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Exam 8: Liabilities and Stockholders Equity

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Question 31

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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

E) B) and C)
F) B) and D)

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Question 32

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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

E) C) and D)
F) A) and D)

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Question 33

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The issuance of common stock affects both paid-in capital and retained earnings.

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.

If the market rate of interest is 10%, a $10,000, 12%, 10-year bond that pays interest semiannually would sell at an amount:

Bonds are sold at face value when the contract rate is equal to the market rate of interest.

Paid-in capital and retained earnings are the two major categories of stockholders' equity for a corporation.

Liabilities that are due and payable beyond one year or paid out of noncurrent assets are termed long-term liabilities.

When the market rate of interest is more than the contract rate of a bond, the bond will sell for a discount.

Before a stock dividend can be declared or paid, there must be sufficient cash.

Preferred stockholders must receive their current-year dividends before the common stockholders can receive any dividends.

The following information is available for Amanda Co.for the current year. $\begin{array} { l r } \text { Common shares outstanding } & 150,000 \\\text { Preferred stock dividend declared and paid } & \$ 90,000 \\\text { Net income } & \$ 300,000\end{array}$ ? Calculate the company's earnings per share.

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.

The summary of the payroll for the monthly pay period ending July 15 indicated the following: $\begin{array}{lr}\text { Salaries } & \$ 180,000 \\\text { Federal income tax withheld } & 32,300 \\\text { Medical insurance withheld } & 7,370 \\\text { Social security tax withheld } & 10,800 \\\text { Medicare tax withheld } & 2,700\end{array}$ 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.

Contingent liabilities that are probable but cannot be reasonably estimated are disclosed in the:

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.

The prices of bonds are quoted on bond exchanges as a percentage of the bonds' face value.

When a corporation issues bonds, it executes a contract with the bondholders known as a bond debenture.

If the market rate of interest is 6% and a corporation's bonds bear interest at 7%, the bonds will sell at a discount.

Emerald Co.has 50,000 shares at $12 par common stock outstanding.If the company decides to buy 20% of its shares for $15 per share, the total stockholders' equity will: