Multiple Choice Answers

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Question 1
Condi Corporation sells $100,000, 12%, 10-year bonds for 97 on January 1, 2009. Interest is paid on January 1 and July 1. Straight-line amortization is used. The amount of interest paid on July 1, 2009 is:
A. $6,000.
B. $5,850.
C. $12,000.
D. $6,150.

Question 2
A bond payable is similar to which of the following?
A. Accounts Payable
B. Notes Payable
C. Accounts Receivable
D. Cash

Question 3
For a corporation, a premium on bonds results when:
A. the contract rate is less than the market rate.
B. the contract rate is greater than the market rate.
C. the face value is greater than the effective rate.
D. None of these answers are correct.

Question 4
When the contract rate of interest on bonds is equal to the market rate of interest, bonds sell at:
A. a premium.
B. their face value.
C. a discount.
D. their maturity value.

Question 5
Bailey Corporation has decided to issue bonds pledging specific assets. What type of bonds is it offering?
A. Secured bonds
B. Debenture bonds
C. Serial bonds
D. Convertible bonds

Question 6
Bond Interest Payable is reported as a:
A. contra-liability on the balance sheet.
B. current liability on the income statement.
C. contra-liability on the income statement.
D. current liability on the balance sheet.

Question 7
Carrying value is the same thing as:
A. fair market value.
B. discount value.
C. book value.
D. premium value.

Question 8
The contract rate for a bond is:
A. the annual interest rate based on face value.
B. the annual interest rate based on selling price.
C. the annual interest rate based on market value.
D. None of these answers are correct.

Question 9
Davis Corporation sells $100,000, 12%, 10-year bonds for 103 on January 1. Compute the semi-annual interest expense recorded on July 1 using the interest method. The market rate is 8%.
A. $12,000
B. $8,240
C. $6,000
D. $4,120

Question 10
When selling bonds at a premium, the premium received effectively:
A. reduces the cost of borrowing.
B. does not affect the cost of borrowing.
C. reduces the amount of cash received when bonds are sold.
D. increases the cost of borrowing.

Question 11
The entry to record the semiannual payment and amortization of the discount using the straight-line method on a 10%, $100,000, 5-year bond issued at 97 would be to:
A. debit Bond Interest Expense $10,000; credit Cash $10,000.
B. debit Bond Interest Expense $5,000; credit Cash $5,000.
C. debit Bond Interest Expense $13,000; credit Cash $10,000; credit Discount on Bonds Payable $3,000.
D. debit Bond Interest Expense $5,300; credit Cash $5,000; credit Discount on Bonds Payable $300.

Question 12
The interest rate specified in the bond indenture is called the:
A. market rate.
B. discount rate.
C. effective rate.
D. contract rate.

Question 13
Bond certificates state the:
A. market value and contract rate.
B. market value and current interest rate.
C. face value and contract rate.
D. face value and current interest rate.

Question 14
Dividends paid to stockholders are:
A. taxable to the corporation.
B. treated the same as bond interest.
C. taxable to the recipient stockholder.
D. None of these answers are correct.

Question 15
Bonds payable issued with collateral are called:
A. debenture bonds.
B. secured bonds.
C. callable bonds.
D. serial bonds.

Question 16
If Accounts Receivable decreases on a comparative balance sheet, this means:
A. collections were more than sales.
B. credit sales are increasing more than collections.
C. credit sales are decreasing.
D. None of these answers are correct.

Question 17
Of the following items, which is not classified as an investing activity on the statement of cash flows?
A. Selling goods and services
B. Sale of a plant asset for cash
C. Collecting loans
D. Purchasing land

Question 18
Collins Corporation reported net income of $35,000; depreciation expenses of $20,000; an increase in Accounts Payable of $2,000; and an increase in Accounts Receivable of $3,000. Net cash flow from operating activities using the indirect method is:
A. $56,000.
B. $55,000.
C. $54,000.
D. $50,000.

Question 19
If $12,000 was generated from operations, $6,000 was used for investing activities, and $4,000 was provided by financing activities, the cash balance would:
A. increase by $2,000.
B. increase by $14,000.
C. increase by $10,000.
D. decrease by $20,000.

Question 20
The accuracy of the statement of cash flows, regardless of method used, can be verified by computing the change in the balance of:
A. revenue.
B. equity.
C. liabilities.
D. cash.

Question 21
The statement of cash flows provides information about all of the following except:
A. operating activities.
B. financing activities.
C. investing activities.
D. organizing activities.

Question 22
Activities that pay and collect interest on loans are:
A. financing and investing activities.
B. operating and financing activities.
C. marketing activities.
D. operating and investing activities.

Question 23
Many accountants prefer which method of computing cash flow from operating activities?
A. Direct method
B. Indirect method
C. Combination method
D. Adjusting method

Question 24
The sale of plant and equipment for cash would result in:
A. a decrease subtracted from net income from operations.
B. a decrease in cash from investing activities.
C. an increase in cash from investing activities.
D. an increase added to net income from operations.

Question 25
Which of the following would be included in the net cash flows from operating activities section of a cash flow statement using the indirect method?
A. Sales of plant, property and equipment
B. Payment of interest and expenses
C. Making loans and paying out interest
D. Issuing bonds and notes

Question 26
When comparing net cash provided by operating activities using the indirect versus direct method:
A. there is no difference between the two methods
B. net cash is lower using indirect method
C. net cash is higher using the indirect method
D. depreciation expense is used in the direct method.

Question 27
The cash flow statement has all of the following sections except:
A. net cash flow from operating activities.
B. net cash flow from managing activities.
C. net cash flow from financing activities.
D. net cash flow from investing activities.

Question 28
Big Toy Corporation’s records show profit of $30,000; depreciation expense of $10,000; and cash dividends declared and paid of $5,000. The amount of cash used in operating activities using the indirect method is:
A. $10,000.
B. $40,000.
C. $20,000.
D. $30,000.

Question 29
Activities that increase and decrease as a result of selling a company’s stock are:
A. investing activities.
B. marketing activities.
C. operating activities.
D. financing activities.

Question 30
When preparing the statement of cash flows by the indirect method, if accumulated depreciation increases the difference is:
A. added to net income.
B. not considered in the statement of cash flows using the indirect method.
C. added to investments.
D. deducted from net income.