Deck 13: Stockholders Equity

Question 1

The preemptive right protects an existing stockholder from involuntary dilution of ownership interest.

Answer 1

True

Question 2

The par value of a share of common stock usually is a good indication of what the stock is worth on the market.

Answer 2

False

Question 3

Contributions by shareholders (paid-in capital) and income retained by the corporation represent the two primary sources from which corporate equity is derived.

Answer 3

True

Question 4

When capital stock is issued for noncash assets, the assets received should be recorded at the par value of the stock issued.

Question 5

Management salaries and other indirect costs related to a stock issue should be expensed as incurred.

Question 6

A company might purchase its outstanding stock to provide tax efficient distributions of excess cash to shareholders.

Question 7

Treasury shares represent a reduction in the number of outstanding shares but not in the number of issued shares.

Question 8

The gain on the sale of treasury stock should be included in income before extraordinary items on the income statement.

Question 9

A convertible preferred stock issue normally will sell for a lower price than the same issue would without the conversion feature.

Question 10

The current cash position of a corporation is a prime consideration in deciding whether a cash dividend should be declared.

Question 11

A declared cash dividend is not a liability because the board of directors can simply undeclare the dividend.

Question 12

A property dividend is a nonreciprocal transfer of nonmonetary assets between an enterprise and its owners.

Question 13

Any dividend not based on profits must be a reduction of corporate capital, and to that extent, it is a liquidating dividend.

Question 14

A stock dividend results in a capitalization of retained earnings with no corresponding decrease in total stockholders' equity.

Question 15

When a stock dividend is less than 20-25% of the common shares outstanding at the time of the dividend declaration, the par value of the stock issued should be transferred from retained earnings.

Question 16

If a stock dividend is large (more than 20-25%), the distribution should be referred to as a stock split.

Question 17

The proceeds from the sale of debt with detachable warrants should be allocated between the debt and the warrants.

Question 18

When accountants refer to capital of a corporate organization, they mean

A) the cash held by the organization at the point in time when the reference to capital is made.
B) the assets of a business organization that are durable and last a long period of time.
C) money borrowed to finance the operations of the organization.
D) stockholders' equity or owners' equity.

Question 19

When stock is purchased by shareholders at a price below par value,

A) a liability should be recorded in the financial statements, classified as long-term, and payable upon dissolution of the company to creditors not fully reimbursed.
B) a contingent liability exists that is an obligation to the corporation's creditors.
C) a contingent liability exists that is an obligation to the corporation.
D) the difference between purchase price and par value must be paid by the original shareholder to the corporation before they may sell the stock to another party.

Question 20

When common stock is sold by a corporation, a journal entry is prepared which includes a debit to cash and a credit to the common stock account. If the debit to cash is greater than the credit to the common stock account, then it can be assumed that

A) the common stock is worth more than its current market value.
B) a gain on the sale of stock is a part of the transaction.
C) the common stock was sold at a discount
D) the stated value of the common stock is less than the per share price investors were willing to pay.

Question 21

The general rule to be applied when stock is issued for services or property other than cash is that the property or services be recorded at

A) the fair market value of the stock issued.
B) the fair market value of the noncash consideration received.
C) either the fair market value of the stock issued or the fair market value of the noncash consideration received, whichever is more clearly determinable.
D) a value that clearly reflects the intentions of the parties entering into the transaction and provides a relevant basis for recording.

Question 22

Treasury stock is

A) canceled as soon as it is acquired.
B) a current asset.
C) the same as unissued stock.
D) included in issued shares.

Question 23

In January 2008, Castro Corporation, a newly formed company, issued 10,000 shares of its $10 par common stock for $15 per share. On July 1, 2008, Castro Corporation reacquired 1,000 shares of its outstanding stock for $12 per share. The acquisition of these treasury shares

A) decreased total stockholders' equity.
B) increased total stockholders' equity.
C) did not change total stockholders' equity.
D) decreased the number of issued shares.

Question 24

When treasury stock is purchased for more than the par value of the stock and the cost method is used to account for treasury stock, what account(s) should be debited?

A) Treasury stock for the par value and paid-in capital in excess of par for the excess of the purchase price over the par value.
B) Paid-in capital in excess of par for the purchase price.
C) Treasury stock for the purchase price.
D) Treasury stock for the par value and retained earnings for the excess of the purchase price over the par value.

Question 25

Wilson Corp. purchased its own par value stock on January 1, 2008 for $20,000 and debited the treasury stock account for the purchase price. The stock was subsequently sold for $12,000. The $8,000 difference between the cost and sales price should be recorded as a deduction from

A) additional paid-in capital to the extent that previous net "gains" from sales of the same class of stock are included therein; otherwise, from retained earnings.
B) additional paid-in capital without regard as to whether or not there have been previous net "gains" from sales of the same class of stock included therein.
C) retained earnings.
D) net income.

Question 26

The cumulative feature of preferred stock

A) limits the amount of cumulative dividends to the par value of the preferred stock.
B) requires that dividends not paid in any year must be made up in a later year before dividends are distributed to common shareholders.
C) means that the shareholder can accumulate preferred stock until it is equal to the par value of common stock at which time it can be converted into common stock.
D) enables a preferred stockholder to accumulate dividends until they equal the par value of the stock and receive the stock in place of the cash dividends.

Question 27

While the preferences given to preferred stock may vary in many situations, the most common preference is

A) they are assured a dividend, usually at a stated rate, before any amount may be distributed to common shareholders.
B) preferred shareholders receive a larger dividend than do common shareholders because they have given up the right to vote.
C) receipt of dividends every time a common stock dividend is declared.
D) the right to convert shares of preferred for shares of common on a basis determined in the preferred stock indenture.

Question 28

How does the declaration of a cash dividend affect the following account balances?
$\begin{array}{ccc}& \text {Retained Earnings} &\text { Current Liabilities }& \text {Cash Account }\\\end{array}$

A) $\begin{array}{ccc}& \text {Decrease }&&&&&\text { No Effect} &&&&\text { Decrease }\\\end{array}$
B) $\begin{array}{ccc}& \text {Increase }&&&&&\text { Decrease }&&&&\text { No Effect} \\\end{array}$
C) $\begin{array}{ccc}& \text {Decrease} &&&&& \text {Increase} &&&&&\text { No Effect} \\\end{array}$
D) $\begin{array}{ccc}&\text { Decrease} &&&&\text { No Effect }&&&&&\text { Increase} \\\end{array}$

Question 29

When a corporation declares a property dividend, the corporation should

A) divide the property equally among all stockholders.
B) record the dividend by debiting retained earnings for an amount equal to the fair value of the property to be distributed.
C) record the dividend by debiting retained earnings for an amount equal to the book value of the property to be distributed.
D) record the dividend on its books at the carrying value of the property distributed and inform stockholders as to the fair value of the property so they may individually recognize a gain or loss.

Question 30

A feature common to both stock dividends and stock splits is a

A) reduction in total stockholders' equity of a corporation.
B) transfer from retained earnings to additional paid-in capital.
C) reduction in par value.
D) change in the number of shares of stock outstanding.

Question 31

Total stockholders' equity will increase as a result of a $\begin{array}{cc}& \text {Stock Dividena} & \text {Stock Split} \\\end{array}$

A) $\begin{array}{cc}&&\text { Yes }&&&& \text {Yes}\\\end{array}$
B) $\begin{array}{cc} &&& \text {No }&&&&\text { No} \\\end{array}$
C) $\begin{array}{cc}&&\text { Yes }&&&&\text { No} \\\end{array}$
D) $\begin{array}{cc} &&& \text {No} &&&& \text {Yes} \\\end{array}$

Question 32

Windsor Company has outstanding both common stock and nonparticipating, non-cumulative preferred stock. The liquidation value of the preferred is equal to its par value. The book value per share of the common stock is unaffected by

A) the declaration of a stock dividend on preferred payable in preferred stock when the market price of the preferred is equal to its par value.
B) the declaration of a stock dividend on common stock payable in common stock when the market price of the common is equal to its par value.
C) the payment of a previously declared cash dividend on the common stock.
D) a 2-for-1 split of the common stock.

Question 33

Corporations issue convertible debt for two main reasons. One is the desire to raise equity capital that, assuming conversion, will arise when the original debt is converted. The other is

A) the ease with which convertible debt is sold even if the company has a poor credit rating.
B) the fact that equity capital has issue costs that convertible debt does not.
C) that many corporations can obtain financing at lower rates.
D) that convertible bonds will always sell at a premium.

Question 34

Presented below is information related to Edis Corporation:


-The total stockholders' equity of Edis Corporation is

A) $8,600,000.
B) $8,750,000.
C) $7,100,000.
D) $7,250,000.

Question 35

Presented below is information related to Edis Corporation:


-The total paid-in capital (cash collected) related to the common stock is

A) $4,300,000.
B) $4,850,000.
C) $5,250,000.
D) $4,700,000.

Question 36

Adler Corporation has 50,000 shares of $10 par common stock authorized. The following transactions took place during 2008, the first year of the corporation's existence:
Sold 5,000 shares of common stock for $18 per share.
Issued 5,000 shares of common stock in exchange for a patent valued at $100,000.
At the end of Adler's first year, total paid-in capital amounted to

A) $40,000.
B) $90,000.
C) $100,000.
D) $190,000.

Question 37

On September 1, 2008, Zelner Company reacquired 12,000 shares of its $10 par value common stock for $15 per share. Zelner uses the cost method to account for treasury stock. The journal entry to record the reacquisition of the stock should debit

A) Treasury Stock for $120,000.
B) Common Stock for $120,000.
C) Common Stock for $120,000 and Paid-in Capital in Excess of Par for $60,000.
D) Treasury Stock for $180,000.

Question 38

Gannon Company acquired 6,000 shares of its own common stock at $20 per share on February 5, 2007, and sold 3,000 of these shares at $27 per share on August 9, 2008. The market value of Gannon's common stock was $24 per share at December 31, 2007, and $25 per share at December 31, 2008. The cost method is used to record treasury stock transactions. What account(s) should Gannon credit in 2008 to record the sale of 3,000 shares?

A) Treasury Stock for $81,000
B) Treasury Stock for $60,000 and Paid-in Capital from Treasury Stock for $21,000
C) Treasury Stock for $60,000 and Retained Earnings for $21,000
D) Treasury Stock for $72,000 and Retained Earnings for $9,000

Question 39

King Co. issued 100,000 shares of $10 par common stock for $1,200,000. King acquired 8,000 shares of its own common stock at $15 per share. Three months later King sold 4,000 of these shares at $19 per share. If the cost method is used to record treasury stock transactions, to record the sale of the 4,000 treasury shares King should credit

A) Treasury Stock for $76,000.
B) Treasury Stock for $40,000 and Paid-in Capital from Treasury Stock for $36,000.
C) Treasury Stock for $60,000 and Paid-in Capital from Treasury Stock for $16,000.
D) Treasury Stock for $60,000 and Paid-in Capital in Excess of Par for $16,000.

Question 40

An analysis of stockholders' equity of Jinn Corporation as of January 1, 2008, is as follows:
Assuming no other equity transactions occurred during 2008, what should Jinn report at December 31, 2008, as total additional paid-in capital?

A) $895,000
B) $900,000
C) $905,000
D) $915,000

Question 41

Trent Corporation was organized on January 1, 2008, with an authorization of 1,200,000 shares of common stock with a par value of $6 per share. During 2008, the corporation had the following capital transactions:
Trent used the cost method to record the purchase and reissuance of the treasury shares. What is the total amount of additional paid-in capital as of December 31, 2008?

A) $0
B) $2,070,000
C) $2,700,000
D) $3,330,000

Question 42

Watt Co.'s stockholders' equity at January 1, 2008 is as follows:
No other stock transactions occurred during 2008. Assuming Watt uses the cost method to record treasury stock transactions, the total amount of all additional paid-in capital accounts at December 31, 2008 is

A) $891,600.
B) $870,000.
C) $908,400.
D) $927,600.

Question 43

Presented below is the stockholders' equity section of Mead Corporation at December 31, 2007:
During 2008, the following transactions occurred relating to stockholders' equity:
3,000 shares were reacquired at $28 per share.
3,000 shares were reacquired at $35 per share.
1,800 shares of treasury stock were sold at $30 per share.
For the year ended December 31, 2008, Mead reported net income of $450,000. Assuming Mead accounts for treasury stock under the cost method, what should it report as total stockholders' equity on its December 31, 2008, balance sheet?

A) $1,965,000
B) $1,961,400
C) $1,957,800
D) $1,515,000

Question 44

On December 1, 2008, Lynn Corporation exchanged 20,000 shares of its $10 par value common stock held in treasury for a used machine. The treasury shares were acquired by Lynn at a cost of $40 per share, and are accounted for under the cost method. On the date of the exchange, the common stock had a market value of $55 per share (the shares were originally issued at $30 per share). As a result of this exchange, Lynn's total stockholders' equity will increase by

A) $200,000.
B) $800,000.
C) $1,100,000.
D) $900,000.

Question 45

Vittly Corporation owned 900,000 shares of Nixon Corporation stock. On December 31, 2008, when Vittly's account "Investment in Common Stock of Nixon Corporation" had a carrying value of $5 per share, Vittly distributed these shares to its stockholders as a dividend. Vittly originally paid $8 for each share. Nixon has 3,000,000 shares issued and outstanding, which are traded on a national stock exchange. The quoted market price fora Nixon share was $7 on the declaration date and $9 on the distribution date. What would be the reduction in Vittly's stockholders' equity as a result of the above transactions?

A) $3,600,000
B) $4,500,000
C) $7,200,000
D) $8,100,000

Question 46

Baden Corporation owned 20,000 shares of Terney Corporation's $5 par value common stock. These shares were purchased in 2004 for $180,000. On September 15, 2008, Baden declared a property dividend of one share of Terney for every ten shares of Baden held by a stockholder. On that date, when the market price of Terney was $14 per share, there were 180,000 shares of Baden outstanding. What NET reduction in retained earnings would result from this property dividend?

A) $90,000
B) $252,000
C) $72,000
D) $162,000

Question 47

Diamond's Corporation has an investment in 5,000 shares of Sigmond Company common stock with a cost of $218,000. These shares are used in a property dividend to stockholders of Diamond's. The property dividend is declared on May 25 and scheduled to be distributed on July 31 to stockholders of record on June 15. The market value per share of Sigmond stock is $63 on May 25, $66 on June 15, and $68 on July 31. The net effect of this property dividend on retained earnings is a reduction of

A) $340,000.
B) $330,000.
C) $315,000.
D) $218,000.

Question 48

Mildred Corporation owned 2,000 shares of Lester Corporation. These shares were purchased in 2004 for $18,000. On October 15, 2008, Mildred declared a property dividend of one share of Lester for every ten shares of Mildred held by a stockholder. On that date, when the market price of Lester was $14 per share, there were 18,000 shares of Mildred outstanding. What gain and net reduction in retained earnings would result from this property dividend?
$\begin{array}{cc}& & \text {Net Reduction in} \\&\text { Gain }&\text { Retained Earnings }\\\end{array}$

A) $\begin{array}{cc}&\$0 &&&& \$ 16,200 \\\end{array}$
B) $\begin{array}{cc}& \$0 &&&& \$ 25,200 \\\end{array}$
C) $\begin{array}{cc} &\$ 9,000 &&\$ 7,200 \\\end{array}$
D) $\begin{array}{cc}&\$ 9,000&&\$ 16,200 \\\end{array}$

Question 49

At the beginning of 2008, M.R. Magoo Company had retained earnings of $100,000. During the year, M.R. Magoo reported net income of $50,000, sold treasury stock at a gain of $18,000, declared a cash dividend of $30,000, and declared and issued a small stock dividend of 1,500 shares ($10 par value) when the market value of the stock was $20 per share. The amount of retained earnings available for dividends at the end of 2008 was

A) $90,000.
B) $105,000.
C) $108,000.
D) $123,000.

