ACC 557 Week 8 Quiz – Strayer University NEW

ACC/557 Week 8 Quiz – Strayer NEW

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All possible questions with answers

TRUE-FALSE STATEMENTS

A corporation is not an entity which is separate and distinct from its owners.

Ans:LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Communications, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Communication, IMA: FSA

A corporation can be organized for the purpose of making a profit or it may be not-for-profit.

Ans:LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Communications, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Communication, IMA: FSA

A corporation acts under its own name rather than in the name of its stockholders.

Ans:LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Communications, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Communication, IMA: FSA

If a corporation pays taxes on its income, then stockholders will not have to pay taxes on the dividends received from that corporation.

Ans:LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Ethics, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Communication, IMA: FSA

A corporation must be incorporated in each state in which it does business.

Ans:LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Ethics, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Communication, IMA: FSA

A stockholder has the right to vote in the election of the board of directors.

Ans:LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Communications, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Interaction, IMA: FSA

A proxy is a legal document that instructs a stockholder’s agent how to vote shares of stock for the stockholder.

Ans:LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Communications, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Interaction, IMA: FSA

As soon as a corporation is authorized to issue stock, an accounting journal entry should be made recording the total value of the shares authorized.

Ans:LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Ethics, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Corporate Finance

The par value of common stock must always be equal to its market value on the date the stock is issued.

Ans:LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Communications, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Business Economics

When no-par value stock does not have a stated value, the entire proceeds from the issuance of the stock becomes legal capital.

Ans:LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Ethics, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting

A corporation can issue more shares than it is authorized in its charter, if the board of directors approves of an increase in the number of authorized shares.

Ans:LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Ethics, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

The market value of a corporation’s stock is determined by the number of shares that the corporation has been authorized to issue.

Ans:LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

Stock can be issued only in exchange for cash.

Ans:LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

The par value of stock issued for noncash assets is never a factor in determining the cost of the assets received.

Ans:LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Ethics, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

The acquisition of treasury stock by a corporation increases total assets and total stockholders’ equity.

Ans:LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

Treasury stock should not be classified as a current asset.

Ans:LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Ethics, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

Treasury stock purchased for $25 per share that is reissued at $20 per share, results in a Loss on Sale of Treasury Stock being recognized on the income statement.

Ans:LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Ethics, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

Treasury stock is a contra stockholders’ equity account.

Ans:LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

The number of common shares outstanding can never be greater than the number of shares issued.

Ans:LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

Preferred stock has contractual preference over common stock in certain areas.

Ans:LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

Preferred stockholders generally do not have the right to vote for the board of directors.

Ans:LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: None, AICPA PC: None, IMA: Investment Decisions

Dividends in arrears on cumulative preferred stock are considered a liability.

Ans:LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

Dividends may be declared and paid in cash or stock.

Ans:LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Communication, IMA: Business Economics

Cash dividends are not a liability of the corporation until they are declared by the board of directors.

Ans:LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Communication, IMA: Business Economics

The amount of a cash dividend liability is recorded on the date of record because it is on that date that the persons or entities who will receive the dividend are identified.

Ans:LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Communication, IMA: FSA

A 10% stock dividend will increase the number of shares outstanding but the book value per share will decrease.

Ans:LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Communication, IMA: FSA

A 3-for-1 common stock split will increase total stockholders’ equity but reduce the par or stated value per share of common stock.

Ans:LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Communication, IMA: FSA

Retained earnings represents the amount of cash available for dividends.

Ans:LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

Net income of a corporation should be closed to retained earnings and net losses should be closed to paid-in capital accounts.

Ans:LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

A debit balance in the Retained Earnings account is identified as a deficit.

Ans:LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Communications, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Communication, IMA: FSA

A correction in income of a prior period involves either a debit or credit to the Retained Earnings account.

Ans:LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Communication, IMA: FSA

Prior period adjustments to income are reported in the current year’s income statement.

Ans:LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Communication, IMA: FSA

Retained earnings that are restricted are unavailable for dividends.

Ans:LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Communication, IMA: FSA

Restricted retained earnings are available for preferred stock dividends but unavailable for common stock dividends.

Ans:LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Communication, IMA: FSA

A retained earnings statement shows the same information as a corporation income statement.

Ans:LO: 6, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting

A detailed stockholders’ equity section in the balance sheet will list the names of individuals who are eligible to receive dividends on the date of record.

Ans:LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting

Common Stock Dividends Distributable is shown within the Paid-in Capital subdivision of the stockholders’ equity section of the balance sheet.

Ans:LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Communications, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting

Return on common stockholders’ equity is computed by dividing net income by ending stockholders’ equity.

Ans:LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: Industry/Sector, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting

Many companies prepare a stockholders’ equity statement instead of presenting a detailed stockholders’ equity section in the balance sheet.

Ans:LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Communications, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting

a40. The stockholders’ equity statement shows the changes in each stockholders’ equity account and in total stockholders’ equity during the year.

Ans:LO: 8, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Communications, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting

a41. Book value per share of common stock is the same amount as the market value per share.

Ans:LO: 9, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Communications, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting

A successful corporation can have a continuous and perpetual life.

Ans:LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting

Organizational costs are capitalized by debiting an intangible asset entitled Organization Costs.

Ans:LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Ethics, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

The cash proceeds from issuing par value stock may be equal to or greater than, but not less than par value.

Ans:LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

The cost of a noncash asset acquired in exchange for common stock should be either the fair value of the consideration given up or the consideration received, whichever is more clearly determinable.

Ans:LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Ethics, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

Under the cost method, Treasury Stock is debited at the price paid to reacquire the shares, and the same amount is credited to Treasury Stock when the shares are sold.

Ans:LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

A dividend based on paid-in capital is termed a liquidating dividend.

Ans:LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Communications, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting

Common Stock Dividends Distributable is reported as additional paid-in capital in the stockholders’ equity section.

Ans:LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Communications, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting

A prior period adjustment is reported as an adjustment of the beginning balance of Retained Earnings.

Ans:LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Communications, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting

In the stockholders’ equity section, paid-in capital and retained earnings are reported and the specific sources of paid-in capital are identified.

Ans:LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Communications, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

MULTIPLE CHOICE QUESTIONS

Which one of the following is a privately held corporation?
Intel
General Electric
Caterpillar Inc.
Cargill Inc.

Ans:LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

The dominant form of business organization in the United States in terms of dollar sales volume, earnings, and employees is
the sole proprietorship.
the partnership.
the corporation.
not known.

Ans:LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

Under the corporate form of business organization
a stockholder is personally liable for the debts of the corporation.
stockholders’ acts can bind the corporation even though the stockholders have not been appointed as agents of the corporation.
the corporation’s life is stipulated in its charter.
stockholders wishing to sell their corporation shares must get the approval of other stockholders.

Ans:LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Communications, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

Stockholders of a corporation directly elect
the president of the corporation.
the board of directors.
the treasurer of the corporation.
all of the employees of the corporation.

Ans:LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

The chief accounting officer in a company is known as the
controller.
treasurer.
vice-president.
president.

Ans:LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Reporting, AICPA PC: Leadership, IMA: None

A factor which distinguishes the corporate form of organization from a sole proprietorship or partnership is that a
corporation is organized for the purpose of making a profit.
corporation is subject to more federal and state government regulations.
corporation is an accounting economic entity.
corporation’s temporary accounts are closed at the end of the accounting period.

Ans:LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: FSA

Which one of the following would not be considered an advantage of the corporate form of organization?
Limited liability of owners
Separate legal existence
Continuous life
Government regulation

Ans:LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Ethics, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting

The concept of an “artificial being” refers to which form of business organization?
Partnership
Sole proprietorship
Corporation
Limited partnership

Ans:LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

The two ways that a corporation can be classified by purpose are
general and limited.
profit and not-for-profit.
state and federal.
publicly held and privately held.

Ans:LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

The two ways that a corporation can be classified by ownership are
publicly held and privately held.
stock and non-stock.
inside and outside.
majority and minority.

Ans:LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

Which of the following would not be true of a privately held corporation?
It is sometimes called a closely held corporation.
Its shares are regularly traded on the New York Stock Exchange.
It does not offer its shares for sale to the general public.
It is usually smaller than a publicly held company.

