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| 1 | |
Which of the following is an example of debt financing? |
| | A) | issuing common stock for cash |
| | B) | issuing common stock for a building |
| | C) | issuing bonds payable |
| | D) | using retained earnings to acquire assets |
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| 2 | |
Which of the following is false? |
| | A) | Creditors have legal priority over the claims of owners. |
| | B) | Liabilities not secured by specific assets are called general credit obligations. |
| | C) | Indenture contracts give creditors some control over operations of the business. |
| | D) | Estimated liabilities are liabilities known to exist for a specific dollar amount. |
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| 3 | |
Title to merchandise is transferred from the seller to the buyer at the buyer's place of business when which of the following has occurred? |
| | A) | Merchandise has been shipped FOB destination |
| | B) | Merchandise has been shipped FOB shipping point |
| | C) | An invoice has been issued by the seller |
| | D) | An invoice has been paid |
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| 4 | |
A $25,000, 12%, 3-month, note payable is issued on July 15. Calculate the maturity value of the note. |
| | A) | $25,000 |
| | B) | $750 |
| | C) | $25,750 |
| | D) | $2,000 |
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| 5 | |
Consider the following:
| Date of note payable | November 16 | | Principal of note payable | $15,000 | | Interest rate of note | 9 percent (9%) | | Term of note payable | 120 days | | Adjusting entries for accrued expenses | Only at year-end, December 31 |
At date of payment, what will be the dollar amount charged to the Interest Expense account? |
| | A) | $281.25 |
| | B) | $168.75 |
| | C) | $450.00 |
| | D) | $112.50 |
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| 6 | |
On January 2, a business acquired a building by paying $10,000 down and issuing a mortgage note for the balance of $96,000. The mortgage note is to be paid at $1,000 per month plus interest, beginning on February 1. The March 31 balance sheet would disclose the mortgage note as which of the following? |
| | A) | A long-term liability of $94,000 |
| | B) | A current liability of $10,000 and long-term liability of $84,000 |
| | C) | A current liability of $12,000 and long-term liability of $82,000 |
| | D) | A long-term liability of $93,000 |
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| 7 | |
The Long-Term Notes Payable account currently has a balance of $20,000. A single payment of $3,000 is made on the principal each year. The balance sheet will report, among other items, which of the following? |
| | A) | A long-term liability of $20,000 |
| | B) | A long-term liability of $23,000 |
| | C) | A short-term liability of $3,000 |
| | D) | A short-term liability of $17,000 |
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| 8 | |
Accrued liabilitiesare also known as which of the following? |
| | A) | Accrued revenues |
| | B) | Deferred expenses |
| | C) | Accrued expenses |
| | D) | Estimated liabilities |
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| 9 | |
Which of the following is an employer payroll tax expense or mandated expense? |
| | A) | Federal income tax withholdings. |
| | B) | State income tax withholdings |
| | C) | Workers' compensation |
| | D) | All of the above |
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| 10 | |
Consider the following:
| Gross wages | $100,000 | | State Income Taxes Payable | 3,000 | | Federal Income Taxes Payable (employee) | 23,500 | | Social Security and Medicare Taxes Payable (employee) | 8,000 | | Federal and State Unemployment Taxes | 7,200 | | Worker's Compensation Insurance | 4,000 | | Employee Medical Insurance Expense | 9,000 |
The Employee Medical Insurance Expense and the Pension Fund Expense are employee benefits paid by the employer. What is the total of the employer payroll costs? |
| | A) | $107,200 |
| | B) | $128,200 |
| | C) | $113,000 |
| | D) | $88,000 |
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| 11 | |
Consider the following:
| Gross wages | $100,000 | | State Income Taxes Payable | 2,000 | | Federal Income Taxes Payable (employee) | 23,500 | | Social Security and Medicare Taxes Payable (employee) | 8,000 | | Federal and State Unemployment Taxes | 7,200 | | Prepaid Worker's Compensation Insurance | 4,000 | | Employee Health and Life Insurance Expense | 9,000 |
The Employee Medical Insurance Expense and the Pension Fund Expense are employee benefits paid by the employer. What is the amount of wages payable? |
| | A) | $45,500 |
| | B) | $57,500 |
| | C) | $66,500 |
| | D) | $73,500 |
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| 12 | |
Which of the following is a state-mandated program? |
| | A) | Workers' Compensation Insurance |
| | B) | Social Security and Medicare |
| | C) | Federal Unemployment Taxes |
| | D) | Employee Pension Plan Benefits |
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| 13 | |
Consider the following:
| Gross wages | $100,000 | | Pension Fund Expense | 22,000 | | Federal Income Taxes Payable (employee) | 23,500 | | Social Security and Medicare Taxes Payable (employee) | 8,000 | | Federal and State Unemployment Taxes | 17,200 | | Prepaid Worker's Compensation Insurance | 4,000 | | Employee Health and Life Insurance Expense | 9,000 | | Employee Pension Benefits Payable | 23,000 |
The end-of-month journal entry to record gross wages will include which of the following? |
| | A) | A debit to Wages Expense for $68,500 |
| | B) | A credit to Social Security Taxes Payable for $8,000 |
| | C) | A credit to Wages Payable (or Cash) for $68,500 |
| | D) | A credit to Wages Payable (or Cash) for $59,500 |
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| 14 | |
Consider the following:
| Gross wages | $100,000 | | Pension Fund Expense | 22,000 | | Federal Income Taxes Payable (employee) | 23,500 | | Social Security and Medicare Taxes Payable (employee) | 8,000 | | Federal and State Unemployment Taxes | 17,200 | | Worker's Compensation Insurance | 4,000 | | Employee Health and Life Insurance Expense | 9,000 | | Employ Pension Benefits Payable | 23,000 |
The end-of-month journal entry to record employer's payroll tax expense will include which of the following? |
| | A) | $25,200 |
| | B) | $38,200 |
| | C) | $60,200 |
| | D) | $29,200 |
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| 15 | |
Unearned revenues are classified in the balance sheet as which of the following? |
| | A) | Long-term liabilities |
| | B) | Current assets |
| | C) | Current liabilities |
| | D) | Other revenues |
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| 16 | |
Maturing long-term obligations that will mature in the current period and are expected to be refinanced on a long-term basis, are classified as long-term liabilities based on which premise? |
| | A) | “substance takes precedence over form” |
| | B) | “form takes precedence over substance” |
| | C) | “legal form takes precedence over substance” |
| | D) | “form is irrelevant” |
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| 17 | |
The current balance due on a note payable totals $4,855. The annual interest rate is 12% (1% per month), and the monthly payment is $1,000. Calculate the amount of interest expense included in the next monthly payment. |
| | A) | $48.00 |
| | B) | $48.55 |
| | C) | $1,000.00 |
| | D) | $951.00 |
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| 18 | |
An 8% installment note of $60,000, dated January 2, requires 6 annual installments of $12,979, which include interest. Calculate the amount of the second installment that should be charged to interest expense. |
| | A) | $4,146 |
| | B) | $4,800 |
| | C) | $4,416 |
| | D) | $3,762 |
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| 19 | |
An 8% installment note of $10,000, dated December 16, 2004, requires 6 annual installments of $2,163, which include interest. Calculate the amount of interest expense that should be accrued on December 31, 2005, after the first installment. |
| | A) | $800.00 |
| | B) | $690.96 |
| | C) | $58.58 |
| | D) | $28.79 |
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| 20 | |
A 20-month, 12%, $20,000 note payable was issued on October 1. The note requires 20 monthly payments of $1,108, which includes principal and interest.
| Interest Period | Monthly Payment | Interest Expense | Reduction in Unpaid Balance | Unpaid Balance | | 1 | $1,108 | 200.00 | 908.00 | 19,092.00 | | 2 | 1,108 | (A) | (B) | (C) |
Determine the missing values (A, B, and C) of the amortization table for the note. |
| | A) | The missing values are $190.92, $917.08, and $18,174.92, respectively. |
| | B) | The missing values are $200.00, $908.00, and $18,184, respectively. |
| | C) | The missing values are $190.02, $908.00, and $18,374.02, respectively. |
| | D) | The missing values are $190.92, $917.08, and $17,984.00, respectively. |
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| 21 | |
A 9% installment note of $10,000, dated December 1, 2005, requires semiannual installments of $1,000, which include interest. Interest expense was accrued on December 31, the end of the fiscal year. Calculate the amount of interest expense that should be recorded on the date of the first semiannual installment payment. |
| | A) | $550 |
| | B) | $450 |
| | C) | $75 |
| | D) | $375 |
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| 22 | |
Which of the following describesbondholders? |
| | A) | Creditors of the business. |
| | B) | Stockholders of the business. |
| | C) | Entitled to dividends. |
| | D) | Owners of the business. |
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| 23 | |
A bond with a face value of $1,000 is quoted at 105-1/2. For what price are the bonds selling? |
| | A) | $1050.50 |
| | B) | $1,000.00 |
| | C) | $1105.50 |
| | D) | $1055.00 |
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| 24 | |
Which of the following is a bond that offers a high rate of interest and has a higher risk of default than normal? |
| | A) | Sinking fund bond |
| | B) | Junk bond |
| | C) | Convertible bond |
| | D) | Callable bond |
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| 25 | |
Which term is used specifically to describe a bond that is secured only by the general credit standing of the corporation? |
| | A) | Callable bonds |
| | B) | Debenture bonds |
| | C) | Convertible bonds |
| | D) | Junk bonds |
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| 26 | |
Which of the following is false? |
| | A) | Convertible bonds provide an option to the issuing corporation to convert the bonds into shares of common stock. |
| | B) | Callable bonds provide an option to the issuing corporation to redeem the bonds in advance of their maturity date. |
| | C) | When bonds have a specified call price, it is usually higher than the face value of the bonds. |
| | D) | Sinking funds are shown in the balance sheet as ‘Long-term Investments.’ |
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| 27 | |
The interest expense on $4,000,000 of bonds is 10% of the face value per year. The income tax rate is 30%. What is the after-tax cost of borrowing? |
| | A) | $120,000 |
| | B) | $280,000 |
| | C) | $520,000 |
| | D) | $400,000 |
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| 28 | |
On October 1, the company issued $500,000 of 6%, 10-year bonds at a price of 100. Interest is paid semiannually. What is the journal entry at the end the first year, December 31, to accrue the interest on the bonds? |
| | A) | A debit to Bond Interest Expense for $7,500 and a credit to Bond Interest Payable for $7,500. |
| | B) | A debit to Bond Interest Expense for $7,500 and a credit to Cash for $7,500. |
| | C) | A debit to Bond Interest Expense for $7,500 and a credit to Bonds for $7,500. |
| | D) | A debit to Bond Interest Expense for $30,000 and a credit to Bond Interest Payable for $30,000. |
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| 29 | |
On October 1, the company issued $400,000 of 6%, 10-year bonds at a price of 100. Interest is paid semiannually. At the end of the first year, December 31, an adjusting entry was made to accrue the interest expense for the 3-month period ended December 31. When the bond interest is paid on April 1, the date of the first semiannual interest payment, the journal entry will include which of the following? |
| | A) | A credit to Bond Interest Payable for $6,000 |
| | B) | A debit to Bond Interest Payable for $12,000 |
| | C) | A debit to Bond Interest Expense for $6,000 |
| | D) | A credit to Cash for $6,000 |
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| 30 | |
On October 1, the company issued $500,000 of 6%, 10-year bonds at a price of 100. The bonds are dated September 1 and pay quarterly interest on December 1, March 1, June 1, and September 1. The journal entry to record the sale of the bonds would include which of the following? |
| | A) | A debit to Cash for $502,500 |
| | B) | A debit to Cash for $500,000 |
| | C) | A credit to Bonds Payable for $500,000 |
| | D) | Both (A) and (C) |
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| 31 | |
Ten-year, 6% bonds that pay interest annually and have a maturity value of $500,000 are sold to an underwriter at a price of 98. What is the total cost of borrowing? |
| | A) | $310,000 |
| | B) | $300,000 |
| | C) | $490,000 |
| | D) | $800,000 |
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| 32 | |
Ten-year, 6% bonds that pay interest annually and have a maturity value of $500,000 are sold to an underwriter at a price of 98. Which of the following is true? |
| | A) | The bonds were sold at a premium. |
| | B) | The bonds were sold at a discount. |
| | C) | The bonds were sold at face value. |
| | D) | The bond discount is $30,000. |
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| 33 | |
Ten-year, 6% bonds that pay interest annually and have a maturity value of $500,000 are sold to an underwriter at a price of 98 on July 1. Calculate the total interest expense recognized on December 31, the end of the fiscal year. |
| | A) | $15,000 |
| | B) | $14,500 |
| | C) | $15,500 |
| | D) | $16,000 |
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| 34 | |
Ten-year, 9% bonds that pay interest semiannually, have a maturity value of $500,000, an issue date of November 1, are sold to an underwriter at a price of 97. Interest expense on the bonds was accrued for two months on December 31, the end of the year. Calculate the amount of amortization on the bond discount that will be recognized when the first interest payment is made on May 1. |
| | A) | $500 |
| | B) | $750 |
| | C) | $1,500 |
| | D) | $1,000.00 |
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| 35 | |
Ten-year, 6% bonds that pay interest annually and have a maturity value of $500,000 are sold to an underwriter at a price of 101. Which of the following is true? |
| | A) | The bonds were sold at face value. |
| | B) | The bonds were sold at a discount. |
| | C) | The bonds were sold at a premium. |
| | D) | The bond premium is $10,000. |
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| 36 | |
Ten-year, 6% bonds that pay interest annually and have a maturity value of $500,000 are sold to an underwriter at a price of 102. What is the total cost of borrowing? |
| | A) | $510,000 |
| | B) | $300,000 |
| | C) | $290,000 |
| | D) | $800,000 |
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| 37 | |
Ten-year, 6% bonds that pay interest annually and have a maturity value of $500,000 are sold to an underwriter at a price of 102 on July 1. Calculate the total interest expense recognized on December 31, the end of the fiscal year. |
| | A) | $15,000 |
| | B) | $14,500 |
| | C) | $15,500 |
| | D) | $16,000 |
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| 38 | |
Ten-year, 9% bonds that pay interest semiannually, have a maturity value of $500,000, an issue date of November 1, are sold to an underwriter at a price of 103. Interest expense on the bonds was accrued for two months on December 31, the end of the year. Calculate the amount of amortization on the bond premium that will be recognized when the first payment is made on May 1. |
| | A) | $250 |
| | B) | $1,500 |
| | C) | $500 |
| | D) | $750 |
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| 39 | |
Which of the following is false? |
| | A) | Most bonds are issued at the market rate of interest. |
| | B) | Corporate bonds are almost never sold at a premium. |
| | C) | When bonds pay a below-market rate of interest, investors will buy them only at a premium. |
| | D) | Bond discounts and premiums seldom have a material effect on a company's annual interest expense or its financial position. |
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| 40 | |
Today, you've been given a note receivable with a face value of $10,000, an annual compound interest rate of 12%, and a term of 5 years. Which amount is the present value of the note? |
| | A) | $12,000 |
| | B) | $17,623 |
| | C) | $10,000 |
| | D) | $8,800 |
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| 41 | |
Present Values of $1 Due in n Periods:
| Periods | Discount Rate | | (n) | 1% | 1 ½ % | 5% | 6% | 8% | 10% | 12% | 15% | 20% | | 1 | .990 | .985 | .952 | .943 | .926 | .909 | .893 | .870 | .833 | | 2 | .980 | .971 | .907 | .890 | .857 | .826 | .797 | .756 | .694 | | 3 | .971 | .956 | .864 | .840 | .794 | .751 | .712 | .658 | .579 | | 4 | .961 | .942 | .823 | .792 | .735 | .683 | .636 | .572 | .482 |
What is the present value of a future cash receipt of $200,000 4 years from today, if you expect an annual rate of return of 6%? |
| | A) | $188,400 |
| | B) | $158,400 |
| | C) | $200,000 |
| | D) | $188,000 |
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| 42 | |
The rate of interest that will cause a given present value to grow to a given future amount is called which of the following? |
| | A) | Future rate |
| | B) | Discount rate |
| | C) | Present value rate |
| | D) | Contract interest rate |
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| 43 | |
Bonds sell at a discount when which of the following conditions exist? |
| | A) | The contract rate of interest is higher than the market rate of interest |
| | B) | The contract rate of interest is equal to the market rate of interest |
| | C) | The contract rate of interest is lower than the market rate of interest |
| | D) | The market rate of interest is less than the contract rate of interest |
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| 44 | |
There is a gain on the early retirement of bonds when which of the following occurs? |
| | A) | The purchase price exceeds the maturity value of the bonds |
| | B) | The purchase price exceeds the carrying value of the bonds |
| | C) | The purchase price is less than the carrying value of the bonds |
| | D) | The purchase price exceeds the call price |
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| 45 | |
Bonds outstanding are $2,000,000, 10%, 10-year bonds that were issued at par and have a call price of 105. The market interest rates have declined and the market price of the bonds is currently 107. The bonds are called today. Calculate the amount of gain or loss on early retirement. |
