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36) On December 15, 2011, the board of directors of Ryes, Inc. declared a cash dividend of $2
per share on the 100,000 common shares outstanding, payable January 8, 2012. No dividends
were declared in 2012. For each item, write in the amount (even if $0) in the column of the one
financial statement where the amount is found.
December 31, 2011
financials:
Income
Statement
Statement of
Changes in
Shareholders’
Equity
Statement
of Cash
Flows
Balance
Sheet
1. Dividends payable
2. Dividends
3. Dividends paid
December 31, 2012
financials:
Income
Stateme
nt
Statement of
Changes in
Shareholders’
Equity
Statement
of Cash
Flows
Balance
Sheet
4. Dividends payable
5. Dividends
6. Dividends paid
37) Match each of the following items with its appropriate definition. Each item should be used
only once.
a. noncumulative preferred stock
b. dividends
c. payment date
d. declaration date
e. preferred stock
f. cash dividends
g. date of record
h. cumulative preferred stock
i. dividends in arrears
j. treasury stock
______ 1. Type of corporate stock that has preference rights over common stock
______ 2. Corporate distribution of earnings to the shareholders of the corporation
______ 3. A distribution of earnings in the form of cash to the shareholders of a corporation
______ 4. Date when the board of directors of a corporation authorizes the payment of dividends
to the shareholders of the corporation
______ 5. Date used to determine which shareholders should receive dividends; anyone owning
stock on this date is entitled to receive dividends
______ 6. Stock of a corporation that has been issued and has been repurchased by the issuing
corporation.
______ 7. Date when cash dividends are actually paid to shareholders of a corporation.
______ 8. Stock on which 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 the common shareholders
______ 9. Any dividends owed to the preferred shareholders from past years, but were not
declared and are currently unpaid
_____ 10. Preferred stock that is not entitled to receive past, unpaid dividends
38) Match each of the following items with the appropriate definition. Each item is to be used
only once.
a. additional paid-in capital
b. preferred stock
c. payment date
d. capital stock
e. dividends in arrears
f. treasury stock
g. contributed capital
h. cumulative preferred stock
i. noncumulative preferred stock
______ 1. Type of corporate stock that has preference rights over common stock
______ 2. Preferred stock that is not entitled to receive past, unpaid dividends
______ 3. Owners’ contributions to a firm
______ 4. Shares of ownership in a corporation
______ 5. The excess over par value received by a corporation when it issues stock
______ 6. Stock of a corporation that has been issued and has been repurchased by the issuing
corporation
______ 7. Date when cash dividends are actually paid to shareholders of a corporation
______ 8. Stock on which 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 the common shareholders
______ 9. Any dividends owed to the preferred shareholders from past years that were not
declared and are currently unpaid
Learning Objective 8-3
1) Treasury stock ________.
A) is a contra-equity account
B) is the amount of stock issued by the company
C) results in an increase in total shareholders’ equity
D) is a contra-asset account
2) Corporations repurchase their own stock to ________.
A) obtain stock to distribute to employees for stock options and retirement plans
B) decrease earnings per share
C) serve as a weapon in a hostile takeover of another company
D) decrease the market price of the stock
3) When a company buys shares of its own stock and holds them as treasury stock, ________.
A) its earnings per share are not affected
B) its earnings per share will increase
C) its earnings per share will decrease
D) the market price of its stock will decrease
4) The purchase of treasury stock ________ a corporation’s assets and ________ its
shareholders’ equity.
A) increases; increases
B) decreases; increases
C) increases; decreases
D) decreases; decreases
5) Treasury stock is shown as ________ on the balance sheet.
A) a reduction of total shareholder’s equity
B) an addition to total shareholder’s equity
C) a reduction of total retained earnings
D) an addition to total retained earnings
6) The purchase of treasury stock ________.
A) requires recognition on the income statement of any gain made on the purchase
B) requires recognition on the income statement of any loss incurred on the purchase
C) does not require recognition on the income statement of any gain made on the purchase
D) always decreases net income
7) Treasury stock is a(n) _____ account.
A) asset
B) contra-asset
C) equity
D) contra-equity
8) The number of shares of treasury stock plus the number of shares outstanding equals the total
amount of ________.
