Archive for February 2018

Earnings per share is an indication of how much:

Naim 06:59 Add Comment

Earnings per share is an indication of how much:




A) The company has in cash for each share of outstanding common stock
B) The company earned for each share of outstanding common stock
C) The company paid as dividends for each share of common stock held by stockholders
D) The company earned for each share of outstanding common and preferred stock




Answer: B

Which of the following statements is true regarding a corporation's purchase of treasury stock?

Naim 06:58 Add Comment

Which of the following statements is true regarding a corporation's purchase of treasury stock?




A) The cost of treasury stock is a reduction in stockholders' equity.
B) Dividends must still be paid on treasury stock because it is still issued.
C) Treasury stock is reported as an asset because it is considered an investment in the corporation's own stock.
D) Treasury stock is no longer considered issued once it is back in the hands of the issuer.





Answer: A

All of the following are reasons that a corporation may purchase treasury stock except:

Naim 06:57 Add Comment

All of the following are reasons that a corporation may purchase treasury stock except:



A) If it needs the stock for its employee stock bonus program
B) If it desires to make an investment in its own stock and is reported as an asset
C) To buy out the ownership of stockholders
D) To increase the reported amount of earnings per share





Answer: B

Treasury shares represent the:

Naim 06:56 Add Comment

Treasury shares represent the:



A) Number of previously issued shares that have been repurchased by the corporation
B) Number of shares that the corporation has sold
C) Number of shares that are currently held by stockholders
D) Maximum number of shares that can be sold by the corporation




Answer: A

If a corporation issues cumulative, participating preferred stock, which of the following is true regarding the rights of the preferred stockholders?

Naim 06:55 Add Comment

If a corporation issues cumulative, participating preferred stock, which of the following is true regarding the rights of the preferred stockholders?




A) The must forgo dividends for any periods when no dividends are declared
B) They have the right to receive current-year dividends and all unpaid dividends from prior years.
C) They will receive a fixed dividend each year regardless of the amount of dividends declared.
D) They will have an option to convert their shares to common stock at a specified date.



Answer: B

Many stockholders choose to invest in preferred stock because:

Naim 06:55 Add Comment

Many stockholders choose to invest in preferred stock because:


A) Preferred stock can always be converted into common stock at the stockholder's option
B) The preferred dividend distributions are generally increased each year
C) Dividends are distributed to preferred stockholders before common stockholders
D) Preferred stockholders includes the right to participate in management decisions through voting privileges



Answer: C

What is the primary reason for a stock split?

Naim 06:53 Add Comment

What is the primary reason for a stock split?



A) To distribute cash to the investor
B) To decrease the market value of the stock
C) To decrease the number of shares outstanding
D) To increase the capital stock of the corporation




Answer: B

On January 15, 2011, Rockney Systems, Inc. paid a cash dividend that had been declared prior to the end of its 2010 fiscal year. The entry to pay the dividends includes a debit to:

Naim 06:53 Add Comment

On January 15, 2011, Rockney Systems, Inc. paid a cash dividend that had been declared prior to the end of its 2010 fiscal year. The entry to pay the dividends includes a debit to:




A) Cash and a credit to Dividends Payable.
B) Dividends Payable and a credit to Cash.
C) Retained Earnings and a credit to Dividends Payable.
D) Dividends Payable and a credit to Retained Earnings.





Answer: B

When a corporation decides whether to pay a cash dividend, which of the following is an important consideration?

Naim 06:48 Add Comment

When a corporation decides whether to pay a cash dividend, which of the following is an important consideration?



A) The balances in the corporation's cash account to determine cash available for dividends
B) The number of authorized shares of the corporation's stock
C) The book value of the treasury stock
D) The balance of paid-in capital in excess of par on the corporation's stock accounts





Answer: A

If a corporation declares a 2-for-1 stock split, which of the following is true?

Naim 06:47 Add Comment

If a corporation declares a 2-for-1 stock split, which of the following is true?


