Question 1

Sabas Company has 20,000 shares of $100 par, 2% cumulative preferred stock and 100,000 shares of $50 par common stock. The following amounts were distributed as dividends:Year 1$10,000Year 245,000Year 390,000​Determine the dividends per share for preferred and common stock for the third year.

Accepted Answer

In the third year, preferred stockholders must be paid their cumulative dividends before any dividends are distributed to common stockholders. The annual dividend for preferred stock is 2% of the $100 par value, which equals $2 per share. With 20,000 shares, the total annual preferred dividend is $40,000. In Year 1, only $10,000 was distributed, which is less than the $40,000 needed for preferred dividends, leaving a $30,000 deficit. In Year 2, $45,000 was distributed; after covering the $30,000 deficit from Year 1, $15,000 of Year 2's dividends go towards the Year 2 preferred dividends, leaving a $25,000 deficit for Year 2. In Year 3, $90,000 is available for dividends. The first $25,000 covers the remaining Year 2 preferred dividend deficit, and the next $40,000 covers Year 3's preferred dividends, totaling $65,000 for preferred dividends. This leaves $25,000 for common stock dividends. With 100,000 shares of common stock, this results in a dividend of $0.25 per share. Therefore, preferred stockholders receive their full $2.00 per share, and common stockholders receive $0.25 per share.

Question 2

A corporation has 50,000 shares of $25 par stock outstanding that has a current market value of $150 per share. If the corporation issues a 5-for-1 stock split, the market value of the stock after the split will be approximately

Accepted Answer

After the 5-for-1 stock split, each shareholder will receive 5 shares for every 1 share they currently own. Therefore, the number of outstanding shares will increase from 50,000 to 250,000 (5 times more). The total value of the shares will remain the same ($150 per share x 50,000 shares = $7,500,000), but the par value of each share will decrease from $25 to $5 (25/5 = 5). Therefore, the market value of the stock after the split will be approximately $30 ($7,500,000/250,000 shares = $30 per share).

Question 3

A reduction of par or stated value of stock results from a

Accepted Answer

A reduction of par or stated value of stock results from a stock split where the number of outstanding shares increases while the par or stated value decreases, essentially dividing the existing stock into multiple smaller pieces. Liquidating dividends are distributions made to shareholders when a company is closing down or selling off its assets, preferred dividends are payments made to preferred shareholders before common shareholders, and stock options are contracts that give employees the option to purchase company stock at a certain price.

Question 4

When a corporation completes a 3-for-1 stock split,

Accepted Answer

In a 3-for-1 stock split, each share is divided into three, which typically leads to a decrease in both the market price per share and the par value per share. This adjustment is made to make the stock more accessible to investors by lowering the trading price, without affecting the total value of the company or the proportionate ownership of existing shareholders.

Question 5

A company with 100,000 authorized shares of $4 par common stock issued 40,000 shares at $8. Subsequently, the company declared a 4% stock dividend on a date when the market price was $12 per share. What is the amount transferred from the retained earnings account to paid-in capital accounts as a result of the stock dividend?

Accepted Answer

The amount transferred from retained earnings to paid-in capital for a 4% stock dividend on 40,000 shares (which is 1,600 shares, as 4% of 40,000) at a market price of $12 per share is calculated as 1,600 shares * $12 = $19,200.

Question 6

Nevada Corporation has 30,000 shares of $25 par stock outstanding that has a current market value of $120. If the corporation issues a 5-for-1 stock split, the number of shares outstanding will be

Accepted Answer

In a 5-for-1 stock split, each existing share is split into 5 shares, so the total number of shares becomes 30,000 * 5 = 150,000 shares.

Question 7

Sabas Company has 20,000 shares of $100 par, 2% cumulative preferred stock and 100,000 shares of $50 par common stock. The following amounts were distributed as dividends:Year 1$10,000Year 245,000Year 390,000​Determine the dividends per share for preferred and common stock for the second year.

