chapter 15
The rate of return on common stock equity is calculated by dividing a. net income less preferred dividends by average common stockholders' equity. b. net income by average common stockholders' equity. c. net income less preferred dividends by ending common stockholders' equity. d. net income by ending common stockholders' equity.
a
"Gains" on sales of treasury stock (using the cost method) should be credited to a. paid-in capital from treasury stock. b. capital stock. c. retained earnings. d. other income.
a
A dividend which is a return to stockholders of a portion of their original investments is a a. liquidating dividend. b. property dividend. c. liability dividend. d. participating dividend.
a
Anders, Inc., has 15,000 shares of 4%, $100 par value, cumulative preferred stock and 60,000 shares of $1 par value common stock outstanding at December 31, 2018. There were no dividends declared in 2016. The board of directors declares and pays a $110,000 dividend in 2017 and in 2018. What is the amount of dividends received by the common stockholders in 2018? a. $40,000 b. $60,000 c. $110,000 d. $0
a
Assume common stock is the only class of stock outstanding in the Manley Corporation. Total stockholders' equity divided by the number of common stock shares outstanding is called a. book value per share. b. par value per share. c. stated value per share. d. fair value per share.
a
At the beginning of 2015, Flaherty Company had retained earnings of $400,000. During the year Flaherty reported net income of $100,000, sold treasury stock at a "gain" of $36,000, declared a cash dividend of $60,000, and declared and issued a small stock dividend of 3,000 shares ($10 par value) when the fair value of the stock was $20 per share. The amount of retained earnings available for dividends at the end of 2018 was a. $380,000. b. $410,000. c. $416,000. d. $446,000.
a
At the date of declaration of a small common stock dividend, the entry should not include a. a credit to Common Stock. b. a credit to Paid-in Capital in Excess of Par. c. a debit to Retained Earnings. d. a credit to common stock dividend distributable.
a
Colson Inc. declared a $230,000 cash dividend. It currently has 12,000 shares of 5%, $100 par value cumulative preferred stock outstanding. It is one year in arrears on its preferred stock. How much cash will Colson distribute to the common stockholders? a. $110,000. b. $120,000. c. $170,000. d. None.
a
Direct costs incurred to sell stock such as underwriting costs should be accounted for as 1. a reduction of additional paid-in capital. 2. an expense of the period in which the stock is issued. 3. an intangible asset. a. 1 b. 2 c. 3 d. 1 or 3
a
Gibbs Corporation owned 20,000 shares of Oliver Corporation's $5 par value common stock. These shares were purchased in 2014 for $225,000. On September 15, 2018, Gibbs declared a property dividend of one share of Oliver for every ten shares of Gibbs held by a stockholder. On that date, when the market price of Oliver was $35 per share, there were 180,000 shares of Gibbs outstanding. What NET reduction in retained earnings would result from this property dividend? a. $202,500 b. $630,000 c. $213,750 d. $427,500
a
Hernandez Company has 560,000 shares of $10 par value common stock outstanding. During the year, Hernandez declared a 15% stock dividend when the market price of the stock was $30 per share. Four months later Hernandez declared a $.50 per share cash dividend. As a result of the dividends declared during the year, retained earnings decreased by a. $2,842,000. b. $1,260,000. c. $462,000. d. $ 420,000.
a
Houser Corporation owns 4,000,000 shares of stock in Baha Corporation. On December 31, 2017, Houser distributed these shares of stock as a dividend to its stockholders. This is an example of a a. property dividend. b. stock dividend. c. liquidating dividend. d. cash dividend.
a
How should cumulative preferred dividends in arrears be shown in a corporation's balance sheet? a. Note disclosure b. Increase in stockholders' equity c. Increase in current liabilities d. Increase in current liabilities for the amount expected to be declared within the year or operating cycle, and increase in long-term liabilities for the balance
a
In January 2017, Finley Corporation, a newly formed company, issued 10,000 shares of its $10 par common stock for $15 per share. On July 1, 2017, Finley Corporation reacquired 1,000 shares of its outstanding stock for $12 per share. The acquisition of these treasury shares a. decreased total stockholders' equity. b. increased total stockholders' equity. c. did not change total stockholders' equity. d. decreased the number of issued shares
a
Layne Corporation had the following information in its financial statements for the years ended 2017 and 2018: Cash dividends for the year 2018 $ 10,000 Net income for the year ended 2018 93,000 Market price of stock, 12/31/17 10 Market price of stock, 12/31/18 12 Common stockholders' equity, 12/31/17 1,600,000 Common stockholders' equity, 12/31/18 1,980,000 Outstanding shares, 12/31/18 160,000 Preferred dividends for the year ended 2018 15,000 What is the book value per share for Layne Corporation for the year ended 2018? a. $12.38 b. $12.28 c. $12.22 d. $10.00
a
Masterson Company has 490,000 shares of $10 par value common stock outstanding. During the year Masterson declared a 15% stock dividend when the market price of the stock was $36 per share. Three months later Masterson declared a $.60 per share cash dividend. As a result of the dividends declared during the year, retained earnings decreased by a. $2,984,100 b. $2,646,000 c. $ 485,100 d. $ 462,000
a
Mays, Inc. had net income for 2018 of $1,590,000 and earnings per share on common stock of $5. Included in the net income was $225,000 of bond interest expense related to its long-term debt. The income tax rate for 2018 was 30%. Dividends on preferred stock were $300,000. The payout ratio on common stock was 25%. What were the dividends on common stock in 2018? a. $322,500. b. $397,500. c. $361,875. d. $483,750.
a
Noncumulative preferred dividends in arrears a. are not paid or disclosed. b. must be paid before any other cash dividends can be distributed. c. are disclosed as a liability until paid. d. are paid to preferred stockholders if sufficient funds remain after payment of the current preferred dividend.
a
On December 31, 2017, the stockholders' equity section of Arndt, Inc., was as follows: Common stock, par value $10; authorized 30,000 shares; issued and outstanding 9,000 shares $ 90,000 Additional paid-in capital 116,000 Retained earnings 184,000 Total stockholders' equity $390,000 On March 31, 2018, Arndt declared a 10% stock dividend, and accordingly 900 additional shares were issued, when the fair value of the stock was $18 per share. For the three months ended March 31, 2018, Arndt sustained a net loss of $40,000. The balance of Arndt's retained earnings as of March 31, 2018, should be a. $127,800. b. $135,000. c. $136,800. d. $144,000.
a
Porter Corp. purchased its own par value stock on January 1, 2017 for $20,000 and debited the treasury stock account for the purchase price. The stock was subsequently sold for $12,000. The $8,000 difference between the cost and sales price should be recorded as a deduction from a. additional paid-in capital to the extent that previous net "gains" from sales of the same class of stock are included therein; otherwise, from retained earnings. b. additional paid-in capital without regard as to whether or not there have been previous net "gains" from sales of the same class of stock included therein. c. retained earnings. d. net income
a
Presented below is information related to Hale Corporation: Common Stock, $1 par $3,500,000 Paid-in Capital in Excess of Par—Common Stock 550,000 Preferred 8 1/2% Stock, $50 par 2,000,000 Paid-in Capital in Excess of Par—Preferred Stock 400,000 Retained Earnings 1,500,000 Treasury Common Stock (at cost) 150,000 The total stockholders' equity of Hale Corporation is a. $7,800,000. b. $7,950,000. c. $6,300,000. d. $6,450,000
a
Presented below is the stockholders' equity section of Oaks Corporation at December 31, 2017: Common stock, par value $20; authorized 75,000 shares; issued and outstanding 45,000 shares $ 900,000 Paid-in capital in excess of par value 350,000 Retained earnings 500,000 $1,750,000 During 2018, the following transactions occurred relating to stockholders' equity: 3,000 shares were reacquired at $28 per share. 3,000 shares were reacquired at $35 per share. 1,800 shares of treasury stock were sold at $30 per share. For the year ended December 31, 2018, Oaks reported net income of $450,000. Assuming Oaks accounts for treasury stock under the cost method, what should it report as total stockholders' equity on its December 31, 2018, balance sheet? a. $2,065,000. b. $2,061,400. c. $2,057,800. d. $1,615,000
a
The following data are provided: December 31, 2018 2017 5% Cumulative preferred stock, $50 par $100,000 $100,000 Common stock, $10 par 140,000 90,000 Additional paid-in capital 80,000 70,000 Retained earnings (includes current year net income) 250,000 215,000 Net income 50,000 Additional information: On May 1, 2018, 5,000 shares of common stock were issued. The preferred dividends were not declared during 2018. The market price of the common stock was $50 at December 31, 2018. The book value per share of common stock at 12/31/18 is calculated as a. 465 ÷ 14. b. 390 ÷ 14. c. 220 ÷ 14. d. 470 ÷ 14.
a
The issuer of a 5% common stock dividend to common stockholders should transfer from retained earnings to paid-in capital an amount equal to the a. fair value of the shares issued. b. book value of the shares issued. c. minimum legal requirements. d. par or stated value of the shares issued
a
The stockholders' equity section of Gunkel Corporation as of December 31, 2017, was as follows: Common stock, par value $2; authorized 20,000 shares; issued and outstanding 10,000 shares $ 20,000 Paid-in capital in excess of par 30,000 Retained earnings 85,000 $135,000 On March 1, 2018, the board of directors declared a 15% stock dividend, and accordingly 1,500 additional shares were issued. On March 1, 2018, the fair value of the stock was $6 per share. For the two months ended February 28, 2018, Gunkel sustained a net loss of $15,000. What amount should Gunkel report as retained earnings as of March 1, 2015? a. $61,000. b. $67,000. c. $71,000. d. $77,000.
a
Which of the following represents the total number of shares that a corporation may issue under the terms of its charter? a. Authorized shares b. Issued shares c. Unissued shares d. Outstanding shares
a
A "secret reserve" will be created if a. inadequate depreciation is charged to income. b. a capital expenditure is charged to expense. c. liabilities are understated. d. stockholders' equity is overstated.
b
A corporation declared a dividend, a portion of which was liquidating. How would this distribution affect each of the following? Additional Paid-in Capital Retained Earnings a. Decrease No effect b. Decrease Decrease c. No effect Decrease d. No effect No effect
b
A feature common to both stock splits and stock dividends is a. a transfer to earned capital of a corporation. b. that there is no effect on total stockholders' equity. c. an increase in total liabilities of a corporation. d. a reduction in the contributed capital of a corporation
b
A mining company declared a liquidating dividend. The journal entry to record the declaration must include a debit to a. Retained Earnings. b. a paid-in capital account. c. Accumulated Depletion. d. Accumulated Depreciation.
b
According to the FASB, redeemable preferred stock should be a. included with common stock. b. included as a liability. c. included in stockholders' equity. d. included as a contra item in stockholders' equity.
b
An entry is not made on the a. date of declaration. b. date of record. c. date of payment. d. date or payment and date of declaration.
b
Gannon Company acquired 20,000 shares of its own common stock at $20 per share on February 5, 2017, and sold 10,000 of these shares at $27 per share on August 9, 2018. The fair value of Gannon's common stock was $24 per share at December 31, 2017, and $25 per share at December 31, 2018. The cost method is used to record treasury stock transactions. What account(s) should Gannon credit in 2018 to record the sale of 10,000 shares? a. Treasury Stock for $270,000. b. Treasury Stock for $200,000 and Paid-in Capital from Treasury Stock for $70,000. c. Treasury Stock for $200,000 and Retained Earnings for $70,000. d. Treasury Stock for $240,000 and Retained Earnings for $30,000.
b
Glavine Company issues 6,000 shares of its $5 par value common stock having a fair value of $25 per share and 9,000 shares of its $15 par value preferred stock having a fair value of $20 per share for a lump sum of $310,000. The proceeds allocated to the common stock is a. $124,000 b. $140,909 c. $150,000 d. $169,091
b
How should a "gain" from the sale of treasury stock be reflected when using the cost method of recording treasury stock transactions? a. As ordinary earnings shown on the income statement. b. As paid-in capital from treasury stock transactions. c. As an increase in the amount shown for common stock. d. As an other revenue and gain shown on the income statement.
b
If management wishes to "capitalize" part of the earnings, it may issue a a. cash dividend. b. stock dividend. c. property dividend. d. liquidating dividend.
b
In 2017, Hobbs Corp. acquired 15,000 shares of its own $1 par value common stock at $18 per share. In 2018, Hobbs issued 10,000 of these shares at $25 per share. Hobbs uses the cost method to account for its treasury stock transactions. What accounts and what amounts should Hobbs credit in 2018 to record the issuance of the 10,000 shares? Treasury Additional Retained Common Stock Paid-in Capital Earnings Stock a. $180,000 $175,000 b. $180,000 $70,000 c. $240,000 $10,000 d. $170,000 $70,000 $10,000
b
In a corporate form of business organization, legal capital is best defined as a. the amount of capital the state of incorporation allows the company to accumulate over its existence. b. the par value of all capital stock issued. c. the amount of capital the federal government allows a corporation to generate. d. the total capital raised by a corporation within the limits set by the Securities and Exchange Commission.
b
Mann Co. has outstanding 80,000 shares of 5% preferred stock with a $10 par value and 150,000 shares of $3 par value common stock. Dividends have been paid every year except last year and the current year. If the preferred stock is cumulative and nonparticipating and $250,000 is distributed, the common stockholders will receive a. $0. b. $170,000. c. $210,000. d. $250,000.
b
Manning Company issued 10,000 shares of its $5 par value common stock having a fair value of $25 per share and 15,000 shares of its $15 par value preferred stock having a fair value of $20 per share for a lump sum of $520,000. How much of the proceeds would be allocated to the common stock? a. $250,000 b. $236,364 c. $283,636 d. $276,250
b
On January 1, 2018, Culver Corporation had 110,000 shares of its $5 par value common stock outstanding. On June 1, the corporation acquired 10,000 shares of stock to be held in the treasury. On December 1, when the market price of the stock was $15, the corporation declared a 15% stock dividend to be issued to stockholders of record on December 16, 2018. What was the impact of the 15% stock dividend on the balance of the retained earnings account? a. $82,500 decrease b. $225,000 decrease c. $247,500 decrease d. No effect
b
On January 1, 2018, Dodd, Inc., declared a 10% stock dividend on its common stock when the fair value of the common stock was $30 per share. Stockholders' equity before the stock dividend was declared consisted of: Common stock, $10 par value, authorized 200,000 shares; issued and outstanding 120,000 shares $1,200,000 Additional paid-in capital on common stock 150,000 Retained earnings 700,000 Total stockholders' equity $2,050,000 What was the effect on Dodd's retained earnings as a result of the above transaction? a. $180,000 decrease b. $360,000 decrease c. $600,000 decrease d. $300,000 decrease
b
On July 1, 2018, Nall Co. issued 2,500 shares of its $10 par common stock and 5,000 shares of its $10 par convertible preferred stock for a lump sum of $140,000. At this date Nall's common stock was selling for $24 per share and the convertible preferred stock for $18 per share. The amount of the proceeds allocated to Nall's preferred stock should be a. $70,000. b. $84,000. c. $90,000. d. $77,000.
b
Presented below is information related to Hale Corporation: Common Stock, $1 par $3,500,000 Paid-in Capital in Excess of Par—Common Stock 550,000 Preferred 8 1/2% Stock, $50 par 2,000,000 Paid-in Capital in Excess of Par—Preferred Stock 400,000 Retained Earnings 1,500,000 Treasury Common Stock (at cost) 150,000 The total paid-in capital (cash collected) related to the common stock is a. $3,500,000. b. $4,050,000. c. $5,450,000. d. $3,900,000.
b
Presented below is information related to Orender, Inc.: December 31, 2018 2017 Common stock $ 75,000 $ 60,000 5% Preferred stock 350,000 350,000 Retained earnings (includes net income for current year) 90,000 75,000 Net income for year 35,500 32,000 What is Orender's rate of return on common stock equity for 2018? a. 23.7% b. 12.0% c. 10.9% d. 21.5%
b
Quirk Corporation issued a 100% stock dividend of its common stock which had a par value of $10 before and after the dividend. At what amount should retained earnings be capitalized for the additional shares issued? a. There should be no capitalization of retained earnings. b. Par value c. Fair value on the declaration date d. Fair value on the payment date
b
The balance in Common Stock Dividend Distributable should be reported as a(n) a. deduction from common stock issued. b. addition to capital stock. c. current liability. d. contra current asset
b
The cumulative feature of preferred stock a. limits the amount of cumulative dividends to the par value of the preferred stock. b. requires that dividends not paid in any year must be made up in a later year before dividends are distributed to common shareholders. c. means that the shareholder can accumulate preferred stock until it is equal to the par value of common stock at which time it can be converted into common stock. d. enables a preferred stockholder to accumulate dividends until they equal the par value of the stock and receive the stock in place of the cash dividends.
b
The declaration and issuance of a stock dividend larger than 25% of the shares previously outstanding a. increases common stock outstanding and increases total stockholders' equity. b. decreases retained earnings but does not change total stockholders' equity. c. may increase or decrease paid-in capital in excess of par but does not change total stockholders' equity. d. increases retained earnings and increases total stockholders' equity.
b
The payout ratio can be calculated by dividing a. dividends per share by earnings per share. b. cash dividends by net income less preferred dividends. c. cash dividends by market price per share. d. dividends per share by earnings per share and dividing cash dividends by net income less preferred dividends.
b
The preemptive right of a common stockholder is the right to a. share proportionately in corporate assets upon liquidation. b. share proportionately in any new issues of stock of the same class. c. receive cash dividends before they are distributed to preferred stockholders. d. exclude preferred stockholders from voting rights
b
The stockholders' equity of Howell Company at July 31, 2018 is presented below: Common stock, par value $20, authorized 400,000 shares; issued and outstanding 160,000 shares $3,200,000 Paid-in capital in excess of par 160,000 Retained earnings 650,000 $4,010,000 On August 1, 2018, the board of directors of Howell declared a 15% stock dividend on common stock, to be distributed on September 15th. The market price of Howell's common stock was $70 on August 1, 2018, and $76 on September 15, 2018. What is the amount of the debit to retained earnings as a result of the declaration and distribution of this stock dividend? a. $ 960,000. b. $1,680,000. c. $1,824,000. d. $ 1,200,000
b
Turner Corporation had the following information in its financial statements for the year ended 2017 and 2018: Common cash dividends for the year 2018 $ 20,000 Net income for the year ended 2018 130,000 Market price of stock, 12/31/18 24 Common stockholders' equity, 12/31/17 2,200,000 Common stockholders' equity, 12/31/18 2,700,000 Outstanding shares, 12/31/18 150,000 Preferred dividends for the year ended 2018 30,000 What is the book value per share for Turner Corporation for the year ended 2018? a. $17.80 b. $18.00 c. $14.67 d. $17.67
b
Turner Corporation had the following information in its financial statements for the year ended 2017 and 2018: Common cash dividends for the year 2018 $ 20,000 Net income for the year ended 2018 130,000 Market price of stock, 12/31/18 24 Common stockholders' equity, 12/31/17 2,200,000 Common stockholders' equity, 12/31/18 2,700,000 Outstanding shares, 12/31/18 150,000 Preferred dividends for the year ended 2018 30,000 What is the payout ratio for Turner Corporation for the year ended 2018? a. 15.4% b. 20.0% c. 23.1% d. 38.5%
b
When a corporation issues its capital stock in payment for services, the least appropriate basis for recording the transaction is the a. market value of the services received. b. par value of the shares issued. c. market value of the shares issued. d. The market value of the services received or the market value of the share issues
b
Which dividends do not reduce stockholders' equity? a. Cash dividends b. Stock dividends c. Property dividends d. Liquidating dividends
b
Which of the following is not a legal restriction related to profit distributions by a corporation? a. The amount distributed to owners must be in compliance with the state laws governing corporations. b. The amount distributed in any one year can never exceed the net income reported for that year. c. Profit distributions must be formally approved by the board of directors. d. Dividends must be in full agreement with the capital stock contracts as to preferences and participation.
b
Which one of the following disclosures should be made in the equity section of the balance sheet, rather than in the notes to the financial statements? a. Dividend preferences b. Liquidation preferences c. Call prices d. Conversion or exercise prices
b
Written, Inc. has outstanding 600,000 shares of $2 par common stock and 120,000 shares of no-par 6% preferred stock with a stated value of $5. The preferred stock is cumulative and nonparticipating. Dividends have been paid in every year except the past two years and the current year. Assuming that $225,000 will be distributed as a dividend in the current year, how much will the common stockholders receive? a. Zero. b. $117,000. c. $153,000. d. $189,000
b
Written, Inc. has outstanding 600,000 shares of $2 par common stock and 120,000 shares of no-par 6% preferred stock with a stated value of $5. The preferred stock is cumulative and participating. Dividends have been paid in every year except the past two years and the current year. Assuming that $270,000 will be distributed, how much will the common stockholders receive? a. $162,000. b. $132,000. c. $138,000. d. $ 72,000
b
An analysis of stockholders' equity of Hahn Corporation as of January 1, 2018, is as follows: Common stock, par value $20; authorized 100,000 shares; issued and outstanding 90,000 shares $1,800,000 Paid-in capital in excess of par 900,000 Retained earnings 760,000 Total $3,460,000 Hahn uses the cost method of accounting for treasury stock and during 2018 entered into the following transactions: Acquired 2,500 shares of its stock for $75,000. Sold 2,000 treasury shares at $35 per share. Sold the remaining treasury shares at $20 per share. Assuming no other equity transactions occurred during 2018, what should Hahn report at December 31, 2018, as total additional paid-in capital? a. $895,000 b. $900,000 c. $905,000 d. $915,000
c
At December 31, 2017 and 2018, Plank Corp. had outstanding 4,000 shares of $100 par value 6% cumulative preferred stock and 20,000 shares of $10 par value common stock. At December 31, 2017, dividends in arrears on the preferred stock were $12,000. Cash dividends declared in 2018 totaled $45,000. What amounts were payable on each class of stock? Preferred Stock Common Stock a. $24,000 $21,000 b. $33,000 $12,000 c. $36,000 $9,000 d. $45,000 $0
c
At its date of incorporation, Sauder, Inc. issued 100,000 shares of its $10 par common stock at $11 per share. During the current year, Sauder acquired 20,000 shares of its common stock at a price of $16 per share and accounted for them by the cost method. Subsequently, these shares were reissued at a price of $12 per share. There have been no other issuances or acquisitions of its own common stock. What effect does the reissuance of the stock have on the following accounts? Retained Earnings Additional Paid-in Capital a. Decrease Decrease b. No effect Decrease c. Decrease No effect d. No effect No effect
c
At the date of the financial statements, common stock shares issued would exceed common stock shares outstanding as a result of the a. declaration of a stock split. b. declaration of a stock dividend. c. purchase of treasury stock. d. payment in full of subscribed stock.
c
Cash dividends are paid on the basis of the number of shares a. authorized. b. issued. c. outstanding. d. outstanding less the number of treasury shares
c
Common stockholders of a business enterprise are said to be the residual owners. The term residual owner means that shareholders a. are entitled to a dividend every year in which the business earns a profit. b. have the rights to specific assets of the business. c. bear the ultimate risks and uncertainties and receive the benefits of enterprise ownership. d. can negotiate individual contracts on behalf of the enterprise
c
Cumulative preferred dividends in arrears should be shown in a corporation's balance sheet as a. an increase in current liabilities. b. an increase in stockholders' equity. c. a footnote. d. an increase in current liabilities for the current portion and long-term liabilities for the long-term portion.
c
Dividends are not paid on a. noncumulative preferred stock. b. nonparticipating preferred stock. c. treasury common stock. d. cumulative preferred stock
c
Horton Co. was organized on January 2, 2018, with 500,000 authorized shares of $10 par value common stock. During 2018, Horton had the following capital transactions: January 5—issued 375,000 shares at $14 per share. July 27—purchased 25,000 shares at $11 per share. November 25—sold 15,000 shares of treasury stock at $13 per share. Horton used the cost method to record the purchase of the treasury shares. What would be the balance in the Paid-in Capital from Treasury Stock account at December 31, 2018? a. $0. b. $15,000. c. $30,000. d. $45,000.
c
Layne Corporation had the following information in its financial statements for the years ended 2017 and 2018: Cash dividends for the year 2018 $ 10,000 Net income for the year ended 2018 93,000 Market price of stock, 12/31/17 10 Market price of stock, 12/31/18 12 Common stockholders' equity, 12/31/17 1,600,000 Common stockholders' equity, 12/31/18 1,980,000 Outstanding shares, 12/31/18 160,000 Preferred dividends for the year ended 2018 15,000 What is the payout ratio for Layne Corporation for the year ended 2018? a. 18.1% b. 16.1% c. 12.8% d. 10.8%
c
Long Co. issued 100,000 shares of $10 par common stock for $1,200,000. A year later Long acquired 16,000 shares of its own common stock at $15 per share. Three months later Long sold 8,000 of these shares at $19 per share. If the cost method is used to record treasury stock transactions, to record the sale of the 8,000 treasury shares, Long should credit a. Treasury Stock for $152,000. b. Treasury Stock for $80,000 and Paid-in Capital from Treasury Stock for $72,000. c. Treasury Stock for $120,000 and Paid-in Capital from Treasury Stock for $32,000. d. Treasury Stock for $120,000 and Paid-in Capital in Excess of Par for $32,000.
c
Luther Inc., has 4,000 shares of 5%, $50 par value, cumulative preferred stock and 100,000 shares of $1 par value common stock outstanding at December 31, 2018, and December 31, 2017. The board of directors declared and paid an $8,000 dividend in 2017. In 2018, $40,000 of dividends are declared and paid. What are the dividends received by the preferred stockholders in 2018? a. $28,000 b. $20,000 c. $12,000 d. $10,000
c
Norton Company issues 4,000 shares of its $5 par value common stock having a fair value of $25 per share and 6,000 shares of its $15 par value preferred stock having a fair value of $20 per share for a lump sum of $205,000. What amount of the proceeds should be allocated to the preferred stock? a. $167,727 b. $128,125 c. $111,818 d. $93,181
c
On December 1, 2018, Abel Corporation exchanged 50,000 shares of its $10 par value common stock held in treasury for a used machine. The treasury shares were acquired by Abel at a cost of $40 per share, and are accounted for under the cost method. On the date of the exchange, the common stock had a fair value of $55 per share (the shares were originally issued at $30 per share). As a result of this exchange, Abel's total stockholders' equity will increase by a. $ 500,000. b. $2,000,000. c. $2,750,000. d. $2,250,000.
c
On June 30, 2018, when Ermler Co.'s stock was selling at $65 per share, its capital accounts were as follows: Capital stock (par value $50; 60,000 shares issued) $3,000,000 Premium on capital stock 600,000 Retained earnings 4,200,000 If a 100% stock dividend were declared and distributed, capital stock would be a. $3,000,000. b. $3,600,000. c. $6,000,000. d. $7,800,000.
c
Pierson Corporation owned 15,000 shares of Hunter Corporation. These shares were purchased in 2014 for $135,000. On November 15, 2018, Pierson declared a property dividend of one share of Hunter for every ten shares of Pierson held by a stockholder. On that date, when the market price of Hunter was $28 per share, there were 135,000 shares of Pierson outstanding. What gain and net reduction in retained earnings would result from this property dividend? Gain Net Reduction in Retained Earnings a. $0 $378,000 b. $0 $121,500 c. $256,500 $121,500 d. $256,500 $ 34,000
c
Sealy Corporation had the following information in its financial statements for the years ended 2017 and 2018: Cash dividends for the year 2018 $ 10,000 Net income for the year ended 2018 97,000 Market price of stock, 12/31/17 10 Market price of stock, 12/31/18 12 Common stockholders' equity, 12/31/17 1,000,000 Common stockholders' equity, 12/31/18 1,200,000 Outstanding shares, 12/31/18 100,000 Preferred dividends for the year ended 2018 15,000 What is the payout ratio for Sealy Corporation for the year ended 2018? a. 18.3% b. 10.3% c. 12.2% d. 25.8%
c
Sealy Corporation had the following information in its financial statements for the years ended 2017 and 2018: Cash dividends for the year 2018 $ 5,000 Net income for the year ended 2018 97,000 Market price of stock, 12/31/17 10 Market price of stock, 12/31/18 12 Common stockholders' equity, 12/31/17 1,000,000 Common stockholders' equity, 12/31/18 1,200,000 Outstanding shares, 12/31/18 100,000 Preferred dividends for the year ended 2018 15,000 What is the rate of return on common stock equity for Sealy Corporation for the year ended 2018? a. 8.8% b. 6.8% c. 7.5% d. 6.5%
c
Sosa Co.'s stockholders' equity at January 1, 2018 is as follows: Common stock, $10 par value; authorized 300,000 shares; Outstanding 225,000 shares $2,250,000 Paid-in capital in excess of par 800,000 Retained earnings 2,190,000 Total $5,240,000 During 2018, Sosa had the following stock transactions: Acquired 6,000 shares of its stock for $270,000. Sold 3,600 treasury shares at $50 a share. Sold the remaining treasury shares at $41 per share. No other stock transactions occurred during 2018. Assuming Sosa uses the cost method to record treasury stock transactions, the total amount of all additional paid-in capital accounts at December 31, 2018 is a. $791,600. b. $770,000. c. $808,400. d. $827,600.
c
The following data are provided: December 31, 2018 2017 5% Cumulative preferred stock, $50 par $100,000 $100,000 Common stock, $10 par 140,000 90,000 Additional paid-in capital 80,000 70,000 Retained earnings (includes current year net income) 250,000 215,000 Net income 50,000 Additional information: On May 1, 2018, 5,000 shares of common stock were issued. The preferred dividends were not declared during 2018. The market price of the common stock was $50 at December 31, 2018. The rate of return on common stock equity for 2018 is calculated as a. 50 ÷ 420. b. 50 ÷ 470. c. 45 ÷ 420. d. 45 ÷ 470
c
The residual interest in a corporation belongs to the a. management. b. creditors. c. common stockholders. d. preferred stockholders.
c
Total stockholders' equity represents a. a claim to specific assets contributed by the owners. b. the maximum amount that can be borrowed by a company. c. a claim against a portion of the total assets of a company. d. only the amount of earnings that have been retained in the business
c
What effect does the issuance of a 2-for-1 stock split have on each of the following? Par Value per Share Retained Earnings a. No effect No effect b. Increase No effect c. Decrease No effect d. Decrease Decrease
c
Wheeler Company issued 5,000 shares of its $5 par value common stock having a fair value of $25 per share and 7,500 shares of its $15 par value preferred stock having a fair value of $20 per share for a lump sum of $253,000. The proceeds allocated to the preferred stock is a. $151,800 b. $150,000 c. $138,000 d. $115,000
c
When treasury stock is purchased for more than the par value of the stock and the cost method is used to account for treasury stock, what account(s) should be debited? a. Treasury stock for the par value and paid-in capital in excess of par for the excess of the purchase price over the par value. b. Paid-in capital in excess of par for the purchase price. c. Treasury stock for the purchase price. d. Treasury stock for the par value and retained earnings for the excess of the purchase price over the par value.
c
Which of the following best describes a possible result of treasury stock transactions by a corporation? a. May increase but not decrease retained earnings. b. May increase net income if the cost method is used. c. May decrease but not increase retained earnings. d. May decrease but not increase net income.
c
Which of the following features of preferred stock makes it more like a debt than an equity instrument? a. Participating b. Voting c. Redeemable d. Noncumulative
c
Which of the following statements about property dividends is not true? a. A property dividend is usually in the form of securities of other companies. b. A property dividend is also called a dividend in kind. c. The accounting for a property dividend should be based on the carrying value (book value) of the nonmonetary assets transferred. d. Property dividends may be merchandise or real estate.
c
Winger Corporation owned 900,000 shares of Fegan Corporation stock. On December 31, 2018, when Winger's account "Equity Investments (Fegan Corporation") had a carrying value of $5 per share, Winger distributed these shares to its stockholders as a dividend. Winger originally paid $8 for each share. Fegan has 5,000,000 shares issued and outstanding, which are traded on a national stock exchange. The quoted market price for a Fegan share was $7 on the declaration date and $9 on the distribution date. What would be the reduction in Winger's stockholders' equity as a result of the above transactions? a. $3,600,000 b. $4,500,000 c. $7,200,000 d. $8,100,000
c
Yoder, Inc. has 150,000 shares of $10 par value common stock and 75,000 shares of $10 par value, 4%, cumulative, participating preferred stock outstanding. Dividends on the preferred stock are one year in arrears. Assuming that Yoder wishes to distribute $270,000 as dividends, the common stockholders will receive a. $ 60,000. b. $110,000. c. $160,000. d. $210,000.
c
Younger Company has outstanding both common stock and nonparticipating, non-cumulative preferred stock. The liquidation value of the preferred is equal to its par value. The book value per share of the common stock is unaffected by a. the declaration of a stock dividend on preferred payable in preferred stock when the market price of the preferred is equal to its par value. b. the declaration of a stock dividend on common stock payable in common stock when the market price of the common is equal to its par value. c. the payment of a previously declared cash dividend on the common stock. d. a 2-for-1 split of the common stock
c
A corporation was organized in January 2018 with authorized capital of $10 par value common stock. On February 1, 2018, shares were issued at par for cash. On March 1, 2018, the corporation's attorney accepted 7,000 shares of common stock in settlement for legal services with a fair value of $90,000. Additional paid-in capital would increase on February 1, 2018 March 1, 2018 a. Yes No b. Yes Yes c. No No d. No Yes
d
A primary source of stockholders' equity is a. income retained by the corporation. b. appropriated retained earnings. c. contributions by stockholders. d. both income retained by the corporation and contributions by stockholders
d
At the beginning of 2018, Hamilton Company had retained earnings of $320,000. During the year Hamilton reported net income of $75,000, sold treasury stock at a "gain" of $27,000, declared a cash dividend of $45,000, and declared and issued a small stock dividend of 1,500 shares ($10 par value) when the fair value of the stock was $30 per share. The amount of retained earnings available for dividends at the end of 2018 was: a. $354,500. b. $332,000. c. $327,500. d. $305,000
d
Berry Corporation has 100,000 shares of $10 par common stock authorized. The following transactions took place during 2017, the first year of the corporation's existence: Sold 20,000 shares of common stock for $13.50 per share. Issued 20,000 shares of common stock in exchange for a patent valued at $300,000. At the end of the Berry's first year, total paid-in capital amounted to a. $120,000. b. $270,000. c. $300,000. d. $570,000.
d
Farmer Corp. owned 20,000 shares of Eaton Corp. purchased in 2014 for $550,000. On December 15, 2017, Farmer declared a property dividend of all of its Eaton Corp. shares on the basis of one share of Eaton for every 10 shares of Farmer common stock held by its stockholders. The property dividend was distributed on January 15, 2018. On the declaration date, the aggregate market price of the Eaton shares held by Farmer was $900,000. The entry to record the declaration of the dividend would include a debit to Retained Earnings of a. $0. b. $350,000. c. $550,000. d. $900,000.
d
How would the declaration and subsequent issuance of a 10% stock dividend by the issuer affect each of the following when the fair value of the shares exceeds the par value of the stock? Additional Common Stock Paid-in Capital a. No effect No effect b. No effect Increase c. Increase No effect d. Increase Increase
d
Melvern's Corporation has an investment in 20,000 shares of Wallace Company common stock with a cost of $872,000. These shares are used in a property dividend to stockholders of Melvern's. The property dividend is declared on May 25 and scheduled to be distributed on July 31 to stockholders of record on June 15. The fair value per share of Wallace stock is $63 on May 25, $66 on June 15, and $68 on July 31. The net effect of this property dividend on retained earnings is a reduction of a. $1,360,000. b. $1,320,000. c. $1,260,000. d. $ 872,000.
d
Mingenback Company has 630,000 shares of $10 par value common stock outstanding. During the year Mingenback declared a 15% stock dividend when the market price of the stock was $48 per share. Two months later Mingenback declared a $.60 per share cash dividend. As a result of the dividends declared during the year, retained earnings decreased by: a. $ 434,700. b. $ 594,000. c. $4,536,000. d. $4,970,700.
d
On May 1, 2018, Ziek Corp. declared and issued a 10% common stock dividend. Prior to this dividend, Ziek had 200,000 shares of $1 par value common stock issued and outstanding. The fair value of Ziek 's common stock was $25 per share on May 1, 2018. As a result of this stock dividend, Ziek's total stockholders' equity a. increased by $500,000. b. decreased by $500,000. c. decreased by $25,000. d. did not change.
d
On September 1, 2017, Valdez Company reacquired 30,000 shares of its $10 par value common stock for $15 per share. Valdez uses the cost method to account for treasury stock. The journal entry to record the reacquisition of the stock should debit a. Treasury Stock for $300,000. b. Common Stock for $300,000. c. Common Stock for $300,000 and Paid-in Capital in Excess of Par for $150,000. d. Treasury Stock for $450,000.
d
Pember Corporation started business in 2012 by issuing 200,000 shares of $20 par common stock for $27 each. In 2017, 25,000 of these shares were purchased for $39 per share by Pember Corporation and held as treasury stock. On June 15, 2018, these 25,000 shares were exchanged for a piece of property that had an assessed value of $760,000. Pember's stock is actively traded and had a market price of $45 on June 15, 2018. The cost method is used to account for treasury stock. The amount of paid-in capital from treasury stock transactions resulting from the above events would be a. $750,000. b. $450,000. c. $215,000. d. $150,000
d
Percy Corporation was organized on January 1, 2018, with an authorization of 1,200,000 shares of common stock with a par value of $6 per share. During 2018, the corporation had the following capital transactions: January 5 issued 600,000 shares @ $10 per share July 28 purchased 80,000 shares @ $11 per share December 31 sold the 80,000 shares held in treasury @ $18 per share Percy used the cost method to record the purchase and reissuance of the treasury shares. What is the total amount of additional paid-in capital as of December 31, 2018? a. $-0-. b. $1,840,000. c. $2,400,000. d. $2,960,000.
d
Stinson Corporation owned 40,000 shares of Matile Corporation. These shares were purchased in 2014 for $360,000. On November 15, 2018, Stinson declared a property dividend of one share of Matile for every ten shares of Stinson held by a stockholder. On that date, when the market price of Matile was $28 per share, there were 360,000 shares of Stinson outstanding. What gain and net reduction in retained earnings would result from this property dividend? Gain Net Reduction in Retained Earnings a. $0 $ 324,000 b. $0 $1,008,000 c. $684,000 $ 144,000 d. $684,000 $ 324,000
d
Stock that has a fixed per-share amount printed on each stock certificate is called a. stated value stock. b. fixed value stock. c. uniform value stock. d. par value stock.
d
Stockholders' equity is generally classified into two major categories: a. contributed capital and appropriated capital. b. appropriated capital and retained earnings. c. retained earnings and unappropriated capital. d. earned capital and contributed capital
d
The accounting problem in a lump sum issuance is the allocation of proceeds between the classes of securities. An acceptable method of allocation is a. the pro forma method. b. the proportional method. c. the incremental method. d. either the proportional method or the incremental method.
d
The preemptive right enables a stockholder to a. receive the same amount of dividends on a percentage basis as the preferred stockholders. b. receive cash dividendsafter other classes of stock withthe preemptive right. c. buy capital stock back to the corporation at the option of the stockholder. d. receive unequal amounts of dividends ona percentage basis as the preferred stockholders,
d
Treasury shares are shares a. held as an investment by the treasurer of the corporation. b. held as an investment of the corporation. c. issued and outstanding. d. issued but not outstanding.
d
Written, Inc. has outstanding 600,000 shares of $2 par common stock and 120,000 shares of no-par 6% preferred stock with a stated value of $5. The preferred stock is cumulative and nonparticipating. Dividends have been paid in every year except the past two years and the current year. Assuming that $95,000 will be distributed as a dividend in the current year, how much will the preferred stockholders receive? a. $32,000. b. $36,000. c. $72,000. d. $95,000.
d