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Helpful Accounting and Financial Study Questions

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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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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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See Also This Related BrainMass Solution

Company Financias: Sample Questions And Explanations

1. At the beginning of 2007, Beta Company's balance sheet reported Total Assets of $195,000 and Total Liabilities of $75,000. During 2007, the company reported total revenues of $226,000 and expenses of $175,000. Also, owner withdrawals during 2007 totaled $48,000. Assuming no other changes to owner's capital, the balance in the owner's capital account at the end of 2007 would be:

A. $174,000.
B. $78,000.
C. cannot be determined from the information provided.
D. $120,000.
E. $123,000.

2. The accrual basis of accounting:

A. Is generally accepted for external reporting because it is more useful for most business decisions.
B. Is flawed because it gives complete information about cash flows.
C. Recognizes revenues when received in cash.
D. Recognizes expenses when paid in cash.
E. Eliminates the need for adjusting entries at the end of each period.

3. If a company mistakenly forgot to record depreciation on office equipment at the end of an accounting period, the financial statements prepared at that time would show:

A. Assets overstated and equity understated.
B. Assets and equity both understated.
C. Assets overstated, net income understated, and equity overstated.
D. Assets, net income, and equity understated.
E. Assets, net income, and equity overstated.

4. On January 20, 2005, Jennifer Nelson, the accountant for Travon Enterprises, is feeling pressure to complete the annual financial statements. The company president has said he needs up-to-date financial statements to share with the bank on January 21 at a dinner meeting that has been called to discuss Travon's obtaining loan financing for a special project. Jennifer knows that she will not be able to gather all the needed information in the next 24 hours to prepare the entire set of adjusting entries that must be posted before the financial statements accurately portray the company's performance and financial position for the fiscal period ended December 31, 2004. Jennifer ultimately decides to estimate several expense accruals at the last minute. When deciding on estimates for the expenses, she uses low estimates because she does not want to make the financial statements look worse than they are. Jennifer finishes the financial statements before the deadline and gives them to the president without mentioning that several accounts use estimated balances. a. Identify several courses of action that Jennifer could have taken instead of the one she took. b. If you were in Jennifer's situation, what you have done? Briefly justify your response.

5. What accounts are affected by closing entries? What accounts are not?

6. The acid-test ratio differs from the current ratio in that:

A. Liabilities are divided by current assets.
B. Prepaid expenses and inventory are excluded from the calculation of the acid-test ratio.
C. The acid-test ratio measures profitability and the current ratio does not.
D. The acid-test ratio excludes short-term investments from the calculation.
E. The acid-test ratio is a measure of liquidity but the current ratio is not.

7. Which of the following inventory costing methods will always result in the same values for ending inventory and cost of goods sold regardless of whether a perpetual or periodic inventory system is used?

A. FIFO and LIFO
B. LIFO and weighted-average cost
C. Specific identification and FIFO
D. FIFO and weighted-average cost
E. LIFO and specific identification

8. A company had net sales and cost of goods sold of $752,000 and $543,000, respectively. Its net income was $17,530. The company's gross margin and expenses are ________ and ____________, respectively.

A. $209,000; $191,470
B. $191,470; $209,000
C. $525,470; $227,000
D. $227,000; $525,470
E. $734,000; $191,470

9. The understatement of the ending inventory balance causes:

A. Cost of goods sold to be overstated and net income to be understated.
B. Cost of goods sold to be overstated and net income to be overstated.
C. Cost of goods sold to be understated and net income to be understated.
D. Cost of goods sold to be understated and net income to be overstated.
E. Cost of goods sold to be overstated and net income to be correct.

10. The operating cycle for a merchandiser that sells only for cash moves from:

A. Purchases of merchandise to inventory to cash sales.
B. Purchases of merchandise to inventory to accounts receivable to cash sales.
C. Inventory to purchases of merchandise to cash sales.
D. Accounts receivable to purchases of merchandise to inventory to cash sales.
E. Accounts receivable to inventory to cash sales.

11. The inventory valuation method that results in the lowest taxable income in a period of inflation is:

A. LIFO method.
B. FIFO method.
C. Weighted-average cost method.
D. Specific identification method.
E. Gross profit method.

12. Goods on consignment:

A. Are goods shipped by the owner to the consignee who sells the goods for the owner.
B. Are reported in the consignee's books as inventory.
C. Are goods shipped to the consignor who sells the goods for the owner.
D. Are not reported in the consignor's inventory since they do not have possession of the inventory.
E. Are always paid for by the consignee when they take possession

13. A company has the following per unit original costs and replacement costs for its inventory:
Part A: 50 units with a cost of $5, and replacement cost of $4.50
Part B: 75 units with a cost of $6, and replacement cost of $6.50
Part C: 160 units with a cost of $3, and replacement cost of $2.50
Under the lower of cost or market method, the total value of this company's ending inventory is:

A. $1,180.00.
B. $1,075.00.
C. $1,112.50 or $1075.00, depending upon whether LCM is applied to individual items or the inventory as a whole.
D. $1,112.50.
E. $1180.00 or $1075.00, depending upon whether LCM is applied to individual items or to the inventory as a whole.

14. Cost of goods sold:

A. Is another term for merchandise sales.
B. Is the term used for the cost of buying and preparing merchandise for sale.
C. Is another term for revenue.
D. Is also called gross margin.
E. Is a term only used by service firms.

15. A company's net sales were $676,600, its cost of good sold was $236,810 and its net income was $33,750. Its gross margin ratio equals:

A. 5%.
B. 9.6%.
C. 35%.
D. 65%.
E. 285.7%.

16. Identify similarities and differences between the acid-test ratio and the current ratio. Compare and describe how the two ratios reflect a company's ability to meet its current obligations. Break down your answer into three paragraphs: Similarities; Differences; and Description.

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