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Various Stock and Bond Questions

1. Par value of a stock refers to the:
A) Issue price of the stock.
B) Value assigned to a share of stock by the corporate charter.
C) Market value of the stock on the date of the financial statements.
D) Maximum selling price of the stock.
E) Dividend value of the stock.

2. Preferred stock on which the right to receive dividends is forfeited for any year that the dividends are not declared is referred to as:
A) Participating preferred stock.
B) Callable preferred stock.
C) Cumulative preferred stock.
D) Convertible preferred stock.
E) Noncumulative preferred stock.

3. On January 1, 2009, Merrill Company borrowed $100,000 on a 10-year installment note payable. The terms of the note require Merrill to pay 10 equal payments of $14,238 each December 31 for 10 years. The required general journal entry to record the first payment on the note on December 31, 2009 is

Notes payable 7,238
Interest expense 7,000
Cash 14,238

Notes payable 7,000
Interest expense 7,238
Cash 14,238

Notes payable 10,000
Interest payable 7,000
Cash 17,000

Notes payable 14,238
Cash 14,238

Notes payable 10,000
Interest Expense 4,238
Cash 14,238

4. Stockholder's equity consists of:
A) Long-term assets
B) Paid-in capital and retained earnings
C) Paid-in capital and par value
D) Retained earnings and cash
E) Premiums and discounts

5.. The payment pattern for an installment note with equal total payments includes:
A) Increasing principal payments
B) Decreasing accrued interest
C) Constant cash payments
D) Both A and B
E) All of these

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Solution Preview

1. The par value of a stock is a legal value assigned to the stock; it bears no semblance to the stock's market value. Thus, par value is a B) Value assigned to a share of stock by the corporate charter.

2. Preferred stick which cannot receive a "missed" dividend (i.e. not accumulate its dividends) in the future is called E) Noncumulative preferred stock.

3. Because the payments are an even $14,238 a ...

Solution Summary

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