Chapter 10 Book Review

Comprehensive income: a. includes transactions that affect stockholders' equity with the exception of those transactions that involve owners. b. is considered an appropriation of retained earnings. c. includes all transactions that are under management's control. d. is the result of all events and transactions reported on the income statement.

a

FASB's concept of comprehensive income: a. excludes the payment of dividends. b. has a primary drawback because it allows management to manipulate the income figure to a certain extent. c. requires that all transactions must be shown on the income statement. d. allows items that are not necessarily under management's control, such as natural disasters, to be shown as an adjustment of retained earnings.

a

Harvey Corporation shows the following in the stockholders' equity section of its balance sheet: The par value of its common stock is $0.25 and the total balance in the Common Stock account is $50,000. Also noted is that 15,000 shares are currently designated as treasury stock. The number of shares outstanding is: a. 185,000. b. 196,250. c .200,000. d. 215,000.

a

If a company purchases treasury stock for $6,000 and then reissues it for $5,000, the difference of $1,000 is: a. a decrease in stockholders' equity. b. a gain in stockholders' equity. c. treated as a loss on the sale. d. treated as a gain on the sale.

a

With regard to preferred stock, a. its stockholders may have the right to participate, along with common stockholders, if an extra dividend is declared. b. its issuance provides no flexibility to the issuing company because its terms always require mandatory dividend payments. c. no dividends are expected by the stockholders. d. there is a legal requirement for a corporation to declare a dividend on preferred stock.

a

DAE Parts Shop began business on January 1, 2019. The corporate charter authorized issuance of 20,000 shares of $5 par value common stock and 5,000 shares of $10 par value, 5% cumulative preferred stock. DAE issued 12,000 shares of common stock at $25 per share on January 2, 2019. What effect does the entry to record the issuance of stock have on total stockholders' equity? a. increase of $340,000 b. increase of $300,000 c. increase of $150,000 d. increase of $120,000

b

McKean Corporation authorized 500,000 shares of common stock in its articles of incorporation. On May 1, 2019, 100,000 shares were sold to the company's founders. However, on October 15, 2019, McKean repurchased 20,000 shares to settle a dispute among the founders. At this date, how many shares were issued and outstanding, respectively? a. 80,000 and 100,000 b. 100,000 and 80,000 c. 100,000 and 100,000 d. 500,000 and 100,000

b

When a company retires its own common stock, the company must: a. record a gain or loss depending on the difference between original selling price and repurchase cost. b. decrease the Common Stock account balances by the original issue price. c. get the approval of the state to do so. d. issue a different class of stock to the former stockholders.

b

Which of the following should be considered when a company decides to declare a cash dividend on common stock? a. the retained earnings balance only b. the cash available and the retained earnings balance c. the amount of authorized shares of common stock d. the book value of the company's stock

b

Which of the following statements is true? a. The outstanding number of shares is the maximum number of shares that can be issued by a corporation. b. The shares that are in the hands of the stockholders are said to be outstanding. c. It is very unlikely that corporations will have more than one class of stock outstanding. d. Preferred stock is stock that has been retired.

b

A company would repurchase its own stock for all of the following reasons except: a .it wishes to prevent unwanted takeover attempts. b. it wishes to increase the earnings per share. c. it believes the stock is overvalued. d. it needs the stock for employee bonuses.

c

Ames Corporation repurchases 10,000 shares of its common stock for $12 per share. The shares were originally issued at an average price of $10 per share. Later it resells 6,000 of the shares for $15 per share and the remaining 4,000 shares for $17 per share. How much gain or loss should Ames report on its income statement as a result of these transactions? a. $38,000 gain b. $20,000 loss and $38,000 gain c. $0 d. $20,000 loss

c

As a result of a stock split, a. stockholders' equity is increased. b. the stockholders have a higher proportionate ownership of the company. c. the par value of the stock is changed in the reverse proportion as the stock split. d. the market price of the outstanding stock is increasing because a split is evidence of a profitable company.

c

RVR Enterprises shows net income of $100,000 for 2019 and retained earnings of $500,000 on its December 31, 2019 balance sheet. During the year, RVR declared and paid $60,000 in dividends. What was RVR's retained earnings balance at December 31, 2018? a. $400,000 b. $440,000 c. $460,000 d. $540,000

c

Shea Company has 100,000 shares of 6%, $50 par value, cumulative preferred stock. In 2018, no dividends were declared on preferred stock. In 2019, Shea had a profitable year and decided to pay dividends to stockholders of both preferred and common stock. If they have $750,000 available for dividends in 2019, how much could it pay to the common stockholders? a. $750,000 b. $450,000 c. $150,000 d. $0

c

The balance of the $2.50 par value Common Stock account for Patriot Company was $240,000,000 before its recent 2-for-1 stock split. The market price of the stock was $50 per share before the stock split. What occurred as a result of the stock split? a. The balance in the common stock account was increase to $480,000. b. The balance in the retained earnings account decreased. c. The market price of the stock dropped to approximately $25 per share. d. The market price of the stock was not affected.

c

Thornwood Partners began business on January 1, 2019. The corporate charter authorized issuance of 75,000 shares of $1 par value common stock and 8,000 shares of $3 par value, 10% cumulative preferred stock. On July 1, Thornwood issued 20,000 shares of common stock in exchange for 2 years' rent on a retail location. The cash rental price is $3,000 per month, and the rental period begins on July 1. What is the correct entry to record the July 1 transaction? a. Debit to Cash, $72,000; credit to Prepaid Rent, $57,600 b. Debit to Prepaid Rent, $72,000; credit to Common Stock, $72,000 c. Debit to Prepaid Rent, $72,000; credit to Common Stock, $20,000; credit to Additional Paid-In Capital—Common Stock, $52,000 d. Debit to Prepaid Rent, $72,000; credit to Common Stock, $60,000; credit to Additional Paid-In Capital—Common Stock, $12,000

c

When a company purchases treasury stock, which of the following statements is true? a. Dividends continue to be paid on the treasury stock. b. It is no longer considered to be issued. c. The cost of the treasury stock reduces stockholders' equity. d. Treasury stock is considered to be an asset because cash is paid for the stock.

c

Authorized stock represents the: a. number of shares that are currently held by stockholders. b. number of shares that have been sold. c. number of shares that have been repurchased by the corporation. d. maximum number of shares that can be issued.

d

Garner Corporation issued $50,000 in common stock dividends. Its net income for the year was $250,000. What is Garner's dividend payout ratio? a. 5 b. 2.5 c. 0.5 d. 0.2

d

What is the effect of a stock dividend on stockholders' equity? a. Stockholders' equity is decreased. b. Retained earnings is increased. c. Additional paid-in capital is decreased. d. Total stockholders' equity stays the same.

d

When a company declares a 3-for-1 stock split, the number of outstanding shares: a. is reduced by one-third. b. is reduced by one-third and the number of issued shares is tripled. c. stays the same, but the number of issued shares triples. d. triples.

d

When a company declares a cash dividend, which of the following is true? a. Assets are decreased. b. Assets are increased. c. Stockholders' equity is increased. d. Liabilities are increased.

d

Which of the following is not a component of stockholders' equity? a. retained earnings b .net income c .loss on sale of equipment d. dividends payable

d