If An Asset is Long-lived

EXAM 3 a. fixed asset If an asset is long-lived and is used in a productive manner in a business, it will be classified as a(n) a. fixed asset. b. investment. c. expense. d. intangible asset. a. copyrights All of the following are considered fixed assets except a. copyrights. b. building. c. land improvements. d. land. investment If the asset is long-lived but not used in the normal operations of the business, it will be classified as a(n) a. fixed asset. b. intangible asset. c. expense. d. investment. c. book value. The estimated value of an asset at the end of its useful life is called all of the following except a. residual value. b. salvage value. c. book value. d. scrap value. d. None of these choices are correct. All of the following are factors used in determining depreciation expense with the straight-line method except a. the asset's initial cost. b. the asset's estimated residual value. c. the asset's expected useful life. d. None of these choices are correct. b. Land Which of the following fixed assets is not depreciated? a. Equipment b. Land c. Building d. None of these choices are correct. c. $2,080 Correct. ($11,000 − $1,000)/5,000 hours = $2.00 per hour; $2.00 × 1,040 hours = $2,080 Cardinal Industries purchased a generator that cost $11,000. It has an estimated life of five years and a residual value of $1,000. It is estimated that it will be good for 5,000 hours. Compute the depreciation expense for the first year using the unitsof-activity method of depreciation assuming the generator was used for 1,040 hours. a. $208 b. $2,288 c. $2,080 d. $2,000 c. when it is fully depreciated. A fixed asset should be removed from the accounts except a. when it is discarded. b. when it is sold. c. when it is fully depreciated. d. when it is given away a. Accumulated Depreciation will be credited. Which of the following is not true in regard to selling fixed assets? a. Accumulated Depreciation will be credited. b. The cash receipt is recorded. c. If the selling price is more than the book value, a gain is recorded. d. The journal entry is similar to discarding fixed assets. b. Full depreciation should be recorded and no loss recognized with an asset that is discarded rather than sold. In regard to discarding fixed assets, which of the following is not true? a. Recorded depreciation should be brought up to date before removing the asset from the accounting records. b. Full depreciation should be recorded and no loss recognized with an asset that is discarded rather than sold. c. If a fixed asset is no longer used and has no residual value, it is discarded. d. If a fixed asset is no longer used and has no residual value, it should be written off. Correct. This is not true; a loss can be recognized when discarding a fixed asset. a. A loss of $10,000 Correct. ($78,000 − $3,000)/5 = $15,000; $15,000 × 4 = $60,000; $78,000 − $60,000 = $18,000; $8,000 − $18,000 = $(10,000) loss Accumulated Depreciation 60,000 Cash 8,000 Loss on Sale of Equipment 10,000 Equipment 78,000 Equipment was purchased at a cost of $78,000. The equipment had an estimated useful life of five years and a residual value of $3,000. Assuming the equipment was sold at the end of Year 4 for $8,000, determine the gain or loss on the sale of equipment. (Assume the straight-line depreciation method.) a. A loss of $10,000 b. A loss of $8,000 c. A gain of $8,000 d. A gain of $10,000 c. debit to Depletion Expense. The journal entry to record depletion includes a a. debit to Accumulated Feedback: Correct. The journal entry Depletion. b. credit to Accumulated to record depletion includes a debit to Depreciation. c. debit to Depletion Depletion Expense. Expense. d. credit to Depletion Expense. b. Depletion Rate × Quantity Extracted. The calculation of depletion expense is a. Depletion Rate × Estimated Useful Life. b. Depletion Rate × Quantity Extracted. c. Feedback: Correct. Depletion Expense Quantity Extracted × Estimated Useful = Depletion Rate × Quantity Life. d. None of these choices are correct. Extracted d. Cost of Resource/Estimated Total The depletion rate is calculated as a. Units of Resource. Feedback: Correct. Depletion Rate = Cost of Resource/Estimated Total Units of Resource b. $750 per ton Feedback: Correct. $60,000,000/80,000 tons = $750 per ton Investment Feedback: Correct. Investments are long-lived assets, such as undeveloped land, that are not used in the normal operations and are held for future resale. d. In a purchase of a business at a price in excess of the fair value of its net assets, goodwill is recorded as the excess. Correct. Goodwill is an intangible asset that allows a business to earn a greater rate of return than normal. Goodwill is not amortized. GAAP only allows goodwill to be recorded if it is objectively determined