Chapter 15 Quiz

Farmer Corp. owned 20,000 shares of Eaton Corp. purchased in 2014 for $550,000. On December 15, 2017, Farmer declared a property dividend of all of its Eaton Corp. shares on the basis of one share of Eaton for every 10 shares of Farmer common stock held by its stockholders. The property dividend was distributed on January 15, 2018. On the declaration date, the aggregate market price of the Eaton shares held by Farmer was $900,000. The entry to record the declaration of the dividend would include a debit to Retained Earnings of a) $550,000 b) $350,000 c) $900,000 d) $0

c) $900,000

Porter Corp. purchased its own par value stock on January 1, 2017 for $20,000 and debited the treasury stock account for the purchase price. The stock was subsequently sold for $12,000. The $8,000 difference between the cost and sales price should be recorded as a deduction from a) net income b) APIC without regard as to whether or not there have been previous "gains" from sales of the same class of stock included therein c) APIC to the extent that previous net "gains" from sales of the same class of stock are included therein; otherwise, from retained earnings d) retained earnings

c) APIC to the extent that previous net "gains" from sales of the same class of stock are included therein; otherwise, from retained earnings

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) $93,181 c) $128,125 d) $111,818

d) $111,818 4000*25 = 100000 6000*20=120000 total = 220000 100000/220000= 46% 120000/220000= 54% 205000*54%= 111,818

On December 1, 2018, Abel Corporation exchanged 50,000 shares of its $10 par value common stock held in treasury for a used machine. The treasury shares were acquired by Abel at a cost of $40 per share, and are accounted for under the cost method. On the date of the exchange, the common stock had a fair value of $55 per share (the shares were originally issued at $30 per share). As a result of this exchange, Abel's total stockholders' equity will increase by a) $2,000,000 b) $2,250,000 c) $500,000 d) $2,750,000

d) $2,750,000

Anders, Inc., has 15,000 shares of 4%, $100 par value, cumulative preferred stock and 60,000 shares of $1 par value common stock outstanding at December 31, 2018. There were no dividends declared in 2016. The board of directors declares and pays a $110,000 dividend in 2017 and in 2018. What is the amount of dividends received by the common stockholders in 2018? a) $0 b) $110,000 c) $60,000 d) $40,000

d) $40,000 PS-15000*100*.04=60000*2=120000 120000-110000=10000 110000-60000-10000=40000

Total stockholders' equity represents a) a claim to specific assets contributed by the owners b) the max amount that can be borrowed by a company c) only the amount of earnings that have been retained in the business d) a claim against a portion of the total assets of a company

d) a claim against a portion of the total assets of a company

Common stockholders of a business enterprise are said to be the residual owners. The term residual owner means that shareholders a) have the rights to specific assets of the business b) can negotiate individual contracts on behalf of the enterprise c) are entitled to a dividend every year in which the business earns a profit d) bear the ultimate risks and uncertainties and receive the benefits of enterprise ownership

d) bear the ultimate risks and uncertainties and receive the benefits of enterprise ownership

In January 2017, Finley Corporation, a newly formed company, issued 10,000 shares of its $10 par common stock for $15 per share. On July 1, 2017, Finley Corporation reacquired 1,000 shares of its outstanding stock for $12 per share. The acquisition of these treasury shares a) did not change total stockholders' equity b) decreased the number of issued shares c) increased total stockholders' equity d) decreased total stockholders' equity

d) decreased total stockholders' equity

Cash dividends are paid on the basis of the number of shares a) outstanding less the number of treasury shares b) issued c) authorized d) outstanding

d) outstanding

Stockholders' equity is generally classified into two major categories: a) earned capital and contributed capital b) retained earnings and unappropriated capital c) contributed capital and appropriated capital d) appropriated capital and retained earnings

a) earned capital and contributed capital

According to the FASB, redeemable preferred stock should be a) included as a liability b) included as a contra item in stockholders' equity c) included in stockholders' equity d) included with common stock

a) included as a liability

When a corporation issues its capital stock in payment for services, the least appropriate basis for recording the transaction is the a) par value of the shares issued b) market value of the shares issued c) the market value of the services received or the market value of the share issues d) market value of the services received

a) par value of the shares issued

The preemptive right of a common stockholder is the right to a) exclude preferred stockholders from voting rights 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) share proportionately in corporate assets upon liquidation

b) share proportionately in any new issues of stock of the same class

Which dividends do not reduce stockholders' equity? a) liquidation dividends b) stock dividends c) property dividends d) cash dividends

b) stock dividends