Ans:LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

Which of the following is not true of a corporation?
It may buy, own, and sell property.
It may sue and be sued.
The acts of its owners bind the corporation.
It may enter into binding legal contracts in its own name.

Ans:LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Risk Analysis, AICPA PC: Professional Demeanor, IMA: Business Economics

Jason Thomas has invested $200,000 in a privately held family corporation. The corporation does not do well and must declare bankruptcy. What amount does TThomas stand to lose?
Up to his total investment of $200,000.
Zero.
The $200,000 plus any personal assets the creditors demand.
$100,000.

Ans:LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Investment Decisions

Which of the following statements reflects the transferability of ownership rights in a corporation?
If a stockholder decides to transfer ownership, he must transfer all of his shares.
A stockholder may dispose of part or all of his shares.
A stockholder must obtain permission from the board of directors before selling shares.
A stockholder must obtain permission from at least three other stockholders before selling shares.

Ans:LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Communications, AICPA BB: Legal/Regulatory, AICPA FN: Decision Modeling, AICPA PC: None, IMA: Corporate Finance

A corporate board of directors does not generally
select officers.
formulate operating policies.
declare dividends.
execute policy.

Ans:LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Leadership, IMA: Internal Controls

A typical organization chart showing delegation of authority would show
stockholders delegating to the board of directors.
the board of directors delegating to stockholders.
the chief executive officer delegating to the board of directors.
the controller delegating to the chief executive officer.

Ans:LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Communications, AICPA BB: Legal/Regulatory, AICPA FN: Decision Modeling, AICPA PC: Leadership, IMA: Internal Controls

The officer who is generally responsible for maintaining the cash position of the corporation is the
controller.
treasurer.
cashier.
internal auditor.

Ans:LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Decision Modeling, AICPA PC: Professional Demeanor, IMA: Corporate Finance

The chief accounting officer in a corporation is the
treasurer.
president.
controller.
vice-president of finance.

Ans:LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Decision Modeling, AICPA PC: Professional Demeanor, IMA: Corporate Finance

The ability of a corporation to obtain capital is
enhanced because of limited liability and ease of share transferability.
less than a partnership.
restricted because of the limited life of the corporation.
about the same as a partnership.

Ans:LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Decision Modeling, AICPA PC: Professional Demeanor, IMA: Corporate Finance

Which of the following statements concerning taxation is accurate?
Partnerships pay state income taxes but not federal income taxes.
Corporations pay federal income taxes but not state income taxes.
Corporations pay federal and state income taxes.
Only the owners must pay taxes on corporate income.

Ans:LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

Which of the following statements is not considered a disadvantage of the corporate form of organization?
Additional taxes
Government regulations
Limited liability of stockholders
Separation of ownership and management

Ans:LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Decision Modeling, AICPA PC: None, IMA: None

What is ordinarily the first step in the formation of a corporation?
Development of by-laws for the corporation
Issuance of the corporate charter
Application for incorporation to the appropriate Secretary of State
Registration with the SEC

Ans:LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

Which one of the following is not an ownership right of a stockholder in a corporation?
To vote in the election of directors
To declare dividends on the common stock
To share in assets upon liquidation
To share in corporate earnings

Ans:LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Decision Modeling, AICPA PC: Problem Solving, IMA: Business Economics

If no-par stock is issued without a stated value, then
the par value is automatically $1 per share.
the entire proceeds are considered to be legal capital.
there is no legal capital.
the corporation is automatically in violation of its state charter.

Ans:LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Ethics, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

If a stockholder cannot attend a stockholder’s meeting, he may delegate his voting rights by means of
an absentee ballot.
a proxy.
a certified letter.
a telegram.

Ans:LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Communication, IMA: Internal Controls

If a corporation has only one class of stock, it is referred to as
classless stock.
preferred stock.
solitary stock.
common stock.

Ans:LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

The term residual claim refers to a stockholders’ right to
receive dividends.
share in assets upon liquidation.
acquire additional shares when offered.
exercise a proxy vote.

Ans:LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting

Which of the following factors does not affect the initial market price of a stock?
The company’s anticipated future earnings
The par value of the stock
The current state of the economy
The expected dividend rate per share

Ans:LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Business Economics

If an investment firm underwrites a stock issue, the
risk of being unable to sell the shares stays with the issuing corporation.
corporation obtains cash immediately from the investment firm.
investment firm has guaranteed profits on the sale of the stock.
issuance of stock is likely to be directly to creditors.

Ans:LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

The par value of a stock
is legally significant.
reflects the most recent market price.
is selected by the SEC.
is indicative of the worth of the stock.

Ans:LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

A corporation has the following account balances: Common stock, $1 par value, $60,000; Paid-in Capital in Excess of Par, $1,300,000. Based on this information, the
legal capital is $1,360,000.
number of shares issued are 60,000.
number of shares outstanding are 1,360,000.
average price per share issued is $22.50.

Ans:LO: 1, Bloom: C, Difficulty: Medium, Min: 2, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

The authorized stock of a corporation
only reflects the initial capital needs of the company.
is indicated in its by-laws.
is indicated in its charter.
must be recorded in a formal accounting entry.

Ans:LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

When stock is issued for legal services, the transaction is recorded by debiting Organization Expense for the
stated value of the stock.
par value of the stock.
market value of the stock.
book value of the stock.

Ans:LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

If Vickers Company issues 4,000 shares of $5 par value common stock for $140,000,
Common Stock will be credited for $140,000.
Paid-In Capital in Excess of Par will be credited for $20,000.
Paid-In Capital in Excess of Par will be credited for $120,000.
Cash will be debited for $120,000.

Ans:LO: 2, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

If common stock is issued for an amount greater than par value, the excess should be credited to
Cash.
Retained Earnings.
Paid-in Capital in Excess of Par.
Legal Capital.

Ans:LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: FSA

If stock is issued for a noncash asset, the asset should be recorded on the books of the corporation at
fair value.
cost.
zero.
a nominal amount.

Ans:LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

If stock is issued for less than par value, the account
Paid-In Capital in Excess of Par is credited.
Paid-In Capital in Excess of Par is debited if a debit balance exists in the account.
Paid-In Capital in Excess of Par is debited if a credit balance exists in the account.
Retained Earnings is credited.

Ans:LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

The sale of common stock below par
is a common occurrence in most states.
is not permitted in most states.
is a practice that most stockholders encourage.
requires that a liability be recorded for the difference between the sales price and the par value of the shares.

Ans:LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

Paid-In Capital in Excess of Stated Value
is credited when no-par stock does not have a stated value.
is reported as part of paid-in capital on the balance sheet.
represents the amount of legal capital.
normally has a debit balance.

Ans:LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

A separate paid-in capital account is used to record each of the following except the issuance of
no-par stock.
par value stock.
stated value stock.
treasury stock above cost.

Ans:LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

Barton Company is a publicly held corporation whose $1 par value stock is actively traded at $32 per share. The company issued 3,000 shares of stock to acquire land recently advertised at $100,000. When recording this transaction, Barton Company will
debit Land for $100,000.
credit Common Stock for $96,000.
debit Land for $96,000.
credit Paid-In Capital in Excess of Par for $98,000.

Ans:LO: 2, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

Crain Company issued 2,000 shares of its $5 par value common stock in payment of its attorney’s bill of $40,000. The bill was for services performed in helping the company incorporate. Crain should record this transaction by debiting
Legal Expense for $10,000.
Legal Expense for $40,000.
Organization Expense for $10,000.
Organization Expense for $40,000.

Ans:LO: 2, Bloom: C, Difficulty: Medium, Min: 2, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

In the financial statements, organization costs appears
immediately below Retained Earnings in the stockholders’ equity section.
in the income statement.
as part of paid-in capital in the stockholders’ equity section.
as an intangible asset.

Ans:LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

Which of the following represents the largest number of common shares?
Treasury shares
Issued shares
Outstanding shares
Authorized shares

Ans:LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

New Corp. issues 2,000 shares of $10 par value common stock at $14 per share. When the transaction is recorded, credits are made to
Common Stock $20,000 and Paid-in Capital in Excess of Stated Value $8,000.
Common Stock $28,000.
Common Stock $20,000 and Paid-in Capital in Excess of Par $8,000.
Common Stock $20,000 and Retained Earnings $8,000.

Ans:LO: 2, Bloom: K, Difficulty: Medium, Min: 2, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

If Keene Company issues 4,500 shares of $5 par value common stock for $80,000, the account
Common Stock will be credited for $22,500.
Paid-in Capital in Excess of Par will be credited for $22,500.
Paid-in Capital in Excess of Par will be credited for $80,000.
Cash will be debited for $57,500.

Ans:LO: 2, Bloom: K, Difficulty: Medium, Min: 2, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

Carson Packaging Corporation began business in 2013 by issuing 25,000 shares of $3 par common stock for $8 per share and 10,000 shares of 6%, $10 par preferred stock for par. At year end, the common stock had a market value of $12. On its December 31, 2013 balance sheet, Carson Packaging would report
Common Stock of $300,000.
Common Stock of $75,000.
Common Stock of $200,000.
Paid-In Capital of $75,000.

Ans:LO: 2, Bloom: K, Difficulty: Medium, Min: 2, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

Hsu, Inc. issued 7,500 shares of stock at a stated value of $8/share. The total issue of stock sold for $15 per share. The journal entry to record this transaction would include a
debit to Cash for $60,000.
credit to Common Stock for $60,000.
credit to Paid-in Capital in Excess of Par for $112,500.
credit to Common Stock for $112,500.

Ans:LO: 2, Bloom: K, Difficulty: Medium, Min: 2, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

S. Lamar performed legal services for E. Garr. Due to a cash shortage, an agreement was reached whereby E. Garr. would pay S. Lamar a legal fee of approximately $8,000 by issuing 2,000 shares of its common stock (par $1). The stock trades on a daily basis and the market price of the stock on the day the debt was settled is $4.50 per share. Given this information, the journal entry for E. Garr. to record this transaction is:

Legal Expense 9,000
Common Stock 9,000

Legal Expense 8,000
Common Stock 8,000

Legal Expense 8,000
Common Stock 2,000

Paid-in Capital in Excess of Par – Common 6,000

Legal Expense 9,000
Common Stock 2,000

Paid-in Capital in Excess of Par – Common 7,000

Ans:LO: 2, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

Jarrett Company issued 600 shares of no-par common stock for $8,800. Which of the following journal entries would be made if the stock has no stated value?

Cash 8,800
Common Stock 8,800

Cash 8,800
Common Stock 600

Paid-in Capital in Excess of Par 8,200

Cash 8,800
Common Stock 600

Paid-in Capital in Excess of Stated Value 8,200

Common Stock 8,800
Cash 8,800

Ans:LO: 2, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

Darman Company issued 500 shares of no-par common stock for $5,500. Which of the following journal entries would be made if the stock has a stated value of $2 per share?
Cash 5,500
Common Stock 5,500

Cash 5,500
Common Stock 1,000

Paid-in Capital in Excess of Par 4,500

Cash 5,500
Common Stock 1,000

Paid-in Capital in Excess of Stated Value 4,500

Common Stock 5,500
Cash 5,500

Ans:LO: 2, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

Ralston Company is authorized to issue 10,000 shares of 8%, $100 par value preferred stock and 500,000 shares of no-par common stock with a stated value of $1 per share. If Ralston issues 6,000 shares of common stock to pay its recent attorney’s bill of $25,000 for legal services on a land access dispute, which of the following would be the journal entry for Ralston to record?
Legal Expense 6,000
Common Stock 6,000

Legal Expense 25,000
Common Stock 25,000

Legal Expense 25,000
Common Stock 6,000

Paid-in Capital in Excess of Stated Value – Common 19,000

Legal Expense 25,000
Common Stock 6,000

Paid-in Capital in Excess of Par – Preferred 19,000

Ans:LO: 2, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

The following data is available for Blaine Corporation at December 31, 2013:
Common stock, par $10 (authorized 25,000 shares) $200,000

Treasury Stock (at cost $15 per share) 900

Based on the data, how many shares of common stock are outstanding?

25,000
20,000
24,940
19,940

Ans:LO: 3, Bloom: AN, Difficulty: Medium, Min: 3, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

The following data is available for Blaine Corporation at December 31, 2013:
Common stock, par $10 (authorized 25,000 shares) $200,000

Treasury Stock (at cost $15 per share) $ 900

Based on the data, how many shares of common stock have been issued?

25,000
20,000
24,940
19,940

Ans:LO: 3, Bloom: AN, Difficulty: Medium, Min: 3, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

Aaron, Inc. paid $90,000 to buy back 10,000 shares of its $1 par value common stock. This stock was sold later at a selling price of $6 per share. The entry to record the sale includes a
debit to Retained Earnings for $30,000.
credit to Retained Earnings for $10,000.
debit to Paid-in Capital from Treasury Stock for $90,000.
credit to Paid-in Capital from Treasury Stock for $10,000.

Ans:LO: 4, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

Karl Corporation was organized on January 2, 2010. During 2013, Karl issued 20,000 shares at $24 per share, purchased 3,000 shares of treasury stock at $26 per share, and had net income of $300,000. What is the total amount of stockholders’ equity at December 31, 2013?
$640,000
$702,000
$708,000
$720,000

Ans:LO: 4, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

Evergreen Manufacturing Corporation purchased 4,000 shares of its own previously issued $10 par common stock for $92,000. As a result of this event,
Evergreen’s Common Stock account decreased $40,000.
Evergreen’s total stockholders’ equity decreased $92,000.
Evergreen’s Paid-in Capital in Excess of Par account decreased $52,000.
All of the above.

Ans:LO: 3, Bloom: K, Difficulty: Medium, Min: 2, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

A corporation purchases 30,000 shares of its own $30 par common stock for $45 per share, recording it at cost. What will be the effect on total stockholders’ equity?
Increase by $1,350,000
Decrease by $900,000
Decrease by $1,350,000
Increase by $900,000

Ans:LO: 3, Bloom: C, Difficulty: Medium, Min: 2, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

A corporation purchases 20,000 shares of its own $15 par common stock for $30 per share, recording it at cost. What will be the effect on total stockholders’ equity?
Increase by $300,000
Decrease by $600,000
Increase by $600,000
Decrease by $300,000

Ans:LO: 3, Bloom: C, Difficulty: Medium, Min: 2, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

Ramos Corporation sold 200 shares of treasury stock for $45 per share. The cost for the shares was $35. The entry to record the sale will include a
credit to Gain on Sale of Treasury Stock for $7,000.
credit to Paid-in Capital from Treasury Stock for $2,000.
debit to Paid-in Capital in Excess of Par for $2,000.
credit to Treasury Stock for $9,000.

Ans:LO: 3, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

Each of the following is correct regarding treasury stock except that it has been
issued.
fully paid for.
reacquired.
retired.

Ans:LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

Treasury stock is
stock issued by the U.S. Treasury Department.
stock purchased by a corporation and held as an investment in its treasury.
corporate stock issued by the treasurer of a company.
a corporation’s own stock which has been reacquired but not retired.

Ans:LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

The acquisition of treasury stock by a corporation
increases its total assets and total stockholders’ equity.
decreases its total assets and total stockholders’ equity.
has no effect on total assets and total stockholders’ equity.
requires that a gain or loss be recognized on the income statement.

Ans:LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

Treasury stock should be reported in the financial statements of a corporation as a(n)
investment.
liability.
deduction from total paid-in capital.
deduction from total paid-in capital and retained earnings.

Ans:LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

A company would not acquire treasury stock
in order to reissue shares to officers.
as an asset investment.
in order to increase trading of the company’s stock.
to have additional shares available to use in acquisitions of other companies.

Ans:LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

Accounting for treasury stock is done by the
FIFO method.
LIFO method.
cost method.
lower of cost or market method.

Ans:LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

Treasury stock is generally accounted for by the
cost method.
market value method.
par value method.
stated value method.

Ans:LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

Treasury Stock is a(n)
contra asset account.
retained earnings account.
asset account.
contra stockholders’ equity account.

