Chapter 11

Question 1

The amount received for the issuance of stock in excess of the par value of the stock.

Answer 1

Additional paid-in capital

Question 2

The maximum number of shares a corporation may issue as indicated in the corporate charter.

Answer 2

Authorized shares

Question 3

Total stockholders’ equity divided by the number of shares of common stock outstanding.

Answer 3

Book value per share

Question 4

Allows the firm to eliminate a class of stock by paying the stockholders a specified amount.

Answer 4

Callable feature

Question 5

The total change in net assets from all sources except investments by or distributions to the owners.

Answer 5

Comprehensive income

Question 6

Allows preferred stock to be exchanged for common stock.

Answer 6

Convertible feature

Question 7

The right to dividends in arrears before the current-year dividend is distributed.

Answer 7

Cumulative feature

Question 8

The annual dividend amount divided by the annual net income.

Answer 8

Dividend payout ratio

Question 9

The number of shares sold or distributed to stockholders.

Answer 9

Issued shares

Question 10

The selling price of the stock as indicated by the most recent transactions.

Answer 10

Market value per share

Question 11

The number of shares issued less the number of shares held as treasury stock.

Answer 11

Outstanding shares

Question 12

An arbitrary amount that represents the legal capital of the firm.

Answer 12

Par value

Question 13

Allows preferred stockholders to share on a percentage basis in the distribution of an abnormally large dividend.

Answer 13

Participating feature

Question 14

Allows stockholders to sell stock back to the company.

Answer 14

Redeemable feature

Question 15

Net income that has been made by the corporation but not paid out as dividends.

Answer 15

Retained earnings

Question 16

When the stock is repurchased with no intention of reissuing at a later date.

Answer 16

Retirement of stock

Question 17

Reflects the differences between beginning and ending balances for all accounts in the Stockholders’ Equity category of the balance sheet.

Answer 17

Statement of stockholders’ equity

Question 18

The issuance of additional shares of stock to existing stockholders.

Answer 18

Stock dividend

Question 19

The creation of additional shares of stock with a reduction of the par value of the stock.

Answer 19

Stock split

Question 20

Stock issued by the firm and then repurchased but not retired.

Answer 20

Treasury stock

Question 21

When are cash dividends considered a reduction from the Retained Earnings account?a. only if they are dividends on common stock. b. only if they are dividends on preferred stock. c. at the time the dividend is declared. d. at the time the dividend is paid.

Answer 21

at the time the dividend is declared.

Question 22

The Treasury Stock account should be considereda. a liability account. b. a credit balance account in the Stockholders’ Equity portion of the balance sheet. c. a debit balance account in the Stockholders’ Equity portion of the balance sheet. d. an asset account.

Answer 22

a debit balance account in the Stockholders’ Equity portion of the balance sheet.

Question 23

Which of the following statements regarding partnerships is true?a. The partnership ends when a new partner is added. b. The partnership is a separate legal entity from its owners. c. The partnership is responsible for its own taxes. d. Partnerships may have only two owners.

Answer 23

The partnership ends when a new partner is added.

Question 24

On March 1, 2012, a corporation repurchased 4,000 shares of common stock at $50 per share. The shares were originally sold for $42 each. How much should be reported in the treasury stock account on the March 31, 2012 balance sheet?a. $168,000 b. $200,000 c. $32,000 d. $128,000

Answer 24

$200,000

Question 25

When a company has common stock with a $10 per share par value and the stock is issued for $15 per share:a. the company should show $5 per share as a credit balance in the Additional Paid-in Capital portion of stockholders’ equity. b. the company should show $5 per share as a debit balance in the Additional Paid-in Capital portion of stockholders’ equity. c. the $5 per share should be considered a gain on the stock and the amount should be shown on the income statement. d. the company should show $15 per share in the Common Stock account in the Stockholders’ Equity section of the balance sheet.

Answer 25

the company should show $5 per share as a credit balance in the Additional Paid-in Capital portion of stockholders’ equity.

Question 26

When treasury stock is purchased by the company, how should it appear?a. as a cash inflow in the Financing Activities category. b. as a cash outflow in the Investing Activities category. c. as a cash inflow in the Investing Activities category. d. as a cash outflow in the Financing Activities category.

Answer 26

as a cash outflow in the Financing Activities category.

Question 27

A Company has the following classes of stock outstanding at year end: Common Stock ($20 par value, 60,000 shares outstanding) Preferred Stock (8%, $100 par value, cumulative and not participating, 3,000 shares outstanding). At the beginning of the current year, dividends on preferred stock have been in arrears for one year. At the end of the year, dividends totaling $192,000 were declared. What is amount per-share of the dividend paid to common stockholders?a. $2.00 b. $3.20 c. $2.40 d. $2.80

Answer 27

$2.40

Question 28

Which of the following would be included as an element of comprehensive income?a. Issuance of stock for more than par value b. Foreign currency translation adjustment items c. Issuance of stock dividends or stock splits d. Amounts resulting from treasury stock transactions

Answer 28

Foreign currency translation adjustment items

Question 29

Which of the following would be considered part of other comprehensive income?a. Foreign currency translation adjustment items b. Unrealized holding gains/losses on certain types of securities c. All of these choices are correct. d. Delayed recognition pension items

Answer 29

All of these choices are correct.

Question 30

What is the effect of a stock dividend declared and issued versus a cash dividend declared and paid?a. A stock dividend does not decrease the company’s total assets. b. A cash dividend does not decrease the company’s total assets. c. A cash dividend does not affect retained earnings. d. A stock dividend does not affect retained earnings.

Answer 30

A stock dividend does not decrease the company’s total assets.

Question 31

Over the lifetime of a corporation, it has paid out more in dividends than it has had in net income. The balances in the Stockholders’ Equity section of the balance sheet would most likely reveal a:a. credit balance in the Common Stock account. b. debit balance in the Common Stock account. c. credit balance in the Retained Earnings account. d. debit balance in the Retained Earnings account.

Answer 31

debit balance in the Retained Earnings account.

Question 32

At December 31, 2012, Drake Company has 10,000 shares of $10 par, 6% cumulative preferred stock outstanding and 4,000 shares of $5 par common stock outstanding. The company did not pay a dividend in 2010 or 2011. If the company pays a dividend in 2012, how much must be paid for the common stockholders to receive a dividend?a. $12,000 b. $6,000 c. $24,000 d. $18,000

Answer 32

$18,000

Question 33

The par value of a stock is the:a. same as the book value. b. legal capital. c. market value of the stock. d. average stock price.

Answer 33

legal capital.

Question 34

A company issued 5,000 shares of $5 par common stock for $20 per share. Subsequently, 2,000 shares were repurchased as treasury stock at $22 per share. Later the company reissued 500 shares of the treasury stock at $23 per share. Which of the following is true?a. The company has a gain of $500 that should appear on the income statement. b. The company has a gain of $1,500 that should appear on the income statement. c. The Treasury Stock account should have a zero balance. d. The Treasury Stock account should have a balance of $33,000.

Answer 34

The Treasury Stock account should have a balance of $33,000

Question 35

When a stock split is issued to the stockholders:a. it is likely that the market price per share of the stock will not decline. b. it is likely that the market price per share of the stock will decline. c. the company’s total stockholders’ equity will increase. d. the company’s total stockholders’ equity will decrease.

Answer 35

it is likely that the market price per share of the stock will decline.

Question 36

What does it mean when preferred stock has a cumulative feature?a. A dividend must be paid to the preferred stockholders each year. b. A dividend cannot be paid to the common stockholders. c. Dividends are accumulated for preferred stockholders until they sell their stock, at which time they collect a cumulative dividend. d. When dividends are not paid in one period, those dividends must be paid in a subsequent period before common stockholders receive a dividend.

Answer 36

When dividends are not paid in one period, those dividends must be paid in a subsequent period before common stockholders receive a dividend.

Question 37

If a company has both common and preferred stock and wants to calculate book value per share:a. the rights of the common stockholders to the company’s assets should be deducted before book value per share is calculated. b. the rights of the preferred stockholders to the company’s assets should be deducted before book value per share is calculated. c. the amount of stock outstanding in the numerator of the fraction should represent only the common stock. d. the amount of stock outstanding in the numerator of the fraction should represent only the preferred stock.

Answer 37

the rights of the preferred stockholders to the company’s assets should be deducted before book value per share is calculated.

Question 38

Which of the following is not true about book value per share information? Which of the following is not true about book value per share information?a. It is an incomplete measure of value. b. It represents the right each share of common stock has to the net assets of the company. c. It is computed by dividing the total stockholders’ equity by the number of shares of stock outstanding. d. It indicates the market value of the common stock.

Answer 38

It indicates the market value of the common stock.

Question 39

When a company is organized as a partnership:a. the partnership must pay tax on its income. b. each partner is personally liable. c. all partners must contribute the same amount of money to establish the partnership. d. the partners share equally in the income of the company

Answer 39

each partner is personally liable.

Question 40

A company has issued 1,000 shares of $10 par common stock in exchange for a machine with a fair market value of $12,000. Which of the following amount should be recorded?a. The company should record a credit to the Common Stock account for $12,000. b. The company should record the machine at $10,000. c. The company should record the machine at $12,000 if the fair market value of the stock cannot be determined. d. The company should record a debit to Additional Paid-in Capital for $2,000.

Answer 40

The company should record the machine at $12,000 if the fair market value of the stock cannot be determined.

Question 41

Financing can be divided into two categories?

Answer 41

Debt: borrowing from banks Equity: issuing stock

Question 42

Issuing stock is a popular method of financing because of its…

Answer 42

flexibility

Question 43

Dividends on stock are not tax deductible. T or F

Answer 43

True

Question 44

Total Stock holders Equity = Contributed Capital + Retained Earnings

Answer 44

Contributed Capital represents the amount the corporation has received from the sale of stock to stockholders.Retained Earnings is the amount of net income the corporation has earned but not paid as dividends.

Question 45

What is the link between the income statement and the balance sheet?

Answer 45

Retained earnings account

Question 46

Convetible, Redeemable, Callable, Cumulative, Participating

Answer 46

Features of Preferred Stock

Question 47

Treasury stock is purchsed, a debit to Treasury Stock, a contra-equity account is recorded. Not an Asset.

Answer 47

No income statement accounts are affected in treasury stock transactions

Question 48

If Llama Company has paid out more in dividends than it has had in net income, over the lifetime of the company, then the balances in the Stockholders’ Equity should show:a. a debit balance in the Retained Earnings accountb. a credit balance in the Retained Earnings accountc. a debit balance in the Common Stock accountd. a credit balance in the Common Stock account

Answer 48

A debit balance in the Retained Earnings account

Question 49

Use the incmplete stockholders’ equity section of Box Company’s balance sheet as of December 31, 2015 to answer the following question.Common stock, $7 par, 100,000 shares authorized $700,000Additional paid-in-capital - common 160,000Retained earnings ???Treasury stock (2,000 shares at cost) (16,000)Total stockholders equity 974,000How many shares of common stock are outstanding?a. 100,000b. 98,000c. 78,000d. 68,000

Answer 49

98,000

Question 50

Stckholders prefer to invest in preferred stock becausea. preferred stock confers preferred voting rights.b. preferred stock can always be converted to common stock if they desire.c. the dividends are generally increased each year.d. the dividends are paid on preferred stock before they are paid on common stock.

Answer 50

the dividends are paid on preferred stock before they are paid on common stock.

Question 51

Roehr Corporation issues 20,000 shares of $0.50 par common stock for $6 per share, the Additional Paid-in-Capital – Common account will increase bya. $10,000b. $110,000c. $120,000d. $130,000

Answer 51

$110,000

Question 52

All of the following are reasons for a company to repurchase its previously issued stock, except:a. to support the market prie of the stockb. to resell to employeesc. to increase the shares outstandingd. for bonuses to employees

Answer 52

to increase the shares outstanding

Question 53

Watson Company has 5,000 shares of $5 par, 3% preferred stock outstanding, and 25,000 shares of $2 par common stock outstanding. The preferred stock is cumulative and no dividends have been paid for the past two years. If the company wishes to distribute $2 per share to the common stockholders, what is the total amount of dividends that must be paid in the current year?a. $2,250b. $50,000c. $50,750d. $52,250

Answer 53

$52,250

Question 54

Port, Inc. paid a cash dividend on January 2 that had been declared prior to the end of its fiscal year. The entry to pay the dividend willa. increase Cash and increase Cash Dividend Payableb. decrease Cash Dividend Payable and decrease Cashc. decrease Retained Earnings and increase Cash Divdend Payabled. decrease Cash Dividend Payable and increase Retained Earnings

Answer 54

decrease Cash Dividend Payable and decrease Cash

Question 55

What is the effect of a stock dividend on stockolders equity?a. Stockholders equity is decreased.b. Retained earnings is increased.c. Additinal paid-in-capital is decreasedd. Total stockholders equity stays the same

Answer 55

Total stockholders equity stays the same

Question 56

Which of the following is reported as a financing activity on the cash flow statement?a. payment of cash dividendsb. declaration of cash dividendsc. stock dividendd. stock split

Answer 56

payment of cash dividends

Question 57

The book value per share for a corporation isa. the market price of the stockb. the cost of investment in stock of other corporationsc. based on the excess of total assets over total liabilitiesd. the amount stockholders would recieve if they sold their shares back to the corporation

Answer 57

the amount stockholders would recieve if they sold their shares back to the corporation