Intermediate Ii Test I

Front 1

Which of the following is not an example of a current liability?

Back 1

Salaries Payable. Dividends Payable. Preferred dividends in arrears. Unearned Service Revenue.

Front 2

Current liabilities are defined as obligations whose liquidation is reasonably expected to

Back 2

require the distribution of cash. require use of current assets or creation of other current liabilities. be paid within a year. require use of current assets.

Front 3

Lyric Company issued a 90-day zero-interest-bearing note with a face amount of $3,000. The present value of the note is $2,855. The journal entry to record the issuance of the note will include

Back 3

none of these answers are correct. a credit to Notes Payable for $2,855. a debit to Cash for $2,855. a debit to Interest Expense for $145.

Front 4

On December 31, 2013, SoBou Co. has $5,000,000 of short-term NP due on February 14, 2014. On January 10, 2014, SoBou arranged a line of credit with Suntrust Bank which allows SoBou to borrow up to $3,500,000 at one percent above the prime rate for three years. On February 3, 2014,SoBou borrowed $3,500,000 from Suntrust and used $500,000 additional cash to liquidate $4,000,000 of the short-term notes payable. The amount of the short-term notes payable that should be reported as a current liability on the December 31, 2013 balance sheet which is issued on March 2, 2014 is

Back 4

$1,000,000.$1,500,000.$0.$500,000.

Front 5

Black Water Inc. is being sued by former employees as a result of negligence on the company's part. Black Water's lawyers state that it is probable that the company will lose the suit and be found liable for a judgment costing the company anywhere from $100,000,000 to $200,000,000. However, the lawyer states that the most probable cost is $125,000,000. As a result of the above facts, Black Water should accrue

Back 5

a loss contingency of $125,000,000 but not disclose any additional contingency.no loss contingency but disclose a contingency of $100,000,000 to $200,000,000.a loss contingency of $125,000,000 and disclose an additional contingency of up to $75,000,000.a loss contingency of $100,000,000 and disclose an additional contingency of up to $100,000,000.

Front 6

Which of the following sets of conditions would give rise to the accrual of a contingency under current generally accepted accounting principles?

Back 6

Amount of loss is reasonably estimable and occurrence of event is probable.Amount of loss is reasonably estimable and event occurs infrequently.Event is unusual in nature and occurrence of event is probable.Event is unusual in nature and event occurs infrequently.

Front 7

Ultra-energy Company offers a cash rebate of $2 on each $9 package of protein powder sold during 2014. Historically, 20% of customers mail in the rebate form. During 2014, 3,000,000 packages are sold, and 250,000 $2 rebates are mailed to customers. What is the rebate expense and liability, respectively, shown on the company’s 2014 financial statements?

Back 7

$1,200,000; $500,000$500,000; $1,200,000$500,000; $700,000$1,200,000; $700,000

Front 8

Which of the following is not true about the discount on short-term notes payable?

Back 8

The Discount on Notes Payable account is a contra liability and has a debit balance.The Discount on Notes Payable account should be reported as an asset on the balance sheet.The amortization of Discount on Notes Payable increases interest expense.When there is a discount on a note payable, the effective interest rate is higher than the stated interest rate.

Front 9

Which of the following statements is false?

Back 9

Unearned revenues represent advance payments for goods or services from customers.Stock dividends declared but not yet distributed are a reported as a liability until the stock is issued.A company may exclude a short-term obligation from current liabilities if the firm intends to refinance the obligation on a long-term basis and demonstrates an ability to complete the refinancing.Cash dividends should be recorded as a liability when they are declared by the board of directors.

Front 10

A liability for compensated absences is

Back 10

accrued only if specific conditions are met.never accrued but may be disclosed if desired.accrued under all conditions.disclosed in a note only.

Front 11

Gain contingencies are recorded when:

Back 11

C. both A and B.D. none of these answers is correct.A. it is probable that a benefit will be received.B. the amount of the gain can be reasonably estimated.

Front 12

In 2013, General Dynamics Corporation began selling a new line of products that carries a two-year warranty against defects. Based upon past experience with other products, the estimated warranty costs related to dollar sales are as follows:

First year of warranty 2% Second year of warranty 5%

Sales and actual warranty expenditures for 2013 and 2014 are presented below: 2013 Sales $600,000 2014 Sales $800,000

Actual warranty expenditures $20,000, $40,000

What is the estimated warranty liability at the end of 2014?

Back 12

$58,000.$98,000.$16,000.$38,000.

Front 13

Cody Company has a loss contingency to accrue. The company’s legal council’s opinion is that that the amount can only be reasonably estimated within a range of outcomes. They estimate that the amount of the loss will be somewhere between $300,000 and $600,000. No single amount within the range is a better estimate than any other amount. The amount of loss accrual should be

Back 13

$600,000.$300,000.zero.$450,000.

Front 14

The interest rate written in the terms of the bond indenture is known as the

Back 14

effective rate.market rate.yield rate.coupon rate, nominal rate, or stated rate.

Front 15

A bond for which the issuer has the right to call and retire the bonds prior to maturity is a

Back 15

debenture bond.convertible bond.callable bond.retirable bond.

Front 16

If a bond sold at 97, the market rate was:

Back 16

less than the stated rate.equal to the coupon rate.equal to the stated rate.greater than the stated rate.

Front 17

On January 1, Gasperson Inc. issued $100,000,000, 7% bonds at 102. The journal entry to record the issuance of the bonds will include

Back 17

a credit to Premium on Bonds Payable for $2,000,000.a debit to Cash for $100,000,000.a credit to Interest Expense for $2,000,000.a credit to Bonds Payable for $102,000,000.

Front 18

The effective interest method calculates bond interest expense by multiplying the carrying value of the bonds at the beginning of the period by the stated rate of interest.

Back 18

TrueFalse

Front 19

If bonds are initially sold at a discount and the straight-line method of amortization is used, interest expense in the earlier years will

Back 19

be less than what it would have been had the effective-interest method of amortization been used.be the same as what it would have been had the effective-interest method of amortization been used.be less than the stated (nominal) rate of interest.exceed what it would have been had the effective-interest method of amortization been used.

Front 20

Ferrone Company issues $10,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2014. Interest is paid on June 30 and December 31. The proceeds from the bonds are $9,802,072. Ferrone uses effective-interest amortization. What amount of interest expense will Ferrone record for the June 30 payment?

Back 20

$392,082$400,000$390,000$784,164

Front 21

On June 30, 2014, Baker Co. had outstanding 8%, $6,000,000 face amount, 15-year bonds maturing on June 30, 2024. Interest is payable on June 30 and December 31. The unamortized balances in the bond discount and deferred bond issue costs accounts on June 30, 2014 were $210,000 and $60,000, respectively. On June 30, 2014, Baker acquired all of these bonds at 94 and retired them. What net carrying amount should be used in computing gain or loss on this early extinguishment of debt?

Back 21

$5,790,000.$5,730,000.$5,640,000.$5,940,000.

Front 22

The selling price of a bond is the sum of the present values of the principal and the periodic interest payments. The present values are determined by discounting using the

Back 22

coupon rate.market rate.stated rate.nominal rate.

Front 23

The printing costs and legal fees associated with the issuance of bonds should

Back 23

not be reported as an expense until the period the bonds mature or are retired.be expensed when incurred.be reported as a deduction from the face amount of bonds payable.be accumulated in a deferred charge account and amortized over the life of the bonds.

Front 24

Eckert Company issues $10,000,000, 6%, 5-year bonds dated July 1, 2014 on July 1, 2014. The bonds pay interest semiannually on December 31 and June 30. The bonds are issued to yield 5%. What are the proceeds from the bond issue? 2.5%3.0%5.0%6.0%Present value of a single sum for 5 periods0.883850.862610.783530.74726Present value of a single sum for 10 periods0.781200.744090.613910.55839Present value of an annuity for 5 periods4.645834.579714.329484.21236Present value of an annuity for 10 periods8.752068.530207.721737.36009

Back 24

$10,000,000$10,432,988$10,434,616$10,437,618

Front 25

Under the effective interest method, interest expense:

Back 25

is the same total amount as straight-line interest expense over the term of the bonds.always increases each period the bonds are outstanding.is the same annual amount as straight-line interest expense.always decreases each period the bonds are outstanding.

Front 26

When a bond sells at a premium, interest expense will be:

Back 26

less than the bond interest payment.none of these answer choices are correct.greater than the bond interest payment.equal to the bond interest payment.

Front 27

When a note is exchanged for property in a bargained transaction, the stated interest rate is presumed to be fair unless:

Back 27

all of these answer choices are correct.the stated interest rate is unreasonable.no interest rate is stated.the stated face amount of the note is materially different from the current cash sales price for similar items.

Front 28

The interest rate actually earned by bondholders is called the

Back 28

nominal rate.coupon rate.effective rate.stated rate.

Front 29

The effective interest method is preferred when amortizing bond premiums and discounts.

Back 29

TrueFalse

Front 30

An early extinguishment of bonds payable, which were originally issued at a premium, is made by purchase of the bonds between interest dates. At the time of reacquisition,

Back 30

any costs of issuing the bonds must be amortized up to the purchase date.interest must be accrued from the last interest date to the purchase date.all of these answer choices are correct.the premium must be amortized up to the purchase date.

Front 31

When assets such as land are transferred in a troubled debt restructuring, the creditor should account for the transferred assets at fair value.

Back 31

TrueFalse

Front 32

When bonds sell between interest payment dates, the purchaser will pay the seller:

Back 32

the price of the bonds only.the price of the bonds less the accrued interest.the price of the bonds plus the accrued interest.None of these answers are correct.

Front 33

Both discount on bonds payable and premium on bonds payable are:

Back 33

valuation accounts.nominal accounts.adjunct accounts.contra accounts.

Front 34

In every corporation the one class of stock that represents the basic ownership interest is called

Back 34

preferred stock.cumulative stock.common stock.owners’ stock.

