Chapter 11

Lox, Stock and Bagel, Inc. issued 50,000 shares of the 100,000 authorized. It has since repurchased 5,000 of its shares. The number of shares outstanding equals ________ shares a) 95,000 b) 55,000 c) 50,000 d) 45,000 e) 105,000

d) 45,000

Common stock's par value is _______ a) an insignificant amount specified in the corporate charter b) the same as a bond's par value c) the same as the common stock's market price d) the common stock's average price

a) an insignificant amount specified in the corporate charter

Why would an investor buy stock in another company? (Check all that apply) a) to receive dividends b) to receive interest c) to sell the stock for more than it cost d) to receive principal when the stock matures

a) to receive dividends c) to sell the stock for more than it cost

Atomic, Inc. had 10,000 shares of $1 par value common stock outstanding prior to a 2-for-1 stock split. As a result of the stock split ____ a) the common stock balance doubles b) 5,000 shares are outstanding with a $2 par value c) 20,000 shares are outstanding with a $0.50 par value d) the journal entry includes a debit to Common Stock for $10,000 e) the number of shares authorized is halved

c) 20,000 shares are outstanding with a $0.50 par value

Ownership structure can vary from one company to another, but the most basic form of corporation offers _______ a) preferred stock b) treasury stock c) common stock d) net income

c) common stock

Preferred stockholders ________ a) have the right to receive dividends only if there are enough dividends to pay the common stockholders too b) have the right to receive dividends only in the years the board of directors declares dividends c) must receive dividends every year d) must receive more dividends per share than the common stockholders

b) have the right to receive dividends only in the years the board of directors declares dividends

A current dividend preference requires that ______ a) preferred dividends be paid before paying any interest to creditors b) preferred dividends must be paid before any dividends are paid to common stockholders c) the preferred stockholders who have held the shares longest must be paid before those who more recently acquired preferred stock

b) preferred dividends must be paid before any dividends are paid to common stockholders

X-Co issued 1,000 shares of its 5%, $100 par value, cumulative preferred stock for $100 cash per share. The journal entry to record this event includes a ______ (Check all that apply) a) $95,000 credit to Additional Paid-in Capital - Preferred b) $5,000 credit to Preferred Stock c) $100,000 credit to Preferred Stock d) $100,000 debit to Cash

c) $100,000 credit to Preferred Stock d) $100,000 debit to Cash

Ownership structure can vary from one company to another, but the most basic form of corporation offers ________ a) treasury stock b) net income c) preferred stock d) common stock

d) common stock

When a company repurchases its own securities, the stock is recorded in which account? a) investments b) trading securities c) common stock d) treasury stock

d) treasury stock

An IPO stands for a(n) _________ _________ offering

initial; public

True or false: A corporation is owned by creditors a) true b) false

b) false

Which of the following are included in Accumulated Other Comprehensive Income but are not included in Net Income on the income statement? (Check all that apply) a) certain unrealized holding gains or losses b) foreign currency translation gains or losses c) gains or losses on sale of equipment d) depreciation expense

a) certain unrealized holding gains or losses b) foreign currency translation gains or losses

Wyanot Company issued 1,000 shares of its 5%, $100 par value, cumulative preferred stock for $110 cash per share. The journal entry to record this transaction includes a ______ (Check all that apply) a) $5,000 credit to Preferred Stock b) $100,000 credit to Preferred Stock c) $10,000 credit to Additional Paid-in Capital - Preferred d) $110,000 debit to Cash e) $100,000 debit to Cash

b) $100,000 credit to Preferred Stock c) $10,000 credit to Additional Paid-in Capital - Preferred d) $110,000 debit to Cash

Wok N Roll, Inc. began on January 1, Year 1 by issuing 100,000 shares of $1 par value common stock and 1,000 shares of $100 par value, 5%, cumulative preferred stock. No dividends were declared in Year 1 or Year 2. In Year 3, Wok N Roll declared and paid a $0.50 dividend to its common stockholders. Assuming all shares originally issued are outstanding, the total dividend declared and paid in Year 3 equals _________ a) $50,500 b) $65,000 c) $50,000 d) $55,000

b) $65,000

Just In Thyme, Inc. has the following December 31 equity balances: Common Stock of $20,000; Additional Paid-in Capital of $30,000; and Retained Earnings of $50,000. If Just In Thyme repurchases $10,000 of its stock, the total stockholders' equity balance would equal ______ a) $110,000 b) $90,000 c) $60,000 d) $40,000

b) $90,000

Stockable, Inc. began business on January 1 by issuing 100,000 shares of $1 par value common stock and 1,000 shares of 6%, noncumulative, $100 par value preferred stock. No dividends were declared in the first year of operations. In the second year of operations, Stockable declared and paid a $0.50 dividend to its common stockholders. Which of the following is true? a) If there are enough dividends remaining after the common stockholders receive $0.50 per share, the preferred stockholders will be paid b) Stockable, Inc. has no legal obligation to pay a dividend to preferred stockholders in the first year of operations c) a liability for dividends owed to preferred stockholders must be recorded in the first year of operations

b) Stockable, Inc. has no legal obligation to pay a dividend to preferred stockholders in the first year of operations

