1. Stockholders of a corporation directly elect:
a. the president of the corporation.
b. the board of directors.
c. the treasurer of the corporation.
d. all of the employees of the corporation.
2. Which one of the following would not be considered an advantage of the corporate form of organization?
a. Limited liability of stockholders
b. Separate legal existence
c. Continuous life
d. Government regulation
3. If a stockholder cannot attend a stockholders' meeting, he may delegate his voting rights by means of a(n) :
a. absentee ballot.
b. proxy.
c. certified letter.
d. telegram.
4. The amount of stock that may be issued according to the corporation's charter is referred to as the :
a. authorized stock.
b. issued stock.
c. unissued stock.
d. outstanding stock.
5. If Nolan Company issues 1,000 shares of $5 par value common stock for $70,000, the account:
a. Stock will be credited for $65,000.
b. Paid-in Capital in Excess of Par Value will be credited for $70,000.
c. Paid-in Capital in Excess of Par Value will be credited for $75,000.
d. Cash will be debited for $70,000.
6. The Paid-in Capital in Excess of Par Value is increased in the accounting records when:
a. the number of shares issued exceeds par value.
b. the stated value of capital stock is greater than the par value.
c. the market value of the stock rises above par value.
d. capital stock is issued at an amount greater than par value.
7. The acquisition of treasury stock by a corporation:
a. increases its total assets and total stockholders' equity.
b. increases its total assets and total stockholders' equity.
c. decreases its total assets and total stockholders' equity.
d. requires that a gain or loss be recognized on the income statement.
8. The Ice Corporation issues 30,000 shares of $50 par value preferred stock for cash at $60 per share. The entry to record the transaction will consist of a debit to Cash for $1,800,000 and a credit or credits to:
a. Preferred Stock for $1,800,000.
b. Preferred Stock for $1,500,000 and Paid-in Capital in Excess of Par Value-Preferred Stock for $300,000.
c. Preferred Stock for $1,500,000 and Retained Earnings for $300,000.
d. Paid-in Capital from Preferred Stock for $1,800,000.
9. The Ice Corporation issues 30,000 shares of $50 par value preferred stock for cash at $60 per share. In the stockholders' equity section, the effects of the transaction above will be reported:
a. entirely within the capital stock section.
b. entirely within the additional paid-in capital section.
c. under both the capital stock and additional paid-in capital sections.
d. entirely under the retained earnings section.
10. Dividends in arrears on cumulative preferred stock:
a. never have to be paid, even if common dividends are paid.
b. must be paid before common stockholders can receive a dividend.
c. should be recorded as a current liability until they are paid.
d. enable the preferred stockholders to share equally in corporate earnings with the common stockholders.
11. Outstanding stock of the Apex Corporation included 20,000 shares of $5 par common stock and 5,000 shares of 6%, $10 par non-cumulative preferred stock. In 2006, Apex declared and paid dividends of $2,000. In 2007, Apex declared and paid dividends of $6,000. How much of the 2007 dividend was distributed to preferred shareholders?
a. $4,000
b. $7,000
c. $3,000
d. None of the above.
12. On January 1, Bluefield Corporation had 800,000 shares of $10 par value common stock outstanding. On March 31 the company declared a 10% stock dividend. Market value of the stock was $15/share. As a result of this event :
a. Bluefield's Paid-in Capital in Excess of Par Value account increased $400,000.
b. Bluefield's total stockholders' equity was unaffected.
c. Bluefield's Retained Earnings account decreased $1,200,000.
d. All of the above.
13. The date on which a cash dividend becomes a binding legal obligation is on the:
a. declaration date.
b. date of record.
c. payment date.
d. last day of the fiscal year end.
14. The board of directors of Essex Company declared a cash dividend on November 15, 2007, to be paid on December 15, 2007, to stockholders owning the stock on November 30, 2007. Given these facts, the date of November 30, 2007, is referred to as the:
a. declaration date.
b. record date.
c. payment date.
d. ex-dividend date.
15. Which of the following is the appropriate general journal entry to record the declaration of cash dividends?
a. Retained Earnings Cash
b. Dividends Payable Cash
c. Paid-in Capital Dividends Payable
d. Retained Earnings Dividends Payable
16. Which of the following is not a significant date with respect to dividends?
a. The declaration date.
b. The incorporation date.
c. The record date.
d. The payment date.
17. Whick of the following statements is not true about a 2-for-1 split?
a. Par value per share is reduced to half of what it was before the split.
b. Total contributed capital increases.
c. The market price probably will decrease.
d. A stockholder with ten shares before the split owns twenty shares after the split.
