Test Bank Accounting For Corporations Wild Ch.13 - Accounting Principles 2e Test Bank by John J. Wild. DOCX document preview.

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Test Bank Accounting For Corporations Wild Ch.13

Chapter 13 Accounting for Corporations

MULTIPLE CHOICE QUESTIONS

A corporation is a legal entity separate from its owners.

    1. True
    2. False

Learning Objective: 13-C1 Identify characteristics of corporations and their organization. Bloom's: Remember

AACSB: Communication AICPA: BB Legal; FN Reporting

  1. Corporations avoid many of the state regulations and controls that proprietorships and partnerships are subject to.

True

    1. False

Learning Objective: 13-C1 Identify characteristics of corporations and their organization. Bloom's: Remember

AACSB: Communication AICPA: BB Legal; FN Reporting

Organization expenses of a corporation often include legal fees and promoter fees.

    1. True
    2. False

Learning Objective: 13-C1 Identify characteristics of corporations and their organization. Bloom's: Understand

AACSB: Communication AICPA: BB Legal; FN Reporting

Shareholders in a corporation have the power to bind the corporation to contracts.

    1. True
    2. False

Learning Objective: 13-C1 Identify characteristics of corporations and their organization. Bloom's: Understand

AACSB: Communication

AICPA: BB Legal; FN Decision Making

A proxy is a document that gives a designated agent the right to vote a shareholder's stock.

    1. True
    2. False

Learning Objective: 13-C1 Identify characteristics of corporations and their organization. Bloom's: Remember

AACSB: Communication

AICPA: BB Legal; FN Decision Making

Common shareholders always share equally with all other shareholders in dividends.

    1. True
    2. False

Learning Objective: 13-C2 Explain characteristics of, and distribute dividends between, common and preferred stock. Bloom's: Understand

AACSB: Communication

AICPA: BB Legal; FN Measurement

  1. A preemptive right means shareholders can purchase their proportional share of common stock issued later by the corporation.

True

    1. False

Learning Objective: 13-C1 Identify characteristics of corporations and their organization. Bloom's: Remember

AACSB: Communication

AICPA: BB Legal; FN Decision Making

  1. Stock is attractive to investors because stockholders are not liable for the corporation's actions and debts and because stock is easily transferred.

True

    1. False

Learning Objective: 13-C1 Identify characteristics of corporations and their organization. Bloom's: Remember

AACSB: Communication

AICPA: BB Legal; FN Decision Making

  1. A registrar keeps stockholder records and prepares official lists of stockholders and dividend payments.

True

    1. False

Learning Objective: 13-C1 Identify characteristics of corporations and their organization. Bloom's: Remember

AACSB: Communication AICPA: BB Legal; FN Reporting

Stockholders' equity consists of paid-in capital and retained earnings.

    1. True
    2. False

Learning Objective: 13-C1 Identify characteristics of corporations and their organization. Bloom's: Remember

AACSB: Communication AICPA: BB Legal; FN Reporting

The price at which a share of stock is bought or sold is known as par value.

    1. True
    2. False

Learning Objective: 13-C1 Identify characteristics of corporations and their organization. Bloom's: Understand

AACSB: Communication

AICPA: BB Legal; FN Measurement

  1. Paid-in capital is the total amount of cash and other assets the corporation receives from its stockholders in exchange for its stock.

True

    1. False

Learning Objective: 13-C1 Identify characteristics of corporations and their organization. Bloom's: Remember

AACSB: Communication

AICPA: BB Legal; FN Measurement

The total number of shares outstanding is the authorized stock.

    1. True
    2. False

Learning Objective: 13-C1 Identify characteristics of corporations and their organization. Bloom's: Remember

AACSB: Communication

AICPA: BB Legal; FN Measurement

  1. If a corporation is authorized to issue 1,000 shares of $5 common stock, it is said to have $5,000 of stock outstanding.

True

    1. False

Learning Objective: 13-C1 Identify characteristics of corporations and their organization. Bloom's: Understand

AACSB: Communication AICPA: BB Legal; FN Reporting

Minimum legal capital requirements are intended to protect creditors.

    1. True
    2. False

Learning Objective: 13-C1 Identify characteristics of corporations and their organization. Bloom's: Remember

AACSB: Communication AICPA: BB Legal; FN Reporting

  1. Stated value stock is no-par stock that is assigned a "stated" value per share by the corporation's board of directors.

True

    1. False

Learning Objective: 13-C1 Identify characteristics of corporations and their organization. Bloom's: Remember

AACSB: Communication

AICPA: FN Reporting; BB Industry

A corporation may be authorized to issue both common and preferred stock.

    1. True
    2. False

Learning Objective: 13-C1 Identify characteristics of corporations and their organization. Bloom's: Remember

AACSB: Communication

AICPA: FN Reporting; BB Industry

Common stock always carries a preference for receiving dividends over preferred stock.

    1. True
    2. False

Learning Objective: 13-C2 Explain characteristics of, and distribute dividends between, common and preferred stock. Bloom's: Understand

AACSB: Communication

AICPA: FN Reporting; BB Industry

  1. Special rights often granted to preferred stock include a preference for receiving dividends and additional voting privileges.

True

    1. False

Learning Objective: 13-C2 Explain characteristics of, and distribute dividends between, common and preferred stock. Bloom's: Remember

AACSB: Communication

AICPA: FN Measurement; BB Industry

  1. Cumulative preferred stock carries the right to be paid both current and all prior periods' unpaid dividends before any dividends are paid to common shareholders.

True

    1. False

Learning Objective: 13-C2 Explain characteristics of, and distribute dividends between, common and preferred stock. Bloom's: Remember

AACSB: Communication

AICPA: FN Measurement; BB Industry

  1. Retained earnings generally consist of a company's cumulative net income less any net losses and dividends declared since its inception.

True

    1. False

Learning Objective: 13-C3 Explain the items reported in retained earnings. Bloom's: Remember

AACSB: Communication

AICPA: FN Reporting; BB Industry

Retained earnings are part of the stockholders' claims on the company's net assets.

    1. True
    2. False

Learning Objective: 13-C3 Explain the items reported in retained earnings. Bloom's: Understand

AACSB: Communication

AICPA: FN Reporting; BB Industry

The term restricted retained earnings refers to statutory but not contractual restrictions.

    1. True
    2. False

Learning Objective: 13-C3 Explain the items reported in retained earnings. Bloom's: Remember

AACSB: Communication

AICPA: FN Reporting; BB Industry

  1. A common statutory restriction is reported on the income statement whereas; a common contractual restriction is reported in the stockholders' equity section of the balance sheet.

True

    1. False

Learning Objective: 13-C3 Explain the items reported in retained earnings. Bloom's: Understand

AACSB: Communication AICPA: BB Legal; FN Reporting

  1. If the dividends account is not recorded as a reduction to Retained Earnings on the date of declaration, the dividends account is closed to Retained Earnings at the end of the accounting period.

True

    1. False

Learning Objective: 13-P2 Record transactions involving cash dividends, stock dividends, and stock splits. Bloom's: Remember

AACSB: Communication

AICPA: FN Reporting; BB Industry

  1. A company made an error in recording the Year 1 purchase of computer equipment as an expense. This was discovered in Year 2. The item should be reported as a prior period adjustment on the Year 2 income statement.

True

    1. False

Learning Objective: 13-C3 Explain the items reported in retained earnings. Bloom's: Understand

AACSB: Communication

AICPA: FN Reporting; BB Industry

Changes in accounting estimates are accounted for in current and future periods.

    1. True
    2. False

Learning Objective: 13-C3 Explain the items reported in retained earnings. Bloom's: Remember

AACSB: Communication

AICPA: FN Reporting; BB Industry

  1. Earnings per share is the amount of income earned per share of a company's outstanding (weighted-average) common stock.

True

    1. False

Learning Objective: 13-A1 Compute earnings per share and describe its use. Bloom's: Remember

AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Risk Analysis

  1. If a company has no preferred stock, basic earnings per share is equal to net income divided by the number of weighted average common shares outstanding.

True

    1. False

Learning Objective: 13-A1 Compute earnings per share and describe its use. Bloom's: Remember

AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Risk Analysis

  1. If a company has noncumulative preferred stock, basic earnings per share is equal to net income less preferred dividends declared divided by the number of weighted average common shares outstanding.

True

    1. False

Learning Objective: 13-A1 Compute earnings per share and describe its use. Bloom's: Remember

AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Risk Analysis

  1. Robin Company had net income of $67,000. The company had 9,000 weighted average common shares outstanding. The basic earnings per share equal $7.44 per share.

True

    1. False

Learning Objective: 13-A1 Compute earnings per share and describe its use. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Risk Analysis

  1. The price-earnings ratio reveals information about the stock market's expectations for a company's future earnings growth.

True

    1. False

Learning Objective: 13-A2 Compute price-earnings ratio and describe its use in analysis. Bloom's: Remember

AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Risk Analysis

Stocks with a price-earnings ratio less than 20 to 25 are likely to be overpriced.

    1. True
    2. False

Learning Objective: 13-A2 Compute price-earnings ratio and describe its use in analysis. Bloom's: Understand

AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Risk Analysis

The price-earnings ratio is computed by dividing earnings per share by the market price per share.

    1. True
    2. False

Learning Objective: 13-A2 Compute price-earnings ratio and describe its use in analysis. Bloom's: Understand

AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Risk Analysis

  1. A company has earnings per share of $6.50. Its dividend per share is $0.50, and its market price per share is $80. Its price-earnings ratio equals 13.

True

    1. False

Learning Objective: 13-A2 Compute price-earnings ratio and describe its use in analysis. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Risk Analysis

  1. Dividend yield shows the annual amount of cash dividends distributed to common shares relative to the stock's market price.

True

    1. False

Learning Objective: 13-A3 Compute dividend yield and explain its use in analysis. Bloom's: Remember

AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Risk Analysis

  1. Dividend yield is defined as the annual cash dividends per share divided by the market price per share of a company's stock.

True

    1. False

Learning Objective: 13-A3 Compute dividend yield and explain its use in analysis. Bloom's: Understand

AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Risk Analysis

Growth stocks generally pay large dividends on a regular basis.

    1. True
    2. False

Learning Objective: 13-A3 Compute dividend yield and explain its use in analysis. Bloom's: Understand

AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Risk Analysis

Dividend yield is computed by dividing earnings per share by the market value per share.

    1. True
    2. False

Learning Objective: 13-A3 Compute dividend yield and explain its use in analysis. Bloom's: Remember

AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Risk Analysis

  1. Book value per share reflects the value per share if a company is liquidated at balance sheet amounts.

True

    1. False

Learning Objective: 13-A4 Compute book value and explain its use in analysis. Bloom's: Remember

AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Risk Analysis

  1. The main limitation in using book value per share for stock valuation models is the potential difference between recorded value and market value for both assets and liabilities.

True

    1. False

Learning Objective: 13-A4 Compute book value and explain its use in analysis. Bloom's: Understand

AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Risk Analysis

  1. Dividing stockholders' equity applicable to common shares by the number of common shares outstanding yields the book value per common share.

True

    1. False

Learning Objective: 13-A4 Compute book value and explain its use in analysis. Bloom's: Remember

AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Risk Analysis

  1. If a corporation receives assets other than cash in exchange for stock, it records the assets received at their market value as of the date of the transaction.

True

    1. False

Learning Objective: 13-P1 Record the issuance of corporate stock. Bloom's: Remember

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

  1. A corporation may not legally give shares of its stock to promoters in exchange for their services in organizing the corporation.

True

    1. False

Learning Objective: 13-P1 Record the issuance of corporate stock. Bloom's: Remember

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

  1. When no-par stock is not assigned a stated value, the total amount received is recorded in the Common Stock account.

True

    1. False

Learning Objective: 13-P1 Record the issuance of corporate stock. Bloom's: Remember

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

The date of record is the date that directors vote to pay a cash dividend to shareholders.

    1. True
    2. False

Learning Objective: 13-P2 Record transactions involving cash dividends, stock dividends, and stock splits. Bloom's: Remember

AACSB: Communication

AICPA: FN Measurement; BB Industry

A debit balance in retained earnings is referred to as an accumulated deficit.

    1. True
    2. False

Learning Objective: 13-C3 Explain the items reported in retained earnings. Bloom's: Remember

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

The declaration of cash dividends increases retained earnings.

    1. True
    2. False

Learning Objective: 13-P2 Record transactions involving cash dividends, stock dividends, and stock splits. Bloom's: Remember

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

  1. The journal entry to record the declaration of dividends on common stock includes a debit to Retained Earnings and a credit to Common Dividend Payable.

True

    1. False

Learning Objective: 13-P2 Record transactions involving cash dividends, stock dividends, and stock splits. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

  1. A stock split is the distribution of additional shares of stock to stockholders according to their percent of ownership.

True

    1. False

Learning Objective: 13-P2 Record transactions involving cash dividends, stock dividends, and stock splits. Bloom's: Remember

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Resource Management

A stock dividend does not reduce a corporation's assets or its stockholders' equity.

    1. True
    2. False

Learning Objective: 13-P2 Record transactions involving cash dividends, stock dividends, and stock splits. Bloom's: Understand

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Resource Management

Large stock dividends are recorded at par or stated value.

