1. The Discount on Bonds Payable account is: (Points : 2)
A liability
A contra liability
An expense
A contra expense
A contra equity
2. A company had net income of $250,000. On January 1, there were 12,000 shares of common stock outstanding. On May 1, the company issued an additional 9,000 shares of common stock. The company declared a $7,900 dividend on its noncumulative, nonparticipating preferred stock. There were no other stock transactions. The company had an earnings per share of: (Points : 2)
$13.45
$13.89
$11.53
$26.90
Amount cannot be determined as problem does not state if there are any dividends in arrears
3. Owners of preferred stock often do not have: (Points : 2)
Ownership rights to assets of the corporation
Voting rights
Preference to dividends
The right to sell their stock on the open market
Preference to assets at liquidation
4. If an issuer sells a bond at any other date than the interest payment date: (Points : 2)
This means the bond sells at a premium
This means the bond sells at a discount
The issuing company will report a loss on the sale of the bond
The issuing company will report a gain on the sale of the bond
The buyer normally pays the issuer the purchase price plus any interest accrued since the prior interest payment date
5. What is the debt to equity ratio for a company who has $700,000 in total liabilities and $3,500,000 in total equity? (Points : 2)
20%
5
$2,100,000
2%
.5
6. A company's board of directors' votes to declare a cash dividend of $0.75 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: (Points : 2)
$375
$4,125
$7,125
$7,500
$11,250
7. Bonds that mature at different dates and end up with the total principal repaid gradually over a number of periods are referred to as: (Points : 2)
Registered bonds
Bearer bonds
Callable bonds
Sinking fund bonds
Serial bonds
8. To provide security to creditors and to reduce interest costs, bonds and notes payable can be secured by: (Points : 2)
Safe deposit boxes
Mortgages
Equity
The FASB
Debentures
9. A corporation's minimum legal capital is often defined to be the total par value of the shares: (Points : 2)
Issued
Authorized
Subscribed
Outstanding
10. Preferred stock on which the right to receive dividends is forfeited for any year that the dividends are not declared is called: (Points : 2)
Noncumulative preferred stock
Participating preferred stock
Callable preferred stock
Cumulative preferred stock
Convertible preferred stock
11. 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: (Points : 2)
A debit to Organization Expenses for $3,000
A debit to Organization Expenses for $5,000
A credit to Common Stock for $5,000
A credit to Contributed Capital in Excess of Par Value, Common Stock for $5,000
A debit to Contributed Capital in Excess of Par Value, Common Stock for $2,000
12. Promissory notes that require the issuer to make a series of payments consisting of both interest and principal are: (Points : 2)
Debentures
Discounted notes
Installment notes
Indentures
Investment notes
13. The date the board of directors votes to pay a dividend is called the: (Points : 2)
Date of stockholders' meeting
Date of declaration
Date of record
Date of payment
Liquidating date
14. Installment notes payable that require periodic payments of accrued interest plus equal amounts of principal result in: (Points : 2)
Periodic total payments that gradually decrease in amount
Periodic total payments that are equal
Periodic total payments that gradually increase in amount
Increasing amounts of interest each period
Increasing amounts of principal each period
15. Bonds with a par value of less than $1,000 are known as: (Points : 2)
Junk bonds
Baby bonds
Callable bonds
Unsecured bonds
Convertible bonds
16. Bonds owned by investors whose names and addresses are recorded by the issuing company and for which interest payments are made with checks to the bondholders, are called: (Points : 2)
Callable bonds
Serial bonds
Registered bonds
Coupon bonds
17. The carrying value of a long-term note payable: (Points : 2)
A. Is computed as the future value of all remaining future payments, using the market rate as 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
18. A bond traded at 102 ½ means that: (Points : 2)
The bond pays 2.5% interest
The bond traded at $1,025 per $1,000 bond
The market rate of interest is 2.5%
The bonds were retired at $1,025 each
The market rate of interest is 2 ½% above the contract rate
