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Use the following information for the next 4 questions.

Retained Earnings $250,000

Preferred Stock, 6% $100 par value, 8,000 shares issued $800,000

Paid-in Capital in Excess of Par Value, Preferred $ 50,000

Common Stock, $10 par value, 50,000 shares issued $500,000

Paid-in Capital in Excess of Par Value, Common $100,000

Treasury Stock, Common, 9,300 shares $120,000

1. The balance sheet prepared at December 31, would report legal capital of:

2. The balance sheet prepared at December 31, would report total capital of:

3. The balance sheet prepared at December 31, would report total stockholders' equity of:

4. The number of common shares outstanding at December 31, is:

5. A bond discount or premium must:

a. always be amortized using straight-line amortization.

b. always be amortized using the effective-interest method.

c. be amortized using the effective-interest method if it yields annual amounts that are materially different than the straight-line method.

d. be amortized using the straight-line method if it yields annual amounts that are materially different than the effective-interest method.

e. None of the above.

Use the following information for the next 7 questions.

KM Company issues a 10-year bond with a face value of $5,000,000 and stated interest rate of 8% on January 1, 2007 when the market rate was 10%. Interest is paid on June 30 and December 31 each year. Assume the effective interest method of amortizing bond premiums and bond discounts is used.

6. The bond will sell for:

7. The amount of interest (cash) paid on December 31, 2007 is:

8. The amount of interest expense to be recorded on December 31, 2007 is:

9. What amount will be recorded in the December 31, 2007 journal entry to amortize the premium or discount?

10. The carrying value of the bond on December 31, 2007, after the premium or discount is amortized is:

11. The total amount of cash KM Company will pay over the life of the bond is:

12. The total cost of borrowing from the issuance of the bond is:

13. Blue Company is authorized to issue 500,000 shares of $1 par value common stock. On May 1, 2006, Blue issues 50,000 shares for $75,000. The journal entry to record the issuance of stock includes a credit to:

a. Cash, $75,000

b. Common stock, $75,000

c. Common stock, $50,000

d. Common stock, $50,000, and Paid-in-capital, $25,000

e. None of the above

14. Red Company is authorized to issue 500,000 shares of no-par value common stock. On May 1, 2006, Red issues 50,000 shares for $75,000. The journal entry to record the issuance of stock includes a credit to:

a. Cash, $75,000

b. Common stock, $75,000

c. Common stock, $50,000

d. Common stock, $50,000, and Paid-in-capital, $25,000

e. None of the above

15. Green Company is authorized to issue 500,000 shares of no-par value common stock. The stock has a stated value of $1 per share. On May 1, 2006, Green issues 50,000 shares for $75,000. The journal entry to record the issuance of stock includes a credit to:

a. Cash, $75,000

b. Common stock, $75,000

c. Common stock, $50,000

d. Common stock, $50,000, and Paid-in-capital, $25,000

e. None of the above

Use the following information for next 10 questions.

On March 1, 2009, the Miranda Company purchased 2,000 shares of its common stock for $25 per share for the treasury. On July 1, 2009, 1,000 of the treasury shares were sold for $30 per share. On October 1, 2009, 1,000 of the treasury shares were sold at $15 per share.

On January 1, 2009, Miranda’s balance in Retained Earnings was $100,000. During the year, the company had net income of $20,000 and paid dividends of $5,000.

16. Which of the following is true regarding the purchase of stock on March 1?

a. Treasury stock decreased and Total Equity decreased

b. Treasury stock decreased and Total Equity increased

c. Treasury stock increased and Total Equity decreased

d. Treasury stock increased and Total Equity increased

e. None of the above

17. Refer to question #16. By what amount did Treasury Stock change, if at all? (If the account balance or amount did not change, state your answer as “$0.”)

18. Refer to question #16. By what amount did Total Equity change, if at all? (If the account balance or amount did not change, state your answer as “$0.”)

19. Which of the following is true regarding the sale of treasury stock on July 1?

a. Treasury stock decreased and Total Equity decreased

b. Treasury stock decreased and Total Equity increased

c. Treasury stock increased and Total Equity decreased

d. Treasury stock increased and Total Equity increased

e. None of the above

20. Refer to question #19. By what amount did Treasury Stock change, if at all? (If the account balance or amount did not change, state your answer as “$0.”)

21. Refer to question #19. By what amount did Total Equity change, if at all? (If the account balance or amount did not change, state your answer as “$0.”)

22. Which of the following is true regarding the sale of treasury stock on October 1?

a. Treasury stock decreased and Total Equity decreased

b. Treasury stock decreased and Total Equity increased

c. Treasury stock increased and Total Equity decreased

d. Treasury stock increased and Total Equity increased

e. None of the above

23. Refer to question #22. By what amount did Treasury Stock change, if at all? (If the account balance or amount did not change, state your answer as “$0.”)

24. Refer to question #22. By what amount did Total Equity change, if at all? (If the account balance or amount did not change, state your answer as “$0.”)

25. What is the balance in Retained Earnings at the end of the year?

Use the following information to answer the next 10 questions:

A company with 100,000 authorized shares of $4 par common stock issued 50,000 shares at $9 per share. Subsequently, the company declared and issued a 10% stock dividend. The market price of the shares is $20 per share.

