Deck 12: Stockholders Equity

Question 1

Which one of the following is an effect when a company buys back its own shares of stock?

A)Leverage is not affected.
B)It will pay more dividends.
C)It will have a higher debt/equity ratio.
D)Fixed assets will decrease.

Answer 1

C

Question 2

If preferred stock, which can be exchanged for long-term debt in three years, is classified as an equity financial instrument instead of a liability, then

A)the current ratio declines.
B)earnings per share is less than if the preferred stock was reported as debt.
C)fixed assets and net worth increase.
D)the debt/equity ratio is less than if the preferred stock was reported as debt.

Answer 2

D

Question 3

What is the effect of a corporation appropriating retained earnings for the cost of treasury stock purchased?

A)Contributed capital is overstated.
B)A portion of retained earnings is restricted from the payment of dividends.
C)Owner's equity is reduced by the amount of the appropriation.
D)Income is overstated.

Answer 3

B

Question 4

Which one of the following is a characteristic of equity as opposed to debt?

A)Voting rights are typically attached.
B)There is a fixed maturity date.
C)There is a legal contract.
D)There is a fixed payment schedule.

Question 5

Which one of the following is a valid reason for a stock split?

A)To increase ownership percentages of individual shareholders
B)To adjust the market price of the shares to a level where more individuals can afford to invest in the stock
C)To increase reported net income during subsequent accounting periods
D)To increase the book value per share of common stock

Question 6

On which date would you make no journal entry?

A)Date of declaration of cash dividend
B)Date of record of cash dividend
C)Date of payment of cash dividend
D)Date of declaring a stock dividend

Question 7

Which of the following is considered to be an important economic consequence of incentive compensation plans using stock options?

A)dilution of ownership interests.
B)the current ratio is affected.
C)the effects on the financial statements are costly to quantify.
D)the effect on cash flows

Question 8

Baker Company has 200,000 shares of common stock outstanding. The company declares a stock dividend of 58,000 shares. According to GAAP, this dividend should be treated as:

A)a small stock dividend.
B)a prior period adjustment.
C)a large stock dividend.
D)a purchase of treasury stock.

Question 9

Which one of the following serves to differentiate debt from equity?

A)Interest on debt may be deferred, but dividends are a legal liability and must be paid every year.
B)Interest on debt is tax deductible while dividends to equity investors are not.
C)Debt has a maturity date which is much shorter than the maturity period of equity.
D)Debt holders are appointed while the board of directors elects equity holders.

Question 10

Information related to Lamar Co. for the years ending December 31, 2017 and 2016 follows:
$\begin{array}{lrr}&12-31-17&12-31-16\\\text { Common stock } & \$ 120,000 & \$ 80,000 \\\text { Retaine dearnings at vear end (after closing) } & 100,000 & 70,000\end{array}$

Dividends declared for 2017 totaled $20,000. How much was generated through operations?

A)$30,000
B)$50,000
C)$10,000
D)$70,000

Question 11

If a corporation issues debt instead of common stock to finance the purchase of property, then the corporation has

A)a disadvantage of higher tax payments because dividends are a bigger deduction than interest.
B)no ability to avoid interest payments from the debt issuance under any circumstances.
C)required dividend payments that are usually double-taxed.
D)a higher earnings per share.

Question 12

Which one of the following transactions always causes a decrease to retained earnings?

A)Selling treasury stock
B)Incurring net income for the period
C)Declaring a stock dividend
D)Paying a cash dividend that was previously declared

Question 13

Which one of the following represents the economic effects of declaring and issuing a stock dividend?

A)Has no effect on total assets or total shareholders' equity
B)Decreases the debt/equity ratio
C)Decreases total shareholders' equity
D)Increases the current ratio

Question 14

Cash dividends are paid based on the number of shares which are

A)authorized.
B)issued.
C)outstanding.
D)outstanding minus the number of treasury shares.

Question 15

On January 1, 2017, Garner Corp. had 10,000 shares of $1 par value common stock issued and outstanding. The stock was selling at $10 per share. During 2017, Garner declared and issued a 10% stock dividend. The stock dividend causes

A)total shareholders' equity to increase by $1,000.
B)net income to decrease by $1,000.
C)earnings per share to decrease by $10,000.
D)no change in total shareholders' equity

Question 16

A corporation generated assets by issuing equity securities and through profitable operations. Which effects likely occurred?

A)Common stock and retained earnings increased.
B)Common stock increased and retained earnings stayed the same.
C)Retained earnings increased, and there was no effect on common stock.
D)Liabilities and common stock increased.

Question 17

A corporation issued common stock instead of debt to finance the purchase of non-depreciable property. Which statement is true?

A)Ownership by existing shareholders will be diluted.
B)The company's debt/equity ratio will be higher.
C)Income tax expense will be lower because expenses increase.
D)Net income will be lower.

Question 18

If a corporation uses retention of earnings to finance the purchase of property instead of issuing equity securities, then

A)the debt/equity ratio will be the same under both options.
B)it will pay more dividends.
C)leverage is being used.
D)a company's earnings per share will decrease.

Question 19

Which one of the following represents the economic effects of issuing a 2-for-1 stock split?

A)No effect on par value per share or retained earnings
B)Decrease par value per share, and no effect on retained earnings
C)No effect on par value per share, and decrease retained earnings
D)Increase par value per share and retained earnings

Question 20

Which one of the following is a result of a company issuing common stock instead of debt to finance the purchase of property?

A)Leverage will be more effective.
B)The company will probably experience cash flow problems.
C)It will have a lower debt/equity ratio.
D)It will report a lower net income.

Question 21

What effect will the acquisition of treasury stock have on shareholders' equity?

A)No effect
B)Increase
C)Depends on whether it cost more or less than the par value of the stock
D)Decrease

Question 22

If preferred stock is specified as 8% preferred stock, then preferred

A)dividends are a percentage of the par value of the preferred stock.
B)shareholders vote in the election of the members of the board of directors.
C)dividends are a percentage of corporate profits.
D)dividends in arrears must be paid before common shareholders receive dividends.

Question 23

If preferred stock is cumulative, then

A)preferred dividends are a percentage of corporate profits.
B)dividends in arrears must be paid before common shareholders receive dividends.
C)dividends are a percentage of the market value of the preferred stock.
D)payment of dividends is legally guaranteed to shareholders each year.

Question 24

A company declared cash dividends in 2016, and paid the dividends in 2017. The payment in 2017

A)decreases the debt/equity ratio.
B)increases the number of shares of stock outstanding.
C)decreases shareholders' equity.
D)decreases net income.

Question 25

Simon Corp's $1 par value, common stock was selling for $20 per share. Simon Corp's owners' equity accounts were as follows:
$\begin{array}{lr}\text { Common stock } & \$ 800,000 \\\text { Additional paid-in capital } & 200,000 \\\text { Retained earnings } & 400,000\end{array}$

How many shares of common stock have been issued?

A)30,000
B)600,000
C)800,000
D)Not enough information to determine.

Question 26

Dividends are not paid on

A)noncumulative preferred stock.
B)nonparticipating preferred stock.
C)treasury common stock.
D)outstanding common shares.

Question 27

Treasury stock is

A)an asset representing a corporate investment in itself.
B)highly-valued stock owned by a corporation.
C)illegal for U.S.corporations.
D)a decrease of shareholders' equity.

Question 28

Preferred stock may be preferred by investors as compared to common stock because

A)it pays higher dividends than common.
B)it has advantages of special rights to dividends and/or asset claims during liquidation.
C)preferred stock pays dividends and common stock pays interest.
D)dividends are expected to grow exponentially.

Question 29

Which one of the following events increases the debt/equity ratio?

A)Purchase of treasury stock
B)Sale of treasury stock for more than its cost
C)Sale of treasury stock for less than its cost
D)Payment of cash dividends that were previously declared

Question 30

The declaration of cash dividends

A)increases total expenses.
B)decreases current liabilities.
C)decreases earnings per share.
D)increases the debt/equity ratio.

Question 31

Which one of the following would always restrict a portion of retained earnings?

A)The sale of a plant asset
B)A sale of treasury stock
C)A declaration of cash dividends
D)An appropriation declared by the Board of Directors

Question 32

Which one of the following events increases the debt/equity ratio?

A)Purchase of inventory on account
B)Sale of treasury stock for less than its cost
C)The payment of cash dividends that were previously recorded
D)Recognition of net income for the year

Question 33

Dividends in arrears on cumulative preferred stock

A)increase liabilities.
B)decrease retained earnings.
C)have no effect on the balance sheet but are disclosed in the footnotes.
D)increase the debt/equity ratio.

Question 34

If a company sells its treasury stock for more than it cost and records a gain on the income statement, then

A)income and shareholders' equity are overstated.
B)only income is overstated.
C)only shareholders' equity is overstated.
D)the income statement and balance sheet are properly stated.

Question 35

If preferred stock is participating, then

A)preferred dividends are a percentage of corporate profits.
B)preferred shareholders vote in the election of the members of the board of directors.
C)preferred shareholders share in the remaining amount of dividend with common shareholders.
D)dividends in arrears must be paid before common shareholders receive dividends.

Question 36

The payment of previously declared cash dividends

A)increases the debt/equity ratio.
B)increases current liabilities.
C)increases earnings per share.
D)decreases total liabilities.

Question 37

On January 1, 2017, Susann, Inc. declared a 15% stock dividend on its common stock when the market value of the common stock was $20 per share. Shareholders' equity before the stock dividend was declared consisted of:
$\begin{array}{lr}\text { Common stock, } \$ 10 \text { par value, authorized } 40,000 \text { shares; }\\\text { issued and outstanding } 5,000 \text { shares } & \$ 50,000 \\\text { Additional paid-in capital on common stock } & 200,000 \\\text { Retained earnings } &\underline{60,000} \\\text { Total shareholders' equity } &\underline{ \$ 310,000} \\\end{array}$

What happened to retained earnings as a result of the stock dividend declaration?

A)$6,000 decrease
B)$7,500 decrease
C)$15,000 decrease
D)No change

Question 38

Which one of the following is 'debt' with the appearance of 'equity'?

A)Long-term debt with a rate of interest that depends upon the current prime rate of interest
B)Long-term debt that can be converted into common stock
C)Notes payable due in ten years
D)Stock options

Question 39

Dividends in arrears

A)are preferred dividends that have been declared but not paid.
B)must be legally paid in the future.
C)are dividends that have not been declared on cumulative preferred stock.
D)are reported as a liability on the balance sheet until paid.

Question 40

Which one of the following events decreases the current ratio?

A)A stock split
B)Sale of treasury stock for more than its cost
C)Sale of treasury stock for less than its cost
D)Purchase of treasury stock

Question 41

The equity section of Manning Company as of December 31, 2017 follows:
$$\begin{array} { | l | r | } \hline \text { Camman stock (11,000 shares issued (? \$6 par) } & \$ 6 6 , 0 0 0 \\\hline \text { Additional paid-in capital (Comman stock) } & 100,000 \\\hline \text { Retained earnings } & 6 0 , 0 0 0 \\\hline \text { Less: Treasury stack (1,000 shares (@ \$12) } & ( 12,000 ) \\\hline \text { Total shareholders' equity } &\$ 2 1 4 , 0 0 0 \\\hline\end{array}$$
The company declares and distributes a 3 percent stock dividend on the outstanding shares. The market price of the stock is $85 per share. The journal entry to record the stock dividend would include:

A)a debit to Additional Paid-In Capital, Common Stock for $25,500.
B)a credit to Common Stock for $1,800.
C)a credit to Stock Dividend for $25,500.
D)a debit to Additional Paid-In Capital, Common Stock for $23,700.

Question 42

The following information was taken from the statement of shareholders' equity of Carnival Industries:
$\begin{array}{|l|r|r|}\hline & 2017 &2 0 1 6\\\hline \text { Preferred stock (no par) } & \$ 900 & \$ 400 \\\hline \text { Common stock ( } \$ 1 \text { par value) } & 1,000 & 900 \\\hline \text { Additional paid-in capital: } & & \\\hline \text { Common stock } & 40 & 20 \\\hline \text { Treasury stock } & 10 & -- \\\hline \text { Less: Treasury stock } & 130 & 150 \\\hline\end{array}$

The journal entry to record the issuance of preferred stock during 2017 would include:

A)a debit to Preferred Stock for $900.
B)a credit to Preferred Stock for $500.
C)a credit to Additional Paid in Capital for $500.
D)a credit to Cash for $500.

Question 43

The equity section of Manning Company as of December 31, 2017 follows:
$$\begin{array} { | l | r | } \hline \text { Camman stock (11,000 shares issued (? \$6 par) } & \$ 6 6 , 0 0 0 \\\hline \text { Additional paid-in capital (Comman stock) } & 100,000 \\\hline \text { Retained earnings } & 6 0 , 0 0 0 \\\hline \text { Less: Treasury stack (1,000 shares (@ \$12) } & ( 12,000 ) \\\hline \text { Total shareholders' equity } &\$ 2 1 4 , 0 0 0 \\\hline\end{array}$$

The company declares a 12 percent stock dividend on the outstanding shares. The market price of the stock is $90. The journal entry to record the stock dividend would include:

A)a credit to Additional Paid-In Capital, Common Stock for $100,800.
B)a debit to Common Stock for $7,200.
C)a credit to Stock Dividend for $108,000.
D)a debit to Additional Paid-In Capital, Common Stock for $108,000.

Question 44

An ordinary 20% stock dividend

A)causes no change in retained earnings.
B)decreases assets.
C)increases contributed capital.
D)is reported on the income statement.