    1. True
    2. False

Learning Objective: 13-P2 Record transactions involving cash dividends, stock dividends, and stock splits. Bloom's: Understand

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Resource Management

Common Stock Dividend Distributable is a liability account.

    1. True
    2. False

Learning Objective: 13-P2 Record transactions involving cash dividends, stock dividends, and stock splits. Bloom's: Understand

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Resource Management

Common Stock Dividend Distributable is an equity account.

    1. True
    2. False

Learning Objective: 13-P2 Record transactions involving cash dividends, stock dividends, and stock splits. Bloom's: Understand

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Resource Management

Small stock dividends are recorded at par or stated value.

    1. True
    2. False

Learning Objective: 13-P2 Record transactions involving cash dividends, stock dividends, and stock splits. Bloom's: Understand

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Resource Management

  1. A stock dividend is a distribution of corporate assets that returns part of the original investment to shareholders.

True

    1. False

Learning Objective: 13-P2 Record transactions involving cash dividends, stock dividends, and stock splits. Bloom's: Remember

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Resource Management

A reverse stock split increases the market value per share and the par value per share of stock.

    1. True
    2. False

Learning Objective: 13-P2 Record transactions involving cash dividends, stock dividends, and stock splits. Bloom's: Understand

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Resource Management

Declaration of a stock dividend results in a liability being recorded.

    1. True
    2. False

Learning Objective: 13-P2 Record transactions involving cash dividends, stock dividends, and stock splits. Bloom's: Remember

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Resource Management

A stock split increases total stockholders' equity.

    1. True
    2. False

Learning Objective: 13-P2 Record transactions involving cash dividends, stock dividends, and stock splits. Bloom's: Remember

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Resource Management

  1. A large stock dividend only occurs when a distribution of more than 50% of previously outstanding shares is issued.

True

    1. False

Learning Objective: 13-P2 Record transactions involving cash dividends, stock dividends, and stock splits. Bloom's: Remember

AACSB: Analytical Thinking

AICPA: BB Industry; BB Resource Management

A stock dividend decreases the market price of the company's stock.

    1. True
    2. False

Learning Objective: 13-P2 Record transactions involving cash dividends, stock dividends, and stock splits. Bloom's: Remember

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Resource Management

  1. A stock dividend, declared by a corporations's directors, is a distribution of additional shares of the corporation's own stock to its stockholders without the receipt of any payment in return.

True

    1. False

Learning Objective: 13-P2 Record transactions involving cash dividends, stock dividends, and stock splits. Bloom's: Remember

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Resource Management

  1. All stock dividends are recorded at par value so there would never be a credit to the paid-in capital in excess of par value account.

True

    1. False

Learning Objective: 13-P2 Record transactions involving cash dividends, stock dividends, and stock splits. Bloom's: Understand

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Resource Management

Paid and declared preferred dividends are called dividends in arrears.

    1. True
    2. False

Learning Objective: 13-C2 Explain characteristics of, and distribute dividends between, common and preferred stock. Bloom's: Remember

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

  1. Cumulative preferred stock has a right to be paid both current and prior periods' unpaid dividends before any dividend is paid to common shareholders.

True

    1. False

Learning Objective: 13-C2 Explain characteristics of, and distribute dividends between, common and preferred stock. Bloom's: Remember

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

A liability for a dividend does not exist until the directors declare a dividend.

    1. True
    2. False

Learning Objective: 13-P1 Record the issuance of corporate stock. Bloom's: Remember

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

  1. Participating preferred stock has a feature that allows its holders to share with common shareholders in any dividends paid in excess of the percent or dollar amount stated on the preferred stock.

True

    1. False

Learning Objective: 13-C2 Explain characteristics of, and distribute dividends between, common and preferred stock. Bloom's: Understand

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

  1. Corporations issue preferred stock to raise capital without sacrificing control of the corporation and/or to boost the return earned by common shareholders.

True

    1. False

Learning Objective: 13-C1 Identify characteristics of corporations and their organization. Bloom's: Understand

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Resource Management

Treasury stock is stock that has been authorized, issued, and is outstanding.

    1. True
    2. False

Learning Objective: 13-P3 Record purchases and sales of treasury stock. Bloom's: Understand

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

  1. Purchasing treasury stock reduces the corporation's assets and stockholders' equity by unequal amounts.

True

    1. False

Learning Objective: 13-P3 Record purchases and sales of treasury stock. Bloom's: Remember

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

The Paid-in Capital, Treasury Stock account can never have a debit balance.

    1. True
    2. False

Learning Objective: 13-P3 Record purchases and sales of treasury stock. Bloom's: Remember

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

The Paid-in Capital, Treasury Stock account can have a zero or credit balance.

    1. True
    2. False

Learning Objective: 13-P3 Record purchases and sales of treasury stock. Bloom's: Remember

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

  1. If a company resells treasury stock below the acquisition cost, a loss from the sale of treasury stock is recorded.

True

    1. False

Learning Objective: 13-P3 Record purchases and sales of treasury stock. Bloom's: Understand

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

  1. The costs of bringing a corporation into existence, including legal fees, promoter fees, and amounts paid to obtain a charter are called:

Minimum legal capital.

    1. Selling expenses.
    2. Prepaid fees.
    3. Organization expenses.
    4. Stock subscriptions.

Learning Objective: 13-C1 Identify characteristics of corporations and their organization. Bloom's: Remember

AACSB: Communication

AICPA: BB Legal; FN Measurement

  1. The right of common shareholders to purchase their proportional share of any common stock later issued by the corporation is called a:

Right to call.

    1. Proxy right.
    2. Voting right.
    3. Preemptive right.
    4. Financial leverage.

Learning Objective: 13-C1 Identify characteristics of corporations and their organization. Bloom's: Remember

AACSB: Communication

AICPA: BB Legal; FN Measurement

A proxy is:

    1. A contractual commitment by an investor to purchase unissued shares of stock.
    2. An arbitrary amount assigned to no-par stock by the corporation's board of directors.
    3. A document that delegates a stockholder's voting rights to an agent.
    4. An amount of assets defined by state law that stockholders must invest and leave invested in a corporation.
    5. The right of common stockholders to protect their proportionate interests in a corporation by having the first opportunity to purchase additional shares of common stock issued by the corporation.

Learning Objective: 13-C1 Identify characteristics of corporations and their organization. Bloom's: Remember

AACSB: Communication

AICPA: BB Legal; FN Decision Making

The board of directors of a corporation:

    1. Do not have the power to bind the corporation to contracts, due to lack of mutual agency.
    2. Are elected by the corporate registrar.
    3. Are responsible for and have final authority for managing corporate activities.
    4. Are responsible for day-to-day operations of the business.
    5. May not also be executive officers of the corporation, due to the separate entity principle.

Learning Objective: 13-C1 Identify characteristics of corporations and their organization. Bloom's: Remember

AACSB: Communication

AICPA: BB Legal; FN Decision Making

The number of shares that a corporation's charter allows it to sell is referred to as:

    1. Preferred stock.
    2. Common stock.
    3. Authorized stock.
    4. Outstanding stock.
    5. Issued stock.

Learning Objective: 13-C1 Identify characteristics of corporations and their organization. Bloom's: Remember

AACSB: Communication

AICPA: BB Legal; FN Decision Making

Par value of a stock refers to the:

    1. Market value of the stock on the date of the financial statements.
    2. Issue price of the stock.
    3. Dividend value of the stock.
    4. Maximum selling price of the stock.
    5. Value assigned per share by the corporate charter.

Learning Objective: 13-C1 Identify characteristics of corporations and their organization. Bloom's: Remember

AACSB: Communication

AICPA: BB Legal; FN Measurement

When a corporation has only one class of stock, the stock is called:

    1. Preferred stock.
    2. No-par value stock.
    3. Common stock.
    4. Stated value stock.
    5. Par value stock.

Learning Objective: 13-C1 Identify characteristics of corporations and their organization. Bloom's: Remember

AACSB: Communication

AICPA: BB Legal; FN Decision Making

  1. In many states, the minimum amount that stockholders must contribute to the corporation, and which is intended to protect the creditors of the corporation, is called the:

Minimum legal capital.

    1. Par value of preferred.
    2. Stated value.
    3. Premium capital.
    4. Working capital.

Learning Objective: 13-C1 Identify characteristics of corporations and their organization. Bloom's: Remember

AACSB: Communication

AICPA: BB Legal; FN Measurement

  1. The total amount of cash and other assets received by a corporation from its stockholders in exchange for its stock is:

Always equal to its stated value.

    1. Referred to as retained earnings.
    2. Always equal to its par value.
    3. Referred to as paid-in capital.
    4. Always below its stated value.

Learning Objective: 13-C1 Identify characteristics of corporations and their organization. Bloom's: Remember

AACSB: Communication

AICPA: FN Measurement; BB Industry

Stated value of no-par stock is:

    1. The difference between the par value of stock and the amount below or above par value paid-in by the stockholder.

An amount assigned to no-par stock by the corporation's board of directors.

    1. The market value of the stock on the date of issuance.
    2. An amount assigned to par value stock by the state of incorporation.
    3. Another name for redemption value.

Learning Objective: 13-C1 Identify characteristics of corporations and their organization. Bloom's: Remember

AACSB: Communication

AICPA: BB Legal; FN Measurement

Stockholders' equity consists of which of the following?

    1. Long-term assets.
    2. Paid-in capital and retained earnings.
    3. Premiums and discounts.
    4. Paid-in capital and par value.
    5. Retained earnings and cash.

Learning Objective: 13-C1 Identify characteristics of corporations and their organization. Bloom's: Remember

AACSB: Communication

AICPA: FN Measurement; BB Industry

  1. A class of stock that can usually be issued at any price without creating a minimum legal capital deficiency is called:

No-par stock.

    1. Discounted stock.
    2. Convertible stock.
    3. Noncumulative stock.
    4. Callable stock.

Learning Objective: 13-C1 Identify characteristics of corporations and their organization. Bloom's: Remember

AACSB: Communication

AICPA: FN Measurement; BB Industry

  1. A corporation's minimum legal capital is established by recording the par or stated value of the number of shares:

Authorized.

    1. Subscribed.
    2. Outstanding.
    3. Issued.
    4. In treasury.

Learning Objective: 13-C1 Identify characteristics of corporations and their organization. Bloom's: Understand

AACSB: Communication

AICPA: BB Legal; FN Measurement

Retained earnings:

    1. Generally consists of a company's cumulative net income less any net losses and dividends declared since its inception.

Represents the amount shareholders are guaranteed to receive upon company liquidation.

    1. Represent an amount of cash available to pay shareholders.
    2. Are never adjusted for anything other than net income or dividends.
    3. Can only be appropriated by setting aside a cash fund.

Learning Objective: 13-C3 Explain the items reported in retained earnings. Bloom's: Remember

AACSB: Communication

AICPA: FN Measurement; BB Industry

Prior period adjustments to financial statements can result from:

    1. Unacceptable accounting practices.
    2. Changes in accounting estimates.
    3. Discontinued operations.
    4. Extraordinary items.
    5. Changes in tax law.

Learning Objective: 13-C3 Explain the items reported in retained earnings. Bloom's: Remember

AACSB: Communication

AICPA: FN Reporting; BB Industry

Prior period adjustments are reported in the:

    1. Statement of retained earnings.
    2. Multiple-step income statement.
    3. Balance sheet.
    4. Single-step income statement.
    5. Statement of cash flows.

Learning Objective: 13-C3 Explain the items reported in retained earnings. Bloom's: Remember

AACSB: Communication

AICPA: FN Reporting; BB Industry

Changes in accounting estimates are:

    1. Accounted for with a cumulative "catch-up" adjustment.
    2. Accounted for in current and future periods.
    3. Considered accounting errors.
    4. Extraordinary items.
    5. Reported as prior period adjustments.

Learning Objective: 13-C3 Explain the items reported in retained earnings. Bloom's: Remember

AACSB: Communication

AICPA: FN Reporting; BB Industry

  1. A company had a beginning balance in retained earnings of $430,000. It had net income of $60,000 and paid out cash dividends of $56,250 in the current period. The ending balance in retained earnings equals:

A) $490,000. B) $116,250. C) $433,750. D) $546,250. E) $426,250.

Learning Objective: 13-C3 Explain the items reported in retained earnings. Bloom's: Apply

AACSB: Communication

AICPA: FN Measurement; BB Industry

  1. A company had a beginning balance in retained earnings of $400,000. It had net income of $50,000 and paid out cash dividends of $55,000 in the current period. The ending balance in retained earnings equals:

A) $505,000. B) $350,000. C) $395,000. D) $455,000. E) $405,000.

Learning Objective: 13-C3 Explain the items reported in retained earnings. Bloom's: Apply

AACSB: Communication

AICPA: FN Measurement; BB Industry

Companies report prior period adjustments, net of any income tax effects in the:

    1. Statement of cash flows.
    2. No disclosure is required.
    3. Income statement.
    4. Balance sheet.
    5. Statement of retained earnings.

Learning Objective: 13-C3 Explain the items reported in retained earnings. Bloom's: Remember

AACSB: Communication

AICPA: FN Reporting; BB Industry

Changes in retained earnings are commonly reported in the:

    1. Single-step income statement.
    2. Statement of stockholders' equity.
    3. Balance sheet.
    4. Multiple-step income statement.
    5. Statement of cash flows.

