Chapter 11 AC 210

A stock dividend causes the stock price per share to A) decrease B) remain the same C) increase

A

Cause the par value per share to change A) stock splits B) stock splits and stock dividends C) stock dividends

A

Stock options are expensed A) when granted and are recorded at the estimated cost of the options B) evenly over the period from the grant date to the excercise date and are recorded at the average market price C) when exercised and are recorded at the market price at the time of exercise

A

The board of directors officially approves a dividend A) declaration date B) date of record C) payment date

A

The number of shares outstanding equals the number of shares A) issued minus the number of shares in treasury B) issued plus the number of shares in treasury C) authorized plus the number of shares issued D) authorized minus the number of shares issued

A

When should a corporation record a liability for dividends on its cumulative preferred stock? A) when the dividends have been declared B) never C) when recording year-end adjusting entries D) when the corporation knows it will not be paying dividends

A

An IPO A) is when a private company goes public B) stands for issued private options C) stands for initial public offering D) stands for independent public obligations

A and C

Before the board of directors dealers a cash dividend, it should consider whether _______ A) there is sufficient cash B) there is treasury stock C) there are sufficient retained earnings D) the current liabilities are too low

A and C

Dilution Solutions, Inc. repurchased 500 shares of its $2 par value common stock for $10,000. The effect of this transaction on the accounting equation, using the cost method, includes a A) $10,000 increase in treasury stock B) $1,000 increase in stockholders' equity C) $10,000 decrease in cash D) $9,000 decrease in additional paid-in capital

A and C

When a company has both common and preferred stock, its ROE must be adjusted by _________ A) subtracting the preferred stock balance from the total stockholders' equity B) adding the preferred stock dividends to net income C) subtracting preferred stock dividends from net income D) adding the preferred stock balance to total stockholders' equity

A and C

Advantages of equity financing over debt financing include that A) equity financing does not require payment B) stockholders' control will increase C) dividends are tax deductible D) dividends are optional

A and D

Comparing EPS across companies is not advised because A) the number of shares outstanding may vary B) the price per share may vary C) retained earnings may vary D) the accounting methods used may vary

A and D

The risk from financial leverage A) decreases when a company issues new shares of stock B) increases when a company's current ratio increases C) increases when a company reduces its borrowing D) increases when the cost of borrowing is greater than the return

A and D

Identify what is needed to calculate the P/E ratio A) earnings per share B) average stockholders' equity C) common stock dividends declared D) return on equity E) stock price

A and E

Retained Earnings represents cumulative ________ by the business A) profits retained B) cash earned C) paid-in capital D) cash retained E) net income kept

A and E

The closing entry required at the year end, includes a A) debit to retained earnings B) credit to dividends payable C) credit to retained earnings D) debit to dividends payable E) credit to dividends F) debit to dividends

A and E

The journal entry to record the payment of a previously declared dividend includes a A) credit to cash B) credit to dividends payable C) debit to cash D) credit to dividends E) debit to dividends F) debit to dividends payable

A and F

Atomic, Inc. had 100,000 shares authorized, and 10,000 shares issued and outstanding of its $2 par value common stock. At December 31, Common Stock equaled $20,000 and total stockholders' equity equaled $100,000 prior to a 2-for-1 stock split. As a result of a 2-for-1 stock split, A) stockholders' equity equals $100,000 B) par value equals $1 C) the number of shares outstanding equals 5,000 D) par value equals $4 E) the number of shares outstanding equals 20,000 F) the common stock equals $20,000

A, B, E, and F

Daffy Duct, Inc. issued 10,00 shares of $1 par value common stock at $10 per share. The journal entry to record this transaction includes a A) $100,000 debit to cash B) $10,000 credit to common stock C) $90,000 credit to additional paid-in capital D) $100,000 credit to common stock E) $10,000 debit to cash

