ADAMS STATE UNIVERSITY EXTENDED STUDIES
BUS 208 – PRINCIPLES OF ACCOUNTING II
Exam # 1
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1. Which of the following is an advantage of a partnership when compared to a corporation? (4 points)
a.
b.
c.
d.
The partnership is relatively inexpensive to organize.
The partnership involves fewer people to operate.
The partnership usually hires professional managers.
The partnership is more likely have a net income.
2. An advantage of the partnership form of business organization is (4 points)
a.
b.
c.
d.
mutual agency
limited life
ease of formation
unlimited liability
3. A partnership liquidation occurs when (4 points)
a.
b.
c.
d.
a partner dies
the assets are sold, liabilities paid, and business operations terminated
the ownership interest of one partner is sold to a new partner
a new partner is admitted
4. Singer and McMann are partners in a business. Singer’s original capital was $40,000 and
McMann’s was $60,000. They agree to salaries of $12,000 and $18,000 for Singer and
McMann respectively and 10% interest on original capital. If they agree to share remaining
profits and losses on a 3:2 ratio, what will McMann‘s share of the income be if the income
for the year was $30,000? (4 points)
a.
b.
c.
d.
$17,400
$20,000
$18,000
$18,600
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ADAMS STATE UNIVERSITY EXTENDED STUDIES
BUS 208 – PRINCIPLES OF ACCOUNTING II
Exam # 1
5. Nick is admitted to an existing partnership by investing cash. Nick agrees to pay a bonus for
his ownership interest because of the past success of the partnership. When Nick’s
investment in the partnership is recorded (4 points)
a.
b.
c.
d.
his capital account will be credited for the amount of cash he invested
a bonus will be credited for the amount of cash he invested
a bonus will be distributed to the old partners' capital accounts.
his capital account will be credited for more than the cash he invested
6. A ratio of 2:2:1 is the same as (4 points)
a.
b.
c.
d.
20%:20%:10%
both (a) and (c)
2/10:2/10:1/20
2/5:2/5:1/5
7. Benson and Orton are partners who share income in the ratio of 1:3 and have capital balances
of $70,000 and $30,000 respectively. Ramsey is admitted to the partnership and is given a
40% interest by investing $20,000. What is Orton’s capital balance after admitting Ramsey?
(4 points)
a.
b.
c.
d.
$63,000
$20,000
$9,000
$70,000
8. Details of the division of net income for a partnership should be disclosed (4 points)
a.
b.
c.
d.
in the asset section of the balance sheet
in the income statement
in the statement of cash flows
in the partners’ subsidiary ledger
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ADAMS STATE UNIVERSITY EXTENDED STUDIES
BUS 208 – PRINCIPLES OF ACCOUNTING II
Exam # 1
9. Dissolution is the term which solely means to liquidate the partnership. (4 points)
a. TRUE
b. FALSE
10. When a partner withdraws from the partnership by selling his or her interest back to the
partnership, the remaining partners must pay the withdrawing partner a specified amount
from their personal assets. (4 points)
a. FALSE
b. TRUE
11. Which of the following is not characteristic of a corporation? (4 points)
a. Corporations are required to file federal income tax returns.
b. The financial loss that a stockholder may suffer from owning stock in a public
company is limited.
c. A corporation can own property in its name.
d. Cash dividends paid by a corporation are deductible as expenses by the corporation.
12. Which statement below is not a reason for a corporation to buy back its own stock? (4 points)
a.
b.
c.
d.
for supporting the market price of the stock
to increase the shares outstanding
resale to employees
bonus to employees
13. The charter of a corporation provides for the issuance of 100,000 shares of common
stock. Assume that 60,000 shares were originally issued and 10,000 were subsequently
reacquired. What is the number of shares outstanding? (4 points)
a.
b.
c.
d.
$50,000
$40,000
$60,000
$70,000
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ADAMS STATE UNIVERSITY EXTENDED STUDIES
BUS 208 – PRINCIPLES OF ACCOUNTING II
Exam # 1
14. When a stock dividend is declared, which of the following accounts is credited? (4 points)
a.
b.
c.
d.
Common Sock
Stock Dividends Distributable
Dividend Payable
Retained Earnings
15. A corporation issues 1,500 shares of common stock for $ 32,000. The stock has a stated
value of $10 per share. The journal entry to record the stock issuance would include a credit
to Common Stock for (4 points)
a.
b.
c.
d.
