Deck 10: Stockholders Equity

Question 1

Stockholders' equity represents the current market value of a company.

Answer 1

False

Question 2

Companies must report 'gains and losses' on transactions relating to purchases and sales of their own stock on the income statement as other income or expense.

Answer 2

False

Question 3

There are never any income statement effects recognized when a purchase or sale of stock or payment of dividends occurs.

Answer 3

True

Question 4

A company's profit declines when dividends are paid because a company must recognize an expense for the amount of the dividend.

Question 5

In the event of a corporate liquidation, preferred shareholders carry senior positions as claimants in bankruptcy over the common shareholders.

Question 6

A re-issuance of treasury stock has the potential to yield a gain or loss on the income statement.

Question 7

Cash dividends reduce both cash and retained earnings by the amount of the dividends paid.

Question 8

When a "large" stock dividend is paid out, retained earnings are reduced by the market value of the dividend.

Question 9

IFRS allows the repurchase of a company's own stock to be reported as a decrease to the common equity amounts in stockholders' equity.

Question 10

The principal difference in the financial statements of proprietorships, partnerships, and corporations is in the asset section of the balance sheet.

Question 11

Corporations are subject to greater degrees of regulation and supervision than are proprietorships and partnerships.

Question 12

Stockholders of a corporation have unlimited liability; that is, they are responsible separately and collectively for unsatisfied obligations of the corporation.

Question 13

Corporations pay an income tax only on that portion of their earnings that is distributed to stockholders as dividends.

Question 14

The par value of a stock represents the market value of the stock on the date it is first issued.

Question 15

No-par stock refers to the stock of a corporation whose current market price has fallen below its par value.

Question 16

The cumulative feature on preferred stock means that regular dividends to preferred stockholders omitted in past years must be paid in addition to the current year's dividend before any dividend distribution may be made to common stockholders.

Question 17

Preferred stockholders compose the basic, residual ownership class in a corporation.

Question 18

For a corporation, the shares of outstanding stock plus the shares of treasury stock equals the shares of issued stock.

Question 19

Property or services received in exchange for capital stock should be recorded at the par or stated value of the shares issued.

Question 20

A stock split reduces the dollar balance of the stock account whose stock is split.

Question 21

The primary reason for a stock split is to reduce the market price of the stock.

Question 22

Treasury stock is classified as a long-term investment in the balance sheet.

Question 23

Return on common stockholders' equity is computed by dividing the annual net income available to common stockholders by the average common stockholders' equity for the year.

Question 24

If a firm splits its common stock three for one at year-end, then the return on common stockholders' equity will be lower than what it would have been without the stock split.

Question 25

The Stock Dividend Distributable account should be classified on the balance sheet as a current liability.

Question 26

The accounting analysis for large stock dividends (those over 25%) differs from the accounting analysis for small stock dividends (those less than 25%).

Question 27

Cash dividends become an obligation of the corporation on the date they are declared by the board of directors.

Question 28

Cash dividends are paid to those stockholders who own the shares of stock on the dividend payment date.

Question 29

A statement of stockholders' equity includes an analysis of the Retained Earnings account for the accounting period.

Question 30

A statement of retained earnings will disclose the amount of net income (or loss) for the accounting period.

Question 31

Which best describes par value for stock?

A) An arbitrary amount set by the company for each share of stock
B) The value at which stock shares were issued
C) The current market value of the stock
D) The amount expected to be paid out as a dividend on a share of stock

Question 32

For small stock dividends, by what amount are retained earnings reduced?

A) Par value of the dividend
B) Book value of the dividend
C) Par value of the stock
D) Market value of the dividend

Question 33

Which benefits do convertible preferred stockholders hold?
I. The securities carry a fixed dividend yield.
II. The securities carry a senior claimant position in bankruptcy.
III. The owner can convert the debt or equity security into another equity security.

A) I and II
B) II and III
C) I only
D) III only
E) I, II, and III

Question 34

Which one of the following selections is not a component of contributed capital?

