1. Which of the following is generally associated with payables classified as accounts payable?
Periodic Payment Secured
of Interest by Collateral
a. No No
b. No Yes
c. Yes No
d. Yes Yes
2. On January 1, 2013, Hershey Co. leased a building to Mars, Corp. for a ten-year term at an annual rental of $80,000. At inception of the lease, Hershey received $320,000 covering the first two years’ rent of $160,000 and a security deposit of $160,000. This deposit will not be returned to Mars upon expiration of the lease but will be applied to payment of rent for the last two years of the lease. What portion of the $320,000 should be shown as a current and long-term liability, respectively, in Hershey’s December 31, 2013 balance sheet?
Current Liability Long-term Liability
a. $0 $320,000
b. $80,000 $160,000
c. $160,000 $160,000
d. $160,000 $80,000
3. On September 1, 2012, Tavani Co. issued a note payable to National Bank in the amount of $1,200,000, bearing interest at 12%, and payable in three equal annual principal payments of $400,000. On this date, the bank’s prime rate was 11%. The first payment for interest and principal was made on September 1, 2013. At December 31, 2012, Tavani should record accrued interest payable of
4. Focus Company’s salaried employees are paid biweekly. Occasionally, advances made to employees are paid back by payroll deductions. Information relating to salaries for the calendar year 2013 is as follows:
Employee advances $12,000 $ 18,000
Accrued salaries payable $65,000 ?
Salaries expense during the year $650,000
Salaries paid during the year (gross) $625,000
At December 31, 2013, what amount should Focus report for accrued salaries payable?
5. Smith Co. sells major household appliance service contracts for cash. The service contracts are for a one-year, two-year, or three-year period. Cash receipts from contracts are credited to unearned service contract revenues. This account had a balance of $480,000 at December 31, 2013 before year-end adjustment. Service contract costs are charged as incurred to the service contract expense account, which had a balance of $120,000 at December 31, 2013. Outstanding service contracts at December 31, 2013 expire as follows:
During 2014 During 2015 During 2016
$100,000 $160,000 $70,000
What amount should be reported as unearned service contract revenues in Smith’s December 31, 2013 balance sheet?
6. Duke Trading Stamp Co. records stamp service revenue and provides for the cost of redemptions in the year stamps are sold to licensees. Duke’s past experience indicates that only 80% of the stamps sold to licensees will be redeemed. Duke’s liability for stamp redemptions was $7,500,000 at December 31, 2011. Additional information for 2012 is as follows:
Stamp service revenue from stamps sold to licensees $5,000,000
Cost of redemptions $3,400,000
If all the stamps sold in 2012 were presented for redemption in 2013, the redemption cost would be $2,500,000. What amount should Duke report as a liability for stamp redemptions at December 31, 2012?
Use the following information for questions 7 through 9:
On January 1, 2012, Hutton Co. issued eight-year bonds with a face value of $1,000,000 and a stated interest rate of 6%, payable semiannually on June 30 and December 31. The bonds were sold to yield 8%. Table values are:
Present value of 1 for 8 periods at 6% .627
Present value of 1 for 8 periods at 8% .540
Present value of 1 for 16 periods at 3% .623
Present value of 1 for 16 periods at 4% .534
Present value of annuity for 8 periods at 6% 6.210
Present value of annuity for 8 periods at 8% 5.747
Present value of annuity for 16 periods at 3% 12.561
Present value of annuity for 16 periods at 4% 11.652
7. The present value of the principal is
8. The present value of the interest is
9. The issue price of the bonds is
10. The term used for bonds that are unsecured as to principal is
a. junk bonds.
b. debenture bonds.
c. indebenture bonds.
d. callable bonds.
11. Shelby Inc. issued bonds with a maturity amount of $200,000 and a maturity ten years from date of issue. If the bonds were issued at a premium, this indicates that
a. the effective yield or market rate of interest exceeded the stated (nominal) rate.
b. the nominal rate of interest exceeded the market rate.
c. the market and nominal rates coincided.
d. no necessary relationship exists between the two rates.
12. The rate of interest actually earned by bondholders is called the
a. stated rate.
b. yield rate.
c. effective rate.
d. effective, yield, or market rate.
13. The residual interest in a corporation belongs to the
c. common stockholders.
d. preferred stockholders.
14. In a corporate form of business organization, legal capital is best defined as
a. the amount of capital the state of incorporation allows the company to accumulate over its existence.
b. the par value of all capital stock issued.
c. the amount of capital the federal government allows a corporation to generate.
d. the total capital raised by a corporation within the limits set by the Securities and Exchange Commission.
15. The cumulative feature of preferred stock
a. limits the amount of cumulative dividends to the par value of the preferred stock.
b. requires that dividends not paid in any year must be made up in a later year before dividends are distributed to common shareholders.
c. means that the shareholder can accumulate preferred stock until it is equal to the par value of common stock at which time it can be converted into common stock.
d. enables a preferred stockholder to accumulate dividends until they equal the par value of the stock and receive the stock in place of the cash dividends.
Presented below is information related to Lewis Corporation, question 16 – 17:
Common Stock, $1 par $4,300,000
Paid-in Capital in Excess of Par—Common Stock 550,000
Preferred 8 1/2% Stock, $50 par 2,000,000
Paid-in Capital in Excess of Par—Preferred Stock 400,000
Retained Earnings 1,500,000
Treasury Common Stock (at cost) 150,000
16. The total stockholders’ equity of Lewis Corporation is
17. The total paid-in capital (cash collected) related to the common stock is
18. Thomas Company has outstanding both common stock and nonparticipating, non-cumulative preferred stock. The liquidation value of the preferred is equal to its par value. The book value per share of the common stock is unaffected by
a. the declaration of a stock dividend on preferred payable in preferred stock when the market price of the preferred is equal to its par value.
b. the declaration of a stock dividend on common stock payable in common stock when the market price of the common is equal to its par value.
c. the payment of a previously declared cash dividend on the common stock.
d. a 2-for-1 split of the common stock.
19. Assume common stock is the only class of stock outstanding in the Ochs Corporation. Total stockholders’ equity divided by the number of common stock shares outstanding is called
a. book value per share.
b. par value per share.
c. stated value per share.
d. market value per share.
20. In computations of weighted average of shares outstanding, when a stock dividend or stock split occurs, the additional shares are
a. weighted by the number of days outstanding.
b. weighted by the number of months outstanding.
c. considered outstanding at the beginning of the year.
d. considered outstanding at the beginning of the earliest year reported.
21. What effect will the acquisition of treasury stock have on stockholders’ equity and earnings per share, respectively?
a. Decrease and no effect
b. Increase and no effect
c. Decrease and increase
d. Increase and decrease
22. Due to the importance of earnings per share information, it is required to be reported by all
Public Companies Nonpublic Companies
a. Yes Yes
b. Yes No
c. No No
d. No Yes
23. A convertible bond issue should be included in the diluted earnings per share computation as if the bonds had been converted into common stock, if the effect of its inclusion is
a. Yes Yes
b. Yes No
c. No Yes
d. No No
24. Stockholders of a business enterprise are said to be the residual owners. The term residual owner means that shareholders
a. are entitled to a dividend every year in which the business earns a profit.
b. have the rights to specific assets of the business.
c. bear the ultimate risks and uncertainties and receive the benefits of enterprise ownership.
d. can negotiate individual contracts on behalf of the enterprise.
25. Bobich Corp. had 600,000 shares of common stock outstanding on January 1, issued 900,000 shares on July 1, and had income applicable to common stock of $1,050,000 for the year ending December 31, 2012. Earnings per share of common stock for 2012 would be