Accounting Corporate Finance

25 July 2022
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104 test answers

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WC - Which of the following is not characteristic of a corporation?
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Corporations have less regulatory costs than other business forms.
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WA - Which of the following statements concerning taxation is accurate?
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Corporations pay federal and state income taxes.
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WC - Which of the following is not true of a corporation?
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The owners are personally liable for corporate actions.
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TT - The term deficit is used to refer to a debit balance in which of the following accounts of a corporation?
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Retained Earnings
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IA - If a corporation has only one class of stock, the account is entitled Common Stock or
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Capital Stock.
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WE - Which of the following increases retained earnings?
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Net income
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TC - The charter of a corporation provides for the issuance of 100,000 shares of common stock. Assume that 60,000 shares were originally issued and 10,000 were subsequently reacquired. What is the number of shares outstanding?
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50,000
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IS - If Smart Company issues 1,000 shares of $5 par value common stock for $90,000, the account
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Paid-in Capital in Excess of Par will be credited for $85,000.
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AC - A corporation issues 2,000 shares of common stock for $32,000. The stock has a stated value of $12 per share. The journal entry to record the stock issuance would include a credit to Common Stock for
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$24,000
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TN - The number of shares of stock that a corporation can issue as stated in its charter is referred to as
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authorized.
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WD - Which of the following is the appropriate general journal entry to record the declaration of cash dividends?
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Cash Dividends Cash Dividends Payable
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TD - The date on which cash dividends are paid is on the
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date of payment.
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Cash dividends are paid to __________ stock.
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outstanding
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Luke Enterprises has 300,000 shares of $20 par common stock outstanding. On January 19, Luke Enterprises declared a 3% stock dividend. The market price of the stock on January 19 was $28 per share. The journal entry to record the stock dividend would include
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None of these choices are correct
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Treasury stock shares are
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issued shares that are held by the treasurer of the corporation.
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AC - A corporation purchases 1,000 shares of its own common stock for $4,000 on Feb. 13. On April 13, half of the treasury stock was sold for $3,000. On April 26, the other half of the treasury stock was sold for $1,800. The entry to record the April 26 sale would include
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a debit to Paid-in Capital from the Sale of Treasury Stock for $200.
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Treasury stock that had been purchased for $5,500 last month was reissued this month for $6,500. The journal entry to record the re-issuance would include a credit to
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Paid-In Capital from Sale of Treasury Stock for $1,000.
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TJ - The journal entry to record the sale of treasury stock might include
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All of these choices are correct.
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TP - The purchase and resale of treasury stock is normally recorded using
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the cost method.
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All of the following are normally found in a corporation's stockholders' equity section except
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Dividends Payable.
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WA - Which of the following statements is not correct with regards to prior period adjustments?
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Prior period adjustments are reported as an adjustment to the ending balance of retained earnings in the current period.
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WS - Which of the following statements is not true about a 4-for-1 split?
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Total contributed capital increases
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When a corporation completes a 2-for-1 stock split
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both market price per share and par value per share are decreased
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WS - Which of the following statements is true concerning stock splits?
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Each shareholder will own the same total par amount of stock before and after the split.
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AC - A corporation has 50,000 shares of $25 par value stock outstanding that has a current market value of $120. If the corporation issues a 2-for-1 stock split, the market value of the stock is expected to fall to approximately
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$60.
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Earnings per common share is calculated as
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Net Income - Preferred Dividends) / Average Number of Common Shares Outstanding
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All of the following statements are true regarding earnings per common share (EPS) except
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EPS cannot be calculated if a company has no preferred stock
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IT - In the calculation of earnings per share, preferred stock dividends are
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subtracted from net income
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Corporations whose stock is traded in a public market must report earnings per share on their
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income statement
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Under the corporate form of business organization
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stockholders wishing to sell their corporation shares need not get the approval of other stockholders, thus making it easy to transfer ownership rights.
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TE - The entry to record the issuance of common stock at a price above par includes a credit to
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Paid-In Capital in Excess of Par—Common Stock.
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TJ - The journal entry to issue 1,000,000 shares of $5 par common stock for $9.00 per share on July 2nd would be
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Cash 9,000,000 Common Stock 5,000,000 Paid in Capital in Excess of Par-C/S 4,000,0
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Cumulative preferred stock
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has the right to receive regular dividends that were not declared (paid) in prior years
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When a cash dividend is declared, which of the following accounts is credited?
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Cash Dividends Payable.
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TC - The charter of a corporation provides for the issuance of 100,000 shares of common stock. Assume that 40,000 shares were originally issued and 5,000 were subsequently reacquired. What is the amount of cash dividends to be paid if a $3 per share dividend is declared?
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$105,000
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All of the following are conditions for a cash dividend except
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All of these choices are correct.
