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Question 1

Question 1. Timing of cash flows is important because of which of the following? Money has a time value An amount of cash to be received in the future is always equivalent to the same amount of cash held at the present Equal cash flows are always worth more than a lump sum payment

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Question 1

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  1. Question 1 Timing of cash flows is important because of which of the following? • Money has a time value • An amount of cash to be received in the future is always equivalent to the same amount of cash held at the present • Equal cash flows are always worth more than a lump sum payment • All of the above • None of the above

  2. Question 2 Determine the present value of an ordinary annuity for a period of five years with annual payments of $2,000, assuming the interest rate is seven percent. (Use the Word Document Tables) • $8,200.40 • $4,100.20 • $8,659.00 • $10,000 • None of the Above

  3. Question 3 What lump sum amount should a company invest today if they want to have $20,000 in five years and the interest rate is seven percent (round to the nearest dollar)? (Use the Word Document Tables) • $14,260 • $15,670 • $7,130 • $21,400 • $28,050

  4. Question 4 The current interest rate is six percent. What is the maximum amount you would be willing to pay at the present time in order to receive five annual payments of $2,000 beginning one year from now? (Use Word Document Tables) • $4,212 • $14,946 • $9,434 • $8,425 • $10,600

  5. Question 5 What is the present value of a three year lease requiring annual payments of $30,000 if the market rate of interest is seven percent? (Use Word Document Tables) • $15,000 • $78,729 • $13,829 • $26,243 • None of the Above

  6. Question 6 Oakey Company received a cash down payment of $1,000 and a $10,000 , 90 day, 12 percent non-interest-bearing note from a customer as payment for the purchase of equipment. What is the fair value of the equipment? • $10,000 • $10,700 • $11,000 • $11,300 • None of the Above

  7. Question 7 Which of the following is a contra liability that represents interest deducted from a loan in advance? • Note payable • Annuity • Discount on note payable • Accounts payable • Compound interest

  8. Question 8 Florence, Inc. issued one hundred $1,000 bonds on January 2, 2003. The bonds will mature in ten years. For each bond, the company will pay $50 each June 30 and December 31 until maturity. When the bonds were issued, the company received $88,500. On the date of issue, the annual stated rate of interest was which of the following? 10% APR 6% APR 5% APR 8% APR None of the Above

  9. Question 9 Laurence, Inc. issued five hundred $1,000 bonds on July 1, 2008. The bonds will mature in ten years. For each bond, the company will pay $50 each December 31 and June 30 until maturity. The market rate of interest was 8% at issuance. When the bonds were issued, the company received $567,750. Assuming an effective interest amortization on the premium, the interest expense that the company should record on December 31, 2008, is which of the following? $20,000 $22,710 $25,000 $30,000 $45,420

  10. Question 10 Gravy, Inc. is selling five year bonds with a face value of $200,000 on January 1. The stated annual interest rate is six percent. Interest will be paid annually on December 31. The effective interest rate is currently seven percent. Determine which of the following is the selling price of these bonds. Round to the nearest dollar. (Use tables) $191,802 $200,001 $180,961 $173,161 None of the Above

  11. Question 11 Determine the selling price of a five year, $1,000 face value bond with an annual interest rate of five percent sold to yield seven percent. Which of the following is the selling price? (Use tables) $713 $1,071 $930 $918 $989

  12. Question 12 The Gravy Boat Company issued bonds due in ten years at a discount. This indicates which of the following? The market rate of interest exceeded the stated rate at the time the bonds were issued The stated rate of interest exceeded the market rate at the time the bonds were issued The stated rate equaled the market rate of interest at the time the bonds were issued All of the Above None of the Above

  13. Question 13 Treasury Stock is which of the following? • An asset account • A contra-asset account • A liability account • A stockholder’s equity account • A contra-stockholder’s equity account

  14. Question 14 Go-Get-It Company has the following classes of stock outstanding at year end: Common stock ($20 par-value, 80,000 shares issued; 60,000 shares outstanding) Preferred stock (8%, $100 par value, cumulative and not participating, 3,000 shares issued & outstanding). At the end of the current year, dividends on preferred stock has been in arrears for two years. At the end of the year, Go-Get-It declared dividends totaling $192,000. What is the per-share amount of the dividend paid to common stockholders? • $2.00 • $2.40 • $2.80 • $3.20 • $3.00

