Intermediate Accounting Ch 15

S34. Stock that has a fixed per-share amount printed on each stock certificate is called a. stated value stock. b. fixed value stock. c. uniform value stock. d. par value stock.

d

T or F: 2. The preemptive right allows stockholders the right to vote for directors of the company.

False

T or F: 6. Companies allocate the proceeds received from a lump-sum sale of securities based on the securities' par values.

False

T or F: Earned capital consists of additional paid-in capital and retained earnings.

False

T or F: 1. A corporation is incorporated in only one state regardless of the number of states in which it operates.

True

T or F: 3. Common stock is the residual corporate interest the bears the ultimate risks of loss.

True

T or F: 5. True no-par stock should be carried in the accounts at issue price without any additional paid-in capital reported.

True

T or F: 7. Companies should record stock issued for services or noncash property at either the fair value of the stock issued or the fair value of the consideration received.

True

T/F 10. 10. When a corporation sells treasury stock below its cost, it usually debits the difference between cost and selling price to Paid-in Capital from Treasury Stock.

True

23. The pre-emptive right enables a stockholder to a. share proportionately in any new issues of stock of the same class. b. receive cash dividends before other classes of stock without the pre-emptive right. c. sell capital stock back to the corporation at the option of the stockholder. d. receive the same amount of dividends on a percentage basis as the preferred stockholders.

a

30. When a corporation issues its capital stock in payment for services, the least appropriate basis for recording the transaction is the a. market value of the services received. b. par value of the shares issued. c. market value of the shares issued. d. Any of these provides an appropriate basis for recording the transaction.

a

31. 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 b. 2 c. 3 d. 1 or 3

a

P33. Which of the following represents the total number of shares that a corporation may issue under the terms of its charter? a. authorized shares b. issued shares c. unissued shares d. outstanding shares

a

Use the following information for questions 71 and 72. Presented below is information related to Hale Corporation: Common Stock, $1 par $4,300,000 Paid-in Capital in Excess of Par—Common Stock 550,000 Preferred 8 1/2% Stock, $50 par 2,000,000 Paid-in Capital in Excess of Par—Preferred Stock 400,000 Retained Earnings 1,500,000 Treasury Common Stock (at cost) 150,000 71. The total stockholders' equity of Hale Corporation is a. $8,600,000. b. $8,750,000. c. $7,100,000. d. $7,250,000.

a $4,300,000 + $400,000 + $550,000 + $2,000,000 + $1,500,000 - $150,000

22. The pre-emptive 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. receive cash dividends before they are distributed to preferred stockholders. d. exclude preferred stockholders from voting rights.

b

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

b

S24. In a corporate form of business organization, legal capital is best defined as a. the amount of capital the state of incorporation allows the company to accumulate over its existence. b. the par value of all capital stock issued. c. the amount of capital the federal government allows a corporation to generate. d. the total capital raised by a corporation within the limits set by the Securities and Exchange Commission.

b

S35. Which of the following is not a legal restriction related to profit distributions by a corporation? a. The amount distributed to owners must be in compliance with the state laws governing corporations. b. The amount distributed in any one year can never exceed the net income reported for that year. c. Profit distributions must be formally approved by the board of directors. d. Dividends must be in full agreement with the capital stock contracts as to preferences and participation.

b

73. Manning Company issued 10,000 shares of its $5 par value common stock having a market value of $25 per share and 15,000 shares of its $15 par value preferred stock having a market value of $20 per share for a lump sum of $480,000. How much of the proceeds would be allocated to the common stock? a. $50,000 b. $218,182 c. $250,000 d. $255,000

b (10,000 × $25) + (15,000 × $20) = $550,000 ($250,000 ÷ $550,000) × $480,000 = $218,182.

121. On July 1, 2010, Nall Co. issued 2,500 shares of its $10 par common stock and 5,000 shares of its $10 par convertible preferred stock for a lump sum of $125,000. At this date Nall's common stock was selling for $24 per share and the convertible preferred stock for $18 per share. The amount of the proceeds allocated to Nall's preferred stock should be a. $62,500. b. $75,000. c. $90,000. d. $68,750.

b 121. b ($24 × 2,500) + ($18 × 5,000) = $150,000. $90,000 ————— × $125,000 = $75,000. $150,000

T/F 8. Treasury stock is a company's own stock that has been reacquired and retired.

False

T/F 9. The cost method records all transactions in treasury shares at their cost and reports the treasury stock as a deduction from capital stock.

False

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

c

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

c

S25. 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. have the rights to specific assets of the business. c. bear the ultimate risks and uncertainties and receive the benefits of enterprise ownership. d. can negotiate individual contracts on behalf of the enterprise.

c

74. Norton Company issues 4,000 shares of its $5 par value common stock having a market value of $25 per share and 6,000 shares of its $15 par value preferred stock having a market value of $20 per share for a lump sum of $192,000. What amount of the proceeds should be allocated to the preferred stock? a. $172,000 b. $120,000 c. $104,727 d. $90,000

c (4,000 × $25) + (6,000 × $20) = $220,000 ($120,000 ÷ $220,000) × $192,000 = $104,727.

77. Wheeler Company issued 5,000 shares of its $5 par value common stock having a market value of $25 per share and 7,500 shares of its $15 par value preferred stock having a market value of $20 per share for a lump sum of $240,000. The proceeds allocated to the preferred stock is a. $215,000 b. $150,000 c. $130,909 d. $109,091

c [(7,500 × $20) ÷ [(5,000 × $25) + (7,500 × $20)]] × $240,000 = $130,909.

76. Glavine Company issues 6,000 shares of its $5 par value common stock having a market value of $25 per share and 9,000 shares of its $15 par value preferred stock having a market value of $20 per share for a lump sum of $288,000. The proceeds allocated to the common stock is a. $30,000 b. $130,909 c. $150,000 d. $157,091

b [(6,000 × $25) ÷ [(6,000 × $25) + (9,000 × $20)]] × $288,000 = $130,909.

Use the following information for questions 71 and 72. Presented below is information related to Hale Corporation: Common Stock, $1 par $4,300,000 Paid-in Capital in Excess of Par—Common Stock 550,000 Preferred 8 1/2% Stock, $50 par 2,000,000 Paid-in Capital in Excess of Par—Preferred Stock 400,000 Retained Earnings 1,500,000 Treasury Common Stock (at cost) 150,000 72. The total paid-in capital (cash collected) related to the common stock is a. $4,300,000. b. $4,850,000. c. $5,250,000. d. $4,700,000.

b. $4,300,000 + $550,000 = $4,850,000.

120. A corporation was organized in January 2007 with authorized capital of $10 par value common stock. On February 1, 2010, shares were issued at par for cash. On March 1, 2010, the corporation's attorney accepted 7,000 shares of common stock in settlement for legal services with a fair value of $90,000. Additional paid-in capital would increase on February 1, 2010 March 1, 2010 a. Yes No b. Yes Yes c. No No d. No Yes

d

27. 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

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

d

29. 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 a. pro forma method. b. proportional method. c. incremental method. d. either the proportional method or the incremental method.

d

75. Berry Corporation has 50,000 shares of $10 par common stock authorized. The following transactions took place during 2010, the first year of the corporation's existence: Sold 5,000 shares of common stock for $18 per share. Issued 5,000 shares of common stock in exchange for a patent valued at $100,000. At the end of the Berry's first year, total paid-in capital amounted to a. $40,000. b. $90,000. c. $100,000. d. $190,000.

d (5,000 × $18) + $100,000 = $190,000.