Chapter 11 Acct 281

The sale of treasury stock at a price in excess of its cost results in a realized gain that should be presented as a non-operating item in the income statement true/false

false

Treasury stock is stock that is issued and outstanding but not authorized true/false

false

The relationship between book value and market price of capital stock is a measure of investors' confidence in a company's management true/false

true

Book value per share of preferred stock is computed as total stockholders' equity less the amount assigned to common stock plus any dividends in arrears divided by the number of shares of preferred stock outstanding true/false

False

The number of shares a corporation may issue is specified in the articles of incorporation and approved by the Securities and Exchange Commission True/False

False

The additional paid-in capital account repesents profit to the corporation and, as such, it is credited to Retained Earnings. True/false

False Credited to additional paid in capital

The advantages of corporations going public include all of the following except: a) professional management b) transferability of ownernershop c) limited shareholder liability d) ability to remove assets

d) ability to remove assets

When a corporation fails to pay a dividend one year on its common stock,it is said to be "in arrears" true/false

false

To be consistent with international standards, the FASB has changed reporting requirements for redeemable preferred stock to require it to be reported in the equity section true/false

true

When a stockholder sends in a proxy statement to a corporation he or she owns stock in, they grant management the voting rights associated with their shares true/false

true

When par value capital stock is issued, capital stock is credited with the par value of the shares issued, regardless of whether the issuance price is equal to par,more than par, or less than par true/false

true

A corporation is a legal entity separate from its owners; it may sue and be sued, but may not own property in its own name: True/False

False

When a corporation issues capital stock, most state laws require the corporation to credit Retained Earnings for the par value of shares of stock issued true/false

False credit Capital Stock

If capital stock is issued by a corporation at a price lower than par value, the difference represents a loss in the period in which the shares of stock are issued true/false

False not a loss, reduces the amount of stockholders equity on the balance sheet

The par value of the common stock of a large listed corporation: a) tends to establish a ceiling for the market price of the stock b) tends to establish a floor for the market price of the stock c) represents legal capital and is not related to the market price of the stock d) is increased by net income and decreased by dividends

c) represents legal capital and is not related to the market price of the stock

Most preferred stocks have one or more of the following characteristics, except: a) to receive dividends on a preferred basis b) cumulative dividends c) voting rights d) callable at the option of the corporation

c) voting rights

Mark Corporation has total stockholders' of $7,400,000. The company has outstanding 300,000 shares at $1 par value common stock and 20,000 shares at 8% preferred stock, $100 par value. (no dividends are in arrears.) The book value per share of common stock is: a) $9 b) $24.06 c) $24.66 d) $18.00

d) $18.00

Shown below is information relating to the stockholders' equity of Reeve Corporation as of December 31, 2018: 8.5% cumulative preferred stock, $100 par: $ 900,000 Common stock, $10 par, 340 shares authorized, 136,000 shares issued and outstanding: $1,360,000 Additional paid-in capital: Common Stock: $1,088,000 Retained earnings (deficit) ($ 68,000) Dividends in arrears: $ 76,500 What is total paid-in capital? a) $3,203,500 b) $3,416,000 c) $3,280,000 d) $3,348,000

d) $3,348,000

If preferred stock is convertible, it is so at the option of the: a) Board of directors (no) b) CEO c) CFO d) Stockholders

d) Stockholders

A liquidating dividend: a) occurs when a corporation distributes shares of its own stock as a dividend, rather than cash b) occurs whenever a corporation distributes non-cash assets as a dividend to its stockholders c) represents a distribution of a corporation's profits to the stockholders d) represents a return of invested capital to a corporation's owners, the stockholders

d) represents a return of invested capital to a corporation's owners, the stockholders

A 2-for-1 stock split: a) is accounted for in the sameway as a 100% stock dividend b) increases the number of outstanding shares of common stock, but par value per share remains the same as before the split c) is recorded by transferring the par value of additional shares from retained earnings to the common stock account d) should logically cause the market price per share to drop by approximately 50%

d) should logically cause the market price per share to drop by approximately 50%

