Exam Questions 10th Edition Ch.18 Shareholders' Equity

Intermediate Accounting, 10e (Spiceland)

Chapter 18 Shareholders' Equity

1) Paid-in capital must consist solely of amounts invested by shareholders.

Difficulty: 1 Easy

Topic: Components of shareholders' equity

Learning Objective: 18-01 Describe the components of shareholders' equity and explain how they are reported in a statement of shareholders' equity.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

2) Mandatorily redeemable preferred stock is reported as a liability.

Difficulty: 1 Easy

Topic: Stock‒Classes of shares

Learning Objective: 18-03 Understand the corporate form of organization and the nature of stock.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

3) Stock designated as preferred usually has preferential rights over other classes of stock relative to dividends and liquidating distributions.

Difficulty: 1 Easy

Topic: Stock‒Classes of shares

Learning Objective: 18-03 Understand the corporate form of organization and the nature of stock.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: BB Legal / Keyboard Navigation

4) Noncash assets received as consideration for the issue of stock shares are always valued based on the fair value of the stock.

Difficulty: 2 Medium

Topic: Stock‒Issuance of shares

Learning Objective: 18-04 Record the issuance of shares when sold for cash and for noncash consideration.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

5) Treasury stock transactions never increase retained earnings or net income.

Difficulty: 2 Medium

Topic: Stock‒Treasury stock

Learning Objective: 18-05 Distinguish between accounting for retired shares and for treasury shares.

Bloom's: Understand

AACSB: Reflective Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

6) Investors should be wary of stock buybacks during down times because the resulting decrease in shares and increase in earnings per share can be used to mask a slowdown in earnings growth.

Difficulty: 2 Medium

Topic: Decision-makers' perspective

Learning Objective: 18-05 Distinguish between accounting for retired shares and for treasury shares.

Bloom's: Understand

AACSB: Reflective Thinking

AICPA/Accessibility: FN Risk Analysis / Keyboard Navigation

7) Restrictions on retained earnings must be disclosed on the face of the balance sheet.

Difficulty: 1 Easy

Topic: Retained earnings

Learning Objective: 18-06 Describe retained earnings and distinguish it from paid-in capital.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

8) Cash dividends become a binding liability as of the record date.

Difficulty: 1 Easy

Topic: Dividends-Cash dividends

Learning Objective: 18-07 Explain the basis of corporate dividends, including the similarities and differences between cash and property dividends.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

9) Dividends in arrears on cumulative preferred stock are liabilities to be paid at a later date.

Difficulty: 1 Easy

Topic: Stock‒Classes of shares; Dividends‒Preferred stock dividends

Learning Objective: 18-03 Understand the corporate form of organization and the nature of stock.; 18-07 Explain the basis of corporate dividends, including the similarities and differences between cash and property dividends.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

10) Under GAAP, the declaration of a property dividend may require the recognition of a gain or loss if the fair value of the property is different from its book value on the declaration date.

Difficulty: 1 Easy

Topic: Dividends-Property dividends

Learning Objective: 18-07 Explain the basis of corporate dividends, including the similarities and differences between cash and property dividends.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

11) Stock dividends cause a reduction in retained earnings or paid-in capital in excess of par, but they never reduce total shareholders' equity.

Difficulty: 2 Medium

Topic: Stock dividends

Learning Objective: 18-08 Explain stock dividends and stock splits and how we account for them.

Bloom's: Understand

AACSB: Reflective Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

12) Sources of shareholders' equity include each of the following except:

A) Amounts invested by shareholders in the corporation.

B) Amounts earned by the corporation on behalf of its shareholders.

C) Amounts borrowed from financial institutions.

D) Accumulated other comprehensive income.

Difficulty: 1 Easy

Topic: Components of shareholders' equity

Learning Objective: 18-01 Describe the components of shareholders' equity and explain how they are reported in a statement of shareholders' equity.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

13) Two of the three primary account classifications within shareholders' equity are:

A) Preferred stock and retained earnings.

B) The par of common stock and retained earnings.

C) Paid-in capital and retained earnings.

D) Preferred and common stock.

Difficulty: 1 Easy

Topic: Components of shareholders' equity

Learning Objective: 18-01 Describe the components of shareholders' equity and explain how they are reported in a statement of shareholders' equity.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

14) Paid-in capital in excess of par is reported:

A) As a reduction of shareholders' equity.

B) As a noncurrent asset.

C) As a noncurrent liability.

D) As an increase in shareholders' equity.

Difficulty: 1 Easy

Topic: Components of shareholders' equity; Stock—Issuance of shares

Learning Objective: 18-01 Describe the components of shareholders' equity and explain how they are reported in a statement of shareholders' equity.; 18-03 Understand the corporate form of organization and the nature of stock.

Bloom's: Understand

AACSB: Reflective Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

15) Treasury shares are most often reported as:

A) A reduction of total shareholders' equity.

B) A reduction of total paid-in capital.

C) A reduction of retained earnings.

D) An expense in the income statement.

Difficulty: 1 Easy

Topic: Components of shareholders' equity; Stock—Treasury stock

Learning Objective: 18-01 Describe the components of shareholders' equity and explain how they are reported in a statement of shareholders' equity.; 18-05 Distinguish between accounting for retired shares and for treasury shares.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

16) The net assets of a corporation are equal to:

A) Contributed capital.

B) Retained earnings.

C) Shareholders' equity.

D) None of these answer choices are correct.

Difficulty: 1 Easy

Topic: Components of shareholders' equity

Learning Objective: 18-01 Describe the components of shareholders' equity and explain how they are reported in a statement of shareholders' equity.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

17) Details of each class of stock must be reported:

A) On the face of the balance sheet only.

B) In disclosure notes only.

C) On the face of the balance sheet or in disclosure notes.

D) On the face of the balance sheet and in disclosure notes.

Difficulty: 1 Easy

Topic: Components of shareholders' equity

Learning Objective: 18-01 Describe the components of shareholders' equity and explain how they are reported in a statement of shareholders' equity.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

18) The statement of shareholders' equity reports the transactions that cause changes in its shareholders' equity account balances. It shows the beginning and ending balances in primary shareholders' equity accounts and any changes that occur during the years reported. Typical reasons for changes include each of the following except:

A) the sale of additional shares of stock.

B) the issuance of bonds.

C) net income.

D) declaration of dividends.

Difficulty: 1 Easy

Topic: Components of shareholders' equity

Learning Objective: 18-01 Describe the components of shareholders' equity and explain how they are reported in a statement of shareholders' equity.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

19) The changes in account balances for Elder Company for 2021 are as follows:

Assuming the only changes in retained earnings in 2021 were for net income and a $50,000 dividend, what was net income for 2021?

A) $40,000.

B) $60,000.

C) $70,000.

D) $90,000.

Difficulty: 3 Hard

Topic: Components of shareholders' equity

Learning Objective: 18-01 Describe the components of shareholders' equity and explain how they are reported in a statement of shareholders' equity.

Bloom's: Analyze

AACSB: Analytical Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

20) The changes in account balances for Allen Inc. for 2021 are as follows:

Assuming the only changes in retained earnings in 2021 were for net income and a $25,000 dividend, what was net income for 2021?

A) $30,000.

B) $20,000.

C) $15,000.

D) $5,000.

Difficulty: 3 Hard

Topic: Components of shareholders' equity

Learning Objective: 18-01 Describe the components of shareholders' equity and explain how they are reported in a statement of shareholders' equity.

Bloom's: Analyze

AACSB: Analytical Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

21) Poodle Corporation was organized on January 3, 2021. The firm was authorized to issue 100,000 shares of $5 par common stock. During 2021, Poodle had the following transactions relating to shareholders' equity:

Issued 30,000 shares of common stock at $7 per share.

Issued 20,000 shares of common stock at $8 per share.

Reported net income of $100,000.

Paid dividends of $50,000.

What is total paid-in capital at the end of 2021?

A) $420,000.

B) $370,000.

C) $470,000.

D) $320,000.

Difficulty: 3 Hard

Topic: Components of shareholders' equity; Stock—Issuance of shares

Learning Objective: 18-01 Describe the components of shareholders' equity and explain how they are reported in a statement of shareholders' equity.; 18-04 Record the issuance of shares when sold for cash and for noncash consideration.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement / Keyboard Navigation

22) Roberto Corporation was organized on January 1, 2021. The firm was authorized to issue 100,000 shares of $5 par common stock. During 2021, Roberto had the following transactions relating to shareholders' equity:

Issued 10,000 shares of common stock at $7 per share.

Issued 20,000 shares of common stock at $8 per share.

Reported a net income of $100,000.

Paid dividends of $50,000.

Purchased 3,000 shares of treasury stock at $10 (part of the 20,000 shares issued at $8).

What is total shareholders' equity at the end of 2021?

A) $270,000.

B) $300,000.

C) $250,000.

D) $200,000.

Difficulty: 2 Medium

Topic: Stock‒Issuance of shares; Stock‒Treasury stock; Retained earnings; Determine total shareholders' equity

Learning Objective: 18-01 Describe the components of shareholders' equity and explain how they are reported in a statement of shareholders' equity.; 18-04 Record the issuance of shares when sold for cash and for noncash consideration.; 18-05 Distinguish between accounting for retired shares and for treasury shares.; 18-06 Describe retained earnings and distinguish it from paid-in capital.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement / Keyboard Navigation

23) As of December 31, 2021, Warner Corporation reported the following:

What was shareholders' equity as of December 31, 2021?

A) $7,020,000.

B) $6,440,000.

C) $6,420,000.

D) $6,400,000.

Difficulty: 2 Medium

Topic: Determine total shareholders' equity

Learning Objective: 18-01 Describe the components of shareholders' equity and explain how they are reported in a statement of shareholders' equity.

Bloom's: Analyze

AACSB: Analytical Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

24) As of December 31, 2021, Purdue Corporation reported the following:

During 2022, half of the treasury stock was resold for $240,000; net income was $600,000; cash dividends declared were $500,000; and small stock dividends declared and distributed were $400,000

What would shareholders' equity be as of December 31, 2022?

A) None of these amounts is correct.

B) $6,760,000.

C) $6,820,000.

D) $7,760,000.

Difficulty: 3 Hard

Topic: Stock‒Treasury stock; Retained earnings; Dividends‒Cash dividends; Stock dividends; Determine total shareholders' equity

Learning Objective: 18-01 Describe the components of shareholders' equity and explain how they are reported in a statement of shareholders' equity.; 18-05 Distinguish between accounting for retired shares and for treasury shares.; 18-06 Describe retained earnings and distinguish it from paid-in capital.; 18-07 Explain the basis of corporate dividends, including the similarities and differences between cash and property dividends.; 18-08 Explain stock dividends and stock splits and how we account for them.

