Survey of Accounting 1St Edition Kimmel Test Bank Full Chapter PDF

Survey of Accounting 1st Edition
Kimmel Test Bank

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CHAPTER 8
REPORTING AND ANALYZING LIABILITIES AND
STOCKHOLDERS’ EQUITY
SUMMARY OF QUESTIONS BY LEARNING OBJECTIVE AND BLOOM’S TAXONOMY
Item LO BT Item LO BT Item LO BT Item LO BT Item LO BT
True-False Statements
1. 1 K 15. 1 K 29. 2 K 43. 3 K 57. 4 K
2. 1 K 16. 1 K 30. 2 C 44. 3 K 58. 4 K
3. 1 K 17. 1 C 31. 2 C 45. 3 K 59. 5 K
4. 1 K 18. 1 AN 32. 2 K 46. 3 K 60. 5 K
5. 1 K 19. 1 K 33. 2 C 47. 3 K
6. 1 K 20. 1 K 34. 2 C 48. 3 K
7. 1 K 21. 1 C 35. 2 C 49. 3 K
8. 1 K 22. 2 K 36. 2 C 50. 3 K
9. 1 K 23. 2 K 37. 2 K 51. 3 C
10. 1 K 24. 2 C 38. 2 AP 52. 3 K
11. 1 K 25. 2 C 39. 3 K 53. 4 K
12. 1 K 26. 2 C 40. 3 K 54. 4 K
13. 1 K 27. 2 C 41. 3 K 55. 4 K
14. 1 K 28. 2 C 42. 3 K 56. 4 K
Multiple Choice Questions
61. 1 K 90. 1 AP 119. 1 AP 148. 2 C 177. 3 AP
62. 1 K 91. 1 AN 120. 1 AP 149. 3 AP 178. 3 C
63. 1 K 92. 1 AN 121. 1 AP 150. 3 AP 179. 3 AP
64. 1 K 93. 1 K 122. 1 AP 151. 3 AP 180. 4 K
65. 1 C 94. 1 C 123. 1 AP 152. 3 AP 181. 4 K
66. 1 C 95. 1 C 124. 2 K 153. 3 K 182. 4 K
67. 1 K 96. 1 K 125. 2 K 154. 3 K 183. 4 AP
68. 1 K 97. 1 K 126. 2 K 155. 3 C 184. 4 AP
69. 1 K 98. 1 K 127. 2 K 156. 3 K 185. 4 K
70. 1 K 99. 1 AP 128. 2 C 157. 3 AP 186. 4 C
71. 1 AP 100. 1 AP 129. 2 K 158. 3 AP 187. 4 K
72. 1 AP 101. 1 AP 130. 2 K 159. 3 AP 188. 4 K
73. 1 AP 102. 1 AP 131. 2 AP 160. 3 AP 189. 4 K
74. 1 AP 103. 1 AN 132. 2 AP 161. 3 AP 190. 4 K
75. 1 AP 104. 1 AN 133. 2 AP 162. 3 K 191. 4 C
76. 1 AP 105. 1 AN 134. 2 K 163. 3 AP 192. 4 K
77. 1 C 106. 1 AN 135. 2 K 164. 3 AP 193. 4 AP
78. 1 AP 107. 1 AP 136. 2 C 165. 3 AP 194. 4 C
79. 1 AP 108. 1 AP 137. 2 C 166. 3 AP 195. 4 AP
80. 1 AP 109. 1 AP 138. 2 C 167. 3 K 196. 4 AP
81. 1 AP 110. 1 AP 139. 2 C 168. 3 C 197. 4 K
82. 1 AP 111. 1 AP 140. 2 C 169. 3 C 198. 4 K
83. 1 AP 112. 1 AP 141. 2 K 170. 3 AP 199. 4 K
84. 1 AP 113. 1 AP 142. 2 K 171. 3 K 200. 4 K
85. 1 C 114. 1 AP 143. 2 K 172. 3 K 201. 4 K
86. 1 C 115. 1 AP 144. 2 K 173. 3 K 202. 4 C
87. 1 K 116. 1 AP 145. 2 AP 174. 3 K 203. 4 AP
88. 1 K 117. 1 AP 146. 2 AP 175. 3 K 204. 4 AP
89. 1 AP 118. 1 AP 147. 2 AP 176. 3 K 205. 4 C
FOR INSTRUCTOR USE ONLY

8-2 Test Bank for Survey of Accounting, First Edition
Multiple Choice Questions (Cont.)

206. 4 AP 212. 5 AP 218. 5 AP 224. 5 K 230. 5 AP
207. 4 AP 213. 5 AP 219. 5 K 225. 5 AP 231. 5 AP
208. 4 AP 214. 4 AP 220. 5 K 226. 5 AP
209. 4 AP 215. 5 AP 221. 5 K 227. 5 AP
210. 5 AP 216. 5 AP 222. 5 K 228. 5 AP
211. 5 AP 217. 4 AP 223. 5 K 229. 5 AP
Brief Exercises
232. 1 AP 236. 1 AP 239. 2 AP 242. 3,4 AP 245. 4 AP
234. 1 AP 237. 2 AP 240. 3 AP 243. 4 AP 246. 5 AP
235. 1 AN 238. 2 AP 241. 3 AP 244. 5 AP 247. 5 AP
Exercises
248. 1 AP 252. 1 AP 256. 3,4 AP 260. 3,4 AN 264. 5 AP
249. 1 AP 253. 1 AP 257. 3,5 AP 261. 4 AP 265. 5 AP
250. 1 AP 254. 3 AP 258. 3,5 AP 262. 4 AP 266. 5 AN
251. 1 AP 255. 3 AP 259. 3,4 AP 263. 5 AP
Completion Statements
267. 1 K 271. 1 K 275. 2 AP 279. 3 K 283. 5 K
268. 1 K 272. 1 K 276. 2 K 280. 4 K
269. 1 K 273. 2 K 277. 3 K 281. 4 K
270. 1 K 274. 2 K 278. 3 K 282. 5 K
Matching
284. 2, 3
4, 5 K
Short Answer Essay
285. 1 K 287. 2 K 289. 3 C 291. 5 C 293. 2 C
286. 2 K 288. 3,4 K 290. 4 C 292. 3,4 E
*This topic is dealt with in an Appendix to the chapter.
SUMMARY OF LEARNING OBJECTIVES BY QUESTION TYPE

Learning Objective 1
Item Type Item Type Item Type Item Type Item Type Item Type
1. TF 20. TF 77. MC 95. MC 113. MC 250. Ex
2. TF 21. TF 78. MC 96. MC 114. MC 251. Ex
3. TF 61. MC 79. MC 97. MC 115. MC 252. Ex
4. TF 62. MC 80. MC 98. MC 116. MC 253. Ex
5. TF 63. MC 81. MC 99. MC 117. MC 267. C
7. TF 64. MC 82. MC 100. MC 118. MC 268. C
8. TF 65. MC 83. MC 101. MC 119. MC 269. C
9. TF 66. MC 84. MC 102. MC 120. MC 270. C
10. TF 67. MC 85. MC 103. MC 121. MC 271. C
11. TF 68. MC 86. MC 104. MC 122. MC 272. C
12. TF 69. MC 87. MC 105. MC 123. MC 285. SA
13. TF 70. MC 88. MC 106. MC 232. Be
14. TF 71. MC 89. MC 107. MC 233. Be
15. TF 72. MC 90. MC 108. MC 234. Be
16. TF 73. MC 91. MC 109. MC 235. Be
17. TF 74. MC 92. MC 110. MC 236. Be
18. TF 75. MC 93. MC 111. MC 248. Ex
19. TF 76. MC 94. MC 112. MC 249. Ex

Reporting and Analyzing Liabilities and Stockholders’ Equity 8-3
22. TF 31. TF 125. MC 134. MC 143. MC 273. C
23. TF 32. TF 126. MC 135. MC 144. MC 274. C
24. TF 33. TF 127. MC 136. MC 145. MC 275. C
25. TF 34. TF 128. MC 137. MC 146. MC 276. C
26. TF 35. TF 129. MC 138. MC 147. MC 284. Ma
27. TF 36. TF 130. MC 139. MC 148. MC 286. SA
28. TF 37. TF 131. MC 140. MC 237. Be 287. SA
29. TF 38. TF 132. MC 141. MC 238. Be 293. SA
30. TF 124. MC 133. MC 142. MC 239. Be
39. TF 49. TF 161. MC 171. MC 241. Be 278. C
40. TF 51-52. TF 162. MC 172. MC 242. Be 279. C
41. TF 149. MC 163. MC 173. MC 254. Ex 284. Ma
42. TF 150. MC 164. MC 174. MC 255. Ex 288. SA
43. TF 151. MC 165. MC 175. MC 256. Ex 289. SA
44. TF 152. MC 166. MC 176. MC 257. Ex 292. SA
45. TF 153. MC 167. MC 177. MC 258. Ex
46. TF 154. MC 168. MC 178. MC 259. Ex
47. TF 157. MC 169. MC 179. MC 260. Ex
48. TF 160. MC 170. MC 240. Be 277. C
182. MC 192. MC 202. MC 242. Be 281. C
183. MC 193. MC 203. MC 243. Be 284. Ma
53. TF 184. MC 194. MC 204. MC 245. Be 288. SA
54. TF 185. MC 195. MC 205. MC 256. Ex 290. SA
55. TF 186. MC 196. MC 206. MC 259. Ex 292. SA
56. TF 187. MC 197. MC 207. MC 260. Ex
57. TF 188. MC 198. MC 208. MC 261. Ex
58. TF 189. MC 199. MC 209. MC 262. Ex
180. MC 190. MC 200. MC 214. MC
181. MC 191. MC 201. MC 217. MC 280. C

59. TF 216. MC 224. MC 231. MC 263. Ex 291. SA
60. TF 218. MC 225. MC 244. Be 264. Ex
210. MC 219. MC 226. MC 246. Be 265. Ex
211. MC 220. MC 227. MC 247. Be 266. Ex
212. MC 221. MC 228. MC 257. Ex 282. C
213. MC 222. MC 229. MC 258. Ex 283. C
215. MC 223. MC 230. MC 260. Ex 284. Ma
Note: TF = True-False C = Completion

MC = Multiple Choice Ex = Exercise
Ma = Matching SA = Short Answer Essay
Be = Brief Exercise
CHAPTER LEARNING OBJECTIVES

1. Explain how to account for current liabilities. A current liability is a debt that a company
can reasonably expect to pay (a) from existing current assets or through the creation of other
current liabilities, and (b) within one year or the operating cycle, whichever is longer. The
major types of current liabilities are notes payable, accounts payable, sales taxes payable,
unearned revenues, and accrued liabilities such as taxes, salaries and wages, and interest
payable.
When a promissory note is interest–bearing, the amount of assets received upon the
issuance of the note is generally equal to the face value of the note, and interest expense is
accrued over the life of the note. At maturity, the amount paid is equal to the face value of
the note plus accrued interest.
Companies record sales taxes payable at the time the related sales occur. The company
serves as a collection agent for the taxing authority. Sales taxes are not an expense to the
company. Companies hold employee withholding taxes, and record them in appropriate
liability accounts, until they remit these taxes to the governmental taxing authorities.
Unearned revenues are initially recorded in an unearned revenue account. As the company
recognizes revenue, a transfer from unearned revenue to revenue occurs. Companies report
the current maturities of long-term debt as a current liability in the balance sheet.
2. Explain how to account for bonds. When companies issue bonds, they increase Cash for
the cash proceeds and increase Bonds Payable for the face value of the bonds. In addition,
they use the accounts Premium on Bonds Payable and Discount on Bonds Payable to show
the bond premium and bond discount, respectively. Bond discount and bond premium are
amortized over the life of the bond, which increases or decreases interest expense,
respectively.
When companies redeem bonds at maturity, they decrease Cash and Bonds Payable for the
face value of the bonds.

3. Explain how to account for the issuance of common and preferred stock, and the
purchase of treasury stock. When a company issues the portion of the proceeds that is
above par value common stock for cash, it records (1) the par value of the shares to
Common Stock and (2) the portion of proceeds that is above par value in a separate paid-in
capital account. aWhen no-par common stock has a stated value, it is treated similarly to that
for par value stock. When no-par common stock does not have a stated value, then a
company increases Common Stock for the entire proceeds from the issue.
Companies generally use the cost method in accounting for treasury stock. Under this
approach, a company records Treasury Stock at the price paid to reacquire the shares.
4. Explain how to account for cash dividends. Companies record dividends at the
declaration date and the payment date. At the declaration date, both Dividends and
Dividends Payable are increased.
Preferred stock has contractual provisions that give it priority over common stock in certain
areas. Typically, preferred stockholders have a preference as to (1) dividends and (2) assets
in the event of liquidation. However, they sometimes do not have voting rights.
5. Discuss how stockholders’ equity is reported and analyzed. In the stockholders’ equity
section of the balance sheet, companies report paid-in capital and retained earnings and
identify specific sources of paid-in capital. Within paid-in capital, companies show two
classifications: capital stock and additional paid-in capital. If a corporation has treasury stock,
it deducts the cost of treasury stock from total paid-in capital and retained earnings to
determine total stockholders’ equity.
A company’s dividend record can be evaluated by looking at what percentage of net income
it chooses to pay out in dividends, as measured by the dividend payout ratio (dividends
divided by net income). Earnings performance is measured with the return on common
stockholders’ equity (income available to common stockholders divided by average common
stockholders’ equity.)

TRUE-FALSE STATEMENTS
1. A current liability must be paid out of current earnings.
Ans: F, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA:
Business Economics
2. If any portion of a long-term debt is to be paid in the next year, the entire debt should be
classified as a current liability.
Reporting
3. Current liabilities are expected to be paid within one year or the operating cycle,
whichever is longer.
Ans: T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA:
Business Economics
4. A company whose current liabilities exceed its current assets may have a liquidity
problem.
Business Economics
5. Interest expense is reported under Other Expenses and Losses in the income statement.
Reporting
6. Notes payable usually require the borrower to pay interest.

Business Economics
7. Notes payable are often used instead of accounts payable.

Business Economics
8. A note payable must always be paid before an account payable.

Business Economics
9. A $20,000, 8%, 9-month note payable requires an interest payment of $1,200 at maturity.
Ans: T, LO: 1, Bloom: K, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Measurement, AICPA PC:
Problem Solving, IMA: FSA
10. Most notes are not interest bearing.

Business Economics
11. With an interest-bearing note, the amount of cash received upon issuance of the note
generally exceeds the note's face value.
Business Economics
12. Interest expense on a note payable is only recorded at maturity.

Ans: F, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Measurement, AICPA PC: None,
IMA: FSA
13. Current maturities of long-term debt refers to the amount of interest on a note payable that
must be paid in the current year.
Business Economics

14. Unearned revenues should be classified as Other Revenues and Gains on the income
statement.
Reporting
15. The higher the sales tax rate, the more profit a retailer can earn.
Business Economics
16. When a business sells an item and collects a state sales tax on it, a current liability arises.
Reporting
17. If a retailer sells goods for a total price of $200, which includes a 5% sales tax, the amount
of the sales tax is $9.52.
Ans: T, LO: 1, Bloom: C, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Measurement, AICPA PC:
18. During the month, a company sells goods for a total of $106,000, which includes sales
taxes of $6,000; therefore, the company should recognize $100,000 in Sales Revenue
and $6,000 in Sales Tax Expense.
Ans: F, LO: 1, Bloom: AN, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Measurement, AICPA PC:
19. Payroll taxes include the employer’s share of Social Security taxes as well as state and
federal unemployment taxes.
Ans: T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Measurement, AICPA PC: None,
IMA: Business Economics
20. Unearned revenues are received before goods are delivered or services are rendered.
21. Metropolitan Symphony sells 200 season tickets for $40,000 that includes a five-concert
season. The amount of Unearned Ticket Revenue after the third concert is $24,000.
Ans: F, LO: 1, Bloom: C, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC:
Problem Solving, IMA: Reporting
22. The contractual interest rate is always equal to the market rate of interest on the date that
bonds are issued.
Business Economics
23. The face value is the amount of principal and interest due at the maturity date.
Reporting
24. A $150,000 bond with a quoted priced of 102 ¼ is sold for $153,375.
25. If a bond has a stated value of $1,000 and a contractual interest rate of 6 percent, then
the interest paid annually will be $60.

26. The carrying value of bonds is calculated by adding the balance of the Discount on Bonds
Payable account to the balance in the Bonds Payable account.
Ans: F, LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA:
Reporting
27. Total interest cost for a bond issued at a premium equals the total of the periodic interest
payments added to the premium.
Ans: F, LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Measurement, AICPA PC: None,
IMA: FSA
28. Total interest cost for a bond issued at a premium equals the total of the periodic interest
payments minus the premium.
Ans: T, LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Measurement, AICPA PC: None,
IMA: FSA
29. The calculation of interest to be paid each interest period in connection with a bond
payable is not influenced by any premium or discount upon issuance.
IMA: FSA
30. If $150,000 face value bonds are issued at 102, the proceeds received will be $102,000.
Ans: F, LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Measurement, AICPA PC: None,
IMA: FSA
31. If bonds sell at a premium, the interest expense recognized each year will be greater than
the bond interest paid.
Reporting
32. If the market rate of interest at the date of issuance of a bond is greater than the stated
interest rate, the bond will be issued at a premium.
IMA: FSA
33. If a corporation issued bonds at an amount less than face value, it indicates that the
corporation has a weak credit rating.
Business Economics
34. A corporation that issues bonds at a discount will recognize interest expense at a rate
which is greater than the market rate of interest.
Reporting
35. If bonds are issued at a discount, the issuing corporation will pay a principal amount less
than the face amount of the bonds on the maturity date.
Business Economics
36. If bonds are issued at a premium, the carrying value of the bonds will be greater than the
face value of the bonds for all periods prior to the bond maturity date.
Ans: T, LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA:
Reporting

37. If the market rate of interest is greater than the contractual rate of interest, bonds will sell
at a discount.
Reporting
38. If $180,000, 6%, bonds are issued on January 1, and pay interest annually, the amount of
interest paid will be $10,800.
Ans: T, LO: 2, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Measurement, AICPA PC:
39. A stockholder has the right to vote in the election of the board of directors.
Ans: T, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: None, AICPA PC: None, IMA:
Business Economics
40. When no-par value stock does not have a stated value, the entire proceeds from the
issuance of the stock become legal capital.
IMA: FSA
41. When no-par common stock with a stated value is issued for cash, the Common sStock
account is increased for an amount equal to the cash proceeds.
IMA: FSA
42. The par value of common stock must always be equal to its market value on the date the
stock is issued.
IMA: FSA
43. For accounting purposes, stated value is treated the same way as par value.
IMA: FSA
44. Paid-in capital is the amount paid in to the corporation by stockholders in exchange for
shares of ownership.
Reporting
45. The issuance of common stock affects both paid-in capital and retained earnings.
Reporting
46. The acquisition of treasury stock by a corporation increases total assets and total
stockholders’ equity.
Reporting
47. Treasury stock should not be classified as a current asset.

Reporting
48. Treasury stock is reported as an asset on the balance sheet because treasury stock may
later be resold.
Reporting

49. Treasury stock is a contra stockholders’ equity account.

Reporting
50. The cost of treasury stock is deducted from total paid-in capital and retained earnings in
determining total stockholders’ equity.
Reporting
51. The recording of the purchase of treasury stock will cause total stockholders’ equity to
decrease by the amount of the cost of the treasury stock.
Ans: T, LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Measurement, AICPA PC: None,
IMA: FSA
52. The number of common shares outstanding can never be greater than the number of
shares issued.
Reporting
53. Preferred stock has contractual preference over common stock in certain areas.
Business Economics
54. Preferred stockholders generally do not have the right to vote for the board of directors.
Ans: T, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: None, AICPA PC: None, IMA:
Business Economics
55. When preferred stock is cumulative, preferred dividends not declared in a given period are
called dividends in arrears.
Reporting
56. Dividends may be declared and paid in cash or stock.

Reporting
57. Cash dividends are not a liability of the corporation until they are declared by the board of
directors.
Reporting
58. The amount of a cash dividend liability is recorded on the date of record because it is on
that date that the persons or entities who will receive the dividend are identified.
Reporting
59. Return on common stockholders’ equity is computed by dividing net income by ending
stockholders’ equity.
Reporting
60. The payout ratio is computed by dividing total cash dividends paid on common stock by
retained earnings.
Business Economics

Answers to True-False Statements

1. F 12. F 23. F 34. F 45. F 56. T
2. F 13. F 24. T 35. F 46. F 57. T
3. T 14. F 25. T 36. T 47. T 58. F
4. T 15. F 26. F 37. T 48. F 59. F
5. T 16. T 27. F 38. T 49. T 60. F
6. T 17. T 28. T 39. T 50. T
7. T 18. F 29. T 40. T 51. T
8. F 19. T 30. F 41. F 52. T
9. T 20. T 31. F 42. F 53. T
10. F 21. F 32. F 43. T 54. T
11. F 22. F 33. F 44. T 55. T
MULTIPLE CHOICE QUESTIONS

61. Liabilities are classified on the balance sheet as current or
a. deferred.
b. unearned.
c. long-term.
d. accrued.
Ans: C, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA:
Reporting
62. Most companies pay current liabilities

a. out of current assets.
b. by issuing interest-bearing notes payable.
c. by issuing stock.
d. by creating long-term liabilities.
Ans: A, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA:
Reporting
63. A current liability is a debt that can reasonably be expected to be paid

a. within one year, or the operating cycle, whichever is longer.
b. between 6 months and 18 months.
c. out of currently recognized revenues.
d. out of cash currently on hand.
Reporting
64. Which of the following most likely would be classified as a current liability?
a. Dividends payable
b. Bonds payable in 5 years
c. Three-year notes payable
d. Mortgage payable as a single payment in 10 years
Reporting
65. Failure to record a liability will probably

a. result in an overstated net income.
b. result in overstated total liabilities and owner’s equity.
c. have no effect on net income.
d. result in understated total assets.
Ans: A, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA:
Reporting

66. Very often, failure to record a liability means failure to record a(n)
a. revenue.
b. asset conversion.
c. footnote.
d. expense.
Ans: D, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA:
Reporting
67. Current liabilities are due

a. but not receivable for more than one year.
b. but not payable for more than one year.
c. and receivable within one year.
d. and payable within one year.
Ans: D, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA:
Reporting
68. Liabilities are classified as current or long-term based on their

a. description.
b. payment terms.
c. due date.
d. amount.
Reporting
69. Which of the following is not a current liability on December 31, 2017?
a. A Note Payable due December 31, 2018
b. An Accounts Payable due January 31, 2018
c. A lawsuit judgment to be decided on January 10, 2018
d. Accrued salaries payable from 2017
Reporting
70. With an interest-bearing note, the amount of assets received upon issuance of the note is
generally
a. equal to the note's face value.
b. greater than the note's face value.
c. less than the note's face value.
d. equal to the note's maturity value.
Reporting
71. Moss County Bank agrees to lend the Sadowski Brick Company $500,000 on January 1.
Sadowski Brick Company signs a $500,000, 6%, 9-month note. Recording the proceeds
and issuance of the note by Sadowski Brick Company on January 1 includes a(n)
a. Increase to Interest Expense for $22,500, increase to Cash for $477,500, and an
increase to Notes Payable for $500,000.
b. Increase to Cash and to Notes Payable for $500,000.
c. Increase to Cash for $500,000, increase to Interest Expense for $22,500, and an
d. Increase to Cash for $500,000, increase to Interest Expense for $22,500, increase to
Notes Payable for $500,000, and an increase to Interest Payable for $22,500.
Ans: B, LO: 1, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Measurement, AICPA PC:
Solution: $500,000 face value

Sadowski Brick Company signs a $500,000, 6%, 9-month note. The adjustment required if
Sadowski Brick Company prepares financial statements on June 30 includes a(n)
a. Increase to Interest Expense and to Interest Payable for $15,000.
b. Increase to Interest Expense and a decrease to Cash for $15,000.
c. Decrease to Interest Payable and to Cash for $15,000.
d. Decrease to Interest Payable and to Interest Expense for $15,000.
Ans: A, LO: 1, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Measurement, AICPA PC:
Solution: $500,000  .06  6/12 = $15,000

(Face val.  6%  6/12)
Sadowski Brick Company signs a $500,000, 6%, 9-month note. Recording the pay off of
the note and interest at maturity assuming that interest has been accrued to September
30 includes a(n)
a. Decrease to Notes Payable and to Cash for $522,500.
b. Decrease to Notes Payable for $500,000, decrease to Interest Payable for $22,500,
and a decrease to Cash for $522,500.
c. Increase to Interest Expense for $22,500, decrease to Notes Payable for $500,000
d. Decrease to Interest Payable for $15,000, decrease to Notes Payable for $500,000,
increase to Interest Expense for $7,500 and a decrease to Cash for $522,500.
Solution: $500,000  .06  9/12 = $22,500
(Face val.  6%  9/12)
74. West County Bank agrees to lend Drake Builders Company $400,000 on January 1.
Drake Builders Company signs a $400,000, 6%, 6-month note. Recording the proceeds
and issuance of the note by Drake Builders Company on January 1 includes a(n)
a. Increase to Interest Expense for $6,000, increase to Cash for $194,000 and an
b. Increase to Cash and to Notes Payable for $400,000.
c. Increase to Cash for $400,000, increase to Interest Expense for $12,000 and an
d. Increase to Cash for $400,000, increase to Interest Expense for $12,000, increase to
Notes Payable for $400,000 and an increase to Interest Payable for $12,000.
Solution: $400,000 face value
75. West County Bank agrees to lend Drake Builders Company $400,000 on January 1. Drake
Builders Company signs a $400,000, 6%, 6-month note. The adjustment required if Drake
Builders Company prepares financial statements on March 31 includes a(n)
a. Increase to Interest Expense and to Interest Payable for $12,000.
b. Decrease to Interest Expense and to Cash for $12,000.
c. Increase to Interest Expense and to Interest Payable for $6,000.
d. Decrease to Interest Payable and to Interest Expense for $6,000.
Ans: C, LO: 1, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Measurement, AICPA PC:
Solution: $400,000  .06  3/12 = $6,000
(Face val.  6%  3/12)

76. West County Bank agrees to lend Drake Builders Company $400,000 on January 1.
Drake Builders Company signs a $400,000, 6%, 6-month note. Recording the pay off of
the note and interest at maturity assuming that interest has been accrued to June 30
includes a(n)
b. Decrease to Notes Payable for $400,000, decrease to Interest Payable for $12,000
c. Increase to Interest Expense for $12,000, decrease to Notes Payable for $400,000
d. Decrease to Interest Payable for $6,000, decrease to Notes Payable for $400,000,
increase to Interest Expense for $6,000 and a decrease to Cash for $412,000.
Solution: $400,000  .06  6/12 = $12,000
(Face val.  6%  6/12)
77. As interest is recorded on an interest-bearing note, the Interest Expense account is

a. increased; the Notes Payable account is increased.
b. increased; the Notes Payable account is decreased.
c. increased; the Interest Payable account is increased.
d. decreased; the Interest Payable account is increased.
Ans: C, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Measurement, AICPA PC: None,
IMA: FSA
78. On October 1, Sam's Painting Service borrows $150,000 from National Bank on a
3-month, $150,000, 4% note. Sam's Painting Service’s adjustment on December 31
before financial statements are prepared includes a(n)
a. Decrease to Interest Payable and a decrease to Interest Expense for $1,500.
b. Increase to Interest Expense and an increase to Interest Payable for $6,000.
c. Increase to Interest Expense and an increase to Interest Payable for $1,500.
d. Increase to Interest Expense and an increase to Notes Payable for $1,500.
Solution: $150,000  .04  3/12 = $1,500

