Chapter 11
CORPORATE REPORTING AND ANALYSIS
True /False Questions
1. A corporation is a legal entity separate from its owners.
2. Corporations avoid many of the state regulations and controls that proprietorships and
partnerships are subject to.
3. Organization expenses of a corporation often include legal fees and promoter fees.
4. Shareholders in a corporation have the power to bind the corporation to contracts.
5. A proxy is a document that gives a designated agent the right to vote a shareholder’s stock.
6. Common shareholders always share equally with all other shareholders in dividends.
7. A preemptive right means shareholders can purchase their proportional share of common
stock issued later by the corporation.
8. Stock is attractive to investors because stockholders are not liable for the corporation’s
actions and debts and because stock is easily transferred.
9. A registrar keeps stockholder records and prepares official lists of stockholders and
dividend payments.
10. Stockholders’ equity consists of paid-in capital and retained earnings.
11. The price at which a share of stock is bought or sold is known as par value.
12. Paid-in capital is the total amount of cash and other assets the corporation receives from
its stockholders in exchange for its stock.
13. The total number of shares outstanding is the authorized stock.
14. If a corporation is authorized to issue 1,000 shares of $5 common stock, it is said to have
$5,000 of stock outstanding.
15. Minimum legal capital requirements are intended to protect creditors.
16. Stated value stock is no-par stock that is assigned a value per share by the corporation’s
board of directors.
17. A corporation may be authorized to issue both common and preferred stock.
18. Common stock always carries a preference for receiving dividends over preferred stock.
19. Special rights often granted to preferred stock include a preference for receiving dividends
and additional voting privileges.
20. Cumulative preferred stock carries the right to be paid both current and all prior periods’
unpaid dividends before any dividends are paid to common shareholders.
21. Retained earnings generally consist of a company’s cumulative net income less any net
losses and dividends declared since its inception.
22. Retained earnings are part of the stockholders’ claims on the company’s net assets.
23. The term restricted retained earnings refers to statutory but not contractual restrictions.
24. A common statutory restriction is reported on the income statement whereas; a common
contractual restriction is reported in the stockholders’ equity section of the balance sheet.
25. If the dividends account is not recorded as a reduction to Retained Earnings on the date of
declaration, the dividends account is closed to Retained Earnings at the end of the accounting
period.
26. A company made an error in recording the 2014 purchase of computer equipment as an
expense. This was discovered in 2015. The item should be reported as a prior period
adjustment on the 2015 income statement.
27. Changes in accounting estimates are accounted for in current and future periods.
28. Earnings per share is the amount of income earned per share of a company’s outstanding
(weighted-average) common stock.
29. Robin Company had net income of $67,000. The company had 9,000 weighted average
common shares outstanding. The basic earnings per share equal $7.44 per share.
30. The price-earnings ratio reveals information about the stock market’s expectations for a
company’s future earnings growth.
31. Stocks with a price-earnings ratio less than 20 to 25 are likely to be overpriced.
32. The price-earnings ratio is computed by dividing earnings per share by the market price
per share.
33. A company has earnings per share of $6.50. Its dividend per share is $0.50, and its market
price per share is $80. Its price-earnings ratio equals 13.
34. Dividend yield shows the annual amount of cash dividends distributed to common shares
relative to the stock’s market price.
35. Dividend yield is defined as the annual cash dividends per share divided by the market
price per share of a company’s stock.
36. Growth stocks generally pay large dividends on a regular basis.
37. Dividend yield is computed by dividing earnings per share by the market value per share.
38. Book value per share reflects the value per share if a company is liquidated at balance
sheet amounts.
39. The main limitation in using book value per share for stock valuation models is the
potential difference between recorded value and market value for both assets and liabilities.
40. Dividing stockholders’ equity applicable to common shares by the number of common
shares outstanding yields the book value per common share.
41. If a corporation receives assets other than cash in exchange for stock, it records the assets
received at their market value as of the date of the transaction.
Topic: True
Blooms: Remember
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: 1 Easy
Learning Objective: 11-P1
Topic: Common Stock
42. A corporation may not legally give shares of its stock to promoters in exchange for their
services in organizing the corporation.
43. When no-par stock is not assigned a stated value, the total amount received is recorded in
the Common Stock account.
44. The date of record is the date that directors vote to pay a cash dividend to shareholders.
45. A debit balance in retained earnings is referred to as an accumulated deficit.
46. The declaration of cash dividends increases retained earnings.
47. The journal entry to record the declaration of dividends on common stock includes a debit
to Retained Earnings and a credit to Common Dividend Payable.
48. A stock split is the distribution of additional shares of stock to stockholders according to
their percent of ownership.
49. A stock dividend does not reduce a corporation’s assets or its stockholders’ equity.
50. A stock dividend is a distribution of corporate assets that returns part of the original
investment to shareholders.
51. A reverse stock split increases the market value per share and the par value per share of
stock.
52. Recording of a stock dividend results in a liability being recorded.
53. A stock split increases total stockholders’ equity.
54. A large stock dividend only occurs when a distribution of more than 50% of previously
outstanding shares is issued.
55. A stock dividend decreases the market price of the company’s stock.
56. All stock dividends are recorded at par value so there would never be a credit to the paid-
in capital in excess of par value account.
57. Paid and declared preferred dividends are called dividends in arrears.
58. Cumulative preferred stock has a right to be paid both current and prior periods’ unpaid
dividends before any dividend is paid to common shareholders.
59. Callable preferred stock gives a corporation the option of exchanging preferred shares into
common shares at a specified rate.
60. Participating preferred stock has a feature that allows its holders to share with common
shareholders in any dividends paid in excess of the percent or dollar amount stated on the
preferred stock.
61. Corporations issue preferred stock to raise capital without sacrificing control of the
corporation and/or to boost the return earned by common shareholders.
62. Treasury stock is stock that has been authorized, issued, and is outstanding.
63. Purchasing treasury stock reduces the corporation’s assets and stockholders’ equity by
unequal amounts.
64. If the purchase price of retired stock exceeds the net amount removed from paid-in capital,
the excess is debited to Retained Earnings.
65. Stock that is retired is the same as authorized and unissued stock.
66. If a company resells treasury stock below the acquisition cost, a loss from the sale of
treasury stock is recorded.
67. The costs of bringing a corporation into existence, including legal fees, promoter fees, and
amounts paid to obtain a charter are called:
A. Minimum legal capital.
B. Stock subscriptions.
C. Organization expenses.
D. Selling expenses.
E. Prepaid fees.
68. The right of common shareholders to purchase their proportional share of any common
stock later issued by the corporation is called a:
A. Preemptive right.
B. Proxy right.
C. Right to call.
D. Financial leverage.
E. Voting right.
69. A proxy is:
A. A document that delegates a stockholder’s voting rights to an agent.
B. A contractual commitment by an investor to purchase unissued shares of stock.
C. An amount of assets defined by state law that stockholders must invest and leave invested
in a corporation.
D. The right of common stockholders to protect their proportionate interests in a corporation
by having the first opportunity to purchase additional shares of common stock issued by the
corporation.
E. An arbitrary amount assigned to no-par stock by the corporation’s board of directors.
70. The board of directors of a corporation:
A. Are elected by the corporate registrar.
B. Are responsible for day-to-day operations of the business.
C. Do not have the power to bind the corporation to contracts, due to lack of mutual agency.
D. May not also be executive officers of the corporation, due to the separate entity principle.
E. Are responsible for and have final authority for managing corporate activities.
71. The number of shares that a corporation’s charter allows it to sell is referred to as:
A. Issued stock.
B. Outstanding stock.
C. Common stock.
D. Preferred stock.
E. Authorized stock.
72. Par value of a stock refers to the:
A. Issue price of the stock.
B. Value assigned per share by the corporate charter.
C. Market value of the stock on the date of the financial statements.
D. Maximum selling price of the stock.
E. Dividend value of the stock.
73. When a corporation has only one class of stock, the stock is called
A. Preferred stock.
B. Common stock.
C. Par value stock.
D. Stated value stock.
E. No-par value stock.
74. In many states, the minimum amount that stockholders must contribute to the corporation,
and which is intended to protect the creditors of the corporation, is called the:
A. Par value of preferred.
B. Minimum legal capital.
C. Premium capital.
D. Stated value.
E. Working capital.
75. The total amount of cash and other assets received by a corporation from its stockholders
in exchange for its stock is:
A. Always equal to its par value.
B. Always equal to its stated value.
C. Referred to as paid-in capital.
D. Referred to as retained earnings.
E. Always below its stated value.
76. Stated value of no-par stock is:
A. Another name for redemption value.
B. An amount assigned to par value stock by the state of incorporation.
C. The market value of the stock on the date of issuance.
D. The difference between the par value of stock and the amount below or above par value
paid-in by the stockholder.
E. An amount assigned to no-par stock by the corporation’s board of directors.
77. Stockholders’ equity consists of which of the following?
A. Long-term assets.
B. Paid-in capital and retained earnings.
C. Paid-in capital and par value.
D. Retained earnings and cash.
E. Premiums and discounts.
78. A class of stock that can usually be issued at any price without creating a minimum legal
capital deficiency is called:
A. Convertible stock.
B. No-par stock.
C. Callable stock.
D. Noncumulative stock.
E. Discounted stock.
79. A corporation’s minimum legal capital is established by recording the par or stated value
of the number of shares:
A. Issued.
B. Authorized.
C. Subscribed.
D. Outstanding.
E. In treasury.
80. Retained earnings:
A. Generally consists of a company’s cumulative net income less any net losses and dividends
declared since its inception.
B. Can only be appropriated by setting aside a cash fund.
C. Represent an amount of cash available to pay shareholders.
D. Are never adjusted for anything other than net income or dividends.
E. Represents the amount shareholders are guaranteed to receive upon company liquidation.
81. Prior period adjustments to financial statements can result from:
A. Changes in accounting estimates.
B. Unacceptable accounting practices.
C. Discontinued operations.
D. Changes in tax law.
E. Extraordinary items.
82. Prior period adjustments are reported in the:
A. Multiple-step income statement.
B. Balance sheet.
C. Statement of retained earnings.
D. Statement of cash flows.
E. Single-step income statement.
83. Changes in accounting estimates are:
A. Considered accounting errors.
B. Reported as prior period adjustments.
C. Accounted for with a cumulative “catch-up” adjustment.
D. Extraordinary items.
E. Accounted for in current and future periods.
84. A company had a beginning balance in retained earnings of $430,000. It had net income of
$60,000 and paid out cash dividends of $56,250 in the current period. The ending balance in
retained earnings equals:
A. $546,250.
B. $426,250.
C. $116,250.
D. $433,750.
E. $490,000.
85. Rights to purchase common stock at a fixed price over a specified period are:
A. Preferred stocks.
B. Class B stocks.
C. Stock options.
D. Stock restrictions.
E. Preemptive rights.
86. Companies report the cost of stock options in the:
A. Statement of cash flows.
B. Balance sheet.
C. Statement of retained earnings.
D. Income statement.
E. No disclosure is required.
87. Changes in retained earnings are commonly reported in the:
A. Statement of cash flows.
B. Balance sheet.
C. Statement of stockholders’ equity.
D. Multiple-step income statement.
E. Single-step income statement.
88. A company made an error in calculating and reporting amortization expense in 2015. The
error was discovered in 2016. The item should be reported as a prior period adjustment:
A. on the 2015 statement of retained earnings.
B. on the 2015 income statement.
C. on the 2016 statement of retained earnings.
D. on the 2016 income statement.
E. accounted for with a cumulative “catch-up” adjustment in 2016.
89. The statement of changes in stockholders’ equity:
A. Is part of the statement of retained earnings.
B. Shows only the ending balances in stockholders’ equity.
C. Describes changes in paid-in capital and retained earnings subcategories.
D. Does not include changes in treasury stock.
E. Is reported by very few companies.
90. The amount of income earned per share of a company’s outstanding common stock is
known as:
A. Restricted retained earnings per share.
B. Earnings per share.
C. Continuing operations per share.
D. Dividends per share.
E. Book value per share.
91. Mayan Company had net income of $132,000. The weighted-average common shares
outstanding were 80,000. The company sold 3,000 shares before the end of the year. There
were no other stock transactions. The company’s earnings per share is:
A. $1.65.
B. $1.59.
C. $44.00.
D. $26.67.
E. $1.71.
92. Mayan Company had net income of $132,000. The weighted-average common shares
outstanding were 80,000. The company declared a $27,000 dividend on its noncumulative,
nonparticipating preferred stock. There were no other stock transactions. The company’s
earnings per share is:
A. $1.65.
B. $1.99.
C. $1.31.
D. $0.34.
E. $4.89.
93. The price-earnings ratio is calculated by dividing:
A. Market value per share by earnings per share.
B. Earnings per share by market value per share.
C. Dividends per share by earnings per share.
D. Dividends per share by market value per share.
E. Market value per share by dividends per share.
94. A company has earnings per share net income of $90,000; its weighted-average common
shares outstanding are 18,000. Its dividend per share is $0.45, its market price per share is
$88, and its book value per share is $76. Its price-earnings ratio equals:
A. 9.0.
B. 17.6
C. 12.5.
D. 15.2.
E. 16.9.
95. A company has earnings per share of $9.60. Its dividend per share is $0.50, its market
price per share is $110, and its book value per share is $96. Its price-earnings ratio equals:
A. 1.15.
B. 0.87.
C. 19.2.
D. 10.0.
E. 11.46.
96. The amount of annual cash dividends distributed to common shareholders relative to the
common stock’s market value is the:
A. Dividend payout ratio.
B. Dividend yield.
C. Price-earnings ratio.
D. Current yield.
E. Earnings per share.
97. The dividend yield is computed by dividing:
A. Annual cash dividends per share by earnings per share.
B. Earnings per share by cash dividends per share.
C. Annual cash dividends per share by the market value per share.
D. Market price per share by cash dividends per share.
E. Cash dividends per share by retained earnings.
98. Stocks that pay relatively large cash dividends on a regular basis are called:
A. Small capital stocks.
B. Mid capital stocks.
C. Growth stocks.
D. Large capital stocks.
E. Income stocks.
99. Dividend yield is the percent of cash dividends paid to common shareholders relative to
the:
A. Common stock’s market value.
B. Earnings per share.
C. Investors’ purchase price of the stock.
D. Amount of retained earnings.
E. Amount of cash.
100. A company paid $0.48 in cash dividends per share. Its earnings per share is $3.20 and its
market price per share is $20.00. Its dividend yield equals:
A. 2.4%.
B. 6.25%.
C. 6.4%.
D. 6.67%.
E. 15.00%.
101. A company paid $0.85 in cash dividends per share. Its earnings per share is $3.50, and its
market price per share is $35.50. Its dividend yield equals:
A. 2.0%.
B. 2.4%.
C. 9.9%.
D. 21.4%.
E. 24.2%.
102. Book value per share:
A. Reflects the value per share if a company is liquidated at balance sheet amounts.
B. Is assets divided by equity.
C. Is assets divided by the number of common shares outstanding.
D. Measures the worth of assets.
E. Is equal to par value per share.
103. Book value per common share is computed by:
A. Multiplying the number of common shares outstanding times the market price per common
share.
B. Dividing total assets by the number of shares outstanding.
C. Dividing stockholders’ equity applicable to common shares by the number of common
shares outstanding.
D. Multiplying the number of common shares outstanding by par value per share.
E. Dividing the number of common shares outstanding by stockholders’ equity applicable to
common shares.
104. A company has 50,000 shares of common stock outstanding. The stockholders’ equity
applicable to common shares is $1,470,000, and the par value per common share is $5. The
book value per share is:
A. $ 4.75.
B. $ 14.70.
C. $10.00.
D. $29.40.
E. $47.50.
105. Wiggins Company has 1,000 shares of $10 par preferred stock. It also has 25,000 shares
of common stock outstanding, and its total stockholders’ equity equals $500,000. The book
value per common share is:
A. $ 16.00.
B. $ 19.60.
C. $ 19.96.
D. $ 20.00.
E. $ 10.00.
106. Djarleen Company has 10,000 shares of $10 par preferred stock. It also has 250,000
shares of common stock outstanding, and its total stockholders’ equity equals $4,000,000. The
book value per common share is:
A. $ 16.67.
B. $ 16.00.
C. $ 40.00.
D. $ 15.60.
E. $ 10.00.
107. A company has 500 shares of $50 par value preferred stock outstanding, and the call
price of its preferred stock is $60 per share. It also has 20,000 shares of common stock
outstanding, and the total value of its stockholders’ equity is $680,000. The company’s book
value per common share equals:
A. $31.71.
B. $32.50.
C. $32.75.
D. $33.17.
E. $60.00.
Answer; B
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Risk Analysis
Difficulty: 3 Hard
Learning Objective: 11-A4
Topic: Book Value per Share
Feedback: Book Value per Share = Stockholders’ Equity Applicable to Common/Common Shares
Outstanding
Book Value per Share = [$680,000 – (500 shares * $60/share)]/20,000 = $32.50/ share
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McGraw-Hill Education.
11-36
108. The Discount on Common Stock account reflects:
A. The difference between the par value of stock and its issue price when it is issued at a price
below par value.
B. One share’s portion of the issued corporation’s net assets recorded in its accounts.
C. The difference between the par value of the stock and the amount paid-in by stockholders
when the amount paid-in is more than par value.
D. An amount of assets defined by state law that stockholders must invest and leave invested
in a corporation.
E. The amount a corporation must pay in addition to dividends in arrears if and when it
exercises its right to retire a share of callable preferred stock.
109. Percy Corporation was formed on January 1. The corporate charter authorized 100,000
shares of $10 par value common stock. During the first month of operation, the corporation
issued 400 shares to its attorneys in payment of a $5,000 charge for drawing up the articles of
incorporation. The entry to record this transaction would include:
A. A debit to Organization Expenses for $4,000.
B. A debit to Organization Expenses for $5,000.
C. A credit to Common Stock for $5,000.
D. A credit to Paid-in Capital in Excess of Par Value, Common Stock for $5,000.
E. A debit to Paid-in Capital in Excess of Par Value, Common Stock for $2,000.
110. A corporation sold 14,000 shares of its $1 par value common stock at a cash price of $13
per share. The entry to record this transaction would include:
A. A debit to Paid-in Capital in Excess of Par Value, Common Stock for $182,000.
B. A debit to Cash for $14,000.
C. A credit to Common Stock for $182,000.
D. A credit to Common Stock for $14,000.
E. A credit to Paid-in Capital in Excess of Par Value, Common Stock for $196,000.
111. Comfort Mattresses, Inc. sold 26,000 shares of its $1 par value common stock at a cash
price of $12 per share. The entry to record this transaction would be:
A. Debit Cash $312,000; credit Common Stock $26,000; credit Paid-in Capital in Excess of
Par Value, Common Stock $286,000.
B. Debit Cash for $312,000; credit Common Stock $312,000.
C. Debit Common Stock $26,000; debit Paid-in Capital in Excess of Par Value, Common
Stock $286,000; credit Cash $312,000.
D. Debit Cash $312,000; credit Stock Liability $286,000; credit Common Stock $26,000.
E. Debit Common Stock $26,000; credit Cash $26,000.
112. A corporation issued 6,000 shares of its $2 par value common stock in exchange for land
that has a market value of $84,000. The entry to record this transaction would include:
A. A debit to Common Stock for $12,000.
B. A debit to Land for $12,000.
C. A credit to Land for $12,000.
D. A credit to Paid-in Capital in Excess of Par Value, Common Stock for $72,000.
E. A credit to Common Stock for $84,000.
113. A corporation issued 100 shares of its $5 par value common stock in payment of a
$1,800 charge from its accountant for assistance in filing its charter with the state. The entry
to record this transaction will include:
A. A $1,800 credit to Common Stock.
B. A $300 debit to Organization Expenses.
C. A $1,300 credit to Paid-in Capital in Excess of Par Value, Common Stock.
D. A $1,800 debit to Legal Expenses.
E. A $1,800 credit to Cash.
114. A company issued 60 shares of $100 par value common stock for $7,000 cash. The total
amount of paid-in capital is:
A. $ 100.
B. $ 600.
C. $1,000.
D. $6,000.
E. $7,000.
115. A company issued 60 shares of $100 par value common stock for $7,000 cash. The
journal entry to record the issuance is:
A. Debit Cash $7,000; credit Common Stock $7,000.
B. Debit Investment in Common Stock $7,000; credit Cash $7,000.
C. Debit Cash $7,000; credit Common Stock $6,000; credit Paid-in Capital in Excess of Par
Value, Common Stock $1,000.
D. Debit Common Stock $6,000, debit Investment in Common Stock $1,000; credit Cash
$7,000.
E. Debit Cash $7,000; credit Paid-in Capital in Excess of Par Value, Common Stock $6,000,
credit Common Stock $1,000.
116. A company issued 70 shares of $30 par value preferred stock for $4,000 cash. The
journal entry to record the issuance is:
A. Debit Cash $2,100; credit Preferred Stock $2,100.
B. Debit Investment in Preferred Stock $2,100; credit Cash $2,100.
C. Debit Cash $4,000; credit Preferred Stock $4,000.
D. Debit Preferred Stock $2,100, debit Investment in Preferred Stock $1,900; credit Cash
$4,000.
E. Debit Cash $4,000; credit Paid-in Capital in Excess of Par Value, Preferred Stock $1,900,
credit Preferred Stock $2,100.
117. A company issued 60 shares of $100 par value common stock for $7,000 cash. The total
amount of paid-in capital in excess of par is:
A. $ 100.
B. $ 600.
C. $1,000.
D. $6,000.
E. $7,000.
118. A corporation issued 5,000 shares of $10 par value common stock in exchange for some
land with a market value of $70,000. The entry to record this exchange is:
A. Debit Land $70,000; credit Common Stock $50,000; credit Paid-In Capital in Excess of
Par Value, Common Stock $20,000.
B. Debit Land $70,000; credit Common Stock $70,000.
C. Debit Land $50,000; credit Common Stock $50,000.
D. Debit Common Stock $50,000; debit Paid-In Capital in Excess of Par Value, Common
Stock $20,000; credit Land $70,000.
E. Debit Common Stock $70,000; credit Land $70,000.
119. A premium on common stock:
A. occurs when a corporation sells its stock for more than par or stated value.
B. Is the difference between par value and issue price when the amount paid is below par.
C. Represents profit from issuing stock.
D. Represents capital gain on sale of stock.
E. Is prohibited in most states.
120. The date the directors vote to declare and pay a dividend is called the:
A. Date of stockholders’ meeting.
B. Date of declaration.
C. Date of record.
D. Date of payment.
E. Liquidating date.
121. A liquidating dividend is:
A. Only declared when a corporation closes down.
B. A return of a portion of the original investment back to the stockholders.
C. Not allowed under federal law.
D. Only paid in assets other than cash.
E. Only paid in shares of stock.
122. A liability for dividends exists:
A. When cumulative preferred stock is sold.
B. On the date of declaration.
C. On the date of record.
D. On the date of payment.
E. For dividends in arrears on cumulative preferred stock.
123. A company’s board of directors votes to declare a cash dividend of $.75 per share of
common stock. The company has 15,000 shares authorized, 10,000 issued, and 9,500 shares
outstanding. The total amount of the cash dividend is:
A. $10,250.
B. $14,625.
C. $ 7,125.
D. $ 7,500.
E. $11,250.
124. A company’s board of directors votes to declare a cash dividend of $1.00 per share on its
12,000 common shares outstanding. The journal entry to record the declaration of the cash
dividend is:
A. Debit Dividend Expense $12,000; credit Cash $12,000.
B. Debit Dividend Expense $12,000; credit Common Dividend Payable $12,000.
C. Debit Common Dividend Payable $12,000; credit Cash $12,000.
D. Debit Retained Earnings $12,000; credit Common Dividend Payable $12,000.
E. Debit Common Dividend Payable $12,000; credit Retained Earnings $12,000.
125. A company’s board of directors votes to declare a cash dividend of $1.00 per share on its
12,000 common shares outstanding. The journal entry to record the payment of the cash
dividend is:
A. Debit Dividend Expense $12,000; credit Cash $12,000.
B. Debit Dividend Expense $12,000; credit Common Dividend Payable $12,000.
C. Debit Common Dividend Payable $12,000; credit Cash $12,000.
D. Debit Retained Earnings $12,000; credit Common Dividend Payable $12,000.
E. Debit Common Dividend Payable $12,000; credit Retained Earnings $12,000.
126. Hutter Corporation declared a $0.50 per share cash dividend on its common shares. The
company has 20,000 shares authorized, 9,000 shares issued, and 8,000 shares of common
stock outstanding. The journal entry to record the dividend declaration is:
A. Debit Retained Earnings $4,000; credit Common Dividends Payable $4,000.
B. Debit Common Dividends Payable $4,000; credit Cash $4,000.
C. Debit Retained Earnings $4,500; credit Common Dividends Payable $4,500.
D. Debit Common Dividends Payable $4,500; credit Cash $4,500.
E. Debit Retained Earnings $10,000; credit Common Dividends Payable $10,000.
127. Hutter Corporation declared a $0.50 per share cash dividend on its common shares. The
company has 20,000 shares authorized, 9,000 shares issued, and 8,000 shares of common
stock outstanding. The journal entry to record the dividend payment is:
A. Debit Retained Earnings $4,000; credit Common Dividends Payable $4,000.
B. Debit Common Dividends Payable $4,000; credit Cash $4,000.
C. Debit Retained Earnings $4,500; credit Common Dividends Payable $4,500.
D. Debit Common Dividends Payable $4,500; credit Cash $4,500.
E. Debit Retained Earnings $10,000; credit Common Dividends Payable $10,000.
128. A corporation’s distribution of additional shares of its own stock to its stockholders
without the receipt of any payment in return is called a:
A. Stock dividend.
B. Stock subscription.
C. Premium on stock.
D. Discount on stock.
E. Treasury stock.
129. Which of the following is true of a stock dividend?
A. It is a liability on the balance sheet.
B. The decision to declare a stock dividend resides with the shareholders.
C. Transfers a portion of equity from retained earnings to a cash reserve account.
D. Does not affect total equity, but transfer amounts between the components of equity.
E. Reduces a corporation’s assets and stockholders’ equity.
130. On September 1, Ziegler Corporation had 50,000 shares of $5 par value common stock,
and $1,500,000 of retained earnings. On that date, when the market price of the stock is $15
per share, the corporation issues a 2-for-1 stock split. The general journal entry to record this
transaction is:
A. Debit Retained Earnings $750,000; credit Common Stock Split Distributable $750,000.
B. Debit Retained Earnings $750,000; credit Common Stock $750,000.
C. Debit Retained Earnings $250,000; credit Common Stock $250,000.
D. Debit Retained Earnings $250,000; credit Stock Split Payable $250,000.
E. No entry is made for this transaction.
131. All of the following statements regarding stock dividends are true except:
A. Directors can use stock dividends to keep the market price of the stock affordable.
B. Stock dividends provide evidence of management’s confidence that the company is doing
well.
C. Stock dividends do not reduce assets or equity.
D. Stock dividends decrease the number of shares outstanding.
E. Stock dividends transfer a portion of equity from retained earnings to contributed capital.
132. A stock dividend is recorded with a transfer from:
A. Contributed capital to retained earnings.
B. Retained earnings to contributed capital.
C. Retained earnings to assets.
D. Contributed capital to assets.
E. Assets to contributed capital.
133. A corporation declared and issued a 15% stock dividend on October 1. The following
information was available immediately prior to the dividend:
Retained earnings ……………………………. $750,000
Shares issued and outstanding …………….. 60,000
Market value per share ……………………… $15
Par value per share ………………………….. $5
The amount that contributed capital will increase (decrease) as a result of recording this stock
dividend is:
A. $45,000.
B. $135,000.
C. $(45,000).
D. $(135,000).
E. $0.
134. Global Corporation had 50,000 shares of $20 par value common stock outstanding on
July 1. Later that day the board of directors declared a 10% stock dividend when the market
value of each share was $27. The entry to record this dividend is:
A. Debit Retained Earnings $135,000; credit Common Stock Dividend Distributable
$135,000.
B. Debit Retained Earnings $135,000; credit Cash $135,000.
C. Debit Retained Earnings $135,000; credit Common Stock Dividend Distributable
$100,000; credit Paid-In Capital in Excess of Par Value, Common Stock $35,000.
D. Debit Retained Earnings $100,000; credit Common Stock Dividend Distributable
$100,000.
E. No entry is made until the stock is issued.
135. Eastline Corporation had 10,000 shares of $10 par value common stock outstanding
when the board of directors declared a stock dividend of 3,000 shares. At the time of the stock
dividend, the market value per share was $12. The entry to record this dividend is:
A. Debit Retained Earnings $36,000; credit Common Stock Dividend Distributable $36,000.
B. Debit Retained Earnings $36,000; credit Common Stock Dividend Distributable $30,000;
credit Paid-In Capital in Excess of Par Value, Common Stock $6,000.
C. Debit Common Stock Dividend Distributable $36,000; credit Retained Earnings $36,000.
D. Debit Retained Earnings $30,000; credit Common Stock Dividend Distributable $30,000.
E. No entry is needed.
136. Preferred stock which confers rights to prior periods’ unpaid dividends even if they were
not declared is called:
A. Noncumulative preferred stock.
B. Participating preferred stock.
C. Callable preferred stock.
D. Cumulative preferred stock.
E. Convertible preferred stock.
137. Preferred stock that the issuing corporation has the option to retire by paying a specified
amount to the preferred stockholders is called:
A. Convertible preferred stock.
B. Callable preferred stock.
C. Premium stock.
D. Cumulative preferred stock.
E. Participating preferred stock.
138. Achieving an increased return on common stock by paying dividends on preferred stock
at a rate that is less than the rate of return earned with the assets invested from the preferred
stock issuance is called:
A. Financial leverage.
B. Discount on stock.
C. Premium on stock.
D. Preemptive right.
E. Capital gain.
139. Preferred stock with a feature allowing preferred stockholders to share with common
shareholders in any dividends in excess of the percent or dollar amount stated on the preferred
stock is called:
A. Cumulative preferred stock.
B. Callable preferred stock.
C. Participating preferred stock.
D. Convertible preferred stock.
E. Preferential preferred stock.
140. Ultimate Sportswear has $100,000 of 8% noncumulative, nonparticipating, preferred
stock outstanding. Ultimate Sportswear also has $500,000 of common stock outstanding. In
the company’s first year of operation, no dividends were paid. During the second year, the
company paid cash dividends of $30,000. This dividend should be distributed as follows:
A. $8,000 preferred; $22,000 common.
B. $16,000 preferred; $14,000 common.
C. $7,500 preferred; $22,500 common.
D. $15,000 preferred; $15,000 common.
E. $0 preferred; $30,000 common.
141. Gracey’s Department Stores has $200,000 of 6% noncumulative, nonparticipating,
preferred stock outstanding. Gracey’s also has $600,000 of common stock outstanding.
During its first year, the company paid cash dividends of $30,000. This dividend should be
distributed as follows:
A. $15,000 preferred; $15,000 common.
B. $6,000 preferred; $24,000 common.
C. $30,000 preferred; $0 common.
D. $12,000 preferred; $18,000 common.
E. $0 preferred; $30,000 common.
142. Torino Company has 10,000 shares of $5 par value, 4% cumulative and nonparticipating
preferred stock and 100,000 shares of $10 par value common stock outstanding. The company
paid total cash dividends of $1,000 in its first year of operation. The cash dividend that must
be paid to preferred stockholders in the second year before any dividend is paid to common
stockholders is:
A. $1,000.
B. $2,000.
C. $3,000.
D. $4,000.
E. $0.
143. Preferred stock on which the right to receive dividends is forfeited for any year that the
dividends are not declared is referred to as:
A. Participating preferred stock.
B. Callable preferred stock.
C. Cumulative preferred stock.
D. Convertible preferred stock.
E. Noncumulative preferred stock.
144. A dividend preference for preferred stock means that:
A. Preferred stockholders are allocated their dividends before dividends are allocated to
common shareholders.
