Stockholders’ Equity
15 – 21
87. Luther Inc., has 4,000 shares of 6%, $50 par value, cumulative preferred stock and
100,000 shares of $1 par value common stock outstanding at December 31, 2015, and
December 31, 2014. The board of directors declared and paid a $10,000 dividend in 2014.
In 2015, $48,000 of dividends are declared and paid. What are the dividends received by
the preferred stockholders in 2015?
a. $34,000
b. $24,000
c. $14,000
d. $12,000
88. Anders, Inc., has 15,000 shares of 5%, $100 par value, cumulative preferred stock and
60,000 shares of $1 par value common stock outstanding at December 31, 2015. There
were no dividends declared in 2013. The board of directors declares and pays a $135,000
dividend in 2014 and in 2015. What is the amount of dividends received by the common
stockholders in 2015?
a. $45,000
b. $75,000
c. $135,000
d. $0
89. Colson Inc. declared a $320,000 cash dividend. It currently has 12,000 shares of 7%,
$100 par value cumulative preferred stock outstanding. It is one year in arrears on its
preferred stock. How much cash will Colson distribute to the common stockholders?
a. $152,000.
b. $168,000.
c. $236,000.
d. None.
90. Pierson Corporation owned 10,000 shares of Hunter Corporation. These shares were
purchased in 2011 for $90,000. On November 15, 2015, Pierson declared a property
dividend of one share of Hunter for every ten shares of Pierson held by a stockholder. On
that date, when the market price of Hunter was $28 per share, there were 90,000 shares
of Pierson outstanding. What gain and net reduction in retained earnings would result
from this property dividend?
Gain Net Reduction in
Retained Earnings
a. $0 $252,000
b. $0 $ 81,000
c. $171,000 $ 81,000
d. $171,000 $ 36,000
Test Bank for Intermediate Accounting, Fifteenth Edition
15 – 22
91. Stinson Corporation owned 30,000 shares of Matile Corporation. These shares were
purchased in 2011 for $270,000. On November 15, 2015, Stinson declared a property
dividend of one share of Matile for every ten shares of Stinson held by a stockholder. On
that date, when the market price of Matile was $28 per share, there were 270,000 shares
of Stinson outstanding. What gain and net reduction in retained earnings would result from
this property dividend?
Gain Net Reduction in
Retained Earnings
a. $0 $243,000
b. $0 $756,000
c. $513,000 $108,000
d. $513,000 $243,000
92. Winger Corporation owned 600,000 shares of Fegan Corporation stock. On December 31,
2014, when Winger’s account “Equity Investments (Fegan Corporation”) had a carrying
value of $5 per share, Winger distributed these shares to its stockholders as a dividend.
Winger originally paid $8 for each share. Fegan has 2,000,000 shares issued and
outstanding, which are traded on a national stock exchange. The quoted market price for
a Fegan share was $7 on the declaration date and $9 on the distribution date.
What would be the reduction in Winger’s stockholders’ equity as a result of the above
transactions?
a. $2,400,000.
b. $3,000,000.
c. $4,800,000.
d. $5,400,000.
93. Gibbs Corporation owned 20,000 shares of Oliver Corporation’s $5 par value common
stock. These shares were purchased in 2011 for $180,000. On September 15, 2015,
Gibbs declared a property dividend of one share of Oliver for every ten shares of Gibbs
held by a stockholder. On that date, when the market price of Oliver was $28 per share,
there were 180,000 shares of Gibbs outstanding. What NET reduction in retained
earnings would result from this property dividend?
a. $162,000
b. $504,000
c. $171,000
d. $342,000
94. Melvern’s Corporation has an investment in 15,000 shares of Wallace Company common
stock with a cost of $654,000. These shares are used in a property dividend to
stockholders of Melvern’s. The property dividend is declared on May 25 and scheduled to
be distributed on July 31 to stockholders of record on June 15. The fair value per share of
Wallace stock is $63 on May 25, $66 on June 15, and $68 on July 31. The net effect of
this property dividend on retained earnings is a reduction of
a. $1,020,000.
b. $ 990,000.
c. $ 945,000.
d. $ 654,000.
