Question 1

If the company pays a $100,000 dividend, and the preferred stock is cumulative and three years' dividends are in arrears, what is the amount the preferred stockholders will receive?

Accepted Answer

A)  $18,000 
B)  $24,000 
C)  $6,000 
D)  $54,000

Question 2

Horton Company began business on January 1, 2011 by issuing all of its 1,000,000 authorized shares of its
$1 par value common stock for $20 per share. On June 30, they declared a cash dividend of $1 per share to
stockholders of record on July 31. They paid the cash dividend on August 30. On November 1, Horton reacquired 200,000 of its own shares of stock for $25 per share. On December 22 they resold half of these shares for $30 per share.
a. Prepare all of the necessary journal entries to record the events described above.
b. Prepare the Stockholders' Equity section of the Balance sheet as of 12/31/2011 assuming that the Net Income for the year was $3,000,000.

Accepted Answer

The answer of Horton Company began business on January 1,...

Question 3

The market value of stock is the par value of the stock.

Accepted Answer

A) True 
 B)False

Question 4

Assume the company paid a dividend of $5 per share on August 3. What is the total amount of the dividends that would be paid to the common stockholders?

Accepted Answer

A)  $95,000 
B)  $100,000 
C)  $90,000 
D)  $76,000

Question 5

Which of the following statements would NOT explain why a company may want to repurchase its stock?

Accepted Answer

A)  To demonstrate to investors that it believes its own stock is worth purchasing. 
B)  To obtain shares to reissue to employees as part of an employee stock plan. 
C)  To obtain shares that can be reissued as payment for purchase of another company. 
D)  To increase the number of shares of outstanding stock.

Question 6

Which of the following statements is NOT true about the par value of common stock?

Accepted Answer

A)  The par value is not the same as the market value of the stock. 
B)  The par value is a nominal amount identified in the corporate charter. 
C)  The par value is the amount credited to the common stock account when the stock is issued. 
D)  The par value is the amount credited to common stock when treasury stock is reissued.

Question 7

The effect of a stock dividend is to:

Accepted Answer

A)  decrease total assets and stockholders' equity. 
B)  change the composition of stockholders' equity. 
C)  decrease total assets and total liabilities. 
D)  increase the market value per share of common shares.

Question 8

The combined effect of the declaration and payment of a cash dividend on a company's financial statements is to:

Accepted Answer

A)  decrease total liabilities and decrease stockholders' equity. 
B)  increase total expenses and increase total liabilities. 
C)  increase total assets and increase stockholders' equity. 
D)  decrease total assets and decrease stockholders' equity.

Question 9

A company issued 8% preferred stock with a $100 par value. This means:

Accepted Answer

A)  Preferred stockholders are entitled to 8% of the annual net income. 
B)  Only 8% of total contributed capital can be preferred stock. 
C)  Preferred stockholders are guaranteed a dividend. 
D)  The potential dividend to preferred stockholders is $8 per share per year.

Question 10

The return on equity ratio is calculated as:

Accepted Answer

A)  dividends paid divided by the average book value of stockholders' equity. 
B)  net income divided by the average number of outstanding common shares. 
C)  dividends divided by the average number of total shares. 
D)  net income divided by average stockholders' equity. Return on equity = Net income/Average stockholders' equity.

Question 11

The corporate form of business limits the legal liability of its owners.

Accepted Answer

A) True 
 B)False

Question 12

The liability for dividends is recorded on the date of record.

Accepted Answer

A) True 
 B)False

Question 13

All else equal, when companies make stock repurchases:

Accepted Answer

A)  EPS falls and ROE rises. 
B)  EPS rises and ROE stays the same. 
C)  EPS rises and ROE falls. 
D)  EPS and ROE both rise.

Question 14

IBM issues 200,000 shares of stock with a par value of $0.01 for $150 per share. Three years later, it repurchases these shares for $80 per share. IBM records the repurchase in which of the following ways?

