TestBank financial accounting 2n spiceland ch10

Outstanding common stock refers to the total number of shares: A.. Authorized common stock refers to the total number of shares: A.. Assuming the preferred stock is cumulative, how much

than the amount they invested in the company

True False

incurred, over and beyond the investment they have made

12 Par value has a direct relationship to the market value of the common stock

True False

13 A company credits Additional Paid-in Capital for the portion of the cash proceeds above par value received for the issuance of stock

True False

14 In the event a corporation is dissolved, common stockholders receive preference over preferred

stockholders in the distribution of assets

True False

15 Convertible preferred stock allows the stockholder to exchange shares of preferred stock for common stock

at a specified conversion ratio

24 Retained earnings represent the earnings retained in the corporation - earnings not paid out as dividends to stockholders

37 The return on equity measures the ability of company management to generate earnings from the resources that owners provide

44 Which of the following stages of equity financing comes last in the traditional order of progression?

A Investment by friends and family of the founders

B Investment by the founders of the business

C Initial public offering (IPO)

D Outside investment by "angel" investors and venture capital firms

45 In terms of total sales, assets, and earnings, the dominant form of business organization is the:

A Sole proprietorship

B Partnership

C Corporation

D Limited liability company (LLC)

46 Common stockholders usually have all of the following rights except:

A To receive dividends when declared

B To share in the distribution of assets

C To elect board of directors

D To participate in the day-to-day operations

47 Which of the following is a reason that a corporation would prefer to issue stock instead of bonds?

48 Advantages of the corporate form that have led to the growth of this form of business ownership include all

of the following except:

A Ease of raising capital

B Low government regulation

C Limited liability

D Lack of mutual agency

49 Advantages of the corporate form of business include which of the following?

I Double taxation

II Ability to raise capital

III Lack of mutual agency

IV More paperwork

52 The correct order from the smallest number of shares to the largest number of shares is:

A Authorized, issued, and outstanding

B Outstanding, issued, and authorized

C Issued, outstanding, and authorized

D Issued, authorized, and outstanding

53 Outstanding common stock refers to the total number of shares:

A Issued

B Issued plus treasury stock

C Issued less treasury stock

D Authorized

54 Authorized common stock refers to the total number of shares:

A Outstanding

B Issued

C Issued and outstanding

D That can be issued

55 Outstanding common stock is:

A Stock that is performing well on the New York Stock Exchange

B Stock that has been authorized by the state for issue

C Stock issued plus treasury stock

D Stock in the hands of stockholders

56 Issued stock refers to the number of shares:

A Outstanding plus treasury shares

B Authorized

C In the hand of stockholders

D That may be issued under state law

57 The par value of shares issued is normally recorded in the:

A Additional Paid-in Capital account

B Common Stock account

C Retained Earnings account

D Treasury Stock account

58 The par value of common stock represents:

A The legal capital per share of stock assigned when the corporation was first established

B The liquidation value of a share

C The market value of a share of stock

D The amount received when the stock was issued

59 If a company issues 1,000 shares of 1 par value common stock for $30 per share, what would be the effect

on the accounting equation?

63 Hayes Corporation issues 100 shares of its $1 par value common stock for $15 per share The entry to

record the issuance will not include a:

A Dividends and voting rights

B Par value and dividends

C The preemptive right and voting rights

D Dividends and distribution of assets if the corporation is dissolved

65 Preferred stock:

A is always recorded as a liability

B is always recorded as part of stockholders' equity

C can have features of both liabilities and stockholders' equity

D is not included in either liabilities or stockholders' equity

66 Which of the following financing alternatives has the highest preference of payment in a case where the company liquidates its assets?

A Common Stock

B Preferred Stock

C Bonds

D They have equal preference

67 Which of the following is not a potential feature of preferred stock?

A Convertible

B Redeemable

C Cumulative

D They all are potential features of preferred stock

68 Which of the following has the highest expected return to the investor?

69 A company issued 1,000 shares of $1 par value preferred stock for $5 per share What is true about the journal entry to record the issuance?

pay dividends of $18,000 in 2012 Assuming the preferred stock is cumulative, how much of the $18,000

dividend will be paid to preferred stockholders and how much will be paid to common stockholders in 2012?

dividends of $18,000 in 2012 Assuming the preferred stock is noncumulative, how much of the $18,000

dividend will be paid to preferred stockholders and how much will be paid to common stockholders in 2012?

72 California Adventures issues 5,000 shares of 8%, $100 par value preferred stock at the beginning of 2011 All remaining shares are common stock The company was not able to pay dividends in 2011, but plans to

pay dividends of $100,000 in 2012 Assuming the preferred stock is cumulative, how much of the $100,000

dividend will be paid to preferred stockholders and how much will be paid to common stockholders in 2012?

73 California Adventures issues 5,000 shares of 8%, $100 par value preferred stock at the beginning of

2011 All remaining shares are common stock The company was not able to pay dividends in 2011, but

plans to pay dividends of $100,000 in 2012 Assuming the preferred stock is noncumulative, how much

of the $100,000 dividend will be paid to preferred stockholders and how much will be paid to common stockholders in 2012?

74 Treasury Stock is normally reported as:

A A reduction of total stockholders' equity

B An asset account

C A liability account

D An expense account

75 When treasury stock is resold at a price above cost:

A A gain account is credited

B A loss is reported

C A revenue account is credited

D Additional Paid-in Capital is increased

76 When treasury stock is resold at a price below cost:

A Additional Paid-in Capital is decreased

B Additional Paid-in Capital is increased

C A gain is reported on the income statement

D A loss is reported on the income statement

77 When treasury stock is purchased, what is the effect on assets and stockholders' equity?

A Assets and stockholders' equity increase

B Assets and stockholders' equity decrease

C Assets increase and stockholders' equity decrease

D Assets decrease and stockholders' equity increase

78 When treasury stock is purchased, what is the effect on total stockholders' equity?

A has a normal credit balance

B decreases stockholders' equity

C is recorded as an investment

D increases stockholders' equity

80 Which of the following statements about treasury stock transactions is true?

83 The corporation's own stock that has been issued and then repurchased by the company is referred to as:

85 Crossroads Mall had 100,000 outstanding shares of common stock On June 16, 2012, Crossroads

repurchased 20,000 shares of its own stock at $30 per share On July 23, 2012, Crossroads resold 10,000

shares at $28 per share What net effect did the repurchase and the resell of common stock have on the

87 On November 6, Coleman Corp reacquired 1,000 shares of its $2 par value common stock for $27 each

On November 20, Coleman Corp reissued 400 shares for $30 each Which of the following is correct regarding the effect of the journal entry for the reissued shares?

88 On February 22, Brett Corporation reacquired 200 shares of its $5 par value common stock for $25 each

On March 15, the company reissued 70 shares for $30 each What is true of the journal entry for reissuing their shares?

89 Retained Earnings represent a company's:

A Net income less dividends since the company first started

B Undistributed net assets

C Extra paid-in capital

92 Retained Earnings:

A has a normal debit balance

B decreases stockholders' equity

C is equal to the balance in cash

D increases stockholders' equity

93 Journal entries to record cash dividends are made on the:

A declaration date, record date, and payment date

B record date and payment date

C delaration date and payment date

D delaration date and record date

94 The board of directors of Capstone Inc declared a $0.60 per share cash dividend on its $1 par common stock On the date of declaration, there were 50,000 shares authorized, 20,000 shares issued, and 5,000 shares held as treasury stock What is the entry for the dividend declaration?

96 Over the first four years of the company's life, it earned the following net income (loss): $6,000; $3,000;

$6,000, and ($2,000) If the company's ending retained earnings is $10,000 after year 4, what is the average amount of dividends paid per year?

97 Rugby Rocks, Inc had a Retained Earnings balance of $12,000 at December 31, 2012 The company had

an average income of $7,500 over the next 3 years, and an ending Retained Earnings balance of $15,000 at

December 31, 2013 What was the total amount of dividends paid over the last three years?

98 Both cash dividends and stock dividends:

A reduce total assets

B reduce total liabilities

C reduce total stockholders' equity

D reduce retained earnings

99 The declaration and issuance of a stock dividend:

A Does not change total assets, liabilities, or total stockholders' equity

B Decreases total stockholders' equity and increases common stock

C Decreases assets and decreases total stockholders' equity

D Does not change retained earnings or paid-in capital

100.The issuer of a 100% common stock dividend (large stock dividend) to common stockholders should debit stock dividends for an amount equal to the

102.A feature common to both stock splits and stock dividends is

103.Large stock dividends and stock splits are issued primarily to:

A Lower the trading price of the stock per share

B Increase the number of authorized shares

C Increase legal capital

D Increase the number of outstanding shares

104.The Common Stock account on a company's balance sheet is measured as:

A The number of common shares outstanding x the stock's par value per share

B The number of common shares outstanding x the stock's current market value per share

C The number of common shares issued x the stock's par value per share

D The number of common shares issued x the stock's current market value per share

105.The statement of stockholders' equity shows

A Only the ending balance in each stockholders' equity account

B How each equity account changed over time

C Only the beginning balance in each stockholders' equity account

D Less information than the stockholders' equity section in the balance sheet

106.How does the stockholders' equity section in the balance sheet differ from the statement of stockholders' equity?

A The stockholders' equity section is more detailed than the statement of stockholders' equity

B

The stockholders' equity section shows balances at a point in time, whereas the statement of stockholders' equity shows activity over a period of time

C The stockholders' equity section shows activity over a period of time, whereas the statement of

stockholders' equity is at a point time

D There are no differences between them

107.Panhandle Corporation was organized on January 3, 2012 The firm was authorized to issue 100,000

shares of $5 par value common stock During 2012, Panhandle had the following transactions relating to shareholders' equity:

Issued 30,000 shares of common stock at $7 per share

Issued 20,000 shares of common stock at $8 per share

Reported a net income of $100,000

108.Roberto Corporation was organized on January 1, 2012 The firm was authorized to issue 100,000 shares of

$5 par value common stock During 2012, Roberto had the following transactions relating to stockholders' equity:

Issued 10,000 shares of common stock at $7 per share

Issued 20,000 shares of common stock at $8 per share

Reported a net income of $100,000

Paid dividends of $50,000

Purchased 3,000 shares of treasury stock at $10 (part of the 20,000 shares issued at $8)

What is total stockholders' equity at the end of 2012?

A $270,000

B $300,000

C $250,000

D $200,000

109.Return on equity is calculated as:

A Net income divided by average stockholders' equity

B Net income divided by ending stockholders' equity

C Net income divided by average market value of equity

D Net income divided by ending market value of equity

110.Why doesn't stockholders' equity equal the market value of equity?

A Stockholders' equity usually does equal the market value of equity

B Investors tend to incorrectly price the market value of equity

C

It's related to the use of historical cost to report many long-term assets and the expensing of value

generating costs such as research and development and advertising

D It's due to incorrect entries prepared by accountants

112.Which of the following statements is not true regarding earnings per share?

A Earnings per share is useful in comparing earnings performance across companies at the same point in time

B Earnings per share is useful in comparing earnings performance for the same company over time.C

Earnings per share is calculated as net income minus dividends on preferred stock all divided by the average number of common shares outstanding

D Earnings per share is forecasted by financial analysts

113.Financial information for Retro Designs includes the following selected data:

What is the company's earnings per share?

A $0.60

B $0.71

C $0.50

D $0.05

114.Financial information for Retro Designs includes the following selected data:

What is the company's price-earnings ratio?

A tends to be higher for growth stocks

B tends to be higher for value stocks

C indicates how a stock is trading in relation to cumulative earnings over the life of the company

D typically is less than 1

116.Hamilton International issues 5,000 shares of its $1 par value common stock to provide funds for further expansion If the issue price is $15 per share, what is the entry to record the issuance of the stock?

117.Environmental Designs issues 10,000 shares of its $1 par value common stock at $25 per share (1) Record the issuance of the stock (2) Record the issuance of the stock assuming it is no-par value stock

118.Northwest Clothing Supply has the following transactions during the year related to stockholders' equity:January 1 Issues 3,000 shares of no-par value common stock for $20 per share

March 15 Issues 800 shares of $20 par value preferred stock for $22 per share

December 1 Declares a cash dividend of $1 per share to all stockholders of record (both common and preferred) on October 15

December 15 Date of record

December 31 Pays the cash dividend declared on October 1

Record each of these transactions

119.Tropical Rainwear issues 1,000 shares of its $20 par value preferred stock for cash at $22 per share Record the issuance of the preferred shares