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Exam 8: Liabilities and Stockholders Equity

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Question 1

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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.

E) A) and D)
F) B) and D)

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Question 2

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

A) True
B) False

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Question 3

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The excess of issue price over par of common stock is termed as:

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

Cash dividends are not paid on shares of treasury stock.

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

On July 1, George Co.issued $3,000,000 of 10-year, 8% bonds at par.Interest on the bonds is payable semiannually on December 31 and June 30.As a result of this transaction, net assets of the company:

The following information is for employee William Heedy for the week ended March 15. Total hours worked: 48 Rate: $16 per hour, with double time for all hours in excess of 40 Federal income tax withheld: $200 United Fund deduction: $50 Cumulative earnings prior to current week: $6,400 Tax rates: Social security: 6% on maximum earnings of $106,800 Medicare tax: 1.5% on all earnings; on both employer and employee State unemployment: 4.2% on maximum earnings of $7,000; on employer Federal unemployment: 0.8% on maximum earnings of $7,000; on employer (a)Determine (1) total earnings, (2) total deductions, and (3) cash paid. (b)Determine each of the employer's payroll taxes related to the earnings of William Heedy for the week ended March 15.

On April 1, 10,000 shares of $20 par common stock were issued at $24.Illustrate the effects on the accounts and the financial statements.

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

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.

If $1,000,000 of 10% bonds are issued at 98, the amount of cash received from the sale is:

Which of the following is an effect of payment of cash dividends on a company's financial statements?

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

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

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

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

Smith Co.is considering the following alternative plans for financing the company: $\begin{array}{l}&\text { Plan I }&\text { Plan II }\\\text { Issue } 10 \% \text { Bonds (at face) } & - & \$ 1,000,000 \\\text { Issue } \$ 10 \text { Common Stock } & \$ 3,000,000 & \$ 2,000,000\\\text { Income tax is estimated at } 40 \% \text { of income. }\end{array}$ Determine the earnings per share of common stock under the two alternative financing plans, assuming income before bond interest and income tax is $1,000,000.

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.

A company issues 5,000 shares of $15 par common stock.As a result, the earnings per share of the company _____.