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
True
Moderate
False
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2. Most employers are required to withhold a portion of the earnings of each employee for FICA tax.
a.
True
b.
False
True
Easy
False
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3. Most employers are required to withhold federal unemployment taxes from employee earnings.
a.
True
b.
False
Chapter 8
False
Easy
False
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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
True
Moderate
False
JFND-GO3A-EW4R-CCKF
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
True
Chapter 8
Easy
False
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6. The total earnings of an employee for a payroll period is referred to as gross pay.
a.
True
b.
False
True
Easy
False
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7. The total earnings of an employee for a payroll period is referred to as the net pay.
a.
True
b.
False
False
Easy
Chapter 8
8. FICA tax is a payroll tax that is paid by both the employee and the employer.
a.
True
b.
False
True
Easy
False
JFND-GO3A-EW4R-CCKD
9. FICA tax is a payroll tax that is paid only by employers.
a.
True
b.
False
False
Easy
False
False
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GO4W-NQNBEE
Chapter 8
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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
True
Easy
False
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11. FICA tax becomes a liability to the federal government at the time the employees are paid.
a.
True
b.
False
True
Easy
False
Chapter 8
12. Federal unemployment compensation tax is a tax that is paid only by employers.
a.
True
b.
False
True
Easy
False
JFND-GO3A-EW4R-CCJ1
13. Medicare taxes are paid only by employee.
a.
True
b.
False
False
Easy
False
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Chapter 8
14. Federal unemployment compensation tax becomes an employer’s liability at the time the employees are paid.
a.
True
b.
False
True
Easy
False
JFND-GO3A-EW4R-CCJS
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
False
Easy
False
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JFND-GO3A-EW4R-CCJO
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
True
Easy
False
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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
True
Challenging
False
JFND-GO3A-EW4R-CP1N
Chapter 8
18. A bond is simply a form of an interest-bearing note.
a.
True
b.
False
True
Easy
False
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19. The prices of bonds are quoted on bond exchanges as a percentage of the bonds’ face value.
a.
True
b.
False
True
Easy
False
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20. When a corporation issues bonds, it executes a contract with the bondholders known as a bond indenture.
a.
True
Chapter 8
b.
False
True
Easy
False
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21. When a corporation issues bonds, it executes a contract with the bondholders known as a bond debenture.
a.
True
b.
False
False
Easy
False
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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
True
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
False
Moderate
False
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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
False
Moderate
False
Easy
False
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Chapter 8
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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
True
Moderate
False
JFND-GO3A-EW4R-CPTU
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
False
Moderate
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
True
Easy
False
JFND-GO3A-EW4R-CPTT
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
True
Moderate
False
JFND-GO3A-EW4R-CPT1
Chapter 8
29. Obligations that depend on past events and that are based on future transactions are contingent liabilities.
a.
True
b.
False
False
Moderate
False
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30. Obligations that depend on future events and are based on past transactions are contingent liabilities.
a.
True
b.
False
True
Easy
False
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Chapter 8
31. In order to record a contingent liability, the liability must be probable and reasonably estimated.
a.
True
b.
False
True
Easy
False
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32. The two main sources of stockholders’ equity are investments contributed by stockholders and net income retained in
the business.
a.
True
b.
False
True
Easy
False
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JFND-GO3A-EW4R-CCBW
Chapter 8
33. Paid-in capital and retained earnings are the two major categories of stockholders’ equity for a corporation.
a.
True
b.
False
True
Easy
False
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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
True
Easy
False
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Chapter 8
35. For accounting purposes, stated value is treated the same way as par value.
a.
True
b.
False
True
Easy
False
JFND-GO3A-EW4R-CPTI
36. The issuance of common stock affects both paid-in capital and retained earnings.
a.
True
b.
False
False
Easy
False
JFND-GO3A-EW4R-CPTW
37. Preferred stockholders must receive their current-year dividends before the common stockholders can receive any
dividends.
a.
True
Chapter 8
b.
False
True
Easy
False
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38. The main source of paid-in capital is from issuing stock.
a.
True
b.
False
True
Easy
False
JFND-GO3A-EW4R-CP4B
39. The amount of capital paid-in by the stockholders of the corporation is called legal capital.
a.
True
b.
False
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
True
Easy
False
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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
False
Easy
Easy
False
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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
False
Easy
False
JFND-GO3A-EW4R-CP4F
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
True
Easy
False
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