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CHAPTER 11: STOCKHOLDERS’ EQUITY
1. Use the incomplete stockholders' equity section of Vargas Company’s balance sheet as of December 31, 2015, to
answer the following question.
Common stock, $7 par, 100,000 shares authorized
$700,000
Additional paid-in capital—common
160,000
Retained earnings
?
Treasury stock (2,000 shares at cost)
(16,000)
Total stockholders' equity
974,000
What is the amount of Vargas’ retained earnings?
a. $130,000
b. $ 98,000
c. $860,000
d. $114,000
2. Which of the following is false regarding the issue of stock versus the issue of bonds to raise capital?
a. The payment of dividends is at the discretion of the board of directors.
b. The payment of interest on bonds payable is required by law.
c. Interest accrues, whereas dividends do not accrue.
d. The declaration of dividends reduces the amount of income taxes the corporation must pay.
3. Which of the following is false regarding the issue of stock versus the issue of bonds to raise capital?
a. The issuance of stock decreases several important financial ratios.
b. Issuing bonds dilutes the voting power of the stockholders.
c. Corporations are not required to return the investment to the stockholders.
d. Investors expect to earn a higher rate of return on stocks than bonds.
4. If Llama Company has paid out more in dividends than it has had in net income, over the lifetime of the company,
then the balances in the Stockholders’ Equity should show:
a. a debit balance in the Retained Earnings account.
b. a credit balance in the Retained Earnings account.
c. a debit balance in the Common Stock account.
d. a credit balance in the Common Stock account.
Chapter 11: Stockholders’ Equity
5. Dali Company has 15,000 shares of stock authorized at January 1. Dali issues 4,500 shares to the stockholders
during the year and then the company repurchases 1,500 shares as treasury stock. Based on this information, how
many shares are outstanding at December 31?
a. 15,000
b. 18,000
c. 4,500
d. 3,000
6. Venture Enterprises' accountant determined the following:
Common stock, $0.01 par value $50,000
Where would this item be reported on Venture’s financial statements?
a. In the Stockholders' Equity section of the balance sheet
b. In the Treasury Stock section of the balance sheet
c. On the statement of retained earnings
d. On both the balance sheet and statement of retained earnings
7. Which of the following is an account in stockholders' equity?
a. Dividends Payable
b. Loss on Sale of Equipment
c. Retained Earnings
d. Net income
8. Which of the following statements is true with regard to contributed capital?
a. Preferred stock is stock that has been retired.
b. It is very unlikely corporations may have more than one class of stock outstanding.
c. The outstanding number of shares is the maximum number of shares that can be issued by a corporation.
d. The shares that are in the hands of the stockholders are said to be outstanding.
9. Authorized stock represents the
a. maximum number of shares that can be issued.
b. number of shares that have been sold.
c. number of shares that are currently held by stockholders.
d. number of shares that have been repurchased by the corporation.
Chapter 11: Stockholders’ Equity
10. With regard to a corporation's stock, par value is
a. the current market price of the stock.
b. an arbitrary amount that exists to fulfill legal requirements.
c. the amount at which the stock has been repurchased.
d. the amount at which treasury stock can be sold.
11. Mendes Charters reported the following information at December 31, 2015:
Preferred stock, $100 par, 500 shares authorized,
and outstanding; cumulative;
nonparticipating; callable at par value
$ 50,000
Common stock, $12 par, 50,000 shares authorized and outstanding
600,000
Additional paid-in capital--Common
25,000
Retained earnings
825,000
Mendes’ total contributed capital is
a. $ 650,000
b. $ 675,000
c. $1,500,000
d. $ 625,000
12. Use the incomplete stockholders' equity section of Box Company’s balance sheet as of December 31, 2015, to
answer the following question.
Common stock, $7 par, 100,000 shares authorized
$ 700,000
Additional paid-in capital—common
160,000
Retained earnings
?
Treasury stock (2,000 shares at cost)
(16,000)
Total stockholders' equity
974,000
How many shares of common stock are outstanding?
a. 100,000
b. 98,000
c. 78,000
d. 68,000
Chapter 11: Stockholders’ Equity
13. Walton Corporation shows the following in the stockholders' equity section of its balance sheet: The stated value
of its common stock is $0.50 and the total balance in the common stock account is $37,500. Also noted is that
5,000 shares are currently designated as treasury stock. The number of shares outstanding is
a. 80,000.
b. 75,000.
c. 72,500.
d. 70,000.
