# Final Review Combined F

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• 1.

### If a bond is sold at par value for \$1,000, has a life of 5 years, and a contract rate of 8%, how much will have to be paid to redeem the bond on its maturity date?

• A.

\$ 80

• B.

\$1,000

• C.

\$920

• D.

\$400

B. \$1,000
Explanation
If a bond is sold at par value for \$1,000, it means that the bond is being sold for its face value. In this case, the bond will have to be redeemed for the same amount that it was sold for, which is \$1,000. Therefore, \$1,000 will have to be paid to redeem the bond on its maturity date.

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• 2.

### The ratio that is computed by taking total liabilities and dividing them by total equity is called the:

• A.

Quick ratio

• B.

Debt to equity ratio

• C.

Reinvested assets ratio

• D.

Debt ratio

B. Debt to equity ratio
Explanation
The debt to equity ratio is computed by dividing total liabilities by total equity. This ratio is used to assess a company's financial leverage and risk. It indicates the proportion of a company's financing that comes from debt compared to equity. A higher ratio suggests that the company relies more on debt to finance its operations, which may indicate higher financial risk. Conversely, a lower ratio indicates a lower level of debt and a stronger equity position.

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• 3.

### While the balance sheet is a "snapshot" of the business, the income statement has been compared to a "home video" because it

• A.

Shows the company's performance for a particular date in time

• B.

Shows the company's performance for a period of time

• C.

Depicts the operations of the company on a precise date

• D.

None of these answers is correct

B. Shows the company's performance for a period of time
Explanation
The income statement is compared to a "home video" because it shows the company's performance for a period of time, similar to how a home video captures a sequence of events over a period of time. It provides a summary of the company's revenues, expenses, and net income over a specific time frame, such as a month, quarter, or year. This allows stakeholders to assess the company's financial performance and profitability over a specific period.

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• 4.

### The relationship among the accounting elements found on the income statement can be represented by the following equation:

• A.

Revenues - expenses = net loss

• B.

Revenues - expenses = net income

• C.

Answers A and B are both correct

• D.

Assets - liabilities = net income

C. Answers A and B are both correct
Explanation
The equation mentioned in the question, "revenues - expenses = net loss" and "revenues - expenses = net income," both represent the relationship among the accounting elements found on the income statement. The income statement calculates the net income or net loss by subtracting expenses from revenues. Therefore, both answer A and B are correct as they accurately represent this relationship.

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• 5.

### The excess of the rewards over the sacrifices for a given time period is the monetary reward of doing business, which is also known as:

• A.

Net earnings

• B.

Earnings

• C.

Net profit

• D.

All of these answers are correct.

D. All of these answers are correct.
Explanation
The excess of the rewards over the sacrifices for a given time period refers to the monetary reward of doing business. This can be referred to as net earnings, earnings, or net profit. All of these terms essentially mean the same thing and can be used interchangeably to describe the financial gain from conducting business activities.

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• 6.

### Gross margin is an important item shown on the income statement because:

• A.

Gross margin is not shown on a multiple-step income statement

• B.

Sales minus gross margin equals net income

• C.

Gross margin is the revenue generated from the sale of tangible products

• D.

It highlights the relationship between sales revenue and cost of goods sold

D. It highlights the relationship between sales revenue and cost of goods sold
Explanation
The correct answer is that gross margin highlights the relationship between sales revenue and cost of goods sold. Gross margin is a key metric that indicates how efficiently a company is generating revenue from the sale of its products. It represents the amount of money left after subtracting the cost of producing those products from the total sales revenue. By analyzing the gross margin, investors and analysts can assess the profitability and pricing strategy of a company.

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• 7.

### The distributions to owners of proprietorships and partnerships are also called:

• A.

Dividends

• B.

Drawings

• C.

Sketches

• D.

Net income

B. Drawings
Explanation
The correct answer is "drawings". In the context of proprietorships and partnerships, the distributions made to the owners are referred to as drawings. This term is used to indicate that the owners are taking out funds from the business for personal use. It is different from dividends, which are typically associated with corporations. Sketches are unrelated to this concept, and net income refers to the overall profit earned by the business after deducting expenses.

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• 8.

### The main accounting elements that make up the income statement are                  and        .

• A.

Expenses; net income

• B.

Assets; owners' equity

• C.

Revenues; expenses

• D.

