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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Characteristics of a corporation include: a. | shareholders who
are mutual agents | b. | direct management by the shareholders
(owners) | c. | its inability to own property | d. | shareholders who
have limited liability | | |
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2.
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The
major subdivisions of the Stockholders' Equity section of the balance sheet are: a. | Paid-in Capital
and Retained Earnings | b. | Common Stock and Retained Earnings | c. | Stock, Paid-In
Capital, and Retained Earnings | d. | Common Stock and Preferred Stock | | |
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3.
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The
outstanding stock is composed of 10,000 shares of $100 par, cumulative, nonparticipating preferred $8
stock, and 50,000 shares of no-par common stock. Preferred dividends have been paid every year
except for the preceding two years and the current year. If $160,000 is to be distributed as a
dividend of the current year, what total amount will be distributed to the preferred
shareholders? a. | $0 | b. | $80,000 | c. | $130,000 | d. | $160,000 | | |
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4.
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Which
of the following accounts is reported in the stockholders' equity section of the corporate balance
sheet? a. | Organization
Costs | b. | Common Stock | c. | Dividends in
Arrears | d. | Cash | | |
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5.
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The
entry to record the issuance of common stock at a price above par includes a credit
to: a. | Organization
Costs | b. | Treasury Stock | c. | Cash | d. | Paid-In Capital in Excess of Par-Common
Stock | | |
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6.
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The
excess of cost over sales price of treasury stock should be debited to: a. | Loss from Sale
of Treasury Stock | b. | Organization Costs | c. | Accounts
Receivable | d. | Paid-In Capital from Sale of Treasury
Stock | | |
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7.
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A
corporation purchased 1,000 shares of its $10 par common stock at $20 and subsequently sold 500 of
the shares at $30. What is the amount of revenue realized from the sale? a. | $0 | b. | $2,500 | c. | $5,000 | d. | $15,000 | | |
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8.
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The
entry to record the purchase of 5,000 shares of a corporation's own $20 par common stock at $25, paid
in cash, includes a debit to: a. | Common Stock | b. | Paid-In Capital
in Excess of Par | c. | Retained Earnings | d. | Treasury
Stock | | |
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9.
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The
primary purpose of a stock split is to: a. | increase paid-in capital | b. | reduce the
market price of the stock per share | c. | increase the market price of the stock per
share | d. | increase retained earnings | | |
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10.
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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. What is the amount transferred from the retained earnings account to paid-in capital
accounts as a result of the stock dividend? a. | $4,000 | b. | $5,600 | c. | $6,000 | d. | $7,200 | | |
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11.
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When
a limited partnership is formed a. | the partnership activities are
limited | b. | all partners have limited liability | c. | some of the
partners have limited liability | d. | none of the partners have limited
liability | | |
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12.
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Fred
and Ethel share income equally. During the current year the partnership net income was
$40,000. Fred made withdrawals of $12,000 and Ethel made withdrawals of $17,000. At the
beginning of the year, the capital account balances were: Fred capital, $42,000; Ethel capital,
$58,000. Fred's capital account balance at the end of the year is a. | $76,500 | b. | $64,500 | c. | $62,000 | d. | $50,000 | | |
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13.
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A
ratio of 3:2:1 is the same as a. | 30%:20%:10% | b. | 1/2:1/3:1/6 | c. | 3/10:2/10:1/20 | d. | both (a) and
(c) | | |
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14.
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C and
D form a partnership in which C contributes $50,000 in assets and agrees to devote half time to the
partnership. D contributed $40,000 in assets and agrees to devote full time to the
partnership. How will C and D share in the division of income?
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15.
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Partner A has a capital balance of $20,000 and devotes full time to the
partnership. Partner B has a capital balance of $30,000 and devotes half time to the
partnership. In what ratio is net income to be divided?
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16.
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Selma
pays Sally $39,000 for her 30% interest in a partnership with total net assets of $120,000.
Following this transaction, Selma's capital account should have a credit balance of a. | $36,000 | b. | $39,000 | c. | $33,000 | d. | more than $39,000 | | |
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17.
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Peter
and Paul are partners. The partnership capital of Peter is $40,000 and Paul is $70,000.
Peter sells his interest in the partnership to Mary for $50,000. The journal entry to record
the admission of Mary as a new partner would include a. | a credit to
Mary's capital for $40,000 | b. | a credit to Paul's capital for
$10,000 | c. | a credit Mary's capital for $50,000 | d. | a credit to
Mary's capital for $40,000 and a credit to Paul's capital for $10,000 | | |
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18.
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Immediately prior to the admission of A, the XY Partnership assets had been adjusted
to current market prices, and the capital balances of X and Y were $40,000 and $60,000
respectively. If the parties agree that the business is worth $150,000, what is the amount of
bonus that should be recognized in the accounts at the admission of A? a. | $100,000 | b. | $0 | c. | $40,000 | d. | $50,000 | | |
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19.
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X, Y,
and Z are partners, sharing income 1:2:3. After selling all of the assets for cash, dividing
losses on realization, and paying liabilities, the balances in the capital accounts are as follows:
X, $50,000 Cr.; Y, $40,000 Dr.; and Z, $30,000 Cr. How much cash is available for distribution
to the partners? a. | $120,000 | b. | $30,000 | c. | $40,000 | d. | $90,000 | | |
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20.
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X, Y,
and Z are partners, sharing income 1:2:3. After selling all of the assets for cash, dividing
losses on realization, and paying liabilities, the balances in the capital accounts are as follows:
X, $50,000 Cr.; Y, $20,000 Cr.; and Z, $30,000 Dr. Assume that after the available cash is
distributed to the partners, Z pays $15,000 of the deficiency to the firm. How much of the
$15,000 should be distributed to X? a. | $15,000 | b. | $0 | c. | $5,000 | d. | $10,000 | | |
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21.
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For
the year that just ended, a company reports net income of $2,500,000. There are 750,000 shares
authorized, 600,000 shares issued, and 500,000 shares of common stock outstanding. What is the
earnings per share? a. | $5.00 | b. | $2.50 | c. | $4.17 | d. | $4.81 | | |
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22.
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Which
of the following would appear as a prior period adjustment? a. | loss resulting
from the sale of fixed assets | b. | difference between the actual and estimated uncollectible
accounts receivable | c. | error in the computation of depreciation expense in the
preceding year | d. | liquidating dividend | | |
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23.
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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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24.
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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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25.
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The
receipt of cash dividends on an investment in common stock is accounted for as a debit to Cash and a
credit to Investment in Spacek Inc. Which of the following methods is being used to account for
the investment? a. | equity
method | b. | market method | c. | cost
method | d. | revenue method | | |
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26.
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When
shares of stock held as an investment are sold, the difference between the proceeds and the carrying
amount of the investment is recorded as a(n): a. | prior period adjustment | b. | extraordinary
gain or loss | c. | paid-in capital addition | d. | gain or
loss | | |
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27.
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Depending on management's intent, available-for-sale securities may be presented
as: a. | Equity in Other
Companies in the Current Liabilities section of the balance sheet | b. | Temporary
Investments (or Marketable Securities) in the Current Liabilities section or as Long-Term Investments
in the Long-Term Liabilities section of the balance sheet | c. | Temporary
Investments (or Marketable Securities) or Long-Term Investments in the Stockholders' Equity section
of the balance sheet | d. | Temporary Investments (or Marketable Securities) in the Current
Assets section of the balance sheet or as Investments with other non-current
assets | | |
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28.
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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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29.
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When
two or more corporations transfer their assets and liabilities to a corporation which has been
created for purposes of the takeover, the combination is called a: a. | merger | b. | limited partnership | c. | consolidation | d. | shell corporation | | |
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30.
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The
minority interest is normally immediately preceding the: a. | current assets
section | b. | fixed assets section | c. | investments
section | d. | consolidated stockholders' equity
section | | |
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