A) issued stock
B) voting stock
C) stock authorized
D) stock entitled to dividends
9) Team Shirts repurchased $3,700 worth of its stock via the stock market. This purchase
________.
A) increased assets
B) decreased total shareholders’ equity
C) increased retained earnings
D) decreased retained earnings
10) Team Shirts purchased $5,000 worth of its own stock in the stock market. The transaction
would _________ cash by $5,000 and _________ shareholders’ equity by $5,000.
A) increase; increase
B) decrease; decrease
C) increase; decrease
D) decrease; increase
11) Team Shirts sold $4,000 worth of its own stock in the stock market. The transaction would
_________ cash by $4,000 and _________ shareholders’ equity by $4,000.
A) increase; increase
B) decrease; decrease
C) increase; decrease
D) decrease, increase
12) Which of the following will cause total shareholders’ equity to decrease?
A) issuing common stock
B) selling treasury stock
C) repaying a bond’s principal
D) purchasing treasury stock
13) Treasury stock is a company’s own stock that the company has repurchased.
14) Treasury stock is a contra-asset account.
15) Treasury stock is a contra-equity account.
16) Gains from treasury stock transactions increase net income.
17) The purchase of treasury stock reduces a company’s assets and shareholders’ equity.
18) Treasury stock is shown as an increase in shareholders’ equity on the balance sheet.
19) Outstanding stock has been issued and is either in the hands of shareholders or held by a
corporation as treasury stock.
20) Why do corporations purchase and own treasury stock?
21) Team Shirts had 25,000 shares of $1.00 par value common stock outstanding. It bought back
500 shares for $15.50 in the stock market to use for employee bonuses. On December 10, Team
Shirts gave 250 shares to its employees as holiday bonuses. On December 31:
1. How many shares are outstanding?
2. How many shares are still held as treasury stock?
22) Anika Braun, owner and CEO of Braun’s Sports Den, believes that the corporation has too
many shares outstanding. She is worried that a Japanese company will buy the shares and take
over the business. Her accountant has suggested that Braun’s Sports Den buy treasury stock.
Explain to Anika why buying treasury stock may be an option.
23) On October 15, Manx Company bought 400 shares of its own stock for $16 per share. Show
how this transaction affects the accounting equation. Include both account titles and amounts.
Shareholders' equity
Assets
Liabilities
Contributed capital
Retained
earnings
24) On October 15, Manx Company bought 400 shares of its own stock for $16 per share. On
December 10, Manx Company sold all of the same shares on the market for $20 per share.
Show how both of these transactions affect the accounting equation. Include both account titles
and amounts.
Shareholders' equity
Assets
Liabilities
Contributed capital
Retained
earnings
25) In 2011, Bijoux, Inc. sold 35,000 shares of the 1,500,000 shares of $1 par value common
stock it is allowed to sell. The shares sold for $8 each. Bijoux bought back 4,000 shares of its
stock at a cost of $6 each. Bijoux declared and paid a $0.20 per share dividend to its common
shareholders. Bijoux has no preferred stock.
1.
The number of shares of common stock authorized is:
shares
2.
The number of shares of common stock issued is:
shares
3.
The number of shares of common stock outstanding is:
shares
4.
Total dividends paid for the year ended December 31,
2011 is:
$
5.
Common stock balance at December 31, 2011 is:
$
6.
Additional paid-in capital balance at December 31,
2011 is:
$
7.
Treasury stock balance at December 31, 2011 is:
$
26) Show the effect on the accounting equation for each of the events below. Fill in the
AMOUNT and the LETTER of the account title from the list of accounts provided.
A
Additional paid-in
capital
D
Dividends
G
Net income
B
Cash
E
Dividends
payable
H
Revenue
C
Common stock
F
Interest expense
I
Treasury stock
Shareholders' equity
Assets
Liabilities
Contributed
capital
Retained
earnings
Company issued
1,000 shares of $1
par value stock
for $4 each
Company
repurchased 20
shares for $5 each
Company
declared a
$10,000 dividend
to be paid in two
months
Company paid the
$10,000 dividend
from above
27) Par For the Course, Inc.’s financial statement included the following section:
12/31/11
Preferred stock, $100 par, 5% noncumulative
$ 40,000
Common stock, $2 par value
60,000
Additional paid-in capital, common stock
480,000
Retained earnings
60,000
Treasury stock (1,000 shares)
(8,000)
Total shareholders’ equity
$632,000
1.
From which financial statement did the above information come?
2.
How many shares of common stock have been
issued?
shares
3.
What was the average selling price of a share
of common stock?
$
4.
How many shares of preferred stock are
issued?
shares
5.
