ch.15 IA stockholder's equity-1

32. A "secret reserve" will be created if a. inadequate depreciation is charged to income. b. a capital expenditure is charged to expense. c. liabilities are understated. d. stockholders' equity is overstated.

b. a capital expenditure is charged to expense.

42. Which of the following best describes a possible result of treasury stock transactions by a corporation? a. May increase but not decrease retained earnings. b. May increase net income if the cost method is used. c. May decrease but not increase retained earnings. d. May decrease but not increase net income.

c. May decrease but not increase retained earnings.

29. The accounting problem in a lump sum issuance is the allocation of proceeds between the classes of securities. An acceptable method of allocation is the a. pro forma method. b. proportional method. c. incremental method. d. either the proportional method or the incremental method

d. either the proportional method or the incremental method

33. Which of the following represents the total number of shares that a corporation may issue under the terms of its charter? a. authorized shares b. issued shares c. unissued shares d. outstanding shares

a. authorized shares

43.Which of the following features of preferred stock makes the security more like debt than an equity instrument? a. Participating b. Voting c. Redeemable d. Noncumulative

c. Redeemable

23. The pre-emptive right enables a stockholder to a. share proportionately in any new issues of stock of the same class. b. receive cash dividends before other classes of stock without the pre-emptive right. c. sell capital stock back to the corporation at the option of the stockholder. d. receive the same amount of dividends on a percentage basis as the preferred stockholders.

a. share proportionately in any new issues of stock of the same class.

30. When a corporation issues its capital stock in payment for services, the least appropriate basis for recording the transaction is the a. market value of the services received. b. par value of the shares issued. c. market value of the shares issued. d. Any of these provides an appropriate basis for recording the transaction

b. par value of the shares issued.

24. In a corporate form of business organization, legal capital is best defined as a. the amount of capital the state of incorporation allows the company to accumulate over its existence. b. the par value of all capital stock issued. c. the amount of capital the federal government allows a corporation to generate. d. the total capital raised by a corporation within the limits set by the Securities and Exchange Commission.

b. the par value of all capital stock issued.

37. Treasury shares are a. shares held as an investment by the treasurer of the corporation. b. shares held as an investment of the corporation. c. issued and outstanding shares. d. issued but not outstanding shares

d. issued but not outstanding shares

40. Porter Corp. purchased its own par value stock on January 1, 2012 for $20,000 and debited the treasury stock account for the purchase price. The stock was subsequently sold for $12,000. The $8,000 difference between the cost and sales price should be recorded as a deduction from a.additional paid-in capital to the extent that previous net "gains" from sales of the same class of stock are included therein; otherwise, from retained earnings. b. additional paid-in capital without regard as to whether or not there have been previous net "gains" from sales of the same class of stock included therein. c. retained earnings. d. net income.

a.additional paid-in capital to the extent that previous net "gains" from sales of the same class of stock are included therein; otherwise, from retained earnings.

36. In January 2012, Finley corporation, a newly formed company, issued 10,000 shares of its $10 par common stock for $15 per share. On July 1, 2012, Finley Corporation reacquired 1,000 shares of its outstanding stock for $12 per share. The acquisition of these treasury shares a. decreased total stockholders' equity. b. increased total stockholders' equity. c. did not change total stockholders' equity. d. decreased the number of issued shares.

a. decreased total stockholders' equity.

49.Cash dividends are paid on the basis of the number of shares a. authorized. b. issued. c. outstanding. d. outstanding less the number of treasury shares

c. outstanding.

41. How should a "gain" from the sale of treasury stock be reflected when using the cost method of recording treasury stock transactions? a. As ordinary earnings shown on the income statement. b. As paid-in capital from treasury stock transactions. c. As an increase in the amount shown for common stock. d. As an extraordinary item shown on the income statement.

b. As paid-in capital from treasury stock transactions.

45.According to the FASB, redeemable preferred stock should be a. included with common stock. b. included as a liability. c. excluded from the stockholders' equity heading. d. included as a contra item in stockholders' equity.

b. included as a liability.

31. Direct costs incurred to sell stock such as underwriting costs should be accounted for as 1. a reduction of additional paid-in capital. 2. an expense of the period in which the stock is issued. 3. an intangible asset. a. 1 b. 2 c. 3 d. 1 or 3

a. 1

39. ―Gains" on sales of treasury stock (using the cost method) should be credited to a. paid-in capital from treasury stock. b. capital stock. c. retained earnings. d. other income

a. paid-in capital from treasury stock.

