A company currently has 200,000 shares issued and 190,000 shares outstanding. If the company purchases 20,000 shares

A company currently has 200,000 shares issued and 190,000 shares outstanding. If the company purchases 20,000 shares of treasury stock, what amount of shares will be outstanding?

A) 170,000.

B) 220,000.

C) 210,000.

D) 180,000.

Answer: A

When treasury stock is sold for more than the company originally paid to purchase the shares, the difference:

A) Increases net income.

B) Increases stockholders' equity.

C) Has no effect on net income or stockholders' equity.

D) Decreases net income and decreases stockholders' equity.

Answer: B

The corporation's own stock that has been issued and then bought back by the company is referred to as:

A) Preferred Stock.

B) Authorized Stock.

C) Treasury Stock.

D) Common Stock.

Answer: C

The purchase of treasury stock can boost earnings per share by:

A) Increasing the number of shares outstanding.

B) Increasing profits.

C) Reducing the number of shares outstanding.

D) Decreasing the company's obligation to pay dividends.

Answer: C

Why would a corporation purchase its own stock?

A) To distribute surplus cash without paying dividends.

B) To boost earnings per share.

C) To satisfy employee stock ownership plans.

D) All of the other answer choices are correct.

Answer: D

Which of the following statements about treasury stock transactions is true?

A) Treasury stock is recorded as an asset by the acquiring company.

B) Only losses on the sale of treasury stock are recorded in the income statement.

C) Stockholders' equity is reduced when treasury stock is acquired.

D) Gains and losses on the sale of treasury stock are recorded in the income statement.

Answer: C

What would be the impact on the accounting equation when a company acquires treasury stock?

A) Increase assets and increase stockholders' equity.

B) Decrease assets and increase stockholders' equity.

C) Decrease assets and decrease stockholders' equity.

D) No effect on the accounting equation.

Answer: C

When treasury stock is resold at a price above cost:

A) A gain account is credited.

B) A loss is reported.

C) A revenue account is credited.

D) Additional Paid-in Capital is increased.

Answer: D

Which of the following is TRUE regarding the accounting for treasury stock?

A) Treasury stock is reported on the balance sheet in the equity section.

B) The purchase and sale of treasury stock has no impact on the income statement.

C) Treasury stock represents a negative equity account.

D) All of the other answer choices are correct.

Answer: D

When an investment is made in another corporation's common stock, what is the effect on total stockholders' equity?

A) Decrease.

B) Increase.

C) No effect.

D) Cannot determine from the given information.

Answer: C

Which of the following financing alternatives has the highest preference for dividends/interest payments?

A) Common Stock.

B) Preferred Stock.

C) Bonds.

D) The other answer choices have equal preference.

Answer: C

When treasury stock is acquired, what is the effect on total stockholders' equity?

A) Decrease.

B) Increase.

C) No effect.

D) Cannot determine from the given information.

Answer: A

A company issued 1,000 shares of $1 par value preferred stock for $5 per share. What is true about the journal entry to record the issuance?

A) Debit Preferred Stock $5,000.

B) Credit Cash $5,000.

C) Credit Preferred Stock $5,000.

D) Credit Additional Paid-In Capital $4,000.

Answer: D

Which of the following has the lowest expected return to the investor?

A) Bonds.

B) Preferred Stock.

C) Common Stock.

D) They all have similar expected returns.

Answer: A

Which of the following is not a potential feature of preferred stock?

A) Convertible.

B) Redeemable.

C) Cumulative.

D) They all are potential features of preferred stock.

Answer: D

Hayes Corporation issues 100 shares of its $1 par value common stock for $15 per share. The entry to record the issuance will not include a:

A) Debit to Cash $1,500.

B) Credit to Additional Paid-In Capital $1,400.

C) Credit to Common Stock of $100.

D) All of the other answer choices are correct.

Answer: D

Which of the following is the most likely to have voting rights?

A) Common Stock.

B) Preferred Stock.

C) Bonds.

D) They all have similar voting rights.

Answer: A

Preferred stock:

A) Is always recorded as a liability.

B) Is always recorded as part of stockholders' equity.

C) Can have features of both liabilities and stockholders' equity.

D) Is not included in either liabilities or stockholders' equity.

Answer: C

Wright Inc. issued 20,000 shares of $1 par value common stock for $80,000. The journal entry to record this issuance includes a:

A) Credit to Common Stock for $80,000.

B) Debit to Additional Paid-In Capital for $60,000.

C) Credit to Cash for $80,000.

D) Credit to Common Stock for $20,000.

Answer: D

Jade Jewelers issued 15,000 shares of $1 par value stock for $20 per share. What is true about the journal entry to record the issuance?

A) Credit Common Stock $300,000.

B) Credit Cash $300,000.

C) Credit Common Stock $15,000.

D) Debit Additional Paid-In Capital $285,000.

Answer: C

Which of the following has the highest expected return to the investor?

A) Common Stock.

B) Preferred Stock.

C) Bonds.

D) They all have similar expected returns.

Answer: A

South Beach Apparel issued 10,000 shares of $1 par value stock for $5 per share. What is true about the journal entry to record the issuance?

A) Debit Common Stock $10,000.

B) Credit Cash $50,000.

C) Credit Common Stock $50,000.

D) Credit Additional Paid-In Capital $40,000.

Answer: D

When a company issues 25,000 shares of $1 par value common stock for $10 per share, the journal entry for this issuance would include:

A) A debit to Cash for $25,000.

B) A debit to Additional Paid-in Capital for $25,000.

C) A credit to Common Stock for $250,000.

D) A credit to Additional Paid-in Capital for $225,000.

Answer: D

When a company issues 25,000 shares of $1 par value common stock for $10 per share, the journal entry for this issuance would include:

A) A debit to Cash for $25,000.