Accepted Answer

In the second year, the total dividends distributed are $45,000. The preferred stock dividends are calculated first because they are cumulative and have priority over common stock dividends. The annual dividend for preferred stock is 2% of the $100 par value, which equals $2 per share. With 20,000 shares, the total preferred dividends are $40,000 ($2 * 20,000). Since only $10,000 was paid in the first year, the remaining $30,000 is paid in the second year, leaving $15,000 ($45,000 - $30,000) for the current year's preferred dividends. This fully covers the $40,000 needed for the current year's preferred dividends, with no remaining amount for common stock dividends. Therefore, preferred stockholders receive $2.25 per share ($45,000 total for preferred dividends divided by 20,000 shares), and common stockholders receive $0.

Question 8

A company with 100,000 authorized shares of $4 par common stock issued 40,000 shares at $8. Subsequently, the company declared a 2% stock dividend on a date when the market price was $11 per share. What is the amount transferred from the retained earnings account to paid-in capital accounts as a result of the stock dividend?

Accepted Answer

The answer of A company with 100,000 authorized shares of...

Question 9

On January 1, Vermont Corporation had 40,000 shares of $10 par value common stock issued and outstanding. All 40,000 shares had been issued in a prior period at $20 per share. On February 1, Vermont purchased 3,750 shares of treasury stock for $24 per share and later sold the treasury shares for $21 per share on March 1.​The journal entry to record the purchase of the treasury shares on February 1 would include a

Accepted Answer

When a company purchases its own shares and holds them in treasury, the account to be debited is the Treasury Stock account. Therefore, the journal entry to record the purchase of 3,750 shares of treasury stock for $24 per share on February 1 will include a debit to Treasury Stock for $90,000 (3,750 x $24). Option A is incorrect because Treasury Stock is a contra equity account, and therefore, it will be debited. Option C is incorrect because there is no loss in this transaction. Option D is incorrect because there is no gain in this transaction.

Question 10

A company with 100,000 authorized shares of $4 par common stock issued 50,000 shares at $9. Subsequently, the company declared a 2% stock dividend on a date when the market price was $10 per share. The effect of the declaration and issuance of the stock dividend is to

Accepted Answer

The declaration and issuance of a stock dividend decrease retained earnings because the company is distributing its earnings to shareholders in the form of additional shares. This action increases common stock because more shares are being issued. It also increases paid-in capital beyond the par value of the shares issued as part of the dividend.

Question 11

The primary purpose of a stock split is to

Accepted Answer

A stock split increases the number of outstanding shares while decreasing the market price of the stock per share. This is done in order to make the stock more affordable and accessible to a larger number of investors. It does not directly affect paid-in capital, retained earnings, or the market price of the stock per share.

Question 12

A corporation has 50,000 shares of $25 par stock outstanding that has a current market value of $120. If the corporation issues a 5-for-1 stock split, the par value of the stock after the split will be

Accepted Answer

A 5-for-1 stock split means that for every 1 share an investor owns, they will receive 5 additional shares. Therefore, the total number of shares outstanding will increase by a factor of 5, to 250,000 (50,000 x 5). 
The market value of the stock will also decrease proportionally to the split, so after the split, each share will have a market value of $24 ($120/5). 
However, the par value of the stock will decrease by the same factor as the split, to $5 ($25/5). 
Therefore, the answer is A: $5.

Question 13

Treasury stock shares are

Accepted Answer

Treasury stock shares are issued shares that have been bought back by the corporation and are no longer considered outstanding.

Question 14

A corporation has 50,000 shares of $28 par stock outstanding that has a current market value of $150 per share. If the corporation issues a 4-for-1 stock split, the market value of the stock will fall to approximately

Accepted Answer

After a 4-for-1 stock split, each share is divided into 4, so the market value per share is divided by 4 as well. Therefore, the new market value is $150 / 4 = $37.50.