26. What is the effect of the dividend on Retained Earnings?

a. Retained earnings decreased

b. Retained earnings increased

c. Retained earnings remained the same

d. None of the above

27. Refer to the previous question. By what amount did Retained Earnings change, if at all? (If the account balance or amount did not change, state your answer as “$0.”)

28. What is the effect of the dividend on Common Stock?

a. Common Stock decreased

b. Common Stock increased

c. Common Stock remained the same

d. None of the above

29. Refer to the previous question. By what amount did Common Stock change, if at all? (If the account balance or amount did not change, state your answer as “$0.”)

30. What is the effect of the dividend on Paid-in Capital?

a. Paid-in Capital decreased

b. Paid-in Capital increased

c. Paid-in Capital remained the same

d. None of the above

31. Refer to the previous question. By what amount did Paid-in Capital change, if at all? (If the account balance or amount did not change, state your answer as “$0.”)

32. What is the effect of the dividend on the number of shares outstanding?

a. The number decreased

b. The number increased

c. The number remained the same

d. None of the above

33. Refer to the previous question. By what amount did the number of shares outstanding change, if at all? (If the account balance or amount did not change, state your answer as “$0.”)

34. What is the effect of the dividend on total equity and total assets?

a. Total equity decreased and total assets decreased

b. Total equity decreased and total assets increased

c. Total equity increased and total assets decreased

d. Total equity increased and total assets increased

e. None of the above

35. Refer to the previous question. By what amount did total equity and total assets change, if at all? (If the account balance or amount did not change, state your answer as “$0.”)

Use the following information to answer the next 10 questions:

A company with 50,000 authorized shares of $1 par common stock issued 10,000 shares at $10 per share. Subsequently, the company declared and paid a $3 cash dividend per share. On the date the company declared the dividend, the market price of the shares was $30 per share.

36. What is the effect of the dividend on Retained Earnings?

a. Retained earnings decreased

b. Retained earnings increased

c. Retained earnings remained the same

d. None of the above

37. Refer to the previous question. By what amount did Retained Earnings change, if at all? (If the account balance or amount did not change, state your answer as “$0.”)

38. What is the effect of the dividend on Common Stock?

a. Common Stock decreased

b. Common Stock increased

c. Common Stock remained the same

d. None of the above

39. Refer to the previous question. By what amount did Common Stock change, if at all? (If the account balance or amount did not change, state your answer as “$0.”)

40. What is the effect of the dividend on Paid-in Capital?

a. Paid-in Capital decreased

b. Paid-in Capital increased

c. Paid-in Capital remained the same

d. None of the above

41. Refer to the previous question. By what amount did Paid-in Capital change, if at all? (If the account balance or amount did not change, state your answer as “$0.”)

42. What is the effect of the dividend on the number of shares outstanding?

a. The number decreased

b. The number increased

c. The number remained the same

d. None of the above

43. Refer to the previous question. By what amount did the number of shares outstanding change, if at all? (If the account balance or amount did not change, state your answer as “0.”)

44. What is the effect of the dividend on total equity and total assets?

a. Total equity decreased and total assets decreased

b. Total equity decreased and total assets increased

c. Total equity increased and total assets decreased

d. Total equity increased and total assets increased

e. None of the above

45. Refer to the previous question. By what amount did total equity and total assets change, if at all? (If the account balance or amount did not change, state your answer as “$0.”)

46. Which of the following is the correct matching concerning an investor's influence on the operations and financial affairs of an investee?

% of Investor Ownership Presumed Influence

a. Less than 20% Short-term

b. Between 20%-50% Significant

c. More than 50% Long-term

d. Between 20%-50% Long-term

47. On January 1, Belle Corporation purchased 25% of the 1,000,000 shares of common stock outstanding of Lane Corporation for $5,000,000. For the year ended December 31, Lane Corporation reported net income of $10,000,000 and paid cash dividends of $1,000,000. The market value of the Lane’s stock on December 31 is $30. Belle’s investment in Lane will be reported on its December 31 balance sheet at:

48. Ridge Company uses the equity method to account for its 40% investment in FMP Enterprises. During 2005, FMP earned net income of $70,000 and paid dividends of $20,000. In accounting for the investment during 2005, Ridge will:

a. Debit Cash and credit Dividend Revenue, $8,000.

b. Debit Investment in FMP and credit Equity Income, $28,000.

c. Debit Cash and credit Investment in FMP, $8,000.

d. Both a and b.

e. Both b and c.

49. On January 1, Blackstone Company purchased 10% of the 1,000,000 shares of the common stock outstanding of Merliton Enterprises for $800,000. For the year ended December 31, Merliton earned net income of $50,000 and paid dividends of $10,000. The market value of Merliton’s stock on December 31 is $9. Blackstone’s investment in Merliton will be reported on its December 31 balance sheet at:

50. On January 2, Matthews Corporation purchased 30% of the 1,000,000 shares of outstanding common stock of Edmonds Company for $900,000. For the year ended December 31, Edmonds reported a net loss of $100,000 and paid cash dividends of $30,000 on its common stock. The market value of the stock on December 31 is $2.50. Matthew’s investment in Edmonds will be reported on its December 31 balance sheet at:

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