14. Winslow Corporation reported the following in the stockholders' equity section of its balance sheet at December
31, 2015:
Common stock, $1 stated value
$10,000
Additional paid-in capital—common
40,000
Retained earnings
25,000
Total contributed capital and retained earnings
$75,000
Less: Treasury stock (at cost $20 per share)
(2,000)
Total stockholders' equity
$73,000
How many shares of stock are issued?
a. 9,000
b. 10,000
c. 10,100
d. Not enough information to determine.
15. Sunnyland Charters reported the following information at December 31, 2015:
Preferred stock, $10 par, 5,000 shares authorized, cumulative
$ 50,000
Common stock, $1 par, 500,000 shares authorized
100,000
Additional paid-in capital—Common
25,000
Retained earnings
75,000
Total contributed capital and retained earnings
$250,000
Less: Treasury stock (400 shares at cost)
5,000
Total stockholders' equity
$245,000
The number of shares of common stock issued is
a. 10,000.
b. 100,000.
c. 500,000.
d. 550,000.
Chapter 11: Stockholders’ Equity
16. The Retained Earnings account balance for a large corporation is $10,000,000. This amount represents
a. earnings that have not been distributed to shareholders.
b. cash in the bank.
c. the amount of cash available for dividends.
d. revenues for all past years of operations.
17. With regard to preferred stock,
a. its issuance provides no flexibility to the issuing company because its terms always require
mandatory dividend payments.
b. no dividends are expected by the stockholders.
c. its stockholders may have the right to participate, along with common stockholders, if an extra dividend
is declared.
d. there is a legal requirement for a corporation to declare a dividend on preferred stock.
18. Stockholders prefer to invest in preferred stock because
a. preferred stock confers preferred voting rights.
b. preferred stock can always be converted to common stock if they desire.
c. the dividends are generally increased each year.
d. the dividends are paid on preferred stock before they are paid on common stock.
19. On January 1, 2015, Bogart Acres Company issued 10,000 shares of 10%, $20 par value cumulative preferred
stock. In 2015 and 2016, no dividends were declared on preferred stock. In 2017, Bogart had a profitable year
and decided to pay dividends to stockholders of both preferred and common stock. If they have $200,000
available for dividends in 2017, how much could it pay to the common stockholders?
a. $140,000
b. $160,000
c. $180,000
d. $200,000
20. The Stockholders' Equity section of the balance sheet of Sea Turtle Company reveals the following information:
Common stock, $3 par value $150,000
Additional paid-in capital—common 850,000
There have been two issues of stock since the corporation began business. The average issue price per share of
stock was
a. $ 3.00.
b. $17.00.
c. $20.00.
d. Not enough information to determine.
Chapter 11: Stockholders’ Equity
Anole Company
Anole Company was incorporated as a new business on January 1, 2015. The company is authorized to issue
20,000 shares of $5 par value common stock and 10,000 shares of 6%, $10 par value, cumulative, participating
preferred stock. On January 1, 2015, the company issued 8,000 shares of common stock for $15 per share and
2,000 shares of preferred stock for $30 per share. Net income for the year ended December 31, 2015, was
$375,000.
21. Refer to the information about Anole Company.
The amount of Anole’s total contributed capital at December 31, 2015, is
a. $ 60,000.
b. $120,000.
c. $180,000.
d. $555,000.
22. Refer to the information about Anole Company.
The number of Anole’s unissued shares of common stock at December 31, 2015, is
a. 6,000.
b. 8,000.
c. 10,000.
d. 12,000.
23. Refer to the information about Anole Company.
Anole’s total stockholders' equity reported on the balance sheet at December 31, 2015, is
a. $ 60,000.
b. $120,000.
c. $180,000.
d. $555,000.