Learning Objective: 13-C3 Explain the items reported in retained earnings. Bloom's: Remember

AACSB: Communication

AICPA: FN Reporting; BB Industry

  1. A company made an error in calculating and reporting amortization expense in Year 1. The error was discovered in Year 2. The item should be reported as a prior period adjustment:

on the Year 2 income statement.

    1. on the Year 1 statement of retained earnings.
    2. on the Year 1 income statement.
    3. accounted for with a cumulative "catch-up" adjustment in Year 2.
    4. on the Year 2 statement of retained earnings.

Learning Objective: 13-C3 Explain the items reported in retained earnings. Bloom's: Understand

AACSB: Communication

AICPA: FN Reporting; BB Industry

The statement of changes in stockholders' equity:

    1. Describes changes in paid-in capital and retained earnings subcategories.
    2. Does not include changes in treasury stock.
    3. Is reported by very few companies.
    4. Is part of the statement of retained earnings.
    5. Shows only the ending balances in stockholders' equity.

Learning Objective: 13-C3 Explain the items reported in retained earnings. Bloom's: Understand

AACSB: Communication

AICPA: FN Reporting; BB Industry

The amount of income earned per share of a company's outstanding common stock is known as:

    1. Continuing operations per share.
    2. Earnings per share.
    3. Dividends per share.
    4. Restricted retained earnings per share.
    5. Book value per share.

Learning Objective: 13-A1 Compute earnings per share and describe its use. Bloom's: Remember

AACSB: Communication

AICPA: FN Measurement; BB Industry; FN Risk Analysis

  1. Mayan Company had net income of $132,000. The weighted-average common shares outstanding were 80,000. The company has no preferred stock. The company sold 3,000 shares before the end of the year. There were no other stock transactions. The company's earnings per share is:

A) $44.00. B) $26.67. C) $1.71. D) $1.59. E) $1.65.

Learning Objective: 13-A1 Compute earnings per share and describe its use. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry; FN Risk Analysis

  1. Mayan Company had net income of $132,000. The weighted-average common shares outstanding were 80,000. The company declared a $27,000 dividend on its noncumulative, nonparticipating preferred stock. There were no other stock transactions. The company's earnings per share is:

A) $4.89. B) $1.31. C) $1.65. D) $1.99. E) $0.34.

Learning Objective: 13-A1 Compute earnings per share and describe its use. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry; FN Risk Analysis

The price-earnings ratio is calculated by dividing:

    1. Dividends per share by market value per share.
    2. Market value per share by earnings per share.
    3. Dividends per share by earnings per share.
    4. Earnings per share by market value per share.
    5. Market value per share by dividends per share.

Learning Objective: 13-A2 Compute price-earnings ratio and describe its use in analysis. Bloom's: Remember

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry; FN Risk Analysis

  1. A company has net income of $90,000; its weighted-average common shares outstanding are 18,000. Its dividend per share is $0.45, its market price per share is $88, and its book value per share is $76. Its price-earnings ratio equals:

A) 12.5. B) 17.6. C) 15.2. D) 9.0. E) 16.9.

Learning Objective: 13-A2 Compute price-earnings ratio and describe its use in analysis. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry; FN Risk Analysis

  1. A company has earnings per share of $9.60. Its dividend per share is $0.50, its market price per share is $110, and its book value per share is $96. Its price-earnings ratio equals:

A) 19.2. B) 10.0. C) 1.15. D) 11.46. E) 0.87.

Learning Objective: 13-A2 Compute price-earnings ratio and describe its use in analysis. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry; FN Risk Analysis

  1. The amount of annual cash dividends distributed to common shareholders relative to the common stock's market value is the:

Current yield.

    1. Earnings per share.
    2. Dividend yield.
    3. Dividend payout ratio.
    4. Price-earnings ratio.

Learning Objective: 13-A3 Compute dividend yield and explain its use in analysis. Bloom's: Remember

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry; FN Risk Analysis

The dividend yield is computed by dividing:

    1. Market price per share by cash dividends per share.
    2. Annual cash dividends per share by the market value per share.
    3. Annual cash dividends per share by earnings per share.
    4. Earnings per share by cash dividends per share.
    5. Cash dividends per share by retained earnings.

Learning Objective: 13-A3 Compute dividend yield and explain its use in analysis. Bloom's: Remember

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry; FN Risk Analysis

Stocks that pay relatively large cash dividends on a regular basis are called:

    1. Large capital stocks.
    2. Small capital stocks.
    3. Mid capital stocks.
    4. Income stocks.
    5. Growth stocks.

Learning Objective: 13-A3 Compute dividend yield and explain its use in analysis. Bloom's: Remember

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry; FN Risk Analysis

Dividend yield is the percent of cash dividends paid to common shareholders relative to the:

    1. Investors' purchase price of the stock.
    2. Earnings per share.
    3. Amount of cash.
    4. Common stock's market value.
    5. Amount of retained earnings.

Learning Objective: 13-A3 Compute dividend yield and explain its use in analysis. Bloom's: Remember

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

  1. A company paid $0.48 in cash dividends per share. Its earnings per share is $3.20 and its market price per share is $20.00. Its dividend yield equals:

A) 6.4%. B) 6.25%. C) 15.00%. D) 6.67%. E) 2.4%.

Learning Objective: 13-A3 Compute dividend yield and explain its use in analysis. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry; FN Risk Analysis

  1. A company paid $0.85 in cash dividends per share. Its earnings per share is $3.50, and its market price per share is $35.50. Its dividend yield equals:

A) 21.4%. B) 2.4%. C) 9.9%. D) 24.2%. E) 2.0%.

Learning Objective: 13-A3 Compute dividend yield and explain its use in analysis. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry; FN Risk Analysis

Book value per share:

    1. Measures the worth of assets.
    2. Is assets divided by the number of common shares outstanding.
    3. Is equal to par value per share.
    4. Reflects the value per share if a company is liquidated at balance sheet amounts.
    5. Is assets divided by equity.

Learning Objective: 13-A4 Compute book value and explain its use in analysis. Bloom's: Remember

AACSB: Communication

AICPA: FN Measurement; BB Industry; FN Risk Analysis

Book value per common share is computed by:

    1. Dividing the number of common shares outstanding by stockholders' equity applicable to common shares.

Dividing total assets by the number of shares outstanding.

    1. Dividing stockholders' equity applicable to common shares by the number of common shares outstanding.
    2. Multiplying the number of common shares outstanding times the market price per common share.

Multiplying the number of common shares outstanding by par value per share.

Learning Objective: 13-A4 Compute book value and explain its use in analysis. Bloom's: Remember

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry; FN Risk Analysis

  1. A company has 50,000 shares of common stock outstanding. The stockholders' equity applicable to common shares is $1,470,000, and the par value per common share is $5. The book value per share is:

A) $4.75. B) $47.50. C) $10.00. D) $29.40. E) $14.70.

Learning Objective: 13-A4 Compute book value and explain its use in analysis. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

  1. Wiggins Company has 1,000 shares of $10 par preferred stock, which were issued at par. It also has 25,000 shares of common stock outstanding, and its total stockholders' equity equals $500,000. The book value per common share is:

A) $19.60. B) $10.00. C) $16.00. D) $20.00. E) $19.96.

Learning Objective: 13-A4 Compute book value and explain its use in analysis. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry; FN Risk Analysis

  1. Djarleen Company has 10,000 shares of $10 par preferred stock, which were issued at par. It also has 250,000 shares of common stock outstanding, and its total stockholders' equity equals

$4,000,000. The book value per common share is:

A) $10.00. B) $40.00. C) $15.60. D) $16.67. E) $16.00.

Learning Objective: 13-A4 Compute book value and explain its use in analysis. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry; FN Risk Analysis

  1. A company has 500 shares of $50 par value preferred stock outstanding, and the call price of its preferred stock is $60 per share. It also has 20,000 shares of common stock outstanding, and the total value of its stockholders' equity is $680,000. The company's book value per common share equals:

A) $31.71. B) $33.17. C) $32.50. D) $60.00. E) $32.75.

Learning Objective: 13-A4 Compute book value and explain its use in analysis. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry; FN Risk Analysis

The Discount on Common Stock account reflects:

    1. An amount of assets defined by state law that stockholders must invest and leave invested in a corporation.

One share's portion of the issued corporation's net assets recorded in its accounts.

    1. The difference between the par value of the stock and the amount paid-in by stockholders when the amount paid-in is more than par value.
    2. The difference between the par value of stock and its issue price when it is issued at a price below par value.
    3. The amount a corporation must pay in addition to dividends in arrears if and when it exercises its right to retire a share of callable preferred stock.

Learning Objective: 13-P1 Record the issuance of corporate stock. Bloom's: Understand

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

  1. Percy Corporation was formed on January 1. The corporate charter authorized 100,000 shares of

$10 par value common stock. During the first month of operation, the corporation issued 400 shares to its attorneys in payment of a $5,000 charge for drawing up the articles of incorporation. The entry to record this transaction would include:

A debit to Organization Expenses for $5,000.

    1. A debit to Paid-in Capital in Excess of Par Value, Common Stock for $2,000.
    2. A credit to Paid-in Capital in Excess of Par Value, Common Stock for $5,000.
    3. A debit to Organization Expenses for $4,000.
    4. A credit to Common Stock for $5,000.

Learning Objective: 13-P1 Record the issuance of corporate stock. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

  1. A corporation sold 14,000 shares of its $1 par value common stock at a cash price of $13 per share. The entry to record this transaction would include:

A debit to Paid-in Capital in Excess of Par Value, Common Stock for $182,000.

    1. A credit to Paid-in Capital in Excess of Par Value, Common Stock for $196,000.
    2. A debit to Cash for $14,000.
    3. A credit to Common Stock for $14,000.
    4. A credit to Common Stock for $182,000.

Learning Objective: 13-P1 Record the issuance of corporate stock. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

  1. Comfort Mattresses, Inc. sold 26,000 shares of its $1 par value common stock at a cash price of

$12 per share. The entry to record this transaction would be:

Debit Cash $312,000; credit Stock Liability $286,000; credit Common Stock $26,000.

    1. Debit Common Stock $26,000; credit Cash $26,000.
    2. Debit Cash $312,000; credit Common Stock $26,000; credit Paid-in Capital in Excess of Par Value, Common Stock $286,000.
    3. Debit Common Stock $26,000; debit Paid-in Capital in Excess of Par Value, Common Stock

$286,000; credit Cash $312,000.

Debit Cash for $312,000; credit Common Stock $312,000.

Learning Objective: 13-P1 Record the issuance of corporate stock. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

  1. A corporation issued 6,000 shares of its $2 par value common stock in exchange for land that has a market value of $84,000. The entry to record this transaction would include:

A credit to Paid-in Capital in Excess of Par Value, Common Stock for $72,000.

    1. A credit to Common Stock for $84,000.
    2. A debit to Common Stock for $12,000.
    3. A debit to Land for $12,000.
    4. A credit to Land for $12,000.

Learning Objective: 13-P1 Record the issuance of corporate stock. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

  1. A corporation issued 100 shares of its $5 par value common stock in payment of a $1,800 charge from its accountant for assistance in filing its charter with the state. The entry to record this transaction will include:

A $1,800 credit to Common Stock.

    1. A $1,800 debit to Legal Expenses.
    2. A $1,800 credit to Cash.
    3. A $1,300 credit to Paid-in Capital in Excess of Par Value, Common Stock.
    4. A $300 debit to Organization Expenses.

Learning Objective: 13-P1 Record the issuance of corporate stock. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

  1. A company issued 60 shares of $100 par value common stock for $7,000 cash. The total amount of paid-in capital is:

A) $600. B) $100. C) $6,000. D) $7,000. E) $1,000.

Learning Objective: 13-P1 Record the issuance of corporate stock. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

  1. A company issued 60 shares of $100 par value common stock for $7,000 cash. The journal entry to record the issuance is:
    1. Debit Cash $7,000; credit Common Stock $6,000; credit Paid-in Capital in Excess of Par Value, Common Stock $1,000.

Debit Cash $7,000; credit Common Stock $7,000.

    1. Debit Cash $7,000; credit Paid-in Capital in Excess of Par Value, Common Stock $6,000, credit Common Stock $1,000.

Debit Investment in Common Stock $7,000; credit Cash $7,000.

    1. Debit Common Stock $6,000, debit Investment in Common Stock $1,000; credit Cash

$7,000.

Learning Objective: 13-P1 Record the issuance of corporate stock. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

  1. A company issued 70 shares of $30 par value preferred stock for $4,000 cash. The journal entry to record the issuance is:

Debit Cash $4,000; credit Preferred Stock $4,000.

    1. Debit Cash $2,100; credit Preferred Stock $2,100.
    2. Debit Preferred Stock $2,100, debit Investment in Preferred Stock $1,900; credit Cash

$4,000.

    1. Debit Cash $4,000; credit Paid-in Capital in Excess of Par Value, Preferred Stock $1,900, credit Preferred Stock $2,100.

Debit Investment in Preferred Stock $2,100; credit Cash $2,100.