A) A journal entry is required to show the effect on the stockholders' equity accounts
B) The stockholders will have a higher proportionate ownership share after the split
C) The par value will be reduced to half of the pre-split par value
D) The market price of the stock is expected to increase after the split





Answer: C

If a corporation declares for a 2-for-1 stock split, which of the following is true?

Naim 06:47 Add Comment

If a corporation declares for a 2-for-1 stock split, which of the following is true?



A) The amount of stockholders' equity doubles as a result of the split
B) The amount of capital stock doubles as a result of the split
C) The price of each share will be doubles as a result of the split
D) A stockholder who previously held 100 shares will have 200 shares after the split





Answer: D

If a corporation declares a 2-for-1 stock split, which of the following is true?

Naim 06:47 Add Comment

If a corporation declares a 2-for-1 stock split, which of the following is true?



A) A new class of stock must be authorized with twice the number of issued shares
B) The number of outstanding shares is half the number that was outstanding before the split
C) The humber of outstanding shares is twice the number that was outstanding before the split
D) The number of authorized shares is doubled, while the par value is reduced to half of the pre-split par value





Answer: C

Alma Corp. issues 1,000 shares of $10 par value common stock at $16 per share. When the transaction is recorded, a credit or credits are made to:

Naim 06:46 Add Comment

Alma Corp. issues 1,000 shares of $10 par value common stock at $16 per share. When the transaction is recorded, a credit or credits are made to:



A) Common Stock $16,000
B) Common Stock $10,000 and Additional Paid-in Capital $6,000
C) Common Stock $6,000 and Additional Paid-in Capital $10,000
D) Common Stock $10,000 and Retained Earnings




Answer: B

Porter Hardware, Inc. issues $2 par common stock. Which of the following is true?

Naim 06:46 Add Comment

Porter Hardware, Inc. issues $2 par common stock. Which of the following is true?




A) 2$ per share is presented on the balance sheet in the common stock account
B) $2 per share is the maximum selling price for these shares of stock
C) Liabilities will increase as a result of this transaction
D) $2 dividends will be paid to the stockholders as a result of this transaction




Answer: A

Par value represents the:

Naim 06:45 Add Comment

Par value represents the:


A) Arbitrary amount that establishes a minimum price for the stock when it is first issued
B) Current market price of the stock
C) Amount for which any treasury shares have been acquired by the corporation
D) Amount for which treasury shares may be reissued





Answer: A

Outstanding shares represent the:

Naim 06:44 Add Comment

Outstanding shares represent the:




A) Number of previously issued shares that have been repurchased by the corporation
B) Number of shares that the corporation has sold
C) Number of shares that are currently held by stockholders
D) Maximum number of shares that can be sold by the corporation






Answer: C

Issued shares represent the:

Naim 06:43 Add Comment

Issued shares represent the:



A) Number of previously issued shares that have been repurchased by the corporation
B) Number of shares that the corporation has distributed to owners to date
C) Number of shares that are currently held by stockholders
D) Maximum number of shares that can be sold by the corporation






Answer: B

Authorized shares represent the:

Naim 06:43 Add Comment

Authorized shares represent the:




A) Number of previously issued shares that have been repurchased by the corporation
B) Number of shares that the corporation has sold
C) Number of shares that are currently held by stockholders
D) Maximum number of shares of stock that a company can legally issue






Answer: D

Which of the following statements is true with regard to equity capital?

Naim 06:43 Add Comment

Which of the following statements is true with regard to equity capital?



A) The number of shares actually in the hands of stockholders are called outstanding shares
B) It is unusual for corporations to have more than one class of stock outstanding at any point in time
C) Preferred stock represents the shares of stock that have been permanently retired
D) Issued shares represent the maximum number of shares that can be issued by a corporation






Answer: A

The ability of a corporation to obtain capital is:

Naim 06:43 Add Comment

The ability of a corporation to obtain capital is:



A) Less than a partnership
B) About the same as a partnership
C) Restricted because of the limited life of the corporation
D) Enhanced because of the limited liability and the ease of share transferability






Answer: D

Under the corporate form of business organization:

Naim 06:42 Add Comment

Under the corporate form of business organization:





A) Ownership rights are easily transferred
B) A stockholder is personally liable for the debts of the corporation
C) Stockholders' acts can bind the corporation even though the stockholders have not been appointed as agents of the corporation
D) Stockholders wish to sell their corporation shares must get the approval of other stockholders





Answer: A

Characteristics of a corporation include:

Naim 06:40 Add Comment

Characteristics of a corporation include:




A) Shareholders who are mutual agents
B) Direct management by the shareholders (owners).
C) Its inability to own property
D) Shareholders who have limited liability



Answer: D

Which of the following is NOT characteristic of a corporation?