A, B, and C

Wyatt Company issued 1,000 shares of its 5%, $100 par value, cumulative preferred stock for $110 cash per share. The journal entry to record this transaction includes a A) $10,000 credit to additional paid-in capital - preferred B) $100,000 credit to preferred stock C) $110,000 debit to cash D) $100,000 debit to cash E) $5,000 credit to preferred stock

A, B, and C

Retained earnings are A) sometimes called earned capital B) decrease by purchases of land C) all of the company's earnings kept rather than distributed to stockholders D) increased by net income E) equal to cash F) decreased by dividends

A, C, D, and F

Common stock's par value A) affects how common stock is recorded B) equals the amount of cash contributed by shareholders C) has become less meaningful because states use other means to prevent stockholders from removing capital from financially distressed companies D) was introduced to prevent bankrupt companies from unfairly distributing company resources

A, C, and D

Which of the following line item amounts would be under the Retained Earnings column of a statement of stockholders' equity? A) net income B) treasury stock C) dividends: common D) stock issuances E) additional paid-in capital F) dividends: preferred

A, C, and F

A _______ P/E ratio indicates investors anticipate an improvement in the company's future results A) lower B) higher C) constant

B

Cause total stockholders' equity to remain the same A) stock splits B) stock splits and stock dividends C) stock dividends

B

Contributed capital of $1,000,000 represents A) the accumulated profits earned on stockholders' investment B) the amount stockholders have invested in exchange in stock C) donations received from creditors D) accumulated earnings minus accumulated dividends

B

Corporations will declare stock dividends (or stock split) in order to A) increase a stockholders' ownership percentage in the corporation B) reduce the market price of a share of stock and make it more attractive to some investors C) increase the market price of a share of stock to help maximize the stockholders' wealth D) increase the corporation's retained earnings

B

Earnings per share (EPS) appears on the A) balance sheet B) income statement C) statement of stockholders' equity

B

Lenders will sometimes impose dividend restrictions to A) try to limit available dividends B) prevent the corporation from paying out too much to stockholders C) ensure the lenders will receive more dividends than the stockholders D) prevent the corporation from paying out too much to other creditors

B

Refurbish, Inc. bought 1,000 shares of its own stock at $8 a share. Later, it reissued the shares for $10,000. The effect of the entry to record the sale of treasury stock on the accounting equation includes a(n) A) $10,000 decrease in stockholders' equity B) $10,000 increase in stockholders' equity C) $8,000 increase in stockholders' equity D) $8,000 decrease in stockholders' equity

B

Stock records are finalized to determine which stockholders are to receive payment A) declaration date B) date of record C) payment date

B

Stockit, Inc. issued 100,000 shares of the 1,000,000 shares it is allowed to issue. Stockit has repurchased 10,000 of its own shares. The number of shares authorized equals ________ shares A) 90,000 B) 1,000,000 C) 100,000 D) 10,000 E) 910,000

B

The repurchase of treasury stock will cause earnings per share (EPS) to A) decrease B) increase C) remain the same

B

Treasure This, Inc. had total assets of $100,000, liabilities of $60,000 and stockholders' equity of $40,000 before repurchasing 1,000 shares of its $1 par value common stock for $5 each. After this repurchase, total assets equal ________, liabilities equal _______ and stockholders' equity equals __________ A) $105,000; $60,000; $45,000 B) $95,000; $60,000; $35,000 C) $100,000; $65,000; $35,000 D) $100,000; $55,000; $45,000

B

Under IFRS, if the company issuing preferred stock is contractually obligated to pay dividends or to redeem the shares at a future date, then the preferred stock is classified as A) long-term asset B) a liability C) stockholders' equity D) retained earnings

B

Which of the following reports net income relative to average common stockholders' equity in dollars? A) debt/equity ratio B) ROE C) ROA D) P/E ratio E) EPS

B

Which type of investment would retirees wanting a stable income prefer? A) stock split investment B) income investment C) interest investment D) growth investment

B

During the year, Lox, Stock and Bagel Inc.'s net income was $60,000. Its average stockholders' equity was $240,000, and it had 120,000 shares outstanding the entire year. Its stock was selling for $10 per share. Its P/E ratio equals ___________ A) .25 B) 20 C) 40 D) .5