Bloom's: Analyze

AACSB: Analytical Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

25) Yellow Enterprises reported the following ($ in thousands) as of December 31, 2021. All accounts have normal balances.

During 2022 ($ in thousands), net income was $9,000; 25% of the treasury stock was resold for $450; cash dividends declared were $600; cash dividends paid were $500.

What ($ in thousands) was shareholders' equity as of December 31, 2021?

A) $29,600.

B) $35,600.

C) $30,400.

D) $28,600.

Difficulty: 3 Hard

Topic: Determine total shareholders' equity

Learning Objective: 18-01 Describe the components of shareholders' equity and explain how they are reported in a statement of shareholders' equity.

Bloom's: Analyze

AACSB: Analytical Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

26) Yellow Enterprises reported the following ($ in thousands) as of December 31, 2021. All accounts have normal balances.

During 2022 ($ in thousands), net income was $9,000; 25% of the treasury stock was resold for $450; cash dividends declared were $600; cash dividends paid were $500.

What ($ in thousands) was shareholders' equity as of December 31, 2022?

A) $38,100.

B) $37,450.

C) $38,450.

D) $38,350.

Difficulty: 3 Hard

Topic: Stock‒Treasury stock; Retained earnings; Dividends‒Cash dividends; Determine total shareholders' equity

Learning Objective: 18-01 Describe the components of shareholders' equity and explain how they are reported in a statement of shareholders' equity.; 18-05 Distinguish between accounting for retired shares and for treasury shares.; 18-06 Describe retained earnings and distinguish it from paid-in capital.; 18-07 Explain the basis of corporate dividends, including the similarities and differences between cash and property dividends.

Bloom's: Analyze

AACSB: Analytical Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

27) Accumulated other comprehensive income:

A) Is an asset.

B) Might include gains and losses on certain investments.

C) Includes accumulated net income.

D) Is reported between assets and liabilities.

Difficulty: 1 Easy

Topic: Comprehensive income and AOCI

Learning Objective: 18-02 Describe comprehensive income and its components.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

28) A statement of comprehensive income includes:

A) Net income.

B) Gains and losses on unsold equity securities.

C) Gains and losses on stock dividends.

D) None of these options is included.

Difficulty: 2 Medium

Topic: Comprehensive income and AOCI

Learning Objective: 18-02 Describe comprehensive income and its components.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

29) Accumulated other comprehensive income:

A) is a liability.

B) might include prior service cost from pension plan amendments.

C) includes unrealized gains and losses on equity securities.

D) is reported in the income statement.

Difficulty: 1 Easy

Topic: Comprehensive income and AOCI

Learning Objective: 18-02 Describe comprehensive income and its components.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

30) A statement of comprehensive income does not include:

A) Net income.

B) Losses resulting from the return on pension assets exceeding expectations.

C) Losses from changes in estimates regarding the PBO of pension plans.

D) Prior service cost of pension plans.

Difficulty: 2 Medium

Topic: Comprehensive income and AOCI

Learning Objective: 18-02 Describe comprehensive income and its components.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

31) Accumulated other comprehensive income is reported:

A) In the balance sheet as an asset.

B) In the balance sheet as a liability.

C) In the balance sheet as a component of shareholders' equity.

D) In the statement of comprehensive income.

Difficulty: 1 Easy

Topic: Comprehensive income and AOCI

Learning Objective: 18-02 Describe comprehensive income and its components.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

32) A statement of comprehensive income does not include:

A) Gains resulting from the return on pension assets exceeding expectations.

B) Gains and losses on unsold held-to-maturity debt securities.

C) Adjustments from foreign currency translation.

D) Prior service cost of pensions.

Difficulty: 2 Medium

Topic: Comprehensive income and AOCI

Learning Objective: 18-02 Describe comprehensive income and its components.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

33) In terms of business volume, the dominant form of business organization is the:

A) Partnership.

B) Corporation.

C) Limited liability company.

D) Proprietorship.

Difficulty: 1 Easy

Topic: Corporate organization

Learning Objective: 18-03 Understand the corporate form of organization and the nature of stock.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: BB Legal / Keyboard Navigation

34) The corporate charter sometimes is known as (a):

A) Articles of incorporation.

B) Statement of organization.

C) By-laws.

D) Registration statement.

Difficulty: 1 Easy

Topic: Corporate organization

Learning Objective: 18-03 Understand the corporate form of organization and the nature of stock.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: BB Legal / Keyboard Navigation

35) Corporations are formed in accordance with:

A) The Model Business Corporation Act.

B) Federal statutes.

C) The laws of individual states.

D) Federal trade commission regulations.

Difficulty: 1 Easy

Topic: Corporate organization

Learning Objective: 18-03 Understand the corporate form of organization and the nature of stock.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: BB Legal / Keyboard Navigation

36) The Model Business Corporation Act:

A) Uses the words "common" and "preferred" in describing distinguishing characteristics of stock.

B) Defines legal capital as the amount of net assets not available for distribution to shareholders.

C) Provides guidance for choosing an appropriate par for new issues of stock.

D) Has affected the laws of most states.

Difficulty: 1 Easy

Topic: Corporate organization

Learning Objective: 18-03 Understand the corporate form of organization and the nature of stock.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: BB Legal / Keyboard Navigation

37) Characteristics of the corporate form that have led to the growth of this form of business ownership include all of the following except:

A) Ease of raising capital.

B) Low government regulation.

C) Limited liability.

D) Ease of ownership transfer.

Difficulty: 1 Easy

Topic: Corporate organization

Learning Objective: 18-03 Understand the corporate form of organization and the nature of stock.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: BB Legal / Keyboard Navigation

38) Authorized common stock refers to the total number of shares:

A) Outstanding.

B) Issued.

C) Issued and outstanding.

D) That can be issued.

Difficulty: 1 Easy

Topic: Corporate organization

Learning Objective: 18-03 Understand the corporate form of organization and the nature of stock.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: BB Legal / Keyboard Navigation

39) The par amount of common stock represents:

A) The arbitrary dollar amount assigned to a share of stock.

B) The liquidation value of a share.

C) The book value of a share of stock.

D) The amount received when the stock was issued.

Difficulty: 1 Easy

Topic: Corporate organization

Learning Objective: 18-03 Understand the corporate form of organization and the nature of stock.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: BB Legal / Keyboard Navigation

40) The preemptive right refers to the shareholder's right to:

A) Maintain a proportional ownership interest in the corporation.

B) Vote for members of the board of directors.

C) Receive a share of dividends.

D) Share in profits proportionally with all other stockholders.

Difficulty: 1 Easy

Topic: Stock‒Classes of shares

Learning Objective: 18-03 Understand the corporate form of organization and the nature of stock.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: BB Legal / Keyboard Navigation

41) Common shareholders usually have all of the following rights except:

A) To share in the profits.

B) To share in assets upon liquidation.

C) To elect a board of directors.

D) To participate in the day-to-day operations.

Difficulty: 1 Easy

Topic: Stock‒Classes of shares

Learning Objective: 18-03 Understand the corporate form of organization and the nature of stock.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: BB Legal / Keyboard Navigation

42) The owners of a corporation are its shareholders. If a corporation has only one class of shares, they typically are labeled common shares. Each of the following are ownership rights held by common shareholders, unless specifically withheld by agreement, except:

A) The right to vote on policy issues.

B) The right to share in profits when dividends are declared (in proportion to the percentage of shares owned by the shareholder).

C) The right to dividends equal to a stated rate times par per share (if dividends are paid).

D) The right to share in the distribution of any assets remaining at liquidation after other claims are satisfied.

Difficulty: 2 Medium

Topic: Stock‒Classes of shares

Learning Objective: 18-03 Understand the corporate form of organization and the nature of stock.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: BB Legal / Keyboard Navigation

43) Preferred stock is called preferred because it usually has two preferences. These preferences relate to:

A) Dividends and voting rights.

B) Par and dividends

C) The preemptive right and voting rights.

D) Assets at liquidation and dividends.

Difficulty: 2 Medium

Topic: Stock‒Classes of shares

Learning Objective: 18-03 Understand the corporate form of organization and the nature of stock.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: BB Legal / Keyboard Navigation

44) The typical rights of preferred shares usually include:

A) the right to vote.

B) a preference to a predesignated amount of dividends, that is, a stated dollar amount per share or percent of par per share.

C) a preference over common shareholders and lenders in the distribution of assets in the event the corporation is dissolved.

D) the "preemptive right" to maintain one's percentage share of ownership when new shares are issued.

Difficulty: 2 Medium

Topic: Stock‒Classes of shares

Learning Objective: 18-03 Understand the corporate form of organization and the nature of stock.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

45) When preferred stock carries a redemption privilege, the shareholders may:

A) Purchase new shares as they become available.

B) Exchange their preferred shares for common shares.

C) Surrender the preferred shares for a specified amount of cash.

D) Purchase treasury shares ahead of common shareholders.

Difficulty: 1 Easy

Topic: Stock‒Classes of shares

Learning Objective: 18-03 Understand the corporate form of organization and the nature of stock.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: BB Legal / Keyboard Navigation

46) Preferred shares that are participating may:

A) Vote for the board of directors.

B) Be exchanged for common stock.

C) Receive extra cash during corporate liquidation.

D) Receive additional dividends beyond the stated amount.

Difficulty: 2 Medium

Topic: Stock‒Classes of shares

Learning Objective: 18-03 Understand the corporate form of organization and the nature of stock.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: BB Legal / Keyboard Navigation

47) Heidi Aurora Imports issued shares of the company's Class B stock. Heidi Aurora Imports should report the stock in the company's statement of financial position:

A) Among liabilities if the shares are mandatorily redeemable or redeemable at the option of the shareholder.

B) As equity unless the shares are mandatorily redeemable.

C) As equity unless the shares are redeemable at the option of the issuer.

D) Among liabilities unless the shares are mandatorily redeemable.

Difficulty: 2 Medium

Topic: Stock‒Classes of shares

Learning Objective: 18-03 Understand the corporate form of organization and the nature of stock.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

48) Roman Company is a super successful producer of electronic parts. The company has 2 million 10%, cumulative preferred shares outstanding that must be redeemed by Roman for cash in 10 years. Since issuance, management has reported the stock in the balance sheet as shareholders' equity. Which of the following is an accurate statement regarding the company's reporting policy?

A) The policy is inappropriate because preferred stock must be reported separately from common stock.

B) The policy is inappropriate because preferred stock must be reported as a liability in the balance sheet.

C) The policy is appropriate because the shares are cumulative.

D) This approach is inappropriate because the shares are mandatorily redeemable.

Difficulty: 1 Easy

Topic: Stock‒Classes of shares

Learning Objective: 18-03 Understand the corporate form of organization and the nature of stock.

Bloom's: Understand

AACSB: Reflective Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

49) The common stock account in a company's balance sheet is measured as:

A) The number of common shares outstanding multiplied by the stock's par per share.

B) The number of common shares outstanding multiplied by the stock's current market price per share.

C) The number of common shares issued multiplied by the stock's par per share.

D) None of these answer choices are correct.

Difficulty: 1 Easy

Topic: Stock‒Issuance of shares

Learning Objective: 18-04 Record the issuance of shares when sold for cash and for noncash consideration.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

50) The par amount of shares issued is normally recorded in the:

A) Paid-in capital in excess of par account.

B) Common stock account.

C) Retained earnings account.

D) Appropriated retained earnings account.

Difficulty: 1 Easy

Topic: Stock‒Issuance of shares; Corporate organization

Learning Objective: 18-03 Understand the corporate form of organization and the nature of stock.; 18-04 Record the issuance of shares when sold for cash and for noncash consideration.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

51) Olsson Corporation received a check from its underwriters for $72 million. This was for the issue of one million of its $5 par stock that the underwriters expect to sell for $72 per share. Which is the correct entry to record the issue of the stock?

A)

B)

C)

D)

Difficulty: 2 Medium

Topic: Stock‒Issuance of shares

Learning Objective: 18-04 Record the issuance of shares when sold for cash and for noncash consideration.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement / Keyboard Navigation

52) When stock traded on an active exchange is issued for a machine:

A) No entry is recorded until restrictions are lifted.

B) An asset is recorded for the fair value of the stock.

C) An asset is recorded for the appraised value of the machine.

D) Paid-in capital is increased by the appraised value of the machine.

Difficulty: 2 Medium

Topic: Stock‒Issuance of shares

Learning Objective: 18-04 Record the issuance of shares when sold for cash and for noncash consideration.

Bloom's: Understand

AACSB: Reflective Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

53) When stock is issued in exchange for property, the best evidence of fair value might be any of the following except:

A) The appraised value of the property received.

B) The selling price of the stock in a recent transaction.

C) The price of the stock quoted on the stock exchange.

D) The average book value of outstanding stock.

Difficulty: 1 Easy

Topic: Stock‒Issuance of shares

Learning Objective: 18-04 Record the issuance of shares when sold for cash and for noncash consideration.

Bloom's: Understand

AACSB: Reflective Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

54) Red Inc. issues shares of stock with a par amount of $1 per share in exchange for a machine. In accounting for the transaction:

A) If fair values of the stock and machine are unavailable, the stock should be recorded at its par amount.

B) The stock is recorded at its par amount unless the fair value of the machine is readily available.

C) Both the stock and machine are recorded at the fair value of the stock or the fair value of the machine, whichever is more clearly determinable.

D) The machine should not be depreciated because the stock has no term to maturity.

Difficulty: 1 Easy

Topic: Stock‒Issuance of shares

Learning Objective: 18-04 Record the issuance of shares when sold for cash and for noncash consideration.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

55) Montgomery & Co., a well-established law firm, provided 500 hours of its time to Fink Corporation and received 1,000 shares of Fink's $5 par common stock in exchange for services rendered. Montgomery's usual billing rate is $700 per hour, and Fink's stock has a book value of $250 per share. By what amount will Fink's paid-in capital—excess of par increase for this transaction?

A) $345,000.

B) $295,000.

C) $350,000.

D) $300,000.

Difficulty: 3 Hard

Topic: Stock‒Issuance of shares

Learning Objective: 18-04 Record the issuance of shares when sold for cash and for noncash consideration.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement / Keyboard Navigation

56) When more than one security is sold for a single price and the total selling price is not equal to the sum of the market prices, the cash received is allocated between the securities based on:

A) Relative book values.

B) Par amounts

C) Relative market values.

D) The earnings per share.

Difficulty: 2 Medium

Topic: Stock‒Issuance of shares

Learning Objective: 18-04 Record the issuance of shares when sold for cash and for noncash consideration.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

57) Tim Howard Gloves issued 4.75% bonds with a face amount of $24 million, together with 4 million shares of its $1 par common stock, for a combined cash amount of $44 million. The fair value of Howard's stock cannot be determined. The bonds would have sold for $18 million if issued separately. For this transaction, Howard should record paid-in capital—excess of par in the amount of:

A) $26 million

B) $22 million

C) $18 million

D) $16 million

Difficulty: 2 Medium

Topic: Stock‒Issuance of shares

Learning Objective: 18-04 Record the issuance of shares when sold for cash and for noncash consideration.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement / Keyboard Navigation

58) Share issue costs refer to the costs of obtaining the legal, promotional, and accounting services necessary to effect the sale of shares. The costs reduce the net cash proceeds from selling the shares and thus paid-in capital—excess of par, and are:

A) Not recorded separately.

B) Recorded as an asset.

C) Recorded as a liability.

D) Amortized over time.

Difficulty: 2 Medium

Topic: Stock‒Issuance of shares

Learning Objective: 18-04 Record the issuance of shares when sold for cash and for noncash consideration.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

59) When issuing common shares, Guava Company incurs costs for the legal, promotional, and accounting services necessary to effect the sale. Guava records these costs by expensing them in the period the shares are issued. Which of the following is an accurate statement regarding the company's policy?

A) The policy is inappropriate because the cost of these services reduces the net proceeds from selling the shares and should reduce paid-in capital.

B) The policy is inappropriate because these costs should be recorded in a Share Issue Costs account and amortized over the average term to maturity of the company's debt.

C) This approach is inappropriate because these costs should be recorded in a Share Issue Costs account and added to accumulated comprehensive income.

D) This approach is conceptually correct because it is consistent with the accrual concept of recording expenses in the period they are incurred.

Difficulty: 2 Medium

Topic: Stock‒Issuance of shares

Learning Objective: 18-04 Record the issuance of shares when sold for cash and for noncash consideration.

Bloom's: Understand

AACSB: Reflective Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

60) When common stock is purchased by the issuing corporation at a price below the original issue price and the stock is retired, the transaction:

A) Increases net income for the year.

B) Increases retained earnings.

C) Increases revenue for the year.

D) Increases paid-in capital—share repurchase.

Difficulty: 2 Medium

Topic: Stock‒Retirement of shares

Learning Objective: 18-05 Distinguish between accounting for retired shares and for treasury shares.

Bloom's: Analyze

AACSB: Analytical Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

61) Dempsey Company retires shares that it buys back. In its first share repurchase transaction, Dempsey purchased stock for more than the price at which the stock was originally issued. What is the effect of the purchase of the stock on each of the following?

A) Option A

B) Option B

C) Option C

D) Option D

Difficulty: 3 Hard

Topic: Stock‒Retirement of shares

Learning Objective: 18-05 Distinguish between accounting for retired shares and for treasury shares.

Bloom's: Analyze

AACSB: Analytical Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

62) The balance sheet of FIFA Cup Company included the following shareholders' equity section at December 31, 2021:

On January 5, 2022, FIFA purchased and retired 2 million shares for $9 million. Immediately after retirement of the shares, the balances in the paid-in capital—excess of par and retained earnings accounts are:`

A) Option A

B) Option B

C) Option C

D) Option D

Difficulty: 3 Hard

Topic: Stock‒Retirement of shares

Learning Objective: 18-05 Distinguish between accounting for retired shares and for treasury shares.

Bloom's: Analyze

AACSB: Analytical Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

63) The corporate charter of Alpaca Co. authorized the issuance of 10 million, $1 par common shares. During 2021, its first year of operations, Alpaca had the following transactions:

What amount should Alpaca report as additional paid-in capital—excess of par, in its December 31, 2021, balance sheet?

A) $122 million

B) $116 million

C) $112 million

D) $74 million

Difficulty: 2 Medium

Topic: Stock‒Issuance of shares

Learning Objective: 18-04 Record the issuance of shares when sold for cash and for noncash consideration.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement / Keyboard Navigation

64) In 2021, Brock Lee Vegetables issued $1 par value common stock for $30 per share. No other common stock transactions occurred until March 31, 2023, when Brock Lee acquired some of the issued shares for $25 per share and retired them. Which of the following statements is true for this acquisition and retirement?

A) 2023 net income is decreased.

B) 2023 net income is increased.

C) Additional paid-in capital is increased.

D) Retained earnings is increased.

Difficulty: 2 Medium

Topic: Stock‒Retirement of shares

Learning Objective: 18-05 Distinguish between accounting for retired shares and for treasury shares.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

65) In 2019, Winn, Inc. issued $1 par common stock for $35 per share. No other common stock transactions occurred until July 31, 2021, when Winn acquired some of the issued shares for $30 per share and retired them. Which of the following statements correctly states an effect of this acquisition and retirement?

A) 2021 net income is decreased.

B) Additional paid-in capital is decreased.

C) 2021 net income is increased.

D) Retained earnings is increased.

Difficulty: 3 Hard

Topic: Stock‒Retirement of shares

Learning Objective: 18-05 Distinguish between accounting for retired shares and for treasury shares.

Bloom's: Analyze

AACSB: Analytical Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

66) Issued stock refers to the number of shares:

A) Outstanding plus treasury shares.

B) Shares issued for cash.

C) Owned by shareholders.

D) That may be issued under state law.

Difficulty: 2 Medium

Topic: Components of shareholders' equity; Stock—Issuance of shares; Stock—Treasury stock

Learning Objective: 18-01 Describe the components of shareholders' equity and explain how they are reported in a statement of shareholders' equity.; 18-04 Record the issuance of shares when sold for cash and for noncash consideration.; 18-05 Distinguish between accounting for retired shares and for treasury shares.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: BB Legal / Keyboard Navigation

67) Outstanding common stock is:

A) Stock that is performing well on the New York Stock Exchange.

B) Stock that has been authorized by the state for issue.

C) Stock held in the corporate treasury.

D) Stock owned by shareholders.

Difficulty: 1 Easy

Topic: Stock‒Treasury stock

Learning Objective: 18-05 Distinguish between accounting for retired shares and for treasury shares.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: BB Legal / Keyboard Navigation

68) When treasury shares are sold at a price above cost:

A) A gain account is credited.

B) A loss is reported.

C) A revenue account is credited.

D) Paid-in capital is increased.

Difficulty: 2 Medium

Topic: Stock‒Treasury stock

Learning Objective: 18-05 Distinguish between accounting for retired shares and for treasury shares.

Bloom's: Analyze

AACSB: Analytical Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

69) When treasury shares are resold at a price below cost:

A) Paid-in capital and/or retained earnings is reduced.

B) Paid-in capital and/or retained earnings is increased.

C) Retained earnings is always reduced.

D) A loss is reported in the income statement

Difficulty: 2 Medium

Topic: Stock‒Treasury stock

Learning Objective: 18-05 Distinguish between accounting for retired shares and for treasury shares.

Bloom's: Analyze

AACSB: Analytical Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

70) When treasury stock is purchased for an amount greater than its par, what is the effect on total shareholders' equity?

A) Increase.

B) Decrease.

C) No effect.

D) Cannot tell from the given information.

Difficulty: 2 Medium

Topic: Stock‒Treasury stock

Learning Objective: 18-05 Distinguish between accounting for retired shares and for treasury shares.

Bloom's: Analyze

AACSB: Analytical Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

71) Treasury stock transactions might cause:

A) A decrease in the balance of retained earnings.

B) An increase in the balance of retained earnings.

C) An increase or a decrease in the par amount per share.

D) An increase or a decrease in the amount of net income.

Difficulty: 2 Medium

Topic: Stock‒Treasury stock

Learning Objective: 18-04 Record the issuance of shares when sold for cash and for noncash consideration.

Bloom's: Analyze

AACSB: Analytical Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

72) Gabriel Company views share buybacks as treasury stock. In its first treasury stock transaction, Gabriel purchased treasury stock for more than the price at which the stock was originally issued. What is the effect of the purchase of the treasury stock on each of the following?

A) Option A

B) Option B

C) Option C

D) Option D

Difficulty: 2 Medium

Topic: Stock‒Treasury stock

Learning Objective: 18-05 Distinguish between accounting for retired shares and for treasury shares.

Bloom's: Analyze

AACSB: Analytical Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

73) The balance sheet of Messi Services included the following shareholders' equity section at December 31, 2021:

On January 5, 2022, Messi purchased 2 million treasury shares for $9 million. Immediately after the purchase of the shares, the balances in the paid-in capital—excess of par and retained earnings accounts are:

A) Option A

B) Option B

C) Option C

D) Option D

Difficulty: 2 Medium

Topic: Stock‒Treasury stock

Learning Objective: 18-05 Distinguish between accounting for retired shares and for treasury shares.

Bloom's: Analyze

AACSB: Analytical Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

74) The following partial information is taken from the comparative balance sheet of Levi Corporation:

How many of Levi's common shares were outstanding on 12/31/2020?

A) 14 million.

B) 9 million.

C) 5 million.

D) None of these answer choices are correct.

Difficulty: 2 Medium

Topic: Stock‒Treasury stock

Learning Objective: 18-05 Distinguish between accounting for retired shares and for treasury shares.

Bloom's: Analyze

AACSB: Analytical Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

75) The following partial information is taken from the comparative balance sheet of Levi Corporation:

What was the average price (rounded to the nearest dollar) of the additional shares issued by Levi in 2021?

A) $5 per share.

B) $26 per share.

C) $39 per share.

D) Cannot be determined from the given information.

Difficulty: 2 Medium

Topic: Stock‒Issuance of shares

Learning Objective: 18-04 Record the issuance of shares when sold for cash and for noncash consideration.

Bloom's: Analyze

AACSB: Analytical Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

76) The following partial information is taken from the comparative balance sheet of Levi Corporation:

What was the average price of the additional treasury shares purchased by Levi during 2021?

A) $11 per share.

B) $12 per share.

C) $12.50 per share.

D) None of these answer choices are correct.

Difficulty: 2 Medium

Topic: Stock‒Treasury stock

Learning Objective: 18-05 Distinguish between accounting for retired shares and for treasury shares.

Bloom's: Analyze

AACSB: Analytical Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

77) The following partial information is taken from the comparative balance sheet of Levi Corporation:

What was the amount of Levi's net income for the year 2021?

A) $0.

B) $40 million.

C) $62 million.

D) Cannot be determined from the given information.

Difficulty: 2 Medium

Topic: Retained earnings

Learning Objective: 18-06 Describe retained earnings and distinguish it from paid-in capital.

Bloom's: Analyze

AACSB: Analytical Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

78) Renaldo Cross Company views share buybacks as treasury stock. Renaldo repurchased shares and then later sold the shares at more than their acquisition price. What is the effect of the sale of the treasury stock on each of the following?

A) Option A

B) Option B

C) Option C

D) Option D

Difficulty: 2 Medium

Topic: Stock‒Treasury stock

Learning Objective: 18-05 Distinguish between accounting for retired shares and for treasury shares.

Bloom's: Analyze

AACSB: Analytical Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

79) The corporate charter of Llama Co. authorized the issuance of 10 million, $1 par common shares. During 2021, its first year of operations, Llama had the following transactions:

What amount should Llama report as additional paid-in capital in its December 31, 2021, balance sheet?

A) $122 million

B) $116 million

C) $112 million

D) $74 million

Difficulty: 2 Medium

Topic: Stock‒Issuance of shares; Stock‒Treasury stock

Learning Objective: 18-04 Record the issuance of shares when sold for cash and for noncash consideration.; 18-05 Distinguish between accounting for retired shares and for treasury shares.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement / Keyboard Navigation

80) Coy, Inc. initially issued 200,000 shares of $1 par stock for $1,000,000 in 2019. In 2020, the company repurchased 20,000 shares for $200,000. In 2021, 10,000 of the repurchased shares were resold for $160,000. In its balance sheet dated December 31, 2021, Coy, Inc.'s treasury stock account shows a balance of:

A) $0.

B) $40,000.

C) $100,000.

D) $200,000.

Difficulty: 2 Medium

Topic: Stock‒Treasury stock

Learning Objective: 18-05 Distinguish between accounting for retired shares and for treasury shares.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement / Keyboard Navigation

81) C. Worthy Ships initially issued 300,000 shares of $1 par stock for $1,500,000 in 2021. In 2023, the company repurchased 30,000 shares for $300,000. In 2024, 15,000 of the repurchased shares were resold for $240,000. In its balance sheet dated December 31, 2024, C. Worthy's treasury stock account shows a balance of:

A) $0

B) $60,000

C) $150,000

D) $300,000

Difficulty: 2 Medium

Topic: Stock‒Treasury stock

Learning Objective: 18-05 Distinguish between accounting for retired shares and for treasury shares.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement / Keyboard Navigation

82) As of December 31, 2021, Warner Corporation reported the following:

During 2022, half of the treasury stock was resold for $240,000; net income was $600,000; cash dividends declared were $1,500,000; and stock dividends declared were $500,000.

The 2022 sale of half of the treasury stock would:

A) Reduce income before tax by $60,000.

B) Reduce retained earnings by $60,000.

C) Increase total shareholders' equity by $300,000.

D) Reduce retained earnings by $40,000.

Difficulty: 3 Hard

Topic: Stock‒Treasury stock

Learning Objective: 18-05 Distinguish between accounting for retired shares and for treasury shares.

Bloom's: Analyze

AACSB: Analytical Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

83) Retained earnings represent:

A) Earned capital.

B) Cash.

C) Assets.

D) Net assets.

Difficulty: 1 Easy

Topic: Retained earnings

Learning Objective: 18-06 Describe retained earnings and distinguish it from paid-in capital.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

84) Retained earnings represent a company's:

A) Undistributed net income.

B) Undistributed net assets.

C) Extra paid-in capital.

D) Undistributed cash.

Difficulty: 1 Easy

Topic: Retained earnings

Learning Objective: 18-06 Describe retained earnings and distinguish it from paid-in capital.

Bloom's: Understand

AACSB: Reflective Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

85) The retained earnings balance reported in the balance sheet typically is not affected by:

A) Net income.

B) A prior period adjustment.

C) Dividends paid.

D) Restrictions.

Difficulty: 2 Medium

Topic: Retained earnings

Learning Objective: 18-06 Describe retained earnings and distinguish it from paid-in capital.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

86) Which of the following transactions decreases retained earnings?

A) A property dividend.

B) A stock dividend.

C) A cash dividend.

D) All of these answer choices are correct.

Difficulty: 1 Easy

Topic: Retained earnings

Learning Objective: 18-06 Describe retained earnings and distinguish it from paid-in capital.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

87) Which of the following transactions increases retained earnings?

A) A property dividend.

B) A stock dividend.

C) A stock split.

D) None of these answer choices is correct.

Difficulty: 1 Easy

Topic: Retained earnings

Learning Objective: 18-06 Describe retained earnings and distinguish it from paid-in capital.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

88) When dividends are declared in one fiscal year and paid in the next fiscal year, the liability for the dividend should be recorded as of the:

A) Date the dividend is declared.

B) Last day of the fiscal year.

C) Date of record.

D) Date of payment.

Difficulty: 1 Easy

Topic: Dividends-Cash dividends

Learning Objective: 18-07 Explain the basis of corporate dividends, including the similarities and differences between cash and property dividends.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

89) The board of directors of Capstone Inc. declared a $0.60 per share cash dividend on its $1 par common stock. On the date of declaration, there were 50,000 shares authorized, 20,000 shares issued, and 5,000 shares held as treasury stock. What is the entry for the dividend declaration?

A)

B)

C)

D)

Difficulty: 3 Hard

Topic: Dividends-Cash dividends

Learning Objective: 18-07 Explain the basis of corporate dividends, including the similarities and differences between cash and property dividends.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement / Keyboard Navigation

90) For a cash dividend, the ex-dividend date:

A) Typically is one business day before the date of record.

B) Typically is one business day after the date of record.

C) Typically is one business day before the payment date.

D) Typically is one business day after the payment date.

Difficulty: 1 Easy

Topic: Dividends-Cash dividends

Learning Objective: 18-07 Explain the basis of corporate dividends, including the similarities and differences between cash and property dividends.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

91) Any dividend that is considered to be a liquidating dividend will:

A) Reduce retained earnings.

B) Reduce paid-in capital.

C) Increase paid-in capital.

D) Reduce the common stock account.

Difficulty: 1 Easy

Topic: Dividends-Liquidating dividends

Learning Objective: 18-07 Explain the basis of corporate dividends, including the similarities and differences between cash and property dividends.

Bloom's: Understand

AACSB: Reflective Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

92) On January 1, 2021, the board of directors of Goby Inc. declared a $540,000 dividend. The following data is from the balance sheet of Goby on that date:

How much is the liquidating dividend?

A) $140,000.

B) $240,000.

C) $290,000.

D) None of these answer choices are correct.

Difficulty: 2 Medium

Topic: Dividends-Liquidating dividends

Learning Objective: 18-07 Explain the basis of corporate dividends, including the similarities and differences between cash and property dividends.

Bloom's: Analyze

AACSB: Analytical Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

93) The shareholders' equity of Green Corporation includes $200,000 of $1 par common stock and $400,000 par of 6% cumulative preferred stock. The board of directors of Green declared cash dividends of $50,000 in 2021 after paying $20,000 cash dividends in each of 2020 and 2019. What is the amount of dividends common shareholders will receive in 2021?

A) $18,000.

B) $26,000.

C) $28,000.

D) $32,000.

Difficulty: 2 Medium

Topic: Dividends-Preferred stock dividends

Learning Objective: 18-07 Explain the basis of corporate dividends, including the similarities and differences between cash and property dividends.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement / Keyboard Navigation

94) The shareholders' equity of Red Corporation includes $200,000 of $1 par common stock and $400,000 par of 6% cumulative preferred stock. The board of directors of Red declared cash dividends of $50,000 in 2021 after paying $20,000 cash dividends in 2020 and $40,000 in 2019. What is the amount of dividends common shareholders will receive in 2021?

A) $18,000.

B) $22,000.

C) $26,000.

D) $28,000.

Difficulty: 2 Medium

Topic: Dividends-Preferred stock dividends

Learning Objective: 18-07 Explain the basis of corporate dividends, including the similarities and differences between cash and property dividends.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement / Keyboard Navigation

95) Which of the following statements is true when dividends are not declared or paid on cumulative preferred stock?

A) The shareholders must be allowed to convert their shares to common stock.

B) The unpaid dividends are accrued as a liability.

C) The unpaid dividends are reported in a note to the financial statements.

D) The unpaid dividends accrue interest until paid.

Difficulty: 2 Medium

Topic: Dividends-Preferred stock dividends

Learning Objective: 18-07 Explain the basis of corporate dividends, including the similarities and differences between cash and property dividends.

Bloom's: Understand

AACSB: Reflective Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

96) At the beginning of 2019, Emily Corporation issued 10,000 shares of $100 par, 5%, cumulative, preferred stock for $110 per share. No dividends have been paid to preferred or common shareholders. What amount of dividends will a preferred shareholder owning 100 shares receive in 2021 if Emily pays $1,000,000 in dividends?

A) $500.

B) $1,500.

C) $1,650.

D) $10,000.

Difficulty: 3 Hard

Topic: Dividends-Preferred stock dividends

Learning Objective: 18-07 Explain the basis of corporate dividends, including the similarities and differences between cash and property dividends.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement / Keyboard Navigation

97) Pug Corporation has 10,000 shares of $10 par common stock outstanding and 20,000 shares of $100 par, 6% noncumulative, nonparticipating preferred stock outstanding. Dividends have not been paid for the past two years. This year, a $150,000 dividend will be paid. What are the dividends per share for preferred and common, respectively?

A) $7.50; $0.

B) $6; $3.

C) $6; $1.50.

D) None of these answer choices are correct.

Difficulty: 3 Hard

Topic: Dividends-Preferred stock dividends

Learning Objective: 18-07 Explain the basis of corporate dividends, including the similarities and differences between cash and property dividends.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement / Keyboard Navigation

98) Beagle Corporation has 20,000 shares of $10 par common stock outstanding and 10,000 shares of $100 par, 6% cumulative, nonparticipating preferred stock outstanding. Dividends have not been paid for the past two years. This year, a $300,000 dividend will be paid. What are the dividends per share payable to preferred and common, respectively?

A) $6; $12.

B) $18; $6.

C) $6; $6.

D) None of these answer choices are correct.

Difficulty: 3 Hard

Topic: Dividends-Preferred stock dividends

Learning Objective: 18-07 Explain the basis of corporate dividends, including the similarities and differences between cash and property dividends.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement / Keyboard Navigation

99) When a property dividend is declared, the reduction in retained earnings is for:

A) The book value of the property on the date of declaration.

B) The book value of the property on the date of distribution.

C) The fair value of the property on the date of distribution.

D) The fair value of the property on the date of declaration.

Difficulty: 2 Medium

Topic: Dividends-Property dividends

Learning Objective: 18-07 Explain the basis of corporate dividends, including the similarities and differences between cash and property dividends.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

100) When a property dividend is declared, the property to be distributed should be revalued to fair value as of the:

A) Record date.

B) Date of distribution.

C) Date of declaration.

D) Announcement date.

Difficulty: 2 Medium

Topic: Dividends-Property dividends

Learning Objective: 18-07 Explain the basis of corporate dividends, including the similarities and differences between cash and property dividends.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

101) Mike Bradley & Company, a family-owned corporation, declared and distributed a property dividend from its overstocked inventory instead of declaring its usual cash dividend. The inventory's book value exceeded its fair value. The excess is:

A) Reported as a direct reduction of shareholders' equity.

B) Reported as other comprehensive income.

C) Reported as a loss.

D) Not reported.

Difficulty: 2 Medium

Topic: Dividends-Property dividends

Learning Objective: 18-07 Explain the basis of corporate dividends, including the similarities and differences between cash and property dividends.

Bloom's: Analyze

AACSB: Analytical Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

102) Boxer Company owned 20,000 shares of King Company that were purchased in 2019 for $500,000. On May 1, 2021, Boxer declared a property dividend of 1 share of King for every 10 shares of Boxer stock. On that date, there were 50,000 shares of Boxer stock outstanding. The market Price of the King stock was $30 per share on the date of declaration and $32 per share on the date of distribution. By how much is retained earnings reduced by the property dividend?

A) $0.

B) $150,000.

C) $160,000.

D) $300,000.

Difficulty: 3 Hard

Topic: Dividends-Property dividends

Learning Objective: 18-07 Explain the basis of corporate dividends, including the similarities and differences between cash and property dividends.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement / Keyboard Navigation

103) On June 1, 2021, Blue Co. distributed to its common stockholders 200,000 outstanding common shares of its investment in Red Inc. which is an unrelated party. The book value on Blue's books of Red's $1 par common stock was $2.00 per share. Immediately after the declaration, the market price of Red's stock was $2.50 per share. In its income statement for the year ended June 30, 2021, what amount should Blue report as gain before income taxes on disposal of the stock?

A) $0.

B) $100,000.

C) $400,000.

D) $500,000.

Difficulty: 2 Medium

Topic: Dividends-Property dividends

Learning Objective: 18-07 Explain the basis of corporate dividends, including the similarities and differences between cash and property dividends.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement / Keyboard Navigation

104) ABC declared a property dividend. The dividend consisted of 10,000 common shares of its investment in XYZ Company. The shares had originally been purchased at $4 per share and had a $1 par. The value of the shares on the declaration date is $7 per share. What is the first entry that should be recorded related to this dividend?

A)

B)

C)

D)

Difficulty: 3 Hard

Topic: Dividends-Property dividends

Learning Objective: 18-07 Explain the basis of corporate dividends, including the similarities and differences between cash and property dividends.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement / Keyboard Navigation

105) Lucid Company declared a property dividend of 20,000 shares of its investment in $1 par Polk Company common stock. The Polk stock was purchased for $5 per share. The fair value of Polk's stock was $10 per share on the declaration date of the property dividend and $11 per share on the distribution date. What is the amount of the dividend?

A) $100,000.

B) $200,000.

C) $220,000.

D) $300,000.

Difficulty: 2 Medium

Topic: Dividends-Property dividends

Learning Objective: 18-07 Explain the basis of corporate dividends, including the similarities and differences between cash and property dividends.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement / Keyboard Navigation

106) On June 27, 2021, Cara Van Travel distributed to its common shareholders 400,000 outstanding common shares of its investment in Constance Noring Pillows. The book value on Van's books of Noring's $1 par common stock was $2.00 per share. Immediately after the distribution, the market price of Noring's stock was $2.50 per share. In its income statement for the year ended June 30, 2023, what amount should Noring report as gain on disposal of the stock (ignore taxes)?

A) $0

B) $200,000

C) $800,000

D) $1,000,000

Difficulty: 2 Medium

Topic: Dividends-Property dividends

Learning Objective: 18-07 Explain the basis of corporate dividends, including the similarities and differences between cash and property dividends.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement / Keyboard Navigation

107) The 12/31/2021 balance sheet of Despot Inc. included the following:

In January 2021, Despot recorded a transaction with this journal entry:

The transaction was for the:

A) Issue of 2 million shares of common stock at par.

B) Issue of common stock for $150 million in cash.

C) Receipt of $20 per share for a new stock issue.

D) All of these answer choices are correct.

Difficulty: 1 Easy

Topic: Stock‒Issuance of shares

Learning Objective: 18-04 Record the issuance of shares when sold for cash and for noncash consideration.

Bloom's: Analyze

AACSB: Analytical Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

108) The 12/31/2021 balance sheet of Despot Inc. included the following:

In January 2021, Despot recorded a transaction with this journal entry:

In February 2021, Despot declared cash dividends of $12 million to be paid in April of that year. What effect did the April transaction have on Despot's accounts?

A) Decreased assets and liabilities.

B) Decreased assets and shareholders' equity.

C) Increased liabilities and decreased shareholders' equity.

D) None of these answer choices are correct

Difficulty: 2 Medium

Topic: Dividends-Cash dividends

Learning Objective: 18-07 Explain the basis of corporate dividends, including the similarities and differences between cash and property dividends.

Bloom's: Analyze

AACSB: Analytical Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

109) The 12/31/2021 balance sheet of Despot Inc. included the following:

In January 2021, Despot recorded a transaction with this journal entry:

Despot declared a property dividend to give marketable equity securities to its common stockholders. The securities had cost Despot $7 million and currently have a fair value of $16 million. Which of the following would be included in recording the property dividend declaration?

A) Increase in a liability for $16 million.

B) Decrease in retained earnings for $7 million.

C) Decrease in marketable securities by $16 million.

D) All of these answer choices are correct.

Difficulty: 2 Medium

Topic: Dividends-Property dividends

Learning Objective: 18-07 Explain the basis of corporate dividends, including the similarities and differences between cash and property dividends.

Bloom's: Analyze

AACSB: Analytical Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

110) A small stock dividend is defined as one that is:

A) Less than or equal to 40%.

B) Less than 40%.

C) Less than or equal to 10%.

D) Less than 25%.

Difficulty: 1 Easy

Topic: Stock dividends

Learning Objective: 18-08 Explain stock dividends and stock splits and how we account for them.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

111) When a company issues a stock dividend, which of the following would be affected?

A) Earnings per share.

B) Total assets.

C) Total liabilities.

D) Total shareholders' equity.

Difficulty: 2 Medium

Topic: Stock dividends

Learning Objective: 18-08 Explain stock dividends and stock splits and how we account for them.

Bloom's: Analyze

AACSB: Analytical Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

112) F Co. declares a 5% stock dividend. If the market price at declaration is $12 per share, a shareholder with 110 shares likely would receive:

A) Five additional shares.

B) Fractional share rights for 5½ shares.

C) Five additional shares and $6 in cash.

D) Five additional shares and a fractional share right for 2½ shares.

Difficulty: 2 Medium

Topic: Stock dividends

Learning Objective: 18-08 Explain stock dividends and stock splits and how we account for them.

Bloom's: Analyze

AACSB: Analytical Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

113) The declaration and issuance of a stock dividend on shares of common stock:

A) Has no effect on assets, liabilities, or total shareholders' equity.

B) Decreases total shareholders' equity and increases common stock.

C) Decreases assets and decreases total shareholders' equity.

D) Does not change retained earnings or paid-in capital.

Difficulty: 2 Medium

Topic: Stock dividends

Learning Objective: 18-08 Explain stock dividends and stock splits and how we account for them.

Bloom's: Analyze

AACSB: Analytical Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

114) What is the effect of the declaration and subsequent issuance of a 10% stock dividend on each of the following?

A) Option A

B) Option B

C) Option C

D) Option D

Difficulty: 1 Easy

Topic: Stock dividends

Learning Objective: 18-08 Explain stock dividends and stock splits and how we account for them.

Bloom's: Analyze

AACSB: Analytical Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

115) Rick Co. had 30 million shares of $1 par common stock outstanding at January 1, 2021. In October 2021, Rick Co.'s Board of Directors declared and distributed a 1% common stock dividend when the market value of its common stock was $60 per share. In recording this transaction, Rick would:

A) Debit retained earnings for $18 million.

B) Credit paid-in capital—excess of par for $18 million.

C) Credit common stock for $18 million.

D) None of these answer choices are correct

Difficulty: 2 Medium

Topic: Stock dividends

Learning Objective: 18-08 Explain stock dividends and stock splits and how we account for them.

Bloom's: Analyze

AACSB: Analytical Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

116) On October 1, 2021, Chief Corporation declared and issued a 10% stock dividend. Before this date, Chief had 80,000 shares of $5 par common stock outstanding. The market price of Chief Corporation on the date of declaration was $10 per share. As a result of this dividend, Chief's retained earnings will:

A) Decrease by $80,000.

B) Not change.

C) Decrease by $40,000.

D) Increase by $80,000.

Difficulty: 2 Medium

Topic: Stock dividends

Learning Objective: 18-08 Explain stock dividends and stock splits and how we account for them.

Bloom's: Analyze

AACSB: Analytical Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

117) Dan Druff Shampoo has 1,000,000 shares of common stock authorized with a par of $1 per share, of which 500,000 shares are outstanding. When the market value was $9 per share, Druff issued a stock dividend by which for each ten shares held, one share was issued as a stock dividend. The par per share did not change. What entry did Druff record for this transaction?

A)

B)

C)

D)

Difficulty: 2 Medium

Topic: Stock dividends

Learning Objective: 18-08 Explain stock dividends and stock splits and how we account for them.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement / Keyboard Navigation

118) The shareholders' equity section of Time Company's comparative balance sheets for the years ended December 31, 2021 and 2020, reported the following data:

During 2021, Time declared and paid cash dividends of $90 million. The company also declared and issued a small stock dividend. No other changes occurred in shares outstanding during 2021. What was Time's net income for 2021?

A) $28 million

B) $118 million

C) $130 million

D) $178 million

Difficulty: 3 Hard

Topic: Dividends-Cash dividends; Stock dividends

Learning Objective: 18-01 Describe the components of shareholders' equity and explain how they are reported in a statement of shareholders' equity.; 18-07 Explain the basis of corporate dividends, including the similarities and differences between cash and property dividends.; 18-08 Explain stock dividends and stock splits and how we account for them.

Bloom's: Analyze

AACSB: Analytical Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

119) When a company issues a stock dividend of any size, which of the following would be affected?

A) Earnings per share.

B) Total stockholders' equity.

C) Total liabilities.

D) Total assets.

Difficulty: 2 Medium

Topic: Decision-makers' perspective

Learning Objective: 18-08 Explain stock dividends and stock splits and how we account for them.

Bloom's: Understand

AACSB: Reflective Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

120) Stock splits are issued primarily to:

A) Increase the number of outstanding shares.

B) Increase the number of authorized shares.

C) Increase legal capital.

D) Induce a decline in market price per share.

Difficulty: 1 Easy

Topic: Stock splits

Learning Objective: 18-08 Explain stock dividends and stock splits and how we account for them.

Bloom's: Understand

AACSB: Reflective Thinking

AICPA/Accessibility: BB Resource Management / Keyboard Navigation

121) R Co. has outstanding 100 million shares, $1 par common stock, selling for $8 per share. After a 1 for 4 reverse stock split:

A) R would have 25 million shares, $4 par per share.

B) The market price per share would be about $2.

C) Fractional shares would be issued.

D) Retained earnings would be reduced.

Difficulty: 3 Hard

Topic: Stock splits

Learning Objective: 18-08 Explain stock dividends and stock splits and how we account for them.

Bloom's: Analyze

AACSB: Analytical Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

122) Retained earnings might be reduced by each of the following except:

A) stock split not effected in the form of a stock dividend.

B) property dividend.

C) treasury stock.

D) cash dividend.

Difficulty: 2 Medium

Topic: Stock splits

Learning Objective: 18-08 Explain stock dividends and stock splits and how we account for them.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

123) What is the effect of a stock split (not effected in the form of a stock dividend) on each of the following?

A) Option A

B) Option B

C) Option C

D) Option D

Difficulty: 1 Easy

Topic: Stock splits

Learning Objective: 18-08 Explain stock dividends and stock splits and how we account for them.

Bloom's: Analyze

AACSB: Analytical Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

124) What is the usual effect of a stock split (effected in the form of a stock dividend) on each of the following?

A) Option A

B) Option B

C) Option C

D) Option D

Difficulty: 2 Medium

Topic: Stock splits

Learning Objective: 18-08 Explain stock dividends and stock splits and how we account for them.

Bloom's: Analyze

AACSB: Analytical Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

125) Doug Graves Cemetery had 50,000 shares of common stock issued and outstanding at January 1, 2021. During 2021, Graves took the following actions:

In Graves's statement of shareholders' equity for 2021, what amount should Graves report as dividends?

A) $20,000

B) $40,000

C) $60,000

D) $90,000

Difficulty: 2 Medium

Topic: Stock splits

Learning Objective: 18-07 Explain the basis of corporate dividends, including the similarities and differences between cash and property dividends.; 18-08 Explain stock dividends and stock splits and how we account for them.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement / Keyboard Navigation

126) A stock split:

A) increases the debt to equity ratio.

B) decreases the debt to equity ratio.

C) decreases the size of the firm.

D) decreases future earnings per share.

Difficulty: 3 Hard

Topic: Decision-makers' perspective

Learning Objective: 18-08 Explain stock dividends and stock splits and how we account for them.

Bloom's: Analyze

AACSB: Analytical Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

127) Heidi Aurora Imports applies International Financial Reporting Standards (IFRS) in preparing its financial statements. The company issued shares of the company's Class B stock. Heidi Aurora Imports should report the stock in the company's statement of financial position:

A) Among liabilities if the shares are mandatorily redeemable or redeemable at the option of the shareholder.

B) As equity unless the shares are mandatorily redeemable.

C) As equity unless the shares are redeemable at the option of the issuer.

D) Among liabilities unless the shares are mandatorily redeemable.

Difficulty: 2 Medium

Topic: IFRS‒Preferred stock distinctions

Learning Objective: 18-09 Discuss the primary differences between U.S. GAAP and IFRS with respect to accounting for shareholders' equity.

Bloom's: Remember

AACSB: Reflective Thinking; Diversity

AICPA/Accessibility: BB Global / Keyboard Navigation

128) Mandatorily redeemable preferred stock (preference shares) is reported as debt, with the dividends reported in the income statement as interest expense, using:

A) U.S. GAAP.

B) IFRS.

C) Both U.S. GAAP and IFRS.

D) Neither U.S. GAAP nor IFRS.

Difficulty: 2 Medium

Topic: IFRS‒Preferred stock distinctions

Learning Objective: 18-09 Discuss the primary differences between U.S. GAAP and IFRS with respect to accounting for shareholders' equity.

Bloom's: Remember

AACSB: Reflective Thinking; Diversity

AICPA/Accessibility: BB Global / Keyboard Navigation

129) Which of the following statements is true with regard to preferred stock (preference shares)?

A) Most preferred stock (preference shares) is reported under U.S. GAAP as debt.

B) Most preferred stock (preference shares) is reported under IFRS as equity.

C) Under U.S. GAAP, mandatorily redeemable preferred stock is reported as equity.

D) Under IFRS, preferred stock dividends are reported in the income statement as interest expense.

Difficulty: 2 Medium

Topic: IFRS‒Preferred stock distinctions

Learning Objective: 18-09 Discuss the primary differences between U.S. GAAP and IFRS with respect to accounting for shareholders' equity.

Bloom's: Remember

AACSB: Reflective Thinking; Diversity

AICPA/Accessibility: BB Global / Keyboard Navigation

130) Beasley Crossing prepares its financial statements in accordance with International Financial Reporting Standards (IFRS). The company issued shares of the company's Class B stock. Beasley Crossing should report the stock in the company's statement of financial position:

A) among liabilities unless the shares are mandatorily redeemable.

B) among liabilities if the shares are mandatorily redeemable or redeemable at the option of the shareholder.

C) as equity unless the shares are mandatorily redeemable.

D) as equity unless the shares are redeemable at the option of the issuer.

Difficulty: 2 Medium

Topic: IFRS‒Preferred stock distinctions

Learning Objective: 18-09 Discuss the primary differences between U.S. GAAP and IFRS with respect to accounting for shareholders' equity.

Bloom's: Remember

AACSB: Reflective Thinking; Diversity

AICPA/Accessibility: FN Measurement; BB Global / Keyboard Navigation

131) Mandatorily redeemable preferred stock (mandatorily redeemable preference shares) is reported among liabilities with related dividends reported in the income statement as interest expense using:

A) IFRS.

B) U.S. GAAP.

C) Neither U.S. GAAP nor IFRS.

D) Both U.S. GAAP and IFRS.

