Deck 13: Stockholders Equity

Question 1

Lack of mutual agency is best described as which of the following?

A)The liabilities of the corporation cannot be extended to the personal assets of the stockholder.
B)Shares of stock can be readily purchased and sold by investors on an organized stock exchange.
C)Stockholders are not authorized to sign contracts or make business commitments on behalf of the corporation.
D)Corporations pay income tax on corporate earnings,and shareholders pay income tax on corporate dividends.

Answer 1

C

Question 2

Which of the following is an advantage of the corporate form of business?

A)less degree of government regulation
B)limited liability of stockholders
C)separation of ownership and management
D)low start-up costs

Answer 2

B

Question 3

The par value of stock is ________.

A)the current selling price of stock
B)the highest price for which a share can sell
C)the price paid if the corporation purchases its own stock back
D)the amount assigned by a company to a share of its stock

Answer 3

D

Question 4

Which of the following statements is true of a corporation?

A)Shareholders can be required to pay debts of the corporation.
B)Shares of stock cannot be readily purchased and sold by investors on an organized stock exchange.
C)Shareholders are authorized to sign contracts or make business commitments on behalf of the corporation.
D)Corporations pay income tax on corporate earnings,and shareholders pay income tax on corporate dividends.

Question 5

Retained earnings represents amounts received from stockholders of a corporation in exchange for stock.

Question 6

Outstanding stock represents shares of stock that ________.

A)are held by the stockholders
B)are sold for the highest price
C)have been authorized by state law
D)have been issued but may or may not be held by stockholders

Question 7

Which of the following corporate characteristics is a disadvantage of a corporation?

A)Stockholders have limited liability.
B)A corporation has a continuous life.
C)There is no mutual agency between the stockholders and the corporation.
D)Earnings of a corporation may be subject to double taxation.

Question 8

Which of the following is true of a corporation?

A)A corporation cannot be privately held.
B)The earnings of a corporation may be subject to double taxation.
C)A corporation has a limited life.
D)The stockholders of a corporation have unlimited liability for the corporation's debt.

Question 9

The two basic sources of stockholders' equity are ________.

A)common stock and bonds
B)common stock and preferred stock
C)paid-in capital and retained earnings
D)no-par and stated value stock

Question 10

Which of the following is a basic right of stockholders?

A)Stockholders may sell their stock back to the company if they wish.
B)Stockholders may authorize a business contract on behalf of the corporation.
C)Stockholders may receive dividends from corporate earnings.
D)Stockholders may determine the issue price of common stock.

Question 11

Stated value stock is no-par stock that has been assigned an amount similar to par value.

Question 12

Both common and preferred stock carry the same degree of investment risk for the stockholder.

Question 13

Preferred stockholders receive a dividend preference over common stockholders.

Question 14

Paid-in capital is externally generated capital and results from transactions with outsiders.

Question 15

Stockholders of a corporation are not personally liable for the corporation's debt.

Question 16

A corporation is a separate legal entity that is organized independently of its owners.

Question 17

List the four basic rights of stockholders.

Question 18

William Smith is a sole proprietor of a successful business.He is interested in incorporating to protect his personal assets.What are some disadvantages of organizing as a corporate entity?

Question 19

Which of the following is a true statement?

A)Stockholders are guaranteed annual dividends.
B)Stockholders receive their proportionate share of any assets remaining after the corporation pays its debts and liquidates.
C)Stockholders may authorize a business contract on behalf of the corporation.
D)Stockholders may determine the issue price of common stock.

Question 20

William Smith is a sole proprietor of a successful business.He is interested in incorporating to protect his personal assets.Which advantage of incorporation is most applicable? What are other advantages of organizing as a corporate entity?

Question 21

Overton,Inc.had the following transactions in 2017,its first year of operations: • Issued 8,000 shares of common stock.Stock has par value of $0.01 per share and was issued at $40.00 per share.
• Earned net income of $200,000.
• Paid dividends of $8.00 per share.
At the end of 2017,what is total stockholders' equity?

A)$320,000
B)$456,000
C)$136,000
D)$584,000

Question 22

When a corporation sells 9,000 shares of $12 par value common stock for $159,000,Common Stock is credited for $108,000.

Question 23

When a company issues stock at an amount greater than the par value,a gain is recorded for the difference between the issue price and the par value.

Question 24

Bradley Corporation received cash from issuing 17,000 shares of common stock at par on January 1,2017.The stock has a par value of $0.05 per share.Which is the correct journal entry to record this transaction?

