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Reporting and Analyzing Stockholders’ Equity
11-21
108. Treasury shares plus outstanding shares equal
a. authorized stock.
b. issued stock.
c. unissued stock.
d. distributable stock.
109. Which of the following is not a right or preference associated with preferred stock?
a. The right to vote.
b. First claim to dividends.
c. Preference to corporate assets in case of liquidation.
d. To receive dividends in arrears before common stockholders receive dividends.
110. Logan Corporation issues 50,000 shares of $50 par value preferred stock for cash at $60
per share. The entry to record the transaction will consist of a debit to Cash for
$3,000,000 and a credit or credits to
a. Preferred Stock for $3,000,000.
b. Preferred Stock for $2,500,000 and Paid-in Capital in Excess of Par Value—Preferred
Stock for $500,000.
c. Preferred Stock for $2,500,000 and Retained Earnings for $500,000.
d. Paid-in Capital from Preferred Stock for $3,000,000.
111. Logan Corporation issues 40,000 shares of $50 par value preferred stock for cash at $60
per share. In the stockholders’ equity section, the effects of the transaction above will be
reported
a. entirely within the capital stock section.
b. entirely within the additional paid-in capital section.
c. under both the capital stock and additional paid-in capital sections.
d. entirely under the retained earnings section.
112. Nice Corporation issues 30,000 shares of $100 par value preferred stock for cash at $110
per share. The entry to record the transaction will consist of a debit to Cash for
$3,300,000 and a credit or credits to
a. Preferred Stock for $3,300,000.
b. Preferred Stock for $3,000,000 and Paid-in Capital in Excess of Par Value—Preferred
Stock for $300,000.
c. Preferred Stock for $3,000,000 and Retained Earnings for $300,000.
d. Paid-in Capital from Preferred Stock for $3,300,000.
Test Bank for Accounting: Tools for Business Decision Making, Fifth Edition
11-22
113. Dividends in arrears on cumulative preferred stock
a. never have to be paid, even if common dividends are paid.
b. must be paid before common stockholders can receive a dividend.
c. should be recorded as a current liability until they are paid.
d. enable the preferred stockholders to share equally in corporate earnings with the
common stockholders.
114. Dividends in arrears on cumulative preferred stock
a. are considered to be a non-current liability.
b. are considered to be a current liability.
c. only occur when preferred dividends have been declared.
d. should be disclosed in the notes to the financial statements.
115. Dividends in arrears are dividends on
a. cumulative preferred stock that have been declared but have not been paid.
b. non-cumulative preferred stock that have not been declared for a given period of time.
c. cumulative preferred stock that have not been declared for a given period of time.
d. common dividends that have been declared but have not yet been paid.
116. Outstanding stock of the West Corporation included 40,000 shares of $5 par common
stock and 10,000 shares of 6%, $10 par non-cumulative preferred stock. In 2013, West
declared and paid dividends of $4,000. In 2014, West declared and paid dividends of
$12,000. How much of the 2014 dividend was distributed to preferred shareholders?
a. $8,000.
b. $14,000.
c. $6,000.
d. None of these answer choices are correct.
117. Outstanding stock of the Hall Corporation included 40,000 shares of $5 par common stock
and 20,000 shares of 6%, $10 par non-cumulative preferred stock. In 2013, Hall declared
and paid dividends of $8,000. In 2014, Hall declared and paid dividends of $24,000. How
much of the 2014 dividend was distributed to preferred shareholders?
a. $16,000.
b. $28,000.
c. $12,000.
d. None of these answer choices are correct.
Reporting and Analyzing Stockholders’ Equity
11-23
118. All of the following statements about preferred stock are true except
a. preferred stock will have a paid-in capital account that is separate from other stock.
b. preferred stock is presented first on the stockholder's equity section.
c. preferred stock can be either par value or no-par value.
d. there can be only one class of preferred stock.
119. Retro Company is authorized to issue 10,000 shares of 8%, $100 par value preferred
stock and 500,000 shares of no-par common stock with a stated value of $1 per share. If
Retro issues 5,000 shares of preferred stock for land with an asking price of $625,000 and
a market value of $550,000, which of the following would be the best journal entry for
Retro to record?
a. Land 500,000
Preferred Stock 500,000
b. Land 550,000
Preferred Stock 550,000
c. Land 625,000
Preferred Stock 500,000
Paid-in Capital in Excess of Par - Preferred 125,000
d. Land 550,000
Preferred Stock 500,000
Paid-in Capital in Excess of Par - Preferred 50,000
120. XYZ Company has $20,000 of dividends in arrears. Based on this information, which of
the following statements is false?
a. Dividends in arrears are not considered to be liabilities.
b. An obligation for dividends in arrears exists only after the board of directors declares
payment.
c. The investment community looks favorably on companies with dividends in arrears,
since the money is redirected toward more important growth opportunities.
d. The amount of dividends in arrears should be disclosed in the notes to the financial
statements.
121. On January 1, McCarver Corporation had 600,000 shares of $10 par value common stock
outstanding. On March 31 the company declared a 10% stock dividend. Market value of
the stock was $15/share. As a result of this event,
a. McCarver’s Paid-in Capital in Excess of Par Value account increased $300,000.
b. McCarver’s total stockholders’ equity was unaffected.
c. McCarver’s Stock Dividends account increased $900,000.
d. All of these answer choices are correct.
Test Bank for Accounting: Tools for Business Decision Making, Fifth Edition
11-24
122. On January 1, Edmiston Corporation had 1,600,000 shares of $10 par value common
stock outstanding. On March 31 the company declared a 10% stock dividend. Market
value of the stock was $15/share. As a result of this event,
a. Edmiston’s Paid-in Capital in Excess of Par Value account increased $800,000.
b. Edmiston’s total stockholders’ equity was unaffected.
c. Edmiston’s Stock Dividends account increased $2,400,000.
d. All of these answer choices are correct.
123. Which one of the following is not necessary in order for a corporation to pay a cash
dividend?
a. Adequate cash.
b. Approval of stockholders.
c. Declared dividends.
d. Retained earnings.
124. 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 the fiscal year end.
125. 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.
126. The board of directors of Bosco Company declared a cash dividend on November 15,
2014, to be paid on December 15, 2014, to stockholders owning the stock on November
30, 2014. Given these facts, the date of November 30, 2014, is referred to as the
a. declaration date.
b. record date.
c. payment date.
d. ex-dividend date.
127. The effect of the declaration of a cash dividend by the board of directors is to
Increase Decrease
a. Stockholders’ equity Assets
b. Assets Liabilities
c. Liabilities Stockholders’ equity
d. Liabilities Assets
Reporting and Analyzing Stockholders’ Equity
11-25
128. Which of the following is the appropriate general journal entry to record the declaration of
cash dividends?
a. Cash Dividends
Cash
b. Dividends Payable
Cash
c. Paid-in Capital
Dividends Payable
d. Cash Dividends
Dividends Payable
129. The board of directors of Yancey Company declared a cash dividend of $1.50 per share
on 42,000 shares of common stock on July 15, 2014. The dividend is to be paid on August
15, 2014, to stockholders of record on July 31, 2014. The correct entry to be recorded on
July 15, 2014, will include a
a. debit to Dividends Payable.
b. debit to Cash Dividends.
c. credit to Cash.
d. credit to Cash Dividends.
130. The board of directors of Yancey Company declared a cash dividend of $1.50 per share
on 42,000 shares of common stock on July 15, 2014. The dividend is to be paid on August
15, 2014, to stockholders of record on July 31, 2014. The effects of the journal entry to
record the declaration of the dividend on July 15, 2014, are to
a. decrease stockholders’ equity and increase liabilities.
b. decrease stockholders’ equity and decrease assets.
c. increase stockholders’ equity and increase liabilities.
d. increase stockholders’ equity and decrease assets.