Common stock's par value is _______ a) the same as a bond's par value b) an insignificant amount specified in the corporate charter c) the same as the common stock's market price d) the common stock's average price

b) an insignificant amount specified in the corporate charter

Preferred stock generally ________ voting rights and ______ preference to dividends a) has; does not have b) does not have; has c) does not have; does not have d) has; has

b) does not have; has

An IPO _______ (Check all that apply) a) stands for issued private options b) stands for initial public offering c) stands for independent public obligations d) is when a private company goes public

b) stands for initial public offering d) is when a private company goes public

Treasury stock is reported in the ____ a) financing section of the income statement b) stockholders' equity section of the balance sheet c) contra-asset section of the balance sheet d) operating section of the income statement e) liability section of the balance sheet

b) stockholders' equity section of the balance sheet

What are the benefits of common stock? (Check all that apply) a) the right to be hired first if the company has any new job openings b) voting rights c) the right to receive dividends if they are declared d) veto rights over day-to-day corporate decisions

b) voting rights c) the right to receive dividends if they are declared

A corporation's board of directors could prefer a stock split to a stock dividend because a stock split ______ a) reduces retained earnings, so the company pays less taxes b) increases the market price of the stock c) increases total stockholders' equity and allows the corporation more flexibility d) does not reduce retained earnings, so it does not reduce the ability to declare a cash dividend in the future

d) does not reduce retained earnings, so it does not reduce the ability to declare a cash dividend in the future

Investors earn a return on stock investments by ________ (Check all that apply) a) receiving a principal amount greater than the cost b) buying the stock at the lower of cost or market c) receiving interest d) receiving dividends e) selling the stock for more than its cost

d) receiving dividends e) selling the stock for more than its cost

Vests, Inc. has 1,000 shares of 5%, par $100 preferred stock and 10,000 shares of $1 par value common stock outstanding. If the common stockholders received $2 per share in dividends, then the preferred stock dividend was ______ per share a) $100 b) $1 c) $5 d) $2

c) $5

Common stock's par value _________ (Check all that apply) a) affects how common stock is recorded b) was introduced to prevent bankrupt companies from unfairly distributing company resources c) equals the amount of cash contributed by shareholders d) has become less meaningful because states use other means to prevent stockholders from removing capital from financially distressed companies

a) affects how common stock is recorded b) was introduced to prevent bankrupt companies from unfairly distributing company resources d) has become less meaningful because states use other means to prevent stockholders from removing capital from financially distressed companies

Which of the following accounts are classified as stockholders' equity? (Check all that apply) a) common stock b) retained earnings c) paid-in capital d) investments in securities

a) common stock b) retained earnings c) paid-in capital

When a corporation distributes assets of the company to its investors, it is referred to as a(n) _____ a) dividend b) warrant c) option d) expense

a) dividend

Preferred stock _____ (Check all that apply) a) generally does not have voting rights b) has preference as to dividends c) must be issued before any common stock is issued d) is useful for raising capital without reducing common stockholders' control

a) generally does not have voting rights b) has preference as to dividends d) is useful for raising capital without reducing common stockholders' control

Treasury stock _______ (Check all that apply) a) has a negative equity balance b) is the number of shares authorized minus the number of shares issued c) is a contra-equity account d) is a stock that is no longer outstanding

a) has a negative equity balance c) is a contra-equity account d) is a stock that is no longer outstanding

Issuing 1,000 shares of 5%, $100 par value, cumulative preferred stock for $110 in cash per share affects the accounting equation by ______ (Check all that apply) a) increasing total stockholders' equity b) increasing total liabilities c) decreasing total stockholders' equity d) increasing total assets e) increasing Retained Earnings f) increasing Additional Paid-in Capital

a) increasing total stockholders' equity d) increasing total assets f) increasing Additional Paid-in Capital

Issuing 1,000 shares of 5%, $100 par value, cumulative preferred stock for $100 cash per share affects the accounting equation by _____ (Check all that apply) a) increasing total stockholders' equity b) decreasing total stockholders' equity c) increasing total liabilties d) increasing Retained Earnings e) increasing Additional Paid-in Capital f) increasing total assets

a) increasing total stockholders' equity f) increasing total assets

The number of shares outstanding equals the number of shares ______ a) issued minus the number of shares in the treasury b) authorized plus the number of shares issued c) issued plus the number of shares in the treasury d) authorized minus the number of shares issued

a) issued minus the number of shares in the treasury

Par value is also referred to as _____ a) legal capital b) retained earnings c) additional paid-in capital

a) legal capital

The purpose of the statement of stockholders' equity is to _________ a) report the changes and the sources of the changes of shareholder equity accounts b) reconcile the balance sheet with the statement of cash flows c) reconcile net income with taxable income and retained earnings d) report the additional expenses of the company that were not accrued during the year

a) report the changes and the sources of the changes of shareholder equity accounts

