Name:
Class:
Date:
chapter 8
104. Most employers are levied a tax on payrolls for _____.
a. sales tax
b. medical insurance premiums
c. federal unemployment compensation tax
d. union dues
105. Orange Inc. had 300,000 shares of $150 par value common stock outstanding at the beginning of the year. During the
year, the company issued a 3-for-1 stock split. What is the number of shares outstanding after the split?
a. 900,000 shares
b. 300,000 shares
c. 600,000 shares
d. 1,200,000 shares
106. Joe Co. paid a notes payable of $6,000 with interest. As a result of this transaction, the company’s _____.
a. earnings per share increase
b. earnings per share decrease
c. net assets do not change
d. net assets increase
107. A company issues 5,000 shares of $15 par common stock. As a result, the earnings per share of the company _____.
a. increase
b. remain unchanged
c. decrease
d. equal $15
108. If $4,000,000 of 12% bonds are issued at 103 1/4, the amount of cash received from the sale is _____.
a. $4,040,000
b. $4,000,000
c. $4,130,000
d. $3,520,000
109. Jack Co. issued 675,000 shares at $0.25 per share of common stock. If 75,000 shares were subsequently reacquired,
_____ shares are considered outstanding.
a. 750,000
b. 600,000
c. 675,000
d. 75,000
110. What is the effect of declaring a stock dividend on the liabilities and stockholders’ equity section of the balance
sheet?
a. A decrease in total liabilities and an increase in total stockholders’ equity
b. No effect on total liabilities and total stockholders’ equity
c. An increase in total liabilities and a decrease in total stockholders’ equity
d. No effect on total liabilities and a decrease in total stockholders’ equity
Name:
Class:
Date:
chapter 8
111. The periodic interest to be paid on bonds is identified in the bond indenture and is expressed as a percentage of the
face amount of the bond. This percentage or rate of interest is called the _____.
a. accrued rate
b. contract rate
c. internal rate
d. effective rate
112. 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?
a. $798.85
b. $873.77
c. $953.16
d. $1,223.77
113. When the market rate of interest on bonds is equal to the contract rate, the bonds will sell at _____.
a. a premium
b. their face value
c. a discount
d. a discount or a premium
114. When the contract rate of interest on bonds is less than the market rate of interest, the bonds sell at _____.
a. a premium
b. their face value
c. their maturity value
d. a discount
115. The major subdivisions of the stockholders’ equity section of the balance sheet are _____.
a. Paid-in capital and retained earnings
b. Common stock and preferred stock
c. Issued capital and authorized capital
d. Expenses and incomes.
116. 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. Social
security tax rate is 6% on maximum of $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?
a. $127.50
b. $115.50
c. $76.50
d. $63.75
117. 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?
a. 5,000
Name:
Class:
Date:
chapter 8
b. 100,000
c. 60,000
d. 55,000
118. 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?
a. Increase cash $2,600; increase retained earnings $2,600
b. Increase cash $1,000; increase common stock $1,000
c. Increase cash $2,600; increase common stock $1,000; increase paid-in capital $1,600
d. Increase cash $2,600; increase common stock $1,600; increase paid-in capital $1,000
119. On March 15, Silver Co. issued a $80,000, 5%, 90-day note payable to Gold Co. How much will Silver Co. have to
pay at maturity? (Assume 360 days in a year)
a. $84,000
b. $79,000
c. $80,000
d. $81,000
120. The following information is available for Amanda Co. for the current year.
Common shares outstanding 150,000
Preferred stock dividend declared and paid $90,000
Net income $300,000
Calculate the company’s earnings per share.
a. $1.10
b. $2.60
c. $2.00
d. $1.40
121. Which of the following is a reason for a corporation to buy back its own stock?
a. To increase liquidity
b. To increase solvency
c. To increase the shares outstanding
d. To reissue as bonuses to employees
122. If the market rate of interest is 10%, a $10,000, 12%, 10-year bond that pays interest semiannually would sell at an
amount _____.
a. less than face value
b. equal to the face value
c. greater than face value
d. that cannot be determined
123. Glow Co. reacquired 60,000 shares of its common stock at $25 per share. The balance of the treasury stock account
is reported on the balance sheet as a(n) _____.
