ECON136B chapter 15 mc questions

1-37) Quirk Corporation issued a 100% stock dividend of its common stock which had a par value of $10 before and after the dividend. At what amount should retained earnings be capitalized for the additional shares issued? a) Par value b) Fair value on the payment date c) Fair value on the declaration date d) There should be no capitalization of retained earnings

A

1-40) The balance in Common Stock Dividend Distributable should be reported as a(n) a) addition to capital stock. b) current liability. c) contra current asset. d) deduction from common stock issued.

A

1-50) How should cumulative preferred dividends in arrears be shown in a corporation's balance sheet? a) Note disclosure b) Increase in stockholders' equity c) Increase in current liabilities for the amount expected to be declared within the year or operating cycle, and increase in long-term liabilities for the balance d) Increase in current liabilities

A

At the date of the financial statements, common stock shares issued would exceed common stock shares outstanding as a result of the a) purchase of treasury stock. b) declaration of a stock dividend. c) declaration of a stock split. d) payment in full of subscribed stock.

A

How should a "gain" from the sale of treasury stock be reflected when using the cost method of recording treasury stock transactions? a) As paid-in capital from treasury stock transactions. b) As an increase in the amount shown for common stock. c) As ordinary earnings shown on the income statement. d) As an other revenue and gain shown on the income statement.

A

Marigold Corp. purchased its own par value stock on January 1, 2020 for $18,200 and debited the treasury stock account for the purchase price. The stock was subsequently sold for $10,800. The $7,400 difference between the cost and sales price should be recorded as a deduction from a) additional paid-in capital to the extent that previous net "gains" from sales of the same class of stock are included therein; otherwise, from retained earnings. b) net income. c) retained earnings. d) additional paid-in capital without regard as to whether or not there have been previous net "gains" from sales of the same class of stock included therein.

A

Noncumulative preferred dividends in arrears a) are not paid or disclosed. b) are disclosed as a liability until paid. c) must be paid before any other cash dividends can be distributed. d) are paid to preferred stockholders if sufficient funds remain after payment of the current preferred dividend.

A

The preemptive right enables a stockholder to a) retain their ownership interest if additional stock is issued. b) receive cash dividends after other classes of stock with the preemptive right. c) sell capital stock back to the corporation at the option of the stockholder. d) receive unequal amounts of dividends on a percentage basis as the preferred stockholders.

A

Younger Company has outstanding both common stock and nonparticipating, non-cumulative preferred stock. The liquidation value of the preferred is equal to its par value. The book value per share of the common stock is unaffected by a) the payment of a previously declared cash dividend on the common stock. b) the declaration of a stock dividend on common stock payable in common stock when the market price of the common is equal to its par value. c) the declaration of a stock dividend on preferred payable in preferred stock when the market price of the preferred is equal to its par value. d) a 2-for-1 split of the common stock.

A

1-12) A "secret reserve" will be created if a) stockholders' equity is overstated. b) a capital expenditure is charged to expense. c) liabilities are understated. d) inadequate depreciation is charged to income.

B

1-17) Treasury shares are shares held as an investment of the corporation. a) issued but not outstanding. b) issued and outstanding. c) held as an investment by the d) d) treasurer of the corporation.

B

1-4) In a corporate form of business organization, legal capital is best defined as a) the total capital raised by a corporation within the limits set by the Securities and Exchange Commission. b) the par value of all capital stock issued. c) the amount of capital the federal government allows a corporation to generate. d) the amount of capital the state of incorporation allows the company to accumulate over its existence.

B

1-48) Dividends are not paid on a) noncumulative preferred stock. b) treasury common stock. c) nonparticipating preferred stock. d) cumulative preferred stock.

B

A dividend which is a return to stockholders of a portion of their original investments is a a) property dividend. b) liquidating dividend. c) liability dividend. d) participating dividend.

B

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) bear the ultimate risks and uncertainties and receive the benefits of enterprise ownership. c) have the rights to specific assets of the business. d) can negotiate individual contracts on behalf of the enterprise.

B

If management wishes to "capitalize" part of the earnings, it may issue a a) liquidating dividend. b) stock dividend. c) property dividend. d) cash dividend.

B

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) 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. d) 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.

B

The preemptive right of a common stockholder is the right to a) share proportionately in corporate assets upon liquidation. b) share proportionately in any new issues of stock of the same class. c) exclude preferred stockholders from voting rights. d) receive cash dividends before they are distributed to preferred stockholders.

B

"Gains" on sales of treasury stock (using the cost method) should be credited to a) capital stock. b) other income. c) paid-in capital from treasury stock. d) retained earnings.

C

1-14) Stock that has a fixed per-share amount printed on each stock certificate is called a) uniform value stock. b) fixed value stock. c) par value stock. d) stated value stock.

C

1-26) Cumulative preferred dividends in arrears should be shown in a corporation's balance sheet as a) an increase in current liabilities for the current portion and long-term liabilities for the long-term portion. b) an increase in current liabilities. c) a footnote. d) an increase in stockholders' equity.

C

1-38) The issuer of a 5% common stock dividend to common stockholders should transfer from retained earnings to paid-in capital an amount equal to the a) par or stated value of the shares issued. b) minimum legal requirements. c) fair value of the shares issued. d) book value of the shares issued.

C

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

C

In January 2020, Sheffield Corp., a newly formed company, issued 10,600 shares of its $10 par common stock for $15 per share. On July 1, 2020, Sheffield Corp. reacquired 1,060 shares of its outstanding stock for $12 per share. The acquisition of these treasury shares a) increased total stockholders' equity. b) decreased the number of issued shares. c) decreased total stockholders' equity. d) did not change total stockholders' equity.

C

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) increases retained earnings and increases total stockholders' equity. c) decreases retained earnings but does not change total stockholders' equity. d) may increase or decrease paid-in capital in excess of par but does not change total stockholders' equity.

C

The entries for declaration and payment of a cash dividend is not made on the a) date of payment. b) date of payment and date of declaration. c) date of record. d) date of declaration.

C

Which of the following best describes a possible result of treasury stock transactions by a corporation? a) May increase net income if the cost method is used. b) May decrease but not increase net income. c) May decrease but not increase retained earnings. d) May increase but not decrease retained earnings.

C

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) Property dividends may be merchandise or real estate. c) The accounting for a property dividend should be based on the carrying value (book value) of the nonmonetary assets transferred. d) A property dividend is also called a dividend in kind.

C

1-15) Which of the following is not a legal restriction related to profit distributions by a corporation? a) Dividends must be in full agreement with the capital stock contracts as to preferences and participation. b) Profit distributions must be formally approved by the board of directors. c) The amount distributed to owners must be in compliance with the state laws governing corporations. d) The amount distributed in any one year can never exceed the net income reported for that year.

D

1-18) 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) Paid-in capital in excess of par for the purchase price. b) Treasury stock for the par value and retained earnings for the excess of the purchase price over the par value. c) 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. d) Treasury stock for the purchase price.

D

1-23) Which of the following features of preferred stock makes it more like a debt than an equity instrument? a) Voting b) Participating c) Noncumulative d) Redeemable

D

1-25) According to the FASB, redeemable preferred stock should be a) included as a contra item in stockholders' equity. b) included in stockholders' equity. c) included with common stock. d) included as a liability.

D

1-33) A mining company declared a liquidating dividend. The journal entry to record the declaration must include a debit to a) Accumulated Depreciation. b) Accumulated Depletion. c) Retained Earnings. d) A paid-in capital account.

D

1-39) At the date of declaration of a small common stock dividend, the entry should not include a) a credit to common stock dividend distributable. b) a debit to Retained Earnings. c) a credit to Paid-in Capital in Excess of Par. d) a credit to Common Stock.

D

1-43) Which one of the following disclosures should be made in the equity section of the balance sheet, rather than in the notes to the financial statements? a) Conversion or exercise prices b) Dividend preferences c) Call prices d) Liquidation preferences

D

1-7) 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.

D

A feature common to both stock splits and stock dividends is a) a transfer to earned capital of a corporation. b) an increase in total liabilities of a corporation. c) a reduction in the contributed capital of a corporation. d) that there is no effect on total stockholders' equity.

D

Direct costs incurred to sell stock such as underwriting costs should be accounted for as 1. a reduction of additional paid-in capital. 2. an expense of the period in which the stock is issued. 3. an intangible asset. a) 1 or 3 b) 3 c) 2 d) 1

D

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

D

Swifty Corporation owns 4,200,000 shares of stock in Blossom Company. On December 31, 2020, Swifty distributed these shares of stock as a dividend to its stockholders. This is an example of a a) stock dividend. b) liquidating dividend. c) cash dividend. d) property dividend.

D

The accounting problem in a lump sum issuance is the allocation of proceeds between the classes of securities. An acceptable method of allocation is a) the pro forma method. b) the proportional method. c) the incremental method. d) either the proportional method or the incremental method.

D

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

D

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

D

What effect does the issuance of a 2-for-1 stock split have on each of the following? a) par/share: No effect R/E: No effect b) par/share: Increase R/E: No effect c) par/share: Decrease R/E: Decrease d) par/share: Decrease R/E: No effect

D

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

D

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

D

Which of the following represents the total number of shares that a corporation may issue under the terms of its charter? a) Outstanding shares b) Issued shares c) Unissued shares d) Authorized shares

D