Stockholders’ Equity
15 – 23
95. Hernandez Company has 560,000 shares of $10 par value common stock outstanding.
During the year, Hernandez declared a 10% stock dividend when the market price of the
stock was $30 per share. Four months later Hernandez declared a $.50 per share cash
dividend. As a result of the dividends declared during the year, retained earnings
decreased by
a. $1,988,000.
b. $ 840,000.
c. $ 308,000.
d. $ 280,000.
96. On June 30, 2014, when Ermler Co.‘s stock was selling at $65 per share, its capital
accounts were as follows:
Capital stock (par value $50; 50,000 shares issued) $2,500,000
Premium on capital stock 600,000
Retained earnings 4,200,000
If a 100% stock dividend were declared and distributed, capital stock would be
a. $2,500,000.
b. $3,100,000.
c. $5,000,000.
d. $7,300,000.
97. The stockholders’ equity section of Gunkel Corporation as of December 31, 2014, was as
follows:
Common stock, par value $2; authorized 20,000 shares;
issued and outstanding 10,000 shares $ 20,000
Paid-in capital in excess of par 30,000
Retained earnings 95,000
$145,000
On March 1, 2015, the board of directors declared a 15% stock dividend, and accordingly
1,500 additional shares were issued. On March 1, 2015, the fair value of the stock was $6
per share. For the two months ended February 28, 2015, Gunkel sustained a net loss of
$15,000.
What amount should Gunkel report as retained earnings as of March 1, 2015?
a. $71,000.
b. $77,000.
c. $81,000.
d. $87,000.
Test Bank for Intermediate Accounting, Fifteenth Edition
15 – 24
98. The stockholders’ equity of Howell Company at July 31, 2014 is presented below:
Common stock, par value $20, authorized 400,000 shares;
issued and outstanding 160,000 shares $3,200,000
Paid-in capital in excess of par 160,000
Retained earnings 650,000
$4,010,000
On August 1, 2014, the board of directors of Howell declared a 10% stock dividend on
common stock, to be distributed on September 15th. The market price of Howell’s
common stock was $70 on August 1, 2014, and $76 on September 15, 2014. What is the
amount of the debit to retained earnings as a result of the declaration and distribution of
this stock dividend?
a. $ 640,000.
b. $1,120,000.
c. $1,216,000.
d. $ 800,000.
99. On January 1, 2014, Dodd, Inc., declared a 15% stock dividend on its common stock
when the fair value of the common stock was $30 per share. Stockholders’ equity before
the stock dividend was declared consisted of:
Common stock, $10 par value, authorized 200,000 shares;
issued and outstanding 120,000 shares $1,200,000
Additional paid-in capital on common stock 150,000
Retained earnings 700,000
Total stockholders‘ equity $2,050,000
What was the effect on Dodd’s retained earnings as a result of the above transaction?
a. $270,000 decrease
b. $540,000 decrease
c. $900,000 decrease
d. $450,000 decrease
100. On January 1, 2014, Culver Corporation had 110,000 shares of its $5 par value common
stock outstanding. On June 1, the corporation acquired 10,000 shares of stock to be held
in the treasury. On December 1, when the market price of the stock was $10, the
corporation declared a 15% stock dividend to be issued to stockholders of record on
December 16, 2014. What was the impact of the 15% stock dividend on the balance of the
retained earnings account?
a. $937,500 decrease
b. $150,000 decrease
c. $165,000 decrease
d. No effect
Stockholders’ Equity
15 – 25
101. At the beginning of 2015, Flaherty Company had retained earnings of $350,000. During
the year Flaherty reported net income of $100,000, sold treasury stock at a “gain” of
$36,000, declared a cash dividend of $60,000, and declared and issued a small stock
dividend of 3,000 shares ($10 par value) when the fair value of the stock was $20 per
share. The amount of retained earnings available for dividends at the end of 2015 was
a. $330,000.
b. $360,000.
c. $366,000.
d. $396,000.
