1) Which stock offers shareholders preference in receiving dividends?
A) common stock
B) preferred stock
C) treasury stock
D) callable stock
2) Preferred stock offers shareholders the right to ________.
A) receive dividends after the common shareholders receive any dividends
B) receive, in the event of bankruptcy, a share of the assets before common shareholders
C) pre-emptive rights
D) voting rights
3) Contributed capital includes ________.
A) only capital stock
B) only additional paid-in capital
C) both capital stock and retained earnings
D) both capital stock and additional paid-in capital
4) Paid-in capital includes ________
A) capital stock and additional paid-in capital
B) capital stock and retained earnings
C) additional paid-in capital and retained earnings
D) additional paid-in capital and treasury stock
5) In exchange for stock, corporations may receive ________.
A) earnings
B) cash or other assets
C) income
D) treasury stock
6) The number of shares of stock a corporation may issue when a corporation is formed is called
________ shares.
A) authorized
B) issued
C) outstanding
D) treasury
7) ________ is the stock sold to the public.
A) Authorized stock
B) Issued stock
C) Outstanding stock
D) Treasury stock
8) Stock in the hands of shareholders is called ________ stock.
A) authorized
B) par value
C) outstanding
D) treasury
9) Stock that has been sold and then repurchased by the issuing corporation is called ________
stock.
A) authorized
B) issued
C) outstanding
D) treasury
10) The owners of common stock do NOT have the specific right to ________.
A) vote for members of the board of directors
B) share in the corporation’s earning
C) acquire more shares when a corporation issues more stock
D) receive dividends automatically each year
11) The owners of common stock do NOT have the specific right to ________.
A) vote for members of the board of directors
B) share in the corporation’s earnings
C) share in any assets left when a company declares bankruptcy
D) receive dividends before preferred shareholders
12) The owners of ________ stock have the specific right to vote for members of the board of
directors.
A) common
B) preferred
C) treasury
D) both common and preferred
13) A monetary value assigned to and printed on each share of stock is called ________.
A) additional paid-in capital
B) paid-in capital
C) par value
D) retained earnings
14) Investors purchase preferred stock because preferred ________.
A) stock offers a possibility of a specified annual dividend
B) dividends are increased each year
C) shareholders have voting rights
D) stock can always be converted to common stock
15) AZ Best, Inc.’s corporate charter allows it to issue 1,500,000 shares of common stock. In
2011, its first year of business, the company sold 200,000 shares of common stock. In 2011, the
company bought back 5,000 shares to be held as treasury stock. At December 31, 2011, how
many shares of common stock are authorized?
A) 5,000 shares
B) 1,300,000 shares
C) 200,000 shares
D) 1,500,000 shares
16) AZ Best, Inc.’s corporate charter allows it to issue 1,500,000 shares of common stock. In
2011, its first year of business, the company sold 200,000 shares of common stock. In 2011, the
company bought back 5,000 shares to be held as treasury stock. At December 31, 2011, how
many shares of common stock are issued?
A) 5,000 shares
B) 1,300,000 shares
C) 200,000 shares
D) 1,500,000 shares
17) AZ Best, Inc.’s corporate charter allows it to issue 1,500,000 shares of common stock. In
2011, its first year of business, the company sold 200,000 shares of common stock. In 2011, the
company bought back 5,000 shares to be held as treasury stock. At December 31, 2011, how
many shares of common stock are outstanding?
A) 5,000 shares
B) 1,300,000 shares
C) 200,000 shares
D) 195,000 shares
18) The state charter of Vest Corporation allows the corporation to sell 500,000 shares. Vest has
issued 425,000 shares of stock. There are 15,000 shares of treasury stock. The number of
outstanding shares is ________ shares.
A) 15,000
B) 410,000
C) 425,000
D) 500,000
19) Cartier, Inc.’s corporate charter allows it to sell 1 million shares of $0.50 par value common
stock. As of December 31, 2011, the company had sold 500,000 shares for $4 each. Cartier has
20,000 shares of treasury stock that cost $100,000. On the December 31, 2011 balance sheet, the
number of shares authorized is ________ shares.
A) 1,000,000
B) 500,000
C) 480,000
D) 400,000
20) Cartier, Inc.’s corporate charter authorizes it to sell 1 million shares of $0.50 par value
common stock. As of December 31, 2011, the company had sold 500,000 shares for $4 each.
Cartier has 20,000 shares of treasury stock that cost $100,000. On the December 31, 2011
balance sheet, the number of shares issued is ________ shares.
A) 1,000,000
B) 500,000
C) 480,000
D) 400,000
21) Cartier, Inc.’s corporate charter authorizes it to sell 1 million shares of $0.50 par value
common stock. As of December 31, 2011, the company had sold 500,000 shares for $4 each.