B) A debit to Additional Paid-in Capital for $25,000.

C) A credit to Additional Paid-in Capital for $250,000.

D) A credit to Common Stock for $25,000.

Answer: D

If a company issues 1,000 shares of $1 par value common stock for $20 per share, what would be the effect on the accounting equation?

A) Increase assets and increase liabilities.

B) Increase assets and increase revenue.

C) Increase assets and increase stockholders' equity.

D) Increase assets and decrease stockholders' equity.

Answer: C

If a company issues 1,000 shares of $1 par value common stock for $20 per share, which of the following accounts would be credited?

A) Treasury Stock

B) Cash

C) Additional Paid-in Capital

D) Retained Earnings

Answer: C

The correct order from the smallest number of shares to the largest number of shares is:

A) Authorized, issued, and outstanding.

B) Outstanding, issued, and authorized.

C) Issued, outstanding, and authorized.

D) Issued, authorized, and outstanding.

Answer: B

If a company issues 1,000 shares of $1 par value common stock for $20 per share, which of the following accounts would be credited?

A) Treasury Stock

B) Cash

C) Additional Paid-in Capital

D) Retained Earnings

Answer: C

The correct order from the smallest number of shares to the largest number of shares is:

A) Authorized, issued, and outstanding.

B) Outstanding, issued, and authorized.

C) Issued, outstanding, and authorized.

D) Issued, authorized, and outstanding.

Answer: B

Outstanding common stock specifically refers to:

A) Stock that is performing well.

B) Stock that has been authorized for issuance.

C) Stock issued plus treasury stock.

D) Stock in the hands of stockholders.

Answer: D

Advantages of the corporate form of business include which of the following?

I. Double taxation

II. Ability to raise capital

III. Ability to transfer ownership

IV. More paperwork

V. Limited liability

A) II.

B) II., III., V.

C) I., II., III.

D) II., IV., V.

Answer: B

Which of the following statements regarding the corporate form of business is correct?

A) The disadvantages are that generating capital is difficult and that owners have limited liability.

B) Disadvantages are that the business is subject to government regulations and double taxation on its income.

C) One disadvantage is that ownership is easy to transfer.

D) All of the other answer choices are correct.

Answer: B

The articles of incorporation describe:

A) The nature of the firm's business activities.

B) The shares of stock to be issued.

C) The initial board of directors.

D) All of the other answer choices are correct.

Answer: D

All publicly held corporations are regulated by what government organization?

A) The Financial Accounting Standards Board.

B) The Commission on Accounting Procedures.

C) The Accounting Principles Board.

D) The Securities and Exchange Commission.

Answer: D

The disadvantages of the corporate form of business include:

A) Ability to transfer ownership.

B) Additional taxes.

C) Limited liability.

D) Ability to raise capital.

Answer: B

Common stockholders usually have all of the following rights except:

A) To receive dividends when declared.

B) To share in the distribution of assets.

C) To elect board of directors.

D) To participate in the day-to-day operations.

Answer: D

Which of the following stages of equity financing comes last in the traditional order of progression?

A) Investment by friends and family of the founders.

B) Investment by the founders of the business.

C) Initial public offering (IPO).

D) Outside investment by "angel" investors and venture capital firms.

Answer: C

Which of the following is a reason that a corporation would prefer to issue stock instead of bonds?

A) Dividend payments can be deducted for income tax purposes but interest payments cannot.

B) Expansion is accomplished without surrendering ownership control.

C) The risk of going bankrupt is less.

D) All of the other answer choices are correct.

Answer: C

Which of the following is a disadvantage of an S Corporation?

A) Double Taxation

B) Liability

C) Restrictions on number of stockholders

D) Inability to transfer ownership

Answer: C

Which of the following stages of equity financing comes first in the traditional order of progression?

A) Investment by friends and family of the founders.

B) Initial Public Offering.

C) Investment by the founders of the business.

D) Outside investment by "angel" investors and venture capital firms.

Answer: C

Which of the following is not a true statement?

A) The debt to equity ratio measures a company's risk and is calculated as total liabilities divided by stockholders' equity.

B) Leverage enables a company to earn a higher return using debt than without debt.

C) Return on assets is calculated as net income divided by the ending balance for total assets.

D) The times interest earned ratio compares interest expense with income available to pay interest charges.

Answer: C

In terms of total sales, assets, and earnings, the dominant form of business organization is a:

A) Sole proprietorship.

B) Partnership.

C) Corporation.

D) Limited liability company (LLC).

Answer: C

A company's balance sheet reports total liabilities of $2,000,000. The debt to equity ratio is 2.5. What is the company's stockholders' equity?

A) $800,000

B) $320,000

C) $1,000,000

D) $2,000,000

Answer: A

Which of the following accounts is not reported in the stockholders' equity section of the balance sheet?

A) Treasury Stock.

B) Common Stock.

C) Sales Revenue.

D) Retained Earnings.

Answer: C

The times interest earned ratio is calculated as

A) Interest expense/Net income.

B) Net income/Interest expense.

C) (Net income + interest expense + tax expense)/Interest expense.

D) Interest expense/(Net income + interest expense + tax expense).

Answer: C

A company reports net income of $250,000. The return on assets for the year is 20%. What is the company's average total assets for the year?

A) $1,250,000

B) $1,000,000

C) $1,500,000

D) $250,000

Answer: A

Financial leverage is best measured by which of the following ratios?

A) The debt to equity ratio.

B) The return on equity ratio.

C) The times interest earned ratio.

D) The return on assets ratio.

Answer: A

Which of the following is true regarding a company assuming more debt?

A) Assuming more debt is always bad for the company.

B) Assuming more debt is always good for the company.

C) Assuming more debt can be good for the company as long as they earn a return in excess of the rate charged on the borrowed funds.

