logo image

Accounting Test 3 (chapter 11)

The stockholders of a corporation have unlimited liability.

Entry field with correct answer
True
False

false
Which of these is not a major advantage of a corporation?

Entry field with correct answer
Separate legal existence
Government regulations
Continuous life
Transferable ownership rights

government regulations
Which of the following is not a characteristic of a corporation?

Entry field with correct answer
Easy transfer of ownership interests
Unlimited liability for stockholders
Ability to acquire capital easily
Separate legal existence

unlimited liability for stockholders
Which of the following is a disadvantage of the corporate business form?

Entry field with correct answer
Continuous life
No income taxes
Easy acquisition of capital
Government regulation

government regulation
Which of the following is not a stockholder’s right?

Entry field with correct answer
The preemptive right
The right to vote in the election for the board of directors
The right to participate in management decisions
The right to share in dividends

The right to participate in management decisions
The par value of corporate shares issued represents a corporation’s legal capital.

Entry field with correct answer
True
False

true
If a corporation issues 1,000 shares of $3 par common stock for $7 a share, how much is the legal capital?

Entry field with correct answer
$7,000
$0
$3,000
$4,000

3000
Which of the following represents the amount per share of stock that must be retained in the business for the protection of corporate creditors?

Entry field with correct answer
Stated value
Legal capital
Market value
Par value

legal capital
Which of the following represents the maximum number of shares a corporation can issue?

Entry field with correct answer
Treasury shares
Issued shares
Authorized shares
Outstanding shares

authorized shares
DT Inc. issued 3,000 shares of $5 par value common stock for $6 per share. Which of the following is one part of the journal entry to record the issuance?

Entry field with correct answer
Credit to Common Stock for $15,000
Credit to Common Stock for $18,000
Debit to Cash for $15,000
Debit to Paid-in Capital in Excess of Par Value for $3,000

Credit to Common Stock for $15,000
Wynola, Inc. issued 1,000 shares of common stock at $10 per share. If the stock has a par value of $4 per share, which of the following will be part of the journal entry to record the issuance?

Entry field with correct answer
Debit to Retained Earnings for $6,000
Credit to Common Stock for $4,000
Debit to Cash for $4,000
Credit to Paid-in Capital in Excess of Par Value for $10,000

credit to common stock for $4000
Harrison, Inc. issued 4,000 shares of common stock at $12 per share. If the stock has a par value of $0.50 per share, which of the following will be part of the journal entry to record the issuance?

Entry field with correct answer
Debit to Cash for $4,000
Debit to Retained Earnings for $46,000
Credit to Common Stock for $2,000
Credit to Paid-in Capital in Excess of Par Value for $48,000

credit to common stock 2000
Harrison, Inc. issued 600 shares of common stock at $10 per share. If the stock was no-par value stock, which of the following will be part of the journal entry to record the issuance?

Entry field with correct answer
Debit to Paid-in Capital $6,000
Credit to Paid-in Capital in Excess of Par for $600
Debit to Cash for $600
Credit to Common Stock for $6,000

credit to common stock for $6000
Dynatech issues 1,000 shares of $10 par value common stock at $12 per share. When the transaction is recorded, which accounts are credited?

Entry field with correct answer
Common Stock $12,000
Common Stock $10,000 and Paid-in Capital in Excess of Par Value $2,000
Common Stock $10,000 and Retained Earnings $2,000
Common Stock $10,000 and Gain on Stock CityplaceSale $2,000

Common Stock $10,000 and Paid-in Capital in Excess of Par Value $2,000
When treasury stock is purchased, the number of outstanding shares decreases.

Entry field with correct answer
True
False

true
For what reason might a company acquire treasury stock?

Entry field with correct answer
To reissue the shares to officers and employees under bonus and stock compensation plans
To signal to the stock market that management believes the stock is overpriced
To increase the number of shares of stock outstanding
To increase profit

To reissue the shares to officers and employees under bonus and stock compensation plans
Which one of the following decreases when a corporation purchases treasury stock?

