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Accounting Multiple Choice Questions

I do not understand the concept of this section (stock holder's equity) at all. please help. It is mostly multiple choice, short math of how you got each answer would be great so I can compare my answer to yours.

Thank you

Use the following data set to answer the first four questions. On January 1, 2007 The Def Co. issued $100,000, five year bonds, carrying a coupon rate of ten percent (10%), interest payable annually on December 31 each year. The bonds were issued at an effective yield of fourteen percent (14%). Assume that the net proceeds from the issue of the bond differed from the face value of the bond by $10,000. The company uses straight-line amortization.
1. The journal entry on January 1, 2007 would be
a) Cash 110,000
B/P 100,000
Premium on B/P 10,000
b) Cash 90,000
Discount 0n B/P 10,000
B/P 100,000
c) Cash 90,000
Premium on B/P 10,000
B/P 100,000
d) Cash 110,000
B/P 100,000
Discount on B/P 10,000
2. The journal entry on December 31, 2007 would be
a) Bond interest expense 14,000
Cash 14,000
b) Bond interest expense 10,000
Cash 10,000
c) Bond interest expense 10,000
Premium on B/P 4,000
Cash 14,000
d) Bond interest expense 12,000
Cash 10,000
Discount on B/P 2,000
3. . The journal entry on December 31, 2008 would be
a) Bond interest expense 14,000
2
Cash 14,000
b) Bond interest expense 10,000
Cash 10,000
c) Bond interest expense 10,000
Premium on B/P 4,000
Cash 14,000
d) Bond interest expense 12,000
Cash 10,000
Discount on B/P 2,000
4. On 01/01/09 the company redeemed (i.e., bought back) twenty percent (20%) of the bonds outstanding for $19,000. This event would lead to the recognition of
a) a gain of $1,000
b) a loss of $1,000
c) a gain of $200
d) a loss of $200
II.
Is it better for a company to issue bonds at a discount or at a premium? Explain your answer.
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III.
Use the following data set to answer the following questions
05/12/08 Received charter authorizing ABC Co. to issue 10,000 shares of common stock at a par value of $3 per share.
06/03/08 Issued 6,000 shares of stock, receiving $42,000.
06/04/08 Paid the law firm of Lo, Ball and Hyde for their services to help organize the company by sending them one thousand shares of stock.
11/15/08 Declared a cash dividend of $2 per share, payable on 01/15/09, to holders of record as of 12/15/08.
12/15/08 Make the appropriate entry.
12/31/08 Make any necessary adjusting entry.
01/15/09 Make the appropriate entry.
06/12/09 Declared a ten percent (10%) stock dividend, payable on 7/15/09 (ignore the date of record for this event). The market value of the stock is $12 per share.
07/15/09 Make the appropriate entry.
08/15/09 Declared a two-for-one stock split. The market value of the stock is $14 per share.
09/15/09 Declared and paid a cash dividend of $2 per share (pretend this happens all in one day).
10/01/09 Purchased 1,000 shares of treasury stock for a total price of $20,000.
10/15/09 Declared and paid a cash dividend of $2 per share.
11/15/09 Reissued 300 shares of treasury stock at $21 each.
12/15/09 Reissued the remaining treasury stock at $10 per share.
1. On 5/12/08
a) there would be no journal entry
b) the company would credit common stock for 30,000
c) the company would credit common stock for 10,000
d) the company would credit APIC for 20,000
2. On 6/03/08
a) there would be no journal entry
b) the company would credit common stock for 42,000
c) the company would credit common stock for 18,000
d) the company would credit APIC for 18,000
3, On 6/04/08
a) there would be no journal entry
b) the company would credit common stock for 7,000
c) the company would credit common stock for 3,000
d) the company would credit APIC for 3,000
4. On 11/15/08
a) there would be no journal entry
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b) the company would debit R/E 12,000
c) the company would debit R/E 14,000
d) the company would debit R/E 16,000
5 On 12/15/08
a) there would be no journal entry
b) the company would debit R/E 12,000
c) the company would debit R/E 14,000
d) the company would debit R/E 16,000
6. On 12/31/08
a) there would be no journal entry
b) the company would debit R/E 12,000
c) the company would debit R/E 14,000
d) the company would debit R/E 16,000
7. On 1/15/09
a) there would be no journal entry
b) the company would credit cash 12,000
c) the company would credit cash 14,000
d) the company would credit cash 16,000
8. On 6/12/09
a) there would be no journal entry
b) the company would debit R/E 1,800
c) the company would debit R/E 7,200
d) the company would debit R/E 8,400
9. On 7/15/09
a) there would be no journal entry
b) the company would credit cash 8,400
c) the company would credit common stock 1,800
d) the company would credit common stock 2,100
10. On 8/15/09
a) there would be no journal entry
b) the company would debit R/E 92,400
c) the company would debit R/E 107,800
d) the company would debit R/E 84,000
11. On 9/15/09
a)there would be no journal entry
b) the company would debit R/E 15,400
c) the company would debit R/E 30,800
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d) the company would debit R/E 26,400
12. On 10/1/09
a) there would be no journal entry
b) the company would debit treasury stock 3,000
c) the company would debit treasury stock 20,000
d) the company would debit treasury stock 12,000
13. On 10/15/09
a) there would be no journal entry
b) the company would debit R/E 30,800
c) the company would debit R/E 28,800
d) the company would debit R/E 24,400
14. On 11/15/09
a) there would be no journal entry
b) the company would credit APIC-T/S 300
c) the company would credit APIC-T/S 2,100
d) the company would credit APIC-T/S 6,300
15. On 12/15/09
a) the company would debit R/E 6,700
b) the company would debit R/E 7,000
c) the company would debit R/E 14,000
d) the company would debit R/E 2,100
IV.
Use the following data set to answer the following questions.
The stockholders' equity section on the 12/31/08 balance sheet of Wheat Corporation was:
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Stockholders' Equity
Contributed capital:
Common stock, $?? par value, authorized 26,000 shares; issued 8,000 shares; outstanding 6,500 shares .... $26,000
Preferred stock, par value $50, authorized 20,000
shares; issued and outstanding, 10,000 shares .... 500,000
Contributed capital in excess of par, common ....... 13,000
Contributed capital in excess of par, preferred .... 10,000
Contributed capital, treasury stock transactions ... 3,000
Retained Earnings .................................. 326,000
Cost of treasury stock, common ..................... 4,500
1.the par value of the common stock was
a) $1.00
b) $3.25
c) $4,00
d) $4.50
2. the number of shares held as treasury stock was
a) 1,500
b) 18,000
c) 19,500
d) 26,000
3. the average issue price per share of common stock was
a) $3.25
b) $5.39
c) $6.00
d) $4.78
4. the cost of the treasury stock per share was
a) $2
b) $3
c) $4
d) $5
5. the total stockholders' equity was
a) $859,500
b) $882,500
c) $878,000
d) $873,500
V.
Use the following data set to answer the following questions.
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Comparative balance sheets and an income statement for 2008 are presented below for Nroklesah Company.
Nroklesah Company
Comparative Balance Sheets and Income Statement
For the Years 2007 and 2008
BALANCE SHEETS
Assets 2008 2007
Cash 200 285
Accounts receivable 350 290
Allowance for bad debts (45) (25)
Inventory 260 135
Land 600 500
Buildings 295 250
Accumulated depreciation-buildings (65) (80)
Total assets 1,595 1,355
Liabilities & Owners' Equity
Liabilities
Accounts payable 400 355
Wages payable 70 67
Dividends payable 30 47
Taxes payable 50 46
Long-term Bonds payable 100 100
Discount on bonds payable ( 8) (10)
Total liabilities 642 605
Owners' Equity
Common stock 650 550
Retained earnings 303 200
Total owners' equity 953 750
Total liabilities & owners' equity 1,595 1,355
INCOME STATEMENT (2008)
Revenue 1,200
Cost of goods sold 750
Gross margin 450
Operating expenses
Wage expense 200
Depreciation expense 30
Bad debt expense 20
Bond interest expense 10
Total operating expenses 260
Net operating income 190
Gain on sale of building 40
Net income before tax 230
Income tax 69
Net income after tax 161
Additional information
1. There were no write-offs of delinquent accounts during the
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year.
2. A building was sold during the year for $80.
Questions
1. Using the direct method, the cash collected from customers would be
a) 1,200
b) 1,140
c) 1,260
d) 1,120
2. Using the direct method, the amount paid to employees was
a) 200
b) 203
c) 197
d) 367
3. Using the direct method, the amount paid to the government was
a) 69
b) 50
c) 65
d) 73
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4. Using the direct method, the amount of depreciation appearing on the cash flow statement would be
a) 0
b) 30
c) 65
d) 15
5. Using the indirect method, the amount of depreciation appearing on the cash flow statement would be
a) 0
b) 30
c) 65
d) 15
6. The amount of dividends paid out in cash was
a) 103
b) 58
c) 75
d) 88
7. The amount of cash paid to suppliers was
a) 830
b) 920
c) 750
d) 580
8. The sale of the building resulted in
a) a gain of 35
b) a decrease in the building account of 75
c) a decrease in the building account of 85
d) a decrease in the accumulated depreciation account of 15
9. The amount of cash received from the issue of common stock was
a) 0
b) 30
c) 70
d) 100
10. The amount of cash paid to bondholders was
a) 0
10
b) 2
c) 8
d) 10
VI.
Use the data from Problem V. For the most recent year (2008) calculate the following ratios.
1. Current ratio
2. Inventory turnover
3. Rate of return on total assets
4. Accounts receivable turnover (assume all sales are on account)
5. Debt ratio.