The market price of a preferred stock will be affect by: a) the dividend rate b) the chance that the company will not operate profitably c) the level of interest rates d) the dividend rate, the chance the company will not operate profitably, and the level of interest rate

d) the dividend rate, the chance the company will not operate profitably, and the level of interest rate

A corporation must always have more than one class of stock true/fale

false

An underwriter is a bank or trust company that maintains a corporation's stockholder records true/false

false

The year-end balance sheet of Columbus Products, Inc., includes the following stockholders' equity section: Capital Stock: 7% cumulative preferred stock, $100 par value $14,000,000 Common stock, $5 par value, 5,000,000 shares authorized, 4,200,000 shares issued and outstanding: $21,000,000 Additional paid-in capital: Common stock $48,000,000 Retained earnings $64,450,000 Total stockholders equity $147,450,000 Is it possible to determine the fair market value per share of common stock from the stockholders' equity section above?

no

The net assets of a corporation are equal to:

total assets - total liabilities

A corporation continues in existence even if a stockholder dies or withdraws from the organization true/fals

true

A stock split will decrease the par value per share of stock true/false

true

A stockholders' subsidiary ledger will have entries made for each stockholder showing the number of shares held true/false

true

International accounting standards required mandatory redeemable preferred stock to be classified as a liability on the balance sheet and not as equity true/false

true

The costs to organize a corporation (organization costs) are reported as an intangible asset in the balance sheet and amortized to expense over the 5-year life used by the IRS true/false

true

The par value of a stock is the minimum amount of capital of the corporation existing for the protection of creditors true/false

true

The purchase of treasury stock for cash causes no change in total assets true/false

true

Coronet Corp. has total stockholders' equity of $7,400,000. The company's outstanding capital stock includes 100,000 shares of $10 par value common stock and 20,000 shares of 6%, $100 par value preferred stock. (No dividends are in arrears). The book value per share of common stock is:

$54 preferred: 20,000 x 100 = 2,000,000 7,400,000 - 2,000,000 = 5,400,000/100,000 = 54

The year-end balance sheet of Columbus Products, Inc., includes the following stockholders' equity section: Capital Stock: 7% cumulative preferred stock, $100 par value $14,000,000 Common stock, $5 par value, 5,000,000 shares authorized, 4,200,000 shares issued and outstanding: $21,000,000 Additional paid-in capital: Common stock $48,000,000 Retained earnings $64,450,000 Total stockholders equity $147,450,000 c) What was the average issuance price per share of common stock?

$16 per share (21,000,000 + 48,000,000)/4,200,000 = 16

The year-end balance sheet of Columbus Products, Inc., includes the following stockholders' equity section: Capital Stock: 7% cumulative preferred stock, $100 par value $14,000,000 Common stock, $5 par value, 5,000,000 shares authorized, 4,200,000 shares issued and outstanding: $21,000,000 Additional paid-in capital: Common stock $48,000,000 Retained earnings $64,450,000 Total stockholders equity $147,450,000 What is the amount of legal capital and the amount of total paid-in capital? Legal Capital? Total paid-in Capital?

Legal: 35,000,000 14,000,000 + 21,000,000 = 35,000,000 Total paid-in capital: 83,000,000 35,000,000 + 48,000,000 = 83,000,000

For the year end December 31, Southern Supply had net sales of $7,240,000, costs and other expenses (including income tax) of $6,160,000 and a gain from discontinued operations (net of income tax) of $420,000. Prepare a condensed income statement (including earnings per share), assuming that 910,000 shares of common stock were outstanding through out the year

Net Sales: $7,240,000 Less: Costs and expenses: $6,160,000 Income before continuing operations: $1,080,000 Discontinued operations, net of income tax: $420,000 Net Income: $1,500,000 Earnings per share: Income from continuing operations: $1.19 1,080,000/910,000 = 1.19 Discontinued operations, net of income tax: $.46 420,000/910,000 = .456 Net Income: $1.65 1,500,000/910,000 = 1.65

When no-par stock is issued, the entire proceeds are credited to Capital Stock and this amount is viewed as legal capital not subject to withdrawal. True/False

True

For the year end December 31, Southern Supply had net sales of $7,240,000, costs and other expenses (including income tax) of $6,160,000 and a gain from discontinued operations (net of income tax) of $420,000. Prepare a condensed income statement (including earnings per share), assuming that 910,000 shares of common stock were outstanding through out the year Which earnings per share figure would you recommend be used to compute the price-earnings ratio for Southern Supply?

