Orion Chapter 11

Design Dividends on preferred stock Corporation has 400,000 shares of $10 par-value common stock issued and outstanding when the market price per share is $25 per share. By what amount will total equity increase when the company declares a 2:1 stock split?

$0

Spears Corporation recently issued 100,000 shares of its $2 par value common stock for $315,000. Which amounts represent legal capital and total paid-in capital, respectively?

$200,000 and $315,000

The board of directors of Pilgrim Company authorizes a $100,000 restriction of retained earnings for a future plant expansion. This action will

reduce the amount of retained earnings available for dividend declarations.

Romine Industries has total stockholders' equity of $4,982,000. Given the following information, what is the company's total additional paid-in capital? Common Stock, $3 par (400,000 shares authorized, 358,000 shares issued and outstanding). Preferred Stock, 4%, $100 par (5,000 shares authorized, issued, and outstanding). Retained Earnings (ending balance): $2,619,000

$789,000

In 2015, First Inc. issued 12,000 shares of 8%, $60 par-value preferred stock with a cumulative-dividend feature. In 2015, the firm paid total dividends of $30,000, and in 2016, it paid total dividends of $45,000. If First declares $180,000 in total dividends for 2017, what amount will be available for its common stockholders?

$82,200

Tabitha and Gerald are discussing common stock that they hold. Tabitha states that she purchased hers through the New York Stock Exchange, but Gerald says that he purchased his by investing in his brother-in-law's company. What is the difference between the investments of Tabitha and Gerald?

Tabitha owns stock of a publicly held corporation, whereas Gerald owns stock of a privately held corporation.

How does the accounting process differ if a company issues both common and preferred stock instead of only common stock?

The Paid-in Capital in Excess of Par Value account must be designated as either Preferred Stock or Common Stock if both types of stock are issued, whereas the designation is not necessary if only common stock is issued.

Which of the following is true about corporations?

The corporation's life is stipulated in its charter.

What happens if no-par stock is issued without a stated value?

The entire proceeds are credited to common stock.

What happens if no-par value stock does not have a stated value?

The entire proceeds from the issuance of the stock become legal capital.

Candela Company has retained earnings of $500,000, common stock of $400,000, and total common stockholders' equity of $1,200,000. It has 200,000 shares of $2 par value common stock outstanding which is currently selling for $5 per share. If Candela Company declares a 2-for-1 stock split on its common stock, which of the following will occur?

There will be no effect on total common stockholders' equity.

Which of the following companies has the LOWEST payout ratio?

a company with $18 million cash dividends declared on common stock and a net income of $94 million

Which of the following companies has the highest return on common stockholders' equity?

a company with a net income of $17 million, preferred dividends of $950,000, and average common stockholders' equity of $90 million

To find the return on common stockholders' equity, divide net income available to common stockholders by ________ stockholders' equity.

average common

When a corporation purchases treasury stock, the acquisition

decreases the company's total assets and total stockholders' equity.

One major difference between a partnership and a corporation is that

in a partnership, the acts of the owners bind the partnership, but in a corporation, the acts of the owners do not bind the partnership unless they are also an agent of the corporation.

When a company declares a stock dividend, the declaration will

increase paid-in capital.

One reason that companies often choose to issue no-par value common stock rather than par value common stock is that

there is no relationship between par value and market price.

Jennifer and Hernando are both accountants at their companies. Both companies issued new shares of common stock. When Jennifer journalized her stock transaction, she credited both the Common Stock and the Paid-in Capital in Excess of Stated Value account. When Hernando journalized his stock transaction, he only credited the Common Stock account. What is one reason this difference may have occurred?

Jennifer's stock was no-par common stock with a stated value that sold for more than the stated value, and Hernando's stock was no-par common stock without a stated value.

When companies set their dividend payout, they generally aim for a rate that is

sustainable.

The following data is available for Wingate Corporation at December 31st, 2017: Common stock, par $10 (authorized 30,000 shares) $260,000 Treasury stock (at cost $15 per share) $1,200 Based on the data, how many shares of common stock are issued?

$26,000

A-Team Corporation issued 1,000 shares of $5 par value stock for land. The stock is actively traded at $9 per share. The land was advertised for sale at $10,500. The land should be recorded at

$9,000.

What is the return on common stockholders' equity based on the following: Beginning Common Stock: $1 par (500,000 shares authorized, 400,000 shares outstanding) Beginning Additional Paid-in Capital, Common Stock: $1,600,000 Ending Common Stock: $1 par (500,000 shares authorized, 460,000 shares outstanding) Ending Additional Paid-in Capital, Common Stock: $1,800,000 Net Income: $362,500 Preferred Stock throughout the year: 8%, $50 par (10,000 shares authorized and outstanding).

15.1%

When a company offers a ________, the event does not require a formal journal entry on a corporation's books.

2-for-1 stock split

Taft Industries had 250,000 shares of common stock outstanding before a stock split occurred and 500,000 shares outstanding after the stock split. The stock split was

2-for-1.

Which of the following statements is true?

A corporation can buy, sell, and own property.

In what way is a corporation different from a sole proprietorship or partnership?

A corporation is subject to more federal and state government regulations.

Which of the following statements is true?

Both a stock split and a stock dividend will increase the number of shares outstanding but will have no effect on total stockholders' equity.

Claire and David hold stock in two different companies, but both recently received additional shares of common stock rather than a cash dividend. After receiving the additional stock, the par value of Claire's stock decreased by 67%, but the par value of David's stock remained the same. What is the difference between Claire and David?

Claire received a stock split, and David received a stock dividend.

ABC Corporation issues 1,000 shares of $10 par value common stock at $12 per share. In recording the transaction, credits are made to

Common Stock $10,000 and Paid-in Capital in Excess of Par-Common Stock $2,000.

Edge Corporation issues 20,000 shares of $5 stated value no par stock in exchange for land with an advertised price of $125,000 when the stock is actively trading for $6 per share. Journalize the entry to recognize the exchange.

Land $120,000 Common Stock $100,000 Paid-in Capital in Excess of Stated Value - Common Stock $20,000

Felix Incorporated has just exchanged 1,250 shares of $65 par-value preferred stock for a parcel of land advertised for a price of $90,000. If the current market value of the stock is $75 per share, how should Felix journalize this transaction?

Land = Debit of $93,750; Preferred Stock = Credit of $81,250; Paid-in Capital in Excess of Par—Preferred Stock = Credit of $12,500

Hadley Corporation issued 200,000 shares of $5 par value common stock for $25 per share. During that year, the corporation sustained a net loss of $40,000. The year-end balance sheet would show

common stock of $1,000,000.

Clayworks Corporation issued 300,000 shares of $5 par value common stock for $26 per share. During that year, the corporation sustained a net loss of $80,000. The year-end balance sheet would show

common stock of $1,500,000.

Stewart Soaps began business by issuing 25,000 shares of $5 par value common stock for $20 per share. During its first year, the corporation sustained a net loss of $5,000. The year-end balance sheet would show

common stock of $125,000.

Closeknit Corporation has a limited number of stockholders. As a privately held corporation, Closeknit is exempt from

issuing reports to the SEC.

Which value of stock is most relevant for potential stockholders of a corporation?

market price

The issuance of common stock affects

only the paid-in capital account.