102. Masterson Company has 420,000 shares of $10 par value common stock outstanding.
During the year Masterson declared a 15% stock dividend when the market price of the
stock was $36 per share. Three months later Masterson declared a $.60 per share cash
dividend. As a result of the dividends declared during the year, retained earnings
decreased by
a. $2,683,800
b. $2,268,000
c. $ 415,800
d. $ 396,000
103. Layne Corporation had the following information in its financial statements for the years
ended 2014 and 2015:
Cash dividends for the year 2015 $ 10,000
Net income for the year ended 2015 83,000
Market price of stock, 12/31/14 10
Market price of stock, 12/31/15 12
Common stockholders’ equity, 12/31/14 1,600,000
Common stockholders’ equity, 12/31/15 1,980,000
Outstanding shares, 12/31/15 180,000
Preferred dividends for the year ended 2015 15,000
What is the payout ratio for Layne Corporation for the year ended 2015?
a. 30.1%
b. 18.1%
c. 14.7%
d. 12.0%
104. Layne Corporation had the following information in its financial statements for the years
ended 2014 and 2015:
Cash dividends for the year 2015 $ 10,000
Net income for the year ended 2015 83,000
Market price of stock, 12/31/14 10
Market price of stock, 12/31/15 12
Common stockholders’ equity, 12/31/14 1,600,000
Common stockholders’ equity, 12/31/15 1,980,000
Outstanding shares, 12/31/15 180,000
Preferred dividends for the year ended 2015 15,000
Test Bank for Intermediate Accounting, Fifteenth Edition
15 – 26
What is the book value per share for Layne Corporation for the year ended 2015?
a. $11.00
b. $9.92
c. $9.94
d. $8.89
105. At the beginning of 2015, Hamilton Company had retained earnings of $250,000. During
the year Hamilton reported net income of $75,000, sold treasury stock at a “gain” of
$27,000, declared a cash dividend of $45,000, and declared and issued a small stock
dividend of 1,500 shares ($10 par value) when the fair value of the stock was $30 per
share. The amount of retained earnings available for dividends at the end of 2015 was:
a. $284,500.
b. $262,000.
c. $257,500.
d. $235,000.
106. Mingenback Company has 560,000 shares of $10 par value common stock outstanding.
During the year Mingenback declared a 15% stock dividend when the market price of the
stock was $48 per share. Two months later Mingenback declared a $.60 per share cash
dividend. As a result of the dividends declared during the year, retained earnings
decreased by:
a. $ 386,400.
b. $ 528,000.
c. $4,032,000.
d. $4,418,400.
107. Sealy Corporation had the following information in its financial statements for the years
ended 2014 and 2015:
Cash dividends for the year 2015 $ 5,000
Net income for the year ended 2015 87,000
Market price of stock, 12/31/14 10
Market price of stock, 12/31/15 12
Common stockholders’ equity, 12/31/14 1,000,000
Common stockholders’ equity, 12/31/15 1,200,000
Outstanding shares, 12/31/15 100,000
Preferred dividends for the year ended 2015 10,000
What is the rate of return on common stock equity for Sealy Corporation for the year
ended 2015?
a. 7.9%
b. 6.4%
c. 7.0%
d. 6.5%
Stockholders’ Equity
15 – 27
108. Sealy Corporation had the following information in its financial statements for the years
ended 2014 and 2015:
Cash dividends for the year 2015 $ 5,000
Net income for the year ended 2015 87,000
Market price of stock, 12/31/14 10
Market price of stock, 12/31/15 12
Common stockholders’ equity, 12/31/14 1,000,000
Common stockholders’ equity, 12/31/15 1,200,000
Outstanding shares, 12/31/15 100,000
Preferred dividends for the year ended 2015 10,000
What is the payout ratio for Sealy Corporation for the year ended 2015?
a. 13.0%
b. 5.7%
c. 6.5%
d. 17.2%
109. Mays, Inc. had net income for 2014 of $1,060,000 and earnings per share on common
stock of $5. Included in the net income was $150,000 of bond interest expense related to
its long-term debt. The income tax rate for 2014 was 30%. Dividends on preferred stock
were $200,000. The payout ratio on common stock was 25%. What were the dividends on
common stock in 2014?
a. $215,000.
b. $265,000.
c. $241,250.
d. $322,500.