18. Cuther Inc., has 1,000 shares of 8%, $50 par value, cumulative preferred stock and 50,000 shares of $1 par value common stock outstanding at December 31, 2006, and December 31, 2007. The board of directors declared and paid a $3,000 dividend in 2006. In 2007, $12,000 of dividends are declared and paid. What are the dividends received by the common stockholders in 2007?
a. $7,000
b. $6,000
c. $5,000
d. $4,000
19. Which of the following show the proper effect of a stock split and a stock dividend?
a. Item Stock Split Stock Dividend Total paid-in capital Increase Increase
b. Item Stock Split Stock Dividend Total retained earnings Decrease Decrease
c. Item Stock Split Stock Dividend Total par value (common) Decrease Increase
d. Item Stock Split Stock Dividend Par value per share Decrease No change
20. What is the total stockholders' equity based on the following account balances?
Common Stock $400,000
Paid-In Capital in Excess of Par $50,000
Retained Earnings $175,000
Treasury Stock $25,000
a. $650,000
b. $625,000
c. $600,000
d. $450,000
21. The statement of cash flows will not report the:
a. amount of checks outstanding at the end of the period.
b. sources of cash in the current period.
c. uses of cash in the current period.
d. change in the cash balance for the current period.
22. 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.
23. Financing activities involve:
a. lending money.
b. acquiring investments.
c. issuing debt.
d. acquiring long-lived assets.
24. Cash receipts from interest and dividends are classified as:
a. financing activities.
b. investing activities.
c. operating activities.
d. either financing or investing activities.
25. Garden Corporation engaged in the following transaction. Indicate where, if at all, it would be classified on the statement of cash flows. Assume the indirect method is used.
Declared and issued a stock dividend.
a. Operating activities section.
b. Investing activities section.
c. Financing activities section.
d. Does not represent a cash flow.
26. Garden Corporation engaged in the following transaction. Indicate where, if at all, it would be classified on the statement of cash flows. Assume the indirect method is used.
Collected accounts receivable.
a. Operating activities section.
b. Investing activities section.
c. Financing activities section.
d. Does not represent a cash flow.
27. Garden Corporation engaged in the following transaction. Indicate where, if at all, it would be classified on the statement of cash flows. Assume the indirect method is used.
Purchased inventory with cash.
a. Operating activities section.
b. Investing activities section.
c. Financing activities section.
d. Does not represent a cash flow.
28. In preparing a statement of cash flows, a conversion of bonds into common stock will be reported in:
a. the financing section.
b. the "extraordinary" section.
c. a separate schedule or note to the financial statements.
d. the stockholders' equity section.
29. Cash flows from operating activities, as reported on the statement of cash flows under the indirect method, would include:
a. receipts from the sale of investments.
b. net income.
c. payments for dividends.
d. receipts from the issuance of capital stock.
30. Cline Company issued common stock for proceeds of $186,000 during 2007. The company paid dividends of $33,000 and issued a long-term note payable for $45,000 in exchange for equipment during the year. The company also purchased treasury stock that had a cost of $7,000. The financing section of the statement of cash flows will report net cash inflows of:
a. $146,000.
b. $202,000.
c. $153,000.
d. $179,000.
31. Which one of the following items is not necessary in preparing a statement of cash flows?
a. Determine the change in cash.
b. Determine the cash provided by operations.
c. Determine cash from financing and investing activities.
d. Determine the cash in each of the bank accounts.
32. Buster Company reported a net loss of $3,000 for the year ended December 31, 2007. During the year, accounts receivable decreased $7,000, merchandise inventory increased $5,000, accounts payable increased by $10,000, and depreciation expense of $5,000 was recorded. During 2007, operating activities:
a. used net cash of $1,000.
b. used net cash of $14,000.
c. provided net cash of $14,000.
d. provided net cash of $9,000.
33. Which of the following would not be an adjustment to net income using the indirect method?
a. Depreciation Expense.
b. An increase in Prepaid Insurance.
c. Amortization Expense.
d. An increase in Land.
34. If a gain of $18,000 is incurred in selling (for cash) office equipment having a book value of $120,000, the total amount reported in the cash flows from investing activities section of the statement of cash flows is:
a. $102,000.
b. $120,000.
c. $138,000.
d. $18,000.
35. Free cash flow provides an indication of a company's ability to:
a. generate cash to invest in new capital expenditures.
b. generate net income.
c. generate cash to pay dividends.
d. both (a) and (c).
36. 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.
37. Which of the following items appears on the income statement before income before irregular items?
a. Other comprehensive income.
b. Extraordinary items.
c. Income tax expense.
d. Discontinued operations.
38. Wenger Company reported income before taxes of $600,000 and an extraordinary loss of $150,000. Assume that the company's tax rate is 30%. What amounts will be reported on the income statement for income before irregular items and extraordinary items, respectively?
a. $420,000 and $150,000.
b. $420,000 and $105,000.
c. $495,000 and $150,000.
d. $495,000 and $105,000.
39. Which one of the following is not a tool in financial statement analysis?
a. Horizontal analysis.
b. Circular analysis.
c. Vertical analysis.
d. Ratio analysis.
40. If year one equals $800, year two equals $840, and year three equals $880, the percentage to be assigned for year three in a trend analysis, assuming that year 1 is the base year, is:
a. 110%.
b. 105%.
c. 95%.
d. 100%.
41. Assume the following sales data for a company:
2008: $900,000
2007: $840,000
2006: $700,000
If 2006 is the base year, what is the percentage increase in sales from 2006 to 2007?
a. 125%.
b. 167%.
c. 25%.
d. 20%.
42. The current ratio is:
a. calculated by dividing current liabilities by current assets.
b. used to evaluate a company's liquidity and short-term debt paying ability.
c. used to evaluate a company's solvency and long-term debt paying ability.
d. calculated by subtracting current liabilities from current assets.
43. Flagstaff Department Store had net credit sales of $13,000,000 and cost of goods sold of $10,000,000 for the year. The average inventory for the year amounted to $2,500,000.
The inventory turnover ratio for the year is:
a. 4 times.
b. 7 times.
c. 3 times.
d. 2 times.
44. Flagstaff Department Store had net credit sales of $13,000,000 and cost of goods sold of $10,000,000 for the year. The average inventory for the year amounted to $2,500,000.
The average days in inventory during the year was approximately:
a. 183 days.
b. 122 days.
c. 91 days.
d. 52 days.
45. Bunting Corporation had net income of $250,000 and paid dividends to common stockholders of $50,000 in 2007. The weighted average number of shares outstanding in 2007 was 50,000 shares. Bunting Corporation's common stock is selling for $50 per share on the New York Stock Exchange.
Bunting Corporation's price-earnings ratio is:
a. 2 times.
b. 8 times.
c. 10 times.
d. 5 times.
46. Bunting Corporation had net income of $250,000 and paid dividends to common stockholders of $50,000 in 2007. The weighted average number of shares outstanding in 2007 was 50,000 shares. Bunting Corporation's common stock is selling for $50 per share on the New York Stock Exchange.
Bunting Corporation's payout ratio for 2007 is:
a. $5 per share.
b. 25%.
c. 20%.
d. 12.5%.
47. A liquidity ratio measures the:
a. income or operating success of an enterprise over a period of time.
b. ability of the enterprise to survive over a long period of time.
c. short-term ability of the enterprise to pay its maturing obligations and to meet unexpected needs for cash.
d. number of times interest is earned.
48. The following information pertains to Soho Company. Assume that all balance sheet amounts represent both average and ending balance figures. Assume that all sales were on credit.
Assets
Cash and short-term investments $ 40,000
Accounts receivable (net) $25,000
Inventory $20,000
Property, plant and equipment $210,000
Total Assets $295,000
Liabilities and Stockholders' Equity
Current liabilities $ 60,000
Long-term liabilities $85,000
Stockholders' equity-common $150,000
Total Liabilities and Stockholders' Equity $295,000
Income Statement
Sales $ 85,000
Cost of goods sold $45,000
Gross margin $40,000
Operating expenses $20,000
Net income $ 20,000
Number of shares of common stock 6,000
Market price of common stock $20
Dividends per share .90
Cash provided by operations $30,000
What is the current ratio for this company?
a. 1.42
b. .80
c. 1.16
d. .60
49. The following information pertains to Soho Company. Assume that all balance sheet amounts represent both average and ending balance figures. Assume that all sales were on credit.
Assets
Cash and short-term investments $ 40,000
Accounts receivable (net) $25,000
Inventory $20,000
Property, plant and equipment $210,000
Total Assets $295,000
Liabilities and Stockholders' Equity
Current liabilities $ 60,000
Long-term liabilities $85,000
Stockholders' equity-common $150,000
Total Liabilities and Stockholders' Equity $295,000
Income Statement
Sales $ 85,000
Cost of goods sold $45,000
Gross margin $40,000
Operating expenses $ 20,000
Net income $ 20,000
Number of shares of common stock 6,000
Market price of common stock $20
Dividends per share .90
Cash provided by operations $30,000
What is the return on assets for this company?
a. 6.8%
b. 10.5%
c. 11.7%
d. 26.7%
50. The following information pertains to Soho Company. Assume that all balance sheet amounts represent both average and ending balance figures. Assume that all sales were on credit.
Assets
Cash and short-term investments $ 40,000
Accounts receivable (net) $25,000
Inventory $20,000
Property, plant and equipment $210,000
Total Assets $295,000
Liabilities and Stockholders' Equity
Current liabilities $ 60,000
Long-term liabilities $85,000
Stockholders' equity-common $150,000
Total Liabilities and Stockholders' Equity $295,000
Income Statement
Sales $ 85,000
Cost of goods sold $45,000
Gross margin $40,000
Operating expenses $20,000
Net income $ 20,000
Number of shares of common stock 6,000
Market price of common stock $20
Dividends per share .90
Cash provided by operations $30,000
What is the profit margin for this company?
a. 42.86%
b. 18.75%
c. 23.5%
d. 15.0%