Front 35

Presented below is information related to Schoenthaler Corporation:Common Stock , $5 par$1,100,000Paid-in Capital in Excess of Par – Common Stock400,000Preferred 5 ½% Stock, $100 par1,500,000Paid-in Capital in Excess of Par—Preferred Stock500,000Retained Earnings2,000,000Paid-in Capital in Excess of Cost - Treasury Stock150,000The total stockholders' equity of Schoenthaler Corporation is

Back 35

$5,650,000.$3,650,000.$5,500,000.$5,350,000.

Front 36

Additional paid-in capital is not affected by the issuance of:

Back 36

preferred stock.par value stock.no-par stock.stated value stock.

Front 37

Which of the following statements related to dividends is incorrect?

Back 37

Dividends must be declared by the Board of Directors.Dividends must be paid in the period declared.Dividends must comply with stock contracts as to preferences and participation.Distributions to owners must be in compliance with the state laws.

Front 38

Cash dividends are paid on the basis of the number of shares

Back 38

issued.outstanding less the number of treasury shares.outstanding.authorized.

Front 39

Jackson Corporation issued a 100% stock dividend of its common stock which had a par value of $.01, and a market value of $123 before the dividend and $62 after the dividend. At what amount should retained earnings be capitalized for the additional shares issued?

Back 39

Market value on the declaration datePar valueMarket value on the payment dateThere should be no capitalization of retained earnings.

Front 40

Characteristics of the corporate form of organization include all of the following except:

Back 40

variety of ownership interests.unlimited liability of stockholders.capital stock or share system.formality of profit distribution.

Front 41

Presented below is information related to Kaenzig Corporation:Common Stock , $1 par$2,100,000Paid-in Capital in Excess of Par – Common Stock550,000Preferred 8 ½% Stock, $50 par1,700,000Paid-in Capital in Excess of Par—Preferred Stock950,000Retained Earnings2,350,000Treasury Common Stock (at cost)250,000The total stockholders' equity of Kaenzig Corporation is

Back 41

$5,300,000.$7,400,000.$7,900,000.$2,300,000.

Front 42

Duszynski Company issues 20,000 shares of its $.50 par value common stock having a market value of $25 per share and 6,000 shares of its $25 par value preferred stock having a market value of $50 per share for a lump sum of $750,000. The proceeds allocated to the common stock is

Back 42

$468,750$500,000$450,000$705,000

Front 43

Gulfport Corporation was organized in January 2014 with authorized capital of $.0001 par value common stock. On February 1, 2012, shares were issued at par for cash. On March 1, 2014, the corporation's attorney accepted 5,000 shares of common stock in settlement for legal services with a fair value of $25,250. Additional paid-in capital would increase on

Back 43

2/1/2014 3/1/2014

No No

Yes No

Yes Yes

No Yes

Front 44

On September 14, 2014, Gayot Company reacquired 12,000 shares of its $1 par value common stock for $40 per share. Gayot uses the cost method to account for treasury stock. The journal entry to record the reacquisition of the stock should debit

Back 44

Common Stock for $480,000.Common Stock for $24,000 and Paid-in Capital in Excess of Par for $456,000.Treasury Stock for $480,000.Treasury Stock for $24,000.

Front 45

Which of the following best describes a possible result of treasury stock transactions by a corporation?

Back 45

May decrease but not increase net income.May increase net income if the cost method is used.May increase but not decrease retained earnings.May decrease but not increase retained earnings.

Front 46

On October 31, 2014, Lexington Corp. declared and issued a 12% common stock dividend. Prior to this dividend, Lexington had 302,000 shares of $.001 par value common stock issued and outstanding. The fair value of Lexington's common stock was $16.75 per share on October 31, 2014. As a result of this stock dividend, the company's total stockholders' equity

Back 46

increased by $302,000.decreased by $5,058,500.decreased by $5,058,198.did not change.

Front 47

Terpsichore Inc., has 1,000 shares of 5%, $100 par value, cumulative preferred stock and 200,000 shares of $1 par value common stock outstanding at December 31, 2014, and December 31, 2013. No dividends were paid in 2013. In 2014, $75,000 of dividends are declared and paid. If the preferred stock is nonparticipating, what are the dividends received by the preferred stockholders in 2014?

Back 47

$10,000.$42,500.$65,000.$5,000.

Front 48

Stockholders' equity is generally classified into two major categories:

Back 48

contributed capital and appropriated capital.retained earnings and contributed capital.appropriated capital and retained earnings.retained earnings and unappropriated capital.

Front 49

Under the cost method, when treasury stock is sold for more than its cost, the excess is credited to:

Back 49

Paid-in Capital from Treasury Stock.Paid-in Capital in Excess of Par.Gain on Sale of Treasury Stock.Retained Earnings.

Front 50

Which of the following increases the number of shares outstanding and decreases the par value per share?

Back 50

Stock split.Treasury stock.Large stock dividend.Small stock dividend.