Which earnings is used to compute the price-earnings? EPS on earnings from continuing operations The $1.19 earnings per share from continuing operations

Assuming there is no preferred stock, book value per share of common stock is derived by which of the following? a) stockholders' equity divided by the number of shares authorized b) stockholders' equity divided by the number of shares outstanding c) net income divided by the number of shares outstanding d) net income divided b the number of shares authorized

b) stockholders' equity divided by the number of shares outstanding

The year-end balance sheet of Columbus Products, Inc., includes the following stockholders' equity section: Capital Stock: 7% cumulative preferred stock, $100 par value $14,000,000 Common stock, $5 par value, 5,000,000 shares authorized, 4,200,000 shares issued and outstanding: $21,000,000 Additional paid-in capital: Common stock $48,000,000 Retained earnings $64,450,000 Total stockholders equity $147,450,000 What is the book value per share of common stock, assuming no dividends in arrears?

31.77 per share 147,450,000 - 14,000,000 = 133,450,00 / 4,200,000 = 31.77

The most important factor affecting the market price of common stock is the stated dividend rate true/false

false

Authorization of a stock issue creates an asset on the books of the issuing corporation true/false

False

National Corporation was organized on January 1 and issued 600,000 shares of common stock on that date. On July 1, an additional 200,000 shares were issued for cash. Net income for the year was $3,675,000. Net earnings per share amounted to: a) $5.25 b) $6.13 c) $4.59 (no) d) $9.19

a) $5.25 (600,000 x 6/12) + (800,000 x 6/12) = 700,000; $3,675,000/700,000 = $5.25

Shown below is information relating to the stockholders' equity of Reeve Corporation as of December 31, 2018: 8.5% cumulative preferred stock, $100 par: $ 900,000 Common stock, $10 par, 340 shares authorized, 136,000 shares issued and outstanding: $1,360,000 Additional paid-in capital: Common Stock: $1,088,000 Retained earnings (deficit) ($ 68,000) Dividends in arrears: $ 76,500 How many shares of preferred stock are issued and outstanding? a) 9,000 shares b) 90,000 shares c) 13,600 shares d) 34,000 shares

a) 9,000 shares

Which of the following is not a characteristic of most preferred stock? a) dividends that vary as income changes b) preference as to dividends c) preference as to assets in the event of liquidation of the company d) no voting power

a) dividends that vary as income changes

Which of the following apply to closely held corporation? a) there is no organized market for buying and selling the company's shares b) the company must prepare and issue its financial statements in conformity with generally accepted accounting principles c) the company must have its financial statements audited by an independent firm of CPAs d) The Company's financial information must be submitted to the Securities and Exchange Commission

a) there is no organized market for buying and selling the company's shares

On January 1, 2018, Carleton Corporation had 55,000 shares of $6 per value common stock outstanding. On March 31, 2018, Carleton issued an additional 10,000 shares in exchange for a building. What number of shares will be used in the computation of earnings per share for the year 2018? a) 55,000 b) 65,000 c) 62,500 d) 62,000

c) 62,500

Which of the following items would be included in comprehensive income but not reported as a component of net income? a) a lower-of-cost-or-market write-down of inventory b) a material loss due to natural disaster c) an unrealized gain on the portfolio of available-for-sale marketable securities d) a gain on the sale of a segment of the business

c) an unrealized gain on the portfolio of available-for-sale marketable securities

