Question 1 During the first year of operations, a company granted warranties on

Question

Question 1

During the first year of operations, a company granted warranties on its products. The estimated cost of the product warranty liability at the end of the year is $12,750. The product warranty expense of $12,750 should be recorded in the years the expenditures to repair the products covered by the warranty will be paid.

Select one:

a. True

b. False

Question 2

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

Select one:

a. True

b. False

Question 3

If 20,000 shares are authorized, 15,000 shares are issued, and 500 shares are held as treasury stock, a cash dividend of $1 per share would amount to $14,500.

Select one:

a. True

b. False

Question 4

A corporation has 10,000 shares of $25 par value stock outstanding that has a current market value of $100. If the corporation issues a 5-for-1 stock split, the market value of the stock will fall to approximately $20.

Select one:

a. True

b. False

Question 5

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.

Select one:

a. True

b. False

Question 6

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Question text

On June 5 Apex Co. issued a $60,000, 8%, 120-day note payable to Jones Co. How much will Jones Co. have to pay at maturity?

Select one:

a. $60,160

b. $58,400

c. $61,600

d. $59,840

Question 7

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?

Select one:

a. Operating activities

b. Investing activities

c. Financing activities

d. Sale of stock will not appear on the Statement of Cash Flows

Question 8

Allen Company acquired a building valued at $155,000 for property tax purposes in exchange for 10,000 shares of its $10 par common stock. The stock is widely traded and selling for $15 per share. At what amount should the building be recorded by Allen Company?

Select one:

a. $100,000

b. $150,000

c. $155,000

d. $250,000

Question 9

How are contingent liabilities that are NOT required to be disclosed on the balance sheet but are possible recorded?

Select one:

a. These liabilities are listed on the income statement.

b. These liabilities are disclosed in the notes to the financial statements.

c. These liabilities are not required to be disclosed.

d. All contingent liabilities are required to be on the balance sheet.

Question 10

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

Select one:

a. $5.00

b. $2.50

c. $4.17

d. $4.81

Question 11

On June 5 Apex Co. issued a $60,000, 8%, 120-day note payable to Jones Co. How much will Jones Co. have to pay at maturity?

Select one:

a. $60,160

b. $58,400

c. $61,600

d. $59,840

Question 12

When are contingent liabilities required to be recorded?

Select one:

a. When the liability is probable.

b. When the amount is reasonable estimable.

c. When the liability becomes legally enforceable.

d. Both (a) and (b) must occur before the contingent liability is recorded.

Question 13

Most employers are required to withhold from employees which of the following employment taxes?

Select one:

a. only FICA tax

b. FICA tax, state and federal unemployment compensation tax

c. only state unemployment compensation tax

d. only federal unemployment compensation tax

Question 14

The outstanding stock is composed of 10,000 shares of $100 par, cumulative preferred $8 stock, and 50,000 shares of no-par common stock. Preferred dividends have been paid every year EXCEPT for the preceding year and the current year. If $160,000 is to be distributed as a dividend for the current year, what total amount will be distributed to the preferred stockholders?

Select one:

a. 0

b. $80,000

c. $130,000

d. $160,000

Question 15

Amos Company acquired land in exchange for 10,000 shares of its $10 par common stock. The fair market value of the land is NOT determinable, but the stock is widely traded and was selling for $25 per share when exchanged for the land. At what amount should the land be recorded by Amos Company?

Select one:

a. $150,000

b. $250,000

c. $350,000

d. $100,000

Question 16

A corporation purchases 10,000 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?

Select one:

a. increase, $200,000

b. increase, $350,000

c. decrease, $200,000

d. decrease, $350,000

Question 17

Which of the following is NOT a prerequisite to paying a cash dividend?

Select one:

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

Question 18

The liability for a dividend is recorded on which of the following dates?

Select one:

a. the date of record

b. the date of payment

c. the date of announcement

d. the date of declaration

Question 19

Tom owns 2,000 shares of common stock in Phillips, Inc. These shares represent a 5% interest in the company. If Phillips issues a 10% stock dividend (a) how many shares will Phillips own after the dividend, and (b) what percentage ownership will he have in the company?

Select one:

a. 2200 shares; 5% ownership

b. 2200 shares; 5.5% ownership

c. 2100; 5% ownership

d. 2100; 5.5% ownership

Question 20

What is the effect of a stock dividend on the Balance Sheet?

Select one:

a. Decrease total assets and decrease total stockholders’ equity

b. Decrease total assets and total increase stockholders’ equity

c. Increase total liabilities and decrease total stockholders’ equity

d. No effect on total assets, total liabilities or total stockholders’ equity

Explanation / Answer

1. Answer: Option b. False

According to the matching principle, entire warranty expense pertaining to the sales made during the year should be recorded in the same year as the sales. Hence warranty expense of $12750 will be recorded in the first year of operations itself. The actual warranty expenditure to repair the products should be debited to the warranty liability account as and when incurred over the warranty period.

2. Answer: Option a. True

If the market rate of interest is higher than the bond’s stated interest rate, the bonds will sell at a discount.

3. Answer: Option a. True

The number of shares issued and outstanding is 15000 – 500 = 14500. Dividends are not paid on treasury stock. Hence, the cash dividend at $1 per share would amount to 14500 x $1 = $14500.

4. Answer: Option a. True

A stock split does not affect the overall market capitalization of a stock. Hence with a 5-for-1 stock split, the par value of shares will be reduced from $25 to $5 and the market value will reduce from $100 to $20 thus keeping the market capitalization unchanged from the earlier $100 (1 share x $100) to the new $100 (5 shares x $20) per share.

Per Chegg guidelines, 4 parts have been answered.

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