Question 50

M. Wauboosie Company has 280,000 shares of $10 par value common stock outstanding. During the year, M. Wauboosie declared a 5% stock dividend when the market price of the stock was $24 per share. Two months later M. Wauboosie declared a $.60 per share cash dividend. As a result of the dividends declared during the year, retained earnings decreased by

A) $168,000.
B) $176,400.
C) $336,000.
D) $512,400.

Question 51

Gonzalez Company has 350,000 shares of $10 par value common stock outstanding. During the year, Gonzalez declared a 10% stock dividend when the market price of the stock was $30 per share. Four months later Gonzalez declared a $.50 per share cash dividend. As a result of the dividends declared during the year, retained earnings decreased by

A) $1,242,500.
B) $525,000.
C) $192,500.
D) $175,000.

Question 52

The stockholders' equity section of Lawton Corporation as of December 31, 2007, was as follows:
On March 1, 2008, the board of directors declared a 15% stock dividend, and accordingly 1,500 additional shares were issued. On March 1, 2008, the fair market value of the stock was $6 per share. For the two months ended February 28, 2008, Lawton sustained a net
Loss of $10,000. What amount should Lawton report as retained earnings as of March 1, 2008?

A) $56,000
B) $62,000
C) $66,000
D) $72,000

Question 53

The stockholders' equity of Benton Company at July 31, 2008 is presented below:
On August 1, 2008, the board of directors of Benton declared a 15% stock dividend on common stock, to be distributed on September 15th. The market price of Benton's common stock was $35 on August 1, 2008, and $38 on September 15, 2008. What is the amount of the debit to retained earnings as a result of the declaration and distribution of this stock dividend?

A) $800,000
B) $840,000
C) $912,000
D) $600,000

Question 54

On January 1, 2008, Golden Corporation had 110,000 shares of its $5 par value common stock outstanding. On June 1, the corporation acquired 10,000 shares of stock to be held in the treasury. On December 1, when the market price of the stock was $8, the corporation declared a 10% stock dividend to be issued to stockholders of record on December 16, 2008. What was the impact of the 10% stock dividend on the balance of the retained earnings account?

A) $50,000 decrease
B) $80,000 decrease
C) $88,000 decrease
D) No effect

Question 55

Kimm, Inc. had net income for 2008 of $2,120,000 and earnings per share on common stock of $5. Included in the net income was $300,000 of bond interest expense related to its long-term debt. The income tax rate for 2008 was 30%. Dividends on preferred stock were $400,000. The payout ratio on common stock was 25%. What were the dividends on common stock in 2008?

A) $430,000
B) $530,000
C) $482,500
D) $645,000

Question 56

Presented below is information related to Sampson, Inc.:
What is Sampson's rate of return on common stock equity for 2008?

A) 20.0%
B) 10.7%
C) 18.2%
D) 21.3%

Question 57

The following data are provided:
Additional information:
On May 1, 2008, 3,000 shares of common stock were issued. The preferred dividends were not declared during 2008. The market price of the common stock was $50 at December 31, 2008.

-The rate of return on common stock equity for 2008 is

A) 90 ÷ 400.
B) 90 ÷ 440.
C) 80 ÷ 400.
D) 80 ÷ 440.

Question 58

Winger Corporation had the following information in its financial statements for the year ended 2007 and 2008:


-What is the payout ratio for Winger Corporation for the year ended 2008?

A) 12.1%
B) 16.0%
C) 36.3%
D) 41.3%

Question 59

Winger Corporation had the following information in its financial statements for the year ended 2007 and 2008:


-What is the book value per share for Winger Corporation for the year ended 2008?

