Deck 11: Reporting and Analyzing Equity

Question 1

Earnings per share is calculated by dividing the total number of common shares outstanding by net income.

Answer 1

False

Question 2

Par value of a stock refers to the:

A)Issue price of the stock.
B)Value assigned to a share of stock by the corporate charter.
C)Market value of the stock on the date of the financial statements.
D)Maximum selling price of the stock.
E)Dividend value of the stock.

Answer 2

B

Question 3

The costs of bringing a corporation into existence,including legal fees,promoter fees,and amounts paid to obtain a charter,are called:

A)Minimum legal capital
B)Stock subscriptions
C)Organization costs
D)Cumulative costs
E)Prepaid fees

Answer 3

C

Question 4

When a company declares cash dividends,retained earnings is reduced.

Question 5

The price-earnings ratio reveals information about the stock market's expectations for a company's future growth in earnings,dividends,and economic opportunities.

Question 6

When all of the authorized shares have the same rights and characteristics,the stock is called:

A)Preferred stock
B)Common stock
C)Par value stock
D)Stated value stock
E)No-par value stock

Question 7

Earnings per share is the amount of income earned per share of a company's outstanding (weighted-average) common stock.

Question 8

A stock option is also called a stock dividend.

Question 9

Changes in accounting estimates are accounted for in current and future periods.

Question 10

Common stock always carries a preference for receiving dividends over preferred stock.

Question 11

A debit balance in retained earnings is often referred to as a retained earnings deficit.

Question 12

Authorized stock is the total number of shares outstanding.

Question 13

An amount of assets defined by state law that stockholders must invest and leave invested in a corporation is called the:

A)Par value of preferred.
B)Minimum legal capital.
C)Premium capital.
D)Stated value.
E)Working capital.

Question 14

The total amount of stock that a corporation's charter allows it to issue is referred to as:

A)Issued stock
B)Outstanding stock
C)Common stock
D)Preferred stock
E)Authorized stock

Question 15

A corporation can issue both common and preferred stock.

Question 16

A corporation is a separate legal entity from its owners.

Question 17

A proxy is:

A)A legal document that gives a designated agent of a stockholder the power to vote the stock.
B)A contractual commitment by an investor to purchase unissued shares of stock.
C)An amount of assets defined by state law that stockholders must invest and leave invested in a corporation.
D)The right of common stockholders to protect their proportionate interests in a corporation by having the first opportunity to purchase additional shares of common stock issued by the corporation.
E)An arbitrary amount assigned to no-par stock by the corporation's board of directors.

Question 18

Minimum legal capital requirements often prohibit dividends when the dividends reduce stockholders' equity below the minimum specified amount.

Question 19

The right of common shareholders to protect their proportionate interest in a corporation by having the first opportunity to buy additional proportionate shares of common stock issued by the corporation is called a:

A)Preemptive right
B)Proxy right
C)Right to call
D)Financial leverage
E)Voting right

Question 20

Dividend yield is defined as the market price per share of a company's stock divided by its earnings per share.

Question 21

Stated value of no-par stock is:

A)Another name for redemption value.
B)An amount assigned to par value stock by the state of incorporation.
C)The market value of the stock on the date of issuance.
D)The difference between the par value of stock and the amount below or above par value contributed by the stockholder.
E)An amount assigned to no-par stock by the corporation's board of directors.

Question 22

When all of the authorized shares have the same rights and characteristics,the stock is referred to as:

A)Preferred shares under both IFRS and GAAP.
B)Common shares under both IFRS and GAAP.
C)Plain shares under IFRS and common shares under GAAP.
D)Simple shares under IFRS and pure shares under GAAP.
E)Share capital under IFRS and common shares under GAAP.

Question 23

The total amount of cash and other assets received by a corporation from its stockholders in exchange for common stock is:

A)Always equal to its par value.
B)Always equal to its stated value.
C)Referred to as contributed capital.
D)Referred to as retained earnings.
E)Always below its stated value.

Question 24

Changes in accounting estimates are:

A)Considered accounting errors.
B)Reported as prior period adjustments.
C)Accounted for with a cumulative "catch-up" adjustment.
D)Extraordinary items.
E)Accounted for in current and future periods.

