Question 1

Treasury stock should be reported in the financial statements of a corporation as a(n)

Accepted Answer

A)  investment. 
B)  liability. 
C)  deduction from total paid-in capital. 
D)  deduction from total paid-in capital and retained earnings.

Question 2

Which of the following statements is not considered a disadvantage of the corporate form of organization?

Accepted Answer

A)  Additional taxes. 
B)  Government regulations. 
C)  Limited liability of stockholders. 
D)  Separation of ownership and management.

Question 3

The corporate charter of Torres Corporation allows the issuance of a maximum of 4,000,000 shares of $1 par value common stock. During its first three years of operation, Torres issued 2,080,000 shares at $15 per share. It later acquired 80,000 of these shares as treasury stock for $25 per share.
Instructions
Based on the above information, answer the following questions:
(a) How many shares were authorized?
(b) How many shares were issued?
(c) How many shares are outstanding?
(d) What is the balance of the Common Stock account?
(e) What is the balance of the Treasury Stock account?

Accepted Answer

The answer of The corporate charter of Torres Corporation allows...

Question 4

The per share amount normally assigned by the board of directors to a large stock dividend is

Accepted Answer

A)  the market value of the stock on the date of declaration. 
B)  the average price paid by stockholders on outstanding shares. 
C)  the par or stated value of the stock. 
D)  zero.

Question 5

Which one of the following would not be considered an advantage of the corporate form of organization?

Accepted Answer

A)  Limited liability of stockholders. 
B)  Separate legal existence. 
C)  Continuous life. 
D)  Government regulation.

Question 6

Oxford Inc. was authorized to issue 100,000 £10 par value ordinary shares. As of December 31, 2014, the company had issued 44,000 shares at an average price of £22 per share. During 2014, the company felt that the shares were undervalued so it purchased 10,000 treasury shares at £18 per share. When the share price rebounded later in the year, the company sold 4,000 of the treasury for £25. Retained earnings was £1,658,000 at December 31, 2014. Total equity at December 31, 2014 is

Accepted Answer

A)  £2,446,000. 
B)  £2,518,000. 
C)  £2,546,000. 
D)  £2,762,000.

Question 7

Holden Packaging Corporation began business in 2014 by issuing 80,000 shares of $5 par common stock for $8 per share and 20,000 shares of 6%, $10 par preferred stock for par. At year end, the common stock had a market value of $10. On its December 31, 2014 balance sheet, Holden Packaging would report

Accepted Answer

A)  Common Stock of $800,000. 
B)  Common Stock of $400,000. 
C)  Common Stock of $640,000. 
D)  Paid-In Capital of $600,000.

Question 8

Preferred stock has contractual preference over common stock in certain areas.

Accepted Answer

A) True 
 B)False

Question 9

The per share amount normally assigned by the board of directors to a small stock dividend is

Accepted Answer

A)  the market value of the stock on the date of declaration. 
B)  the average price paid by stockholders on outstanding shares. 
C)  the par or stated value of the stock. 
D)  zero.

Question 10

Those most responsible for the major policy decisions of a corporation are the

Accepted Answer

A)  stockholders. 
B)  board of directors. 
C)  management. 
D)  employees.

Question 11

A large stock dividend and stock split can frequently have the same effect on the market price of a corporation's stock. Explain how stock dividends and stock splits affect the market price of a corporation's stock.

Accepted Answer

The answer of A large stock dividend and stock split...

Question 12

Restricted retained earnings are available for preferred stock dividends but unavailable for common stock dividends.

Accepted Answer

A) True 
 B)False

Question 13

Stockholders generally have the right to share in corporate _______________ and in ______________ upon liquidation.

Accepted Answer

The answer of Stockholders generally have the right to share...

Question 14

All of the following are normally found in a corporation's stockholders' equity section except

Accepted Answer

A)  dividends in arrears. 
B)  common stock. 
C)  paid-in capital. 
D)  retained earnings.

Question 15

On January 1, Ripken Corporation had 40,000 shares of $10 par value common stock outstanding. On March 17 the company declared a 10% stock dividend to stockholders of record on March 20. Market value of the stock was $13 on March 17. The stock was distributed on March 30. The entry to record the transaction of March 30 would include a

Accepted Answer

A)  credit to Common Stock for $40,000. 
B)  debit to Common Stock Dividends Distributable for $52,000. 
C)  credit to Paid-in Capital in Excess of Par Value for $12,000. 
D)  debit to Stock Dividends for $12,000.

Question 16

Of the four dividends types, the two most common types in practice are

Accepted Answer

A)  cash and scrip. 
B)  cash and property. 
C)  cash and stock. 
D)  property and stock.

Question 17

The date on which a cash dividend becomes a binding legal obligation is on the

Accepted Answer

A)  declaration date. 
B)  date of record. 
C)  payment date. 
D)  last day of the fiscal year end.

Question 18

Ace Inc. has 10,000 shares of 5%, $100 par value, cumulative preferred stock and 50,000 shares of $1 par value common stock outstanding at December 31, 2014. What is the annual dividend on the preferred stock?

Accepted Answer

A)  $50 per share 
B)  $50,000 in total 
C)  $5,000 in total 
D)  $0.50 per share

Question 19

The following information pertains to Marsh Company. Assume that all balance sheet amounts represent average balance figures. $$\begin{array} { l r } 
\text { Total asset } & \$ 400,000 \
\text { Stockholders' equity-common } & 200,000 \
\text { Total stockholders' equity } & 280,000 \
\text { Sales } & 120,000 \
\text { Net income } & 24,000 \
\text { Number of shares of common stock } & 8,000 \
\text { Common dividends } & 9,000 \
\text { Preferred dividends } & 6,000
\end{array}$$ What is Marsh's return on common stockholders' equity?

Accepted Answer

A)  12%. 
B)  9%. 
C)  7.5%. 
D)  6.4%.

Question 20

When retained earnings are restricted, total retained earnings

Accepted Answer

A)  are unaffected. 
B)  increase. 
C)  decrease. 
D)  may increase or decrease.

Exam 11: Reporting and Analyzing Stockholders Equity