A) Retained earnings
B) Common stock
C) Additional paid-In capital
D) All of the above

Question 35

If a company issues 10,000 shares of $2 par value common stock at a market price of $30 per share, which of the following is the correct balance sheet entry?

A) Increase cash by $300,000 and increase contributed capital by $300,000
B) Increase cash by $300,000 and increase retained earnings by $300,000
C) Increase revenues by $300,000
D) Increase common stock and cash by $20,000

Question 36

In October, Williams Corporation distributed profits to its preferred shareholders before its common shareholders. What is the name of the preference that allows this?

A) Asset distribution preference
B) Treasury preference
C) Dividend preference
D) Profits preference

Question 37

During May, Deckers Outdoor Corporation announced a 3-for-1 stock split. This brought the number of shares outstanding from 12,896,000 shares to _____ shares, and its $0.90 par value to _____ per share.

A) 4,298,667; $2.70
B) 4,298,667; $0.30
C) 38,688,000; $2.70
D) 38,688,000; $0.30

Question 38

Rodriquez Company has 50,000 shares of $50 par value, 8% cumulative preferred stock and 160,000 shares of $30 par value common stock. Rodriguez declares and pays cash dividends amounting to $220,000.
If no arrearage on the preferred stock exits, how much in total dividends is paid to each class of stock?

A)
B)
C)
D)

Question 39

As a preferred stockholder, you are entitled to numerous preferences and privileges over common stockholders. If you are a preferred stockholder of a company that has fallen on economic hardship and is likely to go bankrupt, which preference or privilege of preferred stock is going to be most useful to you?

A) Dividend preference
B) Asset distribution preference
C) Conversion privileges
D) Participation privilege

Question 40

In what section of the stockholders' equity portion of the balance sheet can preferred stock, common stock, and additional paid-in capital be found?

A) Contributed capital
B) Treasury stock
C) Earned capital
D) Retained earnings

Question 41

USE THE FOLLOWING INFORMATION TO ANSWER QUESTIONS below:
On September 1, Cari Company's balance sheet indicates there are 600,000 shares of $30 par value common shares in the Common Stock account and $4,500,000 in the Additional Paid-in Capital account. There are 2,000,000 shares authorized. On September 2, Cari splits its stock 2 for 1.

-How many Cari shares of common stock are issued and outstanding immediately after the stock split?

A) 300,000
B) 1,200,000
C) 1,400,000
D) 4,000,000

Question 42

USE THE FOLLOWING INFORMATION TO ANSWER QUESTIONS below:
On September 1, Cari Company's balance sheet indicates there are 600,000 shares of $30 par value common shares in the Common Stock account and $4,500,000 in the Additional Paid-in Capital account. There are 2,000,000 shares authorized. On September 2, Cari splits its stock 2 for 1.

-What is the dollar balance of Cari's common stock account immediately after the stock split?

A) $18,000,000
B) $36,000,000
C) $ 9,000,000
D) $72,000,000

Question 43

Smith Company has 40,000 shares of $80 par value, 5% cumulative preferred stock and 140,000 shares of $20 par value common stock. Smith declares and pays cash dividends amounting to $225,000.
If no arrearage on the preferred stock exits, how much in dividends per share is paid to the common stockholders?

A) $0.46
B) $4.00
C) $1.00
D) $1.61

Question 44

Which of the following is an organizational disadvantage of a corporation?

A) Separate legal entity
B) Taxable entity
C) Relative ease of ownership transfer
D) Limited liability of owners
E) None of the above

Question 45

Which of the following is an organizational advantage of a corporation?