Naim 06:39 1 Comment

Which of the following is NOT characteristic of a corporation?




A) The financial loss that a stockholder may suffer from owning stock in a public company is limited
B) Cash dividends paid by a corporation are deductible as expenses by the corporation
C) A corporation can own property in its name
D) Corporations are required to file federal income tax returns




Answer: B

Which of the following is NOT a characteristic of a corporation?

Naim 06:39 Add Comment

Which of the following is NOT a characteristic of a corporation?



A) Corporations are organized as a serape legal taxable entity
B) Ownership is divided into shares of stock
C) Corporations experience an ease in obtaining large amounts of resources by issuing stock
D) A corporation's resources are limited to their individual stockholders' resources






Answer: D

Which of the following statements is false regarding the issuance of stock versus bonds to raise capital for a corporation?

Naim 06:38 Add Comment

Which of the following statements is false regarding the issuance of stock versus bonds to raise capital for a corporation?



A) The declaration of dividends reduces the amount of corporation's taxable income
B) Interest accrues; whereas, dividends do not accrue
C) The payment of bond interest is a contractual requirement
D) The declaration of dividends is at the discretion of the board of directors





Answer: A

A building was acquired in exchange for 20,000 shares of the company's $10 par common stock. This transaction is reported on a statement of cash flows as

Naim 06:36 Add Comment

A building was acquired in exchange for 20,000 shares of the company's $10 par common stock. This transaction is reported on a statement of cash flows as



A) a financing activity.
B) an operating activity.
C) a noncash investing and financing activity.
D) an investing activity.





Answer: C

What was the net cash inflow from financing activities?

Naim 06:34 Add Comment
Consider the following transactions:
Paid interest with cash $4,000
Paid cash dividends $45,000
Sold common stock for cash $1,200,000
Purchased treasury stock for cash $360,000
Sold bonds for cash $800,000

What was the net cash inflow from financing activities?



A) $1,685,000
B) $1,595,000
C) $1,560,000
D) $840,000




Answer: B

What was the net cash flow from investing activities?

Naim 06:34 Add Comment
Consider the following transactions:
Cash purchase of second hand delivery van $40,000
Cash sale of an investment $12,000
Paid cash dividends $120,000
Retired bonds prior to maturity $450,000
Sold used equipment for cash $13,000

What was the net cash flow from investing activities?



A) $27,000 inflow
B) $330,000 outflow
C) $15,000 outflow
D) $585,000 outflow



Answer: C

When property, plant, or equipment are sold at price that is in excess of book value, the sales should be reported as an inflow of cash from an investing activity equal to the

Naim 06:33 Add Comment

When property, plant, or equipment are sold at price that is in excess of book value, the sales should be reported as an inflow of cash from an investing activity equal to the



A) book value of the asset.
B) cash selling price of the asset.
C) cash selling price of the asset minus any gain on the asset.
D) cash selling price of the asset minus the book value.





Answer: B

Equipment with an original cost of $140,000 and accumulated depreciation of $130,000 was sold for $12,000 cash . What amount of this transaction will be reported as an investing activity on the statement of cash flows?

Naim 06:33 Add Comment

Equipment with an original cost of $140,000 and accumulated depreciation of $130,000 was sold for $12,000 cash . What amount of this transaction will be reported as an investing activity on the statement of cash flows?




A) $10,000
B) $12,000
C) $2,000
D) $128,000




Answer: B

What was the net increase or decrease in cash during the period?

