Chapter 11: Stockholders’ Equity
74. 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 Paid-in Capital—Preferred
increases $280,000.
d.
Building increases $750,000; Preferred Stock increases $500,000; Additional Paid-in Capital—Preferred
increases $250,000.
ANSWER:
d
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.11-03 – LO: 11-03
KEYWORDS:
Bloom’s: Analyzing
75. 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
ANSWER:
a
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.11-04 – LO: 11-04
KEYWORDS:
Bloom’s: Understanding
76. 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 $25,600.
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 $24,800.
d.
The company has a gain of $1,600 that should appear on the income statement.
ANSWER:
a
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.11-04 – LO: 11-04
KEYWORDS:
Bloom’s: Analyzing
77. 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
ANSWER:
c
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.11-04 – LO: 11-04
KEYWORDS:
Bloom’s: Understanding
78. 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
ANSWER:
c
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.11-04 – LO: 11-04
KEYWORDS:
Bloom’s: Understanding
79. The stockholders’ equity section of Twilight Time’s balance sheet on January 1, 2016, 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, 2016, 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
ANSWER:
d
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.11-04 – LO: 11-04
KEYWORDS:
Bloom’s: Analyzing
80. 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.
ANSWER:
b
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.11-04 – LO: 11-04
KEYWORDS:
Bloom’s: Applying
81. 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.
ANSWER:
b
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.11-04 – LO: 11-04
KEYWORDS:
Bloom’s: Understanding
82. If a company purchases treasury stock for $10,000 and then reissues it for $3,000, the difference of $7,000 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.
ANSWER:
d
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.11-04 – LO: 11-04
KEYWORDS:
Bloom’s: Analyzing
83. 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.
ANSWER:
a
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.11-04 – LO: 11-04
KEYWORDS:
Bloom’s: Understanding
84. The Stockholders’ Equity section of Deer Lakes Manor’s balance sheet on January 1, 2016, 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, 2016, Deer Lakes 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, 2016, balance
sheet?
a.
$128,000
b.
$168,000
c.
$200,000
d.
$32,000
ANSWER:
c
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.11-04 – LO: 11-04
KEYWORDS:
Bloom’s: Analyzing
85. 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
ANSWER:
d
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.11-05 – LO: 11-05
KEYWORDS:
Bloom’s: Analyzing
86. 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
ANSWER:
d
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.11-05 – LO: 11-05
KEYWORDS:
Bloom’s: Understanding
87. 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.
ANSWER:
b
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.11-05 – LO: 11-05
KEYWORDS:
Bloom’s: Understanding
88. 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.
ANSWER:
c
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.11-05 – LO: 11-05
KEYWORDS:
Bloom’s: Analyzing
89. 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.
ANSWER:
b
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.11-05 – LO: 11-05
KEYWORDS:
Bloom’s: Analyzing
90. 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.
ANSWER:
a
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.11-05 – LO: 11-05
KEYWORDS:
Bloom’s: Analyzing
91. 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.
ANSWER:
d
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.11-05 – LO: 11-05
KEYWORDS:
Bloom’s: Understanding
92. Dividends in Arrears
a.
is a liability account.
b.
appear in the notes to the financial statements.
c.
is a stockholders’ equity account.
d.
is a contra-stockholders’ equity account.
ANSWER:
b
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.11-05 – LO: 11-05
KEYWORDS:
Bloom’s: Remembering
93. 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
ANSWER:
a
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.11-06 – LO: 11-06
KEYWORDS:
Bloom’s: Analyzing
94. 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.
ANSWER:
d
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.11-06 – LO: 11-06
KEYWORDS:
Bloom’s: Applying
95. 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.
ANSWER:
c
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.11-06 – LO: 11-06
KEYWORDS:
Bloom’s: Analyzing
96. 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.
ANSWER:
b
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.11-06 – LO: 11-06
KEYWORDS:
Bloom’s: Understanding
97. 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.
ANSWER:
a
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.11-06 – LO: 11-06
KEYWORDS:
Bloom’s: Understanding
98. Lawrenceville Co. 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.
Cash decreases $30,000.
b.
Retained earnings in the amount of $15,000 is transferred to the contributed capital accounts.
c.
Additional Paid-in Capital decreases $30,000.
d.
A stock dividend has no effect on any stockholders’ equity accounts.
ANSWER:
b
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.11-06 – LO: 11-06
KEYWORDS:
Bloom’s: Analyzing
99. 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.
ANSWER:
d
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.11-07 – LO: 11-07
KEYWORDS:
Bloom’s: Analyzing
100. Dark Corp. began operations on March 1, 2016. The corporate charter authorized issuance of 3,000 shares of $2 par
value common stock. Dark sold all of the stock on March 1. On May 1, Dark repurchased 2,000 of the outstanding shares.
On May 14, Dark sold 1,200 of the treasury shares. On June 1, Dark 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.
ANSWER:
d
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.11-07 – LO: 11-07
KEYWORDS:
Bloom’s: Analyzing
101. 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.
ANSWER:
a
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.11-07 – LO: 11-07
KEYWORDS:
Bloom’s: Understanding
102. 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.
ANSWER:
b
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.11-07 – LO: 11-07
KEYWORDS:
Bloom’s: Understanding
103. 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.
ANSWER:
c
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.11-07 – LO: 11-07
KEYWORDS:
Bloom’s: Understanding
104. 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.
ANSWER:
d
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.11-07 – LO: 11-07
KEYWORDS:
Bloom’s: Analyzing
105. 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.
ANSWER:
b
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.11-07 – LO: 11-07
KEYWORDS:
Bloom’s: Understanding
106. 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.
ANSWER:
a
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.11-07 – LO: 11-07
KEYWORDS:
Bloom’s: Understanding
107. 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.
Unrealized holding gains or losses
b.
Accounting changes
c.
Extraordinary items
d.
Loss on sale of investments
ANSWER:
a
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.11-08 – LO: 11-08
KEYWORDS:
Bloom’s: Understanding
108. 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.
ANSWER:
d
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.11-08 – LO: 11-08
KEYWORDS:
Bloom’s: Remembering
109. 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.
ANSWER:
a
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.11-08 – LO: 11-08
KEYWORDS:
Bloom’s: Remembering
110. 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.
ANSWER:
a
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.11-08 – LO: 11-08
KEYWORDS:
Bloom’s: Remembering
111. 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
ANSWER:
c
RATIONALE:
$50,000 (Increase in Retained Earnings) + $10,000 (Dividends Paid) = $60,000
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.11-08 – LO: 11-08
KEYWORDS:
Bloom’s: Analyzing
112. 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
ANSWER:
a
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.11-08 – LO: 11-08
KEYWORDS:
Bloom’s: Analyzing
113. Prairie Charters reported the following information at December 31, 2016:
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, 2016, is
a.
$1.00
b.
$1.75
c.
$1.25
d.
$2.50
ANSWER:
c
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.11-09 – LO: 11-09
KEYWORDS:
Bloom’s: Analyzing
114. 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.
ANSWER:
c
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.11-09 – LO: 11-09
KEYWORDS:
Bloom’s: Remembering
115. 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.
ANSWER:
b
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.11-09 – LO: 11-09
KEYWORDS:
Bloom’s: Understanding
116. 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.
ANSWER:
c
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.11-09 – LO: 11-09
KEYWORDS:
Bloom’s: Analyzing
117. 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.
ANSWER:
a
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.11-10 – LO: 11-10
KEYWORDS:
Bloom’s: Understanding
118. 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
ANSWER:
a
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.11-10 – LO: 11-10
KEYWORDS:
Bloom’s: Understanding
119. 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
ANSWER:
b
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.11-10 – LO: 11-10
KEYWORDS:
Bloom’s: Understanding
120. 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
ANSWER:
a
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.11-10 – LO: 11-10
KEYWORDS:
Bloom’s: Understanding
121. 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.
ANSWER:
d
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.11-10 – LO: 11-10
KEYWORDS:
Bloom’s: Understanding
122. 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.
ANSWER:
d
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.11-10 – LO: 11-10
KEYWORDS:
Bloom’s: Understanding
123. In 2016, Dickens Company had a beginning balance in its Cash Dividend Payable account of $5,000 and an ending
balance of $4,000. During 2016, 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
ANSWER:
b
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.11-10 – LO: 11-10
KEYWORDS:
Bloom’s: Analyzing
124. [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.
ANSWER:
d
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.11-11 – LO: 11-11
KEYWORDS:
Bloom’s: Understanding
125. [APPPENDIX] When an individual wishes to form a sole proprietorship, he or she does so by
a.
filing a petition with the IRS.
b.
purchasing stock in the proprietorship.
c.
filing corporate paperwork with the state.
d.
contributing cash or other assets.
ANSWER:
d
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.11-11 – LO: 11-11
KEYWORDS:
Bloom’s: Understanding
126. [APPENDIX] When the owner of a sole proprietorship withdraws assets from the business for personal use
a.
it is treated like a noncash dividend.
b.
it is illegal because the assets belong to the separate entity, the proprietorship.
c.
it would be recorded as a loss by the proprietorship.
d.
it is recorded as a reduction of owner’s equity.
ANSWER:
d
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.11-11 – LO: 11-11
KEYWORDS:
Bloom’s: Understanding
127. [APPENDIX] Tarr, a sole proprietorship, had the following balances and transactions during 2016: beginning capital,
$40,000; contribution of cash to the business by the owner, $15,000; revenue, $60,000; expenses, $35,000; withdrawal by
the owner, $5,000. What is the amount of the ending capital balance?
a.
$40,000
b.
$60,000
c.
$75,000
d.
$85,000
ANSWER:
c
RATIONALE:
$40,000 (Beginning Capital) + $15,000 (Owner’s Contribution) + $60,000 (Revenue) –
$35,000 (Expenses) – $5,000 (Owner’s Withdrawal) = $75,000
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.11-11 – LO: 11-11
KEYWORDS:
Bloom’s: Analyzing
128. [APPENDIX] Which of the following statements regarding partnerships is true?
a.
Partnerships have two owners.
b.
The partnership ends when a new partner is added.
c.
The partnership is responsible for its own taxes.
d.
The partnership is a separate legal entity from its owners.
ANSWER:
b
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.11-11 – LO: 11-11
KEYWORDS:
Bloom’s: Understanding
129. [APPENDIX] Which of the following statements regarding partnerships is true?
a.
Partnerships must register with the federal government.
b.
Partnerships pay taxes to the IRS.
c.
Partners must register with the state government.
d.
Partners must abide by the separate entity concept and keep their personal assets separate from the partnership
assets.
ANSWER:
d
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.11-11 – LO: 11-11
KEYWORDS:
Bloom’s: Understanding
130. [APPENDIX] Debbie and Alex formed a new partnership. The partnership agreement specified that income should
be allocated in a 2-to-1 ratio, with Debbie receiving the larger portion. If revenue for the first year was $90,000 and
expenses were $60,000, how much would be allocated to each partner?
a.
Debbie—$45,000; Alex—$45,000
b.
Debbie—$20,000; Alex—$10,000
c.
Debbie—$60,000; Alex—$30,000
d.
Debbie—$40,000; Alex—$20,000
ANSWER:
b
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.11-11 – LO: 11-11
KEYWORDS:
Bloom’s: Analyzing
authorized shares
treasury stock
book value per share
issued shares
stock dividend
par value per share
outstanding shares
additional paid-in-capital
market value per share
stock split
dividend payout ratio
retained earnings
ANSWER:
issued shares
DIFFICULTY:
Easy
KEYWORDS:
Bloom’s: Remembering
ANSWER:
par value per share
DIFFICULTY:
Easy
FACC.PONO.13.11-09 – LO: 11-09
KEYWORDS:
Bloom’s: Remembering
133. The number of shares issued less the number of shares held as treasury stock are
______________________________.
ANSWER:
outstanding shares
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.11-01 – LO: 11-01
FACC.PONO.13.11-04 – LO: 11-04
FACC.PONO.13.11-05 – LO: 11-05
FACC.PONO.13.11-07 – LO: 11-07
FACC.PONO.13.11-09 – LO: 11-09
KEYWORDS:
Bloom’s: Remembering
134. The maximum number of shares a company may issue are ______________________________.
ANSWER:
authorized shares
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.11-01 – LO: 11-01
FACC.PONO.13.11-04 – LO: 11-04
FACC.PONO.13.11-05 – LO: 11-05
FACC.PONO.13.11-07 – LO: 11-07
FACC.PONO.13.11-09 – LO: 11-09
KEYWORDS:
Bloom’s: Remembering
135. Net income that has been earned by the corporation but not paid out as dividends are
______________________________.
ANSWER:
retained earnings
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.11-01 – LO: 11-01
FACC.PONO.13.11-04 – LO: 11-04
FACC.PONO.13.11-05 – LO: 11-05
FACC.PONO.13.11-07 – LO: 11-07
FACC.PONO.13.11-09 – LO: 11-09
KEYWORDS:
Bloom’s: Remembering
136. The amount received for each share of stock in excess of par value is ______________________.
ANSWER:
additional paid-in capital
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.11-01 – LO: 11-01
FACC.PONO.13.11-04 – LO: 11-04
FACC.PONO.13.11-05 – LO: 11-05
FACC.PONO.13.11-07 – LO: 11-07
FACC.PONO.13.11-09 – LO: 11-09
KEYWORDS:
Bloom’s: Remembering
137. Stock issued by the firm, but then repurchased and not retired is ________________________.
ANSWER:
treasury stock
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.11-01 – LO: 11-01
FACC.PONO.13.11-04 – LO: 11-04
FACC.PONO.13.11-05 – LO: 11-05
FACC.PONO.13.11-07 – LO: 11-07
FACC.PONO.13.11-09 – LO: 11-09
KEYWORDS:
Bloom’s: Remembering
138. The annual dividend amount divided by the annual net income is ________________________.
ANSWER:
dividend payout ratio
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.11-01 – LO: 11-01
FACC.PONO.13.11-04 – LO: 11-04
FACC.PONO.13.11-05 – LO: 11-05
FACC.PONO.13.11-07 – LO: 11-07
FACC.PONO.13.11-09 – LO: 11-09
KEYWORDS:
Bloom’s: Remembering
139. Distribution of additional shares of stock and reduction of the par value of the stock is
______________________________.
ANSWER:
stock split
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.11-01 – LO: 11-01
FACC.PONO.13.11-04 – LO: 11-04
FACC.PONO.13.11-05 – LO: 11-05
FACC.PONO.13.11-07 – LO: 11-07
FACC.PONO.13.11-09 – LO: 11-09
KEYWORDS:
Bloom’s: Remembering
140. The selling price of the stock as indicated by the most recent stock transaction is
___________________________________.
ANSWER:
market value per share
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.11-01 – LO: 11-01
FACC.PONO.13.11-04 – LO: 11-04
FACC.PONO.13.11-05 – LO: 11-05
FACC.PONO.13.11-07 – LO: 11-07
FACC.PONO.13.11-09 – LO: 11-09
KEYWORDS:
Bloom’s: Remembering
141. Assuming no preferred stock exists, total stockholders’ equity divided by the number of shares of common stock
outstanding is equal to ________________________________________.
ANSWER:
book value per share
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.11-01 – LO: 11-01
FACC.PONO.13.11-04 – LO: 11-04
FACC.PONO.13.11-05 – LO: 11-05
FACC.PONO.13.11-07 – LO: 11-07
FACC.PONO.13.11-09 – LO: 11-09
KEYWORDS:
Bloom’s: Remembering
142. A drawing account is sometimes referred to as a ______________________.
ANSWER:
withdrawals account.
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.11-11 – LO: 11-11
KEYWORDS:
Bloom’s: Remembering
143. The characteristic where each partner is personally liable for the debts of the partnership is known as
_____________________.
ANSWER:
unlimited liability
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.11-11 – LO: 11-11
KEYWORDS:
Bloom’s: Remembering
144. The document that specifies how much the owners will invest, what their salaries will be, and how profits will be
shared in a partnership is known as a ______________________.
ANSWER:
partnership agreement
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.11-11 – LO: 11-11
KEYWORDS:
Bloom’s: Remembering
145. A ________________ allows the firm to eliminate a class of stock by paying the stockholders a specified amount.
ANSWER:
callable feature
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.11-02 – LO: 11-02
KEYWORDS:
Bloom’s: Remembering
146. A _____________________ allows preferred stockholders to share on a percentage basis in the distribution of an
abnormally large dividend.
ANSWER:
participating feature
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.11-02 – LO: 11-02
KEYWORDS:
Bloom’s: Remembering