College Accounting, 12e (Slater)
Chapter 19 Corporations: Stock Values, Dividends, Treasury Stocks, and Retained
Earnings
19.1 Learning Objective 19-1
1) The price a corporation pays when it reserves the right to retire or redeem stock at a specific price is
the:
A) redemption value.
B) book value per share.
C) dividend per share.
D) market value.
2) The price at which shares are bought and sold on the open market is called:
A) book value.
B) dividend value.
C) market value.
D) redemption value.
3) When the corporation has only common stock, the total of stockholders‘ equity divided by the number
of shares issued equals:
A) redemption value.
B) book value per share.
C) dividend per share.
D) market value.
4) When the corporation has both preferred and common stock, the steps to compute book value for
common stock would be:
A) compute common shares divided by number of shares outstanding.
B) compute preferred stock book value first; the remainder is assigned to common stock.
C) divide total stockholders’ equity by total shares outstanding.
D) None of these answers are correct.
5) If total stockholders‘ equity is $90,000 with 5,000 common shares outstanding, what is the book value
per share?
A) $18.00
B) $45.00
C) $17,000
D) $1.80
6) What is the book value per share of common stock if total stockholders’ equity is $450,000 with 15,000
shares of common stock outstanding?
A) $3.33
B) $3.00
C) $300.00
D) $30.00
7) Total stockholders’ equity consists of retained earnings of $150,000 and paid-in capital of $600,000.
There are 30,000 common shares outstanding. What is the book value per share?
A) $20.00 per share
B) $25.00 per share
C) $15.00 per share
D) $ 5.00 per share
8) Dexter Corporation has total paid-in capital of $160,000 and retained earnings of $60,000. It has 1,500
shares of $10 preferred stock with no dividends in arrears and 2,000 shares of $10 par value common
stock. The book value of each share of common stock is:
A) $10.
B) $7.50.
C) $102.50.
D) $88.00.
9) Patterson Research has 200 shares of 10%, $100 par value, preferred stock, and 2000 shares of $10 par
value common stock outstanding. Total paid-in capital is $40,000, and retained earnings are $0. There are
one-year dividends in arrears on preferred stock. The book value per share on common stock is:
A) $10.
B) $40.
C) $20.
D) $9.
10) Ariel Investigations has total paid-in capital of $90,000 and retained earnings of $60,000. It has 200
shares of $100 par value common stock outstanding. The book value of each share of common stock is:
A) $750.
B) $450.
C) $300.
D) $600.
11) Par value is the price per share a corporation pays to holders of stock when it is redeemed.
12) Market value is the same as par value.
13) Market value is the price at which a share of stock is bought and sold.
14) Book value per share is found by dividing total assets by total stockholders‘ equity.
15) Book value is only calculated for common stock.
16) If a redemption value is not stated, market value is used instead.
17) When treasury stock is sold, the Paid-in Capital in Excess of Par is returned.
18) From the following, determine the book value per share for preferred and common stocks; no
dividends are in arrears on the preferred stock.
Stockholders’ Equity
Preferred Stock, 8% cumulative and
$10 par value, $12 redemption value
5,000 shares issued and outstanding $50,000
Common Stock, $1 par value, 40,000 shares
issued and outstanding 40,000
Retained Earnings 16,000
________
Total Stockholders’ Equity $106,000
19) Discuss and describe the major differences among the following common stock values:
a. Par value
b. Stated value
c. Redemption value
d. Market value
e. Book value
20) From the following, determine the book value per share for preferred and common stocks, assuming
$2,000 of dividends are in arrears on the preferred stock.
Stockholders’ Equity
Preferred Stock, 10% cumulative and
$20 par value, $21 redemption value
1,000 shares issued and outstanding $20,000
Common Stock, $10 par value, 4,000 shares
issued and outstanding 40,000
Retained Earnings 8,000
______
Total Stockholders’ Equity $68,000
19.2 Learning Objective 19-2
1) What are the annual dividends on preferred stock, $20 par, 2,000 shares authorized, 700 shares issued,
and a dividend rate of 5%?
A) $200
B) $20
C) $700
D) $70
2) What are the annual dividends on preferred stock, $20 par, 500 authorized, 250 shares issued, and a
dividend rate of 12%?
A) $1200
B) $600
C) $300
D) $150
3) In the dividend process, the liability Dividend Payable is recognized on the:
A) date of declaration.
B) date of record.
C) date of payment.
D) date of stock issue.
4) Which of the following dividend dates does not get a formal journal entry?
A) Date of payment
B) Date of declaration
C) Date of record
D) All receive formal journal entries.
