Multiple Choice
Identify the
letter of the choice that best completes the statement or answers the question.
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1.
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Current liabilities are: a. | due, but not receivable for more than one
year | b. | due, but not
payable for more than one year | c. | due and receivable within one year | d. | due and payable
within one year | | |
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2.
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On
June 6, Apex Co. issued an $80,000, 8%, 120-day note payable to Jones Co. What is the maturity
value of the note? a. | $82,100.00 | b. | $88,233.33 | c. | $82,133.33 | d. | $86,840.00 | | |
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3.
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The
interest deducted from the maturity value of a note is called: a. | proceeds | b. | discount | c. | face
value | d. | maturity value | | |
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4.
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The
journal entry a company uses to record the issuance of a note for the purpose of converting an
existing account payable would be: a. | debit Accounts, Payable; credit Cash | b. | debit Cash;
credit Accounts Payable | c. | debit Accounts Payable; credit Notes
Payable | d. | debit Cash; credit Notes Payable | | |
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5.
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The
journal entry a company uses to record the estimated accrued product warranty liability
is: a. | debit Product
Warranty Payable; credit Product Warranty Expense | b. | debit Product
Warranty Expense; credit Cash | c. | debit Product Warranty Payable; credit
Cash | d. | debit Product
Warranty Expense; credit Product Warranty Payable | | |
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6.
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An
employee receives an hourly rate of $25, with time and a half for all hours worked in excess of 40
during a week. Payroll data for the current week are as follows: hours worked, 42; federal
income tax withheld, $350; cumulative earnings for year prior to current week, $59,700; social
security tax rate, 6.0% on maximum of $60,000; and Medicare tax rate, 1.5% on all earnings.
What is the net amount to be paid the employee? a. | $725.00 | b. | $702.50 | c. | $1,052.50 | d. | $690.88 | | |
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7.
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For
which of the following taxes is there no ceiling on the amount of employee annual earnings subject to
the tax? a. | only FICA
tax | b. | only federal
income tax | c. | only federal unemployment compensation
tax | d. | only state
unemployment compensation tax | | |
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8.
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Prior
to the last weekly payroll period of the calendar year, the cumulative earnings of employees A and B
are $59,250 and $21,000 respectively. Their earnings for the last completed payroll period of
the year are $850 each. The amount of earnings subject to social security tax at 6.2% is
$60,000. All earnings are subject to Medicare tax of 1.45%. Assuming that the payroll
will be paid on January 3, what will be the employer's total FICA tax for this payroll period on the
two salary amounts of $850 each? a. | $52.70 | b. | $0 | c. | $130.05 | d. | $65.03 | | |
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9.
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The
amount of earnings subject to social security tax at 6.2% is $76,200. All earnings are subject
to a 1.45% Medicare tax. Prior to the current pay period, Employee A has cumulative earnings of
$76,000. Employee A's earnings paid on December 30 for the current period are $1,100. The
employer's total FICA tax expense for Employee A for the entire year is: a. | $4,724.40 | b. | $1,117.95 | c. | $5,842.35 | d. | $4,500 | | |
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10.
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The
detailed record indicating the data for each employee for each payroll period and the cumulative
total earnings for each employee is called the: a. | payroll register | b. | payroll
check | c. | employee's earnings record | d. | employer's
earnings record | | |
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11.
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An
employee receives an hourly rate of $15, with time and a half for all hours worked in excess of 40
during the week. Payroll data for the current week are as follows: hours worked, 44; federal income
tax withheld, $120; cumulative earnings for the year prior to this week, $24,500; Social security tax
rate, 6.15% on maximum of $60,000; and Medicare tax rate, 1.5% on all earnings; federal unemployment
compensation tax, 5.4% on the first $7,000. What is the net amount to be paid the
employee? a. | $448.51 | b. | $434.10 | c. | $517.22 | d. | $474.43 | | |
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12.
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During its first year of operations, a company granted employees vacation privileges
and pension rights estimated at a cost of $22,500 and $18,000. The vacations are expected to be
taken in the next year and the pension rights are expected to be paid in the future 5-30 years.
What is the total cost of vacation pay and pension rights to be recognized in the first
year? a. | $28,500 | b. | $0 | c. | $40,500 | d. | $22,500 | | |
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13.
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A
pension plan which promises employees a fixed annual pension benefit, based on years of service and
compensation, is called a(n): a. | defined contribution plan | b. | defined benefit
plan | c. | unfunded
plan | d. | funded
plan | | |
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14.
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The
journal entry a company uses to record partially funded pension rights for its salaried employees, at
the end of the year, is: a. | debit Salary Expense; credit Cash | b. | debit Pension
Expense; credit Unfunded Pension Liability | c. | debit Pension Expense; credit Unfunded Pension Liability and
Cash | d. | debit Pension
Expense; credit Cash | | |
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15.
