logo image

Accounting Chapter 10

The number of shares sold to stockholders are ____ shares.
issued
An arbitrary monetary amount that determines an entity’s legal capital is the
per value
The number of shares issued less the number of shares of treasury stock is the ____ shares.
outstanding
____ shares are the maximum number of shares a corporation can legally issue
Authorized
_____ is the name of the account credited when a corporation issues common stock for a price greater than par.
Additional Paid-In Capital
A distribution of profits to owners is called
dividend
When stockholders exchange their shares of stock for additional shares, and there is a corresponding reduction in the par value of the stock, a stock ____ has occurred.
split
The ____ is a preferred stock having a feature that provides for the current year dividends only to be paid to preferred stockholders before they are paid to common stockholders.
noncumulative preferred stock
The _____ is a preferred stock having a feature that provides for the current stated dividends plus dividends in arrears before any dividends are paid to the common stockholders.
cumulative preferred stock
If the stated cash dividend on cumulative preferred stock has been unpaid for a period of one year or more, it is referred to as a dividend ______
in arrears
Issued stock that is repurchased by the corporation but not retired is
treasury stock
The ____ ratio is computed by dividing dividends by net income
dividend payout
The ___ ratio is computed by dividing dividends per share by market price per share.
dividend yield
To compute the return on the equity ratio, the numerator includes ______ and the denominator is the average stockholders equity.
net income
Which of the following statements is FALSE regarding the issuance of stock versus bonds to raise capital for a corporation?
A. The declaration of dividends reduces the amount of the corporations taxable income
B. Interest accrues; whereas, dividends do not accrue
C. The payment of bond interest is a contractual requirement
D. The declaration of dividends is at the discretion of the board of directors
A. The declaration of dividends reduced the amount of the corporations taxable income
In which of the following organization forms are the owners’ legal responsibility for the debt of the business limited to the amount they invested in the business.
Corporation
Type of business that is most likely to obtain large amounts of resources by issuing stock
Corporation
Which of the following is NOT a characteristic of a corporation?
A. Corporations are organized as a separate legal taxable entity
B. Ownership is divided into shares of stock
C. Corporations experience an ease in obtaining large amounts of resources by issuing stock
D. A corporations resources are limited to their individual stockholders resources
D. A corporations resources are limited to their individual stockholders resources
Characteristics of a corporations include
shareholders who have limited liability
One of the main disadvantages of the corporate firm is the
double taxation of dividends
A disadvantage of the corporate form of business entity is
corporations are subject to more governmental regulations
Under the corporate form of business organization:
ownership rights are easily transferred
The ability of a corporation to obtain capital is
enhanced because of the limited liability and the ease of share transferability
Authorized shares represent the
maximum number of shares of stock that a company can legally issue
Issued shares represent the:
number of shares that the corporation has distributed to owners to date
Outstanding shares represent:
number of shares that are currently held by stockholders
Par Value represents the:
arbitrary amount that establishes a minimum price for the stock when it is first issued
Which one of the following would NOT be considered an advantage of the corporate form of organization?
A. Government Regulation
B. Separate Legal Existence
C. Continuous Life
D. Limited Liability of stockholders
Government Regulation
Which of the following statements is true with regard to equity capital?
A. The number of shares actually in the hands of stockholders are called outstanding shares
B. It is unusual for corporations to have more than one class of stock outstanding at any point in time
C. Preferred stock represents the shares of stock that have been permanently retired
D. Issued shares represent the maximum number of shares that can be issued by a corporation
A. The number of shares actually in the hands of stockholders are called outstanding shares
Which of the following is NOT a characteristic of a corporation?
A. The financial loss that a stockholder may suffer from owning stock in a public company is limited
B. Cash dividends paid by a corporation are deductible as expenses by the corporation
C. A corporation can own property in its name
D. Corporations are required to file federal income tax returns
B. Cash dividends paid by a corporation are deductible as expenses by the corporation
If a corporation declares a 2 for 1 stock split, which of the following is true?
A. A new class of stock must be authorized with twice the number of issued shares
