ACCT 6272 EXAM Part 1.docx
Question 1
Smith Company is involved in a lawsuit. When would the lawsuit be recorded as a liability on the balance sheet?
When the loss probability is remote and the amount can be reasonably estimated.
When the loss is probable and the amount can be reasonably estimated.
When the loss probability is reasonably possible and the amount can be reasonably estimated.
When the loss is probable regardless of whether the loss can be reasonably estimated.
1.5 points
Question 2
Short Company purchased land by paying $10,000 cash on the purchase date and agreeing to pay $10,000 for each of the next ten years beginning one-year from the purchase date. Short’s incremental borrowing rate is 10%. On the balance sheet as of the purchase date, after the initial $10,000 payment was made, the liability reported is closest to:
$100,000.
$38,550.
$61,446.
$71,446.
1.5 points
Question 3
On January 1, 2014, Tonika Corporation issued a four-year, $10,000, 7% bond. The interest is payable annually each December 31. The issue price was $9,668 based on an 8% effective interest rate. Assuming effective-interest amortization is used, the interest expense on the income statement for the year ended December 31, 2014 is closest to:
1.5 points
Question 4
If the market interest rate is greater than the contractual interest rate, bonds will sell
at a premium.
at face value.
at a discount.
only after the stated interest rate is increased.
1.5 points
Question 5
The amortization of bond discount by the issuer will
increase interest expense.
decrease interest expense.
have no effect on interest expense.
determine the cash paid for interest.
1.5 points
Question 6
How much needs to be invested today if your goal is to have $100,000 five years from today? The return on the investment is expected to be 10% and will be compounded semi-annually. (use the present value tables provided in the book)
$61,390
$62,090
$66,667
$50,000
1.5 points
Question 7
How much needs to be invested today if your goal is to be able to withdraw $5,000 for each of the next ten years beginning one year from today? The return on the investment is expected to be 12%.
$44,645
$36,291
$28,251
$50,000
1.5 points
Question 8
Bond interest paid is
higher when the bonds sell at a discount.
lower when bonds sell at a premium
the same whether bonds sell at a discount or a premium.
higher when bonds sell at a discount and lower when bonds sell at a premium.
1.5 points
Question 9
On January 1, Nicholas Corporation issued $1,000,000, 14%, 5-year bonds with interest payable on December 31. The bonds sold for $1,072,096. The market rate of interest for these bonds was 12%. On the first interest date, using the effective-interest method, the debit entry to Interest Expense is for:
$120,000.
$125,581.
$128,652.
$140,000.
1.5 points
Question 10
Use this information to answer questions 10-12:
Smith Corporation issued $100,000 at 7.5% 10-year bonds. The bonds are dated and sold on January 1, 2013. Interest payment dates are January 1 and July 1. The bonds are issued for $96,602 to yield the market interest rate of 8%. Use the effective-interest method for questions 10-12.
What is the amount of interest expense that Smith Corporation will record on July 1, 2013, the first semiannual interest payment date? (All amounts rounded to the nearest dollar.)
$7,500
$4,000
$3,864
$3,750
1.5 points
Question 11
Use this information to answer questions 10-12:
Smith Corporation issued $100,000 at 7.5% 10-year bonds. The bonds are dated and sold on January 1, 2013. Interest payment dates are January 1 and July 1. The bonds are issued for $96,602 to yield the market interest rate of 8%. Use the effective-interest method for questions 10-12.
What is the amount of discount amortization that Smith Corporation will record on July 1, 2013, the first semiannual interest payment date?
1.5 points
Question 12
Use this information to answer questions 10-12:
Smith Corporation issued $100,000 at 7.5% 10-year bonds. The bonds are dated and sold on January 1, 2013. Interest payment dates are January 1 and July 1. The bonds are issued for $96,602 to yield the market interest rate of 8%. Use the effective-interest method for questions 10-12.
What is the carrying amount of the bonds on the January 1, 2014 balance sheet?
$96,835
$96,563
$96,716
$96,907
1.5 points
Question 13
Which of the following is not an advantage of issuing bonds versus issuing stock to finance expansion?
Stockholders remain in control as bondholders cannot vote or share in the company’s earnings.
Interest expense is tax deductible but dividends are not.
Money can usually be borrowed at a lower rate and then invested to earn a higher return on assets.
The fixed payment dates for the interest and maturity value.
1.5 points
Question 14
The carrying value of Bonds Payable equals
Bonds Payable + Accrued Interest.
Bonds Payable – Discount on Bonds Payable.
Bonds Payable – Premium on Bonds Payable.
Bonds Payable + Discount on Bonds Payable.
1.5 points
Question 15
Which of the following is a “contra” stockholders’ equity account?
Retained earnings.
Preferred Stock.
Treasury stock.
Contributed capital in excess of par.
1.5 points
Question 16
ABC Corp. issues 1,000 shares of $10 par value common stock at $12 per share.
Common Stock $10,000 and Paid-in Capital in Excess of Stated Value $2,000.
Common Stock $12,000.
Common Stock $10,000 and Paid-in Capital in Excess of Par $2,000.
Common Stock $10,000 and Retained Earnings $2,000.
1.5 points
Question 17
In the stockholders’ equity section, the cost of treasury stock is deducted from:
Total paid-in capital and retained earnings.
Retained earnings.
Total stockholders’ equity.
Common stock in paid-in capital.
1.5 points
Question 18
Which of the following represents the maximum shares of stock issuable to the public?
Authorized shares
Issued shares
Outstanding shares
Unissued shares
Treasury shares
1.5 points
Question 19
In the case of a cash dividend, a dividend liability comes into existence on the
date of declaration.
date of record.
date of dividend payment.
last day of the month in which the dividend is declared.
1.5 points
Question 20
Which of the following statements is false?
Stock splits reallocate amounts between retained earnings and contributed capital accounts.
Both stock splits and stock dividends increase the common shares issued.
Both stock splits and stock dividends increase the common shares outstanding.
Both stock splits and stock dividends have the impact of reducing the market price of the stock.
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