Deck 8: Liabilities and Stockholders Equity

Question 1

Obligations that depend on future events and are based on past transactions are contingent liabilities.

Answer 1

True

Question 2

The total earnings of an employee for a payroll period is referred to as the net pay.

Answer 2

False

Question 3

Federal unemployment compensation tax is a tax that is paid only by employers.

Answer 3

True

Question 4

Medicare taxes are paid only by employee.

Question 5

Most employers are required to withhold federal unemployment taxes from employee earnings.

Question 6

The total earnings of an employee for a payroll period is referred to as gross pay.

Question 7

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.

Question 8

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.

Question 9

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

Question 10

In order to record a contingent liability,the liability must be probable and reasonably estimated.

Question 11

Federal unemployment compensation tax becomes an employer's liability at the time the employees are paid.

Question 12

FICA tax is a payroll tax that is paid by both the employee and the employer.

Question 13

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.

Question 14

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

Question 15

Obligations that depend on past events and that are based on future transactions are contingent liabilities.

Question 16

FICA tax is a payroll tax that is paid only by employers.

Question 17

Most employers are required to withhold a portion of the earnings of each employee for FICA tax.

Question 18

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.

Question 19

Medicare taxes are withheld from an employee's pay only till the employee has earned a specific amount each year.

Question 20

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.

Question 21

A bond is simply a form of an interest-bearing note.

Question 22

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

Question 23

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

Question 24

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

Question 25

The par value of common stock is rarely equal to its market value on the date the stock is issued.

Question 26

If the market rate of interest is 7% and a corporation's bonds bear interest at 8%,the bonds will sell at a premium.

Question 27

For accounting purposes,stated value is treated the same way as par value.

Question 28

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

Question 29

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

Question 30

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.

Question 31

If 20,000 shares are authorized,15,000 shares are issued,and 500 shares are reacquired,the number of outstanding shares is 19,500.

Question 32

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

Question 33

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

Question 34

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

Question 35

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

Question 36

The amount of capital paid-in by the stockholders of the corporation is called legal capital.

Question 37

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

Question 38

If the market rate of interest is 8% and a corporation's bonds bear interest at 7%,the bonds will sell at a premium.

Question 39

The two main sources of stockholders' equity are investments contributed by stockholders and net income retained in the business.

Question 40

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

Question 41

One of the conditions for paying a cash dividend is formal action by the board of directors.

Question 42

Cash dividends are not paid on shares of treasury stock.

Question 43

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.

Question 44

The declaration and issuance of a stock dividend does not affect the total amount of a corporation's assets,liabilities,or stockholders' equity.

Question 45

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.

Question 46

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

Question 47

A corporation has 10,000 shares of $100 par value stock outstanding.If the corporation issues a 4-for-1 stock split,the number of shares outstanding after the split will be 40,000.

Question 48

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.

Question 49

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

Question 50

Treasury stock is a contra-equity account.

Question 51

A 10% stock dividend will increase the book value per share.

Question 52

The primary purpose of a stock split is to reduce the number of shares outstanding in order to encourage more investors to enter the market for the company's shares.

Question 53

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

Question 54

One of the conditions for paying a cash dividend is sufficient retained earnings.

Question 55

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

Question 56

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.

Question 57

A corporation has 10,000 shares of $100 par value stock outstanding that has a current market value of $160.If the corporation issues a 4-for-1 stock split,the market value of the stock will fall to approximately $32.

Question 58

Bonds payable due in 2020 are reported on the balance sheet as long-term liabilities.

Question 59

If 20,000 shares are authorized,14,000 shares are issued,and 500 shares are held as treasury stock,a cash dividend of $1 per share would amount to $13,500.

Question 60

The reduction in the par or stated value of common stock,accompanied by the issuance of a proportionate number of additional shares,is called a stock split.

Question 61

The cost of a product warranty should be included as an expense in the:

A)period the cash is collected for a product sold on account.
B)future period when the cost of repairing the product is paid.
C)period of the sale of the product.
D)future period when the product is repaired or replaced.

Question 62

liabilities may arise from past transactions if certain events occur in the future.

A)Current
B)Noncurrent
C)Long-term
D)Contingent

Question 63

What are current liabilities?

A)Liabilities that are due and payable within two years.
B)Liabilities that are due and to be paid out of current assets within one year.
C)Liabilities that are due but not payable for more than one year.
D)Liabilities that are payable if a possible subsequent event occurs.

