Multiple choice questions – 30 Questions
b) $1,000
c) $104
d) $10,40
2) 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) Discount
3) When a bond issued at face value is retired, what is the journal entry?
a) Debit Bond Inters Expense; credit Cash
b) Debit Bonds Payable; credit Cash
c) Debit Cash; credit Bonds Payable
d) Debit Cash; credit Bond Interest Expense
4) The interest rate specified in the bond indenture is called the ______ rate.
a) Market
b) Discount
c) Contract
d) Effective
5) An inflow of cash from investing activities would bee
a) The issuance of stock
b) The sale of investment in equity securities
c) Interest received on loans
d) The purchase of fixed assets.
b) Making loans and paying out interest
c) Payment of interest and expenses
d) Issuing bonds and notes
b) Less than the market value of bonds
c) Equal to the market value of the bonds
d) Equal to the face value of the bonds
b) Serial
c) Callable
d) Secured
b) Buying debt and equity securities
c) Paying interest on notes payable
d) Making payments for additional inventory
b) comparing cash flows
c) predicting future cash flows
d) all of the above
PREMIUM ON BONDS PAYABLE : $5,000
If the bonds are retired immediately at a total cost of $104,000, what is the journal entry to record this event?
a) Cash 104,000
Loss on Bond Retirement 1,000
Premium on Bonds Payalbe 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
b) Investing
c) Operating
d) Financing
b) Bond payable
c) Retirement
14) 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%
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.
b) Added to investments.
c) Deducted from net income.
d) Subtracted from investments.
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.
b) Cash flow from financing activities.
c) Cash flow from fixed asset activities.
d) Operating profit before working capital changes.
b) Accounts receivable
c) Notes payable
d) Cash
b) Operating
c) Investing
d) Managing
b) Added to investments.
c) Deducted from net income.
d) Not considered in the statement of cash flows using the indirect method.
b) Financing
c) Operating
d) Investing
b) Financing
c) Operating
d) Investing
b) $965.
c) $96.50.
d) None of the above
b) Lower than
c) The same as
d) Answer can’t be determined based on information given.
b) $54,000.
c) $50,000.
d) $56,000.
b) Debenture
c) Indenture
d) Convertible
b) Show the profits that were generated.
c) Show the expenses that were incurred.
d) Show how cash was generated and used during an accounting period.
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 bond isn’t secured by specific assets of the corporation.
b) May be computed directly or indirectly.
c) Is a statement used to better understand the financing and investing activities.
d) All of the above
1)
A $1,000 bond quoted at 104
would sell for
a)
$1,104b) $1,000
c) $104
d) $10,40
2) 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) Discount
3) When a bond issued at face value is retired, what is the journal entry?
a) Debit Bond Inters Expense; credit Cash
b) Debit Bonds Payable; credit Cash
c) Debit Cash; credit Bonds Payable
d) Debit Cash; credit Bond Interest Expense
4) The interest rate specified in the bond indenture is called the ______ rate.
a) Market
b) Discount
c) Contract
d) Effective
5) An inflow of cash from investing activities would bee
a) The issuance of stock
b) The sale of investment in equity securities
c) Interest received on loans
d) The purchase of fixed assets.
6)
When using the indirect method,
which of the following would be included in the net cash flows from operating
activities suction 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
7)
If bonds are sold between
interest payment dates, the amount of cash issuer receives is
a)
More than the market value of
the bondsb) Less than the market value of bonds
c) Equal to the market value of the bonds
d) Equal to the face value of the bonds
8)
Bonds payable issued with
collateral are called _______ bonds.
a)
Debentureb) Serial
c) Callable
d) Secured
9)
A chas outflow from a financing
activity would be
a)
Paying cash dividendsb) Buying debt and equity securities
c) Paying interest on notes payable
d) Making payments for additional inventory
10) A
statement of cash flows is helpful in
a)
evaluating cash flowsb) comparing cash flows
c) predicting future cash flows
d) all of the above
11) Assume the
following account balances immediately after an interest payment date:
BONDS PAYABLE : $100,000PREMIUM ON BONDS PAYABLE : $5,000
If the bonds are retired immediately at a total cost of $104,000, what is the journal entry to record this event?
a) Cash 104,000
Loss on Bond Retirement 1,000
Premium on Bonds Payalbe 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
12) The
statement of cash flows provides information about all of the following except
_________ activities.
a)
Organizingb) Investing
c) Operating
d) Financing
13) A fund set
up so that a bond can be retired at maturity is called a _______ fund.
a)
Sinkingb) Bond payable
c) Retirement
14) 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%
15) 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.
16) 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 from net income.
d) Subtracted from investments.
17) Rick
Corporation’s Accounts Receivable decreased by $25,000 during the year. What is
the adjustment to the cash flow statement when it’s 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.
18) Using the
indirect method of cash flows, depreciation expense is added to net income to
determine the
a)
Cash flow from investing
activities.b) Cash flow from financing activities.
c) Cash flow from fixed asset activities.
d) Operating profit before working capital changes.
19) A bond
payable is similar to which of the following?
a)
Accounts payableb) Accounts receivable
c) Notes payable
d) Cash
20) The
difference between the direct and indirect method of computing the cash flow
statement occurs in the _______ activities section.
a)
Financing b) Operating
c) Investing
d) Managing
21) When
preparing the statement of cash flows by the indirect method, if accumulated
depreciation increases the difference 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.
22) The
activity that’s probably the most important indicator of financial health is
the net cast flow from ________ activities.
a)
Buying and sellingb) Financing
c) Operating
d) Investing
23)
Transactions involving the purchase and sale of fixed assets would be
considered _______ activities.
a)
Buying and selling b) Financing
c) Operating
d) Investing
24) A $1,000
bond quoted at 96.5 would sell for
a)
$1,000.b) $965.
c) $96.50.
d) None of the above
25) If a bond
is issued at a premium, the effective interest rate is most likely ________ the
contract interest rate.
a)
Higher thanb) Lower than
c) The same as
d) Answer can’t be determined based on information given.
26) 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.
27)Bonds that
are backed solely by the general credit of the corporation issuing them are
called ________ bonds.
a)
Callableb) Debenture
c) Indenture
d) Convertible
28) A
statement of cash flow’s purpose is to
a)
Show the revenue earned.b) Show the profits that were generated.
c) Show the expenses that were incurred.
d) Show how cash was generated and used during an accounting period.
29)A bond is
issued for less than its face value. Which statement most likely would explain
whay?
a)
The bond’s contract rate is
lower than the market rate at the time of the 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 bond isn’t secured by specific assets of the corporation.
30) A
statement of cash flow
a)
Has three main sections: net
cash flow from operating, investing, and financing activities.b) May be computed directly or indirectly.
c) Is a statement used to better understand the financing and investing activities.
d) All of the above
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