A) $19.17
B) $20.00
C) $10.43
D) $24.00

Question 60

Jenks Co.has $2,500,000 of 8% convertible bonds outstanding. Each $1,000 bond is convertible into 30 shares of $30 par value common stock. The bonds pay interest on January 31 and July 31. On July 31, 2008, the holders of $800,000 bonds exercised the conversion privilege. On that date the market price of the bonds was 105 and the market price of the common stock was $36. The total unamortized bond premium at the date of conversion was $175,000. Jenks should record, as a result of this conversion, a

A) credit of $136,000 to Paid-in Capital in Excess of Par.
B) credit of $120,000 to Paid-in Capital in Excess of Par.
C) credit of $56,000 to Premium on Bonds Payable.
D) loss of $8,000.

Question 61

On July 1, 2008, an interest payment date, $60,000 of Risen Co. bonds were converted into 1,200 shares of Risen Co. common stock each having a par value of $45 and a market value of $54. There is $2,400 unamortized discount on the bonds. Using the book value method, Risen would record

A) no change in paid-in capital in excess of par.
B) a $3,600 increase in paid-in capital in excess of par.
C) a $7,200 increase in paid-in capital in excess of par.
D) a $4,800 increase in paid-in capital in excess of par.

Question 62

On December 1, 2008, Howell Company issued at 103, two hundred of its 9%, $1,000 bonds. Attached to each bond was one detachable stock warrant entitling the holder to purchase 10 shares of Howell's common stock. On December 1, 2008, the market value of the bonds, without the stock warrants, was 95, and the market value of each stock purchase warrant was $50. The amount of the proceeds from the issuance that should be accounted for as the initial carrying value of the bonds payable would be

A) $193,640.
B) $195,700.
C) $200,000.
D) $206,000.

Question 63

During 2008, Cartel Company issued at 104 three hundred, $1,000 bonds due in ten years. One detachable stock warrant entitling the holder to purchase 15 shares of Cartel's common stock was attached to each bond. At the date of issuance, the market value of the bonds, without the stock warrants, was quoted at 96. The market value of each detachable warrant was quoted at $40. What amount, if any, of the proceeds from the issuance should be accounted for as part of Cartel's stockholders' equity?

A) $0
B) $12,000
C) $12,480
D) $11,856

Question 64

On May 1, 2008, Logan Co. issued $300,000 of 7% bonds at 103, which are due on April 30, 2018. Twenty detachable stock warrants entitling the holder to purchase for $40 one share of Logan's common stock, $ 15 par value, were attached to each $1,000 bond. The bonds without the warrants would sell at 96. On May 1, 2008, the fair value of Logan's common stock was $35 per share and of the warrants was $2.

-On May 1, 2008, Logan should credit Paid-in Capital from Stock Warrants for

A) $11,520.
B) $12,000.
C) $12,360.
D) $21,000.

Question 65

On May 1, 2008, Logan Co. issued $300,000 of 7% bonds at 103, which are due on April 30, 2018. Twenty detachable stock warrants entitling the holder to purchase for $40 one share of Logan's common stock, $ 15 par value, were attached to each $1,000 bond. The bonds without the warrants would sell at 96. On May 1, 2008, the fair value of Logan's common stock was $35 per share and of the warrants was $2.

-On May 1, 2008, Logan should record the bonds with a

A) discount of $12,000.
B) discount of $3,360.
C) discount of $3,000.
D) premium of $9,000.

Question 66

Sloane Corporation offered detachable 5-year warrants to buy one share of common stock (par value $5) at $20 (at a time when the stock was selling for $32). The price paid for 2,000, $1,000 bonds with the warrants attached was $205,000. The market price of the Sloane bonds without the warrants was $180,000, and the market price of the warrants without the bonds was $20,000. What amount should be allocated to the warrants?

