7/24/2019 Ch15 Test Bank http://slidepdf.com/reader/full/ch15-test-bank 1/33 CHAPTER 15 STOCKHOLDERS’ EQUITY TRUE-FALSE —Conceptua T 1. A corporation is incorporated in only one state regardless of the number of states in which it operates. F 2. The preemptive right allows stockholders the right to vote for directors of the company. T 3. Common stock is the residual corporate interest that bears the ultimate risks of loss. F 4. arned capital consists of additional paid!in capital and retained earnings. T ". True no!par stock should be carried in the accounts at issue price without any additional paid!in capital reported. F #. Companies allocate the proceeds received from a lump!sum sale of securities based on the securities$ par values. T %. Companies should record stock issued for services or noncash property at either the fair value of the stock issued or the fair value of the consideration received& whichever is more clearly determinable. F '. Treasury stock is a company$s own stock that has been reac(uired and retired. F ). The cost method records all transactions in treasury shares at their cost and reports the treasury stock as a deduction from capital stock only. T 1*. +hen a corporation sells treasury stock below its cost& it usually debits the difference between cost and selling price to ,aid!in Capital from Treasury -tock. F 11. ,articipating preferred stock re(uires that if a company fails to pay a dividend in any year& it must make it up in a later year before paying any common dividends. T 12. Callable preferred stock permits the corporation at its option to redeem the outstanding preferred shares at specified future dates and at stipulated prices. T 13. The laws of some states re(uire that corporations restrict their legal capital from distribution to stockholders. F 14. The -C makes it mandatory for companies to disclose their dividend policy in their annual report. F 1". All dividends& ecept for li(uidating dividends& reduce the total stockholders$ e(uity of a corporation. T 1#. /ividends payable in assets of the corporation other than cash are called property dividends or dividends in kind.
T 1. A corporation is incorporated in only one state regardless of the number of states in whichit operates.
F 2. The preemptive right allows stockholders the right to vote for directors of the company.
T 3. Common stock is the residual corporate interest that bears the ultimate risks of loss.
F 4. arned capital consists of additional paid!in capital and retained earnings.
T ". True no!par stock should be carried in the accounts at issue price without any additional
paid!in capital reported.
F #. Companies allocate the proceeds received from a lump!sum sale of securities based onthe securities$ par values.
T %. Companies should record stock issued for services or noncash property at either the fair value of the stock issued or the fair value of the consideration received& whichever is moreclearly determinable.
F '. Treasury stock is a company$s own stock that has been reac(uired and retired.
F ). The cost method records all transactions in treasury shares at their cost and reports the
treasury stock as a deduction from capital stock only.
T 1*. +hen a corporation sells treasury stock below its cost& it usually debits the differencebetween cost and selling price to ,aid!in Capital from Treasury -tock.
F 11. ,articipating preferred stock re(uires that if a company fails to pay a dividend in any year&it must make it up in a later year before paying any common dividends.
T 12. Callable preferred stock permits the corporation at its option to redeem the outstandingpreferred shares at specified future dates and at stipulated prices.
T 13. The laws of some states re(uire that corporations restrict their legal capital from
distribution to stockholders.
F 14. The -C makes it mandatory for companies to disclose their dividend policy in their annual report.
F 1". All dividends& ecept for li(uidating dividends& reduce the total stockholders$ e(uity of acorporation.
T 1#. /ividends payable in assets of the corporation other than cash are called propertydividends or dividends in kind.
T 1%. +hen a stock dividend is less than 2*!2" percent of the common stock outstanding& acompany is re(uired to transfer the fair value of the stock issued from retained earnings.
F 1'. -tock splits and large stock dividends have the same effect on a company$s retainedearnings and total stockholders$ e(uity.
F 1). The rate of return on common stock e(uity is computed by dividing net income by theaverage common stockholders$ e(uity.
T 2*. The payout ratio is determined by dividing cash dividends paid to common stockholdersby net income available to common stockholders.
T%ue-Fa!e An!,e%!—Conceptua
Ite& An! Ite& An! Ite& An! Ite& An!
1. T #. 0 11. 0 1#. T2. 0 %. T 12. T 1%. T
3. T '. 0 13. T 1'. 04. 0 ). 0 14. 0 1). 0". T 1*. T 1". 0 2*. T
.ULTIPLE CHOICE—Conceptua
21. The residual interest in a corporation belongs to thea. management.b. creditors.c. common stockholders.d. preferred stockholders.
22. The pre!emptive right of a common stockholder is the right toa. share proportionately in corporate assets upon li(uidation.b. share proportionately in any new issues of stock of the same class.c. receive cash dividends before they are distributed to preferred stockholders.d. eclude preferred stockholders from voting rights.
23. The pre!emptive right enables a stockholder toa. receive the same amount of dividends on a percentage basis as the preferred
stockholders.b. receive cash dividends before other classes of stock without the pre!emptive right.c. sell capital stock back to the corporation at the option of the stockholder.d. none of these answers are correct.
-24. ormally& stock issued by a corporation has certain rights and privileges thatcan be restricted only by special contracts at the time the shares are issued. n theabsence of restrictive provisions& each share carries all of the following rights ecepta. to share proportionately in profits and losses.b. to share proportionately in corporate assets upon li(uidation.c. to share proportionately in any new issue of stocks or bonds by the corporation.d. to share proportionately in management of the corporation.
-2". Common stockholders of a business enterprise are said to be the residual owners. Theterm residual owner means that shareholders
a. are entitled to a dividend every year in which the business earns a profit.b. have the rights to specific assets of the business.c. bear the ultimate risks and uncertainties and receive the benefits of enterprise
ownership.d. can negotiate individual contracts on behalf of the enterprise.
2#. Total stockholders e(uity representsa. a claim to specific assets contributed by the owners.b. the maimum amount that can be borrowed by a company.c. a claim against a portion of the total assets of a company.d. only the amount of earnings that have been retained in the business.
2%. A primary source of stockholders e(uity isa. income retained by the corporation.b. appropriated retained earnings.c. contributions by stockholders.d. both income retained by the corporation and contributions by stockholders.
2'. -tockholders e(uity is generally classified into two ma5or categoriesa. contributed capital and appropriated capital.b. appropriated capital and retained earnings.c. retained earnings and unappropriated capital.d. earned capital and contributed capital.
2). The accounting problem in a lump sum issuance is the allocation of proceeds between theclasses of securities. An acceptable method of allocation isa. the pro forma method.b. the proportional method.
c. the incremental method.d. either the proportional method or the incremental method.
3*. +hen a corporation issues its capital stock in payment for services& the least appropriatebasis for recording the transaction is thea. market value of the services received.b. par value of the shares issued.c. market value of the shares issued.d. Any of these provides an appropriate basis for recording the transaction.
31. /irect costs incurred to sell stock such as underwriting costs should be accounted for as
1. a reduction of additional paid!in capital.2. an epense of the period in which the stock is issued.3. an intangible asset.
32. A 6secret reserve6 will be created if a. inade(uate depreciation is charged to income.b. a capital ependiture is charged to epense.c. liabilities are understated.d. stockholders e(uity is overstated.
s33. +hen a corporation sells stock to investors& the transaction will increaseContributed Capital arned Capital
A. 7es o8. 7es 7esC. o 7es/. o o
-34. +hen common stock is sold by a corporation a 5ournal entry is prepared whichincludes a debit to cash and a credit to the common stock account. f the debit to cash isgreater than the credit to the common stock account then it can be assumed thata. the common stock is worth more than its current market value.b. a gain on the sale of stock is a part of the transaction.c. the common stock was sold at a discountd. the stated value of the common stock is less than the per share price investors
were willing to pay.
-3". The general rule to be applied when stock is issued for services or propertyother than cash is that the property or services be recorded ata. the fair market value of the stock issued.a. the fair market value of the noncash consideration received.c. either the fair market value of the stock issued or the fair market value of the
noncash consideration received& whichever is more clearly determinable.d. a value that clearly reflects the intentions of the parties entering into the
transaction and provides a relevant basis for recording.
-3#. n 9anuary 2*14& 0inley Corporation& a newly formed company& issued 1*&*** shares of its :1* par common stock for :1" per share. ;n 9uly 1& 2*14& 0inley Corporationreac(uired 1&*** shares of its outstanding stock for :12 per share. The ac(uisition of these treasury sharesa. decreased total stockholders e(uity.b. increased total stockholders e(uity.c. did not change total stockholders e(uity.d. decreased the number of issued shares.
,3%. Treasury shares are shares
a. held as an investment by the treasurer of the corporation.b. held as an investment of the corporation.c. issued and outstanding.d. issued but not outstanding.
3'. +hen treasury stock is purchased for more than the par value of the stock and the costmethod is used to account for treasury stock& what account<s= should be debited>a. Treasury stock for the par value and paid!in capital in ecess of par for the ecess of
the purchase price over the par value.b. ,aid!in capital in ecess of par for the purchase price.
c. Treasury stock for the purchase price.d. Treasury stock for the par value and retained earnings for the ecess of the purchase
price over the par value.3). ?@ains6 on sales of treasury stock <using the cost method= should be credited to
a. paid!in capital from treasury stock.b. capital stock.c. retained earnings.d. other income.
4*. ,orter Corp. purchased its own par value stock on 9anuary 1& 2*14 for :2*&*** anddebited the treasury stock account for the purchase price. The stock was subse(uentlysold for :12&***. The :'&*** difference between the cost and sales price should berecorded as a deduction froma. additional paid!in capital to the etent that previous net 6gains6 from sales of the same
class of stock are included therein otherwise& from retained earnings.b. additional paid!in capital without regard as to whether or not there have been previous
net 6gains6 from sales of the same class of stock included therein.c. retained earnings.d. net income.
41. Bow should a 6gain6 from the sale of treasury stock be reflected when using the costmethod of recording treasury stock transactions>a. As ordinary earnings shown on the income statement.b. As paid!in capital from treasury stock transactions.c. As an increase in the amount shown for common stock.d. As an etraordinary item shown on the income statement.
42. +hich of the following best describes a possible result of treasury stock transactions by acorporation>a. ay increase but not decrease retained earnings.
b. ay increase net income if the cost method is used.c. ay decrease but not increase retained earnings.d. ay decrease but not increase net income.
43. +hich of the following features of preferred stock makes it more like a debt than an e(uityinstrument>a. ,articipatingb. Dotingc. Eedeemabled. oncumulative
44. The cumulative feature of preferred stock
a. limits the amount of cumulative dividends to the par value of the preferred stock.b. re(uires that dividends not paid in any year must be made up in a later year before
dividends are distributed to common shareholders.c. means that the shareholder can accumulate preferred stock until it is e(ual to the par
value of common stock at which time it can be converted into common stock.d. enables a preferred stockholder to accumulate dividends until they e(ual the par value
of the stock and receive the stock in place of the cash dividends.
,4". According to the 0A-8& redeemable preferred stock should bea. included with common stock.b. included as a liability.c. ecluded from the stockholders$ e(uity heading.d. included as a contra item in stockholders e(uity.
-4#. Cumulative preferred dividends in arrears should be shown in a corporations balancesheet asa. an increase in current liabilities.b. an increase in stockholders e(uity.c. a footnote.d. an increase in current liabilities for the current portion and long!term liabilities for the
long!term portion.
4%. At the date of the financial statements& common stock shares issued would eceedcommon stock shares outstanding as a result of thea. declaration of a stock split.b. declaration of a stock dividend.c. purchase of treasury stock.d. payment in full of subscribed stock.
4'. An entry is not made on thea. date of declaration.b. date of record.c. date of payment.d. An entry is made on all of these dates.
4). Cash dividends are paid on the basis of the number of sharesa. authoriFed.b. issued.c. outstanding.
d. outstanding less the number of treasury shares.
"*. +hich of the following statements about property dividends is not true>a. A property dividend is usually in the form of securities of other companies.b. A property dividend is also called a dividend in kind.c. The accounting for a property dividend should be based on the carrying value <book
value= of the nonmonetary assets transferred.d. All of these statements are true.
"1. Bouser Corporation owns 4&***&*** shares of stock in 8aha Corporation. ;n /ecember31& 2*14& Bouser distributed these shares of stock as a dividend to its stockholders. Thisis an eample of a
a. property dividend.b. stock dividend.c. li(uidating dividend.d. cash dividend.
"2. A dividend which is a return to stockholders of a portion of their original investments is aa. li(uidating dividend.b. property dividend.c. liability dividend.d. participating dividend.
"3. A mining company declared a li(uidating dividend. The 5ournal entry to record thedeclaration must include a debit toa. Eetained arnings.b. a paid!in capital account.c. Accumulated /epletion.d. Accumulated /epreciation.
"4. f management wishes to 6capitaliFe6 part of the earnings& it may issue aa. cash dividend.b. stock dividend.c. property dividend.d. li(uidating dividend.
"". +hich dividends do not reduce stockholders e(uity>a. Cash dividendsb. -tock dividendsc. ,roperty dividendsd. Gi(uidating dividends
"#. The declaration and issuance of a stock dividend larger than 2"H of the shares previouslyoutstandinga. increases common stock outstanding and increases total stockholders e(uity.b. decreases retained earnings but does not change total stockholders e(uity.c. may increase or decrease paid!in capital in ecess of par but does not change total
stockholders e(uity.d. increases retained earnings and increases total stockholders e(uity.
"%. Iuirk Corporation issued a 1**H stock dividend of its common stock which had a par value of :1* before and after the dividend. At what amount should retained earnings be
capitaliFed for the additional shares issued>a. There should be no capitaliFation of retained earnings.b. ,ar valuec. 0air value on the declaration dated. 0air value on the payment date
"'. The issuer of a "H common stock dividend to common stockholders should transfer fromretained earnings to paid!in capital an amount e(ual to thea. fair value of the shares issued.b. book value of the shares issued.c. minimum legal re(uirements.d. par or stated value of the shares issued.
"). At the date of declaration of a small common stock dividend& the entry should not includea. a credit to Common -tock.b. a credit to ,aid!in Capital in cess of ,ar.c. a debit to Eetained arnings.d. All of these are acceptable.
#*. The balance in Common -tock /ividend /istributable should be reported as a<n=a. deduction from common stock issued.b. addition to capital stock.c. current liability.d. contra current asset.
#1. A feature common to both stock splits and stock dividends isa. a transfer to earned capital of a corporation.b. that there is no effect on total stockholders e(uity.c. an increase in total liabilities of a corporation.d. a reduction in the contributed capital of a corporation.
#2. +hat effect does the issuance of a 2!for!1 stock split have on each of the following>
,ar Dalue per -hare Eetained arningsa. o effect o effectb. ncrease o effectc. /ecrease o effect
d. /ecrease /ecrease
#3. +hich one of the following disclosures should be made in the e(uity section of thebalance sheet& rather than in the notes to the financial statements>a. /ividend preferencesb. Gi(uidation preferencesc. Call pricesd. Conversion or eercise prices
#4. The rate of return on common stock e(uity is calculated by dividinga. net income less preferred dividends by average common stockholders$ e(uity.b. net income by average common stockholders$ e(uity.
c. net income less preferred dividends by ending common stockholders$ e(uity.d. net income by ending common stockholders$ e(uity.
#". The payout ratio can be calculated by dividinga. dividends per share by earnings per share.b. cash dividends by net income less preferred dividends.c. cash dividends by market price per share.d. dividends per share by earnings per share and dividing cash dividends by net income
less preferred dividends.
##. 7ounger Company has outstanding both common stock and nonparticipating& non!cumulative preferred stock. The li(uidation value of the preferred is e(ual to its par value.
The book value per share of the common stock isunaffected
bya. the declaration of a stock dividend on preferred payable in preferred stock when themarket price of the preferred is e(ual to its par value.
b. the declaration of a stock dividend on common stock payable in common stock whenthe market price of the common is e(ual to its par value.
c. the payment of a previously declared cash dividend on the common stock.d. a 2!for!1 split of the common stock.
Kse the following information for (uestions %1 and %2.
,resented below is information related to Bale Corporation
Common -tock& :1 par :4&"**&***,aid!in Capital in cess of ,arLCommon -tock ""*&***,referred ' 1M2H -tock& :"* par 2&***&***,aid!in Capital in cess of ,arL,referred -tock 4**&***Eetained arnings 1&"**&***Treasury Common -tock <at cost= 1"*&***
%1. The total stockholders e(uity of Bale Corporation isa. :'&'**&***.b. :'&)"*&***.c. :%&3**&***.d. :%&4"*&***.
%2. The total paid!in capital <cash collected= related to the common stock isa. :4&"**&***.b. :"&*"*&***.c. :"&4"*&***.d. :4&)**&***.
%3. anning Company issued 1*&*** shares of its :" par value common stock having a fair value of :2" per share and 1"&*** shares of its :1" par value preferred stock having a fair value of :2* per share for a lump sum of :"3*&***. Bow much of the proceeds would beallocated to the common stock>a. :2"*&***
b. :24*&)*)c. :2')&*)1d. :2'1&"#3
%4. orton Company issues 4&*** shares of its :" par value common stock having a fair value of :2" per share and #&*** shares of its :1" par value preferred stock having a fair value of :2* per share for a lump sum of :21*&***. +hat amount of the proceeds shouldbe allocated to the preferred stock>a. :1%1&'1'b. :131&2"*c. :114&"4"d. :)"&4"4
%". 8erry Corporation has "*&*** shares of :1* par common stock authoriFed. The followingtransactions took place during 2*14& the first year of the corporation$s eistence
-old 1*&*** shares of common stock for :13."* per share.ssued 1*&*** shares of common stock in echange for a patent valued at :1"*&***.
At the end of the 8erry$s first year& total paid!in capital amounted toa. :#*&***.b. :13"&***.c. :1"*&***.d. :2'"&***.
%#. @lavine Company issues #&*** shares of its :" par value common stock having a fair value of :2" per share and )&*** shares of its :1" par value preferred stock having a fair value of :2* per share for a lump sum of :2)%&***. The proceeds allocated to thecommon stock isa. :11'&'**b. :13"&***c. :1"*&***d. :1#2&***
%%. +heeler Company issued "&*** shares of its :" par value common stock having a fair value of :2" per share and %&"** shares of its :1" par value preferred stock having a fair value of :2* per share for a lump sum of :2#4&***. The proceeds allocated to thepreferred stock isa. :1"'&4**b. :1"*&***c. :144&***d. :12*&***
%'. ,ember Corporation started business in 2**) by issuing 2**&*** shares of :2* par common stock for :3# each. n 2*14& 2"&*** of these shares were purchased for :"2 per share by ,ember Corporation and held as treasury stock. ;n 9une 1"& 2*1"& these 2"&***shares were echanged for a piece of property that had an assessed value of :1&*1*&***.,ember$s stock is actively traded and had a market price of :#* on 9une 1"& 2*1". Thecost method is used to account for treasury stock. The amount of paid!in capital fromtreasury stock transactions resulting from the above events would bea. :1&***&***.b. : #**&***.c. : 1)*&***.d. : 2**&***.
%). ;n -eptember 1& 2*14& DaldeF Company reac(uired 2*&*** shares of its :1* par valuecommon stock for :1" per share. DaldeF uses the cost method to account for treasurystock. The 5ournal entry to record the reac(uisition of the stock should debita. Treasury -tock for :2**&***.b. Common -tock for :2**&***.c. Common -tock for :2**&*** and ,aid!in Capital in cess of ,ar for :%"&***.d. Treasury -tock for :3**&***.
'*. @annon Company ac(uired 1*&*** shares of its own common stock at :2* per share on0ebruary "& 2*14& and sold "&*** of these shares at :2% per share on August )& 2*1".The fair value of @annons common stock was :24 per share at /ecember 31& 2*14& and:2" per share at /ecember 31& 2*1". The cost method is used to record treasury stock
transactions. +hat account<s= should @annon credit in 2*1" to record the sale of "&***shares>a. Treasury -tock for :13"&***.b. Treasury -tock for :1**&*** and ,aid!in Capital from Treasury -tock for :3"&***.c. Treasury -tock for :1**&*** and Eetained arnings for :3"&***.d. Treasury -tock for :12*&*** and Eetained arnings for :1"&***.
'1. Gong Co. issued 1**&*** shares of :1* par common stock for :1&2**&***. A year later Gong ac(uired 12&*** shares of its own common stock at :1" per share. Three monthslater Gong sold #&*** of these shares at :1) per share. f the cost method is used torecord treasury stock transactions& to record the sale of the #&*** treasury shares& Gongshould credita. Treasury -tock for :114&***.b. Treasury -tock for :#*&*** and ,aid!in Capital from Treasury -tock for :"4&***.c. Treasury -tock for :)*&*** and ,aid!in Capital from Treasury -tock for :24&***.d. Treasury -tock for :)*&*** and ,aid!in Capital in cess of ,ar for :24&***.
'2. An analysis of stockholders e(uity of Bahn Corporation as of 9anuary 1& 2*14& is asfollows
Common stock& par value :2* authoriFed 1**&*** sharesissued and outstanding )*&*** shares :1&'**&***
,aid!in capital in ecess of par '**&***Eetained earnings %#*&***Total :3&3#*&***
Bahn uses the cost method of accounting for treasury stock and during 2*14 entered intothe following transactions
Ac(uired 2&"** shares of its stock for :%"&***.-old 2&*** treasury shares at :3" per share.-old the remaining treasury shares at :2* per share.
Assuming no other e(uity transactions occurred during 2*14& what should Bahn report at/ecember 31& 2*14& as total additional paid!in capital>a. :%)"&***b. :'**&***c. :'*"&***d. :'1"&***
'3. ,ercy Corporation was organiFed on 9anuary 1& 2*14& with an authoriFation of 1&2**&***shares of common stock with a par value of :# per share. /uring 2*14& the corporationhad the following capital transactions
9anuary " issued 4"*&*** shares N :1* per share9uly 2' purchased #*&*** shares N :11 per share/ecember 31 sold the #*&*** shares held in treasury N :1' per share
,ercy used the cost method to record the purchase and reissuance of the treasuryshares. +hat is the total amount of additional paid!in capital as of /ecember 31& 2*14>a. :!*!.b. :1&3'*&***.
'4. -osa Co.s stockholders e(uity at 9anuary 1& 2*14 is as follows
Common stock& :1* par value authoriFed 3**&*** shares;utstanding 22"&*** shares :2&2"*&***
,aid!in capital in ecess of par #**&***Eetained earnings 2&1)*&***
Total :"&*4*&***/uring 2*14& -osa had the following stock transactions
Ac(uired #&*** shares of its stock for :2%*&***.-old 3&#** treasury shares at :"* a share.-old the remaining treasury shares at :41 per share.
o other stock transactions occurred during 2*14. Assuming -osa uses the cost methodto record treasury stock transactions& the total amount of all additional paid!in capitalaccounts at /ecember 31& 2*14 isa. :")1&#**.b. :"%*&***.c. :#*'&4**.
d. :#2%&#**.
'". ,resented below is the stockholders e(uity section of ;aks Corporation at /ecember 31&2*14
Common stock& par value :2* authoriFed %"&*** sharesissued and outstanding 4"&*** shares : )**&***
,aid!in capital in ecess of par value 3"*&***Eetained earnings 3**&***
:1&""*&***
/uring 2*1"& the following transactions occurred relating to stockholders e(uity
3&*** shares were reac(uired at :2' per share.3&*** shares were reac(uired at :3" per share.1&'** shares of treasury stock were sold at :3* per share.
0or the year ended /ecember 31& 2*1"& ;aks reported net income of :4"*&***. Assuming ;aks accounts for treasury stock under the cost method& what should it reportas total stockholders e(uity on its /ecember 31& 2*1"& balance sheet>a. :1&'#"&***.b. :1&'#1&4**.c. :1&'"%&'**.d. :1&41"&***.
'#. ;n /ecember 1& 2*14& Abel Corporation echanged 4*&*** shares of its :1* par valuecommon stock held in treasury for a used machine. The treasury shares were ac(uired by
Abel at a cost of :4* per share& and are accounted for under the cost method. ;n the dateof the echange& the common stock had a fair value of :"" per share <the shares wereoriginally issued at :3* per share=. As a result of this echange& Abels total stockholderse(uity will increase bya. : 4**&***.b. :1&#**&***.c. :2&2**&***.d. :1&'**&***.
'%. Guther nc.& has 4&*** shares of #H& :"* par value& cumulative preferred stock and1**&*** shares of :1 par value common stock outstanding at /ecember 31& 2*1"& and/ecember 31& 2*14. The board of directors declared and paid a :1*&*** dividend in 2*14.n 2*1"& :4'&*** of dividends are declared and paid. +hat are the dividends received bythe preferred stockholders in 2*1">a. :34&***b. :24&***c. :14&***d. :12&***
''. Anders& nc.& has 1"&*** shares of "H& :1** par value& cumulative preferred stock and#*&*** shares of :1 par value common stock outstanding at /ecember 31& 2*1". Therewere no dividends declared in 2*13. The board of directors declares and pays a :13"&***dividend in 2*14 and in 2*1". +hat is the amount of dividends received by the commonstockholders in 2*1">a. :4"&***b. :%"&***c. :13"&***d. :*
'). Colson nc. declared a :32*&*** cash dividend. t currently has 12&*** shares of %H&:1** par value cumulative preferred stock outstanding. t is one year in arrears on itspreferred stock. Bow much cash will Colson distribute to the common stockholders>a. :1"2&***.b. :1#'&***.c. :23#&***.d. one.
)*. ,ierson Corporation owned 1*&*** shares of Bunter Corporation. These shares werepurchased in 2*11 for :)*&***. ;n ovember 1"& 2*1"& ,ierson declared a property
dividend of one share of Bunter for every ten shares of ,ierson held by a stockholder. ;nthat date& when the market price of Bunter was :2' per share& there were )*&*** sharesof ,ierson outstanding. +hat gain and net reduction in retained earnings would resultfrom this property dividend>
)1. -tinson Corporation owned 3*&*** shares of atile Corporation. These shares werepurchased in 2*11 for :2%*&***. ;n ovember 1"& 2*1"& -tinson declared a propertydividend of one share of atile for every ten shares of -tinson held by a stockholder. ;nthat date& when the market price of atile was :2' per share& there were 2%*&*** sharesof -tinson outstanding. +hat gain and net reduction in retained earnings would result from
)2. +inger Corporation owned #**&*** shares of 0egan Corporation stock. ;n /ecember 31&2*14& when +ingers account ?(uity nvestments <0egan CorporationO= had a carryingvalue of :" per share& +inger distributed these shares to its stockholders as a dividend.
+inger originally paid :' for each share. 0egan has 2&***&*** shares issued andoutstanding& which are traded on a national stock echange. The (uoted market price for a 0egan share was :% on the declaration date and :) on the distribution date.
+hat would be the reduction in +ingers stockholders e(uity as a result of the abovetransactions>a. :2&4**&***.b. :3&***&***.c. :4&'**&***.d. :"&4**&***.
)3. @ibbs Corporation owned 2*&*** shares of ;liver Corporation$s :" par value commonstock. These shares were purchased in 2*11 for :1'*&***. ;n -eptember 1"& 2*1"&@ibbs declared a property dividend of one share of ;liver for every ten shares of @ibbsheld by a stockholder. ;n that date& when the market price of ;liver was :2' per share&there were 1'*&*** shares of @ibbs outstanding. +hat T reduction in retainedearnings would result from this property dividend>a. :342&***b. :"*4&***c. :1%1&***d. :1#2&***
)4. elvern$s Corporation has an investment in 1"&*** shares of +allace Company commonstock with a cost of :#"4&***. These shares are used in a property dividend tostockholders of elvern$s. The property dividend is declared on ay 2" and scheduled tobe distributed on 9uly 31 to stockholders of record on 9une 1". The fair value per share of +allace stock is :#3 on ay 2"& :## on 9une 1"& and :#' on 9uly 31. The net effect of this property dividend on retained earnings is a reduction of a. :1&*2*&***.b. : ))*&***.c. : )4"&***.d. : #"4&***.
)". BernandeF Company has "#*&*** shares of :1* par value common stock outstanding./uring the year& BernandeF declared a 1*H stock dividend when the market price of thestock was :3* per share. 0our months later BernandeF declared a :."* per share cashdividend. As a result of the dividends declared during the year& retained earningsdecreased bya. :1&)''&***.b. : '4*&***.c. : 3*'&***.d. : 2'*&***.
)#. ;n 9une 3*& 2*14& when rmler Co.s stock was selling at :#" per share& its capitalaccounts were as follows
Capital stock <par value :"* "*&*** shares issued= :2&"**&***,remium on capital stock #**&***Eetained earnings 4&2**&***
f a 1**H stock dividend were declared and distributed& capital stock would bea. :2&"**&***.b. :3&1**&***.c. :"&***&***.d. :%&3**&***.
)%. The stockholders e(uity section of @unkel Corporation as of /ecember 31& 2*14& was asfollows
Common stock& par value :2 authoriFed 2*&*** sharesissued and outstanding 1*&*** shares : 2*&***
,aid!in capital in ecess of par 3*&***Eetained earnings )"&***
:14"&***
;n arch 1& 2*1"& the board of directors declared a 1"H stock dividend& and accordingly1&"** additional shares were issued. ;n arch 1& 2*1"& the fair value of the stock was :#per share. 0or the two months ended 0ebruary 2'& 2*1"& @unkel sustained a net loss of :1"&***.
+hat amount should @unkel report as retained earnings as of arch 1& 2*1">a. :%1&***.b. :%%&***.c. :'1&***.d. :'%&***.
)'. The stockholders e(uity of Bowell Company at 9uly 31& 2*14 is presented below
Common stock& par value :2*& authoriFed 4**&*** sharesissued and outstanding 1#*&*** shares :3&2**&***
,aid!in capital in ecess of par 1#*&***
Eetained earnings #"*&***:4&*1*&***
;n August 1& 2*14& the board of directors of Bowell declared a 1*H stock dividend oncommon stock& to be distributed on -eptember 1"th. The market price of Bowellscommon stock was :%* on August 1& 2*14& and :%# on -eptember 1"& 2*14. +hat is theamount of the debit to retained earnings as a result of the declaration and distribution of this stock dividend>a. : #4*&***.b. :1&12*&***.c. :1&21#&***.d. : '**&***.
)). ;n 9anuary 1& 2*14& /odd& nc.& declared a 1"H stock dividend on its common stockwhen the fair value of the common stock was :3* per share. -tockholders e(uity beforethe stock dividend was declared consisted of
Common stock& :1* par value& authoriFed 2**&*** sharesissued and outstanding 12*&*** shares :1&2**&***
Additional paid!in capital on common stock 1"*&***Eetained earnings %**&***Total stockholders e(uity :2&*"*&***
+hat was the effect on /odd$s retained earnings as a result of the above transaction>a. :2%*&*** decreaseb. :"4*&*** decrease
c. :)**&*** decreased. :4"*&*** decrease
1**. ;n 9anuary 1& 2*14& Culver Corporation had 11*&*** shares of its :" par value commonstock outstanding. ;n 9une 1& the corporation ac(uired 1*&*** shares of stock to be heldin the treasury. ;n /ecember 1& when the market price of the stock was :1*& thecorporation declared a 1"H stock dividend to be issued to stockholders of record on/ecember 1#& 2*14. +hat was the impact of the 1"H stock dividend on the balance of theretained earnings account>a. :)3%&"** decreaseb. :1"*&*** decreasec. :1#"&*** decrease
1*1. At the beginning of 2*1"& 0laherty Company had retained earnings of :3"*&***. /uringthe year 0laherty reported net income of :1**&***& sold treasury stock at a ?gainO of:3#&***& declared a cash dividend of :#*&***& and declared and issued a small stockdividend of 3&*** shares <:1* par value= when the fair value of the stock was :2* pershare. The amount of retained earnings available for dividends at the end of 2*1" wasa. :33*&***.b. :3#*&***.c. :3##&***.d. :3)#&***.
1*2. asterson Company has 42*&*** shares of :1* par value common stock outstanding./uring the year asterson declared a 1"H stock dividend when the market price of thestock was :3# per share. Three months later asterson declared a :.#* per share cashdividend. As a result of the dividends declared during the year& retained earningsdecreased bya. :2&#'3&'**b. :2&2#'&***c. : 41"&'**d. : 3)#&***
1*3. Gayne Corporation had the following information in its financial statements for the yearsended 2*14 and 2*1"
Cash dividends for the year 2*1" : 1*&***et income for the year ended 2*1" '3&***arket price of stock& 12M31M14 1*arket price of stock& 12M31M1" 12Common stockholders$ e(uity& 12M31M14 1&#**&***Common stockholders$ e(uity& 12M31M1" 1&)'*&***
;utstanding shares& 12M31M1" 1'*&***,referred dividends for the year ended 2*1" 1"&***
+hat is the payout ratio for Gayne Corporation for the year ended 2*1">a. 3*.1Hb. 1'.1Hc. 14.%Hd. 12.*H
1*4. Gayne Corporation had the following information in its financial statements for the yearsended 2*14 and 2*1"
Cash dividends for the year 2*1" : 1*&***
et income for the year ended 2*1" '3&***arket price of stock& 12M31M14 1*arket price of stock& 12M31M1" 12Common stockholders$ e(uity& 12M31M14 1&#**&***Common stockholders$ e(uity& 12M31M1" 1&)'*&***;utstanding shares& 12M31M1" 1'*&***,referred dividends for the year ended 2*1" 1"&***
+hat is the book value per share for Gayne Corporation for the year ended 2*1">a. :11.**b. :).)2c. :).)4d. :'.')
1*". At the beginning of 2*1"& Bamilton Company had retained earnings of :2"*&***. /uringthe year Bamilton reported net income of :%"&***& sold treasury stock at a ?gainO of:2%&***& declared a cash dividend of :4"&***& and declared and issued a small stockdividend of 1&"** shares <:1* par value= when the fair value of the stock was :3* pershare. The amount of retained earnings available for dividends at the end of 2*1" wasa. :2'4&"**.b. :2#2&***.c. :2"%&"**.d. :23"&***.
1*#. ingenback Company has "#*&*** shares of :1* par value common stock outstanding./uring the year ingenback declared a 1"H stock dividend when the market price of thestock was :4' per share. Two months later ingenback declared a :.#* per share cashdividend. As a result of the dividends declared during the year& retained earningsdecreased bya. : 3'#&4**.b. : "2'&***.c. :4&*32&***.d. :4&41'&4**.
1*%. -ealy Corporation had the following information in its financial statements for the yearsended 2*14 and 2*1"
Cash dividends for the year 2*1" : "&***
et income for the year ended 2*1" '%&***arket price of stock& 12M31M14 1*arket price of stock& 12M31M1" 12Common stockholders$ e(uity& 12M31M14 1&***&***Common stockholders$ e(uity& 12M31M1" 1&2**&***;utstanding shares& 12M31M1" 1**&***,referred dividends for the year ended 2*1" 1*&***
+hat is the rate of return on common stock e(uity for -ealy Corporation for the yearended 2*1">a. %.)Hb. #.4Hc. %.*Hd. #."H
1*'. -ealy Corporation had the following information in its financial statements for the yearsended 2*14 and 2*1"
Cash dividends for the year 2*1" : "&***et income for the year ended 2*1" '%&***arket price of stock& 12M31M14 1*
arket price of stock& 12M31M1" 12Common stockholders$ e(uity& 12M31M14 1&***&***Common stockholders$ e(uity& 12M31M1" 1&2**&***;utstanding shares& 12M31M1" 1**&***,referred dividends for the year ended 2*1" 1*&***
+hat is the payout ratio for -ealy Corporation for the year ended 2*1">a. 13.*Hb. ".%Hc. #."Hd. 1%.2H
1*). ays& nc. had net income for 2*14 of :1&*#*&*** and earnings per share on commonstock of :". ncluded in the net income was :1"*&*** of bond interest epense related toits long!term debt. The income ta rate for 2*14 was 3*H. /ividends on preferred stockwere :2**&***. The payout ratio on common stock was 2"H. +hat were the dividends oncommon stock in 2*14>a. :21"&***.b. :2#"&***.c. :241&2"*.d. :322&"**.
11*. ,resented below is information related to ;render& nc. /ecember 31&
2*1" 2*14Common stock : %"&*** : #*&***4H ,referred stock 3"*&*** 3"*&***Eetained earnings <includes net income for current year= )*&*** %"&***et income for year 3"&*** 32&***
+hat is ;render$s rate of return on common stock e(uity for 2*1">a. 23.3Hb. 14.*Hc. 31.1Hd. 21.2H
111. The following data are provided
/ecember 31& 2*1" 2*14
"H Cumulative preferred stock& :"* par :1**&*** :1**&***Common stock& :1* par 14*&*** )*&***
Additional paid!in capital '*&*** %*&***Eetained earnings <includes current year net income= 24*&*** 21"&***et income #*&***
Additional information;n ay 1& 2*1"& "&*** shares of common stock were issued. The preferred dividends were not
declared during 2*1". The market price of the common stock was :"* at /ecember 31& 2*1".
The rate of return on common stock e(uity for 2*1" is calculated as
a. #* P 41".b. #* P 4#*.c. "" P 41".d. "" P 4#*.
112. The following data are provided /ecember 31&
2*1" 2*14"H Cumulative preferred stock& :"* par :1**&*** :1**&***Common stock& :1* par 14*&*** )*&***
Additional paid!in capital '*&*** %*&***Eetained earnings <includes current year net income= 24*&*** 21"&***
et income #*&*** Additional information;n ay 1& 2*1"& "&*** shares of common stock were issued. The preferred dividends were not
declared during 2*1". The market price of the common stock was :"* at /ecember 31& 2*1".
The book value per share of common stock at 12M31M1" is calculated asa. 4"" P 14.b. 3'* P 14.c. 22* P 14.d. 4#* P 14.
113. Turner Corporation had the following information in its financial statements for the year
ended 2*14 and 2*1"
Cash dividends for the year 2*1" : 1"&***et income for the year ended 2*1" 13*&***arket price of stock& 12M31M1" 24Common stockholders$ e(uity& 12M31M14 2&2**&***Common stockholders$ e(uity& 12M31M1" 2&4**&***;utstanding shares& 12M31M1" 1"*&***,referred dividends for the year ended 2*1" 3*&***
+hat is the payout ratio for Turner Corporation for the year ended 2*1">a. 11."H
114. Turner Corporation had the following information in its financial statements for the yearended 2*14 and 2*1"
Cash dividends for the year 2*1" : 1"&***et income for the year ended 2*1" 13*&***arket price of stock& 12M31M1" 24
Common stockholders$ e(uity& 12M31M14 2&2**&***Common stockholders$ e(uity& 12M31M1" 2&4**&***;utstanding shares& 12M31M1" 1"*&***,referred dividends for the year ended 2*1" 3*&***
+hat is the book value per share for Turner Corporation for the year ended 2*1">a. :1".'*b. :1#.**c. :14.#%d. :1".%*
J11". +ritten& nc. has outstanding #**&*** shares of :2 par common stock and 12*&*** shares
of no!par 'H preferred stock with a stated value of :". The preferred stock is cumulativeand nonparticipating. /ividends have been paid in every year ecept the past two yearsand the current year.
Assuming that :3**&*** will be distributed as a dividend in the current year& how muchwill the common stockholders receive>a. Qero.b. :1"#&***.c. :2*4&***.d. :2"2&***.
J11#. +ritten& nc. has outstanding #**&*** shares of :2 par common stock and 12*&*** shares
of no!par 'H preferred stock with a stated value of :". The preferred stock is cumulativeand nonparticipating. /ividends have been paid in every year ecept the past two yearsand the current year.
Assuming that :12#&*** will be distributed as a dividend in the current year& how muchwill the preferred stockholders receive>a. :42&***.b. :4'&***.c. :)#&***.d. :12#&***.
J11%. +ritten& nc. has outstanding #**&*** shares of :2 par common stock and 12*&*** shares
of no!par 'H preferred stock with a stated value of :". The preferred stock is cumulativeand participating. /ividends have been paid in every year ecept the past two years andthe current year.
Assuming that :3##&*** will be distributed& and the preferred stock is also participating&how much will the common stockholders receive>a. :222&***.b. :1'*&***.c. :1'#&***.d. : )#&***.
J11'. 7oder& nc. has 1"*&*** shares of :1* par value common stock and %"&*** shares of :1*par value& #H& cumulative& participating preferred stock outstanding. /ividends on thepreferred stock are one year in arrears. Assuming that 7oder wishes to distribute:4*"&*** as dividends& the common stockholders will receivea. : )*&***.b. :1#"&***.c. :24*&***.d. :31"&***.
J11). ann Co. has outstanding '*&*** shares of 'H preferred stock with a :1* par value and1"*&*** shares of :3 par value common stock. /ividends have been paid every year ecept last year and the current year. f the preferred stock is cumulative andnonparticipating and :4**&*** is distributed& the common stockholders will receivea. :*.b. :2%2&***.c. :33#&***.d. :4**&***.
%1. a %'. d '". a )2. b )). b 1*#. d 113. b%2. b %). d '#. c )3. d 1**. b 1*%. c 114. b
%3. b '*. b '%. c )4. d 1*1. a 1*'. c J11" b
%4. c '1. c ''. a )". a 1*2. a 1*). a J11# d
%". d '2. c '). a )#. c 1*3. c 11*. b J11% b
%#. b '3. d )*. c )%. a 1*4. a 111. c J11' c
%%. c '4. c )1. d )'. b 1*". d 112. a J11) b
.ULTIPLE CHOICE—CPA A'apte'
12*. A corporation was organiFed in 9anuary 2*14 with authoriFed capital of :1* par valuecommon stock. ;n 0ebruary 1& 2*14& shares were issued at par for cash. ;n arch 1&2*14& the corporations attorney accepted %&*** shares of common stock in settlement for legal services with a fair value of :)*&***. Additional paid!in capital would increase on
0ebruary 1& 2*14 arch 1& 2*14a. 7es ob. 7es 7esc. o od. o 7es
121. ;n 9uly 1& 2*14& all Co. issued 2&"** shares of its :1* par common stock and "&***shares of its :1* par convertible preferred stock for a lump sum of :13*&***. At this datealls common stock was selling for :24 per share and the convertible preferred stock for :1' per share. The amount of the proceeds allocated to alls preferred stock should bea. :#"&***.b. :%'&***.c. :)*&***.d. :%1&"**.
122. Borton Co. was organiFed on 9anuary 2& 2*14& with "**&*** authoriFed shares of :1* par value common stock. /uring 2*14& Borton had the following capital transactions
9anuary "Lissued 3%"&*** shares at :14 per share.9uly 2%Lpurchased 2"&*** shares at :11 per share.ovember 2"Lsold 1'&*** shares of treasury stock at :13 per share.
Borton used the cost method to record the purchase of the treasury shares. +hat wouldbe the balance in the ,aid!in Capital from Treasury -tock account at /ecember 31& 2*14>a. :*.b. :1'&***.c. :3#&***.d. :"4&***.
123. n 2*14& Bobbs Corp. ac(uired 12&*** shares of its own :1 par value common stock at:1' per share. n 2*1"& Bobbs issued '&*** of these shares at :2" per share. Bobbsuses the cost method to account for its treasury stock transactions. +hat accounts andwhat amounts should Bobbs credit in 2*1" to record the issuance of the #&*** shares>
Treasury Additional Eetained Common -tock ,aid!in Capital arnings -tock
a. :144&*** :14*&***
b. :144&*** :"#&***c. :1)2&*** :'&***d. :13#&*** :"#&*** :'&***
124. At its date of incorporation& -auder& nc. issued 1**&*** shares of its :1* par commonstock at :11 per share. /uring the current year& -auder ac(uired 2*&*** shares of itscommon stock at a price of :1# per share and accounted for them by the cost method.-ubse(uently& these shares were reissued at a price of :12 per share. There have beenno other issuances or ac(uisitions of its own common stock. +hat effect does thereissuance of the stock have on the following accounts>
12". 0armer Corp. owned 2*&*** shares of aton Corp. purchased in 2*11 for :4"*&***. ;n/ecember 1"& 2*14& 0armer declared a property dividend of all of its aton Corp. shareson the basis of one share of aton for every 1* shares of 0armer common stock held byits stockholders. The property dividend was distributed on 9anuary 1"& 2*1". ;n thedeclaration date& the aggregate market price of the aton shares held by 0armer was:%"*&***. The entry to record the declaration of the dividend would include a debit toEetained arnings of a. :*.b. :3**&***.c. :4"*&***.d. :%"*&***.
12#. A corporation declared a dividend& a portion of which was li(uidating. Bow would thisdistribution affect each of the following>
Additional,aid!in Capital Eetained arnings
a. /ecrease o effect
b. /ecrease /ecreasec. o effect /ecreased. o effect o effect
12%. ;n ay 1& 2*14& Qiek Corp. declared and issued a 1*H common stock dividend. ,rior tothis dividend& Qiek had 2**&*** shares of :1 par value common stock issued andoutstanding. The fair value of Qiek s common stock was :2* per share on ay 1& 2*14.
As a result of this stock dividend& Qieks total stockholders e(uitya. increased by :4**&***.b. decreased by :4**&***.c. decreased by :2*&***.d. did not change.
12'. Bow would the declaration and subse(uent issuance of a 1*H stock dividend by theissuer affect each of the following when the fair value of the shares eceeds the par valueof the stock>
AdditionalCommon -tock ,aid!in Capital
a. o effect o effectb. o effect ncreasec. ncrease o effectd. ncrease ncrease
12). ;n /ecember 31& 2*14& the stockholders e(uity section of Arndt& nc.& was as follows
Common stock& par value :1* authoriFed 3*&*** sharesissued and outstanding )&*** shares : )*&***
Additional paid!in capital 11#&***Eetained earnings 1'4&***Total stockholders e(uity :3)*&***
;n arch 31& 2*1"& Arndt declared a 1*H stock dividend& and accordingly )** additionalshares were issued& when the fair value of the stock was :1' per share. 0or the threemonths ended arch 31& 2*1"& Arndt sustained a net loss of :32&***. The balance of
Arndt$s retained earnings as of arch 31& 2*1"& should bea. :13"&'**.
b. :143&***.c. :144&'**.d. :1"2&***.
J13*. At /ecember 31& 2*14 and 2*1"& ,lank Corp. had outstanding 4&*** shares of :1** par value 'H cumulative preferred stock and 2*&*** shares of :1* par value common stock.
At /ecember 31& 2*14& dividends in arrears on the preferred stock were :1#&***. Cashdividends declared in 2*1" totaled :#*&***. +hat amounts were payable on each class of stock>
,referred -tock Common -tocka. :32&*** :2'&***b. :44&*** :1#&***
F 1.n the Knited -tates& like many other countries& banks are ma5or creditors as well as thelargest investors.
F 2.The statement of changes in e(uity is identical to the K.-. @AA, statement of retainedearnings S beginning balance retained earnings& plus net income& less dividends& e(ualsending balance retained earnings.
F 3.Knder 0E- companies report preference shares at par value as the last item in the e(uitysection.
T 4.Knder 0E- true no!par shares should be carried in the accounts at issue price without anyshare premium reported.
T ".Contributed capital includes items such as the par value of all outstanding shares and
premiums less discounts on issuance.
An!,e%! to T%ue<Fa!e=1. 0alse2. 0alse3. 0alse4. True". True
.ut(pe C+o(ce
#. The accounting for treasury stock retirements under 0E- re(uiresa. a charge for the entire amount to paid!in capital.b. a charge for the ecess to paid!in capital& depending on the original transaction related to
the issuance of the stock.c. a charge for the ecess of the cost of treasury stock over par value to retained earnings.d. an allocation for the difference between paid!in capital and retained earnings.
%. The Eevaluation -urplus of 0E- isa. similar to K.-. @AA, in that it allows both increases and decreases in valuation.b. similar to K.-. @AA, in that it only allows for the decrease in valuation.c. similar to K.-. @AA, in that it only allows for the increase in valuation.d. different than K.-. @AA, in that it allows the increase in valuation.
'. The statement of changes in e(uity has columns for each of the following& e>cepta. retained earnings.b. share capital.c. comprehensive income.d. unrealiFed holding gainMloss.
).Knder 0E- compliance re(uirements the Eevaluation -urplus isa. only utiliFed to record the changes in depreciable items S plant and e(uipment.b. considered as revenue when utiliFing the K.-. @AA, formatted income statement.c. utiliFed to record the changes in property& plant& and e(uipment and intangible assets.d. reported as contributed capital.
1*. The e(uity section of the statement of financial position begins witha. share capital S ordinary.b. share capital S preference.c. retained earnings.d. share premium S preference.
