ACCT 2301-01 - Chapter 11 Homework

A company reported net income of $5.6 million. At the beginning of the year, 3.4 million shares of common stock were outstanding and at the end of the year, 3.6 million shares were outstanding. No dividends were declared. The EPS is approximately:

$1.60.

Which of the following accounts is used to record a small stock dividend on common stock but is not used to record a large stock dividend on common stock?

Additional Paid-In Capital

If shares of common stock are issued at a market price greater than par value, the amount in excess of par should be credited to:

Additional Paid-in Capital.

Why is Additional Paid-In Capital recorded for a small stock dividend?

Because small stock dividends are recorded at market value.

Which of the following organizations is required by law to apply for a charter?

Corporation

Which of the following statements about dividends in arrears is correct?

Dividends in arrears do net appear on the balance sheet or require a journal entry.

Preferred stock has some distinctly different characteristics from common stock. Which of the characteristics below is not related to preferred stock?

It generally has voting rights.

Which of the following statements about Retained Earnings is correct?

Retained Earnings generally consists of cumulative net income less any net losses and dividends since inception.

How do stock splits and stock dividends impact Retained Earnings?

Stock splits have no effect on Retained Earnings and stock dividends decrease Retained Earnings.

Which number is potentially the largest?

The number of shares authorized.

Daffy Duct, Inc. issued 10,000 shares of no-par value common stock at $10 per share. Miss Hap, the bookkeeper, recorded the transaction with a $100,000 debit to Cash and $100,000 credit to Common stock. Which of the following statements about this situation is correct?

This entry is correct.

Ambiance inc. buys back 3,000 shares of its $10 par value common stock from investors at $45 per share. This stock repurchase would be recorded with a debit to:

Treasury stock and a credit to Cash for $135,000.

A company reported net income of $6 million. During the year the average number of common shares outstanding was 3 million. The price of a share of common stock at the end of the year was $5. There were 400,000 shares of preferred stock outstanding on average and no dividends were declared and the preferred stock is noncumulative. The EPS is approximately:

$2.00.

A company has the following paid-in capital: Preferred stock, 6%, $5 par value, 100,000 shares authorized, 20,000 shares issued and outstanding. --$500,000. Common stock, $9 par value, 300,000 shares authorized, 110,000 shares issued and outstanding. -- $990,000. Use the information above to answer the following question. If the company pays a $100,000 dividend, and the preferred stock is cumulative and three years' dividends are in arrears, what is the amount the preferred stockholders will receive?

$24,000

At the end of the accounting period, but before the closing entries have been recorded, Harry, the proprietor of Harry's Bar and Grill, has a debit of $24,500 in his drawing account and a credit of $126,800 in his capital account. If his capital account has a credit balance of $137,900 after the closing, what was his net income?

$35,600

A corporate charter specifies that the company may sell up to 20 million shares of stock. The company issues 12 million shares to investors and later repurchases 3 million shares. The number of issued shares after these transactions have been accounted for is:

12 million shares.

Which one of the following events would not require a journal entry on a corporation's books?

2-for-1 stock split

A company reported net income of $6 million. During the year the average number of common shares outstanding was 3 million. The price of a share of common stock at the end of the year was $5. There were 400,000 shares of preferred stock outstanding on average and no dividends were declared and the preferred stock is noncumulative. The Price/Earnings ratio is approximately:

2.50.

A corporate charter specifies that the company may issue up to 20 million shares of stock. The company sells 12 million shares to investors and later buys back 3 million shares. The current number of shares of treasury stock after these transactions have been accounted for is:

3 million shares.

Harry owns 1,000 shares of stock in Xit Corporation. What is the effect on Xit Corporation if Harry dies?

A stockholder's death has no effect on a corporation.

`With regards to the Dividends Payable and Dividends accounts, one of the closing entries required at year end, includes a:

debit to Dividends Payable.

The number of shares outstanding equals the number of shares:

issued minus the number of shares in treasury.

For a business to be considered a corporation:

it must be organized as a separate legal entity.

Advantages of the corporate form include all of the following except:

legal liability of its owners is unlimited.

A major advantage of the corporate form of ownership is:

limited legal liability.

Ms. Jessica Duffy purchased 1 share of $10 par value common stock from Ohio Corporation for $50 per share. Ms. Duffy sold that share to Mike Truesdale for $60 per share. As a result of the sale by Duffy to Truesdale sale, Ohio Corporation would:

not debit or credit any of its accounts.

Stock options are given in order to:

provide incentives for employees to work harder.

Holders of common stock receive certain benefits such as a residual claim, which is the:

right to share in any remaining assets after creditors have been paid off, should the company cease operations.

Corporations can raise large amounts of money because:

shares of stock in public companies can easily be bought and sold by investors.

Advantages of debt financing over equity financing includes that:

stockholders' control will not be diluted.

comparing EPS across companies is not advised because:

the number of shares outstanding may vary.

On the date of record for a dividend, the company:

establishes who will receive the dividend payment.

Generally, a relatively high P/E ratio indicates:

improvements in future profitability.

Treasury stock:

is a contra-equity account.

Typically, a profitable company that pays relatively high dividends:

is an attractive investment for those seeking a steady income, like retired people.