question3

Stockholders of a company may be reluctant to finance expansion through issuing more common stock because

a		leveraging with debt is always a better idea.
a		their percentage ownership will decrease.
c		the price of the stock will automatically decrease.
d		dividends must be paid on a periodic basis.

QUESTION 4

Bonds issued against the general credit of the borrower are called

a		callable bonds.
b		debenture bonds.
c		mortgage bonds.
d		sinking fund bonds.

QUESTION 5

The interest rate investors demand for loaning funds is the

a		market interest rate.
b		stated rate.
c		contractual interest rate.
d		bond interest rate.

QUESTION 6

If there is a loss on bonds redeemed early, the

a		loss is debited directly to Retained Earnings.
b		bonds carrying value was less than the redemption price.
c		bonds carrying value was greater than the redemption price.
d		loss is debited to Interest Expense, as a cost of financing.

QUESTION 7

When bonds are converted into common stock,

a		the market price of the stock on the date of conversion is credited to the Common Stock account.
b		the market price of the bonds on the date of conversion is credited to the Common Stock account.
c		the market price of the stock and the bonds is ignored when recording the conversion.
d		gains or losses on the conversion are recognized.

QUESTION 8

A $1,000 face value bond with a quoted price of 98 is selling for

a		$1,000.
b		$980.
c		$908.
d		$98.

QUESTION 9

If the market interest rate is greater than the contractual interest rate, bonds will sell

a		at a premium.
b		at face value.
c		at a discount.
d		only after the stated interest rate is increased.

QUESTION 10

On January 1, 2019, Meeks Corporation issued $5,000,000, 10-year, 4% bonds at 102. Interest is payable annually on January 1. The journal entry to record this transaction on January 1, 2019 is

a		Cash....................................................................................... 5,000,000 Bonds Payable.............................................................. 5,000,000
b		Cash....................................................................................... 5,100,000 Bonds Payable.............................................................. 5,100,000
c		Premium on Bonds Payable................................................... 100,000 Cash....................................................................................... 5,000,000 Bonds Payable.............................................................. 5,100,000
d		Cash....................................................................................... 5,100,000 Bonds Payable.............................................................. 5,000,000 Premium on Bonds Payable.......................................... 100,000

QUESTION 11

If the market interest rate is 5%, a $10,000, 6%, 10-year bond that pays interest annually would sell at an amount

a		less than face value.
b		equal to face value.
c		greater than face value.
d		that cannot be determined.

QUESTION 12

The market interest rate is often called the

a		stated rate.
b		effective rate.
c		coupon rate.
d		contractual rate.

QUESTION 13

Bond interest paid is

a		higher when bonds sell at a discount.
b		lower when bonds sell at a premium.
c		the same whether bonds sell at a discount or a premium.
d		higher when bonds sell at a discount and lower when bonds sell at a premium.

QUESTION 14

Bond Corporation issues 1,000,000, 10-year, 8%, bonds dated January 1, 2019, at 103. The journal entry to record the issuance will show a

a		debit to Cash of $1,000,000.
b		credit to Premium on Bonds Payable for $30,000.
c		credit to Bonds Payable for $1,030,000.
d		credit to Cash for $1,030,000.

QUESTION 15

Lowe Company has $1,000,000 of bonds outstanding. The unamortized premium is $19,600. If the company redeemed the bonds at 101, what would be the gain or loss on the redemption?

a		$9,600 gain
b		$9,600 loss
c		$10,000 gain
d		$10,000 loss

QUESTION 16

Generally accepted accounting principles are

a		income tax regulations of the Internal Revenue Service.
b		standards that indicate how to report economic events.
c		theories that are based on physical laws of the universe.
d		principles that have been proven correct by academic researchers.

QUESTION 17

The historical cost of an asset

a		Is ignored when purchased.
b		is based on what is paid to acquire an asset
c		irrelevant when the asset is used by the business in its operations.
d		is always the same as fair value

QUESTION 18

Which of the following is in accordance with generally accepted accounting principles?

a		Accrual-basis accounting
b		Cash-basis accounting
c		Both accrual-basis and cash-basis accounting
d		Neither accrual-basis nor cash-basis accounting

QUESTION 19

In a service-type business, revenue is considered recognized

a		at the end of the month.
b		at the end of the year.
c		when the service is performed.
d		when cash is received.

QUESTION 20

The expense recognition principle matches

a		customers with businesses.
b		expenses with revenues.
c		assets with liabilities.
d		creditors with businesses.

QUESTION 21

Orange County Shop follows the revenue recognition principle. Orange County services a bicycle on July 31. Then sends a bill on August 1 . Orange County receives the check in the mail on August 6. When should Orange County show that the revenue was recognized?

a		July 31
b		August 1
c		August 5
d		August 6

QUESTION 22

A metal shops employees work overtime to finish an order that is sold on March 28. The office sends a statement to the customer in early April and payment is received by mid-April. The overtime wages should be expensed in

a		March.
b		April.
c		the period when the workers receive their checks.
d		either in March or April depending on when the pay period ends.

QUESTION 23

Recording depreciation each period is necessary in accordance with the

a		going concern principle.
b		historical cost principle.
c		expense recognition principle.
d		asset valuation principle.

QUESTION 24

The cost of a purchased building includes all of the following except

a		closing costs.
b		real estate broker's commission.
c		remodeling costs.
d		operating expenses

QUESTION 25

On January 1 2019, A company purchased an asset for $40,000 that is expected to generate revenue for 4 years. At time of purchase, A company paid $15,000 with balance due in 2 years. How much expense as a result of the purchase will appear on the 2019 income statement?

a		$10,000
b		$40,000
c		$15,000
d		$0