Chapter 9 and 10

Question If a corporation declares a 2-for-1 stock split, which of the following is true?

A stockholder who previously held 100 shares will have 200 shares after the split.

The excess of sales price of treasury stock over its cost should be credited to:

Additional Paid-In Capital

When is a liability for cash dividends created?

At the date of declaration.

Bonds are sold at a premium if the

market rate of interest was less than the stated rate at the time of issue

Authorized shares represent the:

maximum number of shares of stock that a company can legally issue.

After a corporation declares a cash dividend, what takes place on the date of record?

no entry is necessary

Treasury shares represent the:

number of previously issued shares that have been repurchased by the corporation.

Outstanding shares represent the:

number of shares that are currently held by stockholders.

Issued shares represent the:

number of shares that the corporation has distributed to owners to date.

long term liabilities generally include

obligations that extend beyond one year

Under the corporate form of business organization:

ownership rights are easily transferred.

which of the following would most likely be classified as a current liability?

portion of long term debt due within one year

The bond issue price is determined by calculating the:

present value of the stream of interest payments and the present value of the maturity amount.

which of the following lease conditions would result in a capital lease to the lessee?

the lessee obtains enough rights to use the asset and is in substance the owner

which of the following would describe a callable bond

Borrower has the right to pay off the bonds prior to due date.

Which of the following statements regarding contingent liabilities is true?

If they are probable and estimable, then they must be recorded even before the outcome of the future event.

Par value represents the:

arbitrary amount that establishes a minimum price for the stock when it is first issued.

In which of the following organization forms are the owners' legal responsibility for the debt of the business limited to the amount they invested in the business?

corporation

Select the type of business that is most likely to obtain large amounts of resources by issuing stock.

corporation

A disadvantage of the corporate form of business entity is:

corporations are subject to more governmental regulations.

Porter Hardware, Inc. issues $2 par common stock. Which of the following is true?

$2 per share is presented on the balance sheet in the common stock account.

Which of the following is not a characteristic of a corporation?

A corporation's resources are limited to their individual stockholders' resources.

When a corporation declares a small stock dividend, which of the following is false?

Cash decreases.

Which of the following is not characteristic of a corporation?

Cash dividends paid by a corporation are deductible as expenses by the corporation.

On January 15, 2011, Rockney Systems, Inc. paid a cash dividend that had been declared prior to the end of its 2010 fiscal year. The entry to pay the dividends includes a debit to:

Dividends Payable and a credit to Cash.

When a corporation declares a cash dividend, which of the following is true?

Equity decreases.

Which of the following accounts would not appear on the balance sheet of a lessee company recording a capital lease?

Rent expense on the leased asset.

When a corporation decides whether to pay a cash dividend, which of the following is an important consideration?

The balances in the corporation's cash account to determine cash available for dividends.

Which of the following statements is true regarding a corporation's purchase of treasury stock?

The cost of treasury stock is a reduction in stockholders' equity.

Which of the following statements is false regarding the issuance of stock versus bonds to raise capital for a corporation?

The declaration of dividends reduces the amount of the corporation's taxable income.

Which of the following statements about bond accounting under the effective interest method is correct?

The interest expense is calculated as the carrying value the market rate.

If a corporation declares a 2-for-1 stock split, which of the following is true?

The number of outstanding shares is twice the number that was outstanding before the split.

Which of the following statements is true with regard to equity capital?

The number of shares actually in the hands of stockholders are called outstanding shares.

If a corporation declares a 2-for-1 stock split, which of the following is true?

The par value will be reduced to half of the pre-split par value.

If a corporation issues cumulative, participating preferred stock, which of the following is true regarding the rights of the preferred stockholders?

They have the right to receive current-year dividends and all unpaid dividends from prior years.

What is the primary reason for a stock split?

To decrease the market value of the stock.

the discount on bonds payable account is shown on the balance sheet as

a contra liability

which of the following statements regarding amortization is true

amortization of a premium continues over the life of the bond until the balance in the account is reduced to zero

The premium on bonds payable account is shown on the balance sheet as

an addition to a long term liability

when bonds are issued by a company the accounting entry shows

and increase in liabilities and assets

the portion of long term debt due within one year should

be reclassified as a current liability

The amount of federal income taxes withheld from an employee's gross pay is recorded as a(n)

current liability

the journal entry to record the issuance of a note for the purpose of borrowing funds is:

debit Cash; credit Notes Payable.

the journal entry to record the payment of an ordinary note is

debit notes payable and interest expense, credit cash

If bonds were initially issued at a premium, the carrying value of the bonds on the issuer's books will

decrease as the bonds approach their maturity date

With the effective interest method of amortization, the amortization of a bond premium results in a(n)

decrease in interest expense.

Many stockholders choose to invest in preferred stock because:

dividends are distributed to preferred stockholders before common stockholders.

One of the main disadvantages of the corporate form is the:

double taxation of dividends.

current liabilities are

due and payable within one year

The ability of a corporation to obtain capital is:

enhanced because of the limited liability and the ease of share transferability.

When a corporation declares a stock dividend, which of the following is true?

equity remains the same

Cash paid for preferred stock dividends should be shown on the statement of cash flows under:

financing activities.

Which one of the following would not be considered an advantage of the corporate form of organization?

government regulation

All of the following are reasons that a corporation may purchase treasury stock except:

if it desires to make an investment in its own stock and is reported as an asset.

If bonds were initially issued at a discount, the interest expense on the bonds calculated using the effective interest method will:

increase as the bonds approach their maturity date.

With the effective interest method of amortization, the amortization of a bond discount results in a(n):

increase in interest expense.

When a corporation pays a previously declared cash dividend, which of the following is true?

liabilities decrease

On the statement of cash flows, the cash flows from financing activities section would include:

receipts from the issuance of capital stock.

Under the effective interest method, the cash paid on each interest payment date will:

remain constant regardless of the issuance price.

Characteristics of a corporation include:

shareholders who have limited liability

when bonds are sold for less than the face amount this means

stated rate of interest is less than the market rate of interest

Cash dividends paid on common stock would be reported in the statement of cash flows in:

the cash flows from financing activities section.

Earnings per share is an indication of how much:

the company earned for each share of outstanding common stock.

Dividends in arrears are required to be reported in:

the notes to the financial statements

Magnum Corporation had 60,000 of its $3 par common stock issued before its recent 3-for-1 stock split. The market price of the stock was $30 per share before the split. Which of the following is true as a result of the split?

the par value of the stock decreased to $1 per share