Deck 8: Accounting for Shareholders Equity

Question 1

AZ Best,Inc.'s corporate charter allows it to issue 1,500,000 shares of common stock.In 2011,its first year of business,the company sold 200,000 shares of common stock.In 2011,the company bought back 5,000 shares to be held as treasury stock.At December 31,2011,how many shares of common stock are issued?

A)5,000 shares
B)1,300,000 shares
C)200,000 shares
D)1,500,000 shares

Answer 1

C

Question 2

Preferred stock offers shareholders the right to ________.

A)receive dividends after the common shareholders receive any dividends
B)receive,in the event of bankruptcy,a share of the assets before common shareholders
C)pre-emptive rights
D)voting rights

Answer 2

B

Question 3

Which stock offers shareholders preference in receiving dividends?

A)common stock
B)preferred stock
C)treasury stock
D)callable stock

Answer 3

B

Question 4

Cartier,Inc.'s corporate charter authorizes it to sell 1 million shares of $0.50 par value common stock.As of December 31,2011,the company had sold 500,000 shares for $4 each.Cartier has 20,000 shares of treasury stock that cost $100,000.On the December 31,2011 balance sheet,the number of shares issued is ________ shares.

A)1,000,000
B)500,000
C)480,000
D)400,000

Question 5

In exchange for stock,corporations may receive ________.

A)earnings
B)cash or other assets
C)income
D)treasury stock

Question 6

A monetary value assigned to and printed on each share of stock is called ________.

A)additional paid-in capital
B)paid-in capital
C)par value
D)retained earnings

Question 7

Stock that has been sold and then repurchased by the issuing corporation is called ________ stock.

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

Question 8

The number of shares of stock a corporation may issue when a corporation is formed is called ________ shares.

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

Question 9

Stock in the hands of shareholders is called ________ stock.

A)authorized
B)par value
C)outstanding
D)treasury

Question 10

________ is the stock sold to the public.

A)Authorized stock
B)Issued stock
C)Outstanding stock
D)Treasury stock

Question 11

Cartier,Inc.'s corporate charter allows it to sell 1 million shares of $0.50 par value common stock.As of December 31,2011,the company had sold 500,000 shares for $4 each.Cartier has 20,000 shares of treasury stock that cost $100,000.On the December 31,2011 balance sheet,the number of shares authorized is ________ shares.

A)1,000,000
B)500,000
C)480,000
D)400,000

Question 12

The state charter of Vest Corporation allows the corporation to sell 500,000 shares.Vest has issued 425,000 shares of stock.There are 15,000 shares of treasury stock.The number of outstanding shares is ________ shares.

A)15,000
B)410,000
C)425,000
D)500,000

Question 13

The owners of common stock do NOT have the specific right to ________.

A)vote for members of the board of directors
B)share in the corporation's earnings
C)share in any assets left when a company declares bankruptcy
D)receive dividends before preferred shareholders

Question 14

Paid-in capital includes ________

A)capital stock and additional paid-in capital
B)capital stock and retained earnings
C)additional paid-in capital and retained earnings
D)additional paid-in capital and treasury stock

Question 15

Contributed capital includes ________.

A)only capital stock
B)only additional paid-in capital
C)both capital stock and retained earnings
D)both capital stock and additional paid-in capital

Question 16

The owners of common stock do NOT have the specific right to ________.

A)vote for members of the board of directors
B)share in the corporation's earning
C)acquire more shares when a corporation issues more stock
D)receive dividends automatically each year

Question 17

The owners of ________ stock have the specific right to vote for members of the board of directors.

A)common
B)preferred
C)treasury
D)both common and preferred

Question 18

AZ Best,Inc.'s corporate charter allows it to issue 1,500,000 shares of common stock.In 2011,its first year of business,the company sold 200,000 shares of common stock.In 2011,the company bought back 5,000 shares to be held as treasury stock.At December 31,2011,how many shares of common stock are authorized?

A)5,000 shares
B)1,300,000 shares
C)200,000 shares
D)1,500,000 shares

Question 19

Investors purchase preferred stock because preferred ________.

A)stock offers a possibility of a specified annual dividend
B)dividends are increased each year
C)shareholders have voting rights
D)stock can always be converted to common stock

Question 20

AZ Best,Inc.'s corporate charter allows it to issue 1,500,000 shares of common stock.In 2011,its first year of business,the company sold 200,000 shares of common stock.In 2011,the company bought back 5,000 shares to be held as treasury stock.At December 31,2011,how many shares of common stock are outstanding?

