Test #3 Ch. 8 – Flashcards

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question
Liabilities that are due and payable beyond one year or paid out of noncurrent assets are termed long-term liabilities.
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True
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During the first year of operations, a company granted warranties on its products. The estimated cost of the product warranty liability at the end of the year is $12,750. The product warranty expense of $12,750 should be recorded in the year the related product sale is made.
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True
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Obligations that depend on future events and are based on past transactions are contingent liabilities.
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True
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Obligations that depend on past events and that are based on future transactions are contingent liabilities.
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False
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In order to record a contingent liability, the liability must be probable and reasonably estimated.
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True
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The total earnings of an employee for a payroll period is referred to as the net pay.
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False
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The total earnings of an employee for a payroll period is referred to as gross pay
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True
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Most employers are required to withhold a portion of the earnings of each employee for FICA tax
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True
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If prior to the last weekly payroll period of the calendar year, the cumulative earnings for an employee are $75,200, earnings subject to social security tax are $106,800, and the tax rate is 7.5%, the employer's social security tax on the $800 gross earnings paid on the last day of the year is $60
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True
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Most employers are required to withhold federal unemployment taxes from employee earnings
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False
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FICA tax is a payroll tax that is paid by both the employee and the employer.
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True
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FICA tax is a payroll tax that is paid only by employers.
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False
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Federal unemployment compensation tax is a tax that is paid only by employers.
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True
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Medicare taxes are withheld from an employee's pay only until the employee has earned a specific amount each year.
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False
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Medicare taxes are paid by both the employee and the employer.
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True
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Federal unemployment compensation taxes that are collected by the federal government are not paid directly to the unemployed but are allocated among the states for use in state programs.
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True
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Federal unemployment compensation tax becomes an employer's liability at the time the employee is paid.
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True
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FICA tax becomes a liability to the federal government at the time the employees are paid.
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True
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For proper matching of revenues and expenses, the estimated cost of fringe benefits must be recognized as an expense of the period during which the employee earns the benefits.
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True
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During the first year of operations, employees earned vacation pay of $50,000. The vacations will be taken during the second year. The vacation pay expense should be recorded in the first year of operations.
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True
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A bond is simply a form of an interest-bearing note.
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True
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The prices of bonds are quoted as a percentage of the bonds' face value.
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True
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When a corporation issues bonds, it executes a contract with the bondholders known as a bond indenture.
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True
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When a corporation issues bonds, it executes a contract with the bondholders known as a bond debenture.
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False
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When the market rate of interest is less than the contract rate for a bond, the bond will sell for a discount.
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False
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If the market rate of interest is 6% and a corporation's bonds bear interest at 7%, the bonds will sell at a discount.
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False
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If the market rate of interest is 8% and a corporation's bonds bear interest at 7%, the bonds will sell at a premium.
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False
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If the market rate of interest is 7% and a corporation's bonds bear interest at 8%, the bonds will sell at a premium.
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True
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If the market rate of interest is 9% and a corporation's bonds bear interest at 7%, the bonds will sell at a premium.
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False
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Bonds are sold at face value when the contract rate is equal to the market rate of interest.
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True
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The two main sources of stockholders' equity are investments contributed by stockholders and net income retained in the business.
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True
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Paid-in capital and retained earnings are the two major categories of stockholders' equity for a corporation.
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True
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The par value of common stock is rarely equal to its market value on the date the stock is issued.
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True
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For accounting purposes, stated value is treated the same way as par value.
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True
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The issuance of common stock affects both paid-in capital and retained earnings.
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False
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Preferred stockholders must receive their current-year dividends before the common stockholders can receive any dividends.
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True
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The main source of paid-in-capital is from issuing stock.
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True
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The amount of capital paid in by the stockholders of the corporation is called legal capital.
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False
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If 50,000 shares are authorized, 37,000 shares are issued, and 2,000 shares are reacquired, the number of outstanding shares is 35,000.
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True
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If 20,000 shares are authorized, 15,000 shares are issued, and 500 shares are reacquired, the number of outstanding shares is 19,500.
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False
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If 50,000 shares are authorized, 35,000 shares are issued, and 1,000 shares are reacquired, the number of outstanding shares is 36,000.
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False
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If 50,000 shares are authorized, 35,000 shares are issued, and 2,000 shares are reacquired, the number of outstanding shares is 33,000.
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True
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Treasury stock is a contra-equity account.
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True
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Cash dividends are not paid on shares of treasury stock.
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True
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The declaration of a cash dividend decreases a corporation's stockholders' equity and decreases its assets.
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False
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The declaration of a cash dividend decreases a corporation's stockholders' equity and increases its liabilities.
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True
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One of the prerequisites usually required to pay a cash dividend is sufficient retained earnings.
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True
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One of the prerequisites required to pay a cash dividend is formal action by the board of directors.