Assets; liabilities

C. Revenues; expenses
Explanation
The income statement is a financial statement that shows a company's revenues and expenses over a specific period of time. Revenues represent the income generated from the sale of goods or services, while expenses are the costs incurred in the process of generating that revenue. By subtracting expenses from revenues, we can calculate the net income or net loss of the company. Therefore, the correct answer is "revenues; expenses".

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• 9.

### The following information is available for a company: Net sales, \$750,950; Cost of goods sold, \$330,418; total expenses, \$214,775; average total assets for the year, \$459,785. What is the company's gross profit margin ratio(round your answer to two decimal places)?

• A.

45%

• B.

27%

• C.

56%

• D.

The ratio cannot be computed from the information given.

C. 56%
Explanation
The company's gross profit margin ratio can be calculated by subtracting the cost of goods sold from the net sales and dividing the result by the net sales. In this case, the gross profit is \$750,950 - \$330,418 = \$420,532. Dividing this by the net sales of \$750,950 gives a ratio of 0.56 or 56%.

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• 10.

### During the month of May, \$400 of services were performed by Belk & Rich, Inc. If Belk & Rich received \$100 during May and \$300 during June and uses the cash basis of accounting, when and how much revenue should be recognized?

• A.

\$100 in May; \$300 in June

• B.

\$300 in May; \$100 in June

• C.

\$0 in May; \$400 in June

• D.

\$400 in May; \$0 in June

A. \$100 in May; \$300 in June
• 11.

### If the JJ Company performs services for a client in the amount of \$770 during June and collects the money from the client during July under a cash basis accounting system, when and how much revenue should JJ Company recognize in June and July?

• A.

\$385 during June; \$385 during July

• B.

\$0 during June; \$770 during July

• C.

\$770 during June; \$770 during July

• D.

\$770 during June; \$0 during July

B. \$0 during June; \$770 during July
Explanation
Under a cash basis accounting system, revenue is recognized when cash is received. Since the JJ Company collected the money from the client during July, they should recognize the revenue of \$770 in July. Therefore, the correct answer is \$0 during June; \$770 during July.

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• 12.

### The Corner Dress shop buys \$200 of dresses during May. Corner Dress pays \$150 of that amount during May and the remainder in June. During June, Corner Dress buys \$300 of dresses paying for \$100 during June and the remainder in July. If the Corner Dress Shop uses a cash basis accounting system, how much should the shop recognize as an expense during May?

• A.

\$ 50

• B.

\$150

• C.

\$200

• D.

\$250

B. \$150
Explanation
The shop should recognize \$150 as an expense during May because that is the amount they paid for the dresses during that month. The remaining amount that they paid in June and July would be recognized as expenses in those respective months.

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• 13.

### Baaker Auto Body Repair uses electricity costing \$200 during February and pays for them in March. How much will Baaker recognize under an accrual basis system of accounting?

• A.

\$200 revenue in March

• B.

\$200 revenue in February

• C.

\$200 expense in February

• D.

\$200 expense in March

C. \$200 expense in February
Explanation
Under an accrual basis system of accounting, expenses are recognized when they are incurred, regardless of when they are paid. In this case, Baaker Auto Body Repair incurred the electricity expense in February, even though they paid for it in March. Therefore, Baaker will recognize \$200 as an expense in February.

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• 14.

### Under accrual accounting we recognize revenue when it is:

• A.

Earned, as long as payment for it occurs in the same time period

• B.

Earned, no matter when payment for it is received

• C.

Received, no matter when it is earned

• D.

Received, as long as payment for it occurs in the same time period

B. Earned, no matter when payment for it is received
Explanation
Under accrual accounting, revenue is recognized when it is earned, regardless of when payment for it is received. This means that revenue is recorded when the goods or services have been provided, and the customer is obligated to pay for them, regardless of whether the payment is received immediately or at a later date. This method ensures that revenue is matched with the corresponding expenses and provides a more accurate representation of the financial performance of a company.

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• 15.

### If Sanford and Son's Auto Repair acquires supplies costing \$200 during February and pays for the supplies in March, how much will Sanford and Son recognize under a cash basis system of accounting?

• A.

\$200 revenue in March only

• B.

\$200 expense in February only

• C.

\$200 expense in March only

• D.

