Question

1. When the market rate is greater than the coupon rate on a bond issue, the bonds are sold at a discount.
a. True
b. False
2. A company buys back some of their common stock at a loss of $120,000. They have a Contributed Surplus account equal to $50,000. The company would debit Retained Earnings for the entire loss of $120,000.
a. True
b. False
3. Sophie Inc. sells jewellery sold with a 3 year warranty. The estimated warranty cost is 3% of sales the year after the sale, 4% of sales the second year after and 1% of sales the third year after. The company’s total sales in 2019 were $1.2 million. Actual warranty work performed in 2019 cost $47,000. What is warranty expense accrued in 2019?
a. $47,000
b. $36,000
c. $48,000
d. $96,000
4. In calculating basic earnings per share, if the preferred shares are cumulative, the amount that should be deducted as an adjustment to the numerator is the
a. annual preferred dividend.
b. preferred dividends in arrears.
c. annual preferred dividend times (one minus the income tax rate).
d. preferred dividends in arrears times (one minus the income tax rate).
5. ABC Inc. has following information on its Balance Sheet:
Common shares, 100,000 authorized, 25,000 issued $100,000
If the company purchased 6,000 shares of its own common shares for $26 per share, what would be recorded in terms of a gain or loss?
a. Gain of $132,000
b. Loss of $56,000
c. Loss of $132,000
d. Gain of $56,000
6. Golf dues paid by a company is an example of:
a) a temporary difference
b) a reversing entry
c) a permanent difference
d) none of the above

Answer 1

1	TRUE
	As market rate is high , discount to be given on bonds.
2	FALSE
	First we will use Contributed Surplus account and balance
	from retained earnings.
3	Option B	$36,000
	First Year Warranty	1200000*3%=36000
4	Option B	Preferred Dividend in arrear
5	Option C	Loss of $ 132000
	Since par value is 4 whereas purchase price is 26.
	Loss	(26-4)*6000=132000
6	Option C	a permanent Difference