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Accounting 2810
Chapter 8 Test 3
54
Accounting
Undergraduate 1
03/21/2012
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Term
What options does a business have when financing operations?
 Definition
both debt financing and equity financing
Term
current liabilities are
 Definition
due and payable within one year
Term
current liabilities are
 Definition
due and to be paid out of current assets within one year
Term
which of the following would most likely be classified as a current liability?
 Definition
unearned rent
Term
a current liability is a debt that can reasonably be expected to be paid
 Definition
within one year
Term
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?
 Definition
$61,200
Term
where is interest expense listed on the income statement
 Definition
other expense section
Term
as interest is recorded on an interest-bearing note, the interest expense account is
 Definition
increased; the interest payable account is increased
Term
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?
 Definition
a business may use accelerated depreciation for tax reporting and straight-line for financial reporting purposes
Term
which of the following is characteristic of deferred income tax payable?
 Definition
ALL of these are characteristics of deferred income tax payable
Term
the cost of a product warranty should be included as an expense in the
 Definition
period of the sale of the product
Term
when are contingent liabilities required to be recorded?
 Definition
both the liability must be probable and the amount must be reasonably estimable before the contingent liability is recorded
Term
the total earnings of an employee for a payroll period are referred to as
 Definition
gross pay
Term
gross earnings for a payroll period less payroll deductions are referred to as
 Definition
net pay
Term
payroll taxes levied against employees become liabilities
 Definition
at the time the liability for the employee's wages is paid
Term
the par value per share of common stock represents
 Definition
the monetary amount assigned to each share os stock in the articles of incorporation
Term
most employers are required to withhold from employees for
 Definition
only federal income tax
Term
most employers are levied a tax on payrolls for
 Definition
federal unemployment compensation tax
Term
a bond indenture is
 Definition
a contract between the corporation issuing the bonds and the bondholders
Term
the market interest rate related to a bond is also called the
 Definition
effective interest rate
Term
when the contract rate of interest on bonds is less than the market rate of interest, the bonds sell at
 Definition
a discount
Term
if bonds are issued at a premium, the stated interest rate is
 Definition
higher than the market rate of interest
Term
when the contract rate of interest on bonds is higher than the market rate of interest, the bonds sell at
 Definition
a premium
Term
if the market rate of interest is greater than the contractual rate of interest, bonds will sell
 Definition
at a discount
Term
if the market rate of interest is 10%, a $10,000, 12%, 10-year bond that pays interest semiannually would sell at an amount
 Definition
greater than face value
Term
when the market rate of interest on bonds is equal to the contract rate, the bonds will sell at
 Definition
their face value
Term
the interest rate specified in the bond indenture is called the
 Definition
contract rate
Term
if $1,000,000 of 8% bonds are issued at 102, the amount of cash received from the sale is
 Definition
$1,020,000
Term
if $1,000,000 of 10% bonds are issued at 98 3/4, the amount of cash received from the sale is
 Definition
$987,500
Term
if $4,000,000 of 12% bonds are issued at 103 1/4, the amount of cash received from the sale is
 Definition
$4,130,000
Term
stockholders' equity
 Definition
includes retained earnings and paid-in capital
Term
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?
 Definition
55,000
Term
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?
 Definition
70,000
Term
if a corporation issues only one class of stock, it is called
 Definition
common stock
Term
the excess of issue price over par of common stock is termed a
 Definition
premium
Term
a company sold 200 shares of common stock with a par value of $5 at a price of $12 per share. which section of the statement of cash flows will contain this transaction?
 Definition
financing activities
Term
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?
 Definition
increase cash $2,600; increase common stock $1,000 and increase paid-in capital $1,600
Term
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?
 Definition
35,000
Term
which statement below is NOT a reason for a corporation to buy back its own stock?
 Definition
to increase the shares outstanding
Term
How is treasury stock shown on the balance sheet?
 Definition
as a decrease in stockholders' equity
Term
in which section of the balance sheet would treasury stock be reported?
 Definition
stockholders' equity
Term
a corporations purchases 5,000 shares of its own $20 par common stock for $35 per share, recording it as a cost. what will be the effect on total stockholders' equity?
 Definition
decrease $175,000
Term
which one of the following is usually NOT necessary in order for a corporation to pay a cash dividend?
 Definition
declared dividends
Term
which of the following is usually NOT a prerequisite to paying a cash dividend?
 Definition
market value in excess of par value per share
Term
the liability for a dividend is recorded on which of the following dates?
 Definition
the date of declaration
Term
what is the effect of a stock dividend on the balance sheet?
 Definition
no effect on total assets, total liabilities, or total stockholders' equity
Term
the reduction of par or stated value of stock by issuance of a proportionate number of additional shares is termed a
 Definition
stock split
Term
a corporation has 50,000 shares par value stock outstanding. if the corporation issues a 4-for-1 stock split, the number of shares outstanding after the split will be
 Definition
200,000 shares
Term
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
 Definition
$45
Term
the primary purpose of a stock split is to
 Definition
reduce the market price of the stock per share
Term
what is one reason to undergo a REVERSE stock split?
 Definition
to increase the market value of the stock per share
Term
the major subdivisions of the stockholders' equity section of the balance sheet are
 Definition
pain-in capital and retained earnings
Term
which of the following accounts is reported in the non-current liabilities section of the corporate balance sheet?
 Definition
bonds payable
Term
significant changes in stockholders' equity are reported in the
 Definition
statement of stockholders' equity
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