64) If a company issues 1,000 shares of $1 par value common stock for $20 per share, what
would be the effect on the accounting equation?
A) Increase assets and increase liabilities.
B) Increase assets and increase revenue.
C) Increase assets and increase stockholders’ equity.
D) Increase assets and decrease stockholders’ equity.
65) If a company issues 1,000 shares of $1 par value common stock for $20 per share, which of
the following accounts would be credited?
A) Treasury Stock
B) Cash
C) Additional Paid-in Capital
D) Retained Earnings
66) When a company issues 25,000 shares of $1 par value common stock for $10 per share, the
journal entry for this issuance would include:
A) A debit to Cash for $25,000.
B) A debit to Additional Paid-in Capital for $25,000.
C) A credit to Common Stock for $250,000.
D) A credit to Additional Paid-in Capital for $225,000.
67) When a company issues 25,000 shares of $1 par value common stock for $10 per share, the
journal entry for this issuance would include:
A) A debit to Cash for $25,000.
B) A debit to Additional Paid-in Capital for $25,000.
C) A credit to Additional Paid-in Capital for $250,000.
D) A credit to Common Stock for $25,000.
68) Wright Inc. issued 20,000 shares of $1 par value common stock for $80,000. The journal
entry to record this issuance includes a:
A) Credit to Common Stock for $80,000.
B) Debit to Additional Paid-In Capital for $60,000.
C) Credit to Cash for $80,000.
D) Credit to Common Stock for $20,000.
69) Jade Jewelers issued 15,000 shares of $1 par value stock for $20 per share. What is true
about the journal entry to record the issuance?
A) Credit Common Stock $300,000.
B) Credit Cash $300,000.
C) Credit Common Stock $15,000.
D) Debit Additional Paid-In Capital $285,000.
70) South Beach Apparel issued 10,000 shares of $1 par value stock for $5 per share. What is
true about the journal entry to record the issuance?
A) Debit Common Stock $10,000.
B) Credit Cash $50,000.
C) Credit Common Stock $50,000.
D) Credit Additional Paid-In Capital $40,000.
71) Hayes Corporation issues 100 shares of its $1 par value common stock for $15 per share. The
entry to record the issuance will not include a:
A) Debit to Cash $1,500.
B) Credit to Additional Paid-In Capital $1,400.
C) Credit to Common Stock of $100.
D) All of the other answer choices are correct.
72) Preferred stock is called preferred because it usually has two preferences over common
stock. These preferences relate to:
A) Payment of dividends and voting rights.
B) Higher par value and payment of dividends.
C) Distribution of assets if the corporation is dissolved and higher par value.
D) Distribution of assets if the corporation is dissolved and payment of dividends.
73) Preferred stock:
A) Is always recorded as a liability.
B) Is always recorded as part of stockholders’ equity.
C) Can have features of both liabilities and stockholders’ equity.
D) Is not included in either liabilities or stockholders’ equity.
74) Which of the following has the highest expected return to the investor?
A) Common Stock.
B) Preferred Stock.
C) Bonds.
D) They all have similar expected returns.
75) Which of the following has the lowest expected return to the investor?
A) Bonds.
B) Preferred Stock.
C) Common Stock.
D) They all have similar expected returns.
76) Which of the following is the most likely to have voting rights?
A) Common Stock.
B) Preferred Stock.
C) Bonds.
D) They all have similar voting rights.
77) Which of the following financing alternatives has the highest preference for
dividends/interest payments?
A) Common Stock.
B) Preferred Stock.
C) Bonds.
D) The other answer choices have equal preference.
78) Which of the following is not a potential feature of preferred stock?
A) Convertible.
B) Redeemable.
C) Cumulative.
D) They all are potential features of preferred stock.
79) A company issued 1,000 shares of $1 par value preferred stock for $5 per share. What is true
about the journal entry to record the issuance?
A) Debit Preferred Stock $5,000.
B) Credit Cash $5,000.
C) Credit Preferred Stock $5,000.
D) Credit Additional Paid-In Capital $4,000.
80) The Surf’s Up issues 1,000 shares of 6%, $100 par value preferred stock at the beginning of
2020. All remaining shares are common stock. The company was not able to pay dividends in
2020, but plans to pay dividends of $18,000 in 2021.
