future value
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
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:
$375
$4,125
$7,125
$7,500
$11,250
3. Bonds that give the issuer an option of retiring them prior to the date of maturity are:
Debentures
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:
$10,000
$12,400
$7,938
$9,200
$7,600
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:
Debentures
Discounted notes
Installment notes
Indentures
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?
$750
$5,250
$1,500
$3,000
$6,000
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.
$0
$33,750
$67,500
$750,000
$1,550,000
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:
Issued
Authorized
Subscribed
Outstanding
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:
$75,137
$94,013
$300,000
$375,685
$1,197,810
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:
$13.45
$13.89
$11.53
$26.90
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
