ACTG 6100 exam 2_chapter 11

A company has 50,000 shares of $45 par value common stock outstanding with a market value of $120 per share when it declares a 3-for-1 stock split. What is the effect on the company's total paid-in capital as a result of this transaction?

$0 *** The stock split does not effect the total paid-in capital as a result of this transaction.

A company purchased 500 shares of its own stock for $60, then subsequently sold half of those shares for $75 and the other half for $85. The total additional paid-in capital that will result from these transactions is

$10,000 *** (75-50)*250+(85-60)*250

A company has 10,000 shares of $100 par value, 5% preferred stock, 100,000 shares of $10 par value common stock, additional paid-in capital on common stock of $200,000, and retained earnings of $300,000. The preferred stock is cumulative and there is 1 prior year's dividends in arrears. What is the amount of the book value (per share) of the common stock?

$14.50 *** Reason: Total stockholders' equity = preferred stock (10,000 × $100) + common stock (100,000 × $10) + additional paid-in capital ($200,000) + retained earnings ($300,000) = $2,500,000. Preferred stock deduction = par value ($1,000,000) + dividends in arrears ($1,000,000 × 5% = $50,000) = $1,050,000. Book value of common stock = ($2,500,000 - $1,050,000)/100,000 shares = $14.50.

A company has 10,000 outstanding shares of $10 par value common stock and 5,000 outstanding shares of $50 par value, 6% preferred stock. How much is the total dividend that must be paid on preferred stock before any dividend can be paid on common stock?

$15,000 *** Reason: ($50 × 0.06) × 5,000 = $15,000

A company has 10,000 shares of $100 par value, 5% preferred stock outstanding and 100,000 shares of $10 par value common stock outstanding. What is the total dividend that must be paid for common stock to receive $1 per share?

$150,000 *** Reason: (($100 × 0.05) × 10,000) + (100,000 × $1) = $150,000

A company sold 3,000 shares of $120 par value stock at $125. The additional paid-in capital from this transaction is

$15000 *** (125-120)*3000

A company sold 3,000 shares of $120 par value stock at $125. The additional paid-in capital from this transaction is

$15000 *** 125-120=5 5*3000 shares= 15000

If a company has 10,000 shares of $100 par value, 7% preferred stock outstanding and 50,000 shares of $50 par value common stock outstanding, for the common stock to receive a $2 dividend per share, the total dividend that must be declared is $

$170000 *** 2*50000=100000 10000*100*.07=70000 70000+100000

A company's book value per share is $12. It has 10,000 shares of $10 par value common stock outstanding and no additional paid-in capital. The company's retained earnings are

$20,000 *** (12-10)*10000

A company issues 10,000 shares of $10 par value stock at $12 per share. What is the additional paid-in capital as a result of this transaction?

$20,000 *** Reason: $10,000 × ($12 - $10) = $20,000

A company issues 10,000 shares of $10 par value stock at $12 per share. What is the additional paid-in capital as a result of this transaction?

$20000 *** ($12 x 10,000) - (10,000 x$10) = $20,000

A company had 10,000 outstanding shares of $10 par value stock that originally sold for $15 per share and have a current market price of $50 per share. The company declares and distributes a 2-for-1 stock split. What is the expected market price of the stock after the split?

$25 *** Reason: $50/2 = $25

A company has stockholders' equity as follows: 1,000 outstanding shares of $10 par value common stock; $5,000 of additional paid-in capital; and $12,000 of retained earnings. What is the book value (per share) of the common stock?

$27 *** Reason: ((1,000 × $10) + $5,000 + $12,000)/1,000 = $27

A company sold 7,000 shares of $100 par value stock at $150 per share. What is the amount of additional paid-in capital recognized in this transaction?

$350,000 *** (150-100)*7000

If a company purchased 10,000 shares of treasury stock for $50 and subsequently sold 3,000 of those shares for $56, what is the remaining treasury stock balance after these transactions?

$350,000 *** Reason: (10,000 - 3,000 shares) × $50 = $350,000

If a company purchased 10,000 shares of treasury stock for $50 and subsequently sold 3,000 of those shares for $56, what is the remaining treasury stock balance after these transactions?

$350000 *** (10,000 - 3,000 shares) x $50 = $350,000

A company sold 1,000 shares of $10 par value common stock at $12 and 1,000 shares of $25 par value preferred stock at $30. What is the total increase in the company's paid-in capital as a result of these transactions?

