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39 Cards in this Set
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a legal document which summarizes the rights and privileges of bondholders as well as the obligations and commitments of the issuing company is called: a. a bond indenture b. a bond debenture c. trading on the equity d. a term bond |
A. a bond indenture |
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stockholders of a company may be reluctant to finance expansion through issuing more equity because: a. leveraging with a debt is always a better idea b. their earnings per share may decrease c. the price of the stock will automatically decrease d. dividends must be paid on a periodic basis |
B. their earning per share may decrease |
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the contractual interest rate is always stated as a(n): a. monthly rate b. daily rate c. semiannual rate d. annual rate |
D. annual rate |
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premium on bonds payable: a. has a debit balance b. is a contra account c. is considered to be a reduction in the cost of borrowing. d. is deducted from bonds payable on the balance sheet. |
C. is considered to be a reduction in the cost of borrowing. |
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a $1,000 face value bond with a quoted price of 96 is selling for: a. $1,000 b. $960 c. $906 d. $96 |
B. $960 |
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if the market interest rate is greater than the coupon (stated) interest rate, bonds will sell: a. at a premium b. at a face value c. at a discount d. only after the stated interest rate is increased |
C. at a discount |
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the following exhibit is for Target bonds. Bonds close yield volume net change targ. 8 1/8 100 1/4 8.2 35 +7/8 the contractual interest rate of the target bond is: a. greater than the market interest rate b. less than the market interest rate c. equal to the market interest rate d. not determinable |
B. less than the market interest rate |
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on january 1, 2005, grant corporation issued $4,000,000, 10-year, 8% bonds at 102. interest is payable semiannually on january 1 and july 1. the journal entry to record this transaction on january 1, 2005 is: a. cash 4,000,000 bonds payable 4,000,000 b. cash 4,080,000 bonds payable 4,080,000 c. premium on bonds payable 80,000 cash 4,000,000 bonds payable 4,080,000 d. cash 4,080,000 bonds payable 4,000,000 premium on bonds pay. 80,000 |
D. cash 4080000 bonds payable 4000000 premium bonds 80,000 |
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in the balance sheet, mortgage notes payable are reported as: a. a current liability only b. a long-term liability only c. both a current and a long-term liability d. a current liability except for the reduction in principal amount |
C. both a current and a long-term liability |
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bonds that may be exchanged for common stock at the option of the bondholders are called: a. options b. stock bonds c. convertible bonds d. callable bonds |
C. convertible bonds |
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when authorizing bonds to be issued, the board of directors does NOT specify the: a. total number of bonds authorized to be sold b. contractual interest rate c. selling price d. total face value of the bonds |
C. selling price |
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bonds that are subject to retirement at a stated dollar amount prior to maturity at the option of the issuer are called: a. callable bonds b. early retirement bonds c. options d. debentures |
A. callable bonds |
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investors who receive checks in their names for interest paid on bonds must hold: a. registered bonds b. coupon bonds c. bearer bonds d. direct bonds |
A. registered bonds |
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corporations are granted the power to issue bonds through: a. tax laws b. state laws c. federal security laws d. bond debentures |
B. state laws |
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the party who has the right to exercise a call option on bonds is: a. investment banker b. bondholder c. bearer d. issuer |
D. issuer |
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Lowe Company has $1,500,000 of bonds outstanding. the unamortized premium is $19,600. if the company redeemed bonds at 101, what would be the gain or loss on the redemption?: a. $4,600 gain b. $4,600 loss c. $15,000 gain d. $15,000 loss |
A. $4,600 gain |
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the current carrying value of Lane's $800,000 face value bonds is $797,000. if the bonds are retired at 103, what would be the amount Lane would pay its bondholders?: a. $797,000 b. $800,000 c. $820,000 d. $824,000 |
D. $824,000 |
