Chapter 8

Which of the following is one of the two generally practiced methods for electing corporate directors? A. Democratic voting. B. Representative voting. C. Cumulative voting. D. Census voting.

Cumulative voting.

If a common stock has no par value: A. there is no way of determining the market value per share. B. the stock must have a stated value. C. there will not be any additional paid-in capital related to it. D. the stockholders do not have a preemptive right.

there will not be any additional paid-in capital related to it.

When common stock has a par value: A. the liability of the stockholders is limited to the par value. B. there will probably be additional paid-in capital on the balance sheet. C. the market value of the stock will be higher than if there is no par value. D. the paid-in capital will equal the par value of the number of shares issued.

there will probably be additional paid-in capital on the balance sheet.

The annual per share dividend requirement of a 6%, $80 par value preferred stock that was issued for $85 is: A. $4.80. B. $5.10. C. $6.00. D. $8.00.

$4.80.

Braco has 40,000 shares of $100 par value common stock outstanding, and 10,000 shares in the treasury. The number of additional shares that would be issued in a 5% stock dividend is: A. 500. B. 1,000. C. 2,000. D. 2,500.

2,500.

Spike Jones owns 56 shares of the Robust Corporation's stock. Robust announces a 3-for-2 stock split. How many shares will Fred have after this split? A. 178 shares. B. 112 shares. C. 84 shares. D. 56 shares.

84 shares.

Which of the following is not a stockholders' equity account? A. Common stock. B. Capital stock. C. Retained earnings. D. Accumulated depreciation. E. Paid-in-capital in excess of par.

Accumulated depreciation.

Which of the terms is not used to identify owners' equity or stockholders' equity? A. Partner's capital. B. Proprietor's capital. C. Paid-in-capital and retained earnings. D. Additional-paid-in-retained earnings.

Additional-paid-in-retained earnings.

Balance sheet disclosures for preferred stock include all of the following except: A. The number of shares issued. B. The number of shares outstanding. C. The liquidating or redemption value. D. The credit or market value. E. The number of shares authorized.

The credit or market value.

The declaration date pertains to: A. The date used to determine who receives dividends. B. The date on which the board of directors declares it's going to liquidate the firm. C. The date on which the board of directors declares a dividend. D. The date a dividend is paid.

The date on which the board of directors declares a dividend.

Which of the following is not a right or attribute of common stock ownership? A. Electing directors. B. Liability limited to amount invested. C. Approving changes in corporate charter. D. Determining dividend policy.

Determining dividend policy.

Which of the following is not usually a right or attribute of preferred stock? A. Having a claim to dividends in excess of the annual dividend requirement if dividends on common stock exceed dividends on preferred stock. B. Having a priority claim to dividends relative to the common stock's claim to dividends. C. Having a priority claim in liquidation relative to the common stock's claim in liquidation. D. Having a claim to dividends that is cumulative over time if the annual dividend requirement is not satisfied.

Having a claim to dividends in excess of the annual dividend requirement if dividends on common stock exceed dividends on preferred stock.

The term preemptive right pertains to which of the following? A. The Board of Directors rights in liquidation. B. Present shareholders' right to purchase shares from any additional share issuances. C. Present shareholders' right to purchase treasury shares when reissued. D. Preferred stockholders' right to dividends.

Present shareholders' right to purchase shares from any additional share issuances.

The declaration of a cash dividend by the directors results in: A. a decrease in cash and a decrease in retained earnings. B. a decrease in retained earnings and an increase in current liabilities. C. a decrease in net income and a decrease in cash. D. a decrease in net income and an increase in current liabilities.

a decrease in retained earnings and an increase in current liabilities.

If a firm sells treasury stock for more than its cost: A. a gain is recognized in the income statement. B. retained earnings is increased. C. additional paid-in capital is increased. D. total stockholders' equity does not change.

additional paid-in capital is increased.

In comparison to the stockholders' equity section of a corporation's balance sheet, owners' equity of a proprietorship or partnership: A. normally does not make a distinction between invested capital and retained earnings. B. normally uses "Capital" accounts for each individual owner, rather than a "Retained Earnings" account for all of the stockholders. C. normally uses a "Drawings" account for each individual owner, rather than a "Dividends" account for all of the stockholders. D. all of these.

all of these.

Retained earnings represents: A. cash that is available for dividends. B. the total net income of the firm since its beginning. C. cumulative net income of the firm since its beginning that has not been distributed to its stockholders in the form of dividends. D. net income plus gains (or minus losses) on treasury stock transactions.

cumulative net income of the firm since its beginning that has not been distributed to its stockholders in the form of dividends.

The principal reason for a company having a common stock split is to: A. increase the total cash dividends paid to stockholders. B. capitalize retained earnings. C. decrease total stockholders' equity. D. decrease the market value per share of common stock.

decrease the market value per share of common stock.

Preferred stock is used much less than long-term debt in the capital structure of most industrial and merchandising companies principally because: A. the preferred stock dividend requirement is a fixed claim against income, but interest on long-term debt is not a fixed amount. B. preferred stock has a fixed liquidation or redemption value, but long-term debt does not have a fixed maturity value. C. preferred stock may be convertible to common stock, but long-term debt cannot be convertible. D. for income tax purposes, dividends paid on preferred stock are not deductible, but interest on long-term debt is deductible.

for income tax purposes, dividends paid on preferred stock are not deductible, but interest on long-term debt is deductible.

Additional paid-in capital is most likely to appear on the balance sheet of a corporation that: A. has par value stock. B. has no-par value stock. C. has issued stock at different dates. D. has issued stock dividends.

has par value stock.

The dollar amount of the common stock on the balance sheet of a corporation that has common stock with a par value is the number of shares: A. issued, multiplied by the amount received per share. B. outstanding, multiplied by the amount received per share. C. issued, multiplied by the par value per share. D. outstanding, multiplied by the par value per share.

issued, multiplied by the par value per share.

In most states, par value of issued shares represents: A. legal capital. B. no par capital. C. noncontrolling capital. D. corporate capital.

legal capital.

Another term frequently used to describe stockholders' equity is: A. net assets. B. gross assets. C. paid-in capital. D. capital stock.

net assets.

Factors that usually affect retained earnings directly include: A. net income or loss, and dividends. B. extraordinary items and losses from discontinued operations. C. stock dividends and gains or losses from the sale of treasury stock. D. net income or loss, and the issuance of stock at an amount in excess of par value.

net income or loss, and dividends.

A stock dividend is similar to a cash dividend in that: A. the stockholder's equity in the firm's net assets is reduced by each. B. the stockholder's cash is increased by each. C. the stockholder's equity in the firm's net assets is increased by each. D. retained earnings and the amount of potential future dividends is reduced by each.

retained earnings and the amount of potential future dividends is reduced by each.

When a company splits its common stock 3 for 1: A. total paid-in capital increases by a factor of 3. B. retained earnings is decreased by the market value of the shares issued. C. the market value of the company's stock normally falls by two-thirds. D. the stockholders are assured of receiving larger cash dividends.

the market value of the company's stock normally falls by two-thirds.

The number of shares of a class of stock that are outstanding is: A. the number of shares authorized minus the number of shares issued. B. the number of shares authorized minus the number of shares held as treasury stock. C. the number of shares issued minus the number of shares held as treasury stock. D. the number of shares issued minus the number of shares owned by directors.

the number of shares issued minus the number of shares held as treasury stock.

The statement of changes in retained earnings for the year shows: A. the retained earnings balance at the beginning of the year. B. amounts received from the sale of additional common stock during the year. C. extraordinary gains or losses during the year. D. the effect of a stock split during the year.

the retained earnings balance at the beginning of the year.

When a stock dividend is declared and issued: A. total paid-in capital does not change. B. total stockholders' equity does not change. C. retained earnings is normally decreased by the par value of the shares issued in the dividend. D. total paid-in capital is decreased by the market value of the shares issued in the dividend.

total stockholders' equity does not change.

When a firm purchases its own shares as treasury stock: A. total stockholders' equity is decreased. B. total stockholders' equity is increased. C. retained earnings is decreased. D. paid-in capital is decreased.

total stockholders' equity is decreased.