ACCY 304 Chapter 15 Conceptual

What effect does the issuance of a 2-for-1 stock split have on each of the following? Par Value per Share Retained Earnings

Decrease No effect

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?

Liquidation preferences

How should cumulative preferred dividends in arrears be shown in a corporation's statement of financial position?

Note disclosure

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?

Par value

Which of the following features of preferred stock makes the security more like debt than an equity instrument?

Redeemable

Which of the following is not a legal restriction related to profit distributions by a corporation?

The amount distributed in any one year can never exceed the net income reported for that year

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?

Treasury stock for the purchase price

A "secret reserve" will be created if

a capital expenditure is charged to expense

Total stockholders' equity represents

a claim against a portion of the total assets of an enterprise

At the date of declaration of a small common stock dividend, the entry should not include

a credit to Common Stock Dividend Payable

Cumulative preferred dividends in arrears should be shown in a corporation's balance sheet as

a footnote.

Noncumulative preferred dividends in arrears

are not paid or disclosed.

Which of the following represents the total number of shares that a corporation may issue under the terms of its charter?

authorized shares

The residual interest in a corporation belongs to the

common stockholders

An entry is not made on the

date of record

According to the FASB, redeemable preferred stock should be

included as a liability

Treasury shares are

issued but not outstanding shares

A dividend which is a return to stockholders of a portion of their original investments is a

liquidating dividend.

The rate of return on common stock equity is calculated by dividing

net income less preferred dividends by average common stockholders' equity.

"Gains" on sales of treasury stock (using the cost method) should be credited to

paid-in capital from treasury stock

Stock that has a fixed per-share amount printed on each stock certificate is called

par value stock

Houser Corporation owns 4,000,000 shares of stock in Baha Corporation. On December 31, 2012, Houser distributed these shares of stock as a dividend to its stockholders. This is an example of a

property dividend.

The pre-emptive right enables a stockholder to

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

If management wishes to "capitalize" part of the earnings, it may issue a

stock dividend

A feature common to both stock splits and stock dividends is

that there is no effect on total stockholders' equity

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

the payment of a previously declared cash dividend on the common stock

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.

1

How should a "gain" from the sale of treasury stock be reflected when using the cost method of recording treasury stock transactions?

As paid-in capital from treasury stock transactions

Which of the following best describes a possible result of treasury stock transactions by a corporation?

May decrease but not increase retained earnings

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

Stock dividends

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. A property dividend is also called a dividend in kind. c. The accounting for a property dividend should be based on the carrying value (book value) of the nonmonetary assets transferred. d. All of these statements are true.

The accounting for a property dividend should be based on the carrying value (book value) of the nonmonetary assets transferred.

A mining company declared a liquidating dividend. The journal entry to record the declaration must include a debit to

a paid-in capital account.

The balance in Common Stock Dividend Distributable should be reported as a(n)

addition to capital stock

Porter Corp. purchased its own par value stock on January 1, 2012 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

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

Stockholders of a business enterprise are said to be the residual owners. The term residual owner means that shareholders

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

Assume common stock is the only class of stock outstanding in the Manley Corporation. Total stockholders' equity divided by the number of common stock shares outstanding is called

book value per share.

A primary source of stockholders' equity is

both income retained by the corporation and contributions by stockholders

In January 2012, Finley Corporation, a newly formed company, issued 10,000 shares of its $10 par common stock for $15 per share. On July 1, 2012, Finley Corporation reacquired 1,000 shares of its outstanding stock for $12 per share. The acquisition of these treasury shares

decreased total stockholders' equity

The declaration and issuance of a stock dividend larger than 25% of the shares previously outstanding

decreases retained earnings but does not change total stockholders' equity.

Stockholders' equity is generally classified into two major categories:

earned capital and contributed capital

The accounting problem in a lump sum issuance is the allocation of proceeds between the classes of securities. An acceptable method of allocation is the

either the proportional method or the incremental method

The issuer of a 5% common stock dividend to common stockholders preferably should transfer from retained earnings to contributed capital an amount equal to the

fair value of the shares issued.

Cash dividends are paid on the basis of the number of shares

outstanding

When a corporation issues its capital stock in payment for services, the least appropriate basis for recording the transaction is the

par value of the shares issued

At the date of the financial statements, common stock shares issued would exceed common stock shares outstanding as a result of the

purchase of treasury stock

The cumulative feature of preferred stock

requires that dividends not paid in any year must be made up in a later year before dividends are distributed to common shareholders

The pre-emptive right of a common stockholder is the right to

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

In a corporate form of business organization, legal capital is best defined as

the par value of all capital stock issued

Dividends are not paid on

treasury common stock.