111. Which one of the following events would not require a journal entry on a corporation's books? A. 2-for-1 stock split B. 100% stock dividend C. 2% stock dividend D. $1 per share cash dividend Fonthouse Corp. issues 10,000 shares of $2, no-par value preferred stock for cash at S60 per share 112. The journal entry to record the transaction will consist of a debit to Cash for $600,000 and a credit (or credits) to: A. Preferred Stock for $600,000. B. Preferred Stock for $500,000 and Additional Paid-In Capital for $100,000. C. Preferred Stock for $500,000 and Retained Earnings for $100,000. D. Investment in Fonthouse Stock for $600,000. 113. Preferred stock differs from common stock in that preferred stock: A. has more voting power and, as such, greater control over the management of the company B. is less risky because preferred stockholders are paid dividends before common stockholders. C. pays a tax-free dividend. D. has no preemptive rights or residual claims 114. A current dividend preference means that: A. preferred stockholders are paid current dividends before common stockholders are paid dividends. B. unpaid dividends to preferred stockholders accumulate and must be paid before common stockholders receive dividends. C. preferred stockholders are paid their full fixed dividend rate each period as long as the company is in operation. D. unpaid cash dividends to preferred stockholders must be replaced with stock dividends during the current period. 115. A company issues 100,000 shares of preferred stock for $40 a share. The stock has a fixed dividend rate of 5% and a par value of $3 per share. The company records the issuance with a: A. debit of $4 million to Cash and a credit of $4 million to Preferred Stock. B. debit of $300,000 to Cash and a credit of $300,000 to Preferred Stock. C. debit of $4 million to Cash, a credit of $300,000 to Preferred Stock, and a credit of $3.7 million to Additional Paid-in Capital D. debit of $300,000 to Cash, a debit of $3.7 million to Long-term Investments, a credit of $300,000 to Preferred Stock, and a credit of S3.7 million to Contributed Capital 116. A company issues 500,000 shares of preferred stock for $30 a share. The stock has a fixed annual dividend rate of 5% and a par value of $9 per share. The current price of the preferred stock is $32 a e share. Preferred stockholders can anticipate receiving a per share annual dividend of: ire, A. 5% of the $9 par value per share. B. 5% of the $30 issue price per share. C. 5% of the $32 current market price per share. D. 5% of the $21 additional paid-in capital per share. 117. A company has outstanding 10 million shares of $2 par common stock and 1 million shares of $4 par preferred stock. The preferred stock has an 8% dividend rate. The company declares S300.000 in total dividends for the year. Which of the following is true if the preferred stockholders have a cumulative dividend preference? A. Preferred stockholders will receive the entire $300,000, and they must also be paid $20,000 before the end of the current accounting period. Common stockholders will receive nothing. B. Preferred stockholders will receive$24,000 (8% of the total dividends). Common stockholders will receive the remaining $276,000. C. Preferred stockholders will receive the entire $300,000, and they must also be paid $20,000 sometime in the future before common stockholders will receive anything. D. Preferred stockholders will receive the entire $300,000, but will receive nothing more relating to this dividend declaration. Common stockholders will receive nothing. 118. Which of the following statements is NOT true? A. The legal capital of a corporation represents an amount that cannot be returned to the owners while the corporation still exists. B. Investors in a corporation are called stockholders. C. The right to receive a dividend is one of the basic rights of preferred stockholders. D. Compared with preferred stock, common stock usually has a favorable preference in terms of dividends 119. A company reported net income of $5.6 million. At the beginning of the year, 3.4 million shares of common stock were outstanding while during the year the average number of common shares outstanding was 3.5 million. There were 400,000 shares of preferred stock outstanding on average and no dividends were declared. The EPS is approximately: A. $1.60. B. $1.51. C. $1.65. D. $1.75. A company reported net income of S6 million. During the year the average number of common shares outstanding was 3 million. The price of a share of common stock at the end of the year was $5. There were 400,000 shares of preferred stock outstanding on average and no dividends were declared and the preferred stock is noncumulative. 