Question 1

Treasury stock is a contra-equity account.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following is necessary for a corporation to pay cash dividends?

Accepted Answer

A)  Market value in excess of par value per share
B)  Order by the court of law
C)  Sufficient retained earnings
D)  Prior declaration of stock dividendsE) A) and B)
F) A) and C)

Question 3

Where is interest expense listed on the income statement?

Accepted Answer

A)  Other expense section
B)  Cost of merchandise sold
C)  Operating expenses
D)  Interest expense is listed on the balance sheet,not the income statement.E) A) and C)
F) B) and C)

Question 4

The par value of common stock is rarely equal to its market value on the date the stock is issued.

Accepted Answer

A) True 
 B)False

Question 5

If the market rate of interest is 7% and a corporation's bonds bear interest at 8%,the bonds will sell at a premium.

Accepted Answer

A) True 
 B)False

Question 6

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?

Accepted Answer

A)  5,000
B)  100,000
C)  60,000
D)  55,000E) A) and B)
F) A) and C)

Question 7

FICA tax becomes a liability to the federal government at the time the employees are paid.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following accounts is reported in the noncurrent liabilities section of the corporate balance sheet?

Accepted Answer

A)  Bonds Payable
B)  Common Stock
C)  Dividends Payable
D)  CashE) A) and D)
F) B) and D)

Question 9

When a corporation issues bonds,it executes a contract with the bondholders known as a bond indenture.

Accepted Answer

A) True 
 B)False

Question 10

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.

Accepted Answer

A) True 
 B)False

Question 11

The interest rate specified in the bond indenture is called the:

Accepted Answer

A)  discount rate.
B)  contract rate.
C)  market rate.
D)  effective rate.E) A) and B)
F) None of the above

Question 12

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.

Accepted Answer

A) True 
 B)False

Question 13

Earnings per common share is one factor that influences the decision to use debt financing or equity financing.

Accepted Answer

A) True 
 B)False

Question 14

The total earnings of an employee during a payroll period,including bonuses and overtime pay,is referred to as:

Accepted Answer

A)  take-home pay.
B)  pay net of taxes.
C)  net pay.
D)  gross pay.E) None of the above
F) B) and C)

Question 15

Medicare taxes are paid only by employee.

Accepted Answer

A) True 
 B)False

Question 16

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?

Accepted Answer

A)  A business may use MACRS depreciation for tax reporting and straight-line for financial reporting purposes.
B)  Tax payments may not equal the tax due.
C)  Taxable income is based on Generally Accepted Accounting Principles.
D)  All of these could be reasons for the difference.E) B) and D)
F) B) and C)

Question 17

The declaration and issuance of a stock dividend does not affect the total amount of a corporation's assets,liabilities,or stockholders' equity.

Accepted Answer

A) True 
 B)False

Question 18

Most employers are levied a tax on payrolls for:

Accepted Answer

A)  sales tax.
B)  medical insurance premiums.
C)  federal unemployment compensation tax.
D)  union dues.E) A) and D)
F) A) and C)

Question 19

If the market rate of interest is 10%,a $10,000,12%,10-year bond that pays interest semiannually would sell at an amount:

Accepted Answer

A)  less than face value.
B)  equal to the face value.
C)  greater than face value.
D)  that cannot be determined.E) B) and C)
F) A) and C)

Question 20

One of the conditions for paying a cash dividend is formal action by the board of directors.

Accepted Answer

A) True 
 B)False

Exam 8: Liabilities and Stockholders Equity

The interest rate specified in the bond indenture is called the:

Correct AnswerverifiedShow Answer

Treasury stock is a contra-equity account.

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedShow Answer

When a corporation issues bonds,it executes a contract with the bondholders known as a bond indenture.

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

If the market rate of interest is 7% and a corporation's bonds bear interest at 8%,the bonds will sell at a premium.

Correct AnswerverifiedShow Answer

Most employers are levied a tax on payrolls for:

Correct AnswerverifiedShow Answer

Where is interest expense listed on the income statement?

Correct AnswerverifiedShow Answer

The declaration and issuance of a stock dividend does not affect the total amount of a corporation's assets,liabilities,or stockholders' equity.

Correct AnswerverifiedShow Answer

Which of the following is necessary for a corporation to pay cash dividends?

Correct AnswerverifiedShow Answer

If the market rate of interest is 10%,a $10,000,12%,10-year bond that pays interest semiannually would sell at an amount:

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedShow Answer

Which of the following accounts is reported in the noncurrent liabilities section of the corporate balance sheet?

Correct AnswerverifiedShow Answer

One of the conditions for paying a cash dividend is formal action by the board of directors.

Correct AnswerverifiedShow Answer

Earnings per common share is one factor that influences the decision to use debt financing or equity financing.

Correct AnswerverifiedShow Answer

The par value of common stock is rarely equal to its market value on the date the stock is issued.

Correct AnswerverifiedShow Answer

FICA tax becomes a liability to the federal government at the time the employees are paid.

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

Medicare taxes are paid only by employee.

Correct AnswerverifiedShow Answer

The total earnings of an employee during a payroll period,including bonuses and overtime pay,is referred to as:

Correct AnswerverifiedShow Answer

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