Chapter 15 Stockholders Equity

Stock splits increase total stockholders' equity. True False

False

Treasury stock is classified on the balance sheet as an asset. True False

False

Treasury stock sold for less than its cost decreases net income. True False

False

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

Japan and Germany.

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

May decrease but not increase retained earnings.

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

Redeemable

Preferred stock has no voting rights. True False

True

Redeemable preferred stock should be classified as a liability on the balance sheet. True False

True

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

a preference as to dividends assures the payment of dividends.

The accounting for treasury stock retirements under IFRS may have the excess charged to paid-in capital, depending on the original transaction related to the issuance of the stock. is to allocate the difference between paid-in capital and retained earnings. is to charge the entire amount to paid-in capital. is to charge the excess of the cost of treasury stock over par value to retained earnings.

may have the excess charged to paid-in capital, depending on the original transaction related to the issuance of the stock.

The residual interest in a corporation belongs to the common stockholders. the preferred stockholders. the Board of Directors. Management.

the common stockholders.

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

unlimited liability of stockholders

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? $15,000 $0 $45,000 $25,000

$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 2014, the preferred shareholders would get $30,000 and the common shareholders would get $15,000

Presented below is information related to Polaris Corporation: Common Stock, $1 par $10,350,000 Paid-in Capital in Excess of Par—Common Stock 6,520,000 Paid-in Capital in Excess of Cost—Treasury Stock 400,000 Retained Earnings 9,543,000 Treasury Common Stock (at cost) 695,000 The total stockholders' equity of Polaris Corporation is $27,108,000. $25,318,000. $26,118,000. $27,508,000.

$26,118,000.

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? $530,000. $482,500. $645,000. $430,000.

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

Presented below is information related to Schoenthaler Corporation: Common Stock , $5 par $1,100,000 Paid-in Capital in Excess of Par - Common Stock 400,000 Preferred 5 ½% Stock, $100 par 1,500,000 Paid-in Capital in Excess of Par—Preferred Stock 500,000 Retained Earnings 2,000,000 Paid-in Capital in Excess of Cost - Treasury Stock 150,000 The total stockholders' equity of Schoenthaler Corporation is $5,350,000. $5,500,000. $5,650,000. $3,650,000.

$5,650,000.

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 $500,000 $468,750 $705,000 $450,000

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

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

All of these answer choices reduce total stockholders' equity.

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 increased by $302,000. decreased by $5,058,500. did not change. decreased by $5,058,198.

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

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

Dividends must be paid in the period declared.

Gulfport Corporation was organized in January 2014 with authorized capital of $.0001 par value common stock. On February 1, 2012, shares were issued at par for cash. On March 1, 2014, the corporation's attorney accepted 5,000 shares of common stock in settlement for legal services with a fair value of $25,250. Additional paid-in capital would increase on 2/1/2014 3/1/2014 No Yes Yes Yes Yes No No No

No, Yes The first issuance of stock is sold at par so no additional paid-in capital is recorded. The attorney accepted the stock at ($25,250 / 5,000 shares) = $5.05, a value greater than par so additional paid-in capital is recorded.

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

No-par value stock.

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? Market value on the declaration date There should be no capitalization of retained earnings. Par value Market value on the payment date

Par value

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? $77,000 decrease $11,000 decrease $88,000 decrease No effect

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.

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? $5,000. $65,000. $10,000. $42,500.

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.

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? $65,000. $10,000. $42,500. $5,000.

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.

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? $ 74,000 $36,000 $11,000 $ 47,000

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.

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? $304,267 $476,000 $150,000 $176,000

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 $171,733 ($476,000-$304,267) and decreased by the fair value of the shares distributed for a net reduction of $304,267.

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

To share proportionately in all management decisions

Presented below is information related to Kaenzig Corporation: Common Stock , $1 par $2,100,000 Paid-in Capital in Excess of Par - Common Stock 550,000 Preferred 8 ½% Stock, $50 par 1,700,000 Paid-in Capital in Excess of Par—Preferred Stock 950,000 Retained Earnings 2,350,000 Treasury Common Stock (at cost) 250,000 The total stockholders' equity of Kaenzig Corporation is $7,900,000. $2,300,000. $5,300,000. $7,400,000.

Total stockholders' equity is ($2,100,000 + $550,000 + $1,700,000 + $950,000 + $2,350,000 - $250,000) = $7,400,000.

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 Treasury Stock for $480,000. Treasury Stock for $24,000. Common Stock for $480,000. Common Stock for $24,000 and Paid-in Capital in Excess of Par for $456,000.

Treasury Stock for $480,000.

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

a debit to Retained Earnings.

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

a footnote.

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

availability of funds.

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

common stock.

The most common type of preferred stock is: participating preferred stock. cumulative preferred stock. callable preferred stock. convertible preferred stock.

cumulative preferred stock.

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

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

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

no-par stock.

Cash dividends are paid on the basis of the number of shares authorized. issued. outstanding. outstanding less the number of treasury shares.

outstanding.