302 Ch. 15 LO1

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

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

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

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

Companies allocate the proceeds received from a lump-sum sale of securities based on the securities' par values.

F

Earned capital consists of additional paid-in capital and retained earnings.

F

Participating preferred stock requires that if a company fails to pay a dividend in any year, it must make it up in a later year before paying any common dividends.

F

The preemptive right allows stockholders the right to vote for directors of the company.

F

A corporation is incorporated in only one state regardless of the number of states in which it operates.

T

Callable preferred stock permits the corporation at its option to redeem the outstanding preferred shares at specified future dates and at stipulated prices.

T

Common stock is the residual corporate interest that bears the ultimate risks of loss.

T

Companies should record stock issued for services or noncash property at either the fair value of the stock issued or the fair value of the consideration received, whichever is more clearly determinable.

T

True no-par stock should be carried in the accounts at issue price without any additional paid-in capital reported.

T

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

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

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,

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

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

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

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

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

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

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 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

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

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

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

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