Chapter 8 Questions

Which of the following is not usually a right or attribute of preferred stock? A. Having a priority claim to dividends relative to the common stock's claim to dividends B. Having a priority claim in liquidation relative to the common stock's claim in liquidation C. Having a claim to dividends in excess of the annual dividend requirement if dividends on common stock exceed dividends on preferred stock D. Having a claim to dividends that is cumulative over time if the annual dividend requirement is not satisfied

C. Having a claim to dividends in excess of the annual dividend requirements if dividends on common stock exceed dividends on preferred stock

Retained earnings represents: A. net income plus gains (or minus losses) on treasury stock transactions. B. the total net income of the firm since its beginning. C. cumulative net income of the firm since its beginning that has not been distributed to its stockholders in the form of dividends. D. cash that is available for dividends.

C. cumulative net income of the firm since its beginning that has not been distributed to its stockholders in the form of dividends.

The principal reason for a company having a common stock split is to: A. increase the total cash dividends paid to stockholders. B. decrease total stockholders' equity. C. decrease the market value per share of common stock. D. capitalize retained earnings.

C. decrease the market value per share of common stock

Additional paid-in capital is most likely to appear on the balance sheet of a corporation that: A. has no-par value stock. B. has issued stock at different dates C. has par value stock. D. has issued stock dividends.

C. has par value stock

In most states, par value of issued shares represents: A. no par capital B. noncontrolling capital C. legal capital D. corporate capital

C. legal capital

When a company splits its common stock 3 for 1: A. retained earnings is decreased by the market value of the shares issued. B. the stockholders are assured of receiving larger cash dividends. C. the market value of the company's stock normally falls by two-thirds. D. total paid-in capital increases by a factor of 3.

C. the market value of the company's stock normally falls by two-thirds

If a common stock has no par value: A. the stock must have a stated value. B. the stockholders do not have a preemptive right. C. there will not be any additional paid-in capital related to it. D. there is no way of determining the market value per share.

C. there will not be any additional paid-in capital related to it.

The annual per share dividend requirement of a 6%, $100 par value preferred stock that was issued for $105 is: A. $10.00 B. $7.50 C. $6.38 D. $6.00

D. $6.00

In comparison to the stockholders' equity section of a corporation's balance sheet, owners' equity of a proprietorship or partnership: A. normally does not make a distinction between invested capital and retained earnings. B. normally uses "Capital" accounts for each individual owner, rather than a "Retained Earnings" account for all of the stockholders. C. normally uses a "Drawings" account for each individual owner, rather than a "Dividends" account for all of the stockholders. D. all of these answers are correct.

D. all of these answers are correct

When common stock has a par value: A. the market value of the stock will be higher than if there is no par value. B. the paid-in capital will equal the par value of the number of shares issued. C. the liability of the stockholders is limited to the par value. D. there will probably be additional paid-in capital on the balance sheet.

D. there will probably be additional paid-in capital on the balance sheet

Preferred stock is used much less than long-term debt in the capital structure of most industrial and merchandising companies principally because: A. for income tax purposes, dividends paid on preferred stock are not deductible, but interest on long-term debt is deductible. B. the preferred stock dividend requirement is a fixed claim against income, but interest on long-term debt is not a fixed amount. C. preferred stock has a fixed liquidation or redemption value, but long-term debt does not have a fixed maturity value. D. preferred stock may be convertible to common stock, but long-term debt cannot be convertible.

A. for income tax purposed, dividends paid on preferred stock are not deductible, but interest on long-term debt is deductible.

Another term frequently used to describe stockholders' equity is: A. net assets. B. gross assets. C. capital stock. D. paid-in capital.

A. net assets

Balance sheet disclosures for preferred stock include all of the following except: A. the credit or market value B. the number of shares authorized C. the liquidating or redemption value D. the number of shares issued

A. the credit or market value

Braco has 80,000 shares of $100 par value common stock outstanding, and 20,000 shares in the treasury. Braco is located in a state that allows dividends on treasury stock. The number of additional shares that would be issued in a 5% stock dividend is: A. 2,000 B. 5,000 C. 1,000 D. 4,000

B. 5,000

Which of the terms is not used to identify owners' equity or stockholders' equity? A. Paid-in-capital and retained earnings B. Additional paid-in-retained earnings C. Partner's capital D. Proprietor's capital

B. Additional paid-in-retained earnings

The dollar amount reported as common stock on the balance sheet of a corporation that has common stock with a par value is the number of shares: A. outstanding, multiplied by the par value per share. B. issued, multiplied by the par value per share. C. outstanding, multiplied by the amount received per share. D. issued, multiplied by the amount received per share.

B. issued, multiplied by the par value per share

The noncurrent liability, Noncontrolling Interest, arises if: A. a firm owns more than 50%, but less than 100%, of another entity. B. noncontrolling Interest is accounted for as an equity item. C. a firm owns 100% of another entity. D. a firm owns less than 50% of another entity.

B. noncontrolling interest is accounted for as an equity item

A stock dividend is similar to a cash dividend in that: A. the stockholder's equity in the firm's net assets is increased by each. B. retained earnings and the amount of potential future dividends is reduced by each. C. the stockholder's cash is increased by each. D. the stockholder's equity in the firm's net assets is reduced by each.

B. retained earnings and the amount of potential future dividends is reduced by each

The dividends declaration date pertains to: A. the date a dividend is paid B. the date on which the board of directors declares it's going to liquidate the firm C. the date on which the board of directors declares dividend D. the date to determine who receives dividends

C the date on which the board of directors declares dividend

Which of the following is not a stockholders' equity account? A. Additional paid-in capital B. Common stock C. Accumulated depreciation D. Retained earnings

C. Accumulated depreciation

Which of the following is not a right or attribute of common stock ownership? A. Liability limited to amount invested B. Approving changes in corporate charter C. Determining dividend policy D. Electing directors

C. Determining dividend policy

Which of the following is not a stockholders' equity account? A. Accumulated depreciation B. Retained earnings C. Common stock D. Additional paid-in capital

A. Accumulated depreciation

"Accumulated other comprehensive income (loss)" includes each of the following items except: A. amounts received from the sale of additional common stock during the year. B. gains on certain derivative instruments. C. cumulative foreign currency translation adjustments. D. unrealized gains or losses on available-for-sale investments.

A. amounts received from the sale of additional common stock during the year