1. The initial owners of stock of a newly formed corporation are called directors.
2. The paid-in capital from sale of treasury stock account is debited if the sales price of the treasury stock sold is greater than its cost.
3. Bonds of major corporations are traded on bond exchanges.
4. An equal stream of periodic payments is called an annuity.
5. If the amount of a bond premium on an issued 11%, 4-year, $100,000 bond is $12,928, the annual interest expense is $5,500.
6. There is a loss on redemption of bonds when bonds are redeemed above carrying value.
7. Income tax expense reported on the income statement is the total taxes to be paid.
8. Cash, as the term is used for the statement of cash flows, could indicate either cash or cash equivalents.
9. Using the indirect method, if land costing $85,000 was sold for $145,000, the amount reported in the financing activities section of the statement of cash flows would be $85,000.
10. One of the prerequisites to paying a cash dividend is sufficient retained earnings.
11. Cash paid to acquire treasury stock should be shown on the statement of cash flows from investing activities.
12. In the vertical analysis of an income statement, each item is generally stated as a percentage of total assets.
13. If a company's rate of return on common stockholders' equity is greater than its rate of return on total assets, the company is effectively using leverage.
14. Generally, all deductions made from an employee's gross pay are required by law.
15. The main source of paid-in-capital is from issuing stock.
Multiple Choice:
16. The journal entry a company uses to record the payment of a discounted note is
a. debit Notes Payable and Interest Expense; credit Cash
b. debit Notes Payable; credit Cash
c. debit Cash; credit Notes Payable
d. debit Accounts Payable; credit Cash
17. An employee receives an hourly rate of $15, with time and a half for all hours worked in excess of 40 during the week. Payroll data for the current week are as follows: hours worked, 48; federal income tax withheld, $120; cumulative earnings for the year prior to this week, $24,500; Social security tax rate, 6% on maximum of $100,000; and Medicare tax rate, 1.5% on all earnings; state unemployment compensation tax, 3.4% on the first $7,000; federal unemployment compensation tax, .8% on the first $7,000. What is the net amount to be paid the employee?
a. $568.74
b. $601.50
c. $660.00
d. $574.90
18. The following totals for the month of April were taken from the payroll register of Magnum Company.
Salaries $12,000
FICA taxes withheld 550
Income taxes withheld 2,500
Medical insurance deductions 450
Federal Unemployment Taxes 32
State Unemployment Taxes 216
The journal entry to record the monthly payroll on April 30 would include a
a. credit to Salaries Payable for $8,500.
b. debit to Salaries Expense for $8,500.
c. debit to Salaries Payable for $8,500.
d. debit to Salaries Payable for $8,252.
19. Elgin Company sells merchandise with a one year warranty. In 2009, sales consisted of 2,500 units. It is estimated that warranty repairs will average $10 per unit sold, and 30% of the repairs will be made in 2009 and 70% in 2010. In the 2009 income statement, Elgin should show warranty expense of
a. $7,500
b. $17,500
c. $25,000
d. $0
20. The excess of issue price over par of common stock is termed a(n)
a. discount
b. income
c. deficit
d. premium
21. 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 amount of cash dividends to be paid if a $1 per share dividend is declared?
a. $60,000
b. $5,000
c. $100,000
d. $55,000
22. 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
23. When the market rate of interest was 11%, Munson Corporation issued $1,000,000, 12%, 8-year bonds that pay interest semiannually. The selling price of this bond issue was
a. $1,052,310
b. $1,154387
c. $1,000,000
d. $ 720,495
24. A $300,000 bond was redeemed at 103 when the carrying value of the bond was $315,000. The entry to record the redemption would include a
a. loss on bond redemption of $6,000.
b. gain on bond redemption of $6,000.
c. gain on bond redemption of $9,000.
d. loss on bond redemption of $9,000.
25. When the effective-interest method is used, the amortization of the bond premium
a. increases interest expense each period
b. decreases interest expense each period
c. increases interest expense in some periods and decreases interest expense in other periods
d. has no effect on the interest expense in any period
26. Long-term investments are held for all of the listed reasons below except
a. their income
b. long-term gain potential
c. influence over another business entity