Chapter 12 – Corporations: Organization, Stock Transactions, and Dividends
74. Nebraska Inc. issues 3,000 shares of common stock for $45,000. The stock has a stated value of $10 per share. The
journal entry to record the stock issuance would include a credit to Common Stock for
a.
$30,000
b.
$45,000
c.
$15,000
d.
$3,000
= 3,000 × $10 = $30,000
75. The excess of issue price over par of common stock is termed a(n)
a.
discount
b.
income
c.
dividend
d.
premium
76. The entry to record the issuance of 150 shares of $5 par common stock at par to an attorney in payment of legal fees
for organizing the corporation includes a credit to
a.
Organizational Expenses
b.
Goodwill
c.
Common Stock
d.
Cash
Chapter 12 – Corporations: Organization, Stock Transactions, and Dividends
77. The price at which a stock can be sold depends upon a number of factors. Which statement below is not one of those
factors?
a.
the financial condition, earnings record, and dividend record of the corporation
b.
investor expectations of the corporation‘s earning power
c.
how high the par value is
d.
general business and economic conditions and prospects
78. The entry to record the issuance of common stock at a price above par includes a debit to
a.
Organizational Expenses
b.
Common Stock
c.
Cash
d.
Paid-In Capital in Excess of Par—Common Stock
79. Kansas Company acquired a building valued at $210,000 for property tax purposes in exchange for 12,000 shares of
its $5 par common stock. The stock is widely traded and sold for $15 per share. At what amount should the building be
recorded by Kansas Company?
a.
$60,000
b.
$180,000
c.
$210,000
d.
$120,000
$15 × 12,000 = $180,000
Chapter 12 – Corporations: Organization, Stock Transactions, and Dividends
80. The charter of a corporation provides for the issuance of 100,000 shares of common stock. Assume that 30,000 shares
were originally issued and 5,000 were subsequently reacquired. What is the number of shares outstanding?
a.
35,000
b.
70,000
c.
25,000
d.
30,000
shares reacquired = 30,000 – 5,000 = 25,000
81. Par value
a.
is the monetary value assigned per share in the corporate charter
b.
represents what a share of stock is worth
c.
represents the original selling price for a share of stock
d.
is established for a share of stock after it is issued
82. The authorized stock of a corporation
a.
must be recorded in a formal accounting entry
b.
only reflects the initial capital needs of the company
c.
is indicated in its by-laws
d.
is indicated in its charter
Chapter 12 – Corporations: Organization, Stock Transactions, and Dividends
83. If Dakota Company issues 1,500 shares of $6 par common stock for $75,000,
a.
Common Stock will be credited for $75,000
b.
Paid-In Capital in Excess of Par will be credited for $9,000
c.
Paid-In Capital in Excess of Par will be credited for $66,000
d.
Cash will be debited for $66,000
84. If common stock is issued for an amount greater than par value, the excess should be credited to
a.
Retained Earnings
b.
Cash
c.
Legal Capital
d.
Paid-In Capital in Excess of Par
85. The Sneed Corporation issues 10,000 shares of $50 par preferred stock for cash at $75 per share. The entry to record
the transaction will consist of a debit to Cash for $750,000 and a credit or credits to
a.
Preferred Stock for $750,000
b.
Preferred Stock for $500,000 and Paid-In Capital in Excess of Par—Preferred Stock for $250,000
c.
Preferred Stock for $500,000 and Retained Earnings for $250,000
d.
Paid-In Capital from Preferred Stock for $750,000
Paid-In Capital in Excess of Par—Preferred Stock = $750,000 – $500,000 = $250,000
Chapter 12 – Corporations: Organization, Stock Transactions, and Dividends
86. Alma Corp. issues 1,000 shares of $10 par common stock at $14 per share. When the transaction is recorded, credit(s)
are made to
a.
Common Stock, $14,000
b.
Common Stock, $10,000, and Paid-In Capital in Excess of Par, $4,000
c.
Common Stock, $4,000, and Paid-In Capital in Excess of Stated Value, $10,000
d.
Common Stock, $10,000, and Retained Earnings, $4,000
87. Nexis Corp. issues 1,000 shares of $15 par value common stock at $22 per share. When the transaction is recorded,
credit(s) are made to:
a.
Common Stock, $15,000, and Paid-In Capital in Excess of Par, $7,000
b.