5) The date of record for cash dividends is:
A) the date the board of directors pays a dividend.
B) the date established by the board of directors that determines who will receive dividends.
C) the date that creates a liability for the company.
D) None of these answers are correct.
6) Declaration of a cash dividend causes:
A) an increase in stockholders’ equity.
B) an increase in cash.
C) an increase in liabilities.
D) None of these answers are correct.
7) Payment of a cash dividend causes:
A) an increase in liabilities.
B) a decrease in an asset.
C) an increase in stockholders’ equity.
D) All of the above are correct.
8) A distribution to stockholders in the form of cash is called a:
A) stock dividend.
B) stock split.
C) stock conversion.
D) cash dividend.
9) The journal entry to pay a cash dividend is to:
A) debit Dividends Payable; credit Cash.
B) debit Retained Earnings; credit Cash.
C) debit Dividends Payable; credit Retained Earnings.
D) debit Retained Earnings; credit Dividends Payable.
10) Malcolm Corporation declared a dividend of $5 per share on 1,000 shares. The entry to record the
transaction would be to:
A) debit Dividends Expense $5,000; credit Cash $5,000.
B) credit Cash $5,000, debit Dividends Expense $5000.
C) debit Dividends Payable $5,000; credit Retained Earnings $5,000.
D) debit Retained Earnings $5,000; credit Dividends Payable $5,000.
11) The entry to record the payment of a cash dividend would include a:
A) debit to Dividends Payable; credit to Cash.
B) debit to Retained Earnings; credit to Cash.
C) credit to Dividends Declared, debit to Cash.
D) debit to Cash, credit to Retained Earnings.
12) On the date of record, the journal entry would include:
A) a debit to Dividend Payable.
B) a credit to Dividend Payable.
C) a credit to Cash.
D) no entry.
13) The journal entry to record the issuance of a stock dividend is to:
A) debit Common Stock Dividend Distributable (number of shares × par value common stock); credit
Common Stock (same).
B) debit Common Stock Dividends Distributable (number of shares × market value common stock); credit
Common Stock (same).
C) debit Retained Earnings (market value × number of shares); credit Common Stock Dividends
Distributable (number of shares × par value); credit Paid-in Capital in Excess of Par-Stock Dividend.
D) debit Common Stock Dividend Distributable (number of shares × par value); credit Cash.
14) Which of the following is the journal entry to record the declaration of a stock dividend?
A) Debit Common Stock Dividend Distributable (number of shares × par value common stock); credit
Common Stock (same)
B) Debit Common Stock Dividend Distributable (number of shares × market value common stock); credit
Common Stock (same)
C) Debit Retained Earnings (market value × number of shares); credit Common Stock Dividend
Distributable (number of shares × par value); credit Paid-In Capital in Excess of Par Stock Dividend
(market value – par value) × number of shares
D) Debit Common Stock (number of shares × par value); credit Cash
15) The entry to record the declaration of a stock dividend would include:
A) a credit to Retained Earnings.
B) a credit to Cash.
C) a credit to Common Stock.
D) None of these answers are correct.
16) The entry to record the distribution of the stock dividend would include:
A) a credit to Common Stock.
B) a debit to Common Stock Distributable.
C) both A and B are correct.
D) None of these answers are correct.
17) Cody’s Western Wear has 2,000 shares of $10 par value common stock outstanding. During the
current year, the company distributed a 10% stock dividend. The market value of the stock at that time
was $16 per share. Cody’s total stockholders’ equity should increase or decrease by:
A) $0.
B) $1,200.
C) $2,000.
D) ($3,200).
18) Before a three-for-one stock split, the shares outstanding were 5,000 shares at $12 par. After the split,
what was the par and number of shares?
A) 15,000 shares at $12 per share
B) 20,000 shares at $6 per share
C) 15,000 shares at $4 per share
D) 5,000 shares at $48 per share
19) ABC Corporation offered a four-for-one stock split. The number of outstanding shares before the split
was 15,000 and the par value was $20 per share. After the split, what was the par value and number of
shares?
A) 3,750 shares and $80 per share
B) 60,000 shares and $80 per share
C) 60,000 shares and $5 per share
D) 3,750 shares and $5 per share
20) A stock split:
A) causes decrease in the number of shares outstanding.
B) increases the par or stated value in proportion.
C) reduces retained earnings.
D) None of these answers are correct.
21) A stock-split journal entry would include a:
A) debit to Retained Earnings and a credit to Common Stock.
B) debit to Common Stock and a credit to Cash.
C) debit to Common Stock Dividend Distributable and a credit Common Stock.
