978-1337276337 Test Bank Chapter 11 Part 3

Chapter 11

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99. Manson World reported the following:

Common stock, $1 par, 200,000 shares authorized, 100,000 shares issued and outstanding

What is the effect of a 2-for-1 stock split if the market value of the common stock is $20 per share when the stock split is

declared?

a. Retained earnings in the amount of $400,000 is transferred to the contributed capital accounts.

b. Cash decreases $400,000.

c. Additional Paid-In Capital increases $400,000.

d. A stock split has no effect on total stockholders’ equity.

100. Dark Corp. began operations on March 1, 2017. The corporate charter authorized issuance of 3,000 shares of $2 par

value common stock. Dark sold all of the stock on March 1. On May 1, Dark repurchased 2,000 of the outstanding shares.

On May 14, Dark sold 1,200 of the treasury shares. On June 1, Dark declared a 2-for-1 stock split. As a result of the split,

what occurred?

a. Assets declined.

b. Stockholders’ equity increased.

c. Stockholders’ equity decreased.

d. Total stockholders’ equity stayed the same.

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101. When a company declares a 3-for-1 stock split, the number of outstanding shares

a. is tripled compared to the number of shares that were outstanding prior to the split.

b. stays the same, but, the number of issued shares triples.

c. is tripled, while the number of issued shares is reduced to one-third of the original issued shares.

d. is reduced, and the number of issued shares is tripled.

102. When a company declares a 2-for-1 stock split,

a. stockholders’ equity is doubled.

b. there is no effect on total stockholders’ equity.

c. a shareholder who previously held 100 shares will have 300 shares after the split.

d. the price of each share will be one-third of what it was before the stock split.

103. As a result of a stock split,

a. an entry must be made showing the effect on stockholders’ equity.

b. the market price of the outstanding stock will increase because a split is evidence of a profitable company.

c. the par value of the stock is changed in the reverse proportion as the stock split.

d. the stockholders have a higher proportionate ownership of the company.

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104. The balance of the $0.50 par value Common Stock account for Murdock Company was $60,000 before its recent 3-

for-1 stock split. The market price of the stock was $30 per share before the stock split. What likely occurred as a result of

the stock split?

a. The balance in the Retained Earnings account likely decreased.

b. The balance in the Common Stock account likely declined to $20,000.

c. The market price of the stock was not likely affected.

d. The market price of the stock likely dropped to approximately $10 per share.

105. The primary reason for a stock split is to

a. distribute cash to the investor.

b. decrease the market value of the stock.

c. decrease the number of shares outstanding.

d. increase the contributed capital of the corporation.

106. All of the following statements are true about a 3-for-1 split, except

a. total contributed capital increases.

b. the market price will probably decrease.

c. par value per share is reduced to one-third of what it was before the split.

d. a stockholder with 20 shares before the split owns 60 shares after the split.

107. Using the concept of comprehensive income, which of the following items is included as part of comprehensive

income but not as part of net income?

a. Unrealized holding gains or losses

b. Accounting changes

c. Extraordinary items

d. Loss on sale of investments

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108. Comprehensive income is

a. considered an appropriation of retained earnings when reported in the Stockholders’ Equity section of the balance

sheet.

b. the result of all events and transactions that affect income during the accounting period that are reported on the

income statement.

c. reporting all items that are not under management’s control on the statement of retained earnings.

d. an all-inclusive approach to income that includes transactions that affect stockholders’ equity with the exception

of those transactions that affect owners.

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109. The FASB’s concept of comprehensive income

a. excludes transactions that involve the payment of dividends.

b. requires that all transactions must be shown on the income statement.

c. has a primary drawback because it allows management to manipulate the income figure to a certain extent.

d. allows items that are not necessarily under management’s control, such as natural disasters, to be shown as an

adjustment of retained earnings.