24. Valor Company issued 5,000 shares of $1 par common stock for $30 per share, providing the company with
$150,000 in cash. What effect, in addition to the increase in cash, does this transaction have on the accounting
equation for Valor?
a. Common Stock increases $150,000.
b. Common Stock increases $5,000; Additional Paidin Capital—Common increases $145,000.
c. Common Stock increases $5,000; Retained Earnings increases $145,000.
d. Common Stock increases $5,000; Gain on Sale of Common Stock increases $145,000.
Chapter 11: Stockholders’ Equity
25. Roehr Corporation issues 20,000 shares of $0.50 par common stock for $6 per share; the Additional Paid-in
Capital—Common account will increase by
a. $ 10,000.
b. $110,000.
c. $120,000.
d. $130,000.
26. Abilene Western Shop began business on January 1, 2015. The corporate charter authorized issuance of 10,000
shares of $2 par value common stock and 4,000 shares of $8 par value, 6% cumulative preferred stock. Abilene
issued 2,400 shares of common stock for cash at $20 per share on January 2, 2015. What effect does the entry to
record the issuance of stock have on total stockholders' equity?
a. Increase of $4,800
b. Decrease of $4,800
c. Increase of $48,000
d. Decrease of $48,000
27. Poole Company began business on January 1, 2015. The corporate charter authorized issuance of 5,000 shares of
$1 par value common stock, and 4,000 shares of $8 par value, 6% cumulative preferred stock. None of the
preferred shares were issued. On July 1, Poole issued 1,000 shares of common stock in exchange for two years
rent on a retail location. The cash rental price is $2,400 per month and the rental period begins on July 1. The
correct entry to record the July 1 transaction will
a. Increase Cash, $57,600; Decrease Prepaid Rent, $57,600
b. Increase Prepaid Rent, $57,600; Increase Common Stock, $57,600
c. Increase Prepaid Rent, $57,600; Increase Common Stock, $1,000; Increase Additional Paidin Capital—
Common, $56,600
d. Increase Prepaid Rent, $57,600; Increase Common Stock, $5,000; Increase Additional Paidin Capital—
Common, $52,600
28. Vegas Finance Company reported the following:
Common stock, $10 par, 100,000 shares authorized, 80,000 shares issued and outstanding
What is the effect of issuing 1,000 shares of common stock at $15 per share?
a. Cash increases $10,000.
b. Common Stock increases $15,000.
c. Additional Paid-in Capital increases $5,000.
d. Retained Earnings increases $5,000.
Chapter 11: Stockholders’ Equity
29. A new company issues 2,000 shares of $5 par common stock in exchange for the services of a lawyer during
its first month of business. The lawyer’s normal fee is $15,000 for similar work. Which of the following
would be recorded if the stock is not currently trading?
a. A debit to Common Stock for $10,000
b. A credit to Common Stock for $15,000
c. A debit to Additional Paid-In Capital—Common Stock of $5,000
d. A credit to Additional Paid-In Capital—Common Stock of $5,000
30. Vegan Company reported the following:
Common stock, $5 par, 200,000 shares authorized, 50,000 shares issued and outstanding
What is the effect of issuing 2,000 shares of common stock in exchange for land with valued by a realtor at
$36,000 if the common stock sells for $12 per share and is regularly traded?
a. The Land account increases by $24,000.
b. Retained Earnings decreases by $10,000.
c. Common Stock increases by $36,000.
d. Additional Paid-in Capital - Common increases by $24,000.
31. Fairchild Company acquired a building valued at $210,000 for property tax purposes in exchange for 6,000
shares of its $10 par common stock. The stock is widely traded and selling for $31 per share. At what amount
should the building be recorded by Fairchild Company?
a. $210,000
b. $60,000
c. $186,000
d. $150,000
32. Montana City Company began business on January 1, 2015. The corporate charter authorized issuance of 500
shares of $1 par value common stock and 400 shares of $4 par value, 3% cumulative preferred stock. What is
the maximum amount that can be reported on the balance sheet for Common Stock and Preferred Stock,
respectively, if all of the stock is issued?
Common Stock Preferred Stock
a. $500 $1,600
b. $5,000 $120
c. $500 $120
d. Not enough information provided.
