chapter 8 acct 222 questions

When Crossett Corporation was organized in January 2018, it immediately issued 4,000 shares of $50 par, 6 percent, cumulative preferred stock and 50,000 shares of $20 par common stock. Its earnings history is as follows: 2018, net loss of $35,000; 2019, net income of $125,000; 2020, net income of $215,000. The corporation did not pay a dividend in 2018. How much is the dividend arrearage as of January 1, 2019?

$12,000 Par Value of Stock (50)x Dividend % (6)= Dividend per Share (3)x Preferred Shares Outstanding (4,000)= 12,000

Weaver Corporation had the following stock issued and outstanding at January 1, 2018: 150,000 shares of $1 par common stock. 15,000 shares of $100 par, 6 percent, noncumulative preferred stock. On June 10, Weaver Corporation declared the annual cash dividend on its 15,000 shares of preferred stock and a $0.50 per share dividend for the common shareholders. The dividends will be paid on July 1 to the shareholders of record on June 20. Determine the total amount of dividends to be paid to the preferred shareholders and common shareholders.

$165,000 Computation of dividends to be paid: Preferred stock $100 par value × 6% × 15,000 shares = $90,000 Common stock $0.50 × 150,000 shares =$75,000 Total dividend $165,000

Elroy Corporation repurchased 4,000 shares of its own stock for $30 per share. The stock has a par of $10 per share. A month later Elroy resold 900 shares of the treasury stock for $32 per share. Required: What is the balance of the Treasury Stock account after these transactions are recognized?

$93,000 Purchase: 4,000 × $30 = $120,000 Sale: 900 × $32 = $28,800 (Stock is removed from the Treasury stock account at the purchase amount; any difference is shown in Paid in Capital in Excess of Cost - Treasury Stock) Treasury stock 120,000- 27,000=93,000 *900 shares × $30 = $27,000

A reason often given for a corporate stock split is to: A)reduce the market price of the stock. B)protect the interest of creditors. C)increase the par value of the stock D)absorb the treasury stock.

A)reduce the market price of the stock. Reducing the market price of stock can decrease the market price and make it more attractive to investors.

On September 1, Year 1, Orville Corporation has unrestricted Retained Earnings of $600,000, Appropriated Retained Earnings of $400,000, Cash of $850,000, and Accounts Payable of $50,000. What is the maximum amount that can be used for cash dividends? A)$850,000 B)$600,000 C)$800,000 D)$450,000

B) $600,000 The company can pay a maximum dividend of $600,000, the total unrestricted retained earnings.

Llewelyn Company purchased 1,000 shares of its own $10 par value common stock when the market price of the stock was $36 per share. How would this event affect the company's financial statements? A)Increase the treasury stock account and increase the paid-in capital account in excess of par value − common account by $10,000. B)Increase the treasury stock account and decrease the cash account by $36,000. C)Increase the treasury stock account by $36,000, increase the common stock account by $10,000, and increase the paid-in capital account in excess of par value − common account by $26,000. D)Increase the cash account by $36,000, decrease the treasury stock account by $10,000, and increase the paid-in capital account in excess of par − Common account by $26,000.

B) Increase the treasury stock account and decrease the cash account by $36,000. Treasury stock is recorded at cost. The entry to record the repurchase is recorded as an increase to the treasury stock account and a decrease to the cash account for $36,000 (= 1,000 shares × $36 per share purchase price).

Which of the following is not normally a preference given to the holders of preferred stock? A)The right to receive a specified amount of dividends prior any being paid to common stockholders. B)The right to vote before the common stockholders at the corporation's annual meeting. C)The right to receive preference over common stockholders as to the distribution of assets during a liquidation process. D)All of these are preferences given to preferred stock

B)The right to vote before the common stockholders at the corporation's annual meeting. Preferred stockholders do not have voting rights.

Which form of business organization is established as a legal entity separate from its owners? A)Sole proprietorship B)Partnership C)Corporation D)None of These

C)Corporation Corporations are owned by shareholders. Corporations file and pay income taxes on their own.

Proprietorship, Partnership, or Corporation? Has a retained earnings account on its balance sheet

Corporation

Proprietorship, Partnership, or Corporation? Most highly regulated form of business

Corporation

Proprietorship, Partnership, or Corporation? Provides for easy transfer of ownership

Corporation

Proprietorship, Partnership, or Corporation? Provides the greatest capacity to raise capital

Corporation

Proprietorship, Partnership, or Corporation? Subject to double taxation

Corporation

Proprietorship, Partnership, or Corporation? Usually operated by a professional management team that is separated from the owners

Corporation

At the end of the accounting period, Houston Company had $12,000 of par value common stock issued, additional paid-in capital in excess of par value - common of $11,000, retained earnings of $12,000, and $4,000 of treasury stock. The total amount of stockholders' equity is: A)$37,000 B)$39,000 C)$19,000 D)$31,000

D) $31,000 $12,000 common stock + $11,000 additional paid-in capital in excess of par value + $12,000 retained earnings − $4,000 treasury stock = $31,000

The par value of a company's stock: A)dictates the initial price of the stock. B)may be revised each time a company issues more shares of stock. C)is generally greater than market value. D)has little connection to the market value of the stock.

D)has little connection to the market value of the stock. Par value is an arbitrary number, but is typically lower than market value.

True or False: Purchasing treasury stock reduces the number of issued shares.

False. Purchasing treasury stock reduces the number of outstanding shares, but does not affect the number of issued shares.

True or False: One reason for a corporation to buy its own stock is to boost its net income when treasury stock is reissued for a higher price.

False. Reissuing treasury stock does not impact net income.

Proprietorship, Partnership, or Corporation? Frequently uses legal agreements to define profit distribution for two or more owners

Partnership

Proprietorship, Partnership, or Corporation? Has multiple capital accounts but no retained earnings account on its balance sheet

Partnership

Proprietorship, Partnership, or Corporation? Has two or more owners who are not stockholders

Partnership

Proprietorship, Partnership, or Corporation? One owner may be held personally liable for actions taken on behalf of the business by different owner

Partnership

Proprietorship, Partnership, or Corporation? Provides the best opportunity to benefit a few people

Partnership

Proprietorship, Partnership, or Corporation? Has only one capital account on its balance sheet

Proprietorship

Proprietorship, Partnership, or Corporation? Least regulated form of business

Proprietorship

Proprietorship, Partnership, or Corporation? Offers the highest level of control over operating decisions

Proprietorship

Proprietorship, Partnership, or Corporation? Offers the least capacity to raise capital

Proprietorship

Proprietorship, Partnership, or Corporation? Owned and operated by a single individual

Proprietorship

Proprietorship, Partnership, or Corporation? Profits benefit a single individual

Proprietorship

Proprietorship, Partnership, or Corporation? The business dissolves with the death of its only owner

Proprietorship

True or False: Corporations may buy back their own stock (treasury stock) to avoid hostile takeovers.

True. Purchasing treasury stock keeps those shares away from the company attempting the takeover.

True or False: The treasury stock account is classified as a negative equity account.

True. Treasury stock is a contra, or negative, equity account.

True or False: A distribution by a sole proprietorship to the owner is called a withdrawal.

True. Withdrawals are distributions to the owners of sole proprietorships. Dividends are distributions to corporate stockholders.