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