Acct 302 S/E Multiple choice

What effect does the issuance of a 2-for-1 stock split have on each of the following? Par Value per Share Retained Earnings: Decrease Decrease No effect No effect Increase No effect Decrease No effect

Decrease No effect

All of the following decrease Retained Earnings, except: Property dividends. Stock splits. Cash dividends. Stock dividends.

Stock splits.

Total stockholders' equity represents the maximum amount that can be borrowed by a company. only the amount of earnings that have been retained in the business. a claim to specific assets contributed by the owners. a claim against a portion of the total assets of a company.

a claim against a portion of the total assets of a company.

A primary source of stockholders' equity is both income retained by the corporation and contributions by stockholders. income retained by the corporation. contributions by stockholders. appropriated retained earnings.

both income retained by the corporation and contributions by stockholders.

According to the FASB, redeemable preferred stock should be included as a contra item in stockholders' equity. included with common stock. included as a liability. included in stockholders' equity.

included as a liability.

Cash dividends are paid on the basis of the number of shares outstanding less the number of treasury shares. issued. outstanding. authorized.

outstanding.

The preemptive right of a common stockholder is the right to share proportionately in corporate assets upon liquidation. share proportionately in any new issues of stock of the same class. exclude preferred stockholders from voting rights. receive cash dividends before they are distributed to preferred stockholders.

share proportionately in any new issues of stock of the same class.

Which of the following features of preferred stock makes it more like a debt than an equity instrument? Voting Noncumulative Participating Redeemable

Redeemable

The residual interest in a corporation belongs to the management. creditors. preferred stockholders. common stockholders.

common stockholders

Direct costs incurred to sell stock such as underwriting costs should be accounted for as 1. a reduction of additional paid-in capital. 2. an expense of the period in which the stock is issued. 3. an intangible asset. 3 1 or 3 1 2

1. a reduction of additional paid-in capital.

Common stock dividends distributable is reported on the balance sheet as: a current liability. a reduction of total stockholders' equity. an addition to common stock. an addition to additional paid-in capital.

an addition to common stock.

Noncumulative preferred dividends in arrears are disclosed as a liability until paid. must be paid before any other cash dividends can be distributed. are not paid or disclosed. are paid to preferred stockholders if sufficient funds remain after payment of the current preferred dividend.

are not paid or disclosed.

Stockholders' equity is generally classified into two major categories: contributed capital and appropriated capital. appropriated capital and retained earnings. retained earnings and unappropriated capital. earned capital and contributed capital.

earned capital and contributed capital.

A dividend which is a return to stockholders of a portion of their original investments is a liability dividend. liquidating dividend. property dividend. participating dividend.

liquidating dividend.

Additional paid-in capital is not affected by the issuance of: no-par stock. preferred stock. no par with a stated value stock. par value stock.

no-par stock.

Which of the following is not a legal restriction related to profit distributions by a corporation? The amount distributed in any one year can never exceed the net income reported for that year. Profit distributions must be formally approved by the board of directors. The amount distributed to owners must be in compliance with the state laws governing corporations. Dividends must be in full agreement with the capital stock contracts as to preferences and participation.

The amount distributed in any one year can never exceed the net income reported for that year.

Which of the following represents the total number of shares that a corporation may issue under the terms of its charter? Issued shares Outstanding shares Unissued shares Authorized shares

Authorized shares

Stock issued in non-cash transactions should be recorded at the: Fair market value of the stock issued. Fair market value of the property received. Par value of the stock issued. Fair market value of the stock issued or the property received, whichever is more readily determinable.

Fair market value of the stock issued or the property received, whichever is more readily determinable.

Which one of the following is not a right of common stockholders? To share proportionately in profits and losses. To share proportionately in all management decisions. To share proportionately in corporate assets upon liquidation. To share proportionately in any new issues of stock of the same class.

To share proportionately in all management decisions.

All of the following statements are true regarding preferred stock except: a company often issues preferred stock instead of debt, because of a high debt-to-equity ratio. a preference as to dividends assures the payment of dividends. companies usually issue preferred stock with a par value. the dividend preference for preferred stock is expressed as a percentage of the par value.

a preference as to dividends assures the payment of dividends.

At the date of the financial statements, common stock shares issued would exceed common stock shares outstanding as a result of the declaration of a stock split. payment in full of subscribed stock. declaration of a stock dividend. purchase of treasury stock.

purchase of treasury stock.

Dividends are not paid on noncumulative preferred stock. treasury common stock. cumulative preferred stock. nonparticipating preferred stock.

treasury common stock.

Characteristics of the corporate form of organization include all of the following except: facility for attracting and accumulating large amounts of capital. variety of ownership interests. unlimited liability of stockholders. capital stock or share system.

unlimited liability of stockholders.

A corporation declared a dividend, a portion of which was liquidating. How would this distribution affect each of the following? Additional Paid-in Capital Retained Earnings Decrease Decrease No effect No effect Decrease No effect No effect Decrease

Decrease Decrease

Which of the following statements related to dividends is incorrect? Dividends must be declared by the Board of Directors. Before declaring a dividend, management must consider availability of funds to pay the dividend. Distributions to owners must be in compliance with the state laws. Dividends must be paid in the period declared.

Dividends must be paid in the period declared.

A corporation was organized in January 2018 with authorized capital of $10 par value common stock. On February 1, 2018, shares were issued at par for cash. On March 1, 2018, the corporation's attorney accepted 7600 shares of common stock in settlement for legal services with a fair value of $98000. Additional paid-in capital would increase on February 1, 2018 March 1, 2018 Yes No Yes Yes No No No Yes

No Yes

How should cumulative preferred dividends in arrears be shown in a corporation's balance sheet? Increase in current liabilities Increase in stockholders' equity Increase in current liabilities for the amount expected to be declared within the year or operating cycle, and increase in long-term liabilities for the balance Note disclosure

Note disclosure

Cumulative preferred dividends in arrears should be shown in a corporation's balance sheet as an increase in current liabilities for the current portion and long-term liabilities for the long-term portion. a footnote. an increase in current liabilities. an increase in stockholders' equity.

a footnote.

The balance in Common Stock Dividend Distributable should be reported as a(n) deduction from common stock issued. addition to capital stock. current liability. contra current asset.

addition to capital stock.

Common stockholders of a business enterprise are said to be the residual owners. The term residual owner means that shareholders can negotiate individual contracts on behalf of the enterprise. have the rights to specific assets of the business. bear the ultimate risks and uncertainties and receive the benefits of enterprise ownership. are entitled to a dividend every year in which the business earns a profit.

bear the ultimate risks and uncertainties and receive the benefits of enterprise ownership.

The cumulative feature of preferred stock enables a preferred stockholder to accumulate dividends until they equal the par value of the stock and receive the stock in place of the cash dividends. limits the amount of cumulative dividends to the par value of the preferred stock. requires that dividends not paid in any year must be made up in a later year before dividends are distributed to common shareholders. means that the shareholder can accumulate preferred stock until it is equal to the par value of common stock at which time it can be converted into common stock.

requires that dividends not paid in any year must be made up in a later year before dividends are distributed to common shareholders.

In a corporate form of business organization, legal capital is best defined as the amount of capital the state of incorporation allows the company to accumulate over its existence. the amount of capital the federal government allows a corporation to generate. the par value of all capital stock issued. the total capital raised by a corporation within the limits set by the Securities and Exchange Commission.

the par value of all capital stock issued.