B. Preferred shareholders are guaranteed dividends.
C. Dividends are paid quarterly.
D. Preferred stockholders prefer dividends more than common stockholders.
E. Dividends must be declared on preferred stock.
145. Alto Company issued 7% preferred stock with a $100 par value. This means that:
A. Preferred shareholders have a guaranteed dividend.
B. The amount of the potential dividend is $7 per year per preferred share.
C. Preferred shareholders are entitled to 7% of the annual income.
D. The market price per share will approximate $100 per share.
E. Only 7% of the total paid-in capital can be preferred stock.
146. Stock that was reacquired and is still held by the issuing corporation is called:
A. Capital stock.
B. Treasury stock.
C. Redeemed stock.
D. Preferred stock.
E. Callable stock.
147. Treasury stock is classified as:
A. An asset account.
B. A contra asset account.
C. A revenue account.
D. A contra equity account.
E. A liability account.
148. The following data were reported by a corporation:
Authorized shares ……..…………………….. 20,000
Issued shares ……..………………………….. 15,000
Treasury shares ……..……………………….. 3,000
The number of outstanding shares is:
A. 12,000.
B. 15,000.
C. 17,000.
D. 20,000.
E. 23,000.
149. Corporations may buy back their own stock for any of the following reasons except to:
A. Avoid a hostile take-over.
B. Have shares available for a merger or acquisition.
C. Have shares available for employee compensation.
D. Maintain market value for the company stock.
E. Allow management to assume the voting rights.
150. The following data has been collected about Keller Company’s stockholders’ equity
accounts:
Common stock $10 par value 20,000 shares
authorized and 10,000 shares issued, 9,000 shares
outstanding…………………………………………..…………………. $100,000
Paid-in capital in excess of par value, common stock…......... 50,000
Retained earnings……………………………………..…………………. 25,000
Treasury stock……………………………………………………………… 11,500
Assuming the treasury shares were all purchased at the same price, the cost per share of the
treasury stock is:
A. $1.15.
B. $1.28.
C. $11.50.
D. $10.50.
E. $10.00.
151. The following data has been collected about Keller Company’s stockholders’ equity
accounts:
Common stock $10 par value 20,000 shares
authorized and 10,000 shares issued, 9,000 shares
outstanding…………………………………………..…………………. $100,000
Paid-in capital in excess of par value, common stock…......... 50,000
Retained earnings……………………………………..…………………. 25,000
Treasury stock……………………………………………………………… 11,500
Assuming the treasury shares were all purchased at the same price, the number of shares of
treasury stock is:
A. 1,150.
B. 1,000.
C. 575.
D. 11,000.
E. 21,000.
152. Prior to June 30, a company has never had any treasury stock transactions. A company
repurchased 100 shares of its common stock on June 30 for $40 per share. On July 20, it
reissued 50 of these shares at $46 per share. On August 1, it reissued 20 of the shares at $38
per share. What is the balance in the Treasury Stock account on August 2?
A. $5,050.
B. $2,600.
C. $100.
D. $1,200.
E. $0.
153. Prior to May 1, Fortune Company has never had any treasury stock transactions. A
company repurchased 100 shares of its common stock on May 1 for $5,000. On July 1, it
reissued 50 of these shares at $52 per share. On August 1, it reissued the remaining treasury
shares at $49 per share. What is the balance in the Paid-in Capital, Treasury Stock account on
August 2?
A. $5,050.
B. $2,600.
C. $100.
D. $50.
E. $0.
154. All of the following regarding accounting for Treasury Stock under U.S. GAAP and
IRFS is true except:
A. U. S. GAAP applies the principle that companies do not record gains or losses on
transactions involving their own stock.
B. Only gains are recognized on retirements of treasury stock under IFRS.
C. IFRS applies the principle that companies do not record gains or losses on transactions
involving their own stock.
D. Gains are not recognized on retirements of treasury stock under U. S. GAAP.
E. A company’s assets and equity are always reduced by the amount paid for the retiring
stock.
155. Fetzer Company declared a $0.55 per share cash dividend. The company has 200,000
shares authorized, 190,000 shares issued, and 8,000 shares in treasury stock. The journal entry
to record the dividend declaration is:
A. Debit Retained Earnings $104,500; credit Common Dividends Payable $104,500.
B. Debit Common Dividends Payable $104,500; credit Cash $104,500.
C. Debit Retained Earnings $100,100; credit Common Dividends Payable $100,100.
D. Debit Common Dividends Payable $100,100; credit Cash $100,100.
E. Debit Retained Earnings $110,000; credit Common Dividends Payable $110,000.
156. West Company declared a $0.50 per share cash dividend. The company has 190,000
shares issued, and 10,000 shares in treasury stock. The journal entry to record the dividend
declaration is:
A. Debit Retained Earnings $90,000; credit Common Dividends Payable $90,000.
B. Debit Common Dividends Payable $95,000; credit Cash $95,000.
C. Debit Retained Earnings $5,000; credit Common Dividends Payable $5,000.
D. Debit Common Dividends Payable $90,000; credit Cash $90,000.
E. Debit Retained Earnings $95,000; credit Common Dividends Payable $95,000.
157. West Company declared a $0.50 per share cash dividend. The company has 190,000
shares issued, and 10,000 shares in treasury stock. The journal entry to record the payment of
the dividend is:
A. Debit Retained Earnings $90,000; credit Common Dividends Payable $90,000.
B. Debit Common Dividends Payable $95,000; credit Cash $95,000.
C. Debit Retained Earnings $5,000; credit Common Dividends Payable $5,000.
D. Debit Common Dividends Payable $90,000; credit Cash $90,000.
E. Debit Retained Earnings $95,000; credit Common Dividends Payable $95,000.
158. Fetzer Company declared a $0.55 per share cash dividend. The company has 200,000
shares authorized, 190,000 shares issued, and 8,000 shares in treasury stock. The journal entry
to record the payment of the dividend is:
A. Debit Retained Earnings $104,500; credit Common Dividends Payable $104,500.
B. Debit Common Dividends Payable $104,500; credit Cash $104,500.
C. Debit Retained Earnings $100,100; credit Common Dividends Payable $100,100.
D. Debit Common Dividends Payable $100,100; credit Cash $100,100.
E. Debit Retained Earnings $110,000; credit Common Dividends Payable $110,000.
159. Fargo Company’s outstanding stock consists of 400 shares of noncumulative 5%
preferred stock with a $10 par value and 3,000 shares of common stock with a $1 par value.
During the first three years of operation, the corporation declared and paid the following total
cash dividends.
Year Dividend Declared
2015 $20,000
2016 $6,000
2017 $32,000
The amount of dividends paid to preferred and common shareholders in 2015 is:
A. $200 preferred; $19,800 common.
B. $4,000 preferred; $16,000 common.
C. $17,000 preferred; $3,000 common.
D. $10,000 preferred; $10,000 common.
E. $20,000 preferred; $0 common.
160. Halverstein Company’s outstanding stock consists of 7,000 shares of cumulative 5%
preferred stock with a $10 par value and 3,000 shares of common stock with a $1 par value.
During the first three years of operation, the corporation declared and paid the following total
cash dividends.
Year Dividend Declared
2015 $0
2016 $6,000
2017 $32,000
The amount of dividends paid to preferred and common shareholders in 2016 is:
A. $3,500 preferred; $2,500 common.
B. $3,000 preferred; $3,000 common.
C. $0 preferred; $6,000 common.
D. $4,200 preferred; $1,800 common.
E. $6,000 preferred; $0 common.
161. Prior to June 30, a company has never had any treasury stock transactions. A company
repurchased 100 shares of its $1 par common stock on June 30 for $40 per share. On July 20,
it reissued 50 of these shares at $46 per share. On August 1, it reissued 20 of the shares at $38
per share. What is the journal entry necessary to record the repurchase of stock on June 30?
A. Debit Common Stock $4,000; credit Cash $4,000.
B. Debit Common Stock $100; debit Treasury Stock $3,900; credit Cash $4,000.
C. Debit Treasury Stock $3,900; debit Paid-in Capital, Treasury Stock $100; credit Cash
$4,000.