48.An entry is not made on the a. date of declaration. b. date of record. c. date of payment. d. An entry is made on all of these dates.

b. date of record.

35. Which of the following is not a legal restriction related to profit distributions by a corporation? a. The amount distributed to owners must be in compliance with the state laws governing corporations. b. The amount distributed in any one year can never exceed the net income reported for that year. c. Profit distributions must be formally approved by the board of directors. d. Dividends must be in full agreement with the capital stock contracts as to preferences and participation

b. The amount distributed in any one year can never exceed the net income reported for that year.

44.The cumulative feature of preferred stock a. limits the amount of cumulative dividends to the par value of the preferred stock. b. requires that dividends not paid in any year must be made up in a later year before dividends are distributed to common shareholders. c. means that the shareholder can accumulate preferred stock until it is equal to the par value of common stock at which time it can be converted into common stock. d. enables a preferred stockholder to accumulate dividends until they equal the par value of the stock and receive the stock in place of the cash dividends

b. requires that dividends not paid in any year must be made up in a later year before dividends are distributed to common shareholders.

22. The pre-emptive right of a common stockholder is the right to a. share proportionately in corporate assets upon liquidation. b. share proportionately in any new issues of stock of the same class. c. receive cash dividends before they are distributed to preferred stockholders. d. exclude preferred stockholders from voting rights.

b. share proportionately in any new issues of stock of the same class.

47.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. declaration of a stock dividend. c. purchase of treasury stock. d. payment in full of subscribed stock

c. purchase of treasury stock.

50.Which of the following statements about property dividends is not true? a. A property dividend is usually in the form of securities of other companies. b. A property dividend is also called a dividend in kind. c. The accounting for a property dividend should be based on the carrying value (book value) of the nonmonetary assets transferred. d. All of these statements are true

c. The accounting for a property dividend should be based on the carrying value (book value) of the nonmonetary assets transferred.

38. When treasury stock is purchased for more than the par value of the stock and the cost method is used to account for treasury stock, what account(s) should be debited? a. Treasury stock for the par value and paid-in capital in excess of par for the excess of the purchase price over the par value. b. Paid-in capital in excess of par for the purchase price. c. Treasury stock for the purchase price. d. Treasury stock for the par value and retained earnings for the excess of the purchase price over the par value.

c. Treasury stock for the purchase price.

26. Total stockholders' equity represents a. a claim to specific assets contributed by the owners. b. the maximum amount that can be borrowed by the enterprise. c. a claim against a portion of the total assets of an enterprise. d. only the amount of earnings that have been retained in the business.

c. a claim against a portion of the total assets of an enterprise.

46. Cumulative preferred dividends in arrears should be shown in a corporation's balance sheet as a. an increase in current liabilities. b. an increase in stockholders' equity. c. a footnote. d. an increase in current liabilities for the current portion and long-term liabilities for the long-term portion.

c. a footnote.

25. Stockholders of a business enterprise are said to be the residual owners. The term residual owner means that shareholders a. are entitled to a dividend every year in which the business earns a profit. b. have the rights to specific assets of the business. c. bear the ultimate risks and uncertainties and receive the benefits of enterprise ownership. d. can negotiate individual contracts on behalf of the enterprise.

c. bear the ultimate risks and uncertainties and receive the benefits of enterprise ownership.

21. The residual interest in a corporation belongs to the a. management. b. creditors. c. common stockholders. d. preferred stockholders

c. common stockholders.

27. A primary source of stockholders' equity is a. income retained by the corporation. b. appropriated retained earnings. c. contributions by stockholders. d. both income retained by the corporation and contributions by stockholders.

d. both income retained by the corporation and contributions by stockholders.

28. Stockholders' equity is generally classified into two major categories: a. contributed capital and appropriated capital. b. appropriated capital and retained earnings. c. retained earnings and unappropriated capital. d. earned capital and contributed capital.

d. earned capital and contributed capital.

34. Stock that has a fixed per-share amount printed on each stock certificate is called a. stated value stock. b. fixed value stock. c. uniform value stock. d. par value stock

d. par value stock