Difficulty: 1 Easy

Topic: IFRS‒Preferred stock distinctions

Learning Objective: 18-09 Discuss the primary differences between U.S. GAAP and IFRS with respect to accounting for shareholders' equity.

Bloom's: Remember

AACSB: Diversity

AICPA/Accessibility: FN Measurement; BB Global / Keyboard Navigation

132) Net income and other comprehensive income can be reported in a single statement of comprehensive income using:

A) IFRS.

B) U.S. GAAP.

C) Neither U.S. GAAP nor IFRS.

D) Both U.S. GAAP and IFRS.

Difficulty: 1 Easy

Topic: IFRS‒Preferred stock distinctions

Learning Objective: 18-09 Discuss the primary differences between U.S. GAAP and IFRS with respect to accounting for shareholders' equity.

Bloom's: Remember

AACSB: Diversity

AICPA/Accessibility: FN Measurement; BB Global / Keyboard Navigation

133) Which of the terms or phrases listed below is more associated with financial statements prepared in accordance with U.S. GAAP than with International Financial Reporting Standards (IFRS)?

A) Accumulated other comprehensive income.

B) Investment revaluation reserve.

C) Share premium.

D) Preference shares.

Difficulty: 1 Easy

Topic: IFRS‒Terminology

Learning Objective: 18-09 Discuss the primary differences between U.S. GAAP and IFRS with respect to accounting for shareholders' equity.

Bloom's: Remember

AACSB: Reflective Thinking; Diversity

AICPA/Accessibility: BB Global / Keyboard Navigation

134) Revenue and expense items and components of other comprehensive income can be reported in a single statement of comprehensive income using:

A) U.S. GAAP.

B) IFRS.

C) Both U.S. GAAP and IFRS.

D) Neither U.S. GAAP nor IFRS.

Difficulty: 2 Medium

Topic: IFRS‒Terminology

Learning Objective: 18-09 Discuss the primary differences between U.S. GAAP and IFRS with respect to accounting for shareholders' equity.

Bloom's: Remember

AACSB: Reflective Thinking; Diversity

AICPA/Accessibility: BB Global / Keyboard Navigation

135) Under IFRS, components of other comprehensive income:

A) Can be reported as part of a single statement of comprehensive income.

B) Are not permitted to be reported.

C) Must be reported in a separate statement of comprehensive income.

D) Can be reported as part of a statement of shareholders' equity.

Difficulty: 2 Medium

Topic: IFRS‒Terminology

Learning Objective: 18-09 Discuss the primary differences between U.S. GAAP and IFRS with respect to accounting for shareholders' equity.

Bloom's: Remember

AACSB: Reflective Thinking; Diversity

AICPA/Accessibility: BB Global / Keyboard Navigation

136) Which of the following terms or phrases is more associated with financial statements prepared in accordance with U.S. GAAP than those prepared in accordance with International Financial Reporting Standards?

A) Ordinary shares.

B) Asset revaluation reserve.

C) Share premium.

D) Accumulated other comprehensive income.

Difficulty: 2 Medium

Topic: IFRS‒Terminology

Learning Objective: 18-09 Discuss the primary differences between U.S. GAAP and IFRS with respect to accounting for shareholders' equity.

Bloom's: Remember

AACSB: Reflective Thinking; Diversity

AICPA/Accessibility: FN Measurement; BB Global / Keyboard Navigation

137) Listed below are five terms followed by a list of phrases that describe or characterize each of the terms. Match each phrase with the number for the correct term.

Difficulty: 2 Medium

Topic: Comprehensive income and AOCI; Retained earnings; Stock dividends; Stock-Classes of shares; Stock-Retirement of shares

Learning Objective: 18-02 Describe comprehensive income and its components.; 18-03 Understand the corporate form of organization and the nature of stock.; 18-05 Distinguish between accounting for retired shares and for treasury shares.; 18-06 Describe retained earnings and distinguish it from paid-in capital.; 18-08 Explain stock dividends and stock splits and how we account for them.

Bloom's: Understand

AACSB: Reflective Thinking

AICPA/Accessibility: FN Measurement

138) Listed below are five terms followed by a list of phrases that describe or characterize each of the terms. Match each phrase with the number for the correct term.

Difficulty: 2 Medium

Topic: Decision-makers' perspective; Retained earnings; Stock splits; Stock-Classes of shares; Stock-Issuance of shares

Learning Objective: 18-03 Understand the corporate form of organization and the nature of stock.; 18-04 Record the issuance of shares when sold for cash and for noncash consideration.; 18-06 Describe retained earnings and distinguish it from paid-in capital.; 18-08 Explain stock dividends and stock splits and how we account for them.

Bloom's: Understand

AACSB: Reflective Thinking

AICPA/Accessibility: FN Measurement

139) Listed below are five terms followed by a list of phrases that describe or characterize each of the terms. Match each phrase with the number for the correct term.

Difficulty: 2 Medium

Topic: Corporate organization; Decision-makers' perspective; Retained earnings

Learning Objective: 18-03 Understand the corporate form of organization and the nature of stock.; 18-05 Distinguish between accounting for retired shares and for treasury shares.; 18-07 Explain the basis of corporate dividends, including the similarities and differences between cash and property dividends.

Bloom's: Understand

AACSB: Reflective Thinking

AICPA/Accessibility: FN Measurement

140) Use I = Increase, D = Decrease, or N = No effect, to indicate the effect on retained earnings for each of the listed transactions.

Difficulty: 2 Medium

Topic: Determine total shareholders' equity

Learning Objective: 18-01 Describe the components of shareholders' equity and explain how they are reported in a statement of shareholders' equity.

Bloom's: Understand

AACSB: Reflective Thinking

AICPA/Accessibility: FN Measurement

141) Use I = Increase, D = Decrease, or N = No effect, to indicate the effect on retained earnings for each of the listed transactions.

Difficulty: 2 Medium

Topic: Determine total shareholders' equity

Learning Objective: 18-01 Describe the components of shareholders' equity and explain how they are reported in a statement of shareholders' equity.

Bloom's: Understand

AACSB: Reflective Thinking

AICPA/Accessibility: FN Measurement

142) Use I = Increase, D = Decrease, or N = No effect, to indicate the effect on retained earnings for each of the listed transactions.

Difficulty: 2 Medium

Topic: IFRS‒Terminology

Learning Objective: 18-09 Discuss the primary differences between U.S. GAAP and IFRS with respect to accounting for shareholders' equity.

Bloom's: Remember

AACSB: Diversity

AICPA/Accessibility: BB Global

143) Use I = Increase, D = Decrease, or N = No effect, to indicate the effect on retained earnings for each of the listed transactions.

Difficulty: 2 Medium

Topic: Dividends-Property dividends; Retained earnings; Stock-Issuance of shares; Stock-Treasury stock

Learning Objective: 18-04 Record the issuance of shares when sold for cash and for noncash consideration.; 18-06 Describe retained earnings and distinguish it from paid-in capital.; 18-07 Explain the basis of corporate dividends, including the similarities and differences between cash and property dividends.

Bloom's: Understand

AACSB: Reflective Thinking

AICPA/Accessibility: FN Measurement

144) Use I = Increase, D = Decrease, or N = No effect, to indicate the effect on retained earnings for each of the listed transactions.

Difficulty: 2 Medium

Topic: Dividends-Cash dividends; Retained earnings; Stock dividends; Stock splits; Stock-Issuance of shares; Stock-Retirement of shares; Stock-Treasury stock

Learning Objective: 18-04 Record the issuance of shares when sold for cash and for noncash consideration.; 18-05 Distinguish between accounting for retired shares and for treasury shares.; 18-06 Describe retained earnings and distinguish it from paid-in capital.; 18-07 Explain the basis of corporate dividends, including the similarities and differences between cash and property dividends.; 18-08 Explain stock dividends and stock splits and how we account for them.

Bloom's: Understand

AACSB: Reflective Thinking

AICPA/Accessibility: FN Measurement

145) The following information comes from the 2021 Annual Report to stockholders of Composition Inc. (in thousands):

From the Statement of Changes in Shareholders' Equity:

From the Statement of Cash Flows:

Cash flows from financing activities:

What was the average exercise price per share of stock issued under option plans in 2021?

Difficulty: 3 Hard

Topic: Stock‒Issuance of shares

Learning Objective: 18-04 Record the issuance of shares when sold for cash and for noncash consideration.

Bloom's: Analyze

AACSB: Analytical Thinking

AICPA/Accessibility: FN Measurement

146) The following information comes from the 2021 Annual Report to stockholders of Composition Inc. (in thousands):

From the Statement of Changes in Shareholders' Equity:

From the Statement of Cash Flows:

Cash flows from financing activities:

What was the average cost per share of the treasury stock purchased by Composition during 2020 and 2021, respectively?

Difficulty: 2 Medium

Topic: Stock‒Treasury stock

Learning Objective: 18-01 Describe the components of shareholders' equity and explain how they are reported in a statement of shareholders' equity.; 18-05 Distinguish between accounting for retired shares and for treasury shares.

Bloom's: Analyze

AACSB: Analytical Thinking

AICPA/Accessibility: FN Measurement

147) The following information comes from the 2021 Annual Report to stockholders of Composition Inc. (in thousands):

From the Statement of Changes in Shareholders' Equity:

From the Statement of Cash Flows:

Cash flows from financing activities:

How many shares of treasury stock were removed for use during 2020, and for what purpose(s)?

Difficulty: 2 Medium

Topic: Stock‒Treasury stock

Learning Objective: 18-05 Distinguish between accounting for retired shares and for treasury shares.

Bloom's: Analyze

AACSB: Analytical Thinking

AICPA/Accessibility: FN Measurement

148) The following information comes from the 2021 Annual Report to stockholders of Composition Inc. (in thousands):

From the Statement of Changes in Shareholders' Equity:

From the Statement of Cash Flows:

Cash flows from financing activities:

What was the fair value of the treasury stock exchanged for asset acquisitions for 2020?

Difficulty: 3 Hard

Topic: Stock‒Treasury stock

Learning Objective: 18-05 Distinguish between accounting for retired shares and for treasury shares.

Bloom's: Analyze

AACSB: Analytical Thinking

AICPA/Accessibility: FN Measurement

149) The following information comes from the 2021 Annual Report to stockholders of Composition Inc. (in thousands):

From the Statement of Changes in Shareholders' Equity:

From the Statement of Cash Flows:

Cash flows from financing activities:

Assuming that Composition had Dividends Payable of $17,450 thousand at December 31, 2019, compute the balance in that account at December 31, 2021.

Difficulty: 2 Medium

Topic: Dividends-Cash dividends

Learning Objective: 18-07 Explain the basis of corporate dividends, including the similarities and differences between cash and property dividends.

