Deck 19: Corporations: Stock Values, Dividends, Treasury Stocks, and Retained Earnings

Question 1

The price a corporation pays when it reserves the right to retire or redeem stock at a specific price is the:

A)redemption value.
B)book value per share.
C)dividend per share.
D)market value.

Answer 1

A

Question 2

Discuss and describe the major differences among the following common stock values:
a. Par value
b. Stated value
c. Redemption value
d. Market value
e. Book value

Answer 2

a. Par value is an entirely arbitrary amount assigned to stock at the time the corporation receives its charter. It is a way of dividing ownership of the corporation into a number of units and putting a value on each unit. In most states, the par value per share times the number of shares issued represents the legal capital-an amount that a corporation must retain in the business for protection of creditors.
b. When some corporations issue no-par stock, an arbitrary value is assigned to each share that can be changed by the board of directors. Stated value has the same purpose as par value.
c. When a corporation issues preferred stock, it often reserves the right to retire or redeem that stock for a specific price-the redemption value.
d. Market value is the price at which shares of stock are bought and sold in the several stock exchanges open market. Economic conditions, a company's earnings, and investors' expectations all play a factor in determining the market price.
e. Book value is basically the total of stockholders' equity divided by the number of shares issued. Certain amounts of the total are allocated to preferred stock with the remainder allocated to common.

Question 3

When treasury stock is sold, the Paid-in Capital in Excess of Par is returned.

Answer 3

False

Question 4

From the following, determine the book value per share for preferred and common stocks; no dividends are in arrears on the preferred stock.
Preferred Stock, 8% cumulative and
Common Stock, $1 par value, 40,000 shares

Question 5

What is the book value per share of common stock if total stockholders' equity is $450,000 with 15,000 shares of common stock outstanding?

A)$3.33
B)$3.00
C)$300.00
D)$30.00

Question 6

When the corporation has both preferred and common stock, the steps to compute book value for common stock would be:

A)compute common shares divided by number of shares outstanding.
B)compute preferred stock book value first; the remainder is assigned to common stock.
C)divide total stockholders' equity by total shares outstanding.
D)None of these answers are correct.

Question 7

Total stockholders' equity consists of retained earnings of $150,000 and paid-in capital of $600,000. There are 30,000 common shares outstanding. What is the book value per share?

A)$20.00 per share
B)$25.00 per share
C)$15.00 per share
D)$ 5.00 per share

Question 8

Patterson Research has 200 shares of 10%, $100 par value, preferred stock, and 2000 shares of $10 par value common stock outstanding. Total paid-in capital is $40,000, and retained earnings are $0. There are one-year dividends in arrears on preferred stock. The book value per share on common stock is:

A)$10.
B)$40.
C)$20.
D)$9.

Question 9

Par value is the price per share a corporation pays to holders of stock when it is redeemed.

Question 10

From the following, determine the book value per share for preferred and common stocks, assuming $2,000 of dividends are in arrears on the preferred stock.
Preferred Stock, 10% cumulative and
Common Stock, $10 par value, 4,000 shares

Question 11

Book value per share is found by dividing total assets by total stockholders' equity.

Question 12

Dexter Corporation has total paid-in capital of $160,000 and retained earnings of $60,000. It has 1,500 shares of $10 preferred stock with no dividends in arrears and 2,000 shares of $10 par value common stock. The book value of each share of common stock is:

A)$10.
B)$7.50.
C)$102.50.
D)$88.00.

Question 13

If total stockholders' equity is $90,000 with 5,000 common shares outstanding, what is the book value per share?

A)$18.00
B)$45.00
C)$17,000
D)$1.80

Question 14

The price at which shares are bought and sold on the open market is called:

A)book value.
B)dividend value.
C)market value.
D)redemption value.

Question 15

When the corporation has only common stock, the total of stockholders' equity divided by the number of shares issued equals:

A)redemption value.
B)book value per share.
C)dividend per share.
D)market value.

Question 16

Book value is only calculated for common stock.

Question 17

Market value is the price at which a share of stock is bought and sold.

Question 18

Market value is the same as par value.

Question 19

Ariel Investigations has total paid-in capital of $90,000 and retained earnings of $60,000. It has 200 shares of $100 par value common stock outstanding. The book value of each share of common stock is:

A)$750.
B)$450.
C)$300.
D)$600.

Question 20

If a redemption value is not stated, market value is used instead.

Question 21

The entry to record the declaration of a stock dividend would include:

A)a credit to Retained Earnings.
B)a credit to Cash.
C)a credit to Common Stock.
D)None of these answers are correct.

Question 22

A stock split:

A)causes decrease in the number of shares outstanding.
B)increases the par or stated value in proportion.
C)reduces retained earnings.
D)None of these answers are correct.

Question 23

The journal entry to record the issuance of a stock dividend is to:

A)debit Common Stock Dividend Distributable (number of shares × par value common stock); credit Common Stock (same).
B)debit Common Stock Dividends Distributable (number of shares × market value common stock); credit Common Stock (same).
C)debit Retained Earnings (market value × number of shares); credit Common Stock Dividends Distributable (number of shares × par value); credit Paid-in Capital in Excess of Par-Stock Dividend.
D)debit Common Stock Dividend Distributable (number of shares × par value); credit Cash.

Question 24

Declaration of a cash dividend causes:

A)an increase in stockholders' equity.
B)an increase in cash.
C)an increase in liabilities.
D)None of these answers are correct.

Question 25

The entry to record the distribution of the stock dividend would include:

A)a credit to Common Stock.
B)a debit to Common Stock Distributable.
C)both A and B are correct.
D)None of these answers are correct.

Question 26

In the dividend process, the liability Dividend Payable is recognized on the:

A)date of declaration.
B)date of record.
C)date of payment.
D)date of stock issue.

Question 27

On the date of record, the journal entry would include:

A)a debit to Dividend Payable.
B)a credit to Dividend Payable.
C)a credit to Cash.
D)no entry.

Question 28

Before a three-for-one stock split, the shares outstanding were 5,000 shares at $12 par. After the split, what was the par and number of shares?

A)15,000 shares at $12 per share
B)20,000 shares at $6 per share
C)15,000 shares at $4 per share
D)5,000 shares at $48 per share

Question 29

What are the annual dividends on preferred stock, $20 par, 2,000 shares authorized, 700 shares issued, and a dividend rate of 5%?

A)$200
B)$20
C)$700
D)$70

Question 30

The entry to record the payment of a cash dividend would include a:

A)debit to Dividends Payable; credit to Cash.
B)debit to Retained Earnings; credit to Cash.
C)credit to Dividends Declared, debit to Cash.
D)debit to Cash, credit to Retained Earnings.

Question 31

Which of the following is the journal entry to record the declaration of a stock dividend?

A)Debit Common Stock Dividend Distributable (number of shares × par value common stock); credit Common Stock (same)
B)Debit Common Stock Dividend Distributable (number of shares × market value common stock); credit Common Stock (same)
C)Debit Retained Earnings (market value × number of shares); credit Common Stock Dividend Distributable (number of shares × par value); credit Paid-In Capital in Excess of Par Stock Dividend (market value - par value)× number of shares
D)Debit Common Stock (number of shares × par value); credit Cash

Question 32

The journal entry to pay a cash dividend is to:

A)debit Dividends Payable; credit Cash.
B)debit Retained Earnings; credit Cash.
C)debit Dividends Payable; credit Retained Earnings.
D)debit Retained Earnings; credit Dividends Payable.

Question 33

ABC Corporation offered a four-for-one stock split. The number of outstanding shares before the split was 15,000 and the par value was $20 per share. After the split, what was the par value and number of shares?

A)3,750 shares and $80 per share
B)60,000 shares and $80 per share
C)60,000 shares and $5 per share
D)3,750 shares and $5 per share

Question 34

A distribution to stockholders in the form of cash is called a:

A)stock dividend.
B)stock split.
C)stock conversion.
D)cash dividend.

Question 35

The date of record for cash dividends is:

A)the date the board of directors pays a dividend.
B)the date established by the board of directors that determines who will receive dividends.
C)the date that creates a liability for the company.
D)None of these answers are correct.

Question 36

Payment of a cash dividend causes:

A)an increase in liabilities.
B)a decrease in an asset.
C)an increase in stockholders' equity.
D)All of the above are correct.

Question 37

Cody's Western Wear has 2,000 shares of $10 par value common stock outstanding. During the current year, the company distributed a 10% stock dividend. The market value of the stock at that time was $16 per share. Cody's total stockholders' equity should increase or decrease by:

A)$0.
B)$1,200.
C)$2,000.
D)($3,200).

Question 38

Malcolm Corporation declared a dividend of $5 per share on 1,000 shares. The entry to record the transaction would be to:

A)debit Dividends Expense $5,000; credit Cash $5,000.
B)credit Cash $5,000, debit Dividends Expense $5000.
C)debit Dividends Payable $5,000; credit Retained Earnings $5,000.
D)debit Retained Earnings $5,000; credit Dividends Payable $5,000.

Question 39

What are the annual dividends on preferred stock, $20 par, 500 authorized, 250 shares issued, and a dividend rate of 12%?

A)$1200
B)$600
C)$300
D)$150

Question 40

Which of the following dividend dates does not get a formal journal entry?

A)Date of payment
B)Date of declaration
C)Date of record
D)All receive formal journal entries.

Question 41

A stock-split journal entry would include a:

A)debit to Retained Earnings and a credit to Common Stock.
B)debit to Common Stock and a credit to Cash.
C)debit to Common Stock Dividend Distributable and a credit Common Stock.
D)memorandum notation only.

Question 42

A corporation may issue a stock dividend for which of the following reasons?

A)May want to decrease permanent capital in the business
B)May want to increase market value
C)May be short of cash and unable to pay a cash dividend
D)None of the above are correct.

Question 43

Common Stock Dividend Distributable is a liability account.

Question 44

Retained earnings represent past accumulations of net income.

Question 45

A dividend is declared by:

A)the board of directors.
B)president of the corporation.
C)CFO of the corporation.
D)stockholders.

Question 46

The date of record determines who receives the declared dividends.

Question 47

The retained earnings section after a two-for-one stock split will:

A)be one-half as much after the split.
B)be double as much after the split.
C)not change after the split.
D)cannot be determined from the information given.

Question 48

When a stock dividend is distributed, the account to be credited would be:

A)common stock.
B)paid-in capital in excess of par.
C)stock dividends distributable.
D)stock dividends.

Question 49

The declaration of a stock dividend was credited to Dividends Payable and debited to Retained Earnings. This error would cause:

A)the period end assets to be overstated.
B)the period end liabilities to be overstated.
C)the period end stockholders' equity to be overstated.
D)the period's net income to be overstated.

Question 50

An exchange of one share of an old issue of stock for a multiple number of shares of a new issue of stock with reduced par value is known as a:

A)property dividend.
B)stock dividend.
C)stock split.
D)liquidating dividend.

Question 51

Which of the following in not true about retained earnings?

A)Declaring a stock split will have no effect on retained earnings.
B)Appropriating retained earnings will have no effect on total stockholders' equity.
C)Distributing stock dividends will have no effect on retained earnings.
D)Declaring cash dividends will increase retained earnings.

Question 52

A stock split has no effect on retained earnings.

Question 53

Gino's Corporation had 20,000 shares of $15 par value common stock outstanding with a market value of $40 per share. Gino announced a four-for-one stock split. After the split, the par value of the stock:

A)remained the same as before the split.
B)was reduced to $3.75 per share.
C)was reduced by $3.75 per share.
D)was reduced to $10.00 per share.

Question 54

Retained Earnings is a current liability on the balance sheet.

Question 55

Distribution of earnings to stockholders may be in the form of cash, or additional stock.

Question 56

The payment of a cash dividend was recorded as payment to Miscellaneous Expense. This error would cause:

A)the period end assets to be overstated.
B)the period end liabilities to be overstated.
C)the period end stockholders' equity to be overstated.
D)the period's net income to be overstated.

Question 57

Declaration of a cash dividend was recorded by debiting Operations Expense and crediting Cash. This error would cause:

A)the period end assets to be overstated.
B)the period end liabilities to be overstated.
C)the period end stockholders' equity to be understated.
D)None of the above are correct.

Question 58

The board of Bogswell, Inc. declared a $2 per share cash dividend on common stock. The corporation has 4,000 shares of common stock outstanding. The entry required to distribute the dividend is:

A)debit Cash; credit Common Dividends Payable.
B)debit Common Dividends Payable; credit Cash.
C)debit Common Dividends Payable; credit Retained Earnings.
D)debit Cash Dividends; credit Common Dividends Payable.

Question 59

The payment of a cash dividend was debited to Retained Earnings and credited to Cash. This error would cause:

A)the period end assets to be overstated.
B)the period end stockholders' equity to be overstated.
C)the period end stockholders' equity to be understated.
D)the period's net income to be overstated.

Question 60

When a stock dividend was declared above par the excess was ignored and only the par value was used. This error would cause:

A)the period end assets to be overstated.
B)the period end liabilities to be overstated.
C)the period end stockholders' equity to be overstated.
D)None of these are correct.

Question 61

Treasury stock was sold above cost; the excess was credited to Gain on Sale. This error would cause:

A)the period end assets to be overstated.
B)the period end liabilities to be overstated.
C)the total period end stockholders' equity to be overstated.
D)the period's net income to be overstated.

Question 62

Treasury stock was purchased and recorded as an asset. This error would cause:

A)the period end assets to be understated.
B)the period end liabilities to be overstated.
C)the period end stockholders' equity to be overstated.
D)None of the above is correct.

Question 63

Explain some possible reasons a company may declare a stock dividend instead of a cash dividend.

Question 64

Which of the following statements is false of treasury stock?

A)It has a right to dividends.
B)It has a right to vote.
C)It is stock that is outstanding.
D)All of the statements are false.

Question 65

Treasury Stock is what type of account?

A)Stockholders' equity
B)Liability
C)Asset
D)Contra-stockholders' equity

Question 66

To record the purchase of treasury stock:

A)debit Treasury Stock-Common (par value); credit Cash (same).
B)debit Treasury Stock-Common (purchase price); credit Cash (same).
C)debit Treasury Stock-Common (par value); debit any difference to Paid-in Capital; credit Cash (purchase price).
D)None of these answers are correct.

Question 67

When treasury stock was sold at cost, Cash was debited and Common Stock was credited. This error would cause:

A)the period end assets to be overstated.
B)the period end liabilities to be overstated.
C)the total period end stockholders' equity to be overstated.
D)None of these are correct.

Question 68

Treasury stock is:

A)stock that is issued in a stock dividend.
B)stock that has been reacquired by the corporation.
C)previously issued stock that has been canceled.
D)unissued, but authorized stock.

Question 69

On May 31, Mason Corporation has the following stockholders' equity:
Common Stock, $10 par value, 6,000 shares
The board of directors declared a 10% stock dividend on June 5 to the stockholders of record on June 15. The stock is to be distributed on June 30. On the date of declaration, the stock had a market value of $15 per share. Prepare the appropriate journal entries for these transactions.

Question 70

Quinn Corporation has 2,000 shares of common stock issued and outstanding. The board of directors declared a $1.00 per share cash dividend on January 5, payable on March 5, to stockholders of record on February 5. Prepare the appropriate journal entries for the declaration and payment of the dividend.

Question 71

A stock dividend may be distributed even if the company is short of cash.

Question 72

The cash purchase of treasury stock was recorded as a purchase on account. This error would cause:

A)the period end assets to be understated.
B)the period end liabilities to be overstated.
C)the period end stockholders' equity to be overstated.
D)the period's net income to be overstated.

Question 73

Prepare the following stock dividend journal entries for Tamera, Inc.

Question 74

When treasury stock is purchased:

A)issued shares increase.
B)outstanding shares decrease.
C)authorized shares decrease.
D)None of these answers are correct.

Question 75

When treasury stock was sold below cost, the decrease was debited to Loss on Sale. This error would cause:

A)the period end assets to be overstated.
B)the period end liabilities to be overstated.
C)the period end stockholders' equity to be overstated.
D)Both A and C are correct.

Question 76

A stock split will not affect total stockholders' equity or the number of shares of stock issued.

Question 77

Prepare the following journal entries for Complex Company.

Question 78

The Tiger Football Corporation has 7,500 shares of common stock issued and outstanding. The board of directors declared a $2.00 per share cash dividend on January 9, payable on March 9, to stockholders of record on February 9. Prepare the appropriate journal entries.

Question 79

When treasury stock is reissued for more than cost:

A)debit Cash; credit Treasury Stock and Paid-in Capital from Treasury Stock.
B)debit Cash; credit Common Stock and Paid-in Capital from Common Stock.
C)debit Cash; credit Treasury Stock.
D)debit Cash; credit Treasury Stock and Retained Earnings.

Question 80

The Tiger Football Corporation has 7,500 shares of $1.00 par value common stock issued and outstanding. The board of directors declared a 2-for-1 stock split May 10, distributable on June 15, to stockholders of record on June 1. The Retained Earnings account balance is $50,000 on May 10. Prepare the equity section of the balance sheet on May 10 and June 15, before and after the stock split.