Accounting II



ACCT221 Principles of Accounting II             





  1. Which one of the following is not necessary in order for a

     corporation to pay a cash dividend?

     a. Approval of stockholders

     b. Adequate cash

     c. Declaration of dividends by the board of directors

     d. Retained earnings


  2. Which one of the following events would not require a formal journal

     entry on a corporation’s books?

     a. 100% stock dividend

     b. 2 for 1 stock split

     c. 2% stock dividend

     d. $1 per share cash dividend


  3. Buick, Inc. has 5,000 shares of 6%, $100 par value, noncumulative

     preferred stock and 100,000 shares of $1 par value common stock

     outstanding at December 31, 2012, and December 31, 2013.  The board

     of directors declared and paid a $20,000 dividend in 2012. In 2013,

     $40,000 of dividends are declared and paid. What are the dividends

     received by the preferred and common shareholders in 2013?


        Preferred                                        Common

        —————————     ———————

     a. $0                                      $40,000

     b. $30,000                                         $10,000

     c. $20,000                             $20,000

     d. $40,000                             $0


  4. A prior period adjustment that corrects income of a prior period

     requires that an entry be made to

     a. an income statement account.

     b. a current year revenue or expense account.

     c. an asset account.

     d. the retained earnings account


  5. The discontinued operations section of the income statement refers


     a. discontinuance of a product line.

     b. the income or loss on products that have been completed and sold.

     c. obsolete equipment and discontinued inventory items.

     d. the disposal of a significant segment of a business.







  6. Indicate the circumstances under which an item would be classified

     as an extraordinary item on the income statement.


        Unusual in Nature    Infrequent in Occurrence


     a.      Yes                        No

     b.      No                         Yes

     c.      Yes                        Yes

     d.      No                         No


  7. From the standpoint of the issuing company, a disadvantage of using

     bonds as a means of long-term financing is that

     a. bond interest is deductible for tax purposes.

     b. interest must be paid on a periodic basis regardless of earnings.

     c. income to stockholders may increase as a result of trading on the


     d. the bondholders do not have voting rights.


  8. Bonds that are secured by real estate are termed

     a. mortgage bonds.

     b. serial bonds.

     c. debentures.

     d. bearer bonds.


  9. The contractual interest rate is always stated as a(n)

     a. monthly rate.

     b. daily rate.

     c. semiannual rate.

     d. annual rate.


 10. If the market interest rate is greater than the contractual interest

     rate, bonds will sell

     a. at a premium.

     b. at a discount..

     c. at face value.

     d. only after the stated interest rate is increased.


 11. If twenty $1,000 convertible bonds with a carrying value of $25,000

     are converted into 3,000 shares of $5 par value common stock, the

     journal entry to record the conversion is

     a. Bonds Payable ………………………   25,000

           Common Stock …………………….              25,000

     b. Bonds Payable ………………………   20,000

        Premium on Bonds Payable …………….    5,000

           Common Stock …………………….              25,000

     c. Bonds Payable ………………………   20,000

        Premium on Bonds Payable …………….    5,000

           Common Stock …………………….              15,000

           Paid-in Capital in Excess of Par …..              10,000

     d. Bonds Payable ………………………   25,000

           Discount on Bonds Payable …………               5,000

           Common Stock …………………….              15,000

           Paid-in Capital in Excess of Par …..               5,000



–Page 3


 12. Which of the following is not a condition which would require the

     recording of a lease contract as a capital lease?

     a. The lease term is less than 75% of the economic life of the

        leased property.

     b. The lease contains a bargain purchase option.

     c. The lease transfers ownership of the property to the lessee.

     d. The present value of the lease payments equals or exceeds 90% of

        the fair market value of the leased property.


 13. If the cost method is used to account for a long-term investment in

     common stock, dividends received should be

     a. credited to the Stock Investments account.

     b. credited to the Dividend Revenue account.

     c. debited to the Stock Investments account.

     d. recorded only when 20% or more of the stock is owned.



 14. When an investor owns between 20% and 50% of the common stock of a

     corporation, it is generally presumed that the investor

     a. has insignificant influence on the investee and that the cost

        method should be used to account for the investment.

     b. should apply the cost method in accounting for the investment.

     c. will prepare consolidated financial statements.

     d. has significant influence on the investee and that the equity

        method should be used to account for the investment.


