Use the tables on pages 465–468 of your text to answer Questions
1 and 2:
1. Assuming an interest rate of 6%, which of the following payment
alternatives has the highest present value?
A. $150,000 immediately
B. $45,000 per year for the next four years (payment made at
the end of the year)
C. $5,000 now and then $20,000 per year for the next 10 years
(payment made at the end of the year)
D. $5,000 now and then $5,000 per year for the next 10 years
(payment made at the end of the year) plus a lump-sum
payment of $200,000 at the end of the eleventh year2. A company will have to pay a $50,000 liability in four years. How much must be deposited
now into a bank account earning 8% compounded semiannually to fully fund the future
payment?
A. $34,000 C. $36,523
B. $35,500 D. $36,550
3. A corporation’s balance sheet showed the following amounts: Current Liabilities, $20,000;
Bonds Payable, $60,000; Lease Obligations, $12,000; and Deferred Income Taxes, $2,000.
Total stockholders’ equity was $42,000. The debt-to-equity ratio is
A. 0.45. C. 1.76.
B. 0.58. D. 2.24.
4. A company declares a dividend payable of $68,000. How is this reported in the statement
of cash flows?
A. $68,000 outflow, Financing Activities
B. $68,000 outflow, Investing Activities
C. $68,000 inflow, Financing Activities
D. Shouldn’t be reported on the statement of cash flows
Use the following data to answer Questions 5 through 8:
Gross Payroll for June $400,000
Federal Income Tax Withheld $70,000
State Income Tax Withheld $30,000
FICA Withheld $12,000
Charitable Contributions 1% of gross pay
Union Dues 2% of gross pay
The unemployment tax rate is 3%, and applies to all but $50,000 of the gross payroll.
5. What’s the amount of net pay?
A. $265,500 C. $288,000
B. $276,000 D. $400,000
6. What’s the amount of Unemployment Tax Payable?
A. $1,500 C. $10,500
B. $8,280 D. $12,000
7. What’s the amount of employer’s share of the payroll tax expense?
A. $10,500 C. $22,500
B. $12,000 D. $52,5008. The journal entry to record the payroll would include a
A. debit to Wages Expense. C. debit to FICA Payable.
B. debit to Wages Payable. D. credit to Wages Expense.
9. M and C are partners. At the beginning of the current year, M’s capital account is $30,000,
and C’s is $50,000. M and C decided to allocate income with 10% interest on capital balances
at the beginning of the period and divide the balance equally. Net income for the current
year is $80,000. Each partner withdrew $15,000 for personal use during the year.
Determine the amount of income that will be allocated to each partner.
A. M, $30,000; C, $50,000 C. M, $35,500; C, $37,500
B. M, $32,500; C, $32,500 D. M, $39,000; C, $41,000
10. The stockholders’ equity section of Joe’s Bistro’s balance sheet on January 1, 2004,
appeared as follows:
Common stock, $2 par, 2,000 shares
issued and outstanding $4,000
Additional Paid-in Capital – Common $1,600
Retained earnings $5,400
On March 1, 2004, Joe’s Bistro reacquired 600 shares of common stock at $10 per
share. Joe’s Bistro sold all of the treasury shares on November 15 for $12 per share.
The entry to record the sale on November 15 would include a credit to what account
and for what amount?
A. Gain on Sale of Treasury Stock, $1,200
B. Common Stock, $7,200
C. Cash, $6,000
D. Treasury Stock, $6,000
11. Jim Ault established Ault’s Dry Cleaners, a sole proprietorship, by investing $1,000 on
January 1, 2004. During the first year of operations, the business generated net income of
$42,000. The ending balance of the capital account was $20,000. What was the amount of
the cash Jim Ault withdrew for personal use during the year?
A. $0 C. $20,000
B. $1,000 D. $23,000
Use the following information to answer Questions 12 through 17:
On January 2, 2004, a company issued $500,000, 10-year bonds for $574,540. The bonds
pay interest on June 30 and December 31. The face rate is 8%, and the market rate is 6%.