D) Assuming more debt reduces leverage.

Answer: C

A company's balance sheet reports stockholders' equity of $400,000, total liabilities of $600,000, and total assets of $1,000,000. What is the company's debt to equity ratio?

A) 1.5

B) 0.66

C) 2.5

D) 1.0

Answer: A

The balance sheet of Montezuma reports total assets of $900,000 and $1,100,000 at the beginning and end of the year, respectively. The net income for the year is $100,000. What is Montezuma's return on assets?

A) 10%

B) 11%

C) 9%

D) 25%

Answer: A

Underwater Experiences issues a bond due in 5 years with a stated interest rate of 6% and a face value of $100,000. Interest payments are made semi-annually

Underwater Experiences issues a bond due in 5 years with a stated interest rate of 6% and a face value of $100,000. Interest payments are made semi-annually. The market rate for this type of bond is 5%. What is the issue price of the bond (rounded to nearest whole dollar)? (Use a financial calculator or Excel)

A) $102,323.

B) $84,557.

C) $104,376.

D) $100,000.

Answer: C

The balance sheet of Sub America reports total assets of $400,000 and $450,000 at the beginning and end of the year, respectively. The return on assets for the year is 10%. What is Sub America's net income for the year?

A) $42,500.

B) $45,000.

C) $4,250,000.

D) $85,000.

Answer: A

A company's balance sheet reports stockholders' equity of $800,000. The debt to equity ratio is 2.5. What is the amount of the company's total liabilities?

A) $2,000,000

B) $320,000

C) $1,000,000

D) $800,000

Answer: A

Underwater Experiences issues a bond due in 5 years with a stated interest rate of 6% and a face value of $100,000. Interest payments are made semi-annually.

Underwater Experiences issues a bond due in 5 years with a stated interest rate of 6% and a face value of $100,000. Interest payments are made semi-annually. The market rate for this type of bond is 5%. What is the issue price of the bond (rounded to nearest whole dollar)? (Use Table 2 and Table 4, contained within a separate file.)

A) $102,323.

B) $84,557.

C) $104,376.

D) $100,000.

Answer: C

Underwater Experiences issues a bond due in 5 years with a stated interest rate of 6% and a face value of $100,000. Interest payments are made semi-annually. The market rate for this type of bond is 7%. What is the issue price of the bond (rounded to nearest whole dollar)? (Use a financial calculator or Excel)

A) $104,265.

B) $95,842.

C) $71,906.

D) $100,000.

Answer: B

Mountain Excursions issues a bond due in 10 years with a stated interest rate of 7% and a face value of $200,000. Interest payments are made semi-annually.

Mountain Excursions issues a bond due in 10 years with a stated interest rate of 7% and a face value of $200,000. Interest payments are made semi-annually. The market rate for this type of bond is 6%. What is the issue price of the bond (rounded to nearest whole dollar)? (Use a financial calculator or Excel)

A) $163,200.

B) $186,410.

C) $214,877.

D) $200,000.

Answer: C

Underwater Experiences issues a bond due in 5 years with a stated interest rate of 6% and a face value of $100,000. Interest payments are made semi-annually. The market rate for this type of bond is 7%. What is the issue price of the bond (rounded to nearest whole dollar)? (Use Table 2 and Table 4, contained within a separate file.)

A) $104,625.

B) $95,842.

C) $71,906.

D) $100,000.

Answer: B

Mountain Excursions issues a bond due in 10 years with a stated interest rate of 7% and a face value of $200,000. Interest payments are made semi-annually

Mountain Excursions issues a bond due in 10 years with a stated interest rate of 7% and a face value of $200,000. Interest payments are made semi-annually. The market rate for this type of bond is 8%. What is the issue price of the bond (rounded to nearest whole dollar)? (Use Table 2 and Table 4, contained within a separate file.)

A) $139,609.

B) $186,410.

C) $214,877.

D) $200,000.

Answer: B

Mountain Excursions issues a bond due in 10 years with a stated interest rate of 7% and a face value of $200,000. Interest payments are made semi-annually. The market rate for this type of bond is 6%. What is the issue price of the bond (rounded to nearest whole dollar)? (Use Table 2 and Table 4, contained within a separate file.)

A) $163,200.

B) $186,410.

C) $214,878.

D) $200,000.

Answer: C

Mountain Excursions issues a bond due in 10 years with a stated interest rate of 7% and a face value of $200,000. Interest payments are made semi-annually. The market rate for this type of bond is 8%. What is the issue price of the bond (rounded to nearest whole dollar? (Use a financial calculator or Excel)

A) $139,609.

B) $186,410.

C) $214,877.

D) $200,000.

Answer: B

Air Destinations issues a bond due in 10 years with a stated interest rate of 6% and a face value of $500,000. Interest payments are made semi-annually

Air Destinations issues a bond due in 10 years with a stated interest rate of 6% and a face value of $500,000. Interest payments are made semi-annually. The market rate for this type of bond is 7%. What is the issue price of the bond? (Use Table 2 and Table 4, contained within a separate file.)

A) $537,194.

B) $464,471.

C) $359,528.

D) $500,000.

Answer: B

Air Destinations issues a bond due in 10 years with a stated interest rate of 6% and a face value of $500,000. Interest payments are made semi-annually. The market rate for this type of bond is 5%. What is the issue price of the bond (rounded to nearest whole dollar)? (Use Table 2 and Table 4, contained within a separate file.)

A) $537,194.

B) $464,469.

C) $538,972.

D) $500,000.

Answer: C

Air Destinations issues a bond due in 10 years with a stated interest rate of 6% and a face value of $500,000. Interest payments are made semi-annually. The market rate for this type of bond is 7%. What is the issue price of the bond (rounded to nearest whole dollar)? (Use a financial calculator or Excel)

A) $537,194.

