Act 8

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

B

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

B

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.

B

Current liabilities are a. due and receivable within one year. b. due and to be paid out of current assets within one year. c. due but not payable for more than one year. d. payable if a possible subsequent event occurs.

B

How is treasury stock shown on the balance sheet? a. As an asset b. As a decrease in stockholders' equity c. As an increase in stockholders' equity d. Treasury stock is not shown on the balance sheet.

B

If $1,000,000 of 8% bonds are issued at 102, the amount of cash received from the sale is a. $1,060,000. b. $1,020,000. c. $1,000,000. d. $1,030,000.

B

Payroll taxes levied against employees become liabilities a. the first of the following month. b. at the time the liability for the employee's wages is paid. c. when earned by the employee. d. at the end of an accounting period.

B

A corporation purchases 5,000 shares of its own $20 par common stock for $35 per share, recording it at cost. What will be the effect on total stockholders' equity? a. Increase $175,000 b. Increase $350,000 c. Decrease $175,000 d. Decrease $350,000

C

A current liability is a debt that can reasonably be 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.

C

For the year that just ended, a company reports net income of $1,500,000. There are 500,000 shares authorized, 300,000 shares issued, and 250,000 shares of common stock outstanding. What is the earnings per share? a. $5.00 b. $2.50 c. $6.00 d. $3.00

C

If $1,000,000 of 10% bonds are issued at 98 3/4, the amount of cash received from the sale is a. $980,000. b. $975,000. c. $987,500. d. $1,000,000.

C

If $4,000,000 of 12% bonds are issued at 103 1/4, the amount of cash received from the sale is a. $4,040,000. b. $4,000,000. c. $4,130,000. d. $3,520,000.

C

If the market rate of interest is 10%, a $10,000, 12%, 10-year bond that pays interest semiannually would sell at an amount a. less than face value. b. equal to the face value. c. greater than face value. d. that cannot be determined.

C

If the market rate of interest is greater than the contractual rate of interest, bonds will sell a. at a premium. b. at face value. c. at a discount. d. only after the stated rate of interest is increased.

C

In which section of the balance sheet would treasury stock be reported? a. Fixed assets b. Long-term liabilities c. Stockholders' equity d. Intangible assets

C

Most employers are levied a tax on payrolls for a. sales tax. b. medical insurance premiums. c. federal unemployment compensation tax. d. union dues.

C

Most employers are required to withhold from employees for a. both federal and state unemployment compensation. b. only federal unemployment compensation tax. c. only federal income tax. d. only state unemployment compensation tax.

C

Stockholders' equity a. is usually equal to cash on hand. b. includes paid-in capital and liabilities. c. includes retained earnings and paid-in capital. d. is shown on the income statement.

C

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.

C

The par value per share of common stock represents a. the minimum selling price of the stock established by the articles of incorporation. b. the minimum amount the stockholder will receive when the corporation is liquidated. c. the monetary amount assigned to each share of stock in the articles of incorporation. d. the amount of dividends per share to be received each year.

C

Which one of the following is usually NOT necessary in order for a corporation to pay a cash dividend? a. Sufficient cash b. Formal action of the board of directors c. Declared dividends d. Sufficient retained earnings

C

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

D

A corporation has 50,000 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 a. 200,000 shares. b. 50,000 shares. c. 250,000 shares. d. 12,500 shares.

A

If a corporation issues only one class of stock, it is called a. common stock. b. treasury stock. c. no-par stock. d. preferred stock.

A

If bonds are issued at a premium, the stated interest rate is a. higher than the market rate of interest. b. lower than the market rate of interest. c. too low to attract investors. d. adjusted to a higher rate of interest.

A

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 accelerated 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.

A

Significant changes in stockholders' equity are reported in the a. statement of stockholders' equity. b. income statement. c. retained earnings statement. d. statement of cash flows.

A

The major subdivisions of the Stockholders' Equity section of the balance sheet are a. Paid-in Capital and Retained Earnings. b. Common Stock and Retained Earnings. c. Stock, Paid-In Capital, and Retained Earnings. d. Common Stock and Preferred Stock.

A

When the contract rate of interest on bonds is higher than the market rate of interest, the bonds sell at a. a premium. b. their face value. c. their maturity value. d. a discount.

A

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 on the balance sheet, not the income statement.

A

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

A

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. The amount of earnings subject to social security tax at 6% is $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? a. $127.50 b. $115.50 c. $76.50 d. $63.75

B

The charter of a corporation provides for the issuance of 100,000 shares of common stock. Assume that 40,000 shares were originally issued and 5,000 were subsequently reacquired. What is the number of shares outstanding? a. 5,000 b. 35,000 c. 45,000 d. 55,000

B

The charter of a corporation provides for the issuance of 100,000 shares of common stock. Assume that 75,000 shares were originally issued and 5,000 were subsequently reacquired. What is the number of shares outstanding? a. 10,000 b. 70,000 c. 50,000 d. 60,000

B

The interest rate specified in the bond indenture is called the a. discount rate. b. contract rate. c. market rate. d. effective rate.

B

The market interest rate related to a bond is also called the a. stated interest rate. b. effective interest rate. c. contract interest rate. d. straight-line rate.

B

The primary purpose of a stock split is to 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.

B

The reduction of par or stated value of stock by issuance of a proportionate number of additional shares is termed a a. stock dividend. b. stock split. c. stock option. d. preferred dividend.

B

When the market rate of interest on bonds is equal to the contract rate, the bonds will sell at a. a premium. b. their face value. c. a discount. d. a discount or a premium.

B

Which of the following is usually NOT a prerequisite to paying a cash dividend? a. Formal action by the board of directors b. Market value in excess of par value per share c. Sufficient cash d. Sufficient retained earnings

B

A bond indenture is a. a contract between the corporation issuing the bonds and the underwriters selling the bonds. b. the amount due at the maturity date of the bonds. c. a contract between the corporation issuing the bonds and the bondholders. d. the amount for which the corporation can buy back the bonds prior to the maturity date.

C

A company sold 200 shares of common stock with a par vale of $5 at a price of $12 per share. Which section of the statement of cash flows will contain this transaction? a. Operating activities b. Investing activities c. Financing activities d. Sale of stock will not appear on the statement of cash flows.

C

A company sold 200 shares of common stock with a par value of $5 at a price of $13 per share. What is the effect on the accounts of this transaction? a. Increase cash $2,600; increase retained earnings $2,600 b. Increase cash $1,000; increase common stock $1,000 c. Increase cash $2,600; increase common stock $1,000 and increase paid-in capital $1,600 d. Increase cash $2,600; increase common stock $1,600 and increase paid-in capital $1,000

C

A corporation has 50,000 shares of $100 par value stock outstanding that has a current market value of $180. If the corporation issues a 4-for-1 stock split, the market value of the stock will fall to approximately a. $30. b. $36. c. $45. d. $50.

C

Based on the following information, what is earnings per share? Common shares outstanding- 115,000 Preferred stock dividend declared and paid- 40,000 Net income- 350,000 a. $3.39 b. $3.04 c. $2.96 d. $2.70

D

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.

D

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.

D

On June 5 Glover Co. issued a $60,000, 6%, 120-day note payable to Jones Co. How much will Glover Co. have to pay at maturity? a. $63,600 b. $58,800 c. $60,000 d. $61,200

D

The charter of a corporation provides for the issuance of 100,000 shares of common stock. Assume that 60,000 shares were originally issued and 5,000 were subsequently reacquired. What is the number of shares outstanding? a. 5,000 b. 100,000 c. 60,000 d. 55,000

D

The excess of issue price over par of common stock is termed a(n) a. discount. b. income. c. deficit. d. premium.

D

The liability for a dividend is recorded on which of the following dates? a. The date of record b. The date of payment c. The date of announcement d. The date of declaration

D

The total earnings of an employee for a payroll period are referred to as a. take-home pay. b. pay net of taxes. c. net pay. d. gross pay.

D

What is one reason to undergo a REVERSE stock split? a. To reduce the stock's market price per share. b. To increase total stockholders' equity. c. To reduce total stockholders' equity. d. To increase the market value of the stock per share.

D

What is the effect of a stock dividend on the balance sheet? a. Decrease total assets and decrease total stockholders' equity b. Decrease total assets and increase total stockholders' equity c. Increase total liabilities and decrease total stockholders' equity d. No effect on total assets, total liabilities, or total stockholders' equity

D

What options does a business have when financing operations? a. Debt financing b. Equity financing c. Asset financing d. Both debt financing and equity financing

D

When are contingent liabilities required to be recorded? a. When the liability is probable b. When the amount is reasonably estimable c. When the liability becomes legally enforceable d. Both the liability must be probable and the amount must be reasonably estimable before the contingent liability is recorded.

D

When the contract rate of interest on bonds is less than the market rate of interest, the bonds sell at a. a premium. b. their face value. c. their maturity value. d. a discount.

D

Which of the following is 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.

D

Which of the following would most likely be classified as a current liability? a. Two-year notes payable b. Bonds payable c. Mortgage payable d. Unearned rent

D

Which statement below is NOT a reason for a corporation to buy back its own stock? a. Resale to employees b. Bonus to employees c. For supporting the market price of the stock d. To increase the shares outstanding

D