Chapter 10

On January 1, Jernigan Corporation's Retained Earning had a credit balance of $480,000. The company's preferred shareholders were paid dividends of $20,000 in October. While preparing financial statements at the end of the year, the accountant noticed an error in calculating interest expense for the year, which would cause interest expense to be understated by $8,000. Assuming that Jernigan pays taxes at 35%, by how much will retained earnings be adjusted?

a. $0 b.$8,000 debit c. $2,800 debit d.$5,200 debit answer-d

If XYZ Corporation paid dividends totaling $100,000 to common stockholders at the time when there were 10,000 shares of common stock outstanding, what was the dividend per share amount?

a. $1,000 b. $100 c. $1 d. $10 answer- d

Beimesche corporation is formed on January 2 and is authorized to issue 1,200,000 shares of $1 par value common stock and 100,000 shares of $25 par value preferred stock with a 6% dividend rate. 200,000 common shares were issued at $5 per share and 5,000 preferred shares were issued at $28 per share when the corporation was formed on January 2. Assume that retained earnings is $60,000 on December 31. How much is total stockholders' equity on December 31?

a. $3,700,000 b. $1,200,000 c. $1,140,000 d. $2,500,000 answer-b

Beimesche Corporation is formed on January 2 and is authorized to issue 1,200,000 shares of $1 par value common stock and 100,000 shares of $25 par value preferred stock with a 6% dividend rate. 200,000 common shares were issued at $5 per share and 5,000 preferred shares were issued at $28 per share when the corporation was formed on January 2. What are the total proceeds of the January 2 issuance?

a. $3,700,000 b. $2,500,000 c. $1,140,000 d. $1,200,000 answer- c

On January 1, Corneil Landscaping's retained earnings had a credit balance of $225,000. The company's preferred shareholders had dividends of $40,000 in arrears. During the year, an accountant notice that depreciation expense had been overstated by $ 10,000. Assuming that Corneil pays taxes at 35%, what is the adjusted retained earnings as of January 1?

a. $396,500 b.$235,000 c. $346,500 d.$231,500 answer-d

Dietz corporation repurchased 2,500 shares of its outstanding $2 par value common stock for $12 per share on February 1. Later that year, Dietz sold 1,750 shares of the treasury stock for $10 per share. What is the balance in the treasury stock on December 31 of that year?

a. $7,500 b.$17,500 c. $9,000 d. $12,500 answer-c

Pico and Taylor Company has common stock and cumulative preferred stock that require the company to pay an annual dividend of $25,000 to the preferred shareholders. As of January 1, the preferred dividends were in arrears. The board of directors plan to declare a dividend. What is the amount of the dividend that the board of directors must declare that will pay $40,000 to the common shareholders?

a. $90,000 b. $25,000 c. $40,000 d. $50,000 answer- a

Nunn Corporation had $535,000 of net income for the year. assume the company, which has not preferred stock, paid dividends of $150,000 at the time the stock was selling for $40 per share and there were 30,000 shares of $2 par value common stock outstanding for the entire year. What was the dividend yield?

a. 15% b. 5% c.12.5% d. 7.5% answer-c

ABC Corporation had $125,000 of net income for the year. Assume the company, which has no preferred stock, paid a $10 per share dividend at the time the stock was selling for $50 per share and there were 25,000 shares of $1 par value common stock outstanding for the entire year. Total stockholders' equity was $2,430,000 at the beginning of the year and $2,570,000 at the end of the year. What was the return on common equity?

a. 20% b. 5% c. 2% d.10% answer- b

Beimesche Corporation's corporate charter authorizes the business to issue 1,200,000 shares of common stock. 200,000 shares were issued when the corporation was formed. Two years later, 150,000 additional shares were issued. In year 3, the company reacquired 40,000 shares of its own stock. At the beginning of year 5, Beimesche issues 75,000 shares of previously unissued stock. How many shares are issued as of December 31, year 5?

a. 350,000 b.1,200,000 c.385,000 d.425,000 answer- d

Which of the following would require a prior period adjustment?

a. a change in method for costing inventory b. an error in estimation of useful life of an asset c. an overstatement of interest expense d. all of these choices are correct answer- c

