Chapter 10—Stockholders’ Equity Key
1. The number of shares sold to stockholders are ____________________ shares.
2. An arbitrary monetary amount that determines an entity’s legal capital is the ____________________.
3. The number of shares issued less the number of shares of treasury stock is the ____________________
shares.
4. ____________________ shares are the maximum number of shares a corporation can legally issue.
5. ____________________ is the name of the account credited when a corporation issues common stock for a
price greater than par.
6. A distribution of profits to owners is called ____________________.
7. When stockholders exchange their shares of stock for additional shares, and there is a corresponding
reduction in the par value of the stock, a stock ____________________ has occurred.
8. The ____________________ is a preferred stock having a feature that provides for the current year dividends
only to be paid to preferred stockholders before they are paid to common stockholders.
9. The ____________________ is a preferred stock having a feature that provides for the current stated
dividends plus dividends in arrears before any dividends are paid to the common stockholders.
10. If the stated cash dividend on cumulative preferred stock has been unpaid for a period of one year or more,
it is referred to as a dividend ____________________.
11. Issued stock that is repurchased by the corporation but not retired is ____________________.
12. The ____________________ ratio is computed by dividing dividends by net income.
13. The ____________________ ratio is computed by dividing dividends per share by market price per share.
14. To compute the return on equity ratio, the numerator includes ____________________ and the denominator
is the average stockholders’ equity.
15. Which of the following statements is false regarding the issuance of stock versus bonds to raise capital for a
corporation?
16. In which of the following organization forms are the owners’ legal responsibility for the debt of the business
limited to the amount they invested in the business?
17. Select the type of business that is most likely to obtain large amounts of resources by issuing stock.
18. Which of the following is not a characteristic of a corporation?
19. Which of the following is not characteristic of a corporation?
20. Characteristics of a corporation include:
21. One of the main disadvantages of the corporate form is the:
22. A disadvantage of the corporate form of business entity is:
23. Under the corporate form of business organization:
24. Which one of the following would not be considered an advantage of the corporate form of organization?
25. The ability of a corporation to obtain capital is:
26. Which of the following statements is true with regard to equity capital?
27. Authorized shares represent the:
28. Issued shares represent the:
29. Outstanding shares represent the:
30. Par value represents the:
31. Ebberle Corporation reported the following in the stockholders’ equity section of its balance sheet at
December 31, 2012:
Comm
on
stock,
$1 par
value
$10,000
Paid-in
capital
in
excess
of par-
commo
n stock
40,000
Total capital stock
$50,000
Retaine
d
earning
s
25,000
Less:
Treasur
y stock
(at
cost,
$20 per
share)
2,000
Total stockholders’ equity
$73,000
How many shares of stock are issued?
A. 9,000 shares
32. Porter Hardware, Inc. issues $2 par common stock. Which of the following is true?
33. Petry Corporation issues 20,000 shares of $.50 par common stock for $6 per share. The account for
Additional Paid-In Capital in excess of par will increase by:
34. Brumfield, Inc. issued 7,000 shares of $1 par common stock for $20 per share. In addition to the increase in
cash, what effect does this transaction have on Brumfield’s accounting equation?
35. Alma Corp. issues 1,000 shares of $10 par value common stock at $16 per share. When the transaction is
recorded, a credit or credits are made to:
36. A corporation issues 1,500 shares of common stock for $32,000. The stock has a par value of $10 per share.
37. The journal entry to issue 1,000,000 shares of $6 par common stock for $8.00 per share on January 2nd
would be:
38. Prady, Inc. began operations on October 1, 2011, with 3,000 shares of $2 par common stock authorized.
Prady issued all of its common stock during 2011 and 2012. On December 31, 2012, Prady repurchased 1,000
shares of its outstanding shares, then reissued 500 of these shares on March 1, 2013. On June 1, 2013, Prady
declared a 2-for-1 stock split. As a result of this stock split, which of the following is true?
39. If a corporation declares a 2-for-1 stock split, which of the following is true?
A. A new class of stock must be authorized with twice the number of issued shares.
40. If a corporation declares a 2-for-1 stock split, which of the following is true?
A. The amount of stockholders’ equity doubles as a result of the split.
41. If a corporation declares a 2-for-1 stock split, which of the following is true?
A. A journal entry is required to show the effect on the stockholders’ equity accounts.
42. Magnum Corporation had 60,000 of its $3 par common stock issued before its recent 3-for-1 stock split. The
market price of the stock was $30 per share before the split. Which of the following is true as a result of the
split?
A. There were 20,000 shares of common stock issued after the split.
43. When a corporation decides whether to pay a cash dividend, which of the following is an important
consideration?
44. When a corporation declares a cash dividend, which of the following is true?
45. After a corporation declares a cash dividend, what takes place on the date of record?
46. When a corporation pays a previously declared cash dividend, which of the following is true?
A. Cash increases.
47. When a corporation declares a stock dividend, which of the following is true?
A. Cash decreases.
48. When a corporation declares a small stock dividend, which of the following is false?
49. On June 1, 2011, Donner Technologies declared a $50,000 cash dividend to be distributed to its common
stockholders of record on June 15, 2011. The dividend will be paid on July 1, 2011. The required journal entry
on June 1 includes a:
50. On January 15, 2011, Rockney Systems, Inc. paid a cash dividend that had been declared prior to the end of
its 2010 fiscal year. The entry to pay the dividends includes a debit to:
51. When is a liability for cash dividends created?
52. Which of the following is the appropriate general journal entry to record the declaration of a cash
dividends?
53. What is the primary reason for a stock split?
54. The stockholders’ equity section of the December 31, 2011, balance sheet for Inglenook Interiors, Inc.
before its recent stock dividend:
Commo
n stock,
$5 par,
100,000
shares
issued
and
outstand
ing
Additio
nal
paid-in
capital
Retaine
d
earnings
$1,325,000
Inglenook declared a 10% stock dividend when the market price per share was $8.00. After the stock dividend, the components of Inglenook’s
stockholders’ equity section were:
55. On January 1, 2010, Framm Corporation issued 10,000 shares of its 10%, $20 par value cumulative
preferred stock. No dividends were declared by Framm in 2010 or 2011. In 2012, Framm had a profitable year
and was in a strong cash position, so it declared a dividend of $200,000. How much of this dividend was paid to
Framm’s common stockholders?
56. Parnell, Inc. has 5,000 shares of $5 par, 3% cumulative preferred stock outstanding and 25,000 shares of $2
par common stock outstanding. No dividends have been paid for the past two years. If the company wishes to
distribute $2 per share to the common stockholders, what is the total amount of dividends that must be paid in
the current year?
57. Many stockholders choose to invest in preferred stock because:
58. If a corporation issues cumulative, participating preferred stock, which of the following is true regarding the
rights of the preferred stockholders?
59. Patch, Inc. plans to distribute $134,000 in dividends. It has outstanding 200,000 shares of 7% $10 par
preferred stock (cumulative) and 60,000 shares of $2 par common stock. How much will be distributed per
share on preferred and common stock?
Preferred stock Common stock
60. Dividends in arrears are required to be reported in:
61. The Sneed Corporation issues 10,000 shares of $50 par value preferred stock for cash at $70 per share. The
entry to record the transaction will consist of a debit to Cash for $700,000 and a credit or credits to:
62. Treasury shares represent the:
63. All of the following are reasons that a corporation may purchase treasury stock except:
65. What types of accounts are Treasury Stock and Additional Paid-in Capital from treasury stock transactions?
66. The excess of sales price of treasury stock over its cost should be credited to:
67. Earnings per share is an indication of how much:
68. Cash paid for preferred stock dividends should be shown on the statement of cash flows under:
69. On the statement of cash flows, the cash flows from financing activities section would include:
70. Cash dividends paid on common stock would be reported in the statement of cash flows in:
71. Denny’s Deli, Inc.
The stockholders’ equity section of the December 31, 2011, balance sheet for Denny’s Deli appeared as follows:
Commo
n stock,
$20 par,
40,000
shares
issued
and
outstand
ing
Additio
nal
paid-in
capital
Retaine
d
earnings
$ 1,720,000
Assume that all of the 40,000 shares of Denny’s stock that was issued as of December 31, 2011, was issued for $35 per share. On March 1, 2012,
Denny reacquired 5,000 shares of its common stock for $43 per share.
Refer to the information presented above for Denny’s Deli, Inc. How much should be reported on Denny’s March 31, 2012, balance sheet for
72. Denny’s Deli, Inc.
The stockholders’ equity section of the December 31, 2011, balance sheet for Denny’s Deli appeared as follows:
Commo
n stock,
$20 par,
40,000
shares
issued
and
outstand
ing
Additio
nal
paid-in
capital
Retaine
d
earnings
$ 1,720,000
Assume that all of the 40,000 shares of Denny’s stock that was issued as of December 31, 2011, was issued for $35 per share. On March 1, 2012,
Denny reacquired 5,000 shares of its common stock for $43 per share.
Refer to the information presented above for Denny’s Deli, Inc. What is the total amount of stockholders’ equity that will be presented on Denny’s
March 31, 2012, balance sheet?
73. Denny’s Deli, Inc.
The stockholders’ equity section of the December 31, 2011, balance sheet for Denny’s Deli appeared as follows:
Commo
n stock,
$20 par,
40,000
shares
issued
and
outstand
ing
Additio
nal
paid-in
capital
Retaine
d
earnings
$ 1,720,000
Assume that all of the 40,000 shares of Denny’s stock that was issued as of December 31, 2011, was issued for $35 per share. On March 1, 2012,
Denny reacquired 5,000 shares of its common stock for $43 per share.
Refer to the information presented above for Denny’s Deli, Inc. Suppose that Denny reissued 1,500 shares of its treasury stock on June 1, 2012, for
$50 each. Which of the following is true regarding the entry required to record this transaction?
74. Denny’s Deli, Inc.
The stockholders’ equity section of the December 31, 2011, balance sheet for Denny’s Deli appeared as follows:
Commo
n stock,
$20 par,
40,000
shares
issued
and
outstand
ing
Additio
nal
paid-in
capital
Retaine
d
earnings
$ 1,720,000
Assume that all of the 40,000 shares of Denny’s stock that was issued as of December 31, 2011, was issued for $35 per share. On March 1, 2012,
Denny reacquired 5,000 shares of its common stock for $43 per share.
Refer to the information presented above for Denny’s Deli, Inc. Suppose that Denny reissued 1,500 shares of its treasury stock on June 1, 2012, for
$50 each. Which of the following is true regarding the entry required to record this transaction?
75. Bravo Bistro, Inc.
The stockholders’ equity section of the December 31, 2011, balance sheet for Bravo Bistro appeared as follows:
Comm
on
stock,
$3 par,
2,000
shares
issued
and
outstan
ding
$ 6,000
Additio
nal
paid-in
capital
1,000
Retaine
d
earning
s
5,400
Total stockholders’ equity
$12,400
Assume that all of the 2,000 shares of Bravo’s stock that was issued as of December 31, 2011, was issued for $3.50 per share. On March 1, 2012,
Bravo reacquired 1,000 shares of its common stock for $4.50 per share.
Refer to the information presented above for Bravo Bistro, Inc. The journal entry to record the transaction on March 1 includes a credit to what
account and for what amount?