Question 45

The shareholders' equity section of Winters Company contained the following balances as of December 31, 2017:
$\begin{array}{|l|r|}\hline \text { Preferred stock ( } 10 \%, \$ 15 \text { par value, cumulative) } & \$ 1,500 \\\hline \text { Preferred stock ( } 12 \%, \$ 10 \text { par value, noncumulative) } & 1,500 \\\hline \text { Common stock } \$ 1 \text { par value, } 5,000 \text { shares authorized, } & 3,500 \\3,500 \text { issued and } 400 \text { held in treasury) } &\\\hline \text { Additional paid-in capital: } & \\\hline \text { Preferred stock (10\%) } & 1,050 \\\hline \text { Preferred stock }(12 \%) & 1,275 \\\hline \text { Common stock } & 2,345 \\\hline \text { Retained earnings } & 4,256 \\\hline \text { Less: Treasury stock } & \underline{(5,750)} \\\hline \text { Total shareholders' equity } & \$ 9.676 \\\hline\end{array}$


During 2018, Winters entered into the following transaction: On December 2, the company declared a cash dividend of $1,050, which was paid on December 27. Winters did not declare or pay any dividends during 2017. If Winters uses a separate dividend account for each type of stock, which of the following would be included in the journal entry to record the declaration of the 12% Preferred stock dividend?

A)a debit to 12% Preferred Cash Dividend for $180.
B)a debit to Dividend Expense for $180.
C)a debit to Dividends Payable for $180.
D)a debit to Cash for $180.

Question 46

The shareholders' equity section of Winters Company contained the following balances as of December 31, 2017:
$\begin{array}{|l|r|}\hline \text { Preferred stock ( } 10 \%, \$ 15 \text { par value, cumulative) } & \$ 1,500 \\\hline \text { Preferred stock ( } 12 \%, \$ 10 \text { par value, noncumulative) } & 1,500 \\\hline \text { Common stock } \$ 1 \text { par value, } 5,000 \text { shares authorized, } & 3,500 \\3,500 \text { issued and } 400 \text { held in treasury) } &\\\hline \text { Additional paid-in capital: } & \\\hline \text { Preferred stock (10\%) } & 1,050 \\\hline \text { Preferred stock }(12 \%) & 1,275 \\\hline \text { Common stock } & 2,345 \\\hline \text { Retained earnings } & 4,256 \\\hline \text { Less: Treasury stock } & \underline{(5,750)} \\\hline \text { Total shareholders' equity } & \$ 9.676 \\\hline\end{array}$


During 2018, Winters entered into the following transaction: On September 26, the company issued 200 shares of its 10 percent preferred stock at $23 per share. Which of the following would be included in the September 26 journal entry?

A)a debit to Preferred Stock for $3,000.
B)a credit to Cash for $4,600.
C)a debit to Cash for $3,000.
D)a credit to Additional Paid-In Capital for $1,600.

Question 47

If dividends paid are recorded as an expense, then

A)income and retained earnings are understated.
B)only income is understated.
C)only retained earnings is understated.
D)the income statement and balance sheet are correct.

Question 48

Chambers Corporation has total assets of $800,000 as of December 31, 2017 and total liabilities of $400,000. Contributed capital as of December 31, 2016 and December 31, 2017 is $150,000. Chambers Corporation incurred a $50,000 net loss for the year ended December 31, 2017. If Chambers declared and paid $80,000 in dividends in 2017, its retained earnings at the beginning of 2017 would have been.

A)$220,000.
B)$280,000
C)$380,000.
D)$440,000.

Question 49

Cavendish Corporation's balance sheet reflects total assets of $250 million as of November 30, 2017 and total liabilities of $200 million. Cavendish issues $100 million of preferred stock, receiving $100 million in cash. After issuing the preferred stock Cavendish's debt to equity ratio is:

A)0.67.
B)1.33.
C).4.00
D)6.00

Question 50

All of the following statements are true regarding the appropriations of retained earnings except:

A)Appropriations of retained earnings restrict retained earnings from future dividend payments.
B)Appropriations of retained earnings involve the restriction of cash.
C)Appropriations of retained earnings must be decided upon by the board of directors.
D)Appropriations of retained earnings do not change the amount of total stockholders' equity.

