chapter 8 questions

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Cloud Company has 5,000 shares of 6%, $20 par value cumulative preferred stock outstanding. The company also has 8,000 shares of $10 par value common stock outstanding. Cloud paid no dividends in Year 1 or Year 2. In Year 3, Cloud paid $30,000 of cash dividends. What was the amount of dividends paid to common stockholders?

$12,000 Reason: 5,000 shares × $20 x 6% = $6,000 annual × 3 years = $18,000 due to preferred stockholders. $30,000 total dividend - $18,000 preferred stock distribution = $12,000 common stock distribution.

Cloud Company has 5,000 shares of 6%, $20 par value cumulative preferred stock outstanding. The company also has 8,000 shares of $10 par value common stock outstanding. Cloud paid no dividends in Year 1 or Year 2. In Year 3, Cloud paid $30,000 of cash dividends. How much of the distributions will go to the preferred stockholders?

$18,000 Reason: 5,000 shares × $20 x 6% = $6,000 annual preferred dividend. The preferred stockholders will receive two years of dividends that are in arrears plus the dividend due for the current year for a total of $18,000 ($6,000 × 3 years).

Thomas Company has $120,000 of assets, $40,000 of liabilities, $50,000 of stock, and $30,000 of retained earnings. Investors own 25,000 shares of Thomas' stock that has a current market value of $5.20 per share. Based on this The book value per share of the stock is:

$3.20 - Reason: ($50,000 stock + $30,000 retained earnings) ÷ 25,000 shares of stock = $3.20 per share.

Fontaine Incorporated issued a 10% stock dividend on its $20 par value common stock. On the distribution date, there were there were 12,000 shares of stock issued and 10,000 shares of stock outstanding. The market value of the stock was $25. As a result of the stock dividend, the amount of additional paid-in capital in excess of par value increased by ______.

$5,000 Reason: $25 market value - $20 par value = $5 additional paid-in capital in excess of par value × 1,000 shares = $5,000.

Cloud Company has 5,000 shares of 6%, $20 par value cumulative preferred stock outstanding. The company also has 8,000 shares of $10 par value common stock outstanding. Cloud paid $30,000 of cash dividends in a year when no dividends were in arrears. Based on this information, the preferred stockholders received $______________ and the common stockholders received $______________________

$6,000 $24,000 $6,000 would be paid to preferred stockholders and $24,000 would be paid to common stockholders. 5,000 shares x $20 x 6% = $6,000 $30,000 - $6,000 = $24,000

Base Line Incorporated is authorized to issue 50,000 shares of $15 stated value preferred stock. On January 1, Year 1, Base Line issued 10,000 shares of the stock for $24 per share. Immediately after the issue, Base Line's balance sheet showed ______ of paid-in-capital in excess of stated value.

$90,000 Reason: $24 issue price - $15 stated value = $9 in excess of stated x 10,000 shares = $90,000.

Base Line Incorporated is authorized to issue 50,000 shares of $15 par value common stock. On January 1, Year 1, Base Line issued 10,000 shares of the stock for $24 per share. Which financial statements were affected by the stock issue?

- balance sheet - statement of cash flows

Match the account title shown in the right column with the order in which they are presented in the stockholders' equity section of a balance sheet. Use the number 1 to represent the account title shown first, the number 2 to represent the second title, and so on.

1. Par Value Preferred Stock 2 Stated Value Common Stock 3 Class B Common Stock 4 Paid-in Capital in Excess of Par Value Preferred Stock 5 Paid-in Capital in Excess of Stated Value Common Stock 6 Retained Earnings

Thomas Company has $120,000 of assets, $40,000 of liabilities, $50,000 of stock, and $30,000 of retained earnings. Investors own 25,000 shares of Thomas' stock that has a current market value of $5.20 per share. Based on this The book value per share of the stock is:

3.20 Reason: ($50,000 stock + $30,000 retained earnings) ÷ 25,000 shares of stock = $3.20 per share.

Which of the following statements are true?

If a company skips a dividend on noncumulative preferred stock, the dividend is lost forever. Preferred stock dividends in arrears must be paid before dividends can be distributed to common stockholders.

authorized stock issued stock outstanding stock treasury stock

The maximum number of shares a company can legally issue The total number of share the company has sold to investors The number of shares currently owned by investors The number of shares of stock that a company has repurchased from its investors

Which of the following statements are true?

Treasury stock is stock that a company has repurchased from its investors. The number of shares outstanding may be less than the number of shares issued.

At the time treasury stock is purchased, total assets ______.

and total stockholders' equity both decrease

The maximum number of shares of stock corporations are legally permitted to issue is the ______ number of shares.

authorized

Corporations purchase treasury stock to ______.

avoid a hostile takeover have stock available to satisfy the requirements of employee stock option plans keep the price of the stock high when it appears to be falling

Book value per share is ______.

calculated by dividing total stockholders' equity by the number of shares of stock owned by investors measured in historical dollars

When a company issues no-par common stock, the ______.

cash inflow is classified as a financing activity entire amount of the proceeds is placed into the Common Stock account.

The greatest potential for rewards when a corporation prospers rests with ______ stockholders.

common

Paying a previously declared cash dividend ______.

decreases both liabilities and assets

A stock split ______.

decreases the market value per share has no effect on cash flow increases the number of shares outstanding

The date of record for a cash dividend ______.

has no effect on the financial statements

The issue of no-par common stock does not affect the ______.

income statement

Which financial statements are NOT affected by the declaration of a dividend?

income statement statement of cash flows

Declaring a cash dividend ______.

increases liabilities and decreases stockholders' equity

The par value represents the ______.

maximum liability of the investors minimum amount of assets that must be retained in the company as protection for creditors, when multiplied by the number of shares of stock issued

Cumulative dividends ______.

may also be called dividends in arrears are dividends that accumulate for future payment when a company fails to pay a periodic dividend

Stock dividends have no effect on ______.

net income ownership interest in assets the statement of cash flows total assets

When a corporation buys treasury stock, the:

number of shares of stock authorized is not affected. number of shares of stock outstanding decreases.

Stock dividends are based on the number of shares ______.

outstanding

Corporations normally list _________ stock before ______________stock in the stockholders' section of the balance sheet. (Enter only one word per blank.)

preferred; common

Stanley Company paid $25 per share to purchase 200 shares of its $10 par value common stock. If Stanley resells 100 shares of the treasury stock for $30 per share, Stanley will _______

recognize a $500 increase in additional paid-in capital from treasury stock report the $3,000 as a financing activity

A 2-for-1 stock split is likely to ______.

reduce the stock price to about 1/2 of the pre-split value

No-par stock may have a(n) _________________ value which is an arbitrary amount established by the board of directors to the stock. (Enter only one word per blank.)

stated

No-par stock may have a(n) ___________________ value which is an arbitrary amount established by the board of directors to the stock.

stated

A company repurchased 2,000 shares of its $10 par value stock for $15 per share. Under the most common method of accounting for treasury stock, ______.

the entire $30,000 will be recognized in Treasury Stock

Base Line Incorporated is authorized to issue 50,000 shares of $15 stated value preferred stock. On January 1, Year 1, Base Line issued 10,000 shares of the stock for $24 per share. As a result of the stock issue:

the income statement was not affected. cash flow from financing activities increased by $240,000. total assets increase by $240,000.

If a company reissues its Treasury Stock, its ______ increase(s).

total assets stockholders' equity

Stock splits have no effect on ______.

total stockholders' equity total liabilities total assets

Which of the following statements are true?

Many states allow corporations to issue no-par stock. To minimize the amount of assets that owners must maintain in the business,many corporations issue stock with very low par values.

Which of the following statements are true?

Common stockholders have the right to buy and sell stock. All corporations have common stock.

True or false: The stated value of a share of stock is established by the federal government.

False

Which financial statement is affected on both the date of declaration and the payment date of a dividend?

balance sheet

A corporation becomes legally obligated to make a cash dividend on the_____________date

declaration

Stock dividends ______.

decrease the market value per share make stock more affordable

When a corporation issues a stock divided, Retained Earnings ______.

decreases and Paid-in Capital increases

Common stockholders have the right to ______.

participate in the election of directors share in the distribution of profits vote on significant matters that affect the corporate charter

The party that owns the stock on the date of Blank______ is legally entitled to a cash dividend.

record


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