D. Debit Treasury Stock, Common $4,000; credit Cash $4,000.
E. Debit Cash $4,000; credit Treasury Stock $4,000.
162. Prior to June 30, a company has never had any treasury stock transactions. A company
repurchased 100 shares of its $1 par common stock on June 30 for $40 per share. On July 20,
it reissued 50 of these shares at $46 per share. On August 1, it reissued 20 of the shares at $38
per share. What is the journal entry necessary to record the reissuance of treasury stock on
July 20?
A. Debit Common Stock $2,300; credit Cash $2,300.
B. Debit Common Stock $20; debit Treasury Stock $2,290; credit Cash $2,300.
C. Debit Common Stock $2,300; credit Treasury Stock $2,000; credit Paid-In Capital,
Treasury Stock $300.
D. Debit Cash $2,300; debit Paid-in Capital, Treasury Stock $300; credit Treasury Stock
$2,000.
E. Debit Cash $2,300; credit Treasury Stock $2,300.
163. A corporation issued 2,500 shares of its no par common stock at a cash price of $11 per
share. The entry to record this transaction would be:
A. Debit Cash $27,500; credit Paid-in Capital in Excess of Par Value, Common Stock $2,500;
credit Common Stock $25,000.
B. Debit Cash $27,500; credit Common Stock $27,500.
C. Debit Common Stock $27,500; credit Cash $27,500.
D. Debit Treasury Stock $27,500; credit Cash $27,500.
E. Debit Treasury Stock $2,500; debit Paid-in Capital in Excess of Par Value, Treasury Stock
$25,000; credit Common Stock $27,500.
164. A corporation issued 5,000 shares of its no par common stock that was assigned a $1
stated value per share. The issue price was $10 per share. The entry to record this transaction
would be:
A. Debit Cash $50,000; credit Paid-in Capital in Excess of Par Value, Common Stock
$45,000; credit Common Stock $5,000.
B. Debit Cash $50,000; credit Common Stock $50,000.
C. Debit Common Stock $50,000; credit Cash $50,000.
D. Debit Treasury Stock $50,000; credit Cash $50,000.
E. Debit Common Stock $25,000; debit Paid-in Capital in Excess of Par Value, Common
Stock $5,000; credit Common Stock $45,000.
165. What is a corporation? Identify the key advantages and disadvantages of corporations.
166. What are the rights generally granted to common stockholders?
167. Explain stock options and their effect on the company.
168. Explain how to calculate the price-earnings ratio and describe how it is used in analysis
of a company’s financial condition and performance.
169. Explain how to compute dividend yield and discuss how it is used in analysis of a
company’s financial condition.
170. Explain how to compute book value per common share and discuss how it can be used to
analyze the financial condition of a corporation.
171. What is a stock split? How is a stock split different from a stock dividend?
172. Explain the difference between a large stock dividend and a small stock dividend. In
addition, explain how to record these two types of stock dividends.
173. What is treasury stock? What reasons might a company hold treasury stock?
174. How is the retirement of stock recorded?
175. Boron Company is authorized to issue 50,000 shares of $50 par value, 8%, cumulative,
fully participating preferred stock, and 750,000 shares of $5 par value common stock. Prepare
journal entries to record the following selected transactions that occurred during the
company’s first year of operations:
May 5 Exchanged 2,200 shares of preferred stock for a building with a market
value of $135,000.
July 20 Sold 1,550 shares of preferred stock for $50 cash per share.
Dec. 20 Sold 1,000 shares of preferred stock at $52 cash per share.
176. A corporation received its charter and began business this year. The company is
authorized to issue 500,000 shares of $100 par, 6%, noncumulative, nonparticipating
preferred stock, and 1,000,000 shares of no-par common stock. The following selected
transactions occurred during this year:
Mar. 5 Issued 250 shares of preferred stock for $102 cash per share.
July 15 Exchanged 750 shares of common stock for $12,000 in legal
services incurred in the organization of the company.
Prepare journal entries to record these transactions.
177. Rhoads Corporation is authorized to issue 250,000 shares of $50 par, 10%,
noncumulative, nonparticipating preferred stock and 5,000,000 shares of no-par common
stock. Prepare journal entries to record the following selected transactions that occurred
during this year:
Feb. 1 Issued 10,000 shares of common stock for $30 cash per share.
15 Exchanged 2,000 shares of preferred stock for equipment and
merchandise inventory with market values of $80,000 and $30,000,
respectively.
178. Given the following information about a corporation’s current year activities, compute
the retained earnings for the current year.
Retained earnings, December 31 (prior year)..….…….…... $280,000
Cost of goods sold……………………………………………………. $90,000
Other operating expenses……………………………..….…….…. $54,000
Cash dividends………………………………………….…….…….… $31,800
Correction of understatement of net income in prior
period (inventory error)………………………..….…….…….. $23,000
Stock dividends…………………………………………….….……... $20,000
Net income………………………………………………….…….……. $36,000
179. Given the following information about a corporation’s current year activities, compute
the retained earnings for the current year.
Retained earnings, January 1 …………………………………….. $342,000
Cash dividends………………………………………….…….…….… $51,700
Stock dividends…………………………………………….….……... $40,000
Net income………………………………………………….…….……. $141,000
180. Explain where each of the following items should appear in the financial statements of a
corporation:
(1) The accounting department discovered that an entry was made last year to Insurance
Expense instead of to Prepaid Insurance. The after–tax effect of the charge to Insurance
Expense was $5,000.
(2) The company grants five of its employees the option to purchase 100 shares of its $5 par
value common stock at its current market price of $20 per share anytime with the next five
years. None of the employees exercised the options in the current year.
181. Shaw Corporation reported stockholders’ equity on December 31 of the prior year as
follows:
Common stock, $5 par value, 1,000,000 shares
authorized, 500,000 shares issued……. $2,500,000
Paid-in capital in excess of par, common stock… 1,000,000
Retained earnings………………………………. 3,000,000
The following selected transactions occurred during the current year:
Feb. 15 The board of directors declared a 5% stock dividend to stockholders of
record on March 1, payable March 20. The stock was selling for $8 per
share.
Mar. 9 Distributed the stock dividend.
May 1 A cash dividend of $0.30 per share was declared by the board of
directors to stockholders of record on May 20, payable June 1.
June 1 Paid the cash dividend.
Aug. 20 The board decided to split the stock 4-for-1, effective on September 1.
Sept. 1 Stock split 4-for-1.
Dec. 31 Earned a net income of $800,000 for the current year.
Prepare a statement of retained earnings as of December 31 of the current year.
182. Beagle Company earned $90,000 in income and paid cash dividends of $7,000 to
preferred shareholders during the current year. Beagle had 15,500 weighted-average shares of
common stock outstanding for the year. Calculate the company’s earnings per share.
183. Slate Corporation had the following balances in its stockholders’ equity accounts at
December 31, 2015:
Common Stock, $10 par, 500,000 shares authorized,
20,000 shares issued …………………………………. $200,000
Paid-in Capital in Excess of Par Value, Common ………… 250,000
Retained Earnings ……………………………………….. 500,000
Treasury Stock, 1,000 shares …………………………… (20,000)
Total stockholders’ equity ……………………………….. $930,000
The following transactions occurred during 2016:
February 3 Sold and issued 2,000 shares of common stock for $22 per share.
May 10 Declared a $0.50 per share dividend on common stock.
October 12 Sold 500 shares of the treasury stock for $20 per share.
December 31 Net income for the year was determined to be $75,000.
Based on the above information, prepare a statement of stockholders’ equity for 2016. Use the
form below.
Slate Corporation
Statement of Stockholders’ Equity
December 31, 2016
Common
Stock
Paid-in
Capital in
Excess of
Par Value,
Common
Retained
Earnings
Treasury
Stock
Total
Equity
Balance, December 31, 2015 $200,000 $250,000 $500,000 $(20,000) $930,000
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184. A corporation had current year net income of $237,500. It paid preferred dividends of
$40,000 cash and had 480,000 weighted-average shares of common stock outstanding.
Calculate the corporation’s earnings per share.
185. A company’s stock is selling for $63.20 per share and its earnings per share is $3.60 for
the current year. Calculate the price-earnings ratio.
186. A company reported net income of $836,000 for the current year. The year-end market
price per common share was $12 and there were 475,000 weighted-average shares of common
stock outstanding. Calculate the company’s price-earnings ratio.
187. A company reported $960,000 in net income for the current year. Total weighted-average
common shares outstanding are 150,000 shares, and the year-end market price is $67.20 per
common share. Calculate the company’s price earnings ratio.
188. A company reported $1,050,000 in net income for the current year. Earnings per
common share is $1.75 and the year-end market price of the shares is $31.50. Calculate the
company’s price earnings ratio.
189. A corporation reported net income of $2,730,000 and paid preferred cash dividends of
$120,000 during the current year. There were 600,000 weighted-average shares of common
stock outstanding and the market price per common share at year-end was $58.30. Calculate
the company’s price-earnings ratio.
190. Gershwin Company reported net income of $428,000 and paid $8,500 in preferred cash
dividends during the current year. The company had 110,000 common shares issued, and
10,000 common shares in treasury during the year. The year-end market price per common
share was $41.05. Calculate the company’s price-earnings ratio.
191. A company’s stock is selling for $35.70 per share at year-end. This current year it paid
shareholders a $1.43 per share cash dividend, reported earnings per share of $11.00, and had
750,000 common shares outstanding at year-end. Calculate the company’s dividend yield.
192. A corporation paid a cash dividend of $0.85 per share during the current year. It had
1,550,000 common shares outstanding at year-end, its current year earnings per share was
$3.45, and the stock’s year-end market price was $10.63 per share. Calculate the company’s
dividend yield.
193. Lafferty Corporation reported earnings per share of $9.75, paid a $6.00 cash dividend per
share to preferred shareholders, and paid a $0.54 cash dividend per share to common
shareholders. There were 10,000 shares of preferred stock outstanding and 600,000 shares of
common stock outstanding during the year, and the market price per share of common stock
was $41.60. Calculate the company’s dividend yield for common stock.
194. A company paid a cash dividend of $0.88 per share during the current year, and reported
18,000 shares of common stock issued, and 2,000 common shares in treasury stock during the
current year. The year-end market price per share was $27.50. Calculate the following: (1)
total amount of cash dividends paid to common shareholders, and (2) dividend yield.
195. A company has 2,000,000 common shares authorized, 400,000 common shares issued,
and 15,000 common shares in treasury stock at the current year-end. It paid $0.96 per share
cash dividends during the year. The year-end market price of the stock is $15. Calculate (1)
the total dividends paid and (2) the dividend yield.
196. Avro Corporation has $875,000 in stockholders’ equity and 350,000 weighted-average
shares of common stock outstanding. Calculate the book value per common share.
197. A company has $2,400,000 in stockholders’ equity that includes 500 shares of $50 par
value noncallable preferred stock outstanding and 250,000 shares of common stock
outstanding. Calculate the book value per (1) preferred share, and (2) common share.
198. A company reports the following stockholders’ equity:
Paid-in Capital:
Common stock, $2 par, 5,000,000 shares authorized $3,000,000
Paid-in capital in excess of par, Common stock ………………. 1,300,000
Total paid-in capital …………………………………………… $4,300,000
Retained earnings ……………………………………………… 1,400,000
Total stockholders’ equity ……………………………………… $5,700,000
Compute the (1) number of common shares outstanding and (2) book value per common
share.
199. The stockholders’ equity section of a company’s year-end balance sheet follows:
Preferred stock, $50 par value, 9% cumulative and
nonparticipating, 10,000 shares outstanding ………………… $500,000
Paid-in capital in excess of par value, preferred stock 50,000
Total capital paid-in by preferred stockholders …………….. $550,000
Common stock, $0.50 par value, 1,500,000 shares
outstanding …………………………………………………. $750,000
Paid-in capital in excess of par value, common stock ………… 150,000
Total capital paid-in by common stockholders ………………. 900,000
Total paid-in capital ………………………………………… $1,450,000
Retained earnings …………………………………………… 1,690,000
Total stockholders’ equity …………………………………… $3,140,000
The preferred stock has a call price of $51.50 per share plus dividends in arrears. Only one
year of dividends is in arrears. Calculate the book value per (1) preferred share, and (2)
common share.
200. A corporation reports the following year-end stockholders’ equity:
Paid-in capital:
Preferred stock, 8%, 100,000 shares
authorized, 50,000 shares issued …………………. $ 2,500,000
Paid-in capital in excess of par, Preferred………….. 125,000
Common stock, $1 par, 5,000,000 shares
authorized, 4,000,000 shares issued ……………….. 4,000,000
Paid-in capital in excess of par, Common ………….. 1,200,000
Total paid-in capital ……………………………….. $ 7,825,000
Retained earnings …………………………………….. 10,775,000
Total stockholders’ equity ……………………………. $18,600,000
Determine the following:
(1) Par value for the preferred stock.
(2) Book value per share for both preferred stock and common stock assuming a call price per
share of $52 for preferred and no dividends in arrears.
201. The stockholders’ equity section of a corporation’s balance sheet follows:
Preferred stock, $25 par value, 6%, cumulative, 10,000 shares
authorized, 5,000 shares issued and outstanding …………….. $125,000
Paid-in capital in excess of par value, Preferred stock……. 50,000
Common stock, $5 par value, 50,000 shares authorized,
20,000 shares issued and outstanding.………………………….. 100,000
Paid-in capital in excess of par value, Common stock ……… 40,000
Retained earnings ………………………………………. 95,000
Total stockholders’ equity ………………………………. $410,000
(1) Assuming that the preferred stock is not callable and no dividends are in arrears, compute
the book values per preferred share and per common share.
(2) Assuming that the preferred stock has a call price of $30 per share and one year of
cumulative preferred dividends is in arrears, compute the book values per preferred share and
per common share.
202. A company is authorized to issue 750,000 shares of $2 par value common stock. Prepare
journal entries to record the following selected transactions that occurred during the
company’s first year of operations:
Jan. 10 Sold 102,000 shares of common stock for $8 cash per share.
15 Exchanged 10,000 shares of common stock for equipment with a market
value of $70,000.
Feb. 1 Exchanged 500 shares of common stock for $3,000 of legal services Incurred
during the company’s organization.
203. On July 1, a corporation issued 15,000 shares of no-par common stock with a stated
value of $3 per share in exchange for a tract of land having a market value of $215,000.
Prepare the general journal entry to record this transaction.
204. On September 20, Fletcher Corporation issued 25,000 shares of no-par common stock
for equipment having a market value of $85,000. Prepare the general journal entry to record
this transaction.
205. A corporation had the following stock outstanding when the company’s board of
directors declared a $75,000 cash dividend in the current year:
Preferred stock, $40 par, 6%, 12,500 shares issued $ 500,000
Common stock, $10 par, 70,000 shares issued ……………. 700,000
Total ……………………………………………………….. $1,200,000
Allocate the cash dividend between the preferred and common stockholders assuming the
preferred stock is noncumulative and nonparticipating.
206. A corporation had the following stock outstanding when the company’s board of
directors declared a $55,000 cash dividend during the current year:
Preferred stock, $10 par, 4%, 50,000 shares issued $ 500,000
Common stock, $1 par, 750,000 shares issued …….. 750,000
Total ………………………………………………… $ 1,250,000
Allocate the cash dividend between the preferred and common stockholders assuming the
preferred stock is cumulative and nonparticipating and dividends are one year in arrears.
207. A company has $200,000 of 10% noncumulative, nonparticipating, preferred stock
outstanding, and $150,000 of common stock outstanding. In the company’s first year of
operation, no dividends were paid, but during the second year, it paid cash dividends of
$25,000. Compute the dividends to be distributed to (1) preferred shares and (2) common
shares.
208. A company was organized in January 2014 and has 20,000 shares of $10 par value, 10%,
nonparticipating preferred stock outstanding and 150,000 shares of $2 par value common
stock outstanding. It has declared and paid cash dividends each year as shown below.
Calculate the total dividends distributed to each class of stockholder under each of the
assumptions given.
Assuming Preferred Assuming Preferred
Stock Stock
Cash Is Noncumulative Is Cumulative
Dividends
Declared Preferred Common Preferred Common
Year and Paid Dividend Dividend Dividend Dividend
2014 $18,000 ________ ________ ________ ________
2015 $36,000 ________ ________ ________ ________
2016 $60,000 ________ ________ ________ ________
209. On June 30, a company declared a cash dividend of $0.35 per common share to the
shareholders of record on July 15. The cash dividend will be paid on July 31. This company
has 500,000 shares authorized and 100,000 shares outstanding. Prepare the journal entries
required on June 30, July 15 and July 31.
210. The following selected transactions took place during the current year for a company:
Feb 25 Declared a $2.50 per share cash dividend on 20,000 shares of common
stock outstanding
Mar. 20 Paid the cash dividends declared on Feb. 25.
Dec 31 Closed the $72,000 credit balance in Income Summary that reflects net
income to Retained Earnings.
(a) Prepare the journal entries for these transactions.
(b) If Retained Earnings had a $155,000 credit balance on January 1, calculate its year-end
balance as of December 31.
211. Cactus Joe Corporation reported stockholders’ equity on January 1 of the current year as
follows: Common Stock, $5 par value, 1,000,000 shares authorized, 600,000 shares issued;
Paid-in Capital in Excess of Par Value, Common Stock, $1,025,000; Retained Earnings,
$1,850,000. Prepare journal entries to record the following transactions:
May 1 A cash dividend of $1.05 per common share was declared by the board of directors to
stockholders of record on May 20, payable June 1.
May 20 The date of record.
June 1 Paid the cash dividend.
212. For each of the following independent transactions a through d, prepare the necessary
journal entry:
(a) Declared a $0.40 per share cash dividend on 300,000 shares of preferred stock
outstanding.
(b) Declared and distributed an 8% stock dividend on 800,000 shares of $5 par value common
stock outstanding. Market price per common share on this date was $25.
(c) Declared and distributed a 2-for-1 stock split on 400,000 shares of $10 par value common
stock outstanding.
(d) Declared and distributed a 35% stock dividend on 700,000 common shares of $1 par value
common stock outstanding. Market price per common share on this date was $20.
213. Parlay Corporation has 2,000,000 shares of $0.50 par value common stock outstanding.
The following selected transactions related to the company’s stock took place during the
current year:
Apr. 15 Declared a 40% stock dividend to stockholders of record on May 1, to be
issued May 10. The current market value is $15 per common share.
Prepare necessary journal entries to record the events of April 15, May 1 and May 10.
Answer
: Apr.
15 Retained Earnings (2,000,000 * 40% * $0.50) ……………… 400,000
Common Stock Dividend Distributable ………………….… 400,000
May 1 No entry required.
May 10 Common Stock Dividend Distributable ……………………….. 400,000
Common Stock ……………………………………………… 400,000
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: 3 Hard
Learning Objective: 11-P2
Topic: Dividends
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McGraw-Hill Education.
11-97
214. On August 1, a company’s board of directors declared a 10% stock dividend to be
distributed on September 1 to the stockholders of record on August 20. The company had
1,000,000 shares of $2.50 par value common stock outstanding with a market value of $23
per share. Prepare the journal entries required on August 1, August 20, and September 1.
215. Dynasty Corporation had stockholders’ equity on January 1 as follows: Common Stock,
$5 par value, 1,000,000 shares authorized, 400,000 shares issued; Paid-in Capital in Excess of
Par Value, Common Stock, $800,000; Retained Earnings, $3,600,000. Prepare journal entries
to record the following transactions:
Feb. 15 The board of directors declared a 5% stock dividend to stockholders of record on
March 1, to be issued on March 20. The stock was trading at $7 per share prior to
the dividend
Mar. 1 The date of record.
Mar. 20 Issued the stock dividend.
216. A corporation had stockholders’ equity on January 1 as follows: Common Stock, $1 par
value, 1,500,000 shares authorized, 600,000 shares issued; Paid-in Capital in Excess of Par
Value, Common Stock, $1,100,000; Retained Earnings, $2,300,000. Prepare journal entries to
record the following transactions:
Feb. 15 The board of directors declared a 10% stock dividend to stockholders of record on
March 1, to be issued on April 15. The stock was trading at $12 per share prior to
the dividend.
Mar. 31 Sold 100,000 shares of common stock for $13 per share.
Apr. 15 Issued the stock dividend.
217. A company had the following stockholders’ equity on January 1:
Common Stock – $1 par value; 1,000,000 shares authorized,
350,000 shares issued and outstanding …………………….
$ 350,000
Paid-in capital in excess of par value, common stock ………. 700,000
Retained earnings …………………………………………… 364,000
Total stockholders’ equity …………………………………… $1,414,000
On January 10, the company declared a 40% stock dividend to stockholders of record on
January 25, to be distributed January 31. The market value of the stock on January 10 prior to
the dividend was $20 per share. What is the book value per common share on February 1?
218. A company reported the following stockholders’ equity on January 1 of the current year:
Common stock, $10 par, 1,000,000 shares
authorized, 250,000 shares issued ………………….. $2,500,000
Paid-in capital in excess of par, common ……………… 1,260,000
Retained earnings ……………………………………… 1,675,000
Total stockholders’ equity …………………..…………. $5,435,000
Prepare journal entries for the following selected transactions related to this company’s stock
during the current year:
Mar. 1 Purchased 10,000 shares of treasury stock for $18 per share.
May 5 Sold 4,000 shares of treasury stock for $16 per share.
Oct. 12 Sold 2,000 shares of treasury stock for $19 per share.
219. Underwood Company’s only treasury stock transactions for the current year follow: (1)
2,000 shares of its common stock were purchased on June 1 for $80,000; (2) On July 1 it
reissued 500 of these shares at $45 per share; (3) On August 1 it reissued an additional 500
treasury shares at $38 per share.
1) Prepare the journal entries required to record these transactions.
2) Calculate the balance in Paid-in Capital, Treasury Stock, on September 1 assuming its
beginning-year balance is zero.
220. On January 10, Mood Corporation purchased 15,000 shares of its own common stock at
$17.50 per share. On August 4, a total of 2,000 treasury shares were sold at $19.00 per share.
These are the only treasury stock transactions ever made by the corporation. Prepare the
journal entries required on January 10 and August 4.
221. Record the following transactions of Naches Corporation in general journal form:
(a) Reacquired 8,000 of its own $3 par value common stock at $20 cash per share. The stock
was originally issued at $15 per share.
(b) Sold 2,000 shares of the stock reacquired under part (a) at $23 cash per share.
(c) Sold 3,000 shares of the stock reacquired under part (a) at $19 cash per share.
222. The group responsible for and have final authority for managing a corporation’s
activities is (are) the ________________________________.
223. A corporation is responsible for its own acts and debts because it is considered a
____________________________________.
224. The _______________________ protects stockholders’ proportional interest in a
corporation by allowing them to purchase their proportional share of any common stock later
issued by the corporation.
225. A stock _________________ keeps stockholder records and prepares official lists of
stockholders for stockholder meetings and dividend payments.
226. The number of shares that a corporation’s charter allows it to sell is the
____________________ stock.
227. The total amount of cash and other assets the corporation receives from its stockholders
in exchange for common stock is called __________________________.
228. The cumulative net income and loss not distributed as dividends to a corporation’s
shareholders is called ______________________.
229. Stock that has been issued and is held by stockholders is ___________________ stock.
230. The amount assigned per share to stock by the corporation in its charter is the
_____________________.
231. Stock not assigned a value per share by the corporate charter, allowing it to be issued at
any price without the possibility of a minimum legal capital deficiency, is called
_________________.
232. _____________________ is a general term that refers to any shares issued to obtain
owner financing in a corporation.
233. The least amount that the buyers of stock must contribute to the corporation or be subject
to paying at a future date is called ____________________________.
234. ___________________________ are corrections of material errors in prior period
financial statements.
235. _______________________ is the amount of income earned per share of a company’s
outstanding common stock.
236. _______________________ is the stockholders’ equity applicable to common shares
divided by the number of common shares outstanding.
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237. __________________________ is the annual amount of cash dividends per share
distributed to common shareholders relative to the stock’s market price.
238. When preferred stock is cumulative and the directors either do not declare a dividend to
preferred stockholders or declare one that does not cover the total amount of cumulative
dividends, the unpaid amount is called ____________________________.