A) $20,000
B) $20,500
C) $24,000
D) $25,000

Question 67

A corporation was organized in January 2008 with authorized capital of $10 par value common stock. On February 1, 2008, shares were issued at par for cash. On March 1, 2008, the corporation's attorney accepted 7,000 shares of common stock in settlement for legal services with a fair value of $90,000. Additional paid-in capital would increase on $\begin{array}{cc} &\text {February} 1,2008&\text { March 1, 2008 }\\\end{array}$

A) $\begin{array}{cc}&&\text { Yes }&&&&&& \text {No }\\\end{array}$
B) $\begin{array}{cc}&& \text {Yes} &&&&&&\text {Yes} \\\end{array}$
C) $\begin{array}{cc}&&\text { No} &&&&&&\text { No }\\\end{array}$
D) $\begin{array}{cc}&& \text {No} &&&&&& \text {Yes} \\\end{array}$

Question 68

Norton Co. was organized on January 2, 2008, with 500,000 authorized shares of $10 par value common stock. During 2008, Norton had the following capital transactions:
January 5-issued 375,000 shares at $14 per share.
July 27-purchased 25,000 shares at $11 per share.
November 25-sold 15,000 shares of treasury stock at $13 per share.
Norton used the cost method to record the purchase of the treasury shares. What would be the balance in the Paid-in Capital from Treasury Stock account at December 31, 2008?

A) $0
B) $15,000
C) $30,000
D) $45,000

Question 69

In 2007, Marly Corp. acquired 9,000 shares of its own $1 par value common stock at $18 per share. In 2008, Marly issued 4,000 of these shares at $25 per share. Marly uses the cost method to account for its treasury stock transactions. What accounts and what amounts should Marly credit in 2008 to record the issuance of the 4,000 shares?

Question 70

At its date of incorporation, Wilson, Inc. issued 100,000 shares of its $10 par common stock at $11 per share. During the current year, Wilson acquired 20,000 shares of its common stock at a price of $16 per share and accounted for them by the cost method. Subsequently, these shares were reissued at a price of $12 per share. There have been no other issuances or acquisitions of its own common stock. What effect does the reissuance of the stock have on the following accounts?

Question 71

Palmer Corp. owned 20,000 shares of Dixon Corp. purchased in 2003 for $240,000. On December 15, 2007, Palmer declared a property dividend of all of its Dixon Corp. shares on the basis of one share of Dixon for every 10 shares of Palmer common stock held by its stockholders. The property dividend was distributed on January 15, 2008. On the declaration date, the aggregate market price of the Dixon shares held by Palmer was $400,000. The entry to record the declaration of the dividend would include a debit to Retained Earnings of

A) $0.
B) $160,000.
C) $240,000.
D) $400,000.

Question 72

On May 1, 2008, Kent Corp. declared and issued a 10% common stock dividend. Prior to this dividend, Kent had 100,000 shares of $1 par value common stock issued and outstanding. The fair value of Kent 's common stock was $20 per share on May 1, 2008. As a result of this stock dividend, Kent's total stockholders' equity

A) increased by $200,000.
B) decreased by $200,000.
C) decreased by $10,000.
D) did not change.

Question 73

On December 31, 2007, the stockholders' equity section of Clark, Inc., was as follows:
On March 31, 2008, Clark declared a 10% stock dividend, and accordingly 900 additional shares were issued, when the fair market value of the stock was $18 per share. For the three months ended March 31, 2008, Clark sustained a net loss of $32,000. The balance of Clark's retained earnings as of March 31, 2008, should be

A) $125,800.
B) $133,000.
C) $134,800.
D) $142,000.

Question 74

On January 2, 2008, Carr Co. issued 10 -year convertible bonds at 105. During 2010, these bonds were converted into common stock having an aggregate par value equal to the total face amount of the bonds. At conversion, the market price of Carr's common stock was 50 percent above its par value. On January 2, 2008, cash proceeds from the issuance of the convertible bonds should be reported as

A) paid-in capital for the entire proceeds.
B) paid-in capital for the portion of the proceeds attributable to the conversion feature and as a liability for the balance.
C) a liability for the face amount of the bonds and paid-in capital for the premium over the face amount.
D) a liability for the entire proceeds.