MID-TERM EXAM Multiple Choice (2 points each) 1. Which one of the following is not necessary in order for a corporation to pay a cash dividend? a. Adequate cash b. Approval of stockholders c. Declaration of dividends by the board of directors d. Retained earnings 2. Which one of the following events would not require a formal journal entry on a corporation's books? a. 2 for 1 stock split b. 100% stock dividend c. 2% stock dividend d. $1 per share cash dividend 3. Norton, Inc. has 5,000 shares of 6%, $100 par value, noncumulative preferred stock and 100,000 shares of $1 par value common stock outstanding at December 31, 2012, and December 31, 2013. The board of directors declared and paid a $20,000 dividend in 2012. In 2013, $40,000 of dividends are declared and paid. What are the dividends received by the preferred and common shareholders in 2013? Preferred Common ————————— ——————— a. $0 $40,000 b. $30,000 $10,000 c. $20,000 $20,000 d. $40,000 $0 4. A prior period adjustment that corrects income of a prior period requires that an entry be made to a. an income statement account. b. a current year revenue or expense account. c. the retained earnings account. d. an asset account. 5. The discontinued operations section of the income statement refers to a. discontinuance of a product line. b. the income or loss on products that have been completed and sold. c. obsolete equipment and discontinued inventory items. d. the disposal of a significant segment of a business. 6. Indicate the circumstances under which an item would be classified as an extraordinary item on the income statement. Unusual in Nature Infrequent in Occurrence ————————————————— a. Yes No b. No Yes c. Yes Yes d. No No 7. From the standpoint of the issuing company, a disadvantage of using bonds as a means of long-term financing is that a. bond interest is deductible for tax purposes. b. interest must be paid on a periodic basis regardless of earnings. c. income to stockholders may increase as a result of trading on the equity. d. the bondholders do not have voting rights. 8. Bonds that are secured by real estate are termed a. mortgage bonds. b. serial bonds. c. debentures. d. bearer bonds. 9. The contractual interest rate is always stated as a(n) a. monthly rate. b. daily rate. c. semiannual rate. d. annual rate. 10. If the market interest rate is greater than the contractual interest rate, bonds will sell a. at a premium. b. at face value. c. at a discount. d. only after the ...

1. MID-TERM EXAM
Multiple Choice (2 points each)
1. Which one of the following is not necessary in order for a
corporation to pay a cash dividend?
a. Adequate cash
b. Approval of stockholders
c. Declaration of dividends by the board of directors
d. Retained earnings
2. Which one of the following events would not require a
formal journal
entry on a corporation's books?
a. 2 for 1 stock split
b. 100% stock dividend
c. 2% stock dividend
d. $1 per share cash dividend
3. Norton, Inc. has 5,000 shares of 6%, $100 par value,
noncumulative
preferred stock and 100,000 shares of $1 par value common
stock
outstanding at December 31, 2012, and December 31, 2013.
The board
of directors declared and paid a $20,000 dividend in 2012.
In 2013,
$40,000 of dividends are declared and paid. What are the
dividends
received by the preferred and common shareholders in 2013?

2. Preferred Common
————————— ———————
a. $0 $40,000
b. $30,000 $10,000
c. $20,000 $20,000
d. $40,000 $0
4. A prior period adjustment that corrects income of a prior
period
requires that an entry be made to
a. an income statement account.
b. a current year revenue or expense account.
c. the retained earnings account.
d. an asset account.
5. The discontinued operations section of the income statement
refers
to
a. discontinuance of a product line.
b. the income or loss on products that have been completed
and sold.
c. obsolete equipment and discontinued inventory items.
d. the disposal of a significant segment of a business.
6. Indicate the circumstances under which an item would be
classified
as an extraordinary item on the income statement.
Unusual in Nature Infrequent in Occurrence
—————————————————
a. Yes No

3. b. No Yes
c. Yes Yes
d. No No
7. From the standpoint of the issuing company, a disadvantage
of using
bonds as a means of long-term financing is that
a. bond interest is deductible for tax purposes.
b. interest must be paid on a periodic basis regardless of
earnings.
c. income to stockholders may increase as a result of trading
on the
equity.
d. the bondholders do not have voting rights.
8. Bonds that are secured by real estate are termed
a. mortgage bonds.
b. serial bonds.
c. debentures.
d. bearer bonds.
9. The contractual interest rate is always stated as a(n)
a. monthly rate.
b. daily rate.
c. semiannual rate.
d. annual rate.
10. If the market interest rate is greater than the contractual
interest
rate, bonds will sell
a. at a premium.
b. at face value.
c. at a discount.
d. only after the stated interest rate is increased.
11. If twenty $1,000 convertible bonds with a carrying value of

4. $25,000
are converted into 3,000 shares of $5 par value common
stock, the
journal entry to record the conversion is
a. Bonds Payable ........................... 25,000
Common Stock ......................... 25,000
b. Bonds Payable ........................... 20,000
Premium on Bonds Payable ................ 5,000
Common Stock ......................... 25,000
c. Bonds Payable ........................... 20,000
Premium on Bonds Payable ................ 5,000
Common Stock ......................... 15,000
Paid-in Capital in Excess of Par ..... 10,000
d. Bonds Payable ........................... 25,000
Discount on Bonds Payable ............ 5,000
Common Stock ......................... 15,000
Paid-in Capital in Excess of Par ..... 5,000
--Page 3
12. Which of the following is not a condition which would
require the
recording of a lease contract as a capital lease?
a. The lease transfers ownership of the property to the
lessee.
b. The lease contains a bargain purchase option.
c. The lease term is less than 75% of the economic life of
the
leased property.
d. The present value of the lease payments equals or exceeds
90% of
the fair market value of the leased property.
13. If the cost method is used to account for a long-term
investment in

5. common stock, dividends received should be
a. credited to the Stock Investments account.
b. credited to the Dividend Revenue account.
c. debited to the Stock Investments account.
d. recorded only when 20% or more of the stock is owned.
14. When an investor owns between 20% and 50% of the
common stock of a
corporation, it is generally presumed that the investor
a. has insignificant influence on the investee and that the
cost
method should be used to account for the investment.
b. should apply the cost method in accounting for the
investment.
c. will prepare consolidated financial statements.
d. has significant influence on the investee and that the
equity
method should be used to account for the investment.
15. If the equity method is being used, cash dividends received
a. are credited to Dividend Revenue.
b. require no entry because investee net income has already
been
recorded at the proper proportion on the investor's books.
c. are credited to the Stock Investments account.
d. are credited to the Revenue from Investment in Stock
account.
16. If the cost of an available-for-sale security exceeds its fair
value
by $40,000, the entry to recognize the loss
a. is not required since the share prices will likely rebound
in the
long run.
b. will show a debit to an expense account.

6. c. will show a credit to a contra-asset account that appears in
the
stockholder's equity section of the balance sheet.
d. will show a debit to an unrealized loss account that is
deducted
in the stockholders' equity section of the balance sheet.
17. Short-term investments are securities that are readily
marketable
and intended to be converted into cash within the next
a. year.
b. two years.
c. year or operating cycle, whichever is shorter.
d. year or operating cycle, whichever is longer.
18. The primary purpose of the statement of cash flows is to
a. provide information about the investing and financing
activities
during a period.
b. prove that revenues exceed expenses if there is a net
income.
c. provide information about the cash receipts and cash
payments
during a period.
d. facilitate banking relationships.
19. The acquisition of land by issuing common stock is
a. a noncash transaction which is not reported in the body of
a
statement of cash flows.
b. a cash transaction and would be reported in the body of a
statement of cash flows.

7. c. a noncash transaction and would be reported in the body
of a
statement of cash flows.
d. only reported if the statement of cash flows is prepared
using
the direct method.
20. The order of presentation of activities on the statement of
cash
flows is
a. operating, investing, and financing.
b. operating, financing, and investing.
c. financing, operating, and investing.
d. financing, investing, and operating.
21. Cash receipts from interest and dividends are classified as
a. financing activities.
b. investing activities.
c. operating activities.
d. either financing or investing activities.
22. When equipment is sold for cash, the amount received is
reflected as
a cash
a. inflow in the operating section.
b. inflow in the financing section.
c. inflow in the investing section.
d. outflow in the operating section.
23. Assume the following sales data for a company:
2013 $1,200,000
2012 960,000
2011 840,000
2010 600,000

8. If 2010 is the base year, what is the percentage increase in
sales
from 2010 to 2012?
a. 100%
b. 160%
c. 70%
d. 60.0%
24. In performing a vertical analysis, the base for cost of goods
sold
is
a. total selling expenses.
b. net sales.
c. total revenues.
d. total expenses.
------------------------------
Terry Corporation had net income of $200,000 and paid
dividends to
common stockholders of $40,000 in 2013. The weighted
average number
of shares outstanding in 2013 was 50,000 shares. Terry
Corporation's
common stock is selling for $60 per share on the New York
Stock
Exchange.
25. Terry Corporation's price-earnings ratio is
a. 3.8 times.
b. 15 times.
c. 18.8 times.
d. 6 times.

9. 26. Klein Corporation's stockholders' equity section at
December 31,
2012 appears below: (15 Points)

10. Stockholders' equity
Paid-in capital
Common stock, $10 par, 50,000 outstanding $500,000
Paid-in capital in excess of par 150,000
————————
Total paid-in capital $650,000
Retained earnings
150,000
————————
Total stockholders' equity $800,000
On June 30, 2013, the board of directors of Klein
Corporation
declared a 15% stock dividend, payable on July 31, 2013, to
stockholders of record on July 15, 2013. The fair market
value of
Klein Corporation's stock on June 30, 2013, was $12.
On December 1, 2013, the board of directors declared a 2 for
1 stock
split effective December 15, 2013. Klein Corporation's stock
was
selling for $20 on December 1, 2013, before the stock split
was
declared. Par value of the stock was adjusted. Net income
for 2013
was $240,000 and there were no cash dividends declared.
INSTRUCTIONS
(a) Prepare the journal entries on the appropriate dates to
record
the stock dividend and the stock split.
(b) Fill in the amount that would appear in the stockholders'
equity

11. section for Klein Corporation at December 31, 2013, for
the
following items:
1. Common stock $____________
2. Number of shares outstanding ____________
3. Par value per share $____________
4. Paid-in capital in excess of par $____________
5. Retained earnings $____________
6. Total stockholders' equity $____________
27. On January 1, 2013, Leary Corporation issued $800,000,
9%, 5-year
bonds dated January 1, 2013, at 96. The bonds pay
semiannual
interest on January 1 and July 1. The company uses the
straight-line method of amortization and has a calendar year
end. (10 points)
INSTRUCTIONS
Prepare all the journal entries that Leary Corporation would
make

12. related to this bond issue through January 1, 2014. Be sure
to
indicate the date on which the entries would be made.
28. Boyle Corporation had the following comparative current
assets and
current liabilities: (15 points)
Dec. 31, 2013 Dec. 31, 2012
—————————————
Current assets
Cash $ 60,000 $ 30,000
Marketable securities 40,000 10,000
Accounts receivable 55,000 95,000
Inventory 110,000 90,000
Prepaid expenses 35,000 20,000
————— ————
Total current asset 300,000 $245,000
Current liabilities
Accounts payable $140,000 $110,000
Salaries payable 40,000 30,000
Income tax payable 20,000 15,000
—————— ————
Total current liabilities $200,000 $155,000
During 2013, credit sales and cost of goods sold were
$750,000 and
$400,000, respectively.
INSTRUCTIONS
Compute the following liquidity measures for 2013:
1. Current ratio.
2. Working capital.

13. 3. Acid-test ratio.
4. Receivables turnover.
5. Inventory turnover.
29. Annapolis Company reported net income of $365,000 for the
current year. Depreciation recorded on buildings and equipment
amounted to $73,000 for the year. Balances of the current asset
and current liability accounts at the beginning and end of the
year are as follows: (10 points)
End of Year

14. Beginning of Year
Cash
$22,000
$15,000
Accounts receivable
17,000
32,000
Inventory
55,000
65,000
Prepaid insurance
7,500
5,000
Accounts payable
11,000
18,000
Income taxes payable
600

15. 1,200
Prepare the cash flows from the operating activities section of
the statement of cash flows using the indirect method
Multiple Choice: 2 points each. Place your answers in the table
below using CAPITAL LETTERS.
1.
11.
21.
2.
12.
22.
3.
13.
23.
4.

16. 14.
24.
5.
15.
25.
6.
16.
7.
17.
8.
18.
9.
19.
10.

17. 20.
26. Points = 15
a)
Date
Account Description
Debit
Credit

19. 26. b) Fill in the amount that would appear in the stockholders'
equity
section for Klein Corporation at December 31, 2013, for
the
following items:
1. Common stock $____________
2. Number of shares outstanding ____________
3. Par value per share $____________
4. Paid-in capital in excess of par $____________
5. Retained earnings $____________
6. Total stockholders' equity $____________
27. Points = 10
Date
Account Description
Debit
Credit

22. 28. Points = 15
1. Current ratio. ________________________
2. Working capital. _________________________
3. Acid-test ratio. _________________________
4. Receivables turnover.__________________________
5. Inventory turnover. ___________________________
29.Points = 10
Prepare the net cash provided by operating activities section of
the company's statement of cash flows for the current year,
using the indirect method.

24. 3