131. The net effects on the corporation of the declaration and payment of a cash dividend are
to
a. decrease liabilities and decrease stockholders’ equity.
b. increase stockholders’ equity and decrease liabilities.
c. decrease assets and decrease stockholders’ equity.
d. increase assets and increase stockholders’ equity.
132. The board of directors of Benson Company declared a cash dividend of $1.50 per share
on 42,000 shares of common stock on July 15, 2014. The dividend is to be paid on August
15, 2014, to stockholders of record on July 31, 2014. The correct entry to be recorded on
August 15, 2014, will include a
a. debit to Cash Dividends.
b. credit to Cash Dividends.
c. credit to Dividends Payable.
d. debit to Dividends Payable.
Test Bank for Accounting: Tools for Business Decision Making, Fifth Edition
11-26
133. The board of directors of Benson Company declared a cash dividend of $1.50 per share
on 42,000 shares of common stock on July 15, 2014. The dividend is to be paid on August
15, 2014, to stockholders of record on July 31, 2014. The effects of the journal entry to
record the payment of the dividend on August 15, 2014, are to
a. decrease stockholders’ equity and decrease liabilities.
b. decrease liabilities and decrease assets.
c. increase stockholders’ equity and increase liabilities.
d. increase stockholders’ equity and decrease assets.
134. A corporation records a dividend-related liability
a. on the record date.
b. on the payment date.
c. when dividends are in arrears.
d. on the declaration date.
135. Common Stock Dividends Distributable is classified as a(n)
a. asset account.
b. stockholders’ equity account.
c. expense account.
d. liability account.
136. The effect of a stock dividend is to
a. decrease total assets and stockholders’ equity.
b. change the composition of stockholders’ equity.
c. decrease total assets and total liabilities.
d. increase the book value per share of common stock.
137. Stock dividends and stock splits have the following effects on retained earnings:
Stock Splits Stock Dividends
a. Increase No change
b. No change Decrease
c. Decrease Decrease
d. No change No change
138. Dividends are predominantly paid in
a. scrip.
b. property.
c. cash.
d. stock.
Reporting and Analyzing Stockholders’ Equity
11-27
139. Of the four dividends types, the two most common types in practice are
a. cash and scrip.
b. cash and property.
c. cash and stock.
d. property and stock.
140. Regular dividends are declared out of
a. paid-in capital in excess of par value.
b. treasury stock.
c. common stock.
d. retained earnings.
141. Which of the following is not a significant date with respect to dividends?
a. The declaration date.
b. The incorporation date.
c. The record date.
d. The payment date.
142. On the dividend record date
a. a dividend becomes a current obligation.
b. no entry is required.
c. an entry may be required if it is a stock dividend.
d. Dividends Payable is debited.
143. Which of the following statements regarding the date of a cash dividend declaration is not
accurate?
a. The dividend can be rescinded once it has been declared.
b. The corporation is committed to a legal, binding obligation.
c. The board of directors formally authorizes the cash dividend.
d. A liability account must be increased.
144. Indicate the respective effects of the declaration of a cash dividend on the following
balance sheet sections:
Total Assets Total Liabilities Total Stockholders’ Equity
a. Increase Decrease No change
b. No change Increase Decrease
c. Decrease Increase Decrease
d. Decrease No change Increase
Test Bank for Accounting: Tools for Business Decision Making, Fifth Edition
11-28
145. Which of the following statements about dividends is not accurate?
a. Dividends are generally reported quarterly as a dollar amount per share.
b. Low dividends may mean high stock returns.
c. The board of directors is obligated to declare dividends.
d. Payment of dividends from legal capital is illegal in many states.
146. Ace Inc. has 10,000 shares of 5%, $100 par value, cumulative preferred stock and 50,000
shares of $1 par value common stock outstanding at December 31, 2014. What is the
annual dividend on the preferred stock?
a. $50 per share
b. $50,000 in total
c. $5,000 in total
d. $0.50 per share
147. CAB Inc. has 1,000 shares of 6%, $100 par value, cumulative preferred stock and 50,000
shares of $1 par value common stock outstanding at December 31, 2014. What is the
annual dividend on the preferred stock?
a. $60 per share.
b. $6,000 in total.
c. $600 in total.
d. $0.60 per share.
148. Which of the following statements is not true about a 2-for-1 split?
a. Par value per share is reduced to half of what it was before the split.
b. Total contributed capital increases.
c. The market price probably will decrease.
d. A stockholder with ten shares before the split owns twenty shares after the split.
149. Sizemore, Inc. has 10,000 shares of 5%, $100 par value, cumulative preferred stock and
100,000 shares of $1 par value common stock outstanding at December 31, 2014. If the
board of directors declares a $30,000 dividend, the
a. preferred stockholders will receive 1/10th of what the common stockholders will
receive.
b. preferred stockholders will receive the entire $30,000.
c. $30,000 will be held as restricted retained earnings and paid out at some future date.
d. preferred stockholders will receive $15,000 and the common stockholders will receive
$15,000.
Reporting and Analyzing Stockholders’ Equity
11-29
150. Denson, Inc. has 10,000 shares of 7%, $100 par value, non-cumulative preferred stock
and 40,000 shares of $1 par value common stock outstanding at December 31, 2014.
There were no dividends declared in 2013. The board of directors declares and pays a
$120,000 dividend in 2014. What is the amount of dividends received by the common
stockholders in 2014?
a. $0.
b. $70,000.
c. $120,000.
d. $50,000.
151. Brewer Inc. has 5,000 shares of 8%, $50 par value, cumulative preferred stock and
100,000 shares of $1 par value common stock outstanding at December 31, 2014, and
December 31, 2013. The board of directors declared and paid a $15,000 dividend in 2013.
In 2014, $60,000 of dividends are declared and paid. What are the dividends received by
the preferred stockholders in 2014?
a. $35,000.
b. $30,000.
c. $25,000.
d. $20,000.
152. Watson, Inc. has 10,000 shares of 6%, $100 par value, cumulative preferred stock and
20,000 shares of $1 par value common stock outstanding at December 31, 2014. There
were no dividends declared in 2012. The board of directors declares and pays a $100,000
dividend in 2013 and in 2014. What is the amount of dividends received by the common
stockholders in 2014?
a. $20,000.
b. $60,000.
c. $100,000.
d. $0.
153. Berman Inc. has 6,000 shares of 8%, $50 par value, cumulative preferred stock and
50,000 shares of $1 par value common stock outstanding at December 31, 2013, and
December 31, 2014. The board of directors declared and paid an $18,000 dividend in
2013. In 2014, $72,000 of dividends are declared and paid. What are the dividends
received by the common stockholders in 2014?
a. $42,000.
b. $36,000.
c. $30,000.
d. $24,000.
Test Bank for Accounting: Tools for Business Decision Making, Fifth Edition
11-30
154. The board of directors must assign a per share value to a stock dividend declared that is
a. greater than the par or stated value.
b. less than the par or stated value.
c. equal to the par or stated value.
d. at least equal to the par or stated value.
155. Corporations generally issue stock dividends in order to
a. increase the market price per share.
b. exceed stockholders’ dividend expectations.
c. increase the marketability of the stock.
d. decrease the amount of capital in the corporation.
156. A stockholder who receives a stock dividend would
a. expect the market price per share to increase.
b. own more shares of stock.
c. expect retained earnings to increase.
d. expect the par value of the stock to change.
157. When stock dividends are distributed,
a. Common Stock Dividends Distributable is decreased.
b. retained earnings is decreased.
c. Paid-in Capital in Excess of Par Value is debited if it is a small stock dividend.
d. no entry is necessary if it is a large stock dividend.
158. A small stock dividend is defined as
a. less than 30% but greater than 25% of the corporation’s issued stock.
b. between 50% and 100% of the corporation’s issued stock.
c. more than 30% of the corporation’s issued stock.
d. less than 20-25% of the corporation’s issued stock.
159. The per share amount normally assigned by the board of directors to a large stock
dividend is
a. the market value of the stock on the date of declaration.
b. the average price paid by stockholders on outstanding shares.
c. the par or stated value of the stock.
d. zero.
Reporting and Analyzing Stockholders’ Equity
11-31
160. The per share amount normally assigned by the board of directors to a small stock
dividend is
a. the market value of the stock on the date of declaration.
b. the average price paid by stockholders on outstanding shares.
c. the par or stated value of the stock.
d. zero.
161. Identify the effect the declaration of a stock dividend has on the par value per share and
book value per share.
Par Value per Share Book Value per Share
a. Increase Decrease
b. No effect Increase
c. Decrease Decrease
d. No effect Decrease
162. Which of the following show the proper effect of a stock split and a stock dividend?
Item Stock Split Stock Dividend
a. Total paid-in capital Increase Increase
b. Total retained earnings Decrease Decrease
c. Total par value (common) Decrease Increase
d. Par value per share Decrease No change
163. A stock split will
a. have no effect on retained earnings.
b. increase total paid-in capital.
c. increase the total par value of the stock.
d. have no effect on the par value per share of stock.
164. Which of the following statements is not true about a 2-for-1 stock split?
a. The market value of the stock will probably decrease.
b. A stockholder with 5 shares before the split owns 10 shares after the split.
c. Par value per share is reduced to half of what it was before the split.
d. Total paid-in capital increases.
165. Green, Inc. had 200,000 shares of common stock outstanding before a stock split
occurred and 800,000 shares outstanding after the stock split. The stock split was
a. 2-for-8.
b. 8-for-1.
c. 1-for-8.
d. 4-for-1.
Test Bank for Accounting: Tools for Business Decision Making, Fifth Edition
11-32
166. If the board of directors authorizes a $100,000 restriction of retained earnings for a future
plant expansion, the effect of this action is to
a. decrease total assets and total stockholders’ equity.
b. increase stockholders’ equity and to decrease total liabilities.
c. decrease total retained earnings and increase total liabilities.
d. reduce the amount of retained earnings available for dividend declarations.
167. A net loss
a. occurs if operating expenses exceed cost of goods sold.
b. is not closed to Retained Earnings if it would result in a debit balance.
c. is closed to Retained Earnings even if it would result in a debit balance.
d. is closed to the Paid-in Capital account of the stockholders’ equity section of the
balance sheet.
168. Retained earnings are occasionally restricted
a. to set aside cash for dividends.
b. to keep the legal capital associated with paid-in capital intact.
c. due to contractual loan restrictions.
d. if preferred dividends are in arrears.
169. When retained earnings are restricted, total retained earnings
a. are unaffected.
b. increase.
c. decrease.
d. may increase or decrease.
170. Placing a restriction on retained earnings will
a. assure that a company has sufficient cash for a specific purpose.
b. increase total stockholders’ equity.
c. communicate to readers a portion of retained earnings is unavailable for dividends.
d. decrease total stockholders’ equity.
171. The following selected amounts are available for Thomas Company.
Retained earnings (beginning) $2,500
Net loss 200
Cash dividends declared 200
Stock dividends declared 200
What is its ending Retained Earnings balance?
a. $2,200.
b. $2,300.
c. $1,900.
d. $2,100.
Reporting and Analyzing Stockholders’ Equity
11-33
172. Hutchinson Company had retained earnings of $15,000 on the balance sheet but
disclosed in the footnotes that $2,000 of retained earnings was restricted for plant
expansion and $1,000 was restricted for bond repayments. Cash of $2,000 had been set
aside for the plant expansion. How much of retained earnings is available for dividends?
a. $12,000.
b. $13,000.
c. $15,000.
d. $10,000.
173. All of the following statements regarding retained earnings are true except
a. retained earnings represents a claim on cash.
b. a debit balance in Retained Earnings indicates a deficit.
c. some companies may restrict availability of retained earnings for dividends.
d. retained earnings is net income that a company retains in a business.
174. What is the total stockholders’ equity based on the following account balances?
Common Stock $1,800,000
Paid-In Capital in Excess of Par 120,000
Retained Earnings 570,000
Treasury Stock 60,000
a. $2,190,000.
b. $2,430,000.
c. $2,550,000.
d. $1,680,000.
175. What is the total stockholders’ equity based on the following account balances?
Common Stock $750,000
Paid-In Capital in Excess of Par 50,000
Retained Earnings 175,000
Treasury Stock 25,000
a. $1,000,000.
b. $975,000.
c. $950,000.
d. $800,000.
Test Bank for Accounting: Tools for Business Decision Making, Fifth Edition
11-34
176. What is the total stockholders’ equity based on the following account balances?
Common Stock $1,300,000
Paid-In Capital in Excess of Par 100,000
Retained Earnings 360,000
Treasury Stock 60,000
a. $1,400,000.
b. $1,820,000.
c. $1,760,000.
d. $1,700,000.
177. Nance Corporation’s December 31, 2014 balance sheet showed the following:
8% preferred stock, $20 par value, cumulative,
30,000 shares authorized; 15,000 shares issued $ 300,000
Common stock, $10 par value, 3,000,000 shares authorized;
1,950,000 shares issued, 1,920,000 shares outstanding 19,500,000
Paid-in capital in excess of par value – preferred stock 60,000
Paid-in capital in excess of par value – common stock 27,000,000
Retained earnings 7,650,000
Treasury stock (30,000 shares) 630,000
Nance’s total paid-in capital was
a. $46,860,000.
b. $47,490,000.
c. $46,230,000.
d. $27,060,000.
178. Nance Corporation’s December 31, 2014 balance sheet showed the following:
8% preferred stock, $20 par value, cumulative,
30,000 shares authorized; 15,000 shares issued $ 300,000
Common stock, $10 par value, 3,000,000 shares authorized;
1,950,000 shares issued, 1,920,000 shares outstanding 19,500,000
Paid-in capital in excess of par value – preferred stock 60,000
Paid-in capital in excess of par value – common stock 27,000,000
Retained earnings 7,650,000
Treasury stock (30,000 shares) 630,000
Nance declared and paid a $75,000 cash dividend on December 15, 2014. If the
company’s dividends in arrears prior to that date were $18,000, Nance’s common
stockholders received
a. $57,000.
b. $27,000.
c. $33,000.
d. no dividend.
Reporting and Analyzing Stockholders’ Equity
11-35
179. Nance Corporation’s December 31, 2014 balance sheet showed the following:
8% preferred stock, $20 par value, cumulative,
30,000 shares authorized; 15,000 shares issued $ 300,000
Common stock, $10 par value, 3,000,000 shares authorized;
1,950,000 shares issued, 1,920,000 shares outstanding 19,500,000
Paid-in capital in excess of par value – preferred stock 60,000
Paid-in capital in excess of par value – common stock 27,000,000
Retained earnings 7,650,000
Treasury stock (30,000 shares) 630,000
Nance’s total stockholders’ equity was
a. $55,140,000.
b. $46,860,000.
c. $54,510,000.
d. $53,880,000.
180. Danley Corporation began business by issuing 200,000 shares of $5 par value common
stock for $24 per share. During its first year, the corporation sustained a net loss of
$40,000. The year-end balance sheet would show
a. Common Stock of $1,000,000.
b. Common Stock of $4,800,000.
c. total paid-in capital of $4,760,000.
d. total paid-in capital of $3,800,000.
181. Racer Corporation’s December 31, 2014 balance sheet showed the following:
8% preferred stock, $20 par value, cumulative,
40,000 shares authorized; 20,000 shares issued $ 400,000
Common stock, $10 par value, 4,000,000 shares authorized;
2,600,000 shares issued, 2,560,000 shares outstanding 26,000,000
Paid-in capital in excess of par value – preferred stock 80,000
Paid-in capital in excess of par value – common stock 36,000,000
Retained earnings 10,200,000
Treasury stock (40,000 shares) 840,000
Racer’s total paid-in capital was
a. $62,480,000.
b. $63,320,000.
c. $61,640,000.
d. $36,080,000.
Test Bank for Accounting: Tools for Business Decision Making, Fifth Edition
11-36
182. Racer Corporation’s December 31, 2014 balance sheet showed the following:
8% preferred stock, $20 par value, cumulative,
40,000 shares authorized; 20,000 shares issued $ 400,000
Common stock, $10 par value, 4,000,000 shares authorized;
2,600,000 shares issued, 2,560,000 shares outstanding 26,000,000
Paid-in capital in excess of par value – preferred stock 80,000
Paid-in capital in excess of par value – common stock 36,000,000
Retained earnings 10,200,000
Treasury stock (30,000 shares) 840,000
Racer declared and paid a $100,000 cash dividend on December 15, 2014. If the
company’s dividends in arrears prior to that date were $24,000, Racer’s common
stockholders received
a. $76,000.
b. $36,000.
c. $44,000.
d. no dividend.
183. Racer Corporation’s December 31, 2014 balance sheet showed the following:
8% preferred stock, $20 par value, cumulative,
40,000 shares authorized; 20,000 shares issued $ 400,000
Common stock, $10 par value, 4,000,000 shares authorized;
2,600,000 shares issued, 2,560,000 shares outstanding 26,000,000
Paid-in capital in excess of par value – preferred stock 80,000
Paid-in capital in excess of par value – common stock 36,000,000
Retained earnings 10,200,000
Treasury stock (30,000 shares) 840,000
Racer’s total stockholders’ equity was
a. $73,520,000.
b. $62,480,000.
c. $72,680,000.
d. $71,840,000.
184. Cerner Corporation began business by issuing 250,000 shares of $5 par value common
stock for $24 per share. During its first year, the corporation sustained a net loss of
$50,000. The year-end balance sheet would show
a. Common Stock of $1,250,000.
b. Common Stock of $6,000,000.
c. total paid-in capital of $5,950,000.
d. total paid-in capital of $4,750,000.
Reporting and Analyzing Stockholders’ Equity
11-37
185. In the stockholders’ equity section of the balance sheet
a. Common Stock Dividends Distributable will be classified as part of additional paid-in
capital.
b. Common Stock Dividends Distributable will appear in its own subsection of the
stockholders’ equity.
c. Additional Paid-in Capital appears under the sub-section paid-in capital.
d. Dividends in Arrears will appear as a restriction of retained earnings.
186. Paid-in capital in excess of stated value would appear on a balance sheet under the
category
a. capital stock.
b. retained earnings.
c. additional paid-in capital.
d. contra to stockholders’ equity.
187. Two classifications appearing in the paid-in capital section of the balance sheet are
a. preferred stock and common stock.
b. paid-in capital and retained earnings.
c. capital stock and additional paid-in capital.
d. capital stock and treasury stock.
188. All of the following are normally found in a corporation’s stockholders’ equity section
except
a. dividends in arrears.
b. common stock.
c. paid-in capital.
d. retained earnings.
189. Information that is not generally reported for each class of stock on the balance sheet is
a. the market value.
b. the par value.
c. shares authorized.
d. shares issued.
190. In published annual reports
a. subclassifications within the stockholders’ equity section are routinely reported in
detail.
b. capital surplus is used in place of retained earnings.
c. the individual sources of additional paid-in capital are often combined.
d. retained earnings is often not shown separately.
Test Bank for Accounting: Tools for Business Decision Making, Fifth Edition
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191. The payout ratio is computed by dividing
a. total cash dividends paid by retained earnings.
b. dividends paid per share by net income.
c. total cash dividends paid by net income.
d. dividends paid per share by year-end stock price.
192. The return on common stockholders’ equity is computed by dividing net income
a. by ending common stockholders’ equity.
b. by average common stockholders’ equity.
c. less preferred dividends by ending common stockholders’ equity.
d. less preferred dividends by average common stockholders’ equity.
193. Ferman Corporation had net income of $160,000 and paid dividends of $50,000 to
common stockholders and $20,000 to preferred stockholders in 2014. Ferman
Corporation’s common stockholders’ equity at the beginning and end of 2014 was
$870,000 and $1,130,000, respectively. Ferman Corporation’s return on common
stockholders’ equity was
a. 16%.
b. 14%.
c. 11%.
d. 9%.
194. Ferman Corporation had net income of $160,000 and paid dividends of $50,000 to
common stockholders and $20,000 to preferred stockholders in 2014. Ferman
Corporation’s common stockholders’ equity at the beginning and end of 2014 was
$870,000 and $1,130,000, respectively. Ferman Corporation’s payout ratio for 2014 was
a. 5.0%.
b. 43.8%.
c. 31.3%.
d. 12.5%.
195. Herman Corporation had net income of $120,000 and paid dividends of $24,000 to
common stockholders and $20,000 to preferred stockholders in 2014. Herman
Corporation’s common stockholders’ equity at the beginning and end of 2014s was
$450,000 and $550,000, respectively. Herman Corporation’s return on common
stockholders’ equity is
a. 24.0%.
b. 20.0%.
c. 19.2%.
d. 15.2%.
Reporting and Analyzing Stockholders’ Equity
FOR INSTRUCTOR USE ONLY
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196. Herman Corporation had net income of $120,000 and paid dividends of $24,000 to
common stockholders and $20,000 to preferred stockholders in 2014. Herman
Corporation’s common stockholders’ equity at the beginning and end of 2014 was
$450,000 and $550,000, respectively. Herman Corporation’s payout ratio for 2014 is
a. 5%.
b. 20%.
c. 17%.
d. 10%.
197. From the information below, compute the payout ratio for Kevin’s Trailers.
Net Income $200
Cash Dividends (common) 40
Retained Earnings 500
Stock Dividends (common) 10
a. 25%.
b. 20%.
c. 8%.
d. 2%.
198. The following information pertains to Benedict Company. Assume that all balance sheet
amounts represent average balance figures.
Total assets $300,000
Stockholders’ equity—common 150,000
Total stockholders’ equity 200,000
Sales revenue 100,000
Net income 25,000
Number of shares of common stock 6,000
Common dividends 6,000
Preferred dividends 4,000
What is the payout ratio for Benedict?
a. 40%
b. 24%
c. 16%
d. 6%
199. The following information pertains to Benedict Company. Assume that all balance sheet
amounts represent average balance figures.
Total assets $300,000
Stockholders’ equity—common 150,000
Total stockholders’ equity 200,000
Sales revenue 100,000
Net income 25,000
Number of shares of common stock 6,000
Common dividends 6,000
Test Bank for Accounting: Tools for Business Decision Making, Fifth Edition
11-40
MC: 199 (count)
Preferred dividends 4,000
What is the return on common stockholders’ equity ratio for Benedict?
a. 16.7%
b. 14.0%
c. 12.7%
d. 10.5%
200. The following information pertains to Marsh Company. Assume that all balance sheet
amounts represent average balance figures.
Total asset $400,000
Stockholders’ equity—common 200,000
Total stockholders’ equity 280,000
Sales revenue 120,000
Net income 25,000
Number of shares of common stock 8,000
Common dividends 9,000
Preferred dividends 6,000
What is Marsh’s payout ratio?
a. 60%.
b. 36%.
c. 24%.
d. 7.5%.
201. The following information pertains to Marsh Company. Assume that all balance sheet
amounts represent average balance figures.
Total asset $400,000
Stockholders’ equity—common 200,000
Total stockholders’ equity 280,000
Sales 120,000
Net income 24,000
Number of shares of common stock 8,000
Common dividends 9,000
Preferred dividends 6,000
What is Marsh’s return on common stockholders’ equity?
a. 12%.
b. 9%.
c. 7.5%.
d. 6.4%.
