Chapter 11 ACCT Review
9. (LO7) There are two classifications within paid-in capital: ________________ _______________ and __________________________.
1. Capital Stock 2. Additional paid-in capital
5. (LO4) _________________________ stockholders have the right to receive dividends before _________________________ stockholders do.
1. Preferred 2. Common
The board of directors of a corporation declares a 5% stock dividend while there are 20,000 shares of $10 par value common stock outstanding. On this day the fair market value of the stock is $40 per share. The journal entry to declare the stock dividend includes a:
Answer: Dr. Stock Dividends $40,000 Cr. Common Stock Div. Distr. $10,000 Cr. Paid-in Capital in Excess of P.V. $30,000 (Solution) 1. 20,000 x 5% = 1,000 new shares 2. Stock Dividends = 1,000 x $40 fair market value ($40,000) 3. C.S. Div. Distr.= 1,000 x $10 par value ($10,000) 4. Paid-in Capital= $40,000 - $10,000
A retained earnings restriction: a. makes a portion of the balance of retained earnings unavailable for dividends. b. may arise from legal, contractual, or voluntary causes. c. generally is disclosed in the notes to the financial statements. d. All of the above are correct.
Answer: All of the above
Which of the following statements is incorrect? a. Dividends cannot be paid on common stock while any dividend on preferred stock is in arrears. b. Dividends in arrears on preferred are not considered a liability. c. Dividends may be paid on common stock while dividends are in arrears on preferred stock. d. When preferred stock is noncumulative, any dividend passed in a year is lost forever.
Answer: C
A corporation has 100,000 outstanding shares of $5 par value common stock with a fair market value of $80 per share. If the board of directors declares a 2- for-1 stock split, then the number of shares outstanding doubles:
Answer: the par value decreases to $2.50, and the fair market value decreases to $40. (Solution) With a 2-for-1 stock split, the par value and fair market value of the stock are both reduced by half.
2. (LO1) The amount of stock that a corporation is permitted to sell, as listed in the corporate charter, is called _________________________ stock.
Authorized
A corporation has declared a $.50 per share cash dividend on its outstanding 200,000 shares of common stock. The journal entry on the date of declaration of the dividend includes a credit to:
Cr. Dividends Payable $100,000
If a corporation has incurred a net loss, then the loss is:
Debited to Retained Earnings in a closing entry.
8. (LO6) A debit balance in the Retained Earnings account is called a ________________.
Deficit
A corporation issues 5,000 shares of its $2.00 par value common stock for $10.00 per share. Under IFRS, the journal entry to record the issuance will include a:
Journal Entry: Dr. Cash $50,000 Cr. Share Capital $10,000 Cr. Share Premium $40,000 Answer: Credit to Share Capital for $10,000
(Use the information in number 21) The journal entry on the date of distribution of the stock dividend includes a:
Journal Entry: Dr. Common Stock Div. Distributable $10,000 Cr. Common Stock $10,000
If 3,000 shares of $5 par value common stock are sold for $6 per share then the, journal entry includes a:
Journal Entry: Dr. Cash $18,000 Cr. Common Stock $15,000 Cr. Paid-in Capital in Excess of P.V. $3,000 Answer: Credit to Common Stock for $15,000
A corporation has declared a $1.00 per share cash dividend on its outstanding 500,000 shares of common stock. The journal entry on the date of payment of the dividend includes a debit to:
Journal Entry: Dr. Dividends Payable $500,000 Cr. Cash $500,000 Answer: Dividends Payable at $500,000
A corporation sold 1,000 shares of its $2.00 par value common stock for $10.00 per share and later repurchased 100 of those shares for $12.00 per share. The journal entry for the repurchase includes a debit to:
Journal Entry: Dr. Treasury Stock $1,200 Cr. Cash $1,200 Answer: Treasury stock at $1,200 (100 x $12) = $1,200
The amount per share of stock that must be retained in the business for the protection of corporate creditors is called:
Legal Capital
3.(LO2) The issuance of common stock affects only _________________________ _________________________ accounts in stockholders' equity.