Ans:LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

Five thousand shares of treasury stock of Marker, Inc., previously acquired at $14 per share, are sold at $20 per share. The entry to record this transaction will include a
credit to Treasury Stock for $100,000.
debit to Paid-In Capital from Treasury Stock for $30,000.
debit to Treasury Stock for $70,000.
credit to Paid-In Capital from Treasury Stock for $30,000.

Ans:LO: 3, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

Salon Company originally issued 3,000 shares of $10 par value common stock for $90,000 ($30 per share). Salon subsequently purchases 300 shares of treasury stock for $27 per share and resells the 300 shares of treasury stock for $29 per share. In the entry to record the sale of the treasury stock, there will be a
credit to Common Stock for $8,100.
credit to Treasury Stock for $3,000.
debit to Paid-In Capital in Excess of Par of $9,000.
credit to Paid-In Capital from Treasury Stock for $600.

Ans:LO: 3, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

Brown Company has 1,000 shares of 6%, $100 par cumulative preferred stock outstanding at December 31, 2013. No dividends have been paid on this stock for 2012 or 2013. Dividends in arrears at December 31, 2013 total
$0.
$600.
$6,000.
$12,000.

Ans:LO: 4, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Business Economics

Era Company has 3,000 shares of 5%, $100 par non-cumulative preferred stock outstanding at December 31, 2013. No dividends have been paid on this stock for 2012 or 2013. Dividends in arrears at December 31, 2013 total
$0.
$1,500.
$15,000.
$30,000.

Ans:LO: 4, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Business Economics

Ranier Company is authorized to issue 10,000 shares of 8%, $100 par value preferred stock and 500,000 shares of no-par common stock with a stated value of $1 per share. If Ranier issues 5,000 shares of preferred stock for land with an asking price of $600,000 and a market value of $540,000, which of the following would be the journal entry for Ranier to record?
Land 500,000
Preferred Stock 500,000

Land 540,000
Preferred Stock 540,000

Land 600,000
Preferred Stock 500,000

Paid-in Capital in Excess of Par-Preferred 100,000

Land 540,000
Preferred Stock 500,000

Paid-in Capital Excess of Par-Preferred 40,000

Ans:LO: 4, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

Lakeland, Inc. has 25,000 shares of 8%, $100 par value, noncumulative preferred stock and 50,000 shares of $1 par value common stock outstanding at December 31, 2012. There were no dividends declared in 2011. The board of directors declares and pays a $250,000 dividend in 2012. What is the amount of dividends received by the common stockholders in 2012?
$0
$200,000
$250,000
$50,000

Ans:LO: 4, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

When preferred stock is cumulative, preferred dividends not declared in a period are
considered a liability.
called dividends in arrears.
distributions of earnings.
never paid.

Ans:LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

Which of the following is not a right or preference associated with preferred stock?
The right to vote
First claim to dividends
Preference to corporate assets in case of liquidation
To receive dividends in arrears before common stockholders receive dividends

Ans:LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: None, AICPA PC: None, IMA: Business Economics

Cooke Corporation issues 10,000 shares of $50 par value preferred stock for cash at $90 per share. The entry to record the transaction will consist of a debit to Cash for $900,000 and a credit or credits to
Preferred Stock for $900,000.
Preferred Stock for $500,000 and Paid-in Capital in Excess of Par—Preferred Stock for $400,000.
Preferred Stock for $400,000 and Paid-in Capital from Preferred Stock for $500,000.
Paid-in Capital from Preferred Stock for $900,000.

Ans:LO: 4, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

Cooke Corporation issues 10,000 shares of $50 par value preferred stock for cash at $60 per share. In the stockholders’ equity section, the effects of the transaction above will be reported
entirely within the capital stock section.
entirely within the additional paid-in capital section.
under both the capital stock and additional paid-in capital sections.
entirely under the retained earnings section.

Ans:LO: 4, Bloom: C, Difficulty: Medium, Min: 2, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

Dividends in arrears on cumulative preferred stock
are shown in stockholders’ equity of the balance sheet.
must be paid before common stockholders can receive a dividend.
should be recorded as a current liability until they are paid.
enable the preferred stockholders to share equally in corporate earnings with the common stockholders.

Ans:LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

Dividends in arrears on cumulative preferred stock
are considered to be a non-current liability.
are considered to be a current liability.
only occur when preferred dividends have been declared.
should be disclosed in the notes to the financial statements.

Ans:LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

If preferred stock is cumulative, the
preferred dividends not declared in a given year are called dividends in arrears.
preferred stockholders and the common stockholders receive equal dividends.
preferred stockholders and the common stockholders receive the same total dollar amount of dividends.
common stockholders will share in the preferred dividends.

Ans:LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

The Northern Corporation issues 8,000 shares of $100 par value preferred stock for cash at $120 per share. The entry to record the transaction will consist of a debit to Cash for $960,000 and a credit or credits to
Preferred Stock for $960,000.
Paid-in Capital from Preferred Stock for $960,000.
Preferred Stock for $800,000 and Retained Earnings for $160,000.
Preferred Stock for $800,000 and Paid-in Capital in Excess of Par—Preferred Stock for $160,000.

Ans:LO: 4, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: None, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

Vega Corporation’s December 31, 2013 balance sheet showed the following:
8% preferred stock, $20 par value, cumulative, 10,000 shares

authorized; 7,500 shares issued $ 150,000

Common stock, $10 par value, 1,000,000 shares authorized;

975,000 shares issued, 960,000 shares outstanding 9,750,000

Paid-in capital in excess of par—preferred stock 30,000

Paid-in capital in excess of par—common stock 13,500,000

Retained earnings 3,750,000

Treasury stock (15,000 shares) 315,000

Vega declared and paid a $48,000 cash dividend on December 15, 2013. If the company’s dividends in arrears prior to that date were $10,000, Vega’s common stockholders received

$38,000.
$22,000.
$26,000.
no dividend.

Ans:LO: 4, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: None, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

Each of the following decreases retained earnings except a
cash dividend.
liquidating dividend.
stock dividend.
All of these decrease retained earnings.

Ans:LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: None, IMA: FSA

Each of the following decreases total stockholders’ equity except a
cash dividend.
liquidating dividend.
stock dividend.
All of these decrease total stockholders’ equity.

Ans:LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: None, IMA: FSA

Which one of the following is not necessary in order for a corporation to pay a cash dividend?
Adequate cash
Approval of stockholders
Declaration of dividends by the board of directors
Retained earnings

Ans:LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: FSA

If a corporation declares a dividend based upon paid-in capital, it is known as a
scrip dividend.
property dividend.
paid dividend.
liquidating dividend.

Ans:LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: FSA

The date on which a cash dividend becomes a binding legal obligation is on the
declaration date.
date of record.
payment date.
last day of the fiscal year-end.

Ans:LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Communications, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting

The effect of the declaration of a cash dividend by the board of directors is to
Increase Decrease

Stockholders’ equity Assets
Assets Liabilities
Liabilities Stockholders’ equity
Liabilities Assets

Ans:LO: 5, Bloom: C, Difficulty: Medium, Min: 1, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: FSA

The cumulative effect of the declaration and payment of a cash dividend on a company’s financial statements is to
decrease total liabilities and stockholders’ equity.
increase total expenses and total liabilities.
increase total assets and stockholders’ equity.
decrease total assets and stockholders’ equity.

Ans:LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: FSA

Common Stock Dividends Distributable is classified as a(n)
asset account.
stockholders’ equity account.
expense account.
liability account.

Ans:LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Communications, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting

The effect of a stock dividend is to
decrease total assets and stockholders’ equity.
change the composition of stockholders’ equity.
decrease total assets and total liabilities.
increase the book value per share of common stock.

Ans:LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting

If a corporation declares a 10% stock dividend on its common stock, the account to be debited on the date of declaration is
Common Stock Dividends Distributable.
Common Stock.
Paid-in Capital in Excess of Par.
Retained Earnings.

Ans:LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Communication, IMA: FSA

Which one of the following events would not require a formal journal entry on a corporation’s books?
2 for 1 stock split
100% stock dividend
2% stock dividend
$1 per share cash dividend

Ans:LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Communication, IMA: FSA

Stock dividends and stock splits have the following effects on retained earnings:
Stock Splits Stock Dividends

Increase No change
No change Decrease
Decrease Decrease
No change No change

Ans:LO: 5, Bloom: C, Difficulty: Medium, Min: 1, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Communication, IMA: FSA

Dividends are predominantly paid in
earnings.
property.
cash.
stock.

Ans:LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Communication, IMA: FSA

If a stockholder receives a dividend that reduces retained earnings by the fair market value of the stock, the stockholder has received a
large stock dividend.
cash dividend.
contingent dividend.
small stock dividend.

Ans:LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Communications, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Communication, IMA: FSA

Of the various dividends types, the two most common types in practice are
cash and large stock.
cash and property.
cash and small stock.
property and small stock.

Ans:LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Communications, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Communication, IMA: FSA

Regular dividends are declared out of
Paid-in Capital in Excess of Par.
Treasury Stock.
Common Stock.
Retained Earnings.

Ans:LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Communications, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting

A corporation is not committed to a legal obligation when it declares
a cash dividend.
either a cash dividend or a stock dividend.
a stock dividend.
a distribution date.

Ans:LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting

Which of the following is not a significant date with respect to dividends?
The declaration date
The incorporation date
The record date
The payment date

Ans:LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Communication, IMA: FSA

On the dividend record date,
a dividend becomes a current obligation.
no entry is required.
an entry may be required if it is a stock dividend.
Dividends Payable is debited.

Ans:LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Communication, IMA: FSA

Which of the following statements regarding the date of a cash dividend declaration is not accurate?
The dividend can be rescinded once it has been declared.
The corporation is committed to a legal, binding obligation.
The board of directors formally authorizes the cash dividend.
A liability account must be increased.

Ans:LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting

Dividends Payable is classified as a
long-term liability.
contra stockholders’ equity account to Retained Earnings.
current liability.
stockholders’ equity account.

Ans:LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Communications, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting

Indicate the respective effects of the declaration of a cash dividend on the following balance sheet sections:
Total Assets Total Liabilities Total Stockholders’ Equity

Increase Decrease No change
No change Increase Decrease
Decrease Increase Decrease
Decrease No change Increase

Ans:LO: 5, Bloom: C, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: None, IMA: FSA

Which of the following statements about dividends is not accurate?
Many companies declare and pay cash quarterly dividends.
Low dividends may mean high stock returns.
The board of directors is obligated to declare dividends.
A legal dividend may not be a feasible one.

Ans:LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Communication, IMA: FSA

The cumulative effect of the declaration and payment of a cash dividend on a company’s balance sheet is to
decrease current liabilities and stockholders’ equity.
increase total assets and stockholders’ equity.
increase current liabilities and stockholders’ equity.
decrease stockholders’ equity and total assets.

Ans:LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Communication, IMA: FSA

The declaration and distribution of a stock dividend will
increase total stockholders’ equity.
increase total assets.
decrease total assets.
have no effect on total assets.

Ans:LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Communication, IMA: FSA

Xeris, Inc. has 1,000 shares of 5%, $10 par value, cumulative preferred stock and 50,000 shares of $1 par value common stock outstanding at December 31, 2013. What is the annual dividend on the preferred stock?
$5 per share
$500 in total
$5,000 in total
$.05 per share

Ans:LO: 5, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

Win, Inc. has 10,000 shares of 7%, $100 par value, cumulative preferred stock and 100,000 shares of $1 par value common stock outstanding at December 31, 2013. If the board of directors declares a $60,000 dividend, the
preferred shareholders will receive 1/10th of what the common shareholders will receive.
preferred shareholders will receive the entire $60,000.
$60,000 will be held as restricted retained earnings and paid out at some future date.
preferred shareholders will receive $30,000 and the common shareholders will receive $30,000.

Ans:LO: 5, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

Marion, Inc. has 5,000 shares of 5%, $100 par value, noncumulative preferred stock and 20,000 shares of $1 par value common stock outstanding at December 31, 2013. There were no dividends declared in 2012. The board of directors declares and pays a $55,000 dividend in 2013. What is the amount of dividends received by the common stockholders in 2013?
$0
$25,000
$55,000
$30,000

Ans:LO: 5, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

Library, Inc. has 2,500 shares of 4%, $50 par value, cumulative preferred stock and 50,000 shares of $1 par value common stock outstanding at December 31, 2012, and December 31, 2013. The board of directors declared and paid a $4,000 dividend in 2012. In 2013, $15,000 of dividends are declared and paid. What are the dividends received by the preferred and common shareholders in 2013?
Preferred Common

$9,000 $6,000
$7,500 $7,500
$6,000 $9,000
$5,000 $10,000

Ans:LO: 5, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

Township, Inc. has 10,000 shares of 5%, $100 par value, noncumulative preferred stock and 100,000 shares of $1 par value common stock outstanding at December 31, 2012, and December 31, 2013. The board of directors declared and paid a $50,000 dividend in 2012. In 2013, $110,000 of dividends are declared and paid. What are the dividends received by the preferred and common shareholders in 2013?
Preferred Common

$0 $110,000
$50,000 $60,000
$55,000 $55,000
$70,000 $40,000

Ans:LO: 5, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

The board of directors must assign a per share value to a stock dividend declared that is
greater than the par or stated value.
less than the par or stated value.
equal to the par or stated value.
at least equal to the par or stated value.

Ans:LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Communications, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting

Corporations generally issue stock dividends in order to
increase the market price per share.
exceed stockholders’ dividend expectations.
increase the marketability of the stock.
decrease the amount of capital in the corporation.

Ans:LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting

A stockholder who receives a stock dividend would
expect the market price per share to increase.
own more shares of stock.
expect retained earnings to increase.
expect the par value of the stock to change.

Ans:LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Communication, IMA: Business Economics

When stock dividends are distributed,
Common Stock Dividends Distributable is decreased.
Retained Earnings is decreased.
Paid-in Capital in Excess of Par is debited if it is a small stock dividend.
no entry is necessary if it is a large stock dividend.

Ans:LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Communication, IMA: FSA

A small stock dividend is defined as
less than 30% but greater than 25% of the corporation’s issued stock.
between 50% and 100% of the corporation’s issued stock.
more than 30% of the corporation’s issued stock.
less than 20–25% of the corporation’s issued stock.

Ans:LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Communication, IMA: FSA

The per share amount normally assigned by the board of directors to a large stock dividend is
the market value of the stock on the date of declaration.
the average price paid by stockholders on outstanding shares.
the par or stated value of the stock.
zero.

Ans:LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Communication, IMA: Business Economics

The per share amount normally assigned by the board of directors to a small stock dividend is
the market value of the stock on the date of declaration.
the average price paid by stockholders on outstanding shares.
the par or stated value of the stock.
zero.

Ans:LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Communication, IMA: Business Economics

Identify the effect the declaration and distribution of a stock dividend has on the par value per share.
Par Value per Share

Increase
Decrease
Increase or decrease
No effect

Ans:LO: 5, Bloom: C, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Communication, IMA: Reporting

The declaration of a stock dividend will
increase paid-in capital.
change the total of stockholders’ equity.
increase total liabilities.
increase total assets.

Ans:LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Communication, IMA: FSA

Which of the following show the proper effect of a stock split and a stock dividend?
Item Stock Split Stock Dividend

Total paid-in capital Increase Increase
Total retained earnings Decrease Decrease
Total par value (common) Decrease Increase
Par value per share Decrease No change

Ans:LO: 5, Bloom: C, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Communication, IMA: FSA

A stock split
may occur in the absence of retained earnings.
will increase total paid-in capital.
will increase the total par value of the stock.
will have no effect on the par value per share of stock.

