Chapter 10 Stockholder's Equity

A share of 5% preferred stock has a par value of $30 and market value of $100. The owners of the preferred stock will receive a cash dividend of: (Round your answer to the nearest cent.) A) $1.50 per share. B) $70 per share. C) $5.00 per share. D) $30.00 per share.

A

Arnold, Inc. declares and distributes a 10% common stock dividend when it has 10,000 shares of $10 par value common stock outstanding. If the market value of the common stock is $20, the journal entry to record the stock dividend would include a: A) debit to Retained Earnings $20,000. B) debit to Retained Earnings $1000. C) credit to Paid-in Capital in Excess of Par—Common $20,000. D) credit to Paid-in Capital in Excess of Par—Common $1000.

A

For cash dividends, the journal entry on the date of record is: A) non-existent. No journal entry is required on the date of record. B) debit Retained Earnings and credit Dividends Payable. C) debit Dividends and credit Cash. D) debit Dividends Payable and credit Cash.

A

How does the declaration of a cash dividend affect the accounting equation? A) increase to liabilities and a decrease to stockholders' equity B) increase to liabilities and a decrease to assets C) increase to assets and a decrease to liabilities D) increase to stockholders' equity and a decrease to assets

A

If stock is issued for an asset other than cash, the asset should be recorded on the books of the corporation at the: A) current market value of the asset. B) book value of the asset. C) par value of the stock. D) fair market value of the stock minus the par value of the stock.

A

Stockholders of a corporation directly elect the: A) Board of directors. B) President of the corporation. C) Chief Financial Officer of the corporation. D) Chairperson of the Board.

A

Stockholders' equity is divided into: A) retained earnings and paid-in capital. B) retained earnings and common stock. C) assets and liabilities. D) common stock and preferred stock.

A

Treasury stock has a: A) debit balance, the opposite of other stockholders' equity accounts. B) credit balance, the same as other stockholders' equity accounts. C) credit balance, the opposite of other stockholders' equity accounts. D) debit balance, the same as other stockholders' equity accounts.

A

Which statement is FALSE? A) Preferred stockholders receive dividends before the common stockholders only if the preferred stock is cumulative. B) Preferred stockholders receive dividends before the common stockholders. C) Preferred stockholders receive assets before the common stockholders if the corporation liquidates. D) Preferred stockholders have the same basic four rights as common stockholders, unless a right is taken away.

A

) If a company has a deficit in retained earnings: A) then retained earnings has a credit balance. B) the deficit is subtracted to determine total stockholders' equity on the balance sheet. C) the deficit is added to determine total stockholders' equity on the balance sheet. D) then the corporation's lifetime earnings exceed lifetime losses and dividends.

B

) If a corporation has only one class of stock, it is understood to be: A) preferred stock. B) common stock. C) participating stock. D) redeemable stock.

B

) Wetzel, Inc. has 20,000 shares of cumulative preferred stock outstanding, with annual dividends paid at a rate of $2 per share. Wetzel, Inc. also has 40,000 shares of common stock outstanding. Preferred dividends are in arrears from the prior year and the number of shares remained the same for this year and last year. If Wetzel, Inc. declares a $400,000 dividend in the current year, each outstanding share of common stock would receive: (Round your answer to the nearest cent.) A) $2.00. B) $8.00. C) $9.00. D) $10.00.

B

Badger Corporation issued 5000 shares of its $5 par value common stock in payment for attorney services billed at $40,000. Badger Corporation's stock has been actively trading at $8 per share. The journal entry for this transaction would include a: A) debit to Legal Expense $25,000. B) debit to Legal Expense $40,000. C) credit to Common Stock $15,000. D) credit to Paid-in Capital in Excess of Par—Common $40,000.

B

How does the declaration and payment of cash dividends affect the accounting equation? A) increase assets and stockholders' equity B) decrease assets and stockholders' equity C) increase assets and decrease stockholders' equity D) decrease assets and increase stockholders' equity

B

If treasury stock is sold at a price greater than its reacquisition cost, the difference is: A) debited to Paid-in Capital from Treasury Stock Transactions. B) credited to Paid-in Capital from Treasury Stock Transactions. C) debited to Retained Earnings. D) credited to Retained Earnings.