110. Presented below is information related to Orender, Inc.:
December 31,
2015 2014
Common stock $ 75,000 $ 60,000
4% Preferred stock 350,000 350,000
Retained earnings (includes net income for current year) 90,000 75,000
Net income for year 35,000 32,000
What is Orender’s rate of return on common stock equity for 2015?
a. 23.3%
b. 14.0%
c. 31.1%
d. 21.2%
111. The following data are provided:
December 31,
2015 2014
5% Cumulative preferred stock, $50 par $100,000 $100,000
Common stock, $10 par 140,000 90,000
Additional paid-in capital 80,000 70,000
Retained earnings (includes current year net income) 240,000 215,000
Net income 60,000
Test Bank for Intermediate Accounting, Fifteenth Edition
15 – 28
Additional information:
On May 1, 2015, 5,000 shares of common stock were issued. The preferred dividends were not
declared during 2015. The market price of the common stock was $50 at December 31, 2015.
The rate of return on common stock equity for 2015 is calculated as
a. 60 ÷ 415.
b. 60 ÷ 460.
c. 55 ÷ 415.
d. 55 ÷ 460.
112. The following data are provided:
December 31,
2015 2014
5% Cumulative preferred stock, $50 par $100,000 $100,000
Common stock, $10 par 140,000 90,000
Additional paid-in capital 80,000 70,000
Retained earnings (includes current year net income) 240,000 215,000
Net income 60,000
Additional information:
On May 1, 2015, 5,000 shares of common stock were issued. The preferred dividends were not
declared during 2015. The market price of the common stock was $50 at December 31, 2015.
The book value per share of common stock at 12/31/15 is calculated as
a. 455 ÷ 14.
b. 380 ÷ 14.
c. 220 ÷ 14.
d. 460 ÷ 14.
113. Turner Corporation had the following information in its financial statements for the year
ended 2014 and 2015:
Cash dividends for the year 2015 $ 15,000
Net income for the year ended 2015 130,000
Market price of stock, 12/31/15 24
Common stockholders’ equity, 12/31/14 2,200,000
Common stockholders’ equity, 12/31/15 2,400,000
Outstanding shares, 12/31/15 150,000
Preferred dividends for the year ended 2015 30,000
What is the payout ratio for Turner Corporation for the year ended 2015?
a. 11.5%
b. 15.0%
c. 23.1%
d. 34.6%
Stockholders’ Equity
15 – 29
114. Turner Corporation had the following information in its financial statements for the year
ended 2014 and 2015:
Cash dividends for the year 2015 $ 15,000
Net income for the year ended 2015 130,000
Market price of stock, 12/31/15 24
Common stockholders’ equity, 12/31/14 2,200,000
Common stockholders’ equity, 12/31/15 2,400,000
Outstanding shares, 12/31/15 150,000
Preferred dividends for the year ended 2015 30,000
What is the book value per share for Turner Corporation for the year ended 2015?
a. $15.80
b. $16.00
c. $14.67
d. $15.70
*115. Written, Inc. has outstanding 600,000 shares of $2 par common stock and 120,000 shares
of no-par 8% preferred stock with a stated value of $5. The preferred stock is cumulative
and nonparticipating. Dividends have been paid in every year except the past two years
and the current year.
Assuming that $300,000 will be distributed as a dividend in the current year, how much
will the common stockholders receive?
a. Zero.
b. $156,000.
c. $204,000.
d. $252,000.
