ACCT CH8 STUDY

The annual per share dividend requirement of a 6%, $100 par value preferred stock that was issued for $105 is: - $6.38 - $7.50 - $10.00 - $6.00

- $6.00 $100 × 6% = $6.00

Fred Sanford owns 112 shares of the Grady Corporation's stock. Grady announces a 3-for-2 stock split. How many shares will Fred have after this split? - 356 shares - 112 shares - 168 shares - 224 shares

- 168 shares 112 × 3/2 = 168 shares

Fred Sanford owns 112 shares of the Grady Corporation's stock. Grady announces a 3-for-2 stock split. How many shares will Fred have after this split? - 112 shares - 168 shares - 356 shares - 224 shares

- 168 shares 112 × 3/2 = 168 shares

Which of the following is not a stockholders' equity account? - Additional paid-in capital - Accumulated depreciation - Retained earnings - Common stock

- Accumulated depreciation

Which of the following is not a stockholders' equity account? - Additional paid-in capital - Retained earnings - Common stock - Accumulated depreciation

- Accumulated depreciation

Which of the terms is not used to identify owners' equity or stockholders' equity? - Partner's capital - Additional-paid-in-retained earnings - Paid-in-capital and retained earnings - Proprietor's capital

- Additional-paid-in-retained earnings

Which of the terms is not used to identify owners' equity or stockholders' equity? - Proprietor's capital - Additional-paid-in-retained earnings - Partner's capital - Paid-in-capital and retained earnings

- Additional-paid-in-retained earnings

Which of the following is true regarding bond discounts and/or premiums? - Bond discount is amortized but bond premium is not. - Both bond discount and premium are amortized. - Neither bond discount nor premium is amortized. - Bond premium is amortized but bond discount is not.

- Both bond discount and premium are amortized.

The noncurrent liability, Noncontrolling Interest, arises if: - Noncontrolling Interest is accounted for as an equity item. - a firm owns 100% of another entity. - a firm owns less than 50% of another entity. - a firm owns more than 50%, but less than 100%, of another entity.

- Noncontrolling Interest is accounted for as an equity item.

The term preemptive right pertains to which of the following? - Present shareholders' right to purchase treasury shares when reissued. - Preferred stockholders' right to dividends. - Present shareholders' right to purchase shares from any additional share issuances. - The Board of Directors' rights in liquidation.

- Present shareholders' right to purchase shares from any additional share issuances.

Financial leverage refers to which of the following? - The difference between the rate of return earned on assets (ROI) and the rate of return earned on stockholders' equity (ROE). - Decreasing fixed costs per unit by increasing production. - The difference between the rate of return earned on current assets and the rate of return earned on retained earnings. - The leverage a firm obtains from increasing production.

- The difference between the rate of return earned on assets (ROI) and the rate of return earned on stockholders' equity (ROE).

The declaration of a cash dividend by the directors results in: - a decrease in net income and an increase in current liabilities. - a decrease in cash and a decrease in retained earnings. - a decrease in net income and a decrease in cash. - a decrease in retained earnings and an increase in current liabilities.

- a decrease in retained earnings and an increase in current liabilities.

If a firm sells treasury stock for more than its cost: - a gain is recognized in the income statement. - retained earnings is increased. - additional paid-in capital is increased. -total stockholders' equity does not change.

- additional paid-in capital is increased.

"Accumulated other comprehensive income (loss)" includes each of the following items except: - unrealized gains or losses on available-for-sale investments. -gains on certain derivative instruments. - cumulative foreign currency translation adjustments. - amounts received from the sale of additional common stock during the year.

- amounts received from the sale of additional common stock during the year.

Retained earnings represents: - net income plus gains (or minus losses) on treasury stock transactions. - cash that is available for dividends. - cumulative net income of the firm since its beginning that has not been distributed to its stockholders in the form of dividends. - the total net income of the firm since its beginning.

- cumulative net income of the firm since its beginning that has not been distributed to its stockholders in the form of dividends.

The principal reason for a company having a common stock split is to: - decrease the market value per share of common stock - capitalize retained earnings. - increase the total cash dividends paid to stockholders. - decrease total stockholders' equity.

- decrease the market value per share of common stock

Preferred stock is used much less than long-term debt in the capital structure of most industrial and merchandising companies principally because: - preferred stock has a fixed liquidation or redemption value, but long-term debt does not have a fixed maturity value. - for income tax purposes, dividends paid on preferred stock are not deductible, but interest on long-term debt is deductible. - preferred stock may be convertible to common stock, but long-term debt cannot be convertible. - the preferred stock dividend requirement is a fixed claim against income, but interest on long-term debt is not a fixed amount.

- for income tax purposes, dividends paid on preferred stock are not deductible, but interest on long-term debt is deductible.

Additional paid-in capital is most likely to appear on the balance sheet of a corporation that: - has par value stock. - has no-par value stock. - has issued stock dividends. - has issued stock at different dates.

- has par value stock.

In most states, par value of issued shares represents: - legal capital. - noncontrolling capital. - no par capital. - corporate capital.

- legal capital.

Another term frequently used to describe stockholders' equity is: - capital stock. - net assets. - gross assets. - paid-in capital.

