Chapter 8 Quiz

At the end of the accounting period, Houston Company had $7,800 of par value common stock issued, additional paid-in capital in excess of par value - common of $10,000, retained earnings of $8,500, and $5,750 of treasury stock. The total amount of stockholders' equity is: $32,050. $12,050. $24,250. $20,550.

$7,800 common stock + $10,000 additional paid-in capital in excess of par value + $8,500 retained earnings − $5,750 treasury stock = $20,550

Which of the following entities would have a paid-in capital in excess of par (or stated) value account in the equity section of the balance sheet? A corporation. A municipality. A sole proprietorship. A partnership.

A corporation.

What effect will the declaration and distribution of a stock dividend have on net income and cash flows? Net Income; Cash Flows A. None; None B. None; Decrease C. Increase; None D. Decrease; Decrease

Choice A: none; none.

Which form of business organization is established as a legal entity separate from its owners?

Corporation.

On September 1, Year 1, Orville Corporation has unrestricted Retained Earnings of $8,600,000, Appropriated Retained Earnings of $5,600,000, Cash of $10,100,000, and Accounts Payable of $2,100,000. What is the maximum amount that can be used for cash dividends?

$8,600,000.

Gilligan Corporation was established on February 15, Year 1. Gilligan is authorized to issue 325,000 shares of $12 par value common stock. As of December 30, Year 1, Gilligan's stockholders' equity accounts report the following balances: Common stock, $12 par, 325,000 shares authorized 32,500 shares issued and outstanding $390,000 Paid-in capital in excess of par - Common 65,000 $455,000 Retained earnings 440,000 Total Stockholders' Equity $895,000 On December 31, Year 1, Gilligan decides to issue a 8% stock dividend. At the time of issue, the market price of the stock was $36 per share.What is the dollar value of the stock dividend issued by Gilligan Corporation?

$93,600. 32,500 shares × 8% = 2,600 shares in the dividend; 2,600 shares × $36 market price = $93,600

Flagler Corporation shows a total of $460,000 in its common stock account and $1,060,000 in its paid-in capital in excess of par value - common stock account. The par value of Flagler's common stock is $4. How many shares of Flagler stock have been issued? 265,000. 380,000. 115,000. It cannot be determined

115,000.

Montana Company was authorized to issue 90,000 shares of common stock. The company had issued 33,000 shares of stock when it purchased 5,000 shares of treasury stock. The number of outstanding shares of common stock was:

28,000. 33,000 shares issued − 5,000 shares of treasury stock = 28,000 shares outstanding

Gilligan Corporation was established on February 15, Year 1. Gilligan is authorized to issue 650,000 shares of $15 par value common stock. As of December 30, Year 1, Gilligan's stockholders' equity accounts report the following balances: Common stock, $15 par, 650,000 shares authorized 65,000 shares issued and outstanding $975,000 Paid-in capital in excess of par - Common 130,000 $1,105,000 Retained earnings 635,000 Total Stockholders' Equity $1,740,000 On December 31, Year 1, Gilligan decides to issue a 10% stock dividend. At the time of issue, the market price of the stock was $34 per share. What is the number of shares outstanding after the stock dividend is issued?

71,500 shares. 65,000 shares × 10% = 6,500 shares issued in dividend; 65,000 + 6,500 = 71,500 shares.

Which of the following statements is a reason why a company would buy treasury stock? Because management believes the market price of stock is undervalued. To have stock available to issue to employees in stock option plans. To avoid a hostile takeover. All of these are reasons a company would buy treasury stock.

All of these are reasons a company would buy treasury stock.

Which of the following is not a reason why a corporation may choose to not pay dividends? The board and management prefer to reinvest all net income for future growth. The corporation does not have adequate cash. The corporation does not have adequate retained earnings. All of these are valid reasons to not pay dividends.

All of these are valid reasons to not pay dividends.

Which of the following statements best describes the term "par value?" The number of shares currently in the hands of stockholders. The amount that must be paid to purchase a share of stock. Determined by dividing total stockholder's equity by the number of shares of stock. An amount used in determining a corporation's legal capital.

An amount used in determining a corporation's legal capital.

Where is treasury stock reported on a corporation's balance sheet? As an addition to total paid-in capital As a deduction from total stockholders' equity, following retained earnings As a deduction from total paid-in capital As a deduction from retained earnings

As a deduction from total stockholders' equity, following retained earnings.

On March 1, Year 1, Gilmore Incorporated declared a cash dividend on its 1,500 outstanding shares of $50 par value, 6% preferred stock. The dividend will be paid on May 1, Year 1 to the stockholders of record as of April 1, Year 1. Which of the following reflects the financial statement effects on the May 1, Year 1 date of payment? Assets = Liab.+ Equity Rev.− Exp.= Net Inc. Cash flow A.NA = 4,500+ (4,500) NA− NA= NA (4,500) FA B.(4,500)=(4,500)+NA NA −NA = NA (4,500) FA C.(9,000)=(9,000)+NA NA− NA = NA (9,000)IA D.NA = NA +NA NA − NA= NA NA

Assets = Liab. + Equity Rev. − Exp. = Net Inc. ;Cash flow B. (4,500) = (4,500) + NA NA − NA = NA;(4,500) FA

Helena Corporation declared a 2-for-1 stock split on 8,000 shares of $6 par value common stock. If the market price of the stock had been $25 a share before the split, the par value, number of shares, and approximate market value after the split would be: Par Value--No. of Shares--Market Value A. $6.00 16,000 $12.50 B. $6.00 8,000 $25.50 C. $3.00 16,000 $12.50 D. $3.00 16,000 $25.00

Choice C: $3.00, 16,000, $12.50

The term "double taxation" refers to which of the following? Corporations must pay income taxes on their net income, and their stockholders must pay income taxes on their dividends. In a partnership, both partners are required to claim their share of net income on their tax returns. A sole proprietorship must pay income taxes on its net income and the owner is also required to pay income taxes on withdrawals. A sole proprietorship must pay income taxes to both the state government and the federal government.

Corporations must pay income taxes on their net income, and their stockholders must pay income taxes on their dividends.

Ogilvie Corp. issued 32,000 shares of no-par stock for $20 per share. Ogilvie was authorized to issue 55,000 shares. What effect will this event have on the company's financial statements? Increase assets by $1,100,000, increase equity by $1,100,000. Increase assets by $640,000, increase equity by $640,000. Increase cash flow from investing activities by $640,000. None of these answer choices are correct.

Increase assets by $640,000, increase equity by $640,000.

Which of the following is not considered an advantage of the corporate form of business organization? Ability to raise capital. Continuity of existence. Ease of transferability of ownership. Lack of government regulation.

Lack of government regulation.

Which of the following terms designates the maximum number of shares of stock that a corporation may issue? Number of shares issued Number of shares authorized Par value Number of shares outstanding

Number of shares authorized.

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

The right to vote before the common stockholders at the corporation's annual meeting.

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

has little connection to the market value of the stock.