A)5,000 shares
B)1,300,000 shares
C)200,000 shares
D)195,000 shares

Question 21

Lee's Lions issued 15,000 shares of stock for $17 per share.The par value of the stock was $0.50 per share.Calculate the value of capital stock and additional paid-in capital.

A)capital stock $0; additional paid-in capital $255,000
B)capital stock $7,500; additional paid-in capital $247,500
C)capital stock $247,500; additional paid-in capital $7,500
D)capital stock $255,000; additional paid-in capital $0

Question 22

When common stock is issued,the amount recorded in Additional paid-in capital is ________.

A)the cash received minus the amount recorded in the Common stock account
B)the cash received plus the amount received in excess of par
C)the par value plus the market price of the stock
D)nothing; Additional paid-in capital is not affected by issuing common stock

Question 23

Jem's Jewelers reported total shareholders' equity of $100,000 on its February 28 balance sheet.During March,the business earned $250,000,and declared and paid a cash dividend of $10,000.What was total shareholders' equity on March 31?

A)$360,000
B)$350,000
C)$340,000
D)$260,000

Question 24

Retained earnings is the amount owners have invested in a corporation.

Question 25

The number of shares outstanding equals the number of shares ________.

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

Question 26

Explain the difference between contributed capital,capital stock,and additional paid-in capital.

Question 27

Discuss the ownership rights available to common shareholders.

Question 28

Verst Corporation's state charter allows the corporation to issue 500,000 shares of $1 par value common stock.It has sold 305,000 shares of common stock to the public and it currently holds 5,000 shares of treasury stock.
1.How many shares are authorized?
2.How many shares are issued?
3.How many shares are outstanding?

Question 29

Cartier,Inc.'s corporate charter authorizes it to sell 1 million shares of $0.50 par value common stock.As of December 31,2011,the company had sold 500,000 shares for $4 each.Cartier has 20,000 shares of treasury stock that cost $100,000.On the December 31,2011 balance sheet,the number of shares outstanding is ________ shares.

A)1,000,000
B)500,000
C)480,000
D)400,000

Question 30

What is the difference between the par value of a stock and its market value?

Question 31

Explain the difference between authorized,issued,treasury and outstanding stock.

Question 32

If 10,000 shares of $2 par value common stock are issued for $10 per share,then additional paid-in capital will increase by ________.

A)$120,000
B)$100,000
C)$80,000
D)$20,000

Question 33

Team Shirts issued 20,000 shares of stock for $20 per share.The par value of the stock was $1 per share.Calculate the value of capital stock and additional paid-in capital.

A)capital stock $400,000; additional paid-in capital $0
B)capital stock $380,000; additional paid-in capital $20,000
C)capital stock $20,000; additional paid-in capital $380,000
D)capital stock $0; additional paid-in capital $400,000

Question 34

The owners' claims to the assets of a corporation are called shareholders' equity or stockholders' equity.

Question 35

Paid-in capital is divided into capital stock and retained earnings.

Question 36

Common stock's par value is usually ________.

A)equal to the market price of the common stock
B)greater than the market price of the common stock
C)less than the market price of the common stock
D)zero

Question 37

Use the information below to answer the following question: How many shares of common stock have been issued?

A)100,000 shares
B)40,000 shares
C)1,000 shares
D)39,000 shares

Question 38

Which of the following is true about bonds and common stock?

A)Bonds and common stock are both shareholders' equity accounts.
B)The company that has issued bonds and common stock has a legal responsibility to pay back the principal when the bonds and stock mature.
C)The company has a legal responsibility to pay interest and dividends each year.
D)Bondholders do not have voting rights,while common shareholders do.

Question 39

The state charter of Team Shirts authorizes the corporation to sell 300,000 shares.Team Shirts has issued 200,000 shares of stock.There are 7,500 shares of treasury stock.The number of outstanding shares is ________.

A)300,000
B)200,000
C)192,500
D)7,500

Question 40

State charters allow corporations to issue an unlimited number of shares of common stock.

Question 41

Angelique's Antiques declared and paid cash dividends of $25,000.There were 1,000 shares of 10%,$30 par value,noncumulative preferred stock outstanding.How much of the cash dividends were paid to preferred shareholders?