by a transaction, such as when a company buys another company for an amount greater than the fair value of its net assets. In this case, goodwill is recorded as the excess amount. Estimated Total Units of Resource/Cost of Resource. b. Cost of Resource/Estimated Useful Life of Resource. c. Estimated Useful Life of Resource/Cost of Resource. d. Cost of Resource/Estimated Total Units of Resource. Shale Miner Co. acquired mineral rights for $60,000,000. It is estimated that there are 80,000 total tons of the resource; during the current year, 10,750 tons were mined and sold. What is the rate of depletion? a. $1,000 per ton b. $750 per ton c. $500 per ton d. $600 per ton Which of the following is not classified as an intangible asset? a. Goodwill b. Investment c. Patent d. Trademark Which of the following statements is true regarding goodwill? a. Goodwill is amortized based on a 10-year period. b. Goodwill is the exclusive use of a name, term, or symbol used to identify a business or its product. c. Goodwill is amortized based on the lesser of the useful life or the legal life. d. In a purchase of a business at a price in excess of the fair value of its net assets, goodwill is recorded as the excess. amortization The expensing of intangible assets is called a. amortization. b. depletion. c. Feedback: Correct. Amortization is the replenishing. d. depreciation. transfer of cost to expense of an intangible asset. trademark All of the following will be found under the caption of "property, plant, and Correct. A trademark is a name, term, equipment" in the balance sheet except a. or symbol used to identify a business computer equipment. b. trademark. c. land and its products, such as McDonald's improvements. d. parking lot costs. golden arches. Under the caption of intangible assets in the balance sheet, copyrights, patents, goodwill, and trademarks will be included. buildings Feedback: Correct. Buildings will be included under property, plant, and equipment. All of the following assets will be included as intangible assets on the balance sheet except a. copyrights. b. buildings. c. patents. d. goodwill. b. immediately after the property, plant, and equipment. Intangible assets are reported on the balance sheet a. before the current assets. b. immediately after the property, plant, and equipment. c. immediately after the current assets. d. before property, plant, and equipment. Feedback: Correct. Intangible assets are found on the balance sheet in a separate section immediately following property, plant, and equipment. b. the underlying contract between the corporation issuing the bonds and the bondholders. Feedback: Correct. Bond indenture is the term used to refer to the underlying contract between an issuing corporation and the bondholders. A bond indenture is a. a bond that is secured by specific assets of the issuing corporation. b. the underlying contract between the corporation issuing the bonds and the bondholders. c. a bond that has past due interest payments. d. a bond that is unsecured. a. effective interest rate. Correct. Market rate of interest and effective rate of interest are both terms used to describe the current interest rate as determined by transactions between buyers and sellers of similar bonds. The market interest rate related to a bond is also called the a. effective interest rate. b. face interest rate. c. coupon rate. d. contract rate. 980 A $1,000 bond quoted at 98 could be purchased or sold for a. $1,098. b. $980. c. between $1,000 and $1,098, depending on the maturity date of the bond. d. $1,000. Correct. The price of a bond is quoted as a percentage of the bond's face value. In this case, $1,000 × 98% = $980. a. $1,000. A $1,000 bond quoted at 100 could be purchased or sold at a. $1,000. b. $900. c. $1,100. d. $100. a. debit Cash, credit Premium on Bonds Payable and Bonds Payable. The journal entry a company records for the issuance of bonds when the contract rate is higher than the market rate of interest is a. debit Cash, credit Premium on Bonds Payable and Bonds Payable. b. Correct. When the contract rate of a bond is greater than the market rate, the bonds sell for more than their face amount, which results in a premium. b. the bonds will sell for less than their face amount. Correct. If the market rate of interest is greater than the contract rate of interest, the bonds will sell for less than their face amount. 8,000 Feedback: Correct. Interest is calculated as principal × rate × time, or $100,000 × 8% × 12/12 = $8,000. d. should be reported on the balance sheet as a deduction from the face amount of the related bonds payable. Correct. The carrying value of a bond is reported on the balance sheet as the face amount of the related bond minus the unamortized discount on the bonds. The discount can either be reported on the face of the financial statements or in the accompanying notes. debit Cash and Discount on Bonds Payable, credit Bonds Payable. c. debit Cash, credit Bonds Payable. d. debit Bonds Payable, credit Cash. If the market rate of interest is greater than the contract rate of interest, a. the bonds will sell for their face amount. b. the bonds will sell for less than their face amount. c. the bonds will sell for more than their face amount. d. None of these choices are correct. Hsu Company issued $100,000 of 8% bonds on January 1, 2018, at face value. The bonds pay interest semiannually on June 30 and December 31, 2018. The total interest expense related to these bonds for the year ended December 31, 2018, is a. $8,000. b. $4,000. c. $12,000. d. $2,000. The balance in Unamortized Discount on Bonds Payable a. would be added to the face amount of the related bonds payable on the balance sheet. b. should be reported separately in the Current Liabilities section of the balance sheet. c. should be reported in the Paid-In Capital section of the balance sheet. d. should be reported on the balance sheet as a deduction from the face amount of the related bonds payable. a. added to the face amount of the related bonds payable on the balance sheet. The balance in Unamortized Premium on Bonds Payable should be a. added to the face amount of the related bonds payable on the balance sheet. b. reported Feedback: Correct. The carrying value separately in the Current Liabilities section of a bond is reported on the balance of the balance sheet. c. reported in the sheet as the face amount of the Paid-In Capital section of the balance related bond plus the unamortized sheet. d. reported on the balance sheet as premium on the bonds. The premium a deduction from the face amount of the can either be reported on the face of related bonds payable. the financial statements or in the accompanying notes. d. long-term liability on the balance sheet. The portion of bonds or notes payable that is not due within one year is reported as Feedback: Correct. Any portion of the bonds or notes payable that is not due within one year is reported as a longterm liability. a(n) a. current liability on the balance sheet. b. expense on the income statement. c. part of stockholders' equity. d. long-term liability on the balance sheet. a. Corporations have less regulatory costs than other business forms. Which of the following is not characteristic of a corporation? a. Corporations have less regulatory costs than other business forms. b. The financial loss that a stockholder may suffer from owning stock in a public company is limited to the amount invested. c. A corporation can own property in its name. d. Corporations are required to file federal income tax returns. a. double taxation. One of the main disadvantages of the corporate form is a. double taxation. b. professional management. c. the charter. d. that a corporation must issue stock. c. The owners are personally liable for corporate actions. Which of the following is not true of a corporation? a. It may sue and be sued. b. It may enter into binding legal contracts in its own name. c. The owners are personally liable for corporate actions. d. It may buy, own, and sell property. d. Paid-In Capital in Excess of Par— Common Stock. The entry to record the issuance of common stock at a price above par includes a credit to a. Preferred Stock. b. Organizational Expenses. c. Cash. d. PaidIn Capital in Excess of Par—Common Stock. outstanding The number of shares remaining in the hands of shareholders after some stock has been reacquired is referred to as the shares a. issued. b. outstanding. c. in arrears. d. authorized. b. Common Stock is credited for the full amount of the proceeds. When no-par stock is issued, a. Common Stock is credited for an assumed par value. b. Common Stock is credited for the full amount of the proceeds. c. Common Stock is credited for a standard $10 value. d. Paid-In Capital in Excess of Par is credited for the full amount of the proceeds. b. $24,000. A corporation issues 2,000 shares of common stock for $32,000. The stock has a stated value of $12 per share. The journal entry to record the stock issuance would include a credit to Common Stock for a. $32,000. b. $24,000. c. $12,000. d. $2,000. c. dividends in arrears before common stockholders are paid any dividends. Cumulative preferred stockholders have the right to receive a. a greater share of dividends than common stockholders. b. dividends in arrears after common stockholders are paid dividends. c. dividends in arrears before common stockholders are paid any dividends. d. None of these choices are correct. b. decrease stockholders' equity and to increase total liabilities. The effect of the declaration of a cash dividend on