Question 64

An employee receives an hourly rate of $27,with time and a half for all hours worked in excess of 40 during a week.Payroll data for the current week are as follows: hours worked,46; federal income tax withheld,$350; cumulative earnings for year prior to current week,$99,700; social security tax rate,6.0% on maximum of $106,800; and Medicare tax rate,1.5% on all earnings.What is the net pay for the employee?

A)$798.85
B)$873.77
C)$953.16
D)$1,223.77

Question 65

As interest is recorded on an interest-bearing note,the Interest Expense account is:

A)decreased; the Interest Payable account is increased.
B)increased; the Interest Payable account is increased.
C)increased; the Notes Payable account is decreased.
D)increased; the Notes Payable account is increased.

Question 66

An employee receives an hourly rate of $27,with time and a half for all hours worked in excess of 40 during a week.Payroll data for the current week are as follows: hours worked,46; federal income tax withheld,$350; cumulative earnings for year prior to current week,$99,700; social security tax rate,6.0% on maximum of $106,800; and Medicare tax rate,1.5% on all earnings.What is the gross pay for the employee?

A)$798.85
B)$873.77
C)$1,242.00
D)$1,323.00

Question 67

Liabilities due beyond one year are classified as .

A)current liabilities
B)long-term liabilities
C)contingent liabilities
D)fixed liabilities

Question 68

Gross earnings for a payroll period less payroll deductions are referred to as:

A)overtime pay.
B)bonus pay.
C)gross pay.
D)net pay.

Question 69

If paid-in capital in excess of par--preferred stock is $80,000,preferred stock is $500,000,paid-in capital in excess of par--common stock is $50,000,common stock is $1,000,000,and retained earnings is $230,000,the total stockholders' equity is $1,860,000.

Question 70

Current liabilities are:

A)due but not receivable for more than one year.
B)due but not payable for more than one year.
C)due and receivable within one year.
D)due and payable within one year.

Question 71

Which of the following will be classified as a current liability?

A)Two-year notes payable
B)Bonds payable
C)Mortgage loan
D)Unearned rent

Question 72

Where is interest expense listed on the income statement?

A)Other expense section
B)Cost of merchandise sold
C)Operating expenses
D)Interest expense is listed on the balance sheet,not the income statement.

Question 73

Which of the following is a characteristic of deferred income tax payable?

A)Deferred income tax payable is often generated due to timing differences.
B)Deferred income tax payable may be either a current or long-term liability.
C)Deferred income tax payable represents the deferred payment of taxes to later years through tax planning techniques.
D)All of these are characteristics of deferred income tax payable.

Question 74

A current liability is a debt that is reasonably expected to be paid:

A)between 6 months and 18 months.
B)out of currently recognized revenues.
C)within one year.
D)out of cash currently on hand.

Question 75

On March 15,Silver Co.issued a $80,000,5%,90-day note payable to Gold Co.How much will Silver Co.have to pay at maturity? (Assume 360 days in a year)

A)$84,000
B)$79,000
C)$80,000
D)$81,000

Question 76

Earnings per common share is one factor that influences the decision to use debt financing or equity financing.

Question 77

Income tax based on taxable income may differ from the income tax based on "Income before Taxes" on the income statement.Which of the following could be a reason for this difference?

A)A business may use MACRS depreciation for tax reporting and straight-line for financial reporting purposes.
B)Tax payments may not equal the tax due.
C)Taxable income is based on Generally Accepted Accounting Principles.
D)All of these could be reasons for the difference.

Question 78

The total earnings of an employee during a payroll period,including bonuses and overtime pay,is referred to as:

A)take-home pay.
B)pay net of taxes.
C)net pay.
D)gross pay.

Question 79

An employee receives an hourly rate of $30,with time and a half for all hours worked in excess of 40 during a week.Payroll data for the current week are as follows: hours worked,46; federal income tax withheld,$300; cumulative earnings for year prior to current week,$90,700; social security tax rate,6.0% on maximum of $106,800; and Medicare tax rate,1.5% on all earnings.What is the net pay for the employee?

A)$1,147.95
B)$1,059.75
C)$1,470.00
D)$1,359.75

Question 80

The ratio of liabilities to total assets is also called the debt ratio.