A)$0
B)$3,000
C)$22,000
D)$25,000

Question 42

The declaration date is the date ________.

A)on which the board of directors of a corporation announces that a dividend will be paid
B)used to determine exactly who will receive dividends
C)when cash is actually paid to the shareholders
D)when earnings are declared

Question 43

A difference between preferred stock and common stock is preferred shareholders ________.

A)have voting rights,while common shareholders do not
B)have the right to share in any assets left if the company goes out of business after both the creditors and common shareholders receive their share
C)have the right to buy new shares in order to maintain their percentage ownership before the company can issue new shares to the general public
D)must receive their dividends before any of the common shareholders are paid

Question 44

Marcy's Catering has been so successful that the business needs to expand its facility.Marcy has decided to change the business from a sole proprietorship to a corporation in order to raise more money from the sale of stock to investors.Marcy's accountant has prepared a proposed shareholders' equity section of the balance sheet.Explain to Marcy what each line item represents.

Question 45

Mufti Company issued 1,500 shares of its $1 par value common stock.The market price on the day of sale was $15 per share.Describe the effect of this transaction on each of the following items:
1.Cash
2.Total paid-in capital
3.Capital stock
4.Additional paid-in capital

Question 46

What is preferred stock?

Question 47

The date of record is the date ________.

A)on which the board of directors of a corporation announces that a dividend will be paid
B)used to determine exactly who will receive dividends
C)when cash is actually paid to the shareholders
D)when earnings are declared

Question 48

Dividends ________.

A)cause retained earnings to decrease
B)are expenses and cause shareholders' equity to decrease
C)cause retained earnings to increase
D)are expenses and cause shareholders' equity to increase

Question 49

Vest,Inc.received cash from selling 100 shares of its $1 par value common stock at $10 per share.Show the effect of issuing stock on the accounting equation,including both account titles and amounts.

Question 50

The date of payment is the date ________.

A)on which the board of directors of a corporation announces that a dividend will be paid
B)used to determine exactly who will receive dividends
C)when cash is actually paid to the shareholders
D)when earnings are declared

Question 51

Distributions of a corporation's earnings to its shareholders are called ________.

A)dividends
B)paid-in capital
C)retained earnings
D)distribution expense

Question 52

Team Shirts reported total shareholders' equity of $80,000 on its October 31 balance sheet.During November,the business earned $270,000,and declared and paid a cash dividend of $20,000.What was total shareholders' equity on November 30?

A)$80,000
B)$350,000
C)$250,000
D)$330,000

Question 53

Noncumulative preferred stock means that ________.

A)the fixed dividend amount accumulates from year to year.The entire amount of all past unpaid dividends must be paid to the preferred shareholders before any dividends can be paid to common shareholders
B)the board of directors has the option to decide whether past unpaid dividends will be paid to preferred shareholders
C)preferred dividends accumulate as earnings accumulate
D)the balance in the Preferred stock account is increased by any additional shares that are sold during the year

Question 54

G-Hi Corporation's state charter authorizes the corporation to issue 1,000,000 shares of $1 par value common stock.It has sold 600,000 shares of common stock to the public.At the end of the year it held 20,000 shares of treasury stock.
1.How many shares are authorized?
2.How many shares are issued?
3.How many shares are outstanding?

Question 55

Cumulative preferred stock means that ________.

A)the fixed dividend amount accumulates from year to year.The entire amount of all past unpaid dividends must be paid to the preferred shareholders before any dividends can be paid to common shareholders
B)the preferred dividend rate will increase each year the shares are outstanding
C)preferred dividends accumulate as earnings accumulate
D)the balance in the Preferred stock account is increased by any additional shares that are sold during the year

Question 56

The date on which the board of directors of a corporation decides that earnings are sufficient to pay a dividend is the ________.

A)declaration date
B)date of record
C)date of payment
D)dividend date

Question 57

Dividends ________.

A)are the distribution of profits
B)are expenses and cause shareholders' equity to decrease
C)cause retained earnings to increase
D)cause common stock to decrease

Question 58

Out of Africa had the following shareholders' equity section on its balance sheet as of
December 31.
Calculate the following:
a.Number of shares of preferred stock outstanding
b.Number of shares of common stock outstanding

Question 59

A company has 2,000 shares of $100 par,6%,noncumulative preferred stock outstanding.If the board of directors declares a dividend this year,how much will the preferred shareholders receive?

