Question 1

How does the payment of a previously declared cash dividend affect the elements of the financial statements?

Accepted Answer

A) Decreases assets and stockholders' equity 
B) Increases liabilities and decreases stockholders' equity 
C) Decreases liabilities and increases stockholders' equity 
D) None of these answer choices are correct.

Question 2

Ogilvie Corp.issued 12,000 shares of no-par stock for $40 per share.Ogilvie was authorized to issue 35,000 shares.What effect will this event have on the elements of the company's financial statements?

Accepted Answer

A) Increase assets and increase stockholders' equity by $1,400,000. 
B) Increase assets and increase stockholders' equity by $480,000. 
C) Increase cash inflows from investing activities by $480,000. 
D) None of these answer choices are correct.

Question 3

Which of the following statements is the most common explanation as to why a company might have a negative amount of total stockholders' equity on its balance sheet?

Accepted Answer

A) Its total assets exceed its total liabilities. 
B) Its total revenues are less than its total expenses in the current period. 
C) Its cash is segregated in a separate bank account designated for emergency uses. 
D) It has a negative balance in its Retained Earnings account.

Question 4

Rocco Corporation decides to issue a 7.5% stock dividend on 20,000 outstanding shares of $10 stated value common stock.The distribution is made at the time the market value of the stock is $50 a share.How will the entry to record this transaction affect the company's stockholders' equity accounts?

Accepted Answer

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

Question 5

Montana Company was authorized to issue 200,000 shares of common stock.The company had issued 50,000 shares of stock when it purchased 10,000 shares of treasury stock.After the purchase of treasury stock,the number of outstanding shares of common stock was which of the following?

Accepted Answer

A) 190,000 
B) 60,000 
C) 40,000 
D) 50,000

Question 6

An advantage of the corporate form of business organization is that corporations are free from double taxation.

Accepted Answer

A) True 
 B)False

Question 7

What is meant by the term "double taxation?"

Accepted Answer

A) Corporations must pay income taxes on their net income,and their stockholders must pay income taxes on their dividends. 
B) In a partnership,both partners are required to claim their share of net income on their tax returns. 
C) A sole proprietorship must pay income taxes on its net income and the owner is also required to pay income taxes on withdrawals. 
D) A sole proprietorship must pay income taxes to both the state government and the federal government.

Question 8

Franklin Corporation reported net income of $75,000 in Year 1.The company had 100,000 shares of $12 par value common stock outstanding and a market price of $18 per share.What is Franklin's price-earnings ratio?

Accepted Answer

A) 2.4 
B) 24 
C) 16.6 
D) 1.5

Question 9

On March 1, Year 1, Gilmore Incorporated declared a cash dividend on its 1,500 outstanding shares of $50 par value, 6% preferred stock. The dividend will be paid on May 1, Year 1 to the stockholders of record as of April 1, Year 1.

-How will the entry to record the declaration of the dividend on March 1 affect the elements of the financial statements?

Accepted Answer

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

Question 10

Which of the following describes,in part,how the declaration of a stock dividend affects the elements of the financial statements?

Accepted Answer

A) Decreases total assets 
B) Increases total stockholders' equity 
C) Decreases paid-in capital in excess of par value-common 
D) No effect on total stockholders' equity

Question 11

All corporations are subject to extensive government regulation.

Accepted Answer

A) True 
 B)False

Question 12

Ben Weaver is planning to invest in one of the following companies based on their average performance over the past five years,summarized below.

If Ben is looking for a company that is likely to achieve rapid growth in revenues and profitability,which one should he choose?

Accepted Answer

A) Galax,Inc. 
B) Apex,Inc. 
C) Bendex,Inc. 
D) Curex,Inc.

Question 13

When a corporation records a stock dividend,it debits Retained Earnings for the par value of the stock.

Accepted Answer

A) True 
 B)False

Question 14

Curtain Co.paid dividends of $6,000,$12,000,and $20,000 during Year 1,Year 2,and Year 3,respectively.The company had 1,000 shares of 5%,$200 par value preferred stock outstanding that paid a cumulative dividend.What is the total amount of dividends paid to common shareholders during Year 3?