Question 51

The shareholders' equity section of Winters Company contained the following balances as of December 31, 2017:
$\begin{array}{|l|r|}\hline \text { Preferred stock ( } 10 \%, \$ 15 \text { par value, cumulative) } & \$ 1,500 \\\hline \text { Preferred stock ( } 12 \%, \$ 10 \text { par value, noncumulative) } & 1,500 \\\hline \text { Common stock } \$ 1 \text { par value, } 5,000 \text { shares authorized, } & 3,500 \\3,500 \text { issued and } 400 \text { held in treasury) } &\\\hline \text { Additional paid-in capital: } & \\\hline \text { Preferred stock (10\%) } & 1,050 \\\hline \text { Preferred stock }(12 \%) & 1,275 \\\hline \text { Common stock } & 2,345 \\\hline \text { Retained earnings } & 4,256 \\\hline \text { Less: Treasury stock } & \underline{(5,750)} \\\hline \text { Total shareholders' equity } & \$ 9.676 \\\hline\end{array}$

During 2018, Winters entered into the following transaction: On May 13, the company repurchased 55 shares of its common stock in the open market at $25 per share. Which of the following would be included in the journal entry for May 13?

A)a debit to Cash for $1,375.
B)a credit to Common Stock for $1,375.
C)a debit to Common Stock for $1,375.
D)a debit to Treasury Stock for $1,375.

Question 52

Smith Corporation's balance sheet reflects total assets of $3 million as of December 31, 2017 and total liabilities of $1.8 million. Smith has 100,000 shares of common stock outstanding. The market value of the stock is $9 per share. Smith's market to book ratio is:

A)0.75.
B)7.50.
C)12.00.
D)13.33.

Question 53

Dividends payable is recorded at the date of

A)issue.
B)record.
C)declaration.
D)payment.

Question 54

The shareholders' equity section of Jason Company as of December 31, 2017 follows:
$$\begin{array} { | l | r | } \hline \text { Comman stock } & \$ 180,000 \\\hline \text { Additional paid-in capital (Comman stock) } & 110,000 \\\hline \text { Retained earnings } & 160,000 \\\hline \text { Total sharehalders' equity } & \$ 450,000 \\\hline\end{array}$$
On January 15, the company repurchased 1,500 shares of its own common stock at $60 to hold as treasury stock. Which of the following would be included in the journal entry recorded on January 15?

A)a credit to Retained Earnings for $90,000.
B)a debit to Cash for $90,000.
C)a debit to Treasury Stock for $90,000.
D)a debit to Common Stock for $90,000.

Question 55

The shareholders' equity section of Winters Company contained the following balances as of December 31, 2017:
$\begin{array}{|l|r|}\hline \text { Preferred stock ( } 10 \%, \$ 15 \text { par value, cumulative) } & \$ 1,500 \\\hline \text { Preferred stock ( } 12 \%, \$ 10 \text { par value, noncumulative) } & 1,500 \\\hline \text { Common stock } \$ 1 \text { par value, } 5,000 \text { shares authorized, } & 3,500 \\3,500 \text { issued and } 400 \text { held in treasury) } &\\\hline \text { Additional paid-in capital: } & \\\hline \text { Preferred stock (10\%) } & 1,050 \\\hline \text { Preferred stock }(12 \%) & 1,275 \\\hline \text { Common stock } & 2,345 \\\hline \text { Retained earnings } & 4,256 \\\hline \text { Less: Treasury stock } & \underline{(5,750)} \\\hline \text { Total shareholders' equity } & \$ 9.676 \\\hline\end{array}$


During 2018, Winters entered into the following transaction: On December 2, the company declared a cash dividend of $1,050, which was paid on December 27. Winters did not declare or pay any dividends during 2017. Based on this information, what amount of dividends should be declared and paid to common shareholders?

A)$350
B)$420
C)$570
D)$385

Question 56

Garnett Corporation's balance sheet reflects total assets of $500,000 as of December 31, 2016 and total liabilities of $150,000. Garnett's balance sheet also reflects $50,000 of preferred stock outstanding on December 31, 2016. In the early 1990's, when Garnett was formed, it issued 50,000 shares of no-par common stock, a one-time event that accounted for its entire contributed capital, other than the preferred stock. Garnett had repurchased 15,000 shares of its common stock in 2015 from a retiring shareholder, which is now treasury stock. As of December 31, 2016 the book value of each outstanding share of Garnett's common stock is:

A)$6.00
B)$8.57
C)$10.00
D)$14.29.

Question 57

The shareholders' equity section of the Jason Company as of December 31, 2017 is as follows:
$$\begin{array} { | l | r | } \hline \text { Comman stock } & \$ 180,000 \\\hline \text { Additional paid-in capital (Comman stock) } & 110,000 \\\hline \text { Retained earnings } & 160,000 \\\hline \text { Total sharehalders' equity } & \$ 450,000 \\\hline\end{array}$$
On January 15, the company repurchased 1,500 shares of its own stock at $60 for treasury stock. On January 16, as part of a compensation package, the company reissued half of the treasury shares to executives who exercised stock options for $20 per share. On January 28, the company reissued the remainder of the treasury stock on the open market for $65 per share. Which of the following would be included in the journal entry recorded on January 28?