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What is the total stockholders' equity based on the following account balances? Common Stock $500,000 PaidIn Capital in Excess of Par—C/S 50,000 Retained Earnings 190,000 Treasury Stock 40,000
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$700,000
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AC - A corporation may reacquire (purchase) its own stock for the following reasons except
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All of these choices are correct.
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Wave Corporation began the current year with a retained earnings balance of $25,000. During the year, the company corrected an error made in the prior year, which was a failure to record depreciation expense of $5,000 on equipment. Also, during the current year the company earned net income of $15,000 and declared cash dividends of $5,000. Compute the year-end retained earnings balance.
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$30,000
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AC - A company with 100,000 authorized shares of $4 par common stock issued 40,000 shares at $8. Subsequently, the company declared a 5% stock dividend on a date when the market price was $11 per share. What is the amount transferred from the retained earnings account to the paid-in capital accounts as a result of the stock dividend?
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$22,000
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AS - A stock split applies to
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All of these choices are correct.
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Financial statement data for the year ending December 31 for the Power Company is shown below: Net income $680,000 Preferred dividends 20,000 Average number of common shares outstanding 120,000 shares What is earnings per share for the year?
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$5.50
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Financial statement data for the year ending December 31 for Langford Company is shown below: Net income $450,000 Preferred dividends 50,000 Average number of common shares outstanding 80,000 shares What is earnings per share for the year?
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$5.00
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An advantage of the corporate form of business entity is
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the ease of transfer of ownership
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WC - Which of the following is not a term used to refer to owners' equity in a corporation?
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members' equity
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Steak Company acquired a building valued at $170,000 for property tax purposes in exchange for 10,000 shares of its $5 par common stock. The stock is widely traded and selling for $16 per share. At what amount should the building be recorded by Steak Company?
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$160,000
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TM - The major rights that accompany ownership of a share of stock include all of the following except
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the right to use the assets of the company.
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AR - A restriction/appropriation of retained earnings
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does not change the balance in retained earnings.
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What is the total stockholders' equity based on the following data?
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$1,225,000
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IE - If earnings per share changes from $3.30 to $2.60, what does this indicate about the company's profitability?
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An unfavorable trend in the company's profitability is indicated.
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IE - If earnings per share for a company changes from $4.50 to $5.20, what does this indicate about the company's profitability?
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A favorable trend in the company's profitability is indicated.
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TN - The numerator in the earnings per share calculation
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only those earnings available to common stockholders.
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Aaron Company has 80,000 shares of $10 par common stock outstanding. On May 25, Aaron Company declared a $1.50 cash dividend. The market price of the stock on May 25 was $17 per share. The journal entry to record the cash dividend would include
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a debit to Cash Dividends for $120,000.
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Retained earnings
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is the cumulative total of net incomes, minus net losses, and minus dividends.
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One potential advantage of financing corporations through the use of bonds rather than common stock is that
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the interest expense is deductible for tax purposes by the corporation.
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WS - Which of the following is not an advantage of issuing bonds instead of common stock?
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Earnings per share on common stock are always lower.
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AB - A bond is
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a form of an interest-bearing note
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When a corporation issues bonds, the price that buyers are willing to pay for the bonds does not depend on which of the following?
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denominations in which the bonds are sold.
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AB - A bond indenture is
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the underlying contract between the corporation issuing the bonds and the bondholders
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Bonds that may be exchanged for other securities, such as common stock, are called
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convertible
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I1000 - If $1,000,000 of 8% bonds are issued at 101 1/2, the amount of cash received from the sale is
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$1,015,000
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IT - If the market rate of interest is 7%, the price of 6% bonds paying interest semiannually with a face value of $300,000 will be
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less than $300,000.
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AC - A corporation issues for cash $1,000,000 of 8%, 20-year bonds, interest payable annually, at a time when the market rate of interest is 10%. The straight-line method is adopted for the amortization of bond discount or premium. Which of the following is true?
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The amount of unamortized discount decreases from its balance at issuance date to a zero balance at maturity.
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IT - If the market rate of interest is equal to the contract rate of interest
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the bonds will sell for their face amount.
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TI - The interest portion of an installment note payment is computed by
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multiplying the interest rate by the carrying amount (book value) of the note at the beginning of the period.
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TP - The payment of a portion of the amount initially borrowed of an installment note is referred to as
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principal only.
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TE - The entry to record issuance of an installment notes payable would include a
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credit to Notes Payable.
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Peachtree Company borrows $30,000 from the local bank at 7% interest. The term of the note is five years and the annual payments remain constant at $7,317. Determine the interest expense Peachtree Company should record in the first year.
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$5,217
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TB - The balance in Unamortized Premium on Bonds Payable should be
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added to the face amount of the related bonds payable on the balance sheet.
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TP - The portion of bonds or notes payable that is due within one year is reported as
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a current liability on the balance sheet.
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AU - Any unamortized discount is reported
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as a deduction to the face amount of the bonds
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Numbers of times interest charges are earned is computed as
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Income Before Income Tax + Interest Expense / Interest Expense.
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IT - If the number of times interest charges are earned has increased from 3.0 to 3.5
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debtholders have increased protection regarding the company's ability to make its interest payments.
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AH - A high ratio of number of times interest charges are earned ndicates
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extremely good protection in the event of an earnings decline.
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Carmen Company issued 10-year bonds on January 1. The 15% bonds have a face value of $100,000 and pay interest every January 1 and July 1. The bonds were sold for $117,205 based on the market interest rate of 12%. Carmen Company uses the effective interest rate method to amortize bond discounts and premiums. On July 1 of the same year, Carmen should record interest expense (round to the nearest dollar) of
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$7,032
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WC - Which of the following is not a source of financing for a company?
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Treasury stock
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A98 - A $1,000 bond quoted at 98 could be purchased or sold for
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$980
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B - _______________ are issued at a discount; however, there is no interest paid on these.
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US Treasury bills
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A1000 - A $1,000 bond quoted at 100 could be purchased or sold at
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$1,000
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Hsu Company issued $100,000 of 8% bonds on January 1, 2016 at face value. The bonds pay interest semiannually on January 1 and July 1. The total interest expense related to these bonds for the year ended December 31, 2016, is
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$8,000
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Any unamortized premium is reported
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as an addition to the face amount of the bonds.
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Why is the number of times interest charges are earned computed using income before income taxes?
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Because interest payments reduce income tax expense.
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TN - The number of times interest charges are earned is used for all of the following except
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number of times interest charges are earned is used for all of these.
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When the market rate of interest was 11%, Christopher Corporation issued $100,000 of 5-year,12% bonds that pay interest semiannually. The selling price of this bond issue was
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$103,769
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Before deciding on long-term borrowing as part of a financing plan, a key measurement that should be considered is:
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earnings per share.
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TJ - The journal entry a company records for the issuance of bonds when the contract rate is larger than the market rate of the bond is
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debit Cash, credit Premium on Bonds Payable and Bonds Payable
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AI - An installment note may be secured by a pledge of the borrower's assets. Such notes are called
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mortgage notes
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Goss Company reported the following on the company's income statement for the current year. Interest expense $400,000 Income before income tax expense 2,000,000 What is the number of times interest charges were earned for the year?
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6.0
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Creighton Company reported the following on the company's income statement for the year. Interest expense $600,000 Income before income tax expense 4,200,000 What is the number of times interest charges were earned?
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8.0
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Douglas Company issued 5-year bonds on January 1. The 12% bonds have a face value of $35,000,000 and pay interest every January 1 and July 1. The bonds sold for $37,702,483 based on the market interest rate of 10%. Douglas Company uses the effective interest rate method to amortize bond discounts and premiums. On July 1 of the same year, Douglas Company should record interest expense (rounded to the nearest dollar) of
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$1,885,124.
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Corporations finance their operations using which of the following?
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All of these answers are correct
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TM - The market interest rate related to a bond is also called the
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effective interest rate
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Callable bonds are advantageous to the corporation because
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the corporation reserves the right to redeem them early.
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I8 - If $1,000,000 of 8% bonds are issued at 101 1/2, the amount of cash received from the sale is
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$1,015,000
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TE - The entry to record an installment note payment would include a
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debit to Notes Payable.
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TB - The balance in Unamortized Discount on Bonds Payable
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should be reported on the balance sheet as a deduction from the face amount of the related bonds payable.
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TE - The effective interest rate method of amortization provides for a _________ rate of interest over the life of the bonds.
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constant
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The term deficit is used to refer to a debit balance in which of the following accounts of a corporation?
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Retained Earnings
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Treasury stock that was purchased for $2,500 is sold for $3,000. As a result of these two transactions combined
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stockholders' equity will be increased by $500
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IT - In the calculation of earnings per share, preferred stock dividends are
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subtracted from net income
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On January 1, 2016, Quinton Corporation issued 8% bonds with a face value of $100,000. The bonds are sold for $98,000. The bonds pay interest semiannually on June 30 and December 31, and the maturity date is December 31, 2020. Quinton Corporation records straight-line amortization of the bond discount. The bond interest expense for the year ended December 31, 2016, is
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$8,400
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All of the following statements about retained earnings are true except
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Retained earnings represent surplus cash.
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AS - A statement of stockholders' equity is normally prepared when
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All of these choices are correct.
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AM - A major objective of a stock split is to
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reduce the market price per share of the stock.