Question 15

How is treasury stock shown on the balance sheet?

Accepted Answer

Treasury stock is shown on the balance sheet as a decrease in stockholders' equity. This is because treasury stock represents shares of a company's own stock that have been repurchased by the company and are no longer outstanding. As a result, they are subtracted from the total amount of stockholders' equity.

Question 16

When a stock dividend is declared, which of the following accounts is credited?

Accepted Answer

When a stock dividend is declared, the company must transfer the ownership of the newly issued shares from its treasury stock to its shareholders. Therefore, a new account called "Stock Dividends Distributable" is credited to indicate that these shares are now pending distribution to shareholders. It is not appropriate to credit Common Stock since the new shares have not been issued yet. Dividends Payable is used for cash dividends rather than stock dividends, and Retained Earnings is not affected by the declaration of a stock dividend.

Question 17

Sabas Company has 20,000 shares of $100 par, 2% cumulative preferred stock and 100,000 shares of $50 par common stock. The following amounts were distributed as dividends:Year 1$10,000Year 245,000Year 390,000​Determine the dividends per share for preferred and common stock for the second year.

Accepted Answer

In Year 1, preferred dividends should be $40,000 (20,000 shares x $100 x 2%), but only $10,000 was paid, leaving $30,000 in arrears. In Year 2, $45,000 was distributed. First, the $30,000 arrears is paid, leaving $15,000 for Year 2 preferred dividends. Thus, preferred dividends per share for Year 2 is $0.75 ($15,000/20,000 shares). Common stock receives no dividends in Year 2.

Question 18

Which of the following statements is not true about a 2-for-1 split?

Accepted Answer

Total contributed capital remains unchanged in a stock split. A 2-for-1 split doubles the number of shares but does not affect the total contributed capital; it merely divides the existing capital into more shares, reducing the par value per share and potentially the market price per share, while doubling the number of shares owned by each shareholder.

Question 19

A corporation has 50,000 shares of $25 par stock outstanding. If the corporation issues a 3-for-1 stock split, the number of shares outstanding after the split will be

Accepted Answer

In a 3-for-1 stock split, each share is split into 3 shares, so the number of shares outstanding will be multiplied by 3. Therefore, 50,000 shares will become 150,000 shares after the split.

Question 20

Which of the following is not a reason for a corporation to buy back its own stock?

Accepted Answer

Buying back its own stock would decrease the shares outstanding, not increase them.

Quiz 13: Corporations: Organization, Stock Transactions, and Dividends

Sabas Company has 20,000 shares of $100 par, 2% cumulative preferred stock and 100,000 shares of $50 par common stock. The following amounts were distributed as dividends:Year 1$10,000Year 245,000Year 390,000Determine the dividends per share for preferred and common stock for the third year.

A corporation has 50,000 shares of $25 par stock outstanding that has a current market value of $150 per share. If the corporation issues a 5-for-1 stock split, the market value of the stock after the split will be approximately

A reduction of par or stated value of stock results from a

When a corporation completes a 3-for-1 stock split,

Nevada Corporation has 30,000 shares of $25 par stock outstanding that has a current market value of $120. If the corporation issues a 5-for-1 stock split, the number of shares outstanding will be

Sabas Company has 20,000 shares of $100 par, 2% cumulative preferred stock and 100,000 shares of $50 par common stock. The following amounts were distributed as dividends:Year 1$10,000Year 245,000Year 390,000Determine the dividends per share for preferred and common stock for the second year.

A company with 100,000 authorized shares of $4 par common stock issued 50,000 shares at $9. Subsequently, the company declared a 2% stock dividend on a date when the market price was $10 per share. The effect of the declaration and issuance of the stock dividend is to

The primary purpose of a stock split is to

A corporation has 50,000 shares of $25 par stock outstanding that has a current market value of $120. If the corporation issues a 5-for-1 stock split, the par value of the stock after the split will be

Treasury stock shares are

A corporation has 50,000 shares of $28 par stock outstanding that has a current market value of $150 per share. If the corporation issues a 4-for-1 stock split, the market value of the stock will fall to approximately

How is treasury stock shown on the balance sheet?

