Accounting MCQs with Correct Solution

Question 1

The stockholders’ equity section of Sliver Corporation’s balance sheet at December 31, 2014, was as follows:

Common stock ($10 par value, authorized 1,000,000
shares, issued and outstanding 900,000 shares) …

$ 9,000,000
Paid-In capital in excess of par ……………….
2,700,000
Retained earnings …………………………….
1,300,000
Total stockholders’ equity …………………….
$13,000,000

On January 2, 2015, Sliver purchased and retired 100,000 shares of its stock for $1,800,000. Sliver records treasury stock using the par value method. Immediately after retirement of these 100,000 shares, the balances in the additional paid-in capital and retained earnings accounts should be

Paid-In Capital Retained
in Excess of Par Earnings

$900,000 $1,300,000

$1,400,000 $800,000

$1,900,000 $1,300,000

$2,400,000 $800,000
0.6 points
Question 2

To compute the price to pay for a bond, you use

only the present value of $1 concept.

only the present value of an annuity of $1 concept.

both of these.

neither of these.
0.6 points
Question 3

For a liability to exist,

the identity of the party owed must be known.

the exact amount must be known.

a past transaction or event must have occurred.

an obligation to pay cash in the future must exist.
0.6 points
Question 4

Bonds usually sell at a premium

when the market rate of interest is greater than the stated rate of interest on the bonds.

when the stated rate of interest on the bonds is greater than the market rate of interest.

when the price of the bonds is greater than their maturity value.

in none of these cases.
0.6 points
Question 5

On July 31, 2013, Rangers Corporation purchased 500,000 shares of Tigers Corporation. On December 31, 2014, Rangers distributed 250,000 shares of Tigers stock as a dividend to Rangers’ stockholders. This is an example of a

liquidating dividend.

investment dividend.

property dividend.

stock dividend.
0.6 points
Question 6

A company declared a cash dividend on its common stock in December 2013, payable in January 2014. Retained Earnings would

increase on the date of declaration.

not be affected on the date of declaration.

not be affected on the date of payment.

decrease on the date of payment.
0.6 points
Question 7

Craig Corporation issued a $100,000, 10-year, 10 percent bond on January 1, 2013, for $112,000. Craig uses the straight-line method of amortization. On April 1, 2016, Craig reacquired the bonds for retirement when they were selling at 102 on the open market. How much gain or loss should Craig recognize on the retirement of the bonds?

$2,000 loss

$3,900 gain

$6,100 gain

$8,200 loss
0.6 points
Question 8

If a $1,000, 9 percent, 10-year bond was issued at 96 plus accrued interest one month after the authorization date, how much cash was received by the issuer?

$967.50

$960.00

$1,007.50

$992.50
0.6 points
Question 9

Which of the following represents a liability?

The obligation to pay for goods that a company expects to order from suppliers next year.

The obligation to provide goods that customers have ordered and paid for during the current year.

The obligation to pay interest on a five-year note payable that was issued the last day of the current year.

The obligation to distribute shares of a company’s own common stock next year as a result of a stock dividend declared near the end of the current year.
0.6 points
Question 10

Which of the following does NOT meet the FASB’s definition of a liability?

The signing of a three-year employment contract at a fixed annual salary

An obligation to provide goods or services in the future

A note payable with no specified maturity date

An obligation that is estimated in amount
0.6 points
Question 11

Which of the following is most likely to be found in state laws regarding payment of dividends?

Dividends may be paid from legal capital.

Retained earnings are available for dividends unless restricted by contract or by statute.

Unrealized capital is available for any type of dividend.

Capital from donated assets is available for dividends.
0.6 points
Question 12

Which of the following is true of accrued interest on bonds that are sold between interest dates?

It is computed at the effective market rate.

It will be paid to the seller when the bonds mature.

It is extra income to the buyer.

None of these is true.
0.6 points
Question 13

Adam Corporation owns 1,000 shares of common stock of Rosen, Inc., a large publicly traded company listed on a major stock exchange. If Rosen issues a 20 percent stock dividend when the par value is $10 per share and the market value is $70 per share, how much and what type of income should Adam report?

$0

$2,000 ordinary income

$14,000 ordinary income

$2,000 ordinary income and $12,000 extraordinary income

Question 14

On June 1, Continental Company issued 8,000 shares of its $10 par common stock to Divide for a tract of land. The stock had a fair market value of $18 per share on this date. On Divide’s last property tax bill, the land was assessed at $96,000. Continental should record an increase in Additional Paid-In Capital of

$96,000.

$64,000.

$40,000.

$16,000.

0.6 points

Question 15

At the date of the financial statements, common stock shares issued would exceed common stock shares outstanding as a result of the

declaration of a stock split.

purchase of treasury stock.

declaration of a stock dividend.

payment in full of subscribed stock.

0.6 points

Question 16

Accrued interest on bonds that are sold between interest dates

is ignored by both the seller and the buyer.

increases the amount a buyer must pay to acquire the bonds.

is recorded as a loss on the sale of the bonds.

decreases the amount a buyer must pay to acquire the bonds.

0.6 points

Question 17

The issuance price of a bond does not depend on the

face value of the bond.

riskiness of the bond.

method used to amortize the bond discount or premium.

effective interest rate.

0.6 points

Question 18

Select the statement that is incorrect concerning the appropriations of retained earnings.

Appropriations of retained earnings reflect funds set aside for a designated purpose, such as plant expansion.

Appropriations of retained earnings do not change the total amount of stockholders’ equity.

Appropriations of retained earnings can be made as a result of contractual requirements.

Appropriations of retained earnings can be made at the discretion of the board of directors.

0.6 points

Question 19

The net amount of a bond liability that appears on the balance sheet is the

call price of the bond plus bond discount or minus bond premium.

face value of the bond plus related premium or minus related discount.

face value of the bond plus related discount or minus related premium.

maturity value of the bond plus related discount or minus related premium.

0.6 points

Question 20

Which of the following is NOT a component of comprehensive income?

Asset revaluation reserve

Net income

Foreign currency translation adjustment

Minimum pension liability adjustment

0.6 points

Question 21

Assuming the straight-line method of amortization is used, the average yearly interest expense on a $250,000, 11 percent, 20-year bond issued at 94 would be

$26,750.

$27,500.

$28,250.

$29,500.

0.6 points

Question 22

How would a stock split affect each of the following?

Total
Stockholders’ Additional
Assets Equity Paid-In Capital

Increase Increase No effect

No effect No effect No effect

No effect No effect Increase

Decrease Decrease Decrease

0.6 points

Question 23

Which of the following presentation formats is permitted by Statement of Financial Accounting Standards No. 130, “Reporting Comprehensive Income”?

I. A single statement of income and comprehensive income.
II. Two statements of income, a traditional income statement ending with net income, and a second statement beginning with net income, all the elements of comprehensive income, and a total of comprehensive income.
III. Within the statement of changes in stockholders’ equity.

Only I

I and III

I and II

I, II, and III

0.6 points

Question 24

Romer Corporation, a calendar-year firm, is authorized to issue $200,000 of 10 percent, 20-year bonds dated January 1, 2014, with interest payable on January 1 and July 1 of each year.

If the bonds were issued on April 1, 2014, the amount of accrued interest on the date of sale is

$20,000.

$10,000.

$2,500.

$5,000.

0.6 points

Question 25

Any gains or losses from the early extinguishment of debt should be

recognized in income of the period of extinguishment.

treated as an increase or decrease in Paid-In Capital.

allocated between a portion that is an increase (decrease) in Paid-In Capital and a portion that is recognized in current income.

amortized over the remaining original life of the extinguished debt.