$42,000 *** Reason: (1,000 × $12) + (1,000 × $30) = $42,000

A company sold 1,000 shares of treasury stock for $45 per share that it had purchased for $40 per share. The stock has a par value of $20 and originally sold for $32. The additional paid-in capital that results from the resale of the treasury stock is

$5000 *** Reason: 1,000 shares × ($45 - $40) = $5,000

A company has stockholders' equity of $400,000 and $450,000 at the beginning and end of the current year, respectively. The company's net income for the year was $51,000. What was the return on equity for the year?

12% *** Reason: Average stockholders' equity = ($400,000 + $450,000)/2 = $425,000. Return on assets = $51,000/$425,000 = 12%.

A stockholder holds 8,000 shares of common stock in a company that has 100,000 shares outstanding stock with a current market value of $150. The company distributes a 2-for-1 stock split. The stockholder will now hold ________ shares with an approximate per-share market value of ______.

16000, $75 *** 1600 shares (8000 x 2 = 16000) $75 ( 150/2 = $75)

A company has net income of $180,000, assets at the beginning of the year of $800,000, and assets at the end of the year of $1 million. The company's return on assets for the year is

20%. *** Reason: Average assets = ($800,000 + $1,000,000)/2 = $900,000. Return on assets = $180,000/$900,000 = 20%.

A publicly traded company is regulated with regard to which of the following?

Audited by an independent certified public accountant. Submit its financial statements to the Securities and Exchange Commission. Financial statements in accordance with generally accepted accounting principles.

Which of the following is/are true about the market value of common stock?

Investor expectations are important in determining the market value of common stock. The profitability of the company is important in determining the market value of common stock. The level of risk that the investor takes on is important in determining the market value of common stock.

Which of the following is NOT a right of stockholders of a corporation?

Managing the company on a day-to-day basis.

Which of the following is preferred for the assets and stockholders' equity numbers in calculating the return on assets and the return on stockholders' equity?

The average of the beginning and ending balances.

A company has outstanding preferred stock with an 8% dividend rate. What impact would you expect on the market value of the preferred stock if interest rates rise to a level above 8%?

The market price of the preferred stock would decrease.

Which of the following is/are correct regarding the relationship between the book value and the market value of common stock?

The relationship between the book value and the market value is one measure of investors' confidence in a company's management. The book value may be useful in evaluating the reasonableness of the market value.

What is the primary motivation for stockholders to purchase preferred stock?

To have a more secure dividend flow than is expected from common stock.

Common stockholders have which of the following rights?

To vote at stockholders' meetings. To residual claims on assets if the company is liquidated. To participate in dividends when declared by the board of directors.

When only one class of stock is issued, rather than being called common stock, the title _______ stock is commonly used.

capital

The basic stock that all corporations issue is called

common stock

Contributions by investors in exchange for capital stock, is also called

contributed capital paid-in capital

The form of business organization that is recognized under the law as a separate legal entity from its owners is the

corporation

Smith Company reacquires 50 share of its own $20 par stock for $30 per share. The related journal entry to record this transaction includes a:

debit to Treasury Stock for $1,500 *** 50*30 Reason: This entry will include a debit to Treasury Stock for the price paid of $1,500 and a credit to Cash for $1,500.

Johnson Company reacquires 1,000 share of its own $10 par stock for $50 per share. The related journal entry to record this transaction includes a:

debit to Treasury Stock for $50,000 *** 1000*$50 Reason: This journal entry will debit Treasury Stock for the price paid of $50,000 and credit Cash for $50,000.

If the market value of a stock is greater than its book value, this signals that

investors see this as a successful company. investors believe management has created a business worth more than the historical cost of resources committed to management.

The fact that stockholders are not personally liable for the debts of the corporation is referred to as

limited personal liability

A corporation whose stock is traded through organized securities exchanges is said to be

publicly owned

The primary purpose of a stock split is to

reduce the market price of the company's common stock.

The retention of profits earned by the corporation is called

retained earnings

Owners of a corporation are called ______.

shareholders stockholders

As evidence of a stockholder's ownership, each stockholder receives from the corporation a(n) ________ ________ that indicates the number of shares he or she owns.

stock certificate

All of the following are reasons why businesses incorporate except

the ability to avoid paying taxes.

The assets of a corporation are owned by

the corporation itself.

A disadvantage of the corporation form of business organization is

the high cost of formation

After a corporation sells shares of its stock to stockholders, those shares are owned by

the stockholder.

When a par value stock is sold at an amount in excess of par value, the Capital Stock account is credited, or increased, for what amount?

the total par value of the shares sold