Chapter 5

1. A company had sales of $695,000 and cost of goods sold of $278,000. Its gross margin equals:

A. $(417,000).

B. $695,000.

C. $278,000.

D. $417,000.

E. $973,000.

2. Breanna Boutique reported the following year-end information: The current ratio and acid-test ratio
for the boutique are _________ and ________, respectively:

A. 1.8 and 1

B. 1.97 and 1.52

C. 2.73 and 1.52

D. 3.50 and 0.90

E. None of these
3. A company's net sales were $676,600, its cost of good sold was $236,810 and its net income was
$33,750. Its gross margin ratio equals:

A. 5%.

B. 9.6%.

C. 35%.

D. 65%.

E. 285.7%.

4. A buyer failed to take advantage of the vendor's credit terms of 2/15, n/45, but instead paid the
invoice in full at the end of 45 days. By not taking advantage of the cash discount, the buyer lost the
equivalent of ____________ annual interest on the amount of the purchase.

A. 12.2%
B. 16.2%

C. 18.9%

D. 24.3%

E. 24.5%

5. On October 1, Whaley Company sold merchandise in the amount of $5,800 to Lee Company, with
credit terms of 2/10, n/30. The cost of the items sold is $4,000. Whaley uses the perpetual inventory
system. Lee pays the invoice on October 8, and takes the appropriate discount. The journal entry that
Whaley makes on October 8 is:

A. Debit Cash 5,800; Credit Accounts Receivable 5,800

B. Debit Cash 4,000; Credit Accounts Receivable 4,000

C. Debit Cash 3,920; Debit Sales Discounts 80; Credit Accounts Receivable 4,000

D. Debit Cash 5,684; Credit Accounts Receivable 5,684

E. Debit Cash 5,684; Debit Sales Discounts 116; Credit Accounts Receivable 5,800

6. On October 1, Mutch Company sold merchandise in the amount of $5,800 to Carr Company, with
credit terms of 2/10, n/30. The cost of the items sold is $4,000. Mutch uses the perpetual inventory
system. On October 4, Carr returns some of the merchandise. The selling price of the merchandise is
$500 and the cost of the merchandise returned is $350. The entry or entries that Mutch must make on
October 4 is:

A. Debit Sales returns & allowances 500; Credit Accounts Receivable 500 & Debit Merchandise inventory
350; Credit Cost of goods sold 350

B. Debit Sales returns & allowances 500; Credit Accounts Receivable 500

C. Debit Accounts Receivable 500; Credit Sales returns & allowances 500

D. Debit Accounts Receivable 500; Credit Sales returns & allowances 500 & Debit Cost of goods sold 350;
Credit Merchandise inventory 350

E. Debit Sales returns & allowances 350; Credit Accounts Receivable 350

7. A company has net sales and cost of goods sold of $752,000 and $543,000, respectively. Its net
income is $17,530. The company's gross margin and operating expenses are ________ and
____________, respectively.

A. $209,000; $191,470

B. $191,470; $209,000

C. $525,470; $227,000

D. $227,000; $525,470

E. $734,000; $191,470
Chapter 6
1. On December 31 of the current year, Hewett Company reported an ending inventory balance of
$215,000. The following additional information is also available:

(1) Hewett sold goods costing $38,000 to Trump Enterprises on December 28 and shipped the goods on
that date with shipping terms of FOB shipping point. The goods were not included in the ending
inventory amount of $215,000 because they were not in Hewett's warehouse.

(2) Hewett purchased goods costing $44,000 on December 29. The goods were shipped FOB destination
and were received by Hewett on January 2 of the following year. The shipment was a rush order that
was supposed to arrive by December 31. These goods were included in the ending inventory balance of
$215,000.

(3) Hewett's ending inventory balance of $215,000 included $15,000 of goods being held on
consignment from Rumsfeld Company. (Hewett Company is the consignee.)

(4) Hewett's ending inventory balance of $215,000 did not include goods costing $95,000 that were
shipped to Hewett on December 27 with shipping terms of FOB destination and were still in transit at
year-end.

