Question 1

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?

Accepted Answer

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 $1,000E) C) and D)
F) A) and D)

Question 2

Jack Co.issued 675,000 shares at $0.25 per share of common stock.If 75,000 shares were subsequently reacquired, _____ shares are considered outstanding.

Accepted Answer

A)   750,000
B)   600,000
C)   675,000
D)   75,000E) A) and B)
F) A) and C)

Question 3

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.

Accepted Answer

A) True 
 B)False

Question 4

The debt ratio measures the percent of the company's assets financed by debt.

Accepted Answer

A) True 
 B)False

Question 5

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

Accepted Answer

A) True 
 B)False

Question 6

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.

Accepted Answer

A) True 
 B)False

Question 7

The price at which stock is sold depends on a variety of factors such as:

Accepted Answer

A)   the financial condition and dividend record of the corporation.
B)   the corporation's ability to measure potential liability.
C)   the likelihood of an uncertain event happening.
D)   the corporation's efficiency in using current assets to pay interest on debt.E) A) and B)
F) None of the above

Question 8

If $500,000 of 8% bonds are issued at 102, the amount of cash received from the sale is:

Accepted Answer

A)   $540,000
B)   $510,000
C)   $500,000
D)   $530,000E) All of the above
F) A) and B)

Question 9

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?

Accepted Answer

A)   5,000
B)   100,000
C)   60,000
D)   55,000E) B) and D)
F) B) and C)

Question 10

When a company has a high debt ratio, it is an indication of a:

Accepted Answer

A)   high solvency risk.
B)   weak operating efficiency.
C)   high profit margin.
D)   low asset turnover.E) A) and D)
F) None of the above

Question 11

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.

Accepted Answer

A) True 
 B)False

Question 12

Joe Co.paid a notes payable of $6,000 with interest.As a result of this transaction, the company's:

Accepted Answer

A)   earnings per share increases.
B)   earnings per share decreases.
C)   net assets do not change.
D)   net assets increase.E) B) and C)
F) B) and D)

Question 13

The par value per share of common stock represents:

Accepted Answer

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.E) A) and D)
F) None of the above

Question 14

Medicare taxes are paid only by employee.

Accepted Answer

A) True 
 B)False

Question 15

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

Accepted Answer

A) True 
 B)False

Question 16

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

Accepted Answer

A) True 
 B)False

Question 17

Vivi Corporation's earnings per share of common stock was $1.50 and a market price of $33.50, calculate the price-earnings ratio.

Accepted Answer

A)   50.6
B)   22.3
C)   44.0
D)   33.5E) All of the above
F) A) and C)

Question 18

Which of the following is a reason to undergo a reverse stock split?

Accepted Answer

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.E) A) and D)
F) B) and C)

Question 19

Liabilities due beyond one year are classified as _____.

Accepted Answer

A)   current liabilities
B)   long-term liabilities
C)   contingent liabilities
D)   fixed liabilitiesE) C) and D)
F) None of the above

Question 20

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:

Accepted Answer

A)   $30.
B)   $36.
C)   $45.
D)   $50.E) A) and B)
F) C) and D)

Exam 8: Liabilities and Stockholders Equity

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

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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?

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Vivi Corporation's earnings per share of common stock was $1.50 and a market price of $33.50, calculate the price-earnings ratio.

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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?

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Jack Co.issued 675,000 shares at $0.25 per share of common stock.If 75,000 shares were subsequently reacquired, _____ shares are considered outstanding.

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The par value per share of common stock represents:

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

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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:

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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.

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The price at which stock is sold depends on a variety of factors such as:

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When a company has a high debt ratio, it is an indication of a:

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The debt ratio measures the percent of the company's assets financed by debt.

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

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Liabilities due beyond one year are classified as _____.

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Which of the following is a reason to undergo a reverse stock split?

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Joe Co.paid a notes payable of $6,000 with interest.As a result of this transaction, the company's:

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedShow Answer

Medicare taxes are paid only by employee.

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If $500,000 of 8% bonds are issued at 102, the amount of cash received from the sale is:

Correct AnswerverifiedShow Answer

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