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Accounting: Multiple choice questions.

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1. You borrow 1,000 today from a bank and agree to repay 2,000 at the end of 5 years. What rate of interest is the bank charging you?
A. 12%
B. 15%
C. 18%
D. 20%

2. What is the percent value of $1 million to be received at the end of year 50, if the interest rate is 12%, compounded annually?
A. 3,460
B. 20,000
C. 34,000
D. 50,000

3. A zero- coupon bond with a positive yield to maturity will have an offering price?
A. Less than the contribution margin
B. Less than par
C. Equal to par
D. Equal to the market rate

4. What is the market value of share common stock affected by?
A. Par value
B. Risk-free rate
C. Paid in capital
D. Book value

5. For an investor, what is most useful in determining the market value of a corporate bond?
A. The bond rating
B. The size of the issue
C. The required rate of return
D. The sinking fund provision

6. Advantage of using simulation to access capital budgeting risk include?
A. Adjustment for risk in the resulting distribution of net present values
B. Single period investment since discounting is not possible
C. Presenting a range of possible outcomes
D. Graphically displaying all possible outcomes of the investment

7. The owner of a seat on the New York Stock Exchange (NYSE) is also?
A. Agent
B. Trustee
C. Member
D. Customer

8. Based on the historical record from 1925 to the present, which type of securities earned highest return?
A. The common stock of the small capitalization firms on the NYSE
B. Long term US. Government bonds
C. The common stock of the largest 500 firms on the NYSE
D. Long term corporate bonds

9. Which statement is true?
A. Typically, the after-tax cost of debt financing exceeds the after tax cost of equity financing
B. The weighted average cost of capital is a measure of the before tax cost of capital
C. The weighted average cost of capital measures the marginal after tax cost of capital
D. The marginal cost of capital is always higher than the weight average cost of capital measures

10. A higher corporate tax rate?
A. Will increase the WACC of a firm with debt and equity in its capital structure
B. Will change the WACC of a firm with debt in its capital structure
C. Will not affect the WACC of a firm with debt in its capital structure
D. Will decrease the WACC of a firm with debt in its capital structure
E. Will decrease the WACC of a firm with only equity in its capital structure

11.The cost of capital in a firm that has both debt and equity?
A. Will be the same for its different divisions
B. Depends on the source of the funds for a project
C. Is what a firm must earn on a project to compensate investors for the use of their funds
D. It equal to the cost of debt or equity, depending on which type of financing the firm typically uses
E. It also known as the internal rate of return

12. 35. Which statement is true about the weighted average cost of capital (WACC)?
A. Since discount rate and firm value move in the same direction minimizing the WACC will minimized the value of the firm.
B. The value of the firm will be maximized when the WACC is minimized
C. The WACC is the appropriate discount rate for all new projects of the firm
D. The WACC is virtually impossible to calculate for a firm with multiple division
E. The optimal capital situation is the one that maximize the WACC

13. A company charges $5 per hour, for parking. It can rent 100 spots over an entire upcoming Sunday for a lump sum of 3,000. What would happen to the company's profit it it rented 100 spots?
A. Increase by 3,000
B. Decrease by 500
C. Increase by 1,000
D. Decrease by 2,000

14. The variable cost of a product are $25, fixed cost are $5 per unit based on 10,000 units produced during this period. The company has enough capacity to accept a special order of 1,000 units. What is the minimum price that should be charged for the special order?
A. $5
B. $20
C. $25
D. $30

15. .Balance sheets Income statement
Assets Sale(all credit ) 6,000,000
Cash 150,000 Costs of goods sold 3,000,000
Accounts receivable 450,000 Interests expense 750,000
Inventory 600,000 Income taxes 750,000
Net fixed assets 1,800,000 Net Income 750,000

Liabilities and owners equity
Accounts payable 150,000
Notes payable 150,000
Long term debt 1,200,000
Owners equity 1,500,000

Based on the given information, what is the debt to assets ratio?

A. 0.1
B. 0.4
C. 0.5
D. 0.8
E. 1.0

16.
Balance sheets Income statement
Assets Sales (all credit ) 6,000,000
Cash 150,000 Costs of goods sold 3,000,000
Accounts receivable 450,000 Operating expenses 750,000
Inventory 600,000 Interest expense 750,000
Net fixed assets 1,800,000 Income taxes 750,000
Net Income 750,000

Liabilities of owner's equity:
Accounts payable 150,000
Notes payable 150,000
Long term debt 1,200,000
Owner's equity 1,500,000

Based on the information, what is the average collection period using a 360-day year?

A. 9.0 days
B. 13.2 days
C. 27.0 days
D. 36.0 days

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Solution Summary

The problem set are multiple choice questions dealing with time value of money concept, bond valuation etc.

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Random Accounting Questions

See attached file for clarity.

1. All of the following are true regarding journal entries except:
A. Journal entries show the effects of transactions.
B. Journal entries provide account balances.
C. The debited account titles are listed first.
D. Each journal entry should begin with a date.

2. Marvin's Art Inc. purchases paints, canvases and art supplies from Magic Art Co. for sale to consumers. What type of company is Marvin's Art Inc.?
A. Service
B. Wholesaler
C. Retail merchandiser
D. Manufacturer

3. A company purchased $2,000 of merchandise on November 2 with terms 2/10, n130. On November 8, it returned $500 worth of merchandise. On November 10, it paid the invoice. The amount paid on November 10 equals.
A. $1,470.
B. $1,960.
C. $2,000.
D.$1,500.

4. Sales returns refer to:
A. Merchandise that customers return to the seller after the sale.
B. Reductions in the selling price of merchandise sold to customers.
C. Cash discounts taken by customers.
D. Merchandise inventory that is marked down.

5. Which of the following accounts is not increased with a debit?
A. Sales Discounts.
B. Sales Returns and Allowances.
C. Sales Revenue.
D. Cost of goods sold

7. A _________is a list of individual accounts, usually in financial statement order, prepared as a check on the accounting system.
A. Trial balance
B.General ledger
C. Balance sheet
D. Financial statement

8. Which of the following is not true regarding the use of special journals?
A. Special journals are used to record repetitive, frequent transactions.
B. The use of the General Journal is eliminated by the use of special journals.
C. The Purchases Journal is used to record purchases or expenses on account.
D. The Revenue Journal is used only for recording revenues earned on account.

9. FOB destination means that title to goods purchases is transferred when the:
A. Goods leave the seller's shipping department.
B. Seller sends the invoice.
C. Goods reach the buyers place of business.
D. Buyer records the receipt of inventory.

10. Transactions involving customer payments are often recorded in a:
A. General Journal.
B. Cash Receipts Journal.
C. T-account.
D. Revenue Journal.

57. A debit to Sales Returns and Allowances and a credit to Accounts Receivable:
A. Is recorded when a customer pays within the discount period.
B. Recognizes that a customer returned merchandise or received an allowance.
C. Reflects an increase in the amount due from a customer.
D. Reflects a direct decrease in total sales revenue.

58. Mandy's Ice Cream Shoppe purchased $500 worth of supplies on account from ICEE Inc. In which special journal should this transaction be recorded?
A. Revenue Journal
B. Purchases Journal
C. Cash receipts Journal
D. Cash payments Journal

59. Expenses are:
A. Incurred only when cash is paid.
B. Costs incurred to generate revenues.
C. Increases to owner's equity.
D. Recorded as credits in journal entries.

60. The term "FOB Shipping Point" means
A. The buyer records transportation expense.
B. The seller pays the shipping cost.
C. The buyer pays the shipping cost.
D. The buyer does not assume ownership until the goods are received.

66. The unadjusted trial balance contains which type of accounts?
A. Income statement accounts
B. Balance sheet accounts
C. Both income statement and balance sheet accounts.
D. The final balances for all accounts.

67. The amount recorded in merchandise inventory includes all of the following except:
A. Purchase discounts
B. Freight costs paid by the buyer. C. Freight costs paid by the seller.
D. Purchase returns and allowances.

68. Terms for the left and right side of an account are known as:
A. Increase/Decrease.
B. Debit/Credit.
C. Up/Down.
D. Positive/Negative.

Use the following account numbers and corresponding account titles to answer the next two questions.
Account
No. Account Title
(1) Cash
(2) Inventory
(3) Cost of goods sold
(4) Transportation-
(5) out
(6) Dividends
(7) Common stock
(8) Selling expense

70. Which accounts would appear on the income statement?
A. Account numbers 3, 4, and 7.
B. Account numbers 2, 4, and 5.
C. Account numbers 1, 3, and 7.
D. Account numbers 2, 5, and 7.

71. Which accounts would appear on the balance sheet?
A. Account numbers 2, 4, and 5.
B. Account numbers 1, 3, and 7.
C. Account numbers 1, 2, and 6.
D. Account numbers 3, 4, and 7.
Account No.
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)

Account Title Cash
Service Revenue Accounts Receivable Salaries Expense Dividends
Common Stock Salaries Payable Retained Earnings

Service Revenue Accounts Receivable Salaries Expense Dividends
Common Stock Salaries Payable Retained Earnings

73. Select the true statement (note: an answer may be true even if it does not identify all accounts that appear on a articular statement).
Account numbers 1, 3, and 7 will appear on the balance sheet.
B. Account numbers 2, 4, and 5 will appear on the income statement.
C. Account numbers 2, 5, and 8 will appear on the statement of cash flows.
D. Account numbers 4, 5, and 6 will appear on the statement of changes in equity.

74. Select the true statement (note: an answer may be true even if it does not identify all accounts that have debit balances).
Account numbers 2, 4, and 5 normally have debit balances. B Account numbers 1, 3, and 5 normally have debit balances.
C. Account numbers 2, 5, and 8 normally have debit balances.
D. Account numbers 4, 5, and 6 normally have debit balances.

Assume the perpetual inventory method is used.
1) The company purchased $10,000 of merchandise on account under terms 2/10, n/30.
2) The company returned $1,200 of merchandise to the supplier before payment was made
3) The liability was paid within the discount period.
4) All of the merchandise purchased was sold for $13,000 cash.

75. The amount of gross margin from the four transactions is:
A. $4,376.
B. $4,258.40.
C. $8.,800.
D. $8,624.

SECTION B
1. Below are listed several transactions that a business may enter into.
Provide services to customers on account
Purchase land by paying cash
Purchase a fire insurance policy that will provide coverage for a two-year period Acquire cash by issuing common stock
Recognize expense for amount of office supplies that had been used during the period Receive payment from a customer for services that will be provided over the next six months

Required:

a) In the table below, indicate the accounts that would be debited and credited for each of the preceding transactions.

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