120. The Price/Earnings Ratio is approximately: A. 2.00 B. 2.50 C. 2.84 D. 12.50 ts 121. The return on equity ratio is calculated as: A. dividends paid divided by the average book value of stockholders' equity B. net income divided by the average number of outstanding common shares. C. dividends divided by the average number of total shares D. net income divided by average stockholders' equity. 122. The ROE ratio measures: A. the return stockholders receive in dividends for each dollar of their investment. B. the return stockholders receive in dividends and stock price growth for each dollar of their investment C. the amount earned by the company on each dollar contributed by stockholders and earnings reinvested in the company D. the amount earned by the company on each dollar obtained from equity and debt financing. 123. All else equal, when companies make stock repurchases: A. EPS falls and ROE rises. B. EPS rises and ROE stays the same. C. EPS rises and ROE falls. D. EPS and ROE both rise. 124. If you own 200,000 shares of stock in a company with 8 million shares outstanding and the company issues an additional 2 million shares to its employees through a stock purchase plan, your ownership percentage: A. remains the same because the company now has more assets. B. falls from 2.5% to 2%. C. remains the same because the company now has fewer liabilities. D. increases because the company now has more stock outstanding. The patent on a major drug produced by a pharmaceutical company will soon expire. Sales of the 125. drug contribute l0% to the company's net income. Which of the following statements is most likely to be true in these circumstances? A. The P/E ratio will probably fall when the patent ends. B. The P/E ratio will probably rise because the stock price will rise and the earnings will C. The P/E ratio will probably fall as investors factor in the future drop in net income D. The P/E ratio will probably rise because the stock price will fall and the earnings fall. 126 Ifa company's P/E ratio is 24 and the company's EPS is $1.50, then the company's stock price is: A. $36.00. B. $25.50. C.$16.00 D. $6.25. 127. Which of the following is TRUE about reissuing treasury stock? A. If treasury stock is sold at a higher price than the stock's cost when the company reacquired it, a gain will be recognized If treasury stock is sold at a higher price than the stock's par value, a gain will be recognized. C. If the treasury stock is sold at a lower price than the amount of the original issuance, a loss will be recognized Q A gain or loss on the reissuance of treasury stock is never recognized. 128. If a company's P/E ratio suddenly decreases: A. you should sell the stock as soon as possible B. you should buy more of the stock to increase your average gain. C. the company probably D. the market must have reacted to some bad news that is expected to affect the company in the future. announced higher earnings forecasts 129. At the end of the accounting period, but before closing entries are made, Harry, the proprietor of Harry's Bar and Grill, has a debit of $24,500 in his drawing account and a credit of $126,800 in his capital account. If his capital account has a credit balance of $137.900 after the closing, what was his net income? A. $11,100 B. $35,600 C. $113,400 D. $13,400 130. Limited Liability Companies (LLCs) are like general partnerships in that A. income tax is not paid by the company itself. B. the business has a separate legal identity C. liability is limited D. amounts paid to the owners are recorded as salaries expense. 131. One of the advantages of a partnership is: A. limited liability B. the salaries of the partners can be written off as an expense. C, ease of formation. D. income tax is paid by the business. 132, Which of the following statements is NOT true about the par value of common stock? A. The par value is not the same as the market value of the stock. B. The par value is a nominal amount identified in the corporate charter. C. The par value is the amount credited to the common stock account when the stock is issued. D. The par value is the amount credited to common stock when treasury stock is reissued. JC Corporation had 20,000 shares of $4 par value common stock outstanding on January 1, 2011.On January 20, 2011, the company purchased 2,000 of the outstanding shares for $16 per share. On July 3, 2011, the company reissued 1,000 of the shares at $20 per share. 133. What is the journal entry to record the reissuance on July 3? 20,000 A) Cash 20,000 Treasury stock Treasury stock Additsonal paid-in capital Common stock Additional paid-in capital Common stock Gm on eissuance B) Cash 20,000 16,000 4,000 C Cash 8,000 14,000 D) Cash 20,000 16,000 4.000 A. Option: A B. Option: B C. Option: C D. Option: D hares 1 per 134. Which of the following statements about retained earnings is true? earnings is the amount of cash that the company has retained since its i B. Retained earnings is the amount of creditors' claims on assets when treasury stock is reissued at a price greater than its cost stock is Net C. Retained earnings is increased D. Retained earnings is decreased by cash dividends and stock dividends 135. The retained carnings balance was $22,900 on January 1. Net income for the year was $18,100. Ir retained earnings had a credit balance of $23,800 after closing entries were made for the year, and i additional the year? A. $17,200 B. $23,700 stock of $5,200 was issued during the year, what was the amount of dividends declared during One r that, ers' C. S23.300 D. $13,000 A company hs the following paid-in cupital:. Preferred shick. 6% S, par ,alue. Iou000 shares anterred 2000 Cemma stock $9 par valuc. 300000 shares anthorized 110,000 $509,000 barcs issuod and outstanding 59583,000 shares issued and oustasding 136. If the company pays a $35,000 dividend, and the preferred stock is cumulative and two years'st set dividends are in arrears, what is the amount the common stockholders will receive? A. $17,000 B. $23,000 C. $29,000 D. $35,000 nd 137. Par value of a stock refers to the A. issue price of the stock B. value assigned to a share of stock in the corporate charter. C. market value of the stock D. maximum selling price of the stock 138. A company issued 8% preferred stock with a $100 par value. This means: A. Preferred stockholders are entitled to 8% of the annual net income. B. Only 8% of total contributed capital can be preferred stock. C. Preferred stockholders are guaranteed a dividend D. The potential dividend to preferred stockholders is $8 per share per year. net cash flows from operating activities, positive net cash flows from cash flows from financing activities, this suggests that the company is 62. Ifa company reports investing activities, and zero net selling its productive assets True False to cover its operating activities ibus ular 163. Which of the following staterments regarding calculation of cash flows from operating activities ch under the indirect method is true? A. When the indirect method is used, changes in current liabilities are subtracted while changes in current assets are added to convert net income to net cash flows from operating activities. B. When the indirect method is used, depreciation expense is added to net income as a step in the process of calculating net cash flows from operating activities C. When the indirect method is used, gains on the sale of property, plant and equipment are added to convert net income to net cash flows from operating activities. D. When the indirect method is used, changes in long-term liabilities are subtracted to convert net income to net cash flows from operating activities 164. Which of the following statements regarding cash flows from investing activi A. The proceeds from sales of investments are reported as cash inflows from investing activities. B. Cash flows from investing activities are calculated by making adjustments to net income. C. Cash paid to acquire long-lived assets is reported as a cash inflow from investing activities. D. Cash received from issuing a long-term payable is reported as a cash inflow from investing activitieste 165. Which of the following statements regarding the capital acquisitions ratio is true? A. The capital acquisitions ratio is often calculated as an average over a number of years for better comparison between companies in the same industry B. The calculation of the capital acquisitions ratio uses the cash expenditures for property, plant and equipment that, all else equal, are reported in the financing activities section of the Statement of Cash Flows. C. A ratio greater than 1.0 indicates that outside financing was needed to replace equipment in the current period. D. The higher the ratio, the more likely external financing will be needed to fund future expansion. 16s Whic o the following statements regarding the quality of income and fraudulent financial reporting is NOT true? A. Net income assumes that all revenues are eventually realized as cash inflows and all expenses are realized as cash outflows. The quality of income ratio is a measure of the extent to which this assumption should be considered valid. B. Fraudulent financial reporting may involve delayed expense recognition. C. Fraudulent financial reporting is more likely to result in overstatement of net cash flows from operati activities rather than as overstatement of net income. D. Fraudulent financial reporting may involve aggressive revenue recognition, that is, recognizing revenue before it is earned 167. Which of the following types of information is not provided by the statement of cash flows? A. Company management of current assets and liabilities. Expenditures on long-term assets. C. Current profitability as measured by specific revenues and expenses. D. Reliance on external financing. 168. Which of the following would be included in cash flows from operating activities? A. Cash proceeds from sales. B. Cash received from an issuance of bonds. C. Dividends paid to stockholders. D. Cash used for purchases of equipment. 169. Which of the following would be included in cash flows from financing activities? A. Cash proceeds from sales. B. Cash received from a sale of land C. Dividends paid to stockholders. D. Cash used to purchases of equipment. 170. Cash flows from investing activities include cash: A. inflows and outflows reflecting revenues and expenses. B. outflows from the sale of long-term investments. C. inflows from the sale of long-term investments. D. inflows from the sale of a company's own stock to its stockholders. 171. Which of the following is not needed to prepare a statement of cash flows? A. Statement of retained earnings. B. Comparative balance sheet. C. Additional information on financing and investing activities. D. Income statement. 172. What is the first step in calculating cash flows from operations when the indirect method is used? A. Find net income on the income statement. B. Calculate the net change in the cash account. C. Add the change in accounts receivable to sales revenue. D. Identify the balance sheet accounts that relate to operating activities. 190. The net cash flow from operating activities is an inflow of $37,042, the net cash flow from investing activities is an outflow of $16,831, and the net cash flow from financing activities is an outflow of $26,397. If the beginning cash account balance is $11.283, what is the ending cash account halance? A. $5,097 B. ($6,186) C. $38,759 D. $27.476 191. If an analyst t wishes to analyze the ability of a company's operating activities to fund its level of investment in property, plant, and equipment, a good measure would be the: A. quality of income ratio, B. working capital. C. times interest earned ratio. D. capital acquisitions ratio. 192. The capital acquisitions ratio is often calculated as a multi-year average because of the volatility of A. cash flow from year to year B. property, plant, and equipment expenditures from year to year C. net income from year to year. 193. A company reported that its bonds with a face value of $50,000 and a carrying value of $53,000 are retired for $56,000 cash. The amount to be reported under cash flows from financing activities is: A. ($53,000). B. (S3,000). C. (S56,000) D. SO. This is an operating activity. 194. Which of the following would not be considered cash and cash equivalents for purposes of preparing a statement of cash flows? A. Money market funds. B. Checking accounts. C. Treasury bills. D. Notes receivable. 185, Which of the following statements is true regarding cash flows from financing activities? companies borrow, cash outflows for financing activities have occurred ollo un pa tun pa ies receive dividends, cash inflows from financing activities have occurred When companies repurchase their own stock, cash outflows for financing activities have occurred. companies pay dividends, cash inflows from financing activities have occurred. 186. Which of the following are used to determine cash flows from financing activities? Short-term debt, accrued liabilities, contributed capital, and notes payable. Long-term debt, contributed capital, and retained earnings hort-term debt, accrued liabilities, retained earnings, and bonds payable. Long-term debt, notes payable, interest expense, and bonds payable. 187. Which of the following represent cash inflows from financing activities? Issuing stock in exchange for another company's stock B. Paying a bond's face value at maturity C. Issuing long-term bonds at a discount. D: Receiving interest on promissory notes. 188. Company X paid Company Y $1.35 million for a new plant. During the same accounting period, Company X experienced the following changes in its balance sheet: Cash decreased by $350,000, Accounts Receivable increased by $321,300, Inventory increased by $275,800, Property, Plant, and Equipment increased by $752,900, and Bonds Payable increased by $1 million. The net cash flow from financing activities is: A. An inflow of $1.35 million. B. An outflow of $350,000 (1) An inflow of $1 million. D. An inflow of $752,900. 189. A toy store with a calendar year-end is likely to have: A. unpredictable fluctuations in cash flow from quarter to quarter B. the largest cash inflow from operations in the second and third quarters (April - September). C. a fairly stable cash flow across all four quarters. the largest cash inflow from operations in the fourth and firstquarters (October - March). 