Learning Objective: 13-C2 Explain characteristics of, and distribute dividends between, common and preferred stock. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

  1. A company issued 60 shares of $100 par value common stock for $7,000 cash. The total amount of paid-in capital in excess of par is:

A) $600. B) $7,000. C) $100. D) $6,000. E) $1,000.

Learning Objective: 13-P1 Record the issuance of corporate stock. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

  1. A corporation issued 5,000 shares of $10 par value common stock in exchange for some land with a market value of $70,000. The entry to record this exchange is:

Debit Land $50,000; credit Common Stock $50,000.

    1. Debit Common Stock $50,000; debit Paid-In Capital in Excess of Par Value, Common Stock

$20,000; credit Land $70,000.

Debit Common Stock $70,000; credit Land $70,000.

    1. Debit Land $70,000; credit Common Stock $50,000; credit Paid-In Capital in Excess of Par Value, Common Stock $20,000.

Debit Land $70,000; credit Common Stock $70,000.

Learning Objective: 13-P1 Record the issuance of corporate stock. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

A premium on common stock:

    1. Represents profit from issuing stock.
    2. Is prohibited in most states.
    3. Occurs when a corporation sells its stock for more than par or stated value.
    4. Represents capital gain on sale of stock.
    5. Is the difference between par value and issue price when the amount paid is below par.

Learning Objective: 13-P1 Record the issuance of corporate stock. Bloom's: Understand

AACSB: Communication

AICPA: FN Measurement; BB Industry

The date the directors vote to declare and pay a dividend is called the:

    1. Date of declaration.
    2. Date of payment.
    3. Date of stockholders' meeting.
    4. Date of record.
    5. Liquidating date.

Learning Objective: 13-P2 Record transactions involving cash dividends, stock dividends, and stock splits. Bloom's: Remember

AACSB: Communication

AICPA: FN Decision Making; BB Industry

A liquidating dividend is:

    1. Only declared when a corporation closes down.
    2. A return of a portion of the original investment back to the stockholders.
    3. Only paid in shares of stock.
    4. Only paid in assets other than cash.
    5. Not allowed under federal law.

Learning Objective: 13-P2 Record transactions involving cash dividends, stock dividends, and stock splits. Bloom's: Remember

AACSB: Communication

AICPA: FN Decision Making; BB Industry

A liability for dividends exists:

    1. On the date of payment.
    2. When cumulative preferred stock is sold.
    3. On the date of record.
    4. For dividends in arrears on cumulative preferred stock.
    5. On the date of declaration.

Learning Objective: 13-P2 Record transactions involving cash dividends, stock dividends, and stock splits. Bloom's: Understand

AACSB: Communication

AICPA: FN Decision Making; BB Industry

  1. A company's board of directors votes to declare a cash dividend of $.75 per share of common stock. The company has 15,000 shares authorized, 10,000 issued, and 9,500 shares outstanding. The total amount of the cash dividend is:

A) $7,500. B) $11,250. C) $14,625. D) $10,250. E) $7,125.

Learning Objective: 13-P2 Record transactions involving cash dividends, stock dividends, and stock splits. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

  1. A corporation with $10 par common stock issues a small stock dividend. The capitalization of retained earnings is equal to:

The par value of the shares outstanding.

    1. The par value of the shares to be distributed.
    2. There is no capitalization of retained earnings in the case of a small stock dividend.
    3. The market value of the shares outstanding.
    4. The market value of the shares to be distributed.

Learning Objective: 13-P2 Record transactions involving cash dividends, stock dividends, and stock splits. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

  1. A corporation with $10 par common stock issues a large stock dividend. The capitalization of retained earnings is equal to:

The par value of the shares to be distributed.

    1. There is no capitalization of retained earnings in the case of a large stock dividend.
    2. The market value of the shares outstanding.
    3. The market value of the shares to be distributed.
    4. The par value of the shares outstanding.

Learning Objective: 13-P2 Record transactions involving cash dividends, stock dividends, and stock splits. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

  1. A company's board of directors votes to declare a cash dividend of $1.00 per share on its 12,000 common shares outstanding. The journal entry to record the declaration of the cash dividend is:

Debit Dividend Expense $12,000; credit Common Dividend Payable $12,000.

    1. Debit Dividend Expense $12,000; credit Cash $12,000.
    2. Debit Retained Earnings $12,000; credit Common Dividend Payable $12,000.
    3. Debit Common Dividend Payable $12,000; credit Retained Earnings $12,000.
    4. Debit Common Dividend Payable $12,000; credit Cash $12,000.

Learning Objective: 13-P2 Record transactions involving cash dividends, stock dividends, and stock splits. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

  1. A company's board of directors votes to declare a cash dividend of $1.00 per share on its 12,000 common shares outstanding. The journal entry to record the payment of the cash dividend is:

Debit Common Dividend Payable $12,000; credit Retained Earnings $12,000.

    1. Debit Dividend Expense $12,000; credit Cash $12,000.
    2. Debit Retained Earnings $12,000; credit Common Dividend Payable $12,000.
    3. Debit Common Dividend Payable $12,000; credit Cash $12,000.
    4. Debit Dividend Expense $12,000; credit Common Dividend Payable $12,000.

Learning Objective: 13-P2 Record transactions involving cash dividends, stock dividends, and stock splits. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

  1. Hutter Corporation declared a $0.50 per share cash dividend on its common shares. The company has 20,000 shares authorized, 9,000 shares issued, and 8,000 shares of common stock outstanding. The journal entry to record the dividend declaration is:

Debit Retained Earnings $4,000; credit Common Dividends Payable $4,000.

    1. Debit Common Dividends Payable $4,000; credit Cash $4,000.
    2. Debit Retained Earnings $10,000; credit Common Dividends Payable $10,000.
    3. Debit Retained Earnings $4,500; credit Common Dividends Payable $4,500.
    4. Debit Common Dividends Payable $4,500; credit Cash $4,500.

Learning Objective: 13-P2 Record transactions involving cash dividends, stock dividends, and stock splits. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

  1. Hutter Corporation declared a $0.50 per share cash dividend on its common shares. The company has 20,000 shares authorized, 9,000 shares issued, and 8,000 shares of common stock outstanding. The journal entry to record the dividend payment is:

Debit Common Dividends Payable $4,000; credit Cash $4,000.

    1. Debit Common Dividends Payable $4,500; credit Cash $4,500.
    2. Debit Retained Earnings $4,000; credit Common Dividends Payable $4,000.
    3. Debit Retained Earnings $4,500; credit Common Dividends Payable $4,500.
    4. Debit Retained Earnings $10,000; credit Common Dividends Payable $10,000.

Learning Objective: 13-P2 Record transactions involving cash dividends, stock dividends, and stock splits. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

  1. A corporation's distribution of additional shares of its own stock to its stockholders without the receipt of any payment in return is called a:

Discount on stock.

    1. Premium on stock.
    2. Treasury stock.
    3. Stock dividend.
    4. Stock subscription.

Learning Objective: 13-P2 Record transactions involving cash dividends, stock dividends, and stock splits. Bloom's: Remember

AACSB: Communication

AICPA: FN Decision Making; BB Industry

Which of the following is true of a stock dividend?

    1. Transfers a portion of equity from retained earnings to a cash reserve account.
    2. The decision to declare a stock dividend resides with the shareholders.
    3. Reduces a corporation's assets and stockholders' equity.
    4. It is a liability on the balance sheet.
    5. Does not affect total equity, but transfer amounts between the components of equity.

Learning Objective: 13-P2 Record transactions involving cash dividends, stock dividends, and stock splits. Bloom's: Understand

AACSB: Communication

AICPA: FN Decision Making; BB Industry

  1. On September 1, Ziegler Corporation had 50,000 shares of $5 par value common stock, and

$1,500,000 of retained earnings. On that date, when the market price of the stock is $15 per share, the corporation issues a 2-for-1 stock split. The general journal entry to record this transaction is:

Debit Retained Earnings $250,000; credit Common Stock $250,000.

    1. No entry is made for this transaction.
    2. Debit Retained Earnings $750,000; credit Common Stock $750,000.
    3. Debit Retained Earnings $750,000; credit Common Stock Split Distributable $750,000.
    4. Debit Retained Earnings $250,000; credit Stock Split Payable $250,000.

Learning Objective: 13-P2 Record transactions involving cash dividends, stock dividends, and stock splits. Bloom's: Understand

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

All of the following statements regarding stock dividends are true except:

    1. Stock dividends transfer a portion of equity from retained earnings to contributed capital.
    2. Directors can use stock dividends to keep the market price of the stock affordable.
    3. Stock dividends provide evidence of management's confidence that the company is doing well.

Stock dividends do not reduce assets or equity.

    1. Stock dividends decrease the number of shares outstanding.

Learning Objective: 13-P2 Record transactions involving cash dividends, stock dividends, and stock splits. Bloom's: Understand

AACSB: Communication

AICPA: BB Industry; FN Risk Analysis

A stock dividend is recorded with a transfer from:

    1. Contributed capital to assets.
    2. Assets to contributed capital.
    3. Contributed capital to retained earnings.
    4. Retained earnings to assets.
    5. Retained earnings to paid-in capital.

Learning Objective: 13-P2 Record transactions involving cash dividends, stock dividends, and stock splits. Bloom's: Remember

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

  1. A corporation declared and issued a 15% stock dividend on October 1. The following information was available immediately prior to the dividend:

Retained earnings $ 750,00

0

Shares issued and outstanding 60,000

Market value per share $ 15

Par value per share $ 5

The amount that contributed capital will increase (decrease) as a result of recording this stock dividend is:

A) $(135,000). B) $135,000. C) $(45,000). D) $45,000.

E) $0.

Learning Objective: 13-P2 Record transactions involving cash dividends, stock dividends, and stock splits. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

  1. Global Corporation had 50,000 shares of $20 par value common stock outstanding on July 1. Later that day the board of directors declared a 10% stock dividend when the market value of each share was $27. The entry to record the dividend declaration is:

No entry is made until the stock is issued.

    1. Debit Retained Earnings $135,000; credit Common Stock Dividend Distributable $135,000.
    2. Debit Retained Earnings $135,000; credit Cash $135,000.
    3. Debit Retained Earnings $100,000; credit Common Stock Dividend Distributable $100,000.
    4. Debit Retained Earnings $135,000; credit Common Stock Dividend Distributable $100,000; credit Paid-In Capital in Excess of Par Value, Common Stock $35,000.

Learning Objective: 13-P2 Record transactions involving cash dividends, stock dividends, and stock splits. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

  1. Eastline Corporation had 10,000 shares of $10 par value common stock outstanding when the board of directors declared a stock dividend of 3,000 shares. At the time of the stock dividend, the market value per share was $12. The entry to record this dividend is:

Debit Common Stock Dividend Distributable $36,000; credit Retained Earnings $36,000.

    1. Debit Retained Earnings $36,000; credit Common Stock Dividend Distributable $36,000.
    2. Debit Retained Earnings $30,000; credit Common Stock Dividend Distributable $30,000.
    3. No entry is needed.
    4. Debit Retained Earnings $36,000; credit Common Stock Dividend Distributable $30,000; credit Paid-In Capital in Excess of Par Value, Common Stock $6,000.

Learning Objective: 13-P2 Record transactions involving cash dividends, stock dividends, and stock splits. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

  1. Preferred stock which confers rights to prior periods' unpaid dividends even if they were not declared is called:

Noncumulative preferred stock.

    1. Participating preferred stock.
    2. Cumulative preferred stock.
    3. Convertible preferred stock.
    4. Callable preferred stock.

Learning Objective: 13-C2 Explain characteristics of, and distribute dividends between, common and preferred stock. Bloom's: Remember

AACSB: Communication

AICPA: FN Decision Making; BB Industry

  1. Preferred stock that allows preferred stockholders to share with common stockholders any dividends paid in excess of the percent or dollar amount stated on the preferred stock is called:

Convertible preferred stock.

    1. Participating preferred stock.
    2. Cumulative preferred stock.
    3. Common stock.
    4. Premium stock.

Learning Objective: 13-C2 Explain characteristics of, and distribute dividends between, common and preferred stock. Bloom's: Remember

AACSB: Communication

AICPA: FN Decision Making; BB Industry

  1. Achieving an increased return on common stock by paying dividends on preferred stock at a rate that is less than the rate of return earned with the assets invested from the preferred stock issuance is called:

Premium on stock.

    1. Capital gain.
    2. Discount on stock.
    3. Preemptive right.
    4. Financial leverage.

Learning Objective: 13-C2 Explain characteristics of, and distribute dividends between, common and preferred stock. Bloom's: Understand

AACSB: Analytical Thinking

AICPA: FN Decision Making; BB Industry

  1. Preferred stock with a feature allowing preferred stockholders to share with common shareholders in any dividends in excess of the percent or dollar amount stated on the preferred stock is called:

Convertible preferred stock.

    1. Preferential preferred stock.
    2. Callable preferred stock.
    3. Participating preferred stock.
    4. Cumulative preferred stock.

Learning Objective: 13-C2 Explain characteristics of, and distribute dividends between, common and preferred stock. Bloom's: Remember

AACSB: Communication

AICPA: FN Decision Making; BB Industry

  1. Ultimate Sportswear has $100,000 of 8% noncumulative, nonparticipating, preferred stock outstanding. Ultimate Sportswear also has $500,000 of common stock outstanding. In the company's first year of operation, no dividends were paid. During the second year, the company paid cash dividends of $30,000. This dividend should be distributed as follows:

$0 preferred; $30,000 common.

    1. $7,500 preferred; $22,500 common.
    2. $8,000 preferred; $22,000 common.
    3. $15,000 preferred; $15,000 common.
    4. $16,000 preferred; $14,000 common.

Learning Objective: 13-C2 Explain characteristics of, and distribute dividends between, common and preferred stock. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

  1. Gracey's Department Stores has $200,000 of 6% noncumulative, nonparticipating, preferred stock outstanding. Gracey's also has $600,000 of common stock outstanding. During its first year, the company paid cash dividends of $30,000. This dividend should be distributed as follows:

$0 preferred; $30,000 common.

    1. $30,000 preferred; $0 common.
    2. $12,000 preferred; $18,000 common.
    3. $15,000 preferred; $15,000 common.
    4. $6,000 preferred; $24,000 common.

Learning Objective: 13-C2 Explain characteristics of, and distribute dividends between, common and preferred stock. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

  1. Torino Company has 10,000 shares of $5 par value, 4% cumulative and nonparticipating preferred stock and 100,000 shares of $10 par value common stock outstanding. The company paid total cash dividends of $1,000 in its first year of operation. The cash dividend that must be paid to preferred stockholders in the second year before any dividend is paid to common stockholders is:

A) $2,000. B) $1,000. C) $0. D) $3,000. E) $4,000.

Learning Objective: 13-C2 Explain characteristics of, and distribute dividends between, common and preferred stock. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

  1. Preferred stock on which the right to receive dividends is forfeited for any year that the dividends are not declared is referred to as:

Callable preferred stock.

    1. Participating preferred stock.
    2. Cumulative preferred stock.
    3. Convertible preferred stock.
    4. Noncumulative preferred stock.

Learning Objective: 13-C2 Explain characteristics of, and distribute dividends between, common and preferred stock. Bloom's: Understand

AACSB: Communication

AICPA: FN Decision Making; BB Industry

A dividend preference for preferred stock means that:

    1. Preferred stockholders are allocated their dividends before dividends are allocated to common shareholders.

Preferred stockholders prefer dividends more than common stockholders.

    1. Dividends are paid quarterly.
    2. Preferred shareholders are guaranteed dividends.
    3. Dividends must be declared on preferred stock.

Learning Objective: 13-C2 Explain characteristics of, and distribute dividends between, common and preferred stock. Bloom's: Remember

AACSB: Communication

AICPA: FN Decision Making; BB Industry

Alto Company issued 7% preferred stock with a $100 par value. This means that:

    1. The market price per share will approximate $100 per share.
    2. The amount of the potential dividend is $7 per year per preferred share.
    3. Preferred shareholders are entitled to 7% of the annual income.
    4. Preferred shareholders have a guaranteed dividend.
    5. Only 7% of the total paid-in capital can be preferred stock.

Learning Objective: 13-C2 Explain characteristics of, and distribute dividends between, common and preferred stock. Bloom's: Understand

AACSB: Communication

AICPA: FN Decision Making; BB Industry

Stock that was reacquired and is still held by the issuing corporation is called:

    1. Capital stock.
    2. Treasury stock.
    3. Preferred stock.
    4. Redeemed stock.
    5. Callable stock.

Learning Objective: 13-P3 Record purchases and sales of treasury stock. Bloom's: Remember

AACSB: Communication

AICPA: FN Decision Making; BB Industry

Treasury stock is classified as:

    1. A contra asset account.
    2. A liability account.
    3. An asset account.
    4. A revenue account.
    5. A contra equity account.

Learning Objective: 13-P3 Record purchases and sales of treasury stock. Bloom's: Remember

AACSB: Communication

AICPA: FN Reporting; BB Industry

  1. The following data were reported by a corporation:

Authorized shares 20,00

0

Issued shares 15,00

0

Treasury shares 3,000

The number of outstanding shares is:

A) 17,000. B) 23,000. C) 12,000. D) 15,000. E) 20,000.

Learning Objective: 13-P3 Record purchases and sales of treasury stock. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

Corporations may buy back their own stock for any of the following reasons except to:

    1. Allow management to assume the voting rights.
    2. Avoid a hostile take-over.
    3. Maintain market value for the company stock.
    4. Have shares available for a merger or acquisition.
    5. Have shares available for employee compensation.

Learning Objective: 13-P3 Record purchases and sales of treasury stock. Bloom's: Understand

AACSB: Communication

AICPA: BB Resource Management; FN Risk Analysis

  1. The following data has been collected about Keller Company's stockholders' equity accounts:

Common stock $10 par value 20,000 shares

authorized and 10,000 shares issued, 9,000 shares outstanding

$100,00

0

Paid-in capital in excess of par value, common stock 50,000

Retained earnings 25,000

Treasury stock 11,500

Assuming the treasury shares were all purchased at the same price, the cost per share of the treasury stock is:

A) $1.28. B) $10.50. C) $10.00. D) $11.50. E) $1.15.

Learning Objective: 13-P3 Record purchases and sales of treasury stock. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

  1. The following data has been collected about Keller Company's stockholders' equity accounts:

Common stock $10 par value 20,000 shares

authorized and 10,000 shares issued, 9,000 shares outstanding

$100,00

0

Paid-in capital in excess of par value, common stock 50,000

Retained earnings 25,000

Treasury stock 11,500

Assuming the treasury shares were all purchased at the same price, the number of shares of treasury stock is:

A) 1,150. B) 11,000. C) 1,000. D) 21,000. E) 575.

Learning Objective: 13-P3 Record purchases and sales of treasury stock. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

  1. Prior to June 30, a company has never had any treasury stock transactions. A company repurchased 100 shares of its common stock on June 30 for $40 per share. On July 20, it reissued 50 of these shares at $46 per share. On August 1, it reissued 20 of the shares at $38 per share. What is the balance in the Treasury Stock account on August 2?

A) $100. B) $2,600. C) $1,200. D) $5,050. E) $0.

Learning Objective: 13-P3 Record purchases and sales of treasury stock. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

  1. Prior to May 1, Fortune Company has never had any treasury stock transactions. A company repurchased 100 shares of its common stock on May 1 for $5,000. On July 1, it reissued 50 of these shares at $52 per share. On August 1, it reissued the remaining treasury shares at $49 per share. What is the balance in the Paid-in Capital, Treasury Stock account on August 2?

A) $0. B) $100. C) $50. D) $5,050. E) $2,600.

Learning Objective: 13-P3 Record purchases and sales of treasury stock. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

  1. All of the following regarding accounting for Treasury Stock under U.S. GAAP and IFRS is true

except:

    1. U. S. GAAP applies the principle that companies do not record gains or losses on transactions involving their own stock.

Gains are not recognized on retirements of treasury stock under U. S. GAAP.

    1. A company's assets and equity are always reduced by the amount paid for the retiring stock.
    2. Only gains are recognized on retirements of treasury stock under IFRS.
    3. IFRS applies the principle that companies do not record gains or losses on transactions involving their own stock.

Learning Objective: 13-P3 Record purchases and sales of treasury stock. Bloom's: Understand

AACSB: Communication

AICPA: FN Decision Making; BB Industry

  1. Fetzer Company declared a $0.55 per share cash dividend. The company has 200,000 shares authorized, 190,000 shares issued, and 8,000 shares in treasury stock. The journal entry to record the dividend declaration is:

Debit Retained Earnings $100,100; credit Common Dividends Payable $100,100.

    1. Debit Retained Earnings $110,000; credit Common Dividends Payable $110,000.
    2. Debit Common Dividends Payable $104,500; credit Cash $104,500.
    3. Debit Retained Earnings $104,500; credit Common Dividends Payable $104,500.
    4. Debit Common Dividends Payable $100,100; credit Cash $100,100.

Learning Objective: 13-P2 Record transactions involving cash dividends, stock dividends, and stock splits. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

  1. West Company declared a $0.50 per share cash dividend. The company has 190,000 shares issued, and 10,000 shares in treasury stock. The journal entry to record the dividend declaration is:

Debit Common Dividends Payable $90,000; credit Cash $90,000.

    1. Debit Common Dividends Payable $95,000; credit Cash $95,000.
    2. Debit Retained Earnings $95,000; credit Common Dividends Payable $95,000.
    3. Debit Retained Earnings $5,000; credit Common Dividends Payable $5,000.
    4. Debit Retained Earnings $90,000; credit Common Dividends Payable $90,000.

Learning Objective: 13-P2 Record transactions involving cash dividends, stock dividends, and stock splits. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

  1. West Company declared a $0.50 per share cash dividend. The company has 190,000 shares issued, and 10,000 shares in treasury stock. The journal entry to record the payment of the dividend is:

Debit Common Dividends Payable $90,000; credit Cash $90,000.

    1. Debit Retained Earnings $5,000; credit Common Dividends Payable $5,000.
    2. Debit Retained Earnings $90,000; credit Common Dividends Payable $90,000.
    3. Debit Retained Earnings $95,000; credit Common Dividends Payable $95,000.
    4. Debit Common Dividends Payable $95,000; credit Cash $95,000.

Learning Objective: 13-P2 Record transactions involving cash dividends, stock dividends, and stock splits. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

  1. Fetzer Company declared a $0.55 per share cash dividend. The company has 200,000 shares authorized, 190,000 shares issued, and 8,000 shares in treasury stock. The journal entry to record the payment of the dividend is:

Debit Retained Earnings $100,100; credit Common Dividends Payable $100,100.

    1. Debit Common Dividends Payable $104,500; credit Cash $104,500.
    2. Debit Retained Earnings $110,000; credit Common Dividends Payable $110,000.
    3. Debit Retained Earnings $104,500; credit Common Dividends Payable $104,500.
    4. Debit Common Dividends Payable $100,100; credit Cash $100,100.

Learning Objective: 13-P2 Record transactions involving cash dividends, stock dividends, and stock splits. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

84

  1. Fargo Company's outstanding stock consists of 400 shares of noncumulative 5% preferred stock with a $10 par value and 3,000 shares of common stock with a $1 par value. During the first three years of operation, the corporation declared and paid the following total cash dividends.

Dividend Declared

year 1 $ 20,00

0

year 2 $ 6,000

year 3 $ 32,00

0

The amount of dividends paid to preferred and common shareholders in year 1 is:

$4,000 preferred; $16,000 common.

    1. $10,000 preferred; $10,000 common.
    2. $20,000 preferred; $0 common.
    3. $200 preferred; $19,800 common.
    4. $17,000 preferred; $3,000 common.

Learning Objective: 13-C2 Explain characteristics of, and distribute dividends between, common and preferred stock. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

  1. Sweet Company's outstanding stock consists of 1,000 shares of cumulative 5% preferred stock with a $100 par value and 10,000 shares of common stock with a $10 par value. During the first three years of operation, the corporation declared and paid the following total cash dividends.

Dividend Declared 85

Dividend Declared

year 1 $ 2,000

year 2 $ 6,000

year 3 $ 32,00

0

The amount of dividends paid to preferred and common shareholders in year 3 is:

$32,000 preferred; $0 common.

    1. $15,000 preferred; $17,000 common.
    2. $5,000 preferred; $27,000 common.
    3. $7,000 preferred; $25,000 common.
    4. $0 preferred; $32,000 common.

Learning Objective: 13-C2 Explain characteristics of, and distribute dividends between, common and preferred stock. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

  1. Sweet Company's outstanding stock consists of 1,000 shares of noncumulative 5% preferred stock with a $100 par value and 10,000 shares of common stock with a $10 par value. During the first three years of operation, the corporation declared and paid the following total cash dividends.

Dividend Declared

year 1 $ 2,000

year 2 $ 6,000

year 3 $ 32,00

0

The total amount of dividends paid to preferred and common shareholders over the three-year period is:

$10,000 preferred; $30,000 common.

    1. $12,000 preferred; $28,000 common.
    2. $5,000 preferred; $35,000 common.
    3. $15,000 preferred; $25,000 common.
    4. $11,000 preferred; $29,000 common.

Learning Objective: 13-C2 Explain characteristics of, and distribute dividends between, common and preferred stock. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

  1. Sweet Company's outstanding stock consists of 1,000 shares of cumulative 5% preferred stock with a $100 par value and 5,000 shares of common stock with a $10 par value. During the first three years of operation, the corporation declared and paid the following total cash dividends.

Dividend Declared

Year 1 $ 2,000

Year 2 $ 6,000

Year 3 $ 32,00

0

The total amount of dividends paid to preferred and common shareholders over the three-year period is:

$12,000 preferred; $28,000 common.

    1. $10,000 preferred; $30,000 common.
    2. $15,000 preferred; $25,000 common.
    3. $5,000 preferred; $35,000 common.
    4. $11,000 preferred; $29,000 common.

Learning Objective: 13-C2 Explain characteristics of, and distribute dividends between, common and preferred stock. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

  1. Halverstein Company's outstanding stock consists of 7,000 shares of cumulative 5% preferred stock with a $10 par value and 3,000 shares of common stock with a $1 par value. During the first three years of operation, the corporation declared and paid the following total cash dividends.

