Deck 14: Shareholders Equity

Question 1

If a corporation has dividends in arrears on preferred shares, they should also:

A)Declare the dividends.
B)Record a liability for the dividends.
C)Capitalize retained earnings for the dividends.
D)Report the dividends in arrears.

Answer 1

D

Question 2

Under the single transaction method, the difference between the cost of treasury stock and a subsequent higher selling price of the treasury stock should be credited to:

A)Gain from treasury stock transaction.
B)Share capital.
C)Retained earnings.
D)Contributed capital.

Answer 2

D

Question 3

On January 10, 2013, ZOE Corporation declared a cash dividend when the related shares were selling for $10 per share.ZOE prepared the list of shareholders on February 10, 2013 at which time the shares were still selling for $10 per share.However, on February 11, 2013 the shares were selling for $8 per share.The dividend was paid on March 1, 2013 when the shares were selling for $9 per share.The ex-dividend date must have been:

A)March 1/13.
B)February 10/13.
C)February 11/13.
D)January 10/13.

Answer 3

C

Question 4

When noncash assets are issued as a dividend, those assets should be re-valued as of the:

A)Declaration date.
B)Recording date.
C)Announcement date.
D)Issuance date.

Question 5

CRC reported the following on its 2015 balance sheet: $6 Preferred shares, no par = $62,000 Common shares, no par = $320,000 Retained earnings = $240,000
Given common shares outstanding, what is the average issue price per common share?

A)Choice 5
B)Choice 2
C)Choice 3
D)Choice 4
E)Choice 1

Question 6

The declaration and payment of a cash or property dividend requires:

A)the distribution of a current asset.
B)an appropriation of retained earnings.
C)a reduction of both retained earnings and assets.
D)a decrease in retained earnings and a change in contributed (paid-in)capital.

Question 7

A dividend that constitutes a return of contributed capital rather than earnings is called a:

A)Liability dividend.
B)Property dividend.
C)Liquidating dividend.
D)Capital dividend.

Question 8

Under IFRS, the treatment of any of a company's foreign subsidiary is dependent upon:

A)The functional currency of the subsidiary.
B)The nature and extent of the parent company's relationship with the subsidiary.
C)Managerial judgement.
D)Whether the subsidiary is integrated or self-sustaining.

Question 9

During 2014, BV sold and issued the following shares for $20,000 cash: Common shares, 600 shares (current market price per share, $23.50). Preferred shares, 200 shares (no current market price available); original issue price, three
Years earlier, $22 per share.
The total issue price of $20,000 that should be apportioned to the preferred shares is:

A)$4,000
B)$8,000
C)$4,400
D)$5,900

Question 10

The effect of a stock dividend is to reduce:

A)retained earnings and the par value of each share.
B)total stockholders' equity.
C)retained earnings and increase legal capital.
D)total assets and reduce total stockholders' equity.

Question 11

The owners' equity section of a firm's balance sheet reflects the following at the end of th current year: $6 Preferred shares, 3,000 shares outstanding = $300,000 Common shares, 100,000 shares outstanding = $500,000
(Matching dividend, if applicable, $.30)
The preferred shares participate up to a maximum of $8 ($2 additional participation).There were two years of dividends in arrears on the preferred shares at the beginning of the current year.If the firm declares $90,000 in dividends at the end of the current year, what portion of that amount is distributed to the preferred shareholders?

A)$56,250
B)$54,000
C)$60,000
D)$55,250

Question 12

The dollar amount of total shareholders' equity remains the same for the:

A)Issuance of nonconvertible bonds with detachable stock purchase warrants.
B)Declaration of a cash dividend.
C)Declaration of a stock dividend.
D)Issuance of preferred shares in exchange for convertible debentures.