B

Miller Corporation issued 6000 shares of its $5 par value common stock in payment for attorney services billed at $54,000. Miller Corporation's stock has been actively trading at $9 per share. The journal entry for this transaction would include a credit to: A) Paid-in Capital in Excess of Par—Common for $54,000. B) Paid-in Capital in Excess of Par—Common for $24,000. C) Legal Expense for $54,000. D) Common Stock for $54,000.

B

Nichols, Inc. has 1000 shares of 4%, $100 par value, cumulative preferred stock and 75,000 shares of $1 par value common stock outstanding at December 31 of the current year. What is the annual dividend that will be paid to the preferred stockholders? A) $1000 B) $4000 C) $100,000 D) $0. Preferred stockholders are not guaranteed an annual dividend payment.

B

On February 1, a corporation has 40,000 shares of $1 par value common stock issued and outstanding. The corporation also has Additional Paid-in Capital of $200,000 and Retained Earnings of $200,000. On February 1, the corporation declared a 2-for-1 stock split. After the split, what is the total par value of the common stock and the total stockholders' equity, respectively? A) $80,000; $440,000 B) $40,000; $440,000 C) $20,000; $440,000 D) $40,000; $240,000

B

The Good Word Store reported the following figures: Retained Earnings, January 31, 2019.........................$39,000,000 Retained Earnings, January 31, 2020.........................$22,000,000 Total Stockholders' Equity, January 31, 2019...........$30,000,000 Total Stockholders' Equity, January 31, 2020...........$26,000,000 The company's fiscal year ends on January 31 each year. Dividends declared for the fiscal year ending January 31, 2020 are $14,000,000. What is the net loss for the fiscal year ending January 31, 2020? A) $14,000,000 net loss B) $3,000,000 net loss C) $17,000,000 net loss D) $8,000,000 net loss

B

The Home Store reported the following figures: Retained Earnings, February 1, 2019...........$14 million Retained Earnings, February 1, 2018...........$23 million The company's fiscal year ends on February 1 each year. Net income for the fiscal year ending February 1, 2017 is $26 million. What is the amount of dividends declared for the fiscal year ending February 1, 2017? A) $23 million B) $35 million C) $3 million D) $26 million

B

The basic form of capital stock is: A) a share of preferred stock. B) a share of common stock. C) par value stock. D) the corporate charter.

B

The date on which a cash dividend becomes a legal obligation is the: A) date of record. B) declaration date. C) last day of the fiscal year. D) payment date.

B

The journal entry to record common stock issued at its par value includes a credit to: A) Paid-in Capital—Par Value. B) Common Stock. C) Paid-in Capital in Excess of Par-Common. D) Retained Earnings.

B

The number of shares of authorized stock of a corporation: A) changes every time stock is sold. B) is stated in the charter. C) has no limit. D) must be recorded as a journal entry.

B

The purchase of treasury stock is reported on the statement of cash flows as a: A) positive amount in the financing activities section. B) negative amount in the financing activities section. C) positive amount in the investing activities section. D) negative amount in the investing activities section.

B

Which of the following is NOT considered to be an advantage of forming a corporation? A) continuous life B) government regulation C) ability to raise more capital than a partnership or proprietorship D) limited liability of stockholders for corporation's debts

B

Williamson Company declared and distributed a 10% stock dividend when it had 800,000 shares of $1 par value common stock outstanding. The market price per share of common stock was $60 per share when the dividend was declared. The journal entry to record the stock dividend would include a credit to: A) Retained Earnings $800,000. B) Paid-in Capital in Excess of Par—Common $4,720,000. C) Common Stock $800,000. D) Retained Earnings $80,000.

B

Wininger Corporation has 1000 shares of 6%, $50 par value, cumulative preferred stock and 25,000 shares of $1 par value common stock outstanding on December 31, 2019 and December 31, 2020. The board of directors declared and paid a $2,000 dividend in 2019. In 2020, $23,000 of dividends are declared and paid. What are the dividends received by the common stockholders in 2020 (there were no dividends in arrears prior to 2019)? A) $3000 B) $19,000 C) $1000 D) $23,000

B

) Before a company can pay dividends to the common stockholders, the owners of cumulative preferred stock must receive: A) the current year's dividends, but not dividends in arrears. B) neither the current year's dividends nor dividends in arrears. C) all dividends in arrears plus the current year's dividends. D) all dividends in arrears, but not the current year's dividends.