Dividend Declared

Year 1 $ 0

Year 2 $ 6,000

Year 3 $ 32,00

0

The amount of dividends paid to preferred and common shareholders in Year 2 is:

$3,000 preferred; $3,000 common.

    1. $3,500 preferred; $2,500 common.
    2. $0 preferred; $6,000 common.
    3. $4,200 preferred; $1,800 common.
    4. $6,000 preferred; $0 common.

Learning Objective: 13-C2 Explain characteristics of, and distribute dividends between, common and preferred stock. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

  1. Prior to June 30, a company has never had any treasury stock transactions. A company repurchased 100 shares of its $1 par common stock on June 30 for $40 per share. On July 20, it reissued 50 of these shares at $46 per share. On August 1, it reissued 20 of the shares at $38 per share. What is the journal entry necessary to record the repurchase of stock on June 30?

Debit Cash $4,000; credit Treasury Stock $4,000.

    1. Debit Common Stock $100; debit Treasury Stock $3,900; credit Cash $4,000.
    2. Debit Common Stock $4,000; credit Cash $4,000.
    3. Debit Treasury Stock $3,900; debit Paid-in Capital, Treasury Stock $100; credit Cash $4,000.
    4. Debit Treasury Stock, Common $4,000; credit Cash $4,000.

Learning Objective: 13-P3 Record purchases and sales of treasury stock. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

  1. Prior to June 30, a company has never had any treasury stock transactions. A company repurchased 100 shares of its $1 par common stock on June 30 for $40 per share. On July 20, it reissued 50 of these shares at $46 per share. On August 1, it reissued 20 of the shares at $38 per share. What is the journal entry necessary to record the reissuance of treasury stock on July 20?

Debit Common Stock $20; debit Treasury Stock $2,290; credit Cash $2,300.

    1. Debit Common Stock $2,300; credit Cash $2,300.
    2. Debit Cash $2,300; credit Treasury Stock $2,300.
    3. Debit Cash $2,300; credit Paid-in Capital, Treasury Stock $300; credit Treasury Stock

$2,000.

    1. Debit Common Stock $2,300; credit Treasury Stock $2,000; credit Paid-In Capital, Treasury Stock $300.

Learning Objective: 13-P3 Record purchases and sales of treasury stock. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

  1. A corporation issued 2,500 shares of its no par common stock at a cash price of $11 per share. The entry to record this transaction would be:
    1. Debit Cash $27,500; credit Paid-in Capital in Excess of Par Value, Common Stock $2,500; credit Common Stock $25,000.

Debit Common Stock $27,500; credit Cash $27,500.

    1. Debit Cash $27,500; credit Common Stock $27,500.
    2. Debit Treasury Stock $27,500; credit Cash $27,500.
    3. Debit Treasury Stock $2,500; debit Paid-in Capital in Excess of Par Value, Treasury Stock

$25,000; credit Common Stock $27,500.

Learning Objective: 13-P1 Record the issuance of corporate stock. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

  1. A corporation issued 5,000 shares of its no par common stock that was assigned a $1 stated value per share. The issue price was $10 per share. The entry to record this transaction would be:

Debit Cash $50,000; credit Common Stock $50,000.

    1. Debit Common Stock $50,000; credit Cash $50,000.
    2. Debit Common Stock $25,000; debit Paid-in Capital in Excess of Par Value, Common Stock

$5,000; credit Common Stock $45,000.

    1. Debit Cash $50,000; credit Paid-in Capital in Excess of Stated Value, Common Stock

$45,000; credit Common Stock $5,000.

Debit Treasury Stock $50,000; credit Cash $50,000.

Learning Objective: 13-P1 Record the issuance of corporate stock. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

ESSAY QUESTIONS

What is a corporation? Identify the key advantages and disadvantages of corporations.

Learning Objective: 13-C1

Bloom's: Understand AACSB: Communication

AICPA: BB Legal; FN Decision Making

What are the rights generally granted to common stockholders?

Learning Objective: 13-C1

Bloom's: Understand AACSB: Communication

AICPA: BB Legal; FN Decision Making

  1. Explain how to calculate the price-earnings ratio and describe how it is used in analysis of a company's financial condition and performance.

Learning Objective: 13-A2 Bloom's: Understand AACSB: Analytic

AICPA: BB Industry; FN Risk Analysis

  1. Explain how to compute dividend yield and discuss how it is used in analysis of a company's financial condition.

Learning Objective: 13-A3 Bloom's: Understand AACSB: Analytic

AICPA: BB Industry; FN Risk Analysis

  1. Explain how to compute book value per common share and discuss how it can be used to analyze the financial condition of a corporation.

Learning Objective: 13-A4 Bloom's: Understand AACSB: Analytic

AICPA: BB Industry; FN Measurement

What is a stock split? How is a stock split different from a stock dividend?

Learning Objective: 13-P2 Bloom's: Understand AACSB: Analytic

AICPA: BB Industry; FN Measurement

  1. Explain the difference between a large stock dividend and a small stock dividend. In addition, explain how to record these two types of stock dividends.

Learning Objective: 13-P2 Bloom's: Understand AACSB: Analytic

AICPA: BB Industry; FN Measurement

What is treasury stock? What reasons might a company hold treasury stock?

Learning Objective: 13-P3 Bloom's: Understand AACSB: Analytic

AICPA: BB Industry; FN Measurement

  1. Boron Company is authorized to issue 50,000 shares of $50 par value, 8%, cumulative, fully participating preferred stock, and 750,000 shares of $5 par value common stock. Prepare journal entries to record the following selected transactions that occurred during the company's first year of operations:

May 5 Exchanged 2,200 shares of preferred stock for a building with a market value of $135,000.

July 20 Sold 1,550 shares of preferred stock for $50 cash per share. Dec. 20 Sold 1,000 shares of preferred stock at $52 cash per share.

Learning Objective: 13-P1 Bloom's: Apply

AACSB: Analytic

AICPA: BB Industry; FN Measurement

  1. A corporation received its charter and began business this year. The company is authorized to issue 500,000 shares of $100 par, 6%, noncumulative, nonparticipating preferred stock, and 1,000,000 shares of no-par common stock. The following selected transactions occurred during this year:

Mar. 5 Issued 250 shares of preferred stock for $102 cash per share.

July 15 Exchanged 750 shares of common stock for $12,000 in legal services incurred in the organization of the company.

Prepare journal entries to record these transactions.

Learning Objective: 13-P1 Bloom's: Apply

AACSB: Analytic

AICPA: BB Industry; FN Measurement

  1. Rhoads Corporation is authorized to issue 250,000 shares of $50 par, 10%, noncumulative, nonparticipating preferred stock and 5,000,000 shares of no-par common stock. Prepare journal entries to record the following selected transactions that occurred during this year:

Feb. 1 Issued 10,000 shares of common stock for $30 cash per share.

15 Exchanged 2,000 shares of preferred stock for equipment and merchandise inventory with market values of $80,000 and $30,000, respectively.

Learning Objective: 13-P1 Bloom's: Apply

AACSB: Analytic

AICPA: BB Industry; FN Measurement

  1. Given the following information about a corporation's current year activities, compute the retained earnings for the current year.

Retained earnings, December 31 (prior year) $280,000 Cost of goods sold $90,000

Other operating expenses $54,000

Cash dividends $31,800

Correction of understatement of net income in prior

period (inventory error) $23,000

Stock dividends $20,000

Net income $36,000

Learning Objective: 13-C3

Bloom's: Apply AACSB: Analytic

AICPA: BB Industry; FN Reporting

  1. Given the following information about a corporation's current year activities, compute the retained earnings for the current year.

Retained earnings, January 1

$342,000

Cash dividends

$51,700

Stock dividends

$40,000

Net income

$141,000

Learning Objective: 13-C3

Bloom's: Apply AACSB: Analytic

AICPA: BB Industry; FN Reporting

  1. Explain where each of the following items should appear in the financial statements of a corporation:
  2. The accounting department discovered that an entry was made last year to Insurance Expense instead of to Prepaid Insurance. The after-tax effect of the charge to Insurance Expense was $5,000.
  3. The company grants five of its employees the option to purchase 100 shares of its $5 par value common stock at its current market price of $20 per share anytime with the next five years. None of the employees exercised the options in the current year.

Learning Objective: 13-C3

Bloom's: Understand AACSB: Analytic

AICPA: BB Industry; FN Reporting

  1. Shaw Corporation reported stockholders' equity on December 31 of the prior year as follows:

Common stock, $5 par value, 1,000,000 shares

$2,500,000

authorized, 500,000 shares issued…….

Paid-in capital in excess of par, common stock...

1,000,000

Retained earnings……………………………….

3,000,000

The following selected transactions occurred during the current year:

Feb. 15 The board of directors declared a 5% stock dividend to stockholders of record on March 1, payable March 20. The stock was selling for $8 per share.

Mar. 9 Distributed the stock dividend.

May 1 A cash dividend of $0.30 per share was declared by the board of directors to stockholders of record on May 20, payable June 1.

June 1 Paid the cash dividend.

Aug. 20 The board decided to split the stock 4-for-1, effective on September 1. Sept. 1 Stock split 4-for-1.

Dec. 31 Earned a net income of $800,000 for the current year.

Prepare a statement of retained earnings as of December 31 of the current year.

Retained earnings, December 31 (prior year) …

$3,000,00

0

Plus net income ………………………………..

800,000

Less:

Stock dividend (500,000 shares * 5% * $8)

$(200,000)

Cash dividend (525,000 shares * $0.30) …..

(157,500)

(357,500)

Retained earnings, December 31 (current year)

$3,442,50

0

Learning Objective: 13-C3

Bloom's: Apply AACSB: Analytic

AICPA: BB Industry; FN Reporting

  1. Beagle Company earned $90,000 in income and paid cash dividends of $7,000 to preferred shareholders during the current year. Beagle had 15,500 weighted-average shares of common stock outstanding for the year. Calculate the company's earnings per share.

Learning Objective: 13-A1 Bloom's: Apply

AACSB: Analytic

AICPA: BB Industry; FN Measurement; FN Risk Analysis

  1. Slate Corporation had the following balances in its stockholders' equity accounts at December 31, 2017:

Common Stock, $10 par, 500,000 shares authorized, 20,000 shares issued ………………………………….

$200,000

Paid-in Capital in Excess of Par Value, Common …………250,000

Retained Earnings ………………………………………..

500,000

Treasury Stock, 1,000 shares ……………………………

(20,000)

Total stockholders' equity ………………………………..

$930,000

The following transactions occurred during 2018:

February 3 Sold and issued 2,000 shares of common stock for $22 per share.

May 10 Declared a $0.50 per share dividend on common stock. October 12 Sold 500 shares of the treasury stock for $20 per share. December 31 Net income for the year was determined to be $75,000.

Based on the above information, prepare a statement of stockholders' equity for 2018. Use the form below.

Balance, December

Slate Corporation

Statement of Stockholders’ Equity December 31, 2018

Common

Stock

Paid-in

Capital in Excess of Par Value, Common

Retained

Earnings

Treasury

Stock

Total

Equity

$200,000

$250,000

$500,000

$(20,000)

$930,000

103

31, 2017

$200,000

$250,000

$500,000

$(20,000)

$930,000

Learning Objective: 13-C3

Bloom's: Apply AACSB: Analytic

AICPA: BB Industry; FN Reporting

  1. A corporation had current year net income of $237,500. It paid preferred dividends of $40,000 cash and had 480,000 weighted-average shares of common stock outstanding. Calculate the corporation's earnings per share.

Learning Objective: 13-A1 Bloom's: Apply

AACSB: Analytic

AICPA: BB Industry; FN Measurement; FN Risk Analysis

  1. A company's stock is selling for $63.20 per share and its earnings per share is $3.60 for the current year. Calculate the price-earnings ratio.

Learning Objective: 13-A2 Bloom's: Apply

AACSB: Analytic

AICPA: BB Industry; FN Measurement; FN Risk Analysis

  1. A company reported net income of $836,000 for the current year. The year-end market price per common share was $12 and there were 475,000 weighted-average shares of common stock outstanding. Calculate the company's price-earnings ratio.

Learning Objective: 13-A2 Bloom's: Apply

AACSB: Analytic

AICPA: BB Industry; FN Measurement; FN Risk Analysis

  1. A company reported $960,000 in net income for the current year. Total weighted-average common shares outstanding are 150,000 shares, and the year-end market price is $67.20 per common share. Calculate the company's price earnings ratio.

Learning Objective: 13-A2 Bloom's: Apply

AACSB: Analytic

AICPA: BB Industry; FN Measurement; FN Risk Analysis

  1. A company reported $1,050,000 in net income for the current year. Earnings per common share is

$1.75 and the year-end market price of the shares is $31.50. Calculate the company's price earnings ratio.

Learning Objective: 13-A2 Bloom's: Apply

AACSB: Analytic

AICPA: BB Industry; FN Measurement; FN Risk Analysis

  1. A corporation reported net income of $2,730,000 and paid preferred cash dividends of $120,000 during the current year. There were 600,000 weighted-average shares of common stock outstanding and the market price per common share at year-end was $58.30. Calculate the company's

price-earnings ratio.