Question 13

Ryan Corp.has the following share capital outstanding: Common, 10,000 shares Preferred $1.80 noncumulative, non-participating, 10,000 shares
Dividends are two years in arrears, excluding the current year.Total dividends of $90,000 will be paid for the current year.The total amounts that will be received by the preferred shareholders and common shareholders are:

A)Choice 1
B)Choice 2
C)Choice 3
D)Choice 4

Question 14

A stock dividend:

A)Increases the wealth of the recipient if the market value of the shares are unchanged by the stock dividend
B)If 100%, has no effect on the market value of the shares
C)If less than 20% to 25%, reduces retained earnings by the par value of shares distributed in the dividend
D)Alters the par value of the common shares

Question 15

ABC declared a common stock dividend on March 10, at which time its shares were selling for $15 per share and 10,500 shares were outstanding.After the dividend, because only 13,650 shares were outstanding, some shareholders received fractional share rights.If the provisions of the dividend provided that one share was to be issued for each three shares previously owned, there must have been:

A)Fractional shares outstanding not determinable based on the information given.
B)350 fractional share rights outstanding.
C)117 fractional share rights outstanding.
D)1,050 fractional share rights outstanding.

Question 16

A 3-for-1 common stock split,

A)Will likely not affect the market value of the stock
B)Has no effect on common share account
C)Will cause a change in the allocation of dividends to common stock relative to preferred stock
D)Decreases retained earnings by the par value of shares distributed in the split

Question 17

On January 1, 2015, WVC split its common shares 4 for 1 when the market value was $80 per share.Prior to the split, WVC had 50,000 common shares issued and outstanding (average issue price $12 per share).After the split, the average issue price of the shares was reduced:

A)To $3 per share.
B)By $3 per share.
C)To $4 per share.
D)No change in the par value.
E)To $2.40 per share.

Question 18

Which of the following is not a basic right of shareholders?

A)To participate in the profits of the corporation through dividends declared by the board of directors.
B)To share in the distribution of assets of the corporation at liquidation or through liquidating dividends.
C)To participate in the management of the corporation through taking part in and voting in shareholders' meetings.
D)To inspect the books of account and to insist upon an audit in the event of dissatisfaction with results revealed by such inspection.
E)To sell shares in the corporation at a price exceeding its cost.

Question 19

Zygo sold 1,000 common shares (par $3)at $5 per share on a subscription basis.The entry to record this transaction included a credit to:

A)Cash.
B)Subscriptions receivable.
C)Contributed capital in excess of par.
D)Accounts receivable.

Question 20

Which of the following is NOT a true statement? Treasury stock is:

A)Shares that have been issued but are no longer outstanding.
B)Shares that are included in earnings per share calculations.
C)Shares that cannot receive dividends nor vote.
D)Recorded in an equity account that has a debit balance.
E)Shares that are held by the issuing company but has not been retired.

Question 21

If preferred shares are non-participating, then:

A)Preferred shareholders are not entitled to a prior year's dividend once that year has passed.
B)Preferred shareholders are not entitled to vote.
C)Preferred shareholders may receive dividends in excess of a specific rate if common stockholders receive more than that specific rate.
D)Preferred dividends for the year are limited to a specific rate.

Question 22

XHC had only two share transactions.Initially, XHC issued 1,000 common shares, at $15 per share.XHC later bought back 200 shares at $16 per share.Under the
Single-transaction method, what is the amount that should be recorded in the treasury stock account?

A)$3,600
B)$3,200
C)$2,000
D)$3,000

Question 23

RST had the following shareholders and the shares owned by each on November 15: On that date, RST declared a 1 for 2 common stock dividend.The stock was selling for $10 per share.RST issued fractional share rights when necessary.RST had to issue which of the following number of fractional share rights:

A)Three.
B)More than three.
C)One.
D)Two.

Question 24

On January 1, 2014, DDB agreed to purchase 4,000 of CTC's common shares at $5 per share.Cash payment in full, including 10% interest, is to be paid one year later at which time the shares will be issued.The appropriate journal entry for CTC to record the transaction on January 1, 2014, would include a:

A)Credit to Common Shares Subscribed for $20,000.
B)Debit to Cash for $20,000.
C)Credit to Cash $20,000.
D)Debit to Subscriptions Receivable for $18,000.

Question 25

How should a gain from the sale of treasury stock be reflected when using the single transaction method of recording treasury stock transactions?

A)As an increase in the amount shown for common stock
B)As ordinary earnings shown on the income statement
C)As an extraordinary item shown on the income statement
D)As contributed capital from treasury stock transactions

Question 26

For dividends, the date of record is the date:

A)The dividend is actually paid.
B)The market price of the shares drops due to the dividend.
C)The dividend is announced.
D)On which the list of shareholders is prepared.

Question 27

The redemption privilege on preferred shares provides that the preferred shareholders can:

A)Purchase treasury shares any time they become available.
B)Turn in the preferred shares for a specified cash price.
C)Purchase enough shares of any new issue, so that their percentage ownership remains the same.
D)Exchange the preferred shares for common shares.

Question 28

Lorella entered into a common share subscription contract for 1,000 shares at a subscription price of $20.She paid 20% of the total price as a down payment and also paid the next two 20% instalments (she paid 60% in all).Lorella then defaulted on the contract and refused to pay any more.Assuming the company must issue shares in proportion to the cash paid, the entry to record the default would include:

A)dr.common shares subscribed $20,000
B)dr.common shares subscribed $12,000
C)dr.subscriptions receivable $8,000
D)dr.common shares $12,000

Question 29

The entry to record share issue costs will never affect:

A)Retained Earnings.
B)Liabilities.
C)Share Capital.
D)Earnings.

Question 30

Fractional share rights are usually issued:

A)At the time a stock dividend is declared.
B)At the time a property dividend is declared.
C)When a corporation issues a stock split.
D)At the time a cash dividend is declared.

Question 31

Losses that a corporation suffers from dealing in its own stock may:

A)Never be recorded in the retained earnings account.
B)Be recorded as a long-term loss.
C)Be recorded in the retained earnings account.
D)Be recorded as a loss from peripheral or incidental transactions (i.e., not from continuing operations).

Question 32

The owners' equity section of a firm's balance sheet reflects the following at the end of th current year: $6 Preferred shares, 3,000 shares outstanding = $300,000 Common shares, 100,000 outstanding = $500,000
(Matching dividend, if applicable, $.30)
The preferred shares participate up to a maximum of $8 ($2 additional participation).There were two years of dividends in arrears on the preferred shares at the beginning of the current year.If the firm declares $110,000 in dividends at the end of the current year, what portion of that amount is distributed to the common shareholders?

A)$60,000
B)$54,000
C)$30,000
D)$50,000

Question 33

BX had the following shares outstanding: Preferred shares, $6, 2,000 shares = $100,000 Common shares, 2,000 shares = $200,000
(Matching dividend, if applicable, $12)
The preferred shares are cumulative, fully participating; dividends are three years in arrears, excluding the current year; dividends declared in the current year amount to
$87,000.The total amount of dividends to which common shareholders are entitled is:

A)$40,000
B)$52,000
C)$34,000
D)$49,000

Question 34

Major factors contributing to the growth of the corporate form of business includes all of the following except:

A)The facility to accumulate large amounts of resources.
B)The lack of government regulation.
C)Easy transferability of ownership.
D)Limited liability of the shareholders.

Question 35

When a corporation issues a dividend in excess of the balance of its retained earnings account, it is issuing a:

A)Property dividend.
B)Liquidating dividend.
C)Stock dividend.
D)Scrip dividend.

Question 36

An appropriation of retained earnings of a significant amount:

A)Should be reversed when the purpose of the appropriation has been achieved.
B)Means that specific assets actually have been set aside for a specific purpose.
C)Can be used to absorb extraordinary losses directly one of a significant amount.
D)provides protection to the stockholders rather than to the creditors.
E)Can have a significant impact on the total amount of retained earnings when recorded.

Question 37

Identify the missing component (X)in the following equation: Retained earnings, ending balance = Net income to date + prior period adjustments to date - cash and property dividends to date - X

A)Stock dividends to date.
B)Net unrealized gain or loss on securities available for sale.
C)Stock dividends and splits to date.
D)Stock splits to date.

Question 38

Issued share capital refers to the number of shares:

A)Outstanding.
B)That may be issued according to the corporate charter.
C)Outstanding plus all shares held as treasury shares.
D)Outstanding less all shares held as treasury shares.

Question 39

SXC reported the following data on its 2014 statement of financial position: If the average price paid for all of the common shares sold and subscribed were $5.00, the total number of sold and subscribed shares was:

A)44,000
B)44,400
C)40,000
D)40,400
E)None of these answers are correct.

