Question;Question 12The following information was taken from the annual report of Leno Inc.20102009BALANCE SHEETDeferred income tax liability$58,300$59,400INCOME STATEMENTIncome before taxesIncome tax expenseNet incomeEffective income tax rate 35%$108,000(40,400)$67,600Based on this information, what journal entry should Leno make in 2010 to record itsincome taxes?A.Income Tax ExpenseDeferred Income TaxDeferred Income TaxIncome Tax PayableB.Income Tax ExpenseDeferred Income TaxIncome Tax PayableC.Income Tax ExpenseDeferred Income TaxIncome Tax PayableD.Income Tax ExpenseDeferred Income TaxIncome Tax PayableQuestion 13Which one of the following events does not have any impact on total working capital?A. Warranty expense is accrued.B. Payment of salaries previously accrued.C. The board of directors declares a cash dividend to be paid next month.D. Debt which was previously long-term matures next year.Question 14An increase in a deferred tax liability is recognized whenA. a tax audit by the IRS causes an increase in taxes due from a previous year's tax return.B. net income measured under GAAP is greater than taxable income on tax returns becauseof temporary timing differences.C. the amount of tax paid to the government is more than that calculated by the accountanton the company's tax return.D. the tax accountant omits taxable revenue from the tax returns.Question 15Contingent liabilities whose ultimate payment is reasonably probable should beA. disclosed in the footnotes to the financial statements.B. recorded in the body of the balance sheet.C. ignored.D. disclosed in the auditor's report.Question 16An income tax accrual at yearend will most likelyA. be a contingency.B. decrease earnings per share.C. decrease the debt/equity ratio.D. decrease the debt/asset ratioQuestion 17The following information was taken from the annual report of Jones Inc.20102009BALANCE SHEETDeferred income tax liability$29,700$28,300INCOME STATEMENTIncome before taxesIncome tax expenseNet incomeEffective income tax rate 40%$88,000(30,400)$57,600Based on this information, what journal entry should Jones make in 2010 to record itsincome taxes?A.Income Tax ExpenseDeferred Income TaxIncome Tax PayableB.Income Tax ExpenseDeferred Income TaxIncome Tax PayableC.Income Tax ExpenseDeferred Income TaxDeferred Income TaxIncome Tax PayableD.Income Tax ExpenseDeferred Income TaxIncome Tax PayableQuestion 18Countries throughout the world typicallyA rely heavily on local stock and bond markets..B. have less comprehensive accounting disclosure requirements than the U.S.C. pay extremely large dividends to shareholders.D carry a normal debt/equity ratio that is less than 25%..Question 19Brown Company is about to issue $300,000 of 8-year bonds paying a 12% interest ratewith interest payable semiannually. The effective interest rate for such securities is 10%.Below are available time value of money factors that Brown chooses from to calculatecompounded interest.8 periods, 16 periods,8 periods, 16 periods,10%5%12%6%Present Value of 10.466510.458110.403880.39365Future Value of 12.143592.182872.475962.54035Present Value of an Annuity of 15.3349310.837774.9676410.10590Future Value of an Annuity of 111.4358923.6574912.2996925.67253To the closest dollar, how much can Brown expect to receive for the sale of thesebonds?A. $319,339B. $332,513C. $229,371D. $540,000Question 20The following information was extracted from the financial records of Lewis Company.20102009Balance SheetNotes payable$400,000$400,000Less: Discount on notes payable24,00028,800Income StatementInterest expense$32,800$32,400Based on this information, what is the effective interest rate on the notes payable?A. 2.2%B. 6.0%C. 8.8%D. 8.2%Question 21Darren Company issued $8,000 of 8% bonds on January 1, 2010, at a discount of $940.The market rate of interest on the issue date was 10%. The carrying value of the bondson December 31, 2010 isA. $7,126.B. $8,940.C. $6,994.D. $7,060.Question 22If a company issues a note payable when the market rate of interest is less than thestated rate, thenA the cash received will exceed the maturity value of the note..B. the note will be discounted at maturity.C. the cash received will be equal to the maturity value of the note.D the note will be issued at a discount.Question 23Crosson Company uses the straight-line method of amortization and had a ten-year, 12percent, $1,000,000 bond issue outstanding that had been sold at a $12,000 discount in2008. The bonds pay interest on June 30 and December 31, and the company's fiscalyear end is December 31. The journal entry on June 30, 2011, will include:A. a $58,800 debit to Interest ExpenseB. a $1,200 credit to Bond Premium.C. a $6,000 credit to Cash.D. a $600 credit to Bond Discount.Question 24If an interest-bearing note payable is issued at a premium, then the contractual cashpayment for interest isA. less than interest expense.B. equal to interest expense.C. based on the market rate of interest.D. greater than interest expense.Question 25A non-interest-bearing obligationA. requires recognition of interest expense over the life of the obligation.B. is an example of an installment obligation.C. is free of interest expense.D. requires collateral.Question 26Woodsman Company issued $400,000 of 6-year, 6% bonds with interest paymentsoccurring annually at the end of each year. What additional information is needed inorder to determine the selling price of these bonds?A. The face amount of the bondsB. The stated rate of interestC. The market rate of interestD. The bond covenantsQuestion 27Capital leases are rental agreements of whichA. the contractual arrangements are similar to a purchase in all respects.B. the lessee desires to have rights to use the asset but not ownership of such asset.C. the period of the lease is generally a very small portion of the leased asset's useful life.D. periodic rental payments are recorded as rental revenue on the asset owner's incomestatementQuestion 28Torrey Corporation issued $1,000,000 of ten-year, 10 percent bonds payable datedJanuary 1, 2009. The market rate of interest at that time was 11 percent. The journalentry to record this transaction will include a:A. credit to Cash.B. debit to Bond Discount.C. credit to Bond Discount.D. credit to Bond PremiumQuestion 29If an interest-bearing note payable is issued at par, then the contractual cash paymentfor interest isA. greater than interest expense.B. equal to interest expense.C. It cannot be determined from the information given.D. less than interest expense.Question 30Gibson Corporation amortizes its bonds using the effective interest method. Whichstatement is correct?A. [Interest expense] ? [Cash interest paid] = [Increase in carrying value if sold at apremium]B. [Interest expense] ? [Cash interest paid] = [Increase in carrying value if sold at adiscount]C. [Cash interest payment] = [Bond face amount] X [Market interest rate]D. [Interest expense] = [Stated rate] X [Carrying value of the bonds]Question 31Operating leases are treated asA. a sale if the leased asset has been transferred from the lessor to the lessee.B. increases in liabilities for both the lessor and the lessee.C. capital leases by the lessee.D. rental expense by the lessee.Question 32Duncan Industries sold $100,000 of 12 percent bonds on January 1, 2006, when themarket interest rate was 10 percent and received $107,732 for them. The bonds matureon January 1, 2011 and pay interest on June 30 and December 31. Duncan uses theeffective interest method of amortization. The annual cash payment for interest on thebonds are:A. $10,000B. $12,000C. $6,000D. $5,000Question 33Bonds payable that are redeemed by the issuerA. are considered unsecured.B. are repurchased or retired.C. typically pay far less interest than the market rate of interest.D. have no market valueQuestion 34Investments in bonds are accounted for usingA. the effective interest method.B. capital leases.C. historical cost.D. net realizable value.Question 35Which one of the following represents the economic effects of issuing a 2-for-1 stocksplit?A. No effect on par value per share or retained earningsB. Decrease par value per share, and no effect on retained earningsC. No effect on par value per share, and decrease retained earningsD. Increase par value per share and retained earningsQuestion 36The payment of previously declared cash dividendsA. increases the debt/equity ratio.B. decreases total liabilities.C. increases current liabilities.D. increases earnings per share.Question 37Under US GAAP, companies must provide a description of the changes incomprehensive income as either a separate statement or as a part of the statement ofchanges in stockholders' equity. Under IFRS, companies must also provide adescription of the changes in comprehensive income in a:A. Statement of Unrecognized Income and ExpenseB. Statement of Retained EarningsC. Income StatementD. Statement of Recognized Income and ExpenseQuestion 38Which one of the following serves to differentiate debt from equity?A. Debt has a maturity date which is much shorter than the maturity period of equity.B. Interest on debt is tax deductible while dividends to equity investors are not.C. Interest on debt may be deferred, but dividends are a legal liability and must be paidevery year.D. Debt holders are appointed while the board of directors elects equity holders.Question 39Smith Corporation's balance sheet reflects total assets of $3 million as of December 31,2010 and total liabilities of $1.8 million. Smith has 100,000 shares of common stockoutstanding. The market value of the stock is $9 per share. Smith's market to book ratiois:A. 7.50.B. 0.75.C. 13.33.D. 12.00.Question 40Which one of the following is a valid reason for a stock split?A. To increase the book value per share of common stockB. To increase reported net income during subsequent accounting periodsC. To adjust the market price of the shares to a level where more individuals can afford toinvest in the stockD. To increase ownership percentages of individual shareholdersQuestion 41Which one of the following events decreases the