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Chapter 8
44. Treasury stock is a contra-equity account.
a.
True
b.
False
45. Cash dividends are not paid on shares of treasury stock.
a.
True
b.
False
Chapter 8
46. The declaration of a cash dividend decreases a corporation's stockholders' equity and decreases its assets.
a.
True
b.
False
47. The declaration of a cash dividend decreases a corporation's stockholders' equity and increases its liabilities.
a.
True
b.
False
Chapter 8
48. One of the conditions for paying a cash dividend is formal action by the board of directors.
a.
True
b.
False
49. One of the conditions for paying a cash dividend is sufficient retained earnings.
a.
True
b.
False
Chapter 8
50. 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.
a.
True
b.
False
51. A 10% stock dividend will increase the book value per share.
a.
True
b.
False
Chapter 8
52. The declaration and issuance of a stock dividend does not affect the total amount of a corporation's assets, liabilities,
or stockholders' equity.
a.
True
b.
False
53. The declaration of a stock dividend decreases a corporation's stockholders' equity and decreases its liabilities.
a.
True
b.
False
Chapter 8
54. Before a stock dividend can be declared or paid, there must be sufficient cash.
a.
True
b.
False
55. 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.
a.
True
b.
False
56. 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.
a.
True
Chapter 8
b.
False
57. 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.
a.
True
b.
False
58. 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.
a.
True
b.
False
Chapter 8
59. 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.
a.
True
b.
False
60. A corporation has 10,000 shares outstanding of $25 par value and a current market value of $100 per share. If the
corporation issues a 5-for-1 stock split, the market value of the stock will fall to approximately $20.
a.
True
b.
False
Chapter 8
61. Bonds payable due in 2020 are reported on the balance sheet as long-term liabilities.
a.
True
b.
False
62. 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.
a.
True
b.
False
Chapter 8
63. The debt ratio measures the percent of the company's assets financed by debt.
a.
True
b.
False
64. 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
Chapter 8
d.
$1.40
65. 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?
a.
$5.00
b.
$2.50
c.
$6.00
d.
$3.00
66. Liabilities due beyond one year are classified as _____.
a.
current liabilities
Chapter 8
b.
long-term liabilities
c.
contingent liabilities
d.
fixed liabilities
67. Current liabilities are:
a.
due but not receivable for more than one year.
b.
due but not payable for more than one year.
c.
due and receivable within one year.
d.
due and payable within one year.
68. Joe Co. paid a notes payable of $6,000 with interest. As a result of this transaction, the company's:
Chapter 8
a.
earnings per share increases.
b.
earnings per share decreases.
c.
net assets do not change.
d.
net assets increase.
69. Which of the following will be classified as a current liability?
a.
Two-year notes payable
b.
Bonds payable
c.
Mortgage loan
d.
Unearned rent
Chapter 8
70. Rico Inc. issues a 90-day, 4%, $3,000 note on account. This transaction:
a.
increases net assets and earnings per share of the company.
b.
decreases net assets and increases earnings per share of the company.
c.
has no effect on net assets and earnings per share of the company.
d.
decreases net assets and earnings per share of the company.
71. 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
Chapter 8
72. Where is interest expense listed on the income statement?
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.
73. As interest is recorded on an interest-bearing note, the Interest Expense account is:
a.
decreased; the Interest Payable account is increased.
b.
increased; the Interest Payable account is increased.
c.
increased; the Notes Payable account is decreased.
d.
increased; the Notes Payable account is increased.
Chapter 8
74. Which of the following transactions decreases the profitability of a company?
a.
Issuing a note payable
b.
Purchasing treasury stock
c.
Declaring cash dividend
d.
Recording payroll tax expense
75. 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?
a.
$798.85
b.
$873.77
c.
$1,242.00
d.
$1,323.00
Chapter 8
76. 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
77. 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?
a.
$1,147.95
b.
$1,059.75
c.
$1,470.00
d.
$1,359.75
Chapter 8
78. ABC Co. has a gross payroll of $18,000. The FICA tax rate is 7.65% of the gross payroll, and the federal and state
withholding are $1,600 and $963 respectively. On recording the payroll tax liability, net assets of the company:
a.
increase by $13,940.
b.
decrease by $14,060.
c.
increase by $21,940.
d.
decrease by $5,485.
79. 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
Chapter 8
d.
$63.75
80. The FICA tax withheld from employees contributes to:
a.
federal and state unemployment compensation.
b.
Social Security and federal unemployment compensation.
c.
Social Security and Medicare.
d.
Medicare only
81. Most employers are levied a tax on payrolls for:
a.
sales tax.
b.
medical insurance premiums.
Chapter 8
c.
federal unemployment compensation tax.
d.
union dues.
82. On July 1, George Co. issued $3,000,000 of 10-year, 8% bonds at par. Interest on the bonds is payable semiannually
on December 31 and June 30. As a result of this transaction, net assets of the company:
a.
decrease by $240,000.
b.
increase by $3,000,000.
c.
is not effected.
d.
decrease by $120,000.
83. The _____ is determined by transactions between buyers and sellers of similar bonds.