110. The statement of stockholders’ equity

a. is one of the required financial statements for the annual report, when changes have occurred in the stockholders’

equity accounts.

b. shows only the changes in retained earnings for the period, which includes the increase or decrease as a result of

net income or loss for the period, and dividends for the period.

c. includes accounts, such as the Retained Earnings and Common Stock accounts, but not changes to the Retained

Earnings account, since those items are reported on the statement of retained earnings.

d. is used only if a corporation frequently issues common stock.

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111. The statement of stockholders’ equity for Jutras Corporation shows an increase in the Common Stock account of

$8,000, an increase in Additional Paid-In Capital—Common in the amount of $22,000, and an increase in Retained

Earnings of $50,000. If the stock has a par value of $3 and dividends of $10,000 were declared and paid during the year,

what is the amount of net income for the year?

a. $40,000

b. $50,000

c. $60,000

d. $90,000

112. Basic Solutions Company reported net earnings of $60,000, declared and paid cash dividends on its common stock in

the amount of $40,000 during the year, and sold 3,000 shares of $2 par value common stock for $15 per share during the

year. What effects would these transactions have on the Stockholders’ Equity accounts shown below?

Retained Earnings Common Stock

a.

increase increase

b.

increase decrease

c.

decrease increase

d.

decrease decrease

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113. Prairie Charters reported the following information at December 31, 2017:

Common stock, $1 par, 500,000 shares authorized, 100,000 shares issued $100,000

Additional paid-in capital—common 25,000

Retained earnings 75,000

Total stockholders’ equity $200,000

The average recorded value per share of common stock at December 31, 2017, is

a. $1.00.

b. $1.75.

c. $1.25.

d. $2.50.

114. The book value per share for a corporation is

a. the market price of the stock.

b. the cost of investments in stock of other corporations.

c. based on the excess of total assets over total liabilities.

d. the amount stockholders would receive if they sold their shares back to the corporation.

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115. If a company has both common and preferred shares outstanding and wishes to calculate book value per share,

a. net assets must be divided by the total number of both classes of stock.

b. net assets, less the redemption value of the preferred stock, must be divided by the number of shares of common

stock outstanding.

c. stockholders’ equity must be divided by the total number of both classes of stock.

d. stockholders’ equity, less the cost of treasury shares held, must be divided by the number of common shares

outstanding.

116. Readers of the financial pages of the daily newspaper noticed the following information with regard to the Connor

Company stock: Daily high, 45.50; Daily low, 42.25; Last, 43.50; Change, +0.75. This tells readers that the

a. stock was selling at 43.50% of par at the close of the day.

b. stock gained $3.00 in value over the previous day.

c. stock gained $0.75 in value over the previous day.

d. company’s stock is a popular investment.

117. With respect to the statement of cash flows,

a. retirement and repurchase of stock is a financing activity.

b. a stock split is a financing activity.

c. a stock dividend is an investing activity.

d. the declaration of a cash dividend account is an operating activity.

118. Which of the following transactions has an effect on the statement of cash flows?

a. The sale of preferred stock

b. The declaration of a cash dividend

c. A small stock dividend

d. A large stock dividend

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119. Which of the following is reported as a financing activity on the statement of cash flows?

a. Declaration of dividends

b. Sale of preferred stock

c. Conversion of preferred stock to common stock

d. Stock split

120. Which of the following is reported as a financing activity on the statement of cash flows?

a. Payment of cash dividends

b. Declaration of cash dividends

c. Stock dividend

d. Stock split

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121. Which of the following is true regarding the statement of cash flows?

a. The sale of stock to stockholders is an investing activity.

b. The repurchase of stock from stockholders is an investing activity.

c. The declaration of stock dividends is a financing activity.

d. The payment of cash dividends is a financing activity.

122. Which of the following is true?

a. Companies usually disclose cash flow per share on their financial statements.

b. Companies usually disclose the sales price of each individual stock transaction on their financial statements.

c. The issuance of a stock dividend is an investing activity on the statement of cash flows.

d. Financing activities can be inflows or outflows of cash reported on the statement of cash flows.

123. In 2017, Dickens Company had a beginning balance in its Cash Dividend Payable account of $5,000 and an ending

balance of $4,000. During 2017, the only dividends Dickens declared were $46,000 in cash to the common stockholders.

How much cash was paid to the common stockholders?

a. $45,000

b. $47,000

c. $46,000

d. $1,000

124. [APPENDIX] Which of the following is true concerning a sole proprietorship?

a. It is a separate legal entity.

b. It may have more than one class of stock outstanding.

c. It is owned by one or more persons.

d. The separate entity concept applies.

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127. [APPENDIX] Tarr, a sole proprietorship, had the following balances and transactions during 2017: beginning capital,

$40,000; contribution of cash to the business by the owner, $15,000; revenue, $60,000; expenses, $35,000; withdrawal by

the owner, $5,000. What is the amount of the ending capital balance?

a. $40,000

b. $60,000

c. $75,000

d. $85,000

128. [APPENDIX] Which of the following statements regarding partnerships is true?

a. Partnerships have two owners.

b. The partnership ends when a new partner is added.

c. The partnership is responsible for its own taxes.

d. The partnership is a separate legal entity from its owners.

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129. [APPENDIX] Which of the following statements regarding partnerships is true?

a. Partnerships must register with the federal government.

b. Partnerships pay taxes to the IRS.

c. Partners must register with the state government.

d. Partners must abide by the separate entity concept and keep their personal assets separate from the partnership

assets.

130. [APPENDIX] Debbie and Alex formed a new partnership. The partnership agreement specified that income should

be allocated in a 2-to-1 ratio, with Debbie receiving the larger portion. If revenue for the first year was $90,000 and

expenses were $60,000, how much would be allocated to each partner?

a. Debbie—$45,000; Alex—$45,000

b. Debbie—$20,000; Alex—$10,000

c. Debbie—$60,000; Alex—$30,000

d. Debbie—$40,000; Alex—$20,000

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133. The number of shares issued less the number of shares held as treasury stock is the number of __________.

134. The maximum number of shares a company may issue is the number of __________.

135. Net income that has been earned by the corporation but not paid out as dividends is called __________.

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136. The amount received for each share of stock in excess of par value is __________.

137. Stock issued by the firm, but then repurchased and not retired, is __________.

138. The annual dividend amount divided by the annual net income is the __________.

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139. Distribution of additional shares of stock and reduction of the par value of the stock is a __________.

140. The selling price of the stock as indicated by the most recent stock transaction is __________.

141. Assuming no preferred stock exists, total stockholders’ equity divided by the number of shares of common stock

outstanding is equal to the __________.

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142. A drawing account is sometimes referred to as a __________.

143. The characteristic where each partner is personally liable for the debts of the partnership is known as __________.

144. The document that specifies how much the owners will invest, what their salaries will be, and how profits will be

shared in a partnership is known as a __________.

145. A __________ allows the firm to eliminate a class of stock by paying the stockholders a specified amount.

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146. A __________ allows preferred stockholders to share on a percentage basis in the distribution of an abnormally large

dividend.

147. The amount received for the issuance of stock in excess of par value.

148. The holders of this stock have the right to dividends in arrears before the current year dividend is distributed.

149. Allows preferred stock to be returned to the corporation in exchange for common stock.

150. Allows the holders of this stock to share in the distribution of dividends above the predetermined per-share amount.

151. Shares of stock that are repurchased and then discontinued by removing them from the accounting records.

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152. Allows preferred stock to be returned to the corporation in exchange for common stock.

153. Stock issued by the firm and then repurchased but not retired.

154. Creation of additional shares of stock with a concurrent reduction of the par value of the stock.

155. The number of shares sold or distributed to stockholders.

156. An arbitrary amount stated on the face of the stock certificate that represents the legal capital of the firm.