MGMT 200 Chapter 10

Sharon Textiles Corporation has 1,000 shares of 5%, $100 ($5 per share) par cumulative preferred stock and 25,000 shares of common stock outstanding. Sharon declared no dividends in 2016 and had no dividends in arrears prior to 2016. In 2017, Sharon declares a total dividend of $30,000. How much of the dividends go to the preferred stockholders? A. $ ‐ 0 ‐ B. $15,000 C. $10,000 D. $20,000

C. $10,000 2016 (1,000 shares x $5/share) $ 5,000 2017 (1,000 shares x $5/share) 5,000 Total preferred stock dividends $10,000 Remainder ($20,000) goes to common stockholders

Which of the following transactions affects total retained earnings? A. Purchase of treasury stock B. Payment of previously declared cash dividend C. Declaration of a stock dividend D. Declaration of a stock split

C. Declaration of a stock dividend

Which of the following is ordered from the largest number of shares to the smallest number of shares? A. Shares issued, shares outstanding, shares authorized. B. Shares outstanding, shares issued, shares authorized. C. Shares authorized, shares issued, shares outstanding. D. Shares in treasury, shares outstanding, shares issued.

C. Shares authorized, shares issued, shares outstanding.

What is the effect of a stock dividend on stockholders' equity? A. Assets are decreased. B. Assets are increased C. Total stockholders' equity stays the same. D. Liabilities are increased

C. Total stockholders' equity stays the same.

According to generally accepted accounting principles, treasury stock usually should be recorded at A. market value. B. par value. C. cost. D. net realizable value.

C. cost.

A disadvantage of the corporate form of business is A. centralized authority and responsibility. B. its status as a separate legal entity. C. government regulation. D. continuous existence.

C. government regulation.

Unlike a stock split, a stock dividend requires a formal journal entry in the financial accounting records because stock dividends A. increase the stockholders' equity in the issuing firm. B. are payable on the date they are declared. C. represent a transfer from Retained Earnings to Capital Stock. D. increase the relative book value of an individual's stock holdings.

C. represent a transfer from Retained Earnings to Capital Stock.

San Bruno Corporation's stockholders' equity section shows the par value of its common stock at $.25 and the balance in the common stock account of $50,000. Also, the equity section reflects 15,000 shares of treasury stock. What is the number of shares outstanding? A. 215,000 B. 200,000 C. 50,000 D. 185,000

D. 185,00 # of shares Issued ($50,000/$.25) 200,000 Less treasury shares (15,000) Outstanding shares 185,000

When Allegheny Corporation declares a cash dividend which of the following is true? A. Allegheny's assets are decreased B. Stockholders' equity is increased C. Allegheny's assets are increased D. Liabilities are increase

D. Liabilities are increased Dividends xxx Dividends Payable (liability) xxx

Treasury shares plus outstanding shares equal A. unissued shares. B. available shares. C. authorized shares. D. issued shares.

D. issued shares.

The cumulative preferred stock feature is the right to dividends in arrears before the current dividends are distributed. A. true B. false

A. true

Which of the following events decreases a company's stockholders' equity? A. A payment of a previously declared cash dividend B. A declaration of a $.10 cash dividend per share on preferred stock C. A 5‐for‐4 stock split D. A declaration of a two percent stock dividend

B. A declaration of a $.10 cash dividend per share on preferred stock

The board of directors of Hayne, Inc. declared a $0.50 per share cash dividend on its $1 par common stock. On the date of declaration, there were 100,000 shares authorized, 50,000 shares issued, and 20,000 shares held as treasury stock. What is the entry when the dividends are declared? A. Dividends 25,000 Cash 25,000 B. Dividends 15,000 Dividends Payable 15,000 C. Dividends 25,000 Dividends Payable 25,000 D. Dividends 15,000 Cash 15,000

B. Dividends 15,000 Dividends Payable 15,00 Dividends (50,000 - 20,000) × $.50 = $15,000

Dividends in arrears pertain to noncumulative preferred stock. A. True B. False

B. False

The word preferred in the phrase preferred stock means that an owner of preferred stock has some advantages over a bondholder. A. True B. False

B. False

The balance of the $.50 par value common stock account for Castle Corporation was $200,000 before its recent 2‐for‐1 stock split. The market price of the stock was $40 per share before the stock split. What occurred as a result of the stock split? A. The balance in the retained earnings account decreased. B. The market price of the stock dropped to approximately $20 per share. C. The balance in the common stock account was increased to $400,000 D. The market price of the stock was not affected.

B. The market price of the stock dropped to approximately $20 per share.

Preferred stock is least likely to have which of the following characteristics? A. Preference as to dividends. B. The right of the holder to vote at stockholders' meetings. C. Preference as to assets upon liquidation of the corporation. D. The right of the holder to convert to common stock.

B. The right of the holder to vote at stockholders' meetings.

The purchase of treasury stock will result in A. no net changes in assets, liabilities, or stockholders' equity. B. a decrease in assets and a decrease in stockholders' equity. C. an increase in assets and an increase in liabilities. D. an increase in assets and an increase in stockholders' equity.

B. a decrease in assets and a decrease in stockholders' equity.

At the date of the financial statements, common stock shares issued would exceed common stock shares outstanding as a result of the A. declaration of a stock split. B. purchase of treasury stock. C. declaration of a small stock dividend. D. declaration of a large stock dividend

B. purchase of treasury stock.

When a company purchases treasury shares at $10,000 and then sells the shares at $8,000, the difference of $2,000 A. is recorded as a loss on the income statement. B. reduces stockholders' equity. C. increases stockholders' equity. D. is recorded as a gain on the income statement.

B. reduces stockholders' equity

When a corporation is formed what document are filed with the state jurisdiction? a) Articles of incorporation & by‐laws b) State entity registration form & common stock certificate form c) Articles of incorporation & common stock certificate form d) By‐laws & state entity registration form

a) Articles of incorporation & by‐laws

Kensal Green Corporation issued 500 shares of $100 par value preferred stock for $500 per share. What is true about the journal entry to record the issuance? a. Credit Preferred Stock $50,000 b. Credit Cash $250,000 c. Credit Preferred Stock $250,000 d. Debit Additional Paid‐In Capital $200,000

a. Credit Preferred Stock $50,000 Cash (500 shs. x $500) 250,000 Stock ($100 par value x 500 shs.) 50,000 Additional Paid‐in Capital (difference) 200,000

The issuer of a 3% common stock dividend to common stockholders should debit stock dividends for an amount equal to the a. Fair or market value of the shares issued. b. Book value of the shares issued. c. Par or stated value of the shares issued. d. Minimum legal requirements.

a. Fair or market value of the shares issued.

Meadows Racetrack, Inc. issues 1,000 shares of $1 par value common stock for $20 per share, what would be the effect on the accounting equation? a. Increase assets and increase stockholders' equity b. Increase assets and increase liabilities c. Increase assets and increase revenue d. Increase assets and decrease stockholders' equity

a. Increase assets and increase stockholders' equity Increase assets Cash 20,000 Increase equity Common Stock 1,000 Additional Paid‐in Capital 19,000

Large stock dividends and stock splits are issued primarily to a. Lower the trading price of the stock per share b. Increase the number of authorized shares c. Increase legal capital d. Increase the number of outstanding shares

a. Lower the trading price of the stock per share

The issuer of a 100% common stock dividend (large stock dividend) to common stockholders should debit stock dividends for an amount equal to the a. Par value of the shares issued b. Book value of the shares issued c. Market value of the shares issued d. Minimum legal requirements

a. Par value of the shares issued

Funston Corporation's board of directors declared a cash dividend of $1.00 per share on 50,000 shares of common stock on April 1, 2016. The dividend is to be paid on April 30, 2016, to shareholders of record on April 15, 2016. The effects of the entry to record the declaration of the dividend on April 1, 2016, are to a. decrease stockholders' equity and increase liabilities. b. decrease stockholders' equity and decrease assets. c. increase stockholders' equity and decrease assets. d. increase stockholders' equity and increase liabilities.

a. decrease stockholders' equity and increase liabilities Dividends (reduce R/E or equity) xxx Dividends Payable (liabilities) xxx

Contributed capital is the amount stockholders have invested in the company. a. true b. false

a. true (external funds)

Clifton Gardens, Inc. was organized on January 1, 2017. The firm was authorized to issue 100,000 shares of $1 par value common stock. During 2017, Clifton Gardens had the following transactions relating to shareholders' equity: Issued 10,000 shares of common stock at $7 per share. Issued 5,000 shares of common stock at $8 per share. Reported a net income of $200,000. Paid dividends of $20,000. What is the total amount recorded in the Common Stock account at the end of 2017? a) $110,000 b) $ 15,000 c) $310,000 d) $290,000

b) $ 15,000 Issued 10,000 shares of common stock at $7 per share. Issued 5,000 shares of common stock at $8 per share. 10,000 shares × $1/par value = $10,000 5,000 shares × $1/par value = 5,000 Total = $15,000

Stock splits and large stock dividends have the same effect on a company's retained earnings and total stockholders' equity a) True b) False

b) False large stock dividend reduces R/E by the par value of the stock

On June 30, 2017, when Cotswolds, Inc.'s common stock was selling at $50 per share, its capital accounts were as follows: Common stock (par value $1; 50,000 shares issued) = $50,000 Additional Paid‐in Capital = $ 200,000 Retained earnings = $4,000,000 If a 10% stock dividend was declared and distributed, Additional Paid‐in Capital would be a. $200,000 b. $445,000 c. $205,000 d. $225,000

b. $445,000 Debit = Dividends (5,000 shares x $50/market value) = 250,000 Credit = Common Stock (5,000 shares x $1 par value) = 5,000 Credit = Additional Paid‐in Capital (difference) = 245,000 ($200,000 + $245,000) Additional Paid‐in Capital = $ 200,000 Credit = Additional Paid‐in Capital (difference) = 245,000

Bampton Corporation issued 15,000 shares of $1 par value stock for $20 per share. What is true about the journal entry to record the issuance? a. Credit Common Stock $300,000 b. Credit Common Stock $15,000 c. Credit Cash $300,000 d. Debit Additional Paid‐In Capital $285,000

b. Credit Common Stock $15,000 Cash (15,000 shs. X $20) 300,000 Common Stock ($1 par value x 15,000) 15,000 Additional Paid‐in Capital (difference) 285,000

Officers of a company are elected by a vote of the shareholders. a. true b. false

b. false Board of directors appoints the CEO CEO appoints other corporate officers

The Golden, Inc. issues 1,000 shares of 3%, $100 par value preferred stock at the beginning of 2017. All remaining shares are common stock. Golden was not able to pay dividends in 2017, but plans to pay dividends of $10,000 in 2018. Assuming the preferred stock is noncumulative, how much of the $10,000 dividend will be paid to preferred stockholders and how much will be paid to common stockholders in 2018? a. $10,000 to preferred stockholders and $0 to common stockholders. b. $6,000 to preferred stockholders and $4,000 to common stockholders c. $3,000 to preferred stockholders and $7,000 to common stockholders. d. none to preferred stockholders and $10,000 to common stockholders

c. $3,000 to preferred stockholders and $7,000 to common stockholders. $3 dividend/share x 1,000 shares = $3,000 Noncumulative Preferred Stock Preferred dividends from 2017 are lost = $0 Preferred dividends for 2018 (1,000 shares × $3 per share) = 3,000 Remaining dividends to common stockholders = 7,000 Total dividends available = $10,000

Hillsborough Inc. sold treasury stock at a price above cost: a. A loss is reported b. A revenue account is credited c. Additional Paid‐in Capital is increased d. A gain account is credited

c. Additional Paid‐in Capital is increase Cash ($ Amount Received)) xxx Additional Paid‐in Capital (Gain) xxx Treasury Stock (Basis) xxx

The par value of shares issued is normally recorded in the a. Additional Paid‐in Capital account. b. Retained Earnings account. c. Common Stock account. d. asset account Common Stock.

c. Common Stock account.

Charring Cross, Inc. issued 5,000 shares of $1 par value stock for $5 per share. What is true about the journal entry to record the issuance? a. Credit Cash $25,000 b. Credit Common Stock $25,000 c. Credit Additional Paid‐In Capital $20,000 d. Credit Common Stock $25,000

c. Credit Additional Paid‐In Capital $20,000 Cash (5,000 shs. x $5) 25,000 Common Stock ($1 par value x 5,000 shs. 5,000 Additional Paid‐in Capital (difference) 20,000

A feature common to both stock splits and stock dividends is a) a transfer to earned capital of a corporation b) an increase in total liabilities of a corporation c) a reduction in the contributed capital of a corporation d) that there is no effect on total stockholders' equity

d) that there is no effect on total stockholders' equity

On March 1, Cambridge Corp. acquired 1,000 shares of its $1 par value common stock for $20 each. On December 1, Cambridge reissued 500 shares for $18 each. Which of the following is correct regarding the journal entry for the reissued shares? a. Credit Cash $9,000 b. Debit Treasury Stock $9,000 c. Debit Additional Paid‐in Capital $10,000 d. Credit Treasury Stock $10,00

d. Credit Treasury Stock $10,00 Debit = Cash (500 shares × $18) 9,000 Debit = Additional Paid‐in Capital (500 shares x $2 loss) 1,000 Credit = Treasury Stock (500 shares × $20 stock basis) 10,000

All publicly held corporations are regulated by what government organization? a. The Financial Accounting Standards Board b. The Commission on Accounting Procedures c. The Accounting Principles Board d. The Securities and Exchange Commission

d. The Securities and Exchange Commission

Outstanding common stock refers to the total number of shares a. authorized. b. issued plus treasury stock. c. issued d. issued less treasury stock.

d. issued less treasury stock.