Question 40

Effective April 8, 2014, the shareholders of Kim Corporation approved a 2 for 1 split of the company's common shares, and an increase in authorized common shares from 100,000 shares to 200,000 shares.Kim's shareholders' equity accounts immediately befor issuance of the stock split shares were as follows: Common shares, 100,000 shares authorized; 50,000 shares outstanding = $2,250,000 Retained earnings = $2,150,000
What should be the balances in Kim's common shares and retained earnings accounts immediately after the stock split?

A)Choice 1
B)Choice 2
C)Choice 3
D)Choice 4

Question 41

Share capital may be classified primarily as:

A)Par Value, Common; Stated Value Common; or No-par, Preferred.
B)Par Value, Common; or No- par, Preferred.
C)No-par, Common; or Par Value, Preferred.
D)Par Value, Common; No-par, Common; Par Value, Preferred; or No-par, Preferred.

Question 42

Which of the following dividends does not reduce retained earnings?

A)Property dividend.
B)Scrip dividend.
C)Liquidating dividend.
D)Stock dividend.
E)Cash dividend.

Question 43

Which of the following statements concerning stock dividends is correct?

A)A stock dividend cannot use treasury stock.
B)The issuance of a stock dividend increases total stockholders' equity.
C)The declaration of a stock dividend should not be recorded as a liability even though it has not yet been issued.
D)Courts generally have held that stock dividends, once declared, are irrevocable by the board of directors; therefore, a stock dividend declared, but not yet issued is a liability.

Question 44

Accounting recognition must be given to common share subscriptions on the subscription date:

A)because all events relating to the common share accounts must be disclosed.
B)because a legal contract is involved.
C)because the dollar amount is usually large.
D)to guarantee the receipt of dividends subsequent to the subscription date.

Question 45

The increases in account balances of XYZ during 2014 are presented below: Assuming the only debit to retained earnings was for a dividend of $52,000, net income for 2014 was:

A)$8,000
B)$96,000
C)$104,000
D)$68,000

Question 46

At the date of the financial statements, common shares issued would exceed common shares outstanding as a result of the:

A)Declaration of a stock dividend.
B)Purchase of treasury stock.
C)Payment in full of subscribed shares.
D)Declaration of a stock split.

Question 47

XV Corporation has 1,000 shares of treasury stock (common shares).It was originally issued at $15 per share and was reacquired at $10 per share.XV Corporation has decided to formally retire these shares; the current market price is $9.The single-transaction method is used.The entry to record the retirement of the shares should include the following:

A)Gain on retirement of common shares, $5,000.
B)Unusual gain, $5,000.
C)Retained earnings credit, $5,000.
D)Contributed capital from common share retirement, credit, $5,000.

Question 48

Authorized share capital refers to the total number of shares:

A)That can be issued in conformity with the corporation's charter.
B)Outstanding.
C)Issued, less all treasury shares owned.
D)Issued.

Question 49

If preferred shares are noncumulative, then:

A)Cash dividends not declared in prior years are lost permanently.
B)The preferred shareholders are entitled to current and arrears of dividends before common shareholders can receive dividends.
C)Prior years' cash dividends must be paid to the preferred shareholders before any dividends may be paid to the common shareholders.
D)The preferred shareholders are only entitled to a specific percent of the cash dividends, regardless of the amount declared.

Question 50

The conversion from one type of share to another should be accounted for at:

A)Book Value.
B)Fair Market Value.
C)A discounted amount.
D)Book Value or Fair Market Value.

Question 51

The December 31, 2016, the balance sheet of TXY reflected the following: Assume the company sold all of the assets at December 31, 2016, at market value for cas paid off the liabilities and distributed all of the remaining cash to the shareholders.The amount of cash per share that each common shareholder would receive would be:

A)$4.47
B)$5.93
C)$8.27
D)$6.07

Question 52

When all of the preferred shares are purchased and formally retired by the issuing corporation for less than its original issue price, accounting for the retirement increases:

A)Contributed capital in excess of par, common stock.
B)Contributed capital from retirement of preferred shares.
C)Net income for the period.
D)Retained earnings.

Question 53

XY Company had the following shareholder equity: Common shares outstanding, 10,000; average issue price, $115; current market price, $140.Shares sold on a stock subscription basis are not issued until the subscription price is collected in full.Recording a declaration of a 10 percent stock dividend in conformity with generally accepted accounting principles would change retained earnings:

A)On the basis of an arbitrary value of shares.
B)By 10 percent of its balance before the dividend.
C)On the basis of the market value of shares.
D)On the basis of the average paid-in value of shares.