Chapter 11: Stockholders’ Equity
33. Portland Sound Cafe began business on January 1, 2015. The corporate charter authorized issuance of 1,000
shares of no-par value common stock, of which 200 shares were issued, and 4,000 shares of $8 par value, 6%
cumulative preferred stock, of which none were issued. Portland Sound sold 400 shares of common stock at $8
per share on May 1. The entry to record the issuance of the shares on May 1 will:
a. Increase Cash, $1,000; Increase Additional Paidin Capital—Common, $320; Increase Common Stock, $680
b. Increase Cash, $3,200; Increase Additional Paidin Capital—Common, $2,800; Increase Common Stock,
$400
c. Increase Cash, $4,800; Increase Common Stock, $4,800
d. Increase Cash, $3,200; Increase Common Stock, $3,200
34. Ari’s Cafe began operations on March 1, 2015. The corporate charter authorized the issuance of 3,000 shares of
$2 par value common stock and 1,000 shares of $3 par value, 8% cumulative preferred stock. The company's
fiscal year ends on February 28. Ari’s sold 500 shares of common stock at $6 per share on April 1. What impact
does the entry to record the April 1 transaction have on total stockholders' equity?
a. No effect
b. Increase by $1,000
c. Increase by $3,000
d. Increase by $6,000
35. If a company issues $5 par value common stock,
a. $5 per share is presented in the common stock account on the balance sheet.
b. the minimum selling price is $5.
c. the shareholders will receive $5 in dividends.
d. liabilities are increased as a result of the transaction.
36. A company purchased machinery by issuing 2,000 shares of $3 par value common stock. Since the company
is new, there is no established market price for its stock. How would the company record the transaction?
a. In terms of the par value of the stock issued.
b. At the fair market value of the machine.
c. At the cost recorded by the previous owner of the machine.
d. Recording the transaction would be postponed until a market price for the stock could be determined.
Chapter 11: Stockholders’ Equity
37. Museum Corporation acquired a new manufacturing building by issuing 10,000 shares of its $50 par value
preferred stock with a $75 per share market price. Similar buildings have recently cost $780,000. What are the
effects of this transaction on the accounting equation for Museum?
a. Building and Preferred Stock increase $780,000.
b. Building and Preferred Stock increase $500,000.
c. Building increases $780,000; Preferred Stock increases $500,000; Additional Paidin Capital—Preferred
increases $280,000.
d. Building increases $750,000; Preferred Stock increases $500,000; Additional Paidin Capital—Preferred
increases $250,000.
38. Which of the following combinations appropriately reflects the type of accounts represented by the Treasury Stock
account and Additional Paid-in Capital—Treasury Stock account?
Treasury Stock Additional Paid-in Capital—Treasury Stock
a. contra stockholders’ equity stockholders’ equity
b. contra stockholders’ equity contra stockholders’ equity
c. stockholders’ equity stockholders equity
d. retained earnings retained earnings
39. A company issued 4,000 shares of $5 par common stock for $30 per share. The company purchased 1,200
shares as treasury stock at $32 per share. Later, the company reissued 400 shares of the treasury stock at $34 per
share. Which of the following is true?
a. The Treasury Stock account should have a balance of $24,800.
b. The company has a gain of $800 that should appear on the income statement.
c. The Treasury Stock account should have a balance of $25,600.
d. The company has a gain of $1,600 that should appear on the income statement.
40. How is treasury stock shown on the balance sheet?
a. treasury stock is not shown on the balance sheet
b. an increase in stockholders’ equity
c. a decrease in stockholders’ equity
d. an asset
41. All of the following are reasons for a company to repurchase its previously issued stock, except:
a. to support the market price of the stock
b. to resell to employees
c. to increase the shares outstanding
d. for bonuses to employees
Chapter 11: Stockholders’ Equity
42. The stockholders' equity section of Twilight Time’s balance sheet on January 1, 2015, appeared as follows:
Common stock, $2 par, 2,000 shares issued and outstanding
$ 4,000
Additional paid-in capital—Common
1,600
Retained earnings
5,400
Total stockholders' equity
$11,000
On March 1, 2015, Twilight reacquired 800 shares of common stock at $10 per share. Twilight sold 400 of the
treasury shares on November 15 for $12 per share. The entry to record the sale on November 15 would show:
a. an increase in Gain on Sale of Treasury Stock, $800
b. an increase in Common Stock, $4,800
c. a decrease in Cash, $4,800
d. a decrease in Treasury Stock, $4,000
43. A company would repurchase its own stock for all of the following reasons except
a. it needs the stock for employee bonuses.
b. it wishes to make an investment in its own stock.
c. it wishes to prevent unwanted takeover attempts.
d. it wishes to improve the company's financial ratios.
