1. The Modified Accelerated Cost Recovery System (MACRS) specifies which of the following depreciation methods for buildings
A. 150% declining-balance.
C. Straight line.
D. Buildings are not depreciable assets.
2. The Modified Accelerated Cost Recovery System (MACRS) specifies which of the following depreciation methods for land
A. 150% declining-balance.
C. Straight line.
D. Land is not a depreciable asset.
3. If an organization has an obligation to pay $5,000 to a supplier two years from now, the present value of the obligation:
A. is less than $5,000.
B. is $5,000.
C. is more than $5,000.
D. could be calculated using an annuity factor from the present value tables.
4. Depreciation, in accounting, is a process that results in:
A. depreciable assets being reported in the balance sheet at their fair market value.
B. accumulating cash for the replacement of the asset.
C. an accurate measurement of the economic usefulness of an asset.
D. spreading the cost of an asset over its useful life to the entity.
Use the below present value tables for problems 5, 6 and 7
5. The present value of $3,000 to be received in 7 years at 10% is:
6. The present value of $3,000 to be received every year for 9 years, at 10%, is:
7. The present value of an obligation of $4,000 payable in 7 years at 8% is:
8. A particular common stock has an annual cash dividend of $2.00 per share and is predicted to have a market value of $30 per share 5 years from now. Assuming a discount rate of 10%, a fair market price for the stock today is:
9. Psyche Company wants to acquire Trim Company. Trim’s ROI has been above average for its industry; net income has averaged $70,000 a year more than the industry average. These “excess” earnings are expected to continue at this amount for 5 years. Assuming a discount rate of 8%, how much goodwill will arise from Psyches’ purchase of Trim
10. Leasehold is an example of which of the following types of assets
A. Current asset.
B. Property, plant and equipment.
D. Intangible asset.
11. The principal challenge to calculating depletion is estimating:
A. the cost of the asset.
B. the salvage value of the exploration equipment.
C. the demand for the product.
D. the quantity of material to be recovered.
12. Long-lived, intangible assets such as leasehold improvements, patents, and copyrights are all subject to:
13. When a depreciable asset is sold:
A. a gain arises if the sales proceeds exceed the net book value.
B. a loss arises if the sales proceeds exceed the net book value.
C. any cash received results in a gain.
D. depreciation expense is adjusted so there is no gain or loss.
14. Goodwill is an asset that arises because the present value of an acquired company’s estimated future earnings, discounted at the acquiring firm’s ROI:
A. is less than the fair market value of the net assets of the acquired company.
B. is more than the fair market value of the net assets of the acquired company.
C. is more than the fair market value of the net assets of the acquiring company.
D. is less than the fair market value of the net assets of the acquiring company.
15. The intangible asset “goodwill:”
A. represents the management team’s assessment of its value to the company.
B. may arise when one company purchases another company.
C. arises because the market value of a company’s assets is greater than cost.
D. all of the above are correct.
16. Many current liabilities are affected by accrual accounting entries. This happens because:
A. liabilities are usually paid when they are incurred.
B. accrual accounting involves recognizing liabilities before they are paid.
C. the only way to reduce a liability account balance is with an adjusting entry.
D. accrual accounting frequently involves recognizing liabilities before they are incurred.
17. Which of the following is not usually associated with bonds
A. Coupon rate.
B. Maturity value.
C. Face amount.
D. Maturity rate.
18. An Accounts Payable could result from which of the following transactions
A. Purchasing accounts for cash.
B. Purchasing property, plant and equipment on credit.
C. Purchasing goods and services from suppliers on credit.
D. All of the above.
19. The current liability for Wages Payable (or Accrued Payroll) represents the:
A. gross pay earned by employees for which they have not yet been paid.
B. net pay earned by employees for which they have not yet been paid.
C. employer’s federal and state payroll tax obligation.
D. employer’s liability for various with holdings taken out of the gross pay earned by employees.
20. The financial leverage characteristic of long-term debt results in:
A. a reduction of the risk that creditors will not be paid.
B. a magnification of ROE relative to what it would be without long-term debt.
C. a magnification of ROI relative to what it would be without long-term debt.
D. the deductibility, for income tax purposes, of dividends to stockholders.
21. When a company issues a bond at a premium:
A. the company is more profitable than most companies in its industry.
B. investors perceive the bond to be a very safe investment.
C. the investors’ interest income will be less than the interest received each year.
D. the investors’ interest income will be more than the interest received each year.
22. Which of the following is not sometimes associated with bonds
23. If the market price of a bond exceeds its face amount:
A. the coupon rate is less than the market interest rate.
B. the coupon rate is more than the market interest rate.
C. the company’s ROI and working capital have been increasing over time.
D. the maturity rate has been declining.
24. The market value of a bond is the sum of the present value of future interest payments and the present value of the amount to be repaid at maturity, discounted at:
A. the market rate.
B. the coupon rate.
C. the dividend rate.
D. the prime rate.
25. Financial leverage refers to which of the following
A. The difference between the rate of return earned on assets (ROI) and the rate of return earned on owners’ equity (ROE).
B. The difference between the rate of return earned on current assets and the rate of return earned on retained earnings.
C. The leverage a firm obtains from increasing production.
D. Decreasing fixed costs per unit by increasing production.
26. When a company issues a bond at a discount:
A. the company will pay less than the face amount of the bond at its maturity.
B. the company will pay more than the face amount of the bond at its maturity.
C. the company’s interest expense will be less than the interest paid each year.
D. the company’s interest expense will be more than the interest paid each year.
27. When bonds are issued at a premium:
A. interest expense on the bonds will be less than the interest paid.
B. interest expense on the bonds will be more than the interest paid.
C. the bonds are sold for less than their face amount.
D. the coupon interest rate is less than the market interest rate.
28. Which of the following is (are) a true statement(s) pertaining to bonds
A. Bonds can be sold at a discount, par, or payable.
B. Bonds can be sold at a discount, par, or premium.
C. The SEC sets the market price of a bond.
D. The issuing firm sets the price of a bond.
E. None of the above.
29. Which of the following is true regarding bond discounts and/or premiums
A. Bond discount is amortized but bond premium is not.
B. Bond premium is amortized but bond discount is not.
C. Neither bond discount nor premium is amortized.
D. Both bond discount and premium are amortized.
30. The amortization of bond discount:
A. increases the cash paid to bondholders for interest.
B. results in bond interest expense being greater than the interest paid to bondholders.
C. results in bond interest expense being less than the interest paid to bondholders.
D. reduces the carrying value of bonds payable on the balance sheet.
31. Factors that usually affect retained earnings directly include:
A. net income or loss, and dividends.
B. extraordinary items and losses from discontinued operations.
C. stock dividends and gains or losses from the sale of treasury stock.
D. net income or loss, and the issuance of stock at an amount in excess of par value.
32. In comparison to the owners’ equity section of a corporation’s balance sheet, owners’ equity of a proprietorship or partnership:
A. normally does not make a distinction between invested capital and retained earnings.
B. normally uses “Capital” accounts for each individual owner, rather than a “Retained Earnings” account for all of the owners.
C. normally uses a “Drawings” account for each individual owner, rather than a “Dividends” account for all of the owners.
D. all of the above.
33. The declaration of a cash dividend by the directors results in:
A. a decrease in cash and a decrease in retained earnings.
B. a decrease in retained earnings and an increase in current liabilities.
C. a decrease in net income and a decrease in cash.
D. a decrease in net income and an increase in current liabilities.
34. In most states, par value of issued shares represents:
A. Legal capital.
B. No par capital.
C. Noncontrolling capital.
D. Corporate capital.
35. The term preemptive right pertains to which of the following
A. The Board of Directors rights in liquidation.
B. Present shareholders right to purchase shares from any additional share issuances.
C. Present shareholders right to purchase treasury shares when reissued.
D. Preferred stockholders right to dividends.
36. Balance sheet disclosures for preferred stock include all of the following except:
A. The number of shares issued.
B. The number of shares outstanding.
C. The liquidating or redemption value.
D. The credit or market value.
E. The number of shares authorized.
37. The declaration date pertains to:
A. The date used to determine who receives dividends.
B. The date on which the board of directors declares it’s going to liquidate the firm.
C. The date on which the board of directors declares a dividend.
D. The date a dividend is paid.
38. Fred Jones owns 56 shares of the Robust Corporation’s stock. Robust announces a 3 for 2 stock split. How many shares will Fred have after this split