B) $464,469.

C) $359,528.

D) $500,000.

Answer: B

Air Destinations issues a bond due in 10 years with a stated interest rate of 6% and a face value of $500,000. Interest payments are made semi-annually. The market rate for this type of bond is 5%. What is the issue price of the bond (rounded to nearest whole dollar)? (Use a financial calculator or Excel)

A) $537,194.

B) $464,469.

C) $538,973.

D) $500,000.

Answer: C

Ordinarily, the proceeds from the sale of a bond issue will be equal to:

A) The face amount of the bond.

B) The total of the face amount plus all interest payments.

C) The present value of the face amount plus the present value of the periodic interest payments.

D) The face amount of the bond plus the present value of the periodic interest payments.

Answer: C

The issue price of a bond is equal to:

A) The future value of the face amount only.

B) The present value of the interest only.

C) The present value of the face amount plus the present value of the periodic interest payments.

D) The future value of the face amount plus the future value of the periodic interest payments.

Answer: C

In calculating the issue price of a bond, the portion associated with the periodic interest payments is calculated using which time value factor?

A) Future value of $1.

B) Present value of $1.

C) Future value of an ordinary annuity of $1.

D) Present value of an ordinary annuity of $1.

Answer: D

In calculating the issue price of a bond, the portion associated with the principal is calculated using which time value factor?

A) Future value of $1.

B) Present value of $1.

C) Future value of an ordinary annuity of $1.

D) Present value of an ordinary annuity of $1.

Answer: B

The Viper retires a $40 million bond issue when the carrying value of the bonds is $42 million, but the market value of the bonds is $36 million

The Viper retires a $40 million bond issue when the carrying value of the bonds is $42 million, but the market value of the bonds is $36 million. The entry to record the retirement will include:

A) A credit of $6 million to a gain account.

B) A debit of $6 million to a loss account.

C) No gain or loss on retirement.

D) A credit to cash for $42 million.

Answer: A

The Raptor retires a $20 million bond issue when the carrying value of the bonds is $18 million, but the market value of the bonds is $15 million. The entry to record the retirement will include:

A) A debit of $3 million to a loss account.

B) A credit of $3 million to a gain account.

C) No gain or loss on retirement.

D) A credit to cash for $18 million.

Answer: B

The Titan retires a $20 million bond issue when the carrying value of the bonds is $18 million, but the market value of the bonds is $23 million. The entry to record the retirement will include:

A) A debit of $5 million to a loss account.

B) A credit of $5 million to a gain account.

C) No gain or loss on retirement.

D) A credit to cash for $18 million.

Answer: A

Discount-Mart issues $10 million in bonds on January 1, 2021. The bonds have a ten-year term and pay interest

Discount-Mart issues $10 million in bonds on January 1, 2021. The bonds have a ten-year term and pay interest semiannually on June 30 and December 31 each year. Below is a partial bond amortization schedule for the bonds:

Date Cash Paid Interest Expense Increase in Carrying Value Carrying Value

01/01/2021 $ 8,640,967

06/30/2021 $ 300,000 $ 345,639 $ 45,639 8,686,606

12/31/2021 300,000 347,464 47,464 8,734,070

06/30/2022 300,000 349,363 49,363 8,783,433

12/31/2022 300,000 351,337 51,337 8,834,770

What is the stated annual rate of interest on the bonds? (Hint: Be sure to provide the annual rate rather than the six-month rate.)

A) 3%.

B) 4%.

C) 6%.

D) 8%.

Answer: C

When bonds are retired before their maturity date:

A) GAAP has been violated.

B) The issuing company will always report a non-operating gain.

C) The issuing company will always report a non-operating loss.

D) The issuing company may report a non-operating gain or loss.

Answer: D

An amortization schedule for a bond issued at a premium:

A) Has a carrying value that increases over time.

B) Is contained in the balance sheet.

C) Is a schedule that reflects the changes in the carrying value of the bond over its term to maturity.

D) All of the other answer choices are correct.

Answer: C

Discount-Mart issues $10 million in bonds on January 1, 2021. The bonds have a ten-year term and pay interest semiannually

Discount-Mart issues $10 million in bonds on January 1, 2021. The bonds have a ten-year term and pay interest semiannually on June 30 and December 31 each year. Below is a partial bond amortization schedule for the bonds:

Date Cash Paid Interest Expense Increase in Carrying Value Carrying Value

01/01/2021 $ 8,640,967

06/30/2021 $ 300,000 $ 345,639 $ 45,639 8,686,606

12/31/2021 300,000 347,464 47,464 8,734,070

06/30/2022 300,000 349,363 49,363 8,783,433

12/31/2022 300,000 351,337 51,337 8,834,770

What is the market annual rate of interest on the bonds? (Hint: Be sure to provide the annual rate rather than the six-month rate.)

A) 3%.

B) 4%.

C) 6%.

D) 8%.

Answer: D

When bonds are issued at a premium and the effective interest method is used for amortization, at each subsequent interest payment date, the cash paid is:

A) Less than the interest expense.

B) Equal to the interest expense.

C) Greater than the interest expense.

D) More than if the bonds had been sold at a discount.

Answer: C

When bonds are issued at a discount and the effective interest method is used for amortization, at each interest payment date, the interest expense:

A) Increases.

B) Decreases.

C) Remains the same.

D) Is equal to the change in book value.

Answer: A

When bonds are issued at a premium and the effective interest method is used for amortization, at each interest payment date, the interest expense:

A) Increases.

B) Decreases.

C) Remains the same.

D) Is equal to the change in book value.

Answer: B

How would the carrying value of bonds payable change over time for bonds issued at a discount and for bonds issued at a premium?

