Multiple choice questions on Valuation of bonds and stocks.
1. For bonds payable, the cash interest paid in each interest period is:
a.The same amount regardless of whether the bond was sold at par, a discount, or a premium.
b.Different depending upon the date of sale.
c.Not the same amount when the stated (contractual) and yield (effective) interest rates are different.
d.Dependent on the initial amount of accrued interest charged the buyer.
2. If a bond was sold at 108, the stated rate of interest was:
a.Equal to the market rate on date of issuance.
b.Not related to the market rate on date of issuance.
c.Higher than the market rate on date of issuance.
d.Lower than the market rate on date of issuance.
3. If bonds are issued initially at a discount and the straight-line method of amortization is used for the discount, interest expense in the earlier years will be:
a.Less than if the effective interest method is used.
b.Less than the amount of the cash interest payments.
c.More than if the effective interest method is used.
d.The same as if the effective interest method is used.
4. When treasury stock is accounted for by the cost method is subsequently sold for more than its purchase price, the excess of the cash proceeds over the carrying value of the treasury stock should be recognized as:
a.An extraordinary gain on the income statement.
b.Included in income from continuing operations.
c.Cause an increase in contributed capital.
d.Cause an increase in retained earnings.
5. A 5 percent common stock dividend issued to common stockholders should transfer from Retained earnings to contributed capital an amount equal to the:
a.Minimum legal requirement.
b.Market value of the shares issued.
c.Par or stated value of the shares issued.
d.Book value of the shares issued.
Part II For each of the following three independent cases, use the information provided to calculate the missing cash inflow or cash outflow:
a.Interest Payable, Beginning of Year $4.200
Interest Expense for the Year 26,700
Interest Payable, End of Year 3,000
Cash paid for interest during the year
b.Prepaid Insurance, Beginning of Year $7,000
Insurance Expense for the Year 16,800
Prepaid Insurance, End of Year 3,400
Cash paid for insurance during the year
c.Interest Receivable, Beginning of Year $800
Interest Revenue for the Year 12,600
Interest Receivable, End of year 1,200
Cash received for interest during the year