Accounting 2001 at UMD

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The long – term asset that does not depreciate or amortize is:
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land
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Major Company purchased a piece of equipment. All of the following costs should be included in the cost of the equipment EXCEPT for:
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Insurance costs after the equipment is up and running.
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Which of the following should be included in the cost of home improvements?
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sprinkler systems, fencing, and lighted signs
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Minor Company purchased some land and is preparing the land for a new building. Which of the following costs should be included in the cost of land?
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cost of removing an old building, and cost of clearing and grading the land.
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The cost of installing lights in a company’s parking lot should be recorded as a cost of:
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land improvements
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A lump – sum purchase of multiple, long – term pant assets:
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requires the company to divide the total cost among the various assets according to their market values.
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Which of the following should be included in the cost of equipment?
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Employees training costs for the use of the new equipment; Testing cost to see if the equipment is working properly; and platform for the equipment.
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Which of the following costs associated with a delivery van should NOT be capitalized?
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The van is repainted.
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The journal entry to record an addition to an office building would include:
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debit to Office Building
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Having an engine overhauled extending the useful life exponentially would be called?
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capital expenditure
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Capital expenditure are not immediately expensed because the items:
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extend the useful life of a plant asset.
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Morgan Oaks Company replaced the windshields are painted several of its vehicles during the year. The costs should be:
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debited to Repair Expense.
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If a company capitalizes a plant asset that should have been expensed:
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expenses will be understated and net income will be overstated in the year of the error.
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WorldCom’s fraudulent scheme of capitalizing telephone line costs instead of expensing them was discovered by:
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Internal auditors
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A conservative policy with regard to capitalizing or expensing costs associated with plant assets avoids ________.
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overstating profits and assets.
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The depreciation process follows the ______ principle
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expense recognition
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All of the following are needed to measure depreciation, EXCEPT for:
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market value
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A depreciation method in which an equal amount of depreciation expense is assigned to each year of the asset’s use is the:
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straight line method
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The expected cash value of a plant asset at the end of its useful life is known as:
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risidual value; salvage value; and scrap value.
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The depreciable cost of a plant asset equals the:
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historical cost of the asset minus the estimated residual value.
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The book value of a plant asset is defined as:
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historical cost minus accumulated depreciation
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Cost minus residual value divided by useful life in years is the:
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straight – line method
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When compared to the other methods of depreciation, the double -declining – balance method of depreciation gives depreciation expense that is:
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higher in the earlier periods.
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The journal entry to record depreciation expense is:
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debit Depreciation Expense, credit Accumulated Depreciation
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As a depreciable plant asset is used in operations:
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accumulated depreciation increases and the book value of the asset decreases.
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To account for the disposal of a plant asset, the cost of the asset and its related accumulated depreciation are removed from the book. TRUE OR FALSE
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TRUE
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A Loss on Sale of Equipment will result when the book value of the equipment exceeds the cash received from the sale of the equipment. TRUE OR FALSE
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TRUE
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The Loss on Disposal of Equipment account is reported as Other Losses and Expenses on the income statement. TRUE OR FALSE
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TRUE
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Gains on the sale of equipment increase net income while losses on the sale of equipment decreases net income. TRUE OR FALSE
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TRUE
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A company purchased a machine for $100,000 many years earlier. The accumulated depreciation on the machine is $100,000. Which of the following statements is TRUE regarding the disposal of the machine for no cash proceeds?
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There will be no gain or loss on the disposal.
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Franco Company sold office furniture for $2,500 cash. The furniture cost $40,000 and had accumulated depreciation through the date of sale totaling $35,000. The company will recognize:
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a loss of $2,500.
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Kolonas, Inc, sold equipment for $5,000 cash. The equipment cost $74,300 and had accumulated depreciation through the date of sale of $70,000. At the date of sale, the journal entry to record the sale will have:
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a Gain on Sale of Equipment for $700
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Intangible assets can have finite or infinite lives. TRUE OR FALSE
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TRUE
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Some intangible assets are not amortized. TRUE OR FALSE
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TRUE
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A purchaser is willing to pay for goodwill when they feel the company they are buying has abnormal earning power. TRUE OR FALSE
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TRUE
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The computation of depletion expense is most closely related to which method for computing depreciation?
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Units – of – production
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Which intangible asset is NOT amortized?
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goodwill
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Amortization expense is recorded for:
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intangible assets with a finite life.
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How does the journal entry to amortize a copyright affect the accounting equation?
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decreases assets and stockholders’ equity
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The exclusive right to produce and sell an invention like the smart phone requires a:
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patent
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At the end of the year, a company makes a journal entry to accrue the interest expense on a short – term note payable. As a result of this transaction:
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current liabilities increase and stockholders’ equity decreases.
