ECON 136B Ch. 14 multiple choice

Which of the following disclosures should be made in the equity section of the balance sheet, rather than in the notes to the financial statements?

Liquidation preferences

Which of the following best describes a possible result of treasury stock transaction by a corporation?

May decrease but not increase retained earnings

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?

Par value

Common stock is the only class of stock outstanding in Manley Corporation. Total stockholders' equity divided by the number of common stock shares outstanding is callled

book value per share

Which of the following statements about property dividends is NOT true?

The accounting for a property dividend is based on the book value of the non monetary assets transferred

Which of the following is NOT a legal restriction related to profit distributions by a corporation?

The amount distributed in any one year can never exceed the net income reported for that year

A primary source of stockholders equity is

both income retained by the corporation and contributions by stockholders

The residual interest in a corporation belongs to the

common stockholders

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?

Treasury stock for the purchase price.

What effect does the issuance of a 3-for-1 stock split have on each of the following?

Par Value per Share: Decrease, Retained Earnings: No effect

Cumulative preferred dividends in arrears should be shown in a corporations balance sheet as

a footnote

The balance in Common stock Dividend Distributable is reported as a(n)

addition to capital stock.

redeemable preferred stock is reported

as a liability

Common stockholders of a business enterprise are said to be the residual owners which means that they

bear the ultimate risks and uncertainties and receive the benefits of enterprise ownership

The payout ratio is calculated by dividing

cash dividends by net income less preferred dividends

Total stockholders equity represents

claims against a portion of the total assets of a company

With regard to cash dividends, an entry is NOT made on the

date of record

Treasury shares are shares

issued but not outstanding

A dividend which is a return to stockholders of a portion of their original investments is a

liquidating dividend

Rate of return on common stockholders; equity is calculated by dividing

net income less preferred dividends by average common stockholders' equity

In which of the following transactions is retained earnings capitalized?

stock dividend

Dividends are NOT paid on

treasury stock

The journal entry at the date of declaration of a small common stock dividend does NOT include

a credit to common stock

Direct costs incurred to sell stock such as underwriting costs should be accounted for as

a reduction of additional paid-in capital.

Bramble Corp. purchased its own par value stock on January 1, 2025 for $20300 and debited the treasury stock amount for the purchase price. The stock was subsequently sold for $11400. The $8900 differnce between the cost and sales price should be recorded as a deduction from

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.

Noncumalative preffered dividends in arrears

are not paid or disclosed

Which of the following represents the total number of shares that a corporation may issues under the terms of its charter?

authorized shares

Which of the following could create a secret reserve by undervaluing assets

A capital expenditure is charged to expense

A mining company declared a liquidating dividend. The journal entry to record the declaration will include a debit to

A paid in capital amount

Which of the following statements is true regarding an S corporation?

An S corporation does not pay income tax

In January 2025, Grouper Corporation, a newly formed company, issued 11100 shares of its $.0.10 par common stock for $15 per share. On July 1, 2025, Grouper Corporation reacquired 1110 shares of its outstanding stock for $12 per share. The acquisition of these treasury shares

decreased total stockholders equity

The declaration and issuance of a stock dividend larger than 25% of the shares previously outstanding

decreases retained earning but does not change total stockholders' equity

Stockholders' equity is generally classified into two major categories which are

earned capital and contributed capital

The accounting problem in a lump sum issuance is the allocation of proceeds between the classes of securities. An acceptable method of allocation is the

either the proportional method or the incremental method

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

fair value of the shares issued

How should cumulative preferred dividends in arrears be reported in a corporation's balnce sheet

note disclosure

Cash dividends are paid on the basis of the number of shares

outstanding

"Gains" on sales of treasury stock (using the cost method) should be credited to

paid-in capital from treasury stock

How should a "gain" from the sale of treasury stock be reflected when using the cost method of recording treasury stock transactions?

paid-in capital from treasury stock transactions on the balance sheet

When a corporation issues its capital stock in payment for services, the LEAST appropriate basis for recording the transaction is the

par value of the shares issued

Stock that has a fixed per-share amount printed on each stock certificate is called

par value stock

Vaughn Corporation owns 3950000 shares of stock in sandhill corporation. On December 31, 2025, Vaughn distributed these shares of stock as a dividend to its stockholders. This is an example of a

property dividend

Common stock shares issued will exceed common stock shares outstanding as a result of the

purchase of treasury stock

Which of the following features of preferred stock makes it more like debt rather than equity?

redeemable

The cumulative feature of preferred stock

requires that dividends not paid in any year must be made up in a later year before dividends are distributed to common shareholders.

The rights of common stockholders generally include the rights to

share proportionately in any new issues of common stock

Which type of dividends do not reduce stockholders' equity?

stock dividends

A feature common to both stock splits and stock dividends is

that there is no effect on total stockholders' equity

In a corporate form of business organization, legal capital is best defined as

the par value of all capital stock issued

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

the payment of a previously declared cash dividend on the common stock.