19. A company borrowed $300,000 cash from the bank by signing a 5-year, 8% installment note. The present value factor for an annuity at 8% for 5 years is 3.9927. Each annuity payment equals $75,137. The present value of the note is: (Points : 2)
$75,137
$94,013
$300,000
$375,685
$1,197,810
20. A company issues at 9% bonds at par with a par value of $100,000 on April 1, which is 4 months after the most recent interest date. How much total cash interest is received on April 1 by the bond issuer? (Points : 2)
$750
$5,250
$1,500
$3,000
$6,000
21. The amount of income earned per share of a company's common stock is known as: (Points : 2)
Restricted retained earnings per share
Earnings per share
Continuing operations per share
Dividends per share
Book value per share
22. The market value of a bond is equal to: (Points : 2)
The present value of all future cash payments provided by a bond
The present value of all future interest payments provided by a bond
The present value of the principal for an interest-bearing bond
The future value of all future cash payments provided by a bond
The future value of all future interest payments provided by a bond
23. A bond sells at a discount when the: (Points : 2)
Contract rate is above the market rate
Contract rate is equal to the market rate
Contract rate is below the market rate
Bond has a short-term life
Bond pays interest only once a year
24. A company issues 9%, 20-year bonds with a par value of $750,000. The current market rate is 9%. The amount of interest owed to the bondholders for each semiannual interest payment is. (Points : 2)
$0
$33,750
$67,500
$750,000
$1,550,000
25. A company borrowed $50,000 cash from the bank and signed a 6-year note at 7%. The present value factor for an annuity for 6 years at 7% is 4.7665. The annual annuity payments equal $10,490. The present value of the loan is: (Points : 2)
$10,490
$11,004
$50,000
$52,450
$238,325
11-15
Compute the price-earnings ratio for each of these four separate companies. Which stock might an analyst likely investigate as being potentially undervalued by the market? Explain.
Company
Earnings
per Share
Market Value
per Share
1
$10.00
$166.00
2
9.00
90.00
3
6.50
84.50
4
40.00
240.00
A liability
A contra liability
An expense
A contra expense
A contra equity
2. A company had net income of $250,000. On January 1, there were 12,000 shares of common stock outstanding. On May 1, the company issued an additional 9,000 shares of common stock. The company declared a $7,900 dividend on its noncumulative, nonparticipating preferred stock. There were no other stock transactions. The company had an earnings per share of: (Points : 2)
$13.45
$13.89
$11.53
$26.90
Amount cannot be determined as problem does not state if there are any dividends in arrears
3. Owners of preferred stock often do not have: (Points : 2)
Ownership rights to assets of the corporation
Voting rights
Preference to dividends
The right to sell their stock on the open market
Preference to assets at liquidation
4. If an issuer sells a bond at any other date than the interest payment date: (Points : 2)
This means the bond sells at a premium
This means the bond sells at a discount
The issuing company will report a loss on the sale of the bond
The issuing company will report a gain on the sale of the bond
The buyer normally pays the issuer the purchase price plus any interest accrued since the prior interest payment date
5. What is the debt to equity ratio for a company who has $700,000 in total liabilities and $3,500,000 in total equity? (Points : 2)
20%
5
$2,100,000
2%
.5
6. A company's board of directors' votes to declare a cash dividend of $0.75 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: (Points : 2)
$375
$4,125
$7,125
$7,500
$11,250
7. Bonds that mature at different dates and end up with the total principal repaid gradually over a number of periods are referred to as: (Points : 2)
Registered bonds
Bearer bonds
Callable bonds
Sinking fund bonds
Serial bonds
8. To provide security to creditors and to reduce interest costs, bonds and notes payable can be secured by: (Points : 2)
Safe deposit boxes
Mortgages
Equity
The FASB
Debentures
9. A corporation's minimum legal capital is often defined to be the total par value of the shares: (Points : 2)
Issued
Authorized
Subscribed
Outstanding
