Deck 10: Stockholders Equity

Question 1

A distribution of profits to owners is called ____________________.

Answer 1

dividend

Question 2

Select the type of business that is most likely to obtain large amounts of resources by issuing stock.

A) Partnership
B) Corporation
C) Sole proprietorship
D) None are correct.

Answer 2

B

Question 3

____________________ shares are the maximum number of shares a corporation can legally issue.

Answer 3

Authorized

Question 4

The number of shares sold to stockholders are ____________________ shares.

Question 5

An arbitrary monetary amount that determines an entity's legal capital is the ____________________.

Question 6

____________________ is the name of the account credited when a corporation issues common stock for a price greater than par.

Question 7

In which of the following organization forms are the owners' legal responsibility for the debt of the business limited to the amount they invested in the business?

A) Sole proprietorship
B) Corporation
C) Partnership
D) Cooperative

Question 8

The ____________________ is a preferred stock having a feature that provides for the current year dividends only to be paid to preferred stockholders before they are paid to common stockholders.

Question 9

Characteristics of a corporation include:

A) shareholders who are mutual agents.
B) direct management by the shareholders (owners).
C) its inability to own property.
D) shareholders who have limited liability.

Question 10

The number of shares issued less the number of shares of treasury stock is the ____________________ shares.

Question 11

To compute the return on equity ratio, the numerator includes ____________________ and the denominator is the average stockholders' equity.

Question 12

Which of the following is not a characteristic of a corporation?

A) Corporations are organized as a separate legal taxable entity.
B) Ownership is divided into shares of stock.
C) Corporations experience an ease in obtaining large amounts of resources by issuing stock.
D) A corporation's resources are limited to their individual stockholders' resources.

Question 13

The ____________________ is a preferred stock having a feature that provides for the current stated dividends plus dividends in arrears before any dividends are paid to the common stockholders.

Question 14

Which of the following is not characteristic of a corporation?

A) The financial loss that a stockholder may suffer from owning stock in a public company is limited.
B) Cash dividends paid by a corporation are deductible as expenses by the corporation.
C) A corporation can own property in its name.
D) Corporations are required to file federal income tax returns.

Question 15

Which of the following statements is false regarding the issuance of stock versus bonds to raise capital for a corporation?

A) The declaration of dividends reduces the amount of the corporation's taxable income.
B) Interest accrues; whereas, dividends do not accrue.
C) The payment of bond interest is a contractual requirement.
D) The declaration of dividends is at the discretion of the board of directors.

Question 16

The ____________________ ratio is computed by dividing dividends by net income.

Question 17

The ____________________ ratio is computed by dividing dividends per share by market price per share.

Question 18

Issued stock that is repurchased by the corporation but not retired is ____________________.

Question 19

If the stated cash dividend on cumulative preferred stock has been unpaid for a period of one year or more, it is referred to as a dividend ____________________.

Question 20

When stockholders exchange their shares of stock for additional shares, and there is a corresponding reduction in the par value of the stock, a stock ____________________ has occurred.

Question 21

The ability of a corporation to obtain capital is:

A) less than a partnership.
B) about the same as a partnership.
C) restricted because of the limited life of the corporation.
D) enhanced because of the limited liability and the ease of share transferability.

Question 22

Which of the following statements is true with regard to equity capital?

A) The number of shares actually in the hands of stockholders are called outstanding shares.
B) It is unusual for corporations to have more than one class of stock outstanding at any point in time.
C) Preferred stock represents the shares of stock that have been permanently retired.
D) Issued shares represent the maximum number of shares that can be issued by a corporation.

Question 23

Par value represents the:

A) arbitrary amount that establishes a minimum price for the stock when it is first issued.
B) current market price of the stock.
C) amount for which any treasury shares have been acquired by the corporation.
D) amount for which treasury shares may be reissued.

Question 24

If a corporation declares a 2-for-1 stock split, which of the following is true?