On January 1, Corneil Landscaping's retained earnings had a credit balance of $225,000. The company paid dividends of $40,000 to its shareholders. Endings retained earnings had a credit balance of $120,000. Aside from dividends, what caused the decrease in retained earnings?

a. a net loss on the income statement b. unrealized loss on available-for-sale securities c. a change in depreciation methods d. none of these choices are correct answer- a

Beimesche Corporation is formed on January 2 and is authorized to issue 1,200,000 shares of $1 par value common stock and 100,000 shares of $25 par value preferred stock with a 6% dividend rate. 200,000 common shares were issued at $5 per share and 5,000 preferred shares were issued at $28 per share when the corporation was formed on January 2. Which of the following is correct regarding the journal entries on January 2 to record the stock issuance?

a. additional Paid-In capital- common stock is credited for $325,000 b.preferred stock is credited for $125,000 c. common stock is debited for $815,000 d. additional paid-in capital- preferred stock is debited for $15,000 answer-b

Which of the following is an example of other comprehensive income?

a. an increase in the market value of available-for-sale securities b. a gain on the exchange of vehicles c. a loss on the sale of a building d. non of these choices are correct answer-a

How is ending retained earnings calculated?

a. beginning retained earnings -net income +dividends= ending retained earnings b. beginning retained earnings +net income - dividends = ending retained earnings c. beginning retained earnings + net income + dividends = endings retained earnings d. dividends + net income = ending retained earnings answer- b

Alpha-Delta Corporation has issued its $2 par common stock for $15 per share. When the transaction is recorded, Cash is debited. Which of the following accounts is (are) credited?

a. common stock b. common stock and additional paid-in capital-common stock c. additional paid-in capital-common stock and retained earnings d. additional common stock issued answer-b

Stock options are similar to stock warrants in that they grant the right to buy stock at a set price for a certain period of time. Corporations grant these rights to

a. common stockholders b. creditors c. preferred stockholders d. employees and executives answer-d

Which of the following statements about dividends is true?

a. dividends represent distributions of accumulated net income b. dividends are the same as interest c. dividends are only paid to preferred stockholders d. dividends are required to be paid every year on common stock outstanding answer-a

Profitability refers to the return that the company earns. However, the magnitude of the net income also matters because it shows how much had to be invested to earn the return. Which of the following rations measures the growth in equity from operating activities?

a. earnings per share b. return on common equity c. dividend payout ratio d. dividend yield answer- b

Which of the following stockholder payout ratios measures the proportion of dividends to earnings?

a. earnings per share b. total payout ratio c. dividend yield d. dividend payout ratio answer-d

A primary driver of an increase in stock price is profitability. Which of the following ratios is used to evaluate stockholder profitability?

a. earnings per share b. total payout ratio c. dividend yield d. dividend payout ration answer-a

A stock split, like a stock dividend, increases the number of outstanding shares without altering the proportionate ownership of a corporation. In addition, a stock split involves

a. enhancing the total market value of a corporation's outstanding common stock b. increasing the earnings per share of the common stock c. decreasing the number of a corporation's outstanding common stock d. decreasing the per-share par value of the common stock answer- d

All classes of stock are designated as either common stock or preferred stock. These come with different financial benefits and provide different rights regarding the governance of the corporation. Which of the following is NOT true of preferred stock?

a. it gives preferred shareholders priority over common shareholders in the distribution of assets in the event of liquidation b. it gives a voting right to the preferred stockholders c. its value is most closely tied to interest rate levels and the company's overall creditworthiness d. it is less risky thank common stock answer-b

A stock warrant is the right granted by a corporation to purchase a specified number of shares of its common stock at a stated price within a stated period of time. A corporation would issue stock warrants when?

a. it issues preferred stock or bonds b. it issues long-term notes c. it issues treasury stock d. it purchases treasury stock answer-a

Stockholders' equity, which is also called equity, represents the owners' claims against the assets of a corporation after all liabilities have been satisfied. There are various elements of stockholders' equity. Which of the following is NOT a part of stockholders' equity?

a. long-term notes payable b. capital stock c. treasury stock d. retained earnings answer-a

Corporations are authorized, or chartered , in accordance with the provisions of state laws that govern the structure and operation of corporations. All states require persons who wish to form a corporation to apply to a prescribed state official for the issuance of the corporate charter. The corporate charter authorizes all of the following EXCEPT?

a. names of the incorporators b.create of the corporation c. number of partners allowed d. corporate name and purpose answer-d

What is the par value of stock?

a. par value is the market value of the stock b. par value is the stock redemption value c. par value is the minimum price of stock when it is issued d. par value is the price of the stock answer- C

Dividends in arrears are dividends from

a. past years that have not been paid to common stockholders b. the current year that have not been paid to preferred stockholders c. the current year that have not been paid to common stockholders d. past years that have not been paid to preferred stockholders answer-d

There are various elements of equity, and the stockholders' equity section of the balance sheet clearly classifies these elements according to their source. Which of the following elements does NOT increase stockholders' equity?

a. retained earnings b. treasury stock c. accumulated other comprehensive income d. capital stock- split between preferred and common stock answer- b

On August 8, Koch and Dietz Corporation has 3,000,000 shares of its $5 par common shares outstanding. The current market value of the shares is $7.50. Koch and Dietz issued a stock dividend of 900,000 shares. What is the effect on retained earnings?

a. retained earnings would increase $6,750,000 b. retained earnings would decrease $6,750,000 c. retained earnings would decrease $4,500,000 d. retained earnings would increase $4,500,000 answer-c

Which of the following is true regarding stock dividends?

a. small stock dividends are capitalized at par b. large stock dividends increase the number of outstanding shares by 35% or more c. small stock dividends increase the number of outstanding shares by more than 25% d. large stock dividends are capitalized at par answer- d

Accumulated other comprehensive income is the total of comprehensive income for all periods. On which of the following statements is it reported?

a. statement of cash flows b. balance sheet c. two-statement approach to reporting comprehensive income d. single-statement approach answer-b

The number of outstanding shares is the number of shares?

a. that are held in the treasury b.that have been allocated to the preferred stock c. that have been issued d. actually in the hands of stockholders answer-d

The stated capital of a corporation is the amount of capital?

a. that is available for dividends b. that, under law, cannot be returned to the corporation's owners unless the corporation is liquidated c. that is allocated for the payment of creditors d. that can be returned to the owners any time they request it answer-b

If dividends cannot reduce retained earnings below zero, how can a corporation have a debit balance in Retained Earnings?

a. the company has restricted its retained earnings b. the company's total net losses exceed its total net income over the life of the company c. the company has set aside all of its cash for non-equity activities d. the company's retained earnings is less than accumulated other comprehensive income answer- b

If a company pays a liquidating dividend, which of the following statements is NOT true?

a. the corporation may be dissolved b. retained earnings has been reduced to zero c. paid-in capital is increased d. the dividend is not taxed as income to the recipients answer- c

A corporation's retained earnings represent an upper limit on the entity's ability to pay dividends. Which of the following would restrict a corporation's capacity to pay dividends?

a. the firm's board of directors may restrict a portion of the retained earnings and declare it unavailable for the payment of dividends b. state law may require that dividends not reduce retained earnings below the cost of treasury stock c. an agreement between the corporation and the bondholders may require that retained earnings never fall below a certain level as long as the bonds are outstanding d. all of these choices are correct answer- d

All classes of stock are designated as either common stock or preferred stock. The primary rights of the owners of common stock are all of the following EXCEPT?

a. the right to vote in the election of the board of directors b. sharing the profits and dividends of the company c. the right to keep the same percentage of ownership if new stock is issued d. the right to participate in the management of the coporation answer-d

Which of the following is true of shares of stock that are identified as being authorized?

a. they represent the maximum number of shares the business may issue in a particular class of stock b. they represent the total number of shares that are being sold in the market c. they represent the total number of shares the business has issued d. they represent the total number of shares the business has issued minus the total number of shares of treasury stock the company holds. answer-a

When a corporation purchases its own previously issued stock, the stock that is buys back is called treasury stock. What is one reason that a corporation would NOT want to buy treasury stock?

a. to reduce the size of corporate operations b. to reduce vulnerability to an unfriendly takeover c. to increase the number of outstanding shares of stock in an attempt to increase earnings per share d. to buy out the ownership of one of more stockholders answer- c

Contributed Capital is

a. total additional pain-in capital plus total retained earnings b. the total amount of par plus total additional pain-in capital plus total retained earnings c.total additional paid-in capital d. the total amount of par plus total additional paid-in capital answer-d