A)a credit to Treasury Stock for $48,750.
B)a credit to Additional Paid-In Capital, Treasury Stock for $48,750.
C)a debit to Cash for $45,000.
D)a credit to Additional Paid-In Capital, Treasury Stock for $3,750.

Question 58

The shareholders' equity section of Winters Company contained the following balances as of December 31, 2017:
$\begin{array}{|l|r|}\hline \text { Preferred stock ( } 10 \%, \$ 15 \text { par value, cumulative) } & \$ 1,500 \\\hline \text { Preferred stock ( } 12 \%, \$ 10 \text { par value, noncumulative) } & 1,500 \\\hline \text { Common stock } \$ 1 \text { par value, } 5,000 \text { shares authorized, } & 3,500 \\3,500 \text { issued and } 400 \text { held in treasury) } &\\\hline \text { Additional paid-in capital: } & \\\hline \text { Preferred stock (10\%) } & 1,050 \\\hline \text { Preferred stock }(12 \%) & 1,275 \\\hline \text { Common stock } & 2,345 \\\hline \text { Retained earnings } & 4,256 \\\hline \text { Less: Treasury stock } & \underline{(5,750)} \\\hline \text { Total shareholders' equity } & \$ 9.676 \\\hline\end{array}$


On September 26, 2018, Winters issued 200 shares of its 10 percent preferred stock at $23 per share. On December 2, the company declared a cash dividend of $1,050, which was paid on December 27. Winters did not declare or pay any dividends during 2017. If Winters uses a separate dividend account for each type of stock, which of the following would be included in the journal entry to record the declaration of the 10% preferred stock dividend?

A)a credit to 10% Preferred Cash Dividend for $600.
B)a debit to Dividend Expense for $600.
C)a credit to Dividends Payable for $600.
D)a debit to Cash for $600.

Question 59

Choice Corporation had 100,000 shares of commons stock outstanding on January 1, 2017. On January 1, 2017 Choice purchased 5,000 shares of its own common stock to fund a stock option plan for its executives. On December 31, 2017 Choice announced a 3 to 1 stock split. Choice's net income for 2017 was $400,000. How much should Choice report as earnings per share for 2017?

A)$1.33.
B)$1.40.
C)$4.00
D)$4.21

Question 60

The shareholders' equity section of Jason Company as of December 31, 2017 follows:
$$\begin{array} { | l | r | } \hline \text { Comman stock } & \$ 180,000 \\\hline \text { Additional paid-in capital (Comman stock) } & 110,000 \\\hline \text { Retained earnings } & 160,000 \\\hline \text { Total sharehalders' equity } & \$ 450,000 \\\hline\end{array}$$
On January 15, the company repurchased 1,500 shares of its own stock at $60 for treasury stock. On January 16, as part of a compensation package, the company reissued half of the treasury shares to executives who exercised stock options for $20 per share. On January 28, the company reissued the remainder of the treasury stock on the open market for $66 per share. Which of the following would be included in the journal entry recorded on January 16?

A)a debit to Cash for $15,000.
B)a debit to Treasury Stock for $45,000.
C)a credit to Additional Paid-In Capital for $45,000.
D)a credit to Additional Paid-In Capital for $15,000.

Question 61

On January 23, Oakley Co., for the first time in its short history, purchased 200 shares of its own common stock for $40 a share. On March 31, it sold 100 of those shares for $45 a share and properly recorded $500 as additional paid-in capital. On April 15, it sold the remaining 100 shares for $35 a share. Prepare the journal entry to record the April 15th transaction.

Question 62

Immediately before a 3-for-1 stock split was declared and distributed on 20,000 shares of par $80 stock, Mikah Company has total liabilities of $260,000 and total shareholders' equity of $320,000. Calculate Mikah Company's debt/equity ratio immediately after the stock split.

Question 63

Cullen Distribution Corporation's contributed capital section of its balance sheet follows:
$\begin{array}{lrr} \text { Preferredstock: \$10 par, 4\% } &\$650,000\\ \text { Common stock: \( \$ 8 \) par } &400,000\\\end{array}$


During the last two years, Cullen Distribution Corporation did not declare any dividends to its shareholders. This year, Cullen declares and pays total dividends of $100,000. Calculate separately the dividends paid to preferred and common shareholders if the preferred stock is cumulative.

Question 64

On January 23, Bennington Corporation, for the first time in its short history, purchased 200 shares of its own common stock for $40 a share. On March 31, it sold 100 of those shares for $45 a share. Prepare the journal entry recording the March 31st transaction.