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The journal entry to record salaries earned by 10 employees will:
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debit to Salary Expense for the gross pay, credit FICA Tax Payable, credit Employee Income Tax Payable and Credit Salary Payable for the net pay.
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When a business receives cash from a customer before earning the revenue, they credit:
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Unearned Revenue
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All of the following are reported as current liabilities EXCEPT:
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unearned revenues for services to be provided in 16 months.
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The current ratio is current assets:
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divided by current liabilities.
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The accounting principle that requires a company to record warranty expense in the same period that it records sales revenue is the:
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expense recognition principle.
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The accounting principle that requires a company to record warranty expense in the same period that it records sales revenue is the:
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expense recognition principle.
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Madison Bank lends Neenah Paper Company $100,000 on January 1, 2014. Neenah Paper Company signs a $100,000 ,8%, 6-month note. The journal entry made by Neenah Paper Company on January 1, 2014 is:
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debit Cash for $100,000 and credit Notes Payable for $100,000.
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Monthly sales are $500,000. Warranty costs are estimated at 4% of monthly sales. Warranties are honored with replacement products. No defective products are returned during the month. At the end of the month, the company should record a journal entry with a credit to:
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Estimated Warranty Payable for $20,000.
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Wisconsin Bank lends Local Furniture Company $100,000 on November 1. Local Furniture Company signs a $100,000 , 8%, 4 – month note. The fiscal year end of Local Furniture Company is December 31. The Journal entry made by Local Furniture Company on December 31 is:
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debit Interest Expense and credit Interest Payable for $1,333.
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Michigan Bank lends Detroit Furniture Company $100,000 on December 1. Detroit Furniture Company signs a $100,000, 9%, 4 – month note. The total cash paid for interest (only) at maturity of the note is:
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$3,000
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Illinois Bank lends Lisle Furniture Company $100,000 on December 1. Lisle Furniture Company signs a $100,000, 9%, 4 – month note. The total cash paid at maturity of the note is:
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$103,000
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Kathy’s Corner Store has a total cash sales for the month of $36,000 excluding sales taxes. If the sales tax rate is 5%, what journal entry is needed? (Ignore Cost of Goods Sold.)
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debit Cash $37,800, credit Sales $36,000, and credit Sales Tax Payable $1,800
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Notes payable due in six months are reported as:
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current liabilities on the balance sheet.
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The total earned wages of an employee for the payroll period is the ________. The amount of earned wages the employee takes home is ________.
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gross pay; net pay
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Potential liabilities that depend on future events arising out of past events are called:
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contingent liabilities
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A company has a lawsuit pending with regard to patent infringement. The amount of the loss can be estimated and has a probable chance of occurrence. What journal entry is required?
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debit Estimated Lawsuit Loss and credit Estimated Lawsuit Liability
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A company has a pending lawsuit that has a remote possibility of being settled in favor of the plaintiff who is a former employee. What should the company do?
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Nothing.
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What is the accounts payable turnover?
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a measure of the number of times a year a company is able to pay off its accounts payable; a measure of liquidity; purchases on account from suppliers divided by average accounts payable. (all of the above)
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A company has days’ payable outstanding of 70 days. If credit terms of purchases are 2/10, net 30, is the company paying accounts payable on a timely basis?
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No, days’ payable outstanding exceeds the discount period of 10 days and the net period of 30 days.
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Corporations borrow large amounts of money by issuing (selling) bonds to the public. TRUE OR FALSE
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TRUE
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Bonds that are secured by real estate are called:
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Secured bonds and Mortgage bonds.
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Bonds in a particular issue which mature in installments over a period of time are called:
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Serial bonds
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Bonds which are backed only by the good faith of the borrower are referred to as:
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debenture bonds.
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If the market interest rate is greater than the stated interest rate on bonds, bonds will sell:
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at a discount.
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The market interest rate is also referred to as the:
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effective rate.
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The interest rate that investors require for loaning their money is referred to as:
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the market rate of interest.
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Bonds with a 7% stated interest rate were issued when the market rate of interest was 6%. This bond was issued at:
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a premium.
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A bond will sell at a premium when:
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the coupon rate is greater than the effective rate.
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A bond with a face value of $100,000 and a quoted price of 105 has a selling price of:
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$105,000
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A disadvantage of using bonds instead of stock as a method of long – term financing is that with bonds:
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interest must be paid regardless of the level of earnings.
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A disadvantage of issuing stock instead of debt is that stock:
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generally results in lower earnings per share.
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The financing option that has the lowest risk to a company is financing by:
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retained earnings.
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The financing option that creates no liabilities or interest expense is financing by:
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issuing stock.
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The debt ratio is computed by dividing:
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total debt by total assets.
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If a company wants to maximize earnings per share it would issue:
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bonds instead of stock.
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The leverage ratio is equal to:
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total assets divided by total stockholders’ equity.