C

) Double taxation means that the: A) corporation's income tax is allocated to the shareholders based on ownership percentage. B) corporate earnings are subject to state and federal income tax. C) corporation pays taxes on its earnings and the shareholders pay taxes on the dividends received from the corporation. D) shareholders' dividends are taxed at the corporate tax rate.

C

) Preferred stock is: A) the most common type of stock issued. B) listed as long-term debt on the balance sheet. C) rarely issued by corporations. D) none of the above.

C

) The calculation to determine the number of outstanding shares of stock is the number of: A) treasury stock shares plus number of issued shares. B) authorized shares minus number of issued shares. C) issued shares minus number of treasury shares. D) authorized shares minus treasury shares.

C

) Which statement about corporations is FALSE? A) The ease of transferring ownership is an advantage. B) A greater ability to raise capital than other forms of organizations is an advantage. C) Limited life is an advantage. D) Double taxation of distributed profits is a disadvantage.

C

A company has Total Paid-in Capital of $100,000, Retained Earnings of $200,000, Treasury Stock of $10,000 and Accumulated Other Comprehensive Income of $200,000. What is the CORRECT statement about listing these accounts on the balance sheet? A) Retained Earnings should be the last line before Total Stockholders' Equity. B) Total Paid-in Capital should be the last line before Total Stockholders' Equity. C) Treasury Stock or Accumulated Other Comprehensive Income should be the last line before Total Stockholders' Equity. D) There is no specific order used by Generally Accepted Accounting Principles.

C

An increase in the number of issued and outstanding shares of stock along with a proportional reduction in the stock's par value per share is a: A) deficit. B) stock dividend. C) stock split. D) cash dividend.

C

Burkert Company has 50,000 shares of $1 par value common stock issued and outstanding. The company also has 5000 shares of $100 par value, 6% cumulative preferred stock outstanding. Burkert did not pay the preferred dividends in 2018 and 2019. For the common stockholders to receive a dividend in 2020, the board of directors must declare dividends in excess of: A) $30,000. B) $60,000. C) $90,000. D) $120,000.

C

Gruber Law Offices paid $57,000 to buy back 12,000 shares of its $1 par value common stock. The stock was sold later at a selling price of $13 per share. The journal entry to record the sale would include a: (Do not round intermediate calculations.) A) credit to Paid-in Capital from Treasury Stock Transactions $57,000. B) debit to Common Stock $57,000. C) credit to Paid-in Capital from Treasury Stock Transactions $99,000. D) credit to Common Stock $99,000.

C

How does the declaration and distribution of a 15% stock dividend affect stockholders' equity? A) The total amount of stockholders' equity will increase. B) The total amount of stockholders' equity will decrease. C) The balances of different accounts in stockholders' equity will change, but total stockholders' equity is unchanged. D) There is no change.

C

If a corporation declares a $100,000 cash dividend, the account to be debited on the date of declaration is: A) Common Stock. B) Dividends Payable. C) Retained Earnings or Dividends. D) Paid-in Capital in Excess of Par.

C

If a corporation issues 10,000 shares of $1 par value common stock for $9000, the journal entry would include a credit to: A) Common Stock for $9000. B) Paid-in Capital in Excess of Par—Common for $9000. C) Common Stock for $10,000. D) Retained Earnings for $10,000.

C

In general, the order of reporting stockholders' equity on the balance sheet is: A) Common Stock, Preferred Stock, Paid-in Capital in Excess of Par, Retained Earnings, Treasury Stock. B) Preferred Stock, Common Stock, Treasury Stock, Paid-in Capital in Excess of Par, Retained Earnings. C) Preferred Stock, Common Stock, Paid-in Capital in Excess of Par, Retained Earnings, Treasury Stock. D) Retained Earnings, Preferred Stock, Common Stock, Paid-in Capital in Excess of Par, Treasury Stock.

