1. A $1,000 bond quoted at 96.5 would sell for:
a. $1,000
b. $965
c. $96.50
d. None of the above
2. A $1,000 bond quoted at 104 would sell for:
a. $1,104
b. $1,000
c. $104
d. $1,040
3. Bonds payable issued with collateral are called:
a. debenture bonds
b. serial bonds
c. callable bonds
d. secured bonds
4. Bonds that are backed soely by the general credit of the corporation issuing them are called:
a. callable bonds.
b. debenture bonds.
c. indenture bonds.
d. convertible bonds.
5. For a corporation, a premium on bonds results when:
a. the contract rate is greater than the market rate.
b. the contract rate is less than the market rate.
c. the face value is greater than the effective rate.
d. None of the above.
6. When the market rate of interest on bonds is higher than the contract rate, the bonds will sell at:
a. a premium
b. their face value
c. their maturity value
d. a discount
7. A bond payable is similar to which of the following?
a. Accounts Payable
b. Accounts Receivable
c. Notes Payable
d. Cash
8. If bonds are sold between interest payment dates, the amount of cash the issuer receives is:
a. more than the market value of the bonds.
b. less than the market value of the bonds.
c. equal to the market value of the bonds.
d. equal to the face value of the bonds.
9. If a bonds is issued at a premium, the effective interest rate is most likely _________ the contract interest rate.
a. higher than
b. lower than
c. the same as
d. Answer cannot be determined based on information given.
10. A bond is issued for less than its face value. Which of the following statements most likely would explain why?
a. The bond’s contract rate is lower than the market rate at the time of issue.
b. The bond’s contract rate is the same as the market rate at the time of the issue.
c. The bond’s contract rate is higher than the market rate at the time of the issue.
d. The bonds is not secured by specific assets of the corporation.
11. When a bond issued at face value is retired, the journal entry is:
a. debit Bond Interest Expense; credit Cash
b. debit Bonds Payable; credit Cash
c. debit Cash; credit Bonds Payable
d. debit Cash; credit Bond Interest Expense
12. Assume the following account balances immediately after an interest payment date:
Bonds Payable $100,000
Premium on Bonds
Payable 5,000
If bonds are retired immediately at a total cost of $104,000, the journal entry to record this event is:
a. Cash 104,000
Loss on Bond Retirement 1,000
Premium on Bonds Payable 5,000
Bonds Payable 100,000
b. Bonds Payable 100,000
Premium on Bonds Payable 5,000
Cash 104,000
Gain on Bond Retirement 1,000
c. Bonds Payable 100,000
Loss on Bond Retirement 9,000
Premium on Bonds Payable 5,000
Cash 104,000
d. None of the above
13. A fund set up so that a bond can be retired at maturity is called a:
a. sinking fund
b. bond payable fund
c. stock fund
d. retirement fund
14. The interest rate specified in the bond indenture is called the:
a. market rate.
b. discount rate.
c. contract rate.
d. effective rate.
15. On April 1, Braintree Corporation issued 10%, ten-year, $300,000 bonds at 106. The effective interest rate for these bonds is:
a. 10%
b. 9.43%
c. 4.7%
d. 5%
16. On April 1, Braintree Corporation issued 10%, ten-year, $300,000 bonds at face value. Interest dates are April 1 and October 1. The amount of cash paid out for interest during the current calendar year is:
a. $0.
b. $15,000
c. $30,000
d. $31,000
17. The entry to record the issuance of a bond between interest payment dates will include a:
a. debit to Cash; credit to Bonds Payable; credit to Bonds Interest Payable.
b. debit to Bonds Payable; credit to Cash.
c. debit to Bond Interest Expense; credit to Bond Interest Payable.
d. debit to Bond Interest Payable; credit to Bond Interest Expense.
18. Martin Corporation sells $200,000, 12%, ten-year bonds at face value on January 1. Interest is paid on January 1 and July 1. The entry to record the issuance of the bonds on January 1 is:
a. Cash 200,000
Bonds Payable 200,000
b. Cash 200,000
Interest Payable 24,000
Bonds Payable 176,000
c. Cash 176,000
Interest Expense 24,000
Bonds Payable 200,000
d. Cash 188,000
Interest Expense 12,000
Bonds Payable 200,000
19. The sale and issuance of $400,000, 8% bonds with a market rate of 8% would involving debiting Cash for:
a. $432,000
b. $400,000
c. $368,000
d. $32,000
20. Miranda Corporation issued $200,000 of 12%, ten-year bonds for $220,000. The entry to record the issuance of the bonds includes a:
a. debit to Bonds Payable for $200,000.
b. credit to Premium on Bonds Payable for $20,000.
c. credit to Bonds Payable for $220,000.
d. credit to Cash for $220,000.
21. The records of Ashley Boutique showed Net Loss, $30,000; Depreciation Expense, $25,000; and increase in Supplies on Hand, $5,000. The net cash flow from operating activities using the indirect method is:
a. $15,000.
b. $20,000.
c. ($10,000).
d. (15,000).
