Accounting 301 chapter 11

Which of the following represents the maximum number of shares a corporation can issue? Outstanding shares Issued shares Authorized shares Treasury shares

answer:Authorized shares Authorized represents the maximum number of shares allowed under the corporate charter.

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 plans to distribute $90,000 as dividends in the current year, how much will the common stockholders receive? $20,000 $30,000 $40,000 $60,000

answer: $30,000 Preferred stockholders receive an allocation for each of the past two years and an allocation for the current year. The balance remaining goes to the common stockholders. Preferred dividends in arrears for two years ($20,000 × 2)$40,000Preferred for current year20,000Total dividends to preferred stockholders$60,000Total dividends available(90,000)Dividends available to common stockholders$30,000

A corporation shows the following account balances: Retained earnings$300,000 Treasury stock $10,000 Dividends payable $20,000 Paid-in capital in excess of par value $55,000 Common stock $200,000 How much is total stockholders' equity? $565,000 $555,000 $545,000 $525,000

answer: $545,000 Retained earnings - treasury stock + paid-in capital in excess of par value + common stock = total stockholders' equity:$300,000 - $10,000 + $55,000 + $200,000 = $545,000

Consider the following data for a corporation: Net income $800,000 Preferred stock dividends $50,000 Market price per share of stock $25 Average common stockholders' equity $4,000,000 Cash dividends declared on common stock $20,000 What is the return on common stockholders' equity? 21.25% 20.00% 19.50% 18.75%

answer: %18.75 Net income less preferred stock dividends divided by the average common stockholders' equity equals return on common stockholders' equity. ($800,000 - $50,000)/$4,000,000 = 18.75%.

How is common stock listed in the stockholders' equity section of the balance sheet? Before preferred stock After retained earnings As part of paid-in capital Subtracted from treasury stock

answer: As part of paid-in capital Paid-in capital includes all stock accounts and additional paid-in capital accounts.

What method is normally used to account for treasury stock? Stated value method Legal value method Par value method Cost method

answer: Cost method Treasury stock is normally accounted for using the cost method.

Harrison, Inc. issued 4,000 shares of common stock at $12 per share. If the stock has a par value of $0.50 per share, which of the following will be part of the journal entry to record the issuance? A. Credit to Common Stock for $2,000 B. Debit to Cash for $4,000 C. Credit to Paid-in Capital in Excess of Par Value for $48,000 D. Debit to Retained Earnings for $46,000

answer: Credit to Common Stock for $2,000 The journal entry will increase the cash account for the total issue price, increase the common stock account for the par value per share times the number of shares issued, and increase paid-in capital in excess of par value for the excess received above par value. Debit to Cash = 4,000 × $12 = $48,000 Credit to Common stock = 4,000 × $0.50 = $2,000 Credit to Paid-in capital in excess of par value = 4,000 × ($12 - $0.50) = $46,000

If a corporation has incurred a net loss, how will it be recorded? Debited to Retained Earnings in a closing entry Credited to Retained Earnings in a closing entry Debited to a paid-in capital account in a closing entry Credited to a paid-in capital account in a closing entry

answer: Debited to Retained Earnings in a closing entry A net loss reduces Retained Earnings with a debit entry. It is never closed to a paid-in capital account.

On which date are entries for cash dividends required? Declaration date and the record date Record date and the payment date Declaration date, record date, and payment date Declaration date and the payment date

answer: Declaration date and the payment date Entries for cash dividends are required on the declaration date and the payment date, but not on the record date.

Which one of the following is not a right of preferred stockholders? Priority in relation to dividends Priority voting rights Priority to the assets in the event of liquidation Priority to dividends, assets and voting rights

answer: Priority voting rights Preferred stockholders usually have no voting rights.

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. Which of the following will be debited to record the repurchase of the 100 shares? Common Stock for $1,200 Treasury Stock for $1,200 Treasury Stock for $200 Cash for $1,200

answer: Treasury Stock for $1,200 The journal entry will increase the treasury stock account (a contra stockholders' equity account) and will decrease the cash account for the total cost to acquire.

Which of the following is a feature associated only with preferred stock? Dividend preference Preference to assets in the event of liquidation Cumulative dividends All of the answer choices are correct

answer: all of the choices are correct Preferred stockholders have priority over common stockholders in receiving dividends, priority over common stockholders to receive assets when a corporation is liquidated, and if cumulative, are entitled to receive current and unpaid prior-year dividends before common stockholders receive any dividends.

Which of the following represents the amount per share of stock that must be retained in the business for the protection of corporate creditors? Legal capital Par value Market value Stated value

answer: legal capital Legal capital is the amount per share that must be retained in the business for protection of the corporate creditors.

Dehesa, Inc. has 8,000 shares of 5%, $50 par, cumulative preferred stock and 50,000 shares of $3 par common stock outstanding. No dividends were declared last year, However, the board of directors just declared a $50,000 dividend this year to be paid in 10 days. What amount of the total dividend will be paid to common stockholders? $10,000 $30,000 $15,000 $50,000

answer:$10,000 Before the common stockholders receive any dividends, preferred dividends should first be distributed for the dividends in arrears in the prior year and the current year.Total dividend = 8,000 × 5% × $50 = $20,000/year Preferred dividends in arrears for one year$20,000Preferred for current year20,000Total dividends to preferred stockholders40,000Total dividends available(50,000)Dividends available to common stockholders$10,000

Wynola, Inc. issued 1,000 shares of common stock at $10 per share. If the stock has a par value of $4 per share, which of the following will be part of the journal entry to record the issuance? Credit to Common Stock for $4,000 Debit to Cash for $4,000 Credit to Paid-in Capital in Excess of Par Value for $10,000 Debit to Retained Earnings for $6,000

answer:Credit to Common Stock for $4,000 The journal entry will increase the cash account for the total issue price, increase the common stock account for the par value per share times the number of shares issued, and increase paid-in capital in excess of par value for the excess received above par value. Debit to Cash = 1,000 × $10 = $10,000 Credit to Common stock =1,000 × $4= $4,000 Credit to Paid-in capital in excess of par value = 1,000 × ($10 - $4) = $6,000