Deck 11: Reporting and Interpreting Stockholders Equity

Question 1

Total stockholders' equity of Grasse Company is not affected when a stockholder sells shares of Grasse Company stock to another stockholder.

Answer 1

True

Question 2

The issue of $1 par value common stock for $10 per share results in a $9 credit to the Additional paid-in capital account for each share issued.

Answer 2

True

Question 3

Earnings per share increases when a company purchases treasury stock.

Answer 3

True

Question 4

Net income decreases when treasury stock is sold for an amount less than the original cost when the shares of stock were repurchased.

Question 5

Total stockholders' equity increases when treasury stock is sold for an amount less than its repurchase price.

Question 6

Earnings per share is calculated by dividing net income by the average number of outstanding shares of common stock at year-end.

Question 7

Total assets remain the same when a company uses cash to purchase treasury stock.

Question 8

There would be 100,000 shares of common stock outstanding when the number of shares authorized was 150,000, issued shares totaled 120,000, and 20,000 shares were being held in the treasury.

Question 9

The declaration by a corporation's board of directors of a cash dividend on common stock creates a liability on the declaration date.

Question 10

When a company acquires treasury stock, assets and stockholders' equity both decrease.

Question 11

Shares of stock held as treasury stock do not have voting rights or the right to receive dividends.

Question 12

Most investors who are retired people prefer to receive their return on investment in common stock in the form of stock price appreciation rather than in dividends.

Question 13

Treasury stock is a corporation's own stock that was issued and then repurchased, and is still held by the corporation.

Question 14

The issue of $5 par value common stock for $18 per share results in an $18 credit to the common stock account for each share issued.

Question 15

Stockholders' equity decreases when a company purchases treasury stock.

Question 16

Common stockholders have voting rights and can declare cash dividends.

Question 17

A company's assets and stockholders' equity both decrease when a cash dividend is declared by the company's board of directors.

Question 18

Shares which a corporation has the ability to issue, as documented in its charter in the state where incorporated, are outstanding shares of stock.

Question 19

Net income increases when treasury stock is resold for an amount in excess of the amount paid when the common stock was repurchased.

Question 20

A company's assets and liabilities both decrease when a previously declared cash dividend is paid.

Question 21

The declaration and payment of a cash dividend on common stock results in a reduction of the issuing corporation's total stockholders' equity.

Question 22

When a company pays its previously declared cash dividend, an investing cash outflow is reported.

Question 23

Watson Company has provided the following data about its common stock: • Par value is $1 per share
• 10,000,000 authorized shares
• 4,300,000 shares are outstanding
• 4,700,000 shares are issued
How many shares of treasury stock are there?

A)0.
B)400,000.
C)5,300,000.
D)5,700,000.

Question 24

When a company issues common stock in exchange for cash, a cash inflow from a financing activity is reported.

Question 25

The declaration of a stock dividend by a corporation's board of directors creates a liability on the declaration date.

Question 26

Which of the following represents the number of shares currently owned by investors?

A)Authorized shares.
B)Issued shares.
C)Outstanding shares.
D)Treasury shares.

Question 27

Treasury stock shares are shares of stock that are:

A)Authorized and outstanding.
B)Authorized but not issued.
C)Authorized, issued, and outstanding.
D)Authorized and issued, but not outstanding.

Question 28

The declaration and issuance of a stock dividend results in a reduction of the issuing corporation's total stockholders' equity.

Question 29

The dividend yield ratio increases when the market price per share increases.

Question 30

Preferred stockholders do not have voting rights but do have a preference with respect to dividend payments.

Question 31

Which of the following does not represent a description of shares of stock presented on the balance sheet?

A)Authorized shares.
B)Issued shares.
C)Outstanding shares.
D)Contributed shares.

Question 32

Preferred stock often has a preference over common stock in the distribution of assets in the event of dissolution of the corporation.

Question 33

The two primary sources of equity shown in a balance sheet are:

A)Residual equity and debt equity.
B)Capital equity and residual equity.
C)Contributed capital and earned capital.
D)Unearned capital and earned capital.

Question 34

The dividend yield ratio is calculated as dividends per share divided by the number of shares outstanding.

Question 35

When a company sells its treasury stock, it creates a cash inflow from an investing activity because treasury stock is an investment asset on the balance sheet.

Question 36

A stock split results in the reduction of the par or stated value per share and a proportionate increase in the number of shares outstanding.

Question 37

Which of the following statements is false?

A)Common stockholders have a residual claim on assets in the event of liquidation.
B)Shares of stock held in the treasury are subtracted from the number of issued shares in the determination of the number of outstanding shares.
C)Common stockholders have voting rights at annual stockholder meetings.
D)Corporations are governed by their stockholders.

Question 38

Employees who receive stock options as compensation:

A)Have the right to receive dividends.
B)Have a residual claim in the event of liquidation of the company.
C)May vote in stockholders' meetings.
D)Have no stockholder rights until they buy shares of stock as granted in the options.

Question 39

The declaration and distribution of a 2-for-1 stock split results in a reduction of retained earnings.

Question 40

The dividend yield ratio increases when a cash dividend is paid.

Question 41

Which of the following journal entries is correct when common stock is initially issued for cash at a price in excess of the stock's stated value?

A)
B)
C)
D)

Question 42

Rye Company has provided the following information: • Number of issued common shares, 225,000
• Net income, $500,000
• Number of authorized common shares, 400,000
• Number of treasury shares, 25,000
What is Rye's earnings per share (EPS)?

A)$2.50
B)$1.25
C)$2.00
D)$1.33

Question 43

Irish Corporation issued (sold) 10,000 shares of common stock for $70 per share. The bylaws established a stated value of $10 per share. What is the amount of increase in the common stock account as a result of this transaction?

A)$0.
B)$600,000.
C)$100,000.
D)$700,000.

Question 44

During 2016, Thomas Corporation repurchased some shares of its own common stock. What effect did this transaction have on 2016 stockholders' equity and earnings per share, respectively?

A)Option A
B)Option B
C)Option C
D)Option D

Question 45

On February 1, 2015, Cue Company acquired 1,000 shares of its $1 par value stock for $47 per share and held these shares in treasury. On April 10, 2016, Cue resold all the treasury shares for $50 per share. Which of the following entries would be recorded when Cue Company resells the shares of treasury stock?

A)
B)
C)
D)

Question 46

On October 1, 2015, Adoll Company acquired 1,000 shares of its $1 par value stock for $44 per share and held these shares in treasury. On March 1, 2017, Adoll resold all the treasury shares for $40 per share. Which of the following entries would be recorded when Adoll Company resells the shares of treasury stock?

A)
B)
C)
D)

Question 47

A company purchased 1,000 shares of treasury stock for $38,000 cash. The shares were initially issued for $24,000 and had a $9,000 par value. Which of the following statements incorrectly describes the effect of the treasury stock purchase?

A)Net income is unchanged.
B)Earnings per share (EPS) increases.
C)Total assets remain the same.
D)Stockholders' equity decreases.

Question 48

Which of the following statements about earnings per share (EPS) is correct?

A)EPS is an indicator of how well a company will perform in the future.
B)Net income in dollar amount is a better measure to use in comparing different companies.
C)EPS can be used to compare companies of different sizes.
D)EPS is expected to remain constant over a period of time.

Question 49

Which of the following statements about earnings per share (EPS) is correct?

A)Increased net income would cause earnings per share to decrease.
B)Issuance of more common shares would cause earnings per share to increase.
C)Purchasing treasury shares would cause earnings per share to decrease.
D)EPS is calculated using the number of common shares of stock outstanding.

Question 50

Kirova Company has provided the following information: • Number of issued common shares, 900,000
• Net income, $1,000,000
• Number of authorized common shares, 1,000,000
• Number of outstanding common shares, 800,000
• Number of treasury shares, 100,000
What is Kirova's earnings per share (EPS)?

A)$1.43
B)$1.25
C)$1.11
D)$1.00

Question 51

RKJ Company has provided the following information: • 100,000 shares of $5 par value common stock are authorized
• 70,000 shares have been issued
• 65,000 shares are outstanding
The 70,000 shares of issued common stock were issued for $9 per share.
Which of the following statements is correct?