A) Nontaxable entity
B) Legal entity separate from the owners
C) Unlimited liability of owners
D) Limited ability to raise capital
E) None of the above

Question 46

A corporation:

A) Is less costly to organize than a partnership
B) Is subject to less regulation and supervision than a partnership
C) Is subject to federal income taxes on its earnings, whereas a partnership is not
D) Has an owner's capital account for each owner, whereas a partnership does not
E) None of the above

Question 47

A corporation:

A) Maintains separate capital and drawing accounts for each owner
B) May acquire assets, incur debt, and enter into contracts in its own name
C) Issues articles of incorporation as evidence of ownership in the corporation
D) Pays state income taxes but is not subject to the federal income tax
E) None of the above

Question 48

The document that sets forth the structure and purposes of a corporation is the:

A) Charter
B) Certificate of common stock
C) Certificate of incorporation
D) Articles of incorporation
E) None of the above

Question 49

The face value for a share of stock, printed on the stock certificate, is the stock's:

A) Liquidation value
B) Stated value
C) Par value
D) Book value
E) None of the above

Question 50

The minimum amount of contributed capital that must remain in the corporation as a margin of protection for creditors is called the:

A) Paid-in capital
B) Legal capital
C) Retained earnings
D) Treasury stock
E) None of the above

Question 51

When only one class of stock is issued by a corporation, it should be termed:

A) Authorized stock
B) Treasury stock
C) Common stock
D) Preferred stock
E) Class B stock

Question 52

Which of the following statements is correct?

A) A corporation's issued stock may exceed its outstanding stock.
B) A corporation's outstanding stock may exceed its authorized stock.
C) A corporation's issued stock may exceed its authorized stock.
D) A corporation's treasury stock may exceed its issued stock.
E) A corporation's treasury stock may exceed its authorized stock.

Question 53

Which of the following rights allows a shareholder of a corporation to maintain his or her proportionate interest in the corporation?

A) Preemptive right
B) Participation right
C) Preferred right
D) Cumulative right
E) None of the above

Question 54

Which of the following rights do common stockholders typically not have?

A) Right to vote
B) Right to elect the board of directors
C) Right to participate in additional issues of stock
D) Right to receive dividends at a predetermined rate
E) Right to receive the final distribution of assets in liquidation after prior claims have been settled

Question 55

The preemptive right refers to the right of common stockholders to:

A) Receive dividends before interest is paid to creditors
B) Receive assets before preferred stockholders when the corporation dissolves
C) Maintain their proportionate interests in the corporation when additional shares are issued
D) Vote on matters requiring the approval of owners
E) None of the above

Question 56

Beldon, Inc., has outstanding 10,000 shares of $50 par value, 7% nonparticipating, cumulative preferred stock and 10,000 shares of $10 par value common stock.
If the dividend on preferred stock is one year in arrears, and the total cash dividend declared this year is $72,000, then the total amounts distributed to preferred and common stockholders, respectively, are:

A) $21,000 and $51,000
B) $70,000 and $2,000
C) $27,000 and $45,000
D) $60,000 and $12,000
E) None of the above

Question 57

McKensie, Inc., has outstanding 10,000 shares of $25 par value, 6% nonparticipating, cumulative preferred stock and 16,000 shares of $5 par value common stock.
If the dividend on preferred stock is two years in arrears, and the total cash dividend declared this year is $85,000, then the total amounts distributed to preferred and common stockholders, respectively, are:

A) $45,000 and $40,000
B) $13,500 and $71,500
C) $31,875 and $53,125
D) $27,000 and $58,000
E) None of the above

Question 58

Riptide Inc. has outstanding 8,000 shares of $50 par value, 8% nonparticipating, cumulative preferred stock, and 20,000 shares of $15 par value common stock.
If the dividend on preferred stock is one year in arrears, and the total cash dividend declared this year is $140,000, the total amounts distributed to preferred and common stockholders are, respectively:

A) $64,000 and $76,000
B) $32,000 and $108,000
C) $40,000 and $100,000
D) $60,000 and $80,000
E) None of the above

Question 59

Dixon, Inc. has outstanding 20,000 shares of $40 par value, 6% nonparticipating, cumulative preferred stock, and 30,000 shares of $10 par value common stock.
If the dividend on preferred stock is two years in arrears, and the total cash dividend declared this year is $207,000, the total amounts distributed to preferred and common stockholders are, respectively:

A) $48,000 and $159,000
B) $51,750 and $155,250
C) $24,000 and $183,000
D) $144,000 and $63,000
E) None of the above

Question 60

A particular stock may be redeemed at a specified price by the issuing corporation at a certain time after its original issue date. This stock is properly considered:

A) Convertible
B) Participating
C) Cumulative
D) Callable
E) None of the above

Question 61

Assume that a corporation's dividends are two years in arrears for its outstanding preferred stock. In the corporation's financial statements, these arrearages are:

A) Disclosed as a current liability in the balance sheet
B) Disclosed as a long-term liability in the balance sheet
C) Disclosed in the notes to the financial statements
D) Disclosed as a current liability (for the most recent arrearage) and a long-term liability (for the oldest arrearage) in the balance sheet
E) Not disclosed

Question 62

Bandit, Inc., issued for $19 per share 5,000 shares of $10 par value common stock. The entry to record this transaction includes:

A) Increase Cash for 95,000; and increase Common Stock for 95,000
B) Increase Cash for 95,000; increase Common Stock for 50,000 and increase Paid-in Capital in Excess of Par Value for 45,000
C) Increase Cash for 95,000; increase Common Stock for 50,000 and increase Retained Earnings for 45,000
D) Increase Cash for 95,000; increase Common Stock for 50,000 and increase Gain on Sale of Stock for 45,000
E) None of the above

Question 63

Ripen, Inc., issued for $20 per share 4,000 shares of $15 par value common stock. The entry to record this transaction includes:

A) An increase to Cash for 80,000; and an increase to Common Stock for 80,000
B) An increase to Cash for 80,000; and an increase to Common Stock for 60,000 and an increase to Paid-in Capital in Excess of Par Value for 20,000
C) An increase to Cash for 80,000; and an increase to Common Stock for 60,000 and an increase to Retained Earnings for 20,000
D) An increase to Cash for 80,000; and an increase to Common Stock for 60,000 and an increase to Gain on sale of stock for 20,000
E) None of the above

Question 64

On June 1, 4,000 shares of $10 par value common stock are issued in exchange for new equipment. Comparable equipment sells for $58,000 cash. Other shares of this class of common stock originally sold for $13 per share three years earlier.
The journal entry to record this exchange should increase the Equipment account for what amount?

A) $58,000
B) $40,000
C) $52,000
D) $0
E) None of the above

Question 65

Coda Corporation was organized on January 1, 2019, with an authorization of 2,000,000 shares of $5 par value common stock. During 2019, Coda had the following common stock transactions:
jan. 4: Issued 100,000 shares @ $6 per share.
apr. 8: Issued 200,000 shares @ $7 per share.
June 9: Issued 60,000 shares @ $10 per share.
July 29: Purchased 40,000 shares (treasury) @ $10 per share.
Dec) 31: Sold 40,000 shares held in treasury @ $12 per share.
Coda had no other transactions affecting contributed capital. At December 31, 2019, what is the total amount of contributed capital?

A) $2,680,000
B) $1,800,000
C) $ 920,000
D) $ 800,000
E) None of the above

Question 66

Tolkin Corporation was organized on January 1, 2019, with an authorization of 5,000,000 shares of $1 par value common stock. During 2019, Tolkin had the following common stock transactions:
Tolkin had no other transactions affecting paid-in capital. At December 31, 2019, what is the total amount of paid-in capital?

