MCQ Set74

Multiple Choice Answers

1. 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 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

2. A company has net income of $850,000. It also has 125,000 weighted-average common shares outstanding and a market value per share of $115. The company’s price-earnings ratio is equal to:
16.9
14.7
92.0
13.5
8.0

3. A dividend preference for preferred stock means that:
Preferred stockholders receive their dividends before common shareholders
Preferred shareholders are guaranteed dividends
Dividends are paid quarterly
Preferred stockholders prefer dividends more than common stockholders
Dividends must be declared on preferred stock

4. When a bond sells at a premium:
The contract rate is above the market rate
The contract rate is equal to the market rate
The contract rate is below the market rate
It means that the bond is a zero coupon bond
The bond pays no interest

5. A company must repay the bank $10,000 cash in 3 years for a loan. The loan agreement specifies 8% interest compounded annually. The present value factor for 3 years at 8% is 0.7938. The present value of the loan is:
$10,000
$12,400
$7,938
$9,200
$7,600

6. The market value of a bond is equal to:
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

7. 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:
Callable bonds
Serial bonds
Registered bonds
Coupon bonds

8. The total amount of stock that a corporation’s charter allows it to issue is referred to as:
Issued stock
Outstanding stock
Common stock
Preferred stock
Authorized Stock

9. 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:
$75,137
$94,013
$300,000
$375,685
$1,197,810

10. Preferred stock on which the right to receive dividends is forfeited for any year that the dividends are not declared is called:
Noncumulative preferred stock
Participating preferred stock
Callable preferred stock
Cumulative preferred stock
Convertible preferred stock

11. Sinking fund bonds:
Require the issuer to set aside assets in order retire the bonds at maturity
Require equal payments of both principal and interest over the life of the bond issue
Decline in value over time
Are registered bonds
Are bearer bonds

12. Promissory notes that require the issuer to make a series of payments consisting of both interest and principal are:
Debentures
Discounted notes
Installment notes
Indentures
Investment notes

13. If an issuer sells a bond at any other date than the interest payment date:
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

14. A company purchased equipment and signed a 7-year installment loan at 9% annual interest. The annual payments equal $9,000. The present value factor for an annuity for 7 years at 9% is 5.0330. The present value of the loan is:
$9,000
$5,033
$63,000
$57,330
$45,297

15. Installment notes payable that require periodic payments of accrued interest plus equal amounts of principal result in:
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

16. Shamrock Company had net income of $30,000. On January 1, there were 8,000 shares of common stock outstanding. On April 1, the company issued an additional 2,000 shares of common stock. There were no other stock transactions. The company has an earnings per share of:
$3.75
$3.00
$3.33
$15.00
$3.16

17. To provide security to creditors and to reduce interest costs, bonds and notes payable can be secured by:
Safe deposit boxes
Mortgages
Equity
The FASB
Debentures

18. Stock that was reacquired by the company and is still held by the issuing corporation is called:
Capital stock
Treasury stock
Redeemed stock
Preferred stock

19. The amount of income earned per share of a company’s common stock is known as:
Restricted retained earnings per share
Earnings per share
Continuing operations per share
Dividends per share
Book value per share

20. What is the debt to equity ratio for a company who has $700,000 in total liabilities and $3,500,000 in total equity?
20%
5
$2,100,000
2%
.5

21. Amortizing a bond discount:
Allocates a part of the total discount to each interest period
Increases the market value of the Bonds Payable
Decreases the Bonds Payable account
Decreases interest expense each period
Increases cash flows from the bond

22. The carrying value of a long-term note payable:
Is computed as the future value of all remaining future payments, using the market rate as interest
Is the face value of the long-term note less the total of all future interest payments
Is computed as the present value of all remaining future payments, discounted using the market rate of interest at the time of issuance
Is computed as the present value of all remaining interest payments, discounted using the note’s rate of interest
Decreases each time period the discount on the note is amortized

23. A bond traded at 102 ½ means that:
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

24. A premium on common stock:
Is the amount paid in excess of par by purchasers of newly issued stock
Is the difference between par value and issue price when the amount paid is below par
Represents profit from issuing stock
Represents capital gain on sale of stock
Is prohibited in most states

25. 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?
$750
$5,250
$1,500
$3,000
$6,000