B. The number of outstanding shares is half the number that was outstanding before the split
C. The number of outstanding shares is twice the number that was outstanding before the spit
D. The number of authorized shares is doubled, while the par value is reduced to half of the pre split par value.
C. The number of outstanding shares is twice the number that was outstanding before the split
If a corporation declares a 2 for 1 stock split, which of the following is true?
A. The amount of stockholders equity doubles as a result of the split
B. The amount of capital stock doubles as a result of the split
C. The price of each share will be doubled as a result of the split
D. A stockholder who previously held 100 shares will have 200 shares after the split
D. A stockholder who previously held 100 shares will have 200 shares after the split
If a corporation declares a 2 for 1 stock split, which of the following is true?
A. A journal entry is required to show the effect on the stockholders equity accounts
B. The stockholders will have a higher proportionate ownership share after the split
C. The par value will be reduced to half of the pre-split par value
D. The market price of the stock is expected to increase after the split
C. The par value will be reduced to half of the pre-split par value
When a corporation decides whether to pay a cash dividend, which of the following is an important consideration?
The balances in the corporations cash account to determine cash available for dividends
When a corporation declares a cash dividend, which of the following is true?
A. Cash decreases
B. Liabilities decrease
C. Equity decreases
D. No entry is necessary
C. Equity decreases
After a corporation declares a cash dividend, what takes place on the date of the record?
A. Cash decrease
B. Liabilities decrease
C. Equity decrease
D. No entry is necessary
D. No entry is necessary
When a corporation pays a previously declared cash dividend, which of the following is true?
A. Cash increases
B. Liabilities decrease
C. Equity Increases
D. No entry is necessary
Liabilities decrease
When a corporation declares a stock dividend, which of the following is true?
A. Cash decreases
B. Equity remains the same
C. Equity decreases
D. Retained earnings increases
B. Equity remains the same
When a corporation declares a small stock dividend, which of the following is false?
A. Cash decreases
B. Total stockholders equity remains the same
C. The capital stock accounts increase
D. Retained earnings decreases
A. Cash decreases
When is a liability for cash dividends created?
At the date of declaration
What is the primary reason for a stock split?
To decrease the market value of the stock
Dividends in arrears are required to be reported in?
The notes to the financial statements
Treasury shares represent the?
Number of previously issued shares that have been repurchased by the corporation
All of the following are reasons that a corporation may purchase treasury stock EXCEPT:
A. If it needs the dock its employee stock bonus program
B. If it desires to make an investment in its own stock and is reported as an asset
C. To buy out the ownership of stockholders
D. Maximum number of shares that can be sold by the corporation
B. If it desires to make an investment in its own stock and is reported as an asset
Which of the following is TRUE regarding a corporations purchase of treasury stock?
A. The cost of treasury stock is a reduction in stockholders equity
B. Dividends must still be paid on treasury stock because it is still issued
C. Treasury stock is reported as an asset because it is considered an investment in the corporations own stock
D. Treasury stock is no longer considered issued once it is back in the hands of the issuer
A. The cost of treasury stock is a reduction in stockholders equity
The excess sales price of treasury stock over its cost should be credited to:
Additional Paid – In Capital
Earnings per share in an indication of how much:
the company earned for each share of outstanding common stock
Cash paid for preferred stock dividends should be shown on the statement of cash flows under:
financing activities
On the statement of cash flows, the cash flows from financing activities section would include:
receipts from the issuance of capital stock
Cash dividends paid on common stock would be reported in the statement of cash flows in:
the cash flows from financing activities section
The journal entry to issue 1,000,000 shares of $6 par common stock for $8.00 per share on January 2nd would be:
Cash 8,000,000
Common stock 6,000,000
Additional P.I.C 2,000,000
A corporation issues 1,500 shares of common stock for 32,000. The stock has a par value of $10 per share. The journal entry to record the stock issuance would include a credit to common stock for:
15,000
Alma corp issues 1000 shares of $10 par value common stock at $16 per share. When the transaction is recorded, a credit or credits are made to:
Cash 16,000
Common Stock 10,000
Additional P.I.C 6,000
Petry Corporation issues 20,000 shares of $.50 par common stock for $6 per share. The account for Additional Paid in Capital in excess of par will increase by:
Cash 120,000
Common Stock 10,000
Additional P.I.C 110,000