A) $3,120,000
B) $3,090,000
C) $2,660,000
D) $2,720,000
E) None of the above

Question 67

At December 31, 2019, Bailey Corporation had 40,000 shares outstanding of $15 par value common stock. The shares were originally issued for $42 per share. On January 1, 2020, Bailey split its common stock 3 for 1 with a corresponding reduction in the stock's par value. The market price of the stock just before the split was $75 per share.
After the split, the balance in the common stock account is:

A) $ 600,000
B) $3,000,000
C) $1,800,000
D) $1,680,000
E) None of the above

Question 68

At December 31, 2019, Bixby Corporation had 30,000 shares outstanding of $10 par value common stock. The shares were originally issued for $26 per share. On January 1, 2020, Bixby split its common stock 4 for 1 with a corresponding reduction in the stock's par value. The market price of the stock just before the split was $60 per share.
After the split, the balance of the common stock account is:

A) $1,800,000
B) $ 300,000
C) $ 780,000
D) $ 900,000
E) None of the above

Question 69

Dallas Corporation purchased 300 shares of its own $10 par value common stock for $7,500. Later, these shares are sold for $8,000 cash. The journal entry to record the sale includes a:

A) $500 increase to Paid-in Capital from Treasury Stock
B) $4,800 increase to Paid-in Capital from Treasury Stock
C) $500 increase to Gain on Sale of Treasury Stock
D) None of the above

Question 70

Treasury stock is:

A) Stock of other corporations owned by a corporation
B) A U.S. government security
C) A corporation's own stock that has been retired
D) A corporation's own stock that has been reacquired and held for future use
E) None of the above

Question 71

The excess of the sales price of treasury stock over its cost should be recorded as:

A) Retained Earnings
B) Paid-in Capital from Treasury Stock
C) Treasury Stock
D) Extraordinary Gain
E) None of the above

Question 72

Return on common stockholders' equity is computed by dividing the average common stockholders' equity for a period into the period's:

A) Net income
B) Net income + preferred dividends
C) Net income - preferred dividends
D) Net income + common dividends
E) None of the above

Question 73

Return on common stockholders' equity is computed by dividing the net income available to common stockholders by:

A) Average total stockholders' equity
B) Year-end common stockholders' equity
C) Average common stockholders' equity
D) Year-end total stockholders' equity
E) None of the above

Question 74

During 2019, Bracket, Inc.'s net income was $350,000. Its common stockholders' equity was $540,000 at January 1, 2019 and $660,000 at December 31, 2019. During 2019, Bracket had 10,000 outstanding shares of 6%, $50 par value cumulative preferred stock. During December 2019, Bracket's board of directors declared the annual preferred stock dividend and a $60,000 common stock dividend.
What is Bracket's 2019 return on common stockholders' equity?

A) 10.0%
B) 18.2%
C) 20.0%
D) 53.0%
E) None of the above

Question 75

During 2019, Crockett, Inc.'s net income was $200,000. Its common stockholders' equity was $700,000 at January 1, 2019 and $800,000 at December 31, 2019. During December 2019, Crockett's board of directors declared a $25,000 preferred stock dividend and a $60,000 common stock dividend.
What is Crockett's 2019 return on common stockholders' equity?

A) 15.6%.
B) 10.0%.
C) 23.0%,
D) 16.7%.
E) None of the above

Question 76

Which of the following items is disclosed in a statement of retained earnings?

A) Retained earnings balance at the beginning of the period
B) Common stock issued during the period
C) Treasury shares sold during the period
D) Paid-in capital balance at the beginning of the period
E) None of the above

Question 77

Which of the following events is not disclosed in a statement of retained earnings?

A) Cash dividends declared during the period
B) Treasury stock acquired during the period
C) Stock dividends declared during the period
D) Net income for the period
E) None of the above

Question 78

A statement of stockholders' equity:

A) Replaces the income statement as a basic financial statement
B) Presents an analysis of all components of stockholders' equity for the accounting period
C) May be presented in a single-step or multiple-step format
D) None of the above

Question 79

Which of the following financial statements will disclose the total par value of common stock shares issued during the year?

A) Balance sheet
B) Statement of retained earnings
C) Statement of stockholders' equity
D) Income statement
E) None of the above

Question 80

Which of the following financial statements will disclose a corporation's year-end retained earnings?

A) Statement of stockholders' equity
B) Balance sheet
C) Statement of retained earnings
D) All of the above
E) None of the above