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Quick
assets include: a. | cash; cash
equivalents, receivables, prepaid expenses, and inventory | b. | cash; cash
equivalents, receivables, and prepaid expenses | c. | cash; cash
equivalents, receivables, and inventory | d. | cash; cash equivalents, and
receivables | | |
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16.
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Which
of the following is characteristic of a corporation? a. | The financial
loss that a stockholder may suffer from owning stock in a public company is
unlimited. | b. | Cash dividends paid by a corporation are deductible as expenses
by the corporation. | c. | A corporation can own property in its
name. | d. | Corporations are not required to file federal income
tax returns. | | |
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17.
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One
of the main disadvantages of the corporate form is: a. | professional
management | b. | double taxation of dividends | c. | the
charter | d. | a corporation must issue stock | | |
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18.
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Stockholders' equity: a. | is usually equal to cash on hand | b. | includes paid-in
capital and liabilities | c. | includes retained earnings and paid-in
capital | d. | is shown on the income statement | | |
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19.
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If a
corporation issues only one class of stock, it is called: a. | common
stock | b. | treasury stock | c. | no-par
stock | d. | preferred stock | | |
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20.
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Preferred stock that provides for the payment of preferred dividends that have been
passed (are in arrears) before dividends may be paid on common stock is called: a. | par | b. | cumulative | c. | no-par | d. | participating | | |
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21.
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The
charter of a corporation provides for the issuance of 100,000 shares of common stock. Assume
that 40,000 shares were originally issued and 5,000 were subsequently reacquired. What is the
number of shares outstanding? a. | 5,000 | b. | 35,000 | c. | 45,000 | d. | 55,000 | | |
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22.
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The
entry to record the issuance of common stock at a price above par includes a debit
to: a. | Organization
Costs | b. | Common Stock | c. | Cash | d. | Paid-In Capital in Excess of Par-Common
Stock | | |
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23.
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Amos
Company acquired land in exchange for 10,000 shares of its $10 par common stock. The fair
market value of the land is not determinable, but the stock is widely traded and was selling for $25
per share when exchanged for the land. At what amount should the land be recorded by Amos
Company? a. | $150,000 | b. | $250,000 | c. | $350,000 | d. | $100,000 | | |
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24.
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What
is the total stockholders' equity based on the following data?
Common
Stock | $900,000 | Excess of Issue Price Over Par | 375,000 | Retained
Earnings (deficit) | 50,000 | | |
a. | $1,200,000 | b. | $1,225,000 | c. | $1,275,000 | d. | $1,325,000 | | |
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25.
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The
excess of sales price of treasury stock over its cost should be credited to: a. | Treasury Stock
Receivable | b. | Premium on Capital Stock | c. | Paid-In Capital
from Sale of Treasury Stock | d. | Income from Sale of Treasury Stock | | |
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26.
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What
is the total stockholders' equity based on the following account balances?
Common
Stock | $500,000 | Paid-In Capital in Excess of Par | 40,000 | Retained
Earnings | 190,000 | Treasury Stock | 20,000 | | |
a. | $540,000 | b. | $630,000 | c. | $710,000 | d. | $750,000 | | |
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27.
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In
which section of the balance sheet would Treasury Stock be reported? a. | Fixed
assets | b. | Long-term liabilities | c. | Stockholders'
equity | d. | Intangible assets | | |
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28.
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A
company with 100,000 authorized shares of $5 par common stock issued 40,000 shares at $7.
Subsequently, the company declared a 2% stock dividend on a date when the market price was $9 a
share. The effect of the declaration and issuance of the stock dividend is to: a. | decrease
retained earnings, increase common stock, and increase paid-in capital | b. | increase
retained earnings, decrease common stock, and decrease paid-in capital | c. | increase
retained earnings, decrease common stock, and increase paid-in capital | d. | decrease
retained earnings, increase common stock, and decrease paid-in capital | | |
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29.
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The
entry to record the declaration of a common stock dividend would include a debit to: a. | Common
Stock | b. | Accounts Receivable | c. | Stock
Dividends | d. | Cash | | |
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30.
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A
high dividend yield as opposed to market price appreciation would be most desired by investors who
were: a. | in a high
marginal tax bracket | b. | in a low marginal tax bracket | c. | indifferent as
to their marginal tax bracket because dividends are not taxed to the
individual | d. | willing to take higher than normal
risks | | |
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31.