B (10/(60,000/120,000))

Mega Corporation repurchased 1,000 shares of its $1 par value common stock for $8,000. The effect of this transaction on the accounting equation includes a(n) A) increase in liabilities B) decrease in stockholders' equity C) decrease in assets D) increase in assets E) increase in stockholders' equity F) decrease in liabilities

B and C

Treasury stock represents A) stock issued in exchange for treasury bills B) a contra-equity account C) the amount paid for stock reacquired and currently held in treasury D) the amount paid to acquire US treasury stock

B and C

A corporation may be restricted from paying a dividend if A) the treasury stock balance is above mandated levels B) the dividend is greater than the amount of retained earnings C) the shares outstanding are greater than the number of shares issued D) a creditor's loan agreement is violated

B and D

Sources of financing for corporations include A) fixed asset retirements B) borrowing C) collecting accounts receivable D) issuing stock

B and D

Which of the following line items would be found on a statement of stockholders' equity? A) dividends payable B) net income C) additional paid-in capital D) stock issuances E) treasury stock F) dividends

B, C, D, E, and F

Dividends on preferred stock A) are attractive to investors who want an investment that keeps up with inflation because the dividend rate is increased during inflationary times B) are paid before dividends on common stock C) may be paid at a fixed rate, such as 7% D) are more attractive than common stock dividends to investors who want a stable income

B, C, and D

A stock dividend A) decreases cash B) has no effect on total stockholders' equity C) increases common stock D) decreases total stockholders' equity E) decreases retained earnings

B, C, and E

Accumulated Deficit A) means that retained earnings has a credit balance B) means that retained earnings has a debit balance C) is shown in parentheses on the balance sheet D) indicates that no dividends have been declared E) indicates accumulated net loss

B, C, and E

The journal entry to record reissuing treasury stock at a price below the cost of the treasury stock includes a A) credit to common stock B) credit to treasury stock C) debit to cash D) credit to additional paid-in capital E) debit to additional paid-in capital

B, C, and E

Which of the following accounts are closed into retained earnings at year-end? A) additional paid-in capital B) dividends C) dividends payable D) expense accounts E) revenue accounts F) common stock

B, D, and E

Dew Drop Inn, Inc. has a current ratio of 0.9 to 1.0 and $4 of debt for every $1 of equity. If Dew Drop Inn needs additional financing, it would best improve its financial situation with A) the payment of a stock dividend B) the purchase of treasury stock C) equity financing D) debt financing

C

Dividends payable is decreased A) declaration date B) date of record C) payment date

C

Double Vision, Inc. had 10,000 shares issued and outstanding of its $1 par value common stock. At December 31, Common stock equaled $10,000, Retained earnings equaled $20,000 and Total stockholders' equity equaled $50,000 prior to a 2-for-1 stock split. As a result of a 2-for-1 stock split, A) the common stock equals $20,000 B) the number of shares outstanding equals 5,000 C) par value equals $.50 D) retained earnings equals $40,000

C

In an IPO on May 1, 2009, Timmy Hilfigure purchased 1,000 shares of Abner Crummie, Inc. for $5,000. On April 30, 2018, Timmy Hilfigure sold the 1,000 shares for $8,000 to Ralph Loring. What is the effect of the sale on April 30, 2018? A) Aber Crummie, Inc. will record a decrease in cash of $8,000 B) Amber Crummie, Inc. will record a $3,000 loss C) Abner Crummie, Inc. will not be directly affected by this transaction D) Abner Crummie, Inc. will record a $3,000 gain

C

Preferred stock carries priority over common stock A) only when dividends are declared and paid B) only when a corporation is liquidated C) both for dividends and at liquidation

C

Require a journal entry A) stock splits B) stock splits and stock dividends C) stock dividends

C

A higher ROE means A) the P/E ratio must have decreased B) more shares of stock have been issued C) stockholders may enjoy higher returns D) the company used financial leverage to its stockholders' advantage

C and D

Advantages of debt financing over equity financing include that A) debt financing does not require repayments B) interest payments are optional C) interest payments are tax deductible D) stockholders' control will not be diluted

C and D

Issuing 1,000 shares of 5%, $100 par value, cumulative preferred stock for $100 cash per share affects the accounting equation by A) increasing retained earnings B) increasing additional paid-in capital C) increasing total stockholders' equity D) increasing total assets E) decreasing total stockholders' equity F) increasing total liabilities

C and D

Squid Roe, Inc.'s ROE increased two percentage points to 12%. This increase may have happened because Squid Roe A) replaced it's 10% debt with 12% debt B) borrowed more funds at 12% C) replaced it's 12% debt with 10% debt D) generated more profits than the interest incurred on its borrowed funds E) had an increase in interest expense relative to profits

C and D

Stock options A) are a corporation's option to issue both preferred and common stock B) are stock dividends in which additional shares equal to more than 20-25% of the shares outstanding are issued C) provide the holder with the option to purchase stock at a specified price during a specified period time D) are often given to employees as part of their compensation

C and D

X-Co issued 1,000 shares of its 5%, $100 par value, cumulative preferred stock for $100 cash per share. The journal entry to record this event includes a A) $95,000 credit to additional paid-in capital - preferred B) $5,000 credit to preferred stock C) $100,000 credit to preferred stock D) $100,000 debit to cash

C and D

The effect on the accounting equation of declaring a cash dividend includes A) an increase in stockholders' equity B) a decrease in liabilities C) a decrease in stockholders' equity D) a decrease in assets E) an increase in liabilities F) an increase in assets

C and E

A stock dividend A) causes total stockholders' equity to increase B) increases each stockholders' percentage ownership C) causes total stockholders' equity to decrease D) provides no economic value for current stockholders

D

An increase in EPS is an indicator of A) lower profitability B) lower return on equity C) lower financial leverage D) higher profitability

D

Items such as unrealized gains and losses from pensions, foreign currencies or financial investments are reported as A) treasury stock B) contributed capital C) financing activités D) accumulated other comprehensive income

D

Just In Thyme Inc. has the following December 31 equity balances: Common stock of $20,000; additional paid-in capital of $30,000; and retained earnings of $50,000. If Just In Thyme repurchases $10,000 of its stock, the total stockholders' equity balance would equal A) $110,000 B) $40,000 C) $60,000 D) $90,000

D

When does a corporation record an increase in Dividends Payable? A) on the date of payment B) on the date of issuance C) on the date of record D) on the declaration date

D

Which of the following is not a reason a company would repurchase its own stock? A) to have shares of stock to issue when stock options are excessed B) to reduce the number of outstanding shares C) to give the impression that the stock is worth buying D) to increase the total stockholders' equity balance and improve the ROE E) to buy another company using stock

D

Wok N Roll, Inc. began on January 1, 2017 by issuing 100,000 shares of $1 par value common stock and 1,000 shares of $100 par value, 5%, cumulative preferred stock. No dividends were declared in 2017 or 2018. In 2019, Wok N Roll declared and paid a $.50 dividend to its common stockholders. Assuming all shares originally issue are outstanding, the total dividend declared and paid in 2019 equals A) $50,500 B) $50,000 C) $55,000 D) $65,000

D (cumulative preferred stock receives 1,000 shares x $100 x 5% x 3 years and common stock receives 100,000 shares x $.50)

T/F Some states allow corporations to issue no-par value common stock

True

Dilution Solutions, Inc. repurchased 1,000 shares of its $1 par value common stock for $5,000. The journal entry to record this transaction includes a $5,000 _______ to treasury stock

debit

A corporation ________ have a legal obligation to pay dividends

does not

Dividend payable is a ________ account with a normal __________ balance and is initially recorded on the _______ date

liability;credit;declaration

Dividends is closed into ________ at the end of the fiscal year

retained earnings