Solution Preview

Please see the attached file

Use the following data set to answer the first four questions. On January 1, 2007 The Def Co. issued $100,000, five year bonds, carrying a coupon rate of ten percent (10%), interest payable annually on December 31 each year. The bonds were issued at an effective yield of fourteen percent (14%). Assume that the net proceeds from the issue of the bond differed from the face value of the bond by $10,000. The company uses straight-line amortization.
1. The journal entry on January 1, 2007 would be
a) Cash 110,000
B/P 100,000
Premium on B/P 10,000
b) Cash 90,000
Discount 0n B/P 10,000
B/P 100,000
c) Cash 90,000
Premium on B/P 10,000
B/P 100,000
d) Cash 110,000
B/P 100,000
Discount on B/P 10,000

Since the effective yield is higher, the bonds are issued at a discount. The cash received would be $100,000-10 = $90,000

2. The journal entry on December 31, 2007 would be
a) Bond interest expense 14,000
Cash 14,000
b) Bond interest expense 10,000
Cash 10,000
c) Bond interest expense 10,000
Premium on B/P 4,000
Cash 14,000
d) Bond interest expense 12,000
Cash 10,000
Discount on B/P 2,000

The amortization per year is 10,000/5 = 2,000.
The cash paid is 100,000X10%=10,000

3. . The journal entry on December 31, 2008 would be
a) Bond interest expense 14,000
2
Cash 14,000
b) Bond interest expense 10,000
Cash 10,000
c) Bond interest expense 10,000
Premium on B/P 4,000
Cash 14,000
d) Bond interest expense 12,000
Cash 10,000
Discount on B/P 2,000

Under straight line method, the journal entry remains the same for each interest payment

4. On 01/01/09 the company redeemed (i.e., bought back) twenty percent (20%) of the bonds outstanding for $19,000. This event would lead to the recognition of
a) a gain of $1,000
b) a loss of $1,000
c) a gain of $200
d) a loss of $200

The par value of the bond is 20,000. The unamortized premium on 1/1/09 is 6,000. Amount application to 20,000 of bonds us 6,000X20%=1,200. The carrying value of the bonds is 20,000-1,200 = 18,800. These are redeemed for $19,000. There is a loss of $200

II.
Is it better for a company to issue bonds at a discount or at a premium? Explain your answer.

It makes to difference to the company. The cash paid is based on the par value and the stated rate of interest and the discount or premium is amortized over the life of the bonds.

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III.
Use the following data set to answer the following questions
05/12/08 Received charter authorizing ABC Co. to issue 10,000 shares of common stock at a par value of $3 per share.
06/03/08 Issued 6,000 shares of stock, receiving $42,000.
06/04/08 Paid the law firm of Lo, Ball and Hyde for their services to help organize the company by sending them one thousand shares of stock.
11/15/08 Declared a cash dividend of $2 per share, payable on 01/15/09, to holders of record as of 12/15/08.
12/15/08 Make the appropriate entry.
12/31/08 Make any necessary adjusting entry.
01/15/09 Make the appropriate entry.
06/12/09 Declared a ten percent (10%) stock dividend, payable on 7/15/09 (ignore the date of record for this event). The market value of the stock is $12 per share.
07/15/09 Make the appropriate entry.
08/15/09 Declared a two-for-one stock split. The market value of the stock is $14 per share.
09/15/09 Declared and paid a cash dividend of $2 per share (pretend this happens all in one day).
10/01/09 Purchased 1,000 shares of treasury stock for a total price of $20,000.
10/15/09 Declared and paid a cash dividend of $2 per share.
11/15/09 Reissued 300 shares of treasury stock at $21 each.
12/15/09 Reissued the ...

Solution Summary

The solution explains various accounting multiple choice questions relating to depreciation, journal entries, dividends, cash flow statement, issue of shares and ratio calculation

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