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if sixty $1,000 convertible bonds with a carrying value of $70,000 are converted into 9,000 shares of $5 par value common stock, the journal entry to record the conversion is: a. Bonds Pay. 70,000 Common stock 70,000 b. bonds pay 60,000 premium bonds 10,000 common stock 70,000 c. bonds pay 60,000 prem. bonds 10,000 common stock 45,000 paid-in cap excess par 25,0000 |
C.bonds pay 60,000 prem. bonds 10,000 common stock 45,000 paid-in cap excess par 25,0000 |
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when a company retires bonds before maturity, the gain or loss on redemption is the difference between cash paid and the: a. carrying value of the bonds b. face value of the bonds c. original selling price of the bonds d. maturity value of the bonds |
A. carrying value of the bonds |
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A mortgage note payable with a fixed interest rate requires the borrower to make installment payments over the term of the loan. each installment payment includes interest on the unpaid balance of the loan and a payment on the principal. with each installment payment, indicate the effect on the portion allocated to interest expense and the portion allocated to principal.: a. increase/increase b. increase/decrease c. decrease/decrease d. decrease/increase |
D. decrease/increase |
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corporations invest in other companies for all of the following reasons except to: a. house excess cash until needed b. generate earnings c. meet strategic goals d. increase trading of the other companies' stock |
D. increase trading of the other companies' stock |
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a typical invest to house excess cash until needed is: a. stocks of companies in a related industry b. debt securities c. low-risk, highly liquid securities d. stock securities |
C. low-risk, highly liquid securities |
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pension funds and mutual funds regularly invest in debt and stock securities to: a. generate earnings b. house excess cash until needed c. meet strategic goals d. control the company in which they invest |
A. generate earnings
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at the time of acquisition of a debt investment: a. no journal entry is required b. the historical cost principle applies c. the stock investments account is debited when bonds are purchased d. the investment account is credited for its cost plus brokerage fees |
B. the historical cost principle applies |
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the cost of debt investments includes each of the following except: a. brokerage fees b. commissions c. accrued interest d. the price paid |
C. accrued interest |
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Bay company acquires 60, 8%, 5 year, $1,000 community bonds on jan 1, 2014 for $60,000. the journal entry to record this investment includes a debt to: a. debt investments for 64,800 b. debt investments for 60,000 c. cash for 60,000 d. stock investments for 60,000 |
B. debt investments for 60,000
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Ban co. purchased 50, 5% Waylan company bonds for $50,000 cash plus brokerage fees of $500. interest is payable semiannually on july 1 and jan 1. the entry to record the july 1 semiannual interest payment would include a: a. debit to interest receivable for 1250 b. credit to interest revenue for 1250 c. credit to interest revenue for 1262.50 d. credit to debt investments for 1262.50 |
B. credit to interest revenue for 1250 |
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in accounting for stock investments between 20% and 50%, the ___ method is used.: a. consolidated statements b. controlling interest c. cost d. equity |
D. equity |
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Jacobs Corporationmakes a short-term investment in 100 shares of Starr Company's common stock.The stock is purchased for $40 a share plus brokerage fees of $300. The entryfor the purchase is a. Debt Investments............................... 4,000 Cash................................................................. 4,000 b. Stock Investments.............................. 4,300 Cash............................................................... 4,300 c. Stock Investments............................... 4,000 BrokerageFee Expense...................................... 300 Cash.......... ...................................................... 4,300 d. Stock Investments............................. 4,000 Cash............................................. .................... 4,000 |
B. stock investments 4,300 cash 4,300 |
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Carson Corporation sells 100 shares of common stockbeing held as a short-term investment. The shares were acquired six months ago ata cost of $50 a share. Carson sold the shares for $40 a share. The entry torecord the sale is a.Cash...................................................... 4,000 Loss on Sale of Stock Investments................ 1,000 Stock Investments........................................... 5,000 b.Cash.................................................. 5,000 Gain on Sale of Stock Investments............... 1,000 Stock Investments......................................... 4,000 c.Cash............................................................... 4,000 Stock Investments............................. 4,000 d. Stock Investments............................... 4,000 Loss on Sale of Stock Investments................ 1,000 Cash.................................................................. 5,000 |