Entry field with correct answer
Issued shares
Treasury shares
Outstanding shares
Authorized shares

outstanding shares
What method is normally used to account for treasury stock?

Entry field with correct answer
Stated value method
Legal value method
Par value method
Cost method

cost method
If 1,000 shares of $5 par common stock are reacquired by a corporation for $12 a share, by how much will total stockholders’ equity be reduced?

Entry field with correct answer
$5,000
$12,000
$7,000
$0

12000
A corporation sold 1,000 shares of its $2.00 par value common stock for $10.00 per share and later repurchased 100 of those shares for $12.00 per share. Which of the following will be debited to record the repurchase of the 100 shares?

Entry field with correct answer
Treasury Stock for $200
Cash for $1,200
Common Stock for $1,200
Treasury Stock for $1,200

treasury stock for 1200
Which of the following increases when a corporation purchases treasury stock?

Entry field with correct answer
Number of shares issued
Number of treasury shares
Number of shares authorized
Number of outstanding shares

number of treasury shares
A cumulative dividend feature means that preferred stockholders must be paid only current-year dividends before common stockholders receive dividends.

Entry field with correct answer
True
False

false
Preferred dividends in arrears for two years ($20,000 × 2)
$40,000
Preferred for current year
20,000
Total dividends to preferred stockholders
$60,000
Total dividends available
(90,000)
Dividends available to common stockholders
$30,000

A corporation has cumulative preferred stock on which it pays dividends of $20,000 per year. The dividends are in arrears for two years. If the corporation plans to distribute $90,000 as dividends in the current year, how much will the common stockholders receive?

Entry field with correct answer
$30,000
$60,000
$20,000
$40,000

30000
Which one of the following statements is incorrect?

Entry field with correct answer
Dividends cannot be paid on common stock while any dividend on preferred stock is in arrears.
Dividends may be paid on common stock while dividends are in arrears on preferred stock.
Dividends in arrears on preferred are not considered a liability.
When preferred stock is noncumulative, any dividend passed in a year is lost forever.

Dividends may be paid on common stock while dividends are in arrears on preferred stock.
Which of the following is a feature associated only with preferred stock?

Entry field with correct answer
Preference to assets in the event of liquidation
Dividend preference
Cumulative dividends
All of the answer choices are correct

all
Preferred dividends in arrears for two years ($80,000 × 2)
$160,000
Preferred for current year
80,000
Total dividends to preferred stockholders
$240,000
Total dividends available
(375,000)
Dividends available to common stockholders
$135,000

M-Bot Corporation has 10,000 shares of 8%, $100 par value, cumulative preferred stock outstanding at December 31, 2014. No dividends were declared in 2012 or 2013. If M-Bot wants to pay $375,000 of dividends in 2014, how much will common stockholders receive?

Entry field with correct answer
$0
$295,000
$215,000
$135,000

135000
How are dividends in arrears reported in the financial statements?

Entry field with correct answer
As a liability
As an expense
In a footnote
As an equity item

in a footnote
No journal entry is required on the dividend record date.

Entry field with correct answer
True
False

true
When stock dividends are declared and issued, total stockholders’ equity increases.

Entry field with correct answer
True
False

false
On which date are entries for cash dividends required?

Entry field with correct answer
Declaration date and the payment date
Declaration date and the record date
Record date and the payment date
Declaration date, record date, and payment date

declaration date and the payment date
Which statement about stock dividends is true?

Entry field with correct answer
Stock dividends reduce a company’s cash balance.
A stock dividend has no effect on total stockholders’ equity.
A stock dividend increases total stockholders’ equity for the par value of the stock being distributed.
A stock dividend decreases total stockholders’ equity.

stock dividend has no effect
Raptor Inc. has retained earnings of $500,000 and total stockholders’ equity of $2,000,000. It has 100,000 shares of $8 par value common stock outstanding, which is currently selling for $30 per share. What will occur is Raptor declares a 10% stock dividend on its common stock?