D) memorandum notation only.
22) The retained earnings section after a two-for-one stock split will:
A) be one-half as much after the split.
B) be double as much after the split.
C) not change after the split.
D) cannot be determined from the information given.
23) Gino’s Corporation had 20,000 shares of $15 par value common stock outstanding with a market value
of $40 per share. Gino announced a four–for-one stock split. After the split, the par value of the stock:
A) remained the same as before the split.
B) was reduced to $3.75 per share.
C) was reduced by $3.75 per share.
D) was reduced to $10.00 per share.
24) The payment of a cash dividend was recorded as payment to Miscellaneous Expense. This error
would cause:
A) the period end assets to be overstated.
B) the period end liabilities to be overstated.
C) the period end stockholders’ equity to be overstated.
D) the period’s net income to be overstated.
25) A corporation may issue a stock dividend for which of the following reasons?
A) May want to decrease permanent capital in the business
B) May want to increase market value
C) May be short of cash and unable to pay a cash dividend
D) None of the above are correct.
26) A dividend is declared by:
A) the board of directors.
B) president of the corporation.
C) CFO of the corporation.
D) stockholders.
27) Which of the following in not true about retained earnings?
A) Declaring a stock split will have no effect on retained earnings.
B) Appropriating retained earnings will have no effect on total stockholders’ equity.
C) Distributing stock dividends will have no effect on retained earnings.
D) Declaring cash dividends will increase retained earnings.
28) The board of Bogswell, Inc. declared a $2 per share cash dividend on common stock. The corporation
has 4,000 shares of common stock outstanding. The entry required to distribute the dividend is:
A) debit Cash; credit Common Dividends Payable.
B) debit Common Dividends Payable; credit Cash.
C) debit Common Dividends Payable; credit Retained Earnings.
D) debit Cash Dividends; credit Common Dividends Payable.
29) When a stock dividend is distributed, the account to be credited would be:
A) common stock.
B) paid-in capital in excess of par.
C) stock dividends distributable.
D) stock dividends.
30) An exchange of one share of an old issue of stock for a multiple number of shares of a new issue of
stock with reduced par value is known as a:
A) property dividend.
B) stock dividend.
C) stock split.
D) liquidating dividend.
31) Declaration of a cash dividend was recorded by debiting Operations Expense and crediting Cash. This
error would cause:
A) the period end assets to be overstated.
B) the period end liabilities to be overstated.
C) the period end stockholders’ equity to be understated.
D) None of the above are correct.
32) The declaration of a stock dividend was credited to Dividends Payable and debited to Retained
Earnings. This error would cause:
A) the period end assets to be overstated.
B) the period end liabilities to be overstated.
C) the period end stockholders’ equity to be overstated.
D) the period’s net income to be overstated.
33) The payment of a cash dividend was debited to Retained Earnings and credited to Cash. This error
would cause:
A) the period end assets to be overstated.
B) the period end stockholders’ equity to be overstated.
C) the period end stockholders’ equity to be understated.
D) the period’s net income to be overstated.
34) When a stock dividend was declared above par the excess was ignored and only the par value was
used. This error would cause:
A) the period end assets to be overstated.
B) the period end liabilities to be overstated.
C) the period end stockholders’ equity to be overstated.
D) None of these are correct.
35) Distribution of earnings to stockholders may be in the form of cash, or additional stock.
36) The date of record determines who receives the declared dividends.
37) Retained earnings represent past accumulations of net income.
38) Retained Earnings is a current liability on the balance sheet.
39) Common Stock Dividend Distributable is a liability account.
40) A stock split has no effect on retained earnings.
41) A stock split will not affect total stockholders‘ equity or the number of shares of stock issued.
42) A stock dividend may be distributed even if the company is short of cash.
43) Quinn Corporation has 2,000 shares of common stock issued and outstanding. The board of directors
declared a $1.00 per share cash dividend on January 5, payable on March 5, to stockholders of record on
February 5. Prepare the appropriate journal entries for the declaration and payment of the dividend.
44) The Tiger Football Corporation has 7,500 shares of common stock issued and outstanding. The board
of directors declared a $2.00 per share cash dividend on January 9, payable on March 9, to stockholders of
record on February 9. Prepare the appropriate journal entries.
45) The Tiger Football Corporation has 7,500 shares of $1.00 par value common stock issued and
outstanding. The board of directors declared a 2–for-1 stock split May 10, distributable on June 15, to
stockholders of record on June 1. The Retained Earnings account balance is $50,000 on May 10. Prepare
the equity section of the balance sheet on May 10 and June 15, before and after the stock split.