a. increase in long-term liabilities
b. reduction of stockholders’ equity
Name:
Class:
Date:
chapter 8
d. increase in current liabilities
124. Which of the following factors affects the accounting for contingent liabilities?
a. Financial and economic conditions
b. The coupon rate and market rate of interest
c. Investor’s expectations
d. The likelihood of occurring and measurement
125. The debt ratio of Jade Co. and Emerald Inc. are 30% and 51% respectively. This information indicates that _____.
a. Jade Co. has a higher asset turnover than Emerald Inc.
b. Jade Co.’s operations are financed primarily with debt
c. Emerald Inc. has a lower financial leverage than Jade Co.
d. Emerald Inc.’s operations are financed primarily with debt
126. June Co. is considering the following alternative plans for financing the company:
Plan I Plan II
Issue 10% Bonds (at face) – $3,000,000
Issue $10 Common Stock $4,000,000 $1,000,000
Income tax is estimated at 40% of income.
Determine the earnings per share of common stock under the two alternative financing plans, assuming income before
bond interest and income tax is $1,000,000.
127. Smith Co. is considering the following alternative plans for financing the company:
Plan I Plan II
Issue 10% Bonds (at face) – $1,000,000
Issue $10 Common Stock $3,000,000 $2,000,000
Income tax is estimated at 40% of income.
Determine the earnings per share of common stock under the two alternative financing plans, assuming income before
bond interest and income tax is $1,000,000.
128. On April 1, 10,000 shares of $20 par common stock were issued at $24. Illustrate the effects on the accounts and the
financial statements.
129. Indicate whether the following actions would (+) increase, (−) decrease, or (0) not affect a company’s total assets,
liabilities, and stockholders’ equity.
Assets Liabilities Stockholders’ Equity
(1) Declaring a cash dividend
(2) Paying the cash dividend declared in (1)
(3) Declaring a stock dividend
(4) Issuing stock certificates for the stock
dividend declared in (3)
Name:
Class:
Date:
chapter 8
130. Nico Inc., which had 60,000 shares of common stock outstanding, declared a 4-for-1 stock split.
(a) What will be the number of shares outstanding after the split?
(b) If the common stock had a market price of $160 per share before the stock split, what would be an approximate
market price per share after the split?
131. The following accounts and their balances appear in the ledger on December 31 of the current year:
Common Stock, $20 par $400,000
Paid-In Capital in Excess of Par 44,000
Retained Earnings 265,000
Treasury Stock 20,000
Prepare the stockholders’ equity section of the balance sheet as of December 31. Twenty-five thousand shares of common
stock are authorized, and 1,000 shares have been reacquired.
132. The following information is for employee William Heedy for the week ended March 15.
Total hours worked: 48
Rate: $16 per hour, with double time for all hours in excess of 40
Federal income tax withheld: $200
United Fund deduction: $50
Cumulative earnings prior to current week: $6,400
Tax rates:
Social security: 6% on maximum earnings of $106,800
Medicare tax: 1.5% on all earnings; on both employer and employee
State unemployment: 4.2% on maximum earnings of $7,000; on employer
Federal unemployment: 0.8% on maximum earnings of $7,000; on employer
(a) Determine (1) total earnings, (2) total deductions, and (3) cash paid.
(b) Determine each of the employer’s payroll taxes related to the earnings of William Heedy for the week ended March
15.
133. Neon Blue Co. provided the following summarized balance sheet as of the end of the current year.
Common Stock, $10 $6,500,000
Paid-In Capital in Excess of Par—Common Stock 950,000
Retained Earnings 850,000
The earnings for the current year were $325,000. Compute the earnings per share of common stock.
Name:
Class:
Date:
chapter 8
Answer Key
Name:
Class:
Date:
chapter 8
Name:
Class:
Date:
chapter 8
Name:
Class:
Date:
chapter 8
Name:
Class:
Date:
chapter 8
Name:
Class:
Date:
chapter 8
Name:
Class:
Date:
chapter 8