A)Cash is debited for $850,and Common Stock-$0.05 Par Value is credited for $850.
B)Cash is credited for $17,000 and Common Stock-$0.05 Par Value is debited for $17,000.
C)Paid-In Capital in Excess of Par-Common is debited for $16,150,and Common Stock-$0.05 Par Value is credited for $16,150.
D)Cash is debited for $17,000,Common Stock-$0.05 Par Value is credited for $850,and Paid-In Capital in Excess of Par-Common credited for $16,150.

Question 25

Preferred stockholders ________.

A)are guaranteed that they will not have a loss on their investment
B)are guaranteed to receive an annual dividend payment
C)receive a set percentage of corporation net income
D)receive a dividend preference over common stockholders

Question 26

A company cannot report a gain or loss when buying or selling its own stock.

Question 27

When a corporation issues stock at par value,the Cash account is debited and the Common Stock account is credited for an amount equal to the number of shares issued times the par value per share.

Question 28

Moretown,Inc.had the following transactions in 2017,its first year of operations: • Issued 31,000 shares of common stock.Stock has par value of $1.00 per share and was issued at $20.00 per share.
• Earned net income of $70,000.
• Paid no dividends.
At the end of 2017,what is total stockholders' equity?

A)$31,000
B)$690,000
C)$620,000
D)$70,000

Question 29

Stock issued at amounts in excess of par value results in a gain that is reported on the income statement.

Question 30

In the event of a corporate liquidation,preferred stockholders ________.

A)are guaranteed to receive a full refund of the stock purchase price
B)have first claim on remaining corporate assets after debts are paid
C)are guaranteed to receive the par value of the preferred stock
D)may retain their proportionate share of voting rights

Question 31

Which of the following types of stock has less investment risk?

A)common stock
B)par value stock
C)no-par stock
D)preferred stock

Question 32

Most corporations set par value low and issue common stock at a premium.

Question 33

Green Apron,Inc.had the following transactions in 2017,its first year of operations: • Issued 33,000 shares of common stock.Stock has par value of $1.00 per share and was issued at $24.00 per share.
• Earned net income of $73,000.
• Paid no dividends.
At the end of 2017,what is the total amount of paid-in capital?

A)$33,000
B)$865,000
C)$792,000
D)$73,000

Question 34

Which of the following is included in the entry to record the issuance of 14,000 shares of $7 par value common stock at $21 per share cash?

A)Cash is debited for $294,000.
B)Common Stock is debited for $98,000.
C)Common Stock is credited for $294,000.
D)Paid-In Capital in Excess of Par-Common is debited for $196,000.

Question 35

The retained earnings of a corporation is ________.

A)internally generated equity that is earned by profitable operations that is not distributed to stockholders
B)externally generated equity that is contributed by shareholders
C)externally generated equity that is acquired from banks and other creditors
D)internally generated equity that is received from employee stock purchases

Question 36

The following information is from the December 31,2017 balance sheet of Lawson Corporation. $$\begin{array} { | l | r | } \hline \text { Preferred Stock, } \$ 100 \text { par } & \$ 560,000 \\\hline \text { Paid-In Capital in Excess of Par-Preferred } & 43,000 \\\hline \text { Common Stock, } \$ 1 \text { par } & 190,000 \\\hline \text { Paid-In Capital in Excess of Par-Common } & 510,000 \\\hline \text { Retained Earnings } & \underline { 191,500 } \\\hline \text { Total Stockholders' Equity } & \$ 1,494,500 \\\hline\end{array}$$ What was the average issue price of the common stock shares? (Round your answer to the nearest cent. )

A)$1.88
B)$1.00
C)$2.68
D)$3.68

Question 37

The issue price is the price the stock initially sells for the first time it is sold.

Question 38

Preferred stockholders ________.

A)receive a dividend preference over common stockholders
B)are guaranteed that they will not have a loss on their investment
C)generally have voting rights
D)have more investment risk compared to common stockholders

Question 39

Paid-in capital consists of ________.

A)amounts received from customers
B)amounts raised by issuing bonds or preferred stocks
C)earnings generated by the corporation
D)amounts received from stockholders in exchange for stock

Question 40

Preferred stock is stock ________.

A)that sells for a high price
B)that is distributed to employees as annual bonuses
C)that is distributed by corporations to avoid liquidation
D)that gives its owners certain advantages over common stockholders

Question 41

When stock is issued for assets other than cash,the transaction is recorded at the market value of the stock issued or the market value of the assets received,whichever is more clearly determinable.

Question 42

Dallkin Corporation issued 10,000 shares of common stock on January 1,2017.The stock has no par value and was issued at $17 per share.The journal entry for this transaction includes a ________.

A)debit to Cash for $170,000 and a credit to Common Stock-No-Par Value for $170,000
B)debit to Cash for $170,000 and a credit to Paid-In Capital in Excess of Par-Common for $170,000
C)credit to Cash for $170,000 and a debit to Common Stock-No-Par Value for $170,000
D)credit to Cash for $170,000,a debit to Paid-In Capital in Excess of Par-Common for $10,000,and a debit to Common Stock-No-Par Value for $160,000

Question 43

Preferred Stock is included in the long-term asset section of the balance sheet.

Question 44

When stock is issued for assets other than cash,the transaction is always recorded at the market value of the stock issued.

Question 45

Accounting for stated value common stock is identical to accounting for par value stock.

Question 46

When a corporation issues no-par stock,it debits the asset received and credits the stock account.

Question 47

The following information is from the December 31,2017 balance sheet of Jackson Corporation. $$\begin{array} { | l | r | } \hline \text { Preferred Stock, } \$ 100 \text { par } & \$ 270,000 \\\hline \text { Paid-In Capital in Excess of Par-Preferred } & 22,000 \\\hline \text { Common Stock, } \$ 1 \text { par } & 69,000 \\\hline \text { Paid-In Capital in Excess of Par-Common } & 206,000 \\\hline \text { Retained Earnings } & \underline { 56,600 } \\\hline \text { Total Stockholders' Equity } & \$ 623,600 \\\hline\end{array}$$ What is the average issue price of the preferred stock shares? (Round answers to the nearest dollar. )

A)$108
B)$100
C)$167
D)$106

Question 48

If preferred stock is issued for an amount above the par value,the amount of the par value times the number of shares issued is credited to Paid-In Capital in Excess of Par-Preferred.

Question 49

For no-par stock there can be paid-in capital in excess of par.

Question 50

A corporation issues 16,000 shares of its $3 stated value common shares.The issue price is $9 per share.The credit to the Common Stock account is $144,000.

Question 51

When a stockholder contributes cash to a corporation in exchange for stock,________.

A)liabilities and stockholders' equity are increased
B)assets and stockholders' equity are increased
C)one asset is increased and another asset is decreased
D)assets and liabilities are increased

Question 52

Peterson,Inc.issued 4,000 shares of preferred stock for $240,000.The stock has a par value of $60 per share.The journal entry to record this transaction would ________.

A)credit Cash $240,000,debit Preferred Stock-$60 Par Value $4,000,and debit Paid-In Capital in Excess of Par-Preferred $236,000
B)debit Cash $240,000,credit Preferred Stock-$60 Par Value $4,000,and credit Paid-In Capital in Excess of Par-Preferred $236,000
C)credit Cash $240,000 and debit Preferred Stock-$60 Par Value $240,000
D)debit Cash $240,000 and credit Preferred Stock-$60 Par Value $240,000

Question 53

Jenkins Realty,Inc.issued 7,000 shares of $9 stated value common stock for $16 per share.The journal entry to record this transaction includes a credit to ________.

A)Common Stock for $112,000
B)Paid-In Capital in Excess of Stated - Common for $63,000
C)Common Stock - $9 Stated Value for $49,000
D)Paid-In Capital in Excess of Stated - Common for $49,000

Question 54

On December 2,2017,Ewell,Inc.purchases land.In payment for the land,Ewell,Inc.issues 6,000 shares of common stock with $6 par value.The land has been appraised at a market value of $430,000.Which of the following is included in the journal entry to record this transaction?

A)debit Common Stock-$6 Par Value for $36,000 and debit Paid-In Capital in Excess of Par -Common $394,000
B)credit Common Stock-$6 Par Value for $36,000 and credit Paid-In Capital in Excess of Par-Common $394,000
C)credit Common Stock-$6 Par Value for $430,000
D)debit Cash $430,000

Question 55

The following information is from the December 31,2017 balance sheet of Tudor Corporation. $$\begin{array} { | l | r | } \hline \text { Preferred Stock, } \$ 100 \text { par } & \$ 390,000 \\\hline \text { Paid-In Capital in Excess of Par-Preferred } & 25,000 \\\hline \text { Common Stock, } \$ 1 \text { par } & 152,000 \\\hline \text { Paid-In Capital in Excess of Par-Common } & 346,000 \\\hline \text { Retained Earnings } &83,900 \\\hline \text { Total Stockholders' Equity } & \$ 996,900 \\\hline\end{array}$$ What was the total paid-in capital as of December 31,2017?

A)$736,000
B)$996,900
C)$913,000
D)$888,000

Question 56

Osbourne,Inc.issued 60,000 shares of common stock in exchange for manufacturing equipment.The equipment has a fair value of $1,420,000.The stock has a par value of $0.05 per share.The journal entry to record this transaction includes a ________.

A)debit to Cash for $14,170,000
B)credit to Gain on Sale of Common Stock for $1,480,000
C)credit to Paid-In Capital in Excess of Par-Common for $1,417,000
D)credit to Common Stock-$0.05 Par Value for $1,420,000

Question 57

Lerner,Inc.had the following transactions in 2017,its first year of operations: • Issued 22,000 shares of common stock.The stock has a par value of $3.00 per share and was issued at $16.00 per share.
• Issued 1,800 shares of $160 par value preferred stock at par.
• Earned net income of $37,000.
• Paid no dividends.
At the end of 2017,what is total stockholders' equity?

A)$677,000
B)$354,000
C)$286,000
D)$640,000

Question 58

Castle,Inc.had the following transactions in 2017,its first year of operations: • Issued 20,000 shares of common stock.The stock has a par value of $3.00 per share and was issued at $19.00 per share.
• Issued 2,000 shares of $200 par value preferred stock at par.
• Earned net income of $40,000.
• Paid no dividends.
At the end of 2017,what is the total amount of paid-in capital?

A)$820,000
B)$460,000
C)$380,000
D)$780,000

Question 59

When 1,000 shares of $3 stated value common stock is issued at $18 per share,________.

A)Common Stock - $3 Stated is credited for $18,000
B)the account titled Paid-In Capital in Excess of Stated is used to record the issue price of the stock
C)the difference between the issue price and the stated value is credited to Paid-In Capital in Excess of Stated
D)the accounting is exactly the same as the accounting for par value stock

Question 60

On December 2,2017,St.Augustine,Inc.purchases land.In exchange for the land,St.Augustine,Inc.issues 8,000 shares of common stock with $1.00 par value.The land has been appraised at a market value of $400,000.Prepare the journal entry for this transaction.

Question 61

Treasury stock is recorded at cost,without reference to par value.

Question 62

Ross Corporation reported the following: $$\begin{array} { | l | r | } \hline \text { Common Stock, } \$ 5 \text { par, } 206,000 \text { shares authorized, } 165,000 \text { shares issued } & \$ 825,000 \\\hline \text { Paid in Capital in Excess of Par - Common } & 214,000 \\\hline \text { Retained Earnings } & 222,000 \\\hline \text { Total Stockholders' Equity } & \$ 1,261,000 \\\hline\end{array}$$ Which of the following is included in the entry to record the corporation's purchase of 40,000 shares of its common stock for $10.00 per share?

A)Treasury Stock-Common is debited for $400,000.
B)Paid-In Capital From Treasury Stock Transactions is credited for -$25,000.
C)Retained Earnings is debited for $400,000.
D)Common Stock-$5 Par Value is credited for $200,000.

Question 63

Treasury stock ________.

A)decreases the number of shares issued
B)increases the number of shares issued
C)increases the number of shares outstanding
D)decreases the number of shares outstanding

Question 64

Refer to the following information for Tangent Corporation: • Common Stock,$1.00 par,108,000 shares issued,99,000 shares outstanding
• Paid-In Capital in Excess of Par-Common: $2,330,000
• Retained Earnings: $910,000
• Treasury Stock: 11,000 shares purchased at $33 per share
If Tangent resold 1,300 shares of treasury stock for $23.00 per share,which of the following statements would be true?

A)The Treasury Stock account would decrease by $21,450.
B)The Paid-In Capital in Excess of Par-Common account would increase by $1,300.
C)The Treasury Stock account would decrease by $42,900.
D)The Retained Earnings account would increase by $29,900.

Question 65

The account Paid-In Capital from Treasury Stock Transactions has a credit balance of $2,000.The corporation resells 450 shares of its treasury stock.These shares were acquired for $10 per share and sold for $3 per share.The entry to record the sale of treasury stock includes a debit to Retained Earnings of $3,150.

Question 66

Ropers,Inc.purchases 16,000 shares of its previously issued $2 par value common stock for $460 per share.Which of the following is the correct journal entry to record this transaction?

A)Debit Common Stock-$2 Par Value $7,360,000,and credit Cash $7,360,000.
B)Debit Cash $7,328,000,and credit Paid-In Capital in Excess of Par-Common $7,328,000.
C)Debit Cash $7,328,000,and credit Treasury Stock-Common $7,328,000.
D)Debit Treasury Stock-Common $7,360,000,and credit Cash $7,360,000.

Question 67

Define treasury stock and provide two reasons why a corporation would purchase treasury stock.

Question 68

A corporation originally issued $13 par value common stock for $15 per share.Which of the following is included in the entry to record the purchase of 300 shares of treasury stock for $11 per share?

A)Treasury Stock-Common is debited for $3,300.
B)Treasury Stock-Common is credited for $45.
C)Retained Earnings is debited for $1,650.
D)Treasury Stock-Common is debited for $1,650.

Question 69

A corporation originally issued $8 par value common stock for $10 per share.It purchased the stock for $13 per share.Which of the following is included in the entry to record the sale of 70 shares of treasury stock for $14 per share?

A)Paid-In Capital From Treasury Stock Transactions is credited for $980.
B)Treasury Stock-Common is credited for $910.
C)Treasury Stock-Common is credited for $980.
D)Paid-In Capital From Treasury Stock Transactions is debited for $70.

Question 70

The journal entry for the purchase of treasury stock includes a credit to Cash.

Question 71

Orange Office Supply Corporation completed the following stock issuance transactions:
$\begin{array}{|l|l|}\hline\text { Mar. } 28 & \text { Issued 5,000 shares of } \$ 4 \text { stated value common stock for cash of } \\&\$ 20 \text { per share }\\\hline & \text { Received merchandise inventory with a market value of } \$ 46,000 \\ & \text { in exchange for 2,000 shares of the } \$ 4 \text { stated value common } \\\text { May 1 }&\text { Stock. }\\\hline& \text { Issued } 450 \text { shares of } 5 \%, \$ 20 \text { par value preferred stock for } \$ 50 \\\text { May } 14 &\text { per share }\\\hline\end{array}$ Prepare the journal entries to record these transactions.Explanations are not required.

Question 72

Micro Electronics completed the following stock issuance transactions:
$$\begin{array} { | l | l | } \hline&\text { Issued } 4,000 \text { shares of } \$ 3 \text { par value common stock for cash of }\\ \text { June 7 } & \$ 12 \text { per share } \\\hline \text { Aug. 16 } & \text { Issued 400 shares of no-par preferred stock for } \$ 25,000 \text { cash } \\\hline & \text { Received equipment with a market value of } \$ 75,000 \text { in } \\\text { Sept. 19 } & \text { exchange for 5,000 shares of the } \$ 3 \text { par value common stock } \\\hline\end{array}$$ Prepare the journal entries to record these transactions.Explanations are not required.

Question 73

Peterson,Inc.issued 4,000 shares of preferred stock for $240,000.The stock has a par value of $60 per share.Prepare the journal entry for this transaction.

Question 74

Rimsone,Inc.purchases 8,500 shares of the company's own $6 par common stock for $8 per share.Journalize the transaction.

Question 75

The purchase of treasury stock ________.

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

Question 76

Assume the following information for Petra Sales,Inc.: • Common Stock,$1.00 par,232,000 shares issued,186,000 shares outstanding
• Paid-In Capital in Excess of Par-Common: $1,770,000
• Retained Earnings: $2,450,000
• Treasury Stock: 26,000 shares purchased at $12 per share
If Petra Sales purchases an additional 13,000 shares of treasury stock at $18 per share,what number of shares will be shown as issued and outstanding?

A)18 issued; 186,000 outstanding
B)219,000 issued; 186,000 outstanding
C)232,000 issued; 173,000 outstanding
D)232,000 issued; 186,000 outstanding

Question 77

Treasury stock is a contra equity account.

Question 78

Treasury stock is ________.

A)a contra equity account
B)a contra asset account
C)a liability account
D)an asset account

Question 79

If treasury stock is resold for more than cost,the difference is debited to the account Paid-In Capital from Treasury Stock Transactions.

Question 80

If treasury shares are sold for less than their cost,the difference is recorded as a loss.