A. cash 4,000 loss of sale stock investments 1,000 stock investments 5,000 |
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cash equivalents do NOT include: a. short-term corporate notes b. treasury bills c. money market funds d. 2-year certificates of deposit |
D. 2-year certificates of deposit |
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Nagen Company had these transactions pertaining to stock investments: Feb. 1 Purchased 3,000 shares of Horton Company (10%) for $49,800 cash plus brokerage fees of $1,200.June 1 Received cash dividends of $2 per share on Horton stock.Oct. 1 Sold1,200 shares of Horton stock for $24,000 less brokerage fees of $600. a. debit to Stock Investments for $49,800. b. credit to Cash for $49,800. c. debit to Stock Investments for $51,000. d. debit to Investment Expense for $1,200. |
C. debit to stock investments for 51,000 |
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Mouns Company owns 30% interest in the stock of Darian Corporation. During the year, Darian pays $20,000 in dividends, and reports $100,000 in net income. Mouns Company’s investment in Darian will increase Mouns’ net income by (SHOW CALCULATIONS for full credit) a. $15,000. b. $30,000. c. $24,000. d. $6,000. |
B. 100,000x30% = $30,000 |
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For accounting purposes, the method used to account for long-term investments in common stock is determined by a. the amount paid for the stock by the investor. b. the extent of an investor's influence on the operating and financial affairs of the investee. c. whether the stock has paid dividends in past years. d. whether the acquisition of the stock by the investor was "friendly" or"hostile." |
B. the extent of an investor's influence on the operating and financial affairs of the investee |
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When an investor owns between 20% and 50% of the common stock of a corporation, it is generally presumed that the investor a. has insignificant influence on the investee and that the cost method should be used to account for the investment. b. should apply the cost method in accounting for the investment. c. will prepare consolidated financial statements. d. has significant influence on the investee and that the equity method should be used to account for the investment. |
D. has significant influence on the invested that the equity method should be used to account for the investment. |
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Lanier industries owns45% of McCoy Company. For the current year, McCoy reports net income of$250,000 and declares and pays a $60,000 cash dividend. Which of the following correctly presents the journal entries to record Lanier's equity in McCoy's net income and the receipt of dividends from McCoy? a. Dec. 31 Stock Investments............. 112,500 Rev. from Investment in McCoy Company..... 112,500 Dec. 31 Cash..................................... 27,000 Stock Investments.................................... 27,000 b. Dec. 31 Stock Investments................... 112,500 Rev. from Investment in McCoy Company ........................................ 112,500 Dec. 31 Cash...................................... 60,000 Stock Investments.......................... 60,000 c. Dec. 31 Stock Investments..................... 85,500 Rev.from Investment in McCoy Company....................................... 85,500 |
A. Dec 31 stock investments 112,500 revenue in mccoy company 112,500 Dec 31 cash 27,000 stock investments 27,000 |
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Consolidated financial statements are prepared when a company owns _________ of the common stock of another company. a. less than 20% b. between20% and 50% c. less than 50% d. more than 50% |
D. more than 50% |
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On August 1, Masters Company buys 2,000 shares ofABD common stock for $72,500 cash. On December 1, the stock investments aresold for $75,000 in cash. Which of the following are the correct journalentries to record for the purchase and sale of the common stock? |
Aug 1 stock investments 72,500 cash 72,500 Dec 1 stock investments 75,000 cash 72,500 gain on sale of stock 2,500 |
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At the end of its first year,the trading securities portfolio consisted of the following common stocks. Cost Fair Value Atrium Corporation $ 46,500 $ 50,000Barnes Inc. 60,000 58,000Cantor Corporation 80,000 76,400 $186,500 $184,400 In the following year, the Barnes common stock is sold for cash proceeds of$57,000. The gain or loss to be recognized on the sale is a a. gain of $1,200. b. loss of $3,000. c. loss of $1,000. d. loss of $2,000. |
A. gain of 1200 |