Shore and Gardiner each own 10,000 shares of S&G Corporation $12 value stock, which they purchased for $38 per share directly from the corporation. If Shore sells his stock to Gardiner for $475,000: a) stockholders equity of S&G Corporation increases (no) b) assets of S&G Corporation increases c) stockholders' equity of S&G Corporation decreases d) no account of S&G Corporation is affected

d) no account of S&G Corporation is affected

In computing earnings per share, the number of shares used is: a) the year-end number of shares outstanding b) the beginning of the year number of shares outstanding c) the average of the beginning and the year-end number of shares outstanding d) the weighted average of shares outstanding for the year

d) the weighted average of shares outstanding for the year

Which of the following is not a right of stockholders? a) to vote for directors and on key issues b) to participate in dividends declared c) to share in the distribution of assets if the corporation is liquidated d) to select the Chief Executive Officer

d) to select the Chief Executive Officer

The ownership of common stock in a corporation usually carries all of the following rights except: a) to vote for directors b) to participate in dividends c) tosharein a distribution of assets if the corporation is to be liquidated d) to set corporate policies

d) to set corporate policies

The net income of Foster Furniture, Inc., amounted to $1,600,000 for the current year. Compute the amount of earnings per share assuming that the shares of capital stock outstanding throughout the year consisted of 400,000 shares of $1 par value common stock and no preferred stock

$4.00 EPS 1,600,000 / 400,000 = 4.00

The year-end balance sheet of Columbus Products, Inc., includes the following stockholders' equity section: Capital Stock: 7% cumulative preferred stock, $100 par value $14,000,000 Common stock, $5 par value, 5,000,000 shares authorized, 4,200,000 shares issued and outstanding: $21,000,000 Additional paid-in capital: Common stock $48,000,000 Retained earnings $64,450,000 Total stockholders equity $147,450,000 b) What is the total amount of the annual dividends to which preferred stockholders are entitled?

980,000 14,000,000 x .07 (or 140,000 x 100 x .07)

Zigma Corporation is authorized to issue 2,000,000 shares of $4 par value capital stock. The corporation issued half the stock for cash at $8 per share, earned $336,000 during the first three months of operation and declared a cash dividend of $60,000. The total paid-in capital of Zigma Corporation after three months of operations is: a) $7,940,000 b) $8,000,000 c) $8,276,000 d) $8,336,000

b) $8,000,000 2,000,000/2 = 1,000,000 x 8 =8,000,000

On September 1, 2018, Maryland Corporation's common stock was selling at a market price of $200 per share. On that date, Maryland announced a 3 for 2 stock split. At what price would you expect the stock to trade immediately after the split goes into effect? a) $100 per share b) $200 per share c) $133.33 per share d) $2.25 per share

c) $133.33 per share

A primary disadvantage of the corporate form of organization is: a) unlimited personal liability for business debts b) ownership is difficult to transfer c) corporate earnings are subject to double taxation d) corporation may continue its operations without disruption despite retirement of individual stockholders

c) corporate earnings are subject to double taxation

Large stock dividends tend to: a) increase stock prices b) have no effect upon stock prices c) keep stock prices down d) decrease total assets

c) keep stock prices down

The net income of Foster Furniture, Inc., amounted to $1,600,000 for the current year. Compute the amount of earnings per share assuming that the shares of capital stock outstanding throughout the year consisted of 100,000 shares of 8 percent,$100 par value preferred stock and 300,000 shares of $5 par value common stock

$2.67 EPS 1,600,000 - 800,000 = 800,000 800,000/300,000 = 2.67 Preferred stock dividend: 100,000 x .08 x 100 = 800,000 deduct from net income

Thurman Corporation issued 450,000 shares of $.50 par value capital stock at its date of incorporation for cash at a price of $4 per share. During the first year of operations, the company earned $100,000 and declared a dividend of $40,000. At the end of this first year of operations, the balance of the Common Stock account is:

$225,000 450,000 x .50 = 225,000 dividends do not lower stock value, they lower retained earnings

Topper Corporation has 60,000 shares of $1 par value common stock and 16,000 shares of cumulative 7%, $100 pa preferred stock outstanding. Topper has not paid a dividend for the prior year. If Topper declares a $1.95 per common share dividend this year, what will be the total amount they must pay their shareholders?