A)Common stock is reported at $630,000 on the balance sheet.
B)Additional paid-in capital is reported at $260,000 on the balance sheet.
C)Common stock is reported at $350,000 on the balance sheet.
D)Treasury stock is reported at $45,000 on the balance sheet.

Question 52

Which of the following statements incorrectly describes earnings per share (EPS)?

A)Earnings per share is a ratio calculated per common share.
B)An increase in the market price per common share does not result in a decrease in earnings per share.
C)An increase in dividends per share results in an increase in earnings per share.
D)The reissue of treasury stock decreases earnings per share.

Question 53

A company repurchased shares of its common stock for $19,000. The stock was initially issued for $12,000 and had a $5,000 par value. Which of the following statements correctly describes the effects of the repurchase of company's common stock shares?

A)Net income increases by $7,000.
B)Net income decreases by $7,000.
C)Stockholders' equity increases $12,000.
D)Stockholders' equity decreases $19,000.

Question 54

Which of the following statements about treasury stock transactions is correct?

A)The total number of shares issued increases when treasury stock is purchased.
B)The total number of shares authorized changes when treasury stock is purchased.
C)Gains and losses on treasury stock transactions are reported on the income statement.
D)A stockholders' equity account is debited when treasury stock is purchaseD.Treasury stock is a contra-equity account with a debit balance.

Question 55

CGJ Company has provided the following: • 200,000 shares of $5 par value common stock are authorized
• 140,000 shares of common stock were issued for $11 per share
• 130,000 shares are outstanding
Which of the following statements is false?

A)Common stock is reported at $700,000 on the balance sheet.
B)Additional paid-in capital is reported at $840,000 on the balance sheet.
C)Stockholders' equity decreased $110,000 when the treasury stock was purchased.
D)There are 10,000 shares of treasury stock.

Question 56

RKJ Company has provided the following information: • 100,000 shares of $5 par value common stock are authorized
• 70,000 shares have been issued
• 65,000 shares are outstanding
Which of the following statements is correct?

A)RKJ has 35,000 shares of treasury stock.
B)RKJ has 30,000 shares of treasury stock.
C)RKJ can resell 5,000 shares of common stock.
D)RKJ can issue an additional 35,000 shares of common stock.

Question 57

Which of the following journal entries is correct when no-par common stock is initially issued for cash?

A)
B)
C)
D)

Question 58

Which of the following journal entries does not reflect the initial cash sale of shares of common stock?

A)
B)
C)
D)

Question 59

Which of the following statements correctly describes a treasury stock transaction?

A)A treasury stock purchase for less than the amount of the stock's original issue cost results in a decrease in total stockholders' equity.
B)A treasury stock purchase for less than the amount of the stock's original issue cost results in an increase in total stockholders' equity.
C)A treasury stock purchase for an amount equal to the amount of the stock's original issue cost results in no change to total stockholders' equity.
D)A treasury stock purchase for more than the amount of the stock's original issue cost results in an increase in total stockholders' equity.

Question 60

RKJ Company has provided the following information: • 100,000 shares of $5 par value common stock are authorized
• 70,000 shares have been issued
• 65,000 shares are outstanding
Which of the following statements is correct?

A)RKJ has 35,000 shares of treasury stock.
B)RKJ has 30,000 shares of treasury stock.
C)RKJ can issue an additional 35,000 shares of common stock.
D)RKJ can issue an additional 30,000 shares of common stock.

Question 61

A company reported the following asset and liability balances at the end of 2015 and 2016: During 2016, cash dividends of $50,000 were declared and paid, and common stock was issued for $100,000. What was the amount of net income for 2016?

A)$400,000.
B)$480,000.
C)$350,000.
D)$300,000.

Question 62

Wendell Company provided the following pertaining to its accounting year that ended December 31, 2016: • Common stock with a $10,000 par value was sold for $50,000 cash
• Cash dividends totaling $20,000 were declared, of which $15,000 were paid
• Net income was $70,000
• A 5% stock dividend resulted in a common stock distribution, which had a $5,000 par value and a $23,000 market value
• Treasury stock repurchased in a prior year for $9,000 was resold for $7,000 and in the journal entry to record the sale, Additional paid-in capital was debited for the amount of the difference between the repurchase price and the resale price
What is the amount of the increase in Wendell's retained earnings for the year ended December 31, 2016?