(Amount bor.  4%  3/12)
79. On October 1, Sam's Painting Service borrows $150,000 from National Bank on a 3-
month, $150,000, 4% note. The payment of the note and accrued interest on January 1 by
Sam's Painting Service includes a(n)
b. Decrease to Notes Payable for $150,000, decrease to Interest Payable for $1,500,
c. Decrease to Notes Payable for $150,000, and a decrease to Interest Payable for
$6,000 and a decrease to Cash for $156,000.
d. Decrease to Notes Payable for $150,000, an increase to Interest Expense for $1,500
Solution: $150,000  .04  3/12 = $1,500

(Amount bor.  4%  3/12)

80. The interest charged on a $300,000 note payable, at the rate of 6%, on a 90-day note
would be
a. $18,000.
b. $9,000.
c. $4,500.
d. $1,500.
Solution: $300,000  .06  90/360 = $4,500

(Face val.  6%  90/360)
would be
a. $21,000.
b. $10,500.
c. $5,250.
d. $3,500.
Ans: D, LO: 1, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Measurement, AICPA PC:
Solution: $350,000  .06  60/360 = $3,500

(Face val.  6%  60/360)
82. The interest charged on a $350,000 note payable, at the rate of 6%, for a year would be
a. $21,000.
b. $10,500.
c. $5,250.
d. $1,750.
Solution: $350,000  .06 = $21,000

(Face val.  6%)
would be
a. $5,400.
b. $2,700.
c. $1,350.
d. $900.
Solution: $90,000  .06  90/360 = $1,350

(Face val.  6%  90/360)
would be
a. $5,400.
b. $2,700.
c. $1,350.
d. $900.
Solution: $90,000  .06  60/360 = $900

(Face val.  6%  90/360)

85. Interest expense on an interest-bearing note is

a. always equal to zero.
b. accrued over the life of the note.
c. only recorded at the time the note is issued.
d. only recorded at maturity when the note is paid.
Ans: B, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Measurement, AICPA PC: None,
86. Sales taxes collected by a retailer are recorded by

a. increasing Sales Tax Revenue.
b. increasing Sales Tax Expense.
c. increasing Sales Taxes Payable.
d. decreasing Sales Taxes Payable.
IMA: FSA
87. Unearned Rent Revenue is

a. a contra account to Rent Revenue.
b. a revenue account.
c. reported as a current liability.
d. decreased when rent is received in advance.
Reporting
88. The amount of sales tax collected by a retail store when making sales is
a. a miscellaneous revenue for the store.
b. a current liability.
c. not recorded because it is a tax paid by the customer.
d. recorded as an operating expense.
Ans: B, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA:
Reporting
89. A company receives $264, of which $24 is for sales tax. Recording the sale would include
a(n)
a. increase to Sales Taxes Expense for $24.
b. increase to Sales Taxes Payable for $24.
c. decrease to Sales Revenue for $264.
d. increase to Cash for $240.
90. A company receives $348, of which $28 is for sales tax. Recording the sale would include
a(n)
a increase to Sales Taxes Expense for $28.
b. decrease to Sales Taxes Payable for $28.
c. decrease to Sales Revenue for $348.
d. increase to Cash for $348.

91. A retail store increased the Sales Revenue for the sales price and the amount of sales tax
on sales. If the sales tax rate is 5% and the balance in total receipts amounted to
$294,000, what is the amount of the sales taxes owed to the taxing agency?
a. $280,000
b. $294,000
c. $14,700
d. $14,000
Ans: D, LO: 1, Bloom: AN, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC:
Solution: ($294,000  1.05)  .05 = $14,000

(Sal. Rev.  1.05)  5%
92. A retail store increased the Sales Revenue account for the sales price and the amount of
sales tax on sales. If the sales tax rate is 5% and the total receipts amounted to $630,000,
what is the amount of the sales taxes owed to the taxing agency?
a. $600,000
b. $630,000
c. $31,500
d. $30,000
Ans: D, LO: 1, Bloom: AN, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC:
Solution: ($630,000  1.05)  .05 = $30,000

(Sal. Rev.  1.05)  5%
93. The current portion of long-term debt should

a. be paid immediately.
b. be reclassified as a current liability.
c. be classified as a long-term liability.
d. not be separated from the long-term portion of debt.
Reporting
94. On January 1, 2017, Ermler Company, a calendar-year company, issued $2,000,000 of

notes payable, of which $500,000 is due on January 1 for each of the next four years. The
proper balance sheet presentation on December 31, 2017, is
a. Current liabilities, $2,000,000.
b. Long-term debt , $2,000,000.
c. Current liabilities, $500,000; Long-term Debt, $1,000,000.
d. Current liabilities, $500,000; Long-term Debt, $1,500,000.
Ans: D, LO: 1, Bloom: C, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC:
Solution: $2,000,000 − $500,000 = $1500,000

(Tot. Note Pay − Ann. Pay.)
95. On January 1, 2017, Keisler Company, a calendar-year company, issued $900,000 of

notes payable, of which $225,000 is due on January 1 for each of the next four years. The
proper balance sheet presentation on December 31, 2017, is
a. Current liabilities, $900,000.
b. Long-term debt, $900,000.
c. Current liabilities, $225,000; Long-term Debt, $675,000.
d. Current liabilities, $675,000; Long-term Debt, $225,000.
Ans: C, LO: 1, Bloom: C, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC:
Solution: $900,000 − $225,000 = $675,000

96. Sales taxes collected by a retailer from a customer are expenses

a. of the retailer.
b. of the customers.
c. of the government.
d. that are not recognized by the retailer until they are submitted to the government.
Reporting
97. A retailer that collects sales taxes is acting as an agent for the
a. wholesaler.
b. customer.
c. taxing authority.
d. chamber of commerce.
Business Economics
98. Sales taxes collected by a retailer are reported as

a. contingent liabilities.
b. revenues.
c. expenses.
d. current liabilities.
Reporting
99. A cash register tape shows cash sales of $8,000 and sales taxes of $400. Recording this
information includes a(n)
a. Increases to Cash and Sales Revenue for $8,000.
b. Increase to Cash for $8,400 and increases to Sales Tax Revenue for $400 and Sales
Revenue for $8,000.
c. Cash $8,000, Sales Tax Expense $400 and Sales Revenue for $8,400.
d. Increase to Cash for $8,400 and increases to Sales Revenue for $8,000 and Sales
Taxes Payable for $400.
100. Don's Pharmacy has collected $900 in sales taxes during March. If sales taxes must be
remitted to the state government monthly, recording this information includes a(n)
a. Increase to Sales Tax Expense and a decrease to Cash for $900.
b. Decrease to Sales Taxes Payable and to Cash for $900.
c. Increase to Sales Tax Expense and to Sales Taxes Payable for $ 900.
d. No recording required.
101. A cash register tape shows cash sales of $3,000 and sales taxes of $200. The recording
of this information includes a(n)
a. Increase to Cash and an increase to Sales Revenue for $3,200.
b. Increase to Cash for $3,200, an increase to Sales Tax Payable for $200 and an
increase to Sales Revenue for $3,000.
c. Increase to Cash for $3,000, an increase to Sales Tax Expense for $200 and an
increase to Sales Revenue for $3,200.
d. Increase to Cash for $3,200, an increase to Sales Revenue for $3,000 and an
increase to Sales Tax Revenue for $200.
102. Al’s Bookstore has collected $950 in sales taxes during April. If sales taxes must be
remitted to the state government monthly, recording this information includes a(n)
a. Increase to Sales Tax Expense and a decrease to Cash for $950.
b. Decrease to Sales Taxes Payable and to Cash for $950.
c. Increase to Sales Tax Expense and to Sales Taxes Payable for $950.
d. No recording required.
103. Morgan Company does not ring up sales taxes separately on the cash register. Total
receipts for February amounted to $38,160. If the sales tax rate is 6%, what amount must
be remitted to the state for February's sales taxes?
a. $2,290
b. $2,160
c. $2,152
d. It cannot be determined.
Ans: B, LO: 1, Bloom: AN, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Measurement, AICPA PC:
Solution: ($38,160  1.06)  .06 = $2,160

(Tot. rec.  1.06) × .06
104. Norlan Company does not ring up sales taxes separately on the cash register. Total
receipts for October amounted to $36,750. If the sales tax rate is 5%, what amount must
be remitted to the state for October's sales taxes?
a. $1,750
b. $1,838
c. $88
Ans: A, LO: 1, Bloom: AN, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Measurement, AICPA PC:
Solution: ($36,750  1.05)  .05 = $1,750

(Tot. rec. ÷ 1.05) × .05
105. Tina's Boutique has total receipts for the month of $32,340 including sales taxes. If the
sales tax rate is 5%, what are Tina's sales for the month?
a. $30,724
b. $30,800
c. $32,340
Ans: B, LO: 1, Bloom: AN, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Measurement, AICPA PC:
Solution: $32,340  1.05 = $30,800

(Tot. rec. ÷ 105%)
106. Dominic's Salon has total receipts for the month of $40,280 including sales taxes. If the
sales tax rate is 6%, what are Dominic's sales for the month?
a. $37,864.40
b. $42,697.60
c. $38,000.00
Ans: C, LO: 1, Bloom: AN, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC:
Solution: $40,280  1.06 = $38,000

(Tot. rec. ÷ 106%)

107. The following totals for the month of April were taken from the payroll records of Noll
Company.
Salaries $120,000
FICA taxes withheld 9,180
Income taxes withheld 25,000
Medical insurance deductions 4,500
Federal unemployment taxes 320
State unemployment taxes 2,160
Recording the monthly payroll on April 30 would include a(n)
a. increase to Salaries and Wages Expense for $120,000.
b. increase to Salaries and Wages Payable for $120,000.
c. decrease to Salaries and Wages Payable for $120,000.
d. increase to Salaries and Wages Expense for $81,320.
Company.
Salaries $120,000
Recording the payment of net payroll would include a(n)
a. decrease to Salaries and Wages Payable for $79,160.
b. decrease to Salaries and Wages Payable for $81,320.
d. decrease to Cash for $90,500.
Solution: $120,000 − $9,180 − $25,000 − $4,500 = $81,320

(Salar. – FICA tax. – inc. tax. – ins. ded.)
Company.
Salaries $120,000
The accrual of employer’s payroll taxes would include a(n)
a. increase to Payroll Tax Expense for $2,480.
b. increase to Payroll Tax Expense for $11,660.
c. increase to FICA Taxes Payable for $18,360.
d. decrease to Payroll Tax Expense for $2,480.
Solution: $9,180 + $320 + $2,160 = $11,660

(FICA tax. + fed. unemp. tax. + st. unemp. tax.)

Company.
Salaries $120,000
The accrual of federal unemployment tax would include a(n)
a. increase to Federal Unemployment Taxes Payable for $320.
b. increase to Federal Unemployment Taxes Expense for $320.
c. decrease to Payroll Tax Expense for $320.
d. decrease to Federal Unemployment Taxes Payable for $320.
111. Keller Company issued a five-year interest-bearing note payable for $300,000 on January
1, 2016. Each January the company is required to pay $60,000 on the note. How will this
note be reported on the December 31, 2017, balance sheet?
a. Long-term debt, $300,000
b. Long-term debt, $240,000
c. Long-term debt, $180,000; Long-term Debt due within one year, $60,000
d. Long-term debt of $240,000; Long-term Debt due within one year, $60,000
Ans: C, LO: 1, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC:
Solution: $300,000 − $60,000 − $60,000 = $180,000

(Note face val. – (Ann. pay. × 2))
112. The following totals for the month of April were taken from the payroll records of Metz
Company.
Salaries $90,000
Recording the monthly payroll on April 30 would include a(n)

Company.
Salaries $90,000
Solution: $90,000 − $6,885 − $19,800 − $3,600 = $59,715

Company.
Salaries $90,000
a. increase to Payroll Tax Expense for $12,105.
b. decrease to Payroll Tax Expense for $12,105.
c. increase to FICA Taxes Payable for $5,220.
Solution: $6,885 + $720 + $4,500 = $12,105

(FICA tax. + fed. unemp. tax. + st. unemp. tax)
Company.
Salaries $90,000
a. increase to Federal Unemployment Taxes Payable for $720.
b. decrease to Federal Unemployment Taxes Expense for $720.
c. decrease to Payroll Tax Expense for $720.
d. decrease to Federal Unemployment Taxes Payable for $720.

116. The following totals for the month of March were taken from the payroll records of Kern
Company.
Salaries $270,000
Federal unemployment taxes 2,160
Recording the monthly payroll on March 30 would include a(n)
c. increase to Salaries and Wages Expense for $270,000.
Company.
Salaries $270,000
c. increase to Salaries and Wages Payable for $170,370.
Solution: $270,000 − $20,655 − $59,400 − $3,915 = $186,030

Company.
Salaries $270,000
a. increase to Payroll Tax Expense for $36,315
b. increase to Payroll Tax Expense for $95,715
c. decrease to FICA Taxes Payable for $20,655.
Solution: $20,655 + $2,160 + $13,500 = $36,315

(FICA tax. + fed. unemp. tax. + st. unemp. tax.)