$341,000 1.95 x 60,000 = 117,00 plus preferred 100 x .07 x 16,000 = 112,000 arrears, plus 112,000this year 117,000 + 112,000 + 112,000 = 341,000

Mayfair Corporation has outstanding 70,000 shares of $1 par value common stock as well as 20,000 shares of 7%, $100 par value cumulative preferred stock. At the beginning of the year, the balance in retained earnings was $800,000, and one year's dividends were in arrears. Net income for the current year is $580,000. Compute the balance in retained earnings at the end of the year if Mayfair Corporation pays a dividend of $ per share on its common stock this year.

$890,000 100 x .07 = 7 x 20,000 = 140,000 arrears, plus 140,000 this year 70,000 x 3 = 210,000 total dividends: 140,000 + 140,000 + 210,000 = 490,000 800,000 + 580,000 = 1,380,000 1,380,000 - 490,000 = 890,000

The year-end balance sheet of Columbus Products, Inc., includes the following stockholders' equity section: Capital Stock: 7% cumulative preferred stock, $100 par value $14,000,000 Common stock, $5 par value, 5,000,000 shares authorized, 4,200,000 shares issued and outstanding: $21,000,000 Additional paid-in capital: Common stock $48,000,000 Retained earnings $64,450,000 Total stockholders equity $147,450,000 a) How many shares of preferred stock have been issued?

140,000 shares ($14,000,000 total par value, divided by $100 par value per share)

A 2-for-1 stock split will: a) increase the total par value of the stock and increase the number of shares outstanding b) decrease the total par value of the stock and increase the number of shares outstanding c) not change the total par value of the stock and increase the number of shares outstanding d) increase total stockholders' equity

? b) decrease the total par value of the stock and increase the number of shares outstanding

It is illegal for the government to tax corporate earnings twice true/false

false

When Resisto Systems, Inc. was formed, the company was authorized to issue 5,000 shares of $100 par value, 8 percent cumulative preferred stock, and 100,000 shares of $2 stated value common stock. Half of the preferred stock was issued at a price of $103 per share, and 75,000 shares of common stock were sold for $16 per share. At the end of the current year, Resisto has retained earnings of $382,000. Prepare the stockholders' equity section of the company's balance sheet at the end of the current year

Cumulative preferred stock $250,000 Common stock $150,000 Additional paid-in Capital Cumulative preferred stock $7,500 Common Stock $1,050,000 Total paid-in capital $1,457,500 Retained earnings: $382,000 Total stockholders' equity $1,839,500 8% cumulative preferred stock, $100 par value. 5,000 shares authorized. 2,500 shares issued and outstanding = $250,000 Common stock, $2 stated value. 100,000 shares authorized, 75,000 shares issued and outstanding = $150,000

Earnings per share figures are shown in the income statement: a) for income before non-recurring items and for income form continuing operations, as well as for net income b) for common stock as well as for preferred stock c) for all publicly owned, as well as for all privately held, corporations d) as an optional disclosure for all corporations, and may be omitted completely or disclosed in a footnote at the option o the issuing corporation

a) for income before non-recurring items and for income form continuing operations, as well as for net income

Shares that have been sold are in the hands of stockholders are called: a) outstanding b) issued c) treasury d) underwritten

a) outstanding

Shown below is information relating to the stockholders' equity of Reeve Corporation as of December 31, 2018: 8.5% cumulative preferred stock, $100 par: $ 900,000 Common stock, $10 par, 340 shares authorized, 136,000 shares issued and outstanding: $1,360,000 Additional paid-in capital: Common Stock: $1,088,000 Retained earnings (deficit) ($ 68,000) Dividends in arrears: $ 76,500 What was the original issue price per share of common stock? a) $4 per share b) $18 per share c) $7.20 per share d) $10 per share

b) $18 per share

A prior period adjustment appears in the financial statements of the current year when: a) an error was made in computing the net income of the current period b) an error was made in measuring the net income of a previous year or years c) a non-recurring loss in a prior year was included among normal results of operations in the prior year d) earnings per share figures from prior years are restated to reflect the increased number of shares outstanding due to a stock split or a stock dividend

