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Ch.11 Wiley Plus MC

Which of these is not a major advantage of a corporation?
Government regulations.
Which one of the following is a major disadvantage of a corporation?
Additional taxes.
Which of these statements is false?
Legal capital is intended to protect stockholders.
Which of the following is not a characteristic of a corporation?
Unlimited liability for stockholders.
Which of the following is a disadvantage of the corporate business form?
Government regulation.
Which of the following is not a stockholder’s right?
The right to participate in management decisions.
Which of the following represents the maximum number of shares a corporation can issue?
Authorized shares.
If a corporation issues 1,000 shares of $3 par common stock for $7 a share, how much is the legal capital?
$3,000.
Ernest, an individual, receives $100 from Vernon Corp. in dividends and is in the 28% tax bracket. Vernon Corp. already paid corporate taxes on the $100 at a 20% tax rate. How much in personal taxes will Ernest need to pay?
$28.
(One of the disadvantages of a corporate structure is the corporation pays its own tax burden on net income and then the stockholders pay income tax on the dividends they receive. Ernest must pay an additional $28.)
Which of the following represents the amount per share of stock that must be retained in the business for the protection of corporate creditors?
Legal capital.
Which of the following is not a characteristic of a corporation?
Unlimited liability for stockholders.
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?
Credit to Common Stock for $15,000.
(The journal entry will increase the cash account for the total issue price, increase the common stock account for the par value per share times the number of shares issued, and increase paid-in capital in excess of par value for the excess received above par value.
Debit to Cash = 3,000 × $6 = $18,000
Credit to Common stock = 3,000 × $5 = $15,000
Credit to Paid-in capital in excess of par value = 3,000 × ($6 – $5) = $3,000)
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?
Credit to Common Stock for $4,000.
(The journal entry will increase the cash account for the total issue price, increase the common stock account for the par value per share times the number of shares issued, and increase paid-in capital in excess of par value for the excess received above par value.
Debit to Cash = 1,000 × $10 = $10,000
Credit to Common stock = 1,000 × $4 = $4,000
Credit to Paid-in capital in excess of par value = 1,000 × ($10 – $4) = $6,000)
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?
Credit to Common Stock for $2,000.
(The journal entry will increase the cash account for the total issue price, increase the common stock account for the par value per share times the number of shares issued, and increase paid-in capital in excess of par value for the excess received above par value.
Debit to Cash = 4,000 × $12 = $48,000
Credit to Common stock = 4,000 × $0.50 = $2,000
Credit to Paid-in capital in excess of par value = 4,000 × ($12 – $0.50) = $46,000)
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?
Credit to Common Stock for $6,000.
(The journal entry will increase the cash account for the total issue price and increase the common stock account for the same amount.
Debit to Cash = 600 × $10 = $6,000
Credit to Common stock = 600 × $10 = $6,000)
The 13th Street Grill issued 10,000 of $1 par value common stock for $5 per share. Which of the following will be part of the journal entry to record the issuance?
A credit of $10,000 to Common Stock.
(The journal entry will increase the cash account for the total issue price, increase the common stock account for the par value per share times the number of shares issued, and increase paid-in capital in excess of par value for the excess received above par value.
Debit to Cash = 10,000 × $5 = $50,000
Credit to Common stock = 10,000 × $1 = $10,000
Credit to Paid-in capital in excess of par value = 10,000 × ($5 – $1) = $40,000)
Dynatech issues 1,000 shares of $10 par value common stock at $12 per share. When the transaction is recorded, which accounts are credited?
Common Stock $10,000 and Paid-in Capital in Excess of Par Value $2,000.
(The journal entry will increase the cash account for the total issue price, increase the common stock account for the par value per share times the number of shares issued, and increase paid-in capital in excess of par value for the excess received above par value.
Debit to Cash = 1,000 × $12 = $12,000
Credit to Common stock = 1,000 × $10 = $10,000
Credit to Paid-in capital in excess of par value = 1,000 × ($12 – $10) = $2,000)
For what reason might a company acquire treasury stock?
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?
Outstanding shares.
What method is normally used to account for treasury stock?
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?
$12,000.
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?
Treasury Stock for $1,200.
(The journal entry will increase the treasury stock account (a contra stockholders’ equity account) and will decrease the cash account for the total cost to acquire.)
Which of the following increases when a corporation purchases treasury stock?
Number of shares in treasury shares.
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?
$30,000.
(Preferred stockholders receive an allocation for each of the past two years and an allocation for the current year. The balance remaining goes to the common stockholders.
Preferred dividends in arrears for two years ($20,000 × 2) $40,000
Preferred for current year 20,000
Total to preferred stockholders $60,000
Total dividends available (90,000)
Amount available to common stockholders $30,000)
Which one of the following statements is incorrect?
Dividends may be paid on common stock while dividends are in arrears on preferred stock.
Which one of the following is not a right of preferred stockholders?
Priority voting rights.
Which of the following is a feature associated only with preferred stock?
All of the above.
-Dividend preference
-Preference to assets in the event of liquidation
-Cumulative dividends
M-Bot Corporation has 10,000 shares of 8%, $100 par value, cumulative preferred stock outstanding at December 31, 2012. No dividends were declared in 2010 or 2011. If M-Bot wants to pay $375,000 of dividends in 2012, how much will common stockholders receive?
$135,000.
(Before the common stockholders receive any dividends, the preferred dividends should first be distributed for the two years in arrears and the current year.
Total dividend = 10,000 × 8% × $100 = $80,000
Preferred dividends in arrears for two years ($80,000 × 2) $ 160,000
Preferred for current year 80,000
Total to preferred stockholders 240,000
Total dividends available (375,000)
Amount available to common stockholders $ 135,000)
Entries for cash dividends are required on the declaration date and the payment date, but not on the record date.
Declaration date and the payment date.
Which statement about stock dividends is true?
A stock dividend has no effect on total stockholders’ equity.
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?
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?
Stock dividend.
How are dividends in arrears reported in the financial statements?
In a footnote.
Dehesa, Inc. has 8,000 shares of 5%, $50 par, cumulative preferred stock and 50,000 shares of $3 par common stock outstanding. No dividends were declared last year, However, the board of directors has just declared a $50,000 dividend this year to be paid in 10 days. What amount of the total dividend will be paid to common stockholders?
Before the common stockholders receive any dividends, the preferred dividends should first be distributed for the two years in arrears and the current year.
Total dividend = 8,000 × 5% × $50 = $20,000
Preferred dividends in arrears for one year $ 20,000
Preferred for current year 20,000
Total to preferred stockholders 40,000
Total dividends available (50,000)
Amount available to common stockholders $ 10,000
Ramona, Inc. has 2,000 shares of 5%, $100 par, cumulative preferred stock and 80,000 shares of $4 par common stock outstanding. Last year the board of directors declared and paid an $8,000 dividend. This year the dividend declared and paid was $15,000. What amount of this dividend will be paid to the preferred stockholders?
$12,000.
(Before the common stockholders receive any dividends, the preferred dividends should first be distributed for the two years in arrears and the current year.
Total dividend = 2,000 × 5% × $100 = $10,000
Preferred dividends in arrears for prior year ($10,000 – $8,000) $ 2,000
Preferred for current year 10,000
Total to preferred stockholders
$12,000)
Vista, Inc. has 300,000 shares of common stock outstanding. A 30% stock dividend was declared and issued. How many shares are outstanding after the stock dividend?
390,000.
(The number of outstanding shares is multiplied by the percentage of the stock dividend to get the total new shares to be issued. The new shares plus the original shares outstanding are then added together:
300,000 + (300,000 × 30%) = 390,000 shares)
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?
40,000.
(This number of outstanding shares is multiplied by the percentage of the stock dividend to get the total new shares to be issued. 400,000 shares outstanding × 10% = 40,000 new shares to be issued)
Dehesa, Inc. has 8,000 shares of 5%, $15 par, cumulative preferred stock and 50,000 shares of $3 par common stock outstanding. No dividends were declared last year. However, the board of directors have just declared a $34,000 dividend this year. What amount of the total dividend will be paid to common stockholders?
$22,000.
(Before the common stockholders receive any dividends, the preferred dividends should first be distributed for the year in arrears and the current year.
Total dividend = 8,000 × 5% × $15 = $6,000
Preferred dividends in arrears for prior year $ 6,000
Preferred for current year 6,000
Total to preferred stockholders 12,000
Total dividends available (34,000)
Amount available to common stockholders
$ 22,000)
If a corporation has incurred a net loss, which account will it affect?
Debited to Retained Earnings in a closing entry.
Which one of the following is not true concerning a retained earnings restriction?
It is reported as a loss on the income statement.
Which of the following does not affect retained earnings?
Additional investment by stockholders.
Which one of the following is not part of ‘stock’ in the balance sheet?
Paid-in capital in excess of par value-common stock.
How is common stock listed in the stockholders’ equity section of the balance sheet?
As part of paid-in capital.
In the stockholders’ equity section of the balance sheet, from what is the cost of treasury stock deducted?
Total paid-in capital and retained earnings.
A corporation shows the following account balances:
$545,000.
(Retained earnings less treasury stock plus paid-in capital in excess of par value plus common stock will equal total stockholders’ equity:
$300,000 – $10,000 + $55,000 + $200,000 = $545,000)
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?

$845,000.
(Retained earnings less treasury stock—common plus paid-in capital in excess of par value—common less treasury stock—preferred plus common stock plus preferred stock plus paid-in capital in excess of par value—preferred will be the total of stockholders’ equity:
$400,000 – $20,000 + $55,000 – $30,000 + $200,000 + $180,000 + $60,000 = $845,000)
When a stock dividend is declared, which of the following accounts is debited?
Stock Dividends.
Weeds Inc. has a balance of $10,000,000 in retained earnings and declares a 5% stock dividend on its 1,000,000 shares of $5 par value common stock. The current market value of the stock is $25 per share. What is the entry to record this transaction at the declaration date?
Stock Dividends 1,250,000
Common Stock Dividends Distributable 250,000
Paid-in Capital in Excess of Par Value 1,000,000
Weeds Inc. has a balance of $10,000,000 in retained earnings and declares a 4% stock dividend on its 1,000,000 shares of $3 par value common stock. The current market value of the stock is $20 per share. What is the entry to record the transaction when the dividend shares are issued?
Common Stock Dividends Distributable 120,000
Common Stock 120,000
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