Common Stock, $22,000, and Retained Earnings, $15,000
c.
Common Stock, $7,000, and Paid-In Capital in Excess of Stated Value, $15,000
d.
Common Stock, $22,000
Chapter 12 – Corporations: Organization, Stock Transactions, and Dividends
88. Sabas Company has 20,000 shares of $100 par, 2% cumulative preferred stock and 100,000 shares of $50 par common
stock. The following amounts were distributed as dividends:
Year 1:
$10,000
Year 2:
45,000
Year 3:
90,000
Determine the dividends per share for preferred and common stock for the first year.
a.
$0.50 and $0.10
b.
$0.00 and $0.10
c.
$0.50 and $0.00
d.
$2.00 and $0.00
89. When Wisconsin Corporation was formed on January 1, the corporate charter provided for 100,000 shares of $10 par
value common stock. The following transaction was among those engaged in by the corporation during its first month of
operation: The corporation issued 8,500 shares of stock at a price of $16 per share.
The entry to record the above transaction would include a
a.
debit to Cash for $85,000
b.
credit to Common Stock for $136,000
c.
credit to Paid-In Capital in Excess of Par for $51,000
d.
debit to Common Stock for $85,000
Chapter 12 – Corporations: Organization, Stock Transactions, and Dividends
90. The charter of a corporation provides for the issuance of 100,000 shares of common stock. Assume that 60,000 shares
were originally issued and 10,000 were subsequently reacquired. What is the amount of cash dividends to be paid if a $2
per share dividend is declared?
a.
$60,000
b.
$20,000
c.
$120,000
d.
$100,000
share = (60,000 – 10,000) × $2 = 50,000 × $2 = $100,000
91. The charter of a corporation provides for the issuance of 100,000 shares of common stock. Assume that 45,000 shares
were originally issued and 5,000 were subsequently reacquired. What is the amount of cash dividends to be paid if a $2
per share dividend is declared?
a.
$80,000
b.
$10,000
c.
$90,000
d.
$100,00
92. The date on which a cash dividend becomes a binding legal obligation is on the
a.
declaration date
b.
date of record
c.
payment date
d.
last day of fiscal year
Chapter 12 – Corporations: Organization, Stock Transactions, and Dividends
93. The cumulative effect of the declaration and payment of a cash dividend on a company’s financial statements is to
a.
decrease total liabilities and stockholders’ equity
b.
increase total expenses and total liabilities
c.
increase total assets and stockholders’ equity
d.
decrease total assets and stockholders’ equity
94. Which of the following is the appropriate general journal entry to record the declaration of cash dividends?
a.
Retained Earnings
Cash
b.
Cash Dividends Payable
Cash
c.
Paid-In Capital
Cash Dividends Payable
d.
Cash Dividends
Cash Dividends Payable
95. Texas Inc. has 10,000 shares of 6%, $125 par value cumulative preferred stock and 50,000 shares of $1 par value
common stock outstanding at December 31. What is the annual dividend on the preferred stock?
a.
$60 per share
b.
$75,000 in total
c.
$10,000 in total
d.
$0.75 per share
Annual dividend on the preferred stock = $125 × 6% × 10,000 = $75,000
Chapter 12 – Corporations: Organization, Stock Transactions, and Dividends
96. Which of the following is not a prerequisite to paying a cash dividend?
a.
formal action by the board of directors
b.
market value in excess of par value per share
c.
sufficient cash
d.
sufficient retained earnings
97. The liability for a dividend is recorded on which of the following dates?
a.
the date of record
b.
the date of payment
c.
the last day of the fiscal year
d.
the date of declaration
98. A company with 100,000 authorized shares of $4 par common stock issued 40,000 shares at $8. Subsequently, the
company 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.
$3,200
b.
$6,400
c.
$4,800
d.
$8,800
issue = 2% × 40,000 × $11 = $8,800
Chapter 12 – Corporations: Organization, Stock Transactions, and Dividends
99. A company with 100,000 authorized shares of $4 par common stock issued 50,000 shares at $9. Subsequently, the
company declared a 2% stock dividend on a date when the market price was $10 a share. The effect of the declaration and
issuance of the stock dividend is to
a.
decrease retained earnings, increase common stock, and increase paid–in capital
b.
increase retained earnings, decrease common stock, and decrease paid-in capital
c.
increase retained earnings, decrease common stock, and increase paid–in capital
d.
decrease retained earnings, increase common stock, and decrease paid-in capital
100. A company with 100,000 authorized shares of $4 par common stock issued 40,000 shares at $8. Subsequently, the
company declared a 4% stock dividend on a date when the market price was $12 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.