b) an error was made in measuring the net income of a previous year or years

The common stock of Securetech Corporation consistently sells at a market price of 20 times earnings (i.e., at a p/e ratio of 20). What would be the most likely effect of a 10-cent increase in Securetech's basic EFP? a) an increase in market price of approximately 10 cents per share b) an increase in market price of approximately $2 per share c) a reduction in the P/e ratio due to the larger EPS d) nothing. since market price reflects expectations of future earnings

b) an increase in market price of approximately $2 per share

A company failed to make an adjusting entry in the prior year to accrue earned revenue. To correct this they should: a) correct last year's statement by increasing net income b) correct this year's statements with a prior period adjustment increasing beginning retained earnings c) correct this year's statements with a prior period adjustment decreasing beginning retained earnings d) correct this years statements with a prior period adjustment increasing ending retained earnings (no)

b) correct this year's statements with a prior period adjustment increasing beginning retained earnings

The rights of a common stockholder do not include the right: a) to vote for directors b) to withdraw a share of corporate net assets proportionate to the person's stockholdings c) to receive a proportionate share of corporate assets upon liquidation, after creditors have been paid d) to share in profits when the board of directors declares a dividend

b) to withdraw a share of corporate net assets proportionate to the person's stockholdings

The net income of Foster Furniture, Inc., amounted to $1,600,000 for the current year. Compute the amount of earnings per share assuming that the shares of capital stock outstanding throughout the year consisted of 400,000 shares of $1 par value common stock and no preferred stock. $4.00 EPS 1,600,000 / 400,000 = 4.00 Is the earnings per share figure considered to be basic or diluted?

basic preferred stock must be convertible into common stock in order to result in a diluted EPS

When a stock dividend is declared, total stockholder's equity will: a) decrease (no) b) increase c) not change d) increase or decrease, depending upon whether it's a small or large stock dividend

c) not change

Stock splits: a) allow management to conserve cash b) give stockholders more shares c) cause no change in total assets, liabilities, or stockkholders' equity d) allow management to conserve cash, give sockholdes moe shares, and aus no change in total assets, liabilities, or stockholders' equity

d) allow management to conserve cash, give sockholdes moe shares, and aus no change in total assets, liabilities, or stockholders' equity

Treasury stock appears as: a) an asset account b) a liability account c) an expense account d) an equity account

d) an equity account

Which of the following best describes retained earnings? a) cash available for dividends b) the amount initially invested in the business by stockholders c) cash available for expansion and growth d) income that has been reinvested in the business rather than distributed as dividends to stockholders

d) income that has been reinvested in the business rather than distributed as dividends to stockholders

A stock split will normally increase the market price of the stock and decrease the number of shares on the market true/false

false

Cumulative preferred stock means the stock is entitled to its regular dividend plus an additional share of the total amount of declared dividends true/false

false

In the Stockholders' Equity section of a balance sheet, par value of common stock is presented first, followed by par value of preferred stock, followed by additional paid-in capital on common stock, followed by additional paid-in capital on preferred stock true/false

false

Interest rates impact the market value of common stock more than they impact the market value of preferred stock true/false

false

Preferred stockholders generally do not have the same voting rights in a corporation as common stockholders true/false

false

Stockholders in a corporation elect the board of directors, pass the bylaws of the corporation, and hire top corporate officers and managers true/false

false

Stockholders of a corporation are personally liable for the debts of the corporation if all shares are owned by the officers of the corporation true/false

false

The board of directors is at the top of a corporate organization chart, followed by the stockholders, then the CEO or president of the coproation true/false

false

The payment of cash dividends to common stockholders is classified as a financing activity on the statement of cash flows whereas payment of a cash dividend to preferred stockholders is classified as an investing activity true/false

false

The purchase of treasury stock creates an asset for the corporation and is recorded at the cost of the shares purchased true/false

false

Treasury stock is stock of a corporation that has been issued and then reacquired and then cancelled true/false

false