Question

1. Sweet Company’s outstanding stock consists of 1,600 shares of noncumulative 4% preferred stock with a $100 par value and 11,600 shares of common stock with a $10 par value. During the first three years of operation, the corporation declared and paid the following total cash dividends.

	Dividend Declared
year 1	$	3,600
year 2	$	9,200
year 3	$	40,000

The total amount of dividends paid to preferred and common shareholders over the three-year period is:

Multiple Choice

$19,200 preferred; $33,600 common.

$15,600 preferred; $37,200 common.

$6,400 preferred; $46,400 common.

$16,400 preferred; $36,400 common.

$12,800 preferred; $40,000 common.

2. A company issued 5-year, 8.50% bonds with a par value of $121,000. The market rate when the bonds were issued was 8.00%. The company received $123,546 cash for the bonds. Using the effective interest method, the amount of recorded interest expense for the first semiannual interest period is:

Multiple Choice

$5,142.50.

$10,285.00.

$4,941.84.

$9,820.76.

$2,571.25.

3. On January 1, a company issues bonds dated January 1 with a par value of $340,000. The bonds mature in 5 years. The contract rate is 11%, and interest is paid semiannually on June 30 and December 31. The market rate is 12% and the bonds are sold for $327,490. The journal entry to record the issuance of the bond is:

Multiple Choice

Debit Cash $327,490; debit Discount on Bonds Payable $12,510; credit Bonds Payable $340,000.

Debit Cash $340,000; credit Discount on Bonds Payable $12,510; credit Bonds Payable $327,490.

Debit Cash $327,490; debit Premium on Bonds Payable $12,510; credit Bonds Payable $340,000.

Debit Bonds Payable $340,000; debit Bond Interest Expense $12,510; credit Cash $352,510.

Debit Cash $327,490; credit Bonds Payable $327,490.

4. A company issued 9%, 15-year bonds with a par value of $460,000 that pay interest semiannually. The market rate on the date of issuance was 9%. The journal entry to record each semiannual interest payment is:

Multiple Choice

Debit Bond Interest Expense $20,700; credit Cash $20,700.

Debit Bond Interest Expense $41,400; credit Cash $41,400.

Debit Bond Interest Payable $30,667; credit Cash $30,667.

Debit Bond Interest Expense $410,000; credit Cash $410,000.

No entry is needed, since no interest is paid until the bond is due.

5. On January 1, a company issued and sold a $440,000, 6%, 10-year bond payable, and received proceeds of $434,000. Interest is payable each June 30 and December 31. The company uses the straight-line method to amortize the discount. The carrying value of the bonds immediately after the first interest payment is:

Multiple Choice

$440,000.

$439,700.

$440,300.

$433,700.

$434,300.

6. On February 15, Jewel Company buys 7,200 shares of Marcelo Corp. common stock at $28.63 per share plus a brokerage fee of $410. The stock is classified as available-for-sale securities. This is the company’s first and only investment in available-for-sale securities. On March 15, Marcelo Corp. declares a dividend of $1.20 per share payable to stockholders of record on April 15. Jewel Company received the dividend on April 15 and ultimately sells half of the Marcelo Corp. stock on November 17 of the current year for $29.40 per share less a brokerage fee of $260. The journal entry to record the sale of the 3,600 shares of stock on November 17 is:

Multiple Choice

Debit Cash $105,580; credit Long-Term Investments-AFS $103,068; credit Gain on Sale of Long-Term Investments $2,512.

Debit Cash $105,840; credit Long-Term Investments-Trading $103,068; debit Gain on Sale of Long-Term Investments $2,772.

Debit Cash $105,840; credit Long-Term Investments-AFS $103,273; credit Gain on Sale of Long-Term Investments $2,567.

Debit Cash $105,580; credit Long-Term Investments-AFS $103,273; credit Gain on Sale of Long-Term Investments $2,307.

Debit Cash $105,840; credit Long-Term Investments-Trading $103,068; credit Gain on Sale of Long-Term Investments $2,772.

7. Carpark Services began operations in 20X1 and maintains long-term investments in available-for-sale securities. The year-end cost and fair values for its portfolio of these investments follow. The year-end adjusting entry to record the unrealized gain/loss at December 31, 20X1 is:

Available-for-Sale Securities	Cost			Fair Value
December 31, 20X1	$	305,000		$	300,000
December 31, 20X2	$	384,000		$	390,000
December 31, 20X3	$	454,000		$	505,000

Multiple Choice

Debit Unrealized Gain– Equity $5,000; Credit Fair Value Adjustment – Available-for-Sale (LT) $5,000.

Debit Unrealized Loss – Equity $5,000; Credit Fair Value Adjustment – Available-for-Sale (LT) $5,000.

Debit Unrealized Loss – Income $5,000; Credit Fair Value Adjustment – Available-for-Sale (ST) $5,000.

Debit Fair Value Adjustment – Available-for-Sale (LT) $5,000; Credit Unrealized Loss – Equity $5,000.

Debit Fair Value Adjustment – Available-for-Sale (LT) $5,000; Credit Unrealized Gain – Equity $5,000.

8. Use the following information and the indirect method to calculate the net cash provided or used by operating activities:

Net income	$	85,900
Depreciation expense		12,600
Gain on sale of land		8,100
Increase in merchandise inventory		2,650
Increase in accounts payable		6,750

Multiple Choice

$14,200.

$37,700.

$94,500.

$13,200.

$29,600.

9. A company had net cash flows from operations of $130,000, cash flows from financing of $350,000, total cash flows of $530,000, and average total assets of $3,100,000. The cash flow on total assets ratio equals:

Multiple Choice

4.2%.

4.4%.

17.1%.

17.3%.

24.5%.

10. Use the following information about the current year's operations of a company to calculate the cash paid for merchandise.

Cost of goods sold	$	630,000
Merchandise inventory, January 1		98,000
Merchandise inventory, December 31		123,000
Accounts payable, January 1		94,000
Accounts payable, December 31		73,000

Multiple Choice

$728,000.

$676,000.

$584,000.

$651,000.

$655,000.

Answer 1

Question:(1)

Solution: Option D is the correct answer and it can be computed as follows:

workings: Preferred stockholders are paid $4 dividend per share but can not exceeds the total dividend declared and common stockholders are paid remaining amount of dividend after paying to preferred stockholders.

Question (2). Solution:

Interest expense for the first semiannual interest period = Price of bonds * Market rate / 2

= $123,546 * 8% / 2

= $4,941.84 ( i.e. option c)