Module 5 Quiz
Percy Corporation was organized on January 1, 2026 with the authorization of 1,200,000 shares of common stock with a par value of $6 per share. In 2026, the corporation had the following capital transactions: January 5 Issued 600,000 shares @ $10 per share July 28 Purchased 80,000 shares @ $11 per share December 31 Sold the 80,000 shares held in treasury @ $18 per share Percy used the cost method to record the purchase and the reissuance of the treasury shares. What is the total amount of additional paid-in capital as of December 31, 2026?
$2,960,000 600000 x (10-6)=2400000 80000 x (18-11)=560000 2400000+560000
Manning Company issued 10,000 shares of its $5 par value common stock having a fair value of $25 per share and 15,000 shares of its $15 par value preferred stock having a fair value of $20 per share for a lump sum of $520,000. How much of the proceeds would be allocated to the common stock?
$236,364 10000 x 25 = 250000 15000 x 20 = 300000 300000+250000=550000 (250000/550000)x520000=236364
"Gains" on sales of treasury stock (using the cost method) should be credited to a) paid-in capital from treasury stock b) capital stock c) retained earnings d) other income
A
The conversion of preferred stock is most commonly recorded by the a) incremental method b) book value method c) market value method d) par value method
B
The payout ratio is calculated by dividing a) dividends per share by earnings per share b) cash dividends by net income less preferred dividends. c) cash dividends by the market price per share. d) dividends per share by earnings per share and dividing cash dividends by net income less preferred dividends.
B
Which of the following statements is true regarding an S Corporation? a) Stockholders in an S Corporation are subject to double taxation. b) An S Corporation does not pay income tax c) An S Corporation typically has more than 100 stockholders. d) All of these statements are true regarding S Corporations.
B An S Corp can only have up to 100 stockholders
The residual interest in a corporation belongs to the a) management b) creditors c) common stockholders d) preferred stockholders
C
Total stockholders' equity represents a) a claim to specific assets contributed by the owners. b) the maximum amount that can be borrowed by a company. c) claims against a portion of the total assets of a company. d) the earnings that have been retained in the business
C
The conversion of bonds is most commonly recorded by the a) incremental method b) proportional method c) market value method d) book value method
D
T/F All dividends, except for liquidating dividends, reduce the total stockholders' equity of a corporation.
False
T/F A corporation is incorporated in only one state regardless of the number of states in which it operates
True
On July 1, 2025, an interest payment date, $150,000 of Parks Co. bonds were converted into 3,000 shares of Parks Co. common stock, each having a par value of $45 and a market value of $54. There is $6,000 of unamortized discount on the bonds. If the book value method is used, Parks would record
a $9,000 increase in paid-in capital in excess of par Bonds Payable 150000 Amortization of Bonds 6000 Common Stock 135000 (3000x45) 150000-6000-135000=9000
Complex capital structure
exists whenever a company's capital structure includes dilutive securities.
Potentially dilutive security
is a security which can be exchanged for or converted into common stock and therefore upon conversion or exercise could dilute (or decrease) earnings per share. Included in this category are convertible securities, options, warrants, and other rights.
Diluted earnings per share
is the amount of earnings for the period available to each share of common stock outstanding and to each share that would have been outstanding assuming the issuance of common shares for all dilutive potential common shares outstanding during the reporting period.
Basic earnings per share
is the amount of earnings for the period available to each share of common stock outstanding during the reporting period.