Question 25

A company has 5,000 shares of $1 par value common stock and 6,000 shares of 2%,$98 par,noncumulative preferred stock outstanding.The balance in Retained Earnings at the beginning of the year was $750,000.Net income for the current year was $400,000.If the company paid a dividend of $3 per share on its common stock,what is the balance in Retained Earnings at the end of the year?

A)$1,123,240
B)$1,135,000
C)$1,150,000
D)$735,000
E)$723,240

Question 26

Prior period adjustments to financial statements can result from:

A)Changes in estimates.
B)Using unacceptable accounting principles.
C)Discontinued operations.
D)Changes in tax law.
E)Extraordinary items.

Question 27

A company issued 7% preferred stock with a $100 par value.This means that:

A)Preferred shareholders have a guaranteed dividend.
B)The amount of the potential dividend is $7 per year per preferred share.
C)Preferred shareholders are entitled to 7% of the annual income.
D)The market price per share will approximate $100 per share.
E)Only 7% of the total contributed capital can be preferred stock.

Question 28

Owners of preferred stock often do not have:

A)Ownership rights to assets of the corporation.
B)Voting rights.
C)Preference to dividends.
D)The right to sell their stock on the open market.
E)Preference to assets at liquidation.

Question 29

A company has 3,000 shares of $2 par value common stock and 1,500 shares of 8%,$150 par,noncumulative preferred stock outstanding.The balance in Retained Earnings at the beginning of the year was $400,000.The net loss for the current year was $30,000.If the company paid a dividend of $1 per share on its common stock,what is the balance in Retained Earnings at the end of the year?

A)$349,000
B)$365,800
C)$451,000
D)$400,000
E)$409,000

Question 30

A dividend preference for preferred stock means that:

A)Preferred stockholders receive their dividends before common shareholders.
B)Preferred shareholders are guaranteed dividends.
C)Dividends are paid quarterly.
D)Preferred stockholders prefer dividends more than common stockholders.
E)Dividends must be declared on preferred stock.

Question 31

A company has 2,000 shares of $1 par value common stock and 200 shares of 5%,$110 par,noncumulative preferred stock outstanding.The balance in Retained Earnings at the beginning of the year was $500,000.Net income for the current year was $300,000.If the company paid a dividend of $2 per share on its common stock,what is the balance in Retained Earnings at the end of the year?

A)$800,000
B)$805,100
C)$794,900
D)$494,900
E)$194,900

Question 32

Shamrock Company had net income of $30,000.On January 1,there were 8,000 shares of common stock outstanding.On April 1,the company issued an additional 2,000 shares of common stock.There were no other stock transactions.The company has earnings per share of:

A)$3.75
B)$3.00
C)$3.33
D)$15.00
E)$3.16

Question 33

Prior period adjustments are reported in the:

A)Income statement.
B)Balance sheet.
C)Statement of retained earnings.
D)Statement of cash flows.
E)Notes to the financial statements.

Question 34

The amount of income earned per share of a company's common stock is known as:

A)Restricted retained earnings per share.
B)Earnings per share.
C)Continuing operations per share.
D)Dividends per share.
E)Book value per share.

Question 35

Stockholders' equity consists of:

A)Long-term assets.
B)Contributed capital and retained earnings.
C)Contributed capital and par value.
D)Retained earnings and cash.
E)Premiums and discounts.

Question 36

Preferred stock on which the right to receive dividends is forfeited for any year that the dividends are not declared is referred to as:

A)Participating preferred stock
B)Callable preferred stock
C)Cumulative preferred stock
D)Convertible preferred stock
E)Noncumulative preferred stock

Question 37

The statement of changes in stockholders' equity:

A)Is part of the statement of retained earnings.
B)Shows only the ending balances in stockholders' equity.
C)Describes changes in contributed capital and retained earnings subcategories
D)Does not include changes in treasury stock.
E)Is reported by very few companies.