Naim 06:32 Add Comment
Consider the following:
Net cash inflows from operating activities: $450,000
Net cash outflows from investing activities: ($230,000)
Net cash inflows from financing activities: $200,000

What was the net increase or decrease in cash during the period?



A) The cash increase or decrease for the period cannot be determined.
B) $880,000
C) $420,000
D) $220,000





Answer: C

What was the net cash inflow (outflow) from investing activities?

Naim 06:32 Add Comment
Consider the following:
Activity - Amount
Purchased production equipment - $150,000
Sold common stock, at par - $250,000
Sold office equipment at book value - $12,000
Sold merchandise on accounts receivable - $560,000
Paid cash dividends - $45,000

What was the net cash inflow (outflow) from investing activities?




A) ($138,000)
B) ($12,000)
C) ($183,000)
D) $103,000




Answer: A

The statement of cash flows prepared under the indirect method starts with

Naim 06:30 Add Comment

The statement of cash flows prepared under the indirect method starts with




A) cash receipts and cash expenditures to compute net cash inflow or outflow from operating activities.
B) the net income determined using the accrual method of accounting and adjusts it to the cash flow from operating activities.
C) the net income determined using the cash basis of accounting and adjusts it to an accrual basis.
D) cash receipts and cash expenditures to compute net cash inflow or outflow from investing activities.





Answer: B

The total change in cash as shown near the bottom of the statement of cash flows for the year should agree to which of the following?

Naim 06:29 Add Comment

The total change in cash as shown near the bottom of the statement of cash flows for the year should agree to which of the following?




a. the difference in retained earnings when reviewing the comparative balance sheet
b. net income or net loss as found on the income statement
c. the difference in cash when reviewing the comparative balance sheet
d. none of the above





Answer: C

Consider the following: Issued common stock for $25,000, sold office equipment for $1,200, paid cash dividends $6,000, purchased investments for $2,000, purchased new equipment for $4,000. What was the net cash inflow (outflow) from investing activities?

Naim 06:28 Add Comment

Consider the following: Issued common stock for $25,000, sold office equipment for $1,200, paid cash dividends $6,000, purchased investments for $2,000, purchased new equipment for $4,000. What was the net cash inflow (outflow) from investing activities?




a. $20,200
b. ($2,800)
c. ($10,800)
d. ($4,800)





Answer: D

Consider the following: Issued common stock for $25,000, sold office equipment for $1,200, paid cash dividends $6,000, purchased investments for $2,000, paid accounts payable of $4,000. What was the net cash inflow (outflow) from financing activities?

Naim 06:28 Add Comment

Consider the following: Issued common stock for $25,000, sold office equipment for $1,200, paid cash dividends $6,000, purchased investments for $2,000, paid accounts payable of $4,000. What was the net cash inflow (outflow) from financing activities?




a. $19,000
b. $14,000
c. ($19,000)
d. ($14,000)





Answer: A

Consider the following: Net income $10,000, depreciation expense $2,000, accounts receivable increased by $700, inventory decreased by $400, and accounts payable increased by $300. Based on this information alone, what is cash flow from operating activities?

Naim 06:26 Add Comment

Consider the following: Net income $10,000, depreciation expense $2,000, accounts receivable increased by $700, inventory decreased by $400, and accounts payable increased by $300. Based on this information alone, what is cash flow from operating activities?




a. $12,000
b. $8,000
c. $11,700
d. $10,000




Answer: A

If the balance in prepaid expenses increased during the year, what action should be taken on the statement of cash flows when following the indirect method, and why?

Naim 06:26 Add Comment

If the balance in prepaid expenses increased during the year, what action should be taken on the statement of cash flows when following the indirect method, and why?




a. The change in the account balance should be subtracted from net income because the net increase in prepaid expenses did not impact net income but did reduce the cash balance.
b. The change in the account balance should be added to net income because the net increase in prepaid expenses did not impact net income but did increase the cash balance.
c. The net change in prepaid expenses should be subtracted from net income to reverse the income statement effect that had no impact on cash.
d. The net change in prepaid expenses should be added to net income to reverse the income statement effect that had no impact on cash.




Answer: A
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