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Helpful Accounting and Financial Study Questions

11) If a corporation issued $3,000,000 in bonds which pay 10% annual interest, what is the annual net cash cost of this borrowing if the income tax rate is 30%?
A. $3,000,000
B. $90,000
C. $300,000
D. $210,000

12) Hilton Company issued a four-year interest-bearing note payable for $300,000 on January 1, 2011. Each January the company is required to pay $75,000 on the note. How will this note be reported on the December 31, 2012 balance sheet?
A. Long-term debt, $300,000.
B. Long-term debt, $225,000.
C. Long-term debt, $150,000; Long-term debt due within one year, $75,000.
D. Long-term debt, $225,000; Long-term debt due within one year, $75,000.

13) A corporation issued $600,000, 10%, 5-year bonds on January 1, 2011 for 648,666, which reflects an effective-interest rate of 8%. Interest is paid semiannually on January 1 and July 1. If the corporation uses the effective-interest method of amortization of bond premium, the amount of bond interest expense to be recognized on July 1, 2011, is
A. $30,000
B. $24,000
C. $32,434
D. $25,946

14) When the effective-interest method of bond discount amortization is used
A. the applicable interest rate used to compute interest expense is the prevailing market interest rate on the date of each interest payment date
B. the carrying value of the bonds will decrease each period
C. interest expense will not be a constant dollar amount over the life of the bond
D. interest paid to bondholders will be a function of the effective-interest rate on the date the bonds were issued

15) If a corporation has only one class of stock, it is referred to as
A. classless stock
B. preferred stock
C. solitary stock
D. common stock

16) Capital stock to which the charter has assigned a value per share is called
A. par value stock
B. no-par value stock
C. stated value stock
D. assigned value stock

17) ABC, Inc. has 1,000 shares of 5%, $100 par value, cumulative preferred stock and 50,000 shares of $1 par value common stock outstanding at December 31, 2011. What is the annual dividend on the preferred stock?
A. $50 per share
B. $5,000 in total
C. $500 in total
D. $.50 per share

18) Manner, Inc. has 5,000 shares of 5%, $100 par value, noncumulative preferred stock and 20,000 shares of $1 par value common stock outstanding at December 31, 2011. There were no dividends declared in 2010. The board of directors declares and pays a $45,000 dividend in 2011. What is the amount of dividends received by the common stockholders in 2011?
A. $0
B. $25,000
C. $45,000
D. $20,000

19) When the selling price of treasury stock is greater than its cost, the company credits the difference to
A. Gain on Sale of Treasury Stock
B. Paid-in Capital from Treasury Stock
C. Paid-in Capital in Excess of Par Value
D. Treasury Stock

20) The purchase of treasury stock
A. decreases common stock authorized
B. decreases common stock issued
C. decreases common stock outstanding
D. has no effect on common stock outstanding

Solution Preview

11) If a corporation issued $3,000,000 in bonds which pay 10% annual interest, what is the annual net cash cost of this borrowing if the income tax rate is 30%?
A. $3,000,000
B. $90,000
C. $300,000
D. $210,000 <-- 300,000 x 30% = 90,000. 90,000 = 210,000.

12) Hilton Company issued a four-year interest-bearing note payable for $300,000 on January 1, 2011. Each January the company is required to pay $75,000 on the note. How will this note be reported on the December 31, 2012 balance sheet?
A. Long-term debt, $300,000.
B. Long-term debt, $225,000.
C. Long-term debt, $150,000; Long-term debt due within one year, $75,000. <-- this is the correct entry with the correct amounts. 300,000 - 75,000 = 225,000, but we wouldn't recognize long term debt at that amount because of the conditions of the note.
D. Long-term debt, $225,000; Long-term debt due within one year, $75,000.

13) A corporation issued $600,000, 10%, 5-year ...

Solution Summary

11) If a corporation issued $3,000,000 in bonds which pay 10% annual interest, what is the annual net cash cost of this borrowing if the income tax rate is 30%?
A. $3,000,000
B. $90,000
C. $300,000
D. $210,000

12) Hilton Company issued a four-year interest-bearing note payable for $300,000 on January 1, 2011. Each January the company is required to pay $75,000 on the note. How will this note be reported on the December 31, 2012 balance sheet?
A. Long-term debt, $300,000.
B. Long-term debt, $225,000.
C. Long-term debt, $150,000; Long-term debt due within one year, $75,000.
D. Long-term debt, $225,000; Long-term debt due within one year, $75,000.

13) A corporation issued $600,000, 10%, 5-year bonds on January 1, 2011 for 648,666, which reflects an effective-interest rate of 8%. Interest is paid semiannually on January 1 and July 1. If the corporation uses the effective-interest method of amortization of bond premium, the amount of bond interest expense to be recognized on July 1, 2011, is
A. $30,000
B. $24,000
C. $32,434
D. $25,946

14) When the effective-interest method of bond discount amortization is used
A. the applicable interest rate used to compute interest expense is the prevailing market interest rate on the date of each interest payment date
B. the carrying value of the bonds will decrease each period
C. interest expense will not be a constant dollar amount over the life of the bond
D. interest paid to bondholders will be a function of the effective-interest rate on the date the bonds were issued

15) If a corporation has only one class of stock, it is referred to as
A. classless stock
B. preferred stock
C. solitary stock
D. common stock

16) Capital stock to which the charter has assigned a value per share is called
A. par value stock
B. no-par value stock
C. stated value stock
D. assigned value stock

17) ABC, Inc. has 1,000 shares of 5%, $100 par value, cumulative preferred stock and 50,000 shares of $1 par value common stock outstanding at December 31, 2011. What is the annual dividend on the preferred stock?
A. $50 per share
B. $5,000 in total
C. $500 in total
D. $.50 per share

18) Manner, Inc. has 5,000 shares of 5%, $100 par value, noncumulative preferred stock and 20,000 shares of $1 par value common stock outstanding at December 31, 2011. There were no dividends declared in 2010. The board of directors declares and pays a $45,000 dividend in 2011. What is the amount of dividends received by the common stockholders in 2011?
A. $0
B. $25,000
C. $45,000
D. $20,000

19) When the selling price of treasury stock is greater than its cost, the company credits the difference to
A. Gain on Sale of Treasury Stock
B. Paid-in Capital from Treasury Stock
C. Paid-in Capital in Excess of Par Value
D. Treasury Stock

20) The purchase of treasury stock
A. decreases common stock authorized
B. decreases common stock issued
C. decreases common stock outstanding
D. has no effect on common stock outstanding

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