A)$32,000.
B)$25,000.
C)$29,000.
D)$27,000.

Question 63

A company reported total stockholders' equity of $170,000 on its balance sheet dated December 31, 2016. During the year ended December 31, 2017, the company reported net income of $20,000, declared and paid a cash dividend of $4,000, declared and distributed a 10% stock dividend with a $5,000 total market value, and issued additional common stock for $40,000. What is total stockholders' equity as of December 31, 2017?

A)$234,000.
B)$226,000.
C)$231,000.
D)$221,000.

Question 64

CBA Company reported total stockholders' equity of $85,000 on its balance sheet dated December 31, 2016. During the year ended December 31, 2017, CBA reported net income of $10,000, declared and paid a cash dividend of $2,000, and issued additional common stock for $20,000. What is total stockholders' equity as of December 31, 2017?

A)$117,000.
B)$113,000.
C)$109,000.
D)$115,000.

Question 65

A company reported total stockholders' equity of $540,000 on its balance sheet dated December 31, 2016. During the year ended December 31, 2017, the company reported net income of $60,000, declared and paid a cash dividend of $18,000, declared and distributed a 10% stock dividend with a $15,000 total market value, issued additional common stock for $70,000, and resold treasury stock for $15,000 that it had purchased in 2016 for $12,000. What is total stockholders' equity as of December 31, 2017?

A)$640,000.
B)$670,000.
C)$667,000.
D)$655,000.

Question 66

A company reported total stockholders' equity of $340,000 on its balance sheet dated December 31, 2016. During the year ended December 31, 2017, the company reported net income of $40,000, declared and paid a cash dividend of $8,000, declared and distributed a 10% stock dividend with a $10,000 total market value, issued additional common stock for $60,000, and paid $12,000 to purchase treasury stock. What is total stockholders' equity as of December 31, 2017?

A)$432,000.
B)$410,000.
C)$444,000.
D)$420,000.

Question 67

Which of the following statements is correct?

A)The dividend yield and earnings per share both have the same denominator.
B)The dividend yield and earnings per share both have the same numerator.
C)Dividends per share are used in calculating both the earnings per share and the dividend yield.
D)Net income is used in calculating the earnings per share but not in calculating the dividend yielD.Earnings per share equals net income divided by the weighted average number of common shares outstanding.Dividend yield equals dividends per share divided by market price per share.

Question 68

Dora Company declared and distributed a 10% stock dividend on 20,000 shares of issued and outstanding $5 par value common stock. The market price per share was $9 on the declaration date. Which of the following correctly describes the effect of accounting for the declaration and distribution of the stock dividend?

A)Retained earnings decreased $10,000.
B)Additional paid-in capital increased $8,000.
C)Common stock increased $1,000.
D)Retained earnings decreased $18,000.

Question 69

A small stock dividend:

A)Results in a transfer of retained earnings to common stock and additional paid-in capital.
B)Increases the number of shares outstanding and involves a pro rata reduction in the par value per share.
C)Is accounted for in exactly the same manner as a stock split.
D)Results in a transfer of retained earnings to additional paid-in capital and also increases the number of shares outstanding and involves a pro rata reduction in the par value per share.

Question 70

A company reported the following asset and liability balances at the end of 2015 and 2016: If the company paid dividends totaling $5,000, what is the amount of net income for 2016?

A)$20,000.
B)$105,000.
C)$80,000.
D)$25,000.

Question 71

Which of the following statements is correct?

A)A 2-for-1 common stock split decreases both earnings per share and total stockholders' equity.
B)A 10% common stock dividend decreases both earnings per share and total stockholders' equity.
C)A 2-for-1 common stock split increases both the number of common shares outstanding and total stockholders' equity.
D)A 30% common stock dividend increases the number of common shares outstanding and does not affect total stockholders' equity.

Question 72

Wendell Company provided the following pertaining to its accounting year that ended December 31, 2016: • Common stock with a $10,000 par value was sold for $50,000 cash
• Cash dividends totaling $20,000 were declared, of which $15,000 were paid
• Net income was $70,000
• A 5% stock dividend resulted in a common stock distribution, which had a $5,000 par value and a $23,000 market value
• Treasury stock repurchased in a prior year for $9,000 was resold for $7,000 and in the journal entry to record the sale, Additional paid-in capital was debited for the amount of the difference between the repurchase price and the resale price
What is the amount of increase in Wendell's common stock account during the year 2016?

A)$15,000.
B)$13,000.
C)$24,000.
D)$17,000.

Question 73

Which of the following statements is false?

A)The declaration of a cash dividend creates a liability as of the date of record.
B)The date of record is irrelevant with respect to recording a liability for a cash dividend.
C)The dividend payment date is when the dividend liability is reduced.
D)The dividend liability for a cash dividend is created on the declaration date.

Question 74

Which of the following statements correctly describes either the dividend yield or the earnings per share?

A)The dividend yield decreases when net income increases.
B)Earnings per share is a measure per share of both common and preferred stock.
C)The dividend yield increases when the market price per share decreases.
D)Earnings per share decreases when dividends per share decrease.

Question 75

On December 15, 2016, the board of directors of Cross Corporation declared a cash dividend, payable on January 8, 2017, of $.80 per share on the 2,000,000 common shares outstanding. On December 15, 2016, Cross Corporation should:

A)not prepare a journal entry because the event had no effect on the corporation's financial position until 2017.
B)decrease retained earnings $1.6 million and increase expenses $1.6 million.
C)decrease retained earnings $1.6 million and increase liabilities by $1.6 million.
D)decrease cash $1.6 million and decrease retained earnings $1.6 million.

Question 76

A large stock dividend:

A)Results in a transfer of retained earnings to common stock and additional paid-in capital.
B)Reduces the par value per share by the percentage of the additional shares issued.
C)Is accounted for in exactly the same manner as a stock split.
D)Results in a transfer of retained earnings to the common stock account.

Question 77

Wendell Company provided the following pertaining to its accounting year that ended December 31, 2016: • Common stock with a $10,000 par value was sold for $50,000 cash
• Cash dividends totaling $20,000 were declared, of which $15,000 were paid
• Net income was $70,000
• A 5% stock dividend resulted in a common stock distribution, which had a $5,000 par value and a $23,000 market value
• Treasury stock repurchased in a prior year for $9,000 was resold for $7,000 and in the journal entry to record the sale, Additional paid-in capital was debited for the amount of the difference between the repurchase price and the resale price
What is the amount of net increase in Wendell's additional paid-in capital account during the year 2016?

A)$60,000.
B)$58,000.
C)$56,000.
D)$24,000.

Question 78

Wendell Company provided the following pertaining to its accounting year that ended December 31, 2016: • Common stock with a $10,000 par value was sold for $50,000 cash
• Cash dividends totaling $20,000 were declared, of which $15,000 were paid
• Net income was $70,000
• A 5% stock dividend resulted in a common stock distribution, which had a $5,000 par value and a $23,000 market value
• Treasury stock repurchased in a prior year for $9,000 was resold for $7,000 and in the journal entry to record the sale, Additional paid-in capital was debited for the amount of the difference between the repurchase price and the resale price
What is the amount of increase in Wendell's total stockholders' equity for the year ended December 31, 2016?

A)$107,000.
B)$84,000.
C)$98,000.
D)$112,000.

Question 79

The payment of a previously declared cash dividend has an overall effect of:

A)Reducing retained earnings and reducing liabilities by the amount of the dividend.
B)Reducing retained earnings and increasing contributed capital by the same amount.
C)Reducing assets and reducing liabilities by the amount of the dividend.
D)Reducing assets and reducing retained earnings by the amount of the dividenD.The payment of a previously declared dividend decreases the asset, Cash, and decreases the liability, Dividends payable.

Question 80

Which of the following correctly describes the effect of declaring and distributing a common stock dividend?

A)Total stockholders' equity decreases.
B)Total stockholders' equity remains the same.
C)The number of shares outstanding increases while the par value of each share decreases.
D)The number of shares outstanding decreases while the par value of each share increases.