C

Legal capital for a corporation equals: A) the selling price of stock that has been issued. B) the par value of stock that has been authorized. C) the par value of stock that has been issued. D) the par value of stock that is outstanding.

C

Mr. Seider, a shareholder in the Greenfield Corporation, owns 2000 shares of their common stock, which represents 24% of the outstanding common stock of Greenfield Corporation. Mr. Seider receives a 5% stock dividend. After the stock dividend, what is Mr. Seider's ownership in Greenfield Corporation's common stock? A) 5% ownership B) 19% ownership C) 24% ownership D) 29% ownership

C

Paltrowski Company issued 1 million shares of no-par common stock with a stated value of $9. The issue price was $40 per share. Which journal entry is prepared? A) debit Cash $40 million and credit Common Stock $40 million B) debit Cash $40 million, credit Common Stock $9 million and credit Paid-in Capital in Excess of Par—Common $31 million C) debit Cash $40 million, credit Common Stock $9 million and credit Paid-in Capital in Excess of Stated Value—Common $31 million D) debit Cash $40 million and credit Retained Earnings $40 million

C

Peter's Computers purchased 1000 shares of its own $3 par value common stock for $92,000. As a result of this transaction: A) Peter's stockholders' equity increased $89,000. B) Peter's stockholders' equity increased $3000. C) Peter's stockholders' equity decreased $92,000. D) Peter's stockholders' equity increased $92,000.

C

The chairperson of the board of directors often has the title of: A) Chief Financial Officer (CFO). B) President. C) Chief Executive Officer (CEO). D) Chief Operating Officer (COO).

C

The difference between the issue price per share of common stock and the par value per share of the stock is credited to: A) Retained Earnings. B) Common Stock. C) Paid-in Capital in Excess of Par—Common. D) Goodwill.

C

Treasury stock accounts for the difference between the number of: A) issued shares and authorized shares. B) issued shares and preferred shares. C) outstanding shares and issued shares. D) authorized shares and outstanding shares.

C

When 200 shares of $1 par value Common Stock are issued at $28 per share, Paid-in Capital in Excess of Par—Common will: A) increase $200. B) decrease $5600. C) increase $5400. D) stay the same.

C

When a company issues common stock at a price per share greater than its par value per share, the excess should be credited to: A) Retained Earnings. B) Common Stock. C) Paid-in Capital in Excess of Par—Common. D) Excess Capital.

C

When reporting stockholders' equity on the balance sheet, a corporation lists the accounts in the following order: A) Retained Earnings, Preferred Stock, Common Stock. B) Common Stock, Preferred Stock, Additional Paid-in Capital, Retained Earnings. C) Preferred Stock, Common Stock, Additional Paid-in Capital, Retained Earnings. D) Retained Earnings, Common Stock, Paid-in Capital in Excess of Par—Common.

C

When treasury stock is purchased, accountants record treasury stock at: A) the stock's par value. B) the stock's original selling price. C) the stock's cost which is current market value. D) the difference between the original selling price and the par value.

C

Zeman, Inc. declares and distributes a 10% common stock dividend when it has 30,000 shares of $10 par value common stock outstanding. If the market value of the common stock is $30, the journal entry to record the stock dividend would include a: A) credit to Common Stock $120,000. B) credit to Common Stock $60,000. C) credit to Paid-in Capital in Excess of Par—Common $60,000. D) credit to Paid-in Capital in Excess of Par—Common $30,000.

C

) A small stock dividend will: A) reduce total assets. B) reduce total stockholders' equity. C) increase total stockholders' equity. D) have no effect on total assets or total stockholders' equity.

D

) A stock dividend is considered small when it is a dividend of: A) less than 30% but greater than 25% of the corporation's outstanding stock. B) between 20% and 50% of the corporation's outstanding stock. C) more than 30% of the corporation's outstanding stock. D) 25% or less of the corporation's outstanding stock.

D

) Corporations may choose to distribute stock dividends in order to: A) increase the per-share market price of its stock. B) reduce the per-share market price of its stock. C) continue dividends but conserve cash. D) Both B and C are correct.

D

) Previously issued stock that a corporation purchases from shareholders is called: A) outstanding stock. B) authorized stock. C) issued stock. D) treasury stock.

D

A company buys treasury stock for $10 per share. The company later sells the treasury stock for $11 per share. What is the difference between the resale price and the cost of the treasury stock called? A) Gain on Sale of Treasury Stock B) Loss on Sale of Treasury Stock C) Paid-in Capital in Excess of Par D) Paid-in Capital from Treasury Stock Transactions

D

A company has 400,000 shares issued and outstanding of $1 par common stock. After a 2-for-1 stock split, which of the following statements is FALSE? A) The par value per share decreases to $0.50 per share. B) The number of shares issued is 800,000. C) The number of shares outstanding is 800,000. D) The number of shares issued is 200,000.

D

A stock split: A) increases assets and decreases stockholders' equity. B) decreases assets and increases stockholders' equity. C) increases assets and stockholders' equity. D) has no effect on total stockholders' equity.

D

Amber Corporation purchases 40,000 shares of its own $20 par value common stock for $80 per share. What will be the effect on stockholders' equity? A) increase $800,000 B) increase $3,200,000 C) decrease $800,000 D) decrease $3,200,000

D

Apple Inc. issued 4 million shares of no-par common stock for $4 million. What journal entry is prepared? A) debit Cash $4 million and credit Paid-in Capital in Excess of Par $4 million B) debit Cash $4 million and credit Retained Earnings $4 million C) debit Cash $4 million and credit Paid-in Capital in Excess of Stated Value $4 million D) debit Cash $4 million and credit Common Stock $4 million

D

Bloom Corporation issued 60,000 shares of common stock. Bloom purchased 9000 shares and later reissued 900 shares. How many shares are issued and outstanding? A) 51,000 issued and 51,000 outstanding B) 60,000 issued and 51,000 outstanding C) 51,900 issued and 51,900 outstanding D) 60,000 issued and 51,900 outstanding

D

Declaring and distributing stock dividends: A) increases retained earnings. B) increases the total liabilities of the corporation and decreases the total stockholders' equity. C) reduces the total assets of the corporation. D) has no effect on total stockholders' equity.

D

Dividends are declared by the: A) Chief Accounting Officer. B) Chief Financial Officer. C) President. D) Board of directors.

D

Dolanski Company declares and distributes a 30% common stock dividend when it has 60,000 shares of $10 par common stock outstanding. The market price per share is $75 at the date of declaration. Which journal entry is prepared? A) debit Retained Earnings $1,350,000, credit Common Stock $180,000 and credit Paid-in Capital in Excess of Par—Common $1,170,000 B) debit Retained Earnings $1,350,000, credit Paid-in Capital in Excess of Par—Common $500,000 C) debit Retained Earnings $1,350,000 and credit Common Stock $1,350,000 D) debit Retained Earnings $180,000 and credit Common Stock $180,000

D

If a corporation issues 5000 shares of $5 par value common stock for $85,000, the journal entry would include a credit to: A) Common Stock for $85,000. B) Paid-in Capital in Excess of Par—Common for $85,000. C) Common Stock for $60,000. D) Paid-in Capital in Excess of Par—Common for $60,000.

D

Kunze Corporation has $1 par value Common Stock with 100,000 shares authorized and 25,000 shares issued. The journal entry to record Kunze's purchase of 10,000 shares of common stock at $4 per share would be: A) debit Common Stock for $10,000, debit Paid-in Capital in Excess of Par—Common for 30,000 and credit Cash for $40,000. B) debit Common Stock for $40,000 and credit Cash for $40,000. C) debit Cash for $40,000, credit Common Stock for $10,000 and credit Paid-in Capital in Excess of Par—Common for $30,000. D) debit Treasury Stock for $40,000 and credit Cash for $40,000.

D

Mr. Jorgensen, a shareholder in the Best Corporation, owns 2000 shares of its common stock. Mr. Jorgensen receives a 7% stock dividend. After the stock dividend, Mr. Jorgensen will have a: A) total of 140 shares of Best Corporation's common stock. B) total of 1860 shares of Best Corporation's common stock. C) total of 2000 shares of Best Corporation's common stock. D) total of 2140 shares of Best Corporation's common stock

D

Pillsbury Company declares and distributes a 30% common stock dividend when it has 90,000 shares of $10 par common stock outstanding. The market price per share is $35 at the date of declaration. Which journal entry is prepared? A) debit Retained Earnings $945,000, credit Common Stock $270,000 and credit Paid-in Capital in Excess of Par—Common $675,000 B) debit Retained Earnings $945,000, credit Paid-in Capital in Excess of Par—Common $945,000 C) debit Retained Earnings $945,000 and credit Common Stock $945,000 D) debit Retained Earnings $270,000 and credit Common Stock $270,000

D

Preferred stock is NOT similar to debt because: A) preferred dividends are not tax-deductible whereas interest expense is tax-deductible. B) preferred dividends do not have to be paid whereas interest expense must be paid. C) preferred stock does not have a maturity date whereas debt usually has a maturity date. D) all of the above.

D

Reasons that a company would purchase treasury stock include all of the following EXCEPT: A) management wants to avoid a takeover by an outside party. B) it needs the stock for distribution to employees under stock purchase plans. C) it wants to increase net assets by buying its stock low and reselling it at a higher price. D) management wants to decrease earnings per share of common stock.

D

Regarding the retained earnings account, which of the following statements is INCORRECT? A) Net income is the only item that increases retained earnings. B) Stock dividends decrease retained earnings. C) Other adjustments to retained earnings are usually relatively minor and relatively rare. D) Net losses are the only item that decreases retained earnings.

D

Smith Corporation purchases 50,000 shares of its own $10 par value common stock for $60 per share. What will be the effect on stockholders' equity? A) increase $500,000 B) decrease $500,000 C) increase $3,000,000 D) decrease $3,000,000

D

Sometimes companies supplement employee salaries by granting ________ rather than giving them cash. A) dividends. B) a portion of retained earnings. C) a portion of paid-in capital. D) shares of stock.

D

The Statement of Stockholders' Equity does NOT include: A) Retained Earnings. B) Accumulated Other Comprehensive Income. C) Treasury Stock. D) Equity-Method Investments.

D

The arbitrary amount assigned by a company to a share of its stock is the: A) stated value per share. B) par value per share. C) book value per share. D) A and B

D

The authority to declare a dividend lies with the: A) Chief Financial Officer. B) President of the company. C) Chief Executive Officer. D) Board of Directors.

D

The chronological order of dates for cash dividends are: A) date of record, date of declaration, date of payment. B) date of annual Board of Directors meeting, date of payment, date of record, date of declaration. C) date of annual Board of Directors meeting, date of record, date of declaration, date of payment. D) date of declaration, date of record, date of payment.

D

The issuance of common stock in exchange for cash will be reported in: A) the noncash financing section of the statement of cash flows. B) the operating activities section of the statement of cash flows. C) the investing activities section of the statement of cash flows. D) the financing activities section of the statement of cash flows.

D

The payment of dividends will be reported on the statement of cash flows as a: A) positive amount in the investing activities section. B) negative amount in the investing activities section. C) positive amount in the financing activities section. D) negative amount in the financing activities section.

D

The purchase of treasury stock returns ________ to the stockholders but also ________. A) stock; increases their ownership of the company. B) stock; decreases their ownership of the company. C) cash; increases their ownership of the company. D) cash; decreases their ownership of the company.

D

To record a 6% stock dividend, accountants use ________. To record a 55% stock dividend, accountants use ________. A) market price per share; market price per share B) par value per share; par value per share C) par value per share; market price per share D) market price per share; par value per share

D

Which of the following statements regarding treasury stock is CORRECT? A) Treasury Stock is reported beneath the Retained Earnings account on the balance sheet as a positive amount. B) If the amounts received from resale of treasury stock are less than amounts originally paid, the difference is shown on the income statement as a loss on treasury stock transactions. C) Treasury stock is recorded as an asset at the stock's market value on the date of purchase. D) Repurchasing treasury stock provides a way for public companies to return cash to shareholders other than through dividends.

D

Which one of the following is NOT a stockholder's right of ownership in a corporation? A) the right to participate in management by voting on matters that come before the stockholders B) the right to receive a proportionate share of the assets remaining after all liabilities are paid upon liquidation C) the right to maintain one's proportionate share of ownership in the corporation D) the right to decide if a dividend should be distributed

D