125) 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.
126) 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.
127) 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.
128) A liquidating dividend is:
A) Only declared when a corporation closes down.
B) A return of a portion of the capital contributed 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.
129) 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.
130) 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.
131) A corporation with $10 par common stock issues a small stock dividend. The capitalization
of retained earnings is equal to:
A) The par value of the shares to be distributed.
B) The par value of the shares outstanding.
C) The market value of the shares to be distributed.
D) The market value of the shares outstanding.
E) There is no capitalization of retained earnings in the case of a small stock dividend.
132) A corporation with $10 par common stock issues a large stock dividend. The capitalization
of retained earnings is equal to:
A) The par value of the shares to be distributed.
B) The par value of the shares outstanding.
C) The market value of the shares to be distributed.
D) The market value of the shares outstanding.
E) There is no capitalization of retained earnings in the case of a large stock dividend.
133) 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.
134) 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.
135) 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.
136) 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.
137) 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.
138) 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.
139) 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.
140) 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.
141) A stock dividend is recorded with a transfer from:
A) Contributed capital to retained earnings.
B) Retained earnings to paid-in capital.
C) Retained earnings to assets.
D) Contributed capital to assets.
E) Assets to contributed capital.
142) A corporation declared and issued a 15% stock dividend on October 1. The following
information was available immediately prior to the dividend:
Retained earnings
$
Shares issued and outstanding
Market value per share
$
Par value per share
$
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.
143) 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 the dividend declaration 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.
144) 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.
145) Preferred stock that has the right 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.
146) Preferred stock that allows preferred stockholders to share with common stockholders any
dividends paid in excess of the percent or dollar amount stated on the preferred stock is called:
A) Convertible preferred stock.
B) Participating preferred stock.
C) Premium stock.
D) Cumulative preferred stock.
E) Common stock.
147) When the dividend rate on preferred stock is less than the rate of return earned on a
corporation’s assets, it is called:
A) Financial leverage.
B) Discount on stock.
C) Premium on stock.
D) Preemptive right.
E) Capital gain.
148) Preferred stock that limits stockholders to receiving only the stated amount as a dividend is
called:
A) Cumulative preferred stock.
B) Callable preferred stock.
C) Nonparticipating preferred stock.
D) Convertible preferred stock.
E) Participating preferred stock.
149) 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.
150) 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.
151) 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.
152) 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.
153) 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.
154) 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.
155) 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.
156) 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.
157) 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.
158) Corporations may buy back their own stock for any of the following reasons except to:
A) Avoid a 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.
159) The following data has been collected about Keller Company’s stockholders’ equity
accounts:
Common stock $10 par value 20,000 shares
authorized, 10,000 shares issued, and 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.
160) The following data has been collected about Keller Company’s stockholders’ equity
accounts:
Common stock $10 par value 20,000 shares
authorized, 10,000 shares issued, and 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.
161) 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.
162) 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.
163) All of the following regarding accounting for Treasury Stock are true except:
A) Corporations do not record gains or losses on transactions involving their own stock.
B) Treasury Stock receives cash dividends but not stock dividends.
C) Purchasing Treasury Stock reduces the corporation’s assets and equity by equal amounts.
D) Treasury Stock is presented on the balance sheet as a contra equity account.
E) Treasury Stock does not have voting rights.
164) 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.
165) 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.