A) The amount of stockholders' equity doubles as a result of the split.
B) The amount of capital stock doubles as a result of the split.
C) The price of each share will be doubled as a result of the split.
D) A stockholder who previously held 100 shares will have 200 shares after the split.

Question 25

Porter Hardware, Inc. issues $2 par common stock. Which of the following is true?

A) $2 per share is presented on the balance sheet in the common stock account.
B) $2 per share is the maximum selling price for these shares of stock.
C) Liabilities will increase as a result of this transaction.
D) $2 in dividends will be paid to the stockholders as a result of this transaction.

Question 26

Outstanding shares represent the:

A) number of previously issued shares that have been repurchased by the corporation.
B) number of shares that the corporation has sold.
C) number of shares that are currently held by stockholders.
D) maximum number of shares that can be sold by the corporation.

Question 27

Authorized shares represent the:

A) number of previously issued shares that have been repurchased by the corporation.
B) number of shares that the corporation has sold.
C) number of shares that are currently held by stockholders.
D) maximum number of shares of stock that a company can legally issue.

Question 28

Issued shares represent the:

A) number of previously issued shares that have been repurchased by the corporation.
B) number of shares that the corporation has distributed to owners to date.
C) number of shares that are currently held by stockholders.
D) maximum number of shares that can be sold by the corporation.

Question 29

A corporation issues 1,500 shares of common stock for $32,000. The stock has a par value of $10 per share. The journal entry to record the stock issuance would include a credit to Common Stock for:

A) $15,000.
B) $32,000.
C) $17,000.
D) $2,000.

Question 30

A disadvantage of the corporate form of business entity is:

A) mutual agency for stockholders.
B) unlimited liability for stockholders.
C) corporations are subject to more governmental regulations.
D) the ease of transfer of ownership.

Question 31

If a corporation declares a 2-for-1 stock split, which of the following is true?

A) A new class of stock must be authorized with twice the number of issued shares.
B) The number of outstanding shares is half the number that was outstanding before the split.
C) The number of outstanding shares is twice the number that was outstanding before the split.
D) The number of authorized shares is doubled, while the par value is reduced to half of the pre-split par value.

Question 32

Ebberle Corporation reported the following in the stockholders' equity section of its balance sheet at December 31, 2012: How many shares of stock are issued?

A) 9,000 shares
B) 9,900 shares
C) 10,000 shares
D) 10,100 shares

Question 33

One of the main disadvantages of the corporate form is the:

A) professional management.
B) double taxation of dividends.
C) charter.
D) corporation must issue stock.

Question 34

Alma Corp. issues 1,000 shares of $10 par value common stock at $16 per share. When the transaction is recorded, a credit or credits are made to:

A) Common Stock $16,000.
B) Common Stock $10,000 and Additional Paid-in Capital $6,000.
C) Common Stock $6,000 and Additional Paid-in Capital $10,000.
D) Common Stock $10,000 and Retained Earnings $6,000.

Question 35

Under the corporate form of business organization:

A) ownership rights are easily transferred.
B) a stockholder is personally liable for the debts of the corporation.
C) stockholders' acts can bind the corporation even though the stockholders have not been appointed as agents of the corporation.
D) stockholders wishing to sell their corporation shares must get the approval of other stockholders.

Question 36

Which one of the following would not be considered an advantage of the corporate form of organization?

A) Government regulation
B) Separate legal existence
C) Continuous life
D) Limited liability of stockholders

Question 37

Petry Corporation issues 20,000 shares of $.50 par common stock for $6 per share. The account for Additional Paid-In Capital in excess of par will increase by:

A) $130,000.
B) $120,000.
C) $110,000.
D) $10,000.

Question 38

Prady, Inc. began operations on October 1, 2011, with 3,000 shares of $2 par common stock authorized. Prady issued all of its common stock during 2011 and 2012. On December 31, 2012, Prady repurchased 1,000 shares of its outstanding shares, then reissued 500 of these shares on March 1, 2013. On June 1, 2013, Prady declared a 2-for-1 stock split. As a result of this stock split, which of the following is true?

