Question 1

The Northern Corporation issues 7,000 shares of $100 par value preferred stock for cash at $120 per share. The entry to record the transaction will consist of a debit to Cash for $840,000 and a credit or credits to

Accepted Answer

The preferred stock was issued at a premium of $20 per share ($120-$100). The total premium received is $140,000 ($20 x 7,000 shares). Therefore, the entry should credit Preferred Stock for the par value amount of $700,000 and credit Paid-in Capital in Excess of Par-Preferred Stock for the premium amount of $140,000, resulting in a total credit of $840,000.

Question 2

Ranier Company is authorized to issue 10,000 shares of 8%, $100 par value preferred stock and 500,000 shares of no-par common stock with a stated value of $1 per share. If Ranier issues 5,000 shares of preferred stock for land with an asking price of $575,000 and a market value of $550,000, which of the following would be the journal entry for Ranier to record?

Accepted Answer

The answer of Ranier Company is authorized to issue 10,000...

Question 3

Dividends in arrears on cumulative preferred stock

Accepted Answer

Dividends in arrears on cumulative preferred stock must be paid before any dividends can be distributed to common stockholders. This ensures that preferred stockholders receive their specified dividends before common stockholders are allocated any dividends.

Question 4

Cooke Corporation issues 10,000 shares of $50 par value preferred stock for cash at $80 per share. The entry to record the transaction will consist of a debit to Cash for $800,000 and a credit or credits to

Accepted Answer

The par value of the preferred stock is $50 per share, and the company is selling it for $80 per share, which means each share has a premium of $30. The total amount received for the 10,000 shares is $800,000 ($80 per share x 10,000 shares). The Preferred Stock account will be credited for the par value of the shares issued, which is $500,000 ($50 per share x 10,000 shares), and the remaining $300,000 ($30 premium per share x 10,000 shares) will be credited to the Paid-in Capital in Excess of Par-Preferred Stock account.

Question 5

When preferred stock is cumulative, preferred dividends not declared in a period are

Accepted Answer

When preferred stock is cumulative, preferred dividends not declared in a period are called dividends in arrears. This means that they accumulate and must be paid before any dividends can be paid to common stockholders. They are not considered a liability until the company fails to pay them for an extended period of time.

Question 6

Accounting for treasury stock is done by the

Accepted Answer

Treasury stock is recorded using the cost method, which involves recording the purchase of treasury stock at cost and deducting the cost from the total shareholders' equity. The other methods (FIFO, LIFO, lower of cost or market) are typically used for inventory valuation, not for treasury stock.

Question 7

Which of the following is not a right or preference associated with preferred stock?

Accepted Answer

Preferred stockholders typically do not have the right to vote in corporate elections, unlike common stockholders who do have that right. Therefore, the correct answer is A.

Question 8

Lakeland, Inc. has 25,000 shares of 6%, $100 par value, noncumulative preferred stock and 50,000 shares of $1 par value common stock outstanding at December 31, 2018. There were no dividends declared in 2017. The board of directors declares and pays a $250,000 dividend in 2018. What is the amount of dividends received by the common stockholders in 2018?

Accepted Answer

The preferred stockholders receive 6% of $100 par value per share, which is $6 per share. With 25,000 shares, they receive $150,000 in dividends. The remaining $100,000 of the $250,000 total dividend is distributed to the common stockholders.

Question 9

Darman Company issued 700 shares of no-par common stock for $7,700. Which of the following journal entries would be made if the stock has a stated value of $2 per share?

Accepted Answer

The answer of Darman Company issued 700 shares of no-par...

Question 10

Era Company has 3,000 shares of 6%, $100 par non-cumulative preferred stock outstanding at December 31, 2018. No dividends have been paid on this stock for 2017 or 2018. Dividends in arrears at December 31, 2018 total

Accepted Answer

Non-cumulative preferred stock does not accumulate unpaid dividends. Therefore, there are no dividends in arrears for 2017 or 2018.

Question 11

Vega Corporation's December 31, 2018 balance sheet showed the following: 8% preferred stock, $20 par value, cumulative, 10,000 shares  Vega declared and paid a $58,000 cash dividend on December 15, 2018. If the company's dividends in arrears prior to that date were $10,000, Vega's common stockholders received

Accepted Answer

Preferred stockholders have a priority claim on dividends before common stockholders. The preferred stock is cumulative, which means that any past-due dividends must be paid before any dividends can be paid to common stockholders.

Before the dividend of $58,000 was paid, there were $10,000 in dividends in arrears. This means that $10,000 of the $58,000 went to paying off the past-due dividends, leaving $48,000 to be distributed to the preferred and common stockholders.

The 8% preferred stock has a par value of $20, so each share is entitled to an annual dividend of $1.60 ($20 x 8%). There are 10,000 shares, so the annual dividend for all the preferred stock is $16,000 ($1.60 x 10,000).

Since there were $10,000 in dividends in arrears, the preferred stockholders were entitled to $26,000 in dividends: $16,000 for the current year plus $10,000 in past-due dividends. This leaves $22,000 ($48,000 - $26,000) available to be distributed to common stockholders.

Therefore, the common stockholders received a dividend of $36,000 ($22,000 + $14,000 in current-year dividends for common stockholders). The correct answer is C.

Question 12

Treasury stock is generally accounted for by the

Accepted Answer

Treasury stock is generally accounted for by the cost method, which records the stock at its original cost when it was first issued and subsequently reacquired by the company. This method is preferred because it simplifies accounting and reduces potential fluctuations in reported earnings due to changes in the market value of the stock.

Question 13

Salon Company originally issued 4,000 shares of $10 par value common stock for $120,000 ($30 per share). Salon subsequently purchases 400 shares of treasury stock for $27 per share and resells the 400 shares of treasury stock for $29 per share. In the entry to record the sale of the treasury stock, there will be a

Accepted Answer

The sale of treasury stock results in an increase in the Paid-In Capital from Treasury Stock account, which represents the amount the company received in excess of the cost of the treasury stock. The calculation of this amount is $29 (selling price) - $27 (cost) = $2 per share, multiplied by the 400 shares sold, which equals $800. Therefore, there will be a credit to Paid-In Capital from Treasury Stock for $800. The Common Stock and Treasury Stock accounts are not affected by the sale of treasury stock. The Paid-In Capital in Excess of Par account is only used when stock is sold above its par value, which is not the case in this scenario.

Question 14

If preferred stock is cumulative, the

Accepted Answer

If preferred stock is cumulative, the dividends not declared in a given year accumulate and are called dividends in arrears. This means that before any dividends can be paid to common stockholders, the preferred stockholders must receive all of their cumulative dividends in arrears.

Question 15

Cooke Corporation issues 10,000 shares of $50 par value preferred stock for cash at $60 per share. In the stockholders' equity section, the effects of the transaction above will be reported

Accepted Answer

The issuance of preferred stock for more than its par value results in a credit to the capital stock account for the par value and a credit to the additional paid-in capital account for the excess of the issue price over the par value. Therefore, the effects of the transaction will be reported under both the capital stock and additional paid-in capital sections.

Question 16

Seven thousand shares of treasury stock of Marker, Inc., previously acquired at $14 per share, are sold at $20 per share. The entry to record this transaction will include a

Accepted Answer

The sale of treasury stock above its cost results in a credit to Paid-In Capital from Treasury Stock for the excess amount, which is ($20 - $14) * 7,000 = $42,000.

Question 17

Dividends in arrears on cumulative preferred stock

Accepted Answer

Dividends in arrears on cumulative preferred stock are not recognized as liabilities until they are declared. However, they should be disclosed in the notes to the financial statements to inform users about the potential obligation and its impact on future cash flows.

Question 18

Ralston Company is authorized to issue 10,000 shares of 8%, $100 par value preferred stock and 500,000 shares of no-par common stock with a stated value of $1 per share. If Ralston issues 9,000 shares of common stock to pay its recent attorney's bill of $37,500 for legal services on a land access dispute, which of the following would be the journal entry for Ralston to record?

Accepted Answer

The answer of Ralston Company is authorized to issue 10,000...

Question 19

Brown Company has 1,000 shares of 5%, $100 par cumulative preferred stock outstanding at December 31, 2018. No dividends have been paid on this stock for 2017 or 2018. Dividends in arrears at December 31, 2018 total

Accepted Answer

The cumulative preferred stock means that if any dividend is missed, it accumulates and must be paid before any dividends can be paid to common stockholders. Since no dividends have been paid on this stock for 2017 or 2018, the dividends in arrears at December 31, 2018 total 2 years x $5,000/year = $10,000. Therefore, the correct answer is D.

Question 20

Treasury Stock is a(n)

Accepted Answer

Treasury stock is a contra stockholders' equity account because it represents that portion of the company's own shares that have been repurchased and are no longer outstanding. As a contra account, it reduces the total amount of stockholders' equity on the balance sheet.

Quiz 11: Corporations: Organization, Stock Transactions

The Northern Corporation issues 7,000 shares of $100 par value preferred stock for cash at $120 per share. The entry to record the transaction will consist of a debit to Cash for $840,000 and a credit or credits to

Dividends in arrears on cumulative preferred stock

Cooke Corporation issues 10,000 shares of $50 par value preferred stock for cash at $80 per share. The entry to record the transaction will consist of a debit to Cash for $800,000 and a credit or credits to

When preferred stock is cumulative, preferred dividends not declared in a period are

Accounting for treasury stock is done by the

Which of the following is not a right or preference associated with preferred stock?

Darman Company issued 700 shares of no-par common stock for $7,700. Which of the following journal entries would be made if the stock has a stated value of $2 per share?

Era Company has 3,000 shares of 6%, $100 par non-cumulative preferred stock outstanding at December 31, 2018. No dividends have been paid on this stock for 2017 or 2018. Dividends in arrears at December 31, 2018 total

Treasury stock is generally accounted for by the

If preferred stock is cumulative, the

Cooke Corporation issues 10,000 shares of $50 par value preferred stock for cash at $60 per share. In the stockholders' equity section, the effects of the transaction above will be reported

Seven thousand shares of treasury stock of Marker, Inc., previously acquired at $14 per share, are sold at $20 per share. The entry to record this transaction will include a

Dividends in arrears on cumulative preferred stock

Brown Company has 1,000 shares of 5%, $100 par cumulative preferred stock outstanding at December 31, 2018. No dividends have been paid on this stock for 2017 or 2018. Dividends in arrears at December 31, 2018 total

Treasury Stock is a(n)