The number of shares issued represents the number of shares ________ a) sold b) sold less repurchased c) repurchased d) the company is allowed to sell

a) sold

Which of the following receive dividends if declared? a) stockholders b) both stockholders and creditors c) creditors

a) stockholders

Investors who acquire preferred stock _____ (Check all that apply) a) that is cumulative have the right to receive dividends in arrears once dividends are declared b) generally do not have voting rights c) will receive more dividends than common stockholders d) have preference over creditors e) have preference as to dividends

a) that is cumulative have the right to receive dividends in arrears once dividends are declared b) generally do not have voting rights e) have preference as to dividends

True or false: Certain unrealized holding gains or losses and foreign currency translation gains or losses are included in Accumulated Other Comprehensive Income but are not included in Net Income on the income statement. a) true b) false

a) true

Which of the following are typical benefits to being a shareholder? (Check all that apply) a) voting rights b) interest c) dividends d) principal e) residual claim

a) voting rights c) dividends e) residual claim

The effect on the accounting equation of reissuing treasury stock causes total _____ (Check all that apply) a) assets to decrease b) assets to increase c) stockholders' equity to decrease d) liabilities to decrease e) stockholders' equity to increase f) liabilities to increase

b) assets to increase e) stockholders' equity to increase

True or false: When a stockholder sells its stock in Optimeyes, Inc. to another investor on a secondary stock exchange at a price higher than originally paid, the stockholders' equity section of Optimeyes increases a) true b) false

b) false

On January 1, Year 1, Bank & Rupp, Inc. issued 100,000 shares of $1 par value common stock and 1,000 shares of $50 par value, 6%, cumulative preferred stock. No dividends were declared in Year 1. In Year 2, Bank & Rupp declared and paid a $1 dividend to its common stockholders. Assuming all shares originally issued are outstanding, the total dividend paid to the preferred stockholders equals _______ a) $2,000 b) $3,000 c) $6,000 d) $1,000

c) $6,000

Vests, Inc. has 1,000 shares of 5%, par $100, non-cumulative preferred stock and 10,000 shares of $1 par value common stock outstanding. Vests declared a $12,500 dividend. How much of the dividend is allocated to the preferred and common shares? (Check all that apply) a) $12,500 is allocated to the preferred stock b) $0 is allocated to the common stock c) $7,500 is allocated to the common stock d) $11,250 is allocated to the preferred stock e) $5,000 is allocated to the preferred stock f) $1,250 is allocated to the preferred stock

c) $7,500 is allocated to the common stock e) $5,000 is allocated to the preferred stock

In an IPO of shares, Timmy Hilfigure purchased 1,000 shares of Abner Crummie, Inc. for $5,000. Eight years later, Timmy Hilfigure sold the 1,000 shares for $8,000 to Ralph Loring. How does the sale from Timmy to Ralph impact Abner? a) Abner Crummie, Inc. will record a $3,000 loss b) Abner Crummie, Inc. will record a decrease in Cash of $8,000 c) Abner Crummie, Inc. will not be directly affected by this transaction d) Abner Crummie, Inc. will record a $3,000 gain

c) Abner Crummie, Inc. will not be directly affected by this transaction

T-balls, Inc. bought 1,000 shares of its own stock for $11 per share. Later it reissued all 1,000 shares for $10 per share. The effect of reissuing the treasury stock includes a(n) ______. (Check all that apply) a) increase in total stockholders' equity of $11,000 b) increase in retained earnings of $1,000 c) increase in total assets of $10,000 d) decrease in additional paid-in capital of $1,000

c) increase in total assets of $10,000 d) decrease in additional paid-in capital of $1,000

When a shareholder of Limited, Inc. sells its shares to another investor on the stock exchange, Limited, Inc.'s accounting equation _________ a) is not affected because of the cost principle b) will show an increase in total assets and total stockholders' equity c) is not affected because the corporation is separate from its owners d) will show a decrease in total assets and total stockholders' equity

c) is not affected because the corporation is separate from its owners

After a 3-for-1 stock split, the par value of each stock is ________ the par value prior to the split. a) the same as b) 3 times c) one third

c) one third

Atomic, Inc. had 10,000 shares authorized, and 10,000 shares issued and outstanding of its $2 par value common stock. At December 31, Common Stock equaled $20,000 and total stockholders; equity equaled $100,000 prior to a 2-for-1 stock split. As a result of a 2-for-1 stock split, _______ (Check all that apply) a) par value equals $4 b) the number of shares outstanding equals 5,000 c) the number of shares outstanding equals 2,000 d) the Common Stock equals $20,000 e) par value equals $1 f) stockholders' equity equals $100,000

c) the number of shares outstanding equals 2,000 d) the Common Stock equals $20,000 e) par value equals $1 f) stockholders' equity equals $100,000

A distribution of a company's accumulated prior earnings is a(n) ___________

dividend