A. 178 shares.
B. 112 shares.
C. 84 shares.
D. 56 shares.
39. Braco has 40,000 shares of $100 par value common stock outstanding, and 10,000 shares in the treasury. The number of additional shares that would be issued in a 5% stock dividend is:
40. When a stock dividend is declared and issued:
A. total paid-in capital does not change.
B. total owners’ equity does not change.
C. the balance in the retained earnings account is decreased by the par value of the shares issued in the dividend.
D. total paid-in capital is decreased by the market value of the shares issued in the dividend.
41. When a company splits its common stock 3 for 1:
A. total paid-in capital increases by a factor of 3.
B. the balance in the retained earnings account is decreased by the market value of the shares issued.
C. the market value of the company’s stock falls by two-thirds.
D. the shareholders are assured of receiving larger cash dividends.
42. The principal reason for a company having a common stock split is to:
A. increase the total cash dividends paid to stockholders.
B. capitalize retained earnings.
C. decrease total owners’ equity.
D. decrease the market value per share of common stock.
43. When a firm purchases its own shares for the treasury:
A. total owners’ equity is decreased.
B. total owners’ equity is increased.
C. the balance in the retained earnings account is decreased.
D. paid-in capital is decreased.
44. If a firm sells treasury stock for more than its cost:
A. a gain is recognized in the income statement.
B. the balance in the retained earnings account is increased.
C. additional paid-in capital is increased.
D. total owners’ equity does not change.
45. The statement of changes in retained earnings for the year shows:
A. the retained earnings balance at the beginning of the year.
B. amounts received from the sale of additional common stock during the year.
C. extraordinary gains or losses during the year.
D. the effect of a stock split during the year.
46. Which of the following is an accurate statement regarding a statement of cash flows
A. Only cash items that affect the income statement are included.
B. Only material cash items that affect the income statement are included.
C. Material non-cash transactions are included.
D. Immaterial financing activities that affect cash do not need to be included.
E. None of the above.
47. In the statement of cash flows, the amount of depreciation and amortization expense is added back to net income because:
A. these expenses do not affect cash, but were subtracted in the determination of net income.
B. these expenses affect investing activities, not operating activities.
C. the cash disbursements for these accrued expenses will be made in a future period.
D. these expenses are recognized for accounting purposes, but they do not represent economic costs.
48. In the statement of cash flows, an increase in the accounts receivable balance from the beginning of the period to the end of the period would:
A. be added to net income because this represents earned revenues that have not been collected.
B. be subtracted from net income because this represents earned revenue provided by operating earnings.
C. be added to net income because this means that revenues were less than cash collected.
D. be subtracted from net income because this means that revenues were more than cash collected.
49. Revenue may be recognized:
A. from the sale of a company’s own common stock.
B. if a company trades inventory at its usual sale value for newspaper advertising.
C. if management believes the market value of land held for future development rises.
D. in 2010 from the sale of subscriptions of a magazine to be published in 2011.
50. The term, “realization,” in revenue recognition refers to which of the following
A. The entity has completed, or substantially completed, the activities it must perform to be entitled to the revenue benefits.
B. The product or service has been exchanged for cash, claims to cash, or an asset that is readily convertible to a known amount of cash or claims to cash.
C. The entity has received an irrevocable order for goods or services.
D. Cash has been received with an irrevocable order for goods or services.
E. None of the above.
1.Use the appropriate information from the data provided below for the year ended December 31, 2009 to calculate the following:
a. Operating income
b. Income from continuing operations
c. Net income
Cost of goods sold $117,000
General and administrative expenses 48,000
Net cash provided by financing activities 69,000
Dividends paid 16,000
Extraordinary loss from a flood,net of
tax savings of $32,000 74,000
Income tax expenses 11,000
Other Selling expenses 26,000
Net sales 278,000
Advertising expenses 39,000
Accounts receivable 33,000
2. The balance sheet caption for common stock is:
Common stock, $10 par value, 7,000,000 shares authorized, 5,700,000 shares issued, 5,500,000 shares outstanding.
(a.) Calculate the dollar amount that will be presented opposite of this caption.
(b.) Calculate the total amount of a cash dividend of $1.00 per share.
(c.) What accounts for the difference between issued shares and outstanding shares