$12,800
b.
$19,200
c.
$32,000
d.
$48,800
Chapter 12 – Corporations: Organization, Stock Transactions, and Dividends
101. Sabas Company has 20,000 shares of $100 par, 2% cumulative preferred stock and 100,000 shares of $50 par
common stock. The following amounts were distributed as dividends:
Year 1:
$10,000
Year 2:
45,000
Year 3:
90,000
Determine the dividends per share for preferred and common stock for the second year.
a.
$2.25 and $0.00
b.
$2.25 and $0.45
c.
$0.00 and $0.45
d.
$2.00 and $0.45
Common stock = $0.00
102. Sabas Company has 20,000 shares of $100 par, 2% cumulative preferred stock and 100,000 shares of $50 par
common stock. The following amounts were distributed as dividends:
Year 1:
$10,000
Year 2:
45,000
Year 3:
90,000
Determine the dividends per share for preferred and common stock for the third year.
a.
$4.50 and $0.25
b.
$3.25 and $0.25
c.
$4.50 and $0.90
d.
$2.00 and $0.25
Chapter 12 – Corporations: Organization, Stock Transactions, and Dividends
103. Sabas Company has 20,000 shares of $100 par, 2% cumulative preferred stock and 100,000 shares of $50 par
common stock. The following amounts were distributed as dividends:
Year 1:
$10,000
Year 2:
45,000
Year 3:
90,000
Determine the dividends in arrears for preferred stock for the second year.
a.
$25,000
b.
$10,000
c.
$0
d.
$30,000
Chapter 12 – Corporations: Organization, Stock Transactions, and Dividends
104. When a stock dividend is declared, which of the following accounts is credited?
a.
Common Sock
b.
Dividend Payable
c.
Stock Dividends Distributable
d.
Retained Earnings
105. Treasury stock shares are
a.
shares held by the U.S. Treasury Department
b.
part of the total outstanding shares but not part of the total issued shares of a corporation
c.
unissued shares that are held by the treasurer of the corporation
d.
issued shares that have been reacquired by a corporation
106. On January 1, Vermont Corporation had 40,000 shares of $10 par value common stock issued and outstanding. All
40,000 shares had been issued in a prior period at $20.00 per share. On February 1, Vermont purchased 3,750 shares of
treasury stock for $24 per share and later sold the treasury shares for $21 per share on March 1.
The journal entry to record the purchase of the treasury shares on February 1 would include a
a.
credit to Treasury Stock for $90,000
b.
debit to Treasury Stock for $90,000
c.
debit to a loss account for $112,500
d.
credit to a gain account for $112,500
Chapter 12 – Corporations: Organization, Stock Transactions, and Dividends
107. Which statement below is not a reason for a corporation to buy back its own stock?
a.
resale to employees
b.
bonus to employees
c.
for supporting the market price of the stock
d.
to increase the shares outstanding
108. How is treasury stock shown on the balance sheet?
a.
as an asset
b.
as a decrease in stockholders’ equity
c.
as an increase in stockholders’ equity
d.
treasury stock is not shown on the balance sheet
109. The excess of sales price of treasury stock over its cost should be credited to
a.
Treasury Stock Receivable
b.
Premium on Capital Stock
c.
Paid-In Capital from Sale of Treasury Stock
d.
Income from Sale of Treasury Stock
110. Treasury stock that was purchased for $3,000 is sold for $3,500. As a result of these two transactions combined
a.
income will be increased by $500
b.
stockholders’ equity will be increased by $3,500
c.
stockholders’ equity will be increased by $500
d.
stockholders’ equity will not change
Chapter 12 – Corporations: Organization, Stock Transactions, and Dividends
111. Treasury stock that had been purchased for $5,600 last month was reissued this month for $8,500. The journal entry
to record the reissuance would include a credit to
a.
Treasury Stock for $8,500
b.
Paid-In Capital from Sale of Treasury Stock for $8,500
c.
Paid-In Capital in Excess of Par—Common Stock for $2,900
d.
