Debit Interest Payable 3,000
Credit Cash 3,000
d. Debit Interest Payable 3,000
Credit Interest Expense 3,000

$100,000 x 6% x 6/12 = 3,000
As interest expense is not yet paid, so we need to credit to interest payable account.

Question 3
What entry will Blackwood Brick Company make to pay off the note and interest at maturity assuming that interest has been accrued to September 30?

a. Debit Notes Payable 104,500
Credit Cash 104,500
b. Debit Notes Payable 100,000
Debit Interest Payable 4,500
Credit Cash 104,500
c. Debit Interest Expense 4,500
Debit Notes Payable 100,000
Credit Cash 104,500
d. Debit Interest Payable 3,000
Debit Notes Payable 100,000
Debit Interest Expense 1,500
Credit Cash 104,500

Total accrued interest expense is $100,000 x 6% x 9/12 = 4,500

Question 4
A cash register tape shows cash sales of $1,000 and sales taxes of $60. The journal entry to record this information is

a. Debit Cash 1,000
Credit Sales 1,000
b. Debit Cash 1,060
Credit Sales Tax Revenue 60
Credit Sales 1,000
c. Debit Cash 1,000
Debit Sales Tax Expense 60
Credit Sales 1,060
d. Debit Cash 1,060
Credit Sales 1,000
Credit Sales Taxes Payable 60

Question 5
Use the following information to answer the following four questions.
Totals taken from the payroll register of Main Company:
Salaries..................................$12,000
FICA taxes withheld...................... 550
Income taxes withheld.................2,500
Medical insurance deductions..........450

Salaries Expense 12,000
FICA taxes payable 550
Income taxes payable 2,500
Medical insurance payable 450
Salaries Payable 8,500
Tax Rates:
Federal unemployment Taxes .8%
State Unemployment Taxes....1.8%
None of the employees have yet exceeded the $7,000 maximum annual limit.

Payroll Tax Expense 312
Federal Unemployment Taxes Payable (12,000 x .8%) 96
State Unemployment Taxes Payable (12,000 x 1.8%) 216

The journal entry to record the monthly payroll on April 30 would include a

a. debit to Salaries Expense for $12,000.
b. credit to Salaries Payable for $12,000.
c. debit to Salaries Payable for $12,000.
d. debit to Salaries Expense for $8,500.

Question 6
The entry to record the payment of net payroll would include a

a. debit to Salaries Payable for $8,050.
b. debit to Salaries Payable for $8,500.
c. debit to Salaries Payable for $7,950.
d. credit to Cash for $9,050.

Question 7
The entry to record accrual of employer's payroll taxes would include a

a. debit to Payroll Tax Expense for $312.
b. debit to Payroll Tax Expense for $862.
c. credit to FICA Taxes Payable for $1,100.
d. credit to Payroll Tax Expense for $312.

Question 8
The entry to record the payment of federal unemployment tax would include a

a. debit to Federal Unemployment Taxes Payable for $96.
b. credit to Federal Unemployment Taxes Expense for $960.
c. debit to Payroll Tax Expense for $960.
d. credit to Federal Unemployment Taxes Payable for $96.

Question 9
Which of the following is not an advantage of issuing bonds instead of common stock?

a. Stockholder control is not affected.
b. Earnings per share on common stock may be lower.
c. Income to common shareholders may increase.
d. Tax savings result

Question 10
Bonds that may be exchanged for common stock at the option of the bondholders are called

a. options.
b. stock bonds.
c. convertible bonds.
d. callable bonds.

Question 11
A bond with ...

Solution Summary

This solution is comprised of a detailed explanation to answer 42 multiple choice 1st year accounting problems.

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