ACCT203 Chapter 10 Multiple Choice Questions

When a company declares a 3-for-1 stock split, the number of outstanding shares:

triples.

Which of the following should be considered when a company decides to declare a cash dividend on common stock?

the cash available and the retained earnings balance

As a result of a stock split,

the par value of the stock is changed in the reverse proportion as the stock split.

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?

$0

Shea Company has 100,000 shares of 6%, $50 par value, cumulative preferred stock. In 2018, no dividends were declared on preferred stock. In 2019, Shea had a profitable year and decided to pay dividends to stockholders of both preferred and common stock. If they have $750,000 available for dividends in 2019, how much could it pay to the common stockholders?

$150,000

RVR Enterprises shows net income of $100,000 for 2019 and retained earnings of $500,000 on its December 31, 2019 balance sheet. During the year, RVR declared and paid $60,000 in dividends. What was RVR's retained earnings balance at December 31, 2018?

$460,000

Garner Corporation issued $50,000 in common stock dividends. Its net income for the year was $250,000. What is Garner's dividend payout ratio?

0.2

McKean Corporation authorized 500,000 shares of common stock in its articles of incorporation. On May 1, 2019, 100,000 shares were sold to the company's founders. However, on October 15, 2019, McKean repurchased 20,000 shares to settle a dispute among the founders. At this date, how many shares were issued and outstanding, respectively?

100,000 and 80,000

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:

185,000

What is the effect of a stock dividend on stockholders' equity?

Total stockholders' equity stays the same.

Thornwood Partners began business on January 1, 2019. The corporate charter authorized issuance of 75,000 shares of $1 par value common stock and 8,000 shares of $3 par value, 10% cumulative preferred stock. On July 1, Thornwood issued 20,000 shares of common stock in exchange for 2 years' rent on a retail location. The cash rental price is $3,000 per month, and the rental period begins on July 1. What is the correct entry to record the July 1 transaction?

Debit to Prepaid Rent, $72,000; credit to Common Stock, $20,000; credit to Additional Paid-In Capital—Common Stock, $52,000

When a company declares a cash dividend, which of the following is true?

Liabilities are increased.

When a company purchases treasury stock, which of the following statements is true?

The cost of the treasury stock reduces stockholders' equity.

The balance of the $2.50 par value Common Stock account for Patriot Company was $240,000,000 before its recent 2-for-1 stock split. The market price of the stock was $50 per share before the stock split. What occurred as a result of the stock split?

The market price of the stock dropped to approximately $25 per share.

Which of the following statements is true?

The shares that are in the hands of the stockholders are said to be outstanding.

If a company purchases treasury stock for $6,000 and then reissues it for $5,000, the difference of $1,000 is:

a decrease in stockholders' equity.

When a company retires its own common stock, the company must:

decrease the Common Stock account balances by the original issue price.

Which of the following is not a component of stockholders' equity?

dividends payable

FASB's concept of comprehensive income:

excludes the payment of dividends.

Comprehensive income:

includes transactions that affect stockholders' equity with the exception of those transactions that involve owners.

DAE Parts Shop began business on January 1, 2019. The corporate charter authorized issuance of 20,000 shares of $5 par value common stock and 5,000 shares of $10 par value, 5% cumulative preferred stock. DAE issued 12,000 shares of common stock at $25 per share on January 2, 2019. What effect does the entry to record the issuance of stock have on total stockholders' equity?

increase of $300,000

A company would repurchase its own stock for all of the following reasons except:

it believes the stock is overvalued.

With regard to preferred stock,

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

Authorized stock represents the:

maximum number of shares that can be issued.