Entry field with correct answer
Net income will decrease by $80,000.
Retained earnings will decrease by $300,000 and total stockholders’ equity will increase by $300,000.
Retained earnings will decrease by $300,000 and total paid-in capital will increase by $300,000.
Retained earnings will decrease by $80,000 and total stockholders’ equity will increase by $80,000.

Retained earnings will decrease by $300,000 and total paid-in capital will increase by $300,000.
Which of the following will increase the paid-in capital section of the balance sheet?

Entry field with correct answer
Stock split
Stock dividend
Cash dividend
Treasury stock acquisition

stock dividend
A corporation is authorized to sell 1,000,000 shares of common stock. Today there are 400,000 shares outstanding, and the board of directors declares a 10% stock dividend. How many shares will be issued as a stock dividend?

Entry field with correct answer
60,000
None of the answer choices are correct
100,000
40,000

40000
A corporation shows the following account balances:

Retained earnings $400,000
Treasury stock?common 20,000
Paid-in capital in excess of par value?common 55,000
Treasury stock?preferred 30,000
Common stock 200,000
Preferred stock 180,000
Paid-in capital in excess of par value?preferred 60,000

How much is total stockholders’ equity?

Entry field with correct answer
$945,000
$885,000
$895,000
$845,000

845000
Which of the following does not increase the return on common stockholders’ equity?

Entry field with correct answer
An increase in the return on assets ratio
An increase in the company’s stock price
An increase in the company’s net income
An increase in the use of debt financing

an increase in the companys stock price
The liability of a stockholder is usually limited to the stockholder’s investment in the corporation.

Entry field with correct answer
True
False

true
The tax laws can be a significant disadvantage of the corporate form of business.

Entry field with correct answer
True
False

true
A corporation can be organized for the purpose of making a profit or it may be nonprofit.

Entry field with correct answer
True
False

true
If a corporation pays taxes on its income, then stockholders will not have to pay taxes on the dividends received from that corporation.

Entry field with correct answer
True
False

false
A corporation must be incorporated in each state in which it does business.

Entry field with correct answer
True
False

false
A stockholder has the right to vote in the election of the board of directors.

Entry field with correct answer
True
False

true
When no-par value stock does not have a stated value, the entire proceeds from the issuance of the stock become legal capital.

Entry field with correct answer
True
False

true
When no-par common stock with a stated value is issued for cash, the common stock account is credited for an amount equal to the cash proceeds.

Entry field with correct answer
True
False

false
The par value of common stock must always be equal to its market value on the date the stock is issued.

Entry field with correct answer
True
False

false
For accounting purposes, stated value is treated the same way as par value.

Entry field with correct answer
True
False

true
The acquisition of treasury stock by a corporation increases total assets and total stockholders’ equity.

Entry field with correct answer
True
False

false
Treasury stock is a contra stockholders’ equity account.

Entry field with correct answer
True
False

true
The number of common shares outstanding can never be greater than the number of shares issued.

Entry field with correct answer
True
False

true
Dividends may be declared and paid in cash or stock.

Entry field with correct answer
True
False

true
A stock split results in a transfer at market value from retained earnings to paid-in capital.

Entry field with correct answer
True
False

false
Under the corporate form of business organization

Entry field with correct answer

a stockholder is personally liable for the debts of the corporation.

stockholders wishing to sell their corporation shares must get the approval of other stockholders.

stockholders’ acts can bind the corporation even though the stockholders have not been appointed as agents of the corporation.

the corporation’s life is stipulated in its charter.

the corporation’s life is stipulated in its charter.
Stockholders of a corporation directly elect

Entry field with correct answer

the treasurer of the corporation.

all of the employees of the corporation.

the president of the corporation.

the board of directors.

the board of directors
The chief accounting officer in a company is known as the

Entry field with correct answer

president.

controller.

treasurer.