current ratio?A. A decrease in the number of common shares outstandingB. Purchase of treasury stockC. Sale of treasury stock for more than its costD. Sale of treasury stock for less than its costQuestion 43The shareholders' equity section of Winters Company contained the following balancesas of December 31, 2010:Preferred stock (10%, $15 par value, cumulative)$1,500Preferred stock (12%, $10 par value, noncumulative)1,500Common stock ($1 par value, 5,000 shares authorized, 3,500 issued3,500and 400 held in treasury)Additional paid-in capital:Preferred stock (10%)1,050Preferred stock (12%)1,275Common stockRetained earningsLess: Treasury stockTotal shareholders' equity2,3454,256(5,750)$9,676During 2011, Winters entered into the following transaction: On May 13, the companyrepurchased 55 shares of its common stock in the open market at $25 per share. Whichof the following would be included in the journal entry for May 13?A. a debit to Cash for $1,375.B. a credit to Common Stock for $1,375.C. a debit to Treasury Stock for $1,375.D. a debit to Common Stock for $1,375.Question 44The shareholders' equity section of Winters Company contained the following balancesas of December 31, 2010:Preferred stock (10%, $15 par value, cumulative)$1,500Preferred stock (12%, $10 par value, noncumulative)1,500Common stock ($1 par value, 5,000 shares authorized, 3,500 issued3,500and 400 held in treasury)Additional paid-in capital:Preferred stock (10%)1,050Preferred stock (12%)1,275Common stock2,345Retained earnings4,256Less: Treasury stock(5,750)Total shareholders' equity$9,676During 2011, Winters entered into the following transaction: On September 26, thecompany issued 200 shares of its 10 percent preferred stock at $23 per share. Which ofthe following would be included in the September 26 journal entry?A. a debit to Cash for $3,000.B. a debit to Preferred Stock for $3,000.C. a credit to Additional Paid-In Capital, 10% Preferred Stock for $1,600.D. a credit to Cash for $4,600.Question 45A company declared cash dividends in 2009, and paid the dividends in 2010. Thepayment in 2010A. decreases net income.B. decreases the debt/equity ratio.C. increases the number of shares of stock outstanding.D. decreases shareholders' equity.Question 46If preferred stock, which can be exchanged for long-term debt in three years, isclassified as an equity financial instrument instead of a liability, thenA. the current ratio declines.B. fixed assets and net worth increase.C. earnings per share is less than if the preferred stock was reported as debt.D. the debt/equity ratio is less than if the preferred stock was reported as debt.Question 47If a corporation uses retention of earnings to finance the purchase of property instead ofissuing equity securities, thenA. it will pay more dividends.B. it will have a higher debt/equity ratio.C. a company's earnings per share will decrease.D. leverage is being used.Question 48Information related to Lamar Co. for the years ending December 31, 2010 and 2009follows:12-31-1012-31-09Common stock$120,000$80,000Retained earnings at year end (after closing)100,00070,000Dividends declared for 2010 totaled $20,000. How much was generated throughoperations?A. $70,000B. $50,000C. $10,000D. $30,000Question 49The shareholders' equity section of Manning Company as of December 31, 2010follows:Common stock (11,000 shares issued @ $6 par)$66,000Additional paid-in capital (Common stock)100,000Retained earnings60,000Less: Treasury stock (1,000 share @ $12)(12,000)Total shareholders' equity$214,000The company declares and distributes a 3 percent stock dividend on the outstandingshares. The market price of the stock is $85 per share. The journal entry to record thestock dividend would include:A. a credit to Common Stock for $1,800.B. a debit to Additional Paid-In Capital, Common Stock for $25,500.C. a debit to Additional Paid-In Capital, Common Stock for $23,700.D. a credit to Stock Dividend for $25,500.Question 50The shareholders' equity section of Winters Company contained the following balancesas of December 31, 2010:Preferred stock (10%, $15 par value, cumulative)$1,500Preferred stock (12%, $10 par value, noncumulative)1,500Common stock ($1 par value, 5,000 shares authorized, 3,500 issued3,500and 400 held in treasury)Additional paid-in capital:Preferred stock (10%)1,050Preferred stock (12%)1,275Common stock2,345Retained earnings4,256Less: Treasury stock(5,750)Total shareholders' equity$9,676During 2011, Winters entered into the following transaction: On December 2, thecompany declared a cash dividend of $1,050, which was paid on December 27. Wintersdid not declare or pay any dividends during 2010. If Winters uses a separate dividendaccount for each type of stock, which of the following would be included in the journalentry to record the declaration of the 12% Preferred stock dividend?A. a debit to Cash for $180.B. a debit to Dividend Expense for $180.C. a debit to 12% Preferred Cash Dividend for $180.D. a debit to Dividends Payable for $180.
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