Deck 9: Stockholders Equity

Question 1

The stockholders' equity section of the balance sheet for Minturn Mine Corporation is shown below: Assume there are 2 years' dividends in arrears on the preferred stock, including the current year. The book value per share for preferred stock is:

A)$60.50.
B)$63.
C)$66.50.
D)$57.

Answer 1

B

Question 2

Gertrudis Corporation has $10 par value Common Stock and has 1,000,000 shares authorized, 750,000 shares issued. The entry to record Gertrudis' purchase of 10,000 shares of common stock at $15 per share is a:

A)credit to Common Stock for $130,000.
B)credit to Paid- in Capital in Excess of Par Value-Common for $65,000.
C)debit to Retained Earnings for $65,000.
D)debit to Treasury Stock for $150,000.

Answer 2

D

Question 3

Proceeds from the issuance of stock appear in which, if any, section of the statement of cash flows?

A)Operating activities section
B)Financing activities section
C)Do not appear in the statement of cash flows
D)Both operating and financing activities sections

Answer 3

B

Question 4

Shareholder rights may include:

A)right to proportionate share of assets in the event of a liquidation.
B)right to vote for managers of the corporation.
C)right to an equal share of dividends.
D)all of the above.

Question 5

Which of the following types of business organizations terminates when its ownership structure changes?

A)Proprietorships only
B)Proprietorships and corporations
C)Partnerships and corporations
D)Partnerships and proprietorships

Question 6

The B. Spaniel Company has Common Stock with a $5 par value. 100,000 shares were authorized and 25,000 shares were issued. Common stock is currently selling at $13 per share. The number of shares of common stock authorized and issued after the distribution of a 15% common stock dividend is:

A)100,000 and 28,750.
B)115,000 and 25,000.
C)100,000 and 25,000.
D)115,000 and 28,750.

Question 7

The declaration of a cash dividend:

A)increases liabilities and decreases stockholders' equity.
B)reduces liabilities and increases stockholders' equity.
C)increases liabilities and reduces assets.
D)increases liabilities and increases stockholders' equity.

Question 8

The following information is available for Louisville Limestone Corporation for the current year: The return on assets for Louisville Limestone Corporation is:

A)17.30%.
B)19.80%.
C)19.20%.
D)18.70%.

Question 9

A company should recognize a gain on treasury stock:

A)when treasury stock is purchased for less than the par value of the stock.
B)when treasury stock is sold for more than the par value of the stock.
C)when treasury stock is sold for less than the par value of the stock.
D)in none of the above situations. No gain is recognized on treasury stock transactions.

Question 10

A retirement of common stock:

A)produces a gain or loss reported on the income statement.
B)decreases the number of shares of common stock issued and reduces the balance in the common stock account.
C)decreases the number of shares of common stock issued.
D)reduces the balance in the Common Stock account.

Question 11

Jazzy Corporation's stockholders' equity section of the balance sheet reports: Common Stock $10 par value, 50,000 shares authorized, 15,000 shares issued)$150,000; Paid- in Capital in Excess of Par Value-Common $50,000; Retained Earnings, $300,000. The book value per share for common stock is:

A)$33.33.
B)$10.00.
C)$20.00.
D)$13.33.

Question 12

Which of the following is NOT a characteristic that distinguishes corporations from proprietorships and partnerships?

A)Corporations have mutual agency.
B)Corporations have continuous lives regardless of changes in ownership.
C)Corporate earnings are subject to double taxation.
D)Corporations are separate legal entities apart from the owners.

Question 13

Cole Company issued 10,000 shares of common stock. Cole purchased 1,000 shares and later reissued 500 shares. How many shares are issued and outstanding?

A)9,000 issued and 9,000 outstanding
B)10,000 issued and 10,000 outstanding
C)10,000 issued and 9,500 outstanding
D)9,500 issued and 9,000 outstanding

Question 14

The entry to record the distribution of a stock dividend includes a credit to Paid- in Capital when the company issues a:

A)either a large stock dividend or a small stock dividend.
B)small stock dividend.
C)large stock dividend.
D)neither a large stock dividend nor a small stock dividend.

Question 15

The amount of owners' equity attributable to each share of stock is known as the:

A)liquidation value per share.
B)earnings per share.
C)market value per share.
D)book value per share.

