ACCOUNTING

1. Becker Company is a publicly held corporation whose $1 par value stock is actively traded at $20 per share. The company issued 2,000 shares of stock to acquire land recently advertised at $50,000. When recording this transaction, Becker Company will

a. debit Land for $50,000. b. credit Common Stock for $40,000. c. credit Paid-In Capital in Excess of Par Value for $48,000. d. debit Land for $40,000.

2. The acquisition of treasury stock by a corporation a. decreases its total assets and total stockholders’ equity. b. has no effect on total assets and total stockholders’ equity. c. requires that a gain or loss be recognized on the income statement. d. increases its total assets and total stockholders’ equity.

3. Dividends in arrears on cumulative preferred stock a. are considered to be a non-current liability.

b. are considered to be a current liability. c. should be disclosed in the notes to the financial statements. d. only occur when preferred dividends have been declared.

4. On January 2, 2010, Riley Corporation issued 20,000 shares of 6% cumulative preferred stock at $100 par value. On December 31, 2013, Riley Corporation declared and paid its first dividend. What dividends are the preferred stockholders entitled to receive in the current year before any distribution is made to common stockholders? a. $0 b. $120,000 c. $360,000 d. $480,000

5. Stock dividends and stock splits have the following effects on retained earnings: Stock Splits Stock Dividends a. Increase No change b. Decrease Decrease c. No change No change d. No change Decrease

6. Indicate the respective effects of the declaration of a cash dividend on the following balance sheet sections:

Total Assets Total Liabilities Total Stockholders’ Equity a. Increase Decrease No change b. No change Increase Decrease c. Decrease Increase Decrease d. Decrease No change Increase

Due Date: Sunday, April 7 @ 11 p.m. ET submit via WebTycho Assignment Folder

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7. When computing earnings per share, a. an adjustment related to preferred stock dividends is made in the numerator and

denominator of the earnings per share formula. b. an adjustment for the preferred dividends is made in the denominator of the earnings per

share formula. c. the dividends for cumulative preferred stock are deducted from net income whether or not

preferred dividends have been declared. d. the dividends for cumulative preferred stock are deducted from net income only if the

preferred dividends have been declared.

8. Milner Corporation had 200,000 shares of common stock outstanding during the year. Milner declared and paid cash dividends of $200,000 on the common stock and $160,000 on the preferred stock. Net income for the year was $880,000. What is Milner’s earnings per share? a. $2.60 b. $3.40 c. $3.60 d. $4.40

Chapter 15

9. From the standpoint of the issuing company, a disadvantage of using bonds as a means of long- term financing is that

a. bond interest is deductible for tax purposes. b. income to stockholders may increase as a result of trading on the equity. c. the bondholders do not have voting rights. d. interest must be paid on a periodic basis regardless of earnings.

10. A legal document which summarizes the rights and privileges of bondholders as well as the obligations and commitments of the issuing company is called

a. a bond indenture. b. a bond debenture. c. trading on the equity. d. a term bond.

11. A major disadvantage resulting from the use of bonds is that a. earnings per share may be lowered. b. bondholders have voting rights. c. taxes may increase. d. interest must be paid on a periodic basis.

12. The statement that “Bond prices vary inversely with changes in the market interest rate” means that if the

a. market rate of interest increases, the contractual interest rate will decrease. b. contractual interest rate increases, then bond prices will go down. c. contractual interest rate increases, the market rate will decrease. d. market interest rate decreases, then bond prices will go up.

13. Bond interest paid is a. higher when bonds sell at a discount. b. lower when bonds sell at a premium. c. the same whether bonds sell at a discount or a premium. d. higher when bonds sell at a discount and lower when bonds sell at a premium.

Due Date: Sunday, April 7 @ 11 p.m. ET submit via WebTycho Assignment Folder

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14. Gomez Corporation issues 2,000, 10-year, 8%, $1,000 bonds dated January 2, 2013, at 98. The journal entry to record the issuance will show a a. debit to Cash of $2,000,000. b. credit to Discount on Bonds Payable for $40,000. c. credit to Bonds Payable for $1,960,000. d. debit to Cash for $1,960,000.

15. The sale of bonds above face value a. will cause the total cost of borrowing to be less than the bond interest paid. b. will cause the total cost of borrowing to be more than the bond interest paid. c. will have no net effect on Interest Expense by the time the bonds mature. d. is a rare occurrence.

16. Hoffman Corporation retires its bonds at 106 on January 1, following the payment of semi- annual interest. The face value of the bonds is $400,000. The carrying value of the bonds at the redemption date is $419,800. The entry to record the redemption will include a a. credit of $19,800 to Loss on Bond Redemption. b. debit of $24,000 to Premium on Bonds Payable. c. credit of $4,200 to Gain on Bond Redemption. d. debit of $19,800 to Premium on Bonds Payable.

Chapter 16

Use the following information for questions 17–19.

On January 1, 2013, Turner Company purchased at face value, a $1,000, 7% bond that pays interest on January 1 and July 1. Turner Company has a calendar year end.

17. The entry for the receipt of interest on July 1, 2013, is ………………………………………………………………………………….a. Cash 35

………………………………………………………… Interest Revenue 35 ………………………………………………………………………………….b. Cash 70

………………………………………………………… Interest Revenue 70 ……………………………………………………………….c. Interest Receivable 35

………………………………………………………… Interest Revenue 35 ……………………………………………………………….d. Interest Receivable 70

………………………………………………………… Interest Revenue 70

18. The adjusting entry on December 31, 2013, is a. not required.

………………………………………………………………………………….b. Cash 35 ………………………………………………………… Interest Revenue 35

……………………………………………………………….c. Interest Receivable 35 ………………………………………………………… Interest Revenue 35

……………………………………………………………….d. Interest Receivable 35 ……………………………………………………….. Debt Investments 35

Due Date: Sunday, April 7 @ 11 p.m. ET submit via WebTycho Assignment Folder

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19. The entry for the receipt of interest on January 1, 2014 is ………………………………………………………………………………….a. Cash 70

………………………………………………………… Interest Revenue 70 ………………………………………………………………………………….b. Cash 70

……………………………………………………… Interest Receivable 70 ………………………………………………………………………………….c. Cash 35

………………………………………………………… Interest Revenue 35 ………………………………………………………………………………….d. Cash 35

………………………………………………………Interest Receivable 35

20. When an investor owns between 20% and 50% of the common stock of a corporation, it is generally presumed that the investor

a. has insignificant influence on the investee and that the cost method should be used to account for the investment.

b. has significant influence on the investee and that the equity method should be used to account for the investment.

c. should apply the cost method in accounting for the investment. d. will prepare consolidated financial statements.

21. If the equity method is being used, cash dividends received a. are credited to Dividend Revenue.

b. require no entry because investee net income has already been recorded at the proper proportion on the investor’s books.

c. are credited to the Stock Investments account. d. are credited to the Revenue from Investment in Stock account.

22. In recognizing a decline in the fair value of short-term stock investments, an unrealized loss account is debited because

a. management intends to realize this loss in the near future. b. the securities have not been sold. c. the stock market is volatile. d. management cannot determine the exact amount of the loss in value.

23. The Market Adjustment account a. is set up for each security in the company’s portfolio. b. is closed at the end of each accounting period. c. appears on the income statement as Other Expenses and Losses. d. relates to the entire portfolio of securities held by the company.

24. On January 2, Matthews Corporation acquired 20% of the outstanding common stock of Dennehy Company for $450,000. For the year ended December 31, Dennehy reported net income of $90,000 and paid cash dividends of $30,000 on its common stock. At December 31, the carrying value of Matthews’ investment in Dennehy under the equity method is a. $444,000. b. $450,000. c. $456,000. d. $462,000.

Due Date: Sunday, April 7 @ 11 p.m. ET submit via WebTycho Assignment Folder

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Chapter 17

25. The acquisition of land by issuing common stock is a. a cash transaction and would be reported in the body of a statement of cash flows. b. a noncash transaction which is not reported in the body of a statement of cash flows. c. a noncash transaction and would be reported in the body of a statement of cash flows. d. only reported if the statement of cash flows is prepared using the direct method.

26. Financing activities involve a. issuing debt. b. lending money. c. acquiring investments. d. acquiring long-lived assets.

27. Investing activities include a. collecting cash on loans made. b. obtaining cash from creditors. c. repaying money previously borrowed. d. obtaining capital from owners.

28. Cash receipts from interest and dividends are classified as a. financing activities. b. investing activities. c. operating activities. d. either financing or investing activities.

29. Flynn Company reported a net loss of $20,000 for the year ended December 31, 2013. During the year, accounts receivable decreased $10,000, merchandise inventory increased $16,000, accounts payable increased by $20,000, and depreciation expense of $10,000 was recorded. During 2013, operating activities a. used net cash of $4,000. b. used net cash of $16,000. c. provided net cash of $4,000. d. provided net cash of $16,000.

30. Each of the following is added to net income in computing net cash provided by operating activities except

a. amortization expense. b. a gain on sale of equipment. c. an increase in accrued expenses payable. d. a decrease in inventory.

31. Which of the following adjustments to convert net income to net cash provided by operating activities is incorrect?

Add to Net Income Deduct from Net Income a. Accounts Receivable decrease increase b. Prepaid Expenses increase decrease c. Inventory decrease increase d. Accounts Payable increase decrease

Due Date: Sunday, April 7 @ 11 p.m. ET submit via WebTycho Assignment Folder

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32. Using the indirect method, if equipment is sold at a gain, the a. sale proceeds received are deducted in the operating activities section. b. sale proceeds received are added in the operating activities section. c. amount of the gain is added in the operating activities section. d. amount of the gain is deducted in the operating activities section.

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