| | A) | Loss on early retirement of $140,000 |
| | B) | Gain on early retirement of $140,000 |
| | C) | Loss on early retirement of $100,000 |
| | D) | Gain on early retirement of $20,000 |
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| 46 | |
Which of the following is false? |
| | A) | One of the criteria for recording loss contingencies is that it is probable that a loss has been incurred. |
| | B) | Loss contingencies are disclosed in notes to the financial statements if there is a reasonable possibility that a material loss has been incurred. |
| | C) | Contracts that are described as commitments are treated as liabilities. |
| | D) | Loss contingencies relate only to possible losses from past events. |
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| 47 | |
How is the interest coverage ratiocalculated? |
| | A) | Operating income/Annual interest expense |
| | B) | Income before taxes/Annual interest expense |
| | C) | Net income/Annual interest expense |
| | D) | (Operating income + Annual interest expense)/Annual interest expense |
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| 48 | |
Leverage is gained when which of the following exists? |
| | A) | Interest on borrowed funds is greater than the return on assets |
| | B) | Return on assets is greater than the interest on borrowed funds |
| | C) | Interest coverage ratio is less than 1 |
| | D) | Interest coverage ratio is greater than 1 |
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| 49 | |
Which of the following is used to evaluate a company's long-term paying ability? |
| | A) | Operating cycle |
| | B) | Lines of credit |
| | C) | Turnover rates |
| | D) | Interest coverage ratio |
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| 50 | |
Consider the following:
| Cash | $10,000 | | Receivables | $20,000 | | Inventory | $45,000 | | Accounts payable | $12,000 | | Wages payable | $3,000 |
Calculate the working capital, the current ratio, and the quick ratio. |
| | A) | $15,000; 5; and 2, respectively |
| | B) | $60,000; 5; and 2, respectively |
| | C) | $60,000; 2; and 5, respectively |
| | D) | $60,000; 5; and 1, respectively |
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| 51 | |
Which of the following is used to evaluate a company's short-term debt-paying ability? |
| | A) | Interest coverage ratio |
| | B) | Trend in net cash flows |
| | C) | Debt ratio |
| | D) | Turnover rates |
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| 52 | |
Which type of lease requires a periodic cash payment and a debit to the Rent Expense account? |
| | A) | Capital lease |
| | B) | Operating lease |
| | C) | Financing lease |
| | D) | Convertible lease |
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| 53 | |
The present value of the minimum lease payments amounts to 80 percent of the fair market value of the leased property. If the other FASB criteria for leases have not been met, then this is which type of lease? |
| | A) | Capital lease |
| | B) | Financing lease |
| | C) | Operating lease |
| | D) | Convertible lease |
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| 54 | |
A machine is acquired under a capital lease agreement. Which of the following statements is true? |
| | A) | The lessor will depreciate the asset |
| | B) | The lessee will depreciate the asset |
| | C) | Rent expense will be recorded |
| | D) | All of the above are true |
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| 55 | |
A fully funded pension plan would require that the employer make periodic payments to which of the following? |
| | A) | Current employees |
| | B) | A trustee |
| | C) | A government agency |
| | D) | Retired employees |
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| 56 | |
Which of the following is false? |
| | A) | Employers do not usually pay retirement pensions directly to retired employees. |
| | B) | A pension fund is an asset of the employer. |
| | C) | If a pension plan is fully funded, no liability for pension payments appears in the employers' balance sheet. |
| | D) | The concept of present value is applied when determining the pension expenses. |
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| 57 | |
Table-Top Corporation provides its employees with postretirement health and hospital insurance. The year-end journal entry to record this liability includes a debit to the Postretirement Benefits Expense for $150,000. The company does not fully fund its nonpension obligations. For the past 10 years it has paid 60% of benefits expense to a trustee who administers the fund for the benefits of current retirees. The company has never paid any portion of the unfunded expense. How should this unfunded amount be disclosed or reported? |
| | A) | As a note to the financial statements |
| | B) | A current liability |
| | C) | A long-term liability |
| | D) | An employee liability |
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| 58 | |
The taxable income subject to a tax rate of 30% is $400,000. The taxable income was determined by using a declining-balance method of depreciation which resulted in a depreciation expense of $40,000. For financial reporting purposes, the straight-line depreciation method was used, which resulted in a depreciation expense of $25,000. What was the amount of the deferred income taxes? |
| | A) | $15,000 |
| | B) | $4,500 |
| | C) | $19,500 |
| | D) | $12,000 |
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