1. On January 2, 2016, Concrete Master Construction, Inc. 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%. What is the carrying value of the bonds after the first interest payment is made on June 30, 2016?

a. $574,540

b. $571,776

c. $568,920

d. $500,000

2. A new company issues 2,000 shares of $5 par common stock in exchange for the services of a lawyer during its first month of business. The lawyers normal fee is $15,000 for similar work. Which of the following would be recorded if the stock is not currently trading?

a. A debit to Common Stock for $10,000

b. A credit to Common Stock for $15,000

c. A debit to Additional Paid-In CapitalCommon Stock of $5,000

d. A credit to Additional Paid-In CapitalCommon Stock of $5,000

3. Upon review of Jerrys Canoe Gallery statement of cash flows, the following was noted: Cash flows from operating activities $ 75,000 Cash flows from investing activities (135,000) Cash flows from financing activities 125,000 From this information, the most likely explanation is that Jerry is

a. using cash from operations and selling long-term assets to pay back debt.

b. using cash from operations and borrowing to purchase long-term assets.

c. using its profits to expand growth.

d. using cash from investors to provide for operations.

4. Which of the following statements is false?

a. The method of preparing the operating activities section of a statement of cash flows which adjusts net income to remove the effects of deferrals and accruals for revenues and expenses is the indirect method.

b. The method of preparing the operating activities section of a statement of cash flows which reports major classes of gross cash receipts and cash payments for revenues and expenses is the direct method.

c. The FASB prefers the direct method of preparing the operating activities section of the statement of cash flows.

d. Most companies use the direct method of preparing the operating activities section of the statement of cash flows.

5. Almost all current liabilities affect the operating category of the statement of cash flows, but one that does not affect cash provided by operating activities is a. accounts payable. b. interest payable. c. notes payable. d. taxes payable. 6. Which of the following statements about bond accounting under the effective interest method is correct?

a. The cash interest paid is calculated as the bond face value the effective rate.

b. The interest expense is calculated as the carrying value the effective rate.

c. The difference between the cash interest paid and the interest expense is added to the carrying value of the bonds if bonds were sold at a premium.

d. The difference between the interest expense and the interest paid is deducted from the carrying value of the bonds if bonds were sold at a discount.

7. If a company's bonds are callable,

a. the investor or buyer of the bonds has the right to retire the bonds.

b. the issuing company is likely to retire the bonds before maturity if the bonds are paying 9% interest while the market rate of interest is 6%.

c. the bonds are never allowed to remain outstanding until the maturity date.

d. the investor never knows what the redemption price will be until the bonds are actually called.

8. Which of the following statements about bond accounting under the effective interest method is correct?

a. The cash interest paid is calculated as the bond face value the effective rate.

b. The interest expense is calculated as the carrying value the effective rate.

c. The difference between the cash interest paid and the interest expense is added to the carrying value of the bonds if bonds were sold at a premium.

d. The difference between the interest expense and the interest paid is deducted from the carrying value of the bonds if bonds were sold at a discount.