205. Which of 195. A company has a net cash inflow from operating activities of $789,000, a net cash outflow of S50,000 from investing activities and a net cash inflow of $100,000 from financing activities. The company paid $124,000 in interest, $186,500 in income taxes, and $200,000 in dividends. Which of the following statements about the Statement of Cash Flows is NOT true: A. Dividends of $200,000 will be reported as a cash outflow in the cash flow from investing activities section. B. Supplemental disclosures required for a company using the indirect method include the amount of interest and the amount of income taxes paid. C. The Statement of Cash Flows will show a net increase to cash and cash equivalents of $839,000. D. If the direct method is used, the $124,000 of interest paid and the $186,500 of income taxes paid will be reported in the cash flows from operating activities. 196. The quality of income ratio measures: A. how much of net income came from operating activities. B. the proportion of net income that is likely to be collected over time. C. how much of gross income the company was able to shield from taxes D. the portion of net income that is generated by cash from operating activities. operating activities is unchanged, but net income is increasing, the quality of 197. If net cash flow from income ratio will: A. rise, which may signal that revenue is being recorded later and/or expenses carlier than in the past. B. fall, which may signal that revenue is being recorded later and/or expenses earlier than in the past. C. fall, which may signal that revenue is being recorded earlier and/or expenses later than in the past. D. rise, which may signal that revenue is being recorded earlier and/or expenses later than in the past. 198. A company has net income of $43,560 with a net cash flow from operating activities of $91,476 and a net increase in cash of $84,942. The company paid $33,524 for income taxes and $25,000 for interest during the year. The company's quality of income ratio is: B. 1.1 C. 1.95 D. 0.48. 199. If a company uses the indirect method to determine net cash flows from operating activities: A. gains must be added to net income and losses subtracted from net income B. gains and losses must be added to net income. C. gains must be subtracted from net income and losses added to net income. D. gains and losses must be subtracted from net income. Rows from 200. Which of the following would be classified as an investing activity on the statement of cash flows? A. Cash received from sale of land B. Cash paid for interest C. Cash received from stock issuance. D. Dividends paid hich of the following would be classified as an operating activity on the statement of cash flows using the direct method? A. Cash dividends paid to stockholders. B. Cash received from selling equipment. C. Cash paid to retire bonds payable at maturity D. Cash received from accounts receivable collections. 202. Which of the following would be reported on the statement of cash flows, using the direct method, a a cash flow from operating activities? A. Payment of income taxes B. Payment of dividends. C. Purchase of a building. D. Purchase of treasury stock 203, A company loaned $1,000,0000 with interest at 7% to another company. The interest revenue fro this loan would be reported on the statement of cash flows as A, cash inflows from operating activities. B. cash inflows from investing activities. C. cash inflows from financing activities. D. noncash transaction in a supplemental disclosure. 204. A corporation prepared its statement of cash flows for the year. The following information is tal from that statement: Net cash flow from opcrating activitics Net cash flow from investing activities Net cash flon from financing activitics Cash balance, end of year $ 14.500 S 4.200 ($12,400) s 9.100 What is the cash balance at the beginning of the year? A. $5,600 B. $2,800 C. $6,300 D. $15,400 205. Which of the following items would be reported on a statement of cash flows using the indirect method, but not on a statement prepared using the direct method? A. Cash paid for dividends. B. Cash received from stock issuances. C. Depreciation expense. D. Cash paid for purchase of treasury stock. 206. If Interest Revenue for the period is $14,000 and the beginning and ending Interest Receivable balances are $1,320 and $5,900, respectively, cash received for interest is: A. $14,000 B. $9,420 C. $18,500 D. $8,100 207. If a company's Cost of goods sold is $158,000 for the period, beginning and ending Inventory balances are $18,000 and $13,000, respectively, and the beginning and ending Accounts Payable bala are $19,000 and $7,500, respectively, the cash paid to suppliers is: A. $157,000 B. $163,500 C. $164,500 D. $151,500