\$200 revenue in February only

C. \$200 expense in March only
Explanation
Under a cash basis system of accounting, expenses are recognized when they are paid. Since Sanford and Son's Auto Repair pays for the supplies in March, the expense of \$200 will be recognized in March only.

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• 16.

### The Corner Dress shop uses \$200 in advertising during May. Corner Dress pays \$150 of that amount during May and the remainder in June. During June, Corner Dress uses \$300 in advertising paying for \$100 during June and the remainder in July. If Corner Dress uses an accrual basis accounting system, how much should the shop recognize as an advertising expense during May?

• A.

\$ 50

• B.

\$200

• C.

\$150

• D.

\$250

B. \$200
Explanation
According to the accrual basis accounting system, expenses should be recognized when they are incurred, regardless of when the payment is made. In this case, the Corner Dress shop incurs \$200 in advertising expenses during May, even though only \$150 is paid during that month. Therefore, the correct answer is \$200.

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• 17.

### What is the relationship between a company receiving cash and recognizing revenue?

• A.

All of these answers are correct.

• B.

Cash is received after the revenue has been earned.

• C.

Cash is received before the revenue has been earned.

• D.

Cash is received at the time revenue is earned.

A. All of these answers are correct.
Explanation
The relationship between a company receiving cash and recognizing revenue can vary depending on the specific circumstances. In some cases, cash may be received after the revenue has been earned, indicating that the company has already provided goods or services and is now receiving payment. In other cases, cash may be received before the revenue has been earned, suggesting that the company has received an advance payment or deposit for future goods or services. Lastly, cash may be received at the time revenue is earned, indicating that the company is receiving payment simultaneously with providing goods or services. Therefore, all of these answers are correct as they represent different scenarios in which cash and revenue recognition are related.

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• 18.

### Accrual accounting attempts to establish a relationship between revenues and expenses. This relationship is called:

• A.

Recognition

• B.

Realization

• C.

Matching

• D.

Articulation

C. Matching
Explanation
Accrual accounting attempts to establish a relationship between revenues and expenses by matching them. Matching refers to the practice of recording revenues and the expenses associated with generating those revenues in the same accounting period. This ensures that the financial statements accurately reflect the financial performance of a company during a specific period of time. By matching revenues and expenses, accrual accounting provides a more accurate representation of a company's profitability and helps in making informed financial decisions.

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• 19.

### The Ladybug Dress shop uses \$200 in advertising during May. Ladybug pays \$150 of that amount during May and the remainder in June. During June, Ladybug uses \$300 in advertising paying for \$200 during June and the remainder in July. If Ladybug uses an accrual basis accounting system, how much should the shop recognize as an advertising expense during June?

• A.

\$150

• B.

\$300

• C.

\$250

• D.

\$ 50

B. \$300
Explanation
In accrual basis accounting, expenses are recognized when they are incurred, regardless of when the payment is made. Since Ladybug used \$300 in advertising during June, the shop should recognize \$300 as an advertising expense during that month.

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• 20.

### A company can adopt a policy in which it resolves to pay a set amount as a dividend each year as long as it has:

• A.

Both sufficient retained earnings and sufficient cash each year to pay the amount

• B.

Sufficient net income for the current year to cover the amount of the dividend payment

• C.

The approval of the stockholders

• D.

None of these answers is correct

A. Both sufficient retained earnings and sufficient cash each year to pay the amount
Explanation
A company can adopt a policy to pay a set amount as a dividend each year if it has both sufficient retained earnings and sufficient cash. This means that the company should have enough profits from previous years (retained earnings) and enough cash on hand to cover the dividend payment. This ensures that the company can fulfill its commitment to pay dividends without jeopardizing its financial stability. The other options mentioned, such as sufficient net income for the current year and approval of stockholders, are not sufficient on their own to guarantee the payment of dividends.

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• 21.

### Adam's Chili Bowl and Space Burgers purchases a grill for \$5,000. The company expects to use it for four years. If the company thinks that it can sell the grill at the end of the fourth year for \$500, how much is the residual value of the grill?

• A.

\$4,500

• B.

\$ 500

• C.

\$1,250

• D.

\$1,125

B. \$ 500
Explanation
The residual value of an asset is the estimated amount that the asset will be worth at the end of its useful life. In this case, the company expects to sell the grill for \$500 at the end of the fourth year. Therefore, the residual value of the grill is \$500.

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• 22.

### The first step in the accrual matching process is:

• A.

To determine in which income statement period a company should recognize a particular revenue

• B.

To determine which expenses helped to generate specific revenue

• C.

To match those expenses paid in the same period with the revenues received in cash during the same period

• D.

To recognize only those expenses actually paid in the same period as the revenue they helped to generate

A. To determine in which income statement period a company should recognize a particular revenue
Explanation
The first step in the accrual matching process is to determine in which income statement period a company should recognize a particular revenue. This means that the company needs to identify the specific period in which the revenue was earned, regardless of when the cash was received. This is important for accurately matching the revenue with the corresponding expenses incurred in generating that revenue. By recognizing the revenue in the correct period, the company can provide a more accurate representation of its financial performance for that period.

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• 23.

### In accounting, an asset's depreciable base is calculated as:

• A.

Asset cost - residual value

• B.

Asset cost + residual value

• C.

Asset cost Ã— residual value

• D.

Asset cost Ã· residual value

A. Asset cost - residual value
Explanation
The correct answer is asset cost - residual value. The depreciable base of an asset is calculated by subtracting the residual value from the asset cost. The residual value represents the estimated value of the asset at the end of its useful life, and subtracting it from the asset cost gives us the amount that can be depreciated over the asset's useful life.

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• 24.

### An inflow of resources that comes to the business when it delivers services to a customer is a(n):

• A.

Liability

• B.

Asset

• C.

Expense

• D.

Revenue

D. Revenue
Explanation
Revenue is the correct answer because it refers to the inflow of resources that a business receives when it delivers services to a customer. Revenue is generated from the sales of goods or services and is considered as an asset for the business. It represents the income earned by the business and contributes to its profitability.

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• 25.

### The basic formula used by a company to compute its income tax is:

• A.

Taxable income Ã— tax rate

• B.

Sales Ã— tax rate

• C.

Cost of goods sold Ã— tax rate

• D.

Total assets Ã— tax rate

A. Taxable income Ã— tax rate
Explanation
The correct answer is taxable income Ã— tax rate. This is the basic formula used by a company to compute its income tax. The taxable income is the amount of income that is subject to tax after deducting allowable expenses and exemptions. The tax rate is the percentage of the taxable income that the company is required to pay as tax. By multiplying the taxable income by the tax rate, the company can calculate the amount of income tax it owes to the government.

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• 26.

### Ratios cover four main areas of financial concern: profitability, efficiency, liquidity, and solvency. Ratios that look at how a company is financed and its prospects for making payments to creditors and owners are:

• A.

Liquidity ratios

• B.

Efficiency ratios

• C.

Solvency ratios

• D.

Profitability ratios

C. Solvency ratios
Explanation
Solvency ratios are used to assess a company's ability to meet its long-term debt obligations. These ratios provide insight into the company's financial stability and its capacity to repay its debts. By analyzing solvency ratios, investors and creditors can evaluate the risk associated with lending money to the company. This information helps them determine whether the company has enough assets and cash flow to cover its long-term liabilities, ensuring that it can honor its financial obligations in the future.

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• 27.

### The statement that provides a "bridge" between the information the income statement provides and the information the balance sheet provides is the:

• A.

Statement of owners' equity

• B.

Statement of cash flows

• C.

Statement of financial position

• D.

None of these answers is correct.

A. Statement of owners' equity
Explanation
The statement of owners' equity provides a "bridge" between the income statement and the balance sheet because it shows how the net income or loss from the income statement affects the owners' equity section of the balance sheet. It includes information about changes in the owners' capital, additional investments, withdrawals, and net income or loss. By analyzing the statement of owners' equity, one can understand how the income statement impacts the overall financial position of the company as reflected in the balance sheet.

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• 28.

### The ratio that is computed by taking total assets and dividing them by total liabilities is called the:

• A.

Reinvested assets ratio

• B.

Debt to equity ratio

• C.

Debt ratio

• D.

Quick ratio

C. Debt ratio
Explanation
The ratio that is computed by taking total assets and dividing them by total liabilities is called the debt ratio. This ratio helps to assess the financial leverage of a company and indicates the proportion of a company's assets that are financed by debt. A higher debt ratio indicates a higher level of debt relative to assets, which may imply higher financial risk for the company. Conversely, a lower debt ratio indicates a lower level of debt and potentially a stronger financial position.

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• 29.

### An agreement between a lender and a borrower that sets forth the terms of the loan and repayment arrangement is called a:

• A.

Commercial borrowing

• B.

Promissory note

• C.

Consumer borrowing

• D.

Note payable

B. Promissory note
Explanation
A promissory note is a legal document that outlines the terms and conditions of a loan agreement between a lender and a borrower. It includes details such as the amount borrowed, interest rate, repayment schedule, and any other relevant terms. The borrower promises to repay the loan according to the agreed-upon terms, and failure to do so can result in legal consequences. Therefore, a promissory note is the correct answer as it accurately describes the agreement between a lender and a borrower for a loan.

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• 30.

### In the statement of cash flows, activities that are associated with a company's ownership of stock and bonds of other companies are called:

• A.

Continuing activities

• B.

Financing activities

• C.

Investing activities

• D.

Operating activities

C. Investing activities
Explanation
The correct answer is investing activities. In the statement of cash flows, investing activities refer to the buying and selling of long-term assets such as stocks and bonds of other companies. This includes the purchase and sale of equity securities and debt securities, as well as any income generated from these investments. It is important to distinguish investing activities from other categories such as operating activities, which involve the day-to-day operations of the company, financing activities, which involve the raising and repayment of capital, and continuing activities, which encompass both operating and financing activities.

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• 31.

### When compared to partnerships and sole proprietorships, corporations are at a disadvantage as a form of business because they have:

• A.

No separate income taxes

• B.

More government regulations with which to comply

• C.

Greater capital access

• D.

An unlimited life

B. More government regulations with which to comply
Explanation
Corporations are at a disadvantage as a form of business because they have more government regulations with which to comply. Unlike partnerships and sole proprietorships, corporations are subject to stricter regulations and oversight from government authorities. This can include requirements related to financial reporting, corporate governance, compliance with labor and environmental laws, and more. These regulations can be time-consuming and costly for corporations to adhere to, creating a disadvantage compared to other forms of business.

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• 32.

### A company invests in a new building and equipment to manufacture a new product. In the statement of cash flows, this activity would be considered a(n):

• A.

Financing activity

• B.

Investing activity

• C.

Expansion activity

• D.

Operating activity

B. Investing activity
Explanation
The company's investment in a new building and equipment to manufacture a new product falls under the category of investing activity in the statement of cash flows. This is because the company is using its cash to acquire assets that will generate future income and contribute to the growth of the business. Investing activities include the purchase or sale of long-term assets, such as property, plant, and equipment, as well as investments in other companies.

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• 33.

### Looking closely at financial statements to scrutinize how the various financial statement items and amounts relate to each other is known as:

• A.

None of these answers is correct.

• B.

An internal audit

• C.

An external audit

• D.

Financial statement analysis

D. Financial statement analysis
Explanation
Financial statement analysis involves examining the different items and amounts in financial statements to understand their relationships and implications. It is a process of evaluating the financial health and performance of a company by analyzing its financial statements, such as the balance sheet, income statement, and cash flow statement. This analysis helps in assessing the company's profitability, liquidity, solvency, and efficiency. It is a crucial tool for investors, creditors, and managers to make informed decisions and understand the overall financial position of a company.

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• 34.

### The rate of interest printed on a bond that is used to calculate the bond's interest payments is called the:

• A.

Nominal interest rate

• B.

Debenture value

• C.

Par value

• D.

Effective interest rate

A. Nominal interest rate
Explanation
The rate of interest printed on a bond that is used to calculate the bond's interest payments is called the nominal interest rate. This rate represents the stated or advertised interest rate that the bond issuer promises to pay to the bondholder. It is important to note that the nominal interest rate does not take into account factors such as inflation or compounding, and therefore may not reflect the actual return on investment for the bondholder.

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• 35.

### When a bond sells for 102, it has sold at a:

• A.

Discount

• B.

Loss

• C.

• D.

Gain

Explanation
When a bond sells for 102, it means that the bond is being sold at a price higher than its face value. A premium is the amount by which the bond's price exceeds its face value. Therefore, in this case, the bond is being sold at a premium.

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• 36.

### If a \$1,000 bond sells for 95, this bond has sold at a:

• A.

• B.

Discount

• C.

Gain

• D.

Loss

B. Discount
Explanation
A bond selling at a discount means that it is being sold for less than its face value. In this case, the \$1,000 bond is being sold for \$950 (95% of its face value), indicating a discount. This could be due to factors such as lower interest rates or a higher perceived risk associated with the bond.