Accepted Answer

A) $4,000 
B) $6,000 
C) $8,000 
D) $10,000

Question 15

The number of shares of stock outstanding generally is greater than the number of shares of stock issued.

Accepted Answer

A) True 
 B)False

Question 16

Napoli Industries had net income for Year 2 of $650,000.Napoli had an average number of shares outstanding at the end of the year of 500,000 shares.On January 1,Year 2,the market price of Napoli's stock was $20 per share.On December 31,Year 2,the market price was $22 per share.What is the price-earnings ratio for Napoli at the end of Year 2?

Accepted Answer

A) 16.9 
B) 16.2 
C) 15.4 
D) None of these answer choices is correct

Question 17

Which of the following is a contra equity account?

Accepted Answer

A) Retained Earnings 
B) Paid-in Capital in Excess of Par Value 
C) Treasury Stock 
D) Appropriated Retained Earnings

Question 18

Lack of ease in transferability of ownership is one of the disadvantages of the corporate form of business organization.

Accepted Answer

A) True 
 B)False

Question 19

On June 10,Year 1,Burton Builders,Inc. ,a publicly traded company,announced that it had been awarded a contract to build a football stadium at a contract price of $500 million.This contract would increase its projected revenues by 20% over the next three years.Which of the following statements is correct with regard to this announcement?

Accepted Answer

A) The market price of Burton's stock will probably be higher on June 11,Year 1 than on June 10th. 
B) Burton's net cash flow from operations will increase by 20% over the next three years. 
C) Burton's assets should be increased by $500 million on June 10,Year 1 to recognize this contract. 
D) Burton's net income will increase by 20% over the next three years.

Question 20

Fixit Corporation issued 20,000 shares of $20 par value common stock at its current market price of $32.How does this event affect total stockholders' equity?

Accepted Answer

A) It increases by $640,000. 
B) It is unaffected. 
C) It increases by $240,000. 
D) It increases by $400,000.

Exam 11: Proprietorships,partnerships,and Corporations

How does the payment of a previously declared cash dividend affect the elements of the financial statements?

Ogilvie Corp.issued 12,000 shares of no-par stock for $40 per share.Ogilvie was authorized to issue 35,000 shares.What effect will this event have on the elements of the company's financial statements?

Which of the following statements is the most common explanation as to why a company might have a negative amount of total stockholders' equity on its balance sheet?

Rocco Corporation decides to issue a 7.5% stock dividend on 20,000 outstanding shares of $10 stated value common stock.The distribution is made at the time the market value of the stock is $50 a share.How will the entry to record this transaction affect the company's stockholders' equity accounts?

Montana Company was authorized to issue 200,000 shares of common stock.The company had issued 50,000 shares of stock when it purchased 10,000 shares of treasury stock.After the purchase of treasury stock,the number of outstanding shares of common stock was which of the following?

An advantage of the corporate form of business organization is that corporations are free from double taxation.

What is meant by the term "double taxation?"

Franklin Corporation reported net income of $75,000 in Year 1.The company had 100,000 shares of $12 par value common stock outstanding and a market price of $18 per share.What is Franklin's price-earnings ratio?

Which of the following describes,in part,how the declaration of a stock dividend affects the elements of the financial statements?

All corporations are subject to extensive government regulation.

Ben Weaver is planning to invest in one of the following companies based on their average performance over the past five years,summarized below. If Ben is looking for a company that is likely to achieve rapid growth in revenues and profitability,which one should he choose?

When a corporation records a stock dividend,it debits Retained Earnings for the par value of the stock.

Curtain Co.paid dividends of $6,000,$12,000,and $20,000 during Year 1,Year 2,and Year 3,respectively.The company had 1,000 shares of 5%,$200 par value preferred stock outstanding that paid a cumulative dividend.What is the total amount of dividends paid to common shareholders during Year 3?

The number of shares of stock outstanding generally is greater than the number of shares of stock issued.

Which of the following is a contra equity account?

Lack of ease in transferability of ownership is one of the disadvantages of the corporate form of business organization.

Fixit Corporation issued 20,000 shares of $20 par value common stock at its current market price of $32.How does this event affect total stockholders' equity?