Cartier has 20,000 shares of treasury stock that cost $100,000. On the December 31, 2011
balance sheet, the number of shares outstanding is ________ shares.
A) 1,000,000
B) 500,000
C) 480,000
D) 400,000
22) If 10,000 shares of $2 par value common stock are issued for $10 per share, then additional
paid-in capital will increase by ________.
A) $120,000
B) $100,000
C) $80,000
D) $20,000
23) The state charter of Team Shirts authorizes the corporation to sell 300,000 shares. Team
Shirts has issued 200,000 shares of stock. There are 7,500 shares of treasury stock. The number
of outstanding shares is ________.
A) 300,000
B) 200,000
C) 192,500
D) 7,500
24) Team Shirts issued 20,000 shares of stock for $20 per share. The par value of the stock was
$1 per share. Calculate the value of capital stock and additional paid-in capital.
A) capital stock $400,000; additional paid-in capital $0
B) capital stock $380,000; additional paid-in capital $20,000
C) capital stock $20,000; additional paid-in capital $380,000
D) capital stock $0; additional paid-in capital $400,000
25) Lee’s Lions issued 15,000 shares of stock for $17 per share. The par value of the stock was
$0.50 per share. Calculate the value of capital stock and additional paid-in capital.
A) capital stock $0; additional paid-in capital $255,000
B) capital stock $7,500; additional paid-in capital $247,500
C) capital stock $247,500; additional paid-in capital $7,500
D) capital stock $255,000; additional paid-in capital $0
26) Jem’s Jewelers reported total shareholders’ equity of $100,000 on its February 28 balance
sheet. During March, the business earned $250,000, and declared and paid a cash dividend of
$10,000. What was total shareholders’ equity on March 31?
A) $360,000
B) $350,000
C) $340,000
D) $260,000
27) Common stock’s par value is usually ________.
A) equal to the market price of the common stock
B) greater than the market price of the common stock
C) less than the market price of the common stock
D) zero
28) The number of shares outstanding equals the number of shares ________.
A) authorized minus the number of shares issued
B) issued minus the number of shares authorized
C) issued minus the number of shares of treasury stock
D) of treasury stock minus the number of shares issued
29) Which of the following is true about bonds and common stock?
A) Bonds and common stock are both shareholders’ equity accounts.
B) The company that has issued bonds and common stock has a legal responsibility to pay back
the principal when the bonds and stock mature.
C) The company has a legal responsibility to pay interest and dividends each year.
D) Bondholders do not have voting rights, while common shareholders do.
30) When common stock is issued, the amount recorded in Additional paid-in capital is
________.
A) the cash received minus the amount recorded in the Common stock account
B) the cash received plus the amount received in excess of par
C) the par value plus the market price of the stock
D) nothing; Additional paid-in capital is not affected by issuing common stock
31) Use the information below to answer the following question:
Common stock, $1 par, 100,000 shares
authorized, _________ shares issued $ 40,000
Additional paid-in capital 160,000
Retained earnings 100,000
Treasury stock (1,000 shares at cost) (6,000)
Total shareholders’ equity $294,000
How many shares of common stock have been issued?
A) 100,000 shares
B) 40,000 shares
C) 1,000 shares
D) 39,000 shares
32) The owners’ claims to the assets of a corporation are called shareholders’ equity or
stockholders’ equity.
33) Retained earnings is the amount owners have invested in a corporation.
34) Paid-in capital is divided into capital stock and retained earnings.
35) State charters allow corporations to issue an unlimited number of shares of common stock.
36) Explain the difference between authorized, issued, treasury and outstanding stock.
37) What is the difference between the par value of a stock and its market value?
38) Explain the difference between contributed capital, capital stock, and additional paid-in
capital.
39) Discuss the ownership rights available to common shareholders.
40) Verst Corporation’s state charter allows the corporation to issue 500,000 shares of $1 par
value common stock. It has sold 305,000 shares of common stock to the public and it currently
holds 5,000 shares of treasury stock.
1. How many shares are authorized?
2. How many shares are issued?
3. How many shares are outstanding?
41) G-Hi Corporation’s state charter authorizes the corporation to issue 1,000,000 shares of $1
par value common stock. It has sold 600,000 shares of common stock to the public. At the end of
the year it held 20,000 shares of treasury stock.
1. How many shares are authorized?
2. How many shares are issued?
3. How many shares are outstanding?
42) Mufti Company issued 1,500 shares of its $1 par value common stock. The market price on
the day of sale was $15 per share. Describe the effect of this transaction on each of the following
items:
1. Cash
2. Total paid-in capital
3. Capital stock
4. Additional paid-in capital
43) Marcy’s Catering has been so successful that the business needs to expand its facility. Marcy
has decided to change the business from a sole proprietorship to a corporation in order to raise
more money from the sale of stock to investors. Marcy’s accountant has prepared a proposed
shareholders’ equity section of the balance sheet. Explain to Marcy what each line item
represents.