*116. Written, Inc. has outstanding 600,000 shares of $2 par common stock and 120,000 shares
of no-par 8% preferred stock with a stated value of $5. The preferred stock is cumulative
and nonparticipating. Dividends have been paid in every year except the past two years
and the current year.
Assuming that $126,000 will be distributed as a dividend in the current year, how much
will the preferred stockholders receive?
a. $42,000.
b. $48,000.
c. $96,000.
d. $126,000.
*117. Written, Inc. has outstanding 600,000 shares of $2 par common stock and 120,000 shares
of no-par 8% preferred stock with a stated value of $5. The preferred stock is cumulative
and nonparticipating. Dividends have been paid in every year except the past two years
and the current year.
Assuming that $366,000 will be distributed, and the preferred stock is also participating,
how much will the common stockholders receive?
a. $222,000.
b. $180,000.
c. $186,000.
d. $ 96,000.
Test Bank for Intermediate Accounting, Fifteenth Edition
15 – 30
*118. Yoder, Inc. has 150,000 shares of $10 par value common stock and 75,000 shares of $10
par value, 6%, cumulative, participating preferred stock outstanding. Dividends on the
preferred stock are one year in arrears. Assuming that Yoder wishes to distribute
$405,000 as dividends, the common stockholders will receive
a. $ 90,000.
b. $165,000.
c. $240,000.
d. $315,000.
*119. Mann Co. has outstanding 80,000 shares of 8% preferred stock with a $10 par value and
150,000 shares of $3 par value common stock. Dividends have been paid every year
except last year and the current year. If the preferred stock is cumulative and
nonparticipating and $400,000 is distributed, the common stockholders will receive
a. $0.
b. $272,000.
c. $336,000.
d. $400,000.
Multiple Choice Answers—Computational
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MULTIPLE CHOICE—CPA Adapted
120. A corporation was organized in January 2014 with authorized capital of $10 par value
common stock. On February 1, 2014, shares were issued at par for cash. On March 1,
2014, the corporation’s attorney accepted 7,000 shares of common stock in settlement for
legal services with a fair value of $90,000. Additional paid-in capital would increase on
February 1, 2014 March 1, 2014
a. Yes No
b. Yes Yes
c. No No
d. No Yes
Stockholders’ Equity
15 – 31
121. On July 1, 2014, Nall Co. issued 2,500 shares of its $10 par common stock and 5,000
shares of its $10 par convertible preferred stock for a lump sum of $130,000. At this date
Nall’s common stock was selling for $24 per share and the convertible preferred stock for
$18 per share. The amount of the proceeds allocated to Nall’s preferred stock should be
a. $65,000.
b. $78,000.
c. $90,000.
d. $71,500.
122. Horton Co. was organized on January 2, 2014, with 500,000 authorized shares of $10 par
value common stock. During 2014, Horton had the following capital transactions:
January 5—issued 375,000 shares at $14 per share.
July 27—purchased 25,000 shares at $11 per share.
November 25—sold 18,000 shares of treasury stock at $13 per share.
Horton used the cost method to record the purchase of the treasury shares. What would
be the balance in the Paid-in Capital from Treasury Stock account at December 31, 2014?
a. $0.
b. $18,000.
c. $36,000.
d. $54,000.
123. In 2014, Hobbs Corp. acquired 12,000 shares of its own $1 par value common stock at
$18 per share. In 2015, Hobbs issued 8,000 of these shares at $25 per share. Hobbs
uses the cost method to account for its treasury stock transactions. What accounts and
what amounts should Hobbs credit in 2015 to record the issuance of the 6,000 shares?
Treasury Additional Retained Common
Stock Paid-in Capital Earnings Stock
a. $144,000 $140,000
b. $144,000 $56,000
c. $192,000 $8,000
d. $136,000 $56,000 $8,000
124. At its date of incorporation, Sauder, Inc. issued 100,000 shares of its $10 par common
stock at $11 per share. During the current year, Sauder acquired 20,000 shares of its
common stock at a price of $16 per share and accounted for them by the cost method.