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Which
of the following is an example of a permanent difference between taxable income and reported
income? a. | using the
installment method of determining revenue for taxable income and recognizing revenue when the sale is
made for income statement reporting | b. | using the straight-line depreciation method for income
statement reporting and MACRS depreciation for taxable income | c. | including
tax-exempt municipal bond interest in net income and not including any tax-exempt municipal bond
interest in taxable income | d. | using the straight-line depreciation method for taxable income
and MACRS depreciation for income statement reporting | | |
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32.
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A
corporation paid $670,000 of federal income tax during the year, based on estimated income. What
journal entry should be recorded at the end of the year if the corporation has underpaid its
taxes? a. | Debit Income Tax
Receivable, credit Cash | b. | Debit Income Tax, credit Deferred Income
Tax | c. | Debit Income Tax
Receivable, credit Income Tax | d. | Debit Income Tax, credit Income Tax
Payable | | |
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33.
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Extraordinary items should not be: a. | identified in
the income statement as extraordinary items | b. | reported in the
income statement net of related income tax | c. | unusual and infrequent in nature | d. | reported in the
balance sheet | | |
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34.
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Based
on the following information, what is earnings per share?
Common shares
outstanding at the beginning | | of the
accounting period | 200,000 | Common shares
outstanding at the end of the | |
accounting period | 240,000 | Weighted-average common shares outstanding | | during the period | 230,000 | Preferred
stock dividend declared and paid | $
80,000 | Preferred stock dividend in
arrears | $ 20,000 | Net income | $600,000 | | |
a. | $2.2608 | b. | $2.1667 | c. | $3.00 | d. | $2.608 | | |
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35.
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The
following information is available for Willing Corp.:
| | 2003 | Market price
per share of common stock | $36.00 | Earnings per
share on common stock |
3.00 | | |
Which of the following statements is correct? a. | The
price-earnings ratio is 12 and a share of common stock was selling for 12 times the amount of
earnings per share at the end of 2003. | b. | The price-earnings ratio is 8.3% and a share of common stock
was selling for 8.3% more than the amount of earnings per share at the end of
2003. | c. | The price-earnings ratio is 12 and a share of common stock was
selling for 150 times the amount of earnings per share at the end of 2003. | d. | The market price
per share and the earnings per share are not statistically related to each
other. | | |
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36.
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The
board of directors voted to appropriate $100,000 of retained earnings for contingencies. What
is the effect of the appropriation on cash and total retained earnings? a. | cash increases,
total retained earnings increases | b. | cash increases, total retained earnings
decreases | c. | cash decreases, total retained earnings
decreases | d. | no effect on cash or total retained
earnings | | |
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37.
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Retained earnings: a. | is the same as contributed capital | b. | cannot have a
debit balance | c. | changes are summarized in the retained earnings
statement | d. | over time will have a direct relationship with the amount of
cash on hand if the corporation is profitable | | |
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38.
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Which
of the following is not a part of comprehensive income? a. | foreign currency
items | b. | additions to stockholders' equity from issuing common
stock | c. | unrealized gains and losses | d. | pension
liability adjustments | | |
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39.
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A
Company owns 16,000 of the 50,000 shares of common stock outstanding of T Company and exercises a
significant influence over its operating and financial policies. The investment should be
accounted for by the: a. | equity method | b. | market
method | c. | cost or market method | d. | cost
method | | |
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40.
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Temporary investments are: a. | recorded at cost but reported at fair market
value | b. | recorded at cost and reported at cost | c. | recorded at cost
but reported at lower of cost or fair market value | d. | recorded at fair
market value and reported at fair market value | | |
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41.
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Boen
Corporation purchased 40% of the outstanding shares of common stock of Logan Corporation as a
long-term investment. Subsequently, Logan Corporation reported net income and declared and paid
cash dividends. What journal entry would Boen Corporation use to record its share of the
earnings of Logan Corporation? a. | debit Investment in Logan Corporation Stock; credit
Cash | b. | debit Cash;
credit Dividend Revenue | c. | debit Investment in Logan Corporation; credit Income of Logan
Corporation | d. | debit Cash; credit Investment in Logan
Corporation | | |
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42.
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G
Company owns 90% of the outstanding stock of K company. K Company is referred to as
the: a. | parent | b. | minority interest | c. | affiliate | d. | subsidiary | | |
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43.
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Parent Corporation owns 80% of the outstanding common stock of Subsidiary Company,
which has no preferred stock outstanding. What is the term applied to the remaining stock
interest? a. | parent
interest | b. | majority interest | c. | minority
interest | d. | subsidiary interest | | |
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44.
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During the year in which Parent Company owned 80% of the outstanding common stock of
Subsidiary Company, the subsidiary reported net income of $390,000 and dividends declared and paid of
$45,000. What is the amount of net increase in minority interest for the year? a. | $45,000 | b. | $390,000 | c. | $69,000 | d. | $360,000 | | |
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45.