110,000 is your answer

Porter Hardware Inc issues $2 par common stock. What is true about this?
$2 per share is presented on the balance sheet in the common stock account.
Brumfield Inc issued 7,000 shares of $1 par common stock for $20 per share. In addition to the increase in cash, what effect does this transaction have on Brumfields accounting equation?
Common stock increase by 7,000 and additional paid in capital in excess of par increases 133,000
Magnum Corporation had 60,000 of it $3 par common stock issued before its recent 3-for-1 split. The market price of the stock was $30 per share before the split. Which of the following is true as a result of the split?
The par value of the stock decreased to $1 per share.
On June 1, 2011, Donner Technologies declared a $50,000 cash dividend to be distributed to its common stockholders of record on June 15, 2011. The dividend will be paid on July 1, 2011. The required journal entry on June 1 Includes a:
50,000 debit to retained earnings.
On June 1, 2011, Donner Technologies declared a $50,000 cash dividend to be distributed to its common stockholders of record on June 15, 2011. The dividend will be paid on July 1, 2011. The required journal entry on June 15 Includes a:
50,000 debit to dividends payable
On January 15, 2011, Rockney Systems, Inc. paid a cash dividend that had been declared prior to the end of its 2010 fiscal year. The entry to pay the dividends includes a debit to:
Dividends Payable and a credit to cash
What is the appropriate general journal entry to record the declaration of cash dividends?
Retained Earnings
Dividends Payable
Many stockholders choose to invest in preferred stock because:
dividends are distributed to preferred stockholders before common stockholders
If a corporation issues cumulative, participating preferred stock, which of the following is true regarding the rights of the preferred stockholders?
They have the right to receive current year dividends and all unpaid dividends from prior years
The Sneed Corporation issues 10,000 shares of $50 par value preferred stock for cash at $70 per share. The entry to record the transaction will consist of a debit to cash 700,000 and credit or credits to:
Preferred stock for $500,000 and Additional Paid in Capital for $200,000
Treasury Stock from treasury stock transactions are what type of account?
Contra Accounts
Additional Paid in Capital from treasury stock transactions are what type of account?
Stockholder’s Equity
Common stock, $10 par, 100,000 shares authorized, 75,000 shares issued and outstanding

What is the effect on on the accounting equation of issuing 1,000 additional shares of common stock at $15 per share.

Assets increase 15,000
Liabilities remain unaffected
Equity increases 15,000
Common stock, $10 par, 100,000 shares authorized, 75,000 shares issued and outstanding

What is the effect of a 10% stock dividend if the market price of the common stock is $30 per share when the stock dividend is declared

Retained Earning decreases by 225,000
Common stock, $10 par, 100,000 shares authorized, 75,000 shares issued and outstanding

What is the effect of a 2 for 1 stock split if the market value of the common stock is $20 per share at the time the stock split is declared?

A stock split has no impact on any of the stockholders equity account balances
The Stockholders Equity account of Jamison Corporation include $37,500 of common stock with a par value of $.50 and 5,000 shares of treasury stock with a total cost of $25,000. The total number of of shares outstanding are:
70,000 shares
The charter of a corporation provides for the issuance of 100,000 shares of common stock. Assume that 60,000 shares were originally issued and 10,000 were subsequently reacquired. What is the number of shares outstanding.
50,000 shares
Petry Corporation issues 20,000 shares of $.50 par common stock for $6 per share. The common stock account will increase by what amount when this transaction is recorded?
Cash 120,000
Common Stock 10,000
Additional P.I.C 110,000

10,000 is your answer

Issued an additional 10,000 shares of common stock at $15 per share at December 31, 2012. Prior to issuing the shares, the company had: Common Stock, $10 par 100,000 shares authorized. 75,000 shares issued and outstanding .What effect does the additional stock issue have on the accounting equation?
We use cookies to give you the best experience possible. By continuing we’ll assume you’re on board with our cookie policy close
We use cookies to give you the best experience possible. By continuing we’ll assume you’re on board with our cookie policy