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Chapter 8
1. Earnings per common share is one factor that influences the decision to use debt financing or equity financing.
a.
True
b.
False
2. Most employers are required to withhold a portion of the earnings of each employee for FICA tax.
a.
True
b.
False
3. Most employers are required to withhold federal unemployment taxes from employee earnings.
a.
True
b.
False
Chapter 8
4. 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.
a.
True
b.
False
5. Liabilities that are due and payable beyond one year or paid out of noncurrent assets are termed long-term liabilities.
a.
True
b.
False
Chapter 8
6. The total earnings of an employee for a payroll period is referred to as gross pay.
a.
True
b.
False
7. The total earnings of an employee for a payroll period is referred to as the net pay.
a.
True
b.
False
Chapter 8
8. FICA tax is a payroll tax that is paid by both the employee and the employer.
a.
True
b.
False
9. FICA tax is a payroll tax that is paid only by employers.
a.
True
b.
False
Chapter 8
10. 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.
a.
True
b.
False
11. FICA tax becomes a liability to the federal government at the time the employees are paid.
a.
True
b.
False
Chapter 8
12. Federal unemployment compensation tax is a tax that is paid only by employers.
a.
True
b.
False
13. Medicare taxes are paid only by employee.
a.
True
b.
False
Chapter 8
14. Federal unemployment compensation tax becomes an employer's liability at the time the employees are paid.
a.
True
b.
False
15. Medicare taxes are withheld from an employee's pay only till the employee has earned a specific amount each year.
a.
True
b.
False
Chapter 8
16. 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.
a.
True
b.
False
17. 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.
a.
True
b.
False
Chapter 8
18. A bond is simply a form of an interest-bearing note.
a.
True
b.
False
19. The prices of bonds are quoted on bond exchanges as a percentage of the bonds' face value.
a.
True
b.
False
20. When a corporation issues bonds, it executes a contract with the bondholders known as a bond indenture.
a.
True
Chapter 8
b.
False
21. When a corporation issues bonds, it executes a contract with the bondholders known as a bond debenture.
a.
True
b.
False
22. When the market rate of interest is more than the contract rate of a bond, the bond will sell for a discount.
a.
True
b.
False
Chapter 8
23. If the market rate of interest is 6% and a corporation's bonds bear interest at 7%, the bonds will sell at a discount.
a.
True
b.
False
24. If the market rate of interest is 8% and a corporation's bonds bear interest at 7%, the bonds will sell at a premium.
a.
True
b.
False
Chapter 8
25. If the market rate of interest is 7% and a corporation's bonds bear interest at 8%, the bonds will sell at a premium.
a.
True
b.
False
26. If the market rate of interest is 9% and a corporation's bonds bear interest at 7%, the bonds will sell at a premium.
a.
True
b.
False
Chapter 8
27. Bonds are sold at face value when the contract rate is equal to the market rate of interest.
a.
True
b.
False
28. 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.
a.
True
b.
False
Chapter 8
29. Obligations that depend on past events and that are based on future transactions are contingent liabilities.
a.
True
b.
False
30. Obligations that depend on future events and are based on past transactions are contingent liabilities.
a.
True
b.
False
Chapter 8
31. In order to record a contingent liability, the liability must be probable and reasonably estimated.
a.
True
b.
False
32. The two main sources of stockholders' equity are investments contributed by stockholders and net income retained in
the business.
a.
True
b.
False
Chapter 8
33. Paid-in capital and retained earnings are the two major categories of stockholders' equity for a corporation.
a.
True
b.
False
34. The par value of common stock is rarely equal to its market value on the date the stock is issued.
a.
True
b.
False
Chapter 8
35. For accounting purposes, stated value is treated the same way as par value.
a.
True
b.
False
36. The issuance of common stock affects both paid-in capital and retained earnings.
a.
True
b.
False
37. Preferred stockholders must receive their current-year dividends before the common stockholders can receive any
dividends.
a.
True
Chapter 8
b.
False
38. The main source of paid-in capital is from issuing stock.
a.
True
b.
False
39. The amount of capital paid-in by the stockholders of the corporation is called legal capital.
a.
True
b.
False
Chapter 8
40. 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.
a.
True
b.
False
41. If 20,000 shares are authorized, 15,000 shares are issued, and 500 shares are reacquired, the number of outstanding
shares is 19,500.
a.
True
b.
False
Chapter 8
42. 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.
a.
True
b.
False
43. 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.
a.
True
b.
False