Based on the above information, the correct balance for ending inventory on December 31 is:

A. $194,000

B. $209,000

C. $200,000

D. $171,000

E. $156,000

2. The inventory valuation method that results in the lowest taxable income in a period of inflation is:

A. LIFO method.

B. FIFO method.

C. Weighted-average cost method.

D. Specific identification method.

E. Gross profit method.

3. The understatement of the ending inventory balance causes:

A. Cost of goods sold to be overstated and net income to be understated.

B. Cost of goods sold to be overstated and net income to be overstated.

C. Cost of goods sold to be understated and net income to be understated.

D. Cost of goods sold to be understated and net income to be overstated.

E. Cost of goods sold to be overstated and net income to be correct.

4. A company had the following purchases during the current year:

5. On December 31, there were 26 units remaining in ending inventory. These 26 units consisted of 2
from January, 4 from February, 6 from May, 4 from September, and 10 from November. Using the
specific identification method, what is the cost of the ending inventory?

A. $3,500.

B. $3,800.

C. $3,960.

D. $3,280.

E. $3,640.

6. Acme-Jones Corporation uses a weighted-average perpetual inventory system.

August 2, 10 units were purchased at $12 per unit.

August 18, 15 units were purchased at $14 per unit.

August 29, 12 units were sold.

What was the amount of the cost of goods sold for this sale?

A. $148.00.

B. $150.50.

C. $158.40.

D. $210.00.

E. $330.00.

7. A company normally sells its product for $20 per unit. However, the selling price has fallen to $15 per
unit. This company's current inventory consists of 200 units purchased at $16 per unit. Replacement
cost has now fallen to $13 per unit. Calculate the value of this company's inventory at the lower of cost
or market.

A. $2,550.

B. $2,600.

C. $2,700.
D. $3,000.

E. $3,200.

8. On September 30 a company needed to estimate its ending inventory to prepare its third quarter
financial statements. The following information is available:

Beginning inventory, July 1: $4,000

Net sales: $40,000

Net purchases: $41,000

9. The company's gross margin ratio is 15%. Using the gross profit method, the cost of goods sold would
be:

A. $ 4,000.

B. $ 5,000.

C. $21,000.

D. $25,000.

E. $34,000.

10. A company that has operated with a 30% average gross profit ratio for a number of years had
$100,000 in sales during the first quarter of this year. If it began the quarter with $18,000 of inventory at
cost and purchased $72,000 of inventory during the quarter, its estimated ending inventory by the gross
profit method is:

A. $30,000.

B. $21,000.

C. $20,000.

D. $18,000.

E. $27,000.

Chapter 8
1. When two clerks share the same cash register it is a violation of which internal control principle?

A. Establish responsibilities.

B. Maintain adequate records.

C. Insure assets.

D. Bond key employees.

E. Apply technological controls.

The following information is available for Holland Company at December 31:

2. Based on this information, Holland Company should report Cash and Cash Equivalents on December
31 of:

A. $35,421

B. $50,421

C. $37,546

D. $36,246

E. $40,439

3. A company had net sales of $31,500 and ending accounts receivable of $2,700 for the current period.
Its days' sales uncollected equals:

A. 11.7 days.

B. 23.3 days.

C. 31.3 days.

D. 42.5 days.

E. 46.6 days.

4. The Cash Over and Short account:

A. Is used to record a credit balance in the cash account.

B. Is an income statement account used for recording the income effects of cash overages and cash
shortages from errors in making change and/or from errors in processing petty cash transactions.

C. Is not necessary in a computerized accounting system.

D. Can never have a debit balance.

E. Can never have a credit balance.

5. At the end of the day, the cash register tape shows $1,000 in cash sales but the count of cash in the
register is $1,035. The proper entry to account for this excess includes a:

A. Credit to Cash for $35.

B. Debit to Cash for $35.

C. Credit to Cash Over and Short for $35.

D. Debit to Cash Over and Short for $35.

E. Debit to Petty Cash for $35.

6. Assume that the custodian of a $450 petty cash fund has $62.50 in coins and currency plus $382.50 in
receipts at the end of the month. The entry to replenish the petty cash fund will include:

A. A debit to Cash for $377.50.

B. A credit to Cash Over and Short for $5.00.

C. A debit to Petty Cash for $382.50.

D. A credit to Cash for $387.50.

E. A debit to Cash for $387.50.

7. During the month of September, Norris Industries issued a check in the amount of $845 to a supplier
on account. The check cleared the bank during September. The disbursement was recorded incorrectly
as $854. The journal entry to correct this mistake when discovered will include:

A. A debit to Accounts Payable for $854.

B. A credit to Cash for $854.

C. A credit to Cash for $9.

D. A credit to Accounts Payable for $9.

E. A debit to Cash for $49.

8. In the process of reconciling Marks Enterprises' bank statement for September, Mr. Marks compiles
the following information:

The adjusted cash balance per the books on September 30 is:

A. $ 6,900

B. $ 8,160

C. $ 4,600
D. $ 6,520

E. $ 5,840
Chapter 9
1. A company borrowed $10,000 by signing a 180-day promissory note at 11%. The maturity value of the
note is:

A. $12,050

B. $12,275

C. $10,550

D. $12,825

E. $13,100

2. A company factored $45,000 of its accounts receivable and was charged a 3% factoring fee. The
journal entry to record this transaction would include a:

A. Debit to Cash of $45,000, a debit to Factoring Fee Expense of $1,350, and credit to Accounts
Receivable of $43,650.

B. Debit to Cash of $45,000 and a credit to Accounts Receivable of $45,000.

C. Debit to Cash of $43,650, a debit to Factoring Fee Expense of $1,350, and a credit to Accounts
Receivable of $45,000.

D. Debit to Cash of $46,350 and a credit to Accounts Receivable of $46,350.

E. Debit to Cash of $45,000 and a credit to Notes Payable of $45,000.

3. Pepsi's accounts receivable turnover was 9.9 for this year and 11.0 for last year. Coke's turnover was
9.3 for this year and 9.3 for last year. These results imply that:

A. Coke has the better turnover for both years.

B. Pepsi has the better turnover for both years.

C. Coke's turnover is improving.

D. Coke's credit policies are too loose

E. Coke is collecting its receivables more quickly than Pepsi in both years.

4. If the credit balance of the Allowance for Doubtful Accounts account exceeds the amount of a bad
debt being written off, the entry to record the write-off against the allowance account results in:

A. An increase in the expenses of the current period.

B. A reduction in current assets.

C. A reduction in equity.
D. No effect on the expenses of the current period.

E. A reduction in current liabilities.

5. Newton Company uses the allowance method of accounting for uncollectible accounts. On May 3, the
Newton Company wrote off the $3,000 uncollectible account of its customer, P. Best. On July 10,
Newton received a check for the full amount of $3,000 from Best. On July 10, the entry or entries
Newton makes to record the recovery of the bad debt is:

A. (Debit Accounts Receivable – P. Best 3,000; Credit Allowance for Doubtful Accounts 3,000) & (Debit
Cash 3,000; Credit Accounts Receivable – P. Best 3,000)

B. (Debit Cash 3,000; Credit Bad Debts Expense 3,000)

C. (Debit Accounts Receivable – P. Best 3,000; Credit Bad Debts Expense 3,000) & (Debit Cash 3,000;
Credit Accounts Receivable – P. Best 3,000)

D. (Debit Allowance for Doubtful Accounts 3,000; Credit Accounts Receivable – P. Best 3,000) & (Debit
Accounts Receivable – P. Best 3,000; Credit Cash 3,000)

E. (Debit Cash 3,000; Credit Accounts Receivable – P. Best 3,000)

6. On December 31 of the current year, a company's unadjusted trial balance included the following:
Accounts Receivable, debit balance of $97,250; Allowance for Doubtful Accounts, credit balance of $951.
What amount should be debited to Bad Debts Expense, assuming 6% of outstanding accounts receivable
at the end of the current year will be uncollectible?

A. $ 951.

B. $3,992.

C. $4,884.

D. $5,835.

E. $6,786.

7. A company has $90,000 in outstanding accounts receivable and it uses the allowance method to
account for uncollectible accounts. Experience suggests that 6% of outstanding receivables are
uncollectible. The current debit balance (before adjustments) in the allowance for doubtful accounts is
$800. The journal entry to record the adjustment to the allowance account includes a debit to Bad Debts
Expense for:

A. $4,600

B. $5,400

C. $6,200

D. $6,800

E. None of these
8. Teller purchased merchandise from TechCom on October 17 of the current year and TechCom
accepted Teller's $4,800, 90-day, 10% note. What entry should TechCom make on January 15 of the next
year when the note is paid?

A. (Debit Notes Receivable 4,800; Debit Interest Receivable 120; Credit Sales 4,920)

B. (Debit Cash 4,920; Credit Notes Receivable 4,920)

C. (Debit Cash 4,920; Credit Interest Revenue 100; Credit Interest Receivable 20; Credit Notes Receivable
4,800)

D. (Debit Cash 4,920; Credit Interest Revenue 20; Credit Interest Receivable 100; Credit Notes Receivable
4,800)

E. (Debit Cash 4,920; Credit Interest Revenue 120;Credit Notes Receivable 4,800)

9. Teller purchased merchandise from TechCom on October 17 of the current year and TechCom
accepted Teller's $4,800, 90-day, 10% note. What entry should TechCom make on December 31, to
record the accrued interest on the note?

A. (Debit Cash 20; Credit Notes Receivable 20)

B. (Debit Cash 100; Credit Notes Receivable 100)

C. (Debit Interest Receivable 20; Credit Interest Revenue 20)

D. (Debit Interest Receivable 100; Credit Interest Revenue 100)

E. (Debit Cash 120; Credit Interest Revenue 100; Credit Interest Receivable 20)

10. MixRecording Studios purchased $7,800 in electronic components from TechCom. MixRecording
Studios signed a 60-day, 10% promissory note for $7,800. If the note is dishonored, what is the amount
due on the note?

A. $130

B. $7,800

C. $7,930

D. $8,050

E. $8,130

Chapter 10
1. When originally purchased, a vehicle had an estimated useful life of 8 years. The vehicle cost $23,000
and its estimated salvage value is $1,500. After 4 years of straight-line depreciation, the asset's total
estimated useful life was revised from 8 years to 6 years and there was no change in the estimated
salvage value. The depreciation expense in year 5 equals:

A. $ 5,375.00.

B. $ 2,687.50.
C. $ 5,543.75.

D. $10,750.00.

E. $ 2,856.25.
2. Thomas Enterprises purchased a depreciable asset on October 1, 2008 at a cost of $100,000. The
asset is expected to have a salvage value of $15,000 at the end of its five-year useful life. If the asset is
depreciated on the double-declining-balance method, the asset's book value on December 31, 2010 will
be:

A. $27,540

B. $21,600

C. $32,400

D. $18,360

E. $90,000

3. Thomas Enterprises purchased a depreciable asset on October 1, 2008 at a cost of $100,000. The
asset is expected to have a salvage value of $15,000 at the end of its five-year useful life. If the asset is
depreciated on the double-declining-balance method, Thomas Enterprises should recognize what
amount of depreciation expense in 2012?

A. $4,440

B. $6,610

C. $1,524

D. $5,520

E. $2,000

4. A total asset turnover ratio of 3.5 indicates that:

A. For every $1 in sales, the firm acquired $3.50 in assets during the period.

B. For every $1 in assets, the firm produced $3.50 in net sales during the period.

C. For every $1 in assets, the firm earned gross profit of $3.50 during the period.

D. For every $1 in assets, the firm earned $3.50 in net income.

E. For every $1 in assets, the firm paid $3.50 in expenses during the period.

5. A company paid $150,000, plus a 6% commission and $4,000 in closing costs for a property. The
property included land appraised at $87,500, land improvements appraised at $35,000, and a building
appraised at $52,500. What should be the allocation of this property's costs in the company's accounting
records?

A. Land $75,000; Land Improvements, $30,000; Building, $45,000.

B. Land $75,000; Land Improvements, $30,800; Building, $46,200.

C. Land $81,500; Land Improvements, $32,600; Building, $48,900.

D. Land $79,500; Land Improvements, $32,600; Building, $47,700.

E. Land $87,500; Land Improvements; $35,000; Building; $52,500.

6. A company purchased a rope braiding machine for $190,000. The machine has a useful life of 8 years
and a residual value of $10,000. It is estimated that the machine could produce 750,000 units of
climbing rope over its useful life. In the first year, 105,000 units were produced. In the second year,
production increased to 109,000 units. Using the units-of-production method, what is the amount of
depreciation that should be recorded for the second year?

A. $25,200.

B. $26,160.

C. $26,660.

D. $27,613.

E. $53,160.

7. Information on a depreciable asset owned by Wilson Engineering is as follows: Purchase date: January
1, 2008; Purchase price $45,000; Salvage value $5,000, Useful life 8 years, Depreciation method:
straight-line. If the asset is sold on July 1, 2012 for $20,000, the journal entry to record the sale will
include:

A. A credit to cash for $20,000.

B. A debit to accumulated depreciation for $22,500.

C. A debit to loss on sale for $10,000.

D. A credit to loss on sale for $10,000.

E. A debit to gain on sale for $2,500.

8. A company had a bulldozer destroyed by fire. The bulldozer originally cost $125,000 with accumulated
depreciation of $60,000. The proceeds from the insurance company were $90,000. The company should
recognize:

A. A loss of $25,000.

B. A gain of $25,000.

C. A loss of $65,000.

D. A gain of $65,000.

E. A gain of $90,000.
Chapter 11
1. A company's had fixed interest expense of $6,000, its income before interest expense and any income
taxes is $18,000, and its net income is $8,400. The company's times interest earned ratio equals:

A. 0.33.

B. 0.71.

C. 1.40.

D. 3.00.

E. 12,000.

2. On November 1, Carter Company signed a 120-day, 10% note payable, with a face value of $9,000.
Carter made the appropriate year-end accrual. What is the journal entry as of March 1 to record the
payment of the note?

A. (Debit Notes Payable 9,000; Debit Interest Payable 150; Credit Cash 9,150)

B. (Debit Cash 9,300; Credit Notes Payable 9,300)

C. (Debit Notes Payable 9,300; Credit Interest Expense 150; Credit Interest Payable 150; Credit Cash
9,000)

D. (Debit Notes Payable 9,000; Debit Interest Expense 150; Debit Interest Payable 150; Credit Cash
9,300)

E. (Debit Notes Payable 9,000; Debit Interest Expense 300; Credit Cash 300)

3. Phildell Phoenix is paid monthly. For the month of January of the current year, he earned a total of
$8,288. The FICA tax for social security is 6.2% and the FICA tax rate for Medicare is 1.45%. The FUTA tax
rate is 0.8%, and the SUTA tax rate is 5.4%. Both unemployment taxes are applied to the first $7,000 of
an employee's pay. The amount of federal income tax withheld from his earnings was $1,375.17. His net
pay for the month is:

A. $5,190.83

B. $5,844.79

C. $6,278.79

D. $6,566.00

E. $6,792.64

4. Phildell Phoenix is paid monthly. For the month of January of the current year, he earned a total of
$8,288. The FICA tax rate for social security is 6.2% and the FICA tax rate for Medicare is 1.45%. The
FUTA tax rate is 0.8%, and the SUTA tax rate is 5.4%. Both unemployment taxes are applied to the first
$7,000 of an employee's pay. The amount of Federal Income Tax withheld from his earnings was
$1,375.17. What is the total amount of taxes withheld from the Phoenix's earnings?
A. $3,097.17

B. $2,443.21

C. $2,009.21

D. $1,722.00

E. $1,495.36

5. Phildell Phoenix is paid on a monthly basis. For the month of January of the current year, he earned a
total of $8,288. FICA tax for social security is 6.2% and the FICA tax for Medicare is 1.45%. The FUTA tax
rate is 0.8%, and the SUTA tax rate is 5.4%. Both unemployment taxes are applied to the first $7,000 of
an employee's pay. The amount of Federal Income Tax withheld from his earnings was $1,375.17. What
is the amount of the employer's annual payroll taxes expenses for this employee?

A. $56.00

B. $120.18

C. $378.00

D. $513.86

E. $1,068.04

Chapter 14
1. A bond traded at 102½ means that:

A. The bond pays 2.5% interest.

B. The bond traded at $1,025 per $1,000 bond.

C. The market rate of interest is 2.5%.

D. The bonds were retired at $1,025 each.

E. The market rate of interest is 2 ½ % above the contract rate.

2. The carrying value of a long-term note payable:

A. Is computed as the future value of all remaining future payments, using the market rate of interest.

B. Is the face value of the long-term note less the total of all future interest payments.

C. Is computed as the present value of all remaining future payments, discounted using the market rate
of interest at the time of issuance.

D. Is computed as the present value of all remaining interest payments, discounted using the note's rate
of interest.

E. Decreases each time period the discount on the note is amortized.

3. A company must repay the bank $10,000 cash in 3 years for a loan it entered into. The loan is at 8%
interest compounded annually. The present value factor for 3 years at 8% is 0.7938. The present value of
the loan is:

A. $10,000.

B. $12,400.

C. $ 7,938.

D. $ 9,200.

E. $ 7,600.

4. A company purchased equipment and signed a 7-year installment loan at 9% annual interest. The
annual payments equal $9,000. The present value of an annuity for 7 years at 9% is 5.0330. The present
value of the loan is:

A. $ 9,000.

B. $ 5,033.

C. $63,000.

D. $57,330.

E. $45,297.

5. Which of the following accurately describes a debenture?

A. A legal contract between the bond issuer and the bondholders.

B. A type of bond issued in the names and addresses of the bondholders.

C. A type of bond which requires the bond issuer to create a sinking fund of assets set aside at specified
amounts and dates to repay the bonds.

D. A type of bond which is not collateralized but backed only by the issuer's general creditstanding.

E. A type of bond that can be exchanged for a fixed number of shares of the issuing corporation's
common stock.

6. Pitt Corporation's most recent balance sheet reports total assets of $35,000,000 and total liabilities of
$17,500,000. Management is considering issuing $5,000,000 of par value bonds (at par) with a maturity
date of ten years and a contract rate of 7%. What effect, if any, would issuing the bonds have on the
company's debt-to-equity ratio?

A. Issuing the bonds would cause the firm's debt-to-equity ratio to improve from 1.0 to 1.3.

B. Issuing the bonds would cause the firm's debt-to-equity ratio to worsen from 1.0 to 1.3.

C. Issuing the bonds would cause the firm's debt-to-equity ratio to remain unchanged.

D. Issuing the bonds would cause the firm's debt-to-equity ratio to improve from .5 to .8.
E. Issuing the bonds would cause the firm's debt-to-equity ratio to worsen from .5 to .8.

7. On January 1 of Year 1, Drum Line Airways issued $3,500,000 of par value bonds for $3,200,000. The
bonds pay interest semiannually on January 1 and July 1. The contract rate of interest is 7% while the
market rate of interest for similar bonds is 8%. The bond premium or discount is being amortized at a
rate of $10,000 every six months. The company's December 31, Year 1 balance sheet should reflect total
liabilities associated with the bond issue in the amount of:

A. $3,220,000.

B. $3,342,500.

C. $3,097,500.

D. $3,780,000.

E. $3,902,500.

8. On January 1 of Year 1, Drum Line Airways issued $3,500,000 of par value bonds for $3,200,000. The
bonds pay interest semiannually on January 1 and July 1. The contract rate of interest is 7% while the
market rate of interest for similar bonds is 8%. The bond premium or discount is being amortized at a
rate of $10,000 every six months. The amount of interest expense recognized by Drum Line Airways on
the bond issue in Year 1 would be:

A. $132,500.

B. $225,000.

C. $265,000.

D. $245,000.

E. $280,000.

9. On January 1 of Year 1, Drum Line Airways issued $3,500,000 of par value bonds for $3,200,000. The
bonds pay interest semiannually on January 1 and July 1. The contract rate of interest is 7% while the
market rate of interest for similar bonds is 8%. The bond premium or discount is being amortized using
the straight-line method at a rate of $10,000 every six months.

The life of these bonds is:

A. 15 years.

B. 30 years.

C. 26.5 years.

D. 32 years

E. 35 years.
10. A corporation borrowed $125,000 cash by signing a 5-year, 9% installment note requiring equal
annual payments each December 31 of $32,136. What journal entry would the issuer record for the first
payment?

A. Debit Interest Expense 7,136; Debit Notes Payable 25,000; Credit Cash 32,136

B. Debit Notes Payable 32,136; Credit Interest Payable 11,250; Credit Cash 43,386

C. Debit Interest Expense 11,250; Debit Notes Payable 20,886; Credit Cash 32,136

D. Debit Notes Payable 32,136; Credit Cash 32,136.

E. Debit Notes Payable 11,250; Credit Cash 11,250.

11. A company has bonds outstanding with a par value of $100,000. The unamortized discount on these
bonds is $4,500. The company retired these bonds by buying them on the open market at 97. What is
the gain or loss on this retirement?

A. $0 gain or loss.

B. $1,500 gain.

C. $1,500 loss.

D. $3,000 gain.

E. $3,000 loss.

12. A company issued 5-year, 7% bonds with a par value of $100,000. The market rate when the bonds
were issued was 6.5%. The company received $101,137 cash for the bonds. Using the straight-line
method, the amount of recorded interest expense for the first semiannual interest period is:

A. $3,386.30.

B. $3,500.00.

C. $3,613,70.

D. $6,633.70.

E. $7,000.00.

Chapter 13
1. An amount of assets defined by state law that stockholders must invest and leave invested in a
corporation, which is intended to protect the creditors of the corporation, is called the:

A. Par value of preferred.

B. Minimum legal capital.

C. Premium capital.

D. Stated value.
E. Working capital.

2. A company had a beginning balance in retained earnings of $43,000. It had net income of $6,000 and
paid out cash dividends of $5,625 in the current period. The ending balance in retained earnings equals:

A. $108,625.

B. $(12,625).

C. $11,375.

D. $43,375.

E. $(11,375).

3. A company has earnings per share of $9.60. Its dividend per share is $0.50, and its market price per
share is $120. Its price-earnings ratio equals:

A. 9.60

B. 12.4

C. 12.5

D. 19.2

E. 240

4. A corporation was formed on January 1. The corporate charter authorized 100,000 shares of $10 par
value common stock. During the first month of operation, the corporation issued 300 shares to its
attorneys in payment of a $5,000 charge for drawing up the articles of incorporation. The entry to
record this transaction would include:

A. A debit to Organization Expenses for $3,000.

B. A debit to Organization Expenses for $5,000.

C. A credit to Common Stock for $5,000.

D. A credit to Paid-in Capital in Excess of Par Value, Common Stock for $5,000.

E. A debit to Paid-in Capital in Excess of Par Value, Common Stock for $2,000.

5. A company issued 60 shares of $100 par value stock for $7,000 cash. The total amount of paid-in
capital in excess of par is:

A. $ 100.

B. $ 600.

C. $1,000.

D. $6,000.

E. $7,000.
6. A company's board of directors votes to declare a cash dividend of 75¢ per share. The company has
15,000 shares authorized, 10,000 issued, and 9,500 shares outstanding. The total amount of the cash
dividend is:

A. $ 375.

B. $ 4,125.

C. $ 7,125.

D. $ 7,500.

E. $11,250.

7. A corporation declared and issued a 15% stock dividend on November 1. The following up-to-date
data were available immediately prior to the dividend: Retained earnings $750,000; Share issued and
outstanding 60,000; Market value per share $15; Par value per share $5. The amount that total
stockholders' equity will increase (decrease) as a result of recording this stock dividend is:

A. $45,000.

B. $135,000.

C. $(90,000).

D. $(135,000).

E. $0.

8. A corporation had 50,000 shares of $20 par value common stock outstanding on July 1. Later that day
the board of directors declared a 10% stock dividend when the market value of each share was $27. The
entry to record this dividend is:

A. Debit Retained Earnings 135,000; Credit Common Stock Dividend Distributable 135,000

B. Debit Retained Earnings 135,000; Credit Cash 135,000

C. Debit Retained Earnings 135,000; Credit Common Stock Dividend Distributable 100,000; Credit Paid-
in Capital in Excess of Par Value, Common Stock 35,000

D. Debit Retained Earnings 100,000; Credit Common Stock Dividend Distributable 100,000

E. No entry is made until the stock is issued.

9. Prior to June 1, a company has never had any treasury stock transactions. A company repurchased
100 shares of its common stock on June 1 for $5,000. On July 1, it reissued 50 of these shares at $52 per
share. On August 1, it reissued the remaining treasury shares at $49 per share. What is the balance in
the Paid-in Capital, Treasury Stock account on August 2?

A. $5,050.

B. $2,600.

C. $100.
D. $50.

E. $0.