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True
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If 20,000 shares are authorized, 14,000 shares are issued, and 500 shares are held as treasury stock, a cash dividend of $1 per share would amount to $13,500.
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True
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A 10% stock dividend will increase the number of shares outstanding and the book value per share.
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False
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The declaration and issuance of a stock dividend does NOT affect the total amount of a corporation's assets, liabilities, or stockholders' equity.
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True
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The declaration of a stock dividend decreases a corporation's stockholders' equity and decreases its liabilities.
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False
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Before a stock dividend can be declared or paid, there must be sufficient cash.
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False
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A corporation has 10,000 shares of $100 par value stock outstanding. If the corporation issues a 4-for-1 stock split, the number of shares outstanding after the split will be 40,000.
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True
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A corporation has 10,000 shares of $100 par value stock outstanding. If the corporation issues a 5-for-1 stock split, the number of shares outstanding after the split will be 2,000.
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False
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The primary purpose of a stock split is to reduce the number of shares outstanding in order to encourage more investors to enter the market for the company's shares.
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False
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The reduction in the par or stated value of common stock, accompanied by the issuance of a proportionate number of additional shares, is called a stock split.
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True
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A corporation has 10,000 shares of $100 par value stock outstanding that has a current market value of $160. If the corporation issues a 4-for-1 stock split, the market value of the stock will fall to approximately $32.
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False
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A corporation has 10,000 shares of $25 par value stock outstanding that has a current market value of $100. If the corporation issues a 5-for-1 stock split, the market value of the stock will fall to approximately $20.
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True
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Bonds payable due in 2020 are reported on the balance sheet as long-term liabilities.
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True
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If paid-in capital in excess of par--preferred stock is $80,000, preferred stock is $500,000, paid-in capital in excess of par--common stock is $50,000, common stock is $1,000,000, and retained earnings is $230,000, the total stockholders' equity is $1,860,000.
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True
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Earnings per common share is one factor that influences the decision to use debt financing or equity financing.
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True
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What options does a business have when financing operations?
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Both debt financing and equity financing
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Current liabilities are
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due and payable within one year.
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Current liabilities are
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due and to be paid out of current assets within one year.
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Which of the following would most likely be classified as a current liability?
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Unearned rent
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A current liability is a debt that can reasonably be expected to be paid
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within one year.
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On June 5 Glover Co. issued a $60,000, 6%, 120-day note payable to Jones Co. How much will Glover Co. have to pay at maturity?
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$61,200
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Where is interest expense listed on the income statement?
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Other expense section
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As interest is recorded on an interest-bearing note, the Interest Expense account is
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increased; the Interest Payable account is increased
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Income tax based on taxable income may differ from the income tax based on "Income before Taxes" on the income statement. Which of the following could be a reason for this difference?
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A business may use accelerated depreciation for tax reporting and straight-line for financial reporting purposes.
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Which of the following is characteristic of deferred income tax payable?
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-Deferred income tax payable is often generated due to timing differences. -Deferred income tax payable may be either a current or long-term liability -Deferred income tax payable represents the deferred payment of taxes to later years through tax planning techniques.
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The cost of a product warranty should be included as an expense in the
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period of the sale of the product.
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When are contingent liabilities required to be recorded?
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Both the liability must be probable and the amount must be reasonably estimable before the contingent liability is recorded.
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The total earnings of an employee for a payroll period are referred to
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gross pay.
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Gross earnings for a payroll period less payroll deductions are referred to as
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net pay.
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An employee receives an hourly rate of $27, with time and a half for all hours worked in excess of 40 during a week. Payroll data for the current week are as follows: hours worked, 46; federal income tax withheld, $350; cumulative earnings for year prior to current week, $99,700; social security tax rate, 6.0% on maximum of $106,800; and Medicare tax rate, 1.5% on all earnings. What is the gross pay for the employee?
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$1,323.00
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An employee receives an hourly rate of $27, with time and a half for all hours worked in excess of 40 during a week. Payroll data for the current week are as follows: hours worked, 46; federal income tax withheld, $350; cumulative earnings for year prior to current week, $99,700; social security tax rate, 6.0% on maximum of $106,800; and Medicare tax rate, 1.5% on all earnings. What is the net pay for the employee?
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$873.77
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An employee receives an hourly rate of $30, with time and a half for all hours worked in excess of 40 during a week. Payroll data for the current week are as follows: hours worked, 46; federal income tax withheld, $300; cumulative earnings for year prior to current week, $90,700; social security tax rate, 6.0% on maximum of $106,800; and Medicare tax rate, 1.5% on all earnings. What is the net pay for the employee?
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$1,059.75
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Prior to the last weekly payroll period of the calendar year, the cumulative earnings of employees A and B are $106,150 and $91,000, respectively. Their earnings for the last completed payroll period of the year are $850 each. The amount of earnings subject to social security tax at 6% is $106,800. All earnings are subject to Medicare tax of 1.5%. Assuming that the payroll will be paid on December 29, what will be the employer's total FICA tax for this payroll period on the two salary amounts of $850 each?