Paid-in capital
Capital stock that has been assigned a value per share in the corporate charter is called:
Par Value stock
10. (LO8) Cash dividends declared on common stock divided by net income yields the _________________________.
Payout Ratio
1. (LO1) A _______________________ _______________________ corporation may have thousands of stockholders, and its stock is traded on a national securities market.
Publicly held
6. (LO5) For dividend purposes, a corporation determines ownership of outstanding shares of stock on the date of _________________________.
Record
7. (LO5) A _________________________ stock dividend occurs when new shares to be issued are less than 20%-25% of the outstanding shares.
Small
A corporation has cumulative preferred stock on which it pays dividends of $20,000 per year. The dividends are in arrears for two years. If the corporation has in the current year $90,000 available for dividends, then the common stockholders will receive:
Solution: Preferred stock receives $60,000 ($20,000 x 2 = $40,000 + $20,000 = $60,000) Common receives $30,000 ($90,000 - $60,000 = $30,000) Answer: $30,000
If the Common Stock account has a balance of $20,000, the Paid-in Capital in Excess of Par Value account has a balance of $3,000, Retained Earnings has a balance of $40,000, and Treasury Stock has a balance of $1,000, then total stockholders' equity is:
Solution: $20,000 + $3,000 + $40,000 - $1,000 = $62,000
Total stockholders equity is $120,000. If the Common Stock account has a balance of $30,000, the Paid-in Capital in Excess of Par Value account has a balance of $5,000, and Retained Earnings has a balance of $100,000, then Treasury Stock must be:
Solution: $30,000 + $5,000 + $100,000 - $120,000 = $15,000
A corporation shows the following account balances: Retained Earnings $300,000 Treasury Stock $10,000 Common Stock Dividends Distributable $20,000 Paid-in Capital in Excess of Par Value $55,000 Common Stock $200,000 What is total stockholders' equity?
Solution: $300,000 - $10,000 + $20,000 + $55,000 + $200,000 = $565,000
If the Common Stock account has a balance of $20,000, the Paid-in Capital in Excess of Par Value account has a balance of $3,000, and Retained Earnings has a balance of $40,000, then total stockholders' equity is:
Solution: $20,000 + $3,000 + $40,000 = $63,000
Consider the following date for the company: Net Income $800,000 Preferred Stock Dividends $50,000 Market price per share of stock $25 Average common stockholder's equity $4,000,000 Cash dividends declared on common stock $20,000 What is the payout ratio?
Solution: $20,000 ÷ $800,000 = 2.5%
A corporation shows the following account balances: Retained Earnings $400,000 Treasury Stock--Common $20,000 Common Stock Dividends Distributable $40,000 Paid-in Capital in Excess of Par Value--Common $55,000 Treasury Stock—Preferred $30,000 Common Stock $200,000 Preferred Stock $180,000 Paid-in Capital in Excess of Par Value—Preferred $60,000 What is total stockholders' equity?
Solution: $400,000 + $40,000 + $55,000 + $200,000 + $180,000 + $60,000 - $20,000 - $30,000 = $885,000
Using the data in number 19, what is the return on common stockholders' equity?
Solution: ($800,000 - $50,000) ÷ $4,000,000 = 18.75%
A corporation is authorized to sell 1,000,000 shares of common stock. There are 500,000 shares outstanding, and the board of directors declares a 10% stock dividend. How many shares will be issued as a result of the stock dividend?
Solution: 500,000 x 10% = 50,000 new shares
Which of the following is considered to be a disadvantage of the corporate form of business organization? a. Limited liability of stockholders b. Separate legal existence c. Continuous life d. State and federal government regulation
State and Federal government regulation
4. (LO3) A corporation's own stock that has been issued, paid for, and repurchased is called _________________________ stock.
Treasury