Question 38

A company had a beginning balance in retained earnings of $43,000.It had net income of $6,000 and paid out cash dividends of $5,625 in the current period.The ending balance in retained earnings account is equal to:

A)$108,625
B)$(12,625)
C)$11,375
D)$43,375
E)$(11,375)

Question 39

Shamrock Company had net income of $30,000.On January 1,there were 8,000 shares of common stock outstanding.On April 1,the company issued an additional 2,000 shares of common stock.The company declared a $2,700 dividend on its noncumulative,nonparticipating preferred stock.There were no other stock transactions.The company has an earnings per share of:

A)$2.87
B)$2.73
C)$3.41
D)$3.16
E)$3.75

Question 40

A corporation's minimum legal capital is often defined to be the total par value of the shares:

A)Issued
B)Authorized
C)Subscribed
D)Outstanding
E)In treasury

Question 41

A company has 1,000 shares of $100 par preferred stock.It also has 25,000 shares of common stock outstanding and its total stockholders' equity equals $500,000.The book value per common share is:

A)$15.38
B)$16.00
C)$19.23
D)$20.00
E)$100.00

Question 42

A company has net income of $850,000.It also has 125,000 weighted-average common shares outstanding and a market value per share of $115.The company's price-earnings ratio is equal to:

A)16.9
B)14.7
C)92.0
D)13.5
E)8.0

Question 43

A company paid $0.75 in cash dividends per share.It has earnings per share of $3.50 and a market price per share of $37.50.Its dividend yield equals:

A)11.7%
B)2.0%
C)10.9%
D)21.4%
E)46.7%

Question 44

A company has a market value per share of $73.00.Its net income is $1,750,000 and the weighted-average number of shares outstanding is 350,000.The company's price-earnings ratio is equal to:

A)20.9
B)4.2
C)14.6
D)20.0
E)6.8

Question 45

A company paid $0.48 in cash dividends per share.It has earnings per share of $4.20 and a market price per share of $30.00.Its dividend yield equals:

A)1.60%
B)6.25%
C)8.75%
D)11.40%
E)14.00%

Question 46

A company issued 60 shares of $100 par value stock for $7,000 cash.The total amount of contributed capital is:

A)$100
B)$600
C)$1,000
D)$6,000
E)$7,000

Question 47

A corporation issued 6,000 shares of its $10 par value common stock in exchange for land that has a market value of $84,000.The entry to record this transaction would include:

A)A debit to Common Stock for $60,000.
B)A debit to Land for $60,000.
C)A credit to Land for $60,000.
D)A credit to Contributed Capital in Excess of Par Value,Common Stock for $24,000.
E)A credit to Common Stock for $84,000.

Question 48

A company had net income of $250,000.On January 1,there were 12,000 shares of common stock outstanding.On May 1,the company issued an additional 9,000 shares of common stock.The company declared a $7,900 dividend on its noncumulative,nonparticipating preferred stock.There were no other stock transactions.The company had earnings per share of:

A)$13.45
B)$13.89
C)$11.53
D)$26.90
E)Amount cannot be determined as problem does not state if there are any dividends in arrears.

Question 49

The price-earnings ratio is calculated by dividing:

A)Market value per share by earnings per share.
B)Earnings per share by market value per share.
C)Dividends per share by earnings per share.
D)Dividends per share by market value per share.
E)Market value per share by dividends per share.

Question 50

A company has net income of $3,000,000.It has 600,000 weighted-average common shares outstanding and a price-earnings ratio of 17.What is the market value per share of this company's stock?

A)$5
B)$85
C)$176,470.58
D)$84.90
E)$17

Question 51

Book value per share:

A)Reflects the value per share if a company is liquidated at balance sheet amounts.
B)Is assets divided by equity.
C)Is assets divided by the number of common share outstanding.
D)Measures the worth of assets.
E)Is equal to par value per share.

Question 52

A corporation issued 300 shares of its $5 par value common stock in payment of a $1,800 charge from its accountant for assistance in filing its charter with the state.The entry to record this transaction will include:

A)A $1,800 credit to Common Stock.
B)A $1,500 debit to Organization Expenses.
C)A $300 credit to Contributed Capital in Excess of Par Value,Common Stock.
D)A $1,800 debit to Legal Expenses.
E)A $1,800 credit to Cash.

Question 53

Dividend yield is the percent of cash dividends paid to common shareholders relative to the:

A)Common stock's market value.
B)Earnings per share.
C)Investors' purchase price of the stock.
D)Amount of retained earnings.
E)Amount of cash.

Question 54

A corporation sold 14,000 shares of its $10 par value common stock at a cash price of $13 per share.The entry to record this transaction would include:

A)A debit to Contributed Capital in Excess of Par Value,Common Stock,for $42,000.
B)A debit to Cash for $140,000.
C)A credit to Common Stock for $182,000.
D)A credit to Common Stock for $140,000.
E)A credit to Contributed Capital in Excess of Par Value,Common Stock,for $182,000.

Question 55

A company has 500 shares of $50 par value preferred stock outstanding and the call price of its preferred stock is $60 per share.It also has 20,000 shares of common stock outstanding and the total value of its stockholders' equity is $680,000.The company's book value per common share equals:

A)$31.71
B)$32.50
C)$32.75
D)$33.17
E)$60.00

Question 56

A company has 40,000 shares of common stock outstanding.The stockholders' equity applicable to common shares is $470,000 and the par value per common share is $10.The book value per share is:

A)$0.09
B)$1.75
C)$10.00
D)$11.75
E)$47.50

Question 57

A company has net income of $2,800,000.It also has 400,000 weighted-average common shares outstanding and a price-earnings ratio of 20.What is the market value per share of this company's stock?

A)$2.85
B)$140
C)$20,000
D)$.35
E)$2,857.14

Question 58

Stocks that pay relatively large cash dividends on a regular basis are referred to as:

A)Small capital stocks
B)Mid capital stocks
C)Growth stocks
D)Large capital stocks
E)Income stocks

Question 59

A corporation was formed on January 1.The corporate charter authorized 100,000 shares of $10 par value common stock.During the first month of operation,the corporation issued 300 shares to its attorneys in payment of a $5,000 charge for drawing up the articles of incorporation.The entry to record this transaction would include:

A)A debit to Organization Expenses for $3,000.
B)A debit to Organization Expenses for $5,000.
C)A credit to Common Stock for $5,000.
D)A credit to Contributed Capital in Excess of Par Value,Common Stock,for $5,000.
E)A debit to Contributed Capital in Excess of Par Value,Common Stock,for $2,000.

Question 60

The Discount on Common Stock account reflects:

A)The difference between the par value of stock and its issue price when the issue price is below par value.
B)One share's portion of the issued corporation's net assets recorded in its accounts.
C)The difference between the par value of the stock and the amount contributed by stockholders when the amount contributed is more than par value.
D)An amount of assets defined by state law that stockholders must invest and leave invested in a corporation.
E)The amount a corporation must pay in addition to dividends in arrears if and when it exercises its right to retire a share of callable preferred stock.

Question 61

A corporation had 50,000 shares of $20 par value common stock outstanding on July 1.Later that day the board of directors declared a 10% stock dividend when the market value of each share was $27.The entry to record this dividend is:

A)
B)
C)
D)
E)No entry is made until the stock is issued

Question 62

A corporation had 20,000 shares of $10 par value common stock outstanding on January 10.Later that day the board of directors declared a 30% stock dividend when the market value of each share was $40.The entry to record this dividend is:

A)
B)
C)
D)
E)No entry is made until the stock is issued

Question 63

Preferred stock with a feature allowing preferred stockholders to share with common shareholders in any dividends in excess of the percent or dollar amount stated on the preferred stock is called:

A)Cumulative preferred stock
B)Callable preferred stock
C)Participating preferred stock
D)Convertible preferred stock
E)Preferential preferred stock

Question 64

A company issued 60 shares of $100 par value stock for $7,000 cash.The total amount of paid-in capital in excess of par is:

A)$100
B)$600
C)$1,000
D)$6,000
E)$7,000

Question 65

A corporation issued 5,000 shares of $10 par value common stock in exchange for some land with a market value of $60,000.The entry to record this exchange is:

A)
B)
C)
D)
E)

Question 66

A liquidating dividend is:

A)Only declared when a corporation closes down.
B)A return of a part of the original investment back to the stockholders.
C)Not allowed under federal law.
D)Only paid in assets other than cash.
E)Only paid in shares of stock.

Question 67

A company's board of directors votes to declare a cash dividend of $0.75 per share.The company has 15,000 shares authorized,10,000 issued,and 9,500 shares outstanding.The total amount of the cash dividend is:

A)$375
B)$4,125
C)$7,125
D)$7,500
E)$11,250

Question 68

A corporation declared and issued a 15% stock dividend on November 1.The following up-to-date information was available immediately prior to the dividend: The amount that total stockholders' equity will increase (decrease) as a result of recording this stock dividend is:

A)$45,000
B)$135,000
C)$(90,000)
D)$(135,000)
E)$0

Question 69

A corporation's distribution of additional shares of its own stock to its stockholders without the receipt of any payment in return is called a:

A)Stock dividend
B)Stock subscription
C)Premium on stock
D)Discount on stock
E)Treasury stock

Question 70

Achieving an increased return on common stock by paying dividends on preferred stock at a rate that is less than the rate of return earned with the assets invested from the preferred stock issuance is called:

A)Financial leverage
B)Discount on stock
C)Premium on stock
D)Preemptive right
E)Capital gain

Question 71

Xtreme Sports has $100,000 par,8% noncumulative,nonparticipating,preferred stock outstanding.Xtreme Sports also has $500,000 par common stock outstanding.In the company's first year of operation,no dividends were paid.During the second year,Xtreme Sports paid cash dividends of $30,000.This dividend should be distributed as follows:

A)$8,000 preferred; $22,000 common.
B)$16,000 preferred; $14,000 common.
C)$7,500 preferred; $22,500 common.
D)$15,000 preferred; $15,000 common.
E)$0 preferred; $30,000 common.

Question 72

A stock dividend transfers:

A)Contributed capital to retained earnings.
B)Retained earnings to contributed capital.
C)Retained earnings to assets.
D)Contributed capital to assets.
E)Assets to contributed capital.

Question 73

A corporation had 40,000 shares of $10 par value common stock outstanding on August 1.Later that day,the board of directors declared a 9% stock dividend when the market value of each share was $72.The entry to record this dividend is:

A)
B)
C)
D)
E)No entry is made until the stock is issued

Question 74

Assume Garrison Guitar Company declared a $0.28 per share cash dividend and that the company has 25,000 shares authorized,19,000 shares issued,and 12,000 shares of common stock outstanding.The general journal entry to record the dividend declaration is:

A)
B)
C)
D)
E)

Question 75

A premium on common stock:

A)Is the amount paid in excess of par by purchasers of newly issued stock.
B)Is the difference between par value and issue price when the amount paid is below par
C)Represents profit from issuing stock.
D)Represents capital gain on sale of stock.
E)Is prohibited in most states.

Question 76

Preferred stock that the issuing corporation at its option may retire by paying a specified amount to the preferred stockholders plus any dividends in arrears is called:

A)Convertible preferred stock
B)Callable preferred stock
C)Premium stock
D)Cumulative preferred stock
E)Participating preferred stock

Question 77

A company declared a $0.50 per share cash dividend.The company has 20,000 shares authorized,9,000 shares issued,and 8,000 shares of common stock outstanding.The journal entry to record the dividend declaration is:

A)
B)
C)
D)
E)

Question 78

The date the board of directors votes to pay a dividend is called the:

A)Date of stockholders' meeting
B)Date of declaration
C)Date of record
D)Date of payment
E)Liquidating date

Question 79

Preferred stock on which the right to be paid both the current and all prior periods' unpaid dividends before any dividend is paid to common stockholders is called:

A)Noncumulative preferred stock
B)Participating preferred stock
C)Callable preferred stock
D)Cumulative preferred stock
E)Convertible preferred stock

Question 80

On September 1,a corporation had 50,000 shares of $5 par value common stock and $1,000,000 of retained earnings.On that date,when the market price of the stock is $15 per share,the corporation issues a 2-for-1 stock split.The general journal entry to record this transaction is:

A)
B)
C)
D)
E)No entry is made for this transaction.