ACCT Chap. 9, 10, and 11 Quiz

Which of the following statements is correct? a. Employee benefits such as vacation time and sick days should be recognized when the employees earn the benefit and not when they take the days off from work. b. Unemployment taxes are paid by the employee only. c. Social Security tax is paid only by the employer. d. The pay period always ends in conjunction with the company's fiscal year-end.

a. Employee benefits such as vacation time and sick days should be recognized when the employees earn the benefit and not when they take the days off from work. Compensation expenses should be recognized when they are earned by the employee providing service to the employer.

How should a contingent liability that is reasonably possible but cannot reasonably be estimated be reported within the financial statements? a. It must only be disclosed as a note to the financial statements. b. It does not need to be recorded or reported as a liability. c. It must be reported as a liability, but not disclosed in a note. d. It must be recorded and reported as a liability.

a. It must only be disclosed as a note to the financial statements. A contingent liability that is reasonably possible but cannot reasonably be estimated is disclosed in the notes to the financial statements.

On October 1, 2016, Donna Equipment signed a one-year, 8% interest-bearing note payable for $50,000. Assuming that Donna Equipment maintains its books on a calendar year basis, how much interest expense should be reported in the 2017 income statement? a. $1,000. b. $3,000. c. $4,000. d. $2,000.

b. $3,000. Since the note is for one year, only nine months remain on the note in 2017; therefore, 2017 interest expense = $3,000 = Amount borrowed × Interest rate × Number of months borrowed relative to a year = $50,000 × 8% × (9 ÷ 12).

RKJ Company has provided the following information:• 100,000 shares of $5 par value common stock are authorized• 70,000 shares have been issued• 65,000 shares are outstanding. Which of the following statements is correct? a. RKJ can issue an additional 35,000 shares of common stock. b. RKJ can issue an additional 30,000 shares of common stock. c. RKJ has 35,000 shares of treasury stock. d. RKJ has 30,000 shares of treasury stock.

b. RKJ can issue an additional 30,000 shares of common stock. RKJ can issue an additional 30,000 shares of common stock (100,000 shares authorized minus 70,000 shares already issued). There are 5,000 shares of treasury stock (70,000 shares issued minus 65,000 shares outstanding).

Young Company is involved in a lawsuit. When would the lawsuit be recorded as a liability on the balance sheet? a. When the loss probability is remote and the amount can be reasonably estimated. b. When the loss is probable and the amount can be reasonably estimated. c. When the loss probability is reasonably possible and the amount can be reasonably estimated. d. When the loss is probable regardless of whether the loss can be reasonably estimated.

b. When the loss is probable and the amount can be reasonably estimated. A contingent liability that is probable and can be reasonably estimated is reported as a liability on the balance sheet.

A company reported total stockholders' equity of $170,000 on its balance sheet dated December 31, 2016. During the year ended December 31, 2017, the company reported net income of $20,000, declared and paid a cash dividend of $4,000, declared and distributed a 10% stock dividend with a $5,000 total market value, and issued additional common stock for $40,000. What is total stockholders' equity as of December 31, 2017? a. $234,000. b. $231,000. c. $226,000. d. $221,000.

c. $226,000. December 31, 2017 stockholders' equity = $226,000. Balance, December 31, 2016 $170,000 2017 Net Income 20,000 Cash dividends declared (4,000) Issuance of common stock 40,000 Balance, December 31, 2017 $226,000 Stock dividends do not numerically affect total stockholders' equity. They decrease retained earnings and increase issued common stock by equal amounts.

Which of the following statements about treasury stock transactions is correct? a. The total number of shares issued increases when treasury stock is purchased. b. The total number of shares authorized changes when treasury stock is purchased. c. A stockholders' equity account is debited when treasury stock is purchased. d. Gains and losses on treasury stock transactions are reported on the income statement.

c. A stockholders' equity account is debited when treasury stock is purchased. Treasury stock is a contra-equity account with a debit balance.

Which of the following correctly describes the effect of declaring and distributing a common stock dividend? a. The number of shares outstanding decreases while the par value of each share increases. b. The number of shares outstanding increases while the par value of each share decreases. c. Total stockholders' equity remains the same. d. Total stockholders' equity decreases.

c. Total stockholders' equity remains the same. The declaration and distribution of a stock dividend affects stockholder equity accounts only. Retained earnings decreases and common stock and additional paid-in capital increase in total by an amount equal to the retained earnings decrease.

Phipps Company borrowed $25,000 cash on October 1, 2016, and signed a nine-month, 8% interest-bearing note payable with interest payable at maturity. Assuming that adjusting entries have not been made during the year, the amount of accrued interest payable to be reported on the December 31, 2016 balance sheet is which of the following? a. $750. b. $250. c. $300. d. $500.

d. $500. December 31, 2016 interest payable = $500 = Amount borrowed × Interest rate × Number of months borrowed during 2016 relative to a year = $25,000 × 8% × (3 ÷ 12).

Watson Company has provided the following data about its common stock:• Par value is $1 per share• 10,000,000 authorized shares• 4,300,000 shares are outstanding• 4,700,000 shares are issued. How many shares of treasury stock are there? a. 5,700,000. b. 0. c. 5,300,000. d. 400,000.

d. 400,000. Outstanding shares = 4,300,000 = Issued shares - Treasury shares = 4,700,000 - 400,000.

Which of the following statements is correct? a. A 2-for-1 common stock split increases both the number of common shares outstanding and total stockholders' equity. b. A 2-for-1 common stock split decreases both earnings per share and total stockholders' equity. c. A 10% common stock dividend decreases both earnings per share and total stockholders' equity. d. A 30% common stock dividend increases the number of common shares outstanding and does not affect total stockholders' equity.

d. A 30% common stock dividend increases the number of common shares outstanding and does not affect total stockholders' equity. Stock dividends increase the number of shares outstanding and do not affect total stockholders' equity because there is simultaneously a reduction in the Retained earnings account and an increase in the Additional paid-in capital account.

Dora Company declared and distributed a 10% stock dividend on 20,000 shares of issued and outstanding $5 par value common stock. The market price per share was $9 on the declaration date. Which of the following correctly describes the effect of accounting for the declaration and distribution of the stock dividend? a. Retained earnings decreased $10,000. b. Retained earnings decreased $18,000. c. Common stock increased $1,000. d. Additional paid-in capital increased $8,000.

d. Additional paid-in capital increased $8,000. A 10% stock dividend is a small stock dividend and retained earnings is reduced by the market value of the shares of stock issued = $18,000 (= 20,000 shares × 10% = 2,000 shares issued × $9 per share). Common stock will increase by the par value = $10,000 ($5 × 2,000 shares) and the additional paid-in capital will increase by the excess of the market value over the par value of the stock issued = $8,000 (= $18,000 - $10,000).

Treasury stock shares are shares of stock that are: a. Authorized but not issued. b. Authorized, issued, and outstanding. c. Authorized and outstanding. d. Authorized and issued, but not outstanding.

d. Authorized and issued, but not outstanding. Treasury shares are authorized and issued. When they are purchased to be held in treasury they are no longer held by stockholders and therefore are no longer outstanding.