A) Decrease for bonds issued at a discount and decrease for bonds issued at a premium.

B) Decrease for bonds issued at a discount and increase for bonds issued at a premium.

C) Increase for bonds issued at a discount and decrease for bonds issued at a premium.

D) Increase for bonds issued at a discount and increase for bonds issued at a premium.

Answer: C

An amortization schedule for a bond issued at a discount:

A) Has a carrying value that decreases over time.

B) Is contained in the balance sheet.

C) Is a schedule that reflects the changes in carrying value of the bond over its term to maturity.

D) All of the other answer choices are correct.

Answer: C

How would the carrying value of bonds payable change over time for bonds issued at a discount and for bonds issued at a premium?

A) Decrease for bonds issued at a discount and decrease for bonds issued at a premium.

B) Decrease for bonds issued at a discount and increase for bonds issued at a premium.

C) Increase for bonds issued at a discount and decrease for bonds issued at a premium.

D) Increase for bonds issued at a discount and increase for bonds issued at a premium.

Answer: C

The carrying value, using the effective interest method, would increase each year:

A) If the bonds were sold at a discount.

B) If the bonds were sold at a premium.

C) If the bonds were sold at either a discount or a premium.

D) The carrying value of bonds will never increase.

Answer: A

The carrying value, using the effective interest method, would decrease each year:

A) If the bonds were sold at a discount.

B) If the bonds were sold at a premium.

C) If the bonds were sold at either a discount or a premium.

D) The carrying value of bonds will never decrease.

Answer: B

When bonds are issued at a discount and the effective interest method is used for amortization, at each subsequent interest payment date, the cash paid is:

A) Less than the interest expense.

B) Equal to the interest expense.

C) Greater than the interest expense.

D) More than if the bonds had been sold at a premium.

Answer: A

When bonds are issued at a premium, what happens to the carrying value and interest expense over the life of the bonds?

A) Carrying value and interest expense increase.

B) Carrying value and interest expense decrease.

C) Carrying value decreases and interest expense increases.

D) Carrying value increases and interest expense decreases.

Answer: B

Megginson, Inc. issued a five-year corporate bond of $300,000 with a 5% interest rate for $290,000. What effect would the bond issuance have on Megginson, Inc.'s accounting equation?

A) Increase assets and liabilities.

B) Increase and decrease assets.

C) Increase assets and stockholders' equity.

D) Increase and decrease stockholders' equity.

Answer: A

Bonds payable should be reported as a long-term liability in the balance sheet at the:

A) Face value.

B) Current bond market price.

C) Carrying value.

D) Face value less accrued interest since the last interest payment date.

Answer: C

The cash interest payment each period is calculated as the:

A) Face amount times the stated interest rate.

B) Face amount times the market interest rate.

C) Carrying value times the market interest rate.

D) Carrying value times the stated interest rate.

Answer: A

When bonds are issued at a discount, what happens to the carrying value and interest expense over the life of the bonds?

A) Carrying value and interest expense increase.

B) Carrying value and interest expense decrease.

C) Carrying value decreases and interest expense increases.

D) Carrying value increases and interest expense decreases.

Answer: A

Which of the following is true for bonds issued at a premium?

A) The stated interest rate is less than the market interest rate.

B) The market interest rate is less than the stated interest rate.

C) The stated interest rate and the market interest rate are equal.

D) The stated interest rate and the market interest rate are unrelated.

Answer: B

Interest expense on bonds payable is calculated as the:

A) Face amount times the stated interest rate.

B) Face amount times the market interest rate.

C) Carrying value times the market interest rate.

D) Carrying value times the stated interest rate.

Answer: C

Samson Enterprises issued a ten-year, $20 million bond with a 10% interest rate for $19,500,000. The entry to record the bond issuance would have what effect on the financial statements?

A) Increase assets.

B) Increase liabilities.

C) Increase stockholders' equity.

D) Increase assets and liabilities.

Answer: D

A bond issued at a premium indicates that at the date of issue:

A) Its stated rate was lower than the prevailing market rate of interest on similar bonds.

B) Its stated rate was higher than the prevailing market rate of interest on similar bonds.

C) The bonds were issued at a price less than their face value.

D) The bonds must be non-interest bearing.

Answer: B

A bond issued at a discount indicates that at the date of issue:

A) Its stated rate was lower than the prevailing market rate of interest on similar bonds.

B) Its stated rate was higher than the prevailing market rate of interest on similar bonds.

C) The bonds were issued at a price greater than their face value.

D) The bonds must be non-interest bearing.

Answer: A

The rate quoted in the bond contract used to calculate the cash payments for interest is called the:

A) Face rate.

B) Yield rate.

C) Market rate.

D) Stated rate.

Answer: D

Which of the following is true for bonds issued at a discount?

A) The stated interest rate is greater than the market interest rate.

B) The market interest rate is greater than the stated interest rate.

C) The stated interest rate and the market interest rate are equal.

D) The stated interest rate and the market interest rate are unrelated.

Answer: B

The true interest rate used by investors to value a bond is called the:

A) Face interest rate.

B) Cash payment rate.

C) Market interest rate.

D) Stated interest rate.

Answer: C

Given the information below, which bond(s) will be issued at a discount?

Bond 1 Bond 2 Bond 3 Bond 4

Stated Rate of Return 5 % 7 % 12 % 10 %

Market Rate of Return 7 % 8 % 12 % 9 %

A) Bond 1.

B) Bond 2.

C) Bond 4.

D) Bonds 1 and 2.

Answer: D

Given the information below, which bond(s) will be issued at a premium?

Bond 1 Bond 2 Bond 3 Bond 4

Stated Rate of Return 5 % 10 % 7 % 10 %

Market Rate of Return 7 % 8 % 7 % 9 %

A) Bond 1.