Learning Objective: 13-A2 Bloom's: Apply

AACSB: Analytic

AICPA: BB Industry; FN Measurement; FN Risk Analysis

  1. Gershwin Company reported net income of $428,000 and paid $8,500 in preferred cash dividends during the current year. The company had 110,000 common shares issued, and 10,000 common shares in treasury during the year. The year-end market price per common share was $41.05. Calculate the company's price-earnings ratio.

Learning Objective: 13-A2 Bloom's: Apply

AACSB: Analytic

AICPA: BB Industry; FN Measurement; FN Risk Analysis

  1. A company's stock is selling for $35.70 per share at year-end. This current year it paid shareholders a $1.43 per share cash dividend, reported earnings per share of $11.00, and had 750,000 common shares outstanding at year-end. Calculate the company's dividend yield.

Learning Objective: 13-A3 Bloom's: Apply

AACSB: Analytic

AICPA: BB Industry; FN Measurement; FN Risk Analysis

  1. A corporation paid a cash dividend of $0.85 per share during the current year. It had 1,550,000 common shares outstanding at year-end, its current year earnings per share was $3.45, and the stock's year-end market price was $10.63 per share. Calculate the company's dividend yield.

Learning Objective: 13-A3 Bloom's: Apply

AACSB: Analytic

AICPA: BB Industry; FN Measurement; FN Risk Analysis

  1. Lafferty Corporation reported earnings per share of $9.75, paid a $6.00 cash dividend per share to preferred shareholders, and paid a $0.54 cash dividend per share to common shareholders. There were 10,000 shares of preferred stock outstanding and 600,000 shares of common stock outstanding during the year, and the market price per share of common stock was $41.60. Calculate the company's dividend yield for common stock.

Learning Objective: 13-A3 Bloom's: Apply

AACSB: Analytic

AICPA: BB Industry; FN Measurement; FN Risk Analysis

  1. A company paid a cash dividend of $0.88 per share during the current year, and reported 18,000 shares of common stock issued, and 2,000 common shares in treasury stock during the current year. The year-end market price per share was $27.50. Calculate the following: (1) total amount of cash dividends paid to common shareholders, and (2) dividend yield.

Learning Objective: 13-C2; 13-A3

Bloom's: Apply AACSB: Analytic

AICPA: BB Industry; FN Measurement; FN Risk Analysis

  1. A company has 2,000,000 common shares authorized, 400,000 common shares issued, and 15,000 common shares in treasury stock at the current year-end. It paid $0.96 per share cash dividends during the year. The year-end market price of the stock is $15. Calculate (1) the total dividends paid and (2) the dividend yield.

Learning Objective: 13-C2; 13-A3

Bloom's: Apply AACSB: Analytic

AICPA: BB Industry; FN Measurement; FN Risk Analysis

  1. Avro Corporation has $875,000 in stockholders' equity and 350,000 weighted-average shares of common stock outstanding. Calculate the book value per common share.

Learning Objective: 13-A4 Bloom's: Apply

AACSB: Analytic

AICPA: BB Industry; FN Measurement; FN Risk Analysis

  1. A company has $2,400,000 in stockholders' equity that includes 500 shares of $50 par value noncallable preferred stock outstanding and 250,000 shares of common stock outstanding. Calculate the book value per (1) preferred share, and (2) common share.

Learning Objective: 13-A4 Bloom's: Apply

AACSB: Analytic

AICPA: BB Industry; FN Measurement; FN Risk Analysis

  1. A company reports the following stockholders' equity: Paid-in Capital:

Common stock, $2 par, 5,000,000 shares authorized $3,000,000 Paid-in capital in excess of par, Common stock ………………. 1,300,000 Total paid-in capital …………………………………………… $4,300,000 Retained earnings ……………………………………………… 1,400,000 Total stockholders' equity ……………………………………… $5,700,000

Compute the (1) number of common shares outstanding and (2) book value per common share.

Learning Objective: 13-A4 Bloom's: Apply

AACSB: Analytic

AICPA: BB Industry; FN Measurement; FN Risk Analysis

  1. The stockholders' equity section of a company's year-end balance sheet follows:

109

Preferred stock, $50 par value, 9% cumulative and

nonparticipating, 10,000 shares outstanding …………………

$500,000

Paid-in capital in excess of par value, preferred stock

50,000

Total capital paid-in by preferred stockholders ……………..

$550,000

Total capital paid-in by preferred stockholders ……………..

$550,000

Common stock, $0.50 par value, 1,500,000 shares

outstanding ………………………………………………….

$750,000

Paid-in capital in excess of par value, common stock ………...

150,000

Total capital paid-in by common stockholders ……………….

900,000

Total paid-in capital …………………………………………

$1,450,000

Retained earnings ……………………………………………

1,690,000

Total stockholders' equity ……………………………………

$3,140,000

The preferred stock has a call price of $51.50 per share plus dividends in arrears. Only one year of dividends is in arrears. Calculate the book value per (1) preferred share, and (2) common share.

Learning Objective: 13-A4 Bloom's: Apply

AACSB: Analytic

AICPA: BB Industry; FN Measurement; FN Risk Analysis

  1. A corporation reports the following year-end stockholders' equity: Paid-in capital:
  2. Par value for the preferred stock.

Preferred stock, 8%, 100,000 shares

authorized, 50,000 shares issued ………………….

$ 2,500,000

Paid-in capital in excess of par, Preferred…………..

125,000

Common stock, $1 par, 5,000,000 shares

4,000,000

authorized, 4,000,000 shares issued ………………..

Paid-in capital in excess of par, Common …………..

1,200,000

Total paid-in capital ………………………………..

$ 7,825,000

Retained earnings ……………………………………..

10,675,000

Total stockholders' equity …………………………….

Determine the following:

$18,500,000

  1. Book value per share for both preferred stock and common stock assuming no dividends in

110

arrears.

Total stockholders' equity ………………………

$18,500,000

Less preferred stockholders' equity

2,500,000

Common stockholders' equity …………………..

$16,000,000

Book value per share of preferred stock

$50

Learning Objective: 13-A4 Bloom's: Apply

AACSB: Analytic

AICPA: BB Industry; FN Measurement; FN Risk Analysis

  1. The stockholders' equity section of a corporation's balance sheet follows:

Preferred stock, $25 par value, 6%, cumulative, 10,000 shares authorized, 5,000 shares issued and outstanding ……………..

$125,000

Paid-in capital in excess of par value, Preferred stock……. 50,000

Common stock, $5 par value, 50,000 shares authorized,

20,000 shares issued and outstanding.…………………………..

100,000

Paid-in capital in excess of par value, Common stock ………

40,000

Retained earnings ……………………………………….

95,000

Total stockholders' equity ……………………………….

$410,000

  1. Assuming that no dividends are in arrears, compute the book values per preferred share and per common share.
  2. Assuming that one year of cumulative preferred dividends is in arrears, compute the book values per preferred share and per common share.

(1)

Book value per preferred share

($125,000/5,000 shares)

$25.00

Book value per common share111

Learning Objective: 13-A4 Bloom's: Apply

AACSB: Analytic

AICPA: BB Industry; FN Measurement; FN Risk Analysis

  1. A company is authorized to issue 750,000 shares of $2 par value common stock. Prepare journal entries to record the following selected transactions that occurred during the company's first year of operations:

Jan. 10 Sold 102,000 shares of common stock for $8 cash per share.

15 Exchanged 10,000 shares of common stock for equipment with a market value of $70,000.

Feb. 1 Exchanged 500 shares of common stock for $3,000 of legal services incurred during the company's organization.

Jan. 10

Cash (102,000 * $8) ………….………….…….

816,000

Common Stock (102,000 * $2)

204,000

Paid-in Capital in Excess of Par Value, Common

Stock

612,000

15

Equipment ………….………….………….…….

70,000

Common Stock (10,000 * $2) ………….

20,000

Paid-in Capital in Excess of Par Value, Common

112

50,000

Learning Objective: 13-P1 Bloom's: Apply

AACSB: Analytic

AICPA: BB Industry; FN Measurement

  1. On July 1, a corporation issued 15,000 shares of no-par common stock with a stated value of $3 per share in exchange for a tract of land having a market value of $215,000. Prepare the general journal entry to record this transaction.

Jul

1

Land ………….………….………….………….………

…………..……….

215,000

Common Stock (15,000 * $3) …………………………

….………….

45,000

Paid-in Capital in Excess of Stated Value, Common Stock

………

170,000

Learning Objective: 13-P1 Bloom's: Apply

AACSB: Analytic

AICPA: BB Industry; FN Measurement

  1. On September 20, Fletcher Corporation issued 25,000 shares of no-par common stock for equipment having a market value of $85,000. Prepare the general journal entry to record this transaction.

Learning Objective: 13-P1 Bloom's: Apply

AACSB: Analytic

AICPA: BB Industry; FN Measurement

  1. A corporation had the following stock outstanding when the company's board of directors declared a

$75,000 cash dividend in the current year:

$ 500,000

Preferred stock, $40 par, 6%, 12,500 shares issued

Common stock, $10 par, 70,000 shares issued …………….

700,000

Total ………………………………………………………..

$1,200,000

Allocate the cash dividend between the preferred and common stockholders assuming the preferred stock is noncumulative and nonparticipating.

Explanation

Preferred

Dividend

Common

Dividend

Preferred cash dividend: (12,500 * $40 * 6%) ………

…

$30,000

Remainder to common: ($75,000 — $30,000) ………

$45,000

Learning Objective: 13-C2 Bloom's: Apply

AACSB: Analytic

AICPA: BB Industry; FN Measurement

  1. A corporation had the following stock outstanding when the company's board of directors declared a

$55,000 cash dividend during the current year:

Preferred stock, $10 par, 4%, 50,000 shares issued $

500,000

Common stock, $1 par, 750,000 shares issued …….. 750,000 Total ………………………………………………… $

1,250,000

Allocate the cash dividend between the preferred and common stockholders assuming the preferred stock is cumulative and nonparticipating and dividends are one year in arrears.

Explanation

Preferred

Dividend

Common

Dividend

Preferred cash dividend in arrears (50,000 * $10 * 4%)

$20,000

Current preferred dividend ……………………………..

20,000

Remainder to common: ($55,000 — $40,000) …………..

$15,000

Totals …………………………………………………...

$40,000

$15,000

Learning Objective: 13-C2 Bloom's: Apply

AACSB: Analytic

AICPA: BB Industry; FN Measurement

  1. A company has $200,000 of 10% noncumulative, nonparticipating, preferred stock outstanding, and $150,000 of common stock outstanding. In the company's first year of operation, no dividends were paid, but during the second year, it paid cash dividends of $25,000. Compute the dividends to be distributed to (1) preferred shares and (2) common shares.

Learning Objective: 13-C2 Bloom's: Apply

AACSB: Analytic

AICPA: BB Industry; FN Measurement

  1. A company was organized in January 2016 and has 20,000 shares of $10 par value, 10%, nonparticipating preferred stock outstanding and 150,000 shares of $2 par value common stock outstanding. It has declared and paid cash dividends each year as shown below. Calculate the total dividends distributed to each class of stockholder under each of the assumptions given.

115

Assuming Preferred

Assuming Preferred

Stock

Stock

Stock

Stock

Cash

Is Noncumulative

Is Cumulative

Dividends

Declared

Preferred

Common

Preferred

Common

Year

and Paid

Dividend

Dividend

Dividend

Dividend

2016

$18,000

________

________

________

________

2017

$36,000

________

________

________

________

2018

$60,000

________

________

________

________

Assuming Preferred

Assuming Preferred

Stock

Stock

Is Noncumulative

Is Cumulative

Cash

Dividends

Declared

Preferred

Common

Preferred

Common

Year

and Paid

Dividend

Dividend

Dividend

Dividend

2016

$18,000

$18,000

0

$18,000

0

2017

$36,000

20,000

$16,000

22,000

$14,000

2018

$60,000

20,000

40,000

20,000

40,000

Learning Objective: 13-C2 Bloom's: Apply

AACSB: Analytic

AICPA: BB Industry; FN Measurement

116

  1. On June 30, a company declared a cash dividend of $0.35 per common share to the shareholders of record on July 15. The cash dividend will be paid on July 31. This company has 500,000 shares authorized and 100,000 shares outstanding. Prepare the journal entries required on June 30, July 15 and July 31.

June 30

Retained Earnings …………………………………………

35,000

Common Dividend Payable …………………………

35,000

July 15

No entry required.

July 31

Common Dividend Payable ……………………………….

35,000

Cash …………………………………………………..

35,000

Learning Objective: 13-P2 Bloom's: Apply

AACSB: Analytic

AICPA: BB Industry; FN Measurement

  1. The following selected transactions took place during the current year for a company:

Feb 25 Declared a $2.50 per share cash dividend on 20,000 shares of common stock outstanding

Mar. 20 Paid the cash dividends declared on Feb. 25.

Dec 31 Closed the $72,000 credit balance in Income Summary that reflects net income to Retained Earnings.

  1. Prepare the journal entries for these transactions.
  2. If Retained Earnings had a $155,000 credit balance on January 1, calculate its year-end balance as of December 31.

(a)

Feb. 25

Retained Earnings (20,000 shares *

$2.5/share)

50,000

Common Dividend Payable.

50,000

Mar. 20

Common Dividend Payable

50,000

Cash

50,000

Dec. 31

Income Summary

72,000

Retained Earnings

72,000

(b)

Retained earnings, J1a1n7uary 1

$ 155,000

Learning Objective: 13-C3; 13-P2

Bloom's: Apply AACSB: Analytic

AICPA: BB Industry; FN Measurement; FN Reporting

  1. Cactus Joe Corporation reported stockholders' equity on January 1 of the current year as follows: Common Stock, $5 par value, 1,000,000 shares authorized, 600,000 shares issued; Paid-in Capital in Excess of Par Value, Common Stock, $1,025,000; Retained Earnings, $1,850,000. Prepare journal entries to record the following transactions:

May 1 A cash dividend of $1.05 per common share was declared by the board of directors to stockholders of record on May 20, payable June 1.

May 20 The date of record. June 1 Paid the cash dividend.

May 1

Retained Earnings (600,000 * $1.05) ……………

630,000

Common Dividend Payable …………………

630,000

May 20

No entry required.

June 1

Common Dividend Payable ……………………

630,000

Cash ………………………………………

630,000

Learning Objective: 13-P2 Bloom's: Apply

AACSB: Analytic

AICPA: BB Industry; FN Measurement

  1. For each of the following independent transactions a through d, prepare the necessary journal entry:
  2. Declared a $0.40 per share cash dividend on 300,000 shares of preferred stock outstanding.
  3. Declared and distributed an 8% stock dividend on 800,000 shares of $5 par value common stock outstanding. Market price per common share on this date was $25.
  4. Declared and distributed a 2-for-1 stock split on 400,000 shares of $10 par value common stock outstanding.
  5. Declared and distributed a 35% stock dividend on 700,000 common shares of $1 par value common stock outstanding. Market price per common share on this date was $20.

Learning Objective: 13-P2 Bloom's: Apply

AACSB: Analytic

AICPA: BB Industry; FN Measurement

  1. Parlay Corporation has 2,000,000 shares of $0.50 par value common stock outstanding. The following selected transactions related to the company's stock took place during the current year:

Apr. 15 Declared a 40% stock dividend to stockholders of record on May 1, to be issued May 10. The current market value is $15 per common share.

Prepare necessary journal entries to record the events of April 15, May 1 and May 10.

Learning Objective: 13-P2 Bloom's: Apply

AACSB: Analytic

AICPA: BB Industry; FN Measurement

  1. On August 1, a company's board of directors declared a 10% stock dividend to be distributed on September 1 to the stockholders of record on August 20. The company had 1,000,000 shares of

$2.50 par value common stock outstanding with a market value of $23 per share. Prepare the journal entries required on August 1, August 20, and September 1.

Learning Objective: 13-P2 Bloom's: Apply

AACSB: Analytic

AICPA: BB Industry; FN Measurement

  1. Dynasty Corporation had stockholders' equity on January 1 as follows: Common Stock, $5 par value, 1,000,000 shares authorized, 400,000 shares issued; Paid-in Capital in Excess of Par Value, Common Stock, $800,000; Retained Earnings, $3,600,000. Prepare journal entries to record the following transactions:

Feb. 15 The board of directors declared a 5% stock dividend to stockholders of record on

March 1, to be issued on March 20. The stock was trading at $7 per share prior to the dividend

Mar. 1 The date of record.

Mar. 20 Issued the stock dividend.

121

Feb. 15

Retained Earnings (400,000 * 5% * $7) …

140,000

Common Stock Dividend

Distributable (400,000 * 5% * $5)

100,000

Paid-in Capital in Excess

of Par Value, Common Stock

40,000

Mar. 1

No entry required.

Mar. 20

Common Stock Dividend Distributable

100,000

Common Stock

100,000

Learning Objective: 13-P2 Bloom's: Apply

AACSB: Analytic

AICPA: BB Industry; FN Measurement

  1. A corporation had stockholders' equity on January 1 as follows: Common Stock, $1 par value, 1,500,000 shares authorized, 600,000 shares issued; Paid-in Capital in Excess of Par Value, Common Stock, $1,100,000; Retained Earnings, $2,300,000. Prepare journal entries to record the following transactions:

Feb. 15 The board of directors declared a 10% stock dividend to stockholders of record on

March 1, to be issued on April 15. The stock was trading at $12 per share prior to the dividend.

Mar. 31 Sold 100,000 shares of common stock for $13 per share. Apr. 15 Issued the stock dividend.

Feb. 15

Retained Earnings (600,000 * 10% * $12)

720,000

Common Stock Dividend

Distributable (600,000 * 10% * $1)

60,000

Paid-in Capital in Excess

of Par Value, Common Stock

660,000

Mar. 31

Cash

1,300,000

Common Stock 122

100,000

Learning Objective: 13-P1; 13-P2 Bloom's: Apply

AACSB: Analytic

AICPA: BB Industry; FN Measurement

  1. A company had the following stockholders' equity on January 1:

Common Stock — $1 par value; 1,000,000 shares authorized,

$ 350,000

350,000 shares issued and outstanding …………………….

Paid-in capital in excess of par value, common stock ……....

700,000

Retained earnings ……………………………………………

364,000

Total stockholders' equity ……………………………………

$1,414,000

On January 10, the company declared a 40% stock dividend to stockholders of record on January 25, to be distributed January 31. The market value of the stock on January 10 prior to the dividend was

$20 per share. What is the book value per common share on February 1?

Learning Objective: 13-A4; 13-P2 Bloom's: Apply

AACSB: Analytic

AICPA: BB Industry; FN Measurement; FN Risk Analysis

  1. A company reported the following stockholders' equity on January 1 of the current year:

Common stock, $10 par, 1,000,000 shares

$2,500,000

authorized, 250,000 shares issued …………………..

Paid-in capital in excess of par, common ………………

1,260,000

Retained earnings ………………………………………

1,675,000

Total stockholders' equity …………………..………….

$5,435,000

Prepare journal entries for the following selected transactions related to this company's stock during

the current year:

Mar. 1 Purchased 10,000 shares of treasury stock for $18 per share. May 5 Sold 4,000 shares of treasury stock for $16 per share.

Oct. 12 Sold 2,000 shares of treasury stock for $19 per share.

Mar. 1

Treasury Stock……………………………

180,000

Cash (10,000 shares * $18)………….

180,000

May 5

Cash (4,000 shares * $16)………………..

64,000

Retained Earnings………………………

8,000

Treasury Stock (4,000 shares * $18)…

72,000

Oct. 12

Cash (2,000 shares * $19)………………..

38,000

Treasury Stock (2,000 * $18)………...

36,000

Paid-in Capital, Treasury Stock……….

2,000

Learning Objective: 13-P3 Bloom's: Apply

AACSB: Analytic

AICPA: BB Industry; FN Measurement

  1. Underwood Company's only treasury stock transactions for the current year follow: (1) 2,000 shares of its common stock were purchased on June 1 for $80,000; (2) On July 1 it reissued 500 of these shares at $45 per share; (3) On August 1 it reissued an additional 500 treasury shares at $38 per share.
  2. Prepare the journal entries required to record these transactions.
  3. Calculate the balance in Paid-in Capital, Treasury Stock, on September 1 assuming its beginning-year balance is zero.

1)Jun 1

Treasury Stock, Common ………………………

80,000

Cash ……………………………………………

80,000

July 1

Cash (500 * $45) ………………………………

22,500

Treasury Stock, Common (500 * $40) …………

20,000

Paid-in Capital, Treasury Stock …………………

2,500

August 1

Cash (500 * $38) ………………………………

19,000

Paid-in Capital, Treasury Stock …………………

1,000

Treasury Stock, Common (500 * $40) ………

20,000

Learning Objective: 13-P3 Bloom's: Apply

AACSB: Analytic

AICPA: BB Industry; FN Measurement

    1. On January 10, Mood Corporation purchased 15,000 shares of its own common stock at $17.50 per share. On August 4, a total of 2,000 treasury shares were sold at $19.00 per share. These are the only treasury stock transactions ever made by the corporation. Prepare the journal entries required on January 10 and August 4.

Jan. 10

Treasury Stock, Common (15,000 * $17.50)

262,500

Cash ……………………………………

262,500

Aug. 4

Cash (2,000 * $19.00) …………………….

38,000

Paid-in Capital, Treasury Stock ………

3,000

Treasury Stock, Common (2,000 * $17.50)

35,000

Learning Objective: 13-P3 Bloom's: Apply

AACSB: Analytic

AICPA: BB Industry; FN Measurement

    1. Record the following transactions of Naches Corporation in general journal form:
      1. Reacquired 8,000 of its own $3 par value common stock at $20 cash per share. The stock was originally issued at $15 per share.
      2. Sold 2,000 shares of the stock reacquired under part (a) at $23 cash per share.
      3. Sold 3,000 shares of the stock reacquired under part (a) at $19 cash per share.

(a)

Treasury Stock (8,000 * $20)

160,000

Cash

160,000

(b)

Cash (2,000 * $23)

46,000

Treasury Stock (2,000 * $20)

40,000

Paid-in Capital, Treasury Stock

6,000

(c)

Cash (3,000 * $19)

57,000

Paid-in Capital, Treasury Stock

3,000

Treasury Stock (3,000 * $20)

60,000

Learning Objective: 13-P3 Bloom's: Apply

AACSB: Analytic

AICPA: BB Industry; FN Measurement

SHORT ANSWER QUESTIONS

    1. The group responsible for and have final authority for managing a corporation's activities is (are) the ________.

Learning Objective: 13-C1

Bloom's: Remember AACSB: Communication

AICPA: BB Legal; FN Decision Making

A corporation is responsible for its own acts and debts because it is considered a .

Learning Objective: 13-C1

Bloom's: Remember AACSB: Communication

AICPA: BB Legal; FN Decision Making

    1. The ________ protects stockholders' proportional interest in a corporation by allowing them to purchase their proportional share of any common stock later issued by the corporation.

Learning Objective: 13-C1

Bloom's: Remember AACSB: Communication

AICPA: BB Legal; FN Decision Making

    1. A stock ________ keeps stockholder records and prepares official lists of stockholders for stockholder meetings and dividend payments.

Learning Objective: 13-C1

Bloom's: Remember AACSB: Communication

AICPA: BB Legal; FN Decision Making

The number of shares that a corporation's charter allows it to sell is the ________ stock.

Learning Objective: 13-C1

Bloom's: Remember AACSB: Communication

AICPA: BB Legal; FN Decision Making

    1. The total amount of cash and other assets the corporation receives from its stockholders in exchange for common stock is called ________.

Learning Objective: 13-C1

Bloom's: Remember AACSB: Communication

AICPA: BB Industry; FN Measurement

    1. The cumulative net income and loss not distributed as dividends to a corporation's shareholders is called ________.

Learning Objective: 13-C1

Bloom's: Remember AACSB: Communication

AICPA: BB Industry; FN Measurement

Stock that has been issued and is held by stockholders is ________ stock.

Learning Objective: 13-C1

Bloom's: Remember AACSB: Communication

AICPA: BB Industry; FN Decision Making

The amount assigned per share to stock by the corporation in its charter is the ________.

Learning Objective: 13-C1

Bloom's: Remember AACSB: Communication

AICPA: BB Legal; FN Decision Making

    1. Stock not assigned a value per share by the corporate charter, allowing it to be issued at any price without the possibility of a minimum legal capital deficiency, is called .

Learning Objective: 13-C1

Bloom's: Remember AACSB: Communication

AICPA: BB Legal; FN Decision Making

    1. is a general term that refers to any shares issued to obtain owner financing in a corporation.

Learning Objective: 13-C1

Bloom's: Remember AACSB: Communication

AICPA: BB Legal; FN Decision Making

    1. The least amount that the buyers of stock must contribute to the corporation or be subject to paying at a future date is called ________.

Learning Objective: 13-C1

Bloom's: Remember AACSB: Communication

AICPA: BB Legal; FN Measurement

________ are corrections of material errors in prior period financial statements.

Learning Objective: 13-C3

Bloom's: Remember AACSB: Communication

AICPA: BB Industry; FN Reporting

________ is the amount of income earned per share of a company's outstanding common stock.

Learning Objective: 13-A1 Bloom's: Remember AACSB: Analytic

AICPA: BB Industry; FN Measurement; FN Risk Analysis

    1. ________ is the stockholders' equity applicable to common shares divided by the number of common shares outstanding.

Learning Objective: 13-A4 Bloom's: Remember AACSB: Analytic

AICPA: BB Industry; FN Measurement; FN Risk Analysis

    1. is the annual amount of cash dividends per share distributed to common shareholders relative to the stock's market price.

Learning Objective: 13-A3 Bloom's: Remember AACSB: Analytic

AICPA: BB Industry; FN Measurement; FN Risk Analysis

    1. When preferred stock is cumulative and the directors either do not declare a dividend to preferred stockholders or declare one that does not cover the total amount of cumulative dividends, the unpaid amount is called ________.

Learning Objective: 13-C2 Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Decision Making

Document Information

Document Type:
DOCX
Chapter Number:
13
Created Date:
Aug 21, 2025
Chapter Name:
Chapter 13 Accounting For Corporations
Author:
John J. Wild

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