44. When a company purchases treasury stock, which of the following statements is true?
a. Treasury stock is considered to be an asset because cash is paid for the stock.
b. The cost of the treasury stock reduces stockholders' equity.
c. Dividends continue to be paid on the treasury stock because it is still issued.
d. Since treasury stock is held by the original issuer, it is no longer considered to be issued.
45. If a company purchases treasury stock for $6,000 and then reissues it for $5,000, the difference of $1,000 is
a. treated as a gain on the sale.
b. treated as a loss on the sale.
c. an increase in stockholders' equity.
d. a decrease in stockholders' equity.
46. When a company wishes to purchase and retire its own stock, the company must
a. decrease the stock account balances by the original issue price.
b. record a gain or loss depending on the difference between original selling price and repurchase cost.
c. get the approval of the state to do so.
d. issue a different class of stock to the former stockholders.
Chapter 11: Stockholders’ Equity
47. The Stockholders' Equity section of Taco Reef, Inc.'s balance sheet on January 1, 2015, appeared as follows:
Common stock, $30 par, 20,000 shares issued and outstanding
$ 600,000
Additional paid-in capital—Common
240,000
Retained earnings
700,000
Total stockholders' equity
$1,540,000
On March 1, 2015, Taco Reef reacquired 4,000 shares of common stock at $50 per share. All common shares
were originally sold for $42 each. How much should be reported in the treasury stock account on the March
31, 2015 balance sheet?
a. $ 128,000
b. $ 168,000
c. $ 200,000
d. $ 32,000
48. Watson Company has 5,000 shares of $5 par, 3% preferred stock outstanding, and 25,000 shares of $2 par
common stock outstanding. The preferred stock is cumulative and 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?
a. $ 2,250
b. $50,000
c. $50,750
d. $52,250
49. Which of the following should be considered when a company decides to declare a cash dividend on
common stock?
a. The retained earnings balance only
b. The amount of authorized shares of common stock
c. The book value of the company's stock
d. The cash available and the retained earnings balance
50. When a company declares a cash dividend, which of the following is true?
a. Stockholders’ equity is increased.
b. Liabilities are increased.
c. Assets are increased.
d. Assets are decreased.
Chapter 11: Stockholders’ Equity
51. Tropical Co. declared a cash dividend of $30,000. The entry includes a(n)
a. decrease to Cash of $30,000.
b. increase to Retained Earnings of $30,000.
c. decrease to Retained Earnings of $30,000.
d. decrease to Cash Dividend Payable of $30,000.
52. Port, Inc. paid a cash dividend on January 2 that had been declared prior to the end of its fiscal year. The entry to
pay the dividend will
a. increase Cash and increase Cash Dividend Payable.
b. decrease Cash Dividend Payable and decrease Cash.
c. decrease Retained Earnings and increase Cash Dividend Payable.
d. decrease Cash Dividend Payable and increase Retained Earnings.
53. Arco Corporation declared a cash dividend on June 2 of $6 per common share. The company has 2,000 shares of
common stock authorized, 1,000 shares issued, and 200 in the treasury. The entry to record the declaration of the
cash dividend increases
a. a liability.
b. an asset.
c. an expense.
d. a stockholders’ equity account.
54. A liability for dividends is created
a. at the end of each fiscal year.
b. at the date of payment.
c. at the date of record.
d. at the date of declaration.
55. Dividends in Arrears
a. is a liability account.
b. is a contra stockholders’ equity account.
c. is a stockholders’ equity account.
d. appear in the notes to the financial statements.
Chapter 11: Stockholders’ Equity
56. CarWorks Company has 100,000 authorized shares of $4 par common stock. The company issued 40,000 shares at
$8. Subsequently, CarWorks declared a 2% stock dividend on a date when the market price was $11 a share. What
is the amount transferred from the retained earnings account to paid-in capital accounts as a result of the stock
dividend?
a. $8,800
b. $4,800
c. $3,200
d. $6,400
57. What is the effect of a stock dividend on stockholders' equity?
a. Stockholders' equity is decreased.
b. Retained earnings is increased.
c. Additional paid-in capital is decreased.
d. Total stockholders' equity stays the same.
