Chapter 8

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).

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 retained earnings decreased by ______.

$25,000. Reason: $25 market value × 10,000 shares outstanding × 10% stock dividend = $25,000 decrease in retained earnings.

Cloud Company has 5,000 shares of 6%, $20 par value noncumulative 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 preferred stockholders?

$6,000 Reason: 5,000 shares × $20 × 6% = $6,000 annual preferred dividend. Since the preferred stock is noncumulative, there are no dividends in arrears.

Curtain Company paid dividends of $6,000; $12,000; and $20,000 during Year 1, Year 2, and Year 3, respectively. The company had 1,000 shares of 5%, $200 par value preferred stock outstanding that paid a cumulative dividend. The amount of dividends received by the common shareholders during Year 3 would be:

$8,000.

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. Immediately after the issue, Base Line's balance sheet will show ______ of paid-in-capital in excess of par value.

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

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

Montana Company was authorized to issue 75,000 shares of common stock. The company had issued 24,000 shares of stock when it purchased 3,500 shares of treasury stock. The number of outstanding shares of common stock was:

20,500.

Gilligan Corporation was established on February 15, Year 1. Gilligan is authorized to issue 500,000 shares of $6.00 par value common stock. As of December 30, Year 1, Gilligan's stockholders' equity accounts report the following balances: Common stock, $6 par, 500,000 shares authorized 55,000 shares issued and outstanding$ 330,000 Paid-in capital in excess of par - Common440,000 $ 770,000Retained earnings 1,400,000Total Stockholders' Equity $ 2,170,000 On December 31, Year 1, Gilligan decides to issue a 5% stock dividend. At the time of issue, the market price of the stock was $22 per share. What is the number of shares outstanding after the stock dividend is issued?

57,750 shares

Montana Company was authorized to issue 150,000 shares of common stock. The company had issued 69,000 shares of stock when it purchased 11,000 shares of treasury stock. The number of outstanding shares of common stock was:

58,000.

Match the terms shown in the left column with the definitions shown in the right column.

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

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 flow

Recognizing the full amount paid in the treasury stock account is called the ___ ___ of accounting for treasury stock.

Blank 1: cost Blank 2: method

Corporations normally list ---- stock before ---- stock in the stockholders' section of the balance sheet.

Blank 1: preferred Blank 2: common

On February 2, Year 1, the Farmer Corporation issued 9,000 shares of no-par stock for $17 per share. The next day, the stock's price jumped on the New York Stock Exchange to $21 per share. Which of the following answers describes the effect of the February 2, Year 1 transaction?

CHOICE A

Which of the following statements are true?

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

A partner is responsible for his/her own actions, but not for actions taken by another partner on behalf of the partnership.

FALSE

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.

Ogilvie Corporation issued 12,000 shares of no-par stock for $40 per share. Ogilvie was authorized to issue 35,000 shares. What effect will this event have on the company's financial statements?

Increase assets by $480,000, increase stockholders' equity by $480,000.

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 characteristics make transferring the ownership of a proprietorship difficult?

Most proprietorships are owner operated. A buyer must purchase the entire business.

Which of the following terms designates the maximum number of shares of stock that a corporation may issue?

Number of shares authorized

The Sarbanes-Oxley Act gave the ______ authority to set and enforce standards for auditors of public companies.

PCAOB

Congress gave legal authority to establish accounting principles for corporations that are registered on the exchange to the ______.

SEC

On June 10, Year 1, Burton Builders, Incorporated, a publicly traded company, announced that it had been awarded a contract to build a football stadium at a contract price of $500 million. This contract would increase its projected revenues by 20% over the next three years. Which of the following statements is correct with regard to this announcement?

The market price of Burton's stock will probably be higher on June 11, Year 1 than on June 10th.

Which of the following statements are true?

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

On January 2, Year 1, Torres Corporation issued 19,000 shares of $12 par-value common stock for $22 per share. Which of the following statements is true?

The paid-in capital in excess of par value account will increase by $125,000.

Which of the following statements are true?

The stock of closely held companies is not sold on major stock exchanges. Trading on a stock exchange is limited to the stockbrokers who are members of the exchange.

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.

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 ability to raise huge amounts of capital is generally limited to organizations organized as

corporations

Preferred stock ______.

dividends are paid before dividends are distributed to common stockholders has a liquidation value that, in case of bankruptcy, is paid before assets are distributed to common stockholders

The balance sheet of a sole proprietorship will report two equity accounts: one for amounts contributed by the owner, and one for the earnings of the business.

false

after all required preferred dividends ar epaid, preferred and common stockholders will shar the remaining divident

false

careful study of the financial statements will give investors the ability to predict the future movements in the market price of a corpoartions stock

false

if a corporation has issued noncumulative preferred stock, common stockholders may receive grater dividentds than if the corporation has issued cumulative preferred stock

false

preferred stock carriers voting rights that give the preferred stockholders greater power in the corporation's decison-making process than common stockholders have

false

preferred stockholders generally have no preference to assets when the company is liquidated

false

preferred stockholders will receive $16000 of cash dividends in the current year

false

the amount of common dividends per share htatstockhodlers will receive in the current year is $6.40

false

the chief exectutive officer CEO of a coproation is usually not also a member o fht eboard of directors

false

the number of shares to purchase in order to attain "signifcant influence" of a comporation can readily be determined from the finacial statements

false

The par value of a company's stock:

has little connection to the market value of the stock.

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

income statement

Appropriating retained earnings does not affect the ______.

income statement statement of cash flows

Stock dividends ______.

make stock more affordable decrease the market value per share

When a corporation buys treasury stock, the ______.

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

Stock dividends are based on the number of shares ______.

outstanding

When the common stock account is disclosed on the balance sheet, it is reported at:

par or stated value.

Appropriating retained earnings ______ the amount of retained earnings available to distribute as dividends.

restricts

In predicting the declaration of cash dividend payments a stockholder can examine ______.

retained earnings to assess sufficiency for dividend declarations the cash account to assess sufficiency for dividend declarations

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

stated

Stock dividends have no effect on ______.

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

Conceptually, the reverse of issuing stock is purchasing ___ stock

treasury

common stockholders will receive $48000 of cash dividend in the current year

true

dismissing an incompetent manger can be complicated when a company is experience entrenched managment

true

many successful corporations do not pay dividends to their stockholders

true

preferred stockholders generally hafve a preference to dividents

true

preferred stockholders generally receive a set or fixed amount of dividents

true

the amoutn of dividends in arrears in zero after the $80000 of dividends have been paid

true

Common stockholders have the right to ______.

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