Shareholders’ equity:
Paid-in capital:
Preferred stock
Common stock
Additional paid-in capital
Treasury stock
Retained earnings
Total shareholders equity
44) Vest, Inc. received cash from selling 100 shares of its $1 par value common stock at $10 per
share. Show the effect of issuing stock on the accounting equation, including both account titles
and amounts.
Shareholders’ equity
Assets
Liabilities
Contributed capital
Retained
earnings
Assets
Liabilities
Contributed capital
Retained
earnings
1,000 cash
900 additional paid-in capital
45) Out of Africa had the following shareholders’ equity section on its balance sheet as of
December 31.
Preferred stock: $100 par, 6%, cumulative
$100,000
Common stock: $1 par value
25,000
Additional paid-in capital
300,000
Retained earnings
57,000
Calculate the following:
a. Number of shares of preferred stock outstanding
b. Number of shares of common stock outstanding
46) What is preferred stock?
Learning Objective 8-2
1) A difference between preferred stock and common stock is preferred shareholders ________.
A) have voting rights, while common shareholders do not
B) have the right to share in any assets left if the company goes out of business after both the
creditors and common shareholders receive their share
C) have the right to buy new shares in order to maintain their percentage ownership before the
company can issue new shares to the general public
D) must receive their dividends before any of the common shareholders are paid
2) Team Shirts reported total shareholders’ equity of $80,000 on its October 31 balance sheet.
During November, the business earned $270,000, and declared and paid a cash dividend of
$20,000. What was total shareholders’ equity on November 30?
A) $80,000
B) $350,000
C) $250,000
D) $330,000
3) Distributions of a corporation’s earnings to its shareholders are called ________.
A) dividends
B) paid-in capital
C) retained earnings
D) distribution expense
4) The declaration date is the date ________.
A) on which the board of directors of a corporation announces that a dividend will be paid
B) used to determine exactly who will receive dividends
C) when cash is actually paid to the shareholders
D) when earnings are declared
5) The date of record is the date ________.
A) on which the board of directors of a corporation announces that a dividend will be paid
B) used to determine exactly who will receive dividends
C) when cash is actually paid to the shareholders
D) when earnings are declared
6) The date of payment is the date ________.
A) on which the board of directors of a corporation announces that a dividend will be paid
B) used to determine exactly who will receive dividends
C) when cash is actually paid to the shareholders
D) when earnings are declared
7) The date on which the board of directors of a corporation decides that earnings are sufficient
to pay a dividend is the ________.
A) declaration date
B) date of record
C) date of payment
D) dividend date
8) Cumulative preferred stock means that ________.
A) the fixed dividend amount accumulates from year to year. The entire amount of all past
unpaid dividends must be paid to the preferred shareholders before any dividends can be paid to
common shareholders
B) the preferred dividend rate will increase each year the shares are outstanding
C) preferred dividends accumulate as earnings accumulate
D) the balance in the Preferred stock account is increased by any additional shares that are sold
during the year
9) Noncumulative preferred stock means that ________.
A) the fixed dividend amount accumulates from year to year. The entire amount of all past
unpaid dividends must be paid to the preferred shareholders before any dividends can be paid to
common shareholders
B) the board of directors has the option to decide whether past unpaid dividends will be paid to
preferred shareholders
C) preferred dividends accumulate as earnings accumulate
D) the balance in the Preferred stock account is increased by any additional shares that are sold
during the year
10) A company has 2,000 shares of $100 par, 6%, noncumulative preferred stock outstanding. If
the board of directors declares a dividend this year, how much will the preferred shareholders
receive?
A) $100 per share
B) $6 per share
C) $200,000 in total
D) $60 per share
11) Dividends ________.
A) are the distribution of profits
B) are expenses and cause shareholders’ equity to decrease
C) cause retained earnings to increase
D) cause common stock to decrease
12) Dividends ________.
A) cause retained earnings to decrease
B) are expenses and cause shareholders’ equity to decrease
C) cause retained earnings to increase
D) are expenses and cause shareholders’ equity to increase
13) Which of these comes first?
A) declaration date
B) date of record
C) payment date
D) liquidation date
14) Angelique’s Antiques declared and paid cash dividends of $25,000. There were 1,000 shares
of 10%, $30 par value, noncumulative preferred stock outstanding. How much of the cash
dividends were paid to PREFERRED shareholders?
A) $0
B) $3,000
C) $22,000
D) $25,000
15) Angelique’s Antiques declared and paid cash dividends of $25,000. There were 1,000 shares
of 10%, $30 par value, noncumulative preferred stock outstanding. How much of the cash
dividends were paid to COMMON shareholders?
A) $0
B) $1,500
C) $22,000
D) $25,000
16) Out of Africa, a multi-national corporation had a very successful year. The board of directors
declared and paid a cash dividend of $50,000. The prior year, Out of Africa did not pay
dividends on its 400 shares of cumulative, 8%, $100 par, preferred stock. How much of the cash
dividend was paid to the PREFERRED shareholders?
A) $6,400
B) $3,200
C) $8,000
D) $4,000
17) Out of Africa, a multi-national corporation had a very successful year. The board of directors
declared and paid a cash dividend of $50,000. The prior year, Out of Africa did not pay
dividends on its 400 shares of cumulative, 8%, $100 par, preferred stock. How much of the cash
dividend was paid to the COMMON shareholders?
A) $50,000
B) $49,992
C) $46,800
D) $43,600
18) Trading Places, a multi-national corporation, had a very successful year. The board of
directors declared and paid a cash dividend of $50,000. The prior year, Trading Places did not
pay dividends on its 400 shares of noncumulative, 8%, $100 par, preferred stock. How much of
the cash dividend was paid to the PREFERRED shareholders?
A) $6,400
B) $3,200
C) $8,000
D) $4,000
19) Trading Places, a multi-national corporation, had a very successful year. The board of
directors declared and paid a cash dividend of $50,000. The prior year, Trading Places did not
pay dividends on its 400 shares of noncumulative, 8%, $100 par, preferred stock. How much of
the cash dividend was paid to the COMMON shareholders?
A) $46,800
B) $0
C) $43,600
D) $50,000
20) Team Shirts declared and paid cash dividends of $40,000. There were 1,000 shares of 6%,
$10 par value, noncumulative preferred stock outstanding. How much of the cash dividends were
paid to PREFERRED shareholders?
A) $40,000
B) $2,400
C) $600
D) $0
21) Team Shirts declared and paid cash dividends of $40,000. There were 1,000 shares of 6%,
$10 par value, noncumulative preferred stock outstanding. How much of the cash dividends were
paid to COMMON shareholders?
A) $40,000
B) $39,400
C) $2,400
D) $600
22) Dividends are distributions of a corporation’s earnings to its shareholders.
23) Dividends are an operating expense of a corporation.
24) Dividends decrease net income.
25) Dividends decrease retained earnings.
26) Dividends decrease contributed capital.
27) Preferred stock has preference over common stock when dividends are paid.
28) Common stock has preference over preferred stock when dividends are paid.
29) What are dividends?
30) On July 1, the board of directors of Team Shirts declared a $0.75 cash dividend per share for
shareholders owning company stock on July 10. The checks will be issued on July 15. What are
the dates of declaration, record, and payment?
31) Team Shirts had an exceptional second quarter and earned net income of $250,000. On
August 1, the board of directors of Team Shirts declared a $1.00 per share cash dividend to be
paid on August 15 to shareholders owning company stock on August 10. What are the dates of
declaration, record, and payment?
32) On March 15, Team Shirts paid a cash dividend of $0.25 per share to its shareholders. There
were 65,000 shares issued at the time. Team Shirts held 2,500 shares of treasury stock. What was
the total dollar amount of the cash dividend?
33) On June 15, Team Shirts paid a cash dividend of $0.75 per share to common shareholders.
There were 45,000 shares issued at the time. Team Shirts held 1,000 shares of treasury stock.
Team Shirts also paid a dividend to preferred shareholders. There were 200 shares of 8%, $100
par preferred stock outstanding. What was the total dollar amount of the cash dividend?
34) On July 31, Ace Electronics paid a cash dividend of $0.50 per share to common
shareholders. There were 80,000 shares issued at the time. Ace held 5,000 shares of treasury
stock. Ace also paid a dividend to preferred shareholders. There were 1,000 shares of 6%, $100
par preferred stock outstanding. What was the total dollar amount of the cash dividend?
35) The board of directors of Kim Brothers Fitness Center is going to declare the first-ever
dividends for the new corporation. The total amount of cash available for dividends is $2,000.
There are 50 shares outstanding of 10%, $100 par value preferred stock. There are 2,000 shares
of common stock outstanding.
1. What is the TOTAL dollar amount of the dividend paid to preferred shareholders?
2. What is the dividend PER SHARE paid to preferred shareholders?
3. What is the TOTAL dollar amount of the dividend paid to common shareholders?
4. What is the dividend PER SHARE paid to common shareholders?