Chapter 15 - Intermediate Accounting MC

Additional paid-in capital is not affected by the issuance of: A. stated value stock. B. par value stock. C. no-par stock. D. preferred stock.

C. no-par stock. The issuance of no-par stock has no effect on additional paid-in capital.

(TB) Cash dividends are paid on the basis of the number of shares: A. authorized. B. issued. C. outstanding. D. outstanding less the number of treasury shares.

C. outstanding.

Blowing Rock Inc. has 5,000 shares of 5%, $100 par value, cumulative preferred stock and 30,000 shares of $1 par value common stock outstanding at December 31, 2014. There were no dividends declared in 2012. The board of directors declares and pays a $45,000 dividend in 2013 and in 2014. What is the amount of dividends received by the common stockholders in 2014? A. $15,000 B. $25,000 C. $45,000 D. $0

A. $15,000 The annual preferred dividend is ($5 X 5,000) = $25,000. The $45,000 dividend payment in 2013 would leave $5,000 in arrears. In 2012=4, the preferred shareholders would get $30,000 and the common shareholders would get $15,000.

Durango Inc. had net income for 2014 of $2,120,000 and earnings per share on common stock of $5. Included in the net income was $300,000 of bond interest expense related to its long-term debt. The income tax rate for 2012 was 30%. Dividends on preferred stock were $400,000. The payout ratio on common stock was 25%. What were the dividends on common stock in 2014? A. $430,000. B. $530,000. C. $482,500. D. $645,000.

A. $430,000. ($2,120,000 net income - $400,000 P/S dividends) X 25% equals $430,000 in common stock dividends.

On September 14, 2014, Gayot Company reacquired 12,000 shares of its $1 par value common stock for $40 per share. Gayot uses the cost method to account for treasury stock. The journal entry to record the reacquisition of the stock should debit A. Treasury Stock for $480,000. B. Common Stock for $480,000. C. Common Stock for $24,000 and Paid-in Capital in Excess of Par for $456,000. D. Treasury Stock for $24,000.

A. Treasury Stock for $480,000. Treasury Stock is debited for the cost of the stock: 12,000 X $40 = $480,000.

(TB) The residual interest in a corporation belongs to: A. the common stockholders. B. the preferred stockholders. C. the Board of Directors. D. Management.

A. the common stockholders The residual interest in a corporation belongs to the common stockholders.

Terpsichore Inc., has 1,000 shares of 5%, $100 par value, cumulative preferred stock and 200,000 shares of $1 par value common stock outstanding at December 31, 2014, and December 31, 2013. No dividends were paid in 2013. In 2014, $75,000 of dividends are declared and paid. If the preferred stock is nonparticipating, what are the dividends received by the preferred stockholders in 2014? A. $5,000. B. $10,000. C. $42,500. D. $65,000.

B. $10,000. The annual preferred dividend is ($5 X 1,000) =$5,000 so dividends in arrears at 12/31/2013 would be $5,000. 2014 preferred dividends would be $5,000 + $5,000 = $10,000.

Duszynski Company issues 20,000 shares of its $.50 par value common stock having a market value of $25 per share and 6,000 shares of its $25 par value preferred stock having a market value of $50 per share for a lump sum of $750,000. The proceeds allocated to the common stock is: A. $450,000 B. $468,750 C. $500,000 D. $705,000

B. $468,750 ($500,000/ $800,000) X $750,000 = $468,750.

Which of the following type of stock will not increase Additional Paid-in Capital when issued? A. Par value stock. B. No-par value stock. C. Stated value stock. D. Preferred stock.

B. No-par value stock No-par value stock does not increase Additional Paid-in Capital because there is no excess over and above a par or stated value to be recorded.

Jackson Corporation issued a 100% stock dividend of its common stock which had a par value of $.01, and a market value of $123 before the dividend and $62 after the dividend. At what amount should retained earnings be capitalized for the additional shares issued? A. There should be no capitalization of retained earnings. B. Par value C. Market value on the declaration date D. Market value on the payment date

B. Par Value Retained earnings is reduced by an amount equal to the number of shares issued times the par value per share.

Which one of the following is not a right of common stockholders? A. To share proportionately in profits and losses. B. To share proportionately in all management decisions. C. To share proportionately in corporate assets upon liquidation. D. To share proportionately in any new issues of stock of the same class.

B. To share proportionately in all management decisions. All of the options are rights of common stockholders except to share in all management decisions

Before declaring a cash dividend, management must consider the: A. current market price of the stock. B. availability of funds. C. legal capital of the stock. D. effect on paid-in capital.

B. availability of funds. The availability of funds must be considered.

McCaffrey Corporation owned 15,000 shares of Harper Corporation's $5 par value common stock. These shares were purchased in 2010 for $326,000. On May 4, 2014, McCaffrey declared a property dividend of one share of Harper for every twenty shares of McCaffrey stock held by a stockholder. On that date, when the market price of Harper was $34 per share, there were 280,000 shares of McCaffrey outstanding. What net reduction in retained earnings would result from this property dividend? A. $150,000 B. $176,000 C. $326,000 D. $476,000

C. $326,000 The fair value of the shares distributed is: 280,000 McCaffrey shares / 20 = 14,000 shares of Harper issued, times $34 current market price equals $476,000. Retained earnings is increased by the unrealized gain of $150,000 ($476,000-$326,000) and decreased by the fair value of the shares distributed for a net reduction of $326,000.

On January 1, 2014, Vancleave Corporation had 110,000 shares of its $.001 par value common stock outstanding. On November 27, when the market price of the stock was $8, the corporation declared a 10% stock dividend to be issued to stockholders of record on December 28, 2014. What was the impact of the 10% stock dividend on the balance of the retained earnings account? A. $11,000 decrease B. $77,000 decrease C. $88,000 decrease D. No effect

C. $88,000 decrease The amount transferred from retained earnings in a small stock dividend is based on the fair value of the stock: (110,000 X .10) = 11,000 shares X $8 = $88,000.

Which of the following country systems of finance have relied more heavily on debt financing, interlocking stock ownership, banker/directors, and worker/shareholder rights? A. Germany and Britain. B. USA and Britain. C. Japan and Germany. D. Britain and Japan.

C. Japan and Germany. The German & Japanese systems have relied more on debt financing, interlocking stock ownership, banker/directors, and worker/shareholder rights than the U.S and British systems.

(TB) Which of the following best describes a possible result of treasury stock transactions by a corporation? A. May increase but not decrease retained earnings. B. May increase net income if the cost method is used. C. May decrease but not increase retained earnings. D. May decrease but not increase net income.

C. May decrease but not increase retained earnings. Treasury stock transactions by a corporation may decrease but not increase retained earnings.

(TB) Which of the following features of preferred stock makes the security more like debt than an equity instrument? A. Participating B. Voting C. Redeemable D. Noncumulative

C. Redeemable Redeemable preferred stock is more like debt than the other choices.

Which of the following dividends do not reduce total stockholders' equity? A. Liquidating dividends. B. Cash dividends. C. Stock dividends. D. All of these answer choices reduce total stockholders' equity.

C. Stock dividends. All of these answer choices reduce total stockholders' equity except stock dividends.

At the date of declaration of a large common stock dividend, the entry should include A. a credit to Common Stock Dividend Payable. B. a credit to Paid-in Capital in Excess of Par. C. a debit to Retained Earnings. D. a credit to Cash.

C. a debit to Retained Earnings. At the date of declaration of a large common stock dividend, the entry should include a debit to Retained Earnings.

(TB) Cumulative preferred dividends in arrears should be shown in a corporation's balance sheet as: A. an increase in current liabilities. B. an increase in stockholders' equity. C. a footnote. D. an increase in current liabilities for the current portion and long-term liabilities for the long-term portion.

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

In every corporation the one class of stock that represents the basic ownership interest is called: A. preferred stock. B. cumulative stock. C. common stock. D. owners' stock.

C. common stock The basic ownership of a corporation is represented by common stock.

The most common type of preferred stock is: A. callable preferred stock. B. convertible preferred stock. C. cumulative preferred stock. D. participating preferred stock.

C. cumulative preferred stock. Cumulative preferred stock is the most common type of preferred stock.

The rate of return on common stock equity is computed by dividing: A. net income by average common stockholders' equity. B. net income by ending common stockholders' equity. C. net income less preferred dividends by average common stockholders' equity. D. net income less preferred dividends by ending common stockholders' equity.

C. net income less preferred dividends by average common stockholders' equity. Return on common stock equity is computed by dividing net income less preferred dividends by average common stockholders' equity.

Hise Inc., has 4,000 shares of 9%, $100 par value, cumulative preferred stock and 200,000 shares of $1 par value common stock outstanding at December 31, 2014, and December 31, 2013. The board of directors declared and paid a $25,000 dividend in 2013. In 2014, $74,000 of dividends are declared and paid. What are the dividends received by the preferred stockholders in 2014? A. $11,000 B. $36,000 C. $47,000 D. $74,000

D. $74,000 The annual preferred dividend is ($9 X 4,000) =$36,000 so dividends in arrears at 12/31/2013 would be $11,000. 2014 preferred dividends would be $11,000 + $36,000 = $47,000.

Which of the following statements related to dividends is incorrect? A. Distributions to owners must be in compliance with the state laws. B. Dividends must be declared by the Board of Directors. C. Dividends must comply with stock contracts as to preferences and participation. D. Dividends must be paid in the period declared.

D. Dividends must be paid in the period declared. The payment of a dividend does not have to be in the same period as it was declared.

All of the following statements are true regarding preferred stock except: A. companies usually issue preferred stock with a par value. B. the dividend preference for preferred stock is expressed as a percentage of the par value. C. a company often issues preferred stock instead of debt, because of a high debt-to-equity ratio. D. a preference as to dividends assures the payment of dividends.

D. a preference as to dividends assures the payment of dividends. A preference as to dividends merely assures that the corporation must pay the stated dividend rate or amount applicable to the preferred stock before paying any dividends on the common stock.

On October 31, 2014, Lexington Corp. declared and issued a 12% common stock dividend. Prior to this dividend, Lexington had 302,000 shares of $.001 par value common stock issued and outstanding. The fair value of Lexington's common stock was $16.75 per share on October 31, 2014. As a result of this stock dividend, the company's total stockholders' equity A. increased by $302,000. B. decreased by $5,058,198. C. decreased by $5,058,500. D. did not change.

D. did not change. As a result of this stock dividend, Lexington's total stockholders' equity did not change.

Characteristics of the corporate form of organization include all of the following except: A. capital stock or share system. B. formality of profit distribution. C. variety of ownership interests. D. unlimited liability of stockholders.

D. unlimited liability of stockholders. Limited liability (not unlimited liability) is a characteristic of the corporate form.

(TB) The accounting for treasury stock retirements under IFRS a. a charge for the entire amount to paid-in capital. b. a charge for the excess to paid-in capital, depending on the original transaction related to the issuance of the stock. c. a charge for the excess of the cost of treasury stock over par value to retained earnings. d. an allocation for the difference between paid-in capital and retained earnings.

b. a charge for the excess to paid-in capital, depending on the original transaction related to the issuance of the stock. Under IFRS, the retirement of treasury stock depends on the original issuance of the stock.