B) Bond 2.

C) Bond 3.

D) Bonds 2 and 4.

Answer: D

Given the information below, which bond(s) will be issued at a discount?

Bond 1 Bond 2 Bond 3 Bond 4

Stated Rate of Return 10 % 8 % 12 % 12 %

Market Rate of Return 12 % 8 % 15 % 10 %

A) Bond 1.

B) Bond 3.

C) Bonds 2 and 4.

D) Bonds 1 and 3.

Answer: D

Bond X and Bond Y are both issued by the same company. Each of the bonds has a face value of $100,000

Bond X and Bond Y are both issued by the same company. Each of the bonds has a face value of $100,000 and each matures in 10 years. Bond X pays 8% interest while Bond Y pays 7% interest. The current market rate of interest is 7%. Which of the following is correct?

A) Both bonds will sell for the same amount.

B) Bond X will sell for more than Bond Y.

C) Bond Y will sell for more than Bond X.

D) Both bonds will sell at a premium.

Answer: B

Seaside issues a bond with a stated interest rate of 10%, face value of $50,000, and due in 5 years. Interest payments are made semi-annually. The market rate for this type of bond is 12%. What is the issue price of the bond (rounded to nearest whole dollar?

A) $83,920.

B) $46,320.

C) $53,605.

D) $50,000.

Answer: B

Given the information below, which bond(s) will be issued at a premium?

Bond 1 Bond 2 Bond 3 Bond 4

Stated Rate of Return 7 % 12 % 10 % 8 %

Market Rate of Return 8 % 10 % 10 % 9 %

A) Bond 1.

B) Bond 2.

C) Bond 3.

D) Bonds 2 and 4.

Answer: B

Seaside issues a bond with a stated interest rate of 10%, face value of $50,000, and due in 5 years

Seaside issues a bond with a stated interest rate of 10%, face value of $50,000, and due in 5 years. Interest payments are made semi-annually. The market rate for this type of bond is 8%. What is the issue price of the bond (rounded to nearest whole dollar)?

A) $83,920.

B) $46,320.

C) $54,055.

D) $50,000.

Answer: C

A $500,000 bond issue sold for $510,000. Therefore, the bonds:

A) Sold at a premium because the stated interest rate was higher than the market rate.

B) Sold for the $500,000 face amount plus $10,000 of accrued interest.

C) Sold at a discount because the stated interest rate was higher than the market rate.

D) Sold at a premium because the market interest rate was higher than the stated rate.

Answer: A

A $500,000 bond issue sold for $490,000. Therefore, the bonds:

A) Sold at a discount because the stated interest rate was higher than the market rate.

B) Sold for the $500,000 face amount less $10,000 of accrued interest.

C) Sold at a premium because the stated interest rate was higher than the market rate.

D) Sold at a discount because the market interest rate was higher than the stated rate.

Answer: D

A bond issue with a face amount of $500,000 bears interest at the rate of 10%. The current market rate of interest is also 10%

A bond issue with a face amount of $500,000 bears interest at the rate of 10%. The current market rate of interest is also 10%. These bonds will sell at a price that is:

A) Equal to $500,000.

B) More than $500,000.

C) Less than $500,000.

D) The answer cannot be determined from the information provided.

Answer: A

Convertible bonds:

A) Provide potential benefits only to the issuer.

B) Provide potential benefits only to the investor.

C) Provide potential benefits to both the issuer and the investor.

D) Provide no potential benefits.

Answer: C

For a bond issue that sells for more than the bond face amount, the stated interest rate is:

A) The actual yield rates.

B) The prime rate.

C) More than the market rate.

D) Less than the market rate.

Answer: C

A bond issue with a face amount of $500,000 bears interest at the rate of 7%. The current market rate of interest is 8%

A bond issue with a face amount of $500,000 bears interest at the rate of 7%. The current market rate of interest is 8%. These bonds will sell at a price that is:

A) Equal to $500,000.

B) More than $500,000.

C) Less than $500,000.

D) The answer cannot be determined from the information provided.

Answer: C

A bond issue with a face amount of $500,000 bears interest at the rate of 7%. The current market rate of interest is 6%. These bonds will sell at a price that is:

A) Equal to $500,000.

B) More than $500,000.

C) Less than $500,000.

D) The answer cannot be determined from the information provided.

Answer: B

Serial bonds are:

A) Bonds backed by collateral.

B) Bonds that mature in installments.

C) Bonds with greater risk.

D) Bonds issued below the face amount.

Answer: B

A home loan with fixed monthly payments and the house as collateral most closely represents which of the following bond characteristics?

A) Secured and term.

B) Secured and serial.

C) Unsecured and term.

D) Unsecured and serial.

Answer: B

Which of the following is not true regarding callable bonds?

A) This feature allows the issuer to repay the bonds before their scheduled maturity date.

B) This feature helps protect the issuer against future decreases in interest rates.

C) This feature usually allows the issuer to repay bonds just below face value.

D) This feature benefits the issuer more when the bond's stated rate is 8% and the market interest rate is 5%.

Answer: C

Bonds can be secured or unsecured. Likewise, bonds can be term or serial bonds. Which is more common?

A) Secured and term.

B) Secured and serial.

C) Unsecured and term.

D) Unsecured and serial.

Answer: C

Which of the following definitions describes a term bond?

A) Matures on a single date.

B) Secured only by the "full faith and credit" of the issuing corporation.

C) Matures in installments.

D) Supported by specific assets pledged as collateral by the issuer.

Answer: A

Which of the following definitions describes a secured bond?

A) Matures on a single date.

B) Secured only by the "full faith and credit" of the issuing corporation.

C) Matures in installments.

D) Supported by specific assets pledged as collateral by the issuer.

Answer: D

Which of the following definitions describes a serial bond?

A) Matures on a single date.

B) Secured only by the "full faith and credit" of the issuing corporation.

C) Matures in installments.

D) Supported by specific assets pledged as collateral by the issuer.

Answer: C

On January 1, 2021, a company signs a 25-year lease for land. Annual payments of $20,000 begin on December 31, 2021

On January 1, 2021, a company signs a 25-year lease for land. Annual payments of $20,000 begin on December 31, 2021. The company's normal borrowing rate is 6%. For what amount would the company record the lease on January 1, 2021 (rounded to nearest whole dollar)? Use (PV of $1, and PVA of $1) (Use appropriate factor(s) from the tables provided. Do not round interest rate factors.)

A) $255,667.

B) $440,463.

C) $500,000.

D) $244,333.

Answer: A

On July 1, 2021, a company signs a 30-month lease for an office building. Lease payments of $6,457 are due every three months (10 payments total), beginning on October 1, 2021. The company's normal borrowing rate is 8% (2% every three months). For what amount would the company record the lease on July 1, 2021 (rounded to nearest whole dollar)? Use (PV of $1, and PVA of $1) (Use appropriate factor(s) from the tables provided. Do not round interest rate factors.)

A) $62,000.

B) $58,001.

C) $64,570.

D) $43,327.

Answer: B

Term bonds are:

A) Bonds issued below the face amount.

B) Bonds that mature in installments.

C) Bonds that mature all at once.

D) Bonds issued above the face amount.

Answer: C

A bond is a formal debt instrument that obligates the borrower to repay a stated amount at the maturity date.

A bond is a formal debt instrument that obligates the borrower to repay a stated amount at the maturity date. This stated amount is referred to as the:

A) Note.

B) Interest.

C) Lease.

D) Principal or face amount.

Answer: D

At the beginning of the lease period, the lease is reported in the lessee's balance sheet for which amount?

A) Fair value of the underlying asset.

B) Present value of expected cash inflows from using the underlying asset.

C) Present value of lease payments over the lease period.

D) Leases are not reported in the balance sheet.

Answer: C

A common advantage of obtaining long-term funds by issuing bonds, rather than borrowing from the bank, includes which of the following?

A) Bonds involve less surrendering of ownership control.

B) Bonds usually have a lower interest rate.

C) Bonds are more likely to involve borrowing from a single lender.

D) Bond issue costs are usually lower than fees charged by the bank.

Answer: B

A company is deciding between two options: (1) purchase a piece of equipment for $10,000 or (2) lease the same piece of equipment for three years

A company is deciding between two options: (1) purchase a piece of equipment for $10,000 or (2) lease the same piece of equipment for three years and then return the equipment to the owner. The lease payments are $182.53 per month and have a present value of $6,000. If the company decides to lease, for what amount would the leased asset be recorded at the beginning of the lease?

A) $10,000.

B) $6,000.

C) $4,000.

D) $6,571.

Answer: B

Before signing a lease, a company reports total assets of $500,000 and total liabilities of $300,000. The company then signs a 30-month lease for equipment with payments of $922.21 each month. The lease payments have a present value of $25,000. After recording the inception of the lease, the company would report which of the following?

A) Total assets of $527,666.30, and total liabilities of $325,000.00.

B) Total assets of $525,000.00, and total liabilities of $327,666.30.

C) Total assets of $527,666.30, and total liabilities of $327,666.30.

D) Total assets of $525,000.00, and total liabilities of $325,000.00.

Answer: D

On April 1, 2021, a company signs a 20-month lease for equipment. Monthly payments of $554.15 begin on May 1, 2021.

On April 1, 2021, a company signs a 20-month lease for equipment. Monthly payments of $554.15 begin on May 1, 2021. The company's normal borrowing rate is 12%. For what amount would the company record the lease on April 1, 2021 (rounded to nearest whole dollar)? Use (PV of $1, and PVA of $1) (Use appropriate factor(s) from the tables provided. Do not round interest rate factors.)

A) $12,000.

B) $11,083.

C) $10,000.

D) $10,800.

Answer: C

Which of the following represents an advantage of leasing rather than buying an asset with an installment note?

A) Leasing may offer protection against the risk of declining asset values.

B) Lease payments often are lower than installment payments.

C) Leasing offers flexibility and lower costs when disposing of an asset.

D) All of the other answer choices are correct.

Answer: D

Which of the following is the number one method of external financing by U.S. companies?

A) Issuing installment notes.

B) Leasing.

C) Issuing bonds.

D) Borrowing from banks.

Answer: B

A company issues a $200,000, 5%, six-year note on January 1, 2021. If the monthly payment is $3,220.99, by how much will the carrying value decrease

A company issues a $200,000, 5%, six-year note on January 1, 2021. If the monthly payment is $3,220.99, by how much will the carrying value decrease when the first month's payment is made on January 31, 2021?

A) $4,054.32

B) $2,387.66

C) $3,220.99

D) $833.33

Answer: B

Which of the following is not a reason why some companies lease rather than buy?

A) Leasing may allow you to borrow with little or no down payment.

B) Leasing may offer protection against risk of declining asset values.

C) Leasing offers flexibility and lower costs when disposing of an asset.

D) Leasing transfers the title to the lessee at the beginning of the lease.

Answer: D

Which of the following is recorded by the lessee at the beginning of the lease?

A) Decrease in assets.

B) Increase in expenses.

C) Increase in revenues.

D) Increase in liabilities.

Answer: D

On January 1, 2021, Red, Inc. borrowed cash by issuing a $500,000, 5-year note that specified 6% interest to be paid on December 31 of each year and the $500,000

On January 1, 2021, Red, Inc. borrowed cash by issuing a $500,000, 5-year note that specified 6% interest to be paid on December 31 of each year and the $500,000 to be paid at maturity. If the note had instead been an installment note to be paid in four equal payments at the end of each year beginning December 31, 2021, which of the following would be true?