58. The stockholders' equity section of the balance sheet for Scuba Gear Corporation appeared as follows before
its recent stock dividend:
Common stock, $5 par, 100,000 shares issued and outstanding
$ 500,000
Additional paid-in capital
100,000
Retained earnings
725,000
Total stockholders' equity
$1,325,000
Scuba Gear declared a 10% stock dividend when the market price per share was $8. After the stock dividend was
distributed, the components of the stockholders' equity section were:
Common Stock Add’l. Paid-in Capital Retained Earnings
a. $580,000 $100,000 $645,000
b. $550,000 $100,000 $675,000
c. $550,000 $130,000 $645,000
d. There would be no change in the components of stockholders’ equity.
59. When a company declares a stock dividend, which of the following occurs?
a. A liability is created.
b. Retained earnings is reduced.
c. Stockholders' equity is decreased.
d. The financing section of the statement of cash flows is decreased.
Chapter 11: Stockholders’ Equity
60. Which of the following statements with regard to large stock dividends is true?
a. As a result of the stock dividend, retained earnings is reduced by the par value of the stock issued.
b. Retained earnings is reduced by the market value of the stock issued in the stock dividend.
c. If the market price of the stock before a 50% stock dividend is $30, after the stock dividend it will be $45.
d. As the result of a 50% stock dividend, a stockholder who had previously held 20 shares will then hold
40 shares.
61. Fashion Company reported the following:
Common stock, $3 par, 10,000 shares authorized, 5,000 shares issued and outstanding
What is the effect of a 10% stock dividend if the market price of the common stock is $30 per share when the
dividend is declared?
a. Retained earnings in the amount of $15,000 is transferred to the contributed capital accounts.
b. Cash decreases $30,000.
c. Additional Paid-in Capital decreases $30,000.
d. A stock dividend has no effect on any stockholders' equity accounts.
62. 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.
63. MacArthur Company began operations on March 1, 2015. The corporate charter authorized issuance of 3,000
shares of $2 par value common stock. MacArthur sold all of the stock on March 1. On May 1, MacArthur
repurchased 2,000 of the outstanding shares. On May 14, MacArthur sold 1,200 of the treasury shares. On June 1,
MacArthur 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.
Chapter 11: Stockholders’ Equity
64. 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.
65. 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.
66. 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.
67. 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 occurred
as a result of the stock split?
a. The balance in the Retained Earnings account decreased.
b. The balance in the Common Stock account declined to $20,000.
c. The market price of the stock was not affected.
d. The market price of the stock dropped to approximately $10 per share.
68. 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.
Chapter 11: Stockholders’ Equity
69. 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 twenty shares before the split owns sixty shares after the split.
70. 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. Extraordinary items
b. Accounting changes
c. Unrealized holding gains or losses
d. Loss on sale of investments
71. 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.
72. 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.
73. 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 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.
Chapter 11: Stockholders’ Equity
74. 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
75. 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
76. Prairie Charters reported the following information at December 31, 2015:
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
$250,000
The average recorded value per share of common stock at December 31, 2015 is
a. $1.00
b. $1.75
c. $1.25
d. $2.50
77. 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.
Chapter 11: Stockholders’ Equity
78. 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.
79. 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 $.75 in value over the previous day.
d. company's stock is a popular investment.
80. 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.
81. 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
82. Which of the following is reported as a financing activity?
a. Declaration of dividends
b. Sale of preferred stock
c. Conversion of preferred stock to common stock
d. Stock split
Chapter 11: Stockholders’ Equity
83. Which of the following is reported as a financing activity?
a. Payment of cash dividends
b. Declaration of cash dividends
c. Stock dividend
d. Stock split
84. Which of the following is true?
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.
85. 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.
d. Financing activities can be inflows or outflows of cash.
86. In 2015, Dickens Company had a beginning balance in its Cash Dividend Payable account of $5,000 and an
ending balance of $4,000. During 2015, 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
87. [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.