Bloom's: Analyze

AACSB: Analytical Thinking

AICPA/Accessibility: FN Measurement

150) During its first year of operations, Cole's Electronics Inc. completed the following transactions relating to shareholders' equity.

The articles of incorporation authorize 5,000,000 shares of common stock with a par of $1 per share and 1,000,000 preferred shares with a par of $100 per share.

Required:

Record the above transactions in general journal form.

Difficulty: 2 Medium

Topic: Stock‒Classes of shares; Stock‒Issuance of shares

Learning Objective: 18-04 Record the issuance of shares when sold for cash and for noncash consideration.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement

151) During its first year of operations, Criswell Inc. completed the following transactions relating to shareholders' equity.

The articles of incorporation authorize 5,000,000 shares with a par of $1 per share of common and 1,000,000 preferred shares with a par of $100 per share.

Required:

Record the above transactions in general journal form.

Difficulty: 2 Medium

Topic: Stock‒Classes of shares; Stock‒Issuance of shares

Learning Objective: 18-03 Understand the corporate form of organization and the nature of stock.; 18-04 Record the issuance of shares when sold for cash and for noncash consideration.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement

152) During the current year JET Industries issued 5 million of its $1 par common shares to its underwriters for $25,000,000 less promotional and accounting services of $500,000 to effect the issue.

Required:

Prepare the journal entry to record the issuance of the shares.

Difficulty: 2 Medium

Topic: Stock‒Issuance of shares

Learning Objective: 18-04 Record the issuance of shares when sold for cash and for noncash consideration.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement

153) The shareholders' equity of Tru Corporation includes $600,000 of $1 par common stock and $1,200,000 par of 6% cumulative preferred stock. The board of directors of Tru declared cash dividends of $150,000 in 2021 after paying $60,000 cash dividends in each of 2020 and 2019.

Required:

What is the amount of dividends common shareholders will receive in 2021?

Difficulty: 2 Medium

Topic: Dividends-Preferred stock dividends

Learning Objective: 18-07 Explain the basis of corporate dividends, including the similarities and differences between cash and property dividends.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement

154) The shareholders' equity of HS Corporation includes $300,000 of $1 par common stock and $600,000 par of 6% cumulative preferred stock. The board of directors of HS declared cash dividends of $70,000 in 2021 after paying $30,000 cash dividends in 2020 and $50,000 in 2019.

Required:

What is the amount of dividends common shareholders will receive in 2021?

Difficulty: 2 Medium

Topic: Dividends-Preferred stock dividends

Learning Objective: 18-07 Explain the basis of corporate dividends, including the similarities and differences between cash and property dividends.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement

155) Cal Cookie Company (CCC) has 100 million shares of $1 par common stock authorized. The transactions below caused changes in CCC's outstanding shares.

Prior to the transactions, CCC's shareholders' equity included the following:

Required:

Record entries for the above transactions.

Difficulty: 3 Hard

Topic: Stock‒Retirement of shares

Learning Objective: 18-05 Distinguish between accounting for retired shares and for treasury shares.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement

156) On December 31, 2020, Rebel Corporation's balance sheet reported the following.

During 2021, Rebel decided to discontinue accounting for share buybacks as treasury shares.

Instead, the shares will be treated as having been retired.

Required:

Prepare the appropriate journal entry to effect this change.

Difficulty: 2 Medium

Topic: Stock‒Retirement of shares

Learning Objective: 18-05 Distinguish between accounting for retired shares and for treasury shares.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement

157) In 2021, Poe's Products completed the treasury stock transactions described below.

Poe had issued 50 million shares of its $1 par common stock for $18 several years ago.

Required:

Record the above transactions assuming that Poe's Products uses the cost method.

Difficulty: 2 Medium

Topic: Stock‒Treasury stock

Learning Objective: 18-05 Distinguish between accounting for retired shares and for treasury shares.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement

158) In 2021, Southwestern Corporation completed the treasury stock transactions listed below.

Southwestern had issued 100,000 shares of its $1 par common stock for $10 several months ago.

Required:

Prepare the journal entries to record the above transactions, using the cost method.

Difficulty: 3 Hard

Topic: Stock‒Treasury stock

Learning Objective: 18-05 Distinguish between accounting for retired shares and for treasury shares.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement

159) The December 31, 2021, balance sheet of Springer Company included the following:

Springer completed the following transactions in 2021 relating to treasury stock:

Required:

Assuming Springer uses the cost method, prepare journal entries to record the foregoing transactions on a FIFO basis.

Difficulty: 3 Hard

Topic: Stock‒Treasury stock

Learning Objective: 18-05 Distinguish between accounting for retired shares and for treasury shares.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement

160) The December 31, 2021, balance sheet of MBI Company included the following:

MBI completed the following transactions in 2021 relating to treasury stock:

Required:

Prepare journal entries to record the foregoing transactions on a weighted average basis.

Difficulty: 3 Hard

Topic: Stock‒Treasury stock

Learning Objective: 18-05 Distinguish between accounting for retired shares and for treasury shares.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement

161) The shareholders' equity of Nick Co. includes the items shown below. The board of directors of Nick declared cash dividends of $4 million, $8 million, and $50 million in each of its first 3 years of operation: 2019, 2020, and 2021, respectively.

Common stock, $1 par, 50,000,000 shares outstanding

Preferred stock, 6%, $100 par, 1,000,000 shares outstanding

Required:

Determine the amount of dividends per share on preferred and common stock for each of the three years. The preferred stock is noncumulative and nonparticipating.

Difficulty: 3 Hard

Topic: Dividends-Preferred stock dividends

Learning Objective: 18-07 Explain the basis of corporate dividends, including the similarities and differences between cash and property dividends.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement

162) The shareholders' equity of Crystal Company includes the items shown below. The board of directors of Crystal declared cash dividends of $3 million, $6 million, and $50 million in each of its first three years of operation: 2019, 2020, and 2021, respectively.

Common stock, $1 par, 50,000,000 shares outstanding

Preferred stock, 6%, $100 par, 1,000,000 shares outstanding

Required:

Determine the amount of dividends per share on preferred and common stock for each of the three years. The preferred stock is cumulative and nonparticipating.

Difficulty: 3 Hard

Topic: Dividends-Preferred stock dividends

Learning Objective: 18-07 Explain the basis of corporate dividends, including the similarities and differences between cash and property dividends.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement

163) ZIP Company owns 40,000 shares of the common stock of PIK Company. ZIP decided to divest itself of this investment by distributing the PIK shares in the form of a property dividend. The dividend ratio is one share of PIK for every four shares of ZIP common held by shareholders. ZIP has 160,000 common shares outstanding. On April 15, 2021, the date of declaration, PIK stock had a par of $5 per share, a book value of $12 per share, and a fair value of $17 per share.

Required:

Prepare any necessary journal entries. The shares were distributed on May 15, 2021, to stockholders of record on May 1, 2021.

Difficulty: 3 Hard

Topic: Dividends-Property dividends

Learning Objective: 18-07 Explain the basis of corporate dividends, including the similarities and differences between cash and property dividends.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement

164) Fowler Co.'s balance sheet showed the following at December 31, 2021:

A cash dividend is declared on December 31, 2021, and is payable on January 20, 2022, to shareholders of record on January 10, 2022.

Required:

(1) Prepare all appropriate journal entries, assuming a cash dividend in the amount of $1.00 per share.

(2) Prepare all appropriate journal entries, assuming a cash dividend in the amount of $5.00 per share.

Difficulty: 2 Medium

Topic: Dividends-Cash dividends

Learning Objective: 18-07 Explain the basis of corporate dividends, including the similarities and differences between cash and property dividends.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement

165) On January 1, 2021, Fascom had the following account balances in its shareholders' equity accounts.

During 2021, Fascom Inc. had several transactions relating to common stock.

Required:

Without preparing journal entries, prepare the shareholders' equity section of Fascom's balance sheet as of December 31, 2021. Assume net income is $500,000 for 2021.

Difficulty: 3 Hard

Topic: Dividends-Cash dividends; Dividends-Property dividends; Stock dividends; Stock splits; Determine total shareholders' equity

Learning Objective: 18-01 Describe the components of shareholders' equity and explain how they are reported in a statement of shareholders' equity.; 18-07 Explain the basis of corporate dividends, including the similarities and differences between cash and property dividends.; Explain stock dividends and stock splits and how we account for them.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement

166) On September 15, 2021, the Scottie Company board of directors declared a 10% stock dividend on common shares. The shares are to be distributed on October 10, 2021, to shareholders of record on October 1, 2021. The market price per share on the date of declaration was $24 while the market price on the date of distribution was $26. The common stock has a par of $5 per share and there were 1,000,000 shares outstanding prior to the declaration of the stock dividend.

Required:

Prepare any necessary journal entries to record the above transactions.

Difficulty: 2 Medium

Topic: Stock dividends

Learning Objective: 18-08 Explain stock dividends and stock splits and how we account for them.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement

167) On October 15, 2021, a 5% stock dividend was declared and distributed. The fair value of the common stock on this date was $32 per share. Fractional share rights represented 100,000 shares. Cash was paid in lieu of issuing fractional share rights. On the date of declaration and payment, the company had 10 million shares of common stock outstanding. The par of the common shares was $5 per share.

Required:

Prepare any necessary journal entries to record the above events.

Difficulty: 3 Hard

Topic: Stock dividends

Learning Objective: 18-08 Explain stock dividends and stock splits and how we account for them.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement

168) On January 1, 2021, Gerlach Inc. had the following account balances in its shareholders' equity accounts.

During 2021, Gerlach Inc. had several transactions relating to common stock.

Required:

Record the above transactions and events in journal entry format.

Difficulty: 3 Hard

Topic: Dividends-Cash dividends; Dividends-Property dividends; Stock dividends; Stock splits

Learning Objective: 18-07 Explain the basis of corporate dividends, including the similarities and differences between cash and property dividends.; 18-08 Explain stock dividends and stock splits and how we account for them.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement

169) A new CEO was hired to revive the floundering Heirloom Watch Corporation. The company had endured operating losses for several years, but confidence was emerging that better times were ahead. The board of directors and shareholders approved a quasi-reorganization for the corporation. The reorganization included devaluing inventory for obsolescence by $210 million and increasing land by $10 million. Immediately before the restatement, at December 31, 2021, Heirloom Watch Corporation's balance sheet appeared as follows (in condensed form):

Heirloom Watch Corporation

BALANCE SHEET

December 31, 2021 ($ in millions)