a company's financial statements is to a. increase total expenses and total liabilities. b. decrease stockholders' equity and to increase total liabilities. c. increase total assets and stockholders' equity. d. decrease total assets and stockholders' equity. c. date of payment. The date on which cash dividends are paid is on the a. date of record. b. date of declaration. c. date of payment. d. last day of the fiscal year-end. b. a debit to Cash Dividends for $120,000. Aaron Company has 80,000 shares of $10 par common stock outstanding. On May 25, Aaron Company declared a $1.50 cash dividend. The market price of the stock on May 25 was $17 per share. The journal entry to record the cash dividend would include a. a debit to Cash for $560,000. b. a debit to Cash Dividends for $120,000. c. a credit to Paid-In Capital in Excess of Par —Common Stock for $560,000. d. All of these choices are correct. c. Each shareholder will own the same total par amount of stock before and after the split. Which of the following statements is true concerning stock splits? a. Stock splits require journal entries to be recorded. b. The total number of shares outstanding has not changed after the stock split. c. Each shareholder will own the same total par amount of stock before and after the split. d. None of these choices are correct. c. reduce the market price per share of the stock. A major objective of a stock split is to a. reduce the number of shares of the stock. b. increase the par value of the stock. c. reduce the market price per share of the stock. d. increase the market price per share of the stock. b. Stock split Which of the following is not recorded with a journal entry? a. Dividend on the date of declaration b. Stock split c. Dividend on the date of payment d. All of these choices require journal entries. c. 120,000 shares. A corporation has 40,000 shares of $25 par value stock outstanding. If the corporation issues a 3-for-1 stock split, the number of shares outstanding after the split will be a. 40,000 shares. b. 160,000 shares. c. 120,000 shares. d. 10,000 shares. d. issued shares that are held by the treasurer of the corporation. Treasury stock shares are a. part of the total outstanding shares but not part of the total issued shares of a corporation. b. shares held by the U.S. Treasury Department. c. issued shares held by stockholders in the treasury. d. issued shares that are held by the treasurer of the corporation. d. None of these choices are correct. A corporation may reacquire (purchase) its own stock for the following reasons except a. to support the market price of the stock. b. to provide shares for resale to employees. c. to reissue as bonuses to employees. d. None of these choices are correct. b. cost method. The purchase and resale of treasury stock is normally recorded using the a. equity method. b. cost method. c. indirect method. d. direct method. c. stockholders' equity will be increased by $500. Treasury stock that was purchased for $2,500 is sold for $3,000. As a result of these two transactions combined, a. stockholders' equity will be increased by $3,000. b. income will be increased by $500. c. stockholders' equity will be increased by $500. d. stockholders' equity will not change, because the amount of authorized stock has not changed. d. does not change the balance of Retained Earnings. A restriction/appropriation of retained earnings a. increases total retained earnings. b. decreases total assets. c. decreases total retained earnings. d. does not change the balance of Retained Earnings. a. the row designations in the Stockholders' Equity section of the balance sheet. The column headings on a statement of stockholders' equity best represent a. the row designations in the Stockholders' Equity section of the balance sheet. b. the column headings on the retained earnings statement. c. the column designations in the Stockholders' Equity section of the balance sheet. d. None of these choices are correct. c. Prior period adjustments are reported as an adjustment to the ending balance of retained earnings in the current period. Which of the following statements is not correct with regard to prior period adjustments? a. Prior period adjustments arise from mathematical mistakes in a previous period. b. Prior period adjustments are errors found in a period after the error occurred. c. Prior period adjustments are reported as an adjustment to the ending balance of retained earnings in the current period. d. All of these choices are correct. a. $1,225,000 What is the total stockholders' equity based on the following data? Common Stock $900,000 Excess of Issue Price Over Par 375,000 Retained Earnings (deficit) (50,000) a. $1,225,000 b. $900,000 c. $1,275,000 d. $1,325,000 EXAM 3 Calculate the Price Deadline 275 words Looking for Expert Opinion? Let us have a look at your work and suggest how to improve it! a. fixed asset If an asset is long-lived and is used in a productive manner in a business, it will be classified as a(n) a. fixed asset. b. investment. c. expense. d. intangible asset. a. copyrights All of the following are considered fixed assets except a. copyrights. b. building. c. land improvements. d. land. investment If the asset is long-lived but not used in the normal operations of the business, it will be classified as a(n) a. fixed asset. b. intangible asset. c. expense. d. investment. c. book value. The estimated value of an asset at the end of its useful life is called all of the following except a. residual value. b. salvage value. c. book value. d. scrap value. d. None of these choices are correct. All of the following are factors used in determining depreciation expense with the straight-line method except a. the asset’s initial cost. b. the asset’s estimated residual value. c. the asset’s expected useful life. d. None of these choices are correct. b. Land Which of the following fixed assets is not depreciated? a. Equipment b. Land c. Building d. None of these choices are correct. c. $2,080 Correct. ($11,000 − $1,000)/5,000 hours = $2.00 per hour; $2.00 × 1,040 hours = $2,080 Cardinal Industries purchased a generator that cost $11,000. It has an estimated life of five years and a residual value of $1,000. It is estimated that it will be good for 5,000 hours. Compute the depreciation expense for the first year using the unitsof-activity method of depreciation assuming the generator was used for 1,040 hours. a. $208 b. $2,288 c. $2,080 d. $2,000 c. when it is fully depreciated. A fixed asset should be removed from the accounts except a. when it is discarded. b. when it is sold. c. when it is fully depreciated. d. when it is given away a. Accumulated Depreciation will be credited. Which of the following is not true in regard to selling fixed assets? a. Accumulated Depreciation will be credited. b. The cash receipt is recorded. c. If the selling price is more than the book value, a gain is recorded. d. The journal entry is similar to discarding fixed assets. b. Full depreciation should be recorded and no loss recognized with an asset that is discarded rather than sold. In regard to discarding fixed assets, which of the following is not true? a. Recorded depreciation should be brought up to date before removing the asset from the accounting records. b. Full depreciation should be recorded and no loss recognized with an asset that is discarded rather than sold. c. If a fixed asset is no longer used and has no residual value, it is discarded. Correct. This is not true; a loss can be recognized when discarding a fixed asset. d. If a fixed asset is no longer used and has no residual value, it should be written off. a. A loss of $10,000 Correct. ($78,000 − $3,000)/5 = $15,000; $15,000 × 4 = $60,000; $78,000 − $60,000 = $18,000; $8,000 − $18,000 = $(10,000) loss Accumulated Depreciation 60,000 Cash 8,000 Loss on Sale of Equipment 10,000 Equipment 78,000 Equipment was purchased at a cost of $78,000. The equipment had an estimated useful life of five years and a residual value of $3,000. Assuming the equipment was sold at the end of Year 4 for $8,000, determine the gain or loss on the sale of equipment. (Assume the straight-line depreciation method.) a. A loss of $10,000 b. A loss of $8,000 c. A gain of $8,000 d. A gain of $10,000 c. debit to Depletion Expense. The journal entry to record depletion includes a a. debit to Accumulated Feedback: Correct. The journal entry Depletion. b. credit to Accumulated to record depletion includes a debit to Depreciation. c. debit to Depletion Depletion Expense. Expense. d. credit to Depletion Expense. b. Depletion Rate × Quantity Extracted. The calculation of depletion expense is a. Depletion Rate × Estimated Useful Life. b. Depletion Rate × Quantity Extracted. c. Feedback: Correct. Depletion Expense Quantity Extracted × Estimated Useful = Depletion Rate × Quantity Life. d. None of these choices are correct. Extracted d. Cost of Resource/Estimated Total Units of Resource. Feedback: Correct. Depletion Rate = Cost of Resource/Estimated Total Units of Resource b. $750 per ton Feedback: Correct. $60,000,000/80,000 tons = $750 per ton Investment Feedback: Correct. Investments are long-lived assets, such as undeveloped land, that are not used in the normal operations and are held for future resale. The depletion rate is calculated as a. Estimated Total Units of Resource/Cost of Resource. b. Cost of Resource/Estimated Useful Life of Resource. c. Estimated Useful Life of Resource/Cost of Resource. d. Cost of Resource/Estimated Total Units of Resource. Shale Miner Co. acquired mineral rights for $60,000,000. It is