When a stock dividend is declared, which of the following accounts is credited?

Sabas Company has 20,000 shares of $100 par, 2% cumulative preferred stock and 100,000 shares of $50 par common stock. The following amounts were distributed as dividends:Year 1$10,000Year 245,000Year 390,000Determine the dividends per share for preferred and common stock for the second year.

Which of the following statements is not true about a 2-for-1 split?

A corporation has 50,000 shares of $25 par stock outstanding. If the corporation issues a 3-for-1 stock split, the number of shares outstanding after the split will be

Which of the following is not a reason for a corporation to buy back its own stock?

Quiz 13: Corporations: Organization, Stock Transactions, and Dividends

Sabas Company has 20,000 shares of $100 par, 2% cumulative preferred stock and 100,000 shares of $50 par common stock. The following amounts were distributed as dividends:Year 1$10,000Year 245,000Year 390,000​Determine the dividends per share for preferred and common stock for the third year.

A corporation has 50,000 shares of $25 par stock outstanding that has a current market value of $150 per share. If the corporation issues a 5-for-1 stock split, the market value of the stock after the split will be approximately

A reduction of par or stated value of stock results from a

When a corporation completes a 3-for-1 stock split,

Nevada Corporation has 30,000 shares of $25 par stock outstanding that has a current market value of $120. If the corporation issues a 5-for-1 stock split, the number of shares outstanding will be

Sabas Company has 20,000 shares of $100 par, 2% cumulative preferred stock and 100,000 shares of $50 par common stock. The following amounts were distributed as dividends:Year 1$10,000Year 245,000Year 390,000​Determine the dividends per share for preferred and common stock for the second year.

A company with 100,000 authorized shares of $4 par common stock issued 50,000 shares at $9. Subsequently, the company declared a 2% stock dividend on a date when the market price was $10 per share. The effect of the declaration and issuance of the stock dividend is to

The primary purpose of a stock split is to

A corporation has 50,000 shares of $25 par stock outstanding that has a current market value of $120. If the corporation issues a 5-for-1 stock split, the par value of the stock after the split will be

Treasury stock shares are

A corporation has 50,000 shares of $28 par stock outstanding that has a current market value of $150 per share. If the corporation issues a 4-for-1 stock split, the market value of the stock will fall to approximately

How is treasury stock shown on the balance sheet?

When a stock dividend is declared, which of the following accounts is credited?

Sabas Company has 20,000 shares of $100 par, 2% cumulative preferred stock and 100,000 shares of $50 par common stock. The following amounts were distributed as dividends:Year 1$10,000Year 245,000Year 390,000​Determine the dividends per share for preferred and common stock for the second year.

Which of the following statements is not true about a 2-for-1 split?

A corporation has 50,000 shares of $25 par stock outstanding. If the corporation issues a 3-for-1 stock split, the number of shares outstanding after the split will be

Which of the following is not a reason for a corporation to buy back its own stock?

Sabas Company has 20,000 shares of $100 par, 2% cumulative preferred stock and 100,000 shares of $50 par common stock. The following amounts were distributed as dividends:Year 1$10,000Year 245,000Year 390,000Determine the dividends per share for preferred and common stock for the third year.

Sabas Company has 20,000 shares of $100 par, 2% cumulative preferred stock and 100,000 shares of $50 par common stock. The following amounts were distributed as dividends:Year 1$10,000Year 245,000Year 390,000Determine the dividends per share for preferred and common stock for the second year.

Sabas Company has 20,000 shares of $100 par, 2% cumulative preferred stock and 100,000 shares of $50 par common stock. The following amounts were distributed as dividends:Year 1$10,000Year 245,000Year 390,000Determine the dividends per share for preferred and common stock for the second year.