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$115.50
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Payroll taxes levied against employees become liabilities
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at the time the liability for the employee's wages is paid.
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The par value per share of common stock represents
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the monetary amount assigned to each share of stock in the articles of incorporation.
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Most employers are required to withhold from employees for
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only federal income tax.
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Most employers are levied a tax on payrolls for
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federal unemployment compensation tax
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A bond indenture is
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a contract between the corporation issuing the bonds and the bondholders.
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The market interest rate related to a bond is also called the
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effective interest rate.
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When the contract rate of interest on bonds is less than the market rate of interest, the bonds sell at
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a discount.
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If bonds are issued at a premium, the stated interest rate is
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higher than the market rate of interest.
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When the contract rate of interest on bonds is higher than the market rate of interest, the bonds sell at
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a premium.
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If the market rate of interest is greater than the contractual rate of interest, bonds will sell
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at a discount.
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If the market rate of interest is 10%, a $10,000, 12%, 10-year bond that pays interest semiannually would sell at an amount
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greater than face value.
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When the market rate of interest on bonds is equal to the contract rate, the bonds will sell at
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their face value.
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The interest rate specified in the bond indenture is called the
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contract rate.
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If $1,000,000 of 8% bonds are issued at 102, the amount of cash received from the sale is
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$1,020,000.
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If $1,000,000 of 10% bonds are issued at 98 3/4, the amount of cash received from the sale is
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$987,500.
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If $4,000,000 of 12% bonds are issued at 103 1/4, the amount of cash received from the sale is
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$4,130,000.
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Stockholders' equity
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includes retained earnings and paid-in capital.
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The charter of a corporation provides for the issuance of 100,000 shares of common stock. Assume that 60,000 shares were originally issued and 5,000 were subsequently reacquired. What is the number of shares outstanding?
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55,000
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The charter of a corporation provides for the issuance of 100,000 shares of common stock. Assume that 75,000 shares were originally issued and 5,000 were subsequently reacquired. What is the number of shares outstanding?
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70,000
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If a corporation issues only one class of stock, it is called
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common stock.
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The excess of issue price over par of common stock is termed a(n)
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premium.
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A company sold 200 shares of common stock with a par vale of $5 at a price of $12 per share. Which section of the statement of cash flows will contain this transaction?
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Financing activities
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A company sold 200 shares of common stock with a par value of $5 at a price of $13 per share. What is the effect on the accounts of this transaction?
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Increase cash $2,600; increase common stock $1,000 and increase paid-in capital $1,600
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The charter of a corporation provides for the issuance of 100,000 shares of common stock. Assume that 40,000 shares were originally issued and 5,000 were subsequently reacquired. What is the number of shares outstanding?
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35,000
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Which statement below is NOT a reason for a corporation to buy back its own stock?
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To increase the shares outstanding
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How is treasury stock shown on the balance sheet?
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As a decrease in stockholders' equity
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In which section of the balance sheet would treasury stock be reported?
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Stockholders' equity
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A corporation purchases 5,000 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?
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Decrease $175,000
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Which one of the following is usually NOT necessary in order for a corporation to pay a cash dividend?
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Declared dividends
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Which of the following is usually NOT a prerequisite to paying a cash dividend?
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Market value in excess of par value per share
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The liability for a dividend is recorded on which of the following dates?
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The date of declaration
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What is the effect of a stock dividend on the balance sheet?
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No effect on total assets, total liabilities, or total stockholders' equity
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The reduction of par or stated value of stock by issuance of a proportionate number of additional shares is termed a
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stock split.
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A corporation has 50,000 shares of $100 par value stock outstanding. If the corporation issues a 4-for-1 stock split, the number of shares outstanding after the split will be
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200,000 shares.
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A corporation has 50,000 shares of $100 par value stock outstanding that has a current market value of $180. If the corporation issues a 4-for-1 stock split, the market value of the stock will fall to approximately
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$45
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The primary purpose of a stock split is to
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reduce the market price of the stock per share.
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What is one reason to undergo a REVERSE stock split?
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To increase the market value of the stock per share.
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The major subdivisions of the Stockholders' Equity section of the balance sheet are
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Paid-in Capital and Retained Earnings.
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Which of the following accounts is reported in the noncurrent liabilities section of the corporate balance sheet?
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Bonds Payable
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Significant changes in stockholders' equity are reported in the
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statement of stockholders' equity
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Based on the following information, what is earnings per share? Common shares outstanding 115,000 Preferred stock dividend declared and paid $40,000 Net income $350,000
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$2.70
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For the year that just ended, a company reports net income of $1,500,000. There are 500,000 shares authorized, 300,000 shares issued, and 250,000 shares of common stock outstanding. What is the earnings per share?
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$6.00
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