Accounting 102

True or false: The P/E (price/earnings) ratio is a measure of investor’s confidence in a company’s future

True

True or false: Stockholders elect the board of directors which appoints the officers of a corporation

True

True or false: The board of directors carries out the day-to-day operations of a corporation

False

True or false: The liability of a stockholder is usually limited to the stockholders’ investment in the corporation

True

True or false: The declaration of a cash dividend causes an increase in a corporation’s liabilities at the date of record

False

True or false: No entry is required on the date of record for a cash dividend

True

Stock options are often granted by a corp. to management personnel as a means of additional compensation to and motivation of employees

True

True or false: The stockholders’ equity in a corp. consists of capital contributed by stockholders and retained earnings

True

True or false: Retained earnings consist of a pool of funds to be distributed to stockholders

False

True or false: The cost of treasury stock is deducted from total Contributed Capital and Retained Earnings in determining total stockholders’ equity

True

A disadvantage of the corporate form of business is:

A) centralized authority and responsibility

B) its status as a separate legal entity

C) government regulation

D) continuous existence

C)

Par value:

A) is established for a share of stock after it is issued

B) is the legal capital established for a share of stock

C) represents what a share of stock is worth

D) represents the original selling price for a share of stock

B)

The Board of Directors of B Corp. declared a cash dividend on January 18, 2017, to be paid on February 18, 2017, to shareholders holding the stock on February 2, 2017. Given these facts, the date February 2, 2017, is referred to as the:

A) date of declaration

B) date of payment

C) ex-dividend date

D) date of record

D)

All of the following are stockholders’ equity accounts except:

A) treasury stock

B) preferred stock

C) retained earnings

D) Dividends Payable

D)

True or false: extraordinary gains/losses are a component of income from operations

true

True or false: a gain on the sale of an asset is a component of income from operations

True

True or false: the quality of a company’s earnings is affected by the accounting estimates chosen by the company’s management

true

True or false: if the amount of income taxes expense exceeds the amount of actual income taxes payable for a year, the difference is recorded by a debit to a balance sheet account called Deferred Income Taxes

False

True or false: discontinued operations items should be reported in the financial statements “net of tax”

True

True or false: gains and losses caused by the passage of a new law should be classified as extraordinary on the income statement

false

True or false: a business with 100,000 shares of stock outstanding for 3 months would use a weighted average 25,000 shares in its EPS calculation

True

True or false: a company with convertible bonds is considered to have a complex capital structure

true

True or false: a debit balance in the retained earnings account is referred to as a deficit

true

a synonymous phrase for retained earnings is accumulated earnings

true

True or false: when common stock is originally issued, its market value per share should approximate its par or stated value per share

false

True or false: par value is arbitrarily set when stock is authorized

True

which of the following is not a component of income from operations:

a) costs and expenses

b) write downs of assets

c) restructuring

d) none of the above

D)

When alternative acceptable accounting methods exist, a better quality of earnings generally is produced from selecting an accounting method that has the effect of reporting the:

a) lowest amount of future earnings

b) greatest amount of retained earnings currently

c) lowest amount of current earnings

d) greatest amount of assets currently

C)

Which of the following is analyzed when a financial statement reader is looking at the nature of nonoperating items:

a) discontinued operations

b) interest expense

c) interest revenue

d) cost of goods sold

A)

An excess of income taxes expense over income taxes payable will result in recording a:

a) debit to deferred income taxes

b) debit to income taxes Payable

c) credit to deferred income taxes

d) credit to prior period adjustment

C)

True or false: the higher the debt to equity ratio, the greater the financial risk the company is taking

true

True or false: when a monthly mortgage payment is made and recorded, the debit to mortgage payable represents the reduction in the principal balance

true

True or false: a capital lease is a lease of property, plant, or equipment that is in effect an installment purchase

true

True or false: bondholders are creditors of the issuing corp.

true

True or false: secured bonds are also known as debentures

false

True or false: an $80,000 bond issue priced at 97-3/4 is sold for $78,200

true

True or false: the par value of a bond is equal to its face value

true

True or false: it is the bondholder rather than the issuer who may exercise the call feature of a callable bond

false

True or false: the entry to record the issuance of bonds between interest payments dates will include a debit to bond interest expense

true

A company with income before income taxes of $94,000 and $20,000 in interest expense, has an interest coverage ratio of:

a) 5.7 times

b) 4.7 times

c) 3.7 times

d) 6.7 times

A)

If bonds are issued at a premium, the face interest rate is:

a) lower than the market rate of interest

b) higher than the market rate of interest

c) too low to attract investors

d) adjusted to higher effective rate of interest

B)

Ten $1,000 bonds issued at 99.75 on the interest date result in a debit to the cash account for:

a) $990.75

b) $9,907.50

c) $997.50

d) $9,975.00

D)

A corp. issued $100,000 of 20-year, 6% bonds at 98 on one of its semi-annual interest dates. The straight line method of amortization is to be used, what is the total interest cost of the bonds:

a) $120,000

b) $122,000

c) $118,000

d) $117, 500

B)

True or false: when compound interest is used, interest accumulates less quickly than when simple interest is used

false

True or false: the annual interest earned on an amount deposited into a bank account will be the same each year when compound interest is used

false

True or false: an ordinary annuity is a series of equal payments made at the end of equal intervals of time

time

True or false: all factors in a present value of a single sum are less than 1.000

true

True or false: in a deferred payment arrangement, interest is charged only is it is stated

false

True or false: if the net present value of a proposed investment is negative, it means that the investment should not be made

true

True or false: assets purchased under a deferred payment plan should be recorded at the future value of the installment payments

false

True or false: decisionmakers rely on the future values, rather than on the present values, of future cash flows

false

which of the following phrases is not descriptive of an ordinary annuity:

a) payments made at the beginning of equal periods of time

b) both present and future value can be calculated

c) compound interest assumed

d) series of equal payments

A)

Heidi wishes to deposit an amount into her savings account that will enable her to withdraw $800 per year for the next 4 years. she should deposit $800 multiplied by the:

a) present value of a single sum factor

b) present value of an ordinary annuity factor

c) future value of a single sum factor

d) future value of an ordinary annuity factor

B)

First city bank computes interest semi-annually. if the interest rate is currently 6% per annum, the amount deposited today should be multiplied by which future value factor to calculate the amount that will accumulate by the end of 10 years:

a) 20 periods at 12%

b) 20 periods at 3%

c) 10 periods at 6%

d) 10 periods at 3%

B)

A company purchases an asset on a deferred payment plan, ultimately paying $10,000. on the payment date, the co. would:

a) credit cash for less than $10,000

b) debit interest expense for the imputed amount

c) debit asset account for $10,000

d) debit accounts payable for $10,000

B)

true or false: Because noncash investing and financing transactions do not affect cash, they should be excluded from the statement of cash flow

False

True or false: the payment of taxes would be included in the opening activities section of the statement of cash flows

true

true or false: a US treasury bill with an original maturity of one year or less is considered a cash equivalent

false

true or false: The primary purpose of the statement of cash flow is to provide information about a company’s investing and financing activities during an accounting period

false

true or false: a negative free cash flow indicates that the company has met all its planned cash commitments and has cash available to reduce debt or to expand

false

true or false: a decrease in the balance of merchandise inventory is added to net income when calculating net cash flows from operating activities using the indirect method

true

True or false: cash inflows and outflows are not netted in the investing activities of the statement of cash flows but are separately disclosed to give the reader full info

true