Assuming the preferred stock is cumulative, how much of the $18,000 dividend will be paid to
preferred stockholders and how much will be paid to common stockholders in 2021?
A) $6,000 to preferred stockholders and $12,000 to common stockholders.
B) $18,000 to preferred stockholders and $0 to common stockholders.
C) $12,000 to preferred stockholders and $6,000 to common stockholders.
D) $9,000 to preferred stockholders and $9,000 to common stockholders.
81) The Surf’s Up issues 1,000 shares of 6%, $100 par value preferred stock at the beginning of
2020. All remaining shares are common stock. The company was not able to pay dividends in
2020, but plans to pay dividends of $18,000 in 2021.
Assuming the preferred stock is noncumulative, how much of the $18,000 dividend will be paid
to preferred stockholders and how much will be paid to common stockholders in 2021?
A) $6,000 to preferred stockholders and $12,000 to common stockholders.
B) $18,000 to preferred stockholders and $0 to common stockholders.
C) $12,000 to preferred stockholders and $6,000 to common stockholders.
D) $9,000 to preferred stockholders and $9,000 to common stockholders.
82) California Adventures issues 5,000 shares of 8%, $100 par value preferred stock at the
beginning of 2020. All remaining shares are common stock. The company was not able to pay
dividends in 2020, but plans to pay dividends of $100,000 in 2021.
Assuming the preferred stock is cumulative, how much of the $100,000 dividend will be paid to
preferred stockholders and how much will be paid to common stockholders in 2021?
A) $40,000 to preferred stockholders and $60,000 to common stockholders.
B) $80,000 to preferred stockholders and $20,000 to common stockholders.
C) $20,000 to preferred stockholders and $80,000 to common stockholders.
D) $100,000 to preferred stockholders and $0 to common stockholders.
83) California Adventures issues 5,000 shares of 8%, $100 par value preferred stock at the
beginning of 2020. All remaining shares are common stock. The company was not able to pay
dividends in 2020, but plans to pay dividends of $100,000 in 2021.
Assuming the preferred stock is noncumulative, how much of the $100,000 dividend will be paid
to preferred stockholders and how much will be paid to common stockholders in 2021?
A) $40,000 to preferred stockholders and $60,000 to common stockholders.
B) $80,000 to preferred stockholders and $20,000 to common stockholders.
C) $20,000 to preferred stockholders and $80,000 to common stockholders.
D) $100,000 to preferred stockholders and $0 to common stockholders.
84) Treasury Stock is normally reported as:
A) A reduction of total stockholders’ equity.
B) An asset account.
C) A liability account.
D) An expense account.
85) When treasury stock is resold at a price above cost:
A) A gain account is credited.
B) A loss is reported.
C) A revenue account is credited.
D) Additional Paid-in Capital is increased.
86) When treasury stock is acquired, what is the effect on total stockholders’ equity?
A) Decrease.
B) Increase.
C) No effect.
D) Cannot determine from the given information.
87) When an investment is made in another corporation’s common stock, what is the effect on
total stockholders’ equity?
A) Decrease.
B) Increase.
C) No effect.
D) Cannot determine from the given information.
88) When treasury stock is acquired, what is the effect on assets and stockholders’ equity?
A) Assets and stockholders’ equity increase.
B) Assets and stockholders’ equity decrease.
C) Assets increase and stockholders’ equity decrease.
D) Assets decrease and stockholders’ equity increase.
89) Treasury Stock:
A) Has a normal credit balance.
B) Decreases stockholders’ equity.
C) Is recorded as an investment.
D) Increases stockholders’ equity.
90) Which of the following statements about treasury stock transactions is true?
A) Treasury stock is recorded as an asset by the acquiring company.
B) Only losses on the sale of treasury stock are recorded in the income statement.
C) Stockholders’ equity is reduced when treasury stock is acquired.
D) Gains and losses on the sale of treasury stock are recorded in the income statement.
91) Which of the following is TRUE regarding the accounting for treasury stock?
A) Treasury stock is reported on the balance sheet in the equity section.
B) The purchase and sale of treasury stock has no impact on the income statement.
C) Treasury stock represents a negative equity account.
D) All of the other answer choices are correct.
92) What would be the impact on the accounting equation when a company acquires treasury
stock?
A) Increase assets and increase stockholders’ equity.
B) Decrease assets and increase stockholders’ equity.
C) Decrease assets and decrease stockholders’ equity.
D) No effect on the accounting equation.
93) The corporation’s own stock that has been issued and then bought back by the company is
referred to as:
A) Preferred Stock.
B) Authorized Stock.
C) Treasury Stock.
D) Common Stock.
94) Why would a corporation purchase its own stock?
A) To distribute surplus cash without paying dividends.
B) To boost earnings per share.
C) To satisfy employee stock ownership plans.
D) All of the other answer choices are correct.
95) The purchase of treasury stock can boost earnings per share by:
A) Increasing the number of shares outstanding.
B) Increasing profits.
C) Reducing the number of shares outstanding.
D) Decreasing the company’s obligation to pay dividends.
96) A company currently has 200,000 shares issued and 190,000 shares outstanding. If the
company purchases 20,000 shares of treasury stock, what amount of shares will be outstanding?
A) 170,000.
B) 220,000.
C) 210,000.
D) 180,000.
97) When treasury stock is sold for more than the company originally paid to purchase the
shares, the difference:
A) Increases net income.
B) Increases stockholders’ equity.
C) Has no effect on net income or stockholders’ equity.
D) Decreases net income and decreases stockholders’ equity.
98) Crossroads Mall had 100,000 outstanding shares of common stock. On June 16, 2021,
Crossroads bought back 20,000 shares of its own stock at $30 per share. On July 23, 2021,
Crossroads resold 10,000 shares at $28 per share. What was the net effect on the accounting
equation as a result of the two treasury stock transactions?
A) Increase in assets and decrease in stockholders’ equity.
B) Decrease in assets and increase in stockholders’ equity.
C) Increase in assets and increase in stockholders’ equity.
D) Decrease in assets and decrease in stockholders’ equity.
99) On December 2, Coley Corp. acquired 1,000 shares of its $2 par value common stock for $27
each.
On December 20, Coley Corp. resold 400 shares for $15 each. Which of the following is correct
regarding the journal entry for the resold shares?
A) Debit Cash $15,000.
B) Credit Treasury Stock $10,800.
C) Credit Additional Paid in Capital $5,200.
D) Credit Treasury Stock $6,000.
100) On December 2, Coley Corp. acquired 1,000 shares of its $2 par value common stock for
$27 each.
On December 20, Coley Corp. resold 400 shares for $30 each. Which of the following is correct
regarding the effect of the reselling of shares on the accounting equation?
A) Assets decrease.
B) Liabilities decrease.
C) Expenses increase.
D) Stockholders’ Equity increases.
101) A company acquires 1,000 shares of its own $1 par common stock for $15 per share. This
purchase would be recorded with a:
A) Credit to Treasury Stock for $1,000
B) Debit to Additional Paid-In Capital for $14,000
C) Credit to Treasury Stock for $15,000
D) Debit to Treasury Stock for $15,000
102) A company resells 400 shares of its own common stock for $20 per share. The company
had acquired these shares two months before for $15 per share. The resale of this stock would be
recorded with a:
A) Credit to Treasury Stock for $8,000
B) Debit to Additional Paid-In Capital for $2,000
C) Debit to Common Stock for $8,000
D) Credit to Additional Paid-In Capital for $2,000
103) On February 22, Brett Corporation acquired 200 shares of its $5 par value common stock
for $25 each. On March 15, the company resold 70 shares for $30 each. What is true of the entry
for reselling the shares?
A) Credit Cash $1,750.
B) Credit Additional Paid in Capital $350.
C) Debit Treasury Stock $1,750.
D) Credit Treasury Stock $2,100.
104) Retained Earnings represent a company’s:
A) Net income less dividends since the company first began operations.
B) Undistributed net assets.
C) Extra paid-in capital.
D) Undistributed cash.
105) The Retained Earnings balance reported in the balance sheet typically is not affected by:
A) Net income.
B) Net loss.
C) Dividends paid.
D) Stock splits.
106) The Retained Earnings balance reported in the balance sheet typically is affected by:
A) Net income.
B) Net loss.
C) Dividends paid.
D) All of the other answer choices are correct.