ACCOUNTING

1) A $1,000 bond quoted at 104 would sell for

a) $1,104

b) $1,000

c) $104

d) $10,40

2) When the market rate of interest on bonds is higher than the contract rate, the bonds will sell at

a) A premium

b) Their face value

c) Their maturity value

d) Discount

3) When a bond issued at face value is retired, what is the journal entry?

a) Debit Bond Inters Expense; credit Cash

b) Debit Bonds Payable; credit Cash

c) Debit Cash; credit Bonds Payable

d) Debit Cash; credit Bond Interest Expense

4) The interest rate specified in the bond indenture is called the ______ rate.

a) Market

b) Discount

c) Contract

d) Effective

5) An inflow of cash from investing activities would bee

a) The issuance of stock

b) The sale of investment in equity securities

c) Interest received on loans

d) The purchase of fixed assets.

6) When using the indirect method, which of the following would be included in the net cash flows from operating activities suction of a cash flow statement?

a) Sales of plant, property and equipment

b) Making loans and paying out interest

c) Payment of interest and expenses

d) Issuing bonds and notes

7) If bonds are sold between interest payment dates, the amount of cash issuer receives is

a) More than the market value of the bonds

b) Less than the market value of bonds

c) Equal to the market value of the bonds

d) Equal to the face value of the bonds

8) Bonds payable issued with collateral are called _______ bonds.

a) Debenture

b) Serial

c) Callable

d) Secured

9) A chas outflow from a financing activity would be

a) Paying cash dividends

b) Buying debt and equity securities

c) Paying interest on notes payable

d) Making payments for additional inventory

10) A statement of cash flows is helpful in

a) evaluating cash flows

b) comparing cash flows

c) predicting future cash flows

d) all of the above

11) Assume the following account balances immediately after an interest payment date:

BONDS PAYABLE : $100,000

PREMIUM ON BONDS PAYABLE : $5,000

If the bonds are retired immediately at a total cost of $104,000, what is the journal entry to record this event?

a) Cash 104,000

Loss on Bond Retirement 1,000

Premium on Bonds Payalbe 5,000

Bonds Payable 100,000

b) Bonds Payable 100,000

Premium on Bonds Payable 5,000

Cash 104,000

Gain on Bond Retirement 1,000

c) Bonds Payable 100,000

Loss on Bond Retirement 9,000

Premium on Bonds Payable 5,000

Cash 104,000

d) None of the above

12) The statement of cash flows provides information about all of the following except _________ activities.

a) Organizing

b) Investing

c) Operating

d) Financing

13) A fund set up so that a bond can be retired at maturity is called a _______ fund.

a) Sinking

b) Bond payable

c) Retirement

14) On April 1, Braintree Corporation issued 10%, ten-year, $300,000 bonds at 106. The effective interest rate for these bonds is

a) 10%

b) 9.43%

c) 4.7%

d) 5%

15) For a corporation, a premium on bonds results when

a) the contract rate is greater than the market rate.

b) The contract rate is less than the market rate.

c) The face value is greater than the effective rate.

d) None of the above.

16) When preparing the statement of cash flows by the indirect method, if current liabilities increase the difference is

a) Added to net income.

b) Added to investments.

c) Deducted from net income.

d) Subtracted from investments.

17) Rick Corporation’s Accounts Receivable decreased by $25,000 during the year. What is the adjustment to the cash flow statement when it’s prepared by the indirect method?

a) Subtract the decrease from the net income in operating activities.

b) Add the decrease to the net income in operating activities.

c) Add the decrease in the investing activities section.

d) Subtract the decrease in the financing activities.

18) Using the indirect method of cash flows, depreciation expense is added to net income to determine the

a) Cash flow from investing activities.

b) Cash flow from financing activities.

c) Cash flow from fixed asset activities.

19) A bond payable is similar to which of the following?

a) Accounts payable

b) Accounts receivable

c) Notes payable

d) Cash

20) The difference between the direct and indirect method of computing the cash flow statement occurs in the _______ activities section.

a) Financing

b) Operating

c) Investing

d) Managing

21) When preparing the statement of cash flows by the indirect method, if accumulated depreciation increases the difference is

a) Added to net income.

b) Added to investments.

c) Deducted from net income.

d) Not considered in the statement of cash flows using the indirect method.

22) The activity that’s probably the most important indicator of financial health is the net cast flow from ________ activities.

a) Buying and selling

b) Financing

c) Operating

d) Investing

23) Transactions involving the purchase and sale of fixed assets would be considered _______ activities.

a) Buying and selling

b) Financing

c) Operating

d) Investing

24) A $1,000 bond quoted at 96.5 would sell for

a) $1,000.

b) $965.

c) $96.50.

d) None of the above

25) If a bond is issued at a premium, the effective interest rate is most likely ________ the contract interest rate.

a) Higher than

b) Lower than

c) The same as

d) Answer can’t be determined based on information given.

26) Collins Corporation reported a net income of $35,000, depreciation expenses of $20,000 an increase in Accounts Payable of $2,000, and an increase in Accounts Receivable of $3,000. Net cash flow from operating activities using the indirect method is

a) $55,000.

b) $54,000.

c) $50,000.

d) $56,000.

27) Bonds that are backed solely by the general credit of the corporation issuing them are called ________ bonds.

a) Callable

b) Debenture

c) Indenture

d) Convertible

28) A statement of cash flow’s purpose is to

a) Show the revenue earned.

b) Show the profits that were generated.

c) Show the expenses that were incurred.

d) Show how cash was generated and used during an accounting period.

29) A bond is issued for less than its face value. Which statement most likely would explain whay?

a) The bond’s contract rate is lower than the market rate at the time of the issue.

b) The bond’s contract rate is the same as the market rate at the time of the issue.

c) The bond’s contract rate is higher than the market rate at the time of the issue.

d) The bond isn’t secured by specific assets of the corporation.

30) A statement of cash flow

a) Has three main sections: net cash flow from operating, investing, and financing activities.

b) May be computed directly or indirectly.

c) Is a statement used to better understand the financing and investing activities.

d) All of the above

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