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1. The carrying value of a long-term note payable: 

        Is computed as the future value of all remaining future payments, using the market rate as interest

        Is the face value of the long-term note less the total of all future interest payments

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        Is computed as the present value of all remaining future payments, discounted using the market rate of interest at the time of issuance

        Is computed as the present value of all remaining interest payments, discounted using the note’s rate of interest

        Decreases each time period the discount on the note is amortized


2. A company’s board of directors’ votes to declare a cash dividend of $0.75 per share. The company has 15,000 shares authorized, 10,000 issued and 9,500 shares outstanding. The total amount of the cash dividend is: 







3. Bonds that give the issuer an option of retiring them prior to the date of maturity are: 


        Serial bonds

        Sinking fund bonds

        Registered bonds

        Callable bonds


4. A company must repay the bank $10,000 cash in 3 years for a loan. The loan agreement specifies 8% interest compounded annually. The present value factor for 3 years at 8% is 0.7938. The present value of the loan is: 







5. A corporation’s distribution of additional shares of its own stock to its stockholders without the receipt of any payment in return is called a: 

        Stock dividend

        Stock subscription

        Premium on stock

        Discount on stock

        Treasury stock


6. Bonds that have an option exercisable by the issuer to retire them at a stated dollar amount prior to maturity are known as: 

        Convertible bonds

        Sinking fund bonds

        Callable bonds

        Serial bonds

        Junk bonds


7. A dividend preference for preferred stock means that: 

        Preferred stockholders receive their dividends before common shareholders

        Preferred shareholders are guaranteed dividends

        Dividends are paid quarterly

        Preferred stockholders prefer dividends more than common stockholders

        Dividends must be declared on preferred stock


8. Promissory notes that require the issuer to make a series of payments consisting of both interest and principal are: 


        Discounted notes

        Installment notes


        Investment notes


9. If an issuer sells a bond at any other date than the interest payment date: 

        This means the bond sells at a premium

        This means the bond sells at a discount

        The issuing company will report a loss on the sale of the bond

        The issuing company will report a gain on the sale of the bond

        The buyer normally pays the issuer the purchase price plus any interest accrued since the prior interest payment date


10. A company issues at 9% bonds at par with a par value of $100,000 on April 1, which is 4 months after the most recent interest date. How much total cash interest is received on April 1 by the bond issuer? 







11. The total amount of stock that a corporation’s charter allows it to issue is referred to as: 

        Issued stock

        Outstanding stock

        Common stock

        Preferred stock

        Authorized Stock


12. A company issues 9%, 20-year bonds with a par value of $750,000. The current market rate is 9%. The amount of interest owed to the bondholders for each semiannual interest payment is. 







13. The Discount on Bonds Payable account is: 

        A liability

        A contra liability

        An expense

        A contra expense

        A contra equity


14. A corporation’s minimum legal capital is often defined to be the total par value of the shares:  






15. A bond traded at 102 ½ means that: 

        The bond pays 2.5% interest

        The bond traded at $1,025 per $1,000 bond      

        The market rate of interest is 2.5%

        The bonds were retired at $1,025 each

        The market rate of interest is 2 ½% above the contract rate


16. Preferred stock on which the right to receive dividends is forfeited for any year that the dividends are not declared is called: 

        Noncumulative preferred stock

        Participating preferred stock

        Callable preferred stock

        Cumulative preferred stock

        Convertible preferred stock


17. Which of the following statements is true? 

        Interest on bonds is tax deductible

        Interest on bonds is not tax deductible

        Dividends to stockholders are tax deductible

        Bonds do not have to be repaid

        Bonds always decrease return on equity


18. A company borrowed $300,000 cash from the bank by signing a 5-year, 8% installment note. The present value factor for an annuity at 8% for 5 years is 3.9927. Each annuity payment equals $75,137. The present value of the note is: 







19. Bonds with a par value of less than $1,000 are known as: 

        Junk bonds

        Baby bonds

        Callable bonds

        Unsecured bonds

        Convertible bonds


20. When a bond sells at a premium: 

        The contract rate is above the market rate

        The contract rate is equal to the market rate

        The contract rate is below the market rate

        It means that the bond is a zero coupon bond

        The bond pays no interest


21. The market value of a bond is equal to: 

        The present value of all future cash payments provided by a bond

        The present value of all future interest payments provided by a bond

        The present value of the principal for an interest-bearing bond

        The future value of all future cash payments provided by a bond

        The future value of all future interest payments provided by a bond


22. Owners of preferred stock often do not have: 

        Ownership rights to assets of the corporation

        Voting rights

        Preference to dividends

        The right to sell their stock on the open market

        Preference to assets at liquidation


23. A company had net income of $250,000. On January 1, there were 12,000 shares of common stock outstanding. On May 1, the company issued an additional 9,000 shares of common stock. The company declared a $7,900 dividend on its noncumulative, nonparticipating preferred stock. There were no other stock transactions. The company had an earnings per share of: 





        Amount cannot be determined as problem does not state if there are any dividends in arrears


24. Installment notes payable that require periodic payments of accrued interest plus equal amounts of principal result in: 

        Periodic total payments that gradually decrease in amount

        Periodic total payments that are equal

        Periodic total payments that gradually increase in amount

        Increasing amounts of interest each period

        Increasing amounts of principal each period


25. Operating leases differ from capital leases in that 

        For a capital lease the lessee records the lease payments as rent expense, but for an operating lease the lessee reports the lease payments as depreciation expense

        For an operating lease the lessee depreciates the asset acquired under lease, but for the capital lease the lessee does not

        Operating leases create a long-term liability on the balance sheet, but capital leases do not

        Operating leases do not transfer ownership of the asset under the lease, but capital leases often do

        Operating lease payments are generally greater than capital lease payments




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