vice-president.

controller
The two ways that a corporation can be classified by purpose are

Entry field with correct answer

profit and not-for-profit.

general and limited.

state and federal.

publicly held and privately held.

profit and not for profit
The two ways that a corporation can be classified by ownership are

Entry field with correct answer

inside and outside.

publicly held and privately held.

majority and minority.

stock and non-stock.

publicily held and privatley held
Stockholders of a corporation directly elect

Entry field with correct answer

the president of the corporation.

all of the employees of the corporation.

the board of directors.

the treasurer of the corporation.

the board of directors
Which one of the following would not be considered an advantage of the corporate form of organization?Entry field with correct answer

Limited liability of stockholders.

Government regulation.

Separate legal existence.

Continuous life.

government regulation
Which of the following statements is not considered a disadvantage of the corporate form of organization?

Entry field with correct answer

Additional taxes.

Government regulations.

Limited liability of stockholders.

Separation of ownership and management.

limited liability of stockholders
Which of the following phrases is not descriptive of the corporate form of business?

Entry field with correct answer

Professional management.

Unlimited liability.

Continuous existence.

Double taxation on distributed earnings.

unlimited liability
A corporation has the following account balances: Common Stock, $1 par value, $80,000; Paid-in Capital in Excess of Par Value, $2,700,000. Based on this information, the

Entry field with correct answer

number of shares issued is 80,000.

number of shares outstanding is 2,780,000.

average price per share issued is $3.48.

legal capital is $2,780,000.

number of shares issued is 80,000.
The amount of stock that may be issued according to the corporation’s charter is referred to as the

Entry field with correct answer

unissued stock.

outstanding stock.

issued stock.

authorized stock.

authorized stock
If Pratt Company issues 5,000 shares of $5 par value common stock for $210,000, the account

Entry field with correct answer

Paid-in Capital in Excess of Par Value will be credited for $210,000.

Cash will be debited for $210,000.

Common Stock will be credited for $185,000.

Paid-in Capital in Excess of Par Value will be credited for $235,000.

cash will be debited for 210000
The Paid-in Capital in Excess of Par Value is increased in the accounting records when

Entry field with correct answer

the market value of the stock rises above par value.

capital stock is issued at an amount greater than par value.

the number of shares issued exceeds par value.

the stated value of capital stock is greater than the par value.

capital stock is issued at an amount greater than par value
S. Lawyer performed legal services for E. Corp. Due to a cash shortage, an agreement was reached whereby E. Corp. would pay S. Lawyer a legal fee of approximately $15,000 by issuing 8,000 shares of its common stock (par $1). The stock trades on a daily basis and the market price of the stock on the day the debt was settled is $1.80 per share. Given this information, the best journal entry for E. Corp. to record for this transaction is

Entry field with correct answer

Legal Expense

15,000

Common Stock

8,000

Paid-in Capital in Excess of Par – Common

7,000

Legal Expense

14,400

Common Stock

8,000

Paid-in Capital in Excess of Par – Common

6,400

Legal Expense

14,400

Common Stock

14,400

Legal Expense

15,000

Common Stock

15,000

Legal Expense

14,400

Common Stock

8,000

Paid-in Capital in Excess of Par – Common

6,400

Johnson Company issued 900 shares of no-par common stock for $15,300. Which of the following journal entries would be made if the stock has no stated value?

Entry field with correct answer

Cash

15,300

Common Stock – No-Par Value

900

Paid-in Capital in Excess of Par

14,400

Cash

15,300

Common Stock – No-Par Value

15,300

Cash

15,300

Common Stock – No-Par Value

900

Paid-in Capital in Excess of Stated Value

14,400

Common Stock – No-Par Value

15,300

Cash

15,300

Cash

15,300

Common Stock – No-Par Value

15,300

The following data is available for BOX Corporation at December 31, 2014:

Common stock, par $10 (authorized 30,000 shares)

$250,000

Treasury stock (at cost $15 per share)

$1,200

Based on the data, how many shares of common stock are outstanding?

Entry field with correct answer

24,920.

25,000.

29,920.

30,000.

24920
Treasury stock is

Entry field with incorrect answer

corporate stock issued by the treasurer of a company.

stock issued by the U.S. Treasury Department.

stock purchased by a corporation and held as an investment in its treasury.

a corporation’s own stock, which has been reacquired and held for future use.

a corporations own stock
A corporation purchases 15,000 shares of its own $20 par common stock for $35 per share, recording it at cost. What will be the effect on total stockholders’ equity?

Entry field with incorrect answer

Decrease by $525,000.

Increase by $525,000.

Decrease by $225,000.

Decrease by $300,000.

decrease 525000
Treasury Stock is a(n)

Entry field with correct answer

retained earnings account.

asset account.

contra asset account.

contra stockholders’ equity account.

contra stockholder account
Logan Corporation issues 50,000 shares of $50 par value preferred stock for cash at $60 per share. The entry to record the transaction will consist of a debit to Cash for $3,000,000 and a credit or credits to

Entry field with correct answer

Preferred Stock for $3,000,000.

Preferred Stock for $2,500,000 and Paid-in Capital in Excess of Par Value—Preferred Stock for $500,000.

Preferred Stock for $2,500,000 and Retained Earnings for $500,000.

Paid-in Capital from Preferred Stock for $3,000,000.

Preferred Stock for $2,500,000 and Paid-in Capital in Excess of Par Value—Preferred Stock for $500,000.
Dividends in arrears on cumulative preferred stock

Entry field with correct answer

only occur when preferred dividends have been declared.

should be disclosed in the notes to the financial statements.

are considered to be a non-current liability.

are considered to be a current liability.

should be disclosed in the notes to the financial statements.
The date on which a cash dividend becomes a binding legal obligation is on the

Entry field with correct answer

declaration date.

date of record.

last day of the fiscal year end.

payment date.

declaration date
The board of directors of Bosco Company declared a cash dividend on November 15, 2014, to be paid on December 15, 2014, to stockholders owning the stock on November 30, 2014. Given these facts, the date of November 30, 2014, is referred to as the

Entry field with correct answer

record date.

payment date.

ex-dividend date.

declaration date.

record date
The board of directors of Yancey Company declared a cash dividend of $1.50 per share on 42,000 shares of common stock on July 15, 2014. The dividend is to be paid on August 15, 2014, to stockholders of record on July 31, 2014. The correct entry to be recorded on July 15, 2014, will include a

Entry field with correct answer

credit to Cash.

credit to Cash Dividends.

debit to Dividends Payable.

debit to Cash Dividends.

debit to cash dividends
The board of directors of Benson Company declared a cash dividend of $1.50 per share on 42,000 shares of common stock on July 15, 2014. The dividend is to be paid on August 15, 2014, to stockholders of record on July 31, 2014. The effects of the journal entry to record the payment of the dividend on August 15, 2014, are to

Entry field with correct answer

increase stockholders’ equity and decrease assets.

decrease stockholders’ equity and decrease liabilities.

increase stockholders’ equity and increase liabilities.

decrease liabilities and decrease assets.

decrease liabilities and decrease assets
On the dividend record date

Entry field with incorrect answer

a dividend becomes a current obligation.

Dividends Payable is debited.

no entry is required.

an entry may be required if it is a stock dividend.

no entry is required
A stock split will

Entry field with incorrect answer

have no effect on retained earnings.

increase the total par value of the stock.

have no effect on the par value per share of stock.

increase total paid-in capital.

have no effect on retained earnings
What is the total stockholders’ equity based on the following account balances?

Common Stock

$1,800,000

Paid-In Capital in Excess of Par

120,000

Retained Earnings

570,000

Treasury Stock

60,000

Entry field with correct answer

$1,680,000.

$2,190,000.

$2,430,000.

$2,550,000.

2430000
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