AC 202 Principles of Accounting Name Alcedo Sanchez

Park University Exam 1A-Chapters 13-15

Multiple Choice Questions- ( 2 points each ) Select the ONE, BEST Answer
1. Stockholders' equity consists of :

A.
Long-term assets.

B.
Contributed capital and retained earnings.

C.
Contributed capital and par value.

D.
Retained earnings and cash.

E.
Premiums and discounts.

2. Retained earnings:

A.
Generally consists of a company's cumulative net income less any net losses and dividends declared
since its inception.

B.
Can only be appropriated by setting aside a cash fund.

C.
Represent an amount of cash available to pay shareholders.

D.
Are never adjusted for anything other than net income or dividends.

E.
All of the above.

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3. The price-earnings ratio is calculated by dividing:

A.
Market value per share by earnings per share.

B.
Earnings per share by market value per share.

C.
Dividends per share by earnings per share.

D.
Dividends per share by market value per share.

E.
Market value per share by dividends per share.

4. Bonds can be issued:

A.
At par.

B.
At a premium.

C.
At a discount.

D.
Between interest payment dates.

E.
All of the above.
5. Amortizing a bond discount:

A.
Allocates a part of the total discount to each interest period.

B.
Increases the market value of the Bonds Payable.

C.
Decreases the Bonds Payable account.

D.
Decreases interest expense each period.

E.
Increases cash flows from the bond.

6. A company may retire bonds by:

A.
Exercising a call option.

B.
The holders converting them to stock.

C.
Purchasing the bonds on the open market.

D.
Paying them off at maturity.

E.
All of the above.

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7. At acquisition, debt securities are:

A.
Recorded at their cost, plus total interest that will be paid over the life of the security.

B.
Recorded at the amount of interest that will be paid over the life of the security.

C.
Recorded at cost.

D.
Not recorded, because no interest is due yet.

E.
Recorded at the amount of dividend income to be received.

8. Long-term investments can include:

A.
Held-to-maturity debt securities.

B.
Available-for-sale debt securities.

C.
Available-for-sale equity securities.

D.
Equity securities giving an investor significant influence over an investee.

E.
All of the above.
9. Foreign exchange rates fluctuate due to changes in :

A.
Political conditions.

B.
Economic conditions.

C.
Supply and demand for currencies.

D.
Expectations of future events.

E.
All of the above.

10. When a credit sale is denominated in a foreign currency, the foreign exchange rate used to record the sale
is the current exchange rate:

A.
Thirty days from the date of sale.

B.
At the end of the seller's fiscal year.

C.
At the end of the buyer's fiscal year.

D.
On the date final payment is made.

E.
On the date of the sale.

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Problem #1 ( 25 points )
A corporation had stockholders' equity on January 1 as follows: Common Stock, $5 par value, 1,000,000
shares authorized, 500,000 shares issued; Contributed Capital in Excess of Par Value, Common Stock,
$1,000,000; Retained Earnings, $3,000,000. Prepare journal entries to record the following transactions:

Number of shares to be issued = (500,000 × 5%) = 25,000 shares

Amount to be Debited to Retained Earnings = 25,000 × $6 = $150,000

February 15 Retained Earnings $150,000

Stock Dividends Distributable $125,000
Paid-in Capital in excess of Par $25,000

March 1 No Entry Required

March 20 Stock Dividends Distributable $125,000

Common Stock $125,000
Problem #2 ( 25 Points )
On January 1, 2007, a company issued 10-year, 10% bonds payable with a par value of $500,000, and
received $442,647 in cash proceeds. The market rate of interest at the date of issuance was 12%. The
bonds pay interest semiannually on July 1 and January 1. The issuer uses the straight-line method for
amortization. Prepare the issuer's journal entry to record the first semiannual interest payment on July 1,
2007.

7/1/2007 Bond Interest Expense ............................... 27,867.65

Discount on Bonds Payable ......................................2,867.65
Cash .........................................................................25,000.00
Calculations:
Cash payment: $500,000 x 10% x ½ year = $25,000.00
Discount amortized: ($500,000 - $442,647)/20 semiannual periods = $2,867.65
Interest expense: $25,000.00 + $2,867.65 = $27,867.65

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Problem #3 ( 30 Points )
Texana Inc. imports inventory from Mexico. Prepare the journal entries for Texana to record the
following transactions. Include any year-end adjustments.

December 21
Debit. Inventory $45,700
Credit. Accounts Payable $45,700

December 31
Debit. Foreign Currency Loss $150
Credit. Accounts Payable $150

January 20
Debit. Accounts Payable $45,850
Debit. Foreign Currency Loss $150
Credit. Cash $46,00