Paid-In Capital from Sale of Treasury Stock for $2,900
112. A corporation purchased 1,000 shares of its own $5 par common stock at $10 and subsequently sold 500 of the
shares at $20. What is the amount of revenue realized from the sale?
a.
$0
b.
$5,000
c.
$2,500
d.
$10,000
Increase in stockholders’ equity = $500
Chapter 12 – Corporations: Organization, Stock Transactions, and Dividends
113. A corporation purchases 10,000 shares of its own $10 par common stock for $35 per share, recording it at cost. What
will be the effect on total stockholders’ equity?
a.
increase by $100,000
b.
increase by $350,000
c.
decrease by $100,000
d.
decrease by $350,000
114. What is the total stockholders’ equity based on the following account balances?
Common Stock
$375,000
Paid-In Capital in Excess of Par
90,000
Retained Earnings
190,000
Treasury Stock
15,000
a.
$670,000
b.
$655,000
c.
$640,000
d.
$565,000
$640,000
115. In which section of the financial statements would Paid-In Capital from Sale of Treasury Stock be reported?
a.
other expense on income statement
b.
intangible asset on the balance sheet
c.
stockholders’ equity on balance sheet
d.
other income on income statement
Chapter 12 – Corporations: Organization, Stock Transactions, and Dividends
116. Which of the following is not classified as paid-in capital on the balance sheet?
a.
common stock
b.
common stock distributable
c.
excess of issue price over par
d.
treasury stock
117. All of the following are normally found in a corporation’s stockholders’ equity section except
a.
Common Stock
b.
Excess of Issue Price Over Par
c.
Dividends in Arrears
d.
Retained Earnings
118. Which of the following amounts should be disclosed in the stockholders’ equity section of the balance sheet?
a.
the number of shares of common stock outstanding
b.
the number of shares of common stock issued
c.
the number of shares of common stock authorized
d.
all of these
Chapter 12 – Corporations: Organization, Stock Transactions, and Dividends
119. Significant changes in stockholders’ equity are reported in
a.
income statement
b.
retained earnings statement
c.
statement of stockholders’ equity
d.
statement of cash flows
120. Retained earnings
a.
is the same as contributed capital
b.
must be restricted by law
c.
changes are summarized in the retained earnings statement
d.
is equal to cash on hand
121. Which of the following would appear as a prior period adjustment?
a.
loss resulting from the sale of fixed assets
b.
difference between the actual and estimated uncollectible accounts receivable
c.
error in the computation of depreciation expense in the preceding year
d.
loss from the restructuring of assets
122. A restriction/appropriation of retained earnings
a.
decreases total assets
b.
increases total retained earnings
c.
decreases total retained earnings
d.
has no effect on total retained earnings
Chapter 12 – Corporations: Organization, Stock Transactions, and Dividends
123. The Dayton Corporation began the current year with a retained earnings balance of $32,000. During the year, the
company corrected an error made in the prior year, which was a failure to record a depreciation expense of $3,000 on
equipment. Also, during the current year, the company earned net income of $12,000 and declared cash dividends of
$7,000. Compute the year-end retained earnings balance.
a.
$34,000
b.
$37,000
c.
$41,000
d.
$44,000
$7,000 = $34,000
124. The two main sources of stockholders’ equity are
a.
investments by stockholders and net income retained in the business
b.
investments by stockholders and dividends paid
c.
net income retained in the business and dividends paid
d.
investments by stockholders and purchases of assets
125. Treasury stock should be reported in the financial statements of a corporation as a(n)
a.
investment
b.
liability
c.
current asset
d.
deduction from stockholders’ equity
Chapter 12 – Corporations: Organization, Stock Transactions, and Dividends
126. A reduction of par or stated value of stock results from a
a.
liquidating dividend
b.
stock split
c.
stock option
d.
preferred dividend
127. A corporation has 50,000 shares of $25 par stock outstanding. If the corporation issues a 3-for-1 stock split, the
number of shares outstanding after the split will be
a.
150,000 shares
b.
50,000 shares
c.
100,000 shares
d.
16,666 shares
128. When a corporation completes a 3-for-1 stock split
a.
the ownership interest of current stockholders is decreased
b.
the market price per share of the stock is decreased
c.
the par value per share is decreased
d.
the market price per share of the stock and the par value per share is decreased