A) Assets decreased.
B) Stockholders' equity decreased.
C) Stockholders' equity increased.
D) Total stockholders' equity remained the same.

Question 39

The journal entry to issue 1,000,000 shares of $6 par common stock for $8.00 per share on January 2nd would be:

A)

B)

C)

D)

Question 40

Brumfield, Inc. issued 7,000 shares of $1 par common stock for $20 per share. In addition to the increase in cash, what effect does this transaction have on Brumfield's accounting equation?

A) Common stock increases $7,000 and retained earnings increases $133,000.
B) Common stock increases $7,000 and additional paid-in capital in excess of par increases $133,000.
C) Common stock increases $140,000.
D) Retained earnings increases $7,000 and additional paid-in capital in excess of par increases $133,000.

Question 41

Many stockholders choose to invest in preferred stock because:

A) preferred stock can always be converted into common stock at the stockholder's option.
B) the preferred dividend distributions are generally increased each year.
C) dividends are distributed to preferred stockholders before common stockholders.
D) preferred stockholders includes the right to participate in management decisions through voting privileges.

Question 42

After a corporation declares a cash dividend, what takes place on the date of record?

A) Cash decreases.
B) Liabilities decrease.
C) Equity decreases.
D) No entry is necessary.

Question 43

When a corporation declares a small stock dividend, which of the following is false?

A) Cash decreases.
B) Total stockholders' equity remains the same.
C) The capital stock accounts increase.
D) Retained earnings decreases.

Question 44

When a corporation decides whether to pay a cash dividend, which of the following is an important consideration?

A) The balances in the corporation's cash account to determine cash available for dividends.
B) The number of authorized shares of the corporation's stock.
C) The book value of the treasury stock.
D) The balance of paid-in capital in excess of par on the corporation's stock accounts.

Question 45

When a corporation declares a stock dividend, which of the following is true?

A) Cash decreases.
B) Equity remains the same.
C) Equity decreases.
D) Retained earnings increases.

Question 46

When a corporation pays a previously declared cash dividend, which of the following is true?

A) Cash increases.
B) Liabilities decrease.
C) Equity decreases.
D) No entry is necessary.

Question 47

When a corporation declares a cash dividend, which of the following is true?

A) Cash decreases.
B) Liabilities decrease.
C) Equity decreases.
D) No entry is necessary.

Question 48

Magnum Corporation had 60,000 of its $3 par common stock issued before its recent 3-for-1 stock split. The market price of the stock was $30 per share before the split. Which of the following is true as a result of the split?

A) There were 20,000 shares of common stock issued after the split.
B) The balance in the common stock account increased to $180,000.
C) The market price of the stock was not affected.
D) The par value of the stock decreased to $1 per share.

Question 49

What is the primary reason for a stock split?

A) To distribute cash to the investor.
B) To decrease the market value of the stock.
C) To decrease the number of shares outstanding.
D) To increase the capital stock of the corporation.

Question 50

The stockholders' equity section of the December 31, 2011, balance sheet for Inglenook Interiors, Inc. before its recent stock dividend: Inglenook declared a 10% stock dividend when the market price per share was $8.00. After the stock dividend, the components of Inglenook's stockholders' equity section were:
Common Stock Paid-in Capital Retained Earnings

A) $580,000 $100,000 $645,000
B) $550,000 $100,000 $805,000
C) $580,000 $130,000 $805,000
D) $550,000 $130,000 $645,000

Question 51

Patch, Inc. plans to distribute $134,000 in dividends. It has outstanding 200,000 shares of 7% $10 par preferred stock (cumulative) and 60,000 shares of $2 par common stock. How much will be distributed per share on preferred and common stock? Preferred stock Common stock

A) $3.35 $1.12
B) $0.70 $2.00
C) $0.67 $ -0-
D) $1.68 $1.68

Question 52

When is a liability for cash dividends created?

A) At the end of each fiscal year.
B) At the date of declaration.
C) At the date of record.
D) At the date of payment.

Question 53

If a corporation declares a 2-for-1 stock split, which of the following is true?

A) A journal entry is required to show the effect on the stockholders' equity accounts.
B) The stockholders will have a higher proportionate ownership share after the split.
C) The par value will be reduced to half of the pre-split par value.
D) The market price of the stock is expected to increase after the split.

Question 54

On June 1, 2011, Donner Technologies declared a $50,000 cash dividend to be distributed to its common stockholders of record on June 15, 2011. The dividend will be paid on July 1, 2011. The required journal entry on June 1 includes a:

A) $50,000 debit to retained earnings.
B) $50,000 debit to dividends payable.
C) $50,000 credit to cash.
D) $50,000 credit to common stock.

Question 55

If a corporation issues cumulative, participating preferred stock, which of the following is true regarding the rights of the preferred stockholders?

A) They must forgo dividends for any periods when no dividends are declared.
B) They have the right to receive current-year dividends and all unpaid dividends from prior years.
C) They will receive a fixed dividend each year regardless of the amount of dividends declared.
D) They will have an option to convert their shares to common stock at a specified date.

Question 56

Dividends in arrears are required to be reported in:

A) a liability account.
B) a contra-equity account.
C) the stockholders' equity section of the balance sheet.
D) the notes to the financial statements.

Question 57

Parnell, Inc. has 5,000 shares of $5 par, 3% cumulative preferred stock outstanding and 25,000 shares of $2 par common stock outstanding. No dividends have been paid for the past two years. If the company wishes to distribute $2 per share to the common stockholders, what is the total amount of dividends that must be paid in the current year?

A) $52,250
B) $50,750
C) $50,000
D) $2,250

Question 58

On January 15, 2011, Rockney Systems, Inc. paid a cash dividend that had been declared prior to the end of its 2010 fiscal year. The entry to pay the dividends includes a debit to:

A) Cash and a credit to Dividends Payable.
B) Dividends Payable and a credit to Cash.
C) Retained Earnings and a credit to Dividends Payable.
D) Dividends Payable and a credit to Retained Earnings.

Question 59

On January 1, 2010, Framm Corporation issued 10,000 shares of its 10%, $20 par value cumulative preferred stock. No dividends were declared by Framm in 2010 or 2011. In 2012, Framm had a profitable year and was in a strong cash position, so it declared a dividend of $200,000. How much of this dividend was paid to Framm's common stockholders?

A) $140,000
B) $160,000
C) $180,000
D) $200,000

Question 60

Which of the following is the appropriate general journal entry to record the declaration of a cash dividends?

A)

B)

C)

D)

Question 61

Denny's Deli, Inc.
The stockholders' equity section of the December 31, 2011, balance sheet for Denny's Deli appeared as follows:


- Assume that all of the 40,000 shares of Denny's stock that was issued as of December 31, 2011, was issued for $35 per share. On March 1, 2012, Denny reacquired 5,000 shares of its common stock for $43 per share.
Refer to the information presented above for Denny's Deli, Inc. Suppose that Denny reissued 1,500 shares of its treasury stock on June 1, 2012, for $50 each. Which of the following is true regarding the entry required to record this transaction?

A) A debit to treasury stock is required for $75,000.
B) A credit to treasury stock is required for $64,500.
C) A credit to retained earnings is required for $10,500.
D) A debit to additional paid-in capital from treasury stock transactions is required for $10,500.

Question 62

All of the following are reasons that a corporation may purchase treasury stock except:

A) if it needs the stock for its employee stock bonus program.
B) if it desires to make an investment in its own stock and is reported as an asset.
C) to buy out the ownership of stockholders.
D) to increase the reported amount of earnings per share.

Question 63

On the statement of cash flows, the cash flows from financing activities section would include:

A) receipts from the sale of investments.
B) payments for the acquisition of investments.
C) receipts from a note receivable.
D) receipts from the issuance of capital stock.

Question 64

Cash paid for preferred stock dividends should be shown on the statement of cash flows under:

A) investing activities.
B) financing activities.
C) both investing and financing activities.
D) operating activities

Question 65

Bravo Bistro, Inc.
The stockholders' equity section of the December 31, 2011, balance sheet for Bravo Bistro appeared as follows:


- Assume that all of the 2,000 shares of Bravo's stock that was issued as of December 31, 2011, was issued for $3.50 per share. On March 1, 2012, Bravo reacquired 1,000 shares of its common stock for $4.50 per share.
Refer to the information presented above for Bravo Bistro, Inc. If all of the 1,000 shares that Bravo Bistro repurchased on March 1 were later reissued for $5.00 per share, the journal entry to record this transaction includes a debit to what account and for what amount?

A) $4,000 to additional paid-in capital from treasury stock transactions
B) $2,000 to treasury stock
C) $500 to retained earnings
D) $5,000 to cash

Question 66

Murton Industries
Murton Industries, Inc. reported the following information on its recent balance sheet.
Common stock, $10 par, 100,000 shares authorized, 75,000 shares issued and outstanding

-
Refer to the information for Murton Industries. What is the effect of a 10% stock dividend if the market price of the common stock is $30 per share when the stock dividend is declared?

A) A stock dividend has no impact on any of the stockholders' equity accounts.
B) Total stockholders' equity increases $75,000.
C) Cash increases $300,000.
D) Retained earnings decreases by $225,000.

Question 67

What types of accounts are Treasury Stock and Additional Paid-in Capital from treasury stock transactions? Treasury Stock Additional Paid-in Capital from treasury stock transactions

A) Contra equity Stockholders' equity
B) Contra equity Contra equity
C) Stockholders' equity Stockholders' equity
D) Retained earnings Retained earnings

Question 68

Bravo Bistro, Inc.
The stockholders' equity section of the December 31, 2011, balance sheet for Bravo Bistro appeared as follows:


-Assume that all of the 2,000 shares of Bravo's stock that was issued as of December 31, 2011, was issued for $3.50 per share. On March 1, 2012, Bravo reacquired 1,000 shares of its common stock for $4.50 per share.
Refer to the information presented above for Bravo Bistro, Inc. The journal entry to record the transaction on March 1 includes a credit to what account and for what amount?

A) $3,000 to paid-in capital from treasury stock transactions
B) $4,500 to treasury stock
C) $3,000 to common stock
D) $4,500 to cash

Question 69

Which of the following statements is true regarding a corporation's purchase of treasury stock?

A) The cost of treasury stock is a reduction in stockholders' equity.
B) Dividends must still be paid on treasury stock because it is still issued.
C) Treasury stock is reported as an asset because it is considered an investment in the corporation's own stock.
D) Treasury stock is no longer considered issued once it is back in the hands of the issuer.

Question 70

Murton Industries
Murton Industries, Inc. reported the following information on its recent balance sheet.
Common stock, $10 par, 100,000 shares authorized, 75,000 shares issued and outstanding

-
Refer to the information for Murton Industries. What is the effect of a 2-for-1 stock split if the market value of the common stock is $20 per share at the time the stock split is declared?

A) A stock split has no impact on any of the stockholders' equity account balances.
B) Total stockholders' equity increases $750,000.
C) Cash increases $750,000.
D) $1,500,000 of retained earnings is transferred to the capital stock accounts.

Question 71

Denny's Deli, Inc.
The stockholders' equity section of the December 31, 2011, balance sheet for Denny's Deli appeared as follows:


- Assume that all of the 40,000 shares of Denny's stock that was issued as of December 31, 2011, was issued for $35 per share. On March 1, 2012, Denny reacquired 5,000 shares of its common stock for $43 per share.
Refer to the information presented above for Denny's Deli, Inc. What is the total amount of stockholders' equity that will be presented on Denny's March 31, 2012, balance sheet?

A) $1,505,000
B) $1,432,000
C) $1,600,000
D) $1,530,000

Question 72

Treasury shares represent the:

A) number of previously issued shares that have been repurchased by the corporation.
B) number of shares that the corporation has sold.
C) number of shares that are currently held by stockholders.
D) maximum number of shares that can be sold by the corporation.

Question 73

Cash dividends paid on common stock would be reported in the statement of cash flows in:

A) the cash flows from financing activities section.
B) the cash flows from investing activities section.
C) a separate schedule.
D) the cash flows from operating activities section.

Question 74

Murton Industries
Murton Industries, Inc. reported the following information on its recent balance sheet.
Common stock, $10 par, 100,000 shares authorized, 75,000 shares issued and outstanding

-
Refer to the information for Murton Industries. What is the effect on Murton's accounting equation of issuing 1,000 additional shares of common stock at $15 per share?

A) Assets increase $15,000, liabilities increase $5,000, and equity increases $10,000
B) Assets increase $15,000, liabilities remain unaffected, and equity increases $15,000
C) Assets decrease $10,000, liabilities remain unaffected, and equity increases $10,000
D) Assets decrease $15,000, liabilities decrease $5,000, and equity decrease $10,000

Question 75

Coral Cleaners, Inc.
Coral Cleaners reported the following information in the stockholders' equity section of its December 31, 2011, balance sheet.


- Refer to the information presented above for Coral Cleaners, Inc. Coral's total capital stock is:

A) $ 650,000.
B) $ 675,000.
C) $ 625,000.
D) $1,500,000.

Question 76

The excess of sales price of treasury stock over its cost should be credited to:

A) Treasury Stock Receivable
B) Premium on Capital Stock
C) Additional Paid-In Capital
D) Income from Sale of Treasury Stock

Question 77

Denny's Deli, Inc.
The stockholders' equity section of the December 31, 2011, balance sheet for Denny's Deli appeared as follows:


-Assume that all of the 40,000 shares of Denny's stock that was issued as of December 31, 2011, was issued for $35 per share. On March 1, 2012, Denny reacquired 5,000 shares of its common stock for $43 per share.
Refer to the information presented above for Denny's Deli, Inc. How much should be reported on Denny's March 31, 2012, balance sheet for treasury stock?

A) $42,000
B) $126,000
C) $162,000
D) $215,000

Question 78

Earnings per share is an indication of how much:

A) the company has in cash for each share of outstanding common stock.
B) the company earned for each share of outstanding common stock.
C) the company paid as dividends for each share of common stock held by stockholders.
D) the company earned for each share of outstanding common and preferred stock.

Question 79

Denny's Deli, Inc.
The stockholders' equity section of the December 31, 2011, balance sheet for Denny's Deli appeared as follows:


- Assume that all of the 40,000 shares of Denny's stock that was issued as of December 31, 2011, was issued for $35 per share. On March 1, 2012, Denny reacquired 5,000 shares of its common stock for $43 per share.
Refer to the information presented above for Denny's Deli, Inc. Suppose that Denny reissued 1,500 shares of its treasury stock on June 1, 2012, for $50 each. Which of the following is true regarding the entry required to record this transaction?

A) A debit to treasury stock is required for $64,500.
B) A credit to treasury stock is required for $49,000.
C) A debit to cash is required for $75,000.
D) A debit to additional paid-in capital from treasury stock transactions is required for $10,500.

Question 80

The Sneed Corporation issues 10,000 shares of $50 par value preferred stock for cash at $70 per share. The entry to record the transaction will consist of a debit to Cash for $700,000 and a credit or credits to:

A) Preferred Stock for $700,000.
B) Preferred Stock for $500,000 and Additional Paid-in Capital for $200,000.
C) Preferred Stock for $500,000 and Retained Earnings for $200,000.
D) Paid-in Capital from Preferred Stock for $700,000.