Question 16

If 3,000 shares of $5 par common stock is purchased as treasury stock for $16, the total stockholders equity:

A)increased by $46,500.
B)decreased by $48,000.
C)decreased by $1,500.
D)is the same as before the purchase of the treasury stock.

Question 17

The price the corporation agrees to pay to repurchase its preferred stock, which is set when the stock is issued, is called the:

A)fair market value.
B)callable value.
C)redemption value.
D)book value.

Question 18

The entry to record the declaration of a cash dividend includes a debit to:

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

Question 19

Which of the following statements regarding stock splits is incorrect?

A)A stock split involves a reduction in the stock's par value.
B)A stock split increases total owners' equity.
C)A stock split decreases the market price of the stock.
D)A stock split is an increase in the number of authorized, issued, and outstanding shares of stock.

Question 20

Double taxation means that the:

A)corporation pays tax on its earnings and the shareholders pay tax on dividends.
B)shareholders tax rate is twice the amount of the corporate tax rate.
C)earnings of a corporation are subject to state and federal income taxes.
D)corporation pays income tax and unemployment taxes.

Question 21

The payment of a cash dividend previously recorded:

A)reduces liabilities and reduces assets.
B)reduces stockholders' equity and reduces assets.
C)increases stockholders' equity and reduces liabilities.
D)increases liabilities and increases assets.

Question 22

Monteverde Company repurchased 1,000 shares of its $5 par value common stock at $10 per share. The entry to record this transaction includes a:

A)debit to Treasury Stock for $10,000.
B)debit to Common Stock for $5,000.
C)debit to Treasury Stock for $5,000.
D)debit to Common Stock for $10,000.

Question 23

Which of the following is a disadvantage of the corporate form of business organization?

A)Difficulty in transferring ownership
B)Unlimited liability
C)Mutual agency
D)Governmental regulation at both the federal and state levels

Question 24

Treasury stock is a n):

A)contra- equity account.
B)liability account.
C)contra- asset account.
D)asset account.

Question 25

Stock dividends distributed appear in which, if any, section of the statements of cash flows?

A)Does not appear anywhere in the statement of cash flows
B)Financing and investing activities section
C)Operating activities section
D)Operating and investing activities section

Question 26

Assets received in exchange for the issuance of stock should be recorded at:

A)historical cost less accumulated depreciation taken to date.
B)historical cost.
C)book value of the asset exchanged.
D)fair market value, as determined by a good- faith estimate from independent appraisers.

Question 27

Legal capital is the:

A)amount owed to owners.
B)par value of authorized shares.
C)par value of issued shares.
D)amount owed to creditors.

Question 28

The following information is available for Louisville Limestone Corporation for the current year: The return on equity for Louisville Limestone Corporation is:

A)41.30%.
B)33.50%.
C)49%.
D)32.50%.

Question 29

Shareholders' equity is divided into:

A)retained earnings and common stock.
B)retained earnings and contributed capital.
C)preferred stock and common stock.
D)paid- in capital and common stock.

Question 30

If treasury stock is sold at a price below its reacquisition cost, and there is no balance in the Paid- in Capital from Treasury Stock Transactions account, the difference is:

A)credited to Paid- in Capital from Treasury Stock Transactions.
B)debited to Retained Earnings.
C)debited to Treasury Stock.
D)debited to Loss on Sale of Treasury Stock.

Question 31

Which of the following statements regarding the retirement of stock is incorrect?

A)Retired stock cannot be reissued.
B)Retirements of common stock occur more often than retirements of preferred stock.
C)Retiring stock decreases the corporation's outstanding stock.
D)When retiring stock, the corporation removes the balances from all paid- in capital accounts related to the retired shares.

Question 32

If a corporation issues only one class of stock, it must be:

A)either common or preferred.
B)common.
C)preferred.
D)contributed.

Question 33

Golden Eagle Corporation issues 100 shares of $10 par value common stock for $50 per share. This transaction will include a credit to Common Stock for:

A)$1,000 and a credit to Paid- in Capital for $4,000.
B)$5,000.
C)$1,000 and a Gain on Issue of Common Stock for $4,000.
D)$1,000 and a credit to Retained Earnings for $4,000.

Question 34

Wallendo Corporation issued 5,000 shares of its $1 par value common stock as a stock dividend when the shares were selling for $10 per share. At the time of the dividend, Wallendo had 100,000 shares of common stock outstanding. These shares were originally issued for $5 per share. The entry to record the stock dividend includes a debit to Retained Earnings for:

A)$50,000.
B)$105,000.
C)$5,000.
D)$100,000.

Question 35

A retained earnings deficit indicates that:

A)treasury stock was reissued at a loss.
B)a proposed dividend payment exceeds the existing cash on hand.
C)a company's lifetime losses and dividends exceeds lifetime earnings.
D)a company has experienced a net loss.

Question 36

The number of shares of treasury stock plus the number of shares outstanding equals the number of shares:

A)authorized that have not been issued.
B)issued.
C)issued that have not been reacquired by the company.
D)authorized.

Question 37

Which of the following transactions does NOT decrease cash?

A)Treasury stock purchases
B)Cash dividends
C)Stock retirements
D)Stock splits

Question 38

The purchase of treasury stock:

A)decreases assets and increases stockholders' equity.
B)decreases assets and decreases stockholders' equity.
C)decreases assets and increases liabilities.
D)increases assets and decreases stockholders' equity.

Question 39

A dividend becomes a legal liability of the corporation on the:

A)payment date.
B)declaration date.
C)record date.
D)distribution date.

Question 40

Dividends in arrears on cumulative preferred stock are:

A)disclosed in notes to the financial statements.
B)reported as a current liability on the balance sheet.
C)reported as a long- term liability on the balance sheet.
D)ignored on the financial statements.

Question 41

Hillerbert Company declared a 2- for- 1 stock split on its 200,000 shares of $10 par value common stock. As a result of this transaction:

A)Paid- in Capital increases by $2,000.
B)both A and B are correct.
C)Common Stock increases to $4,000,000.
D)none of these answers is correct.

Question 42

Which of the following is NOT an advantage of forming a corporation as opposed to organizing as a partnership or proprietorship?

A)Limited liability of stockholders
B)Corporation is separate legal entity distinct from its owners
C)Ease of transferring ownership
D)Limited taxation

Question 43

In a corporation, the two basic sources of stockholders' equity are:

A)par value and no- par value stock.
B)paid- in capital and retained earnings.
C)preferred stock and common stock.
D)donated capital and contributed capital.

Question 44

How does an investment of cash in a corporation affect the corporation's balance sheet?

A)It increases assets and decreases stockholders' equity.
B)It increases assets and decreases liabilities.
C)It increases assets and increases stockholders' equity.
D)It increases assets and increases liabilities.

Question 45

Stock that a corporation purchases from shareholders is called:

A)treasury stock.
B)authorized stock.
C)issued stock.
D)outstanding stock.

Question 46

Which of the following assesses a company's profitability by focusing on the relationship between net income and average common stockholders' equity?

A)Net profit ratio
B)Return on assets
C)Return on equity
D)Earnings per share

Question 47

Limited liability of a corporation means that:

A)the corporation is not required to pay dividends.
B)the corporation is not required to earn net income.
C)shareholders are not responsible for the decisions of management.
D)a shareholders' potential loss is limited to their investment in the corporation.

Question 48

Contributed capital is also known as:

A)paid- in capital.
B)common stockholders' equity.
C)total stockholders' equity.
D)retained earnings.

Question 49

A stock split:

A)increases assets and decreases equity.
B)increases Common Stock and decreases Paid- in Capital.
C)decreases Retained Earnings and increases Paid- in Capital.
D)has no effect on total equity.

Question 50

The value of a small stock dividend is computed as:

A)liquidation value times the number of shares to be distributed.
B)book value times the number of shares to be distributed.
C)par value times the number of shares to be distributed.
D)current market value times the number of shares to be distributed.

Question 51

The entry to record the issuance of 13,000 shares of no- par value common stock at $25 per share includes a:

A)credit to Retained Earnings for $325,000.
B)credit to Paid- in Capital in Excess of Par Value- Common for $325,000.
C)credit to Common Stock for $325,000.
D)debit to Retained Earnings for $325,000.

Question 52

Treasury stock accounts for the difference between:

A)authorized shares and outstanding shares.
B)issued shares and preferred shares.
C)issued shares and authorized shares.
D)outstanding shares and issued shares.

Question 53

The Kendo Corporation has 10,000 shares of 10%, $75 par value, cumulative preferred stock outstanding and 50,000 shares of $5 par value common stock outstanding. As of the beginning of this fiscal year, there were 2 years' dividends in arrears on the preferred stock. The board of directors wants to give the common stockholders a $1.50 dividend per share at the end of this fiscal year. The total dividends to be paid to preferred shareholders are:

A)$300,000.
B)$100,000.
C)$200,000.
D)$375,000.

Question 54

The issuance of common stock in exchange for land and equipment will:

A)affect the financing activities section of the statement of cash flows.
B)not affect the statement of cash flows.
C)affect the operating activities section of the statement of cash flows.
D)affect the investing activities section of the statement of cash flows.

Question 55

Preferred stock that requires the company to redeem the stock at a set price is called:

A)preferred stock.
B)convertible preferred stock.
C)callable preferred stock.
D)redeemable preferred stock.

Question 56

The B. Spaniel Company has Common Stock with a $5 par value. 100,000 shares were authorized and 25,000 shares were issued. Common stock is currently selling at $13 per share. The entry to record the distribution of a 15% common stock dividend includes a:

A)credit to Paid- in Capital in Excess of Par Value-Common for $30,000.
B)debit to Retained Earnings for $37,500.
C)debit to Paid- in Capital in Excess of Par Value-Common for $30,000.
D)credit to Common Stock for $37,400.

Question 57

Return on equity is a ratio that:

A)shows the relationship between net income available for common stockholders and average common stockholders' equity.
B)is calculated by dividing net income plus preferred dividends by average common stockholders' equity.
C)cannot be calculated if the company has preferred stock in addition to common stock.
D)both A and B are correct.

Question 58

The entry to record the payment of a cash dividend previously declared includes a debit to:

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

Question 59

The price that the stockholder pays to acquire stock from the corporation is the:

A)authorized price.
B)stated price.
C)par price.
D)issue price.

Question 60

Gertrudis Corporation has $10 par value Common Stock with 1,000,000 shares authorized, and a value of $7,000,000 before purchasing 3,000 shares of common stock. The resulting number of common shares issued and outstanding is:

A)750,000 shares issued and 697,000 shares outstanding.
B)750,000 shares issued and 747,000 shares outstanding.
C)700,000 shares issued and 697,000 shares outstanding.
D)700,000 shares issued and 747,000 shares outstanding.

Question 61

Paid- in capital is the amount of stockholders' equity that the:

A)corporation has earned through profitable operations.
B)stockholders have contributed to the corporation, less the amount of stockholders' equity that the corporation has given back to the stockholders.
C)stockholders have contributed to the corporation, less the preferred stock.
D)stockholders have contributed to the corporation.

Question 62

Which statement below regarding treasury stock is true?

A)Issuing treasury stock decreases assets and equity.
B)Issuing treasury stock increases assets and decreases equity.
C)Treasury stock transactions have no effect on assets and equity.
D)Purchasing treasury stock decreases assets and equity.

Question 63

If treasury stock is sold at a price greater than its reacquisition costs, the difference is:

A)debited to Retained Earnings.
B)credited to Retained Earnings.
C)debited to Paid- in Capital from Treasury Stock Transactions.
D)credited to Paid- in Capital from Treasury Stock Transactions.

Question 64

The entry to record common stock issued at its par value includes a:

A)credit to Retained Earnings.
B)debit to Retained Earnings.
C)credit to the Common Stock account.
D)debit to the Common Stock account.

Question 65

A company may declare a stock split to:

A)reduce total equity.
B)avoid playing a cash dividend.
C)decrease the market value of the stock.
D)reduce retained earnings.

Question 66

The reissuance of treasury stock at a price above its cost is reported in the Statement of Cash Flows:

A)financing and operating activities sections.
B)investing activities section.
C)financing activities section.
D)operating activities section.

Question 67

Before a company can pay dividends to the common stockholders, the owners of cumulative preferred stock must receive:

A)all dividends in arrears plus the current year's dividends.
B)all dividends in arrears, but not the current year's dividends.
C)neither the current year's dividends nor dividends in arrears.
D)the current year's dividends, but not dividends in arrears.

Question 68

The Floristan Company has 50,000 shares of preferred stock outstanding, with annual dividends paid at the rate of $2 per share. Floristan also has 100,000 shares of common stock outstanding. If the Floristan Company declares a $150,000 dividend, each outstanding share of common stock would receive:

A)$2.00.
B)$0.50.
C)$1.50.
D)$1.00.

Question 69

The entry to record the issuance of 1,000 shares of $1 par value common stock at $10 per share includes a:

A)credit to Common Stock for $10,000.
B)debit to Paid- in Capital in Excess of Par Value-Common for $1,000.
C)debit to Common Stock for $1,000.
D)credit to Paid- in Capital in Excess of Par Value-Common for $9,000.

Question 70

When the board of directors declares a cash dividend, the owners of noncumulative preferred stock must receive:

A)all dividends in arrears plus the current year's dividend.
B)the current year's dividend, but no dividends in arrears.
C)dividends in arrears, but not the current year's dividend.
D)neither the current year's dividend nor dividends in arrears.

Question 71

The B. Spaniel Company has Common Stock with a $5 par value. 100,000 shares were authorized and 25,000 shares were issued. Common stock is currently selling at $13 per share. The entry to record the distribution of a 15% common stock dividend includes:

A)a debit to Dividends Payable for $30,000.
B)a debit to Retained Earnings for $48,750.
C)a credit to Common Stock for $18,750.
D)both a credit to Common Stock for $18,750 and debit to Retained Earnings for $48,750.

Question 72

Stock dividends:

A)increase the total liabilities of the corporation and decrease the total stockholders' equity.
B)are distributions of cash to the stockholders.
C)reduce the total assets of the corporation.
D)have no effect on total stockholders' equity.

Question 73

The entry to record the sale of 7,000 shares of treasury stock that cost $11 per share for $13 per share includes a:

A)credit to Paid- in Capital in Excess of Par Value-Common for $98,000.
B)debit to Treasury stock for $24,000.
C)credit to Paid- in Capital from Treasury Stock transactions for $14,000.
D)debit to debit to Retained Earnings for $98,000.

Question 74

The entry to record the distribution of a stock dividend includes a:

A)credit to Common Stock and a debit to Retained Earnings.
B)debit to Retained Earnings and a credit to Stock Dividends Payable.
C)debit to Stock Dividends Payable and a credit to Stock Dividends.
D)debit to Stock Dividends Payable and a credit to Retained Earnings.

Question 75

Hawkeye Corporation issues 100 shares of no- par value common stock for $20 per share. This transaction will include a credit to Common Stock for:

A)$1,000 and a Gain on Issue of Common Stock for $1,000.
B)$2,000.
C)$1,000 and a credit to Retained Earnings for $1,000.
D)$1,000 and a credit to Paid- in Capital for $1,000.

Question 76

When 100 shares of $10 par value Common Stock are sold at $53 per share, Paid- in Capital in Excess of Par value-Common will:

A)increase $4,300.
B)increase $1,000.
C)increase $5,300.
D)not be affected.

Question 77

CityScape Company repurchased 10,000 shares of its own $5 par value common stock for $10 per share. The company later reissued 5,000 shares for $15 per share. These transactions resulted in a:

A)$100,000 gain on the sale of treasury stock.
B)$25,000 gain on the sale of treasury stock.
C)$100,000 increase in paid- in capital.
D)$25,000 increase in paid- in capital.

Question 78

Treasury stock is subtracted from:

A)total stockholders' equity.
B)paid- in capital.
C)retained earnings.
D)common stock.

Question 79

A company issues one hundred shares of no- par common stock with a $10 stated value for $17 per share. The entry to record this issuance includes a:

A)credit to Common Stock for $1,700.
B)debit to Paid- in Capital in Excess of Stated Value-Common for $1,000.
C)credit to Common Stock for $700.
D)credit to Paid- in Capital in Excess of Stated Value-Common for $700.

Question 80

Passed dividends on cumulative preferred stock:

A)must be paid by January 1 of the following year by law.
B)are referred to as dividends in arrears.
C)are considered a liability until paid.
D)are referred to as dividends in arrears and must be paid by January 1 of the following year by law.