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Chapter 8
a.
stated interest rate
b.
effective interest rate
c.
internal interest rate
d.
straight-line rate
84. When the contract rate of interest on bonds is less than the market rate of interest, the bonds sell at:
a.
a premium.
b.
their face value.
c.
their maturity value.
d.
a discount.
Chapter 8
85. If bonds are issued at a premium, the stated interest rate is:
a.
higher than the market rate of interest.
b.
lower than the market rate of interest.
c.
too low to attract investors.
d.
adjusted to a higher rate of interest.
86. When the contract rate of interest on bonds is higher than the market rate of interest, the bonds sell at:
a.
a premium.
b.
their face value.
c.
their maturity value.
d.
a discount.
Chapter 8
87. On July 1, Mark Co. issued $3,000,000 of 10-year, 8% bonds at par. Interest on the bonds is payable semiannually on
December 31 and June 30. On payment of interest, net assets of the company:
a.
decrease by $150,000
b.
increase by $240,000.
c.
decrease by $120,000.
d.
remain unaffected.
88. If the market rate of interest is 10%, a $10,000, 12%, 10-year bond that pays interest semiannually would sell at an
amount:
a.
less than face value.
b.
equal to the face value.
c.
greater than face value.
d.
that cannot be determined.
Chapter 8
89. When the market rate of interest on bonds is equal to the contract rate, the bonds will sell at:
a.
a premium.
b.
their face value.
c.
a discount.
d.
a discount or a premium.
90. The periodic interest to be paid on bonds is identified in the bond indenture and is expressed as a percentage of the
face amount of the bond. This percentage or rate of interest is called the:
a.
accrued rate.
b.
contract rate.
c.
internal rate.
d.
effective rate.
Chapter 8
91. If $500,000 of 8% bonds are issued at 102, the amount of cash received from the sale is:
a.
$540,000
b.
$510,000
c.
$500,000
d.
$530,000
92. If $1,000,000 of 10% bonds are issued at 98, the amount of cash received from the sale is:
a.
$980,000.
b.
$975,000.
c.
$987,500.
d.
$1,000,000.
Chapter 8
93. If $4,000,000 of 12% bonds are issued at 103 1/4, the amount of cash received from the sale is:
a.
$4,040,000.
b.
$4,000,000.
c.
$4,130,000.
d.
$3,520,000.
94. The cost of a product warranty should be included as an expense in the:
a.
period the cash is collected for a product sold on account.
b.
future period when the cost of repairing the product is paid.
c.
period of the sale of the product.
d.
future period when the product is repaired or replaced.
Chapter 8
95. Which of the following factors affects the accounting for contingent liabilities?
a.
Financial and economic conditions
b.
The coupon rate and market rate of interest
c.
Investor's expectations
d.
The likelihood of occurring and measurement
96. _____ liabilities may arise from past transactions if certain events occur in the future.
a.
Current
b.
Noncurrent
c.
Long-term
d.
Contingent
Chapter 8
97. Contingent liabilities that are probable but cannot be reasonably estimated are disclosed in the:
a.
notes to the financial statements.
b.
current liabilities section of the balance sheet.
c.
retained earnings section of the statement of stockholders' equity.
d.
long term-liabilities section of the balance sheet.
98. A company issues 5,000 shares of $15 par common stock. As a result, the earnings per share of the company _____.
a.
increases
b.
remains unchanged
c.
decreases
d.
equals to $15
Chapter 8
99. The par value per share of common stock represents:
a.
the minimum selling price of the stock established by the articles of incorporation.
b.
the minimum amount the stockholder will receive when the corporation is liquidated.
c.
the monetary amount assigned to each share of stock in the articles of incorporation.
d.
the amount of dividends per share to be received each year.
100. 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 5,000 were subsequently reacquired. What is the number of shares outstanding?
a.
5,000
b.
100,000
c.
60,000
d.
55,000
Chapter 8
101. Jack Co. issued 675,000 shares at $0.25 per share of common stock. If 75,000 shares were subsequently reacquired,
_____ shares are considered outstanding.
a.
750,000
b.
600,000
c.
675,000
d.
75,000
102. The price at which stock is sold depends on a variety of factors such as:
a.
the financial condition and dividend record of the corporation.
b.
the corporation's ability to measure potential liability.
c.
the likelihood of an uncertain event happening.
d.
the corporation's efficiency in using current assets to pay interest on debt.
Chapter 8
103. The excess of issue price over par of common stock is termed as:
a.
discount.
b.
income.
c.
deficit.
d.
premium.
104. A company sold 200 shares of common stock with a par value of $5 at a price of $12 per share. Which section of the
statement of cash flows will contain this transaction?
a.
Operating activities
b.
Investing activities
c.
Financing activities
d.
Sale of stock will not appear on the statement of cash flows.
Chapter 8
105. A company sold 200 shares of common stock with a par value of $5 at a price of $13 per share. What is the effect on
the accounts of this transaction?
a.
Increase cash $2,600; increase retained earnings $2,600
b.
Increase cash $1,000; increase common stock $1,000
c.
Increase cash $2,600; increase common stock $1,000 and increase paid-in capital $1,600
d.
Increase cash $2,600; increase common stock $1,600 and increase paid-in capital $1,000
106. On November 21 of the current year, Maroon Inc. reacquired 50,000 shares of its common stock at $4 per share. As a
result of this transaction, net assets of the company:
a.
increase by $200,000.
Chapter 8
b.
decrease by $200,000.
c.
remain unchanged.
d.
increase by $50,000.
107. Which of the following is a reason for a corporation to buy back its own stock?
a.
To increase liquidity
b.
To increase solvency
c.
To increase the shares outstanding
d.
To reissue as bonuses to employees
Chapter 8
108. Glow Co. reacquired 60,000 shares of its common stock at $25 per share. The balance of the treasury stock account
is reported on the balance sheet as a(n):
a.
increase in long-term liabilities.
b.
reduction of stockholders' equity.
c.
reduction of fixed assets.
d.
increase in current liabilities.
109. Treasury stock is reported in the _____ section of the balance sheet.
a.
stockholders' equity
b.
investment
c.
contingent liabilities
d.
current liabilities
Chapter 8
110. Emerald Co. has 50,000 shares at $12 par common stock outstanding. If the company decides to buy 20% of its
shares for $15 per share, the total stockholders' equity will:
a.
increase by $600,000.
b.
increase by $750,000.
c.
decrease by $150,000.
d.
decrease by $120,000.
111. Which of the following is necessary for a corporation to pay cash dividends?
a.
Market value in excess of par value per share
b.
Order by the court of law
c.
Sufficient retained earnings
d.
Prior declaration of stock dividends
Chapter 8
112. Which of the following is an effect of payment of cash dividends on a company's financial statements?
a.
A decrease in cash and stockholders' equity
b.
A decrease in cash and liability
c.
An increase in stockholders' equity and liability
d.
A decrease in cash and an increase in liability
113. On which of the following dates, a company incurs liability for a dividend?
a.
The date of record
b.
The date of payment
c.
The date of liquidation
d.
The date of declaration