A)$100 per share
B)$6 per share
C)$200,000 in total
D)$60 per share

Question 60

Which of these comes first?

A)declaration date
B)date of record
C)payment date
D)liquidation date

Question 61

Dividends decrease net income.

Question 62

Team Shirts declared and paid cash dividends of $40,000.There were 1,000 shares of 6%,$10 par value,noncumulative preferred stock outstanding.How much of the cash dividends were paid to preferred shareholders?

A)$40,000
B)$2,400
C)$600
D)$0

Question 63

Dividends are an operating expense of a corporation.

Question 64

Angelique's Antiques declared and paid cash dividends of $25,000.There were 1,000 shares of 10%,$30 par value,noncumulative preferred stock outstanding.How much of the cash dividends were paid to common shareholders?

A)$0
B)$1,500
C)$22,000
D)$25,000

Question 65

On July 1,the board of directors of Team Shirts declared a $0.75 cash dividend per share for shareholders owning company stock on July 10.The checks will be issued on July 15.What are the dates of declaration,record,and payment?

Question 66

On July 31,Ace Electronics paid a cash dividend of $0.50 per share to common shareholders.There were 80,000 shares issued at the time.Ace held 5,000 shares of treasury stock.Ace also paid a dividend to preferred shareholders.There were 1,000 shares of 6%,$100 par preferred stock outstanding.What was the total dollar amount of the cash dividend?

Question 67

Dividends decrease contributed capital.

Question 68

Out of Africa,a multi-national corporation had a very successful year.The board of directors declared and paid a cash dividend of $50,000.The prior year,Out of Africa did not pay dividends on its 400 shares of cumulative,8%,$100 par,preferred stock.How much of the cash dividend was paid to the COMMON shareholders?

A)$50,000
B)$49,992
C)$46,800
D)$43,600

Question 69

Preferred stock has preference over common stock when dividends are paid.

Question 70

On June 15,Team Shirts paid a cash dividend of $0.75 per share to common shareholders.There were 45,000 shares issued at the time.Team Shirts held 1,000 shares of treasury stock.Team Shirts also paid a dividend to preferred shareholders.There were 200 shares of 8%,$100 par preferred stock outstanding.What was the total dollar amount of the cash dividend?

Question 71

Dividends are distributions of a corporation's earnings to its shareholders.

Question 72

What are dividends?

Question 73

Team Shirts had an exceptional second quarter and earned net income of $250,000.On August 1,the board of directors of Team Shirts declared a $1.00 per share cash dividend to be paid on August 15 to shareholders owning company stock on August 10.What are the dates of declaration,record,and payment?

Question 74

Trading Places,a multi-national corporation,had a very successful year.The board of directors declared and paid a cash dividend of $50,000.The prior year,Trading Places did not pay dividends on its 400 shares of noncumulative,8%,$100 par,preferred stock.How much of the cash dividend was paid to the PREFERRED shareholders?

A)$6,400
B)$3,200
C)$8,000
D)$4,000

Question 75

Team Shirts declared and paid cash dividends of $40,000.There were 1,000 shares of 6%,$10 par value,noncumulative preferred stock outstanding.How much of the cash dividends were paid to common shareholders?

A)$40,000
B)$39,400
C)$2,400
D)$600

Question 76

Dividends decrease retained earnings.

Question 77

On March 15,Team Shirts paid a cash dividend of $0.25 per share to its shareholders.There were 65,000 shares issued at the time.Team Shirts held 2,500 shares of treasury stock.What was the total dollar amount of the cash dividend?

Question 78

Common stock has preference over preferred stock when dividends are paid.

Question 79

Trading Places,a multi-national corporation,had a very successful year.The board of directors declared and paid a cash dividend of $50,000.The prior year,Trading Places did not pay dividends on its 400 shares of noncumulative,8%,$100 par,preferred stock.How much of the cash dividend was paid to the COMMON shareholders?

A)$46,800
B)$0
C)$43,600
D)$50,000

Question 80

Out of Africa,a multi-national corporation had a very successful year.The board of directors declared and paid a cash dividend of $50,000.The prior year,Out of Africa did not pay dividends on its 400 shares of cumulative,8%,$100 par,preferred stock.How much of the cash dividend was paid to the PREFERRED shareholders?

A)$6,400
B)$3,200
C)$8,000
D)$4,000