312 Chapter 15 MC Questions

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 extraordinary item shown on the income statement.

As paid-in capital from treasury stock transactions.

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.

May decrease but not increase retained earnings.

Which dividends do not reduce stockholders' equity? a. Cash dividends b. Stock dividends c. Property dividends d. Liquidating dividends

Stock dividends

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. All of these statements are true.

The accounting for a property dividend should be based on the carrying value (book value) of the nonmonetary assets transferred.

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.

Treasury stock for the purchase price.

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. All of these are acceptable.

a credit to Common Stock.

A mining company declared a liquidating dividend. The journal entry to record the declaration must include a debit to a. Treasury Stock. b. a paid-in capital account. c. Accumulated Depletion. d. Accumulated Depreciation.

a paid-in capital account.

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.

addition to capital stock.

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.

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

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.

both income retained by the corporation and contributions by stockholders.

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. Decrease No effect

The residual interest in a corporation belongs to the a. management. b. creditors. c. common stockholders. d. preferred stockholders.

common stockholders

An entry is not made on the a. date of declaration. b. date of record. c. date of payment. d. An entry is made on all of these dates.

date of record

In January 2017, Castro Corporation, a newly formed company, issued 10,000 shares of its $10 par common stock for $15 per share. On July 1, 2017, Castro 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.

decreased total stockholders' equity

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.

decreases retained earnings but does not change total stockholders' equity.

The general rule to be applied when stock is issued for services or property other than cash is that the property or services be recorded at: a. the fair market value of the stock issued. a. the fair market value of the noncash consideration received. c. either the fair market value of the stock issued or the fair market value of the noncash consideration received, whichever is more clearly determinable. d. a value that clearly reflects the intentions of the parties entering into the transaction and provides a relevant basis for recording.

either the fair market value of the stock issued or the fair market value of the noncash consideration received, whichever is more clearly determinable.

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 a. pro forma method. b. proportional method. c. incremental method. d. either the proportional method or the incremental method.

either the proportional method or the incremental method.

Treasury shares are a. shares held as an investment by the treasurer of the corporation. b. shares held as an investment of the corporation. c. issued and outstanding shares. d. issued but not outstanding shares.

issued but not outstanding shares

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.

liquidating dividend.

The issuer of a 5% common stock dividend to common stockholders preferably should transfer from retained earnings to contributed capital an amount equal to the a. market 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.

market value of the shares issued.

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.

outstanding

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. Any of these provides an appropriate basis for recording the transaction.

par value of the shares issued.

Farmer Corporation owns 4,000,000 shares of stock in Baha Corporation. On December 31, 2017, Farmer 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.

property dividend.

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

purchase of treasury stock.

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.

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

The pre-emptive right enables a stockholder to a. share proportionately in any new issues of stock of the same class. b. receive cash dividends before other classes of stock without the pre-emptive right. c. sell capital stock back to the corporation at the option of the stockholder. d. receive the same amount of dividends on a percentage basis as the preferred stockholders

share proportionately in any new issues of stock of the same class.

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.

stock dividend.

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.

that there is no effect on total stockholders' equity.

When common stock is sold by a corporation a journal entry is prepared which includes a debit to cash and a credit to the common stock account. If the debit to cash is greater than the credit to the common stock account then it can be assumed that: a. the common stock is worth more than its current market value. b. a gain on the sale of stock is a part of the transaction. c. the common stock was sold at a discount d. the par or stated value of the common stock is less than the per share price investors were willing to pay.

the par or stated value of the common stock is less than the per share price investors were willing to pay.

Normally, stock issued by a corporation has certain rights and privileges that can be restricted only by special contracts at the time the shares are issued. In the absence of restrictive provisions, each share carries all of the following rights except: a. to share proportionately in profits and losses. b. to share proportionately in corporate assets upon liquidation. c. to share proportionately in any new issue of stocks or bonds by the corporation. d. to share proportionately in management of the corporation.

to share proportionately in any new issue of stocks or bonds by the corporation.

Dividends are not paid on a. noncumulative preferred stock. b. nonparticipating preferred stock. c. treasury common stock. d. Dividends are paid on all of these.

treasury common stock.