Accepted Answer

A)  Debit Common Stock for $2,000, debit Additional Paid-in Capital for $29,998,000 and credit Cash for $30 million. 
B)  Debit Treasury Stock for $16 million and credit Cash for $16 million. 
C)  Debit Common Stock for $2,000, debit Additional Paid-in Capital for $15,998,000 and credit Cash for $16 million. 
D)  Debit Stockholders' Equity for $30 million, credit Additional Paid-in Capital for $16 million and credit Cash for $16 million.

Question 15

Typically, all other things equal, a profitable company that pays little or no dividends:

Accepted Answer

A)  is a bad investment. 
B)  will reinvest profits which can lead to greater growth potential. 
C)  will experience relatively stable stock prices over time. 
D)  will appeal to investors who desire distributions of profit.

Question 16

If a company's EPS and ROE rise:

Accepted Answer

A)  it could mean that net income is rising or it could mean that the number of outstanding shares is falling. The first is sustainable; the second cannot be continued indefinitely. 
B)  it means that the company is becoming more profitable and stockholders will see greater returns. 
C)  it means that the company's tax liability will rise in the future and cause a decline in profitability. 
D)  it could mean that net income is rising or it could mean that the number of outstanding shares is falling. In

Question 17

A corporation declared and issued a 15% stock dividend on November 1. Prior to the dividend, the balance in retained earnings was $850,000, the number of shares of $5 par value stock issued and outstanding was 60,000, and the market value of the stock was $12. The amount of the change in total stockholders' equity as a result of recording this stock dividend is:

Accepted Answer

A)  $0 
B)  $45,000 increase 
C)  $108,000 decrease 
D)  $63,000 decrease

Question 18

A company has net income of $5.6 million. Stockholders' equity at the beginning of the year is $32.55 million and, at the end of the year, it is $38.15 million. The only change to stockholders' equity came from net income. The ROE ratio is approximately:

Accepted Answer

A)  1.15. 
B)  0.16. 
C)  0.87. 
D)  6.64.

Question 19

You form a partnership with your best friend. You have contributed 65% of the capital and can claim 65% of the net income. At the end of the first year, you discover that your partner has run up $40,000 in debt using the business' credit card. The maximum you could be liable for is:

Accepted Answer

A)  $0. 
B)  $40,000. 
C)  $20,000. 
D)  $26,000.

Question 20

The EPS is approximately:

Accepted Answer

A)  $0.40 
B)  $1.76. 
C)  $1.86. 
D)  $2.00.

Exam 11: Reporting and Interpreting Stockholders Equity

If the company pays a $100,000 dividend, and the preferred stock is cumulative and three years' dividends are in arrears, what is the amount the preferred stockholders will receive?

The market value of stock is the par value of the stock.

Assume the company paid a dividend of $5 per share on August 3. What is the total amount of the dividends that would be paid to the common stockholders?

Which of the following statements would NOT explain why a company may want to repurchase its stock?

Which of the following statements is NOT true about the par value of common stock?

The effect of a stock dividend is to:

The combined effect of the declaration and payment of a cash dividend on a company's financial statements is to:

A company issued 8% preferred stock with a $100 par value. This means:

The return on equity ratio is calculated as:

The corporate form of business limits the legal liability of its owners.

The liability for dividends is recorded on the date of record.

All else equal, when companies make stock repurchases:

IBM issues 200,000 shares of stock with a par value of $0.01 for $150 per share. Three years later, it repurchases these shares for $80 per share. IBM records the repurchase in which of the following ways?

Typically, all other things equal, a profitable company that pays little or no dividends:

If a company's EPS and ROE rise:

A company has net income of $5.6 million. Stockholders' equity at the beginning of the year is $32.55 million and, at the end of the year, it is $38.15 million. The only change to stockholders' equity came from net income. The ROE ratio is approximately:

You form a partnership with your best friend. You have contributed 65% of the capital and can claim 65% of the net income. At the end of the first year, you discover that your partner has run up $40,000 in debt using the business' credit card. The maximum you could be liable for is:

The EPS is approximately: