Question 1

Treasury stock is reported in the _____ section of the balance sheet.

Accepted Answer

A)  stockholders' equity 
B)  investment 
C)  contingent liabilities 
D)  current liabilities

Question 2

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.

Accepted Answer

A) True 
 B)False

Question 3

The declaration of a cash dividend decreases a corporation's stockholders' equity and increases its liabilities.

Accepted Answer

A) True 
 B)False

Question 4

If the market rate of interest is 9% and a corporation's bonds bear interest at 7%, the bonds will sell at a premium.

Accepted Answer

A) True 
 B)False

Question 5

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?

Accepted Answer

A)  900,000 shares 
B)  300,000 shares 
C)  600,000 shares 
D)  1,200,000 shares

Question 6

The following accounts and their balances appear in the ledger on December 31 of the current year:
? $$\begin{array} { l r } 
\text { Common Stock, } \$ 20 \text { par } & \$ 400,000 \
\text { Paid-In Capital in Excess of Par } & 44,000 \
\text { Retained Earnings } & 265,000 \
\text { Treasury Stock } & 20,000
\end{array}$$ ?
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.

Accepted Answer

The answer of The following accounts and their balances appear...

Question 7

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?

Accepted Answer

A)  $127.50 
B)  $115.50 
C)  $76.50 
D)  $63.75

Question 8

What is the effect of declaring a stock dividend on the liabilities and stockholders' equity section of the balance sheet?

Accepted Answer

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

Question 9

When the contract rate of interest on bonds is higher than the market rate of interest, the bonds sell at:

Accepted Answer

A)  a premium. 
B)  their face value. 
C)  their maturity value. 
D)  a discount.

Question 10

The primary purpose of a stock split is to:

Accepted Answer

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.

Question 11

If $4,000,000 of 12% bonds are issued at 103 1/4, the amount of cash received from the sale is:

Accepted Answer

A)  $4,040,000. 
B)  $4,000,000. 
C)  $4,130,000. 
D)  $3,520,000.

Question 12

The main source of paid-in capital is from issuing stock.

Accepted Answer

A) True 
 B)False

Question 13

FICA tax becomes a liability to the federal government at the time the employees are paid.

Accepted Answer

A) True 
 B)False

Question 14

The following data (in millions) is given for Magenta Inc.for the current year. $$\begin{array} { l l } 
\text { Total assets } & \$ 720,000 \
\text { Total liabilities } & \$ 411,000 \
\text { Total stockhol ders' equity } & \$ 309,000
\end{array}$$ ? Compute the debt ratio.(Round to the nearest whole number.)

Accepted Answer

A)  10% 
B)  44% 
C)  57% 
D)  75%

Question 15

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.

Accepted Answer

A) True 
 B)False

Question 16

Neon Blue Co.provided the following summarized balance sheet as of the end of the current year.
​​ $$\begin{array} { | l | r | } 
\hline \text { Common Stock, } \$ 10 & \$ 6,500,000 \
\hline \text { Paid-In Capital in Excess of Par-Common Stock } & 950,000 \
\hline \text { Retained Earnings } & 850,000 \
\hline
\end{array}$$ ​
The earnings for the current year were $325,000.Compute the earnings per share of common stock.

Accepted Answer

The answer of Neon Blue Co.provided the following summarized balance...

Question 17

On which of the following dates, a company incurs liability for a dividend?

Accepted Answer

A)  The date of record 
B)  The date of payment 
C)  The date of liquidation 
D)  The date of declaration

Question 18

On July 1, Mark 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.On payment of interest, net assets of the company:

Accepted Answer

A)  decrease by $150,000 
B)  increase by $240,000. 
C)  decrease by $120,000. 
D)  remain unaffected.

Question 19

The periodic interest to be paid on bonds is identified in the bond indenture and is expressed as a percentage of the face amount of the bond.This percentage or rate of interest is called the:

Accepted Answer

A)  accrued rate. 
B)  contract rate. 
C)  internal rate. 
D)  effective rate.

Question 20

Which of the following factors affects the accounting for contingent liabilities?

Accepted Answer

A)  Financial and economic conditions 
B)  The coupon rate and market rate of interest 
C)  Investor's expectations 
D)  The likelihood of occurring and measurement

Exam 8: Liabilities and Stockholders Equity

Treasury stock is reported in the _____ section of the balance sheet.

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.

The declaration of a cash dividend decreases a corporation's stockholders' equity and increases its liabilities.

If the market rate of interest is 9% and a corporation's bonds bear interest at 7%, the bonds will sell at a premium.

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?

What is the effect of declaring a stock dividend on the liabilities and stockholders' equity section of the balance sheet?

When the contract rate of interest on bonds is higher than the market rate of interest, the bonds sell at:

The primary purpose of a stock split is to:

If $4,000,000 of 12% bonds are issued at 103 1/4, the amount of cash received from the sale is:

The main source of paid-in capital is from issuing stock.

FICA tax becomes a liability to the federal government at the time the employees are paid.

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.

On which of the following dates, a company incurs liability for a dividend?

On July 1, Mark 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.On payment of interest, net assets of the company:

The periodic interest to be paid on bonds is identified in the bond indenture and is expressed as a percentage of the face amount of the bond.This percentage or rate of interest is called the:

Which of the following factors affects the accounting for contingent liabilities?