Question

1. in the absence of a partnership agreement, the law says that income and loss should be allocated

a. based on their length of time with the partnership

b. equally

c. according to their capital investments

d. based on salary allowances

2. the number of shares that a corporations charter allows it to sell is referred to as

a. authorized stock

b. outstanding stock

c. issued stock

d. common stock

3. shamrock company had a net income of $30,000. the weighted averager common shares outstanding were 8,000. the company declared a $2,800 dividend on its preferred stock. there were no other stock transactions. the companys earings per share is

a. $3.40

b. $3.75

c. $4.10

d. $7.86

4. a partnership had the following capital balances: Johnson, capital 20,000 Cox, Capital 60,000. the partnership agreement call for any profits to be split according to the partners capital balances. if net income is $50,000 how much is johnsons share of the profit?

a. $25000

b. $20000

c. $12,500

d. $37500

5. graceys department stores has $200,000 of 6% cumulative, nonparticipating preferred stock outstanding. graceys also has $600,000 of common stock outstanding. during its first year of operations, no dividends were paid. during the second year the company paid cash dividends of $30,000. this dividend should be distributed as follows.

a. $15000 preferred 15000 common

b. $6,000 preferred $24000 common

c. $12000 preferred, $18000 common

d. $24000, $6000 common

6. an unsecured bond backed only by the issuers credit standing is known as a

a. coupon bond

b. serial bond

c. debenture bond

d. bearer bond

7. an advantage of bond financing is

a. bonds do not affect owners control

b. interest on bonds is tax deductible

c. bonds can increase return on equity

d. all are correct

8. a compaby is issuing $500,000, 8% on 20 year bonds. if the market rate of interest (yield) is also 8%, then the bonds will sell for

a. a premium

b. a discount

c. face anount - $500,000

d. at amortization rate- $40,000

9. a company issues 5% , 20 year bonds with a par value of $600,000. the current market rate is 8%. the amount of interest owned to the bondholders for each semiannual interest payment is

a. $15,000

b. $48000

c. $30000

d. $24000

10. the partnership of jackson and brown has a profit or loss ratio of 1:4. if the net income for the year is $80,000, what is jacksons share of the partnership profits>

a. $20,000

b. $40000

c. $53333

d. $16000

Answer 1

Solution 1:

In the absence of a partnership agreement, the law says that income and loss should be allocated equally.

Hence option "b" is correct.

Solution 2:

The number of shares that a corporations charter allows it to sell is referred to as authorized stock.

Hence, option "a" is correct.

Solution 3:

Earnings per share = (Net income - Preferred dividend) / weighted averager common shares outstanding

= ($30000 - $2800) / 8000 = $3.40 per share

Hence option "a" is correct.

Solution 4:

Johnsons share of the profit = Net Income *20000 /80000 = $50000 *2/8 = $12,500

Hence option "c" is correct.

Solution 5:

Dividend on preferred shares per year = $200,000* 6% = $12,000

Total Dividend paid in second year = $30,000

Dividend paid to Preferred stockholders = Arrer of dividend of first year + Dividend for second year

= $12000 + $12000 = $24,000

Dividend paid to Common stockholders = $30000 - $24000 = $6,000

Hence option "d" is correct.

Solution 6:

An unsecured bond backed only by the issuers credit standing is known as a Debenture Bond.

Hence, option "c" is correct.

Solution 7:

An advantage of bond financing are all as given in Question. therefore correct answer is "all are correct".

Hence option "d" is correct.

Solution 8:

Since market rate of interest and coupon rate on bond are same, therefore bonds will sell for the face amount i.e. $500,000.

Hence option "c" is correct.

Solution 9:

interest owned to the bondholders for each semiannual interest payment = Face amount *coupon rate * 6/12

= $600,000* 5% * 6/12 = $15,000

Hence option "a" is correct.

Solution 10:

Profit sharing ratio = 1:4

Net income = $80,000

Jacksons share of the partnership profits = $80000 *1/5 = $16,000

Hence option "d" is correct.