Ans:LO: 5, Bloom: AP, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Communication, IMA: FSA

Outstanding stock of the Zone Corporation included 20,000 shares of $5 par common stock and 5,000 shares of 5%, $10 par noncumulative preferred stock. In 2012, Zone declared and paid dividends of $2,000. In 2013, Zone declared and paid dividends of $6,000. How much of the 2013 dividend was distributed to preferred shareholders?
$3,000
$3,500
$2,500
None of the above

Ans:LO: 5, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

Outstanding stock of the Core Corporation included 20,000 shares of $5 par common stock and 10,000 shares of 5%, $10 par noncumulative preferred stock. In 2012, Core declared and paid dividends of $4,000. In 2013, Core declared and paid dividends of $12,000. How much of the 2013 dividend was distributed to preferred shareholders?
$7,000
$4,000
$5,000
None of the above

Ans:LO: 5, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

On January 1, Collins Corporation had 800,000 shares of $10 par value common stock outstanding. On March 31, the company declared a 15% stock dividend. Market value of the stock was $15/share. As a result of this event,
Collins’ Paid-in Capital in Excess of Par account increased $600,000.
Collins’ total stockholders’ equity was unaffected.
Collins’ Stock Dividends account increased $1,800,000.
All of the above.

Ans:LO: 5, Bloom: C, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

On January 1, Edison Corporation had 1,000,000 shares of $10 par value common stock outstanding. On March 31, the company declared a 20% stock dividend. Market value of the stock was $15/share. As a result of this event,
Edison’s Paid-in Capital in Excess of Par account increased $1,000,000.
Edison’s total stockholders’ equity was unaffected.
Edison’s Stock Dividends account increased $3,000,000.
d All of the above.

Ans:LO: 5, Bloom: C, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

Start Inc. has 5,000 shares of 6%, $100 par value, cumulative preferred stock and 50,000 shares of $1 par value common stock outstanding at December 31, 2013. What is the annual dividend on the preferred stock?
$60 per share
$30,000 in total
$50,000 in total
$0.60 per share

Ans:LO: 5, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

Arm, Inc., has 10,000 shares of 6%, $100 par value, noncumulative preferred stock and 100,000 shares of $1 par value common stock outstanding at December 31, 2013. If the board of directors declares a $200,000 dividend, the
preferred stockholders will receive 1/10th of what the common stockholders will receive.
preferred stockholders will receive the entire $200,000.
$60,000 will be held as restricted retained earnings and paid out at some future date.
preferred stockholders will receive $60,000 and the common stockholders will receive $140,000.

Ans:LO: 5, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

Aim, Inc., has 10,000 shares of 5%, $100 par value, noncumulative preferred stock and 40,000 shares of $1 par value common stock outstanding at December 31, 2013. There were no dividends declared in 2012. The board of directors declares and pays a $120,000 dividend in 2013. What is the amount of dividends received by the common stockholders in 2013?
$0
$50,000
$20,000
$70,000

Ans:LO: 5, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

Last Inc., has 2,000 shares of 6%, $50 par value, cumulative preferred stock and 100,000 shares of $1 par value common stock outstanding at December 31, 2013, and December 31, 2012. The board of directors declared and paid a $5,000 dividend in 2012. In 2013, $24,000 of dividends are declared and paid. What are the dividends received by the preferred stockholders in 2013?
$17,000
$12,000
$7,000
$6,000

Ans:LO: 5, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

Art, Inc., has 5,000 shares of 5%, $100 par value, cumulative preferred stock and 20,000 shares of $1 par value common stock outstanding at December 31, 2013. There were no dividends declared in 2011. The board of directors declares and pays a $45,000 dividend in 2012 and in 2013. What is the amount of dividends received by the common stockholders in 2013?
$15,000
$25,000
$45,000
$0

Ans:LO: 5, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

Crawl Inc., has 1,000 shares of 6%, $50 par value, cumulative preferred stock and 50,000 shares of $1 par value common stock outstanding at December 31, 2012, and December 31, 2013. The board of directors declared and paid a $2,000 dividend in 2012. In 2013, $12,000 of dividends are declared and paid. What are the dividends received by the common stockholders in 2013?
$8,000
$6,000
$4,000
$3,000

Ans:LO: 5, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

On January 1, Sway Corporation had 60,000 shares of $10 par value common stock outstanding. On March 17, the company declared a 15% stock dividend to stockholders of record on March 20. Market value of the stock was $13 on March 17. The entry to record the transaction of March 17 would include a
credit to Stock Dividends for $27,000.
credit to Cash for $117,000.
credit to Common Stock Dividends Distributable for $90,000.
debit to Common Stock Dividends Distributable for $90,000.

Ans:LO: 5, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

On January 1, Sway Corporation had 60,000 shares of $10 par value common stock outstanding. On March 17, the company declared a 18% stock dividend to stockholders of record on March 20. Market value of the stock was $13 on March 17. The stock was distributed on March 30. The entry to record the transaction of March 30 would include a
credit to Cash for $108,000.
debit to Common Stock Dividends Distributable for $108,000.
credit to Paid-in Capital in Excess of Par for $32,400.
debit to Stock Dividends for $32,400.

Ans:LO: 5, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

On January 1, Soft Corporation had 80,000 shares of $10 par value common stock outstanding. On June 17, the company declared a 15% stock dividend to stockholders of record on June 20. Market value of the stock was $15 on June 17. The entry to record the transaction of June 17 would include a
debit to Stock Dividends for $180,000.
credit to Cash for $180,000.
credit to Common Stock Dividends Distributable for $180,000.
credit to Common Stock Dividends Distributable for $60,000.

Ans:LO: 5, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

On January 1, Soft Corporation had 80,000 shares of $10 par value common stock outstanding. On June 17, the company declared a 15% stock dividend to stockholders of record on June 20. Market value of the stock was $15 on June 17. The stock was distributed on June 30. The entry to record the transaction of June 30 would include a
credit to Common Stock for $120,000.
debit to Common Stock Dividends Distributable for $180,000.
credit to Paid-in Capital in Excess of Par for $60,000.
debit to Stock Dividends for $60,000.

Ans:LO: 5, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

Cork Inc. declared a $160,000 cash dividend. It currently has 6,000 shares of 7%, $100 par value cumulative preferred stock outstanding. It is one year in arrears on its preferred stock. How much cash will Cork distribute to the common stockholders?
$76,000.
$84,000.
$118,000.
None.

Ans:LO: 5, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

Land Inc. has retained earnings of $800,000 and total stockholders’ equity of $2,000,000. It has 200,000 shares of $5 par value common stock outstanding, which is currently selling for $30 per share. If Land declares a 10% stock dividend on its common stock:
net income will decrease by $100,000.
retained earnings will decrease by $100,000 and total stockholders’ equity will increase by $100,000.
retained earnings will decrease by $600,000 and total stockholders’ equity will increase by $600,000.
retained earnings will decrease by $600,000 and total paid-in capital will increase by $600,000.

Ans:LO: 5, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

On December 31, 2013, Stock, Inc. has 3,000 shares of 6% $100 par value cumulative preferred stock and 45,000 shares of $10 par value common stock outstanding. On December 31, 2013, the directors declare a $15,000 cash dividend. The entry to record the declaration of the dividend would include:
a credit of $3,000 to Cash Dividends.
a note in the financial statements that dividends of $3 per share are in arrears on preferred stock for 2012.
a debit of $15,000 to Common Stock.
a credit of $15,000 to Dividends Payable.

Ans:LO: 5, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

Saint, Inc. declares a 10% common stock dividend when it has 30,000 shares of $10 par value common stock outstanding. If the market value of $24 per share is used, the amounts debited to Stock Dividends and credited to Paid-in Capital in Excess of Par are:
Paid-in Capital in

Stock Dividends Excess of Par

$30,000 $0
$72,000 $42,000
$72,000 $30,000
$30,000 $42,000

Ans:LO: 5, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

Cloud Manufacturing declared a 10% stock dividend when it had 350,000 shares of $3 par value common stock outstanding. The market price per common share was $12 per share when the dividend was declared. The entry to record this dividend declaration includes a credit to
Stock Dividends for $105,000.
Paid-in Capital in Excess of Par for $315,000.
Common Stock for $105,000.
Common Stock Dividends Distributable for $420,000.

Ans:LO: 5, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Communication, IMA: FSA

The following selected amounts are available for Clark Company.
Retained earnings (beginning) $800

Net loss 150

Cash dividends declared 100

Stock dividends declared 100

What is its ending retained earnings balance?

$650
$700
$450
$600

Ans:LO: 6, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

Car and Auto Sisters had retained earnings of $15,000 on the balance sheet but disclosed in the footnotes that $3,000 of retained earnings was restricted for plant expansion and $1,000 was restricted for bond repayments. Cash of $2,000 had been set aside for the plant expansion. How much of retained earnings is available for dividends?
$11,000
$12,000
$15,000
$9,000

Ans:LO: 6, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

Moore, Inc. had 250,000 shares of common stock outstanding before a stock split occurred, and 750,000 shares outstanding after the stock split. The stock split was
2-for-5.
5-for-1.
1-for-5.
3-for-1.

Ans:LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

Restricting retained earnings for the cost of treasury stock purchased is a
contractual restriction.
legal restriction.
stock restriction.
voluntary restriction.

Ans:LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Communication, IMA: FSA

A prior period adjustment that corrects income of a prior period requires that an entry be made to
an income statement account.
a current year revenue or expense account.
the retained earnings account.
an asset account.

Ans:LO: 6, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Communication, IMA: FSA

If the board of directors authorizes a $100,000 restriction of retained earnings for a future plant expansion, the effect of this action is to
decrease total assets and total stockholders’ equity.
increase stockholders’ equity and decrease total liabilities.
decrease total retained earnings and increase total liabilities.
reduce the amount of retained earnings available for dividend declarations.

Ans:LO: 6, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Communication, IMA: FSA

A credit balance in retained earnings represents
the amount of cash retained in the business.
a claim on specific assets of the corporation.
a claim on the aggregate assets of the corporation.
the amount of stockholders’ equity exempted from the stockholders’ claim on total assets.

Ans:LO: 6, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Communication, IMA: FSA

A net loss
occurs if operating expenses exceed cost of goods sold.
is not closed to Retained Earnings if it would result in a debit balance.
is closed to Retained Earnings even if it would result in a debit balance.
is closed to the paid-in capital account of the stockholders’ equity section of the balance sheet.

Ans:LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Communication, IMA: FSA

Prior period adjustments are reported
in the footnotes of the current year’s financial statements.
on the current year’s balance sheet.
on the current year’s income statement.
on the current year’s retained earnings statement.

Ans:LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Communications, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting

Retained earnings are occasionally restricted
to set aside cash for dividends.
to keep the legal capital associated with paid-in capital intact.
due to contractual loan restrictions.
if preferred dividends are in arrears.

Ans:LO: 6, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting

Retained earnings is increased by each of the following except
net income.
prior period adjustments.
some disposals of treasury stock.
All of these increase retained earnings.

Ans:LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Communication, IMA: FSA

A prior period adjustment for understatement of net income will
be credited to the Retained Earnings account.
be debited to the Retained Earnings account.
show as a gain on the current year’s Income Statement.
show as an asset on the current year’s Balance Sheet.

Ans:LO: 6, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Communication, IMA: FSA

The retained earnings statement
is the owners’ equity statement for a corporation.
will show an addition to the beginning retained earnings balance for an understatement of net income in a prior year.
will not reflect net losses.
will, in some cases, fail to reconcile the beginning and ending retained earnings balances.

Ans:LO: 6, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Communications, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting

In the stockholders’ equity section of the balance sheet,
Common Stock Dividends Distributable will be classified as part of additional paid-in capital.
Common Stock Dividends Distributable will appear in its own subsection of the stock- holders’ equity.
Additional Paid-in Capital appears under the subsection Paid-in Capital.
Dividends in arrears will appear as a restriction of Retained Earnings.

Ans:LO: 7, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Communications, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting

The return on common stockholders’ equity is computed by dividing net income available to common stockholders by
ending total stockholders’ equity.
ending common stockholders’ equity.
average total stockholders’ equity.
average common stockholders’ equity.

Ans:LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting

The return on common stockholders’ equity is computed by dividing
net income by ending common stockholders’ equity.
net income 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.

Ans:LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Communication, IMA: FSA

Kong Inc. reported net income of $270,000 during 2013 and paid dividends of $26,000 on common stock. It also has 10,000 shares of 6%, $100 par value cumulative preferred stock outstanding. Common stockholders’ equity was $1,200,000 on January 1, 2013, and $1,600,000 on December 31, 2013. The company’s return on common stockholders’ equity for 2013 is:
17.4%
15.0%
13.1%
19.3%

Ans:LO: 7, Bloom: AP, Difficulty: Hard, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

King Corporation had net income of $250,000 and paid dividends of $40,000 to common stockholders and $10,000 to preferred stockholders in 2013. King Corporation’s common stockholders’ equity at the beginning and end of 2013 was $870,000 and $1,130,000, respectively. There are 100,000 weighted-average shares of common stock outstanding.
King Corporation’s return on common stockholders’ equity was

10%.
24%.
20%.
17.7%.

Ans:LO: 7, Bloom: AP, Difficulty: Hard, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

Assume that all balance sheet amounts for Marley Company represent average balance figures.
Stockholders’ equity—common $150,000

Total stockholders’ equity 200,000

Sales 100,000

Net income 27,000

Number of shares of common stock 10,000

Common stock dividends 10,000

Preferred stock dividends 4,000

What is the return on common stockholders’ equity ratio for Marley?

18.0%
15.3%
11.3%
8.7%

Ans:LO: 7, Bloom: AP, Difficulty: Hard, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

Vega Corporation’s December 31, 2013 balance sheet showed the following:
8% preferred stock, $20 par value, cumulative, 15,000 shares

authorized; 10,000 shares issued $ 200,000

Common stock, $10 par value, 1,000,000 shares authorized;

975,000 shares issued, 960,000 shares outstanding 9,750,000

Paid-in capital in excess of par—preferred stock 30,000

Paid-in capital in excess of par—common stock 13,500,000

Retained earnings 3,750,000

Treasury stock (15,000 shares) 315,000

Vega’s total paid-in capital was

$23,480,000.
$23,795,000.
$23,165,000.
$13,530,000.

Ans:LO: 7, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: None, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

Vega Corporation’s December 31, 2013 balance sheet showed the following:
8% preferred stock, $20 par value, cumulative, 10,000 shares

authorized; 8,500 shares issued $ 170,000

Common stock, $10 par value, 1,000,000 shares authorized;

950,000 shares issued, 940,000 shares outstanding 9,500,000

Paid-in capital in excess of par—preferred stock 34,000

Paid-in capital in excess of par—common stock 13,500,000

Retained earnings 3,750,000

Treasury stock (15,000 shares) 315,000

Vega’s total stockholders’ equity was

$26,669,000.
$46,690,000.
$27,269,000.
$26,639,000.

Ans:LO: 7, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: None, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

Bacon Corporation began business by issuing 150,000 shares of $5 par value common stock for $25 per share. During its first year, the corporation sustained a net loss of $25,000. The year-end balance sheet would show
Common stock of $750,000.
Common stock of $3,750,000.
Total paid-in capital of $3,725,000.
Total paid-in capital of $775,000.

Ans:LO: 7, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

Realistic Corporation’s December 31, 2013 balance sheet showed the following:
8% preferred stock, $20 par value, cumulative, 20,000 shares

authorized; 10,000 shares issued $ 200,000

Common stock, $10 par value, 2,000,000 shares authorized;

1,950,000 shares issued, 1,930,000 shares outstanding 19,500,000

Paid-in capital in excess of par—preferred stock 60,000

Paid-in capital in excess of par—common stock 27,000,000

Retained earnings 7,650,000

Treasury stock (20,000 shares) 630,000

Realistic’s total paid-in capital was

$46,760,000.
$47,390,000.
$46,130,000.
$27,060,000.

Ans:LO: 7, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

Rouse Corporation’s December 31, 2013 balance sheet showed the following:
8% preferred stock, $10 par value, cumulative, 20,000 shares

authorized; 15,000 shares issued $ 150,000

Common stock, $10 par value, 2,000,000 shares authorized;

1,950,000 shares issued, 1,930,000 shares outstanding 19,500,000

Paid-in capital in excess of par—preferred stock 60,000

Paid-in capital in excess of par—common stock 27,000,000

Retained earnings 7,650,000

Treasury stock (20,000 shares) 630,000

Rouse’s total stockholders’ equity was

$54,990,000.
$46,710,000.
$54,360,000.
$53,730,000.

