ACCT 1010 – Practice Test 4 – Page 1 of 8
Accounting 1010
Practice Test 4
Chapters 10 and 11
Name _______________________________
Multiple Choice: Circle the letter corresponding to the best answer for each question. Only
circle one answer per question.
Problems: Show all work and label all amounts.
Disclaimer: Please check with your instructor to confirm the type of problems and questions
you will be expected to do on your exam. All accounting faculty cover the same information but
often place emphasis on different areas and types of problems, especially in Chapters 10 and
11.
1.
A current liability is a debt that can reasonably be expected to be paid (or settled)
a. within one year, or the operating cycle, whichever is longer.
b. between 6 months and 18 months.
c. out of currently recognized revenues.
d. out of cash currently on hand.
2.
Failure to record a liability will probably
a. result in an overstated net income.
b. result in overstated total liabilities and stockholder’s equity.
c. have no effect on net income.
d. result in understated total assets.
3.
The interest charged on a $200,000 note payable, at the rate of 6%, on a 90-day note
would be
a. $12,000.
b. $6,000.
c. $3,000.
d. $1,000.
4.
A retail store credited the Sales account for the sales price and the amount of sales tax
on sales. If the sales tax rate is 5% and the balance in the Sales account amounted to
$189,000, what is the amount of the sales taxes owed to the taxing agency?
a. $180,000.
b. $189,000.
c. $9,450.
d. $9,000.
ACCT 1010 – Practice Test 4 – Page 2 of 8
5.
Sales taxes collected by a retailer are reported as
a. contingent liabilities.
b. revenues.
c. expenses.
d. current liabilities.
6.
If the market interest rate for a bond is higher than the stated interest rate, the bond
will sell at:
a. A premium.
b. A discount.
c. Par.
d. Both a and b correct.
7.
If bonds have been issued at a discount, then over the life of the bonds the
a. carrying value of the bonds will decrease.
b. carrying value of the bonds will increase.
c. interest expense will increase.
d. unamortized discount will increase.
8.
Gomez Corporation issues 800, 10-year, 8%, $1,000 bonds dated January 1, 2014, at
96. The journal entry to record the issuance will show a
a. debit to Cash of $800,000.
b. credit to Discount on Bonds Payable for $32,000.
c. credit to Bonds Payable for $768,000.
d. debit to Cash for $768,000.
9.
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.
10.
Par value
a. represents what a share of stock is worth.
b. represents the original selling price for a share of stock.
c. is established for a share of stock after it is issued.
d. is the value assigned per share in the corporate charter.
ACCT 1010 – Practice Test 4 – Page 3 of 8
11.
Alt Corp. issues 2,000 shares of $10 par value common stock at $14 per share. When
the transaction is recorded, credits are made to:
a. Common Stock $20,000 and Paid-in Capital in Excess of Stated Value $8,000.
b. Common Stock $28,000.
c. Common Stock $20,000 and Paid-in Capital in Excess of Par Value $8,000.
d. Common Stock $20,000 and Retained Earnings $8,000.
12.
Tomlinson Packaging Corporation began business in 2015 by issuing 20,000 shares
of $5 par value common stock for $8 per share and 5,000 shares of 6%, $10 par value
preferred stock for par. At year end, the common stock had a market value of $10. On
its December 31, 2015 Balance Sheet, Tomlinson Packaging would report:
a. Common Stock of $200,000.
b. Common Stock of $100,000.
c. Common Stock of $160,000.
d. Paid-in Capital of $150,000.
13.
The following data is available for BOX Corporation at December 31, 2015:
Common stock, par $10 (authorized 30,000 shares)
$200,000
Treasury stock (at cost $15 per share)
$1,200
Based on the data, how many shares of common stock are outstanding?
a. 30,000.
b. 20,000.
c. 29,920.
d. 19,920.
14.
Treasury stock is
a. stock issued by the U.S. Treasury Department.
b. stock purchased by a corporation and held as an investment in its treasury.
c. corporate stock issued by the treasurer of a company.
d. a corporation’s own stock, which has been reacquired and held for future use.
15.
Which of the following is not a right or preference associated with preferred stock?
a. The right to vote.
b. First claim to dividends.
c. Preference to corporate assets in case of liquidation.
d. To receive dividends in arrears before common stockholders receive dividends.
16.
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.
ACCT 1010 – Practice Test 4 – Page 4 of 8
17.
The effect of the declaration of a cash dividend by the board of directors is to
Increase
Decrease
a. Stockholders’ equity
Assets
b.
Assets
Liabilities
c.
Liabilities
Stockholders’ equity
d.
Liabilities
Assets
18.
Stock dividends and stock splits have the following effects on retained earnings:
Stock Splits
Stock Dividends
a.
Increase
No change
b.
No change
Decrease
c.
Decrease
Decrease
d.
No change
No change
19.
Contingent liabilities are
a. obligations from past transactions and dependent on future events.
b. estimated, based on past history.
c. recorded to properly match expenses with revenues.
d. all of the above.
20.
Which payroll tax is only paid by the employee?
a. Federal income tax
b. Federal unemployment tax
c. Social Security tax
d. Medicare tax
ACCT 1010 – Practice Test 4 – Page 5 of 8
21.
John’s paycheck was for 85 hours over the last 2 weeks. He earns $12.00 per hour
and has $70 withheld for health insurance. Using the following tax rates, calculate
John’s gross pay, net pay, and the employer’s payroll taxes expense.