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According to DuPont analysis, the impact of debt on a company’s profitability is measured by the:
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leverage ratio.
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Following the DuPont analysis model, the higher the leverage ratio, the higher the:
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return on stockholders’ equity.
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When a company uses borrowed money to earn a higher profit than the cost of the interest, this is called:
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trading on the equity.
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Which of the following is NOT considered to be an advantage of forming a corporation?
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Government Regulations
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Double taxation means that the:
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corporation pays taxes on its earnings and the shareholders pay taxes on the dividends received from the corporation.
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Stockholders of a corporation directly elect the:
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Board of Directors
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The chairperson of the board of directors often has the title of:
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Chief Exectuive Officer (CEO).
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The basic unit of ownership for a corporation is:
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a share of common stock.
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Which one of the following is NOT a stockholder’s right of ownership in a corporation?
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the right to decide if a dividend should be distributed.
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Stockholders’ equity is divided into:
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retained earnings and paid – in capital.
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If a corporation has only one class of stock, it is understood to be:
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common stocks.
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Dividends are declared by the:
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Board of directors.
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The arbitrary amount assigned by a company to a share of its stock is the:
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The stated value per share and par value per share.
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Which statement is FALSE
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Preferred stockholders receive dividends before the common stock holders only if the preferred stock is cumulative.
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Which statement about corporations is FALSE?
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An advantage of a corporation is limited life.
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Preferred stick that must be paid back or redeemed by a corporation is reported as a(n) _______ on the balance sheet.
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liability
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Legal capital for a corporation equals:
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the par value of stock that has been issued.
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Preferred stock is NOT similar to debt because:
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– preferred dividends are not tax – deductible whereas interest expense is tax deductible. – preferred dividends do not have to be paid whereas interest expense must be paid. -preferred stock does not have a maturity date whereas debt usually has a maturity date. (ALL OF THE ABOVE)
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The journal entry to record common stock issued at its par value includes a:
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credit to Common Stock.
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When 100 shares of $1 par value Common Stock are issued at $25 per share, Paid – in Capital in Excess of Par – Common will:
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increase $2,400.
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If stock is issued for an asset other than cash, the asset should be recorded on the books of the corporation at:
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fair market value of the asset.
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When reporting stockholders’ equity on the balance sheet, a corporation lists the accounts in the following order:
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Preferred Stock, Common Stock, Additional Paid – in Capital, Retained Earnings.
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The number of shares of authorized stock of a corporation:
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is stated in the charter.
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Previously issued stock that a corporation purchases from shareholders is called:
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treasury stock.
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Reasons that a company would purchase treasury stock include all of the following EXCEPT:
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management wants to decrease earnings per share of common stock.
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Peter’s Computers purchased 4,000 shares of its own $10 par value common stock for $92,000. As a result of this transaction:
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Peter’s stockholders’ equity decreased $92,000.
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Treasury stock accounts for the difference between the number of:
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outstanding share and issued shares.
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If treasury stock is sold at a price greater than its reacquisition cost, the difference is:
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credited to Paid – in Capital from Treasury Stock Transactions.
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Treasury stock has a:
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debit balance, the opposite of other stockholders’ equity accounts.
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When treasury stock is purchased, accountants record treasury stock at:
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the stock’s current market value.
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The purchase of treasury stock returns ______ to the stockholders but also _______.
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cash; decreases their ownership of the company
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The authority to declare a dividend lies with the:
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Board of Directors.
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The date when a cash dividend becomes a legal obligation is the:
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declaration date.
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Before a company can pay dividends to the common stockholders, the owners of cumulative preferred stock must receive:
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all dividends in arrears plus the current year’s dividends.
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A share of 5% preferred stock has a par value of $50 and market value of $80. The owners of the preferred stock will receive a dividend of:
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2.50 per share.
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Declaring and distributing stock dividends:
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has no effect on total stockholders’ equity.
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Mr.Jorgensen, a shareholder in the Best Corporation, owns 1,000 shares of their common stock. Mr.Jorgensen receives a 5% stock dividend. After the stock dividend, Mr.Jorgensen will have a:
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total of 1,050 shares of Best Corporation’s common stock.
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A stock dividend is considered small when it is a dividend of:
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25% or less of the corporation’s outstanding stock.
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An increase in the number of issued and outstanding shares of stock along with a proportional reduction in the stocks’s par value is a:
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stock split.
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A stock split:
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has no effect on total stockholders equity.
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The chronological order of dates for cash dividends are:
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date of declaration, date of record, and date of payment.
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How does the declaration and distribution of a 10% stock dividend affect stockholders’ equity?
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The balances of different accounts in stockholders’ equity will change, but total stockholders’ equity is unchanged.
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To record a 10% stock dividend, accountants use ______. To record a 40% stock dividend, accountants use ______.
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market price per share; par value per share

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