$15,000
$17,000
$32,000
$2,000
16. When Bayou Corporation was formed on January 1, 20xx, the corporate charter provided for
100,000 share of $10 par value common stock. The following transaction was among those
engaged in by the corporation during its first month of operation: The Corporation issued
9,000 shares of stock at a price of $23.00 per share. The entry to record the above
transaction would include a (4 points)
a.
b.
c.
d.
debit to Common Stock for $90,000
debit to Cash for $90,000
credit to Paid in Capital in Excess of Par- for $117,000
credit to Common Stock for $207,000
17. The excess of sales price of treasury stock over its cost should be credited to (4 points)
a.
b.
c.
d.
Premium on Capital Stock
Paid-In Capital from Sale of Treasury Stock
Income from Sale of Treasury Stock
Treasury Stock Receivable
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August 2015
ADAMS STATE UNIVERSITY EXTENDED STUDIES
BUS 208 – PRINCIPLES OF ACCOUNTING II
Exam # 1
18. The state charter allows a corporation to issue only a certain number of shares of each class
of stock. This amount of stock is called (4 points)
a.
b.
c.
d.
issued stock
treasury stock
authorized stock
outstanding stock
19. The reduction in the par or stated value of common stock, accompanied by the issuance of a
proportionate number of additional shares, is called a stock split. (4 points)
a. TRUE
b. FALSE
20. While some businesses have been granted charters under state laws, most businesses receive
their charters under federal laws. (4 points)
a. FALSE
b. TRUE
21. When the effective-interest method is used, the amortization of the bond premium (4 points)
a. decreases interest expense each period
b. increases interest expense each period
c. increases interest expense in some periods and decreases interest expense in other
periods
d. has no effect on the interest expense in any period
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ADAMS STATE UNIVERSITY EXTENDED STUDIES
BUS 208 – PRINCIPLES OF ACCOUNTING II
Exam # 1
22. If the straight-line method of amortization of bond premium or discount is used, which of the
following statements is true? (4 points)
a. Annual interest expense will remain the same over the life of the bonds with the
amortization of bond discount.
b. Annual interest expense will increase over the life of the bonds with the amortization
of bond premium.
c. Annual interest expense will decrease over the life of the bonds with the amortization
of bond discount.
d. Annual interest expense will increase over the life of the bonds with the amortization
of bond discount.
23. Any unamortized premium should be reported on the balance sheet of the issuing corporation
as (4 points)
a.
b.
c.
d.
a direct deduction from the face amount of the bonds in the liability section
as paid-in capital
a direct deduction from retained earnings
an addition to the face amount of the bonds in the liability section
24. On the first day of the fiscal year, Hawthorne Company obtained a $ 88,000, seven-year, 5%
installment note from Sea Side Bank. The note requires annual payments of $15,208, with the
first payment occurring on the last day of the fiscal year. The first payment consists of interest
of $4,400 and principal repayment of $10,808. The journal entry Hawthorne would record to
make the first annual payment due on the note would include: (4 points)
a.
b.
c.
d.
a debit to Interest Expense for $4,400
a credit to Notes Payable for $10,808
a debit to Notes Payable for $15,208
a debit to Cash of $15,208
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August 2015
ADAMS STATE UNIVERSITY EXTENDED STUDIES
BUS 208 – PRINCIPLES OF ACCOUNTING II
Exam # 1
25. A corporation issues for cash $1,000,000 of 10%, 20-year bonds, interest payable annually, at
a time when the market rate of interest is 12%. The straight-line method is adopted for the
amortization of bond discount or premium. Which of the following statements is true? (4
points)
a. The amount of unamortized premium decreases from its balance at issuance date to a
zero balance at maturity.
b. The amount of unamortized discount decreases from its balance at issuance date to a
zero balance at maturity.
c. The amount of the annual interest expense gradually decreases over the life of the
bonds.
d. The amount of the annual interest expense is computed at 10% of the bond carrying
amount at the beginning of the year.
26. The Miracle Corporation issues 1,000, 10-year, 8%, $1,000 bonds dated January 1, 2009, at
96. The journal entry to record the issuance will show a (4 points)
a.
b.
c.
d.
debit to Discount on Bonds Payable for $40,000.
credit to Bonds Payable for $960,000.
debit to Cash of $1,000,000.
credit to Cash for $960,000.
27. On January 1, 2007, the Baker Corporation issued 10% bonds with a face value of
$50,000. The bonds are sold for $46,000. The bonds pay interest semiannually on June 30
and December 31 and the maturity date is December 31, 2011. Baker records straight-line
amortization of the bond discount. The bond interest expense for the year ended December
31, 2007, is (4 points)
a.
b.
c.
d.
$5,800
$4,200
$4,000
$5,400
28. An unsecured bond is the same as a (4 points)
a.
b.
c.
d.
bond indenture.
zero coupon bond.
term bond.
debenture bond.
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ADAMS STATE UNIVERSITY EXTENDED STUDIES
BUS 208 – PRINCIPLES OF ACCOUNTING II
Exam # 1
29. If bonds of $1,000,000 with unamortized discount of $10,000 are redeemed at 98, the gain on
redemption of bonds is $10,000. (4 points)
a. FALSE
b. TRUE
30. The times interest earned ratio is calculated by dividing Bonds Payable by Interest Expense.
(4 points)
a. TRUE
b. FALSE
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ADAMS STATE UNIVERSITY EXTENDED STUDIES
BUS 208 – PRINCIPLES OF ACCOUNTING II
Exam # 1
31. Barton and Fallows form a partnership by combining the assets of their separate
businesses. Barton contributes accounts receivable with a face amount of $50,000 and
equipment with a cost of $178,000 and accumulated depreciation of $96,000. The partners
agree that the equipment is to be priced at $67,000, that $3,900 of the accounts receivable are
completely worthless and are not to be accepted by the partnership, and that $2,700 is a
reasonable allowance for the uncollectibility of the remaining accounts receivable. Fallows
contributes cash of $35,000 and merchandise inventory of $67,000. The partners agree that
the merchandise inventory is to be priced at $67,000. Journalize the entries to record in the
partnership accounts (a) Barton’s investment and (b) Fallows’ investment. (10 points)
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August 2015
ADAMS STATE UNIVERSITY EXTENDED STUDIES
BUS 208 – PRINCIPLES OF ACCOUNTING II
Exam # 1
32. On February 1, Marine Company reacquired 9,000 shares of its common stock at $40 per
share. On March 15, Marine sold 7,100 of the reacquired shares at $42 per share. On June 2,
Marine sold the remaining shares at $29 per share.
Journalize the transactions of February 1, March 15 and June 2.
(10 points)
33. On the first day of the fiscal year, a company issues a $1,400,000, 3%, 5 year bond that pays
semi-annual interest of $21,000 ($1,400,000 ´ 3% ´ 1/2), receiving cash of
$1,200,000. Journalize the first interest payment and the amortization of the related bond
discount using the straight-line method. Round answer to the nearest dollar. (10 points)
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ADAMS STATE UNIVERSITY EXTENDED STUDIES
BUS 208 – PRINCIPLES OF ACCOUNTING II
Exam # 1
34. Everett, Miguel, and Ramona are partners, sharing income 1:2:3. After selling all of the assets for
cash, dividing losses on realization, and paying liabilities, the balances in the capital accounts are
as follows: Everett, $50,000 Cr.; Miguel, $40,000 Dr.; and Ramona, $30,000 Cr. How much cash
is available for distribution to the partners? (Extra Credit - 2 points)
a.
b.
c.
d.
$90,000
$40,000
$120,000
$30,000
35. Everett, Miguel, and Ramona are partners, sharing income 1:2:3. After selling all of the
assets for cash, dividing losses on realization, and paying liabilities, the balances in the
capital accounts are as follows: Everett, $50,000 Cr.; Miguel, $40,000 Dr.; and Ramona,
$30,000 Cr. How much cash should be distributed to Everett assuming that Miguel pays the
deficiency? (Extra Credit - 2 points)
a.
b.
c.
d.
$20,000
$30,000
$50,000
$40,000
36. A corporation has 40,000 shares of $25 par value stock outstanding. If the corporation issues a 3-for1 stock split, the number of shares outstanding after the split will be (Extra Credit - 2 points)
a.
b.
c.
d.
80,000 shares
120,000 shares
13,333 shares
40,000 shares
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ADAMS STATE UNIVERSITY EXTENDED STUDIES
BUS 208 – PRINCIPLES OF ACCOUNTING II
Exam # 1
37. On January 1, 2010, Gemstone Company obtained a $280,000, 10-year, 11% installment note
from Guarantee Bank. The note requires annual payments of $47,544, with the first payment
occurring on the last day of the fiscal year. The first payment consists of interest of $30,800
and principal repayment of $16,744. The journal entry to record the payment of the first
annual amount due on the note would include: (Extra Credit - 2 points)
a.
b.
c.
d.
a credit to cash of $16,744
a debit to Notes Payable of $16,744
a credit to Interest Payable of $30,800
a debit to Interest Expense of $47,544
38. On January 1, 2010, Zero Company obtained a $52,000, four-year, 6.5% installment note
from Regional Bank. The note requires annual payments of $15,179, beginning on December
31, 2010. The December 31, 2011 carrying amount in the amortization table for this
installment note will be equal to: (Extra Credit - 2 points)
a.
b.
c.
d.
$21,642
$26,000
$27,635
$28,402
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August 2015
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