Accounting

Preferred Stock

Liquidation Preference Denial of Voting Rights Dividend Preference Value mainly derived from dividend payments

Harvey Corporation shows the following in the stockholders' equity section of its balance sheet: The par value of its common stock is $0.25 and the total balance in the Common Stock account is $50,000. Also noted is that 15,000 shares are currently designated as treasury stock. The number of shares outstanding is: a. 185,000. b. 196,250. c. 200,000. d. 215,000.

a. 185,000.

McKean Corporation authorized 1,000,000 shares of common stock in its articles of incorporation. On May 1, 2013, 400,000 shares were sold to the company's founders. However, on October 15, 2013, McKean repurchased 32,000 shares to settle a dispute among the founders. At this date, how many shares were outstanding? a. 568,000 b. 368,000 c. 432,000 d. 400,000

b. 368,000

Which of the following should be considered when a company decides to declare a cash dividend on common stock? a. the retained earnings balance only b. the cash available and the retained earnings balance c. the amount of authorized shares of common stock d. the book value of the company's stock

b. the cash available and the retained earnings balance

Ames Corporation repurchases 10,000 shares of its common stock for $12 per share. The shares were originally issued at an average price of $10 per share. Later it resells 6,000 of the shares for $15 per share and the remaining 4,000 shares for $17 per share. How much gain or loss should Ames report on its income statement as a result of these transactions? a. $38,000 gain b. $20,000 loss and $38,000 gain c. $0 d. $20,000 loss

c. $0

When a company declares a cash dividend, which of the following is true? a. Assets are decreased. b. Assets are increased. c. Stockholders' equity is increased. d. Liabilities are increased.

d. Liabilities are increased.

Which of the following is not a component of stockholders' equity? a. dividends b. sales revenue c. cost of goods sold d. cash dividends payable

d. cash dividends payable

The board of directors for a company has arrived at the following conclusions: 1. The market price for shares of its stock is becoming prohibitively high. 2. The board wishes to reduce the stock price. 3. The CEO insists that the tax burden on current shareholders be minimized. Given this information, what is the best course of action for the company to take?

Issue a stock dividend

Common Stock

Voting Rights Residual Claim in liquidation Value mainly derived from corporate performance

If a company purchases treasury stock for $6,000 and then reissues it for $5,000, the difference of $1,000 is: a. a decrease in stockholders' equity. b. a gain in stockholders' equity. c. treated as a loss on the sale. d. treated as a gain on the sale

a. a decrease in stockholders' equity.

With regard to preferred stock, a. its stockholders may have the right to participate, along with common stockholders, if an extra dividend is declared. b. its issuance provides no flexibility to the issuing company because its terms always require mandatory dividend payments. c. no dividends are expected by the stockholders. d. there is a legal requirement for a corporation to declare a dividend on preferred stock.

a. its stockholders may have the right to participate, along with common stockholders, if an extra dividend is declared.

Which of the following statements is true? a. The outstanding number of shares is the maximum number of shares that can be issued by a corporation. b. The shares that have been bought back by the company are called treasury stock. c. It is very unlikely that large corporations will have more than one class of stock outstanding. d. Preferred stock is stock that has been retired.

b. The shares that have been bought back by the company are called treasury stock.

Which of the following should be considered when a company decides to declare a cash dividend on common stock? a. the retained earnings balance only b. the cash available and the retained earnings balance c. the amount of authorized shares of common stock d. the book value of the company's stock

b. the cash available and the retained earnings balance

RVR Enterprises shows net income of $100,000 for 2013 and retained earnings of $500,000 on its December 31, 2013 balance sheet. During the year, RVR declared and paid $60,000 in dividends. What was RVR's retained earnings balance at December 31, 2012? a. $400,000 b. $440,000 c. $460,000 d. $540,000

c. $460,000

When a company purchases treasury stock, which of the following statements is true? a. Dividends continue to be paid on the treasury stock. b. It is no longer considered to be issued. c. The cost of the treasury stock reduces stockholders' equity. d. Treasury stock is considered to be an asset because cash is paid for the stock.

c. The cost of the treasury stock reduces stockholders' equity.

A company would repurchase its own stock for all of the following reasons except: a. it wishes to prevent unwanted takeover attempts. b. it wishes to increase the earnings per share. c. it believes the stock is overvalued. d. it needs the stock for employee bonuses.

c. it believes the stock is overvalued

Authorized stock represents the a. number of shares that were part of the company's IPO. b. number of shares that have been sold. c. number of shares that have been repurchased by the corporation. d. number of shares authorized by the board of directors

d. number of shares authorized by the board of directors

When a company declares a 3-for-1 stock split, the number of outstanding shares: a. is reduced by one-third. b. is reduced by one-third and the number of issued shares is tripled. c. stays the same, but the number of issued shares triples. d. triples.

d. triples.