22. Management has authorized the purchase of a large quantity of inventory for early December. The purchase will have credit terms of 2/10, n/30, and they will authorize payment by the discount date. How will this decision affect the period’s cash flows from operations! indirect method?
a. It will increase this period’s cash flows from operations.
b. It will decrease this period’s cash flows from operations.
c. It will not affect this period’s cash flows from operations.
d. This does not affect cash flows from operations.
23. Depreciation on factory equipment would be reported in the statement of cash flows prepared by indirect method in:
a. the operating activities section.
b. the financing activities section.
c. the investing activities section.
d. None of the above.
24. The balance of Supplies has decreased during the year. How would this event affect the statement of cash flows operations section indirect method?
a. It is already included in the net income.
b. It would affect the operations section positively.
c. It would affect the operations section negatively.
d. Does not affect the cash flow form operations.
25. Cost of merchandise sold for the year was $850,000. Inventories were $60,000 and $90,000 at the beginning and end of the year, respectively. There were no changes in accounts payable from the beginning to the end of the year. Cash payment for merchandise to be reported on the cash flow statement using the direct method is:
a. $850,000
b. $910,000
c. $940,000
d. $880,000
26. Operating expenses other than depreciation for the year were $400,000. Accrued expenses payable increased by $35,000. Cash payments for operating expenses to be reported on the cash flow statement using the direct method would be:
a. $400,000
b. $435,000
c. $365,000
d. $35,000
27. Operating expenses other than depreciating for the year were $335,000. Prepaid expenses decreased by $7,000. Cash payments for operating expenses to be reported on the cash flow statement using the direct method would be:
a. $335,000
b. $342,000
c. $328,000
d. $7,000
28. When using the direct method to determine the net cash flows from operating activities, major categories would NOT include:
a. cash received from customers.
b. cash paid for salaries.
c. cash paid for dividends.
d. cash paid for inventory.
29. Many accountants prefer which method of computing cash flow from operating activities?
a. Combination method
b. Direct method
c. Indirect method
d. Adjusting method
30. The method of reporting cash flows from operating activities under which revenues and expenses on the income statement are adjusted to reflect the amount of cash received or expended for each item is the:
a. direct method
b. indirect method.
c. combination method.
d. adjustment method.
31. When preparing the statement of cash flows by the indirect method, if current liabilities increase the difference is:
a. added to net income.
b. added to investments.
c. deducted form net income.
d. subtracted from investments.
32. When preparing the statement of cash flows by the indirect method, if accumulated depreciation increases the differences is:
a. added to net income.
b. added to investments.
c. deducted from net income.
d. not considered in the statement of cash flows using the indirect method.
33. When using the indirect method, which of the following would be included in the net cash flows from operating activities section of a cash flow statement?
a. Sales of plant, property and equipment
b. Making loans and paying out interest
c. Payment of interest and expenses
d. Issuing bonds and notes
34. Rick Corporation’s Accounts Receivable decreased by $25,000 during the year. What is the adjustment to the cash flow statement when it is prepared by the indirect method?
a. Subtract the decrease from the net income in operating activities.
b. Add the decrease to the net income in operating activities.
c. Add the decrease in the investing activities section.
d. Subtract the decrease in the financing activities.
35. Collins Corporation reported a net income of $35,000, depreciation expenses of $20,000, an increase in Accounts Payable of $2,000, and an increase in Accounts Receivable of $3,000. Net cash flow from operating activities using the indirect method is:
a. $55,000
b. $54,000
c. $50,000
d. $56,000
36. Trundle Corporation reported a net income of $40,000, depreciation expenses of $1,000, sales of additional common shares of $25,000, and a decrease in Accounts Payable of $8,000. Net cash flow from operating activities using the indirect method is:
a. $41,000
b. $32,000
c. $33,000
d. $58,000
37. Smith Corporation reported a net income of $54,000, depreciation expenses of $10,000, an increase in Accounts Payable of $3,000, and an increase in Accounts Receivable of $1,500. Under the indirect method, net cash flow from operating activities is:
a. $62,500
b. $59,500
c. $48.500
d. $65,500
38. Big Toy Corporation’s records show a profit of $30,000, depreciation expenses of $10,000, and cash dividends declared and paid of $5,000. The amount of cash used in operating activities using the indirect method is:
a. $40,000
b. $30,000
c. $20,000
d. $10,000
39. Carmen’s Candies net income was $40,000. Accounts Receivable decreased by $30,000, Merchandise Inventory increased by $20,000, Accounts Payable decreased by $4,000, and Salaries Payable increased by $1,000. The net cash flow from operating activities using the indirect method is:
a. $33,000
b. $47,000
c. $53,000
d. $61,000
40. Fidelity Furniture’s net income was $25,000. Accounts Receivable decreased by $18,000, Merchandise Inventory Increased by $7,000, Accounts Payable increased by $4,000, and Salaries Payable decreased by $3,000. The net cash flow from operating activities using the indirect method is:
a. $57,000
b. $43,000
c. $37,000
d. $15,000