Subsequently, these shares were reissued at a price of $12 per share. There have been
no other issuances or acquisitions of its own common stock. What effect does the
reissuance of the stock have on the following accounts?
Retained Earnings Additional Paid-in Capital
a. Decrease Decrease
b. No effect Decrease
c. Decrease No effect
d. No effect No effect
Test Bank for Intermediate Accounting, Fifteenth Edition
15 – 32
125. Farmer Corp. owned 20,000 shares of Eaton Corp. purchased in 2011 for $450,000. On
December 15, 2014, Farmer declared a property dividend of all of its Eaton Corp. shares
on the basis of one share of Eaton for every 10 shares of Farmer common stock held by
its stockholders. The property dividend was distributed on January 15, 2015. On the
declaration date, the aggregate market price of the Eaton shares held by Farmer was
$750,000. The entry to record the declaration of the dividend would include a debit to
Retained Earnings of
a. $0.
b. $300,000.
c. $450,000.
d. $750,000.
126. A corporation declared a dividend, a portion of which was liquidating. How would this
distribution affect each of the following?
Additional
Paid-in Capital Retained Earnings
a. Decrease No effect
b. Decrease Decrease
c. No effect Decrease
d. No effect No effect
127. On May 1, 2014, Ziek Corp. declared and issued a 10% common stock dividend. Prior to
this dividend, Ziek had 200,000 shares of $1 par value common stock issued and
outstanding. The fair value of Ziek ‘s common stock was $20 per share on May 1, 2014.
As a result of this stock dividend, Ziek’s total stockholders’ equity
a. increased by $400,000.
b. decreased by $400,000.
c. decreased by $20,000.
d. did not change.
128. How would the declaration and subsequent issuance of a 10% stock dividend by the
issuer affect each of the following when the fair value of the shares exceeds the par value
of the stock?
Additional
Common Stock Paid-in Capital
a. No effect No effect
b. No effect Increase
c. Increase No effect
d. Increase Increase
129. On December 31, 2014, the stockholders‘ equity section of Arndt, Inc., was as follows:
Common stock, par value $10; authorized 30,000 shares;
issued and outstanding 9,000 shares $ 90,000
Additional paid-in capital 116,000
Retained earnings 184,000
Total stockholders‘ equity $390,000
Stockholders’ Equity
15 – 33
On March 31, 2015, Arndt declared a 10% stock dividend, and accordingly 900 additional
shares were issued, when the fair value of the stock was $18 per share. For the three
months ended March 31, 2015, Arndt sustained a net loss of $32,000. The balance of
Arndt’s retained earnings as of March 31, 2015, should be
a. $135,800.
b. $143,000.
c. $144,800.
d. $152,000.
*130. At December 31, 2014 and 2015, Plank Corp. had outstanding 4,000 shares of $100 par
value 8% cumulative preferred stock and 20,000 shares of $10 par value common stock.
At December 31, 2014, dividends in arrears on the preferred stock were $16,000. Cash
dividends declared in 2015 totaled $60,000. What amounts were payable on each class of
stock?
Preferred Stock Common Stock
a. $32,000 $28,000
b. $44,000 $16,000
c. $48,000 $12,000
d. $60,000 $0
Multiple Choice Answers—CPA Adapted
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DERIVATIONS — Computational
No. Answer Derivation
Test Bank for Intermediate Accounting, Fifteenth Edition
15 – 34
DERIVATIONS — Computational (cont.)
No. Answer Derivation
Stockholders’ Equity
15 – 35
DERIVATIONS — Computational (cont.)
No. Answer Derivation
Test Bank for Intermediate Accounting, Fifteenth Edition
15 – 36
DERIVATIONS — Computational (cont.)
No. Answer Derivation
DERIVATIONS — CPA Adapted
No. Answer Derivation