Test 1

Question 1

The rate of interest actually earned by bondholders is called the

Answer 1

effective rate

Question 2

the interest rate written in the terms of the bond indenture is known as the the

Answer 2

coupon rate, nominal rate, or the stated rate

Question 3

Fox Co. issued $100,000 of ten-year 10% bonds that pay interest semiannually. The bonds are sold to yield 8%. One step i calculating the issue price f the bonds is to multiply the face value by the table value for

Answer 3

20 periods and 4% from the present value of 1 table

Question 4

Under the effective interest method of bond discount or premium amortization, the periodic interest expense is equal to

Answer 4

the market rate multiplied by the beginning of period carrying amount of the bonds

Question 5

If bonds are issued between interest date, the entry on the books of the issuing corporation could include a

Answer 5

credit to Interest Expense

Question 6

Bond interest paid is equal to the

Answer 6

face amount of the bonds multiplied by the stated interest rate

Question 7

Farmer Company issues $30,000,000 of 10-year, 9% bonds on March 1, 2017 at 97 plus accrued interest. The bonds are dated January 1, 2017, and pay interest on June 30 and December 31. What is the total cash received on the issue date.

Answer 7

$ 29,550,000

Question 8

A company issues $15,000,000, 7.8%, 20-year bonds to yield 8% on July, 1 2017. Interest is paid on June 30 and December 31. The proceeds from the bonds are $14, 703,108. Using the effective-interest amortization, how much interest expense will be recognized in 2017?

Answer 8

$588,124

Question 9

A company issues $15,000,000, 7.8%, 20-year bonds to yield 8% on July, 1 2017. Interest is paid on June 30 and December 31. The proceeds from the bonds are $14, 703,108. Using the effective interest amortization, what will the carrying value of the bonds be on the December 31, 2017 balance sheet

Answer 9

$17,706,232

Question 10

A company issues $15,000,000, 7.8%, 20-year bonds to yield 8% on July, 1 2017. Interest is paid on June 30 and December 31. The proceeds from the bonds are $14, 703,108. What is the interest expense for 2017 using straight-line depreciation?

Answer 10

$592,422

Question 11

Kant Corporation retires its $500,000 face value bonds at 102 on January 1, following the payment of interest. The carrying value of the bonds at the redemption date is $481,450. The entry to the redemption will include a

Answer 11

credit of $18,750 to discount on Bonds Payable

Question 12

Reich, Inc. issued bonds with a maturity amount of $200,000 and a maturity ten years from date of issue. If the bonds were issued at a premium, this indicates

Answer 12

the nominal rate of interest exceeded the market rate

Question 13

When the interest payment dates of a bond are May 1 and November 1, and a bond issue is sold on June 1, the amount of cash received by the issuer will be

Answer 13

increased by accrued interest from May 1 to June 1

Question 14

The preemptive right of a common stockholder is the right to

Answer 14

share proportionately in any new issues of stock of the same class

Question 15

The accounting problem in a lump sum issuance is the allocation of proceeds between the classes of securities. An acceptable method of allocation is

Answer 15

either the proportional method or the incremental method

Question 16

Treasury shares are shares

Answer 16

issued but not outstanding.

Question 17

When treasury stock is purchased for more than the par value of the stock and the cost method is used to account for treasury stock, what accounts should be debited.

Answer 17

Treasury stock for the purchase price

Question 18

Which of the following best describes a possible result of treasury stock transactions by a corporation

Answer 18

may decrease but not increase retained earnings

Question 19

The cumulative feature of preferred stock

Answer 19

requires that dividends not paid in any year must be made up in a later year before dividends are distributed to common shareholders.

Question 20

Cash dividends are paid on the basis of the number of shares

Answer 20

outstanding

Question 21

Wheeler Company issued 5000 shares of its $5 par value common stock having a fair value of $25 per share and 7500 shares of its $15 par value preferred stock having a fair value of $20 per share for a lump sum of $253,000. The proceeds allocated to the preferred stock is

Answer 21

$138,000

Question 22

Gannon Company acquired 20,000 shares of its own common stock at $20 per share on February 5, 2017, and sold 10,000 of these shares for $27 per share on August 9,2018. The fair value of Gannon’s common stock was $24 per share at December 31, 2017, and $25 per share at December 31, 2018. the cost method is used to record treasury stock transactions. What accounts should Gannon credit in 2018 to record the sale of 10,000 shares.

Answer 22

Treasury Stock for $200,000 and Paid in Capital of treasury stock for $70,000

Question 23

Percy Corporation was organized on January 1, 2018, with an authorization of 1,200,000 shares of common stock with a par value of $6 per share. During 2018, the corporation had the following capital expenditures:
January 5: issued 600,000 shares @ $10 per share
July 28: purchased 80,000 shares @$11 per share
December 31: sold the 80,000 shares held in treasury @ $18 per share. Percy used the cost method to record the purchase and reissuance of the treasury shares. What is the total amount of additional paid in capital as of December 31, 2018

Answer 23

$2,960,000

Question 24

Luther INc., has 4000 shares of 5%, $50 par value, cumulative preferred stock and 100,000 shares of $1 par value common stock outstanding at December 31, 2017. The board of directors declared and paid an $8000 dividend in 2017. IN 2018, $40,000 dividends are declared and paid. What are the dividends received by the preferred stockholders in 2018?

Answer 24

$12,000

Question 25

Colson Inc. declared a $230,000 cash dividend. It currently has 12,000 shares of 5%, $100 par value cumulative preferred stock outstanding. It is one year in arrears on its preferred stock. How much cash will Colson distribute to the common stockholders.

Answer 25

$110,000