Question 54

Ownership of shares usually entitles the holders to all of the following rights except:

A)To elect the board of directors of the corporation.
B)To share in the profits of the corporation.
C)To control the day-to-day operations of the corporation.
D)To purchase new shares when they are offered for sale.

Question 55

On December 31, 2013, TTX reported owners' equity of $150,000.During 2014, TTX declared and paid cash dividends of $30,000; reported a net loss of $15,000; issued additional common shares (no par)for $70,000; and purchased treasury stock at a cost of $15,000 (cash), Therefore, the 2014 ending amount of shareholders' equity was:

A)$230,000
B)$215,000
C)$160,000
D)$170,000

Question 56

PQR Inc.had 1,000 common shares outstanding with a par value of $10 per share.There was $20,000 of contributed surplus arising from previous retirements of shares in this class.Assume that half of these shares were retired for $14 per share.The journal entry to record this transaction would include:

A)a debit to retained earnings of $40,000.
B)a credit to retained earnings of $40,000.
C)a debit to retained earnings of $20,000 and a debit to contributed surplus of $20,000.
D)an income statement loss of $40,000.

Question 57

Stock splits are often issued primarily to:

A)Increase permanent capital.
B)Decrease the liability for dividends in arrears.
C)Give the shareholders more voting rights.
D)Reduce the market price per share.

Question 58

The following owners' equity section of a firm's balance sheet relates to the current year (end-of-year data): How many common shares are issued?

A)6,000
B)7,000
C)8,000
D)There is insufficient information provided to answer the question.

Question 59

The order in which dividends are allocated to common and preferred shares depends upon the provisions in the respective stock contracts.Choose the correct statement regarding this allocation.

A)When noncumulative preferred shares are fully participating, the rate of dividends allocated to preferred shares is the ratio of total par of preferred shares outstanding to total par of both classes of shares outstanding.
B)When 8% cumulative preferred shares are participating to a total of 12%, any arrear dividends are ignored in the allocation since they pertain to a previous year.
C)When noncumulative preferred shares are not participating, the rate of dividends to common shares are limited to the ratio of total par of common shares outstanding to total par of both classes of shares outstanding.
D)When 8% noncumulative preferred shares are participating to a total of 12%, the preferred shares must receive all arrear dividends and 12% of total preferred shares par outstanding prior to common shares receiving any dividends.

Question 60

XYZ reported the following on its December 31, 2014, balance sheet: common shares, no-par, $200,000; unappropriated retained earnings, $40,000; appropriation of retained earnings for bond sinking fund, $10,000; and reserve for possible future inventory losses, $5,000.Therefore, the last line on the retained earnings statement, total appropriated and unappropriated retained earnings should be:

A)$10,000
B)$55,000
C)$15,000
D)$40,000

Question 61

The declaration of a property dividend results in:

A)a credit to retained earnings.
B)no effect on retained earnings.
C)either a debit or a credit to retained earnings.
D)a debit to retained earnings.

Question 62

A property dividend causes a debit to retained earnings equal to the of the property distributed.

A)Book value
B)Original cost
C)Fair market value
D)Income tax basis

Question 63

ABC Inc.engages in a non-cash exchange with a third party whereby ABC Inc.issues common shares to the third party in exchange for some highly specialized Machinery & Equipment.The value of the shares issued was $15,000 while the appraised value of the Machinery & Equipment was $12,000.At what amount would this transaction be valued on ABC's books?

A)$15,000 under either ASPE or IFRS.
B)$12,000 under IFRS and $15,000 under ASPE.
C)$15,000 under IFRS and $12,000 under ASPE.
D)$12,000 under either ASPE or IFRS.

Question 64

Preferred shares, which have the most restrictive features, are:

A)Noncumulative, non-participating, nonvoting.
B)Non-participating, cumulative, nonvoting.
C)Fully participating, nonvoting.
D)Noncumulative, fully participating, nonvoting.

Question 65

Cash dividends sometimes are declared in one reporting period and are payable in the next reporting period.The dividend should be recorded on the:

A)Declaration date.
B)Record date.
C)Either the declaration, record, or payment date, as preferred by the company.
D)Payment date.