estimated that there are 80,000 total tons of the resource; during the current year, 10,750 tons were mined and sold. What is the rate of depletion? a. $1,000 per ton b. $750 per ton c. $500 per ton d. $600 per ton Which of the following is not classified as an intangible asset? a. Goodwill b. Investment c. Patent d. Trademark d. In a purchase of a business at a price in excess of the fair value of its net assets, goodwill is recorded as the excess. Correct. Goodwill is an intangible asset that allows a business to earn a greater rate of return than normal. Goodwill is not amortized. GAAP only allows goodwill to be recorded if it is objectively determined by a transaction, such as when a company buys another company for an amount greater than the fair value of its net assets. In this case, goodwill is recorded as the excess amount. Which of the following statements is true regarding goodwill? a. Goodwill is amortized based on a 10-year period. b. Goodwill is the exclusive use of a name, term, or symbol used to identify a business or its product. c. Goodwill is amortized based on the lesser of the useful life or the legal life. d. In a purchase of a business at a price in excess of the fair value of its net assets, goodwill is recorded as the excess. amortization The expensing of intangible assets is called a. amortization. b. depletion. c. Feedback: Correct. Amortization is the replenishing. d. depreciation. transfer of cost to expense of an intangible asset. trademark All of the following will be found under the caption of "property, plant, and Correct. A trademark is a name, term, equipment" in the balance sheet except a. or symbol used to identify a business computer equipment. b. trademark. c. land and its products, such as McDonald’s improvements. d. parking lot costs. golden arches. Under the caption of intangible assets in the balance sheet, copyrights, patents, goodwill, and trademarks will be included. buildings Feedback: Correct. Buildings will be included under property, plant, and equipment. All of the following assets will be included as intangible assets on the balance sheet except a. copyrights. b. buildings. c. patents. d. goodwill. b. immediately after the property, plant, and equipment. Intangible assets are reported on the balance sheet a. before the current assets. b. immediately after the property, plant, and equipment. c. immediately after the current assets. d. before property, plant, and equipment. Feedback: Correct. Intangible assets are found on the balance sheet in a separate section immediately following property, plant, and equipment. b. the underlying contract between the corporation issuing the bonds and the bondholders. Feedback: Correct. Bond indenture is the term used to refer to the A bond indenture is a. a bond that is secured by specific assets of the issuing corporation. b. the underlying contract between the corporation issuing the bonds and the bondholders. c. a bond that has underlying contract between an issuing corporation and the bondholders. past due interest payments. d. a bond that is unsecured. a. effective interest rate. Correct. Market rate of interest and effective rate of interest are both terms used to describe the current interest rate as determined by transactions between buyers and sellers of similar bonds. The market interest rate related to a bond is also called the a. effective interest rate. b. face interest rate. c. coupon rate. d. contract rate. 980 A $1,000 bond quoted at 98 could be purchased or sold for a. $1,098. b. $980. c. between $1,000 and $1,098, depending on the maturity date of the bond. d. $1,000. Correct. The price of a bond is quoted as a percentage of the bond’s face value. In this case, $1,000 × 98% = $980. a. $1,000. A $1,000 bond quoted at 100 could be purchased or sold at a. $1,000. b. $900. c. $1,100. d. $100. a. debit Cash, credit Premium on Bonds Payable and Bonds Payable. The journal entry a company records for the issuance of bonds when the contract rate is higher than the market rate of Correct. When the contract rate of a interest is a. debit Cash, credit Premium bond is greater than the market rate, on Bonds Payable and Bonds Payable. b. the bonds sell for more than their face debit Cash and Discount on Bonds amount, which results in a premium. Payable, credit Bonds Payable. c. debit Cash, credit Bonds Payable. d. debit Bonds Payable, credit Cash. b. the bonds will sell for less than their face amount. Correct. If the market rate of interest is greater than the contract rate of interest, the bonds will sell for less than their face amount. 8,000 Feedback: Correct. Interest is calculated as principal × rate × time, or $100,000 × 8% × 12/12 = $8,000. d. should be reported on the If the market rate of interest is greater than the contract rate of interest, a. the bonds will sell for their face amount. b. the bonds will sell for less than their face amount. c. the bonds will sell for more than their face amount. d. None of these choices are correct. Hsu Company issued $100,000 of 8% bonds on January 1, 2018, at face value. The bonds pay interest semiannually on June 30 and December 31, 2018. The total interest expense related to these bonds for the year ended December 31, 2018, is a. $8,000. b. $4,000. c. $12,000. d. $2,000. The balance in Unamortized Discount on balance sheet as a deduction from the face amount of the related bonds payable. Correct. The carrying value of a bond is reported on the balance sheet as the face amount of the related bond minus the unamortized discount on the bonds. The discount can either be reported on the face of the financial statements or in the accompanying notes. Bonds Payable a. would be added to the face amount of the related bonds payable on the balance sheet. b. should be reported separately in the Current Liabilities section of the balance sheet. c. should be reported in the Paid-In Capital section of the balance sheet. d. should be reported on the balance sheet as a deduction from the face amount of the related bonds payable. a. added to the face amount of the related bonds payable on the balance sheet. The balance in Unamortized Premium on Bonds Payable should be a. added to the face amount of the related bonds payable on the balance sheet. b. reported Feedback: Correct. The carrying value separately in the Current Liabilities section of a bond is reported on the balance of the balance sheet. c. reported in the sheet as the face amount of the Paid-In Capital section of the balance related bond plus the unamortized sheet. d. reported on the balance sheet as premium on the bonds. The premium a deduction from the face amount of the can either be reported on the face of related bonds payable. the financial statements or in the accompanying notes. d. long-term liability on the balance sheet. The portion of bonds or notes payable that is not due within one year is reported as a(n) a. current liability on the balance Feedback: Correct. Any portion of the sheet. b. expense on the income bonds or notes payable that is not due statement. c. part of stockholders’ equity. within one year is reported as a longd. long-term liability on the balance sheet. term liability. a. Corporations have less regulatory costs than other business forms. Which of the following is not characteristic of a corporation? a. Corporations have less regulatory costs than other business forms. b. The financial loss that a stockholder may suffer from owning stock in a public company is limited to the amount invested. c. A corporation can own property in its name. d. Corporations are required to file federal income tax returns. a. double taxation. One of the main disadvantages of the corporate form is a. double taxation. b. professional management. c. the charter. d. that a corporation must issue stock. c. The owners are personally liable for corporate actions. Which of the following is not true of a corporation? a. It may sue and be sued. b. It may enter into binding legal contracts in its own name. c. The owners are personally liable for corporate actions. d. It may buy, own, and sell property. d. Paid-In Capital in Excess of Par— Common Stock. The entry to record the issuance of common stock at a price above par includes a credit to a. Preferred Stock. b. Organizational Expenses. c. Cash. d. PaidIn Capital in Excess of Par—Common Stock. outstanding The number of shares remaining in the hands of shareholders after some stock has been reacquired is referred to as the shares a. issued. b. outstanding. c. in arrears. d. authorized. b. Common Stock is credited for the full amount of the proceeds. When no-par stock is issued, a. Common Stock is credited for an assumed par value. b. Common Stock is credited for the full amount of the proceeds. c. Common Stock is credited for a standard $10 value. d. Paid-In Capital in Excess of Par is credited for the full amount of the proceeds. b. $24,000. A corporation issues 2,000 shares of common stock for $32,000. The stock has a stated value of $12 per share. The journal entry to record the stock issuance would include a credit to Common Stock for a. $32,000. b. $24,000. c. $12,000. d. $2,000. c. dividends in arrears before common stockholders are paid any dividends. Cumulative preferred stockholders have the right to receive a. a greater share of dividends than common stockholders. b. dividends in arrears after common stockholders are paid dividends. c. dividends in arrears before common stockholders are paid any dividends. d. None of these choices are correct. b. decrease stockholders’ equity and to increase total liabilities. The effect of the declaration of a cash dividend on a company’s financial statements is to a. increase total expenses and total liabilities. b. decrease stockholders’ equity and to increase total liabilities. c. increase total assets and stockholders’ equity. d. decrease total assets and stockholders’ equity. c. date of payment. The date on which cash dividends are paid is on the a. date of record. b. date of declaration. c. date of payment. d. last day of the fiscal year-end. b. a debit to Cash Dividends for $120,000. Aaron Company has 80,000 shares of $10 par common stock outstanding. On May 25, Aaron Company declared a $1.50 cash dividend. The market price of the stock on May 25 was $17 per share. The journal entry to record the cash dividend would include a. a debit to Cash for $560,000. b. a debit to Cash Dividends for $120,000. c. a credit to Paid-In Capital in Excess of Par —Common Stock for $560,000. d. All of these choices are correct. c. Each shareholder will own the same total par amount of stock before and after the split. Which of the following statements is true concerning stock splits? a. Stock splits require journal entries to be recorded. b. The total number of shares outstanding has not changed after the stock split. c. Each shareholder will own the same total par amount of stock before and after the split. d. None of these choices are correct. c. reduce the market price per share of the stock. A major objective of a stock split is to a. reduce the number of shares of the stock. b. increase the par value of the stock. c. reduce the market price per share of the stock. d. increase the market price per share of the stock. b. Stock split Which of the following is not recorded with a journal entry? a. Dividend on the date of declaration b. Stock split c. Dividend on the date of payment d. All of these choices require journal entries. c. 120,000 shares. A corporation has 40,000 shares of $25 par value stock outstanding. If the corporation issues a 3-for-1 stock split, the number of shares outstanding after the split will be a. 40,000 shares. b. 160,000 shares. c. 120,000 shares. d. 10,000 shares. d. issued shares that are held by the treasurer of the corporation. Treasury stock shares are a. part of the total outstanding shares but not part of the total issued shares of a corporation. b. shares held by the U.S. Treasury Department. c. issued shares held by stockholders in the treasury. d. issued shares that are held by the treasurer of the corporation. d. None of these choices are correct. A corporation may reacquire (purchase) its own stock for the following reasons except a. to support the market price of the stock. b. to provide shares for resale to employees. c. to reissue as bonuses to employees. d. None of these choices are correct. b. cost method. The purchase and resale of treasury stock is normally recorded using the a. equity method. b. cost method. c. indirect method. d. direct method. c. stockholders’ equity will be increased by $500. Treasury stock that was purchased for $2,500 is sold for $3,000. As a result of these two transactions combined, a. stockholders’ equity will be increased by $3,000. b. income will be increased by $500. c. stockholders’ equity will be increased by $500. d. stockholders’ equity will not change, because the amount of authorized stock has not changed. d. does not change the balance of Retained Earnings. A restriction/appropriation of retained earnings a. increases total retained earnings. b. decreases total assets. c. decreases total retained earnings. d. does not change the balance of Retained Earnings. a. the row designations in the Stockholders’ Equity section of the balance sheet. The column headings on a statement of stockholders’ equity best represent a. the row designations in the Stockholders’ Equity section of the balance sheet. b. the column headings on the retained earnings statement. c. the column designations in the Stockholders’ Equity section of the balance sheet. d. None of these choices are correct. c. Prior period adjustments are reported as an adjustment to the ending balance of retained earnings in the current period. Which of the following statements is not correct with regard to prior period adjustments? a. Prior period adjustments arise from mathematical mistakes in a previous period. b. Prior period adjustments are errors found in a period after the error occurred. c. Prior period adjustments are reported as an adjustment to the ending balance of retained earnings in the current period. d. All of these choices are correct. a. $1,225,000 What is the total stockholders’ equity based on the following data? Common Stock $900,000 Excess of Issue Price Over Par 375,000 Retained Earnings (deficit) (50,000) a. $1,225,000 b. $900,000 c. $1,275,000 d. $1,325,000