Company.
Salaries $270,000
a. increase to Federal Unemployment Taxes Payable for $2,160.
b. increase to Federal Unemployment Taxes Expense for $2,160.
c. decrease to Payroll Tax Expense for $2,160.
d. decrease to Federal Unemployment Taxes Payable for $2,160.
120. Two sisters operate a bed and breakfast on the coast of Maine. As customers make
reservations they are required to pay cash in advance equal to one-half of the rate for
their stay. How should the sisters record the cash received as reservations are made?
a. Increase Cash and Unearned Service Revenue.
b. Increase Cash and Service Revenue.
c. Decrease Unearned Service Revenue and increase Service Revenue.
d. Increase Cash and Sales Revenue.
Ans: A, LO: 1, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Measurement, AICPA PC:
121. Julie Lambert has a large consulting practice. New clients are required to pay one-half of
the consulting fees up front. The balance is paid at the conclusion of the consultation.
Lambert’s recording of the cash received at the end of the engagement includes a(n)
a. Increase to Cash and an increase to Unearned Service Revenue.
b. Increase to Cash, a decrease to Unearned Service Revenue and an increase to
Service Revenue.
c. Increase to Prepaid Service Revenue and an increase Service Revenue.
d. No action is required when the engagement is concluded.
Ans: B, LO: 1, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Measurement, AICPA PC:
122. Madson Company typically sells subscriptions on an annual basis, and publishes six times
a year. The magazine sells 90,000 subscriptions in January at $10 each. Recording the
sale of the subscriptions involves a(n)
a. Increase to Subscriptions Receivable and an increase to Subscription Revenue for
$900,000.
b. Increase to Cash and an increase to Unearned Subscription Revenue for $900,000.
c. Increase to Subscriptions Receivable and an increase to Unearned Subscription
Revenue for $150,000.
d. Increase to Prepaid Subscriptions and a decrease to Cash for $900,000.
Solution: $90,000  $10 = $900,000

123. Mohling Company typically sells subscriptions on an annual basis, and publishes eight
times a year. The magazine sells 60,000 subscriptions in January at $10 each. Recording
the sale of the subscriptions involves a(n)
a. Increase to Subscriptions Receivable and an increase to Subscription Revenue for
$600,000.
b. Increase to Cash and an increase to Unearned Subscription Revenue for $600,000.
c. Increase to Subscriptions Receivable and an increase to Unearned Subscription
Revenue for $75,000.
d. Increase to Prepaid Subscriptions and a decrease to Cash for $600,000.
Solution: $60,000  $10 = $600,000

(Tot. subscr. × subscr. price)
124. 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 equity.
d. the bondholders do not have voting rights.
Business Economics
125. The contractual interest rate on a bond is often referred to as the

a. callable rate.
b. the maturity rate.
c. market rate.
d. stated rate.
Business Economics
126. If the market interest rate for a bond is higher than the stated interest rate, the bond will
sell at
a. a premium.
b. a discount.
c. par.
d. either a discount or premium.
Business Economics
127. If the market rate of interest is greater than the contractual rate of interest, bonds will sell
a. at a premium.
b. at face value.
c. at a discount.
d. only after the stated rate of interest is increased.
Business Economics
128. The interest expense recorded on an interest payment date is increased

a. by the amortization of premium on bonds payable.
b. by the amortization of discount on bonds payable.
c. only if the bonds were sold at face value.
d. only if the market rate of interest is less than the stated rate of interest on that date.
IMA: FSA
129. If the market rate of interest is lower than the contractual interest rate, the bonds will sell
at
a. face value.
b. a premium.
c. a discount.
d. an unknown amount.
Ans: B, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Measurement, AICPA PC: None,
130. If bonds are issued at a premium, the stated interest rate is

a. higher than the market rate of interest.
b. lower than the market rate of interest.
c. too low to attract investors.
d. adjusted to a higher rate of interest.
Ans: A, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Measurement, AICPA PC: None,
131. Gomez Corporation issues 900, 10-year, 8%, $1,000 bonds dated January 1, 2017, at 96.
Recording the issuance will show a(n)
a. increase to Cash of $900,000.
b. decrease to Discount on Bonds Payable for $36,000.
c. increase to Bonds Payable for $864,000.
d. increase to Cash for $864,000.
Solution: (900  $1,000)  .96 = $864,000

(Num. of bonds × $1,000) × 96%
132. Yanik Corporation issues 5,000, 10-year, 8%, $1,000 bonds dated January 1, 2017, at 97.
Recording the issuance will show a(n)
a. increase to Cash of $5,000,000.
b. increase to Discount on Bonds Payable for $150,000.
c. increase to Bonds Payable for $4,850,000.
d. decrease to Cash for $4,850,000.
Solution: (5,000  $1,000)  (1 − .97) = $150,000

(Num. of bonds × $1,000) × (1 – .97)
133. Molina Corporation issues 5,000, 10-year, 8%, $1,000 bonds dated January 1, 2017, at
103. Recording the issuance will show a(n)
a. increase to Cash of $5,000,000.
b. decrease to Premium on Bonds Payable for $150,000.
c. increase to Bonds Payable for $5,000,000.
d. decrease to Cash for $5,150,000.
Solution: 5,000  $1,000 = $5,000,000

(Num. of bonds × $1,000)

134. The market rate of interest is often called the

a. stated rate.
b. effective rate.
c. coupon rate.
d. contractual rate.
Business Economics
135. If bonds are issued at a discount, it means that the

a. financial strength of the issuer is suspect.
b. market interest rate is higher than the contractual interest rate.
c. market interest rate is lower than the contractual interest rate.
d. bondholder will receive effectively less interest than the contractual rate of interest.
Business Economics
136. Selling the bonds at a premium has the effect of

a. causing the total cost of borrowing to be higher than the bond interest paid.
b. causing the total cost of borrowing to be lower than the bond interest paid.
c. raising the effective interest rate above the state interest rate.
d. increasing the amount of cash paid for interest each 6 months.
137. When bonds are issued at a premium, the total interest cost of the bonds over the life of
the bonds is equal to the amount of
a. interest paid over the life of the bond.
b. interest paid over the life of the bond plus the amount of premium at sale point.
c. interest paid over the life of the bond minus the amount of premium at sale point.
d. premium at sale point.
138. The statement "Bond prices vary inversely with changes in the market rate of interest"
means that if the
a. market rate of interest increases, the contractual interest rate will decrease.
b. contractual interest rate increases, then bond prices will go down.
c. market rate of interest decreases, then bond prices will go up.
d. contractual interest rate increases, the market rate of interest will decrease.
139. The carrying value of bonds will equal the market price
a. at the close of every trading day.
b. at the end of the fiscal period.
c. on the date of issuance.
d. every six months on the date interest is paid.
Ans: C, LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA:
Reporting
140. Over the term of the bonds, the balance in the Discount on Bonds Payable account will
a. fluctuate up and down if the market is volatile.
b. decrease.
c. increase.
d. be unaffected until the bonds mature.
Ans: B, LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA:
Reporting
141. The sale of bonds above face value

a. is a rare occurrence.
b. will cause the total cost of borrowing to be less than the bond interest paid.
c. will cause the total cost of borrowing to be more than the bond interest paid.
d. will have no net effect on interest expense by the time the bonds mature.
Business Economics
142. In the balance sheet, the account Premium on Bonds Payable is

a. added to bonds payable.
b. deducted from bonds payable.
c. classified as a stockholders' equity account.
d. classified as a revenue account.
Reporting
143. In the balance sheet, the account Discount on Bonds Payable is

a. added to bonds payable.
b. deducted from bonds payable.
c. classified as a stockholders' equity account.
d. classified as a revenue account.
Reporting
144. Bond discount should be amortized to comply with

a. the historical cost principle.
b. the expense recognition principle.
c. the revenue recognition principle.
d. conservatism.
Reporting
145. Five thousand bonds with a face value of $1,000 each, are sold at 102. Recording the
issuance includes a(n)
a. Increase to Cash and an increase to Bonds Payable for $5,100,000.
b. Increase to Cash for $5,000,000, a decrease to Premium on Bonds Payable for
$100,000 and an increase to Bonds Payable for $5,100,000.
c. Increase to Cash for $5,100,000 and an increases to Premium on Bonds Payable for
$100,000 and to Bonds Payable for $5,000,000.
d. Increase to Cash for $5,100,000, a decrease to Discount on Bonds Payable for
Solution: (5,000  $1,000)  1.02 = $5,100,000

(Num. of bonds × $1,000) ×1.02

146. Five thousand bonds with a face value of $1,000 each, are sold at 97. Recording the
issuance includes a(n)
a. Increase to Cash and an increase to Bonds Payable for $4,850,000.
b. Increase to Cash for $4,850,000 and to Discount on Bonds Payable for $150,000 and
an increase to Bonds Payable for $5,000,000.
c. Increase to Cash for $4,850,000 and an increases to Premium on Bonds Payable
for $150,000 and to Bonds Payable for $5,000,000.
d. Increase to Cash for $5,000,000, a decrease to Discount on Bonds Payable for
Solution: (5,000  $1,000)  .97 = $4,850,000

(Num. of bonds × $1,000) × 97%
147. Recording the issuance of bonds at a discount will include a(n)

a. increase to Cash for the face amount of the bonds.
b. increase to Cash for the face amount of the bonds plus the amount of the discount.
c. increase to Cash for the face amount of the bonds minus the amount of the discount.
d. decrease to Cash for the face amount of the bonds.
Ans: C, LO: 2, Bloom: AP, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Measurement, AICPA PC: None,
IMA: FSA
148. If bonds have been issued at a discount, then over the life of the bonds the
a. carrying value of the bonds will decrease.
b. carrying value of the bonds will increase.
c. interest expense will increase, if the discount is being amortized on a straight-line
basis.
d. discount will increase.
Reporting
149. If Norben Company issues 6,000 shares of $5 par value common stock for $210,000,
a. Common Stock will be increased for $210,000.
b. Paid-in Capital in Excess of Par Value will be increased for $30,000.
c. Paid-in Capital in Excess of Par Value will be increased for $180,000.
d. Cash will be increased for $180,000.
Solution: $210,000 − (6,000  $5) = $180,000

(Iss. Pr. – (sh. iss. × PV/sh)
150. Alt Corp. issues 5,000 shares of $10 par value common stock at $14 per share. When the
transaction is recorded, increases are made to:
a. Common Stock $50,000 and Paid-in Capital in Excess of Stated Value $20,000.
b. Common Stock $70,000.
c. Common Stock $50,000 and Paid-in Capital in Excess of Par Value $20,000.
d. Common Stock $50,000 and Retained Earnings $20,000.
Solution: 5,000  $10 = $50,000; ($14 − $10)  5,000 = 20,000

(Sh. iss. × PV/sh); (Iss. pr. – pV/sh) × sh. iss.

151. If Lantz Company issues 10,000 shares of $5 par value common stock for $210,000
Solution: 10,000  $5 = $50,000

(Sh. iss. × PV/sh.)
152. If Pratt Company issues 5,000 shares of $5 par value common stock for $210,000
Solution: $210,000 selling price
153. If common stock is issued for an amount greater than par value, the excess would
increase
a. Cash.
b. Retained Earnings.
c. Paid-in Capital in Excess of Par Value.
d. Legal Capital.
Ans: C, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Measurement, AICPA PC: None,
IMA: FSA
154. Paid-in Capital in Excess of Par Value

a. is increased when no-par stock does not have a stated value.
b. is reported as part of paid-in capital on the balance sheet.
c. represents the amount of legal capital.
d. normally has a negative balance.
Ans: B, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Measurement, AICPA PC: None,
IMA: FSA
155. The Paid-in Capital in Excess of Par Value is increased in the accounting records when
a. the number of shares issued exceeds par value.
b. the stated value of capital stock is greater than the par value.
c. the market value of the stock rises above par value.
d. capital stock is issued at an amount greater than par value.
Ans: D, LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Measurement, AICPA PC: None,
IMA: FSA
156. Which of the following represents the largest number of common shares?
a. Treasury shares.
b. Issued shares.
c. Outstanding shares.
d. Authorized shares.
Reporting

157. Tomlinson Packaging Corporation began business in 2017 by issuing 50,000 shares of $5
par common stock for $8 per share and 5,000 shares of 6%, $10 par preferred stock for
par. At year end, the common stock had a market value of $10. On its December 31, 2017
balance sheet, Tomlinson Packaging would report
a. Common Stock of $500,000.
b. Common Stock of $250,000.
c. Common Stock of $400,000.
d. Paid-in Capital of $330,000.
Solution: 50,000  $5 = $250,000

158. Holden Packaging Corporation began business in 2017 by issuing 90,000 shares of $5
par common stock for $8 per share and 20,000 shares of 6%, $10 par preferred stock for
par. At year end, the common stock had a market value of $10. On its December 31, 2017
balance sheet, Holden Packaging would report
a. Common Stock of $900,000.
b. Common Stock of $450,000.
c. Common Stock of $720,000.
d. Paid-In Capital of $675,000.
Solution: 90,000  $5 = $450,000

159. Cey, Inc. issued 10,000 shares of stock at a stated value of $10/share. The total issue of
stock sold for $15/share. Recording this transaction would include an
a. increase to Cash for $100,000.
b. increase to Common Stock for $100,000.
c. increase to Paid-in Capital in Excess of Par Value for $50,000.
d. increase to Common Stock for $150,000.
Solution: 10,000  $10 = $100,000

(Sh. iss. × SV/sh.)
160. Johnson Company issued 900 shares of no-par for $17,100. Which of the following would
occur if the stock has no stated value?
a. Increase Cash and increase Common Stock for $17,100.
b. Increase Cash for $17,100 and increase Common Stock for $900 and Paid-in Capital
in Excess of Par for $16,200.
c. Increase Cash for $17,100 and increase Common Stock for $900 and Paid-in Capital
in Excess of Stated Value for $16,200.
d. Decrease Common Stock and decrease Cash for $17,100.
Solution: $17,100 (No−par stock)

(Iss. price)

161. Dawson Company issued 800 shares of no-par common stock for $7,200. Which of the
following would occur if the stock has stated value of $2 per share?
a. Increase Cash and increase Common Stock for $7,200.
b. Increase Cash for $7,200 and increase Common Stock $1,600 and Paid-in Capital in
Excess of Par $5,600.
c. Increase Cash for $7,200 and increase Common Stock for $1,600 and Paid-in Capital
in Excess of Stated Value for $5,600.
d. Decrease Common Stock and decrease Cash for $7,200.
Solution: 800  $2 = $1,600; $7,200 − (800  $2) = $5,600

(Sh. iss.  SV/sh.); [Iss. pr. − (sh. iss.  SV/sh)]
162. Which of the following statements about treasury stock is true?

a. Few corporations have treasury stock.
b. Purchasing treasury stock is done to eliminate hostile shareholder buyouts.
c. Companies acquire treasury stock to increase the number of shares outstanding.
d. Companies acquire treasury stock to decrease earnings per share.
Business Economics
163. The following data is available for BOX Corporation at December 31, 2017:
Common stock, par $10 (authorized 30,000 shares) $270,000
Treasury stock (at cost $15 per share) $ 1,200
Based on the data, how many shares of common stock are outstanding?
a. 30,000.
b. 27,000.
c. 29,920.
d. 26,920.
Ans: D, LO: 3, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC:
Solution: ($270,000  10) − ($1,200  $15) = 26,920

(Com. st.  PV/sh) − (Trea. st.  cost/sh.)
164. The following data is available for BOX Corporation at December 31, 2017:
Common stock, par $10 (authorized 30,000 shares) $270,000
Treasury stock (at cost $15 per share) $ 1,200
Based on the data, how many shares of common stock are issued?
a. 30,000.
b. 27,000.
c. 29,920.
d. 26,920.
Ans: B, LO: 3, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC:
Solution: $270,000  $10 = 27,000

(Com. st.  PV/sh.)
165. Kaplan Manufacturing Corporation purchased 2,500 shares of its own previously issued
$10 par common stock for $62,500. As a result of this event,
a. Kaplan’s Common Stock account decreased $25,000.
b. Kaplan’s total stockholders’ equity decreased $62,500.
c. Kaplan’s Paid-in Capital in Excess of Par Value account decreased $37,500.
d. All of these answer choices are correct.
Solution: $62,500 cost of stock

166. Leary Manufacturing Corporation purchased 5,000 shares of its own previously issued
$10 par common stock for $125,000. As a result of this event,
a. Leary’s Common Stock account decreased $50,000.
b. Leary’s total stockholders’ equity decreased $125,000.
c. Leary’s Paid-in Capital in Excess of Par Value account decreased $75,000.
d. All of these answer choices are correct.
Solution: $125,000 cost of stock
167. Treasury stock is

a. stock issued by the U.S. Treasury Department.
b. stock purchased by a corporation and held as an investment in its treasury.
c. corporate stock issued by the treasurer of a company.
d. a corporation’s own stock, which has been reacquired and held for future use.
Reporting
168. The acquisition of treasury stock by a corporation

a. increases its total assets and total stockholders’ equity.
b. decreases its total assets and total stockholders’ equity.
c. has no effect on total assets and total stockholders’ equity.
d. requires that a gain or loss be recognized on the income statement.
Reporting
169. A corporation purchases 20,000 shares of its own $20 par common stock for $35 per
share, recording it at cost. What will be the effect on total stockholders’ equity?
a. Increase by $700,000.
b. Decrease by $400,000.
c. Decrease by $700,000.
d. Decrease by $300,000.
Solution: 20,000  $35 = $700,000

(sh. purch.  cost/sh.)
170. A corporation purchases 30,000 shares of its own $10 par common stock for $25 per
share, recording it at cost. What will be the effect on total stockholders’ equity?
a. Increase by $300,000.
b. Decrease by $750,000.
c. Increase by $750,000.
d. Decrease by $300,000.
Solution: 30,000  $25 = $750,000

(sh. purch.  cost/sh.)
171. Treasury stock should be reported in the financial statements of a corporation as a(n)
a. investment.
b. liability.
c. deduction from total paid-in capital.
d. deduction from total paid-in capital and retained earnings.
Reporting
172. A company would not acquire treasury stock

a. in order to reissue shares to officers.
b. as an asset investment.
c. in order to increase trading of the company’s stock.
d. to have additional shares available to use in acquisitions of other companies.
Ans: B, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: None, AICPA PC: None, IMA:
Business Economics
173. Treasury Stock is a(n)

a. contra asset account.
b. retained earnings account.
c. asset account.
d. contra stockholders’ equity account.
Reporting
174. The number of shares of issued stock equals

a. unissued shares minus outstanding shares.
b. outstanding shares plus treasury shares.
c. authorized shares minus treasury shares.
d. outstanding shares plus authorized shares.
Reporting
175. Treasury shares plus outstanding shares equal

a. authorized stock.
b. issued stock.
c. unissued stock.
d. distributable stock.
Reporting
176. Which of the following is not a right or preference associated with preferred stock?
a. The right to vote.
b. First claim to dividends.
c. Preference to corporate assets in case of liquidation.
d. To receive dividends in arrears before common stockholders receive dividends.
Ans: A, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: None, AICPA PC: None, IMA:
Business Economics
177. Logan Corporation issues 70,000 shares of $50 par value preferred stock for cash at $60
per share. Recording the transaction will consist of an increase to Cash for $4,200,000
and an increase(s) to
a. Preferred Stock for $4,200,000.
b. Preferred Stock for $3,500,000 and Paid-in Capital in Excess of Par Value—Preferred
Stock for $700,000.
c. Preferred Stock for $3,500,000 and Retained Earnings for $700,000.
d. Paid-in Capital from Preferred Stock for $4,200,000.
None, IMA: FSA
Solution: 70,000  $50 = $3,500,000; ($60 − $50)  70,000 = $700,000

(Sh. iss.  PV/sh.); (Iss. pr. − PV/sh)  sh. iss.

178. Logan Corporation issues 40,000 shares of $50 par value preferred stock for cash at $60
per share. In the stockholders’ equity section, the effects of the transaction above will be
reported
a. entirely within the capital stock section.
b. entirely within the additional paid-in capital section.
c. under both the capital stock and additional paid-in capital sections.
d. entirely under the retained earnings section.
179. Nice Corporation issues 40,000 shares of $100 par value preferred stock for cash at $110
per share. Recording the transaction will consist of an increase to Cash for $4,400,000
and increases to
a. Preferred Stock for $4,400,000.
b. Preferred Stock for $4,000,000 and Paid-in Capital in Excess of Par Value—Preferred
Stock for $400,000.
c. Preferred Stock for $4,000,000 and Retained Earnings for $300,000.
d. Paid-in Capital from Preferred Stock for $4,400,000.
Solution: 40,000  $100 = $4,000,000; ($110 − $100)  40,000 = $400,000

(sh. iss.  PV/sh); (Iss. pr − PV/sh)  sh. iss.
180. Dividends in arrears on cumulative preferred stock

a. never have to be paid, even if common dividends are paid.
b. must be paid before common stockholders can receive a dividend.
c. should be recorded as a current liability until they are paid.
d. enable the preferred stockholders to share equally in corporate earnings with the
common stockholders.
Reporting
181. Dividends in arrears on cumulative preferred stock

a. are considered to be a non-current liability.
b. are considered to be a current liability.
c. only occur when preferred dividends have been declared.
d. should be disclosed in the notes to the financial statements.
Reporting
182. Dividends in arrears are dividends on

a. cumulative preferred stock that have been declared but have not been paid.
b. non-cumulative preferred stock that have not been declared for a given period of time.
c. cumulative preferred stock that have not been declared for a given period of time.
d. common dividends that have been declared but have not yet been paid.
Reporting

183. Outstanding stock of the West Corporation included 40,000 shares of $5 par common
stock and 10,000 shares of 5%, $10 par non-cumulative preferred stock. In 2016, West
declared and paid dividends of $4,000. In 2017, West declared and paid dividends of
$20,000. How much of the 2017 dividend was distributed to preferred shareholders?
a. $9,000.
b. $15,000.
c. $5,000.
d. None of these answer choices are correct.
Solution: (10,000  $10)  .05 = $5,000

(Pref. sh.  Pref. PV)  div. rate
184. Outstanding stock of the Hall Corporation included 40,000 shares of $5 par common stock
and 20,000 shares of 5%, $10 par non-cumulative preferred stock. In 2016, Hall declared
and paid dividends of $8,000. In 2017, Hall declared and paid dividends of $24,000. How
much of the 2017 dividend was distributed to preferred shareholders?
a. $14,000.
b. $18,000.
c. $10,000.
d. None of these answer choices are correct.
Solution: (20,000  $10)  .05 = $10,000

(Pref. Sh.  Pref. PV/sh)  div. rate
185. All of the following statements about preferred stock are true except
a. preferred stock will have a paid-in capital account that is separate from other stock.
b. preferred stock is presented first on the stockholder's equity section.
c. preferred stock can be either par value or no-par value.
d. there can be only one class of preferred stock.
Reporting
186. XYZ Company has $20,000 of dividends in arrears. Based on this information, which of
the following statements is false?
a. Dividends in arrears are not considered to be liabilities.
b. An obligation for dividends in arrears exists only after the board of directors declares
payment.
c. The investment community looks favorably on companies with dividends in arrears,
since the money is redirected toward more important growth opportunities.
d. The amount of dividends in arrears should be disclosed in the notes to the financial
statements.
Reporting
187. Which one of the following is not necessary in order for a corporation to pay a cash
dividend?
a. Adequate cash.
b. Approval of stockholders.
c. Declared dividends.
d. Retained earnings.
Ans: B, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: None, AICPA PC: None, IMA:
Business Economics

188. The date on which a cash dividend becomes a binding legal obligation is on the
a. declaration date.
b. date of record.
c. payment date.
d. last day of the fiscal year end.
Reporting
189. The cumulative effect of the declaration and payment of a cash dividend on a company’s
financial statements is to
a. decrease total liabilities and stockholders’ equity.
b. increase total expenses and total liabilities.
c. increase total assets and stockholders’ equity.
d. decrease total assets and stockholders’ equity.
Reporting
190. The board of directors of Bosco Company declared a cash dividend on November 15,
2017, to be paid on December 15, 2017, to stockholders owning the stock on November
30, 2017. Given these facts, the date of November 30, 2017, is referred to as the
a. declaration date.
b. record date.
c. payment date.
d. ex-dividend date.
Business Economics
191. The effect of the declaration of a cash dividend by the board of directors is to
Increase Decrease
a. Stockholders’ equity Assets
b. Assets Liabilities
c. Liabilities Stockholders’ equity
d. Liabilities Assets
IMA: FSA
192. The board of directors of Yancey Company declared a cash dividend of $1.50 per share
on 42,000 shares of common stock on July 15, 2017. The dividend is to be paid on August
15, 2017, to stockholders of record on July 31, 2017. Recording the transaction on July
15, 2017, will include a(n)
a. decrease to Dividends Payable.
b. increase to Cash Dividends.
c. decrease to Cash.
d. decrease to Cash Dividends.
Ans: B, LO: 4, Bloom: AP, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Measurement, AICPA PC: None,
IMA: FSA

193. The board of directors of Yancey Company declared a cash dividend of $1.50 per share
15, 2017, to stockholders of record on July 31, 2017. The effects of recording the
declaration of the dividend on July 15, 2017, are to
a. decrease stockholders’ equity and increase liabilities.
b. decrease stockholders’ equity and decrease assets.
c. increase stockholders’ equity and increase liabilities.
d. increase stockholders’ equity and decrease assets.
Ans: A, LO: 4, Bloom: AP, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None,
IMA: Reporting
194. The net effects on the corporation of the declaration and payment of a cash dividend are
to
a. decrease liabilities and decrease stockholders’ equity.
b. increase stockholders’ equity and decrease liabilities.
c. decrease assets and decrease stockholders’ equity.
d. increase assets and increase stockholders’ equity.
Reporting
195. The board of directors of Benson Company declared a cash dividend of $1.50 per share
15, 2017, to stockholders of record on July 31, 2017. The correct recording on August 15,
2017, will include a(n)
a. increase to Cash Dividends.
b. decrease to Cash Dividends.
c. increase to Dividends Payable.
d. decrease to Dividends Payable.
Ans: D, LO: 4, Bloom: AP, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Measurement, AICPA PC: None,
IMA: FSA
196. The board of directors of Benson Company declared a cash dividend of $1.50 per share
15, 2017, to stockholders of record on July 31, 2017. The effects of recording the payment
of the dividend on August 15, 2017, are to
a. decrease stockholders’ equity and decrease liabilities.
b. decrease liabilities and decrease assets.
c. increase stockholders’ equity and increase liabilities.
d. increase stockholders’ equity and decrease assets.
Ans: B, LO: 4, Bloom: AP, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None,
IMA: Reporting
197. A corporation records a dividend-related liability

a. on the record date.
b. on the payment date.
c. when dividends are in arrears.
d. on the declaration date.
Ans: D, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Measurement, AICPA PC: None,
IMA: FSA

198. Dividends are predominantly paid in

a. scrip.
b. property.
c. cash.
d. stock.
Ans: C, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Measurement, AICPA PC: None,
199. Cash dividends are declared out of

a. paid-in capital in excess of par value.
b. treasury stock.
c. common stock.
d. retained earnings.
Ans: D, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Measurement, AICPA PC: None,
200. Which of the following is not a significant date with respect to dividends?
a. The declaration date.
b. The incorporation date.
c. The record date.
d. The payment date.
Reporting
201. Which of the following statements regarding the date of a cash dividend declaration is not
accurate?
a. The dividend can be rescinded once it has been declared.
b. The corporation is committed to a legal, binding obligation.
c. The board of directors formally authorizes the cash dividend.
d. A liability account must be increased.
Business Economics
202. Indicate the respective effects of the declaration of a cash dividend on the following
balance sheet sections:
Total Assets Total Liabilities Total Stockholders’ Equity
a. Increase Decrease No change
b. No change Increase Decrease
c. Decrease Increase Decrease
d. Decrease No change Increase
Ans: B, LO: 4, Bloom: C, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC:
203. Ace Inc. has 10,000 shares of 4%, $100 par value, cumulative preferred stock and 50,000
shares of $1 par value common stock outstanding at December 31, 2017. What is the
annual dividend on the preferred stock?
a. $40 per share
b. $40,000 in total
c. $4,000 in total
d. $0.40 per share
Problem Solving, IMA: Business Economics
Solution: 10,000  $100  .04 = $40,000

(Pref. sh.  PV/sh  div. %)

204. CAB Inc. has 1,000 shares of 5%, $100 par value, cumulative preferred stock and 50,000
shares of $1 par value common stock outstanding at December 31, 2017. What is the
annual dividend on the preferred stock?
a. $50 per share.
b. $5,000 in total.
c. $500 in total.
d. $0.50 per share.
Solution: 1,000  $100  .05 = $5,000

(Pref. sh.  PV/sh  div. %)
205. Sizemore, Inc. has 10,000 shares of 4%, $100 par value, cumulative preferred stock and
100,000 shares of $1 par value common stock outstanding at December 31, 2017. If the
board of directors declares a $25,000 dividend, the
a. preferred stockholders will receive 1/10th of what the common stockholders will
receive.
b. preferred stockholders will receive the entire $25,000.
c. $25,000 will be held as restricted retained earnings and paid out at some future date.
d. preferred stockholders will receive $12,500 and the common stockholders will receive
$12,500.
Solution: 10,000  $100  .04 = $40,000; $40,000 > $25,000

(Pref. sh.  PV/sh  div. %) > div. dec.
206. Denson, Inc. has 10,000 shares of 5%, $100 par value, non-cumulative preferred stock
and 40,000 shares of $1 par value common stock outstanding at December 31, 2017.
There were no dividends declared in 2016. The board of directors declares and pays a
$120,000 dividend in 2017. What is the amount of dividends received by the common
stockholders in 2017?
a. $0.
b. $50,000.
c. $120,000.
d. $70,000.
Solution: $120,000 − (10,000  $100  .05) = $70,000

Div. dec. − (Pref. sh.  PV/sh.  div. rate)
207. Brewer Inc. has 5,000 shares of 6%, $50 par value, cumulative preferred stock and
100,000 shares of $1 par value common stock outstanding at December 31, 2017, and
December 31, 2016. The board of directors declared and paid a $12,000 dividend in 2016.
In 2017, $60,000 of dividends are declared and paid. What are the dividends received by
the preferred stockholders in 2017?
a. $42,000.
b. $30,000.
c. $18,000.
d. $15,000.
Solution: 5,000  $50  .06 = $15,000; $15,000 + ($15,000 − $12,000) = $18,000

(Pref. Sh.  PV/sh  div. rate = ann. div.; ann. div + div. in arr.)

208. Watson, Inc. has 10,000 shares of 5%, $100 par value, cumulative preferred stock and
20,000 shares of $1 par value common stock outstanding at December 31, 2017. There
were no dividends declared in 2015. The board of directors declares and pays a $90,000
dividend in 2016 and in 2017. What is the amount of dividends received by the common
stockholders in 2017?
a. $30,000.
b. $40,000.
c. $50,000.
d. $0.
Solution: $90,000 − (10,000  $100  .05) − [($50,000  2) − $90,000] = $30,000

Div. decl. − (Pref. sh.  PV/sh.  div. rate) − [(ann. div.  2) − div. dec.]
209. Berman Inc. has 6,000 shares of 6%, $50 par value, cumulative preferred stock and
50,000 shares of $1 par value common stock outstanding at December 31, 2016, and
December 31, 2017. The board of directors declared and paid an $12,000 dividend in
2016. In 2017, $72,000 of dividends are declared and paid. What are the dividends
received by the common stockholders in 2017?
a. $48,000.
b. $42,000.
c. $54,000.
d. $18,000.
Solution: 6,000  $50  .06 = $18,000; $72,000 − ($18,000 − $12,000) − $18,000 = $48,000
(Pref. sh.  PV/sh.  div. rate = ann. div.; Div. dec. − div. inarr. − ann. div.
210. What is the total stockholders’ equity based on the following account balances?
Common Stock $2,300,000
Paid-In Capital in Excess of Par 120,000
Retained Earnings 570,000
Treasury Stock 60,000
a. $2,690,000.
b. $2,930,000.
c. $3,050,000.
d. $2,180,000.
Solution: $2,300,000 + $120,000 + $570,000 − $60,000 = $2,930,000

(Com. st. + PIC + R/E − Treas. st.)
Common Stock $950,000
a. $1,000,000.
b. $975,000.
c. $1,150,000.
d. $800,000.
Solution: $950,000 + $50,000 + $175,000 − $25,000 = $1,150,000


Common Stock $1,800,000
a. $1,900,000.
b. $2,320,000.
c. $2,260,000.
d. $2,200,000.
Solution: $1,800,000 + $100,000 + $360,000 − $60,000 = $2,200,000

213. Nance Corporation’s December 31, 2017 balance sheet showed the following:
6% preferred stock, $20 par value, cumulative,
30,000 shares authorized; 20,000 shares issued $ 400,000
Common stock, $10 par value, 3,000,000 shares authorized;
1,950,000 shares issued, 1,920,000 shares outstanding 19,500,000
Paid-in capital in excess of par value – preferred stock 60,000
Paid-in capital in excess of par value – common stock 28,000,000
Retained earnings 9,650,000
Treasury stock (30,000 shares) 630,000
Nance’s total paid-in capital was
a. $47,960,000.
b. $48,590,000.
c. $47,330,000.
d. $28,060,000.
Ans: A, LO: 5, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC:
Solution: $400,000 + $19,500,000 + $60,000 + $28,000,000 = $47,960,000

(Pref. st. + com. st. + Pref PIC + Com PIC
Nance declared and paid an $85,000 cash dividend on December 15, 2017. If the
company’s dividends in arrears prior to that date were $24,000, Nance’s common
stockholders received
a. $61,000.
b. $48,000.
c. $37,000.
d. no dividend.
Solution: $85,000 − $24,000 − ($400,000  .06) = $37,000

(Div. dec. − div. in arr. − (Pref. PV × div. rate))

Nance’s total stockholders’ equity was
a. $58,240,000.
b. $47,330,000.
c. $57,610.
d. $56,980,000.
Solution: $400,000 + $19,500,000 + $60,000 + $28,000,000 + $9,650,000 − $630,000 = $56,980,000

(Pref. PV + Com. PV + Pref. PIC + com PIC + R/E − Treas. st.)
216. Racer Corporation’s December 31, 2017 balance sheet showed the following:
Racer’s total paid-in capital was
a. $63,580,000.
b. $64,420,000.
c. $62,740,000.
d. $36,080,000.
Ans: A, LO: 5, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC:
Solution: $500,000 + $26,000,000 + $80,000 + $37,000,000 = $63,580,000

(Pref. PV + Com. PV + Pref. PIC + com PIC)

Racer declared and paid a $100,000 cash dividend on December 15, 2017. If the
company’s dividends in arrears prior to that date were $30,000, Racer’s common
stockholders received
a. $70,000.
b. $60,000.
c. $40,000.
d. no dividend.
Solution: $100,000 − $30,000 − ($500,000  .06) = $40,000

Div - dec. div. in arr. − (Pref. PV  div. rate)
Racer’s total stockholders’ equity was
a. $76,620,000.
b. $63,580,000.
c. $75,780,000.
d. $74,940,000.
Solution: $500,000 + $26,000,000 + $80,000 + $37,000,000 + $12,200,000 − $840,000 = $74,940,000
219. Paid-in capital in excess of stated value would appear on a balance sheet under the
category
a. capital stock.
b. retained earnings.
c. additional paid-in capital.
d. contra to stockholders’ equity.
Reporting

220. Two classifications appearing in the paid-in capital section of the balance sheet are
a. preferred stock and common stock.
b. paid-in capital and retained earnings.
c. capital stock and additional paid-in capital.
d. capital stock and treasury stock.
Reporting
221. All of the following are normally found in a corporation’s stockholders’ equity section
except
a. dividends in arrears.
b. common stock.
c. paid-in capital.
d. retained earnings.
Reporting
222. Information that is not generally reported for each class of stock on the balance sheet is
a. the market value.
b. the par value.
c. shares authorized.
d. shares issued.
Reporting
223. The payout ratio is computed by dividing

a. total cash dividends paid to common stockholders by retained earnings.
b. dividends paid per share by net income.
c. total cash dividends paid to common stockholders by net income.
d. dividends paid per share by year-end stock price.
Business Economics
224. The return on common stockholders’ equity is computed by dividing net income
a. by ending common stockholders’ equity.
b. by average common stockholders’ equity.
c. less preferred dividends by ending common stockholders’ equity.
d. less preferred dividends by average common stockholders’ equity.
Business Economics
225. Ferman Corporation had net income of $140,000 and paid dividends of $40,000 to
common stockholders and $20,000 to preferred stockholders in 2017. Ferman
Corporation’s common stockholders’ equity at the beginning and end of 2017 was
$870,000 and $1,130,000, respectively. Ferman Corporation’s return on common
stockholders’ equity was
a. 14%.
b. 12%.
c. 9%.
d. 8%.
Problem Solving, IMA: Business Economics
Solution: ($140,000 − $20,000)  [($870,000 + $1,130,000)  2] = 12%

(Net inc. − Pref. div.)  [(beg. st. eq. + end. st. eq)  2]

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"'Should have everlasting life'—was that it, my father?" said
I, speaking I know not why, from some will, as it seemed,
not my own.
"Aye, that is it," answered the old man, eagerly, his wasted
face lighting up. "I thank you, my young lady—the blessing
of an old man be on your fair head—'everlasting life'—aye
that is it! Bless you, Madam! Yes, yes! 'Everlasting life!'"
"And where learned you so much, my fair lady?" asked the

friar, bending his brows on me in no friendly way.
"From the Vulgate of the blessed Saint Jerome, reverend

sir," I answered demurely. "I am convent bred, and can
construe Latin."
"More's the pity," growled the friar. "They had done better
to teach you to hold your tongue, and mind your spindle
and needle. 'Twas never a good world since women and
laymen learned to read and write!"
My mother made me a sign not to answer, and presently we

disposed ourselves for bed—my mother and I in one room,
my father and Harry in the other. Our beds were but of
straw, but fresh and with clean and lavendered, though very
coarse linen. The good woman made many apologies,
though I am sure none were needful, and after lingering a
little came close up, and said in a whisper:
"You will not think ill of my poor gaffer, my Lady—indeed,

he is no heretic, but a godly and devout old man. You see
he is more than a hundred years old, and old men's minds
do mostly run on what they have heard and thought when
young. But he is no heretic, but a good old man!"
"That I can well believe," said my mother. "I am glad his

reverend age finds such a safe and warm harbor. Believe
me, good dame, your dutifulness to him will not go
unrewarded."
"Nay, we were worse than the heathen not to care for our
gaffer," answered the woman, and again bidding us good-
night, she departed.
We slept well, despite our hard beds, and were awakened

early by the crowing of fowls, the bleating of sheep, and the
loud-voiced directions of the yeoman and his dame to their
men and maids. They would not let us go till we had broken
our fast, and set us down to a plentiful table again. The old
man was not in his place, and my father noticed it.
"Aye, gaffer sleeps late, and we never rouse him," said the
good man. "Besides, I had no mind he should be questioned
and teased by yonder friar. A plague on them, say I—black
cattle, that spare no man's field, but live on the work of
other men. Time was when we thought the begging friars
the best of the clergy, and now I think they are every one
worse than another."
'Tis strange how the clergy generally seem to be losing their

hold on the common folk, and how little they seem to be
aware of it. The good people would take no fee for our
entertainment, saying that they so seldom had any guests
that it was a pure pleasure to them. My mother, however,
prevailed on the dame to accept a hood and pinners of
black Cyprus, and a bottle of her famous bitter and spicy
cordial for her daughter, who is weakly, and failing with a
cruel tertian ague, which shakes her to pieces every spring,
and hardly gives her time to take breath before it comes
again in the fall.
We travelled much more slowly the second day, over a wild

country, mostly moorland, with here and there a deep dell
wherein would be a rushing stream and a few trees, with
often a cool fountain gushing from the rocks. We saw but
few inhabitants, and those of the wildest, more like savages
than aught I ever conceived of Englishmen. My Cousin
Joslyn says they are indeed savages, and all but heathen in
their usages.
"Worse than heathen, maybe," said old Job Dean, who has
had no good will to this journey from the first. "Every one
knows what moormen are. They are no more proper human
beings than mermen are—brutes that make no scruple to
feed on human flesh, when by their wiles and magic arts
they cause any poor travellers to lose their way on these
God-forsaken wastes."
"Methinks no magic arts would be needed to make one lose

one's way on these moors, in darkness or a fog," said my
father.
"You are right," answered Cousin Joslyn. "Many lives are

lost on them every year, not however, as I think, by any
arts or cannibal tastes of these poor savages, but from the
want of any roads or hostelries, the sudden fogs, and the
treacherous nature of the soil, abounding in bogs,
quicksands, and old mining excavations made by the
heathen long ago. As for these poor creatures, I have ever
found them, though timid, distrustful and full of wild and
heathen superstitions, yet kindly disposed enow."
"You have been among them, then?" asked my mother.
"Yes, Madam, in my wanderings after herbs and simples,

birds' nests and strange stones," answered Cousin Joslyn,
smiling somewhat sadly. "The people about Tremador will
tell you that I am either mad as a March hare, or else that I
am a conjuror, as dangerous as the moormen themselves."
We ate our midday meal by the side of one of the streams I
spoke of, and seeing some of the wild people—a woman and
two children, peeping out at us from behind the bushes—my
mother laid some of our abundant provision on a rock, and
by signs made them welcome; and after our departure we
looked back from the other side of the stream, and saw
them devouring the food with ravenous haste.
"Poor things! I am glad they will have had one pleasure to-
day," said my mother, nodding to the woman, who nodded
in return, and made an odd gesture, stooping to the
stream, and throwing the water toward us with her hands.
"That is to bring us good luck on our journey," observed

Cousin Joslyn.
"More like to put a spell on us and our horses, that we may

fall into their power!" growled old Job. "I would like to send
some arrows among them!" So cruel is even fear, in all its
shapes.
The sun had set, and it was growing dark when we entered
upon the lands of Sir John Carey, and saw his house before
us on the hillside—a tumbledown old pile, half manor house,
half castle, once evidently a stronghold, but fast falling to
decay.
"That does not look as if the knight were very prosperous,"

said my father.
"And its look speaks truth," answered Cousin Joslyn. "This

present knight's father lost much in the civil wars, and more
by the exactions of the late King's unworthy ministers. Sir
John went up to London on the present King's accession,
and there mended his fortune by marrying a city heiress,
who brought him gold enough to have rebuilt this poor old
pile. But he was drawn into Court life, and he and his dame
must needs raffle it in velvet and cloth of gold, with masks,
entertainments and what not, till the lady's fortune was
wasted in a year or two and there was nothing for it but to
return hither, and live as best they might—and bad is the
best, if all tales say true."
"Aye, 'twas then I was fool enough to lend him eight

hundred pounds!" said my father. "I fear I shall never see
principal or interest again."
As he spoke, we arrived at the doors of the manor house,

which stood wide open, so that we could see within a large
hall, at the upper end of which preparations seemed to be
making for supper. Out rushed a tumultuous throng of dogs
of all sorts, and blue-coated serving-men, in every stage of
shabbiness. The dogs barked, the men hallooed, our horses,
alarmed by the tumult, reared and pranced, and I began to
think we should indeed be devoured, though not by
moormen, when Sir John himself appeared at the door, and
by threats, oaths, and a liberal use of his crutch-headed
staff, restored something like order. He then advanced to
my mother, and giving her his hand to alight, welcomed us
with much courtesy to his poor house. He must have been a
very handsome gentleman in his day, but he looks old and
feeble, soured and peevish. My Lady stood in the hall and
greeted us in her turn, as we were presented by her
husband, with—
"Lor, Madam, I am glad to see you, though 'tis but little we

can do to make you comfortable. We are but poor country
folk, now—not like what you once knew me, Sir Stephen,
when I had mine own home and purse, and was served in
my father's house like a Queen. Alack, I little thought then I
should live to see this day! But you are welcome to what we
have!"
My mother made some polite speech, such as she is never
at a loss for. I was glad I was not called on to say anything.
"And these are your son and daughter—lack a day! A fine

young lady and gentleman—but I believe they are none of
yours, Madam?"
"I call them mine," answered my mother, smiling.
"Aye, to be sure—but they can never be quite the same,

methinks. We have no children now—we had a son once,
but he is dead."
Her sharp voice and face softened a moment, and then

grew sharper than ever, as she exclaimed, turning to a little
thin maiden with unkempt, uncovered locks and a kirtle like
a milkmaid's, of coarse stuff, and neither clean nor whole,
who had crept into the hall while she was speaking:
"What do you here, minion? Did I not forbid you to leave

your chamber?" And with that she gave the child a blow on
the side of her face which reddened her cheek and almost
threw her over. The maid gave her a glance of defiance, and
then looking at me, she suddenly blushed all over her pale
face and threat, burst into tears, and ran out of the hall.
"I crave your pardon, madam; but 'tis such an ill-

conditioned wench she puts me past all patience. But you
would like to wash before supper. Here, Dorothy Joan, show
the ladies to their rooms."
We found our rooms furnished with some richness, albeit

the furniture was old, worn, and far from well kept; and the
air seemed so damp and mouldy that I thought with regret
of our last night's lodging, perfumed with lavender and the
smell of clean straw. An old woman brought water and
towels, and we arranged our dress hastily, not to keep the
supper waiting.
The meal was set out when we came downstairs, and we

took our places at the board, according to our rank. I saw
Mistress Warner, my mother's gentlewoman, regarding the
board and trenchers with anything but a pleased
expression. As for my mother, if she had to sup with a pig,
she would never hurt the pig's feelings by showing any
discomforture, and I tried to follow her example.
"Where is Joyce?" asked Sir Stephen, after we were seated.
"In her chamber, I suppose," answered my Lady. "Dorothy,

go and call her."
The old woman who had waited on us went away, and

presently returned with the little maid we had seen on our
arrival. She had evidently taken some pains to put the child
in order, but she was still such a forlorn object as I am sure
my mother would not permit in her scullery. She seemed
undecided where to place herself, but at a nod from Sir
John, she slipped into a vacant seat between my father and
Harry.
"What a figure you are, child," quoth my Lady Carey; "but

'tis no use to dress her," added she, turning to my mother.
"One might as well dress a hog from the sty."
The black eyes threw a glance of indignant protestation at

the speaker, which showed that their fire was not wholly
quenched, and instantly fell again.
"I knew not you had a daughter, Sir John," said my father.
"Nor have I," answered Sir John, while my Lady laughed a

scornful, affected laugh. "This is no child of mine. She is the
daughter of Jeffrey Copplestone of your parts, and a king's
ward. I bought her of her guardian, old Master Earle, for
two hundred pound ready money."
"And a poor pennyworth you got of her," struck in his Lady.

"'Twas an ill day for us when she crossed the threshold."
"I thought as she had a fair portion, and a decent estate in

land to her breastlace, she might make a wife to my son,"
continued the old man, never heeding his wife's
interruption: "but he would none of her. Welladay, I thought
not how 'twould end! What say you, Sir Stephen, will you
take the wench off my hands, and give me a quittance of
my debt to you? Her land lies handy to your moorland
estate, and you may marry her up to your son yonder."
"For shame, Sir John! Think you such a fine young squire
would wed such a scarecrow as our black Joyce?" said my
Lady Carey, with that scornful laugh again. "Not but it would
be a good riddance to get her off our hands, I am sure.
Better send her to the nunnery, and let her estate go for
masses, I say."
My blood boiled to hear them so speak of the maid to her

very face, as though she had been no better than a brute.
Looking at her, I saw her great eyes raised and fixed on my
mother's, with such a look of imploring entreaty, as one
sometimes sees in those of a dumb creature.
"And so you are Jeffrey Copplestone's maid?" said my

father, turning to Joyce, and speaking kindly, as he ever
does to the weak and dumb: "I knew your father well, for
an honest and brave gentleman, and we stood more than
one stricken field together. I knew not that he had left a
child."
The eyes turned on my father this time with the same
imploring look, but not a word did Joyce say. Sir John
seemed in earnest in the matter, and at last my father said
they would talk it over again.
When my mother and I were withdrawn to our chamber,

where a fire was lighted by this time, which did us little
good, save to replace the smell of mold by that of smoke—
when I say we were withdrawn to our chamber, and were
talking of the day's adventures, the door opened softly, and
Joyce showed her pale, scared face, as doubting whether
she should venture in. My mother smiled and stretched out
her hand, and the action seemed to re-assure Joyce, for she
rushed to my mother's side and fell on her knees, bending
down as if she would kiss her very feet.
"Oh, madam, save me!" she cried, imploringly, yet low, as if

afraid of being overheard. "Beg the kind gentleman, your
husband, to buy me. I will serve you on my knees! I will
herd cows or weed corn, anything so I may but be near you
and away from here. They will kill me or drive me mad
among them! Oh, take me away!"
"Poor maid," said my Lady, "poor motherless, fatherless

child! Has the world dealt so hardly with thee?"
"Aye, that has it," said another voice—that of old Dorothy,

who had come in like a mouse. "Joyce, you should not be
here! Think if my Lady should come in and find you!"
Joyce shrank and shivered at the words, as if actually

beaten, but she did not move, till after a little more coaxing
and threatening she arose, and kissing my mother's hand
more than once, crept slowly away.
"I dare not let her stay, and that is the truth," said Dorothy,
after she had closed the door, coming near us and speaking
low; "my Lady would so beat her for it if she knew."
"Is she then such an ill-conditioned child?" asked my

mother.
"Nay, she was well enough conditioned when she came

here, five years agone," answered Dorothy. "She is all but
crazed now, and no wonder; but she does not want for
mother wit, though she hath had no teaching such as a
young lady should have. You see her father was killed in a
duel before she was born, and her mother dying in child-
bed, she became a King's ward, and old Master Earle of
Biddeford got her of the King in lieu they say of moneys
advanced to his Majesty's father. Mistress Earle was no lady,
but a bustling, kindly housewife, and the girl did well
enough with her I fancy, but her husband was a true usurer
and cared for naught but money. When the good dame
died, Master Earle would no more be plagued with Joyce,
but sold her to our knight, and got, so our old steward says,
by far the best of the bargain. Sir John thought to mate
Joyce with our young master. But Master Walter would have
none of her, though he was always kind and brotherly in his
rough way. He had grown up at home, and learned nothing
as he ought, and nothing would serve him but to fall in love
—fall indeed—with Cicely Woodson, our bailiff's fair
daughter."
My mother here glanced at me.
"Oh, there was nothing wrong then, madam!" said the old
woman, interpreting the look. "Cicely was as proud and
modest as any young lady, aye, and as beautiful too—a fine
spirited lass, as you will see. It might have turned out well
enough, only Sir John was so bent on making up the match
between Walter and Mistress Joyce. So he told his son he
must be ready on a certain day. Walter tried at first to put
the matter off, and then it all came out that he and Cicely
were already married by a begging friar. My master and her
father were equally enraged—the marriage was pronounced
null—poor Cicely was hurried away to a convent, and Walter
warned that he must submit to his father. But mark what
followed! That very night he disappeared, and next day
word came that Cicely had escaped from her convent. But
they followed them—alas, poor things!—and found them at
last. The woman was dragged back to her cell—to what fate
I leave you to guess—and Master Walter was brought home
and shut up in the west tower. But he went raving mad—
alack, and woe is me!—threw himself from the window, and
all to break his skull on the stones below. Poor young thing!
'Twould have been better to own the marriage and live in
peace—think you not so, madam?"
"I do, indeed!" answered my mother, wiping her eyes. "'Tis

a woeful tale! But I see not how poor Joyce was to blame in
all this?"
"No, nor I; but 'twas visited on her, for all that!" returned
the old woman. "My Lady said that Joyce might have won
him if she had tried; and that she drove him away, and
what not. Poor simple child! She would have been ready
enough to wed him, methinks, as he was ever kind to her.
And indeed, madam, it would be a deed of charity to take
the maid out of her hands, for my Lady is a hard woman.
And poor Mistress Joyce would do well enough with one who
was kind to her. She is ever biddable with me."
My father coming in, old Dorothy bade us good-night and

departed.
"So you are up yet, child! You should be asleep, after your
journey!" said my father, stooping to kiss my forehead. "Be
thankful that you have home and friends, my maid, and are
no king's ward, to be sold like a cow to the highest bidder!"
"Surely a cruel and hard law!" said my mother. "My heart

aches for this poor maid!" and she told my father what we
had heard.
"Sir John is very earnest for me to take the girl off his
hands in lieu of his debt, or a part thereof," says my father.
"'Twould be a great charge on your hands, I fear?"
"Nay, never hesitate for that!" answered my mother,

cheerily. "Sure it would be a blessed task: but can you
afford the loss and charge?"
"Nay, for that matter, I suppose the rental of the

Copplestone lands is worth something, and in a family like
ours, the keeping and education of such a child would make
little difference. I am not like to see either principal nor
interest, as matters now stand, for the landed estate is
entailed, and there is, as far as I can learn, no ready
money. But we will talk farther of the matter. Rosamond,
my child, get you to bed, and God bless you!"
I did most earnestly give thanks that night for my home

and my kind parents! I could not but think, as I lay down,
what if my father had wedded such a woman as my Lady
Carey! My room was a little turret within my parents'
apartment, and I fell asleep at the last to the sound of their
talking.
The next morning, when we met at breakfast, Joyce was

not to be seen; and my Lady was clearly in a very bad
humor. She had arrayed herself in much antiquated finery,
to do honor to us or herself, I know not which. It was
evident there had been a storm between her Lord and
herself, from her red eyes, raised color, and the snappish
remarks she directed toward him.
The house looked a more doleful place by daylight than it

had done in the evening. The hangings were tattered and
moth-eaten; the windows, filled with horn or oiled paper,
with here and there a bit of stained glass left to tell of old
magnificence, were dark with dirt, and let in the wind
everywhere; the rushes on the floor looked to be three
months old, and everything seemed forlorn and wretched.
Poor Mistress Warner told me privately that her bed had

been so musty and so full of vermin that she could not
sleep; and that some one had come into the next chamber
and had there so cruelly beaten and miscalled a young child
or maid, as it seemed, that she had much ado not to
interfere. Hearing this news, I was not surprised not to see
poor Joyce.
My mother, seeing the state of the case, set herself to work

to pacify the offended lady with all that courtly skill and
grace whereof she is so completely mistress; telling her of
this and that lady of quality (I doubt the good dame did not
know half of them, but that made no difference), giving
accounts of entertainments at Court and at the cardinal's,
and detailing the news of the cardinal's probable disgrace
and the King's divorce, and suit to Mistress Anne. My Lady
held out for a while, but presently smoothed her ruffled
plumage, grew gracious, and began to talk herself of the
days she spent at Court. Clearly those says had been the
glory of her life. We sat a long time, but at last she excused
herself, saying that she must look into the kitchen and see
what the maids were about, and so went away in a very
good humor.
"Poor woman!" said my mother. "Life must indeed be dreary
to her here! She clearly cares for naught but gayety and
finery, and they are as much out of her reach as if she were
in purgatory!"
"I don't believe such a temper as hers could be very happy

anywhere!" said I.
"Perhaps not, but yet my heart aches for her, poor thing!
The change would be severe to any one, even to a woman
who had many resources in herself, and how much more to
one who knows no delight save fine clothes and fine
company!"
"Methinks I should find it hard to be contented here!" I

remarked. "I am sure I should not wish to sit down content
with dirt and tatters and an ill-ordered family. I could find
some days' pleasing employment in mending these
hangings and cushions, and spinning new linen for bed and
tables, and airing and ordering of chambers and the like.
'Till such things were done, I don't believe time would hang
heavy on my hands!"
"You are a born housewife, Rosamond!" said my mother,

smiling. "But you are right in this. I hope indeed you would
never sit down content with any misorder or discomfort that
could be remedied. That is but a poor kind of content. But,
my child, we must strive to keep this poor lady in a good
humor, for the sake of that unfortunate maiden. Your father
tells me he is wholly inclined to take her in hand, and that
Sir John is more than willing: but my Lady would fain
bestow her and her goods on a convent, thinking thereby in
some sort to benefit the soul of her unhappy son. I believe
Sir John will have his own way, but it will be easier for all, if
my Lady can be brought to consent too. I wonder where the
child is?"
Mistress Warner here told my mother what she had
overheard last night. My Lady was moved more than
ordinary. Anything like oppression or injustice always rouses
her anger.
"Nay then, is the woman base beyond hope," said she, "to
visit her anger on the helpless child? Surely 'twas a kind
providence brought us to the rescue of this innocent."
"My Lady, one of the women of the house told me last night
that they all, save old Dorothy, believe that Mistress Joyce
hath the evil eye," said Mistress Warner. "They say she
overlooked the young master to his destruction. The lady
herself tells them so. Do you think it can be true?"
"So they must bring their superstitions to bear against her,

as well!" said my mother. "Nay, Warner, the evil eye is the
eye that is full of hate, and covetousness, and
uncharitableness. I see no such thing in this poor child's
glances, do you?"
"No, madam; she looked harmless enough, for all I saw!"

answered the bower-woman, who is a kind-hearted
creature. "Even if she had fallen under the power of the
devil, it would be a charity to rescue her, and methinks one
who fears God has no need to fear any one less than He."
"Spoke like a Christian woman!" said my mother, and then

the conversation was ended by the return of my Lady.
Well, we stayed that day and that night, and in the

afternoon the matter was concluded; and Sir John, calling
for Joyce, formally surrendered her to my father's keeping.
"And a good riddance, I'm sure!" quoth my Lady, with her

hard, affected laugh. "I wish Sir Stephen joy of his bargain!
I am only too glad to get rid of her, the ungrateful witch!"
"Hold your tongue, Sarah!" said Sir John. "See that the
child's things are got together. Where are the gold chain
and the string of pearls I gave into your keeping? Bring
them hither, and give them over to Sir Stephen!"
"Lack-a-daisy, Sir John, how should I know?" answered my

Lady, reddening and casting anything but a friendly glance
at her husband. "I have not seen the trumpery for ages."
"You will find them, unless you want me to find them for
you!" said the knight, in a peremptory voice. "You had them
in your cabinet among your own gewgaws, I know, for I saw
them. Go and fetch them here."
"Oh, very well, Sir John! So that is the way you treat your
wife, that brought you all you had, and whose wealth you
have wasted, and that before strangers! Alas, the day that
ever I saw you!"
And with that she began to weep and cry aloud, and then to
scream, till she fell into a fit of the mother.
Her husband, with an impatient "Here, women, see to your

mistress!" strode out of the hall and returned presently with
the jewels—a fine heavy gold chain and a necklace of fair
large pearls.
"There, take her away out of sight!" said he, thrusting the
things into my mother's hands. "Take her away, and keep
her by you this night. Maybe I have not done right by her. I
wanted to wed her to my son, and do well by her, but they
would none of each other—I dare say 'twas not her fault,
after all, poor wench! There, there—go, child, go!" For at
the first kind word Joyce was at his feet and kissing his
hand, with tears and sobs. "Go with thy new friends, be a
dutiful maid, and take my blessing with thee, if the blessing
of such a wretch be worth anything."
We saw no more of my Lady. In obedience to Sir John's
hint, my mother kept Joyce at her side the rest of the day,
and she shared my bed at night. She seemed unable to
believe in her own deliverance, and started at every sound.
"She came to my room last night and beat me—oh, so

cruelly!" the poor thing whispered to me, after we were in
bed, "and that was not so bad as her words. She said I was
a witch, and had bewitched her son to his death, and that
she would have me burned! Your good father wont let them
burn me, will he, Mistress Rosamond? I would not so much
mind dying, but it would be dreadful to be burned alive!"
I soothed her and told her she would be safe under my

father and mother's care, and if she would be a good and
obedient maid, she might be as happy as the day was long.
"I will try to be good!" she said, simply. "But I am so

ignorant! I have had no learning. I hardly know anything.
Mistress Earle taught me to work, and spin, and say my
prayers, but I have forgot them all now. Father Joe, our
chaplain, used to teach me a prayer now and then, when he
was sober, and he was kind to me; but he died from
drinking strong ale. And then Walter died. Walter was
always good—and I had no friend save poor old Dorothy."
I told her we would teach her, and bade her try to sleep,
that she might be ready to travel in the morning; and so
with much ado got her quiet.
Early in the morning we left the hall, seeing none of the

family save Dorothy and the steward.
"Now I can breathe again!" said my father, drawing a long

breath, when we were once out on the open moors. Joyce
was on a pillion behind Cousin Joslyn, holding on very tight,
and every now and then looking round with a scared face,
as though expecting pursuit. She grew easier the farther we
went, and when we were quite out of sight of the house,
she too drew a long breath, and seemed as if she were
more at ease.
We rode all day, across all but pathless wastes, seeing

hardly a living thing save a few forlorn sheep tended by a
wild, wolfish-looking dog and a boy not less wild than he.
Toward the middle of the afternoon, however, we came to a
hamlet, where the cottages were more decent than any we
had seen since leaving home; some of them having little
gardens, with parsnips and onions, and a few pot-herbs,
and now and then some hardy flowers. All the people came
to the door at sight of our cavalcade, and there were many
reverences and smiles from men and women. They were a
large, sturdy, wild-looking race, with black curly hair and
black eyes.
"Now we are on your lands, my dear cousin," said Cousin

Joslyn, turning to me. "This is the village of Tremador, and
these be your tenants and cottagers."
I confess I was so silly at first as to feel a sense of prideful

elation at the thought that I was in some sort mistress of
these people and owner of the lands whereon I stood: but
my second thought, I trust, was a better one, and I
inwardly breathed a prayer that in so far as I had special
duties toward these good folks, I might have grace to fulfil
them.
"Truly a fine-looking people!" said my mother. "And the

cottages are far better than I expected to see in these
remote parts."
"That is mostly my late mistress' doing," remarked Master

Penrose. "She could abide naught like sluttishness, or
waste, or unthrift, and made constant war on them. Then
we have an excellent parish priest—no drunken Sir John,
like him down at the place we left this morning but a good
and devout man, whose life is as pure as his prayers. Sir
Stephen, there stands an old playmate of yours and mine—
old Jasper, who helped us to take the falcons on the cliff."
My father must needs stop to see his ancient friend, and we

soon had a crowd about us, all naturally eager to see their
new lady and their old friend Master Joslyn. But they were
no ways rude or prying, and when we rode away, followed
us with many good wishes and welcomes, or so my cousin
said, for they almost all speak the Cornish tongue, which, of
course, is so much Greek to me.
Our road, now a fairly good one, led us away from the
village, and skirted a long and high hill, near the top of
which was perched the church, with a very high gray tower.
"What an odd place for the church!" says Harry.
"Yes, they say the devil had a hand in the building of many
of our Cornish churches, and I don't wonder," answered
Cousin Joslyn: "they are put in such inaccessible places. In
the winter storms 'tis all but impossible for the village folk
to reach this one, and my Lady had a scheme for erecting a
chapel down in the hamlet yonder, but she never carried it
out."
We went on for nearly another mile, rising ever higher,

though by somewhat slow gradations, till we reached all at
once the top of the ridge. Then what a view burst upon us!
There was the sea standing up like a blue wall, so high were
we above it, the land falling off to our right in a sheer
precipice, at the foot of which were jagged rocks, among
which the waves broke wildly, though it was a clear, calm
day. In front of us opened a lovely valley—what we in our
parts call a coombe—filled with woods, among which roared
a brawling stream, which tumbled into the glen at the upper
end in a fine cataract, of which we could catch a glimpse.
Nestling in the mouth of this glen, with a south-western

exposure, lay the gray old house of Tremador, surrounded
with great nut trees, and one huge pile of verdure, which
Cousin Joslyn said was a Spanish chestnut. It had a
homelike look to mine eyes from the first.
"The old house looks just the same," quoth my father: "I
could expect to find my aunt seated in her parlor, with her
cat and its kitlings in a basket by her side, just as I left
them thirty years agone."
"You will find the cat and the kitlings, though not quite the
same that you left," answered Cousin Joslyn. "But the
house can never be the same to me again, now that my
dear old friend and mistress is gone! But here we are.
Welcome home to your own house, my fair Cousin
Rosamond! Master Toby, you remember my Cousin
Stephen; and this is his Lady, and this is Mistress
Rosamond, your new lady and mistress."
Master Toby the steward, bent low to each of us, specially

to my unworthy self, and then came Mistress Grace, and the
men and the maids, all gathered in the hall to meet us. I
don't know how I acquitted myself, but I know I never felt
so young and insignificant in all my life.
Mistress Grace marshalled us all to our rooms. I was to

have my aunt's, by her special direction, while my father
and mother, as was fitting, had the room of state. Dame
Grace says some king once slept there, but she can't tell
who it was. She thinks 'twas either his Majesty Henry Sixth

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Survey of Accounting 1st Edition

Kimmel Test Bank

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Multiple Choice Questions (Cont.)

SUMMARY OF LEARNING OBJECTIVES BY QUESTION TYPE

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Note: TF = True-False C = Completion

CHAPTER LEARNING OBJECTIVES

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6. Notes payable usually require the borrower to pay interest.

7. Notes payable are often used instead of accounts payable.

8. A note payable must always be paid before an account payable.

10. Most notes are not interest bearing.

12. Interest expense on a note payable is only recorded at maturity.

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47. Treasury stock should not be classified as a current asset.

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49. Treasury stock is a contra stockholders’ equity account.

56. Dividends may be declared and paid in cash or stock.

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Answers to True-False Statements

MULTIPLE CHOICE QUESTIONS

62. Most companies pay current liabilities

63. A current liability is a debt that can reasonably be expected to be paid

65. Failure to record a liability will probably

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67. Current liabilities are due

68. Liabilities are classified as current or long-term based on their

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Solution: $500,000  .06  6/12 = $15,000

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77. As interest is recorded on an interest-bearing note, the Interest Expense account is

Solution: $150,000  .04  3/12 = $1,500

Solution: $150,000  .04  3/12 = $1,500

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Solution: $300,000  .06  90/360 = $4,500

Solution: $350,000  .06  60/360 = $3,500

Solution: $350,000  .06 = $21,000

Solution: $90,000  .06  90/360 = $1,350

Solution: $90,000  .06  60/360 = $900

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85. Interest expense on an interest-bearing note is

86. Sales taxes collected by a retailer are recorded by

87. Unearned Rent Revenue is

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Solution: ($294,000  1.05)  .05 = $14,000

Solution: ($630,000  1.05)  .05 = $30,000

93. The current portion of long-term debt should

94. On January 1, 2017, Ermler Company, a calendar-year company, issued $2,000,000 of

Solution: $2,000,000 − $500,000 = $1500,000

95. On January 1, 2017, Keisler Company, a calendar-year company, issued $900,000 of

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96. Sales taxes collected by a retailer from a customer are expenses

98. Sales taxes collected by a retailer are reported as

Solution: ($38,160  1.06)  .06 = $2,160

Solution: ($36,750  1.05)  .05 = $1,750

Solution: $32,340  1.05 = $30,800

Solution: $40,280  1.06 = $38,000

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