Question

TRUE OR FALSE

1. Payroll tax expense for businesses consists of FICA tax, federal unemployment tax, and state unemployment tax.
2. A disadvantage of bond financing is that issuing bonds dilutes (reduces) owners’ equity.
3. A bond's par value is not necessarily the same as its market value.
4. A premium on bonds occurs when bonds carry a contract rate greater than the market rate at issuance.
5. A corporation is a separate legal entity from its owners.
6. In a corporation, authorized stock can be defined as the total number of shares outstanding.
7. Common stock always carries a preference for receiving dividends over preferred stock.
8. A privately held corporation usually has only a few stockholders, and does not offer its stock for sale to the general public.
9. Earnings per share is calculated by dividing the total number of common shares outstanding by net income.
10. The financial term “P & E” refers to a share of stocks profit-to-earnings ratio.
11. The price-earnings ratio reveals information about the stock market's expectations for a company's future growth in earnings, dividends and economic opportunities.

Answer 1

1. Payroll tax expense for businesses consists of FICA tax, federal unemployment tax, and state unemployment tax.

Answer: True

Payroll tax expense consists of the taxes paid by the employer in relation to the payroll. It includes the FICA social security tax, FICA medicare tax, federal unemployment tax, and the state unemployment tax.

2. A disadvantage of bond financing is that issuing bonds dilutes (reduces) owners’ equity.

Answer: False

Bond financing is debt financing which does not dilute the owners’ equity. Additional equity financing would result in diluting the owners’ equity.

3. A bond's par value is not necessarily the same as its market value.

Answer: True

A bond’s par value may be higher, lower, or equal to the market value. If the stated rate of interest is equal to the market rate of interest, then the par value will be the same as the market value. However, in case of difference in the stated rate and the market rate, the par value will not be the same as its market value.

4. A premium on bonds occurs when bonds carry a contract rate greater than the market rate at issuance.

Answer: True

When the contract rate of the bond is higher than the market rate, the bonds are more attractive to the investors who are willing to pay a premium for the bonds.

Per Chegg guidelines, the first 4 questions have been answered. Please post the remaining separately. Thank you.