10. Preferred stock on which the right to receive dividends is forfeited for any year that the dividends are not declared is called: (Points : 2)
Noncumulative preferred stock
Participating preferred stock
Callable preferred stock
Cumulative preferred stock
Convertible preferred stock
11. 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: (Points : 2)
A debit to Organization Expenses for $3,000
A debit to Organization Expenses for $5,000
A credit to Common Stock for $5,000
A credit to Contributed Capital in Excess of Par Value, Common Stock for $5,000
A debit to Contributed Capital in Excess of Par Value, Common Stock for $2,000
12. Promissory notes that require the issuer to make a series of payments consisting of both interest and principal are: (Points : 2)
Debentures
Discounted notes
Installment notes
Indentures
Investment notes
13. The date the board of directors votes to pay a dividend is called the: (Points : 2)
Date of stockholders' meeting
Date of declaration
Date of record
Date of payment
Liquidating date
14. Installment notes payable that require periodic payments of accrued interest plus equal amounts of principal result in: (Points : 2)
Periodic total payments that gradually decrease in amount
Periodic total payments that are equal
Periodic total payments that gradually increase in amount
Increasing amounts of interest each period
Increasing amounts of principal each period
15. Bonds with a par value of less than $1,000 are known as: (Points : 2)
Junk bonds
Baby bonds
Callable bonds
Unsecured bonds
Convertible bonds
16. Bonds owned by investors whose names and addresses are recorded by the issuing company and for which interest payments are made with checks to the bondholders, are called: (Points : 2)
Callable bonds
Serial bonds
Registered bonds
Coupon bonds
17. The carrying value of a long-term note payable: (Points : 2)
A. Is computed as the future value of all remaining future payments, using the market rate as 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
18. A bond traded at 102 ½ means that: (Points : 2)
The bond pays 2.5% interest
The bond traded at $1,025 per $1,000 bond
The market rate of interest is 2.5%
The bonds were retired at $1,025 each
The market rate of interest is 2 ½% above the contract rate
19. A company borrowed $300,000 cash from the bank by signing a 5-year, 8% installment note. The present value factor for an annuity at 8% for 5 years is 3.9927. Each annuity payment equals $75,137. The present value of the note is: (Points : 2)
$75,137
$94,013
$300,000
$375,685
$1,197,810
20. A company issues at 9% bonds at par with a par value of $100,000 on April 1, which is 4 months after the most recent interest date. How much total cash interest is received on April 1 by the bond issuer? (Points : 2)
$750
$5,250
$1,500
$3,000
$6,000
21. The amount of income earned per share of a company's common stock is known as: (Points : 2)
Restricted retained earnings per share
Earnings per share
Continuing operations per share
Dividends per share
Book value per share
22. The market value of a bond is equal to: (Points : 2)
The present value of all future cash payments provided by a bond
The present value of all future interest payments provided by a bond
The present value of the principal for an interest-bearing bond
The future value of all future cash payments provided by a bond
The future value of all future interest payments provided by a bond
23. A bond sells at a discount when the: (Points : 2)
Contract rate is above the market rate
Contract rate is equal to the market rate
Contract rate is below the market rate
Bond has a short-term life
Bond pays interest only once a year
24. A company issues 9%, 20-year bonds with a par value of $750,000. The current market rate is 9%. The amount of interest owed to the bondholders for each semiannual interest payment is. (Points : 2)
$0
$33,750
$67,500
$750,000
$1,550,000
25. A company borrowed $50,000 cash from the bank and signed a 6-year note at 7%. The present value factor for an annuity for 6 years at 7% is 4.7665. The annual annuity payments equal $10,490. The present value of the loan is: (Points : 2)
$10,490
$11,004
$50,000
$52,450
$238,325
11-15
Compute the price-earnings ratio for each of these four separate companies. Which stock might an analyst likely investigate as being potentially undervalued by the market? Explain.
Company
Earnings
per Share
Market Value
per Share
1
$10.00
$166.00
2
9.00
90.00
3
6.50
84.50
4
40.00
240.00