- net assets.

Factors that usually affect retained earnings directly include: - restructuring charges and losses from discontinued operations. - net income or net loss, and the issuance of stock at an amount in excess of par value. - net income or net loss, and dividends. - stock dividends and gains or losses from the sale of treasury stock.

- net income or net loss, and dividends.

Balance sheet disclosures for preferred stock include all of the following except: - the number of shares issued. - the liquidating or redemption value. - the credit or market value. - the number of shares authorized.

- the credit or market value.

The dividend declaration date pertains to: - the date used to determine who receives dividends. - the date on which the board of directors declares a dividend. - the date a dividend is paid. - the date on which the board of directors declares it's going to liquidate the firm.

- the date on which the board of directors declares a dividend.

The number of shares of a class of stock that are outstanding is: Multiple Choice - the number of shares authorized minus the number of shares issued. - the number of shares authorized minus the number of shares held as treasury stock. - the number of shares issued minus the number of shares held as treasury stock. - the number of shares issued minus the number of shares owned by directors.

- the number of shares issued minus the number of shares held as treasury stock.

The statement of changes in retained earnings for the year shows: - gains or losses from discontinued operations during the year. - amounts received from the sale of additional common stock during the year. - the effect of a stock split during the year. - the retained earnings balance at the beginning of the year.

- the retained earnings balance at the beginning of the year.

When common stock has a par value: - the paid-in capital will equal the par value of the number of shares issued. - the market value of the stock will be higher than if there is no par value. - the liability of the stockholders is limited to the par value. - there will probably be additional paid-in capital on the balance sheet.

- there will probably be additional paid-in capital on the balance sheet.

When a stock dividend is declared and issued: - total paid-in capital does not change. - total stockholders' equity does not change. - retained earnings is normally decreased by the par value of the shares issued in the dividend. - total paid-in capital is decreased by the market value of the shares issued in the dividend.

- total stockholders' equity does not change.

When a firm purchases its own shares as treasury stock: - total stockholders' equity is increased. - paid-in capital is decreased. - retained earnings is decreased. - total stockholders' equity is decreased.

- total stockholders' equity is decreased.

When a company splits its common stock 3 for 1: - retained earnings is decreased by the market value of the shares issued - total paid-in capital increases by a factor of 3. -the market value of the company's stock normally falls by two-thirds. -the stockholders are assured of receiving larger cash dividends.

-the market value of the company's stock normally falls by two-thirds.

Braco has 80,000 shares of $100 par value common stock outstanding, and 20,000 shares in the treasury. Braco is located in a state that allows dividends on treasury stock. The number of additional shares that would be issued in a 5% stock dividend is: - 2,000 - 1,000 - 4,000 - 5,000

5,000 Explanation (80,000 + 20,000) × 5% = 5,000 shares

Which of the following is one of the two generally practiced methods for electing corporate directors? - Cumulative voting - Democratic voting - Census voting - Representative voting

Cumulative voting

Which of the following is not usually a right or attribute of preferred stock? - Having a claim to dividends in excess of the annual dividend requirement if dividends on common stock exceed dividends on preferred stock. - Having a claim to dividends that is cumulative over time if the annual dividend requirement is not satisfied. - Having a priority claim to dividends relative to the common stock's claim to dividends. - Having a priority claim in liquidation relative to the common stock's claim in liquidation.

Having a claim to dividends in excess of the annual dividend requirement if dividends on common stock exceed dividends on preferred stock.

In comparison to the stockholders' equity section of a corporation's balance sheet, owners' equity of a proprietorship or partnership: - normally does not make a distinction between invested capital and retained earnings. - normally uses "Capital" accounts for each individual owner, rather than a "Retained Earnings" account for all of the stockholders. - normally uses a "Drawings" account for each individual owner, rather than a "Dividends" account for all of the stockholders. - all of these answers are correct.

all of these answers are correct.

Accumulated other comprehensive income (loss)": - is a component of net income and reported on the income statement. - is another name for the cumulative foreign currency translation adjustment. - is a component of stockholders' equity and reported on the balance sheet. - includes a component that adjusts for the effects of treasury stock transactions.

is a component of stockholders' equity and reported on the balance sheet.

The dollar amount reported as common stock on the balance sheet of a corporation that has common stock with - a par value is the number of shares: issued, multiplied by the par value per share. - outstanding, multiplied by the par value per share. - issued, multiplied by the amount received per share. - outstanding, multiplied by the amount received per share.

issued, multiplied by the par value per share.

If the market price of a bond exceeds its face amount: - the coupon rate is more than the market interest rate. - the company's ROI and working capital have been increasing over time. - the maturity rate has been declining. - the coupon rate is less than the market interest rate.

the coupon rate is more than the market interest rate.

Balance sheet disclosures for preferred stock include all of the following except: - the number of shares issued. - the liquidating or redemption value. - the credit or market value. - the number of shares authorized.

the credit or market value.

When a stock dividend is declared and issued: - total paid-in capital does not change. - total paid-in capital is decreased by the market value of the shares issued in the dividend. - retained earnings is normally decreased by the - par value of the shares issued in the dividend. - total stockholders' equity does not change.

total stockholders' equity does not change.