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• 37.

### You buy a used pickup truck for \$10,000. You pay \$3,500 in cash and borrow the rest of the money from a bank. Using the accounting equation, how much do you still owe for the truck?

• A.

\$10,000

• B.

\$6,500

• C.

\$0

• D.

\$3,500

B. \$6,500
Explanation
Based on the information provided, you bought a used pickup truck for \$10,000. You paid \$3,500 in cash, which means you still owe the remaining amount. Therefore, you still owe \$6,500 for the truck.

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• 38.

### The cost of borrowing money is known as:

• A.

Rate

• B.

Time

• C.

Principal

• D.

Interest

D. Interest
Explanation
The correct answer is "interest" because interest refers to the amount of money that is charged for borrowing or lending money. It is the cost of borrowing money and is typically expressed as a percentage of the principal amount. The interest rate is determined by factors such as the borrower's creditworthiness, the length of time the money is borrowed for, and the prevailing market rates. Therefore, interest is the correct term to describe the cost of borrowing money.

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• 39.

### A bond is sold below its par value. The amount below par value for which it is sold is called the:

• A.

• B.

Face

• C.

Discount

• D.

Principal

C. Discount
Explanation
When a bond is sold below its par value, it means that it is sold at a price lower than its face value. The difference between the selling price and the face value is called the discount. The discount represents the amount by which the bond's price is discounted or reduced. This occurs when the bond's interest rate is lower than the prevailing market interest rate, making it less attractive to investors. As a result, the bond is sold at a discount to compensate for the lower interest payments.

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• 40.

### Li Pe wishes to purchase \$5 par value stock from Star Industries Corporation. Li Pe is willing to pay \$12 for each of the shares if Star Industries will sell her 100 of them. The amount that Star will record as "Additional paid-in capital" on this sale is:

• A.

\$1,200

• B.

\$700

• C.

\$0

• D.

\$500

B. \$700
Explanation
The "Additional paid-in capital" is the amount that a company receives from investors in excess of the par value of its stock. In this case, Li Pe is willing to pay \$12 per share for 100 shares, which amounts to \$1,200. Since the par value of each share is \$5, the excess amount that Star Industries will receive is \$12 - \$5 = \$7. Therefore, the total "Additional paid-in capital" on this sale will be \$7 x 100 = \$700.

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• 41.

### The amount that must be paid back upon maturity of the bond is known as the bond's:

• A.

Discount

• B.

• C.

Interest

• D.

Par value

D. Par value
Explanation
The par value of a bond refers to the amount that the issuer promises to repay the bondholder upon maturity. It is the face value or principal amount of the bond, which is typically set at the time of issuance. The par value is important because it determines the amount that the bondholder will receive when the bond reaches its maturity date. It is not influenced by factors such as market conditions or interest rates, unlike the bond's discount or premium. Interest, on the other hand, refers to the periodic payments made to bondholders as a form of compensation for lending money.

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• 42.

### A company pays off a bond issue. This activity would be considered a(n):

• A.

Operating activities

• B.

Financing activities

• C.

Investing activities

• D.

Continuing activities

B. Financing activities
Explanation
When a company pays off a bond issue, it is considered a financing activity. This is because bonds are a form of long-term debt that the company has taken on to finance its operations. By paying off the bond, the company is reducing its debt and therefore engaging in a financing activity. Operating activities refer to the day-to-day activities of the company, investing activities involve the acquisition or sale of long-term assets, and continuing activities is not a recognized category in accounting.

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• 43.

### The economic sacrifices that are a normal part of operating a business are commonly referred to as:

• A.

Owners' equity

• B.

Net income

• C.

Revenue

• D.

Expenses

D. Expenses
Explanation
Expenses refer to the economic sacrifices that a business incurs in order to operate. These sacrifices can include costs for materials, labor, rent, utilities, and other necessary expenditures. By subtracting expenses from revenue, a business can determine its net income, which represents the amount of profit or loss generated. Owners' equity, on the other hand, refers to the residual interest in the assets of a business after deducting liabilities. Therefore, expenses are the correct answer as they represent the economic sacrifices made by a business.

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• 44.

### Whirlwind Tours has just acquired a new tour bus. The bus cost \$45,000 to purchase, but then Whirlwind had to spend an additional \$3,000 to get it painted with the Whirlwind logo and ready to use. If Whirlwind plans to use the bus for five years, and then hopes to sell it for \$12,000, how much depreciation will be recognized each year under the straight-line method?

• A.

\$9,600

• B.

\$9,000

• C.

\$7,200

• D.

\$6,600

C. \$7,200
Explanation
The depreciation expense is calculated by subtracting the expected salvage value (\$12,000) from the initial cost of the bus (\$45,000 + \$3,000 = \$48,000) and dividing it by the useful life of the bus (5 years). Therefore, the depreciation expense per year under the straight-line method is (\$48,000 - \$12,000) / 5 = \$7,200.

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• 45.

### The Tool Box has just purchased a new machine for \$50,000. The Tool Box plans to use the machine for 10 years, at which time they believe that they will be able to sell it for \$2,000. If The Tool Box uses straight-line depreciation, how much will they depreciate each year?

• A.

\$5,000

• B.

\$5,200

• C.

\$10,000

• D.

\$4,800

D. \$4,800
Explanation
The correct answer is \$4,800. Straight-line depreciation is calculated by taking the initial cost of the machine (\$50,000) and subtracting the estimated salvage value (\$2,000), then dividing the result by the useful life of the machine (10 years). In this case, the calculation would be: (\$50,000 - \$2,000) / 10 = \$4,800. Therefore, The Tool Box will depreciate the machine by \$4,800 each year.

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• 46.

### If Ruby's Video Store purchases a new cash register for \$2,500 and plans to use it for three years before disposing of it for an estimated \$400, how much depreciation will Ruby's recognize each year under the straight-line method?

• A.

\$700

• B.

\$967

• C.

\$400

• D.

\$833

A. \$700
Explanation
The depreciation expense is calculated by subtracting the salvage value from the initial cost and dividing it by the useful life of the asset. In this case, the initial cost is \$2,500 and the salvage value is \$400. The useful life is three years. Therefore, the depreciation expense per year is (\$2,500 - \$400) / 3 = \$700.

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• 47.

### The double-declining-balance method calculates depreciation expense:

• A.

At twice (or double) the straight-line rate

• B.

At twice (or double) the straight-line dollar amount each year

• C.

Without using book value in its calculation

• D.

Without considering the asset's residual value at any point in its calculations

A. At twice (or double) the straight-line rate
Explanation
The double-declining-balance method calculates depreciation expense at twice (or double) the straight-line rate. This means that the depreciation expense each year will be a higher percentage of the asset's initial cost compared to the straight-line method. It allows for a faster recognition of depreciation expense in the earlier years of an asset's life, reflecting the concept that assets tend to lose their value more rapidly in the early years. This method does not consider the asset's residual value or book value in its calculation, focusing solely on the straight-line rate.

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• 48.

### If a stock carries a par value, the par value multiplied by the number of shares issued is classified as stock on the balance sheet. Any amount received in excess of the stock's par value is classified as:

• A.

• B.

Paid-in capital in excess of par

• C.

Answers A and B are both correct.

• D.

Reinvested earnings

C. Answers A and B are both correct.
Explanation
The par value of a stock multiplied by the number of shares issued is classified as stock on the balance sheet. Any amount received in excess of the stock's par value is classified as additional paid-in capital or paid-in capital in excess of par. Both options A and B are correct because they refer to the same concept of the excess amount being classified as additional paid-in capital. Reinvested earnings, on the other hand, refer to profits that are retained and reinvested back into the company, which is not relevant to this question.

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• 49.

• A.

\$250

• B.

\$10

• C.

\$500

• D.

\$20

A. \$250
• 50.

### Lonnie has just purchased 50 shares of \$3 par value stock from JML Corporation. He paid a total of \$275 for the shares. How much will JML recognize as "Additional paid-in capital" from the sale?

• A.

\$275

• B.

\$0

• C.

\$125

• D.

\$150

C. \$125
Explanation
JML will recognize \$125 as "Additional paid-in capital" from the sale. This is calculated by subtracting the par value of the stock (\$3) from the total amount paid for the shares (\$275). In this case, \$3 multiplied by 50 shares equals \$150, so \$275 - \$150 = \$125.

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• Current Version
• Jun 03, 2024
Quiz Edited by
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• Feb 25, 2011
Quiz Created by
Amphib2007

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