12. The interest expense on the bonds at June 30, 2004, is
A. $2,764. C. $20,000.
B. $17,236. D. $22,764.13. The annual cash payment (paid in semiannual payments) on the bonds is
A. $40,000. C. $20,000.
B. $30,000. D. $15,000.
14. What’s the carrying value of the bonds after the first interest payment is made on June 30,
2004?
A. $574,540 C. $568,920
B. $571,776 D. $500,000
15. What’s the carrying value of the bonds at the end of 10 years?
A. $574,540 C. $500,000
B. $525,000 D. $425,460
16. At the maturity date, besides an interest payment, the company would repay the
bondholders
A. $574,540. C. $500,000.
B. $520,000. D. only the last interest payment.
17. If the company redeems the bonds at a call price of 102 at December 31, 2004, after
using the effective interest method for the year, what’s the amount of the gain or loss?
A. Gain of $58,929 C. Gain of $59,012
B. Loss of $58,929 D. Loss of $59,012
18. On May 1, a company borrowed $33,000 on a one-year, 6% note. If the company’s fiscal
year ends on June 30, an entry is needed to increase
A. Interest Expense $330. C. Interest Payable $1,980.
B. Interest Expense $1,980. D. Notes Payable $33,000.Prepare a statement of stockholders’ equity and answer Questions 19 through 22 based on
the following information for Sharealike Corp.:
Preferred Stock, 10%, $10 par, 2,000 shares
authorized, 1,000 shares outstanding ?
Common Stock, $1 par value, outstanding 10,000
shares, authorized 6,000 shares ?
Additional Paid-in Capital—Preferred $50,000
Additional Paid-in Capital—Common $30,000
Retained Earnings $70,000
Additional information:
The company has been in business three years but paid no dividends in year one or two.
During the current year (year three), net earnings are $30,000, and the company’s board
of directors intends to pay $4,000 as a total dividend.
19. What amount of dividends will each class of stockholder receive, assuming the preferred
stock is cumulative and nonparticipating?
A. Common, $0; Preferred, $4,000
B. Common, $1,000; Preferred, $3,000
C. Common, $3,000; Preferred, $1,000
D. Common, $4,000; Preferred, $0
20. What amount of dividends will each class of stockholder receive, assuming the preferred
stock is noncumulative and participating?
A. Common, $4,000; Preferred, $0
B. Common, $2,500; Preferred, $1,500
C. Common, $1,500; Preferred, $2,500
D. Common, $0; Preferred, $4,000
21. What amount of dividends will each class of stockholder receive, assuming the preferred
stock is cumulative and participating?
A. Common, $0; Preferred, $4,000
B. Common, $750; Preferred, $3,250
C. Common, $1,500; Preferred, $2,500
D. Common, $3,250; Preferred, $750
22. If, during the year, Sharealike Corp. repurchased, but didn’t retire, an additional 1,000
common shares of treasury stock at a value of $13,000, what would be the revised book
value per share for the year?
A. $15.50 C. $25.00
B. $18.60 D. $28.6023. Which of the following describes how a stock dividend declared but not yet distributed
would be recorded?
A. Recorded in a stockholders’ equity account as a normal credit balance
B. Recorded in a stockholders’ equity account as a contra debit balance
C. Not recorded in a stockholders’ equity account but recorded in another account
D. Not recorded in any account
24. A company enters into a five-year capital lease agreement on January 1, 2004. The present
value of the lease on that date was $22,250. The company depreciates assets using
the straight-line method and uses a December 31 year-end. What net balance will be
reported on the company’s balance sheet in the leased asset account on December 31,
2005?
A. $4,450 C. $13,350
B. $8,900 D. $22,250
25. Long-term assets are $800, current liabilities are $500, and long-term liabilities are $600. If
the current ratio is 2.5 to 1, then current assets are
A. $200. C. $1,250.
B. $625. D. $2,000.
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