Question 65

On January 23, Bayshore Corporation, for the first time in its short history, purchased 200 shares of its own common stock for $40 a share. On March 31, it sold 100 of those shares for $45 a share and properly recorded $500 as additional paid-in capital. On April 15, it sold the remaining 100 shares for $30 a share. Prepare the journal entry to record the April 15th transaction.

Question 66

Tropical Corporation has the following amounts as other revenue and expenses on its income statement.
$$\begin{array}{l}\text { Other revenue and expenses: }\\\begin{array} { l r } \text { Gain fram sale of treasury stock } & \$ 21,000 \\\text { Interest revenue } & 4,200 \\\text { Gain from sale of land } & 18,000 \\\text { Appropriated retained earnings for self-insurance } & ( 1,000 ) \\\text { Preferred dividends } & ( 11,000 ) \\\text { Common dividends } & ( 6,000 ) \\\text { Total } & \$ 25,200\end{array}\end{array}$$
List the items that do not belong on the income statement and indicate where each should be reported.

Question 67

The shareholders' equity section of Samuels Company were reported on the balance sheets for December 31:
$$\begin{array} { | l | r | r | } \hline &{ \mathbf { 2 0 1 7 } } & { \mathbf { 2 0 1 6 } } \\\hline \text { Preferred stock (9\%, } \$ 50 \text { par value) } & \$ 200,000 & \$ 120,000 \\\hline \begin{array} { l } \text { Common stock (\$10 par value, } 750,000\text { shares} \\\text { autharized, } 54,000 \text { issued and } 5,000\text { held in} \\\text { treasury) }\end{array} & 540,000 &3 9 6 , 0 0 0 \\\hline \text { Additianal paid-in capital: } & & \\\hline \text { Preferred stock } &155,000 &5 5 , 0 0 0 \\\hline \text { Camman stock } & 3 3 6 , 0 0 0 & 30 0 , 0 0 0 \\\hline \text { Retained earnings } &575,000&495,000\\\hline \text { Less: Treasury stack } & \underline{(110,000)}& ---- \\\hline \text { Total sharehalders' equity } & \underline{\$ 1,696,000 } & \underline{\$1,366,000} \\\hline\end{array}$$
Based on this information, how many shares of common stock were issued in 2017 and what was the average issue price?

A)21,000 shares and $7.82 per share
B)30,000 share and $6.00 per share
C)85,000 shares and $9.73 per share
D)24,000 shares and $7.50 per share

Question 68

Immediately before a $4,000 cash dividend was declared on 20,000 shares of par $80 stock, Sea Breeze Corporation has total liabilities of $220,000 and total shareholders' equity of $180,000. Calculate Sea Breeze's debt/equity ratio before and after the declaration of the cash dividend and indicate the effect the declaration had on this ratio.

Question 69

Immediately before Cavecreek Corporation purchased 4,000 shares of its own common stock for $25 a share, it had total liabilities of $200,000 and total shareholders' equity of $520,000. Calculate Cavecreek's debt/equity ratio immediately subsequent to the purchase of the treasury stock.

Question 70

Immediately before Zorro Corporation sold 4,000 shares of its own common stock for $30 a share, it had total liabilities of $200,000 and total shareholders' equity of $520,000. Determine Zorro's debt/equity ratio immediately subsequent to the stock issue.

Question 71

Gomer Paper Corporation has the following balance sheet accounts immediately preceding an investing and financing decision:
$\begin{array}{lr}\text { Current assets } & \$ 67,000 \\\text { Long-lived assets } & 73,500 \\\text { Current liabilities } & 28,500 \\\text { Long-term liabilities } & 22,000 \\\text { Contributed capital } & 60,000 \\\text { Retained earnings } & 30,000\end{array}$

A long-term debt covenant specifies that Gomer Paper's debt/equity ratio cannot be greater than 1.0 and its current ratio must be at least 2.0.
Gomer Paper is going to invest $70,000 in new equipment. It is considering two methods of financing the investment. It can use $10,000 of its own money and obtain $60,000 from the issue of long-term debt. Alternatively, Gomer Paper can use $15,000 of its own money and obtain the remaining financing from the issue of stock.
A. Recalculate the balance sheet amounts given above for each of the two financing alternatives immediately after financing is achieved and the investment is undertaken.
B. Use numerical calculations to determine if the debt covenants are respected under each of the two financing alternatives. If the covenants are broken for each alternative, suggest financing options that Gomer Paper might use to finance the $70,000 investment in equipment.

Question 72

An 8% stock dividend was declared and distributed on 3,000 shares of par $10 common stock when its market price was $32. Prepare the journal entry required by the stock dividend.

Question 73

Immediately before Cayman Corporation issued 2,000 shares of its common stock for $15 a share, it had total liabilities of $150,000 and total shareholders' equity of $300,000. Cayman had 10,000 shares of common stock outstanding prior to the new issuance. Calculate Cayman's debt/equity ratio immediately after the new issuance.

Question 74

Immediately before Cavecreek Corporation purchased 4
$\begin{array}{lr}\text { Common stock, \$2 par } & \$ 80,000 \\\text { Additional paid-in capital - common } & 50,000 \\\text { Additional paid-in capital-treasury stock } & 600 \\\text { Retained earnings } & 25,400 \\\text { Treasury stock } & \underline{(2,000)} \\\text { Total shareholders' equity } & \underline{\$ 154,000}\end{array}$

A. Assume all of the treasury stock was sold for $4,800. Calculate the following amounts:
1. Additional paid-in capital—treasury stock
2. Retained earnings
3. Total shareholders' equity
B. Assume all of the treasury stock was sold for $850. Calculate the following amounts:
1. Additional paid-in capital—treasury stock
2. Retained earnings
3. Total shareholders' equity

Question 75

The shareholders' equity section of Maven Corporation's balance sheet as of December 31, 2016 is as follows:
$\begin{array}{lr}\text { Common stock, } \$ 1 \text { par; authorized, } 6,000 \text { shares; } 2,000 \text { shares issued } & \$ 2,000 \\\text { Additional paid-in capital } & 60,000 \\\text { Retained earnings } & 58,000 \\\quad \text { Total shareholders' equity } & \$ 120,000\end{array}$
The following events occurred during 2017:
.February 1 - 400 shares of authorized and unissued common stock were sold for $4 per share.
.June 16 - A 15% stock dividend was declared and issued. Market value per share is currently $18.
.October 11 - A three-for-one split was carried out. Market value was $21 per share.
.November 4 - A cash dividend of $4.20 per share was declared, payable January 12 to shareholders of record on November 30.
How many shares of common stock are outstanding at December 31, 2017? Determine the balance in the common stock account at December 31, 2017.

Question 76

A 10% stock dividend was declared and distributed to shareholders of 60,000 outstanding shares of Meadville Company's $10 par value common stock; at that time the common stock's market price was $32. Prepare the journal entry required by the stock dividend.

Question 77

The shareholders' equity sections of Samuels Company as reported on the balance
Sheets for December 31 were:
$$\begin{array} { | l | r | r | } \hline &{ \mathbf { 2 0 1 7 } } & { \mathbf { 2 0 16 } } \\\hline \text { Preferred stock (9\%, } \$ 50 \text { par value) } & \$ 200,000 & \$ 120,000 \\\hline \begin{array} { l } \text { Common stock (\$10 par value, } 750,000\text { shares} \\\text { autharized, } 54,000 \text { issued and } 5,000\text { held in} \\\text { treasury) }\end{array} & 540,000 &3 9 6 , 0 0 0 \\\hline \text { Additianal paid-in capital: } & & \\\hline \text { Preferred stock } &155,000 &5 5 , 0 0 0 \\\hline \text { Camman stock } & 3 3 6 , 0 0 0 & 30 0 , 0 0 0 \\\hline \text { Retained earnings } &575,000&495,000\\\hline \text { Less: Treasury stack } & \underline{(110,000)}& ---- \\\hline \text { Total sharehalders' equity } & \underline{\$ 1,696,000 } & \underline{\$1,366,000} \\\hline\end{array}$$
Based on this information, how many shares of preferred stock were issued in 2017 and what was the average issue price?

A)4,000 shares and $112.50 per share
B)160 shares and $88.75 per share
C)800 shares and $250 per share
D)1,600 shares and $112.50 per share

Question 78

Immediately before a 15% stock dividend was declared and distributed on 20,000 shares of par $8 stock, the market price of the Coolidge Corporation's stock was $18. Coolidge has total liabilities of $150,000 and total shareholders' equity of $450,000. Prior to the stock dividend, current assets were $250,000, and there were no long-term liabilities.
Required:
(1) Give the journal entry to record the declaration and distribution of the stock dividend.
(2) Calculate Coolidge's current ratio immediately after the stock dividend and comment.

Question 79

If a corporation distributes a 4-for-3 stock split on its $5 common stock, how much is the par value after the split?

Question 80

A sequence of events affecting the shareholders' equity section of Malabar Corporation follows:
A. On January 21, 8,000 shares of $10 par value common stock were issued for $160,000.
B. On May 16, a 3-for-1 stock split was distributed.
C. On December 23, $8,000 of cash dividends on outstanding common stock were declared. The dividends will be paid in 30 days.
For each entry, state how the event changed assets, liabilities, and shareholders' equity.