FICA Taxes: 8%
Federal Income Tax: 10%
State Unemployment Tax: 5%
Federal Unemployment Tax: .8%
John’s gross pay:
John’s net pay:
Employer’s payroll taxes expense:
ACCT 1010 – Practice Test 4 – Page 6 of 8
22.
Wentworth Co. sold $3,000,000, 7%, 8 year bonds on January 1, 2016. The bonds
were dated January 1, 2016 and pay interest on January 1. The bonds were issued at
100 and the company uses the straight line method to amortize bond premiums and
discounts.
Instructions
(a) Prepare the necessary journal entry to record the issuance of the bonds:
(b) Prepare the necessary journal entry to record the bond interest expense for 2016:
(c) Prepare journal entry to record paying the interest on January 1, 2017:
(d) Show the balance sheet presentation for the bond issue at December 31, 2016:
23.
Wentworth Co. sold $3,000,000, 7%, 8 year bonds on January 1, 2016. The bonds
were dated January 1, 2016 and pay interest on January 1. The bonds were issued at
98 and the company uses the straight line method to amortize bond premiums and
discounts.
Instructions
(e) Prepare the necessary journal entry to record the issuance of the bonds:
(f) Prepare the necessary journal entry to record the bond interest expense for 2016:
(g) Prepare journal entry to record paying the interest on January 1, 2017:
(h) Show the balance sheet presentation for the bond issue at December 31, 2016:
24.
Holmes Corporation sold $2,200,000, 8%, 5 year bonds on January 1, 2015. The
bonds were dated January 1, 2015 and pay interest on January 1. The bonds were
issued at 103 and Holmes Corporation uses the straight line method to amortize bond
premiums and discounts.
Instructions
(a) Prepare the necessary journal entry to record the issuance of the bonds:
(b) Prepare the necessary journal entry to record the bond interest expense for 2015:
(c) Prepare journal entry to record paying the interest on January 1, 2016:
(d) Show the balance sheet presentation for the bond issue at December 31, 2015:
ACCT 1010 – Practice Test 4 – Page 7 of 8
25.
The following items were shown on the balance sheet of Martin Corporation on
December 31, 2014:
Stockholders’ Equity:
Paid-In Capital:
Capital Stock:
Common stock, $5 par value, 500,000 shares
authorized, ______ shares issued, and ______ outstanding .. $2,000,000
Paid-in capital in excess of par value .............................................. 120,000
Total paid in capital ................................................................. 2,120,000
Retained Earnings ............................................................................ 500,000
Total Paid-In Capital and Retained Earnings ........................... 2,120,000
Less: Treasury stock (20,000 shares) ............................................ (240,000)
Total stockholders’ equity ...................................................... $1,880,000
Instructions:
Complete the following statements and show your computations.
26.
(a)
The number of shares of common stock issued is _______________.
(b)
The number of shares of common stock outstanding is _____________.
(c)
The total sales price of the common stock when issued is $____________.
(d)
How much did the treasury stock cost per share? $_______________
(e)
What was the average issue price of the common stock? $______________
Prepare the journal entries to record the following transactions related to ABC
Corporation’s $2.50 par value common stock and $100 par value 10% preferred
stock:
Jan. 8
Jan. 15
Feb. 22
Mar. 18
Apr. 15
Issued 20,000 shares of common stock for $3.65 per share.
Issued 30,000 shares of common stock for $3.85 per share.
Issued 10,000 shares of preferred stock for $145 per share.
Issued 5,000 shares of preferred stock for land. The land the land has a
fair market value of $550,000 and an assessed value for property taxes
of 510,000.
Issued 50,000 shares of common stock for $206,000.
ACCT 1010 – Practice Test 4 – Page 8 of 8
27.
On January 1, 2014, Browning Corporation had 75,000 shares of $1 par value
common stock issued and outstanding. During the year, the following transactions
occurred:
Mar. 1
Issued 60,000 shares of common stock for $675,000
June 1
Declared a cash dividend of $2.00 per share to stockholders of record
on June 15
June 30
Paid the $2.00 cash dividend
Dec. 1
Purchased 5,000 shares of common stock for the treasury for $18 per
share
Dec. 15
Declared a cash dividend on outstanding shares of $2.50 per share to
stockholders of record on December 31
Net income for 2014 amounted to $951,000.
Instructions
Prepare the journal entries (if required) for each transaction and the 2014 net income.
28.
The stockholders’ equity accounts of Warden Corporation on January 1, 2015, were
as follows.
Preferred Stock
(9%, $50 par cumulative, 10,000 shares authorized)
$200,000
Common Stock
($1 stated value, 2,000,000 shares authorized)
1,000,000
Paid-in Capital in Excess of Par Value – Preferred Stock
16,000
Paid-in Capital in Excess of Stated Value – Common Stock 1,400,000
Retained Earnings
1,716,000
Treasury Stock – Common (8,000 shares)
20,000
During 2015 the corporation had these transactions and events pertaining to its
stockholders’ equity.
Feb. 1
Issued 20,000 shares of common stock for $160,000.
Nov. 10 Purchased 4,000 shares of common stock for the treasury at a cost of
$16,000.
Nov. 15 Declared a 9% cash dividend on preferred stock, payable December 15.
Dec. 1
Declared a $0.30 per share cash dividend to stockholders of record on
December 15, payable December 31, 2015.
Dec. 15
Paid the dividend declared on November 15.
Dec. 31
Determined that net income for the year was $408,000. The market
price of the common stock on this date was $5 per share. Paid the
dividend declared on December 1.
Dec. 31
Closed dividends
Instructions:
Prepare the journal entries (if required) for each transaction and the 2015 net income.