If you hold one share of the preferred stock,
how much of a dividend would you expect for
the year?
$
6.
Beginning retained earnings is $50,000 and net
income is $17,800. How much of the dividends
go to the common shareholders?
$
7.
If you hold one share of the common stock,
how much of a dividend would you receive?
$
28) Match each of the following items with the appropriate definition. Each item should be used
only once.
a. additional paid-in capital
b. preferred stock
c. authorized
d. capital stock
e. outstanding
f. treasury stock
g. contributed capital
h. issued
i. par value
______ 1. Type of corporate stock that has preference rights over common stock
______ 2. Owners’ contributions to a firm
______ 3. Shares of ownership in a corporation
______ 4. The excess over par value received by a corporation when it issued stock
______ 5. Stock of a corporation that has been issued and has been repurchased by the issuing
corporation
______ 6. The total number of shares a corporation may sell to investors as permitted by the
corporation’s state charter
______ 7. Shares that have been sold to investors by a corporation
______ 8. Shares that have been issued and not held in the corporation’s treasury
______ 9. An arbitrary amount printed on a share of stock assigned by the corporation
Learning Objective 8-4
1) A corporation’s distribution of new shares of stock to the corporation’s current shareholders is
called a ________.
A) cash dividend
B) liquidating dividend
C) stock dividend
D) stock split
2) A ________ is created when a corporation increases the number of shares and proportionately
decreases the par value.
A) cash dividend
B) liquidating dividend
C) stock dividend
D) stock split
3) Issuing a stock dividend ________.
A) decreases total shareholders’ equity
B) does not increase any shareholder’s percentage of ownership in the company
C) increases total shareholders’ equity
D) decreases total assets
4) Team Shirts issued a 10% stock dividend. The balance in retained earnings just before the
dividend was $45,000. There were 15,000 shares outstanding on the day of the dividend. The $1
par value stock had a market price of $17.25 on the day of the dividend. Total shareholders’
equity will increase (decrease) by ________.
A) $4,500
B) $1,500
C) $25,875
D) $0
5) Team Shirts issued a 2-for-1 stock split. Just before the split, Team Shirts had 100,000, $1 par
value common shares outstanding. After the split, Team Shirts had ________ outstanding.
A) 50,000 common shares
B) 100,000 common shares
C) 200,000 common shares
D) 100,000 shares of preferred stock and 100,000 shares of common stock
6) Team Shirts issued a 2-for-1 stock split. Before the split, Team Shirts had 100,000, $1 par
value common shares outstanding. After the split, the par value of each common share is
________.
A) $2.00
B) $1.00
C) $0.50
D) unable to be determined since it is determined by the market not the corporation
7) Team Shirts issued a 2-for-1 stock split. The balance in retained earnings just before the split
was $45,000. There were 15,000 shares outstanding on the day of the split. The $1 par value
stock had a market price of $17.25 on the day of the split. Retained earnings will increase
(decrease) after the split by ________.
A) $4,500
B) $1,500
C) $25,875
D) $0
8) A stock split ________ total shareholders’ equity.
A) increases
B) decreases
C) has no effect on
D) increases both total assets and
9) Corporations split stock because ________.
A) a stock split increases shareholders’ equity
B) a stock split will decrease the market price per share of stock
C) a stock split will decrease the number of shares outstanding
D) a stock split will increase total assets
10) Which of these will decrease the par value of a corporation’s common stock?
A) a stock split
B) paying a stock dividend
C) paying a cash dividend
D) buying treasury stock
11) How many of these will decrease a corporation’s retained earnings?
∙ a stock split
∙ paying a stock dividend
∙ paying a cash dividend
∙ buying treasury stock
A) one
B) two
C) three
D) all four
12) Stock splits occur when a corporation increases the number of shares and proportionately
decreases the par value.
13) Stock splits occur when a corporation wants to decrease the market price per share of its
stock.
14) Stock splits occur when a corporation wants to increase the market price per share of its
stock.
15) On May 20, Team Shirts paid a 10% stock dividend to shareholders of record on June 15.
On June 15, there were 100,000 shares of stock outstanding. How many shares of Team Shirts’
stock were outstanding after the stock dividend was paid?
16) On November 1, Team Shirts announced a 3-for-1 stock split to be effective on November
15. On November 15, there were 335,000 shares of stock outstanding. How many shares of
Team Shirts’ stock were outstanding after the stock split?
17) On February 1, Team Shirts announced a 4-for-1 stock split to be effective on February 15.
On February 1, there were 45,000 shares of $1.00 par value common stock outstanding.
1. How many shares of Team Shirts’ stock were outstanding after the stock split?
2. What is the new par value per share?
18) Team Shirts would like to start paying dividends to its loyal shareholders; however, it
believes that the business cannot spare the cash for dividends. Explain how Team Shirts could
use a stock split or stock dividend to reward shareholders instead of paying a cash dividend.
19) Explain the difference between a stock dividend and stock split.
20) Identify each of the following actions taken by the board of directors of Gem’s Jewelers.
Each term is used only once.
a. stock split
b. declaration date
c. treasury stock
d. issued stock
e. dividends in arrears
______ 1. Authorized payment of back dividends to preferred shareholders
______ 2. Authorized the sale of 500 new shares of stock to the public
______ 3. Authorized the repurchase of 500 shares of Gem’s Jewelers stock
______ 4. Authorized the exchange of two new shares of stock for every one existing share
______ 5. Authorized the payment of a cash dividend on March 15
21) Identify each of the following situations using the following items. Each item is used only
once.
a. stock split
b. stock dividend
c. treasury stock
d. cash dividend
e. dividends in arrears
______ 1. Team Shirts exchanged two shares of new stock for every share of existing stock.
______ 2. U Bet, Inc. skipped this year’s dividends for preferred stock.
______ 3. Team Shirts paid $1.00 to each shareholder.
______ 4. Team Shirts gave one share of stock for every 10 shares outstanding.
______ 5. Team Shirts bought 300 shares of Team Shirts’ stock.
Learning Objective 8-5
1) During 2011, Stockton, Inc. reported net income of $4,000, declared and paid a cash dividend
of $2,000, and issued common stock for $20,000. At December 31, 2011, Stockton reported total
shareholders’ equity of $58,000. What was total shareholders’ equity at the beginning of the
year, on January 1, 2011?
A) $36,000
B) $40,000
C) $58,000
D) $60,000
2) Retained earnings is the ________.
A) past profits and dividends maintained in treasury
B) beginning retained earnings plus net income minus dividends
C) past distributed profits
D) minimum legal capital that must be retained by the company
3) Equitable, Inc. issued no new common stock and had 100,000 shares issued and outstanding
during 2011. The following information is taken from Equitable’s accounting records:
Net income for the year ended, December 31, 2011
$370,000
Retained earnings, December 31, 2010
$280,000
Retained earnings, December 31, 2011
$360,000
Total shareholders’ equity at December 31, 2011
$725,000
What was the dividend declared during the year ended December 31, 2011?
A) $290,000
B) $360,000
C) $725,000
D) $365,000
4) Which financial statement is the best place to look to determine the amount of dividends
DECLARED?
A) Income statement
B) Statement of changes in shareholders’ equity
C) Balance sheet
D) Statement of cash flows
5) Retained earnings are ________.
A) increased by net income since the day the company began
B) increased by net losses since the day the company began
C) increased by dividends declared to shareholders since the company began
D) increased when additional shares of stock are sold
6) Retained earnings is also called ________ capital.
A) additional paid-in
B) earned
C) contributed
D) paid-in
7) Team Shirts has a balance in retained earnings of $15,000. This amount is ________.
A) matched by the amount of cash in the Cash account
B) the amount of cash available for dividends
C) the amount of net income kept by Team Shirts
D) the cash amount received from the sale of stock
8) J & D Company had beginning retained earnings of $65,000. During the year the company
had net income of $150,000, and declared and paid dividends of $9,500. The ending balance in
retained earnings is ________.
A) $215,000
B) $55,500
C) $205,500
D) $224,500
9) B & B Company had beginning retained earnings of $45,000. During the year the company
had net income of $139,000, and declared and paid dividends of $9,500. B & B Company sold
2,500 shares of stock for $30 per share. What is the net effect of these transactions on the
following accounts?
A) increase Retained earnings; increase Common stock
B) increase Retained earnings; decrease Common stock
C) no effect on Retained earnings; increase Common stock
D) increase Retained earnings; no effect on Common stock
10) DM Company had beginning retained earnings of $60,000. During the year the company had
net income of $275,000 and declared and paid dividends of $7,500. The ending balance in
retained earnings is ________.
A) $282,500
B) $327,500
C) $335,000
D) $342,500
