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Chapter 8
114. 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
115. The reduction of par or stated value of stock by issuance of a proportionate number of additional shares is termed a:
a.
stock dividend.
b.
stock split.
c.
stock option.
d.
preferred dividend.
Chapter 8
116. 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
117. A corporation has 50,000 shares of $100 par value stock outstanding that has a current market value of $180. If the
corporation issues a 4-for-1 stock split, the market value of the stock will fall to approximately:
a.
$30.
b.
$36.
c.
$45.
d.
$50.
Chapter 8
118. The primary purpose of a stock split is to:
a.
increase paid-in capital.
b.
reduce the market price of the stock per share.
c.
increase the market price of the stock per share.
d.
increase retained earnings.
119. Which of the following is a reason to undergo a reverse stock split?
a.
To reduce the stock's market price per share.
b.
To increase total stockholders' equity.
c.
To reduce total stockholders' equity.
d.
To increase the market value of the stock per share.
Chapter 8
120. 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.
121. Which of the following accounts is reported in the noncurrent liabilities section of the corporate balance sheet?
a.
Bonds Payable
b.
Common Stock
c.
Dividends Payable
d.
Cash
Chapter 8
122. When a company has a high debt ratio, it is an indication of a:
a.
high solvency risk.
b.
weak operating efficiency.
c.
high profit margin.
d.
low asset turnover.
123. 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.
Chapter 8
124. The following data (in millions) is given for Magenta Inc. for the current year.
Total assets
$720,000
Total liabilities
$411,000
Total stockholders' equity
$309,000
Compute the debt ratio. (Round to the nearest whole number.)
a.
10%
b.
44%
c.
57%
d.
75%
125. Vivi Corporation's earnings per share of common stock was $1.50 and a market price of $33.50, calculate the price-
earnings ratio.
a.
50.6
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b.
22.3
c.
44.0
d.
33.5
126. 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.
Chapter 8
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. 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.
Chapter 8
129. Illustrate the effects on the accounts and the financial statements of each of the following transactions:
Apr. 30
Issued a $70,000, 60-day, 6% note dated April 30 to Goldman Co. on account.
June 29
Paid Goldman Co. the amount owed on note dated April 30.
Chapter 8
130. The summary of the payroll for the monthly pay period ending July 15 indicated the following:
Salaries
$180,000
Federal income tax withheld
32,300
Medical insurance withheld
7,370
Social security tax withheld
10,800
Medicare tax withheld
2,700
Illustrate the effects on the accounts and the financial statements of (a) the payroll and (b) the employer's payroll tax
expense for the month. The state unemployment tax rate is 4.2%, and the federal unemployment tax rate is 0.8%. Only
$30,000 of salaries are subject to unemployment taxes.
Chapter 8
131. 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.
Chapter 8
132. 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.
Chapter 8
133. 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)
134. 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?
Chapter 8
135. 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.
Chapter 8