  15. Question 15 A company begins business on January 1 and issues 100,000 share of common stock. On July 1, the company declares and issues a 2-for-1 stock split. On October 15, the company purchases 20,000 shares of stock as treasury stock and sold 5,000 shares by the end of the month. Calculate the number of shares issued and the number of shares outstanding as of the end of the first year of operations? • 50,000 issued and 200,000 outstanding • 100,000 issued and 185,000 outstanding • 200,000 issued and 180,000 outstanding • 200,000 issued and 185,000 outstanding • None of the Above

  16. Question 16 The account “Retained Earnings” is: A. A subdivision of Paid-In Capital B. Net Income retained in the corporation C. reported as an expense on the income statement. D. Contributed Capital

  17. Question 17 ABC Corporation issues 1,000 shares of $10 par common stock at $12 per share. In recording the transaction, credits are made to: • Common Stock $10,000 and APIC-CS $2,000. • Common Stock $12,000 • Common Stock $10,000 and Retained Earnings $2,000. • Cash $12,000.

  18. Question 18 XYZ Inc. sells 100 shares of $5 par value treasury stock at $13 per share. If the cost of acquiring the shares was $10 per share, the entry for the sale should include credits to: • Treasury Stock $1,000 and CIEP-TS $300. • Treasury Stock $500 and CIEP-TS $800. • Treasury Stock $1,000 and Retained Earnings $300 • Treasury Stock $1,300.

  19. Question 19 - OMIT A Prior Period Adjustment is: • Reported in the income statement as a non-recurring item. • A correction of an error that is made directly to retained earnings. • Reported directly in the stockholders’ equity section on balance sheet. • Reported on the balance sheet as an accrued liability.

  20. Question 20 Karson Inc. issues 10-year bonds with a maturity value of $200,000. If the bonds are issued at $220,000, this indicates that: • The stated rate exceeds the market interest rate. • The market rate exceeds the stated rate of interest. • The stated rate and the market rate are the same. • No relationship exists between the two rates.

  21. Question 21 On January 1, Vesalius Inc. issued $1,000,000, 9% bonds for $939,000. The market rate of interest for these bonds is 10%. Interest is payable annually on December 31. Vesalius uses the effective interest method of amortizing bond discount. At the end of the first year (after the first interest payment), Vesalius should report unamortized bond discount of: • $54,900 • $57,100 • $51,610 • $51,000

  22. Question 22 Indicate whether the following statements about a small stock dividend are true or false. _____ A stock dividend decreases total stockholders’ equity. _____ The market value per share should be used to determine the dividend amount. _____ A stock dividend will have no effect on contributed capital. • True, True, True • False, True, False • True, True, False • False, False, True

  23. Question 23 The Stockholders’ Equity accounts of the Chung Corporation on January 1 were as follows: Preferred Stock (7%, $100 par, cumulative, 5,000 shares authorized) $ 300,000 Common Stock ($5 par, 300,000 authorized) 1,000,000 Capital in Excess of Par Preferred $ 15,000 Common 400,000 415,000 Retained Earnings 488,000 Treasury Stock – Common (5,000 shares @ $8 cost) 40,000 During the year, the corporation had the following transactions and events pertaining to its stockholder’s equity: Feb 1 Issued 5,000 shares of common stock for $35,000. June 14 Sold 4,000 shares out of treasury for $34,000. Dec. 31 Determined that net income for the year was $215,000. Dividends of $80,000 were declared by the board on Dec. 29 The preferred dividends are two years in arrears. USE THE ABOVE INFORMATION TO ANSWER THE QUESTIONS AT THE LEFT. How many shares of Preferred Stock are issued? _____________ What amount will the Preferred stockholders receive as their dividend? $_______________ How many shares of Common Stock are outstanding as of December 31? ____________ What is the ending Retained Earnings balance as of December 31? $__________________ What is Total Stockholders Equity at December 31? $____________________

  24. Question 24 Aggie Company ‘s net income for the year ended December 31, 2009 is $186,000. The stockholders’ equity section of Aggies’ December 31, 2009 balance sheet contains the following information: Preferred Stock ($10 par, 6%, 10,000 shares issued & out) $100,000 Common Stock ($1 par, 100,000 shares issued and out) 100,000 On April 1, 2009, 40,000 shares of common stock were issued for cash. Required: Calculate the earnings per share that should be disclosed on Aggie’s 2009 Income Statement. • $ 1.86 • $ 1.80 • $ 2.00 • $ 2.07

  25. SOLUTIONS • A • A • A • D • B • B • C • A • B • A • D • A • E • A • D • B • A • A • B • A • B • B • A. 3,000 B. $63,000 C. 204,000 • $623,000 E. $2,367,000 24. C

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