A) The effective interest rate would have been higher.

B) The annual cash payment would have been less.

C) The first year's interest expense would have been higher.

D) The second year's interest expense would have been less.

Answer: D

A company issues a $200,000, 5%, six-year note on January 1, 2021. If the monthly payment is $3,220.99, what is the note's carrying value after the first month's payment is made on January 31, 2021?

A) $197,612.34

B) $200,000.00

C) $196,779.01

D) $199,166.67

Answer: A

Camp Elim obtains a $125,000, 6%, five-year loan for a new camp bus on January 1, 2021. What amount will be recorded for interest expense for the first month's

Camp Elim obtains a $125,000, 6%, five-year loan for a new camp bus on January 1, 2021. What amount will be recorded for interest expense for the first month's payment on January 31, 2021?

A) $625

B) $125

C) $7,500

D) $1,000

Answer: A

Camp Elim obtains a $125,000, 6%, five-year loan for a new camp bus on January 1, 2021. If the monthly payment is $2,416.60, by how much will the carrying value decrease when the first payment is made on January 31, 2021?

A) $1,791.60

B) $625.00

C) $2,416.60

D) $1,000.60

Answer: A

A company issues a $200,000, 5%, six-year note on January 1, 2021. What amount will be recorded for interest expense for the first month's payment on January 31, 2021?

A) $1,000.00

B) $138.89

C) $833.33

D) $694.44

Answer: C

Babble Co. signs a five-year installment note on January 1, 2021. At which of the following dates would the carrying value be the highest?

A) August 1, 2021

B) November 30, 2023

C) April 30, 2024

D) December 31, 2022

Answer: A

Babble Co. signs a five-year installment note on January 1, 2021. At which of the following dates would the carrying value be the lowest?

A) August 1, 2021

B) November 30, 2023

C) April 30, 2024

D) December 31, 2022

Answer: C

The entry to record a monthly payment on an installment note such as a car loan:

A) Increases expenses, decreases liabilities, and decreases assets.

B) Increases expenses, increases liabilities, and increases assets.

C) Increases expenses, decreases liabilities, and increases assets.

D) Increases expenses, increases liabilities, and decreases assets.

Answer: A

How does the amortization schedule for an installment note such as a car loan differ from an amortization schedule for bonds?

A) The final carrying value is not zero in either amortization schedule.

B) The final carrying value is zero in an amortization schedule for bonds.

C) The final carrying value is zero in both amortization schedules.

D) The final carrying value is zero in an amortization schedule for an installment note.

Answer: D

Which of the following describes monthly installment payments of a note payable?

A) The monthly payments equal interest expense plus the reduction of the note's carrying value.

B) The amount of interest expense recorded each month increases over time.

C) The amount of the reduction in the note's carrying value recorded each month decreases over time.

D) All of the other answer choices are correct.

Answer: A

In each succeeding payment on an installment note:

A) The amount that goes to decreasing the carrying value of the note increases.

B) The amount that goes to decreasing the carrying value of the note decreases.

C) The amount that goes to decreasing the carrying value of the note is unchanged.

D) The amounts paid for both interest and principal increase proportionately.

Answer: A

For a ten-year installment note, the portion of the periodic installment payment that represents interest in the third year is:

A) The same as in the fourth year.

B) The same as in the first year.

C) Less than in the fourth year.

D) More than in the fourth year.

Answer: D

In each succeeding payment on an installment note:

A) The amount of interest expense increases.

B) The amount of interest expense decreases.

C) The amount of interest expense is unchanged.

D) The amounts paid for both interest and principal increase proportionately.

Answer: B

Profits generated by the company are a(n):

A) Source of external financing.

B) Source of internal financing.

C) Liability.

D) Asset.

Answer: B

Which of the following would result in an increase in the current ratio, but not necessarily the acid-test ratio?

A) Increase in current assets.

B) Increase in quick assets.

C) Decrease in current liabilities.

D) Decrease in current assets.

Answer: A

The mixture of liabilities and stockholders' equity a business uses is called its:

A) Bond contract.

B) Carrying value.

C) Capital structure.

D) Accounting equation.

Answer: C

Which of the following is not a true statement?

A) Companies that are believed to have high bankruptcy risk generally receive low credit ratings and must pay a higher interest rate for borrowing.

B) As a company's level of debt increases, the risk of bankruptcy increases.

C) Interest expense incurred when borrowing money, as well as dividends paid to stockholders, are both tax-deductible.

D) The mixture of liabilities and stockholders' equity a business uses is called its capital structure.

Answer: C

How many of the following transactions increase a company's liquidity?

• Provide services on account.

• Pay workers' salaries in the current period.

• Purchase office supplies with cash.

• Pay dividends to stockholders.

A) 0.

B) 1.

C) 2.

D) 3.

Answer: B

Which of the following is the primary source of corporate equity financing?

A) Bonds Payable.

B) Common Stock.

C) Leases.

D) Notes Payable.

Answer: B

Which of the following is not a primary source of corporate debt financing?

A) Bonds Payable.

B) Common Stock.

C) Leases.

D) Notes Payable.

Answer: B

Which of the following would not result in an increase in both the current ratio and the acid-test ratio?

A) Increase in cash

B) Increase in inventory

C) Increase in accounts receivable

D) Increase in current investments

Answer: B

Which of the following is not a primary source of corporate debt financing?

A) Bonds Payable.

B) Common Stock.

C) Leases.

D) Notes Payable.

Answer: B

Which of the following is the primary source of corporate equity financing?

A) Bonds Payable.

B) Common Stock.

C) Leases.

D) Notes Payable.

Answer: B