 15. If the equity method is being used, cash dividends received

     a. are credited to the Stock Investments account.   

     b. require no entry because investee net income has already been

        recorded at the proper proportion on the investor’s books.

     c. are credited to Dividend Revenue.

     d. are credited to the Revenue from Investment in Stock account.


 16. If the cost of an available-for-sale security exceeds its fair value

     by $40,000, the entry to recognize the loss

     a. is not required since the share prices will likely rebound in the

        long run.

     b. will show a debit to an expense account.

     c. will show a credit to a contra-asset account that appears in the

        stockholder’s equity section of the balance sheet.

     d. will show a debit to an unrealized loss account that is deducted

        in the stockholders’ equity section of the balance sheet.


 17. Short-term investments are securities that are readily marketable

     and intended to be converted into cash within the next

     a. year.

     b. two years.

     c. year or operating cycle, whichever is shorter.

     d. year or operating cycle, whichever is longer.






 18. The primary purpose of the statement of cash flows is to

     a. provide information about the investing and financing activities

        during a period.

     b. prove that revenues exceed expenses if there is a net income.

     c. facilitate banking relationships.

     d. provide information about the cash receipts and cash payments

        during a period.



 19. The acquisition of land by issuing common stock is

     a. a noncash transaction which is not reported in the body of a

        statement of cash flows.

     b. a cash transaction and would be reported in the body of a

        statement of cash flows.

     c. a noncash transaction and would be reported in the body of a

        statement of cash flows.

     d. only reported if the statement of cash flows is prepared using

        the direct method.


 20. The order of presentation of activities on the statement of cash

     flows is

     a. operating, financing, and investing

     b. operating, investing, and financing.

     c. financing, operating, and investing.

     d. financing, investing, and operating.


 21. Cash receipts from interest and dividends are classified as

     a. financing activities.

     b. investing activities.

     c. operating activities.

     d. either financing or investing activities.


 22. When equipment is sold for cash, the amount received is reflected as

     a cash

     a. inflow in the operating section.

     b. inflow in the financing section.

     c. inflow in the investing section.

     d. outflow in the operating section.


 23. Assume the following sales data for a company:


           2013     $1,200,000

           2012        960,000

           2011        840,000

           2010        600,000


     If 2010 is the base year, what is the percentage increase in sales

     from 2010 to 2012?

     a. 100%

     b. 160%

     c. 70%

     d. 60.0%


 24. In performing a vertical analysis, the base for cost of goods sold


     a. total selling expenses.

     b. net sales.

     c. total revenues.

     d. total expenses.



     Johnson Corporation had net income of $200,000 and paid dividends to

     common stockholders of $40,000 in 2013. The weighted average number

     of shares outstanding in 2013 was 50,000 shares. Terry Corporation’s

     common stock is selling for $60 per share on the New York Stock





 25. Johnson Corporation’s price-earnings ratio is

     a. 3.8 times.

     b. 15 times.

     c. 18.8 times.

     d. 6 times.




































 26. King Corporation’s stockholders’ equity section at December 31,

     2012 appears below: (15 Points)


     Stockholders’ equity

       Paid-in capital

         Common stock, $10 par, 50,000 outstanding    $500,000

         Paid-in capital in excess of par                      150,000


           Total paid-in capital                                                $650,000

       Retained earnings                                                  150,000


     Total stockholders’ equity                                     $800,000


     On June 30, 2013, the board of directors of King Corporation

     declared a 15% stock dividend, payable on July 31, 2013, to

     stockholders of record on July 15, 2013.  The fair market value of

     King Corporation’s stock on June 30, 2013, was $12.


     On December 1, 2013, the board of directors declared a 2 for 1 stock

     split effective December 15, 2013. King Corporation’s stock was

     selling for $20 on December 1, 2013, before the stock split was

     declared. Par value of the stock was adjusted. Net income for 2013

     was $240,000 and there were no cash dividends declared.



     (a) Prepare the journal entries on the appropriate dates to record

         the stock dividend and the stock split.


     (b) Fill in the amount that would appear in the stockholders’ equity

         section for King Corporation at December 31, 2013, for the

         following items:


         1. Common stock                                   $____________


         2. Number of shares outstanding      ____________


         3. Par value per share                 $____________


         4. Paid-in capital in excess of par    $____________


         5. Retained earnings                       $____________


         6. Total stockholders’ equity          $____________





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