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1) When a company remits (pays) sales taxes to the taxing agency, the
company debits Sales Tax Payable. The company does not report sales
taxes as an expense. (Ch 11)
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2) Payroll taxes levied upon the employer include employer's share of
Social Security taxes (FICA) and state and federal unemployment
taxes. (Ch 11)
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3) The debt to total assets ratio measures the percentage of
total assets provided by creditors. The higher the
percentage, the greater the risk that the company
may be unable to meet its maturing obligations.
(ch 11)
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4) A corporation makes journal entries only when it issues or
buys back bonds, or when bondholders convert bonds
into common stock. A corporation does not journalize
transactions between its bondholders and other investors.
(Ch 11)
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5) Unearned revenues are revenues received AFTER goods are delivered
or services are rendered.(Ch 11)
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6) Current maturities of long-term debt refer to the amount of
INTEREST on a note payable that must be paid in the current year.
(Ch 11)
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7) To obtain large amounts of long-term capital, corporate management
usually must decide whether to issue common stock or bonds (Ch 11).
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8) Available-for-sale securities are securities held with the intent
of
selling them
sometime in the future. Unrealized gains and losses on these
securities
are reported as a separate component of stockholders' equity. (Ch
13)
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9) Short-term investments (also called marketable securities) are
securites
held by a company that are readily marketable and intended to be
converted into cash within the next year or operating cycle,
whichever
is longer. (Ch 13)
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10) The times interest earned ratio indicates the company's ability
to meet interest payments as they come due. (Ch 11)
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11) A corporation is not an entity which is separate and distinct from
its owners. (Ch 12)
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12) If a corporation pays taxes on its income, then stockholders will
not have to pay taxes on the dividends received from that
corporation. (Ch 12)
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13) When a company owns more than 50% of the common stock
of another company, it usually prepares consolidated financial
statements (Ch 13)
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14) When no-par value stock does not have a stated value, the entire
proceeds from the issuance of the stock becomes legal capital.
(Ch 12)
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15) When an investor (company) owns between 20% - 50% of the common
stock of a company (investee), the investor records its share of
the
net
income of the investee in the year when it is earned.(Ch 13)
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16) Retained earnings are SUBTRACTED from paid-in capital to arrive at
total stockholders' equity. (Ch 12)
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17) The acquisition of treasury stock by a corporation INCREASES total
assets and total stockholders' equity.(Ch 12)
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18) Treasury stock is a corporation's own stock that it has issued and
subsequently reacquired from shareholders, but not retired.
(Ch 12)
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19) Preferred stockholders have a right to receive dividends
before common stockholders and priority to assets at liquidation.
Preferred stock often has a cumulative dividend feature. (Ch12)
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20) The return on common stockholders equity ratio
shows how many dollars of net income
were earned for each dollar invested by the stockholders.
(Ch 12)
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21) A stock split reduces the par or stated value per share of stock,
but does not have any effect on total paid-in capital,
retained earnings or total stockholders
equity.(Ch12)
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22) The trading of capital stock on securities exchanges involves the
transfer of already
issued shares from an existing stockholder to another investor and
has no impact on the
corporation's stockholders' equity. (Ch 12)
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23) In accounting for stock investments of less than 20%, companies
use the cost method where the company records the investment at cost
and recognizes revenue only when cash dividends are received. (Ch
13)
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24) The cost of a noncash asset acquired in exchange for common stock
should be either the fair market value of the consideration given
up or the consideration received, whichever is the more clearly
determinable. (Ch 12)
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