Question 66

The number of treasury shares held by a corporation equals:

A)All shares held by the treasurer of the corporation.
B)The difference between authorized shares and outstanding shares.
C)The difference between issued shares and outstanding shares.
D)All shares purchased by shareholders due to their pre-emptive right.

Question 67

ABC Inc.issued 1,000 common shares and 3,000 preferred shares for a lump sum of $25,000.The fair market value of each share on the date of issue was $6 per common share and $8 per preferred share.How much of the proceeds received should be allocated to the preferred shares on the date of issue?

A)$19,750
B)$6,250
C)$5,000
D)$20,000

Question 68

ABC made the following entry to record the issuance of a dividend: ABC must have declared a:

A)Property dividend.
B)Large stock dividend.
C)stock split.
D)Small stock dividend.

Question 69

The declaration and issuance of a common stock dividend:

A)Does not change the internal content of retained earnings.
B)Decreases total owners' equity and increases the related common stock account.
C)Decreases assets and decreases total owner's equity.
D)Does not change assets, liabilities or total owners' equity.

Question 70

Gains on sale of treasury stock should be credited to:

A)Additional contributed capital.
B)Share capital.
C)Retained earnings.
D)Other income.

Question 71

LS issued 200 common shares to BH (last share transaction was a year prior when LS sold 10 shares at $4 per share), and received a patent in full payment.The patent had a current market value of $2,000 and was carried on the books of BH at $1,500.Under ASPE, common shares should be credited for:

A)$1,800
B)$2,000
C)$800
D)$1,500
E)This transaction has no commercial substance, therefore no entry is required.

Question 72

If a corporation has dividends in arrears of $25,000 on its cumulative preferred shares, it must:

A)Pay the dividends in arrears before it can pay dividends to its common shareholders.
B)Capitalize this amount as a part of permanent capital.
C)Appropriate retained earnings for this amount.
D)Set aside cash for the amount of the dividends.

Question 73

Which of the following represents the interest period for a scrip dividend?

A)Declaration date to ex-dividend date
B)Record date to payment date
C)Declaration date to payment date
D)Record date to ex-dividend date

Question 74

Owners' equity must equal the:

A)Total contributed capital plus retained earnings less liabilities.
B)Sum of the share capital account balances plus the total contributed capital in excess of par (or stated value).
C)Total contributed capital less total retained earnings.
D)Total assets minus total liabilities.

Question 75

The following data is available for XAC: Find the number of shares subscribed and the subscription price per share?

A)Choice 1
B)Choice 2
C)Choice 3
D)Choice 4

Question 76

Cash dividends usually are declared on one date and paid on a subsequent date to shareholders of record on some intermediate date.On which of the following dates should an accrual basis shareholder recognize investment revenue?

A)Record date
B)Either record date or declaration date
C)Declaration date
D)Payment date

Question 77

ABC had 20,000 shares of treasury common stock, which it purchased for $7 per share.Until now, this was ABC's only treasury stock transaction.The shares were originally sold and issued at $5 per share.ABC uses the single-transaction method.ABC is now selling the treasury shares for $5 per share.The entry to record the resale would include a:

A)Debit to common shares for $140,000.
B)Debit to Retained earnings for $40,000.
C)Credit to common shares for $100,000.
D)Credit to Treasury stock for $100,000.

Question 78

A firm declares a property dividend to its shareholders.The assets to be distributed in the dividend have a combined book value of $40,000 and combined market value of $60,000.Before taxes, the net change in retained earnings as a result of this nonreciprocal transfer is:

A)$0
B)$60,000
C)$20,000
D)$40,000

Question 79

When a corporation sells some of its own common shares, all on credit, there should be a debit to the account:

A)Notes receivable, common.
B)Accounts receivable.
C)Cash.
D)Subscriptions receivable, common.

Question 80

MNO declared a stock dividend when it had 40,000 shares outstanding.After issuing the dividend, 7,200 additional shares and 4,000 fractional share rights were outstanding.If it required five fractional share rights to acquire a new share, this dividend must have been a:

A)5 percent stock dividend.
B)20 percent stock dividend.
C)15 percent stock dividend.
D)10 percent stock dividend.