Ans:LO: 7, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

Adams Corporation began business by issuing 300,000 shares of $5 par value common stock for $24 per share. During its first year, the corporation sustained a net loss of $30,000. The year-end balance sheet would show
Common stock of $1,500,000.
Common stock of $7,200,000.
Total paid-in capital of $7,170,000.
Total paid-in capital of $5,700,000.

Ans:LO: 7, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

The trial balance of Houston Inc. includes the following balances: Common Stock, $28,000; Paid-in Capital in Excess of Par, $64,000; Treasury Stock, $6,000; Preferred Stock, $30,000. Capital stock totals
$58,000.
$96,000.
$122,000.
$128,000.

Ans:LO: 7, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

Each of the following is reported for common stock except the
par value.
shares issued.
shares outstanding.
liquidation value.

Ans:LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

Paid-in capital from treasury stock would appear on a balance sheet under the category
capital stock.
treasury stock.
additional paid-in capital.
contra to stockholders’ equity.

Ans:LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

Two classifications appearing in the paid-in capital section of the balance sheet are
preferred stock and common stock.
paid-in capital and retained earnings.
capital stock and additional paid-in capital.
capital stock and treasury stock.

Ans:LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

Information that is not generally reported for each class of stock on the balance sheet is
the market value.
the par value.
shares authorized.
shares issued.

Ans:LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

In published annual reports
subdivisions within the stockholders’ equity section are routinely reported in detail.
capital surplus is used in place of retained earnings.
the individual sources of additional paid-in capital are often combined.
retained earnings is often not shown separately.

Ans:LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

Additional paid-in capital includes all of the following except
paid-in capital from treasury stock.
paid-in capital in excess of par.
paid-in capital in excess of stated value.
paid-in capital in excess of book value.

Ans:LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

A stockholders’ equity statement shows
the names of each stockholder.
how profits are distributed to the various classes of stockholders.
the number of shares owned by each of the stockholders.
the changes in each stockholders’ equity account and in total stockholders’ equity during the period.

Ans:LO: 8, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

A statement of stockholders’ equity discloses all of the following except:
The cost of treasury stock owned at the end of the year.
Net income for the current year.
The amount of cash dividends declared during the current year.
The market value of the stockholders’ equity at the end of the year.

Ans:LO: 8, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

Book value per share is computed by dividing total
paid-in capital by the number of common shares outstanding.
paid-in capital by the number of common shares issued.
stockholders’ equity by the number of common shares outstanding.
stockholders’ equity by the number of common shares issued.

Ans:LO: 9, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

a229. Barr, Inc. reports $4,000,000 of common stock, and $6,000,000 of additional paid-in capital on its balance sheet. The number of common shares issued and outstanding is 500,000 shares. The book value per share is

$20.
$12.
$8.
not determinable.

Ans:LO: 9, Bloom: AP, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

Book value per share is
the equity a common stockholder has in the net assets of the corporation from owning one share of stock.
the equity a common stockholder has in the total assets of the corporation from owning one share of stock.
always equal to the market value of the stock.
computed only for preferred stockholders.

Ans:LO: 9, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

Which of the following is an incorrect statement about a corporation?
A corporation is an entity separate and distinct from its owners.
Creditors ordinarily have recourse only to corporate assets in satisfaction of their claims.
A corporation may be formed in writing, orally, or implied.
A corporation is subject to numerous state and federal regulations.

Ans:LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

Legal capital per share cannot be equal to the
par value per share of par value stock.
total proceeds from the sale of par value stock above par value.
stated value per share of no-par value stock.
total proceeds from the sale of no-par value stock.

Ans:LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

When common stock is issued for services or non-cash assets, cost should be
only the fair value of the consideration given up.
only the fair value of the consideration received.
the book value of the common stock issued.
either the fair value of the consideration given up or the consideration received, whichever is more clearly evident.

Ans:LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

When the selling price of treasury stock is greater than its cost, the company credits the difference to
Gain on Sale of Treasury Stock.
Paid-in Capital from Treasury Stock.
Paid-in Capital in Excess of Par.
Treasury Stock.

Ans:LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

Sandoz Corporation was organized on January 1, 2013, with authorized capital of 500,000 shares of $10 par value common stock. During 2013, Sandoz issued 20,000 shares at $12 per share, purchased 2,000 shares of treasury stock at $13 per share, and sold 2,000 shares of treasury stock at $14 per share. What is the amount of additional paid-in capital at December 31, 2013?
$0
$2,000
$40,000
$42,000

Ans:LO: 3, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

The purchase of treasury stock
decreases common stock authorized.
decreases common stock issued.
decreases common stock outstanding.
has no effect on common stock outstanding.

Ans:LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

Preferred stockholders have a priority over common stockholders as to
dividends only.
assets in the event of liquidation only.
voting rights.
both dividends and assets in the event of liquidation.

Ans:LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

On January 2, 2010, Porter Corporation issued 30,000 shares of 6% cumulative preferred stock at $100 par value. On December 31, 2013, Porter Corporation declared and paid its first dividend. What dividends are the preferred stockholders entitled to receive in the current year before any distribution is made to common stockholders?
$0
$180,000
$540,000
$720,000

Ans:LO: 4, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

Which of the following statements about a cash dividend is incorrect?
The legality of a cash dividend depends on state corporation laws.
The legality of a dividend does not indicate a company’s ability to pay a dividend.
Dividends are not a liability until declared.
Shareholders usually vote to determine the amount of income to be distributed in the form of a dividend.

Ans:LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Communications, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

The date a cash dividend becomes a binding legal obligation to a corporation is the
declaration date.
earnings date.
payment date.
record date.

Ans:LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Communications, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

Dillon Corporation splits its common stock 2 for 1, when the market value is $40 per share. Prior to the split, Dillon had 50,000 shares of $10 par value common stock issued and outstanding. After the split, the par value of the stock
remains the same.
is reduced to $2 per share.
is reduced to $5 per share.
is reduced to $20 per share.

Ans:LO: 5, Bloom: K, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

Which of the following statements about retained earnings restrictions is incorrect?
Many states require a corporation to restrict retained earnings for the cost of treasury stock purchased.
Long-term debt contracts may impose a restriction on retained earnings as a condition for the loan.
The board of directors of a corporation may voluntarily create retained earnings restrictions for specific purposes.
Retained earnings restrictions are generally disclosed through a journal entry on the books of a company.

Ans:LO: 6, Bloom: C, Difficulty: Medium, Min: 2, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting

Prior period adjustments
may only increase retained earnings.
may only decrease retained earnings.
may either increase or decrease retained earnings.
do not affect retained earnings.

Ans:LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting

Farmer Company reports the following amounts for 2013:
Net income $135,000

Average stockholders’ equity 500,000

Preferred dividends 35,000

Par value preferred stock 100,000

The 2013 rate of return on common stockholders’ equity is

25.0%.
22.5%.
27.0%.
33.8%.

Ans:LO: 7, Bloom: AP, Difficulty: Hard, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

The return on common stockholders’ equity is computed by dividing
net income by ending common stockholders’ equity.
net income by average common stockholders’ equity.
net income minus preferred dividends by ending common stockholders’ equity.
net income minus preferred dividends by average common stockholders’ equity.

Ans:LO: 7, Bloom: K, Difficulty: Medium, Min: 1, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

Additional paid-in capital includes all of the following except the amounts paid in
over par value.
over stated value.
from treasury stock.
for the par value of common stock.

Ans:LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

In the stockholders’ equity section of the balance sheet, the classification of capital stock consists of
additional paid-in capital and common stock.
common stock and treasury stock.
common stock, preferred stock, and treasury stock.
common stock and preferred stock.

Ans:LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

At December 31, the stockholders’ equity of Smith Company was as follow:
Common stock, $5 par value: 1,100,100 shares issued
and 1,000,000 shares outstanding $5,500,000

Additional paid-in capital 1,400,000

Retained earnings 1,500,000

Treasury stock, (100,000 shares) (700,000)

Total stockholders’ equity $7,700,000

The book value per share of common stock is

$7.00
$7.20
$8.40
$7.70

Ans:LO: 9, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting