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Accounting 201 CONNECT Ch. 10

Which of the following accounts is not reported in the stockholders’ equity section of the balance sheet?
Treasury Stock.
Common Stock.
Sales Revenue.
Retained Earnings.
Sales Revenue.
Which of the following stages of equity financing comes last in the traditional order of progression?
Investment by friends and family of the founders.
Investment by the founders of the business.
Initial public offering (IPO).
Outside investment by “angel” investors and venture capital firms.
Initial public offering (IPO).
In terms of total sales, assets, and earnings, the dominant form of business organization is the:
Sole proprietorship.
Partnership.
Corporation.
Limited liability company (LLC).
Corporation.
Common stockholders usually have all of the following rights except:
To receive dividends when declared.
To share in the distribution of assets.
To elect board of directors.
To participate in the day-to-day operations.
To participate in the day-to-day operations.
Which of the following is a reason that a corporation would prefer to issue stock instead of bonds?
Dividend payments can be deducted for income tax purposes but interest payments cannot.
Expansion is accomplished without surrendering ownership control.
The risk of going bankrupt is less.
All of these.
The risk of going bankrupt is less.
Advantages of the corporate form that have led to the growth of this form of business ownership include all of the following except:
Ability to raise capital.
Low government regulation.
Limited liability.
Ability to transfer ownership.
Low government regulation.
Advantages of the corporate form of business include which of the following?

I. Double taxation
II. Ability to raise capital
III. Ability to transfer ownership
IV. More paperwork
V. Limited liability

II., III., V.
Which of the following statements regarding the corporate form of business is correct?
The disadvantages are that generating capital is difficult and that owners have limited liability.
Disadvantages are that the business is subject to government regulations and double taxation on its income.
One disadvantage is that ownership is easy to transfer.
All of these.
Disadvantages are that the business is subject to government regulations and double taxation on its income.
The disadvantages of the corporate form of business include:
Ability to transfer ownership.
Additional taxes.
Limited liability.
Ability to raise capital.
Additional taxes.
The correct order from the smallest number of shares to the largest number of shares is:
Authorized, issued, and outstanding.
Outstanding, issued, and authorized.
Issued, outstanding, and authorized.
Issued, authorized, and outstanding.
Outstanding, issued, and authorized.
Authorized common stock refers to the total number of shares:
Outstanding.
Issued.
Issued and outstanding.
That can be issued.
That can be issued.
Issued stock refers to the number of shares:
Outstanding plus treasury shares.
Authorized.
In the hand of stockholders.
That may be issued under state law.
Outstanding plus treasury shares.
Outstanding common stock refers to the total number of shares:
Issued.
Issued plus treasury stock.
Issued less treasury stock.
Authorized.
Issued less treasury stock.
Outstanding common stock specifically refers to:
Stock that is performing well.
Stock that has been authorized for issuance.
Stock issued plus treasury stock.
Stock in the hands of stockholders.
Stock in the hands of stockholders.
The par value of shares issued is normally recorded in the:
Additional Paid-in Capital account.
Common Stock account.
Retained Earnings account.
Treasury Stock account.
Common Stock account.
The par value of common stock represents:
The amount received when the stock was issued.
The liquidation value of a share.
The market value of a share of stock.
The legal capital per share of stock assigned when the corporation was first established.
The legal capital per share of stock assigned when the corporation was first established.
If a company issues 1,000 shares of $1 par value common stock for $20 per share, what would be the effect on the accounting equation?
Increase assets and increase liabilities.
Increase assets and increase revenue.
Increase assets and increase stockholders’ equity.
Increase assets and decrease stockholders’ equity.
Increase assets and increase stockholders’ equity.
When a company issues 25,000 shares of $1 par value common stock for $10 per share, the journal entry for this issuance would include:
A debit to Cash for $25,000.
A debit to Additional Paid-in Capital for $25,000.
A credit to Common Stock for $250,000.
A credit to Additional Paid-in Capital for $225,000.
A credit to Additional Paid-in Capital for $225,000.
Jade Jewelers issued 15,000 shares of $1 par value stock for $20 per share. What is true about the journal entry to record the issuance?
Credit Common Stock $300,000.
Credit Cash $300,000.
Credit Common Stock $15,000.
Debit Additional Paid-In Capital $285,000.
Credit Common Stock $15,000.
South Beach Apparel issued 10,000 shares of $1 par value stock for $5 per share. What is true about the journal entry to record the issuance?
Debit Common Stock $10,000.
Credit Cash $50,000.
Credit Common Stock $50,000.
Credit Additional Paid-In Capital $40,000.
Credit Additional Paid-In Capital $40,000.
Hayes Corporation issues 100 shares of its $1 par value common stock for $15 per share. The entry to record the issuance will not include a:
Debit to Cash $1,500.
Credit to Additional Paid-In Capital $1,400.
Credit to Common Stock of $100.
All of these.
All of these.
Preferred stock is called preferred because it usually has two preferences over common stock. These preferences relate to:
Dividends and voting rights.
Par value and dividends.
The preemptive right and voting rights.
Dividends and distribution of assets if the corporation is dissolved.
Dividends and distribution of assets if the corporation is dissolved.
Preferred stock:
Is always recorded as a liability.
Is always recorded as part of stockholders’ equity.
Can have features of both liabilities and stockholders’ equity.
Is not included in either liabilities or stockholders’ equity.
Can have features of both liabilities and stockholders’ equity.
Which of the following has the highest expected return to the investor?
Common Stock.
Preferred Stock.
Bonds.
They all have similar expected returns.
Common Stock.
Which of the following is the most likely to have voting rights?
Common Stock.
Preferred Stock.
Bonds.
They all have similar voting rights.
Common Stock.
Which of the following financing alternatives has the highest preference of payment in a case where the company liquidates its assets?
Common Stock.
Preferred Stock.
Bonds.
They have equal preference.
Bonds
Which of the following is not a potential feature of preferred stock?
Convertible.
Redeemable.
Cumulative.
They all are potential features of preferred stock.
They all are potential features of preferred stock.
A company issued 1,000 shares of $1 par value preferred stock for $5 per share. What is true about the journal entry to record the issuance?
Debit Preferred Stock $5,000.
Credit Cash $5,000.
Credit Preferred Stock $5,000.
Credit Additional Paid-In Capital $4,000.
Credit Additional Paid-In Capital $4,000.
The Surf’s Up issues 1,000 shares of 6%, $100 par value preferred stock at the beginning of 2014. All remaining shares are common stock. The company was not able to pay dividends in 2014, but plans to pay dividends of $18,000 in 2015. Assuming the preferred stock is cumulative, how much of the $18,000 dividend will be paid to preferred stockholders and how much will be paid to common stockholders in 2015?
$6,000 to preferred stockholders and $12,000 to common stockholders.
$18,000 to preferred stockholders and $0 to common stockholders.
$12,000 to preferred stockholders and $6,000 to common stockholders.
$9,000 to preferred stockholders and $9,000 to common stockholders.
$12,000 to preferred stockholders and $6,000 to common stockholders.
The Surf’s Up issues 1,000 shares of 6%, $100 par value preferred stock at the beginning of 2014. All remaining shares are common stock. The company was not able to pay dividends in 2014, but plans to pay dividends of $18,000 in 2015. Assuming the preferred stock is noncumulative, how much of the $18,000 dividend will be paid to preferred stockholders and how much will be paid to common stockholders in 2015?
$6,000 to preferred stockholders and $12,000 to common stockholders.
$18,000 to preferred stockholders and $0 to common stockholders.
$12,000 to preferred stockholders and $6,000 to common stockholders.
$9,000 to preferred stockholders and $9,000 to common stockholders.
$6,000 to preferred stockholders and $12,000 to common stockholders.
California Adventures issues 5,000 shares of 8%, $100 par value preferred stock at the beginning of 2014. All remaining shares are common stock. The company was not able to pay dividends in 2014, but plans to pay dividends of $100,000 in 2015. Assuming the preferred stock is cumulative, how much of the $100,000 dividend will be paid to preferred stockholders and how much will be paid to common stockholders in 2015?
$40,000 to preferred stockholders and $60,000 to common stockholders.
$80,000 to preferred stockholders and $20,000 to common stockholders.
$20,000 to preferred stockholders and $80,000 to common stockholders.
$100,000 to preferred stockholders and $0 to common stockholders.
$80,000 to preferred stockholders and $20,000 to common stockholders.
California Adventures issues 5,000 shares of 8%, $100 par value preferred stock at the beginning of 2014. All remaining shares are common stock. The company was not able to pay dividends in 2014, but plans to pay dividends of $100,000 in 2015. Assuming the preferred stock is noncumulative, how much of the $100,000 dividend will be paid to preferred stockholders and how much will be paid to common stockholders in 2015?
$40,000 to preferred stockholders and $60,000 to common stockholders.
$80,000 to preferred stockholders and $20,000 to common stockholders.
$20,000 to preferred stockholders and $80,000 to common stockholders.
$100,000 to preferred stockholders and $0 to common stockholders.
$40,000 to preferred stockholders and $60,000 to common stockholders.
Treasury Stock is normally reported as:
A reduction of total stockholders’ equity.
An asset account.
A liability account.
An expense account.
A reduction of total stockholders’ equity.
When treasury stock is resold at a price above cost:
A gain account is credited.
A loss is reported.
A revenue account is credited.
Additional Paid-in Capital is increased.
Additional Paid-in Capital is increased.
When treasury stock is purchased, what is the effect on total stockholders’ equity?
Decrease.
Increase.
No effect.
Cannot tell from the given information.
Decrease
When shares of another corporation are purchased, what is the effect on total stockholders’ equity?
Decrease.
Increase.
No effect.
Cannot tell from the given information.
No effect.
When treasury stock is purchased, what is the effect on assets and stockholders’ equity?
Assets and stockholders’ equity increase.
Assets and stockholders’ equity decrease.
Assets increase and stockholders’ equity decrease.
Assets decrease and stockholders’ equity increase.
Assets and stockholders’ equity decrease.
Treasury Stock:
Has a normal credit balance.
Decreases stockholders’ equity.
Is recorded as an investment.
Increases stockholders’ equity.
Decreases stockholders’ equity.
Which of the following statements about treasury stock transactions is true?
Treasury stock is recorded as an asset by the acquiring company.
Only losses on the sale of treasury stock are recorded on the income statement.
Stockholders’ equity is reduced when treasury stock is purchased.
Gains and losses on the sale of treasury stock are recorded on the income statement.
Stockholders’ equity is reduced when treasury stock is purchased.
Which of the following is TRUE regarding the accounting for treasury stock?
Treasury stock is reported on the balance sheet in the equity section.
The purchase and sale of treasury stock has no impact on the income statement.
Treasury stock represents a negative equity account.
All of these.
All of these.
What would be the impact on the accounting equation when a company purchases treasury stock?
Increase assets and increase stockholders’ equity.
Decrease assets and increase stockholders’ equity.
Decrease assets and decrease stockholders’ equity.
No effect on the accounting equation.
Decrease assets and decrease stockholders’ equity.
The corporation’s own stock that has been issued and then repurchased by the company is referred to as:
Preferred Stock.
Authorized Stock.
Treasury Stock.
Common Stock.
Treasury Stock.
When treasury stock is resold at a gain, the difference between its cost and the cash received when resold:
Increases net income.
Increases stockholders’ equity.
Has no effect on net income or stockholders’ equity.
Increases net income but decreases stockholders’ equity.
Increases stockholders’ equity.
Crossroads Mall had 100,000 outstanding shares of common stock. On June 16, 2015, Crossroads repurchased 20,000 shares of its own stock at $30 per share. On July 23, 2015, Crossroads resold 10,000 shares at $28 per share. What net effect did the repurchase and the resell of common stock have on the accounting equation?
Increase in assets and decrease in stockholders’ equity.
Decrease in assets and increase in stockholders’ equity.
Increase in assets and increase in stockholders’ equity.
Decrease in assets and decrease in stockholders’ equity.
Decrease in assets and decrease in stockholders’ equity.
On December 2, Coley Corp. reacquired 1,000 shares of its $2 par value common stock for $27 each. On December 20, Coley Corp. reissued 400 shares for $15 each. Which of the following is correct regarding the journal entry for the reissued shares?
Debit Cash $15,000.
Credit Treasury Stock $10,800.
Credit Paid in Capital – Treasury Stock $5,200.
Credit Treasury Stock $6,000.
Credit Treasury Stock $10,800.
On November 6, Coleman Corp. reacquired 1,000 shares of its $2 par value common stock for $27 each. On November 20, Coleman Corp. reissued 400 shares for $30 each. Which of the following is correct regarding the effect of the journal entry for the reissued shares?
Assets decrease.
Liabilities decrease.
Expenses increase.
Stockholders’ Equity increases.
Stockholders’ Equity increases.
On February 22, Brett Corporation reacquired 200 shares of its $5 par value common stock for $25 each. On March 15, the company reissued 70 shares for $30 each. What is true of the entry for reissuing their shares?
Credit Cash $1,750.
Credit Additional Paid in Capital $350.
Debit Treasury Stock $1,750.
Credit Treasury Stock $2,100.
Credit Additional Paid in Capital $350.
Retained Earnings represent a company’s:
Net income less dividends since the company first started.
Undistributed net assets.
Extra paid-in capital.
Undistributed cash.
Net income less dividends since the company first started.
The Retained Earnings balance reported on the balance sheet typically is not affected by:
Net income.
Net loss.
Dividends paid.
Stock splits.
Stock splits.
The balance of Retained Earning at the end of the year represents:
Current year’s profits less payments to owners.
Total earnings less payments to owners over the life of the company.
Total contributions from owners less withdrawals over the life of the company.
Total earnings over the life of the company.
Total earnings less payments to owners over the life of the company.
Retained Earnings:
Has a normal debit balance.
Decreases stockholders’ equity.
Is equal to the balance in cash.
Increases stockholders’ equity.
Increases stockholders’ equity.
Journal entries to record cash dividends are made on the:
Declaration date, record date, and payment date.
Record date and payment date.
Declaration date and payment date.
Declaration date and record date.
Declaration date and payment date.
The board of directors of Capstone Inc. declared a $0.60 per share cash dividend on its $1 par common stock. On the date of declaration, there were 50,000 shares authorized, 20,000 shares issued, and 5,000 shares held as treasury stock. What is the entry when the dividends are declared?
Dividends 9000
Dividends Payable 9000
The board of directors of Capstone Inc. declared a $0.60 per share cash dividend on its $1 par common stock. On the date of declaration, there were 50,000 shares authorized, 20,000 shares issued, and 5,000 shares held as treasury stock. Assuming the dividends were declared on June 1, what is the entry on June 30 to record the payment of cash dividends?
Dividends Payable 9000
Cash 9000
The ending Retained Earnings balance of Lambert Inc. increased by $1.5 million from the beginning of the year. The company’s net income earned during the year is $3.5 million. What is the amount of dividends Lambert Inc. declared and paid?
$1.5 million.
$3.5 million.
$2.0 million.
$5.0 million.
$2.0 million.
Over the first four years of the company’s life, it earned the following net income (loss): $6,000; $3,000; $6,000, and ($2,000). If the company’s ending retained earnings is $10,000 after year 4, what is the average amount of dividends paid per year?
$3,000.
$7,000.
$0.
$750.
$750.
Fashion, Inc. had a Retained Earnings balance of $12,000 at December 31, 2015. The company had an average income of $7,500 over the next 3 years, and an ending Retained Earnings balance of $15,000 at December 31, 2016. What was the total amount of dividends paid over the last three years?
$4,500.
$6,500.
$19,500.
$27,000.
$19,500.
Both cash dividends and stock dividends:
Reduce total assets.
Reduce total liabilities.
Reduce total stockholders’ equity.
Reduce retained earnings.
Reduce retained earnings.
The Common Stock account on a company’s balance sheet is measured as:
The number of common shares outstanding x the stock’s par value per share.
The number of common shares outstanding x the stock’s current market value per share.
The number of common shares issued x the stock’s par value per share.
The number of common shares issued x the stock’s current market value per share.
The number of common shares issued x the stock’s par value per share.
The stockholders’ equity section in the balance sheet shows:
The ending balance in each stockholders’ equity account.
How each equity account changed over time.
The average balance in each stockholders’ equity account.
More information than the statement of stockholders’ equity.
The ending balance in each stockholders’ equity account.
The statement of stockholders’ equity shows:
Only the ending balance in each stockholders’ equity account.
How each equity account changed over time.
Only the beginning balance in each stockholders’ equity account.
Less information than the stockholders’ equity section in the balance sheet.
How each equity account changed over time.
How does the stockholders’ equity section in the balance sheet differ from the statement of stockholders’ equity?
The stockholders’ equity section is more detailed than the statement of stockholders’ equity.
The stockholders’ equity section shows balances at a point in time, whereas the statement of stockholders’ equity shows activity over a period of time.
The stockholders’ equity section shows activity over a period of time, whereas the statement of stockholders’ equity is at a point time.
There are no differences between them.
The stockholders’ equity section shows balances at a point in time, whereas the statement of stockholders’ equity shows activity over a period of time.
Clothing Emporium was organized on January 1, 2015. The firm was authorized to issue 100,000 shares of $5 par value common stock. During 2015, Clothing Emporium had the following transactions relating to shareholders’ equity:

Issued 30,000 shares of common stock at $7 per share.
Issued 20,000 shares of common stock at $8 per share.
Reported a net income of $100,000.
Paid dividends of $50,000.

What is the total stockholders’ equity at the end of 2015?
$420,000.
$370,000.
$470,000.
$250,000.

$420,000.
Clothing Emporium was organized on January 1, 2015. The firm was authorized to issue 100,000 shares of $5 par value common stock. During 2015, Clothing Emporium had the following transactions relating to shareholders’ equity:

Issued 30,000 shares of common stock at $7 per share.
Issued 20,000 shares of common stock at $8 per share.
Reported a net income of $100,000.
Paid dividends of $50,000.

What is the total amount recorded in the Common Stock account at the end of 2015?
$420,000.
$370,000.
$470,000.
$250,000.

$250,000.
Clothing Emporium was organized on January 1, 2015. The firm was authorized to issue 100,000 shares of $5 par value common stock. During 2015, Clothing Emporium had the following transactions relating to shareholders’ equity:

Issued 30,000 shares of common stock at $7 per share.
Issued 20,000 shares of common stock at $8 per share.
Reported a net income of $100,000.
Paid dividends of $50,000.

What is total paid-in capital at the end of 2015?
$420,000.
$370,000.
$470,000.
$320,000.

$370,000.
Roberto Designers was organized on January 1, 2015. The firm was authorized to issue 100,000 shares of $5 par value common stock. During 2015, Roberto had the following transactions relating to stockholders’ equity:

Issued 10,000 shares of common stock at $7 per share.
Issued 20,000 shares of common stock at $8 per share.
Reported a net income of $100,000.
Paid dividends of $50,000.
Purchased 3,000 shares of treasury stock at $10 (part of the 20,000 shares issued at $8).

What is total stockholders’ equity at the end of 2015?
$270,000.
$300,000.
$250,000.
$200,000.

$250,000.
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