Question 1

The statement of shareholders' equity reports the transactions that cause changes in its shareholders' equity account balances. It shows the beginning and ending balances in primary shareholders' equity accounts and any changes that occur during the years reported. Typical reasons for changes include each of the following except:

Accepted Answer

A)  the sale of additional shares of stock. 
B)  the issuance of bonds. 
C)  net income. 
D)  declaration of dividends.

Question 2

When more than one security is sold for a single price and the total selling price is not equal to the sum of the market prices, the cash received is allocated between the securities based on:

Accepted Answer

A)  Relative book values. 
B)  Par amounts 
C)  Relative market values. 
D)  The earnings per share.

Question 3

The net assets of a corporation are equal to:

Accepted Answer

A)  Contributed capital. 
B)  Retained earnings. 
C)  Shareholders' equity. 
D)  None of these answer choices are correct.

Question 4

Identify the three common forms of business organization and the primary difference in the way we account for them.

Accepted Answer

The answer of Identify the three common forms of business...

Question 5

Poodle Corporation was organized on January 3, 2018. The firm was authorized to issue 100,000 shares of $5 par common stock. During 2018, Poodle had the following transactions relating to shareholders' equity: Issued 30,000 shares of common stock at $7 per share.
Issued 20,000 shares of common stock at $8 per share.
Reported a net income of $100,000.
Paid dividends of $50,000.
What is total paid-in capital at the end of 2018?

Accepted Answer

A)  $420,000. 
B)  $370,000. 
C)  $470,000. 
D)  $320,000.

Question 6

As of December 31, 2018, Warner Corporation reported the following:   During 2019, half of the treasury stock was resold for $240,000; net income was $600,000; cash dividends declared were $1,500,000; and stock dividends declared were $500,000. 
-What was shareholders' equity as of December 31, 2018?

Accepted Answer

A)  $7,020,000. 
B)  $6,440,000. 
C)  $6,420,000. 
D)  $6,400,000.

Question 7

Listed below are five terms followed by a list of phrases that describe or characterize each of the terms. Match each phrase with the correct term.
-Limited liability company

Accepted Answer

A) Similar to an S corporation, but no limit on number of owners. 
B) Net income as a percentage of average book value. 
C) Paid-in capital and/or retained earnings affected when sold. 
D) Preferred practice is to disclose in the notes to the financial statements. 
E) Used in evaluating stock performance.

Question 8

The shareholders' equity section of Time Company's comparative balance sheets for the years ended December 31, 2018 and 2017, reported the following data:  During 2018, Time declared and paid cash dividends of $90 million. The company also declared and issued a stock dividend. No other changes occurred in shares outstanding during 2018. What was Time's net income for 2018?

Accepted Answer

A)  $28 million 
B)  $118 million 
C)  $130 million 
D)  $178 million

Question 9

Accumulated other comprehensive income:

Accepted Answer

A)  is a liability. 
B)  might include prior service cost from pension plan amendments. 
C)  includes unrealized gains and losses on equity securities. 
D)  is reported in the income statement.

Question 10

Share issue costs refer to the costs of obtaining the legal, promotional, and accounting services necessary to effect the sale of shares. The costs reduce the net cash proceeds from selling the shares and thus paid-in capital-excess of par, and are:

Accepted Answer

A)  Not recorded separately. 
B)  Recorded as an asset. 
C)  Recorded as a liability. 
D)  Amortized over time.

Question 11

On October 15, 2018, a 5% stock dividend was declared and distributed. The fair value of the common stock on this date was $32 per share. Fractional share rights represented 100,000 shares. Cash was paid in lieu of issuing fractional share rights. On the date of declaration and payment, the company had 10 million shares of common stock outstanding. The par of the common shares was $5.
Required:
Prepare any necessary journal entries to record the above events.

Accepted Answer

The answer of On October 15, 2018, a 5% stock...

Question 12

On October 1, 2018, Chief Corporation declared and issued a 10% stock dividend. Before this date, Chief had 80,000 shares of $5 par common stock outstanding. The market value of Chief Corporation on the date of declaration was $10 per share. As a result of this dividend, Chief's retained earnings will:

Accepted Answer

A)  Decrease by $80,000. 
B)  Not change. 
C)  Decrease by $40,000. 
D)  Increase by $80,000.

Question 13

What is the difference between a stock split and a stock split effected in the form of a stock dividend?

Accepted Answer

The answer of What is the difference between a stock...

Question 14

Stock dividends cause a reduction in retained earnings, but they never reduce total shareholders' equity.

Accepted Answer

A) True 
 B)False

Question 15

During the current year JET Industries issued 5 million of its $1 par common shares to its underwriters for $25,000,000 less promotional and accounting services of $500,000 to effect the issue.
Required:
Prepare the journal entry to record the issuance of the shares.

Accepted Answer

The answer of During the current year JET Industries issued...

Question 16

Lucid Company declared a property dividend of 20,000 shares of $1 par Polk Company common stock. The Polk stock was purchased for $5 per share. The fair value of Polk's stock was $10 per share on the declaration date and $11 per share on the distribution date. What is the amount of the dividend?

Accepted Answer

A)  $100,000. 
B)  $200,000. 
C)  $220,000. 
D)  $300,000.

Question 17

Which of the following statements is true with regard to preferred stock (preference shares)?

Accepted Answer

A)  Most preferred stock (preference shares) is reported under U.S. GAAP as debt. 
B)  Most preferred stock (preference shares) is reported under IFRS as equity. 
C)  Under U.S. GAAP, mandatorily redeemable preferred stock is reported as equity. 
D)  Under IFRS, preferred stock dividends are reported in the income statement as interest expense.

Question 18

A small stock dividend is defined as one that is:

Accepted Answer

A)  Less than or equal to 40%. 
B)  Less than 40%. 
C)  Less than or equal to 10%. 
D)  Less than 25%.

Question 19

When preferred stock is purchased by the issuing corporation at a price below the original issue price and the stock is retired, the transaction:

Accepted Answer

A)  Increases net income for the year. 
B)  Increases retained earnings. 
C)  Increases revenue for the year. 
D)  Increases paid-in capital--share repurchase.

Question 20

Mike Bradley & Company, a family-owned corporation, declared and distributed a property dividend from its overstocked inventory instead of declaring its usual cash dividend. The inventory's book value exceeded its fair value. The excess is:

Accepted Answer

A)  Reported as a direct reduction of shareholders' equity. 
B)  Reported as other comprehensive income. 
C)  Reported as a loss. 
D)  Not reported.

Exam 18: Shareholders Equity