BUSINESS

Please answer all multiple choice questions and problems.

 

1. The following data are available for Two-off Company.

Increase in accounts payable $120,000
Increase in bonds payable 250,000
Sale of investments 150,000
Issuance of common stock 160,000
Payment of cash dividends 80,000

 

Net cash provided by financing activities is:

a. $180,000.

b. $360,000.

c. $320,000.

d. $330,000

 

 

 

2.        If a company reports a net loss, it

a.      will not be able to pay cash dividends.

b.      may still have a net increase in cash.

c.      will not be able to get a loan.

d.      will not be able to make capital expenditures.

 

 

 3.     A creditor would be most interested in evaluating which of the following ratios?

a.     Asset turnover

b.     Earnings per share

c.     Payout ratio

d.     Current asset ratio

 

4.         In preparing a statement of cash flows, a conversion of bonds into common stock will be reported in

a.   the financing section.

b    a separate schedule or note to the financial statements.

c.   the stockholders’ equity section.

d.   the “extraordinary” section.

 

 

5.         The current carrying value of Lane’s $800,000 face value bonds is $797,000. If the bonds are retired at 103, what would be the amount Lane would pay its bondholders?

a.   $797,000

b.   $800,000

c.   $820,910

d.   $824,000

 

6.         Which one of the following affects cash during a period?

a.   Recording depreciation expense

b.   Payment of an accounts payable

c.   Declaration of a cash dividend

d.   Write-off of an uncollectible account receivable

 

7.         Horizontal analysis evaluates a series of financial statement data over a period of time

a.   that has been arranged from the highest number to the lowest number.

b.   that has been arranged from the lowest number to the highest number.

c.   to determine which items are in error.

d.   to determine the amount and/or percentage increase or decrease that has taken place.

 

8. The net income reported on the income statement for the current year was $220,000. Depreciation recorded on plant assets was $35,000. Accounts receivable and inventories increased by $2,000 and $8,000, respectively. Prepaid expenses and accounts payable decreased by $2,000 and $12,000 respectively. How much cash was provided by operating activities?

a. $200,000

b. $220,000

c. $235,000

d.$255,000

 

9.         Which one of the following is not a characteristic generally evaluated in analyzing financial statements?

a.   Liquidity

b.   Profitability

c.   Marketability

d.   Solvency

 

 

10.       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.

 

 

 

11.     If sixty $1,000 convertible bonds with a carrying value of $70,000 are converted into 9,000 shares of $5 par value common stock, the journal entry to record the conversion is

a.   Bonds Payable …………………………………………………………….        70,000

Common Stock …………………………………………………..                             70,000

 

b.   Bonds Payable …………………………………………………………….        60,000

Premium on Bonds Payable ………………………………………….        10,000

Common Stock …………………………………………………..                             70,000

 

c.   Bonds Payable …………………………………………………………….        60,000

Premium on Bonds Payable ………………………………………….        10,000

Common Stock …………………………………………………..                             45,000

Paid-in Capital in Excess of Par …………………………….                             25,000

 

d.   Bonds Payable …………………………………………………………….        70,000

Discount on Bonds Payable ………………………………….                             10,000

Common Stock …………………………………………………..                             45,000

Paid-in Capital in Excess of Par …………………………….                             15,000

 

 

12.       When bonds are converted into common stock,

a.   the market price of the stock on the date of conversion is credited to the Common Stock account.

b.   the market price of the stock and the bonds is ignored when recording the conversion.

 

c.   the market price of the bonds on the date of conversion is credited to the Common Stock account.

d.   gains or losses on the conversion are recognized.

 

 

13.       If a stockholder receives a dividend that reduces retained earnings by the fair market value of the stock, the stockholder has received a

a.   large stock dividend.

b.   cash dividend.

c.   contingent dividend.

d.   small stock dividend

 

 

14.       If bonds are originally sold at a discount using the straight-line amortization method:

a.   Interest expense in the earlier years of the bond’s life will be less than the interest to be paid.

b.   Interest expense in the earlier years of the bond’s life will be the same as interest to be paid.

c.   Unamortized discount is subtracted from the face value of the bond to determine its carrying value.

d.    Unamortized discount is added to the face value of the bond to determine its carrying value.

 

 

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

a.   amortization expense.

b.   an increase in accrued expenses payable.

c.   a gain on sale of equipment.

d.   a decrease in inventory.

 

 

16        All of the following statements about short-term investments are true except:

a.   Short-term investments are also called marketable securities

b.   Trading securities are always classified as short-term investments.

c    Short-term assets must be readily marketable.

d.   Short-term investments are listed below accounts receivable in the current asset section of the balance sheet.

 

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