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The
statement of retained earnings can be combined with the: a. | income
statement | b. | balance sheet | c. | statement of
stockholders' equity | d. | statement of cash flows | | |
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46.
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One
potential advantage of financing corporations through the use of bonds rather than common stock
is: a. | the interest on
bonds must be paid when due | b. | the corporation must pay the bonds at
maturity | c. | the interest expense is deductible for tax purposes by the
corporation | d. | a higher earnings per share is guaranteed for existing common
shareholders | | |
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47.
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Bonds
issued on the general credit of the issuing corporation are called: a. | callable
bonds | b. | serial bonds | c. | term
bonds | d. | debenture bonds | | |
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48.
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Bonds
that may be exchanged for other securities under certain conditions are called: a. | callable
bonds | b. | debenture bonds | c. | serial
bonds | d. | convertible bonds | | |
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49.
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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. | a discount | | |
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50.
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A
corporation issues for cash $6,000,000 of 14%, 30-year bonds, interest payable annually, at a time
when the market rate of interest is 13%. The straight-line method is adopted for the
amortization of bond discount or premium. Which of the following statements is
true? a. | The amount of
the annual interest expense is computed at 14% of the bond carrying amount at the beginning of the
year. | b. | The amount of the annual interest expense gradually increases
over the life of the bonds. | c. | The amount of unamortized discount decreases from its balance
at issuance date to a zero balance at maturity. | d. | The amount of
unamortized premium decreases from its balance at issuance date to a zero balance at
maturity. | | |
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51.
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The
entry to record the amortization of a discount on bonds payable is: a. | debit Discount
on Bonds Payable, credit Interest Expense | b. | debit Interest Expense, credit Discount on Bonds
Payable | c. | debit Interest Expense, credit Cash | d. | debit Bonds
Payable, credit Interest Expense | | |
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52.
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The
journal entry a company records for the issuance of bonds when the contract rate is greater than the
market rate would be: a. | debit Bonds Payable, credit Cash | b. | debit Cash and
Discount on Bonds Payable, credit Bonds Payable | c. | debit Cash,
credit Premium on Bonds Payable and Bonds Payable | d. | debit Cash,
credit Bonds Payable | | |
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53.
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The
journal entry a company records for the payment of interest, interest expense, and amortization of
bond premium is: a. | debit Interest
Expense, credit Cash and Premium on Bonds Payable | b. | debit Interest
Expense, credit Cash | c. | debit Interest Expense and Premium on Bonds Payable, credit
Cash | d. | debit Interest
Expense, credit Interest Payable and Premium on Bonds Payable | | |
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54.
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The
bond indenture may provide that funds for the payment of bonds at maturity be accumulated over the
life of the issue. The amounts set aside are kept separate from other assets in a special fund
called a(n): a. | enterprise
fund | b. | sinking
fund | c. | special
assessments fund | d. | general fund | | |
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55.
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Sinking Fund Income is reported in the income statement as: a. | income from
operations | b. | extraordinary income | c. | gain on sinking
fund transactions | d. | other income | | |
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56.
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When
callable bonds are redeemed below carrying value: a. | Gain on Redemption of Bonds is
credited | b. | Loss on Redemption of Bonds is
debited | c. | Retained Earnings is credited | d. | Retained
Earnings is debited | | |
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57.
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Bonds
Payable has a balance of $1,000,000 and Discount on Bonds Payable has a balance of $12,500. If
the issuing corporation redeems the bonds at 98, what is the amount of gain or loss on
redemption? a. | $7,500
gain | b. | $32,000
loss | c. | $32,000
gain | d. | $7,500
loss | | |
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58.
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The
amortization of discount on bonds purchased as a long-term investment: a. | decreases the
amount of interest expense | b. | increases the amount of the investment
account | c. | decreases the amount of the investment
account | d. | increases the amount of interest
expense | | |
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59.
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On
May 1, $200,000 of bonds were purchased as a long-term investment at 98 and $390 was paid as the
brokerage commission. If the bonds bear interest at 10%, which is paid semiannually on January
1 and July 1, what is the total cost to be debited to the investment account? a. | $196,000 | b. | $200,000 | c. | $196,390 | d. | $200,390 | | |
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60.
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The
account Investment in Bonds is reported: a. | at cost as a long-term liability along with the current portion
reported as a current liability | b. | at cost as a long-term asset less Discount on Bond Investments
or plus Premium on Bond Investments | c. | at cost as a long-term asset less any amortized premium, or
plus any amortized discount | d. | at fair market value because that is all that is
required | | |
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